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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarter ended June 28, 2003

Commission file number 1-9273

PILGRIM’S PRIDE CORPORATION

(903) 855-1000
(Registrant’s telephone number, including area code)

Not Applicable

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

27,589,250 shares of the Registrant’s Class B Common Stock, $.01 par value, were outstanding as of July 22, 2003.

13,523,429 shares of the Registrant’s Class A Common Stock, $.01 par value, were outstanding as of July 22, 2003.

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PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Pilgrim’s Pride Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)

See notes to consolidated financial statements.

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Pilgrim’s Pride Corporation and Subsidiaries
Consolidated Income Statements
(Unaudited)

See notes to consolidated financial statements.

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Pilgrim’s Pride Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

See notes to consolidated financial statements.

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PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
June 28, 2003

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE A—BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s” or “the Company”, “we”, “us”, “our” or similar terms) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period ended June 28, 2003 are not necessarily indicative of the results that may be expected for the year ended September 27, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in Pilgrim’s Annual Report on Form 10-K for the fiscal year ended September 28, 2002.

The consolidated financial statements include the accounts of Pilgrim’s and its wholly and majority owned subsidiaries. Significant intercompany accounts and transactions have been eliminated.

The assets and liabilities of the foreign subsidiaries are translated at end-of-period exchange rates, except for any non-monetary assets, which are translated at equivalent dollar costs at dates of acquisition using historical rates. Operations of foreign subsidiaries are translated at average exchange rates in effect during the period.

Total comprehensive income was $17.4 million and $4.9 million for the quarters and $29.7 million and $18.8 million for the nine months ended June 28, 2003 and June 29, 2002, respectively.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51” (“Interpretation No. 46”). Interpretation No. 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership or contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. Interpretation No. 46 is immediately effective for the variable interest entities created after January 31, 2003, and effective in the fourth quarter of fiscal 2003 for those created prior to February 1, 2003. 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 the Company. 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 Revenue Bonds. All amounts borrowed from these funds will be due in 2029. The Revenue Bonds are supported by letters of credit obtained by the Company under its

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PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
June 28, 2003

available credit facilities which are secured by fixed assets of the Company. Adoption of Interpretation No. 46 may cause the Company to consolidate the trust and debt related to the Camp County Revenue Bonds. The effect of the consolidation would be to record $25 million as restricted cash in Other Assets and $25 million as Long-Term Debt. The Company believes the adoption of Interpretation No. 46 will not have a material impact on its results of operations.

Certain reclassifications have been made to prior periods to conform to current presentations.

NOTE B—SIGNIFICANT EVENTS

Non-recurring recoveries, which is a component of gross profit and operating income, include (1) reimbursements received from the U.S. Federal Government under a relief plan related to the avian influenza outbreak in Virginia on March 12, 2002 in the amount of $0.1 million and $16.1 million for the three month and nine month periods ended June 28, 2003, respectively; and (2) 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 in the amount of $10.2 million and $19.9 million for the three month and nine month periods ended June 28, 2003, respectively. Proceeds received by the Company as successor to WLR Foods are recorded as Other Expense (Income); Miscellaneous, net. (See Note G - Contingencies below.) In the three month and nine month periods ended June 29, 2002 vitamin litigation recoveries of $0.7 million were included in Non-recurring recoveries and $3.5 million were included in Other Expense (Income); Miscellaneous, net.

The following table presents the impact of avian influenza federal compensation and the vitamin and the methionine litigation settlements on Non-recurring recoveries and Miscellaneous, net (in millions):

The Company has agreed to acquire the chicken division of ConAgra Foods, Inc. (“ConAgra”) through the purchase from ConAgra of all of the issued and outstanding capital stock of four wholly-owned subsidiaries of ConAgra in accordance with a Stock Purchase Agreement dated June 7, 2003. The purchase price is equal to the Final Adjusted Net Book Value (as defined in the Stock Purchase Agreement) of the assets and liabilities of the chicken division which is expected to be approximately $590 million plus transaction costs. The acquisition will be funded by $100 million in secured borrowings with existing lenders, approximately $265 million of Pilgrim’s Pride’s Class A common stock, based on a formula price specified in the Stock Purchase Agreement, with the balance of $225 million payable by a subordinated note bearing a coupon rate of 10.5% and due in March 2011. The Company has received commitments from its existing lenders for the financing of the $100 million portion of the purchase price, and the Company’s lenders have issued consents as necessary to allow the consummation and financing

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PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
June 28, 2003

of this acquisition. On July 11, 2003 the thirty-day waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 for antitrust regulatory clearance from the federal government, necessary for completion of the acquisition, had expired. The transaction is expected to close in the third calendar quarter of 2003.

NOTE C—ACCOUNTS RECEIVABLE

On July 18, 2003 the Company extended and amended its existing Asset Sale Agreement to sell accounts receivable. The amended agreement increased the availability under this facility to $125.0 million from $60 million of accounts receivable and expires in June 2008. In connection with the Asset Sale Agreement, 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 June 28, 2003 and September 28, 2002, an interest in these Pooled Receivables of $57.6 million and $58.5 million, respectively, had been sold to third parties and is reflected as a reduction to accounts receivable during each period. These transactions have been 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 July 18, 2003, $4.8 million additional Pooled Receivables are available for sale.

Also included in accounts receivable at June 28, 2003, is $22.1 million in net insurance claims for the actual costs incurred by the Company directly associated with the 2002 turkey deli meat product recall. These costs are recoverable under our product recall insurance policy.

NOTE D—INVENTORIES