Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 2-62681
GOLD KIST INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-0255560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
244 Perimeter Center Parkway, N.E., Atlanta, Georgia 30346
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (770) 393-5000
N/A
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act).
Yes No X
GOLD KIST INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
December 28, 2002 and June 29, 2002 1
Consolidated Statements of Operations -
Three Months and Six Months Ended
December 28, 2002 and December 29, 2001 2
Consolidated Statements of Cash Flows -
Six Months Ended December 28, 2002
and December 29, 2001 3
Notes to Consolidated Financial
Statements 4 - 6
Item 2. Management's Discussion and Analysis of
Consolidated Results of Operations and
Financial Condition 7 - 12
Item 3. Quantitative and Qualitative Disclosure
About Market Risks 13
Item 4. Controls and Procedures 13
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K 14 - 15
Page 1
Item 1. Financial GOLD KIST INC.
Statements CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited)
December 28, June 29,
2002 2002
ASSETS
Current assets:
Cash and cash equivalents $ 11,567 8,997
Receivables, principally trade,
less allowance for doubtful
accounts of $1,338 at
December 28, 2002 and $1,194
at June 29, 2002 98,864 110,470
Inventories (note 3) 188,259 191,130
Deferred income taxes 24,006 18,285
Other current assets 22,704 22,587
Total current assets 345,400 351,469
Investments (note 5) 66,801 91,311
Property, plant and equipment, net 231,686 229,476
Prepaid pension costs 43,419 43,419
Other assets 84,328 73,854
$771,634 789,529
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt:
Short-term borrowings (note 6) $ - 10,000
Current maturities of long-term debt (note 6) 16,002 15,626
16,002 25,626
Accounts payable 59,996 69,275
Accrued compensation and related expenses 24,050 30,048
Interest left on deposit 9,456 9,773
Other current liabilities 42,327 38,407
Net liabilities - discontinued operations (note 7) 18,426 18,381
Total current liabilities 170,257 191,510
Long-term debt, less current maturities (note 6) 314,969 250,644
Accrued postretirement benefit costs (note 9) 19,076 29,628
Other liabilities 40,819 34,586
Total liabilities 545,121 506,368
Patrons' and other equity:
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 2 at
December 28, 2002 and 18 at June 29, 2002 2 18
Patronage reserves 193,020 195,620
Accumulated other comprehensive loss (2,169) (2,169)
Retained earnings 35,660 89,692
Total patrons' and other equity 226,513 283,161
Commitments and contingencies (note 7)
$771,634 789,529
See Accompanying Notes to Consolidated Financial Statements.
Page 2
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2002 2001 2002 2001
Net sales volume $437,488 467,567 898,112 946,001
Cost of sales 461,230 427,906 898,987 841,941
Gross margins (loss) (23,742) 39,661 (875) 104,060
Distribution, administrative
and general expenses 20,105 21,804 40,645 45,639
Postretirement benefit plan
curtailment gain (note 9) 10,311 - 10,311 -
Net operating margins (loss) (33,536) 17,857 (31,209) 58,421
Other income (deductions):
Interest and dividend income
(note 5) 1,059 2,543 1,389 5,180
Interest expense (5,570) (7,678) (11,661) (16,146)
Unrealized loss on investment
(note 5) - - (24,064) -
Gain on sale of marketable
equity security and other
investments (note 4) - 12,426 - 12,426
Miscellaneous, net (4,029) 413 (3,722) 2,057
Total other income
(deductions) (8,540) 7,704 (38,058) 3,517
Margins (loss) from continuing
operations before income taxes (42,076) 25,561 (69,267) 61,938
Income tax (benefit) expense (14,028) 8,522 (15,071) 20,650
Net margins (loss) from
continuing operations (28,048) 17,039 (54,196) 41,288
Discontinued operations (note 7):
Loss from operations of
discontinued joint venture
partnership (less applicable
income tax benefit of $3.0
million for the three and
six months ended December 29,
2001 - (6,090) - (5,965)
Net margins (loss) $(28,048) 10,949 (54,196) 35,323
See Accompanying Notes to Consolidated Financial Statements.
Page 3
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
Dec. 28, Dec. 29,
2002 2001
Cash flows from operating activities:
Net margins (loss) from continuing operations $ (54,196) 41,288
Non-cash items included in net margins (loss):
Depreciation and amortization 19,604 19,575
Unrealized loss on investment 24,064 -
Postretirement benefit plan curtailment gain (10,311) -
Deferred income tax expense (benefit) (11,442) 15,716
Gain on sale of marketable equity security
and other investments - (12,426)
Other 2,021 1,619
Changes in operating assets and liabilities:
Receivables 11,606 (7,739)
Inventories 2,871 (13,357)
Other current assets (493) (4,113)
Accounts payable, accrued and other expenses (11,031) (3,007)
Net cash provided by (used in) operating activities
of continuing operations (27,307) 37,556
Cash flows from investing activities:
Dispositions of investments 105 86,296
Acquisitions of property, plant and equipment (20,478) (13,862)
Other (565) 73
Net cash provided by (used in) investing
activities (20,938) 72,507
Cash flows from financing activities:
Short-term debt repayments, net (10,000) (98,220)
Proceeds from long-term debt 165,620 95,000
Principal repayments of long-term debt and
capitalized loan fees (102,353) (103,607)
Patrons' equity redemptions paid in cash (2,452) (2,177)
Net cash (used in) provided by financing activities 50,815 (109,004)
Net change in cash and cash equivalents 2,570 1,059
Cash and cash equivalents at beginning of period 8,997 11,339
Cash and cash equivalents at end of period $ 11,567 12,398
Supplemental disclosure of cash flow data:
Cash paid (received) during the periods for:
Interest (net of amounts capitalized) $ 11,576 18,168
Income taxes, net $ (4,131) 677
See Accompanying Notes to Consolidated Financial Statements.
Page 4
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
(Unaudited)
1. The accompanying unaudited consolidated financial statements reflect
the accounts of Gold Kist Inc. and its subsidiaries; and a
partnership as of and for the six months ended December 28, 2002
("Gold Kist" or the "Association"). These consolidated financial
statements should be read in conjunction with Management's
Discussion and Analysis of Consolidated Results of Operations and
Financial Condition and the Notes to Consolidated Financial
Statements on pages 9 through 14 and pages 23 through 34,
respectively, of Gold Kist's Annual Report in the previously filed
Form 10-K for the year ended June 29, 2002.
The Association employs a 52/53 week fiscal year. Fiscal 2003 will
be a 52-week year and fiscal 2002 was also a 52-week year with each
quarter in both periods consisting of 13 weeks.
2. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial
position, the results of operations, and the cash flows. All
significant intercompany balances and transactions have been
eliminated in consolidation. Results of operations for interim
periods are not necessarily indicative of results for the entire year.
3. Inventories consist of the following:
December 28, 2002 June 29, 2002
Live poultry and hogs $ 89,289 91,457
Marketable products 57,199 62,390
Raw materials and supplies 41,771 37,283
$188,259 191,130
4. During the quarter ended December 29, 2001, the Association sold a
marketable equity security, an investment in an interregional
fertilizer cooperative and other investments realizing total
proceeds of $61.6 million and a gain before income taxes of $12.4
million.
5. In October 1998, the Association completed the sale of assets of the
Agri-Services segment business 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% at June 29, 2002. No dividends were
paid on the cumulative preferred securities for the third and fourth
quarters of 2002 or for the first and second quarters of 2003.
Page 5
In October and December 2002, SSC notified the Association that,
pursuant to the provisions of the indenture under which the
Association purchased the capital trust securities, SSC would defer
the capital trust certificates interest payments due on October 5,
2002, and on January 5, 2003. As a result of the deferral of the
interest payments, the Association has reduced the carrying value of
the capital trust securities by $24.1 million with a corresponding
charge against margins (loss) from continuing operations before
income taxes for the six months ended December 28, 2002. The
carrying value of the SSC securities was $81.4 million at June 29,
2002 and $57.3 million at December 28, 2002.
As interest rates and market conditions change, the carrying value
of the securities could be further reduced. Also, the proceeds
from any future sale of the SSC securities could differ from these
estimates. If these events were to occur, they could have a material
impact on results of operations and financial position of the
Association.
Gold Kist is permitted to sell the SSC securities pursuant to
applicable securities regulations. The SSC securities are
classified as noncurrent investments in the accompanying
consolidated balance sheets at December 28, 2002 and June 29, 2002.
6. On October 23, 2001, the Association refinanced its $240 million
Senior Secured Credit Facility. The $100 million 364-day revolving
line of credit due November 3, 2001 was replaced with a $110 million
revolving line of credit due October 23, 2002. The $95 million two-
year term loan due November 2002 was replaced with a $95 million two-
year term loan due October 2003. The $45 million five-year term
loan due November 2005 was unchanged. Other terms and conditions of
the credit facility were essentially unchanged as well.
On September 27, 2002, the Company refinanced and extended the
Senior Secured Credit Facility to 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
ranged from 1.50% to 2.25% over the London Interbank Offered Rate
(LIBOR), adjusted quarterly based on the Association's financial
condition. Other terms and conditions were essentially unchanged.
At December 28, 2002, the Association was in compliance with all
applicable loan covenants, as amended.
In February 2003, the Company amended its Senior Secured Credit
Facility and arranged a Temporary Revolving Credit Facility to
provide up to $35 million of incremental liquidity. The Temporary
Revolving Credit Facility matures on September 30, 2003 and bears
interest at LIBOR plus 4%.
7. Gold Kist, through a wholly-owned subsidiary, held 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.
Page 6
Gold Kist and the parent corporation of the other general partner
were each guarantors of up to $60 million under a secured line of
credit agreement between an agricultural credit bank and the
partnership. At December 31, 2002, the amount outstanding under the
facility was $42.7 million. The line of credit bore interest at the
prime rate plus 2% and was secured by pecan inventories, receivables
and substantially all of the partnership's property, plant and
equipment.
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 sheets
and statements of operations and cash flows for the three and six
month periods ended in December 2002 and 2001.
On January 31, 2003, the parent corporation of the other general
partner obtained refinancing, the aforementioned line of credit was
paid off and the partnership was dissolved. Gold Kist paid $20
million on the line of credit and received notes from the parent
corporation of the former general partner in the amount of $11.7
million. The notes bear interest at 12% and will be classified as
noncurrent assets. The $20 million payment by Gold Kist was
financed from funds available from the Senior Secured Line of Credit
and a $10 million term note from an agricultural credit bank. The
note is due in December 2007 and bears interest at LIBOR plus 3.5%.
8. 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 was contingently liable
through a Litigation Sharing and Indemnification Agreement with
Golden Peanut for its share of any costs related to this litigation.
In March 2001, the Georgia Court of Appeals reversed this judgment
and ordered a new trial, which was scheduled to begin in November
2002.
In November 2002, Golden Peanut reached a settlement on this
litigation and Gold Kist's share was paid in December. The amount is
included in other deductions in the accompanying consolidated
statements of operations for the three and six months ended December
28, 2002 and was not material to Gold Kist's financial position.
9. Effective October 2002, the Association substantially curtailed its
postretirement supplemental life insurance plan. A gain from the
curtailment of approximately $10.3 million is reflected in the
accompanying consolidated statements of operations for the three and
six month periods ended December 28, 2002 with the accompanying
reduction in the accrued postretirement benefit liability in the
accompanying consolidated balance sheet at December 28, 2002.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONSOLIDATED RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Sales Volume
Gold Kist's net sales volume for the quarter ended December 28, 2002
decreased 6.4% as compared to the quarter ended December 29, 2001. For the
six-month period ended December 28, 2002, net sales volume decreased 5.1%
from $946.0 million in the comparable period last year to $898.1 million in
the current year. The decrease in net sales volume was due primarily to a
6.3% year-to-date decrease in average poultry sales prices, which was
partially offset by a 2.4% increase in ready-to-cook (RTC) broiler meat
production. The decrease in average poultry sales prices was principally
due to a reduction in export demand, experienced industry-wide, that
negatively impacted both foreign and domestic markets. This has resulted
in an oversupply of broiler meat and lower poultry sales prices. Increased
supplies of competing meats, principally beef and pork, also was a
significant factor leading to the downward pressure on poultry prices.
Depressed broiler prices are expected to continue through the third fiscal
quarter.
The Association's export sales of $14.3 million and $25.5 million for the
December 2002 quarter and first six months of 2003, respectively, were
43.4% and 46.5% lower than the December 2001 periods, due to the continuing
impact of the Russian embargo, increased foreign competition and problems
with other export markets. Although the Russian ban was lifted in mid-
April 2002 and product specifications and other issues were resolved in
August 2002, sales to Russia are substantially below prior year levels.
According to the U.S. Department of Agriculture's (USDA) World Agricultural
Outlook Board, calendar 2002 broiler meat production approximated 31.92
billion pounds, ready-to-cook weight, 3.16% above the 30.94 billion pounds
produced in 2001. The estimate for calendar 2003 production is 32.2
billion pounds, .82% above 2002 levels. Recent 2003 production estimates
have been revised downward as current egg placements are below prior year
levels. This should lead to reduced supplies and improved market
conditions in the late Spring/Summer of 2003.
Net Operating Margins
The Association had net operating margins (loss) of $(33.5) million and
$(31.2) million for the three and six months ended December 28, 2002,
respectively, as compared to $17.9 million and $58.4 million in the
comparable periods last year. The decrease in operating margins was due
primarily to lower poultry selling prices and higher feed ingredient costs
for the three and six months ended December 28, 2002 as compared to the
comparable periods in the prior year. The 10.9% year-to-date decrease in
distribution, administrative and general expenses was principally due to
the absence of incentive compensation accruals due to the net loss for the
year-to-date December 2002 period and lower benefit costs due to benefit
plan changes effected in the current and prior year.
Page 8
Effective October 2002, the Association substantially curtailed its
postretirement supplemental life insurance plan. A gain from the
curtailment of approximately $10.3 million is reflected in the accompanying
consolidated statement of operations for the three and six month periods
ended December 28, 2002 with the accompanying reduction in the accrued
postretirement benefit liability in the accompanying consolidated balance
sheet at December 28, 2002.
The Company expects that increased domestic demand and production restraint
could result in the strengthening of poultry sales prices and profitable
operations sometime during the fourth quarter of 2003. The outlook for the
Company's third quarter is for losses from operations due to the
anticipated continuation of depressed broiler sales prices and higher feed
costs.
Other Income (Deductions)
Interest and dividend income was $1.1 million and $1.4 million for the
three and six months ended December 28, 2002 as compared to $2.5 million
and $5.2 million for the comparable periods last year. The amounts for the
December 2001 quarter and six month periods were earned principally from
the Southern States capital trust and preferred securities. No dividends
or interest were paid or accrued on these securities for the first half of
2003. In the December 2002 quarter, the Association received a patronage
dividend from an interregional cooperative amounting to $663 thousand.
In October and December 2002, Southern States Cooperative, Inc. (SSC)
notified the Association that, pursuant to the provisions of the indenture
under which the Association purchased the trust securities from SSC, SSC
would defer the trust certificates interest payments due on October 5, 2002
and January 5, 2003. As a result of the deferral of the interest payments,
the Association has reduced the carrying value of the SSC securities by
$24.1 million with a corresponding charge against margins from continuing
operations before income taxes for the six months ended December 28, 2002.
As interest rates and market conditions change, the carrying value of the
securities could be further reduced. Also, the proceeds from any future
sale of the securities could differ from these estimates. If these events
were to occur, they could have a material impact on results of operations
and financial position of the Association.
Interest expense was $5.6 million and $11.7 million for the three and six-
month periods ended December 28, 2002 as compared to $7.7 million and $16.2
million for the comparable periods last year. The decrease in interest
expense was due to lower average loan balances resulting from improved cash
flows during 2002 from operations and the sale of investments, and lower
average market interest rates and credit spreads.
Miscellaneous net of $4.0 million and $3.7 million expense for the quarter
and six months ended December 28, 2002 includes the litigation settlement
payment in December 2002 related to Golden Peanut Company, LLC. See Note 8
of Notes to Consolidated Financial Statements.
Page 9
For the three and six months ended December 28, 2002, the Association's
combined federal and state effective income tax rates used to calculate the
tax benefit of the loss before income taxes were 33.3% and 21.8%,
respectively. Combined effective rates for the three and six-month periods
ended December 29, 2001 was 33.3%. The limited tax benefit for the six
months ended December 28, 2002 is due to the deferred income tax valuation
allowance established for the unrealized capital loss resulting from the
write down of the SSC investment. Income tax expense (benefit) for the
periods presented also reflects income taxes at statutory rates adjusted
for available tax credits and deductible nonqualified equity redemptions.
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. The partnership was dissolved
on January 31, 2003. See Note 7 of Notes to Consolidated Financial
Statements.
In response to the adverse operating conditions in 2003, the Company
instituted a cost reduction plan reducing executive pay, reducing staff and
overtime, further benefit plan reductions/eliminations and the sale of
certain non-operating assets. However, if broiler sales prices deteriorate
further or operating costs increase without a corresponding increase in
broiler sales prices, the Association will have to implement further cost
reduction measures.
LIQUIDITY AND CAPITAL RESOURCES
The Association's liquidity is dependent upon funds from operations and
external sources of financing. On October 23, 2001, the Association
refinanced its $240 million Senior Secured Credit Facility. The $100
million 364-day revolving line of credit due November 3, 2001 was replaced
with a $110 million revolving line of credit due October 23, 2002. The
$95 million two-year term loan due November 2002 was replaced with a $95
million two-year term loan due October 2003. The Facility also includes a
$45 million term loan with an insurance company due in 2005. Other terms
and conditions of the credit facility were essentially unchanged.
The Association also has $35.7 million in term loans with an agricultural
bank and $50.0 million in senior notes with an insurance company. The
Association's senior notes, senior secured credit facilities and term loans
are secured by substantially all of the Association's inventory,
receivables, and property, plant and equipment.
On September 27, 2002, the Company refinanced and extended the Senior
Secured Credit Facility that included 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 ranged from 1.50% to
2.25% over LIBOR, adjusted quarterly based on the Association's financial
conditions. Other terms and conditions were essentially unchanged. At
December 28, 2002, the Association had unused loan commitments of $35
million.
Page 10
In February 2003, the Company amended its Senior Secured Credit Facility
and arranged a Temporary Revolving Credit Facility to provide up to $35
million of incremental liquidity. The Temporary Revolving Credit Facility
matures on September 30, 2003 and bears interest at LIBOR plus 4%.
The amendment also revised the loan covenants and the interest rate pricing
structure for the Senior Secured Credit Facility. The interest rates on
the Senior Secured Credit Facility will range from 2% to 4% over LIBOR,
adjusted quarterly based on the Company's financial condition. Covenant
changes include increased reporting requirements and amended financial
covenants.
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 December 28, 2002, the
Association was in compliance with all applicable loan covenants, as
amended.
For the first six months of fiscal 2003, cash used by operating activities
of continuing operations was $27.3 million as compared to cash provided by
operations of $37.6 million for the first six months of fiscal 2002. The
decrease was due to the net loss from continuing operations partially
offset by depreciation, the unrealized loss on investment and reductions in
current assets. Cash provided by financing activities was $50.8 million,
principally from the Revolving Credit Facility, as compared to cash used in
financing activities of $109.0 million for the six months ended December
2002 and December 2001, respectively. Cash provided by operations and the
sale of investments generated the cash used to reduce indebtedness in the
December 2001 quarter.
Working capital and patrons' and other equity were $175.1 million and
$226.5 million, respectively, at December 28, 2002 as compared to $160.0
million and $283.2 million, respectively, at June 29, 2002. Working
capital increased at December 28, 2002 due to lower current liabilities.
The decrease in patrons' and other equity principally reflects the net loss
for the first half of 2003.
The Association has limited capital expenditures in 2003 to the completion
of existing projects and essential replacements. In 2003, management
expects cash expenditures to approximate $5.0 million for equity
redemptions, net of insurance proceeds, and $1.5 million for cash patronage
refunds. In connection with the dissolution of the Young Pecan Company
partnership on January 31, 2003, the Association paid $20 million on the
partnership line of credit and received notes from the parent corporation
of the other former general partner in the amount of $11.7 million. The
$20 million payment by Gold Kist was financed from funds available from the
Senior Secured Line of Credit and a $10 million note from an agricultural
credit bank. See Note 7 of Notes to Consolidated Financial Statements.
Management intends to finance 2003 capital expenditures and related working
capital needs with existing cash balances and cash to be provided from
additional borrowings, including the $35 million Temporary Revolving
Credit.
Page 11
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 December 28, 2002 and cash to be provided from operations
and borrowings available under committed credit arrangements, will be
sufficient to maintain cash flows adequate for the Association's operations
over the next 12 months and to fund the repayment of outstanding
Subordinated Certificates as they mature, subject to the anticipated
general recovery within the broiler industry. However there can be no
assurance such recovery will actually occur.
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 which
constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. For these statements, Gold
Kist claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995. These statements are based on assumptions which could prove
inaccurate and therefore there can be no assurance that the "forward-
looking statements" will prove to be accurate. There are many factors,
which could cause actual results to differ materially from those
anticipated by statements made herein. In light of these risks and
uncertainties, the Association cautions readers not to place undue reliance
on any forward-looking statements. The Association undertakes no
obligation to publicly update or revise any forward-looking statements
based on the occurrence of future events, the receipt of new information or
otherwise.
Among the factors that may affect the operating results of the Association
are the following: (i) fluctuations in the cost and availability of raw
materials, such as feed grain costs; (ii) changes in the availability and
relative costs of labor and contract growers; (iii) market conditions for
finished products, including the supply and pricing of alternative
proteins; (iv) effectiveness of sales and marketing programs; (v) risks
associated with leverage, including cost increases due to rising interest
rates; (vi) changes in regulations and laws, including changes in
accounting standards, environmental laws and occupational, health and
safety laws; (vii) access to foreign markets together with foreign economic
conditions; (viii) changes in general economic conditions; and (ix) other
risks identified from time to time in Gold Kist's SEC reports, including
its annual report on Form 10-K, and public announcements.
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.
Page 12
Future Accounting Requirements
The Financial Accounting Standards Board (FASB) has issued SFAS No. 145,
Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections, SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, FASB Interpretation 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others and FASB
Interpretation 46, Consolidation of Variable Interest Entities. These
statements will be effective for the Company's year beginning June 29, 2003
except for FASB Interpretation 45, which was effective for interim and
annual periods ending after December 15, 2002, but not applicable to the
Company. The Company does not anticipate that these statements will have a
material impact on the Company's consolidated financial statements.
Page 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Market Risk
The principal market risks affecting the Association are exposure to
changes in broiler and commodity prices and interest rates on borrowings.
Although the Company has international sales and related accounts
receivable from 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 December 28, 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 6
of Notes to Consolidated Financial Statements.
ITEM 4. CONTROLS AND PROCEDURES
Within ninety (90) days prior to the filing of this report, an evaluation
was performed under the supervision and with the participation of the
Company's management, including the President and Chief Executive Officer
("CEO"), and the Chief Financial Officer ("CFO"), of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective in timely bringing to their attention material
information related to the Company required to be included in the Company's
periodic Securities and Exchange Commission filings. There have been no
significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to the most
recent evaluation conducted by the CEO and the CFO.
Page 14
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of Exhibit in this Report Description of Exhibit
Second Consolidated, Amended and B-4(f)(13)
Restated Note Agreement dated as of
September 27, 2002, with the Gateway
Recovery Trust and the Prudential
Insurance Company of America
Third Amended and Restated Credit B-10(e)(1)
Agreement dated as of September 24, 2002,
with various banks and lending institutions,
as lenders, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., New York
Branch, as agent.
Second Amended and Restated Intercreditor B-10(e)(2)
Agreement dated as of September 24, 2002
with various bank and lending institutions,
as Lenders, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., New York
Branch, as agent.
Statement of Chief Executive Officer of B-99(a)(1)
Gold Kist Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
Statement of Chief Financial Officer of B-99(a)(2)
Gold Kist Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
(b)Reports on Form 8-K. Gold Kist has not filed any reports on Form
8-K during the three months ended December 28, 2002.
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLD KIST INC.
(Registrant)
Date February 11, 2003
John Bekkers
Chief Executive Officer
(Principal Executive Officer)
Date February 11, 2003
Stephen O. West
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Page 14
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of Exhibit in this Report Description of Exhibit
Second Consolidated, Amended and B-4(f)(13)
Restated Note Agreement dated as of
September 27, 2002, with the Gateway
Recovery Trust and the Prudential
Insurance Company of America
Third Amended and Restated Credit B-10(e)(1)
Agreement dated as of September 24, 2002,
with various banks and lending institutions,
as lenders, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., New York
Branch, as agent.
Second Amended and Restated Intercreditor B-10(e)(2)
Agreement dated as of September 24, 2002
with various bank and lending institutions,
as Lenders, and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., New York
Branch, as agent.
Statement of Chief Executive Officer of B-99(a)(1)
Gold Kist Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
Statement of Chief Financial Officer of B-99(a)(2)
Gold Kist Inc. pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
(b)Reports on Form 8-K. Gold Kist has not filed any reports on Form
8-K during the three months ended December 28, 2002.
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLD KIST INC.
(Registrant)
Date February 11, 2003 /s/ John Bekkers
John Bekkers
Chief Executive Officer
(Principal Executive Officer)
Date February 11, 2003 /s/ Stephen O. West
Stephen O. West
Treasurer and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
I, John Bekkers, Principal Executive Officer of Gold Kist Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Gold Kist Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly
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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer 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 officer and I have indicated in this
quarterly report whether or not 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: February 11, 2003
/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 quarterly report on Form 10-Q of Gold Kist Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer 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 we 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 quarterly
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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer 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 officer and I have indicated in this
quarterly report whether or not 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: February 11, 2003
/s/ Stephen O. West
[Signature]
Title: Chief Financial Officer
[15105]