Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For thequarterly period ended July 3, 2010**

** **

**or**

** **

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

** **

**For thetransition period from               to               **

** **

**COMMISSIONFILE NUMBER: 1-7138**

** **

**CAGLE’S, INC.**

(Exact Name Of Registrant As Specified In Its Charter)

 

| **GEORGIA**                              | ** ** | **58-0625713**                       |
|------------------------------------------|------------|--------------------------------------|
| (State Of Incorporation)                 |       | (I.R.S. Employer Identification No.) |
|                                     |       |                                 |
| **1385 COLLIER ROAD NW, ATLANTA, GA**    | ** ** | **30318**                            |
| (Address of Principal Executive Offices) |       | (Zip Code)                           |

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act ofl934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. x Yes  o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulations S-T (section229.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files).  o Yes  o No

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or a smaller reportingcompany.  See definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o |   | Accelerated filer o          |
|--------------------------------|--------|-----------------------------------|
|                           |   |                              |
| Non-accelerated filer o   |   | Smaller reporting company x. |

 

Indicateby check mark if the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  o Yes  x No

 

Indicatethe number of shares outstanding of each of the registrant’s classes of commonstock, as of the latest practicable date.

 

| Class A Common Stock at $1.00 par value |   | 4,616,208 shares as of August 12, 2010. |
|----------------------------------------------|--------|----------------------------------------------|

 

 

 

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Table of Contents

 

**FORM 10-Q**

 

**Cagle’s, Inc.**

**July 3,2010**

 

**TABLE OF CONTENTS**

 
| ** **                                                                 | ** **                                                                                  | ** ** | **Page** |
|----------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|------------|----------|
| ** **                                                                 | **PART I  FINANCIAL INFORMATION**                                                      |       |     |
|                                                                       |                                                                                        |       |     |
| Item 1.                                                                    | Financial Statements                                                                        |       | 3        |
| Item 2.                                                                    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 12       |
| Item 3.                                                                    | Quantitative  and Qualitative Disclosures About Market Risk                                 |       | 17       |
| Item 4.                                                                    | Controls and Procedures                                                                     |       | 18       |
|                                                                       |                                                                                        |       |     |
| ** **                                                                 | **PART II  OTHER INFORMATION**                                                         |       |     |
|                                                                       |                                                                                        |       |     |
| Item 1.                                                                    | Legal Proceedings                                                                           |       | 19       |
| Item 1.A.                                                                  | Risk Factors                                                                                |       | 19       |
| Item 2.                                                                    | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 21       |
| Item 3.                                                                    | Defaults upon  Senior Securities                                                            |       | 21       |
| Item 4.                                                                    | Submission of  Matters to a Vote of Security Holders                                        |       | 22       |
| Item 5.                                                                    | Other Information                                                                           |       | 22       |
| Item 6.                                                                    | Exhibits                                                                                    |       | 23       |
|                                                                       |                                                                                        |       |     |
| Signatures                                                                 |                                                                                        | 23         |
|                                                                       |                                                                                        |       |
| Exhibit 31.1  Exhibit 31.2  Exhibit 32.1  Exhibit 32.2 |                                                                                        |       |

 

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Table of Contents

 

**CAGLE’S, INC. AND SUBSIDIARY**

**CondensedConsolidated Balance Sheets**

**(InThousands, Except Par Values)**

 

**Part I. FINANCIAL INFORMATION**

**Item 1. Financial Statements**

 
| ** **                                                                                                                                    | ** ** | **(Unaudited)**       | ** ** | ** **             | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                    | ** ** | **July 3, 2010** | ** ** | **April 3, 2010** | ** ** |
| Assets                                                                                                                                        |       |                  |       |                   |       |
| Current assets                                                                                                                                |       |                  |       |                   |       |
| Cash                                                                                                                                          |       | $                     | 1,878      |                   | $          | 1,872 |   |
| Trade accounts receivable, less allowance for  doubtful accounts of $174 and $174 at July 2010 and April 2010                       |       | 14,739                |       | 15,769                 |       |
| Inventories                                                                                                                                   |       | 27,468                |       | 26,065                 |       |
| Other current assets                                                                                                                          |       | 746                   |       | 305                    |       |
| Total current assets                                                                                                                          |       | 44,831                |       | 44,011                 |       |
| Property, plant and equipment, at cost                                                                                                        |       |                  |       |                   |       |
| Land                                                                                                                                          |       | 1,976                 |       | 1,976                  |       |
| Buildings and improvements                                                                                                                    |       | 59,705                |       | 59,698                 |       |
| Machinery, furniture and equipment                                                                                                            |       | 44,846                |       | 42,213                 |       |
| Vehicles                                                                                                                                      |       | 5,519                 |       | 5,249                  |       |
| Construction in progress                                                                                                                      |       | 360                   |       | 932                    |       |
|                                                                                                                                          |       | 112,406               |       | 110,068                |       |
| Accumulated depreciation                                                                                                                      |       | (76,421               | )          | (75,199                | )          |
| Property, plant and equipment, net                                                                                                            |       | 35,985                |       | 34,869                 |       |
| Other assets                                                                                                                                  |       |                  |       |                   |       |
| Deferred financing costs, net                                                                                                                 |       | 68                    |       | 83                     |       |
| Deferred income taxes                                                                                                                         |       | 5,185                 |       | 7,141                  |       |
| Other assets                                                                                                                                  |       | 1,515                 |       | 1,515                  |       |
| Total other assets                                                                                                                            |       | 6,768                 |       | 8,739                  |       |
| Total assets                                                                                                                                  |       | $                     | 87,584     |                   | $          | 87,619 |   |
|                                                                                                                                          |       |                  |       |                   |       |
| Liabilities and  Stockholders’ Equity                                                                                                    |       |                  |       |                   |       |
| Current liabilities                                                                                                                           |       |                  |       |                   |       |
| Current maturities of long-term debt                                                                                                          |       | $                     | 2,738      |                   | $          | 2,685 |   |
| Accounts payable                                                                                                                              |       | 17,068                |       | 16,142                 |       |
| Accrued expenses and compensation                                                                                                             |       | 6,224                 |       | 5,685                  |       |
| Deferred income taxes                                                                                                                         |       | 2,739                 |       | 2,739                  |       |
| Total current liabilities                                                                                                                     |       | 28,769                |       | 27,251                 |       |
| Long-term debt, less current maturities                                                                                                       |       | 20,002                |       | 25,033                 |       |
| Stockholders’ equity                                                                                                                     |       |                  |       |                   |       |
| Preferred stock, $1 par value; 1,000 shares  authorized, none issued                                                                          |       | —                |       | —                 |       |
| Common stock, $1 par value; 9,000 shares  authorized, 4,617 shares issued and 4,616 shares outstanding at  July 2010 and April 2010 |       | 4,616                 |       | 4,616                  |       |
| Treasury stock, at cost                                                                                                                       |       | (80                   | )          | (80                    | )          |
| Additional paid-in capital                                                                                                                    |       | 3,600                 |       | 3,600                  |       |
| Retained earnings                                                                                                                             |       | 30,677                |       | 27,199                 |       |
| Total stockholders’ equity                                                                                                               |       | 38,813                |       | 35,335                 |       |
| Total liabilities and stockholders’ equity                                                                                               |       | $                     | 87,584     |                   | $          | 87,619 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Condensed ConsolidatedStatements of Operations**

**(In Thousands, Except PerShare Data)**

**(Unaudited)**

 
| ** **                                 | ** ** | **13 Weeks Ended**    | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **July 3, 2010** | ** ** | **June 27, 2009** | ** ** |
|                                       |       |                  |       |   |   |
| Net sales                                  |       | $                     | 78,571     |   | $ | 78,015 |   |
|                                       |       |                  |       |   |   |
| Costs and expenses                         |       |                  |       |   |   |
| Cost of sales                              |       | 68,215                |       | 71,708 |   |
| Selling and delivery                       |       | 2,447                 |       | 2,197 |   |
| General and administrative                 |       | 2,098                 |       | 1,665 |   |
| Total costs and expenses                   |       | 72,760                |       | 75,570 |   |
|                                       |       |                  |       |   |   |
| Operating income                           |       | 5,811                 |       | 2,445 |   |
|                                       |       |                  |       |   |   |
| Other income (expense)                     |       |                  |       |   |   |
| Interest expense                           |       | (381                  | )          | (442 | ) |
| Other income (expense), net                |       | 4                     |       | 2 |   |
| Total other income (expense), net          |       | (377                  | )          | (440 | ) |
|                                       |       |                  |       |   |   |
| Income before income taxes                 |       | 5,434                 |       | 2,005 |   |
|                                       |       |                  |       |   |   |
| Income tax expense                         |       | 1,956                 |       | 722 |   |
|                                       |       |                  |       |   |   |
| Net income                                 |       | $                     | 3,478      |   | $ | 1,283 |   |
|                                       |       |                  |       |   |   |
| Weighted-average common shares outstanding |       |                  |       |   |   |
| Basic                                      |       | 4,616                 |       | 4,619 |   |
| Diluted                                    |       | 4,616                 |       | 4,619 |   |
|                                       |       |                  |       |   |   |
| Per common share                           |       |                  |       |   |   |
| Net income                                 |       |                  |       |   |   |
| Basic                                      |       | $                     | 0.75       |   | $ | 0.28 |   |
| Diluted                                    |       | $                     | 0.75       |   | $ | 0.28 |   |
| Dividends                                  |       | $                     | —     |   | $ | — |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Condensed ConsolidatedStatements of Cash Flows**

**(In Thousands)**

**(Unaudited)**

 
| ** **                                                                        | ** ** | **13 Weeks Ended**    | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                        | ** ** | **July 3, 2010** | ** ** | **June 27, 2009** | ** ** |
| Cash flows from operating activities                                              |       |                  |       |   |   |
| Net income                                                                        |       | $                     | 3,478      |   | $ | 1,283 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities |       |                  |       |   |   |
| Depreciation                                                                      |       | 1,222                 |       | 1,030 |   |
| Amortization                                                                      |       | 15                    |       | 22 |   |
| Gain on sale of property, plant and equipment                                     |       | (4                    | )          | (2 | ) |
| Deferred income tax expense                                                       |       | 1,956                 |       | 722 |   |
| Changes in operating assets and liabilities                                       |       |                  |       |   |   |
| Trade accounts receivable, net                                                    |       | 1,030                 |       | (1,746 | ) |
| Inventories                                                                       |       | (1,403                | )          | (436 | ) |
| Other current assets                                                              |       | (441                  | )          | (270 | ) |
| Other assets                                                                      |       | —                |       | 16 |   |
| Accounts payable                                                                  |       | (1,071                | )          | 157 |   |
| Accrued expenses and compensation                                                 |       | 539                   |       | 682 |   |
| Net cash provided by operating activities                                         |       | 5,321                 |       | 1,458 |   |
| Cash flows from investing activities                                              |       |                  |       |   |   |
| Purchases of property, plant and equipment                                        |       | (2,338                | )          | (305 | ) |
| Proceeds from sale of property, plant and  equipment                              |       | 4                     |       | 2 |   |
| Proceeds from redemption of life insurance cash  values                           |       | —                |       | 180 |   |
| Net cash used in investing activities                                             |       | (2,334                | )          | (123 | ) |
| Cash flows from financing activities                                              |       |                  |       |   |   |
| Proceeds on revolving line of credit                                              |       | 12,875                |       | 23,350 |   |
| Payments on revolving line of credit                                              |       | (17,200               | )          | (24,450 | ) |
| Payments of long-term debt                                                        |       | (653                  | )          | (605 | ) |
| Increase in negative book cash balances                                           |       | 1,997                 |       | 636 |   |
| Repurchase of stock                                                               |       | —                |       | (48 | ) |
| Net cash used in financing activities                                             |       | (2,981                | )          | (1,117 | ) |
| Net increase in cash and cash equivalents                                         |       | 6                     |       | 218 |   |
| Cash and cash equivalents - beginning of period                                   |       | 1,872                 |       | 1,246 |   |
| Cash and cash equivalents - end of period                                         |       | $                     | 1,878      |   | $ | 1,464 |   |
| Supplementary disclosures of cash flow information                                |       |                  |       |   |   |
| Cash paid during the period for:                                                  |       |                  |       |   |   |
| Interest                                                                          |       | $                     | 380        |   | $ | 429 |   |
| Supplementary disclosures of noncash transactions                                 |       |                  |       |   |   |
| Net unrealized gain on hedging activities, net of  income tax expense of $161     |       | $                     | —     |   | $ | 287 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Notes to CondensedConsolidated Financial Statements**

**July 3, 2010**

**(In Thousands)**

**(Unaudited)**

 

1.               **Basis ofPresentation**

 

In the opinion of management, the accompanyingunaudited consolidated financial statements contain all adjustments which areof a normal and recurring nature necessary to present fairly the consolidatedfinancial position of Cagle’s, Inc. and its wholly owned subsidiary CagleFarms, Inc. (collectively, the “Company”) as of July 3, 2010 and theresults of their operations for the 13 weeks ended July 3, 2010 and June 27,2009.  The accompanying unauditedconsolidated financial statements have been prepared in accordance with U.S.generally accepted accounting principles for interim financial information andwith the instructions to Form 10-Q and Regulation S-X.  Results of operations for the 13 weeks ended July 3,2010 are not necessarily indicative of results to be expected for the fullfiscal year ending April 2, 2011.

 

The consolidated balance sheet at April 3, 2010has been derived from the audited consolidated financial statements at thatdate but does not include all of the information and footnotes required by U.S.generally accepted accounting principles for complete financial statements. Forfurther information, reference is made to the consolidated financial statementsand notes thereto included in the Company’s annual report on Form 10-K forthe year ended April 3, 2010.

 

2.               **SignificantAccounting Policies**

 

Refer to the Company’s 2010 annual report on Form 10-K,Note 1 to Consolidated Financial Statements, for a description of significantaccounting policies.  There have been nomaterial changes to these accounting policies.

 

3.               **Cash and CashEquivalents**

 

The Company considers all highly liquid investmentswith original maturities of three months or less to be cash equivalents.  The Company’s cash management system allowsthe Company to fund outstanding checks when presented to the financialinstitution for payment resulting in book overdrafts.  Book overdrafts are recorded in accountspayable in the consolidated balance sheets and changes are reflected as afinancing activity in the consolidated statements of cash flows.  As of July 3, 2010 and April 3,2010, the Company had book overdrafts of $6,105 and $4,108, respectively.

 

4.               **Inventories**

 

Inventories consist of the following at July 3,2010 and April 3, 2010:

 
| ** **                   | ** ** | **July 2010** | ** ** | **April 2010** | ** ** |
|------------------------------|------------|--------------------|------------|---------------------|------------|
|                         |       |               |       |                |       |
| Finished products            |       | $                  | 4,940      |                | $          | 4,277 |   |
| Field inventory and breeders |       | 15,561             |       | 15,667              |       |
| Feed, eggs and medication    |       | 5,713              |       | 4,779               |       |
| Supplies                     |       | 1,254              |       | 1,342               |       |
|                         |       |               |       |                |       |
|                         |       | $                  | 27,468     |                | $          | 26,065 |   |

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Notes to CondensedConsolidated Financial Statements**

**July 3, 2010**

**(In Thousands)**

**(Unaudited)**

 

5.              **Long-TermDebt**

 

Long-term debt consists of the following at July 3,2010 and April 3, 2010:

 
| ** **                                                                                                                                                                                                                                                                                                 | ** ** | **July 2010** | ** ** | **April 2010** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------------|------------|
| Long-term revolving line of credit; maturing  March 31, 2012, interest payable monthly, variable interest rate of  London InterBank Offered Rate (“LIBOR”) plus 3.50% (currently 4.00%); secured  by accounts receivable, inventories and the Atlanta and Pine Mountain Valley  facilities. |       | $                  | 11,575     |                | $          | 15,900 |   |
|                                                                                                                                                                                                                                                                                                       |       |               |       |                |       |
| Term note payable; fixed interest rate of 7.86%,  principal and interest payable monthly of $290 through March 1, 2012 with  a maturity payable of $6,513 on April 1, 2012; secured by the  Collinsville plant, Dalton hatchery and Rockmart feedmill.                                           |       | 11,102             |       | 11,746              |       |
|                                                                                                                                                                                                                                                                                                       |       |               |       |                |       |
| Capital leases payable, imputed interest at 7.86%,  principal and interest payable monthly of $3, through maturity ranges of  March 2012 to August 2012; secured by the leased equipment.                                                                                                        |       | 63                 |       | 72                  |       |
|                                                                                                                                                                                                                                                                                                       |       | 22,740             |       | 27,718              |       |
| Less current maturities                                                                                                                                                                                                                                                                                    |       | 2,738              |       | 2,685               |       |
|                                                                                                                                                                                                                                                                                                       |       |               |       |                |       |
| Long-term debt, less current maturities                                                                                                                                                                                                                                                                    |       | $                  | 20,002     |                | $          | 25,033 |   |

 

OnNovember 23, 2009, the Company entered into Amendment Number 4 to thelong-term revolving line of credit agreement, effective as of October 31,2009.  There were four primary changes tothe existing Agreement between the parties: (1) The maturity date of the$21,000 portion of the revolving credit facility was extended to March 31,2012.  (2) The maturity date of the$4,150 portion of the revolving credit facility was extended to November 23,2010.  (3) The minimum tangible networth covenant remained at $30,000 until July 3, 2010; commencing as of July 4,2010 and ending on January 3, 2011, the minimum tangible net worth mustnot be less than $35,000 at any time; and commencing as of January 4,2011, and at all times thereafter, the minimum tangible net worth must not beless than $40,000 at any time.  (4) Thefacility advance rate with respect to eligible inventories was restored to 40%from 60% and the advance rate with respect to eligible receivables ismaintained at 80%.  As of July 3,2010, the Company is in compliance with the revolving line of credit agreement’scovenants.

 

As of July 3,2010, and in accordance with the amended long-term revolving line ofcredit agreement, the lender has issued a $1,000 letter of credit in favor of athird party related to the Company’s self-insurance workers’ compensationliabilities.

 

The Company’s inventory and accounts receivablelevels support collateralized borrowing of the entire $21,000 primary revolvingmaster note and $1,251 of the $4,150 supplemental revolving master note in thelong-term revolving line of credit agreement. The Company’s $11,575 principal 

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Notes to CondensedConsolidated Financial Statements**

**July 3, 2010**

**(In Thousands)**

**(Unaudited)**

 

balanceand $1,000 letter of credit results in $9,676 of available borrowings on thelong-term revolving line of credit as of July 3, 2010.

 

In addition tothe covenants described above, the Company must also comply with certainrestrictive covenants associated with the term note payable.  On March 30, 2010, the Company enteredinto an extension of and covenant revisions to the loan agreement governing theterm note payable.  Monthly principal andinterest payments of $290 continue through March 1, 2012 with a maturitypayment of $6,513 due on April 1, 2012. The previous maturity payment was due on April 1, 2011.  The covenants require the Company to maintain(1) a maximum leverage ratio, (2) operating lease expense belowcertain levels, (3) a minimum current ratio, (4) a minimum fixedcharge coverage ratio, (5) a minimum tangible net worth and (6) capitalexpenditures not to exceed certain limits. As of July 3, 2010, the Company is in compliance with the term notepayable debt covenants.

 

Aggregate maturities of long-term debt during thenext twelve months and subsequent annual periods are as follows:

 
| July 4, 2010 - July 2, 2011  |   | $      | 2,738  |   |
|----------------------------------------|--------|--------|--------|--------|
| July 3, 2011 - June 30, 2012 |   | 20,001 |   |
| July 1, 2012 - June 29, 2013 |   | 1      |   |
| Long-term debt                         |   | $      | 22,740 |   |

 

6.              **Stockholders’Equity**

 

The Board of Directors (the “Board”) has authorizedthe purchase of up to $15,000 of the Company’s stock on the open market.  The Company did not purchase any of the Company’sstock during the 13 weeks ended July 3, 2010.  The Company did purchase 22 shares for $48during the fiscal year ended April 3, 2010.  Through July 3, 2010, 819 shares hadbeen purchased by the Company at a total cost of $10,207.  The Company has accounted for these sharesusing the retirement method.

 

7.              **RelatedParties**

 

Members of the Cagle’s family beneficially own, inthe aggregate, 64.5% of the Company’s outstanding common stock, giving themcontrol of approximately 65% of the total voting power of the Company’soutstanding voting stock.  In addition,three members of the Cagle’s family serve on the Company’s Board.  As a result, members of the Cagle’s familyhave the ability to exert substantial influence or actual control overmanagement and affairs, and over substantially all matters requiring action bythe stockholders, including amendments to the certificate of incorporation andby-laws, the election and removal of directors, any proposed merger,consolidation or sale of all or substantially all of our assets, and othercorporate transactions.  Thisconcentration of ownership may also delay or prevent a change in controlotherwise favored by other stockholders and could depress the stock price.

 

The firm of Byrne, Davis & Hicks, P. C., inwhich G. Bland Byrne, III a director of the Company is a principal,received payments of $60 from the Company for legal services rendered duringeach of the two quarters ended July 3, 2010 and June 27, 2009.

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Notes to CondensedConsolidated Financial Statements**

**July 3, 2010**

**(In Thousands)**

**(Unaudited)**

 

Included in other assets at July 3, 2010 and April 3,2010 is a receivable of $1,242 due to the Company from two related partyirrevocable life insurance trusts.

 

8.              **FinancialInstruments**

 

The Company is a purchaser of certain commodities,such as corn and soybean meal in the course of normal operations.  The Company has used derivative financialinstruments to reduce its exposure to various market risks.  Generally, contract terms of a hedgeinstrument closely mirror those of the hedged item, providing a high degree ofrisk reduction and correlation. Contracts that are designated and highly effective at meeting the riskreduction and correlation criteria are recorded using hedge accounting, asdefined by ASC 815-10, “Accounting for Derivative Instruments and HedgingActivities.”  If a derivative instrumentis a hedge, as defined by ASC 815-10, depending on the nature of the hedge,changes in the fair value of the instrument will either be offset against thechange in fair value of the hedged assets, liabilities or firm commitmentsthrough earnings, or recognized in other comprehensive income (loss) until thehedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value will beimmediately recognized in earnings as a component of cost of sales.  Instruments the Company holds as part of itsrisk management activities that do not meet the criteria for hedge accounting,as defined by ASC 815-10, are marked to fair value with unrealized gains orlosses reported currently in earnings. The Company currently has no commodity contracts.

 

9.              **ComprehensiveIncome**

 

Comprehensive income (loss) includes net earningsand all other changes in equity during a period except those resulting frominvestments by or distributions to stockholders.  Other comprehensive income (loss) for allperiods presented consists of fair value adjustments associated with cash flowhedges pursuant to ASC 815-10, “Accounting for Derivative Instruments andHedging Activities.”

 
| ** **                       | ** ** | **13 Weeks Ended**    | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **July 3, 2010** | ** ** | **June 27, 2009** | ** ** |
|                             |       |                  |       |   |   |
| Net income                       |       | $                     | —     |   | $ | 1,283 |   |
| Cash flow hedges                 |       | —                |       | — |   |
| Reclassification to net earnings |       | —                |       | 448 |   |
| Tax expense                      |       | —                |       | (161 | ) |
|                             |       |                  |       |   |   |
| Total comprehensive income       |       | $                     | —     |   | $ | 1,570 |   |

 

Prior to the end of the second quarter of the fiscalyear ended March 28, 2009, the Company held commodity futures contractswhich were designated as cash flow hedges, whereby the contracts were recordedat fair value on the consolidated balance sheets as either an asset orliability with any changes in fair value recorded in accumulated other comprehensiveincome (loss).  In a cash flow hedge, afutures contract would exactly match the pricing date of the relevantanticipated inventory purchases.  Throughthe end of the second quarter of the fiscal year ended March 28, 2009, theCompany continued to be able to match the futures contract with the anticipatedinventory purchases, 

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Notes to CondensedConsolidated Financial Statements**

**July 3, 2010**

**(In Thousands)**

**(Unaudited)**

 

therefore,entering into an effective hedge transaction. However, due to the volatility of the grain markets, the Companyconcluded it was no longer practical to keep the futures.

 

As a result, the Company voluntarily discontinuedhedge accounting in the second quarter of the fiscal year ended March 28,2009 by de-designating the previously defined hedge relationship.  The de-designation of the cash flow hedge wasdone in accordance with Derivatives Implementation Group (“DIG”) Issue Nos. G3,G17, G18 and G20, which generally require that the net derivative gain or lossrelated to the discontinued cash flow hedge should continue to be reported inaccumulated other comprehensive income (loss), unless it is probable that theforecasted transaction will not occur by the end of the originally specifiedtime period or within an additional two-month period of time thereafter.  As such the Company continues to holdinventory purchase agreements in excess of futures contracts and have noindication that the futures commitment on the hedged inventory purchases is injeopardy of discontinuing.  Therefore,the deferred losses related to the derivative that were de-designated were notrecognized immediately and are expected to be reclassified into earnings duringthe contractual terms of the inventory purchases.  The Company had pretax losses totaling$1,347, recorded as accumulated other comprehensive income (loss) as of thefiscal year ended March 28, 2009 related to cash flow hedges, recognizedprorata through the third quarter of the fiscal year ended April 3,2010.  The Company generally has no hedgecash flows related to commodities beyond 12 months.

 

For the 13 week period ended June 27, 2009, theCompany recognized $448 of expense in cost of sales related to our cash flowhedge which was determined to be fully effective.  The Company currently has no commoditycontracts.

 

10.             **Reclassifications**

 

Certain reclassifications have been made to the June 27,2009 Consolidated Statements of Cash Flows in order for it to conform to thecurrent presentation.  There was noimpact on earnings.

 

11.             **NewAccounting Pronouncements**

 

In June 2009, the Financial AccountingStandards Board (“FASB”) issued FASB Accounting Standards Codification (“ASC”)105, Generally Accepted Accounting Principles, which established the FASBAccounting Standards Codification as the sole source of authoritative generallyaccepted accounting principles.  Pursuantto the provisions of FASB ASC 105, the Company has updated references to GAAPin its financial statements issued for the period ended October 3, 2009and thereafter.  The adoption of FASB ASC105 did not impact the Company’s financial position or results of operations.

 

Interim Disclosures AboutFair Value of Financial Instruments. In April 2009, the FASB issued newU.S. GAAP guidance that requires disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies as wellas in annual financial statements. This guidance also requires thosedisclosures in summarized financial information at interim reporting periodsand is effective for interim and annual reporting periods ending afterJune 15, 2009. The adoption of this guidance did not have an effect on theCompany’s consolidated financial statements.

 

Measuring Liabilities atFair Value. In August 2009, the FASB issued new U.S. GAAP guidanceclarifying the measurement of liabilities at fair value. Among other things,the guidance clarifies how the price of a traded debt security (an asset value)should be considered in estimating the 

 

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**CAGLE’S, INC.AND SUBSIDIARY**

**Notes to CondensedConsolidated Financial Statements**

**July 3, 2010**

**(In Thousands)**

**(Unaudited)**

 

fair value of the issuer’s liability and is effective for the Company’sreporting period ended October 3, 2009 and thereafter.  The adoption of this guidance did not have aneffect on the Company’s consolidated financial statements.

 

Multiple-Deliverable RevenueArrangements. In October 2009, the FASB issued new U.S. GAAP guidance thatrequires an entity to allocate revenue arrangement consideration at theinception of an arrangement to all of its deliverables based on their relativeselling prices (the relative-selling-price method). The guidance eliminates theuse of the residual method of allocation, in which the undelivered element ismeasured at its estimated selling price and the delivered element is measuredas the residual of the arrangement consideration, and requires therelative-selling-price method in all circumstances in which an entityrecognizes revenue for an arrangement with multiple deliverables. The newguidance must be adopted no later than the beginning of the first fiscal yearbeginning on or after June 15, 2010, with early adoption permitted througheither prospective application for revenue arrangements entered into, ormaterially modified, after the effective date or through retrospectiveapplication to all revenue arrangements for all periods presented. TheCompany does not expect the adoption of this guidance to have an effect on itsconsolidated financial statements.

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

ThedisclosuresinthisquarterlyreportarecomplementarytothosemadeintheCompany’s2010annualreportonForm 10-K.

 

ThisQuarterly Report, and other periodic reports filed by the Company under theSecurities Exchange Act of 1934, and other written or oral statements made byit or on its behalf, may include forward-looking statements, which are based ona number of assumptions about future events and are subject to various risks,uncertainties and other factors that may cause actual results to differmaterially from the views, beliefs and estimates expressed in suchstatements.  These risks, uncertaintiesand other factors include, but are not limited to the following:

 

·                  Changes in themarket price for the Company’s finished products and feed grains, both of whichmay fluctuate substantially and exhibit cyclical characteristics typicallyassociated with commodity markets.

 

·                  Changes ineconomic and business conditions, monetary and fiscal policies or the amount ofgrowth, stagnation or recession in the global or U.S. economies, either ofwhich may affect the value of inventories, the collectability of accountsreceivable or the financial integrity of customers, and the ability of the enduser or consumer to afford protein.

 

·                  Changes in thepolitical or economic climate, trade policies, laws and regulations or thedomestic poultry industry of countries to which the Company or other companiesin the poultry industry ship product, and other changes that might limit theCompany’s or the industry’s access to foreign markets.

 

·                  Changes inlaws, regulations, and other activities in government agencies and similarorganizations applicable to the Company and the poultry industry and changes inlaws, regulations and other activities in government agencies and similarorganizations related to food safety.

 

·                  Variousinventory risks due to changes in market conditions.

 

·                  Changes in andeffects of competition, which is significant in all markets in which theCompany competes, and the effectiveness of marketing and advertising programs.The Company competes with regional and national firms, some of which havegreater financial and marketing resources than the Company.

 

·                  Changes inaccounting policies and practices adopted voluntarily by the Company orrequired to be adopted by accounting principles generally accepted in theUnited States.

 

·                  Diseaseoutbreaks affecting the production performance and/or marketability of theCompany’s poultry products.

 

·                  Changes in theavailability and cost of labor and growers.

 

Readersare cautioned not to place undue reliance on forward-looking statements made byor on behalf of the Company.  Each suchstatement speaks only as of the day it was made.  The Company undertakes no obligation toupdate or to revise any forward-looking statements.  The factors described above cannot becontrolled by the Company.  When used inthis quarterly report, the words “believes”, “estimates”, “plans”, “expects”, “should”,“outlook”, and “anticipates” and similar expressions as they relate to theCompany or its management are intended to identify forward-looking statements.

 

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Cagle’s, Inc.(the “Company”), which began business in 1945 and was first incorporated inGeorgia in 1953, and its wholly owned subsidiary Cagle’s Farms, Inc.,produce, market, and distribute a variety of fresh and frozen poultryproducts.  The vertically integratedoperations of the Company consist of breeding, hatching, and growing ofchickens; feed milling; processing; further processing; and marketingoperations.  The Company’s products aresold to national and regional independent and chain supermarkets, fooddistributors, food processing companies, national fast-food chains, andinstitutional users, such as restaurants, schools, and distributors, by theCompany’s sales staff and through brokers selected by the Company.

 

Allof the Company’s business activities are conducted on a vertically integratedbasis within one industry segment, poultry products.  The Company’s various poultry products areclosely related, have similar purposes and uses, and are similar in terms ofprofitability and types and degrees of risks. In addition, the production processes are similar to the extent that (a) productionfacilities are shared or are interchangeable and (b) the same types of rawmaterials, labor, and capital are used. Markets and marketing methods are comparable for all products to theextent that they are generally sold to the same types of customers by a commonsales force and are sensitive to changes in economic conditions to the samedegree.

 

Results of Operations

 

*Net Sales*

 

Revenuesfor the first quarter were $78.6 million, up 0.7% reflecting a decrease inpounds sold of 3.1% and an increase in sales price for poultry of $0.013 perpound as compared to the same period in fiscal 2010.

 

Quoted market prices for products for thefirst quarter of fiscal 2011 versus the same period last quarter and last yearfluctuated as follows:

 
| ** **                 | ** ** | **% Change**                 | ** ** | **% Change**                 | ** ** |
|----------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                 | ** ** | **1st qtr. 11 vs** | ** ** | **1st qtr. 11 vs** | ** ** |
| ** **                 | ** ** | **4th qtr. 10**         | ** ** | **1st qtr. 10**         | ** ** |
|                       |       |                              |       |                              |       |
| Tenders                    |       | 18.4                              | %          | 7.7                               | %          |
| Wings                      |       | (25.3                             | )%         | (11.2                             | )%         |
| Drums                      |       | (4.3                              | )%         | (17.5                             | )%         |
| Boneless Breast            |       | 14.4                              | %          | 9.1                               | %          |
| Boneless Thigh             |       | (3.1                              | )%         | (26.8                             | )%         |
| Leg Quarters               |       | 2.4                               | %          | (19.2                             | )%         |
| Whole Bird without Giblets |       | 5.4                               | %          | 7.3                               | %          |

 

*Cost of sales*

 

Cost of sales for the first quarter offiscal 2011 decreased 4.9% as compared with the same period last year, from$71.7 million to $68.2 million.  Feedingredient prices for broilers processed in the first quarter of fiscal 2011,which represented 36% of the total cost of sales, decreased 8.5% as compared tothe first quarter of fiscal 2010.

 

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*Selling and Delivery*

 

These expenses increased $250 thousand, or11.4%, for the 13 weeks ended July 3, 2010 as compared to the 13 weeksended June 27, 2009.  $240 thousandof this $250 thousand increase is due to an increase in outside storageexpenses.  Outside storage expense was$281 thousand and $41 thousand for the 13 weeks ended July 3, 2010 and June 27,2009, respectively.

 

*General and Administrative*

 

These expenses increased $433 thousand, or26.0%, for the 13 weeks ended July 3, 2010 as compared to the 13 weeksended June 27, 2009.  $472 thousandof this increase is accrued incentive compensation in the 13 weeks ended July 3,2010 as compared to no accrued incentive compensation in the 13 weeks ended June 27,2009.

 

*Interest Expense*

 

Interest expense decreased $61 thousand,or 13.8%, for the 13 weeks ended July 3, 2010 versus the 13 weeks ended June 27,2009.  This is due to average long-termdebt decreasing from $30.7 million to $25.2 million during the two periods.

 

*Other Income (Expense)*

 

Other income (expense) was $4 thousand forthe 13 weeks ended July 3, 2010 versus $2 thousand for the 13 weeks ended June 27,2009.

 

*Income Taxes*

 

Income tax expense was $2.0million, or 36.0% of pre-tax income of $5.4 million for the 13 weeks ended July 3,2010.  Income tax expense was $722thousand, or 36.0% of pre-tax income of $2.0 million for the 13 weeks ended June 27,2009.  The entire income tax expense ofboth periods was charged against deferred tax assets, as none is currentlypayable due to the Company’s federal and state net operating loss and taxcredit carryforwards.

 

As of April 3, 2010, the Company had federal net operating losscarryforwards of $12.7 million and federal and state tax credit carryforwardsof $9.4 million.  The net operating lossand tax credit carryforwards are available to reduce income taxes through 2029.  Realization of these future tax benefits isdependent on the Company’s ability to generate sufficient taxable income withinthe carryforward period.  Due to thesignificant amount of income that would be needed to fully utilize the creditsavailable, the Company has recorded a valuation allowance for a significantportion of the deferred tax asset associated with the tax creditcarryforwards.  The Company expects tofully utilize the federal and state net operating loss carryforwards and,accordingly, there is no valuation allowance associated with the net operatingloss carryforwards.

 

TheCompany uses ASC 740-10, “Accounting for Uncertainty in Income Taxes,” whichclarifies the accounting for income taxes by prescribing the minimumrecognition threshold a tax position is required to meet before beingrecognized in the consolidated financial statements.  ASC 740-10 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure and transition. The Company had no significant unrecognized tax benefits at the date ofadoption or at April 3, 2010. Accordingly, the Company does not have any interest or penalties relatedto uncertain tax positions.  However, ifinterest or penalties were to be incurred related to uncertain tax positions,such amounts would be recognized in income tax expense.  Tax periods for all years after 2005 remainopen to examination by the federal and state taxing jurisdictions to which itis subject.

 

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*Financial Condition and Liquidity*

 

As of July 3, 2010, the Company’sworking capital was $16.1 million and its current ratio was 1.56.  The Company’s working capital as of the yearended April 3, 2010 was $16.8 million and its current ratio was 1.62.

 

The Company decreased long-term debt by$5.0 million during the 13 weeks ended July 3, 2010.  The Company spent $2.3 million on capitalprojects during the 13 weeks ended July 3, 2010.  As of July 3, 2010, the Company hasremaining availability of $9.7 million on its long-term revolving line ofcredit facility.

 

On November 23, 2009, theCompany entered into Amendment Number 4 to the long-term revolving line ofcredit agreement, effective as of October 31, 2009.  There were four primary changes to theexisting Agreement between the parties: (1) The maturity date of the $21.0million portion of the revolving credit facility was extended to March 31,2012.  (2) The maturity date of the$4.15 million portion of the revolving credit facility was extended to November 23,2010.  (3) The minimum tangible networth covenant remained at $30.0 million until July 3, 2010; commencing asof July 4, 2010 and ending on January 3, 2011, the minimum tangiblenet worth must not be less than $35.0 million at any time; and commencing as ofJanuary 4, 2011, and at all times thereafter, the minimum tangible networth must not be less than $40.0 million at any time.  (4) The facility advance rate withrespect to eligible inventories was restored to 40% from 60% and the advancerate with respect to eligible receivables is maintained at 80%.  As of July 3, 2010, the Company is incompliance with the revolving line of credit agreement’s covenants.

 

Asof July 3, 2010, and inaccordance with the amended long-term revolving line of credit agreement, thelender has issued a $1.0 million letter of credit in favor of a third partyrelated to the Company’s self-insurance workers’ compensation liabilities.

 

TheCompany’s inventory and accounts receivable levels support collateralizedborrowing of the entire $21.0 million primary revolving master note and $1.3million of the $4.15 million supplemental revolving master note in thelong-term revolving line of credit agreement. The Company’s $11.6 million principal balance and $1.0 million letter ofcredit results in $9.7 million of available borrowings on the long-termrevolving line of credit as of July 3, 2010.

 

In addition to the covenants describedabove, the Company must also comply with certain restrictive covenantsassociated with the term note payable. On March 30, 2010, the Company entered into an extension of andcovenant revisions to the loan agreement governing the term note payable.  Monthly principal and interest payments of$290 thousand continue through March 1, 2012 with a maturity payment of$6.5 million due on April 1, 2012. The previous maturity payment was due on April 1, 2011.  The covenants require the Company to maintain(1) a maximum leverage ratio, (2) operating lease expense belowcertain levels, (3) a minimum current ratio, (4) a minimum fixedcharge coverage ratio, (5) a minimum tangible net worth and (6) capitalexpenditures not to exceed certain limits. As of July 3, 2010, the Company is in compliance with the term notepayable debt covenants.

 

We expect that cash flow from operationsand cash on hand should be sufficient to fund operations, to make all paymentsof principal and interest when due, and to fund capital expenditures for atleast the next twelve months.  We mayelect to finance certain capital expenditure requirements through borrowingsunder our credit facilities or leases.

 

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*CriticalAccounting Policies and Estimates*

 

Thepreparation of consolidated financial statements and related disclosures inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, and the disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements and revenues and expenses during the periods reported.  The Company’s accounting policies involve “criticalaccounting estimates” because they are particularly dependent on estimates andassumptions made by management about matters that are highly uncertain at thetime the accounting estimates are made. In addition, while we have used our best estimates based on facts andcircumstances available to us at the time, different estimates reasonably couldhave been used in the current period, or changes in the accounting estimates weused are reasonably likely to occur from period to period which may have amaterial impact on the presentation of our financial condition and results ofoperations.  We review these estimatesand assumptions periodically and reflect the effects of revisions in the periodthat they are determined to be necessary. We have disclosed our critical accounting policies in our Annual Reporton Form 10-K for the year ended April 3, 2010, and that disclosureshould be read in conjunction with this Quarterly Report on Form 10-Q.

 

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**Item 3: Quantitative and Qualitative Disclosures about Market Risk**

 

*RiskFactors*

 

Industrycyclicality can affect our earnings, especially due to fluctuations in thecommodity prices of feed ingredients and chicken.

 

Profitabilityin the chicken industry is materially affected by the commodity prices ofchicken and feed ingredients, which are determined by supply and demandfactors, which result in cyclical earnings fluctuations.  The production of feed ingredients ispositively or negatively affected primarily by weather patterns throughout theworld, the global level of supply inventories and demand for feed ingredients,and the agricultural policies of the United States and foreigngovernments.  In particular, weatherpatterns often change agricultural conditions in an unpredictable manner.  A sudden and significant change in weatherpatterns could affect supplies of feed ingredients, as well as both theindustry’s and our ability to obtain feed ingredients, grow chickens, anddeliver products.  High feed ingredientprices have had a material adverse effect on our operating results in the past.We periodically seek, to the extent available, to enter into advance purchasecommitments for the purchase of feed ingredients in an effort to manage ourfeed ingredient costs.  The use of suchinstruments may not be successful.

 

*RawMaterials*

 

Theprimary raw materials used by the Company are corn, soybean meal, and other ingredients;packaging materials; cryogenic materials; and breeder chicks.  The Company believes the sources of supplyfor these materials are adequate and does not expect significant difficulty inacquiring required supplies.  The majorsource of supply is the midwestern grain belt of the United States, althoughlocal supplies are utilized when available. Prices for the feed ingredients are sensitive to supply fluctuationsworldwide, and weather conditions, especially drought, can cause significantprice volatility.  Since feed is the mostsignificant factor in the cost of producing a broiler chicken, thosefluctuations can have significant effects on margins.  The Company also purchases poultry productsfrom outside vendors for further processing requirements.

 

TheCompany may choose to utilize derivatives as offered on the Chicago Board ofTrade for the purpose of protecting the feed cost for fixed price salescommitments negotiated with our customers. The Company’s two primary feed ingredients are corn and soybeanmeal.  A $0.10 per bushel price change incorn or a $10 per ton price change in soybean meal impacts our cost of sales$0.75 million dollars per year.  TheCompany currently has no commodity contracts.

 

*InterestRates*

 

Wecurrently have a term note payable with no exposure to interest ratefluctuations, as our existing indebtedness carries a fixed interest rate.  We have a revolving credit facility whichcarries a variable interest rate equal to the 90-day LIBOR rate published bythe Wall Street Journal, plus 3.5%.

 

TheCompany had variable interest rate exposure on the revolving credit facility atJuly 3, 2010.  The Company’stheoretical interest rate exposure on variable rate borrowings at July 3,2010, would be, with a one percentage point increase in average interest rateson the Company’s borrowings would increase future interest expense by $9.6thousand per month and a two percentage point increase would increase futureinterest expense by $19.3 thousand per month. The Company determined these amounts based on $11.6 million of variablerate borrowings at July 3, 2010, multiplied by 1.0% and 2.0%,respectively, and divided by twelve.  TheCompany is currently not using any interest rate collars, hedges, or otherderivative financial instruments to manage or reduce interest rate risk.  As a result, any increase in interest rateson the Company’s variable rate borrowings would increase interest expense andreduce net income.

 

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*Concentrationof Credit Risk*

 

Financial instruments which potentially subject the Company toconcentrations of credit risk consist primarily of trade receivables or otherfinancial instruments with a variety of customers and cash and cash investmentdeposited with financial institutions.

 

Concentrationsof credit risk, with respect to accounts receivable and other financialinstruments, are limited because a large number of geographically diversecustomers make up the Company’s customer base, thus spreading the trade creditrisk.  The Company controls credit riskthrough credit approvals, credit limits and monitoring procedures.  The Company performs ongoing creditevaluations of its customers, but generally does not require collateral tosupport accounts receivable.

 

**Item 4.  Controls and Procedures**

 

*Evaluationof disclosure controls and procedures*

 

Theterm “disclosure controls and procedures” (defined in SEC Rule 13a-15(e))refers to the controls and other procedures of a company that are designed toensure that information required to be disclosed by a company in the reportsthat it files under the Securities Exchange Act of 1934 (the “Exchange Act”) isrecorded, processed, summarized and reported within required time periods. TheCompany’s management, with the participation of the Chief Executive Officer andChief Financial Officer, has evaluated the effectiveness of the Company’sdisclosure controls and procedures as of the end of the period covered by thisquarterly report (the “Evaluation Date”). Based on that evaluation, management, including the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that, as of theEvaluation Date, such controls and procedures were effective.

 

*Changesin internal controls*

 

Theterm “internal control over financial reporting” (defined in SEC Rule 13a-15(f))refers to the process of a company that is designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles.  TheCompany’s management, with the participation of the Chief Executive Officer andChief Financial Officer, have evaluated any changes in the Company’s internalcontrol over financial reporting that occurred during the period covered bythis quarterly report, and they have concluded that there was no change to theCompany’s internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**Part II.  OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

TheCompany is routinely involved in various lawsuits and legal matters on anongoing basis as a result of day to day operations; however, the Company doesnot believe that the ultimate resolution of these matters will have a materialadverse effect on the Company or its business.

 

**Item 1.A.  Risk Factors**

 

*Leverage*

 

Ourindebtedness could adversely affect our financial condition.  We presently have, and expect to continue tohave, an amount of indebtedness.  Ourindebtedness could have important consequences to stockholders.  For example, it could: increase ourvulnerability to general adverse economic conditions; require us to dedicate asubstantial portion of our cash flow from operations to payments on ourindebtedness, thereby reducing the availability of our cash flow to fundworking capital, capital expenditures and for other general corporate purposes;limit our flexibility in planning for, or reacting to, changes in our businessand the industry in which we operate; place us at a competitive disadvantagecompared to our competitors that have less debt; limit, along with thefinancial and other restrictive covenants in our indebtedness, our ability toborrow additional funds, and failing to comply with those covenants couldresult in an event of default or require redemption of indebtedness.  Either of these events could have a materialadverse effect on us.  Our ability tomake payments on and to refinance our indebtedness will depend on our abilityto generate cash in the future, which is dependent on various factors.  These factors include the commodity prices offeed ingredients and chicken and general economic, financial, competitive,legislative, regulatory, and other factors that are beyond our control.

 

*AdditionalBorrowings Available*

 

Despiteour indebtedness, we are not prohibited from incurring additional indebtednessin the future.

 

*Contaminationof Products*

 

Ifour products become contaminated, we may be subject to product liability claimsand product recalls.

 

*Livestockand Poultry Disease*

 

Outbreaksof livestock diseases, in general, and poultry disease, in particular, cansignificantly restrict our ability to conduct our operations.  We take all reasonable precautions to ensurethat our flocks are healthy and that our processing plants and other facilitiesoperate in a sanitary and environmentally sound manner.  However, events beyond our control, such asthe outbreak of disease, could significantly restrict our ability to conductour operations.  Furthermore, an outbreakof disease could result in governmental restrictions on the import and exportof our fresh chicken, to or from our suppliers, facilities, or customers, or requireus to destroy one or more of our flocks. This could result in the cancellation of orders by our customers andcreate adverse publicity that may have a material adverse effect on our abilityto market our products successfully and on our business, reputation, andprospects.

 

*Insurance*

 

Weare exposed to risks relating to product liability, product recall, propertydamage, and injuries to persons for which insurance coverage is expensive,limited, and potentially inadequate.

 

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*SignificantCompetition*

 

Competitionin the chicken industry with other vertically integrated poultry companiescould adversely affect our business.

 

*GovernmentRegulation*

 

Regulation,present and future, is a constant factor affecting our business.  The chicken industry is subject to federal,state, and local governmental regulation, including health and environmentalareas.  We anticipate increasedregulation by various agencies concerning food safety, the use of medication infeed formulations, and the disposal of poultry by-products and wastewaterdischarges. Unknown matters, new laws and regulations, or stricterinterpretations of existing laws or regulations may materially affect ourbusiness or operations in the future.

 

*Deteriorationof Economic Conditions*

 

Ourbusiness may be adversely affected by changes in national or global economicconditions, including inflation, interest rates, availability of capitalmarkets, consumer spending rates, energy availability and costs (including fuelsurcharges) and the effects of governmental initiatives to manage economicconditions.  Any such changes couldadversely affect the demand for our poultry products, or the cost and availabilityof our needed raw materials and packaging materials, thereby negativelyaffecting our financial results.

 

Therecent disruptions in credit and other financial markets and deterioration ofnational and global economic conditions, could, among other things:

 

·                  make it more difficult orcostly for us to obtain financing for our operations or investments or torefinance our debt in the future;

·                  cause our lenders to departfrom prior credit industry practice and make more difficult or expensive thegranting of any technical or other waivers under our credit agreements to theextent we may seek them in the future;

·                  impair the financialcondition of some of our customers and suppliers thereby increasing customerbad debts or non-performance by suppliers;

·                  negatively impact demand for proteinproducts, which could result in a reduction of sales, operating income and cashflows.

 

*Changesin Consumer Preference*

 

Thefood industry in general is subject to changing consumer trends, demands, andpreferences.  Trends within the foodindustry change often, and failure to identify and react to changes in thesetrends could lead to, among other things, reduced demand and price reductionsfor our products, and could have an adverse effect on our financial results.

 

*The Lossof One or More of Our Largest Customers*

 

Ourbusiness could suffer significant set backs in sales and operating income ifour customers’ plans and/or markets should change significantly, or if we lostone or more of our largest customers. Many of our agreements with our customers are generally short-term,primarily due to the nature of our products, industry practice, and thefluctuation in demand and price for our products.  One of our largest customers did not renewtheir sales contract for calendar 2010. However, the Company has been able to attract new contract-basedcustomers of similar volume that will approximate this former customer’s salesvolume.  These new customers shouldprovide a market for our products without a significant deterioration inoperating income.  We continually monitorour production output and will adjust accordingly.

 

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*Membersof the Cagle’s Family can Exercise Significant Control*

 

Membersof the Cagle’s family beneficially own, in the aggregate, 64.5% of the Company’soutstanding common stock, giving them control of approximately 65% of the totalvoting power of the Company’s outstanding voting stock.  In addition, three members of the Cagle’sfamily serve on the Company’s Board of Directors.  As a result, members of the Cagle’s familyhave the ability to exert substantial influence or actual control over theCompany’s management and affairs and over substantially all matters requiringaction by our stockholders, including amendments to our certificate ofincorporation and by-laws, the election and removal of directors, any proposedmerger, consolidation or sale of all or substantially all of our assets, andother corporate transactions.  Thisconcentration of ownership may also delay or prevent a change in controlotherwise favored by our other stockholders and could depress the Company’sstock price.

 

**Item****2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

 

The table below provides information regarding theCompany’s purchase of its own common stock during the periods indicated.  Amounts in thousands except Average PricePaid Per Share.

 
| ** **                                | ** ** | ** **            | ** ** | ** **          | ** ** | **Approximate**              | ** ** |
|-------------------------------------------|------------|-----------------------|------------|---------------------|------------|------------------------------|------------|
| ** **                                | ** ** | ** **            | ** ** | ** **          | ** ** | **Dollar Value**        | ** ** |
| ** **                                | ** ** | **Total Number** | ** ** | **Average**         | ** ** | **of Shares that** | ** ** |
| ** **                                | ** ** | **of Shares**    | ** ** | **Price Paid** | ** ** | **May Yet Be**     | ** ** |
| ** **                                | ** ** | **Purchased**         | ** ** | **Per Share**  | ** ** | **Purchased**                | ** ** |
|                                      |       |                  |       |                |       |                         |       |
| April 4, 2010 - July 3, 2010    |       | —                |       | $                   | —     |                         | $          | 4,793 |   |
| March 29, 2009 - April 3, 2010  |       | 22                    |       | 2.20                |       | 4,793                        |       |
| March 30, 2008 - March 28, 2009 |       | 26                    |       | 2.13                |       | 4,841                        |       |
| April 1, 2007 - March 29, 2008  |       | 79                    |       | 7.74                |       | 4,898                        |       |
|                                           |            |                       |            |                     |            |                              |            |  |  |

 

The Board of Directors (the “Board”)has authorized the purchase of up to $15,000 of the Company’s stock.

 

**Item****3.  Defaults upon Senior Securities**

 

None

 

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**Item****4.  Submission of Matters to a Vote ofSecurity Holders**

 

OnJuly 16, 2010, the Company held its Annual Meeting of Shareholders. The following items were submitted to a vote of shareholders through thesolicitation of proxies:

 

(1)               To fix the number of membersof the Board of Directors at eight (8), and to elect the members thereof

 

Election of Directors

Thefollowing persons were elected to serve as directors on the Company’s Board ofDirectors until the 2011 Annual Meeting of Shareholders or until theirsuccessors have been duly elected and qualified or until the earlier of theirresignation or removal.  Voting results were as follows:

 
| ** **           | ** ** | **For**   | ** ** | **Withheld** | ** ** | **Non Votes** | ** ** |
|----------------------|------------|-----------|------------|--------------|------------|---------------|------------|
|                 |       |      |       |         |       |          |       |
| J. DOUGLAS CAGLE     |       | 3,206,693 |       | 707,235      |       | 604,170       |       |
| PANOS KANES          |       | 3,913,148 |       | 780          |       | 604,170       |       |
| G. BLAND BYRNE III   |       | 3,202,954 |       | 710,974      |       | 604,170       |       |
| CANDACE CHAPMAN      |       | 3,913,148 |       | 780          |       | 604,170       |       |
| EDWARD J. RUTKOWSKI  |       | 3,913,148 |       | 780          |       | 604,170       |       |
| MARK M. HAM IV       |       | 3,202,612 |       | 711,316      |       | 604,170       |       |
| GEORGE DOUGLAS CAGLE |       | 3,208,091 |       | 705,837      |       | 604,170       |       |
| JAMES DAVID CAGLE    |       | 3,206,691 |       | 707,237      |       | 604,170       |       |

 

(2)                   To ratify the appointment of Frazer Frost,LLP as the independent registered public accounting firm for the fiscal yearending April 2, 2011.

 
| **For**   | ** ** | **Against** | ** ** | **Abstentions** | ** ** | **Non-Votes** | ** ** |
|-----------|------------|-------------|------------|-----------------|------------|---------------|------------|
|      |       |        |       |            |       |          |       |
| 4,514,685 |       | 1,416       |       | 1,997           |       | 0             |       |

 

Totalvoted shares represented in person or by proxy: 4,518,098

Percentageof the outstanding votable shares: 97.87%

Outstandingvotable shares:  4,616,208

 

**Item 5.  Other Information**

 

None

 

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Table of Contents

 

**Item 6.  Exhibits**

 
| 3.1  |  Articles  of Incorporation of the Registrant. (2)                                                        |
|------|----------------------------------------------------------------------------------------------------------------|
| 3.2  |  Bylaws  of the Registrant. (3)                                                                           |
| 14.1 |  Code  of Ethics. (4)                                                                                     |
| 31.1 |  Certification  of Chief Executive Officer pursuant to Rule 13a-14(a) and  15d-14(a).  (1) |
| 31.2 |  Certification  of Chief Financial Officer pursuant to Rule 13a-14(a) and  15d-14(a).  (1) |
| 32.1 |  Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. (1)                   |
| 32.2 |  Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. (1)                   |

 

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(1) Filedherewith.

(2) Previouslyfiled and incorporated by reference herein from the Registrant’s Form 10-Kfor the year ended April 2, 2005.

(3) Previouslyfiled and incorporated by reference herein from the Registrant’s Form 10-Qfor the quarter ended October 2, 2004.

(4) Previouslyfiled and incorporated by reference herein from the Registrant’s Form 10-Kfor the year ended April 3, 2004.

 

**Signatures**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

Cagle’s, Inc.  (Registrant)

 
| BY:    | /s/  J. Douglas Cagle                                 |   |
|--------|-------------------------------------------------------|--------|
|   | Chairman,  Chief Executive Officer and President      |   |
|   | August 12,  2010                                 |   |
|   |                                                  |   |
| BY:    | /s/  Mark M. Ham IV                                   |   |
|   | Executive  Vice President and Chief Financial Officer |   |
|   | August 12,  2010                                 |   |

 

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