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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 29, 2002 Commission File No. 2-59958
GOLD KIST INC.
(Exact name of registrant as specified in its charter)
Georgia 58-0255560
(State or other jurisdiction (I.R.S. Employer
of 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 l934 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 .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K [X].
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable.
TABLE OF CONTENTS
Item Page
1. Business (and Properties) . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6
4. Submission of Matters to a Vote of Security Holders . . . . . . 7
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 7
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 9
7A. Quantitative and Qualitative Disclosure about Market Risk . 15
8. Financial Statements and Supplementary Data . . . . . . . . . . 16
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . 35
10. Directors and Executive Officers of the Registrant . . . . . . 35
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 37
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . 40
13. Certain Relationships and Related Transactions. . . . . . . . . 40
14. Controls and Procedures. . . . . . . . . . . . . . . . . . 40
15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 41
GOLD KIST INC.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 29, 2002
This Report contains statements which to the extent they are not
recitations of historical fact, may constitute "forward looking statements"
within the meaning of applicable federal securities law. All forward looking
statements in this Report are intended to be subject to the safe harbor
protection provided by the Private Securities Litigation Reform Act of 1995
and Section 21E of the Securities Exchange Act of 1934, as amended. For a
discussion identifying some important factors that could cause actual results
to vary materially from those anticipated in the forward looking statements
made by the Company, see Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PART I
Item 1. Business (and Properties).
Gold Kist Inc. ("Gold Kist" or the "Association") is an agricultural
membership cooperative association, headquartered in Atlanta, Georgia. It
was incorporated without capital stock in 1936 under the Georgia Cooperative
Marketing Act. The name of the Association was changed in 1970 from Cotton
Producers Association to Gold Kist Inc. In April 1985, the Articles of
Incorporation and By-Laws of the Association were amended to provide for a
class of common stock and a class of preferred stock as authorized by the
Georgia Cooperative Marketing Act. Each member is issued one share of common
stock only, as evidence of membership and the right to one vote as long as
the member maintains status as an active member. Only members may hold the
common stock, which is nontransferable and receives no dividends.
The membership of Gold Kist consists of approximately 2,500 farmer
members located principally in Alabama, Florida, Georgia, North Carolina and
South Carolina. Any person engaged in the production of farm commodities and
any firm or corporation whose members or stockholders are persons so engaged
and any cooperative association organized under the cooperative marketing
laws of any state, which enters into a marketing and/or purchasing agreement
with the Association, is eligible for membership.
Gold Kist offers cooperative marketing services to its member patrons.
Farm commodities, principally poultry, are marketed by Gold Kist on behalf of
members. Under the standard Membership, Marketing, and/or Purchasing
Agreement which is entered into between each member and Gold Kist, Gold Kist
undertakes to market for the member agricultural products delivered which are
of a type marketed by Gold Kist. The Association also does business with non-
members and engages in non-cooperative activities through subsidiaries and
partnerships.
Gold Kist conducts broiler production operations, providing both
marketing and purchasing services to its cooperative patrons. The
Association also conducts pork production operations, is a partner in a pecan
processing and marketing business, and participates as a member of limited
liability company which is engaged in the production and sale of hogs.
POULTRY
Broilers
Gold Kist's cooperative broiler operation is organized into broiler
divisions, each encompassing one or more of Gold Kist's broiler complexes.
Each Gold Kist broiler complex operates within a separate geographical area
and includes within that area broiler flocks, pullet and breeder (hatching
egg) flocks, one or more hatcheries, a feed mill, poultry processing plant(s)
and management, and accounting office(s), and transportation facilities. The
complexes operated by Gold Kist in fiscal 2002 are headquartered in Boaz,
Cullman, and Russellville, Alabama; Athens, Douglas, Ellijay and Carrollton,
Georgia; Live Oak, Florida; Sanford and Siler City, North Carolina; and
Sumter, South Carolina. The broiler growers, pullet producers and hatching
egg producers for each complex are members of Gold Kist. The facilities and
operations of each complex are designed to furnish the growers flocks of
chicks, feed and medicines, and to provide processing services for the
broilers grown.
The principal products marketed by Gold Kist are whole chickens, cut-up
chickens, segregated chicken parts and further processed products packaged in
various forms, including fresh bulk ice pack, chill pack and frozen. Ice
pack chicken is packaged in ice or dry ice and 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 sold
primarily to fast food and grocery store chains. Chill pack chicken is sold
in certain localities under the Gold Kist Farmsr and Young 'n Tenderr
labels; however, some is sold under customers' private labels. Most of the
frozen chicken carries the Gold Kistr or Early Birdr label. Cornish game
hens are marketed in fresh and frozen form primarily to hotels, restaurants
and grocery stores under the Gold Kist Farms, Young 'n Tender and Medallionr
labels. Medallion, Big Valuer, Gold Kist Farms, Young 'n Tender and Early
Bird are registered trademarks of Gold Kist Inc.
Principal raw materials utilized by Gold Kist for the production of
poultry include agricultural commodities such as corn and soybeans utilized
as feed ingredients in the production of poultry feed by the Association.
The principal source of these commodities has been domestic U.S. production,
principally in the Midwestern United States. The availability of feed
ingredients at reasonable to low prices has been favorable for the
Association because of the increased stocks of such commodities generated by
large domestic crops in the last five years. The Association believes that
the availability of such commodities shall continue in the next fiscal year
but at potentially increased prices due to a reduced domestic harvest in
2002.
Poultry products were marketed in fiscal 2002 directly from the
Association's corporate headquarters in Atlanta. The plants at Athens,
Carrollton, Boaz, and Live Oak have special distribution facilities, and
there are six separate distribution facilities located in Florida, Tennessee,
Ohio and Kentucky. Cornish game hens are processed at facilities in
Trussville, Alabama and marketed from the Atlanta headquarters.
Gold Kist is one of the largest poultry processors in the United States.
It competes with other large processors and with smaller companies.
Competition is based upon price, quality and service. While Management
believes that the pricing and quality of its products are competitive with
other processors, it believes that Gold Kist's service to its customers is a
principal factor that has established Gold Kist as one of the largest United
States poultry processors. Gold Kist's ability to deliver poultry products
produced to order is an important service to customers.
The poultry industry, just as many other commodity industries, has
historically been cyclical. Prices of perishable commodities, such as
broilers, react directly to changes in supply and demand. Furthermore,
broilers are typically a high volume, low margin product so that small
increases in costs, such as feed ingredient costs, or small decreases in
price, can produce losses. Gold Kist is a purchaser of certain agricultural
commodities used for the manufacture of poultry feeds. Gold Kist 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 options contracts have inherent risk, such that
changes in the commodities futures and options prices as a result of
favorable or unfavorable changes in the weather, crop conditions or
government policy may have an adverse effect on Gold Kist's net feed
ingredient cost as compared to the cost in cash markets. Likewise, Gold Kist
could benefit from reduced net feed ingredient cost as a result of these
changes as compared to cost in the cash market. Results of hedging and
commodity options transactions are reflected as an adjustment to feed
ingredient cost in the Association's consolidated financial statements. See
Item 7A - Quantitative and Qualitative Disclosure About Market Risks and Note
l (c) of Notes to Consolidated Financial Statements.
The poultry industry has also traditionally been subject to seasonality
in demand and pricing. Generally, the price and demand for poultry products
peaks during the summer months and declines to lower levels during the winter
months of November, December, January and February. Gold Kist poultry prices
and sales volume follow the general seasonality of the industry.
The following table shows the amount and percentage of Gold Kist's net
sales volume from continuing operations contributed by sales of broiler
products for each of the years indicated. See Notes 1 and 11 of Notes to
Consolidated Financial Statements.
Fiscal Year Ended (000's Omitted)
July 1, June 30, June 29,
2000 2001 2002
Broiler Products
Volume $1,743,288 $1,777,495 $1,845,744
Percentage (%) 98.5 98.2 99.0
PORK
Gold Kist currently markets hogs raised by producers in Alabama, Georgia,
and Mississippi. Feeder pigs are furnished to members who raise them to
produce hogs for marketing. Feeder pigs are either raised by Gold Kist
members and marketed through Gold Kist to the market hog growers, raised for
Gold Kist by non-member independent contractors or purchased by Gold Kist in
the marketplace. The Association also has a joint venture arrangement with
another regional cooperative association in the form of a limited liability
hog sales and production company. Gold Kist raises and provides young pigs
for the venture.
Live market hogs are marketed by Gold Kist in the Southeastern United
States to processors of pork products, primarily on a competitive bid basis
in the states of Alabama, Georgia and Mississippi. Management believes that
customers are favorably impressed by the quality of its market hogs which is
principally due to superior breeding stock and management grow-out techniques
employed by Gold Kist. Gold Kist competes with other major national
producers and smaller individual producers, primarily on a regional basis in
the Southeastern United States.
AGRATECH SEEDS INC.
AgraTech Seeds Inc., a wholly-owned subsidiary of Gold Kist, conducts a
peanut genetics business which consists of research, development, breeding
and marketing of proprietary seed varieties. AgraTech receives as its
primary source of income royalties on the sale of its proprietary seed
varieties by its licensed associates. Currently, its proprietary varieties
include "GK 7 Hi-Oleic", "AT 108", "AT 120", "AT 120 Hi-Oleic" and
"ViruGard".
YOUNG PECAN COMPANY
Gold Kist is a partner in Young Pecan Company, a pecan processing and
marketing business headquartered in Florence, South Carolina, in which the
Association holds a 25% equity interest and a 35% earnings (loss) allocation.
See Note 11 of Notes to Consolidated Financial Statements.
LUKER INC.
Luker Inc. is a design, fabrication and installation firm primarily
serving customers in the meat, poultry, chemicals and wood products
businesses with a focus on wastewater treatment systems. It is a wholly-
owned subsidiary of Gold Kist located in Augusta, Georgia.
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 29, 2002, the approximate export sales volume of poultry was $74.2
million. During that period, export sales were mainly to customers in
Russia, Eastern Europe, the Far East, Mexico, Central and South America and
the Caribbean.
Export sales involve an additional element of transportation and credit
risk to the shipper beyond that normally encountered in domestic sales.
Gold Kist faces competition for export sales from both domestic and
foreign suppliers. In export poultry sales, Gold Kist faces competition from
other major United States producers as well as companies in France, China,
Thailand, and Brazil. Tariff and non-tariff barriers to United States
poultry established by the European Economic Community (EEC) since 1962 have
virtually excluded Gold Kist and other United States poultry exporters from
the EEC market. Restrictions placed by Russian authorities on the export of
U.S. poultry to Russia in March 2002 adversely impacted the export sales of
domestic suppliers into fiscal 2003. In addition, EEC exporters are aided in
price competition with United States exporters in certain markets by
subsidies from their governments.
PROPERTIES
Gold Kist corporate headquarters building, completed in 1975 and
containing approximately 260,000 square feet of office space, is located on
fifteen acres of land at 244 Perimeter Center Parkway, N. E., Atlanta,
Georgia. The land and building are owned by a partnership of Gold Kist and
Cotton States Mutual Insurance Company in which partnership Gold Kist owns
54% of the equity. Gold Kist leases approximately 95,000 square feet of the
building from the partnership.
Poultry
The poultry processing plants operated as Gold Kist facilities in fiscal
2002 are located at Boaz, Russellville, Trussville and Guntersville, Alabama;
Athens, Douglas, Ellijay and Carrollton, Georgia; Live Oak, Florida; Sumter,
South Carolina; and Sanford and Siler City, North Carolina. These plants
have an aggregate weekly processing capacity of approximately 14.4 million
broilers and 400,000 cornish game hens. The plants are supported by
hatcheries located at Albertville, Crossville, Cullman, Curry, Ranburne,
Russellville, and Scottsboro, Alabama; and Blaine, Bowdon, Calhoun, Commerce,
Carrollton, Douglas, and Talmo, Georgia; Live Oak, Florida; Siler City and
Staley, North Carolina; and Sumter, South Carolina. These hatcheries have an
aggregate weekly capacity (assuming 85% hatch) of approximately 15.3 million
chicks. Additionally, Gold Kist operates twelve feed mills to support its
poultry operations; the mills have an aggregate annual capacity of
approximately 4.7 million tons and are located in Guntersville, Pride, and
Jasper, Alabama; Ambrose, Calhoun, Cartersville, Commerce, and Waco, Georgia;
Live Oak, Florida; Sumter, South Carolina; and Bonlee and Staley, North
Carolina.
The Association operated six separate distribution centers in fiscal 2002
in its sales and distribution of poultry products: Tampa, Pompano Beach, and
Crestview, Florida; Nashville, Tennessee; Mt. Sterling, Kentucky; and
Cincinnati, Ohio.
Gold Kist currently operates four pork production centers. These
production facilities include a gilt production center in Stephens, Georgia;
two gilt and pork production centers located at Kingston, Georgia; and a boar
and pork production center headquartered in Stephens, Georgia.
The Association holds all of the facilities in fee except for the
corporate headquarters building (lease expires June 30, 2004); poultry
distribution facilities at Tampa, Florida (lease expires May 14, 2005) and
Nashville (lease expires December 31, 2006) Tennessee; and Crossville,
Alabama, poultry hatchery facility (lease expires February 23, 2088).
ENVIRONMENTAL AND REGULATORY MATTERS
Processing plants such as those operated by Gold Kist are potential
sources of emissions into the atmosphere and, in some cases, of effluent
emissions into streams and rivers. Presently, management does not know of
any material capital expenditures for environmental control facilities that
will be necessary for the remainder of the current fiscal year and the next
fiscal year in order to comply with current statutes and regulations. On
January 29, 1992, the United States Environmental Protection Agency ("EPA")
sent General Notice Letters designating Gold Kist and several other companies
as potentially responsible parties ("PRP's") for alleged environmental
contamination at an Albany, Georgia site previously owned by Gold Kist. Gold
Kist has responded to the General Notice Letter denying liability for the
contamination. Gold Kist is unable to estimate at this time the cost of
compliance, if any, to be required of Gold Kist for the location. Management
believes that the potential cost of compliance for Gold Kist would not have a
material effect on Gold Kist's financial condition or results of operations.
The Georgia Environmental Protection Division ("GEPD") has listed the
site of the former Gold Kist chemical blending facility in Cordele, Georgia
on Georgia's Hazardous Sites Inventory list under the State's Hazardous Sites
Response Act due to the presence of pesticide residue above regulatory
standards. Gold Kist sold this facility in 1985. Remediation may be
required in the future to meet regulatory clean-up standards. Since the
extent of the conditions at the site have not been completely defined at this
time, Gold Kist is unable to estimate cost of the compliance to be required
of Gold Kist for this location. Management believes that the potential cost
of compliance for Gold Kist would not have a material effect on Gold Kist's
financial condition or results of operations.
The regulatory powers of various federal and state agencies, including
the federal Department of Labor and the U.S. Department of Agriculture, apply
throughout the agricultural industry, and many of Gold Kist's products and
facilities are subject to the regulations of such agencies.
HUMAN RESOURCES
Gold Kist has approximately 18,000 employees during the course of a year.
Gold Kist's processing facilities operate year round without significant
seasonal fluctuations in manpower requirements. Gold Kist has approximately
3,500 employees who are covered by collective bargaining agreements.
Employee relations are considered to be generally satisfactory.
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 deductions for a
reasonable reserve for permanent non-allocated equity and after certain
adjustments, these margins are distributed to members as patronage refunds on
the basis of their respective patronage (business done with or through the
Association) during that year. Upon the determination of the total patronage
refund for any fiscal year, this amount is allocated among the several
operations of Gold Kist or one or more groups of such operations, as
determined by the Board of Directors in light of each operation's or group's
contribution for the 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 patronage dividend certificates or written notices of
allocated reserves, or any combination of these forms. A distribution to a
patron made in the form of a qualified notice must be included in his gross
income, at its stated dollar amount, for the taxable year in which he
receives the distribution. If nonqualified notices are distributed, less
than 20% of the refund can be distributed in cash or by qualified check and
the patron is not required to include in gross income the noncash portion of
the allocation. See Notes 1(g) and 6 of Notes to Consolidated Financial
Statements.
The deduction for unallocated reserves and retention of allocated
reserves provide means whereby the current and active members of Gold Kist
may finance the Association's continuing operations. Each fiscal year, the
members are notified by Gold Kist of the amounts, if any, by which their
equity accounts have been credited to reflect their allocated, but
undistributed, portion of the patronage refunds. Allocated reserves may be
retired and distributed to members only at the discretion of the Board of
Directors in the order of retention by years, although the Board may
authorize the retirement of small aggregate amounts (not in excess of
$100.00) of reserves or the retirement of reserves in individual cases
without regard to how long they have been outstanding. Allocated reserves
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.
INCOME TAXATION
As a cooperative association entitled to the provisions of Subchapter T
of the Internal Revenue Code, Gold Kist does not pay tax on net margins
derived from member patronage transactions which are distributed to the
members by check or in the form of qualified written notices of allocation
within 8-l/2 months of the close of each fiscal year. 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. See Notes l (g) and 7 of Notes to
Consolidated Financial Statements.
Gold Kist has subsidiaries which are not cooperatives, and all the income
of these subsidiaries is subject to corporate income taxes.
Item 2. Properties.
The principal facilities used in the Association's business are described
in Item 1. Business (and Properties). Management believes that the
facilities are adequate and suitable for their respective uses and the
Association's current intended operations. There are no material liens or
encumbrances on the properties owned by the Association except for mortgages
on all of the Association's poultry facilities to secure certain credit
facilities with the Association's lenders. See Note 4 of Notes to
Consolidated Financial Statements.
Item 3. Legal Proceedings.
The Association is a party to various legal and administrative
proceedings, all of which management believes constitute ordinary routine
litigation incident to the business conducted by the Association, or are not
material in amount.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no market for Gold Kist equity.
Item 6. Selected Financial Data.
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 29, 2002 and "Consolidated Balance Sheet
Data" as of June 27, 1998, June 26, 1999, July 1, 2000, June 30, 2001 and
June 29, 2002 are derived from the consolidated financial statements of Gold
Kist Inc. and subsidiaries. The consolidated financial statements as of June
30, 2001 and June 29, 2002 and for each of the years in the three-year period
ended June 29, 2002, and the report thereon of KPMG 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 auditors' reports.
For Fiscal Years Ended (000's omitted)
June 27, June 26, July 1, June 30, June 29,
Consolidated Statement of 1998 1999 2000 2001 2002
Operations Data:
Net sales volume $1,704,857 1,822,708 1,770,453 1,810,755 1,863,828
Margins (loss) from
continuing operations $ (56,911) 68,815 (26,503) 33,280 47,629
As of (000's omitted)
June 27, June 26, July 1, June 30, June 29,
Consolidated Balance Sheet 1998 1999 2000 2001 2002
Data:
Total assets $1,080,655 814,137 881,290 870,056 789,529
Long-term liabilities $ 376,553 275,408 331,837 322,289 314,858
Patrons' and other equity $ 234,006 279,367 239,490 272,550 283,161
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION
After two decades of rapid growth, the poultry industry is maturing and
will be dependent on value added and new product development, as well as
expanded export opportunities for continued revenue growth. Production and
operating efficiencies will also be necessary for increased profitability.
In addition, the industry is undergoing consolidation as a number of
acquisitions and mergers have occurred in the last five years. The market
share of the top five U.S. firms in terms of ready-to-cook broiler meat
production has increased from 49% to 55% during that period and this trend is
expected to continue.
The industry has experienced volatility in results of operations over the
last five years and the following information addresses the various factors
that have influenced the results and financial condition of Gold Kist during
that period. During fiscal 1998, broiler market prices were approximately 4%
lower than in fiscal 1997, however market prices strengthened in the fourth
quarter. Favorable broiler market prices continued during the first half of
fiscal 1999 as a result of industry-wide live production problems that
restricted broiler supplies. Broiler prices weakened in the second half of
fiscal 1999 as the live production problems were resolved and supplies
increased. Market prices for poultry dark meat were weak during fiscal 1999
as a result of the Russian and Asian economic crises that began during the
summer of 1998. Depressed broiler prices continued through fiscal 2000 and
most of fiscal 2001 due to increased production levels and the large supply
of competing meats (pork and beef). Broiler prices strengthened during the
first half of fiscal 2002 due to an improved supply/demand balance. Strong
export demand, principally from Russia, favorably impacted both foreign and
domestic markets and fueled higher broiler prices through the first eight
months of fiscal 2002. However, on March 10, 2002, Russia banned the import
of U.S. poultry. This led to downward pressure on broiler sales prices due
to excess domestic supply. Export sales industry-wide declined by 20%
during the fourth quarter of fiscal 2002. Although the ban was lifted in
April 2002, normal shipments have not resumed as new product specifications
are being developed and poultry plant recertifications are required for
export eligibility to Russia. Depressed broiler prices are expected to
continue into fiscal 2003 until export shipments recover or other factors
impact the supply/demand imbalance.
According to the U.S. Department of Agriculture's (USDA) World Agricultural
Outlook Board, the forecast for calendar 2002 broiler meat production is
31.96 billion pounds, ready-to-cook weight, 3.3% above the 30.94 billion
pounds produced in 2001. The estimate for calendar 2003 production is 32.65
billion pounds, 2.2% over the 2002 forecast. This rate of increase could
contribute to the supply/demand imbalance until normalcy returns to the
export markets. This projected increase does not consider the impact of
reduced export volume and higher feed costs. Recent egg placements indicate
a lower rate of increase in production.
The cost of feed grains, primarily corn and soybean meal, represents
approximately fifty percent of total broiler production costs. Prices of
feed grain commodities fluctuate in response to worldwide supply and demand.
Average cash market prices for corn and soybean meal declined 18% and 20%,
respectively, during fiscal 1998 as a result of the favorable 1997 harvest
and reduced exports of agricultural commodities. In 1999, average cash
market prices for corn and soybean meal declined 20% and 34%, respectively,
as a result of favorable U.S. grain production and the decline in world
demand for feed grains. Feed grain prices generally held steady or slightly
above these levels through fiscal 2002. Corn and soybean meal prices are
expected to increase in 2003 due to stronger worldwide demand and a reduced
U.S. crop due to weather problems in grain producing areas. Historically,
higher feed prices have led to restraints on production and improved broiler
prices.
Poultry export sales for fiscal 2000, 2001 and 2002 were $48.8 million,
$68.8 million and $74.2 million, respectively. Starting in fiscal 2000,
export markets strengthened as demand from Russia increased due to changes in
import tariffs and improved economic conditions due to the rise in world oil
prices, which led to increased consumption. Increased demand continued
through fiscal 2001 due to the ban on red meat imports from the European
Union leading to the 41% increase in export sales over 2000. Export sales
continued strong through the first half of fiscal 2002, increasing 49% over
the same period in fiscal 2001. However, due to the Russian ban mentioned
above, export sales for the last four months of fiscal 2002 decreased 57.1%
as compared to the same period in fiscal 2001. A return to prior years'
level of export sales of poultry products will be dependent on the resumption
of normal shipments to Russia, as well as credit availability to foreign
countries and political and economic stability, particularly in Russia,
Eastern Europe and the Far East.
In June 2002, the Association adopted a plan to withdraw from and
discontinue participation in the pecan processing and marketing partnership
within the 2003 fiscal year. Accordingly, the operating results of the
partnership have been segregated from continuing operations and reported
separately in the Statements of Operations. See Note 11 of Notes to
Consolidated Financial Statements. The Association's continuing operations
are principally comprised of its poultry production, processing and marketing
operations. The discussion and analysis of results of operations that
follows relates to the continuing operations of the Association, unless
otherwise noted, for each of the years in the three-year period ended June
29, 2002.
Results of Operations
Fiscal 2001 Compared to Fiscal 2000
For 2001, net sales increased 2.3% from $1.77 billion in fiscal 2000 to
$1.81 billion in 2001. The increase was due primarily to a 1.4% improvement
in average selling prices and a 1.1% improvement in processing yield,
partially offset by the additional one-week period in 2000 and a 4.6%
reduction in live weight pounds processed. On a comparable per week basis,
net sales increased 4.2% for 2001 as compared to 2000. Poultry selling
prices continued to be depressed in 2001 by an excess supply of poultry and
other competing meats such as beef and pork. A temporary reduction in
broiler placements beginning in the first fiscal quarter of 2001 moderately
reduced the rate of growth in broiler supplies and contributed to an
improvement in selling prices.
The Association had net operating margins of $65.5 million for 2001 as
compared to a net operating loss of $21 million in 2000. The increase in net
operating margins was due primarily to the $33.7 million gain from the
curtailment of the post retirement medical benefit plan and related pension
plan settlements (see Note 8(b) of Notes to Consolidated Financial
Statements) and improved poultry selling prices. Lower cost of sales in 2001
reflects the one-week reduction in the reporting period from the prior year
and the receipt in 2001 of $6.4 million representing Gold Kist's share as a
class claimant in the vitamin antitrust class action litigation. However, a
1% increase in average feed costs and higher processing expenses and energy
costs partially offset these factors. The Association's pork division posted
an operating margin of $2.4 million in 2001 as compared to an operating
margin of $86 thousand for 2000. The impact of cost reductions implemented
in 2001, including salary freezes/reductions and benefit program changes,
partially offset the increase in distribution, administrative and general
expenses. The overall increase was principally due to higher incentive
compensation attributable to the earnings improvement in 2001.
The components in other deductions totaled $18.9 million in 2001 as
compared to $27.8 million in 2000. Interest and dividend income was $11.3
million for 2001 as compared to $8.3 million for 2000. The increase was due
to the receipt of the interest and dividends for the full 2001 period from
the Southern States preferred securities, which were acquired in October
1999. See Note 10(a) of Notes to Consolidated Financial Statements.
Interest expense was $40 million for 2001 as compared to $30.4 million for
2000, an increase of 31%. The increase was caused by higher average interest
rates and loan balances, and expenses/fees related to the senior secured
credit agreement established November 3, 2000. Equity in earnings of
affiliate of $10 million represented the Association's share of Golden
Peanut's earnings for 2001 in accordance with the membership agreement. The
earnings were principally attributable to the reversal of previously accrued
litigation expense, with Gold Kist's share approximating $7.3 million, due to
a judgment that was vacated by the Georgia Court of Appeals in March 2001.
Improved peanut market prices also contributed to the earnings improvement.
These results compared to a $4.4 million share of the affiliate's loss for
2000 due principally to accrued litigation expenses related to the judgment
that was vacated in 2001. See Notes 9 and 10(c) of Notes to Consolidated
Financial Statements. Miscellaneous, net was a deduction of $241 thousand
for 2001 as compared to a deduction of $1.3 million for 2000. Income from a
hog grow-out joint venture with another regional cooperative was $2.1 million
in 2001 as compared to $775 thousand in 2000. Strong increases in hog market
prices gave rise to this improvement.
The combined federal and state effective tax rate for 2001 was 29% compared
to (46)% in 2000. Income tax expense for the periods presented reflects
income taxes at statutory rates adjusted for available tax credits, dividends
received deductions and deductible nonqualified equity redemptions. See Note
7 of Notes to Consolidated Financial Statements.
Fiscal 2002 Compared to Fiscal 2001
For 2002, net sales increased 2.9% from $1.81 billion in the comparable
period last year to $1.86 billion in the current year. The increase was due
primarily to a 1% improvement in average selling prices and a 4% increase in
live weight pounds processed. The increase in poultry sales prices was
principally due to strong export demand, experienced industry-wide, which
favorably impacted both foreign and domestic markets. The increased export
demand, principally from Russia, strengthened broiler sales prices through
the first half of fiscal 2002. However, on March 10, Russia banned the
import of U.S. poultry. This led to downward pressure on broiler sales
prices and reduced export sales industry-wide during the second half of
fiscal 2002. Although the ban was lifted in April 2002, only limited
shipments have resumed as new product specifications are being developed and
poultry plant recertifications are required for export eligibility to Russia.
Export sales only comprise approximately 4% of the Association's gross sales
volume, however the increased domestic supply caused by the embargo led to a
2.7% decrease in overall broiler sales prices in the fourth quarter of fiscal
2002.
The Association had net operating margins of $69.8 million for 2002 as
compared to net operating margins of $65.5 million in 2001. The increase in
net operating margins before the 2001 benefit curtailment gain was due
primarily to the higher poultry selling prices and increased volume. These
factors were partially offset by slightly higher overall total feed costs for
2002 as compared to 2001 due to the increase in pounds processed. The
Association's pork division posted an operating margin of $1.3 million in
2002 as compared to an operating margin of $2.4 million in 2001. The 1.2%
decrease in distribution, administrative and general expenses in 2002 as
compared to 2001 was principally due to benefit program changes implemented
in 2001.
The components in other deductions totaled $76 thousand in 2002 as compared
to an $18.9 million deduction in 2001. Interest and dividend income was $9.4
million for 2002 as compared to $11.3 million for 2001. The decrease was due
to the receipt of the dividends for only the first half of 2002 from the
Southern States preferred securities. No dividends were paid or declared on
the preferred securities for the second half of 2002. Interest expense was
$28 million for 2002 as compared to $40 million for 2001, a decrease of 30%.
The decrease was due to lower average loan balances resulting from improved
cash flow from operations and from the sale of investments, and lower market
interest rates. See Note 4 of Notes to Consolidated Financial Statements.
The sale of the marketable equity security and other investments resulted in
a pretax net gain of $15.6 million in 2002. The Association withdrew as a
member of Golden Peanut Company effective June 30, 2001 and therefore had no
equity in the earnings of the affiliate for fiscal 2002 as compared to $10
million in fiscal 2001. Miscellaneous, net was income of $2.9 million for
2002 as compared to a deduction of $241 thousand for 2001. Income from a hog
grow-out joint venture with another regional cooperative was $1.1 million in
2002 as compared to $2.1 million in 2001 due to a decrease in hog market
prices. This reduction was more than offset by gains on sales of assets of
approximately $1.4 million in fiscal 2002 as compared to losses of $2.7
million in 2001.
The combined federal and state effective tax rate for 2002 was 32% compared
to 29% in 2001. Income tax expense for the periods presented reflects income
taxes at statutory rates adjusted for available tax credits, dividends
received deductions and deductible nonqualified equity redemptions. See Note
7 of Notes to Consolidated Financial Statements.
In June 2002, the Association adopted a plan to withdraw from and
discontinue participation in the pecan processing and marketing partnership
within the 2003 fiscal year. Accordingly, the operating results of the
partnership have been segregated from continuing operations and reported
separately in the Statements of Operations. See Note 11 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. At July 1, 2001, the principal source of
external financing was a $240 million Senior Secured Credit Facility with a
group of financial institutions that included 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 Association also had $41.1 million term loans with
an agricultural bank and $55 million in senior notes with an insurance
company. 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 inventories, receivables, and property, plant and
equipment.
On October 23, 2001, the Association refinanced its Senior Secured Credit
Facility, replacing the $100 million 364-day revolving line of credit due
November 3, 2001 with a $110 million revolving line of credit due October 23,
2002. The $95 million two-year term loan due November 2002 was also
replaced with a $95 million two-year term loan due October 2003. Other terms
and conditions of the credit facility were essentially unchanged. At June
29, 2002, the Association had unused loan commitments of $94 million. See
Note 4 of Notes to Consolidated Financial Statements.
On September 6, 2002, the Company received $205 million in commitments to
refinance and extend the Senior Secured Credit facilities that will include a
$110 million Revolving Credit Facility maturing November 2, 2004 and a $95
million Term Loan maturing November 2, 2005. The interest rates on the
facility will range from 1.50% to 2.25% over LIBOR, adjusted quarterly based
on the Association's financial condition. Other terms and conditions will be
essentially unchanged.
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 total 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 June 29, 2002, the Association
was in compliance with all applicable loan covenants. See Note 4 of Notes to
Consolidated Financial Statements.
In October 1998, the Association completed the sale of assets of the Agri-
Services segment to Southern States. In order to complete the transaction,
the Association committed to purchase from Southern States, subject to
certain terms and conditions, up to $100 million principal amount of capital
trust and 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 capital trust and
preferred securities as required under the commitment. The securities carry
a current weighted average dividend rate of 8.5%. Gold Kist is permitted to
sell the securities, which are classified as noncurrent investments in the
accompanying consolidated balance sheets, pursuant to applicable securities
regulations. See Note 10(a) of Notes to Consolidated Financial Statements.
In 2000, the operating activities of continuing operations used $7.8
million in cash as a result of the net operating loss caused by the depressed
poultry market conditions. Net cash used in investing activities included
the purchase of the Southern States securities for $98.6 million and the
repurchase of accounts and crop notes receivable from Southern States for a
net amount of $20.5 million. In addition, cash was used to pay for capital
expenditures of $29.9 million and to pay patronage refunds and net equity
redemptions of $5.8 million. Existing cash balances and increases in short
and long-term borrowings were used to fund these expenditures.
In 2001, cash provided by operating activities was $71.9 million, a
significant improvement from 2000. Operating cash flow provided by
depreciation and amortization expense and reductions in current assets was
partially offset by the noncash gain from the curtailment of the post
retirement medical plan and related pension plan settlements, and the equity
in the undistributed earnings of Golden Peanut Company. The net cash flows
from operating activities, along with additional net long-term borrowings,
was used to repay the single installment senior note of $20 million and short-
term borrowings, which included maturing Subordinated Certificates, and to
pay for capital expenditures of $33.5 million and net equity redemptions of
$5.9 million.
In 2002, cash provided from operating activities was $68 million as
compared to $71.9 million in 2001. The cash flow from operating activities
in fiscal 2002, along with the cash provided from the sale of investments of
$90.9 million, was used to repay short-term and long-term borrowings, which
included the equity swap loan agreement, the revolving line of credit and
maturing Subordinated Certificates. Capital expenditures of $38.9 million
and net equity redemptions of $4.4 million were also paid through the cash
provided by operating and investing activities.
Working capital and patrons' and other equity were $160 million and $283.2
million, respectively, at June 29, 2002 as compared to $121.1 million and
$272.6 million, respectively, at June 30, 2001. The increase in working
capital reflected the increase in inventories and other current assets, and
the repayment of short-term borrowings from cash provided from operations and
the sale of investments. The increase in patrons' equity reflected the
improvement in net margins for fiscal 2002, net of equity redemptions.
The Association plans capital expenditures approximating $55 million in
2003 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 2003 capital
expenditures and related working capital needs with existing cash balances,
cash expected to be provided from operations and additional borrowings, as
needed. In 2003, management expects cash expenditures to approximate $6.7
million for equity redemptions and cash patronage refunds. In addition, the
Association has committed a $10 million capital contribution to the Young
Pecan Company partnership subject to completion of refinancing that relieves
Gold Kist of its loan guarantee commitment. Lease commitments, debt payments
and loan guarantees are discussed in Notes 4, 5 and 11 of Notes to
Consolidated Financial Statements.
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
June 29, 2002 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 2003, to fund the repayment of outstanding Subordinated
Certificates as they mature and to meet the above 2003 obligations.
Critical Accounting Policies
The preparation of the Company's Consolidated Financial Statements requires
the use of estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
fiscal years presented. The following is a summary of certain accounting
policies considered to be critical by the Company. Other significant
accounting policies are disclosed in Note 1 of Notes to the Consolidated
Financial Statements.
Valuation of Investments - The Company has an investment in the preferred
and capital trust securities of Southern States Cooperative, Inc. (SSC). The
Company has accounted for the capital trust securities as "available for
sale" securities under the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Debt and Equity Securities" (SFAS
115). The capital trust securities are reflected at an approximate fair
value based on estimated interest rates for similar securities. As a result,
changes in interest rates or credit worthiness of SSC would impact the
approximate fair value. The preferred stock is an equity security that does
not have a readily determinable market value and is carried at cost in
accordance with the "Audit and Accounting Guide for Agricultural
Cooperatives" issued by the American Institute of Certified Public
Accountants.
As interest rates and market conditions change, the carrying values of the
securities could be reduced. Also, the proceeds from any future sale of
these securities could differ from these estimates. These events could have
a material impact on results of operations and financial position of the
Company.
Allowance for Doubtful Accounts - The Company's management estimates the
allowance for doubtful accounts based on an analysis of the status of
individual accounts. Factors such as current overall economic and industry
conditions, historical customer performance and current financial condition,
collateral position and delinquency trends are used in evaluating the
adequacy of the allowance for doubtful accounts. Changes in the economy,
industry and specific customer conditions may require adjustment to the
allowance amount recorded by the Company.
Accrued Self Insurance Costs - The Company is self-insured for certain
losses related to property, fleet, product and general liability, worker's
compensation and employee medical benefits. Stop loss coverage is maintained
with third party insurers to limit the total exposure to the Company.
Estimates of the ultimate cost of claims incurred as of the balance sheet
date are accrued based on historical data and estimated future costs. While
the Company believes these estimates are reasonable based on the information
available, actual costs could differ and materially impact the results of
operations and financial position.
Discontinued Operations - During June 2002, the Company adopted a plan to
dispose of its investment in a pecan processing and marketing partnership.
Under the Accounting Principles Board's Opinion No. 30, the Company is
required to estimate and accrue operating losses during the phase-out period,
as well as any estimated loss upon final withdrawal from the partnership. As
of June 29, 2002, the Company did not accrue any losses during the phase-out
period or upon withdrawal, as management estimates that no further losses
will be incurred in future periods. If conditions change from these
estimates, there could be a material impact on results of operations and
financial position.
Employee Benefits - The Company incurs various employment-related benefit
costs with respect to qualified and nonqualified pensions, deferred
compensation plans and postretirement health care. Assumptions are made
related to discount rates used to value certain liabilities, assumed rates of
return on assets in the plans, compensation increases, employee turnover,
mortality rates and healthcare cost trends. The Company utilizes third party
actuarial firms to assist management in determining these assumptions.
Different assumptions could result in the recognition of differing amounts of
expense over different periods of time.
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 refinancing and 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
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.
Future Accounting Requirements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 143 on Accounting for Asset
Retirement Obligations and SFAS No. 144 on Accounting for the Impairment or
Disposal of Long-Lived Assets. These statements will be effective for the
Company's fiscal year beginning June 30, 2002 and are not expected to have a
material impact on the Company's consolidated financial statements.
The FASB has also issued SFAS No. 145, Rescission of FASB Statements Nos.
4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections;
and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. These statements will be effective for the Company's fiscal year
beginning June 29, 2003. The Company does not anticipate that these
statements will have a material impact on the Company's consolidated
financial statements.
Item 7A. 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. Changes in fair value on these commodity futures and options
are recorded as a component of product cost in the consolidated statements of
operations. Terms of the Association's secured credit facility limit the use
of forward purchase contracts and commodities futures and options
transactions. At June 30, 2001 and June 29, 2002, the notional amounts and
fair value of the Association's outstanding commodity futures and options
positions were not material.
Interest Rate Risk
The Association has exposure to changes in interest rates on certain debt
obligations. The interest rates on the Senior Secured Credit facilities
fluctuate based on the London Interbank Offered Rate (LIBOR). See Note 4 of
Notes to Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data.
INDEX
FINANCIAL STATEMENTS: Page
GOLD KIST INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Reports 17
Consolidated Balance Sheets as of June 30, 2001 and
June 29, 2002 19
Consolidated Statements of Operations for the years
ended July 1, 2000, June 30, 2001 and June 29, 2002 20
Consolidated Statements of Patrons' and Other Equity
and Comprehensive Income (Loss) for the years
ended July 1, 2000, June 30, 2001 and June 29, 2002 21
Consolidated Statements of Cash Flows for the years
ended July 1, 2000, June 30, 2001 and June 29, 2002 22
Notes to Consolidated Financial Statements 23
FINANCIAL STATEMENT SCHEDULES
(Included in Part IV of this Report):
FINANCIAL STATEMENT SCHEDULE:
Valuation Reserves and Qualifying Accounts for the
years ended July 1, 2000, June 30, 2001 and
June 29, 2002 42
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 30, 2001 and June 29, 2002, and the related
consolidated statements of operations, patrons' and other equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended June 29, 2002, as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. We did not
audit the consolidated financial statements of Golden Peanut Company, LLC and
Subsidiaries, an investment accounted for using the equity method of
accounting, as described in Note 10(c) to the consolidated financial
statements, as of June 30, 2001 and for each of the years in the two-year
period ended June 30, 2001. The consolidated financial statements of Golden
Peanut Company, LLC 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, LLC and Subsidiaries as of
June 30, 2001 and for each of the years in the two-year period ended June 30,
2001, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 30, 2001 and June 29, 2002, and the results of their
operations and their cash flows for each of the years in the three-year
period ended June 29, 2002, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
September 6, 2002
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Golden Peanut Company, LLC
We have audited the accompanying consolidated balance sheet of Golden
Peanut Company, LLC and subsidiaries (the "Company") as of June 30, 2001, and
the related consolidated statements of operations, members' equity, and cash
flows for each of the two years in the period ended June 30, 2001 (not
presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, LLC and subsidiaries at June 30, 2001, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended June 30, 2001, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Atlanta, Georgia
August 31, 2001, except
for the fourth paragraph
of Note 11, as to which
the date is September 17, 2001
GOLD KIST INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
June 30, 2001 June 29, 2002
ASSETS
Current assets:
Cash and cash equivalents $ 11,339 8,997
Receivables, principally trade, less
allowance for doubtful accounts of
$2,449 in 2001 and $1,194 in 2002 106,997 110,470
Inventories (note 2) 175,054 191,130
Deferred income taxes 18,177 18,285
Investments (note 10) 72,002 -
Other current assets 12,735 22,587
Total current assets 396,304 351,469
Investments (notes 1(f) and 10) 121,612 91,311
Property, plant and equipment, net
(note 3) 230,167 229,476
Prepaid pension costs 43,110 43,419
Other assets 78,863 73,854
$870,056 789,529
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt (note 4):
Short-term borrowings $ 98,220 10,000
Current maturities of long-term debt 22,913 15,626
121,133 25,626
Accounts payable 72,898 69,275
Accrued compensation and related
expenses 32,159 30,048
Interest left on deposit (note 4) 11,900 9,773
Other current liabilities 37,127 38,407
Net liabilities - discontinued
operations (note 11) - 18,381
Total current liabilities 275,217 191,510
Long-term debt, less current maturities
(note 4) 266,285 250,644
Accrued postretirement benefit costs
(note 8(b)) 32,143 29,628
Other liabilities 23,861 34,586
Total liabilities 597,506 506,368
Patrons' and other equity (note 6):
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 29 in
2001 and 18 in 2002 29 18
Patronage reserves 189,278 195,620
Accumulated other comprehensive income (loss) 15,450 (2,169)
Retained earnings 67,793 89,692
Total patrons' and other equity 272,550 283,161
Commitments and contingencies (notes 4, 5, 6,
8, 9 and 11)
$870,056 789,529
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Years Ended
July 1, 2000 June 30, 2001 June 29, 2002
Net sales volume $1,770,453 1,810,755 1,863,828
Cost of sales 1,709,183 1,690,437 1,706,582
Gross margins 61,270 120,318 157,246
Distribution, administrative
and general expenses 82,297 88,507 87,486
Benefit plans curtailment and
settlements gain (note 8(b)) - 33,727 -
Net operating margins (loss) (21,027) 65,538 69,760
Other income (deductions):
Interest and dividend
income (note 10(a)) 8,262 11,328 9,426
Interest expense (note 4) (30,425) (39,996) (27,962)
Gain on sale of marketable
equity security and other
investments (note 10(b)) - - 15,578
Equity in earnings (loss) of
affiliate (note 10(c)) (4,393) 10,048 -
Miscellaneous, net
(note 10(b)) (1,272) (241) 2,882
Total other deductions (27,828) (18,861) (76)
Margins (loss) from
continuing operations
before income taxes (48,855) 46,677 69,684
Income tax expense (benefit)-
(note 7) (22,352) 13,397 22,055
Margins (loss) from
continuing operations (26,503) 33,280 47,629
Discontinued operations (note 11):
Gain (loss) from operations of
discontinued joint venture
partnership (less applicable
income tax expense (benefit)
of $198 thousand, $(126)
thousand and $(7.3) million
for July 1, 2000, June 30,
2001 and June 29, 2002,
respectively) 417 (214) (13,543)
Net margins (loss) $ (26,086) 33,066 34,086
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF PATRONS' AND OTHER EQUITY
AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended July 1, 2000, June 30, 2001 and June 29, 2002
(Amounts in Thousands)
Accumulated other
comprehensive income (loss)
Unrealized
gain (loss) on Pension
Common Patronage marketable liability Retained
Stock reserves equity security adjustment earnings Total
June 26, 1999 31 204,080 19,015 (345) 56,586 279,367
Comprehensive loss:
Net loss for 2000 - - - - (26,086) (26,086)
Change in value
of marketable
equity security,
net of tax
(note 10(b)) - - (10,268) - - (10,268)
Additional minimum
pension liability - - - (237) - (237)
Total comprehensive
loss (36,591)
Redemptions and
other changes (1) (6,560) - - 3,275 (3,286)
July 1, 2000 30 197,520 8,747 (582) 33,775 239,490
Comprehensive
income:
Net margins for
2001 - - - - 33,066 33,066
Change in value
of marketable
equity security,
net of tax
(note 10(b)) - - 8,812 - - 8,812
Additional minimum
pension liability - - - (1,527) - (1,527)
Total comprehensive
income 40,351
Redemptions and other
changes (1) (8,242) - - 952 (7,291)
June 30, 2001 29 189,278 17,559 (2,109) 67,793 272,550
Comprehensive income:
Net margins for
2002 - 14,248 - - 19,838 34,086
Change in value of
Marketable equity
security, net of
tax (note 10(b)) - - 7,920 - - 7,920
Reclassification
adjustment, gain
on sale of
marketable equity
security, net of
tax (note 10(b)) - - (25,479) - - (25,479)
Additional minimum
Pension liability - - - (60) - (60)
Total comprehensive
income 16,467
Cash portion of
nonqualified
patronage refund - (1,656) - - - (1,656)
Redemptions and
other changes (11) (6,250) - - 2,061 (4,200)
June 29, 2002 $ 18 195,620 - (2,169) 89,692 283,161
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended
July 1, 2000 June 30, 2001 June 29, 2002
Cash flows from operating
activities:
Margins (loss) from continuing
operations $ (26,503) 33,280 47,629
Non-cash items included in
margins (loss) from continuing
operations:
Depreciation and amortization 43,312 42,747 39,071
Post retirement benefit plan
curtailment gain - (33,727) -
Gain on sale of marketable
equity security and other
investments (406) - (15,578)
Equity in (earnings) loss of
partnership 4,393 (10,048) -
Deferred income tax expense
(benefit) (18,431) 13,929 14,013
Other 3,876 913 5,632
Changes in operating assets and
liabilities:
Receivables 2,362 (299) (3,473)
Inventories (262) 8,007 (16,076)
Other current assets 1,069 6,715 6,392
Accounts payable, accrued and
other expenses (17,241) 10,423 (9,610)
Net cash provided by (used in)
operating activities of
continuing operations (7,831) 71,940 68,000
Cash flows from investing
activities:
Acquisitions of investments (98,605) (818) (671)
Acquisitions of property, plant
and equipment (29,874) (33,495) (38,899)
Proceeds from disposal of
investments 3,429 8 90,891
Other (2,592) 1,523 (6,092)
Net cash provided by (used in)
investing activities of
continuing operations (127,642) (32,782) 45,229
Net cash provided by (used in)
investing activities of
discontinued operations:
Repurchase of accounts and crop
notes receivable, net (20,538) - -
Other 3,554 - -
Net cash provided by (used in)
investing activities (144,626) (32,782) 45,229
Cash flows from financing
activities:
Short-term borrowings, net 63,770 (33,730) (88,220)
Proceeds from long-term debt 100,000 140,000 95,000
Principal payments of long-term
debt (17,667) (136,868) (117,928)
Patronage refunds and other
equity paid in cash (5,785) (5,892) (4,423)
Net cash provided by (used in)
financing activities. 140,318 (36,490) (115,571)
Net change in cash and cash
equivalents (12,139) 2,668 (2,342)
Cash and cash equivalents at
beginning of year 20,810 8,671 11,339
Cash and cash equivalents at end
of year $ 8,671 11,339 8,997
Supplemental disclosure of cash
flow data:
Cash paid (received) during the
years for:
Interest (net of amounts
capitalized) $ 29,738 39,538 31,125
Income taxes $ 2,940 (6,042) 7,831
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 1, 2000, June 30, 2001 and June 29, 2002
(Dollar Amounts in Thousands)
(1) Summary of Significant Accounting Policies
Gold Kist Inc. is an agricultural membership cooperative association,
headquartered in Atlanta, Georgia. Gold Kist Inc. operates fully integrated
broiler production, processing and marketing operations, as well as pork
production facilities. These operations provide marketing and purchasing
services to approximately 2,500 breeder, broiler and pork member/producers.
The accounting and reporting policies of Gold Kist Inc. and subsidiaries
conform to accounting principles generally accepted in the United States of
America 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 subsidiaries (collectively "Gold
Kist" or "Company" or "Association"). All significant intercompany
balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made in fiscal 2000 and 2001 to
conform to the presentation in fiscal 2002.
(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 or money
market funds that invest in such securities. 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
Live poultry and hogs consist of broilers, market hogs and breeding
stock. 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 ingredients, 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 feed ingredient purchases.
Effective July 2, 2000, the Association adopted Statement of
Financial Accounting Standards (SFAS) 133 as amended by SFAS 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 fiscal 2001, changes in the fair value of these
derivatives, except for forward purchase contracts on which the Company
takes physical delivery, have been recorded through earnings. The
effect of the adoption of the new Statements was immaterial.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Marketable products consist primarily of dressed and further
processed poultry. 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) Revenue Recognition
Revenue is recognized upon shipment or upon transfer of ownership
of the product to the customer.
(e) Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation of
plant and equipment is calculated using the straight-line method over
the estimated useful lives of the respective assets as follows.
Land improvements 5-10 Years Office furniture and equipment 3-10 Years
Buildings 10-25 Years Automotive equipment 3- 5 Years
Machinery and equipment 5-10 Years
(f) 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.
Accordingly, it is not practical to determine these investments' 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.
Gold Kist applies the provisions of SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." Pursuant to the
provisions of SFAS 115, the Company had previously classified its
marketable equity security, which was sold in December 2001, as
"available-for-sale" (see Note 10(b)). Accumulated other comprehensive
income - unrealized gains and losses on "available-for-sale" securities
are included as a separate component of patrons' and other equity in the
accompanying consolidated financial statements, net of deferred income
taxes.
Gold Kist's investment in Golden Peanut Company was accounted for
using the equity method. On August 30, 2001, Gold Kist liquidated its
investment in Golden Peanut Company at its carrying value (see note
10(c)).
(g) 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 utilizes
nonqualified patronage refunds, which are deductible for income tax
purposes only to the extent paid or redeemed in cash.
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.
(h) Fair Value of Financial Instruments
Gold Kist's financial instruments include cash and cash
equivalents, receivables and accounts payable and accrued expenses,
interest left on deposit, notes receivable and debt. Because of the
short maturity of cash equivalents, receivables and accounts payable 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 30, 2001 and June 29, 2002
unless otherwise specified (see notes 1(f) and 4).
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
Gold Kist applies the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." 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 exceeds 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.
(j) Comprehensive Income (Loss)
In 1999, Gold Kist adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes rules for reporting of comprehensive
income (loss) and its components. Comprehensive income (loss) consists
of net margins (loss), unrealized gains and losses on a marketable
equity security and pension liability adjustments, net of tax, and is
presented in the consolidated statements of patrons' and other equity
and comprehensive income (loss). The adoption of SFAS 130 had no impact
on total patrons' equity.
(k) Goodwill
In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 142 on
Goodwill and Other Intangible Assets. The statement requires that
goodwill no longer be amortized; instead it will be periodically tested
for impairment. Statement No. 142 is effective for fiscal years
beginning after December 15, 2001. Early adoption was permitted for
companies with fiscal years beginning after March 15, 2001, provided
that the first interim period financial statements had not been issued.
Effective July 1, 2001, the Association adopted SFAS No. 142.
Approximately $20 million of goodwill is included in other assets in the
accompanying consolidated balance sheets at June 30, 2001 and June 29,
2002. The Association has determined that the fair value of its assets
in the Poultry reporting unit exceeded their carrying value, including
the goodwill. Goodwill amortization expense of $1.2 million is included
in distribution, administrative and general expenses in the accompanying
consolidated statements of operations for the years ended July 1, 2000
and June 30, 2001, respectively, with the same impact on net margins
(loss).
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(l) Fiscal Year
Gold Kist employs a 52/53-week fiscal year. The consolidated
financial statements for 2000, 2001 and 2002 reflect 53 weeks, 52 weeks
and 52 weeks, respectively. Fiscal 2003 will be a 52-week year.
(m) 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
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual
results could differ from these estimates.
(2) Inventories
Inventories are summarized as follows:
2001 2002
Live poultry and hogs $ 90,065 91,457
Marketable products 53,729 66,533
Raw materials and supplies 31,260 33,140
$175,054 191,130
(3) Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
2001 2002
Land and land improvements $ 32,140 31,372
Buildings 202,083 202,285
Machinery and equipment 399,791 423,348
Construction in progress 3,314 5,269
637,328 662,274
Less accumulated
depreciation 407,161 432,798
$230,167 229,476
(4) Notes Payable and Long-Term Debt
Short-term borrowings at June 30, 2001 included $55.2 million under a
rolling four-month secured agreement with a commercial bank entered into in
April 1998. The commercial bank held a marketable equity security owned by
Gold Kist as collateral (see note 10(b)). The Company was required to
maintain funds with the bank to account for volatility in the market price of
the security held as collateral. Interest on the borrowings was at one-month
London Interbank Offered Rate (LIBOR) plus .75% per annum. The Company
earned interest on the collateral funds at rates that approximated the
federal funds rate. The marketable equity security was sold in December 2001
and the loan was repaid.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The Company's long-term debt includes the Series B Senior Exchange Notes
and the Series C Senior Exchange Notes with an insurance company. The
interest rates on these notes are adjusted quarterly in accordance with the
Company's financial condition. As of June 29, 2002, interest rates on the
Series B Senior Exchange Notes and the Series C Senior Exchange Notes were
9.0% and 9.25%, respectively. As of June 30, 2001, interest rates on the
Series B Senior Exchange Notes and the Series C Senior Exchange Notes were
11.25% and 11.5%, respectively.
At July 1, 2001, the Company's loan agreements included 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 range from 2.25% to 3% over LIBOR,
adjusted quarterly based on the Association's financial condition. The
interest rate on the five-year term loan is fixed at 10.57%. The
Association's senior notes, senior secured credit facilities and term loans
with an agricultural credit bank are secured by substantially all of the
Association's inventories, receivables, and property, plant and equipment.
On October 23, 2001, the Association refinanced its Senior Secured Credit
Facility, replacing the aforementioned $100 million 364-day revolving line of
credit due November 3, 2001 with a $110 million revolving line of credit due
October 23, 2002. The $95 million two-year term loan due November 2002 was
also replaced with a $95 million two-year term loan due October 2003. Other
terms and conditions of the credit facility were essentially unchanged.
On September 6, 2002, the Company received $205 million in commitments to
refinance and extend the Senior Secured Credit facilities that will include a
$110 million Revolving Credit Facility maturing November 2, 2004 and a $95
million Term Loan maturing November 2, 2005. The interest rates on the
facility will range from 1.50% to 2.25% over LIBOR, adjusted quarterly based
on the Association's financial conditions. Other terms and conditions will
be essentially unchanged.
As of June 29, 2002 and June 30, 2001, the amounts outstanding under the
364-day line of credit were $10 million and $43 million, respectively, with
weighted average interest rates of 4.09% and 6.8%, respectively.
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:
2001 2002
Series B senior exchange notes, due in annual
installments of $2,727 beginning in February
2002 with interest payable quarterly $ 30,000 27,273
Series C senior exchange notes, due in annual
installments of $2,273 beginning in May
2002 with interest payable quarterly 25,000 22,727
Senior secured note payable with an insurance
company due in November 2005 with interest payable
quarterly at a fixed rate of 10.57% 45,000 45,000
Term loan agreements with financial institutions,
due in November 2005 (weighted average rate of
7% at June 30, 2001 and 4.09% at June 29, 2002) 95,000 95,000
Term loan agreements with agricultural credit bank,
due in semi-annual installments of $1,785 with
interest payable quarterly (weighted average
interest rate of 9.7% at June 30, 2001 and 8.46% at
June 29, 2002) 41,075 37,505
Subordinated capital certificates of interest
with original fixed maturities ranging from
three to fifteen years, unsecured (weighted
average interest rate of 7.9% at June 30, 2001 and
June 29, 2002) 42,272 30,513
Tax exempt industrial revenue bonds with varying
interest rates, due in quarterly and annual
installments through 2016 9,550 7,500
Pro rata share of mortgage loan, at 8.47% interest,
due in monthly installments to June 30, 2004,
secured by a building 1,069 752
Other 232 -
289,198 266,270
Less current maturities 22,913 15,626
$266,285 250,644
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The terms of debt agreements specify minimum consolidated tangible net
worth, current ratio and coverage ratio requirements, as well as a limitation
on the total 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 June 29, 2002, the Association was in compliance with all
loan covenants.
Annual required principal repayments on long-term debt, based on the
September 6, 2002 loan commitments, for the five years subsequent to June 29,
2002 are as follows:
Year:
2003 $ 15,626
2004 14,011
2005 10,515
2006 149,608
2007 10,324
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 Series B and Series C
senior exchange notes at June 30, 2001 and June 29, 2002 was approximately
$56.8 million and $48.2 million, respectively. The estimated fair value of
the term loans with the agricultural credit bank at June 30, 2001 and June
29, 2002 was approximately $39.7 million and $35.1 million, respectively, and
the estimated fair value of the senior secured note with an insurance company
was $46.7 million at June 30, 2001 and June 29, 2002.
(5) Leases
Gold Kist leases vehicles, transportation and processing equipment and
certain facilities from third parties under operating leases, many of which
contain renewal options. Rent expense from continuing operations for 2000,
2001and 2002 was $16.3 million, $19.3 million and $24.2 million,
respectively. Commitments for minimum rentals under non-cancelable
operating leases at the end of 2002 are as follows:
Year:
2003 $ 15,298
2004 12,235
2005 9,500
2006 7,067
2007 4,984
Thereafter 4,973
$ 54,057
(6) 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 undistributed member margins allocated as
either qualified or nonqualified notified equity, less income taxes paid on
undistributed nonqualified equity. Qualified notified equity is deductible
for income tax purposes when allocated; whereas, nonqualified notified equity
is deductible upon redemption. The redemption of qualified and nonqualified
notified equity is subject to the discretion of the Board of Directors.
Patronage reserves do not bear interest and are subordinated to all
certificates outstanding and indebtedness of Gold Kist.
Retained earnings include an allocation of member margins based on
financial ratios, as well as cumulative net margins (losses) resulting from
nonmember and nonpatronage transactions, including noncooperative
subsidiaries, and losses from patronage operations. Also included are
amounts related to the early redemption of notified equity, representing the
difference between the face value and the redemption amounts.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(7) Income Taxes
Total income tax expense (benefit) was allocated as follows:
2000 2001 2002
Margins (loss) from continuing operations $(22,352) 13,397 22,055
Discontinued operations 198 (126) (7,292)
Patrons' and other equity - accumulated
comprehensive income:
Unrealized gain on marketable equity
security (5,529) 4,745 -
Pension liability adjustment (141) (910) (36)
$(27,824) 17,106 14,727
The provisions for income tax expense (benefit), principally Federal,
related to margins (loss) from continuing operations consist of the
following:
2000 2001 2002
Current expense (benefit) $ (3,921) (532) 8,042
Deferred expense (benefit) (18,431) 13,929 14,013
$ (22,352) 13,397 22,055
Gold Kist's combined federal and state effective tax rate from operations
for 2000, 2001 and 2002 was (46)%, 29% and 32%, respectively. A
reconciliation of income tax expense (benefit) allocated to margins (loss)
from continuing operations computed by applying the Federal corporate income
tax rate of 35% in 2000, 2001 and 2002 to margins (loss) from continuing
operations before income taxes for the applicable year follows:
2000 2001 2002
Computed expected income tax expense
(benefit) $(17,099) 16,337 24,389
Increase (decrease) in income tax
expense (benefit) resulting from:
Cash portion of nonqualified patronage
refund - - (580)
Effect of state income taxes, net of
Federal benefit (2,638) 783 146
Dividends received deduction (711) (2,026) (505)
Nonqualified equity redemptions (1,187) (1,582) (1,222)
Employment credits (208) (195) (287)
Other, net (509) 80 114
$(22,352) 13,397 22,055
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2001 and June 29, 2002 are as follows:
2001 2002
Deferred tax assets:
Postretirement benefits $13,121 12,081
Federal tax operating loss carryforward 7,799 -
Insurance accruals 11,074 9,474
Federal alternative minimum tax carryforward 2,466 2,462
Allowance for doubtful accounts 1,506 640
State tax operating loss carryforwards 3,774 3,525
Equity in partnerships 1,544 6,186
Investment reserve 8,926 6,412
Other assets 3,708 4,599
Other 2,258 2,285
Total gross deferred tax assets 56,176 47,664
Less valuation allowance (390) (399)
Total net deferred tax assets 55,786 47,265
Deferred tax liabilities:
Unrealized gain on marketable equity security (10,710) -
Accelerated depreciation (5,655) (6,257)
Deferred compensation (8,557) (10,715)
Total deferred tax liabilities (24,922) (16,972)
Net deferred tax assets $ 30,864 30,293
The net change in the total valuation allowance for the years ended 2000,
2001 and 2002 was a decrease of $223, $7 and an increase of $9,
respectively. The Company's management believes the existing net deductible
temporary differences comprising the total net deferred tax assets will
reverse during periods in which the Company generates net taxable income.
At June 29, 2002, Gold Kist has an alternative minimum tax credit
carryforward for federal income tax purposes of $2.5 million, which is
available to offset future federal income taxes, if any.
(8) Employee Benefits
(a) Pension Plan
Gold Kist has noncontributory defined benefit pension plans
covering substantially all of its employees and directors
(participants). The plan provisions covering the salaried participants
provide pension benefits that are based on the employees' compensation
during the years before retirement or other termination of employment.
The plan provisions covering the hourly participants provide 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.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(b) Medical and Life Insurance Plans
Effective January 1, 2001, the Association substantially curtailed
its postretirement medical benefit plan. Postretirement medical
coverage will only be available to existing retirees and active
employees, who as of that date, were 62 years of age or older and had 15
or more years of service. A net gain from the curtailment of $29.5
million is reflected in the accompanying 2001 consolidated statement of
operations with the accompanying reduction in the accrued postretirement
benefit liability in the accompanying consolidated balance sheet at June
30, 2001.
The following table sets forth the plans' change in benefit obligation,
change in plan assets and economic assumptions for the years ended June 30,
2001 and June 29, 2002.
Medical & Life
Pension Benefits Insurance Benefits
2001 2002 2001 2002
Change in benefit obligation
Benefit obligation at beginning
of year $130,404 136,007 73,071 24,899
Service cost 4,691 5,154 2,883 134
Interest cost 9,956 9,679 4,603 1,785
Actuarial (gains) and losses 11,118 4,218 8,624 18,333
Benefits paid (other than
settlements) (4,590) (11,860) (3,416) (3,312)
Plan amendments - (57) (20,278) -
Settlements and curtailment (15,572) (3,969) (40,588) -
Benefit obligation at end of year 136,007 139,172 24,899 41,839
Change in plan assets
Fair value of plan assets at
beginning of year 180,482 147,064 - -
Actual return on plan assets (14,205) 5,089 - -
Contributions by employer 949 4,623 3,416 3,312
Benefits paid (other than
settlements) (4,590) (11,860) (3,416) (3,312)
Settlements (15,572) (3,969) - -
Fair value of plan assets at end
of year 147,064 140,947 - -
Funded status 11,057 1,775 (24,899) (41,839)
Unrecognized transition (asset)/
obligation (2,032) (1,136) - -
Unrecognized prior service cost 14,094 12,037 (19,503) (17,704)
Unrecognized actuarial (gain)/loss 11,028 23,741 7,866 25,861
Contributions after the
measurement date 242 176 879 811
Net amount recognized $ 34,389 36,593 (35,657) (32,871)
Prepaid benefit cost $ 43,110 43,419 - -
Accrued benefit liability (12,905) (10,287) (35,657) (32,871)
Intangible asset 818 - - -
Accumulated other comprehensive
Loss 3,366 3,461 - -
Net amount recognized 34,389 36,593 (35,657) (32,871)
Less current portion 3,514 3,243
$ (32,143) (29,628)
Weighted-average assumptions as
of year-end
Discount rate 7.50% 7.50% 7.50% 7.50%
Expected return on plan assets 9.50 9.50 - -
Rate of compensation increase 5.02 5.01 - -
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The health care cost trend rate used to determine the medical and life
insurance benefit obligation at June 30, 2001 was 10%, declining ratably to
5% by the year 2011 and remaining at that level thereafter. The health care
cost trend rate used to determine the medical and life insurance benefit
obligation at June 29, 2002 was 10%, declining ratably to 5% by the year 2012
and remaining at that level thereafter. A 1% increase in the health care
cost trend rate would increase the medical and life insurance benefit
obligation as of June 29, 2002 by $2,604. A 1% decrease in the health care
cost trend rate would decrease the medical and life insurance benefit
obligation as of June 29, 2002 by $2,294.
Medical & Life
Pension Benefits Insurance Benefits
2000 2001 2002 2000 2001 2002
Components of net periodic
benefit cost (income):
Service cost $ 4,072 4,691 5,154 3,539 2,883 134
Interest cost 8,914 9,956 9,679 4,679 4,603 1,785
Estimated return on plan
Assets (13,899)(15,124) (15,002) - - -
Net amortization 433 1,077 1,421 243 (136)(1,461)
(480) 600 1,252 8,461 7,350 458
Settlements and curtailment - (4,273) 1,100 - (29,454) -
Net periodic benefit cost
(income) after
settlements and
curtailment $ (480) (3,673) 2,352 8,461 (22,104) 458
A 1% increase in the health care cost trend rate would increase the medical
and life insurance service and interest cost components as of June 29, 2002
by $80. A 1% decrease in the health care cost trend rate would decrease the
medical and life insurance service and interest cost components as of June
29, 2002 by $69.
(9) Contingent Liabilities
In August 1999, the State Court of Fulton County, Georgia entered a $22
million judgment against Golden Peanut Company (Golden Peanut) and in favor
of a peanut farming company that alleged it had been underpaid for its 1990
crop. Gold Kist held a forty percent interest in Golden Peanut at the time
of the events which resulted in the lawsuit. In March 2001, the Georgia
Court of Appeals reversed this judgment and ordered a new trial. In April
2002, the Georgia Supreme Court affirmed this decision. In July 2002, Golden
Peanut filed a petition for certiorari in the United States Supreme Court,
asking the Court to reverse the trial court judgment outright and thus
eliminate the need for a second trial. If this petition is denied, the
parties' re-trial is tentatively scheduled to begin in November 2002. Gold
Kist is contingently liable through a Litigation Sharing and Indemnification
Agreement with Golden Peanut for its forty percent share of any costs related
to this litigation.
Gold Kist is a party to various other legal and administrative proceedings,
all of which management believes constitute ordinary routine litigation
incidental to the business conducted by Gold Kist, or are not material in
amount.
(10) Investments
(a) Capital Trust and Preferred Securities
In October 1998, the Association completed the sale of assets
of the Agri-Services segment to Southern States Cooperative, Inc. (SSC).
In order to complete the transaction, the Association committed to
purchase from SSC, subject to certain terms and conditions, up to $60
million principal amount of capital trust securities and $40 million
principal amount of cumulative preferred securities if SSC 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 the securities under the commitment. The securities carried a
combined weighted average interest/dividend rate of 8.5% and 8.3% at
June 29, 2002 and June 30, 2001, respectively. No dividends were paid
on the cumulative preferred securities for the third and fourth
quarters of fiscal 2002. Gold Kist is permitted to sell the securities
pursuant to applicable securities regulations. The securities are
classified as noncurrent investments in the accompanying consolidated
balance sheets at a carrying value of $81.4 million at June 29, 2002 and
June 30, 2001.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(b) Marketable Equity Security
At July 1, 2000, the Association's marketable equity security was
carried at its fair value of $34.2 million, which represents a gross
unrealized gain of $13.5 million. The 2000 gross unrealized gain, net
of deferred income taxes of $4.7 million, has been reflected as a
separate component of patrons' and other equity. At June 30, 2001,
the Association's marketable equity security was carried at its fair
value of $47.8 million, which represents a gross unrealized gain
of $27 million, and has been reflected as a separate component of
patrons' and other equity. During the quarter ended December 29, 2001,
the Association sold its marketable equity security, its investment
in an interregional fertilizer cooperative and other investments
realizing total proceeds of $64.6 million and a gain before income
taxes of $15.6 million.
Dividends of $690 thousand, $723 thousand and $375 thousand are
included in interest and dividend income for the years ended July 1,
2000, June 30, 2001 and June 29, 2002, respectively.
(c) Golden Peanut Company
Gold Kist had a 25% interest in Golden Peanut Company, LLC and
subsidiaries (Golden Peanut). Gold Kist's investment in Golden Peanut
amounted to $24.2 million at June 30, 2001. In 2000, Gold Kist received
a distribution of $2.3 million from Golden Peanut.
Summarized financial information of Golden Peanut is shown below:
Condensed Consolidated Balance Sheet
2001
Current assets $281,796
Property, plant and equipment, net and other
noncurrent assets 64,360
Total assets $346,156
Current liabilities $224,488
Accrued postretirement benefits other than pensions 9,594
Other noncurrent liabilities 16,538
Members' equity 95,536
Total liabilities and members' equity $346,156
Condensed Consolidated Statements of Operations
2000 2001
Net sales and other operating income $ 468,372 575,662
Costs and expenses 478,059 546,414
Net earnings (loss) $ (9,687) 29,248
Gold Kist received procurement commissions, royalties and
administrative service fees of $.8 million and $.9 million in 2000 and
2001, respectively.
On August 30, 2001, Gold Kist withdrew as a member of Golden Peanut
and liquidated the investment at its carrying value of $24.2 million as
of June 30, 2001.
(11) Discontinued Operations - Pecan Processing and Marketing Partnership
Gold Kist holds a 25% equity interest and 35% earnings (loss)
participation in a pecan processing and marketing partnership. The partners
adopted a restructuring agreement in January 2002 that gave Gold Kist
effective control of the partnership. As a result, Gold Kist began
consolidating the partnership.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Gold Kist and the other general partner are each guarantors of up to
$60 million under a secured line of credit agreement between the agricultural
credit bank and the partnership. At June 29, 2002, the amount outstanding
under the facility was $55 million. The line of credit bears interest at the
prime rate plus 2%, is secured by pecan inventories, receivables and
substantially all of the partnership's property, plant and equipment, and is
due on October 31, 2002. At June 29, 2002, the partnership was in compliance
or had obtained waivers with respect to all applicable loan covenants.
Gold Kist believes it is reasonably possible that payments could be
required under the guarantee. If required, Gold Kist anticipates funding
such amounts from availability under its Senior Secured Credit Facility. If
payments were made under the guarantee, Gold Kist would have a security
interest in the inventories, receivables and substantially all of the fixed
assets of the partnership.
Effective in June 2002, Gold Kist adopted a plan to withdraw from the
partnership and discontinue its participation in the operations of the
affiliate during 2003. Accordingly, the operating results of the partnership
have been segregated from continuing operations and reported separately in
the accompanying consolidated balance sheet and statements of operations and
cash flows for 2002. The Company does not expect to incur additional losses
during the phase-out period or upon withdrawal.
Gold Kist's management believes it is the intent of the other general
partner to raise additional equity and/or refinance the aforementioned
secured line of credit, continue operations and relieve Gold Kist of its
guaranty obligation during 2003.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors of Gold Kist are:
Years
Term Served as
Name Age Office Expires Director
(as of
8/30/02)
Dan Smalley* 53 Director (District 1) 2002 17
Dorman K. Grace 46 Director (District 2) 2002 6
months
Phil Ogletree, Jr. 69 Director (District 3) 2004 25
Jeffery A. Henderson 42 Director (District 4) 2003 2
Douglas A. Reeves* 61 Director (District 5) 2003 2
W. A. Smith 43 Director (District 6) 2004 4
W. Kenneth Whitehead* 58 Director (District 7) 2002 9
Walter C. Dockery 42 Director (District 8) 2004 1
H. Michael Davis 51 Director (District 9) 2003 8
* Member of Board of Directors Executive Committee. Mr. Smalley serves as
Chairman of the Board of Directors, and Mr. Whitehead serves as Vice-Chairman
of the Board.
The Directors of Gold Kist are elected on a district representation
basis. The districts are redrawn from time to time by the Board of
Directors, under provisions of the By-Laws of Gold Kist, to provide for
equitable representation of members in the territory served by Gold Kist.
During the past five years, each of the Directors has owned and managed
substantial farming operations, producing such agricultural products as
peanuts, cotton, soybeans, corn, other grains, peaches, vegetable crops,
cattle, poultry and dairy products. While the size and types of products
produced on, and personnel employed at, each of the Director's farms varies,
each Director's business activities have been related primarily to small
agribusiness enterprises. There are no family relationships among any of the
Directors and executive officers.
The Executive Officers of Gold Kist are:
Years Years
Served Served
In that with
Name Age Office Office Gold Kist
(as of (as of (as of
8/30/02) 8/30/02) 8/30/02)
John Bekkers 57 President and Chief 1 17
Executive Officer
M. A. Stimpert 58 Senior Vice President, 6 19
Planning and Administration
Stephen O. West 56 Chief Financial Officer and 4 22
Treasurer
J. David Dyson 55 General Counsel, Vice 4 22
President and Secretary
Paul G. Brower 63 Vice President 23 23
Corporate Relations
Jerry L. Stewart 62 Vice President 21 39
Marketing and Sales
Donald W. Mabe 48 Vice President 5 17
Operations
Marshall Smitherman 60 Vice President 4 23
Purchasing
Allen C. Merritt 56 Vice President, Science 4 30
and Technology
Harry T. McDonald 57 Vice President, 2 5
Human Resources
Sandra W. Kearney 43 Vice President, 1 1
Information Services
W. F. Pohl, Jr. 52 Controller 20 26
The officers serve for terms of one year and until their successors are
elected by the Board of Directors.
During the past five years, the principal occupation of each of the
above named executive officers, with exception of Donald W. Mabe, Harry T.
McDonald and Sandra W. Kearney has been as an officer or employee of Gold
Kist.
Mr. Donald W. Mabe was elected Vice President - Operations, Poultry
Group, effective July 25, 1997. He previously served as President of
Carolina Golden Products Company from January 1991 until election to his
current position.
Mr. Harry T. McDonald was elected Vice President, Human Resources,
effective April 2000. He previously served as director of Management Systems
for the Gold Kist Poultry Group from September 1997 until election to his
current position. From August 1, 1996 through August 1, 1997, he served as
President of Claxton Poultry, an integrated poultry company headquartered in
Claxton, Georgia. Mr. McDonald also served as president of the poultry
division of Seaboard Farms, headquartered in Shawnee Mission, Kansas, from
March 1990 through June 1996.
Ms. Sandra W. Kearney was elected Vice President, Information Services
on January 19, 2001. She previously served as CEO and Chief Technology
Officer for FasTechnologies, a computer consulting company, from February,
1999 to December, 2000. Ms. Kearney also served as Vice President of
Information Systems for La Quinta Inns, Inc. from February, 1995, to January,
1999.
Item 11. Executive Compensation.
Summary Compensation Table. The following table sets forth information
concerning the compensation received by the Chief Executive Officer and for
each of the four other most highly compensated executive officers:
Annual compensation
Other All
annual other
Fiscal compensa-compensa-
Year Salary Bonus tion(1) tion(2)
ended ($) ($) ($) ($)
John Bekkers June 29, 2002 $518,365 $170,028 $23,442 $8,883
President and Chief June 30, 2001 403,750 209,024 15,919 6,537
Executive Officer July 1, 2000 440,385 0 14,258 9,251
M. A. Stimpert June 29, 2002 $292,231 $85,014 $12,005 $9,846
Senior Vice President, June 30, 2001 247,000 104,512 9,287 6,903
Planning & Admin. July 1, 2000 269,231 0 9,376 10,313
Jerry L. Stewart June 29, 2002 $246,429 $82,777 $15,127 $9,004
Vice President June 30, 2001 209,475 104,512 11,426 7,245
Marketing and Sales July 1, 2000 227,519 0 10,181 9,772
Donald W. Mabe June 29, 2002 $203,731 $73,925 $9,513 $6,522
Vice President June 30, 2001 175,500 90,880 6,287 3,697
Operations July 1, 2000 186,154 0 5,918 6,500
Stephen O. West June 29, 2002 $200,573 $65,365 $522 $7,979
Chief Financial Officer June 30, 2001 181,642 79,520 404 5,260
and Treasurer July 1, 2000 192,696 0 378 8,113
_______________________________
(1)The amounts shown for the fiscal years ended June 30, 2001 and July 1,
2000 set forth that portion of interest earned on voluntary salary and
bonus deferrals under non-qualified deferred compensation plans above 120%
of the applicable federal rate. Other than such amounts, for the fiscal
years ended June 29, 2002, June 30, 2001 and July 1, 2000, no amounts of
"Other Annual Compensation" were paid to any of the above named executive
officers, except for perquisites and other personal benefits which for each
executive officer did not exceed the lesser of $50,000 or 10% of such
individual's salary plus annual bonus.
(2)The amounts set forth include the following amounts that were contributed
by the Association for fiscal years 2002, 2001 and 2000 on behalf of the
named executive officers pursuant to the Gold Kist Profit Sharing and
Investment Plan (401K Plan) and the Company's Executive Defined
Contribution Plan, both qualified defined contribution plans: Mr. Bekkers
- $5,100, $2,550 and $5,100, respectively; Mr. Stimpert - $5,642, $2,438
and $5,349, respectively; Mr. Stewart - $4,784, $2,804 and $5,156,
respectively; Mr. Mabe - $5,337, $2,511 and $5,318, respectively; and Mr.
West - $5,340, $2,510 and $5,277, respectively. In addition, the amounts
set forth include for fiscal years 2002, 2001 and 2000, the following
amounts which represent the value of the named executive officer's benefit
from premiums paid by the Association under a split dollar life insurance
plan for the named executive officers: Mr. Bekkers - $3,783, $3,987 and
$4,151, respectively; Mr. Stimpert - $4,204, $4,465 and $4,694,
respectively; Mr. Stewart - $4,220, $4,441 and $4,616, respectively; Mr.
Mabe - $1,185, $1,186 and $1,182, respectively; and Mr. West - $2,639,
$2,750 and $2,836, respectively. The Association uses the modified premium
method in determining the portion of each premium dollar attributable to
the named executive officers. The Association will recover the cost of
premium payments from the cash value of the policies.
Retirement Plans. The Company maintains a noncontributory pension fund, the
Gold Kist Pension Plan, with separate benefit formulas for salaried and
hourly employees. The plan covers substantially all employees who have
served at least one year with Gold Kist, including those employees subject to
collective bargaining agreements. Effective January 1, 2000, the Company
increased retirement income benefits payable to salaried retirees and hourly
retirees. The Plan now provides salaried employees a pension benefit after
thirty (30) years of credited service at age 65, which, when combined with a
portion of the employee's primary Social Security benefit attributable to the
employer's contributions, will equal fifty percent (50%) of the employee's
average earnings during the period of five years in which the employee had
the highest earnings in the last ten years of employment immediately
preceding attainment of age 65, or if retired before age 65, in the last ten
years immediately preceding early retirement. For hourly employees who work
for Gold Kist until age 65, the Plan provides a monthly pension benefit equal
to $11.00 per month for each year of Plan participation payable at age 65.
The Plan provides early retirement benefits for salaried and hourly employees
after age 55 and contains a death benefit for the surviving spouse of an
active employee (who had at least five (5) years credited service or was at
least age 55 at the date of death) which equals fifty percent (50%) of the
deceased employee's accrued retirement income benefit. Accrued benefits
under the Plans vest after the employee attains five (5) years of service or
at age 55. Due to the full funding limitation of the Internal Revenue
Services, the Association was not permitted to make a tax deductible
contribution to the pension plan for the plan year ended December 31, 2001.
Estimated annual benefits payable upon retirement at normal retirement age
(65 years) to persons in specified years of service and remuneration
classifications, before offset of Social Security benefits, are illustrated
in the following table:
Estimated Annual Benefits For Years of Service Indicated
Remuneration 10 Years 15 Years 20 Years 25 Years 30 Years or More
$ 30,000 $5,000 $7,500 $10,000 $12,500 $15,000
$100,000 16,667 25,000 33,333 41,667 50,000
$150,000 25,000 37,500 50,000 62,500 75,000
$200,000 33,333 50,000 66,666 83,333 100,000
For years after 2001, the maximum annual amount of compensation that can
be used for determining an individual's benefit under a qualified plan is
$200,000.
The plan covers the compensation in the columns entitled "Salary" and
"Bonus" and the contribution to the Executive Defined Contribution Plan set
forth in the Summary Compensation Table. The credited years of service as of
December 31, 2001, under the retirement income plan for the five executive
officers listed in the summary compensation table are as follows: Mr.
Bekkers (17); Mr. Stimpert (28); Mr. Stewart (30); Mr. Mabe (23); and Mr.
West (22).
A Supplemental Executive Retirement Plan has been adopted by the
Association whereby Gold Kist makes supplemental payments to certain
employees under a non-qualified deferred compensation plan to make up for any
reduction in such employees' retirement income under the Gold Kist salary
retirement plan resulting from restrictions placed on qualified retirement
plans under Section 415 of the Internal Revenue Code of 1986, as amended, and
salary deferrals to the Executive Savings Plan. Such restrictions limit the
amount of benefits payable in qualified retirement plans with respect to the
percentage of final pay to which such employees would be otherwise entitled
upon retirement. The following table shows the estimated annual benefits
payable upon retirement at normal retirement age (65) to persons in specified
years of service and remuneration classifications, before offset of Social
Security benefits and without restriction imposed by the Internal Revenue
Code. The amounts shown in the table would be reduced by the amounts payable
pursuant to the Gold Kist Retirement Plan for Salaried Employees.
Estimated Annual Benefits For Years of Service Indicated
Remuneration 10 Years 15 Years 20 Years 25 Years 30 Years or More
$100,000 $16,667 $25,000 $33,333 $41,667 $ 50,000
$150,000 25,000 37,500 50,000 62,500 75,000
$200,000 33,333 50,000 66,667 83,333 100,000
$250,000 41,667 62,500 83,333 104,167 125,000
$350,000 58,333 87,500 116,667 145,833 175,000
$500,000 83,333 125,000 166,667 208,333 250,000
$750,000 125,000 187,500 250,000 312,500 375,500
$850,000 141,667 212,500 283,333 354,167 425,000
Covered compensation, computation of the average final compensation, and
credited years of service for the five executive officers listed in the
summary compensation table are the same as that set forth in the foregoing
description of the Gold Kist Pension Plan.
In addition to the retirement benefits provided by its qualified and
nonqualified retirement plans, Gold Kist has contracted to provide certain
key employees with compensation benefits after normal retirement. These
benefits, known as the Management Deferred Compensation Plan, are paid
monthly following retirement in an annual amount equal to 25% of the average
annual salary for the ten year period immediately prior to retirement. These
benefits are payable, depending on the contract, for a 10 or 15 year period
following retirement to a former key employee or his designated beneficiary.
Estimated annual benefits payable under the Management Deferred Compensation
Plan would be based upon the following average annual salary of the eligible
named executives for the ten year period ended as of June 29, 2002: Mr.
Bekkers - $276,437; Mr. Stimpert - $197,895; and Mr. Stewart - $179,696.
Executive Agreements. Mr. Bekkers and Mr. Stimpert have entered into
employment agreements with the Association for a term of five years. The
agreements provide for continuation of salary and medical benefits and bonus
eligibility for the executives for the remaining term of the agreement in the
event the executives' employment with the Association is terminated for
reasons other than a "for cause" termination or in the event the employee
terminates the employment for "good reasons" as defined in the agreements.
Change in Control Plans. Under the Gold Kist officers contingency plan,
the Association has entered into identical change in control agreements with
each officer, including the five executive officers named in the cash
compensation table. Each change in control agreement provides that following
a change in the control of the Association (as defined in the agreements), if
the officer's employment with the Association terminates within two years
after the change in control (but prior to the officer's reaching age 65), the
officer will be entitled to receive a severance payment calculated by
determining the "Base Severance Amount" as follows:
(1) if the officer is age 60 or younger at the time of
termination of his employment, the amount equal to the officer's
compensation paid by the Association for the five full calendar years
ending before the date of the change in control, or
(2) if the officer is older than age 60 at the time of his
termination of employment, the amount equal to the officer's average
annual compensation paid by the Association for the lesser of five
full calendar years or the full calendar years of service with the
Association ending before the change in control, multiplied by the
number of years and fractions thereof remaining until the officer's
65th birthday.
The Base Severance Amount is to be adjusted for those officers with less than
15 years of service by prorating the Base Severance Amount with the numerator
being the number of completed calendar years of service and the denominator
being 15. However, the minimum any terminated officer would receive would be
one and one-half times the average annual compensation paid by the
Association for the actual number of full calendar years worked, if less than
five, or the annual salary amount for an officer who has worked less than one
calendar year. The severance payment will include an additional amount equal
to any excise tax under Section 4999 of the Internal Revenue Code of 1986
incurred by the officer, plus all federal, state and local income taxes
incurred by the officer with respect to receipt of the additional amount.
Additionally, under such contracts, medical benefits would remain available
to current and retired officers on the same basis as is provided at the time
of a change in control. The Association has agreed to pay all legal fees and
expenses incurred by an officer in the pursuit of the rights and benefits
provided by the change in control agreement. The Association has entered
into similar change in control agreements with each director of Gold Kist.
As of June 29, 2002, no contingencies have occurred which would require the
implementation of the provisions of the change in control agreements, and no
payments or other benefits have been provided to the five executive officers
named in the summary compensation table or to the directors.
Director Compensation. The By-Laws of Gold Kist provide that the
Directors shall be compensated for their services and reimbursed for their
expenses, as determined by the Board of Directors. Currently, the Directors
receive no compensation other than an annual retainer paid at the rate of
$20,000 per year, with the Chairman receiving $21,500. Directors receive a
per diem of $250 with a $500 minimum, plus expenses incurred while traveling
to and from and attending meetings of the Board of Directors or other
official meetings or conferences. Pursuant to separate agreements, Gold Kist
has arranged to provide life insurance benefits to qualifying directors
emeriti and to make available health insurance and other medical benefits for
Gold Kist directors and directors emeriti as are available to employees of
Gold Kist from time to time pursuant to the Association group insurance
program.
Compensation Committee Interlocks and Insider Participation. Directors
Dan Smalley, W. Kenneth Whitehead, and Douglas A. Reeves serve as members of
the Association's Compensation Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Not Applicable.
Item 13. Certain Relationships and Related Transactions.
The Directors of Gold Kist are members of the Association and, during the
fiscal year ended June 29, 2002, Directors Smalley, Reeves, Henderson, Grace
and Dockery had dealings in the ordinary course of business with Gold Kist as
marketing patrons. See Business (and Properties) -- Patronage Refunds.
Item 14. Controls and Procedures.
The Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Association's disclosure controls and procedures as of
September 20, 2002 (the "Evaluation Date") and have concluded that the
disclosure controls and procedures were effective as of the Evaluation Date
to ensure that material information relating to the Association (including
its consolidated subsidiaries) was made known to such officers, particularly
during the period in which this report was being prepared. Since the
Evaluation Date, there have been no significant changes in internal controls
or in other factors that could significantly affect internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)1. Index to Consolidated Financial Statements
Consolidated Financial Statements:
Independent Auditors' Reports
Consolidated Balance Sheets-June 30, 2001
and June 29, 2002
Consolidated Statements of Operations--Years
Ended July 1, 2000, June 30, 2001 and
June 29, 2002
Consolidated Statements of Patrons' and Other
Equity and Comprehensive Income (Loss)-Years
Ended July 1, 2000, June 30, 2001 and
June 29, 2002
Consolidated Statements of Cash Flows--Years
Ended July 1, 2000, June 30, 2001 and
June 29, 2002
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules:
Financial Statement Schedule:
II. Valuation Reserves and Qualifying Accounts--Years
Ended July 1, 2000, June 30, 2001 and June 29, 2002
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
GOLD KIST INC.
Schedule II - Valuation Reserves and Qualifying Accounts
(Dollar Amounts in Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Charged to Charged Balance
Beginning Cost and To Other At End
Description Of Period Expenses Accounts Deductions Of Period
Deducted in the
consolidated
balance sheets
from the asset
to which it
applies:
Allowance for doubtful accounts:
July 1, 2000 $3,261 2,389 - 1,609 (A) 4,041
June 30, 2001 4,041 318 - 1,910 (A) 2,449
June 29, 2002 2,449 581 - 1,836 (A) 1,194
(A) Represents accounts written off.
Allowance for deferred tax
assets valuation:
July 1, 2000 620 - - 223 (B) 397
June 30, 2001 397 - - 7 (B) 390
June 29, 2002 390 9 - - (B) 399
(B) Represents estimate of net operating loss deductions that are
realizable.
(a)3. Exhibits - Index of Exhibits
Exhibits designated as previously filed with the Commission in the
Index of Exhibits, below, are incorporated by reference into this
Report.
Designation
of Exhibit Document with Which
Designation
in this Exhibit Was Previously of such Exhibit
Report Description of Exhibit Filed with Commission in that Document
B-2 Agreement of Merger, Amendment to Schedule Exh 3
dated as of April 22, 1997, 13D filed April 25, 1997
among Golden Poultry
Company, Inc., Gold Kist Inc.,
Agri International, Inc. and
Golden Poultry Acquisition Corp.
B-3(a) Restated and Amended Annual Report on Form Exh B-3(a)
Articles of Incorpo- 10-K for the Fiscal
ration of Registrant Year ended June 26, 1993
B-3(b) Current By-Laws of Annual Report on Form Exh B-3(b)
Registrant, as amended 10-K for the Fiscal
Year ended June 28, 1997
B-4(a)(1) Form of Indenture, dated Registration filed on Exh 4(a)(2)
as of September 1, 1979, Form S-1 (Registration
governing the terms of the No. 2-65587)
Fifteen Year Subordinated
Capital Certificates of
Interest (Series B), including
therein a table of contents
and cross-reference sheet
B-4(a)(2) Form of First Supplemental Registration filed on Exh 4(a)(4)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, governing No. 2-69267)
the terms of the Fifteen
Year Subordinated Capital
Certificates of Interest
(Series C)
B-4(a)(3) Form of Second Supplemental Registration filed on Exh 4(a)(5)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, governing No. 2-79538)
the terms of the Fifteen
Year Subordinated Capital
Certificates of Interest
(Series D)
B-4(b)(1) Form of Indenture, dated Registration filed on Exh 4(b)(2)
as of September 1, 1979, Form S-1 (Registration
governing the terms of No. 2-65587)
the Ten Year Subordinated
Capital Certificates of
Interest (Series B),
including a table of contents
and cross-reference sheet
B-4(b)(2) Form of First Supplemental Registration filed on Exh 4(b)(4)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, governing No. 2-69267)
the terms of the Ten Year
Subordinated Capital
Certificates of Interest
(Series C)
B-4(b)(3) Form of Second Supplemental Registration filed on Exh 4(b)(5)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, governing No. 2-79538)
the terms of the Ten Year
Subordinated Capital
Certificates of Interest
(Series D)
B-4(c) Form of Indenture, dated as Registration filed on Exh 4(c)
of September 1, 1985, Form S-2 (Registration
governing the terms of the No. 33-428)
Seven Year Subordinated
Capital Certificates of
Interest (Series A), including
therein a table of contents,
cross-reference sheet, and
form of Seven Year Subordinated
Capital Certificates of Interest
B-4(d)(1) Form of Indenture, dated Registration filed on Exh 4(c)(2)
as of September 1, 1979, Form S-1 (Registration
governing the terms of the No. 2-65587)
Five Year Subordinated
Capital Certificates of
Interest (Series A),
including therein a table
of contents and cross-
reference sheet
B-4(d)(2) Form of First Supplemental Registration filed on Exh 4(d)(2)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, governing No. 2-69267)
the terms of the Five Year
Subordinated Capital Certifi-
cates of Interest (Series B)
B-4(d)(3) Form of Second Supplemental Registration filed on Exh 4(d)(3)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, governing No. 2-79538)
the terms of the Five Year
Subordinated Capital Certifi-
cates of Interest (Series C)
B-4(e) Agreement to furnish copies Registration filed on Exh 4(h)
of constituent instruments Form S-1 (Registration
defining the rights of the No. 2-59958)
holders of certain industrial
revenue bonds
B-4(f)(1) Multiple Advance Term Loan Annual Report on Form Exh B-4(i)(1)
Supplement with CoBank, ACB 10-K for the Fiscal Year
dated as of September 1, 1997 ended June 26, 1999
B-4(f)(2) Note Purchase and Private Registration filed on Exh 4(j)(9)
Shelf Agreement, dated Form S-2 (Registration
as of February 11, 1997, No. 333-36291)
with the Prudential Insurance
Company of America
B-4(f)(3) Amendment dated May 13, 1997 Registration filed on Exh 4(j)(10)
to Note Purchase and Private Form S-2 (Registration
Shelf Agreement with the No. 333-36291)
Prudential Insurance
Company of America
B-4(f)(4) Amendment dated September Annual Report on Form Exh B-4(i)(7)
5, 1997 to Note Purchase 10-K for the Fiscal Year
and Private Shelf ended July 1, 2000
Agreement with the Prudential
Insurance Company of America
B-4(f)(5) Amendment dated October Annual Report on Form Exh B-4(i)(8)
13, 1998 to Note Purchase 10-K for the Fiscal Year
and Private Shelf Agreement ended July 1, 2000
with the Prudential Insurance
Company of America
B-4(f)(6) Amendment dated June 7, 1999 Annual Report on Form Exh B-4(i)(9)
to Note Purchase and Private 10-K for the Fiscal Year
Shelf Agreement with the ended July 1, 2000
Prudential Insurance Company
of America
B-4(f)(7) Amendment dated January Annual Report on Form Exh B-4(i)(10)
21, 2000 to Note Purchase 10-K for the Fiscal Year
and Private Shelf Agreement ended July 1, 2000
with the Prudential Insurance
Company of America
B-4(f)(8) Amendment dated March Annual Report on Form Exh B-4(i)(11)
23, 2000 to Note Purchase 10-K for the Fiscal Year
and Private Shelf Agreement ended July 1, 2000
with the Prudential Insurance
Company of America
B-4(f)(9) Consolidated, Amended Annual Report on Form Exh B-4(i)(9)
and Restated Note Agreement 10-K for the Fiscal Year
dated November 3, 2000, ended June 30, 2001
with the Prudential Insurance
Company of America
B-4(f)(10)Amendment dated October 23, 2001
to Consolidated, Amended and
Restated Note Agreement with
Prudential Insurance Company of
America
B-4(f)(11)Waiver dated January 11, 2002,
under Consolidated, Amended and
Restated Note Agreement with
Prudential Insurance Company of
America
B-4(f)(12)Second Amendment dated March 30,
2002 to Consolidated, Amended,
and Restated Note Agreement with
Prudential Insurance Company of
America
B-10(a) Form of Deferred Compensation Registration filed on Exh 11(d)
Agreement between Gold Kist Form S-1 (Registration
Inc. and certain executive No. 2-59958)
officers*
B-10(b)(1)Gold Kist Management Bonus Registration filed on Exh 10(b)
Program* Form S-1 (Registration
No. 2-69267)
B-10(b)(2)Amended Gold Kist Management Registration filed on Exh 10(b)(2)
Bonus Program* Form S-2 (Registration
No. 2-79538)
B-10(b)(3)Form of Gold Kist Supple- Registration filed on Exh 10(b)(3)
mental Executive Retirement Form S-2 (Registration
Income non-qualified deferred No. 33-9007)
compensation agreement between
Gold Kist and certain execu-
tive officers and Resolution
of Gold Kist Board of Directors
authorizing the Supplemental
Executive Retirement Plan*
B-10(b)(4)Resolution of Gold Kist Registration filed on Exh 10(b)(4)
Board of Directors Form S-2 (Registration
authorizing the Gold Kist No. 33-9007)
Special Award Plan*
B-10(b)(5)Form of Gold Kist Executive's Registration filed on Exh 10(b)(5)
Change in Control Agreement Form S-2 (Registration
between Gold Kist and certain No. 33-31164)
officers and resolution of
Gold Kist Board of Directors
authorizing the Officers
Contingency Plan*
B-10(b)(6)Form of Directors Change Registration filed on Exh 10(b)(6)
in Control Agreement Form S-2 (Registration
between Gold Kist and No. 33-36938
Directors of Gold Kist*
B-10(b)(7)Form of Director Registration filed on Exh 10(b)(7)
Emeritus Life Benefits Form S-2 (Registration
Agreement* No. 33-36938)
B-10(b)(8)Form of Director Emeritus Registration filed on Exh 10(b)(8)
Agreement for Medical Form S-2 (Registration
Benefits* No. 33-36938)
B-10(b)(9)Gold Kist Executive Savings Registration filed on Exh 10(b)(9)
Plan, as amended * Form S-2 (Registration
No. 33-62869)
B-10(b)(10)Gold Kist Director Savings Registration filed on Exh 10(b)(10)
Plan, as amended * Form S-2 (Registration
No. 33-62869)
B-10(b)(11)Gold Kist Split Dollar Life Registration filed on Exh 10(b)(11)
Insurance Plan * Form S-2 (Registration
No. 33-62869)
B-10(b)(12)Gold Kist Executive Defined Annual Report on Form Exh B-10(b)(12)
Contribution Plan * 10-K for the Fiscal Year
Ended July 1, 2000
B-10(b)(13)Form of Employment Agreement
between Gold Kist and
certain officers
B-10(c)(l)Form of Membership, Registration filed on Exh 13(b)
Marketing, and/or Purchasing Form S-1 (Registration
Agreement of Gold Kist Inc., No. 2-59958)
Atlanta, eorgia
B-10(c)(2)Form of Membership, Registration filed on Exh 10(c)(2)
Marketing, and/or Purchasing Form S-1 (Registration
Agreement of Gold Kist Inc., No. 2-74205)
Atlanta, Georgia, as revised
October 17, 1980
B-10(c)(3)Form of Membership, Registration filed on Exh 10(c)(3)
Marketing, and/or Purchasing Form S-2 (Registration
Agreement of Gold Kist Inc., No. 33-428)
Atlanta, Georgia, as revised
November l, l984
B-10(c)(4)Form of Membership, Registration filed on Exh 10(c)(4)
Marketing, and/or Purchasing Form S-2 (Registration
Agreement of Gold Kist Inc., No. 33-24623)
Atlanta, Georgia, revised
October 29, 1987
B-10(c)(5)Form of Membership, Registration filed on Exh 10(c)(5)
Marketing, and/or Purchasing Form S-2 (Registration
Agreement of Gold Kist Inc., No. 33-42900)
Atlanta, Georgia, revised
August 21, 1991
B-10(c)(6)Form of Membership, Registration filed on Exh 10(c)(6)
Marketing, and/or Purchasing Form S-2 (Registration
Agreement of Gold Kist Inc., No. 333-36291)
Atlanta, Georgia revised
July 9, 1997
B-10(d)(1)General Partnership Registration filed on Exh 10(h)(1)
Agreement (GC Properties) Form S-2 (Registration
between Gold Kist Inc. No. 33-428)
and Cotton States Mutual
Insurance Company, dated as
of July 1, 1984
B-10(d)(2)Lease from GC Properties, Registration filed on Exh 10(h)(2)
dated December 11, 1984, Form S-2 (Registration
for home office building No. 33-428)
space
B-10(e)(1)Credit Agreement dated as of
October 23, 2001, with various
banks and lending institutions, as
lendors, and Cooperatieve Centrale
Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as agent
B-10(e)(2)Intercreditor Agreement dated
as of October 23, 2001, with
various banks and lending
institutions, as lendors, and
Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A.,
New York Branch, as agent
B-10(f)(1)Waiver dated January 11, 2002,
to First Amendment and Waiver
dated March 30, 2002, to Credit
Agreement with various banks and
lending institutions, as lenders, and
Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A.,
New York Branch, as agent
B-10(f)(2)First Amendment and Waiver
dated March 30, 2002, to Credit
Agreement with various banks and
lending institutions, as lenders, and
Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A.,
New York Branch, as agent
B-10(g) Asset Purchase Agreement Report filed on Form Exh 10(k)
dated as of July 23, 1998, 8-K dated as of
between Southern States July 23, 1998
Cooperative, Incorporated
and Gold Kist Inc.
B-10(h) Securities Purchase Annual Report on Form Exh B-10(k)(1)
Agreement dated October 10-K for the Fiscal Year
5, 1999, between Gold Kist Ended June 30, 2001
Inc. and Southern States
Cooperative, Incorporated
_________________________________
*Plans and arrangements pursuant to which executive officers and directors of
the Association receive compensation.
(b) Reports on Form 8-K. - No reports on Form 8-K were filed during the
last quarter of the fiscal year ended June 29, 2002.
SIGNATURES - Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 20, 2002 By:/s/ John Bekkers
John Bekkers, Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John Bekkers Chief Executive Officer September 20, 2002
JOHN BEKKERS (Principal Executive Officer)
/s/ Stephen O. West Chief Financial Officer September 20, 2002
STEPHEN O. WEST (Principal Financial Officer)
/s/ W. F. Pohl, Jr. Controller (Principal September 20, 2002
W. F. POHL, JR. Accounting Officer)
/s/ Dan Smalley Director September 20, 2002
DAN SMALLEY
/s/ Dorman K. Grace Director September 20, 2002
DORMAN K. GRACE
/s/ Phil Ogletree, Jr. Director September 20, 2002
PHIL OGLETREE, JR.
/s/ Jeffrey A. Henderson Director September 20, 2002
JEFFREY A. HENDERSON
/s/ Douglas A. Reeves Director September 20, 2002
DOUGLAS A. REEVES
/s/ W. A. Smith Director September 20, 2002
W. A. SMITH
/s/ W. Kenneth Whitehea Director September 20, 2002
W. KENNETH WHITEHEAD
/s/ Walter C. Dockery Director September 20, 2002
WALTER C. DOCKERY
/s/H. Michael Davis Director September 20, 2002
H. MICHAEL DAVIS
CERTIFICATION
I, John Bekkers, Principal Executive Officer of Gold Kist Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Gold Kist Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: September 20, 2002
/s/ John Bekkers
[Signature]
Title: Chief Executive Officer
CERTIFICATION
I, Stephen O. West, Principal Financial Officer of Gold Kist Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Gold Kist Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: September 20, 2002
/s/ Stephen O. West
[Signature]
Title: Chief Financial Officer
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
B-4(f)(10) Amendment dated October 23, 2001
to Consolidated, Amended and
Restated Note Agreement with
Prudential Insurance Company of
America
B-4(f)(11) Waiver dated January 11, 2002, under
Consolidated, Amended and
Restated Note Agreement with
Prudential Insurance Company of
America
B-4(f)(12) Second Amendment dated March 30,
2002 to Consolidated, Amended, and
Restated Note Agreement with
Prudential Insurance Company of
America
B-10(b)(13) Form of Employment Agreement
between Gold Kist and
certain officers
B-10(e)(1) Credit Agreement dated as of
October 23, 2001, with various
banks and lending institutions, as
lendors, and Cooperatieve Centrale
Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as agent
B-10(e)(2) Intercreditor Agreement dated
as of October 23, 2001, with
various banks and lending
institutions, as lendors, and
Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A.,
New York Branch, as agent
B-10(f)(1) Waiver dated January 11, 2002,
to First Amendment and Waiver
dated March 30, 2002, to Credit
Agreement with various banks and
lending institutions, as lenders, and
Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A.,
New York Branch, as agent
B-10(f)(2) First Amendment and Waiver
dated March 30, 2002, to Credit
Agreement with various banks and
lending institutions, as lenders, and
Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A.,
New York Branch, as agent