SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------------------------------------------- FORM 10-Q -------------------------------------------------------------------------------- (Mark One) (x)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended September 27, 2008  OR  (  )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from              to   Commission file number 1-7138  -------------------------------------------------------------------------------- CAGLES, INC. (Exact name of Registrant as specified in its charter) --------------------------------------------------------------------------------  GEORGIA                                                           58-0625713 (State or other jurisdiction of                                                           (I.R.S. employer incorporation or organization)                                                          identification no.)   2000 Hills Ave., Atlanta, Ga.,                                               30318 (Address of principal executive offices)                                  (Zip code)  Registrants telephone number, including area code: (404) 355-2820 --------------------------------------------------------------------------------  Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                         X Yes            ____ No   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.. (Check one):  Large accelerated filer   _____          Accelerated filer   _____             Non-accelerated filer    ___            Smaller reporting company   _X__      .   Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                      Yes       X  No   The Registrant had 4,661,713 shares of Class A Common Stock, outstanding as of September 27, 2008.               PART 1.  FINANCIAL INFORMATION Item1. Financial Statements  Cagle's, Inc. & SubsidiaryCondensed Consolidated Balance SheetsSeptember 27, 2008 (Unaudited) and March 29, 2008 (Audited)(In Thousands, Except Par Value)September 27, 2008March 29, 2008AssetsCurrent assetsCash and cash equivalents$1,600$1,279Trade accounts receivable, less allowance for doubtful accountsof $178 and $638  in 2009 and 2008, respectively15,87014,015Inventories29,16230,728Other current assets603398Total current assets47,23546,420Property, plant and equipment, at cost:Land1,9761,976Buildings and improvements59,43959,199Machinery, furniture and equipment41,66140,682Vehicles4,6704,656Construction in progress3441,310108,090107,823Less accumulated depreciation69,83868,563Property, plant and equipment, net38,25239,260Other assetsLong-term refundable income taxes3,084-Deferred income taxes3,1343,134Deferred financing costs, net14841Other assets2,8113,119Total other assets9,1776,294Total assets$94,664$91,974Liabilities and stockholders' equityCurrent liabilities:Current maturities of long-term debt$2,393$2,269Accounts payable21,01516,025Accrued expenses4,2614,618Deferred income taxes9243,311Total current liabilities28,59326,223Long-term debt, less current maturities31,56820,924Stockholders' equity:Preferred stock, $1 par value; 1,000 shares authorized, none issued--Common stock, $1 par value; 9,000 shares authorized, 4,662 and 4,664 sharesissued and outstanding at 9/27/08 and 3/29/08, respectively4,6624,664Treasury stock, at cost(80)(80)Additional paid-in capital3,6483,657Retained earnings27,67736,156Accumulated other comprehensive income/(loss)(1,404)430Total stockholders' equity34,50344,827Total liabilities and stockholders' equity$94,664$91,974The accompanying notes are an integral part of these condensed consolidated financial statements.                 Cagle's, Inc. & SubsidiaryCondensed Consolidated Statements of IncomeFor the 13 and 26 weeks ended September 27, 2008For the 13 and 26 weeks ended September 29, 2007(In Thousands, except per share data)   (Unaudited)13 wks ended13 wks ended26 wks ended26 wks ended9/27/20089/29/20079/27/20089/29/2007Net sales$75,632$76,067$152,553$147,929Costs and expenses:Cost of sales79,70269,527157,279135,187Selling and delivery2,3552,2764,6874,405General and administrative1,5321,7592,7243,117Other general expenses060(22)Total costs and expenses83,58973,568164,690142,687Income (loss) from operations(7,957)2,499(12,137)5,242Other income (expense):Interest expense(606)(356)(1,095)(724)Other income, net(4)58(16)82Income (loss) before income taxes(8,567)2,201(13,248)4,600Income taxes provision (benefit)(3,084)826(4,769)1,690Net income (loss)$(5,483)$1,375$(8,479)$2,910Weighted average shares outstanding-Basic4,6624,6674,6624,667-Diluted4,6624,6674,6624,667Net income (loss) per common share-Basic$(1.18)$0.29$(1.82)$0.62-Diluted$(1.18)$0.29$(1.82)$0.62Dividends per common share$0.00$0.00$0.00$0.00The accompanying notes are an integral part of these condensed consolidated financial statements.               Condensed Consolidated Statements of Cash FlowsFor the 26 weeks ended September 27, 2008 and September 29, 2007(In Thousands)  (Unaudited)9/27/20089/29/2007CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)$(8,479)$2,910Adjustments to reconcile net income (loss) to net cash provided (used) by operating activitiesDepreciation1,9861,903Amortization337Gain on sale of property, plant and equipment-(28)Deferred income taxes expense (benefit)(5,471)347Changes in operating assets and liabilitiesTrade accounts receivable, net(1,855)(380)Inventories1,566(3,372)Refundable income taxes-1,689Other current assets(2,038)(749)Accounts payable4,9902,943Accrued expenses(357)1,211Net cash provided (used) by operating activities(9,625)6,481CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property, plant and equipment(904)(2,271)Proceeds from sale of property, plant and equipment-28Increase in other assets296(182)Net cash provided by (used in) investing activities(608)(2,425)CASH FLOWS FROM FINANCING ACTIVITIESPayments on revolving line of credit(35,625)-Proceeds from revolving line of credit47,450-Payments of long-term debt(1,131)(1,029)Payments of deferred financing costs(128)-Repurchase of stock(12)(183)Net cash provided (used) in financing activities10,554(1,212)Net increase (decrease) in cash and cash equivalents3212,844Cash and cash equivalents at beginning of year1,2793,499Cash and cash equivalents at end of year$1,600$6,343Supplementary disclosures of cash flow informationCash paid during the period for interest$1,026$353Income taxes paid (refunded), net(108)-Supplementary disclosure of non-cash activitiesAssets acquired pursuant to capital lease obligation$74$-The accompanying notes are an integral part of these condensed consolidated financial statements.          Cagle's, Inc. & Subsidiary Notes to Condensed Consolidated Financial Statements September 27, 2008   (Unaudited)  Note 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 condensed consolidated financial position of Cagle's, Inc. and its wholly owned subsidiary Cagle Farms, Inc. (collectively, the "Company") as of September 27, 2008, and the results of their operations for the 13 and 26 weeks ended September 27, 2008 and the 13 and 26 weeks ended September 29, 2007. Results of operations for the 13 and 26 weeks ended September 27, 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 September 27, 2008, and for the 13 and 26 weeks ended September 27, 2008 and September 29, 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 29, 2008. All amounts are in thousands except per share data unless noted.  The accounting policies used in preparing these financial statements are the same as those applied in the prior year, except that the Company adopted a portion of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 157 Fair Value Measurements as of the beginning of its 2009 fiscal year. Adoption of the SFAS No. 157 provisions as of the beginning of the 2009 fiscal year did not have an impact on the measurement of the Companys financial assets and liabilities.  New accounting pronouncements In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133. SFAS No. 161 requires companies to disclose their objectives and strategies for using derivative instruments, whether or not their derivatives are designated as hedging instruments. The new pronouncement requires disclosure of the fair value of derivative instruments by primary underlying risk exposures (e.g. interest rate, credit, foreign exchange rate, combination of interest rate and foreign exchange rate, or overall price). It also requires detailed disclosures about the income statement impact of derivative instruments by designation as fair-value hedges, cash-flow hedges, or hedges of the foreign-currency exposure of a net investment in a foreign operation. SFAS No. 161 requires disclosure of information that will enable financial statement users to understand the level of derivative activity entered into by the company (e.g., total number of interest-rate swaps or total notional or quantity or percentage of forecasted commodity purchases that are being hedged). The principles of SFAS No. 161 may be applied on a prospective basis and are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. For the Company, SFAS No. 161 will be effective at the beginning of its 2010 fiscal year and may result in additional disclosures in notes to the Companys consolidated financial statements.  In February 2008, the FASB issued Staff Position (FSP) FAS-157-2, which delays by one year, the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities. We plan to adopt SFAS No. 157 for non-financial assets and non-financial liabilities as of the beginning of our 2010 fiscal year. Adoption may result in additional disclosures in notes to the Companys consolidated financial statements.  In December 2007, the FASB issued SFAS No. 141(R), Business Combinations and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) and SFAS No. 160 will be adopted by the Company at the beginning of its 2010 fiscal year. Because SFAS No. 141(R) is applied prospectively, the effect of adoption on the Companys financial statements will depend primarily on specific transactions completed after 2008. The impact of adoption of SFAS No. 160 will depend on the materiality of any non-controlling interests that arise from future transactions.  (a) All Amounts are in thousands except per share values  Note 2.  Computation of net income per share  The following table sets forth the computation of basic and diluted earnings per share: 13 Weeks13 Weeks26 Weeks26 Weeksendedendedendedended9/27/20089/29/20079/27/20089/29/2007Net Income (Loss) as reported$(5,483)$1,375$(8,479)$2,910Weighted Average Shares Outstanding     -Basic4,6624,6674,6624,667-Diluted4,6624,6674,6624,667Net Income (Loss) Per Common Share-Basic$(1.18)$0.29$(1.82)$0.62-Diluted$(1.18)$0.29$(1.82)$0.62Dividends Per Common Share$-$-$-$-   Note 3. Inventories consisted of the following: (In Thousands) September 27, 2008March 29, 2008Finished Product$5,450$5,987Field Inventory and Breeders16,76017,489Feed, Eggs, and Medication5,4545,923Supplies1,4981,329$29,162$30,728   Note 4. Long-Term Debt  Long-term debt consists of the following: 9/27/20083/29/2008Term note payable; fixed interest rate of 7.86%, principal and interest payable monthly of $290, through maturity on April 1, 2011; secured by Collinsville plant, Dalton hatchery and Rockmart feedmill.$15,411$16,468Revolving line of credit, maturing March 31, 2011, interest payable monthly, variable interest rate of LIBOR plus 3.50%; secured by accounts receivable, inventories and some fixed assets.18,5506,72533,96123,193Less current maturities2,3932,269Long-term debt, less current maturities$31,568$20,924  The Company completed a new revolving line of credit agreement on September 5, 2008.  There were three primary changes to the previous Agreement: 1. The revolving credit facility is now in the amount of $21 million. 2. The covenant concerning the Borrowers Minimum Tangible Net Worth was reduced from $40 million to $35 million. 3. The advance rate with respect to Eligible Receivables is being increased from 60% to 70%. The maturity date of the new agreement remained March 31, 2011.  On November 3, 2008, the Company entered into an amended credit agreement retroactive to September 27, 2008 which temporarily lowered the Tangible Net Worth Requirement from $35 million to $30 million through the first quarter of fiscal 2010 (quarter ending June 27, 2009).  At any time thereafter the Borrowers Tangible Net Worth must not be less than $40 million.  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 in compliance with covenants at September 27, 2008.  Aggregate maturities of long-term debt during the years subsequent to September 27, 2008 are as follows: 2009$1,15720102,453201130,684$33,961   Note 5.  Significant accounting policies  Refer to the Companys 2008 annual report on Form 10-K for a description of significant accounting policies. There have been no material changes to these accounting policies.  Note 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.  Note 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 September 27, 2008, the Company purchased 2,485 shares of its common stock under this program. Through September 27, 2008, 772,775 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.  Note 8. Cash and Cash Equivalents  The Company considers all highly liquid investments to be cash equivalents. The Companys banking arrangements allow the Company to fund outstanding checks when presented to the financial institution for payment, resulting in book overdrafts. Book overdrafts are recorded in accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of September 27, 2008 and March 29, 2008, the Company had net book overdrafts of $6.99 million and $5.43 million, respectively.  Note 9.  Financial instruments The Company is a purchaser of certain commodities, such as corn and soybean meal in the course of normal operations.  From time to time 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 had no open positions at September 27, 2008.  Note 10.  Comprehensive income  Comprehensive income includes net earnings and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income for all periods presented consists of fair value adjustments associated with cash flow hedges pursuant to SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, and adjustments for net experience losses. 13 Weeks ended26 Weeks ended9/27/20089/29/20079/27/20089/29/2007Net earnings$(5,483)$1,375$(8,479)$2,910Cash flow hedges(4,461)-(3,263)-Reclassification to net earnings7-1,070-Tax (expense) or benefit1,604-790-Total comprehensive income (loss)$(8,333)$1,375$(9,882)$2,910  Note 11. Income Taxes  Income tax benefit was ($3.1) million, or 36.0% of pre-tax income in the second quarter of 2009. Income tax expense in the second quarter of 2008 was $.9 million, or 38% of pre-tax income. Income tax benefit was ($4.8) million, or 36.0% of pre-tax income 26 weeks ended September 27, 2008. Income tax expense for the 26 weeks ended September 29, 2007 was $1.7 million, or 37% 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 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 September 27, 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 the Company is subject.     Note 12. 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 October, 2008, the FASB, issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP No. 157-3 clarifies the application of FASB No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. As stated above, FASB Staff Position FAS 157-2, Effective Date FASB Statement No. 157, 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 157-3 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  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 Eviscerated pounds for the second quarter were down (4.1)% compared to the previous quarter, down (3.7)% compared to the same period a year ago and up .3% for the 26 weeks.. Revenues for the second quarter were $75.6 million, down (0.6)%, as a result of lower market prices, even though 4.0% greater pounds were marketed for the second quarter and 8.5% for the 26 weeks, revenues were up 3.1% for the 26 weeks as 8.5% greater pounds were marketed. For the quarter, net income was a loss of $(5.5) million or ($1.18) per diluted share as compared to a profit of $1.4 million or $.29 per diluted share for the second quarter of fiscal 2008, for the 26 weeks net income was a loss of $(8.5) million or ($1.82) per diluted share as compared to a profit of $2.9 million or $.62 per diluted share for the first 26 weeks of fiscal 2008.  % Change% Change% Change2nd qtr. 09 vs2nd qtr. 09 vs26 Wks. 09 vs1st qtr. 092nd qtr. 0826 Wks. 08Head Slaughtered(0.2)%(0.1)%0.3%Eviserated Pounds(4.1)%(3.7)%(1.4)%Sales Pounds(4.3)%4.0%8.5%  Quoted market prices for products for the second quarter of fiscal 2009 versus the same period last quarter and last year fluctuated as follows. % Change% Change% Change2nd qtr. 09 vs2nd qtr. 09 vs26 Wks. 09 vs1st qtr. 092nd qtr. 0826 Wks. 08Tenders(11.5)%(19.0)%(9.8)%Wings(5.3)%(26.6)%(22.2)%Drums5.6%0.2%10.9%Boneless Breast(12.2)%(21.2)%(8.6)%Boneless Thigh2.6%14.8%9.8%Leg Quarters14.6%13.1%13.3%Whole Bird without Giblets(11.4)%(3.0)%4.5%   Cost of sales for the second quarter of fiscal 2009 increased 14.6% as compared with the same period last year, from $69.5 million to $79.7 million and 16.3% for the 26 weeks as compared to the same period last year. Feed costs for broilers processed in the second quarter of 2009 which represents 43% of the total cost of sales, increased 53.7% as compared to the second quarter of 2008 and 48.3% for the 26 weeks as compared to the same period last year. Diesel fuel prices increased 51% as compared with the second quarter last year and 49.6% for the 26 weeks as compared to the same period last year. Diesel prices decreased (2)% as compared with the first quarter of this year. % Change% Change% Change2nd qtr. 09 vs2nd qtr. 09 vs26 Wks. 09 vs1st qtr. 092nd qtr. 0826 Wks. 08Manufactured Feed Cost6.5%53.1%47.8%Feed Cost Broilers Sold8.5%53.7%48.3%Diesel Fuel(2.1)%51.2%49.6%   Grain costs are being moderated by the current worldwide economic environment with ethanol, export and feed demand all being reduced. It appears that the corn crop will be the second largest in history, supportive of reasonable cost to grow our broilers. Egg sets are the lowest in the last five years which should help better balance our industrys supply with todays reduced protein demand resulting in improved prices for our product.  Many of our customers have requested that we price them based on feed ingredient cost which they direct us to price for their benefit. To reduce Cagle's risk for these agreements we may choose to price those feed cost through either the Chicago Board of Trade or through future pricing agreements with major grain companies.  Selling and Delivery As a group these expenses increased 3.4% and 6.4% for the 13 and 26 weeks ended September 27, 2008 versus the 13 and 26 weeks ended September 29, 2007; this is representative of increases in energy costs, freight costs and outside storage expenses.  Administrative Expenses This group saw a reduction of (12.9)% and (12.6)% for the 13 and 26 weeks ended September 27, 2008 versus the 13 and 26 weeks ended September 29, 2007; this is the result of a reduction of bad debt reserves, payroll and legal costs; however; increased costs associated with compliance with Sarbanes-Oxley Section 404 were experienced.     Interest Expense Interest expense for the 13 and 26 weeks ended September 27, 2008 versus the 13 and 26 weeks ended September 29, 2007 increased by 70% and 51% respectively. This is reflective of increased borrowings.  Other Income Other Income for the 13 and 26 weeks ended September 27, 2008 represents the change in value of marketable securities. Other income during the 13 and 26 weeks ended September 29, 2007 represents interest income.  Income Taxes Income tax benefit was ($3.1) million, or 36.0% of pre-tax income in the second quarter of 2009. Income tax expense in the second quarter of 2008 was $.9 million, or 38% of pre-tax income. Income tax benefit was ($4.8) million, or 36.0% of pre-tax income 26 weeks ended September 27, 2008. Income tax expense for the 26 weeks ended September 29, 2007 was $1.7 million, or 37% 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 September 27, 2008, the Company's working capital was $19 million and its current ratio was 1.65. 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 $8.6 million during the 13 weeks ended September 27, 2008. The Company has spent $1 million on capital projects in the first six months of fiscal 2009. The Company has remaining availability of $2.5 million on its revolving credit facility, as of September 27, 2008.  The Company completed a new revolving line of credit agreement on September 5, 2008.  There were three primary changes to the previous Agreement: 1. The revolving credit facility is now in the amount of $21 million. 2. The covenant concerning the Borrowers Minimum Tangible Net Worth was reduced from $40 million to $35 million. 3. The advance rate with respect to Eligible Receivables is being increased from 60% to 70%. The maturity date of the new agreement remained March 31, 2011.  On November 3, 2008, the Company entered into an amended credit agreement retroactive to September 27, 2008 which temporarily lowered the Tangible Net Worth Requirement from $35 million to $30 million through the first quarter of fiscal 2010 (quarter ending June 27, 2009).  At any time thereafter the Borrowers Tangible Net Worth must not be less than $40 million. 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 in compliance with covenants at September 27, 2008  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 condensed 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 flow 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, are 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 September 27,2008, the Companys cash balances in FDIC insured bank accounts totaled approximately $1.6 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.  A number of material weaknesses were identified in the Companys report on 10-K for the year ending March 29, 2008.  Most of the weaknesses were the result of insufficient documentation of existing systems and controls related to these systems.  In addition, one capital purchase which was partly paid for by an outside party was not approved through the required process, and in one case, blank check stock (prior to being imprinted with account numbers) was not properly secured.  Management verified that none of the specific issues discovered affected the Companys financial statements.  In response to these issues, senior management dedicated additional resources and took additional steps to strengthen its control processes and procedures to ensure that these internal control deficiencies do not result in a material misstatement of the Consolidated Financial Statements.  Specifically, management implemented the following corrective actions as well as additional procedures:    Revised standard policies, procedures, and controls in order to ensure that all are fully documented    Reviewed capital purchase procedures with appropriate staff, emphasizing that there are no exceptions    Reviewed procedures for securing bank stock with appropriate staff to insure future compliance Management discussed its corrective actions and plans with the Audit Committee, and believes the actions outlined have corrected the deficiencies in internal controls noted above.  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 None.  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) 31.1 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) 32.1 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 August 5, 2008, to furnish a press release announcing its results of operations for the first quarter of 2009. 2. The Company filed an 8-K on September 05, 2008, announcing the signing of an Amended and Restated Revolving Line of Credit and Security Agreement, effective as of September 04, 2008. 3. The Company filed an 8-K on November 3, 2008, announcing the signing of the first amendment to the Amended and Restated Revolving Line of Credit and Security Agreement, effective as of September 27, 2008. 4. The Company filed an 8-K on November 4, 2008, to furnish a press release announcing its results of operations for the second quarter of 2009.  No other reports on Form 8-K were filed during the second quarter of 2009 or in the subsequent interim period between September 27, 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:  11/10/2008  /s/   J. Douglas Cagle                   /s/ Mark M. Ham IV Chairman and C.E.O.                  Executive Vice President & Chief Financial Officer