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As Of Filer Filing For·On·As Docs:Size Issuer Agent 6/16/10 Cagles Inc 10-K 4/03/10 7:1.2M Merrill Corp-MD/FA |
Document/Exhibit Description Pages Size 1: 10-K Annual Report HTML 815K 2: EX-23.1A Consent of Experts or Counsel HTML 7K 3: EX-23.1B Consent of Experts or Counsel HTML 8K 4: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) HTML 14K 5: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) HTML 14K 6: EX-32.1 Certification per Sarbanes-Oxley Act (Section 906) HTML 9K 7: EX-32.2 Certification per Sarbanes-Oxley Act (Section 906) HTML 9K
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 |
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| For the fiscal year ended April 3, 2010 or | |
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| o | 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.
(Exact Name Of Registrant As Specified In Its Charter)
| GEORGIA |
| 58-0625713 |
| (State Of Incorporation) |
| (I.R.S Employer Identification No.) |
| 1385 COLLIER ROAD 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes x No
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 l934 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 o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. x.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o |
| Accelerated filer o |
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| Non-accelerated filer o |
| Smaller reporting company x. |
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
$6,883,700 (based on $4.25 per share closing price on October 3, 2009).
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class A Common Stock at $1.00 par value |
| 4,616,208 shares at $1.00 par value. |
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of the following documents are incorporated by reference in Part III of this form 10-K report:
1) proxy statements for registrant’s 2010 annual meeting of shareholders- Items 10, 11, 12, 13, and 14.
FORM 10-K
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., 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 operations.
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 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 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 2.23 million birds per week in its two processing plants. Of the Company’s total production, approximately 350,000 birds 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 the Company’s hatchery, and in three weeks, a baby chick is hatched.
The day-old broiler chick is placed on a farm where it will grow for five to six weeks depending upon the size of bird desired, at which time it is transported to the processing plant for slaughter. A significant investment in field inventories is required to support the Company’s operating cycle.
All feed for all flocks is produced in a feed mill owned by the Company. The Company’s goal is to add value to all of its birds. This value-added product can take the form of seasoned deli products, deboned breast and thigh meat, cut-up marinated raw breaded chicken, fast-food cuts, and IQF (individually quick frozen) products.
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 the 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.
Sales 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 and through brokers selected by the Company.
Employees and Labor Relations
The Company employs approximately 1,863 persons, 1,665 hourly and 198 salaried, with approximately 33% of the hourly covered by a collective bargaining agreement. 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 largest customer represent 12%, 17% and 12%, of net sales during fiscal 2010, 2009 and 2008, respectively.
Major Suppliers
Purchases by the Company from its largest supplier represent 20%, 14% and 12%, of cost of sales during fiscal 2010, 2009 and 2008, respectively.
Backlog
The Company had no material backlog of orders existing as of April 3, 2010.
Competition
The Company is a leading regional integrated poultry processor. 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 small bird focus, 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 (“EPA”), the Occupational Safety and Health Administration (“OSHA”), 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 the Company is in substantial compliance with applicable laws and regulations relating to the operation of its facilities.
Availability of Securities and Exchange Commission filings on Corporate Website
We maintain an internet website for investors at www.cagles.net. On this website, we make available, free of charge, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to any of those reports, as soon as reasonably practicable after we electronically file such reports with, or furnish to, the Securities and Exchange Commission.
Risk Factors: Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients and chicken. Profitability in the chicken industry is materially affected by the commodity prices of chicken and feed ingredients, which are determined by supply and demand factors, which result in cyclical earnings fluctuations. The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories and demand for feed ingredients, and the agricultural policies of the United States and foreign governments. In particular, weather patterns often change agricultural conditions in an unpredictable manner. A sudden and significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens and deliver products. High feed ingredient prices have had a material adverse effect on our operating results in the past. We periodically seek, to the extent available, to enter into advance purchase commitments for the purchase of feed ingredients and enter into futures contracts, in an effort to manage our feed ingredient costs. The use of such instruments may not be successful.
Feed Ingredients: Feed ingredient costs decreased 11.2% for fiscal 2010 reflected as a $13.1 million decrease of the $7.3 million total decrease in cost of sales as compared to the previous year. The Company’s cost to acquire feed ingredients may continue to be volatile. In the long term, the protein sector of the food industry will be forced to pass the cost of our raw materials to the final consumer increasing our sales price per pound and related revenue, as well as our operating margins. At this moment, the cost of ingredients, principally corn, has stabilized but the Company will utilize substitute ingredients as available and as determined through feed optimization programs to mitigate the impact of the increased corn cost.
The Company may choose to utilize derivatives as offered on the Chicago Board of Trade for the purpose of protecting the feed cost for fixed price sales commitments negotiated with our customers. The Company’s two primary feed ingredients are corn and soybean meal. A $0.10 per bushel price change in corn or a $10 per ton price change in soybean meal impacts our cost of sales $0.75 million dollars per year.
Leverage: Our indebtedness could adversely affect our financial condition. We presently have, and expect to continue to have, an amount of indebtedness. Our indebtedness could have important consequences to stockholders. For example, it could: increase our vulnerability to general adverse economic conditions; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and for other general corporate purposes; limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; place us at a competitive disadvantage compared to our competitors that have less debt; and limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds, and failure to comply with those covenants could result in an event of default or require redemption of indebtedness. Any of these events could have a material adverse effect on us. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future, which is dependent on various factors. These factors include the commodity prices of feed ingredients and chicken and general economic, financial, competition, legislative, regulatory, and other factors that are beyond our control.
Additional Borrowings Available: Despite our indebtedness, we are not prohibited from incurring additional indebtedness in the future.
Interest Rates: We currently have a term note payable with no exposure to interest rate fluctuations, as this existing indebtedness carries a fixed interest rate. We also have a revolving credit facility which carries a variable interest rate equal to the 90-day LIBOR rate published by the Wall Street Journal, plus 3.5%. Reference the Company’s most recent 8-K, filed on November 25, 2009, regarding the revolving credit facility.
The Company had variable interest rate exposure on the revolving credit facility at April 3, 2010. The Company’s theoretical interest rate exposure on variable rate borrowings at April 3, 2010, would be, with a one percentage point increase in average interest rates on the Company’s borrowings would increase future interest expense by $13.3 thousand per month and a two percentage point increase would increase future interest expense by $26.5 thousand per month. The Company determined these amounts based on $15.9 million of variable rate borrowings at April 3, 2010, multiplied by 1.0% and 2.0%, respectively, and divided by twelve. The Company is currently not using any interest rate collars, hedges, or other derivative financial instruments to manage or reduce interest rate risk. As a result, any increase in interest rates on the Company’s variable rate borrowings would increase interest expense and reduce net income.
Contamination of Products: If our products become contaminated, we may be subject to product liability claims and product recalls.
Livestock and Poultry Disease: Outbreaks of livestock diseases in general and poultry disease in particular, which are beyond our control, can significantly restrict our ability to conduct our operations. We take all reasonable precautions to ensure that our flocks are healthy and that our processing plants and other facilities operate in a sanitary and environmentally sound manner. However, an outbreak of disease could result in governmental restrictions on the import and export of our fresh chicken, to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks. This could result in the cancellation of orders by our customers and create negative publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation, and prospects.
Insurance: We are exposed to risks relating to product liability, product recall, property damage and injuries to persons for which insurance coverage is expensive, limited and potentially inadequate.
Significant Competition: Competition in the chicken industry with other vertically integrated poultry companies could adversely affect our business. The Company produces a smaller bird which differentiates it from the majority of its competitors.
Government Regulation: Regulation, present and future, is a constant factor affecting our business. The chicken industry is subject to federal, state, and local governmental regulation, including health and environmental areas. We anticipate increased regulation by various agencies concerning food safety, the use of medication in feed formulations and the disposal of poultry by-products and wastewater discharges. Unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect our business or operations in the future.
Deterioration of Economic Conditions: Our business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges) and the effects of governmental initiatives to manage economic conditions. Any such changes could adversely affect the demand for our poultry products, or the cost and availability of our needed raw materials and packaging materials, thereby negatively affecting our financial results.
The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions, could, among other things:
· make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future;
· cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any technical or other waivers under our credit agreements to the extent we may seek them in the future;
· impair the financial condition of some of our customers and suppliers thereby increasing customer bad debts or non-performance by suppliers;
· negatively impact demand for protein products, which could result in a reduction of sales, operating income and cash flows.
Changes in Consumer Preference: The food industry in general is subject to changing consumer trends, demands, and preferences. Trends within the food industry change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have an adverse effect on our financial results.
The Loss of One or More of Our Largest Customers: Our business could suffer significant setbacks in sales and operating income if our customers’ plans and/or markets should change significantly, or if we lost one or more of our largest customers. Many of our agreements with our customers are generally short-term, primarily due to the nature of our products, industry practice, and the fluctuation in demand and price for our products. Our largest customer did not renew their sales contract for calendar 2010. However, the Company has been able to attract new contract-based customers of similar volume that will approximate this former customer’s sales volume. These new customers should provide a market for our products without a significant deterioration in operating income. We continually monitor our production output and will adjust accordingly.
Members of the Cagle’s Family can Exercise Significant Control: Members of the Cagle’s family beneficially own, in the aggregate, 64.5% of our outstanding common stock, giving them control of approximately 65% of the total voting power of our outstanding voting stock. In addition, three members of the Cagle’s family serve on our Board of Directors. As a result, members of the Cagle’s family have the ability to exert substantial influence or actual control over our management and affairs and over substantially all matters requiring action by our stockholders, including amendments to our certificate of incorporation and by-laws, the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all of our assets, and other corporate transactions. This concentration of ownership may also delay or prevent a change in control otherwise favored by our other stockholders and could depress our stock price.
The Company and its representatives may from time to time make written or oral forward-looking statements, including forward-looking statements made in this report, with respect to their current views and estimates of future economic circumstances, industry conditions, Company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company’s actual results and experiences to differ materially from the anticipated results and expectations, expressed in such forward-looking statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Among the factors that may affect the operating results of the Company are the following: (1) fluctuations in the cost and availability of raw materials, such as feed grain costs; (2) changes in the availability and relative costs of labor and contract growers; (3) operating efficiencies of facilities; (4) market conditions for finished products, including the supply and pricing of alternative proteins; (5) effectiveness of marketing programs and advertising; (6) risks associated with leverage, including cost increases due to rising interest rates; (7) risks associated with effectively evaluating derivatives and hedging activities; (8) changes in regulations and laws, including changes in accounting standards, environmental laws and occupational, health and safety laws; (9) issues related to food safety, including costs resulting from product recalls, regulatory compliance, and any related claims or litigation; (10) adverse results from on-going litigation; (11) access to foreign markets together with foreign economic conditions, including currency fluctuations and import/export restrictions; (12) the effect of, or changes in, general economic conditions; and (13) financial risk management. We undertake no obligation to revise or update any forward-looking statements for any reason.
Item 1B: Unresolved Staff Comments
Not applicable.
Production and Facilities
Breeding and Hatching
The Company supplies its broiler chicks by producing hatching eggs from breeder flocks owned by the Company. These breeder flocks are maintained on approximately 40 contract grower farms. In addition, the replacement breeder pullets are maintained on approximately 20 contract grower farms where the breeders are reared from one day old to approximately 21 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 and Tennessee.
The Company owns a hatchery located in Dalton, 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 vaccinated against disease and moved by an environmentally controlled vehicle, to the Company’s grow-out farms. The hatchery has an aggregate capacity of 2.9 million eggs per week.
Grow-Out
The Company places its broiler chicks on approximately 150 contract grower farms.
The independent contract growers provide the housing, equipment, utilities, and labor to grow the baby chicks to market age, which varies from five to six 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 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 and Alabama.
Feed Mill
The Company owns a feed mill in Rockmart, Georgia, which has production capacity of over 15,000 tons per week which can be increased to 20,000 tons per week with 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 Valley, Georgia; and Collinsville, Alabama. The Collinsville plant can process up to 18,000 birds per hour. The Pine Mountain plant has the capacity to process 10,920 birds per hour.
Further Processing and Deboning
The Company has a stated goal of marketing the majority of its product as value-added product consisting of marinated rotisserie deli, fast-food cuts, boneless portioned breast, marinated and breaded parts, individual quick frozen parts, and other convenience-type products. Further processing is conducted at the Collinsville, Alabama, and Pine Mountain Valley, Georgia, plants.
Freezer Storage
The Company’s facilities located in Atlanta, Georgia; Collinsville, Alabama; and Pine Mountain Valley, Georgia; have freezer storage facilities with aggregate capacity of approximately 14.0 million 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’s sales division, local distribution is operated from warehouse facilities in Atlanta, Georgia, and Collinsville, Alabama, and are designed to provide storage and delivery service for those customers.
Executive Offices
The Company’s executive offices are located in a company owned facility at 1385 Collier Road NW, Atlanta, Georgia.
All of the properties described above are in good condition and are adequate for their stated uses.
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 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 a vote of the registrant’s security holders, through the solicitation of Proxies or otherwise, during the fourth quarter of this fiscal year.
Item 4A: Executive Officers of the Registrant
The information required by this item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held July 16, 2010 and is incorporated herein by reference.
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is listed and principally traded on the American Stock Exchange, ticker symbol CGL.A. As of April 3, 2010, there were 123 stockholders of record of the Company’s Class A common stock. Under current loan agreements, issuance of dividends must be consented to by debt holders.
Quarterly dividend data and market highs and lows for the past two years were:
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| Fiscal 2010 |
| Fiscal 2009 |
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| Dividend |
| High |
| Low |
| Dividend |
| High |
| Low |
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| Quarter: |
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| First |
| $ | — |
| $ | 5.20 |
| $ | 1.70 |
| $ | — |
| $ | 6.25 |
| $ | 5.25 |
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| Second |
| — |
| 5.51 |
| 3.85 |
| — |
| 5.71 |
| 3.85 |
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| Third |
| — |
| 4.58 |
| 2.42 |
| — |
| 4.35 |
| 1.55 |
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| Fourth |
| — |
| 6.50 |
| 3.40 |
| — |
| 2.36 |
| 1.32 |
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Issuer Purchases of Equity Securities
The table below provides information regarding the Company’s purchases of its own common stock during the periods indicated. The Company has accounted for these shares using the retirement method.
Amounts in thousands except Average Price Paid per Share.
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| Total Number of |
| Average Price |
| Approximate Dollar Value of |
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| Shares Purchased |
| Paid per Share |
| Shares that May Yet Be Purchased (1) |
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| 22 |
| $ | 2.20 |
| $ | 4,793 |
| |
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| 26 |
| 2.13 |
| 4,841 |
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| 79 |
| 7.74 |
| 4,898 |
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(1) The Board of Directors has authorized the purchase of up to $15,000 of the Company’s own common stock
Item 6: Selected Consolidated Financial Data
Five Year Selected Financial Data
(In Thousands, Except Per Share Data)
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| 53 Weeks |
| 52 Weeks |
| 52
Weeks |
| 52 Weeks |
| 52 Weeks |
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| OPERATING RESULTS: |
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| Net sales |
| $ | 307,091 |
| $ | 292,585 |
| $ | 283,649 |
| $ | 233,936 |
| $ | 237,266 |
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| Costs and expenses |
| 301,782 |
| 308,262 |
| 283,514 |
| 246,548 |
| 239,989 |
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| Operating income (loss) |
| 5,309 |
| (15,677 | ) | 135 |
| (12,612 | ) | (2,723 | ) | |||||
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| Interest expense |
| (1,605 | ) | (2,163 | ) | (1,483 | ) | (2,054 | ) | (2,407 | ) | |||||
| Other income (expense), net |
| 71 |
| (40 | ) | 190 |
| 19,998 |
| 4,266 |
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| Income (loss) before income taxes |
| 3,775 |
| (17,880 | ) | (1,158 | ) | 5,332 |
| (864 | ) | |||||
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| Income tax expense (benefit) |
| 1,238 |
| (6,386 | ) | (385 | ) | 4,773 |
| (290 | ) | |||||
| Net income (loss) |
| $ | 2,537 |
| $ | (11,494 | ) | $ | (773 | ) | $ | 559 |
| $ | (574 | ) |
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| FINANCIAL POSITION: |
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| Working capital |
| $ | 16,760 |
| $ | 12,679 |
| $ | 20,197 |
| $ | 18,941 |
| $ | 9,416 |
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| Total assets |
| 87,619 |
| 91,152 |
| 91,974 |
| 84,019 |
| 95,204 |
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| Long-term debt and capital lease obligations |
| 25,033 |
| 29,049 |
| 20,924 |
| 16,467 |
| 25,869 |
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| Stockholders’ equity |
| 35,335 |
| 31,984 |
| 44,827 |
| 45,354 |
| 45,232 |
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| PERFORMANCE PER COMMON SHARE: |
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| Net (loss) income: |
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| Basic |
| $ | 0.55 |
| $ | (2.48 | ) | $ | (0.17 | ) | $ | 0.12 |
| $ | (0.12 | ) |
| Diluted |
| $ | 0.55 |
| $ | (2.48 | ) | $ | (0.17 | ) | $ | 0.12 |
| $ | (0.12 | ) |
| Dividends |
| — |
| — |
| — |
| — |
| — |
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| Book value at the end of the year |
| 7.65 |
| 6.90 |
| 9.61 |
| 9.60 |
| 9.54 |
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| Average number of common shares outstanding: |
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| Basic |
| 4,617 |
| 4,638 |
| 4,665 |
| 4,724 |
| 4,743 |
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| Diluted |
| 4,617 |
| 4,638 |
| 4,665 |
| 4,724 |
| 4,743 |
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The accompanying notes are an integral part of the selected consolidated financial data.
Notes to Selected Consolidated Financial Data:
Fiscal Year 2010
Revenues increased by 5.0% as compared to 2009. This increase can be attributed to a 4.2% increase in sales tonnage and an increase in our average selling price of 0.7 cents per pound as compared to 2009.
Debt decreased by $3.8 million in 2010, as compared to 2009. This was primarily due to positive cash flow provided by operating activities. Interest expense decreased by $558 thousand as compared to 2009, the result of decreased borrowings and a lower variable interest rate on the revolving credit facility.
Cost of sales decreased 2.5% as compared to 2009, and can be attributed to lower feed costs.
Fiscal Year 2009
Revenues increased by 3.2% as compared to 2008. This increase can be attributed to a 1.9% increase in sales tonnage and an increase in our average selling price of 2.4 cents per pound as compared to 2008.
Debt increased by $8.3 million in 2009, as compared to 2008. This was primarily due to borrowings in the second and third quarters, caused by historically high feed and energy costs. Interest expense was increased by 45.9% as compared to 2008, the result of additional borrowings for the first three quarters of 2009.
Cost of sales increased 9.2% as compared to 2008, and can be attributed to increased grain and energy costs.
Selling, general and administrative costs were stable at $15.0 million from 2008 to 2009 with general and administrative down 2.6% and selling up a like amount.
Fiscal Year 2008
Revenues increased by 21.3% as compared to 2007. This increase can be attributed to two factors. A 3.2% increase in production tonnage as compared to 2007 and an increase in our average selling price of 7.5 cents per pound as compared to 2007.
Debt increased by $4.6 million in 2008, as compared to 2007. This was due to borrowings in the fourth quarter, caused by increases in grain and energy costs. Interest expense was reduced by 27.8% as compared to 2007, the result of reduced borrowings for the first three quarters of 2008.
Cost of sales increased 15.4% as compared to 2007, and can be attributed to increased grain and energy costs.
Selling, general and administrative costs were $15.0 million for the year as compared to $14.3 million in fiscal 2007 representing an increase of 5.0%. The increase is the result of increased energy costs, higher professional fees incurred in complying with Section 404(a) of the Sarbanes-Oxley Act of 2002, and outside storage costs experienced as one of our freezers was being reworked.
Fiscal Year 2007
Debt was reduced by $11.7 million in 2007. Interest expense was reduced by 14.7% as compared to 2006, the result of reduced borrowings.
Revenues declined by 1.4% as compared to 2006. This decrease can be attributed to two factors. A 3.9% decrease in production tonnage as compared to 2006 and an increase in our average selling price of 2.6 cents per pound as compared to 2006.
Cost of sales increased 2.2% as compared to 2006, due to a $2.13 million asset valuation adjustment to an inactive facility (noted in the Company’s second quarter 10-Q). When adjusted for the inactive facility charge, cost of sales increased 1.3% versus the same period last year and can be attributed to increased grain costs.
Selling, general and administrative costs were $14.3 million for the year as compared to $12.8 million in fiscal 2006 representing an increase of 11.7%. Of the increase experienced in fiscal 2007, bad debt expense was responsible for 4.1%, salaries and benefits for 3.3%, and a decrease of fees earned thorough outside accounting services had an impact of 3.2%.
The Company’s share of earnings in the unconsolidated affiliate decreased by 66.7%. This is the result of the sale of the affiliate on August 1, 2006. Other income reflects a gain of $18.3 million on the sale.
Fiscal Year 2006
Revenues declined by 3.7% as compared to 2005. This decrease can be attributed to two factors. A decrease in our average selling price of 18.7% for the twelve months of 2006; quoted market prices declined approximately 20% for the same period; and a 4% increase in production tonnage for 2006 compared to 2005; this increase was impacted by a 3.6% decrease in production tonnage for the fourth quarter of 2006.
Debt was reduced by $0.5 million in 2006. Interest expense was reduced in 2006 by 9.1% as compared to the same period a year ago.
Selling and delivery expenses increased by 13%. This increase reflects increases in fuel costs, utilities and commission expenses.
General and administrative expenses decreased by 6.54%. This decrease reflects reductions in payroll costs, legal fees, rental equipment, and professional expenses.
The Company’s share of earnings of unconsolidated affiliates decreased by 4% due to the affiliates’ decreases in volumes processed.
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Cagle’s Inc., our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes (“Notes”).
Forward-Looking Statements
This Annual Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts, and projections about the industry in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified above, under “Risk Factors,” and elsewhere herein. We undertake no obligation to revise or update any forward-looking statements for any reason.
General
We are in a highly stratified industry with the top five producers accounting for 58 percent of poultry production in this country and the next fifteen accounting for 35 percent. Our company currently produces ready to cook product of 7.13 million pounds per week, placing it as the twenty-second integrated broiler company ranked by ready to cook pounds. Cagle’s produces a product which differentiates itself from the average broiler company; as industry live weights average 5.5 pounds per head, and our birds weigh approximately 3.9 pounds per head. While this difference impacts the fixed cost per unit of our operations, we believe it serves our company by allowing us to compete for a value added customer profile namely the fast-food, institutional, and deli markets. We believe this is a market segment that we excel in and can provide our customers with distinctive, quality product to fit their needs at margins necessary to offset the higher cost per unit brought about by the smaller live weight.
The Company has begun to transition its Pine Mountain Valley processing facility to a deboning operation where 100% of the breast will be boned with the remaining portion of the bird being packed for retail and/or export. This transition will be completed by the first of June and will result in an increase to the Company’s pounds processed and revenue of approximately 11%. Live bird size at Pine Mountain Valley after the transition is estimated to be 6.50 pounds and capacity will be adjusted to 8,400 birds per hour.
For the fiscal year ending 2010, the Company reported net income of $2.5 million or $0.55 per share compared to a net (loss) of ($11.5) million or ($2.48) per share for fiscal 2009.
Net sales for fiscal 2010 increased 5.0% to $307.1 million as compared to $292.6 for fiscal 2009. Poultry sales pounds for the year increased 4.2% reflecting an increase in further processed, breaded products coupled with an average price per pound increase of 0.9% when compared to fiscal 2009. Head processed for the company were 4.7% more in 2010 than 2009. Fiscal 2010 market prices compared to fiscal 2009 for boneless breast, wings and tenders were up 5.1%, 32.0% and 7.3%, respectively. All year-to-year comparison dark meat prices were down, as boneless thigh, leg quarters and drums decreased 12.4%, 9.3% and 9.6%, respectively. As a company we continue to focus on niche markets where we can react to our customer needs in a quick and efficient manner. Given our bird size and production facilities we continue to exploit our expertise in the deli/fast food arena.
Cost of production for fiscal 2010 was $285.9 million compared to $293.2 million in fiscal 2009 for a decrease of 2.5%. Feed cost, which account for approximately 38% of our total cost, decreased 11.2% for the year reflected as a $13.1 million decrease in cost
of sales. In general a $0.10 per bushel price change in corn or a $10 per ton price change in soybean meal impacts our cost of sales by $750 thousand dollars per year. Our workforce is made up of 1,863 dedicated employees who are encouraged to freely share suggestions to improve all phases of our operations.
Selling, general and administrative costs were $15.9 million for 2010, an increase of 5.3%.
Interest expense of $1.6 million decreased by 25.8% as compared to 2009 the result of debt repayments and lower variable rates on the revolving credit facility.
At the end of our fiscal year, our stockholder’s equity was $35.3 million with net working capital of $16.8 million. Total debt of $27.7 million reflected a decrease of 12.1% or $3.8 million this fiscal year. As we begin fiscal 2011 we anticipate that economic conditions will continue to improve and the value and demand for poultry will increase providing positive margins for the remainder of this fiscal year. It is our expectation that capital expenditures will be funded by cash on hand and cash generated through operations.
Year 2010 compared to 2009
The Company had available $5.5 million (unused) in established lines of credit as of April 3, 2010 and $7.3 million (unused) in availability as of March 28, 2009. The decrease is due to the revolving credit facility’s available collateralized borrowings are at 40% of inventory values at year end 2010 as compared to 60% at year end 2009. Interest expense decreased in 2010 by $558 thousand, a 25.6% decrease, as compared to the same period a year ago.
Poultry pounds produced for 2010 were 5.4% more than 2009, pounds marketed increased by 4.2% and sales revenue increased 5.0%.
Cost of sales decreased 2.5% as compared to 2009, and can be attributed to lower feed costs.
Selling, general and administrative costs increased $841 thousand when compared to 2009. The increase is primarily due to a $416 thousand 2009 recovery of a prior year specific accounts receivable reserve and $428 thousand of 2010 incentive awards.
Year 2009 compared to 2008
The Company had available $7.3 million (unused) in established lines of credit as of March 28, 2009 and $3.3 million (unused) in availability as of March 29, 2008. Interest expense increased in 2009 by $680 thousand, a 46% increase, as compared to the same period a year ago.
Poultry pounds produced for 2009 were 2.9% less than 2008, pounds marketed increased by 1.9% and sales revenue increased 3.2%.
Cost of sales increased 9.2% as compared to 2008, primarily due to increased grain and energy costs.
Selling, general and administrative costs remained at $15.0 million when compared to 2008.
Year 2008 compared to 2007
The Company had available $3.3 million (unused) in established lines of credit as of March 29, 2008 and $10 million (unused) in availability as of March 31, 2007. Interest expense was reduced in 2008 by $571 thousand, a 28% reduction, as compared to the same period a year ago.
Poultry pounds produced for 2008 were 3% greater than 2007, pounds marketed increased by 5.9% and sales revenue increased 21%.
Rising feed ingredient prices increased cost of sales by 15.6% as compared to 2007 and, after adjusting 2007 for an asset valuation adjustment to an inactive facility, cost of sales increased 16.8%.
Selling, general and administrative costs compared to 2007 increased by 5%. This increase is the result of increased energy costs, higher professional fees incurred in complying with Section 404(a) of the Sarbanes-Oxley Act of 2002 and outside storage costs experienced as one of our freezers was being reworked.
Financial Condition & Liquidity
Analysis of Cash Flows
We expect that cash flow from operations and cash on hand should be sufficient to fund operations, to make all payments of principal and interest when due, and to fund capital expenditures for at least the next twelve months.
We had available $5.5 million (unused) in our revolving credit facility as of April 3, 2010. This credit agreement currently elapses on March 31, 2012 but has been regularly renewed and extended well before the maturity dates. The Company is in compliance with the credit agreement’s covenants as of April 3, 2010. The Company is also in compliance with the term note payable debt covenants as of April 3, 2010.
For the year ended April 3, 2010, the Company had cash provided by operating activities of $7.8 million, primarily due to net income of $2.5 million and depreciation expense of $4.5 million. Cash used in investing activities was $2.3 million, with purchases of property, plant and equipment of $2.5 million offset by $200 thousand of proceeds from reduction of life insurance policy values. $4.9 million of cash was used in financing activities, as the Company made debt repayments of $3.8 million.
For the year ended March 28, 2009, the Company used cash in its operating activities of $7.5 million, due primarily to the operating loss during the year. Cash used in investing activities was $274 thousand, with purchases of property, plant and equipment of $1.5 million offset by $1.2 million of proceeds from reduction of life insurance policy values. $7.6 million cash was provided by net financing activities, including $8.3 million from the net long-term debt increase.
For the year ended March 29, 2008, the Company used cash in its operating activities of $1.8 million, due primarily to the increase in inventories, which resulted from increases in grain costs. Cash was used in investing activities, in the amount of $3.7 million, to purchase property, plant and equipment. Cash of $3.4 million was provided by financing activities, primarily by drawing on lines of credit.
Tabular Disclosure of Contractual Obligations
Contractual obligations at April 3, 2010 were as follows:
Payments Due by Period
(Amounts in Thousands)
|
|
|
|
| Less than |
| 1-3 |
| 3-5 |
| More than |
| |||||
| Contractual Obligations |
| Total |
| 1 Year |
| Years |
| Years |
| 5 Years |
| |||||
| Long-Term Debt Obligations |
| $ | 27,646 |
| $ | 2,653 |
| $ | 24,993 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Capital Lease Obligations |
| 72 |
| 32 |
| 40 |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Operating Lease Obligations |
| 3,496 |
| 1,346 |
| 2,150 |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Purchase Obligations |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Other Long-Term Liabilities |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Total |
| $ | 31,214 |
| $ | 4,031 |
| $ | 27,183 |
| $ | — |
| $ | — |
|
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. The following accounting policies involve “critical accounting estimates” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, or changes in the accounting estimates we used are reasonably likely to occur from period to period which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect
the effects of revisions in the period that they are determined to be necessary. We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
The Company recognizes revenue upon product shipment and transfer of title and risk of loss to the customer. Revenue is recorded net of any discounts, allowances or promotions. Estimates for any special pricing arrangements, promotions or other volume-based incentives are recorded upon shipment of the product in accordance with the terms of the promotion, allowance or pricing arrangements. Shipping and handling costs are included in cost of sales in the accompanying consolidated statements of operations.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts reflecting estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on management’s review of the overall condition of accounts receivable balances and review of significant past due accounts. If the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Due to the nature of the industry and the short-term nature of these accounts, there have not been material revisions in these estimates of management.
Inventories
Live bird and hatching egg inventories are stated at cost and breeder hens are stated at cost, less accumulated amortization, consistent with industry standards. The costs associated with breeder hens are accumulated up to the production stage and amortized over a forty (40) week period. Finished poultry products, feed, and other inventories are stated at the lower of cost or market. We record valuations and adjustments for our inventories and for estimated obsolescence at or equal to the difference between the cost of the inventories and the estimated market value based upon known conditions affecting the inventories’ obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products. We allocate meat costs between our various finished poultry products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts, which are carried in inventories at the estimated recovery amounts, with the remaining amount being reflected at cost or market, whichever is lower. For inventory valuation purposes costs include live production costs (principally feed, chick cost, medications and other raw materials), labor and production overhead. Not all broilers and breeders survive to maturity or disposition; normal losses are not expensed directly because total costs of the project are assigned to the survivors. The Company would record adjustments to reduce the values of processed poultry and feed inventories to fair market values if market prices for poultry or feed grains moved substantially lower, this would increase our cost of sales. The Company has not experienced material revisions to its inventory costs.
Property, Plant and Equipment
The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) future cash flows estimates expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company’s operations, and estimated salvage values, and (ii) estimated fair market value of the assets.
Contingent Liabilities
The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor, securities, environmental, product and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after considerable analysis of each individual issue. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.
Accrued Self-Insurance
Insurance expense and liabilities for employee-related health care benefits and casualty claims is estimated using historical experience, insurance and actuarial projections. Stop-loss coverage is maintained with third party insurers to limit the Company’s total exposure. The assumptions used to arrive at periodic expenses are reviewed regularly by management. However, actual liabilities and expenses could differ from these estimates and could result in adjustments to be recognized.
Related party transactions
Members of the Cagle’s family beneficially own, in the aggregate, 64.5% of the Company’s outstanding common stock, giving them control of approximately 65% of the total voting power of the Company’s outstanding voting stock. In addition, three
members of the Cagle’s family serve on the Company’s Board. As a result, members of the Cagle’s family have the ability to exert substantial influence or actual control over management and affairs, and over substantially all matters requiring action by the stockholders, including amendments to the certificate of incorporation and bylaws, the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all assets, and other corporate transactions. This concentration of ownership may also delay or prevent a change in control otherwise favored by other stockholders and could depress the stock price.
The firm of Byrne, Davis & Hicks, P.C. in which G. Bland Byrne, III, a director of the Company, is a principal, received $247 thousand, $216 thousand and $260 thousand during the fiscal years 2010, 2009 and 2008, respectively. The payments received are for fees incurred for legal services rendered to the Company and its subsidiaries.
Included in other assets at April 3, 2010 and March 28, 2009 is a receivable of $1.2 million due to the Company from two related party irrevocable life insurance trusts.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” (formerly SFAS No. 109, “Accounting for Income Taxes”) which requires that deferred tax assets and liabilities be recognized for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. We review the recoverability of any tax assets recorded on the consolidated balance sheets, primarily operating loss carryforwards, based on both historical and anticipated earnings levels of operations and provide a valuation allowance when it is more likely than not that amounts will not be recovered.
The Company adopted ASC 740-10, “Accounting for Uncertainty in Income Taxes,” effective April 1, 2007. ASC 740-10 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements. ASC 740-10 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company had no significant unrecognized tax benefits at the date of adoption or at April 3, 2010. Accordingly, the Company does not have any interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. Tax periods for all years after 2005 remain open to examination by the federal and state taxing jurisdictions to which it is subject.
The Company has federal net operating loss carryforwards of $12,679. The Company also has federal and state tax credit carryforwards of $9,430. The net operating loss and tax credit carryforwards are available to reduce income taxes through 2029. Realization of these future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Due to the significant amount of income that would be needed to fully utilize the credits available, the Company has recorded a valuation allowance for a significant portion of the deferred tax asset associated with the tax credit carryforwards. The Company expects to fully utilize the federal and state net operating loss carryforwards and, accordingly, there is no valuation allowance associated with the net operating loss carryforwards.
New and Recently Adopted Accounting Pronouncements
In June 2009, the FASB issued FASB ASC 105, “Generally Accepted Accounting Principles,” which established the FASB ASC as the sole source of authoritative generally accepted accounting principles (“GAAP”). Pursuant to the provisions of FASB ASC 105, the Company has updated references to GAAP in its consolidated financial statements issued for the period ended October 3, 2009. The adoption of FASB ASC 105 did not impact the Company’s financial position or results of operations.
In April 2009, the FASB issued new U.S. GAAP guidance that requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also requires those disclosures in summarized financial information at interim reporting periods and is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have an effect on the Company’s consolidated financial statements.
In August 2009, the FASB issued new U.S. GAAP guidance clarifying the measurement of liabilities at fair value. Among other things, the guidance clarifies how the price of a traded debt security (an asset value) should be considered in estimating the fair value of the issuer’s liability and is effective for the first reporting period beginning after its issuance. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In October 2009, the FASB issued new U.S. GAAP guidance that requires an entity to allocate revenue arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices (the relative-selling-price method). The guidance eliminates the use of the residual method of allocation, in which the undelivered element is measured at
its estimated selling price and the delivered element is measured as the residual of the arrangement consideration, and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. The new guidance must be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2010, with early adoption permitted through either prospective application for revenue arrangements entered into, or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. The Company does not expect the adoption of this guidance to have an effect on its consolidated financial statements.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Risk Factors
Industry cyclicality can affect our earnings, especially due to fluctuations in the commodity prices of feed ingredients and chicken.
Profitability in the chicken industry is materially affected by the commodity prices of chicken and feed ingredients, which are determined by supply and demand factors, which result in cyclical earnings fluctuations. The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories and demand for feed ingredients, and the agricultural policies of the United States and foreign governments. In particular, weather patterns often change agricultural conditions in an unpredictable manner. A sudden and significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens, and deliver products. High feed ingredient prices have had a material adverse effect on our operating results in the past. We periodically seek, to the extent available, to enter into advance purchase commitments for the purchase of feed ingredients in an effort to manage our feed ingredient costs. The use of such instruments may not be successful.
Leverage
Our indebtedness could adversely affect our financial condition. We presently have, and expect to continue to have, an amount of indebtedness. Our indebtedness could have important consequences to stockholders. For example, it could: increase our vulnerability to general adverse economic conditions; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and for other general corporate purposes; limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; place us at a competitive disadvantage compared to our competitors that have less debt; limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds, and failing to comply with those covenants could result in an event of default or require redemption of indebtedness. Either of these events could have a material adverse effect on us. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future, which is dependent on various factors. These factors include the commodity prices of feed ingredients and chicken and general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
The Company had variable interest rate exposure on the revolving credit facility at April 3, 2010. The Company’s theoretical interest rate exposure on variable rate borrowings at April 3, 2010, would be, with a one percentage point increase in average interest rates on the Company’s borrowings would increase future interest expense by $13.3 thousand per month and a two percentage point increase would increase future interest expense by $26.5 thousand per month. The Company determined these amounts based on $15.9 million of variable rate borrowings at April 3, 2010, multiplied by 1.0% and 2.0%, respectively, and divided by twelve. The Company is currently not using any interest rate collars, hedges, or other derivative financial instruments to manage or reduce interest rate risk. As a result, any increase in interest rates on the Company’s variable rate borrowings would increase interest expense and reduce net income.
Additional Borrowings Available
Despite our indebtedness, we are not prohibited from incurring additional indebtedness in the future.
Contamination of Products
If our products become contaminated, we may be subject to product liability claims and product recalls.
Livestock and Poultry Disease
Outbreaks of livestock diseases, in general, and poultry disease, in particular, can significantly restrict our ability to conduct our operations. We take all reasonable precautions to ensure that our flocks are healthy and that our processing plants and other facilities operate in a sanitary and environmentally sound manner. However, events beyond our control, such as the outbreak of disease, could significantly restrict our ability to conduct our operations. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our fresh chicken, to or from our suppliers, facilities, or customers, or require us
to destroy one or more of our flocks. This could result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation, and prospects.
Insurance
We are exposed to risks relating to product liability, product recall, property damage, and injuries to persons for which insurance coverage is expensive, limited, and potentially inadequate.
Significant Competition
Competition in the chicken industry with other vertically integrated poultry companies could adversely affect our business.
Government Regulation
Regulation, present and future, is a constant factor affecting our business. The chicken industry is subject to federal, state, and local governmental regulation, including health and environmental areas. We anticipate increased regulation by various agencies concerning food safety, the use of medication in feed formulations, and the disposal of poultry by-products and wastewater discharges. Unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect our business or operations in the future.
Item 8: Consolidated Financial Statements and Supplementary Data
Board of Directors
Cagle’s, Inc. and Subsidiary
Atlanta, Georgia
We have audited the accompanying consolidated balance sheet of Cagle’s, Inc. (a Georgia corporation) and Subsidiary as of April 3, 2010, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The financial statements of Cagle’s, Inc. and Subsidiary as of March 28, 2009 and March 29, 2008 were audited by FROST, PLLC who was merged into FRAZER FROST, LLP, and whose report dated June 5, 2009, expressed an unqualified opinion on those financial statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cagle’s, Inc. and Subsidiary as of April 3, 2010, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
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| Little Rock, Arkansas |
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Board of Directors
Cagle’s, Inc. and Subsidiary
Atlanta, Georgia
We have audited the accompanying consolidated balance sheet of Cagle’s, Inc. (a Georgia corporation) and Subsidiary as of March 28, 2009, and the related consolidated statements of operations, stockholders’ equity and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cagle’s, Inc. and Subsidiary as of March 28, 2009, and the consolidated results of their operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.
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| /s/FROST, PLLC |
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| Little Rock, Arkansas |
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CAGLE’S, INC. AND SUBSIDIARY
Consolidated Balance Sheets
April 3, 2010 and March 28, 2009
(In Thousands, Except Par Values)
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2010 |
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2009 |
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||
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Assets |
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|
|
|
||
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|
|
|
|
|
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Current assets |
|
|
|
|
|
||
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Cash and cash equivalents |
|
$ |
1,872 |
|
$ |
1,246 |
|
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Trade accounts receivable, less allowance for doubtful accounts of $174 and $186 in 2010 and 2009, respectively |
|
15,769 |
|
14,170 |
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||
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Inventories |
|
26,065 |
|
27,181 |
|
||
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Other current assets |
|
305 |
|
201 |
|
||
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Total current assets |
|
44,011 |
|
42,798 |
|
||
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|
|
|
|
|
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Property, plant and equipment, at cost |
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|
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Land |
|
1,976 |
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1,976 |
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Buildings and improvements |
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59,698 |
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59,686 |
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Machinery, furniture and equipment |
|
42,213 |
|
41,034 |
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Vehicles |
|
5,249 |
|
4,691 |
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Construction in progress |
|
932 |
|
645 |
|
||
|
|
|
110,068 |
|
108,032 |
|
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Accumulated depreciation |
|
(75,199 |
) |
(71,249 |
) |
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Property, plant and equipment, net |
|
34,869 |
|
36,783 |
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|
|
|
|
|
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Other assets |
|
|
|
|
|
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Deferred financing costs, net |
|
83 |
|
103 |
|
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Deferred income taxes |
|
7,141 |
|
9,775 |
|
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Other assets |
|
1,515 |
|
1,693 |
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Total other assets |
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8,739 |
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11,571 |
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Total assets |
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$ |
87,619 |
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$ |
91,152 |
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2010 |
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2009 |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Current maturities of long-term debt |
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$ |
2,685 |
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$ |
2,488 |
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Accounts payable |
|
16,142 |
|
19,989 |
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Accrued expenses and compensation |
|
5,685 |
|
4,462 |
|
||
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Deferred income taxes |
|
2,739 |
|
3,180 |
|
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Total current liabilities |
|
27,251 |
|
30,119 |
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Long-term debt, less current maturities |
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25,033 |
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29,049 |
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Commitments and contingencies (Note 10) |
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Stockholders’ equity |
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Preferred stock, $1 par value; 1,000 shares authorized, none issued |
|
— |
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— |
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Common stock, $1 par value; 9,000 shares authorized, 4,617 and 4,639 shares issued and 4,616 and 4,638 shares outstanding in 2010 and 2009, respectively |
|
4,616 |
|
4,638 |
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Treasury stock, at cost |
|
(80 |
) |
(80 |
) |
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Additional paid-in capital |
|
3,600 |
|
3,626 |
|
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Retained earnings |
|
27,199 |
|
24,662 |
|
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Accumulated other comprehensive loss |
|
— |
|
(862 |
) |
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Total stockholders’ equity |
|
35,335 |
|
31,984 |
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Total liabilities and stockholders’ equity |
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$ |
87,619 |
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$ |
91,152 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CAGLE’S, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands, Except Per Share Data)
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2010 |
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2009 |
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2008 |
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|||
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Net sales |
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$ |
307,091 |
|
$ |
292,585 |
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$ |
283,649 |
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Costs and expenses |
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Cost of sales |
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285,895 |
|
293,216 |
|
268,477 |
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Selling and delivery |
|
8,535 |
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8,753 |
|
8,579 |
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General and administrative |
|
7,352 |
|
6,293 |
|
6,458 |
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Total costs and expenses |
|
301,782 |
|
308,262 |
|
283,514 |
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|||
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|
|
|
|
|
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Operating income (loss) |
|
5,309 |
|
(15,677 |
) |
135 |
|
|||
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Other income (expense) |
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Interest expense |
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(1,605 |
) |
(2,163 |
) |
(1,483 |
) |
|||
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Other income (expense), net |
|
71 |
|
(40 |
) |
190 |
|
|||
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Total other expense, net |
|
(1,534 |
) |
(2,203 |
) |
(1,293 |
) |
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Income (loss) before income taxes |
|
3,775 |
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(17,880 |
) |
(1,158 |
) |
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|
|
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Income tax provision (benefit) |
|
1,238 |
|
(6,386 |
) |
(385 |
) |
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|
|
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Net income (loss) |
|
$ |
2,537 |
|
$ |
(11,494 |
) |
$ |
(773 |
) |
|
|
|
|
|
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Weighted-average common shares outstanding |
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|
|
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|
|
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Basic and diluted |
|
4,617 |
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4,638 |
|
4,665 |
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Net income (loss) per share |
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|
|
|
|
|
|
|||
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Basic and diluted |
|
$ |
0.55 |
|
$ |
(2.48 |
) |
$ |
(0.17 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
CAGLE’S, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity
For the Years Ended April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
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Accumulated |
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Additional |
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Other |
|
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|
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Common Stock |
|
Treasury Stock |
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Paid-in |
|
Retained |
|
Comprehensive |
|
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|
Comprehensive |
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Shares |
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Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
|
Income (Loss) |
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Balance - April 1, 2007 |
|
4,689 |
|
$ |
4,689 |
|
(1 |
) |
$ |
(80 |
) |
$ |
3,816 |
|
$ |
36,929 |
|
$ |
— |
|
$ |
45,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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Purchase of treasury stock |
|
(25 |
) |
(25 |
) |
— |
|
— |
|
(159 |
) |
— |
|
— |
|
(184 |
) |
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|
|
|
|
|
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|
|
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|
|
|
|||||||
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Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(773 |
) |
— |
|
(773 |
) |
$ |
(773 |
) |
||||||
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Unrealized gain on hedging instruments, net of reclassification adjustment gain of $833 (net of income tax expense of $468) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
430 |
|
430 |
|
430 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Balance - March 29, 2008 |
|
4,664 |
|
4,664 |
|
(1 |
) |
(80 |
) |
3,657 |
|
36,156 |
|
430 |
|
44,827 |
|
$ |
(343 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Purchase of treasury stock |
|
(26 |
) |
(26 |
) |
— |
|
— |
|
(31 |
) |
— |
|
— |
|
(57 |
) |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(11,494 |
) |
— |
|
(11,494 |
) |
$ |
(11,494 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
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Unrealized loss on hedging instruments, net of reclassification adjustment loss of $386 (net of income tax benefit of $727) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1,292 |
) |
(1,292 |
) |
(1,292 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance - March 28, 2009 |
|
4,638 |
|
4,638 |
|
(1 |
) |
(80 |
) |
3,626 |
|
24,662 |
|
(862 |
) |
31,984 |
|
$ |
(12,786 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Purchase of treasury stock |
|
(22 |
) |
(22 |
) |
— |
|
— |
|
(26 |
) |
— |
|
— |
|
(48 |
) |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2,537 |
|
— |
|
2,537 |
|
$ |
2,537 |
|
||||||
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Unrealized gain on hedging instruments, net of reclassification adjustment gain of $1,347 (net of income tax expense of $485) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
862 |
|
862 |
|
862 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance - April 3, 2010 |
|
4,616 |
|
$ |
4,616 |
|
(1 |
) |
$ |
(80 |
) |
$ |
3,600 |
|
$ |
27,199 |
|
$ |
— |
|
$ |
35,335 |
|
$ |
3,399 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CAGLE’S, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
|
|
|
2010 |
|
2009 |
|
2008 |
|
|||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|||
|
Net income (loss) |
|
$ |
2,537 |
|
$ |
(11,494 |
) |
$ |
(773 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|||
|
Depreciation |
|
4,492 |
|
4,063 |
|
3,782 |
|
|||
|
Amortization |
|
78 |
|
88 |
|
12 |
|
|||
|
(Gain) loss on sale of property, plant and equipment |
|
(45 |
) |
3 |
|
(41 |
) |
|||
|
Deferred income tax expense (benefit) |
|
1,237 |
|
(6,045 |
) |
(385 |
) |
|||
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|||
|
Trade accounts receivable, net |
|
(1,599 |
) |
(155 |
) |
(278 |
) |
|||
|
Inventories |
|
1,116 |
|
3,547 |
|
(7,785 |
) |
|||
|
Refundable income taxes |
|
471 |
|
— |
|
492 |
|
|||
|
Other current assets |
|
(104 |
) |
197 |
|
70 |
|
|||
|
Other assets |
|
(2 |
) |
185 |
|
243 |
|
|||
|
Accounts payable |
|
(2,993 |
) |
4,427 |
|
3,531 |
|
|||
|
Accrued expenses |
|
2,570 |
|
(2,175 |
) |
(717 |
) |
|||
|
Net cash provided by (used in) operating activities |
|
7,758 |
|
(7,359 |
) |
(1,849 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|||
|
Purchases of property, plant and equipment |
|
(2,482 |
) |
(1,523 |
) |
(3,774 |
) |
|||
|
Proceeds from sale of property, plant and equipment |
|
45 |
|
8 |
|
46 |
|
|||
|
Proceeds from redemption of life insurance policies |
|
180 |
|
1,241 |
|
— |
|
|||
|
Net cash used in investing activities |
|
(2,257 |
) |
(274 |
) |
(3,728 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|||
|
Proceeds on revolving line of credit |
|
85,350 |
|
85,150 |
|
21,050 |
|
|||
|
Payments on revolving line of credit |
|
(86,750 |
) |
(74,575 |
) |
(14,325 |
) |
|||
|
Payments of long-term debt |
|
(2,515 |
) |
(2,305 |
) |
(2,097 |
) |
|||
|
Decrease in negative book cash balances |
|
(854 |
) |
(463 |
) |
(1,087 |
) |
|||
|
Payments of deferred financing costs |
|
(58 |
) |
(150 |
) |
— |
|
|||
|
Repurchase of stock |
|
(48 |
) |
(57 |
) |
(184 |
) |
|||
|
Net cash provided by (used in) financing activities |
|
(4,875 |
) |
7,600 |
|
3,357 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Net increase (decrease) in cash and cash equivalents |
|
626 |
|
(33 |
) |
(2,220 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Cash and cash equivalents - beginning of year |
|
1,246 |
|
1,279 |
|
3,499 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Cash and cash equivalents - end of year |
|
$ |
1,872 |
|
$ |
1,246 |
|
$ |
1,279 |
|
|
|
|
|
|
|
|
|
|
|||
|
Supplementary disclosures of cash flow information |
|
|
|
|
|
|
|
|||
|
Cash paid (received) during the year for |
|
|
|
|
|
|
|
|||
|
Interest |
|
$ |
1,593 |
|
$ |
2,193 |
|
$ |
1,460 |
|
|
Income taxes, net |
|
(471 |
) |
(109 |
) |
162 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Supplementary disclosures of noncash transactions |
|
|
|
|
|
|
|
|||
|
Net unrealized gain (loss) on hedging activities |
|
$ |
862 |
|
$ |
(1,292 |
) |
$ |
430 |
|
|
Assets acquired pursuant to capital lease obligations |
|
96 |
|
74 |
|
— |
|
|||
The accompanying notes are an integral part of these consolidated financial statements.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
1. Summary of Significant Accounting Policies
a. Principles of consolidation — The consolidated financial statements include the accounts of Cagle’s, Inc. and its wholly-owned subsidiary Cagle Farms, Inc. (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated.
b. Nature of operations — The Company operates as a vertically integrated poultry processor with operations located in the southeastern United States, consisting of breeding, hatching and growing chickens; feed mill; 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.
Integrated poultry processors operate in an environment wherein the commodity nature of both their products for sale and their primary raw materials causes sales prices and purchase costs to fluctuate, often on a short-term basis, due to the worldwide supply and demand situation for those commodities. The supply and demand factors for their products for sale and the supply and demand factors for their primary raw materials correlate to a degree, but are not the same, thereby causing margins between sales price and production costs to increase, to decrease, or to invert, often on a short-term basis.
The Company operates in one segment, as defined by Accounting Standards Codification (“ASC”) 280, (formerly Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosure About Segments of an Enterprise and Related Information.”)
c. Fiscal year — The Company’s fiscal year closing date is the Saturday nearest March 31. The year ended April 3, 2010 includes operations for a 53-week period and the years ended March 28, 2009 and March 29, 2008 include operations for a 52-week period.
d. Revenue recognition — The Company recognizes revenue upon product shipment and transfer of title and risk of loss to the customer. Revenue is recorded net of any discounts, allowances or promotions. Estimates for any special pricing arrangements, promotions or other volume-based incentives are recorded upon shipment of the product in accordance with the terms of the promotion, allowance or pricing arrangements.
e. Cash and cash equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash management system allows the Company to fund outstanding checks when presented to the financial institution for payment resulting in book overdrafts. Book overdrafts are recorded in accounts payable in the consolidated balance sheets and changes are reflected as a financing activity in the consolidated statements of cash flows. As of April 3, 2010 and March 28, 2009, the Company had book overdrafts of $4,108 and $4,962, respectively.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
1. Summary of Significant Accounting Policies (cont.)
f. Accounts and note receivable — In the normal course of business, the Company extends credit to its customers on a short-term basis. Although credit risks associated with its customers are considered minimal, the Company routinely reviews its accounts receivable balances and makes provisions for probable doubtful accounts. Past due status is determined based upon contractual terms. In circumstances where management is aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve is recorded to reduce the receivable to the amount expected to be collected. Amounts that are determined to be uncollectible are written off against this allowance when collection attempts on the accounts have been exhausted. Management uses significant judgment in estimating uncollectible accounts. In estimating uncollectible amounts, management considers factors such as current overall economic conditions, industry-specific economic conditions and historical customer performance. While management believes the Company’s processes effectively address its exposure to doubtful accounts, changes in economic, industry or specific customer conditions may require adjustment to the allowance recorded by the Company.
g. Inventories — Live bird and hatching egg inventories are stated at cost and breeder hens are stated at cost, less accumulated amortization, consistent with industry standards. The costs associated with breeder hens are accumulated up to the production stage and amortized over a 40-week period. Finished poultry products, feed, and other inventories are stated at the lower of cost or market. The Company records valuations and adjustments for its inventories and for estimated obsolescence at or equal to the difference between the cost of the inventories and the estimated market value based upon known conditions affecting the inventories’ obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products. The Company allocates meat costs between its various finished poultry products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts, which are carried in inventories at the estimated recovery amounts, with the remaining amount being reflected at cost or market, whichever is lower. For inventory valuation purposes, costs include live production costs (principally feed, chick cost, medications and other raw materials), labor and production overhead. Not all broilers and breeders survive to maturity or disposition; normal losses are not expensed directly because total costs of the project are assigned to the survivors. The Company would record adjustments to reduce the values of processed poultry and feed inventories to fair market values if market prices for poultry or feed grains moved substantially lower, this would increase the Company’s cost of sales. The Company has not experienced material revisions to its inventory costs during 2010, 2009 or 2008.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
1. Summary of Significant Accounting Policies (cont.)
Inventories at April 3, 2010 and March 28, 2009 consist of the following:
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Finished products |
|
$ |
4,277 |
|
$ |
5,692 |
|
|
Field inventory and breeders |
|
15,667 |
|
15,509 |
|
||
|
Feed, eggs and medication |
|
4,779 |
|
4,659 |
|
||
|
Supplies |
|
1,342 |
|
1,321 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
26,065 |
|
$ |
27,181 |
|
h. Property, plant and equipment — Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the following lives:
|
Buildings and improvements |
|
3 to 32 years |
|
|
|
|
Machinery, furniture and equipment |
|
3 to 17 years |
|
|
|
|
Vehicles |
|
2 to 7 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 (expense), net in the accompanying consolidated statements of operations.
i. Deferred financing costs — Deferred financing costs are amortized over the life of the related credit agreement. Deferred financing costs are shown net of accumulated amortization on the accompanying consolidated balance sheets.
j. Employee insurance claims — The Company is self-funded under a minimum premium arrangement for the majority of employee claims under its group health plan. The Company is self-insured for the majority of its workers’ compensation risks. The Company’s insurance programs are administered by risk management specialists. Insurance coverage is obtained for catastrophic workers’ compensation and group health exposures, as well as those risks required to be insured by certain state laws. The Company’s accrual for group health and workers’ compensation liabilities of $1,685 and $1,294 as of April 3, 2010 and March 28, 2009, respectively, is included in accrued expenses and compensation in the accompanying consolidated balance sheets. These accruals are estimated using historical experience and actuarial estimates. No postemployment benefits are provided under the Company’s group health plan.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
1. Summary of Significant Accounting Policies (cont.)
k. Operating leases — The Company accounts for operating lease agreements in accordance with ASC 840, “Leases,” (formerly SFAS No. 13, “Accounting for Leases” and Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 85-3, “Accounting for Operating Leases with Scheduled Rent Increases”) Currently, the Company has not entered into any operating lease agreements which contain escalating rent provisions. Accordingly, rent expense is recognized on a straight-line basis. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the lease term, including renewal option periods that are reasonably assured.
l. Income taxes — The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” (formerly SFAS No. 109, “Accounting for Income Taxes”) which requires that deferred tax assets and liabilities be recognized for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company reviews the recoverability of any tax assets recorded on the consolidated balance sheets, primarily operating loss carryforwards, based on both historical and anticipated earnings levels of operations and provides a valuation allowance when it is more likely than not that amounts will not be recovered.
m. Net income (loss) per common share — Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share assumes the conversion of all potentially dilutive securities (stock options and restricted stock awards) and is calculated by dividing net income (loss) by the sum of the weighted-average number of shares of common stock outstanding plus potentially dilutive securities under the treasury stock method. For the years ended April 3, 2010, March 28, 2009 and March 29, 2008, there were no potentially dilutive securities outstanding.
n. Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
o. Fair value measurements — Effective March 30, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures.” FASB ASC 820 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability based upon an exit price model.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
1. Summary of Significant Accounting Policies (cont.)
p. Accounting for the impairment of long-lived assets — ASC 360, “Property, Plant and Equipment,” (formerly SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” ) requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever triggering events or changes in circumstances indicate that the carrying amounts of any asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount the carrying amount of the assets exceeds the fair value of the assets. No impairment losses have occurred in the fiscal years ended 2010, 2009 or 2008.
q. Shipping and handling costs — Shipping and handling costs are included in cost of sales in the accompanying consolidated statements of operations and totaled $12,089, $14,712 and $12,811 in fiscal years 2010, 2009 and 2008, respectively.
r. Financial instruments — The Company is a purchaser of certain commodities, such as corn and soybean meal in the course of normal operations. The Company may use derivative financial instruments to reduce its exposure to various market risks. Generally, contract terms of a hedge instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are designated and highly effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting, as defined by ASC 815-10, “Accounting for Derivative Instruments and Hedging Activities.” If a derivative instrument is a hedge, as defined by ASC 815-10, depending on the nature of the hedge, changes in the fair value of the instrument will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value will be immediately recognized in earnings as a component of cost of sales. Instruments the Company holds as part of its risk management activities that do not meet the criteria for hedge accounting, as defined by ASC 815-10, are marked to fair value with unrealized gains or losses reported currently in earnings. At April 3, 2010, the Company held no derivatives.
s. Advertising expenses — Advertising expenses are expensed as incurred and are included in selling and delivery, and general and administrative expenses in the accompanying consolidated statements of operations and totaled $645, $571 and $122 in the fiscal years 2010, 2009 and 2008, respectively.
t. Accrued compensation expenses — Accrued compensation expenses of $3,124 and $2,253 are included in accrued expenses and compensation in the accompanying consolidated balance sheets for the fiscal years 2010 and 2009, respectively.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
2. Deferred Financing Costs
Deferred financing costs consist of the following at April 3, 2010 and March 28, 2009:
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Deferred financing costs |
|
$ |
341 |
|
$ |
283 |
|
|
Accumulated amortization |
|
(258 |
) |
(180 |
) |
||
|
|
|
|
|
|
|
||
|
Net deferred financing costs |
|
$ |
83 |
|
$ |
103 |
|
Future deferred financing amortization expense will be as follows:
|
2011 |
|
$ |
50 |
|
|
|
|
2012 |
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
83 |
|
|
|
3. Long-Term Debt
Long-term debt consists of the following at April 3, 2010 and March 28, 2009:
|
|
|
2010 |
|
2009 |
|
||
|
Long-term revolving line of credit, maturing March 31, 2012, interest payable monthly, variable interest rate of London InterBank Offered Rate (“LIBOR”) plus 3.50% (currently 3.75%); secured by accounts receivable, inventories and the Atlanta and Pine Mountain Valley facilities. |
|
$ |
15,900 |
|
$ |
17,300 |
|
|
|
|
|
|
|
|
||
|
Term note payable; fixed interest rate of 7.86%, principal and interest payable monthly of $290, through March 1, 2012 with a maturity payable of $6,513 on April 1, 2012; secured by the Collinsville plant, Dalton hatchery and Rockmart feedmill. |
|
11,746 |
|
14,199 |
|
||
|
|
|
|
|
|
|
||
|
Capital lease payable, fixed interest at 7.86%, principal and interest payable monthly of $3, through maturity ranges of March 2012 to August 2012; secured by the leased equipment. |
|
$ |
72 |
|
$ |
38 |
|
|
|
|
27,718 |
|
31,537 |
|
||
|
Less current maturities |
|
2,685 |
|
2,488 |
|
||
|
|
|
|
|
|
|
||
|
Long-term debt, less current maturities |
|
$ |
25,033 |
|
$ |
29,049 |
|
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
3. Long-Term Debt (cont.)
On January 29, 2009, the Company entered into Amendment Number 2 to the long-term revolving line of credit agreement, effective as of that date. There were eight primary changes to the existing agreement between the parties: (1) An increase in the capacity of the revolving credit facility to $25,150. (2) The creation of a supplemental revolving master note in the principal amount of $4,150 and maturing on October 31, 2009. (3) The addition of the right to obtain letters of credit issued by lender in favor of third persons in face principal amounts not exceeding $1,000 at any time outstanding. (4) The limiting of borrowers’ rights to obtain letters of credit issued by lender only pursuant to such supplemental revolving master note and only when borrowers have available revolving credit (which will be determined by including in the definition thereof both the unpaid principal amount of all unpaid revolving loans and also the aggregate face principal amount of all outstanding letters of credit). (5) Additions of the limitations of the borrowers’ rights to obtain revolving loans pursuant to the supplemental revolving master note only when lender has fully advanced the entire $21,000 principal amount of the primary revolving master note and borrowers also still have available revolving credit. (6) The addition of the collateral consisting of Cagle’s processing plant located in Pine Mountain Valley, Georgia. (7) The advance rate with respect to eligible inventories is being increased from 40% to 60% and the advance rate with respect to eligible receivables is being increased from 70% to 80%. (8) The interest rates were modified by the following provisions: (a) Interest will accrue on the unpaid principal balance of the revolving loans, from time to time outstanding, evidenced by the primary revolving master note at the LIBOR variable rate plus 3.50% (350 basis points), (b) Interest will accrue on the unpaid principal balance of the revolving loans, from time to time outstanding, evidenced by the supplemental revolving master note at the LIBOR variable rate plus 5.00% (500 basis points).
On November 23, 2009, the Company entered into Amendment Number 4 to the long-term revolving line of credit agreement, effective as of October 31, 2009. There were four primary changes to the existing agreement between the parties: (1) The maturity date of the $21,000 portion of the revolving credit facility is being extended to March 31, 2012. (2) The maturity date of the $4,150 portion of the revolving credit facility is being extended to November 23, 2010. (3) The minimum tangible net worth covenant remains at $30,000 until July 3, 2010; commencing as of July 4, 2010 and ending on January 3, 2011, the minimum tangible net worth must not be less than $35,000 at any time; and commencing as of January 4, 2011, and at all times thereafter, the minimum tangible net worth must not be less than $40,000 at any time. (4) The facility advance rate with respect to eligible inventories is restored to 40% from 60% and the advance rate with respect to eligible receivables is maintained at 80%. As of April 3, 2010, the Company is in compliance with the revolving line of credit agreement’s covenants.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
3. Long-Term Debt (cont.)
As of April 3, 2010, and in accordance with the amended long-term revolving line of credit agreement, the lender has issued a $1,000 letter of credit in favor of a third party related to the Company’s self-insurance workers’ compensation liabilities.
The Company’s inventory and accounts receivable levels support collateralized borrowing of the entire $21,000 primary revolving master note and $1,359 of the $4,150 supplemental revolving master note in the long-term revolving line of credit agreement. The Company’s $15,900 principal balance and $1,000 letter of credit results in $5,459 of available borrowings on the long-term revolving line of credit as of April 3, 2010.
In addition to the covenants described above, the Company must also comply with certain restrictive covenants associated with the term note payable. On March 30, 2010, the Company entered into an extension of and covenant revisions to the loan agreement governing the term note payable. Monthly principal and interest payments of $290 continue through March 1, 2012 with a maturity payment of $6,513 due on April 1, 2012. The previous maturity payment was due on April 1, 2011. The covenants require the Company to maintain (1) a maximum leverage ratio, (2) operating lease expense below certain levels, (3) a minimum current ratio, (4) a minimum fixed charge coverage ratio, (5) a minimum tangible net worth and (6) capital expenditures not to exceed certain limits. As of April 3, 2010, the Company is in compliance with the term note payable debt covenants.
Aggregate maturities of long-term debt during the years subsequent to April 3, 2010 are as follows:
|
2011 |
|
$ |
2,685 |
|
|
2012 |
|
25,027 |
|
|
|
2013 |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
$ |
27,718 |
|
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.
Effective in fiscal 1989, the Revenue Act of 1987 rescinded the cash-basis method of accounting for tax purposes previously used for the Company’s farming operations. Previously recorded income tax liabilities of $3,389 were indefinitely deferred. Under tax laws enacted in 1997, such liabilities are required to be amortized into taxable income over a 20-year period.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
4. Income Taxes (cont.)
Income tax expense (benefit) is reflected in the consolidated statements of operations as follows:
|
|
|
2010 |
|
2009 |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Current benefit |
|
$ |
(471 |
) |
$ |
— |
|
$ |
— |
|
|
Change in valuation allowance |
|
— |
|
545 |
|
186 |
|
|||
|
Change in deferred tax expense (benefit) |
|
1,709 |
|
(6,931 |
) |
(571 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Income tax expense (benefit) |
|
$ |
1,238 |
|
$ |
(6,386 |
) |
$ |
(385 |
) |
A reconciliation between income tax expense (benefit) computed at the federal statutory rate and the Company’s income tax rate is as follows:
|
|
|
2010 |
|
2009 |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Federal income taxes (benefit) at statutory rate |
|
$ |
1,283 |
|
$ |
(6,079 |
) |
$ |
— |
|
|
State income taxes (benefit) |
|
151 |
|
(715 |
) |
— |
|
|||
|
Change in valuation allowance |
|
2,939 |
|
545 |
|
186 |
|
|||
|
Jobs and investment tax credits |
|
(145 |
) |
(98 |
) |
(98 |
) |
|||
|
Expiration of jobs and investment tax credits |
|
(2,939 |
) |
— |
|
— |
|
|||
|
Other |
|
(51 |
) |
(39 |
) |
(473 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
$ |
1,238 |
|
$ |
(6,386 |
) |
$ |
(385 |
) |
Components of the net deferred income tax asset (liability) at April 3, 2010 and March 28, 2009 relate to the following:
|
|
|
2010 |
|
2009 |
|
||
|
Deferred income tax assets |
|
|
|
|
|
||
|
Federal and state tax credit carryforwards |
|
$ |
9,430 |
|
$ |
10,731 |
|
|
Net operating loss carryforwards (federal and state) |
|
5,943 |
|
10,136 |
|
||
|
Accrued expenses |
|
651 |
|
393 |
|
||
|
Other |
|
32 |
|
80 |
|
||
|
|
|
16,056 |
|
21,340 |
|
||
|
Less valuation allowance |
|
(1,495 |
) |
(4,434 |
) |
||
|
|
|
14,561 |
|
16,906 |
|
||
|
Deferred income tax liabilities |
|
|
|
|
|
||
|
Family farm cash-basis deferral |
|
$ |
(1,415 |
) |
$ |
(1,546 |
) |
|
Inventories |
|
(3,141 |
) |
(3,308 |
) |
||
|
Property and depreciation |
|
(5,518 |
) |
(5,265 |
) |
||
|
Other |
|
(85 |
) |
(192 |
) |
||
|
|
|
(10,159 |
) |
(10,311 |
) |
||
|
|
|
|
|
|
|
||
|
Net deferred income tax asset (liability) |
|
$ |
4,402 |
|
$ |
6,595 |
|
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
4. Income Taxes (cont.)
The Company has federal net operating loss carryforwards of $12,679. The Company also has federal and state tax credit carryforwards of $9,430. The net operating loss and tax credit carryforwards are available to reduce income taxes through 2029. Realization of these future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Due to the significant amount of income that would be needed to fully utilize the credits available, the Company has recorded a valuation allowance for a significant portion of the deferred tax asset associated with the tax credit carryforwards. The Company expects to fully utilize the federal and state net operating loss carryforwards and, accordingly, there is no valuation allowance associated with the net operating loss carryforwards.
The Company adopted ASC 740-10, “Accounting for Uncertainty in Income Taxes,” effective April 1, 2007. ASC 740-10 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements. ASC 740-10 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company had no significant unrecognized tax benefits at the date of adoption or at April 3, 2010. Accordingly, the Company does not have any interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. Tax periods for all years after 2005 remain open to examination by the federal and state taxing jurisdictions to which it is subject.
5. Stockholders’ Equity
Beginning in 1990, the Board of Directors (the “Board”) authorized the purchase of up to $2,500 of the Company’s stock on the open market. In February 2000, the Board increased the authorized amount to $15,000. The Company purchased 22 shares for $48 during 2010. Through April 3, 2010, 818 shares had been repurchased by the Company at a total cost of $10,207. The Company has accounted for these shares using the retirement method.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
6. Related Parties
Members of the Cagle’s family beneficially own, in the aggregate, 64.5% of the Company’s outstanding common stock, giving them control of approximately 65% of the total voting power of the Company’s outstanding voting stock. In addition, three members of the Cagle’s family serve on the Company’s Board. As a result, members of the Cagle’s family have the ability to exert substantial influence or actual control over management and affairs, and over substantially all matters requiring action by the stockholders, including amendments to the certificate of incorporation and bylaws, the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all assets, and other corporate transactions. This concentration of ownership may also delay or prevent a change in control otherwise favored by other stockholders and could depress the stock price.
The firm of Byrne, Davis & Hicks, P.C. in which G. Bland Byrne, III, a director of the Company, is a principal, received $247, $216 and $260 during the fiscal years 2010, 2009 and 2008, respectively. The payments received are for fees incurred for legal services rendered to the Company and its subsidiaries.
Included in other assets at April 3, 2010 and March 28, 2009 is a receivable of $1,242 due to the Company from two related party irrevocable life insurance trusts.
7. Major Customers and Vendor
The Company had sales to one individual customer, which exceeded 10% of total sales for fiscal years 2010, 2009 and 2008. Accounts receivable and sales from this customer as of and for the years ended April 3, 2010, March 28, 2009 and March 29, 2008 was as follows:
|
|
|
Sales |
|
Accounts Receivable |
|
||||||
|
Fiscal Year |
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
2010 |
|
$ |
37,073 |
|
12 |
% |
$ |
87 |
|
1 |
% |
|
2009 |
|
48,316 |
|
17 |
% |
2,046 |
|
14 |
% |
||
|
2008 |
|
33,679 |
|
12 |
% |
2,074 |
|
15 |
% |
||
The Company had purchases of from one vendor, which exceeded 10% of the total purchases for fiscal years 2010, 2009 and 2008. Accounts payable and purchases from this customer as of and for the years ended April 3, 2010, March 28, 2009 and March 29, 2008 was as follows:
|
|
|
Purchases |
|
Accounts Payable |
|
||||||
|
Fiscal Year |
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
2010 |
|
$ |
56,645 |
|
20 |
% |
$ |
673 |
|
4 |
% |
|
2009 |
|
41,912 |
|
14 |
% |
2,413 |
|
12 |
% |
||
|
2008 |
|
31,971 |
|
12 |
% |
1,049 |
|
6 |
% |
||
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
8. Benefit Plans
Under a collective bargaining agreement, the Company contributes to a multi-employer pension plan for the benefit of certain 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 multi-employer 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 $109, $103 and $109 in fiscal years 2010, 2009 and 2008, respectively.
The Company has an elective 401(k) retirement plan for employees not covered by a collective bargaining agreement. Under the plan, the Company matches 50% of each participating employee’s contributions. The Company’s contribution is limited to 2% of the participating employee’s salary. Additional contributions may be made at the discretion of the Company’s Board. The Company made matching contributions of $184, $195 and $191 in fiscal years 2010, 2009 and 2008, respectively. No discretionary Company contributions have been made to this plan.
The Company does not provide postretirement medical or other benefits to employees.
9. Commitments and Contingencies
The Company leases certain of its buildings, equipment and vehicles under noncancelable operating leases. The consolidated statements of operations include rental expense relating to these operating leases of $1,478, $1,429 and $870 in fiscal years 2010, 2009 and 2008, respectively.
At April 3, 2010, future minimum payments under noncancelable operating leases were as follows:
|
2011 |
|
$ |
1,346 |
|
|
2012 |
|
1,216 |
|
|
|
2013 |
|
835 |
|
|
|
2014 |
|
99 |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,496 |
|
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.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
9. Commitments and Contingencies (cont.)
At April 3, 2010, the Company had a total of 1,863 employees. Of this total, 1,665 are hourly workers and 198 are salaried. Approximately 33% of the Company’s hourly employees are represented by a union labor agreement. None of the Company’s salaried employees are represented by a union. The labor agreement with the hourly employees has been in existence for over 20 years. The current three-year agreement was ratified by the union on February 7, 2009 and it will expire on October 31, 2011.
10. Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables or other financial instruments with a variety of customers and cash and cash investment deposited with financial institutions.
Concentrations of credit risk, with respect to accounts receivable and other financial instruments, are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs ongoing credit evaluations of its customers, but generally does not require collateral to support accounts receivable.
11. Comprehensive Income (Loss)
Comprehensive income (loss) includes net earnings and all other changes in equity during a period except those resulting from investments by or distributions to stockholders. Other comprehensive income (loss) for all periods presented consists of fair value adjustments associated with cash flow hedges pursuant to ASC 815-10, “Accounting for Derivative Instruments and Hedging Activities.”
|
|
|
2010 |
|
2009 |
|
2008 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Net income (loss) |
|
$ |
2,537 |
|
$ |
(11,494 |
) |
$ |
(773 |
) |
|
Cash flow hedges |
|
— |
|
(1,633 |
) |
65 |
|
|||
|
Reclassification to net earnings |
|
1,347 |
|
(386 |
) |
833 |
|
|||
|
Tax (expense) benefit |
|
(485 |
) |
727 |
|
(468 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Total comprehensive income (loss) |
|
$ |
3,399 |
|
$ |
(12,786 |
) |
$ |
(343 |
) |
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
11. Comprehensive Income (Loss) (cont.)
Prior to the end of the second quarter of the fiscal year ended March 28, 2009, the Company held commodity futures contracts which were designated as cash flow hedges, whereby the contracts were recorded at fair value on the consolidated balance sheets as either an asset or liability with any changes in fair value recorded in accumulated other comprehensive income (loss). In a cash flow hedge, a futures contract would exactly match the pricing date of the relevant anticipated inventory purchases. Through the end of the second quarter of the fiscal year ended March 28, 2009, the Company continued to be able to match the futures contract with the anticipated inventory purchases, therefore, entering into an effective hedge transaction. However, due to the volatility of the grain markets, the Company concluded it was no longer practical to keep the futures.
For the 53-week period ended April 3, 2010, the Company recognized $1,347 of expense in cost of sales related to the cash flow hedge, which was determined to be fully effective.
As a result, the Company voluntarily discontinued hedge accounting in the second quarter of 2009 by de-designating the previously defined hedge relationship. The de-designation of the cash flow hedge was done in accordance with Derivatives Implementation Group (“DIG”) Issue Nos. G3, G17, G18 and G20, which generally require that the net derivative gain or loss related to the discontinued cash flow hedge should continue to be reported in accumulated other comprehensive income (loss), unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. Therefore, the deferred losses related to the derivative that were de-designated were not recognized immediately and were reclassified into earnings during the contractual terms of the inventory purchases. The Company had pretax losses totaling $1,347, recorded as accumulated other comprehensive income (loss) as of the fiscal year ended March 28, 2009 related to cash flow hedges, recognized pro rata through the third quarter of the fiscal year ended April 3, 2010. As of April 3, 2010, the Company no longer has any hedged cash flow positions.
12. Quarterly Financial Data (Unaudited)
Quarterly financial data is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
Earnings (Loss) |
|
||||
|
|
|
|
|
Operating |
|
Net |
|
Per Share |
|
||||
|
|
|
|
|
Income |
|
Income |
|
(Basic and |
|
||||
|
|
|
Net Sales |
|
(Loss) |
|
(Loss) |
|
Diluted) |
|
||||
|
Fiscal year 2010 quarter ended: |
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
78,015 |
|
$ |
2,445 |
|
$ |
1,283 |
|
$ |
0.28 |
|
|
|
|
87,570 |
|
1,491 |
|
691 |
|
0.15 |
|
|||||
|
|
70,411 |
|
(154 |
) |
(345 |
) |
(0.08 |
) |
|||||
|
|
71,095 |
|
1,527 |
|
908 |
|
0.20 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fiscal year 2009 quarter ended: |
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
76,921 |
|
$ |
(4,179 |
) |
$ |
(2,996 |
) |
$ |
(0.65 |
) |
|
|
|
75,632 |
|
(7,956 |
) |
(5,483 |
) |
(1.18 |
) |
|||||
|
|
73,525 |
|
(3,253 |
) |
(2,520 |
) |
(0.54 |
) |
|||||
|
|
66,507 |
|
(289 |
) |
(495 |
) |
(0.11 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fiscal year 2008 quarter ended: |
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
71,862 |
|
$ |
2,744 |
|
$ |
1,536 |
|
$ |
0.33 |
|
|
|
|
76,067 |
|
2,499 |
|
1,375 |
|
0.29 |
|
|||||
|
|
66,920 |
|
(2,485 |
) |
(1,769 |
) |
(0.38 |
) |
|||||
|
|
68,800 |
|
(2,623 |
) |
(1,915 |
) |
(0.41 |
) |
|||||
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
13. New Accounting Pronouncements
In June 2009, the FASB issued FASB ASC 105, “Generally Accepted Accounting Principles,” which established the FASB ASC as the sole source of authoritative generally accepted accounting principles (“GAAP”). Pursuant to the provisions of FASB ASC 105, the Company has updated references to GAAP in its consolidated financial statements issued for the period ended October 3, 2009. The adoption of FASB ASC 105 did not impact the Company’s financial position or results of operations.
In April 2009, the FASB issued new U.S. GAAP guidance that requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also requires those disclosures in summarized financial information at interim reporting periods and is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have an effect on the Company’s consolidated financial statements.
In August 2009, the FASB issued new U.S. GAAP guidance clarifying the measurement of liabilities at fair value. Among other things, the guidance clarifies how the price of a traded debt security (an asset value) should be considered in estimating the fair value of the issuer’s liability and is effective for the first reporting period beginning after its issuance. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
CAGLE’S, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 3, 2010, March 28, 2009 and March 29, 2008
(In Thousands)
13. New Accounting Pronouncements (cont.)
In October 2009, the FASB issued new U.S. GAAP guidance that requires an entity to allocate revenue arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices (the relative-selling-price method). The guidance eliminates the use of the residual method of allocation, in which the undelivered element is measured at its estimated selling price and the delivered element is measured as the residual of the arrangement consideration, and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. The new guidance must be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2010, with early adoption permitted through either prospective application for revenue arrangements entered into, or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. The Company does not expect the adoption of this guidance to have an effect on its consolidated financial statements.
14. Subsequent Events Evaluation Date
The Company evaluated the events and transactions subsequent to its April 3, 2010 consolidated financial statement date and, in accordance with FASB ASC 855-10-50, “Subsequent Events,” determined there were no significant events necessary for disclosure through May 27, 2010, which is the consolidated financial statement issuance date.
SCHEDULE II — Valuation and Qualifying Accounts
|
Col A |
|
Col B |
|
Col C |
|
Col D |
|
Col E |
|
|||||||
|
|
|
|
|
ADDITIONS |
|
|
|
|
|
|||||||
|
|
|
Balance at |
|
Charged to |
|
Charged |
|
|
|
Balance |
|
|||||
|
|
|
Beginning of |
|
Costs and |
|
to Other |
|
|
|
at end |
|
|||||
|
DESCRIPTION |
|
Period |
|
Expenses |
|
Accounts |
|
Deductions |
|
of Period |
|
|||||
|
Year ended April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Reserves and Allowances deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Allowance for doubtful accounts |
|
$ |
186 |
|
$ |
— |
|
$ |
— |
|
$ |
12 |
|
$ |
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Year ended March 28, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Reserves and Allowances deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Allowance for doubtful accounts |
|
$ |
637 |
|
$ |
— |
|
$ |
— |
|
$ |
451 |
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Year ended March 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Reserves and Allowances deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Allowance for doubtful accounts |
|
$ |
662 |
|
$ |
— |
|
$ |
— |
|
$ |
25 |
|
$ |
637 |
|
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
As more fully described in a Form 8-K that we filed with the SEC on January 8, 2010, we were notified that, effective January 1, 2010, Frost, PLLC (“Frost”), our independent accountant, and certain partners of Moore Stephens Wurth Frazer Torbet, LLP (“MSWFT”) formed Frazer Frost, LLP (“Frazer Frost”), a new partnership. Pursuant to the terms of a Combination Agreement by and among Frost, MSWFT, and Frazer Frost, each of Frost and MSWFT contributed substantially all of their assets and certain of their liabilities to Frazer Frost, resulting in Frazer Frost assuming Frost’s engagement letter with us and becoming a new independent accounting firm, and the principal accountant engaged to audit our financial statements, effective January 1, 2010. As a consequence of the transaction between Frost and MSWFT forming Frazer Frost, and simultaneously with the effectiveness of this transaction Frost resigned as our certifying accountant. The Company’s Audit Committee approved the change on January 23, 2010.
Item 9A: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this report as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. Based upon that evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and procedures.
(b) Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. During the evaluation, some deficiencies were found, but in the opinion of management, these deficiencies alone do not amount to a material weakness. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of April 3, 2010.
(c) Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the fourth quarter of fiscal year 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Earlier in fiscal year 2010, as reported in the third quarter on Form 10-Q, management did increase the corporate accounting staff in order to enhance the Company’s internal control over financial reporting.
(d) Integrated Audit of Financial Statements
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. The Company’s registered public accounting firm will perform an audit of internal control over financial reporting that is integrated with the audit of financial statements of and for the fiscal year ended April 2, 2011.
None
Item 10: Directors, Executive Officers and Corporate Governance
The information required by this item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held July 16, 2010 and is incorporated herein by reference. The Company has adopted a Code of Ethics, which applies to the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. The full text of the Code of Ethics was included as an exhibit with the 2004 Form 10-K Annual Report.
Item 11: Executive Compensation
The information required by this item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held July 16, 2010 and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held July 16, 2010 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 Shareholders to be held July 16, 2010 and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item is included in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on July 16, 2010 and is incorporated herein by reference.
(a)1. The Financial Statements are included at Item 8.
(a)2. Financial Statement Schedules
The following financial statement schedules are filed as part of this report:
Report of Independent Registered Public Accounting Firm
Schedule II — Valuation and Qualifying Accounts
(a)3. Exhibits
3.1 Articles of Incorporation of the Registrant. (5)
3.2 Bylaws of the Registrant. (3)
13.2 Cagle’s, Inc. Proxy statements for Registrant’s 2010 annual meeting of shareholders. (2)
14.1 Code of Ethics. (4)
23.1a Consent of independent registered public accounting firm, FRAZER FROST, LLP. (1)
23.1b Consent of independent registered public accounting firm, FROST, PLLC. (1)
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a). (1)
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a). (1)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. (1)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. (1)
(1) Filed herewith.
(2) Filed simultaneously with this Form 10K on June 16, 2010 and incorporated by reference herein from the Registrant’s Schedule 14A for the year ended April 3, 2010.
(3) Previously filed and incorporated by reference herein from the Registrant’s Form 10-Q for the quarter ended October 2, 2004.
(4) Previously filed and incorporated by reference herein from the Registrant’s Form 10-K for the year ended April 3, 2004.
(5) Previously filed and incorporated by reference herein from the Registrant’s Form 10-K for the year ended April 2, 2005.
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 |
|
|
|
|
|
Chairman, Chief Executive Officer and President |
|
|
|
|
|
|
||
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 the capacities indicated and on June 10, 2010:
|
/s/ J. Douglas Cagle |
|
Director and Chairman, Chief Executive Officer and President |
|
/s/ G. Bland Byrne |
|
Director |
|
/s/ Candace Chapman |
|
Director |
|
/s/ Panos J. Kanes |
|
Director |
|
/s/ Edward J Rutkowski |
|
Director |
|
/s/ Mark M. Ham IV |
|
Director and Executive Vice President and Chief Financial Officer |
|
/s/ James David Cagle |
|
Director and Vice President |
|
/s/ George Douglas Cagle |
|
Director and Vice President |
| This ‘10-K’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 4/1/12 | ||||
| 3/31/12 | 8-K | |||
| 3/1/12 | 8-K | |||
| 10/31/11 | ||||
| 4/2/11 | 10-K, 5 | |||
| 4/1/11 | ||||
| 1/4/11 | ||||
| 1/3/11 | ||||
| 11/23/10 | ||||
| 7/16/10 | DEF 14A | |||
| 7/4/10 | ||||
| 7/3/10 | 10-Q | |||
| Filed on: | 6/16/10 | DEF 14A | ||
| 6/15/10 | ||||
| 6/10/10 | ||||
| 5/27/10 | ||||
| For Period End: | 4/3/10 | |||
| 3/30/10 | ||||
| 1/23/10 | ||||
| 1/8/10 | 8-K | |||
| 1/1/10 | ||||
| 11/25/09 | 8-K | |||
| 11/23/09 | 8-K | |||
| 10/31/09 | ||||
| 10/3/09 | 10-Q | |||
| 9/26/09 | ||||
| 6/27/09 | 10-Q | |||
| 6/15/09 | ||||
| 6/5/09 | ||||
| 3/29/09 | ||||
| 3/28/09 | 10-K | |||
| 2/7/09 | ||||
| 1/29/09 | 8-K | |||
| 1/3/09 | 10-Q, 8-K | |||
| 9/28/08 | ||||
| 6/28/08 | 8-K | |||
| 3/30/08 | ||||
| 3/29/08 | 10-K, 8-K, DEF 14A | |||
| 12/29/07 | 10-Q, 8-K | |||
| 9/29/07 | 10-Q, 8-K | |||
| 6/30/07 | 10-Q, 8-K | |||
| 4/1/07 | ||||
| 3/31/07 | 10-K, 10-K/A, 8-K, DEF 14A | |||
| 8/1/06 | ||||
| 4/1/06 | 10-K, 10-K/A, 8-K, DEF 14A | |||
| 4/2/05 | 10-K, 10-K/A, 8-K, ARS, DEF 14A | |||
| 10/2/04 | 10-Q, 8-K | |||
| 4/3/04 | 10-K, ARS, DEF 14A | |||
| List all Filings | ||||