SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
--------------------------------------------------------------------------------
FORM
10-Q
--------------------------------------------------------------------------------
(Mark One)
(x)
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly
period ended June 28, 2008
OR
( )
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period
from
to
Commission file
number 1-7138
--------------------------------------------------------------------------------
CAGLES, INC.
(Exact name of
Registrant as specified in its charter)
--------------------------------------------------------------------------------
GEORGIA
58-0625713
(State or other jurisdiction
of
(I.R.S. employer
incorporation or
organization)
identification no.)
2000 Hills Ave., Atlanta,
Ga.,
30318
(Address of principal executive
offices)
(Zip
code)
Registrants
telephone number, including area code: (404) 355-2820
--------------------------------------------------------------------------------
Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
X
Yes
____ No
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.. (Check one):
Large accelerated
filer _____
Accelerated filer
_____
Non-accelerated filer ___
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).
Yes
X
No
The Registrant had
4,664,198 shares of Class A Common Stock, outstanding as of June 28, 2008.
PART 1. FINANCIAL
INFORMATION
Item1. Financial Statements
Cagle's, Inc. &
Subsidiary
|
|
|
|
|
|
Condensed Consolidated Balance
Sheets
|
|
|
|
|
|
June 28, 2008
(unaudited) and March 29, 2008
|
|
|
|
|
|
(In Thousands,
Except Par Value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28,
2008
|
|
March 29,
2008
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,059
|
|
$
|
1,279
|
|
Trade accounts receivable, less
allowance for doubtful accounts
|
|
|
|
|
|
|
of $221 and $637 in 2009
and 2008, respectively
|
|
17,046
|
|
|
14,015
|
|
Inventories
|
|
30,247
|
|
|
30,728
|
|
Other current assets
|
|
393
|
|
|
398
|
Total current assets
|
|
48,745
|
|
|
46,420
|
|
|
|
|
|
|
|
Property, plant and equipment,
at cost:
|
|
|
|
|
|
|
Land
|
|
1,976
|
|
|
1,976
|
|
Buildings and
improvements
|
|
59,439
|
|
|
59,199
|
|
Machinery, furniture and
equipment
|
|
41,014
|
|
|
40,682
|
|
Vehicles
|
|
4,656
|
|
|
4,656
|
|
Construction in
progress
|
|
654
|
|
|
1,310
|
|
|
|
107,739
|
|
|
107,823
|
|
Less accumulated depreciation
|
|
68,827
|
|
|
68,563
|
Property, plant and equipment,
net
|
|
38,912
|
|
|
39,260
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
Deferred income
taxes
|
|
3,134
|
|
|
3,134
|
|
Deferred financing costs, net
|
|
37
|
|
|
41
|
|
Other assets
|
|
3,349
|
|
|
3,119
|
|
Total other assets
|
|
6,520
|
|
|
6,294
|
Total assets
|
$
|
94,177
|
|
$
|
91,974
|
|
|
|
|
|
|
|
Liabilities and stockholders'
equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Current maturities of long-term
debt
|
$
|
2,346
|
|
$
|
2,269
|
|
Accounts payable
|
|
18,924
|
|
|
16,025
|
|
Accrued expenses
|
|
4,581
|
|
|
4,618
|
|
Deferred income taxes
|
|
2,417
|
|
|
3,311
|
Total current liabilities
|
|
28,268
|
|
|
26,223
|
|
|
|
|
|
|
|
|
Long-term debt, less current
maturities
|
|
23,060
|
|
|
20,924
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
(Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock, $1 par value;
1,000 shares authorized, none issued
|
|
-
|
|
|
-
|
|
Common stock, $1 par value;
9,000 shares authorized, 4,665 and 4,689 shares
|
|
|
|
|
|
|
issued and 4,664 and
4,688 shares outstanding in 2009 and 2008, respectively
|
|
4,664
|
|
|
4,664
|
|
Treasury stock, at cost
|
|
(80)
|
|
|
(80)
|
|
Additional paid-in
capital
|
|
3,657
|
|
|
3,657
|
|
Retained earnings
|
|
33,161
|
|
|
36,156
|
|
Accumulated other comprehensive
income
|
|
1,447
|
|
|
430
|
Total stockholders' equity
|
|
42,849
|
|
|
44,827
|
Total liabilities and
stockholders' equity
|
$
|
94,177
|
|
$
|
91,974
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these condensed consolidated financial statements.
|
|
|
|
Cagle's, Inc. & Subsidiary
|
|
|
|
|
|
Condensed Consolidated
Statements of Income
|
|
|
|
|
|
For the 13 weeks ended June 28,
2008
|
|
|
|
|
|
For the 13 weeks ended June 30,
2007
|
|
|
|
|
|
(In Thousands, except per share
data)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
13 wks
ended
|
|
13 wks
ended
|
|
6/28/2008
|
|
6/30/2007
|
|
|
|
|
|
|
Net Sales
|
$
|
76,921
|
|
$
|
71,862
|
Costs and
Expenses:
|
|
|
|
|
|
Cost of Sales
|
|
77,577
|
|
|
65,660
|
Selling, General and
Administrative
|
|
3,524
|
|
|
3,458
|
Total costs and
expenses
|
|
81,101
|
|
|
69,118
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
|
(4,180)
|
|
|
2,744
|
|
|
|
|
|
|
Other
Income(Expense):
|
|
|
|
|
|
Interest expense
|
|
(489)
|
|
|
(368)
|
Other Income, Net
|
|
(12)
|
|
|
23
|
Income (Loss) before income
taxes
|
|
(4,681)
|
|
|
2,399
|
|
|
|
|
|
|
Income Taxes Provision
(Benefit)
|
|
(1,685)
|
|
|
863
|
Net Income (Loss)
|
$
|
(2,996)
|
|
$
|
1,536
|
|
|
|
|
|
|
Weighted Average Shares
Outstanding
|
|
|
|
|
|
-Basic
|
|
4,664
|
|
|
4,724
|
-Diluted
|
|
4,664
|
|
|
4,724
|
|
|
|
|
|
|
Net Income (Loss) Per Common
Share
|
|
|
|
|
|
-Basic
|
$
|
(0.64)
|
|
$
|
0.33
|
-Diluted
|
$
|
(0.64)
|
|
$
|
0.33
|
Dividends Per Common
Share
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Reconciliation of net income
(loss) to comprehensive income (loss):
|
|
|
|
|
|
Net loss
|
$
|
(2,996)
|
|
$
|
1,536
|
Unrealized gain on hedging
instruments, net of reclassification adjustment gain of $430 (net of
income tax expense of $814)
|
|
1,447
|
|
|
0
|
Comprehensive
(loss)
|
$
|
(1,549)
|
|
$
|
1,536
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these condensed consolidated financial statements.
|
Condensed Consolidated
Statements of Cash Flows
|
|
|
|
|
|
For the 13 weeks ended June 29,
2008 and June 30, 2007
|
|
|
|
|
|
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/28/2008
|
|
|
6/30/2007
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
Net income
(loss)
|
$
|
(2,996)
|
|
$
|
1,536
|
|
|
|
|
|
|
|
Adjustments to reconcile
net income (loss) to net cash provided (used) by operating
activities
|
|
|
Depreciation
|
|
976
|
|
|
938
|
|
Amortization
|
|
13
|
|
|
3
|
Gain on sale of
property, plant and equipment
|
|
-
|
|
|
(28)
|
Deferred income taxes
expense (benefit)
|
|
(871)
|
|
|
863
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
Trade
accounts receivable, net
|
|
(3,031)
|
|
|
(1,430)
|
|
Inventories
|
|
481
|
|
|
102
|
|
Refundable
income taxes
|
|
(740)
|
|
|
203
|
|
Other
current assets
|
|
1,740
|
|
|
(1,146)
|
|
Accounts
payable
|
|
2,899
|
|
|
2,345
|
|
Accrued
expenses
|
|
(37)
|
|
|
(544)
|
Net cash provided (used) by
operating activities
|
|
(1,566)
|
|
|
2,842
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
Purchases of property,
plant and equipment
|
|
(554)
|
|
|
(492)
|
Proceeds from sale of
property, plant and equipment
|
|
-
|
|
|
28
|
Increase in other
assets
|
|
(239)
|
|
|
(844)
|
Net cash provided by (used in)
investing activities
|
|
(793)
|
|
|
(1,308)
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
Payments on revolving
line of credit
|
|
(17,550)
|
|
|
-
|
Proceeds from revolving
line of credit
|
|
20,250
|
|
|
-
|
Payments of long-term
debt
|
|
(561)
|
|
|
(509)
|
Repurchase of
stock
|
|
-
|
|
|
(183)
|
Net cash used in financing
activities
|
|
2,139
|
|
|
(692)
|
Net increase (decrease) in cash
and cash equivalents
|
|
(220)
|
|
|
842
|
Cash and cash equivalents at
beginning of year
|
|
1,279
|
|
|
3,499
|
Cash and cash equivalents at
end of year
|
$
|
1,059
|
|
$
|
4,341
|
|
|
|
|
|
|
Supplementary disclosures of
cash flow information
|
|
|
|
|
|
Cash paid during the
period for interest
|
$
|
469
|
|
$
|
368
|
Income taxes paid
(refunded), net
|
|
(108)
|
|
|
-
|
Supplementary disclosure of
non-cash activities
|
|
|
|
|
|
Unrealized gain on
hedging activities
|
$
|
1,447
|
|
|
-
|
Assets acquired pursuant
to capital lease obligation
|
$
|
74
|
|
|
-
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these condensed consolidated financial statements.
|
|
|
|
Cagle's, Inc.
& Subsidiary
Notes to Condensed Consolidated
Financial Statements
June 28, 2008
(Unaudited)
1. Basis of Presentation
Interim Period Accounting Policies
In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments which are of a normal and recurring nature necessary to present
fairly the consolidated financial position of Cagle's, Inc. and its wholly owned
subsidiary Cagle Farms, Inc. (collectively, the "Company") as of June 28, 2008
and the results of their operations for the 13 weeks ended June 28, 2008 and the
13 weeks ended June 30, 2007.
Results of operations for the
13 weeks
ended June 28, 2008 are not
necessarily indicative of results to be expected for the full fiscal year ending
March 28, 2009.
The accompanying condensed consolidated balance sheet as of March 29, 2008, which has been derived from audited consolidated financial statements, and the unaudited interim condensed consolidated financial statements at June 28, 2008, and for the 13 weeks ended June 29, 2008 and June 30, 2007 of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements. Although the Company believes that the disclosures in these unaudited condensed consolidated financial statements are adequate to make the information presented for the interim periods not misleading, certain information and footnote information normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, and these financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's annual report to shareholders for the fiscal year ended March 28, 2008.
The Company adopted FASB
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes -
an Interpretation of FASB Statement No. 109, on April 1, 2007. FIN 48 clarifies
the accounting for income taxes by prescribing the minimum recognition threshold
a tax provision is required to meet before being recognized in the consolidated
financial statements. FIN 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, disclosure and transition.
The Company had no significant unrecognized tax benefits at the date of adoption
or at June 28, 2008. 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 2004 remain
open to examination by federal and state jurisdictions to which it is
subject.
2. Computation of net income
per share
The following table sets forth the
computation of basic and diluted earnings per share:
|
13
Weeks
|
|
13
Weeks
|
|
ended
|
|
ended
|
|
6/28/2008
|
|
6/30/2007
|
Net Income (loss) as
reported
|
$
|
(2,996)
|
|
$
|
1,536
|
|
|
|
|
|
|
Weighted Average Shares
Outstanding
|
|
|
|
|
|
-Basic
|
|
4,664
|
|
|
4,724
|
-Diluted
|
|
4,664
|
|
|
4,724
|
|
|
|
|
|
|
Net Income Per Common
Share
|
|
|
|
|
|
-Basic
|
$
|
(0.64)
|
|
$
|
0.33
|
-Diluted
|
$
|
(0.64)
|
|
$
|
0.33
|
Dividends Per Common
Share
|
$
|
-
|
|
$
|
-
|
3. Inventories consisted of the following:
(In Thousands)
|
June 28,
2008
|
|
March 29,
2008
|
Finished Product
|
$
|
4,932
|
|
$
|
5,987
|
Field Inventory and
Breeders
|
|
17,288
|
|
|
7,489
|
Feed, Eggs, and
Medication
|
|
6,632
|
|
|
5,923
|
Supplies
|
|
1,395
|
|
|
1,329
|
|
$
|
30,247
|
|
$
|
30,728
|
4.
Long-Term
Debt
Long-term debt consists of the
following:
|
|
|
6/28/2008
|
|
|
3/29/2008
|
|
|
|
|
|
|
|
Term note payable; fixed
interest rate of 7.86%, principal and interest payable monthly of $290,
through maturity on April 1, 2011; secured by Collinsville plant, Dalton
hatchery and Rockmart feedmill.
|
|
$
|
15,981
|
|
$
|
18,565
|
|
|
|
|
|
|
|
Revolving line of credit,
maturing March 31, 2011, interest payable monthly, variable interest rate
of LIBOR plus 3.50%; secured by accounts receivable and inventories.
|
|
|
9,425
|
|
|
-
|
|
|
|
25,406
|
|
|
18,565
|
Less current
maturities
|
|
|
2,346
|
|
|
2,098
|
Long-term debt, less current
maturities
|
|
$
|
23,060
|
|
$
|
16,467
|
On April 30, 2008, the Company
amended its revolving line of credit agreement. The amended agreement increased
the facility to $17,500 and the interest rate to a variable rate equal to 3.5%
over the 90-day LIBOR rate. The collateral for the facility now includes the
Companys real estate located in Atlanta, Georgia. In addition, the maturity
date of the agreement is now March 31, 2011, and the restrictive covenants were
relaxed. These covenants along with covenants already in place require
that the Company maintain (1) a minimum fixed charge coverage ratio, as defined
in the debt agreement; (2) a maximum leverage ratio; (3) an adjusted EBITDA
above a specified amount; (4) capital expenditures not to exceed certain limits;
(5) an actual net worth above a specified amount; and (6) a current ratio, as
defined in the debt agreement. The Company was in compliance with these
covenants at June 28, 2008.
In addition to the covenants
described above, the Company must also comply with certain restrictive covenants
associated with the term note payable. These covenants require the Company to
maintain (1) a maximum leverage ratio (2) minimum fixed charge coverage ratio
(3) minimum adjusted EBITDA and (4) capital expenditures not to exceed certain
limits. The Company was not in compliance with these covenants at March 29,
2008, but had obtained waivers through March 31, 2009.
Aggregate maturities of long-term
debt during the years subsequent to June 28, 2008 are as follows:
2009
|
|
$
|
1,718
|
2010
|
|
|
2,453
|
2011
|
|
|
18,889
|
|
|
$
|
23,060
|
5.
Major accounting policies
Refer to the Companys 2008 annual
report on Form 10-K for a description of major accounting policies. There have
been no material changes to these accounting policies.
6. Use of Estimates
The preparation of 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 disclosures
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results may vary from those estimates.
7. Treasury Stock
Beginning in 1990, the Board of
Directors (the Board) authorized the purchase of up to $2.5 million of the
Companys stock on the open market. In February 2000, the Board increased
the authorized amount to $15 million. During the 13 weeks ended June 28,
2008, the Company did not purchase shares of its common stock under this
program. Through June 28, 2008, 770,290 shares had been repurchased by the
Company at a total cost of $10.1 million. The Company has accounted for
these shares using the retirement method.
8.
Financial instruments
The Company is a purchaser of certain
commodities, such as corn and soybean meal in the course of normal
operations. The Company uses 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 SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. If a derivative
instrument is a hedge, as defined by SFAS No. 133, 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 SFAS No. 133, as amended, are marked to fair value
with unrealized gains or losses reported currently in earnings.
Derivative products related to grain
procurement such as futures and option contracts that meet the criteria for SFAS
No. 133 hedge accounting, are considered cash flow hedges, as they hedge against
changes in the amount of future cash flows related to commodities sales and
procurement. The Company does not purchase derivative products related to
grain procurement or in excess of its physical grain consumption requirements
and poultry sale expectations. The Company expects that gains totaling $1.5
million recorded in other comprehensive income (loss) at June 28, 2008, related
to cash flow hedges, will be generally recognized within the next 12
months. The Company generally does not hedge cash flows related to
commodities beyond 12 months.
9. Fair Value Measurements
As stated in Note 1, General,
effective March 30, 2008, we adopted SFAS 157. SFAS No. 157 Fair Value
Measurements, among other things, defines fair value, establishes a framework
for measuring fair value and expands disclosure about such fair value
measurements. Assets and liabilities measured at fair value are based on
one or more of three valuation techniques stated in SFAS No.157. The three
valuation techniques are as follows:
Market Approach. Prices and
other relevant information generated by market transactions involving identical
or comparable assets and
liabilities.
Income Approach. Techniques to
convert future amounts to a single present amount based on market expectations
(including present
value techniques and option-pricing models).
Cost
Approach. Amount that currently would be required
to replace the service capacity of an asset (often referred to as
replacement
cost).
FAS 157 clarifies that fair value is
an exit price, representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for evaluating such assumptions,
FAS 157 establishes a three-tier fair value hierarchy, which prioritizes the
inputs in measuring fair value as follows:
Level 1. Quoted prices in
active markets for identified assets or liabilities;
Level 2. Inputs, other than the
quoted prices in active markets, that are observable either directly or
indirectly; and
Level 3. Unobservable inputs in
which there is little or no market data, which require the reporting entity to
develop its own assumptions about what market participants
would use in pricing the asset or liability.
Assets and Liabilities Measured at
Fair Value on a Recurring Basis
The following are assets and
liabilities measured at fair value on a recurring basis at June 28, 2008 (in
millions):
|
|
Asset/(Liability) Balance
|
|
Valuation Technique
|
|
Input Level
|
Available for sale
investments
|
|
$
|
68
|
|
Market
|
|
1
|
Trading
investments
|
|
$
|
221
|
|
Market
|
|
1
|
Available for sale investments
are classified in Other current assets in our condensed consolidated balance
sheets, trading investments are classified in Other assets in our condensed
consolidated balance sheets. No assets or liabilities were elected for
fair value measurement under FAS 159, and therefore adoption of FAS 159 had no
impact on our financial statements.
10. New Accounting
Standards
We adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157) and Statement of
Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No.
115 (FAS 159). See Note 9, Fair Value Measurements, for the impact of this
adoption. In February 2008, the FASB issued FASB Staff Position FAS 157-2,
Effective Date of FASB Statement No. 157, which delayed the effective date of
FAS 157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, until January 1, 2009. We have not yet determined the impact that
the implementation of FAS 157 will have on our non-financial assets and
liabilities which are not recognized on a recurring basis; however, we do not
anticipate adoption to significantly impact our consolidated financial
statements.
In December 2007, the FASB issued
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
an amendment of Accounting Research Bulletin (ARB) No. 51. This
statement amends ARB No. 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. Before this statement was
issued, limited guidance existed for reporting non-controlling interests.
As a result, considerable diversity in practice existed. So-called
minority interests were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and
equity. This statement improves comparability by eliminating that
diversity. This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. The Companys management does
not anticipate that this pronouncement will have a significant impact on the
consolidated financial statements.
In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 161 is intended to improve financial
reporting transparency regarding derivative instruments and hedging activities
by providing investors with a better understanding of their effects on financial
position, financial performance and cash flows. SFAS No. 161 applies to all
entities and is effective for consolidated financial statements issued for
fiscal years and interim periods beginning after November 15, 2008 with early
adoption encouraged. The Companys management does not anticipate that
this pronouncement will have a significant impact on the consolidated financial
statements.
In May 2008, the FASB issued FAS No.
162, The Hierarchy of Generally Accepted Accounting Principles. FAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). FAS No. 162 will become
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company does not
expect the adoption of FAS No. 162 to have a material effect on its results of
operations and financial position.
In April 2008, the FASB issued FASB
Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible
Assets ("FSP No. FAS 142-3"). FSP No. FAS 142-3 requires companies estimating
the useful life of a recognized intangible asset to consider their historical
experience in renewing or extending similar arrangements or, in the absence of
historical experience, to consider assumptions that market participants would
use about renewal or extension as adjusted for SFAS No. 142's, Goodwill and
Other Intangible Assets, entity-specific factors. FSP No. FAS 142-3 is effective
for fiscal years beginning after December 15, 2008 (fiscal 2010 for
the
Company). The Companys management
does not anticipate that this pronouncement will have a significant impact on
the consolidated financial statements.
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
June 28, 2008
The disclosures in this quarterly
report are complementary to those made in the companys 2008 annual report on
Form 10-K.
Results of Operations
Revenues for the first quarter were
$76.9 million, up 7.04%, as a result of 13% additional pounds marketed compared
to the same period a year ago. For the quarter, net income was a loss of $(3.0)
million or ($.64) per diluted share as compared to a profit of $1.5 million or
$.33 per diluted share for the first quarter of fiscal 2008.
Quoted market
prices for products for the first quarter of fiscal 2009 versus the same period
last year and last quarter fluctuated as follows.
|
%
Change
|
%
Change
|
|
1st
qtr. 09 vs.
|
1st
qtr. 09 vs.
|
|
1st qtr.
08
|
4th qtr.
08
|
Tenders
|
-21.7%
|
5.1%
|
Wings
|
-26.4%
|
-19.7%
|
Drums
|
8.7%
|
16.2%
|
Boneless Breast
|
-11.8%
|
3.6%
|
Boneless Thigh
|
8.0%
|
4.9%
|
Leg Quarters
|
1.7%
|
11.2%
|
Whole Bird without
Giblets
|
-2.0%
|
4.6%
|
Cost of sales for the first quarter
of fiscal 2009 increased 18.1% as compared with the same period last year, from
$65.7 million to $77.6 million. Feed ingredient prices for broilers processed in
the first quarter of 2009 which represents 39% of the total cost of sales,
increased 43% as compared to the first quarter of 2008.
Corn and soy pricing has been
volatile for the first quarter of 2009 and we expect them to remain so for the
next nine months. The company has entered into a partially hedged position to
reduce the financial exposure brought about by this volatility. We have also
entered into pricing agreements with certain customers which allow us to price
their products based on the cost of feed ingredients if they direct our company
to hedge for their benefit. If those customers elect to not allow us to hedge
ingredient prices for their benefit then their product prices are adjusted to
reflect current ingredient markets.
Selling and Delivery
As a group these expenses increased
9% for the 13 weeks ended June 28, 2008 versus the 13 weeks ended June 30, 2007;
this is representative of increases in energy costs, freight costs and outside
storage expenses.
Administrative Expenses
This group saw a reduction of $166
thousand or 12% for the 13 weeks ended June 28, 2008 versus the 13 weeks
ended June 30, 2007; this is the result of a reduction of bad debt reserves and
increased costs associated with compliance with Sarbanes-Oxley Section 404.
Interest Expense
Interest expense for the thirteen
weeks ended June 28, 2008 increased by 33% over the same period of a year ago.
This is reflective of increased borrowings.
Other Income
Other Income of ($12) thousand for
the 13 weeks ended June 28, 2008 represents the change in value of marketable
securities. Other income of $23 thousand during the 13 weeks ended June 30, 2007
represented interest income.
Income Taxes
Income tax benefit was ($1.7)
million, or 36.0% of pre-tax income in the first quarter of 2009. Income tax
expense in the first quarter of 2008 was $.9 million, or 36% of pre-tax income.
The provision for income taxes reflects the Company's estimated liability for
income taxes, net of any credits to which the Company may be entitled.
The Company adopted the
provisions of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in
Income Taxes - an Interpretation of FASB Statement No. 109, on April 1, 2007.
This Interpretation requires the Company to recognize in the consolidated
financial statements only those tax positions determined to be more likely than
not of being sustained upon examination based on the technical merits of the
positions. The Company has not recorded a liability for unrecognized tax
benefits as a result of the adoption of FIN 48 and there have been no changes in
unrecognized tax benefits as of June 28, 2008. The Company recognizes accrued
interest and penalties related to unrecognized tax benefits in income tax
expense. The Company has not recorded interest and penalties for unrecognized
tax benefits as a result of the adoption of FIN 48 and there have been no
changes as of June 28, 2008. The Company and its subsidiaries are subject to
U.S. federal income tax as well as income tax of multiple state jurisdictions.
The Companys federal income tax returns for 2004 through the current period
remain subject to examination and the relevant state statutes vary. There are no
current tax examinations in progress where the Company expects the assessment of
any significant additional tax.
Financial Condition
As of June 28, 2008, the Company's
working capital was $21 million and its current ratio was 1.73. The Companys
working capital at March 29, 2008 was $20 million and its current ratio was
1.77. The Company has increased long term debt by $2.2 million during the 13
weeks ended June 28, 2008. The Company has spent $1 million on capital projects
in the first three months of fiscal 2009. The Company has available an $8
million revolving credit facility, as of June 28, 2008.
On April 30, 2008, the Company
amended its revolving line of credit agreement. The amended agreement increased
the facility to $17.5 million and the interest rate, to a variable rate equal to
3.5% over the 90-day LIBOR rate, the maturity date of the agreement is March 31,
2011.
We believe that our cash flow
provided by operations will be strained to cover our fiscal 2009 working capital
needs, debt service requirements and planned capital expenditures to the extent
such items are known or are reasonably determinable based on current business
and market conditions. We may elect to finance certain capital expenditure
requirements through borrowings under our credit facilities or operating
leases.
Critical Accounting Policies and
Estimates
The preparation of c
ondensed
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 condensed
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 when
the following criteria are met: persuasive evidence of an agreement exists,
delivery has occurred or services have been rendered (when a shipment of chicken
products leaves the Companys premises and title passes to the customer), the
Companys price to the buyer is fixed and determinable, and collectibility is
reasonably assured. Revisions to these estimates are charged to income in the
period in which the revision becomes known, and historically have not been
material.
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 managements 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 the productive lives using the unit-of-production method.
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. Management monitors markets and
the industry to ensure that its live inventory and finished inventory cost
estimates are properly reflected. The Company has not experienced material
revisions to its inventory costs.
Property, Plant and Equipment.
In accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS
144), 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 Companys 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 Companys assumptions, the effectiveness of strategies, or other factors
beyond the Companys control.
Accrued Self Insurance.
Insurance expense for casualty claims
and employee-related health care benefits is estimated using historical
experience and actuarial estimates. Stop-loss coverage is maintained with third
party insurers to limit the Companys total exposure. Certain categories of
claim liabilities are actuarially determined. The assumptions used to arrive at
periodic expenses are reviewed regularly by management. However, actual expenses
could differ from these estimates and could result in adjustments to be
recognized.
Income Taxes.
We account for income taxes in
accordance with 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.
SFAS No. 109 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 balance sheet, primarily operating loss carry forwards, 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.
Item 3: Quantitative and Qualitative
Disclosures about Market Risk
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
industries 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.
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 poultry 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.
Significant Changes in Consumer
Buying Patterns
Adverse local economic conditions or
shifts in shopping preferences, is a factor affecting our business. Growing and
increasing the profitability of our business is dependent upon our ability to
retain existing customers and acquire new customers, enabling us to more
effectively utilize our fixed assets. Our ability to achieve these goals is
dependent, in part, upon our ability to continue to provide a high level of
customer service, offer competitive products at attractive prices, maintain high
levels of productivity and efficiency, particularly in the process of
integrating new customers. If we are unable to execute these tasks effectively,
we may not be able to attract significant numbers of new customers and attrition
among our existing customer base could increase, either or both of which could
have an adverse impact on our revenue and profitability. Our results of
operations may be adversely impacted if we are unable to attract significant
numbers of new customers.
Concentration of Credit Risk
The Company deposits its cash with
financial institutions which have Federal Deposit Insurance Corporation (FDIC)
depository insurance, which insures bank balances up to $100,000 per bank.
At June 28, 2008, the Companys cash balances in FDIC insured bank accounts
totaled approximately $1 million which exceeds the Federal Deposit Insurance
Corporation limit of $100,000.
Cautionary Statements Relevant To
Forward-Looking Information For The Purpose Of "Safe Harbor" Provisions Of The
Private Securities Litigation Reform Act Of 1995
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; and (12) the effect of, or changes in, general economic
conditions. We undertake no obligation to revise or update any forward-looking
statements for any reason.
Item 4.
Controls and Procedures.
Evaluation of disclosure controls and
procedures.
The term disclosure controls and
procedures (defined in SEC Rule 13a-15(e)) refers to the controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Securities
Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and
reported within required time periods. The Companys management, with the
participation of the Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the Companys disclosure controls and procedures
as of the end of the period covered by this quarterly report (the Evaluation
Date). Based on that evaluation, the Companys Chief Executive
Officer and Chief Financial Officer have concluded that, as of the Evaluation
Date, such controls and procedures were effective.
Changes in internal
controls.
The term internal control over
financial reporting (defined in SEC Rule 13a-15(f)) refers to the process of a
company that is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. The Companys management, with the participation of the Chief
Executive Officer and Chief Financial Officer, have evaluated any changes in the
Companys internal control over financial reporting that occurred during the
period covered by this quarterly report, and they have concluded that there was
no change to the Companys internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.
Part II Other
Information
Item 1. Legal
Proceedings
The Company is routinely involved in
various lawsuits and legal matters on an ongoing basis as a result of day to day
operations; however, the Company does not believe that the ultimate resolution
of these matters will have a material adverse effect on the Company or its
business.
Item
2. Changes in Securities and
Use of Proceeds
None.
Item
3. Defaults upon Senior
Securities
None.
Item
4. Submission of Matters to a
Vote of Security Holders
On July 11, 2008, the Company held
its Annual Meeting of Shareholders. The following items (3) were submitted
to a vote of shareholders through the solicitation of proxies:
(1)
|
To fix the number of members of
the Board of Directors at eight (8), and to elect the members
thereof
|
|
|
|
|
|
|
|
|
|
|
|
|
Election of
Directors
|
|
|
|
|
|
|
|
|
|
The following persons were
elected to serve as directors on the Companys Board of Directors until
the 2009 Annual Meeting of Shareholders or until their successors have
been duly elected and qualified or until the earlier of their resignation
or removal. Voting results were as follows:
|
|
|
For
|
|
Against
(a)
|
|
|
|
|
|
|
J. DOUGLAS CAGLE
|
4,028,673
|
|
515,733
|
|
|
|
|
|
|
PANOS KANES
|
4,538,178
|
|
6,228
|
|
|
|
|
|
|
G. BLAND BYRNE
III
|
4,008,895
|
|
535,511
|
|
|
|
|
|
|
CANDACE CHAPMAN
|
4,538,178
|
|
6,228
|
|
|
|
|
|
|
EDWARD J.
RUTKOWSKI
|
4,538,178
|
|
6,228
|
|
|
|
|
|
|
MARK M. HAM IV
|
4,007,655
|
|
536,751
|
|
|
|
|
|
|
GEORGE DOUGLAS
CAGLE
|
3,999,270
|
|
545,136
|
|
|
|
|
|
|
JAMES DAVID CAGLE
|
4,012,770
|
|
531,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
To ratify the appointment of
Moore Stephens Frost, PLC as the independent registered public accounting
firm for the fiscal year ending March 28, 2009.
|
|
|
For
|
|
Against
(a)
|
|
Abstentions
|
|
Non-Votes
|
|
|
|
4,543,829
|
|
577
|
|
0
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Stockholder proposal regarding
controlled-atmosphere killing.
|
|
|
For
|
|
Against
(a)
|
|
Abstentions
|
|
Non-Votes
|
|
|
|
25,177
|
|
3,630,271
|
|
329,720
|
|
559,238
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In determining the results of
voting, abstentions or authorizations withheld and broker non-votes have
the same effect as a vote against.
|
Item 5.
Other Information
None.
Item 6. Exhibits and Reports on
Form 8-K
(a) Exhibits
3.1 Articles of Incorporation
of the Registrant. (2)
3.2 Bylaws of the Registrant.
(2)
14.1 Code of Ethics (3)
31.1 Certification of Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(1)
31.2 Certification of Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(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) Previously filed and incorporated
by reference herein from the Registrants Form 10-Q for the quarter ended
October 2, 2004.
(3) Previously filed and incorporated
by reference herein from the Registrants Form 10-K for the year ended April 3,
2004.
(b) Reports on Form 8-K
1. The
Company filed an 8-K on April 11, 2008, to announce a 4% reduction in
production.
2. The
Company filed an 8-K on May 02, 2008, announcing the signing of an Amended and
Restated Revolving Line of Credit and
Security Agreement, effective as of April 30, 2008.
3. The
Company filed an 8-K on June 6, 2008, to furnish a press release announcing its
results of operations for the fourth quarter
of 2008.
No other reports on Form 8-K were
filed during the first quarter of 2009 or in the subsequent interim period
between June 28, 2008 and the date of this filing.
Signatures
Pursuant to the requirements of the
Securities and Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Date: 08
/11/2008
/s/ J. Douglas
Cagle
/s/ Mark M. Ham
IV
Chairman and C.E.O.
Executive Vice President
&
Chief Financial
Officer