SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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(Mark One)

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



For the quarterly period ended December 31, 2005



OR



(  )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to





Commission file number 1-7138



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CAGLES, INC.

(Exact name of Registrant as specified in its charter)

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GEORGIA                                                           58-0625713

(State or other jurisdiction of                                                           (I.R.S. employer

incorporation or organization)                                                          identification no.)





2000 Hills Ave., Atlanta, Ga.,                                                                         30318

(Address of principal executive offices)                                                             (Zip code)



(404) 355-2820

(Registrants telephone number, including area code)

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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                         X Yes            ____ No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.. (Check one):



Large accelerated filer   _____                                       Accelerated filer   _____                                             Non-accelerated filer  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 4,742,998 shares of Class A Common Stock, outstanding as of December 31, 2005.

























1



PART 1.  FINANCIAL INFORMATION

Item1. Financial Statements

|Cagle's, Inc. & Subsidiary Consolidated Balance Sheets                                  |                           |  |                    
|--------------------------------------------------------------------------------------- | ------------------------- |  | -------------------
|December 31, 2005 and April 2, 2005                                                     |                           |  |                    
|(In Thousands, Except Par Value)                                                        |                           |  |                    
|(Period 12/31/05 Unaudited)                                                             |                           |  |                    
|                                                                                        | December 31, 2005         |  | April 2, 2005      
|ASSETS                                                                                  |                           |  |                    
|CURRENT ASSETS:                                                                         |                           |  |                    
|Cash and cash equivalents                                                               | $                   1,738 |  | $               877
|Trade accounts receivable, less allowance for doubtful accounts                         | 12,200                    |  | 11,370             
|Inventories                                                                             | 19,838                    |  | 19,042             
|Note receivable                                                                         | 250                       |  | 250                
|Refundable income taxes, current portion                                                | 615                       |  | 559                
|Other current assets                                                                    | 697                       |  | 589                
|Total current assets                                                                    | 35,338                    |  | 32,687             
|                                                                                        |                           |  |                    
|Investments in unconsolidated affiliates                                                | 8,064                     |  | 6,105              
|                                                                                        |                           |  |                    
|Property, plant and equipment, at cost:                                                 |                           |  |                    
|Land                                                                                    | 1,976                     |  | 1,976              
|Buildings and improvements                                                              | 58,787                    |  | 56,103             
|Machinery, furniture and equipment                                                      | 38,158                    |  | 35,400             
|Vehicles                                                                                | 4,806                     |  | 4,480              
|Construction in progress                                                                | 466                       |  | 3,381              
|                                                                                        | 104,193                   |  | 101,340            
|Less accumulated depreciation                                                           | (59,707)                  |  | (56,840)           
|Property, plant and equipment, net                                                      | 44,486                    |  | 44,500             
|                                                                                        |                           |  |                    
|OTHER ASSETS:                                                                           |                           |  |                    
|Long-term refundable income taxes                                                       | 1,695                     |  | 2,251              
|Deferred income taxes                                                                   | 3,562                     |  | 5,003              
|Deferred financing costs, net                                                           | 425                       |  | 687                
|Other assets                                                                            | 2,595                     |  | 3,059              
|Total other assets                                                                      | 8,277                     |  | 11,000             
|TOTAL ASSETS                                                                            | $                 96,165  |  | $          94,292  
|                                                                                        |                           |  |                    
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                    |                           |  |                    
|CURRENT LIABILITIES:                                                                    |                           |  |                    
|Current maturities of long-term debt                                                    | $                   3,476 |  | $            3,476 
|Accounts payable                                                                        | 12,864                    |  | 11,563             
|Accrued expenses                                                                        | 3,944                     |  | 4,668              
|Deferred income taxes                                                                   | 1,770                     |  | 1,770              
|Total current liabilities                                                               | 22,054                    |  | 21,477             
|                                                                                        |                           |  |                    
|Long-term debt                                                                          | 25,743                    |  | 26,534             
|Other noncurrent liabilities                                                            | -                         |  | 475                
|                                                                                        |                           |  |                    
|STOCKHOLDERS' EQUITY:                                                                   |                           |  |                    
|Preferred stock, $1 par value; 1,000 shares authorized, none issued                     | -                         |  | -                  
|Common stock, $1 par value; 9,000 shares authorized, 4,744                              |                           |  |                    
|shares issued and 4,743 shares outstanding                                              | 4,744                     |  | 4,744              
|Treasury stock, at cost                                                                 | (80)                      |  | (80)               
|Capital in excess of par value                                                          | 4,198                     |  | 4,198              
|Retained earnings                                                                       | 39,506                    |  | 36,944             
|Total stockholders' equity                                                              | 48,368                    |  | 45,806             
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              | $                 96,165  |  | $          94,292  
|The accompanying notes are an integral part of these consolidated financial statements. |                           | 







2





|Cagle's, Inc. & Subsidiary                                                              |                |  |               |  |               |  |              
|--------------------------------------------------------------------------------------- | -------------- |  | ------------- |  | ------------- |  | -------------
|Consolidated Statements of Operations                                                   |                |  |               |  |               |  |              
|For the 13 weeks and 39 weeks ended December 31, 2005                                  
|and the 13 weeks and 39 weeks ended January 1, 2005                                    
|(In Thousands, except per share data)                                                   |                |  |               |  |               |  |              
|(Unaudited)                                                                             |                |  |               |  |               |  |              
|                                                                                        |                |  |               |  |               |  |              
|                                                                                        | 13 Weeks       |  | 13 Weeks      |  | 39 Weeks      |  | 39 Weeks     
|                                                                                        | ended          |  | ended         |  | ended         |  | ended        
|                                                                                        | 12/31/2005     |  | 1/1/2005      |  | 12/31/2005    |  | 1/1/2005     
|                                                                                        |                |  |               |  |               |  |              
|Net sales                                                                               | $  59,495      |  | $  54,594     |  | $ 182,386     |  | $ 185,767    
|Costs and expenses:                                                                     |                |  |               |  |               |  |              
|Cost of sales                                                                           | 57,942         |  | 51,715        |  | 170,542       |  | 164,412      
|Selling and delivery                                                                    | 1,870          |  | 1,550         |  | 5,325         |  | 4,760        
|General and administrative                                                              | 1,475          |  | 1,503         |  | 4,771         |  | 4,469        
|Total costs and expenses                                                                | 61,287         |  | 54,768        |  | 180,638       |  | 173,641      
|                                                                                        |                |  |               |  |               |  |              
|Operating income (loss)                                                                 | (1,792)        |  | (174)         |  | 1,748         |  | 12,126       
|                                                                                        |                |  |               |  |               |  |              
|Other income (expense):                                                                 |                |  |               |  |               |  |              
|Interest expense                                                                        | (562)          |  | (653)         |  | (1,784)       |  | (2,004)      
|Other income, net                                                                       | 503            |  | 65            |  | 1,122         |  | 736          
|                                                                                        |                |  |               |  |               |  |              
|Earnings or (loss) before equity in earnings of                                         |                |  |               |  |               |  |              
|unconsolidated affiliates and income taxes                                              | (1,851)        |  | (762)         |  | 1,086         |  | 10,858       
|                                                                                        |                |  |               |  |               |  |              
|Equity in earnings of unconsolidated affiliates                                         | 1,016          |  | 941           |  | 2,917         |  | 3,173        
|Income (loss) before income taxes                                                       | (835)          |  | 179           |  | 4,003         |  | 14,031       
|                                                                                        |                |  |               |  |               |  |              
|Income taxes provision (benefit)                                                        | (301)          |  | 64            |  | 1,441         |  | 5,036        
|Net income (loss)                                                                       | $     (534)    |  | $       115   |  | $    2,562    |  | $    8,995   
|                                                                                        |                |  |               |  |               |  |              
|Weighted average shares outstanding                                                     |                |  |               |  |               |  |              
|-Basic                                                                                  | 4,743          |  | 4,743         |  | 4,743         |  | 4,743        
|-Diluted                                                                                | 4,743          |  | 4,743         |  | 4,743         |  | 4,743        
|                                                                                        |                |  |               |  |               |  |              
|Net income (loss) per common share                                                      |                |  |               |  |               |  |              
|-Basic                                                                                  | $    (0.11)    |  | $      0.02   |  | $      0.54   |  | $      1.90  
|-Diluted                                                                                | $    (0.11)    |  | $      0.02   |  | $      0.54   |  | $      1.90  
|Dividends per common share                                                              | $            - |  | $           - |  | $           - |  | $           -
|                                                                                        |                |  |               |  |               |  |              
|The accompanying notes are an integral part of these consolidated financial statements.







3





|Cagle's, Inc. & Subsidiary                                                              |                 |  |                
|--------------------------------------------------------------------------------------- | --------------- |  | ---------------
|Consolidated Statements of Cash Flows                                                   |                 |  |                
|For the 39 weeks ended December 31, 2005 and January 1, 2005                           
|(In Thousands) (Unaudited)                                                              |                 |  |                
|                                                                                        | 12/31/2005      |  | 1/1/2005       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                   |                 |  |                
|Net income                                                                              | $        2,562  |  | $        8,995 
|                                                                                        |                 |  |                
|Adjustments to reconcile net income to net cash provided                                |                
|by operating activities:                                                                |                 |  |                
|Depreciation and amortization                                                           | 3,321           |  | 2,921          
|Deferred income taxes                                                                   | 1,441           |  | 5,026          
|Income from unconsolidated affiliates, net of distributions                             | (1,959)         |  | (1,495)        
|Gain on sales of property, plant & equip.                                               | (929)           |  | (727)          
|Changes in operating assets and liabilities:                                            |                 |  |                
|Accounts receivables, net                                                               | (830)           |  | 1,024          
|Income tax receivables                                                                  | 500             |  | 510            
|Inventories                                                                             | (796)           |  | (335)          
|Other current assets                                                                    | (108)           |  | (232)          
|Accounts payable                                                                        | 1,301           |  | (6,928)        
|Accrued expenses                                                                        | (724)           |  | (2,262)        
|Total adjustments                                                                       | 1,217           |  | (2,498)        
|Net cash provided by operating activities                                               | 3,779           |  | 6,497          
|                                                                                        |                 |  |                
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |                 |  |                
|Proceeds from sale of property, plant and equipment                                     | 929             |  | 728            
|Purchases of property, plant, and equipment                                             | (3,024)         |  | (1,728)        
|Payments received on note receivable                                                    | -               |  | 750            
|Decrease in other assets                                                                | (32)            |  | 367            
|Decrease in other liabilities                                                           | -               |  | (355)          
|Net cash used by investing activities                                                   | (2,127)         |  | (238)          
|                                                                                        |                 |  |                
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |                 |  |                
|Payments of long-term debt and capital lease obligations                                | (791)           |  | (13,644)       
|Proceeds from issuance of long-term debt                                                | -               |  | 11,816         
|Payments of deferred financing costs                                                    | -               |  | (652)          
|Net cash used by financing activities                                                   | (791)           |  | (2,480)        
|NET INCREASE IN CASH                                                                    | 861             |  | 3,779          
|                                                                                        |                 |  |                
|CASH AT BEGINNING OF PERIOD                                                             | 877             |  | 11             
|CASH AT END OF PERIOD                                                                   | $        1,738  |  | $        3,790 
|                                                                                        |                 |  |                
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                     
|Cash paid during the period for: Interest                                               | $        1,778  |  | $        2,019 
|Income taxes                                                                            | $           106 |  | $           255
|The accompanying notes are an integral part of these consolidated financial statements.





4



Cagle's, Inc. & Subsidiary

Notes to Consolidated Financial Statements

(In Thousands, Except Per Share Data)

December 31, 2005



1. Basis of Presentation



Interim Period Accounting Policies

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments which are of a normal and recurring nature necessary to present fairly the consolidated financial position of Cagle's, Inc. and its wholly owned subsidiary Cagle Farms, Inc.  (collectively, the "Company") as of December 31, 2005, and the results of their operations for the 13 and 39 weeks ended December 31, 2005 and the 13 and 39 weeks ended January 1, 2005. Results of operations for the 13 and 39 weeks ended December 31, 2005 are not necessarily indicative of results to be expected for the full fiscal year ending April 1, 2006.



The accompanying unaudited consolidated financial statements 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 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 April 2, 2005.



2.  Computation of net income per share



The following table sets forth the computation of basic and diluted earnings per share:



|                                    | 13 wks ended           |  | 13 wks ended           |  | 39 wks ended           |  | 39 wks ended          
|----------------------------------- | ---------------------- |  | ---------------------- |  | ---------------------- |  | ----------------------
|                                    | 12/31/2005             |  | 1/1/2005               |  | 12/31/2005             |  | 1/1/2005              
|Net Income (loss) as reported       | $             (534)    |  | $               115    |  | $            2,562     |  | $            8,995    
|                                    |                        |  |                        |  |                        |  |                       
|Weighted Average Shares Outstanding |                        |  |                        |  |                        |  |                       
|-Basic                              | 4,743                  |  | 4,743                  |  | 4,743                  |  | 4,743                 
|-Diluted                            | 4,743                  |  | 4,743                  |  | 4,743                  |  | 4,743                 
|                                    |                        |  |                        |  |                        |  |                       
|Net Income Per Common Share         |                        |  |                        |  |                        |  |                       
|-Basic                              | $            (0.11)    |  | $              0.02    |  | $              0.54    |  | $              1.90   
|-Diluted                            | $            (0.11)    |  | $              0.02    |  | $              0.54    |  | $              1.90   
|Dividends Per Common Share          | $                    - |  | $                    - |  | $                    - |  | $                    -



3.  Investments in Unconsolidated Affiliates



The Company accounts for its investments in its unconsolidated affiliates using the equity method.  The Company's share of earnings from these affiliates totaled $1,016 for the 13 weeks ended December 31, 2005, and $941 for the 13 weeks ended January 1, 2005. The Company's share of earnings from these affiliates totaled $2,917 for the 39 weeks ended December 31, 2005, and $3,173 for the 39 weeks ended January 1, 2005.



4.  Other Non-Recurring Activities



During the 39 weeks ended December 31, 2005 and the 39 weeks ended January 1, 2005 the Company had no non-recurring activity.



5. Inventories consisted of the following:

|                             | December 31, 2005            |  | April 2, 2005         
|---------------------------- | ---------------------------- |  | ----------------------
|Finished Product             | 5,164                        |  | 3,843                 
|Field Inventory and Breeders | 10,435                       |  | 11,354                
|Feed, Eggs, and Medication   | 3,300                        |  | 2,963                 
|Supplies                     | 939                          |  | 882                   
|                             | $                     19,838 |  | $               19,042



6. Major accounting policies



Refer to the companys 2005 annual report on Form 10-K for a description of major accounting policies. There have been no material changes to these accounting policies.



7.  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.





5





Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

For the 13 and 39 weeks ended December 31, 2005



The disclosures in this quarterly report are complementary to those made in the Companys 2005 annual report on Form 10-K.



Results of Operations



Net sales for the third quarter of fiscal 2006 were $59.5 million compared with $54.6 million for the same period a year ago, an increase of 8.98%. For the quarter, net income was a loss of $.5 million, or ($.11) per diluted share, as compared to net income of $.1 million, or $.02 per diluted share, for the third quarter of fiscal 2005. Tonnage sold increased by 15% for the third quarter of fiscal 2006, as compared with the third quarter of fiscal 2005.



Net sales for the first nine months of fiscal 2006 were $182.4 million compared with $185.8 million for the same period a year ago, a decrease of 1.82%. For the nine month period, net income was $2.6 million, or $.54 per diluted share, as compared to $9 million, or $1.90 per diluted share, for the like period of fiscal 2005.



Average quoted market prices for the first nine months were 17.5% less when compared to the same period for fiscal 2005 and were reflected in our Companys 15.6% lower price per pound sold during that same period. The market price for boneless breast for the third quarter of fiscal 2006 averaged $1.14 as compared with the third quarter of 2005 average of $1.34 per pound and was 28% lower for the first nine months of fiscal 2006 versus the first nine months of fiscal 2005. Perhaps more dramatic is the price decline in dark meat items where quoted prices for leg quarters fell 29% joined with drumsticks which fell 37% from the second to the third quarter of 2006. From December 2004 to December 2005 reported USDA freezer stocks of leg quarters have more than doubled, increasing by approximately 100 million pounds and will continue to pressure markets in the foreseeable future. These changes are precipitated by the slowing of international consumption of poultry products particularly in the Asian and Eastern European countries where avian influenza has been widely identified. Cagles has taken exhaustive precautions to prevent an influenza occurrence within our Companys flocks and continues to participate in the National Poultry Improvement Plan (NPIP) which includes monitoring and testing of our birds for Avian Influenza. We expect to see a recovery in demand and pricing as education throughout our markets continues, assuring our customers of the value and safety of our countrys product.



Cost of sales rose 12.04% for the third quarter and 3.73% for the first 39 weeks of fiscal 2006 versus the comparable periods of fiscal 2005, indicative of the increased volumes processed at our facilities. Energy cost increased for the third quarter and first 39 weeks of fiscal 2006 by 35.5% and 26.3%, respectively. Volumes have now stabilized as our facilities are running at full capacity and energy costs are expected to remain at higher levels for the foreseeable future. Feed ingredient prices for broilers processed in the third quarter of 2006 were close to equal to those for the third quarter of 2005 and were 14% lower for the first nine months of 2006 versus 2005.



Selling, Delivery and Administrative Expenses



As a group, these expenses increased 9.6% for the 13 weeks, and 9.4% for the 39 weeks, ended December 31, 2005 versus the 13 and 39 weeks ended January 1, 2005. Higher fuel costs, amortizations, payroll and insurance costs contributed to the increase in this category.



Interest Expense



Interest expense decreased 14% for the 13 weeks, and 11% for the 39 weeks, ended December 31, 2005 versus the 13 and 39 weeks ended January 1, 2005. This is reflective of decreased borrowings.



Other Income



The Company had no non-recurring activity during the 13 and 39 weeks ended December 31, 2005, or during the 13 weeks and 39 weeks ended January 1, 2005.



Equity in Earnings of Unconsolidated Affiliate



The Company's interest in earnings of unconsolidated affiliate was $1,016 for the 13 weeks and $2,917 for the 39 weeks ended December 31, 2005. These earnings reflect an 8% increase for the 13 weeks and an 8% decrease for the 39 weeks as compared to January 1, 2005. These fluctuations resulted from varying production volume.  Summarized combined unaudited statements of operations information for unconsolidated affiliates follow:



|                    | 13 Weeks                 |  | 13 Weeks               |  | 39 Weeks                 |  | 39 Weeks             
|------------------- | ------------------------ |  | ---------------------- |  | ------------------------ |  | ---------------------
|                    | December 31, 2005        |  | January 1, 2005        |  | December 31, 2005        |  | January 1, 2005      
|Net sales           | $                 53,900 |  | $               57,160 |  | $                185,910 |  | $             257,124
|Gross profit        | 8,333                    |  | 8,430                  |  | 24,734                   |  | 26,780               
|Operating income    | 4,217                    |  | 3,785                  |  | 12,859                   |  | 12,274               
|Income before taxes | 3,189                    |  | 2,992                  |  | 9,865                    |  | 10,267               













6



Income Taxes



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 has classified the income tax benefit as a non-current tax asset in anticipation of application of loss carry forwards in future periods.



Liquidity and Capital Resources



As of December 31, 2005, the Company's working capital was $13.3 million and its current ratio was 1.60. The Companys working capital at April 02, 2005 was $11.2 million and its current ratio was 1.52.The Company has spent $3 million on capital projects in the first nine months of fiscal 2006. This has been funded through operating cash flow. The Company has an existing $14 million revolving credit facility of which $12.2 was available as of December 31, 2005.On October 7, 2005, an 8-K was filed to announce that the Company signed an amendment, effective as of September 30, 2005, to the Syndicated Line of Credit, Term Loan and Security Agreement (the "Agreement"), which was originally entered into on December 20, 2004, with AgSouth Farm Credit, ACA, an agricultural credit association, and RBC Centura Bank, a bank organized under the laws of the State of North Carolina. The primary changes to the Agreement relate to interest rates and an extension of the term of the agreement.  (Refer to 8-K filed October 7, 2005)



We believe that our cash flow provided by operations will be adequate to cover our fiscal 2006 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.  However, we may elect to finance certain of our capital expenditure requirements through borrowings under our credit facilities or operating leases.



Critical accounting policies and estimates



The preparation of 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 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, 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.



















7



Property, Plant and Equipment.



The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) future cash flows estimates expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Companys operations, and estimated salvage values, and (ii) estimated fair market value of the assets.



Contingent liabilities.



The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor, securities, environmental, product and other matters, and is 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 industrys 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 extensive 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.



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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 chicken 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.





Cautionary Statements Relevant To Forward-Looking Information For The Purpose Of "Safe Harbor" Provisions Of The Private Securities Litigation Reform Act Of 1995



The Company and its representatives may from time to time make written or oral forward-looking statements, including forward-looking statements made in this report, with respect to their current views and estimates of future economic circumstances, industry conditions, Company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company's actual results and experiences to differ materially from the anticipated results and expectations, expressed in such forward-looking statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Among the factors that may affect the operating results of the Company are the following: (1) fluctuations in the cost and availability of raw materials, such as feed grain costs; (2) changes in the availability and relative costs of labor and contract growers; (3) operating efficiencies of facilities; (4) market conditions for finished products, including the supply and pricing of alternative proteins; (5) effectiveness of marketing programs and advertising; (6) risks associated with leverage, including cost increases due to rising interest rates; (7) risks associated with effectively evaluating derivatives and hedging activities; (8) changes in regulations and laws, including changes in accounting standards, environmental laws and occupational, health and safety laws; (9) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (10) adverse results from on-going litigation; (11) access to foreign markets together with foreign economic conditions, including currency fluctuations and import/export restrictions; and (12) the effect of, or changes in, general economic conditions. We undertake no obligation to revise or update any forward-looking statements for any reason.



Item 4. Controls and Procedures.



Evaluation of disclosure controls and procedures.



The term disclosure controls and procedures (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within required time periods. The Companys management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this quarterly report (the Evaluation Date).   Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.



Changes in internal controls.



The term internal control over financial reporting (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The Companys management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Companys internal control over financial reporting that occurred during the period covered by this quarterly report, and they have concluded that there was no change to the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



Part II

Other Information



Item 1.  Legal Proceedings



The Company is routinely involved in various lawsuits and legal matters on an ongoing basis as a result of day to day operations; however, the Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company or its business.





Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.



Item 3.  Defaults upon Senior Securities

None.







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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)

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  (1)

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 (1)





(b) Reports on Form 8-K

1. The Company filed an 8-K on October 7, 2005, to furnish details of an amended loan facility.

2. The Company filed an 8-K on November 3, 2005, to furnish a press release announcing its results of operations for the quarter

ended October 1, 2005.

3. The Company filed an 8-K on February 2, 2006, to furnish a press release announcing its results of operations for the quarter

ended December 31, 2005.

-------------

(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.





No other reports on Form 8-K were filed during the third quarter of 2006 or in the subsequent interim period between December 31, 2005 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:  2/08/06



/s/   J. Douglas Cagle                   /s/ Mark M. Ham IV

Chairman and C.E.O.                      Chief Financial Officer









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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002



I, J. Douglas Cagle, Chairman and Chief Executive Officer of Cagles, Inc., certify that:



1. I have reviewed this quarterly report on Form 10-Q for the period ended December 31, 2005 of Cagles, Inc.;



2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;



4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;



(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and



(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):



(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: February 8, 2006





By: /s/ J. Douglas Cagle

J. Douglas Cagle

Chief Executive Officer





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CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002



I, Mark M. Ham IV, Chief Financial Officer of Cagles, Inc., certify that:



1. I have reviewed this quarterly report on Form 10-Q for the period ended December 31, 2005 of Cagles, Inc.;



2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;



4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;



(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and



(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):



(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: February 8, 2006





By: /s/ Mark M. Ham IV

Mark M. Ham IV

Chief Financial Officer





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Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350

(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)





In connection with the Quarterly Report on Form 10-Q of Cagles, Inc. (the Company) for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), J. Douglas Cagle , as Chief Executive Officer of the Company, and Mark M. Ham IV, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:





(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and





(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.







Dated: February 8, 2006



By: /s/ J. Douglas Cagle

J. Douglas Cagle

Chief Executive Officer



By: /s/ Mark M. Ham IV

Mark M. Ham IV

Chief Financial Officer









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