<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 25, 1993 Commission File No. 2-62681
-------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ---------------------
GOLD KIST INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0255560
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
244 Perimeter Center Parkway, N.E., Atlanta, Georgia 30346
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (404) 393-5000
-------------------------
N/A
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
<PAGE> 2
GOLD KIST INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
December 25, 1993 and June 26, 1993 . . . . . . . 1
Consolidated Statements of Operations -
Three Months and Six Months Ended
December 25, 1993 and December 26, 1992 . . . . . 2
Consolidated Statements of Cash Flows -
Six Months Ended December 25, 1993
and December 26, 1992. . . . . . . . . . . . . . . 3
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . 4 - 7
Item 2. Management's Discussion and Analysis of
Consolidated Results of Operations and
Financial Condition . . . . . . . . . . . . . . . 8 - 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 11
<PAGE> 3
PAGE 1
ITEM 1. FINANCIAL GOLD KIST INC. AND SUBSIDIARIES
STATEMENTS CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEC. 25, 1993 JUNE 26, 1993
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,770 31,086
Receivables, principally trade, including
notes receivable of $26.8 million at
Dec. 25, 1993 and $32.1 million
at June 26, 1993, less allowance for
doubtful accounts of $6,178 at
Dec. 25, 1993 and $5,255 at June 26,
1993 116,148 133,771
Inventories (note 3) 182,847 174,504
Other current assets 17,328 3,365
------- -------
Total current assets 354,093 342,726
Investments 71,692 75,318
Property, plant and equipment, net 205,365 204,481
Other assets 43,041 42,577
------- -------
$674,191 665,102
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt:
Short-term bank borrowings $ 2,150 -
Subordinated loan certificates 25,694 26,386
Current maturities of long-term debt 26,913 28,044
------- -------
54,757 54,430
Accounts payable 102,474 94,236
Accrued compensation and related expenses 27,793 23,078
Interest left on deposit 8,695 13,392
Other current liabilities 10,211 8,435
Patronage refunds and equity payable 4,493 8,526
------- -------
Total current liabilities 208,423 202,097
Long-term debt, excluding current maturities 116,883 120,334
Accrued postretirement benefit costs 32,328 31,841
Other liabilities 704 617
------- -------
Total liabilities 358,338 354,889
------- -------
Minority interest 25,498 24,593
Patrons' and other equity:
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 79 at
Dec. 25, 1993 and June 26, 1993 79 79
Revolving fund and cumulative preferred
certificates - 10,253
Patronage reserves 210,829 204,148
Retained earnings 79,447 71,140
------- -------
Total patrons' and other equity 290,355 285,620
------- -------
Contingent liabilities (note 6)
$674,191 665,102
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
PAGE 2
GOLD KIST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- -------------------------
DEC. 25, DEC. 26, DEC. 25, DEC. 26,
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales volume $348,075 318,973 706,854 649,218
Cost of sales 308,958 284,210 626,999 584,353
------- ------- ------- -------
Gross margins 39,117 34,763 79,855 64,865
Distribution, administrative and
general expenses 30,052 29,822 58,163 53,664
------- ------- ------- -------
Net operating margins 9,065 4,941 21,692 11,201
------- ------- ------- -------
Other income (deductions):
Interest income 1,634 1,901 3,415 4,080
Interest expense (3,116) (3,662) (6,862) (9,273)
Equity in earnings (loss) of
partnership (note 4) 227 1,710 (2,544) (323)
Miscellaneous, net 3,105 2,511 3,888 3,543
------- ------- ------- -------
1,850 2,460 (2,103) (1,973)
------- ------- ------- -------
Margins before income taxes,
minority interest and
cumulative effect of change
in accounting principle 10,915 7,401 19,589 9,228
Income tax expense (note 5) 4,110 2,417 6,542 2,992
------- ------- ------- -------
Margins before minority
expense and cumulative
effect of change in
accounting principle 6,805 4,984 13,047 6,236
Minority interest (344) (651) (960) (1,196)
------- ------- ------- -------
Margins before cumulative
effect of change in
accounting principle 6,461 4,333 12,087 5,040
Cumulative effect of change in
accounting for income taxes
(note 5) - - 5,339 -
------- ------- ------- -------
Net margins $ 6,461 4,333 17,426 5,040
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
PAGE 3
GOLD KIST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
DEC. 25, DEC. 26,
1993 1992
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net margins $ 17,426 5,040
Non-cash items included in net margins:
Depreciation and amortization 18,117 18,039
Cumulative effect of change in accounting
principle (5,339) -
Equity in loss of partnership 2,544 323
Deferred income tax benefit (2,539) (1,870)
Other (431) 1,401
Changes in operating assets and liabilities:
Receivables 17,623 28,945
Inventories (8,343) 10,657
Other current assets (3,695) (2,853)
Accounts payable and accrued expenses 14,729 (6,863)
Interest left on deposit (4,697) (570)
------- -------
Net cash provided by operating activities 45,395 52,249
------- -------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (18,818) (8,520)
Proceeds from partnership earnings distribution 1,770 11,404
Other (1,759) 5,390
------- -------
Net cash used in investing activities (18,807) (2,506)
------- -------
Cash flows from financing activities:
Short-term borrowings (repayments), net 1,458 (40,510)
Proceeds from long-term debt 10,666 8,962
Principal payments of long-term debt (15,248) (10,607)
Patronage refunds and other equity paid in cash (16,780) (2,121)
------- -------
Net cash used in financing activities (19,904) (44,276)
------- -------
Net change in cash and cash equivalents 6,684 5,467
Cash and cash equivalents at beginning of period 31,086 12,150
------- -------
Cash and cash equivalents at end of period $ 37,770 17,617
======= =======
Supplemental disclosure of cash flow data:
Cash paid during the periods for:
Interest (net of amounts capitalized) $ 12,677 10,077
======= =======
Income taxes $ 8,152 6,538
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE> 6
PAGE 4
GOLD KIST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements reflect the
accounts of Gold Kist Inc. and its subsidiaries ("Gold Kist"). These
consolidated financial statements should be read in conjunction with
Management's Discussion and Analysis of Consolidated Results of Operations
and Financial Condition and the Notes to Consolidated Financial Statements
on pages 13 through 17 and pages 25 through 35, respectively, of Gold
Kist's Annual Report in the previously filed Form 10-K for the year ended
June 26, 1993.
2. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position,
the results of operations, and the cash flows. All significant
intercompany balances and transactions have been eliminated in
consolidation. Results of operations for interim periods are not
necessarily indicative of results for the entire year.
3. Inventories consist of the following:
Dec. 25, 1993 June 26, 1993
------------- -------------
Merchandise for sale $ 55,278 57,147
Live poultry and hogs 69,387 63,616
Marketable products 24,994 22,751
Raw materials and supplies 33,188 30,990
------- -------
$182,847 174,504
======= =======
4. Gold Kist has a 33% interest in Golden Peanut Company, a Georgia general
partnership. Gold Kist's investment in the partnership was $18.7 million
at December 25, 1993 and $23.0 million at June 26, 1993.
Summarized income statement information of Golden Peanut Company is shown
below:
Three Months Ended Six Months Ended
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
1993 1992 1993 1992
-------- -------- -------- --------
Net sales and other
operating income $96,836 130,301 198,167 223,852
Costs and expenses 96,170 125,155 205,813 224,841
------ ------- ------- -------
Net earnings (loss) $ 666 5,146 (7,646) (989)
====== ======= ======= =======
5. The Association provides for Federal and state income taxes currently
payable, as well as for those deferred because of timing differences
between reporting income and expenses for financial statement purposes and
income and expenses for tax purposes.
In February 1992, the Financial Accounting Standards Board issued
Statement 109, "Accounting for Income Taxes," (SFAS 109). SFAS 109
requires an asset and liability approach in accounting and, therefore,
required a change from the deferred method the Association previously
used. Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
<PAGE> 7
PAGE 5
GOLD KIST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income or expense in the period that includes the enactment
date.
Effective June 27, 1993, the Association adopted SFAS 109 and reported the
cumulative effect of that change in the method of accounting for income
taxes in the consolidated statement of operations for the first quarter of
fiscal 1994, which ended September 25, 1993.
Pursuant to the deferred method under Accounting Principles Board Opinion
11, which was applied in fiscal 1993 and prior years, deferred income
taxes that were reported in different years for financial reporting
purposes and income tax purposes were recognized for income and expense
items using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
The cumulative effect of this change in accounting for income taxes, which
resulted in a tax benefit of $5.3 million, was determined as of June 27,
1993 and was reflected in the consolidated financial statements for the
three months ended September 25, 1993. Prior years' financial statements
have not been restated to apply the provisions of SFAS 109.
The provision for income tax expense consists of the following (in
thousands):
Three Months Ended Six Months Ended
Dec. 25, 1993 Dec. 25, 1993
------------------ ----------------
Current expense:
Federal $3,525 8,163
State 385 918
----- ------
3,910 9,081
----- ------
Deferred expense (benefit):
Federal 237 (2,285)
State (37) (254)
----- ------
200 (2,539)
----- ------
Total $4,110 6,542
===== ======
<PAGE> 8
PAGE 6
GOLD KIST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
The effective tax rate from operations for six months ended December 25,
1993 was 33.4%. A reconciliation of income tax expense from operations at
the expected Federal statutory rate of 35% to actual tax expense from
operations for the applicable periods follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
Dec. 25, 1993 Dec. 25, 1993
------------- -------------
<S> <C> <C>
Income taxes at Federal statutory rate $3,820 6,856
Cash portion of nonqualified patronage
refund 56 (345)
State income taxes, net of Federal
income tax benefit 8 432
Other, net 226 (401)
----- -----
Total $4,110 6,542
===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
26, 1993 are as follows:
Deferred tax assets:
Postretirement benefits expense $12,347
Insurance accruals 7,347
Bad debt reserves 2,286
State tax operating loss carryforwards 1,708
Other 986
------
Total gross deferred tax assets 24,674
Less valuation allowance (1,708)
------
Net deferred tax assets 22,966
------
Deferred tax liabilities:
Accelerated depreciation (5,020)
Deferred compensation (4,088)
------
Total deferred tax liabilities (9,108)
------
Net deferred tax assets $13,858
======
The Association's management believes the existing net deductible
temporary differences comprising the total net deferred tax assets will
reverse during periods in which the Association generates net taxable
income.
<PAGE> 9
PAGE 7
GOLD KIST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
6. In January 1993, three Alabama member patrons of Gold Kist filed lawsuits
in the nature of derivative actions against Gold Kist and Golden Poultry
Company, Inc., and certain directors, officers and employees of the
companies. The lawsuits allege that the named officers, directors and
employees violated their fiduciary duties by creating Golden Poultry
Company, Inc. and Carolina Golden Products Company (Golden Poultry), by
permitting their continued operations and by selling shares of Golden
Poultry's common stock to certain officers, directors and employees.
Among the remedies requested are the transfer of Golden Poultry's
operations to Gold Kist, as well as unspecified actual and punitive
damages. Gold Kist intends to defend the litigation vigorously.
<PAGE> 10
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONSOLIDATED RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET SALES VOLUME
The Association's net sales volume for the three and six month periods ended
December 25, 1993 increased 9.1% and 8.9%, respectively, as compared to the
same periods a year ago. The Poultry segment had net sales increases of 7.4%
for the three and six months periods ended December 25, 1993. The Poultry
segment's sales increase for the quarter ended December 25, 1993 was the result
of a 6.8% increase in average selling prices for broiler products and a 6.2%
increase in pounds of poultry sold as compared to the same quarter a year ago.
For the six months ended December 25, 1993, average selling prices for poultry
products and pounds sold were up 6.4% and 4.4%, respectively, over the
comparable periods a year ago. The impact of these factors on net sales was
partially offset by lower sales volume for non-poultry food items and lower
prices for market hogs. The increase in broiler market prices during the three
and six month periods ended December 25, 1993 was attributable to a more
favorable supply-demand relationship resulting from increased export sales, as
well as the general recovery of the U.S. economy.
Net sales volume in the Agri-Services segment for the three and six month
periods ended December 25, 1993 increased 16.6% and 15.3%, respectively, above
the comparable periods last fiscal year. The increases represented increased
sales of seed, fertilizer, chemical and animal feeds through the Association's
retail store system, as well as wholesale sales of these products to
independent dealers and distributors. The increase in agricultural planting
activity in the Southeast during the periods ended December 25, 1993 was
partially the result of hot-dry weather conditions this past summer which
damaged pasture land. These increases were partially offset by lower grain and
peanut procurement revenues resulting from weather reduced crops.
NET OPERATING MARGINS
The Association had net operating margins of $9.1 million and $21.7 million,
respectively, for the three and six months periods ended December 25, 1993 as
compared to net operating margins of $4.9 million and $11.2 million,
respectively, in the comparable periods a year ago. For the current three and
six month periods, the Poultry segment had net operating margins of $14.1
million and $32.4 million, respectively, as compared to net operating margins
of $10.8 million and $22.0 million, respectively, during the same periods last
year. The improvement in operating margins was primarily the result of
increased broiler prices, which were partially offset by increased feed
ingredient costs. As discussed above, average selling prices for broiler
products in the current quarter were approximately 6.8% higher than in the
comparable quarter a year ago. Feed ingredient costs for the quarter ended
December 25, 1993 increased approximately 8.0% from the comparable quarter a
year ago. For the six months ended December 25, 1993, feed ingredient costs
were up about 3.1% from the same period last year. The increase in feed
ingredient costs resulted from last summer's drought in the Southeast and
floods in the Midwest.
<PAGE> 11
PAGE 9
The Agri-Services segment had net operating losses of approximately $3.4
million and $7.7 million, respectively, for the three and six month periods
ended December 25, 1993 as compared to $4.5 million and $8.8 million,
respectively, in the same periods a year ago. Although net operating losses
for this segment in the current year were less than in the same periods a year
ago, lower gross margins for fertilizer and chemical products in the current
year partially offset the impact of increased sales on net operating margins.
Also, net operating margins were negatively affected by the decline in
procurement revenue as previously mentioned.
OTHER INCOME (DEDUCTIONS)
Other income, net for the three months ended December 25, 1993 was $1.9 million
as compared to other income, net of $2.5 million for the same period a year
ago. The decrease in other income, net was due primarily to the decline in the
Association's pro rata share of Golden Peanut Company's earnings. The decline
in Golden Peanut Company's operating earnings was the result of lower market
prices related to a large carryover peanut crop from 1992. The impact of the
declines was partially offset by an increase in miscellaneous income, net,
which includes the Association's equity in the earnings of a partially-owned
foreign affiliate. For the six months ended December 25, 1993, other
deductions, net reflected the increase in the Association's pro rata share of
Golden Peanut Company's operating loss, which was partially offset by lower
interest expense. Interest expense of $6.9 million for the current six months
declined $2.4 million from the comparable period last fiscal year primarily as
a result of lower average borrowings. Interest expense for the six months
ended December 26, 1992 included $1.0 million related to an income tax audit
for the years 1987 through 1989.
MARGINS BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE
For the three and six month periods ended December 25, 1993, the Association
had margins before income taxes, minority interest and cumulative effect of
change in accounting principle of $6.8 million and $13.0 million, respectively.
This compared to margins before minority interest and cumulative effect of
change in accounting principle of $7.4 million and $19.9 million, respectively,
in the same periods a year ago. The improvement in margins was the result of
increased market prices for broiler products, which was partially offset by
higher feed ingredient costs and an increase in the Association's pro rata
share of Golden Peanut Company's operating loss.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
Effective June 27, 1993, the Association adopted SFAS 109 "Accounting for
Income Taxes", which requires an asset and liability approach in accounting for
income taxes. As a result of the adoption, the Association recorded a tax
benefit of $5.3 million during the first quarter ended September 25, 1993.
(See Note 5 of Notes to Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Association's liquidity is dependent upon cash from operations and external
sources of financing. The principal sources of external short-term financing
are proceeds from the continuous offering of Subordinated Loan Certificates, a
revolving credit facility with a group of banks, and uncommitted lines of
credit. At December 25, 1993, the Association had
<PAGE> 12
PAGE 10
unused available loan commitments to borrow additional amounts of $42.9 million
and additional uncommitted facilities to provide loans and letters of credit of
approximately $130.2 million. The primary sources of external long-term
financing are a note agreement with an insurance company and proceeds from the
continuous offering of Subordinated Capital Certificates of Interest.
Covenants under the terms of loan agreements with lenders include conditions
that could limit the short-term and long-term funds available from various
external sources. The Association was in compliance with all applicable
conditions in loan agreements with all lenders at December 25, 1993.
Working capital and the current ratio were $145.7 million and 1.70 to 1,
respectively, at December 25, 1993, as compared to $140.6 million and 1.70 to
1, respectively, at June 26, 1993. Patrons' equity at December 25, 1993 was
$290.4 million as compared to $285.6 million at June 26, 1993. The increase
was primarily the result of net margins of approximately $17.4 million, which
included a $5.3 million benefit associated with an accounting change for income
taxes (see Note 5 of Notes to Consolidated Financial Statements). Cash and
cash equivalents during the current fiscal year increased $6.7 million to $37.8
million at December 25, 1993. The increase was primarily the result of net
cash provided by operations of $45.4 million, which was partially offset by
expenditures for the repayment of long-term debt, patronage distributions and
acquisitions of property, plant and equipment.
For the six month period ended December 25, 1993, the Association's investment
activities included $18.8 million in expenditures for property, plant and
equipment, which were primarily related to expansion and improvements in the
poultry operations. The Association, including its non-cooperative
subsidiaries, expect fiscal 1994 capital expenditures of approximately $44.0
million. These planned capital expenditures include expansion and
technological advances in poultry production and processing, as well as other
facility improvements and necessary replacements.
During the six month period ended December 25, 1993, the Association had cash
payments totaling $16.8 million for patronage refunds and other equity
payments. These payments included $10.2 million representing the redemption of
Revolving Fund and Cumulative Preferred Certificates. During the final six
months of fiscal 1994, management expects cash payments to approximate $5.0
million for patronage refunds and related equity redemptions. The Association
believes cash and cash equivalents on hand at December 25, 1993 and cash
expected to be provided from operations, in addition to proceeds from the sale
of Subordinated Capital Certificates of Interest and borrowings available under
existing credit arrangements, will be sufficient to maintain cash flows
adequate for the Association's projected growth and operational objectives
during fiscal 1994.
<PAGE> 13
PAGE 11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K. Gold Kist has not filed any reports on Form
8-K during the three months ended December 25, 1993.
SIGNATURES
Pursuant to the requirements 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.
GOLD KIST INC.
(Registrant)
Date February 7, 1994 /s/ Peter J. Gibbons
---------------------------- ---------------------------
Peter J. Gibbons
Vice President, Finance
(Chief Financial Officer)
Date February 7, 1994 /s/ W. F. Pohl, Jr.
---------------------------- ----------------------------
W. F. Pohl, Jr.
Controller
(Chief Accounting Officer)
