CAGLE'S, INC. & SUBSIDARY
1995 ANNUAL REPORT
Contents
Chairman's Letter ....................................... 1
Management's Discussion ............................. 2 & 3
Five-Year Selected Financial Data ....................... 4
50th Anniversary Supplement ........................ Insert
Management's Responsibility and Auditor's Opinion ....... 5
Consolidated Balance Sheets ............................. 6
Consolidated Statements of Income ....................... 7
Consolidated Statements of Stockholders' Equity ......... 8
Consolidated Statements of Cash Flows ................... 9
Notes ............................................... 10-14
Corporate Data ...................................... 15-16
<PAGE>
CAGLE'S, INC. & SUBSIDIARY
Chief Executive Officer's Letter
To Our Stockholders:
We're 50 years young and just beginning. It gives me great pleasure to
report record earnings and revenues on our 50th Anniversary.
Fiscal 1995 has been an eventful year for your Company as we progressed to
new records.
We announced an ambitious expansion into Kentucky in May 1994 and have spent
a tremendous amount of time and effort toward that end. It now appears that
construction will be getting underway this fall.
During the Summer of 1994 we were faced with the effects of the catastrophic
flooding in Middle and South Georgia that closed one plant for 2-1/2 weeks --
for lack of water, no less. The city's water treatment facilities were
completely submerged. It is the ability to take temporary setbacks such as this
that has enabled the Company to achieve what few companies ever do, and that is
a 50 year anniversary.
As we pause for a moment to reflect on the past 50 years, we have much to be
grateful for, among them the dream of my father who started the business in
1945 and never waivered from his goal of building a successful company. He was
able to instill that dedication into his employees over the years and the
Company continues to enjoy the benefits of loyal, dedicated employees who have
been a key part of the success of Cagle's. Add to this list the support of
stockholders and an outstanding group of contract growers and you begin to
realize what has enabled the Company to reach this milestone.
But, I reiterate, we are just beginning. With the Kentucky expansion getting
underway and the opportunities for growth that it entails and the challenges of
growth in our joint venture companies, we are starting our second 50 years with
as much excitement and enthusiasm as my father enjoyed at the start.
As we celebrate the accomplishments of the past 50 years and the record
performance of the most recent year, I would be remiss if I failed to discuss
the reality of the immediate future in which we expect to see margins squeezed
by market prices which are showing the effects of abundant meat protein
supplies. 1995 will be the second consecutive year of growth in domestic meat
availability across all major categories.
We have continued to execute our plans to increase stockholder value during
the past years by stock repurchase, a stock split and increasing dividends --
all of which have paid-off for stockholders.
Your support over these many years is sincerely appreciated.
Sincerely,
J. Douglas Cagle
Chairman and C.E.O
1
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The Company again posted record sales and earnings with substantial increases
over the record amounts reported in 1994. This was possible despite lower
trending market prices in the later half of the year and the difficulties
caused by flooding in our Mid-Georgia operational area during the summer of
1994. Improved performances from our further processing operations and
unconsolidated affiliates were factors in the overall results.
1995 Compared to 1994
Sales increased by 11.9% in fiscal 1995 as compared to fiscal 1994. This
continued upward trend is primarily the result of increasing sales of added
value processed products. Processed pounds of poultry through the Company's
slaughter plants also increased by 5.8% and reflects heavier slaughter weight
of the birds.
Although the Georgia Dock price for broilers was 4.6% lower in 1995 than
1994, gross margins improved by 1.2%, from 8.5% in fiscal 1994 to 9.7% in
fiscal 1995, due to lower feed costs and changing sales mix towards higher
margin items.
Selling and delivery expenses increased by 22.7% over fiscal 1994 levels,
continuing the trend from 1994 and 1993. The increase resulted from higher
commission and storage expense associated with expanded sales.
General and administrative expenses were 5% higher for fiscal 1995 as
ompared to fiscal 1994 and essentially reflect increases in personnel related
expenses.
Although total debt has increased since fiscal 1994, interest expense
declined by 20% in 1995 compared to 1994 as interest of $169,000 was capitalized
in connection with the construction of a new feed mill in Forsyth, Georgia.
The provision for income taxes is computed at statutory rates adjusted for
various tax credits available to the Company resulting in a net effective rate
of 33%.
1994 Compared to 1993
Compared to 1993, sales increased by 13.8%, after adjusting 1993 to a 52-week
year basis. Considering that the Camilla, Georgia, complex was consolidated in
1993 and was not in 1994, due to contributions to the joint venture company,
the increase is approximately 24.0%. The increase in sales is due primarily to
increased sales of higher-price items from further processing. These products
are produced from outside purchases of chicken parts, deboned breast fillet,
etc. In addition, the market price for broilers averaged 6.7% above 1993 levels
to account for a portion of the increase.
The gross margin percentage increased by .6%, from 7.9% to 8.5%, although
costs were higher throughout the year. The increased gross margin resulted from
higher selling prices due to a change in sales mix toward higher-margin items.
2
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Selling and delivery expenses increased by 22.4% over 1993, continuing the
trend from 1993 and 1992. The increase resulted from selling more value-added
products in 1994 requiring higher commission expense and advertising and
promotional expenses not normally incurred with commodity sales. Storage
expenses also increased as the Company attempted to maintain sufficient
inventories to meet customer requirements.
General and administrative expenses were 6.7% lower in 1994 as compared to
1993. This decline is due partly to the elimination of the expenses associated
with the Camilla joint-venture, which is not consolidated in 1994.
Interest expense declined by 9.1% as a result of decreased borrowing levels.
The provision for income taxes is computed at statutory rates adjusted for
the effect of various credits earned by the Company.
Financial Condition and Liquidity
With a strong earnings and cash position, the Company was able to continue
its stock repurchase program established in fiscal year 1989 and fund its
capital requirements for the year, including the acquisition of a minority
interest in a poultry by-products company. A $5 million tax-free revenue bond
was used to help finance construction of the new feed mill in Forsyth, Georgia,
which began production in April, 1995.
On March 31, 1995, the Company replaced its existing $12 million revolving
credit facility with a $20 million unsecured credit facility available for
general operations. Except for $250,000 reserved for a stand-by letter of
credit to secure the Company's self-insured workers' compensation plan the
entire facility was available as of year-end.
During the first quarter of fiscal 1995 the Company announced its plans to
build a broiler complex in Kentucky. It is estimated that this facility will be
completed in late 1997 or early 1998. It is expected that this project will
require a total investment of approximately $50 million, including working
capital. The project is expected to be partially funded by federal and state
incentives available for creation of new jobs in the area. We believe that
sufficient funds will be available to fund this project and we are currently
exploring available sources.
The earnings outlook for the industry and the Company for the next year is
uncertain at best. An over abundance of meat protein and unpredictable export
markets currently temper our expectations for the foreseeable future. Grain
prices which have been lower for the past year continue to be very sensitive to
weather and global demand. This volatility can have a significant impact on the
Company's earnings. Until the 1995 crop is harvested, the grain markets will
fluctuate with each major change in weather in the grain belt or major export
commitment.
3
<PAGE>
Five-Year Selected Financial Data
52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
April 1, April 2, April 3, March 28, March 30,
1995 1994 1993 1992 1991
OPERATING RESULTS:
Net sales..... $349,770 $312,696 $280,105 $208,775 $192,703
Operating expenses.. 331,140 299,425 270,486 204,195 188,535
Operating income..... 18,630 13,271 9,619 4,580 4,168
Interest expense..... (1,072) (1,336) (1,469) (1,507) (1,405)
Other income, net..... 3,085 1,516 198 63 162
Income before income taxes
and accounting change..... 20,643 13,451 8,348 3,136 2,925
Provision for income taxes.... 6,881 4,799 3,142 1,194 1,112
Income before accounting
change........ $13,762 $8,652 $5,206 $1,942 $1,813
FINANCIAL POSITION:
Working capital..... $17,592 $19,741 $19,068 $13,548 $13,912
Total assets..... 88,771 69,220 65,006 59,537 50,870
Long-term debt..... 15,233 11,819 17,591 16,531 13,581
Stockholders' equity..... 44,371 34,268 26,728 21,392 20,165
PERFORMANCE PER COMMON SHARE:*
Income before accounting
change.................. $2.67 $1.66 $0.99 $0.36 $0.32
Net income................. $2.67 $1.66 $1.08 $0.36 $0.32
Dividends.................. $0.105 $0.085 $0.06 $ -- $ --
Book value at the end of
the year ............... $8.81 $6.58 $5.07 $4.05 $3.58
Average number of common shares
outstanding*............. 5,152 5,224 5,272 5,368 5,552
* Restated to reflect the 25% stock dividend issued to stockholders of record
on January 3, 1994 and the two-for-one stock split issued to stockholders of
record on January 3, 1995.
- ------------------------------------------------------------------------------
Dividend Policy
The Board of Directors considers dividends in light of operating results,
current earnings trends, and prevailing economic conditions.
The Company's arrangement with one of its lenders contains certain
restrictions on dividends.
Stockholders
As of April 1, 1995, there were 351 stockholders of record of the Company's
Class A common stock.
Market Price of Common Stock
The Company's common stock is listed and principally traded on the American
Stock Exchange, Ticker Symbol CGL. Quarterly dividend data and market highs
and lows for the past two years as adjusted for the 25% stock dividend issued
to stockholders of record on January 3, 1994 and the two-for-one stock split
issued to stockholders of record on January 3, 1995 were:
1995 1994
---------------------------- -----------------------------
Dividend High Low Dividend High Low
-------- --------- ------- -------- --------- -------
Quarter:
First $0.025 $12-15/16 $10-7/8 $0.020 $11-13/16 $ 9-1/4
Second 0.025 15-1/2 10-3/4 0.020 10-11/16 8-5/16
Third 0.025 22-5/8 14-1/8 0.020 11-7/8 10-5/16
Fourth 0.030 24-5/8 17-7/8 0.025 11-5/8 11
4
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Management's Responsibility for Financial Statements
- ------------------------------------------------------------------------------
The management of Cagle's, Inc. and its subsidiary has the responsibility for
preparing the accompanying financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis. In the preparation of the
financial statements, it is necessary to make informed estimates and judgments
based on currently available information as to the effect of certain events and
transactions. Management also prepared the other information in the Annual
Report and is responsible for its accuracy and consistency with the financial
statements.
Cagle's, Inc. and its subsidiary maintain accounting and other controls which
management believes provide reasonable assurance that financial records are
reliable, assets are safeguarded, and transactions are properly recorded in
accordance with management's authorization. However, limitations exist in any
system of internal control based upon the recognition that the cost of that
system should not exceed the benefits derived.
Cagle's, Inc.'s independent auditors, Arthur Andersen LLP, are engaged to
audit the financial statements of Cagle's, Inc. and subsidiary and to express
an opinion thereon. Their audit is conducted in accordance with generally
accepted auditing standards to enable them to report whether the financial
statements present fairly, in all material respects, the financial position and
the results of operations and cash flows of Cagle's, Inc. and subsidiary in
conformity with generally accepted accounting principles.
/s/ J. Douglas Cagle
J. Douglas Cagle
Chairman and Chief Executive Officer
/s/ Kenneth R. Barkley
Kenneth R. Barkley
Senior Vice President Finance,
Treasurer and Chief Financial Officer
May 5, 1995
- -------------------------------------------------------------------------------
Report of Independent Public Accountants
To the Board of Directors and
Stockholders of Cagle's, Inc.:
We have audited the consolidated balance sheets of CAGLE'S, INC. (a Georgia
corporation) AND SUBSIDIARY as of April 1, 1995 and April 2, 1994 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended April 1, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cagle's, Inc. and subsidiary
as of April 1, 1995 and April 2, 1994 and the results of their operations and
their cash flows for each of the three years in the period ended April 1, 1995
in conformity with generally accepted accounting principles.
As explained in Note 3 to the financial statements, effective March 29, 1992,
the Company changed its method of accounting for income taxes.
/s/ Arthur Anderson LLP
Atlanta, Georgia
May 5, 1995
5
<PAGE>
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
April 1, 1995 and April 2, 1994
(In Thousands, Except Par Values) 1995 1994
--------- ---------
ASSETS
CURRENT ASSETS:
Cash................................... $ 462 $ 875
Trade accounts receivable, less
allowance for doubtful accounts
of $141 and $729 in 1995 and
1994, respectively.................. 15,013 13,392
Inventories............................ 25,282 22,779
Other current assets................... 1,538 1,146
--------- ---------
Total current assets............. 42,295 38,192
--------- ---------
INVESTMENTS IN AND RECEIVABLE
FROM UNCONSOLIDATED AFFILIATES............ 11,697 7,286
--------- ---------
OTHER ASSETS.............................. 550 341
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land................................... 1,280 915
Buildings and improvements............. 26,549 23,635
Machinery, furniture, and equipment.... 24,226 22,203
Vehicles............................... 3,254 2,807
Construction in progress............... 11,588 3,038
--------- ---------
66,897 52,598
Less accumulated depreciation.......... (32,668) (29,197)
--------- ---------
34,229 23,401
--------- ---------
$ 88,771 $ 69,220
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
and capital lease obligations......... $ 1,572 $ 1,239
Accounts payable........................ 13,550 9,572
Accrued expenses........................ 7,900 6,455
Income taxes payable.................... 967 848
Deferred income tax liabilities......... 714 337
--------- ---------
Total current liabilities......... 24,703 18,451
--------- ---------
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS........................ 15,233 11,819
--------- ---------
DEFERRED INCOME TAX LIABILITIES............ 4,464 4,682
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value;
1,000 shares authorized, none issued... -0- -0-
Common stock, $1 par value;
9,000 shares authorized, 5,034
and 2,602 shares outstanding
in 1995 and 1994, respectively......... 5,034 2,602
Additional paid-in capital.............. 8,366 13,919
Retained earnings....................... 30,971 17,747
--------- ---------
44,371 34,268
--------- ---------
$88,771 $69,220
The accompanying notes are an integral part of these consolidated balance
sheets.
6
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Consolidated Statements of Income
For the Years Ended April 1, 1995, April 2, 1994, and April 3, 1993
(In Thousands, Except Per Share Data) 1995 1994 1993
-------- -------- --------
NET SALES.................................. $349,770 $312,696 $280,105
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales............................ 315,882 286,131 258,086
Selling and delivery..................... 8,918 7,269 5,941
General and administrative............... 6,340 6,025 6,459
-------- -------- --------
331,140 299,425 270,486
-------- -------- --------
OPERATING INCOME............................ 18,630 13,271 9,619
OTHER INCOME (EXPENSE):
Interest................................. (1,072) (1,336) (1,469)
Other income, net........................ 3,085 1,516 198
-------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
PRIOR YEARS' EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE..................... 20,643 13,451 8,348
PROVISION FOR INCOME TAXES.................. 6,881 4,799 3,142
-------- -------- --------
INCOME BEFORE CUMULATIVE PRIOR YEARS'
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................ 13,762 8,652 5,206
CUMULATIVE PRIOR YEARS' EFFECT
OF CHANGE IN ACCOUNTING FOR
INCOME TAXES (Note 3).................... -- -- 490
-------- -------- --------
NET INCOME.................................. $13,762 $8,652 $5,696
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING.............................. 5,152 5,224 5,272
======== ======== ========
PER COMMON SHARE:
Income before cumulative prior years' effect
of change in accounting principle..... $2.67 $1.66 $0.99
Cumulative prior years' effect of change
in accounting for income taxes........ -- -- 0.09
-------- -------- --------
Net income................................ $2.67 $1.66 $1.08
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
7
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Consolidated Statements of Stockholders' Equity
For the Years Ended April 1, 1995, April 2, 1994, and April 3, 1993
(In Thousands, Except Per Share Data)
Common Stock Additional
----------------- Paid-In Retained
Shares Amount Capital Earnings
------ -------- ------- --------
BALANCE, March 28, 1992............. 2,114 $ 2,114 $ 410 $ 18,868
Repurchase of common stock........ (5) (5) (35) --
Net income........................ -- -- -- 5,696
Cash dividends paid ($.06
per share)...................... -- -- -- (320)
------ -------- ------- --------
BALANCE, April 3, 1993.............. 2,109 2,109 375 24,244
Repurchase of common stock........ (28) (28) (636) --
Net income........................ -- -- -- 8,652
Stock dividend of 25%............. 521 521 14,180 (14,701)
Cash dividends paid
($.085 per share)............ -- -- -- (448)
------ -------- ------- --------
BALANCE, April 2, 1994.............. 2,602 2,602 13,919 17,747
Repurchase of common stock........ (103) (103) (3,018) --
Net income........................ -- -- -- 13,762
Two-for-one stock split........... 2,535 2,535 (2,535) --
Cash dividends paid
($.105 per share)............ -- -- -- (538)
------ -------- ------- --------
BALANCE, April 1, 1995...... 5,034 $5,034 $8,366 $30,971
====== ======== ======= ========
The accompanying notes are an integral part of these consolidated statements.
8
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Consolidated Statements of Cash Flows
For the Years Ended April 1, 1995, April 2, 1994, and April 3, 1993
(In Thousands) 1995 1994 1993
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $13,762 $ 8,652 $ 5,696
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization.......... 4,495 4,899 4,882
(Gain) loss on disposal of property,
plant, and equipment.................. (18) 668 28
Income from unconsolidated
affiliates, net...................... (1,411) (752) --
Cumulative effect of change in
accounting principle.................... -- -- (490)
Changes in assets and liabilities:
Accounts receivable, net............. (1,621) (1,630) (1,039)
Inventories.......................... (2,503) (2,487) (4,375)
Other current assets................. (392) 551 1,213
Accounts payable..................... 3,978 967 (1,536)
Accrued expenses..................... 1,445 663 450
Income taxes payable................. 119 45 803
Deferred income tax liabilities...... 159 743 458
------- ------- -------
Total adjustments.................. 4,251 3,667 394
------- ------- -------
Net cash provided by operating
activities........................ 18,013 12,319 6,090
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant,
and equipment........................... (15,362) (6,412) (7,068)
Additions to investments in
unconsolidated affiliates............... (3,000) -- --
(Increase) decrease in other assets...... (258) 17 (46)
Proceeds from sale of property,
plant, and equipment.................... 106 79 189
------- ------- -------
Net cash used by investing
activities...................... (18,514) (6,316) (6,925)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt and capital
lease obligations...................... (1,253) (5,744) (12,552)
Repurchase of common stock............... (3,121) (664) (40)
Proceeds from issuance of
long-term debt.......................... 5,000 -- 15,000
Cash dividends paid...................... (538) (448) (320)
------- ------- -------
Net cash provided (used) by
financing activities............. 88 (6,856) 2,088
------- ------- -------
NET (DECREASE) INCREASE IN CASH............ (413) (853) 1,253
CASH AT BEGINNING OF YEAR.................. 875 1,728 475
------- ------- -------
CASH AT END OF YEAR........................ $ 462 $ 875 $ 1,728
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................ $ 1,241 $ 1,343 $ 1,631
======= ======= =======
Income taxes paid........................ $ 6,603 $ 4,011 $ 1,881
======= ======= =======
NONCASH INVESTING ACTIVITIES:
Net assets contributed to an
unconsolidated affiliate............... -- -- $ 8,454
======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
9
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Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
April 1, 1995, April 2, 1994, and April 3, 1993
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Cagle's, Inc.
and its wholly owned subsidiary (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
affiliates are accounted for under the equity method (Note 6).
Inventories
Live field inventories of broilers are stated at the lower of cost or
market, and breeders are stated at cost, less accumulated amortization.
Breeder costs are accumulated up to the production stage and amortized into
broiler costs over the estimated production lives based on monthly egg
production. Finished products; feed, eggs, and medication; and supplies are
stated at the lower of cost (first-in, first-out method) or market.
Inventories at April 1, 1995 and April 2, 1994 consist of the following
(in thousands):
1995 1994
-------- --------
Finished products................ $ 7,813 $ 5,301
Field inventory and breeders..... 13,742 14,049
Feed, eggs, and medication....... 2,243 2,223
Supplies......................... 1,484 1,206
-------- --------
$ 25,282 $ 22,779
======== ========
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following lives:
Buildings and improvements.............. 3-30 years
Machinery, furniture, and equipment..... 3-17 years
Vehicles................................ 3-8 years
Maintenance and repairs are charged to expense as incurred. Major additions
and improvements of existing facilities are capitalized. For retirements or
sales of property, the Company removes the original cost and the related
accumulated depreciation from the accounts and the resulting gain or loss is
reflected in other income.
Insurance
The Company is self-funded under a minimum premium arrangement for the
majority of employee claims under its group health plan. Since May 1992, the
union employees of the Company have been covered for health insurance under a
union health plan. The Company is self-insured for the majority of its workers'
compensation risks. The Company's insurance programs are administered by
professional risk management specialists. Insurance coverage is obtained for
catastrophic workers' compensation and group health exposures, as well as those
risks required to be insured by certain state laws. Provisions for claims under
the insurance programs are based on estimates of the aggregate outstanding
liability for claims incurred provided by the plan administrators. The
Company's accrual for group health and workers' compensation liabilities of
$2,282,000 and $1,761,000 as of April 1, 1995 and April 2, 1994, respectively,
are included in accrued expenses in the accompanying balance sheets.
Earnings Per Share
All 1994 and 1993 earnings and cash dividends per share information have
been restated to reflect the two-for-one stock split issued to stockholders of
record on January 3, 1995. All 1993 earnings and cash dividends per share
information have been restated to reflect the 25% stock dividend issued to
stockholders of record on January 3, 1994.
Fiscal Year
The Company's fiscal year closing date is the Saturday nearest March 31.
The fiscal year includes operations for a 52-week period in 1995 and 1994 and
a 53-week period in 1993.
10
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2 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
---------------------------------------------------------
Long-term debt and capital lease obligations at April 1, 1995 and April 2,
1994 consist of the following (in thousands):
1995 1994
-------- --------
Term note payable to an insurance company,
maturing on July 1, 2002; secured by
certain property, plant, and equipment........ $ 10,800 $ 12,000
Industrial development revenue bonds payable
to a financial institution, variable
interest rate (4.35% at April 1, 1995),
principal payable in full by June 1, 2009,
secured by certain property, plant,
and equipment................................ 5,000 --
Capital lease obligations....................... 714 752
Other notes payable at varying interest rates
and maturities............................... 291 306
-------- --------
16,805 13,058
Less current maturities......................... (1,572) (1,239)
-------- --------
$15,233 $11,819
======== ========
The Company has a revolving bank credit agreement maturing March 31, 1998
that provides for unsecured borrowings up to $20,000,000. Under this agreement,
$5,000,000 of the $20,000,000 may be used for letters of credit. As of April 1,
1995, a $250,000 letter of credit associated with the Company's insurance
program (Note 1) was outstanding, and $19,750,000 was available under the line
of credit.
The term note bears interest at a fixed rate of 8.6% through July 1, 1997 at
which time the rate is subject to adjustment. Principal payments plus interest
commenced July 1, 1993 and continue until the note matures on July 1, 2002. The
Company has the option to prepay the note within 90 days after July 1, 1997,
the interest rate adjustment date.
The Company's debt agreements contain certain restrictive covenants which
require, among other things, that the Company maintain (1) a current ratio of
at least 1.5:1; (2) a ratio of total debt to capital, as defined, of not more
than .55:1; and (3) tangible net worth, as defined, of at least $35,000,000.
At April 1, 1995, the Company was in compliance with all debt covenants.
The Company has also leased property, plant, and equipment under a capital
lease with an initial term of 120 months. The net book value of assets under
the capital lease at April 1, 1995 and April 2, 1994 was $756,000 and $798,000,
respectively.
Aggregate maturities of long-term debt and capital lease obligations during
the years subsequent to April 1, 1995 are as follows (in thousands):
1996.............. $ 1,572
1997.............. 1,558
1998.............. 1,564
1999.............. 1,570
2000.............. 1,574
Thereafter........ 8,967
--------
$ 16,805
========
3 INCOME TAXES
---------------------------------------------------------
Effective March 29, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, deferred income taxes are provided at enacted marginal regular tax
rates on the difference between the financial statement and income tax bases of
assets and liabilities. The cumulative prior years' effect of this change in
accounting principle was a credit of $490,000, or $.09 per share.
The Revenue Act of 1987 rescinded the cash-basis method of accounting for
tax purposes, effective in fiscal 1989, previously used for the Company's
farming operations. Approximately $2,772,000 of previously recorded income tax
liabilities was indefinitely deferred. Under current tax law, such liabilities
will continue to be deferred as long as the Company maintains compliance with
certain revenue and ownership criteria.
Income tax provisions are reflected in the statements of income as follows
(in thousands):
1995 1994 1993
-------- -------- --------
Currently payable......... $ 6,722 $ 4,056 $ 2,684
Deferred......... 159 743 458
-------- -------- --------
$ 6,881 $ 4,799 $ 3,142
======== ======== ========
11
<PAGE>
A reconciliation between income taxes computed at the federal statutory
rate and the Company's provision for income taxes is as follows (in thousands):
1995 1994 1993
-------- -------- --------
Federal statutory rate......... 35% 34% 34%
Federal income taxes at
statutory rate............... $ 7,225 $ 4,573 $ 2,838
State income taxes, net
of federal benefit........... 826 538 304
Jobs tax credits............... (1,170) (312) --
-------- -------- --------
$ 6,881 $ 4,799 $ 3,142
Components of the net deferred income tax liability at April 1, 1995 and
April 2, 1994 relate to the following (in thousands):
1995 1994
-------- --------
Deferred income tax liabilities:
Family farm cash-basis deferral......... $ 2,772 $ 2,772
Inventories............................. 1,464 1,130
Property and depreciation............... 934 356
Other................................... 1,428 2,091
-------- --------
6,598 6,349
-------- --------
Deferred income tax assets:
Tax credit carryforwards................ -- 133
Accrued expenses........................ 1,088 856
Other................................... 332 341
-------- --------
1,420 1,330
-------- --------
Net deferred income tax liability......... $ 5,178 $ 5,019
4 STOCKHOLDERS' EQUITY
---------------------------------------------------------
In November 1994, the board of directors approved a two-for-one split of the
Company's common stock in the form of a 100% stock dividend for shareholders of
record as of January 3, 1995. Par value remains $1 per share. A total of
2,535,000 shares of common stock were issued in connection with the split.
In November 1993, the board of directors approved a 25% stock dividend in
the form of a five-for-four stock split. As a result, one new share of the
Company's $1 par value common stock was issued for each four existing shares
(including shares available under option).
Beginning in 1990, the board of directors authorized the purchase of up to
$2,500,000 of the Company's stock on the open market. In November 1994, the
board increased the authorized amount to $7,500,000. As of April 1, 1995,
347,000 shares had been repurchased by the Company at a total cost of
$5,402,000.
5 STOCK OPTION PLAN
---------------------------------------------------------
In May 1993, the board of directors approved an incentive stock option plan
(the "Plan"). Under the provisions of the Plan, options to purchase a maximum
of 125,000 shares may be granted through 2003. The administrator of the Plan,
appointed by the board of directors, determines the grantee, vesting period,
exercise date, and expiration dates for all options granted. In addition, the
Plan provides for the issuance of options at prices not less than market value
at the date of grant. During May 1993, the Company granted 31,250 options with
an exercise price of $9.30 under the Plan. No options have been exercised.
6 INVESTMENTS IN UNCONSOLIDATED AFFILIATES
---------------------------------------------------------
On March 26, 1993 (the "effective date"), the Company acquired a 50% equity
interest in a joint venture formed with an unrelated party to own and operate
the Company's processing facility at Camilla, Georgia.
<PAGE>
On the effective date, the Company contributed the following assets and
liabilities to the joint venture (in thousands):
Inventory...................................... $ 3,003
Investment in unconsolidated affiliate......... 895
Property, plant, and equipment................. 6,556
-------
Total assets................................ 10,454
-------
Term note payable.............................. 2,000
-------
Net assets contributed......................... $ 8,454
The Company received the following assets as consideration for the net
assets contributed to the joint venture (in thousands):
Short-Term receivable.......................... $ 2,054
Note receivable................................ 1,400
Equity interest in joint venture............... 5,000
-------
$ 8,454
As of April 1, 1995, the short-term receivable has been paid in full, and
the note receivable balance was $1,400,000.
The Company sells eggs and broilers to the joint venture and purchases feed
from the joint venture. In addition, the Company performs certain
administrative services for the joint venture. Sales to, purchases from,
accounts payable and receivable from, and service fees charged to the joint
venture are based on terms consistent with those of unrelated parties and are
summarized as follows (in thousands):
1995 1994
-------- --------
Sales.......................... $ 1,963 $ 635
Purchases...................... 20,898 9,313
Accounts receivable............ 60 315
Accounts payable............... 1,563 252
Administrative service fees.... 548 371
In October 1994, the Company acquired a minority interest in a poultry
by-products company for $3,000,000.
The Company accounts for its investments in affiliates using the equity
method. The Company's share of affiliates' earnings is included in other income
in the accompanying statements of income. At April 1, 1995, undistributed
retained earnings from affiliates were approximately $4,300,000.
Summarized, combined balance sheet information for unconsolidated affiliates
as of April 1, 1995 is as follows (in thousands) (unaudited):
Current assets................................. $ 16,143
Noncurrent assets.............................. 51,734
--------
Total assets................................... $ 67,877
========
Current liabilities............................ $ 8,430
Noncurrent liabilities......................... 27,003
Owners' equity................................. 32,444
--------
Total liabilities and owners' equity......... $ 67,877
========
Summarized, combined statement of income information for all unconsolidated
affiliates for the year ended April 1, 1995 is as follows (in thousands)
(unaudited):
Net sales.............. $ 113,904
Gross profit........... 13,958
Operating income....... 11,893
Income before taxes.... 10,123
7 MAJOR CUSTOMER
---------------------------------------------------------
Sales to the Company's largest customer represented 37%, 39%, and 39% of net
sales during fiscal 1995, 1994, and 1993, respectively. Additionally, a major
portion of the joint venture's sales (Note 6) are to the same customer. The
Company has an agreement with this customer to supply chicken under a cost-plus
arrangement, and approximately 50% of the Company's production is committed to
the customer. Under the arrangement, production in excess of the customer's
demands and by-products are sold to other customers.
13
<PAGE>
8 BENEFIT PLANS
---------------------------------------------------------
Under a collective bargaining agreement, the Company contributes to a
multiemployer pension plan for the benefit of certain of its employees who are
union members. A separate actuarial valuation for this plan is not made for the
Company. Accordingly, information with respect to accumulated plan benefits and
net assets available for benefits is not available. Under the Employee
Retirement Income Security Act of 1974, as amended in 1980, an employer upon
withdrawal from a multiemployer plan is required, in certain cases, to continue
funding its proportionate share of the plan's unfunded vested benefits. The
Company's contribution rate is a fixed-dollar amount per eligible employee. The
Company made total contributions to the union plan of $179,000, $144,000, and
$133,000 in 1995, 1994, and 1993, respectively.
The Company has a 401(k) retirement plan for employees not covered by a
collective bargaining agreement. Under the plan, the Company matches
contributions up to 2% of participating employees' salaries; additional
contributions may be made at the discretion of the Company's board of
directors.
The Company made matching contributions of $232,000, $228,000, and $232,000 in
1995, 1994, and 1993, respectively. No discretionary company contributions have
been made to this plan.
The Company does not provide postretirement medical or other benefits to
employees.
9 COMMITMENTS AND CONTINGENCIES
---------------------------------------------------------
The Company leases certain of its buildings, equipment, and vehicles under
operating leases. The statements of income include rental expense relating to
operating leases of $3,045,000 in 1995, $2,565,000 in 1994, and $3,475,000 in
1993.
At April 1, 1995, future minimum payments under operating leases were as
follows (in thousands):
1996......... $ 1,269
1997......... 670
1998......... 300
1999......... 212
-------
Total......... $ 2,451
The Company enters into contracts for the purchase of grain and other feed
ingredients. These contracts specify the quantity to be purchased, and the cost
is determined upon delivery using current market prices. The Company estimates
its purchase commitments under these contracts to be approximately $5,700,000
at April 1, 1995.
The Company is involved in various legal actions arising in the normal
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on the Company's
financial position or results of operations.
10 QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------------------
Quarterly financial data is as follows (in thousands, except per share
data):
Net Operating Net Earnings
Sales Income Income Per Share*
-------- --------- ------- ----------
Fiscal year 1995 quarter ended:
July 2, 1994......... $ 87,972 $ 5,317 $ 3,438 $ 0.66
October 1, 1994...... 89,227 4,834 3,472 0.67
December 31, 1994...... 83,640 4,958 3,601 0.70
April 1, 1995......... 88,931 3,521 3,251 0.64
Fiscal year 1994 quarter ended:
July 3, 1993......... $ 75,828 $ 3,318 $ 2,130 $ 0.40
October 2, 1993........ 81,827 3,261 2,112 0.41
January 1, 1994........ 73,334 3,073 2,053 0.40
April 2, 1994......... 81,707 3,619 2,357 0.45
*Earnings per share amounts have been restated to reflect the two-for-one stock
split to stockholders of record on January 3, 1995 and the 25% stock dividend
to stockholders of record on January 3, 1994.
14
<PAGE>
Corporate Data
---------------------------------------------------------
Annual Stockholders' Meeting
The Annual Stockholders' Meeting will be conducted at the
Corporate Headquarters, 2000 Hills Avenue, N.W., Atlanta, Georgia,
at 11:00 A.M. on Friday, July 14, 1995.
Form 10-K
The Form 10-K Annual Report for 1995, as filed by the Company
with the Securities and Exchange Commission, is available to
Cagle's, Inc. stockholders after June 30, 1995 on request and
without charge.
Write:
KENNETH R. BARKLEY
SENIOR VICE PRESIDENT FINANCE/
TREASURER/CFO
Cagle's, Inc.
2000 Hills Ave., N.W.
Atlanta, Georgia 30318
------------------------------------------------
General Information
Registrar and Transfer Agent
TRUST COMPANY BANK
Atlanta, Georgia
Legal Counsel
BYRNE, ELDRIDGE, MOORE & DAVIS P.C.
Atlanta, Georgia
Auditors
ARTHUR ANDERSEN LLP
Atlanta, Georgia
15
<PAGE>
Officers and Directors
Cagle's, Inc.
Officers
- -------------------------------------------------
J. DOUGLAS CAGLE
Chairman and Chief Executive Officer
KENNETH R. BARKLEY
Senior Vice President Finance/
Treasurer/CFO
JERRY D. GATTIS
President and Chief Operating Officer
JOHN BRUNO
Senior Vice President, Sales and Marketing
MARK M. HAM IV
Vice President Management Information Systems
GEORGE L. PITTS
Corporate Secretary
JAMES DAVID CAGLE
Vice President New Product Sales
GEORGE DOUGLAS CAGLE
Vice President New Product Development
Board of Directors
- -------------------------------------------------
J. DOUGLAS CAGLE
Chairman, Cagle's, Inc.
KENNETH R. BARKLEY
Senior Vice President Finance/Treasurer/CFO
Cagle's, Inc.
WARNER S. CURRIE
Of Counsel, Swift, Currie, McGhee & Hiers
Attorneys at Law
GEORGE DOUGLAS CAGLE
Vice President New Product Development
Cagle's Inc.
JAMES DAVID CAGLE
Vice President New Product Sales
Cagle's, Inc.
JERRY D. GATTIS
President and Chief Operating Officer
Cagles, Inc.
CANDACE CHAPMAN
Wyatt Investment Consultants, Inc.
Consultant/Director of Marketing
MARK M. HAM IV
Vice President Management Information Systems
Cagle's, Inc.
JOHN J. BRUNO
Senior Vice President Sales and Marketing
Cagle's, Inc.
Audit Committee
- -------------------------------------------------
CANDACE CHAPMAN, Chairperson
WARNER S. CURRIE
GEORGE DOUGLAS CAGLE
- -------------------------------------------------
CORPORATE HEADQUARTERS
2000 Hills Ave., N.W.
Atlanta, Georgia 30318
COLLINSVILLE, Alabama
Processing & Further Processing
ATLANTA, Georgia
Distribution & Further Processing
LOVEJOY, Georgia
Further Processing
DALTON, Georgia
Feed Mill, Hatchery & Growout
PINE MOUNTAIN VALLEY, Georgia
Processing & Deboning
FORSYTH, Georgia
Hatchery, Growout & Feed Mill
MACON, Georgia
Processing Deboning
BIRMINGHAM, Alabama
Distribution, Freezer Warehouse
- -------------------------------------------------
Subsidiary
Cagle's Farms Inc.
Officers
J. DOUGLAS CAGLE
Chairman and Chief Executive Officer
JERRY D. GATTIS
President and Chief Operating Officer
KENNETH R. BARKLEY
Senior Vice President Finance/
Treasurer/CFO
MARK M. HAM, IV
Vice President Management Information Systems
GEORGE L. PITTS
Corporate Secretary
- -------------------------------------------------
Board of Directors
J. DOUGLAS CAGLE
Chairman and Chief Executive Officer,
Cagle's, Inc./Cagle's Farms Inc.
JERRY D. GATTIS
President and Chief Operating Officer
Cagle's, Inc./Cagle's Farms, Inc.
KENNETH R. BARKLEY
Senior Vice President Finance/Treasurer/CFO
Cagle's, Inc./Cagle's Farms, Inc.
MARK M. HAM, IV
Vice President Management Information Systems
Cagle's, Inc./Cagle's Farms Inc.
16
<PAGE>
