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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 2003
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 12b-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 -
March 29, 2003 and June 29, 2002 1
Consolidated Statements of Operations -
Three Months and Nine Months Ended
March 29, 2003 and March 30, 2002 2
Consolidated Statements of Cash Flows -
Nine Months Ended March 29, 2003
and March 30, 2002 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
Page 1
Item 1. Financial GOLD KIST INC.
Statements CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited)
March 29, June 29,
2003 2002
ASSETS
Current assets:
Cash and cash equivalents $ 12,809 8,997
Receivables, principally trade,
less allowance for doubtful
accounts of $1,397 at
March 29, 2003 and $1,194
at June 29, 2002 106,822 110,470
Inventories (note 3) 191,454 191,130
Deferred income taxes 26,975 18,285
Other current assets 24,565 22,587
Total current assets 362,625 351,469
Investments (note 5) 66,721 91,311
Property, plant and equipment, net 229,906 229,476
Prepaid pension costs 43,419 43,419
Other assets 83,835 73,854
786,506 789,529
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt:
Short-term borrowings (note 6) $ 7,500 10,000
Current maturities of long-term debt
(note 6) 15,241 15,626
22,741 25,626
Accounts payable 57,465 69,275
Accrued compensation and related expenses 28,328 30,048
Interest left on deposit 8,550 9,773
Other current liabilities 47,273 38,407
Net liabilities - discontinued operations
(note 7) - 18,381
Total current liabilities 164,357 191,510
Long-term debt, less current maturities (note 6) 348,126 250,644
Accrued postretirement benefit costs (note 9) 18,402 29,628
Other liabilities 42,485 34,586
Total liabilities 573,370 506,368
Patrons' and other equity:
Common stock, $1.00 par value - Authorized
500 shares; issued and outstanding 2 at
March 29, 2003 and 18 at June 29, 2002 2 18
Patronage reserves 187,908 195,620
Accumulated other comprehensive loss (2,169) (2,169)
Retained earnings 27,395 89,692
Total patrons' and other equity 213,136 283,161
$786,506 789,529
See Accompanying Notes to Consolidated Financial Statements.
Page 2
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
2003 2002 2003 2002
Net sales volume $466,389 451,654 1,364,501 1,397,655
Cost of sales 461,589 426,172 1,360,576 1,268,113
Gross margins 4,800 25,482 3,925 129,542
Distribution, administrative
and general expenses 19,196 19,804 59,841 65,443
Postretirement benefit plan
curtailment gain (note 9) 554 - 10,865 -
Net operating margins (loss) (13,842) 5,678 (45,051) 64,099
Other income (deductions):
Interest and dividend income
(note 5) 662 2,058 2,051 7,238
Interest expense (6,762) (6,048) (18,423) (22,194)
Unrealized loss on investment
(note 5) - - (24,064) -
Gain on sale of marketable
equity security and other
investments (note 4) - 3,152 - 15,578
Miscellaneous, net 2,134 665 (1,588) 2,722
Total other income
(deductions) (3,966) (173) (42,024) 3,344
Margins (loss) from continuing
operations before income taxes (17,808) 5,505 (87,075) 67,443
Income tax (benefit) expense (5,937) 1,835 (21,008) 22,485
Margins (loss) from
continuing operations (11,871) 3,670 (66,067) 44,958
Discontinued operations (note 7):
Loss from operations of
discontinued joint venture
partnership (less applicable
income tax benefit of $4.0
million and $7.0 million,
respectively, for the three
and nine months ended
March 30, 2002 - (7,876) - (13,841)
Net margins (loss) $ (11,871) (4,206) (66,067) 31,117
See Accompanying Notes to Consolidated Financial Statements.
Page 3
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
Mar. 29, Mar. 30,
2003 2002
Cash flows from operating activities:
Net margins (loss) from continuing operations $ (66,067) 44,958
Non-cash items included in net margins (loss)
from continuing operations:
Depreciation and amortization 29,361 29,316
Unrealized loss on investment 24,064 -
Postretirement benefit plan curtailment gain (10,865) -
Deferred income tax expense (benefit) (17,379) 13,493
Gain on sale of marketable equity security
and other investments - (15,578)
Other 2,222 2,819
Changes in operating assets and liabilities:
Receivables 3,648 5,571
Inventories (324) (16,371)
Other current assets 1,871 (8,660)
Accounts payable, accrued and other expenses (7,338) (11,446)
Net cash provided by (used in) operating activities
of continuing operations (40,807) 44,102
Net cash used in operating activities of
discontinued operations (18,381) -
Cash flows from investing activities:
Dispositions of investments 469 89,221
Acquisitions of property, plant and equipment (27,871) (25,229)
Other 4,426 5,924
Net cash provided by (used in) investing
activities (22,976) 69,916
Cash flows from financing activities:
Short-term debt repayments, net (2,500) (95,220)
Proceeds from long-term debt 202,920 95,000
Principal repayments of long-term debt and
capitalized loan fees (108,830) (111,543)
Patrons' equity redemptions paid in cash (5,614) (2,975)
Net cash provided by (used in) financing activities 85,976 (114,738)
Net change in cash and cash equivalents 3,812 (720)
Cash and cash equivalents at beginning of period 8,997 11,339
Cash and cash equivalents at end of period $ 12,809 10,619
Supplemental disclosure of cash flow data:
Cash paid (received) during the periods for:
Interest (net of amounts capitalized) $ 18,940 25,192
Income taxes, net $ (5,849) 7,394
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 as of and for
the three and nine months ended March 29, 2003 ("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:
March 29, 2003 June 29, 2002
Live poultry and hogs $ 98,005 91,457
Marketable products 50,581 62,390
Raw materials and supplies 42,868 37,283
$191,454 191,130
4. During the nine months ended March 29, 2002, the Association sold a
marketable equity security, an investment in an interregional
fertilizer cooperative and other investments realizing total
proceeds of $65.8 million and a gain before income taxes of $15.6
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, with interest/dividends payable quarterly,
carried a combined weighted average interest/dividend rate of 8.5% at
June 29, 2002. No dividends from the cumulative preferred securities
have been received since the second calendar quarter of 2002.
Page 5
In October 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 quarterly interest payment due on October 5, 2002.
Quarterly interest payments for subsequent quarters through April 5,
2003 have also been deferred. The terms of the capital trust
securities allow for the deferral of quarterly interest payments for
up to 20 quarters.
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 nine months ended March 29, 2003. The carrying value of the SSC
securities was $81.4 million at June 29, 2002 and $57.4 million at
March 29, 2003.
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 assets - investments in the accompanying consolidated
balance sheets at March 29, 2003 and June 29, 2002.
6. 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 1, 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. The terms and
conditions on the $45 million five-year term loan due November 2005
were also unchanged.
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 amount outstanding under the Temporary Facility
was $7.5 million at March 29, 2003.
At March 29, 2003, the Association was in compliance with all
applicable loan covenants.
7. Gold Kist, through a wholly-owned subsidiary, was a general partner
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.
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 nine
month periods ended in March 2002.
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 aforementioned 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 have been
classified as noncurrent assets - notes receivable in the accompanying
2003 consolidated balance sheet. The $20 million payment by Gold Kist
was financed from a $10 million drawing from the Senior Secured Line
of Credit and a $10 million term note from an agricultural credit
bank. The term 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
judgment against Golden Peanut Company (Golden Peanut), a former
affiliated company, 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 nine months ended March 29, 2003 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 $10.9 million is reflected in the
accompanying consolidated statements of operations for the nine month
period ended March 29, 2003 with the accompanying reduction in the
accrued postretirement benefit liability in the accompanying
consolidated balance sheet at March 29, 2003.
Effective April 2003, the Association substantially curtailed its
postretirement medical plan for existing retirees. The postretirement
medical plan for active employees was curtailed in January 2001.
Previously eligible retired employees between the ages of 55 and 65
could continue their coverage at rates above the average cost of the
medical insurance plan for active employees. A curtailment gain of
approximately $9.4 million will be recognized in the fourth quarter of
fiscal 2003.
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 March 29, 2003 increased
3.3% as compared to the quarter ended March 30, 2002. The increase in the
March 2003 quarter was due to improved production yields and a 12.1%
increase in export sales. For the nine-month period ended March 29, 2003,
net sales volume decreased 2.4% from $1.4 billion in the comparable period
last year to $1.36 billion in the current year. The decrease in year-to-
date net sales volume was due primarily to a 4.5% decrease in average
poultry sales prices, which was partially offset by a 1.6% 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, resulting principally from the Russian ban on
U.S. chicken imports instituted in March 2002. This event and problems
with other export markets 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 were a significant factor leading to the downward
pressure on poultry prices. Broiler prices are expected to improve during
the fourth fiscal quarter of 2003 due to the impact of production
constraints and seasonal demand.
The Association's export sales of $40 million for the first nine months of
2003 was 34% lower than the March 2002 period, due to the continuing impact
of the Russian ban, 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, year-
to-date sales to Russia were 60% below prior year levels. Russia intends
to implement an import quota system that would reduce U.S. poultry exports
by 40% from levels prior to the embargo.
Export sales for the March 2003 quarter were $14.5 million, 12.1% greater
than the March 2002 quarter. Increased volume to China and other Asian
countries accounted for the increase in the March 2003 quarter.
According to the U.S. Department of Agriculture's (USDA) World Agricultural
Outlook Board, calendar 2002 broiler meat production approximated 31.90
billion pounds, ready-to-cook weight, 3.1% above the 30.94 billion pounds
produced in 2001. The April estimate for calendar 2003 production is 31.83
billion pounds, .2% below 2002 levels. Recent 2003 production estimates
have been revised downward as current egg placements are below prior year
levels. This could lead to reduced broiler meat supplies and improved
market conditions in the late Spring/Summer of 2003.
Net Operating Margins (Loss)
The Association had net operating losses of $(13.8) million and $(45.1)
million for the three and nine months ended March 29, 2003, respectively,
as compared to net operating margins of $5.7 million and $64.1 million in
the comparable periods last year. The decrease in operating margins was
due primarily to the 4.5% decrease in poultry selling prices and a 7.3%
increase in the cost of sales. The increased costs were attributable to
higher feed
Page 8
ingredient and other production costs for the three and nine months ended
March 29, 2003 as compared to the comparable periods in the prior
year. Total feed costs were 11% higher in the March 2003 nine-month period
over the March 2002 nine-month period and 17.8% higher in the March 2003
quarter compared to the March 2002 quarter. The 8.6% 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 March 2003 period and lower benefit costs due to benefit plan
changes effected in the current and prior year.
Effective October 2002, the Association substantially curtailed its
postretirement supplemental life insurance plan. A gain from the
curtailment of approximately $10.9 million is reflected in the accompanying
consolidated statement of operations for the nine month period ended March
29, 2003 with the accompanying reduction in the accrued postretirement
benefit liability in the accompanying consolidated balance sheet at March
29, 2003.
Effective April 2003, the Association substantially curtailed its
postretirement medical plan for existing retirees. The postretirement
medical plan for active employees was curtailed in January 2001.
Previously eligible retired employees between the ages of 55 and 65 could
continue their coverage at rates above the average cost of the medical
insurance plan for active employees. A curtailment gain of approximately
$9.4 million will be recognized in the fourth quarter of fiscal 2003.
The Company expects that improved seasonal domestic demand coupled with
continued production restraint could result in the strengthening of poultry
sales prices and profitable operations sometime during the fourth quarter
of 2003.
Other Income (Deductions)
Interest and dividend income was $.7 million and $2.1 million for the three
and nine months ended March 29, 2003 as compared to $2.1 million and $7.2
million for the comparable periods last year. The amounts for the March
2002 quarter and nine 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 in 2003. In the March
2003 quarter, the Association received a patronage dividend from an
interregional cooperative amounting to $383 thousand.
In October 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 payment due on October 5, 2002. Quarterly
interest payments for subsequent quarters through April 5, 2003 have also
been deferred. 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 nine months ended March 29, 2003.
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.
Page 9
Interest expense was $6.8 million and $18.4 million for the three and nine-
month periods ended March 29, 2003 as compared to $6.1 million and $22.2
million for the comparable periods last year. The decrease in year-to-date
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.
Interest expense for the March 2003 quarter was 11.8% higher than the March
2002 quarter due to higher rates and fees associated with the Temporary
Credit facility closed in February 2003.
Miscellaneous, net of $1.6 million expense for the nine months ended March
29, 2003 includes the litigation settlement payment in December 2002
related to Golden Peanut Company, LLC. See Note 8 of Notes to Consolidated
Financial Statements.
For the three and nine months ended March 29, 2003, 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 24.1%,
respectively. The combined effective rate for the three and nine-month
periods ended March 30, 2002 was 33.3%. The limited tax benefit for the
nine months ended March 29, 2003 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, implementing further employee benefit plan
reductions/eliminations and selling 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 or asset sales.
LIQUIDITY AND CAPITAL RESOURCES
The Association's liquidity is dependent upon funds from operations and
external sources of financing. 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 1, 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. The terms and conditions on the $45 million five-
year term loan due November 2005 were also unchanged.
Page 10
The Association also has $45.7 million in term loans outstanding with an
agricultural credit bank and $47.3 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 inventories, receivables, and property, plant and equipment.
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
amount outstanding under the Temporary Facility was $7.5 million at March
29, 2003.
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 March 29, 2003, the
Association was in compliance with all applicable loan covenants.
For the first nine months of fiscal 2003, cash used in operating activities
of continuing operations was $40.8 million as compared to cash provided by
operations of $44.1 million for the first nine months of 2002. The
decrease was due to the net loss from continuing operations partially
offset by depreciation and the unrealized loss on investment. Cash
provided by financing activities for the nine months ended March 2003 was
$86.0 million, principally from the Revolving Credit Facility, as compared
to cash used in financing activities for the nine months ended March 2002
of $114.7 million. Cash provided by operations and the sale of investments
generated the cash used to reduce indebtedness for the nine months ended
March 2002.
Working capital and patrons' and other equity were $198.3 million and
$213.1 million, respectively, at March 29, 2003 as compared to $160.0
million and $283.2 million, respectively, at June 29, 2002. Working
capital was higher at March 29, 2003 due to lower current liabilities
resulting from the September 2002 refinancing that extended the Revolving
Credit Facility to November 2004. This change resulted in the
classification of the Revolving Credit Facility as long-term debt. At
March 29, 2003, $96.3 million was outstanding under the Revolver. The
decrease in patrons' and other equity principally reflects the net loss for
the first nine months of 2003.
The Association has limited capital expenditures in 2003 to the completion
of existing projects and essential replacements. For 2003, cash
expenditures were approximately $3.0 million for equity redemptions, net of
insurance proceeds, and $1.5 million for cash patronage refunds. Equity
redemptions have been curtailed for fiscal 2003 and will resume in July
2003. In connection with the dissolution of the pecan processing and
marketing partnership on January 31, 2003, the Association paid $20
million
Page 11
on the partnership's 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 a
$10 million drawing 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.
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 March 29, 2003 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.
Page 12
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 SFAS No. 145,
Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections, FASB Interpretation 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, FASB
Interpretation 46, Consolidation of Variable Interest Entities and SFAS No.
149, Amendment of Statement No. 133 on Derivative Instruments and Hedging
Activities. 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 fair value. 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 March 29, 2003, 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
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 March 29, 2003.
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 May 12, 2003
John Bekkers
Chief Executive Officer
(Principal Executive Officer)
Date May 12, 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
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 March 29, 2003.
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 May 12, 2003 /s/ John Bekkers
John Bekkers
Chief Executive Officer
(Principal Executive Officer)
Date May 12, 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: May 12, 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: May 12, 2003
/s/ Stephen O. West
[Signature]
Title: Chief Financial Officer
[15105]