<PAGE>
FILED PURSUANT TO
RULE 424(b)(3)
FILE NO: 333-36291
GOLD KIST INC.
$ 7,485,036--8.25%, FIFTEEN YEAR SUBORDINATED CAPITAL CERTIFICATES
OF INTEREST (SERIES D)
[LOGO OF $ 5,354,963--8.00%, TEN YEAR SUBORDINATED CAPITAL CERTIFICATES OF
GOLD KIST INTEREST (SERIES D)
APPEARS $10,442,840--7.75%, SEVEN YEAR SUBORDINATED CAPITAL CERTIFICATES
HERE] OF INTEREST (SERIES A)
$10,265,172--7.50%, FIVE YEAR SUBORDINATED CAPITAL CERTIFICATES OF
INTEREST (SERIES C)
$12,287,961--7.00%, THREE YEAR SUBORDINATED CAPITAL CERTIFICATES
OF INTEREST (SERIES A)
$15,614,112--6.75%, TWO YEAR SUBORDINATED CAPITAL CERTIFICATES OF
INTEREST (SERIES A)
$21,976,467--6.30%, ONE YEAR SUBORDINATED LOAN CERTIFICATES
(SERIES C)
$41,990,065--6.40%, ONE YEAR SUBORDINATED LARGE DENOMINATION LOAN
CERTIFICATES (SERIES A)
$13,172,153--5.60%, SIX MONTH SUBORDINATED LARGE DENOMINATION LOAN
CERTIFICATES (SERIES A)
- -------------------------------------------------------------------------------
The Subordinated Capital Certificates of Interest, Subordinated Loan
Certificates and Subordinated Large Denomination Loan Certificates are
unsecured obligations of Gold Kist. The certificates of each series are
redeemable, subject to certain limitations, by the holders, and the Five,
Seven, Ten and Fifteen Year Certificates are subject to redemption at the call
of Gold Kist. The Certificates of each series are subordinated, in case of
liquidation of Gold Kist, to "Superior Indebtedness." As of June 28, 1997,
Superior Indebtedness (as defined in the indenture under which each series
will be issued) amounted to approximately $633,727,000. See Description of
Subordinated Capital Certificates of Interest and Description of Subordinated
Loan Certificates and Subordinated Large Denomination Loan Certificates.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. SEE "RISK FACTORS" ON
PAGE 5.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND
PRICE TO COMMISSIONS PROCEEDS TO GOLD
PUBLIC (1)(2) KIST (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
SUBORDINATED CAPITAL CERTIFICATES
OF INTEREST
Fifteen Year (Series D)--Per Unit
(3).............................. $ 500
Total............................. $ 7,485,036 $299,401 $ 7,185,635
Ten Year (Series D)--Per Unit
(3).............................. $ 500
Total............................. $ 5,354,963 $160,649 $ 5,194,314
Seven Year (Series A)--Per Unit
(3).............................. $ 500
Total............................. $10,442,840 $261,071 $10,181,769
Five Year (Series C)--Per Unit
(3).............................. $ 500
Total............................. $10,265,172 $205,303 $10,059,869
Three Year (Series A)--Per Unit
(3).............................. $ 500
Total............................. $12,287,961 $122,880 $12,165,081
Two Year (Series A)--Per Unit
(3).............................. $ 500
Total............................. $15,614,112 $117,106 $15,497,006
SUBORDINATED LOAN CERTIFICATES
One Year (Series C)--Per Unit
(3).............................. $ 500
Total............................. $21,976,467 $109,882 $21,866,585
SUBORDINATED LARGE DENOMINATION
LOAN CERTIFICATES
One Year (Series A)--Per Unit
(4).............................. $ 50,000
Total............................. $41,990,065 $209,950 $41,780,115
Six Month (Series A)--Per Unit
(5).............................. $ 20,000
Total............................. $13,172,153 $ 32,930 $13,139,223
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Agvestments, Inc. ("Agvestments"), a wholly-owned subsidiary of Gold
Kist, has been engaged by Gold Kist to solicit from the public on a best
efforts basis offers to purchase the securities described herein. All offers
to purchase are subject to acceptance by Gold Kist. Gold Kist has agreed to
pay all of the expenses and disbursements of Agvestments, including the
commissions of its associated persons and to furnish all facilities, financing
and accounting, clerical and recordkeeping services necessary for the conduct
of Agvestments' business. Gold Kist has also agreed to pay all liabilities
incurred by Agvestments, including liabilities under the Securities Act of
1933. The commissions to be paid to Agvestments' associated persons will be
established by Agvestments from time to time within the following ranges of
percentage of the sales price of the certificates: Six Month Certificates--
1/8- 1/4%; One Year Certificates-- 1/4- 1/2%; Two Year Certificates-- 1/2-
3/4%; Three Year Certificates-- 3/4-1%; Five Year Certificates--1-2%; Seven
Year Certificates--1.5-2.5%; Ten Year Certificates--2-3%; and Fifteen Year
Certificates--2-4%. Agvestments offers cash bonuses to its associated persons
under an incentive program, but in no event can the total compensation to any
associated person exceed 5% of the sales price of certificates. Assuming that
all registered certificates are sold and that the maximum incentive bonuses
are earned by Agvestments' associated persons on such sales, the maximum
compensation to be paid to Agvestments on the sale of $138,588,769 in face
amount of certificates would total $1,558,122.
Agvestments is a registered broker-dealer under the Securities Exchange Act
of 1934 and a member of the National Association of Securities Dealers, Inc.
("NASD"). Agvestments' principal office is located at 244 Perimeter Center
Parkway, N.E., Post Office Box 2210, Atlanta, Georgia 30301. This offering is
being made in compliance with the terms of a partial exemption from the
requirements of Rule 2720 of the NASD Conduct Rules. As a condition of this
partial exemption, a minimum of 80 percent of the dollar amount of aggregate
sales made in this offering must be to members, equity holders, producer-
suppliers, non-member patrons or employees of Gold Kist, a subsidiary,
franchisee or member association, or to holders of securities thereof within
the past three years who were in one of the above categories at the time of
purchase of such securities, or to family members or affiliates of one of the
above.
(2) The proceeds to Gold Kist of $137,030,647 are before deducting the
expenses to be borne by Gold Kist of an estimated amount of $111,606. The
certificates are offered on a best efforts basis for an indeterminate period
of time, not expected to be in excess of two years. There is no requirement
that a minimum amount of the securities of any series offered hereby must be
sold.
(3) All certificates are offered at par in minimum denominations of $500;
however, certificates will be issued in any amount which is $500 or larger.
(4) All certificates are offered at par in minimum denominations of $50,000;
however, certificates will be issued in any amount which is $50,000 or larger.
(5) All certificates are offered at par in minimum denominations of $20,000;
however, certificates will be issued in any amount which is $20,000 or larger.
---------------
AGVESTMENTS, INC.
The Date of this Prospectus is October 27, 1997
<PAGE>
AVAILABLE INFORMATION
Gold Kist is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports and other information filed by Gold Kist can be inspected and copied
at the public reference facilities of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, N.Y. 10008; and Midwest Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates.
In addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
Gold Kist has filed with the Securities and Exchange Commission Registration
Statements under the Securities Act of 1933 with respect to the securities
offered hereby. This Prospectus does not contain all information set forth in
the Registration Statements, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to Gold Kist and the securities offered hereby,
reference is made to the Registration Statements, including the exhibits,
consolidated financial statements and schedules filed as a part thereof. The
Registration Statements may be inspected without charge at the principal
offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. Copies of the Registration Statements, or any part
thereof, may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission.
The summaries or descriptions of documents in this Prospectus do not purport
to be complete, and where any such document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions
of such exhibit, to which reference is hereby made for a full statement of its
provisions.
INFORMATION INCORPORATED BY REFERENCE
The Annual Report on Form 10-K for the fiscal year ended June 28, 1997,
which was filed by Gold Kist with the Securities and Exchange Commission, is
incorporated into this Prospectus by reference.
Gold Kist will furnish without charge to each person to whom this Prospectus
is delivered, on the request of such person, a copy of any and all of the
information that has been incorporated by reference in the Registration
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that the Registration Statement incorporates). Such request
should be directed to Jack L. Lawing, Corporate Secretary, Gold Kist Inc., 244
Perimeter Center Parkway, N.E., Atlanta, Georgia 30346, whose telephone number
is (770) 393-5000.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights certain information about Gold Kist Inc. and
is qualified in its entirety by the detailed information and financial
statements and related notes appearing elsewhere in this Prospectus.
THE ASSOCIATION
Gold Kist Inc. ("Gold Kist" or the "Association") is a diversified
agricultural membership cooperative association, headquartered in Atlanta,
Georgia. Gold Kist serves approximately 31,000 active farmer members and other
cooperative associations located principally in the southeastern United States.
Gold Kist both markets products and purchases supplies and equipment for its
members. See Business.
THE OFFERING
The various classes of securities described below are offered for sale.
SECURITIES OFFERED
<TABLE>
<CAPTION>
AGGREGATE
DESCRIPTION OF SECURITIES FACE AMOUNT
------------------------- ------------
<S> <C>
Subordinated Capital Certificates of Interest
15 year maturity, Series D (Interest as indicated on the front
cover of this Prospectus)........................................ $ 7,485,036
10 year maturity, Series D (Interest as indicated on the front
cover of this Prospectus)........................................ $ 5,354,963
7 year maturity, Series A (Interest as indicated on the front
cover of this Prospectus)........................................ $ 10,442,840
5 year maturity, Series C (Interest as indicated on the front
cover of this Prospectus)........................................ $ 10,265,172
3 year maturity, Series A (Interest as indicated on the front
cover of this Prospectus)........................................ $ 12,287,961
2 year maturity, Series A (Interest as indicated on the front
cover of this Prospectus)........................................ $ 15,614,112
Subordinated Loan Certificates
1 year maturity, Series C (Interest as indicated on the front
cover of this Prospectus)........................................ $ 21,976,467
Subordinated Large Denomination Loan Certificates
1 year maturity, Series A (Interest as indicated on the front
cover of this Prospectus)........................................ $ 41,990,065
6 month maturity, Series A (Interest as indicated on the front
cover of this Prospectus)........................................ $ 13,172,153
</TABLE>
Equivalent Subordination
The Subordinated Capital Certificates of Interest, the Subordinated Loan
Certificates and the Subordinated Large Denomination Loan Certificates of each
class rank equally under their respective subordination provisions. See
Description of Subordinated Capital Certificates of Interest--Subordination,
and Description of Subordinated Loan Certificates and Subordinated Large
Denomination Loan Certificates--Subordination.
Redemption at Request of Certificateholder
The certificates of each class may be redeemed prior to maturity upon the
death of a certificateholder or, subject to quarterly amount limitations except
in the case of the Subordinated Loan Certificates and Subordinated Large
Denomination Loan Certificates, at any time. Redemption prior to maturity,
other than upon the death of a certificateholder, requires a substantial
redemption penalty which, under certain circumstances, could exceed the amount
of interest paid or accrued on the certificate to the date of redemption, thus
resulting in a redemption price which is less than the principal amount of the
certificate. See Description of Subordinated Capital Certificates of Interest--
Redemption at the Request of Certificateholder, and Description of Subordinated
Loan Certificates and Subordinated Large Denomination Loan Certificates--
Redemption at the Request of Certificateholder.
3
<PAGE>
The indentures governing the Subordinated Capital Certificates of Interest,
the Subordinated Loan Certificates and the Subordinated Large Denomination Loan
Certificates of each series do not contain additional redemption provisions
requiring Gold Kist to repurchase the certificates at the request of the
certificateholder upon the occurrence of a change in control of Gold Kist, nor
do the indentures contain any provisions designed to afford protection to
certificateholders in the event of a highly leveraged transaction involving
Gold Kist.
Redemption at the Option of Gold Kist
In addition to redemptions at the request of the certificateholder, Gold Kist
may, at its option, redeem all or, from time to time, any part of the
certificates of five, seven, ten and fifteen year maturity on any date prior to
maturity. In such event, the redemption price would be 100% of the principal
amount redeemed, plus accrued but unpaid interest on that amount, plus a
substantial redemption premium. See Description of Subordinated Capital
Certificates of Interest--Redemption at the Option of Gold Kist.
METHOD OF SALE
The securities are offered for sale by Agvestments, Inc. on a best efforts
basis.
SELLING PRICE
The securities are offered at par.
USE OF PROCEEDS
The proceeds from this offering of securities will be used primarily to repay
a portion of the Association's other indebtedness and for general corporate
purposes. See Use of Proceeds.
MATERIAL RISKS
Reference is made to the section of this Prospectus entitled Risk Factors.
SUMMARY OF SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED (000'S OMITTED)
--------------------------------------------------
JUNE 26, JUNE 25, JULY 1, JUNE 29, JUNE 28,
1993 1994 1995 1996 1997
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales volume........... $1,400,566 1,561,034 1,688,537 1,955,569 2,289,044
Net margins (A)............ $ 27,238 39,404 11,751 37,032 11,890
Ratio of net margins to
fixed charges (B)......... 3.2 3.7 2.0 3.2 1.2
<CAPTION>
AS OF (000'S OMITTED)
--------------------------------------------------
JUNE 26, JUNE 25, JULY 1, JUNE 29, JUNE 28,
1993 1994 1995 1996 1997
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Total assets............... $ 665,102 716,432 821,637 975,960 1,119,836
Total liabilities.......... $ 354,889 394,754 482,675 621,378 745,303
Patrons' and other
equity(A)................. $ 285,620 296,662 314,990 326,410 346,075
</TABLE>
- --------
A. See Note 6 and Note 9(a) of Notes to Consolidated Financial Statements.
B. See Selected Consolidated Financial Data, Note C.
4
<PAGE>
RISK FACTORS
LACK OF ESTABLISHED MARKET FOR SECURITIES OFFERED
There is no established market for the Subordinated Capital Certificates of
Interest, Subordinated Loan Certificates and Subordinated Large Denomination
Loan Certificates presently outstanding, and it is unlikely that a market will
be available in which the certificates offered by this Prospectus can be sold.
SUBORDINATION OF SECURITIES OFFERED
Payment of the principal and interest on the Subordinated Capital
Certificates of Interest, Subordinated Loan Certificates and Subordinated
Large Denomination Loan Certificates of each series offered hereby is
subordinated in right of payment, in case of liquidation of Gold Kist, to the
prior payment in full of the principal of and interest on "Superior
Indebtedness," as set forth in the indentures under which each series of
Subordinated Capital Certificates of Interest, Subordinated Loan Certificates
and Subordinated Large Denomination Loan Certificates will be issued. As of
June 28, 1997, Superior Indebtedness (as defined in the indentures) amounted
to approximately $633,727,000 and additional Superior Indebtedness, without
limitation, may be created from time to time. See Description of Subordinated
Capital Certificates of Interest--Subordination, and Description of
Subordinated Loan Certificates and Subordinated Large Denomination Loan
Certificates--Subordination.
AFFILIATED UNDERWRITER
Agvestments, Inc. is a wholly-owned subsidiary of Gold Kist. Under the terms
of an agreement with Gold Kist, Agvestments' business is restricted to the
offering and sale of securities issued by Gold Kist. This offering is being
made in compliance with the terms of a partial exemption from the requirements
of Rule 2720 of the NASD Conduct Rules; no persons other than associated
persons of Gold Kist or Agvestments participated in determining the price and
other terms of the securities offered hereby. The rate of interest borne by
certificates of each series is determined from time to time by the Board of
Directors of Gold Kist or its delegates, who are officers of Gold Kist, but no
change in the rate affects any certificates theretofore issued. The rates are
reexamined weekly by officers of Gold Kist and Agvestments, and a pricing
determination is made based upon the yields offered on debt securities of
comparable maturities issued by the United States Government and other market
factors.
AGRICULTURE AND AGRIBUSINESS INDUSTRY
Gold Kist's business is principally composed of operations in agriculture
and related agribusiness industries. The nature of agribusiness industry in
general, including poultry processing and marketing, is such that supply and
demand market forces exert significant influence upon the operations of firms
engaged in these businesses. Demand for the products produced, processed and
marketed by Gold Kist is often influenced by supplies and prices of
alternative products. Historically, weather has also had a significant impact
on the farm economy and the operating results of agribusinesses such as Gold
Kist. Additionally, as is common with other businesses involving perishable
commodities, the poultry and other operations of Gold Kist have demonstrated a
cyclical nature with varying levels of profits, and to a lesser extent losses,
over periods of years. Management is unable to predict whether, and to what
extent, such factors and conditions will affect the Association's operating
results in the future.
5
<PAGE>
GOLD KIST INC.
Gold Kist Inc. is a diversified agricultural membership cooperative
association, headquartered in Atlanta, Georgia. Gold Kist serves approximately
31,000 active farmer members located principally in the southeastern United
States. In addition, other cooperative associations are members.
Gold Kist is both a marketing and purchasing cooperative; it markets
products and commodities and purchases supplies and equipment for its members.
The Association also engages in marketing and purchasing transactions with
nonmembers. Transactions with its members are on a cooperative basis, and
members are entitled to receive patronage refunds out of net margins earned on
such business. See Business--Patronage Refunds. Patronage refunds are not paid
to nonmembers. The Association also engages in non-cooperative activities
through subsidiaries and partnerships.
Gold Kist conducts broiler and pork production operations, providing both
marketing and purchasing services to producers. Gold Kist also purchases or
manufactures feed, seed, fertilizers, pesticides, animal health products and
other farm supply items for sale at wholesale and retail. Additionally, the
Association is engaged in the processing, storage and marketing of cotton,
serves as a contract procurement agent for, and stores, farm commodities such
as soybeans and grain, is a partner in a major peanut processing and marketing
business and in a pecan processing and marketing business, and is a
participant in joint ventures organized for the production and sales of hogs
and fertilizer ingredients.
The Association's principal office is located at 244 Perimeter Center
Parkway, N.E., Atlanta, Georgia 30346, and its telephone number is (770) 393-
5000.
USE OF PROCEEDS
The maximum net proceeds to Gold Kist from the sale of the certificates
offered hereby are estimated to be $137,030,647 before deduction of expenses
estimated to be $111,606. The proceeds will be used in the following order of
priority. Approximately $42,221,000 of the proceeds will be used for the
repayment or redemption of outstanding Gold Kist Certificates of Interest,
Loan Certificates and Large Denomination Loan Certificates which will mature
during the twelve-month period ending October 31, 1998. The rates of interest
borne by such indebtedness are set forth in Note 4 of Notes to Consolidated
Financial Statements. Any remaining proceeds will be used for general
corporate purposes, including additional production and processing plant
capacity expansion and additional working capital.
The Subordinated Capital Certificates of Interest, Subordinated Loan
Certificates and Subordinated Large Denomination Loan Certificates are being
offered as a continuous offering on a "best efforts" basis by Agvestments,
Inc. Consequently, no assurance can be given as to the amount of Subordinated
Capital Certificates of Interest, Subordinated Loan Certificates or
Subordinated Large Denomination Loan Certificates that will be sold or as to
the amount of net proceeds therefrom which will be available to Gold Kist from
time to time. If substantially less than the maximum proceeds are obtained, to
the extent that cash flow from future operations is not sufficient, Gold Kist
would borrow necessary additional funds from banks and other lenders. See Note
4 of Notes to Consolidated Financial Statements.
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Consolidated Statement of Operations Data" for each of the years in the five-
year period ended June 28, 1997 and "Consolidated Balance Sheet Data" as of
June 26, 1993, June 25, 1994, July 1, 1995, June 29, 1996 and June 28, 1997
are derived from the consolidated financial statements of Gold Kist Inc. and
subsidiaries, which have been audited by KPMG Peat Marwick LLP, independent
auditors. The consolidated financial statements as of June 29, 1996 and June
28, 1997 and for each of the years in the three-year period ended June 28,
1997, and the report thereon of KPMG Peat Marwick LLP, which is based
partially upon the report of other auditors, are included elsewhere herein.
The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Consolidated Results of Operations and
Financial Condition and the aforementioned consolidated financial statements,
the related notes and the audit report, which refers to a change in accounting
for certain investments in debt and equity securities, included elsewhere
herein.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED (000'S OMITTED)
--------------------------------------------------
JUNE 26, JUNE 25, JULY 1, JUNE 29, JUNE 28,
1993 1994 1995 1996 1997
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales volume........... $1,400,566 1,561,034 1,688,537 1,955,569 2,289,044
========== ========= ========= ========= =========
Interest expense........... $ 17,163 13,924 17,525 21,065 26,951
========== ========= ========= ========= =========
Margins before cumulative
effect of accounting
changes................... $ 27,238 34,065 11,751 37,032 11,890
Cumulative effect of
changes in accounting for
income taxes (A).......... $ -- 5,339 -- -- --
---------- --------- --------- --------- ---------
Net margins................ $ 27,238 39,404 11,751 37,032 11,890
========== ========= ========= ========= =========
Ratio of net margins to
fixed charges............. 3.2 3.7 2.0 3.2 1.2
========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF (000'S OMITTED)
--------------------------------------------
JUNE 26, JUNE 25, JULY 1, JUNE 29, JUNE 28,
1993 1994 1995 1996 1997
-------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................. $140,629 139,847 146,585 184,457 209,269
======== ======= ======= ======= =========
Total assets..................... $665,102 716,432 821,637 975,960 1,119,836
======== ======= ======= ======= =========
Long-term liabilities............ $152,792 144,992 178,777 233,291 310,053
======== ======= ======= ======= =========
Total liabilities................ $354,889 394,754 482,675 621,378 745,303
======== ======= ======= ======= =========
Patrons' and other equity (B).... $285,620 296,662 314,990 326,410 346,075
======== ======= ======= ======= =========
Current ratio.................... 1.70 1.56 1.48 1.48 1.48
======== ======= ======= ======= =========
Ratio of long-term liabilities to
total capitalization............ % 34.85 32.83 36.21 41.68 47.25
======== ======= ======= ======= =========
</TABLE>
- --------
NOTE:
A. See Note 6 of Notes to Consolidated Financial Statements.
B. See Note 9(a) of Notes to Consolidated Financial Statements.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The nature of the poultry industry and the agriculture (agribusiness)
industry in general is such that supply and demand market forces exert a
significant amount of influence over the operations of firms engaged in these
businesses. Prices of commodities react directly to supply and demand.
Additionally, demand for poultry and other agricultural products produced,
processed and marketed by Gold Kist is often influenced by supplies and prices
of alternative products.
As with other perishable commodity businesses, the integrated poultry
industry has demonstrated a cyclical nature with varying levels of profits,
and to a lesser extent, losses over its thirty-six year history. Although the
industry has been profitable since 1983 with the exception of brief periods
during 1992 and 1996, net margins have varied from year to year in response to
market fundamentals. The following addresses the various factors that have
influenced poultry industry profitability during the past five years.
Increased market prices in 1993 and 1994 were the result of a general economic
recovery in the United States and increased demand for poultry products.
During 1995, broiler market prices declined due to the large supply of
competing meats, such as beef and pork, and the continuation of broiler
industry expansion. During 1996, broiler market prices increased approximately
10% as compared to 1995 as a result of hot, dry weather conditions that
reduced meat production in the summer of 1995, as well as lower than expected
industry expansion and increased exports. Average market prices for broilers
during 1997 remained at relatively high levels as compared to historical
averages. However, during the May-June 1997 period, market prices declined
below 1996 levels as a result of the increase in industry production. Export
prices for broiler leg-quarters declined substantially in 1997 as a result of
disruptions in the Russian markets. According to USDA estimates, the supply of
broilers is expected to increase at a 4.5% rate in 1997 and a 6.0% rate in
1998 as compared to the 6.3% average annual increase between 1993 and 1996.
Generally, feed grain costs represent approximately fifty percent of total
broiler production costs. Feed ingredient prices declined in 1993 as a result
of the record 1992 U.S. corn crop. In 1994, feed ingredient prices increased
substantially as a result of the reduced corn harvest in 1993. As a result of
the increase in planted corn and soybean acreage and favorable growing
conditions in the summer of 1994, market prices for feed ingredients declined
in 1995. Average cash market prices for corn and soybean meal increased 59%
and 30%, respectively, during 1996 as compared to 1995 due to the weather
reduced 1995 harvest and strong export demand. During 1997, average cash
market prices for corn declined 14% as a result of the favorable 1996 harvest.
However, soybean meal average cash market prices increased approximately 26%
for 1997 as compared to 1996 as a result of strong demand and lower carryover
stocks.
The Association believes that feed ingredient costs at levels in excess of
cash market prices during the six months ending December 27, 1997 will likely
result in a net loss for fiscal 1998. The increase in feed ingredient costs
and the resultant impact on net margins is primarily attributable to the
Company's forward purchasing and hedging strategies. See Note 1(c) of Notes to
Consolidated Financial Statements. The Association has continued to incur
losses in its fiscal 1998 commodities futures transactions.
Historically, weather has had a significant impact on the farm economy and
the operating results of the Association. Wet weather conditions in the
Southeast during the 1993 spring planting season reduced corn and peanut
acreage and were followed by early summer drought conditions. These inclement
weather factors had a negative impact on 1993 Agri-Services operating results.
Flooding in the Midwestern United States during the summer of 1993 severely
impacted the domestic grain harvest and boosted feed ingredient prices to near
record levels. Hot, dry weather conditions in the late summer of 1993 damaged
pastures in the Southeast, which resulted in increased sales of agricultural
products in 1994. In addition, favorable spring weather conditions contributed
to increased planting activity in 1994. In 1995, generally favorable spring
weather conditions in the Southeast contributed to increased sales of
agricultural inputs in the Association's primary retail sales area. However,
wet weather conditions in the Delta and Midwest regions of the U.S. negatively
impacted market prices for corn, seed and certain fertilizers in areas where
these products are sold through independent dealers and four of the
Association's retail stores. Inclement weather conditions in the summer of
1995 reduced the Southeastern cotton, peanut and corn harvest, which
negatively affected farm income. The weather reduced 1995 grain harvest in the
Midwestern U.S. boosted farm commodity prices; thus contributing to increased
spring 1996 plantings in the
8
<PAGE>
Southeast and Delta regions. Also, favorable spring weather contributed to the
increase in sales of agricultural inputs in 1996. Favorable weather conditions
during the summer of 1996 contributed to plentiful cotton, peanuts and grain
harvests in the United States. Cool wet weather conditions during the spring
of 1997 contributed to delayed plantings in the Southeast and reduced
plantings in the Mississippi-Delta region.
Export sales for 1995, 1996 and 1997 were $70.1 million, $100.1 million and
$96.4 million, respectively. In 1996, export sales increased primarily as a
result of the demand for poultry from Russian and Asian markets. During 1997,
export sales declined as a result of lower market prices for poultry. Export
sales for 1997 reflected increases in cotton sales. Export sales of poultry
products will be influenced by credit availability to foreign countries,
political and economic stability, particularly in Russia, Eastern Europe and
Mexico.
The Association's operations are classified into two reportable business
segments. See Note 10 of Notes to Consolidated Financial Statements. The
discussion of results of operations relates the effects of these significant
economic factors on those segments for each of the years in the three-year
period ended June 28, 1997.
RESULTS OF OPERATIONS
Fiscal 1996 Compared to Fiscal 1995
Net sales volume of approximately $2.0 billion for 1996 represented a 15.8%
or $267.0 million increase as compared to 1995. Net margins from operations,
before general corporate expenses and other deductions, were $80.3 million in
1996 as compared to $42.5 million in 1995. The increase in net margins from
operations was due primarily to increased margins in the Poultry segment.
The Poultry segment had net sales of $1.4 billion for 1996, an increase of
12.5% or $153.6 million as compared to 1995. The increase in net sales was due
primarily to a 5.0% increase in average selling prices and a 7.5% increase in
pounds of poultry sold. Market prices for poultry products strengthened in
1996 as a result of lower-than-expected U.S. broiler production and strong
export demand for poultry products. The increase in pounds sold was due to
changes in product mix requiring larger broilers for the production of deboned
poultry products. Poultry segment's net margins from operations for 1996 were
$70.0 million as compared to $37.5 million for 1995. The increase in net
margins was due primarily to higher selling prices for poultry products, which
was partially offset by increased feed ingredient costs. Although average cash
commodity prices for feed grains, such as corn and soybean meal increased 59%
and 30%, respectively, in 1996 as compared to 1995, the Association's forward
purchasing and hedging strategies resulted in a relatively modest 8% increase
in feed ingredient costs for 1996.
The Agri-Services segment's 1996 net sales volume of $569.1 million
increased 24.9% or $113.4 million as compared to 1995. The increase in net
sales volume was due primarily to the marketing of Southeast cotton, as well
as increased sales of fertilizers, chemicals and seeds through the
Association's retail stores. A substantial portion of the agricultural sales
increase was attributed to facilities acquired in the Mississippi-Delta region
in 1995. The Agri-Services segment's net margins from operations for 1996 were
$10.3 million as compared to $5.0 million for 1995. The increase was due
primarily to patronage refunds from other cooperatives that totaled $9.3
million for 1996 as compared to $3.9 million in 1995. A substantial portion of
the patronage refunds were distributed by a major fertilizer cooperative. The
Retail Store Division had lower net operating margins in 1996 as a result of
losses in the Mississippi-Delta operations acquired in 1995. The Agri-Services
segment's net margins from operations reflects a $2.1 million net loss from an
agricultural equipment manufacturing operation that was sold in 1996. In 1996,
the Pork Division had a net operating margin of $240,000 as compared to a $3.7
million net loss for 1995.
Distribution, administrative and general expenses for 1996 and 1995 were
$155.7 million and $131.4 million, respectively. The $24.3 million increase
reflects the growth in operations, as well as increased incentive compensation
expenses related to the increase in margins before income taxes. Increased
litigation related expenses also contributed to the overall increase in
distribution, administrative and general expenses.
9
<PAGE>
The various components included in other income (deductions) represented a
deduction of $6.3 million for 1996 as compared to $9.5 million for 1995.
Interest income of $9.9 million for 1996 increased $1.2 million as a result of
increased crop financing for patrons and other customers. Interest expense for
1996 was $21.1 million as compared to $17.5 million in 1995. The increase was
due to a 55% increase in average borrowings, which was partially offset by
lower interest rates on short-term borrowings. Interest expense for 1995
included $1.6 million related to income tax litigation. Equity in loss of
partnership represents the Association's 33 1/3% pro rata share of the Golden
Peanut Company's 1996 loss. See Note 9(b) of Notes to Consolidated Financial
Statements. Miscellaneous, net for 1996 includes the Association's $422,000
pro rata share in the earnings of a partially-owned foreign affiliate whose
principal business activities include the marketing, purchasing and resale of
edible peanuts. In 1995, the Association recognized a loss of $1.7 million on
this investment. Miscellaneous, net for 1996 and 1995 includes $1.0 million
and $1.7 million, respectively, representing the Association's equity in the
earnings of a pecan processing and marketing enterprise in South Carolina. Net
rental income of approximately $1.8 million and $2.0 million, respectively,
was included in miscellaneous, net for 1996 and 1995.
In 1996 and 1995, the Association's combined federal and state effective
income tax rates were 33% and 51%, respectively. The effective tax rate for
1995 reflects $5.5 million of additional income tax related to an adverse tax
court decision. See Note 6 of Notes to Consolidated Financial Statements.
Fiscal 1997 Compared to Fiscal 1996
For 1997, net sales volume of $2.3 billion represented a 17.1% or $333.5
million increase as compared to 1996. Net margins from operations, before
general corporate expenses and other deductions, were $27.6 million for 1997
as compared to $80.3 million for 1996. The decline in net margins from
operations was primarily the result of lower margins in the Poultry segment.
The Poultry segment had net sales of $1.6 billion for 1997, which
represented a 17.5% or $243.2 million increase as compared to 1996. An 11.5%
increase in pounds of poultry sold and a 6.0% increase in average selling
prices contributed to the increase in net sales for 1997. The increase in
poultry products market prices was due to the reduction in the rate of
industry growth as compared to prior years. The increase in pounds sold during
1997 reflected the Association's acquisition of its twelfth processing
facility in July 1996 and changes in product mix. The Poultry segment's net
margins from operations for 1997 were $17.4 million as compared to
approximately $70.0 million in 1996. The decline in net margins was due to a
28.0% increase in feed ingredient costs for 1997, which was partially offset
by the 6.0% increase in average selling prices for poultry products. As a
result of the Association's forward purchasing and hedging strategies, feed
ingredient costs for 1996 were below market prices for corn and soybean meal.
In 1997, the Association's feed ingredient costs reflected the increase in
market prices for corn and soybean meal.
The Agri-Services segment's 1997 net sales volume of $659.3 million
represented a 15.9% or $90.3 million increase over 1996. The sales volume
increase was due primarily to the growth in the procurement and marketing of
cotton and to a lesser extent increased sales of agricultural chemicals and
fertilizers. Net margins from operations in the Agri-Services segment for 1997
were $10.2 million as compared to $10.3 million for 1996. Net margins for 1997
were positively impacted by increased cotton marketing margins and to a lesser
extent increases in Pork Division net margins. These improvements were
partially offset by increased losses in retail store operations, which were
primarily due to continuing operational problems in the Mississippi-Delta
region. Higher feed ingredient costs contributed to net losses on commercial
feeds for 1997. Net margins for 1997 reflected $10.3 million in patronage
refunds from other cooperatives as compared to $9.3 million in 1996. A
substantial portion of the refunds for 1996 and 1997 were distributed by a
major fertilizer cooperative. The Agri-Services segment's net margins for 1996
reflected a $2.1 million loss associated with an agricultural equipment
manufacturing operation that was closed in 1996.
Distribution, administrative and general expenses for 1997 and 1996 were
$167.7 million and $155.7 million, respectively. The $12.0 million increase
primarily reflects the growth in operations.
10
<PAGE>
The various components included in other income (deductions) represented a
deduction of $5.5 million for 1997 as compared to $6.3 million for 1996.
Interest income of $13.3 million for 1997 increased $3.4 million primarily as
a result of interest income related to a favorable tax litigation decision.
Interest expense for 1997 was $27.0 million as compared to $21.1 million in
1996. The increase was due to a 31% increase in average borrowings. Equity in
earnings of partnership represents the Association's 33 1/3% pro rata share of
the Golden Peanut Company's 1997 earnings. See Note 9(b) of Notes to
Consolidated Financial Statements. Miscellaneous, net for 1997 includes a $1.2
million loss on the purchase of subsidiary common stock. Miscellaneous, net
for 1997 and 1996 includes a $992,000 loss representing the Association's
equity in the loss of a pecan processing and marketing enterprise. In 1996,
the Association's recognized earnings of $1.0 million related to this
investment. Net rental income of approximately $2.0 million and $1.8 million,
respectively, was included in miscellaneous, net for 1997 and 1996.
In 1997 and 1996, the Association's combined federal and state effective
income tax rates were (33%) and 33%, respectively. The effective tax rate for
1997 reflects a $5.2 million income tax benefit related to a Circuit Court of
Appeals decision in the Association's favor. See Note 6 of Notes to
Consolidated Financial Statements.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Association's liquidity is dependent upon funds 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, an unsecured committed credit facility with a group of banks and
uncommitted letters and lines of credit. The Association has a $250 million
unsecured committed credit facility with nine commercial banks that includes a
five-year $125 million revolving credit commitment and a $125 million 364-day
line of credit commitment. In 1997, the Association established a $125 million
note agreement with an insurance company and a bank commitment for a $50
million term loan. At June 28, 1997, the Association had unused loan
commitments of $218.6 million and additional unused uncommitted facilities to
provide loans and letters of credit from banks aggregating $94.5 million. The
primary sources of external long-term financing are a note agreement with an
insurance company, proceeds from the continuous offering of Subordinated
Capital Certificates of Interest, revolving credit agreements and a term loan
commitment. See Note 4 of Notes to Consolidated Financial Statements.
Covenants under the terms of the loan agreements with lenders include
conditions that could limit short-term and long-term financing available from
various external sources. The terms require a ratio of current assets to
current liabilities of not less than 1.25:1, the ratio of senior funded debt
to total capitalization not to exceed 40% and total funded debt to total
capitalization not to exceed 50%. At June 28, 1997, the Association's current
ratio, senior funded debt to total capitalization and total funded debt to
capitalization, determined under the loan agreements, were 1.48:1, 34% and
44%, respectively. At June 28, 1997, the Association was in compliance with
the agreements. See Note 4 of Notes to Consolidated Financial Statements.
During 1995, uses of cash included capital expenditures of $61.8 million,
$36.7 million for repayments of long-term debt and patronage refunds and other
equity distributions of $19.5 million. The funds for these investing and
financing activities were provided primarily by borrowings of approximately
$110.0 million and to a lesser extent, cash provided by operating activities
of $7.2 million and the sale of investments in marketable securities totaling
$8.9 million. Capital expenditures for 1995 included $43.4 million related to
expansion and improvements in poultry operations, as well as $18.0 million for
the acquisition of Agri-Services operations, improvements to retail stores and
the construction of cotton facilities. Increases in accounts receivable and
inventories during 1995 reflected the growth in poultry production and sales,
the expansion of Agri-Services retail operations in the Mississippi Delta and
the increase in Southeast cotton production.
11
<PAGE>
During 1996, the uses of cash included capital expenditures of $74.3 million
and $28.6 million for repayments of long-term debt, as well as increases in
operating assets. Increases in inventories reflected the impact of higher feed
ingredient prices on raw materials and live poultry and hog inventories and
the increase in poultry prices on marketable products inventories. Increased
receivables were primarily the result of increases in crop financing provided
to producers and the growth in retail store sales. The Association's expansion
into cotton procurement and marketing contributed to the increase in operating
assets. The funds for these operating activities were provided by borrowings
of $131.5 million. Capital expenditures for 1996 included $54.9 million for
expansion and improvements in the poultry operations and $18.6 million in
expenditures to acquire retail operations and construct cotton ginning and
warehousing facilities.
In 1997, the uses of cash included $76.9 million for capital expenditures,
$55.7 million for long-term debt repayments and $30.0 million for patronage
refunds and other equity payments. In addition, cash uses included the funding
of increases in operating assets, such as inventories, receivables and
commodities margin deposits. During 1997, increases in inventories and
receivables primarily reflected the growth in poultry and cotton operations.
The increase in commodities margin deposits was the result of corn and soybean
futures contracts and the related unrealized losses associated with these
positions at June 28, 1997. See Note 1(c) of Notes to Consolidated Financial
Statements. The funds for these activities were provided by borrowings of
$182.8 million. During 1997, capital expenditures included $65.7 million for
expansion and improvements in poultry operations and $10.8 million to acquire
retail and cotton operations.
In September 1997, the Association acquired the remaining 3.7 million shares
of Golden Poultry Company, Inc. common stock that it did not already own. The
cost to acquire the outstanding shares and the fees and expenses incurred or
to be incurred in connection with the merger are approximately $55.1 million.
The Association used a term loan and its unsecured committed credit facility
to fund the stock purchase. See Note 11 of Notes to Consolidated Financial
Statements.
The Association plans capital expenditures of approximately $90.0 million in
1998 that primarily include expenditures for expansion and technological
advances in poultry production and processing and to a lesser extent, Agri-
Services segment improvements. In addition, planned capital expenditures
include other asset improvements and necessary replacements. Management
intends to finance planned 1998 capital expenditures with existing cash
balances and net margins adjusted for non-cash items and additional long-term
borrowings, as needed. In 1998, management expects cash expenditures to
approximate $4.0 million for equity distributions. The Association believes
cash on hand and cash equivalents at June 28, 1997 and cash expected to be
provided from operations, in addition to borrowings available under existing
credit arrangements and proceeds from the sale of Subordinated Capital
Certificates of Interest, will be sufficient to maintain cash flows adequate
for the Association's projected growth and operational objectives during 1998.
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
It should be noted that this discussion contains forward-looking statements
which are subject to substantial risks and uncertainties. There are many
factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include, but are not
limited to, changes in general economic conditions, weather, the growth rate
of the market for the Company's products and services, the availability of raw
inputs, global political events, the ability of the Association to implement
changes in sales strategies and organization on a timely basis, the effect of
competitive products and pricing, and seasonal revenues, as well as a number
of other risk factors which could effect the future performance of the
Association.
EFFECTS OF INFLATION
The major factor affecting the Association's net sales volume and cost of
sales is the change in commodity market prices for broilers, hogs, feed
grains, fertilizers and cotton. The prices of these commodities are affected
12
<PAGE>
by world market conditions and are volatile in response to supply and demand,
as well as political and economic events. The price fluctuations of these
commodities do not necessarily correlate with the general inflation rate.
Inflation has, however, affected operating costs such as labor, energy and
material costs.
BUSINESS
Gold Kist offers both cooperative marketing and cooperative purchasing
services to its member patrons. The standard Membership, Marketing and/or
Purchasing Agreement between each member and Gold Kist does not require the
member to market agricultural products or to purchase farm supplies through
Gold Kist. The Association undertakes to market for the member agricultural
products of a type marketed by Gold Kist and to purchase or manufacture and
sell to the member farm supplies, provided handling such supplies is
advantageous for Gold Kist. The Association also is engaged in the purchase,
sale, processing and storage of cotton, serves as a contract procurement agent
for, and storer of, farm commodities such as soybeans and grain, is a partner
in a major peanut processing and marketing business and in a pecan processing
and marketing business and is a participant in joint ventures organized for
the production and sale of hogs and of fertilizer ingredients.
Agriculture is generally cyclical in nature. Agricultural commodities are
subject to wide fluctuations in price, based on supply of the farm commodities
and demand for the raw or processed products. In addition, a portion of Gold
Kist's business is dependent on the demand of farmers for the purchase of
products, which is influenced by the general farm economy and the success of
particular crops. The cyclical nature of Gold Kist's operations related to
various commodities causes variations from year to year in sales, costs, and
prices which has resulted in net margins in certain years and losses in
others.
Gold Kist follows the general practice of hedging varying amounts of its
feed ingredients by buying or selling options or contracts for future delivery
in the commodity markets. While hedging is designed to reduce the risk of
fluctuations in the market prices of commodities, hedging itself involves
substantial risks and can result in losses. See Note 1(c) of Notes to
Consolidated Financial Statements.
For information relating to Gold Kist's industry segments, see Note 10 of
Notes to Consolidated Financial Statements.
POULTRY
Gold Kist provides cooperative purchasing and marketing services to its
members who are producers under its integrated broiler or pork production
programs. Ten broiler complexes operating on a cooperative basis and
encompassing broiler, pullet and breeder flocks, hatcheries, feed mills,
poultry processing plants and transportation facilities, are located in
Alabama, Florida, Georgia, North Carolina, and South Carolina.
The principal poultry products marketed are whole chickens, cut-up chickens,
segregated chicken parts and further processed products packaged in various
forms, i.e., bulk fresh ice pack, chill pack and frozen. Ice pack chicken is
sold primarily to distributors, grocery stores and fast food chains. Chill
pack chicken is packaged for retail sale and kept chilled by mechanical
refrigeration from the packing plant to the store counter. Frozen chicken is
marketed primarily to school systems, the military services, fast food chains
and in the export market. Further processed products, which include preformed
breaded chicken nuggets and patties, and deboned, skinless and marinated
products, are marketed primarily to fast food and grocery store chains. Chill
pack chicken is sold in certain localities under the Gold Kist Farms(R) and
Young 'n Tender(R) label; however, some volume is sold under customer's
private labels. Most of the frozen chicken carries the Gold Kist(R) or Early
Bird(R) label. Cornish game hens are marketed in frozen form primarily to
hotels, restaurants and grocery stores under the Gold Kist Farms(R) and Young
'n Tender and Medallion(R) labels.
Broiler products are marketed directly from the processing plant in each
broiler complex, from the Association's headquarters in Atlanta and from
separate distribution facilities located near major metropolitan areas. Gold
Kist is one of the largest poultry processors in the United States. It
competes with other large processors and with smaller companies on the basis
of price, quality and service.
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<PAGE>
The following table shows the amount and percentage of Gold Kist's net sales
volume contributed by sales of broiler products for each of the years
indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (000'S OMITTED)
-----------------------------------
JULY 1, JUNE 29, JUNE 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Broiler Products
Volume.................................... $1,226,104 $1,380,649 $ 1,618,157
Percentage (%)............................ 72.6 70.6 70.7
</TABLE>
AGRI-SERVICES
Gold Kist purchases, manufactures and processes fertilizers, agricultural
chemicals, seed, pet food, feed, animal health products and other farm supply
items for distribution and sale at wholesale and retail. These products are
distributed through approximately 98 Gold Kist retail stores and at wholesale
to national accounts and independent dealers. The Gold Kist stores are located
in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, South Carolina
and Texas. A typical store is a complete farm supply center offering for sale
many types of feeds, animal health products, fertilizers, pesticides, seeds,
farm supplies and equipment. It also offers services such as precision
farming, customized fertilizer spreading, field mapping, soil testing, insect
scouting, and agronomic and animal nutrition advice. Urban locations offer
turf and garden supplies, consumer items and houseware products.
The Association operates a system of receiving and storing facilities for
unprocessed commodities located principally in Alabama, Florida, Georgia and
South Carolina. The principal farm commodities handled are soybeans, corn and
other grains. Gold Kist has aggregate storage capacity of approximately seven
million bushels. Approximately 98% of Gold Kist storage facilities are
licensed by the federal or state government and can issue negotiable warehouse
receipts. Pursuant to a renewable five year grain handling agreement which
terminates in July 2000, Gold Kist utilizes these facilities and assets
exclusively as independent buying points operating on a commission basis for
the Archer Daniels Midland Company.
Gold Kist distributes granular, blended and liquid fertilizers and
fertilizer materials in bagged and bulk form. Gold Kist is a member of CF
Industries, Inc., a cooperative owned by regional cooperatives, which produces
and supplies fertilizer materials to its members. For the fiscal year ended
June 29, 1996, Gold Kist purchased approximately 39% percent of its total
volume of fertilizer materials and products at market prices from CF
Industries. The remaining fertilizer materials and products were purchased
from more than 50 other suppliers.
The following table shows the amount and percentage of Gold Kist's net sales
volume contributed by sales of fertilizer and chemical products for each of
the years indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (000'S
OMITTED)
--------------------------
JULY 1, JUNE 29, JUNE 28,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Fertilizer and Chemicals
Volume............................................. $268,625 $306,247 $325,563
Percentage (%)..................................... 15.9 15.7 14.2
</TABLE>
Gold Kist's four AgriServices feed mills produce feeds distributed at
wholesale or at retail through the Gold Kist stores and independent dealers.
Approximately forty percent of the feed distributed through the stores is
delivered in bulk form directly from the feed mill to the farm; the remainder
is sold in bag form.
Gold Kist also markets hogs raised by members and non-members in Alabama and
Georgia and is a participant in a joint venture with another cooperative
association for the production and sale of hogs.
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<PAGE>
In fiscal 1997, the Association conducted cotton ginning and storage
operations in Georgia and South Carolina. Cotton ginning and storage
facilities are operated at Statesboro, Morven, Byromville and DeSoto, Georgia
and Bishopville, South Carolina. A central storage warehouse is operated in
Moultrie, Georgia. The Association provides ginning and storage services to
members and markets cotton purchased from members to domestic and foreign
textile mills.
AgraTech Seeds, Inc., a wholly-owned subsidiary of Gold Kist, owns and
operates a seed business which consists of the development, contract
production, processing and sale primarily of proprietary seed varieties. Seed
is marketed by AgraTech Seeds at wholesale to seed retailers, including Gold
Kist stores and independent seed retail outlets, in the Southeast and Midwest.
AgraTech Seeds contracts with farmers for the production of seed and processes
or contracts for the processing of approximately 95% of the seeds it
distributes. Proprietary corn, soybean, sorghum and peanut seed varieties are
marketed under the trademark AgraTech (R).
PARTNERSHIP INTEREST
Gold Kist, the Archer Daniels Midland Company and Alimenta Processing
Corporation are partners in Golden Peanut Company, a general partnership
formed to operate a peanut procuring, processing, and marketing business. Each
partner leases peanut facilities, equipment, and fixed assets to the
partnership. Gold Kist, as a general partner, participates in all partnership
allocations in proportion to its 33 1/3% partnership interest. See Note 9(b)
of Notes to Consolidated Financial Statements.
Golden Peanut Company procures, processes and markets peanuts and peanut by-
products in each of the three peanut producing areas of the United States
(Southeast, Southwest and Virginia/Carolina). Golden Peanut Company is a major
processor of edible peanuts and is active in domestic and international
markets. The principal peanut product is shelled edible peanuts. Shelled
edible peanuts are marketed primarily to manufacturers of peanut butter, candy
and salted nuts and are sold in the export market. Golden Peanut also
processes peanuts for sale in the shell or for processing by others into oil
and meal.
EXPORT SALES
Gold Kist owns no physical facilities overseas and has no overseas
employees. Product sales managers maintain sales networks overseas through
contacts with independent dealers and customers. During the fiscal year ended
June 28, 1997, Gold Kist had export sales of $96.4 million of which the
primary export product (poultry) was $81.7 million. During that period, export
sales of poultry were mainly to customers in Russia, Eastern Europe, the Far
East, South Africa, Central and South America and the Caribbean area.
Subsidized foreign competition has depressed export demand for many products.
Export sales involve an additional element of transportation and credit risk
to the shipper beyond that normally encountered in domestic sales. All
material export sales transactions are denominated in United States dollars.
PATRONAGE REFUNDS
The By-Laws of Gold Kist provide that Gold Kist shall operate on a
cooperative basis. After the close of each fiscal year, the net taxable
margins of Gold Kist for that year from business done with or for member
patrons (patronage margins) are computed and, after deduction for a reasonable
reserve for permanent non-allocated equity and adjustments, are distributed to
members as patronage refunds on the basis of their respective patronage during
that year. Patronage refunds are distributed in the form of either qualified
or nonqualified written notices of allocation (as defined for purposes of
Subchapter T of the Internal Revenue Code). If qualified notices are used, at
least 20% of each patronage refund is distributed in cash or by qualified
check (as defined in the Internal Revenue Code) with the remainder distributed
in written notices of allocated reserves. See Notes 1(f) and 6 of Notes to
Financial Statements. Allocated reserves distributed as a part of either
qualified or nonqualified
15
<PAGE>
notices bear no interest and are subordinate in the event of insolvency of the
Association to outstanding patronage dividend certificates and to all
indebtedness of Gold Kist. Patronage refunds distributed by check or as
qualified written notices are deductible from Gold Kist's gross income for
federal income tax purposes. To the extent that Gold Kist distributes
nonqualified written notices of allocation, has income from transactions with
nonmembers or has income from non-patronage sources, it will be taxed at the
corporate rate. Gold Kist has subsidiaries which are not cooperatives, and the
income of these subsidiaries is subject to corporate income taxes.
DESCRIPTION OF SUBORDINATED CAPITAL CERTIFICATES OF INTEREST
Gold Kist's Subordinated Capital Certificates of Interest of the six series
offered hereby are issued under indentures (the "Indentures") between Gold
Kist and SunTrust Bank, Atlanta, as Trustee (the "Trustee"). A separate
Indenture dated as of September 1, 1979, amended by a First Supplemental
Indenture dated as of September 1, 1980 and a Second Supplemental Indenture
dated as of September 1, 1982, governs each of the following three series of
certificates offered hereby: the Fifteen Year Subordinated Capital
Certificates of Interest (Series D), (the "Fifteen Year Certificates"); the
Ten Year Subordinated Capital Certificates of Interest (Series D), (the "Ten
Year Certificates"); and the Five Year Subordinated Capital Certificates of
Interest (Series C), (the "Five Year Certificates"). The Two Year Subordinated
Capital Certificates of Interest (Series A), (the "Two Year Certificates") are
governed by an Indenture dated as of September 1, 1980. The Seven Year
Subordinated Capital Certificates of Interest (Series A), (the "Seven Year
Certificates") and the Three Year Subordinated Capital Certificates of
Interest (Series A), (the "Three Year Certificates") are governed by separate
Indentures dated as of September 1, 1985. The forms of the Indentures and
Supplemental Indentures are filed as exhibits to Registration Statements No.
2-65587, No. 2-69267, No. 2-79538 and No. 33-428. With the exception of the
maturities of and interest rates borne by the certificates issued thereunder,
the redemption provisions, and the other exceptions indicated below, the terms
of the six Indentures, as amended, and the certificates issued thereunder and
offered hereby are identical in all material respects. The following summaries
of certain provisions of the Indentures do not purport to be complete, and
where particular provisions of the Indentures are referred to, such provisions
including definitions of certain terms, are incorporated by reference as a
part of such summaries or terms, which are qualified in their entirety by such
reference.
The certificates are unsecured obligations of Gold Kist which are
transferable on the books of Gold Kist when properly endorsed, but are not
negotiable. (Section 2.04 of the Indentures.) The certificates are issued in a
minimum amount of $500 or in any larger amount. The certificates are issued as
of the date on which payment of the purchase price is received by Gold Kist or
its agent for such purpose, except that, where payment is received by the 15th
of January, April, July or October, the certificate will be issued as of the
first of such month, and where payment is received by the 10th of any other
month, the certificate will be issued as of the first of such month. Each
Fifteen Year Certificate matures Fifteen years from the date of such
certificate; each Ten Year Certificate matures ten years from the date of such
certificate; each Seven Year Certificate matures seven years from the date of
such certificate; each Five Year Certificate matures five years from the date
of such certificate; each Three Year Certificate matures three years from the
date of such certificate; and each Two Year Certificate matures two years from
the date of such certificate. (Section 2.01 of the Indentures.)
Each certificate bears interest from the date issued at the per annum rate
stated on the face thereof. The rate of interest borne by certificates of each
series shall be determined from time to time by the Board of Directors of Gold
Kist or its delegate, but no change in the rate will affect any certificates
theretofore issued. The Five, Seven, Ten and Fifteen Year Certificates are
further subdivided and designated by subseries. Each subseries encompasses all
Certificates of the particular series issued pursuant to a single
determination of the rate of interest to be borne by Certificates of that
series; more than one subseries may bear the same rate of interest. The
current rate of interest borne by certificates of each series is set forth on
the front cover of this Prospectus. Interest is payable on July 1 of each year
to holders of record as of the preceding June 30. Holders of $5,000 or more of
certificates of a given series are entitled to payment of interest on such
certificates quarterly, on the first day in January, April, July and October
of each year. (Sections 1.01 and 2.01 of the Indentures.)
16
<PAGE>
Upon the written request of a holder of certificates, Gold Kist will retain
the interest otherwise payable to the holder and pay such interest (i) at the
maturity of the certificate, (ii) annually (if the interest is accumulated
quarterly and if requested by the holder), or (iii) subject to any applicable
redemption penalty, upon redemption prior to maturity, in each case together
with interest thereon at the per annum rate stated on the face of the
certificate compounded as of each Interest Payment Date. Any holder who makes
such a request may at any time, by written notice delivered to Gold Kist at
its principal office in Atlanta, Georgia, terminate such request or withdraw
any interest so retained together with accrued interest thereon through the
date of withdrawal, or both. The certificates will be paid in full, including
all principal and accrued but unpaid interest, at maturity. (Section 5.02 of
the Indentures.)
The Indentures do not limit the aggregate principal amount of certificates
which may be issued thereunder and each Indenture may be modified by Gold Kist
and the Trustee, without the consent of the certificateholders, to provide for
the issuance under the Indentures of one or more additional series of
certificates having terms different from those of the series offered hereby.
(Sections 2.01 and 10.01 of the Indentures.) Certificates of previous series
have been issued and are outstanding under certain of the Indentures governing
the certificates. As of June 28, 1997, there were the following aggregate
principal amounts of the series offered hereby outstanding: Fifteen Year--
$12,987,000; Ten Year--$9,756,000; Seven Year--$11,685,000; Five Year--
$14,936,000; Three Year--$5,035,000; and Two Year--$8,335,000. The Indentures
do not limit the amount of other securities, either secured or unsecured,
superior or subordinate to the certificates, which may be issued by Gold Kist.
REDEMPTION AT THE REQUEST OF CERTIFICATEHOLDER
Upon the death of a registered holder of a certificate, at the request of
(a) the personal representative of the deceased holder's estate or (b) any
surviving joint holder of a jointly held certificate, Gold Kist will redeem
certificates held by such deceased holder. In such event, redemption shall be
at the full face value of the certificate redeemed plus interest accrued and
unpaid thereon to the date of redemption only. (Section 3.01 of the
Indentures.)
Additional Redemptions at the Request of Certificateholder
In addition to redemption upon the death of a registered holder of a
certificate, Gold Kist agrees to redeem prior to maturity a limited amount of
the certificates of any series of Subordinated Capital Certificates of
Interest offered hereby at the request of the registered holders. The maximum
principal amount of certificates of any series that Gold Kist will redeem
during each calendar quarter shall be equal to five percent (5%) of the
aggregate principal amount of all certificates of that series outstanding at
the end of the last preceding calendar quarter. For example, if there were
$5,000,000 in principal amount of Fifteen Year Subordinated Capital
Certificates of Interest (Series D) outstanding on March 31, 1998, Gold Kist
would redeem at the request of the holders up to $250,000 of such Fifteen Year
Certificates during the quarter beginning on April 1, 1998 and ending on June
30, 1998. (Section 3.04 of the Indenture governing the Fifteen Year
Certificates; Section 3.03 of the remaining Indentures.)
All such redemptions shall be only at the written request of the registered
holder(s) of the certificates redeemed delivered to the Association at its
principal office in Atlanta, Georgia. Redemptions will be made in the order
that such requests are received, and the redemption date will be a date
determined by Gold Kist which is within fifteen (15) days after such request
is received.
The redemption price of each certificate redeemed will be an amount equal to
the full principal amount of the certificate, plus interest accrued but unpaid
to the redemption date (including, if appropriate, interest compounded on
interest retained by the Association at the request of the holder) less a
redemption penalty computed in accordance with the following table.
17
<PAGE>
REDEMPTION PENALTIES APPLICABLE TO VARIOUS CLASSES
<TABLE>
<C> <S>
Two and Three Year Certificates --An amount equal to six (6)
months' interest on the
principal amount of the
certificate computed at the
nominal (simple interest)
rate shown on the face of the
certificate.
Five, Seven, Ten and Fifteen Year Certificates --An amount equal to one (1)
year's interest on the
principal amount of the
certificate computed at the
nominal (simple interest)
rate shown on the face of the
certificate.
</TABLE>
The redemption penalty computed as provided above will be deducted
regardless of the length of time the certificate has been outstanding. The
penalty could exceed the amount of interest paid or accrued on the certificate
to the redemption date, thus resulting in a redemption price which is less
than the principal amount of the certificate.
The following examples illustrate the calculation of the redemption price
assuming the stated principal amounts and interest rates. The Total Redemption
Price in each example will vary with different interest rates and amounts of
principal.
A. For a Five Year Certificate in the principal amount of $1,000 bearing
interest at 7.50%, purchased on January 1, 1998, and redeemed at the request
of the holder on June 15, 1998, the redemption price would equal:
<TABLE>
<C> <C> <S>
$1,000.00 (Principal amount)
plus 33.90 (165 days' accrued interest at 7.50% per annum)
---------
$1,033.90
less 75.00 (1 year's simple interest at 7.50% per annum)
---------
$ 958.90 (Total Redemption Price)
</TABLE>
B. For a Five Year Certificate in the principal amount of $5,000, bearing
interest at 7.50% (paid quarterly at the election of the holder), purchased on
January 1, 1998 and redeemed at the request of the holder on June 15, 1998,
the redemption price would equal:
<TABLE>
<C> <C> <S>
$5,000.00 (Principal amount)
(75 days' accrued interest at 7.50% per annum. Interest
previously paid on April 1, 1998 equals $93.75)
plus 77.05
---------
$5,077.05
less 375.00 (1 year's simple interest at 7.50% per annum)
---------
$4,702.05 (Total Redemption Price)
</TABLE>
C. For a Five Year Certificate in the principal amount of $5,000 bearing
interest at 7.50% (accumulated quarterly at the election of the holder),
purchased on January 1, 1998, and redeemed at the request of the holder on
June 15, 2000, the redemption price would equal:
<TABLE>
<C> <C> <S>
$5,000.00 (Principal amount)
(2 1/4 years, 75 days' accrued interest at 7.50% per annum
plus 999.45 accumulated and compounded quarterly)
$5,999.45---------
less 375.00 (1 year's simple interest at 7.50% per annum)
---------
$5,624.45 (Total Redemption Price)
</TABLE>
18
<PAGE>
Except to the extent described above, certificates cannot be cashed by the
holder before maturity.
The indentures governing the Subordinated Capital Certificates of each
series do not contain additional redemption provisions requiring Gold Kist to
repurchase the certificates at the request of the certificateholder upon the
occurrence of a change in control of Gold Kist, nor do the indentures contain
any provisions designed to afford protection to certificateholders in the
event of a highly leveraged transaction involving Gold Kist.
REDEMPTION AT THE OPTION OF GOLD KIST
Gold Kist may, at its option, redeem all, or from time to time any part, of
the certificates of any subseries of Five, Seven, Ten or Fifteen Year
Certificates on any date prior to maturity. The redemption price of each
certificate redeemed at the option of Gold Kist will be an amount equal to the
full principal amount redeemed (whether the certificate is redeemed in whole
or in part), plus interest accrued but unpaid on the principal amount redeemed
to the redemption date (including, if appropriate, interest compounded on
interest retained by the Association at the request of the holder), plus a
redemption premium equal to one (1) year's interest on the principal amount
redeemed, computed at the nominal (simple interest) rate shown on the face of
the certificate. Notice of redemption will be mailed to each affected
certificateholder not less than 15 nor more than 60 days before the redemption
date. Gold Kist is not required to transfer or exchange any certificates
selected for redemption in whole or in part.
Gold Kist does not have the option of redeeming Two or Three Year
Certificates prior to maturity.
SUBORDINATION
In case of liquidation of Gold Kist, whether voluntary or involuntary, the
payment of the principal of and interest on the certificates is subordinate to
the payment in full of the principal of and interest on any notes or accounts
payable, now due or hereafter made by Gold Kist to any bank, any other lending
agency or creditor ("Superior Indebtedness"); except that none of the
Subordinated Capital Certificates of Interest issued pursuant to the
Indentures dated as of September 1, 1979, September 1, 1980 or September 1,
1985, the One Year Subordinated Loan Certificates issued pursuant to the
indentures dated as of December 1, 1977 or September 1, 1979, or the One Year
or Six Month Subordinated Large Denomination Loan Certificates issued pursuant
to the Indentures dated as of September 1, 1985, shall be Superior
Indebtedness, but shall rank equally with the certificates outstanding under
each of the Indentures. As of June 28, 1997, Superior Indebtedness amounted to
approximately $633,727,000, and additional Superior Indebtedness, without
limitation, may be created from time to time. (Article Four and Section 1.01
of the Indentures.) Gold Kist is jointly and severally liable for (i) the
obligations of Golden Peanut Company, a general partnership in which Gold Kist
has a 33 1/3% interest and (ii) the obligations of Young Pecan Company, a
general partnership in which Gold Kist has a 25% equity interest and a 35%
earnings (loss) allocation. Any such liability incurred would constitute
additional Superior Indebtedness. See Notes 8 and 9(b) of Notes to
Consolidated Financial Statements.
Nothing contained in the subordination provisions prevents Gold Kist from
making payments of principal or interest on the certificates except during the
pendency of any dissolution or liquidation proceedings with respect to Gold
Kist.
DUTIES OF TRUSTEE
SunTrust Bank, Atlanta is the Trustee under each Indenture and is to perform
only such duties as are specifically set forth in the Indenture. (Section 8.01
of the Indentures.) In the event of a default, the holders of a majority in
aggregate principal amount of the certificates outstanding at the time under
any Indenture have the right to require the Trustee to take action to remedy
such default. (Section 7.12 of the Indentures.)
MODIFICATION OF THE INDENTURE
Each Indenture contains provisions permitting Gold Kist and the Trustee, (i)
with the written consent of the holders of not less than 66 2/3% in aggregate
principal amount of all the certificates outstanding under the
19
<PAGE>
Indenture on a record date set for such purpose, to execute supplemental
indentures amending the provisions of the Indenture or any supplemental
indenture so as to modify the rights of the holders of all the certificates or
(ii) with the written consent of the holders of not less than 66 2/3% in
aggregate principal amount of the certificates of a given series outstanding
under the Indenture, on a record date set for such purpose, to execute
supplemental indentures amending the provisions of the Indenture relating to
certificates of such series; provided that no such supplemental indenture
shall (a) extend the maturity of any certificate or reduce the principal
amount thereof or reduce the rate or extend the time of payment of interest,
(b) reduce the 66 2/3% requirement as to the consent of the holders of the
certificates outstanding under the Indenture or of any series of certificates
outstanding thereunder, as required, for amendment of the provisions of the
Indenture, or (c) modify the provisions of the Indenture which allow holders
of not less than 75% of all certificates outstanding under the Indenture to
consent to the postponement of interest on all certificates outstanding under
the Indenture for a period not exceeding three (3) years from its due date,
without the consent of the holder of each certificate affected thereby.
(Section 10.02 of the Indentures.)
DEFAULTS AND NOTICE THEREOF
Each Indenture provides that any of the following shall constitute an event
of default: (a) failure to pay principal when due; (b) failure to pay interest
when due, continued for sixty (60) days; (c) certain events of bankruptcy or
insolvency; and (d) failure to perform any other covenant or agreement
contained in the Indenture, which failure continues for ninety (90) days after
notice to Gold Kist by the Trustee or holders of 10% in aggregate principal
amount of the certificates outstanding under the Indentures. (Section 7.01 of
the Indentures.)
Each Indenture provides that the Trustee shall, within ninety (90) days
after the occurrence of an event of default, give to the Certificateholders
notice of all such defaults unless such defaults have been cured, provided
that, except in the case of a default in the payment of principal of or
interest on any of the certificates outstanding under the Indenture, the
Trustee shall be protected in withholding such notice if, and so long as, the
Trustee determines that the withholding of such notice is in the interest of
the Certificateholders. (Section 8.02 of the Indentures.)
Each Indenture provides that upon the occurrence of a default, the Trustee
or the holders of not less than 25% in aggregate principal amount of the
certificates then outstanding under the Indenture may declare the principal of
all certificates outstanding under the Indenture immediately due and payable.
(Section 7.02 of the Indentures.)
SATISFACTION AND DISCHARGE OF INDENTURE
Each Indenture shall be discharged upon payment of all certificates
outstanding thereunder or upon deposit with the Trustee of funds sufficient
therefor. (Section 11.01 of the Indenture.)
AUTHENTICATION AND DELIVERY OF CERTIFICATES
The certificates may be authenticated by the Trustee in the form set forth
in each Indenture and delivered upon the written order of Gold Kist without
any further corporate action. (Section 2.03 of the Indentures.)
STATEMENTS AS TO COMPLIANCE
Each Indenture requires Gold Kist to furnish to the Trustee annually a
statement that Gold Kist has fulfilled all of its obligations throughout the
year, or specifying any default in the fulfillment of any such obligation.
(Section 5.07 of the Indentures.) In addition, upon any application or demand
by Gold Kist to the Trustee to take any action under any of the provisions of
the Indenture, Gold Kist shall first furnish to the Trustee an Officer's
Certificate stating that all such conditions precedent provided for in the
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel to Gold Kist stating that in the opinion of such counsel
all such conditions precedent have been complied with. (Section 1.02 of the
Indentures.)
20
<PAGE>
CONCERNING THE TRUSTEE
Gold Kist has a $19,000,000 revolving credit line and a $19,000,000
committed 364 day credit line both of which can be used for seasonal advances,
and a $5,000,000 letter of credit facility with the SunTrust Bank, Atlanta,
under which varying amounts are outstanding from time to time. Any such
indebtedness to the SunTrust Bank, Atlanta would constitute Superior
Indebtedness as defined in the Indenture. Gold Kist also maintains deposit
accounts with the SunTrust Bank, Atlanta, and from time to time the Bank
provides other banking and trust services to Gold Kist in the ordinary course
of its business. SunTrust Bank, Atlanta serves as trustee under indentures
governing certain previously issued series of Subordinated Capital
Certificates of Interest and Subordinated Loan Certificates.
DESCRIPTION OF SUBORDINATED LOAN CERTIFICATES
AND SUBORDINATED LARGE DENOMINATION LOAN CERTIFICATES
Gold Kist's Subordinated Loan Certificates (Series C) (the "One Year Loan
Certificates") are issued under an indenture (the "Indenture") dated as of
September 1, 1979, amended by a First Supplemental Indenture dated as of
September 1, 1980, between Gold Kist and SunTrust Bank, Atlanta, as Trustee
(the "Trustee"). Gold Kist's Subordinated Large Denomination Loan Certificates
of the two series offered hereby are issued under indentures (the
"Indentures") between Gold Kist and SunTrust Bank, Atlanta, as Trustee (the
"Trustee"). Separate Indentures dated as of September 1, 1985 govern the One
Year Subordinated Large Denomination Loan Certificates (Series A) (the "One
Year Jumbo Loan Certificates") and the Six Month Subordinated Large
Denomination Loan Certificates (Series A) (the "Six Month Jumbo Loan
Certificates"). The forms of the Indentures and Supplemental Indentures are
filed as exhibits to Registration Statements No. 2-65587, No. 2-69267, and No.
33-428. The following summaries of certain provisions of the Indentures do not
purport to be complete, and where particular provisions of the Indentures are
referred to, such provisions, including definitions of certain terms, are
incorporated by reference as a part of such summaries or terms, which are
qualified in their entirety by such references.
The loan certificates are unsecured obligations of Gold Kist, which are
transferable on the books of Gold Kist when properly endorsed, but are not
negotiable. (Section 2.04 of the Indentures). The One Year Loan Certificates
are issued in a minimum amount of $500 or in any larger amount. The One Year
Jumbo Loan Certificates and Six Month Jumbo Loan Certificates are issued in
minimum amounts of $50,000 and $20,000, respectively, or any larger amount.
The loan certificates are issued as of the date on which payment of the
purchase price is received by Gold Kist or its agent for such purpose and
mature one year or six months, respectively, from that date.
Loan certificates bear interest from the dates issued at the per annum rate
stated on the face thereof. The rate of interest borne by loan certificates
shall be determined from time to time by the Board of Directors of Gold Kist
or its delegate, but no change in the rate will affect any loan certificates
theretofore issued. The current rates of interest borne by loan certificates
are set forth on the front cover of this Prospectus. Interest is payable on
the maturity date. Holders of $5,000 or more of the One Year Loan Certificates
are entitled to payment of interest on such loan certificates quarterly, on
the first day of January, April, July and October of each year. Holders of the
One Year Jumbo Loan Certificates and Six Month Jumbo Loan Certificates are
entitled to payment of interest on such loan certificates monthly, on the
first day of each month. (Sections 1.01 and 2.01 of the Indentures.)
Upon the written request of a holder of loan certificates entitled to
quarterly or monthly interest payments, on each Interest Payment Date Gold
Kist will retain the interest otherwise payable to the holder and pay such
interest at the maturity of the certificate, or subject to any applicable
redemption penalty, upon redemption prior to maturity, together with interest
thereon at the per annum rate stated on the face of the certificate,
compounded as of each Interest Payment Date. The holder may terminate such
request or withdraw any interest so retained together with interest accrued on
such interest through the date of withdrawal, or both, at any time by written
21
<PAGE>
request delivered to Gold Kist at its principal office in Atlanta, Georgia.
The loan certificates will be paid in full, including all principal and
accrued but unpaid interest, at maturity. (Section 5.02 of the Indentures.)
The Indentures do not limit the aggregate principal amount of loan
certificates which may be issued thereunder, and each Indenture may be
modified by Gold Kist and the Trustee, without the consent of the
certificateholders, to provide for the issuance under the Indenture of one or
more additional series of loan certificates having terms different from those
of the series offered hereby. (Sections 2.01 and 10.01 of the Indentures.) As
of June 28, 1997, there were the following aggregate principal amounts of the
series offered hereby outstanding: One Year Loan Certificates -- $14,582,000,
One Year Jumbo Loan Certificates -- $21,884,000, and Six Month Jumbo Loan
Certificates -- $-0-. The Indentures do not limit the amount of other
securities, either secured or unsecured, superior or subordinate to the loan
certificates, which may be issued by Gold Kist.
REDEMPTION AT THE REQUEST OF CERTIFICATEHOLDER
Upon the death of a registered holder of a loan certificate, at the request
of (a) the personal representative of the deceased holder's estate or (b) any
surviving joint holder of a jointly held certificate, Gold Kist will redeem
loan certificates held by such deceased holder. In such event, redemption
shall be at the full face value of the certificate redeemed plus interest
accrued and unpaid thereon to the date of redemption only. (Section 3.02 of
the Indentures.)
Additional Redemptions at the Request of Certificateholder
In addition to redemptions upon the death of a registered holder of a loan
certificate, Gold Kist agrees to redeem prior to maturity the loan
certificates of any series offered hereby at the request of the registered
holders. (Section 3.03 of the Indentures.)
All such redemptions shall be only at the written request of the registered
holder(s) of the loan certificates redeemed delivered to the Association at
its principal office in Atlanta, Georgia. Redemptions will be made in the
order that such requests are received, and the redemption date will be a date
determined by Gold Kist which is within fifteen (15) days after such request
is received.
The redemption price of each loan certificate redeemed will be an amount
equal to the full principal amount of the certificate, plus interest accrued
but unpaid to the redemption date (including, if appropriate, interest
compounded on interest retained by the Association at the request of the
holder) less a redemption penalty computed in accordance with the following
table.
REDEMPTION PENALTIES APPLICABLE TO VARIOUS CLASSES
<TABLE>
<C> <S>
One Year Loan Certificates and One --An amount equal to three (3) months'
Year Jumbo Loan Certificates interest on the principal amount of the
certificate computed at the nominal
(simple interest) rate shown on the
face of the certificate.
Six Month Jumbo Loan Certificates --An amount equal to one (1) month's
interest on the principal amount of the
certificate computed at the nominal
(simple interest) rate shown on the
face of the certificate.
</TABLE>
The redemption penalty computed in this manner will be deducted regardless
of the length of time the loan certificate has been outstanding. The penalty
could exceed the amount of interest paid or accrued on the loan certificate to
the redemption date, thus resulting in a redemption price which is less than
the principal amount of the loan certificate.
22
<PAGE>
The following examples illustrate the calculation of the redemption price
assuming the stated principal amounts and interest rates. The Total Redemption
Price in each example will vary with different interest rates and amounts of
principal.
A. For a One Year Loan Certificate in the principal amount of $1,000
bearing interest at 6.30%, purchased on January 1, 1998, and redeemed at
the request of the holder on February 15, 1998, the redemption price would
equal:
<TABLE>
<C> <C> <S>
$1,000.00 (Principal amount)
plus 7.77 (45 days' accrued interest at 6.30% per annum)
---------
$1,007.77
less 15.75 (3 month's simple interest at 6.30% per annum)
---------
$ 992.02 (Total Redemption Price)
</TABLE>
B. For a One Year Loan Certificate in the principal amount of $5,000,
bearing interest at 6.30% (paid quarterly at the election of the holder),
purchased on January 1, 1998 and redeemed at the request of the holder on
June 15, 1998, the redemption price would equal:
<TABLE>
<C> <C> <S>
$5,000.00 (Principal amount)
(75 days' accrued interest at 6.30% per annum. Interest
plus 64.73 previously paid on April 1, 1998 equals $78.75)
$5,064.73
---------
less 78.75 (3 month's simple interest at 6.30% per annum)
---------
$4,985.98 (Total Redemption Price)
</TABLE>
Total redemption price ($4,985.98) plus interest previously paid ($78.75)
equals $5,064.73.
The indentures governing the loan certificates of each series do not contain
additional redemption provisions requiring Gold Kist to repurchase the
certificates at the request of the certificateholder upon the occurrence of a
change in control of Gold Kist, nor do the indentures contain any provisions
designed to afford protection to certificateholders in the event of a highly
leveraged transaction involving Gold Kist.
Gold Kist does not have the option of redeeming loan certificates prior to
maturity.
SUBORDINATION
In case of liquidation of Gold Kist, whether voluntary or involuntary, the
payment of the principal of and interest on the loan certificates is
subordinate to the payment in full of the principal of and interest on any
notes or accounts payable, now due or hereafter made by Gold Kist to any bank,
any other lending agency or creditor ("Superior Indebtedness"); except that
none of the Subordinated Capital Certificates of Interest issued pursuant to
the Indentures dated as of September 1, 1979, September 1, 1980 or September
1, 1985, the One Year Subordinated Loan Certificates issued pursuant to the
Indentures dated as of December 1, 1977 or September 1, 1979, or the One Year
or Six Month Subordinated Large Denomination Loan Certificates issued pursuant
to the Indentures dated as of September 1, 1985, shall be Superior
Indebtedness, but shall rank equally with the loan certificates outstanding
under each of the Indentures. As of June 28, 1997, Superior Indebtedness
amounted to approximately $633,727,000, and additional Superior Indebtedness,
without limitation, may be created from time to time. (Article Four and
Section 1.01 of the Indentures.) Gold Kist is jointly and severally liable for
(i) the obligations of Golden Peanut Company, a general partnership in which
Gold Kist has a 33 1/3% interest, and (iii) the obligations of Young Pecan
Company, a general partnership in which Gold Kist has a 25% equity interest
and a 35% earnings (loss) allocation. Any such liability incurred would
constitute additional Superior Indebtedness. See Notes 8 and 9 (b) of Notes to
Consolidated Financial Statements.
23
<PAGE>
Nothing contained in the subordination provisions prevents Gold Kist from
making payments of principal or interest on the loan certificates except
during the pendency of any dissolution or liquidation proceedings with respect
to Gold Kist.
DUTIES OF TRUSTEE
SunTrust Bank, Atlanta is the Trustee under each Indenture and is to perform
only such duties as are specifically set forth in the Indenture. (Section 8.01
of the Indentures.) In the event of a default, the holders of a majority in
aggregate principal amount of the loan certificates outstanding at the time
under any Indenture have the right to require the Trustee to take action to
remedy such default. (Section 7.12 of the Indentures.)
MODIFICATION OF THE INDENTURE
Each Indenture contains provisions permitting Gold Kist and the Trustee, (i)
with the written consent of the holders of not less than 66 2/3% in aggregate
principal amount of all the loan certificates outstanding under the Indenture
on a record date set for such purpose, to execute supplemental indentures
amending the provisions of the Indenture or any supplemental indenture so as
to modify the rights of the holders of all the loan certificates or (ii) with
the written consent of the holders of not less than 66 2/3% in aggregate
principal amount of the loan certificates of a given series outstanding under
the Indenture, on a record date set for such purpose, to execute supplemental
indentures amending the provisions of the Indenture relating to loan
certificates of such series; provided that no such supplemental indenture
shall (a) extend the maturity of any loan certificate or reduce the principal
amount thereof or reduce the rate or extend the time of payment of interest,
(b) reduce the 66 2/3% requirement as to the consent of the holders of the
loan certificates outstanding under the Indenture or of any series of
certificates outstanding thereunder, as required, for amendment of the
provisions of the Indenture, or (c) modify the provisions of the Indenture
which allow holders of not less than 75% of all loan certificates outstanding
under the Indenture to consent to the postponement of interest on all loan
certificates outstanding under the Indenture for a period not exceeding three
(3) years from its due date, without the consent of the holder of each loan
certificate affected thereby. (Section 10.02 of the Indentures.)
DEFAULTS AND NOTICE THEREOF
Each Indenture provides that any of the following shall constitute an event
of default: (a) failure to pay principal when due; (b) failure to pay interest
when due, continued for sixty (60) days; (c) certain events of bankruptcy or
insolvency; and (d) failure to perform any other covenant or agreement
contained in the Indenture, which failure continues for ninety (90) days after
notice to Gold Kist by the Trustee or holders of at least 10% in aggregate
principal amount of the outstanding loan certificates under the Indenture.
(Section 7.01 of the Indentures.)
Each Indenture provides that the Trustee shall, within ninety (90) days
after the occurrence of an event of default, give to the Certificateholders
notice of all such defaults unless such defaults have been cured, provided
that, except in the case of a default in the payment of principal of or
interest on any of the loan certificates outstanding under the Indenture, the
Trustee shall be protected in withholding such notice if, and so long as, the
Trustee determines that the withholding of such notice is in the interest of
the Certificateholders. (Section 8.02 of the Indentures).
Each Indenture provides that upon the occurrence of a default, the Trustee
or the holders of not less than 25% in aggregate principal amount of the loan
certificates then outstanding under the Indenture may declare the principal of
all loan certificates outstanding under the Indenture immediately due and
payable (Section 7.02 of the Indentures.)
SATISFACTION AND DISCHARGE OF INDENTURE
Each Indenture shall be discharged upon payment of all loan certificates
outstanding thereunder or upon deposit with the Trustee of funds sufficient
therefor. (Section 11.01 of the Indentures.)
24
<PAGE>
AUTHENTICATION AND DELIVERY OF CERTIFICATES
The loan certificates may be authenticated by the Trustee in the form set
forth in each Indenture and delivered upon the written order of Gold Kist
without any further corporate action. (Section 2.03 of the Indentures.)
STATEMENTS AS TO COMPLIANCE
Each Indenture requires Gold Kist to furnish to the Trustee annually a
statement that Gold Kist has fulfilled all of its obligations throughout the
year, or specifying any default in the fulfillment of any such obligation.
(Section 5.07 of the Indentures.) In addition, upon any application or demand
by Gold Kist to the Trustee to take any action under any of the provisions of
the Indenture, Gold Kist shall first furnish to the Trustee an Officer's
Certificate stating that all such conditions precedent provided for in the
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel to Gold Kist stating that in the opinion of such counsel
all such conditions precedent have been complied with. (Section 1.02 of the
Indentures.)
CONCERNING THE TRUSTEE
Gold Kist has a $19,000,000 revolving credit line and a $19,000,000
committed 364 day credit line both of which can be used for seasonal advances,
and a $5,000,000 letter of credit facility with the SunTrust Bank, Atlanta,
under which varying amounts are outstanding from time to time. Any such
indebtedness to the SunTrust Bank, Atlanta would constitute Superior
Indebtedness as defined in the Indenture. Gold Kist also maintains deposit
accounts with the SunTrust Bank, Atlanta, and from time to time the Bank
provides other banking and trust services to Gold Kist in the ordinary course
of its business. SunTrust Bank, Atlanta serves as trustee under indentures
governing certain previously issued series of Subordinated Capital
Certificates of Interest and Subordinated Loan Certificates.
EXPERTS
The consolidated financial statements and schedule of Gold Kist Inc. as of
June 29, 1996, and June 28, 1997 and for each of the years in the three-year
period ended June 28, 1997 have been included herein or incorporated by
reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein or incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the July 1, 1995 consolidated financial
statements refers to a change in accounting for certain investments in debt
and equity securities.
The consolidated financial statements of Golden Peanut Company and
Subsidiaries at June 30, 1997 and 1996, and for each of the three years in the
period ended June 30, 1997 (not included separately herein), have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein. The consolidated financial statements
audited by Ernst & Young LLP reflect certain amounts which have been included
in the consolidated financial statements of Gold Kist Inc. as of June 29, 1996
and June 28, 1997 and for each of the three years in the period ended June 28,
1997, in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
QUALIFIED INDEPENDENT UNDERWRITER
Interstate/Johnson Lane Corporation, a member of the NASD, has participated
as a qualified independent underwriter, for compensation paid by Gold Kist, in
the "due diligence" review with respect to the preparation of this Prospectus.
25
<PAGE>
LEGAL OPINION
The legality of the securities offered hereby is being passed upon for Gold
Kist by Alston & Bird, One Atlantic Center, 1201 West Peachtree Street,
Atlanta, Georgia 30309-3424.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Gold Kist Inc.:
We have audited the accompanying consolidated balance sheets of Gold Kist
Inc. and subsidiaries as of June 29, 1996 and June 28, 1997, and the related
consolidated statements of operations, patrons' and other equity, and cash
flows for each of the years in the three-year period ended June 28, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of Golden Peanut Company and Subsidiaries, a
partnership investment accounted for using the equity method of accounting, as
described in Note 9(b) to the consolidated financial statements. The
consolidated financial statements of Golden Peanut Company and Subsidiaries
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Golden Peanut
Company and Subsidiaries, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Gold Kist Inc. and subsidiaries
as of June 29, 1996 and June 28, 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended June 28,
1997, in conformity with generally accepted accounting principles.
As discussed in notes 1 and 9(a) to the consolidated financial statements,
the Company changed its method of accounting for certain investments in debt
and equity securities in 1995.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
September 5, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partnership Committee
Golden Peanut Company
We have audited the consolidated balance sheets of Golden Peanut Company and
Subsidiaries (the "Partnership") as of June 30, 1996 and 1997, and the related
consolidated statements of operations, partners' equity, and cash flows for
each of the three years in the period ended June 30, 1997 (not presented
separately herein). These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Golden Peanut
Company and Subsidiaries at June 30, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
August 29, 1997, except for
Note 11 as to which
the date is September 5, 1997
F-2
<PAGE>
GOLD KIST INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, 1996 JUNE 28, 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $20,562 17,921
Receivables, principally trade, including notes
receivable of $68.9 million in 1996 and $73.2
million in 1997, less allowance for doubtful
accounts of $7,726 in 1996 and $8,836 in 1997.... 242,411 250,359
Inventories (note 2).............................. 270,367 295,977
Commodities margin deposits....................... 21,397 56,570
Other current assets.............................. 17,807 23,692
-------- ---------
Total current assets............................. 572,544 644,519
Investments (note 9).............................. 104,728 132,683
Property, plant and equipment, net (note 3)....... 255,728 295,174
Other assets...................................... 42,960 47,460
-------- ---------
$975,960 1,119,836
======== =========
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term
debt (note 4):
Short-term borrowings............................ $112,800 178,900
Subordinated loan certificates................... 30,574 36,466
Current maturities of long-term debt............. 27,089 15,188
-------- ---------
170,463 230,554
Accounts payable.................................. 126,340 149,347
Accrued compensation and related expenses......... 32,590 30,761
Patronage refund and other equity payable in
cash............................................. 24,043 --
Interest left on deposit (note 4)................. 12,119 11,396
Other current liabilities......................... 22,532 13,192
-------- ---------
Total current liabilities........................ 388,087 435,250
Long-term debt, excluding current maturities (note
4)................................................ 188,948 256,039
Accrued postretirement benefit costs (note 7(b))... 40,271 43,683
Other liabilities.................................. 4,072 10,331
-------- ---------
Total liabilities................................ 621,378 745,303
-------- ---------
Minority interest (note 11)........................ 28,172 28,458
Patrons' and other equity (note 5):
Common stock, $1.00 par value--Authorized 500
shares; issued and
outstanding 36 in 1996 and 32 in 1997............ 36 32
Patronage reserves................................ 209,140 203,988
Unrealized gain on marketable equity security
(note 9(a))...................................... 20,978 32,749
Retained earnings................................. 96,256 109,306
-------- ---------
Total patrons' and other equity.................. 326,410 346,075
Commitments and contingent liabilities (notes 7 and
8)................................................
-------- ---------
$975,960 1,119,836
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
JULY 1, 1995 JUNE 29, 1996 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C>
Net sales volume...................... $1,688,537 1,955,569 2,289,044
Cost of sales......................... 1,522,063 1,731,448 2,105,577
---------- --------- ---------
Gross margins........................ 166,474 224,121 183,467
Distribution, administrative and
general expenses..................... 131,410 155,664 167,665
---------- --------- ---------
Net operating margins................ 35,064 68,457 15,802
---------- --------- ---------
Other income (deductions):
Interest income...................... 8,779 9,946 13,361
Interest expense..................... (17,525) (21,065) (26,951)
Equity in earnings (loss) of
partnership (note 9(b))............. (9,625) (1,181) 5,807
Gain on sale of investments.......... 3,070 -- --
Miscellaneous, net................... 5,823 5,962 2,268
---------- --------- ---------
Total other deductions.............. (9,478) (6,338) (5,515)
---------- --------- ---------
Margins before income taxes and
minority interest................... 25,586 62,119 10,287
Income tax expense (benefit)--(note
6)................................... 13,094 20,757 (3,446)
---------- --------- ---------
Margins before minority interest..... 12,492 41,362 13,733
Minority interest..................... (741) (4,330) (1,843)
---------- --------- ---------
Net margins.......................... $ 11,751 37,032 11,890
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF PATRONS' AND OTHER EQUITY
FOR THE YEARS ENDED JULY 1, 1995, JUNE 29, 1996 AND JUNE 28, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
MARKETABLE
COMMON PATRONAGE EQUITY RETAINED
TOTAL STOCK RESERVES SECURITY EARNINGS
-------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
June 25, 1994................... $296,662 79 219,164 -- 77,419
Net margins for 1995........... 11,751 -- 12,590 -- (839)
Nonqualified patronage refund
and other equity payable in
cash.......................... (8,941) -- (8,941) -- --
Redemptions and other changes.. (3,013) (17) (5,959) -- 2,963
Implementation of change in
accounting for marketable
equity security (note 9(a))... 18,531 -- -- 18,531 --
-------- --- ------- ------ -------
July 1, 1995.................... 314,990 62 216,854 18,531 79,543
Net margins for 1996........... 37,032 -- 21,700 -- 15,332
Nonqualified patronage refund
and other
equity payable in cash........ (24,212) -- (24,212) -- --
Redemptions and other changes.. (3,847) (26) (5,202) -- 1,381
Change in value of marketable
equity security
(note 9(a))................... 2,447 -- -- 2,447 --
-------- --- ------- ------ -------
June 29, 1996................... 326,410 36 209,140 20,978 96,256
Net margins for 1997........... 11,890 -- -- -- 11,890
Redemptions and other changes.. (3,996) (4) (5,152) -- 1,160
Change in value of marketable
equity security
(note 9(a))................... 11,771 -- -- 11,771 --
-------- --- ------- ------ -------
June 28, 1997................... $346,075 32 203,988 32,749 109,306
======== === ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
JULY 1, 1995 JUNE 29, 1996 JUNE 28, 1997
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net margins.......................... $ 11,751 37,032 11,890
Non-cash items included in net
margins:
Depreciation and amortization....... 38,085 40,063 39,422
(Gains) losses on sales of assets... (3,459) 101 148
Equity in (earnings) loss of
partnership........................ 9,625 1,181 (5,807)
Deferred income tax benefit......... (6,650) (2,250) (1,951)
Patronage refunds from other
cooperatives....................... (1,447) (3,970) (5,642)
Other............................... 3,390 2,455 1,048
Changes in operating assets and
liabilities:
Receivables......................... (28,466) (53,231) (7,948)
Inventories......................... (28,521) (43,379) (25,610)
Commodities margin deposits......... (2,512) (18,590) (35,173)
Other current assets................ (870) (1,971) 2,043
Accounts payable and accrued
expenses........................... 15,117 20,917 5,403
Interest left on deposit............ 1,153 1,626 (723)
-------- ------- -------
Net cash provided by (used in)
operating activities............... 7,196 (20,016) (22,900)
-------- ------- -------
Cash flows from investing activities:
Acquisitions of investments.......... (5,093) (4,356) (1,293)
Acquisitions of property, plant and
equipment........................... (61,762) (74,262) (76,922)
Proceeds from disposal of
investments......................... 8,942 200 104
Proceeds from sales of loans......... 4,925 10,052 --
Other................................ (7,179) 2,406 784
-------- ------- -------
Net cash used in investing
activities......................... (60,167) (65,960) (77,327)
-------- ------- -------
Cash flows from financing activities:
Short-term borrowings, net........... 60,286 45,211 71,992
Proceeds from long-term debt......... 49,752 86,296 110,846
Principal payments of long-term
debt................................ (36,676) (28,557) (55,656)
Patronage refunds and other equity
paid in cash........................ (19,464) (13,009) (29,596)
-------- ------- -------
Net cash provided by financing
activities......................... 53,898 89,941 97,586
-------- ------- -------
Net change in cash and cash
equivalents........................ 927 3,965 (2,641)
Cash and cash equivalents at beginning
of year.............................. 15,670 16,597 20,562
-------- ------- -------
Cash and cash equivalents at end of
year................................. $ 16,597 20,562 17,921
======== ======= =======
Supplemental disclosure of cash flow
data:
Cash paid during the years for:
Interest (net of amounts
capitalized)....................... $ 18,792 18,327 25,761
======== ======= =======
Income taxes........................ $ 21,144 20,676 11,173
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 1995, JUNE 29, 1996 AND JUNE 28, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Gold Kist Inc. is a diversified agricultural membership cooperative
association, headquartered in Atlanta, Georgia. Gold Kist Inc. serves
approximately 31,000 active farmer members and other cooperative associations
located principally in the southeastern United States. Gold Kist Inc. operates
poultry and pork production facilities providing both marketing and purchasing
services to producers. Gold Kist Inc. also purchases or manufactures feed,
seed, fertilizers, pesticides, animal health products and other farm supply
items for sale at wholesale and retail. Additionally, Gold Kist Inc. is
engaged in the processing, storage and marketing of cotton, serves as a
contract procurement agent for, and stores, farm commodities such as soybeans
and grain, and is a partner in a major peanut processing and marketing
business and in a pecan processing and marketing business.
The accounting and reporting policies of Gold Kist Inc. and subsidiaries
conform to generally accepted accounting principles and to general practices
among agricultural cooperatives. The following is a summary of the significant
accounting policies.
(a)Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Gold Kist Inc. and its wholly and majority owned
subsidiaries (collectively "Gold Kist" or "Association"). All
significant intercompany balances and transactions have been eliminated
in consolidation. Certain reclassifications have been made to the 1995
and 1996 consolidated financial statements to conform to the
presentation in the 1997 consolidated financial statements.
(b)Cash and Cash Equivalents
Gold Kist's policy is to invest cash in excess of operating
requirements in highly liquid interest bearing debt instruments, which
include commercial paper and reverse repurchase agreements. These
investments are stated at cost which approximates market. For purposes
of the consolidated statements of cash flows, Gold Kist considers all
highly liquid debt instruments purchased with original maturities of
three months or less to be cash equivalents.
(c)Inventories
Merchandise for sale includes feed, fertilizers, seed, pesticides,
equipment and general farm supplies purchased or manufactured by Gold
Kist for sale to agricultural producers and consumers. These inventories
are stated, generally, on the basis of the lower of cost (first-in,
first-out or average) or market.
Live poultry and hogs consist of broilers, breeding stock and market
hogs. The broilers and market hogs are stated at the lower of average
cost or market. The breeding stock is stated at average cost, less
accumulated amortization.
Raw materials and supplies consist of feed and fertilizer ingredients,
uncleaned seed, hatching eggs, packaging materials and operating
supplies. These inventories are stated, generally, on the basis of the
lower of cost (first-in, first-out or average) or market. Gold Kist
engages in commodity futures and options transactions to manage the risk
of adverse price fluctuations with regard to its poultry and other
animal feed ingredient purchases. Futures contracts are recognized when
closed and option contracts are accounted for at market. Gains or losses
on futures and options transactions are included as a part of product
cost.
F-7
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
At June 28, 1997, Gold Kist had unrealized commodity futures losses of
$36.8 million related to its hedging of a portion of its 1998 poultry
feed ingredients requirements. These futures positions were closed in
July 1997 resulting in realized losses of approximately $48.6 million
which will be reflected in the 1998 consolidated financial statements as
an adjustment in product cost.
Marketable products consist primarily of dressed and further processed
poultry and cotton. These inventories are stated, principally, on the
basis of selling prices, less estimated brokerage, freight and certain
other selling costs where applicable (estimated net realizable value).
(d)Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation of
plant and equipment is calculated by the straight-line method over the
estimated useful lives of the respective assets.
(e)Investments
Investments in other cooperatives are recorded at cost and include the
amount of patronage refund certificates and patrons' equities allocated,
less distributions received. These investments are not readily
marketable and quoted market prices are not available, as a result, it
is not practical to determine these investment's fair value. The equity
method of accounting is used for investments in other companies in which
Gold Kist's voting interest is 20 to 50 percent. Investments in less
than 20 percent owned companies which are not readily marketable are
stated at cost.
Effective June 26, 1994, Gold Kist adopted the provisions of Statement
of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities." Pursuant to the
provisions of SFAS 115, the Association has classified its marketable
equity security and collateralized loans as "available-for-sale."
"Available-for-sale" securities are those the Association intends to
hold for a period of time and are not acquired with the intent of
selling them in the near term. Unrealized gains and losses on
"available-for-sale" securities are included as a separate component of
patrons' and other equity in the accompanying financial statements, net
of deferred income taxes. Upon initial application of SFAS 115, Gold
Kist recorded an increase to investments of $20.5 million and to
patrons' and other equity of $12.9 million (net of deferred income taxes
of $7.6 million) related to the marketable equity security (see note
9(a)). Management believes the carrying value of the collateralized
loans approximate market value and, accordingly, no adjustment has been
recognized in the accompanying financial statements.
Gold Kist's investment in the Golden Peanut Company partnership is
accounted for using the equity method (see note 9(b)). Other investments
accounted for under the equity method are not significant.
(f)Income Taxes
Gold Kist operates as an agricultural cooperative not exempt from
Federal income taxes. Aggregate margins not refunded in cash to members
or allocated in the form of qualified written notices are subject to
income taxes.
The bylaws of Gold Kist provide for the issuance of either qualified
or nonqualified patronage refunds (as defined for purposes of Subchapter
T of the Internal Revenue Code). Gold Kist utilized nonqualified
patronage refunds in 1995 and 1996 which are deductible for income tax
purposes only to the extent paid or redeemed in cash.
F-8
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. 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. 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.
(g)Fair Value of Financial Instruments
Gold Kist's financial instruments include cash and cash equivalents,
commodities margin deposits, accounts receivables and payables and
accrued expenses, notes receivable and debt. Because of the short
maturity of cash equivalents, accounts receivable and payables and
accrued expenses, interest left on deposit, certain short-term debt
which matures in less than one year and long-term debt with variable
interest rates, the carrying value approximates fair value. All
financial instruments are considered to have an estimated fair value
which approximates carrying value at June 29, 1996 and June 28, 1997
unless otherwise specified (see notes 1(e) and 4).
(h)Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Gold Kist adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (SFAS 121), on June 30, 1996. SFAS 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of SFAS 121 did not have a material impact on Gold Kist's
financial position, results of operations or liquidity.
(i)Fiscal Year
Gold Kist employs a 52/53 week fiscal year. The consolidated financial
statements for 1995, 1996 and 1997 reflect 53, 52 and 52 weeks,
respectively. Fiscal 1998 will be a 52 week year.
(j)Use of Estimates
Management of Gold Kist has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
F-9
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
(2) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Merchandise for sale...................................... $ 83,886 86,810
Live poultry and hogs..................................... 95,682 101,579
Marketable products--poultry.............................. 40,047 35,814
Marketable products--cotton............................... 11,258 27,442
Raw materials and supplies................................ 39,494 44,332
-------- -------
$270,367 295,977
======== =======
</TABLE>
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Land and land improvements................................ $ 33,268 37,435
Buildings................................................. 188,845 203,110
Machinery and equipment................................... 368,118 403,076
Construction in progress.................................. 16,833 29,364
-------- -------
607,064 672,985
Less accumulated depreciation............................. 351,336 377,811
-------- -------
$255,728 295,174
======== =======
</TABLE>
(4) NOTES PAYABLE AND LONG-TERM DEBT
At June 28, 1997, the Association had a $250 million unsecured committed
credit facility with nine commercial banks. The facility includes a five-year
$125 million revolving credit commitment and a $125 million 364-day line of
credit commitment. As of June 28, 1997, borrowings of $65 million and $95
million, respectively, were outstanding under the revolving credit and 364-day
line-of-credit commitments. The five-year revolving credit agreement expires
on August 9, 2001, but may be extended twice for successive one-year periods
with the consent of the banks. The revolving credit facility fee and the
commitment fees on the unused portion of the revolving credit will be computed
quarterly based on the Association's ratio of funded debt to total capital and
will not exceed .20% per annum. The 364-day line of credit provides short-term
financing that will expire in August 1998 and may be extended with the consent
of the banks. The 364-day line of credit is subject to a .16% per annum
facility fee. Borrowings under the $250 million facility will bear variable
interest rates at or below prime. Also, the facility permits competitive bid
interest rates by the participating banks.
At June 28, 1997, Golden Poultry Company, Inc., a subsidiary of Gold Kist,
had borrowings of $36.4 million under unsecured committed credit facilities
totaling $45.0 million. These revolving credit facilities will expire
subsequent to the merger of Golden Poultry Company, Inc. with Gold Kist in
September 1997 (see note 11).
In February 1997, Gold Kist established a shelf note agreement with an
insurance company, whereby the insurance company may purchase up to $125
million of senior promissory notes. In February 1997, Gold Kist sold $30
million of 7.6% Series A Senior Notes and in May 1997, Gold Kist sold $25
million of 7.94% Series B Senior Notes. At Gold Kist's request, the insurance
company may purchase an additional $70 million of senior notes through
February 1999.
F-10
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
At June 28, 1997, Gold Kist had other borrowings of $85.5 million
outstanding under uncommitted loans and letters of credit facilities. At June
28, 1997, Gold Kist had other unused long-term loan commitments of $50.0
million and additional uncommitted facilities to provide loans and letters of
credit from banks aggregating approximately $94.5 million. These unsecured
borrowings bear interest at rates below prime.
Subordinated loan certificates of $30.6 million at June 29, 1996 bore
interest at rates of 5.5% to 6.4% with terms of one year and were unsecured.
At June 28, 1997, subordinated loan certificates outstanding were $36.5
million bearing interest at rates of 5.75% to 6.4%.
Interest left on deposit represents amounts of interest payable, which at
the option of the holders of various classes of certificates, is left on
deposit with Gold Kist. Additional interest on these amounts accrues at the
same rates as the related certificates.
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Unsecured senior notes payable:
9.375% interest notes, due in semi-annual installments of
$5,500
with interest payable semiannually....................... $ 11,000 --
9.90% interest notes, due in semi-annual installments of
$1,539
with interest payable semiannually....................... 9,230 6,152
9.35% interest note, due in a single installment in June
2001
with interest payable quarterly.......................... 20,000 20,000
7.60% interest notes, due in annual installments of $2,727
beginning in February 2002 with interest payable
quarterly................................................ -- 30,000
7.94% interest notes, due in annual installments of $2,272
beginning in May 2002 with interest payable quarterly.... -- 25,000
Other long term debt:
Subordinated capital certificates of interest with fixed
maturities ranging from two to fifteen years, unsecured
(weighted average interest rate
of 7.2% at June 29, 1996 and 7.3% at June 28, 1997)...... 59,431 63,714
Revolving credit agreements with commercial banks
(weighted average rate of 5.7% at June 29, 1996 and 6.0%
at June 28, 1997)........................................ 50,000 101,350
Borrowings under uncommitted lines of credit (weighted
average rate
of 5.8% at June 29, 1996)................................ 40,000 --
Tax exempt industrial revenue bonds with varying interest
rates
due in quarterly and annual installments through 2016,
secured by property, plant and equipment................. 18,500 18,050
Pro rata share of mortgage loan, at 8.47% interest, due in
monthly installments to June 30, 2004, secured by a
building (note 3)........................................ 2,306 2,100
Other..................................................... 5,570 4,861
-------- -------
216,037 271,227
Less current maturities.................................... 27,089 15,188
-------- -------
$188,948 256,039
======== =======
</TABLE>
Based upon discounted cash flows of future payments, assuming interest rates
available to Gold Kist for issuance of debt with similar terms and remaining
maturities, the estimated fair value of the unsecured senior
F-11
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
notes payable at June 29, 1996 and June 28, 1997 was approximately $43.0
million and $83.1 million, respectively.
In June 1997, Gold Kist entered into two notional amount $25 million
interest rate swap agreements with a commercial bank. Under a five-year
interest rate swap, the Company will pay interest at a fixed rate of 6.48% and
receive interest at the three-month London Interbank Offered Rate (LIBOR).
Under a ten year interest rate swap, the Company will pay interest at the
three-month LIBOR and receive interest at a fixed rate of 7.44%. Beginning in
June 1998, the commercial bank has an option to terminate the ten-year
interest rate swap at any quarterly payment date.
The terms of debt agreements specify minimum working capital, net worth and
current ratio requirements. The debt agreements also place a limitation on
equity distribution, cash patronage refunds and additional loans, advances or
investments. The limitation provides for a carryover to 1998 of unused
amounts, $10.1 million as of June 28, 1997, and is increased by 50% of Gold
Kist's net margins (or minus 100% of a net loss) before any gains or losses on
disposals of capital assets or equity in unremitted earnings of any affiliate.
Annual required principal repayments on long-term debt for the five years
subsequent to June 28, 1997 are as follows:
<TABLE>
<CAPTION>
Year:
<S> <C>
1998........................................................... $15,188
1999........................................................... 16,402
2000........................................................... 7,340
2001........................................................... 25,232
2002........................................................... 17,782
=======
</TABLE>
(5) PATRONS' AND OTHER EQUITY
Gold Kist's Articles of Incorporation provide for a class of common stock
and a class of preferred stock pursuant to the provisions of the Georgia
Cooperative Marketing Act. Each member is allocated one share of common stock,
$1.00 par value. The common shares are not marketable or transferable and no
dividends will be declared on these common shares. No issuance of preferred
stock has been authorized by Gold Kist.
Patronage reserves represent allocated undistributed member margins less
taxes paid on nonqualified equity. Patronage reserves do not bear interest and
are subordinated to all certificates outstanding and indebtedness of Gold
Kist. Patronage reserves may be revolved and paid at the discretion of the
Board of Directors.
Retained earnings include the cumulative net margins (losses) resulting from
nonmember and nonpatronage transactions, including noncooperative
subsidiaries. Also included are amounts related to the early redemption of
notified equity, representing the difference between the face value and the
redemption amounts.
(6) INCOME TAXES
The provisions for income tax expense (benefit), principally Federal,
consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Current expense (benefit)........................... $19,744 23,007 (1,495)
Deferred benefit.................................... (6,650) (2,250) (1,951)
------- ------ ------
$13,094 20,757 (3,446)
======= ====== ======
</TABLE>
F-12
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
The deferred income tax effect of the unrealized gain on marketable equity
security has been charged as a component of patrons' and other equity for 1996
and 1997.
Gold Kist's combined federal and state effective tax rates from operations
for 1995, 1996 and 1997 were 51%, 33%, and (33)%, respectively. A
reconciliation of income tax expense (benefit) from operations computed by
applying the Federal corporate income tax rate of 35% in 1995, 1996 and 1997
to margins before income taxes, minority interest and cumulative effect of
accounting changes for the applicable year follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Computed expected income tax expense.............. $ 8,955 21,742 3,600
Increase (decrease) in income tax expense
resulting from:
Income tax litigation............................ 5,520 -- (5,207)
Cash portion of nonqualified patronage refund.... (1,031) (986) --
Effect of state income taxes, net of Federal
benefit......................................... 447 970 (531)
Nonqualified equity redemptions.................. (490) (886) (831)
Target jobs credits.............................. (499) (11) (344)
Other, net....................................... 192 (72) (133)
------- ------ ------
$13,094 20,757 (3,446)
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 29,
1996 and June 28, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits.................................. $ 15,589 16,920
Insurance accruals....................................... 8,059 8,822
Equity in partnerships................................... 2,618 --
Bad debt reserves........................................ 3,156 3,661
State tax operating loss carryforwards................... 1,406 1,850
Other.................................................... 1,426 2,372
-------- -------
Total gross deferred tax assets......................... 32,254 33,625
Less valuation allowance................................. (1,406) (1,078)
-------- -------
Net deferred tax assets................................. 30,848 32,547
-------- -------
Deferred tax liabilities:
Unrealized gain on marketable equity security............ (13,116) (17,634)
Accelerated depreciation................................. (1,245) (2,167)
Deferred compensation.................................... (3,371) (3,604)
Equity in partnerships................................... -- (245)
-------- -------
Total deferred tax liabilities.......................... (17,732) (23,650)
-------- -------
Net deferred tax assets................................. $ 13,116 8,897
======== =======
</TABLE>
The net change in the total valuation allowance for the years ended 1995,
1996 and 1997 was an increase of $71, a decrease of $578, and a decrease of
$328, respectively. 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.
F-13
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
During 1993, the Internal Revenue Service (IRS) concluded its examination of
Gold Kist's 1987 through 1989 Federal income tax returns and issued a notice
of deficiency. In April 1994, the remaining issue, whether Gold Kist must
recognize taxable income related to the redemption of its qualified notified
equity at less than face amount, was litigated before the United States Tax
Court. An adverse decision was received from the Tax Court on June 26, 1995.
In April 1997, the Eleventh Circuit Court of Appeals reversed the decision of
the Tax Court in favor of Gold Kist. The Appellate Court's decision was not
appealed by the IRS and the accrued tax liability related to this issue has
been reversed in the 1997 financial statements.
(7) EMPLOYEE BENEFITS
(a) Pension Plans
Gold Kist has noncontributory defined benefit pension plans covering
substantially all of its employees and directors and an affiliate's
employees (participants). The plan covering the salaried participants
provides pension benefits that are based on the employees' compensation
during the years before retirement or other termination of employment.
The plan covering the hourly participants provides pension benefits that
are based on years of service. Gold Kist's funding policy is to
contribute within the guidelines prescribed by Federal regulations. Plan
assets consist principally of corporate equities and bonds, and United
States Government and Agency obligations.
Net periodic pension expense for 1995, 1996 and 1997 included the following
components:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the
year........................................ $ 3,429 4,092 4,226
Interest cost on projected benefit
obligations................................. 6,949 7,426 8,006
Actual return on plan assets................. (11,393) (27,724) (19,118)
Net amortization and deferral................ 1,208 16,799 7,127
-------- ------- -------
Net periodic pension expense................ $ 193 593 241
======== ======= =======
</TABLE>
The following table sets forth the plans' funded status, amounts recognized
in the consolidated balance sheets at June 29, 1996 and June 28, 1997 and
economic assumptions:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested participants.................................. $ 88,287 90,256
Nonvested............................................ 7,088 7,410
-------- -------
Total accumulated benefit obligations............... $ 95,375 97,666
======== =======
Projected benefit obligations for services rendered to
date................................................. $111,251 116,670
======== =======
Plan assets for benefits:
Plan assets at fair value............................ $145,148 156,673
Prepaid pension cost included in other assets
in consolidated balance sheets...................... (18,179) (19,721)
-------- -------
Net plan assets..................................... $126,969 136,952
======== =======
Plan assets in excess of projected benefit
obligations.......................................... $ 15,718 20,282
======== =======
</TABLE>
F-14
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Consisting of:
Unrecognized net asset existing at the date of
adoption............................................... $ 8,318 7,116
Unrecognized net gain/(loss) from past experience
different from that assumed and effects of changes in
assumptions............................................ 13,824 18,889
Prior service cost not yet recognized in net periodic
pension cost........................................... (6,424) (5,723)
------- ------
$15,718 20,282
======= ======
Actuarial assumptions:
Weighted-average discount rate.......................... 8.00% 8.25%
Weighted-average expected long-term rate of return on
plan assets............................................ 9.50% 9.50%
Weighted-average rate of compensation increase.......... 5.50% 5.50%
</TABLE>
The unrecognized net asset existing at the date of adoption of
Statement of Financial Accounting Standards No. 87 is being amortized
over the remaining service lives of the participants.
(b)Other Postretirement Benefits
Gold Kist provides health care and death benefits to substantially all
retired employees, covered dependents and their beneficiaries.
Generally, employees who have attained age 55 and who have 10 years of
service are eligible for these benefits. In addition, employees with
less than 10 years of service who retired before July 1, 1992 are
eligible for these benefits. The health care and death benefit plans are
contributory and coverages increase with increased years of service.
Postretirement health and death benefit expense for 1995, 1996 and
1997 included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Service cost--benefits
earned during the
year................... $1,742 2,029 2,452
Interest cost........... 2,645 2,998 3,508
Net amortization and
deferral............... (18) 80 80
------ ----- -----
Net postretirement
health and death
benefit expense....... $4,369 5,107 6,040
====== ===== =====
</TABLE>
Gold Kist's postretirement benefit plans are not funded. The status of
the plans at June 29, 1996 and June 28, 1997 was as follows:
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees.............................................. $18,010 21,130
Fully eligible active plan participants............... 10,188 11,786
Other active plan participants........................ 16,571 20,245
------- ------
44,769 53,161
Unrecognized net loss from experience differences..... (2,737) (7,332)
------- ------
$42,032 45,829
======= ======
</TABLE>
F-15
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
The health care cost trend rate used to determine the accumulated
postretirement benefit obligation at June 29, 1996 was 8%, declining
ratably to 5% by the year 2001 and remaining at that level thereafter.
The health care cost trend rate used to determine the accumulated
postretirement benefit obligation at June 28, 1997 was 7%, declining
ratably to 5% by the year 2001 and remaining at that level thereafter.
The discount rate used to determine the accumulated postretirement
benefit obligation was 8.00% at June 29, 1996 and 8.25% at June 28,
1997, respectively. A 1% increase in the health care cost trend rate for
each year would increase the accumulated postretirement benefit
obligation for health care benefits at June 28, 1997 by approximately
13% and net postretirement health care cost by 14%.
(8) CONTINGENT LIABILITIES AND COMMITMENTS
Gold Kist is a party to various legal and administrative proceedings, all of
which management believes constitute ordinary routine litigation incident to
the business conducted by Gold Kist, or are not material in amount.
Gold Kist received proceeds of $20.0 million, $5.0 million, $4.9 million and
$10.2 million during 1993, 1994, 1995 and 1996, respectively, for
collateralized loans sold with recourse to an insurance company, of which
$17.4 million was outstanding at June 28, 1997. No gain or loss was recognized
on the sale of these loans. A $264 thousand allowance has been recognized in
the accompanying consolidated financial statements for potential losses that
may occur. As of June 28, 1997, there have been no credit losses related to
the loans guaranteed under this agreement.
Gold Kist is a guarantor of amounts outstanding under a $65.0 million
secured loan agreement between a commercial bank and Young Pecan Company, a
pecan processing and marketing partnership in which Gold Kist holds a 25%
equity interest and 35% earnings (loss) allocation. At June 28, 1997, the
amounts outstanding under this facility were $42.4 million.
(9) INVESTMENTS
(a) Marketable Equity Security
As discussed in Note 1(e), Gold Kist adopted SFAS 115 at June 26,
1994, changing the method of accounting for its marketable equity
security from a historical cost basis to a fair value approach. Pursuant
to the provisions of SFAS 115, the Association has classified its
marketable equity security as "available-for-sale." At June 28, 1997,
the Association's marketable equity security was carried at its fair
value of $71.1 million, which represents a gross unrealized gain of
$50.4 million. The 1997 gross unrealized gain, net of deferred taxes of
$17.7 million, has been reflected as a separate component of patrons'
and other equity. At June 29, 1996, the Association's marketable equity
security was carried at its fair value of $54.8 million, which
represents a gross unrealized gain of $34.1 million. The 1996 gross
unrealized gain, net of deferred income taxes of $13.1 million, has been
reflected as a separate component of patrons' and other equity. At July
1, 1995, the marketable equity security was carried at its fair value of
$50.1 million, which represents a gross unrealized gain of $30.1
million. The 1995 gross unrealized gain, net of deferred income taxes of
$11.6 million, has been reflected as a separate component of patrons'
and other equity.
Gains realized on sales and dividends totaling $1.3 million are
included in miscellaneous, net for the year ended July 1, 1995.
Dividends of $494 thousand and $595 thousand are included in
miscellaneous, net for the years ended June 29, 1996 and June 28, 1997,
respectively.
F-16
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
(b) Golden Peanut Company
Gold Kist has a 33 1/3% interest in Golden Peanut Company and
Subsidiaries, a partnership interest ("Golden Peanut Company"). Gold
Kist's investment in the Golden Peanut Company amounted to $17.2 million
and $24.1 million at June 29, 1996 and June 28, 1997, respectively. In
July 1996 and July 1997, Gold Kist made additional investments of $2.8
million and $1.2 million, respectively. Golden Peanut Company has a
$450.0 million commercial paper facility supported by lines of credit
with various banks totaling $190.0 million. At June 28, 1997, borrowings
of $103.0 million were outstanding under the commercial paper facility.
Summarized financial information of Golden Peanut Company is shown
below:
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Current assets............................................ $150,178 164,450
Property, plant and equipment, net........................ 31,557 34,775
-------- -------
Total assets............................................. $181,735 199,225
======== =======
Current liabilities....................................... $124,969 120,591
Accrued postretirement benefit costs...................... 5,308 5,703
Other liabilities......................................... -- 511
Partners' equity........................................ 51,458 72,420
-------- -------
Total liabilities and partners' equity................... $181,735 199,225
======== =======
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Net sales and other operating income............ $435,569 428,955 426,122
Costs and expenses.............................. 464,444 432,496 408,702
-------- ------- -------
Net earnings (loss)............................ $(28,875) (3,541) 17,420
======== ======= =======
</TABLE>
In 1995, 1996 and 1997, Gold Kist received $2.1 million in rental
income from Golden Peanut Company under an operating lease agreement for
peanut shelling and procurement facilities. Gold Kist received
procurement commissions, royalties and administrative service fees of
$3.9 million, $3.1 million and $4.2 million in 1995, 1996 and 1997,
respectively. In addition, Gold Kist purchased $3.1 million, $2.6
million and $2.3 million of inventory from Golden Peanut Company in
1995, 1996 and 1997, respectively.
(10) MAJOR BUSINESS SEGMENTS
Gold Kist is an agricultural cooperative, with operations located primarily
in the southeastern United States, engaged in marketing products and
purchasing supplies and equipment for its patrons. Gold Kist also operates
non-cooperative businesses engaged in broiler operations, farm and home
retailing, and crop and equipment financing. Gold Kist's operations are
classified into industry segments as follows:
The Poultry segment includes cooperative integrated broiler production,
processing and marketing operations, as well as subsidiary broiler operations.
This segment has decentralized broiler and cornish game hen facilities.
F-17
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
The Agri-Services segment purchases or manufactures feed, seed, fertilizers,
agricultural chemicals, animal health products, and other farm supply and
equipment items for sale through Gold Kist retail outlets and
independent dealers. The segment conducts cotton procurement, ginning, storage
and marketing operations, as well as other crop procurement services. This
segment also operates pork production facilities.
The following table presents certain financial information as to industry
segments:
<TABLE>
<CAPTION>
AGRI- INTERSEGMENT
POULTRY SERVICES ELIMINATIONS CONSOLIDATED
---------- -------- ------------- ------------
<S> <C> <C> <C> <C>
YEAR ENDED JULY 1, 1995
Net sales volume.............. $1,232,907 455,630 -- 1,688,537(a)
========== ======= ======= =========
Net margins from operations... $ 37,503 5,012 -- 42,515
========== ======= =======
General corporate expenses.... (7,451)
Other deductions, net......... (9,478)
---------
Margins before income taxes
and minority interest........ $ 25,586
=========
Depreciation and amortization
expense...................... $ 31,435 5,698 952(b) 38,085
========== ======= ======= =========
Capital expenditures.......... $ 43,309 18,073 380(b) 61,762
========== ======= ======= =========
Identifiable assets at July 1,
1995......................... $ 408,232 269,019 144,386(b) 821,637
========== ======= ======= =========
YEAR ENDED JUNE 29, 1996
Net sales volume.............. $1,386,490 569,079 -- 1,955,569(a)
========== ======= ======= =========
Net margins from operations... $ 69,951 10,317 -- 80,268
========== ======= =======
General corporate expenses.... (11,811)
Other deductions, net......... (6,338)
---------
Margins before income taxes
and minority interest........ $ 62,119
=========
Depreciation and amortization
expense...................... $ 32,180 7,247 636(b) 40,063
========== ======= ======= =========
Capital expenditures.......... $ 54,124 19,357 781(b) 74,262
========== ======= ======= =========
Identifiable assets at June
29, 1996..................... $ 487,869 311,680 176,411(b) 975,960
========== ======= ======= =========
YEAR ENDED JUNE 28, 1997
Net sales volume.............. $1,629,705 659,339 -- 2,289,044(a)
========== ======= ======= =========
Net margins from operations... $ 17,421 10,198 -- 27,619
========== ======= =======
General corporate expenses.... (11,817)
Other deductions, net......... (5,515)
---------
Margins before income taxes
and minority interest........ $ 10,287
=========
Depreciation and amortization
expense...................... $ 30,983 7,893 546(b) 39,422
========== ======= ======= =========
Capital expenditures.......... $ 65,687 10,816 419(b) 76,922
========== ======= ======= =========
Identifiable assets at June
28, 1997..................... $ 573,731 346,037 200,068(b) 1,119,836
========== ======= ======= =========
</TABLE>
(a) Net sales volume includes export sales amounting to $70,113, $100,089 and
$96,427 in 1995, 1996 and 1997, respectively, which have no significant
geographical concentration.
(b) Amounts relate to unallocated corporate assets.
F-18
<PAGE>
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
(11) SUBSEQUENT EVENT
In January 1997, the Gold Kist Board of Directors adopted a resolution
authorizing the Company's officers to negotiate with Golden Poultry Company,
Inc. to pursue a transaction in which Gold Kist would acquire all of the
shares of Golden Poultry Company's common stock not currently owned by Gold
Kist. Gold Kist owned 10,901,802 shares or 75% of Golden Poultry's 14,628,435
outstanding shares. The negotiations were completed and an Agreement and Plan
of Merger executed in April 1997 (the "Merger Agreement"), among Gold Kist,
Golden Poultry Company, Inc., Agri International, Inc. and Golden Poultry
Acquisition Corp.
Pursuant to the Merger Agreement, Gold Kist agreed to pay $14.25 per share
in cash for each outstanding share of common stock not already beneficially
owned by Gold Kist. The Merger Agreement was approved by the Boards of
Directors of the Association and Golden Poultry Company, Inc. and was approved
by a majority of the owners of the Golden Poultry common stock not owned by
Gold Kist at a Special Meeting of Shareholders on September 5, 1997. The
Merger became effective on September 8, 1997. The cost to acquire the
outstanding shares and the estimated fees and expenses incurred or to be
incurred in connection with the merger are approximately $55.1 million. The
acquisition of the minority interest will be accounted for using the purchase
method of accounting.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CON-
TAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES COV-
ERED BY THIS PROSPECTUS; NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICI-
TATION OF AN OFFER TO BUY, ANY OF THE SECURITIES COVERED BY THIS PROSPECTUS BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Gold Kist Inc............................................................ 6
Use of Proceeds.......................................................... 6
Selected Consolidated Financial Data..................................... 7
Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition...................................... 8
Business................................................................. 13
Description of Subordinated Capital Certificates of Interest............. 16
Description of Subordinated Loan Certificates and Subordinated Large De-
nomination Loan Certificates............................................ 21
Experts.................................................................. 25
Qualified Independent Underwriter........................................ 25
Legal Opinion............................................................ 26
Independent Auditors' Reports............................................ F-1
Consolidated Financial Statements........................................ F-3
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF GOLD KIST APPEARS HERE]
GOLD KIST
INC.
FIFTEEN YEAR SUBORDINATED
CAPITAL CERTIFICATES OF INTEREST
(SERIES D)
TEN YEAR SUBORDINATED
CAPITAL CERTIFICATES OF INTEREST
(SERIES D)
SEVEN YEAR SUBORDINATED
CAPITAL CERTIFICATES OF INTEREST
(SERIES A)
FIVE YEAR SUBORDINATED
CAPITAL CERTIFICATES OF INTEREST
(SERIES C)
THREE YEAR SUBORDINATED
CAPITAL CERTIFICATES OF INTEREST
(SERIES A)
TWO YEAR SUBORDINATED
CAPITAL CERTIFICATES OF INTEREST
(SERIES A)
ONE YEAR SUBORDINATED
LOAN CERTIFICATES
(SERIES C)
ONE YEAR SUBORDINATED
LARGE DENOMINATION LOAN CERTIFICATES
(SERIES A)
SIX MONTH SUBORDINATED
LARGE DENOMINATION LOAN CERTIFICATES
(SERIES A)
----------------
PROSPECTUS
----------------
OCTOBER 27, 1997
----------------
AGVESTMENTS, INC.
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