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 30, 2000
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 30, 2000 and July 1, 2000 1
Consolidated Statements of Operations
Three Months Ended September 30, 2000
and September 25, 1999 2
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 2000
and September 25, 1999 3
Notes to Consolidated Financial
Statements 4 - 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 7 - 10
Item 3. Quantitative and Qualitative Disclosure
About Market Risks 10
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K 11
<TABLE>
Page 1
Item 1. Financial GOLD KIST INC.
Statements CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited)
<CAPTION>
Sept. 30, July 1,
2000 2000
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,790 8,671
Receivables, principally trade,
less allowance for doubtful
accounts of $5,957 at
September 30, 2000 and $4,041
at July 1, 2000 109,808 106,698
Inventories (note 3) 179,700 183,061
Deferred income taxes 16,360 16,360
Other current assets 20,731 18,924
Total current assets 338,389 333,714
Investments (notes 4 and 5) 166,442 167,988
Property, plant and equipment, net 237,314 239,188
Other assets 142,549 140,400
$884,694 881,290
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt:
Short-term borrowings (note 8) $120,910 131,910
Subordinated loan certificates - 40
Current maturities of long-term debt 34,857 34,352
155,767 166,302
Accounts payable 69,204 72,325
Accrued compensation and related expenses 24,215 24,052
Interest left on deposit 11,657 11,528
Other current liabilities 39,058 35,756
Total current liabilities 299,901 309,963
Long-term debt, less current maturities (note 8) 267,573 251,714
Accrued postretirement benefit costs 60,053 58,407
Other liabilities 21,909 21,716
Total liabilities 649,436 641,800
Patrons' and other equity:
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 30 at
September 30, 2000 and July 1, 2000 30 30
Patronage reserves 196,184 197,520
Accumulated other comprehensive income -
unrealized gain on marketable equity
security (notes 4 and 5) 7,034 8,747
Retained earnings 32,010 33,193
Total patrons' and other equity 235,258 239,490
$884,694 881,290
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. 30, Sept. 25,
2000 1999
<S> <C> <C>
Net sales volume $430,283 430,815
Cost of sales 405,524 397,042
Gross margins 24,759 33,773
Distribution, administrative and
general expenses 20,761 19,716
Net operating margins 3,998 14,057
Other income (deductions):
Interest and dividend income 2,682 464
Interest expense (10,543) (6,585)
Equity in earnings (loss) of
affiliate (note 4) 256 (1,054)
Miscellaneous, net 1,016 1,371
Total other deductions (6,589) (5,804)
Margins (loss) before income taxes (2,591) 8,253
Income tax benefit (expense) 1,036 (2,818)
Net margins (loss) $(1,555) 5,435
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. 30, Sept. 25,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net margins (loss) $ (1,555) 5,435
Non-cash items included in net margins (loss):
Depreciation and amortization 10,537 10,561
Equity in (earnings) loss of affiliate (256) 1,054
Deferred income tax expense (benefit) (1,036) 595
Other 1,146 1,802
Changes in operating assets and liabilities:
Receivables (3,110) (3,703)
Inventories 3,361 (1,914)
Other current assets (2,178) 4,500
Accounts payable, accrued and other expenses 344 (13,015)
Net cash provided by operating activities 7,253 5,315
Cash flows from investing activities:
Acquisitions of investments (140) -
Acquisitions of property, plant and equipment (7,962) (4,342)
Other (392) 56
Net cash used in investing activities of
continuing operations (8,494) (4,286)
Net cash used in investing activities of
discontinued operations - repurchase of
accounts and crop notes receivable - (25,730)
Net cash used in investing activities (8,494) (30,016)
Cash flows from financing activities:
Short-term borrowings (repayments), net (11,040) 1,785
Proceeds from long-term debt 20,000 20,000
Principal repayments of long-term debt (3,636) (3,372)
Patronage refunds and other equity paid in cash (964) (1,077)
Net cash provided by financing activities 4,360 17,336
Net change in cash and cash equivalents 3,119 (7,365)
Cash and cash equivalents at beginning of period 8,671 20,810
Cash and cash equivalents at end of period $ 11,790 13,445
Supplemental disclosure of cash flow data:
Cash paid (received) during the periods for:
Interest (net of amounts capitalized) $ 10,118 5,620
Income taxes, net $ (2,329) 155
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 10 through 16 and pages 24 through
35, respectively, of Gold Kist's Annual Report in the
previously filed Form 10-K for the year ended July 1,
2000.
The Association employs a 52/53 week fiscal year.
Fiscal 2001 will be a 52 week, whereas fiscal 2000 was
a 53 week year. The quarters ended September 30, 2000
and September 25, 1999 each had 13 weeks.
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>
September 30, 2000 July 1, 2000
<S> <C> <C>
Live poultry and hogs $ 89,835 97,623
Marketable products 58,344 53,367
Raw materials and supplies 31,521 32,071
$179,700 183,061
</TABLE>
4. (a) At September 30, 2000, the Association's marketable
equity security was carried at its fair value of $31.6
million, which includes an unrealized gain of $10.8 million.
At September 30, 2000, the unrealized gain, net of deferred
taxes of $3.8 million, has been reflected as a
component of patrons' and other equity in accumulated
comprehensive income. At July 1, 2000, the
Association's marketable equity security was carried at
its fair value of $34.2 million, which includes an
unrealized gain of $13.5 million. At July 1, 2000, the
unrealized gain, net of deferred taxes of $4.7 million,
has been reflected as a component of other comprehensive
income.
(b) Gold Kist has a 25% interest in Golden Peanut
Company, LLC and subsidiaries (Golden Peanut). Gold
Kist's investment in the limited liability company was
$14.5 million at September 30, 2000 and $14.2 million at
July 1, 2000.
Page 5
Summarized operating statement information of Golden Peanut
is shown below:
<TABLE>
<CAPTION>
Three MonthsEnded
Sept. 30, Sept. 30,
2000 1999
<S> <C> <C>
Net sales and other operating
income $121,048 82,954
Costs and expenses 119,959 85,502
Net earnings (loss) $ 1,089 (2,548)
</TABLE>
5. In October 1998, the Association completed the sale
of assets of the Inputs business to Southern States
Cooperative, Inc. (Southern States). Proceeds of $218.3
million from the sale represented an amount equal to
$39.9 million plus 100% of estimated net current asset
value less the remaining obligations under an industrial
development bond and a lease obligation assumed by
Southern States. Also, the proceeds reflected a $10.0
million hold back deduction provided for in the asset
purchase agreement. In order to resolve the post-closing
valuation process, the Association agreed in September
1999 to repurchase from Southern States approximately
$25.7 million of accounts and crop notes receivable. The
agreement resulted in a final settlement payment to
Southern States of approximately $21.2 million in
September 1999.
In order to complete the transaction with Southern
States, the Association committed to purchase, subject to
certain terms and conditions, from Southern States up to
$100 million principal amount of preferred securities if
Southern States was unable to market the securities to
other purchasers. In October 1999, the Company purchased
for $98.6 million the $100 million principal amount of
preferred securities as required under the commitment.
The preferred securities carry an initial weighted
average dividend rate of 7.8%. Gold Kist is permitted to
sell the preferred securities, which are classified as
investments in the accompanying consolidated balance
sheet, pursuant to applicable securities regulations.
6. For the three month period ended September 30, 2000,
the Association's consolidated comprehensive income was a
loss of $(3.3) million. For the three month period ended
September 25, 1999, the Association's consolidated
comprehensive income was $264,000. The difference
between consolidated comprehensive income (loss), as
disclosed herein, and traditionally-determined
consolidated net margins (loss), as set forth on the
accompanying Condensed Consolidated Statements of
Operations, results from unrealized holding gains
(losses) on the marketable security less applicable
income taxes.
7. Effective July 2, 2000, the Association adopted SFAS
No. 133 as amended by SFAS No. 138. The Statement requires
the recognition of all derivatives on the balance sheet at
fair value. The Company's derivatives include agricultural
related forward purchase contracts, futures and options
transactions. The Company's futures transactions have
historically been designated as hedges and options transactions
have been marked to market. Effective in the first quarter of
2001, changes in the fair value of these derivatives, except
for forward
Page 6
purchase contracts, have been recorded through
earnings. The effect of the adoption of the new
Statements was immaterial.
8. On November 3, 2000, the Association established a $240
million Senior Secured Credit Facility with a group of
financial institutions that includes a $100 million 364-day
revolving line of credit, a $95 million two year term loan,
and a $45 million five year term loan. The interest rates on
the 364-day and two year term facilities will range from 2.25%
to 3% over the London Interbank Offered Rate (LIBOR), adjusted
quarterly based on the Association's financial condition. The
interest rate on the five year term loan was fixed at 10.57%.
The Association's senior notes, senior secured credit
facilities and term loan with an agricultural credit bank are
secured by substantially all of the Association's inventory,
receivables, and property, plant and equipment.
Short-term borrowings of $70 million and long-term debt of
$120 million were repaid and replaced with proceeds of $54.5
million from the 364-day revolving line of credit, the $95
million two year term loan, and the $45 million five year term
loan on November 3, 2000.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Sales Volume
For the three month period ended September 30, 2000, net sales
volume declined slightly from $430.8 million in the comparable
period last year to $430.3 million this year. The slight
decrease in net sales volume was due primarily to an increase
in marketing deductions, principally freight costs due to
higher energy prices. Gross sales for the first quarter were
up slightly as poultry sales prices were comparable between
the September 2000 and 1999 quarters with pounds of product
sold up almost 1%. The decline in poultry sales prices
experienced during fiscal 2000, due to excess supply of
poultry and other meats (pork and beef), was interrupted in
the first quarter of fiscal 2001 as extreme summer heat in the
southwestern portion of the U.S. temporarily reduced broiler
supplies. Export sales of $12 million for the September 2000
quarter increased 9.6% over the September 1999 quarter due to
an improved Russian economy and a stabilization of their rules
governing imports.
Net Operating Margins
The Association had net operating margins of $4.0 million for
the quarter ended September 30, 2000 as compared to $14.1
million in the comparable period last year. The decline in
operating margins was due primarily to increases in field
production and plant processing costs. Feed ingredient costs
for the quarter ended September 30, 2000 increased slightly as
compared to the quarter ending September 25, 1999. Net
operating margins for the first quarter of fiscal 2001 were
improved from the fourth quarter of fiscal 2000 due to the
temporary strengthening of poultry selling prices as noted
above.
Other Income (Deductions)
Interest and dividend income was $2.7 million for the
September 2000 quarter as compared to $464,000 in 1999. The
increase was attributable primarily to the interest and
dividends from the Southern States preferred securities
acquired in October 1999.
Interest expense was $10.5 million for the quarter ended
September 30, 2000 as compared to $6.6 million for the
comparable period last year. The increase in interest expense
was principally due to substantially higher average interest
rates and loan balances.
Equity in earnings of affiliate of $256,000 represented the
Association's pro rata share of Golden Peanut's earnings for
the quarter ended September 30, 2000 in accordance with the
membership agreement. This compared to a $(1.1) million pro
rata share of the affiliate's loss for the same quarter a year
ago.
Page 8
Miscellaneous, net was $1.0 million for the quarter ended
September 30, 2000 as compared to $1.4 million for the same
period last year. For the quarter ended September 30, 2000,
miscellaneous, net included a $7,000 gain from the
Association's ownership interest in a pecan processing and
marketing company as compared to a $669,000 gain for the
quarter ended September 25, 1999.
For the three months ended September 30, 2000 and September
25, 1999, the Association's combined federal and state
effective income tax rates were 40% and 34%, respectively.
Income tax expense for the periods presented reflects income
taxes at statutory rates adjusted for available tax credits
and deductible nonqualified equity redemptions.
LIQUIDITY AND CAPITAL RESOURCES
The Association's liquidity is dependent upon funds from
operations and external sources of financing. The principal
sources of external financing are a secured committed credit
facility, a term loan with an agricultural credit bank and
senior notes with an insurance company totaling $120 million,
and a rolling four month equity swap agreement with a
commercial bank in the amount of $42.9 million. The credit
facility, which was replaced on November 3, 2000, included a
three-year $120 million revolving credit commitment and a $100
million 364-day line of credit commitment. At September 30,
2000, the Association had unused loan commitments of $22
million.
On November 3, 2000, the Association established a $240
million Senior Secured Credit Facility with a group of
financial institutions that includes a $100 million 364-day
revolving line of credit, a $95 million two year term loan,
and a $45 million five year term loan. The interest rates on
the 364-day and two year term facilities will range from 2.25%
to 3% over the London Interbank Offered Rate (LIBOR), adjusted
quarterly based on the Association's financial condition. The
interest rate on the five year term loan was fixed at 10.57%.
The Association's senior notes, senior secured credit
facilities and term loan with an agricultural credit bank are
secured by substantially all of the Association's inventory,
receivables, and property, plant and equipment.
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
of debt agreements specify minimum consolidated tangible net
worth, current ratio and coverage ratio requirements, as well
as a limitation on the funded debt to total capital ratio.
The debt agreements place a limitation on capital
expenditures, equity distributions, cash patronage refunds,
commodity hedging contracts and additional loans, advances or
investments. At September 30, 2000, the Association was in
compliance with all applicable loan covenants.
For the first quarter of fiscal 2001, the operating activities
of continuing operations provided $7.3 million in cash as a
result of an improvement in poultry operating margins as
compared to the fourth quarter of fiscal 2000. The cash flow
from operating activities and proceeds from long-term debt
were used to repay short-term borrowings, which included
maturing Subordinated Certificates. In addition, cash uses
included capital asset expenditures of $8.0 million and net
equity redemptions of $1.0 million.
Page 9
Working capital and patrons' and other equity were $38.5
million and $235.3 million, respectively, at September 30,
2000 as compared to $23.8 million and $239.5 million,
respectively, at July 1, 2000. The increase in working
capital reflected the decrease in short-term borrowings. The
decline in patrons' equity reflected the $1.7 million decline
in value of a marketable equity security, net equity
redemptions of $1.0 million and the $1.6 million net loss.
The Association plans capital expenditures of approximately
$35 million in 2001 that primarily include expenditures for
expansion of further processing capacity and technological
advances in poultry production and processing. In addition,
planned capital expenditures include other asset improvements
and necessary replacements. Management intends to finance
planned 2001 capital expenditures and related working capital
needs with existing cash balances, cash expected to be
provided from operations and additional borrowings, as needed.
In 2001, management expects cash expenditures to approximate
$5 million for equity distributions less insurance proceeds.
In connection with the sale of assets of the Agri-Services
segment to Southern States during 1999, Gold Kist
discontinued the sale of Subordinated Certificates. The
Association believes cash on hand and cash equivalents at
September 30, 2000 and cash expected to be provided from
operations, in addition to borrowings available under
committed credit arrangements, will be sufficient to maintain
cash flows adequate for the Association's operational
objectives during 2001 and to fund the repayment of
outstanding Subordinated Certificates as they mature.
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. In light of these risks and
uncertainties, the Association cautions readers not to place
undue reliance on any forward-looking statements. The
Association undertakes no obligation to publicly update or
revise any forward-looking statements based on the occurrence
of future events, the receipt of new information or otherwise.
Among the factors that may affect the operating results of the
Association are the following: (i) fluctuations in the cost
and availability of raw materials, such as feed grain costs;
(ii) changes in the availability and relative costs of labor
and contract growers; (iii) market conditions for finished
products, including the supply and pricing of alternative
proteins; (iv) effectiveness of sales and marketing programs;
(v) risks associated with leverage, including cost increases
due to rising interest rates; (vi) changes in regulations and
laws, including changes in accounting standards, environmental
laws and occupational, health and safety laws; (vii) access to
foreign markets together with foreign economic conditions; and
(viii) changes in general economic conditions.
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 and feed grains. The prices of these
commodities are affected by world market
Page 10
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISKS
Market Risk
The principal market risks affecting the Association are
exposure to changes in commodity prices and interest rates on
borrowings. Although the Company has international net sales
volume and related accounts receivable for foreign customers,
there is no foreign currency exchange risk as all sales are
denominated in United States dollars.
Commodities Risk
The Association is a purchaser of certain agricultural
commodities used for the manufacture of poultry feeds. The
Association uses commodity futures and options for economic
hedging purposes to reduce the effect of changing commodity
prices and to ensure supply of a portion of its commodity
inventories and related purchase and sale contracts. Feed
ingredients futures and option contracts, primarily corn and
soybean meal, are accounted for at market. Gains and losses
on the transactions are recorded as a component of product
cost. Terms of the Association's secured credit facility
limit the use of cash forward contracts and commodities
futures and options transactions. At September 30, 2000, the
notional amounts and fair value of the Association's
outstanding commodity futures and options positions were not
material and there were no significant deferred gains or
losses.
Page 11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
Designation of Exhibit
in this Report Description of Exhibit
B- 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 30, 2000.
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 14, 2000
Gaylord O. Coan
Chief Executive Officer
(Principal Executive Officer)
Date November 14, 2000
Walter F. Pohl, Jr.
Controller
(Principal Accounting Officer)
Page 11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
Designation of Exhibit
in this Report Description of Exhibit
B-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 30, 2000.
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 14, 2000 /s/ Gaylord O. Coan
Gaylord O. Coan
Chief Executive Officer
(Principal Executive Officer)
Date November 14, 2000 /s/ Walter F. Pohl, Jr.
Walter F. Pohl, Jr.
Controller
(Principal Accounting Officer)
