SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



X  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended  April 01, 2006or



___ 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                                                 .



CAGLE'S, INC.

(Exact Name Of Registrant As Specified In Its Charter)



GEORGIA                                            58-0625713

(State Of Incorporation)               (I.R.S Employer Identification No.)



2000 HILLS AVE., NW, ATLANTA, GA.                   30318

(Address Of Principal Executive Offices)               (Zip Code)



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



SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of each class                               Name of exchange on which registered

CLASS A COMMON STOCK            AMERICAN STOCK EXCHANGE        .



SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None                                                          .



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  X YES    ___ NO



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes     X No



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 l934 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 (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 if disclosure of delinquent filers pursuant to item 405 of regulation s-k (§ 229.405 of this chapter)  is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in part iii of this form 10-k or any amendment to this FORM 10-K.    .



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.

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



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter.

$   18,202,625.43    (based on $10.39 per share closing price on October 01, 2005)    .



Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class A Common Stock at $1.00 par value       4,742,998 shares at $1.00 par value   .



DOCUMENTS INCORPORATED BY REFERENCE:

Parts of the following documents are incorporated by reference in Part III of this form 10-K report:

1) proxy statements for registrant's 2006 annual meeting of shareholders-      Items 10, 11, 12, 13, and 14.



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|FORM 10-K        
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|April 1, 2006    
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|Item 10.         
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CAGLE'S, INC.



PART I



Item 1:  Business



Cagle's, Inc. (the "Company"), which began business in 1945 and was first incorporated in Georgia in 1953, and its wholly owned subsidiary (Cagle's Farms, Inc., formerly Strain Poultry Farms, Inc.) produce, market, and distribute a variety of fresh and frozen poultry products.  The vertically integrated operations of the Company consist of breeding, hatching, and growing of chickens; feed milling; processing; further processing; and marketing operations.  The Company's products are sold to national and regional independent and chain supermarkets, food distributors, food processing companies, national fast-food chains, and institutional users, such as restaurants, schools, and distributors, by the Company's sales staff located in Atlanta, Georgia, and through brokers selected by the Company.



Dispositions



The Company had no significant dispositions during the year ended April 1, 2006. The Company demolished a non-operating feed mill in Dalton, Ga. during the year ended April 2, 2005.



Narrative Description of Business



Food Processing



All of the Company's business activities are conducted on a vertically integrated basis within one industry segment, poultry products.  The Company's various poultry products are closely related, have similar purposes and uses, and, except for product sold under cost-plus arrangements, are similar in terms of profitability and types and degrees of risks.  In addition, the production processes are similar to the extent that (a) production facilities are shared or are interchangeable and (b) the same types of raw materials, labor, and capital are used.  Markets and marketing methods are comparable for all products (except cost-plus products) to the extent that they are generally sold to the same types of customers by a common sales force and are sensitive to changes in economic conditions to the same degree.



The Company currently processes approximately 2 million birds per week in its two processing plants. Of the Company's total production, approximately 450,000 head per week are deboned.



The complete cycle for growing broilers begins with the placement on a farm of a day-old breeder chick.  This bird is reared for 25 weeks, at which time it begins to produce hatching eggs.  The breeder produces eggs for approximately 40 weeks.  These eggs are set in the Company's hatchery, and in three weeks, a baby chick is hatched.



The day-old broiler chick is placed on a farm where it will grow for five to seven weeks depending upon the size of bird desired, at which time it is transported to the processing plant for slaughter.  A significant investment in field inventories is required to support the Company's operating cycle.



All feed for all flocks is produced in a feed mill owned by the Company. The Company's goal is to add value to all of its birds. This value-added product can take the form of seasoned deli products, deboned breast and thigh meat, cut-up marinated raw breaded chicken, fast-food cuts, IQF (individually quick frozen) products, and mechanically deboned chicken meat.



Raw Materials



The primary raw materials used by the Company are corn, soybean meal, and other ingredients; packaging materials; cryogenic materials; and breeder chicks.  The Company believes that sources of supply for these materials are adequate and does not expect significant difficulty in acquiring required supplies.  The major source of supply is the midwestern grain belt of the United States, although local supplies are utilized when available.  Prices for the feed ingredients are sensitive to supply fluctuations worldwide, and weather conditions, especially drought, can cause significant price volatility.  Since feed is the most significant factor in the cost of producing a broiler chicken, those fluctuations can have significant effects on margins. The Company also purchases product outside for further processing requirements.



Research and Development



The Company has made no material expenditures for research and development during the last three years.



Employees and Labor Relations



The Company employs approximately 1,909 persons of whom approximately 32% are covered by a collective bargaining agreement. The Company believes its relationship with the bargaining groups and other employees is good.



3





Seasonal Variations in Business



The seasonal demand for the Company's products is highest during the late spring and summer months and is normally lowest during the winter months.



Major Customers



Sales to the Company's largest customer represent 14%, 11%, and 13%, of net sales during fiscal 2006, 2005, and 2004, respectively. The Company also had sales in 2006 to another customer which represented 8% of net sales.



Backlog



The Company had no material backlog of orders existing as of April 01, 2006.





Competition



The Company is a leading regional integrated poultry processor.  The Company's products compete in the marketplace with comparable products of approximately ten national and regional producers in the areas of quality, service, and price.  The Company believes its small bird focus, flexibility and accessibility are positive factors enhancing the Company's competitive position.



Regulation



The Company's facilities and operations are subject to regulation by various federal and state agencies, including, but not limited to, the Federal Food and Drug Administration ("FDA"), the United States Department of Agriculture ("USDA"), the Environmental Protection Agency, the Occupational Safety and Health Administration, and the corresponding state agencies.  The Company's processing plants are subject to continuous on-site inspection by the USDA, and the FDA inspects the production of the Company's feed mill. Management believes that the Company is in substantial compliance with applicable laws and regulations relating to the operation of its facilities.





Item 1A:  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. This could affect our ability to conduct our operations and demand for our products.



Livestock and Poultry Disease (including Avian Influenza). Outbreaks of livestock diseases in general and poultry disease in particular, can significantly restrict our ability to conduct our operations and demand for our products. 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 affect 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.





4





In recent months there has been substantial publicity regarding a highly pathogenic strain of avian influenza known as H5N1, which has been affecting Asia since 2002 and which has recently been found in Eastern Europe.  It is widely believed that H5N1 is being spread by migratory birds such as ducks and geese.  There have also been some cases where H5N1 is believed to have passed from birds to humans as humans came into contact with live birds that were infected with the disease.



H5N1 has not been identified in North America.  With a potential spread to North America of the H5N1 strain, there can be no assurance that it will not materially adversely affect the demand for North American poultry both in domestic and international markets.  There is also no assurance that it would not significantly affect our ability to conduct our operations and demand for our products.



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. Our business operations entail a number of risks including risks relating to product liability claims, product recalls, property damage and injuries to persons.  We currently maintain insurance coverage of certain of these risks, but no assurances can be given that such insurance can be maintained in the future on acceptable terms or in sufficient amounts to protect us against losses attributable to certain events, or at all.  Additionally, even though coverage may be designed to protect us from losses from certain events, it may not adequately protect us from liability and expenses we incur related to such events.





Significant Competition. Competition in the chicken industry with other vertically integrated poultry companies and other protein sources 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 1B. Unresolved Staff Comments

Not applicable.



Item 2:  Properties



Production and Facilities



Breeding and Hatching



The Company supplies its broiler chicks by producing all of its own hatching eggs from breeder flocks owned by the Company.  These breeder flocks are maintained on 37 contract grower farms.  In addition, the replacement breeder pullets are maintained on 14 contract grower farms where the breeders are reared from one day old to approximately 21 weeks old and then moved to the breeder farm where they begin to produce eggs at about 25 weeks of age.  These farms are located in north Georgia and Tennessee.



The Company owns a hatchery located in Dalton, Georgia, at which eggs are incubated and hatched.  This is a continuous process and requires 21 days to complete.  After the chicks are removed from the incubator, they are vaccinated against disease and moved by an environmentally controlled vehicle, to the Company's grow-out farms.

The hatchery has an aggregate capacity of 2,425,000 chicks per week.



Grow-Out



The Company places its broiler chicks on approximately 160 contract grower farms.



5







The independent contract growers provide the housing, equipment, utilities, and labor to grow the baby chicks to market age, which varies from five to seven weeks, depending on the market for which they are intended.  The Company supplies the baby chicks, the feed, and all veterinary and technical services. Title to the birds remains with the Company at all times.  The contract growers are paid on live weight and are guaranteed a minimum rate with various incentives based upon a grower's performance as compared to other growers whose birds are marketed during the same week.  These contract farms are located in Georgia and Alabama.



Feed Mill



The Company owns a feed mill in Rockmart, Georgia which has production capacity of over 15,000 tons per week which can be increased to 20,000 tons per week with additional equipment.



Processing



As the broilers reach the desired processing weight, they are removed from the houses and transported by Company trucks to a processing plant. The processing plants are located in Pine Mountain Valley, Georgia; and Collinsville, Alabama.  The Collinsville plant can process up to 18,600 birds per hour.  The Pine Mountain plant has the capacity to process 10,800 birds per hour.



Further Processing and Deboning



The Company has a stated goal of marketing the majority of its product as value-added product.  This is accomplished by cutting the product into parts or fast-food cuts, deboning, marinating and breading, and converting into other convenience-type products. Currently, further processing and deboning are conducted at the Collinsville, Alabama, and Pine Mountain Valley, Georgia plants.



Freezer Storage



The Company's facilities located in Atlanta, Georgia; Collinsville, Alabama; and Pine Mountain Valley, Georgia; have freezer storage facilities with aggregate capacity of approximately 14,000,000 pounds of frozen product. The Company utilizes outside storage services as needed to supplement its own freezer capacity.



Local Distribution



As an extension of the Companys sales division, local distribution is operated from warehouse facilities in Atlanta, Georgia and Collinsville, Alabama, and are designed to provide storage and delivery service for those customers.



Significant Unconsolidated Subsidiaries



In November 1997, a poultry company was formed as a joint venture in Kentucky by the Company and an unrelated third party, with the Company owning a minority membership interest.



Executive Offices



The Company's executive offices are located in a company owned facility at 2000 Hills Avenue, NW, Atlanta, Georgia.



All of the properties described above are in good condition and are adequate for their stated uses.



Item 3:  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 4:  Submission of Matters to a Vote of Security Holders



No matters were submitted to security holders for a vote during the fourth quarter of fiscal 2006.





Item 4A:  Executive Officers of the Registrant



The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2006 and is incorporated herein by reference.







6





PART II



Item 5: Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



The Companys common stock is listed and principally traded on the American Stock Exchange, ticker symbol CGLA. As of April 1, 2006, there were 147 stockholders of record of the Companys Class A common stock. Under current loan agreements, issuance of dividends must be consented to by debt holders.



Quarterly dividend data and market highs and lows for the past two years were:



|         | Fiscal 2006  |  | Fiscal 2005
|-------- | ------------ |  | -----------
|         | Dividend     |  | High       
|Quarter:
|First    | $          - |  | $     11.69
|Second   | -            |  | 12.75      
|Third    | -            |  | 10.60      
|Fourth   | -            |  | 10.20      





Item 6:  Selected Consolidated Financial Data



|Five Year Selected Financial Data     |  |                |  |                |  |                |  |                |  |               
|------------------------------------- |  | -------------- |  | -------------- |  | -------------- |  | -------------- |  | --------------
|(In Thousands, Except Per Share Data) |  |                |  |                |  |                |  |               
|                                      |  | 52 Weeks Ended |  | 52 Weeks Ended |  | 53 Weeks Ended |  | 52 Weeks Ended |  | 52 Weeks Ended
|                                      |  | April 1, 2006  |  | April 2, 2005  |  | April 3, 2004  |  | March 29, 2003 |  | March 30, 2002
|OPERATING RESULTS:                    |  |                |  |                |  |                |  |               
|Net sales ......................      |  | $   237,266    |  | $  246,343     |  | $   304,507    |  | $     313,800  |  | $     353,792 
|Costs & expenses .......              |  | 240,918        |  | 230,366        |  | 327,712        |  | 344,297        |  | 375,557       
|Operating income (loss).              |  | (3,652)        |  | 15,977         |  | (23,205)       |  | (30,497)       |  | (21,765)      
|                                      |  |                |  |                |  |                |  |                |  |               
|Interest expense ............         |  | (2,407)        |  | (2,649)        |  | (7,018)        |  | (8,156)        |  | (9,852)       
|Other income, net .........           |  | 5,195          |  | 4,678          |  | (544)          |  | 16,323         |  | 12,171        
|                                      |  |                |  |                |  |                |  |                |  |               
|(Loss) income before income taxes .   |  | (864)          |  | 18,006         |  | (30,767)       |  | (22,330)       |  | (19,446)      
|(Benefit) provision for income taxes  |  | (290)          |  | 6,467          |  | (13,042)       |  | (9,058)        |  | (12,485)      
|Net income (loss)  ..........         |  | $       (574)  |  | $    11,539    |  | $  (17,725)    |  | $    (13,272)  |  | $      (6,961)
|                                      |  |                |  |                |  |                |  |                |  |               
|FINANCIAL POSITION:                   |  |                |  |                |  |                |  |                |  |               
|Working capital .........             |  | $       9,416  |  | $    11,210    |  | $      3,527   |  | $    (49,235)  |  | $       14,324
|Total assets .................        |  | 95,204         |  | 94,292         |  | 100,019        |  | 171,777        |  | 239,951       
|Long-term debt and capital            |  |                |  |                |  |                |  |                |  |               
|lease obligations ..................  |  | 25,869         |  | 26,534         |  | 34,552         |  | 23,479         |  | 114,885       
|Stockholders equity......            |  | 45,232         |  | 45,806         |  | 34,267         |  | 51,992         |  | 64,397        
|                                      |  |                |  |                |  |                |  |                |  |               
|PERFORMANCE                           |  |                |  |                |  |                |  |                |  |               
|PER COMMON SHARE:                     |  |                |  |                |  |                |  |                |  |               
|Net income (loss):                    |  |                |  |                |  |                |  |                |  |               
|Basic .............................   |  | $       0.12)  |  | $       2.43   |  | $     (3.74)   |  | $      (2.80)  |  | $       (1.47)
|Diluted ...........................   |  | (0.12)         |  | 2.43           |  | (3.74)         |  | (2.80)         |  | (1.47)        
|Dividends ......................      |  |               |  |               |  |               |  |               |  |              
|Book value at the end of the year..   |  | 9.54           |  | 9.66           |  | 7.22           |  | 10.96          |  | 13.58         
|Average number of common shares       |  |                |  |                |  |                |  |                |  |               
|outstanding:                          |  |                |  |                |  |                |  |                |  |               
|Basic .............................   |  | 4,743          |  | 4,743          |  | 4,743          |  | 4,743          |  | 4,741         
|Diluted ...........................   |  | 4,743          |  | 4,743          |  | 4,743          |  | 4,743          |  | 4,741         



7











Notes to selected financial data:



Fiscal year 2006



Revenues declined by 3.7% as compared to 2005. This decrease can be attributed to two factors. A decrease in our average selling price of 18.7% for the twelve months of 2006; quoted market prices declined approximately 20% for the same period; and a 4% increase in production tonnage for 2006 compared to 2005; this increase was impacted by a 3.6% decrease in production tonnage for the fourth quarter of 2006.



Debt was reduced by $.5 million in 2006.  Interest expense was reduced in 2006 by 9% as compared to the same period a year ago.



Selling and delivery expenses increased by13%. This increase reflects increases in fuel costs, utilities and commission expenses.



General and administrative expenses decreased by 6.54%. This decrease reflects reductions in payroll costs, legal fees, rental equipment and professional expenses.



The Companys share of earnings of unconsolidated affiliates decreased by 4% due to the affiliates decreases in volumes processed.



Fiscal year 2005



Revenues declined by 19% as compared to 2004, but increased 29% when adjusting 2004 for the sale of the Perry complex. This increase can be attributed to an increase in tonnage at our remaining facilities and higher market prices in the first half of 2005.



Debt was reduced by $7.5 million in 2005, this with the reduction of $48 million in debt in the fourth quarter of 2004, reduced interest expense by $4.4 million for the year.



Selling and delivery expenses decreased by 20%, or 6% when adjusting 2004 for the sale of the Perry complex. This decrease reflects reductions in payroll costs, rental expenses, outside storage cost and commission expenses, which overshadowed increases in freight and fuel costs.



General and administrative expenses decreased by 31%, or 23% when adjusting 2004 for the sale of the Perry complex. This decrease reflects reductions in payroll costs, legal fees, and professional expenses.



The Companys share of earnings of unconsolidated affiliates increased by 22% due to the affiliates increases in volumes processed.



Fiscal year 2004



Revenues declined by 3.0% as compared to 2003 and can be attributed to lower tonnage sold because of the sale of the Perry plant and the closing of a shift at another processing plant.



The Companys share of earnings of unconsolidated affiliates declined by $1.1 million as a result of the closure and sale of assets of Franklin Poultry Equipment, LLC in October 2003. The Companys share of earnings was reported in this classification until the month of sale.



The Company acquired a new $20 million credit facility in fiscal 2004, and in the process retired $60 million of short term debt.



Inventories and accounts receivables were reduced by $10 million in fiscal 2004 which increased working capital of the Company.



Incorporate by reference an 8-K filed on March 18, 2004, to furnish pro forma financial information as if the disposition the Perry, Georgia complex had occurred on January 3, 2004.



Fiscal Year 2003



Revenues declined by 11.3% as compared to 2002 and can be attributed to $9 million of outside feed sales that were included in 2002 (non-recurring), market prices that averaged 3.9% higher but still remained at historic low averages: boneless thigh meat was 24.8% lower, wings were 38.75% lower, boneless skinless breast was lower than a year ago and 2% less tonnage was sold as production was reduced due to the depressed market situation in the industry.



Gross margins were a negative 4.0% for 2003 as compared to negative .89% in 2002.  2003 gross margin is impacted by $6.7 million recovery in a lawsuit involving a vitamin manufacturer and adjusted for this recovery, gross margin would have been negative 6.1%.



Selling, delivery and general administrative expenses as a group decreased by 3.6% and as a category general administrative expenses decreased by 1.8% and is due to increases in the cash surrender values of life insurance policies.  These increases are offset by fees charged by the bank group for extension of credit facilities and consulting fees for monitoring services required by the banks and for services exploring replacement financing.  Legal and professional expenses were also a major factor in 2003.



Fiscal Year 2002



The Companys net revenues increased by 26.5% in 2002 as compared to 2001.  The increase is attributed to a total production increase of 24.9%  as the new processing plant reached full slaughter capacity.  Part of the increased revenues is attributed to approximately $9 million of finished feed sales, which is non-recurring.





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While volume increased, market prices continued to be challenging, especially boneless, skinless breast meat items that comprise a large percentage of the Companys product mix and in most cases were selling substantially lower than quoted market prices.  This situation deteriorated further late in the fourth quarter when a ban on the purchase of US poultry was put into place by Russia.  This has caused the price of dark meat, for which Russia is the largest export customer, to plummet from already low prices.  This has had an effect on other items prices, as well as cheap leg quarters displacing other items in the market place domestically.



Gross margins were a negative .89% as compared to a negative 1.7% in 2001.  This improvement, while still negative, reflects the move toward full production in the new processing facility, somewhat lower energy prices countered by slightly higher feed cost (1.88%).  Market prices were better on average while still depressed.



Selling, delivery and general administrative expenses as a group declined by 4% as compared to 2001; however, there was some shifting of expenses within the categories as selling expenses increased and general and administrative expenses declined.  Increases were mainly payroll related as sales staffing was increased and increases in commissions of 71%.  Legal expenses were lower by 12.2% as the litigation in which the Company is involved began to reach more mature stages.







Item 7:  Management's Discussion and Analysis of Financial Condition and Results of Operations



Overview

The following Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Cagles Inc., our operations and our present business environment. MD&A is provided as a supplement to  and should be read in conjunction with- our consolidated financial statements and the accompanying notes (Notes).



General

We are in a highly stratified industry with the top five producers accounting for 59 percent of poultry production in this country and the next twenty accounting for 36 percent.  Our Company currently produces ready to cook product of 6.7 million pounds (note 1) per week placing it in the top twenty-five integrated broiler companies ranked by ready to cook pounds. Cagles produces a product which differentiates itself from the average broiler company; as industry live weights approach 6 pounds per head our birds weigh approximately 4 pounds per head. While this difference impacts the fixed cost per unit at our operations, we believe it serves our Company by allowing us to compete for a value added customer profile namely the fast-food, institutional, and deli markets. We believe that this is a market segment that we excel in and can provide our customers with distinctive, quality product to fit their needs at margins necessary to offset the higher cost per unit brought about by the smaller live weight.



In the last six months of our fiscal year Avian Influenza had a dramatic impact on our industry and Company. While the highly pathogenic H5N1 strain has never been identified in the United States the majority of US exports are destined for markets in countries where this virus has been identified. These markets, principally Asia and Eastern Europe have seen a marked decrease in poultry consumption which has resulted in an increase in product to be consumed in our country. To a large extent, our industry exports consist of the dark meat portion of the broiler, specifically leg quarters and drumsticks. Freezer inventory in the United States has doubled on these items from this time last year and as a result market prices for leg quarters decreased over 55% from our second quarter to our fourth quarter. Of significance is a recently announced purchase by the USDA of $32.5 million of leg quarters. Current prices have improved reflecting our governments purchase commitment as well as what appears to be recovering export demand as consumers worldwide once again understand that properly prepared poultry products continue to provide excellent value.



Industry breeder placements for calendar year 2005 increased 1.4% and for the first three months of calendar year 2006 increased 3%. For calendar 2005 ready to cook broiler pounds produced increased 3.8% to 36.1 billion pounds and are projected to increase by 2.08% in calendar year 2006. April beef stocks in freezers are 30% above year ago levels and with pork production up by 2.5%, supportive of the projection that there will be an excess of protein products available to consumers for the remainder of this calendar year.



During fiscal 2006 our subsidiary, Cagles Farms, Inc. has improved its relative performance within our industry and is providing a competitive cost for live broilers at the proper size and age for our processing plants and eventual markets. With our hatchery expansion completed in early 2005 Cagles Farms facilities have adequate capacity to supply our processing plants at full volume. Our processing facilities are properly equipped to continue to support the Companys expansion into its chosen product mix of small, tender broilers which are utilized by delicatessens and fast food providers throughout the country.



As of this printing the corn crop is fully planted with the USDA projecting a decrease of 3.8 million acres and a crop of 10.55 billion bushels. Projected use of corn expands 6 percent to a record 11.6 billion bushels as domestic use for ethanol production is estimated to increase 34% to 2.15 billion bushels. Ending stocks are projected at 1.1 billion bushels or down about half from year earlier levels.  Soybean production is projected at 3,080 million bushels with ending stocks projected at a record 650 million bushels up 85 million bushels from last year. Weather will play a key role in ingredient supplies and related pricing this year.



Poor markets reflected by below normal prices primarily as a result of lower worldwide demand continue to impact our financial statements. The Company currently has no material commitment regarding capital expenditures for fiscal 2007 and will consider utilizing operating lease options when appropriate.



Year 2006 compared to 2005



The Company had available $10 million in established lines of credit as of April 1, 2006 versus $14 million in availability as of April 2, 2005. Interest expense was reduced in 2006 by $242 thousand, a 9% reduction, as compared to the same period a year ago.





9





Revenues declined by 3.7% as compared to 2005. This decrease can be attributed to two factors. A decrease in our average selling price of 18.7% for the twelve months of 2006; quoted market prices declined approximately 20% for the same period; and a 4% increase in production tonnage for 2006 compared to 2005; this increase was impacted by a 3.6% decrease in production tonnage for the fourth quarter of 2006.



Gross margins were 4.3% for 2006 as compared to 11.9% for 2005. Fiscal 2005 gross margins were impacted by settlements received by the Company as a result of litigation involving manufacturers of vitamins utilized in the feeding of our live birds in the amount of $43 thousand.  When this settlement is removed, the gross margin was 11.9% for 2005. The deterioration from 2006 to 2005 is due primarily to market price pressures caused by overproduction by the industry and the impact of avian influenza on export markets. This caused the lowest breast markets in recent history and created an abundance of freezer stocks; at the same time energy costs experienced recent historical highs. Freight costs also rose dramatically toward the end of the year.



The Company has increased the capacity of its hatchery, through an addition to the existing building. During the year ended April 1, 2006, $700 thousand, funded through cash flow; was expended on this construction. This addition increased our hatchery capacity by 26%.



Finished feed costs averaged 9.89% lower than the previous year. USDA projections for 2006/07 reflect production reductions of 5% for corn and .2% for soybeans. Global corn stocks are estimated to reach a twenty year low; while soybean stocks are expected to reach record highs.



Selling and delivery expenses increased by 13%, as compared to 2005. This reflects increases in fuel costs, payroll costs, and commission expenses.



General and administrative expenses decreased by 6%, as compared to 2005. This decrease reflects reductions in payroll costs and professional expenses.



Interest Expense

Interest expense for 2006 was 9% lower than for 2005, resulting from lower debt levels throughout the year.



Other Income

Other income is primarily from payments received in 2006 from sales of assets.



Equity in earnings of unconsolidated affiliates

The Companys share of earnings of unconsolidated affiliates decreased by 4% as compared to 2005, due to the affiliates decreases in volumes processed.



Income taxes

The Company records deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid.  Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.  Effective in fiscal 1989, the Revenue Act of 1987 rescinded the cash-basis method of accounting for tax purposes previously used for the Companys farming operations.  Previously recorded income tax liabilities of $3,389 were indefinitely deferred.  Under tax laws enacted in 1997, such liabilities are required to be amortized into taxable income over a twenty-year period.  At April 1, 2006, the Company has federal net operating loss carryforwards of $14,090, which are available to offset future taxable income.  These loss carryforwards expire in various amounts from 2022 through 2026.  The Company has federal and state tax credit carryforwards of $11,852, which are available to reduce income taxes through 2015.  Realization of the future tax benefits is dependent on the Companys ability to generate sufficient taxable income within the carryforward period.  Due to the significant amount of income that would be needed to fully utilize the credits available, the Company has recorded a valuation allowance for a significant portion of the deferred tax asset associated with the tax credit carryforwards.





Year 2005 compared to 2004



The Company had available $14 million in established lines of credit as of April 2, 2005 versus $3 million in availability as of April 3, 2004. Term debt was reduced by $7.5 million in 2005; this, with the reduction of $48 million in debt in the fourth quarter of 2004, reduced interest expense by $4.4 million for the year, as compared to 2004.



Revenues declined by 19% as compared to 2004, but increased 29% when adjusting 2004 for the sale of the Perry complex. This increase can be attributed to an increase in tonnage at our remaining facilities and higher market prices in the first half of 2005.



Gross margins were 11.9% for 2005 as compared to a negative 1.7% in 2004. Fiscal 2005 and 2004 gross margins were both impacted by settlements received by the Company as a result of litigation involving manufacturers of vitamins utilized in the feeding of our live birds in the amounts of $43 thousand and $2.2 million, respectively. When these settlements are removed, the gross margins are 11.9% for 2005 and a negative 2.4% for 2004. The improvement from 2005 to 2004 is due primarily to increased utilization of facilities, and to the increase in the Companys average selling price.



The Company has increased the capacity of its hatchery, through an addition to the existing building. At April 2, 2005, $3.3 million had been expended of the $4 million projected total cost, which has been funded through cash flow. This addition will increase our hatchery capacity by 26%.



Finished feed costs averaged 6% lower than the previous year. Old crop grain stocks remain high and USDA projections estimate an increase in 2005 ending grain stocks. Weather, the threat of asian rust fungus in soybeans, and market plays by nonusers of grain can swing grain prices, even with abundant supplies.





10





Selling and delivery expenses decreased by 20%, as compared to 2004, or 6% when adjusting 2004 for the sale of the Perry complex. This decrease reflects reductions in payroll costs, rental expenses, outside storage cost, and commission expenses, which overshadowed increases in freight and fuel costs.



General and administrative expenses decreased by 31%, as compared to 2004, or 23% when adjusting 2004 for the sale of the Perry complex. This decrease reflects reductions in payroll costs, legal fees, and professional expenses.



Interest Expense

Interest expense for 2005 was 62% lower than for 2004, resulting from lower debt levels throughout the year.





Other Income

Other income is primarily from payments received in 2005 for sales of assets in previous years, for which the income was deferred until received.



Equity in earnings of unconsolidated affiliates

The Companys share of earnings of unconsolidated affiliates increased by 22% as compared to 2004, due to the affiliates increases in volumes processed.



Income taxes

The Company records deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. The Company has recorded increased income tax expense associated with increased profitability. The Company has state tax credit carry forwards of approximately $10,711 which are available to reduce income taxes through 2015. Realization of future tax benefits is dependent on the Companys ability to generate sufficient taxable income within the carry forward period. Due to the significant amount of income that would be needed to fully utilize the credits available, the Company has recorded a valuation allowance for $4,150 associated with the tax credit carry forwards.



Year 2004 compared to 2003



Revenues declined by 3.0% as compared to 2003 and can be attributed to lower tonnage sold because of the sale of the Perry plant and the closing of a shift at another processing plant. The Companys selling price averaged 12.25% higher for 2004.



Gross margins were a negative 1.7% for 2004 as compared to a negative 4.0% in 2003. Fiscal 2004 and 2003 gross margins were both impacted by settlements received by the Company as a result of litigation involving manufacturers of vitamins utilized in the feeding of our live birds in the amounts of $2.2 and $6.7 million, respectively. When these settlements are removed, the gross margins are a negative 2.4% for 2004 and a negative 6.1% for 2003. The improvement from 2003 to 2004 is due primarily to the increase in the Companys average selling price as mentioned in the above paragraph.



Selling and delivery expenses decreased by 16.8% due almost entirely to a reduction in brokerage commissions paid. General and administrative expenses showed an increase of 22%, which was due to increases in the cash surrender values of life insurance policies in 2003. Legal and professional fees, along with bank and loan fees, continued to burden the Company in 2004, accounting for 40% of the total general and administrative fees.



Interest Expense

Interest expense for 2004 was 14.0% lower than for 2003, resulting from lower debt levels throughout the year. Interest rates, however, were higher due to increased rates imposed by lenders during the credit facility extension periods.



Other Income/Expense

Other income/expense is comprised of expenses incurred on the disposal of the Companys interest in its property in Perry, Georgia and Forsyth, Georgia.



Equity in earnings of unconsolidated affiliates

The Companys share of earnings of unconsolidated affiliates declined by $1.1 million and results from the closure and sale of assets by Franklin Poultry Equipment, LLC in October 2003. The Companys share of earnings was reported in this classification until the month of sale. The previous year also had reportable earnings from two unconsolidated affiliates, which were sold in that year, for a portion of the year.



Income taxes

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.





Financial condition & liquidity



The Company had available (unused) $10 million in established lines of credit as of April 1, 2006.



Analysis of cash flows

For the year ended April 1, 2006, the Company provided cash from operating activities of $2,716, due primarily to a reduction in accounts payables and to non-cash charges of depreciation and amortization.





11





For the year ended April 2, 2005, the Company provided cash from operating activities of $11,783, due primarily to the generation of pre-tax income in the amount of $18,006.



For the year ended April 3, 2004, the Company provided cash from operating activities of $4,642. The net loss of $17,725 was affected by non-cash charges of depreciation, amortization, and impairment loss associated with the Perry plant totaling $29,238. Additionally, deferred income taxes, gains on sale of equipment, and income from unconsolidated affiliates impacted the effects of net loss on cash flows by a negative $12,855.



Cash flows provided by (used in) investing activities were $(2,019), $(2,803), and $43,321 for the fiscal years 2006, 2005, and 2004, respectively. The increase in 2006 is due to acquisitions of property, plant and equipment. The increase in cash used in investing activities for fiscal 2005 is primarily due to the acquisition of property, plant and equipment. The decrease in cash provided by investing activities for fiscal 2004 is reflective of the sale of property, plant, and equipment.



Cash flows used in financing activities were $496, $8,114 and $48,052 for the fiscal years 2006, 2005 and 2004, respectively. Cash used in financing activities for fiscal 2006, 2005 and 2004 reflects the retirement of long-term debt.





Tabular disclosure of contractual obligations

Contractual obligations at April 1, 2006 were as follows:

|                            |  |              |  | Payments Due by Period |  |            |  |           
|--------------------------- |  | ------------ |  | ---------------------- |  | ---------- |  | ----------
|                            |  |              |  | Less than              |  | 1-3        |  | 3-5       
|Contractual Obligations     |  | Total        |  | 1 Year                 |  | Years      |  | Years     
|Long Term Debt Obligations  |  | $     29,514 |  | $   3,645              |  | $   11,706 |  | $    5,113
|Capital Lease Obligations   |  | -            |  | -                      |  | -          |  | -         
|Operating Lease Obligations |  | 960          |  | 246                    |  | 480        |  | 234       
|Purchase Obligations        |  | -            |  | -                      |  | -          |  | -         
|Other Long-Term Liabilities |  | -            |  | -                      |  | -          |  | -         
|Total                       |  | $     30,474 |  | $   3,891              |  | $   12,185 |  | $   5,347 





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 from standard and cost plus customers when the following criteria are met: persuasive evidence of an agreement exists, delivery occurred and product accepted, the Companys price to the buyer is fixed and determinable, and collection is reasonably assured.



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.



12







Property, Plant and Equipment.

In fiscal 2003, the Company adopted 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). As a result, 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. The adoption of SFAS 144 did not have a material effect on the consolidated financial statements.



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.



New Accounting Pronouncements



The Financial Accounting Standards Board issued Statement No. 123R Share-Based Payment, as amended, which revised Statement No. 123, Accounting for Stock-Based Compensation and superceded APB Opinion No. 25, Accounting for Stock Issued to Employees.  This statement establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments.  This statement is effective for public entities as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company currently does not have any stock based compensation plans.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces Accounting Principles Board (APB) Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle.  This statement applies to all voluntary changes in accounting principle.  It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  When a pronouncement includes specific transition provisions, those provisions should be followed.  The Company does not believe that the adoption of SFAS No. 154 will have a material impact on the consolidated financial statements.



In December 2004, the FASB issued SFAS No. 151, Inventory Costs which amended the guidance in ARB No. 43, Chapter 4, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal.  In addition, this statement requires that allocation of fixed production overhead to the cost of conversion be based on the normal capacity of the production facilities.  The Company currently does not believe that the adoption of SFAS No. 151 will have a material impact on the consolidated financial statements.















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Item 7A:  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 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.





14





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.



Forward-Looking Statements

This Annual Report, including this Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts, and projections about the industry in which we operate and the beliefs and assumptions of our management. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, seeks, estimates, continues, may, variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified above, under Risk Factors, and elsewhere herein. We undertake no obligation to revise or update any forward-looking statements for any reason.





15





Item 8:  Financial Statements and Supplementary Data





Report of Independent Registered Public Accounting Firm



The Board of Directors

Cagles, Inc. and Subsidiary

Atlanta, Georgia



We have audited the accompanying consolidated balance sheets of Cagles, Inc. (a Georgia corporation) and Subsidiary as of April 1, 2006 and April 2, 2005 and the related consolidated statements of operations, stockholders equity and cash flows for the years ended April 1, 2006, April 2, 2005 and April 3, 2004.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cagles, Inc. and Subsidiary as of April 1, 2006 and April 2, 2005, and the consolidated results of their operations and their cash flows for the years ended April 1, 2006, April 2, 2005 and April 3, 2004, in conformity with accounting principles generally accepted in the United States of America.









Moore Stephens Frost, PLC

Independent Registered Public Accounting Firm





Little Rock, Arkansas

May 12, 2006



16







|Cagle's, Inc. & Subsidiary                                                              |                     |  |                     
|--------------------------------------------------------------------------------------- | ------------------- |  | --------------------
|Consolidated Balance Sheets                                                             |                     |  |                     
|April 1, 2006 and April 2, 2005                                                         |                     |  |                     
|(In Thousands, Except Par Value)                                                        |                     |  |                     
|                                                                                        | April 1, 2006       |  | April 2, 2005       
|ASSETS                                                                                  |                     |  |                     
|CURRENT ASSETS:                                                                         |                     |  |                     
|Cash and cash equivalents                                                               | $             1,078 |  | $                877
|Trade accounts receivable, less allowance for doubtful accounts                         |                     |  |                     
|of $320 and $369  in 2006 and 2005, respectively                                        | 11,454              |  | 11,370              
|Inventories                                                                             | 19,840              |  | 19,042              
|Note receivable                                                                         | -                   |  | 250                 
|Refundable income taxes, current portion                                                | 813                 |  | 559                 
|Other current assets                                                                    | 334                 |  | 589                 
|Total current assets                                                                    | 33,519              |  | 32,687              
|                                                                                        |                     |  |                     
|Investments in and receivables from unconsolidated affiliates                           | 8,740               |  | 6,105               
|                                                                                        |                     |  |                     
|Property, plant and equipment, at cost:                                                 |                     |  |                     
|Land                                                                                    | 1,976               |  | 1,976               
|Buildings and improvements                                                              | 58,940              |  | 56,103              
|Machinery, furniture and equipment                                                      | 38,904              |  | 35,400              
|Vehicles                                                                                | 4,504               |  | 4,480               
|Construction in progress                                                                | -                   |  | 3,381               
|                                                                                        | 104,324             |  | 101,340             
|Less accumulated depreciation                                                           | 60,872              |  | 56,840              
|Property, plant and equipment, net                                                      | 43,452              |  | 44,500              
|                                                                                        |                     |  |                     
|OTHER ASSETS:                                                                           |                     |  |                     
|Long-term refundable income taxes                                                       | 828                 |  | 2,251               
|Deferred income taxes                                                                   | 5,720               |  | 5,003               
|Deferred financing costs, net                                                           | 338                 |  | 687                 
|Other assets                                                                            | 2,607               |  | 3,059               
|Total other assets                                                                      | 9,493               |  | 11,000              
|TOTAL ASSETS                                                                            | $            95,204 |  | $            94,292 
|                                                                                        |                     |  |                     
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                    |                     |  |                     
|CURRENT LIABILITIES:                                                                    |                     |  |                     
|Current maturities of long-term debt                                                    | $             3,645 |  | $             3,476 
|Accounts payable                                                                        | 14,516              |  | 11,563              
|Accrued expenses                                                                        | 4,236               |  | 4,668               
|Deferred income taxes                                                                   | 1,706               |  | 1,770               
|Total current liabilities                                                               | 24,103              |  | 21,477              
|                                                                                        |                     |  |                     
|Long-term debt                                                                          | 25,869              |  | 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)                
|Additional paid-in capital                                                              | 4,198               |  | 4,198               
|Retained earnings                                                                       | 36,370              |  | 36,944              
|Total stockholders' equity                                                              | 45,232              |  | 45,806              
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              | $            95,204 |  | $            94,292 
|The accompanying notes are an integral part of these consolidated financial statements. |                     | 



17







|Cagle's, Inc. & Subsidiary                                                              |                    |  |                     |  |                   
|--------------------------------------------------------------------------------------- | ------------------ |  | ------------------- |  | ------------------
|Consolidated Statements of Operations                                                   |                    |  |                     |  |                   
|For the Years Ended April 1, 2006, April 2, 2005 and April 3, 2004                      |                    |  |                     | 
|(In Thousands, except per share data)                                                   |                    |  |                     |  |                   
|                                                                                        |                    |  |                     |  |                   
|                                                                                        | 2006               |  | 2005                |  | 2004              
|                                                                                        |                    |  |                     |  |                   
|Net sales                                                                               | $        237,266   |  | $        246,343    |  | $        304,507  
|Costs and expenses                                                                      |                    |  |                     |  |                   
|Cost of sales                                                                           | 227,136            |  | 217,024             |  | 309,605           
|Selling and delivery                                                                    | 7,314              |  | 6,451               |  | 8,107             
|General and administrative                                                              | 6,468              |  | 6,891               |  | 10,000            
|Total costs and expenses                                                                | 240,918            |  | 230,366             |  | 327,712           
|                                                                                        |                    |  |                     |  |                   
|Operating Income (Loss)                                                                 | (3,652)            |  | 15,977              |  | (23,205)          
|                                                                                        |                    |  |                     |  |                   
|Other income (expense)                                                                  |                    |  |                     |  |                   
|Interest expense                                                                        | (2,407)            |  | (2,649)             |  | (7,018)           
|Other income (expense), net                                                             | 1,238              |  | 549                 |  | (3,915)           
|Total other income (expense), net                                                       | (1,169)            |  | (2,100)             |  | (10,933)          
|                                                                                        |                    |  |                     |  |                   
|Income (Loss) before equity in earnings of                                              |                    |  |                     |  |                   
|unconsolidated affiliates and income taxes                                              | (4,821)            |  | 13,877              |  | (34,138)          
|                                                                                        |                    |  |                     |  |                   
|Equity in earnings of unconsolidated affiliates                                         | 3,957              |  | 4,129               |  | 3,371             
|Income (Loss) before income taxes                                                       | (864)              |  | 18,007              |  | (30,767)          
|                                                                                        |                    |  |                     |  |                   
|Income taxes (benefit) provision                                                        | (290)              |  | 6,467               |  | (13,042)          
|Net Income (loss )                                                                      | $            (574) |  | $          11,539   |  | $       (17,725)  
|                                                                                        |                    |  |                     |  |                   
|Weighted average common shares outstanding                                              |                    |  |                     |  |                   
|Basic                                                                                   | 4,743              |  | 4,743               |  | 4,743             
|Diluted                                                                                 | 4,743              |  | 4,743               |  | 4,743             
|                                                                                        |                    |  |                     |  |                   
|Per common share                                                                        |                    |  |                     |  |                   
|Net Income (loss )                                                                      |                    |  |                     |  |                   
|Basic                                                                                   | $           (0.12) |  | $              2.43 |  | $           (3.74)
|Diluted                                                                                 | $           (0.12) |  | $              2.43 |  | $           (3.74)
|                                                                                        |                    |  |                     |  |                   
|The accompanying notes are an integral part of these consolidated financial statements.















18







|Consolidated Statements of Stockholders' Equity                                         |  |             
|--------------------------------------------------------------------------------------- |  | ------------
|For the Years Ended April 1, 2006, April 2, 2005, and April 3, 2004                     |  |             
|(In Thousands)                                                                          |  |             
|                                                                                        |  |             
|                                                                                        |  |             
|                                                                                        |  | Common Stock
|                                                                                        |  | Shares      
|Balance, March 29, 2003                                                                 |  | 4,744       
|                                                                                        |  |             
|Net loss                                                                                |  |             
|                                                                                        |  |             
|Balance, April 3, 2004                                                                  |  | 4,744       
|                                                                                        |  |             
|Net Income                                                                              |  |             
|                                                                                        |  |             
|Balance, April 2, 2005                                                                  |  | 4,744       
|                                                                                        |  |             
|Net loss                                                                                |  |             
|                                                                                        |  |             
|Balance, April 1, 2006                                                                  |  | 4,744       
|                                                                                        |  |             
|The accompanying notes are an integral part of these consolidated financial statements. |  |             













19







|Consolidated Statements of Cash Flows                               |                  |  |                   
|------------------------------------------------------------------- | ---------------- |  | ------------------
|For the Years Ended April 1, 2006, April 2, 2005 and April 3, 2004  |                  |  |                   
|(In Thousands)                                                      |                  |  |                   
|                                                                    |                  |  |                   
|                                                                    | 2006             |  | 2005              
|Cash flows from operating activities                                |                  |  |                   
|Net income (loss)                                                   | $        (574)   |  | $       11,539    
|Adjustments to reconcile net income (loss) to net cash              |                  |  |                   
|provided by operating activities                                    |                  |  |                   
|Depreciation                                                        | 4,223            |  | 3,841             
|Impairment loss                                                     | -                |  | -                 
|Amortization                                                        | 349              |  | 133               
|Gain on sale of property, plant and equipment                       | (929)            |  | (572)             
|Income from unconsolidated affiliates, net of distributions         | (2,635)          |  | (2,064)           
|Deferred income taxes expense (benefit)                             | (781)            |  | 6,422             
|Changes in operating assets and liabilities                         |                  |  |                   
|Trade accounts receivable, net                                      | (84)             |  | 292               
|Inventories                                                         | (798)            |  | 287               
|Refundable income taxes                                             | 1,169            |  | 648               
|Other current assets                                                | 255              |  | 68                
|Accounts payable                                                    | 2,953            |  | (6,804)           
|Accrued expenses                                                    | (432)            |  | (2,007)           
|Net cash provided by operating activities                           | 2,716            |  | 11,783            
|                                                                    |                  |  |                   
|Cash flows from investing activities                                |                  |  |                   
|Purchases of property, plant and equipment                          | (3,175)          |  | (4,277)           
|Proceeds from sale of property, plant and equipment                 | 929              |  | 377               
|Payments received on notes receivable                               | 250              |  | 1,105             
|Increase in other assets                                            | (23)             |  | (8)               
|Decrease in other liabilities                                       | -                |  | -                 
|Net cash provided (used) by investing activities                    | (2,019)          |  | (2,803)           
|                                                                    |                  |  |                   
|Cash flows from financing activities                                |                  |  |                   
|Net proceeds on revolving line of credit                            | 2,980            |  | -                 
|Proceeds from issuance of long-term debt                            | -                |  | 11,816            
|Payments of long-term debt                                          | (3,476)          |  | (19,279)          
|Payments of deferred financing costs                                | -                |  | (651)             
|Net cash used by financing activities                               | (496)            |  | (8,114)           
|                                                                    |                  |  |                   
|Net increase (decrease) in cash and cash equivalents                | 201              |  | 866               
|                                                                    |                  |  |                   
|Cash and cash equivalents at beginning of year                      | 877              |  | 11                
|                                                                    |                  |  |                   
|Cash and cash equivalents at end of year                            | $       1,078    |  | $            877  
|                                                                    |                  |  |                   
|                                                                    |                  |  |                   
|Supplemental disclosures of cash flow information                   |                  |  |                   
|Cash paid during the year for interest                              | $       2,404    |  | $         2,664   
|Income taxes paid (refunded), net                                   | 28               |  | 66                
|                                                                    |                  |  |                   
|Supplemental disclosures of non-cash items                          |                  |  |                   
|Note receivable received from sale of property, plant and equipment | $              - |  | $                -
|Write-off of note receivable                                        | -                |  | 170               





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



20





Notes to Consolidated Financial Statements

1.

Summary of Significant Accounting Policies



a.

Principles of consolidation  The consolidated financial statements include the accounts of Cagles, Inc. and its wholly-owned subsidiary Cagle Farms, Inc. (collectively, the Company).  All significant intercompany accounts and transactions have been eliminated.  Investments in unconsolidated affiliates are accounted for under the equity method.



b.

Nature of operations  The Company operates as a vertically integrated poultry processor with operations located in the southeastern United States, consisting of breeding, hatching and growing chickens; feedmill; processing; further processing and marketing operations.  The Companys products are primarily sold in the United States to supermarkets, food distributors, food processing companies, national fast-food chains and institutional users.



Integrated poultry processors operate in an environment wherein the commodity nature of both their products for sale and their primary raw materials causes sales prices and purchase costs to fluctuate, often on a short-term basis, due to the worldwide supply and demand situation for those commodities.  The supply and demand factors for their products for sale and the supply and demand factors for their primary raw materials correlate to a degree, but are not the same, thereby causing margins between sales price and production costs to increase, to decrease, or to invert, often on a short-term basis.



The Company operates in one segment, as defined by Statement of Financial Accounting Standards (SFAS) No. 131, Disclosure About Segments of an Enterprise and Related Information.



c.

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.



d.

Cash equivalents  For the purposes of the consolidated statements of cash flows, the Company considers all highly liquid cash investments purchased with an original maturity of three months or less to be cash equivalents.



e.

Accounts and note receivable In the normal course of business, the Company extends credit to its customers on a short-term basis.  Although credit risks associated with its customers are considered minimal, the Company routinely reviews its accounts receivable balances and makes provisions for probable doubtful accounts.  Past due status is determined based upon contractual terms.  In circumstances where management is aware of a specific customers inability to meet its financial obligations to the Company, a specific reserve is recorded to reduce the receivable to the amount expected to be collected.  Amounts that are determined to be uncollectible are written off against this allowance when collection attempts on the accounts have been exhausted.  Management uses significant judgment in estimating uncollectible accounts.  In estimating uncollectible amounts, management considers factors such as current overall economic conditions, industry-specific economic conditions and historical customer performance.  While management believes the Company processes effectively address its exposure to doubtful accounts, changes in economic, industry or specific customer conditions may require adjustment to the allowance recorded by the Company.



In connection with certain transactions in the normal course of business, the Company has extended credit in the form of notes receivable.  Interest income is recognized as earned only on notes when collectibility is reasonably assured.  Generally, there are no fees or costs associated with such notes.  Management utilizes the same factors in determining uncollectible amounts for notes and accounts receivable.  Past due status is based upon contractual terms.



f.

Inventories  Live field inventories of broilers are stated at cost and breeders are stated at cost, less accumulated amortization.  Breeder costs are accumulated up to the production stage and amortized into broiler costs over the estimated production lives based on monthly egg production.  In line with industry standards, the Company does not reduce live inventories to net realizable value when margins are negative.  Finished products; feed, eggs and medication; and supplies are stated at the lower of cost (first-in, first-out method) or market.  Inventories at April 1, 2006 and April 2, 2005 consist of the following:

|                             | 2006                   | 2005                
|---------------------------- | ---------------------- | --------------------
|                             |                        |                     
|Finished products            | $                4,250 | $              3,843
|Field inventory and breeders | 11,269                 | 11,354              
|Feed, eggs and medication    | 3,438                  | 2,963               
|Supplies                     | 883                    | 882                 
|                             |                        |                     
|                             | $              19,840  | $            19,042 





























21









g.

Property, plant and equipment  Property, plant and equipment are stated at cost.  Depreciation is provided using the straight-line method over the following lives:



|Buildings and improvements         | 3 to 32 years
|---------------------------------- | -------------
|Machinery, furniture and equipment | 3 to 17 years
|Vehicles                           | 2 to 7 years 



Maintenance and repairs are charged to expense as incurred.  Major additions and improvements of existing facilities are capitalized.  For retirements or sales of property, the Company removes the original cost and the related accumulated depreciation from the accounts and the resulting gain or loss is reflected in other income (expense), net in the accompanying consolidated statements of operations.



h.

Deferred financing costs  Deferred financing costs are amortized over periods ranging from two to ten years.  Deferred financing costs are shown net of accumulated amortization on the accompanying consolidated balance sheets.



i.

Employee insurance claims  The Company is self-funded under a minimum premium arrangement for the majority of employee claims under its group health plan.  From May 1992, the union employees of the Company were covered for health insurance under a union health plan.  Starting in January 2003, these employees began receiving health insurance coverage under the Company sponsored plan.  The Company is self-insured for the majority of its workers compensation risks.  The Companys insurance programs are administered by risk management specialists.  Insurance coverage is obtained for catastrophic workers compensation and group health exposures, as well as those risks required to be insured by certain state laws.  The Companys accrual for group health and workers compensation liabilities of $1,426 and $1,170 as of April 1, 2006 and April 2, 2005, respectively, is included in accrued expenses in the accompanying consolidated balance sheets.



j.

Earnings per share  Net income amounts presented in the accompanying consolidated statements of operations represent amounts available to common stockholders.  The following table reconciles the denominator of the basic and diluted earnings per share computations:



|                                   | 2006  | 2005  | 2004 
|---------------------------------- | ----- | ----- | -----
|                                   |       |       |      
|Weighted average common shares     | 4,743 | 4,743 | 4,743
|Incremental shares from assumed    |       |       |      
|conversions of options             | -     | -     | -    
|                                   |       |       |      
|Weighted average common shares and |       |       |      
|dilutive potential common shares   | 4,743 | 4,743 | 4,743



k.

Fiscal year  The Companys fiscal year closing date is the Saturday nearest March 31.  The year ended April 3, 2004 includes operations for a fifty-three week period.  The years ended April 1, 2006 and April 2, 2005 include operations for fifty-two week periods.



l.

Use of estimates  The preparation of consolidated 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 disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.



m.

Fair value of financial instruments  The book values of cash, trade accounts receivable, accounts payable, and other financial instruments approximate their fair values principally because of the short-term maturities of these instruments.  The fair value of the Companys long-term debt is estimated based on current rates offered to the Company for debt of similar terms and maturities.  Under this method, the Companys fair value of long-term debt was not significantly different from the stated value at April 1, 2006 and April 2, 2005.



n.

Accounting for the impairment of long-lived assets  SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which superceded and amended SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of any asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount the carrying amount of the assets exceeds the fair value of the assets.



22







In 2004, the Company entered into negotiations to sell certain assets making up the Perry Complex (see Note 6).  Upon entering into a letter of intent related to this sale, the Company determined that the carrying values of the underlying assets exceeded their fair values.  Consequently, the Company recognized an impairment loss in its third quarter of 2004 totaling $18,528, which represents the excess of the carrying values of the assets over their fair values, less costs to sell.  The impairment loss was recorded as a component of cost of sales in the accompanying consolidated statements of operations for the year ended April 3, 2004.  Based upon managements assessment of the impairment indicators for the remaining assets, management determined that upon testing the expected future net cash flows to be generated from these assets, no impairment losses had occurred in the fiscal years ended 2006, 2005 or 2004.



o.

Shipping and handling costs  Shipping and handling costs are included in cost of sales in the accompanying consolidated statements of operations and totaled $9,651, $7,511 and $9,139 in fiscal years 2006, 2005 and 2004, respectively.



2.

Deferred Financing Costs



Deferred financing costs consist of the following at April 21 2006 and April 2, 2005:



|                             | 2006                   | 2005                  
|---------------------------- | ---------------------- | ----------------------
|                             |                        |                       
|Deferred financing costs     | $                  896 | $                  896
|Accumulated amortization     | (558)                  | (209)                 
|Net deferred financing costs | $                  338 | $                  687



Future finite lived intangible asset amortization expense is as follows:



|2007 | $                 242
|---- | ---------------------
|2008 | 25                   
|2009 | 24                   
|2010 | 24                   
|2011 | 23                   
|     | $                338 



As discussed in Note 3, the Company obtained new financing with a financial institution during 2005.  In conjunction with this refinancing, the Company capitalized financing costs incurred in the amount of $651, which has a two-year life.



3.

Long-Term Debt



Long-term debt consists of the following at April 1, 2006 and April 2, 2005:



|                                                        | 2006                  |  | 2005                 
|------------------------------------------------------- | --------------------- |  | ---------------------
|Term note payable; fixed interest rate of 7.86%,        |                       |  |                      
|principal and interest payable monthly of $290,         |                       |  |                      
|through maturity on April 1, 2011; secured by the       |                       |  |                      
|Collinsville plant and Rockmart feedmill.               | $              21,401 |  | $              23,477
|                                                        |                       |  |                      
|Term note payable; variable interest rate of LIBOR plus |                       |  |                      
|3.75% (8.625% at April 1, 2006), principal and interest |                       |  |                      
|payable monthly of $117, through maturity on April 1,   |                       |  |                      
|2011; secured by accounts receivable, inventory and     |                       |  |                      
|property, plant and equipment, excluding the            |                       |  |                      
|Collinsville plant and Rockmart feedmill.               | 5,133                 |  | 6,533                
|                                                        |                       |  |                      
|Revolving line of credit, maturing December 21, 2006,   |                       |  |                      
|interest payable monthly, variable interest rate of     |                       |  |                      
|LIBOR plus 3.25% (8.125% at April 1, 2006); secured     |                       |  |                      
|by accounts receivable, inventories and property, plant |                       |  |                      
|and equipment, excluding the Collinsville plant and     |                       |  |                      
|Rockmart feedmill.                                      | 2,980                 |  | -                    
|                                                        | 29,514                |  | 30,010               
|Less current maturities                                 | 3,645                 |  | 3,476                
|                                                        |                       |  |                      
|Long-term debt, less current maturities                 | $              25,869 |  | $              26,534







23





During 2005, the Company secured new financing through a new term loan and a revolving line of credit through a financial institution.  The proceeds obtained through this financing were used to pay off previous debt obligations.  As such, the Company has entered into new debt agreements that contain certain restrictive covenants.  These covenants along with covenants already in place require that the Company maintain (1) a minimum fixed charge coverage ratio, as defined in the debt agreement; (2) a minimum fixed charged coverage ratio; (3) an adjusted EBITDA above a specified amount; (4) capital expenditures not to exceed certain limits; (5) an actual net worth above a specified amount; (6) a current ratio, as defined in the debt agreement.  The Company was either in compliance with these covenants at April 1, 2006 or had obtained waivers from its lender.



Aggregate maturities of long-term debt during the years subsequent to April 1, 2006 are as follows:



|2007       |  | $                3,645
|---------- |  | ----------------------
|2008       |  | 9,141                 
|2009       |  | 2,565                 
|2010       |  | 2,456                 
|2011       |  | 2,657                 
|Thereafter |  | 9,050                 
|           |  |                       
|           |  | $              29,514 





4.

Income Taxes



The Company records deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid.  Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts.



Effective in fiscal 1989, the Revenue Act of 1987 rescinded the cash-basis method of accounting for tax purposes previously used for the Companys farming operations.  Previously recorded income tax liabilities of $3,389 were indefinitely deferred.  Under tax laws enacted in 1997, such liabilities are required to be amortized into taxable income over a twenty-year period.



Income tax benefits are reflected in the consolidated statements of operations as follows:



|                               | 2006               |  | 2005               |  | 2004            
|------------------------------ | ------------------ |  | ------------------ |  | ----------------
|                               |                    |  |                    |  |                 
|Current tax provision          | $               22 |  | $               45 |  | $          2,563
|Change in valuation allowance  | 469                |  | -                  |  | (2,614)         
|                               | 491                |  | 45                 |  | (51)            
|Deferred tax expense (benefit) | (781)              |  | 6,422              |  | (12,991)        
|                               |                    |  |                    |  |                 
|                               | $           (290)  |  | $          6,467   |  | $      (13,042) 







A reconciliation between income taxes computed at the federal statutory rate and the Companys income tax rate is as follows:



|                                       | 2006           |  | 2005           |  | 2004        
|-------------------------------------- | -------------- |  | -------------- |  | ------------
|                                       |                |  |                |  |             
|Federal income taxes at statutory rate | $        (294) |  | $        6,122 |  | $   (10,396)
|State income taxes                     | (17)           |  | 777            |  | (624)       
|Change in valuation allowance          | 469            |  | -              |  | (2,614)     
|Jobs and investment tax credits        | (1,025)        |  | (690)          |  | (680)       
|Other                                  | 577            |  | 258            |  | 1,272       
|                                       |                |  |                |  |             
|                                       | $        (290) |  | $        6,467 |  | $   (13,042)





24







Components of the net deferred income tax asset (liability) at April 1, 2006 and April 2, 2005 relate to the following:

|                                 | 2006            |  | 2005           
|-------------------------------- | --------------- |  | ---------------
|Deferred income tax assets       |                 |  |                
|Tax credit carryforwards         | $      10,681   |  | $        9,702 
|Net operating loss carryforwards | 9,339           |  | 9,438          
|Accrued expenses                 | 264             |  | 522            
|Other                            | 171             |  | 216            
|                                 | 20,455          |  | 19,878         
|Less valuation allowance         | (4,619)         |  | (4,150)        
|                                 | 15,836          |  | 15,728         
|                                 |                 |  |                
|                                 |                 |  |                
|Deferred income tax liabilities  |                 |  |                
|Family farm cash-basis deferral  | $       (2,236) |  | $       (2,288)
|Inventories                      | (1,794)         |  | (1,806)        
|Property and depreciation        | (5,955)         |  | (5,860)        
|Income from joint ventures       | (1,609)         |  | (1,956)        
|Other                            | (228)           |  | (585)          
|                                 | (11,822)        |  | (12,495)       
|                                 |                 |  |                
|Net deferred income tax asset    | $        4,014  |  | $        3,233 





At April 1, 2006, the Company has federal net operating loss carryforwards of $14,090, which are available to offset future taxable income.  These loss carryforwards expire in various amounts from 2022 through 2026.



The Company has federal and state tax credit carryforwards of $11,852, which are available to reduce income taxes through 2015.  Realization of the future tax benefits is dependent on the Companys ability to generate sufficient taxable income within the carryforward period.  Due to the significant amount of income that would be needed to fully utilize the credits available, the Company has recorded a valuation allowance for a portion of the deferred tax asset associated with the tax credit carryforwards.





5.

Stockholders Equity



Beginning in 1990, the Board of Directors (the Board) authorized the purchase of up to $2,500 of the Companys stock on the open market.  In February 2000, the Board increased the authorized amount to $15,000.  As of April 1, 2006, 636,240 shares had been repurchased by the Company at a total cost of $9,054.  The Company has accounted for these shares as being retired.





6.

Sales of Facilities



On January 30, 2004, the Company sold certain assets comprising the Perry Complex, (a poultry processing plant in Perry, Georgia, a feed mill and hatchery in Forsyth, Georgia, and related assets and inventories), to Perdue Farms, Inc. (Perdue) for $45,000 for the property, plant and equipment and $6,725 for certain inventories associated with the assets.  The price of the property, plant and equipment was subject to a $1,000 hold back, contingent upon completion of certain post-closing projects.  As of April 1, 2006, all post-closing projects have been completed and all amounts have been received in full.  The price for the inventories included an estimated prepayment for live poultry to be delivered in the ordinary course of grow out.



There are no material relationships between Perdue and the Company or any of the Companys affiliates, directors or officers, or any associates of any director or officer of the Company.



On December 3, 2001, the Company sold its idled processing facility in Macon, Georgia to an unrelated party for a purchase price of $6,800.  The Company received a cash payment subsequent to closing of $75 and a non-recourse note receivable secured by a first mortgage bearing interest at 6.0% per annum for the balance.  The purchaser defaulted on the note, and on July 1, 2003, the Company foreclosed on the collateral.  The Company is currently marketing this facility and expects to realize a sales price in excess of the facilitys carrying value.  However, management does not have a formalized plan to sell this facility and thus has not classified this asset as held for sale.  As of April 1, 2006, this facility has been reflected in property, plant and equipment in the accompanying consolidated balance sheets.



On September 29, 2001, the Company entered into an agreement to sell an idled processing facility in Atlanta to an unrelated party for $3,500.  Under the terms of the agreement, the Company received a cash payment at closing of $2,500 and an unsecured note receivable bearing interest at 7.5% per annum for the balance.  Interest under this note was payable quarterly commencing on December 1, 2001 and continuing through September 1, 2006.  Starting April 1, 2002, and continuing each April 1 thereafter, the Company was to receive principal payments equal to the lesser of $200 or five percent (5%) of excess cash flows, as defined in the note agreement.  Any remaining outstanding principal balance on the note is due and payable on September 28, 2006.  Repayment of the note receivable has been guaranteed by the majority stockholder of the purchaser.  The resulting gain on this sale of $1,000 had been deferred at April 3,



25





2004 to be recognized as the note was collected.  During 2004, the purchaser filed Chapter 11 bankruptcy.  In 2005, the Company collected $355 through the bankruptcy court on this note receivable.  Additionally, in 2006, the Company settled with the majority stockholder for $475.  The Company wrote-off the remaining $170 in 2005.





7.

Investments in Unconsolidated Affiliates



On November 14, 1997, the Company acquired a thirty percent equity interest in a joint venture with its joint venture partner in Cagle Foods.  During 1998, the Company contributed certain property, plant and equipment and other assets in exchange for its equity interest in the new joint venture, Cagles  Keystone Foods, LLC.  This joint venture constructed a processing facility in Albany, Kentucky, which began limited operations in November 1998.



The Company occasionally sells eggs and broilers to and purchases processed products from unconsolidated affiliates.  In addition, the Company performs certain management and administrative services for unconsolidated affiliates.  Sales to, purchases from, accounts payable to and receivable from, and service fees charged to unconsolidated affiliates are summarized as follows:

|                            | 2006                   |  | 2005               |  | 2004             
|--------------------------- | ---------------------- |  | ------------------ |  | -----------------
|Sales                       | $                    - |  | $            6,425 |  | $          23,140
|Purchases                   | -                      |  | -                  |  | -                
|Accounts receivable         | -                      |  | -                  |  | 413              
|Accounts payable            | -                      |  | -                  |  | -                
|Administrative service fees | 818                    |  | 756                |  | 746              





7.Investments in Unconsolidated Affiliates (cont.)



The Company accounts for its investments in affiliates using the equity method.  The Companys share of affiliates earnings was $3,957, $4,129 and $3,371 for fiscal years 2006, 2005 and 2004, respectively.  The Companys share of the affiliates earnings are based on the audited results for the years ended December 31, 2005 and January 1, 2005, adjusted for the unaudited results for interim periods.



Summarized combined unaudited balance sheet information for unconsolidated affiliates as of April 1, 2006 and April 2, 2005 is as follows:

|                                     | 2006               |  | 2005              
|------------------------------------ | ------------------ |  | ------------------
|Current assets                       | $          25,456  |  | $          24,729 
|Non-current assets                   | 51,958             |  | 53,459            
|                                     |                    |  |                   
|Total assets                         | $          77,414  |  | $          78,188 
|                                     |                    |  |                   
|                                     |                    |  |                   
|Current liabilities                  | $            6,299 |  | $            6,702
|Non-current liabilities              | 41,960             |  | 51,157            
|Owners' equity                       | 29,155             |  | 20,329            
|                                     |                    |  |                   
|Total liabilities and owners' equity | $          77,414  |  | $          78,188 





Summarized combined unaudited statements of operations information for unconsolidated affiliates for fiscal years 2006, 2005 and 2004 is as follows:



|                    | 2006             |  | 2005             |  | 2004            
|------------------- | ---------------- |  | ---------------- |  | ----------------
|                    |                  |  |                  |  |                 
|Net sales           | $        252,063 |  | $        319,509 |  | $        243,323
|Gross profit        | 33,010           |  | 34,550           |  | 30,214          
|Operating income    | 17,310           |  | 16,501           |  | 13,397          
|Income before taxes | 13,233           |  | 13,599           |  | 11,311          





26







8.

Major Customers



The Company had sales to one individual customer (A), which exceeded ten percent of total sales for fiscal years 2006, 2005 and 2004.  The Company had sales in excess of ten percent from another customer (B) in fiscal year 2005.  Accounts receivable and sales from these customers as of and for the years ended April 1, 2006, April 2, 2005 and April 3, 2004 were as follows:



|            | Sales          | Accounts Receivable
|----------- | -------------- | -------------------
|Fiscal Year | Amount         | Percentage         
|            |                |                    
|Customer A  |                |                    
|2006        | $       33,445 | 14%                
|2005        | 27,583         | 11%                
|2004        | 41,002         | 13%                
|            |                |                    
|Customer B  |                |                    
|2005        | 24,721         | 10%                





9.

Benefit Plans



Under a collective bargaining agreement, the Company contributes to a multi-employer pension plan for the benefit of certain employees who are union members.  A separate actuarial valuation for this plan is not made for the Company.  Accordingly, information with respect to accumulated plan benefits and net assets available for benefits is not available.  Under the Employee Retirement Income Security Act of 1974, as amended in 1980, an employer, upon withdrawal from a multi-employer plan, is required, in certain cases, to continue funding its proportionate share of the plans unfunded vested benefits.  The Companys contribution rate is a fixed-dollar amount per eligible employee.  The Company made total contributions to the union plan of $134, $142 and $142 in fiscal years 2006, 2005 and 2004, respectively.



The Company has a 401(k) retirement plan for employees not covered by a collective bargaining agreement.  Under the plan, the Company matches contributions up to two percent of participating employees salaries.  Additional contributions may be made at the discretion of the Companys Board.  The Company made matching contributions of $205, $184 and $255 in fiscal years 2006, 2005 and 2004, respectively.  No discretionary Company contributions have been made to this plan.



The Company does not provide postretirement medical or other benefits to employees.





10.

Other Non-Recurring Income



During the years ended April 2, 2005 and April 3, 2004, the Company received $43 and $2,160, respectively, which represents recovery from the settlement of lawsuits involving vitamin manufacturers.  This recovery is included as a reduction of cost of sales in the accompanying consolidated statements of operations.





11.

Commitments and Contingencies



The Company leases certain of its buildings, equipment and vehicles under non-cancelable operating leases.  The consolidated statements of operations include rental expense relating to these operating leases of $1,052, $1,278 and $2,861 in fiscal years 2006, 2005 and 2004, respectively.



At April 1, 2006, future minimum payments under non-cancelable operating leases were as follows:



|2007 | $             246
|---- | -----------------
|2008 | 240              
|2009 | 240              
|2010 | 205              
|2011 | 29               
|     | $             960



The Company was involved, as were many other companies in the industry, in purported class action litigation brought on by several independent growers.  During fiscal 2002, the Company settled a portion of the lawsuits by paying $598.  During the year ended March 29, 2003, the Company settled another portion of the lawsuits by paying $1,400.  At April 1, 2006, the Company continues to vigorously defend the two remaining grower lawsuits, both of which are pending on appeals by the growers, after summary judgment was granted in favor of the Company.  The Company has not accrued any losses in connection with the remaining lawsuits.





27





The Company is involved in various legal actions arising in the normal course of business.  In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Companys financial position or results of operations.



At April 1, 2006, the Company had a total of 1,909 employees.  Of this total, 1,727 are hourly workers and 182 are salaried.  Approximately 35% of the Companys hourly employees are represented by a union.  None of the Companys salaried employees are represented by a union.  The existing union agreement will expire on November 2008.





12.

Concentrations of Credit Risk



Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables or other financial instruments with a variety of customers and cash and cash investments deposited with financial institutions.



Concentrations of credit risk, with respect to accounts receivable and other financial instruments, are limited because a large number of geographically diverse customers make up the Companys customer base, thus spreading the trade credit risk.  The Company controls credit risk through credit approvals, credit limits and monitoring procedures.  The Company performs ongoing credit evaluations of its customers, but generally does not require collateral to support accounts receivable.



The Company, at various times throughout the years, maintained cash balances with certain financial institutions in excess of Federal Deposit Insurance Corporation (FDIC) insured limits.  As of April 1, 2006 and April 2, 2005, the Company had $657 and $765, respectively, in financial institutions in excess of federally insured amounts.





13.

Quarterly Financial Data (Unaudited)



Quarterly financial data is as follows (in thousands, except per share data):



|                                |                 |  |                  |  |                  |  | Earnings         
|------------------------------- | --------------- |  | ---------------- |  | ---------------- |  | -----------------
|                                |                 |  |                  |  |                  |  | Per Share        
|                                |                 |  | Operating        |  | Net              |  | (Basic and       
|                                | Net Sales       |  | Income (Loss)    |  | Income (Loss)    |  | Diluted)         
|                                |                 |  |                  |  |                  |  |                  
|Fiscal year 2006 quarter ended: |                 |  |                  |  |                  |  |                  
|July 2, 2005                    | $        61,593 |  | $          1,372 |  | $          1,439 |  | $            0.30
|October 1, 2005                 | 61,297          |  | 2,167            |  | 1,658            |  | 0.35             
|December 31, 2005               | 59,495          |  | (1,792)          |  | (534)            |  | (0.11)           
|April 1, 2006                   | 54,881          |  | (5,399)          |  | (3,137)          |  | (0.66)           
|                                |                 |  |                  |  |                  |  |                  
|Fiscal year 2005 quarter ended: |                 |  |                  |  |                  |  |                  
|July 3, 2004                    | $        67,152 |  | $          9,176 |  | $         6,162  |  | $            1.30
|October 2, 2004                 | 64,021          |  | 3,123            |  | 2,719            |  | 0.57             
|January 3, 2005                 | 54,594          |  | (174)            |  | 115              |  | 0.02             
|April 2, 2005                   | 60,576          |  | 3,852            |  | 2,543            |  | 0.54             
|                                |                 |  |                  |  |                  |  |                  
|Fiscal year 2004 quarter ended: |                 |  |                  |  |                  |  |                  
|June 28, 2003                   | $        72,450 |  | $        (4,249) |  | $        (3,389) |  | $          (0.71)
|September 27, 2003              | 85,332          |  | 887              |  | (244)            |  | (0.05)           
|January 3, 2004                 | 82,648          |  | (20,910)         |  | (24,949)         |  | (5.26)           
|April 3, 2004                   | 64,077          |  | 1,067            |  | 10,857           |  | 2.28             





14.

New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs, which amended the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage).  This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal.  In addition, this statement requires that allocation of fixed production overhead to the cost of conversion be based on the normal capacity of the production facilities.  The Company currently does not believe that the adoption of SFAS No. 151 will have a material impact on the consolidated financial statements.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces Accounting Principles Board (APB) Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle.  This statement applies to all voluntary changes in accounting principle.  It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  When a pronouncement includes specific transition provisions, those provisions should be followed.  The Company does not believe that the adoption of SFAS No. 154 will have a material impact on the consolidated financial statements.



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SCHEDULE II  Valuation and Qualifying Accounts

|Col A                            |  | Col B              |  | Col C           |  | Col D         |  | Col E        
|-------------------------------- |  | ------------------ |  | --------------- |  | ------------- |  | -------------
|                                 |  |                    |  | ADDITIONS       |  |               |  |              
|                                 |  | Balance at         |  | Charged to      |  | Charged       |  |              
|                                 |  | Beginning of       |  | Costs and       |  | to Other      |  |              
|DESCRIPTION                      |  | Period             |  | Expenses        |  | Accounts      |  | Deductions   
|Year ended April 1, 2006         |  |                    |  |                 |  |               |  |              
|Reserves and Allowances deducted |  |                    |  |                 |  |               |  |              
|from asset accounts:             |  |                    |  |                 |  |               |  |              
|Allowance for doubtful accounts  |  | $              369 |  | $             - |  | $           - |  | $        (49)
|Year ended April 2, 2005         |  |                    |  |                 |  |               |  |              
|Reserves and Allowances deducted |  |                    |  |                 |  |               |  |              
|from asset accounts:             |  |                    |  |                 |  |               |  |              
|Allowance for doubtful accounts  |  | $              601 |  | $             - |  | $           - |  | $      (232) 
|Year ended April 3, 2004         |  |                    |  |                 |  |               |  |              
|Reserves and Allowances deducted |  |                    |  |                 |  |               |  |              
|from asset accounts:             |  |                    |  |                 |  |               |  |              
|Allowance for doubtful accounts  |  | $              692 |  | $         135   |  | $           - |  | $      (226) 





Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



There have been no changes in accountants and no disagreements with accountants on accounting or financial disclosure matters.



Item 9A. Controls and Procedures



The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Companys reports under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any system of disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any disclosure controls and procedures will succeed in achieving their stated goals under all potential future conditions.



The management of Cagles, Inc. and its subsidiary has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis. In the preparation of the consolidated financial statements, it is necessary to make informed estimates and judgments based on currently available information as to the effect of certain events and transactions. Management also prepared the other information in the Annual Report and is responsible for its accuracy and consistency with the consolidated financial statements.



Cagles, Inc. and its subsidiary maintain accounting and other controls which management believes provide reasonable assurance that financial records are reliable, assets are safeguarded, and transactions are properly recorded in accordance with managements authorization. However, limitations exist in any system of internal control based upon the recognition that the cost of that system should not exceed the benefits derived.



As of April 1, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures.  Based upon that evaluation, the Companys management, including the Chief Executive Officer and Chief Financial Officer, concluded the Companys disclosure controls and procedures were effective as of April 1, 2006, 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.





29





Cagles, Inc.s independent auditors, Moore Stephens Frost, PLC, are engaged to audit the consolidated financial statements of Cagles, Inc. and subsidiary and to express an opinion thereon. Their audit is conducted in accordance with auditing standards generally accepted in the United States of America to enable them to report whether the consolidated financial statements present fairly, in all material respects, the financial position and the results of operations and cash flows of Cagles, Inc. and subsidiary in conformity with accounting principles generally accepted in the United States of America.



May 23, 2006



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

J. DOUGLAS CAGLE                                            MARK M. HAM IV

Chairman and Chief Executive Officer                  Executive Vice President & CFO







Report of the Audit Committee

The Audit Committee reviewed with management and the Companys independent auditors overall audit scopes and plans, the results of internal and external audit examinations, evaluations by the auditors of the Companys internal controls and the quality of the Companys financial reporting. The Committee also discussed with the independent auditors other matters required to be discussed by the auditors with the Committee under Statement on Auditing Standards No. 61 (communication with audit committees). The Committee received from the auditors their annual written report on their independence from the Company and its management, which is made under Independence Standards Board Standard No. 1 (independence discussions with audit committees). The Committee also engaged in substantive discussions with the auditors regarding their independence from the Company. In performing all of these functions, the Audit Committee acts only in an oversight capacity, and, in its oversight role, the Committee relies on the work and assurances of the Companys management, which has the primary responsibility for financial statements and reports, and of the independent auditors, who, in their report, express an opinion on the conformity of the Companys annual financial statements to generally accepted accounting principles. In reliance on these reviews and discussions and on the report of the independent auditors, the Audit Committee has recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended April 1, 2006, for filing with the Securities and Exchange Commission.



The Board of Directors has adopted a resolution requiring the Companys Audit Committee to engage the independent auditor. For each fiscal year and until such time different procedures are adopted, prior to the engagement of the auditor, the Audit Committee will pre-approve the auditor and the services to be provided by the auditor.





Item 9B.   Other Information

None









30





PART III



Item 10:  Directors and Executive Officers of the Registrant



The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2006 and is incorporated herein by reference. The Company has adopted a Code of Ethics, which applies to the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. The full text of the Code of Ethics was included as an exhibit with the 2004 annual report.





Item 11:  Executive Compensation



The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2006 and is incorporated herein by reference.



Item 12:  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2006 and is incorporated herein by reference.



Item 13:  Certain Relationships and Related Transactions



The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held July 14, 2006 and is incorporated herein by reference.





Item 14. Principal Accountant Fees and Services.



The information required by this item is included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on July 14, 2006 and is incorporated herein by reference.





31





PART IV



Item 15:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K



The following documents are filed as part of this report:



(a)1.   Financial Statements



The following consolidated financial statements of Cagles, Inc. and subsidiary are filed as part of this report:



Consolidated Balance Sheets as of April 01, 2006 and April 02, 2005



Consolidated Statements of Operations for the Years Ended April 01, 2006, April 02, 2005, and April 03, 2004



Consolidated Statements of Stockholders Equity for the Years Ended April 01, 2006, April 02, 2005, and April 03, 2004



Consolidated Statements of Cash Flows for the Years Ended April 01, 2006, April 02, 2005, and April 03, 2004



Notes to Consolidated Financial Statements as of and for the years ended, April 01, 2006, April 02, 2005, and April 03, 2004





(a)2.   Financial Statement Schedules



The following financial statement schedules are filed as part of this report:

Report of Independent Registered Public Accounting Firm

Schedule II  Valuation and Qualifying Accounts







(a)3

Exhibits



3.1 Articles of Incorporation of the Registrant. (4)

3.2 Bylaws of the Registrant. (2)

13.2 Cagle's, Inc. Proxy statements for Registrant's 2006 annual meeting of shareholders. (1)

14.1 Code of Ethics. (3)



23.1 Consent of independent registered public accounting firm, Moore Stephens Frost, PLC. (1)

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a).  (1)

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a).  (1)

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.  (1)

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.  (1)

99.1 Audited financial statements of unconsolidated affiliates:  Cagle's Keystone Foods, L.L.C. for 12/31/05 and 1/1/05.   (5)

99.2 Unaudited financial statements of unconsolidated affiliates:  Cagle's Keystone Foods, L.L.C. for 12/27/03.  (5)

99.3 Audited financial statements of unconsolidated affiliates:  Cagle's Keystone Foods, L.L.C. for 12/27/03 and 12/28/02.    (4)





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

(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.

(4) Previously filed and incorporated by reference herein from the Registrants Form 10-K for the year ended April 2, 2005.

(5) The majority member refused to consent to the publication of these financial statements and therefore they have not been included.



(b) Reports on Form 8-K

1. The Company filed an 8-K on August 4, 2005, to furnish a press release announcing its results of operations for the first quarter of 2006.

2. The Company filed an 8-K on November 03, 2005, to furnish a press release announcing its results of operations for the second quarter of 2006.

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

4. The Company filed an 8-K on June 9, 2006, to furnish a press release announcing its results of operations for the fourth quarter of 2006.









32













Signatures



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Cagle's, Inc.



BY:   /s/  J. Douglas Cagle

Chairman and Chief Executive Officer & President

June 09, 2006







Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities indicated and on June 09, 2006:



/s/ J. Douglas Cagle

Director and Chairman and Chief Executive Officer & President

/s/ G. Bland Byrne

Director

/s/ Candace Chapman

Director

/s/ Panos J. Kanes

Director

/s/ Edward J Rutkowski

Director

/s/ Mark M. Ham IV

Director and Executive Vice President & CFO

/s/ James David Cagle

Director and Vice President

/s/ George Douglas Cagle

Director and Vice President







33











Moore Stephens Frost

A Professional Association

Certified Public Accountants

425 West Capitol, Suite 3300

Little Rock, Arkansas 72201





CONSENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM







The Board of Directors

Cagles, Inc. and Subsidiary

Atlanta, Georgia





We consent to the inclusion of our report dated May 12, 2006, with respect to the consolidated balance sheets of Cagles, Inc. and Subsidiary as of April 1, 2006 and April 2, 2005 and the related consolidated statements of operations, stockholders equity, and cash flows for the years ended April 1, 2006, April 2, 2005 and April 3, 2004, which report has been included in the Annual Report to Stockholders and in the Form 10-K Annual Report of Cagles, Inc. and Subsidiary.









/s/ Moore Stephens Frost, PLC



Moore Stephens Frost, PLC





Little Rock, Arkansas

June 09, 2006











34