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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 1997
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 .
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable.
______________________________________________________________
TABLE OF CONTENTS
Item Page
1. Business (and Properties) . . . . 1
2. Properties . . . . . . . .. . . . 11
3. Legal Proceedings . . . . . . . . 11
4. Submission of Matters to a
Vote of Security Holders . . . . . . 11
5. Market for Registrant's Common
Equity and Related Stockholder Matters 11
6. Selected Financial Data . . . . . 12
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . 13
8. Financial Statements and
Supplementary Data . . . . . . . . . . 18
9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . 40
10. Directors and Executive Officers
of the Registrant . . . . . . 40
11. Executive Compensation . . . . . . . 43
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . 46
13. Certain Relationships and
Related Transactions. . . . . . . . . 46
14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 47
- i -
GOLD KIST INC.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 28, 1997
PART I
Item 1. Business (and Properties).
Gold Kist Inc. ("Gold Kist" or the "Association") is a
diversified 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.
Gold Kist serves approximately 31,000 active farmer
members located principally in Alabama, Florida, Georgia,
Mississippi, South Carolina and Texas. In addition, other
cooperative associations are members of Gold Kist. 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 both cooperative marketing and
cooperative purchasing services to its member patrons. Farm
commodities are marketed by Gold Kist on behalf of members.
Similarly, Gold Kist manufactures or processes many products
purchased for its members. The standard Membership,
Marketing, and/or Purchasing Agreement which is entered into
between each member and Gold Kist does not require the member
to market his agricultural products or to purchase farm
supplies through Gold Kist. Under the agreement, Gold Kist
undertakes to market for the member agricultural products
delivered which are of a type marketed by Gold Kist and to
purchase or manufacture and sell to the member such farm
supplies as the member requires, provided it is advantageous
for Gold Kist to handle such supplies in the interest of the
membership. The Association also does business with non-
members and engages in non-cooperative activities through
subsidiaries and partnerships. AgraTrade Financing, Inc., a
wholly-owned subsidiary of Gold Kist, provides financing to
members and non-members doing business with Gold Kist and its
subsidiaries and partnerships. Financing is extended for
poultry and pork housing construction and for certain farm
commodity crop production.
Agriculture is generally cyclical in nature. Commodities
marketed by Gold Kist on behalf of its members are subject to
fluctuations in price, based on supply of the farm commodities
and demand for the raw or processed products. Commodity
prices are also sensitive to interest rates, with high rates
generally tending to depress market prices, and to worldwide
economic and political factors. In addition, a portion of
Gold Kist's business is dependent on the demand of farmers for
the purchase of products, which is influenced by the general
farm economy and the success of particular crops.
Gold Kist's business is conducted in two industry
segments. See Note 10 of Notes to Consolidated Financial
Statements. The Poultry segment conducts broiler production
operations, providing both marketing and purchasing services
to its cooperative patrons. The Agri-Services segment
purchases or manufactures feed, seed, fertilizers, pesticides,
animal health products and other farm supply items for sale at
wholesale and retail. Additionally, that segment operates
pork production operations, serves as a contract procurement
agent for, and storer of, farm commodities such as soybeans
and grain and is engaged in the purchase, sale, processing and
storage of cotton. Gold Kist is also a partner in a major
peanut processing and marketing business and in a pecan
processing and marketing business and participates as a member
of limited liability companies which are engaged in the
production and sale of hogs and of fertilizer ingredients.
POULTRY
Broilers
Gold Kist conducted its poultry operations in fiscal 1997
through six Gold Kist cooperative broiler divisions, through
its former 75% majority-owned public subsidiary, Golden
Poultry Company, Inc. ("Golden Poultry"), and through its
former partnership interest in Carolina Golden Products
Company ("Carolina Golden"). Gold Kist acquired the remaining
interests in Golden Poultry and Carolina Golden in September
1997 and will conduct the operations of those companies
subsequently as cooperative broiler divisions of Gold Kist.
See Note 11 of Notes to Consolidated Financial Statements.
Gold Kist's cooperative broiler operation is organized
into broiler divisions, each encompassing one of Gold Kist's
decentralized broiler complexes. Each Gold Kist decentralized
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, sales and
accounting office(s), and transportation facilities. The six
complexes operated as Gold Kist facilities in fiscal 1997 are
headquartered in Boaz and Cullman, Alabama; Athens, Ellijay
and Carrollton, Georgia; and Live Oak, Florida. The broiler
growers 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 and marketing services for the broilers
grown.
Effective September 1997, the operations of Golden
Poultry and Carolina Golden were included in Gold Kist
cooperative poultry operations. The former Golden Poultry
integrated poultry processing complexes are in Russellville,
Alabama, Douglas, Georgia, and Sanford and Siler City, North
Carolina. Each of these complexes contracts for poultry
production with broiler growers and includes a hatchery, feed
mill, processing plant and management, sales and accounting
office, and transportation facilities. The former Carolina
Golden integrated poultry processing complex is located in
Sumter, South Carolina, and produces value-added and further
processed poultry products. This complex contracts for
poultry production with broiler growers and includes a
hatchery, feed mill, processing plant and management, sales
and accounting office, and transportation facilities.
The principal products marketed by the broiler divisions
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 Farms and Young 'n
Tender labels; however, some is sold under customers' private
labels. Most of the frozen chicken carries the Gold Kist or
Early Bird label. Cornish game hens are marketed in frozen
form primarily to hotels, restaurants and grocery stores under
the Gold Kist Farms, Young 'n Tender and Medallion labels.
Medallion, Big Value , Gold Kist Farms, Young 'n Tender and
Early Bird are registered trademarks of Gold Kist Inc.
Broiler products are marketed directly from the
processing plant in each broiler complex. Some packaged
products are marketed from the Atlanta headquarters. The
plants at Athens, Carrollton, Boaz, and Live Oak have special
distribution facilities, and there are five separate
distribution facilities located in Florida, Tennessee, Ohio
and Kentucky. The former Golden Poultry operations include
two separate distribution facilities in Siler City, North
Carolina, and Pompano Beach, Florida. Cornish game hens are
processed at facilities in Trussville, Alabama and marketed
from the Atlanta headquarters.
Gold Kist is one of the largest poultry processors in the
United States. It competes with other large processors and
with smaller companies. Competition is based upon price,
quality and service. While Management believes that the
pricing and quality of its products are competitive with other
processors, it believes that Gold Kist's service to its
customers is a principal factor that has established Gold Kist
as one of the largest United States poultry processors. Gold
Kist's ability to deliver broilers and other poultry products
cut-up or otherwise 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. As an integral part
of its feed ingredient purchasing strategy, Gold Kist attempts
to limit the effects and risk of fluctuations in feed
ingredient costs (i.e., corn and soybean meal) through varying
amounts of commodity trading transactions in the agricultural
commodity futures and options market. Commodity trading
transactions, which are a common industry practice, 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 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 broiler
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 contributed by sales of broiler
products for each of the years indicated.
Fiscal Year Ended (000's Omitted)
July 1, June 29, June 28,
1995 1996 1997
Broiler Products
Volume $1,226,104 $1,380,649 $1,618,157
Percentage (%) 72.6 70.6 70.7
AGRI-SERVICES
Gold Kist purchases, manufactures and processes
fertilizers, agricultural chemicals, seed, pet foods, feed,
animal health products and other farm supply items for
distribution and sale at wholesale and retail. These products
are distributed through approximately 98 Gold Kist retail
stores and at wholesale to national accounts and independent
dealers. Gold Kist serves as a contract procurement agent
for, and storer of, farm commodities such as soybeans and
grain.
Retail Stores
The Gold Kist retail store operation is conducted in
Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi,
South Carolina and Texas.
The typical Gold Kist store is a complete farm supply
center offering for sale many types of feeds, animal health
products, fertilizers, pesticides, seeds, farm supplies and
equipment. It also offers services such as precision farming,
customized fertilizer spreading, field mapping, soil testing,
insect scouting, and agronomic and animal nutrition advice.
Gold Kist purchases most of the farm supplies distributed from
various manufacturers.
The competition for retail sales faced by Gold Kist
stores varies greatly from locality to locality. Some compete
with other purchasing cooperatives, hardware and farm supply
stores, and retail outlets owned or affiliated with major
fertilizer, agricultural chemical and feed manufacturers. In
some areas these competing manufacturers sell directly to
farmers. Price competition is important for many items. The
Gold Kist stores emphasize service to the customer.
Luker Inc., a steel fabrication company located in
Augusta, Georgia, and a wholly-owned subsidiary of Gold Kist,
manufactures steel equipment such as poultry processing
equipment, storage bins, elevators and conveyor systems.
Gold Kist operates a system of receiving and storage
facilities for handling unprocessed farm commodities such as
soybeans, corn and other grains. Approximately 98% of Gold
Kist's storage facilities are licensed by the federal or state
government and can issue negotiable warehouse receipts.
Pursuant to a five-year grain handling agreement which
terminates in 2000, Gold Kist utilizes these facilities and
assets exclusively as independent buying points operating on a
commission basis for the Archer Daniels Midland Company.
Fertilizers and Chemicals
Gold Kist distributes granular, blended and liquid
fertilizers and fertilizer materials. Each type is purchased
or produced in varying compositions depending upon the
ultimate use of the product as a plant food. The Association
owns and operates five fertilizer plants in addition to other
blending facilities at certain Gold Kist stores where
fertilizer ingredients are physically mixed to a custom
formula. Gold Kist leases or owns terminal facilities at
which fertilizer materials are warehoused for resale through
Gold Kist stores and private dealers. Granular fertilizers
are purchased and distributed in bagged and bulk form. In
addition to traditional agricultural customers, Gold Kist
markets fertilizers and chemicals to, and provides application
services for, forestry, turf and industrial customers.
Gold Kist is a member of CF Industries, Inc., a
cooperative owned by regional cooperatives, which produces and
supplies fertilizer materials to its members. For the fiscal
year ended June 28, 1997, Gold Kist purchased approximately
39% of its fertilizer materials and products at market prices
from CF Industries. The remaining fertilizer materials and
products were purchased from more than 50 other suppliers.
Gold Kist competes for fertilizer sales with the major
fertilizer manufacturers, wholesalers and brokers.
Competition is largely on the basis of price and service.
Gold Kist markets premium grade fertilizers under its
trademarks Growers Pride , Living Lawn , and Garden Gold .
Gold Kist also markets a premium growing medium composed of
soil materials and fertilizer nutrients under its trademark
Garden on the Spot .
Gold Kist distributes agricultural and specialty
chemicals, including pesticides, growth regulators and
surfactants which it purchases from approximately 50 chemical
manufacturers. Competition for sales of agricultural
chemicals is primarily on the basis of price and service since
most retailers have access to the same inventory of products
produced by the major manufacturers. Gold Kist also provides
aerial application of fertilizer for forestry customers and
ground application of fertilizer and chemicals for turf
customers. The Association is also a participant in a limited
liability company which manufactures and sells fertilizer
ingredients.
The following table shows the amount and percentage of
Gold Kist's net sales volume contributed by sales of
fertilizer and chemical products for each of the years
indicated.
Fiscal Year Ended (000's Omitted)
July 1, June 29, June 28,
1995 1996 1997
Fertilizer
and Chemicals
Volume $268,625 $306,247 $325,563
Percentage (%) 15.9 15.7 14.2
Pet Food and Animal Products
Gold Kist operates four major feed mills for its pet food
and animal products operations. The mills produce feeds
distributed at wholesale or at retail through the Gold Kist
stores and independent dealers. All of the mills are batch
process mills in which ingredients are weighed. This type of
mill is capable of precision feed mixing, which is especially
important to the poultry industry. Feeds are distributed in
bagged and bulk form.
In the fiscal year ended June 28, 1997, Gold Kist's feed
mills produced substantially all of the feed it distributed at
wholesale or retail. Gold Kist produces and markets
approximately 200 different feeds, including custom blended
feeds and feeds containing various medications. Pro Balanced
is a dairy feed sold through a special program which includes
survey and analysis of feed ingredients needed for a
particular herd. Gold Kist also markets dog food under the
Pay Day , Pro Balanced and Performance Plus trademarks
through independent dealers, under the Gold Kist and Pro
Balanced trademarks through Gold Kist retail stores, and under
the Gold Kist and Top Notch trademarks through grocery
wholesalers and retail chain stores. Pro Balanced cat food is
also marketed through independent dealers, Gold Kist stores
and grocery wholesalers and retail chain stores. Pro
Balanced, Pay Day, Gold Kist, Top Notch, and Performance Plus
are registered trademarks of Gold Kist. Aquaculture feed
products, primarily feed for commercial fish farming
operations, also form a significant portion of Gold Kist's
feed business.
Feed ingredients are purchased in the marketplace from
many sources, including major grain companies. Feed
formulation is based on the cost of various alternative
ingredients in a given week. Feed ingredients are normally
purchased for several weeks production; corn is purchased in
fifteen-rail car units.
Approximately forty percent of the feed sold is delivered
in bulk form directly from the feed mill to the farm; the
remainder is sold in bag form. Gold Kist operates a fleet of
trucks, including feed tankers, for the delivery of feed.
Competition for sales of feed is based on quality and
service, as well as price. Gold Kist competes with major feed
manufacturers and local feed mills. The major feed
manufacturers distribute through independent retailers, owned
retail stores and direct to farmers. Gold Kist sells through
its own retail stores and directly to large farmers, private
dealers, independent cooperatives, wholesale grocers, and
retail grocery chains.
Pork
Gold Kist markets hogs raised by producers in Alabama and
Georgia. Feeder pigs are furnished to members who raise them,
using Gold Kist feed and medicines, 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 entered into a joint venture arrangement with another
regional cooperative association in the form of a limited
liability hog sales and production company. Gold Kist will
raise and provide 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.
Cotton
Cotton ginning and storage facilities are operated at
Statesboro, Morven, Byromville and DeSoto, Georgia, and
Bishopville, South Carolina. A central storage warehouse is
operated in Moultrie, Georgia. The Association provides
ginning and storage services to members and non-members and
markets cotton purchased from members and non-members to
domestic and foreign textile mills.
Seed Marketing
AgraTech Seeds, Inc. ("AgraTech Seeds"), a wholly-owned
subsidiary of Gold Kist, owns and operates a seed business,
which consists of the development, contract production,
processing and sale primarily of proprietary seed varieties.
AgraTech Seeds distributes approximately 50 varieties of
seeds. Seed is marketed by AgraTech Seeds at wholesale to
seed retailers, including Gold Kist stores and independent
seed retail outlets in the Southeast and the Midwest.
AgraTech Seeds licenses certain seed dealers, including Golden
Peanut Company, to sell its proprietary peanut varieties "GK
7", "GK 7 Hi-Oleic", "AgraTech 108", "AgraTech 120" and
"ViruGard"TM, and receives a royalty on licensed sales.
AgraTech Seeds contracts with farmers for the production of
seed. Careful control is required to maintain the purity of
varieties. Quality and name recognition play a large role in
competition for sales of seed.
AgraTech Seeds processes or contracts for the processing
of approximately 95% of the seeds it distributes. AgraTech
Seeds owns and operates seed processing facilities in
McCordsville, Indiana, St. Joseph, Illinois, and Mason City,
Illinois. The McCordsville and Mason City facilities conduct
research into the breeding of corn. Proprietary corn,
soybean, sorghum and peanut seed varieties are marketed under
the trademark AgraTech .
As a function of its retail sales operations, Gold Kist
operates a commodity seed procurement plant at Dublin, Georgia
for the cleaning, grading, treatment and processing of
commodity seeds. Seed products from its Dublin operations are
marketed primarily through the Gold Kist retail stores.
Pecans
Gold Kist is a partner in Young Pecan Company, a pecan
processing and marketing business headquartered in Florence,
South Carolina, in which the Association holds a 25% equity
interest and a 35% earnings (loss) allocation. See Note 8 of
Notes to Consolidated Financial Statements.
PARTNERSHIP INTEREST
Gold Kist, Archer Daniels Midland Company and Alimenta
Processing Corporation are partners in Golden Peanut Company,
a partnership formed to operate a peanut procuring,
processing, and marketing business. The partners lease peanut
facilities, equipment and fixed assets to the partnership.
Gold Kist, as a general partner, participates in all
partnership allocations in proportion to its 33 1/3%
partnership interest. See Note 9(b) of Notes to Consolidated
Financial Statements.
The peanut facilities leased to Golden Peanut Company
pursuant to the general partnership agreement include
receiving stations, shelling plants, cold storage facilities
and warehouses located in the three major peanut producing
areas of the United States (Southeast, Southwest and
Virginia/Carolinas).
Golden Peanut Company procures, processes and markets
peanuts and peanut by-products in each of the three peanut
producing areas of the United States. Golden Peanut Company
is a major processor of edible peanuts and is active in both
domestic and international markets. The principal peanut
product is shelled edible peanuts. Shelled edible peanuts are
marketed domestically primarily to manufacturers of peanut
butter, candy and salted nuts and are sold in the export
market. Golden Peanut Company also processes peanuts for sale
in the shell or for processing by others into oil and meal.
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, 1997,
the approximate export sales volume of the primary export
product line (poultry) was $81.7 million. During that period,
export sales of poultry were mainly to customers in Russia,
Eastern Europe, the Far East, South Africa, Central and South
America and the Caribbean area.
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, 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. In addition,
EEC exporters are aided in price competition with United
States exporters in certain markets by subsidies from their
governments.
Gold Kist and a group of other North American and foreign
farm cooperatives and agribusiness firms, acting through
companies formed for this purpose, own 50% of a trading
company engaged in international merchandising of grains and
other agricultural commodities. Gold Kist is a minority
shareholder and deals with the trading company on an arm's
length basis.
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 120,000 square feet of the building from the
partnership.
The Association's principal operating facilities are
operated by its two industry segments, the Poultry segment and
the Agri-Services segment.
Poultry
The seven poultry processing plants operated as Gold Kist
facilities in fiscal 1996 are located at Boaz, Trussville and
Guntersville, Alabama; Athens, Ellijay and Carrollton,
Georgia; and Live Oak, Florida. These plants have an
aggregate weekly processing capacity of approximately
8,830,000 broilers and 415,000 cornish game hens. The plants
are supported by hatcheries located at Albertville,
Crossville, Cullman, Curry, Ranburne and Scottsboro, Alabama;
and Blaine, Bowdon, Calhoun, Commerce, Carrollton, and Talmo,
Georgia; and Live Oak, Florida. These hatcheries have an
aggregate weekly capacity (assuming 85% hatch) of
approximately 1,040,000 chicks. Additionally, Gold Kist
operates seven feed mills to support its poultry operations;
the mills have an aggregate annual capacity of approximately
3.3 million tons and are located in Guntersville and Jasper,
Alabama; Calhoun, Cartersville, Commerce, and Waco, Georgia;
and Live Oak, Florida.
The four former Golden Poultry poultry processing plants
are located in Douglas, Georgia, Sanford and Siler City, North
Carolina, and Russellville, Alabama. The Douglas plant has a
weekly processing capacity of approximately 1,300,000 broilers
on two shifts; the Sanford and Russellville plants have weekly
processing capacities of approximately 850,000 broilers on two
processing shifts; and the Siler City plant has a weekly
processing capacity of 630,000 chickens on two shifts. These
plants are supported by hatcheries in Siler City and Staley,
North Carolina (with a hatch capacity of 1,505,000 chicks per
week), Douglas, Georgia (with a hatch capacity of
approximately 1,350,000 chicks per week), and Russellville,
Alabama (approximately 1,250,000 chicks per week).
Additionally, Golden Poultry feed mills at Ambrose, Georgia,
Bonlee and Staley, North Carolina, and Pride, Alabama, have an
aggregate annual capacity of 1,615,000 tons.
The former Carolina Golden processing plant in Sumter,
South Carolina has a weekly processing capacity of 1,400,000
broilers on two processing shifts. The Sumter plant is
supported by a hatchery in Sumter, South Carolina with a hatch
capacity of approximately 1,400,000 chicks per week. The
former Carolina Golden feed mill at Sumter, South Carolina has
an annual capacity of 338,000 tons.
The Association operated six separate distribution
centers in fiscal 1997 as Gold Kist facilities in its sales
and distribution of poultry products: Tampa and Crestview,
Florida; Chattanooga and Nashville, Tennessee; Mt. Sterling,
Kentucky; and Cincinnati, Ohio. The former Golden Poultry
distribution facilities are in Pompano Beach, Florida, and
Siler City, North Carolina.
Agri-Services
In its retail store operations, Gold Kist operates Gold
Kist stores at 23 locations in Alabama, one location in
Arkansas, 5 locations in Florida, 42 locations in Georgia, one
location in Louisiana, 6 locations in Mississippi, 14
locations in South Carolina and 6 locations in Texas.
For its fertilizer and chemicals business, the
Association operates five fertilizer plants at Clyo and
Cordele, Georgia, Athens and Hanceville, Alabama, and
Greenville, Mississippi, and bulk chemical storage facilities
at Moultrie, Georgia and Bishopville, South Carolina. Gold
Kist utilizes chemical storage and distribution facilities at
Alcolu, South Carolina, Lawrenceville and Sylvester, Georgia;
Hanceville, Alabama, Greenville, Mississippi; and Carrollton,
Lubbock and Buda, Texas; and Pensacola and Riviera Beach,
Florida; and fertilizer distribution terminal facilities at
Pine Bluff, Arkansas, Bainbridge and Brunswick, Georgia;
Fayetteville, Morehead City, and Wilmington, North Carolina;
Charleston, South Carolina; and Memphis, Tennessee. Forestry
fertilizer application headquarters facilities are maintained
at Tifton, Georgia.
For its pet food, feed and pork operations, Gold Kist
operates four feed mills with an aggregate annual capacity of
approximately 470,000 tons. The mills are located at
Guntersville, Alabama; Flowery Branch and Valdosta, Georgia;
and Gaston, South Carolina.
Gold Kist operates five pork production centers. These
production facilities include a pork production center at
Cartersville, Georgia; 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.
Cotton ginning and storage facilities are operated at
Statesboro, Morven, Byromville and DeSoto, Georgia, and
Bishopville, South Carolina. A central storage warehouse is
operated in Moultrie, Georgia.
The Association operates a seed processing plant at
Dublin, Georgia, which can clean, grade and treat
approximately 100,000 bags of seeds annually (when operating
on one shift). AgraTech Seeds operates seed processing plants
in McCordsville, Indiana, and Mason City and St. Joseph,
Illinois, which can clean, grade and treat approximately
350,000 bags, 150,000 bags and 100,000 bags, respectively, of
seeds annually (when operating on one shift).
For its grain procurement and storage operations, Gold
Kist operated 25 owned facilities and 3 leased facilities in
Alabama, Florida, Georgia and South Carolina in fiscal 1997.
The facilities have an aggregate storage capacity of
approximately 7 million bushels.
Gold Kist owns peanut procuring, processing and marketing
facilities which are leased to Golden Peanut Company pursuant
to the general partnership agreement executed by Gold Kist
with ADM and Alimenta. The lease is for a 20-year term,
beginning in 1988; however, the lease is subject to the terms
of the partnership agreement which is terminable upon 18
months prior written notice. These facilities include 37
peanut receiving stations located in the three major peanut
producing areas of the United States (Southeast, Southwest,
and Virginia/Carolinas) and four peanut shelling plants
located in Ashburn, Georgia; Graceville, Florida; Anadarko,
Oklahoma; and Comyn, Texas. Gold Kist also owns and leases to
Golden Peanut Company two cold storage facilities located at
Anadarko, Oklahoma and Suffolk, Virginia with an aggregate
storage capacity of 11,000 tons, and 48 warehouses located at
30 of the leased receiving stations with an aggregate storage
capacity of approximately 133,000 tons.
The Association holds all of the facilities in fee except
for the corporate headquarters building (lease expires June
30, 2004); poultry distribution facilities at Tampa, Florida
(lease expires May 14, 2000) and Nashville (lease expires
December 31, 1997) and Chattanooga (terminable upon 30 days
notice) Tennessee; Crossville, Alabama, poultry hatchery
facility (lease expires February 23, 2088); Athens, Georgia,
poultry processing plant vehicle parking area (lease expires
February 29, 2001); Anadarko, Oklahoma peanut cold storage
facility (lease expires April 30, 2010; subleased to Golden
Peanut Company); and retail store facilities at Byromville
(lease expires March 15, 1999), Canton (lease expires October
31, 1997), Camilla (terminable upon 30 days' notice), DeSoto
(lease expires March 15, 1999), and Oglethorpe (lease expires
March 15, 1999), Georgia; Brundidge (terminable upon 30 days
notice), Danville (lease expires January 31, 2002), Geraldine
(lease expires January 31, 1998), Jasper (lease expires May
31, 2002), and Russellville (lease expires October 14, 1997),
Alabama; Bennettsville (lease expires November 30, 1997),
Lexington (lease expires September 30, 1997), Newberry (lease
continues on a month-to-month basis) and Sumter (lease expires
March 31, 2002) South Carolina. Forestry fertilizer
application headquarters facilities are leased at Tifton,
Georgia (lease expires June 15, 1999). Chemical storage and
distribution facilities are leased at Greenville, Mississippi
(lease expires November 30, 1999); Buda (lease expires
February 1, 1999) and Carrollton (lease expires March 31,
1999), Texas; Pensacola (lease expires January 5, 1998), and
Riviera Beach (lease expires November 30, 1997), Florida and
fertilizer storage and distribution space is also leased on a
continuing as needed basis at terminals in Pine Bluff,
Arkansas; Bainbridge and Brunswick, Georgia; Fayetteville,
Morehead City, and Wilmington, North Carolina; Charleston,
South Carolina; and Memphis, Tennessee.
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.
EPA has not indicated to Gold Kist how it intends to proceed
with regard to the site. 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 regulatory powers of various federal and state
agencies, including the federal Food and Drug Administration,
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 17,500 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 3,200
employees who are covered by collective bargaining agreements.
Employee relations are considered to be generally
satisfactory.
PATRONAGE REFUNDS
The By-Laws of Gold Kist provide that Gold Kist shall
operate on a cooperative basis. After the close of each
fiscal year, the net taxable margins of Gold Kist for that
year from business done with or for member patrons (patronage
margins) are computed and, after deductions for a reasonable
reserve for permanent non-allocated equity and after certain
adjustments, these margins are distributed to members as
patronage refunds on the basis of their respective patronage
(business done with or through the Association) during that
year. Upon the determination of the total patronage refund
for any fiscal year, this amount is allocated among the
several operations of Gold Kist or one or more groups of such
operations, as determined by the Board of Directors in light
of each operation's or group's contribution for the year.
Patronage refunds are distributed in the form of either
qualified or nonqualified written notices of allocation (as
defined for purposes of Subchapter T of the Internal Revenue
Code). If qualified notices are used, at least 20% of each
patronage refund is distributed in cash or by qualified check
(as defined in the Internal Revenue Code) with the remainder
distributed in patronage dividend certificates or written
notices of allocated reserves, or any combination of these
forms. A distribution to a patron made in the form of a
qualified notice must be included in his gross income, at its
stated dollar amount, for the taxable year in which he
receives the distribution. If nonqualified notices are
distributed, less than 20% of the refund can be distributed in
cash or by qualified check and the patron is not required to
include in gross income the noncash portion of the allocation.
See Notes 1(f) 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 (f) and 6 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. The properties owned by the
Association are not subject to any material lien or
encumbrance.
Item 3. Legal Proceedings.
In February 1994, other Alabama member patrons of Gold
Kist filed a lawsuit in the Circuit Court of Walker County,
Alabama, against the Association alleging short-weight
deliveries of feed from the Gold Kist Guntersville, Alabama
feed mill. (Garry Rowland on behalf of himself and a class of
others similarly situated v. Gold Kist Inc.) In June 1994,
the Court certified the litigation as a class action. The
Association intends to defend the litigation vigorously.
The Association is also 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, 1997 and "Consolidated Balance Sheet Data"
as of June 26, 1993, June 25, 1994, July 1, 1995, June 29, 1996 and June 28,
1997 are derived from the consolidated financial statements of Gold Kist Inc.
and subsidiaries, which have been audited by KPMG Peat Marwick LLP,
independent auditors. The consolidated financial statements as of June 29,
1996 and June 28, 1997 and for each of the years in the three-year period
ended June 28, 1997, and the report thereon of KPMG Peat Marwick 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 audit report, which refers to a change in accounting
for certain investments in debt and equity securities, included elsewhere
herein.
For Fiscal Years Ended (000's omitted)
June 26, June 25, July 1, June 29, June 28,
Consolidated Statement of Operations Data: 1993 1994 1995 1996 1997
Net sales volume . . . . . . . . . . . $1,400,566 1,561,034 1,688,537 1,955,569 2,289,044
Interest expense . . . . . . . . . . . $ 17,163 13,924 17,525 21,065 26,951
Margins before cumulative effect
of accounting changes . . . . . . . $ 27,238 34,065 11,751 37,032 11,890
Cumulative effect of changes in accounting
for income taxes (A) . . . . . . . . $ - 5,339 - - -
Net margins . . . . . . . . . . . . . . $ 27,238 39,404 11,751 37,032 11,890
As of (000's omitted)
June 26, June 25, July 1, June 29, June 28,
Consolidated Balance Sheet Data: 1993 1994 1995 1996 1997
Working capital . . . . . . . . . . . . $ 140,629 139,847 146,585 184,457 209,269
Total assets . . . . . . . . . . . . . $ 665,102 716,432 821,637 975,960 1,119,836
Long-term liabilities . . . . . . . . . $ 152,792 144,992 178,777 233,291 310,053
Total liabilities . . . . . . . . . . . $ 354,889 394,754 482,675 621,378 745,303
Patrons' and other equity (B) . . . . . $ 285,620 296,662 314,990 326,410 346,075
Current ratio . . . . . . . . . . . . . 1.70 1.56 1.48 1.48 1.48
Ratio of long-term liabilities to
total capitalization . . . . . . . . % 34.85 32.83 36.21 41.68 47.25
NOTE:
A.See Note 6 of Notes to Consolidated Financial Statements.
B.See Note 9(a) of Notes to Consolidated Financial Statements.
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
The nature of the poultry industry and the agriculture (agribusiness)
industry in general is such that supply and demand market forces exert a
significant amount of influence over the operations of firms engaged in these
businesses. Prices of commodities react directly to supply and demand.
Additionally, demand for poultry and other agricultural products produced,
processed and marketed by Gold Kist is often influenced by supplies and prices
of alternative products.
As with other perishable commodity businesses, the integrated poultry
industry has demonstrated a cyclical nature with varying levels of profits,
and to a lesser extent, losses over its thirty-six year history. Although the
industry has been profitable since 1983 with the exception of brief periods
during 1992 and 1996, net margins have varied from year to year in response to
market fundamentals. The following addresses the various factors that have
influenced poultry industry profitability during the past five years.
Increased market prices in 1993 and 1994 were the result of a general economic
recovery in the United States and increased demand for poultry products.
During 1995, broiler market prices declined due to the large supply of
competing meats, such as beef and pork, and the continuation of broiler
industry expansion. During 1996, broiler market prices increased
approximately 10% as compared to 1995 as a result of hot, dry weather
conditions that reduced meat production in the summer of 1995, as well as
lower than expected industry expansion and increased exports. Average market
prices for broilers during 1997 remained at relatively high levels as compared
to historical averages. However, during the May-June 1997 period, market
prices declined below 1996 levels as a result of the increase in industry
production. Export prices for broiler leg-quarters declined substantially in
1997 as a result of disruptions in the Russian markets. According to USDA
estimates, the supply of broilers is expected to increase at a 4.5% rate in
1997 and a 6.0% rate in 1998 as compared to the 6.3% average annual increase
between 1993 and 1996. Generally, feed grain costs represent approximately
fifty percent of total broiler production costs. Feed ingredient prices
declined in 1993 as a result of the record 1992 U.S. corn crop. In 1994, feed
ingredient prices increased substantially as a result of the reduced corn
harvest in 1993. As a result of the increase in planted corn and soybean
acreage and favorable growing conditions in the summer of 1994, market prices
for feed ingredients declined in 1995. Average cash market prices for corn
and soybean meal increased 59% and 30%, respectively, during 1996 as compared
to 1995 due to the weather reduced 1995 harvest and strong export demand.
During 1997, average cash market prices for corn declined 14% as a result of
the favorable 1996 harvest. However, soybean meal average cash market prices
increased approximately 26% for 1997 as compared to 1996 as a result of strong
demand and lower carryover stocks.
The Association believes that feed ingredient costs at levels in excess of
cash market prices during the first half of fiscal 1998 will likely result in
a reduction in gross margins for such period. The increase in feed ingredient
costs and the resultant impact on net margins is primarily attributable to the
Company's forward purchasing and hedging strategies. See Note 1(c) of Notes
to Consolidated Financial Statements.
Historically, weather has had a significant impact on the farm economy and
the operating results of the Association. Wet weather conditions in the
Southeast during the 1993 spring planting season reduced corn and peanut
acreage and were followed by early summer drought conditions. These inclement
weather factors had a negative impact on 1993 Agri-Services operating results.
Flooding in the Midwestern United States during the summer of 1993 severely
impacted the domestic grain harvest and boosted feed ingredient prices to near
record levels. Hot, dry weather conditions in the late summer of 1993 damaged
pastures in the Southeast, which resulted in increased sales of agricultural
products in 1994. In addition, favorable spring weather conditions
contributed to increased planting activity in 1994. In 1995, generally
favorable spring weather conditions in the Southeast contributed to increased
sales of agricultural inputs in the Association's primary retail sales area.
However, wet weather conditions in the Delta and Midwest regions of the U.S.
negatively impacted market prices for corn, seed and certain fertilizers in
areas where these products are sold through independent dealers and four of
the Association's retail stores. Inclement weather conditions in the summer
of 1995 reduced the Southeastern cotton, peanut and corn harvest, which
negatively affected farm income. The weather reduced 1995 grain harvest in
the Midwestern U.S. boosted farm commodity prices; thus contributing to
increased spring 1996 plantings in the Southeast and Delta regions. Also,
favorable spring weather contributed to the increase in sales of agricultural
inputs in 1996. Favorable weather conditions during the summer of 1996
contributed to plentiful cotton, peanuts and grain harvests in the United
States. Cool wet weather conditions during the spring of 1997 contributed to
delayed plantings in the Southeast and reduced plantings in the Mississippi-
Delta region.
Export sales for 1995, 1996 and 1997 were $70.1 million, $100.1 million and
$96.4 million, respectively. In 1996, export sales increased primarily as a
result of the demand for poultry from Russian and Asian markets. During 1997,
export sales declined as a result of lower market prices for poultry. Export
sales for 1997 reflected increases in cotton sales. Export sales of poultry
products will be influenced by credit availability to foreign countries,
political and economic stability, particularly in Russia, Eastern Europe and
Mexico.
The Association's operations are classified into two reportable business
segments. See Note 10 of Notes to Consolidated Financial Statements. The
discussion of results of operations relates the effects of these significant
economic factors on those segments for each of the years in the three-year
period ended June 28, 1997.
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Net sales volume of approximately $2.0 billion for 1996 represented a 15.8%
or $267.0 million increase as compared to 1995. Net margins from operations,
before general corporate expenses and other deductions, were $80.3 million in
1996 as compared to $42.5 million in 1995. The increase in net margins from
operations was due primarily to increased margins in the Poultry segment.
The Poultry segment had net sales of $1.4 billion for 1996, an increase of
12.5% or $153.6 million as compared to 1995. The increase in net sales was
due primarily to a 5.0% increase in average selling prices and a 7.5% increase
in pounds of poultry sold. Market prices for poultry products strengthened in
1996 as a result of lower-than-expected U.S. broiler production and strong
export demand for poultry products. The increase in pounds sold was due to
changes in product mix requiring larger broilers for the production of deboned
poultry products. Poultry segment's net margins from operations for 1996 were
$70.0 million as compared to $37.5 million for 1995. The increase in net
margins was due primarily to higher selling prices for poultry products, which
was partially offset by increased feed ingredient costs. Although average
cash commodity prices for feed grains, such as corn and soybean meal increased
59% and 30%, respectively, in 1996 as compared to 1995, the Association's
forward purchasing and hedging strategies resulted in a relatively modest 8%
increase in feed ingredient costs for 1996.
The Agri-Services segment's 1996 net sales volume of $569.1 million
increased 24.9% or $113.4 million as compared to 1995. The increase in net
sales volume was due primarily to the marketing of Southeast cotton, as well
as increased sales of fertilizers, chemicals and seeds through the
Association's retail stores. A substantial portion of the agricultural sales
increase was attributed to facilities acquired in the Mississippi-Delta region
in 1995. The Agri-Services segment's net margins from operations for 1996
were $10.3 million as compared to $5.0 million for 1995. The increase was due
primarily to patronage refunds from other cooperatives that totaled $9.3
million for 1996 as compared to $3.9 million in 1995. A substantial portion
of the patronage refunds were distributed by a major fertilizer cooperative.
The Retail Store Division had lower net operating margins in 1996 as a result
of losses in the Mississippi-Delta operations acquired in 1995. The Agri-
Services segment's net margins from operations reflects a $2.1 million net
loss from an agricultural equipment manufacturing operation that was sold in
1996. In 1996, the Pork Division had a net operating margin of $240,000 as
compared to a $3.7 million net loss for 1995.
Distribution, administrative and general expenses for 1996 and 1995 were
$155.7 million and $131.4 million, respectively. The $24.3 million increase
reflects the growth in operations, as well as increased incentive compensation
expenses related to the increase in margins before income taxes. Increased
litigation related expenses also contributed to the overall increase in
distribution, administrative and general expenses.
The various components included in other income (deductions) represented a
deduction of $6.3 million for 1996 as compared to $9.5 million for 1995.
Interest income of $9.9 million for 1996 increased $1.2 million as a result of
increased crop financing for patrons and other customers. Interest expense
for 1996 was $21.1 million as compared to $17.5 million in 1995. The increase
was due to a 55% increase in average borrowings, which was partially offset by
lower interest rates on short-term borrowings. Interest expense for 1995
included $1.6 million related to income tax litigation. Equity in loss of
partnership represents the Association's 33 1/3% pro rata share of the Golden
Peanut Company's 1996 loss. See Note 9(b) of Notes to Consolidated Financial
Statements. Miscellaneous, net for 1996 includes the Association's $422,000
pro rata share in the earnings of a partially-owned foreign affiliate whose
principal business activities include the marketing, purchasing and resale of
edible peanuts. In 1995, the Association recognized a loss of $1.7 million on
this investment. Miscellaneous, net for 1996 and 1995 includes $1.0 million
and $1.7 million, respectively, representing the Association's equity in the
earnings of a pecan processing and marketing enterprise in South Carolina.
Net rental income of approximately $1.8 million and $2.0 million,
respectively, was included in miscellaneous, net for 1996 and 1995.
In 1996 and 1995, the Association's combined federal and state effective
income tax rates were 33% and 51%, respectively. The effective tax rate for
1995 reflects $5.5 million of additional income tax related to an adverse tax
court decision. See Note 6 of Notes to Consolidated Financial Statements.
Fiscal 1997 Compared to Fiscal 1996
For 1997, net sales volume of $2.3 billion represented a 17.1% or $333.5
million increase as compared to 1996. Net margins from operations, before
general corporate expenses and other deductions, were $27.6 million for 1997
as compared to $80.3 million for 1996. The decline in net margins from
operations was primarily the result of lower margins in the Poultry segment.
The Poultry segment had net sales of $1.6 billion for 1997, which
represented a 17.5% or $243.2 million increase as compared to 1996. An 11.5%
increase in pounds of poultry sold and a 6.0% increase in average selling
prices contributed to the increase in net sales for 1997. The increase in
poultry products market prices was due to the reduction in the rate of
industry growth as compared to prior years. The increase in pounds sold
during 1997 reflected the Association's acquisition of its twelfth processing
facility in July 1996 and changes in product mix. The Poultry segment's net
margins from operations for 1997 were $17.4 million as compared to
approximately $70.0 million in 1996. The decline in net margins was due to a
28.0% increase in feed ingredient costs for 1997, which was partially offset
by the 6.0% increase in average selling prices for poultry products. As a
result of the Association's forward purchasing and hedging strategies, feed
ingredient costs for 1996 were below market prices for corn and soybean meal.
In 1997, the Association's feed ingredient costs reflected the increase in
market prices for corn and soybean meal.
The Agri-Services segment's 1997 net sales volume of $659.3 million
represented a 15.9% or $90.3 million increase over 1996. The sales volume
increase was due primarily to the growth in the procurement and marketing of
cotton and to a lesser extent increased sales of agricultural chemicals and
fertilizers. Net margins from operations in the Agri-Services segment for
1997 were $10.2 million as compared to $10.3 million for 1996. Net margins
for 1997 were positively impacted by increased cotton marketing margins and to
a lesser extent increases in Pork Division net margins. These improvements
were partially offset by increased losses in retail store operations, which
were primarily due to continuing operational problems in the Mississippi-Delta
region. Higher feed ingredient costs contributed to net losses on commercial
feeds for 1997. Net margins for 1997 reflected $10.3 million in patronage
refunds from other cooperatives as compared to $9.3 million in 1996. A
substantial portion of the refunds for 1996 and 1997 were distributed by a
major fertilizer cooperative. The Agri-Services segment's net margins for
1996 reflected a $2.1 million loss associated with an agricultural equipment
manufacturing operation that was closed in 1996.
Distribution, administrative and general expenses for 1997 and 1996 were
$167.7 million and $155.7 million, respectively. The $12.0 million increase
primarily reflects the growth in operations.
The various components included in other income (deductions) represented a
deduction of $5.5 million for 1997 as compared to $6.3 million for 1996.
Interest income of $13.3 million for 1997 increased $3.4 million primarily as
a result of interest income related to a favorable tax litigation decision.
Interest expense for 1997 was $27.0 million as compared to $21.1 million in
1996. The increase was due to a 31% increase in average borrowings. Equity
in earnings of partnership represents the Association's 33 1/3% pro rata share
of the Golden Peanut Company's 1997 earnings. See Note 9(b) of Notes to
Consolidated Financial Statements. Miscellaneous, net for 1997 includes a
$1.2 million loss on the purchase of subsidiary common stock. Miscellaneous,
net for 1997 and 1996 includes a $992,000 loss representing the Association's
equity in the loss of a pecan processing and marketing enterprise. In 1996,
the Association's recognized earnings of $1.0 million related to this
investment. Net rental income of approximately $2.0 million and $1.8 million,
respectively, was included in miscellaneous, net for 1997 and 1996.
In 1997 and 1996, the Association's combined federal and state effective
income tax rates were (33%) and 33%, respectively. The effective tax rate for
1997 reflects a $5.2 million income tax benefit related to a Circuit Court of
Appeals decision in the Association's favor. See Note 6 of Notes to
Consolidated Financial Statements.
Financial Condition
Liquidity and Capital Resources
The Association's liquidity is dependent upon funds from operations and
external sources of financing. The principal sources of external short-term
financing are proceeds from the continuous offering of Subordinated Loan
Certificates, an unsecured committed credit facility with a group of banks and
uncommitted letters and lines of credit. The Association has a $250 million
unsecured committed credit facility with nine commercial banks that includes a
five-year $125 million revolving credit commitment and a $125 million 364-day
line of credit commitment. In 1997, the Association established a $125
million note agreement with an insurance company and a bank commitment for a
$50 million term loan. At June 28, 1997, the Association had unused loan
commitments of $218.6 million and additional unused uncommitted facilities to
provide loans and letters of credit from banks aggregating $94.5 million. The
primary sources of external long-term financing are a note agreement with an
insurance company, proceeds from the continuous offering of Subordinated
Capital Certificates of Interest, revolving credit agreements and a term loan
commitment. See Note 4 of Notes to Consolidated Financial Statements.
Covenants under the terms of the loan agreements with lenders include
conditions that could limit short-term and long-term financing available from
various external sources. The terms require a ratio of current assets to
current liabilities of not less than 1.25:1, the ratio of senior funded debt
to total capitalization not to exceed 40% and total funded debt to total
capitalization not to exceed 50%. At June 28, 1997, the Association's current
ratio, senior funded debt to total capitalization and total funded debt to
capitalization, determined under the loan agreements, were 1.48:1, 34% and
44%, respectively. At June 28, 1997, the Association was in compliance with
the agreements. See Note 4 of Notes to Consolidated Financial Statements.
During 1995, uses of cash included capital expenditures of $61.8 million,
$36.7 million for repayments of long-term debt and patronage refunds and other
equity distributions of $19.5 million. The funds for these investing and
financing activities were provided primarily by borrowings of approximately
$110.0 million and to a lesser extent, cash provided by operating activities
of $7.2 million and the sale of investments in marketable securities totaling
$8.9 million. Capital expenditures for 1995 included $43.4 million related to
expansion and improvements in poultry operations, as well as $18.0 million for
the acquisition of Agri-Services operations, improvements to retail stores and
the construction of cotton facilities. Increases in accounts receivable and
inventories during 1995 reflected the growth in poultry production and sales,
the expansion of Agri-Services retail operations in the Mississippi Delta and
the increase in Southeast cotton production.
During 1996, the uses of cash included capital expenditures of $74.3
million and $28.6 million for repayments of long-term debt, as well as
increases in operating assets. Increases in inventories reflected the impact
of higher feed ingredient prices on raw materials and live poultry and hog
inventories and the increase in poultry prices on marketable products
inventories. Increased receivables were primarily the result of increases in
crop financing provided to producers and the growth in retail store sales.
The Association's expansion into cotton procurement and marketing contributed
to the increase in operating assets. The funds for these operating activities
were provided by borrowings of $131.5 million. Capital expenditures for 1996
included $54.9 million for expansion and improvements in the poultry
operations and $18.6 million in expenditures to acquire retail operations and
construct cotton ginning and warehousing facilities.
In 1997, the uses of cash included $76.9 million for capital expenditures,
$55.7 million for long-term debt repayments and $30.0 million for patronage
refunds and other equity payments. In addition, cash uses included the
funding of increases in operating assets, such as inventories, receivables and
commodities margin deposits. During 1997, increases in inventories and
receivables primarily reflected the growth in poultry and cotton operations.
The increase in commodities margin deposits was the result of corn and soybean
futures contracts and the related unrealized losses associated with these
positions at June 28, 1997. See Note 1(c) of Notes to Consolidated Financial
Statements. The funds for these activities were provided by borrowings of
$182.8 million. During 1997, capital expenditures included $65.7 million for
expansion and improvements in poultry operations and $10.8 million to acquire
retail and cotton operations.
In September 1997, the Association acquired the remaining 3.7 million
shares of Golden Poultry Company, Inc. common stock that it did not already
own. The cost to acquire the outstanding shares and the fees and expenses
incurred or to be incurred in connection with the merger are approximately
$55.1 million. The Association used a term loan and its unsecured committed
credit facility to fund the stock purchase. See Note 11 of Notes to
Consolidated Financial Statements.
The Association plans capital expenditures of approximately $90.0 million
in 1998 that primarily include expenditures for expansion and technological
advances in poultry production and processing and to a lesser extent, Agri-
Services segment improvements. In addition, planned capital expenditures
include other asset improvements and necessary replacements. Management
intends to finance planned 1998 capital expenditures with existing cash
balances and net margins adjusted for non-cash items and additional long-term
borrowings, as needed. In 1998, management expects cash expenditures to
approximate $4.0 million for equity distributions. The Association believes
cash on hand and cash equivalents at June 28, 1997 and cash expected to be
provided from operations, in addition to borrowings available under existing
credit arrangements and proceeds from the sale of Subordinated Capital
Certificates of Interest, will be sufficient to maintain cash flows adequate
for the Association's projected growth and operational objectives during 1998.
Important Considerations Related to Forward-Looking Statements
It should be noted that this discussion contains forward-looking statements
which are subject to substantial risks and uncertainties. There are many
factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include, but are not
limited to, changes in general economic conditions, weather, the growth rate
of the market for the Company's products and services, the availability of raw
inputs, global political events, the ability of the Association to implement
changes in sales strategies and organization on a timely basis, the effect of
competitive products and pricing, and seasonal revenues, as well as a number
of other risk factors which could effect the future performance of the
Association.
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, feed
grains, fertilizers and cotton. 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.
Item 8. Financial Statements and Supplementary Data.
INDEX
Page
GOLD KIST INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . 20
Consolidated Balance Sheets as of June 29, 1996 and June 28, 1997 22
Consolidated Statements of Operations for the years ended
July 1, 1995, June 29, 1996 and June 28, 1997 . . . . . . . . . 23
Consolidated Statements of Patrons' and Other Equity for the
years ended July 1, 1995, June 29, 1996 and June 28, 1997 . . . 24
Consolidated Statements of Cash Flows for the years ended
July 1, 1995, June 29, 1996 and June 28, 1997 . . . . . . . . . 25
Notes to Consolidated Financial Statements. . . . . . . . . . . . 26
FINANCIAL STATEMENT SCHEDULES
(Included in Part IV of this Report):
FINANCIAL STATEMENT SCHEDULE:
Valuation Reserves for the years ended July 1, 1995, June 29, 1996
and June 28, 1997 . . . . . . . . . . . . . . . . . . . . . . . 48
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, 1996 and June 28, 1997, and the related
consolidated statements of operations, patrons' and other equity, and cash
flows for each of the years in the three-year period ended June 28, 1997 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 and Subsidiaries, a partnership investment accounted for
using the equity method of accounting, as described in Note 9(b) to the
consolidated financial statements. The consolidated financial statements of
Golden Peanut Company 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 and Subsidiaries, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and June 28, 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended June 28,
1997, in conformity with generally accepted accounting principles. 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.
As discussed in notes 1 and 9(a) to the consolidated financial statements,
the Company changed its method of accounting for certain investments in debt
and equity securities in 1995.
KPMG Peat Marwick LLP
Atlanta, Georgia
September 5, 1997
REPORT OF INDEPENDENT AUDITORS
Partnership Committee
Golden Peanut Company
We have audited the consolidated balance sheets of Golden Peanut Company
and Subsidiaries (the "Partnership") as of June 30, 1996 and 1997, and the
related consolidated statements of operations, partners' equity, and cash
flows for each of the three years in the period ended June 30, 1997 (not
presented separately herein). These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Golden Peanut
Company and Subsidiaries at June 30, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Atlanta, Georgia
August 29, 1997, except for
Note 11 as to which the
date is September 5, 1997
GOLD KIST INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
June 29, 1996 June 28, 1997
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 20,562 17,921
Receivables, principally trade, including notes receivable of
$68.9 million in 1996 and $73.2 million in 1997, less
allowance for doubtful accounts of $7,726 in 1996 and
$8,836 in 1997 . . . . . . . . . . . . . . . . . . . . . . . . 242,411 250,359
Inventories (note 2) . . . . . . . . . . . . . . . . . . . . . 270,367 295,977
Commodities margin deposits . . . . . . . . . . . . . . . . . . 21,397 56,570
Other current assets . . . . . . . . . . . . . . . . . . . . . 17,807 23,692
Total current assets . . . . . . . . . . . . . . . . . . . . . 572,544 644,519
Investments (note 9) . . . . . . . . . . . . . . . . . . . . . . 104,728 132,683
Property, plant and equipment, net (note 3) . . . . . . . . . . . 255,728 295,174
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 42,960 47,460
$975,960 1,119,836
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt (note 4):
Short-term borrowings . . . . . . . . . . . . . . . . . . . . $112,800 178,900
Subordinated loan certificates . . . . . . . . . . . . . . . . 30,574 36,466
Current maturities of long-term debt . . . . . . . . . . . . . 27,089 15,188
170,463 230,554
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 126,340 149,347
Accrued compensation and related expenses . . . . . . . . . . . 32,590 30,761
Patronage refund and other equity payable in cash . . . . . . . 24,043 -
Interest left on deposit (note 4) . . . . . . . . . . . . . . . 12,119 11,396
Other current liabilities . . . . . . . . . . . . . . . . . . . 22,532 13,192
Total current liabilities . . . . . . . . . . . . . . . . . . 388,087 435,250
Long-term debt, excluding current maturities (note 4) . . . . . . 188,948 256,039
Accrued postretirement benefit costs (note 7(b)) . . . . . . . . 40,271 43,683
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 4,072 10,331
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 621,378 745,303
Minority interest (note 11) . . . . . . . . . . . . . . . . . . . 28,172 28,458
Patrons' and other equity (note 5):
Common stock, $1.00 par value - Authorized 500 shares;
issued and outstanding 36 in 1996 and 32 in 1997 . . . . . . . 36 32
Patronage reserves . . . . . . . . . . . . . . . . . . . . . . 209,140 203,988
Unrealized gain on marketable equity security (note 9(a)) . . . 20,978 32,749
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 96,256 109,306
Total patrons' and other equity . . . . . . . . . . . . . . . 326,410 346,075
Commitments and contingent liabilities (notes 7 and 8)
$975,960 1,119,836
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Years Ended
July 1, 1995 June 29, 1996 June 28, 1997
Net sales volume . . . . . . . . . . . . . . . . $1,688,537 1,955,569 2,289,044
Cost of sales . . . . . . . . . . . . . . . . . . 1,522,063 1,731,448 2,105,577
Gross margins . . . . . . . . . . . . . . . . 166,474 224,121 183,467
Distribution, administrative and general expenses 131,410 155,664 167,665
Net operating margins . . . . . . . . . . . 35,064 68,457 15,802
Other income (deductions):
Interest income . . . . . . . . . . . . . . . 8,779 9,946 13,361
Interest expense . . . . . . . . . . . . . . . (17,525) (21,065) (26,951)
Equity in earnings (loss) of partnership
(note 9(b)) . . . . . . . . . . . . . . . . . (9,625) (1,181) 5,807
Gain on sale of investments . . . . . . . . . 3,070 - -
Miscellaneous, net . . . . . . . . . . . . . . 5,823 5,962 2,268
Total other deductions . . . . . . . . . (9,478) (6,338) (5,515)
Margins before income taxes
and minority interest . . . . . . . . 25,586 62,119 10,287
Income tax expense (benefit)-(note 6) . . . . . . 13,094 20,757 (3,446)
Margins before minority interest . . . . . . . 12,492 41,362 13,733
Minority interest . . . . . . . . . . . . . . . . (741) (4,330) (1,843)
Net margins . . . . . . . . . . . . . . . . . $ 11,751 37,032 11,890
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF PATRONS' AND OTHER EQUITY
For the Years Ended July 1, 1995, June 29, 1996 and June 28, 1997
(Amounts in Thousands)
Unrealized
gain on
marketable
Common Patronage equity Retained
Total stock reserves security earnings
June 25, 1994 . . . . . . . . . . $296,662 79 219,164 - 77,419
Net margins for 1995 . . . . . 11,751 - 12,590 - (839)
Nonqualified patronage refund
and other equity payable
in cash. . . . . . . . . . . . . (8,941) - (8,941) - -
Redemptions and other changes (3,013) (17) (5,959) - 2,963
Implementation of change in
accounting for marketable
equity security (note 9(a)). 18,531 - - 18,531 -
July 1, 1995 . . . . . . . . . . 314,990 62 216,854 18,531 79,543
Net margins for 1996 . . . . . 37,032 - 21,700 - 15,332
Nonqualified patronage refund
and other equity payable
in cash. . . . . . . . . . . (24,212) - (24,212) - -
Redemptions and other changes (3,847) (26) (5,202) - 1,381
Change in value of marketable
equity security (note 9(a)) 2,447 - - 2,447 -
June 29, 1996 . . . . . . . . . . 326,410 36 209,140 20,978 96,256
Net margins for 1997 . . . . . 11,890 - - - 11,890
Redemptions and other changes (3,996) (4) (5,152) - 1,160
Change in value of marketable
equity security (note 9(a)). 11,771 - - 11,771 -
June 28, 1997 . . . . . . . . . . $346,075 32 203,988 32,749 109,306
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended
July 1, 1995 June 29, 1996 June 28, 1997
Cash flows from operating activities:
Net margins . . . . . . . . . . . . . . . . . $ 11,751 37,032 11,890
Non-cash items included in net margins:
Depreciation and amortization . . . . . . . 38,085 40,063 39,422
(Gains) losses on sales of assets . . . . . (3,459) 101 148
Equity in (earnings) loss of partnership . . 9,625 1,181 (5,807)
Deferred income tax benefit . . . . . . . . (6,650) (2,250) (1,951)
Patronage refunds from other cooperatives . (1,447) (3,970) (5,642)
Other . . . . . . . . . . . . . . . . . . . 3,390 2,455 1,048
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . (28,466) (53,231) (7,948)
Inventories . . . . . . . . . . . . . . . . (28,521) (43,379) (25,610)
Commodities margin deposits . . . . . . . . (2,512) (18,590) (35,173)
Other current assets . . . . . . . . . . . . (870) (1,971) 2,043
Accounts payable and accrued expenses . . . 15,117 20,917 5,403
Interest left on deposit . . . . . . . . . . 1,153 1,626 (723)
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . 7,196 (20,016) (22,900)
Cash flows from investing activities:
Acquisitions of investments . . . . . . . . . (5,093) (4,356) (1,293)
Acquisitions of property, plant and equipment (61,762) (74,262) (76,922)
Proceeds from disposal of investments . . . . 8,942 200 104
Proceeds from sales of loans . . . . . . . . 4,925 10,052 -
Other . . . . . . . . . . . . . . . . . . . . (7,179) 2,406 784
Net cash used in investing activities . . (60,167) (65,960) (77,327)
Cash flows from financing activities:
Short-term borrowings, net . . . . . . . . . 60,286 45,211 71,992
Proceeds from long-term debt . . . . . . . . 49,752 86,296 110,846
Principal payments of long-term debt . . . . (36,676) (28,557) (55,656)
Patronage refunds and other equity paid in cash (19,464) (13,009) (29,596)
Net cash provided by financing activities. 53,898 89,941 97,586
Net change in cash and cash equivalents . 927 3,965 (2,641)
Cash and cash equivalents at beginning of year 15,670 16,597 20,562
Cash and cash equivalents at end of year . . . $ 16,597 20,562 17,921
Supplemental disclosure of cash flow data:
Cash paid during the years for:
Interest (net of amounts capitalized) . . . $ 18,792 18,327 25,761
Income taxes . . . . . . . . . . . . . . . . $ 21,144 20,676 11,173
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 1, 1995, June 29, 1996 and June 28, 1997
(Dollar Amounts in Thousands)
(1) Summary of Significant Accounting Policies
Gold Kist Inc. is a diversified agricultural membership cooperative
association, headquartered in Atlanta, Georgia. Gold Kist Inc. serves
approximately 31,000 active farmer members and other cooperative associations
located principally in the southeastern United States. Gold Kist Inc.
operates poultry and pork production facilities providing both marketing and
purchasing services to producers. Gold Kist Inc. also purchases or
manufactures feed, seed, fertilizers, pesticides, animal health products and
other farm supply items for sale at wholesale and retail. Additionally, Gold
Kist Inc. is engaged in the processing, storage and marketing of cotton,
serves as a contract procurement agent for, and stores, farm commodities such
as soybeans and grain, and is a partner in a major peanut processing and
marketing business and in a pecan processing and marketing business.
The accounting and reporting policies of Gold Kist Inc. and subsidiaries
conform to generally accepted accounting principles 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 wholly and majority owned
subsidiaries (collectively "Gold Kist" or "Association"). All
significant intercompany balances and transactions have been eliminated
in consolidation. Certain reclassifications have been made to the 1995
and 1996 consolidated financial statements to conform to the
presentation in the 1997 consolidated financial statements.
(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. 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
Merchandise for sale includes feed, fertilizers, seed, pesticides,
equipment and general farm supplies purchased or manufactured by Gold
Kist for sale to agricultural producers and consumers. These
inventories are stated, generally, on the basis of the lower of cost
(first-in, first-out or average) or market.
Live poultry and hogs consist of broilers, breeding stock and market
hogs. 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 and fertilizer
ingredients, uncleaned seed, 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
poultry and other animal feed ingredient purchases. Futures contracts
are recognized when closed and option contracts are accounted for at
market. Gains or losses on futures and options transactions are
included as a part of product cost.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
At June 28, 1997, Gold Kist had unrealized commodity futures losses
of $36.8 million related to its hedging of a portion of its 1998
poultry feed ingredients requirements. These futures positions were
closed in July 1997 resulting in realized losses of approximately $48.6
million which will be reflected in the 1998 consolidated financial
statements as an adjustment in product cost.
Marketable products consist primarily of dressed and further
processed poultry and cotton. 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) Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation of
plant and equipment is calculated by the straight-line method over the
estimated useful lives of the respective assets.
(e) Investments
Investments in other cooperatives are recorded at cost and include
the amount of patronage refund certificates and patrons' equities
allocated, less distributions received. These investments are not
readily marketable and quoted market prices are not available, as a
result, it is not practical to determine these investment's 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.
Effective June 26, 1994, Gold Kist adopted the provisions of
Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities."
Pursuant to the provisions of SFAS 115, the Association has classified
its marketable equity security and collateralized loans as "available-
for-sale." "Available-for-sale" securities are those the Association
intends to hold for a period of time and are not acquired with the
intent of selling them in the near term. Unrealized gains and losses
on "available-for-sale" securities are included as a separate component
of patrons' and other equity in the accompanying financial statements,
net of deferred income taxes. Upon initial application of SFAS 115,
Gold Kist recorded an increase to investments of $20.5 million and to
patrons' and other equity of $12.9 million (net of deferred income
taxes of $7.6 million) related to the marketable equity security (see
note 9(a)). Management believes the carrying value of the
collateralized loans approximate market value and, accordingly, no
adjustment has been recognized in the accompanying financial
statements.
Gold Kist's investment in the Golden Peanut Company partnership is
accounted for using the equity method (see note 9(b)). Other
investments accounted for under the equity method are not significant.
(f) 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 utilized
nonqualified patronage refunds in 1995 and 1996 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.
(g) Fair Value of Financial Instruments
Gold Kist's financial instruments include cash and cash equivalents,
commodities margin deposits, accounts receivables and payables and
accrued expenses, notes receivable and debt. Because of the short
maturity of cash equivalents, accounts receivable and payables and
accrued expenses, interest left on deposit, certain short-term debt
which matures in less than one year and long-term debt with variable
interest rates, the carrying value approximates fair value. All
financial instruments are considered to have an estimated fair value
which approximates carrying value at June 29, 1996 and June 28, 1997
unless otherwise specified (see notes 1(e) and 4).
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
Gold Kist adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (SFAS 121), on June 30, 1996. SFAS 121 requires that long-
lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed 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. Adoption of SFAS 121 did not
have a material impact on Gold Kist's financial position, results of
operations or liquidity.
(i) Fiscal Year
Gold Kist employs a 52/53 week fiscal year. The consolidated
financial statements for 1995, 1996 and 1997 reflect 53, 52 and 52
weeks, respectively. Fiscal 1998 will be a 52 week year.
(j) 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
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(2) Inventories
Inventories are summarized as follows:
1996 1997
Merchandise for sale. . . . . $ 83,886 86,810
Live poultry and hogs . . . . . 95,682 101,579
Marketable products - poultry . 40,047 35,814
Marketable products - cotton . 11,258 27,442
Raw materials and supplies . . 39,494 44,332
$270,367 295,977
(3) Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
1996 1997
Land and land improvements. . . $ 33,268 37,435
Buildings . . . . . . . . . . . 188,845 203,110
Machinery and equipment . . . . 368,118 403,076
Construction in progress . . . 16,833 29,364
607,064 672,985
Less accumulated depreciation . 351,336 377,811
$255,728 295,174
(4) Notes Payable and Long-Term Debt
At June 28, 1997, the Association had a $250 million unsecured committed
credit facility with nine commercial banks. The facility includes a five-year
$125 million revolving credit commitment and a $125 million 364-day line of
credit commitment. As of June 28, 1997, borrowings of $65 million and $95
million, respectively, were outstanding under the revolving credit and 364-day
line-of-credit commitments. The five-year revolving credit agreement expires
on August 9, 2001, but may be extended twice for successive one-year periods
with the consent of the banks. The revolving credit facility fee and the
commitment fees on the unused portion of the revolving credit will be computed
quarterly based on the Association's ratio of funded debt to total capital and
will not exceed .20% per annum. The 364-day line of credit provides short-
term financing that will expire in August 1998 and may be extended with the
consent of the banks. The 364-day line of credit is subject to a .16% per
annum facility fee. Borrowings under the $250 million facility will bear
variable interest rates at or below prime. Also, the facility permits
competitive bid interest rates by the participating banks.
At June 28, 1997, Golden Poultry Company, Inc., a subsidiary of Gold Kist,
had borrowings of $36.4 million under unsecured committed credit facilities
totaling $45.0 million. These revolving credit facilities will expire
subsequent to the merger of Golden Poultry Company, Inc. with Gold Kist in
September 1997 (see note 11).
In February 1997, Gold Kist established a shelf note agreement with an
insurance company, whereby the insurance company may purchase up to $125
million of senior promissory notes. In February 1997, Gold Kist sold $30
million of 7.6% Series A Senior Notes and in May 1997, Gold Kist sold $25
million of 7.94% Series B Senior Notes. At Gold Kist's request, the insurance
company may purchase an additional $70 million of senior notes through
February 1999.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
At June 28, 1997, Gold Kist had other borrowings of $85.5 million
outstanding under uncommitted loans and letters of credit facilities. At June
28, 1997, Gold Kist had other unused long-term loan commitments of $50.0
million and additional uncommitted facilities to provide loans and letters of
credit from banks aggregating approximately $94.5 million. These unsecured
borrowings bear interest at rates below prime.
Subordinated loan certificates of $30.6 million at June 29, 1996 bore
interest at rates of 5.5% to 6.4% with terms of one year and were unsecured.
At June 28, 1997, subordinated loan certificates outstanding were $36.5
million bearing interest at rates of 5.75% to 6.4%.
Interest left on deposit represents amounts of interest payable, which at
the option of the holders of various classes of certificates, is left on
deposit with Gold Kist. Additional interest on these amounts accrues at the
same rates as the related certificates.
Long-term debt is summarized as follows:
1996 1997
Unsecured senior notes payable:
9.375% interest notes, due in semi-annual installments of $5,500
with interest payable semiannually . . . . . . . . . . . . . . . . $ 11,000 -
9.90% interest notes, due in semi-annual installments of $1,539
with interest payable semiannually . . . . . . . . . . . . . . . . 9,230 6,152
9.35% interest note, due in a single installment in June 2001 with
interest payable quarterly . . . . . . . . . . . . . . . . . . . . 20,000 20,000
7.60% interest notes, due in annual installments of $2,727 beginning
in February 2002 with interest payable quarterly . . . . . . . . . - 30,000
7.94% interest notes, due in annual installments of $2,272 beginning
in May 2002 with interest payable quarterly . . . . . . . . . . . - 25,000
Other long term debt:
Subordinated capital certificates of interest with fixed maturities
ranging from two to fifteen years, unsecured (weighted average
interest rate of 7.2% at June 29, 1996 and 7.3% at June 28, 1997) 59,431 63,714
Revolving credit agreements with commercial banks (weighted average
rate of 5.7% at June 29, 1996 and 6.0% at June 28, 1997) . . . . . 50,000 101,350
Borrowings under uncommitted lines of credit (weighted average rate of
5.8% at June 29, 1996). . . . . . . . . . . . . . . . . . . . . . 40,000 -
Tax exempt industrial revenue bonds with varying interest rates due in
quarterly and annual installments through 2016, secured by property,
plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 18,500 18,050
Pro rata share of mortgage loan, at 8.47% interest, due in monthly
installments to June 30, 2004, secured by a building (note 3) . . 2,306 2,100
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,570 4,861
216,037 271,227
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . 27,089 15,188
$188,948 256,039
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 unsecured senior notes
payable at June 29, 1996 and June 28, 1997 was approximately $43.0 million and
$83.1 million, respectively.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
In June 1997, Gold Kist entered into two notional amount $25 million
interest rate swap agreements with a commercial bank. Under a five-year
interest rate swap, the Company will pay interest at a fixed rate of 6.48% and
receive interest at the three-month London Interbank Offered Rate (LIBOR).
Under a ten year interest rate swap, the Company will pay interest at the
three-month LIBOR and receive interest at a fixed rate of 7.44%. Beginning in
June 1998, the commercial bank has an option to terminate the ten-year
interest rate swap at any quarterly payment date.
The terms of debt agreements specify minimum working capital, net worth
and current ratio requirements. The debt agreements also place a limitation
on equity distribution, cash patronage refunds and additional loans, advances
or investments. The limitation provides for a carryover to 1998 of unused
amounts, $10.1 million as of June 28, 1997, and is increased by 50% of Gold
Kist's net margins (or minus 100% of a net loss) before any gains or losses on
disposals of capital assets or equity in unremitted earnings of any affiliate.
Annual required principal repayments on long-term debt for the five years
subsequent to June 28, 1997 are as follows:
Year:
1998 . . . . . . . . . . . . . . . . . . . . . . . . $15,188
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 16,402
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 7,340
2001 . . . . . . . . . . . . . . . . . . . . . . . . 25,232
2002 . . . . . . . . . . . . . . . . . . . . . . . . 17,782
(5) 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 allocated undistributed member margins less
taxes paid on nonqualified equity. Patronage reserves do not bear interest
and are subordinated to all certificates outstanding and indebtedness of Gold
Kist. Patronage reserves may be revolved and paid at the discretion of the
Board of Directors.
Retained earnings include the cumulative net margins (losses) resulting
from nonmember and nonpatronage transactions, including noncooperative
subsidiaries. Also included are amounts related to the early redemption of
notified equity, representing the difference between the face value and the
redemption amounts.
(6) Income Taxes
The provisions for income tax expense (benefit), principally Federal,
consist of the following:
1995 1996 1997
Current expense (benefit) . . . . . . . . $19,744 23,007 (1,495)
Deferred benefit . . . . . . . . . . . . . (6,650) (2,250) (1,951)
$13,094 20,757 (3,446)
The deferred income tax effect of the unrealized gain on marketable equity
security has been charged as a component of patrons' and other equity for 1996
and 1997.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Gold Kist's combined federal and state effective tax rates from operations
for 1995, 1996 and 1997 were 51%, 33%, and (33)%, respectively. A
reconciliation of income tax expense (benefit) from operations computed by
applying the Federal corporate income tax rate of 35% in 1995, 1996 and 1997
to margins before income taxes, minority interest and cumulative effect of
accounting changes for the applicable year follows:
1995 1996 1997
Computed expected income tax expense . . . . . . . . . . $8,955 21,742 3,600
Increase (decrease) in income tax expense resulting from:
Income tax litigation . . . . . . . . . . . . . . . . 5,520 - (5,207)
Cash portion of nonqualified patronage refund . . . . (1,031) (986) -
Effect of state income taxes, net of Federal benefit . 447 970 (531)
Nonqualified equity redemptions . . . . . . . . . . . (490) (886) (831)
Target jobs credits . . . . . . . . . . . . . . . . . (499) (11) (344)
Other, net . . . . . . . . . . . . . . . . . . . . . . 192 (72) (133)
$13,094 20,757 (3,446)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 29,
1996 and June 28, 1997 are as follows:
1996 1997
Deferred tax assets:
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . $15,589 16,920
Insurance accruals . . . . . . . . . . . . . . . . . . . . . . . . 8,059 8,822
Equity in partnerships . . . . . . . . . . . . . . . . . . . . . . 2,618 -
Bad debt reserves . . . . . . . . . . . . . . . . . . . . . . . . 3,156 3,661
State tax operating loss carryforwards . . . . . . . . . . . . . . 1,406 1,850
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,426 2,372
Total gross deferred tax assets . . . . . . . . . . . . . . . . 32,254 33,625
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . (1,406) (1,078)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . 30,848 32,547
Deferred tax liabilities:
Unrealized gain on marketable equity security . . . . . . . . . . (13,116) (17,634)
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . (1,245) (2,167)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . (3,371) (3,604)
Equity in partnerships . . . . . . . . . . . . . . . . . . . . . . - (245)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . (17,732) (23,650)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . $ 13,116 8,897
The net change in the total valuation allowance for the years ended 1995,
1996 and 1997 was an increase of $71, a decrease of $578, and a decrease of
$328, respectively. The Association's management believes the existing net
deductible temporary differences comprising the total net deferred tax assets
will reverse during periods in which the Association generates net taxable
income.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
During 1993, the Internal Revenue Service (IRS) concluded its examination
of Gold Kist's 1987 through 1989 Federal income tax returns and issued a
notice of deficiency. In April 1994, the remaining issue, whether Gold Kist
must recognize taxable income related to the redemption of its qualified
notified equity at less than face amount, was litigated before the United
States Tax Court. An adverse decision was received from the Tax Court on June
26, 1995. In April 1997, the Eleventh Circuit Court of Appeals reversed the
decision of the Tax Court in favor of Gold Kist. The Appellate Court's
decision was not appealed by the IRS and the accrued tax liability related to
this issue has been reversed in the 1997 financial statements.
(7) Employee Benefits
(a) Pension Plans
Gold Kist has noncontributory defined benefit pension plans covering
substantially all of its employees and directors and an affiliate's
employees (participants). The plan covering the salaried participants
provides pension benefits that are based on the employees' compensation
during the years before retirement or other termination of employment.
The plan covering the hourly participants provides 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.
Net periodic pension expense for 1995, 1996 and 1997 included the
following components:
1995 1996 1997
Service cost - benefits earned during the year . $ 3,429 4,092 4,226
Interest cost on projected benefit obligations . 6,949 7,426 8,006
Actual return on plan assets . . . . . . . . . . (11,393) (27,724) (19,118)
Net amortization and deferral . . . . . . . . . 1,208 16,799 7,127
Net periodic pension expense . . . . . . . . . $ 193 593 241
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The following table sets forth the plans' funded status, amounts
recognized in the consolidated balance sheets at June 29, 1996 and June
28, 1997 and economic assumptions:
1996 1997
Actuarial present value of benefit obligations:
Vested participants . . . . . . . . . . . . . . . . . . $ 88,287 90,256
Nonvested . . . . . . . . . . . . . . . . . . . . . . . 7,088 7,410
Total accumulated benefit obligations . . . . . . . $ 95,375 97,666
Projected benefit obligations for services
rendered to date . . . . . . . . . . . . . . . . . . . $111,251 116,670
Plan assets for benefits:
Plan assets at fair value . . . . . . . . . . . . . . . $145,148 156,673
Prepaid pension cost included in other
assets in consolidated balance sheets . . . . . . . . (18,179) (19,721)
Net plan assets . . . . . . . . . . . . . . . . . . $126,969 136,952
Plan assets in excess of projected benefit
obligations . . . . . . . . . . . . . . . . . . . . $ 15,718 20,282
Consisting of:
Unrecognized net asset existing at the date of adoption $ 8,318 7,116
Unrecognized net gain/(loss) from past experience
different from that assumed and effects of changes
in assumptions . . . . . . . . . . . . . . . . . 13,824 18,889
Prior service cost not yet recognized in net periodic
pension cost . . . . . . . . . . . . . . . . . . (6,424) (5,723)
$ 15,718 20,282
Actuarial assumptions:
Weighted-average discount rate . . . . . . . . . . . . 8.00% 8.25%
Weighted-average expected long-term rate of return on
plan assets . . . . . . . . . . . . . . . . . . . . . 9.50% 9.50%
Weighted-average rate of compensation increase . . . . 5.50% 5.50%
The unrecognized net asset existing at the date of adoption of
Statement of Financial Accounting Standards No. 87 is being amortized
over the remaining service lives of the participants.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(b) Other Postretirement Benefits
Gold Kist provides health care and death benefits to substantially
all retired employees, covered dependents and their beneficiaries.
Generally, employees who have attained age 55 and who have 10 years of
service are eligible for these benefits. In addition, employees with
less than 10 years of service who retired before July 1, 1992 are
eligible for these benefits. The health care and death benefit plans
are contributory and coverages increase with increased years of
service.
Postretirement health and death benefit expense for 1995, 1996 and
1997 included the following components:
1995 1996 1997
Service cost - benefits earned during the year . . . $1,742 2,029 2,452
Interest cost . . . . . . . . . . . . . . . . . . . 2,645 2,998 3,508
Net amortization and deferral . . . . . . . . . . . (18) 80 80
Net postretirement health and death benefit
expense . . . . . . . . . . . . . . . . . . . $4,369 5,107 6,040
Gold Kist's postretirement benefit plans are not funded. The status
of the plans at June 29, 1996 and June 28, 1997 was as follows:
1996 1997
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . $18,010 21,130
Fully eligible active plan participants . . . . . . . . . . 10,188 11,786
Other active plan participants . . . . . . . . . . . . . . 16,571 20,245
44,769 53,161
Unrecognized net loss from experience differences . . . . . (2,737) (7,332)
$42,032 45,829
The health care cost trend rate used to determine the accumulated
postretirement benefit obligation at June 29, 1996 was 8%, declining
ratably to 5% by the year 2001 and remaining at that level thereafter.
The health care cost trend rate used to determine the accumulated
postretirement benefit obligation at June 28, 1997 was 7%, declining
ratably to 5% by the year 2001 and remaining at that level thereafter.
The discount rate used to determine the accumulated postretirement
benefit obligation was 8.00% at June 29, 1996 and 8.25% at June 28,
1997, respectively. A 1% increase in the health care cost trend rate
for each year would increase the accumulated postretirement benefit
obligation for health care benefits at June 28, 1997 by approximately
13% and net postretirement health care cost by 14%.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(8) Contingent Liabilities and Commitments
Gold Kist is a party to various legal and administrative proceedings, all
of which management believes constitute ordinary routine litigation incident
to the business conducted by Gold Kist, or are not material in amount.
Gold Kist received proceeds of $20.0 million, $5.0 million, $4.9 million
and $10.2 million during 1993, 1994, 1995 and 1996, respectively, for
collateralized loans sold with recourse to an insurance company, of which
$17.4 million was outstanding at June 28, 1997. No gain or loss was
recognized on the sale of these loans. A $264 thousand allowance has been
recognized in the accompanying consolidated financial statements for potential
losses that may occur. As of June 28, 1997, there have been no credit losses
related to the loans guaranteed under this agreement.
Gold Kist is a guarantor of amounts outstanding under a $65.0 million
secured loan agreement between a commercial bank and Young Pecan Company, a
pecan processing and marketing partnership in which Gold Kist holds a 25%
equity interest and 35% earnings (loss) allocation. At June 28, 1997, the
amounts outstanding under this facility were $42.4 million.
(9) Investments
(a) Marketable Equity Security
As discussed in Note 1(e), Gold Kist adopted SFAS 115 at June 26,
1994, changing the method of accounting for its marketable equity
security from a historical cost basis to a fair value approach.
Pursuant to the provisions of SFAS 115, the Association has classified
its marketable equity security as "available-for-sale." At June 28,
1997, the Association's marketable equity security was carried at its
fair value of $71.1 million, which represents a gross unrealized gain
of $50.4 million. The 1997 gross unrealized gain, net of deferred
taxes of $17.7 million, has been reflected as a separate component of
patrons' and other equity. At June 29, 1996, the Association's
marketable equity security was carried at its fair value of $54.8
million, which represents a gross unrealized gain of $34.1 million.
The 1996 gross unrealized gain, net of deferred income taxes of $13.1
million, has been reflected as a separate component of patrons' and
other equity. At July 1, 1995, the marketable equity security was
carried at its fair value of $50.1 million, which represents a gross
unrealized gain of $30.1 million. The 1995 gross unrealized gain, net
of deferred income taxes of $11.6 million, has been reflected as a
separate component of patrons' and other equity.
Gains realized on sales and dividends totaling $1.3 million are
included in miscellaneous, net for the year ended July 1, 1995.
Dividends of $494 thousand and $595 thousand are included in
miscellaneous, net for the years ended June 29, 1996 and June 28,
1997, respectively.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(b) Golden Peanut Company
Gold Kist has a 33 1/3% interest in Golden Peanut Company and
Subsidiaries, a partnership interest ("Golden Peanut Company"). Gold Kist's
investment in the Golden Peanut Company amounted to $17.2 million and $24.1
million at June 29, 1996 and June 28, 1997, respectively. In July 1996 and
July 1997, Gold Kist made additional investments of $2.8 million and $1.2
million, respectively. Golden Peanut Company has a $450.0 million commercial
paper facility supported by lines of credit with various banks totaling $190.0
million. At June 28, 1997, borrowings of $103.0 million were outstanding
under the commercial paper facility. Summarized financial information of
Golden Peanut Company is shown below:
Condensed Consolidated Balance Sheets
1996 1997
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets . . . . . . . . . . . . . . . . . . . . . . . $150,178 164,450
Property, plant and equipment, net . . . . . . . . . . . . . 31,557 34,775
Total assets . . . . . . . . . . . . . . . . . . . . . . . $181,735 199,225
Current liabilities . . . . . . . . . . . . . . . . . . . . $124,969 120,591
Accrued postretirement benefit costs . . . . . . . . . . . . 5,308 5,703
Other liabilities . . . . . . . . . . . . . . . . . . . . . - 511
Partners' equity . . . . . . . . . . . . . . . . . . . . . .. 51,458 72,420
Total liabilities and partners' equity . . . . . . . . . . $181,735 199,225
Condensed Consolidated Statements of Operations
1995 1996 1997
Net sales and other operating income . . . . . . . $435,569 428,955 426,122
Costs and expenses . . . . . . . . . . . . . . . . 464,444 432,496 408,702
Net earnings (loss) . . . . . . . . . . . . . . $(28,875) (3,541) 17,420
In 1995, 1996 and 1997, Gold Kist received $2.1 million in rental
income from Golden Peanut Company under an operating lease agreement
for peanut shelling and procurement facilities. Gold Kist received
procurement commissions, royalties and administrative service fees of
$3.9 million, $3.1 million and $4.2 million in 1995, 1996 and 1997,
respectively. In addition, Gold Kist purchased $3.1 million, $2.6
million and $2.3 million of inventory from Golden Peanut Company in
1995, 1996 and 1997, respectively.
(10) Major Business Segments
Gold Kist is an agricultural cooperative, with operations located
primarily in the southeastern United States, engaged in marketing products and
purchasing supplies and equipment for its patrons. Gold Kist also operates
non-cooperative businesses engaged in broiler operations, farm and home
retailing, and crop and equipment financing. Gold Kist's operations are
classified into industry segments as follows:
The Poultry segment includes cooperative integrated broiler production,
processing and marketing operations, as well as subsidiary broiler operations.
This segment has decentralized broiler and cornish game hen facilities.
The Agri-Services segment purchases or manufactures feed, seed,
fertilizers, agricultural chemicals, animal health products, and other farm
supply and equipment items for sale through Gold Kist retail outlets and
independent dealers. The segment conducts cotton procurement, ginning,
storage and marketing operations, as well as other crop procurement services.
This segment also operates pork production facilities.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The following table presents certain financial information as to industry segments:
Agri- Intersegment
Poultry Services Eliminations Consolidated
Year ended July 1, 1995
Net sales volume . . . . . . . . . . . $1,232,907 455,630 - 1,688,537 (a)
Net margins from operations . . . . . . $ 37,503 5,012 - 42,515
General corporate expenses . . . . . . (7,451)
Other deductions, net . . . . . . . . . (9,478)
Margins before income taxes and
minority interest . . . . . . . . . . . $ 25,586
Depreciation and amortization expense . $ 31,435 5,698 952 (b) 38,085
Capital expenditures . . . . . . . . . $ 43,309 18,073 380 (b) 61,762
Identifiable assets at July 1, 1995 . . $ 408,232 269,019 144,386 (b) 821,637
Year ended June 29, 1996
Net sales volume . . . . . . . . . . . $1,386,490 569,079 - 1,955,569 (a)
Net margins from operations . . . . . . $ 69,951 10,317 - 80,268
General corporate expenses . . . . . . (11,811)
Other deductions, net . . . . . . . . . (6,338)
Margins before income taxes and
minority interest . . . . . . . . . . . $ 62,119
Depreciation and amortization expense . $ 32,180 7,247 636 (b) 40,063
Capital expenditures . . . . . . . . . $ 54,124 19,357 781 (b) 74,262
Identifiable assets at June 29, 1996 . $ 487,869 311,680 176,411 (b) 975,960
Year ended June 28, 1997
Net sales volume . . . . . . . . . . . $1,629,705 659,339 - 2,289,044 (a)
Net margins from operations . . . . . . $ 17,421 10,198 - 27,619
General corporate expenses . . . . . . (11,817)
Other deductions, net . . . . . . . . . (5,515)
Margins before income taxes and
minority interest . . . . . . . . . $ 10,287
Depreciation and amortization expense . $ 30,983 7,893 546 (b) 39,422
Capital expenditures . . . . . . . . . $ 65,687 10,816 419 (b) 76,922
Identifiable assets at June 28, 1997 . $ 573,731 346,037 200,068 (b) 1,119,836
(a) Net sales volume includes export sales amounting to $70,113, $100,089 and $96,427 in 1995, 1996
and 1997, respectively, which have no significant geographical concentration.
(b) Amounts relate to unallocated corporate assets.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(11) Subsequent Event
In January 1997, the Gold Kist Board of Directors adopted a resolution
authorizing the Company's officers to negotiate with Golden Poultry Company,
Inc. to pursue a transaction in which Gold Kist would acquire all of the
shares of Golden Poultry Company's common stock not currently owned by Gold
Kist. Gold Kist owned 10,901,802 shares or 75% of Golden Poultry's 14,628,435
outstanding shares. The negotiations were completed and an Agreement and Plan
of Merger executed in April 1997 (the "Merger Agreement"), among Gold Kist,
Golden Poultry Company, Inc., Agri International, Inc. and Golden Poultry
Acquisition Corp.
Pursuant to the Merger Agreement, Gold Kist agreed to pay $14.25 per share
in cash for each outstanding share of common stock not already beneficially
owned by Gold Kist. The Merger Agreement was approved by the Boards of
Directors of the Association and Golden Poultry Company, Inc. and was approved
by a majority of the owners of the Golden Poultry common stock not owned by
Gold Kist at a Special Meeting of Shareholders on September 5, 1997. The
merger became effective on September 8, 1997. The cost to acquire the
outstanding shares and the estimated fees and expenses incurred or to be
incurred in connection with the merger are approximately $55.1 million. The
acquisition of the minority interest will be accounted for using the purchase
method of accounting.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors of Gold Kist are:
Years
Term Served as
Name Age Office Expires Director
(as of
8/30/97)
W. P. Smith, Jr.* 68 Chairman of the Board & 1998 24
Director (District 1)
Herbert A. Daniel, Jr. 45 Director (District 2) 1998 2
Fred K. Norris, Jr.* 69 Director (District 3) 1997 20
James E. Brady, Jr. 62 Director (District 4) 1999 13
W. Kenneth Whitehead 53 Director (District 5) 1999 4
Dan Smalley* 48 Director (District 6) 1999 12
A. Jack Nally 54 Director (District 7) 1997 6
M. Michael Davis 46 Director (District 8) 1997 3
Phil Ogletree, Jr. 64 Director (District 9) 1998 20
* Member of Board of Directors Executive Committee.
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 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
8/30/97) 8/30/97) 8/30/97)
G. O. Coan* 61 Chief Executive Officer, 2 38
and Chairman of the
Management Executive
Committee
John Bekkers* 52 President and Chief 2 12
Operating Officer
M. A. Stimpert 53 Senior Vice President, 1 14
Planning and Adminis-
tration
Kenneth N. Whitmire 59 Group Vice President, 9 36
Poultry Group
Jack L. Lawing 59 General Counsel, Vice 21 21
President and Secretary
Peter J. Gibbons 60 Vice President, Finance 18 21
Paul G. Brower 58 Vice President, 18 18
Communications
W. A. Epperson 61 Vice President, 18 22
Human Resources
Jerry L. Stewart 57 Vice President - 16 34
Marketing, Poultry Group
Donald W. Mabe 43 Vice President - 1 month 12
Operations, Poultry Group
Marshall Smitherman 55 Vice President - 1 month 18
Cotton Division
John K. McLaughlin 59 Vice President, Pet Food 13 13
and Animal Products
Division
Allen C. Merritt 51 Vice President, Fertilizer 14 25
and Chemical Division
Stanley C. Rogers 51 Vice President, 7 19
AgriServices Division
Michael F. Thrailkill 49 Vice President, 5 24
Information Services
Stephen O. West 51 Treasurer 14 17
W. F. Pohl, Jr. 47 Controller 15 21
*Member of Management Executive Committee
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
Michael A. Stimpert, Donald W. Mabe, and Marshall Smitherman,
has been as an officer or employee of Gold Kist.
Mr. Michael A. Stimpert was elected Senior Vice
President, Planning and Administration, effective April 1, 1996.
He previously served as Vice President from January 1, 1996
until election to his current position. From December 19, 1986
until January 1996, Mr. Stimpert served as Executive Vice
President of Golden Peanut Company, a peanut processing and
marketing company headquartered in Atlanta, Georgia. Mr.
Stimpert was employed by Gold Kist Inc. from June 1974 until
December 1986 in a variety of positions, including Group Vice
President, Agricommodities Group and Group Vice President,
AgriProducts Group.
Mr. Donald W. Mabe was elected Vice President -
Operations, Poultry Group, effective July 25, 1997. He
previously served as President of Carolina Golden Products
Company from January 1991 until election to his current
position.
Mr. Marshall Smitherman was elected Vice President,
Cotton Division, effective July 25, 1997. He previously served
as Manager, Cotton Division from February 1995 until election to
his current position. From 1988, until rejoining the
Association in 1995, he was a grain broker located in Atlanta,
Georgia.
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
annual All other
Fiscal compensa- compensa-
year Salary Bonus tion(1) tion
ended ($) ($) ($) ($)
G. O. Coan June 28, 1997 $470,577 $50,000 $1,869 $12,230(2)
Chief Executive June 29, 1996 349,058 450,000 1,055 12,030(2)
Officer and Chair- July 1, 1995 327,000 103,000 268 12,961(2)
man of the Manage-
ment Executive
Committee
John Bekkers June 28, 1997 $282,423 $50,000 $3,656 $9,842(2)
President and June 29, 1996 210,577 295,000 1,110 9,425(2)
Chief Operating July 1, 1995 162,453 71,200 62 8,703(2)
Officer
Kenneth N. Whitmire June 28, 1997 $204,434 $44,000 $6,703 $9,956(2)
Group Vice June 29, 1996 189,819 240,000 2,375 9,965(2)
President, Poultry July 1, 1995 184,373 83,000 457 9,758(2)
Group
Jerry L. Stewart June 28, 1997 $174,981 $29,000 $3,434 $9,353(2)
Vice President June 29, 1996 161,727 164,000 1,889 9,569(2)
Marketing, July 1, 1995 160,600 54,000 320 9,158(2)
Poultry Group
M. A. Stimpert June 28, 1997 $194,488 $24,000 $4,497 $10,020(2)
Senior Vice June 29, 1996 87,356(3) 75,000(3) 2,280(3) 9,201(2)(3)
President, Planning July 1, 1995 - - -
and Administration
_______________________________
(1) The amounts shown for the fiscal years ended June 28,
1997, and June 29, 1996 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, 1997, June
29, 1996, and July 1, 1995, 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
1997, 1996 and 1995 on behalf of the named executive
officers pursuant to the Gold Kist Profit Sharing and
Investment Plan, a qualified defined contribution plan
(401(K)): Mr. Coan - $4,750, $4,500 and $5,418
respectively, Mr. Bekkers - $5,404, $4,946 and $4,206
respectively; Mr. Whitmire - $4,684, $4,656 and $4,438
respectively; Mr. Stewart - $4,439, $4,617 and $4,193
respectively; and Mr. Stimpert - $4,804, $3,859 and $-0-
respectively. In addition, the amounts set forth include
for fiscal years 1995, 1996 and 1997, the following
amounts which represent the value of the named executive
officer's benefit from premiums paid by the Association
under a split dollar life insurance plan for the named
executive officers: Mr. Coan - $7,543, $7,530 and $7,480
respectively; Mr. Bekkers - $4,497, $4,479 and $4,438
respectively; Mr. Whitmire - $5,320, $5,309 and $5,272
respectively; Mr. Stewart - $4,965, $4,952 and $4,914
respectively; and Mr. Stimpert - $-0-, $5,342 and $5,216
respectively. The Association uses the modified premium
method in determining the portion of each premium dollar
attributable to the named executive officers. The
Association will recover the cost of premium payments
from the cash value of the policies.
(3) The amounts indicated reflect Mr. Stimpert s employment
for a portion of the fiscal year from January 1996 to
June 1996.
Retirement Plans. Gold Kist maintains two noncontributory
retirement plans, one for salaried employees and the other for
hourly employees, which together cover substantially all
employees who have served at least one year with Gold Kist,
including those employees subject to collective bargaining
agreements. The plan for salaried employees was amended in
1984 to delete the one year waiting period for credited
service. For salaried employees, the plan provides a
retirement benefit after 30 years of credited service at age
65, which, when combined with the portion of the employee's
primary Social Security benefit attributable to his/her
employer's contributions, will equal 45% of his/her average
earnings during the period of five years in which he/she 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. This plan also provides an early retirement
benefit after age 55, with no reduction in benefit entitlement
due to age, when the sum of the employee's age and years of
service equal or exceed 90. The benefit entitlement is
reduced in either case for each year of credited service less
than 30 years. For hourly employees who work for Gold Kist
until age 65, the plan provides a monthly pension benefit
equal to $9.00 for each year of plan participation, payable at
age 65; early retirement is permitted after age 55 at reduced
benefit levels. The plans contain a death benefit for the
surviving spouse of an active employee (who had at least five
years credited service or was at least 55 years old at the
time of death) which equals 50% of the deceased employee's
accrued retirement income benefit. Accrued benefits under the
plans vest after the employee attains five years of service or
at age 55, and the minimum pension benefit at age 65 is $9.00
per month for each year of credited service. Amounts
contributed for specific individuals under Gold Kist's
retirement income plan for salaried employees cannot be
readily determined. For the plan year ended December 31,
1996, the Association made a contribution of $1,867,000 to the
pension plan for hourly employees. Due to the full funding
limitation of the Internal Revenue Service, the Association
was not permitted to make a tax-deductible contribution to the
retirement income plan for salaried employees for the plan
year ended December 31, 1996. 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 $ 7,500 $ 11,250 $ 15,000 $ 18,750 $22,500
$100,000 15,000 22,500 30,000 37,500 45,000
$150,000 22,500 33,750 45,000 56,250 67,500
For years after 1993, the maximum annual amount of
compensation that can be used for determining an individual's
benefit under a qualified plan is $150,000.
The plan covers the compensation set forth in the columns
entitled "Salary" and "Bonus" in the Summary Compensation
Table. The credited years of service as of December 31, 1996,
under the retirement income plan for the five executive
officers listed in the summary compensation table are as
follows: Mr. Coan (30); Mr. Bekkers (12); Mr. Whitmire (30);
Mr. Stewart (30); and Mr. Stimpert (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. 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. All vested
amounts accrued under the Plan have been funded in a trust
which is secure against all contingencies except a bankruptcy
of the Association. 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 $15,000 $22,500 $30,000 $37,500 $ 45,000
$150,000 22,500 33,750 45,000 56,250 67,500
$200,000 30,000 45,000 60,000 75,000 90,000
$250,000 37,500 56,250 75,000 93,750 112,500
$350,000 52,500 78,750 105,000 131,250 157,500
$500,000 75,000 112,500 150,000 187,500 225,000
$750,000 112,500 168,750 225,000 281,250 337,500
$850,000 127,500 191,250 255,000 318,750 382,500
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 Retirement Plan for Salaried Employees.
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. All
vested amounts accrued under the plan have been funded in a
trust which is secure against all contingencies except a
bankruptcy of the Association. 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, 1997: Mr. Coan - $243,747; Mr. Bekkers - $127,764;
Mr. Whitmire - $153,393; and Mr. Stimpert - $129,986.
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,
1997, no contingencies have occurred which would require the
implementation of the provisions of the changes in control
plans, 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 and Directors Emeriti 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. Director W. P. Smith, Jr., Fred K. Norris, Jr.
and Dan Smalley serve as members of the Association's
Compensation Committee.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Not Applicable.
Item 13. Certain Relationships and Related Transactions.
The Directors of Gold Kist are members of the
Association and, during the fiscal year ended June 28, 1997,
have had dealings in the ordinary course of business with Gold
Kist as purchasing or marketing patrons. See Business (and
Properties) -- Patronage Refunds.
PART IV
Item 14. 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, 1996 and
June 28, 1997
Consolidated Statements of Operations--Years Ended
July 1, 1995, June 29, 1996 and June 28, 1997
Consolidated Statements of Patrons' and Other
Equity-Years Ended July 1, 1995, June 29, 1996
and June 28, 1997
Consolidated Statements of Cash Flows--Years ended
July 1, 1995, June 29, 1996 and June 28, 1997
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules:
Gold Kist Inc.
Financial Statement Schedule:
II. Valuation Reserves--Years Ended July 1, 1995
June 29, 1996 and June 28, 1997
GOLD KIST INC.
Schedule II - Valuation Reserves
(Dollar Amounts in Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Charged to Charged Balance
Beginning Cost and To Other At End
Description Of Period Expenses Accounts Deductions Of Period
Deducted in the consolidated
balance sheets from the asset
to which it applies:
Allowance for doubtful accounts:
July 1, 1995 $5,369 2,382 - 1,874 (A) 5,877
June 29, 1996 5,877 4,029 - 2,180 (A) 7,726
June 28, 1997 7,726 4,376 - 3,267 (A) 8,836
(A) Represents accounts written off.
Allowance for deferred tax
assets valuation:
July 1, 1995 $1,913 71(B) - - 1,984
June 29, 1996 1,984 - - 578 (C) 1,406
June 28, 1997 1,406 - - 328 (C) 1,078
(B) Represents establishment of allowance for net operating loss deductions not
available for state income tax purposes.
(C) Represents estimate of net operating loss deductions that are realizable.
(a)3. Exhibits - Index of Exhibits
Exhibits designated as previously filed with
the Commission in the Index of Exhibits, below,
are incorporated by reference into this Report.
Designation
of Exhibit Document with Which Designation
in this Exhibit Was Previously of such Exhibit
Report Description of Exhibit Filed with Commission in that Document
B-2 Agreement of Merger, Amendment to Schedule Exhibit 3
dated as of April 22, 13D filed April 25, 1997
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 Exhibit 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
Registrant, as amended
B-4(a)(1) Form of Indenture, dated Registration filed on Exhibit 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 Exhibit 4(a)(4)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, No. 2-69267)
governing the terms
of the Fifteen Year
Subordinated Capital
Certificates of Interest
(Series C)
B-4(a)(3) Form of Second Supplemental Registration filed on Exhibit 4(a)(5)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, No. 2-79538)
governing the terms
of the Fifteen Year
Subordinated Capital
Certificates of Interest
(Series D)
B-4(b)(1) Form of Indenture, dated Registration filed on Exhibit 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 Exhibit 4(b)(4)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, No. 2-69267)
governing the terms of
the Ten Year
Subordinated Capital
Certificates of Interest
(Series C)
B-4(b)(3) Form of Second Supplemental Registration filed on Exhibit 4(b)(5)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, No. 2-79538)
governing the terms
of the Ten Year Subordinated
Capital Certificates of Interest
(Series D)
B-4(c) Form of Indenture, dated as Registration filed on Exhibit 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 Exhibit 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 Exhibit 4(d)(2)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, No. 2-69267)
governing the terms
of the Five Year
Subordinated Capital
Certificates of Interest
(Series B)
B-4(d)(3) Form of Second Supplemental Registration filed on Exhibit 4(d)(3)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, No. 2-79538)
governing the terms of
the Five Year Subordinated
Capital Certificates of
Interest (Series C)
B-4(e) Form of Indenture, dated Registration filed on Exhibit 4(f)(2)
September 1, 1985, Form S-2 (Registration
governing the terms No. 33-428)
of the Three Year
Subordinated Capital Certifi-
cates of Interest (Series A),
including therein a table of
contents, cross-reference
sheet, and form Capital
Certificates of Interest
B-4(f) Form of Indenture, dated Registration filed on Exhibit 4(g)
September 1, 1980, Form S-1 (Registration
governing the terms No. 2-69267)
of the Two Year
Subordinated Capital Certifi-
cates of Interest (Series A),
including therein a table of
contents and cross-reference
sheet
B-4(g)(1) Form of Indenture, dated Registration filed on Exhibit 4(h)(1)
as of September 1, 1985, Form S-2 (Registration
governing the terms No. 33-428)
of the One Year
Subordinated Large Denomi-
nation Loan Certificate
(Series A), including
therein a table of
contents, cross-reference
sheet, and form of One
Year Subordinated Large
Denomination Loan Certificates
B-4(g)(2) Form of Indenture, dated Registration filed on Exhibit 4(d)(2)
as of September 1, 1979, Form S-1 (Registration
governing the terms of No. 2-65587)
the One Year Subordinated
Loan Certificates (Series B),
including therein a table
of contents and cross-
reference sheet
B-4(g)(3) Form of First Supplemental Registration filed on Exhibit 4(f)(2)
Indenture, dated as of Form S-1 (Registration
September 1, 1980, No. 2-69267)
governing the terms
of the One Year
Subordinated Loan
Certificates (Series C)
B-4(h) Form of Indenture, Registration filed on Exhibit 4(i)
dated as of Form S-2 (Registration
September 1, 1985, No. 33-428)
governing the terms of
the Six Month Subordinated
Large Denomination Loan
Certificate (Series A),
including therein a table
of contents, cross-
reference sheet, and
form of Six Month
Subordinated Large
Denomination Loan Certificates
B-4(i) Agreement to furnish Registration filed on Exhibit 4(h)
copies of constituent Form S-1 (Registration
instruments defining No. 2-59958)
the rights of the holders
of certain industrial
revenue bonds
B-4(j)(1) Note Agreement with the Quarterly Report on Form Exhibit B-4(n)
Prudential Insurance 10-Q for the Fiscal
Company of America Quarter ended December
dated as of December 31, 1986
15, 1986
B-4(j)(2) Amendment dated as of Registration filed Exhibit 4(l)(2)
June 30, 1987, to on Form S-2
Note Agreement with (Registration No.
the Prudential Insurance 33-24623)
Company of America
B-4(j)(3) Note Agreement with the Quarterly Report on Exhibit B-4(q)(1)
Prudential Insurance Form 10-Q for the
Company of America dated Fiscal Quarter ended
as of November 4, 1988 December 31, 1988
B-4(j)(4) Note Agreement with Quarterly Report on Exhibit B-4(q)(2)
Pruco Life Insurance Form 10-Q for the
Company dated as of Fiscal Quarter ended
November 4, 1988 December 31, 1988
B-4(j)(5) Amendment dated as of Registration filed on Exhibit 4(l)(5)
January 9, 1991, to Note Form S-2 (Registration
Agreements with the No. 33-42900)
Prudential Insurance
Company of America and
Pruco Life Insurance
Company
B-4(j)(6) Note Agreement with the Registration filed on Exhibit 4(l)(6)
Prudential Insurance Form S-2 (Registration
Company of America, No. 33-42900)
dated as of June 3, 1991
B-4(j)(7) Amendment dated as of Registration filed on Exhibit 4(l)(7)
June 26, 1992, to Note Form S-2 (Registration
Agreements with the No. 33-52268)
Prudential Insurance
Company of America
B-4(j)(8) Amendment dated July Registration filed on Exhibit 4(l)(8)
14, 1993, to Note Form S-2 (Registration
Agreements with the No. 33-69204)
Prudential Insurance
Company of America and
Pruco Life Insurance
Company
B-4(j)(9) Note Purchase and Private Registration filed Exhibit 4(j)(9)
Agreement, dated as of September 24, 1997
February 11, 1997, on Form S-2 (Registration
with the Prudential No. _______)
Insurance Company of
America
B-4(j)(10) Amendment dated May 13, Registration filed Exhibit 4(j)(10)
1997 to Note Agreements September 24, 1997
with the Prudential on Form S-2 (Registration
Insurance Company of No. _______)
America and with Pruco
Life Insurance Company;
Note Agreement dated as
of June 3, 1991 with the
Prudential Insurance
Company of America; and
Note Purchase and Private
Shelf Agreement with the
Prudential Insurance Company
of America
B-10(a) Form of Deferred Registration filed on Exhibit 11(d)
Compensation Agreement Form S-1 (Registration
between Gold Kist Inc. No. 2-59958)
and certain executive
officers*
B-10(b)(1) Gold Kist Management Registration filed on Exhibit 10(b)
Bonus Program* Form S-1 (Registration
No. 2-69267)
B-10(b)(2) Amended Gold Kist Registration filed on Exhibit 10(b)(2)
Management Bonus Form S-2 (Registration
Program* No. 2-79538)
B-10(b)(3) Form of Gold Kist Registration filed on Exhibit 10(b)(3)
Supplemental Executive Form S-2 (Registration
Retirement Income No. 33-9007)
non-qualified deferred
compensation agreement
between Gold Kist and
certain executive officers
and Resolution of Gold
Kist Board of Directors
authorizing the Supplemental
Executive Retirement Plan*
B-10(b)(4) Resolution of Gold Kist Registration filed on Exhibit 10(b)(4)
Board of Directors Form S-2 (Registration
authorizing the Gold No. 33-9007)
Kist Special Award Plan*
B-10(b)(5) Form of Gold Kist Registration filed on Exhibit 10(b)(5)
Executive's Change Form S-2 (Registration
in Control Agreement No. 33-31164)
between Gold Kist and
certain 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 Exhibit 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 Exhibit 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 Exhibit 10(b)(8)
Agreement for Medical Form S-2 (Registration
Benefits* No. 33-36938)
B-10(b)(9) Gold Kist Executive Registration filed on Exhibit 10(b)(9)
Savings Plan, Form S-2 (Registration
as amended * No. 33-62869)
B-10(b)(10) Gold Kist Director Registration filed on Exhibit 10(b)(10)
Savings Plan, as Form S-2 (Registration
amended * No. 33-62869)
B-10(b)(11) Gold Kist Split Dollar Registration filed on Exhibit 10(b)(11)
Life Insurance Plan * Form S-2 (Registration
No. 33-62869)
B-10(c)(l) Form of Membership, Registration filed on Exhibit 13(b)
Marketing, and/or Form S-1 (Registration
Purchasing Agreement No. 2-59958)
of Gold Kist Inc.,
Atlanta, Georgia
B-10(c)(2) Form of Membership, Registration filed on Exhibit 10(c)(2)
Marketing, and/or Form S-1 (Registration
Purchasing Agreement No. 2-74205)
of Gold Kist Inc.,
Atlanta, Georgia,
as revised October 17,
1980
B-10(c)(3) Form of Membership, Registration filed on Exhibit 10(c)(3)
Marketing, and/or Form S-2 (Registration
Purchasing Agreement No. 33-428)
of Gold Kist Inc.,
Atlanta, Georgia,
as revised November
l, l984
B-10(c)(4) Form of Membership, Registration filed on Exhibit 10(c)(4)
Marketing,and/or Form S-2 (Registration
Purchasing Agreement No. 33-24623)
of Gold Kist Inc.,
Atlanta, Georgia,
revised October 29,
1987
B-10(c)(5) Form of Membership, Registration filed on Exhibit 10(c)(5)
Marketing, and/or Form S-2 (Registration
Purchasing Agreement No. 33-42900)
of Gold Kist Inc.,
Atlanta, Georgia,
revised August 21, 1991
B-10(c)(6) Form of Membership, Registration filed Exhibit 10(c)(6)
Marketing, and/or September 24, 1997
Purchasing Agreement on Form S-2 (Registration
of Gold Kist Inc., No. ________)
Atlanta, Georgia
revised July 9, 1997
B-10(d) CF Industries, Inc., Registration filed on Exhibit 13(j)
Member Product Form S-2 (Registration
Purchase Agreement No. 2-59958)
B-10(e)(1) General Partnership Registration filed on Exhibit 10(h)(1)
Agreement (GC Form S-2 (Registration
Properties) between No. 33-428)
Gold Kist Inc. and
Cotton States Mutual
Insurance Company, dated
as of July 1, 1984
B-10(e)(2) Lease from GC Registration filed on Exhibit 10(h)(2)
Properties, dated Form S-2 (Registration
December 11, 1984, for No. 33-428)
home office building
space
B-10(f)(1) General Partnership Annual Report on Form Exhibit B-10(f)(1)
Agreement (Golden 10-K for the Fiscal
Peanut Company) between Year Ended June 30, 1987
Gold Kist and Archer-
Daniels-Midland Company,
dated as of December
17, 1986
B-10(f)(2) Amended and Restated Registration filed on Exhibit 10(f)(2)
Partnership Agreement Form S-2 (Registration
(Golden Peanut Company) No. 33-31164)
between Gold Kist Inc.,
Archer-Daniels-Midland
Company and Alimenta
Processing Corporation,
dated as of March 1,
1989
B-10(f)(3) Amendment to Amended Registration filed on Exhibit 10(f)(3)
and Restated Partner- Form S-2 (Registration
ship Agreement (Golden No. 33-42900)
Peanut Company) between
Gold Kist Inc., Archer-
Daniels-Midland Company
and Alimenta Processing
Corporation, dated as
of June 30, 1991
B-10(f)(4) Master Commercial Annual Report on Form Exhibit B-10(f)(2)
Facilities Lease 10-K for the Fiscal
Agreement between Year Ended June 30, 1987
Gold Kist and Golden
Peanut Company dated
as of December 17, 1986
B-10(g) Grain Procurement Annual Report on Form Exhibit B-10(h)
Agreement between 10-K for the Fiscal
Gold Kist and Archer- Year Ended June 30, 1987
Daniels-Midland Company,
dated August 31, 1987
B-10(h)(1) Credit Agreement Registration filed Exhibit 10(j)
dated as of August 9, September 20, 1996
1996, with Various on Form S-2
Banks and Lending (Registration No.
Institutions, as 333-12397)
Lenders, and SunTrust
Bank, Atlanta, as agent
B-10(h)(2) First Amendment, Registration filed Exhibit 10(h)(2)
dated May 12, 1997, September 24, 1997
to Credit Agreement on Form S-2
dated August 9, 1996 (Registration No. ____)
B-10(h)(3) Second Amendment, dated Registration filed Exhibit 10(h)(3)
June 27, 1997, to September 24, 1997
Credit Agreement dated on Form S-2
August 9, 1996 (Registration No. _____)
B-10(i)(1) Master Note Agreement Report filed on Exhibit 4(h)
with Wachovia Bank of Form 10-Q for the
Georgia, N.A., dated as Fiscal Quarter Ended
of August 19, 1996 September 28, 1996
B-10(j) Guaranty dated December Registration filed on Exhibit 4(o)
18, 1992 by Gold Kist Form S-2 (Registration
in favor of NationsBank No. 33-69204)
of Georgia, N.A.
B-21 Subsidiaries of the
Registrant
B-27 Financial Data Schedule
_________________________________
*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
have been filed during the last quarter of the fiscal year
ended June 28, 1997.
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, 1997 By:/s/ G. O. Coan
G. O. Coan, 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/ G. O. Coan Chief Executive September 23, 1997
G. O. COAN Officer (Principal
Executive Officer)
/s/ Peter J. Gibbons Vice President- September 23, 1997
PETER J. GIBBONS Finance (Principal
Financial Officer)
/s/ W. F. Pohl, Jr. Controller September 23, 1997
W. F. POHL, JR. (Principal
Accounting Officer)
/s/ W. P. Smith, Jr. Director September 19, 1997
W. P. SMITH, JR.
/s/ Fred K. Norris, Jr. Director September 19, 1997
FRED K. NORRIS, JR.
/s/ Dan Smalley Director September 19, 1997
DAN SMALLEY
/s/ Phil Ogletree, Jr. Director September 19, 1997
PHIL OGLETREE, JR.
/s/ James E. Brady, Jr. Director September 19, 1997
JAMES E. BRADY, JR.
/s/ A. Jack Nally Director September 19, 1997
A. JACK NALLY
/s/ W. Kenneth Whitehead Director September 19, 1997
W. KENNETH WHITEHEAD
/s/H. Michael Davis Director September 19, 1997
H. MICHAEL DAVIS
/s/ Herbert A. Daniel, Jr. Director September 19, 1997
HERBERT A. DANIEL, JR.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
B-3(b) Current By-Laws of
Registrant, as amended
B-21 Subsidiaries of the Registrant
B-27 Financial Data Schedule