UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 2-62681
GOLD KIST INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-0255560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
244 Perimeter Center Parkway, N.E., Atlanta, Georgia 30346
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (770) 393-
5000
N/A
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
GOLD KIST INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 27, 1997 and June 28, 1997 1
Consolidated Statements of Operations -
Three Months Ended September 27, 1997
and September 28, 1996 . . . . . . . 2
Consolidated Statements of Cash Flows -
Three Months Ended September 27, 1997
and September 28, 1996 . . . . . . . 3
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 4 - 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition . . . . . . . . . . . . . . 6 - 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . 9
<TABLE>
Page 1
Item 1. Financial GOLD KIST INC.
Statements CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited)
<CAPTION>
September 27, June 28,
1997 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,863 17,921
Receivables, principally trade,
including notes receivable of $82,993
at September 27, 1997 and $73,157 at
June 28, 1997, less allowance for
doubtful accounts of $8,753 at
September 27, 1997 and $8,836 at
June 28, 1997 232,931 250,359
Inventories (note 3) 262,856 295,977
Commodities margin deposits 18,749 56,570
Other current assets 48,852 23,692
Total current assets 584,251 644,519
Investments 133,239 132,683
Property, plant and equipment, net 304,403 295,174
Other assets (note 5) 73,074 47,460
$1,094,967 1,119,836
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt:
Short-term borrowings $ 192,800 178,900
Subordinated loan certificates 35,784 36,466
Current maturities of long-term debt 16,074 15,188
244,658 230,554
Accounts payable 124,373 149,347
Accrued compensation and related expenses 31,582 30,761
Interest left on deposit 10,909 11,396
Other current liabilities 15,821 13,192
Total current liabilities 427,343 435,250
Long-term debt, excluding current maturities 295,751 256,039
Accrued postretirement benefit costs 44,533 43,683
Other liabilities 12,685 10,331
Total liabilities 780,312 745,303
Minority interest - 28,458
Patrons' and other equity:
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 32 at
September 27, 1997 and June 28, 1997 32 32
Patronage reserves 202,368 203,988
Unrealized gain on marketable equity
security (net of deferred income taxes
of $19,086 at September 27, 1997 and
$17,634 at June 28, 1997) 35,446 32,749
Retained earnings 76,809 109,306
Total patrons' and other equity 314,655 346,075
$1,094,967 1,119,836
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
Page 2
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
Sept. 27, Sept. 28,
1997 1996
<S> <C> <C>
Net sales volume $556,859 519,291
Cost of sales 568,263 479,163
Gross margins (loss) (11,404) 40,128
Distribution, administrative and general
expenses 39,999 38,352
Net operating margins (loss) (51,403) 1,776
Other income (deductions):
Interest income 3,430 3,193
Interest expense (8,525) (6,385)
Equity in earnings (loss) of partnership
(note 4) 845 (855)
Miscellaneous, net 4,430 645
Total other income (deductions) 180 (3,402)
Loss before income taxes and
minority interest (51,223) (1,626)
Income tax benefit (18,265) (693)
Loss before minority interest (32,958) (933)
Minority interest (note 5) - (890)
Net loss $(32,958) (1,823)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
Page 3
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
Sept. 27, Sept. 28,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(32,958) (1,823)
Non-cash items included in net loss:
Depreciation and amortization 10,072 9,975
Equity in (earnings)loss of partnership (845) 855
Patronage refunds from other cooperatives (440) (394)
Deferred income tax benefit (1,697) (449)
Other (297) 3,568
Changes in operating assets and liabilities:
Receivables 17,428 27,278
Inventories 33,121 1,496
Commodities margin deposits 37,821 3,012
Other current assets (9,263) (436)
Accounts payable and accrued expenses (35,556) (16,593)
Interest left on deposit (487) 177
Net cash provided by operating activities 16,899 26,666
Cash flows from investing activities:
Acquisition of subsidiary minority interest (53,104) -
Acquisitions of property, plant and equipment (19,791) (22,208)
Other, net 6,281 (2,013)
Net cash used in investing activities (66,614) (24,221)
Cash flows from financing activities:
Short-term borrowings, net 13,218 1,349
Proceeds from long-term debt 81,509 6,822
Principal payments of long-term debt (40,911) (12,673)
Patronage refunds and other equity paid in cash (1,159) (965)
Net cash provided by (used in) financing
activities 52,657 (5,467)
Net change in cash and cash equivalents 2,942 (3,022)
Cash and cash equivalents at beginning of period 17,921 20,562
Cash and cash equivalents at end of period $ 20,863 17,540
Supplemental disclosure of cash flow data:
Cash paid during the periods for:
Interest (net of amounts capitalized) $ 8,955 6,298
Income taxes $ - 2,773
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
Page 4
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
1. The accompanying unaudited consolidated financial statements
reflect the accounts of Gold Kist Inc. and its subsidiaries
("Gold Kist" or the "Association"). These consolidated
financial statements should be read in conjunction with
Management's Discussion and Analysis of Consolidated Results
of Operations and Financial Condition and the Notes to
Consolidated Financial Statements on pages 13 through 17 and
pages 22 through 39, respectively, of Gold Kist's Annual
Report in the previously filed Form 10-K for the year ended
June 28, 1997.
2. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to
present fairly the financial position, the results of
operations, and the cash flows. All significant
intercompany balances and transactions have been eliminated
in consolidation. Results of operations for interim periods
are not necessarily indicative of results for the entire
year.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
Sept. 27, 1997 June 28, 1997
<S> <C> <C>
Merchandise for sale $ 79,151 86,810
Live poultry and hogs 101,639 101,579
Marketable products - poultry 35,593 35,814
Marketable products - cotton 4,261 27,442
Raw materials, supplies and other 42,212 44,332
$262,856 295,977
</TABLE>
4. Gold Kist has a 33% interest in Golden Peanut Company, a
Georgia general partnership. Gold Kist's investment in the
partnership was $19.2 million at September 27, 1997 and
$24.1 million at June 28, 1997. In July 1997, the
Association received a distribution of $5.8 million from the
partnership.
Summarized operating statement information of Golden Peanut
Company is shown below:
<TABLE>
<CAPTION>
Three Months Ended
Sept. 30, Sept. 30,
1997 1996
<S> <C> <C>
Net sales and other operating
income $81,000 86,189
Costs and expenses 78,466 88,755
Net earnings (loss) $ 2,534 (2,566)
</TABLE>
Page 5
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Amounts in Thousands)
(Unaudited)
5. 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 in connection with the merger were approximately
$55.1 million. The acquisition of the minority interest was
accounted for using the purchase method of accounting. The
cost in excess over the net assets acquired was $24.7
million.
6. In September 1997, Gold Kist entered into a notional amount
five-year $25 million interest rate swap agreement with a
commercial bank. Under the agreement, the Company will pay
interest at a fixed rate of 5.90% and receive interest at
the three-month London Interbank Offered Rate (LIBOR). In
September 1999, the commercial bank has a onetime option to
convert the fixed rate payment to LIBOR less .23%. In
October 1997, Gold Kist entered into three notional amount
five-year $25 million interest rate swap agreements with two
commercial banks. Under the agreements, the Company will
pay interest at a weighted average fixed rate of 5.98% and
receive interest at the three-month LIBOR. In October 2000,
one of the commercial banks has the onetime option to cancel
two of the $25 million interest rate swap agreements.
Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Sales Volume
The Association's net sales volume of $556.9 million for the
three month period ended September 27, 1997 increased 7.2% as
compared to the same period a year ago. The Poultry segment's net
sales volume for the quarter ended September 27, 1997 increased
approximately 3.0% as compared to the same quarter last fiscal
year as a result of the increase in pounds of broiler products
marketed. Poultry average selling prices for the three months
ended September 27, 1997 of $144.6 million were comparable to the
same period a year ago.
Net sales volume in the Agri-Services segment of $144.6 million
for the three months ended September 27, 1997 increased
approximately 21.6% as compared to the same period a year ago.
The Agri-Services segment's net sales increase reflected growth
in the procurement and marketing of cotton and increased retail
sales of agricultural inputs. The increase in retail sales for
the quarter ended September 27, 1997 reflected the weather
delayed 1997 spring planting activity.
Net Operating Margins
The Association had a net operating loss of $51.4 million for the
quarter ended September 27, 1997 as compared to net operating
margins of $1.8 million for the quarter ended September 28, 1996.
The net operating loss for the current quarter was primarily the
result of high feed ingredient costs associated with the
Company's forward purchasing and commodity trading activities.
Poultry, pork and commercial animal feed product costs for the
quarter ended September 28, 1997 reflected losses realized on
futures and options transactions totaling $50.2 million.
The Poultry segment had a net operating loss of $38.4 million for
the three months ended September 27, 1997 as compared to net
operating margins of $13.0 million in the same period last fiscal
year. Feed ingredient costs for the three months ended September
27, 1997 increased 19.2% as compared to the same three month
period a year ago primarily as a result of the factors discussed
above.
The Agri-Services segment had a net operating loss of
approximately $9.2 million for the quarter ended September 27,
1997, which was comparable to the net operating loss for the same
quarter a year ago. For the three months ended September 27,
1997, margin improvements in Retail store operations related to
the increase in sales volume were offset by commercial animal
feed and pork production losses. These losses were associated
with increased feed ingredient costs discussed above.
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
Page 7
Company's forward purchasing and commodity trading activities.
Deferred realized futures losses of $3.4 million at September 27,
1997 and realized losses of $27.4 million on futures positions
closed in October 1997 will be reflected in the 1998 financial
statements as an adjustment to product cost.
Other Income (Deductions)
Interest income was $3.4 million for the quarter ended September
27, 1997 as compared to $3.2 million for the same period a year
ago. Interest expense for the three months ended September 27,
1997 increased $2.1 million to $8.5 million as a result of
increased average borrowings necessary to support additional net
sales volume and to fund net losses incurred. Also, interest
expense for the quarter ended September 27, 1997 reflected
additional borrowings to fund the purchase of Golden Poultry
common stock (see note 5).
Equity in earnings of partnership of approximately $845,000
represented the Association's prorata share of Golden Peanut
Company's earnings for the quarter ended September 27, 1997.
This compared to a $855,000 share of the partnership's loss for
the same quarter a year ago.
Miscellaneous, net was $4.4 million for the quarter ended
September 27, 1997 as compared to $645,000 for the quarter ended
September 28, 1996. Miscellaneous, net for the three months
ended September 27, 1997 includes income of $2.0 million related
to a poultry grower agreement. Miscellaneous, net for the three
months ended September 27, 1997 includes patronage refunds in
which the Association is a member and other dividends of
$328,000. For the quarter ended September 27, 1997,
miscellaneous, net reflected a $49,000 gain related to its
ownership interest in a pecan processing and marketing company.
For the quarter ended September 28, 1996, the Association
recorded a $1.1 million loss related to this investment. Rental
income of $516,000 was included in miscellaneous, net for the
quarter ended September 27, 1997.
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 $50 million term
loan. At September 27, 1997, the Association had unused loan
commitments of $45.0 million and additional unused uncommitted
facilities to provide loans and letters of credit from banks
aggregating $100.5 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. The Association plans to negotiate a
$500 million bank credit agreement with its existing lenders and
others to replace its existing committed credit facilities.
Page 8
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 September 27, 1997, the
Association's current ratio, senior funded debt to total
capitalization and total funded debt to capitalization,
determined under the loan agreements, were 1.37:1, 50% and 39%,
respectively. At September 27, 1997, the Association was in
compliance with the covenants or had received the necessary
waivers.
Working capital and the current ratio were $156.9 million and
1.37 to 1, respectively, at September 27, 1997, as compared to
$209.3 million and 1.48 to 1, respectively, at June 28, 1997.
Patrons equity at September 27, 1997 was $314.7 million as
compared to $346.1 million at June 28, 1997. For the quarter
ended September 27, 1997, the impact of the $33.0 million net
loss on patrons' equity was partially offset by the increase in
the unrealized gain on marketable equity security. Cash and
cash equivalents were approximately $20.9 million at September 27,
1997. Net cash provided by operations reflected a $50.5 million
decrease in inventories and receivables during the current quarter.
The declines reflect the seasonal nature of the Agri-Services
segment's 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 in connection with the
merger were approximately $55.1 million. Other uses of cash
included expenditures for the acquisition of property, plant and
equipment, repayments of long-term debt, and patronage refunds
and other equity payments. These items were substantially funded
by net cash provided by operations of $16.9 million and
borrowings of $94.7 million.
The Association plans capital expenditures of approximately $84.0
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 additional long-term borrowings, as needed. In
1998, management expects cash expenditures to approximate $5.0
million for equity distributions. The Association believes cash
on hand and cash equivalents at September 27, 1997 and cash
expected to be provided from operations, in addition to
borrowings available under existing and anticipated 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.
Page 9
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
Designation of Exhibit
in this Report Description of Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K. Gold Kist has not filed any
reports on Form 8-K during the three months ended
September 27, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GOLD KIST INC.
(Registrant)
Date November 11, 1997
Gaylord O. Coan
Chief Executive Officer
(Principal Executive Officer)
Date November 11, 1997
Peter J. Gibbons
Vice President, Finance
(Chief Financial Officer)
Page 9
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
Designation of Exhibit
in this Report Description of Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K. Gold Kist has not filed any
reports on Form 8-K during the three months ended
September 27, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GOLD KIST INC.
(Registrant)
Date November 11, 1997 /s/ Gaylord O. Coan
Gaylord O. Coan
Chief Executive Officer
(Principal Executive Officer)
Date November 11, 1997 /s/ Peter J. Gibbons
Peter J. Gibbons
Vice President, Finance
(Chief Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> SEP-27-1997
<CASH> 20,863
<SECURITIES> 0
<RECEIVABLES> 241,684
<ALLOWANCES> 8,753
<INVENTORY> 262,856
<CURRENT-ASSETS> 48,852
<PP&E> 689,000
<DEPRECIATION> 384,597
<TOTAL-ASSETS> 1,094,967
<CURRENT-LIABILITIES> 427,343
<BONDS> 295,751
0
0
<COMMON> 32
<OTHER-SE> 314,623
<TOTAL-LIABILITY-AND-EQUITY> 1,094,967
<SALES> 556,859
<TOTAL-REVENUES> 565,564
<CGS> 568,263
<TOTAL-COSTS> 568,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 607
<INTEREST-EXPENSE> 8,525
<INCOME-PRETAX> (51,223)
<INCOME-TAX> (18,265)
<INCOME-CONTINUING> (32,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,958)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</TABLE>
