SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended______MARCH 29, 1997___________________________or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _________________
COMMISSION FILE NUMBER:____1-7138_________________________________________
________________________________CAGLE'S, INC._____________________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
___________GEORGIA_____________________________________58-0625713_________
(STATE OF INCORPORATION) I.R.S EMPLOYER IDENTIFICATION NO.
_______2000 HILLS AVE., NW, ATLANTA, GA.______________________30318_______
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: ___(404) 355-2820_____
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of exchange on which registered
____CLASS A COMMON STOCK___________________AMERICAN STOCK EXCHANGE________
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
________________none______________________________________________________
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 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. _X_ YES ___ NO
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.)
__$22,240,440_(based_on_11.25_per_share_closing_price_on_April_30,_1997)___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE ONLY TO
CORPORATE REGISTRANTS.)
__Class_A_Common_Stock_at_$1.00_par_value______________________________________
__5,006,282_shares_at_$1.00_par_value__________________________________________
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT
IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR
INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR
(c) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD BE CLEARLY
DESCRIBED FOR IDENTIFICATION PURPOSES.)
Parts of the following documents are incorporated by reference in Parts II,
III, and IV of this Form 10-K report; 1) registrant's annual report to
shareholders for fiscal year ended March 29, 1997 - Items 5, 6, 7, 8, and 14.
2) Proxy statements for registrant's 1997 annual meeting of shareholders-
Items 10, 11, 12, and 13.
<PAGE>
CAGLE'S, INC.
PART I
Item 1: General Business
Cagle's, Inc. (the "Company"), which began business in 1945 and was first
incorporated in Georgia in 1953, and its wholly owned subsidiary (Cagle's Farms
,Inc., formerly Strain Poultry Farms, Inc.) produce, market, and distribute a
variety of fresh and frozen poultry products. The vertically integrated
operations of the Company consist of breeding, hatching, and growing of
chickens; feed milling; processing; further processing; and marketing. The
Company's products are sold to national and regional independent and chain
supermarkets, food distributors, food processing companies, national fast-food
chains, and institutional users, such as restaurants, schools, and
distributors, by the Company's sales staff located in Atlanta, Georgia, and
through brokers selected by the Company.
Narrative Description of Business
Food Processing
All of the Company's business activities are conducted on a vertically
integrated basis within one industry segment, poultry products. The Company's
various poultry products are closely related, have similar purposes and uses,
and, except for product sold under cost-plus arrangements, are similar in terms
of profitability and types and degrees of risks. In addition, the production
processes are similar to the extent that (a) production facilities are shared
or are interchangeable and (b) the same types of raw materials, labor, and
capital are used. Markets and marketing methods are comparable for all
products (except cost-plus products) to the extent that they are generally sold
to the same types of customers by a common sales force and are sensitive to
changes in economic conditions to the same degree.
The Company currently processes approximately 2,100,000 birds per week in its
three processing plants, including two plants which operate with two full
shifts. Of the Company's total production, approximately 1,150,000 head per
week are deboned. In March 1993, the Company placed one of its processing
plants into a joint venture with a major customer, reducing the total company
volume by 365,000 birds per week at that time.
The complete cycle for growing broilers begins with the placement on a farm of
a day-old breeder chick. This bird is reared for 25 weeks, at which time it
begins to produce hatching eggs. The breeder produces eggs for approximately
40 weeks. These eggs are set in one of the Company's two hatcheries, and in
three weeks, a baby chick is hatched.
The day-old broiler chick is placed on a farm where it will grow for six to
eight weeks depending upon the size of bird desired, at which time it is
transported to the processing plant for slaughter. To produce uniform size for
customer demands, the Company grows the males and females separately. This is
necessary because males and females grow at different rates and have different
nutritional requirements for cost-effective growth. A significant investment
in field inventories is required to support the Company's operating cycle.
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All feed for all flocks is produced in feed mills owned by the Company.
The Company's goal is to add value to all of its birds, and the Company
currently is accomplishing this on approximately 85% of all head slaughtered.
This value-added product takes the form of deboned breast and thigh meat,
cut-up marinated raw breaded chicken (including barbecue), government school
lunch product, fast-food cuts, IQF (individually quick frozen) products, and
mechanically deboned chicken meat.
Raw Materials
The primary raw materials used by the Company are corn, soybean meal, and other
ingredients; packaging materials; cryogenic materials; and breeder chicks. The
Company believes that sources of supply for these materials are adequate and
does not expect significant difficulty in acquiring required supplies. The
major source of supply is the midwestern grain belt of the United States,
although local supplies are utilized when available. Prices for the feed
ingredients are sensitive to supply fluctuations worldwide, and weather
conditions, especially drought, can cause significant price volatility. Since
feed is the most significant factor in the cost of producing a broiler chicken,
those fluctuations can have significant effects on margins. The Company also
purchases product outside for further processing requirements.
Research and Development
The Company has made no material expenditures for research and development
during the last three years.
Employees and Labor Relations
The Company employs approximately 3,500 persons of whom approximately 46% are
covered by collective bargaining agreements which expire at various dates over
the next three years. The Company believes its relationship with the
bargaining groups and other employees is good.
Seasonal Variations in Business
The seasonal demand for the Company's products is highest during the late
spring and summer months and is normally lowest during the winter months.
Customers
Equity Foods ("Equity") accounted for approximately 20% of the Company's sales
for the year ended March 29, 1997. The Company has an agreement with Equity to
supply chicken under a cost-plus arrangement, and approximately 20% of the
Company's production is committed to Equity. Under the arrangement, production
in excess of Equity's demands and by-products are sold to other customers and
are credited against the cost-plus arrangement. The Company generally receives
full margin on processed pounds regardless of the final customer.
Backlog
The Company had no material backlog of orders existing as of March 29, 1997.
<PAGE>
Competition
The Company is a leading regional integrated poultry processor, ranking
eighth nationally in pounds produced. The Company's products compete in the
marketplace with comparable products of approximately ten national and regional
producers in the areas of quality, service, and price. The Company believes
its flexibility and accessibility are positive factors enhancing the Company's
competitive position.
Regulation
The Company's facilities and operations are subject to regulation by various
federal and state agencies, including, but not limited to, the federal Food
and Drug Administration ("FDA"), the United States Department of Agriculture
("USDA"), the Environmental Protection Agency, the Occupational Safety and
Health Administration, and the corresponding state agencies. The Company's
processing plants are subject to continuous on-site inspection by the USDA,
and the FDA inspects the production of the Company's feed mill.
Management believes that the Company is in substantial compliance with
applicable laws and regulations relating to the operation of its facilities.
Subsequent to March 29, 1997 the Company was cited by OSHA for several
violations at its Macon, Georgia plant and assessed a fine of $1,271,000.
The Company has settled the citation for $608,000.
Item 2: Properties
Production and Facilities
Breeding and Hatching
The Company supplies its broiler chicks by producing all of its own hatching
eggs from breeder flocks owned by the Company. These breeder flocks are
maintained on 60 contract grower farms. In addition, the replacement breeder
pullets are maintained on 41 contract grower farms where the breeders are
reared from one day old to approximately 18 weeks old and then moved to the
breeder farm where they begin to produce eggs at about 25 weeks of age.
These farms are located in north Georgia.
The Company owns two hatcheries located in Dalton, Georgia, and Forsyth,
Georgia, at which eggs are incubated and hatched. This is a continuous
process and requires 21 days to complete. After the chicks are removed
from the incubator, they are separated by sex, vaccinated against disease,
and moved by a special-purpose vehicle, Chick Bus, to the Company's grow-out
farms. The two hatcheries have an aggregate capacity of 2,100,000 chicks per
week. Both of the hatcheries are company-owned.
Grow-Out
The Company places its broiler chicks on approximately 285 contract grower
farms. The birds are grown separately by sex to provide the exact size
requirement of the Company's customers.
The independent contract growers provide the housing, equipment, utilities,
and labor to grow the baby chicks to market age, which varies from six to
eight weeks, depending on the market for which they are intended. The Company
supplies the baby chicks, the feed, and all veterinary and technical services.
Title to the birds remains with the Company at all times. The contract
growers are paid on live weight and are guaranteed a minimum rate with
<PAGE>
various incentives based upon a grower's performance as compared to other
growers whose birds are marketed during the same week. These contract
farms are located in Georgia, Tennessee, and Alabama.
Feed Mills
The Company owns one feed mill with a production capacity of approximately
520,000 tons per year; located in Dalton, Georgia. An additional feed mill
in Camilla, Georgia, was completed in 1993 and contributed to Cagle Foods
in March 1993. A new feed mill in Forsyth, Georgia, has the capacity to
produce approximately 300,000 tons annually.
Processing
As the broilers reach the desired processing weight, they are removed from the
houses and transported by company trucks to a processing plant.
The processing plants are located in Pine Mountain, Georgia; Macon, Georgia;
and Collinsville, Alabama. The Macon, Georgia, plant has the capacity to
process 8,400 birds per hour, and the Collinsville plant can process up to
12,600 birds per hour. The Pine Mountain plant which was destroyed by
fire in June 1995 but has since been rebuilt now has the capacity to produce
10,800 per hour. The Macon, Georgia, and Collinsville, Alabama, plants
operate two full shifts.
Further Processing and Deboning
The Company has a stated goal of marketing the majority of its product as
value-added product. This is accomplished by cutting the product into parts
or fast-food cuts, deboning, marinating and breading, and converting into
other convenience-type products.
Currently, further processing and deboning are conducted at the Collinsville,
Alabama, plant (cutting, marinating, and breading) and the Pine Mountain and
Macon, Georgia, plants (deboning). In addition, the Atlanta, Georgia,
facility and the Lovejoy, Georgia, facility are totally devoted to further
processing.
Freezer Storage
The Company's facilities located in Atlanta, Georgia; Collinsville, Alabama;
Pine Mountain, Georgia; and Lovejoy, Georgia, have freezer storage facilities
with aggregate capacity of approximately 6,800,000 pounds of frozen product.
The Company utilizes outside storage services as needed to supplement its own
freezer capacity.
Local Distribution
As an extension of the company sales division, local distribution is operated
from refrigerated warehouse facilities in Atlanta, Georgia. This unit has
sales representatives located in Macon, Georgia, as well as Atlanta and
Collinsville, Alabama, and is designed to provide storage and delivery
service for customers.
Significant Unconsolidated Subsidiaries
The Company owns a 50% interest in a joint venture, which is a fully integrated
poultry company located in Camilla, Georgia. This joint venture was created in
March 1993 from the contributed assets of the Company's former south Georgia
and north Florida operations. The joint venture is growing and processing
approximately 1,300,000 birds per week in a processing plant that is capable of
processing up to 1,400,000 broilers per week. A new hatchery was placed into
service on March 28, 1994, and a new processing plant began operations in April
1995. The Company acquired a minority interest in a poultry by-product company
in November 1994. In December 1995, the Company acquired a 1/3 interest in a
grower housing financing company. The company finances poultry houses for
growers in the South Georgia area who are contract growers for the joint
venture company.
<PAGE>
Executive Offices
The Company's executive offices are located in a renovated two-story
(22,000-square-foot) building at 2000 Hills Avenue, NW, Atlanta, Georgia.
The building is owned by the Company.
Some of the Company's property, plant, and equipment are encumbered to
secure long-term debt of the Company.
All of the properties described above are in good condition and are adequate
for their stated uses.
Item 3: Legal Proceedings
The Company is involved in various lawsuits and legal matters on an ongoing
basis as a result of its day-to-day operations; however, the Company does not
believe that the ultimate resolution of these matters will have a material
adverse effect on the Company or its business.
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth
quarter of fiscal 1997.
PART II
Item 5: Market for Registrant's Common Equity
and Related Stockholder Matters
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 29, 1997 and is incorporated
herein by reference.
Item 6: Selected Financial Data
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 29, 1997 and is incorporated
herein by reference.
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 29, 1997 and is incorporated
herein by reference.
<PAGE>
Item 8: Financial Statements and Supplementary Data
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 29, 1997 and is incorporated
herein by reference.
Item 9: Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 11, 1997 and
is incorporated herein by reference.
Item 11: Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 11, 1997 and
is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 11, 1997 and
is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 11, 1997 and
is incorporated herein by reference.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as part of this report:
(a)1. Financial Statements
The Company's 1997 Annual Report to Stockholders contains the consolidated
balance sheets as of March 29, 1997 and March 30, 1996, the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended March 29, 1997, and the related report of
Arthur Andersen LLP as to these financial statements. These financial
statements and the report of Arthur Andersen LLP are incorporated herein by
reference.
The financial statements, incorporated by reference, include the following:
Consolidated Balance Sheets_March 29, 1997 and March 30, 1996
<PAGE>
Consolidated Statements of Income for the Years Ended March 29, 1997,
March 30, 1996, and April 1, 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
March 29, 1997, March 30, 1996, and April 1, 1995
Consolidated Statements of Cash Flows for the Years Ended March 29, 1997,
March 30,1996, and April 1, 1995
Notes to Consolidated Financial Statements_March 29, 1997, March 30, 1996,
and April 1, 1995,
(a)2. Financial Statement Schedules
The financial statement schedules have been omitted because they are not
applicable or the required information is included in the consolidated
financial statements or notes thereto.
(a)3 Exhibits
8.1 audited financial statements of unconsolidated affiliate.
Reports on Form 8-K
No reports on Form 8-K were filed.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cagle's, Inc.
BY: /s/ J. Douglas Cagle
J. Douglas Cagle
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant and in
capacities and on the date indicated:
/s/ J.Douglas Cagle Chairman and Director and Chief Executive Officer
/s/ Kenneth R. Barkley Senior Vice President Finance/Treasurer/Chief
Financial Officer/Director/ Principle Financial
and Accounting Officer
/s/ G. Bland Byrne Director
/s/ George Douglas Cagle Vice President, New Product Development
and Director
/s/ John J. Bruno Senior Vice President Sales Marketing and Director
/s/ James David Cagle Vice President, New Product Sales and Director
/s/ Jerry D. Gattis President, Chief Operating Officer and Director
/s/ Mark M. Ham IV Vice President, Information Systems and Director
/s/ Candace Chapman Director
<PAGE>
CAGLE'S, INC. & SUBSIDIARY
Chief Executive Officer's Letter
To Our Stockholders:
Having concluded a year that provided a full menu of opportunities, it is a
good time to review where we have been and our view for the future.
Throughout most of the year the Company and the entire industry endured grain
prices that were higher than any in recent history, if ever. This additional
cost put a tremendous strain on margins and was the major reason that our
operating profits were severely impacted. The large debt load that the Company
incurred to rebuild from the Pine Mountain fire and to support working capital
during the period of unprecedented high cost carried our interest expense to
the highest in our history.
These were two of our greatest challenges during the year.
All was not so grim, however, as our Joint Venture operations contribution to
earnings continued to increase and provide the stability that we had envisioned
in the face of volatile commodity markets. While these earnings do not appear
as operating income these Joint Ventures provide a means of further integration
and growth to support our marketing efforts while limiting risk and commitment
of capital that would otherwise be required.
As to future outlook, we are continually evaluating our product mix as it
relates to margin contribution and dedication of resources. This involves
evaluation of both existing products relative to market life and profitability
as well as new product development.
Grain prices have moderated somewhat and the outlook is much better for this
crop year. We have reason to be more optimistic about corn prices this year but
soy prices are expected to remain a challenge. We believe that the earnings
outlook for the coming year is substantially improved at this time. We expect
to reduce total debt substantially over the next year and consequently reduce
interest expense, another boost to earnings.
We are sincerely appreciative of your encouragement and support.
J. Douglas Cagle
1
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The Company's earnings for the year were severely impacted by record high
grain prices throughout much of the year along with interest expenses on debt
to sustain record high working capital requirements and for the construction
of the new plant at Pine Mountain Valley, Georgia.
Earnings and fees from the Company+s unconsolidated affiliates were an
effective balance to reduced margins in the basic core business. In addition,
the Company was able to recover a larger portion of its business interruption
insurance claim than had been accrued and this difference
contributed positively to earnings for the year.
1997 Compared to 1996
Net sales increased by 14.5% ($45 million) as compared to Fiscal 1996. This
increase is attributed to increased production (up 23.8%) due to the new Pine
Mountain Valley facility operating at full one-shift capacity for the entire
year and higher market prices for broilers (12.3% as compared to Fiscal 1996).
Gross margins averaged lower than year-ago levels, 4.95% vs. 5.6% with high
feed cost as the primary cause. Feed averaged 19.5% higher than the average
cost in Fiscal 1996. Cost of sales was reduced by $2.5 million as a result of
recovery under the Company's business interruption insurance claim from the
Pine Mountain Valley fire loss.
Selling and delivery expenses and general and administrative expense as a
percentage of sales remained essentially the same as for the previous year,
3.08% for selling and delivery expense for each year and 2.08% vs. 2.01%
respectively for general and administrative expense.
Interest expense increased by 86.4% over Fiscal 96 and is the result of
higher borrowing levels throughout the year.
Other income declined from previous-year levels due to the inclusion of $8.9
million of difference in book value and proceeds from property insurance in
the Fiscal 96 amount.
Fiscal 1997 includes $7,753,000 of fees and profits from unconsolidated
affiliates as compared to $4,940,000 in Fiscal 1996. Also included is a charge
of $635,000 for settlement of an OSHA citation at the Macon plant and a
favorable land condemnation ruling of $626,000.
The provision for income taxes is computed at statutory rates allowing for
various tax credits available to the Company resulting in a net effective
rate of 28%.
1996 Compared to 1995
Net sales in 1996 dropped by 11.7% ($41 million) as compared to 1995. This
reduction is primarily due to the production lost at the plant destroyed by
fire from the time of the fire in June 1995 to start-up in late November 1995
and ultimately not attaining pre-fire production until the fourth quarter.
The reduction in sales due to the fire was somewhat offset by higher market
prices during 1996. Georgia Dock Market prices averaged $.0197 per lb. higher
in 1996, which was 3.6% higher than 1995.
Although market prices were higher in 1996, margins were adversely impacted
by feed prices which increased rapidly during the year as a result of a
diminished crop due to poor weather and also due to escalating exports of
US grain coupled with growing domestic consumption as the entire
2
<PAGE>
meat complex continued to expand. Feed costs were 14.8% higher in 1996 compared
to 1995 and are currently at record high levels. These costs levels are
expected to continue into fiscal 1997.
Margins were also negatively impacted in 1996 by the conversion of the
Company's Macon, Georgia plant from a fresh bulk deboning facility to an IQF
(Individual Quick Frozen) facility to support the Company's growing consumer
market for this product which had previously been produced only at the
Company's Atlanta, Georgia further processing plant. The conversion and
inefficiencies associated with producing an entirely new product line at this
facility severely impacted operating margins during the last half of 1996.
However, margins at Macon are improving and will prove to be a valuable
addition in providing a more diverse marketing program.
Other income in 1996 increased by $11.4 million over 1995 primarily due to a
gain of $8.9 million resulting from the difference between book value and
proceeds from insurance on the assets lost to fire. The balance of the increase
primarily represents increased earnings and management fees from the Company's
unconsolidated affiliates which experienced increased production and profits
during the year. Earnings and management fees from affiliates were $4,940,000
in 1996 compared to $4,297,000 in 1995. These affiliates help to further
integrate the Company's operations by complementing our marketing efforts or
supplying us with essential materials or services.
Selling, delivery and general and administrative expenses increased by 3% as
a group from 1995 levels primarily due to increases in personnel related costs
during the year and some additional costs associated with filing the insurance
claim resulting from the fire.
Interest expense increased by $1.43 million in 1996 as compared to 1995 due
to funds borrowed to rebuild the processing plant and finance the increased
working capital needs resulting from the fire. Construction was well under way
before the first advances were made by the insurance carrier and cost of the
new plant ultimately exceeded the property insurance proceeds by approximately
$16 million. In addition, receipt of business interruption insurance proceeds
has been slow thereby resulting in increased borrowing to support operations.
The provision for income taxes is computed at statutory rates allowing for
various tax credits available to the Company resulting in a net effective rate
of 36%.
Financial Condition and Liquidity
In August of 1996, the Company closed a $25,000,000 term loan which moved
borrowing from existing lines of credit to term. These funds had been expended
in reconstruction of the Pine Mountain plant and at the same time established
a $35,000,000 revolving line of credit to be used for working capital needs.
As of March 29, 1997, $25,000,000 was outstanding on the term loan and
$19,000,000 was outstanding on the revolver. These loans are both unsecured.
We are cautiously optimistic about earnings prospects for Fiscal 1998 as the
current projection for corn prices is favorable as compared to a year ago;
however, soymeal is expected to remain at last year's levels and higher. Actual
performance will depend upon market prices for our products as well as grain
prices and prices for export items are expected to continue to be quite
volatile. Material changes in any component, whether it be from cost of grain
or selling prices will materially affect earnings.
3
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Five-Year Selected Financial Data
(In Thousands, Except Per Share Data)
52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended Ended
March 29, March 30, April 1, April 2, April 3,
1997 1996 1995 1994 1993
--------- -------- -------- -------- ---------
OPERATING RESULTS:
Net sales................. $353,567 $308,749 $349,770 $312,696 $280,105
Operating expenses........ 354,345 307,105 331,140 299,425 270,486
--------- --------- -------- -------- --------
Operating income(loss).... (778) 1,644 18,630 13,271 9,619
Interest expense.......... (4,659) (2,499) (1,072) (1,336) (1,469)
Other income, net......... 8,268 14,448 3,085 1,516 198
--------- --------- -------- -------- --------
Income before income taxes
and accounting change... 2,831 13,593 20,643 13,451 8,348
Provision for income taxes. 792 4,893 6,881 4,799 3,142
--------- -------- -------- -------- --------
Income before accounting
change................. $2,039 $8,700 $13,762 $8,652 $5,206
========= ======== ======== ======== ========
FINANCIAL POSITION:
Working capital..... $ 31,940 $ 40,510 $17,592 $19,741 $19,068
Total assets..... 139,397 142,687 88,771 69,220 65,006
Long-term debt..... 49,798 58,508 15,233 11,819 17,591
Stockholders' equity..... 53,459 52,021 44,371 34,268 26,728
PERFORMANCE PER COMMON SHARE:*
Income before accounting
change.................. $0.41 $1.73 $2.67 $1.66 $0.99
Net income................. 0.41 1.73 2.67 1.66 1.08
Dividends.................. 0.12 0.12 0.105 0.085 0.06
Book value at the end of
the year ............... 10.68 10.39 8.81 6.58 5.07
Average number of common shares
outstanding*............. 5,006 5,018 5,152 5,224 5,272
* 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 March 29, 1997, there were 337 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 were:
1997 1996
---------------------------- -----------------------------
Dividend High Low Dividend High Low
-------- --------- ------- -------- --------- -------
Quarter:
First $0.030 $15-7/8 $15-7/8 $0.030 $23-7/8 $16
Second 0.030 14-1/8 14 0.030 17-3/4 13-3/4
Third 0.030 14-3/8 14-1/4 0.030 17-7/8 14
Fourth 0.030 13-1/4 13 0.030 18-1/2 14-1/8
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 /S/ Kenneth R. Barkley
J. Douglas Cagle Kenneth R. Barkley
Chairman and Chief Executive Officer Senior Vice President Finance,
Treasurer and Chief Financial Officer
May 16, 1997
__________________________________________________________________________
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 March 29, 1997 and March 30, 1996 and the
related consolidated statements of income, stockholders+ equity, and cash
flows for each of the three years in the period ended March 29, 1997. 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 did not audit the financial statements of Cagle
Foods JV LLC, the investment in which is reflected in the accompanying
financial statements using the equity method of accounting. The investment
in Cagle Foods JV LLC represents 9 percent of total assets as of March 29,
1997 and the equity in its net income represents 106 percent of income
before income taxes for the year ended March 29, 1997. The statements of
Cagle Foods JV LLC were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for Cagle Foods JV LLC, is based on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Cagle's, Inc. and subsidiary as of
March 29, 1997 and March 30, 1996 and the results of their operations and
their cash flows for each of the three years in the period ended March 29,
1997 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen L L P
Atlanta, Georgia
May 16, 1997
5
<PAGE>
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
March 29, 1997 and March 30, 1996
(In Thousands, Except Par Values) 1997 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash................................... $ 94 $ 326
Trade accounts receivable, less
allowance for doubtful accounts
of $408 and $315 in 1997 and
1996, respectively.................. 18,001 18,631
Inventories............................ 33,466 32,908
Insurance proceeds receivable(Note2)... 3,054 9,183
Defferred income tax assets 114 0
Other current assets................... 2,075 2,481
--------- ---------
Total current assets............. 56,804 63,529
--------- ---------
INVESTMENTS IN AND RECEIVABLES
FROM UNCONSOLIDATED AFFILIATES............ 19,570 14,675
--------- ---------
OTHER ASSETS.............................. 692 1,038
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land................................... 2,050 2,037
Buildings and improvements............. 48,486 47,146
Machinery, furniture, and equipment.... 45,394 41,315
Vehicles............................... 4,067 3,996
Construction in progress............... 308 44
--------- ---------
100.305 94,538
Less accumulated depreciation.......... (37,974) (31,093)
--------- ---------
62,331 63,445
--------- ---------
$ 139,397 $ 142,687
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
and capital lease obligations......... $ 3,325 $ 1,570
Accounts payable........................ 12,460 13,489
Accrued expenses........................ 9,079 7,776
Deferred income tax liabilities......... 0 184
--------- ---------
Total current liabilities......... 24,864 23,019
--------- ---------
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS........................ 49,798 58,508
--------- ---------
DEFERRED INCOME TAX LIABILITIES............ 11,276 9,139
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value;
1,000 shares authorized, none issued... -0- -0-
Common stock, $1 par value;
9,000 shares authorized,
and 5,006 shares outstanding
in 1997 and 1996, ..................... 5,006 5,006
Additional paid-in capital.............. 7,946 7,946
Retained earnings....................... 40,507 39,069
--------- ---------
53,459 52,021
--------- ---------
$139,397 $142,687
The accompanying notes are an integral part of these consolidated balance
sheets.
6
<PAGE>
Consolidated Statements of Income
For the Years Ended March 29, 1997, March 30, 1996, and April 1, 1995,
(In Thousands, Except Per Share Data) 1997 1996 1995
-------- -------- --------
NET SALES.................................. $353,567 $308,749 $349,770
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales............................ 336,073 291,378 315,882
Selling and delivery..................... 10,923 9,512 8,918
General and administrative............... 7,349 6,215 6,340
-------- -------- --------
354,345 307,105 331,140
-------- -------- --------
OPERATING (LOSS) INCOME..................... (778) 1,644 18,630
OTHER (EXPENSE) INCOME:
Interest................................. (4,659) (2,499) (1,072)
Other income, net........................ 8,268 14,448 3,085
-------- -------- --------
INCOME BEFORE INCOME TAXES ................ 2,831 13,593 20,643
PROVISION FOR INCOME TAXES.................. 792 4,893 6,881
-------- -------- --------
NET INCOME.................................. $2,039 $8,700 $13,762
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.............................. 5,006 5,018 5,152
======== ======== ========
PER COMMON SHARE:
Net income................................ $0.41 $1.73 $2.67
======== ======== ========
Dividends................................. $0.12 $0.12 $0.105
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
Consolidated Statements of Stockholders' Equity
For the Years Ended March 29, 1997, March 30, 1996, and April 1, 1995
(In Thousands)
Common Stock Additional
----------------- Paid-In Retained
Shares Amount Capital Earnings
------ -------- ------- --------
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............ -- -- -- (538)
------ -------- ------- --------
BALANCE, April 1, 1995........... 5,034 5,034 8,366 30,971
Repurchase of common stock..... (28) (28) (420) --
Net income..................... -- -- -- 8,700
Cash dividends paid............ -- -- -- (602)
------ -------- ------- --------
BALANCE, March 30, 1996.......... 5,006 5,006 7,946 39,069
Net income..................... -- -- -- 2,039
Cash dividends paid............ -- -- -- (601)
------ -------- ------- --------
BALANCE, March 29, 1997.......... 5,006 5,006 $7,946 $40,507
====== ======== ======= ========
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended March 29, 1997, March 30, 1996, and April 1, 1995
(In Thousands) 1997 1996 1995
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 2,039 $ 8,700 $13,762
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization.......... 7,761 5,289 4,495
Gain on disposal of property,
plant, and equipment.................. 0 (107) (18)
Gain from insurance proceeds
received for prorerty destroyed
by fire (Note 2)................... 0 (8,902) 0
Income and mangement fee from unconsolidated
affiliates, net of distributions..... (4,895) (2,878) (1,411)
Changes in assets and liabilities:
Accounts receivable, net............. 630 (3,618) (1,621)
Inventories.......................... (558) (7,626) (2,503)
Insurance proceeds receivable........ 6,129 (9,183) 0
Other current assets................. 406 (943) (392)
Accounts payable..................... (1,029) (61) 3,978
Accrued expenses..................... 1,303 (1,091) 1,564
Deferred income tax liabilities...... 1,839 4,145 159
------- ------- -------
Total adjustments.................. 11,586 (24,975) 4,251
------- ------- -------
Net cash provided (used) by operating
activities........................ 13,625 (16,275) 18,013
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant,
and equipment........................... (6,776) (35,598) (15,362)
Additions to investments in
unconsolidated affiliates............... 0 (100) (3,000)
(Increase) decrease in other assets...... 346 (488) (258)
Proceeds from sale of property,
plant, and equipment.................... 129 122 106
Insurance proceeds for property
destroyed by fire, net of costs (Note2). 0 9,980 0
------- ------- -------
Net cash provided by (used) in
investing activities............... (6,301) (26,084) (18,514)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
long-term debt.......................... 15,000 45,000 5,000
Payments of long-term debt and capital
lease obligations...................... (21,955) (1,727) (1,253)
Repurchase of common stock............... 0 (448) (3,121)
Cash dividends paid...................... (601) (602) (538)
------- ------- -------
Net cash provided by (used)
financing activities............. (7,556) 42,223 88
------- ------- -------
NET DECREASE IN CASH....................... (232) (136) (413)
CASH AT BEGINNING OF YEAR.................. 326 462 875
------- ------- -------
CASH AT END OF YEAR........................ $ 94 $ 326 $ 462
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................ $4,577 $ 2,290 $ 1,241
======= ======= =======
Income taxes (REFUNDED) paid............. $(1,652) $ 2,755 $ 6,603
======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
Notes to Consolidated Financial Statements
March 29, 1997, March 30, 1996, and April 1, 1995
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 7).
Nature of Operations
The Company's operations, which are located in the Southeast, consist of
breeding, hatching, and growing chickens; feedmills; processing; and further
processing and marketing operations. The Company's products are primarily
sold in the United States to supermarkets, food distributors, food processing
companies, national fast-food chains, and institutional users.
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 March 29, 1997 and March 30, 1996 consist of the following (in
thousands):
1997 1996
----------- -----------
Finished products $12,188 $10,640
Field inventory and breeders 16,294 17,630
Feed, eggs, and medication 3,472 3,000
Supplies 1,512 1,638
----------- -----------
$33,466 $32,908
=========== ===========
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 to 30 years
Machinery, furniture, and equipment 3 to 17 years
Vehicles 3 to 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.
Employee Insurance Claims
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 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. The
Company's accrual for group health and workers' compensation liabilities
of $3,143,000 and $2,300,000 as of March 29, 1997 and March 30, 1996,
respectively, is included in accrued expenses in the accompanying balance
sheets.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ( "SFAS") No. 128, "Earnings Per
Share," which specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company will be required to adopt
SFAS No. 128 in the second quarter of 1998. All prior period earnings per
share data will be restated to conform with the provisions of SFAS No. 128.
Based on a preliminary evaluation of this
10
<PAGE>
standard's requirements, the Company does not expect per share amounts
reported under SFAS No. 128 to be materially different from those calculated
and presented under Accounting Principles Board Opinion No. 15.
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 1997, 1996,
and 1995.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The book values of cash, trade accounts receivable, trade accounts payable,
and other financial instruments approximate their fair values principally
because of the short-term maturities of these instruments. The fair value
of the Company's long-term debt is estimated based on current rates offered
to the Company for debt of similar terms and maturities. Under this method,
the Company's fair value of long-term debt was not significantly different
than the stated value at March 29, 1997 and March 30, 1996.
Accounting for the Impairment of Long-Lived Assets
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
adopted SFAS No. 121 in fiscal 1997. The adoption of SFAS No. 121 did not
have a material impact on the Company's financial statements.
Accounting for Stock-Based Compensation
The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation cost has been recognized for stock options, as
all options were granted at an exercise price equal to or greater than the
estimated fair value of the common stock at the date of grant, as determined
by the Company's board of directors. Effective in fiscal year 1997, the
Company adopted the disclosure option of SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 requires that companies which do
not choose to account for stock-based compensation as prescribed by this
statement shall disclose pro forma effects on earnings as if SFAS No. 123
had been adopted. Additionally, certain other disclosures are required with
respect to stock compensation and the assumptions used to determine the
pro forma effects of SFAS No. 123.
The adoption of the disclosure option of SFAS No. 123 had no impact on the
Company.
Reclassification
Certain prior year balances have been reclassified to conform with current
year presentations.
2 PINE MOUNTAIN VALLEY FIRE
--------------------------------------------------------------------------
On June 24, 1995, the Company's plant in Pine Mountain Valley, Georgia, was
destroyed by fire. The Company rebuilt the plant on the site, started
processing on a limited scale in November 1995, and reached prefire capacity
in January 1996. As of March 30, 1996, the Company had received $9,980,000,
net of costs, from its insurance company in connection with assets destroyed
by the fire. The excess of the net property proceeds over the book value of
the property of $8,902,000 was recorded in other income.
The Company recently settled its insurance claims relating to business
interruption costs and lost profits due to the fire. The Company recognized
$2,538,000 and $10,928,000 relating to total proceeds expected to be
received under this claim as a reduction in cost of sales in 1997 and 1996,
respectively. Proceeds not yet received under this claim as of March 29,
1997 of $3,054,000 are included in insurance proceeds receivable in the
accompanying balance sheet.
The Company recognized $904,000 in 1996 related to proceeds received in
connection with inventory and spare parts destroyed by the fire as a
reduction of cost of sales in the accompanying statement of income.
11
<PAGE>
Notes to Consolidated Financial Statements, continued
3 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
-----------------------------------------------------------------------
Long-term debt and capital lease obligations at March 29, 1997 and March 30,
1996 consist of the following (in thousands):
1997 1996
--------- ---------
Term note payable to a syndicate of banks, variable
interest rate (6.94% at March 29, 1997), maturing
June 30, 2003; unsecured........................... $25,000 $26,000
Revolving credit agreement with a syndicate of banks,
maturing on July 31, 1999, variable interest rates
(ranging from 6.8% to 8.5% at March 29, 1997);
unsecured.......................................... 19,000 19,000
Term note payable to an insurance company, maturing
on July 1, 2002; secured by certain property, plant,
and equipment...................................... 8,400 9,600
Industrial development revenue bonds payable to a
financial institution, variable interest rate (3.55%
at March 30, 1996); repaid November 1996........... - 4,700
Capital lease obligations.......................... 463 504
Other notes payable at varying interest rates and
maturities......................................... 260 274
------- --------
53,123 60,078
Less current maturities............................ (3,325) (1,570)
------- --------
$49,798 $58,508
======= ========
At March 30, 1996, the term note payable to a syndicate of banks provided for
unsecured borrowings up to $40,000,000. In August 1996, the term note was
refinanced and is currently payable in installments commencing June 30, 1997
and is payable in full by June 30, 2003.
At March 30, 1996, the revolving credit agreement provided for unsecured
borrowings up to $20,000,000. In August 1996, the revolving credit agreement
was refinanced and now provides for unsecured borrowings up to $35,000,000.
Under this agreement, $5,000,000 of the $35,000,000 may be used for letters
of credit. As of March 29, 1997, a $250,000 letter of credit associated
with the Company's insurance program (Note 1) was outstanding and
$15,750,000 was available under the revolving credit agreement.
The term note payable to an insurance company 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 that the Company maintain (1) a current ratio of at least 1.5:1; (2)
an interest coverage ratio of at least 2.5:1, as defined; (3) a ratio of
total debt to capital, as defined, of not more than .60:1; (4) a minimum
tangible net worth, as defined, subject to increase based on the Company's
net earnings; and (5) capital expenditures not to exceed certain limits, as
defined in the debt agreements. At March 29, 1997, the Company was in
compliance with all 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 March 29, 1997 and March 30, 1996 was $575,000
and $591,000, respectively.
Aggregate maturities of long-term debt and capital lease obligations during
the years subsequent to March 29, 1997 are as follows (in thousands):
1998 $ 3,325
1999 4,742
2000 23,054
2001 4,060
2002 3,377
Thereafter 14,565
_______
$53,123
=======
12
<PAGE>
4 INCOME TAXES
- ---------------------------------------------------------------------------
The Company records deferred income taxes using enacted tax laws and rates for
the years in which the taxes are expected to be paid. Deferred income taxes
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
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 $2,845,000 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):
1997 1996 1995
-------- ------- -------
Current taxes................. $(1,047) $ 748 $ 6,722
Deferred taxes................ 1,839 4,145 159
-------- ------- -------
$ 792 $ 4,893 $ 6,881
======== ======= =======
A reconciliation between income taxes computed at the federal statutory
rate and the Company's provision for income taxes is as follows
(in thousands): 1997 1996 1995
------- ------- -------
Federal statutory rate.............. 34% 35% 35%
======= ======= =======
Federal income taxes at statutory rate..... $ 962 $ 4,758 $ 7,225
State income taxes, net of federal benefit. 112 537 826
Jobs tax credits........................... (282) (402) (1,170)
------- ------- -------
$ 792 $4,893 $6,881
======= ======= =======
Components of the net deferred income tax liability at March 29, 1997 and
March 30, 1996 relate to the following (in thousands):
1997 1996
-------- ---------
Deferred income tax liabilities:
Family farm cash-basis deferral......... $ 2,845 $ 2,845
Inventories............................. 1,166 1,569
Property and depreciation............... 5,537 3,874
Income from joint ventures.............. 2,350 1,516
Other................................... 2,121 1,582
------- --------
14,019 11,386
------- --------
Deferred income tax assets:
Accrued expenses........................ 1,489 1,097
Other................................... 1,368 966
------- --------
2,857 2,063
------- --------
Net deferred income tax liability....... $11,162 $ 9,323
======= ========
5 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.
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 March 29, 1997,
376,000 shares had been repurchased by the Company at a total cost of
$5,851,000.
6 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
13
<PAGE>
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.
7 INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED AFFILIATES
------------------------------------------------------------------------
On March 26, 1993, 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.
The Company occasionally sells eggs and broilers to the joint venture and
purchases processed products from the joint venture. In addition, the
Company performs certain management and administrative services for the joint
venture. The Company receives a fee for its management services based on
production volumes of 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):
1997 1996 1995
-------- ------- -------
Sales........................... $ 3,202 $ 4,095 $ 1,963
Purchases....................... 15,251 18,557 20,898
Accounts receivable............. 47 20 60
Accounts payable................ 689 138 1,563
Administrative service fees..... 323 902 548
Additionally, the Company occasionally sells chicken by-products to and
purchases feed products from another affiliate. Sales to and purchases from
the affiliate were $3,233,000 and $1,053,000, respectively, during 1997.
The Company accounts for its investments in affiliates using the equity
method. The Company's share of affiliates' earnings and management fees
was $7,753,000 and $4,940,000 for the years ended March 29, 1997 and March
30, 1996, respectively, and is included in other income in the accompanying
statements of income. At March 29, 1997, undistributed retained earnings
from affiliates were approximately $10,558,000. The Company's share of
Cagle Foods JV LLC earnings are based upon the audited results for the year
ended December 28, 1996 adjusted for the unaudited results for interim
periods.
Summarized combined balance sheet information for unconsolidated affiliates
as of March 29, 1997 and March 30, 1996 is as follows
(in thousands) (unaudited):
1997 1996
-------- --------
Current assets..................... $ 39,905 $ 24,772
Noncurrent assets.................. 64,856 64,398
-------- --------
Total assets....................... $104,761 $ 89,170
======== ========
Current liabilities................ $ 15,084 $ 11,713
Noncurrent liabilities............. 36,952 34,452
Owners' equity..................... 52,725 43,005
======== ========
Total liabilities and owners' equity $104,761 $ 89,170
======== ========
Summarized combined statement of income information for unconsolidated
affiliates for the years ended March 29, 1997 and March 30, 1996 is as
follows (in thousands) (unaudited):
1997 1996
-------- --------
Net sales..................... $225,484 $128,184
Gross profit.................. 26,095 19,571
Operating income.............. 14,976 15,232
Income before taxes........... 10,282 10,990
8 MAJOR CUSTOMER
-----------------------------------------------------------------------
Sales to the Company's two largest customers represented 32%, 33%, and 45% of
net sales during fiscal 1997, 1996, and 1995, respectively. Additionally, a
major portion of the joint venture's sales (Note 7) are to the Company's
largest customer. The Company has an agreement with this customer to supply
chicken under a cost-plus arrangement, and approximately 24% 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.
14
<PAGE>
9 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 $256,000, $168,000, and $179,000 in 1997, 1996, and 1995,
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 $235,000, $295,000,
and $232,000 in 1997, 1996, and 1995, respectively. No discretionary
company contributions have been made to this plan.
The Company does not provide postretirement medical or other benefits to
employees.
10 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 $2,024,000 in 1997, $2,763,000 in 1996, and $3,045,000
in 1995.
At March 29, 1997, future minimum payments under operating leases were as
follows (in thousands):
1998..............$ 987
1999.............. 286
2000.............. 37
----------
Total............. $1,310
==========
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
$31,487,000 at March 29, 1997, which approximates current market.
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.
11 QUARTERLY FINANCIAL DATA (UNAUDITED)
-------------------------------------------------------------------------
Quarterly financial data is as follows (in thousands, except per share data):
Net Operating Net Earnings
Sales (Loss) Income Income* Per Share
Fiscal year 1997 quarter ended:
June 29, 1996............... $83,814 $(3,276) $(1,560) $(0.31)
September 28, 1996.......... 92,021 (1,388) (639) (0.13)
December 28, 1996........... 85,506 891 1,547 0.31
March 29, 1997.............. 92,226 2,995 2,691 0.54
Fiscal year 1996 quarter ended:
July 1, 1995................ 89,421 1,592 1,596 0.32
September 30, 1995.......... 77,243 (1,246) 2,912 0.58
December 30, 1995........... 64,439 (360) 2,429 0.48
March 30, 1996.............. 77,646 1,658 1,763 0.35
*Net income for the quarters ended September 30, 1995, December 30, 1995,
and March 30, 1996 includes pre-tax income of $4,587,000, $3,792,000 and
$523,000, respectively, relating to the excess of net property insurance
proceeds received over the book value of the Company's Pine Mountain Valley
plant which was destroyed by fire (Note 2). Net income for the quarter ended
March 29, 1997 includes operating and pretax income of $2,538,000 relating to
recoveries under business interruption insurance.
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 J. 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
JOHNNY BURKETT
Senior Vice President
Board of Directors
J. DOUGLAS CAGLE
Chairman
Cagle's, Inc.
KENNETH R. BARKLEY
Senior Vice President Finance/Treasurer/CFO
Cagle's, Inc.
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
Principal
C2 Associates, Ltd.
MARK M. HAM IV
Vice President Management Information Systems
Cagle's, Inc.
JOHN J. BRUNO
Senior Vice President Sales and Marketing
Cagle's, Inc.
G. BLAND BYRNE
Partner
Byrne, Eldridge, Moore & Davis
Audit Committee
CANDACE CHAPMAN, Chairperson
G. BLAND BYRNE
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.
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 11, 1997.
- ----------------------------------------------------------------------
Form 10-K
The Form 10-K Annual Report for 1997, as filed by the Company with the
Securities and Exchange Commission, is available to Cagle's, Inc. stockholders
after June 30, 1997 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
SUNTRUST BANK
Atlanta, Georgia
Legal Counsel
BYRNE, ELDRIDGE, MOORE & DAVIS P.C.
Atlanta, Georgia
Auditors
ARTHUR ANDERSEN LLP
Atlanta, Georgia
16
<PAGE>
PROXY STATEMENT
CAGLE'S, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JULY 11, 1997
TO THE HOLDERS OF CLASS A COMMON STOCK:
Notice is hereby given that the Annual Meeting of Shareholders of Cagle's,
Inc. (the "Company"), will be held at the Company's offices located at 2000
Hills Avenue, Atlanta, Georgia, on the 11th day of July, 1997, at 11:00 A.M.
Eastern Daylight Time, for the following purposes:
(1) To fix the number of members of the Board of Directors at nine, and to
elect the members thereof; and
(2) To transact any other business that may properly come before the meeting or
any adjournments thereof; all as set forth in the Proxy Statement
accompanying this notice.
Only holders of record of Class A Common Stock on May 24, 1997, will be
entitled to vote at the meeting. The transfer books will not be closed.
By order of the Board of Directors.
George L. Pitts, Secretary
Atlanta, Georgia
June 9, 1997
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE SIGN,
DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY AND VOTE IN PERSON.
<PAGE>
CAGLE'S, INC.
2000 HILLS AVENUE, N.W. ATLANTA, GEORGIA 30318
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JULY 11, 1997
The enclosed proxy is solicited by the Board of Directors of Cagle's, Inc.
(the ``Company") for use at the Annual Meeting of Shareholders to be held on
July 11, 1997, and at any adjournment thereof, and is revocable by written
notice to the Secretary of the Company at any time before its exercise. Unless
revoked, proxies in the form enclosed, properly executed and received by the
Secretary of the Company prior to the Annual Meeting, will be voted at the
meeting as specified by the shareholder in the proxy or, except with respect
to broker non-votes, if no specification is made in the proxy, then the
persons designated as proxies shall vote FOR each of the proposals set forth
in the accompanying Notice of Annual Meeting of Shareholders, and according
to their discretion upon all other matters which may properly come before the
meeting. Broker non-votes will not be included in vote totals and will have no
effect on the outcome of the vote. Abstentions will not be counted either as a
vote FOR or a vote AGAINST a proposal and will have no effect on the outcome
of the vote.
An annual report to the shareholders, including financial statements for
the year ended March 29, 1997, is enclosed herewith. The approximate date of
mailing this proxy statement and the form of proxy is June 9, 1997.
On May 24, 1997, the Company had outstanding and entitled to vote at the
Annual Meeting 5,006,282 shares of Class A Common Stock. With regard to any
matter to be considered, each share of Class A Common Stock is entitled to
one vote. If a quorum is present, directors will be elected by the
affirmative vote of a majority of the shares represented at the meeting in
person or by proxy. A quorum consists of shareholders owning 50% of the
Class A Common Stock plus one share. Only shareholders of record on May 24,
1997, are entitled to vote at the meeting.
The enclosed proxy will be voted to fix the number of members of the Board
of Directors at nine and elect the nine nominees named in the proxy. Each
director shall hold office for a term of one year and thereafter until his or
her successor shall have been duly elected and qualified. In the event that
any of the nominees is unable to serve (which is not anticipated), the
persons designated as proxies will cast votes for the remaining nominees
and for such other persons as they may select. All nine of the nominees are
presently directors, whose one year terms of office will expire at the
Annual Meeting.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are presently directors of the Company and have been
nominated to stand for re-election:
J. Douglas Cagle, 66, has been a director of the Company since 1953, and
has been Chief Executive Officer of the Company since 1970 and Chairman of
the Board of the Company since July, 1993. Mr. Cagle served as President of
the Company from 1970 to July, 1993. He is expected to be reelected to the
offices of Chief Executive Officer and Chairman of the Board when his one year
term expires at the next annual meeting of the Board, which is scheduled for
July 11, 1997, immediately following the Annual Meeting of Shareholders.
Under rules promulgated by the Securities and Exchange Commission, Mr. Cagle
is a "control person" of the Company due to his stock holdings and those of
his relatives. Mr. Cagle is the father of George Douglas Cagle and James David
Cagle, who are also directors of the Company.
1
<PAGE>
George Douglas Cagle, 44, has been a director of the Company since July,
1976. Mr. Cagle has been employed in the corporate sales department of the
Company since the end of 1977, and he has been Vice President New Product
Development since July, 1993, an office to which he is expected to be reelected
at the next annual meeting of the Board. Mr. Cagle is the son of J. Douglas
Cagle and the brother of James David Cagle, who are also directors of the
Company.
Kenneth R. Barkley, 56, has been employed by the Company since April, 1974,
has been a director of the Company since July, 1977, and has been Treasurer and
Chief Financial Officer of the Company since July, 1977 and Senior Vice
President Finance of the Company since July, 1993. Mr. Barkley served as
Secretary of the Company from July, 1977 to July, 1993. He is expected to be
reelected to the offices of Treasurer, Chief Financial Officer and Senior Vice
President Finance at the next annual meeting of the Board.
James David Cagle, 43, has been a director since July, 1987. He has been
employed in the corporate sales department of the Company since 1982, and he
has been Vice President New Product Sales since July, 1993, an office to which
he is expected to be reelected at the next annual meeting of the Board. Mr.
Cagle is the son of J. Douglas Cagle and the brother of George Douglas Cagle,
who are also directors of the Company.
Jerry Don Gattis, 48, has been a director since July, 1989, and has been
President and Chief Operating Officer of the Company since July, 1993, offices
to which he is expected to be reelected at the next annual meeting of the Board.
Mr. Gattis joined the Company in April, 1987 as Vice President Sales and
Marketing, which office he held until February, 1989. He served as Senior Vice
President of the Company from February, 1989 to July, 1993. Before becoming
employed by the Company, Mr. Gattis was Director of Sales and Distribution for
Pilgrim's Pride and had held this position since 1981. Mr. Gattis previously
had been associated with Mountaire Corporation, which Pilgrim's Pride acquired
in 1981. While with Mountaire, Mr. Gattis served as Sales Manager and later as
General Manager of Processing and Sales.
Mark M. Ham IV, 42, has been a director since July, 1993. Mr. Ham has been
Assistant Secretary of the Company since July, 1987 and Vice President
Information Systems since July, 1993, offices to which he is expected to be
reelected at the next annual meeting of the Board. Mr. Ham has been associated
with the Company since 1977, during which time he has been responsible for the
Company's cost accounting and special accounting projects and matters involving
data processing and telecommunication.
John J. Bruno, Jr., 53, has been a director since July, 1993. Mr. Bruno joined
the Company in October, 1988 as Director of Sales and Marketing and has been
Senior Vice President Sales and Marketing of the Company since July, 1993, an
office to which he is expected to be reelected at the next annual meeting of
the Board. Mr. Bruno served as Vice President Sales and Marketing from
February, 1989 to July, 1993. Before becoming employed by the Company, Mr.
Bruno was Director of Sales and Marketing for Marshall Durbin Company and had
held that position since 1980.
Candace Chapman, 40, has been a director since July, 1993. Ms. Chapman is a
principal in C2 Associates, Ltd. Prior to forming C2 Associates, Ltd., Ms.
Chapman was a Consultant/Director of Marketing at Wyatt Investment
Consulting, Inc. Ms. Chapman previously was a Vice President at Atlanta
Capital Management Company from 1991 to October, 1994, and worked in the
trust investment division of SouthTrust Bank, from 1987 to 1991, where she
developed business opportunities for the bank. Ms. Chapman is a Certified
Public Accountant and also holds Series 7 and Series 63 investment licenses.
G. Bland Byrne III, 45, has been a director since July, 1995. Mr. Byrne is a
principal in the law firm of Byrne, Eldridge, Moore & Davis, P.C. Mr. Byrne
previously was a partner in the law firm of Swift, Currie, McGhee & Hiers,
from January, 1984 to April, 1994.
2
<PAGE>
The foregoing list of nominees includes several persons who also may be
considered executive officers of the Company: namely, J. Douglas Cagle,
George Douglas Cagle, Kenneth R. Barkley, James David Cagle, Jerry Don
Gattis, Mark M. Ham IV, and John J. Bruno, Jr. In addition, the following
individual is expected to be reelected as an executive officer immediately
following the Annual Meeting:
George L. Pitts III, 48, has been Secretary of the Company since July, 1993,
an office to which he is expected to be reelected at the next annual meeting of
the Board. Mr. Pitts has been employed in the corporate accounting department
of the Company since 1974, holding the position of Corporate Accounting Manager.
Johnny M. Burkett, 55, has been Senior Vice President of the Company since
December, 1996 an office to which he is expected to be reelected at the next
annual meeting of the Board. Before joining the Company, Mr. Burkett was
employed by Fielddale Farms, a poultry processing company. Since 1991, Mr.
Burkett worked in both processing and live operations at Fieldale Farms,
holding the positions of Director of Processing and Director of Live Operations.
OWNERSHIP OF VOTING SHARES BY OFFICERS, DIRECTORS AND OTHERS
The following table sets forth the stock ownership in the Company, as of May 1,
1997, of each director and nominee for director and of each executive officer
named in the Summary Compensation Table on page 5 hereof.
Amount and Nature of Percent of
Beneficial Ownership of Class A
Name Class A Common Stock Common Stock
J. Douglas Cagle.............. 2,124,556 (a) 42.4%
George Douglas Cagle.......... 439,484 (b) 8.8%
Kenneth R. Barkley............ 5,250 (c) *
James David Cagle............. 443,178 (d) 8.9%
Jerry Don Gattis.............. 20,492 (e) *
Mark M. Ham IV................ 5,100 (f) *
John J. Bruno, Jr............. 6,000 (g) *
Candace Chapman............... 689 *
G. Bland Byrne III............ 2,000 *
All Directors and
Executive Officers
as a group (10) persons....... 3,056,333 (h) 60.7%
- --------------
*Less than 1% of issued and outstanding shares of Class A Common Stock of
the Company.
(a) This amount includes 962,028 shares owned by Mr. Cagle as trustee of a
trust established under the will of his father.
(b) This amount includes 105,026 shares held as custodian for Mr. Cagle's
children.
(c) This amount includes 5,000 shares which may be acquired upon the exercise
of options which are presently exercisable.
(d) This amount includes 108,722 shares held as custodian for Mr. Cagle's
children.
(e) This amount includes 10,000 shares which may be acquired upon the exercise
of options which are presently exercisable.
(f) This amount includes 5,000 shares which may be acquired upon the exercise
of options which are presently exercisable.
(g) This amount includes 5,000 shares which may be acquired upon the exercise
of options which are presently exercisable.
(h) This amount includes 25,000 shares which may be acquired upon the exercise
of options which are presently exercisable.
3
<PAGE>
The following table sets forth each person known to management to be the
beneficial owner of more than five percent of the voting securities of the
Company as of May 1, 1997:
Amount and Nature
Title of Name and Address of of Beneficial Percent of
Class Beneficial Owner Owenership (a) Class
Class A J. Douglas Cagle .............. 2,124,556 (b) 42.4%
Common Stock 2000 Hills Avenue, N.W.
Atlanta, Georgia 30318
Class A George Douglas Cagle .......... 439,484 (c) 8.8%
Common Stock 2000 Hills Avenue, N.W.
Atlanta, Georgia 30318
Class A James David Cagle.............. 443,178 (d) 8.9%
Common Stock 2000 Hills Avenue, N.W.
Atlanta, Georgia 30318
Class A Dimensional Fund Advisors, Inc. 305,750 (e) 6.1%
Common Stock 1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
- ----------------
(a) Of the shares shown in this column, management knows of no shares with
respect to which such listed beneficial owners have the right to acquire
beneficial ownership as specified in regulations of the Securities and
Exchange Commission.
(b) This amount includes 962,028 shares owned by Mr. Cagle as trustee of a
trust established under the will of his father.
(c) This amount includes 105,026 shares held as custodian for Mr. Cagle's
children.
(d) This amount includes 108,722 shares held as custodian for Mr. Cagle's
children.
(e) Dimensional Fund Advisors, Inc. (``Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 305,750 shares as of
December 31, 1996, all of which are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in a
series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, for all of which
Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
SECTION 16(a) BENEFICIAL OWENERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the
Securities and Exchange Commission ("SEC") regulations, the Company's
directors, certain officers, and greater than ten percent shareholders are
required to file reports of ownership and changes in ownership with the SEC and
the American Stock Exchange and to furnish the Company with copies of all such
reports they file. Based solely on its review of such reports from certain
reporting persons, the Company believes that all filing requirements applicable
to its directors, officers and ten percent shareholders were satisfied during
the Company's last fiscal year.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS AND
COMPENSATION OF DIRECTORS
The Board of Directors established an Audit Committee in February, 1981.
This committee reviews the work of the Company's independent public
accountants, management, and internal accounting staff to ensure that each is
properly discharging its responsibilities in the area of financial control and
reporting. The committee is presently composed of George Douglas Cagle, G.
Bland Byrne III, and Candace Chapman. The Company does not have
4
<PAGE>
nominating or compensation committees of the Board of Directors. During the
last fiscal year, there were five meetings of the Board of Directors, and the
Audit Committee met one time. Each of the incumbent directors during the last
fiscal year attended at least 75% of the aggregate of the number of meetings of
the Board of Directors and the number of meetings of the Audit Committee held
during any period during which he was a director or member of the Audit
Committee, respectively.
During the Company's last fiscal year, each director who was not also an
officer or full time employee of the Company, received an annual director's fee
in the amount of $15,000. Directors who were officers or full time employees of
the Company received an annual director's fee of $10,000.
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid in the
Company's fiscal year ended March 29, 1997, and the two prior fiscal years to
the Company's Chief Executive Officer and the Company's four other most
highly compensated executive officers.
Summary Compensation Table
Long Term
Compensation
------------
Annual Securities
Name and Principal ------------------------- Underlying All Other
Position Year(1 Salary Bonus (2 Options(#) Compensation(3
- ------------------------- ---- -------- -------- ---------- --------------
J. Douglas Cagle 1997 $286,313 -0- -0- $24,817 (4
Chairman of the Board & 1996 277,198 135,960 -0- $26,018 (4
Chief Executive Officer 1995 262,315 132,000 -0- 18,400
Jerry Don Gattis 1997 271,030 -0- -0- 7,172
President & 1996 266,880 128,440 -0- 8,451
Chief Operating Officer 1995 243,639 123,500 -0- 9,676
John J. Bruno 1997 177,665 -0- -0- 5,782
Senior Vice President 1996 166,058 82,500 -0- 3,046
Sales and Marketing 1995 151,289 75,000 -0- 4,247
Kenneth R. Barkley 1997 128,943 -0- -0- 5,820
Senior Vice President 1996 124,368 58,526 -0- 5,701
Finance,Treasurer & 1995 117,577 56,275 -0- 8,370
Chief Financial Officer
Mark M. Ham IV 1997 101,520 -0- -0- 9,702
Vice Pres. Information 1996 97,998 45,032 -0- 11,408
Systems & Asst. Secretary 1995 92,775 43,300 -0- 10,571
(1 The year designated in this column refers to the Company's fiscal year
which ended in such year, which for 1997 was March 29, 1997.
(2 The amounts in this column represent the bonuses paid to the named
individuals pursuant to the Company's Executive Bonus Plan.
(3 This column includes contributions or payments to, or for the account of,
the named individuals pursuant to the Company's Cash or Deferred
Profit-Sharing Plan (the "401(k) Plan") and to the Company's medical
reimbursement plan. The medical reimbursement plan covers directors who
are also employees and officers. Medical expenses of the covered
individuals and their dependents which are not otherwise covered by
insurance are paid under this plan upon the filing of a proof of claim
by the covered individual with the Company's insurance carrier.
(4 This amount includes $15,029.38 for 1997 and $20,400 for 1996
representing the portion of the premiums paid with respect to the
split dollar life insurance policies described in COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION below, which portion is considered
income for purposes of taxation.
5
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Year End
Shares Acquired Year End (#) ($)
on Exercise Value Exercisable/ Exercisable/
Name (#) Realized Unexercisable Unexercisable
- ------------------ --------------- ---------- ------------- ----------------
J. Douglas Cagle _ _ _ _
Jerry D. Gattis _ _ 10,000/2,500 $20,750/$5,188
John J. Bruno _ _ 5,000/1,250 $10,375/$2,594
Kenneth R. Barkley _ _ 5,000/1,250 $10,375/$2,594
Mark M. Ham IV _ _ 5,000/1,250 $10,375/$2,594
Compensation Committee Interlocks and Insider Participation
The Board of Directors of the Company does not have a standing compensation
committee. The entire Board determines the compensation of the Chief Executive
Officer, and the Chief Executive Officer determines the compensation of the
remaining executive officers of the Company and its wholly-owned subsidiary.
The following members of the Board of Directors also were executive officers
of the Company and its subsidiary during the last fiscal year: J. Douglas
Cagle, Jerry Don Gattis, Kenneth R. Barkley, John J. Bruno, Jr., Mark M. Ham
IV, George Douglas Cagle and James David Cagle.
Two irrevocable trusts hold two cash value life insurance policies on the lives
of J. Douglas Cagle and his wife, the aggregate face value of which is
$20,000,000. The Company is a party to a split dollar agreement with each trust
pursuant to which the Company has agreed to make all of the payments on the
policies which are not paid by the trusts until the death of both J. Douglas
Cagle and his wife or, if earlier, the termination of the agreements by the
trusts, at which time the trusts shall repay to the Company all amounts paid
by the Company on such policies. The premiums paid by the Company on these
policies during its last fiscal year totaled $351,986.12.
6
<PAGE>
Board Report on Executive Compensation
The components of the annual compensation paid to the Chief Executive Officer
and the other executive officers of the Company are (i) base salary; (ii) a
bonus calculated pursuant to the provisions of the Company's Executive Bonus
Plan; (iii) allocation of contributions made by the Company to the respective
accounts of such executive officers under the Company's 401(k) Plan; and (iv)
payments made pursuant to the Company's medical reimbursement plan. All
executive officers other than the Chief Executive Officer are also eligible to
participate in the Company's 1993 Stock Option Plan.
The base salaries of the Chief Executive Officer and of the other executive
officers are not directly related to factors such as the Company's
profitability, sales growth, return on equity or market share, except to the
extent that such factors impact the Company's overall ability to satisfy its
compensation obligations to all employees. The base salaries for the Chief
Executive Officer and other executive officers of the Company are determined
primarily by a comparison of similarly situated officers of other companies in
the poultry industry. Years of service, responsibilities, company growth,
future plans and the Company's current ability to pay are also taken into
account in determining such base salaries.
The Chief Executive Officer and certain other executive officers are
participants in the Company's Executive Bonus Plan. The amount of the bonuses
payable are based upon the Company's after tax return on shareholder equity.
Such return is calculated before the accrual of any bonus payable pursuant to
the plan. Pursuant to the plan, each participant receives a bonus in an amount
equal to: fifty percent (50%) of such participant's base salary for a return
on shareholders equity of twenty percent (20%) or more, thirty percent (30%) of
base salary for a return of 15% to 19.99%, twenty percent (20%) of base salary
for a return of 10% to 14.99%, with no bonus payable if the return is less than
ten percent (10%).
The stock options granted under the 1993 Stock Option Plan, which plan was
approved by the shareholders in July, 1993, provide an incentive for executive
officers to manage the Company with a view toward maximization of long-term
shareholder value. Stock options to purchase Class A Common Stock may be
granted by the Plan Administrator to executive officers at an option price of
100% of the market value on the date of the grant, with a maximum term of 10
years. The Plan Administrator has sole discretion in determining the amount of
shares covered by each option and the vesting thereof.
This report was prepared by the entire Board of Directors of the Company.
Performance Graph
The following graph presents a comparison of five year cumulative total
shareholder returns among Cagle's, Inc., the S&P 500 Index and a Peer Group
Index. This information provides the annual return from the beginning of the
previous fiscal year assuming dividends are reinvested monthly. The graph
assumes an initial investment of $100 in March 1992. The Peer Group Index
consists of the following companies: Golden Poultry, Inc., Hudson Foods, Inc.,
Pilgrim's Pride Corporation, Sanderson Farms, Inc., Tyson Foods, Inc., and
WLR Foods, Inc.
7
<PAGE>
March 31, 1992 = $100.00
Base
Year March March March March March
Company/Index 1992 1993 1994 1995 1996 1997
---- ----- ----- ----- ----- -----
CAGLE'S, INC. -CL A 100 372 358 584 484 370
S&P 500 INDEX 100 115 117 135 179 214
PEER GROUP INDEX
AVERAGE 100 144 130 152 142 172
8
<PAGE>
MATERIAL INTERESTS AND MATERIAL TRANSACTIONS
Certain directors or nominees for director are affiliated with entities that
have transacted a material amount of business with the Company during the
Company's last fiscal year or that propose to do so during the Company's
current fiscal year. These business relationships are as follows:
The firm of Byrne, Eldridge, Moore & Davis, P.C. in which Mr. G.
Bland Byrne III, a director of the Company, is a principal, received
$305,534.50 during the last fiscal year of the Company as fees for legal
services rendered to the Company and its subsidiaries.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation of shareholders of record by mail, telephone or personal contact,
arrangements will be made with brokerage houses to furnish proxy materials to
their principals, and the Company will reimburse them for mailing expenses.
Custodians and fiduciaries will be supplied with proxy materials to forward to
beneficial owners of stock.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to serve as independent
accountants of the Company for the current fiscal year. Arthur Andersen LLP has
served as the Company's independent accountants since 1984.
Representatives of Arthur Andersen LLP are expected to be present at the
shareholders' meeting, will have an opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
PROPOSALS OF SECURITY HOLDERS FOR 1998 ANNUAL MEETING
The deadline for receipt of shareholder proposals for inclusion in the
Company's proxy statement and form of proxy for presentation at the 1998 annual
meeting of shareholders is February 10, 1998.
OTHER MATTERS
Management does not know of any matter to be brought before the meeting other
than those referred to above. If any other matters properly come before the
meeting, the persons designated as proxies will vote thereon in accordance with
their best judgment.
9
<PAGE>
Whether or not you expect to be present at the meeting in person, please sign,
date and return the enclosed proxy promptly in the enclosed business reply
envelope. No postage is necessary if mailed in the United States.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
HEREBY SOLICITED, ON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS
AND THE SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE COMPANY'S MOST RECENT FISCAL YEAR. REQUESTS SHOULD BE
ADDRESSED TO MR. GEORGE PITTS, SECRETARY, CAGLE'S, INC., POST OFFICE BOX
4664, ATLANTA, GEORGIA 30302. IF THE PERSON REQUESTING THE REPORT WAS NOT
A SHAREHOLDER OF RECORD ON MAY 24, 1997, THE REQUEST MUST INCLUDE A
REPRESENTATION THAT HE WAS A BENEFICIAL OWNER OF THE COMMON STOCK ON
THAT DATE.
By order of the Board of Directors.
George L. Pitts, Secretary
Atlanta, Georgia
June 9, 1997
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000016104
<NAME> CAGLE'S, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> MAR-29-1997
<CASH> 94
<SECURITIES> 0
<RECEIVABLES> 18409
<ALLOWANCES> 408
<INVENTORY> 33466
<CURRENT-ASSETS> 56804
<PP&E> 100305
<DEPRECIATION> 37974
<TOTAL-ASSETS> 139397
<CURRENT-LIABILITIES> 24864
<BONDS> 49798
<COMMON> 5006
0
0
<OTHER-SE> 48453
<TOTAL-LIABILITY-AND-EQUITY> 139397
<SALES> 353567
<TOTAL-REVENUES> 353567
<CGS> 336073
<TOTAL-COSTS> 354345
<OTHER-EXPENSES> (8268)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4659
<INCOME-PRETAX> 2831
<INCOME-TAX> 792
<INCOME-CONTINUING> 2039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2039
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
Financial Statements
Cagle Foods JV, L.L.C.
For the Year ended December 28, 1996 and December 30, 1995
with Report of Independent Auditors
<PAGE>
Cagle Foods JV, L.L.C.
Financial Statements
Year ended December 28, 1996
and December 30, 1995
Contents
Report of Independent Auditors.......................................1
Audited Financial Statements
Balance Sheets.......................................................2
Statements of Income.................................................3
Statements of Members' Equity........................................4
Statements of Cash Flows.............................................5
Notes to Financial Statements........................................6
<PAGE>
Report of Independent Auditors
Cagle's Inc. and Executive Holdings LTD.
We have audited the accompanying balance sheets of Cagle Foods JV, L.L.C. as
of December 28, 1996 and December 30, 1995, and the related statements of
income, members' equity, and cash flows for the years then ended. 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 Foods JV, L.L.C.
at December 28, 1996 and December 30, 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
March 14, 1997
/S/ Ernst & Young LLP
Ernst & Young LLP
<PAGE>
Cagle Foods JV, L.L.C.
Balance Sheets
December 28, 1996 December 30, 1995
(In Thousands)
Assets
Current assets:
Cash $ 217 $ 1,611
Accounts receivable:
Related party 6,355 6,437
Other 1,642 637
--------------- ---------------
7,997 7,074
Inventories 18,712 9,373
Prepaid expenses 366 329
---------------- ---------------
Total current assets 27,292 18,387
Investment in affiliated companies 1,351 1,021
Property, plant, and equipment:
Land 963 963
Land improvements 2,155 2,463
Buildings and building equipm 23,619 25,889
Machinery and equipment 21,423 17,937
Furniture and fixtures 387 328
Construction-in-process 733 246
---------------- -------------
49,280 47,826
Accumulated depreciation 9,146 5,186
---------------- --------------
40,134 42,640
Other assets 560 728
---------------- -------------
Total assets $69,337 $62,776
Liabilities and members' equity
Current liabilities:
Accounts payable $ 6,066 $ 4,312
Accrued expenses 3,129 2,551
Current portion of long-term debt - 3,675
-------------- -------------
Total current liabilities 9,195 10,538
Long-term debt 35,676 35,391
Members' equity:
Capital 16,304 10,000
Retained earnings 8,162 6,847
-------------- ------------
Total members' equity 24,466 16,847
-------------- -----------
Total liabilities and members' equity $69,337 $62,776
See accompanying notes.
<PAGE>
Cagle Foods JV, L.L.C.
Statements of Income
Year ended Year ended
December 28, December 30,
1996 1995
(In Thousands)
-------------- --------------
Net sales:
Related party $147,218 $99,271
Other 11,672 4,482
. -------------- --------------
158,890 103,753
Cost of products sold 141,623 90,205
Selling and administrative expenses 8,077 2,018
. -------------- --------------
149,700 92,223
. -------------- --------------
Operating income 9,190 11,530
Other income (expense):
Other income 345 90
Interest expense (2,781) (2,232)
Other expense (1,891) (1,266)
. --------------- --------------
Net income $ 4,863 $ 8,122
See accompanying notes.
<PAGE>
Cagle Foods JV, L.L.C.
Statements of Members' Equity
(In Thousands)
Capital Account
-----------------------
Executive Cagle's, Retained
Holdings Ltd. Inc. Earnings Total
------------- --------- -------- -------
Balance at December 31, 1994 $5,000 $5,000 $2,551 $12,551
Net income for the year ended
December 30, 1995 - - 8,122 8,122
Distribution of income - - (3,826) (3,826)
------------------------------------------
Balance at December 30, 1995 5,000 5,000 6,847 16,847
Capital contribution 3,152 3,152 - 6,304
Net income for the year ended
December 28, 1996 - - 4,863 4,863
Distribution of income - - (3,548) (3,548)
Balance at December 28, 1996 $8,152 $8,152 $8,162 $24,466
See accompanying notes.
<PAGE>
Cagle Foods JV, L.L.C.
Statements of Cash Flows
(In Thousands)
Year ended Year ended
December 28, December 30,
1996 1995
------------ ------------
Operating activities
Net income $ 4,863 $ 8,122
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,385 4,240
Undistributed income of affiliates (327) (90)
Gain on sales of property, plant and equipment (17) (18)
Changes in operating assets and liabilities:
Accounts receivable (923) (3,607)
Inventories (9,339) (4,003)
Prepaid expenses (37) (253)
Other assets (20) (41)
Accounts payable 1,754 (1,069)
Accrued expenses 578 57
------------- -------------
Net cash provided by operating activities 917 3,338
Investing activities
Proceeds from the sale of property,
plant and equipment 44 58
Purchases of property, plant, and equipment (1,718) (20,647)
Investment in affiliated company (3) -
------------- -------------
Net cash used in investing activities (1,677) (20,589)
Financing activities
Long-term borrowings 285 20,932
Repayments of long-term debt (3,675) -
Distribution of income (3,548) (3,826)
Capital contributions 6,304 -
------------- -------------
Net cash (used in) provided by
financing activities (634) 17,106
------------- -------------
Net decrease in cash and cash equivalents (1,394) (145)
Cash and cash equivalents at beginning
of period 1,611 1,756
------------- -------------
Cash and cash equivalents at end of period $ 217 $ 1,611
Supplemental disclosures of cash flow
information Cash paid during the year
for interest (net of capitalized
interest of $489 in 1995) $ 2,546 $ 1,663
See accompanying notes.
<PAGE>
Cagle Foods JV, L.L.C.
Notes to Financial Statements
December 28, 1996 and December 30, 1995
1. Summary of Significant Accounting Policies
Description of Business
Cagle Foods JV, L.L.C. (the "Company") was established as a Limited Liability
Company on March 27, 1993 and is a joint venture between Cagle's, Inc. and
Executive Holdings Ltd. The latest date at which the Limited Liability
Company is to dissolve is 2022. The Company is engaged in the production
and sale of processed chicken and finished feed.
Inventories
Live field inventories 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, medication and supplies are stated at the lower of cost or
market determined by the first-in, first-out method.
Inventories consist of the following (in thousands):
December 28, 1996 December 30, 1995
Finished products $ 5,666 $ 289
Field inventory, breeders and eggs 12,111 8,184
Feed, ingredients and medication 654 628
Supply Inventory 281 272
---------------- ------------------
$18,712 $9,373
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost. Depreciation is computed
principally by the straight-line method for financial reporting purposes
over the following periods:
Buildings and improvements 3-30 years
Machinery, furniture and equipment 3-17 years
Vehicles 1-8 years
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Other Assets
Other assets consist primarily of loan origination fees and organizational
costs which are amortized on a straight-line basis over seven years.
Accumulated amortization related to loan origination fees and organization
costs was $512,000 and $327,000 at December 28, 1996 and December 30, 1995,
respectively.
Interest Rate Swap Agreements
These agreements involve the receipt of a fixed-rate of interest on long-term
debt in exchange for floating-rate of interest over the life of the
agreements without an exchange of the underlying debt principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The
fair values of the swap agreements are not recognized in the financial
statements.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, receivables,
and accounts payable approximate fair values.
The carrying amount reported in the balance sheets for long-term debt
approximates fair value. Fair value is estimated based on the present value
of expected cash flows.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Recent Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed. The Company adopted Statement No. 121 in fiscal
year 1996. Adoption had no effect on the financial statements.
Fiscal Year-End
The Company follows the concept of a fiscal year which ends on the Saturday
nearest to the end of the month of December.
Income Taxes
The Company is a Limited Liability Company and has received a ruling from the
Internal Revenue Service which allows the Company to be treated as a
partnership for income tax purposes. As a partnership, it is not subject to
income taxes and the partners report their proportionate share of the income
on their tax returns.
2. Construction-In-Process
During 1996, the Company initiated a plant expansion project in Camilla,
Georgia. The Company anticipates leasing the new structure to Executive
Holding Ltd. which will use the facility for further processing. The Company
expects the expansion to be completed in October 1997 with a total estimated
cost of $16.6 million. Aggregate costs incurred as of December 28, 1996
totaled approximately $571,000.
<PAGE>
3. Long-Term Debt
Long-term debt consists of the following:
December 28, December 30,
(In Thousands) 1996 1995
------------ ------------
Note Payable to Cagle's, Inc., variable
interest rate (7.6% at December 28, 1996
and 7.9% at December 30, 1995),
maturing on March 27, 2000 $1,400 $1,400
Notes payable to financial institutions under
a revolving credit agreement, variable
interest rate (ranging from 6.50% to 6.59%
at December 28, 1996 and 7.56% to 7.63
at December 30, 1995), maturing on
December 31, 1999 9,951 9,666
Notes payable to financial institutions under
a term loan agreement, variable interest
rate (6.53% at December 28, 1996 and
ranging from 7.69% to 7.88% at
December 30, 1995), due in installments
commencing March 31, 1998 24,325 28,000
---------- ------------
35,676 39,066
Less amounts currently due - 3,675
---------- ------------
Total long-term debt $35,676 $35,391
<PAGE>
3. Long-Term Debt (continued)
On December 20, 1993, the Company executed a loan agreement for a $28 million
term loan facility and a $5 million revolving loan facility at variable
interest rates. On August 16, 1995, the loan agreement was amended to
increase the revolving loan commitment to $12 million, extend the revolving
loan maturity date to December 31, 1998 and reduce the annual fee for the
unused portion of the revolving loan commitment to 0.25%. These loans were
obtained for the financing of the construction of the new hatchery and
processing plant in Camilla, Georgia. The debt is secured by all assets
of the Company. Additionally, Executive Holdings Ltd. is liable for any
deficiency related to the debt and Cagle's, Inc. and Executive Holdings Ltd.
are obligated under an agreement to ensure the purchase of the Company's
production.
The Company refinanced its debt subsequent to year-end (Note 8). Maturities
under the new credit facility begin in 1998. Accordingly, the outstanding
debt under the term loan facility and the revolving credit facility as of
December 28, 1996 has been classified as long-term in these financial
statements.
Aggregate maturities of long-term debt during the years subsequent to December
28, 1996 under the credit facility which the Company executed on December 31,
1996 and the note payable to Cagle, Inc. are as follows (in thousands):
For the year ended:
January 3, 1998 $ -
January 2, 1999 6,500
January 1, 2000 16,951
December 30, 2000 6,650
December 29, 2001 5,575
---------
$35,676
The Company has incurred approximately $844,000 in loan origination costs
related to the term loan and revolver which is being amortized on a straight
line basis over seven years (the term of the loan). Amortization related to
this intangible asset amounted to approximately $152,000 and $144,000 in 1996
and 1995, respectively.
<PAGE>
3. Long-Term Debt (continued)
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its notes payable to financial institutions.
At December 28, 1996, the Company had two outstanding interest rate swap
agreements, having a notional amount of $23,100,000. These agreements
effectively fix the average interest rate on the Company's $28 million term
loan agreement at 5.845% plus a spread based on the Company's Debt to Cash
flow ratio through 2000. Under the terms of the agreements, the Company makes
payments at fixed rates and receives payments at variable rates which are
based on LIBORs adjusted quarterly. Approximately $69,336 in unrealized
gains exists on these agreements at December 28, 1996. The Company does not
intend to terminate these agreements prior to the maturity date.
The Company has an unused letter of credit amounting to $350,000 at December
28, 1996. The Company pays an annual fee of 0.25% of the unused portion of
the letter of credit which expires on July 16, 1997.
4. Related Party Transactions
Sales to the Company's owners (Executive Holdings Ltd./Keystone Foods
Corporation and Cagle's, Inc.) represented 92.7% and 95.7% of net sales
during the year ended December 28, 1996 and the year ended December 30,
1995, respectively. The Company sells deboned chicken at cost plus $.03
per eviserated pound to Executive Holdings Ltd. and Cagle's, Inc. The
Company also sells other chicken components at market price to Cagle's, Inc.
Effective January 1, 1996, Executive Holdings Ltd. and Cagle's, Inc. began
charging the Company a management fee based on the Company's volume of
production. Executive Holdings Ltd. and Cagle's, Inc. both charge the
Company administrative service fees based on the Company's volume of
production. Additionally, Cagle's, Inc. provides computer processing
services to the Company for which it charges a fee also based on the
Company's volume of production.
<PAGE>
4. Related Party Transactions (continued)
Transactions and balances with related parties are summarized as follows:
(In Thousands) Executive Holdings Ltd. Cagle's, Inc.
Year ended December 28, 1996
Transactions:
Sales $132,344 $14,874
Management fee 3,152 3,152
Administrative service and other fees 946 1,304
Balances at year end:
Accounts receivable 5,223 1,132
Note payable - 1,400
Year ended December 30, 1995
Transactions:
Sales $75,218 $22,399
Sales at cost - 1,654
Administrative service and other fees 642 925
Balances at year end:
Accounts receivable 5,362 1,075
Accrued expenses 493 -
Note payable - 1,400
<PAGE>
5. Commitments and Contingencies
The Company leases machinery and equipment under operating leases. The leases
for the machinery and equipment require payments of contingent rentals based
on usage in excess of a specified minimum, and future rental payments may be
adjusted for increases in maintenance and insurance above specified amounts.
Rent expense for the years ended December 28, 1996 and December 30, 1995 was
approximately $477,000 and $363,000, respectively.
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 28, 1996:
Operating
Leases
(In Thousands)
January 3, 1998 $319
January 2, 1999 161
January 1, 2000 6
Total minimum lease payments $486
The schedule above includes leases for certain vehicles which may require
the Company to make additional payments if the sales price of the vehicle
at the end of the lease term is below the guaranteed residual value.
During 1994, the Company entered into an agreement with the City of Camilla,
Georgia whereby the City agreed to construct a water tower and waste water
treatment system primarily for the Company. The Company has agreed to
service the debt incurred by the City to construct these facilities under
the condition that the City provide adequate water and waste water treatment
services. If the City is unable to provide water and waste water treatment
services, the Company is not obligated to repay the debt. The cost and
related debt associated with these facilities was approximately $10.1 million.
The Company has agreed to make annual debt service payments of approximately
$746,000 through May, 2016.
<PAGE>
5. Commitments and Contingencies (continued)
During 1995, the Company entered into an agreement with the City of Camilla,
Georgia whereby the City agreed to construct a power substation primarily
for the Company. The Company has agreed to service the debt incurred by the
City to construct these facilities under the condition that the city provide
an adequate power supply to the processing plant. If the City is unable to
provide an adequate power supply, the Company is not obligated to repay this
debt. The total cost and debt associated with these facilities was
approximately $205,000. The Company has agreed to make annual debt service
payments of approximately $41,000 through June 2005.
The Company has entered into an agreement with the City of Camilla, Georgia
to construct an additional waste water treatment facility to service the
processing plant including the planned expansion. Under the terms of the
agreement, the Company is responsible for the estimated total cost of the
facility of approximately $2.1 million less any grant money received by the
City of Camilla to fund this project. To date, the Company has incurred
approximately $619,000 in costs which are to be reimbursed by the City.
The Company will be required to reimburse the City over a twenty year
period for costs incurred in excess of grants received. Additionally,
the Company will be required to pay for the maintenance and operations of
the facility.
6. Investment in Unconsolidated Affiliates
At the date the Company was formed (March 27, 1993), Cagle's, Inc.
transferred their investment of approximately $894,000 (50% of the
outstanding stock) in a grain elevator corporation to the Company. The
investment is being accounted for under the equity method. The
undistributed income for the years ended December 28, 1996 and December
30, 1995 from this affiliate allocated to the Company was
approximately $351,000 and $86,000, respectively. The Company
purchased, at prices approximating market, $62.3 million and $30.1
million in feed ingredients from this affiliate during the years
ended December 28, 1996 and December 30, 1995, respectively.
<PAGE>
6. Investment in Unconsolidated Affiliates (continued)
Effective December 1995, Cagle's, Inc., Executive Holdings, L.P. and the
Company formed Cagle Foods Credit, L.L.C. (Credit Company). Each
Company has made capital contributions of $3,000. The Credit Company
was formed for the purpose of financing the poultry business. The
investment is being accounted for under the equity method. The undistributed
loss for the year ended December 28, 1996 from this affiliate allocated
to the Company was approximately $21,000. The Credit Company had no
activity during 1995.
On December 5, 1995, the Credit Company executed a loan agreement for a
$15 million revolving loan facility at variable interest rates. The
Company has guaranteed the borrowings under the loan agreement. The
Credit Company has received advances of approximately $12.8 million on
the revolving loan facility as of December 28, 1996.
7. Benefit Plans
Substantially all of the Company's union employees are covered by a
union-sponsored multi-employer defined benefit plan to which the Company
contributes amounts specified by the union contract. 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 presented. Under the Employee Retirement
Income Security Act of 1974 as amended in 1980, an employer upon withdrawal
from a multi-employer plan is required, in certain cases, to continue
funding its proportionate share of the plan's unfunded vested benefits.
Amounts paid for pension benefits for union employees totaled
approximately $184,000 for the year ended December 28, 1996 and $118,000
for the year ended December 30, 1995.
The Company also has a 401(k) retirement plan for employees not covered
under the collective bargaining agreement. Under the plan, the Company
contributes up to 2% of participating employees' salaries. Amounts
contributed by the Company to the 401(k) plan totaled approximately $29,000
for the year ended December 28, 1996 and $23,000 for the year ended December
30, 1995.
<PAGE>
8. Subsequent Events
On December 31, 1996, the Company executed a loan agreement for a $38 million
term loan facility and a $12 million revolving loan facility. The existing
debt outstanding as of December 28, 1996 was repaid using proceeds from the
new credit facility. The Company has drawn $27 million under the term loan
facility and $10.6 million under the revolving credit facility as of March 14,
1997. The method used in determining the effective interest rates on the
long-term debt has not changed under the new financing agreement. Maturities
of the loan facility begin in 1998. The Company refinanced its debt in
order to fund its plant expansion project.
<PAGE>
