**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**





**Washington,
      D.C. 20549**


**____________________**





**FORM
      10-K**


**____________________**





(Mark
      One)


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


**For
      the fiscal year ended** **September
      30, 2006**


**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 Identification No.)incorporation
                or organization)4845
                US Hwy 271 NorthPittsburg,
                Texas
            75686-0093(Address
                of principal executive offices)
            (Zip
                code)Registrant’s
                telephone number, including area code:**(903)
                434-1000**





Securities
                registered pursuant to Section 12(b) of the Act:**Title
                of each class**
            **Name
                of each exchange on which registered**Common
                Stock, Par Value $0.01
            New
                York Stock ExchangeSecurities
                registered pursuant to Section 12(g) of the Act:
                None






PILGRIM’S
              PRIDE CORPORATION
 September
              30, 2006


Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. Yes x No  ̈
 
 Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Exchange Act. Yes  ̈ No x
 
 Indicate
        by check mark whether the Registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the Registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No  ̈
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of Registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. x
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer” and “large accelerated filer” in Rule 12B-2 of the Exchange
        Act.
 
 Large
        Accelerated Filer x Accelerated Filer o Non-accelerated Filer o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No x
 
 The
        aggregate market value of the Registrant’s Common Stock, $0.01 par value, held
        by non-affiliates of the Registrant as of March 31, 2006, was $875,604,262.
        For
        purposes of the foregoing calculation only, all directors, executive officers
        and 5% beneficial owners have been deemed affiliates.
 
 Number
        of
        shares of the Registrant’s Common Stock outstanding as of November 14, 2006, was
        66,555,733.
 
 DOCUMENTS
        INCORPORATED BY REFERENCE
 
 Portions
        of the Registrant’s proxy statement for the annual meeting of stockholders to be
        held January 31, 2007 are incorporated by reference into Part III.
 2
 Pilgrim's
              Pride Corporation
 September
              30, 2006




PART IPageItem 1.
              Business
              4Item 1A.
              Risk Factors
              24Item 1B.
              Unresolved Staff Comments
              32Item 2.
              Properties
              32Item 3.
              Legal Proceedings
              33Item 4.
              Submission of Matters to a Vote of Security
                  Holders
              35PART IIItem 5.
              Market for Registrant’s Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities
              36Item 6.
              Selected Financial Data
              37Item 7.
              Management’s Discussion and Analysis of Financial
                  Condition and Resultsof Operations
              40Item 7A.
              Quantitative and Qualitative Disclosures about
                  Market
                  Risk
              58Item 8.
              Financial Statements and Supplementary Data (see
                  Index to
                  Financial Statements andSchedules below)
              59Item 9.
              Changes in and Disagreements with Accountants
                  on
                  Accounting and FinancialDisclosure
              60Item 9A.
              Controls and Procedures
              60Item 9B.
              Other Information
              64PART IIIItem 10.
              Directors and Executive Officers of the
                  Registrant
              64Item 11.
              Executive Compensation
              64Item 12.
              Security Ownership of Certain Beneficial Owners
                  and
                  Management and RelatedStockholder Matters
              64Item 13.
              Certain Relationships and Related Transactions
              64Item 14.
              Principal Accountant Fees and Services
              65PART IVItem 15.
              Exhibits and Financial Statement Schedules
              65Signatures
              
              73INDEX TO FINANCIAL STATEMENTS AND SCHEDULESReport of Independent Registered Public Accounting
                  Firm
              76Consolidated Balance Sheets as of September 30,
                  2006 and
                  October 1, 2005
              77Consolidated Statements of Income (Loss) for each
                  of the
                  three years ended September 30, 2006
              78Consolidated Statements of Stockholders’ Equity for each
                  of the three years ended September 30, 2006
              79Consolidated Statements of Cash Flows for each
                  of the
                  three years ended September 30, 2006
              80Notes to Consolidated Financial Statements
              81Schedule II - Valuation and Qualifying Accounts
                  for each
                  of the three years ended September 30, 2006
              102




3
 Pilgrim's
            Pride Corporation
 September
            30, 2006


PART I




Item 1. Business






(a) General Development of Business






Overview












Recent Business Acquisition Activities












1 4


4
 Pilgrim's
            Pride Corporation
 September
            30, 2006
























5
 Pilgrim's
            Pride Corporation
 September
            30, 2006
























6
 Pilgrim's
            Pride Corporation
 September
            30, 2006




























Strategy








7


Capitalize
        on significant scale
        with leading industry position and brand recognition.
  - **Capitalize on attractive U.S. prepared foods market.**We focus our
        U.S. growth initiatives on sales of prepared foods to the foodservice market
        because it continues to be one of the fastest growing and most profitable
        segments in the poultry industry. Products sold to this market segment require
        further processing, which enables us to charge a premium for our products,
        reducing the impact of feed ingredient costs on our profitability and improving
        and stabilizing our profit margins. Feed ingredient costs typically decrease
        from approximately 31%-49% of total production cost for fresh chicken products
        to approximately 16%-25% for prepared chicken products. Due to increased
        demand
        from our customers and our fiscal 2004 acquisition, our sales of prepared
        chicken products grew from $848.7 million in fiscal 2002 to $1,940.1 million
        in
        fiscal 2006, a compounded annual growth rate of 23%. Prepared foods sales
        represented 47.3% of our total U.S. chicken revenues in fiscal year 2006,
        which
        we believe provides us with a significant competitive advantage and reduces
        our
        exposure to feed price fluctuations. The addition of well-known brands,
        including Pierce® and Easy-Entree®, from our fiscal 2004
        acquisition significantly expanded Pilgrim’s Pride’s already sizeable prepared
        foods chicken offerings. Similarly, our acquisition of highly customized
        cooked
        chicken products, including breaded cutlets, sizzle strips and
        Wing-Dings®, for restaurants and specialty foodservice customers from
        this acquisition complemented our existing lines of pre-cooked breast fillets,
        tenderloins, burgers, nuggets, salads and other prepared products for
        institutional foodservice, fast-food and retail customers.
  - **Emphasize customer-driven research and technology.**We have a
        long-standing reputation for customer-driven research and development in
        designing new products and implementing advanced processing technology. This
        enables us to better meet our customers’ changing needs for product innovation,
        consistent quality and cost efficiency. In particular, customer-driven research
        and development is integral to our growth strategy for the prepared foods
        market
        in which customers continue to place greater importance on value-added services.
        Our research and development personnel often work directly with customers
        in
        developing products for them, which we believe helps promote
        long-term relationships.
  -   
        **Enhance U.S. fresh chicken profitability through value-added,
        branded
        products.**OurU.S. fresh chicken sales accounted for $1,885.0
        million, or 46.0%, of our U.S. chicken sales for fiscal 2006. In addition
        to
        maintaining the sales of traditional fresh chicken products, our strategy
        is to
        shift the mix of our U.S. fresh chicken products by continuing to increase
        sales
        of higher margin, faster growing products, such as fixed weight packaged
        products and marinated chicken and chicken parts, and to continually shift
        portions of this product mix into the higher value and margin prepared chicken
        products. Much of our fresh chicken products are sold under the Pilgrim’s
        Pride® brand name, which is a well-known brand in the chicken
        industry.
 8
 Pilgrim's
              Pride Corporation
 September
              30, 2006
 
 -   
*Improve
        operating efficiencies and
        increase capacity on a cost-effective basis.*
             Continue
        to seek strategic
        acquisitions.
  Continue
        to penetrate the growing
        Mexican market.
        *- **Capitalize on export opportunities.***We
        intend
        to continue to focus on international opportunities to complement our U.S.
        chicken operations and capitalize on attractive export markets. Although
        according to the USDA, the export of U.S. chicken products decreased 6.3%
        from
        2001 through 2005, we believe U.S. chicken exports will grow as worldwide
        demand
        increases for high-grade, low-cost meat protein sources. According to USDA
        data,
        the export market for chicken is expected to grow at a compounded annual
        growth
        rate of 2.9% from 2005 to 2010 and 5.1% from 2005 to 2006 alone. Historically,
        we have targeted international markets to generate additional demand for
        our
        dark chicken meat, which is a natural by-product of our U.S. operations given
        our concentration on prepared foods products and the U.S. customers’ general
        preference for white chicken meat. As part of this initiative, we have created
        a
        significant international distribution network into several markets, including
        Mexico, which we now utilize not only for dark chicken meat distribution,
        but
        also for various higher margin prepared foods and other poultry products.
        We
        employ both a direct international sales force and export brokers. Our key
        international markets include Eastern Europe, including Russia; the Far East;
        and Mexico. We believe that we have substantial opportunities to expand our
        sales to these markets by capitalizing on direct international distribution
        channels supplemented by our existing export broker relationships. Our export
        sales accounted for approximately 7.9% and 21.2% of our U.S. chicken sales
        and
        pounds, respectively, for fiscal 2006.
 9
 Pilgrim's
              Pride Corporation
 September
              30, 2006


**Financial Information About Segments**






c.  
      Narrative Description of Business




Products
      and Markets




10


















11
 Pilgrim's
            Pride Corporation
 September
            30, 2006
 *Fiscal
                    Year Ended*Sept.
                    30, 2006
                
                Oct.
                    1, 2005
                
                Oct.
                    2, 2004(a)
                
                Sept.
                    27, 2003
                
                Sept.
                    28, 2002*(52
                    weeks)*
                
                *(52
                    weeks)*
                
                *(53
                    weeks)*
                
                *(52
                    weeks)*
                
                *(52
                    weeks)***U.S.
                    Chicken Sales:**
                
                *(in
                    thousands)*Prepared
                    Foods:Foodservice
                
                $
                1,567,297
                
                $
                1,622,901
                
                $
                1,647,904
                
                $
                731,331
                
                $
                659,856Retail
                
                
                308,486
                
                
                283,392
                
                
                213,775
                
                
                163,018
                
                
                158,299Total
                    Prepared Foods
                
                
                1,875,783
                
                
                1,906,293
                
                
                1,861,679
                
                
                894,349
                
                
                818,155Fresh
                    Chicken:Foodservice
                
                
                1,388,451
                
                
                1,509,189
                
                
                1,328,883
                
                
                474,251
                
                
                448,376Retail
                
                
                496,560
                
                
                612,081
                
                
                653,798
                
                
                257,911
                
                
                258,424Total
                    Fresh Chicken
                
                
                1,885,011
                
                
                2,121,270
                
                
                1,982,681
                
                
                732,162
                
                
                706,800Export
                    and Other:Export:Prepared
                    Foods
                
                
                64,338
                
                
                59,473
                
                
                34,735
                
                
                26,714
                
                
                30,528Chicken
                
                
                257,823
                
                
                303,150
                
                
                212,611
                
                
                85,087
                
                
                93,575Total
                    Export(b)
                
                
                322,161
                
                
                362,623
                
                
                247,346
                
                
                111,801
                
                
                124,103Other
                    Chicken By-Products
                
                
                15,448
                
                
                21,083
                
                
                (b
                )
                
                (b
                )
                
                (b
                )Total
                    Export and Other
                
                
                337,609
                
                
                383,706
                
                
                247,346
                
                
                111,801
                
                
                124,103Total
                    U.S. Chicken
                
                
                4,098,403
                
                
                4,411,269
                
                
                4,091,706
                
                
                1,738,312
                
                
                1,649,058**Mexico
                    Chicken Sales:**
                
                
                418,745
                
                
                403,353
                
                
                362,442
                
                
                349,305
                
                
                323,769Total
                    Chicken Sales
                
                
                4,517,148
                
                
                4,814,622
                
                
                4,454,148
                
                
                2,087,617
                
                
                1,972,827**U.S.
                    Turkey Sales:**Foodservice
                
                
                30,269
                
                
                73,908
                
                
                120,676
                
                
                138,405
                
                
                170,770Retail
                
                
                96,968
                
                
                125,741
                
                
                154,289
                
                
                154,552
                
                
                162,220127,237
                
                
                199,649
                
                
                274,965
                
                
                292,957
                
                
                332,990Export
                    and Other(b)
                
                
                3,664
                
                
                5,189
                
                
                11,287
                
                
                12,721
                
                
                15,128Total
                    U.S. Turkey Sales
                
                
                130,901
                
                
                204,838
                
                
                286,252
                
                
                305,678
                
                
                348,118**Other
                    Products:**United
                    States
                
                
                570,510
                
                
                626,056
                
                
                600,091
                
                
                207,284
                
                
                193,691Mexico
                
                
                17,006
                
                
                20,759
                
                
                23,232
                
                
                18,766
                
                
                19,082Total
                    Other Products
                
                
                587,516
                
                
                646,815
                
                
                623,323
                
                
                226,050
                
                
                212,773Total
                    Net Sales
                
                $
                5,235,565
                
                $
                5,666,275
                
                $
                5,363,723
                
                $
                2,619,345
                
                $
                2,533,718Total
                    Chicken Prepared Foods
                
                $
                1,940,121
                
                $
                1,965,766
                
                $
                1,896,414
                
                $
                921,063
                
                $
                848,683
 (a)
          The
          fiscal 2004 acquisition on November 23, 2003 has been accounted for as
          a
          purchase, and the results of operations for this acquisition have been
          included
          in our consolidated results of operations since the acquisition
          date.
  (b)
          The
          Export and Other category was historically included the sales of certain
          chicken
          and turkey by-products sold in international markets as well as the export
          of
          chicken and turkey products. Prior to fiscal 2005, by-product sales were
          not
          specifically identifiable from the Export and Other category. Accordingly,
          a
          detail breakout is not available prior to such time; however, the Company
          believes that the relative split between these categories as shown in fiscal
          2005 would not be dissimilar in the prior fiscal periods. Export items
          include
          certain poultry parts that have greater value in some overseas markets
          than in
          the U.S.
 12
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 The
          following table sets forth, beginning with fiscal 2002, the percentage
          of net
          U.S. chicken and turkey sales attributable to each of our primary product
          lines
          and the markets serviced with those products. We based the table and related
          discussion on our internal sales reports and their classification of product
          types and customers.
 
 *Fiscal
                    Year Ended*Sept.
                    30, 2006
                
                Oct.
                    1, 2005
                
                Oct.
                    2, 2004(a)
                
                Sept.
                    27, 2003
                
                Sept.
                    28, 2002**U.S.
                    Chicken Sales:**Prepared
                    Foods:Foodservice
                
                
                38.2
                
                
                36.8
                
                
                40.3
                
                
                42.1
                
                
                39.9Retail
                
                
                7.5
                
                
                6.4
                
                
                5.2
                
                
                9.4
                
                
                9.6Total
                    Prepared Foods
                
                
                45.7
                %
                
                43.2
                %
                
                45.5
                %
                
                51.5
                %
                
                49.5
                %Fresh
                    Chicken:Foodservice
                
                
                33.9
                
                
                34.2
                
                
                32.5
                
                
                27.3
                
                
                27.2Retail
                
                
                12.1
                
                
                13.9
                
                
                16.0
                
                
                14.8
                
                
                15.7Total
                    Fresh Chicken
                
                
                46.0
                %
                
                48.1
                %
                
                48.5
                %
                
                42.1
                %
                
                42.9
                %Export
                    and Other:Export:Prepared
                    Foods
                
                
                1.6
                
                
                1.3
                
                
                0.8
                
                
                1.5
                
                
                1.9Chicken
                
                
                6.3
                
                
                6.9
                
                
                5.2
                
                
                4.9
                
                
                5.7Total
                    Export(b)
                
                
                7.9
                
                
                8.2
                
                
                6.0
                
                
                6.4
                
                
                7.6Other
                    Chicken By-Products
                
                
                0.4
                
                
                0.5
                
                
                (b
                )
                
                (b
                )
                
                (b
                )Total
                    Export and Other
                
                
                8.3
                %
                
                8.7
                %
                
                6.0
                %
                
                6.4
                %
                
                7.6
                %Total
                    U.S. Chicken
                
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %Total
                    Chicken Prepared Foods as a percentage of U.S. Chicken
                
                
                47.3
                %
                
                44.5
                %
                
                46.3
                %
                
                53.0
                %
                
                51.4
                %**U.S.
                    Turkey Sales:**Foodservice
                
                
                23.1
                
                
                36.0
                
                
                42.1
                
                
                45.3
                
                
                49.1Retail
                
                
                74.1
                
                
                61.4
                
                
                53.9
                
                
                50.5
                
                
                46.697.2
                %
                
                97.4
                %
                
                96.0
                %
                
                95.8
                %
                
                95.7
                %Export
                    and Other(b)
                
                
                2.8
                
                
                2.6
                
                
                4.0
                
                
                4.2
                
                
                4.3Total
                    U.S. Turkey
                
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %
 
 (a)
          The
          fiscal 2004 acquisition on November 23, 2003 has been accounted for as
          a
          purchase, and the results of operations for this acquisition have been
          included
          in our consolidated results of operations since the acquisition
          date.
 
 (b)
          The
          Export and Other category was historically included the sales of certain
          chicken
          and turkey by-products sold in international markets as well as the export
          of
          chicken and turkey products. Prior to fiscal 2005, by-product sales were
          not
          specifically identifiable from the Export and Other category. Accordingly,
          a
          detail breakout is not available prior to such time; however, the Company
          believes that the relative split between these categories as shown in fiscal
          2005 would not be dissimilar in the prior fiscal periods. Export items
          include
          certain poultry parts that have greater value in some overseas markets
          than in
          the U.S.
  13
 Pilgrim's
              Pride Corporation
 September
              30, 2006
 **UNITED
          STATES**
 
 **Product
          Types**
 
 *Chicken
          Products*
 
 ***Prepared
          Foods Overview.*** During fiscal 2006, $1,875.8 million, or 45.7%, of
          our U.S. chicken sales were in prepared foods products to foodservice customers
          and retail distributors, as compared to $818.2 million in fiscal 2002.
          These
          numbers reflect the strategic focus for our growth and our fiscal 2004
          acquisition. The market for prepared chicken products has experienced,
          and we
          believe will continue to experience, greater growth, higher average sales
          prices
          and higher margins than fresh chicken products. Also, the production and
          sale in
          the U.S. of prepared foods products reduce the impact of the costs of feed
          ingredients on our profitability. Feed ingredient costs are the single
          largest
          component of our total U.S. cost of sales, representing approximately 26%
          of our
          U.S. cost of sales for the fiscal year ended September 30, 2006. The production
          of feed ingredients is positively or negatively affected primarily by weather
          patterns throughout the world, the global level of supply inventories,
          demand
          for feed ingredients and the agricultural policies of the U.S. and foreign
          governments. As further processing is performed, feed ingredient costs
          become a
          decreasing percentage of a product’s total production cost, thereby reducing
          their impact on our profitability. Products sold in this form enable us
          to
          charge a premium, reduce the impact of feed ingredient costs on our
          profitability and improve and stabilize our profit margins.
 
 We
          establish prices for our prepared chicken products based primarily upon
          perceived value to the customer, production costs and prices of competing
          products. The majority of these products are sold pursuant to agreements
          with
          varying terms that either set a fixed price for the products or set a price
          according to formulas based on an underlying commodity market, subject
          in many
          cases to minimum and maximum prices.
 
 ***Fresh
          Chicken Overview.*** Our fresh chicken business is an important
          component of our sales and accounted for $1,885.0 million, or 46.0%, of
          our
          total U.S. chicken sales for fiscal 2006. In addition to maintaining sales
          of
          mature, traditional fresh chicken products, our strategy is to shift the
          mix of
          our U.S. fresh chicken products by continuing to increase sales of higher
          margin, faster growing products, such as marinated chicken and chicken
          parts,
          and to continually shift portions of this product mix into the higher value
          and
          margin prepared foods category.
 
 Most
          fresh chicken products are sold to established customers, based upon certain
          weekly or monthly market prices reported by the USDA and other public price
          reporting services, plus a markup, which is dependent upon the customer’s
          location, volume, product specifications and other factors. We believe
          our
          practices with respect to sales of fresh chicken are generally consistent
          with
          those of our competitors. The majority of these products are sold pursuant
          to
          agreements with varying terms that either set a fixed price for the products
          or
          set a price according to formulas based on an underlying commodity market,
          subject in many cases to minimum and maximum prices.
 
 ***Export
          and Other Chicken Products Overview.*** Our export and other products
          consist of whole chickens and chicken parts sold primarily in bulk, non-branded
          form, either refrigerated to distributors in the U.S. or frozen for distribution
          to export markets, and branded and non-branded prepared foods products
          for
          distribution to export markets. In fiscal 2006, approximately $337.6 million,
          or
          8.3%, of our total U.S. chicken sales were attributable to U.S. chicken
          export
          and other products. These exports and other products, other than the prepared
          foods products, have historically been characterized by lower prices and
          greater
          price volatility than our more value-added product lines.
 14
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Turkey
          Products*
 
 ***Turkey
          Overview.***Our turkey business accounted for $127.2 million of
          sales in fiscal 2006. As is typical for the industry, a significant portion
          of
          the sales of fresh and frozen whole turkeys is seasonal in nature, with
          the
          height of sales occurring during the Thanksgiving and Christmas holidays.
 
 Most
          turkey products are sold to established customers pursuant to agreements
          with
          varying terms that either set a fixed price or are subject to a market
          driven
          formula with some agreements based upon market prices reported by the USDA
          and
          other public price reporting services, plus a markup, subject in many cases
          to
          minimum and maximum prices. This is dependent upon the customer’s location,
          volume, product specifications and other factors. We believe our practices
          with
          respect to sales of fresh turkey are generally consistent with those of
          our
          competitors with similar programs.
 
 **Markets
          for Chicken Products**
 
 ***Foodservice.***
          The majority of our U.S. chicken sales are derived from products sold to
          the
          foodservice market. This market principally consists of chain restaurants,
          food
          processors, broad-line distributors and certain other institutions located
          throughout the continental U.S. We supply chicken products ranging from
          portion-controlled refrigerated chicken parts to fully cooked and frozen,
          breaded or non-breaded chicken parts or formed products.
 
 We
          believe the Company is well-positioned to be the primary or secondary supplier
          to many national and international chain restaurants who require multiple
          suppliers of chicken products. Additionally, we believe we are well suited
          to be
          the sole supplier for many regional chain restaurants. Regional chain
          restaurants often offer better margin opportunities and a growing base
          of
          business.
 
 We
          believe we have significant competitive strengths in terms of full-line
          product
          capabilities, high-volume production capacities, research and development
          expertise and extensive distribution and marketing experience relative
          to
          smaller and non-vertically integrated producers. While the overall chicken
          market has grown consistently, we believe the majority of this growth in
          recent
          years has been in the foodservice market. According to the National Chicken
          Council, from 2001 through 2005, sales of chicken products to the foodservice
          market grew at a compounded annual growth rate of approximately 7.0%, versus
          5.5% growth for the chicken industry overall. Foodservice growth is anticipated
          to continue as food-away-from-home expenditures continue to outpace overall
          industry rates. According to the National Restaurant Association,
          food-away-from-home expenditures grew at a compounded annual growth rate
          of
          approximately 5.2% from 2001 through 2005 and are projected to grow at
          a 3.5%
          compounded annual growth rate from 2005 through 2010. As a result, the
          food-away-from-home category is projected by the National Restaurant Association
          to account for 53% of total food expenditures by 2010, as compared with
          the
          current amount of 47.5%. Due to internal growth and our fiscal 2004 acquisition,
          our sales to the foodservice market from fiscal 2002 through fiscal 2006
          grew at
          a compounded annual growth rate of 27.8% and represented 72.1% of the net
          sales
          of our U.S. chicken operations in fiscal 2006.
 15
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Foodservice
          - Prepared Foods.*The majority of our sales to the foodservice market
          consist of prepared foods products. Our prepared chicken products sales
          to the
          foodservice market were $1,567.3 million in fiscal 2006 compared to $659.9
          million in fiscal 2002, a compounded annual growth rate of approximately
          24.1%.
          In addition to the significant increase in sales created by the fiscal
          2004
          acquisition, we attribute this growth in sales of prepared chicken products
          to
          the foodservice market to a number of factors:
 
 *First,*
          there has been significant growth in the number of foodservice operators
          offering chicken on their menus and in the number of chicken items
          offered.
 
 *Second,*
          foodservice operators are increasingly purchasing prepared chicken products,
          which allow them to reduce labor costs while providing greater product
          consistency, quality and variety across all restaurant locations.
 
 *Third,*
          there is a strong need among larger foodservice companies for an alternative
          or
          additional supplier to our principal competitor in the prepared chicken
          products
          market. A viable alternative supplier must be able to ensure supply, demonstrate
          innovation and new product development and provide competitive pricing.
          We have
          been successful in our objective of becoming the alternative supplier of
          choice
          by being the primary or secondary prepared chicken products supplier to
          many
          large foodservice companies because:
 
 -
          We are
          vertically integrated, giving us control over our supply of chicken and
          chicken
          parts;
 
 -
          Our
          further processing facilities, with a wide range of capabilities, are
          particularly well suited to the high-volume production as well as low-volume
          custom production runs necessary to meet both the capacity and quality
          requirements of the foodservice market; and
 
 -
          We have
          established a reputation for dependable quality, highly responsive service
          and
          excellent technical support.
 
 *Fourth,*
          as a result of the experience and reputation developed with larger customers,
          we
          have increasingly become the principal supplier to mid-sized foodservice
          organizations.
 
 *Fifth,*
          our in-house product development group follows a customer-driven research
          and
          development focus designed to develop new products to meet customers’ changing
          needs. Our research and development personnel often work directly with
          institutional customers in developing products for these customers.
 
 *Sixth*,
          we are a leader in utilizing advanced processing technology, which enables
          us to
          better meet our customers’ needs for product innovation, consistent quality and
          cost efficiency.
 
 *Foodservice
          - Fresh Chicken.* We produce and market fresh, refrigerated chicken for sale
          to U.S. quick-service restaurant chains, delicatessens and other customers.
          These chickens have the giblets removed, are usually of specific weight
          ranges
          and are usually pre-cut to customer specifications. They are often marinated
          to
          enhance value and product differentiation. By growing and processing to
          customers’ specifications, we are able to assist quick-service restaurant chains
          in controlling costs and maintaining quality and size consistency of chicken
          pieces sold to the consumer.
 16
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 ***Retail.***
          The retail market consists primarily of grocery store chains, wholesale
          clubs
          and other retail distributors. We concentrate our efforts in this market
          on
          sales of branded, prepackaged cut-up and whole chicken to grocery store
          chains
          and retail distributors. For a number of years, we have invested in both
          trade
          and retail marketing designed to establish high levels of brand name awareness
          and consumer preferences.
 
 We
          utilize numerous marketing techniques, including advertising, to develop
          and
          strengthen trade and consumer awareness and increase brand loyalty for
          consumer
          products marketed under the Pilgrim’s Pride® brand. Our founder,
          Lonnie “Bo” Pilgrim, is the featured spokesperson in our television, radio and
          print advertising, and a trademark cameo of a person wearing a Pilgrim’s hat
          serves as the logo on all of our primary branded products. As a result
          of this
          marketing strategy, Pilgrim’s Pride® is a well-known brand name in a
          number of markets. We believe our efforts to achieve and maintain brand
          awareness and loyalty help to provide more secure distribution for our
          products.
          We also believe our efforts at brand awareness generate greater price premiums
          than would otherwise be the case in certain markets. We also maintain an
          active
          program to identify consumer preferences. The program primarily consists
          of
          discovering and validating new product ideas, packaging designs and methods
          through sophisticated qualitative and quantitative consumer research techniques
          in key geographic markets.
 
 *Retail
          - Prepared Foods.* We sell retail-oriented prepared chicken products
          primarily to grocery store chains located throughout the U.S. Our prepared
          chicken products sales to the retail market were $308.5 million in fiscal
          2006
          compared to $158.3 million in fiscal 2002, a compounded annual growth rate
          of
          approximately 18.2%. We believe that our growth in this market segment
          will
          continue as retailers concentrate on satisfying consumer demand for more
          products that are quick, easy and convenient to prepare at home.
 
 *Retail
          - Fresh Chicken.* Our prepackaged retail products include various
          combinations of freshly refrigerated, whole chickens and chicken parts
          in trays,
          bags or other consumer packs labeled and priced ready for the retail grocer’s
          fresh meat counter. Our retail fresh chicken products are sold in the
          midwestern, southwestern, southeastern and western regions of the U.S.
          Our fresh
          chicken sales to the retail market were $496.6 million in fiscal 2006 compared
          to $258.4 million in fiscal 2002, a compounded annual growth rate of
          approximately 17.7% resulting primarily from our fiscal 2004 acquisition.
          We
          believe the retail prepackaged fresh chicken business will continue to
          be a
          large and relatively stable market, providing opportunities for product
          differentiation and regional brand loyalty.
 
 ***Export
          and Other Chicken Products.*** Our export and other chicken products,
          with the exception of our exported prepared foods products, consist of
          whole
          chickens and chicken parts sold primarily in bulk, non-branded form either
          refrigerated to distributors in the U.S. or frozen for distribution to
          export
          markets. In the U.S., prices of these products are negotiated daily or
          weekly
          and are generally related to market prices quoted by the USDA or other
          public
          price reporting services. We also sell U.S.-produced chicken products for
          export
          to Eastern Europe, including Russia; the Far East; Mexico and other world
          markets.
 
 Historically,
          we have targeted international markets to generate additional demand for
          our
          dark chicken meat, which is a natural by-product of our U.S. operations
          given
          our concentration on prepared foods products and the U.S. customers’ general
          preference for white chicken meat. We have also begun selling prepared
          chicken
          products for export to the international divisions of our U.S. chain restaurant
          customers. We believe that U.S. chicken exports will continue to grow as
          worldwide demand increases for high-grade, low-cost meat protein sources.
          We
          also believe that worldwide demand for higher margin prepared foods products
          will increase over the next several years. Accordingly, we believe we are
          well
          positioned to capitalize on such growth. Also included in these categories
          are
          chicken by-products, which are converted into protein products and sold
          primarily to manufacturers of pet foods.
 17
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Markets
          for Turkey Products**
 
 ***Retail.***Most of our turkey sales are derived from products sold to
          the
          retail market. This market consists primarily of grocery store chains,
          wholesale
          clubs and other retail distributors. We concentrate our efforts in this
          market
          on sales of branded, prepackaged whole turkeys to grocery store chains
          and
          retail distributors in the eastern and southwestern regions of the U.S.
          We
          believe this regional marketing focus enables us to develop consumer brand
          franchises and capitalize on proximity to the trade customer in terms of
          lower
          transportation costs, more timely and responsive service and enhanced product
          freshness.
 
 We
          utilize numerous marketing techniques, including advertising, to develop
          and
          strengthen trade and consumer awareness and increase brand loyalty for
          consumer
          products marketed generally under the Pilgrim’s Pride® and Pilgrim’s
          SignatureTM brands. We believe our efforts to achieve and maintain
          brand awareness and loyalty help to provide more secure distribution for
          our
          products. We also believe our efforts at brand awareness generate greater
          price
          premiums than would otherwise be the case in certain eastern markets. We
          also
          maintain an active program to identify consumer preferences. The program
          primarily consists of testing new product ideas, packaging designs and
          methods
          through sophisticated qualitative and quantitative consumer research techniques
          in key geographic markets.
 
 *Retail
          - Fresh Turkey*. Our prepackaged, retail products include various
          combinations of freshly refrigerated and frozen whole turkeys. We believe
          the
          retail prepackaged fresh turkey business will continue to be a large and
          relatively stable market, providing opportunities for product differentiation
          and regional brand loyalty with large seasonal spikes during the holiday
          seasons.
 
 **Markets
          for Other Products**
 
 We
          have
          regional distribution centers located in Arizona, Florida, Iowa, Mississippi,
          North Carolina, Texas and Utah that are primarily focused on distributing
          our
          own chicken products; however, the distribution centers also distribute
          certain
          poultry and non-poultry products purchased from third parties to independent
          grocers and quick service restaurants. Our non-chicken distribution business
          is
          conducted as an accommodation to our customers and to achieve greater economies
          of scale in distribution logistics. Poultry sales from our regional distribution
          centers are included in the chicken and turkey sales amounts contained
          in the
          above tables; however, all non-poultry sales amounts are contained in the
          Other
          Products. We believe the store-door delivery capabilities for our own poultry
          products provide a strategic service advantage in selling to quick service,
          national chain restaurants.
 
 We
          market
          fresh eggs under the Pilgrim’s Pride® brand name, as well as under
          private labels, in various sizes of cartons and flats to U.S. retail grocery
          and
          institutional foodservice customers located primarily in Texas. We have
          a
          housing capacity for approximately 2.1 million commercial egg laying hens
          which
          can produce approximately 42 million dozen eggs annually. U.S. egg prices
          are
          determined weekly based upon reported market prices. The U.S. egg industry
          has
          been consolidating over the last few years, with the 25 largest producers
          accounting for more than 65.1% of the total number of egg laying hens in
          service
          during 2006.
 18
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 We
          compete with other U.S. egg producers primarily on the basis of product
          quality,
          reliability, price and customer service.
 
 We
          market
          a high-nutrient egg called EggsPlusTM. This egg contains high levels of Omega-3
          and Omega-6 fatty acids along with Vitamin E, making the egg a heart-friendly
          product. Our marketing of EggsPlusTM has received national recognition for our
          progress in being an innovator in the “functional foods” category.
 
 In
          addition, we produce and sell livestock feeds at our feed mill in Mt. Pleasant,
          Texas and at our farm supply store in Pittsburg, Texas to dairy farmers
          and
          livestock producers in northeastern Texas. We engage in similar sales activities
          at our other U.S. feed mills.
 19
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 MEXICO
 
 Background
 
  
 Product
          Types
 
  
 Markets
 
 
 
 Foreign
          Operations Risks
 
   20
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  GENERAL
 
 Competitive
          Conditions
 
  
  
  
  21
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 We
              are
              not a significant competitor in the distribution business as it relates
              to
              products other than chicken. We distribute these products solely as
              a
              convenience to our chicken customers. The broad-line distributors do
              not
              consider us to be a factor in those markets. The competition related
              to our
              other products such as table eggs, feed and protein are much more regionalized
              and no one competitor is dominant.
 
 **Key
              Customers**
 
 Our
              two
              largest customers accounted for approximately 17% of our net sales
              in fiscal
              2006, and our largest customer, Wal-Mart Stores Inc., accounted for
              12% of our
              net sales.
 
 **Regulation
              and Environmental Matters**
 
 The
              chicken and turkey industries are subject to government regulation,
              particularly
              in the health and environmental areas, including provisions relating
              to the
              discharge of materials into the environment, by the Centers for Disease
              Control,
              the USDA, the Food and Drug Administration (“FDA”) and the Environmental
              Protection Agency (“EPA”) in the U.S. and by similar governmental agencies in
              Mexico. Our chicken processing facilities in the U.S. are subject to
              on-site
              examination, inspection and regulation by the USDA. The FDA inspects
              the
              production of our feed mills in the U.S. Our Mexican food processing
              facilities
              and feed mills are subject to on-site examination, inspection and regulation
              by
              a Mexican governmental agency, which performs functions similar to
              those
              performed by the USDA and FDA. We believe that we are in substantial
              compliance
              with all applicable laws and regulations relating to the operations
              of our
              facilities.
 
 We
              anticipate increased regulation by the USDA concerning food safety,
              by the FDA
              concerning the use of medications in feed and by the EPA and various
              other state
              agencies concerning discharges to the environment. Although we do not
              anticipate
              any regulations having a material adverse effect upon us, a material
              adverse
              effect may occur.
 
 **Employees
              and Labor Relations**
 
 As
              of
              September 30, 2006, we employed approximately 34,600 persons in the
              U.S. and
              5,300 persons in Mexico. Approximately 13,300 employees at various
              facilities in
              the U.S. are members of collective bargaining units. In Mexico, approximately
              3,000 of our hourly employees are covered by collective bargaining
              agreements.
              We have not experienced any work stoppage at any location in over five
              years. We
              believe our relations with our employees are satisfactory. At any given
              time, we
              will be in some stage of contract negotiation with various collective
              bargaining
              units.
 
 **Financial
              Information about Foreign Operations**
 
 The
              Company’s foreign operations are in Mexico. Geographic financial information
              is
              set forth in Item 7. “Management’s Discussion and Analysis of Financial
              Condition and Results of Operation.”
  
 22
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **Available
          Information; NYSE CEO Certification**
 
 The
          Company’s Internet website is http://www.pilgrimspride.com. The Company
          makes available, free of charge, through its Internet website, the Company’s
          annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
          on
          Form 8-K, Directors and Officers Forms 3, 4 and 5, and amendments to those
          reports, as soon as reasonably practicable after electronically filing
          such
          materials with, or furnishing them to, the Securities and Exchange Commission.
          The public may read and copy any materials that the Company files with
          the
          Securities and Exchange Commission at the Public Reference Room at 100
          F Street,
          NE, Washington, DC 20549 and may obtain information about the operation
          of the
          Public Information Room by calling the Securities and Exchange Commission
          at
          1-800-SEC-0330.
 
 In
          addition, the Company makes available, through its Internet website, the
          Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines
          and the written charter of the Audit Committee, all of which are available
          in
          print to any stockholder who requests it by contacting the Secretary of
          the
          Company at 4845 U.S. Highway 271 North, Pittsburg, Texas
          75686-0093.
 
 As
          required by the rules of the New York Stock Exchange, the Company submitted
          its
          unqualified Section 303A.12(a) Co-Principal Executive Officers Certification
          for
          the preceding year to the New York Stock Exchange.
 
 We
          included the certifications of the
          Co-Principal Executive Officers and the Chief Financial Officer of the
          Company
          required by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules,
          relating to the quality of the Company's public disclosure, in this report
          on
          Form 10-K as Exhibits 31.1, 31.2 and 31.3.
 
 **Executive
          Officers**
 
 Set
          forth
          below is certain information relating to our current executive
          officers:
 
 **Name**
                **Age**
                **Positions**Lonnie
                    "Bo" Pilgrim
                78
                Chairman
                    of the BoardClifford
                    E. Butler
                64
                Vice
                    Chairman of the BoardO.B.
                    Goolsby, Jr.
                59
                President,
                    Chief Executive Officer, and DirectorRichard
                    A. Cogdill
                46
                Chief
                    Financial OfficerSecretary,
                    Treasurer and DirectorJ.
                    Clinton Rivers
                47
                Chief
                    Operating OfficerRobert
                    A. Wright
                52
                Executive
                    Vice President ofSales
                    and Marketing
 
 *Lonnie
          "Bo" Pilgrim* has served as Chairman of the Board since the organization of
          Pilgrim's Pride in July 1968. Mr. Pilgrim was previously Chief Executive
          Officer
          from July 1968 to June 1998. Prior to the incorporation of Pilgrim's Pride,
          Mr.
          Pilgrim was a partner in its predecessor partnership business founded in
          1946.
  23
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Clifford
          E. Butler* serves as Vice Chairman of the Board. Mr. Butler joined us as Controller
          and
          Director in 1969, was named Senior Vice President of Finance in 1973, became
          Chief Financial Officer and Vice Chairman of the Board in July 1983, became
          Executive President in January 1997 and served in such capacity through
          July
          1998.
 
 *O.B.
          Goolsby, Jr.* serves as President and Chief Executive Officer of Pilgrim’s Pride. Prior to
          being named Chief Executive Officer in September 2004, Mr. Goolsby served
          as
          President and Chief Operating Officer since November 2002. Mr. Goolsby
          served as
          Executive Vice President, Prepared Foods Complexes from June 1998 to November
          2002. Mr. Goolsby was previously Senior Vice President, Prepared Foods
          Operations from August 1992 to June 1998 and Vice President, Prepared Foods
          Complexes from September 1987 to August 1992 and was previously employed
          by us
          from November 1969 to January 1981.
 
 *Richard
          A. Cogdill* has served as Chief Financial Officer, Secretary and Treasurer since January
          1997. Mr. Cogdill became a Director in September 1998. Previously he served
          as
          Senior Vice President, Corporate Controller, from August 1992 through December
          1996 and as Vice President, Corporate Controller from October 1991 through
          August 1992. Prior to October 1991, he was a Senior Manager with Ernst
&
Young LLP. Mr. Cogdill is a Certified Public Accountant.
 
 *J.
          Clinton Rivers* serves
          as Chief Operating Officer. Prior
          to being named Chief Operating Officer in October 2004, Mr. Rivers served
          as
          Executive Vice President of Prepared Food Operations from November 2002
          to
          October 2004. Mr. Rivers was the Senior Vice President of Prepared Foods
          Operations from 1999 to November 2002, and was the Vice President of Prepared
          Foods Operations from 1992 to 1999. From 1989 to 1992, he served as Plant
          Manager of the Mount Pleasant, Texas Production Facility. Mr. Rivers joined
          Pilgrim’s Pride in 1986 as the Quality Assurance Manager, and also held
          positions at Perdue Farms and Golden West Foods.
 
 *Robert
          A. Wright* serves
          as Executive Vice President of Sales and Marketing. Prior to being named
          Executive Vice President of Sales and Marketing in June 2004, Mr. Wright
          served
          as Executive Vice President, Turkey Division since October 2003 when he
          joined
          Pilgrim’s Pride. Prior to October 2003, Mr. Wright served as President of
          Butterball Turkey Company for five years.
 
 **Item
          1A. Risk Factors**
 
 **Forward
          Looking Statements**
 
 Statements
          of our intentions, beliefs, expectations or predictions for the future,
          denoted
          by the words "anticipate," "believe," "estimate," "expect," "project,"
          "imply,"
          "intend," "foresee" and similar expressions, are forward-looking statements
          that
          reflect our current views about future events and are subject to risks,
          uncertainties and assumptions. Such risks, uncertainties and assumptions
          include
          those described under "Risk Factors" below and elsewhere in this Annual
          Report
          on Form 10-K.
 
 Actual
          results could differ materially from those projected in these forward-looking
          statements as a result of these factors, among others, many of which are
          beyond
          our control.
 
 In
          making these statements, we are not undertaking, and specifically decline
          to
          undertake, any obligation to address or update each or any factor in future
          filings or communications regarding our business or results, and we are
          not
          undertaking to address how any of these factors may have caused changes
          in
          information contained in previous filings or communications. Though we
          have
          attempted to list comprehensively these important cautionary risk factors,
          we
          wish to caution investors and others that other factors may in the future
          prove
          to be important in affecting our business or results of operations.
 24
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Risk
          Factors**
 
 The
          following risk factors should be read carefully in connection with evaluating
          our business and the forward-looking information contained in this Annual
          Report
          on Form 10-K. Any of the following risks could materially adversely affect
          our
          business, operations, industry or financial position or our future financial
          performance. While we believe we have identified and discussed below the
          key
          risk factors affecting our business, there may be additional risks and
          uncertainties that are not presently known or that are not currently believed
          to
          be significant that may adversely affect our business, operations, industry,
          financial position and financial performance in the future.
 
 *Cyclicality
          and Commodity Prices.* Industry
          cyclicality can affect our earnings, especially due to fluctuations in
          commodity
          prices of feed ingredients, chicken and turkey.
 
 Profitability
          in the chicken and turkey industries is materially affected by the commodity
          prices of feed ingredients, chicken and turkey, which are determined by
          supply
          and demand factors. As a result, the chicken and turkey industries are
          subject
          to cyclical earnings fluctuations.
 
 The
          production of feed ingredients is positively or negatively affected primarily
          by
          weather patterns throughout the world, the global level of supply inventories
          and demand for feed ingredients and the agricultural policies of the United
          States and foreign governments. In particular, weather patterns often change
          agricultural conditions in an unpredictable manner. A sudden and significant
          change in weather patterns could affect supplies of feed ingredients, as
          well as
          both the industry's and our ability to obtain feed ingredients, grow chickens
          and turkeys or deliver products.
 
 The
          cost of corn, our primary feed ingredient, increased significantly from
          August
          2006 to the date of this report, and there can be no assurance that the
          price of
          corn will not continue to rise as a result of, among other things, increasing
          demand for corn products around the world and alternative uses of corn,
          such as
          ethanol production.
 
 High
          feed ingredient prices have had a material adverse effect on our operating
          results in the past. We periodically seek, in some instances, to enter
          into
          advance purchase commitments or financial hedging contracts for the purchase
          of
          feed ingredients in an effort to manage our feed ingredient costs. However,
          we
          may not hedge feed ingredient cost risk unless requested by a specific
          customer
          or it is otherwise deemed prudent and any use of such instruments may not
          be
          successful.
 
 *Livestock
          and Poultry Disease, including Avian Influenza.* Outbreaks
          of livestock diseases in general and poultry diseases in particular, including
          avian influenza, can significantly affect our ability to conduct our operations
          and demand for our products.
 
 We
          take reasonable precautions to ensure that our flocks are healthy and that
          our
          processing plants and other facilities operate in a sanitary and
          environmentally-sound manner. However, events beyond our control, such
          as the
          outbreaks of disease, either in our own flocks or elsewhere, could significantly
          affect demand for our products or our ability to conduct our operations.
          Furthermore, an outbreak of disease could result in governmental restrictions
          on
          the import and export of our fresh chicken, turkey or other products to
          or from
          our suppliers, facilities or customers, or require us to destroy one or
          more of
          our flocks. This could also result in the cancellation of orders by our
          customers and create adverse publicity that may have a material adverse
          effect
          on our ability to market our products successfully and on our business,
          reputation and prospects.
 25
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 During
          the first half of fiscal 2006, there was substantial publicity regarding
          a
          highly pathogenic strain of avian influenza, known as H5N1, which has been
          affecting Asia since 2002 and which has recently been found in Eastern
          Europe.
          It is widely believed that H5N1 is being spread by migratory birds, such
          as
          ducks and geese. There have also been some cases where H5N1 is believed
          to have
          passed from birds to humans as humans came into contact with live birds
          that
          were infected with the disease.
 
 Although
          highly pathogenic H5N1 has not been identified in North America, there
          have been
          outbreaks of low pathogenic strains of avian influenza in North America,
          including in the U.S. in 2002 and 2004, and in Mexico outbreaks of both
          high and
          low-pathogenic strains of avian influenza is a fairly common occurrence,
          including this year, which have impacted our operations. Historically,
          the
          outbreaks of low pathogenic avian influenza have not generated the same
          level of
          concern, or received the same level of publicity or been accompanied by
          the same
          reduction in demand for poultry products in certain countries as that recently
          associated with the highly pathogenic H5N1 strain. Accordingly, even if
          the
          highly pathogenic H5N1 strain does not spread to North or Central America,
          there
          can be no assurance that it will not materially adversely affect demand
          for
          North or Central American produced poultry internationally and/or domestically,
          and, if it were to spread to North or Central America, there can be no
          assurance
          that it would not significantly affect our ability to conduct our operations
          and/or demand for our products, in each case in a manner having a material
          adverse effect on our business, reputation and/or prospects.
 
 *Contamination
          of Products* .
          If our poultry products become contaminated, we may be subject to product
          liability claims and product recalls.
 
 Poultry
          products may be subject to contamination by disease producing organisms,
          or
          pathogens, such as *Listeria
          monocytogenes* , *Salmonella* and
          generic *E.coli* .
          These pathogens are generally found in the environment, and, as a result,
          there
          is a risk that they, as a result of food processing, could be present in
          our
          processed poultry products. These pathogens can also be introduced as a
          result
          of improper handling at the further processing, foodservice or consumer
          level.
          These risks may be controlled, although not eliminated, by adherence to
          good
          manufacturing practices and finished product testing. We have little, if
          any,
          control over proper handling once the product has been shipped. Illness
          and
          death may result if the pathogens are not eliminated at the further processing,
          foodservice or consumer level. Even an inadvertent shipment of contaminated
          products is a violation of law and may lead to increased risk of exposure
          to
          product liability claims, product recalls and increased scrutiny by federal
          and
          state regulatory agencies and may have a material adverse effect on our
          business, reputation and prospects.
 
 In
          October 2002, one product sample produced in our Franconia, Pennsylvania
          facility that had not been shipped to customers tested positive for Listeria.
          We
          later received information from the USDA suggesting environmental samples
          taken
          at the facility had tested positive for both the strain of Listeria identified
          in the product and a strain having characteristics similar to those of
          the
          strain identified in a Northeastern Listeria outbreak. As a result, we
          voluntarily recalled all cooked deli products produced at the plant from
          May 1,
          2002 through October 11, 2002. We carried insurance designed to cover the
          direct
          recall related expenses and certain aspects of the related business interruption
          caused by the recall.
 26
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Product
          Liability* .
          Product liability claims or product recalls can adversely affect our business
          reputation and expose us to increased scrutiny by federal and state
          regulators.
 
 The
          packaging, marketing and distribution of food products entail an inherent
          risk
          of product liability and product recall and the resultant adverse publicity.
          We
          may be subject to significant liability if the consumption of any of our
          products causes injury, illness or death. We could be required to recall
          certain
          of our products in the event of contamination or damage to the products.
          In
          addition to the risks of product liability or product recall due to deficiencies
          caused by our production or processing operations, we may encounter the
          same
          risks if any third party tampers with our products. We cannot assure you
          that we
          will not be required to perform product recalls, or that product liability
          claims will not be asserted against us, in the future. Any claims that
          may be
          made may create adverse publicity that would have a material adverse effect
          on
          our ability to market our products successfully or on our business, reputation,
          prospects, financial condition and results of operations.
 
 As
          described above under “Contamination of Products,” if our poultry products
          become contaminated, we may be subject to product liability claims and
          product
          recalls. In October 2002, we voluntarily recalled all cooked deli products
          produced at one of our facilities from May 1, 2002 through October 11,
          2002. In
          connection with this recall, we were named as a defendant in a number of
          lawsuits brought by individuals alleging injuries resulting from contracting *Listeria
          monocytogenes.* See Item 3. “Legal Proceedings.” There can be no assurance that any litigation
          or reputational injury associated with this or any future product recalls
          will
          not have a material adverse effect on our ability to market our products
          successfully or on our business, reputation, prospects, financial condition
          and
          results of operations.
 
 *Insurance.* We
          are exposed to risks relating to product liability, product recall, property
          damage and injuries to persons for which insurance coverage is expensive,
          limited and potentially inadequate.
 
 Our
          business operations entail a number of risks, including risks relating
          to
          product liability claims, product recalls, property damage and injuries
          to
          persons. We currently maintain insurance with respect to certain of these
          risks,
          including product liability insurance, property insurance, workers compensation
          insurance and general liability insurance, but in many cases such insurance
          is
          expensive, difficult to obtain and no assurance can be given that such
          insurance
          can be maintained in the future on acceptable terms, or in sufficient amounts
          to
          protect us against losses due to any such events, or at all. Moreover,
          even
          though our insurance coverage may be designed to protect us from losses
          attributable to certain events, it may not adequately protect us from liability
          and expenses we incur in connection with such events. For example, the
          losses
          attributable to our October 2002 recall of cooked deli-products produced
          at one
          of our facilities significantly exceeded available insurance coverage.
          Additionally, in the past two of our insurers encountered financial difficulties
          and were unable to fulfill their obligations under the insurance policies
          as
          anticipated and separately two of our other insurers contested coverage
          with
          respect to claims covered under policies purchased, forcing us to litigate
          the
          issue of coverage before we were able to collect under these
          policies.
 27
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Government
          Regulation* .
          Regulation, present and future, is a constant factor affecting our business.
 
 The
          chicken and turkey industries are subject to federal, state and local
          governmental regulation, including in the health, safety and environmental
          areas. We anticipate increased regulation by various agencies concerning
          food
          safety, the use of medication in feed formulations and the disposal of
          poultry
          by-products and wastewater discharges.
 
 Also,
          changes in laws or regulations or the application thereof may lead to government
          enforcement actions and the resulting litigation by private litigants.
          We are
          aware of an industry-wide investigation by the Wage and Hour Division of
          the
          U.S. Department of Labor to ascertain compliance with various wage and
          hour
          issues, including the compensation of employees for the time spent on such
          activities such as donning and doffing work equipment. We have been named
          a
          defendant in several related suits brought by employees. Due, in part,
          to the
          government investigation and the recent U.S. Supreme Court decision in *IBP,
          Inc. v. Alvarez* ,
          it is possible that we may be subject to additional employee
          claims.
 
 Unknown
          matters, new laws and regulations, or stricter interpretations of existing
          laws
          or regulations may materially affect our business or operations in the
          future.
 
 *Significant
          Competition* .
          Competition in the chicken and turkey industries with other vertically
          integrated poultry companies, especially companies with greater resources,
          may
          make us unable to compete successfully in these industries, which could
          adversely affect our business.
 
 The
          chicken and turkey industries are highly competitive. Some of our competitors
          have greater financial and marketing resources than us. In both the U.S.
          and
          Mexico, we primarily compete with other vertically integrated poultry
          companies.
 
 In
          general, the competitive factors in the U.S. poultry industry
          include:
 
 •  Price;
 
 •  Product
          quality;
 
 •  Brand
          identification;
 
 •  Breadth
          of product line; and
 
 •  Customer
          service.
 
 Competitive
          factors vary by major market. In the foodservice market, competition is
          based on
          consistent quality, product development, service and price. In the U.S.
          retail
          market, we believe that competition is based on product quality, brand
          awareness, customer service and price. Further, there is some competition
          with
          non-vertically integrated further processors in the prepared food
          business.
 
 In
          Mexico, where product differentiation has traditionally been limited, product
          quality and price have been the most critical competitive factors. Additionally,
          the North American Free Trade Agreement, which went into effect on January
          1,
          1994, required annual reductions in tariffs for chicken and chicken products
          in
          order to eliminate those tariffs by January 1, 2003. On November 21, 2002,
          the
          Mexican Secretariat of the Economy announced that it would initiate an
          investigation to determine whether a temporary safeguard action was warranted
          to
          protect the domestic poultry industry when import
          tariffs on poultry were eliminated in January 2003.  In
          July 2003, the U.S. and Mexico entered into a safeguard agreement with
          regard to
          imports into Mexico of chicken leg quarters from the U.S. Under this agreement,
          a tariff rate for chicken leg quarters of 98.8% of the sales price was
          established. This tariff was reduced on January 1, 2006 to 39.5% and is
          to be
          reduced in each of the following two years in equal increments so that
          the final
          tariff rate at January 1, 2008 will be zero. As those tariffs are reduced,
          increased competition from chicken imported into Mexico from the U.S. may
          have a
          material adverse effect on the Mexican chicken industry in general, and
          on our
          Mexican operations in particular.
 28
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Loss
          of Key Customers.* The
          loss of one or more of our largest customers could adversely affect our
          business.
 
 Our
          two largest customers accounted for approximately 17% of our net sales
          in fiscal
          2006, and our largest customer, Wal-Mart Stores Inc., accounted for 12%
          of our
          net sales. Our business could suffer significant set backs in revenues
          and
          operating income if we lost one or more of our largest customers, or if
          our
          customers' plans and/or markets should change significantly.
 
 *Potential
          Acquisitions* .
          We intend to pursue opportunities to acquire complementary businesses,
          which
          could increase leverage and debt service requirements and could adversely
          affect
          our financial situation if we fail to successfully integrate the acquired
          business.
 
 We
          intend to pursue selective acquisitions of complementary businesses in
          the
          future. Inherent in any future acquisitions are certain risks such as increasing
          leverage and debt service requirements and combining company cultures and
          facilities, which could have a material adverse effect on our operating
          results,
          particularly during the period immediately following such acquisitions.
          Additional debt or equity capital may be required to complete future
          acquisitions, and there can be no assurance that we will be able to raise
          the
          required capital. Furthermore, acquisitions involve a number of risks and
          challenges, including:
 
 •  Diversion
          of management's attention;
 
 •  The
          need to integrate acquired operations;
 
 •  Potential
          loss of key employees and customers of the acquired companies;
 
 •
                Lack
                    of experience in operating in the geographical market of the
                    acquired
                    business;
 
 and
 
 •  An
          increase in our expenses and working capital requirements.
 
 Any
          of these and other factors could adversely affect our ability to achieve
          anticipated cash flows at acquired operations or realize other anticipated
          benefits of acquisitions.
 
 *Assumption
          of Unknown Liabilities in Acquisitions.* Assumption
          of unknown liabilities in acquisitions may harm our financial condition
          and
          operating results.
 
 Acquisitions
          may be structured in such a manner that would result in the assumption
          of
          unknown liabilities not disclosed by the seller or uncovered during
          pre-acquisition due diligence. For example, our acquisition of the ConAgra
          chicken division was structured as a stock purchase. In that acquisition
          we
          assumed all of the liabilities of the ConAgra chicken division, including
          liabilities that may be unknown. Similarly, the acquisition of Gold Kist
          would
          likely expose us to unknown liabilities. These obligations and liabilities
          could
          harm our financial condition and operating results.
 29
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Leverage.* Our indebtedness could adversely affect our financial condition and prevent
          us
          from fulfilling our obligations under our debt securities.
 
 Our
          indebtedness could adversely affect our financial condition which could
          have
          important consequences to you. For example, it could:
 
 ·
              Increase
                  our vulnerability to general adverse economic conditions; 
 ·
              Limit
                  our ability to obtain necessary financing and to fund future working
                  capital, capital expenditures and other general corporate requirements; 
 ·
              Require
                  us to dedicate a substantial portion of our cash flow from operations
                  to
                  payments on our indebtedness, thereby reducing the availability
                  of our
                  cash flow to fund working capital, capital expenditures and for
                  other
                  general corporate purposes; 
 ·
              Limit
                  our flexibility in planning for, or reacting to, changes in our
                  business
                  and the industry in which we operate; 
 ·
              Place
                  us at a competitive disadvantage compared to our competitors that
                  have
                  less debt; 
 ·
              Limit
                  our ability to pursue acquisitions and sell assets; and 
 ·
              Limit,
                  along with the financial and other restrictive covenants in our
                  indebtedness, our ability to borrow additional funds. Failing to
                  comply
                  with those covenants could result in an event of default or require
                  redemption of indebtedness. Either of these events could have a
                  material
                  adverse effect on us. 
 Our
          ability to make payments on and to refinance our indebtedness will depend
          on our
          ability to generate cash in the future, which is dependent on various factors.
          These factors include the commodity prices of feed ingredients, chicken
          and
          turkey and general economic, financial, competitive, legislative, regulatory
          and
          other factors that are beyond our control.
 
 Despite
          our indebtedness, we are not prohibited from incurring significant additional
          indebtedness in the future. If additional debt is added to our current
          debt
          levels, the related risks that we now face could intensify. The completion
          of
          our proposed acquisition of Gold Kist would increase our indebtedness
          substantially.
 
 *Proposed
          Acquisition of Gold Kist.* A
          number of risks are associated with our proposed acquisition of Gold Kist,
          and
          the consummation of an acquisition would increase certain risks we now
          face.
 30
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 The
          Gold Kist Board has rejected our offer to purchase Gold Kist and commenced
          litigation that is intended to prevent the acquisition. Gold Kist has not
          made
          available to us materials for due diligence. Accordingly, we may not be
          able to
          complete the proposed acquisition of Gold Kist or obtain detailed due diligence
          materials. Further, if we acquire Gold Kist, there are no assurances that
          we can
          effectively integrate Gold Kist's business or realize the associated cost
          savings and operating synergies currently anticipated. Additionally, the
          acquisition of Gold Kist would increase our indebtedness
          substantially.
 
 *Foreign
          Operations Risks* .
          Our foreign operations pose special risks to our business and
          operations.
 
 We
          have significant operations and assets located in Mexico and may participate
          in
          or acquire operations and assets in other foreign countries in the future.
          Foreign operations are subject to a number of special risks, including
          among
          others:
 
 •  Currency
          exchange rate fluctuations;
 
 •  Trade
          barriers;
 
 •  Exchange
          controls;
 
 •  Expropriation;
          and
 
 •
                Changes
                    in laws and policies, including those governing foreign-owned
                    operations.
 
 Currency
          exchange rate fluctuations have adversely affected us in the past. Exchange
          rate
          fluctuations or one or more other risks may have a material adverse effect
          on
          our business or operations in the future.
 
 Our
          operations in Mexico are conducted through subsidiaries organized under
          the laws
          of Mexico. We may rely in part on intercompany loans and distributions
          from our
          subsidiaries to meet our obligations. Claims of creditors of our subsidiaries,
          including trade creditors, will generally have priority as to the assets
          of our
          subsidiaries over our claims. Additionally, the ability of our Mexican
          subsidiaries to make payments and distributions to us will be subject to,
          among
          other things, Mexican law. In the past, these laws have not had a material
          adverse effect on the ability of our Mexican subsidiaries to make these
          payments
          and distributions. However, laws such as these may have a material adverse
          effect on the ability of our Mexican subsidiaries to make these payments
          and
          distributions in the future.
 
 *Control
          of Voting Stock* .
          Control over Pilgrim's Pride is maintained by members of the family of
          Lonnie
          "Bo" Pilgrim.
 
 As
          described in more detail in Item 12. "Security Ownership of Certain Beneficial
          Owners and Management and Related Stockholder Matters," through two limited
          partnerships and related trusts and voting agreements, Lonnie "Bo" Pilgrim,
          Patty R. Pilgrim, his wife, and Lonnie Ken Pilgrim, his son, control 62.225%
          of
          the voting power of our outstanding common stock. Accordingly, they control
          the
          outcome of all actions requiring stockholder approval, including the election
          of
          directors and significant corporate transactions, such as a merger or other
          sale
          of Pilgrim's Pride or its assets. This ensures their ability to control
          the
          foreseeable future direction and management of Pilgrim's Pride. In addition,
          an
          event of default under certain agreements related to our indebtedness will
          occur
          if Lonnie "Bo" Pilgrim and certain members of his family cease to own at
          least a
          majority of the voting power of the outstanding common stock.
 31
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Item
          1B. Unresolved Staff Comments**
 
 None.
 
 **Item
          2. Properties**
 
 *Operating
          Facilities*
 
 We
          operate 23 poultry processing plants in the U.S. Of this total, 22 process
          chicken and are located in Alabama, Arkansas, Georgia, Kentucky, Louisiana,
          North Carolina, Tennessee, Texas, Virginia, and West Virginia. We have
          one
          turkey processing plant in Pennsylvania, one chicken processing plant in
          Puerto
          Rico and three chicken processing plants in Mexico.
 
 The
          U.S. chicken processing plants have weekly capacity to process 28.2 million
          broilers and operated at 97.7% of capacity in fiscal 2006. On October 29,
          2006,
          we announced a reduction of weekly chicken processing beginning January
          1, 2007
          which will increase available production capacity.
 
 Our
          turkey plant has the weekly capacity to process 0.2 million birds under
          current
          inspection and line configurations and operates at 94% of capacity. Our
          Mexico
          facilities have the capacity to process 3.2 million broilers per week and
          operated at 89% of capacity in fiscal 2006. Our Puerto Rico processing
          plant has
          the capacity to process 0.3 million birds per week based on one eight-hour
          shift
          per day. For segment reporting purposes, we include Puerto Rico with our
          U.S.
          operations.
 
 In
          the U.S., the processing plants are supported by 26 hatcheries, 20 feed
          mills
          and 8 rendering plants. The hatcheries, feed mills and rendering plants
          operated
          at 91%, 86% and 82% of capacity, respectively, in fiscal 2006. In Puerto
          Rico,
          the processing plant is supported by one hatchery and one feed mill which
          operated at 86% and 50% of capacity, respectively, in fiscal 2006. Excluding
          commercial feed products, the Puerto Rico feed mill is running at 50% of
          capacity. In Mexico, the processing plants are supported by six hatcheries,
          four
          feed mills and two rendering facilities. The Mexico hatcheries, feed mills
          and
          rendering facilities operated at 98%, 80% and 79% of capacity, respectively,
          in
          fiscal 2006.
 
 We
          also operate ten prepared foods plants. These plants are located in Georgia,
          Louisiana, Pennsylvania, Tennessee, Texas and West Virginia. These plants
          have
          the capacity to produce approximately 1,168 million pounds of further processed
          product per year and in fiscal 2006 operated at approximately 87% of capacity
          based on the current product mix and six-day production at most facilities
          and
          24/7 production at two facilities.
 
 *Other
          Facilities and Information*
 
 We
          own a partially automated distribution freezer located outside of Pittsburg,
          Texas, which includes 125,000 square feet of storage area. We operate a
          commercial feed mill in Mt. Pleasant, Texas. We own office buildings in
          Pittsburg, Texas, which house our executive offices, our Logistics and
          Customer
          Service offices and our general corporate functions as well as an office
          building in Mexico City, which houses our Mexican marketing offices, and
          an
          office building in Broadway, Virginia, which houses additional sales and
          marketing, research and development, and support activities. We lease offices
          in
          Dallas, Texas and Duluth, Georgia, which house additional sales and marketing
          and support activities.
 32
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 We
          have 13 regional distribution centers located in Arizona, Florida, Iowa,
          Mississippi, North Carolina, Texas, and Utah, six of which we own and seven
          of
          which we lease.
 
 A
          significant portion of our domestic property, plant and equipment are pledged as collateral on our revolving
          term
          loan and our secured term loan. See Item 7. “Management’s Discussion and
          Analysis of Financial Condition and Results of Operation.”
 
 **Item
          3. Legal Proceedings**
 
 On
          July 1, 2002, three individuals, on behalf of themselves and a putative
          class of
          chicken growers, filed their original class action complaint against the
          Company
          in the United States District Court for the Eastern District of Texas,
          Texarkana
          Division, styled “Cody Wheeler, et al. vs. Pilgrim’s Pride Corporation.” In
          their lawsuit, plaintiffs initially alleged that the Company violated the
          Packers and Stockyards Act (7 U.S.C. Section 192) and breached fiduciary
          duties
          allegedly owed to the plaintiff growers. The plaintiffs also brought individual
          actions under the Packers and Stockyards Act alleging, among other things,
          breach of fiduciary duties and breach of contract. On September 30, 2005,
          plaintiffs amended their lawsuit to join Tyson Foods, Inc. as a co-defendant.
          Two additional former chicken growers were also added as plaintiffs to
          the
          lawsuit. This amendment, which occurred 38 months after the lawsuit’s initial
          filing, virtually re-wrote most of the allegations. Now the plaintiffs
          contend
          that the Company and Tyson are involved in a conspiracy to violate federal
          antitrust laws. The plaintiffs’ initial allegations, although still contained in
          the amended lawsuit, are no longer the sole focus of the case. On January
          3,
          2006, the Court entered an Order severing the plaintiffs’ Packers and Stockyards
          Act and antitrust claims. The Court ordered that the plaintiffs may proceed
          with
          their Packers and Stockyards Act claims as set forth in Plaintiffs’ Third
          Amended Complaint. The Court also ordered that the plaintiffs may proceed
          with
          their respective antitrust claims asserted against the Company and Tyson
          in a
          separate cause of action styled “Cody Wheeler, et al vs. Pilgrim’s Pride
          Corporation, et al”. On March 6, 2006, the plaintiffs filed their motion for
          class certification in the original lawsuit. Pilgrim’s Pride attacked the
          plaintiffs’ class certification brief on several grounds, and ultimately the
          plaintiffs voluntarily withdrew their Motion for Class Certification on
          May 26,
          2006. As a result, the Court canceled the class certification hearing and
          on
          June 2, 2006 the Court entered an Order withdrawing Plaintiffs’ Motion for Class
          Certification and prohibiting the plaintiffs from filing any additional
          class-action claims against Pilgrim’s Pride in this lawsuit. Additionally, the
          two former growers who joined the lawsuit on September 30, 2005 withdrew
          from
          the case. The lawsuit is currently proceeding with individual claims by
          the
          three original individual plaintiffs against Pilgrim’s Pride. The Company
          intends to defend vigorously against the plaintiffs’ individual claims. The
          Company does not expect this matter to have a material impact on its financial
          position, operations or liquidity.
 
 On
          January 3, 2006, an action styled "Cody Wheeler, et al. vs. Pilgrim's Pride
          Corporation, et al.", arising out of the original Wheeler litigation described
          above, was filed in the United States District Court for the Eastern District
          of
          Texas, Texarkana Division. The lawsuit was filed by the three original
          plaintiffs and a former grower, both in their individual capacities and
          on
          behalf of a putative class of chicken growers. In the lawsuit, the four
          plaintiffs allege that the Company and Tyson are involved in a conspiracy
          to
          violate federal antitrust laws. A Docket Control Order has been entered
          by the
          Court and a class certification hearing is currently scheduled for January
          24,
          2007. The proceedings are currently in the early stages of discovery. The
          Company intends to defend vigorously both the certification of the case
          as a
          class action and the merits of the four plaintiffs’ individual claims. The
          Company does not expect this matter to have a material impact on its financial
          position, operations or liquidity.
 33
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 In
          October 2002, a limited number of USDA environmental samples from our Franconia,
          Pennsylvania plant tested positive for Listeria. As a result, we voluntarily
          recalled all cooked deli products produced at the plant from May 1, 2002
          through
          October 11, 2002. No illnesses have been linked to any of our recalled
          products,
          and none of such products have tested positive for the strain of Listeria
          associated with an outbreak in the Northeastern U.S. that occurred during
          the
          summer of 2002. However, following this recall, a number of demands and
          cases
          have been made and filed alleging injuries purportedly arising from the
          consumption of products produced at this facility. As of this date, all
          of these
          cases have been resolved and dismissed other than “Dennis Wysocki, as the
          Administrator of the Estate of Matthew Tyler Wysocki, deceased, and Dennis
          Wysocki and Karen Wysocki, individually v. Pilgrim’s Pride Corporation and Jack
          Lambersky Poultry Company, et al,” which was filed in the Supreme Court of the
          State of New York, County of New York, on July 30, 2004; and “Roberta
          Napolitano, as Trustee of the Bankruptcy Estate of Burke Caren Kantrow
          v.
          Pilgrim’s Pride Corporation, Wampler Foods, Inc. and Jack Lambersky Poultry
          Company, d/b/a J. L. Foods, Inc.”, which we do not expect to have a material
          impact on our financial position, operations or liquidity.
 
 On
          December 31, 2003, we were served with a purported class action complaint
          styled
“Angela Goodwin, Gloria Willis, Johnny Gill, Greg Hamilton, Nathan Robinson,
          Eddie Gusby, Pat Curry, Persons Similarly Situated v. ConAgra Poultry Company
          and Pilgrim’s Pride, Incorporated” in the United States District Court, Western
          District of Arkansas, El Dorado Division, alleging racial and age discrimination
          at one of the facilities we acquired from ConAgra. Two of the named plaintiffs,
          Greg Hamilton and Gloria Willis, were voluntarily dismissed from this action.
          We
          believe we have meritorious defenses to the class certification as well
          as the
          individual claims and intend to vigorously oppose class certification and
          defend
          these claims. The ultimate liability with respect to these claims cannot
          be
          determined at this time; however, we do not expect this matter to have
          a
          material impact on our financial position, operations or liquidity.
 
 As
          described above under “Item 1. Business-General Development of Business-Recent
          Business Acquisition Activities” on October 12, 2006, a complaint styled “Gold
          Kist Inc. v. Pilgrim’s Pride Corporation, Protein Acquisition Corporation, et
          al” was filed in the United States District Court for the Northern District
          of
          Georgia, Atlanta Division, alleging that the election of our President’s and
          Chief Executive Officer’s nominees to the Gold Kist Board of Directors would
          violate Section 8 of the Clayton Act and seeking to enjoin our solicitation
          of
          the Gold Kist stockholders to elect such persons to the Gold Kist Board.
          The
          complaint also alleges that we violated the proxy and tender offer rules
          by
          failing to disclose such alleged violation of the Clayton Act.
 
 In
          addition to moving to dismiss Gold Kist’s federal securities laws claims, we
          believe that we have meritorious defenses to Gold Kist’s Clayton Act claims. We
          intend to file responses to Gold Kist’s motion for injunctive relief on or about
          December 22, 2006. The Court has scheduled a hearing date for Gold Kist’s
          preliminary injunction motion on January 16, 2007.
 34
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 The
          Wage and
          Hour Division of the U.S. Department of Labor conducted an industry wide
          investigation to ascertain compliance with various wage and hour issues,
          including the compensation of employees for the time spent on such activities
          such as donning and doffing work equipment. Due, in part, to the government
          investigation and the recent U.S. Supreme Court decision in *IBP,
          Inc. b. Alvarez* ,
          employees have brought claims against the Company. The claims filed against
          us
          as of the date of this report include: “Juan Garcia, et al. v. Pilgrim’s Pride
          Corporation, a/k/a Wampler Foods, Inc.”, filed in Pennsylvania state court on
          January 27, 2006 and subsequently removed to the U.S. District Court for
          the
          Eastern District of Pennsylvania; “Esperanza Moya, et al. v. Pilgrim’s Pride
          Corporation and Maxi Staff, LLC”, filed March 23, 2006 in the Eastern District
          of Pennsylvania; “Barry Antee, et al. v. Pilgrim’s Pride Corporation “ filed
          April 20, 2006 in the Eastern District of Texas; “Stephania Aaron, et al. v.
          Pilgrim’s Pride Corporation” filed August 22, 2006 in the Western District of
          Arkansas; “Salvador Aguilar, et al. v. Pilgrim’s Pride Corporation” filed August
          23, 2006 in the Northern District of Alabama; and “Benford v. Pilgrim’s Pride
          Corporation” filed November 2, 2006 in the Northern District of Alabama. Neither
          the likelihood of an unfavorable outcome nor the amount of ultimate liability,
          if any, with respect to any of these cases can be determined at this time.
          These
          cases are in various stages of litigation which we intend to vigorously
          defend.
 
 We
          are subject to various other legal proceedings and claims, which arise
          in the
          ordinary course of our business. In the opinion of management, the amount
          of
          ultimate liability with respect to these actions will not materially affect
          our
          financial position or results of operations.
 
 **Item
          4. Submission of Matters to a Vote of Security Holders**
 
 None.
 35
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **PART
          II**
 
 **Item
          5.**  **Market
          for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
          Purchases of Equity Securities**
 
 *Quarterly
          Stock Prices and Dividends*
 
 High
          and low prices of and dividends relating to the Company’s common stock for the
          periods indicated were :
 
 Prices
                    2006
                
                Prices
                    2005
                
                DividendsQuarter
                
                High
                
                Low
                
                High
                
                Low
                
                2006
                
                2005PPC
                    Common StockFirst
                
                $
                37.75
                
                $
                30.11
                
                $
                35.00
                
                $
                25.76
                
                $
                1.0225
                
                $
                .015Second
                
                
                27.00
                
                
                20.95
                
                
                39.85
                
                
                28.84
                
                
                .0225
                
                
                .015Third
                
                
                28.09
                
                
                20.85
                
                
                38.61
                
                
                33.32
                
                
                .0225
                
                
                .015Fourth
                
                
                29.00
                
                
                23.11
                
                
                40.23
                
                
                30.91
                
                
                .0225
                
                
                .015
 
 *Holders*
 
 The
          Company’s common stock (ticker symbol “PPC”) is traded on the New York Stock
          Exchange. The Company estimates there were approximately 29,300 holders
          (including individual participants in security position listings) of the
          Company’s common stock as of November 10, 2006.
 
 *Dividends*
 
 Starting
          in the first quarter of fiscal 2006, the Company’s Board of Directors has
          declared cash dividends of $0.0225 per share of common stock. Additionally,
          in
          the first quarter of fiscal 2006, the Company’s Board of Directors declared a
          special $1.00 dividend per share of common stock. Prior to fiscal 2006
          and with
          the exception of two quarters in 1993, the Company's Board of Directors
          declared
          cash dividends of $0.015 per share of common stock (on a split adjusted
          basis)
          every fiscal quarter since the Company's initial public offering in 1986.
          Payment of future dividends will depend upon the Company's financial condition,
          results of operations and other factors deemed relevant by the Company's
          Board
          of Directors, as well as any limitations imposed by lenders under the Company's
          credit facilities. The Company's revolving credit facility and revolving/term
          borrowing facility currently limit dividends to a maximum of $13 million
          per
          year. See “Note E - Notes Payable and Long-Term Debt” of the notes to
          Consolidated Financial Statements included in Item 15 for additional discussions
          of the Company's credit facilities.
 
 *Issuer
          Purchases of Equity Security in fiscal 2006*
 
 The
          Company
          did not repurchase any of its equity securities in fiscal 2006.
 36
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Item
          6.**  **Selected
          Financial Data**
 
 *(In
                    thousands, except ratios and per share data)*
                
                *Eleven
                    Years Ended September 30, 2006*2006
                
                2005
                
                2004(a)(b)
                
                2003(53
                    weeks)**Income
                    Statement Data:**Net
                    sales
                
                $
                5,235,565
                
                $
                5,666,275
                
                $
                5,363,723
                
                $
                2,619,345Gross
                    profit(d)
                
                
                297,600
                
                
                745,199
                
                
                529,039
                
                
                200,483Operating
                    income(d)
                
                
                3,002
                
                
                435,812
                
                
                265,314
                
                
                63,613Interest
                    expense, net
                
                
                40,553
                
                
                43,932
                
                
                52,129
                
                
                37,981Income
                    (loss) before income taxes(d)
                
                
                (36,317
                )
                
                403,523
                
                
                208,535
                
                
                63,235Income
                    tax expense (benefit)(e)
                
                
                (2,085
                )
                
                138,544
                
                
                80,195
                
                
                7,199Net
                    income (loss)(d)
                
                
                (34,232
                )
                
                264,979
                
                
                128,340
                
                
                56,036Ratio
                    of earnings to fixed charges(f)
                
                
                (f
                )
                
                7.19x
                
                
                4.08x
                
                
                2.24x**Per
                    Common Share Data:(g)**Net
                    income (loss)
                
                $
                (0.51
                )
                $
                3.98
                
                $
                2.05
                
                $
                1.36Cash
                    dividends
                
                
                1.090
                
                
                0.06
                
                
                0.06
                
                
                0.06Book
                    value
                
                
                16.79
                
                
                18.38
                
                
                13.87
                
                
                10.46**Balance
                    Sheet Summary:**Working
                    capital
                
                $
                528,836
                
                $
                404,601
                
                $
                383,726
                
                $
                211,119Total
                    assets
                
                
                2,426,868
                
                
                2,511,903
                
                
                2,245,989
                
                
                1,257,484Notes
                    payable and current maturities of long-term debt
                
                
                10,322
                
                
                8,603
                
                
                8,428
                
                
                2,680Long-term
                    debt, less current maturities
                
                
                554,876
                
                
                518,863
                
                
                535,866
                
                
                415,965Total
                    stockholders’ equity
                
                
                1,117,327
                
                
                1,223,598
                
                
                922,956
                
                
                446,696**Cash
                    Flow Summary:**Operating
                    cash flow
                
                $
                30,382
                
                $
                493,073
                
                $
                272,404
                
                $
                98,892Depreciation
                    & amortization(h)
                
                
                135,133
                
                
                134,944
                
                
                113,788
                
                
                74,187Purchases
                    of investment securities
                
                
                318,266
                
                
                305,458
                
                
                --
                
                
                --Proceeds
                    from sale or maturity of investment securities
                
                
                490,764
                
                
                --
                
                
                --
                
                
                --Capital
                    expenditures
                
                
                143,882
                
                
                116,588
                
                
                79,642
                
                
                53,574Business
                    acquisitions, net of equity consideration(a)(c)
                
                
                --
                
                
                --
                
                
                272,097
                
                
                4,499Financing
                    activities, net provided by (used in)
                
                
                (38,750
                )
                
                18,860
                
                
                96,665
                
                
                (39,767
                )**Other
                    Data:**EBITDA(i)
                
                $
                136,763
                
                $
                580,078
                
                $
                372,501
                
                $
                173,926**Key
                    Indicators (as a percentage of net sales):**Gross
                    profit(d)
                
                
                5.7
                %
                
                13.2
                %
                
                9.9
                %
                
                7.7
                %Selling,
                    general and
                  administrative
                    expenses
                
                
                5.6
                %
                
                5.5
                %
                
                4.8
                %
                
                5.2
                %Operating
                    income (d)
                
                
                0.8
                %
                
                7.7
                %
                
                4.9
                %
                
                2.4
                %Interest
                    expense, net
                
                
                1.0
                %
                
                0.9
                %
                
                1.0
                %
                
                1.5
                %Net
                    income (loss)(d)
                
                
                (0.7
                )%
                
                4.7
                %
                
                2.4
                %
                
                2.1
                %
  37
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Eleven
                    Years Ended September 30, 2006*2002
                
                2001(c)
                
                2000
                
                1999
                
                1998
                
                1997
                
                1996(53
                    weeks)$
                2,533,718
                
                $
                2,214,712
                
                $
                1,499,439
                
                $
                1,357,403
                
                $
                1,331,545
                
                $
                1,277,649
                
                $
                1,139,310165,165
                
                
                213,950
                
                
                165,828
                
                
                185,708
                
                
                136,103
                
                
                114,467
                
                
                70,64029,904
                
                
                94,542
                
                
                80,488
                
                
                109,504
                
                
                77,256
                
                
                63,894
                
                
                21,50432,003
                
                
                30,775
                
                
                17,779
                
                
                17,666
                
                
                20,148
                
                
                22,075
                
                
                21,5391,910
                
                
                61,861
                
                
                62,786
                
                
                90,904
                
                
                56,522
                
                
                43,824
                
                
                (4,533
                )(12,425
                )
                
                20,724
                
                
                10,442
                
                
                25,651
                
                
                6,512
                
                
                2,788
                
                
                2,75114,335
                
                
                41,137
                
                
                52,344
                
                
                65,253
                
                
                50,010
                
                
                41,036
                
                
                (7,284
                )(f)
                
                
                2.13x
                
                
                3.04x
                
                
                4.33x
                
                
                2.96x
                
                
                2.57x
                
                
                (f
                )$
                0.35
                
                $
                1.00
                
                $
                1.27
                
                $
                1.58
                
                $
                1.21
                
                $
                0.99
                
                $
                (0.18
                )0.06
                
                
                0.06
                
                
                0.06
                
                
                0.045
                
                
                0.04
                
                
                0.04
                
                
                0.049.59
                
                
                9.27
                
                
                8.33
                
                
                7.11
                
                
                5.58
                
                
                4.41
                
                
                3.46$
                179,037
                
                $
                203,350
                
                $
                124,531
                
                $
                154,242
                
                $
                147,040
                
                $
                133,542
                
                $
                88,4551,227,890
                
                
                1,215,695
                
                
                705,420
                
                
                655,762
                
                
                601,439
                
                
                579,124
                
                
                536,7223,483
                
                
                5,099
                
                
                4,657
                
                
                4,353
                
                
                5,889
                
                
                11,596
                
                
                35,850450,161
                
                
                467,242
                
                
                165,037
                
                
                183,753
                
                
                199,784
                
                
                224,743
                
                
                198,334394,324
                
                
                380,932
                
                
                342,559
                
                
                294,259
                
                
                230,871
                
                
                182,516
                
                
                143,135$
                98,113
                
                $
                87,833
                
                $
                130,803
                
                $
                $81,452
                
                $
                85,016
                
                $
                49,615
                
                $
                11,39170,973
                
                
                55,390
                
                
                36,027
                
                
                34,536
                
                
                32,591
                
                
                29,796
                
                
                28,024--
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                ----
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --80,388
                
                
                112,632
                
                
                92,128
                
                
                69,649
                
                
                53,518
                
                
                50,231
                
                
                34,314--
                
                
                239,539
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --(21,793
                )
                
                246,649
                
                
                (24,769
                )
                
                (19,634
                )
                
                (32,498
                )
                
                348
                
                
                27,313$
                103,469
                
                $
                146,166
                
                $
                115,356
                
                $
                142,043
                
                $
                108,268
                
                $
                94,782
                
                $
                43,2696.5
                %
                
                9.7
                %
                
                11.1
                %
                
                13.7
                %
                
                10.2
                %
                
                9.0
                %
                
                6.2
                %5.3
                %
                
                5.4
                %
                
                5.7
                %
                
                5.6
                %
                
                4.4
                %
                
                4.0
                %
                
                4.3
                %1.2
                %
                
                4.3
                %
                
                5.4
                %
                
                8.1
                %
                
                5.8
                %
                
                5.0
                %
                
                1.9
                %1.3
                %
                
                1.4
                %
                
                1.2
                %
                
                1.3
                %
                
                1.5
                %
                
                1.7
                %
                
                1.9
                %0.6
                %
                
                1.9
                %
                
                3.5
                %
                
                4.8
                %
                
                3.8
                %
                
                3.2
                %
                
                (0.6
                )%
 
  38
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  
 (a)
                The
                    Company acquired the ConAgra chicken division on November 23,
                    2003 for
                    $635.2 million including the non-cash value of common stock issued
                    of
                    $357.5 million. The acquisition has been accounted for as a purchase
                    and
                    the results of operations for this acquisition have been included
                    in our
                    consolidated results of operations since the acquisition
                    date.(b)
                On
                    April 26, 2004, the Company announced a plan to restructure its
                    turkey
                    division, including the sale of some facilities in Virginia.
                    The
                    facilities were sold in the fourth quarter of fiscal 2004. In
                    connection
                    with the restructuring, the Company recorded in cost of
                    sales-restructuring charges of approximately $64.2 million and
                    $7.9
                    million of other restructuring charges.(c)
                The
                    Company acquired WLR Foods on January 27, 2001 for $239.5 million
                    and the
                    assumption of $45.5 million of indebtedness. The acquisition
                    has been
                    accounted for as a purchase and the results of operations for
                    this
                    acquisition have been included in our consolidated results of
                    operations
                    since the acquisition date.(d)
                Gross
                    profit, operating income and other income include the following
                    non-recurring recoveries, restructuring charges and other unusual
                    items
                    for each of the years presented (in
                    millions):
 
 2005
                
                2004
                
                2003Effect
                    on Gross Profit and Operating Income:Cost
                    of sales-restructuring
                
                $
                --
                
                $
                (64.2
                )
                $
                --Non-recurring
                    recoveries recall insurance
                
                $
                --
                
                $
                23.8
                
                $
                --Non-recurring
                    recoveries for avian influenza
                
                $
                --
                
                $
                --
                
                $
                26.6Non-recurring recoveries for vitamin and methionine
                    litigation
                
                $
                --
                
                $
                0.1
                
                $
                19.9Additional
                    effect on Operating Income:Other
                    restructuring charges
                
                $
                --
                
                $
                (7.9
                )
                $
                --Other
                    income for litigation settlement
                
                
                11.7
                
                
                --
                
                
                --Other
                    income for vitamin and methionine litigation
                
                $
                --
                
                $
                0.9
                
                $
                36.0
 
 In
                    addition, the Company estimates its losses related to the October
                    2002
                    recall (excluding the insurance recovery described above) and
                    the 2002
                    avian influenza outbreak negatively affected gross profit and
                    operating
                    income in each of the years presented as follows (in
                    millions):
 
 2004
                
                2003
                
                2002Recall
                    effects (estimated)
                
                $
                (20.0
                )
                $
                (65.0
                )
                $
                --Losses
                    from avian influenza (estimated)
                
                $
                --
                
                $
                (7.3
                )
                $
                (25.6
                )
 
 (e)
                Fiscal
                    2006 included income tax expense of $25.8 million associated
                    with the
                    restructuring of the Mexico operations and subsequent repatriation
                    of
                    foreign earnings under American Jobs Creation Act of 2004. Fiscal
                    2003
                    included a non-cash tax benefit of $16.9 million associated with
                    the
                    reversal of a valuation allowance on net operating losses in
                    the Company’s
                    Mexico operations. Fiscal 2002 included a tax benefit of $11.9
                    million
                    from changes in Mexican tax laws.(f)
                For
                    purposes of computing the ratio of earnings to fixed charges,
                    earnings
                    consist of income before income taxes plus fixed charges (excluding
                    capitalized interest). Fixed charges consist of interest (including
                    capitalized interest) on all indebtedness, amortization of capitalized
                    financing costs and that portion of rental expense that we believe
                    to be
                    representative of interest. Earnings were inadequate to cover
                    fixed
                    charges by $40.6 million, $4.1 million and $5.8 million in fiscal
                    2006,
                    2002 and 1996, respectively.(g)
                Historical
                    per share amounts represent both basic and diluted and have been
                    restated
                    to give effect to a stock dividend issued on July 30, 1999. The
                    stock
                    reclassification on November 21, 2003 that resulted in the new
                    common
                    stock traded as PPC did not affect the number of shares
                    outstanding.(h)
                Includes
                    amortization of capitalized financing costs of approximately
                    $2.6 million,
                    $2.3 million, $2.0 million, $1.5 million, $1.4 million, $1.9
                    million, $1.2
                    million, $1.1 million, $1.0 million, $0.9 million and $1.8 million
                    in
                    fiscal years 2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999,
                    1998, 1997
                    and 1996, respectively.(i)
                “EBITDA”
                    is defined as the sum of net income (loss) before interest, taxes,
                    depreciation and amortization. EBITDA is presented because it
                    is used by
                    us and we believe it is frequently used by securities analysts,
                    investors
                    and other interested parties, in addition to and not in lieu
                    of Generally
                    Accepted Accounting Principles (GAAP) results, to compare the
                    performance
                    of companies. EBITDA is not a measurement of financial performance
                    under
                    GAAP and should not be considered as an alternative to cash flow
                    from
                    operating activities or as a measure of liquidity or an alternative
                    to net
                    income as indicators of our operating performance or any other
                    measures of
                    performance derived in accordance with GAAP.
 
 39
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **A
          reconciliation of net income to EBITDA is as follows (in
          thousands):**
 
 2006
                
                2005
                
                2004
                
                2003
                
                2002
                
                2001
                
                2000
                
                1999
                
                1998
                
                1997
                
                1996**Net
                    Income (loss)**
                
                $
                (34,232
                )
                $
                264,979
                
                $
                128,340
                
                $
                56,036
                
                $
                14,335
                
                $
                41,137
                
                $
                52,344
                
                $
                65,253
                
                $
                50,010
                
                $
                41,036
                
                $
                (7,284
                )Add:Interest
                    expense, net
                
                
                40,553
                
                
                43,932
                
                
                52,129
                
                
                37,981
                
                
                32,003
                
                
                30,775
                
                
                17,779
                
                
                17,666
                
                
                20,148
                
                
                22,075
                
                
                21,539In
                    Income tax expense (benefit)
                
                
                (2,085
                )
                
                138,544
                
                
                80,195
                
                
                7,199
                
                
                (12,425
                )
                
                20,724
                
                
                10,442
                
                
                25,651
                
                
                6,512
                
                
                2,788
                
                
                2,751D Depreciation
                    and amortization(h)
                
                
                135,133
                
                
                134,944
                
                
                113,788
                
                
                74,187
                
                
                70,973
                
                
                55,390
                
                
                36,027
                
                
                34,536
                
                
                32,591
                
                
                29,796
                
                
                28,024Minus:A  Amortization
                    of capitalized financing costs(h)
                
                
                2,606
                
                
                2,321
                
                
                1,951
                
                
                1,477
                
                
                1,417
                
                
                1,860
                
                
                1,236
                
                
                1,063
                
                
                993
                
                
                913
                
                
                1,761EBITDA
                
                $
                136,763
                
                $
                580,078
                
                $
                372,501
                
                $
                173,926
                
                $
                103,469
                
                $
                146,166
                
                $
                115,356
                
                $
                142,043
                
                $
                108,268
                
                $
                94,782
                
                $
                43,269
 
 **Item
          7. Management’s Discussion and Analysis of Financial Condition and Results of
          Operations**
 
 **§**  **Description
          of the Company**
 
 The
          Company is the second largest producer of chicken in the United States,
          the
          second largest producer and seller of chicken in Mexico, the largest producer
          of
          chicken in Puerto Rico and has one of the best known brand names in the
          chicken
          industry. In the U.S., we produce both prepared and fresh chicken and fresh
          turkey, while in Mexico and Puerto Rico we exclusively produce fresh chicken.
          Through vertical integration we control the breeding, hatching and growing
          of
          chickens. We operate in three business segments and two geographical
          areas.
 
 **§**  **Executive
          Summary**
 
 **Overview.** Focus and concern abroad over avian influenza significantly reduced
          international demand for chicken products during fiscal 2006 when compared
          to
          the prior year, leading at times to higher inventory levels and contributing
          to
          lower overall market pricing. At the same time, industry production levels
          continued to increase, creating an oversupply situation and further weakening
          prices. Industry-wide inventories of leg quarters reached extremely high
          levels
          during the first nine months of fiscal 2006 due to reduced purchasing in
          foreign
          markets. Leg quarter inventory levels began falling at the beginning of
          our
          third fiscal quarter and by the end of such quarter had reached levels
          comparable to the end of the third quarter of fiscal 2005 and remained
          at
          comparable levels as of September 30, 2006. Additionally, the oversupply
          of leg
          quarters put significant pressure on the U.S. white meat markets which
          contributed to historically low breast meat prices. While leg quarter pricing
          improved substantially throughout most of fiscal 2006, breast meat pricing
          after
          attempting to recover earlier in the year began declining in the fourth
          quarter
          and, as of the date of this report, reached near all-time lows and was
          substantially lower than the prior year. During fiscal 2006, the average
          market
          pricing for chicken leg quarters and breast meat declined approximately
          19.7%
          and 15.8%, respectively, from the prior year. Additionally, our U.S. chicken
          sales volume for fiscal 2006 was 2.3% less than last year due primarily
          to the
          effects of avian influenza concerns in the international markets. This
          change in
          pricing and demand adversely affected our results for fiscal 2006. 
Additionally, some U.S. customers have renegotiated their contracts with
          us to
          reflect the current pricing environment for chicken.
 40
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  In
          addition, the cost of corn, our primary feed ingredient, increased significantly
          from August 2006 to the date of this report. There can be no assurance
          that the
          price of corn will not continue to rise as a result of, among other things,
          increasing demand for corn products around the world and alternative uses
          of
          corn, such as ethanol production. We will attempt to pass through the expected
          higher feed costs through contract negotiations with our customers. However,
          there can be no assurance that these increased costs can be recovered.
 
 In
          response to this challenging operating environment, we have executed a
          multi-point plan designed to improve our competitive position:
  ·
              First,
                  we have delayed one-half of our planned expansion in the Fresh
                  Food
                  Service Division of our Mayfield, Kentucky plant from early July
                  until
                  mid-September of this year, and the other half of this expansion
                  from
                  early July 2006 until June 2007.   ·
              Second,
                  beginning on July 1, 2006, we reduced our weekly slaughter rate
                  by
                  approximately 3%, which is equivalent to approximately 830,000
                  head per
                  week. In addition, we recently announced a further reduced weekly
                  slaughter to achieve a 5% year-over-year decline, which is equivalent
                  to
                  approximately 1.3 million head per week, beginning in January 2007.
                  We
                  currently intend to keep this reduction in slaughter in effect
                  until we
                  believe that the average industry profit margins have returned
                  to a more
                  normalized level.   ·
              Third,
                  we reduced our capital investments for fiscal 2006 to $144
                  million.  Our original capital investment projection for the year had
                  been in the range of $180-$200 million.  Our estimated range for
                  fiscal 2007 is $140-$160 million. We are focusing only on those
                  projects we deem critically necessary to our business or those in
                  which our immediate investment is judged by us to be
                  in our best long-term interests.   ·
              Fourth,
                  we have sharpened our focus on reducing costs and operating more
                  efficiently.  
 We
          intend to continue to monitor market conditions for purposes of determining
          when
          we believe further changes in our business are prudent.
 
 **Results.** The net loss for fiscal 2006 of $34.2 million is down $299.2 million from
          net
          income of $265.0 million for fiscal 2005. This decrease is primarily due
          to:
 
 ·
              Reduced
                  selling prices for chicken primarily created by market disruptions
                  caused
                  by the avian influenza scares in other parts of the world. Reduced
                  selling
                  prices for our Mexico produced chicken partially offset by an increase
                  in
                  pounds sold in Mexico. 
 **·**
              Increased
                  cost of sales due to higher energy and packaging
                  costs. 
 ·
              Tax
                  expense of $25.8 million related to the restructuring of our Mexico
                  operations and subsequent repatriation of foreign earnings under
                  the
                  American Jobs Creation Act of 2004. 
 **§**  **Business
          Environment**
 
 Profitability
          in the poultry industry is materially affected by the commodity prices
          of feed
          ingredients, chicken and turkey, which are determined by supply and demand
          factors. As a result, the chicken and turkey industries are subject to
          cyclical
          earnings fluctuations, which can be mitigated somewhat by:
 41
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  -
          Business strategy;
 
 -
          Product mix;
 
 -
          Sales and marketing plans; and
 
 -
          Operating efficiencies.
 
 In
          an effort to reduce price volatility and to generate higher, more consistent
          profit margins, we have concentrated on the production and marketing of
          prepared
          foods products. Prepared foods products generally have higher profit margins
          than our other products. Also, the production and sale in the U.S. of prepared
          foods products reduces the impact of the costs of feed ingredients on our
          profitability. Feed ingredient purchases are the single largest component
          of our
          cost of sales, representing approximately 27% of our consolidated cost
          of sales
          in fiscal 2006. The production of feed ingredients is positively or negatively
          affected primarily by weather patterns throughout the world, the global
          level of
          supply inventories and demand for feed ingredients, and the agricultural
          policies of the U.S. and foreign governments. The cost of corn, our primary
          feed
          ingredient, increased significantly from August 2006 until the date of
          this
          report, and there can be no assurance that the price of corn will not continue
          to rise as a result of, among other things, increasing demand for corn
          products
          around the world and alternative uses of corn, such as ethanol production.
          As
          further processing is performed, feed ingredient costs become a decreasing
          percentage of a product’s total production cost, thereby reducing their impact
          on our profitability. Products sold in this form enable us to charge a
          premium,
          reduce the impact of feed ingredient costs on our profitability and improve
          and
          stabilize our profit margins.
 
 As
          a significant portion of the U.S. poultry production is exported, the commodity
          prices of chicken and turkey can be, and in recent periods have been, adversely
          affected by disruptions in poultry export markets. These disruptions are
          often
          caused by restrictions on imports of U.S.-produced poultry products imposed
          by
          foreign governments for a variety of reasons, including the protection
          of their
          domestic poultry producers and allegations of consumer health issues. For
          example, Russia and Japan have restricted the importation of U.S.-produced
          poultry for both of these reasons in recent periods. In July 2003, the
          U.S. and
          Mexico entered into a safeguard agreement with regard to imports into Mexico
          of
          chicken leg quarters from the U.S. Under this agreement, a tariff rate
          for
          chicken leg quarters of 98.8% of the sales price was established. This
          tariff
          rate was reduced on January 1, 2006 to 39.5% and is scheduled to be reduced
          in
          each of the following two years in equal increments so that the final tariff
          rate at January 1, 2008 will be zero. The tariff was imposed due to concerns
          that the duty-free importation of such products as provided by the North
          American Free Trade Agreement would injure Mexico’s poultry industry. As such
          tariffs are reduced, we expect greater amounts of chicken to be imported
          into
          Mexico from the U.S., which could negatively affect the profitability of
          Mexican
          chicken producers and positively affect the profitability of U.S. exporters
          of
          chicken to Mexico. Although this could have a negative impact on our Mexican
          chicken operations, we believe that this will be mitigated by the close
          proximity of our U.S. operations to the Mexico border. We have the largest
          U.S.
          production and distribution capacities near the Mexican border, which gives
          us a
          strategic advantage to capitalize on exports of U.S. chicken to Mexico.
          Because
          these disruptions in poultry export markets are often political, no assurances
          can be given as to when the existing disruptions will be alleviated or
          that new
          ones will not arise.
 42
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **Business
          Segments**
 
 We
          operate in three reportable business segments as (1) a producer and seller
          of
          chicken products, (2) a producer and seller of turkey products and (3)
          a seller
          of other products. In previous years, our presented segments included chicken
          and other and turkey. After fully integrating the fiscal 2004 acquisition
          into
          our operations during fiscal 2004 and early fiscal 2005, we changed our
          segment
          presentation to separate our non-chicken and non-turkey operations into
          a
          separate category consistent with management’s evaluation of operating results
          and decisions with respect to the allocation of resources.
 
 Our
          chicken segment includes sales of chicken products we produce and purchase
          for
          resale in the U.S., including Puerto Rico, and Mexico. Our chicken segment
          conducts separate operations in the U.S., Puerto Rico and Mexico and is
          reported
          as two separate geographical areas. Substantially all of the assets and
          operations of the fiscal 2004 acquisition are included in our U.S. chicken
          segment since the date of acquisition.
 
 Our
          turkey segment includes sales of turkey products we produce and purchase
          for
          resale in our turkey and distribution operations in the U.S.
 
 Our
          other products segment includes distribution of non-poultry products that
          are
          purchased from third parties and sold to independent grocers and quick
          service
          restaurants. Also included in this category are sales of table eggs, feed,
          protein products and other items, some of which are produced by the
          Company.
 
 Inter-area
          sales and inter-segment sales, which are not material, are accounted for
          at
          prices comparable to normal trade customer sales. 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. portions of the segments based on number of employees.
 
 Assets
          associated with our corporate functions, including cash and cash equivalents
          and
          investments in available for sale securities, are included in our chicken
          segment.
 
 Selling,
          general and administrative expenses related to our distribution centers
          are
          allocated based on the proportion of net sales to the particular segment
          to
          which the product sales relate.
 
 Depreciation
          and amortization, total assets and capital expenditures of our distribution
          centers are included in our chicken segment based on the primary focus
          of the
          centers.
 
 Non-recurring
          recoveries, which represent settlements for vitamin and methionine litigation
          covering several periods as well as federal compensation for avian influenza,
          have not been allocated to any segment because the proper allocation cannot
          be
          readily determined.
 
 The
          following table presents certain information regarding our
          segments:
 43
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  
 ***Fiscal
                    Year Ended*****September
                    30, 2006**
                
                **October
                    1, 2005**
                
                **October
                    2, 2004****(a)*****(In
                    thousands)*****Net
                    Sales to Customers:**Chicken:United
                    States
                
                $
                4,098,403
                
                $
                4,411,269
                
                $
                4,091,706Mexico
                
                
                418,745
                
                
                403,353
                
                
                362,442Sub-total
                
                
                4,517,148
                
                
                4,814,622
                
                
                4,454,148Turkey
                
                
                130,901
                
                
                204,838
                
                
                286,252Other
                    Products:United
                    States
                
                
                570,510
                
                
                626,056
                
                
                600,091Mexico
                
                
                17,006
                
                
                20,759
                
                
                23,232Sub-total
                
                
                587,516
                
                
                646,815
                
                
                623,323Total
                
                $
                5,235,565
                
                $
                5,666,275
                
                $
                5,363,723**Operating
                    Income (Loss):**Chicken:United
                    States
                
                $
                28,619
                
                $
                405,662
                
                $
                329,694Mexico
                
                
                (17,960
                )
                
                39,809
                
                
                (7,619
                )Sub-total
                
                
                10,659
                
                
                445,471
                
                
                322,075Turkey(b)
                
                
                (15,511
                )
                
                (22,539
                )
                
                (96,839
                )Other
                    Products:United
                    States
                
                
                6,216
                
                
                8,250
                
                
                35,969Mexico
                
                
                1,638
                
                
                4,630
                
                
                4,033Sub-total
                
                
                7,854
                
                
                12,880
                
                
                40,002Non-recurring
                    recoveries
                
                
                --
                
                
                --
                
                
                76Total
                
                $
                3,002
                
                $
                435,812
                
                $
                265,314**Depreciation
                    and Amortization:****(c)**Chicken:United
                    States
                
                $
                109,346
                
                $
                114,131
                
                $
                89,767Mexico
                
                
                11,305
                
                
                12,085
                
                
                12,217Sub-total
                
                
                120,651
                
                
                126,216
                
                
                101,984Turkey
                
                
                6,593
                
                
                3,343
                
                
                6,887Other
                    Products:United
                    States
                
                
                7,743
                
                
                5,196
                
                
                4,773Mexico
                
                
                146
                
                
                189
                
                
                144Sub-total
                
                
                7,889
                
                
                5,385
                
                
                4,917Total
                
                $
                135,133
                
                $
                134,944
                
                $
                113,788**Total
                    Assets:**Chicken:United
                    States
                
                $
                1,897,763
                
                $
                2,059,579
                
                $
                1,830,051Mexico
                
                
                361,887
                
                
                287,414
                
                
                212,492Sub-total
                
                
                2,259,650
                
                
                2,346,993
                
                
                2,042,543Turkey
                
                
                76,908
                
                
                77,319
                
                
                122,163Other
                    Products:United
                    States
                
                
                88,650
                
                
                85,581
                
                
                78,754Mexico
                
                
                1,660
                
                
                2,010
                
                
                2,529Sub-total
                
                
                90,310
                
                
                87,591
                
                
                81,283Total
                
                $
                2,426,868
                
                $
                2,511,903
                
                $
                2,245,989**Capital
                    Expenditures:**Chicken:United
                    States
                
                $
                133,106
                
                $
                102,470
                
                $
                54,433Mexico
                
                
                6,536
                
                
                4,924
                
                
                8,640Sub-total
                
                
                139,642
                
                
                107,394
                
                
                63,073Turkey
                
                
                257
                
                
                3,604
                
                
                8,151Other
                    Products:United
                    States
                
                
                3,567
                
                
                5,448
                
                
                8,395Mexico
                
                
                416
                
                
                142
                
                
                23Sub-total
                
                
                3,983
                
                
                5,590
                
                
                8,418Total
                
                $
                143,882
                
                $
                116,588
                
                $
                79,642
  
 44
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 (a)
                The
                    Company acquired the ConAgra chicken division on November 23,
                    2003 for
                    $635.2 million. The acquisition has been accounted for as a purchase
                    and
                    the results of operations for this acquisition have been included
                    in our
                    consolidated results of operations since the acquisition
                    date.(b)
                Included
                    in fiscal 2004 are restructuring charges totaling $72.1 million
                    offset
                    somewhat by the non-recurring recovery of $23.8 million representing
                    the
                    gain recognized on the insurance proceeds received in connection
                    with the
                    October 2002 recall. In addition, the Company estimates its losses
                    related
                    to the October 2002 recall (excluding the insurance recovery
                    described
                    above) negatively affected gross profit and operating income
                    by $20.0
                    million in fiscal 2004 and $65.0 million in fiscal
                    2003.(c)
                Includes
                    amortization of capitalized financing costs of approximately
                    $2.6 million,
                    $2.3 million and $2.0 million in fiscal years 2006, 2005 and
                    2004,
                    respectively.
 
 
 The
          following table presents certain items as a percentage of net sales for
          the
          periods indicated:
 
 Fiscal
          Year Ended
 
 September
                    30,
                  2006
                
                October
                    1,
                  2005
                
                October
                    2,
                  2004Net
                    sales
                
                
                100.0
                %
                
                100.0
                %
                
                100.0
                %Cost
                    and ExpensesCost
                    of sales
                
                
                94.3
                
                
                86.8
                
                
                89.4Cost
                    of sales-restructuring
                
                
                --
                
                
                --
                
                
                1.2Non-recurring
                    recoveries
                
                
                --
                
                
                --
                
                
                (0.4
                )Gross
                    profit
                
                
                5.7
                
                
                13.2
                
                
                9.9Selling,
                    general and administrative expense
                
                
                5.6
                
                
                5.5
                
                
                4.8Other
                    restructuring charges
                
                
                --
                
                
                --
                
                
                0.1Operating
                    income
                
                
                0.1
                
                
                7.7
                
                
                4.9Interest
                    expense, net
                
                
                0.8
                
                
                0.7
                
                
                1.0Income
                    (loss) before income taxes
                
                
                (0.7
                )
                
                7.1
                
                
                3.9Net
                    income (loss)
                
                
                (0.7
                )
                
                4.7
                
                
                2.4
  45
 Pilgrim's
              Pride Corporation
 September
              30, 2006
 **Results
          of Operations**
 
 Our
          results of operations for fiscal 2006 when compared to fiscal 2005 were
          impacted
          by the following significant items.
 
 ***Fiscal
          2006 Compared to Fiscal 2005***
 
 *Net
          Sales.* Net
          sales for fiscal 2006 decreased $430.7 million, or 7.6%, over fiscal 2005.
          The
          following table provides additional information regarding net sales (in
          millions):
 
 Fiscal
                    Year EndedSeptember
                    30,
                
                Change
                    from
                
                PercentageSource
                
                
                
                2006
                
                Fiscal
                    2005
                
                ChangeChicken:United
                    States
                
                
                
                
                $
                4,098.4
                
                $
                (312.8
                )
                
                (7.1
                )%
                
                (a
                )Mexico
                
                
                
                
                
                418.7
                
                
                15.3
                
                
                3.8
                %
                
                (b
                )$
                4,517.1
                
                $
                (297.5
                )
                
                (6.2
                )%Turkey
                
                
                
                
                $
                130.9
                
                $
                (73.9
                )
                
                (36.1
                )%
                
                (c
                )Other
                    products:United
                    States
                
                
                
                
                $
                570.6
                
                $
                (55.5
                )
                
                (8.9
                )%
                
                (d
                )Mexico
                
                
                
                
                
                17.0
                
                
                (3.8
                )
                
                (18.3
                )%
                
                (e
                )$
                587.6
                
                $
                (59.3
                )
                
                (9.2
                )%Net
                    Sales
                
                
                
                
                $
                5,235.6
                
                $
                (430.7
                )
                
                (7.6
                )%
 
 
 (a)
                U.S.
                    chicken sales declined primarily due to 15.8% lower breast meat
                    prices and
                    19.7% lower leg quarter prices and 2.3% reduction in
                    volume.(b)
                Mexico
                    chicken sales increased compared to fiscal year 2005, due primarily
                    to
                    increases in production, partially offset by a 9.1% decrease
                    in pricing
                    per pound sold.(c)
                Turkey
                    sales declined due to our decision in the first quarter of fiscal
                    2006 to
                    cease production of certain products at our Franconia, Pennsylvania
                    turkey
                    cooking operations.(d)
                U.S.
                    sales of other products decreased primarily due to the divesture
                    of
                    certain distribution centers whose sales included a large volume
                    of
                    non-poultry products.(e)
                Mexico
                    other products sales decreased due to reduced sales volumes of
                    commercial
                    feed.
  46
 Pilgrim's
              Pride Corporation
 September
              30, 2006
 *Gross
          Profit.* Gross profit for fiscal 2006 decreased $447.6 million, or 60.1%, over fiscal
          2005. The following table provides gross profit information (in
          millions):
 
 Fiscal
                    Year Ended
                
                
                
                
                
                Percentage
                
                PercentageSeptember
                    30,
                
                Change
                    from
                
                Percentage
                
                of
                    Net Sales
                
                of
                    Net SalesComponents
                
                
                
                2006
                
                Fiscal
                    2005
                
                Change
                
                Fiscal
                    2006
                
                Fiscal
                    2005Net
                    sales
                
                
                
                
                $
                5,235.6
                
                $
                (430.7
                )
                
                (7.6
                )%
                
                100.0
                %
                
                100.0
                %Cost
                    of sales
                
                
                
                
                
                4,938.0
                
                
                16.9
                
                
                0.3
                %
                
                94.3
                %
                
                86.8
                %
                
                (a
                )Gross
                    profit
                
                
                
                
                $
                297.6
                
                $
                (447.6
                )
                
                (60.1
                )%
                
                5.7
                %
                
                13.2
                %
 
 (a)
                Cost
                    of sales in the U.S. chicken operations increased $71.8 million
                    due
                    primarily to increased energy, and packaging costs. Cost of sales
                    in our
                    turkey operations decreased significantly because of the restructuring
                    of
                    this division in fiscal 2004 and first quarter of fiscal 2006.
                    Cost of
                    sales in our Mexico chicken operations increased $71.6 million
                    primarily
                    due to a 9.7% increase in production volumes.
 
 47
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Operating
          Income.* Operating income for fiscal 2006 compared to fiscal 2005 decreased $432.8
          million, or 99.3%, as described in the following table (in millions):
 
 Fiscal
                    Year EndedSeptember
                    30,
                
                Change
                    from
                
                PercentageSource
                
                
                
                2006
                
                Fiscal
                    2005
                
                ChangeChicken:United
                    States
                
                
                
                
                $
                28.6
                
                $
                (377.1
                )
                
                (93.0
                )%Mexico
                
                
                
                
                
                (17.9
                )
                
                (57.7
                )
                
                (145.0
                )%$
                10.7
                
                $
                (434.8
                )
                
                (97.6
                )%Turkey
                
                
                
                
                $
                (15.5
                )
                $
                7.0
                
                
                31.1
                %Other
                    Products:United
                    States
                
                
                
                
                $
                6.2
                
                $
                (2.0
                )
                
                (24.4
                )%Mexico
                
                
                
                
                
                1.6
                
                
                (3.0
                )
                
                (65.2
                )%$
                7.8
                
                $
                (5.0
                )
                
                (39.1
                )%Non-recurring
                    recoveries
                
                
                
                
                
                --
                
                
                --
                
                
                --Operating
                    Income
                
                
                
                
                $
                3.0
                
                $
                (432.8
                )
                
                (99.3
                )%
 
 Fiscal
                    Year Ended
                
                
                
                
                
                Percentage
                
                PercentageSeptember
                    30,
                
                Change
                    from
                
                Percentage
                
                of
                    Net Sales
                
                of
                    Net SalesComponents
                
                
                
                2006
                
                Fiscal
                    2005
                
                Change
                
                Fiscal
                    2006
                
                Fiscal
                    2005Gross
                    profit
                
                
                
                
                $
                297.6
                
                $
                (447.6
                )
                
                (60.1
                )%
                
                5.7
                %
                
                13.2
                %Selling,
                    general and administrative expense
                
                
                
                
                
                294.6
                
                
                (14.8
                )
                
                (4.8
                )%
                
                5.6
                %
                
                5.5
                %
                
                (a
                )Operating
                    income
                
                
                
                
                $
                3.0
                
                $
                (432.8
                )
                
                (99.3
                )%
                
                0.1
                %
                
                7.7
                %
                
                (b
                )
 
 (a)
                Selling,
                    general and administrative expense decreased due primarily to
                    a decrease
                    in costs associated with our profit-based retirement and compensation
                    plans.(b)
                The
                    decrease in operating income when compared to fiscal 2005 is
                    due primarily
                    to lower market pricing for chicken products, as well as increased
                    costs
                    for energy and packaging.
 
 *Interest
          Expense* .
          Consolidated interest expense increased 2.0% to $50.6 million in fiscal
          2006,
          when compared to $49.6 million for fiscal 2005, due primarily to higher
          average
          outstanding debt balances experienced in the fiscal year.
 
 *Interest
          Income* .
          Interest income increased 75.4% to $10.0 million in fiscal 2006, compared
          to
          $5.7 million in fiscal 2005, due to higher average investment balances
          and
          slightly higher rates.
 
 *Income
          Tax Expense* .
          Consolidated income tax benefit in fiscal 2006 was $2.1 million, compared
          to tax
          expense of $138.5 million in fiscal 2005. The decrease in consolidated
          income
          tax expense is the result of the pretax loss in fiscal 2006 versus significant
          earnings in the U.S. and Mexico in 2005. In addition, fiscal 2006 included
          income tax expense of $25.8 million for the restructuring of the Mexico
          operations and subsequent repatriation of earnings from Mexico under the
          American Jobs Creation Act of 2004, and a $10.6 million benefit from a
          change in
          an estimate, both of which are described in Note A to the Consolidated
          Financial
          Statements.
 48
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 ***Fiscal
          2005 Compared to Fiscal 2004***
 
 *Net
          Sales.* Net
          sales for fiscal 2005 increased $302.6 million, or 5.6%, over fiscal 2004.
          The
          following table provides additional information regarding net sales (in
          millions):
 
 Fiscal
                    Year EndedOctober
                    1,
                
                Change
                    from
                
                PercentageSource
                
                2005
                
                Fiscal
                    2004
                
                ChangeChicken:United
                    States
                
                $
                4,411.2
                
                $
                319.5
                
                
                7.8
                %
                
                (a
                )Mexico
                
                
                403.4
                
                
                41.0
                
                
                11.3
                %
                
                (b
                )$
                4,814.6
                
                $
                360.5
                
                
                8.1
                %Turkey
                
                $
                204.8
                
                $
                (81.5
                )
                
                (28.5
                )%
                
                (c
                )Other
                    Products:United
                    States
                
                $
                626.1
                
                $
                26.0
                
                
                4.3
                %
                
                (d
                )Mexico
                
                
                20.8
                
                
                (2.4
                )
                
                (10.3
                )%
                
                (e
                )$
                646.9
                
                $
                23.6
                
                
                3.8
                %Net
                    Sales
                
                $
                5,666.3
                
                $
                302.6
                
                
                5.6
                %
 
 (a)
                U.S.
                    chicken sales increased primarily due to the inclusion of the
                    fiscal 2004
                    acquisition for 52 weeks in fiscal 2005 versus 45 weeks in fiscal
                    2004.(b)
                Mexico
                    chicken sales after adjusting for a 52-week year in 2004 increased
                    primarily due to a 14.8% increase in total revenue per pound
                    produced,
                    partially offset by a 1.3% decline in dressed pounds
                    produced.(c)
                The
                    decrease in turkey sales was due primarily to our fiscal 2004
                    restructuring of our turkey operations. See “Note B - Restructuring
                    Charges and Non-Recurring Recoveries” of the notes to Consolidated
                    Financial Statements included elsewhere herein. We estimate that
                    commodity
                    sales in our turkey division decreased by approximately $55 million
                    in
                    fiscal 2005 as a result of this restructuring.(d)
                U.S.
                    sales of other products increased primarily due to the inclusion
                    of the
                    distribution centers of the fiscal 2004 acquisition for 52 weeks
                    in fiscal
                    2005 versus 45 weeks in fiscal 2004. Also affecting the U.S.
                    sales of
                    other products was a decline in pricing for products at our commercial
                    egg
                    operations and our rendering plants.(e)
                Mexico
                    other products sales decreased due to reduced sales volumes of
                    our
                    commercial feed.
  49
 Pilgrim's
              Pride Corporation
 September
              30, 2006
 *Gross
          Profit.* Gross
          profit for fiscal 2005 increased $216.2 million, or 40.9%, over fiscal
          2004. The
          following table provides gross profit information (in millions):
 
 Fiscal
                    Year Ended
                
                Change
                
                
                
                Percentage
                
                PercentageOctober
                    1,
                
                from
                
                Percentage
                
                of
                    Net Sales
                
                of
                    Net SalesComponents
                
                
                
                2005
                
                Fiscal
                    2004
                
                Change
                
                Fiscal
                    2005
                
                Fiscal
                    2004Net
                    sales
                
                
                
                
                $
                5,666.3
                
                $
                302.6
                
                
                5.6
                %
                
                100.0
                %
                
                100.0
                %Cost
                    of sales
                
                
                
                
                
                4,921.1
                
                
                126.7
                
                
                2.6
                %
                
                86.8
                %
                
                89.4
                %
                
                (a
                )Cost
                    of sales-restructuring
                
                
                
                
                
                --
                
                
                (64.2
                )
                
                --
                
                
                --
                %
                
                1.2
                %
                
                (b
                )Non-recurring
                    recoveries
                
                
                
                
                
                --
                
                
                23.9
                
                
                --
                
                
                --
                %
                
                (0.4
                )%
                
                (c
                )Gross
                    profit
                
                
                
                
                $
                745.2
                
                $
                216.2
                
                
                40.9
                %
                
                13.2
                %
                
                9.9
                %
 
 (a)
                Cost
                    of sales in the U.S. chicken operations increased $180.0 million
                    due
                    primarily to the fiscal 2004 acquisition, offset partially by
                    the cost of
                    feed ingredient purchases averaging 17% lower in cost in fiscal
                    2005
                    compared to the prior year. Cost of sales in our turkey operations
                    decreased significantly because of the restructuring of this
                    division in
                    fiscal 2004. Cost of sales in our Mexico operations decreased
                    $13.2
                    million primarily due to a 3.2% decline in production volumes
                    after
                    adjusting for a 52-week year in 2004, and a 17.5% decrease in
                    average cost
                    of feed ingredient purchases.(b)
                On
                    April 26, 2004, we announced a plan to restructure our turkey
                    business to
                    significantly reduce our production of commodity turkey meat
                    and
                    strengthen our focus on value-added turkey products. As part
                    of our
                    restructuring effort, we sold our Hinton, Virginia turkey commodity
                    meat
                    operations. In fiscal 2004, we recorded, as cost of sales-restructuring,
                    approximately $64.2 million of asset impairment charges and inventory
                    losses on discontinued products and, as other restructuring charges,
                    $7.9
                    million, primarily related to exit and severance costs.(c)
                Non-recurring
                    recoveries in fiscal year 2004 consisted mainly of a $23.8 million
                    gain
                    from insurance proceeds related to our 2002 product recall.
  50
 Pilgrim's
              Pride Corporation
 September
              30, 2006
 *Operating
          Income.* Operating income for fiscal 2005 compared to fiscal 2004 increased $170.5
          million, or 64.3%, as described in the following table (in
          millions):
 
 Fiscal
                    Year EndedOctober
                    1,
                
                Change
                    from
                
                PercentageSource
                
                
                
                2005
                
                Fiscal
                    2004
                
                ChangeChickenUnited
                    States
                
                
                
                
                $
                405.7
                
                $
                76.0
                
                
                23.1
                %Mexico
                
                
                
                
                
                39.8
                
                
                47.4
                
                
                623.7
                %$
                445.5
                
                $
                123.4
                
                
                38.3
                %Turkey
                
                
                
                
                $
                (22.5
                )
                $
                74.3
                
                
                76.8
                %Other
                    ProductsUnited
                    States
                
                
                
                
                $
                8.2
                
                $
                (27.7
                )
                
                (77.2
                )%Mexico
                
                
                
                
                
                4.6
                
                
                0.6
                
                
                15.0
                %$
                12.8
                
                $
                (27.1
                )
                
                (67.9
                )%Non-recurring
                    recoveries
                
                
                
                
                $
                --
                
                $
                (0.1
                )
                
                --
                %Operating
                    Income
                
                
                
                
                $
                435.8
                
                $
                170.5
                
                
                64.3
                %
 
 Fiscal
                    Year Ended
                
                
                
                
                
                Percentage
                
                PercentageOctober
                    1,
                
                Change
                    from
                
                Percentage
                
                of
                    Net Sales
                
                of
                    Net SalesComponents
                
                
                
                2005
                
                Fiscal
                    2004
                
                Change
                
                Fiscal
                    2005
                
                Fiscal
                    2004Gross
                    profit
                
                
                
                
                $
                745.2
                
                $
                216.2
                
                
                40.9
                %
                
                13.2
                %
                
                9.9
                %Selling,
                    general and administrative expense
                
                
                
                
                
                309.4
                
                
                53.6
                
                
                21.0
                %
                
                5.5
                %
                
                4.8
                %
                
                (a
                )Other
                    restructuring charges
                
                
                
                
                
                --
                
                
                (7.9
                )
                
                --
                
                
                --
                
                
                0.1
                
                
                (b
                )Operating
                    income
                
                
                
                
                $
                435.8
                
                $
                170.5
                
                
                64.3
                %
                
                7.7
                %
                
                4.9
                %
                
                (c
                )
 
 (a)
                Selling,
                    general and administrative expense increased due to costs associated
                    with
                    increased sales of prepared foods because of the fiscal 2004
                    acquisition
                    and due to increases in costs associated with our profit-based
                    retirement
                    and compensation plans.(b)
                On
                    April 26, 2004, we announced a plan to restructure our turkey
                    division,
                    including the sale or closure of some facilities in Virginia.
                    Approximately $7.9 million related to exit and severance costs
                    in
                    connection with the restructuring were charged to other restructuring
                    charges.(c)
                The
                    increase in operating income over fiscal 2004 is due primarily
                    to lower
                    feed ingredient pricing, the $72.1 million in turkey restructuring
                    and
                    other related restructuring charges sustained in fiscal 2004
                    and the other
                    items described above.
 
 *Interest
          Expense* .
          Consolidated interest expense decreased 8.8% to $49.6 million in fiscal
          2005,
          when compared to $54.4 million for fiscal 2004, due primarily to lower
          average
          outstanding debt balances experienced in the fiscal year.
 51
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Interest
          Income.* Interest income increased 147.8% to $5.7 million compared to $2.3 million
          in
          fiscal 2004. This increase was due to the increase in funds available to
          invest
          created by the increase in net income.
 
 *Income
          Tax Expense.*  Consolidated
          income tax expense in fiscal 2005 was $138.5 million, compared to $80.2
          million
          in fiscal 2004. This increase in consolidated income tax expense is the
          result
          of higher pretax earnings in fiscal 2005. The effective tax rate for fiscal
          2005
          was 34.3% versus 38.5% for fiscal 2004. This decrease is due primarily
          to the
          increase in net income before tax in our Mexico operations which is taxed
          at a
          lower rate than our U.S. operations. Offsetting this is a $2.4 million
          provision
          for anticipated repatriations from Mexico under the American Jobs Creation
          Act
          of 2004.
 
 **Liquidity
          and Capital Resources**
  
 The
          following table presents our available sources of liquidity as of September
          30,
          2006 (in millions).
 
 Facility
                
                AmountSource
                    of Liquidity
                
                Amount
                
                Outstanding
                
                Available(in
                    millions)Cash
                    and cash equivalents
                
                $
                --
                
                $
                --
                
                $
                156.4Investments
                    in available for sale securities
                
                
                --
                
                
                --
                
                
                136.6Debt
                    Facilities:Revolving
                    credit facilities
                
                
                225.0
                
                
                75.0
                
                
                126.6
                
                
                (a
                )Revolving/term
                    facility
                
                
                795.0
                
                
                --
                
                
                (b
                )Term
                    loan
                
                
                430.0
                
                
                --
                
                
                (b
                )Bridge
                    loan
                
                
                450.0
                
                
                --
                
                
                (c
                )Receivables
                    purchaseagreement
                
                
                125.0
                
                
                --
                
                
                125.0
 
 (a)
                  At
                      September 30, 2006, the Company had $23.4 million in letters
                      of credit
                      outstanding relating to normal business transactions.(b)
                  The
                      amount available at September 30, 2006 under these facilities
                      was $535.3
                      million. If our tender offers are successful, the amount of
                      borrowings available will increase by up to $486 million and,
                      with the
                      pledging of additional identified collateral to secure this
                      facility; the
                      full amount of the commitment under this facility will be
                      available.(c)
                  Reflects
                      a commitment letter obtained by the Company from certain investment
                      banks,
                      pursuant to which, subject to specified conditions, the investment
                      banks
                      have agreed to make available to the Company a $450 million
                      senior
                      unsecured bridge loan facility for the purchase of shares of
                      common stock
                      of Gold Kist.
 On
          September
          29, 2006, the Company commenced a tender offer to purchase all of the
          outstanding shares of Gold Kist Inc. (“Gold Kist”) common stock for $20 per
          share. In addition, the Company commenced a tender offer to purchase all
          of Gold
          Kist’s outstanding 10 1 / 4 %
          senior notes due March 15, 2014. As of October 13, 2006, holders of
          approximately 99% of the senior notes had tendered their notes. On October
          16,
          2006 the Company received notice that the Antitrust Division of the Department
          of Justice had granted early termination of the waiting period under the
          Hart-Scott-Rodino Antitrust Improvements
          Act of 1976 (“HSR”) in connection with this offer. As of October 27, 2006, the
          expiration date for the tender offers, holders of approximately 33% of
          Gold
          Kist’s common stock had tendered their shares. On October 30, 2006, the Company
          extended the tender offer to November 29, 2006.
 52
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 The
          total amount of funds required to consummate the tender offers, related
          merger,
          and to pay related fees and expenses is estimated to be approximately $1.3
          billion. The Company has obtained financing arrangements through a combination
          of an amendment and restatement to its existing credit facility and a commitment
          letter for an additional credit facility. In September 2006, the Company
          entered
          into an amended and restated credit agreement that provides for an aggregate
          commitment of $1.225 billion consisting of a $795 million revolving/term
          loan
          commitment and a $430 million term loan commitment. The Company has also
          obtained a commitment letter in which certain investment bankers have agreed
          to
          make available to the Company a $450 million senior unsecured bridge loan
          facility. The Company’s lenders have issued consents as necessary to allow the
          consummation and financing of the tender offer. All borrowings under the
          amended
          and restated credit agreement are subject to the availability of eligible
          collateral and no material adverse change provisions. The commitment to
          provide
          the bridge loan facility is also subject to specified conditions, including
          no
          material adverse change provisions. Additional information regarding the
          financial arrangements is in “Note E - Notes Payable and Long Term Debt”
included in the Company’s Consolidated Financial Statements.
 
 The
          $150.0 million domestic revolving credit facilities provide for interest
          rates
          ranging from LIBOR plus seven-eighths percent to LIBOR plus two and five-eighths
          percent depending upon our total debt to capitalization ratio. The $150.0
          million domestic revolving credit facilities, $126.6 million of which was
          available for borrowings at September 30, 2006, are secured by domestic
          chicken
          inventories. Borrowings against these facilities are subject to the availability
          of eligible collateral and no material adverse change provisions.
  On
          September 25, 2006, a subsidiary of the Company, Avícola Pilgrim’s Pride de
          México, S. de R.L. de C.V. (the “Borrower”), entered into a secured revolving
          credit agreement of up to $75 million. Obligations under this agreement
          are
          secured by a security interest in and lien upon all capital stock and other
          equity interests of the Company’s Mexico subsidiaries. All the obligations of
          the Borrower are supported by an unconditional guaranty by the Company.
          All
          available funds had been borrowed at September 30, 2006.
 
 We
          also maintain operating leases for various types of equipment, some of
          which
          contain residual value guarantees for the market value of assets at the
          end of
          the term of the lease. The terms of the lease maturities range from one
          to seven
          years. We estimate the maximum potential amount of the residual value guarantees
          is approximately $17.4 million; however, the actual amount would be offset
          by
          any recoverable amount based on the fair market value of the underlying
          leased
          assets. No liability has been recorded related to this contingency as the
          likelihood of payments under these guarantees is not considered to be probable
          and the fair value of the guarantees is immaterial. We historically have
          not
          experienced significant payments under similar residual guarantees.
 
 At
          September 30, 2006, our working capital increased to $528.8 million and
          our
          current ratio increased to 1.92 to 1, compared with working capital of
          $404.6
          million and a current ratio of 1.68 to 1 at October 1, 2005, primarily
          due to
          higher cash balances, investments held for sale, and income tax receivable
          and
          lower income tax payables.
 53
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 Trade
          accounts and other receivables were $263.1 million at September 30, 2006,
          compared to $288.5 million at October 1, 2005. The $25.4 million, or 8.8%,
          decrease in trade accounts and other receivables was primarily due to changes
          in
          sales mix and increased collection activity.
 
 Inventories
          were $585.9 million at September 30, 2006, compared to $527.3 million at
          October
          1, 2005. The $58.6 million, or 11.1%, increase in inventories was primarily
          due
          to increased product costs in finished chicken products and live inventories
          as
          a result of higher feed ingredient costs.
 
 Accounts
          payable increased $11.8 million to $293.7 million at September 30, 2006,
          compared to $281.9 million at October 1, 2005. The increase was primarily
          due to
          higher feed ingredient costs and timing of payments.
 
 Accrued
          liabilities decreased $15.3 million or 5.3% to $272.8 million compared
          to $288.1
          million at October 1, 2005. This decrease is due primarily to decreases
          in our
          profit-based retirement and compensation plans.
 
 Income
          taxes payable decreased $55.3 million to a $39.2 million receivable due
          to the
          net loss in fiscal 2006 which will result in the refund of previous tax
          payments.
 
 Cash
          flows provided by operating activities were $30.4 million and $493.1 million
          for
          fiscal years 2006 and 2005, respectively. The decrease in cash flows provided
          by
          operating activities for fiscal 2006 when compared to fiscal 2005 was primarily
          due to decreases in our net income in fiscal 2006 and higher
          inventories.
 
 Cash
          flows provided by (used in) investing activities were ($32.3) million and
          ($417.6) million for the fiscal years 2006 and 2005, respectively. Capital
          expenditures (excluding business acquisitions) of $143.8 million and $116.6
          million for fiscal years 2006 and 2005, respectively, were primarily incurred
          to
          acquire and expand certain facilities, improve efficiencies, reduce costs
          and
          for the routine replacement of equipment. Cash was used to purchase investment
          securities of $318.3 million in fiscal 2006 and $305.5 million in fiscal
          2005.
          Cash proceeds in fiscal 2006 from the sale or maturity of investment securities
          was $490.8 million. We anticipate spending approximately $140 million to
          $160
          million in fiscal 2007 to improve efficiencies and for the routine replacement
          of equipment at our current operations. We expect to finance such expenditures
          with available cash and operating cash flows and existing revolving/term
          and
          revolving credit facilities.
 
 Cash
          flows provided by (used in) financing activities were $(38.8) million and
          $18.9
          million for the fiscal years 2006 and 2005, respectively. The decrease
          in cash
          provided by financing activities for fiscal year 2006, when compared to
          fiscal
          year 2005, was attributable to the $1 per share special cash dividend given
          shareholders in the second quarter of fiscal year 2006.
 
 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
          is
          immaterial.
 54
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 Our
          loan agreements generally obligate us to reimburse the applicable lender
          for
          incremental increased costs due to a change in law that imposes (i) any
          reserve
          or special deposit requirement against assets of, deposits with or credit
          extended by such lender related to the loan, (ii) any tax, duty or other
          charge
          with respect to the loan (except standard income tax) or (iii) capital
          adequacy
          requirements. In addition, some of our loan agreements contain a withholding
          tax
          provision that requires us to pay additional amounts to the applicable
          lender or
          other financing party, generally if withholding taxes are imposed on such
          lender
          or other financing party as a result of a change in the applicable tax
          law.
          These increased cost and withholding tax provisions continue for the entire
          term
          of the applicable transaction, and there is no limitation on the maximum
          additional amounts we could be obligated to pay under such provisions.
          Any
          failure to pay amounts due under such provisions generally would trigger
          an
          event of default, and, in a secured financing transaction, would entitle
          the
          lender to foreclose upon the collateral to realize the amount due.
 
 **Off-Balance
          Sheet Arrangements**
 
 On
          June 29, 1999, the Camp County Industrial Development Corporation issued
          $25.0
          million of variable-rate environmental facilities revenue bonds supported
          by
          letters of credit obtained by us. We may draw from these proceeds over
          the
          construction period for new sewage and solid waste disposal facilities
          at a
          poultry by-products plant to be built in Camp County, Texas. We are not
          required
          to borrow the full amount of the proceeds from these revenue bonds. All
          amounts
          borrowed from these funds will be due in 2029. The revenue bonds are supported
          by letters of credit obtained by us under our revolving credit facilities
          which
          are secured by our domestic chicken inventories. The bonds will be recorded
          as
          debt of the Company if and when they are spent to fund
          construction.
 
 We
          maintain a Receivables Purchase Agreement under which we can sell on a
          revolving
          basis up to $125.0 million of certain trade receivables (the “Pooled
          Receivables”) to a special purpose corporation wholly-owned by us, which in turn
          sells a percentage ownership interest to third parties. This facility matures
          on
          June 26, 2008. At September 30, 2006 and at October 1, 2005 there were
          no Pooled
          Receivables sold. As of September 30, 2006, the full amount of the facility
          was
          available.
 55
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Contractual
          Obligations and Guarantees** .
 
 Obligations
          under long-term debt and non-cancelable operating leases at September 30,
          2006
          were as follows (in millions):
  Payments
                    Due By PeriodContractual
                    Obligations
                
                
                Total
                
                
                Less
                    than 1 year
                
                
                1-3
                    years
                
                
                3-5
                    years
                
                
                More
                    than 5  years(b)Long-term
                    debt(a)
                
                $
                565.2
                
                $
                10.3
                
                $
                20.4
                
                $
                378.6
                
                $
                155.9Guarantee
                    fees
                
                
                9.5
                
                
                1.5
                
                
                2.7
                
                
                2.4
                
                
                2.9Operating
                    leases
                
                
                93.9
                
                
                30.0
                
                
                43.0
                
                
                20.3
                
                
                0.6Purchase
                    obligations
                
                
                28.1
                
                
                28.1
                
                
                --
                
                
                --
                
                
                --Total
                
                $
                696.7
                
                $
                69.9
                
                $
                66.1
                
                $
                401.3
                
                $
                159.4
 
  (a)
              Excludes
                  $23.4 million in letters of credit outstanding related to normal
                  business
                  transactions. 
 (b)
          To the extent the Company borrows under the credit facilities described
          in “Note
          E - Notes Payable and Long Term Debt” of the Company’s Consolidated Financial
          Statements there will be additional contractual obligations of more than
          5
          years.
 
 **Critical
          Accounting Policies and Estimates**
 
 *General* .
          Our discussion and analysis of our financial condition and results of operations
          are based upon our financial statements, which have been prepared in accordance
          with accounting principles generally accepted in the U.S. The preparation
          of
          these financial statements requires us to make estimates and judgments
          that
          affect the reported amounts of assets, liabilities, revenues and expenses.
          On an
          ongoing basis, we evaluate our estimates, including those related to revenue
          recognition, customer programs and incentives, allowance for doubtful accounts,
          inventories, income taxes and product recall accounting. We base our estimates
          on historical experience and on various other assumptions that are believed
          to
          be reasonable under the circumstances, the results of which form the basis
          for
          making judgments about the carrying values of assets and liabilities that
          are
          not readily apparent from other sources. Actual results may differ from
          these
          estimates under different assumptions or conditions.
 
 We
          believe the following critical accounting policies affect our more significant
          judgments and estimates used in the preparation of our financial
          statements.
 
 *Revenue
          Recognition.* Revenue is recognized upon shipment and transfer of ownership of the product
          to
          the customer and 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.
 56
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Inventory.* Live poultry inventories are stated at the lower of cost or market and
          breeder
          hens at the lower of cost, less accumulated amortization, or market. The
          costs
          associated with breeder hens are accumulated up to the production stage
          and
          amortized over their productive lives using the unit-of-production method.
          Finished poultry products, feed, eggs and other inventories are stated
          at the
          lower of cost (first-in, first-out method) or market. We record valuations
          and
          adjustments for our inventory and for estimated obsolescence at or equal
          to the
          difference between the cost of inventory and the estimated market value
          based
          upon known conditions affecting inventory obsolescence, including significantly
          aged products, discontinued product lines, or damaged or obsolete products.
          We
          allocate meat costs between our various finished poultry products based
          on a
          by-product costing technique that reduces the cost of the whole bird by
          estimated yields and amounts to be recovered for certain by-product parts.
          This
          primarily includes leg quarters, wings, tenders and offal, which are carried
          in
          inventory at the estimated recovery amounts, with the remaining amount
          being
          reflected as our breast meat cost. Generally, the Company performs an evaluation
          of whether any lower of cost or market adjustments are required based on
          a
          number of factors, including: (i) pools of related inventory, (ii) product
          continuation or discontinuation, (iii) estimated market selling prices
          and (iv)
          expected distribution channels. If actual market conditions or other factors
          are
          less favorable than those projected by management, additional inventory
          adjustments may be required.
 
 *Property,
          Plant and Equipment.*  In
          accordance with Statement of Financial Accounting Standards No. 144, *“Accounting
          for the Impairment or Disposal of Long-Lived Assets and for Long-Lived
          Assets to
          be Disposed Of”* (“SFAS
          144”), the Company records impairment charges on long-lived assets used in
          operations when events and circumstances indicate that the assets may be
          impaired and the undiscounted cash flows estimated to be generated by those
          assets are less than the carrying amount of those assets. The impairment
          charge
          is determined based upon the amount the net book value of the assets exceeds
          their fair market value. In making these determinations, the Company utilizes
          certain assumptions, including, but not limited to: (i) future cash flows
          estimates expected to be generated by these assets, which are based on
          additional assumptions such as asset utilization, remaining length of service
          and estimated salvage values (ii) estimated fair market value of the assets
          and
          (iii) determinations with respect to the lowest level of cash flows relevant
          to
          the respective impairment test, generally groupings of related operational
          facilities.
 
 *Litigation
          and Contingent Liabilities.* The
          Company is subject to lawsuits, investigations and other claims related
          to wage
          and hour/labor, securities, environmental, product and other matters, and
          is
          required to assess the likelihood of any adverse judgments or outcomes
          to these
          matters as well as potential ranges of probable losses. A determination
          of the
          amount of reserves required, including legal defense costs, if any, for
          these
          contingencies is made when losses are determined to be probable and reasonably
          estimatible and after considerable analysis of each individual issue. These
          reserves may change in the future due to favorable or adverse judgments,
          changes
          in the Company’s assumptions, the effectiveness of strategies or other factors
          beyond the Company’s control.
 
 *Accrued
          Self Insurance* .
          Insurance expense for casualty claims and employee-related health care
          benefits
          are estimated using historical experience and actuarial estimates. Stop-loss
          coverage is maintained with third party insurers to limit the Company’s total
          exposure. Certain categories of claim liabilities are actuarially determined.
          The assumptions used to arrive at periodic expenses are reviewed regularly
          by
          management. However, actual expenses could differ from these estimates
          and could
          result in adjustments to be recognized.
 57
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Purchase
          Price Accounting.* The Company allocates the total purchase price in connection with acquisitions
          to assets and liabilities based upon their estimated fair values. For property,
          plant and equipment and intangible assets other than goodwill, for significant
          acquisitions, the Company has historically relied upon the use of third
          party
          valuation experts to assist in the estimation of fair values. Historically,
          the
          carrying value of acquired accounts receivable, inventory and accounts
          payable
          have approximated their fair value as of the date of acquisition, though
          adjustments are made within purchase price accounting to the extent needed
          to
          record such assets and liabilities at fair value. With respect to accrued
          liabilities, the Company uses all available information to make its best
          estimate of the fair value of the acquired liabilities and, when necessary,
          may
          rely upon the use of third party actuarial experts to assist in the estimation
          of fair value for certain liabilities, primarily self-insurance
          accruals.
 
 *Income
          Taxes.* We account for income taxes in accordance with Statement of Financial Accounting
          Standards No. 109 *,
          “Accounting for Income Taxes”* (“SFAS
          109”), which requires that deferred tax assets and liabilities be recognized
          for
          the effect of temporary differences between the book and tax bases of recorded
          assets and liabilities. Taxes are provided for international subsidiaries
          based
          on the assumption that their earnings are indefinitely reinvested in foreign
          subsidiaries and as such deferred taxes are not provided for in U.S. income
          taxes that would be required in the event of distribution of these earnings,
          except that we provide deferred taxes on the earnings of international
          subsidiaries that we intend to repatriate or otherwise deem are not indefinitely
          reinvested. SFAS No. 109 also requires that deferred tax assets be reduced
          by a
          valuation allowance if it is more likely than not that some portion or
          all of
          the deferred tax asset will not be realized. We review the recoverability
          of any
          tax assets recorded on the balance sheet, primarily operating loss
          carryforwards, based on both historical and anticipated earnings levels
          of the
          individual operations and provide a valuation allowance when it is more
          likely
          than not that amounts will not be recovered **.**
 
 The
          Company has reserves for taxes that may become payable in future years
          as a
          result of audits by tax authorities. Although the Company believes that
          the
          positions taken on previously filed tax returns are reasonable, it nevertheless
          has established tax reserves in recognition that various taxing authorities
          may
          challenge the positions taken by the Company resulting in additional liabilities
          for tax and interest. The tax reserves are reviewed as circumstances warrant
          and
          adjusted as events occur that affect the Company’s potential liability for
          additional taxes, such as lapsing of applicable statutes of limitations,
          conclusion of tax audits, additional exposure based on current calculations,
          identification of new issues, release of administrative guidance, or rendering
          of a court decision affecting a particular tax issue.
 
 **Item
          7A. Quantitative and Qualitative Disclosures about Market
          Risk**
 
 **Market
          Risk Sensitive Instruments and Positions**
 
 The
          risk inherent in our market risk sensitive instruments and positions is
          the
          potential loss arising from adverse changes in the price of feed ingredients,
          marketable equity security prices, foreign currency exchange rates and
          interest
          rates as discussed below. The sensitivity analyses presented do not consider
          the
          effects that such adverse changes may have on overall economic activity,
          nor do
          they consider additional actions our management may take to mitigate our
          exposure to such changes. Actual results may differ.
 
 *Feed
          Ingredients.* We
          purchase certain commodities, primarily corn and soybean meal. As a result,
          our
          earnings are affected by changes in the price and availability of such
          feed
          ingredients. As market conditions dictate, we will from time to time lock-in
          future feed ingredient prices using various hedging techniques, including
          forward purchase agreements with suppliers and futures contracts. We do
          not use
          such financial instruments for trading purposes and are not a party to
          any
          leveraged derivatives. Market risk is estimated as a hypothetical 10% increase
          in the weighted-average cost of our primary feed ingredients as of September
          30,
          2006. Based on our feed consumption during fiscal 2006, such an increase
          would
          have resulted in an increase to cost of sales of approximately $132.0
          million.
 58
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 *Foreign
          Currency.* Our earnings are affected by foreign exchange rate fluctuations related
          to the
          Mexican peso net monetary position of our Mexico subsidiaries. We manage
          this
          exposure primarily by attempting to minimize our Mexican peso net monetary
          position, but from time to time, we have also considered executing hedges
          to
          help minimize this exposure. Such instruments, however, have historically
          not
          been economically feasible. We are also exposed to the effect of potential
          exchange rate fluctuations to the extent that amounts are repatriated from
          Mexico to the U.S. However, we currently anticipate that the majority of
          the
          future cash flows of our Mexico subsidiaries will be reinvested in our
          Mexico
          operations. In addition, the Mexican peso exchange rate can directly and
          indirectly impact our results of operations and financial position in several
          ways, including potential economic recession in Mexico resulting from a
          devalued
          peso. The impact on our financial position and results of operations resulting
          from a hypothetical change in the exchange rate between the U.S. dollar
          and the
          Mexican peso cannot be reasonably estimated. Foreign currency exchange
          gains and
          losses, representing the change in the U.S. dollar value of the net monetary
          assets of our Mexico subsidiaries denominated in Mexican pesos, was a loss
          of
          $0.1 million in fiscal 2006, a gain of $0.5 million in fiscal 2005, and
          a loss
          of $0.2 million in fiscal 2004. On September 30, 2006, the Mexican peso
          closed
          at 11.01 to 1 U.S. dollar, compared to 10.77 at October 1, 2005. No assurance
          can be given as to how future movements in the peso could affect our future
          earnings.
 
 *Interest
          Rates.* Our earnings are also affected by changes in interest rates due to the
          impact
          those changes have on our variable-rate debt instruments. We had variable-rate
          debt instruments representing approximately 11.3% of our long-term debt
          at
          September 30, 2006. Holding other variables constant, including levels
          of
          indebtedness, a 25 basis points increase in interest rates would have increased
          our interest expense by $0.1 million for fiscal 2006. These amounts are
          determined by considering the impact of the hypothetical interest rates
          on our
          variable-rate long-term debt at September 30, 2006.
 
 Market
          risk for fixed-rate long-term debt is estimated as the potential increase
          in
          fair value resulting from a hypothetical 25 basis points decrease in interest
          rates and amounts to approximately $0.6 million as of September 30, 2006,
          using
          discounted cash flow analysis.
 
 *Impact
          of Inflation.* Due
          to low to moderate inflation in the U.S. and Mexico and our rapid inventory
          turnover rate, the results of operations have not been significantly affected
          by
          inflation during the past three-year period.
 
 **Item
          8. Financial Statements and Supplementary Data**
 
 The
          consolidated financial statements together with the report of independent
          registered public accounting firm and financial statement schedule are
          included
          on pages 76 through 102 of this report. Financial statement schedules other
          than
          those included herein have been omitted because the required information
          is
          contained in the consolidated financial statements or related notes, or
          such
          information is not applicable.
 59
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Item
          9. Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure**
 
 Not
          Applicable.
 
 **Item
          9A. Controls and Procedures**
 
 As
          of September 30, 2006, an evaluation was performed under the supervision
          and
          with the participation of the Company’s management, including the Chairman,
          Chief Executive Officer and Chief Financial Officer, of the effectiveness
          of the
          design and operation of the Company’s “disclosure controls and procedures” (as
          defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
          Act of
          1934 (the “Exchange Act”)). Based on that evaluation, the Company’s management,
          including the Chairman, Chief Executive Officer and Chief Financial Officer,
          concluded the Company’s disclosure controls and procedures were effective to
          ensure that information required to be disclosed by the Company in reports
          that
          it files or submits under the Exchange Act is recorded, processed, summarized
          and reported within the time periods specified in Securities and Exchange
          Commission rules and forms, and that information we are required to disclose
          in
          our reports filed with the Securities and Exchange Commission is
          accumulated and communicated to our management, including our Chairman,
          Chief
          Executive Officer and Chief Financial Officer, as appropriate to allow
          timely decisions regarding required disclosure. There was no change in
          the
          Company’s internal controls over financial reporting during the Company’s most
          recently completed fiscal quarter that has materially affected, or is reasonably
          likely to materially affect, the Company’s internal control over financial
          reporting.
 60
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **MANAGEMENT’S
          REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**
 
 
 Pilgrim's
          Pride Corporation’s (“PPC”) management is responsible for establishing and
          maintaining adequate internal control over financial reporting, as such
          term is
          defined in Exchange act Rules 13a-15(f). PPC’s internal control system is
          designed to provide reasonable assurance regarding the reliability of financial
          reporting and the preparation of financial statements in accordance with
          generally accepted accounting principles.
 
 Under
          the supervision and with the participation of management, including its
          principal executive officer and principal financial officer, PPC’s management
          assessed the design and operating effectiveness of internal control over
          financial reporting as of September 30, 2006 based on the framework set
          forth in *Internal
          Control-Integrated Framework* issued
          by the Committee of Sponsoring Organization of the Treadway
          Commission.
 
 Based
          on this assessment, management concluded that PPC’s internal control over
          financial reporting was effective as of September 30, 2006. Ernst & Young
          LLP, an independent registered public accounting firm, has issued an attestation
          report on management’s assessment of the Company’s internal control over
          financial reporting as of September 30, 2006. That report is included
          herein.
 
 
 
 /s/
          Lonnie “Bo” Pilgrim
 Lonnie
          “Bo” Pilgrim
 Chairman
          of the Board of Directors
 
 
 
 /s/
          O. B. Goolsby, Jr.
 O.
          B. Goolsby, Jr.
 President,
 Chief
          Executive Officer
 Director
 
 
 
 /s/
          Richard A. Cogdill
 Richard
          A. Cogdill
 Chief
          Financial Officer
 Secretary
          and Treasurer
 Director
  61
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
          FINANCIAL REPORTING**
 
 
 The
          Board of Directors and Stockholders
 Pilgrim’s
          Pride Corporation
 
 We
          have audited management’s assessment, included in the accompanying *Management’s
          Report on Internal Control Over Financial Reporting* ,
          that Pilgrim's Pride Corporation maintained effective internal control
          over
          financial reporting as of September 30, 2006, based on criteria established
          in *Internal
          Control - Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission
          (the COSO criteria). Pilgrim's Pride Corporation’s management is responsible for
          maintaining effective internal control over financial reporting and for
          its
          assessment of the effectiveness of internal control over financial reporting.
          Our responsibility is to express an opinion on management’s assessment and an
          opinion on the effectiveness of the Company’s internal control over financial
          reporting based on our audit.
 
 We
          conducted our audit in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether effective
          internal control over financial reporting was maintained in all material
          respects. Our audit included obtaining an understanding of internal control
          over
          financial reporting, evaluating management’s assessment, testing and evaluating
          the design and operating effectiveness of internal control, and performing
          such
          other procedures as we considered necessary in the circumstances. We believe
          that our audit provides a reasonable basis for our opinion.
 
 A
          company’s internal control over financial reporting is a process designed to
          provide reasonable assurance regarding the reliability of financial reporting
          and the preparation of financial statements for external purposes in accordance
          with generally accepted accounting principles. A company’s internal control over
          financial reporting includes those policies and procedures that (1) pertain
          to
          the maintenance of records that, in reasonable detail, accurately and fairly
          reflect the transactions and dispositions of the assets of the company;
          (2)
          provide reasonable assurance that transactions are recorded as necessary
          to
          permit preparation of financial statements in accordance with generally
          accepted
          accounting principles, and that receipts and expenditures of the company
          are
          being made only in accordance with authorizations of management and directors
          of
          the company; and (3) provide reasonable assurance regarding prevention
          or timely
          detection of unauthorized acquisition, use, or disposition of the company’s
          assets that could have a material effect on the financial
          statements.
 
 Because
          of its inherent limitations, internal control over financial reporting
          may not
          prevent or detect misstatements. Also, projections of any evaluation of
          effectiveness to future periods are subject to the risk that controls may
          become
          inadequate because of changes in conditions or that the degree of compliance
          with the policies or procedures may deteriorate.
 
 In
          our opinion, management’s assessment that Pilgrim's Pride Corporation maintained
          effective internal control over financial reporting as of September 30,
          2006, is
          fairly stated, in all material respects, based on the COSO criteria. Also,
          in
          our opinion, Pilgrim's Pride Corporation maintained, in all material respects,
          effective internal control over financial reporting as of September 30,
          2006,
          based on the COSO criteria.
 62
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  We
          also have audited, in accordance with the standards of the Public Company
          Accounting Oversight Board (United States), the consolidated balance sheets
          of
          Pilgrim's Pride Corporation as of September 30, 2006 and October 1, 2005,
          and
          the related consolidated statements of income (loss), stockholders’ equity, and
          cash flows for each of the three years in the period ended September 30,
          2006,
          of Pilgrim's Pride Corporation, and our report dated November 16, 2006,
          expressed an unqualified opinion thereon.
 
 Ernst
          & Young LLP
 
 Dallas,
          Texas
 November
          16, 2006
 63
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **Item
          9B. Other Information**
 
 Not
          Applicable.
 
 **PART
          III**
 
 **Item
          10. Directors and Executive Officers of the Registrant**
 
 Certain
          information regarding our executive officers has been presented under “Executive
          Officers” included in Item 1. “Business,” above.
 
 Reference
          is made to the section entitled “Election of Directors” of the Company’s Proxy
          Statement for its 2007 Annual Meeting of Stockholders, which section is
          incorporated herein by reference.
 
 Reference
          is made to the section entitled “Section 16(a) Beneficial Ownership Reporting
          Compliance” of the Company’s Proxy Statement for its 2007 Annual Meeting of
          Stockholders, which section is incorporated herein by reference.
 
 We
          have adopted a Code of Business Conduct and Ethics, which applies to all
          employees, including our Chief Executive Officer and our Chief Financial
          Officer
          and Principal Accounting Officer. The full text of our Code of Business
          Conduct
          and Ethics is published on our website, at www.pilgrimspride.com ,
          under the “Investors-Corporate Governance” caption. We intend to disclose future
          amendments to, or waivers from, certain provisions of this Code on our
          website
          within four business days following the date of such amendment or
          waiver.
 
 **Item
          11.**  **Executive
          Compensation**
 
 See
          Item 13. “Certain Relationships and Related Transactions.”
 
 **Item
          12.**  **Security
          Ownership of Certain Beneficial Owners and Management and Related Stockholder
          Matters**
 
 See
          Item 13. “Certain Relationships and Related Transactions.”
 
 As
          of September 30, 2006, the Company did not have any compensation plans
          (including individual compensation arrangements) under which equity securities
          of the Company are authorized for issuance by the Company.
 
 **Item
          13.**  **Certain
          Relationships and Related Transactions**
 
 Additional
          information responsive to Items 10, 11, 12 and 13 is incorporated by reference
          from the sections entitled “Security Ownership,” “Committees of the Board of
          Directors,” “Election of Directors,” “Executive Compensation,” “Compensation
          Committee Interlocks and Insider Participation” and “Certain Transactions” of
          the Company’s Proxy Statement for its 2007 Annual Meeting of
          Stockholders.
 64
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **Item
              14. Principal Accountant Fees and Services**
 
 The
              information required by this item is incorporated herein by reference
              from the
              section entitled “Independent Auditor Fee Information” of the Company’s Proxy
              Statement for its 2007 Annual Meeting of Stockholders.
 **PART
              IV**
 
 **Item
              15.**  **Exhibits
              and Financial Statement Schedules**
 
 (a)
                    
                    Financial
                        Statements(1)
                    The
                        financial statements and schedules listed in the accompanying
                        index to
                        financial statements and schedules are filed as part of this
                        report.(2)
                    All
                        other schedules for which provision is made in the applicable
                        accounting
                        regulations of the SEC are not required under the related
                        instructions or
                        are not applicable and therefore have been omitted.(3)
                    The
                        financial statements schedule entitled “Valuation and Qualifying Accounts
                        and Reserves” is filed as part of this report on page
                        102.(b)
                    
                    Exhibits
 
 Exhibit
              Number
 
 2.1
                    
                    Agreement
                        and Plan of Reorganization dated September 15, 1986, by and
                        among
                        Pilgrim’s Pride Corporation, a Texas corporation; Pilgrim’s Pride
                        Corporation, a Delaware corporation; and Doris Pilgrim Julian,
                        Aubrey Hal
                        Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie
“Bo” Pilgrim,
                        Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne
                        Pilgrim
                        (incorporated by reference from Exhibit 2.1 to the Company’s Registration
                        Statement on Form S-1 (No. 33-8805) effective November 14,
                        1986).2.2
                    
                    Agreement
                        and Plan of Merger dated September 27, 2000 (incorporated
                        by reference
                        from Exhibit 2 of WLR Foods, Inc.’s Current Report on Form 8-K (No.
                        000-17060) dated September 28, 2000).3.1
                    
                    Certificate
                        of Incorporation of the Company, as amended (incorporated
                        by reference
                        from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the
                        fiscal year ended October 2, 2004).3.2
                    
                    Amended
                        and Restated Corporate Bylaws of the Company (incorporated
                        by reference
                        from Exhibit 4.4 of the Company’s Registration Statement on Form S-8 (No.
                        333-111929) filed on January 15, 2004).4.1
                    
                    Certificate
                        of Incorporation of the Company, as amended (included as
                        Exhibit
                        3.1).4.2
                    
                    Amended
                        and Restated Corporate Bylaws of the Company (included as
                        Exhibit
                        3.2).4.3
                    
                    Indenture
                        dated as of August 9, 2001 by and between Pilgrim’s Pride Corporation and
                        The Chase Manhattan Bank relating to Pilgrim’s Pride’s 9 5/8% Senior Notes
                        Due 2011 (incorporated by reference from Exhibit 4.1 of the
                        Company’s
                        Current Report on Form 8-K (No. 001-09273) dated August 9,
                        2001).
 65
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  4.4
                    
                    First
                        Supplemental Indenture dated as of August 9, 2001 by and
                        between Pilgrim’s
                        Pride Corporation and The Chase Manhattan Bank relating to
                        Pilgrim’s
                        Pride’s 9 5/8% Senior Notes Due 2011 (incorporated by reference
                        from
                        Exhibit 4.2 to the Company’s Current Report on Form 8-K (No. 001-09273)
                        dated August 9, 2001).4.5
                    
                    Form
                        of 9 5/8% Senior Note Due 2011 (incorporated by reference
                        from Exhibit 4.3
                        of the Company’s Current Report on Form 8-K (No. 001-09273) dated August
                        9, 2001).4.6
                    
                    Indenture,
                        dated November 21, 2003, between Pilgrim's Pride Corporation
                        and The Bank
                        of New York as Trustee relating to Pilgrim’s Pride’s 9 1⁄4% Senior Notes due
                        2013 (incorporated by reference from Exhibit 4.1 of the Company's
                        Registration Statement on Form S-4 (No. 333-111975) filed on January 16,
                        2004).4.7
                    
                    Registration
                        Rights Agreement, dated as of November 6, 2003, among Pilgrim's
                        Pride
                        Corporation and Credit Suisse First Boston LLC relating to
                        Pilgrim’s
                        Pride’s 9 1⁄4% Senior Notes due 2013 (incorporated by reference from Exhibit
                        4.2 of the Company's Registration Statement on Form S-4 (No.
                        333-111975)
                        filed on January 16, 2004).4.8
                    
                    Form
                        of 9 1⁄4% Note due 2013 (incorporated by reference from Exhibit 4.3
                        of the
                        Company's Registration Statement on Form S-4 (No. 333-111975)
                        filed on
                        January 16, 2004).10.1
                    
                    Pilgrim’s
                        Industries, Inc. Profit Sharing Retirement Plan, restated
                        as of July 1,
                        1987 (incorporated by reference from Exhibit 10.1 of the
                        Company’s Form
                        8-K filed on July 1, 1992).**...**10.2
                    
                    Senior
                        Executive Performance Bonus Plan of the Company (incorporated
                        by reference
                        from Exhibit A in the Company’s Proxy Statement dated December 13, 1999).**...**10.3
                    
                    Aircraft
                        Lease Extension Agreement between B.P. Leasing Co. (L.A.
                        Pilgrim,
                        individually) and Pilgrim’s Pride Corporation (formerly Pilgrim’s
                        Industries, Inc.) effective November 15, 1992 (incorporated
                        by reference
                        from Exhibit 10.48 of the Company’s Quarterly Report on Form 10-Q for the
                        three months ended March 29, 1997).10.4
                    
                    Broiler
                        Grower Contract dated May 6, 1997 between Pilgrim’s Pride Corporation and
                        Lonnie “Bo” Pilgrim (Farm 30) (incorporated by reference from Exhibit
                        10.49 of the Company’s Quarterly Report on Form 10-Q for the three months
                        ended March 29, 1997).10.5
                    
                    Commercial
                        Egg Grower Contract dated May 7, 1997 between Pilgrim’s Pride Corporation
                        and Pilgrim Poultry G.P. (incorporated by reference from
                        Exhibit 10.50 of
                        the Company’s Quarterly Report on Form 10-Q for the three months ended
                        March 29, 1997).10.6
                    
                    Agreement
                        dated October 15, 1996 between Pilgrim’s Pride Corporation and Pilgrim
                        Poultry G.P. (incorporated by reference from Exhibit 10.23
                        of the
                        Company’s Quarterly Report on Form 10-Q for the three months ended
                        January 2, 1999).
 66
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  10.7
                    
                    Heavy
                        Breeder Contract dated May 7, 1997 between Pilgrim’s Pride Corporation and
                        Lonnie “Bo” Pilgrim (Farms 44, 45 & 46) (incorporated by reference
                        from Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the
                        three months ended March 29, 1997).10.8
                    
                    Broiler
                        Grower Contract dated January 9, 1997 by and between Pilgrim’s Pride and
                        O.B. Goolsby, Jr. (incorporated by reference from Exhibit
                        10.25 of the
                        Company’s Registration Statement on Form S-1 (No. 333-29163) effective
                        June 27, 1997).10.9
                    
                    Broiler
                        Grower Contract dated January 15, 1997 by and between Pilgrim’s Pride
                        Corporation and B.J.M. Farms (incorporated by reference from
                        Exhibit 10.26
                        of the Company’s Registration Statement on Form S-1 (No. 333-29163)
                        effective June 27, 1997).10.10
                    
                    Broiler
                        Grower Agreement dated January 29, 1997 by and between Pilgrim’s Pride
                        Corporation and Clifford E. Butler (incorporated by reference
                        from Exhibit
                        10.27 of the Company’s Registration Statement on Form S-1 (No. 333-29163)
                        effective June 27, 1997).10.11
                    
                    Receivables
                        Purchase Agreement between Pilgrim’s Pride Funding Corporation, as Seller,
                        Pilgrim’s Pride Corporation, as Servicer, Pooled Accounts Receivable
                        Capital Corporation, as Purchaser, and Nesbitt Burns Securities
                        Inc., as
                        Agent (incorporated by reference from Exhibit 10.33 of the
                        Company’s
                        Quarterly Report on Form 10-Q for the three months ended
                        June 27,
                        1998).10.12
                    
                    Purchase
                        and Contribution Agreement dated as of June 26, 1998 between
                        Pilgrim’s
                        Pride Funding Corporation and Pilgrim’s Pride Corporation (incorporated by
                        reference from Exhibit 10.34 of the Company’s Quarterly Report on Form
                        10-Q for the three months ended June 27, 1998).10.13
                    
                    Guaranty
                        Fee Agreement between Pilgrim’s Pride Corporation and Pilgrim Interests,
                        LTD., dated June 11, 1999 (incorporated by reference from
                        Exhibit 10.24 of
                        the Company’s Annual Report on Form 10-K for the fiscal year ended October
                        2, 1999).10.14
                    
                    Broiler
                        Production Agreement between Pilgrim's Pride Corporation
                        and Lonnie “Bo”
                        Pilgrim dated November 15, 2005 (incorporated by reference
                        from Exhibit
                        99.1 of the Company’s Current Report on Form 8-K dated November 10,
                        2005).10.15
                    
                    Commercial
                        Property Lease dated December 29, 2000 between Pilgrim’s Pride Corporation
                        and Pilgrim Poultry G.P. (incorporated by reference from
                        Exhibit 10.30 of
                        the Company’s Quarterly Report on Form 10-Q for the three months ended
                        December 30, 2000).10.16
                    
                    Revolving
                        Credit Agreement, made as of September 7, 2001 by and between
                        Grupo
                        Pilgrim’s Pride Funding S. de R.L. de C.V., Comerica Bank and Comerica
                        Bank Mexico, S.A., Institucion de Banca Multiple (incorporated
                        by
                        reference from Exhibit 10.27 of the Company’s Annual Report on Form 10-K
                        for the fiscal year ended September 29,
                        2001).
 67
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  10.17
                    
                    Amendment
                        No. 1 dated as of July 12, 2002 to Receivables Purchase Agreement
                        dated as
                        of June 26, 1998 among Pilgrim’s Pride Funding Corporation, the Company,
                        Fairway Finance Corporation (as successor in interest to
                        Pooled Accounts
                        Receivable Capital Corporation) and BMO Nesbitt Burns Corp.
                        (f/k/a Nesbitt
                        Burns Securities Inc.). (incorporated by reference from Exhibit
                        10.32 of
                        the Company’s Annual Report on Form 10-K filed on December 6,
                        2002).10.18
                    
                    Retirement
                        agreement dated November 11, 2002 between Pilgrim’s Pride Corporation and
                        David Van Hoose (incorporated by reference from Exhibit 10.34
                        of the
                        Company’s Annual Report on Form 10-K filed on December 6,
                        2002).10.19
                    
                    Amendment
                        No. 3 dated as of July 18, 2003 to Receivables Purchase Agreement
                        dated as
                        of June 26, 1998 between Pilgrim’s Pride Funding Corporation (“Seller”),
                        Pilgrim’s Pride Corporation as initial Servicer, Fairway Finance
                        Corporation (as successor in interest to Pooled Accounts
                        Receivable
                        Capital Corporation) (“Purchaser”) and Harris Nesbitt Corporation as agent
                        for the purchaser (incorporated by reference from Exhibit
                        10.1 of the
                        Company’s Quarterly Report on Form 10-Q filed July 23,
                        2003).10.20
                    
                    Stock
                        Purchase Agreement dated June 7, 2003 by and between Pilgrim’s Pride
                        Corporation and ConAgra Foods, Inc. (the “Stock Purchase Agreement”)
                        (incorporated by reference from Exhibit 99.2 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.21
                    
                    Exhibit
                        1.1(a) to the Stock Purchase Agreement - Applicable Accounting
                        Principles
                        (incorporated by reference from Exhibit 99.3 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.22
                    
                    Exhibit
                        1.1(b) to the Stock Purchase Agreement - Business Facilities
                        (incorporated
                        by reference from Exhibit 99.4 of the Company’s Current Report on Form 8-K
                        dated June 7, 2003).10.23
                    
                    Exhibit
                        1.1(c) to the Stock Purchase Agreement - ConAgra Supply Agreement
                        (incorporated by reference from Exhibit 99.5 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.24
                    
                    Exhibit
                        1.1(d) to the Stock Purchase Agreement - Environmental License
                        Agreement
                        (incorporated by reference from Exhibit 99.6 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.25
                    
                    Exhibit
                        1.1(f) to the Stock Purchase Agreement - Molinos Supply Agreement
                        (incorporated by reference from Exhibit 99.7 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.26
                    
                    Exhibit
                        1.1(g) to the Stock Purchase Agreement - Montgomery Supply
                        Agreement
                        (incorporated by reference from Exhibit 99.8 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.27
                    
                    Exhibit
                        1.1(i) to the Stock Purchase Agreement - Registration Rights
                        Agreements
                        (incorporated by reference from Exhibit 99.9 of the Company’s Current
                        Report on Form 8-K dated June 7, 2003).10.28
                    
                    Exhibit
                        1.1(m) to the Stock Purchase Agreement - Transition Trademark
                        License
                        Agreement (incorporated by reference from Exhibit 99.11 of
                        the Company’s
                        Current Report on Form 8-K dated June 7,
                        2003).
 68
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  10.29
                    
                    Exhibit
                        9.4.3 to the Stock Purchase Agreement - Retained Assets (incorporated
                        by
                        reference from Exhibit 99.14 of the Company’s Current Report on Form 8-K
                        dated June 7, 2003).10.30
                    
                    Amendment
                        No. 1 to Stock Purchase Agreement dated August 11, 2003,
                        between ConAgra
                        Foods, Inc. and Pilgrim’s Pride Corporation (incorporated by reference
                        from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated August
                        12, 2003).10.31
                    
                    Amendment
                        No. 2 to Stock Purchase Agreement dated August 20, 2003,
                        between ConAgra
                        Foods, Inc. and Pilgrim’s Pride Corporation (incorporated by reference
                        from Annex F of the Company’s Preliminary Proxy Statement filed October 6,
                        2003).10.32
                    
                    Agricultural
                        Lease between Pilgrim’s Pride Corporation (Lessor) and Patrick W. Pilgrim
                        (Tenant) dated May 1, 2003 (incorporated by reference from
                        Exhibit 10.15
                        of the Company’s Quarterly Report on Form 10-Q filed July 23,
                        2003).10.33
                    
                    First
                        Amendment to the Revolving Credit Agreement made as of September
                        7, 2001
                        by and between Grupo Pilgrim’s Pride Funding S. de R.L. de C.V., Comerica
                        Bank Mexico, S.A., Institucion de Banca Multiple dated as
                        of June 28, 2002
                        (incorporated by reference from Exhibit 10.1 of the Company’s Quarterly
                        Report on Form 10-Q/A filed August 12, 2003).10.34
                    
                    Second
                        Amendment to the Revolving Credit Agreement made as of September
                        7, 2001
                        by and between Grupo Pilgrim’s Pride Funding S. de R.L. de C.V., Comerica
                        Bank Mexico, S.A., Institucion de Banca Multiple dated as
                        of September 10,
                        2002 (incorporated by reference from Exhibit 10.2 of the
                        Company’s
                        Quarterly Report on Form 10-Q/A filed August 12, 2003).10.35
                    
                    Third
                        Amendment to the Revolving Credit Agreement made as of September
                        7, 2001
                        by and between Grupo Pilgrim’s Pride Funding S. de R.L. de C.V., Comerica
                        Bank Mexico, S.A., Institucion de Banca Multiple dated as
                        of December 13,
                        2002 (incorporated by reference from Exhibit 10.3 of the
                        Company’s
                        Quarterly Report on Form 10-Q/A filed August 12, 2003).10.36
                    
                    Fourth
                        Amendment to the Revolving Credit Agreement made as of September
                        7, 2001,
                        by and between Grupo Pilgrim's Pride Funding S. de R.L. de
                        C.V., Comerica
                        Bank and Comerica Bank Mexico, S.A., Institucion de Banca
                        Multiple dated
                        as of November 18, 2003 (incorporated by reference from Exhibit
                        10.1 of
                        the Company's Quarterly Report on Form 10-Q filed February
                        4, 2004).10.37
                    
                    Fourth
                        Amended and Restated Note Purchase Agreement dated November
                        18, 2003,
                        among Pilgrim's Pride Corporation, John Hancock Life Insurance
                        Company,
                        ING Capital LLC and the other parties named therein (incorporated
                        by
                        reference from Exhibit 10.2 of the Company's Quarterly Report
                        on Form 10-Q
                        filed February 4, 2004).10.38
                    
                    Amendment
                        No. 3 to Stock Purchase Agreement, dated November 23, 2003,
                        between
                        Pilgrim's Pride Corporation and ConAgra Foods, Inc. (incorporated
                        by
                        reference from Exhibit 2.16 of the Company's Current Report
                        on Form 8-K
                        (No. 001-09273) dated December 8,
                        2003).
 69
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  10.39
                    
                    Amendment
                        No. 4 dated as of December 31, 2003 to Receivables Purchase
                        Agreement
                        dated as of June 26, 1998, among Pilgrim's Pride Funding
                        Corporation,
                        Pilgrim's Pride Corporation as initial Servicer, Fairway
                        Finance Company,
                        LLC (as successor to Fairway Finance Corporation) as purchaser
                        and Harris
                        Nesbitt Corp. (f/k/a BMO Nesbitt Burns Corp.) as agent for
                        the purchaser
                        (incorporated by reference from Exhibit 10.4 of the Company's
                        Quarterly
                        Report on Form 10-Q filed February 4, 2004).10.40
                    
                    Amendment
                        No. 1 dated as of December 31, 2003 to Purchase and Contribution
                        Agreement
                        dated as of June 26, 1998, between Pilgrim's Pride Funding
                        Corporation and
                        Pilgrim's Pride Corporation (incorporated by reference from
                        Exhibit 10.5
                        of the Company's Quarterly Report on Form 10-Q filed February
                        4,
                        2004).10.41
                    
                    Employee
                        Stock Investment Plan of the Company (incorporated by reference
                        from
                        Exhibit 4.1 of the Company's Registration Statement on Form
                        S-8 (No.
                        333-111929) filed on January 15, 2004).**...**10.42
                    
                    2004
                        Amended and Restated Credit Agreement, dated as of April
                        7, 2004, between
                        Pilgrim's Pride Corporation and CoBank, ACB, as lead arranger
                        and book
                        manager, and as administrative, documentation and collateral
                        agent and the
                        lenders from time to time parties thereto as lenders (incorporated
                        by
                        reference from Exhibit 10.1 of the Company's Quarterly Report
                        on Form 10-Q
                        filed May 4, 2004).10.43
                    
                    Third
                        Amended and Restated Secured Credit Agreement, dated April
                        7, 2004,
                        between Pilgrim's Pride Corporation and Harris Trust and
                        Savings Bank,
                        individually and as agent, and the lenders from time to time
                        parties
                        thereto as lenders (incorporated by reference from Exhibit
                        10.2 of the
                        Company's Quarterly Report on Form 10-Q filed May 4, 2004).10.44
                    
                    Fifth
                        Amendment to Revolving Credit Agreement made as of September
                        7, 2001, by
                        and among Grupo Pilgrim's Pride Funding S. de R.L. de C.V.,
                        Comerica Bank
                        and Comerica Bank Mexico, S.A., Institucion de Banca Multiple
                        dated as of
                        September 7, 2004 (incorporated by reference from Exhibit
                        10.1 of the
                        Company's Current Report on Form 8-K (No. 001-09273) filed
                        September 10,
                        2004).10.45
                    
                    Purchase
                        and Amendment Agreement between Pilgrim's Pride Corporation
                        and ConAgra
                        Foods, Inc. dated August 3, 2005 (incorporated by reference
                        from Exhibit
                        10.1 of the Company’s Current Report on Form 8-K dated August 4,
                        2005).10.46
                    
                    2005
                        Deferred Compensation Plan of the Company (incorporated by
                        reference from
                        Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December
                        27, 2004).******...**10.47
                    
                    First
                        Amendment to Third Amended and Restated Credit Agreement
                        dated November
                        25, 2005 between Pilgrim's Pride Corporation, Harris N.A.,
                        and the other
                        lenders party thereto (incorporated by reference from Exhibit
                        1.1 of the
                        Company's Current Report on Form 8-K dated December 5,
                        2005).
 70
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  10.48
                    
                    Second
                        Amendment to Credit Agreement dated November 28, 2005 between
                        Pilgrim's
                        Pride Corporation, CoBank, ACB, and certain syndication parties
                        thereto
                        (incorporated by reference from Exhibit 1.2 of the Company's
                        Current
                        Report on Form 8-K dated December 5, 2005).10.49
                    
                    Vendor
                        Service Agreement dated effective December 28, 2005 between
                        Pilgrim's
                        Pride Corporation and Pat Pilgrim (incorporated by reference
                        from Exhibit
                        10.2 of the Company's Current Report on Form 8-K dated January
                        6,
                        2006).10.50
                    
                    Transportation
                        Agreement dated effective December 28, 2005 between Pilgrim's
                        Pride
                        Corporation and Pat Pilgrim (incorporated by reference from
                        Exhibit 10.3
                        of the Company's Current Report on Form 8-K dated January
                        6,
                        2006).10.51
                    
                    Ground
                        Lease Agreement dated effective January 4, 2006 between Pilgrim's
                        Pride
                        Corporation and Pat Pilgrim (incorporated by reference from
                        Exhibit 10.4
                        of the Company's Current Report on Form 8-K dated January
                        6,
                        2006).10.52
                    
                    Credit
                        Agreement by and among the Avícola Pilgrim’s Pride de México, S. de R.L.
                        de C.V. (the "Borrower"), Pilgrim's Pride Corporation, certain
                        Mexico
                        subsidiaries of the Borrower, ING Capital LLC, and the lenders
                        signatory
                        thereto dated as of September 25, 2006 (incorporated by reference
                        from
                        Exhibit 10.1 of the Company's Current Report on Form 8-K
                        dated September
                        22, 2006).10.53
                    
                    Credit
                        Agreement by and among CoBank, ACB, Agriland, FCS and the
                        Company dated as
                        of September 21, 2006 (incorporated by reference from Exhibit
                        10.2 of the
                        Company's Current Report on Form 8-K dated September 22,
                        2006).10.54
                    
                    Pilgrim's
                        Pride Corporation $450,000,000 Senior Unsecured Increasing
                        Rate Bridge
                        Facility Commitment Letter from Lehman Brothers to the Company
                        dated
                        September 27, 2006 (incorporated by reference from Exhibit
                        10.3 of the
                        Company's Current Report on Form 8-K dated September 22,
                        2006).10.55
                    
                    Consent
                        of Harris N.A. pursuant to Third Amended and Restated Credit
                        Agreement
                        dated April 7, 2004.*10.56
                    
                    Consent
                        of Purchasers pursuant to Fourth Amended and Restated Purchase
                        Agreement
                        dated November 18, 2003.*12
                    
                    Ratio
                        of Earnings to Fixed Charges for the years ended September
                        30, 2006,
                        October 1, 2005, October 2, 2004, September 27, 2003, and
                        September 28,
                        2002.*21
                    
                    Subsidiaries
                        of Registrant.*23
                    
                    Consent
                        of Ernst & Young LLP.*31.1
                    
                    Certification
                        ofCo-Principal
                        Executive Officerpursuant
                        to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
                    
                    Certification
                        of Co-Principal Executive Officer pursuant to Section 302
                        of the
                        Sarbanes-Oxley Act of 2002.*31.3
                    
                    Certification
                        of Chief Financial Officer pursuant to Section 302 of the
                        Sarbanes-Oxley
                        Act of 2002.*
 71
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  32.1
                    
                    Certification
                        of Co-Principal Executive Officer of Pilgrim's Pride Corporation
                        pursuant
                        to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
                    
                    Certification
                        of Co-Principal Executive Officer of Pilgrim's Pride Corporation
                        pursuant
                        to Section 906 of the Sarbanes-Oxley Act of 2002.*32.3
                    
                    Certification
                        of Chief Financial Officer of Pilgrim's Pride Corporation
                        pursuant to
                        Section 906 of the Sarbanes-Oxley Act of
                        2002.*
 
 ***Filed
              herewith**
 
 **...** **Represents
              a management contract or compensation plan arrangement**
 72
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
  SIGNATURES
 
 Pursuant
              to the requirements of Section 13 or 15(d) of the Securities Exchange
              Act of
              1934, the registrant has duly caused this report to be signed on its
              behalf by
              the undersigned, thereunto duly authorized on the 17th day of November
              2006.
 
 PILGRIM’S
              PRIDE CORPORATION
 
 
 
 By:
                    /s/
                        Richard A. CogdillRichard
                        A. CogdillChief
                        Financial and Accounting Officer
 
 
 73
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
 Pursuant
                to the requirements of the Securities Exchange Act of 1934, this
                report has been
                signed below by the following persons on behalf of the Registrant
                and in the
                capacities and on the date indicated.
 
 Signature
                      Title
                      Date/s/
                          Lonnie “Bo” Pilgrim
                      Chairman
                          of the Board
                      11/17/06Lonnie
                          “Bo” Pilgrim/s/
                          Clifford E. Butler
                      Vice
                          Chairman of the Board
                      11/17/06Clifford
                          E. Butler/s/
                          O.B. Goolsby, Jr.
                      President
                      11/17/06O.B.
                          Goolsby, Jr.
                      Chief
                          Executive OfficerDirector/s/
                          Richard A. Cogdill
                      Chief
                          Financial Officer
                      11/17/06Richard
                          A. Cogdill
                      Secretary
                          and TreasurerDirector(Principal
                          Financial and Accounting Officer)/s/
                          Lonnie Ken Pilgrim
                      Executive
                          Vice President,
                      11/17/06Lonnie
                          Ken Pilgrim
                      Assistant
                          to ChairmanDirector/s/
                          Charles L. Black
                      Director
                      11/17/06Charles
                          L. Black/s/
                          Linda Chavez
                      Director
                      11/17/06Linda
                          Chavez/s/
                          S. Key Coker
                      Director
                      11/17/06S.
                          Key Coker/s/
                          Keith W. Hughes
                      Director
                      11/17/06Keith
                          W. Hughes
 
 74
 Pilgrim's
                    Pride Corporation
 September
                    30, 2006
 Signature
                      Title
                      Date/s/
                          Blake D. Lovette
                      Director
                      11/17/06Blake
                          D. Lovette/s/
                          Vance C. Miller, Sr.
                      Director
                      11/17/06Vance
                          C. Miller, Sr./s/
                          James G. Vetter, Jr.
                      Director
                      11/17/06James
                          G. Vetter, Jr./s/
                          Donald L. Wass, Ph.D
                      Director
                      11/17/06Donald
                          L. Wass, Ph.D.
 
 75
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 The
                Board of Directors and Stockholders
 Pilgrim’s
                Pride Corporation
 
 We
                have audited the accompanying consolidated balance sheets of Pilgrim’s Pride
                Corporation as of September 30, 2006 and October 1, 2005, and the
                related
                consolidated statements of income (loss), stockholders’ equity, and cash flows
                for each of the three years in the period ended September 30, 2006.
                Our audits
                also included the financial statement schedule listed in the index
                at Item
                15(a). These financial statements and schedule are the responsibility
                of the
                Company’s management. Our responsibility is to express an opinion on these
                financial statements and schedule based on our audits.
 
 We
                conducted our audits in accordance with the standards of the Public
                Company
                Accounting Oversight Board (United States). Those standards require
                that we plan
                and perform the audit to obtain reasonable assurance about whether
                the financial
                statements are free of material misstatement. An audit includes examining,
                on a
                test basis, evidence supporting the amounts and disclosures in the
                financial
                statements. An audit also includes assessing the accounting principles
                used and
                significant estimates made by management, as well as evaluating the
                overall
                financial statement presentation. We believe that our audits provide
                a
                reasonable basis for our opinion.
 
 In
                our opinion, the financial statements referred to above present fairly,
                in all
                material respects, the consolidated financial position of Pilgrim’s Pride
                Corporation as of September 30, 2006 and October 1, 2005, and the
                consolidated
                results of its operations and its cash flows for each of the three
                years in the
                period ended September 30, 2006, in conformity with U.S. generally
                accepted
                accounting principles. Also, in our opinion, the related financial
                statement
                schedule, when considered in relation to the basic financial statements
                taken as
                a whole, presents fairly in all material respects the information
                set forth
                therein.
 
 We
                have also audited, in accordance with the standards of the Public
                Company
                Accounting Oversight Board (United States), the effectiveness of
                Pilgrim's Pride
                Corporation’s internal control over financial reporting as of September 30, 2006
                based on criteria established in *Internal
                Control - Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway
                Commission,
                and our report dated November 16, 2006, expressed an unqualified
                opinion
                thereon.
 
 Ernst
                & Young LLP
 Dallas,
                Texas
 November
                16, 2006
 76
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  Consolidated
                Balance Sheets
 Pilgrim’s
                Pride Corporation
 
 *(In
                          thousands, except share and per share data)*
                      
                      *September
                          30, 2006*
                      
                      *October
                          1, 2005***Assets****Current
                          Assets:**Cash
                          and cash equivalents
                      
                      $
                      156,404
                      
                      $
                      132,567Investment
                          in available for sale securities
                      
                      
                      21,246
                      
                      
                      --Trade
                          accounts and other receivables, less
                        allowance
                          for doubtful accounts
                      
                      
                      263,149
                      
                      
                      288,528Inventories
                      
                      
                      585,940
                      
                      
                      527,329Income
                          taxes receivable
                      
                      
                      39,167
                      
                      
                      --Current
                          deferred taxes
                      
                      
                      7,288
                      
                      
                      25,107Other
                          current assets
                      
                      
                      32,480
                      
                      
                      25,884Total
                          Current Assets
                      
                      
                      1,105,674
                      
                      
                      999,415**Investment
                          in Available for Sale Securities**
                      
                      
                      115,375
                      
                      
                      304,593**Other
                          Assets**
                      
                      
                      50,825
                      
                      
                      53,798**Property,
                          Plant and Equipment:**Land
                      
                      
                      52,493
                      
                      
                      51,887Buildings,
                          machinery and equipment
                      
                      
                      1,702,949
                      
                      
                      1,612,739Autos
                          and trucks
                      
                      
                      57,177
                      
                      
                      55,202Construction-in-progress
                      
                      
                      63,853
                      
                      
                      58,9421,876,472
                      
                      
                      1,778,770Less
                          accumulated depreciation
                      
                      
                      (721,478
                      )
                      
                      (624,673
                      )1,154,994
                      
                      
                      1,154,097$
                      2,426,868
                      
                      $
                      2,511,903**Liabilities
                          and Stockholders’ Equity****Current
                          Liabilities:**Accounts
                          payable
                      
                      $
                      293,685
                      
                      $
                      281,909Accrued
                          expenses
                      
                      
                      272,830
                      
                      
                      288,106Income
                          taxes payable
                      
                      
                      --
                      
                      
                      16,196Current
                          maturities of long-term debt
                      
                      
                      10,322
                      
                      
                      8,603Total
                          Current Liabilities
                      
                      
                      576,837
                      
                      
                      594,814**Long-Term
                          Debt, Less Current Maturities**
                      
                      
                      554,876
                      
                      
                      518,863**Deferred
                          Income Taxes**
                      
                      
                      175,869
                      
                      
                      173,232**Minority
                          Interest in Subsidiary**
                      
                      
                      1,958
                      
                      
                      1,396**Commitments
                          and Contingencies****Stockholders’
                          Equity:**Preferred
                          stock, $.01 par value, 5,000,000 authorized shares; none
                          issued
                      
                      
                      --
                      
                      
                      --Common
                          stock - $.01 par value, 160,000,000 authorized shares;
                          66,555,733 and
                          66,826,833 issued and outstanding, respectively
                      
                      
                      665
                      
                      
                      668Additional
                          paid-in capital
                      
                      
                      469,779
                      
                      
                      471,344Retained
                          earnings
                      
                      
                      646,750
                      
                      
                      753,527Accumulated
                          other comprehensive income (loss)
                      
                      
                      134
                      
                      
                      (373
                      )Less
                          treasury stock, 271,100 shares
                      
                      
                      --
                      
                      
                      (1,568
                      )Total
                          Stockholders’ Equity
                      
                      
                      1,117,328
                      
                      
                      1,223,598$
                      2,426,868
                      
                      $
                      2,511,903
 
 See
                          Notes to Consolidated Financial
                          Statements
  77
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  Consolidated
                Statements of Income (Loss)
 Pilgrim’s
                Pride Corporation
 
 *(In
                          thousands, except per share data)*
                      
                      *Three
                          Years Ended September 30, 2006**2006*
                      
                      *2005*
                      
                      *2004***Net
                          Sales**
                      
                      $
                      5,235,565
                      
                      $
                      5,666,275
                      
                      $
                      5,363,723**Cost
                          and Expenses:**Cost
                          of sales
                      
                      
                      4,937,965
                      
                      
                      4,921,076
                      
                      
                      4,794,415Cost
                          of sales-restructuring
                      
                      
                      --
                      
                      
                      --
                      
                      
                      64,160Non-recurring
                          recoveries
                      
                      
                      --
                      
                      
                      --
                      
                      
                      (23,891
                      )4,937,965
                      
                      
                      4,921,076
                      
                      
                      4,834,684Gross
                          Profit
                      
                      
                      297,600
                      
                      
                      745,199
                      
                      
                      529,039Selling,
                          general and administrative
                      
                      
                      294,598
                      
                      
                      309,387
                      
                      
                      255,802Other
                          restructuring charges
                      
                      
                      --
                      
                      
                      --
                      
                      
                      7,923294,598
                      
                      
                      309,387
                      
                      
                      263,725Operating
                          Income
                      
                      
                      3,002
                      
                      
                      435,812
                      
                      
                      265,314**Other
                          Expenses (Income):**Interest
                          expense
                      
                      
                      50,601
                      
                      
                      49,585
                      
                      
                      54,436Interest
                          income
                      
                      
                      (10,048
                      )
                      
                      (5,653
                      )
                      
                      (2,307
                      )Foreign
                          exchange (gain) loss
                      
                      
                      144
                      
                      
                      (474
                      )
                      
                      205Miscellaneous,
                          net
                      
                      
                      (1,378
                      )
                      
                      (11,169
                      )
                      
                      4,44539,319
                      
                      
                      32,289
                      
                      
                      56,779**Income
                          (Loss) Before Income Taxes**
                      
                      
                      (36,317
                      )
                      
                      403,523
                      
                      
                      208,535**Income
                          Tax Expense (Benefit)**
                      
                      
                      (2,085
                      )
                      
                      138,544
                      
                      
                      80,195**Net
                          Income (Loss)**
                      
                      $
                      (34,232
                      )
                      $
                      264,979
                      
                      $
                      128,340**Net
                          Income (Loss) per Common Share-Basic and Diluted**
                      
                      $
                      (0.51
                      )
                      $
                      3.98
                      
                      $
                      2.05See
                          Notes to Consolidated Financial Statements
 
  78
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  Consolidated
                Statements of Stockholders’ Equity
 Pilgrim’s
                Pride Corporation
 
 *(In
                          thousands, except share data)**Accumulated**Shares
                          of Common Stock*
                      
                      *Total*
                      
                      *Additional*
                      
                      
                      
                      *Other**Par*
                      
                      *Paid-In*
                      
                      *Retained*
                      
                      *Comprehensive*
                      
                      *Treasury**PPC*
                      
                      *Class
                          A*
                      
                      *Class
                          B*
                      
                      *Value*
                      
                      *Capital*
                      
                      *Earnings*
                      
                      *Income
                          (Loss)*
                      
                      *Stock*
                      
                      *Total*Balance
                          at September 28, 2003
                      
                      
                      --
                      
                      
                      13,794,529
                      
                      
                      27,589,250
                      
                      $
                      414
                      
                      $
                      79,625
                      
                      $
                      368,195
                      
                      $
                      30
                      
                      
                      ($1,568
                      )
                      $
                      446,696Reclassification
                          of Class A and Class B common stock to PPC common stock
                      
                      
                      41,383,779
                      
                      
                      (13,794,529
                      )
                      
                      (27,589,250
                      )Issuance
                          of common stock for ConAgra chicken division acquisition
                      
                      
                      25,443,054
                      
                      
                      --
                      
                      
                      --
                      
                      
                      254
                      
                      
                      352,037
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      352,291Net
                          income for year
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      128,340
                      
                      
                      
                      
                      
                      
                      
                      
                      128,340Other
                          comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (378
                      )
                      
                      
                      
                      
                      (378
                      )Total
                          comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      127,962Cash
                          dividends declared
                        ($.06
                          per share)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,993
                      )
                      
                      
                      
                      
                      
                      
                      
                      (3,993
                      )Balance
                          at October 2, 2004
                      
                      
                      66,826,833
                      
                      
                      --
                      
                      
                      --
                      
                      $
                      668
                      
                      $
                      431,662
                      
                      $
                      492,542
                      
                      
                      ($348
                      )
                      
                      ($1,568
                      )
                      $
                      922,956Sale
                          of common stock
                      
                      
                      15,443,054
                      
                      
                      --
                      
                      
                      --
                      
                      
                      154
                      
                      
                      521,774
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      521,928Purchase
                          and retirement of
                        common
                          stock
                      
                      
                      (15,443,054
                      )
                      
                      --
                      
                      
                      --
                      
                      
                      (154
                      )
                      
                      (482,092
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (482,246
                      )Net
                          income for year
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      264,979
                      
                      
                      
                      
                      
                      
                      
                      
                      264,979Other
                          comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (25
                      )
                      
                      
                      
                      
                      (25
                      )Total
                          comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      264,954Cash
                          dividends declared
                        ($.06
                          per share)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,993
                      )
                      
                      
                      
                      
                      
                      
                      
                      (3,993
                      )Balance
                          at October 1, 2005
                      
                      
                      66,826,833
                      
                      
                      --
                      
                      
                      --
                      
                      $
                      668
                      
                      $
                      471,344
                      
                      $
                      753,527
                      
                      
                      ($373
                      )
                      
                      ($1,568
                      )
                      $
                      1,223,598Cancellation
                          of Treasury Stock
                      
                      
                      (271,100
                      )
                      
                      --
                      
                      
                      --
                      
                      
                      (3
                      )
                      
                      (1,565
                      )
                      
                      
                      
                      
                      
                      
                      
                      1,568Net
                          loss for year
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (34,232
                      )
                      
                      
                      
                      
                      
                      
                      
                      (34,232
                      )Other
                          comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      507
                      
                      
                      
                      
                      
                      507Total
                          comprehensive income (loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (33,725
                      )Cash
                          dividends declared
                        ($1.09
                          per share)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (72,545
                      )
                      
                      
                      
                      
                      
                      
                      
                      (72,545
                      )Balance
                          at September 30, 2006
                      
                      
                      66,555,733
                      
                      
                      --
                      
                      
                      --
                      
                      $
                      665
                      
                      $
                      469,779
                      
                      $
                      646,750
                      
                      $
                      134
                      
                      
                      --
                      
                      $
                      1,117,328
 
 
 See
                Notes to Consolidated Financial Statements
  79
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  Consolidated
                Statements of Cash Flows
 Pilgrim’s
                Pride Corporation
  *(In
                          thousands)*
                      
                      *Three
                          Years Ended September 30, 2006**2006*
                      
                      *2005*
                      
                      *2004***Cash
                          Flows From Operating Activities:**Net
                          income (loss)
                      
                      
                      
                      
                      $
                      (34,232
                      )
                      $
                      264,979
                      
                      $
                      128,340Adjustments
                          to reconcile net income (loss) to cash provided by
                        operating
                          activitiesDepreciation
                          and amortization
                      
                      
                      
                      
                      
                      135,133
                      
                      
                      134,944
                      
                      
                      113,788Loss
                          on restructuring-asset impairment
                      
                      
                      
                      
                      
                      3,767
                      
                      
                      --
                      
                      
                      45,384Loss
                          on property disposals
                      
                      
                      
                      
                      
                      1,781
                      
                      
                      4,326
                      
                      
                      5,605Deferred
                          income taxes
                      
                      
                      
                      
                      
                      20,455
                      
                      
                      2,247
                      
                      
                      3,295Changes
                          in operating assets and liabilitiesAccounts
                          and other receivables
                      
                      
                      
                      
                      
                      31,121
                      
                      
                      21,192
                      
                      
                      (70,936
                      )Income
                          taxes (payable) receivable
                      
                      
                      
                      
                      
                      (55,363
                      )
                      
                      (38,251
                      )
                      
                      33,556Inventories
                      
                      
                      
                      
                      
                      (58,612
                      )
                      
                      82,669
                      
                      
                      (73,445
                      )Prepaid
                          expenses and other current assets
                      
                      
                      
                      
                      
                      (6,594
                      )
                      
                      20,800
                      
                      
                      (28,763
                      )Accounts
                          payable, income taxes payable and accrued expenses
                      
                      
                      
                      
                      
                      (3,501
                      )
                      
                      (610
                      )
                      
                      116,684Other
                      
                      
                      
                      
                      
                      (3,573
                      )
                      
                      777
                      
                      
                      (1,104
                      )Cash
                          Provided by Operating Activities
                      
                      
                      
                      
                      
                      30,382
                      
                      
                      493,073
                      
                      
                      272,404**Investing
                          Activities:**Acquisitions
                          of property, plant and equipment
                      
                      
                      
                      
                      
                      (143,882
                      )
                      
                      (116,588
                      )
                      
                      (79,642
                      )Purchase
                          of investment securities
                      
                      
                      
                      
                      
                      (318,266
                      )
                      
                      (305,458
                      )
                      
                      --Proceeds
                          from sale or maturity of investment securities
                      
                      
                      
                      
                      
                      490,764
                      
                      
                      --
                      
                      
                      --Business
                          acquisition, net of equity consideration
                      
                      
                      
                      
                      
                      --
                      
                      
                      --
                      
                      
                      (272,097
                      )Proceeds
                          from property disposals
                      
                      
                      
                      
                      
                      4,148
                      
                      
                      4,963
                      
                      
                      4,583Other,
                          net
                      
                      
                      
                      
                      
                      (506
                      )
                      
                      (524
                      )
                      
                      (304
                      )Cash
                          Provided by (Used in) Investing Activities
                      
                      
                      
                      
                      
                      32,258
                      
                      
                      (417,607
                      )
                      
                      (347,460
                      )**Financing
                          Activities:**Proceeds
                          from notes payable to banks
                      
                      
                      
                      
                      
                      270,500
                      
                      
                      --
                      
                      
                      96,000Repayments
                          on notes payable to banks
                      
                      
                      
                      
                      
                      (270,500
                      )
                      
                      --
                      
                      
                      (96,000
                      )Proceeds
                          from long-term debt
                      
                      
                      
                      
                      
                      74,683
                      
                      
                      --
                      
                      
                      332,516Payments
                          on long-term debt
                      
                      
                      
                      
                      
                      (36,950
                      )
                      
                      (16,829
                      )
                      
                      (523,634
                      )Purchases
                          for retirement of common stock
                      
                      
                      
                      
                      
                      --
                      
                      
                      (482,246
                      )
                      
                      --Sale
                          of common stock
                      
                      
                      
                      
                      
                      --
                      
                      
                      521,928
                      
                      
                      --Borrowing
                          for acquisition
                      
                      
                      
                      
                      
                      --
                      
                      
                      --
                      
                      
                      300,767Equity
                          and debt issue costs
                      
                      
                      
                      
                      
                      (3,938
                      )
                      
                      --
                      
                      
                      (8,991
                      )Cash
                          dividends paid
                      
                      
                      
                      
                      
                      (72,545
                      )
                      
                      (3,993
                      )
                      
                      (3,993
                      )Cash
                          Provided by (Used in) Financing Activities
                      
                      
                      
                      
                      
                      (38,750
                      )
                      
                      18,860
                      
                      
                      96,665Effect
                          of exchange rate changes on cash and cash equivalents
                      
                      
                      
                      
                      
                      (53
                      )
                      
                      76
                      
                      
                      (50
                      )Increase
                          in cash and cash equivalents
                      
                      
                      
                      
                      
                      23,837
                      
                      
                      94,402
                      
                      
                      21,559Cash
                          and cash equivalents at beginning of year
                      
                      
                      
                      
                      
                      132,567
                      
                      
                      38,165
                      
                      
                      16,606**Cash
                          and Cash Equivalents at End of Year**
                      
                      
                      
                      
                      $
                      156,404
                      
                      $
                      132,567
                      
                      $
                      38,165**Supplemental
                          Disclosure Information:**Cash
                          paid during the year for:Interest
                          (net of amount capitalized)
                      
                      
                      
                      
                      $
                      48,590
                      
                      $
                      46,945
                      
                      $
                      49,675Income
                          taxes paid
                      
                      
                      
                      
                      $
                      37,813
                      
                      $
                      172,929
                      
                      $
                      47,128**Supplemental
                          Non-cash Disclosure Information:**Business
                          acquisition, equity consideration (before cost of
                          issuance)
                      
                      
                      
                      
                      $
                      --
                      
                      $
                      --
                      
                      
                      357,475See
                          Notes to Consolidated Financial Statements
 
 80
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **NOTE
                A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
                POLICIES**
 
 Pilgrim’s
                Pride Corporation (referred to herein as “the Company”, “we”, “us”, “our”, or
                similar terms) is the second largest producer of poultry in the U.S.
                and Mexico
                and the largest in Puerto Rico. In the U.S., we produce both prepared
                and fresh
                chicken and turkey, while in Mexico and Puerto Rico, we produce exclusively
                fresh chicken. Through vertical integration, we control the breeding,
                hatching
                and growing of chickens and the processing and preparation, packaging
                and sale
                of our product lines.
 
 Our
                prepared chicken products include portion-controlled breast fillets,
                tenderloins
                and strips, delicatessen products, salads, formed nuggets and patties
                and
                bone-in chicken parts. These products are sold either refrigerated
                or frozen and
                may be fully cooked, partially cooked or raw. In addition, these
                products are
                breaded or non-breaded and either pre-marinated or non-marinated.
 
 The
                Company also sells fresh chicken products to the foodservice and
                retail markets.
                Our fresh chicken products consist of refrigerated (non-frozen) whole
                or cut-up
                chicken, either pre-marinated or non-marinated and pre-packaged chicken,
                which
                includes various combinations of freshly refrigerated, whole chickens
                and
                chicken parts.
 
 Our
                turkey products include fresh and frozen whole birds. In addition,
                we have fully
                cooked whole turkeys available.
 
 **Recent
                Business Acquisition Activities**
 
 On
                September 29, 2006, the Company commenced a cash tender offer to
                purchase all of
                the outstanding shares of Gold Kist Inc. (“Gold Kist”) common stock for $20 per
                share (the “Equity Tender Offer”). In addition, the Company commenced a cash
                tender offer and consent solicitation for all of Gold Kist’s outstanding
                10 1 / 4 %
                senior notes due March 15, 2014 (the “Debt Tender Offer” and, together with the
                Equity Tender Offer, the “Tender Offers”). On October 16, 2006, the Company
                received notice that the Antitrust Division of the Department of
                Justice had
                granted early termination of the waiting period under the Hart-Scott-Rodino
                Antitrust Improvements Act of 1976 (“HSR”) in connection with this offer. On
                October 30, 2006, the Company extended the Tender Offers to November
                29, 2006.
                On November 13, 2006, the Company announced the new pricing for the
                Debt Tender
                Offer, which was required due to the extension of the Tender Offers.
 
 The
                total amount of funds required to consummate the Tender Offers, related
                merger,
                and to pay related fees and expenses is estimated to be approximately
                $1.3
                billion. The Company has obtained financing through a combination
                of an
                amendment and restatement of its existing credit facility and a commitment
                letter for an additional unsecured bridge loan facility, as described
                in detail
                in Note E of the Consolidated Financial Statements.
 
 The
                successful completion of the Tender Offers and related activities
                is contingent
                upon a number of conditions as described under Item 1. “Business”. No assurance
                can be provided as to if or when the transaction will be successfully
                completed.
 81
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  On
                November 23, 2003, we completed the purchase of all the outstanding
                stock of the
                corporations represented as the ConAgra Foods, Inc. (“ConAgra”) chicken division
                (“ConAgra chicken division”). The acquired business has been included in our
                results of operations since the date of the acquisition. The purchase
                price was
                $635.2 million and was paid with a combination of cash, the assumption
                of $16
                million of debt and issuing to ConAgra 25,443,054 shares of our common
                stock
                valued at $14.05 per share.
 
 **Accounting
                Adjustments and Reclassifications**
 
 During
                the fourth quarter of fiscal 2006, we recorded certain accounting
                adjustments
                (“Accounting Adjustments”) in our 2006 Consolidated Financial Statements.
 These Accounting Adjustments relate to the accounting for the Pilgrim’s
                Pride Retirement Plan for Union Employees and certain post-employment
                benefit
                obligations in Mexico.  These Accounting Adjustments resulted in a charge
                of $4.6 million, net of tax, in our Consolidated Statement of Income
                (Loss) that
                related to prior periods.
 
 We
                believe these Accounting Adjustments, considered individually and
                in the
                aggregate, are not material to our Consolidated Financial Statements
                for each of
                the three years in the period ended September 30, 2006, and as a result
                were reflected as an adjustment in the period identified. In making
                this
                assessment, we considered qualitative and quantitative factors, including
                the
                significant earnings we reported in each of the fiscal years 2005
                and 2004 and
                the impact of making these Accounting Adjustments in fiscal 2006,
                primarily
                based on its significance to other key financial measures and
                consideration on the trend of earnings for 2006 versus the prior periods
                presented.
 
 Certain
                items in prior year financial statements have been reclassified to
                the current
                year’s presentation.
 
 **Principles
                of Consolidation**
 
 The
                consolidated financial statements include the accounts of Pilgrim’s Pride
                Corporation and its wholly and majority owned subsidiaries. Significant
                intercompany accounts and transactions have been eliminated.
 
 The
                Company reports on the basis of a 52/53-week fiscal year, which ends
                on the
                Saturday closest to September 30. As a result, fiscal 2006 had 52
                weeks, fiscal
                2005 had 52 weeks and fiscal 2004 had 53 weeks.
 
 The
                financial statements of the Company’s Mexico subsidiaries are re-measured as if
                the U.S. dollar were the functional currency. Accordingly, assets
                and
                liabilities of the Mexico subsidiaries are translated at end-of-period
                exchange
                rates, except for non-monetary assets, which are translated at equivalent
                dollar
                costs at dates of acquisition using historical rates. Operations
                are translated
                at average exchange rates in effect during the period. Foreign exchange
                gains or
                losses are separately stated as a component of “Other Expenses (Income)” in the
                Consolidated Statement of Income.
 
 **Revenue
                Recognition**
 
 Revenue
                is recognized upon shipment and transfer of ownership of the product
                to the
                customer and 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.
 82
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **Shipping
                and Handling Costs**
 
 Costs
                associated with the products shipped to customers are recognized
                in cost of
                sales.
 
 **Cash
                Equivalents**
 
 The
                Company considers highly liquid investments with a maturity of three
                months or
                less when purchased to be cash equivalents.
 
 **Investment
                in Available for Sale Securities**
 
 The
                Company’s investments at September 30, 2006 are in debt and equity securities
                which are classified as available for sale and carried at market
                value in
                accordance with Statement of Financial Accounting Standards No. 115, *“Accounting
                for Certain Investments in Debt and Equity Securities”* (“SFAS
                115”). Investments are classified based on their underlying contractual
                maturity
                at date of purchase by the Company. Available for sale investments
                with a
                remaining maturity date of one year or less from the balance sheet
                date are
                classified as current assets and those with a maturity date of greater
                than one
                year are classified as long-term assets based on management’s intention not to
                use such assets in the next twelve months. The average maturity period
                of the
                Company’s investments at September 30, 2006 was 1-3 years. All equity securities
                are classified as long-term. Approximately $0.1 million, net of tax,
                in
                unrealized gains related to these investments at September 30, 2006
                were
                recorded as accumulated other comprehensive income, a separate component
                of
                stockholders’ equity.
 
 **Fair
                Value of Financial Instruments**
 
 The
                carrying values of cash and cash equivalents, accounts receivable,
                and accounts
                payable at September 30, 2006 and October 1, 2005 approximated their
                fair values
                due to the short term nature of these items. Long term investments
                are adjusted
                to fair value on a monthly basis. The fair values of the Company’s long term
                investments in available for sale securities was $115.4 million,
                which differed
                from historical value by $0.1 million in unrealized gains.
 
 **Concentrations
                of Credit Risk**
 
 The
                Company’s financial instruments that are exposed to concentrations of credit
                risk consist primarily of cash equivalents, investment securities,
                and trade
                receivables. The Company’s cash equivalents are in high quality securities
                placed with major banks and financial institutions. Concentrations
                of credit
                risk with respect to receivables are limited due to the large number
                of
                customers and their dispersion across geographic areas.
 
 With
                the exception of one customer that accounts for approximately 16.4%
                of accounts
                receivable at September 30, 2006, the Company does not believe it
                has
                significant concentrations of credit risk in its accounts receivable,
                which are
                generally unsecured. Credit evaluations are performed on all significant
                customers and updated as circumstances dictate.
 83
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **Inventories**
 
 Live
                poultry inventories are stated at the lower of cost or market and
                breeder hens
                at the lower of cost, less accumulated amortization, or market. The
                costs
                associated with breeder hens are accumulated up to the production
                stage and
                amortized over the productive lives using the unit-of-production
                method.
                Finished poultry products, feed, eggs and other inventories are stated
                at the
                lower of cost (first-in, first-out method) or market. We record valuations
                and
                adjustments for our inventory and for estimated obsolescence at or
                equal to the
                difference between the cost of inventory and the estimated market
                value based
                upon known conditions affecting the inventory’s obsolescence, including
                significantly aged products, discontinued product lines, or damaged
                or obsolete
                products. We allocate meat costs between our various finished poultry
                products
                based on a by-product costing technique that reduces the cost of
                the whole bird
                by estimated yields and amounts to be recovered for certain by-product
                parts,
                primarily including leg quarters, wings, tenders and offal, which
                are carried in
                inventory at the estimated recovery amounts, with the remaining amount
                being
                reflected as our breast meat cost. Generally, the company performs
                an evaluation
                of whether any lower of cost or market adjustments are required based
                on a
                number of factors, including: (i) pools of related inventory, (ii)
                product age,
                condition and continuation or discontinuation, (iii) estimated market
                selling
                prices and (iv) expected distribution channels. If actual market
                conditions or
                other factors are less favorable than those projected by management,
                additional
                inventory adjustments may be required.
  In
                November 2004, the FASB issued Statement of Financial Accounting
                Standards
                No. 151, *“Inventory
                Costs — An Amendment of Accounting Research Bulletin 43,
                Chapter 4”* (“Statement 151”).
                Statement 151 clarifies the accounting for abnormal amounts of idle
                facility expense, freight, handling costs and wasted material be
                recognized as
                current-period charges.  In addition, Statement 151 requires that
                the allocation of fixed production overhead to the costs of conversion
                be based
                on the normal capacity of the production facilities. Statement 151 is
                effective for fiscal years beginning after June 15, 2005. We implemented
                the provisions of Statement 151 in fiscal 2006 with no significant
                impact on our consolidated financial statements.
 
 **Property,
                Plant and Equipment**
 
 Property,
                plant and equipment are stated at cost and repair and maintenance
                costs are
                expensed as incurred. Depreciation is computed using the straight-line
                method
                over the estimated useful lives of these assets. Depreciation expense
                was $130.5
                million, $130.6 million and $110.0 million in 2006, 2005 and 2004,
                respectively.
                Estimated useful lives for building, machinery and equipment are
                5 years to 33
                years and for automobiles and trucks are 3 years to 10 years.
 
 In
                accordance with Statement of Financial Accounting Standards No. 144,
                “ *Accounting
                for the Impairment or Disposal of Long-Lived Assets and for Long-Lived
                Assets to
                be Disposed Of”* (“SFAS
                144”), the Company records impairment charges on long-lived assets used
                in
                operations when events and circumstances indicate that the assets
                may be
                impaired and the undiscounted cash flows estimated to be generated
                by those
                assets are less than the carrying amount of those assets. The impairment
                charge
                is determined based upon the amount the net book value of the assets
                exceeds
                their fair market value. In making these determinations, the Company
                utilizes
                certain assumptions, including, but not limited to: (i) future cash
                flows
                estimates expected to be generated by these assets, which are based
                on
                additional assumptions such as asset utilization, remaining length
                of service
                and estimated salvage values (ii) estimated fair market value of
                the assets and
                (iii) determinations with respect to the lowest level of cash flows
                relevant to
                the respective impairment test, generally groupings of related operational
                facilities.
 84
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **Purchase
                Price Accounting**
 
 The
                Company allocates the total purchase price in connection with acquisitions
                to
                assets and liabilities based upon their estimated fair values. For
                property,
                plant and equipment and intangible assets other than goodwill, for
                significant
                acquisitions, the Company has historically relied upon the use of
                third party
                valuation experts to assist in the estimation of fair values. Historically,
                the
                carrying value of acquired accounts receivable, inventory and accounts
                payable
                have approximated their fair value as of the date of acquisition,
                though
                adjustments are made within purchase price accounting to the extent
                needed to
                record such assets and liabilities at fair value. With respect to
                accrued
                liabilities, the Company uses all available information to make its
                best
                estimate of the fair value of the acquired liabilities and, when
                necessary, may
                rely upon the use of third party actuarial experts to assist in the
                estimation
                of fair value for certain liabilities, primarily self-insurance
                accruals.
 
 **Litigation
                and Contingent Liabilities**
 
 The
                Company is subject to lawsuits, investigations and other claims related
                to wage
                and hour/labor, securities, environmental, product and other matters,
                and is
                required to assess the likelihood of any adverse judgments or outcomes
                to these
                matters as well as potential ranges of probable losses. A determination
                of the
                amount of reserves required including anticipated cost of defense,
                if any, for
                these contingencies is made when losses are determined to be probable
                and after
                considerable analysis of each individual issue. These reserves may
                change in the
                future due to changes in the Company’s assumptions, the effectiveness of
                strategies, or other factors beyond the Company’s control.
 
 **Accrued
                Self Insurance**
 
 Insurance
                expense for casualty claims and employee-related health care benefits
                are
                estimated using historical and current experience and actuarial estimates.
                Stop-loss coverage is maintained with third party insurers to limit
                certain of
                the Company’s total exposure. Certain categories of claim liabilities are
                actuarially determined. The assumption used to arrive at periodic
                expenses is
                reviewed regularly by management. However, actual expenses could
                differ from
                these estimates and could result in adjustments to be recognized.
 
 **Income
                Taxes**
 
 We
                account for income taxes in accordance with *SFAS
                No. 109, “Accounting for Income Taxes”* ,
                which requires that deferred tax assets and liabilities be recognized
                for the
                effect of temporary differences between the book and tax bases of
                recorded
                assets and liabilities. Taxes are provided for international subsidiaries
                based
                on the assumption that their earnings are indefinitely reinvested
                in foreign
                subsidiaries and as such deferred taxes are not provided for in U.S.
                income
                taxes that would be required in the event of distribution of these
                earnings,
                except that we provide deferred taxes on the earnings of international
                subsidiaries that we intend to repatriate or otherwise deem are not
                indefinitely
                reinvested. *SFAS
                No. 109* also requires that deferred tax assets be reduced by a valuation
                allowance if it
                is more likely than not that some portion or all of the deferred
                tax asset will
                not be realized. We review the recoverability of any tax assets recorded
                on the
                balance sheet, primarily operating loss carryforwards, based on both
                historical
                and anticipated earnings levels of the individual operations and
                provide a
                valuation allowance when it is more likely than not that amounts
                will not be
                recovered **.**
 85
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  As
                of September 30, 2006, the Company has reserves totaling $16.3 million
                for taxes
                that may become payable in future years as a result of audits by
                tax
                authorities. Although the Company believes that the positions taken
                on
                previously filed tax returns are reasonable, it nevertheless has
                established tax
                reserves in recognition that various taxing authorities may challenge
                the
                positions taken by the Company resulting in additional liabilities
                for tax and
                interest. The tax reserves are reviewed as circumstances warrant
                and adjusted as
                events occur that affect the Company’s potential liability for additional taxes,
                such as lapsing of applicable statutes of limitations, conclusion
                of tax audits,
                additional exposure based on current calculations, identification
                of new issues,
                release of administrative guidance, or rendering of a court decision
                affecting a
                particular tax issue. During the fourth quarter of fiscal year 2006,
                the Company
                revised certain tax reserve estimates based on new data and recently
                completed
                tax audits for periods for which certain tax positions were reserved.
                The
                Company recognized a tax benefit of $10.6 million as a result of
                this change in
                estimate for income tax liabilities.
 
 During
                July 2006, the FASB issued Interpretation Number 48, *“Accounting
                for Uncertainty in Income Taxes”* (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing
                the
                minimum requirements a tax position must meet before being recognized
                in the
                financial statements. In addition, FIN 48 prohibits the use of SFAS
                No. 5, *“Accounting
                for Contingencies”* ,
                in evaluating the recognition and measurement of uncertain tax positions.
                The
                Company will be required to adopt FIN 48 on September 30, 2007, and
                has not yet
                assessed the impact of the adoption of this standard on the Company’s financial
                statements.
 
 The
                American Jobs Creation Act was enacted in October 2004 (“Jobs Creation Act”).
                The Jobs Creation Act includes a temporary incentive to U.S. multinationals
                to
                repatriate foreign earnings at an approximate effective 5.25% U.S.
                federal tax
                rate. During the fourth quarter of fiscal year 2006, the Company
                repatriated
                $155.0 million in previously unremitted untaxed earnings under the
                provisions of
                the Job Creation Act. The total income tax affects of repatriations
                under the
                Job Creation Act was $28.2 million, of which $25.8 million was recorded
                fiscal
                2006. The key components of the 2006 provision included domestic
                income taxes of
                $10.1 million to reflect federal and state taxes on the transaction,
                a deferred
                foreign tax provision of $ 24.1 million to accrue for future taxes
                that will
                result from certain intra-Mexican dividends undertaken in 2006 to
                complete this
                transaction, and a benefit of $6 million to reflect the revaluation
                of certain
                deferred tax assets in Mexico that as a result of the transaction
                are expected
                to be realized at higher enacted tax rates.
 
 **Net
                Income (Loss) per Common Share**
 
 Net
                income (loss) per common share is based on the weighted average number
                of shares
                of common stock outstanding during the year. The weighted average
                number of
                shares outstanding (basic and diluted) included herein were 66,555,733
                in 2006
                and 2005, and 62,646,692 shares in 2004.
 
 **Use
                of Estimates**
 
 The
                preparation of financial statements in conformity with U.S. generally
                accepted
                accounting principles requires management to make estimates and assumptions
                that
                affect the reported amounts of assets and liabilities and disclosure
                of
                contingent assets and liabilities at the date of the financial statements
                and
                the reported amounts of revenues and expenses during the reporting
                period.
                Actual results could differ from those estimates.
 86
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **NOTE
                B - RESTRUCTURING CHARGES AND NON-RECURRING RECOVERIES**
 
 In
                March 2005, the Company, through arbitration, settled litigation
                related to a
                breach of contract that occurred in a prior year. The settlement
                resulted in a
                non-recurring gain of $11.7 million being recognized and recorded
                in
                miscellaneous, net in fiscal 2005.
 
 On
                April 26, 2004, the Company announced a plan to restructure its turkey
                division.
                The Company immediately placed the facility and related property
                and equipment
                for sale. In accordance with Statement of Financial Accounting Standards
                No.
                144, “ *Accounting
                for the Impairment or Disposal of Long-Lived Assets and for Long-Lived
                Assets to
                be Disposed Of”* (“SFAS
                144”), as of the announcement date, the Company classified these facilities
                as
                held for sale on its consolidated balance sheet and recorded in cost
                of sales -
                restructuring charges of approximately $64.2 million including a
                non-cash asset
                impairment charge of $45.4 million representing the difference between
                the net
                sales price and the net book value of the facility and related property
                and
                equipment along with approximately $18.8 million in related charges,
                primarily
                inventory losses on discontinued products sold in fiscal 2004. The
                Company also
                recorded exit and severance cost in connection with the restructuring
                of $7.9
                million, of this amount all but $3.8 million was paid during fiscal
                2004 and the
                remainder paid during fiscal 2005. The Company sold the facilities
                in the fourth
                quarter of fiscal 2004.
 
 Non-recurring
                recoveries, which is a component of gross profit and operating income,
                include
                insurance recoveries under the business interruption and product
                re-establishment portion of its insurance policy related to the October
                2002
                recall of $23.8 million, which was recorded in the fourth quarter
                of fiscal 2004
                when such amounts were collected from the insurance carrier. Non-recurring
                recoveries also include reimbursements received from the U.S. federal
                government
                under a relief plan related to the avian influenza outbreak in the
                Commonwealth
                of Virginia on March 12, 2002 and proceeds received from litigation
                initiated by
                the Company in antitrust lawsuits alleging a world-wide conspiracy
                to control
                production capacity and raise prices of vitamins and methionine.
                Proceeds
                received by the Company as successor to WLR Foods in connection with
                the
                lawsuits described above are recorded as Other Expense (Income):
                Miscellaneous,
                Net.
 
 **NOTE
                C - ACCOUNTS RECEIVABLE**
 
 In
                connection with the Asset Sale Agreement dated July 18, 2003, the
                Company sells,
                on a revolving basis, certain of its trade receivables (the “Pooled
                Receivables”) to a special purpose corporation wholly owned by the Company,
                which in turn sells a percentage ownership interest to third parties.
                At
                September 30, 2006 and at October 1, 2005 there were no Pooled Receivables
                sold.
                Sales of receivables are recorded as sales in accordance with Financial
                Accounting Standards Board Statement No. 140, *“* *Accounting
                for Transfers and Servicing of Financial Assets and Extinguishments
                of
                Liabilities”* .
                The gross proceeds resulting from the sale are included in cash flows
                from
                operating activities in the Consolidated Statements of Cash Flows.
                Losses on
                these sales were immaterial. As of September 30, 2006, $125.0 million
                of Pooled
                Receivables could have been sold pursuant to the Asset Sale Agreement.
 87
 Pilgrim's
                      Pride Corporation
 September
                      30, 2006
  **NOTE
                D - INVENTORIES**
 
 Inventories
                consist of the following:
 September
                            30,
                        
                        October
                            1,(In
                            thousands)
                        
                        2006
                        
                        2005Chicken:Live
                            chicken and hens
                        
                        $
                        196,284
                        
                        $
                        196,406Feed
                            and eggs
                        
                        
                        132,309
                        
                        
                        114,091Finished
                            chicken products
                        
                        
                        201,516
                        
                        
                        164,412530,109
                        
                        
                        474,909Turkey:Live
                            turkey and hens
                        
                        $
                        7,138
                        
                        $
                        7,209Feed
                            and eggs
                        
                        
                        4,740
                        
                        
                        4,924Finished
                            turkey products
                        
                        
                        26,685
                        
                        
                        23,07238,563
                        
                        
                        35,205Other
                            Products:Commercial
                            feed, table eggs, and retail farm store
                        
                        $
                        7,080
                        
                        $
                        4,866Distribution
                            inventories
                          (other
                            than chicken & turkey products)
                        
                        
                        10,188
                        
                        
                        12,34917,268
                        
                        
                        17,215Total
                            Inventories
                        
                        $
                        585,940
                        
                        $
                        527,329
 
 
 **NOTE
                E - NOTES PAYABLE AND LONG-TERM DEBT**
 
 The
                following table presents our long-term debt as of September 30, 2006
                and October
                1, 2005 (in thousands)
 Final
                          Maturity
                        
                        September
                            30, 2006
                        
                        October
                            1, 2005Senior
                            unsecured notes, at 9 5/8%
                        
                        
                        2011
                        
                        $
                        299,601
                        
                        $
                        302,588Senior
                            subordinated unsecured notes, at 9 1/4%
                        
                        
                        2013
                        
                        
                        82,640
                        
                        
                        100,000Secured
                            revolving credit facility with notes payable at LIBOR
                            plus 1.25% to LIBOR
                            plus 2.75%
                        
                        
                        2011
                        
                        
                        74,682
                        
                        
                        --Note
                            payable to an insurance company at 6.68%
                        
                        
                        2012
                        
                        
                        50,115
                        
                        
                        53,103Notes
                            payable to an insurance company at LIBOR plus 2.2075%
                        
                        
                        2013
                        
                        
                        41,333
                        
                        
                        54,667Revolving
                            term/credit facility, with notes payable at LIBOR or
                            US Treasuries, plus a
                            spread
                        
                        
                        2016
                        
                        
                        --
                        
                        
                        --Other
                        
                        
                        Various
                        
                        
                        16,827
                        
                        
                        17,108565,198
                        
                        
                        527,466Less
                            current maturities
                        
                        
                        
                        
                        
                        (10,322
                        )
                        
                        (8,603
                        )Total
                        
                        
                        
                        
                        $
                        554,876
                        
                        $
                        518,863
 88
 Pilgrim's
                        Pride Corporation
 September
                        30, 2006
 
 
  As
                of
                September 30, 2006, we had $150.0 million domestic revolving credit
                facilities
                that provide for interest rates ranging from LIBOR plus 0.875%-2.675%
                depending
                upon our total debt to capitalization ratio. The $150.0 million domestic
                revolving credit facilities, $126.6 million of which was available for borrowing
                at September 30, 2006, are secured by domestic chicken inventories.
                Borrowings
                against these facilities are subject to the availability of eligible
                collateral
                and no material adverse change provisions.
 On
            September 25, 2006, a subsidiary of the Company, Avícola Pilgrim’s Pride de
            México, S. de R.L. de C.V. (the “Borrower”), entered into a secured revolving
            credit agreement of up to $75 million with a final maturity date of September
            25, 2011. Commencing September 30, 2007, the Borrower is required to
            reduce the
            lender’s aggregate commitment by $3 million on September 30 of each year.
            Additionally, after the end of each fiscal year of Borrower, if the ratio
            of
            Borrower’s net indebtedness to EBITDA is greater than specific levels, then the
            Borrower is required to reduce the lenders’ aggregate commitment by 25% of the
            Borrower’s excess cash flow of that fiscal year until the aggregate revolving
            commitment is equal to $50 million. Outstanding amounts bear interest
            at rates
            ranging from the higher of the Prime Rate or Federal Funds Effective
            Rate plus
            0.5%; LIBOR plus 1.25%-2.75%; or TIIE plus 1.05%-2.55% depending on the
            loan
            designation. Obligations under this agreement are secured by a security
            interest
            in and lien upon all capital stock and other equity interests of the
            Company’s
            Mexico subsidiaries. All the obligations of the Borrower are secured
            by
            unconditional guaranty by the Company. All available funds have been
            borrowed at
            September 30, 2006.
 89
 Pilgrim's
                  Pride Corporation
 September
                  30, 2006
 In
          connection with the Tender Offers, the Company has obtained a commitment
          letter
          pursuant to which, subject to specified conditions, certain investment
          banks
          have agreed to make available to the Company a $450 million senior unsecured
          bridge loan facility for the purchase of shares of common stock of Gold
          Kist.
          Any loans under the unsecured bridge loan facility will mature on the date
          that
          is one year following the initial draw down. The loans under the unsecured
          bridge loan facility will initially accrue interest at a rate per annum
          equal to
          LIBOR plus 2.75%. If the loans are not repaid in full within 180 days following
          the initial draw down, the rate will increase by 0.75% at the end of that
          180-day period and will increase by an additional 0.5% at the end of each
          90-day
          period thereafter. If the loans are not repaid after 1-year, then the
          outstanding balance will convert into term loans maturing on the ninth
          anniversary. The interest rate on the term loans will initially be the
          same as
          the rate on the bridge loan facility plus 0.5% and will increase by 0.5%
          every
          90 days but will not exceed a rate of 9.75%-10.25% based on the Company’s senior
          unsecured rating.
  A
          substantial portion of our domestic inventories and domestic fixed assets
          are
          pledged as collateral on our long-term debt and credit facilities.
 
 Annual
          maturities of long-term debt for the five years subsequent to September
          30, 2006
          are: 2007 -- $10.3 million; 2008 -- $10.1 million; 2009 -- $10.3 million;
          2010
          -- $10.6 million; and 2011 -- $368.0 million.
 
 On
          June 29, 1999, the Camp County Industrial Development Corporation issued
          $25.0
          million of variable-rate environmental facilities revenue bonds supported
          by
          letters of credit obtained by us. We may draw from these proceeds over
          the
          construction period for new sewage and solid waste disposal facilities
          at a
          poultry by-products plant to be built in Camp County, Texas. We are not
          required
          to borrow the full amount of the proceeds from these revenue bonds. All
          amounts
          borrowed from these funds will be due in 2029. The revenue bonds are supported
          by letters of credit obtained by us under our available revolving credit
          facilities. The bonds will be recorded as debt of the Company if and when
          they
          are spent to fund construction.
 
 The
          Company is required, by certain provisions of its debt agreements, to maintain
          levels of working capital and net worth, to limit dividends to a maximum
          of $13
          million per year, and to maintain various fixed charge, leverage, current
          and
          debt-to-equity ratios. In fiscal 2006, waivers were obtained to permit
          a special
          $1 per share dividend.
 
 Total
          interest expense was $50.6 million, $52.4 million and $56.1 million in
          2006,
          2005 and 2004, respectively. Interest related to new construction capitalized
          in
          2006, 2005 and 2004 was $4.3 million, $2.8 million and $1.7 million,
          respectively.
 
 The
          fair value of long-term debt, at September 30, 2006 and October 1, 2005
          and
          based upon quoted market prices for the same or similar issues where available
          or by using discounted cash flow analysis, was approximately $592.3 million
          and
          $578.1 million, respectively.
 90
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **NOTE
          F - INCOME TAXES**
 
 Income
          (loss) before income taxes after allocation of certain expenses to foreign
          operations for 2006, 2005 and 2004 was ($19.7) million, $361.1 million
          and
          $218.7 million, respectively, for U.S. operations and ($16.1) million,
          $42.4
          million and ($10.2) million, respectively, for foreign operations. The
          provisions for income taxes are based on pre-tax financial statement income
          (loss).
 
 As
          previously disclosed, in fiscal 2004 we acquired the stock of the poultry
          division of ConAgra Foods, Inc. The purchase was treated as an asset acquisition
          for tax purposes under Section 338(h)(10) of the Internal Revenue Code.
          Deferred
          taxes have been established as part of the purchase accounting for the
          fiscal
          2004 acquisition.
 
 The
          components of income tax expense (benefit) are set forth below:
 *(In
                      thousands)*
                  
                  2006
                  
                  2005
                  
                  2004Current:Federal
                  
                  $
                  (23,147
                  )
                  $
                  117,518
                  
                  $
                  71,144Foreign
                  
                  
                  5,130
                  
                  
                  3,880
                  
                  
                  2,092State
                      and other
                  
                  
                  (4,523
                  )
                  
                  14,899
                  
                  
                  3,664Total
                      current
                  
                  
                  (22,540
                  )
                  
                  136,297
                  
                  
                  76,900DeferredFederal
                  
                  
                  9,511
                  
                  
                  (1,594
                  )
                  
                  (2,225
                  )Foreign
                  
                  
                  10,221
                  
                  
                  4,475
                  
                  
                  5,673State
                      and other
                  
                  
                  723
                  
                  
                  113
                  
                  
                  (153
                  )Total
                      deferred
                  
                  
                  20,455
                  
                  
                  2,994
                  
                  
                  3,295Change
                      in valuation allowance
                  
                  
                  --
                  
                  
                  (747
                  )
                  
                  --$
                  (2,085
                  )
                  $
                  138,544
                  
                  $
                  80,195
 
 The
          following is a reconciliation between the statutory U.S. federal income
          tax rate
          and the Company’s effective income tax rate:
 
 2006
                
                2005
                
                2004Federal
                    income tax rate
                
                
                (35.0
                )%
                
                35.0
                %
                
                35.0
                %State
                    tax rate, net
                
                
                (0.7
                )
                
                2.1
                
                
                2.1Difference
                    in U.S. statutory tax rate and foreign country effective tax
                    rate
                
                
                (1.0
                )
                
                (1.3
                )
                
                5.9Tax
                    credits
                
                
                (13.1
                )
                
                (1.1
                )
                
                (0.1
                )Tax
                    effect of American Jobs Creation Act repatriation
                
                
                68.3
                
                
                0.6
                
                
                --Currency
                    related differences
                
                
                8.4
                
                
                (1.1
                )
                
                (4.2
                )Change
                    in contingency reserves
                
                
                (29.7
                )
                
                --
                
                
                --Change
                    in valuation allowance
                
                
                --
                
                
                (0.2
                )
                
                --Other
                
                
                (3.0
                )
                
                0.3
                
                
                (0.2
                )Total
                
                
                (5.8
                )%
                
                34.3
                %
                
                38.5
                %
 91
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  Deferred
          income taxes reflect the net effects of temporary differences between the
          carrying amounts of assets and liabilities for financial reporting purposes
          and
          the amounts used for income tax purposes.
 
 Significant
          components of the Company’s deferred tax liabilities and assets are as
          follows:
 *(In
                      thousands)*
                  
                  2006
                  
                  2005Deferred
                      tax liabilities:Property
                      and equipment
                  
                  $
                  144,361
                  
                  $
                  137,109Inventories
                  
                  
                  43,627
                  
                  
                  47,206Prior
                      use of cash accounting
                  
                  
                  18,457
                  
                  
                  20,135Acquisition
                      related items
                  
                  
                  15,600
                  
                  
                  16,518Deferred
                      foreign taxes
                  
                  
                  24,127
                  
                  
                  --Other
                  
                  
                  36,570
                  
                  
                  39,775Total
                      deferred tax liabilities
                  
                  
                  282,742
                  
                  
                  260,743Deferred
                      tax assets:Foreign
                      net operating losses
                  
                  
                  42,683
                  
                  
                  25,435Expenses
                      deductible in different years
                  
                  
                  71,478
                  
                  
                  87,183Total
                      deferred tax asset
                  
                  
                  114,161
                  
                  
                  112,618Net
                      deferred tax liabilities
                  
                  $
                  168,581
                  
                  $
                  148,125
 The
          Company has not provided any deferred income taxes on the remaining
          undistributed earnings of its Mexico subsidiaries based upon its determination
          that such earnings will be indefinitely reinvested. As of September 30,
          2006,
          the cumulative undistributed earnings of these subsidiaries were approximately
          $73.5 million. If such earnings were not considered indefinitely reinvested,
          certain deferred foreign and U.S. income taxes would have been provided,
          after
          consideration of estimated foreign tax credits. However, determination
          of the
          amount of deferred income taxes is not practical.
 
 The
          Mexican tax operating loss
          carryforwards of approximately $169.8 million will expire in the years
          ranging
          from 2008 through 2012.
 
 **NOTE
          G** **- COMPREHENSIVE INCOME (LOSS)**
 
 For
          the period ending September 30, 2006, Comprehensive Loss was ($33.7) million
          consisting of net loss of ($34.2) million and unrealized gains related
          to our
          investments in debt securities of $0.5 million. This compares to the fiscal
          year
          ended October 1, 2005 in which Comprehensive Income was $265.0 million
          primarily
          consisting of net income of $265.0 million. Comprehensive Income for fiscal
          year
          ended October 2, 2004, was $128.0 million, consisting of net income of
          $128.3
          million and market-to-market adjustments of commodity futures contracts
          of
          ($0.3) million, net of tax benefit of ($.2) million.
 
 **NOTE
          H - COMMON STOCK**
 
 On
          August 3, 2005, Pilgrim's Pride Corporation entered into a Purchase and
          Amendment Agreement with ConAgra Foods, Inc., providing for the repurchase
          by
          Pilgrim’s Pride from ConAgra Foods, Inc. of an aggregate of 15,443,054 shares of
          Pilgrim’s Pride common stock at a price per share of $31.23735. Under the
          ConAgra chicken division acquisition agreement, these shares were restricted
          from sale by ConAgra for certain periods through December 2006. The repurchase
          was completed on August 9, 2004 and the shares were cancelled. There was
          no
          decrease in the total number of outstanding shares of common stock after
          giving
          effect to the repurchase as it occurred concurrent with the issuance of
          a like
          number of new shares in a public offering at an issue price of $33.86 per
          share.
          The net proceeds from these two transactions of $39.7 million, after
          consideration of $0.8 million in transaction costs, was credited to additional
          paid in capital.
 92
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 Prior
          to November 23, 2003, the Company had two classes of authorized common
          stock,
          Class A common stock and Class B common stock. After the New York Stock
          Exchange
          closed on November 21, 2003, each share of Class A common stock and each
          share
          of Class B common stock was reclassified into one share of new common stock.
          The
          new common stock is our only class of authorized common stock. The new
          common
          stock is listed on the New York Stock Exchange under the symbol “PPC” and
          registered under the Securities Exchange Act of 1934.
 
 Following
          the reclassification, our certificate of incorporation contains no provisions
          for Class A common stock or Class B common stock. In connection with the
          elimination of the dual class capital structure, our certificate of
          incorporation now authorizes 160 million shares of common stock instead
          of 100
          million shares of Class A common stock and 60 million shares of Class B
          common
          stock.
 
 Except
          as to voting rights, the rights of the new common stock are substantially
          identical to the rights of the Class A common stock and Class B common
          stock.
          Each share of Class B common stock that was reclassified into our new common
          stock is entitled to cast twenty votes on all matters submitted to a vote
          of the
          stockholders until there is a change in the beneficial ownership of such
          share.
 
 The
          reclassification had no significant effect on our Consolidated Financial
          Statements, as the combination of the Class A and Class B shares into a
          new
          class of common stock did not affect the overall shares of common stock
          outstanding. Prior year balances reflect this reclassification as if it
          had
          occurred as of the earliest period presented.
 
 As
          of September 30, 2006, we estimate that approximately 26 million shares
          of our
          common stock carry 20 votes per share, of which 25.4 million shares are
          beneficially owned by our Chairman, Lonnie “Bo” Pilgrim, or certain related
          entities.
 
 **NOTE
          I - SAVINGS AND PENSION PLANS**
 
 The
          Company maintains three retirement plans for eligible employees: (1) the
          Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”), a Section 401(k) Salary
          Deferral Plan; (2) the Pilgrim’s Pride Retirement Plan for Union Employees, a
          defined benefit plan; and (3) the To-Rico’s Employee Cash or Deferred
          Arrangement Profit Sharing Plan (the “To-Rico’s Plan”), a Section 1165(e) Salary
          Deferral Plan. Additionally, the Company is required by the government
          of Mexico
          to make certain payments to terminated employees in Mexico.
 
 The
          RS Plan is maintained for certain eligible U.S. employees. Under the RS
          Plan,
          eligible employees may voluntarily contribute a percentage of their
          compensation; there are various Company matching provisions. The defined
          benefit
          plan covers certain locations or work groups within the Company. The To-Rico’s
          Plan is maintained for certain eligible Puerto Rico employees. Under the
          To-Rico’s Plan, eligible employees may voluntarily contribute a percentage of
          their compensation; there are various Company matching provisions.
 93
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 The
          Company maintains three postretirement plans for eligible Mexico employees
          as
          required by Mexico law which cover primarily termination benefits. Separate
          disclosure of plan obligations is not considered material.
 
 Under
          all of our plans, the Company’s expenses were $16.0 million, $22.4 million and
          $13.2 million in fiscal 2006, 2005 and 2004, respectively, including the
          correction of $6.4 million, pretax, as described in Note A-“Business and Summary
          of Significant Accounting Policies - Accounting Adjustments and
          Reclassifications”.
 
 The
          Company uses a calendar year measurement date for its defined benefits
          plans,
          while its postretirement benefit plans use a fiscal year end of September
          30,
          2006. Certain disclosures are listed below; other disclosures are not material
          to the financial statements.
 
 **Benefit
          obligations and funded status**
 
 At
          September 30, 2006 and at October 1, 2005, U.S. pension obligations exceeded
          the
          accumulated benefit obligation as follows (in thousands):
 Pension
                      Benefits2006
                  
                  2005Comparison
                      of obligations to plan assetsProjected
                      benefit obligation
                  
                  $
                  9,882
                  
                  $
                  8,778Accumulated
                      benefit obligation
                  
                  
                  9,310
                  
                  
                  7,694Fair
                      value of plan assets at measurement date
                  
                  
                  6,252
                  
                  
                  5,405
 
 **Assumptions**
 
 Key
          assumptions used are as follows:
 
 Pension
                    Benefits2006
                
                2005AssumptionsDiscount
                    rate to determine net periodic benefit cost
                
                
                5.25
                %
                
                5.50
                %Discount
                    rate to determine benefit obligations
                
                
                5.75
                %
                
                5.25
                %Rate
                    of compensation increase
                
                
                3.00
                %
                
                3.00
                %Expected
                    return on plan assets
                
                
                7.75
                %
                
                7.75
                %
 94
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 **Plan
          Assets**
 
 The
          fair value of plan assets for the Company’s domestic union pension benefit plan
          was $6.3 million and $5.4 million as of September 30, 2006 and October
          1, 2005
          respectively. The following table shows asset allocations by
          category:
 2006
                  
                  
                  2005Plan
                      assets by categoryEquity
                      securities
                  
                  
                  66
                  %
                  
                  63
                  %Debt
                      securities
                  
                  
                  34
                  %
                  
                  37
                  %Total
                      assets
                  
                  
                  100
                  %
                  
                  100
                  %
  **NOTE
            J - RELATED PARTY TRANSACTIONS**
 
 Lonnie
          “Bo” Pilgrim, the Chairman and, through certain related entities, the major
          stockholder of the Company (collectively, the “major stockholder”) owns an egg
          laying and a chicken growing operation. In addition, at certain times during
          the
          year the major stockholder purchases from the Company live chickens and
          hens and
          certain feed inventories during the grow-out process and then contracts
          with the
          Company to resell the birds at maturity, determined on a market based formula
          price subject to a ceiling price calculated at his cost plus 2%. During
          the
          years ended September 30, 2006, October 1, 2005 and October 2, 2004, the
          formula
          resulted in a net operating profit to the major stockholder of $4,500,
          $1,017,000 and $1,050,000, respectively on gross amounts paid by the Company
          to
          the major stockholder as described below under “Live chicken purchases and other
          payments to the major stockholder.”
 
 Transactions
          with the major stockholders or related entities are summarized as
          follows:
 
 *(In
                    thousands)*
                
                2006
                
                2005
                
                2004Lease
                    payments on commercial egg property
                
                $
                750
                
                $
                750
                
                $
                750Chick,
                    feed and other sales to major stockholder
                
                $
                747
                
                $
                51,258
                
                $
                53,481Live
                    chicken purchases and other payments to major stockholder
                
                $
                1,208
                
                $
                54,318
                
                $
                54,180Loan
                    guaranty fees
                
                $
                1,615
                
                $
                1,775
                
                $
                2,634Lease
                    payments and operating expenses on airplane
                
                $
                492
                
                $
                536
                
                $
                587
 
 The
          Company leases a commercial egg property including all of the ongoing costs
          of
          the operation from the Company’s major stockholder. The lease term runs for ten
          years with a monthly lease payment of $62,500.
 
 Much
          of the Company's debt obligations have been guaranteed by the Company's
          major
          stockholders. In consideration of such guarantees, the Company has paid
          such
          stockholders a quarterly fee equal to .25% of the average aggregate outstanding
          balance of such guaranteed debt. During fiscal 2006, we paid $1.6 million
          to
          Pilgrim Interests, Ltd., an affiliate of Lonnie “Bo” Pilgrim.
 95
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  The
          Company leases an airplane from its major stockholder under an operating
          lease
          agreement that is renewable annually. The terms of the lease agreement
          require
          monthly payments of $33,000 plus operating expenses. Lease expense was
          $396,000
          for each of the years 2006, 2005 and 2004. Operating expenses were $96,480,
          $140,090 and $190,560 in 2006, 2005 and 2004, respectively.
 The
            Company maintains depository accounts with a financial institution in
            which the
            Company’s major stockholder is also a major stockholder. Fees paid to this bank
            in 2006, 2005 and 2004 are insignificant, and as of September 30, 2006,
            the
            Company had bank balances at this financial institution of approximately
            $1.7
            million.
 
 The
            major stockholder has deposited $0.3 million with the Company as an advance
            on
            miscellaneous expenditures.
 
 A
            son of the major stockholder sold commodity feed products and a limited
            amount
            of other services to the Company aggregating approximately $0.4 million
            in
            fiscal 2006. He also leases an insignificant amount of land from the
            Company.
 
 The
            Company has entered into chicken grower contracts involving farms owned
            by
            certain of its officers and directors, providing the placement of Company-owned
            flocks on their farms during the grow-out phase of production. These
            contracts
            are on terms substantially the same as contracts entered into by the
            Company
            with unaffiliated parties and can be terminated by either party upon
            completion
            of the grow-out of each flock. The aggregate amounts paid by the Company
            to
            these officers and directors under these grower contracts during each
            of the
            fiscal years 2006, 2005 and 2004 were less than $1 million in
            total.
 
 **NOTE
            K- COMMITMENTS and CONTINGENCIES**
 
 The
            Consolidated Statements of Income (Loss) include rental expense for operating
            leases of approximately $35.1 million, $35.4 million and $33.1 million
            in 2006,
            2005 and 2004, respectively. The Company’s future minimum lease commitments
            under non-cancelable operating leases are as follows: 2007 -- $30.0 million;
            2008 -- $24.0 million; 2009 -- $19.1 million; 2010 -- $12.6 million;
            2011 --
            $7.7 million and thereafter $0.5 million.
 
 At
            September 30, 2006, the Company had $23.4 million in letters of credit
            outstanding relating to normal business transactions.
 
 Among
            the claims presently pending against the Company are claims brought by
            current
            and former employees seeking compensation for the time spent donning
            and doffing
            work equipment. We are aware of an industry-wide investigation by the
            Wage and
            Hour Division of the U.S. Department of Labor to ascertain compliance
            with
            various wage and hour issues, including the compensation of employees
            for the
            time spent on such activities such as donning and doffing work equipment.
            Due,
            in part, to the government investigation and the recent U.S. Supreme
            Court
            decision in *IBP,
            Inc. v. Alvarez* ,
            it is possible that we may be subject to additional employee claims.
            We intend
            to assert vigorous defenses to the litigation. Nonetheless, there can
            be no
            assurances that other similar claims may not be brought against the Company.
            Currently we do not expect these cases to have a material impact on our
            financial position or results of operations.
 96
 Pilgrim's
                  Pride Corporation
 September
                  30, 2006
 On
            December 31, 2003, we were served with a purported class action complaint
            styled
“Angela Goodwin, Gloria Willis, Johnny Gill, Greg Hamilton, Nathan Robinson,
            Eddie Gusby, Pat Curry, Persons Similarly Situated v. ConAgra Poultry
            Company
            and Pilgrim’s Pride, Incorporated” in the United States District Court, Western
            District of Arkansas, El Dorado Division, alleging racial and age discrimination
            at one of the facilities we acquired from ConAgra. Two of the named plaintiffs,
            Greg Hamilton and Gloria Willis, were voluntarily dismissed from this
            action. We
            believe we have meritorious defenses to the class certification as well
            as the
            individual claims and we intend to vigorously oppose class certification
            and
            defend these claims. After considering our available resources, we do
            not expect
            these cases to have a material impact on our financial position or results
            of
            operations.
 
 The
            Company is subject to various other legal proceedings and claims which
            arise in
            the ordinary course of its business. In the opinion of management, the
            amount of
            ultimate liability with respect to these actions will not materially
            affect the
            financial position or results of operations of the Company.
 
 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
            is
            immaterial.
 
 The
            Company’s loan agreements generally obligate the Company to reimburse the
            applicable lender for incremental increased costs due to a change in
            law that
            imposes (i) any reserve or special deposit requirement against assets
            of,
            deposits with or credit extended by such lender related to the loan,
            (ii) any
            tax, duty or other charge with respect to the loan (except standard income
            tax)
            or (iii) capital adequacy requirements. In addition, some of the Company’s loan
            agreements contain a withholding tax provision that requires the Company
            to pay
            additional amounts to the applicable lender or other financing party,
            generally
            if withholding taxes are imposed on such lender or other financing party
            as a
            result of a change in the applicable tax law. These increased cost and
            withholding tax provisions continue for the entire term of the applicable
            transaction, and there is no limitation on the maximum additional amounts
            the
            Company could be obligated to pay under such provisions. Any failure
            to pay
            amounts due under such provisions generally would trigger an event of
            default,
            and, in a secured financing transaction, would entitle the lender to
            foreclose
            upon the collateral to realize the amount due.
 
 The
            Company also maintains operating leases for various types of equipment,
            some of
            which contain residual value guarantees for the market value of assets
            at the
            end of the term of the lease. The terms of the lease maturities range
            from one
            to seven years.  The maximum potential amount of the residual value
            guarantees is estimated to be approximately $17.4 million; however, the
            actual
            amount would be offset by any recoverable amount based on the fair market
            value
            of the underlying leased assets. No liability has been recorded related
            to this
            contingency as the likelihood of payments under these guarantees is not
            considered to be probable and the fair value of such guarantees is immaterial.
            The Company historically has not experienced significant payments under
            similar
            residual guarantees.
 
 **NOTE
            L - BUSINESS SEGMENTS**
 
 We
            operate in three reportable business segments as (1) a producer and seller
            of
            chicken products, (2) a producer and seller of turkey products and (3)
            a seller
            of other products. In previous years, our presented segments included
            chicken
            and other and turkey. After fully integrating the fiscal 2004 acquisition
            into
            our operations during fiscal 2004 and early fiscal 2005, we changed our
            segment
            presentation to separate our non-chicken and non-turkey operations into
            a
            separate category consistent with management’s evaluation of operating results
            and decisions with respect to the allocation of resources.
 97
 Pilgrim's
                  Pride Corporation
 September
                  30, 2006
 Our
          chicken segment includes sales of chicken products we produce and purchase
          for
          resale in the U.S., including Puerto Rico, and Mexico. Our chicken segment
          conducts separate operations in the U.S. and Puerto Rico and in Mexico
          and is
          reported as two separate geographical areas. Substantially all of the assets
          and
          operations of the fiscal 2004 acquisition are included in our U.S. chicken
          segment since the date of acquisition.
 
 Our
          turkey segment includes sales of turkey products we produce and purchase
          for
          resale in our turkey and distribution operations, operating in the
          U.S.
 
 Our
          other products segment includes distribution of non-poultry products that
          are
          purchased from third parties and sold to independent grocers and quick
          service
          restaurants. Also included in this category are sales of table eggs, feed,
          protein products and other items, some of which are produced by the
          Company.
 
 Inter-area
          sales and inter-segment sales, which are not material, are accounted for
          at
          prices comparable to normal trade customer sales. 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. portions of the segments based on number of employees.
 
 Assets
          associated with our corporate functions, included cash and cash equivalents
          and
          investments in available for sale securities are included in our chicken
          segment.
 
 Selling,
          general and administrative expenses related to our distribution centers
          are
          allocated based on the proportion of net sales to the particular segment
          to
          which the product sales relate.
 
 Depreciation
          and amortization, total assets and capital expenditures of our distribution
          centers are included in chicken based on the primary focus of the
          centers.
 
 Non-recurring
          recoveries, which represent settlements for vitamin and methionine litigation
          covering several periods as well as federal compensation for avian influenza,
          have not been allocated to any segment because the proper allocation cannot
          be
          readily determined.
 98
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 The
          following table presents certain information regarding our
          segments:
 
 ***Fiscal
                    Year Ended*****September
                    30, 2006**
                
                **October
                    1, 2005**
                
                **October
                    2, 2004****(a)*****(In
                    thousands)*****Net
                    Sales to Customers:**Chicken:United
                    States
                
                $
                4,098,403
                
                $
                4,411,269
                
                $
                4,091,706Mexico
                
                
                418,745
                
                
                403,353
                
                
                362,442Sub-total
                
                
                4,517,148
                
                
                4,814,622
                
                
                4,454,148Turkey
                
                
                130,901
                
                
                204,838
                
                
                286,252Other
                    Products:United
                    States
                
                
                570,510
                
                
                626,056
                
                
                600,091Mexico
                
                
                17,006
                
                
                20,759
                
                
                23,232Sub-total
                
                
                587,516
                
                
                646,815
                
                
                623,323Total
                
                
                5,235,565
                
                
                5,666,275
                
                
                5,363,723**Operating
                    Income (Loss):**Chicken:United
                    States
                
                $
                28,619
                
                $
                405,662
                
                $
                329,694Mexico
                
                
                (17,960
                )
                
                39,809
                
                
                (7,619
                )Sub-total
                
                
                10,659
                
                
                445,471
                
                
                322,075Turkey(b)
                
                
                (15,511
                )
                
                (22,539
                )
                
                (96,839
                )Other
                    Products:United
                    States
                
                
                6,216
                
                
                8,250
                
                
                35,969Mexico
                
                
                1,638
                
                
                4,630
                
                
                4,033Sub-total
                
                
                7,854
                
                
                12,880
                
                
                40,002Non-recurring
                    recoveries
                
                
                --
                
                
                --
                
                
                76Total
                
                $
                3,002
                
                $
                435,812
                
                $
                265,314**Depreciation
                    and Amortization:****(c)**Chicken:United
                    States
                
                $
                109,346
                
                $
                114,131
                
                $
                89,767Mexico
                
                
                11,305
                
                
                12,085
                
                
                12,217Sub-total
                
                
                120,651
                
                
                126,216
                
                
                101,984Turkey
                
                
                6,593
                
                
                3,343
                
                
                6,887her
                    Products:United
                    States
                
                
                7,743
                
                
                5,196
                
                
                4,773Mexico
                
                
                146
                
                
                189
                
                
                144Sub-total
                
                
                7,889
                
                
                5,385
                
                
                4,917Total
                
                $
                135,133
                
                $
                134,944
                
                $
                113,788**Total
                    Assets:**Chicken:United
                    States
                
                $
                1,897,763
                
                $
                2,059,579
                
                $
                1,830,051Mexico
                
                
                361,887
                
                
                287,414
                
                
                212,492Sub-total
                
                
                2,259,650
                
                
                2,346,993
                
                
                2,042,543Turkey
                
                
                76,908
                
                
                77,319
                
                
                122,163Other
                    Products:United
                    States
                
                
                88,650
                
                
                85,581
                
                
                78,754Mexico
                
                
                1,660
                
                
                2,010
                
                
                2,529Sub-total
                
                
                90,310
                
                
                87,591
                
                
                81,283Total
                
                $
                2,426,868
                
                $
                2,511,903
                
                $
                2,245,989**Capital
                    Expenditures:**Chicken:United
                    States
                
                $
                133,106
                
                $
                102,470
                
                $
                54,433Mexico
                
                
                6,536
                
                
                4,924
                
                
                8,640Sub-total
                
                
                139,642
                
                
                107,394
                
                
                63,073Turkey
                
                
                257
                
                
                3,604
                
                
                8,151Other
                    Products:United
                    States
                
                
                3,567
                
                
                5,448
                
                
                8,395Mexico
                
                
                416
                
                
                142
                
                
                23Sub-total
                
                
                3,983
                
                
                5,590
                
                
                8,418Total
                
                $
                143,882
                
                $
                116,588
                
                $
                79,642
 99
 Pilgrim's
                Pride Corporation
 September
                30, 2006
 (a)
                The
                    Company acquired the ConAgra chicken division on November 23,
                    2003 for
                    $635.2 million. The acquisition has been accounted for as a purchase
                    and
                    the results of operations for this acquisition have been included
                    in our
                    consolidated results of operations since the acquisition
                    date.(b)
                Included
                    in fiscal 2004 are restructuring charges totaling $72.1 million
                    offset
                    somewhat by the non-recurring recovery of $23.8 million representing
                    the
                    gain recognized on the insurance proceeds received in connection
                    with the
                    October 2002 recall. In addition, the Company estimates its losses
                    related
                    to the October 2002 recall (excluding the insurance recovery
                    described
                    above) negatively affected gross profit and operating income
                    by $20.0
                    million in fiscal 2004 and $65.0 million in fiscal
                    2003.(c)
                Includes
                    amortization of capitalized financing costs of approximately
                    $2.3 million,
                    $2.0 million and $1.5 million in fiscal years 2005, 2004 and
                    2003,
                    respectively.
 
 The
          Company had one customer that represented 10% or more of net sales in fiscal
          year 2005 and none in fiscal years 2004 and 2003.
 
 As
          of each of the three years ended September 30, 2006, 2005 and 2004, Mexico
          has
          net long lived assets of $116.9 million, $122.1 million and $129.8 million,
          respectively.
  100
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **NOTE
          M - QUARTERLY RESULTS (UNAUDITED)**
 
 *(In
                    thousands, except per share data)*
                
                *Year
                    ended September 30, 2006*First
                Second
                Third
                Fourth
                FiscalQuarter
                Quarter
                Quarter
                Quarter(a)
                YearNet
                    sales
                
                
                
                
                $
                1,343,812
                
                
                
                
                $
                1,265,709
                
                
                
                
                $
                1,287,646
                
                
                
                
                $
                1,338,398
                
                
                
                
                $
                5,235,565Gross
                    profit
                
                118,400
                37,201
                42,696
                99,303
                297,600Operating
                    income (loss)
                
                46,198
                (37,936)
                (26,737)
                21,477
                3,002Net
                    income (loss)
                
                25,678
                (31,954)
                (20,473)
                (7,483)
                (34,232)Per
                    Share:Net
                    income (loss)
                
                0.39
                (0.48)
                (0.31)
                (0.11)
                (0.51)Cash
                    dividends
                
                1.0225
                0.0225
                0.0225
                0.0225
                1.090
 
 *(In
                    thousands, except per share data)*
                
                *Year
                    ended October 1, 2005*First
                
                Second
                
                Third
                
                Fourth
                
                FiscalQuarter
                
                Quarter(b)
                
                Quarter
                
                Quarter
                
                YearNet
                    sales
                
                
                
                
                $
                1,368,247
                
                
                
                
                $
                1,375,321
                
                
                
                
                $
                1,440,039
                
                
                
                
                $
                1,482,668
                
                
                
                
                $
                5,666,275Gross
                    profit
                
                161,118
                164,055
                219,221
                200,805
                745,199Operating
                    income
                
                91,015
                88,955
                135,993
                119,849
                435,812Net
                    income
                
                48,509
                56,389
                85,353
                74,728
                264,979Per
                    Share:Net
                    income
                
                0.73
                0.85
                1.28
                1.12
                3.98Cash
                    dividends
                
                0.015
                0.015
                0.015
                0.015
                0.06
 
 (a)
                Included
                    in gross profit in the fourth quarter of fiscal 2006 are charges
                    for
                    accounting adjustments of $6.4 million, pretax, related to certain
                    benefit
                    plans. Included in net income in the fourth quarter of fiscal
                    2006 is a
                    $25.8 million tax provision for the American Jobs Creation Act
                    of 2004 and
                    a $10.6 million tax benefit for a change in estimate of contingency
                    reserves as described in Note A-“Business and Summary of Significant
                    Accounting Policies - Income Taxes”.(b)
                Included
                    in net income in the second quarter of fiscal 2005 is a $7.5
                    million after
                    tax gain from a litigation
                    settlement.
 101
 Pilgrim's
                Pride Corporation
 September
                30, 2006
  **PILGRIM'S
                    PRIDE CORPORATION****SCHEDULE
                    II-VALUATION AND QUALIFYING ACCOUNTS**Col.
                    A
                
                Col.
                    B
                
                Col.
                    C
                
                Col.
                    D
                
                Col.
                    EADDITIONSCharged
                    toBalance
                    at
                
                Charged
                    to
                
                Other
                
                
                
                Balance
                    atDESCRIPTION
                
                Beginning
                
                Costs
                
                Accounts-
                
                Deductions
                
                endof
                    Period
                
                and
                    Expenses
                
                Describe(1)
                
                Describe(2)
                
                of
                    PeriodYear
                    ended September 30, 2006:Reserves
                    and allowances deductedfrom
                    asset accounts:Allowance
                    for doubtful accounts
                
                
                
                
                $
                4,663,155
                
                
                
                
                $
                (100,676
                )
                
                
                
                $
                --
                
                
                
                
                $
                2,478,070
                
                
                
                
                $
                2,084,409Year
                    ended October 1, 2005:Reserves
                    and allowances deductedfrom
                    asset accounts:Allowance
                    for doubtful accounts
                
                
                
                
                $
                4,244,644
                
                
                
                
                $
                767,923
                
                
                
                
                $
                --
                
                
                
                
                $
                349,412
                
                
                
                
                $
                4,663,155Year
                    ended October 2, 2004:Reserves
                    and allowances deductedfrom
                    asset accounts:Allowance
                    for doubtful accounts
                
                
                
                
                $
                1,184,199
                
                
                
                
                $
                1,124,878
                
                
                
                
                $
                5,228,623
                
                
                
                
                $
                3,293,056
                
                
                
                
                $
                4,244,644(1)
                    Balance of allowance for doubtful accounts established for accounts
                    receivable acquired from ConAgra.(2)
                    Uncollectible accounts written off, net of
                    recoveries.
 102