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 28, 1998___________________________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.)
__$22,123,201_(based_on_11.25_per_share_closing_price_on_April_28,_1998)___
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 28, 1998 - Items 5, 6, 7, 8, and 14.
2) Proxy statements for registrant's 1998 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.
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.
<PAGE>
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 16% of the Company's sales
for the year ended March 28, 1998. 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 28, 1998.
<PAGE>
Competition
The Company is a leading regional integrated poultry processor, ranking
seventh 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 28, 1998 the Company was cited by OSHA for several
violations at its Collinsville, Alabama plant and assessed a fine of $185,000.
The Company has appealed this citation.
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 273 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 two feed mills. The Dalton, Georgia feed mill has a
production capacity of approximately 520,000 tons per year. The feed mill in
Forsyth, Georgia, has the capacity to produce approximately 300,000 tons
per year.
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 process
10,800 birds per hour. The Pine Mt. Valley, Georgia, and Collinsville,
Alabama, plants operate two full shifts. The Macon, Georgia plant changed from
Two shifts to one shift during FY 1998.
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. 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. The Company also
owns a minority interest in a poultry by-product company. In December 1995, the
Company acquired a 1/3 interest in a grower housing financing company. The
financing company finances poultry houses for growers in the South Georgia area
who are contract growers for the joint venture company. In November, 1997 a
Joint Venture poultry company was formed in Kentucky and the company became a
minority member.
<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.
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 1998.
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 28, 1998 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 28, 1998 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 28, 1998 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 28, 1998 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 10, 1998 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 10, 1998 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 10, 1998 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 10, 1998 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 1998 Annual Report to Stockholders contains the consolidated
balance sheets as of March 28, 1998 and March 29, 1997, the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended March 28, 1998, 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 28, 1998 and March 29, 1997
<PAGE>
Consolidated Statements of Income for the Years Ended
March 28, 1998, March 29, 1997, and March 30, 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
. March 28, 1998, March 29, 1997, and March 30, 1996
Consolidated Statements of Cash Flows for the Years Ended
. March 28, 1998, March 29, 1997, and March 30, 1996
Notes to Consolidated Financial Statements for the Years Ended
. March 28, 1998, March 29, 1997, and March 30, 1996
(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>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000016104
<NAME> CAGLE'S, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> MAR-28-1998
<CASH> 226
<SECURITIES> 0
<RECEIVABLES> 18021
<ALLOWANCES> 752
<INVENTORY> 32567
<CURRENT-ASSETS> 51969
<PP&E> 102495
<DEPRECIATION> 42808
<TOTAL-ASSETS> 139419
<CURRENT-LIABILITIES> 23688
<BONDS> 48366
<COMMON> 5006
0
0
<OTHER-SE> 50136
<TOTAL-LIABILITY-AND-EQUITY> 139419
<SALES> 344886
<TOTAL-REVENUES> 344886
<CGS> 345498
<TOTAL-COSTS> 345498
<OTHER-EXPENSES> (8405)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3673
<INCOME-PRETAX> 4120
<INCOME-TAX> 1483
<INCOME-CONTINUING> 2637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2637
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
FINANCIAL STATEMENTS
CAGLE FOODS JV, L.L.C.
For the Year ended December 27, 1997 and December 28, 1996
with Report of Independent Auditors
<PAGE>
INDEPENDENT AUDITORS' REPORT
Steering Committee of Cagle Foods JV, L.L.C.
We have audited the accompanying balance sheet of Cagle Foods JV, L.L.C. as
of December 27, 1997 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 audit. The Company's
financial statements as of and for the year ended December 28, 1996 were
audited by other auditors whose report dated March 14, 1997 expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides 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 the Company at December 27,
1997 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Atlanta, Ga.
February 20, 1998
<PAGE>
CAGLE FOODS JV, L.L.C.
BALANCE SHEETS
(In Thousands) December 27, 1997 December 28, 1996
Assets
Current assets:
Cash $ 202 $ 217
Accounts receivable:
Related parties 10,622 6,355
Other 2,600 1,642
--------------- ---------------
13,222 7,997
Inventories 14,059 18,712
Prepaid expenses 604 366
---------------- ---------------
Total current assets 27,087 27,292
Investment in affiliated companies 1,752 1,351
Property, plant, and equipment:
Land 923 963
Land improvements 2,235 2,155
Buildings and building equipment 40,849 23,619
Machinery and equipment 22,078 21,423
Furniture and fixtures 440 387
Construction-in-process 77 733
---------------- -------------
66,602 49,280
Accumulated depreciation 13,793 9,146
---------------- --------------
52,809 40,134
Other assets 801 560
---------------- -------------
$83,449 $69,337
. ================ =============
Liabilities and members' equity
Current liabilities:
Accounts payable $ 6,816 $ 6,066
Accrued expenses 4,315 3,129
Current portion of long-term debt 6,500 -
-------------- -------------
Total current liabilities 17,631 9,195
Long-term debt 35,950 35,676
Members' Equity 32,868 24,466
-------------- -----------
. $83,449 $69,337
. ================ =============
See notes to financial statements.
<PAGE>
CAGLE FOODS JV, L.L.C.
STATEMENTS OF INCOME
(In Thousands) Year ended Year ended
Dec.27,1997 Dec.28,1996
-------------- --------------
Net sales:
Related parties $184,979 $147,218
Other 13,361 11,672
. -------------- --------------
Total Net Sales 198,340 158,890
Cost of products sold 177,874 141,623
Selling and administrative expenses 1,763 8,077
. -------------- --------------
179,637 149,700
. -------------- --------------
Operating income 18,703 9,190
Other income (expense):
Other income 439 345
Interest expense (2,451) (2,781)
Other expense (2,493) (1,891)
. --------------- --------------
Net income $ 14,198 $ 4,863
. =============== ==============
See notes to financial statements.
<PAGE>
CAGLE FOODS JV, L.L.C.
STATEMENTS OF MEMBERS' EQUITY
(In Thousands)
Executive Cagle's,
Holdings Ltd. Inc. Total
------------- --------- --------
Balance - December 30, 1995 $8,423 $8,424 $16,847
Capital Contribution 3,152 3,152 6,304
Net Income 2,432 2,431 4,863
Distribution of income (1,774) (1,774) (3,548)
--------------------------------
Balance - December 28, 1996 12,233 12,233 24,466
Net Income 7,099 7,099 14,198
Distribution of income (2,898) (2,898) (5,796)
--------------------------------
Balance - December 27, 1997 $16,434 $16,434 $32,868
See notes to financial statements.
<PAGE>
CAGLE FOODS JV, L.L.C.
STATEMENTS OF CASH FLOWS
(In Thousands)
Year ended Year ended
December 27,1997 December 28,1996
------------ ------------
Operating activities:
Net income $ 4,198 $ 4,863
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,375 4,385
Undistributed income of affiliates (401) (327)
Gain on sales of property, plant and equipment (39) (17)
Changes in operating assets and liabilities:
Accounts receivable (5,225) (923)
Inventories 4,653 (9,339)
Prepaid expenses (238) (37)
Other assets (439) (20)
Accounts payable 750 1,754
Accrued expenses 1,186 578
------------- -------------
Net cash provided by operating activities 18,820 917
Investing activities:
Proceeds from the sale of property,
plant, and equipment 129 44
Purchases of property, plant, and equipment (16,942) (1,718)
Investment in affiliated company (3)
------------- -------------
Net cash used in investing activities (16,813) (1,677)
Financing activities:
Long-term borrowings 8,625 285
Repayments of long-term debt (4,851) (3,675)
Distribution of income (5,796) (3,548)
Capital contributions 6,304
------------- -------------
Net cash used in financing activities (2,022) (634)
------------- -------------
Net decrease in cash and cash equivalents (15) (1,394)
Cash and cash equivalents:
Beginning of period 217 1,611
------------- -------------
End of period $ 202 $ 217
============= =============
Supplemental disclosures of cash flow
Information- Cash paid during the year
for interest (net of capitalized
interest of $280 in 1997) $ 2,741 $ 2,546
. ============= =============
See notes to financial statements.
<PAGE>
Cagle Foods JV, L.L.C.
NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 27, 1997 AND DECEMBER 28, 1996
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. Primarily all of the Company's sales are made
to Executive Holdings Ltd. (see Note 3)
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. Such costs are amortized into
hatching egg 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 at December 27, 1997 and December 28, 1996 consist of the following
(in thousands): 1997 1996
-------- --------
Finished products $ 2,703 $ 5,666
Field inventory, breeders, and eggs 10,237 12,111
Feed, ingredients, and medication 826 654
Supply Inventory 293 281
---------------- ------------------
$ 14,059 $ 18,712
. ================ ==================
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
Other Assets
Other assets consist primarily of organizational costs and loan origination
fees which are amortized on a straight-line basis over seven years.
Accumulated amortization related to organization costs and loan origination
fees was $729,000 and $512,000 at December 27, 1997 and December 28, 1996,
respectively.
<PAGE>
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivables, and accounts payable
reflected in the financial statements approximate fair values because of the
short-term nature of these instruments. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and maturities, the
Company estimates that the carrying value of its long-term debt approximates
fair value.
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.
Fiscal Year-End
The Company follows 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.
Interest Rate Swap Agreements
These agreements involve the receipt of a floating-rate of interest on long-term
debt in exchange for fixed-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.
Reclassifications
Certain reclassifications have been made in 1996 to conform with the 1997
financial statement presentation.
<PAGE>
2. LONG-TERM DEBT
Long-term debt at December 27, 1997 and December 28, 1996, respectively,
consists of the following (in thousands):
1997 1996
----------- ------------
Note Payable to Cagle's, Inc., variable
interest rate (7.97% at December 27, 1997
and 7.6% at December 28, 1996),
maturing on March 27, 2000 $1,400 $1,400
Notes payable to GA/KY Fundco LLC under a
term loan agreement, variable interest rate
(6.78% at December 27,1997) due in installments
commencing March 31, 1998 32,950
Notes payable to GA/KY Fundco LLC under a
revolving credit agreement, variable
interest rate (6.78% at December 27, 1997
maturing on September 30, 2002 5,100
Notes payable to financial institutions under
a revolving credit agreement, variable interest
rate (ranging from 6.50% to 6.59%
at December 28, 1996) maturing on
December 31, 1999 9,951
Notes payable to financial institutions under
a term loan agreement, variable interest rate
(6.53% at December 28, 1996), due in installments
commencing March 31, 1998 24,325
---------- -----------
39,450 35,676
Less amounts currently due 6500 -
---------- -----------
Total long-term debt $32,950 $35,676
On November 7, 1997, the Company executed a loan agreement for a $33 million
loan facility and $15 million revolving loan facility at variable interest
rates. The proceeds were used to repay the existing term and revolving loans
as described below. This agreement was entered into by GA/KY Fundco L.L.C.
("Fundco")(a 50% owned subsidiary) on the behalf of Cagle's-Keystone Foods
L.L.C. ("Kentucky")(a related party) and the Company. This loan is guaranteed
by the Company and Kentucky.
Fundco was established in 1997 as a 50% owned subsidiary of both the Company
And Kentucky. Fundco is a special purpose entity set up for borrowing of
funds from a group of banks to fund the capital needs of the Company and
Kentucky. Fundco has no other operations.
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%. On December 31,
1996, this debt was refinanced and the Company entered into an agreement for
a $38 million term loan facility and a $12 million revolving loan facility.
<PAGE>
Aggregate maturities of long-term debt during the years subsequent to December
27, 1997 under the term and revolving loan of Fundco related to the portion
borrowed by the Company the note payable to Cagle's, Inc. are as follows
(in thousands): For the year ended:
January 2, 1999 6,500
January 1, 2000 7,000
December 30, 2000 8,400
December 29, 2001 7,500
December 28, 2002 10,050
---------
$39,450
The Company has incurred approximately $1,277,000 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 expense
related to the loan origination costs amounted to approximately $165,000 in
1997 and $152,000 in 1996.
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its term and revolving note agreement which
expire June 30, 2000. At December 27, 1997 and December 28, 1996, the Company
had two outstanding interest rate swap agreements, having a notional amount
of $18.2 million and $23.1 million, respectively. The notional amount declines
over the term of the swap agreement. Approximately $8,847 and $69,336 in
unrealized gains exist on these agreements at December 27, 1997 and December
28, 1996, respectively. These agreements effectively fix the average interest
rate on the Company's term and revolving loan agreements 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 based on LIBOR adjusted quarterly.
The Company does not intend to terminate these agreements prior to the maturity
date. The Company is exposed to credit loss in the event of nonperformance by
the other party to the interest swap agreement. However, the Company does not
anticipate nonperformance by the counterparties.
At December 27, 1997 the Company has an unused letter of credit amounting
to $500,000.
3. RELATED PARTY TRANSACTIONS
Sales to the Company's owners (Executive Holdings Ltd./Keystone Foods
Corporation and Cagle's, Inc.) represented 93.3% and 92.7% of net sales
during the year ended December 27, 1997 and the year ended December 28,
1996, respectively. The Company sells deboned chicken at cost plus $.03
per eviscerated pound to Executive Holdings Ltd. The Company also sells
other chicken components at market price to Cagle's, Inc.
During 1996, Executive Holdings Ltd. and Cagle's, Inc. charged the
Company a management fee based on the Company's volume of production.
In 1997, the management was terminated. Executive Holdings Ltd. and
<PAGE>
Cagle's, Inc. both charge the Company administrative service fees based
on the Company's volume of production. The Company pays Cagle's, Inc.
for computer processing services for which it charges a fee based on the
Company's volume of production.
Sales, expenses and balances with related parties for 1997 and 1996 are
summarized as follows:
(In Thousands)
Cagle's-
Executive Cagle's Keystone
Holdings Ltd. Inc. LLC
1997
Sales $160,972 $24,007 $
Administrative service and other fees 1,247 1,579
Balances at year end:
Accounts receivable 7,182 2,253 1,187
Note payable 1,400
1996
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
4. 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 27, 1997 and December 28, 1996 was
approximately $471,000 and $477,000, respectively.
<PAGE>
Future minimum payments under noncancelable operating leases with initial
terms of one year or more made on behalf of Keystone by the Company, consisted
of the following at December 27, 1997: (In Thousands)
January 2, 1999 $ 3,904
January 1, 2000 3,765
December 30, 2000 3,720
December 29, 2001 3,632
December 28, 2002 3,895
Thereafter 10,640
--------
$29,556
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.
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. During 1996, the Company has incurred
approximately $619,000 in costs which are to be reimbursed by the City.
During 1997, the Company has received reimbursements totaling approximately
$482,000. The remaining unreimbursed amounts are expected to be received
during 1998. 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.
<PAGE>
5. INVESTMENTS 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
unaudited undistributed income for the years ended December 27, 1997 and
December 28, 1996 from this affiliate allocated to the Company was
approximately $416,000 and $351,000, respectively. The Company
purchased, at prices approximating market, $70.2 million and $62.3 million
in feed ingredients from this affiliate during 1997 and 1996, respectively.
Effective December 1995, Cagle's, Inc., Executive Holdings, L.P., and the
Company formed Cagle Foods Credit, L.L.C. (the "Credit Company"). Each
Company has made capital contributions of $3,000. The Credit Company
was formed for the purpose of financing the facilities of the Company's
contract growers. The investment is being accounted for under the equity
method. The undistributed loss from this affiliate allocated to the
Company was approximately $15,000 in 1997 and $21,000 in 1996.
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 $13.1 million on the revolving loan facility as
of December 27, 1997. The Credit Company has consumer loans receivable of
approximately $12.8 million at December 27, 1997.
6. 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.
As of November 1, 1997, the union contract was renegotiated and as a result,
pension benefits were increased by approximately 25%. Amounts paid for
pension benefits for union employees totaled approximately $234,000 in 1997
and $184,000 in 1996.
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 $39,000
in 1997 and $29,000 in 1996.
7. SUBSEQUENT EVENTS
On December 31, 1997, Fundco, on behalf of the Company and Kentucky, entered
into two interest rare swap agreements with expiration dates of December 31,
2002, which effectively fix the average interest rate on notional amounts of
$4.2 million at 6.00& and $3.6 million at 5.98%, plus a spread based on the
Company's debt to cash flow ratio. These notional amounts change in the
future based on amounts outstanding under the Company's term and revolving
loan agreements. Under the terms of the agreements, the Company makes payments
at fixed rates and receives payments at variable rates based on the three-month
LIBOR rate.
<PAGE>
