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 December 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 December 28, 2002
- -------------------------------------- -----------------------------
Class A Common Stock, $1.00 Par Value 4,746,030
PART 1. FINANCIAL INFORMATION
Cagle's, Inc. And Subsidiary Consolidated Balance Sheets
December 28, 2002 and March 30, 2002
(In Thousands, Except Par Value)
(Period 12/28/02 Unaudited)
12/28/02 03/30/02
------------ -----------
Assets -----------------------------------------
CURRENT ASSETS
Cash $ 14 $ 91
Accounts receivable, net of allowance for
doubtful accounts of $614 and $446 at
December 28, 2002 and March 30, 2002,
respectively 13,176 16,919
Inventories 30,522 34,176
Income Tax Refund Receivable 5,285 10,016
Other current assets 889 559
------------ ------------
Total current assets 49,886 61,761
------------ ------------
INVESTMENTS IN AND RECEIVABLES FROM
UNCONSOLIDATED AFFILIATES 3,410 45,136
OTHER ASSETS 1,898 2,232
PROPERTY HELD FOR SALE 6,887 6,738
PROPERTY, PLANT, AND EQUIPMENT 198,914 198,293
Less accumulated depreciation (85,045) (74,209)
------------ ------------
Property, plant, and equipment, net 113,869 124,084
------------ ------------
TOTAL ASSETS $ 175,950 $ 239,951
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY---------------
CURRENT LIABILITIES
Current maturities of long term debt $ 55,759 $ 9,921
Accounts payable 23,241 24,143
Accrued expenses 10,195 8,847
------------ ------------
Total current liabilities 89,195 42,911
------------ ------------
LONG TERM DEBT (net of current maturities) 24,217 114,885
NONCURRENT DEFERRED INCOME TAXES 6,720 11,831
OTHER NONCURRENT LIABILITIES 2,503 5,927
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 9,000
Shares and 4,748 issued 4,748 4,748
Additional paid in Capital 4,186 4,198
Treasury stock (77) (94)
Retained earnings 45,379 56,402
OCI(FAS133) (921) (857)
------------ ------------
Total stockholders' equity 53,315 64,397
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 175,950 $ 239,951
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
Cagle's, Inc., & Subsidiary
Consolidated Statements of Operations
For the 13 week and 39 week ended December 28, 2002
and the 13 week and 39 week ended December 29, 2001
(Amounts in thousands, except per share data)
(Unaudited)
13 wks 13 wks 39wks 39wks
ended ended ended ended
12/28/02 12/29/01 12/28/02 12/29/01
-------- -------- -------- --------
Net Sales $ 72,550 $ 85,560 $238,677 $258,943
Costs and Expenses:
Cost of Sales 81,636 84,617 250,260 256,052
Selling and Delivery 2,419 2,673 7,530 7,512
General and Administrative 2,414 2,128 7,648 6,537
------- -------- -------- --------
Total costs and expenses 86,469 89,418 265,438 270,101
Loss From Operations (13,919) (3,858) (26,761) (11,158)
Other Income(Expense):
Interest expense (2,171) (2,056) (5,492) (7,059)
Other income, net 848 526 11,511 322
-------- -------- -------- --------
Earnings or (Loss) Before equity in
earnings of unconsolidated affiliates
and income taxes (15,242) (5,388) (20,742) (17,895)
Equity in earnings of unconsolidated
affiliates 930 3,037 3,622 8,679
-------- -------- -------- --------
Loss Before Income Taxes (14,312) (2,351) (17,120) (9,216)
Provision (Benefit) For Income Taxes (5,066) (923) (6,093) (8,829)
-------- -------- -------- --------
Net Loss $ (9,246) (1,428) (11,027) (387)
======== ======== ======== ========
Weighted Average Shares Outstanding
-Basic 4,746 4,743 4,745 4,743
-Diluted 4,746 4,744 4,745 4,743
======== ======== ======== ========
Net Loss Per Common Share
-Basic $ (1.95) $ (.30) $ (2.32) $ (.08)
-Diluted $ (1.95) $ (.30) $ (2.32) $ (.08)
Dividends Per Common Share $ .00 $ .00 $ .00 $ .00
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Cagle's, Inc & Subsidiary
Consolidated Statements of Cash Flows
For the 39 weeks ended December 28,2002 and December 29, 2001
(In Thousands) (unaudited)
12/28/02 12/29/01
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (11,027) $ (387)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,543 11,416
Gain on disposal of property, plant and equipment (27) (999)
Gain on sales of joint ventures (12,914) 0
Changes in investment in and receivables from
unconsolidated affiliates (2,388) (3,872)
Deferred Income Taxes (5,111) (3,648)
Changes in assets and liabilities:
Accounts receivables, net 3,743 (4,961)
Income Tax Refund Receivable 4,731 4,709
Inventories 3,654 (3,664)
Other current assets (330) 176
Accounts payable (902) 2,703
Accrued expenses 1,348 (1,373)
Other non-current liability (3,424) (3,329)
------------- -------------
Total Adjustments (77) (2,842)
------------- -------------
Net cash provided by operating activities (11,104) (3,229)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (918) (595)
Proceeds from the sale of property, plant, equip 27 2,514
Increase in other assets 0 (177)
Proceeds from sales of joint ventures 56,736 0
------------- -------------
Net cash used in investing activities 55,845 1,742
------------- -------------
Cash Flows from financing activities:
Payments of long-term debt and capital
lease obligations (44,830) (4,254)
Proceeds from issuance of long-term debt 0 4,710
Repurchase of Common Stock 0 (28)
Proceeds from exercise of Stock Options 12 23
------------- -------------
Net cash provided or (used) by financing activities (44,818) 451
------------- -------------
NET INCREASE (DECREASE) IN CASH (77) (1,036)
CASH AT BEGINNING OF PERIOD 91 1,113
------------- -------------
CASH AT END OF PERIOD $ 14 $ 77
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest(including capitalized interest
of $3,124 in 2001) $ 4,867 $ 7,449
============= =============
Income Taxes (Refunded), Paid $ (5,678) $ 6,037
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
Cagle's, Inc. & Subsidiary
Notes to Consolidated Condensed Financial Statements
December 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 December 28,
2002 and March 30, 2002 and the results of their operations for the 13 weeks
and 39 weeks ended December 28,2002 and December 29,2001.
2. The results of operations for the 13 weeks and 39 weeks ended December
28,2002 and December 29, 2001 are not necessarily indicative of the results
expected for the full year.
3. Inventories consisted of the following:
(In Thousands)
December 28,2002 March 30, 2002
Finished Product $ 8,981 $11,116
Field Inventory and Breeders 16,361 16,789
Feed, Eggs, and Medication 3,576 4,395
Supplies 1,604 1,876
---------------- --------------
$30,522 $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 $930,000 and $3,622,000 respectively for the 13 weeks
and 39 ended December 28, 2002 and $3,037,000 and $8,679,000 for the 13
weeks and 39 ended December 29, 2001. On April 30, 2002 the Company sold
its interest in Cagle Foods JV, LLC and Cagles Foods Credit LLC and
recorded a gain of $11,958,535 as other income and on December 13, 2002
the Company sold its minority interest in a rendering company and recorded
a gain of $995,000 as other income.
6. Other Non-recurring Activities
Included in the thirteen weeks ended December 28, 2002 results is $510,814,
Which represents recovery from partial settlement in lawsuits involving
vitamin manufacturers. The total recovery reflected in the results
reported for the 39 weeks ended December 28, 2002 is $2,384,814. Also
included in the results for the 13 weeks ended December 28, 2002 is
$150,000 of expenses required to complete the settlement agreement
reported during the first quarter which ended June 29, 2002.
7. Certain prior year amounts have been re-classified for consistency with
current period presentation.
Management's Discussion and Analysis of Financial
Condition and Results of Operation
December 28, 2002
Financial Condition
The continuation of low and in most cases further erosion of market prices
and the resulting losses during the quarter caused further liquidity issues
for the Company. During the quarter the Company divested itself of interest
in an affiliate and applied the proceeds to its revolving credit facility
which has provided some additional availability of funding. This facility
and a term loan expires in April, 2003. The Company has retained a consulting
group to pursue replacement financing or otherwise raising capital, which has
been made more difficult by continued losses and general depressed conditions
throughout the poultry industry.
Results of Operations
Net Revenues for the quarter were 15.2% lower than the comparable period of
a year ago and 7.8% lower for the 39 week period as compared to the same
period of a year ago. This reduction is a reflection of lower prices and
reduced volume.
Gross margins were $10,029,000 lower for the quarter as compared to a year ago
and $14,474,000 lower for the 39 week period as compared to the same period
of a year ago. Again pricing and effects of reduced volume on fixed cost are
major factors in this change. In addition there have been increases in grain
prices over year ago levels which adversely affect costs.
A major factor in low market prices throughout the 39 week period ended
December 28, 2002 was the ban on poultry imports put in place by Russia early
in the year which further aggravated the oversupply of meat protein in the
United States by forcing this product back into the domestic market.
Selling, Delivery and Administrative Expenses
These expenses for the 13 weeks ended December 28, 2002 were essentially
unchanged from the previous year; however legal expenses and bank fees are
continuing to maintain these expenses at higher than normal levels.
Interest Expense
Interest expense for the 13 week period is higher than for the same period of
a year ago due to the increased rates extracted in return for various
concessions that have been made on the bank loans, during the quarter and 39
week period compared to a year ago levels. Interest expense for the 39 week
period is lower than the comparable period of a year ago due to the overall
lower outstanding debt levels, even after the higher rates.
Equity in Earnings of Unconsolidated Affiliates
Reflects the absence of income from joint ventures sold during the year.
Other Income
The increase in other income reflects the gain resulting from the sale of two
joint ventures in the first quarter and interest in a rendering company in
December, less the impact of settlements of several lawsuits of which $750,000
has been paid and $650,000 is due to be paid by January 31, 2003, which has
been accrued.
Income Taxes
The provision for income taxes reflects the Company's estimated liability
(benefit) net of any credits to which the company may be entitled.
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.
A settlement has been reached covering these three cases.
Item 9 Exhibits and Reports on Form 8-K
a. Not applicable
b. No report on Form 8-K was filed during this period.
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.
/s/ J. Douglas Cagle
Chairman and C.E.O.
Date: February 12, 2003
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: February 12, 2003
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: February 12, 2003