substantially and exhibit cyclical characteristics typically associated with commodity markets. Other costs, excluding feed grains, related to the profitability of the Company's poultry operations, including hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost containment programs and management practices. Over the past three fiscal years, these other normal production costs have averaged approximately 58.1% of the Company's total normal production costs.
The Company believes that value-added products are subject to less price volatility and generate higher, more consistent profit margin than whole chickens ice packed and shipped in bulk form. To reduce its exposure to market cyclicality that has historically characterized commodity chicken market prices, the Company has increasingly concentrated on the production and marketing of value-added product lines with emphasis on product quality, customer service, and brand recognition. The Company adds value to its poultry products by performing one or more processing steps beyond the stage where the whole chicken is first saleable as a finished product, such as cutting, deep chilling, packaging and labeling the product. The Company believes that one of its major strengths is its ability to change its product mix to meet customer demands. The Company's prepared chicken product line includes approximately 75 institutional and consumer packaged chicken items that it sells nationally, primarily to distributors and food service establishments. A majority of the prepared chicken items are made to the specifications of food service users. Poultry prices per pound, as measured by the Georgia Dock price, fluctuated during the three years ended October 31, 2008 as follows:

                                   1st         2nd         3rd         4th
                                 Quarter     Quarter     Quarter     Quarter
                  Fiscal 2008
                  High          $ .7850     $ .8200     $ .8875     $ .8875 *
                  Low           $ .7675 *   $ .7800     $ .8250     $ .8750
                  Fiscal 2007
                  High          $ .7200     $ .7850     $ .8125     $ .8175 *
                  Low           $ .6900 *   $ .7250     $ .7875     $ .7900
                  Fiscal 2006
                  High          $ .7375 *   $ .6950     $ .7000     $ .7100
                  Low           $ .6975     $ .6750 *   $ .6750 *   $ .6950

* Year High/Low

On January 29, 2004, the Company announced a three-for-two stock split to be effected as a 50% stock dividend. The new shares were distributed on February 26, 2004, to stockholders of record as of close of business on February 10, 2004. Per share information in this Annual Report reflects the stock split. Cash was paid in lieu of fractional shares.
On January 12, 2006, the Company announced that sites in Waco and McLennan County, Texas had been selected for the construction of a new poultry complex, consisting of a processing plant, hatchery and wastewater treatment facility. The plant began operations during the Company's fourth fiscal quarter of 2007, and at full production will process approximately 1.25 million head of chickens per week. However, in light of market fundamentals, the Company announced its intentions in August to hold production at 1.1 million head of chickens per week. The Company will move Waco to full production during the first calendar quarter of 2009 as construction of poultry houses is completed.
On April 24, 2008, the Company announced that sites in Kinston, North Carolina had been selected for construction of a new feed mill, poultry processing plant and hatchery. These facilities will comprise a state-of-the-art poultry complex with the capacity to process 1.25 million birds per week for the retail chill pack market. At full capacity the complex will employ approximately 1,500 people, will require 130 contract growers, and will be equipped to

process and sell 6.7 million pounds per week of dressed poultry meat at full production. On June 26, 2008, the Company announced that construction and start-up of the new Kinston, North Carolina complex would be placed on hold until such time that market fundamentals improve.
On May 1, 2008, the Company entered into a new revolving credit facility to, among other things, increase the available credit to $300.0 million, increase the capital expenditure limits to allow construction of the Kinston, North Carolina facility, and to change the covenant requiring a maximum debt to total capitalization ratio of 50% during fiscal 2008, 55% during fiscal 2009 and not to exceed 50% for fiscal 2010 and thereafter. The credit remains unsecured and, unless extended, will expire on May 1, 2013. The facility was amended on July 25, 2008 to set the capital budget limitations for fiscal 2008 at $60 million. As of October 31, 2008 the Company had borrowed $161.3 million under the revolving credit facility.
On October 9, 2008, the Company announced that it filed a Form S-3 "shelf" registration statement with the Securities and Exchange Commission to register for possible future sale of shares of the Company's common and/or preferred stock at an aggregate offering price not to exceed $1.0 billion. The stock may be offered by the Company in amounts, at prices and on terms to be determined by the board of directors if and when shares are issued.
EXECUTIVE OVERVIEW OF RESULTS - 2008
Market prices for poultry products were mixed during fiscal 2008 when compared to fiscal 2007, and the cost of corn and soybean meal were at historically high levels during fiscal 2008, resulting in lower margins. The Company's cost of feed grains was approximately $239.5 million higher during fiscal 2008 compared to fiscal 2007. These higher feed costs added approximately 7.3 cents per pound to the cost of a pound of chicken. The Company's results for fiscal 2008 as compared to fiscal 2007 reflect the fact that prices for the Company's poultry products did not move in tandem with the higher grain costs, which made up approximately 49.3% of the Company's cost of goods sold during fiscal 2008. While feed costs increased more than 7 cents per pound, the Company's sales price of poultry products only increased 1.5 cents per pound. During the fourth quarter of fiscal 2008, the Company and industry experienced decreasing prices for boneless breast meat resulting from weak demand from food service and significantly lower prices for chicken leg quarters for the export market as a result of the current world financial crises and the resulting tightening credit markets. The Company cannot predict if or when input costs will return to historical levels, or when chicken prices will move to a level allowing the Company to offset such costs and return to historical margins. The Company believes that the cost of feed grains will continue to be relatively high during fiscal 2009, as the demand for corn from ethanol producers, export markets, protein producers, and concerns about adequate supply might continue to affect the market prices for both corn and soybeans. However, corn and soy meal prices have declined recently. If the Company were to price all of its remaining needs for grain for fiscal 2009 at current market prices, feed grain costs would be approximately $142.6 million lower during fiscal 2009 as compared to fiscal 2008.
RESULTS OF OPERATIONS
During fiscal 2008 net sales were $1,723.6 million as compared to $1,474.8 million during fiscal 2007, an increase of $248.7 million or 16.9%. The increase in net sales resulted from an increase in the Company's average sales price of poultry products sold of 2.3% and an increase in the pounds of poultry products sold of 17.8%. The additional pounds of poultry products sold resulted from an increase in the number of chickens produced of 13.6% and an increase in the average live weight of chickens produced of 5.0%, partially offset by an increase in inventory of processed chicken. The additional number of chickens processed was primarily the result of the additional production at the Company's new Waco processing division, which began operations during the fourth quarter of fiscal 2007 and has increased production since that time. The new Waco plant is dedicated to the big bird deboning market and chickens processed at that plant have a higher average live weight than chickens processed at the Company's chill pack processing locations, resulting in a higher average live weight of chickens produced in fiscal 2008 as compared to fiscal 2007. During fiscal 2008 as compared to fiscal 2007, the average sales price of the Company's poultry products increased 2.3% due to improvements during the first quarter of fiscal 2008 as compared

to the first quarter of fiscal 2007. However, the improvement during the first quarter in market prices for poultry products was partially offset by lower overall market prices during the subsequent three quarters of fiscal 2008 as compared to the same periods during fiscal 2007. For fiscal 2008 as compared to fiscal 2007, market prices for boneless breast, jumbo wings and tenders as reported by Urner Barry ("UB") were 10.4%, 16.0% and 16.5% lower, respectively. A simple average of the Georgia dock prices for whole chickens during fiscal 2008 as compared to fiscal 2007 increased 8.4%. Although the average UB price for leg quarters was 11.9% higher during fiscal 2008 as compared to fiscal 2007, export prices for leg quarters and paws significantly declined during October as a result of the current world economic environment and credit disruptions. Net sales of prepared food products decreased $21.6 million or 13.8%. Pounds sold of the Company's prepared chicken products decreased 22.8% during fiscal 2008 as compared to fiscal 2007, and the average sales price of prepared chicken products increased 11.7%. The Company removed the entrée operations from its prepared chicken plant during the second quarter of fiscal 2008 to enable that facility to produce individually frozen poultry products and additional partially cooked chicken products.
Cost of sales for fiscal 2008 was $1,683.7 million as compared to $1,289.6 million, an increase of $394.0 million or 30.6% as compared to fiscal 2007. Cost of the Company's poultry products increased $417.4 million, or 36.6%. The increase in the Company's cost of sales of poultry products resulted from the increase in the pounds of poultry products sold of 17.8%, described above, and significantly higher cost of feed grains during fiscal 2008 as compared to fiscal 2007. A simple average of the Company's cost of corn and soybean meal delivered during fiscal 2008 as compared to fiscal 2007 reflected increases of 29.8% and 48.4%, respectively. Cost of sales of the Company's prepared chicken products decreased $23.4 million or 15.8% due to the lower market prices for poultry products, which is a major component of the Company's prepared chicken products, and a decrease in the pounds of prepared chicken products sold of 22.8% during fiscal 2008 as compared to fiscal 2007.
Selling, general and administrative costs for fiscal 2008 were $53.6 million as compared to $59.8 million during fiscal 2007. The decrease of $6.2 million resulted from the contribution during fiscal 2007 of approximately $5.8 million to the Company's Employee Stock Ownership Plan ("ESOP") and $3.3 million expensed associated with the Company's incentive award program ("IAP"). Both programs are contingent upon the Company's profitability and, therefore, no expense was incurred during fiscal 2008 for the Company's ESOP or IAP. In addition, during fiscal 2007 the Company incurred $3.8 million in start up costs related to the Company's new Waco, Texas complex, which began operations during the fourth quarter of fiscal 2007. All costs, except for certain customer service related costs, are classified to cost of sales after the new complex began operations during the fourth quarter of fiscal 2007. The reduction above was partially offset by a planned increase in the Company's advertising budget and certain other administrative costs.
The Company recorded a charge of $35.0 million to lower the value of live broiler inventories on hand at October 31, 2008, which resulted primarily from the significant decrease in expected market prices for export leg quarters and chicken paws and relatively low domestic prices for boneless breast meat during November and December of 2008. In favorable market conditions the Company values the broiler inventories on hand at cost, and accumulates costs as the birds are grown to a marketable age subsequent to the balance sheet date. However, the Company estimates that the cost to grow these birds to a marketable age and process and distribute these birds during November and December 2008 will be higher than the anticipated sales price during those months, resulting in a loss of $35.0 million, before income taxes. If the market prices return to a more favorable position during February and March of 2009, the Company's results for the first quarter of fiscal 2009 will improve as compared to the fourth quarter of fiscal 2008.
During September and October of 2008 market prices for products sold to some export markets declined significantly due to the current world economic environment. The Company's processed inventory at October 31, 2008 included approximately 71.2 million pounds of leg quarter and paws awaiting shipment into the export markets. These products were appropriately valued at October 31, 2008 at the lower of cost or market value, resulting in a charge before income taxes of $13.1 million.

As described in Note 6 of the Company's Quarterly Report on Form 10-Q for its third fiscal quarter ended July 31, 2008, the Company settled certain donning and doffing litigation during the third quarter of fiscal 2008. The settlement resulted in the recognition of a $2.7 million expense before taxes during the third quarter ended July 31, 2008 and the fiscal year ended October 31, 2008. During August and September of 2008 the Company incurred a charge of approximately $1.2 million as a result of hurricane damage to processed poultry products in cold storage in New Orleans, Louisiana and additional expenses incurred due to temporary disruption of electricity service to the Company's Robertson County, Texas feed mill. A cold storage facility in New Orleans was partially flooded during Hurricane Gustav and resulted in damage to some of the product held in that storage facility. The feed mill was without electricity for approximately one week after Hurricane Ike during which time the Company was able to maintain basic operations by renting generator capacity. The feed mill returned to normal operations subsequent to electricity service being restored. The Company's insurance policy has a deductible of $2.75 million for the hurricane season. As the total cost of the hurricane season was less than the deductible, the Company will not be reimbursed for these costs.
The Company's operating loss for fiscal 2008 was $65.7 million as compared to an operating income during fiscal 2007 of $125.4 million. The decrease of $191.1 million is the result of historically high grain prices, lower market prices for boneless breast meat and a significant decrease in market prices for export products during October, November and December of 2008. The Company's processed inventory on hand at October 31, 2008 included approximately 71.2 million pounds of chicken leg quarters and paws which the Company believes will be sold to export customers at prices below cost, resulting in a charge of approximately $13.1 million to record that inventory at the lower of cost or market. In addition, because of the lower prices for export products, relatively low prices for boneless breast meat in the domestic market and decreasing but relatively high grain prices during November and December 2008, the Company recorded a net realizable loss of $35.0 million to lower the value of the Company's inventory of live broilers at October 31, 2008. The Company's operating margin was also negatively impacted by the charge of $2.7 million related to the settlement of the Company's donning and doffing litigation and $1.2 million as a result of the 2008 hurricane season, both described above. Interest expense during fiscal 2008 was $8.5 million as compared to $5.3 million during fiscal 2007. The increase in interest costs resulted primarily from higher outstanding debt and $2.1 million in interest costs capitalized during fiscal 2007 to the cost of construction of the new complex in Waco, Texas. The Company did not capitalize any interest costs during fiscal 2008. The Company's effective tax rate during fiscal 2008 and 2007 was 41.8% and 34.6%, respectively. The Company's effective tax rate differs from the statutory federal rate due to state income taxes, certain nondeductible expenses for federal income tax purposes and the benefit of certain federal income tax credits available as a result of the impact of Hurricane Katrina on the Company and state investment credits unrelated to the hurricane. The Company's effective tax rate for fiscal 2008 is higher than the Company's anticipated effective tax rate at the end of the third quarter of fiscal 2008 primarily as a result of the economic stimulus package passed by Congress on October 30, 2008. The economic stimulus legislation extended the Katrina WOTC credit from August 29, 2007 until August 29, 2009.
The Company reported a net loss of $43.1 million or $2.13 per share for fiscal 2008 as compared to a net income of $78.8 million or $3.88 per share for fiscal 2007. The Company's net loss for fiscal 2008 includes charges of $32.0 million, net of income taxes, or $1.58 per share related to a mark down of live and processed inventories, settlement of the Company's donning and doffing litigation and hurricane damaged inventories and additional hurricane related expenses.
EXECUTIVE OVERVIEW OF RESULTS - 2007
The Company's financial results for fiscal 2007 reflected significant improvement in market prices for the Company's poultry products when compared to fiscal 2006, in part due to sluggish demand for poultry products

during fiscal 2006 resulting from the appearance of H5N1 strain of avian flu in certain countries of Asia and Europe. The improvement in financial performance during fiscal 2007 over fiscal 2006 was also the result of improved efficiencies at the Company's poultry complexes in South Georgia and Collins, Mississippi and the negative impact during the first quarter of fiscal 2006 on the Company's Mississippi and Louisiana poultry operations due to the effects of Hurricane Katrina. The South Georgia complex reported a significant planned increase in the volume of poultry products sold during fiscal 2007 as compared to fiscal 2006 due to the start-up of operations during fiscal 2006. The Collins, Mississippi processing facility also increased the pounds of poultry products sold as a result of the conversion of the plant in the first quarter of fiscal 2006 to the big bird deboning market from the chill pack market. That facility was down for one week during the first quarter of fiscal 2006 to allow for the installation of certain equipment required for the conversion of the facility to the big bird deboning market. The effect of the improvements in market prices for the Company's poultry products and increased efficiencies were partially offset by an increase in the cost of feed grains during 2007 as compared to fiscal 2006. Market prices for corn were higher in fiscal 2007 in part because of increased demand from ethanol producers, and for soybean meal, which remained under pressure as a result of farmers switching acres from soybeans to corn.
RESULTS OF OPERATIONS
Net sales during fiscal 2007 were $1,474.8 million as compared to $1,047.9 million during fiscal 2006, an increase of $426.9 million or 40.7%. The increase in net sales during fiscal 2007 reflected a 14.0% increase in the pounds of poultry products sold and a 28.0% increase in the pounds of prepared food products sold. The additional pounds of poultry products sold resulted from the complex in South Georgia, which began operations during the fourth quarter of fiscal 2005 and was increasing production during fiscal 2006, an increase in poultry pounds sold at the Collins, Mississippi processing plant, which was down for one week during the first quarter of fiscal 2006 to allow for the conversion to serve the big bird market from the chill pack market and additional pounds sold by the Company's new complex in Waco, Texas which began operations in the fourth quarter of fiscal 2007. The Company also sold fewer pounds during the first quarter of fiscal 2006 due to the destruction of inventories during Hurricane Katrina that would have been available for sale during the first quarter of fiscal 2006. Market prices for boneless breasts, tenders, wings and leg quarters were 25.8%, 38.6%, 38.9% and 51.8% higher during fiscal 2007 as compared to fiscal 2006, respectively, while a simple average of the Georgia dock prices for whole birds increased 9.9%. As discussed above, the improvement in the overall market prices for poultry products resulted from a comparative oversupply of poultry products during fiscal 2006 as compared to fiscal 2007 due to sluggish demand for poultry products in the domestic and export markets, which resulted in part from the appearance of H5N1 strain of avian flu in certain countries of Asia and Europe in 2006. Net sales resulting from the prepared food products plant increased $39.8 million, or 34.1% during fiscal 2007 as compared to fiscal 2006.
Cost of sales was $1,289.6 million, an increase of $266.2 million, or 26.0% as compared to fiscal 2006. Cost of sales of the Company's poultry products increased $224.3 million, or 24.4%. The increase in the cost of sales of the Company's poultry products resulted from an increase in the pounds of poultry products sold of 14.0% and an increase in the average cost of feed in flocks sold of 31.6%. These increases were partially offset by increased efficiencies at the Company's facilities in South Georgia and Collins, Mississippi during fiscal 2007 and the negative impact of Hurricane Katrina of $3.0 million on the Company's Mississippi and Louisiana operations during the first quarter of fiscal 2006. In addition, the impact of Hurricane Katrina resulted in fewer pounds sold during the first quarter of fiscal 2006. As previously mentioned, the Company's cost of sales was negatively impacted by an increase in the cost of feed grains during fiscal 2007 as compared to fiscal 2006. A simple average of the Company's cost of corn and soybean meal during fiscal 2007 as compared to fiscal 2006 reflects an increase of 58.3% and 12.4%, respectively. Cost of sales of prepared food products increased $41.9 million or 39.6%. The Company's cost of sales of prepared food products increased during fiscal 2007 as compared to fiscal 2006 due to an increase in the pounds of prepared food products sold of 28.1% and an increase in the cost of chicken, which is a major raw material in the Company's prepared food products.
Selling, general and administrative costs for fiscal 2007 and fiscal 2006 were $59.8 million and $51.3 million, respectively. The increase in selling, general and administrative costs of $8.5 million resulted from increased

expenses related to the start up of the new poultry complex in Waco, Texas. Prior to start up of initial operations in August 2007, $3.8 million in start up costs at the new complex in Waco, Texas were classified as selling, general and administrative expenses during fiscal 2007. Also, during fiscal 2007 the Company contributed approximately $5.8 million to the Company's Employee Stock Ownership Plan and expensed $3.3 million associated with the Company's incentive award program. The Company did not make a contribution to the ESOP nor did the Company . . .