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______APRIL 03, 1999___________________________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.)
__$28,842,057_(based_on_16.375 per_share_closing_price_on_April_26,_1999)___
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______________________________________
__4,797,731_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 April 03, 1999 - Items 5, 6, 7, 8, and 14.
2) Proxy statements for registrant's 1999 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 April 3, 1999. 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 April 3, 1999.
<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.
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 58 contract grower farms. In addition, the replacement breeder
pullets are maintained on 36 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 278 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
<PAGE>
growers are paid on live weight and are guaranteed a minimum rate with
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. The Company plans to build a new feed mill in Rockmart, Georgia and
increase the capacity of the Forsyth, Georgia mill during fiscal year 2000.
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 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 operates
one shift.
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 14,800,000 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.
<PAGE>
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. During
this fiscal year the Kentucky joint venture purchased a 1/4 interest in this
venture, which diluted the Company's ownership to 1/4. The financing
company finances poultry houses for growers who are contract growers for the
joint venture companies. In November, 1997 a Joint Venture poultry company was
formed in Kentucky and the company became a minority member.
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
Subsequent to April 3, 1999, suit was filed against Cagle's Farms, Inc. in
Superior Court of Whitfield County on April 20, 1999 and on May 19, 1999, Suit
was filed in District Court for the Middle District of GA against the Company,
Cagle' Farms, Inc., Cagle Foods, JV LLC, Cagle Foods Credit LLC and Cagle-
Keystone Foods JV. These two separate suites were brought by two different
groups of contract breeder growers seeking unspecified damages and allege that
the defendant misrepresented certain facts regarding profitability and cash flow
as an inducement to their becoming contract producers. The Company and other
dependents deny all allegations and are vigorously defending against this action
and expect to be fully vindicated.
In addition to the above mentioned suits, a suit was brought against Cagle's,
Inc., Cagle's Farms, Inc., Cagle Foods JV, LLC and Cagle-Keystone Foods JV,
LLC on May 12, 1999 in U.S. District Court for the Northern District of Ga. by
three contract broiler growers of whom one is a current producer for Cagle's
Farms, Inc., one a former contract producer for Cagle's Farms, Inc., and one
a contract producer for Cagle Foods JV, LLC, a separate joint venture company.
This suit alleges certain discrepancies in practices used at various locations
within the Company and at Cagle Foods JV, LLC to weigh live poultry as it is
received at the processing plant and unspecified damages. This suit seeks class
action status. The Company and other defendants deny all allegations and are
vigorously defending against all complaints and expect to be completely
vindicated.
Other than those actions listed above, the Company is routinely involved in
various lawsuits and legal matters on an ongoing basis as a result of 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 1999.
<PAGE>
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 April 3, 1999 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 April 3, 1999 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 April 3, 1999 and is incorporated
herein by reference.
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 April 3, 1999 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 9, 1999 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 9, 1999 and
is incorporated herein by reference.
<PAGE>
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 9, 1999 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 9, 1999 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 1999 Annual Report to Stockholders contains the consolidated
balance sheets as of April 3, 1999 and March 28, 1998, the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended April 3, 1999, 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_ April 3, 1999 and March 28, 1998
Consolidated Statements of Income for the Years Ended
April 3, 1999, March 28, 1998, and March 29, 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
. April 3, 1999, March 28, 1998, and March 29, 1997
Consolidated Statements of Cash Flows for the Years Ended
. April 3, 1999, March 28, 1998, and March 29, 1997
Notes to Consolidated Financial Statements for the Years Ended
. April 3, 1999, March 28, 1998, and March 29, 1997
(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
<PAGE>
8.1 audited financial statements of unconsolidated affiliate.
Reports on Form 8-K
No reports on Form 8-K were filed.
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> APR-03-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> APR-03-1999
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 23248
<ALLOWANCES> 715
<INVENTORY> 34291
<CURRENT-ASSETS> 59500
<PP&E> 112046
<DEPRECIATION> 49632
<TOTAL-ASSETS> 150807
<CURRENT-LIABILITIES> 29031
<BONDS> 36873
<COMMON> 4797
0
0
<OTHER-SE> 68377
<TOTAL-LIABILITY-AND-EQUITY> 150807
<SALES> 351991
<TOTAL-REVENUES> 351991
<CGS> 320832
<TOTAL-COSTS> 320832
<OTHER-EXPENSES> (5466)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2916
<INCOME-PRETAX> 33709
<INCOME-TAX> 12201
<INCOME-CONTINUING> 21508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21508
<EPS-BASIC> 4.42
<EPS-DILUTED> 4.41
</TABLE>
CAGLE FOODS JV, L.L.C.
FINANCIAL STATEMENTS
As of and for the Year ended January 2, 1999 and December 27, 1997
and Independent Auditors Report
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.
(the Company) as of January 2, 1999 and 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 audits.
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 as of January 2,
1999 and 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 19, 1999
<PAGE>
CAGLE FOODS JV, L.L.C.
BALANCE SHEETS
(In Thousands)
January 02, 1999 December 27, 1997
Assets
Current assets:
Cash $ 305 $ 202
Accounts receivable:
Related parties 6,925 10,622
Other 2,517 2,600
--------------- ---------------
9,442 13,322
Inventories 16,717 14,059
Prepaid expenses 306 604
--------------- ---------------
Total current assets 26,770 28,087
Investment in affiliated companies 1,224 1,752
Property, plant, and equipment:
Land 923 923
Land improvements 4,360 2,235
Buildings and building equipment 41,787 40,849
Machinery and equipment 27,120 22,078
Furniture and fixtures 578 440
Construction-in-process 149 77
--------------- -------------
74,917 66,602
Less Accumulated depreciation 18,676 13,793
. --------------- -------------
. 56,241 52,809
Other assets 1,412 801
. --------------- -------------
$ 85,647 $ 83,449
. =============== =============
Liabilities and members' equity
Current liabilities:
Accounts payable $ 9,714 $ 6,816
Accrued expenses 4,228 4,315
Current portion of long-term debt 7,000 6,500
. --------------- -------------
Total current liabilities 20,942 17,631
Long-term debt 22,850 32,950
Members' Equity 41,855 32,868
. --------------- -------------
. $ 85,647 $ $83,449
. =============== =============
See notes to financial statements.
<PAGE>
CAGLE FOODS JV, L.L.C.
STATEMENTS OF INCOME
(In Thousands)
. Year ended Year ended
. Jan.2,1999 Dec.27,1997
-------------- --------------
Net sales:
Related parties $ 179,564 $ 184,979
Other 6,510 13,361
. -------------- --------------
Total Net Sales 186,074 198,340
Cost of products sold 165,110 177,874
Selling and administrative expenses 4,343 1,763
. -------------- --------------
169,453 179,637
. -------------- --------------
Operating income 16,631 18,703
Other income (expense):
Other income 421 439
Rental Income 2,913 0
Interest expense (2,628) (2,451)
Other expense (2,392) (2,493)
. --------------- --------------
Net income $ 14,935 $ 14,198
. =============== ==============
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 28, 1996 $ 12,233 $ 12,233 $ 24,466
Net Income 7,099 7,099 14,198
Distribution of income (2,898) (2,898) (5,948)
------------ --------- ---------
Balance - December 27, 1997 $ 16,434 $ 16,434 $ 32,868
Net Income 7,468 7,467 14,935
Distribution of income (2,974) (2,974) (5,748)
------------ --------- ---------
Balance - December 27, 1997 $ 20,928 $ 20,927 $ 41,855
See notes to financial statements.
<PAGE>
CAGLE FOODS JV, L.L.C.
STATEMENTS OF CASH FLOWS
(In Thousands)
Year ended Year ended
Jan.2,1999 Dec.27,1997
------------ ------------
Operating activities:
Net income $ 14,935 $ 14,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,049 4,375
Undistributed income of affiliates (425) (401)
Gain on sales of property, plant and equipment 6 (39)
Changes in operating assets and liabilities:
Accounts receivable 3,780 (5,225)
Inventories (2,658) 4,653
Prepaid expenses 298 (238)
Other assets (723) (439)
Accounts payable 2,898 750
Accrued expenses (87) 1,186
------------- -------------
Net cash provided by operating activities 23,073 18,820
Investing activities:
Proceeds from the sale of property,
plant, and equipment 39 129
Purchases of property, plant, and equipment (8,413) (16,942)
Distribution of Income from affiliates 953 0
------------- -------------
Net cash used in investing activities (7,421) (16,813)
Financing activities:
Long-term borrowings 8,000 8,625
Payments of long-term debt (17,600) (4,851)
Distribution of income (5,949) (5,796)
------------- -------------
Net cash used in financing activities (15,549) (2,022)
------------- -------------
Net decrease in cash and cash equivalents 103 (15)
Cash and cash equivalents:
Beginning of period 202 217
------------- -------------
End of period $ 305 $ 202
============= =============
Supplemental disclosures of cash flow
Cash paid during the year for interest $ 2,783 $ 2,741
. ============= =============
See notes to financial statements.
<PAGE>
Cagle Foods JV, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
JANUARY 2, 1999 and DECEMBER 27, 1997
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 January 2, 1999 and December 27, 1997, respectively, consist of
the following (in thousands):
1998 1997
-------- --------
Finished products $ 4,059 $ 2,703
Field inventory, breeders, and eggs 10,975 10,237
Feed, ingredients, and medication 1,207 826
Supply Inventory 476 293
-------- --------
$ 16,717 $ 14,059
. ======== ========
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 $841,000 and $729,000 at January 2, 1999 and December 27, 1997,
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. The fair value of the interest rate swaps (see Note 2) is based on
confirmation of the counter-party.
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.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). This statement establishes
accounting and reporting Standards for hedging activities. It requires that an
enity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for the Company for year 2000. The company has not
completed the process of evaluating the impact that will result from adopting
SFAS 133. The company is therefore unable to disclose the impact that adopting
SFAS 133 will have on its financial position and results of operations.
<PAGE>
2. LONG-TERM DEBT
Long-term debt at January 2, 1999 and December 27, 1997, respectively,
consists of the following (in thousands):
1998 1997
. ----------- ------------
Note Payable to Cagle's, Inc., variable
interest rate (7% at January 2, 1999
and 7.97% at December 27, 1997),
maturing on March 27, 2000 $ 1,400 $ 1,400
Notes payable to GA/KY Fundco LLC under a
term loan agreement, variable interest rate
(6.19% at January 2, 1999 and 6.78% at
December 27,1997) due in installments
commencing March 31, 1998 through Dec. 31,2002 26,450 32,950
Notes payable to GA/KY Fundco LLC under a
revolving credit agreement, variable
interest rate (6.19% at Jan. 2, 1999 and
6.78% at December 27, 1997
maturing on September 30, 2002 2,000 5,100
. ----------- ------------
29,850 39,450
Less amounts currently due 7,000 6,500
. ----------- ------------
Total long-term debt $ 22,850 $ 32,950
On November 7, 1997, GA/KY Fundco L.L.C. ("Fundco") (a 50% owned subsidiary)
executed a loan agreement for a $95 million term loan facility and $30 million
revolving loan facility at variable interest rates 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. The amount borrrowed by the Company
is $33 million for the term loan facility and $15 million for the revolving loan
facility. The proceeds were used to repay the existing term and revolving
loans.
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.
<PAGE>
Aggregate maturities of long-term debt during the years subsequent to January 2,
1999 under the term and revolving loan of Fundco related to the portion borrowed
by the Company and the note payable to Cagle's, Inc. are as follows (in
thousands):
Year Ended
January 1, 2000 $ 7,000
December 30,2000 10,400
December 29, 2001 7,500
December 28, 2002 4,950
$29,850
. =======
The Company had 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 $354,000 in
1998 and $165,000 in 1997.
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 January 2, 1999 and December 27, 1997, the Company had
two outstanding interest rate swap agreements having an aggregate notional
amount of $11.2 million and $18.2 million, respectively. The notional amount
declines over the term of the swap agreement. Approximately ($77,745) and
$8,847 in unrealized (losses)/gains exist on these agreements at January 2, 1999
and December 27, 1997, 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.
On December 31, 1997, Fundco, on behalf of the Company and Kentucky, entered
into two interest rate swap agreements with expiration dates of December 31,
2002, which effectively fix the average interest rate on notional amounts of
$23.5 million at 6.00% and $23.5 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. Approximately $53,098 in unrealized gains exist on these agreements
at January 2, 1999. 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 rate swap agreement.
However, the Company does not anticipate nonperformance by the counter-parties.
At January 2, 1999 the Company had an unused standby letter of credit amounting
to $500,000.
<PAGE>
3. RELATED PARTY TRANSACTIONS
Sales to the Company's owners (Executive Holdings Ltd./Keystone Foods
Corporation and Cagle's, Inc.) represented 96.0% and 93.3% of net sales during
the year ended January 2, 1999 and December 27, 1997, 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.
Executive Holdings Ltd. and 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 1998 and 1997 are
summarized as follows (in thousands)
Cagle's
Executive Cagle's Keystone
Holdings Ltd. Inc. LLC
1998
Sales $157,707 $20,887 970
Rental income for further processing plant 2,913 0 0
Administrative service and other fees 1,196 1,515 0
Balances at year end:
Accounts receivable 5,342 865 718
Note payable 0 1,400 0
1997
Sales $160,972 $24,007 $ 0
Administrative service and other fees 1,247 1,579 0
Balances at year end:
Accounts receivable 7,182 2,253 1,187
Note payable 0 1,400 0
<PAGE>
The Company entered into a lease agreement beginning January 1, 1998 with
Keystone Foods for the Company's further processing facility for a period of 10
years at an annual rental amount of $2,912,500. The property, plant, and
equipment associated with this lease as of January 2, 1999 are as follows:
Land $ 100
Building 21,131
Machinery & Equipment 3,914
. --------
. 25,145
Less accumulated depreciation (1,005)
. --------
Net leased property $24,140
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 January 2, 1999 and December 27, 1997 was
approximately $3,974,000 and $471,000, respectively.
Future minimum payments under noncancelable operating leases with initial terms
of one year or more, including payments made on the behalf of Keystone by the
Company, consisted of the following at January 2, 1999 (in thousands):
January 1, 2000 3,765
December 30, 2000 3,720
December 29, 2001 3,632
December 28, 2002 3,895
Thereafter 10,640
--------
$25,652
During 1994, the Company entered into an agreement with the City of Camilla,
Georgia whereby the City agreed to construct a water tower and wastewater
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 wastewater 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>
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 wastewater 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 incurred approximately $619,000
in costs to be reimbursed by the City. During 1997, the Company received
reimbursements totaling approximately $482,000. The remaining amounts were
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.
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 January 2, 1999 and December 27, 1997 from this affiliate allocated to the
Company was approximately $363,000 and $416,000, respectively. The Company
received distributions of $945,000 during 1998. The Company purchased, at
prices approximating market, $53.4 million and $70.2 million in feed ingredients
from this affiliate during 1999 and 1997, 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 made
capital contributions of $3,000. Effective July 1, 1998, Cagle's-Keystone
Foods, L.L.C. became a member of the Credit Company, at which time Cagle's
- -Keystone made a capital contribution of $14,000. The Credit Company was formed
for the purpose of financing the facilities of the Company's and Cagle's-
Keystone Foods' contract growers. The investment is being accounted for under
the equity method. The undistributed income/(loss) from this affiliate
allocated to the Company was approximately $63,000 in 1998 and ($15,000) in
1997. The Company received distributions of $12,000 during 1998.
The Credit Company executed a loan agreement for a $37.7 million revolving loan
facility at variable interest rates. The Company and Kentucky have guaranteed
the borrowings under the loan agreement. The Credit Company has received
advances of approximately $20.3 million on the revolving loan facility as of
January 2, 1999. The Credit Company has consumer loans receivable of
approximately $18.4 million at January 2, 1999.
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
<PAGE>
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 $356,000 in 1998 and $234,000 in 1997.
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 $42,000 in 1998 and $39,000 in 1997 .
<PAGE>
