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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 Commission File
ended June 27, 1998 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
7A. Quantitative and Qualitative
Disclosure about Market Risk . 18
8. Financial Statements and Supplementary
Data . . . . . . . . . . 19
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 27, 1998
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. 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.
Gold Kist has entered into an Asset Purchase Agreement
(the "Agreement"), dated as of July 23, 1998, with Southern
States Cooperative, Incorporated ("Southern States"), pursuant
to which the Association has agreed to sell and assign, and
Southern States has agreed to purchase and assume, the assets
and certain of the obligations of the Association's
agricultural inputs business. The affected assets include
substantially all of the assets of the Association's
AgriServices segment (including the retail stores division,
the fertilizer and chemicals division, and the pet food and
animal products division), as well as certain crop notes
receivable of AgraTrade Financing, Inc., the Association's
wholly-owned finance subsidiary. The Association's poultry,
pork, aquaculture, seed marketing and other operations and
businesses are not affected by this transaction. The
consideration to be paid the Association in connection with
the sale shall be an amount equal to $41.4 million plus the
net current asset value as of the closing date less the
remaining obligations under an industrial development bond and
lease obligation as of the closing date. Unless Southern
States otherwise agrees, the final purchase price shall not
exceed $251.4 million. Subject to the satisfaction of certain
conditions to closing, the consummation of the transaction
shall take place on October 13, 1998, or such other date as
the Association and Southern States may agree. Upon the
consummation of this transaction, the Association will no
longer engage in the business operated by the affected
segments.
In addition, in September 1998, the Association sold
certain assets of its cotton marketing business. As a result
of that transaction, and the conveyance of certain cotton
ginning and storage facilities operated by the Association to
Southern States pursuant to the Agreement described above, the
Association will terminate its cotton operations other than
the Moultrie, Georgia cotton warehouse activities in the first
quarter of fiscal 1999.
POULTRY
Broilers
Gold Kist conducted its poultry operations in fiscal 1998
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 conducted 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 divisions throughout fiscal
1998 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 Farmsr and Young 'n
Tenderr labels; however, some is sold under customers' private
labels. Most of the frozen chicken carries the Gold Kistr or
Early Birdr label. Cornish game hens are marketed in frozen
form primarily to hotels, restaurants and grocery stores under
the Gold Kist Farms, Young 'n Tender and Medallionr labels.
Medallion, Big Valuer, Gold Kist Farms, Young 'n Tender and
Early Bird are registered trademarks of Gold Kist Inc.
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)
June 29, June 28, June 27,
1996 1997 1998
Broiler Products
Volume $1,380,649 $1,629,705 $1,630,437
Percentage (%) 97.2 98.2 98.7
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 100 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.
Gold Kist has entered into an Asset Purchase Agreement
(the "Agreement"), dated as of July 23, 1998, with Southern
States Cooperative, Incorporated ("Southern States"), pursuant
to which the Association has agreed to sell and assign, and
Southern States has agreed to purchase and assume, the assets
and certain of the obligations of the Association's
agricultural inputs business. The affected assets include
substantially all of the assets of the Association's
AgriServices segment (including the retail stores division,
the fertilizer and chemicals division, and the pet food and
animal products division), as well as certain crop notes
receivable of AgraTrade Financing, Inc., the Association's
wholly-owned finance subsidiary. The Association's poultry,
pork, aquaculture, seed marketing and other operations and
businesses are not affected by this transaction. The
consideration to be paid the Association in connection with
the sale shall be an amount equal to $41.4 million plus the
net current asset value as of the closing date less the
remaining obligations under an industrial development bond and
lease obligation as of the closing date. Unless Southern
States otherwise agrees, the final purchase price shall not
exceed $251.4 million. Subject to the satisfaction of certain
conditions to closing, the consummation of the transaction
shall take place on October 13, 1998, or such other date as
the Association and Southern States may agree. Upon the
consummation of this transaction, the Association will no
longer engage in the business operated by the affected
segments.
In addition, in September 1998, the Association sold
certain assets of its cotton marketing business. As a result
of that transaction, and the conveyance of certain cotton
ginning and storage facilities operated by the Association to
Southern States pursuant to the Agreement described above, the
Association will terminate its cotton operations other than
the Moultrie, Georgia cotton warehouse activities in the first
quarter of fiscal 1999.
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 27, 1998, Gold Kist purchased approximately
38% 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 Prider, Living Lawnr, and Garden Goldr.
Gold Kist also markets a premium growing medium composed of
soil materials and fertilizer nutrients under its trademark
Garden on the Spotr.
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.
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 27, 1998, Gold Kist's feed
mills produced substantially all of the feed it distributed at
wholesale or retail. Gold Kist produces and markets
approximately 300 different feeds, including custom blended
feeds and feeds containing various medications. Pro Balancedr
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 Dayr, Pro Balanced and Performance Plusr trademarks
through independent dealers, under the Gold Kist and Pro
Balanced trademarks through Gold Kist retail stores, and under
the Gold Kist and Top Notchr 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 a joint venture arrangement with another regional
cooperative association in the form of a limited liability hog
sales and production company. Gold Kist raises and provides
young pigs for the venture.
Live market hogs are marketed by Gold Kist in the
Southeastern United States to processors of pork products,
primarily on a competitive bid basis in the states of Alabama,
Georgia and Mississippi. Management believes that customers
are favorably impressed by the quality of its market hogs
which is principally due to superior breeding stock and
management grow-out techniques employed by Gold Kist. Gold
Kist competes with other major national producers and smaller
individual producers, primarily on a regional basis in the
Southeastern United States.
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.
While operations of the Moultrie storage warehouse will
be continued to service cotton currently stored in that
facility, the other facilities of the cotton ginning and
storage operations and the cotton marketing operations will be
terminated in the first quarter of 1999.
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"T, 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. Proprietary corn, soybean, sorghum and peanut seed
varieties are marketed under the trademark AgraTechr.
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 27, 1998,
the approximate export sales volume of the primary export
product line (poultry) was $61.6 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 1998 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 1,450,000 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, the former 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 1998 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 four fertilizer plants at Clyo and Cordele, Georgia,
Hanceville, Alabama, and Greenville, Mississippi, and bulk
chemical storage facilities at Moultrie, Georgia and
Bishopville and Darlington, South Carolina. Gold Kist
utilizes chemical storage and distribution facilities at
Alcolu, South Carolina, Lawrenceville and Sylvester, Georgia;
Hanceville, Alabama, Greenville, Mississippi; 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 facilities are maintained at Tifton,
Georgia and Live Oak, Florida.
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 four pork production centers. These
production facilities include a gilt production center in
Stephens, Georgia; two gilt and pork production centers
located at Kingston, Georgia; and a boar and pork production
center headquartered in Stephens, Georgia.
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
320,000 bags, 110,000 bags and 80,000 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 1998.
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, 1998) and Chattanooga (terminable upon 30 days
notice) Tennessee; Crossville, Alabama, poultry hatchery
facility (lease expires February 23, 2088); Anadarko, Oklahoma
peanut cold storage facility (lease expires April 30, 2010;
subleased to Golden Peanut Company); and retail store
facilities at Dermott, Arkansas (lease expires March 9, 1999);
Byromville (lease expires March 15, 1999), Canton (lease
expires October 31, 1998), 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, 1999), Jasper (lease expires May 31, 2002), and
Russellville (lease expires November 30, 1998), Alabama;
Bennettsville (lease expires October 14, 1998), Lexington
(lease expires September 30, 1998), 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;
and Pensacola (lease expires January 5, 1999), 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; Boone, Carthage,
Fayetteville, Horseshoe, Morehead City, and Wilmington, North
Carolina; Charleston, South Carolina; Memphis, Tennessee; and
Houston, Texas.
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 Georgia Environmental Protection Division ("GEPD") has
issued a request for submittal of a Compliance Status Report
("CSR") for the former Gold Kist chemical blending facility in
Cordele, Georgia. Gold Kist sold this facility in 1985. The
site of this facility has been listed on Georgia's Hazardous
Sites Inventory list under the State's Hazardous Sites
Response Act due to the presence of pesticide residue above
regulatory standards. Completion of the CSR will require
assessment and delineation of the extent of the pesticide
residue conditions, which are present both on and off-site.
Remediation may be required in the future to meet regulatory
clean-up standards. Since the extent of the conditions at the
site have not been defined at this time, Gold Kist is unable
to estimate cost of the compliance to be required of Gold Kist
for this location. Management believes that the potential
cost of compliance for Gold Kist would not have a material
effect on Gold Kist's financial condition or results or
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 18,000 employees during the
course of a year. Gold Kist's processing facilities operate
year round without significant seasonal fluctuations in
manpower requirements. Gold Kist has approximately 3,200
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.
The Association is a party to various legal and
administrative proceedings, all of which management believes
constitute ordinary routine litigation incident to the
business conducted by the Association, or are not material in
amount.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security
holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
There is no market for Gold Kist equity.
Item 6. Selected Financial Data.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below
under the captions "Consolidated Statement of Operations Data"
for each of the years in the five-year period ended June 27, 1998
and "Consolidated Balance Sheet Data" as of June 25, 1994, July
1, 1995, June 29, 1996, June 28, 1997 and June 27, 1998 are
derived from the consolidated financial statements of Gold Kist
Inc. and subsidiaries. The consolidated financial statements as
of June 28, 1997 and June 27, 1998 and for each of the years in
the three-year period ended June 27, 1998, 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.
For Fiscal Years Ended (000's omitted)
June 25, July 1, June 29, June 28, June 27,
Consolidated Statement of 1994 1995 1996 1997 1998
Operations Data:
Net sales volume $1,183,729 1,255,087 1,420,281 1,658,191 1,651,115
Margins (loss) from continuing
operations before cumulative
effect of accounting change $ 32,725 9,875 33,706 10,870 (57,036)
Cumulative effect of change in
accounting for income taxes
(A) $ 5,339 - - - -
Margins (loss) from continuing
operations $ 38,064 9,875 33,706 10,870 (57,036)
As of (000's omitted)
June 25, July 1, June 29, June 28, June 27,
Consolidated Balance Sheet 1994 1995 1996 1997 1998
Data:
Total assets $ 678,922 768,415 914,161 1,051,813 1,080,655
Long-term liabilities $ 144,992 176,259 224,183 301,190 376,553
Patrons' and other equity (B) $ 296,662 314,990 326,410 346,075 234,006
NOTE:
A.Effective June 27, 1993, Gold Kist adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), _Accounting for Income Taxes_
and reported the cumulative effect of that change in the method of accounting for
income taxes in the 1994 consolidated statement of operations. SFAS 109 requires
an asset and liability approach in accounting for income taxes and, therefore,
required a change from the deferred method Gold Kist previously used. 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. Under SFAS 109, 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.
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 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 worldwide
supply and demand. Additionally, demand for poultry and costs of
other agricultural products utilized by Gold Kist are often
influenced by supplies and prices of alternative products.
As with other perishable commodity businesses, the integrated
poultry industry has demonstrated varying levels of
profitability, 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 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. Although
market prices for broiler products strengthened in the fourth
quarter of 1998, average market prices for 1998 were
approximately 4.0% lower than in 1997. According to USDA
estimates, the supply of broilers is expected to increase at a
2.0% rate in 1998 and a 5.0% rate in 1999 as compared to the 5.3%
average annual increase between 1994 and 1997.
Generally, feed grain costs represent approximately fifty
percent of total broiler production costs. In 1994, feed
ingredient prices, primarily corn and soybean meal, 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.
Average cash market prices for corn and soybean meal declined 18%
and 20%, respectively, during 1998 as a result of the favorable
1997 harvest and reduced exports of agricultural commodities.
Historically, weather has had a significant impact on the
agricultural economy and the operating results of the
Association. 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. In
addition, favorable spring weather conditions contributed to
increased planting activity in 1994. The weather reduced 1995
grain harvest in the Midwestern U.S. boosted farm commodity
prices. Favorable weather conditions during the summer of 1996
contributed to plentiful grain harvests in the United States.
Favorable growing conditions in the summer of 1997 contributed to
a slight increase in the 1997 grain harvest as compared to 1996.
Favorable growing conditions in the summer of 1998 are expected
to contribute to the second largest grain harvest on record in
the United States.
Poultry export sales for 1996, 1997 and 1998 were $89.3
million, $81.7 million and $61.6 million, respectively. During
1997 and 1998, export sales declined as a result of lower market
prices for poultry and the economic problems in Southeast Asia
and Russia. 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.
In May 1998, the Association's Board of Directors adopted a
plan to discontinue operations of the Agri-Services segment.
Accordingly, the operating results of the Agri-Services segment,
including provisions for losses during the phase out period, have
been segregated from continuing operations and reported
separately in the Statements of Operations. See Notes 1 and 10
of Notes to Consolidated Financial Statements. The Association's
continuing operations include the Association's poultry and pork
operations. The discussion and analysis of results of operations
that follows relates solely to the continuing operations of the
Association for each of the years in the three-year period ended
June 27, 1998.
Results of Operations
Fiscal 1997 Compared to Fiscal 1996
For 1997, net sales volume of $1.7 billion represented a 16.8%
increase as compared to 1996. Margins from continuing operations
were $10.9 million for 1997 as compared to $33.7 million for
1996. The decline in margins from continuing operations was
primarily the result of an increase in poultry and pork feed
ingredient costs. The increase in net sales volume for 1997 was
due to a 11.5% increase in pounds of poultry sold and a 6.0%
increase in average selling prices. 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.
Cost of sales for 1997 increased $288.5 million or 22.2% as
compared to 1996 as a result of the Association's poultry
expansion program and significant increases in feed ingredient
costs. The Association's feed ingredient costs for 1997
increased 28.0% as compared to the prior fiscal year. 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. As a percentage of net sales volume, cost
of sales were 95.7% of net sales volume for 1997 as compared to
91.4% for 1996.
Distribution, administrative and general expenses for 1997
were $64.9 million, which represented a .85% decline as compared
to 1996. The decrease in 1997 was due to lower incentive
compensation costs. As a percentage of net sales volume,
distribution, administration and general expenses were 3.9% of
net sale volume for 1997 as compared to 4.6% for 1996.
The various components included in other income (deductions)
represented an income of $1.4 million for 1997 as compared to a
deduction of $354,000 for 1996. Interest income of $4.8 million
for 1997 increased $1.9 million primarily as a result of interest
income related to a favorable tax litigation decision. Interest
expense for 1997 was $10.7 million as compared to $6.5 million in
1996. The increase was due to an 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
includes a $992,000 loss representing the Association's equity in
the loss of a pecan processing and marketing enterprise. In
1996, the Association recognized earnings of $1.0 million related
to this investment. Net rental income of approximately $1.9
million and $1.6 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 for continuing operations were (48)%
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.
Fiscal 1998 Compared to Fiscal 1997
The Association's net sales volume was $1.7 billion for 1998
and 1997. The loss from continuing operations for 1998 was $57.0
million as compared to margins from continuing operations of
$10.9 million for 1997. The loss from continuing operations for
1998 was the result of lower market prices for poultry and live
hogs and higher feed ingredient costs. Net sales volume for 1998
reflected lower broiler market prices, which were partially
offset by a 3.0% increase in broiler pounds sold. Average
selling prices for poultry products for 1998 declined 3.0% as
compared to 1997 as a result of excess industry supply, an
increase in pork and beef supplies and instability in export
markets. Poultry sales to Russia were affected by disruptions in
the market related to tariffs and custom regulations resulting in
lower than expected net margins. Poultry sales to the Southeast
Asia markets were affected by the financial crisis in that
region. Pork net sales volume for 1998 declined 39% as compared
to 1997 due to head reduction and lower market prices for live
hogs.
Cost of sales for 1998 increased $76.3 million or 4.8% as
compared to 1997 primarily due to higher field production and
processing costs. Although corn and soybean meal cash market
prices declined significantly in 1998, the Association's feed
ingredient costs for 1998 were comparable to 1997 as a result of
the Association's forward purchasing and commodity trading
activities. Feed ingredient costs reflected losses realized on
commodities futures and options transactions of $85.2 million for
1998. As a percent of net sales volume, cost of sales was 100.7%
of net sales volume for 1998 as compared to 95.7% in 1997.
Distribution, administrative and general expenses of $66.7
million for 1998 increased 2.8% as compared to 1997. As a
percent of net sales volume, distribution, administrative and
general expenses were 4.0% of net sales volume for 1998 as
compared to 3.9% for 1997.
The components included in other income (deductions) represent
a $14.2 million deduction for 1998 as compared to income of $1.4
million for 1997. Interest income of $2.0 million for 1998
declined $2.8 million as compared to 1997. Interest income for
1997 reflected interest income related to a favorable tax
litigation decision. Interest expense for 1998 was $26.9 million
as compared to $10.7 million for 1997, which reflected the
increase in borrowings to support higher asset levels, the
acquisition of minority interest in Golden Poultry and the 1998
operating losses. Also, interest expense for 1998 reflected an
increase in borrowing costs related to the decline in the
Association's financial condition. Equity in the earnings of the
partnership represents the Association's 33 1/3% pro rata share
of the Golden Peanut Company's 1998 earnings. See Note 9(b) of
Notes to Consolidated Financial Statements. Miscellaneous, net
for 1998 includes a $192,000 loss representing the Association's
equity in the loss of a pecan processing and marketing
enterprise. The Association recorded a $992,000 loss on this
investment in 1997. Net rental income of $2.1 million and $1.9
million, respectively, was included in miscellaneous, net for
1998 and 1997. Miscellaneous, net for 1998 includes $2.0 million
of income related to a poultry grower agreement. Miscellaneous,
net for 1997 reflects a $1.2 million loss on the purchase of
subsidiary common stock.
In 1998 and 1997, the Association's combined federal and state
effective income tax rates for continuing operations were (38)%
and (48)%, respectively. The effective tax rate for 1997
reflects a $5.2 million income tax benefit resulting from 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, a secured committed
credit facility with a commercial bank and proceeds from the
continuous offering of Subordinated Certificates. At June 27,
1998, the Company had a $440 million secured committed credit
facility with eight commercial banks. The facility included a
three-year $132 million revolving credit commitment, a $132
million 364-day line of credit commitment and a $176 million
three-year term loan. As of June 27, 1998, borrowings of $21.5
million, $132.0 million and $176.0 million, respectively, were
outstanding under the revolving credit, 364-day line-of-credit
and term loan commitments.
In August 1998, the Association replaced the $440 million
facility with a $500 million credit agreement with a commercial
bank that includes a secured $125 million 364-day line of credit
commitment, a secured $125 million three-year revolving credit
facility and a $250 million three-year unsecured bridge facility.
Upon the consummation of the anticipated sale of certain assets
of the Agri-Services segment, the loan agreement provides that
proceeds be applied to the $250 million bridge loan. See Notes 1
and 10 of Notes to Consolidated Financial Statements.
Alternatively, the Association may convert the bridge facility to
a three-year term loan secured with substantially all of the
Association's assets. In 1998, the Association obtained a $50
million term loan from an agricultural credit bank and a $69.9
million rolling four-month equity swap arrangement with a
commercial bank. At June 27, 1998, the Association had unused
loan commitments of $110.5 million and additional letters of
credit from banks aggregating $12.5 million. The primary sources
of external long-term financing are proceeds from the continuous
offering of Subordinated Capital Certificates of Interest and a
revolving credit facility. 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 and the ratio of total funded debt to total
capitalization not to exceed 65%. At June 27, 1998, the
Association's current ratio and ratio of total funded debt to
capitalization, determined under the loan agreements, were 1.32:1
and 64%, respectively. The terms of the $500 million credit
facility requires specific quarterly fixed charge coverage ratios
during fiscal 1999 and a fixed charge ratio for fiscal 1999 of
150%. In addition, the terms place a limitation on capital
expenditures, equity distribution, cash patronage refunds and
commodity hedging contracts that include cash forward purchases,
as well as futures and options contracts. At June 27, 1998, the
Association was in compliance with the agreements. See Note 4 of
Notes to Consolidated Financial Statements.
During 1996, the uses of cash in continuing operations
included capital expenditures of $56.7 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. During 1996, net cash used in
operating and investing activities of discontinued operations
totaled $66.5 million. The funds for these activities were
provided by borrowings of $131.5 million.
In 1997, the uses of cash in the Association's continuing
operations included $67.5 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 expansion in poultry 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. During 1997, net cash used in
operating and investing activities of discontinued operations
totaled $26.8 million. The funds for these activities were
provided by borrowings of $182.8 million.
During 1998, the primary uses of cash in continuing operations
included $54.4 million in capital expenditures and $53.1 million
for the acquisition of the remaining 3.7 million shares of Golden
Poultry Company, Inc. common stock that the Association did not
already own. See Note 11 of Notes to Consolidated Financial
Statements. During 1998, net cash used in operating and
investing activities of discontinued operations totaled $58.8
million. The funds for these activities were provided by
borrowings of $173.0 million. Borrowings and repayments of long-
term debt during 1998 reflected the replacement of Golden Poultry
Company, Inc.'s debt subsequent to the merger and the replacement
of the Association's $250 million unsecured committed credit
facility with the $440 million secured committed credit facility.
The Association plans capital expenditures of approximately
$45 million in 1999 that primarily include expenditures for
expansion and technological advances in poultry production and
processing. In addition, planned capital expenditures include
other asset improvements and necessary replacements. Management
intends to finance planned 1999 capital expenditures and related
working capital needs with existing cash balances and net margins
adjusted for non-cash items and additional long-term borrowings,
as needed. In 1999, management expects cash expenditures to
approximate $4.0 million for equity distributions. In connection
with the sale of assets of the Agri-Services segment to Southern
States Cooperative, Incorporated and the plan to discontinue
operations of the Agri-Services segment during fiscal 1999, Gold
Kist will discontinue the sale of Subordinated Certificates. The
Association believes cash on hand and cash equivalents at June
27, 1998 and cash expected to be provided from operations, in
addition to borrowings available under existing credit
arrangements, will be sufficient to maintain cash flows adequate
for the Association's projected growth and operational objectives
during 1999 and to fund the repayment of outstanding Subordinated
Certificates as they mature. Approximately, $36.9 million of
Subordinated Certificates and accrued interest will mature during
the last three quarters of fiscal 1999.
Year 2000 Disclosure Statement
The year 2000 problem is the result of computer programs
written using two digits (rather than four) to define the
applicable year. Any of the Association's programs that have
time-sensitive software may recognize a date using _00_ as the
year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
The Association has completed its identification of
information technology systems that are not year 2000 compliant
and is in the process of implementing a comprehensive initiative
to make its information technology systems (_IT_ systems) and its
non-information technology systems (_non-IT_ systems), including
embedded microprocessors in equipment, refrigeration systems,
feed mills, and environmental controls, year 2000 compliant. The
initiative covers the following three phases: (1) identification
of all IT and non-IT systems and an assessment of repair
requirements, (2) repair of the identified IT and non-IT systems,
and (3) testing of the IT and non-IT systems repaired to
determine correct manipulation of dates and date-related data.
As of July 1, 1998, the Association has completed phase (1) of
its initiative and has begun phase (2). The Association is
scheduled to complete phase (2) by the end of the second quarter
of fiscal 1999 at which time it will commence its final testing
phase. The Association expects the final testing phase to be
complete by third quarter. The Association believes that it has
allocated sufficient resources to resolve all significant year
2000 issues in the above time frame.
As part of its year 2000 initiative, the Association is also
contacting key suppliers and business partners to evaluate their
year 2000 compliance plans and state of readiness and determine
whether a year 2000 problem will impede the ability of such
suppliers and business partners to provide goods and services as
the year 2000 is approached and reached. The Association has
received responses from a majority of its key trading partners
and is currently assessing their state of compliance. As a
general matter, the Association is vulnerable to key suppliers'
inability to remedy their own year 2000 issues and there can be
no assurance that all date-handling problems in the IT systems of
those suppliers will be identified in advance of their
occurrence.
The Association estimates that its cost of repairing the IT
systems and non-IT systems will range from $500,000 to $700,000.
To date, the Association has yet to fully assess any additional
costs that may be incurred to complete the testing phase of the
year 2000 initiative and resolve any problems identified during
that phase. The Association believes such costs will not have a
material effect on liquidity or its financial condition or
results of operations.
To date, the Association has not identified any IT or non-IT
system that presents a material risk of not being year 2000 ready
or for which a suitable alternative cannot be implemented.
However, as the initiative moves into the testing phase, it is
possible that the Association may identify potential risks of
year 2000 disruption. It is also possible that such a disruption
could have a material adverse effect on the financial condition
and results of operations. In addition, if any third parties who
provide goods or services that are critical to the Association's
business activities fail to appropriately address their year 2000
issues, there could be a material adverse effect on the
Association's financial condition and results of operations.
Because the Association has not begun the testing phase of its
initiative, and, accordingly, has not fully assessed its risks
from potential year 2000 failures, the Association has not yet
fully developed year 2000 specific contingency plans. These
plans will be developed as appropriate, if the results of testing
identify a material business function that is substantially at
risk.
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 affect of competitive
products and pricing, seasonal revenues, a delay in closing the
sale of assets of the Agri-Services segment, 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 and feed grains. The prices of these commodities
are affected by world market conditions and are volatile in
response to supply and demand, as well as political and economic
events. The price fluctuations of these commodities do not
necessarily correlate with the general inflation rate. Inflation
has, however, affected operating costs such as labor, energy and
material costs.
Future Accounting Requirements
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related
Information." These new standards become effective for fiscal
years beginning after December 15, 1997. The Association will
begin reporting comprehensive income in compliance with SFAS No.
130 beginning with the quarter ending September 26, 1998, while
reporting under SFAS No. 131 initially will be presented in the
consolidated financial statements for fiscal 1999. While the
Association is evaluating the criteria of SFAS No. 131 as they
apply to its operations, the Association does not anticipate
significant changes to its reportable segments. Both of the
statements require additional reporting and expanded disclosures,
but will have no effect on the Association's results of
operations, financial position, capital resources or liquidity.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosure about Pension and Other Postretirement Benefits" that
revised disclosure requirements for pension and other
postretirement benefits. It does not affect the measurement of
the expense of the Association's pension and other postretirement
benefits. The disclosure requirements of the standard will be
reflected in the Association's 1999 consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities." The Statement requires the recognition of
all derivatives on the balance sheet at fair value. The
Company's derivatives, which include agricultural related futures
and options, are specifically designated as hedges. Changes in
the fair value of these derivatives will either be offset against
the change in fair value of the corresponding hedged assets,
liabilities, or firm commitments through earnings or reflected as
other comprehensive income until the hedged item is recognized in
earnings. The disclosure requirements of the Standard will be
reflected in the Association's 2000 consolidated financial
statements. If the Association were to adopt the new Statement
as of July 1, 1998, the effect of adoption would be immaterial to
the financial statements.
Item 7A. Quantitative And Qualitative Disclosure About Market
Risks.
Market Risk
The principal market risks affecting the Association are
exposure to changes in commodity prices and interest rates on
borrowings. Although the Company has international net sales
volume and related accounts receivable for foreign customers, it
considers the foreign currency exchange risk in such activities
to be immaterial.
Interest Rate Risk
The Association uses interest rate swaps to hedge interest
rate changes on a portion of its borrowings. At June 27, 1998,
the Association had $150 million notional value of interest rate
swaps outstanding. The swaps effectively change the average
interest rates on $150 million of long-term debt to a 5.97% fixed
rate from LIBOR. See Note 4 of Notes to Consolidated Financial
Statements. Assuming year-end fiscal 1998 variable rates and
borrowings at June 27, 1998, a one-hundred-basis-point change in
interest rates would impact the Association's net interest
expense by approximately $2.6 million, net of the effect of the
swaps.
Commodities Risk
The Association is a purchaser of certain agricultural
commodities used for the manufacture of poultry feeds. The
Association uses commodity futures and options for hedging
purposes to reduce the effect of changing commodity prices on a
portion of its commodity inventories and related purchase and
sale contracts. Feed ingredients futures contracts, primarily
corn and soybean meal, are recognized when closed and option
contracts are accounted for at market. Gains and losses on the
transactions are recorded as a component of product cost. Terms
of the Association's committed secured credit facility limit the
use of cash forward contracts and commodities futures and options
to hedge no more than thirteen weeks of the Association's soybean
meal and corn requirements. At June 27, 1998, the fair value of
the Association's outstanding commodity futures and options
positions was not material.
Item 8. Financial Statements and Supplementary Data.
INDEX
Page
GOLD KIST INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Reports.......................... 21
Consolidated Balance Sheets as of June 28, 1997 and
June 27, 1998 ........................................ 23
Consolidated Statements of Operations for the years
ended June 29, 1996, June 28, 1997 and June 27, 1998 . 24
Consolidated Statements of Patrons' and Other Equity
for the years ended June 29, 1996, June 28, 1997
and June 27, 1998 .................................... 25
Consolidated Statements of Cash Flows for the years
ended June 29, 1996, June 28, 1997
and June 27, 1998 .................................... 26
Notes to Consolidated Financial Statements............. 27
FINANCIAL STATEMENT SCHEDULES
(Included in Part IV of this Report):
Valuation Reserves for the years ended June 29, 1996,
June 28, 1997 and June 27, 1998 ...................... 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 28, 1997 and June
27, 1998, 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 27, 1998 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 28, 1997
and June 27, 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended
June 27, 1998, 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.
KPMG Peat Marwick LLP
Atlanta, Georgia
September 10, 1998
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, 1997 and 1998, and the related consolidated statements of
operations, partners' equity, and cash flows for each of the
three years in the period ended June 30, 1998 (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, 1997 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
August 28, 1998
GOLD KIST INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
June 28, 1997 June 27, 1998
ASSETS
Current assets:
Cash and cash equivalents.............. $ 17,921 11,789
Receivables, principally trade, less
allowance for doubtful accounts of
$1,426 in 1997 and $3,113 in 1998 .... 101,419 107,957
Inventories (note 2)................... 179,489 174,204
Commodities margin deposits............ 53,348 -
Deferred income taxes (note 6)......... 13,541 45,431
Other current assets................... 7,862 32,673
Net assets of discontinued operations
(note 10) ............................ 261,445 247,621
Total current assets ................. 635,025 619,675
Investments (note 9).................... 132,373 125,623
Property, plant and equipment, net
(note 3) ............................. 239,242 255,791
Other assets............................ 45,173 79,566
$1,051,813 1,080,655
LIABILITIES AND EQUITY
Current liabilities:
Notes payable and current maturities of
long-term debt (note 4):
Short-term borrowings ................ $ 178,900 201,939
Subordinated loan certificates ....... 36,466 35,005
Current maturities of long-term debt . 14,956 93,248
230,322 330,192
Accounts payable....................... 92,635 85,188
Accrued compensation and related
expenses ............................. 28,545 32,466
Interest left on deposit (note 4)...... 11,396 11,451
Other current liabilities.............. 13,192 10,799
Total current liabilities ............ 376,090 470,096
Long-term debt, excluding current
maturities (note 4).................... 247,176 320,600
Accrued postretirement benefit costs
(note 7(b))............................ 43,683 48,678
Other liabilities....................... 10,331 7,275
Total liabilities .................... 677,280 846,649
Minority interest (note 11)............. 28,458 -
Patrons' and other equity (note 5):
Common stock, $1.00 par value -
Authorized 500 shares; issued and
outstanding 32 in 1997 and 33 in 1998 32 33
Patronage reserves..................... 203,988 198,517
Unrealized gain on marketable equity
security (note 9(a)) ................. 32,749 27,099
Retained earnings...................... 109,306 8,357
Total patrons' and other equity ...... 346,075 234,006
Commitments and contingent liabilities
(notes 4, 7, 8 and 9(b))
$1,051,813 1,080,655
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Years Ended
June 29, 1996 June 28, 1997 June 27, 1998
Net sales volume..................... $1,420,281 1,658,191 1,651,115
Cost of sales........................ 1,297,602 1,586,110 1,662,376
Gross margins (loss) .............. 122,679 72,081 (11,261)
Distribution, administrative and
general expenses ................... 65,440 64,885 66,695
Net operating margins (loss) ..... 57,239 7,196 (77,956)
Other income (deductions):
Interest income ................... 2,930 4,804 1,955
Interest expense .................. (6,477) (10,666) (26,910)
Equity in earnings (loss) of
partnership (note 9(b)) ........ (1,181) 5,807 4,369
Miscellaneous, net (note 9(a)) .... 4,374 1,464 6,383
Total other income
(deductions) ................. (354) 1,409 (14,203)
Margins (loss) from continuing
operations before income taxes
and minority interest .......... 56,885 8,605 (92,159)
Income tax expense (benefit)-(note 6) 18,848 (4,108) (35,123)
Margins (loss) from continuing
operations before minority
interest ....................... 38,037 12,713 (57,036)
Minority interest.................... (4,331) (1,843) -
Margins (loss) from continuing
operations ..................... 33,706 10,870 (57,036)
Discontinued operations (notes 6 and 10):
Margins (loss) from operations of
discontinued ....Agri-Services
segment (less applicable income
taxes of $1.9 million for 1996,
$.7 million for 1997 and $(8.6)
million for 1998) .............. 3,326 1,020 (15,130)
Loss on disposal of Agri-Services
segment including provision
of $20.4 million for operating
losses during phase out period
(less applicable income taxes of
$(16.5) million). .............. - - (30,622)
Net margins (loss) ................ $ 37,032 11,890 (102,788)
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF PATRONS' AND OTHER EQUITY
For the Years Ended June 29, 1996, June 28, 1997 and June 27, 1998
(Amounts in Thousands)
Unrealized
gain (loss) on
marketable
Common Patronage equity Retained
Total stock reserves security earnings
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, net of tax
(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, net of tax
(note 9(a)) ....... ........ 11,771 - - 11,771 -
June 28, 1997......... ........ 346,075 32 203,988 32,749 109,306
Net loss for 1998 .. ........ (102,788) - - - (102,788)
Redemptions and other
changes ........... ........ (3,631) 1 (5,471) - 1,839
Change in value of
marketable equity security,
net of tax (note 9(a)) (5,650) - - (5,650) -
June 27, 1998......... ........$ 234,006 33 198,517 27,099 8,357
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended
June 29, 1996 June 28, 1997 June 27, 1998
Cash flows from operating activities:
Margins (loss) from continuing
operations....................... $ 33,706 10,870 (57,036)
Non-cash items included in margins
(loss) from continuing operations:
Depreciation and amortization.... 33,719 32,801 37,547
Equity in (earnings) loss of
partnership.................... 1,181 (5,807) (4,369)
Deferred income tax benefit...... (2,095) (1,718) (14,486)
Other............................ 3,697 2,265 8,549
Changes in operating assets and
liabilities:......................
Receivables...................... (8,387) (5,278) (8,225)
Inventories...................... (32,985) (6,853) 5,285
Commodities margin deposits...... (18,590) (31,951) 53,348
Other current assets............. 585 (10,619) (24,809)
Accounts payable and accrued
expenses....................... 16,540 11,513 (5,919)
Interest left on deposit......... 1,626 (723) 56
Net cash provided by (used in)
operating activities of
continuing operations............. 28,997 (5,500) (10,059)
Net cash used in operating
activities of discontinued
operations........................ (49,013) (17,400) (52,400)
Net cash used in operating activities (20,016) (22,900) (62,459)
Cash flows from investing activities:
Acquisitions of property, plant and
equipment....................... (56,727) (67,547) (54,360)
Acquisition of subsidiary minority
interest (note 11).............. - - (53,104)
Other............................. 8,302 (405) 513
Net cash used in investing
activities of continuing
operations........................ (48,425) (67,952) (106,951)
Net cash used in investing
activities of discontinued
operations - acquisitions of
property, plant and equipment..... (17,535) (9,375) (6,385)
Net cash used in investing activities (65,960) (77,327) (113,336)
Cash flows from financing activities:
Short-term borrowings, net........ 45,211 71,992 21,578
Proceeds from long-term debt...... 86,296 110,846 272,116
Principal payments of long-term
debt............................. (28,557) (55,656) (120,400)
Patronage refunds and other equity
paid in cash..................... (13,009) (29,596) (3,631)
Net cash provided by financing
activities........................ 89,941 97,586 169,663
Net change in cash and cash
equivalents....................... 3,965 (2,641) (6,132)
Cash and cash equivalents at
beginning of year................. 16,597 20,562 17,921
Cash and cash equivalents at end of
year.............................. $ 20,562 17,921 11,789
Supplemental disclosure of cash
flow data:
Cash paid during the years for:
Interest (net of amounts
capitalized)................... $ 18,327 25,761 45,577
Income taxes..................... $ 20,676 11,173 -
See accompanying notes to consolidated financial statements.
GOLD KIST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1996, June 28, 1997 and June 27, 1998
(Dollar Amounts in Thousands)
(1) Summary of Significant Accounting Policies
Gold Kist Inc. is an agricultural membership cooperative
association, headquartered in Atlanta, Georgia. Gold Kist Inc.
has approximately 31,000 farmer members and other cooperative
associations located principally in the southeastern United
States. Gold Kist Inc. operates fully integrated broiler
production, processing and marketing operations, as well as pork
production facilities. These operations provide marketing and
purchasing services to approximately 2,400 breeder, broiler and
pork producers.
Gold Kist Inc. and Southern States Cooperative, Incorporated
("Southern States") have entered into an Asset Purchase Agreement
(the "Agreement"), dated as of July 23, 1998, pursuant to which
Gold Kist Inc. has agreed to sell and assign, and Southern States
has agreed to purchase and assume, the assets and certain of the
liabilities of Gold Kist Inc.'s agricultural inputs business.
The affected assets include substantially all of the assets of
the Agri-Services segment, as well as certain crop notes
receivable of AgraTrade Financing, Inc., a wholly-owned finance
subsidiary (see note 10).
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
"Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
(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
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 ingredients,
hatching eggs, packaging materials and operating supplies.
These inventories are stated, generally, on the basis of
the lower of cost (first-in, first-out or average) or
market. Gold Kist engages in commodity futures and options
transactions to manage the risk of adverse price
fluctuations with regard to its feed ingredient purchases.
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 are
reflected in the 1998 consolidated financial statements as
an adjustment to product cost. At June 27, 1998, there
were no significant unrealized commodity futures positions.
Marketable products consist primarily of dressed and
further processed poultry. These inventories are stated,
principally, on the basis of selling prices, less estimated
brokerage, freight and certain other selling costs where
applicable (estimated net realizable value).
(d) 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. Accordingly, it is not
practical to determine these investments' fair value. The
equity method of accounting is used for investments in
other companies in which Gold Kist's voting interest is 20
to 50 percent. Investments in less than 20 percent owned
companies which are not readily marketable are stated at
cost.
Gold Kist applies the provisions of 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 Company
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. 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 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, interest
left on deposit, notes receivable and debt. Because of the
short maturity of cash equivalents, notes and accounts
receivable and payables and accrued expenses, interest left
on deposit, certain short-term debt which matures in less
than one year, long-term debt with variable interest rates
and interest rate swap agreements, the carrying value
approximates fair value. All financial instruments are
considered to have an estimated fair value which
approximates carrying value at June 28, 1997 and June 27,
1998 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 1996, 1997 and 1998
reflect 52 weeks. Fiscal 1999 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:
1997 1998
Live poultry and hogs...... $101,062 94,005
Marketable products........ 36,331 45,081
Raw materials and supplies. 42,096 35,118
$179,489 174,204
(3) Property, Plant and Equipment
Property, plant and equipment is summarized as follows:
1997 1998
Land and land improvements.$ 28,233 33,412
Buildings.................. 168,863 182,735
Machinery and equipment.... 328,432 369,441
Construction in progress... 28,134 8,569
553,662 594,157
Less accumulated
depreciation............ 314,420 338,366
$239,242 255,791
(4) Notes Payable and Long-Term Debt
Short-term borrowings at June 27, 1998 include $69.9 million
under a rolling four-month secured agreement with a commercial
bank entered into in April 1998. The commercial bank holds
marketable equity securities owned by Gold Kist as collateral
(see note 9(a)). The Company is required to maintain funds with
the bank to account for volatility in the market price of the
securities held as collateral. Interest on the borrowings are at
one-month LIBOR plus .75% per annum. The Company earns interest
on the collateral funds at rates that approximate the federal
funds rate.
In February 1997, an insurance company purchased $30 million
of 7.6% Series A Senior Notes and $25 million of 7.94% Series B
Senior Notes. As a result of changes in the Company's financial
structure, the interest rates on the senior promissory notes, as
well as the previously issued $20.0 million 9.35% interest note,
will be adjusted quarterly in accordance with the Company's
overall financial condition. Effective August 1, 1998, interest
rates on the 9.35% interest notes, the 7.6% Series A Senior Notes
and the 7.94% Series B Senior Notes will be 11.1%, 9.35% and
9.69%, respectively.
At June 27, 1998, the Company had a $440 million secured
committed credit facility with eight commercial banks. The
facility included a three-year $132 million revolving credit
commitment, a $132 million 364-day line of credit commitment and
a $176 million three-year term loan. As of June 27, 1998,
borrowings of $21.5 million, $132.0 million and $176.0 million,
respectively, were outstanding under the revolving credit, 364-
day line-of-credit and term loan commitments.
In August 1998, the Company refinanced its $440 million
secured committed credit facility with a $500 million credit
agreement with a commercial bank. The new credit facility
includes a secured $125 million 364-day line of credit
commitment, a secured $125 million three-year revolving credit
facility and a $250 million three-year unsecured bridge facility.
The 364-day line of credit and three-year revolving credit
facility are secured by all inventory and receivables of the
Company. Upon the consummation of the Agreement with Southern
States, the loan provisions require that proceeds be applied
to the $250 million bridge facility (see note 1).
Alternatively, the
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Company may convert the bridge facility to a three-year term loan
secured with substantially all of the Company's assets. The
credit agreement contains provisions that require accelerated
payments in accordance with certain terms and conditions,
including the sale of facilities and excess cash flow as defined.
The 364-day line of credit provides short-term financing that
will expire in August 3, 1999 and may be extended with the
consent of the bank. The 364-day line of credit is subject to a
.30% per annum facility fee. The three-year revolving credit
agreement expires on August 3, 2001, but may be extended for a
one-year period with the consent of the bank. The revolving
credit facility fee will be computed quarterly based on the
Association's ratio of funded debt to total capital and will not
exceed .35% per annum. The term loan commitment matures on August
3, 2001. Borrowings under the $500 million facility will bear
variable interest rates below prime.
Subordinated loan certificates of $36.5 million at June 28,
1997 bore interest at rates of 5.75% to 6.4% with terms of one
year and were unsecured. At June 27, 1998, subordinated loan
certificates outstanding were $35.0 million bearing interest at
rates of 6.3% and 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:
1997 1998
Senior notes payable:
9.90% interest notes, due in semi-annual installments
of $1,539 with interest payable semiannually ..............$ 6,152 3,077
9.35% interest note, due in a single installment in
June 2001 with interest payable quarterly ................. 20,000 20,000
7.60% series A senior notes, due in annual installments
of $2,727 beginning in February 2002 with interest
payable quarterly ......................................... 30,000 30,000
7.94% series B senior notes, due in annual installments
of $2,272 beginning in May 2002 with interest payable
quarterly ................................................. 25,000 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 7.7%
at June 28, 1997 and 7.6% at June 27, 1998) ............... 63,714 73,407
Term loan agreement with commercial banks (interest
rate of 8.2% at June 27, 1998) ............................ - 176,000
Term loan agreement with agricultural credit bank,
due in semi-annual installments of $1,785 beginning
in June 1999 with interest payable quarterly (weighted
average interest rate of 8.7% at June 27, 1998) ........... - 50,000
Revolving credit agreements with commercial banks
(weighted average rate of 6.0% at June 28, 1997 and
8.1% at June 27, 1998) .................................... 101,350 21,500
Tax exempt industrial revenue bonds with varying interest
rates, due in quarterly and annual installments
through 2016, secured by property, plant and equipment .... 11,350 10,900
Pro rata share of mortgage loan, at 8.47% interest, due
in monthly installments to June 30, 2004, secured by a
building ................................................. 2,100 1,873
Other....................................................... 2,466 2,091
262,132 413,848
Less current maturities ...................................... 14,956 93,248
$247,176 320,600
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
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 senior notes payable at June 28, 1997 was approximately
$83.1 million.
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 pays
interest at a fixed rate of 6.48% and receives interest at the
three-month London Interbank Offered Rate (LIBOR). Under the
ten year interest rate swap, the Company paid interest at the
three-month LIBOR and received interest at a fixed rate of
7.44%. In June 1998, the commercial bank exercised its option
to terminate the ten-year interest rate swap. In September
1997, Gold Kist entered into a notional amount five-year $25
million interest rate swap agreement with a commercial bank.
Under the agreement, the Company pays interest at a fixed rate
of 5.90% and receives interest at the three-month LIBOR. In
September 1999, the commercial bank has an option to convert the
fixed rate payment to LIBOR less .23%. In October 1997, Gold
Kist entered into three notional amount five-year $25 million
interest rate swap agreements with two commercial banks. Under
the agreements, the Company pays interest at a weighted average
fixed rate of 5.98% and receives interest at the three-month
LIBOR. In October 2000, one of the commercial banks has the
option to cancel two of the $25 million interest rate swap
agreements. In January 1998, the Company entered into a five-
year $25 million interest rate swap agreement with a commercial
bank. Under the agreement, the Company pays interest at a
fixed rate of 5.51% and receives interest at the three-month
LIBOR. In January 2001, the bank has an option to convert the
fixed rate payment to LIBOR less .10%.
The terms of debt agreements specify minimum working capital,
consolidated tangible net worth, current ratio and fixed charge
coverage ratio requirements, as well as a limitation on the
funded debt to total capital ratio. The debt agreements place a
limitation on capital expenditures, equity distributions, cash
patronage refunds, commodity hedging contracts and additional
loans, advances or investments.
Annual required principal repayments on long-term debt for
the five years subsequent to June 27, 1998 are as follows:
Year:
1999 ........................................ $ 93,248
2000 ........................................ 27,230
2001 ........................................ 123,389
2002 ........................................ 43,554
2003 ........................................ 16,913
(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. Retained earnings at June 27, 1998
reflected the net loss for 1998. Also included are amounts
related to the early redemption of notified equity, representing
the difference between the face value and the redemption amounts.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(6) Income Taxes
Total income tax expense (benefit) was allocated as follows:
1996 1997 1998
>
Margins (loss) from continuing operations ....... $18,848 (4,108) (35,123)
Discontinued operations ......................... 1,909 662 (8,571)
Loss on disposal of Agri-Services segment,
including operating losses during phase out
period......................................... - - (16,489)
Patrons' and other equity - unrealized gain on
marketable equity security..................... 1,530 4,518 (3,043)
$22,287 1,072 (63,226)
The provisions for income tax expense (benefit), principally
Federal, related to margins (loss) from continuing operations
consist of the following:
1996 1997 1998
Current expense (benefit) ............. $20,943 (2,391) (20,637)
Deferred benefit ...................... (2,095) (1,717) (14,486)
$ 18,848 (4,108) (35,123)
Gold Kist's combined federal and state effective tax rate
from operations for 1996, 1997 and 1998 was 33%, (48)% and (38)%,
respectively. A reconciliation of income tax expense (benefit)
from continuing operations computed by applying the Federal
corporate income tax rate of 35% in 1996, 1997 and 1998 to
margins from continuing before income taxes and minority interest
for the applicable year follows:
1996 1997 1998
Computed expected income tax expense (benefit) . $19,910 3,012 (32,256)
Increase (decrease) in income tax expense
resulting from:
Income tax litigation......................... - (5,207) -
Cash portion of nonqualified patronage refund. (986) - -
Effect of state income taxes, net of Federal
benefit ..................................... 970 (531) (2,199)
Nonqualified equity redemptions............... (886) (831) (1,203)
Target jobs credits........................... (11) (344) (80)
Other, net.................................... (149) (207) 615
$18,848 (4,108) (35,123)
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 28,
1997 and June 27, 1998 are as follows:
1997 1998
Deferred tax assets:
Postretirement benefits.................... $ 16,920 18,826
Insurance accruals......................... 7,487 7,440
Federal net operating loss carryforward.... - 12,286
Bad debt reserves.......................... 895 1,531
State tax operating loss carryforwards..... 1,850 3,950
Other...................................... 1,164 2,100
Discontinued operations.................... 2,547 21,188
Total gross deferred tax assets .......... 30,863 67,321
Less valuation allowance................... (1,078) (1,136)
Total net deferred tax assets ............ 29,785 66,185
Deferred tax liabilities:
Unrealized gain on marketable equity security (17,634) 14,592)
Accelerated depreciation................... 350 (2,831)
Deferred compensation...................... (3,604) (3,622)
Total deferred tax liabilities ........... (20,888) (21,045)
Net deferred tax assets .................. $ 8,897 45,140
The net change in the total valuation allowance for the years
ended 1996, 1997 and 1998 was a decrease of $578, $328 and an
increase of $58, 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.
At June 27, 1998, Gold Kist has net operating loss
carryforwards for federal income tax purposes of $34.9 million,
which are available to offset future federal taxable income
through 2013.
(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 1996, 1997 and 1998
included the following components:
1996 1997 1998
Service cost - benefits earned during the year $ 4,092 4,226 4,484
Interest cost on projected benefit obligations 7,426 8,006 8,677
Actual return on plan assets ...... (27,724) (19,118) (47,530)
Net amortization and deferral ..... 16,799 7,127 34,564
Net periodic pension expense .... $ 593 241 195
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 28, 1997 and June 27, 1998 and economic assumptions:
1997 1998
Actuarial present value of benefit obligations:
Vested participants.................. $ 90,256 108,620
Nonvested............................ 7,410 10,822
Total accumulated benefit
obligations .................... 97,666 119,442
Projected benefit obligations for
services rendered to date............ $116,670 140,983
Plan assets for benefits:
Plan assets at fair value............ $156,673 198,521
Prepaid pension cost included in
other assets in consolidated balance
sheets ............................ (19,721) (22,740)
Net plan assets ................... $136,952 175,781
Plan assets in excess of projected
benefit obligations................... $ 20,282 34,798
Consisting of:
Unrecognized net asset existing at the
date of adoption $ 7,116 5,970
Unrecognized net gain/(loss) from past
experience different ....from that
assumed and effects of changes in
assumptions....................... 18,889 34,743
Prior service cost not yet recognized
in net periodic pension cost...... (5,723) (5,915)
$ 20,282 34,798
Actuarial assumptions:
Weighted-average discount rate....... 8.25% 7.25%
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 1996,
1997 and 1998 included the following components:
1996 1997 1998
.............................
Service cost - benefits earned
during the year................. $2,029 2,452 2,917
Interest cost ..................... 2,998 3,508 4,290
Net amortization and deferral ..... 80 80 155
Net postretirement health and
death benefit expense........... $5,107 6,040 7,362
Gold Kist's postretirement benefit plans are not funded.
The status of the plans at June 28, 1997 and June 27, 1998
was as follows:
1997 1998
Actuarial present value of
accumulated postretirement
benefit obligation:
Retirees.............................. $21,130 22,799
Fully eligible active plan
participants....................... 11,786 12,974
Other active plan participants........ 20,245 23,839
53,161 59,612
Unrecognized net loss from experience
differences........................ (7,332) (8,677)
$45,829 50,935
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 health care cost
trend rate used to determine the accumulated postretirement
benefit obligation at June 27, 1998 was 6%, 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 8.25% at
June 28, 1997 and 7.25% at June 27, 1998, 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 27, 1998 by
approximately 13% and net postretirement health care cost
by 13%.
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 $11.7 million was outstanding at June
27, 1998. No gain or loss was recognized on the sale of these
loans. A $176 thousand allowance has been recognized in the
accompanying consolidated financial statements for potential
losses that may occur. As of June 27, 1998, 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 27, 1998, the amounts outstanding
under this facility were $64.8 million.
(9) Investments
(a) Marketable Equity Security
At June 27, 1998, the Association's marketable equity
securities were carried at their fair value of $62.4
million, which represents a gross unrealized gain of $41.7
million. The 1998 gross unrealized gain, net of deferred
taxes of $14.6 million, has been reflected as a separate
component of patrons' and other equity. At June 28, 1997,
the Association's marketable equity securities were carried
at their fair value of $71.1 million, which represents a
gross unrealized gain of $50.4 million. The 1997 gross
unrealized gain, net of deferred income taxes of $17.7
million, has been reflected as a separate component of
patrons' and other equity. At June 29, 1996, the
marketable equity securities were carried at their 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.
Dividends of $494 thousand, $595 thousand and $625
thousand are included in miscellaneous, net for the years
ended June 29, 1996, June 28, 1997 and June 27, 1998,
respectively.
(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 $24.1 million and $22.7 million
at June 28, 1997 and June 27, 1998, respectively. In July
1997, Gold Kist made additional investments of $1.2
million. In September 1997, Gold Kist received a $5.8
million distribution from Golden Peanut Company. Golden
Peanut Company has a $450.0 million commercial paper
facility supported by seasonal backup lines of credit with
various banks. At June 27, 1998, borrowings of $124.0
million were outstanding under the commercial paper
facility.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
Summarized financial information of Golden Peanut Company
is shown below:
Condensed Consolidated Balance Sheets
1997 1998
Current assets ...................... $164,450 182,013
Property, plant and equipment, net
and other noncurrent assets ....... 34,775 34,036
Total assets ...................... $199,225 216,049
Current liabilities ................. $120,591 141,031
Accrued postretirement benefit costs 5,703 6,383
Other liabilities ................... 511 530
Partners' equity .................... 72,420 68,105
Total liabilities and partners'
equity........................... $199,225 216,049
Condensed Consolidated Statements of Operations
1996 1997 1998
. ..............................
Net sales and other operating income $428,955 426,122 425,076
Costs and expenses ................. 432,496 408,702 411,971
Net earnings (loss) .............. $(3,541) 17,420 13,105
In 1996, 1997 and 1998, 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
$3.1 million, $4.2 million and $2.5 million in 1996, 1997
and 1998, respectively. In addition, Gold Kist purchased
$2.6 million, $2.3 million and $1.7 million of inventory
from Golden Peanut Company in 1996, 1997 and 1998,
respectively.
(10)Discontinued Operations
The Company's 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, the Agri-Services segment 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. In May 1998, the Gold Kist Board of Directors adopted
a plan to discontinue operations of the Agri-Services segment.
In July 1998, Gold Kist entered into an Asset Purchase
Agreement, pursuant to which the Company has agreed to sell and
assign the assets and certain of the liabilities of the Company's
agricultural inputs businesses (see note 1). In August 1998, the
Company entered into an agreement to sell or assign the cotton
marketing operation's purchases and sales commitments for the
1998 cotton crop.
Accordingly, the operating results of the Agri-Services
segment, including provisions for losses during the phase-out
period, have been segregated from continuing operations and
reported separately in the consolidated statements of operations
and cash flows for 1996, 1997 and 1998. Net sales volume of the
Agri-Services segment was $535.4 million, $636.2 million and
$720.0 million, respectively, in 1996, 1997 and 1998.
The assets and liabilities of such operations at June 27, 1998
have been reflected as a net current asset. The Company
anticipates the sale of substantially all of these operations in
fiscal 1999.
GOLD KIST INC.
Notes to Consolidated Financial Statements, Continued
(Dollar Amounts in Thousands)
(11) Acquisition of Minority Interest
In January 1997, the Gold Kist Board of Directors adopted a
resolution authorizing the Company's officers to negotiate with
Golden Poultry Company, Inc. (_Golden Poultry_) to pursue a
transaction in which Gold Kist would acquire all of the shares of
Golden Poultry'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 fees
and expenses incurred in connection with the merger were
approximately $55.1 million. The acquisition of the minority
interest was accounted for using the purchase method of
accounting. The cost in excess over the net assets acquired was
$24.7 million, which is being amortized over 20 years. The pro
forma effect of goodwill amortization on prior years is not
significant.
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
8/30/98)
W. P. Smith, Jr.* 69 Chairman of the Board & 1998 25
Director (District 1)
Herbert A. Daniel, Jr.46 Director (District 2) 1998 3
Fred K. Norris, Jr.* 70 Director (District 3) 2000 21
James E. Brady, Jr. 63 Director (District 4) 1999 14
W. Kenneth Whitehead 54 Director (District 5) 1999 5
Dan Smalley* 49 Director (District 6) 1999 13
A. Jack Nally 55 Director (District 7) 2000 7
M. Michael Davis 47 Director (District 8) 2000 4
Phil Ogletree, Jr. 65 Director (District 9) 1998 21
* 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 and types of products produced on, and
personnel employed at, each of the Director's farms varies,
each Director's business activities have been related
primarily to small agribusiness enterprises. There are no
family relationships among any of the Directors and executive
officers.
The Executive Officers of Gold Kist are:
Years Years
Served Served
In that with
Name Age Office Office Gold Kist
(as of (as of (as of
8/30/98) 8/30/98) 8/30/98)
G. O. Coan* 62 Chief Executive Officer, 3 39
and Chairman of the
Management Executive
Committee
John Bekkers* 53 President and Chief 3 13
Operating Officer
M. A. Stimpert 54 Senior Vice President, 2 15
Planning and Administration
Kenneth N. Whitmire 60 Group Vice President, 10 37
Poultry Group
J. David Dyson 51 General Counsel, Vice 6 months 18
President and Secretary
Peter J. Gibbons 61 Vice President, Finance 19 22
Paul G. Brower 59 Vice President, 19 19
Communications
Jerry L. Stewart 58 Vice President - 17 35
Marketing, Poultry Group
Donald W. Mabe 44 Vice President - 1 13
Operations, Poultry Group
Marshall Smitherman 56 Vice President - 1 19
Cotton Division
John K. McLaughlin 60 Vice President, Pet Food 14 14
and Animal Products Division
Allen C. Merritt 52 Vice President, Fertilizer 15 26
and Chemical Division
Stanley C. Rogers 52 Vice President, 8 20
AgriServices Division
Michael F. Thrailkill 50 Vice President, 6 25
Information Services
Stephen O. West 52 Treasurer 15 18
W. F. Pohl, Jr. 48 Controller 16 22
*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 27, 1998 $475,000 $0 $2,211 $9,786 (2)
Chief Exec. Officer and June 28, 1997 470,577 50,000 1,869 12,230 (2)
Chairman of the Manage- June 29, 1996 349,058 450,000 1,055 12,030 (2)
ment Executive Committee
John Bekkers June 27, 1998 $347,500 $0 $5,757 $7,186 (2)
President and Chief June 28, 1997 282,423 50,000 3,656 9,842 (2)
Operating Officer June 29, 1996 210,577 295,000 1,110 9,425 (2)
Kenneth N. Whitmire June 27, 1998 $212,692 $0 $8,742 $7,629 (2)
Group Vice President, June 28, 1997 204,434 44,000 6,703 9,956 (2)
Poultry Group June 29, 1996 189,819 240,000 2,375 9,965 (2)
Jerry L. Stewart June 27, 1998 $182,231 $0 $4,767 $7,270 (2)
Vice President June 28, 1997 174,981 29,000 3,434 9,353 (2)
Marketing, Poultry Group June 29, 1996 161,727 164,000 1,889 9,569 (2)
M. A. Stimpert June 27, 1998 $204,615 $0 $5,812 $7,518 (2)
Senior Vice President, June 28, 1997 194,488 24,000 4,497 10,020 (2)
Planning and Admini- June 29, 1996 87,356(3) 75,000(3) 2,280(3) 9,201(2)(3)
stration
_______________________________
(1)The amounts shown for the fiscal years ended June 27, 1998,
and June 28, 1997 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 27, 1998, June 28, 1997, and June 29, 1996, 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 1998,
1997 and 1996 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 - $2,400, $4,750 and $4,500 respectively, Mr. Bekkers -
$2,814, $5,404 and $4,946 respectively; Mr. Whitmire -
$2,425, $4,684 and $4,656 respectively; Mr. Stewart -
$2,422, $4,439 and $4,617 respectively; and Mr. Stimpert -
$2,450, $4,804 and $3,859 respectively. In addition, the
amounts set forth include for fiscal years 1996, 1997 and
1998, 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 - $7,530, $7,480 and
$7,386 respectively; Mr. Bekkers - $4,479, $4,438 and $4,372
respectively; Mr. Whitmire - $5,309, $5,272 and $5,204
respectively; Mr. Stewart - $4,952, $4,914 and $4,848
respectively; and Mr. Stimpert - $5,342, $5,216 and $5,068
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,
1997, the Association made a contribution of $1,412,000 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, 1997. 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, 1997,
under the retirement income plan for the five executive
officers listed in the summary compensation table are as
follows: Mr. Coan (30); Mr. Bekkers (13); Mr. Whitmire (30);
Mr. Stewart (30); and Mr. Stimpert (24).
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 27, 1998: Mr. Coan - $281,440; Mr. Bekkers - $142,257;
Mr. Whitmire - $166,809; and Mr. Stimpert - $143,409.
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 27,
1998, no contingencies have occurred which would require the
implementation of the provisions of the change in control
agreements, and no payments or other benefits have been
provided to the five executive officers named in the summary
compensation table or to the directors.
Director Compensation. The By-Laws of Gold Kist provide
that the Directors shall be compensated for their services and
reimbursed for their expenses, as determined by the Board of
Directors. Currently the Directors receive no compensation
other than an annual retainer paid at the rate of $20,000 per
year, with the Chairman receiving $21,500. Directors 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 27, 1998, 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 28, 1997 and
June 27, 1998
Consolidated Statements of Operations-Years Ended
June 29, 1996, June 28, 1997 and June 27, 1998
Consolidated Statements of Patrons' and Other
Equity-Years Ended June 29, 1996, June 28, 1997
and June 27, 1998
Consolidated Statements of Cash Flows-Years ended
June 29, 1996, June 28, 1997 and June 27, 1998
Notes to Consolidated Financial Statements
(a)2.Financial Statement Schedules:
Gold Kist Inc.
Financial Statement Schedule:
II. Valuation Reserves-Years Ended June 29, 1996
June 28, 1997 and June 27, 1998
GOLD KIST INC.
Schedule II - Valuation Reserves
(Dollar Amounts in Thousands)
Column A Column B Column C Column D Column E
Additions
Balance at Charge to Charged Balance
Beginning Cost and To Other At End
Description Of Period Expenses Accounts Deductions Of Period
Deducted in the
consolidated
balance sheets
from the asset
to which it
applies:
Allowance for
doubtful
accounts:
June 29, 1996 $1,219 1,084 - 727(A) 1,576
June 28, 1997 1,576 336 - 486(A) 1,426
June 27, 1998 1,426 1,975 - 288(A) 3,113
(A) Represents accounts written off.
Allowance for
deferred tax
assets
valuation:
June 29, 1996 $1,984 - - 578(C) 1,406
June 28, 1997 1,406 - - 328(C) 1,078
June 27, 1998 1,078 58(B) - - 1,136
(B) Represents establishment of allowance for net operating 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, dated as of Amendment to Schedule Exhibit 3
April 22, 1997, among 13D filed April 25, 1997
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 Annual Report on Form Exhibit B-3(b)
Registrant, as amended 10-K for the Fiscal
Year ended June 28, 1997
B-4(a)(1) Form of Indenture, dated Registration filed on 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, governing No. 2-69267)
the terms of the Fifteen
Year Subordinated Capital
Certificates of Interest
(Series C)
B-4(a)(3) Form of Second Supplemental Registration filed on Exhibit 4(a)(5)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, governing No. 2-79538)
the terms of the Fifteen
Year Subordinated Capital
Certificates of Interest
(Series D)
B-4(b)(1) Form of Indenture, dated Registration filed on 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, governing No. 2-69267)
the terms of the Ten Year
Subordinated Capital
Certificates of Interest
(Series C)
B-4(b)(3) Form of Second Supplemental Registration filed on Exhibit 4(b)(5)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, governing No. 2-79538)
the terms of the Ten Year
Subordinated Capital
Certificates of Interest
(Series D)
B-4(c) Form of Indenture, dated as Registration filed on 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, governing No. 2-69267)
the terms of the Five Year
Subordinated Capital Certifi-
cates of Interest (Series B)
B-4(d)(3) Form of Second Supplemental Registration filed on Exhibit 4(d)(3)
Indenture, dated as of Form S-2 (Registration
September 1, 1982, governing No. 2-79538)
the terms of the Five Year
Subordinated Capital Certifi-
cates of Interest (Series C)
B-4(e) Form of Indenture, dated as of Registration filed on Exhibit 4(f)(2)
September 1, 1985, governing Form S-2 (Registration
the terms of the Three Year No. 33-428)
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, governing Form S-1 (Registration
the terms of the Two Year No. 2-69267)
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 as of Registration filed on Exhibit 4(h)(1)
September 1, 1985, governing Form S-2 (Registration
the terms of the One Year No. 33-428)
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 as of Registration filed on Exhibit 4(d)(2)
September 1, 1979, governing Form S-1 (Registration
the terms of the One Year No. 2-65587)
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, governing No. 2-69267)
the terms of the One Year
Subordinated Loan Certificates
(Series C)
B-4(h) Form of Indenture, dated as Registration filed on Exhibit 4(i)
of September 1, 1985, Form S-2 (Registration
governing the terms of the No. 33-428)
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 copies Registration filed on Exhibit 4(h)
of constituent instruments Form S-1 (Registration
defining the rights of the No. 2-59958)
holders of certain industrial
revenue bonds
B-4(j)(1) 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)(2) 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)(3) Amendment dated as of Registration filed on Exhibit 4(l)(5)
January 9, 1991, to Note Form S-2 (Registration
Agreements with the Prudential No. 33-42900)
Insurance Company of America
and Pruco Life Insurance
Company
B-4(j)(4) Note Agreement with the Registration filed on Exhibit 4(l)(6)
Prudential Insurance Company Form S-2 (Registration
of America, dated as of No. 33-42900)
June 3, 1991
B-4(j)(5) Amendment dated as of June 26, Registration filed on Exhibit 4(l)(7)
1992, to Note Agreements with Form S-2 (Registration
the Prudential Insurance Company No. 33-52268)
of America
B-4(j)(6) Amendment dated July 14, 1993, Registration filed on Exhibit 4(l)(8)
to Note Agreements with the Form S-2 (Registration
Prudential Insurance Company of No. 33-69204)
America and Pruco Life Insurance
Company
B-4(j)(7) Note Purchase and Private Shelf Registration filed on Exhibit 4(j)(9)
Agreement, dated as of February Form S-2
11, 1997, with the Prudential (Registration No. 333-36291)
Insurance Company of America
B-4(j)(8) Amendment dated May 13, 1997 Registration filed on Exhibit 4(j)(10)
to Note Agreements with Prudential Form S-2
Insurance Company of America (Registration No. 333-36291)
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 Compensation Registration filed on Exhibit 11(d)
Agreement between Gold Kist Form S-1 (Registration
Inc. and certain executive No. 2-59958)
officers*
B-10(b)(1)Gold Kist Management Bonus Registration filed on Exhibit 10(b)
Program* Form S-1 (Registration
No. 2-69267)
B-10(b)(2)Amended Gold Kist Management Registration filed on Exhibit 10(b)(2)
Bonus Program* Form S-2 (Registration
No. 2-79538)
B-10(b)(3)Form of Gold Kist Supplemental Registration filed on Exhibit 10(b)(3)
Executive Retirement Income Form S-2 (Registration
non-qualified deferred No. 33-9007)
compensation agreement between
Gold Kist and certain execu-
tive officers and Resolution
of Gold Kist Board of Directors
authorizing the Supplemental
Executive Retirement Plan*
B-10(b)(4)Resolution of Gold Kist Board Registration filed on Exhibit 10(b)(4)
of Directors authorizing the Form S-2 (Registration
Gold Kist Special Award Plan* No. 33-9007)
B-10(b)(5)Form of Gold Kist Executive's Registration filed on Exhibit 10(b)(5)
Change in Control Agreement Form S-2 (Registration
between Gold Kist and certain No. 33-31164)
officers and resolution of
Gold Kist Board of Directors
authorizing the Officers
Contingency Plan*
B-10(b)(6)Form of Directors Change Registration filed on 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 Benefits* Form S-2 (Registration
No. 33-36938)
B-10(b)(9)Gold Kist Executive Savings Registration filed on Exhibit 10(b)(9)
Plan, as amended * Form S-2 (Registration
No. 33-62869)
B-10(b)(10)Gold Kist Director Savings Registration filed on Exhibit 10(b)(10)
Plan, as amended * Form S-2 (Registration
No. 33-62869)
B-10(b)(11)Gold Kist Split Dollar Life Registration filed on Exhibit 10(b)(11)
Insurance Plan * Form S-2 (Registration
No. 33-62869)
B-10(c)(l)Form of Membership, Marketing, Registration filed on Exhibit 13(b)
and/or Purchasing Agreement of Form S-1 (Registration
Gold Kist Inc., Atlanta, No. 2-59958)
Georgia
B-10(c)(2)Form of Membership, Marketing, Registration filed on Exhibit 10(c)(2)
and/or Purchasing Agreement of Form S-1 (Registration
Gold Kist Inc., Atlanta, No. 2-74205)
Georgia, as revised October
17, 1980
B-10(c)(3)Form of Membership, Marketing, Registration filed on Exhibit 10(c)(3)
and/or Purchasing Agreement of Form S-2 (Registration
Gold Kist Inc., Atlanta, No. 33-428)
Georgia, as revised November
l, l984
B-10(c)(4)Form of Membership, Marketing, Registration filed on Exhibit 10(c)(4)
and/or Purchasing Agreement Form S-2 (Registration
of Gold Kist Inc., Atlanta, No. 33-24623)
Georgia, revised October
29, 1987
B-10(c)(5)Form of Membership, Marketing, Registration filed on Exhibit 10(c)(5)
and/or Purchasing Agreement of Form S-2 (Registration
Gold Kist Inc., Atlanta, Georgia, No. 33-42900)
revised August 21, 1991
B-10(c)(6)Form of Membership, Marketing, Registration filed on Exhibit 10(c)(6)
and/or Purchasing Agreement of Form S-2
Gold Kist Inc., Atlanta, Georgia (Registration No. 333-36291)
revised July 9, 1997
B-10(d) CF Industries, Inc., Member Registration filed on Exhibit 13(j)
Product Purchase Agreement Form S-2 (Registration
No. 2-59958)
B-10(e)(1)General Partnership Agreement Registration filed on Exhibit 10(h)(1)
(GC Properties) between Gold Form S-2 (Registration
Kist Inc. and Cotton States No. 33-428)
Mutual Insurance Company,
dated as of July 1, 1984
B-10(e)(2)Lease from GC Properties, Registration filed on Exhibit 10(h)(2)
dated December 11, 1984, Form S-2 (Registration
for home office building No. 33-428)
space
B-10(f)(1)General Partnership Agreement Annual Report on Form Exhibit B-10(f)(1)
(Golden Peanut Company) 10-K for the Fiscal
between Gold Kist and Archer- Year Ended June 30, 1987
Daniels-Midland Company, dated
as of December 17, 1986
B-10(f)(2)Amended and Restated Partnership Registration filed on Exhibit 10(f)(2)
Agreement (Golden Peanut Company) Form S-2 (Registration
between Gold Kist Inc., Archer- No. 33-31164)
Daniels-Midland Company and
Alimenta Processing Corporation,
dated as of March 1, 1989
B-10(f)(3)Amendment to Amended and Registration filed on Exhibit 10(f)(3)
Restated Partnership Agreement Form S-2 (Registration
(Golden Peanut Company) between No. 33-42900)
Gold Kist Inc., Archer-Daniels-
Midland Company and Alimenta
Processing Corporation, dated
as of June 30, 1991
B-10(f)(4)Master Commercial Facilities Annual Report on Form Exhibit B-10(f)(2)
Lease Agreement between Gold 10-K for the Fiscal
Kist and Golden Peanut Company Year Ended June 30, 1987
dated as of December 17, 1986
B-10(g) Grain Procurement Agreement Annual Report on Form Exhibit B-10(h)
between Gold Kist and Archer- 10-K for the Fiscal
Daniels-Midland Company, dated Year Ended June 30, 1987
August 31, 1987
B-10(h) Guaranty dated December 18, Registration filed on Exhibit 4(o)
1992 by Gold Kist in favor of Form S-2 (Registration
NationsBank of Georgia, N.A. No. 33-69204)
B-10(i) Credit Agreement dated as of
August 4, 1998, with various banks
and lending institutions, as lendors,
and Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A., New York
Branch, as agent
B-10(j) Asset Purchase Agreement dated Report filed on Form Exhibit 10(k)
as of July 23, 1998, between 8-K dated as of
Southern States Cooperative, July 23, 1998
Incorporated and Gold Kist Inc.
B-21 Subsidiaries of the Registrant Annual Report on Form Exhibit B-21
10-K for the Fiscal Year
ended June 28, 1997
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 were
filed during the last quarter of the fiscal year ended June
27, 1998. The Association filed Form 8-K dated as of July 23,
1998, to report the execution of an Asset Purchase Agreement
with Southern States, pursuant to which the Association has
agreed to sell and assign, and Southern States has agreed to
purchase and assume, the assets and certain of the obligations
of the Association's agricultural inputs business.
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 24, 1998 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 Officer September 24, 1998
G. O. COAN (Principal Executive Officer)
/s/ Peter J. Gibbons Vice President-Finance September 24, 1998
PETER J. GIBBONS (Principal Financial Officer)
/s/ W. F. Pohl, Jr. Controller (Principal September 24, 1998
W. F. POHL, JR. Accounting Officer)
/s/ W. P. Smith, Jr. Director September 21, 1998
W. P. SMITH, JR.
/s/ Fred K. Norris, Jr. Director September 21, 1998
FRED K. NORRIS, JR.
/s/ Dan Smalley Director September 21, 1998
DAN SMALLEY
/s/ Phil Ogletree, Jr. Director September 21, 1998
PHIL OGLETREE, JR.
/s/ James E. Brady, Jr. Director September 21, 1998
JAMES E. BRADY, JR.
/s/ A. Jack Nally Director September 21, 1998
A. JACK NALLY
/s/ W. Kenneth Whitehead Director September 21, 1998
W. KENNETH WHITEHEAD
/s/H. Michael Davis Director September 21, 1998
H. MICHAEL DAVIS
/s/ Herbert A. Daniel, Jr. Director September 21, 1998
HERBERT A. DANIEL, JR.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
B-10(i) Credit Agreement dated
as of August 4, 1998,
with various banks and
lending institutions, as lendors,
and Cooperatieve Centrale Raiffeisen-
Boerenleen Bank B.A., New York
Branch, as agent
B-27 Financial Data Schedule