10-Q 1 gk10q305edgar.txt GOLD KIST INC. FORM 10-Q FOR 04/02/2005 N:\LOTUS\COMMON\gk10q305edgar.doc UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended April 2, 2005 Commission File Number: 000-50925 GOLD KIST INC. (Exact name of registrant as specified in its charter) DELAWARE 20-1163666 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 244 Perimeter Center Parkway, N.E., Atlanta, Georgia 30346 (Address of principal executive offices) (Zip Code) (770) 393-5000 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $0.01 Per Share Par Value - 51,503,109 shares outstanding as of May 17, 2005. GOLD KIST INC. INDEX Page No. Part I. Financial Information Item 1. Unaudited Consolidated Financial Statements Consolidated Balance Sheets - October 2, 2004 and April 2, 2005 1 Consolidated Statements of Operations - Three Months and Six Months Ended March 27, 2004 and April 2, 2005 2 Consolidated Statements of Cash Flows - Six Months Ended March 27, 2004 and April 2, 2005 3 Notes to Consolidated Financial Statements 4 - 20 Item 2. Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition 21 - 35 Item 3. Quantitative and Qualitative Disclosure About Market Risks 36 Item 4. Controls and Procedures 37 Part II. Other Information Item 6. Exhibits 38 Page 1 Item 1. Financial Statements GOLD KIST INC. CONSOLIDATED BALANCE SHEETS (Amounts, Except Share Amounts, in Thousands) (Unaudited)

October 2, ~~January~~April 12, 2004 2005 ASSETS Current assets: Cash and cash equivalents $175,289 ~~132~~169,~~708~~334 Receivables, net 115,015 ~~114~~116,~~558~~552 Inventories 238,892 ~~217~~215,~~824~~579 Deferred income taxes 15,732 1517,~~649~~675 Other current assets 38,577 3032,~~633~~388 Total current assets 583,505 ~~511~~551,~~372~~528 Investments 13,072 13,~~179~~008 Property, plant and equipment, net 247,398 ~~255~~268,~~368~~551 Deferred income taxes 13,215 1217,~~615~~519 Other assets 65,652 58,~~230~~719 $922,842 ~~850~~909,~~764~~325 LIABILITIES AND EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 20,875 2010,~~402~~472 Accounts payable 84,121 8078,~~753~~133 Accrued compensation and related expenses 42,556 2434,~~508~~933 Income taxes payable 8,583 33,574 Other current liabilities 8879,~~049~~466 7867,~~450~~330 Total current liabilities 235,601 ~~204~~224,~~113~~442 Long-term debt, less current maturities 281,408 ~~209~~201,~~767~~884 Accrued pension costs 37,387 3132,~~157~~681 Accrued postretirement benefit costs 6,760 5,~~798~~027 Other liabilities 44,138 4746,~~309~~803 Total liabilities 605,294 ~~498~~510,~~144~~837 Patrons' and other equity/stockholders' equity: Preferred stock, authorized 100,000,000 shares - - Common stock, $1.00 par value and authorized 500,000 shares as of October 2, 2004; $.01 par value and authorized 900,000,000 shares as of ~~January~~April 12, 2005; issued and outstanding 2,449 shares as of October 2, 2004 and 5051,~~726~~528,~~435~~082 and 5051,~~702~~503,~~312~~109 shares as of ~~January~~April 12, 2005, respectively 2 ~~507~~515 Additional paid-in capital - 397,~~800~~546 ~~Deferred stock compensation - (7,297)~~ Patronage reserves 232,569 - Accumulated other comprehensive loss (42,318) (42,~~318~~160) Retained earnings 127,295 442,~~193~~862 Common stock held in treasury, 24,~~123~~973 shares - (~~265~~275) Total patrons' and other equity/stockholders' equity 317,548 ~~352~~398,~~620~~488 $922,842 ~~850~~909,~~764~~325 See Accompanying Notes to Consolidated Financial Statements.

Page 2 GOLD KIST INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands, Except Per Share Amounts) (Unaudited)

Three Months Ended ~~Dec~~Six Months Ended Mar. 27, ~~2003~~Apr. ~~Jan~~2, Mar. 127, Apr. 2, 2004 2005 2004 2005 Net sales $~~536~~575,~~927~~589 ~~551~~570,~~958~~809 1,112,516 1,122,767 Cost of sales ~~468~~480,~~717~~128 ~~504~~477,~~122~~554 948,845 981,676 Gross profit 6895,~~210~~461 4793,~~836~~255 163,671 141,091 Distribution, administrative and general expenses 29(including $7.1 million and $7.8 million of share-based compensation expense for the three and six months ended April 2,~~023~~ 242005,~~966~~ respectively) 27,200 33,076 56,223 58,042 Pension plan settlement expense 9,908 - 9,908 - Conversion expenses - - - 1,418 Net operating income 3958,~~187~~353 2160,~~452~~179 97,540 81,631 Other income (expenses): Interest and dividend income ~~144~~744 ~~825~~1,890 888 2,715 Interest expense (6,~~782~~975) (76,~~090~~213) (13,757) (13,303) Senior debt prepayment interest and ~~pro-rata~~ write -off of related fees and discount (6,341) - (6,341) (10,016) Unrealized loss on investment - - (18,486) - Miscellaneous, net ~~291~~886 1,~~702~~284 1,177 2,986 Total other expenses, net (2411,~~833~~686) (143,~~579~~039) (36,519) (17,618) Income before income taxes 1446,~~354~~667 657,~~873~~140 61,021 64,013 Income tax expense 1016,~~949~~805 218,~~680~~471 27,754 21,151 Net income $ 329,~~405~~862 438,~~193~~669 33,267 42,862 Net income per common share: Basic - $.0877 - $.86 Diluted - $.0876 - $.85 Weighted average common shares outstanding: Basic - 49,~~973~~972 - 49,972 Diluted - 50,~~131~~749 - 50,470 See Accompanying Notes to Consolidated Financial Statements.

Page 3 GOLD KIST INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)

~~Accumulated~~Six ~~Deferred~~Months ~~Other~~Ended ~~Common~~Mar. ~~Additional~~27, ~~stock~~2004 ~~comprehen-~~Apr. ~~stock~~2, ~~Common~~2005 ~~stock~~Cash ~~paid~~flows from operating activities: Net income $ 33,267 42,862 Non-cash items included in ~~compen~~income from operations: Depreciation and amortization 19,574 21,091 Amortization of share-based ~~Patronage~~compensation ~~sive~~- ~~Retained~~7,790 ~~held~~Unrealized loss on investment 18,486 - Postretirement benefit plans expense in ~~Shares~~excess ~~Amount~~of ~~capital~~(less ~~sation~~than) ~~reserves~~funding 11,718 (~~loss~~6,093) ~~earnings~~Deferred ~~treasury~~income ~~Total~~tax ~~October~~expense 2(benefit) 4,444 ~~2004~~(6,342) 2Other $(1,840) 2691 -Changes -in ~~232,569~~operating assets and liabilities: Receivables (424,~~318~~428) ~~127~~(1,~~295~~537) -Inventories ~~317~~(14,~~548~~802) ~~Cash~~23,313 ~~patronage~~Other ~~equity~~current ~~redemptions~~assets (~~825~~956) ~~(825)~~5,885 ~~Common~~Accounts ~~stock~~payable, ~~issued~~accrued and other expenses 38,041 2,530 Net cash ~~distributions~~provided toby ~~members/~~operating ~~equity~~activities ~~holders~~103,504 in90,190 ~~conversion~~Cash flows from ~~cooperative~~investing ~~association~~activities: toAcquisitions ~~for-profit~~of ~~corporation 36~~property,~~394~~ ~~362~~plant ~~252,714~~and -equipment (~~231~~15,~~744~~818) - (~~127~~41,~~295~~612) -Dispositions ~~(105~~of investments 1 2,~~963)~~304 ~~Initial~~Proceeds ~~public~~from ~~offering~~termination of ~~common~~cooperative ~~stock~~equity holder life insurance policies - 2,790 ~~net~~Other of2,534 ~~underwriting~~1,961 ~~and~~Net ~~offering~~cash ~~expenses~~used in investing activities (13,~~600~~283) ~~136~~(34,557) ~~137~~Cash flows from financing activities: Proceeds from long-term debt 196,~~056~~940 - Principal repayments of long-term ~~137~~debt (200,~~192~~076) ~~Restricted~~(91,044) ~~stock~~Payments ~~grants~~of ~~issued~~deferred ~~730~~financing 7costs 8(5,~~030~~925) - Patronage refunds and other equity paid in cash (81,~~037~~509) -(3,165) -Proceeds -from -initial -public ~~Amortization~~offering, net of ~~stock~~underwriting ~~grants~~and -offering -expenses paid - ~~740~~138,859 -Cash -distributions -to members and equity holders - ~~740~~(105,963) Treasury stock acquired - -(275) -Net -cash -used -in -financing activities (~~265~~10,570) (~~265~~61,588) Net ~~income~~change -in -cash -and -cash 4equivalents 79,~~193~~651 ~~- 4~~(5,~~193~~955) ~~January~~Cash 1,and ~~2005~~cash 50equivalents at beginning of period 13,~~726~~875 175,289 Cash and cash equivalents at end of period $~~507~~ ~~397~~93,~~800~~526 (7169,~~297)~~334 -Supplemental disclosure of cash flow information: Cash paid during the periods for: Interest (~~42,318~~net of amounts capitalized) 4$ 25,~~193~~236 ~~(265)~~20,068 ~~352~~Income taxes,~~620~~ net $ 1,436 2,502 See Accompanying Notes to Consolidated Financial Statements.

Page 4 GOLD KIST INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands) (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements reflect the accounts of Gold Kist Inc. and its subsidiaries ("Gold Kist" or the "Company") as of April 2, 2005 and for the three and six months ended April 2, 2005. These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition and the Notes to Consolidated Financial Statements in the previously filed Annual Report on Form 10-K for the fiscal year ended June 26, 2004 of the Company's predecessor. The Company employs a 52/53-week fiscal year. On October 20, 2004, the Board of Directors of the Company approved changing the fiscal year-end of the Company from the Saturday after the last Thursday in June to the Saturday after the last Thursday in September. Fiscal 2005 will be a 52-week year beginning October 3, 2004 and ending October 1, 2005. The three-month and six-month periods ended April 2, 2005 and the three-month and six-month periods ended March 27, 2004 each consisted of thirteen weeks and twenty-six weeks, respectively. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, the results of operations, and the cash flows of the Company. All significant intercompany balances and transactions have been eliminated in consolidation. Results of operations for interim periods are not necessarily indicative of results for the entire fiscal year. 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 as of the balance sheet date and the reporting of revenue and expenses during the period to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from these estimates. In December 2004, Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (SFAS No. 123(r)) was issued. The Statement is a revision of SFAS No. 123, "Accounting for Stock- Based Compensation." This statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123(r) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Effective in January Page 5 2005, the Company early adopted the provisions of SFAS 123(r). See Note 9 of Notes to Consolidated Financial Statements. 2. Conversion and Initial Public Offering On October 13, 2004, after completion of required approvals and conditions, the Plan of Conversion (the "Plan") of Gold Kist Inc., a Georgia cooperative marketing association, became effective and Gold Kist converted from a cooperative marketing association to a for- profit business corporation through a merger into a wholly owned subsidiary, Gold Kist Holdings Inc., a Delaware corporation. In connection with the conversion, Gold Kist Holdings Inc. changed its name to Gold Kist Inc. The conversion was accounted for using the historical carrying values of the assets and liabilities of Gold Kist. Immediately following the conversion and the initial public offering, Gold Kist's cooperative membership common stock and patronage reserves were reclassified to par value of common stock and additional paid in capital. On October 13, 2004, the date the conversion became effective, all patronage interests in Gold Kist were extinguished and the members and former member equity holders of Gold Kist became entitled to receive consideration in the form of Gold Kist common stock or cash, or both, as provided in the Plan. Patronage earnings from the end of the quarter ended October 2, 2004 to October 13, 2004, the date of the conversion, were not significant. Pursuant to the conversion, approximately 36.4 million shares of common stock and $106.0 million in cash were issued and distributed in December 2004 to members and former member equity holders. Also on October 13, 2004, Gold Kist completed an initial public offering of 12,000,000 shares of common stock, par value $0.01 per share, at an initial public offering price of $11.00 per share. In November 2004, the underwriters exercised their overallotment option to purchase an additional 1,600,000 shares at the offering price of $11.00 per share. After underwriting discounts and other expenses, net proceeds from the common stock offering were approximately $137.2 million. A portion of the proceeds of this offering was used to repay $70.0 million in aggregate principal amount of our 10.25% outstanding senior notes plus an additional $7.2 million of prepayment interest on November 12, 2004. The prepayment interest charge of $7.2 million and 35% of both the deferred financing costs and discount totaling $2.8 million were recognized in the statement of operations for the six month period ended April 2, 2005. 3. Receivables Receivables are principally trade and are stated net of an allowance for doubtful accounts of $1.5 million and $1.4 million as of October 2, 2004 and April 2, 2005, respectively. Page 6 4. Comprehensive Income Comprehensive income was $29,862 and $38,827 for the three months ended March 27, 2004 and April 2, 2005, respectively, and $33,267 and $43,020 for the six months ended March 27, 2004 and April 2, 2005, respectively. Comprehensive income consists of net income and pension liability adjustments, net of tax. 5. Inventories Inventories consist of the following:

~~Three Months Ended Dec~~Oct. 272, ~~2003~~2004 ~~Jan~~Apr. 12, 2005 ~~Cash~~Live ~~flows~~poultry ~~from~~and ~~operating~~hogs ~~activities: Net income~~ $ 3102,~~405~~936 494,~~193~~981 ~~Non-cash~~Marketable ~~items~~products ~~included in income from operations: Depreciation and amortization 9~~87,~~539~~562 1171,~~063~~690 ~~Unrealized~~Raw ~~loss~~materials ~~on investment 18,486 - Postretirement benefit plans expense in excess of (less than) funding 1,480 (6,488) Deferred income tax expense 8,051 683 Other (1,726) 2,398 Changes in operating assets~~ and ~~liabilities:~~supplies ~~Receivables 3~~48,~~708~~394 ~~457 Inventories (4~~48,~~152)~~908 21,068 Other current assets (31) 3,342 Accounts payable, accrued and other expenses 4,808 (22,270) Net cash provided by operating activities 43,568 14,446 Cash flows from investing activities: Acquisitions of property, plant and equipment (5,769) (17,688) Proceeds from termination of cooperative equity holder life insurance policies - 2,790 Other 441 1,586 Net cash used in investing activities (5,328) (13,312) Cash flows from financing activities: Principal repayments of long-term debt (35,688) (73,181) Patronage refunds and other equity paid in cash (456) (3,165) Proceeds from initial public offering, net of underwriting and offering expenses paid - 138,859 Cash distributions to members and equity holders - (105,963) Treasury stock acquired - (265) Net cash used in financing activities (36,144) (43,715) Net change in cash and cash equivalents 2,096 (42,581) Cash and cash equivalents at beginning of period 13,875 175,289 Cash and cash equivalents at end of period $ 15238,~~971~~892 ~~132~~215,708 Supplemental disclosure of cash flow information: Cash paid (received) during the periods for: Interest (net of amounts capitalized) $ 7,280 10,557 Income taxes, net $ (438) 98 See Accompanying Notes to Consolidated Financial Statements.579

Live poultry and hogs consist of broilers, market hogs and breeding stock. Broilers are stated at the lower of cost or market and breeders are stated at cost less accumulated amortization. Costs include live production costs (principally feed, chick cost, medications and other raw materials), labor and production overhead. Breeder costs include acquisition of chicks from parent stock breeders, feed, medication, labor and production costs that are accumulated up to the production stage and then amortized over their estimated useful life of thirty-six weeks. Market hogs include costs of feed, medication, feeder pigs, labor and production overhead. Pork breeder herds include cost of breeder gilts acquired from parent stock breeders, feed, medications and production costs that are accumulated up to production stage and then amortized over twenty-four months. The pork breeders are included in other assets - noncurrent in the consolidated financial statements and are not significant. If market prices for inventories move below carrying value, the Company records adjustments to write down the carrying values of these inventories. Marketable products consist primarily of dressed and further processed poultry. The Company accounts for its marketable products inventory at the lower of cost or market. Raw materials and supplies consist of feed ingredients, hatching eggs, packaging materials and operating supplies. These inventories are stated, generally, at the lower of cost (first-in, first-out or average) or market. Gold Kist engages in forward purchase contracts and commodity futures and options transactions to secure necessary feed ingredient requirements and manage the risk of adverse price fluctuations with regard to its feed ingredient purchases. Changes in the fair value of these derivatives, except for forward purchase contracts, have been recorded through net income. Page 7 6. Property, Plant and Equipment Property, plant and equipment is summarized as follows:

Oct. 2, ~~2004 Jan~~Apr. 12, 2004 2005 ~~Live~~Land ~~poultry~~ and ~~hogs~~land improvements $~~102~~ 32,161 34,936 95Buildings 214,~~318~~368 ~~Marketable~~227,616 ~~products~~Machinery 87and equipment 433,~~562~~633 73447,~~417~~700 ~~Raw~~Construction ~~materials~~in ~~and~~progress ~~supplies~~33,959 4837,~~394~~582 49714,~~089~~121 747,834 Less accumulated depreciation 466,723 479,283 $~~238~~247,~~892~~398 ~~217~~268,~~824~~551

Depreciation and amortization included in cost of sales in the accompanying consolidated statements of operations were $16.5 million and $18.5 million for the six months ended March 27, 2004 and April 2, 2005, respectively. Page 8 7. Long-Term Debt Long-term debt is summarized as follows:

Oct. 2, ~~Jan~~Apr. 12, 2004 2005 ~~Land~~Senior notes, due 2014 $197,092 128,209 Series B senior exchange notes, due in annual installments of $2,727 and ~~land~~a ~~improvements~~final installment of $5,455 32due May 30,~~161~~ 322010 with interest payable quarterly (interest rate of 8.75% at April 2,~~342~~ ~~Buildings~~2005) ~~214~~21,~~368~~818 ~~226~~19,~~942~~091 ~~Machinery~~Series C senior exchange notes, due in annual installments of $2,273 and ~~equipment~~a ~~433~~final installment of $6,~~633~~818 ~~443~~due May 30,~~808~~ ~~Construction~~2010 with interest payable quarterly (interest rate of 9.00% at April 2, 2005) 18,182 18,182 Term loan agreement with agricultural credit bank, due in ~~progress~~semi-annual 33installments of $1,~~959~~785 with interest payable monthly (interest rate of 8.41% at April 2, 2005) 30,365 28,~~448~~580 ~~714~~Term loan agreement with agricultural credit bank repaid on February 28,~~121~~ ~~731~~2005 7,~~540~~800 - Subordinated capital certificates of interest with original fixed maturities ranging from seven to fifteen years, unsecured (weighted average interest rate of 8.14% at April 2, 2005) 17,147 16,112 Tax exempt industrial revenue bond with variable interest rate repaid on April 1, 2005 7,500 - Mortgage loans, due in monthly installments to January 2010, secured by an office building (weighted average interest rate of 5.06% at April 2, 2005) 2,379 2,182 302,283 212,356 Less ~~accumulated~~current ~~depreciation~~maturities ~~466~~20,~~723~~875 ~~476~~10,~~172~~472 $~~247~~281,~~398~~408 ~~255~~201,~~368~~884

In March 2004, the Company issued the senior notes due 2014 in a private offering pursuant to Rule 144A and Regulation S of the Securities Act of 1933 in the principal amount of $200 million and subsequently exchanged the senior notes for identical registered notes. The stated interest rate on the senior notes is 10.25%, with interest payable semi-annually on March 15 and September 15. The senior notes were issued at a price of 98.47% and are reflected net of discount in the accompanying consolidated balance sheets. The discount amount is being amortized to interest expense over the ten- year term of the senior notes under the interest method, yielding an effective interest rate of approximately 10.50%. Page 9 The Company repaid $70.0 million of principal of the senior notes, plus $7.2 million in prepayment interest, on November 12, 2004 with a portion of the proceeds from Gold Kist's initial public offering completed on October 13, 2004 (see Note 2). In connection with this prepayment, $1.0 million of the discount and $1.8 million of deferred financing costs were written off and recognized in the consolidated statement of operations for the six months ended April 2, 2005. Concurrent with the issuance of the senior notes, the Company amended its Senior Secured Credit Facility to provide for a revolving line of credit in an aggregate principal amount of $125 million, including a sub-facility of up to $60 million for letters of credit, for a term of three years. The interest rate on the facility ranges from 1.00% to 2.00% over the prime rate for base rate advances or 2.25% to 3.25% over the London InterBank Offered Rate (LIBOR) for Eurodollar advances, adjusted quarterly based on the Company's financial position. Borrowings under the facility will be limited to the lesser of $125 million and a borrowing base determined by reference to a percentage of the collateral value of the accounts receivable and inventories securing the facility. As of April 2, 2005, there was approximately $93.7 million available for borrowing under this facility. Approximately $31.3 million of letters of credit are outstanding under the facility. The Company's debt agreements place a limitation on capital expenditures, cash dividends, commodity hedging contracts and additional loans, advances or investments. The terms of debt agreements (other than the senior notes) contain financial covenants, including those that specify minimum consolidated tangible net worth, current ratio and coverage ratio requirements, as well as a limitation on the total debt to total capital ratio. At April 2, 2005, the Company was in compliance with all applicable loan covenants under its senior notes and credit facilities. 8. Employee Benefits Effective January 1, 2004, the Company's qualified pension plan was prospectively amended. For benefits earned in calendar 2004 and future years, the basic pension formula was changed from 50% to 45% of final average earnings, early retirement benefits were reduced and other changes were made. The pension benefits earned by employees through 2003 were unchanged. In October 2002, the Company substantially curtailed its postretirement life insurance plans and in April 2003, the Company substantially curtailed its postretirement medical plan for existing retirees. Retired employees eligible under the plan between the ages of 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. At October 2, 2004 and April 2, 2005, the Company had a minimum pension liability of $42.3 million and $42.2 million, respectively, net of the deferred tax benefit of $25.2 million and $25.1 million, respectively. The minimum pension liability, net of deferred taxes, has been included as a component of patrons' and other equity/stockholders' equity in accumulated other comprehensive loss. Page 10 The Company recognized $9.9 million of pension settlement expense in the quarter ended March 27, 2004. The settlement expense resulted from lump sum distribution payments from the plan to electing retiring employees exceeding service and interest cost components of pension expense in the plan year. Components of net periodic benefit cost (income) for the three months ended March 27, 2004 and April 2, 2005 are as follows:

~~Oct.~~Postretirement 2,Pension ~~Jan.~~Benefits 1,Insurance Benefits 3/27/2004 4/2/2005 ~~Senior~~3/27/2004 ~~notes,~~4/2/2005 ~~due~~Service ~~2014~~cost $~~197,092~~ ~~128~~1,~~159~~674 ~~Series B senior exchange notes~~1,169 ~~due~~- in- ~~annual~~Interest ~~installments~~cost ~~of $~~2,~~728~~673 ~~and a final installment of $5~~2,~~450~~499 ~~due~~78 ~~May~~54 ~~30,~~Estimated ~~2010~~return ~~with~~on ~~interest~~plan ~~payable~~assets ~~quarterly~~ (~~interest rate of 8.75% at January 1~~3, ~~2005~~398) ~~21,818 21,818 Series C senior exchange notes, due in annual installments of $~~(2,~~272~~872) ~~and~~- a- ~~final~~Amortization ~~installment~~ of ~~$4,550~~transition ~~due~~asset ~~May 30, 2010 with interest payable quarterly~~ (~~interest rate of 9.00% at January 1, 2005~~60) ~~18,182~~- ~~18,182~~- ~~Term loan agreement with agricultural credit bank, due in semi~~-~~annual~~ ~~installments~~Amortization of ~~$1,785~~prior ~~with~~service ~~interest~~cost ~~payable~~456 ~~monthly~~119 (~~interest rate of 8.41% at January 1~~2, ~~2005~~587) 30(2,~~365~~587) ~~28,580~~Amortization ~~Term loan agreement with agricultural credit bank, due in quarterly installments~~ of ~~$600~~net ~~with~~loss ~~interest~~569 ~~payable monthly (weighted average interest rate of 5.43% at January~~ 1,023 ~~2005) 7~~2,~~800~~088 71,~~200~~759 ~~Subordinated~~Net ~~capital~~periodic ~~certificates~~benefit ofcost ~~interest with original fixed maturities ranging from seven to fifteen years, unsecured~~ (~~weighted~~income) ~~average interest rate of 8.15% at January~~ 1,914 ~~2005) 17~~1,~~147~~938 ~~16,449 Tax exempt industrial revenue bond due July 2015 with variable interest rate~~ (~~1.8%~~421) ~~at January 1, 2005~~(774) ~~7,500~~Settlement ~~7,500~~loss ~~Mortgage loans~~9,908 ~~due~~- in- ~~monthly~~- ~~installments~~Net toperiodic ~~January~~benefit ~~2010,~~cost ~~secured by an office building~~ (~~weighted average interest rate of 5.06%~~income) ~~2,379~~after ~~2,281~~settlement ~~302,283~~loss ~~230~~$11,~~169~~822 ~~Less current maturities 20~~1,~~875~~938 ~~20,402~~(421) ~~$281,408 209,767~~(774)

Components of net periodic benefit cost (income) for the six months ended March 27, 2004 and April 2, 2005 are as follows:

Postretirement Pension Benefits Insurance Benefits 123/27/~~2003~~2004 14/12/2005 123/27/~~2003~~2004 14/12/2005 Service cost $ 13,~~674~~348 12,~~175~~344 - - Interest cost 25,~~672~~345 25,~~503~~002 78156 55109 Estimated return on plan assets (36,~~398~~796) (25,~~873~~745) - - Amortization of transition asset (60120) - - - Amortization of prior service cost ~~455~~911 ~~120~~239 (25,~~587~~174) (25,~~587~~174) Amortization of net loss ~~570~~ 1,~~023~~139 2,~~089~~046 4,177 3,518 Net periodic benefit cost (income) 3,827 3,886 (841) (1,~~759~~547) Settlement loss 9,908 - - - Net periodic benefit cost (income) after settlement loss $ 113,~~913~~735 13,~~948~~886 (~~420~~841) (~~773~~1,547)

The Company made a qualified pension plan contribution of $15.0 million in August 2004 and another qualified pension plan contribution of $8.0 million in November 2004. Page 11 9. Long Term Incentive Plan Effective January 2, 2005, the Company adopted SFAS No. 123(r) and has utilized the modified prospective method of adoption. Prior to January 2, 2005, the Company accounted for its stock compensation grants in accordance with the SFAS 123 exception, which allowed it to utilize APB No. 25 to account for its stock-based compensation grants and required certain supplemental disclosures. There was no cumulative effect upon adoption of SFAS 123(r). In connection with the conversion of the Company into a for-profit corporation and the completion of its initial public offering, the Company implemented the Gold Kist Long-Term Incentive Plan (LTIP). At the discretion of the Compensation Committee of the Board of Directors, which administers the plan, employees, consultants and non-employee directors may be granted awards in the form of stock options, stock appreciation rights, performance awards, nonvested or restricted stock, stock units, dividend equivalents or other stock based awards. The Company reserved up to 4,000,000 shares for issuance upon the exercise of awards under the LTIP. A grant of nonvested stock to employees was authorized by the Board of Directors and effective as of the closing of the initial public offering (IPO) on October 13, 2004 (IPO stock grants). In addition, on October 20, 2004, the Board of Directors authorized the issuance of the stock portion of their fiscal 2005 annual retainers in nonvested shares. Total grants of 705,197 and 24,456 shares were issued to employees and directors, respectively. The nonvested stock issued to employees will vest on the third anniversary of the date of grant with the nonvested stock issued to directors vesting in July 2005. However, the shares will vest immediately upon (i) the employee's termination of employment by reason of death, disability or retirement, or (ii) the occurrence of a change in control. Retirement is defined under the LTIP as voluntarily leaving employment after attaining any normal or early retirement age specified in the Company's benefit plans. Prior to the adoption of SFAS No. 123(r), the Company's policy for recognizing compensation expense was to amortize the fair value of stock compensation grants over the stated vesting period, even though that stated vesting period may not be substantive. As a result, during the three months ended January 1, 2005, the Company recognized compensation expense of $0.7 million for IPO stock grants made during the period. Had the Company applied SFAS No. 123(r) to the IPO stock grants, and as a result recognized the fair value of the grants over the requisite service period as opposed to the stated vesting period of three years, the amount expensed for the grants would have totaled approximately $5.3 million in the three months ended January 1, 2005. The Company will continue to recognize the compensation expense for the IPO stock grants by amortizing the fair value over the stated three-year vesting period. The compensation expense recorded in the quarter ended April 2, 2005 that would not have been recognized had SFAS 123(r) been applied for the three months ended January 1, 2005 was approximately $0.8 million. Page 12 In January 2005, the Board of Directors approved replacement employment agreements with the Chief Executive Officer and the Chief Administrative Officer and replacement change in control (CIC) agreements with ten other officers. Equity grants to the Company's officers under the Company's LTIP, consisting of 355,722 shares of nonvested stock (CIC stock grants), stock-settled stock appreciation rights with respect to 173,860 shares (stock-settled SARS) and 96,558 performance share awards (performance shares), were also approved and awarded in January 2005. The CIC stock grants awarded in January 2005 vest as to 25% of the shares on each anniversary of the date of grant, beginning January 24, 2006, provided, however, that the shares will vest immediately upon (i) the executive's termination of employment by reason of death, disability or retirement, or (ii) the occurrence of a change in control. The stock-settled SARS vest in two equal annual installments, beginning on January 24, 2008; provided, however, that the stock- settled SARS will vest and become immediately exercisable upon (i) the executive's termination of employment by reason of death, disability or retirement, or (ii) the occurrence of a change in control. The performance shares provide the holder the opportunity to earn a number of shares of common stock of the Company at the end of a three-year performance cycle. The performance condition is based upon the Company's profitability in relation to a defined peer group within the broiler industry as measured by an independent benchmarking company. Additional equity grants for other management participants, consisting of stock-settled SARS with respect to 86,954 shares and 88,553 performance shares, were also approved and awarded with the same vesting periods as outlined above. These grants will vest and become immediately exercisable upon the participant's termination of employment by reason of death, disability or retirement. The equity grants and awards are summarized as follows (share and dollar amounts in thousands):

AsGrant ofDate ~~October~~Shares 2,Fair ~~2004~~Value ~~Balance~~Vesting ~~Sheet:~~Period ~~Parent~~IPO ~~Guarantor~~stock ~~Non-Guarantor~~grants ~~Only~~October ~~Subsidiaries~~2004 ~~Subsidiary~~Employees ~~Eliminations~~705 ~~Consolidated ASSETS Current assets: Cash and cash equivalents~~ $~~166~~7,~~430~~757 ~~313~~36 ~~8,546~~months -Directors ~~175,289~~24 Receivables, net 113,478 11,474 31,636 (41,573) 115,015 Inventories 238,432 460 - - 238,892 Deferred income taxes and other current assets 27,503 545 26,261 - 54,309 Total current assets 545,843 12,792 66,443 (41,573) 583,505 Investments 35,252 - - (22,180) 13,072 Property, plant and equipment, net 247,118 280 ~~- - 247,398 Deferred income taxes and other assets 64,144 5,363~~ 9~~,360~~ -months ~~78,867~~CIC ~~$892,357~~stock ~~18,435~~grants ~~75,803~~January ~~(63,753)~~2005 ~~922,842~~356 ~~LIABILITIES AND EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 20~~4,~~875~~863 -48 -months Stock-settled ~~20,875~~SARS ~~Accounts~~January ~~payable~~2005 ~~125,372~~261 ~~322 - (41~~1,~~573)~~795 ~~84,121~~48 ~~Accrued~~months ~~compensation~~Performance ~~and~~shares ~~related~~January ~~expenses~~2005 ~~42,540~~185 ~~16 - - 42~~2,~~556~~288 ~~Other~~33 ~~current~~months ~~liabilities 47,671 5 40,373 - 88,049~~ Total ~~current liabilities 236~~1,~~458~~531 343 40,373 (41,573) 235,601 Long-term debt, less current maturities 281,408 - - - 281,408 Accrued pension costs 37,387 - - - 37,387 Accrued postretirement benefit costs 6,760 - - - 6,760 Other liabilities 12,796 325 31,017 - 44,138 Total liabilities 574,809 668 71,390 (41,573) 605,294 Patrons' and other equity 317,548 17,767 4,413 (22,180) 317,548 $~~892~~16,~~357 18,435 75,803 (63,753) 922,842~~983

Page 13 The Company determined that all of the above grants were equity- classified awards under SFAS NO. 123(r). As a result, the fair value of the awards has been measured at grant date and is being recognized as compensation expense over the vesting periods, except as noted below. The fair value of the IPO stock grants, CIC stock grants and performance shares was the quoted public market price of the shares on the date of the grant. The fair value of the stock- settled SARS was determined under the Black-Scholes valuation method with a term of 6.75 years, as determined under the simplified method, a risk free rate of 3.93% and a volatility of 45%, based on data from a peer group of similar profile companies. The contractual term of the stock-settled SARS is ten years. No grants or awards have legally vested or been exercised, converted or forfeited during the six months ended April 2, 2005. There are no additional restrictions on awards subsequent to vesting. The grants previously described, with the exception of the performance shares, vest fully at retirement, which was defined as attaining any normal or early retirement age (fifty-five) specified in the Company's benefit plans. A significant number of grant recipients were fifty-five or older at the time of the grant and therefore have the option to retire early under the Company's benefit plans, at which time the grants would vest. In accordance with SFAS 123(r), because the employee is eligible to retire at the grant date, the awards' explicit service condition is nonsubstantive and the entire amount of compensation cost was recognized at grant date. The amount of the share-based compensation expense under the CIC stock grants issued in January 2005 and the stock-settled SARS granted in January 2005 related to those recipients aged 55 or over was $5.3 million for the three months ended April 2, 2005 and represented 490,642 shares. Total share-based compensation expense, including the $5.3 million noted above, was $7.1 million and $7.8 million for the three and six months ended April 2, 2005, respectively, and is reflected within distribution, general and administrative expense in the accompanying consolidated statements of operations. The total income tax benefit recognized in the consolidated statements of operations related to the share-based compensation expense was $2.7 million and $3.0 million for the three and six months ended April 2, 2005, respectively. At April 2, 2005, the total share-based compensation cost related to nonvested grants and awards not yet recognized is approximately $9.2 million. The weighted average period over which the remaining share- based compensation expense is to be recognized is approximately thirty months. 10. Contingent Liabilities Four female employees of the Company's Corporate Office Information Services (I/S) Department filed an EEOC sex discrimination suit against the Company in the United States District Court for the Northern District of Georgia asserting gender based claims about employment and promotion decisions in the Corporate Office I/S Page 14 Department. One of the employees continues to be employed by the Company. After its administrative consideration of the claims, the EEOC has issued "Right to Sue" letters to the four complainants in these claims, meaning that the EEOC will not sue or participate in a suit against the Company on behalf of the parties in these actions nor will it pursue a systemic discrimination charge in this matter. The letter provides that the individuals may pursue their claims and litigation on their own should they so desire. The four complainants filed an action in federal district court on March 19, 2003, seeking class certification for their claims of gender discrimination, unspecified monetary damages and injunctive relief. Discovery for the class certification phase of the litigation has ended, and the plaintiffs' motion for class certification is now being considered by the Court. The outcome of this case is uncertain. The Company intends to defend the litigation vigorously. The Company has been named as a defendant in a purported class action lawsuit filed in the U.S. District Court for the Northern District of Alabama, along with four additional chicken-processing firms. Plaintiffs allege that the defendants have conspired to prevent competition for production contracts and seek to represent a putative class of all contract farmers and sellers of hatching eggs and live broilers who produced hatching eggs or live broilers in the United States since February 23, 1998. Gold Kist moved to compel arbitration of Plaintiffs' claims based on arbitration agreements contained in Gold Kist's production contracts, membership agreements and by-laws. The Court granted Gold Kist's motion to compel arbitration between Plaintiffs and Gold Kist, and stayed Plaintiffs' claims against the other defendants pending completion of arbitration between Plaintiffs and Gold Kist. Plaintiffs have not yet initiated an arbitration against Gold Kist. Gold Kist believes that the claims are without merit and intends to defend the matter vigorously. The Company believes that this lawsuit will not have a material adverse effect on our financial condition or results of operations. Gold Kist is a party to various other legal, environmental and administrative proceedings, which management believes constitute ordinary routine litigation incidental to the business conducted by Gold Kist and are either accrued or not expected to be significant. 11. Investments In October 1998, the Company completed the sale of assets of the Agri-Services segment business to Southern States Cooperative, Inc. (SSC). In connection with the transaction, the Company purchased from SSC $60 million principal amount of capital trust securities and $40 million principal amount of cumulative preferred securities for $98.6 million in October 1999. In October 2002, SSC notified the Company that, pursuant to the provisions of the indenture under which the Company purchased the capital trust securities, SSC would defer the capital trust securities quarterly interest payment due on October 5, 2002. Quarterly interest payments for subsequent quarters were also deferred. As a result of the deferral of the interest payments, the Company reduced the carrying value of the capital trust securities by Page 15 $24.1 million with a corresponding charge against the loss from continuing operations for the year ended June 28, 2003. The carrying value of the SSC securities was $57.3 million at June 28, 2003. As of December 31, 2003, SSC's total stockholders' and patrons' equity fell below the Company's carrying value of the preferred stock investment, which the Company believed was a triggering event indicating impairment. In the quarter ended December 27, 2003, the Company recorded an "other-than-temporary" impairment charge of $18.5 million included in other expenses. In June 2004, the Company notified SSC that it was abandoning the investment and returning the securities. As a result of the abandonment, the remaining investment balance of $38.8 million was written off and reflected as an other expense in the consolidated statement of operations for the year ended June 26, 2004. 12. Earnings Per Share The net income for both the basic and diluted earnings per share computations was $38.7 million and $42.9 million for the three and six months ended April 2, 2005, respectively. Following is a reconciliation of weighted average shares - basic to weighted average shares - diluted.

As3 ofMos. ~~January~~6 1,Mos. ~~2005~~Ended ~~Balance~~Ended ~~Sheet:~~4/2/05 ~~Parent Guarantor Non-Guarantor Only Subsidiaries Subsidiary Eliminations Consolidated ASSETS Current assets: Cash and cash equivalents $129,997 199~~ 4/2~~,512~~/05 -Weighted ~~132,708~~average ~~Receivables,~~shares ~~net 113,494 12,678 34,737 (46,351) 114,558 Inventories 217,562 262~~ - -basic ~~217~~49,~~824~~972 ~~Deferred income taxes and other current assets 24~~49,~~267~~972 ~~537 21,478 - 46,282 Total current assets 485,320 13,676 58,727 (46,351) 511,372 Investments 35,411 - - (22,232) 13,179 Property, plant and equipment, net 255,097 271 - - 255,368~~ Deferred ~~income taxes and other assets 55,760 4,876 10,209~~ share-based 70,845 $831,588 18,823 68,936 (68,583) 850,764 LIABILITIES AND EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 20,402 - - - 20,402 Accounts payable 126,409 162 533 (46,351) 80,753 Accrued compensation ~~and~~grants ~~related~~777 ~~expenses~~498 ~~24,500~~Weighted 8average -shares - ~~24,508~~diluted ~~Other current liabilities 47~~50,~~541~~749 ~~536 30~~50,373 - 78,450 Total current liabilities 218,852 706 30,906 (46,351) 204,113 Long-term debt, less current maturities 209,767 - - - 209,767 Accrued pension costs 31,157 - - - 31,157 Accrued postretirement benefit costs 5,798 - - - 5,798 Other liabilities 13,394 325 33,590 - 47,309 Total liabilities 478,968 1,031 64,496 (46,351) 498,144 Stockholders' equity 352,620 17,792 4,440 (22,232) 352,620 $831,588 18,823 68,936 (68,583) 850,764470

13. Supplemental Combining Condensed Financial Statements The Company's senior notes are jointly and severally guaranteed by the Company's domestic subsidiaries, which are 100% owned by Gold Kist (the "Parent"), except for GK Insurance Inc., a wholly owned captive insurance company domiciled in the State of Vermont. The following are the unaudited supplemental combining condensed balance sheets as of October 2, 2004 and April 2, 2005, the supplemental combining condensed statements of operations for the three and six months ended March 27, 2004 and April 2, 2005 and the supplemental combining condensed statements of cash flows for the six months ended March 27, 2004 and April 2, 2005. The only intercompany eliminations are the normal intercompany revenues, borrowings and investments in wholly owned subsidiaries. Separate complete financial statements of the guarantor subsidiaries, which are 100% owned by the Parent, are not presented because the guarantors are jointly and severally, fully and unconditionally liable under the guarantees. Page 16

~~Three~~As ~~Months~~of ~~(13~~October ~~Weeks) Ended December 27~~2, ~~2003~~2004 ~~Statement~~Balance ~~of Operations~~Sheet: Parent Guarantor Non-Guarantor Only Subsidiaries Subsidiary Eliminations Consolidated ~~Net~~ASSETS ~~sales~~Current assets: Cash and cash equivalents $~~535~~166,~~400~~430 ~~732~~313 38,~~971~~546 - 175,289 Receivables, net 113,478 11,474 31,636 (341,~~176~~573) ~~536~~115,~~927~~015 ~~Cost~~Inventories of238,432 ~~sales~~460 ~~464~~- - 238,~~889~~892 ~~739~~Deferred 6income taxes and other current assets 27,~~265~~503 (3545 26,~~176)~~261 ~~468~~- 54,~~717~~309 ~~Gross~~Total ~~profit~~current ~~(loss)~~assets 70545,~~511~~843 12,792 66,443 (741,573) 583,505 Investments 35,252 - - (222,~~294~~180) -13,072 68Property,~~210~~ ~~Distribution~~plant and equipment, ~~administrative~~net 247,118 280 - - 247,398 Deferred income taxes and ~~general~~other ~~expenses~~assets 2864,~~761~~144 ~~241~~5,363 219,360 - 2978,~~023~~867 ~~Net~~$892,357 ~~operating~~18,435 ~~income~~75,803 (~~loss~~63,753) 41922,~~750~~842 ~~(248)~~LIABILITIES AND EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 20,875 - - - 20,875 Accounts payable 125,372 322 - (241,~~315~~573) 84,121 Accrued compensation and related expenses 42,540 16 - 39- 42,~~187~~556 ~~Interest~~Other current liabilities 47,671 ~~income~~5 ~~taxes~~40,373 ~~and~~- ~~other~~88,049 ~~net~~Total current liabilities 236,458 343 40,373 (3841,~~345~~573) ~~234~~235,601 1Long-term debt,~~086~~ 1less current maturities 281,~~243~~408 - - - 281,408 Accrued pension costs 37,387 - - - 37,387 Accrued postretirement benefit costs 6,760 - - - 6,760 Other liabilities 12,796 325 31,017 - 44,138 Total liabilities574,809 668 71,390 (3541,~~782~~573) ~~Net~~605,294 ~~income~~Patrons' and other equity 317,548 17,767 4,413 (~~loss~~22,180) 317,548 $892,357 318,~~405~~435 ~~(14)~~75,803 (163,~~229~~753) 1922,~~243 3,405~~842

Page 17

~~Three~~As ~~Months~~of ~~(13~~April ~~Weeks) Ended January 1~~2, 2005 ~~Statement~~Balance ~~of Operations~~Sheet: Parent Guarantor Non-Guarantor Only Subsidiaries Subsidiary Eliminations Consolidated ~~Net~~ASSETS ~~sales~~Current assets: Cash and cash equivalents $~~551~~166,~~129~~425 ~~795~~386 32,~~526~~523 - 169,334 Receivables, net 115,818 12,843 33,417 (345,~~492~~526) ~~551~~116,~~958~~552 ~~Cost~~Inventories of215,278 ~~sales~~301 ~~502~~- - 215,~~819~~579 ~~830~~Deferred 3income taxes and other current assets 23,~~965~~363 (3501 26,~~492)~~199 ~~504~~- 50,~~122~~063 ~~Gross~~Total ~~profit~~current assets 520,884 14,031 62,139 (~~loss~~45,526) 48551,~~310~~528 (Investments 35),868 - - (~~439~~22,860) -13,008 47Property,~~836~~ ~~Distribution~~plant and equipment, ~~administrative~~net 268,285 266 - - 268,551 Deferred income taxes and ~~general~~other ~~expenses~~assets 2660,~~239~~707 ~~122~~4,086 2311,445 - 2676,~~384~~238 ~~Net~~$885,744 ~~operating~~18,383 ~~income~~73,584 (~~loss~~68,386) 22909,~~071~~325 ~~(157)~~LIABILITIES AND EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 10,472 - - - 10,472 Accounts payable 123,009 243 407 (~~462~~45,526) 78,133 Accrued compensation and related expenses 34,918 15 - 21- 34,~~452~~933 ~~Interest~~Other current liabilities 66,529 ~~income~~4 ~~taxes~~34,371 ~~and~~- ~~other~~100,904 ~~net~~Total ~~(17~~current liabilities 234,~~878)~~928 ~~182~~262 ~~489~~34,778 (5245,526) 224,442 Long-term debt, less current maturities 201,884 - - - 201,884 Accrued pension costs 32,681 - - - 32,681 Accrued postretirement benefit costs 5,027 - - - 5,027 Other liabilities 12,736 325 33,742 - 46,803 Total liabilities 487,256 587 68,520 (1745,~~259~~526) ~~Net~~510,837 ~~income~~Stockholders' equity 398,488 17,796 5,064 (~~loss~~22,860) 398,488 $885,744 418,~~193~~383 2573,584 27 (5268,386) 4909,~~193~~325

Page 18

Statement of Three Months (13 Weeks) Ended ~~December~~March 27, ~~2003~~2004 ~~Statement of Cash Flows~~Operations: Parent Guarantor Non-Guarantor Only Subsidiaries Subsidiary Eliminations Consolidated Net ~~cash~~sales ~~provided by (used in) operating activities~~ $574,060 44810 3,~~273~~598 (~~710~~2,879) ~~5 - 43~~575,~~568~~589 ~~Cash~~Cost ~~flows~~of ~~from~~sales ~~investing~~479,756 ~~activities:~~812 ~~Acquisitions of property~~2,439 ~~plant and equipment~~ (52,~~769~~879) -480,128 -Gross -profit (~~5,769~~loss) ~~Other~~94,304 (~~151~~2) ~~592~~1,159 - -95,461 ~~441~~Distribution, ~~Net~~administrative ~~cash~~and ~~provided~~general byexpenses ~~(used in) investing activities (5~~26,~~920)~~985 ~~592~~196 -19 - (527,~~328)~~200 ~~Cash~~Pension ~~flows~~plan ~~from~~settlement ~~financing~~expense ~~activities: Principal repayments of long-term debt (35~~9,~~688)~~908 - - - ~~(35~~9,~~688)~~908 ~~Payments~~Net ofoperating ~~capitalized~~income ~~financing~~(loss) ~~costs~~57,411 -(198) -1,140 - -58,353 -Interest, ~~Patronage~~income ~~refunds~~taxes and other, ~~equity~~net ~~paid in cash~~ (~~456~~27,549) -117 ~~- -~~ (~~456~~89) ~~Net cash used in financing activities~~ (~~36,144~~970) ~~- - -~~ (3628,~~144~~491) Net ~~change~~income ~~in cash and cash equivalents 2,209~~ (~~118~~loss) ~~5 - 2,096 Cash and cash equivalents, beginning of period 11,088 273 2,514 - 13,875 Cash and cash equivalents, end of period~~ $ 1329,~~297~~862 ~~155~~(81) 21,~~519~~051 -(970) 1529,~~971~~862

Statement of Three Months (13 Weeks) Ended ~~January~~April 12, 2005 ~~Statement of Cash Flows~~Operations: Parent Guarantor Non-Guarantor Only Subsidiaries Subsidiary Eliminations Consolidated Net ~~cash~~sales ~~provided by (used in) operating activities~~ $571,026 21824 3,~~080~~519 (~~600) (6~~4,~~034~~560) ~~- 14~~570,~~446~~809 ~~Cash~~Cost ~~flows from investing activities: Acquisitions~~ of ~~property,~~sales ~~plant and equipment (17~~478,~~687)~~169 ~~(1)~~850 ~~- - (17,688) Other~~ 3,~~889~~095 ~~487 - -~~ (4,~~376 Net cash provided by (used in~~560) ~~investing activities (13~~477,~~798)~~554 ~~486~~Gross -profit - (~~13,312~~loss) ~~Cash flows from financing activities: Principal repayments of long-term debt (73~~92,~~181)~~857 ~~- - -~~ (~~73,181~~26) ~~Patronage~~424 ~~refunds and other equity paid in cash (3,165)~~ - ~~- - (3~~93,~~165)~~255 ~~Proceeds from initial public offering~~Distribution, ~~net~~administrative ~~of underwriting~~ and ~~offering~~general expenses ~~paid 138~~32,~~859~~840 -217 -19 - ~~138~~33,~~859~~076 ~~Cash~~Net ~~distributions~~operating toincome ~~members and equity holders~~ (~~105,963~~loss) ~~- - - (105~~60,~~963)~~017 ~~Treasury stock acquired~~ (~~265~~243) -405 - -60,179 ~~(265)~~Interest, ~~Net~~income ~~cash~~taxes ~~used~~and inother, ~~financing~~net ~~activities~~ (4321,~~715~~348) -247 -219 -(628) (4321,~~715~~510) Net ~~change~~income ~~in cash and cash equivalents~~ (~~36,433~~loss) ~~(114)~~$ (638,~~034)~~669 -4 624 (~~42,581~~628) ~~Cash and cash equivalents~~38, ~~beginning of period 166,430 313 8,546 - 175,289 Cash and cash equivalents, end of period $129,997 199 2,512 - 132,708~~669

~~Quarter~~Statement ~~Ended:~~of ~~Fiscal~~Six ~~Year~~Months (26 Weeks) Ended: ~~Dec.~~March 27, ~~Jan.~~2004 1,Operations: ~~June~~Parent ~~26,~~Guarantor ~~2003~~Non-Guarantor ~~2005~~Only ~~2004~~Subsidiaries Subsidiary Eliminations Consolidated Net sales ~~100.0%~~$1,109,460 ~~100.0%~~1,542 ~~100.0%~~7,569 (6,055) 1,112,516 Cost of sales ~~87.3~~944,645 ~~91.3~~1,551 ~~84.0~~8,704 (6,055) 948,845 Gross profit ~~12.7~~(loss) ~~8.7~~164,815 ~~16.0~~(9) ~~Distribution~~(1,135) ~~administrative~~- 163,671 ~~general~~Distribution, administrative and ~~other~~general expenses ~~5.4~~55,745 ~~4.8~~437 ~~5.3~~41 ~~Net~~- ~~operating~~56,223 ~~income~~Pension ~~7.3~~plan 3.settlement expense 9,908 ~~10.7~~- ~~Interest~~- ~~expense~~- 9,908 Net operating income (~~1.3~~loss) 99,162 (~~1.3~~446) (1.6,176) ~~Other~~- ~~income~~97,540 ~~(expenses)~~Interest, ~~(including~~ income taxes) ~~(5.4)~~and other, net (~~1.8~~65,895) 351 998 273 (~~4.2~~64,273) Net income ~~.6%~~(loss) ~~.8%~~$ ~~4.9%~~33,267 (95) (178) 273 33,267

~~Payments~~Statement ~~Due~~of bySix ~~Period~~Months ~~Less~~(26 ~~than~~Weeks) ~~After~~Ended ~~Total~~April 12, ~~year~~2005 ~~1-3~~Operations: ~~years~~Parent 4Guarantor Non-5Guarantor ~~years~~Only 5Subsidiaries ~~years~~Subsidiary ~~Long-term~~Eliminations ~~debt~~Consolidated ~~(a)~~Net sales $~~230.2~~1,122,155 ~~20.4~~1,619 ~~26.~~7,045 (8,052) 1,122,767 ~~23.~~Cost of sales 980,988 1,680 ~~160.6~~7,060 ~~Operating~~(8,052) ~~leases~~981,676 Gross profit (bloss) ~~50.9~~141,167 ~~14.8~~(61) ~~20.6~~(15) ~~13.5~~- ~~2.0~~141,091 ~~Feed~~Distribution, ~~ingredient~~administrative ~~purchase~~and ~~commitments~~general expenses 59,079 339 42 - 59,460 Net operating income (closs) ~~129.0~~82,088 ~~129.0~~(400) -(57) - -81,631 ~~Total~~Interest, income taxes and other, net (d39,226) 429 708 (680) (38,769) Net income (loss) $~~410.1~~ ~~164.2~~42,862 ~~46.7~~29 ~~36.6~~651 ~~162.6~~(680) 42,862

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Page 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION General After two decades of rapid growth, the broiler industry is maturing and will be dependent on new and value-added product development, as well as expanded export opportunities, for continued revenue growth. Production and operating efficiencies will also be necessary for increased profitability. In addition, the industry is undergoing consolidation as a number of acquisitions and mergers have occurred in the last five years. The market share of the top five U.S. firms in terms of ready-to-cook broiler meat production has increased from approximately 49% to 60% during that period, and this trend is expected to continue. Gold Kist is the third largest producer of broilers and related products accounting for approximately 9% of the industry's production. The industry has experienced volatility in results of operations over the last five years and expects the volatility to continue in the foreseeable future. Volatility in results of operations is generally attributable to fluctuations, which can be substantial, in broiler sales prices and cost of feed grains. Broiler sales prices tend to fluctuate due to supply of chicken, viability of export markets, supply and prices of competing meats and proteins, animal health factors in the global meat sector and general economic conditions. According to the USDA World Agricultural Outlook Board (WAOB), calendar 2004 U.S. broiler meat production was approximately 33.7 billion pounds, ready-to-cook weight, 4.0% above the 32.4 billion pounds produced in calendar 2003. The WAOB April estimate for calendar 2005 broiler meat production is 34.7 billion pounds, which is a 3.2% increase from the calendar 2004 estimate. This moderate increase is principally due to heavier bird weights. Our export sales, which we define as sales other than to customers in the United States or Canada, were $57.6 million for the six months ended April 2, 2005. The U.S. poultry industry historically has exported 15% to 20% of domestic production, principally dark meat products to Russia and other former Soviet Republics, Hong Kong, Mexico and Japan. The Company's export sales have historically been less than 10% of net sales. However, any disruption in the export markets can significantly impact domestic broiler sales prices by creating excess domestic supply. The cost of feed grains, primarily corn and soybean meal, averages approximately 55% to 60% of total live broiler production costs or approximately 30% to 35% of the Company's cost of sales. Prices of feed grains fluctuate in response to worldwide supply and demand. Corn and soybean meal prices increased significantly in fiscal 2003 with soybean meal prices further increasing significantly in fiscal 2004, due to stronger worldwide demand and reduced U.S. crops due to weather problems in grain producing areas. Barring weather or other problems, worldwide soybean and corn production is expected to increase, which may favorably impact feed ingredient costs in fiscal 2005. Average feed costs for the Company were lower in the second fiscal quarter as compared to the first quarter of fiscal 2005 and the same quarter last year. Page 22 We believe that we can reduce the impact of industry volatility on our results by increasing our value-added product lines, continuing to improve our cost structure and continuing our commitment to a strategy to grow private label sales. General issues such as increased domestic and global competition in the meat industry, heightened concerns over the security of the U.S. food supply, volatility in feed grain commodity prices and export markets, increasing government regulation over animal production and animal welfare activism continue as significant risks and challenges to profitability and growth, both for Gold Kist and the broiler industry. References in this report to "fiscal 2005," "fiscal 2004," "fiscal 2003," "fiscal 2002," "fiscal 2001," and "fiscal 2000" refer to the Company's fiscal years ending or ended October 1, 2005, June 26, 2004, June 28, 2003, June 29, 2002, June 30, 2001 and July 1, 2000, respectively. RESULTS OF OPERATIONS The following table presents certain statement of operations items as a percentage of net sales for the periods indicated:

Net Sales Gold Kist's net sales for the quarter ended April 2, 2005 decreased 0.8% compared to the quarter ended March 27, 2004. For the six months ended April 2, 2005, net sales volume increased 0.9% from $1.11 billion in the comparable period last year to $1.12 billion in the current year. The change in net sales was due primarily to an approximate 8.4% and 6.9% increase in broiler pounds produced and sold for the quarter and six months ended April 2, 2005, respectively, offset by a decline of 9.1% and 6.1% in average broiler sales prices for the same periods. Increased supply was the principal factor leading to the decline of prices from the three and six-month periods ended March 2004. Average broiler sales prices for the quarter ended April 2, 2005 were 4.9% higher than prices for the quarter ended January 1, 2005 due to increased demand. The nominal increase in sales for the six months ended April 2, 2005 was also impacted by a $1.5 million increase in sales of the pork division due to higher prices caused by stronger demand. Page 23 Our export sales of $26.9 million and $57.6 million for the three and six months ended April 2, 2005, respectively, were 22.3% and 10.0% higher than the fiscal 2004 periods, due to increased shipments to Russia and increased demand from other countries. Our export sales to Russia increased 44.4% in pounds shipped and 21.9% in dollar value from $22.1 million in the March 2004 year-to-date period to $26.9 million in the March 2005 year-to-date period. Net Operating Income The Company had net operating income of $60.2 million and $81.6 million for the three and six months ended April 2, 2005, respectively, compared to net operating income of $58.4 million and $97.5 million in the comparable periods in 2004. The decrease in net operating income in the March 2005 year-to-date period as compared to the March 2004 period was due primarily to lower broiler selling prices and increased processing and other production costs. Feed costs for the six months ended April 2, 2005 were 4.9% lower than the six months ended March 27, 2004. The higher feed costs experienced in the first fiscal quarter ending January 1, 2005 were due to forward contracts that were priced in excess of cash markets. Deliveries under these contracts were completed in early January, and lower feed ingredient costs in the quarter ended April 2, 2005 more than offset the first quarter increase. Year-to-date average prices for corn and soybean meal for the six months ended April 2, 2005 were 12.4% and 11.8% below the prior year-to-date period in 2004, respectively. The 3.2% year-to-date increase in distribution, administrative and general expenses was principally due to the noncash share-based compensation expense of $7.8 million related to the stock grants and awards issued to employees in October 2004 and January 2005. Distribution, administrative and general expenses for the six months ended April 2, 2005 equaled 5.2% of net sales. Approximately $5.3 million of the share-based compensation expense was recognized with respect to recipients aged 55 or older and eligible for early retirement (see Note 9 of Notes to Consolidated Financial Statements). Excluding the total share-based compensation expense of $7.8 million for the six months ended April 2, 2005, distribution, administrative and general expenses decreased by 10.6% and equaled 4.5% of net sales. The decrease was principally due to lower cash incentive compensation accruals. We have presented percentages regarding changes in distribution, administrative and general expenses adjusted to exclude share-based compensation expenses because we believe that investors are interested in our results of operations excluding share-based compensation expense and because our management uses this information to analyze our results from continuing operations and to view trends and changes in such results. Expenses of $1.4 million, principally advisory fees related to the conversion of the Company from a cooperative marketing association to a for- profit corporation, were incurred in the six months ended April 2, 2005. Other Expenses Other expenses, including interest and miscellaneous, net totaled $3.0 million and $17.6 million for the three and six months ended April 2, 2005, respectively, compared to $11.7 million and $36.5 million for the comparable periods in 2004. Page 24 Interest expense was $6.2 million and $13.3 million for the three and six months ended April 2, 2005, compared to $7.0 million and $13.8 million for the comparable periods in 2004. Lower average balances in the three and six months ended April 2, 2005 were the principal factor leading to the decrease in interest expense. The Company incurred a prepayment interest charge of $5.5 million and wrote off deferred financing fees of $.8 million with respect to the payoff of a term loan with an insurance company with part of the proceeds from the Company's issuance of $200 million in senior notes in March 2004. In connection with the repayment of $70 million principal amount of the senior notes with a portion of the proceeds from Gold Kist's initial public offering completed on October 13, 2004, the Company incurred a $7.2 million prepayment interest charge. In addition, deferred financing costs of $1.8 million and 35% of the unamortized discount on the issuance of the senior notes of $1.0 million were written off. The $18.5 million loss on investment for the six months ended March 27, 2004 represented an impairment charge taken on the Company's investment in another cooperative. The $38.8 million remaining balance of the investment was written off in June 2004. Miscellaneous, net was income of $1.3 million and $3.0 million for the three and six months ended April 2, 2005, respectively, compared to $0.9 million and $1.2 million for the comparable periods last year. Income from a hog production joint venture was $1.9 million for the six months ended April 2, 2005 as compared to $0.2 million for the six months ended March 27, 2004 due to improved hog market prices brought about by increased demand. Interest and dividend income was $1.9 million and $2.7 million in the three and six months ended April 2, 2005, respectively, as compared to $0.7 million and $0.9 million for the three and six months ended March 27, 2004, respectively, principally due to interest income from cash invested in short-term interest bearing instruments. Income Tax Expense For the three and six months ended April 2, 2005, our combined federal and state effective income tax rates used for purposes of calculating the tax expense on income before income taxes were 32.3% and 33.0%, respectively. Income tax expense for the three and six months ended April 2, 2005 reflects income taxes at statutory rates adjusted principally for available tax credits and the deductibility of state income taxes for federal tax purposes. The Company's effective tax rate was favorably impacted by additional state tax credits from prior years that became available and were recorded in the three-month period ended April 2, 2005. The Company expects income tax rates to approximate 38% for the remainder of the fiscal year. For the three and six months ended March 27, 2004, the Company's combined federal and state effective income tax rates were 36.0% and 45.5%, respectively. The increased effective tax rate over the federal and state statutory rates for the six months ended March 27, 2004 was due to the deferred income tax valuation allowance established for the impairment loss in December 2004 related to an investment in another cooperative. Page 25 LIQUIDITY AND CAPITAL RESOURCES Our liquidity is dependent upon cash flow from operations and external sources of financing. In March 2004, the Company issued $200.0 million aggregate principal amount of senior notes. The interest rate on the senior notes is 10.25%, with interest payable semi-annually on March 15 and September 15. The senior notes due 2014 were issued at a price of 98.47% and are reflected net of the unamortized discount in the accompanying consolidated balance sheets. We repaid approximately $70.0 million of these notes, plus $7.2 million in prepayment interest charges, on November 12, 2004 with a portion of the proceeds from the Company's initial public offering completed on October 13, 2004. In connection with the offering of our senior notes, we amended the terms of our senior credit facility to provide for a revolving line of credit in an aggregate principal amount of $125.0 million, including a sub-facility of up to $60.0 million for letters of credit, for a term of three years. The facility is secured by a security interest in substantially all of our assets, including all of our present and future accounts receivable and inventory, property, plant and equipment and the stock of certain of our subsidiaries. Borrowings under the facility are limited to the lesser of $125.0 million and a borrowing base determined by reference to a percentage of the collateral value of the accounts receivable and inventories, including our broiler and breeder flocks, securing the facility. As of April 2, 2005, we had approximately $93.7 million available for borrowing under this facility. Approximately $31.3 million of letters of credit are outstanding under the facility. Our debt agreements place a limitation on capital expenditures, cash dividends, commodity hedging contracts and additional loans, advances or investments. The terms of our debt agreements (other than the senior notes) contain financial covenants, including those that specify minimum consolidated tangible net worth, current ratio and coverage ratio requirements, as well as a limitation on the total debt to total capital ratio. The agreements also include other financial covenants. These covenants are described in more detail in the Annual Report on Form 10-K for the fiscal year ended June 26, 2004 for Gold Kist Inc. (the Georgia Cooperative Marketing Association). At April 2, 2005, we were in compliance with all applicable loan covenants under our senior notes and credit facilities. For the first six months ended April 2, 2005, cash provided by operating activities was $90.2 million compared to cash provided from operating activities of $103.5 million for the six months ended March 27, 2004. The lower cash flow was due principally to the reduction in net operating income and the pension plan contribution in excess of benefit plan expenses in the six months ended April 2, 2005. Cash used in financing activities for the six months ended April 2, 2005 was $61.6 million compared to $10.6 million for the comparable March 2004 period. Pursuant to the conversion, approximately 36.4 million shares of common stock and $106.0 million in cash were issued and distributed in December 2004 to members and former member equity holders. We issued Page 26 12,000,000 shares of our common stock in our initial public offering at a price of $11.00 per share and converted to a for-profit corporation on October 13, 2004. Including proceeds from the exercise, in November 2004, of the underwriters' overallotment option to purchase an additional 1.6 million shares at the offering price of $11.00 per share, total proceeds, net of expenses, were $137.2 million. Part of the proceeds and funds from existing cash balances were used for the repayment of 35% of the principal amount of senior notes in the amount of $70.0 million. The payment of the $2.4 million cash portion of the nonqualified patronage refund for the period from June 27, 2004 to October 12, 2004 and patronage equity cashings of $.8 million are also reflected in the net cash used in financing activities for the six months ended April 2, 2005. In addition, the Company repaid a term loan with an agricultural credit bank and the Industrial Revenue Bond totaling $14.7 million during the three months ended April 2, 2005. At April 2, 2005, the Company had cash of $154.8 million invested in short term interest-bearing instruments. Working capital and patrons' and other equity/stockholders' equity were $327.1 million and $398.5 million, respectively, at April 2, 2005 as compared to $347.9 million and $317.5 million, respectively, at October 2, 2004. The reduction in cash for the distribution to members and equity holders and the partial repayment of the senior notes, partially offset by cash provided by operations and other changes in current assets and liabilities, was the principal factor for the lower working capital level. The increase in total equity resulted from the additional paid in capital in excess of the cash distributions to members and equity holders from the initial public offering in October 2004 and from the net income for the first six months of fiscal 2005. We spent $41.6 million in capital expenditures for the six months ended April 2, 2005 and expect to spend a total of approximately $80 million in the fiscal year ending October 1, 2005. This includes expenditures for expansion of further processing capacity and technological advances in our poultry production and processing operations. In addition, capital expenditures included other asset improvements and necessary replacements. Management plans to fund fiscal 2005 capital expenditures, including an ongoing $47.0 million expansion of our Live Oak, Florida facility over the next two years, and related working capital needs with existing cash balances and cash expected to be provided from operations. Effective January 1, 2004, we prospectively amended our qualified pension plan. For benefits earned in 2004 and future years, the basic pension formula was changed from 50% to 45% of final average earnings, early retirement benefits were reduced, and the lump sum distribution option is no longer available. The pension benefits earned by employees through 2003 were unchanged. We made a pension plan contribution of $15.0 million in August 2004 and made an additional contribution of $8.0 million in November 2004. In light of the improved operating results and strong operating cash flow for the quarter ending April 2, 2005, the Company may consider additional pension plan contributions in fiscal 2005. We believe cash on hand, cash equivalents and cash expected to be provided from operations, in addition to borrowings available under our amended senior credit facility, will be sufficient to maintain cash flows adequate for our operational objectives during fiscal 2005. Page 27 Important Considerations Related to Forward-Looking Statements The statements contained in this report regarding our future financial and operating performance and results, business strategy, market prices, future commodity price risk management activities, plans and forecasts and other statements that are not historical facts are forward-looking statements, as defined in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward- looking statements on our current assumptions, expectations and projections about future events. We use the words "may," "will," "expect," "anticipate," "estimate," "believe," "continue," "intend," "should," "would," "could", "plan," "budget" and other similar words to identify forward-looking statements. You should read statements that contain these words carefully because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other "forward-looking" information. These statements may also involve risks and uncertainties that could cause our actual results of operations or financial condition to materially differ from our expectations, including, but not limited to: - fluctuations in the cost and availability of raw materials, such as feed ingredients; - changes in the availability and relative costs of labor and contract growers; - market conditions for finished products (including further processed products), including competitive factors and the supply and pricing of alternative meat proteins; - effectiveness of our sales and marketing programs; - disease outbreaks affecting broiler production and/or marketability of our products; - effectiveness of our capital expenditures and other cost- saving measures; - contamination of products, which can lead to product liability and product recalls; - access to foreign markets together with foreign economic conditions; - acquisition activities and the effect of completed acquisitions; - pending or future litigation; - the ability to obtain additional financing or make payments on our debt; - regulatory developments, industry conditions and market conditions; and - general economic conditions. Any forward-looking statements in this report are based on certain assumptions and analysis made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the current circumstances. However, events may occur in the future that we are unable to accurately predict, or over which we have no control. Forward- Page 28 looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. You are therefore cautioned not to place undue reliance on such forward-looking statements. We do not intend to update any forward-looking statements contained in this document. When considering our forward-looking statements, also keep in mind the risk factors and other cautionary statements in this report and in other reports that we file with the Securities and Exchange Commission. Contractual Obligations Obligations under long-term debt, non-cancelable operating leases and feed ingredient purchase commitments at April 2, 2005 are as follows (in millions):

(a) Excludes $31.3 million in total letters of credit outstanding related to normal business transactions. (b) Interest payments include amounts for fixed rate and term debt as outlined in Note 7 of Notes to Consolidated Financial Statements based on the expected payment dates. (c) Operating lease commitments as of June 26, 2004. There have not been any significant changes in the six months ended April 2, 2005. (d) Feed ingredient purchase commitments include both priced and unpriced contracts in the ordinary course of business. Unpriced feed ingredient commitments are priced at market as of April 2, 2005 for the month of delivery. (e) We contract with broiler, breeder, pullet, layer, hog and nursery pig producers. Although these contracts are subject to acceptable grower performance on a flock-to-flock or herd-to-herd basis, we expect the grow out activity to continue through the periods covered by the grower contracts. Annual grower pay has averaged approximately $240.0 million per year over the past two years with the actual amounts determined by relative performance and other factors. Grower payments have not been included in the contractual obligations table due to the inherent uncertainty of the future amounts. Page 29 Critical Accounting Policies Share-based compensation. The Company adopted SFAS No. 123(r), "Share- Based Payment," in January 2005. SFAS No. 123(r) requires the determination of share-based payments as equity or liability classified and measurement of the payment at fair value. Assumptions and judgments are made by management concerning the classification and valuation of the stock grants and awards, the requisite service periods, the assessment of the conditions imposed by the payment, employee turnover, volatility, the term of the awards and other factors used in determining the compensation expense. The Company expects to make additional share-based payments in the future and different assumptions and judgments could result in different costs that could have a material impact on the consolidated statements of operations. In addition, the resolution of implementation issues and further interpretations with regard to SFAS 123(r) could impact the assumptions and judgments used by the Company in earlier or future periods. There were no other material changes in the Company's critical accounting policies during the quarter ended April 2, 2005. Effects of Inflation The major factor affecting our net sales and cost of sales is the change in 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 can, however, adversely affect our operating costs such as labor, energy and material costs. New Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, "Inventory Costs," effective for fiscal years beginning after June 15, 2005. The Company does not expect that SFAS No. 151 will have a significant impact on our consolidated financial statements. In December 2004, Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (SFAS No. 123(r)) was issued. The Statement is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." This statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123(r) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Effective in January 2005, the Company early adopted the provisions of SFAS 123(r). See Note 9 of Notes to Consolidated Financial Statements. In October 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA allows for a federal income tax deduction for a percentage of income generated from certain domestic production activities. The Company's production activities will qualify for the deduction. Based on the effective date of the AJCA, the Company will be eligible for this deduction in the first quarter of fiscal 2006. Additionally, in December 2004, the FASB issued FASB Staff Position 109-1, "Application of SFAS No. 109, Page 30 Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" (FSP 109-1). FSP 109-1, which was effective upon issuance, states the deduction under this provision of the AJCA should be accounted for as a special deduction in accordance with SFAS 109. The Company has not yet determined the benefit that may be realized from this provision. Risks Relating to Our Business Industry cyclicality, especially fluctuations in the supply of broiler products, affects the prevailing market price of broiler products, our sales and our earnings. Profitability in the broiler industry is materially affected by the prevailing price of broiler products, which is primarily determined by supply and demand factors in the market. In recent years, the profitability of companies in the broiler industry has been adversely affected from time to time by excess supplies of broiler products in the market. As a result of the efficiencies in the U.S. broiler market, even modest increases in the broiler supply in the United States can significantly decrease the market prices at which we can sell our broiler products. Such increases in domestic supply can arise as a result of unanticipated decreases in export demand, among other reasons. Given the perishable nature of broiler products, we are unable to manage inventories to address any short-term changes in market prices. As a result, from time to time we are forced to sell our broiler products at a loss. Because we sell a relatively small percentage of our products under fixed-price contracts, increases in the overall supply of broiler products and any related decrease in broiler prices adversely affect our operating results. This has resulted and will continue to result in fluctuations in our earnings. Market prices for broiler products reached their highest levels since 1999 during our 2004 fiscal year, but have declined through the three months ended January 1, 2005. Fluctuations in commodity prices of feed ingredients materially affect our earnings. A significant portion of the cost of producing our broiler products consists of amounts spent in connection with purchasing corn and soybean meal, our primary feed ingredients. As a result, fluctuations in feed ingredient prices materially affect our earnings. While prices of these items increase from time to time, we may not be able to pass through any increase in the cost of feed ingredients to our customers. High feed ingredient prices have had a material adverse effect on our operating results in the past. We periodically seek, to the extent available, to enter into advance purchase commitments or commodity futures contracts for the purchase of a portion of our feed ingredients in an effort to manage our feed ingredient costs. However, the use of such instruments may not be successful in limiting our exposure to market fluctuations in the cost of feed and may limit our ability to benefit from favorable price movements. Furthermore, the production of feed ingredients is positively or negatively affected by weather patterns throughout the world, the global level of supply inventories and demand for feed ingredients, the availability and cost of transportation, as well as the agricultural policies of the United States and foreign governments. In particular, weather patterns often change Page 31 agricultural conditions in an unpredictable manner. A sudden and significant change in weather patterns could affect the supply of feed ingredients, as well as both the industry's and our ability to obtain feed ingredients, grow broilers and deliver products. Any such change would have a material negative impact on our business and results of operations. See "Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition." Significant competition in the broiler industry with other vertically integrated broiler companies, especially companies with greater resources, may make us unable to compete successfully in this industry, which would adversely affect our business. The broiler industry is highly competitive. Some of our competitors have greater financial and marketing resources than we do. In general, the competitive factors in the U.S. broiler industry include price, product quality, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the foodservice market, we believe competition is based on consistent quality, product development, customer service and price. In the U.S. retail market, we believe that competition is based on product quality, brand awareness, customer service and price. We also face competition from non-vertically integrated further processors with regard to our further-processed products. The highly competitive conditions in the broiler industry could force us to reduce prices for our products, which would adversely affect our results of operations and financial condition. The loss of one of our large customers could have a material adverse effect on our results of operations. Sales to our top ten customers represented approximately 33.5% of our net sales during the quarter ended April 2, 2005 and during such period, approximately 12.8% of our net sales were to our largest customer. We do not have long-term contracts with any of our major customers and, as a result, any of our major customers could significantly decrease or cease their business with us with limited or no notice. If we lost one or more of our major customers, or if one or more of our major customers significantly decreased its purchases from us, our business, sales and results of operations could be materially and adversely affected. Foreign embargos, decreased export demand, oversupply of broiler products and competing products and bans on exported chicken and livestock would have an adverse effect on our business. We are an exporter to Russia and other former Soviet republics, China, the Pacific Rim, the Middle East, South and Central America and the Caribbean Islands. Any decrease in exports to foreign countries based on embargos, decreased demand, oversupply of broiler products or competing products or bans on exported chicken may have an adverse effect on our ability to export chicken and other products. Such occurrences would also likely increase the supply of broilers and competing products in the United States, which would likely result in lower prices for broiler products and could adversely affect our business. For example, in 2002 and 2003, export sales to Russia declined due to an embargo on certain imported meats, leading to a domestic Page 32 oversupply and a decrease in the market price of chicken. Russia has implemented import quotas on chicken and other meats that reduce U.S. broiler imports to approximately 70% of 2002 levels. In addition, for several months in 2004, China, Japan and several smaller chicken importing countries banned all imports of broiler products from the United States due to several chickens in Delaware and Texas testing positive for avian influenza. Also as a result of this event, Russia and Hong Kong banned the import of broiler products from Delaware and Texas for a period of time. Any implementation of similar bans in the future or the implementation of quotas or other import restrictions would adversely affect our domestic and export sales and our results of operations. We have been, and may in the future be, subject to claims and liabilities under environmental, health, safety and other laws and regulations, which could be significant. Our operations are subject to various federal, state, local and foreign environmental, health, safety and other laws and regulations, including those governing air emissions, wastewater discharges and the use, storage, treatment and disposal of hazardous materials. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations by governmental agencies or courts. In addition, we anticipate increased regulation by various governmental agencies concerning food safety, the use of medication in feed formulations, the disposal of animal by-products and wastewater discharges. Furthermore, business operations currently conducted by us or previously conducted by others at real property owned or operated by us, business operations of others at real property formerly owned or operated by us and the disposal of waste at third party sites expose us to the risk of claims under environmental, health and safety laws and regulations. For example, we have received notice letters designating us as a potentially responsible party for alleged environmental contamination at a site that we previously owned. Other properties we own or owned in the past have been designated for cleanup under federal and state environmental remediation statutes, which could result in further liabilities to us. In addition, we are subject to potential claims for residual environmental liabilities arising out of our sale of our Agri-Services business in 1998. The agreements related to our disposition of certain properties require that we indemnify the buyer of such properties with regard to any associated environmental liabilities. We could incur material costs or liabilities in connection with claims related to any of the foregoing. The discovery of presently unknown environmental conditions, changes in environmental, health, safety and other laws and regulations, enforcement of existing or new laws and regulations and other unanticipated events could give rise to expenditures and liabilities, including fines or penalties, that could have a material adverse effect on our business, operating results and financial condition. If our products become contaminated, we may be subject to product liability claims and product recalls. Our products may be subject to contamination by disease producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E. coli. These pathogens are found generally in the environment and, therefore, there is a risk that they, as a result of food processing, could be present in our processed products. These pathogens can also be introduced to our Page 33 products as a result of improper handling at the further processing, foodservice or consumer level. These risks may be controlled, but may not be eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling procedures once our products have been shipped for distribution. Even if a product is not contaminated when it leaves our facility, illness and death may result if the pathogens are not also eliminated at the further processing, foodservice or consumer level. Increased sales of further- processed products could lead to increased risks in this area. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls (which may not entirely mitigate the risk of product liability claims) and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation and prospects. Outbreaks of livestock diseases in general, and broiler diseases in particular, could significantly restrict our ability to conduct our operations. Events beyond our control, such as the outbreak of disease, could significantly restrict our ability to conduct our operations. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our fresh broiler products, pork or other products to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks. This could result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation and prospects. For example, because several chickens in Delaware and Texas tested positive for avian influenza last year, several countries imposed import bans and the infected flocks were destroyed. See "--Foreign embargos, decreased export demand, oversupply of broiler products and competing products and bans on exported chicken and livestock would have an adverse effect on our business." Increased water, energy and gas costs would increase our expenses and reduce our profitability. We require a substantial amount, and as we expand our business we will require additional amounts, of water, electricity and natural gas to produce and process our broiler products. The prices of water, electricity and natural gas fluctuate significantly over time. One of the primary competitive factors in the U.S. broiler market is price, and we may not be able to pass on increased costs of production to our customers. As a result, increases in the cost of water, electricity or natural gas would substantially harm our business and results of operations. Increased costs of transportation would negatively affect our profitability. Our transportation costs are a material portion of the cost of our products. We primarily ship our products and receive our inputs via truck and rail and rely on third party transportation companies for the delivery of most of our products and inputs. The costs associated with the transportation of our products and inputs fluctuate with the price of fuel, the costs to our Page 34 transportation providers of labor and the capacity of our transportation sources. Increases in costs of transportation would negatively affect our profitability. We are exposed to risks relating to product liability, product recalls, property damage and injury to persons for which insurance coverage is expensive, limited and potentially inadequate. Our business operations entail a number of risks, including risks relating to product liability claims, product recalls, property damage and injury to persons. Insurance for these risks is expensive and difficult to obtain, and we may not be able to maintain this insurance in the future on acceptable terms, in amounts sufficient to protect us against losses due to any such events or at all. Moreover, our insurance coverage may not adequately protect us from all of the liabilities and expenses that we incur in connection with such events. If we were to suffer a loss that is not adequately covered by insurance, our results of operations and financial condition would be adversely affected. Any acquisition we make could disrupt our business and harm our financial condition. We may seek to expand our business through the acquisition of companies, technologies, products and services from others. Acquisitions may involve a number of problems, including: - difficulty integrating acquired technologies, operations and personnel with our existing business; - diversion of management attention in connection with negotiating acquisitions and integrating the businesses acquired; - exposure to unforeseen liabilities of acquired companies; and - the need to obtain additional debt financing for any acquisition. We may not be able to address these problems and successfully develop these acquired companies or businesses into profitable units of our company. The loss of key members of our management may adversely affect our business. We believe our continued success depends on the collective abilities and efforts of our senior management. We do not maintain key person life insurance policies on any of our employees. The loss of one or more key personnel could have a material adverse effect on our results of operations. Additionally, if we are unable to find, hire and retain needed key personnel in the future, our results of operations could be materially and adversely affected. The inability to maintain good relations with our employees could adversely affect our business. We have approximately 17,000 employees, approximately 3,000 of which are covered by collective bargaining agreements and approximately 575 of which Page 35 are members of labor unions. We may be unable to maintain good relationships with these labor unions or to successfully negotiate new collective bargaining agreements on satisfactory terms in the future. If we fail to maintain good relationships with our employees generally or with such labor unions or fail to negotiate satisfactory collective bargaining agreements, or if non-unionized operations were to become unionized, we could face labor strikes or work stoppages or other activity that could adversely affect our business and operations. Page 36 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS Market Risk Our principal market risks are exposure to changes in broiler and commodity prices and interest rates on borrowings. Although we have international sales and related accounts receivable from foreign customers, there is no foreign currency exchange risk, as all sales are denominated in U.S. dollars. Commodities Risk We are a purchaser of certain agricultural commodities used for the manufacture of poultry feeds. We use commodity futures and options for economic hedging purposes to reduce the effect of changing commodity prices and to ensure supply of a portion of our feed ingredient inventories. Feed ingredient futures and option contracts, primarily corn and soybean meal, are accounted for at fair value. Changes in fair value on these commodity futures and options are recorded as a component of product cost in the consolidated statements of operations. Terms of our senior credit facility limit the use of forward purchase contracts and commodities futures and options transactions. As of April 2, 2005, the notional amounts and fair value of our outstanding commodity futures and options positions were not material. Feed ingredient purchase commitments for corn and soybean meal in the ordinary course of business were $90.4 million at April 2, 2005. These commitments include both priced and unpriced contracts. Unpriced feed ingredient commitments are valued at market for the month of delivery as of April 2, 2005. Based on estimated annual feed usage, a 10% increase in the weighted average cost of feed ingredients would increase annualized cost of sales by an estimated $60.0 million to $70.0 million. Interest Rate Risk We have exposure to changes in interest rates on certain debt obligations. The interest rates on our amended senior credit facilities fluctuate based on the London Interbank Offered Rate (LIBOR). Assuming the $125.0 million revolver was fully drawn, a 1% increase in LIBOR would increase annual interest expense by approximately $1.3 million. Page 37 ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of the Company's management, including the President and Chief Executive Officer ("CEO"), and the Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, the Company's management, including the CEO and the CFO, concluded that as of the end of the period covered by this report the Company maintained disclosure controls and procedures that were effective in ensuring that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. There has not been any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Page 38 PART II: OTHER INFORMATION Item 6. Exhibits. Exhibits Designation of Exhibit in This Report Description of Exhibit Exhibit 10.1.6 Seventh Amendment Dated as of February 28, 2005, to Second Consolidated, Amended and Restated Note Agreement with the Gateway Recovery Trust and the Prudential Insurance Company of America Exhibit 10.2.3 Third Amendment Dated as of March 1, 2005, to Fourth Amended and Restated Credit Agreement with various banks and lending institutions, as lenders and Cooperatieve Centrale Raiffeisen- Boarenleenbank B.A., New York Branch, as Agent Exhibit 10.24.3 Fifth Amendment Dated as of March 1, 2005, to First Amended and Restated Credit Agreement with CoBank, ACB 31 Section 302, Sarbanes- Oxley Act, Certifications 32 * Section 906, Sarbanes- Oxley Act, Certifications * This exhibit is furnished to the Securities and Exchange Commission and is not deemed to be filed. Page 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLD KIST INC. (Registrant) Date May 17, 2005 John Bekkers Chief Executive Officer (Principal Executive Officer) Date May 17, 2005 Stephen O. West Chief Financial Officer, Vice President (Principal Financial Officer) Page 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLD KIST INC. (Registrant) Date May 17, 2005 /s/ John Bekkers John Bekkers Chief Executive Officer (Principal Executive Officer) Date May 17, 2005 /s/ Stephen O. West Stephen O. West Chief Financial Officer, Vice President (Principal Financial Officer)

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