UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 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 -
December 27, 1997 and June 28, 1997 . . . 1
Consolidated Statements of Operations -
Three Months and Six Months Ended
December 27, 1997 and December 28, 1996 . 2
Consolidated Statements of Cash Flows -
Six Months Ended December 27, 1997
and December 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 - 9
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K . . . . . 10
<TABLE>
Page 1
Item 1. Financial GOLD KIST INC.
Statements CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited)
<CAPTION>
December 27, June 28,
1997 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,128 17,921
Receivables, principally trade,
including notes receivable of $54,895
at December 27, 1997 and $73,157 at
June 28, 1997, less allowance for
doubtful accounts of $11,059 at
December 27, 1997 and $8,836 at
June 28, 1997 207,912 250,359
Inventories (note 3) 377,822 295,977
Commodities margin deposits 13,491 56,570
Other current assets 65,226 23,692
Total current assets 681,579 644,519
Investments 124,398 132,683
Property, plant and equipment, net 307,194 295,174
Other assets (note 5) 84,957 47,460
$1,198,128 1,119,836
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt:
Short-term borrowings $ 144,000 178,900
Subordinated loan certificates 36,417 36,466
Current maturities of long-term debt 16,556 15,188
196,973 230,554
Accounts payable 136,327 149,347
Accrued compensation and related expenses 34,682 30,761
Interest left on deposit 11,308 11,396
Other current liabilities 16,881 13,192
Total current liabilities 396,171 435,250
Long-term debt, excluding current maturities 475,836 256,039
Accrued postretirement benefit costs 46,243 43,683
Other liabilities 10,197 10,331
Total liabilities 928,447 745,303
Minority interest - 28,458
Patrons' and other equity:
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 32 at
December 27, 1997 and June 28, 1997 32 32
Patronage reserves 201,736 203,988
Unrealized gain on marketable equity
security (net of deferred income taxes
of $15,975 at December 27, 1997 and
$17,634 at June 28, 1997) 29,667 32,749
Retained earnings 38,246 109,306
Total patrons' and other equity 269,681 346,075
$1,198,128 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 Six Months Ended
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales volume $535,330 537,832 1,092,189 1,057,123
Cost of sales 544,436 488,058 1,112,699 967,221
Gross margins (loss) (9,106) 49,774 (20,510) 89,902
Distribution, administrative
and general expenses 45,916 45,408 85,915 83,760
Net operating margins (loss) (55,022) 4,366 (106,425) 6,142
Other income (deductions):
Interest income 3,191 2,694 6,621 5,887
Interest expense (10,131) (6,110) (18,656) (12,495)
Equity in earnings of
partnership (note 4) 387 1,803 1,232 948
Miscellaneous, net 1,698 826 6,128 1,471
Total other income
(deductions) (4,855) (787) (4,675) (4,189)
Margins (loss) before income
taxes and minority interest (59,877) 3,579 (111,100) 1,953
Income tax expense(benefit) (21,137) 967 (39,402) 274
Margins(loss) before
minority interest (38,740) 2,612 (71,698) 1,679
Minority interest - (862) - (1,752)
Net margins (loss) $(38,740) 1,750 (71,698) (73)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
Page 3
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
Dec. 27, Dec. 28,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(71,698) (73)
Non-cash items included in net loss:
Depreciation and amortization 21,190 19,712
Equity in (earnings)loss of partnership (1,232) (948)
Patronage refunds from other cooperatives (440) (394)
Deferred income tax benefit (1,534) (1,578)
Other (234) 6,121
Changes in operating assets and liabilities:
Receivables 42,447 63,675
Inventories (81,845) (64,423)
Commodities margin deposits 43,079 (14,781)
Other current assets (51,892) 26,776
Accounts payable and accrued expenses (5,410) (2,892)
Interest left on deposit (88) 870
Net cash provided by (used in)
operating activities (107,657) 32,065
Cash flows from investing activities:
Acquisition of subsidiary minority interest (53,104) -
Acquisitions of property, plant and equipment (33,510) (39,112)
Other, net 8,877 (1,508)
Net cash used in investing activities (77,737) (40,620)
Cash flows from financing activities:
Short-term borrowings, net (34,949) 15,079
Proceeds from long-term debt 263,115 31,093
Principal payments of long-term debt (41,950) (15,374)
Patronage refunds and other equity paid in cash (1,615) (23,537)
Net cash provided by financing activities 184,601 7,261
Net change in cash and cash equivalents (793) (1,294)
Cash and cash equivalents at beginning of period 17,921 20,562
Cash and cash equivalents at end of period $ 17,128 19,268
Supplemental disclosure of cash flow data:
Cash paid during the periods for:
Interest (net of amounts capitalized) $ 17,960 11,282
Income taxes $ - 7,049
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>
Dec. 27, 1997 June 28, 1997
<S> <C> <C>
Merchandise for sale $ 82,940 86,810
Live poultry and hogs 88,819 101,579
Marketable products - poultry 39,055 35,814
Marketable products - cotton 124,263 27,442
Raw materials, supplies and other 42,745 44,332
$377,822 295,977
</TABLE>
4. Gold Kist has a 33% interest in Golden Peanut Company, a
Georgia general partnership. Gold Kist's investment in the
partnership was $19.8 million at December 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 Six Months Ended
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales and other
operating income $ 88,655 117,117 169,655 203,306
Costs and expenses 87,489 111,708 165,955 200,463
Net earnings $ 1,166 5,409 3,700 2,843
</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 Association'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, which is being amortized over 20 years.
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 $535.3 million for the
three month period ended December 27, 1997 decreased .5% as
compared to the same period a year ago. Net sales volume for the
six months ended December 27, 1997 increased 3.3% or $35.1
million as compared to the six months ended December 28, 1996.
The Poultry segment's net sales volume of approximately $400.0
million for the quarter ended December 27, 1997 declined
approximately 2.1% as compared to the same quarter last fiscal
year as a result of lower market prices for poultry products.
Poultry average selling prices for the three months ended
December 27, 1997 declined approximately 8.5% as compared to the
same period a year ago. The decline in broiler market prices was
attributable to excess industry supply, an increase in pork
supplies and instability in the Southeast Asia markets. The
impact of the decline in market prices was partially offset by a
6% increase in broiler pounds sold. The Poultry segment's net
sales volume for the six months ended December 27, 1997 was
$811.2 million as compared to $807.9 million for the comparable
period last year.
Net sales volume in the Agri-Services segment of $136.4 million
for the three months ended December 27, 1997 increased
approximately 10.4% as compared to the same period a year ago.
Net sales volume of $281.0 million for the six months ended
December 27, 1997 increased 15.9% as compared to the same period
last fiscal year. The Agri-Services segment's net sales increase
for the quarter ended December 27, 1997 reflected growth in the
cotton procurement and marketing operations. However, Retail
sales of agricultural inputs declined during the quarter ended
December 27, 1997 as a result of wet weather conditions in the
Southeastern United States.
Net Operating Margins
The Association had a net operating loss of $55.0 million for the
quarter ended December 27, 1997 as compared to net operating
margins of $4.4 million for the quarter ended December 28, 1996.
For the six months ended December 27, 1997, the Association's net
operating loss was $106.4 million as compared to net margins of
$6.1 million during the six months ended December 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 and
lower market prices for poultry products. Poultry, pork and
commercial animal feed product costs for the three and six months
ended December 27, 1997 reflected losses realized on futures and
options transactions totaling $34.0 million and $84.2 million,
respectively.
The Poultry segment had a net operating loss of $39.6 million for
the three months ended December 27, 1997 as compared to net
operating margins of $13.7 million in the same period last fiscal
year. The 8.5% decline in average selling prices contributed
significantly to the net operating loss. Feed ingredient costs
for the three months ended December 27, 1997 increased 6.4% as
compared to the same three month period a year ago primarily as a
Page 7
result of the factors discussed above. For the six months ended
December 27, 1997, the Poultry segment reported a $77.9 million
net operating loss as compared to net operating margins of $26.7
million a year ago.
The Agri-Services segment had a net operating loss of
approximately $12.6 million for the quarter ended December 27,
1997, as compared to a $5.6 million net operating loss for the
same quarter a year ago. The increase in the Agri-Services
segment's net operating loss for the quarter ended December 27,
1997 was primarily attributable to losses in cotton ginning and
marketing activities. In addition, production losses associated
with increased feed ingredient costs discussed above contributed
to the overall increase in the Agri-Services segment's net
operating loss. The Agri-Services segment's net loss for the six
months ended December 27, 1997 was $21.9 million as compared to
$14.6 million in the comparable period last year.
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 commodity trading activities.
Other Income (Deductions)
Interest income was $3.2 million for the quarter ended December
27, 1997 as compared to $2.7 million for the same period a year
ago. Interest expense for the three months ended December 27,
1997 increased $4.0 million to $10.1 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 December 27, 1997 reflected
borrowings to fund the acquisition of Golden Poultry common stock
(see note 5).
Equity in earnings of partnership of approximately $387,000
represented the Association's pro rata share of Golden Peanut
Company's earnings for the quarter ended December 27, 1997 as
compared to $1.8 million for the same quarter a year ago.
Miscellaneous, net was $1.7 million for the quarter ended
December 27, 1997 as compared to $826,000 for the quarter ended
December 28, 1996. Miscellaneous, net for the three months ended
December 27, 1997 includes patronage refunds in which the
Association is a member and other dividends of $309,000.
Miscellaneous, net includes the Association's $158,000 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. For the quarter ended
December 27, 1997, miscellaneous, net reflected a $153,000 loss
from its ownership interest in a pecan processing and marketing
company. For the quarter ended December 28, 1996, the
Association recorded earnings of $111,000 related to this
investment. Rental income of $512,000 was included in
miscellaneous, net for the quarter ended December 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, a
committed credit facility with a group of banks and uncommitted
letters and lines of credit. During the quarter ended September
Page 8
27, 1997, the Association established an $125 million note
agreement with an insurance company and a $50 million term
loan. In December 1997, the Association established a $440
million unsecured committed credit facility with eight commercial
banks that includes a five-year $132 million revolving credit
commitment, a $132 million 364-day line of credit commitment and
a six-year $176 million term loan. Due to higher-than-expected
net losses sustained in the six months ended December 27, 1997,
the Association was in violation of certain financial covenants
associated with these facilities and received waivers of these
covenants in connection with a restructuring of the credit
facilities. The Association anticipates that the restructured
credit facilities will result in increased borrowing costs and
will be secured with substantially all of the Association's
assets. The restructured revolving credit and term facilities
are expected to have three-year terms and to limit the
availability of short-term and long-term financing and capital
expenditures. The Association will likely be required to apply
excess cash flow to the three-year term loan.
Working capital and the current ratio were $285.4 million and
1.72 to 1, respectively, at December 27, 1997, as compared to
$209.3 million and 1.48 to 1, respectively, at June 28, 1997.
The terms of existing facilities 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%,
total funded debt to total capitalization not to exceed 50% and a
minimum fixed charge coverage ratio of 1.50:1. At December 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 1.72:1, 55% and 65%,
respectively. The fixed charge coverage ratio for the six months
ended December 27, 1997 was .21:1.
At December 27, 1997, the Association had unused loan commitments
of $45 million and additional unused uncommitted facilities to
provide loans and letters of credit from banks aggregating $70.5
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.
Patrons equity at December 27, 1997 was $269.7 million as
compared to $346.1 million at June 28, 1997. The decline in
patrons' equity was due to the $71.7 million net loss and to a
lesser extent, a decrease in the unrealized gain on marketable
equity security. In addition to the net operating loss for the
six months ended December 27, 1997, net cash used in operating
activities reflected the increase in cotton inventories
associated with the 1997 harvest. These factors were partially
offset by the seasonal decrease in Agri-Services segment
receivables.
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 of $33.5 million, repayments of long-term debt, and
other equity payments. These items were substantially funded by
borrowings of $228.2 million.
Page 9
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 additional long-
term borrowings. In 1998, management expects cash expenditures
to approximate $4.0 million for equity distributions. The
Association believes 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 operational
objectives during 1998.
Page 10
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
December 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 February 10, 1998
Gaylord O. Coan
Chief Executive Officer
(Principal Executive Officer)
Date February 10, 1998
Peter J. Gibbons
Vice President, Finance
(Chief Financial Officer)
Page 10
<PAGE>
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
December 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 February 10, 1998 /s/ Gaylord O. Coan
Gaylord O. Coan
Chief Executive Officer
(Principal Executive Officer)
Date February 10, 1998 /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> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> DEC-27-1997
<CASH> 17,128
<SECURITIES> 0
<RECEIVABLES> 218,971
<ALLOWANCES> 11,059
<INVENTORY> 377,822
<CURRENT-ASSETS> 681,579
<PP&E> 700,113
<DEPRECIATION> 392,919
<TOTAL-ASSETS> 1,198,128
<CURRENT-LIABILITIES> 396,171
<BONDS> 475,836
0
0
<COMMON> 32
<OTHER-SE> 269,649
<TOTAL-LIABILITY-AND-EQUITY> 1,198,128
<SALES> 1,092,189
<TOTAL-REVENUES> 1,106,170
<CGS> 1,112,699
<TOTAL-COSTS> 1,112,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,332
<INTEREST-EXPENSE> 18,656
<INCOME-PRETAX> (111,100)
<INCOME-TAX> (39,402)
<INCOME-CONTINUING> (71,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,698)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
