CGL.A Cagles,

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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(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

 

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CAGLES, INC.

(Exact name of Registrant as specified in its charter)

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                                                   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)

 

                                         Registrant’s telephone number, including area code: (404) 355-2820

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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 

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:

 

 

3. Inventories consisted of the following:

    (In Thousands)

 

 

 

 

4.       Long-Term Debt

 

Long-term debt consists of the following:

 

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 Company’s 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 Company’s 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 Company’s 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):

 

 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 Company’s 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 Company’s 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 Company’s 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 company’s 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.

 

 

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 Company’s 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 Company’s 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 Company’s premises and title passes to the customer), the Company’s 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 management’s review of the overall condition of accounts receivable balances and review of significant past due accounts. If the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Due to the nature of the industry and the short-term nature of these accounts, there have not been material revisions in these estimates of management.

 

Inventories.

Live bird and hatching egg inventories are stated at cost and breeder hens are stated at cost, less accumulated amortization, consistent with industry standards. The costs associated with breeder hens are accumulated up to the production stage and amortized over 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 Company’s operations, and estimated salvage values, and (ii) estimated fair market value of the assets.

 

Contingent Liabilities.

The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor, securities, environmental, product and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after considerable analysis of each individual issue. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.

 

Accrued Self Insurance.

Insurance expense 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 Company’s 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 Company’s 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 Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”).   Based on that evaluation, the Company’s 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 Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Company’s 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 Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s 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 Company’s 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 Registrant’s Form 10-Q for the quarter ended October 2, 2004.

(3) Previously filed and incorporated by reference herein from the Registrant’s 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