Cagle's
1999 Annual Report
Fiscal Year Ended April 03, 1999
<PAGE>
Cagle's Inc. and Subsidiary
CHIEF EXECUTIVE OFFICER'S LETTER
To Our Stockholders:
It is a pleasure to report to you at the conclusion of a year that produced
record breaking earnings and a year that opened even bigger opportunities for
the Company to grow and position itself as a top Tier Poultry Company.
As a Company, we utilized the cash flows generated by excellent earnings to
reduce debt as we had planned to do. In addition, we continued our ongoing stock
repurchase program as a testament to our belief that the market failed to give
value to the record that the company has achieved.
During the year the company acquired a site in Perry, Georgia to be converted
into a broiler processing facility. The facility offered many assets condusive
to broiler processing such as acreage, square footage, plentiful water supply
and existing wastewater treatment capabilities. When completed we will be able
to process approximately 1.2 million broilers per week and as marketing requires
can expand up to 2.6 million head per week slaughter capacity.
The Company also finalized plans to build a new feed mill in Rockmart, Georgia
to replace its existing mill located in Dalton, Georgia.
The new mill will be located much closer to our grow-out farms which will
result in significant cost savings through reduced mileage required for feed
delivery. In addition, the site is located favorably to reduce freight cost of
feed grain brought to the mill by train.
Construction on these two major projects will require approximately one year
to complete and full production for the processing plant is scheduled for late
2001.
Our purpose for increasing production capabilities is to better serve existing
customers and to accommodate new demand. A large portion of the first increment
will replace product currently purchased outside for further processing.
We are pleased with the results posted for the past year and look forward to
new opportunities to explore and to fine tune our operations for the future.
Your expressions of support are appreciated and we pledge our best efforts to
ensuring the company achieves its maximum potential.
Sincerely,
J. Douglas Cagle
Chairman
1
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The completion of a record-breaking year for earnings enabled the Company to
continue to grow and expand its core business as well as continuing its
expansion of Joint Venture operations. The Company began conversion of a
facility in Middle Georgia to a broiler processing plant with initial capacity
of 1.2 mil head per week expandable to 2.6 mil head per week slaughter capacity.
In addition, initial design was begun for a new state of the art feed mill to be
built in Rockmart, Georgia to support the company's grow-out operations.
The Joint Venture Company in Kentucky became operational in late 1998 and
continues to progress toward full production levels scheduled for late 2001.
Year 2000 Compliance
The Company has implemented a formal plan to address issues associated with
the year 2000 as it relates to systems throughout the Company and with vendors
and customers. Progress is monitored regularly and the status is reported to
management and quarterly to the Board of Directors. The Company is on schedule
to be fully compliant by June 1, 1999. The total cost associated with this
program is not expected to exceed $500,000, although the final total will not be
known until the program is fully implemented.
1999 Compared to 1998
Net sales increased by 2.06% as compared to fiscal 1998 and is attributed to
3.25% more tonnage because of a 53 week year.
Gross margins improved to 13.9% from 4.78% (an increase of 9.12%). A major
factor in this improvement was lower feed grain cost for the year and although
the GA DOCK quoted prices for broilers was approximately 16% higher, white meat
remained strong, but was offset to some extent by export markets which is
predominantly dark meat and has been especially pressured throughout the year.
Selling and delivery and general administrative expense as a group was only
slightly higher for the year as compared to the previous year, although selling
expense declined due to less outside storage expense made possible by the
addition of a new storage freezer at mid year. The general and administrative
expense increase represents additional management positions and increased
personnel-related expenses throughout the year.
Interest expense declined by 20.6% from the previous year levels and reflects
lower borrowings which began during the previous year and continued through FY
1999.
Other income includes earnings from unconsolidated affiliates of $6,110,000 as
compared to $7,483,000 in FY 1998. The lower earnings from the unconsolidated
affiliates reflect start-up losses incurred by the Kentucky Joint Venture.
The provision for income taxes is computed at statutory rates allowing for
various tax credits which are available to the Company resulting in a net
effective rate of 36% in Fiscal 1999 and Fiscal 1998, respectively. The Company
tax returns through FY 1997 have been examined by the Internal Revenue Service
and all issues resolved.
2
<PAGE>
1998 Compared to 1997
Net sales decreased by 2.46% as compared to Fiscal 1997. The decrease is
attributed to 2.65% less tonnage than in Fiscal 1997 combined with lower average
market prices throughout most of the year.
Gross margins for the year were slightly lower than Fiscal 1997, (4.78% as
compared to 4.95%). This is again the result of lower selling prices, which more
than offset feed cost which averaged 13.6% lower for the year compared to Fiscal
1997.
Selling and delivery expense and general and administrative expense for Fiscal
1998 as a percentage of sales was .22% lower than Fiscal 1997 (4.95% vs.5.17%)
with the major decrease being professional expense; legal, accounting, etc., due
to the inclusion of consulting fees for the insurance claims relating to the
fire in June 1995 that were included in Fiscal 1997 expenses and not in Fiscal
1998. Commissions were also notably lower as a result of the lower sales in
Fiscal 1998 than in Fiscal 1997.
Interest Expense was 21.16% lower in Fiscal 1998 than Fiscal 1997 and is
primarily the result of lower average debt levels.
Other income includes earnings from unconsolidated affiliates of $7,483,000 in
Fiscal 1998 as compared to $7,753,000 of fees and profits in Fiscal 1997. The
Fiscal 1998 amount is reduced by $286,000 of start-up losses attributable to the
new Kentucky Joint Venture, which is scheduled to begin production in late
calendar year 1998.
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% as compared to 28% in Fiscal 1997.
Financial Condition and Liquidity
The Company utilized its record earnings and positive cash flow to further
strengthen its balance sheet through debt reduction. As of April 3, 1999, the
Company had $20 million outstanding against its revolving line of credit which
was increased to $40 million during the year. All debt is unsecured.
The current outlook for FY2000 is for continued strong performance by the
Company as conversion of the recently acquired property in Perry, Georgia to a
processing plant and construction of a new feed mill in Rockmart, Georgia
progresses. The Company is currently negotiating specific financing for these
two major projects which together will cost an estimated $50 million. The new
processing capacity will initially be 1.2 million head per week when full
production is accomplished (currently estimated to be 4th calendar quarter of
2001) and can ultimately accommodate 2.6 million head per week when required by
the Company's marketing program.
Our projection of continued profits is based upon the most current estimates
for grain price and market prices for broiler and broiler products which will be
affected by weather and volatile international events, any of which could have a
material effect upon projected earnings.
3
<PAGE>
Five-Year Selected Financial Data
(In Thousands, Except Per Share Data)
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
April 3, March 28, March 29, March 30, April 1,
1999 1998 1997 1996 1995
. --------- -------- -------- -------- --------
OPERATING RESULTS:
Net sales ................ $351,991 $344,886 $353,567 $308,749 $349,770
Operating expenses ....... 320,832 345,498 354,345 307,105 331,140
. --------- -------- -------- -------- --------
Operating income (loss) .. 31,159 (612) (778) 1,644 18,630
Interest expense ......... (2,916) (3,673) (4,659) (2,499) (1,072)
Other income, net ........ 5,466 8,405 8,268 14,448 3,085
. --------- -------- -------- -------- --------
Income before income taxes 33,709 4,120 2,831 13,593 20,643
Provision for income taxes 12,201 1,483 792 4,893 6,881
. --------- -------- -------- -------- --------
Net income ............... $ 21,508 $ 2,637 $ 2,039 $ 8,700 $ 13,762
. ========= ======== ======== ======== ========
FINANCIAL POSITION:
Working capital .......... $ 30,469 $ 28,281 $ 31,940 $ 40,510 $ 17,592
Total assets ............. 150,807 139,419 139,397 142,687 88,771
Long-term debt and capital
lease obligations ........ 36,873 48,366 49,798 58,508 15,233
Stockholders' equity ..... 73,174 55,142 53,459 52,021 44,371
PERFORMANCE PER COMMON SHARE*:
Net income:
Basic ................... $ 4.42 $ 0.53 $ 0.41 $ 1.73 $ 2.67
Diluted ................. 4.41 0.53 0.41 1.73 2.66
Dividends ................ 0.12 0.12 0.12 0.12 0.105
Book value at the end
of the year............... 15.03 11.04 10.68 10.39 8.81
Average number of common
shares outstanding:*
Basic ................ 4,870 4,994 5,006 5,018 5,152
Diluted .............. 4,878 5,003 5,017 5,032 5,165
*Restated to reflect 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.
Stockholders
As of April 3, 1999, there were 293 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:
Fiscal 1999 Fiscal 1998
. ---------------------------- ----------------------------
Dividend High Low Dividend High Low
. -------- -------- -------- -------- -------- --------
Quarter:
First $ 0.030 $ 17 $ 10 7/8 $ 0.030 $ 15 1/8 $ 10 7/8
Second 0.030 17 3/8 13 7/8 0.030 17 1/4 14 3/4
Third 0.030 21 14 0.030 14 3/4 10 3/4
Fourth 0.030 21 14 1/4 0.030 12 7/8 10 1/4
4
<PAGE>
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
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 13, 1999
- -------------------------------------------------------------------------------
Report of Independent Public Accountants
To Cagle's, Inc.:
We have audited the consolidated balance sheets of CAGLE'S, INC. (a Georgia
corporation) AND SUBSIDIARY as of April 3, 1999 and March 28, 1998 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended April 3, 1999. 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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Cagle's,
Inc. and subsidiary as of April 3, 1999 and March 28, 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended April 3, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 13, 1999
5
<PAGE>
Consolidated Balance Sheets
April 3, 1999 and March 28, 1998
(In Thousands, Except Par Values)
ASSETS 1999 1998
. ------------ -------------
CURRENT ASSETS:
Cash $ 97 $ 226
Trade accounts receivable, less allowance for
doubtful accounts of $715 and $752 in 1999
and 1998, respectively 22,533 17,269
Inventories 34,291 32,567
Notes receivable 1,400 0
Other current assets 1,179 1,907
. ------------ -------------
Total current assets 59,500 51,969
. ------------ -------------
INVESTMENTS IN AND RECEIVABLES FROM
UNCONSOLIDATED AFFILIATES 28,199 27,069
. ------------ -------------
OTHER ASSETS 694 694
. ------------ -------------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 1,221 1,221
Buildings and improvements 51,816 46,960
Machinery, furniture, and equipment 49,744 49,473
Vehicles 5,383 4,402
Construction in progress 3.882 439
. ------------ -------------
112,046 102,495
Less accumulated depreciation (49,632) (42,808)
. ------------ -------------
62,414 59,687
. ------------ -------------
$150,807 $139,419
. ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,796 $ 2,795
Accounts payable 12,804 9,886
Accrued expenses 13,431 11,007
. ------------ -------------
Total current liabilities 29,031 23,688
. ------------ -------------
LONG-TERM DEBT 36,873 48,366
. ------------ -------------
DEFERRED INCOME TAX LIABILITIES 11,729 12,223
. ------------ -------------
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, 4,797 and 5,006
shares issued in 1999 and 1998, respectively 4,797 5,006
Treasury stock (124) (354)
Additional paid-in capital 5,035 7,946
Retained earnings 63,466 42,544
. ------------ -------------
73,174 55,142
. ------------ -------------
$150,807 $139,419
. ============ =============
The accompanying notes are an integral part of these consolidated balance
sheets.
6
<PAGE>
Consolidated Statements of Income
For the Years Ended April 3, 1999, March 28, 1998, and March 29, 1997
(In Thousands, Except Per Share Amounts)
. 1999 1998 1997
. -------- -------- --------
NET SALES ........................... $351,991 $344,886 $353,567
. -------- -------- --------
COSTS AND EXPENSES:
Cost of sales ...................... 302,904 328,417 336,073
Selling and delivery ............... 10,154 10,774 10,923
General and administrative ......... 7,774 6,307 7,349
. -------- -------- --------
. 320,832 345,498 354,345
. -------- -------- --------
OPERATING INCOME (LOSS) ............. 31,159 (612) (778)
OTHER (EXPENSE) INCOME:
Interest expense ................... (2,916) (3,673) (4,659)
Other income, net .................. 5,466 8,405 8,268
. -------- -------- --------
INCOME BEFORE INCOME TAXES .......... 33,709 4,120 2,831
PROVISION FOR INCOME TAXES .......... 12,201 1,483 792
. -------- -------- --------
NET INCOME .......................... $ 21,508 $ 2,637 $ 2,039
. ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic .............................. 4,870 4,994 5,006
. ======== ======== ========
Diluted ............................ 4,878 5,003 5,017
. ======== ======== ========
PER COMMON SHARE:
Net income:
Basic $ 4.42 $ 0.53 $ 0.41
. ======== ======== ========
Diluted $ 4.41 $ 0.53 $ 0.41
. ======== ======== ========
Dividends $ 0.12 $ 0.12 $ 0.12
. ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
Consolidated Statements of Stockholders' Equity
For the Years Ended April 3, 1999, March 28, 1998, and March 29, 1997
(In Thousands)
Common Stock Treasury Stock Additional
-------------- -------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings
. ------ ------ ------ ------ ------- --------
BALANCE, March 30,1996 5,006 5,006 0 0 7,946 39,069
Net income 0 0 0 0 0 2,039
Cash dividends paid 0 0 0 0 0 (601)
. ------ ------ ------ ------ ------- --------
BALANCE, March 29,1997 5,006 5,006 0 0 7,946 40,507
Purchase of treasury stock 0 0 (25) (354) 0 0
Net income 0 0 0 0 0 2,637
Cash dividends paid 0 0 0 0 0 (600)
. ------ ------ ------ ------ ------- --------
BALANCE, March 28,1998 5,006 5,006 (25) (354) 7,946 42,544
Repurchase and retirement
of common stock .......... (209) (209) 0 0 (2,740) 0
Exercise of stock options. 0 0 19 230 (171) 0
Net income................ 0 0 0 0 0 21,508
Cash dividends paid....... 0 0 0 0 0 (586)
. ------ ------ ------ ------ ------- --------
BALANCE, April 3,1999...... 4,797 $4,797 (6) $ (124) $ 5,035 $ 63,466
. ====== ====== ====== ====== ======= ========
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended April 3, 1999, March 28, 1998, and March 29, 1997
(In Thousands) 1999 1998 1997
. ------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................... $21,508 $ 2,637 $ 2,039
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................ 8,583 7,840 7,761
Loss (gain) on disposal of property, plant,
and equipment ............................... 705 (274) 0
Income and management fee from unconsolidated
affiliates, net of distributions............. (1,130) (4,499) (4,895)
Changes in operating assets and liabilities:
Trade accounts receivable, net .............. (5,264) (24) 630
Inventories.................................. (1,724) 899 (558)
Notes receivable............................. (1,400) 0 0
Insurance proceeds receivable................ 0 3,054 6,129
Other current assets......................... 728 (137) 406
Accounts payable............................. 2,918 (2,574) (1,029)
Accrued expenses............................. 2,424 1,969 1,303
Deferred income tax liabilities.............. (494) 1,061 1,839
. ------- ------- -------
Total adjustments......................... 5,346 7,315 11,586
. ------- ------- -------
Net cash provided by operating activities. 26,854 9,952 13,625
. ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment... (12,080) (7,753) (6,776)
Decrease in other assets...................... 0 770 346
Proceeds from disposal of property, plant,
and equipment................................ 65 79 129
. ------- ------- -------
Net cash used in investing activities..... (12,015) (6,904) (6,301)
. ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt...... 31,000 20,000 15,000
Payments of long-term debt and capital
lease obligations............................ (42,492) (21,962) (21,955)
Proceeds from exercise of stock options....... 59 0 0
Repurchase and retirement of common stock..... (2,949) 0 0
Purchase of treasury stock.................... 0 (354) 0
Cash dividends paid........................... (586) (600) (601)
. ------- ------- -------
Net cash used in financing activities.... (14,968) (2,916) (7,556)
. ------- ------- -------
NET (DECREASE) INCREASE IN CASH................. (129) 132 (232)
CASH AT BEGINNING OF YEAR....................... 226 94 326
. ------- ------- -------
CASH AT END OF YEAR............................. $ 97 $ 226 $ 94
. ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................. $ 2,409 $ 3,504 $ 4,577
. ======= ======= =======
Income taxes paid (refunded).................. $12,009 $ 1,097 $(1,652)
. ======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
Notes to Consolidated Financial Statements
April 3, 1999, March 28, 1998, and March 29, 1997
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.
The Company operates in one segment, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosure About Segments of an
Enterprise and Related Information."
Inventories
Live field inventories of broilers are stated at the lower of cost or market,
and breeders are stated at cost, less accumulated amortization. Breeder costs
are accumulated up to the production stage and amortized into broiler costs over
the estimated production lives based on monthly egg production. Finished
products; feed, eggs, and medication; and supplies are stated at the lower of
cost (first-in, first-out method) or market.
Inventories at April 3, 1999 and March 28, 1998
consist of the following (in thousands):
. 1999 1998
. ------- -------
Finished products.................... $16,618 $14,295
Field inventory and breeders......... 13,316 14,036
Feed, eggs, and medication........... 2,937 2,582
Supplies............................. 1,420 1,654
. ------- -------
. $34,291 $32,567
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, net in the accompanying statements of 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 $4,883,000 and $3,943,000 as of April 3,
1999 and March 28, 1998, respectively, is included in accrued expenses in the
accompanying balance sheets.
Earnings Per Share
Net income amounts presented in the accompanying statements of income represent
amounts available or related to stockholders.
10
<PAGE>
The following table reconciles the denominator of the basic and diluted earnings
per share computations (in thousands):
. 1999 1998 1997
. ------ ----- -----
Weighted average common shares 4,870 4,994 5,006
Incremental shares from assumed
conversions of options 8 9 11
. ------ ----- -----
Weighted average common shares and
dilutive potential common shares 4,878 5,003 5,017
====== ===== =====
Fiscal Year
The Company's fiscal year closing date is the Saturday nearest March 31. The
fiscal year includes operations for a 53-week period in 1999 and for a 52-week
period in 1998 and 1997.
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, 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 from the stated value at
April 3, 1999 and March 28, 1998.
Accounting for the Impairment of Long-Lived Assets
The Company periodically evaluates whether events and circumstances have
occurred which indicate that long-lived assets are impaired or that remaining
estimated lives may warrant revision and uses an estimate of undiscounted cash
flows over remaining lives of long-lived assets in measuring whether the assets
are recoverable.
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 was 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. The Company applies SFAS No. 123, "Accounting for
Stock-Based Compensation," as required for disclosure purposes. 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.
No disclosure of pro forma earnings is required as the Company did not grant any
stock options during fiscal years 1999, 1998, and 1997.
Accounting for Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SFAS No. 133 is effective, and the Company expects to
adopt this new standard in the Company's fourth quarter of fiscal 2000. The
Company's management has not determined the impact this statement will have on
the financial statements.
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.
The Company settled its insurance claims relating to business interruption costs
and lost profits due to the fire during the year ended March 29, 1997. The
Company recognized $2,538,000 relating to total proceeds expected to be received
under this claim as a reduction in cost of sales in 1997.
11
<PAGE>
Notes to Consolidated Financial Statements, Continued
3. LONG-TERM DEBT --------------------------------------------------------
Long-term debt at April 3, 1999 and March 28, 1998 consists of the following
(in thousands):
. 1999 1998
. -------- --------
Term note payable to a syndicate of banks,
variable interest rates (ranging from 6.91% to
6.94% at March 28, 1998), maturing June 30, 2003;
unsecured............................................ $ 19,444 $ 22,917
Revolving credit agreement with a syndicate of
banks, maturing July 31, 2001, variable
interest rates (ranging from 6.59% to 8.5% at
April 3, 1999); unsecured............................ 20,000 28,000
Other notes payable at varying interest rates and
maturities........................................... 225 244
. -------- --------
. 39,669 51,161
Less current maturities.............................. (2,796) (2,795)
. $ 36,873 $ 48,366
. ======== ========
The term note payable to a syndicate of banks requires quarterly principal and
interest payments. Payments commenced June 30, 1997 and continue until the note
matures on June 30, 2003.
The revolving credit agreement with a syndicate of banks provides for unsecured
borrowings up to $40,000,000. Under this agreement, $5,000,000 of the
$40,000,000 may be used for letters of credit. As of April 3, 1999, a $250,000
letter of credit associated with the Company's insurance program (Note 1) was
outstanding and $19,750,000 was available under the revolving credit agreement.
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 1.75:1, as defined; (3) a ratio of total
debt to capital, as defined, of not more than .50:1; (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 April 3, 1999, the Company was in compliance with all covenants.
Aggregate maturities of long-term debt during the years subsequent to April 3,
1999 are as follows (in thousands):
2000............. $ 2,796
2001............. 2,799
2002............. 22,800
2003............. 2,802
2004............. 2,802
Thereafter....... 5,670
. -------
. $39,669
. =======
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 tax law enacted in 1997, such
liabilities will be amortized into taxable income over a 20-year period.
12
<PAGE>
Income tax provisions are reflected in the statements of income
as follows (in thousands):
. 1999 1998 1997
. ------- ------- -------
Current taxes............. $12,695 $ 422 $(1,047)
Deferred taxes............ (494) 1,061 1,839
. $12,201 $ 1,483 $ 792
. ======= ======= =======
A reconciliation between income taxes computed at the federal statutory rate and
the Company's provision for income taxes is as follows (in thousands):
. 1999 1998 1997
. ------- ------- -------
Federal statutory rate.................. 35% 34% 34%
. ======= ======= =======
Federal income taxes at statutory rate.. $11,798 $ 1,401 $ 962
State income taxes, net of federal
benefit................................ 1,335 163 112
Jobs and investment tax credits......... (932) (81) (282)
. ------- ------- -------
. $12,201 $ 1,483 $ 792
. ======= ======= =======
Components of the net deferred income tax liability at April 3, 1999 and March
28, 1998 relate to the following (in thousands):
. 1999 1998
. ------- -------
Deferred income tax liabilities:
Family farm cash-basis deferral........ $ 2,703 $ 2,845
Inventories............................ 1,437 1,247
Property and depreciation.............. 6,782 5,983
Income from joint ventures............. 3,031 2,978
Other.................................. 5,344 3,314
. ------- -------
. 19,297 16,367
. ------- -------
Deferred income tax assets:
Accrued expenses....................... 2,658 1,759
Other.................................. 4,910 2,385
. ------- -------
. 7,568 4,144
. ------- -------
Net deferred income tax liability......... $11,729 $12,223
. ======= =======
5. STOCKHOLDERS' EQUITY -------------------------------------------
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 September, 1998, the
board increased the authorized amount to $10,000,000. As of April 3, 1999,
591,000 shares had been repurchased and retired by the Company at a total cost
of $8,215,000.
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 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 additional options have been
granted since 1993. During 1999, 18,750 options were exercised, leaving 12,500
options exercisable at April 3, 1999.
7. INVESTMENTS IN AND RECEIVABLE 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.
Sales to, purchases from, accounts payable and receivable from, and service fees
13
<PAGE>
charged to the joint venture are based on terms consistent with those of
unrelated parties and are summarized as follows (in thousands):
. 1999 1998 1997
. -------- --------- ---------
Sales......................... $ 2,429 $ 930 $ 3,202
Purchases..................... 20,441 24,869 15,251
Accounts receivable........... 5 606 47
Accounts payable.............. 1,047 813 689
Administrative service fees... 1,756 1,627 1,447
Additionally, the Company occasionally sells chicken by-products to and
purchases feed products from another affiliate. Sales to and purchases from
the affiliate were $1,331,000 and $787,000, respectively, during 1999.
On November 14, 1997, the Company acquired a 30% equity interest in a joint
venture with its joint venture partner in Cagle Foods JV LLC. During 1998, the
Company contributed certain property, plant, and equipment and other assets in
exchange for its equity interest in the new joint venture. This joint venture
built a processing facility in Albany, Kentucky, which began limited operations
in November 1998.
The Company accounts for its investments in affiliates using the equity method.
The Company's share of affiliates' earnings and management fees was $6,110,000
and $7,484,000 for the years ended April 3, 1999 and March 28, 1998,
respectively, and is included in other income, net in the accompanying
statements of income. At April 3, 1999, undistributed retained earnings from
affiliates were approximately $14,087,000. The Company's share of Cagle Foods
JV LLC earnings are based on the audited results for the year ended January 2,
1999 adjusted for the unaudited results for interim periods.
Summarized combined unaudited balance sheet information for unconsolidated
affiliates as of April 3, 1999 and March 28, 1998 is as follows (in thousands):
. 1999 1998
. --------- ---------
Current assets...................... $ 59,012 $ 41,131
Noncurrent assets................... 153,808 97,252
. --------- ---------
Total assets........................ 212,820 138,383
. ========= =========
Current liabilities................. 26,510 21,068
Noncurrent liabilities.............. 110,150 41,992
Owners' equity...................... 76,160 75,323
. --------- ---------
Total liabilities and owners' equity. $212,820 $138,383
. ========= =========
Summarized combined unaudited statement of income information for unconsolidated
affiliates for the years ended April 3, 1999 and March 28, 1998 is as follows
(in thousands):
. 1999 1998
. --------- ---------
Net sales.............................. $ 240,867 $ 241,831
Gross profit........................... 23,953 25,289
Operating income....................... 16,063 24,321
Income before taxes.................... 10,502 20,302
8. MAJOR CUSTOMERS ------------------------------------------------
Sales to the Company's two largest customers represented 39%, 33%, and 32% of
net sales during fiscal 1999, 1998, and 1997, respectively. Additionally, a
major portion of the joint venture's sales (Note 7) is to one of the Company's
largest customers. The Company has an agreement with this customer to supply
chicken under a cost-plus arrangement, and approximately 49% 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.
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
14
<PAGE>
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 $259,000, $251,000, and $256,000 in 1999, 1998, and 1997,
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 $250,000, $239,000, and $235,000 in
1999, 1998, and 1997, 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
noncancelable operating leases. The statements of income include rental expense
relating to these operating leases of $1,406,000, $1,704,000, and $2,024,000 in
1999, 1998, and 1997, respectively.
At April 3, 1999, future minimum payments under noncancelable operating leases
were as follows (in thousands):
2000............................ $280
2001............................ 179
2002............................ 21
. ----
Total........................... $480
. ====
The Company enters into contracts for the purchase of grain, primarily corn and
soybean meal, 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 $14,367,000 at April 3, 1999, which approximates current market
price.
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):
. Earnings
. Per Share
. Net Operating Net (Basic &
. Sales Income(Loss) Income* Diluted)**
. ------- ------------ ------- -----------
Fiscal year 1999 quarter ended:
June 27, 1998 $82,874 $ 4,723 $ 3,678 $ 0.74
October 3, 1998 92,802 10,275 7,336 1.47
January 2, 1999 83,466 8,892 5,757 1.20
April 3, 1999 92,849 7,269 4,737 0.99
Fiscal year 1998 quarter ended:
June 28, 1997 $86,767 $ (645) $ 1,170 $ 0.23
September 27, 1997 96,687 (917) 259 0.05
December 27, 1997 82,532 (1,138) 239 0.05
March 28, 1998 78,900 2,088 969 0.19
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
* 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 related to the fire at the Pine Mountain Valley plant (Note 2).
** The sum of the 1999 and 1998 quarterly earnings per share amounts is
different from the annual earnings per share amounts because of differences
in the weighted average number of common shares outstanding used in the
quarterly and annual computations.
15
<PAGE>
Officers and Directors
Cagle's, 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
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, Production
Board of Directors
J. DOUGLAS CAGLE
Chairman, Cagle's, Inc.
JERRY D. GATTIS
President and Chief Operating Officer 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.
CANDACE CHAPMAN
Principal, C2Associates, 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 &
Distribution
ATLANTA, Georgia
Distribution & Further Processing
LOVEJOY, Georgia
Further Processing
DALTON, Georgia
Feed Mill, Hatchery & Growout
PINE MOUNTAIN VALLEY, Georgia
Processing & Deboning
MACON, Georgia
Processing, Deboning & Further
Processing
FORSYTH, Georgia
Feed Mill, Hatchery & Growout
PERRY, Georgia
Proposed Processing Plant
ROCKMART, Georgia
Proposed Feed Mill
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 9, 1999.
Form 10-K
The Form 10-K Annual Report
for 1999, as filed by the Company with the Securities and Exchange Commission,
is available to Cagle's, Inc. stockholders after June 30, 1999 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 9, 1999
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 9th day of July, 1999, 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 22, 1999, 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 7, 1999
<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. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY AND VOTE IN PERSON.
CAGLE'S, INC.
2000 HILLS AVENUE, N.W. ATLANTA, GEORGIA 30318
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JULY 9, 1999
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 9, 1999, 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, 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 April 3, 1999, is enclosed herewith. The approximate date of mailing
this proxy statement and the form of proxy is June 7, 1999.
On May 22, 1999, the Company had outstanding and entitled to vote at the Annual
Meeting 4,779,231 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 22, 1999, 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, 68, 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 9, 1999,
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, 46, 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, 58, 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, 50, 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, 44, 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., 55, 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, 42, has been a director since July, 1993. Ms. Chapman is a
principal in C2 & Associates, Ltd., an investment management marketing company.
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, 47, has been a director since July, 1995. Mr. Byrne is a
principal in the law firm of Byrne, 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 individuals are
expected to be reelected as executive officers immediately following the Annual
Meeting.
George L. Pitts III, 50, 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, 57, 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 Fieldale 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,
1999, of each director and nominee for director and of each executive officer
named in the Summary Compensation Table on page 6 hereof.
. Amount and Nature of Percent of
. Beneficial Ownership of Class A
. Name Class A Common Stock Common Stock
. ----------------------- ------------
J. Douglas Cagle.............. 2,107,855 (a) 44.1%
George Douglas Cagle.......... 446,516 (b) 9.3%
Kenneth R. Barkley............ 5,300 (c) *
James David Cagle............. 437,647 (d) 9.2%
Jerry Don Gattis.............. 18,192 *
Mark M. Ham IV................ 6,350 (e) *
John J. Bruno, Jr. ........... 7,250 (f) *
Candace Chapman............... 856 *
G. Bland Byrne III............ 2,000 *
Johnny M. Burkett ............ 9,768 *
All Directors and
Executive Officers
as a group (11) persons....... 3,041,734 (g) 63.5%
- --------------
*Less than 1% of issued and outstanding shares of Class A Common Stock of
the Company.
(a) This amount includes 955,875 shares owned by Mr. Cagle as trustee of a
trust established under the will of his father.
(b) This amount includes 110,300 shares held as custodian for Mr. Cagle's
children.
(c) This amount includes 2,500 shares which may be acquired upon the exercise
of options which are presently exercisable.
(d) This amount includes 116,633 shares held as custodian for Mr. Cagle's
children.
(e) This amount includes 5,000 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 12,500 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, 1999:
. Amount and Nature
Title of Name and Address of of Beneficial Percent of
Class Beneficial Owner Ownership (a) Class
- ------------- ------------------------ ----------------- -----------
Class A J. Douglas Cagle .............. 2,107,855 (b) 41.1%
Common Stock 2000 Hills Avenue, N.W.
Atlanta, Georgia 30318
Class A George Douglas Cagle .......... 446,516 (c) 9.3%
Common Stock 2000 Hills Avenue, N.W.
Atlanta, Georgia 30318
Class A James David Cagle.............. 437,647 (d) 9.2%
Common Stock 2000 Hills Avenue, N.W.
Atlanta, Georgia 30318
Class A Dimensional Fund Advisors, Inc. 275,950 (e) 5.8%
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 955,875 shares owned by Mr. Cagle as trustee of a
trust established under the will of his father.
(c) This amount includes 110,300 shares held as custodian for Mr. Cagle's
children.
(d) This amount includes 116,633 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 275,950 shares as of
December 31, 1998, 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.
. 4
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP 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 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
or she 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.
. 5
<PAGE>
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid in the
Company's fiscal year ended April 3, 1999, 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
. Annual Compensation
- ----------------------- ------- --------- -------- ---------------
Name and Principal All Other
Position Year(1) Salary(2) Bonus(3) Compensation(4)
J. Douglas Cagle 1999 $314,538 $151,466 $37,034(5)
Chairman of the Board & 1998 304,203 -0- 30,046(5)
Chief Executive Officer 1997 286,313 -0- 24,817(5)
Jerry Don Gattis 1999 299,343 144,477 12,282
President & 1998 283,395 -0- 13,694
Chief Operating Officer 1997 271,030 -0- 7,172
Johnny M. Burkett(6) 1999 190,220 94,640 5,881
Senior Vice President 1998 181,525 -0- 5,174
. 1997 63,942 -0- 47
John J. Bruno 1999 197,455 94,640 7,310
Senior Vice President- 1998 186,073 -0- 6,924
Sales and Marketing 1997 177,665 -0- 5,782
Kenneth R. Barkley 1999 143,096 65,884 8,339
Senior Vice President- 1998 135,941 -0- 4,965
Finance, Treasurer & 1997 128,943 -0- 5,820
Chief Financial Officer
- ------------
1 The year designated in this column refers to the Company's fiscal year
which ended in such year, which for 1999 was April 3, 1999.
2 With regard to any named executive officer who is also a director of the
Company, the amounts shown in this column include the amount of the annual
director's fee paid to such person, as reported on the preceding page.
3 The amounts in this column represent the bonuses paid to the named
individuals pursuant to the Company's Executive Bonus Plan.
4 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"), the Company's Nonqualified Savings Plan
and 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.
5 These amounts include $15,029 for 1997, $21,108 for 1998 and $28,752 for
1999 representing the portion of the premiums paid with respect to the split
dollar life insurance policies described in COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION below, which portion is considered income for
purposes of taxation.
6 Mr. Burkett commenced employment with the Company in November, 1996, and,
therefore, his compensation shown for fiscal 1997 is for the period commencing
on his employment commencement date and ending on March 31, 1997.
. 6
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
. Number of Value of
. Securities Unexercised
. Underlying In-the-Money
. Unexercised Options at
. Options at Year End
. Shares Acquired Value Year End (#) ($)
. on Exercise Realized Exercisable/ Exercisable/
Name (#) $ Unexercisable Unexercisable
- ------------------ --------------- ---------- ------------- ----------------
J. Douglas Cagle _ _ _ _
Jerry D. Gattis 12,500 127,031 0/0 0/0
Johnny M. Burkett - - - -
John J. Bruno 1,250 9,781 5,000/0 26,000/0
Kenneth R. Barkley 3,750 34,031 2,500/0 13,000/0
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 were also 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 the last fiscal year totaled $362,636.
. 7
<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; (iv)
allocations of contributions made by the Company to the respective accounts of
such executive officers under the Company's Nonqualified Savings Plan; and (v)
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 Company's 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.
. 8
<PAGE>
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 1994. The Peer Group Index
consists of the following companies: Pilgrim's Pride Corporation, Sanderson
Farms, Inc., Tyson Foods, Inc., and WLR Foods, Inc.
March 31, 1994= $100.00
. Base
. Year March March March March March
Company/Index 1994 1995 1996 1997 1998 1999
. ---- ----- ----- ----- ----- -----
CAGLE'S, INC. -CL A 100 163 135 103 100 132
S&P 500 INDEX 100 116 153 183 271 321
PEER GROUP INDEX 100 114 107 130 132 143
. 9
<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, Moore & Davis, P.C. in which Mr. G. Bland Byrne III, a
director of the Company, is a principal, received $441,032 during the last
fiscal year of the Company as fees for legal services rendered to the Company
and its subsidiaries.
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 were also 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 the last fiscal year totaled $362,636.
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 from 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 2000 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 2000 annual meeting of
shareholders is February 14, 2000.
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.
. 10
<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 22,
1999, 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 7, 1999
<PAGE>
