-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqvTeF/pbSEutKAjZoFwWZHnqYRQqcrqNq6vjCLi81SlEu+gzGVSx6xLc6jKIVeh lge+XUkgKa2F0fJ7v62oHQ== /in/edgar/work/20000615/0000016104-00-000010/0000016104-00-000010.txt : 20000919 0000016104-00-000010.hdr.sgml : 20000919 ACCESSION NUMBER: 0000016104-00-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAGLES INC CENTRAL INDEX KEY: 0000016104 STANDARD INDUSTRIAL CLASSIFICATION: [2015 ] IRS NUMBER: 580625713 STATE OF INCORPORATION: GA FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07138 FILM NUMBER: 655682 BUSINESS ADDRESS: STREET 1: 2000 HILLS AVE NW CITY: ATLANTA STATE: GA ZIP: 30318 BUSINESS PHONE: 4043552820 MAIL ADDRESS: STREET 1: 2000 HILLS AVE NW CITY: ATLANTA STATE: GA ZIP: 30318 10-K 1 0001.txt 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 (FEE REQUIRED) For the fiscal year ended______APRIL 01, 2000___________________________or ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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. _______2000 HILLS AVE., 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 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 STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.) __$15,827,248_(based_on_9.125 per_share_closing_price_on_April_28,_2000)___ INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE ONLY TO CORPORATE REGISTRANTS.) __Class_A_Common_Stock_at_$1.00_par_value______________________________________ __4,747,280_shares_at_$1.00_par_value__________________________________________ DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.) Parts of the following documents are incorporated by reference in Parts II, III, and IV of this Form 10-K report; 1) registrant's annual report to shareholders for fiscal year ended April 01, 2000 - Items 5, 6, 7, 8, and 14. 2) Proxy statements for registrant's 2000 annual meeting of shareholders- Items 10, 11, 12, and 13. CAGLE'S, INC. PART I Item 1: General Business 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., formerly Strain Poultry 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. 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 located in Atlanta, Georgia, and through brokers selected by the Company. 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, except for product sold under cost-plus arrangements, 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 (except cost-plus 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 2,225,000 birds per week in its three processing plants, including two plants which operate with two full shifts. Of the Company's total production, approximately 1,150,000 head 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 one of the Company's two hatcheries, and in three weeks, a baby chick is hatched. The day-old broiler chick is placed on a farm where it will grow for six to eight weeks depending upon the size of bird desired, at which time it is transported to the processing plant for slaughter. To produce uniform size for customer demands, the Company grows the males and females separately. This is necessary because males and females grow at different rates and have different nutritional requirements for cost-effective growth. A significant investment in field inventories is required to support the Company's operating cycle. All feed for all flocks is produced in feed mills owned by the Company. The Company's goal is to add value to all of its birds, and the Company currently is accomplishing this on approximately 85% of all head slaughtered. This value-added product takes the form of deboned breast and thigh meat, cut-up marinated raw breaded chicken (including barbecue), government school lunch product, fast-food cuts, IQF (individually quick frozen) products, and mechanically deboned chicken meat. 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 that 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. Employees and Labor Relations The Company employs approximately 3,500 persons of whom approximately 51% are covered by collective bargaining agreements which expire at various dates over the next three years. 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. Customers Equity Foods ("Equity") accounted for approximately 25% of the Company's sales for the year ended April 1, 2000. The Company has an agreement with Equity to supply chicken under a cost-plus arrangement, and approximately 20% of the Company's production is committed to Equity. Under the arrangement, production in excess of Equity's demands and by-products are sold to other customers and are credited against the cost-plus arrangement. The Company generally receives full margin on processed pounds regardless of the final customer. Backlog The Company had no material backlog of orders existing as of April 1, 2000. Competition The Company is a leading regional integrated poultry processor, ranking seventh nationally in pounds produced. 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 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, the Occupational Safety and Health Administration, 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 that the Company is in substantial compliance with applicable laws and regulations relating to the operation of its facilities. Item 2: Properties Production and Facilities Breeding and Hatching The Company supplies its broiler chicks by producing all of its own hatching eggs from breeder flocks owned by the Company. These breeder flocks are maintained on 59 contract grower farms. In addition, the replacement breeder pullets are maintained on 39 contract grower farms where the breeders are reared from one day old to approximately 18 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. The Company owns two hatcheries located in Dalton, Georgia, and Forsyth, 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 separated by sex, vaccinated against disease, and moved by a special-purpose vehicle, Chick Bus, to the Company's grow-out farms. The two hatcheries have an aggregate capacity of 3,000,000 chicks per week. Both of the hatcheries are company-owned. Grow-Out The Company places its broiler chicks on approximately 267 contract grower farms. The birds are grown separately by sex to provide the exact size requirement of the Company's customers. The independent contract growers provide the housing, equipment, utilities, and labor to grow the baby chicks to market age, which varies from six to eight 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, Tennessee, and Alabama. Feed Mills The Company owns two feed mills. The Dalton, Georgia feed mill has a production capacity of approximately 10,000 tons per week. The feed mill in Forsyth, Georgia, has the capacity to produce approximately 12,000 tons per week. A new feed mill in Rockmart, Georgia presently under construction will have production capacity of 20,000 tons per week. 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, Georgia; Macon, Georgia; and Collinsville, Alabama. The Macon, Georgia, plant has the capacity to process 8,400 birds per hour, and the Collinsville plant can process up to 12,600 birds per hour. The Pine Mountain plant has the capacity to process 10,800 birds per hour. The Pine Mt. Valley, Georgia, and Collinsville, Alabama, plants operate two full shifts. The Macon, Georgia plant operates one shift. The companies new processing facility in Perry, ga. Is scheduled to begin production in late August or early September and will have the capacity to process 1.2 million head of broilers per week. Further Processing and Deboning The Company has a stated goal of marketing the majority of its product as value-added product. This is accomplished by cutting the product into parts or fast-food cuts, deboning, marinating and breading, and converting into other convenience-type products. Currently, further processing and deboning are conducted at the Collinsville, Alabama, plant (cutting, marinating, and breading) and the Pine Mountain and Macon, Georgia, plants (deboning). In addition, the Atlanta, Georgia, facility and the Lovejoy, Georgia, facility are totally devoted to further processing. Freezer Storage The Company's facilities located in Atlanta, Georgia; Collinsville, Alabama; Pine Mountain, Georgia; and Lovejoy, Georgia, have freezer storage facilities with aggregate capacity of approximately 14,800,000 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 sales division, local distribution is operated from refrigerated warehouse facilities in Atlanta, Georgia. This unit has sales representatives located in Macon, Georgia, as well as Atlanta and Collinsville, Alabama, and is designed to provide storage and delivery service for customers. Significant Unconsolidated Subsidiaries The Company owns a 50% interest in a joint venture, which is a fully integrated poultry company located in Camilla, Georgia. The joint venture is growing and processing approximately 1,300,000 birds per week in a processing plant that is capable of processing up to 1,400,000 broilers per week. The Company also owns a minority interest in a poultry by-product company. In December 1995, the Company acquired a 1/3 interest in a grower housing financing company. During this fiscal year the Kentucky joint venture purchased a 1/4 interest in this venture, which diluted the Company's ownership to 1/4. The financing company finances poultry houses for growers who are contract growers for the joint venture companies. In November, 1997 a Joint Venture poultry company was formed in Kentucky and the company became a minority member. Executive Offices The Company's executive offices are located in a renovated two-story (22,000-square-foot) building at 2000 Hills Avenue, NW, Atlanta, Georgia. The building is owned by the Company. All of the properties described above are in good condition and are adequate for their stated uses. Item 3: Legal Proceedings Subsequent to April 3, 1999, suit was filed against Cagle's Farms, Inc. in Superior Court of Whitfield County on April 20, 1999 and on May 19, 1999, Suit was filed in District Court for the Middle District of GA against the Company, Cagle Farms, Inc., Cagle Foods, JV LLC, Cagle Foods Credit LLC and Cagle- Keystone Foods JV. These two separate suites were brought by two different groups of contract breeder growers seeking unspecified damages and allege that the defendants misrepresented certain facts regarding profitability and cash flow as an inducement to their becoming contract producers. The court in the Whitfield County case granted the Company's motion to sever, and the case is now continuing with just one plaintiff. The other, former plaintiffs may refile heir claims in separate suits. The Company and other defendants deny all allegations and are vigorously defending against these actions and expect to be fully vindicated. In addition to the above mentioned suits, a suit was brought against Cagle's, Inc., Cagle's Farms, Inc., Cagle Foods JV, LLC and Cagle-Keystone Foods JV, LLC on May 12, 1999 in U.S. District Court for the Northern District of Ga. by three contract broiler growers of whom one is a current producer for Cagle's Farms, Inc., one a former contract producer for Cagle's Farms, Inc., and one a contract producer for Cagle Foods JV, LLC, a separate joint venture company. This suit alleges certain discrepancies in practices used at various locations within the Company and at Cagle Foods JV, LLC to weigh live poultry as it is received at the processing plant and unspecified damages. This suit seeks class action status. The Company and other defendants deny all allegations and are vigorously defending against all complaints and expect to be completely vindicated. Other than those actions listed above, 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 4: Submission of Matters to a Vote of Security Holders No matters were submitted to security holders for a vote during the fourth quarter of fiscal 2000. PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters The information required by this item is included in the Company's Annual Report to Stockholders for the year ended April 1, 2000 and is incorporated herein by reference. Item 6: Selected Financial Data The information required by this item is included in the Company's Annual Report to Stockholders for the year ended April 1, 2000 and is incorporated herein by reference. Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is included in the Company's Annual Report to Stockholders for the year ended April 1, 2000 and is incorporated herein by reference. Item 8: Financial Statements and Supplementary Data The information required by this item is included in the Company's Annual Report to Stockholders for the year ended April 1, 2000 and is incorporated herein by reference. Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10: Directors and Executive Officers of the Registrant The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2000 and is incorporated herein by reference. Item 11: Executive Compensation The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2000 and is incorporated herein by reference. Item 12: Security Ownership of Certain Beneficial Owners and Management The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2000 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 Stockholders to be held July 14, 2000 and is incorporated herein by reference. PART IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K The following documents are filed as part of this report: (a)1. Financial Statements The Company's 2000 Annual Report to Stockholders contains the consolidated balance sheets as of April 1, 2000 and April 3, 1999, the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended April 1, 2000, and the related report of Arthur Andersen LLP as to these financial statements. These financial statements and the report of Arthur Andersen LLP are incorporated herein by reference. The financial statements, incorporated by reference, include the following: Consolidated Balance Sheets April 1, 2000 and April 3, 1999 Consolidated Statements of Income for the Years Ended April 1, 2000, April 3, 1999, and March 28, 1998 Consolidated Statements of Stockholders' Equity for the Years Ended . April 1, 2000, April 3, 1999, and March 28, 1998 Consolidated Statements of Cash Flows for the Years Ended . April 1, 2000, April 3, 1999, and March 28, 1998 Notes to Consolidated Financial Statements for the Years Ended . April 1, 2000, April 3, 1999, and March 28, 1998 (a)2. Financial Statement Schedules The financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. (a)3 Exhibits 8.1 audited financial statements of unconsolidated affiliate. Reports on Form 8-K No reports on Form 8-K were filed. Signatures 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 J. Douglas Cagle Chairman and Chief Executive Officer 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 capacities and on the date indicated: /s/ J.Douglas Cagle Chairman and Director and Chief Executive Officer /s/ Kenneth R. Barkley Senior Vice President Finance/Treasurer/Chief Financial Officer/Director/Principle Financial and Accounting Officer /s/ G. Bland Byrne Director /s/ George Douglas Cagle Vice President, New Product Development and Director /s/ John J. Bruno Senior Vice President Sales Marketing and Director /s/ James David Cagle Vice President, New Product Sales and Director /s/ Jerry D. Gattis President, Chief Operating Officer and Director /s/ Mark M. Ham IV Vice President, Information Systems and Director /s/ Candace Chapman Director EX-27 2 0002.txt
5 0000016104 CAGLE'S, INC. 1000 12-MOS APR-01-2000 APR-04-1999 APR-01-2000 9526 0 16166 905 31112 60264 153644 57141 192470 31434 66570 4748 0 0 76931 192470 322220 322991 312276 312276 (7671) 0 2077 15538 5594 9944 0 0 0 9944 2.09 2.09
EX-99 3 0003.txt EXHIBIT FOR FORM 10-K CAGLE FOODS JV, L.L.C. FINANCIAL STATEMENTS As of and for the Year ended January 1, 2000 and January 2, 1999 and Independent Auditors Report INDEPENDENT AUDITORS' REPORT Steering Committee of Cagle Foods JV, L.L.C.: We have audited the accompanying balance sheets of Cagle Foods JV, L.L.C. (the "Company") as of January 1, 2000 and January 2, 1999 and the related statements of income, members' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial position presenation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 1, 2000 and January 2, 1999 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /S/ Deloitte & Touche LLP Atlanta, Ga. February 29, 2000 CAGLE FOODS JV, L.L.C. BALANCE SHEETS (In Thousands) January 01, 2000 January 02, 1999 Assets Current assets: Cash $ 8,276 $ 305 Accounts receivable: Related parties 13,064 6,925 Other 1,198 2,517 --------------- --------------- 14,262 9,442 Inventories 16,281 16,717 Prepaid expenses 338 306 --------------- --------------- Total current assets 39,156 26,770 Investment in affiliated companies 1,256 1,224 Property, plant, and equipment: Land 923 923 Land improvements 4,360 4,360 Buildings and building equipment 41,813 41,787 Machinery and equipment 26,702 27,120 Furniture and fixtures 622 578 Construction-in-process 375 149 --------------- ------------- 74,795 74,917 Less accumulated depreciation 26,492 18,676 . --------------- ------------- . 48,303 56,241 Other assets 834 1,412 . --------------- ------------- $ 89,549 $ 85,647 . =============== ============= Liabilities and members' equity Current liabilities: Accounts payable $ 6,958 $ 9,714 Accrued expenses 5,285 4,228 Current portion of long-term debt 8,400 7,000 . --------------- ------------- Total current liabilities 20,643 20,942 Long-term debt 12,450 22,850 Members' Equity 56,456 41,855 . --------------- ------------- . $ 89,549 $ $85,647 . =============== ============= See notes to financial statements. CAGLE FOODS JV, L.L.C. STATEMENTS OF INCOME (In Thousands) . Year ended Year ended . Jan.1,2000 Jan.2,1999 -------------- -------------- Net sales: Related parties $ 189,809 $ 179,564 Other 8,540 6,510 . -------------- -------------- Total Net Sales 198,349 186,074 Cost of products sold 176,136 165,110 Selling and administrative expenses 4,543 4,343 . -------------- -------------- 180,679 169,453 . -------------- -------------- Operating income 17,670 16,631 Other income (expense): Other income 479 421 Rental income 2,913 2,913 Interest expense (2,307) (2,628) Other expense (3,055) (2,392) . --------------- -------------- Net income $ 15,700 $ 14,935 . =============== ============== See notes to financial statements. CAGLE FOODS JV, L.L.C. STATEMENTS OF MEMBERS' EQUITY (In Thousands) Executive Cagle's, Holdings Ltd. Inc. Total ------------- --------- -------- Balance - December 27, 1997 $ 16,434 $ 16,434 $ 32,868 Net Income 7,467 7,467 14,934 Distribution of income (2,974) (2,974) (5,948) ------------ --------- --------- Balance - December 27, 1997 $ 20,927 $ 20,927 $ 41,854 Net Income 7,850 7,850 15,700 Distribution of income (549) (549) (1,098) ------------ --------- --------- Balance - January 1, 2000 $ 28,228 $ 28,228 $ 56,456 See notes to financial statements. CAGLE FOODS JV, L.L.C. STATEMENTS OF CASH FLOWS (In Thousands) Year ended Year ended Jan.1,2000 Jan.2,1999 ------------ ------------ Operating activities: Net income $ 15,700 $ 14,935 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,325 5,335 Undistributed income of affiliates (390) (426) Loss on sales of property, plant and equipment 15 6 Changes in operating assets and liabilities: Accounts receivable (4,820) 3,779 Inventories 436 (2,658) Prepaid expenses (32) 298 Other assets 68 (1,010) Accounts payable (2,755) 2,898 Accrued expenses 1,057 (87) ------------- ------------- Net cash provided by operating activities 17,604 23,070 Investing activities: Proceeds from the sale of property, plant, and equipment 1,638 41 Purchases of property, plant, and equipment (1,532) (8,413) Distribution of Income from affiliates 359 954 ------------- ------------- Net cash used in investing activities 465 (7,418) Financing activities: Long-term borrowings 0 8,000 Payments of long-term debt (9,000) (17,600) Distribution of income (1,098) (5,949) ------------- ------------- Net cash used in financing activities (10,098) (15,549) ------------- ------------- Net decrease in cash and cash equivalents 7,971 103 Cash and cash equivalents: Beginning of period 305 202 ------------- ------------- End of period $ 8,276 $ 305 ============= ============= Supplemental disclosures of cash flow Cash paid during the year for interest $ 2,201 $ 2,783 . ============= ============= See notes to financial statements. Cagle Foods JV, L.L.C. NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Cagle Foods JV, L.L.C. (the "Company") was established as a Limited Liability Company on March 27, 1993 and is a joint venture between Cagle's, Inc. and Executive Holdings L.P. The Company's operations are located in Camilla, Georgia. The latest date at which the Limited Liability Company is to dissolve is 2022. The Company is engaged in the production and sale of processed chicken. Primarily all of the Company's sales are made to the joint venture partners (see Note 3). Keystone Foods, LLC is an entity related through common ownership with Executive Holdings, L.P. Revenue Recognition The Company recognizes revenue when product is shipped to customers. Inventories Live field inventories are stated at the lower of cost or market, and breeders are stated at cost, less accumulated amortization. Breeder costs are accumulated up to the production stage. Such costs are amortized into hatching egg costs over the estimated production lives based on monthly egg production. Finished products, feed, medication, and supplies are stated at the lower of cost or market determined by the first-in, first-out method. Inventories at January 1, 2000 and January 2, 1999, respectively, consist of the following (in thousands): 1999 1998 -------- -------- Finished products $ 3,995 $ 4,059 Field inventory, breeders, and eggs 10,495 10,975 Feed, ingredients, and medication 1,348 1,207 Supply Inventory 442 476 -------- -------- $ 16,280 $ 16,717 . ======== ======== Property, Plant, and Equipment Property, plant, and equipment is stated at cost. Depreciation is computed principally by the straight-line method for financial reporting purposes over the following periods: Buildings and improvements 3-30 years Machinery, furniture and equipment 3-17 years Vehicles 1-8 years The Company evaluates the estimated useful lives and the carrying value of assets on a periodic basis to determine whether events or circumstances warrant revised estimated useful lives or whether any impairment exists. Management believes no impairment existed at January 1, 2000. Other Assets Other assets consist primarily of loan origination fees which are amortized on a straight-line basis over seven years. Accumulated amortization related to loan origination fees was $509,000 at January 1, 2000 and $841,000 at January 2, 1999. Investments in Unconsolidated Affiliates The equity method of accounting is used to account for the Company's investments in unconsolidated affiliates because of the Company's ability to exercise significant influence. Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, and accounts payable reflected in the financial statements approximate fair values because of the short-term nature of these instruments. Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the Company estimates that the carrying value of its long-term debt approximates fair value. The fair value of the interest rate swaps (see Note 2) is based on confirmation with the counter-party. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year-End The Company follows a fiscal year which ends on the Saturday nearest to the end of the month of December. Income Taxes The Company is a Limited Liability Company and has received a ruling from the Internal Revenue Service which allows the Company to be treated as a partnership for income tax purposes. As a partnership, it is not subject to income taxes and the partners report their proportionate share of the income on their tax returns. Interest Rate Swap Agreements These agreements involve the receipt of a floating-rate of interest on long-term debt in exchange for a fixed rate of interest over the life of the agreements without an exchange of the underlying debt principal amount. The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense related to the debt. The fair values of the swap agreements are not recognized in the financial statements. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for the Company for year 2001. The Company has not completed the process of evaluating the impact that will result from adopting SFAS 133. The Company is therefore unable to disclose the impact that adopting SFAS 133 will have on its financial position and results of operations when such statement is adopted. 2. LONG-TERM DEBT Long-term debt at January 1, 2000 and January 2, 1999, respectively, consists of the following (in thousands): 1998 1997 . ----------- ------------ Note Payable to Cagle's, Inc., variable interest rate (8.5% at January 1, 2000 and 7% at January 1, 1999),maturing on March 27, 2000 $ 1,400 $ 1,400 Notes payable to GA/KY Fundco LLC under a revolving credit agreement, variable interest rate (9.5% at January 1, 2000 and 6.2% at January 1, 1999) 0 2,000 Notes payable to GA/KY Fundco LLC under a term loan agreement, variable interest rate (9.1% at Jan. 1, 2000 and 6.2% at Jan. 2, 1999) due in installments commencing March 31, 1998 through Dec. 31, 2002 19,450 26,450 . ----------- ------------ 20,850 29,850 Less amounts currently due 8,400 7,000 . ----------- ------------ Total long-term debt $ 12,450 $ 22,850 On November 7, 1997, GA/KY Fundco L.L.C. ("Fundco") (a 50% owned subsidiary) executed a loan agreement for a $95 million term loan facility and $30 million revolving loan facility at variable interest rates on the behalf of Cagle's- Keystone Foods L.L.C. ("Kentucky") (a related party) and the Company. This loan is guaranteed by the Company and Kentucky. The proceeds were used to repay the existing term and revolving loans. Fundco was established in 1997 as a 50%-owned subsidiary of both the Company and Kentucky. Fundco is a special-purpose entity set up for borrowing of funds from a group of banks to fund the capital needs of the Company and Kentucky. Fundco has no other operations. At January 1, 2000, Kentucky had $62.1 million outstanding for the term loan facility and $26.6 million outstanding for the revolving loan facility. Aggregate maturities of long-term debt during the years subsequent to January 1, 2000 under the term and revolving loan of Fundco related to the portion borrowed by the Company and the note payable to Cagle's, Inc. are as follows (in thousands): Year Ended December 30, 2000 8,400 December 29, 2001 7,500 December 28, 2002 4,950 . ------- $20,850 . ======= The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its term and revolving note agreement which expire June 30, 2000. At January 1, 2000 and January 2, 1999, the Company had two outstanding interest rate swap agreements having an aggregate notional amount of $4.2 million and $11.2 million, respectively. The notional amount declines over the term of the swap agreement. Approximately $5,361 and ($77,745) in unrealized gains/(losses) exist on these agreements at January 1, 2000 and January 2, 1999, respectively. These agreements effectively fix the average interest rate on $4.2 million of the Company's term and revolving loan agreements at 5.845% plus a spread based on the Company's debt-to-cash-flow ratio through 2000. Under the terms of the agreements, the Company makes payments at fixed rates and receives payments at variable rates based on LIBOR adjusted quarterly. On December 31, 1997, Fundco, on behalf of the Company and Kentucky, entered into two additional interest rate swap agreements with expiration dates of December 31, 2002, which effectively fix the rate on notional amounts of $61.7 million at 5.99%, plus a spread based on the Company's debt-to-cash-flow ratio. These notional amounts change in the future based on amounts outstanding under the Company's term and revolving loan agreements. Under the terms of the agreements, the Company makes payments at fixed rates and receives payments at variable rates based on the three-month LIBOR rate. Approximately $1,058,162 and $53,098 in unrealized gains exist on these agreements at January 1, 2000 and January 2, 1999, respectively. The Company does not intend to terminate these agreements prior to the maturity date. The Company is exposed to credit loss in the event of nonperformance by the other party to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counter-parties. At January 1, 2000 the Company had an unused standby letter of credit amounting to $350,000. 3. RELATED PARTY TRANSACTIONS Sales to the Company's owners (Executive Holdings, L.P. and Cagle's, Inc.) represented 95.3% and 96.0% of net sales during the year ended January 1, 2000 and January 2, 1999, respectively. The Company sells deboned chicken at cost plus $.03 per eviscerated pound to Executive Holdings, L.P. The Company also sells other chicken components at market price to Cagle's, Inc. Executive Holdings, L.P. and Cagle's, Inc. both charge the Company administrative service fees based on the Company's volume of production. The Company pays Cagle's, Inc. for computer processing services for which it charges a fee based on the Company's volume of production. Sales, expenses, and balances with related parties for 1999 and 1998 are summarized as follows (in thousands): . Liberty Executive Cagle's Keystone Assurance Holdings Ltd. Inc. LLC Ltd. 1999 Sales $182,915 $ 6,198 696 0 Rental income for further processing plant 2,913 0 0 0 Administrative service and other fees 1,275 1,614 0 0 Balances at year end: Accounts receivable 10,534 272 1,254 0 Note payable 0 1,400 0 0 Accounts Payable 0 0 266 0 1998 Sales $157,707 $20,887 970 0 Rental income for further processing plant 2,913 0 0 0 Administrative service and other fees 1,196 1,515 0 0 Balances at year end: Accounts receivable 7,510 865 718 0 Note payable 0 1,400 0 0 Accounts Payable 2,168 0 0 0 The Company entered into a lease agreement beginning January 1, 1998 with Keystone Foods for the Company's further processing facility for a period of 10 years at an annual rental amount of $2,912,500. The property, plant, and equipment associated with this lease as of January 2, 1999 are as follows: Land $ 100 Building 21,131 Machinery & Equipment 3,914 . -------- . 25,145 Less accumulated depreciation (2,010) . -------- Net leased property $23,135 4. COMMITMENTS AND CONTINGENCIES The Company leases machinery and equipment under operating leases. The leases for the machinery and equipment require payments of contingent rentals based on usage in excess of a specified minimum, and future rental payments may be adjusted for increases in maintenance and insurance above specified amounts. Rent expense for the years ended January 1, 2000 and January 2, 1999 was approximately $3,856,000 and $3,974,000, respectively. Future minimum payments under noncancelable operating leases with initial terms of one year or more, including payments made on behalf of Keystone Foods by the Company, consisted of the following at January 1, 2000 (in thousands): December 30, 2000 3,782 December 29, 2001 3,694 December 28, 2002 3,947 January 3, 2004 3,895 Thereafter 6,745 -------- $22,063 During 1994, the Company entered into an agreement with the City of Camilla, Georgia whereby the City agreed to construct a water tower and wastewater treatment system primarily for the Company. The Company has agreed to service the debt incurred by the City to construct these facilities under the condition that the City provide adequate water and wastewater treatment services. If the City is unable to provide water and wastewater treatment services, the Company is not obligated to repay the debt. The cost and related debt associated with these facilities was approximately $10.1 million. The Company has agreed to make annual debt service payments of approximately $746,000 through May 2016. During 1995, the Company entered into an agreement with the City of Camilla, Georgia whereby the City agreed to construct a power substation primarily for the Company. The Company has agreed to service the debt incurred by the City to construct these facilities under the condition that the city provide an adequate power supply to the processing plant. If the City is unable to provide an adequate power supply, the Company is not obligated to repay this debt. The total cost and debt associated with these facilities was approximately $205,000. The Company has agreed to make payments of approximately $41,000 through June 2005. The Company has entered into an agreement with the City of Camilla, Georgia to construct an additional wastewater treatment facility to service the processing plant including the planned expansion. Under the terms of the agreement, the Company is responsible for the estimated total cost of the facility of approximately $2.1 million less any grant money received by the City of Camilla to fund this project. During 1996, the Company incurred approximately $619,000 in costs to be reimbursed by the City. During 1997, the Company received reimbursements totaling approximately $482,000. The remaining amounts were received during 1998. The Company will be required to reimburse the City over a 20-year period for costs incurred in excess of grants received. Additionally, the Company will be required to pay for the maintenance and operations of the facility. 5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES At the date the Company was formed (March 27, 1993), Cagle's, Inc. transferred their investment of approximately $894,000 (50% of the outstanding stock) in a grain elevator corporation to the Company. The investment is being accounted for under the equity method. The unaudited undistributed income for the years ended January 1, 2000 and January 2, 1999 from this affiliate allocated to the Company was approximately $390,000 and $363,000, respectively. The Company received distributions of $350,000 during 1999. The Company purchased, at prices approximating market, $33.1 million and $53.4 million in feed ingredients from this affiliate during 1999 and 1998, respectively. Effective December 1995, Cagle's Inc., Executive Holdings, L.P., and the Company formed Cagle Foods Credit, L.L.C. (the "Credit Company"). Each Company made capital contributions of $3,000. Effective July 1, 1998, Cagle's-Keystone Foods, L.L.C. became a member of the Credit Company, at which time Cagle's- Keystone made a capital contribution of $14,000. The Credit Company was formed for the purpose of financing the facilities of the Company's and Cagle's- Keystone Foods' contract growers. The investment is being accounted for under the equity method. The undistributed income from this affiliate allocated to the Company was approximately $11,000 in 1999 and $63,000 in 1998. The Company received distributions of $12,000 during 1998. The Credit Company executed a loan agreement for a $37.7 million revolving loan facility at variable interest rates. The Company and Kentucky have guaranteed the borrowings under the loan agreement. The Credit Company has received advances of approximately $33.7 million on the revolving loan facility as of January 1, 2000. The Credit Company has consumer loans receivable of approximately $32.6 million at January 1, 2000. 6. BENEFIT PLANS Substantially all of the Company's union employees are covered by a union- sponsored multi-employer defined benefit plan to which the Company contributes amounts specified by the union contract. 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 presented. 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. As of November 1, 1997, the union contract was negotiated and as a result, pension benefits were increased by approximately 25%. Amounts paid for pension benefits for union employees totaled approximately $340,000 in 1999 and $356,000 in 1998. The Company also has a 401(k) retirement plan for employees not covered under the collective bargaining agreement. Under the plan, the Company contributes up to 2% of participating employees' salaries. Amounts contributed by the Company to the 401(k) plan totaled approximately $41,000 in 1999 and $42,000 in 1998.. -----END PRIVACY-ENHANCED MESSAGE-----