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UNITED STATES
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 28, 2003 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].
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Act). Yes
_____ No ___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 . . . . . . . . . . . 6
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. . . . . . . . . . . . 17
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . 38
9A. Controls and Procedures . . . . . . . . 38
10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . 38
11. Executive Compensation . . . . . . . . . . . 40
12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters. . 43
13. Certain Relationships and Related Transactions. . 43
15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . 44
GOLD KIST INC.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 28, 2003
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 and marketing business, and participates as a member
of a 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 2003
were headquartered in Boaz, Russellville and Trussville, Alabama;
Athens, Douglas, Ellijay and Carrollton, Georgia; Live Oak,
Florida; Sanford and Siler City, North Carolina; and Sumter,
South Carolina. Gold Kist intends to cease operations at its
Trussville operations, effective November 2, 2003. 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 were marketed in fiscal 2003 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 generally
favorable for the Association because of the increased stocks of
such commodities generated by large domestic crops in the last
five years although prices for such commodities increased in
fiscal 2003 due to reduced domestic production. The Association
believes that the availability of such commodities in the next
fiscal year will be adequate due to an expected increased
domestic harvest in 2003, dependent upon weather conditions.
Poultry products were marketed in fiscal 2003 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 five separate distribution
facilities located in Florida, Tennessee, and Ohio. The
Association also operated distribution facilities in Mt.
Sterling, Kentucky for a portion of fiscal 2003. Cornish game
hens have been 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
Note 1 of Notes to Consolidated Financial Statements.
Fiscal Year Ended (000's Omitted)
June 30, June 29, June 28,
2001 2002 2003
Broiler Products
Volume $1,777,495 $1,845,744 $1,832,328
Percentage (%) 98.2 99.0 98.8
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.
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 28, 2003, the
approximate export sales volume of poultry was $56.4 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. Continued restrictions placed by
Russian authorities on the export of U.S. poultry to Russia
beginning 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 2003 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 eleven 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,
Jasper (closed in March 2003) and Pride, 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 2003 in its sales and distribution of poultry products:
Tampa, Pompano Beach, and Crestview, Florida; Mt. Sterling,
Kentucky; Nashville, Tennessee; and Cincinnati, Ohio. The Mt.
Sterling facility was closed in April 2003.
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 April 30,
2010); 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 and other 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.
In May of 2002, the EPA filed a lawsuit against a number of
defunct former owners of an allegedly contaminated Superfund Site
in Tifton, Georgia. In addition, EPA has investigated several
other parties, including Gold Kist, with respect to the site.
Settlement discussions with all parties began in April of 2003.
While Gold Kist is unable to estimate the cost of settlement to
be required of Gold Kist for this location, Management believes
that the potential cost of settlement or compliance would not
have a material effect on the financial condition or results of
operations of the Company.
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 17,000 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, as
determined by the Board of Directors in light of each operation'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 28, 2003 and "Consolidated Balance Sheet
Data" as of June 26, 1999, July 1, 2000, June 30, 2001, June 29, 2002 and
June 28, 2003 are derived from the consolidated financial statements of
Gold Kist Inc. and subsidiaries. The consolidated financial statements as
of June 29, 2002 and June 28, 2003 and for each of the years in the three-
year period ended June 28, 2003, 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 independent
auditors' reports.
For Fiscal Years Ended (000's omitted)
Consolidated Statement of June 26, July 1, June 30, June 29, June 28,
Operations Data: 1999 2000 2001 2002 2003
Net sales volume $1,822,708 1,770,453 1,810,755 1,863,828 1,855,126
Margins (loss) from
continuing operations $ 68,815 (26,503) 33,280 47,629 (51,452)
As of (000's omitted)
Consolidated Balance Sheet June 26, July 1, June 30, June 29, June 28,
Data: 1999 2000 2001 2002 2003
Total assets $ 814,137 881,290 870,056 789,529 762,047
Long-term liabilities $ 275,408 331,837 322,289 314,858 412,554
Patrons' and other
equity $ 279,367 239,490 272,550 283,161 183,897
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 new and value added 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. 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 Russian ban was lifted in mid-April 2002 and
product specifications and other issues were resolved in August 2002,
fiscal 2003 sales to Russia were 60% below levels prior to the embargo.
This increased the domestic supply and combined with higher supplies of
competing meats, continued the downward pressure on broiler sales prices
through 2003.
According to the U.S. Department of Agriculture's (USDA) World
Agricultural Outlook Board, the forecast for calendar 2003 broiler meat
production is 32.185 billion pounds, ready-to-cook weight, .91% above the
31.895 billion pounds produced in 2002. This is the smallest increase in
broiler production for the industry in recent history. Heavier bird
weights slightly offset lower egg sets and chick placements. The estimate
for calendar 2004 production is 32.647 billion pounds, 1.44% over the 2003
forecast. Subject to the supplies of competing meats, the status of export
markets and other factors, this nominal increase should contribute to
improved broiler sales prices in 2004.
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. 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 increased in 2003 by 25% and 18%,
respectively, due to stronger worldwide demand and a reduced U.S. crop due
to weather problems in grain producing areas. Feed costs are expected to
decline in 2004 due to a projected increased U.S. and worldwide crop,
dependent upon weather conditions.
Gold Kist's poultry export sales for fiscal 2001, 2002 and 2003 were
$68.8 million, $74.2 million and $56.4 million, respectively. Starting in
fiscal 2000, poultry 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. 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. The drop in export sales continued in fiscal 2003,
decreasing 24% from 2002. Russia intends to implement an import quota
system that would reduce U.S. poultry imports by an estimated 40% from
levels prior to the embargo.
In June 2002, the Association adopted a plan to withdraw from and
discontinue participation in a pecan processing and marketing partnership,
which was accomplished in January 2003. 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 28, 2003.
Results of Operations
Fiscal 2002 Compared to Fiscal 2001
For 2002, net sales increased 2.9% from $1.81 billion in 2001 to $1.86
billion in 2002. 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, in March, 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 resumed as new product
specifications and poultry plant recertifications were required for export
eligibility to Russia. Export sales only comprised approximately 4% of the
Association's 2002 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 and
other production 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 Cooperative, Inc. (SSC) preferred
securities. See Note 10(a) of Notes to Consolidated Financial Statements.
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. 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.
Fiscal 2003 Compared to Fiscal 2002
For the year ended June 28, 2003, net sales volume decreased .5% from
$1.864 billion in 2002 to $1.855 billion in 2003. The decrease in net
sales volume was due primarily to a 2% decrease in average poultry sales
prices, which was partially offset by a 1.1% 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. The reduction resulted primarily from the Russian ban on
U.S. chicken imports instituted in March 2002 and their continuing
regulatory import restrictions. This event and problems with other export
markets negatively impacted both foreign and domestic markets. This
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 improved during the fourth fiscal quarter of 2003 due to the
impact of industry production constraints and seasonal demand.
The Association's export sales of $56.4 million for 2003 were 24% lower
than for 2002 due to the continuing impact of Russian import regulatory
issues, 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 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.
The Association had net operating losses of $19.6 million for 2003 as
compared to net operating margins of $69.8 million in 2002. The decrease
in operating margins was due primarily to the decrease in poultry selling
prices and a 6.2% increase in the cost of sales. The increased costs were
attributable to higher feed ingredient and production costs, including
energy, for 2003 as compared to 2002. Total feed costs in 2003 were 12.5%
higher than 2002. These increases were partially offset by the receipt of
$8.9 million in June 2003 representing Gold Kist's share as a class
claimant in the class action litigation against methionine suppliers for
overcharges. Also as part of the implementation of an automated system for
spare parts and supply inventories, the Company changed its level of item
cost for inclusion in inventory. The change resulted in an approximate
additional $4.6 million of spare parts and supplies capitalized in 2003.
The Association's Pork Division posted a net operating loss of $3.1 million
as opposed to a net operating margin of $1.3 million in 2002. The 6.4%
decrease in distribution, administrative and general expenses was
principally due to the absence of incentive compensation accruals due to
the net loss for 2003, a general salary freeze and lower benefit costs due
to benefit plan changes effected in 2002 and 2003.
In October 2002, the Association substantially curtailed its
postretirement supplemental life insurance plan and in 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
gain from these curtailments of approximately $20.3 million is reflected in
the 2003 consolidated statement of operations with the accompanying
reduction in the accrued postretirement benefit liability in the
accompanying 2003 consolidated balance sheet.
Interest and dividend income was $2.3 million in 2003 as compared to $9.4
million in 2002. The amount for 2002 was earned principally from the
Southern States Cooperative, Inc. (SSC) capital trust and preferred
securities. No dividends or interest were paid or accrued on these
securities in 2003. In October 2002, 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 July 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 year ended June 28, 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.
Interest expense was $25.0 million in 2003, 10.7% below the $28.0 million
incurred in 2002. The decrease in interest expense was due to lower average
market interest rates partially offset by higher average loan balances and
fees. See Note 4 of Notes to Consolidated Financial Statements.
Miscellaneous, net of $2.4 million expense for the year ended June 28,
2003 includes the litigation settlement payment in December 2002 related to
Golden Peanut Company, LLC. See Note 9 of Notes to Consolidated Financial
Statements.
The Association's combined federal and state effective income tax rate
used to calculate the tax benefit of the 2003 loss before income taxes was
25%. The combined effective rate for 2002 was 32%. The limited 2003 tax
benefit is due to the deferred income tax valuation allowance established
for the unrealized capital losses resulting from the write down of the SSC
investment and the dissolution of the pecan processing and marketing
partnership. Income tax expense (benefit) for the periods presented also
reflects income taxes at statutory rates adjusted for available tax credits
and deductible nonqualified equity cash refunds and redemptions. 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 freezing pay levels, 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.
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 loans with an agricultural credit bank are secured by
substantially all of the Association's inventories, receivables, and
property, plant and equipment.
In October 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
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.
In September 2002, the Company refinanced and extended the Senior Secured
Credit Facility to include a $110 million Revolving Credit Facility
maturing November 2004 and a $95 million Term Loan maturing November 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.
In connection with the dissolution of the pecan processing and marketing
partnership in January 2003, the Association paid $20 million 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
notes bore interest at 12% and were recorded at a discounted amount
representing their estimated fair value. The $20 million payment by Gold
Kist was financed from a $10 million drawing from the Senior Secured Credit
Facility and a $10 million note from an agricultural credit bank. On
August 22, 2003, Gold Kist settled all outstanding notes receivable for
$3.8 million, which exceeded the carrying value of the notes.
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%. No
amounts were outstanding under the Temporary Facility at June 28, 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 range from 2% to 4% over LIBOR,
adjusted quarterly based on the Company's financial condition. Covenant
changes included increased reporting requirements and amended financial
covenants. As of September 22, 2003, Gold Kist has $43.85 million
available under its Senior Secured Credit Facility, excluding the Temporary
Revolving Credit Facility which matures September 30, 2003.
Covenants under the terms of the loan agreements 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 28, 2003, 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. 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 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 flow from operating activities, along with additional net long-term
borrowings, was used to repay 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 $68.0 million as
compared to $71.9 million in 2001. The net 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 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 $160.0 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 2002 net margins, net of equity redemptions.
In 2003, cash used in operating activities of continuing operations was
$15.7 million as compared to cash provided by operations of $68.0 million
in 2002. The decrease was due to the $51.4 million net loss from
continuing operations, which included noncash benefit plan curtailment
gains of $20.3 million, partially offset by depreciation and the $24.1
million unrealized loss on investment. Net cash used during 2003 in
investing activities and discontinued operations was $28.3 million and
$18.4 million, respectively, as compared to net cash provided from
investing activities of $45.2 million in 2002, principally from the sale of
investments. Cash provided by financing activities in 2003 was $64.3
million, principally from the Revolving Credit Facility, as compared to
cash used in financing activities in 2002 of $115.6 million.
Working capital and patrons' and other equity were $210.2 million and
$183.9 million, respectively, at June 28, 2003 as compared to $160.0
million and $283.2 million, respectively, at June 29, 2002. Working
capital was higher at June 28, 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 June
28, 2003, $83.0 million was outstanding under the Revolver. The decrease
in patrons' and other equity principally reflects the 2003 net loss and a
charge to other comprehensive income (loss) to recognize the minimum
pension liability as of June 28, 2003. See Note 8 of Notes to Consolidated
Financial Statements.
The Association had capital expenditures of $34.7 million in 2003, which
were limited to the completion of existing projects and essential
replacements. For 2003, cash expenditures were approximately $5.0 million
for equity redemptions, net of insurance proceeds, and $1.7 million for
cash patronage refunds. In August 2003, the Board of Directors of the
Association suspended the early cashing of notified equity at the request
of the holder, but will continue to pay the full face value to the estates
of deceased equity holders subject to a $4.0 million limitation on total
equity cashings in 2004. See Note 6 of Notes to Consolidated Financial
Statements.
The Association plans capital expenditures approximating $45 million in
2004 that primarily include completion of existing projects and necessary
replacements. Management intends to finance planned 2004 capital
expenditures and related working capital needs with existing cash balances,
cash expected to be provided from operations and additional borrowings, as
needed. In 2004, management expects cash expenditures to approximate $4.0
million for equity redemptions. It is projected that the Association will
be required to fund pension plan contributions commencing in 2005. The
funding amount for calendar 2005 is projected at approximately $7 million.
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 28, 2003 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 2004, to fund the repayment of
outstanding Subordinated Certificates as they mature and to meet the above
2004 obligations. In the event such amounts are not sufficient, Gold Kist
will pursue additional sources of financing or asset sales, although no
assurances can be given that such additional sources of financing or asset
sales will be sufficient for Gold Kist to meet its obligations.
Contractual Obligations
Obligations under long-term debt, non-cancelable operating leases and
feed ingredient purchase commitments at June 28, 2003 are as follows (in
millions):
Payments Due by Period
Less than After
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
Long-term debt (a) $346.2 22.2 243.9 26.1 54.0
Operating leases 53.7 15.5 21.7 14.3 2.2
Feed ingredient
purchase commitments(b)150.7 150.7 - - -
Total $550.6 188.4 265.6 40.4 56.2
(a) Excludes $13.7 million in letters of credit outstanding related to
normal business transactions.
(b) Feed ingredient purchase commitments include both priced and unpriced
contracts in the ordinary course of business.Unpriced feed ingredient
commitments are priced at market as of June 27, 2003 for the month of
delivery. If necessary, these commitments could be settled at a gain
or a loss dependent on grain market conditions.
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 discounted cash flows using 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.
Employee Benefits - The Company incurs various employment-related benefit
costs with respect to qualified and nonqualified pensions and deferred
compensation plans. 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 and mortality rates. 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.
Income Taxes - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which requires that deferred
tax assets and liabilities be recognized for the tax effect of temporary
differences between the financial statement and tax basis of recorded
assets and liabilities at current tax rates. SFAS No. 109 also requires
that deferred tax assets be reduced by a valuation allowance if it is more
likely than not that some portion or all of the deferred tax asset will not
be realized. The recoverability of the tax assets recorded on the balance
sheet is based on both historical and anticipated earnings levels of the
Association and is reviewed to determine if any additional valuation
allowance is necessary when it is more likely than not that amounts will
not be recovered.
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 ingredients; (ii) changes in
the availability and relative costs of labor and contract growers; (iii)
market conditions for finished products, including competitive factors and
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) disease outbreaks affecting
broiler production and/or marketability of the Association's products;
(viii) contamination of products, which can lead to product liability and
product recalls; (ix) access to foreign markets together with foreign
economic conditions; and (x) 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 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, SFAS No.
149, Amendment of Statement No. 133 on Derivative Instruments and Hedging
Activities and SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. 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 did not have material impact to the
Company. 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 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 June 29, 2002 and June 28, 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). A 1% change
in LIBOR would increase annual interest expense by approximately $2.0
million. 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 19
Consolidated Balance Sheets as of June 29, 2002
and June 28, 2003 21
Consolidated Statements of Operations for the years
ended June 30, 2001, June 29, 2002 and
June 28, 2003 22
Consolidated Statements of Patrons' and Other Equity
and Comprehensive Income (Loss) for the years ended
June 30, 2001, June 29, 2002 and June 28, 2003 23
Consolidated Statements of Cash Flows for the years
ended June 30, 2001, June 29, 2002 and
June 28, 2003 24
Notes to Consolidated Financial Statements 25
FINANCIAL STATEMENT SCHEDULES
(Included in Part IV of this Report):
FINANCIAL STATEMENT SCHEDULE:
Valuation Reserves and Qualifying Accounts for the
years ended June 30, 2001, June 29, 2002 and
June 28, 2003 45
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 29, 2002 and June 28, 2003, 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 28, 2003, 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, for the year 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 for the year 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 29, 2002 and June 28, 2003, and the results of
their operations and their cash flows for each of the years in the three-
year period ended June 28, 2003, 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 5, 2003, except
for the tenth paragraph of
Note 4, as to which the
date is September 22, 2003
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Golden Peanut Company, LLC
We have audited the accompanying consolidated statements of operations,
members' equity, and cash flows of Golden Peanut Company, LLC and
subsidiaries (the "Company") for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of their
operations and their cash flows of Golden Peanut Company, LLC and
subsidiaries for the year 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 29, 2002 June 28, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 8,997 11,026
Receivables, principally trade, less
allowance for doubtful accounts of
$1,194 in 2002 and $2,002 in 2003 110,470 104,699
Inventories (note 2) 191,130 196,728
Deferred income taxes (note 7) 18,285 43,270
Other current assets 22,587 20,100
Total current assets 351,469 375,823
Investments (note 10) 91,311 66,805
Property, plant and equipment, net
(note 3) 229,476 226,905
Prepaid pension costs (note 8) 43,419 -
Deferred income taxes (note 7) 12,008 26,822
Other assets 61,846 65,692
$789,529 762,047
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt (note 4):
Short-term borrowings $ 10,000 -
Current maturities of long-term debt 15,626 22,162
25,626 22,162
Accounts payable 64,361 63,281
Accrued compensation and related
expenses 34,962 31,875
Interest left on deposit (note 4) 9,773 8,495
Other current liabilities 38,407 39,783
Net liabilities - discontinued
operations (note 11) 18,381 -
Total current liabilities 191,510 165,596
Long-term debt, less current maturities
(note 4) 250,644 324,011
Accrued pension costs (note 8) 10,287 44,487
Accrued postretirement benefit costs
(note 8) 29,628 10,119
Other liabilities 24,299 33,937
Total liabilities 506,368 578,150
Patrons' and other equity (note 6):
Common stock, $1.00 par value -
Authorized 500 shares; issued and
outstanding 18 in 2002 and 2 in 2003 18 2
Patronage reserves 195,620 185,620
Accumulated other comprehensive loss (2,169) (43,448)
Retained earnings 89,692 41,723
Total patrons' and other equity 283,161 183,897
Commitments and contingencies (notes 4,
5, 8 and 9)
$789,529 762,047
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Years Ended
June 30, 2001 June 29, 2002 June 28, 2003
Net sales volume $1,810,755 1,863,828 1,855,126
Cost of sales 1,690,437 1,706,582 1,813,106
Gross margins 120,318 157,246 42,020
Distribution, administrative
and general expenses 88,507 87,486 81,859
Benefit plans settlement and
curtailment gains (note 8) 33,727 - 20,257
Net operating margins (loss) 65,538 69,760 (19,582)
Other income (deductions):
Interest and dividend
income (note 10(a)) 11,328 9,426 2,283
Interest expense (39,996) (27,962) (24,968)
Gain on sale of marketable
equity security and other
investments (note 10(b)) - 15,578 -
Unrealized loss on investment
(note 10(a)) - - (24,064)
Equity in earnings of
affiliate (note 10(c)) 10,048 - -
Miscellaneous, net (241) 2,882 (2,428)
Total other deductions (18,861) (76) (49,177)
Margins (loss) from
Continuing operations
before income taxes 46,677 69,684 (68,759)
Income tax expense (benefit)
(note 7) 13,397 22,055 (17,307)
Margins (loss) from continuing
operations 33,280 47,629 (51,452)
Discontinued operations
(note 11):
Loss from operations of
discontinued joint venture
partnership (less applicable
income tax benefit of $126
thousand and $7.3 million
for the years ended June 30,
2001 and June 29, 2002,
respectively) (214) (13,543) -
Net margins (loss) $ 33,066 34,086 (51,452)
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 June 30, 2001, June 29, 2002 and June 28, 2003
(Amounts in Thousands)
Accumulated other
comprehensive income
(loss)
Unrealized
gain on
marketable Pension
Common Patronage equity liability Retained
stock reserves security adjustment earnings Total
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, net
of tax - - - (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,
net of tax - - - (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
Comprehensive loss:
Net loss for 2003 - - - - (51,452) (51,452)
Additional minimum
pension liability,
net of tax - - - (41,279) - (41,279)
Total comprehensive
loss (92,731)
Redemptions and
other changes (16) (10,000) - - 3,483 (6,533)
June 28, 2003 $ 2 185,620 - (43,448) 41,723 183,897
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended
June 30, 2001 June 29, 2002 June 28, 2003
Cash flows from operating
activities:
Margins (loss) from continuing
operations $ 33,280 47,629 (51,452)
Non-cash items included in
margins (loss) from continuing
operations:
Depreciation and amortization 42,747 39,071 39,495
Unrealized loss on investment - - 24,064
Post retirement benefit plans
curtailment gains (33,727) - (20,257)
Gain on sale of marketable
equity security and other
investments - (15,578) -
Equity in earnings of
partnership (10,048) - -
Deferred income tax expense
(benefit) 13,929 14,012 (14,850)
Other 913 5,633 3,664
Changes in operating assets and
liabilities:
Receivables (299) (3,473) 5,771
Inventories 8,007 (16,076) (5,598)
Other current assets 6,715 6,392 2,994
Accounts payable, accrued and
other expenses 10,423 (9,610) 518
Net cash provided by (used in)
operating activities of
continuing operations 71,940 68,000 (15,651)
Net cash used in operating
activities of discontinued
operations - - (18,381)
Net cash provided by (used in)
operating activities 71,940 68,000 (34,032)
Cash flows from investing
activities:
Acquisitions of investments (818) (671) -
Acquisitions of property, plant
and equipment (33,495) (38,899) (34,651)
Proceeds from disposal of
investments 8 90,891 482
Proceeds from employee life
insurance policy surrenders - - 7,537
Other 1,523 (6,092) (1,651)
Net cash provided by (used in)
investing activities (32,782) 45,229 (28,283)
Cash flows from financing
activities:
Short-term borrowings, net (33,730) (88,220) (10,000)
Proceeds from long-term debt 140,000 95,000 202,920
Principal payments of long-term
debt (136,868) (117,928) (126,024)
Patronage refunds and other
equity paid in cash (5,892) (4,423) (7,601)
Proceeds from employee life
insurance policy borrowings - - 5,049
Net cash provided by (used in)
financing activities. (36,490) (115,571) 64,344
Net change in cash and cash
equivalents 2,668 (2,342) 2,029
Cash and cash equivalents at
beginning of year 8,671 11,339 8,997
Cash and cash equivalents at
end of year $ 11,339 8,997 11,026
Supplemental disclosure of cash
flow data:
Cash paid (received) during the
years for:
Interest (net of amounts
capitalized) $ 39,538 31,125 25,571
Income taxes $ (6,042) 7,831 (5,855)
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001, June 29, 2002 and June 28, 2003
(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 2001 and 2002
to conform to the presentation in fiscal 2003.
(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 are 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
Buildings 10 - 25 Years
Office furniture and equipment 3 - 10 Years
Automotive equipment 3 - 5 Years
Machinery and equipment 5 - 10 Years
(f) Investments
Certain 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 (loss) - 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.
(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, accounts payable and accrued expenses,
interest left on deposit, notes receivable and debt. Because of the
short maturity of cash equivalents, receivables, accounts payable and
accrued expenses, interest left on deposit, and certain short-term
debt and certain long-term debt bearing variable interest rates, the
carrying value of the financial instrument approximates fair value.
All financial instruments are considered to have an estimated fair
value, which approximates carrying value at June 29, 2002 and June
28, 2003 unless otherwise specified (see notes 1(f) and 4).
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
Effective June 30, 2002, Gold Kist adopted SFAS 144 "Accounting
for Impairment or Disposal of Long-Lived Assets". The adoption of
SFAS 144 did not impact the Gold Kist consolidated financial
statements. SFAS 144 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 undiscounted 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.
Prior to the adoption of SFAS 144, Gold Kist applied the
provisions of SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
(j) Comprehensive Income (Loss)
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).
(k) Goodwill
In July 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 142 "Goodwill and Other Intangible Assets". The
statement requires that goodwill no longer be amortized; instead it
will be annually tested for impairment. SFAS 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 29, 2002 and June
28, 2003. Based upon its annual assessment, 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
statement of operations for the year ended June 30, 2001 with the same
impact on net margins.
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 2001, 2002 and 2003 reflect 52 weeks,
respectively. Fiscal 2004 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:
2002 2003
Live poultry and hogs $ 91,457 97,691
Marketable products 62,390 53,587
Raw materials and supplies 37,283 45,450
$191,130 196,728
As a part of the implementation of an automated system for spare
parts and supply inventories initiated in 2003 and expected to be
completed in 2004, the Company changed its level of item cost
requiring inclusion in inventory. The change resulted in the
capitalization, as acquired, of an approximate additional $4.6 million
into spare parts and supply inventory as of June 28, 2003.
(3) Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
2002 2003
Land and land improvements $ 31,372 32,222
Buildings 202,285 215,845
Machinery and equipment 423,348 435,197
Construction in progress 5,269 1,845
662,274 685,109
Less accumulated depreciation 432,798 458,204
$229,476 226,905
(4) Notes Payable and Long-Term Debt
The Company's long-term debt includes the Series B Senior Exchange
Notes and the Series C Senior Exchange Notes with an insurance company and
term loans with an agricultural credit bank. The interest rates on these
notes are adjusted quarterly using variable rates based on the Company's
financial condition. As of June 28, 2003, interest rates on the Series B
Senior Exchange Notes and the Series C Senior Exchange Notes were 12% and
12.25%, respectively. As of June 30, 2002, interest rates on the Series B
Senior Exchange Notes and the Series C Senior Exchange Notes were 9.0% and
9.25%, respectively. The interest rates on the term loans were 8.46% and
9.41% at June 29, 2002 and June 28, 2003, 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 ranged 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 was fixed at 10.57%.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
In October 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
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.
In September 2002, the Company refinanced and extended the Senior Secured
Credit Facility to include a $110 million Revolving Credit Facility
maturing November 2004 and a $95 million Term Loan maturing November 2005.
The interest rates on the facility ranged from 1.50% to 2.25% over 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 connection with the dissolution of the pecan marketing and processing
partnership in January 2003 and the repayment of the partnership's line of
credit, the Association obtained a $10 million term loan from an
agricultural credit bank. The term note bears interest at LIBOR plus 3.5%.
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%. There
were no amounts outstanding under the Temporary Facility at June 28, 2003.
The interest rates on the Senior Secured Credit Facility were also changed
in February 2003 to a range of 2% to 4% over LIBOR, adjusted quarterly
based on the Association's financial condition.
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.
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. Certificates are redeemable at
the request of the holder, subject to an interest penalty and other
limitations.
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 28, 2003, the Association was in
compliance with all loan covenants.
As of September 22, 2003, Gold Kist has $43.85 million available under its
Senior Secured Credit Facility, excluding the Temporary Revolving Credit
Facility which matures September 30, 2003. Based upon Gold Kist's expected
results for 2004 and amounts available under the Senior Secured Credit
Facility, Gold Kist anticipates having sufficient liquidity to meet its
obligations as they become due. In the event such amounts are not
sufficient, Gold Kist will pursue additional sources of financing or asset
sales, although no assurances can be given that such additional sources of
financing or asset sales will be sufficient for Gold Kist to meet its
obligations.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Long-term debt is summarized as follows:
2002 2003
Series B senior exchange notes, due in annual
Installments of $2,727 beginning in February
2002 with interest payable quarterly $ 27,273 24,546
Series C senior exchange notes, due in annual
installments of $2,273 beginning in May 2002
with interest payable quarterly 22,727 20,454
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,
$5,000 due March 2004, September 2004 and
March 2005 with the remainder due in November
2005 (weighted average rate of 4.09% at
June 29, 2002 and 4.32% at June 28, 2003) 95,000 95,000
Revolving credit facility, due November 2004
(weighted average interest rate of 4.27% at
June 28, 2003) - 83,000
Term loan agreement with agricultural credit bank,
due in semi-annual installments of $1,785 with
interest payable monthly 37,505 35,720
Term loan agreement with agricultural credit
bank, due in quarterly installments of $400
beginning December 31, 2003 and $600 thereafter
with interest payable monthly (weighted average
interest rate of 4.85% at June 28, 2003) - 10,000
Subordinated capital certificates of interest with
original fixed maturities ranging from five to
fifteen years, unsecured (weighted average interest
rate of 7.9% at June 29, 2002 and 8.02% at
June 28, 2003) 30,513 23,006
Tax exempt industrial revenue bond due July 2015
with variable interest rate (1.5% at June 29, 2002
and 1.1% at June 28, 2003) 7,500 7,500
Pro rata share of mortgage loans, due in monthly
installments to January 2010, secured by an office
building (weighted average interest rate of 5.77%) 752 1,947
266,270 346,173
Less current maturities 15,626 22,162
$250,644 324,011
Annual required principal repayments on long-term debt for the five years
subsequent to June 28, 2003 are as follows:
Year:
2004 $ 22,162
2005 106,099
2006 137,795
2007 12,213
2008 13,845
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 29, 2002 and June 28, 2003 was approximately
$48.2 million and $47.5 million, respectively. The estimated fair value of
the term loans with the agricultural credit bank at June 29, 2002 and June
28, 2003 was approximately $35.1 million and $43.2 million, respectively,
and the estimated fair value of the senior secured note with an insurance
company was $46.7 million at June 29, 2002 and $46.1 million at June 28,
2003.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(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 2001,
2002 and 2003 was $19.3 million, $24.2 million and $27.4 million,
respectively. Commitments for minimum rentals under non-cancelable
operating leases at the end of 2003 are as follows:
Year:
2004 $15,472
2005 12,351
2006 9,393
2007 7,844
2008 6,429
Thereafter 2,196
$53,685
(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 a "set aside" allocation of member margins with
the amount based on financial ratios. In addition, the cumulative net
margins (losses) resulting from nonmember and nonpatronage transactions,
including noncooperative subsidiaries, and losses from patronage operations
are reflected in retained earnings. Also included are amounts related to
the early redemption of notified equity, representing the difference
between the face value and the redemption amounts.
(7) Income Taxes
Total income tax expense (benefit) was allocated as follows:
2001 2002 2003
Margins (loss) from continuing operations $13,397 22,055 (17,307)
Discontinued operations (126) (7,293) -
Patrons' and other equity - accumulated
comprehensive income (loss):
Unrealized gain on marketable equity
security 4,745 (4,745) -
Pension liability adjustment (910) (36) (24,599)
$17,106 9,981 (41,906)
The provisions for income tax expense (benefit), principally Federal,
related to margins (loss) from continuing operations consist of the
following:
2001 2002 2003
Current expense (benefit) $ (532) 8,043 (2,457)
Deferred expense (benefit) 13,929 14,012 (14,850)
$13,397 22,055 (17,307)
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Gold Kist's combined federal and state effective tax rate from operations
for 2001, 2002 and 2003 was 29%, 32% and 25%, 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 2001, 2002 and 2003 to margins (loss) from
continuing operations before income taxes for the applicable year follows:
2001 2002 2003
Computed expected income tax expense
(benefit) $ 16,337 24,389 (24,066)
Increase (decrease) in income tax
expense (benefit) resulting from:
Cash portion of nonqualified patronage
refund - (580) -
Change in deferred tax valuation
allowance (7) 9 10,331
Effect of state income taxes, net of
Federal benefit 783 146 656
Dividends received deduction (2,026) (505) -
Nonqualified equity redemptions (1,582) (1,222) (1,644)
Employment credits (195) (287) (312)
Other, net 87 105 (2,272)
$ 13,397 22,055 (17,307)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
29, 2002 and June 28, 2003 are as follows:
2002 2003
Deferred tax assets:
Postretirement benefits $12,081 29,056
Federal tax operating loss carryforward - 21,018
Insurance accruals 9,474 9,007
Federal alternative minimum tax
carryforward 2,462 3,145
General business credit carryforward - 2,558
Allowance for doubtful accounts 640 4,675
State tax operating loss carryforwards 3,525 5,128
Equity in partnerships 6,186 972
Unrealized capital loss on investment 6,412 14,835
Other assets 4,599 4,599
Other 2,285 3,762
Total gross deferred tax assets 47,664 98,755
Less valuation allowance (399) (10,730)
Total net deferred tax assets 47,265 88,025
Deferred tax liabilities:
Accelerated depreciation (6,257) (7,477)
Deferred compensation (10,715) (10,456)
Total deferred tax liabilities (16,972) (17,933)
Net deferred tax assets $ 30,293 70,092
The net change in the total valuation allowance for 2001, 2002 and 2003
was a decrease of $7 and an increase of $9 and $10,331, 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 28, 2003, Gold Kist has a net operating loss carryforward for
federal income tax purposes of $60.1 million, which is available to offset
future federal income taxes, if any, through 2023 and a general business
credit carryforward for federal income tax purposes of $2.6 million, which
is available to offset future federal income taxes, if any. The credits
expire in 2018 through 2023.
Gold Kist also has an alternative minimum tax credit carryforward for
federal income tax purposes of $3.1 million, which is available to offset
future federal income taxes, if any.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(8) Employee Benefits
Pension Plans
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.
Medical and Life Insurance Plans
Effective January 1, 2001, the Association substantially curtailed its
postretirement medical benefit plan for current employees. A net gain
from the curtailment of $29.5 million is reflected in the accompanying
2001 consolidated statement of operations.
In October 2002, the Association substantially curtailed its
postretirement supplemental life insurance plan and in April 2003, the
Association substantially curtailed its postretirement medical plan for
existing retirees. Retired employees eligible under the plan 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.
Curtailment gains of $20.3 million are reflected in the accompanying
consolidated statement of operations for the year ended June 28, 2003
with the accompanying reduction in the accrued postretirement benefit
liability in the accompanying consolidated balance sheet at June 28,
2003.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The following table sets forth the plans' change in benefit obligation,
change in plan assets and economic assumptions for the years ended June 29,
2002 and June 28, 2003.
Medical & Life
Pension Benefits Insurance Benefits
2002 2003 2002 2003
Change in benefit obligation
Benefit obligation at beginning
of year $ 136,007 139,172 $ 24,899 41,839
Service cost 5,154 5,521 134 64
Interest cost 9,679 10,193 1,785 2,746
Actuarial losses 4,218 24,582 18,333 1,769
Benefits paid (other than
settlements) (11,860) (10,336) (3,312) (3,375)
Plan amendments (57) 1,222 - (37,783)
Settlements and curtailment (3,969) - - -
Benefit obligation at end of
Year 139,172 170,354 41,839 5,260
Change in plan assets
Fair value of plan assets at
beginning of year 147,064 140,947 - -
Actual return (loss) on plan
assets 5,089 (23,333) - -
Contributions by employer 4,623 725 3,312 3,375
Benefits paid (other than
settlements) (11,860) (10,336) (3,312) (3,375)
Settlements (3,969) - - -
Fair value of plan assets at end
of year 140,947 108,003 - -
Funded status 1,775 (62,351) (41,839) (5,260)
Unrecognized transition asset (1,136) (240) - -
Unrecognized prior service cost 12,037 11,502 (17,704) (33,600)
Unrecognized actuarial loss 23,741 86,580 25,861 26,177
Contributions after the
measurement date 176 994 811 855
Net amount recognized $ 36,593 36,485 (32,871) (11,828)
Prepaid benefit cost $ 43,419 - - -
Accrued benefit liability (10,287) (44,487) (32,871) (11,828)
Intangible asset - 11,633 - -
Accumulated other comprehensive
Loss 3,461 69,339 - -
Net amount recognized $ 36,593 36,485 (32,871) (11,828)
Less current portion 3,243 1,709
$ (29,628) (10,119)
Weighted-average assumptions as
of year-end
Discount rate 7.50% 6.50% 7.50% 6.50%
Expected return on plan assets 9.50 9.00 - -
Rate of compensation increase 5.01 4.01 - -
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 29, 2002 was 10%, declining ratably to
5% by the year 2012 and remaining at that level thereafter. The health care
cost trend rate used to determine the medical and life insurance benefit
obligation at June 28, 2003 was 9.5%, 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 28, 2003 by $44. A 1% decrease in the health care
cost trend rate would decrease the medical and life insurance benefit
obligation as of June 28, 2003 by $42.
Medical & Life
Pension Benefits Insurance Benefits
2001 2002 2003 2001 2002 2003
Components of net periodic
benefit cost (income):
Service cost $ 4,691 5,154 5,521 $ 2,883 134 64
Interest cost 9,956 9,679 10,193 4,603 1,785 2,746
Estimated return on plan
assets (15,124)(15,002)(15,290) - - -
Net amortization 1,077 1,421 1,228 (136)(1,461) (177)
600 1,252 1,652 7,350 458 2,633
Settlements and
curtailment (4,273) 1,100 - (29,454) - (20,257)
Net periodic benefit cost
(income) after
settlements and
curtailment $(3,673) 2,352 1,652 $(22,104) 458 (17,624)
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
28, 2003 by $196. 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 28, 2003 by $172.
Eligible employees participate in the Gold Kist 401(k) plan. During
fiscal 2001, 2002 and 2003, the Association contributed $648, $1,400 and
$1,675, respectively, to the 401(k) plan to partially match employee
contributions.
(9) Contingent Liabilities
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. In
November 2002, Golden Peanut reached a settlement on this litigation and
Gold Kist's share was paid in December 2002. The amount is included in
other deductions in the accompanying consolidated statements of operations
for the year ended June 28, 2003.
Gold Kist is a party to various other legal, environmental and
administrative proceedings, all of which management believes constitute
ordinary routine litigation incidental to the business conducted by Gold
Kist and 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 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. The $60
million principal amount of capital trust securities is redeemable in
2029. 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 8.55% for the year
ended June 29, 2002. No dividends from the cumulative preferred
securities have been received since the quarterly payment received in
January 2002.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
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 July 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 with any deferred payments bearing interest at
10.75%.
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 the
loss from continuing operations for the year ended June 28, 2003.
The carrying value of the SSC securities was $81.4 million at June 29,
2002 and $57.3 million at June 28, 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 June 29, 2002 and June 28, 2003.
(b) Marketable Equity Security
At June 30, 2001, the Association's marketable equity security was
carried at its fair value of $47.8 million, which represented a gross
unrealized gain of $27 million. The unrealized gain had 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 $723 thousand and $375 thousand are included in
interest and dividend income for the years ended 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, which was liquidated at
that value on August 30, 2001.
Summarized financial information of Golden Peanut is shown below:
Condensed Consolidated Statements of Operations
2001
Net sales and other operating income $575,662
Costs and expenses 546,414
Net earnings $ 29,248
Gold Kist received procurement commissions, royalties and
administrative service fees of $.9 million in 2001.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(11) Discontinued Operations - Pecan Processing and Marketing Partnership
Gold Kist held a 25% equity interest and 35% earnings (loss)
participation in a pecan processing and marketing partnership. 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 2002 consolidated balance sheet and
statements of operations and cash flows for all periods presented.
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 with a face amount of $11.7
million. The notes bore interest at 12% and were recorded at a discounted
amount representing their estimated fair value. The notes were classified
as noncurrent assets 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. On August 22, 2003, Gold Kist settled
all outstanding notes receivable for $3.8 million, which exceeded the
carrying value of the notes.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
Item 9A. Controls and Procedures.
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 the CFO, concluded that the Company's disclosure
controls and procedures as of the end of the period covered by this report,
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 has not been any change in
the Company's internal control over financial reporting that occurred during
the Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
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
8/30/03)
Christopher D. Fannon 35 Director (District 1) 2005 9 months
Billy G. Meeks 42 Director (District 2) 2005 9 months
Phil Ogletree, Jr. 70 Director (District 3) 2004 26
Jeffery A. Henderson* 43 Director (District 4) 2003 3
Fred W. Gretsch, Jr. 37 Director (District 5) 2005 9
months
Walter C. Dockery 43 Director (District 6) 2004 2
H. Michael Davis* 52 Director (District 7) 2003 9
Douglas A. Reeves* 62 Director (District 8) 2003 3
W. A. Smith* 44 Director (District 9) 2004 5
* Member of Board of Directors Executive Committee. Mr. Reeves serves as
Chairman of the Board of Directors, and Mr. Henderson 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
8/30/03) 8/30/03) 8/30/03)
John Bekkers 58 President and Chief 2 18
Executive Officer
M. A. Stimpert 59 Senior Vice President, 7 20
Planning and Administration
Stephen O. West 57 Chief Financial Officer and 5 23
Treasurer
J. David Dyson 56 General Counsel, Vice 5 23
President and Secretary
Jerry L. Stewart 63 Vice President 22 40
Marketing and Sales
Donald W. Mabe 49 Vice President 6 18
Operations
Marshall Smitherman 61 Vice President 5 24
Purchasing
Allen C. Merritt 57 Vice President, Science 5 31
and Technology
Harry T. McDonald 58 Vice President, 3 6
Human Resources
Sandra W. Kearney 44 Vice President, 2 2
Information Services
W. F. Pohl, Jr. 53 Controller 21 27
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 Sandra W. Kearney has been
as an officer or employee of Gold Kist.
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 28, 2003 $522,115 $ 0 $24,292 $8,255
President and Chief June 29, 2002 518,365 170,028 23,442 8,883
Executive Officer June 30, 2001 403,750 209,024 15,919 6,537
M. A. Stimpert June 28, 2003 $284,000 $ 0 $11,234 $7,999
Senior Vice President, June 29, 2002 292,231 85,014 12,005 9,846
Planning & Admin. June 30, 2001 247,000 104,512 9,287 6,903
Jerry L. Stewart June 28, 2003 $240,769 $ 0 $16,180 $8,815
Vice President June 29, 2002 246,429 82,777 15,127 9,004
Marketing and Sales June 30, 2001 209,475 104,512 11,426 7,245
Donald W. Mabe June 28, 2003 $210,769 $ 0 $ 9,976 $6,172
Vice President June 29, 2002 203,731 73,925 9,513 6,522
Operations June 30, 2001 175,500 90,880 6,287 3,697
Stephen O. West June 28, 2003 $207,211 $ 0 $ 488 $7,202
Chief Financial Officer June 29, 2002 200,573 65,365 522 7,979
and Treasurer June 30, 2001 181,642 79,520 404 5,260
(1)The amounts shown for the fiscal years ended June 28, 2003, June 29, 2002
and June 30, 2001 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 28, 2003, June 29, 2002 and June 30, 2001, 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 2003, 2002 and 2001 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
- $5,900, $5,100 and $2,550, respectively; Mr. Stimpert - $5,392, $5,642
and $2,438, respectively; Mr. Stewart - $6,184, $4,784 and $2,804,
respectively; Mr. Mabe - $5,387, $5,337 and $2,511, respectively; and Mr.
West - $5,534, $5,340 and $2,510, respectively. In addition, the amounts
set forth include for fiscal years 2003, 2002 and 2001, 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 which was terminated in fiscal 2003:
Mr. Bekkers - $2,355, $3,783 and $3,987, respectively; Mr. Stimpert -
$2,607, $4,204 and $4,465, respectively; Mr. Stewart - $2,631, $4,220 and
$4,441, respectively; Mr. Mabe - $785, $1,185 and $1,186, respectively; and
Mr. West - $1,668, $2,639 and $2,750, respectively. The Association used
the modified premium method in determining the portion of each premium
dollar attributable to the named executive officers for fiscal years 2002
and 2001 and the modified premium method prorated to plan termination for
fiscal year 2003.. The Association recovered the cost of premium payments
from the cash value of the policies when the plan was discontinued in
fiscal 2003.
Retirement Plan. 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
Service, the Association was not permitted to make a tax deductible
contribution to the pension plan for the plan year ended December 31, 2002.
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, 2002, under the retirement income plan for the five executive
officers listed in the summary compensation table are as follows: Mr.
Bekkers (18); Mr. Stimpert (29); Mr. Stewart (30); Mr. Mabe (24); and Mr.
West (23).
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 28, 2003: Mr.
Bekkers - $318,025; Mr. Stimpert - $213,715; and Mr. Stewart - $190,605.
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 28, 2003, 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 H.
Michael Davis, Jeffery A. Henderson, Douglas A. Reeves and W. A. Smith serve
as members of the Association's Compensation Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Not Applicable.
Item 13. Certain Relationships and Related Transactions.
During the fiscal year ended June 28, 2003, Directors Fannon, Reeves,
Henderson, Gretsch, Meeks and Dockery had dealings in the ordinary course of
business with Gold Kist as marketing patrons and members of the Association.
See Business (and Properties) -- Patronage Refunds.
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 29, 2002 and June 28, 2003
Consolidated Statements of Operations--Years Ended June 30,
2001, June 29, 2002 and June 28, 2003
Consolidated Statements of Patrons' and Other Equity and
Comprehensive Income (Loss)--Years Ended June 30, 2001,
June 29, 2002 and June 28, 2003
Consolidated Statements of Cash Flows--Years Ended
June 30, 2001, June 29, 2002 and June 28, 2003
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules:
Financial Statement Schedule:
II. Valuation Reserves and Qualifying Accounts--Years
Ended June 30, 2001, June 29, 2002 and June 28, 2003
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:
June 30, 2001 $4,041 318 - 1,910 (A) 2,449
June 29, 2002 2,449 581 - 1,836 (A) 1,194
June 28, 2003 1,194 1,030 - 222 (A) 2,002
(A) Represents accounts written off.
Allowance for
deferred tax
assets
valuation:
June 30, 2001 $397 - - 7 (B) 390
June 29, 2002 390 9 - - (B) 399
June 28, 2003 399 10,331 - - (B) 10,730
(B) Represents the revision of the estimate of net operating loss
deductions.
(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 Exh.
Report Description of Exhibit Filed with Commission in that Doc.
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) First Amended and Restated Credit
Agreement with CoBank, ACB
dated as of January 29, 2003
B-4(f)(2) First Amendment dated February 11,
2003 to First Amended and Restated
Credit Agreement with CoBank, ACB
B-4(f)(3) Second Consolidated, Amended
and Restated Note Agreement
dated September 27, 2002,
with the Gateway Recovery Trust and
the Prudential Insurance Company
of America
B-4(f)(4) First Amendment dated January 29, 2003
to Second Consolidated, Amended and
Restated Note Agreement with the Gateway
Recovery Trust and the Prudential
Insurance Company of America
B-4(f)(5) Second Amendment dated February 11, 2003
to Second Consolidated, Amended and
Restated Note Agreement with
the Gateway Recovery Trust and the
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 Supplemental Registration filed on Exh.10(b)(3)
Executive Retirement Income Form S-2 (Registration
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 Board Registration filed on Exh.10(b)(4)
of Directors authorizing the Form S-2 (Registration
Gold Kist Special Award Plan* No. 33-9007)
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 Benefits* Form S-2 (Registration
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. 10(b)(12)
Contribution Plan * 10-K for the Fiscal Year
Ended July 1, 2000
B-10(b)(13)Form of Employment Agreement Annual Report on Form Exh. 10(b)(13)
between Gold Kist and 10-K for the Fiscal Year
certain officers ended June 29, 2002
B-10(c)(l)Form of Membership, Marketing, Registration filed on Exh.13(b)
and/or Purchasing Agreement of Form S-1 (Registration
Gold Kist Inc., Atlanta, No. 2-59958)
Georgia
B-10(c)(2)Form of Membership, Marketing, Registration filed on Exh.10(c)(2)
and/or Purchasing Agreement of Form S-1 (Registration
Gold Kist Inc., Atlanta, No. 2-74205)
Georgia, as revised October
17, 1980
B-10(c)(3)Form of Membership, Marketing, Registration filed on Exh.10(c)(3)
and/or Purchasing Agreement of Form S-2 (Registration
Gold Kist Inc., Atlanta, No. 33-428)
Georgia, as revised November
l, l984
B-10(c)(4)Form of Membership, Marketing, Registration filed on Exh.10(c)(4)
and/or Purchasing Agreement Form S-2 (Registration
of Gold Kist Inc., Atlanta, No. 33-24623)
Georgia, revised October
29, 1987
B-10(c)(5)Form of Membership, Marketing, Registration filed on Exh.10(c)(5)
and/or Purchasing Agreement of Form S-2 (Registration
Gold Kist Inc., Atlanta, Georgia, No. 33-42900)
revised August 21, 1991
B-10(c)(6)Form of Membership, Marketing, Registration filed on Exh.10(c)(6)
and/or Purchasing Agreement of Form S-2 (Registration
Gold Kist Inc., Atlanta, Georgia No. 333-36291)
revised July 9, 1997
B-10(d)(1)General Partnership Agreement Registration filed on Exh.10(h)(1)
(GC Properties) between Gold Form S-2 (Registration
Kist Inc. and Cotton States No. 33-428)
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)Third Amended and Restated Credit
Agreement dated as of September 27,
2002, 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)First Amendment dated January 24,
2003 to the Third Amended and
Restated Credit Agreement with various
banks and lending institutions, as
lendors, and Cooperatieve Centrale
Raiffeisen-Boerenleen Bank, B. A.,
New York Branch, as agent
B-10(e)(3)Second Amendment dated February 11,
2003, 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) Credit Agreement dated
February 11, 2003 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 dated Report filed on Form Exh.10(k)
as of July 23, 1998, between 8-K dated as of
Southern States Cooperative, July 23, 1998
Incorporated and Gold Kist Inc.
B-10(h) Securities Purchase Agreement Annual Report on Form Exh. 10(k)(1)
Dated October 5, 1999, between 10-K for the Fiscal Year
Gold Kist Inc. and Southern Ended June 30, 2001
States Cooperative, Incorporated
B-31 Section 302, Sarbanes-Oxley
Act, Certifications
B-32 Section 906, Sarbanes-Oxley
Act, Certifications
_________________________________
*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 28, 2003.
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 23, 2003 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 23, 2003
JOHN BEKKERS (Principal Executive Officer)
/s/ Stephen O. West Chief Financial Officer September 23, 2003
STEPHEN O. WEST (Principal Financial Officer)
/s/ W. F. Pohl, Jr. Controller (Principal September 23, 2003
W. F. POHL, JR. Accounting Officer)
/s/ Christopher F. Fannon Director September 23, 2003
CHRISTOPHER F. FANNON
/s/ Billy G. Meeks Director September 23, 2003
BILLY G. MEEKS
/s/ Phil Ogletree, Jr. Director September 23, 2003
PHIL OGLETREE, JR.
/s/ Jeffery A. Henderson Director September 23, 2003
JEFFERY A. HENDERSON
/s/ Fred W. Gretsch, Jr. Director September 23, 2003
FRED W. GRETSCH, JR.
/s/ Walter C. Dockery Director September 23, 2003
WALTER C. DOCKERY
/s/ H. Michael Davis Director September 23, 2003
H. MICHAEL DAVIS
/s/ Douglas A. Reeves Director September 23, 2003
DOUGLAS A. REEVES
/s/ W. A. Smith Director September 23, 2003
W. A. SMITH
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
B-4(f)(1) First Amended and Restated Credit
Agreement with CoBank, ACB
dated as of January 29, 2003
B-4(f)(2) First Amendment dated February 11,
2003 to First Amended and Restated
Credit Agreement with CoBank, ACB
B-4(f)(3) Second Consolidated, Amended
and Restated Note Agreement
dated September 27, 2002,
with the Gateway Recovery Trust and
the Prudential Insurance Company
of America
B-4(f)(4) First Amendment dated January 29, 2003
To Second Consolidated, Amended and
Restated Note Agreement with the Gateway
Recovery Trust and the Prudential
Insurance Company of America
B-4(f)(5) Second Amendment dated February 11, 2003
to Second Consolidated, Amended and
Restated Note Agreement with
the Gateway Recovery Trust and the
Prudential Insurance Company of
America
B-10(e)(1) Third Amended and Restated Credit
Agreement dated as of September 27,
2002, 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) First Amendment dated January 24,
2003 to the Third Amended and
Restated Credit Agreement with various
banks and lending institutions, as
lendors, and Cooperatieve Centrale
Raiffeisen-Boerenleen Bank, B. A.,
New York Branch, as agent
B-10(e)(3) Second Amendment dated February 11,
2003, 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) Credit Agreement dated
February 11, 2003 with various
banks and lending institutions, as
lenders, and Cooperatieve
Centrale Raiffeisen-Boerenleen Bank
B. A., New York Branch, as agent
B-31 Section 302, Sarbanes-Oxley
Act, Certifications
B-32 Section 906, Sarbanes-Oxley
Act, Certifications