Cagle's, Inc.
2000 Annual Report
Fiscal Year Ended April 01, 2000
Cagle's, Inc.
2000 Hills Ave., N.W.
Atlanta, Ga. 30318
Cagle's Inc. and Subsidiary
A LETTER FROM THE CEO
To Our Stockholders:
We are pleased to report another profitable and eventful year for
the Company. While earnings and revenues declined substantially from
the previous year's record numbers, to attain the reported levels in
light of the challenging market environment experienced this year is
a creditable achievement.
We are excited about the new facilities that we currently have
under construction and the growth potential that they present for
the Company. Both the processing facility at Perry, Georgia, and the
new feed mill at Rockmart, Georgia, will have state-of-the-art
technology and provide the opportunity to improve service to
existing customers and to grow with those same customers as well as
new ones. We are convinced that the capital investment required to
complete these projects will pay dividends through better
positioning of the Company to compete in rapidly changing and
consolidating markets.
We appreciate your continued support as we move into the new
millennium.
Sincerely,
J. Douglas Cagle
Chairman and C.E.O.
. 1
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Significant deterioration in market prices for poultry, boneless
skinless breast meat in particular, was a major factor in lower
earnings and revenues for the year just completed. Large quantities
of broiler meat competing with other protein sources, combined with
continued pressure on export prices, presented a real challenge for
the Company throughout the year as it did for the entire industry.
The Company began two major construction projects during the year
which continue at this time. The processing facility at Perry,
Georgia, is scheduled for completion in late summer to early fall,
and the new feed mill in Rockmart, Georgia, is slated for completion
mid to late summer.
As reported in the 10K filed in June 1999, the Company is
defending against a series of lawsuits filed by various contract
growers alleging certain discrepancies in various practices used at
various locations to weigh live poultry and misrepresentation of
certain facts regarding profitability and cash flow as an inducement
to becoming contract growers. The Company denies all allegations and
is vigorously defending against these actions and expects to be
fully vindicated.
Year 2000
The Company made extensive preparations in anticipation of Year
2000 effects on systems throughout the Company and experienced no
major difficulty.
2000 Compared to 1999
Net sales declined by 8.5% as compared to 1999 which is attributed
to significantly lower average market prices and the fact that
fiscal 2000 was a 52-week year versus 53 weeks in 1999.
Gross margins reflected the lower market prices as they declined
by 4.7% when compared to fiscal 1999. Boneless skinless breast
prices averaged $.32 or 18% lb. less in 2000 than 1999 while export
prices for leg quarters remained at depressed levels. Grain prices,
the major cost component, remained stable at favorable levels
throughout the year.
Selling, delivery, and general administrative expenses increased
by 10% as compared to the previous year with legal expenses
associated with the Company's ongoing litigation accounting for the
major portion of the increase. Other increases were personnel
related as management and sales and marketing staff are being added
in preparation for the increased production scheduled from the new
Perry facility.
Income taxes are computed at statutory rates adjusted for various
tax credits that are available to the Company.
. 2
<PAGE>
1999 Compared to 1998
Net sales increased by 2.06% as compared to fiscal 1998 which 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 were
approximately 16% higher, white meat remained strong, but was offset
to some extent by export markets which are 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
midyear. The general and administrative expense increase represents
addition 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 though 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 1997 have been
examined by the Internal Revenue Service and all issues are resolved.
Financial Condition and Liquidity
In November 1999, the Company closed a new financing package with a
group of banks, which provided a $72,750,000 term loan and
$40,000,000 Revolving Credit facility. As of April 1, 2000, the term
loan was fully funded and being utilized for construction financing
at Perry and Rockmart. There were no advances against the revolving
facility. All debt is currently unsecured.
The Company anticipates it will utilize the full-term facility and
a large portion of the revolver to complete construction and for
working capital to support the increased production.
The Company expects a slow recovery of market prices over the next
year and a volatile pricing environment in regard to feed grains
until the current year crop is determined. These factors and the
impact of start-up cost at Perry will play a major part in earnings
over the next year.
All forward-looking projections are based on the most current
information available as pertains to market prices for grain and for
poultry products and will be affected by weather and volatile
international events, any of which may have a material effect on
earnings.
. 3
<PAGE>
Five-Year Selected Financial Data
(In Thousands, Except Per Share Data)
52 Weeks 53 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
April 1, April 3, March 28, March 29, March 30,
2000 1999 1998 1997 1996
. --------- -------- -------- -------- --------
OPERATING RESULTS:
Net sales . . . . . . . . $322,220 $351,991 $344,886 $353,567 $308,749
Operating expenses. . . . 312,276 320,832 345,498 354,345 307,105
Operating income (loss) . 9,944 31,159 (612) (778) 1,644
Interest expense. . . . . (2,077) (2,916) (3,673) (4,659) (2,499)
Other income, net . . . . 7,671 5,466 8,405 8,268 14,448
Income before income taxes 15,538 33,709 4,120 2,831 13,593
Provision for income taxes 5,594 12,201 1,483 792 4,893
Net income . . . . . . . . $ 9,944 $ 21,508 $ 2,637 $ 2,039 $ 8,700
FINANCIAL POSITION:
Working capital .......... $ 28,830 $ 30,469 $ 28,281 $ 31,940 $ 40,510
Total assets ............. 192,170 150,807 139,419 139,397 142,687
Long-term debt and capital
lease obligations ........ 66,570 36,873 48,366 49,798 58,508
Stockholders' equity ..... 81,678 73,174 55,142 53,459 52,021
PERFORMANCE PER COMMON SHARE:
Net income:
Basic ................... $ 2.09 $ 4.42 $ 0.53 $ 0.41 $ 1.73
Diluted ................. 2.09 4.41 0.53 0.41 1.73
Dividends ................ .012 0.12 0.12 0.12 0.12
Book value at the end
of the year............... 17.19 15.03 11.04 10.68 10.39
Average number of common
shares outstanding:
Basic ................ 4,752 4,870 4,994 5,006 5,018
Diluted .............. 4,755 4,878 5,003 5,017 5,032
. 4
<PAGE>
Dividend Policy
The board of directors considers dividends in light of operating results,
current earnings trends, and prevailing economic conditions.
Stockholders
As of April 1, 2000, there were 268 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 $ 19 5/8 $ 14 1/2 $ 0.030 $ 17 $ 10 7/8
Second 0.030 21 3/8 15 1/2 0.030 17 3/8 13 7/8
Third 0.030 16 3/8 10 7/8 0.030 21 14
Fourth 0.030 12 8 0.030 21 14 1/4
. 5
<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 11, 2000
. 6
<PAGE>
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 1, 2000, and April 3, 1999 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended April 1, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cagle's, Inc. and subsidiary
as of April 1, 2000 and April 3, 1999 and the results of their operations and
their cash flows for each of the three years in the period ended April 1, 2000
in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 11, 2000
. 7
<PAGE>
Consolidated Balance Sheets
April 1, 2000 and April 3, 1999
(In Thousands, Except Par Values)
ASSETS 2000 1999
. ------------ -------------
CURRENT ASSETS:
Cash $ 9,526 $ 97
Trade accounts receivable, less allowance for
doubtful accounts of $905 and $715 in 2000
and 1999, respectively 15,261 22,533
Inventories 31,112 34,291
Notes receivable 1,400 1,400
Other current assets 2,965 1,179
. ------------ -------------
Total current assets 60,264 59,500
. ------------ -------------
INVESTMENTS IN AND RECEIVABLES FROM
UNCONSOLIDATED AFFILIATES 34,634 28,199
. ------------ -------------
OTHER ASSETS 1,069 694
. ------------ -------------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 1,209 1,221
Buildings and improvements 52,565 51,816
Machinery, furniture, and equipment 50,440 49,744
Vehicles 6,397 5,383
Construction in progress 43,033 3,882
. ------------ -------------
. 153,644 112,046
Less accumulated depreciation (57,141) (49,632)
. ------------ -------------
. 96,503 62,414
. ------------ -------------
. $192,470 $150,807
. ============ =============
The accompanying notes are an integral part of these consolidated balance
sheets.
. 8
<PAGE>
Consolidated Balance Sheets
April 1, 2000 and April 3, 1999
(In Thousands, Except Par Values)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: 2000 1999
. ------------ -------------
Current maturities of long-term debt $ 6,384 $ 2,796
Accounts payable 10,753 12,804
Accrued expenses 14,297 13,431
. ------------ -------------
Total current liabilities 31,434 29,031
. ------------ -------------
LONG-TERM DEBT 66,570 36,873
. ------------ -------------
DEFERRED INCOME TAX LIABILITIES 12,787 11,729
. ------------ -------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value;
1,000 shares authorized, none issued 0 0
Common stock, $1 par value; 9,000 shares authorized,
4,748 and 4,797 shares issued and 4,742 and 4,791
shares outstanding in 2000 and 1999, respectively 4,748 4,797
Treasury stock (106) (124)
Additional paid-in capital 4,198 5,035
Retained earnings 72,839 63,466
. ------------ -------------
. 81,679 73,174
. ------------ -------------
. $192,470 $150,807
. ============ =============
The accompanying notes are an integral part of these consolidated balance
sheets.
. 9
<PAGE>
Consolidated Statements of Income
For the Years Ended April 1, 2000, April 3, 1999, and March 28, 1998
(In Thousands, Except Per Share Amounts)
. 2000 1999 1998
. -------- -------- --------
NET SALES ........................... $322,220 $351,991 $344,886
. -------- -------- --------
COSTS AND EXPENSES:
Cost of sales ...................... 292,544 302,904 328,417
Selling and delivery ............... 10,443 10,154 10,774
General and administrative ......... 9,289 7,774 6,307
. -------- -------- --------
. 312,276 320,832 345,498
. -------- -------- --------
OPERATING INCOME (LOSS) ............. 9,944 31,159 (612)
OTHER (EXPENSE) INCOME:
Interest expense ................... (2,077) (2,916) (3,673)
Other income, net .................. 7,671 5,466 8,405
. -------- -------- --------
INCOME BEFORE INCOME TAXES .......... 15,538 33,709 4,120
PROVISION FOR INCOME TAXES .......... 5,594 12,201 1,483
. -------- -------- --------
NET INCOME .......................... $ 9,944 $ 21,508 $ 2,637
. ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic .............................. 4,752 4,870 4,994
. ======== ======== ========
Diluted ............................ 4,755 4,878 5,003
. ======== ======== ========
PER COMMON SHARE:
Net income:
Basic $ 2.09 $ 4.42 $ 0.53
. ======== ======== ========
Diluted $ 2.09 $ 4.41 $ 0.53
. ======== ======== ========
Dividends $ 0.12 $ 0.12 $ 0.12
. ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
. 10
<PAGE>
Consolidated Statements of Stockholders' Equity
For the Years Ended April 1, 2000, April 3, 1999, and March 28, 1998
(In Thousands)
Common Stock Treasury Stock Additional
-------------- -------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings
. ------ ------ ------ ------ ------- --------
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
Purchase and retirement
of common stock .......... (49) (49) 0 0 (839) 0
Purchase of treasury stock 0 0 (6) (106) 0 0
Exercise of stock options. 0 0 6 124 2 0
Net income................ 0 0 0 0 0 9,944
Cash dividends paid....... 0 0 0 0 0 (571)
. ------ ------ ------ ------ ------- --------
BALANCE, April 1,2000...... 4,748 $4,748 (6) $ (106) $ 4,198 $ 72,839
. ====== ====== ====== ====== ======= ========
The accompanying notes are an integral part of these consolidated statements.
. 11
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended April 1, 2000, April 3, 1999, and March 28, 1998
(In Thousands)
2000 1999 1998
. ------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,944 $21,508 $ 2,637
. ------- ------- -------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,825 8,583 7,840
(Gain) loss on disposal of property,
plant, and equipment (231) 705 (274)
Income from unconsolidated affiliates,
net of distributions (6,435) (1,130) (4,499)
Changes in operating assets and liabilities:
Trade accounts receivable, net 7,272 (5,264) (24)
Inventories 3,179 (1,724) 899
Notes receivable 0 (1,400) 0
Insurance proceeds receivable 0 0 3,054
Other current assets (1,786) 728 (137)
Accounts payable (2,051) 2,918 (2,574)
Accrued expenses 866 2,424 1,969
Deferred income tax liabilities 1,058 (494) 1,061
. ------- ------- -------
Total adjustments 9,697 5,346 7,315
. ------- ------- -------
Net cash provided by operating activities 19,641 26,854 9,952
. ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (41,954) (12,080) ( 7,753)
(Increase) decrease in other assets (375) 0 770
Proceeds from disposal of property, plant,
and equipment 271 65 79
. ------- ------- -------
Net cash used in investing activities (42,058) (12,015) (6,904)
. ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 100,094 31,000 20,000
Payments of long-term debt and capital
lease obligations (66,809) (42,492) (21,962)
Proceeds from exercise of stock options 126 59 0
Repurchase and retirement of common stock (888) (2,949) 0
Purchase of treasury stock (106) 0 (354)
Cash dividends paid (571) (586) (600)
. ------- ------- -------
Net cash provided by (used in)
financing activities 31,846 (14,968) (2,916)
. ------- ------- -------
. 12
<PAGE>
Consolidated Statements of Cash Flows, Continued
For the Years Ended April 1, 2000, April 3, 1999, and March 28, 1998
(In Thousands)
2000 1999 1998
. ------- ------- -------
NET INCREASE (DECREASE) IN CASH $ 9,429 $ (129) $ 132
CASH AT BEGINNING OF YEAR 97 226 94
. ------- ------- -------
CASH AT END OF YEAR $ 9,526 $ 97 $ 226
. ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid $ 1,379 $ 2,409 $ 3,504
. ======= ======= =======
Income taxes paid $ 6,026 $12,009 $ 1,097
. ======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
. 13
<PAGE>
Notes to Consolidated Financial Statements
April 1, 2000, April 3, 1999, and March 28, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Cagle's, Inc.
and its wholly owned subsidiary (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
affiliates are accounted for under the equity method (Note 6).
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."
Revenue Recognition
The Company recognizes revenues from the sale of products at the time of
shipment.
Inventories
Live field inventories of broilers are stated at the lower of cost or market,
and breeders are stated at cost, less accumulated amortization. Breeder costs
are accumulated up to the production stage and amortized into broiler costs over
the estimated production lives based on monthly egg production. Finished
products; feed, eggs, and medication; and supplies are stated at the lower of
cost (first-in, first-out method) or market.
Inventories at April 1, 2000 and April 3, 1999 consist of the following (in
thousands):
. 2000 1999
. ------- -------
Finished products.................... $13,174 $16,618
Field inventory and breeders......... 13,683 13,316
Feed, eggs, and medication........... 2,914 2,937
Supplies............................. 1,341 1,420
. ------- -------
. $31,112 $34,291
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.
. 14
<PAGE>
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 $6,044,000 and $4,883,000 as of
April 1, 2000 and April 3, 1999, 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. The following table
reconciles the denominator of the basic and diluted earnings per share
computations (in thousands):
. 2000 1999 1998
. ------ ----- -----
Weighted average common shares 4,752 4,870 4,994
Incremental shares from assumed
conversions of options 3 8 9
. ------ ----- -----
Weighted average common shares and
dilutive potential common shares 4,755 4,878 5,003
====== ===== =====
Fiscal Year
The Company's fiscal year closing date is the Saturday nearest March 31. The
fiscal year includes operations for a 52-week period in 2000, a 53-week period
in 1999, and a 52-week period in 1998.
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 1, 2000 and April 3, 1999.
The Company has entered into interest rate swap agreements with a total
notional amount of $25,000,000 to fix the interest rate paid on portions of
amounts outstanding under its term credit facilities. The fair value of the
interest rate swap agreements was $248,000 at April 1, 2000.
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.
. 15
<PAGE>
Notes to Consolidated Financial Statements , Continued
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 2000, 1999, and 1998.
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 first quarter of fiscal 2002. The
Company's management has not determined the impact this statement will have on
the financial statements.
2. LONG-TERM DEBT
Long-term debt at April 1, 2000 and April 3, 1999 consists of the following
(in thousands):
. 1999 1998
. -------- --------
Term note payable to a syndicate of banks,
variable interest rates (7.71% at April 1, 2000),
maturing June 30, 2006; unsecured $ 72,750 $ 0
Term note payable to a syndicate of banks, variable
interest rates (ranging from 6.91% to 6.94% at
April 3, 1999), maturing June 30, 2003; unsecured 0 19,444
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 0 20,000
Other notes payable at varying interest rates and
Maturities 204 225
. -------- --------
. 72,954 39,669
Less current maturities.............................. (6,384) (2,796)
. $ 66,570 $ 36,873
. ======== ========
. 16
<PAGE>
The term note payable to a syndicate of banks requires quarterly principal and
interest payments. Payments will commence September 30, 2000 and continue
until the note matures on June 30, 2006.
Additionally, the Company has a revolving credit agreement with a syndicate of
banks which 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 1, 2000, a $250,000 letter of credit associated with the Company's
insurance program (Note 1) was outstanding and $39,750,000 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 2.00, as defined; (3) a ratio of total debt
to capital, as defined, of not more than .55:1; (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 1, 2000, the Company was in compliance with all covenants.
Aggregate maturities of long-term debt during the years subsequent to April 1,
2000 are as follows (in thousands):
2001............. $ 6,384
2002............. 8,508
2003............. 8,510
2004............. 8,512
2005............. 8,514
Thereafter....... 32,526
. -------
. $72,954
=======
3. 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.
Effective in Fiscal 1989, the Revenue Act of 1987 rescinded the cash-basis
method of accounting for tax purposes 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.
Income tax provisions are reflected in the statements of income as follows (in
thousands):
. 2000 1999 1998
. ------- ------- -------
Current taxes............. $ 4,536 $12,695 $ 422
Deferred taxes............ 1,058 (494) 1,061
. ------- ------- -------
. $ 5,594 $12,201 $ 1,483
. ======= ======= =======
. 17
<PAGE>
Notes to Consolidated Financial Statements , Continued
A reconciliation between income taxes computed at the federal statutory rate
and the Company's provision for income taxes is as follows (in thousands):
. 2000 1999 1998
. ------- ------- -------
Federal statutory rate 34% 35% 34%
. ======= ======= =======
Federal income taxes at statutory rate $ 5,283 $11,798 $ 1,401
State income taxes, net of federal
benefit 615 1,335 163
Jobs and investment tax credits (304) (932) (81)
. ------- ------- -------
. $ 5,594 $12,201 $ 1,483
. ======= ======= =======
Components of the net deferred income tax liability at April 1, 2000 and April
3, 1999 relate to the following (in thousands):
. 2000 1999
. ------- -------
Deferred income tax liabilities:
Family farm cash-basis deferral........ $ 2,478 $ 2,703
Inventories............................ 1,405 1,437
Property and depreciation.............. 6,242 6,782
Income from joint ventures............. 4,899 3,031
Other.................................. 652 516
. ------- -------
. 15,676 14,469
. ------- -------
Deferred income tax assets:
Accrued expenses 2,817 2,658
Other 72 82
. ------- -------
2,889 2,740
. ------- -------
Net deferred income tax liability $12,787 $11,729
. ======= =======
4. 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 February, 2000, the
board increased the authorized amount to $15,000,000. As of April 1, 2000,
640,000 shares had been repurchased and retired by the Company at a total cost
of $9,054,000.
5. STOCK OPTION PLAN
In May 1993, the board of directors approved an incentive stock option plan
(the "Plan"). Under the provisions of the Plan, options to purchase a maximum
of 125,000 shares may be granted through 2003. The administrator of the Plan,
appointed by the board of directors, determines the grantee, vesting period,
exercise date, and expiration dates for all options granted. In addition, the
Plan provides for the issuance of options at prices not less than market value
at the date of grant. During May 1993, the Company granted 31,250 options with
an exercise price of $9.30 under the Plan. No additional options have been
granted since 1993. During 2000 and 1999, 6,250 and 18,750 options were
exercised respectively, leaving 6,250 and 12,500 options exercisable at
April 1, 2000 and April 3, 1999, respectively.
. 18
<PAGE>
6. INVESTMENTS IN AND RECEIVABLE FROM UNCONSOLIDATED AFFILIATES
On March 26, 1993, the Company acquired a 50% equity interest in Cagle Foods JV
LLC ("Cagle Foods"), 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 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 to and receivable from, and service fees
charged to the joint venture are based on terms consistent with those of
unrelated parties and are summarized as follows (in thousands):
. 2000 1999 1998
. -------- -------- ---------
Sales $ 3,024 $ 2,429 $ 930
Purchases 5,425 20,441 24,869
Accounts receivable 62 5 606
Accounts payable 0 1,047 813
Administrative service fees 1,683 1,756 1,627
On November 14, 1997, the Company acquired a 30% equity interest in a joint
venture with its joint venture partner in Cagle Foods. 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 $7,248,000,
$6,110,000, and $7,484,000 for the years ended April 1, 2000, April 3, 1999, and
March 28, 1998, respectively, and is included in other income, net in the
accompanying statements of income. At April 1, 2000, undistributed retained
earnings from affiliates were approximately $49,702,000. The Company's share of
Cagle Foods' earnings are based on the audited results for the year ended
January 1, 2000, adjusted for the unaudited results for interim periods.
Summarized combined unaudited balance sheet information for unconsolidated
affiliates as of April 1, 2000 and April 3, 1999 is as follows (in thousands):
. 2000 1999
. --------- ---------
Current assets...................... $ 59,012 $ 59,012
Noncurrent assets................... 151,396 153,808
. --------- ---------
Total assets........................ 229,268 212,820
. ========= =========
Current liabilities................. 35,150 26,510
Noncurrent liabilities.............. 105,405 110,150
Owners' equity...................... 88,713 76,160
. --------- ---------
Total liabilities and owners' equity. $229,268 $212,820
. ========= =========
Summarized combined unaudited statements of income information for
unconsolidated affiliates for the years ended April 1, 2000, April 3, 1999,
and March 28, 1998 is as follows (in thousands):
. 2000 1999 1998
. --------- --------- ---------
Net sales.............................. $ 332,824 $ 240,867 $ 241,831
Gross profit........................... 15,537 23,953 25,289
Operating income....................... 20,975 16,063 24,321
Income before taxes.................... 14,719 10,502 20,302
. 19
<PAGE>
Notes to Consolidated Financial Statements , Continued
7. MAJOR CUSTOMERS
Sales to the Company's two largest customers represented 43%, 39%, and 33% of
net sales during fiscal 2000, 1999, and 1998, respectively. Additionally, a
major portion of the joint venture's sales (Note 6) 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 23% of the Company's
production is committed to the customer. Under the arrangement, production in
excess of the customer's demands and by-products is sold to other customers.
8. BENEFIT PLANS
Under a collective bargaining agreement, the Company contributes to a
multiemployer pension plan for the benefit of certain of its employees who are
union members. A separate actuarial valuation for this plan is not made for the
Company. Accordingly, information with respect to accumulated plan benefits and
net assets available for benefits is not available. Under the Employee
Retirement Income Security Act of 1974, as amended in 1980, an employer, upon
withdrawal from a multiemployer plan, is required, in certain cases, to continue
funding its proportionate share of the plan's unfunded vested benefits. The
Company's contribution rate is a fixed-dollar amount per eligible employee. The
Company made total contributions to the union plan of $247,000, $259,000, and
$251,000 in 2000, 1999, and 1998, 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 $277,000, $250,000, and $239,000 in
2000, 1999, and 1998, respectively. No discretionary company contributions have
been made to this plan.
The Company does not provide postretirement medical or other benefits to
employees.
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its buildings, equipment, and vehicles under
noncancelable operating leases. The statements of income include rental expense
relating to these operating leases of $1,562,000, $1,406,000, and $1,704,000 in
2000, 1999, and 1998, respectively.
At April 1, 2000, future minimum payments under noncancelable operating leases
were as follows (in thousands):
2001 $ 559
2002 349
2003 232
. -------
Total $1,140
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 $29,000,000 at April 1, 2000, which approximates current market
price.
. 20
<PAGE>
The Company is currently involved, as are many other companies in the industry,
in purported class action litigation brought by several independent growers.
The Company is vigorously defending this litigation. The Company's ultimate
liability, if any, cannot be determined at this time. However, in the opinion
of management, the ultimate resolution of this matter will not have a material
adverse effect on the Company's financial position or results of operations.
The Company is involved in various legal actions arising in the normal course
of business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data is as follows (in thousands, except per share data):
. Earnings
. Per Share
. Net Operating Net (Basic &
. Sales Income(Loss) Income Diluted)*
. ------- ------------ ------- -----------
Fiscal year 2000 quarter ended:
July 3, 1999 $86,359 $ 5,015 $ 3,388 $ 0.71
October 2, 1999 83,046 4,482 3,233 0.68
January 1, 2000 77,270 1,614 2,334 0.49
April 1, 2000 75,547 (1,167) 986 0.21
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
* 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.
. 21
<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, Moore & Davis
Audit Committee
CANDACE CHAPMAN, Chairperson
G. BLAND BYRNE
GEORGE DOUGLAS CAGLE
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.
. 22
<PAGE>
Corporate Data
Annual Stockholders'
Meeting
The Annual Stockholders'
Meeting will be conducted at the Corporate Headquarters, 2000
Hills Avenue, N.W., Atlanta,
Georgia, at 11:00 A.M. on
Friday, July 14, 2000.
Form 10-K
The Form 10-K Annual Report
for 2000, as filed by the Company with the Securities and Exchange Commission,
is available to
Cagle's, Inc. stockholders after
June 30, 2000 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, MOORE & DAVIS P.C.
Atlanta, Georgia
Auditors
ARTHUR ANDERSEN LLP
Atlanta, Georgia
Facilities
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
Processing Plant (under construction)
ROCKMART, Georgia
Feed Mill (under construction)
For current financial and company information, visit our website at cagles.net
. 23
<PAGE>
