CAGLE'S, INC.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED 1996
Contents
Chairman's Letter ..........................................1
Management's Discussion ................................2 & 3
Five-Year Selected Financial Data ..........................4
Management's Responsibility and
Auditor's Opinion ........................................5
Consolidated Balance Sheets .................................6
Consolidated Statements of Income ...........................7
Consolidated Statements of
Stockholders' Equity .....................................8
Consolidated Statements of
Cash Flows ...............................................9
Notes ...................................................10-15
Corporate Data .......................................16 & IBC
CAGLE'S, INC. & SUBSIDIARY
Chief Executive Officer's Letter
To Our Stockholders:
Resilience best describes both the future and past for Cagle's. Many of our
challenges are unpredictable,however, we continue to meet them with focus,
confidence and determination.
This past year has been no exception. Cagle's lost a key facility to fire in
Pine Mountain Valley, Georgia, but with enthusiasm and dedication, rebuilt it
in record breaking time protecting both the employee and customer. The new
facility is state of the art and is twice the size of the old facility,
capable of producing double the volume.
The unexpected has effected our earnings and caused our debt level to be higher
than anticipated, however, our joint venture operations have provided steady
earnings.
Further expansion plans have been temporarily delayed while we deal with higher
grain prices, abundance of meat protein, and higher debt level. Our top
priority will be to strengthen Cagle's position in the market place.
With all sincerity, my thanks to our employees, customers, and vendors for also
being resilient, hardworking, dedicated and committed to help us through a
difficult period of the fire and rebuilding of Pine Mountain Plant. To our
stockholders, Thank you, for having faith in our company.
Sincerely,
/s/ J. Douglas Cagle
J. Douglas Cagle
Chairman and C.E.O
1
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
A devastating fire at one of the Company's processing plants during the first
quarter and feed prices which had escalated to unprecedented levels by year-end
coupled with the uncertainties inflicted upon the export markets late in the
year all caused a significant impact on operating earnings for the year.
The gain resulting from the difference between the book value and insurance
proceeds received for the destroyed plant and stronger earnings and fees
generated from the Company's unconsolidated affiliates offset to some degree by
an increased interest expense, accounted for the majority of the Company's
earnings in 1996.
1996 Compared to 1995
Net sales in 1996 dropped by 11.7% ($41 million) as compared to 1995. This
reduction is primarily due to the production lost at the plant destroyed by
fire from the time of the fire in June 1995 to start-up in late November 1995
and ultimately not attaining pre-fire production until the fourth quarter. The
reduction in sales due to the fire was somewhat offset by higher market prices
during 1996. Georgia Dock Market prices averaged $.0197 per lb. higher in 1996
which was 3.6% higher than 1995.
Although market prices were higher in 1996, margins were adversely impacted
by feed prices which increased rapidly during the year as a result of a
diminished crop due to poor weather and also due to escalating exports of US
grain coupled with growing domestic consumption as the entire meat complex
continued to expand. Feed costs were 14.8% higher in 1996 compared to 1995 and
are currently at record high levels. These costs levels are expected to
continue into fiscal 1997.
Margins were also negatively impacted in 1996 by the conversion of the
Company's Macon, Georgia plant from a fresh bulk deboning facility to an IQF
(Individual Quick Frozen) facility to support the Company's growing consumer
market for this product which had previously been produced only at the
Company's Atlanta, Georgia further processing plant. The conversion and
inefficiencies associated with producing an entirely new product line at this
facility severely impacted operating margins during the last half of 1996.
However, margins at Macon are improving and will prove to be a valuable
addition in providing a more diverse marketing program.
Other income in 1996 increased by $11.4 million over 1995 primarily due to a
gain of $8.9 million resulting from the difference between book value and
proceeds from insurance on the assets lost to fire. The balance of the increase
primarily represents increased earnings and management fees from the Company's
unconsolidated affiliates which experienced increased production and profits
during the year. Earnings and management fees from affiliates were $4,940,000
in 1996 compared to $4,297,000 in 1995. These affiliates help to further
integrate the Company's operations by complementing our marketing efforts or
supplying us with essential materials or services.
Selling, delivery and general and administrative expenses increased by 3.1%
as a group from 1995 levels primarily due to increases in personnel related
costs during the year and some additional costs associated with filing the
insurance claim resulting from the fire.
2
Interest expense increased by $1.4 million in 1996 as compared to 1995 due to
funds borrowed to rebuild the processing plant and finance the increased
working capital needs resulting from the fire. Construction was well under way
before the first advances were made by the insurance carrier and the cost of
the new plant ultimately exceeded the property insurance proceeds by
approximately $16 million. In addition, receipt of business interruption
insurance proceeds has been slow thereby resulting in increased borrowing to
support operations.
The provision for income taxes is computed at statutory rates allowing for
various tax credits available to the Company resulting in a net effective rate
of 36%.
1995 Compared to 1994
Sales increased by 11.9% in 1995 as compared to 1994. This increase was
primarily the result of increasing sales of added value processed products.
Processed pounds of poultry through the Company's slaughter plants also
increased by 5.8%, reflecting heavier slaughter weight of the birds.
Although the Georgia Dock price for broilers was 4.6% lower in 1995 than
1994, gross margins improved by 1.2%, from 8.5% in 1994 to 9.7% in 1995, due
to lower feed costs and changing sales mix towards higher margin items.
Selling and delivery expenses increased by 22.7% over 1994 levels, continuing
the trend from 1994 and 1993. The increase resulted from higher commission and
storage expense associated with expanded sales.
General and administrative expenses were 5% higher in 1995 as compared to
1994 and essentially reflect increases in personnel related expenses.
Although total debt increased since 1994, interest expense declined by 20% in
1995 compared to 1994 as interest of $169,000 was capitalized in connection
with the construction of a new feed mill in Forsyth, Georgia.
The provision for income taxes is computed at statutory rates adjusted for
various tax credits available to the Company resulting in a net effective rate
of 33%.
Financial Condition and Liquidity
Heavy borrowing to finance reconstruction of the Pine Mountain Valley Plant
and the extra cost associated with the fire loss until the insurance claim is
fully adjusted and proceeds received have resulted in a heavier debt load than
normal for the Company. Existing credit facilities were utilized for this
purpose and the Company expects to replace some of the construction related
debt with permanent debt in the first quarter of fiscal 1997. As of March 30,
1996, the Company has $19 million outstanding on a $20 million unsecured
revolving credit facility and $26 million borrowed from a $40 million unsecured
term loan facility. The Company believes availability under existing and
anticipated facilities to be adequate to meet future requirements.
The earnings outlook for the Company during fiscal 1997 is not encouraging
due to the run-up in feed prices during recent weeks and the expectation of
continued price pressure on grain for the foreseeable future as domestic and
export demand increases. The current year's crop harvest will be critical to
earnings this year. However, a return to perceived normal price levels will
also require some restraint in expansion by the meat industry.
3
Five-Year Selected Financial Data
52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended Ended
March 30, April 1, April 2, April 3, March 28,
1996 1995 1994 1993 1992
--------- -------- -------- -------- ---------
OPERATING RESULTS:
Net sales................. $308,749 $349,770 $312,696 $280,105 $208,775
Operating expenses........ 307,105 331,140 299,425 270,486 204,195
--------- -------- -------- -------- --------
Operating income.......... 1,644 18,630 13,271 9,619 4,580
Interest expense.......... (2,499) (1,072) (1,336) (1,469) (1,507)
Other income, net......... 14,448 3,085 1,516 198 63
--------- -------- -------- -------- --------
Income before income taxes
and accounting change... 13,593 20,643 13,451 8,348 3,136
Provision for income taxes. 4,893 6,881 4,799 3,142 1,194
--------- -------- -------- -------- --------
Income before accounting
change................. $8,700 $13,762 $8,652 $5,206 $1,942
========= ======== ======== ======== ========
FINANCIAL POSITION:
Working capital..... $ 40,510 $17,592 $19,741 $19,068 $13,548
Total assets..... 142,687 88,771 69,220 65,006 59,537
Long-term debt..... 58,508 15,233 11,819 17,591 16,531
Stockholders' equity..... 52,021 44,371 34,268 26,728 21,392
PERFORMANCE PER COMMON SHARE:*
Income before accounting
change.................. $1.73 $2.67 $1.66 $0.99 $0.36
Net income................. 1.73 2.67 1.66 1.08 0.36
Dividends.................. 0.12 0.105 0.085 0.06 --
Book value at the end of
the year ............... 10.39 8.81 6.58 5.07 4.05
Average number of common shares
outstanding*............. 5,018 5,152 5,224 5,272 5,368
* Restated to reflect the 25% stock dividend issued to stockholders of record
on January 3, 1994 and the two-for-one stock split issued to stockholders of
record on January 3, 1995.
- ------------------------------------------------------------------------------
Dividend Policy
The Board of Directors considers dividends in light of operating results,
current earnings trends, and prevailing economic conditions.
The Company's arrangement with one of its lenders contains certain
restrictions on dividends.
Stockholders
As of March 30, 1996, there were 351 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 as adjusted for the two-for-one stock split
issued to stockholders of record on January 3, 1995 were:
1996 1995
---------------------------- -----------------------------
Dividend High Low Dividend High Low
-------- --------- ------- -------- --------- -------
Quarter:
First $0.030 $23-7/8 $16 $0.025 $12-15/16 $10-7/8
Second 0.030 17-3/4 13-3/4 0.025 15-1/2 10-3/4
Third 0.030 17-7/8 14 0.025 22-5/8 14-1/8
Fourth 0.030 18-1/2 14-1/8 0.030 24-5/8 17-7/8
4
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 accepted
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 reason able 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 10, 1996
- --------------------------------------------------------------------------
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Cagle's, Inc.:
We have audited the consolidated balance sheets of CAGLE'S, INC. (a Georgia
corporation) AND SUBSIDIARY as of March 30, 1996 and April 1, 1995 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended March 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cagle's, Inc. and subsidiary
as of March 30, 1996 and April 1, 1995 and the results of their operations and
their cash flows for each of the three years in the period ended March 30, 1996
in conformity with generally accepted accounting principles.
/s/ Arthur Anderson L.L.P.
Atlanta, Georgia
May 10, 1996
5
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
March 30, 1996 and April 1, 1995
(In Thousands, Except Par Values) 1996 1995
--------- ---------
ASSETS
CURRENT ASSETS:
Cash................................... $ 326 $ 462
Trade accounts receivable, less
allowance for doubtful accounts
of $315 and $141 in 1996 and
1995, respectively.................. 18,631 15,013
Inventories............................ 32,908 25,282
Insurance proceeds receivable(Note2)... 9,183 --
Other current assets................... 2,481 1,538
--------- ---------
Total current assets............. 63,529 42,295
--------- ---------
INVESTMENTS IN AND RECEIVABLES
FROM UNCONSOLIDATED AFFILIATES............ 14,675 11,697
--------- ---------
OTHER ASSETS.............................. 1,038 550
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land................................... 2,037 1,280
Buildings and improvements............. 47,146 26,549
Machinery, furniture, and equipment.... 41,315 24,226
Vehicles............................... 3,996 3,254
Construction in progress............... 44 11,588
--------- ---------
94,538 66,897
Less accumulated depreciation.......... (31,093) (32,668)
--------- ---------
63,445 34,229
--------- ---------
$142,687 $ 88,771
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
and capital lease obligations......... $ 1,570 $ 1,572
Accounts payable........................ 13,489 13,550
Accrued expenses........................ 7,776 8,867
Deferred income tax liabilities......... 184 714
--------- ---------
Total current liabilities......... 23,019 24,703
--------- ---------
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS........................ 58,508 15,233
--------- ---------
DEFERRED INCOME TAX LIABILITIES............ 9,139 4,464
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value;
1,000 shares authorized, none issued... -0- -0-
Common stock, $1 par value;
9,000 shares authorized, 5,006
and 5,034 shares outstanding
in 1996 and 1995, respectively......... 5,006 5,034
Additional paid-in capital.............. 7,946 8,366
Retained earnings....................... 39,069 30,971
--------- ---------
52,021 44,371
--------- ---------
$142,687 $88,771
The accompanying notes are an integral part of these consolidated balance
sheets.
6
Consolidated Statements of Income
For the Years Ended March 30, 1996, April 1, 1995, and April 2, 1994
(In Thousands, Except Per Share Data) 1996 1995 1994
-------- -------- --------
NET SALES.................................. $308,749 $349,770 $312,696
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales............................ 291,378 315,882 286,131
Selling and delivery..................... 9,512 8,918 7,269
General and administrative............... 6,215 6,340 6,025
-------- -------- --------
307,105 331,140 299,425
-------- -------- --------
OPERATING INCOME............................ 1,644 18,630 13,271
OTHER INCOME (EXPENSE):
Interest................................. (2,499) (1,072) (1,336)
Other income, net........................ 14,448 3,085 1,516
-------- -------- --------
INCOME BEFORE INCOME TAXES ................ 13,593 20,643 13,451
PROVISION FOR INCOME TAXES.................. 4,893 6,881 4,799
-------- -------- --------
NET INCOME.................................. $8,700 $13,762 $8,652
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING.............................. 5,018 5,152 5,224
======== ======== ========
PER COMMON SHARE:
Net income................................ $1.73 $2.67 $1.66
======== ======== ========
Dividends................................. $0.12 $0.105 $0.085
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
7
Consolidated Statements of Stockholders' Equity
For the Years Ended March 30, 1996, April 1, 1995, and April 2, 1994
(In Thousands)
Common Stock Additional
----------------- Paid-In Retained
Shares Amount Capital Earnings
------ -------- ------- --------
BALANCE, April 3, 1993........... 2,109 2,109 375 24,244
Repurchase of common stock..... (28) (28) (636) --
Net income..................... -- -- -- 8,652
Stock dividend of 25%.......... 521 521 14,180 (14,701)
Cash dividends paid............ -- -- -- (448)
------ -------- ------- --------
BALANCE, April 2, 1994........... 2,602 2,602 13,919 17,747
Repurchase of common stock..... (103) (103) (3,018) --
Net income..................... -- -- -- 13,762
Two-for-one stock split........ 2,535 2,535 (2,535) --
Cash dividends paid............ -- -- -- (538)
------ -------- ------- --------
BALANCE, April 1, 1995........... 5,034 5,034 8,366 30,971
Repurchase of common stock..... (28) (28) (420) --
Net income..................... -- -- -- 8,700
Cash dividends paid............ -- -- -- (602)
------ -------- ------- --------
BALANCE, March 30, 1996..........$ 5,006 $5,006 $7,946 $39,069
====== ======== ======= ========
The accompanying notes are an integral part of these consolidated statements.
8
Consolidated Statements of Cash Flows
For the Years Ended March 30, 1996, April 1, 1995, and April 2, 1994
(In Thousands) 1996 1995 1994
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 8,700 $13,762 $ 8,652
Adjustments to reconcile net income
to net cash (used) provided by
operating activities:
Depreciation and amortization.......... 5,289 4,495 4,899
(Gain) loss on disposal of property,
plant, and equipment.................. (107) (18) 668
Gain from insurance proceeds
received for prorerty destroyed
by fire (Note 2)................... (8,902) -- --
Income from unconsolidated
affiliates, net of distributions..... (2,878) (1,411) (752)
Changes in assets and liabilities:
Accounts receivable, net............. (3,618) (1,621) (1,630)
Inventories.......................... (7,626) (2,503) (2,487)
Insurance proceeds receivable........ (4,636) -- --
Other current assets................. (943) (392) 551
Accounts payable..................... (61) 3,978 967
Accrued expenses..................... (1,091) 1,564 708
Deferred income tax liabilities...... 4,145 159 743
------- ------- -------
Total adjustments.................. (20,428) 4,251 3,667
------- ------- -------
Net cash (used) provided by operating
activities........................ (11,728) 18,013 12,319
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant,
and equipment........................... (35,598) (15,362) (6,412)
Additions to property, plant,
and equipment, to be funded
by insurance proceeds (note 2).......... (4,547) -- --
Additions to investments in
unconsolidated affiliates............... (100) (3,000) --
(Increase) decrease in other assets...... (488) (258) 17
Proceeds from sale of property,
plant, and equipment.................... 122 106 79
Insurance proceeds for property
destroyed by fire, net of costs (Note2). 9,980 -- --
------- ------- -------
Net cash provided by (used) investing
activities...................... (30,631) (18,514) (6,316)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
long-term debt.......................... 45,000 5,000 --
Payments of long-term debt and capital
lease obligations...................... (1,727) (1,253) (5,744)
Repurchase of common stock............... (448) (3,121) (664)
Cash dividends paid...................... (602) (538) (448)
------- ------- -------
Net cash provided by (used)
financing activities............. 42,223 88 (6,856)
------- ------- -------
NET DECREASE IN CASH....................... (136) (413) (853)
CASH AT BEGINNING OF YEAR.................. 462 875 1,728
------- ------- -------
CASH AT END OF YEAR........................ $ 326 $ 462 $ 875
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................ $ 2,290 $ 1,241 $ 1,343
======= ======= =======
Income taxes paid........................ $ 2,755 $ 6,603 $ 4,011
======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
9
Notes to Consolidated Financial Statements
March 30, 1996, April 1, 1995, and April 2, 1994
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Cagle's, Inc.
and its wholly owned subsidiary (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
affiliates are accounted for under the equity method (Note 7).
Nature of Operations
The Company's operations, which are located in the Southeast of the United
States, consist of breeding, hatching and growing chickens; feedmills;
processing; 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.
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 March 30, 1996 and April 1, 1995 consist of the following
(in thousands):
1996 1995
Finished products ............................ $ 10,640 $ 7,813
Field inventory and breeders ................. 17,630 13,742
Feed, eggs, and medication ................... 3,000 2,243
Supplies .................................... 1,638 1,484
---------- ---------
$32,908 $25,282
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.
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
professional 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. Provisions for claims under
the insurance programs are based on estimates of the aggregate outstanding
liability for claims incurred provided by the plan administrators. The
Company's accrual for group health and workers' compensation liabilities of
$2,300,000 and $2,268,000 as of March 30, 1996 and April 1, 1995, respectively,
is included in accrued expenses in the accompanying balance sheets.
Earnings Per Share
1994 earnings and dividends per share information have been restated to
reflect the two-for-one stock split issued to stockholders of record on
January 3, 1995.
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 1996, 1995 and 1994.
10
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, trade 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 than the
stated value at March 30, 1996 and April 1, 1995.
Accounting for the Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment Of Long-Lived Assets and for Long Lived Assets to Be Disposed Of.
" The Company will be required to adopt SFAS 121 in fiscal 1997. The Company
does not believe the adoption of SFAS 121 will have a material impact on its
financial statements.
2 PINE MOUNTAIN VALLEY FIRE
----------------------------------------------------------------------
On June 24, 1995, the Company's plant in Pine Mountain Valley, Georgia was
destroyed by fire. The Company has rebuilt the plant on the site, started
processing on a limited scale in November 1995, and reached prefire capacity
in January 1996. As of March 30, 1996, the Company has received $9,980,000,
net of costs, from its insurance carrier in connection with assets destroyed
by the fire. The excess of the net property proceeds over the book value of
the property of $8,902,000, has been recorded in other income.<QL><EM>The
Company is currently in the process of finalizing its insurance claims relating
to business interruption costs and lost profits due to the fire. The Company
has recognized $10,928,000 relating to total proceeds expected to be received
under this claim as a reduction in cost of sales in 1996. Proceeds not yet
received under this claim as of March 30, 1996 of $4,636,000 are included in
insurance proceeds receivable in the accompanying balance sheet.
The Company has recognized $904,000 related to proceeds received in
connection with inventory and spare parts destroyed by the fire as a reduction
of cost of sales in the accompanying statement of income.
The Company is also in the process of finalizing its insurance claim relating
to costs incurred in expediting the reconstruction of the plant. As of March
30, 1996, the Company has accrued for the receipt of $4,547,000 under this
claim and has recognized those proceeds as a reduction in property, plant and
equipment.
3 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
----------------------------------------------------------------------
Long-term debt and capital lease obligations at March 30, 1996 and April 1,
1995 consist of the following (in thousands):
1996 1995
---------- ----------
Term note payable to a financial institution,
variable interest rates (ranging from 6.31% to
8.25% at March 30, 1996), principal payable in
full by May 31, 2000; unsecured ................ $ 26,000 $ --
Revolving credit agreement with banks,
maturing on March 31, 1998, variable
interest rates (ranging from 6.06% to 8.5% at
March 30, 1996); unsecured ...................... 19,000 --
Term note payable to an insurance company,
maturing on July 1, 2002; secured by certain
property, plant, and equipment ................... 9,600 10,800
Industrial development revenue bonds payable
to a financial institution, variable interest
rate (3.55% at March 30, 1996), principal
payable in full by June 1, 2009; secured by
certain property, plant, and equipment .......... 4,700 5,000
Capital lease obligations ....................... 504 714
Other notes payable at varying interest
rates and maturities ............................ 274 291
--------- ---------
60,078 16,805
Less current maturities ......................... (1,570) (1,572)
--------- ---------
$ 58,508 $15,233
11
Notes to Consolidated Financial Statements, continued
The term note payable to a financial institution provides for unsecured
borrowings up to $40,000,000 through November 30, 1998, at which time the
amount outstanding becomes payable in installments and is payable in full by
May 31, 2000.
The revolving credit agreement with banks provides for unsecured borrowings
up to $20,000,000. Under this agreement, $5,000,000 of the $20,000,000 may be
used for letters of credit. As of March 30, 1996, a $250,000 letter of credit
associated with the Company's insurance program (Note 1) was outstanding, and
$750,000 was available under the revolving credit agreement.
The term note payable to an insurance company bears interest at a fixed rate
of 8.6% through July 1, 1997, at which time the rate is subject to adjustment.
Principal payments plus interest commenced July 1, 1993 and continue until the
note matures on July 1, 2002. The Company has the option to prepay the note
within 90 days after July 1, 1997, the interest rate adjustment date.
The Company's debt agreements contain certain restrictive covenants which
require that the Company maintain certain financial ratios, as defined in the
debt agreements, and capital expenditures not exceed certain limits, as defined
in the debt agreements. At March 30, 1996, the Company was in compliance with
all covenants except the covenant relating to capital expenditures. The Company
obtained a waiver from the appropriate financial institution relating to this
noncompliance.
The Company has also leased property, plant, and equipment under a capital
lease with an initial term of 120 months. The net book value of assets under
the capital lease at March 30, 1996 and April 1, 1995 was $591,000 and
$756,000, respectively.
Aggregate maturities of long-term debt and capital lease obligations during
the years subsequent to March 30, 1996 are as follows (in thousands):
1997 ...................... $ 1,570
1998 ..................... 1,564
1999 ...................... 21,570
2000 ..................... 3,576
2001 ...................... 24,582
Thereafter ............... 7,216
-----------
$60,078
===========
4 INCOME TAXES
----------------------------------------------------------------------
The Company records deferred income taxes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. Deferred income taxes
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
The Revenue Act of 1987 rescinded the cash-basis method of accounting for tax
purposes, effective in fiscal 1989, previously used for the Company's farming
operations. Approximately $2,845,000 of previously recorded income tax
liabilities was indefinitely deferred. Under current tax law, such liabilities
will continue to be deferred as long as the Company maintains compliance with
certain revenue and ownership criteria.
Income tax provisions are reflected in the statements of income as follows
(in thousands):
1996 1995 1994
--------- --------- ---------
Currently payable ................. $ 748 $ 6,722 $ 4,056
Deferred payable .................. 4,145 159 743
--------- --------- ----------
$4,893 $6,881 $4,799
========= ========= =========
A reconciliation between income taxes computed at the federal statutory rate
and the Company's provision for income taxes is as follows (in thousands):
1996 1995 1994
--------- -------- --------
Federal statutory rate ........................ 35% 35% 34%
Federal income taxes at statutory rate ........ $4,758 $7,225 $4,573
State income taxes, net of federal benefit .... 537 826 538
Jobs tax credits .............................. (402) (1,170) (312)
--------- -------- --------
$4,893 $6,881 $4,799
========= ======== ========
12
Components of the net deferred income tax liability at March 30, 1996 and
April 1, 1995 relate to the following (in thousands):
1996 1995
--------- ---------
Deferred income tax liabilities:
Family farm cash-basis deferral .... $ 2,845 $ 2,845
Inventories ......................... 1,569 1,464
Property and depreciation .......... 3,874 934
Other ............................... 3,098 1,355
--------- ---------
11,386 6,598
--------- ---------
Deferred income tax assets:
Accrued expenses ................ 1,097 1,088
Other ........................... 966 332
--------- ---------
2,063 1,420
--------- ---------
Net deferred income tax liability .. $9,323 $5,178
========= =========
5 STOCKHOLDERS' EQUITY
---------------------------------------------------------------------
In November 1994, the board of directors approved a two-for-one split of the
Company's common stock in the form of a 100% stock dividend for shareholders of
record as of January 3, 1995. Par value remains $1 per share. A total of
2,535,000 shares of common stock were issued in connection with the split.
In November 1993, the board of directors approved a 25% stock dividend in the
form of a five-for-four stock split. As a result, one new share of the
Company's $1 par value common stock was issued for each four existing shares
(including shares available under option).
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 November 1994, the
board increased the authorized amount to $7,500,000. As of March 30, 1996,
376,000 shares had been repurchased by the Company at a total cost of
$5,851,000.
6 STOCK OPTION PLAN
--------------------------------------------------------------------
In May 1993, the board of directors approved an incentive stock option plan
(the "Plan"). Under the provisions of the Plan, options to purchase a maximum
of 125,000 shares may be granted through 2003. The administrator of the Plan,
appointed by the board of directors, determines the grantee, vesting period,
exercise date, and expiration dates for all options granted. In addition, the
Plan provides for the issuance of options at prices not less than market value
at the date of grant. During May 1993, the Company granted 31,250 options with
an exercise price of $9.30 under the Plan. No options have been exercised.
7 INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED AFFILIATES
----------------------------------------------------------------------
On March 26, 1993, the Company acquired a 50% equity interest in a joint
venture formed with an unrelated party to own and operate the Company's
processing facility at Camilla, Georgia.
The Company occasionally sells eggs and broilers to the joint venture and
purchases feed from the joint venture. In addition, the Company performs
certain management and administrative services for the joint venture. The
Company receives a fee for its management services based on production volumes
of the joint venture. Sales to, purchases from, accounts payable 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):
1996 1995 1994
-------- -------- --------
Sales ......................... $ 4,095 $ 1,963 $ 635
Purchases ..................... 18,557 20,898 9,313
Accounts receivable ........... 20 60 315
Accounts payable .............. 138 1,563 252
Administrative service fees ... 902 548 371
13
Notes to Consolidated Financial Statements, continued
The Company accounts for its investments in three affiliates using the equity
method. The Company's share of affiliates' earnings and management fees was
$4,940,000 and $4,297,000 for the years ended March 30, 1996 and April 1, 1995,
respectively, and is included in other income in the accompanying statements of
income. At March 30, 1996, undistributed retained earnings of affiliates was
approximately $6,108,000.
Summarized combined balance sheet information for unconsolidated affiliates
as of March 30, 1996 and April 1, 1995 is as follows (in thousands) (unaudited):
1996 1995
---------- ----------
Current assets .......................... $ 24,772 $ 16,143
Noncurrent assets ....................... 64,398 51,734
---------- ----------
Total assets ........................... $ 89,170 $ 67,877
Current liabilities ..................... $ 11,713 $ 8,430
Noncurrent liabilities .................. 34,452 27,003
Owners' equity .......................... 43,005 32,444
---------- ----------
Total liabilities and owners' equity .... $ 89,170 $ 67,877
========== ==========
Summarized, combined statement of income information for all unconsolidated
affiliates for the years ended March 30, 1996 and April 1, 1995 is as follows
(in thousands) (unaudited):
1996 1995
--------- ---------
Net sales ................. $ 128,184 $ 113,904
Gross profit .............. 19,571 13,958
Operating income .......... 15,232 11,893
Income before taxes ....... 10,990 10,123
8 MAJOR CUSTOMER
--------------------------------------------------------------------
Sales to the Company's two largest customers represented 33%, 45%, and 47% of
net sales during fiscal 1996, 1995, and 1994, respectively. Additionally, a
major portion of the joint venture's sales (Note 7) are to the Company's
largest customer. The Company has an agreement with this customer to supply
chicken under a cost-plus arrangement, and approximately 24% of the Company's
production is committed to the customer. Under the arrangement, production in
excess of the customer's demands and by-products are sold to other customers.
9 BENEFIT PLANS
--------------------------------------------------------------------
Under a collective bargaining agreement, the Company contributes to a
multiemployer pension plan for the benefit of certain of its employees who are
union members. A separate actuarial valuation for this plan is not made for the
Company. Accordingly, information with respect to accumulated plan benefits and
net assets available for benefits is not available. Under the Employee
Retirement Income Security Act of 1974, as 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 $168,000, $179,000, and
$144,000 in 1996, 1995, and 1994, 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 $295,000, $232,000, and
$228,000 in 1996, 1995, and 1994, respectively. No discretionary company
contributions have been made to this plan.
The Company does not provide postretirement medical or other benefits to
employees.
14
10 COMMITMENTS AND CONTINGENCIES
----------------------------------------------------------------------
The Company leases certain of its buildings, equipment, and vehicles under
operating leases. The statements of income include rental expense relating to
operating leases of $2,763,000 in 1996, $3,045,000 in 1995, and $2,565,000 in
1994.
At March 30, 1996, future minimum payments under operating leases were as
follows (in thousands):
1997 ................................... $ 1,430
1998 ................................... 914
1999 ................................... 272
2000 ................................... 24
----------
Total ................................... $ 2,640
==========
The Company enters into contracts for the purchase of grain 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 $28,400,000 at March 30, 1996.
The Company is involved in various legal actions arising in the normal course
of business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
11 QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------------------------------
Quarterly financial data is as follows (in thousands, except per share data):
Operating
Net Income Net Earnings
Sales (Loss) Income** Per Share*
-------- ------- ------- ---------
Fiscal year 1996 quarter ended:
July 1, 1995 ................. $ 89,421 $ 1,592 $ 1,596 $ 0.32
September 30, 1995 ........... 77,243 (1,246) 2,912 0.58
December 30, 1995 ............ 64,439 (360) 2,429 0.48
March 30, 1996 ............... 77,646 1,658 1,763 0.35
Net Operating Net Earnings
Sales Income Income* Per Share*
-------- ------- ------- --------
Fiscal year 1995 quarter ended:
July 2, 1994 ................. $ 87,972 $ 5,317 $ 3,438 $ 0.66
October 1, 1994 .............. 89,227 4,834 3,472 0.67
December 31, 1994 ............ 83,640 4,958 3,601 0.70
April 1, 1995 ................ 88,931 3,521 3,251 0.64
*Earnings per share amounts have been restated to reflect the two-for-one
stock split to stockholders of record on January 3, 1995.
**Net income for the quarters ended September 30, 1995, December 30,
1995, and March 30, 1996 includes pre-tax income of $4,587,000,
$3,792,000, and $523,000 respectively relating to the excess of net
property insurance proceeds received over the book value of the
Company's Pine Mountain Valley plant which was destroyed by fire
(Note 2).
15
Officers and Directors
Cagle's, Inc.
Officers
J. DOUGLAS CAGLE
Chairman and Chief Executive Officer
KENNETH R. BARKLEY
Senior Vice President Finance/Treasurer/CFO
JERRY D. GATTIS
President and Chief Operating Officer
JOHN 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
Board of Directors
J. DOUGLAS CAGLE
Chairman
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.
JERRY D. GATTIS
President and Chief Operating Officer
Cagles, Inc.
CANDACE CHAPMAN
Principal
C2 Associates, Ltd.
MARK M. HAM IV
Vice President Management Information Systems
Cagle's, Inc.
JOHN J. BRUNO
Senior Vice President Sales and Marketing
Cagle's, Inc.
G. BLAND BYRNE
Partner
Byrne, Eldridge, Moore & Davis
Audit Committee
CANDACE CHAPMAN, Chairperson
G. BLAND BYRNE
GEORGE DOUGLAS CAGLE
CORPORATE HEADQUARTERS
2000 Hills Ave., N.W.
Atlanta, Georgia 30318
COLLINSVILLE, Alabama
Processing & Further Processing
ATLANTA, Georgia
Distribution & Further Processing
LOVEJOY, Georgia
Further Processing
DALTON, Georgia
Feed Mill, Hatchery & Growout
PINE MOUNTAIN VALLEY, Georgia
Processing & Deboning
FORSYTH, Georgia
Hatchery, Growout & Feed Mill
MACON, Georgia
Processing Deboning
BIRMINGHAM, Alabama
Distribution, Freezer Warehouse
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.
16
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 12, 1996.
- --------------------------------------------------------------------------
Form 10-K
The Form 10-K Annual Report for 1996, as filed by the Company with the
Securities and Exchange Commission, is available to Cagle's, Inc. stockholders
after June 30, 1996 on request and without charge.
Write:
KENNETH R. BARKLEY
SENIOR VICE PRESIDENT FINANCE/
TREASURER/CFO
Cagle's, Inc.
2000 Hills Ave., N.W.
Atlanta, Georgia 30318
- ---------------------------------------------------------------------------
General Information
Registrar and Transfer Agent
SUNTRUST BANK
Atlanta, Georgia
Legal Counsel
BYRNE, ELDRIDGE, MOORE & DAVIS P.C.
Atlanta, Georgia
Auditors
ARTHUR ANDERSEN LLP
Atlanta, Georgia
17