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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Security Exchange
Act of 1934 For the Quarterly period ended September 28, 2002
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition period from ______ to _______
Commission File Number 1-7138
CAGLE'S, INC.
GEORGIA 58-0625713
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2000 Hills Avenue, N. W. Atlanta, Georgia 30318
(Address of Principal Executive Offices and Zip Code)
(404) 355-2820
(Registrant's Telephone Number, Including Area Code)
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.
Yes __x__ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date
Class Outstanding September 28, 2002
- -------------------------------------- ------------------------------
Class A Common Stock, $1.00 Par Value 4,746,030 Issued
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PART 1. FINANCIAL INFORMATION
Cagle's, Inc. And Subsidiary Consolidated Balance Sheets
September 28, 2002 and March 30, 2002
(In Thousands, Except Par Value)
(Period 9/28/02 Unaudited)
09/28/02 03/30/02
------------ -------------
Assets -----------------------------------------
CURRENT ASSETS
Cash $ 107 $ 91
Accounts receivable, net of allowance for
doubtful accounts of $489 and $446 at
September 28, 2002 and March 30, 2002,
respectively 14,835 16,919
Inventories 33,250 34,176
Income Tax Refund Receivable 4,333 10,016
Other current assets 1,584 559
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Total Current Assets 54,109 61,761
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Investments in and receivables from
unconsolidated affiliates 8,515 45,136
Other Assets 1,903 2,232
Assets held for sale 6,887 6,738
Property, Plant, and Equipment 198,653 198,293
Less accumulated depreciation (81,726) (74,209)
------------ ------------
Property, plant, and equipment, net 116,927 124,084
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TOTAL ASSETS $ 188,341 $ 239,951
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY---------------
CURRENT LIABILITIES
Current maturities of long term debt $ 57,751 $ 9,921
Accounts payable 19,258 24,143
Accrued expenses 10,020 8,847
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Total Current Liabilities 87,029 42,911
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Long Term Debt (net of current maturities) 24,221 114,885
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Noncurrent Deferred Income Taxes 10,828 11,831
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Other Noncurrent Liabilities 3,702 5,927
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STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,748
shares, 4748 shares issued at September 28, 2002
and March 30, 2002, respectively 4,748 4,748
Capital in excess of par value 4,191 4,198
Treasury stock held for options (77) (94)
Retained earnings 54,620 56,402
OCI (Other Accum. Comprehensive Income) (921) (857)
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Total Stockholders' Equity 62,561 64,397
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 188,341 $ 239,951
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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Cagle's, Inc., & Subsidiary
Consolidated Statements of Income
For the 13 week and 26 week ended September 28, 2002
and the 13 week and 26 week ended September 29, 2001
(Amounts in thousands, except per share data)
(Period 9/28/02 Unaudited)
13 wks 13 wks 26 wks 26 wks
ended ended ended ended
9/28/02 9/29/01 9/28/02 9/29/01
-------- -------- -------- --------
Net Sales $ 81,369 $ 84,440 $166,127 $173,383
Costs and Expenses:
Cost of Sales 83,715 82,113 168,624 171,435
Selling and Delivery 2,820 2,538 5,111 4,839
General and Administrative 2,652 2,131 5,235 4,409
-------- -------- -------- --------
Total costs and expenses 89,187 86,782 178,970 180,683
Income From Operations (7,818) (2,342) (12,843) (7,300)
Other Income(Expense):
Interest expense (1,603) (2,389) (3,321) (5,003)
Other Income, Net (296) (157) 10,663 (204)
-------- -------- -------- --------
Earnings or (Loss) Before equity in
earnings of unconsolidated affiliates
and income taxes (9,917) (4,888) (5,501) (12,507)
Equity in earnings of unconsolidated
affiliates 1,128 2,744 2,691 5,642
-------- -------- -------- --------
Loss Before Income Taxes (8,589) (2,144) (2,810) (6,865)
Provision (Benefit) For Income Taxes (3,097) (772) (1,028) (7,906)
Net Income $ (5,492) (1,372) (1,782) 1,041
======== ======== ======== ========
Weighted Average Shares Outstanding
-Basic 4,746 4,743 4,745 4,743
-Diluted 4,746 4,744 4,745 4,743
======== ======== ======== ========
Net Income Per Common Share
-Basic $ (1.16) $ (.29) $ (.38) $ .22
-Diluted $ (1.16) $ (.29) $ (.38) $ .22
Dividends Per Common Share $ .00 $ .00 $ .00 $ .00
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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Cagle's, Inc & Subsidiary
Consolidated Statements of Cash Flows
For the 26 weeks ended September 28, 2002 and September 29,2001
(In Thousands) (unaudited)
09/28/02 09/29/01
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,782) $ 1,041
Adjustments to reconcile net income to net cash
Used in operating activities:
Depreciation and amortization 8,406 8,316
Gain on sale of joint venture (11,959) 0
Gain on disposal of property, plant and equipment 0 (24)
Changes in assets and liabilities:
Accounts receivables, net 2,084 (2,417)
Income Tax Receivables 5,683 3,571
Inventories 926 (3,957)
Other current assets (1,025) 24
Changes in investment in and receivables from
unconsolidated affiliates (1,420) (3,280)
Accounts payable (4,885) (665)
Accrued expenses (1,111) (718)
Deferred Income Taxes (1,003 (1,772)
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Total Adjustments (4,304) (922)
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Net cash produced(used) in operating activities (6,086) (119)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (478) (583)
(Increase) decrease in Other Assets (598) 0
Proceeds from sale of joint venture 50,000 0
------------- -------------
Net cash used in investing activities 48,924 (583)
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Cash Flows from financing activities:
Payments of long-term debt and capital
lease obligations (42,834) (501)
Proceeds from issuance of long-term debt 0 0
Dividends Paid 0 0
Repurchase of Common Stock 0 (28)
Proceeds from exercise of options 12 23
------------- -------------
Net cash provided (used) by financing activities (42,822) (506)
------------- -------------
NET INCREASE (DECREASE) IN CASH 16 (970)
CASH AT BEGINNING OF PERIOD 91 1,113
------------- -------------
CASH AT END OF PERIOD $ 107 $ (143)
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest(including capitalized interest
of $3,124 in 2001) $ 5,007 $ 5,253
============= =============
Income Taxes (Refunded), Paid $ (5,678) $ (9,978)
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
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Cagle's, Inc. & Subsidiary
Notes to Consolidated Condensed Financial Statements
September 28, 2002
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments which are of a normal and
recurring nature necessary to present fairly the consolidated financial
position of Cagle's, Inc. and Subsidiary (the "Company") as of September 28,
2002 and March 30, 2002 and the results of their operations for the 13 weeks
and 26 weeks ended September 28, 2002 and September 29, 2001.
2. The results of operations for the 13 weeks and 26 weeks ended September
28,2002 and September 29, 2001 are not necessarily indicative of the results
expected for the full year.
3. Inventories consisted of the following:
(In Thousands)
Sept 28, 2002 March 30, 2002
Finished Product $ 10,064 $11,116
Field Inventory and Breeders 16,949 16,789
Feed, Eggs, and Medication 4,437 4,395
Supplies 1,800 1,876
---------------- --------------
$33,250 $34,176
4. 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 disclosures 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 may vary from those estimates.
5. Investments in and Receivables from Unconsolidated Affiliates.
The Company accounts for its investments in its unconsolidated affiliates
using the equity method. The Company's share of earnings from these
affiliates totaled $1,128,000 and $2,691,000 for the 13 weeks and 26 weeks
respectively ended September 28, 2002, and $2,745,000 and $5,642,000 for
the 13 weeks and 26 weeks respectively ended September 29, 2001. On April
30, 2002 the Company sold its interest in Cagle Foods JV, LLC and Cagles
Foods Credit for $50,000,000 and recorded a gain of $11,958,535 as other
Income, this is reflected in the 26 weeks ended September 28, 2002
statement of operations.
6. Other Non-Recurring Activities.
Included in the 13 weeks ended September 28, 2002 results is $203,498,
a recovery from a partial settlement in lawsuits involving vitamin
manufacturers. The total recovery reflected in the results reported for
the 26 weeks ended September 28, 2002 is $1,874,000.
7. Certain prior year amounts have been re-classified for consistency with
current period presentation.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
September 28, 2002
Financial Condition
Continued losses and negative cash flow during the quarter have further eroded
the Company's liquidity. A bank loan and revolving credit facility expire in
April, 2003; the Company has been and will continue to negotiate for partial
replacement financing in addition to exploring other actions to provide
necessary liquidity. As of September 28, 2002 the remaining availability
under the revolving credit facility was $2,516,376. The large total current
liability reflected in the balance sheet is a result of the debt maturing
in April, 2003.
Results of Operations
Net revenues for the quarter declined by 3.6% as compared to the same period of
a year ago. Revenues for the 26 week period were 4.2% lower than for the same
period a year ago. Lower market prices account for the major part of this
revenue loss.
Gross margins were adversely impacted by the lower market prices, 5.5% lower
for the quarter ended September 28, 2002 as compared to the same period a year
ago and 2.56% lower for the six months ended September 28, 2002 as compared to
the same period a year ago. During the quarter and six month periods the major
deviations in market prices were experienced for; wings 48.8% lower for the
quarter and 47.3% lower for the six month period when compared to the previous
year; breast tenders 17.5% lower for the quarter and 17.6% lower for the six
month period when compared to the previous year; leg quarters 47.16% lower for
the quarter and 40.8% lower for the six month period when compared to the
previous year. All of the above reflect the impact of the Russian embargo and
the abundance of meat protein on the market.
Drought conditions during the summer and its impact on feed grain prices caused
feed ingredient prices to increase over the previous year by 4.6% in the
quarter ended September 28, 2002 and 2.7% for the six months as compared to a
year ago levels. High fixed costs associated with the new facility in Perry
continue to impact margins.
Selling, Delivery and Administrative Expenses
As a group these expenses increased by 17.2% and 11.9% respectively for the 13
weeks and 26 weeks ended September 28, 2002 as compared to a year earlier with
the major increases caused by bank fees and outside consultants involved with
the Company's efforts to secure replacement financing for facilities maturing
in April, 2003.
Interest Expense
Lower interest expense for the quarter and six months periods reflects
significantly lower borrowing levels.
Equity in Earnings of Unconsolidated Affiliates
Reflects absence of income from the two joint venture which were sold April
30, 2002.
Other Income
The difference in other income reflects the gain from the sale of the Company's
interest in two joint ventures as well as the effect of settlement of several
lawsuits, of which $750,000 has been paid and the balance of $500,000 is
accrued awaiting appropriate release.
Income Taxes
The provision for income taxes reflects the Company's estimated liability for
income taxes net of any credits to which the Company may be entitled.
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Part II Other Information
Item 1 Legal Proceedings
Suit was filed against Cagle's Farms, Inc. on December 18, 1998 in
U. S. District Court for the Northern District of Georgia by terminated
contract broiler growers. Cagle's, Inc. was subsequently added as a
party. These former growers sought unspecified damages and alleged,
among other things, that their birds were misweighed on numerous
occasions and that they were terminated as growers because of their
involvement in a poultry growers association. Cagle's, Inc. and
Cagle's Farms, Inc. denied all allegations. In addition to the
above mentioned case, a suit was brought against Cagle's, Inc., Cagle's
Farms, Inc., Cagle Foods JV, LLC and Cagle Keystone Food JV, LLC on May
12, 1999 in U. S. District Court for the Northern District of Georgia
by three contract broiler growers. This suit alleged certain
discrepancies in weighing live poultry as it is received at the
processing plant and seek unspecified damages. This suit sought class
action status, which was denied by the Court. Subsequently, on July 2,
2001, a number of individual contract broiler growers filed suit in
U. S. District Court for the Northern District of Georgia, also
alleging certain discrepancies in weighing and seeking unspecified
damages. Cagle's, Inc. and Cagle's Farms, Inc. denied all allegations.
An oral settlement agreement was reached covering these three cases and
the Company made a partial payment which it understood the plaintiffs
would apply as settlement of the December 18, 1998 case. During the past
quarter, however, the plaintiffs in the other two cases demanded more
money in settlement than the remaining amount that the Company had agreed
to pay. The Company has filed a motion to enforce the settlement
agreement which is now pending in U. S. District Court for the Northern
District of Georgia.
Item 9 Exhibits and Reports on Form 8-K
a. Not applicable
b. Reports on 8-K were filed on April 10, 2002 and amended on April 17,
2002 relating to the change of the Company's auditors.
An 8-k report was filed May 9, 2002 relating to the sale of the
Company's interest in Cagle Foods JV, LLC and Cagle Foods Credit LLC
and amended on June 26, 2002 to provide pro forma statements
reflecting the sale of the two joint ventures.
c. A report on Form 10Q/A was filed October 31, 2002 amending Form 10Q
filed August 12, 2002 for the period ended June 29, 2002 to
reclassify from long term debt to current debt, bank debt maturing
April, 2003.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 2002 /s/ J. Douglas Cagle
Chairman and C.E.O.
Date: November 11, 2002 /s/ Kenneth R. Barkley
Sr. VP Finance/Treas/CFO
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Certifications
I, J. Douglas Cagle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cagle's, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
issuer as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the issuer, including its consolidated subsidiaries,
is made known to them by others within those entities, particularly during
the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report ("Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on their evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
their most recent evaluation, to the issuer's auditors and the audit committee
of the board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record, process,
summarize and report financial data and have identified for the issuer's
auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls; and
6. The registrant's other certifying officers and I have indicated in the
report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of their most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
/s/ J. Douglas Cagle
Chief Executive Officer
Date: November 11, 2002
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I, Kenneth R. Barkley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cagle's, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
issuer as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the issuer, including its consolidated subsidiaries,
is made known to them by others within those entities, particularly during
the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report ("Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on their evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
their most recent evaluation, to the issuer's auditors and the audit committee
of the board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record, process,
summarize and report financial data and have identified for the issuer's
auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls; and
6. The registrant's other certifying officers and I have indicated in the
report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of their most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
/s/ Kenneth R. Barkley
Chief Financial Officer
Date: November 11, 2002
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