SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended______MARCH 31, 2001______________________or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _________________
COMMISSION FILE NUMBER:____1-7138_________________________________________
________________________________CAGLE'S, INC._____________________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
___________GEORGIA_____________________________________58-0625713_________
(STATE OF INCORPORATION) I.R.S EMPLOYER IDENTIFICATION NO.
_______2000 HILLS AVE., NW, ATLANTA, GA.______________________30318_______
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: ___(404) 355-2820_____
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of exchange on which registered
____CLASS A COMMON STOCK___________________AMERICAN STOCK EXCHANGE________
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
________________none______________________________________________________
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
_X_ YES ___ NO
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.)
__$17,734,327_(based_on_10.10 per_share_closing_price_on_April_30,_2001)___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE ONLY TO
CORPORATE REGISTRANTS.)
__Class_A_Common_Stock_at_$1.00_par_value________________________________
__4,747,280_shares_at_$1.00_par_value____________________________________
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE
DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY
PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE
424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD
BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.)
Parts of the following documents are incorporated by reference in Parts II,
III, and IV of this Form 10-K report; 1) registrant's annual report to
shareholders for fiscal year ended March 31, 2001 - Items 5, 6, 7, 8, and 14.
2) Proxy statements for registrant's 2001 annual meeting of shareholders-
Items 10, 11, 12, and 13.
1
CAGLE'S, INC.
PART I
Item 1: General Business
Cagle's, Inc. (the "Company"), which began business in 1945 and was first
incorporated in Georgia in 1953, and its wholly owned subsidiary (Cagle's Farms
,Inc., formerly Strain Poultry Farms, Inc.) produce, market, and distribute a
variety of fresh and frozen poultry products. The vertically integrated
operations of the Company consist of breeding, hatching, and growing of
chickens; feed milling; processing; further processing; and marketing. The
Company's products are sold to national and regional independent and chain
supermarkets, food distributors, food processing companies, national fast-food
chains, and institutional users, such as restaurants, schools, and
distributors, by the Company's sales staff located in Atlanta, Georgia, and
through brokers selected by the Company.
Narrative Description of Business
Food Processing
All of the Company's business activities are conducted on a vertically
integrated basis within one industry segment, poultry products. The Company's
various poultry products are closely related, have similar purposes and uses,
and, except for product sold under cost-plus arrangements, are similar in terms
of profitability and types and degrees of risks. In addition, the production
processes are similar to the extent that (a) production facilities are shared
or are interchangeable and (b) the same types of raw materials, labor, and
capital are used. Markets and marketing methods are comparable for all
products (except cost-plus products) to the extent that they are generally sold
to the same types of customers by a common sales force and are sensitive to
changes in economic conditions to the same degree.
The Company currently processes approximately 2,875,000 birds per week in its
four processing plants, including two plants which operate with two full
shifts. Of the Company's total production, approximately 1,450,000 head per
week are deboned.
The complete cycle for growing broilers begins with the placement on a farm of
a day-old breeder chick. This bird is reared for 25 weeks, at which time it
begins to produce hatching eggs. The breeder produces eggs for approximately
40 weeks. These eggs are set in one of the Company's two hatcheries, and in
three weeks, a baby chick is hatched.
The day-old broiler chick is placed on a farm where it will grow for six to
eight weeks depending upon the size of bird desired, at which time it is
transported to the processing plant for slaughter. To produce uniform size for
customer demands, the Company grows the males and females separately. This is
necessary because males and females grow at different rates and have different
nutritional requirements for cost-effective growth. A significant investment
in field inventories is required to support the Company's operating cycle.
2
All feed for all flocks is produced in feed mills owned by the Company.
The Company's goal is to add value to all of its birds, and the Company
currently is accomplishing this on approximately 85% of all head slaughtered.
This value-added product takes the form of deboned breast and thigh meat,
cut-up marinated raw breaded chicken (including barbecue), government school
lunch product, fast-food cuts, IQF (individually quick frozen) products, and
mechanically deboned chicken meat.
Raw Materials
The primary raw materials used by the Company are corn, soybean meal, and other
ingredients; packaging materials; cryogenic materials; and breeder chicks. The
Company believes that sources of supply for these materials are adequate and
does not expect significant difficulty in acquiring required supplies. The
major source of supply is the midwestern grain belt of the United States,
although local supplies are utilized when available. Prices for the feed
ingredients are sensitive to supply fluctuations worldwide, and weather
conditions, especially drought, can cause significant price volatility. Since
feed is the most significant factor in the cost of producing a broiler chicken,
those fluctuations can have significant effects on margins. The Company also
purchases product outside for further processing requirements.
Research and Development
The Company has made no material expenditures for research and development
during the last three years.
Employees and Labor Relations
The Company employs approximately 4,100 persons of whom approximately 33% are
covered by collective bargaining agreements which expire at various dates over
the next three years. The Company believes its relationship with the
bargaining groups and other employees is good.
Seasonal Variations in Business
The seasonal demand for the Company's products is highest during the late
spring and summer months and is normally lowest during the winter months.
Major Customers
Sales to the Company's two largest customers represent 28%, 43%, and 39% of net
sales during fiscal 2001, 2000, and 1999, respectively. Additionally, a major
portion of the joint venture's sales is to one of the Company's largest
customers. The Company had an agreement with this customer to supply chicken
under a cost-plus arrangement, and approximately 17% of the Company's
production was committed to the customer during 2001. Under the arrangement,
production in excess of the customer's demands and by-products is sold to other
customers. The Company ceased selling to this customer as of July 2000
Backlog
The Company had no material backlog of orders existing as of March 31, 2001.
3
Competition
The Company is a leading regional integrated poultry processor, ranking
eighth nationally in pounds produced. The Company's products compete in the
marketplace with comparable products of approximately ten national and regional
producers in the areas of quality, service, and price. The Company believes
its flexibility and accessibility are positive factors enhancing the Company's
competitive position.
Regulation
The Company's facilities and operations are subject to regulation by various
federal and state agencies, including, but not limited to, the federal Food
and Drug Administration ("FDA"), the United States Department of Agriculture
("USDA"), the Environmental Protection Agency, the Occupational Safety and
Health Administration, and the corresponding state agencies. The Company's
processing plants are subject to continuous on-site inspection by the USDA,
and the FDA inspects the production of the Company's feed mill.
Management believes that the Company is in substantial compliance with
applicable laws and regulations relating to the operation of its facilities.
Item 2: Properties
Production and Facilities
Breeding and Hatching
The Company supplies its broiler chicks by producing all of its own hatching
eggs from breeder flocks owned by the Company. These breeder flocks are
maintained on 59 contract grower farms. In addition, the replacement breeder
pullets are maintained on 39 contract grower farms where the breeders are
reared from one day old to approximately 18 weeks old and then moved to the
breeder farm where they begin to produce eggs at about 25 weeks of age.
These farms are located in north Georgia.
The Company owns two hatcheries located in Dalton, Georgia, and Forsyth,
Georgia, at which eggs are incubated and hatched. This is a continuous
process and requires 21 days to complete. After the chicks are removed
from the incubator, they are separated by sex, vaccinated against disease,
and moved by a special-purpose vehicle, Chick Bus, to the Company's grow-out
farms. The two hatcheries have an aggregate capacity of 3,000,000 chicks per
week. Both of the hatcheries are company-owned.
Grow-Out
The Company places its broiler chicks on approximately 267 contract grower
farms. The birds are grown separately by sex to provide the exact size
requirement of the Company's customers.
The independent contract growers provide the housing, equipment, utilities,
and labor to grow the baby chicks to market age, which varies from six to
eight weeks, depending on the market for which they are intended. The Company
supplies the baby chicks, the feed, and all veterinary and technical services.
Title to the birds remains with the Company at all times. The contract
4
growers are paid on live weight and are guaranteed a minimum rate with
various incentives based upon a grower's performance as compared to other
growers whose birds are marketed during the same week. These contract
farms are located in Georgia, Tennessee, and Alabama.
Feed Mills
The Company owns three feed mills. The Dalton, Georgia feed mill has a
production capacity of approximately 10,000 tons per week. The feed mill in
Forsyth, Georgia, has the capacity to produce approximately 12,000 tons
per week. A new feed mill in Rockmart, Georgia has production capacity of over
12,000 tons per week which can be increased to 20,000 tons per week by adding
additional equipment.
Processing
As the broilers reach the desired processing weight, they are removed from the
houses and transported by company trucks to a processing plant.
The processing plants are located in Pine Mountain, Georgia; Macon, Georgia;
Perry, Georgia; and Collinsville, Alabama. The Macon, Georgia, plant has the
capacity to process 8,400 birds per hour, and the Collinsville plant can
process up to 12,600 birds per hour. The Pine Mountain plant has the capacity
to process 10,800 birds per hour. The Pine Mt. Valley, Georgia, and
Collinsville, Alabama, plants operate two full shifts. The Macon, Georgia
plant operates one shift. The companies new processing facility in Perry, Ga.
Has capaicity to process 1.2 million head of broilers per week. This facility
is currently processing at less than capacity during the incremental start-up
period and will not reach full production until later in FY2002. This plant
also has capacity to further process up to 3,000,000 head of broilers per week.
Further Processing and Deboning
The Company has a stated goal of marketing the majority of its product as
value-added product. This is accomplished by cutting the product into parts
or fast-food cuts, deboning, marinating and breading, and converting into
other convenience-type products.
Currently, further processing and deboning are conducted at the Collinsville,
Alabama, plant (cutting, marinating, and breading) and the Pine Mountain and
Perry, GA. plants (deboning, marinating, IQF). In addition, the Atlanta,
Georgia, facility is totally devoted to further processing.
Freezer Storage
The Company's facilities located in Atlanta, Georgia; Collinsville, Alabama;
Pine Mountain, Georgia; Perry, Georgia; and Macon Ga. have freezer storage
facilities with aggregate capacity of approximately 25,800,000 pounds of frozen
product. The Company utilizes outside storage services as needed to supplement
its own freezer capacity.
Local Distribution
As an extension of the company sales division, local distribution is operated
from refrigerated warehouse facilities in Atlanta, Georgia. This unit has
sales representatives located in Macon, Georgia, as well as Atlanta and
Collinsville, Alabama, and is designed to provide storage and delivery
service for customers. A new branch was opened during the 4th quarter of the
year in Mobile, AL. This branch is in leased space.
5
Significant Unconsolidated Subsidiaries
The Company owns a 50% interest in a joint venture, which is a fully integrated
poultry company located in Camilla, Georgia. The joint venture is growing and
processing approximately 1,300,000 birds per week in a processing plant that
is capable of processing up to 1,400,000 broilers per week. The Company also
owns a minority interest in a poultry by-product company. In November, 1997 a
Joint Venture poultry company was formed in Kentucky and the company became a
minority member.In December 1995, Company acquired a 1/3 interest in a grower
housing financing company. During fiscal year 2000 the Kentucky joint venture
purchased a 1/4 interest in this venture, which diluted the Company's ownership
to 1/4. The financing company finances poultry houses for growers who are
contract growers for the joint venture companies.
Executive Offices
The Company's executive offices are located in a renovated two-story
(22,000-square-foot) building at 2000 Hills Avenue, NW, Atlanta, Georgia.
The building is owned by the Company.
All of the properties described above are in good condition and are adequate
for their stated uses.
Item 3: Legal Proceedings
Suit was filed against Cagle's Farms, Inc. in Superior Court of Whitfield
County on April 20, 1999, and on May 19, 1999, suit was filed in District
Court for the Middle District of Georgia against the company, Cagle's Farms,
Inc., Cagle Foods JV, LLC, Cagle Foods Credit LLC and Cagle's-Keystone Foods,
LLC. These two separate suits were brought by two different groups of
contract breeder growers seeking unspecified damages and alleged the defendants
misrepresented certain facts regarding profitability and cash flow as an
inducement to their becoming contract producers. The court in the Whitfield
County case granted the Company's motion to sever, and the claims of all but
one of these plaintiffs have now been settled. The Company and other
defendants deny all allegations and are vigorously defending against these
actions and expect to be vindicated.
In addition to the above mentioned suits, a suit was brought against Cagle's,
Inc., Cagle's Farms, Inc., Cagle Foods JV, LLC and Cagle-Keystone Foods JV,
LLC on May 12, 1999 in U.S. District Court for the Northern District of Ga. by
three contract broiler growers. This suit alleges certain discrepancies in
practices used at various locations within the Company and at Cagle Foods JV,
LLC to weigh live poultry as it is received at the processing plant and
unspecified damages. This suit sought class action status, which has been
denied by the Court. The Company and other defendants deny all allegations and
are vigorously defending against all complaints and expect to be completely
vindicated.
Other than those actions listed above, the Company is routinely involved in
various lawsuits and legal matters on an ongoing basis as a result of day to
day operations; however the Company does not believe that the ultimate
resolution of these matters will have a material adverse effect on the Company
or its business.
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth
quarter of fiscal 2001.
6
PART II
Item 5: Market for Registrant's Common Equity
and Related Stockholder Matters
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 31, 2001 and is incorporated
herein by reference.
Item 6: Selected Financial Data
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 31, 2001 and is incorporated
herein by reference.
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 31, 2001 and is incorporated
herein by reference.
Item 8: Financial Statements and Supplementary Data
The information required by this item is included in the Company's Annual
Report to Stockholders for the year ended March 31, 2001 and is incorporated
herein by reference.
Item 9: Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 13, 2001 and
is incorporated herein by reference.
Item 11: Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 13, 2001 and
is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 13, 2001 and
is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held July 13, 2001 and
is incorporated herein by reference.
7
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as part of this report:
(a)1. Financial Statements
The Company's 2001 Annual Report to Stockholders contains the consolidated
balance sheets as of March 31, 2001 and April 1, 2000, the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 2001, and the related report of
Arthur Andersen LLP as to these financial statements. These financial
statements and the report of Arthur Andersen LLP are incorporated herein by
reference.
The financial statements, incorporated by reference, include the following:
Consolidated Balance Sheets
March 31, 2001 and April 1, 2000
Consolidated Statements of Income for the Years Ended
March 31, 2001, April 1, 2000, and April 3, 1999,
Consolidated Statements of Stockholders' Equity for the Years Ended
. March 31, 2001, April 1, 2000, and April 3, 1999
Consolidated Statements of Cash Flows for the Years Ended
. March 31, 2001, April 1, 2000, and April 3, 1999
Notes to Consolidated Financial Statements for the Years Ended
. March 31, 2001, April 1, 2000, and April 3, 1999
(a)2. Financial Statement Schedules
The financial statement schedules have been omitted because they are not
applicable or the required information is included in the consolidated
financial statements or notes thereto.
(a)3 Exhibits
8.1 audited financial statements of unconsolidated affiliate.
Reports on Form 8-K
No reports on Form 8-K were filed.
8
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cagle's, Inc.
BY: /s/ J. Douglas Cagle
J. Douglas Cagle
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant and in
capacities and on the date indicated:
/s/ J. Douglas Cagle Chairman and Director and Chief Executive Officer
/s/ Kenneth R. Barkley Senior Vice President Finance/Treasurer/Chief
Financial Officer/Director/Principle Financial
and Accounting Officer
/s/ G. Bland Byrne Director
/s/ George Douglas Cagle Vice President, New Product Development
and Director
/s/ John J. Bruno Senior Vice President Sales Marketing and Director
/s/ James David Cagle Vice President, New Product Sales and Director
/s/ Jerry D. Gattis President, Chief Operating Officer and Director
/s/ Mark M. Ham IV Vice President, Information Systems and Director
/s/ Candace Chapman Director
9
end 10K -----------------------------------------
start: ex-99
Cagle Foods JV, L.L.C.
Financial Statements
as of and for the Years Ended
December 30, 2000 and January 1, 2000
and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
Steering Committee of Cagle Foods JV, L.L.C.:
We have audited the accompanying balance sheets of Cagle Foods JV, L.L.C.
(the "Company") as of December 30, 2000 and January 1, 2000 and the related
statements of income, members' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
Accepted in the United States of America. 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 the Company as of December 30,
2000 and January 1, 2000 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/S/ Deloitte & Touche LLP
April 6, 2001
...1
CAGLE FOODS JV, L.L.C.
BALANCE SHEETS
(In Thousands)
December 30, 2000 January 01, 2000
Assets
Current assets:
Cash $ 3,467 $ 8,276
Accounts receivable:
Related parties 20,787 13,064
Other 2,051 1,198
--------------- ---------------
22,838 14,262
Notes receivable and accrued interest 13,937 0
Inventories 16,920 16,281
Prepaid expenses 314 338
--------------- ---------------
Total current assets 57,476 39,156
Investment in affiliated companies 1,260 1,256
Property, plant, and equipment:
Land 923 923
Land improvements 4,410 4,360
Buildings and building equipment 41,942 41,813
Machinery and equipment 27,441 26,702
Furniture and fixtures 686 622
Construction-in-process 0 375
--------------- -------------
75,402 74,795
Less accumulated depreciation 32,314 26,492
. --------------- -------------
. 43,088 48,303
Other assets 430 834
. --------------- -------------
$ 102,254 $ 89,549
. =============== =============
Liabilities and members' equity
Current liabilities:
Accounts payable $ 9,382 $ 6,958
Accrued expenses 6,304 5,285
Current portion of long-term debt 9,250 8,400
. --------------- -------------
Total current liabilities 24,936 20,643
Long-term debt 13,750 12,450
Members' Equity 63,568 56,456
. --------------- -------------
. $ 102,254 $ 89,549
. =============== =============
See notes to financial statements.
. . . 2
CAGLE FOODS JV, L.L.C.
STATEMENTS OF INCOME
(In Thousands)
. Year ended Year ended
. Dec.30,2001 Jan.2,2000
-------------- --------------
Net sales:
Related parties $ 182,072 $ 189,809
Other 14,529 8,540
. -------------- --------------
Total Net Sales 196,601 198,349
Cost of products sold 175,515 176,136
Selling and administrative expenses 3,959 4,543
. -------------- --------------
179,474 180,679
. -------------- --------------
Operating income 17,127 17,670
Other income (expense):
Interest income: related party 868 0
Other income 64 79
Rental income: related party 2,913 2,913
Other income 446 400
Interest expense (1,689) (2,307)
Other expense (2,808) (3,055)
. --------------- --------------
Net income $ 16,921 $ 15,700
. =============== ==============
See notes to financial statements.
...3
CAGLE FOODS JV, L.L.C.
STATEMENTS OF MEMBERS' EQUITY
(In Thousands)
Executive Cagle's,
Holdings Ltd. Inc. Total
------------- --------- --------
Balance - January 2, 1999 $ 20,927 $ 20,927 $ 41,854
Net Income 7,850 7,850 15,700
Distribution of income (549) (549) (1,098)
------------ --------- ---------
Balance - January 1, 2000 $ 28,228 $ 28,228 $ 56,456
Net Income 8,460 8,460 16,921
Distribution of income (4,904) (4,904) (9,809)
------------ --------- ---------
Balance - January 1, 2000 $ 31,784 $ 31,784 $ 63,568
See notes to financial statements.
...4
CAGLE FOODS JV, L.L.C.
STATEMENTS OF CASH FLOWS
(In Thousands)
Year ended Year ended
Dec.30,2000 Jan.1,2000
------------ ------------
Operating activities:
Net income $ 16,921 $ 15,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,112 8,325
Undistributed income of affiliates (374) (390)
Distribution of income from affiliates 370 359
(Gain)loss on sales of property, plant
and equipment (15) 15
Changes in operating assets and liabilities:
Accounts receivable (8,577) (4,820)
Inventories (639) 436
Prepaid expenses 24 (32)
Other assets 0 68
Accounts payable 2,424 (2,755)
Accrued expenses 1,019 1,057
------------- -------------
Net cash provided by operating activities 17,265 17,604
Investing activities:
Notes receivable- related party (13,937) 0
Proceeds from the sale of property,
plant, and equipment 32 1,638
Purchases of property, plant, and equipment (510) (1,532)
------------- -------------
Net cash used in investing activities (14,415) 106
Financing activities:
Long-term borrowings 9,650 0
Payments of long-term debt (7,500) (9,000)
Distribution of income to members (9,809) (1,098)
------------- -------------
Net cash used in financing activities (7,659) (10,098)
------------- -------------
Net decrease in cash and cash equivalents (4,809) 7,971
Cash and cash equivalents:
Beginning of period 8,276 305
------------- -------------
End of period $ 3,467 $ 8,276
============= =============
Supplemental disclosures of cash flow
Cash paid during the year for interest $ 1,341 $ 2,201
. ============= =============
See notes to financial statements.
...5
CAGLE FOODS JV, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 30, 2000 AND JANUARY 1, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Cagle Foods JV, L.L.C. (the "Company") was
Established as a Limited Liability Company on March 27, 1993 and is a joint
venture between Cagle's, Inc. (50%) and Executive Holdings L.P. (50%). The
Company's operations are located in Camilla, Georgia. The latest date at which
the Limited Liability Company is to dissolve is 2022. The Company is engaged
in the production and sale of processed chicken. Primarily all of the
Company's sales are made to the joint venture partners (see Note 3).
Keystone Foods, LLC is an entity related through common ownership with
Executive Holdings, L.P.
Revenue Recognition - The Company recognizes revenue when product is shipped
to customers.
Inventories - Live field inventories are stated at the lower of cost or
market, and breeders are stated at cost, less accumulated amortization.
Breeder costs are accumulated up to the production stage. Such costs are
amortized into hatching egg costs over the estimated production lives based
on monthly egg production. Finished products, feed, medication, and supplies
are stated at the lower of cost or market determined by the first-in,
first-out method.
Inventories at December 30, 2000 and January 1, 2000, respectively, consist
of the following (in thousands):
2000 1999
-------- --------
Finished products $ 5,128 $ 3,995
Field inventory, breeders, and eggs 9,753 10,495
Feed, ingredients, and medication 1,471 1,348
Supply Inventory 568 442
-------- --------
$ 16,920 $ 16,280
. ======== ========
Property, Plant, and Equipment - Property, plant, and equipment are stated
at cost. Depreciation is computed principally by the straight-line method
for financial reporting purposes over the following periods:
Buildings and improvements 3-30 years
Machinery, furniture, and equipment 3-17 years
Vehicles 1-8 years
The Company evaluates the estimated useful lives and the carrying value of
assets on a periodic basis to determine whether events or circumstances
warrant revised estimated useful lives or whether any impairment exists.
Management believes no impairment existed at December 30, 2000.
...6
Other Assets - Other assets consist primarily of loan origination fees which
are amortized on a straight-line basis over seven years. Accumulated
amortization related to loan origination fees was $1,082,690 at December 30,
2000 and $697,965 at January 1, 2000.
Investments in Unconsolidated Affiliates - The equity method of accounting
is used to account for the Company's investments in unconsolidated
affiliates because of the Company's ability to exercise significant influence.
Fair Value of Financial Instruments - The carrying amounts of cash, accounts
receivable, and accounts payable reflected in the financial statements
approximate fair values because of the short-term nature of these instruments.
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the Company estimates that the carrying
value of its long-term debt approximates fair value. The fair value of the
interest rate swaps (see Note 2) is the amount the Company would receive or
pay to terminate the swap agreement.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year-End - The Company follows a fiscal year which ends on the
Saturday nearest to the end of the month of December.
Income Taxes - The Company is a Limited Liability Company and has received a
ruling from the Internal Revenue Service which allows the Company to be treated
as a partnership for income tax purposes. As a partnership, it is not subject
to income taxes and the partners report their proportionate share of the
income on their tax returns.
Interest Rate Swap Agreements - These agreements involve the receipt of a
floating rate of interest on long-term debt in exchange for a fixed rate of
interest over the life of the agreements without an exchange of the underlying
debt principal amount. These agreements are accounted for under the settlement
method of accounting whereby the differential to be paid or received is accrued
as interest rates change and recognized as an adjustment to interest expense
related to the debt. The fair values of the swap agreements are not recognized
in the financial statements.
Derivative Instruments and Hedging Activities - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133, and SFAS 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, is effective for the Company as of the fiscal year
beginning December 31, 2000. SFAS No. 133 requires that an entity recognize
all derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative. Adoption of these new accounting standards will result in a
cumulative reduction in other comprehensive income of approximately $41,000 on
December 31, 2000. The adoption will also impact assets and liabilities
recorded on the balance sheet.
...7
2. LONG-TERM DEBT
Long-term debt at December 30, 2000 and January 1, 2000, respectively, consists
of the following (in thousands):
2000 1999
. ----------- ------------
Notes payable to GA/KY Fundco LLC under a
Term loan agreement, variable interest rate
(7.75% at December 30, 2000 and 9.1% at
January 1, 2000) due in installments
Commencing March 31, 1998 through
December 31, 2002 $ 14,200 $ 19,450
Notes payable to GA/KY Fundco LLC under a
revolving credit agreement, variable interest
rate (9.5% at December 30, 2000) Maturing on
September 30, 2002 8,300 0
Notes payable to GA/KY Fundco LLC under a
revolving credit agreement, variable interest
rate (7.75% at December 30, 2000) Maturing on
September 30, 2002 500 0
Note Payable to Cagle's, Inc., variable
interest rate (8.5% at January 1, 2000
maturing on March 27, 2000 0 1,400
. ----------- ------------
23,000 20,850
Less amounts currently due 9,250 8,400
. ----------- ------------
Total long-term debt $ 13,750 $ 12,450
On November 7, 1997, GA/KY Fundco L.L.C. ("Fundco") (a 50% owned subsidiary)
executed a loan agreement for a $95 million term loan facility and a $30
million revolving loan facility at variable interest rates on behalf of
Cagle's-Keystone Foods L.L.C. ("Kentucky") (a related party) and the Company.
This loan is guaranteed by the Company and Kentucky. The proceeds were used
to repay the existing term and revolving loans.
Fundco was established in 1997 as a 50%-owned subsidiary of both the Company
and Kentucky. Fundco is a special purpose entity set up for borrowing of funds
from a group of banks to fund the capital needs of the Company and Kentucky.
All borrowing terms entered into by Fundco are the same borrowing terms passed
down to the Company and Kentucky. Fundco has no other operations. At December
30, 2000, Kentucky had $62.9 million outstanding for the term loan facility
and $17.7 million outstanding for the revolving loan facility.
...8
Aggregate maturities of long-term debt during the years subsequent to December
30, 2000 under the term and revolving loan of Fundco related to the portion
borrowed by the Company are as follows (in thousands):
Year Ended
December 29, 2001 9,250
December 28, 2002 13,750
. -------
$23,000
. =======
The Company had entered into interest rate swap agreements which expired on
June 30, 2000, to reduce the impact of changes in interest rates on its term
and revolving note agreement. These agreements effectively fixed the average
interest rate on the Company's term and revolving loan agreements at 5.845%,
plus a spread based on the Company's debt-to-cash-flow ratio through 2000.
Under the terms of the agreements, the Company made payments at fixed rates
and received payments at variable rates based on LIBOR adjusted quarterly.
On December 31, 1997, Fundco, on behalf of the Company and Kentucky, entered
into two additional interest rate swap agreements with expiration dates of
December 31, 2002, which effectively fix the rate on original notional amounts
of $58.50 million at rates of 5.98% and 6%, plus a spread based on the
Company's debt-to-cash-flow ratio. These notional amounts change in the
future based on amounts outstanding under the Company's term and revolving
loan agreements. Under the terms of the agreements, the Company makes
payments at fixed rates and receives payments at variable rates based on the
three-month LIBOR rate. Approximately $209,000 in unrealized losses and
$1,058,000 in unrealized gains exist on these agreements at December 30, 2000
and January 1, 2000, respectively. The Company does not intend to terminate
these agreements prior to the maturity date. The Company is exposed to credit
loss in the event of nonperformance by the other party to the interest rate
swap agreement. However, the Company does not anticipate nonperformance by
the counter-parties.
At December 30, 2000 the Company had an unused standby letter of credit
amounting to $350,000.
3. RELATED PARTY TRANSACTIONS
Sales to the Company's owners (Executive Holdings, L.P. and Cagle's, Inc.)
represented 91.9% and 95.3% of net sales during the years ended December 30,
2000 and January 1, 2000, respectively. The Company sells deboned chicken
at cost plus $.03 per eviscerated pound to Executive Holdings, L.P. The
Company also sells other chicken components at market price to Cagle's, Inc.
Executive Holdings, L.P. and Cagle's, Inc. both charge the Company
administrative service fees based on the Company's volume of production.
These fees totaled $2,630,000 and $2,547,000 in 2000 and 1999, respectively,
and are included in other expense in the statements of income. In 2000, the
Company pays Cagle's, Inc. for computer processing services for which it
charges a fee of $17,500 per month. In 1999, the computer processing service
fee was based on the Company's volume of production.
...9
Sales, expenses, and balances with related parties for 2000 and 1999 are
summarized as follows (in thousands):
. Executive Cagle's Cagle's- Cagle Liberty
Holdings Inc. Keystone Foods Assurance
Ltd. Foods Credit Ltd.
. LLC LLC
. --------- ------- -------- ------ --------
2000
Sales $175,846 $ 4,815 $ 1,411 $ 0 $ 0
Purchases 0 0 3,910 0 0
Rental income for further
processing plant 2,913 0 0 0 0
Interest income 0 0 868 0 0
Administrative service and
other fees 1,315 1,563 0 0 0
Balances at year end:
Accounts receivable 18,968 265 61 31 1,462
Note receivable and
accrued interest 0 0 13,937 0 0
Accounts Payable 96 96 511 0 0
1999
Sales $182,915 $ 6,198 $ 696 $ 0 $ 0
Purchases 0 0 2,989 0 0
Rental income for further
processing plant 2,913 0 0 0 0
Administrative service and
other fees 1,275 1,614 0 0 0
Balances at year end:
Accounts receivable 10,534 272 1,254 0 1,003
Note payable 0 1,400 0 0 0
Accounts Payable 0 0 266 0 0
In 2000 the Company loaned to Kentucky, $13,400,000. The note bears interest
at 7.28125% and matures in 2001. Accrued interest on the note totaled
approximately $537,000 as of December 30, 2000.
The Company, as lessor, entered into an operating lease agreement beginning
January 1, 1998 with Keystone Foods LLC for the use of the Company's further
processing facility for a period of 20 years at
...10
an annual rental amount of $2,912,500. The property, plant, and equipment
associated with this lease as of December 30, 2000 are as follows
(in thousands):
Land $ 100
Building 19,744
Machinery & Equipment 4,021
. --------
. 23,865
Less accumulated depreciation (3,445)
. --------
Net leased property $20,420
4. COMMITMENTS
The Company leases machinery and equipment under operating leases. The
leases for the machinery and equipment require payments of contingent rentals
based on usage in excess of a specified minimum, and future rental payments
may be adjusted for increases in maintenance and insurance above specified
amounts. Rent expense for the years ended December 30, 2000 and January 1,
2000 was approximately $4,266,000 and $3,856,000, respectively.
Future minimum payments under noncancelable operating leases with initial
Terms of one year or more, including payments made on behalf of Keystone Foods
by the Company, consisted of the following at December 30, 2000 (in thousands):
December 29, 2001 3,930
December 28, 2002 4,069
January 3, 2004 3,946
January 1, 2005 3,895
December 31, 2005 2,850
--------
$18,690
The Company has outstanding purchase commitments as of December 30, 2000 of
approximately $3,717,000, which expire throughout 2001, for feed inventory
in the ordinary course of business.
During 1994, the Company entered into an agreement with the City of Camilla,
Georgia whereby the City agreed to construct a water tower and wastewater
treatment system primarily for the Company. The Company has agreed to
service the debt incurred by the City to construct these facilities under
the condition that the City provide adequate water and wastewater treatment
services. If the City is unable to provide water and wastewater treatment
services, the Company is not obligated to repay the debt. The cost and
related debt associated with these facilities was approximately $10.1 million.
The Company has agreed to make annual debt service payments of approximately
$746,000 through May 2016.
During 1995, the Company entered into an agreement with the City of Camilla,
Georgia whereby the City agreed to construct a power substation primarily for
the Company. The Company has agreed to service the debt incurred by the City
to construct these facilities under the condition that the city provide an
adequate power supply to the processing plant. If the City is unable to
provide an adequate power supply, the Company is not obligated to repay this
debt. The total cost and debt associated with
...11
these facilities was approximately $205,000. The Company has agreed to make
payments of approximately $41,000 per annum through June 2005.
The Company has entered into an agreement with the City of Camilla, Georgia
to construct an additional wastewater treatment facility to service the
processing plant. Under the terms of the agreement, the Company is
responsible for the estimated total cost of the facility of approximately
$2.1 million less any grant money received by the City of Camilla to fund
this project. The Company will be required to reimburse the City over a
20-year period for costs incurred in excess of grants received. Additionally,
the Company will be required to pay for the maintenance and operations of the
facility. Total facility charges were $290,000 and $259,000 for years ended
December 30, 2000 and January 1, 2000, respectively.
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
At the date the Company was formed (March 27, 1993), Cagle's, Inc. transferred
their investment of approximately $894,000 (50% of the outstanding stock) in a
grain elevator corporation to the Company. The investment is being accounted
for under the equity method. The unaudited, undistributed income for the
years ended December 30, 2000 and January 1, 2000 from this affiliate
allocated to the Company was approximately $270,000 and $379,000,
respectively. The Company received distributions of $339,000 and $359,000
during 2000 and 1999, respectively. The Company purchased, at prices
approximating market, $28.7 million and $33.1 million in feed ingredients from
this affiliate during 2000 and 1999, respectively.
Effective December 1995, Cagle's Inc.; Executive Holdings, L.P.; and the
Company formed Cagle Foods Credit, L.L.C. (the "Credit Company"). Each
Company made capital contributions of $3,000. Effective July 1, 1998,
Cagle's-Keystone Foods, L.L.C. became a member of the Credit Company, at which
time Cagle's-Keystone made a capital contribution of $14,000. The Credit
Company was formed for the purpose of financing the facilities of the
Company's and Cagle's-Keystone Foods' contract growers. The investment is
being accounted for under the equity method. The undistributed income from
this affiliate allocated to the Company was approximately $104,000 in 2000 and
$11,000 in 1999. The Company received distributions of $31,000 during 2000.
The Credit Company has a loan agreement for a $37.7 million revolving loan
facility at variable interest rates. The Company and Kentucky have guaranteed
the borrowings under the loan agreement. The Credit Company has received
advances of approximately $36.1 million and $33.7 million on the revolving
loan facility as of December 30, 2000 and January 1, 2000. The Credit Company
has consumer loans receivable of approximately $34.9 million and $32.7 million
at December 30, 2000 and January 1, 2000.
6. BENEFIT PLANS
Substantially all of the Company's union employees are covered by a union-
sponsored, multi-employer defined benefit plan to which the Company contributes
amounts specified by the union contract. A separate actuarial valuation for
this plan is not made for the Company. Accordingly, information with respect
to accumulated plan benefits and net assets available for benefits is not
presented. Under the Employee Retirement Income Security Act of 1974, as
amended in 1980, an employer, upon withdrawal from a multi-employer plan, is
required in certain cases to continue funding its proportionate share of the
plan's unfunded, vested benefits. As of November 1, 1997, the union contract
was renegotiated and as a result, pension benefits were increased by
approximately 25%.
...12
Amounts paid for pension benefits for union employees totaled approximately
$434,000 in 2000 and $340,000 in 1999.
The Company also has a 401(k) retirement plan for employees not covered under
the collective bargaining agreement. Under the plan, the Company contributes
up to 2% of participating employees' salaries. Amounts contributed by the
Company to the 401(k) plan totaled approximately $54,000 in 2000 and $41,000
in 1999.
7. CONTINGENCIES
The Company is a party to various lawsuits in the ordinary course of doing
business. The Company intends to defend these matters vigorously. The
outcome of such lawsuits cannot presently be determined, but is not expected
to have a material impact on the Company's financial position or results of
operations. Accordingly, no provision for any loss that may result from such
lawsuits has been made in the accompanying financial statements.
...13