UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
COMMISSION FILE NUMBER 0-17060
WLR FOODS, INC.
(Exact name of Registrant as specified in its charter)
Virginia 54-1295923
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
P.O. Box 7000
Broadway, Virginia 22815
(Address including Zip Code of Registrant's
principal executive offices)
(540) 896-7001
(Registrant's telephone number, including area code)
Indicate by cross 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. Yes (X) No ()
The number of shares outstanding of Registrant's Common Stock, no par
value, at November 6, 1996 was 17,728,556 shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(unaudited) Thirteen Weeks Ended
In thousands, except per share data September 28, September 30,
1996 1995
<S> <C> <C>
Net sales $272,135 $250,798
Cost of sales 258,514 215,811
------- --------
Gross profit 13,621 34,987
Selling, general and administrative expenses 23,242 26,040
------- --------
Operating income (loss) (9,621) 8,947
Other expense:
Interest expense 3,080 2,085
Miscellaneous expense (income) 25 (141)
------- --------
Other expense 3,105 1,944
------- --------
Earnings (loss) before income taxes and minority interest (12,726) 7,003
Income tax expense (benefit) (4,644) 2,691
Minority interest in net earnings of consolidated subsidiary 13 16
------- --------
NET EARNINGS ($8,095) $4,296
======= ========
NET EARNINGS PER COMMON SHARE (0.46) $0.25
AVERAGE COMMON SHARES OUTSTANDING 17,697 17,235
DIVIDENDS DECLARED PER COMMON SHARE (Note 3) - $0.06
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
In thousands
September 28, June 29,
1996 1996
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $438 $724
Accounts receivable, less allowance for
doubtful accounts of $710 and $708 79,979 79,932
Inventories (Note 2) 161,948 171,946
Income taxes receivable 8,676 10,802
Other current assets 3,993 4,275
-------- --------
Total current assets 255,034 267,679
Property, plant and equipment, net 171,966 176,691
Other assets 6,675 6,751
-------- --------
TOTAL ASSETS $433,675 $451,121
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $32,767 $30,776
Current maturities of long-term debt 7,895 7,983
Excess checks over bank balances 18,340 14,788
Trade accounts payable 32,241 31,989
Accrued expenses 23,656 23,887
Deferred income taxes 12,054 12,574
Other current liabilities - 1,061
-------- --------
Total current liabilities 126,953 123,058
Long-term debt, excluding current maturities 125,302 138,510
Deferred income taxes 8,406 8,849
Minority interest in consolidated subsidiary 565 552
Other liabilities and deferred credits 3,472 3,392
Common stock subject to repurchase 17,750 17,750
Shareholders' equity
Common stock, no par value 61,719 61,407
Additional paid-in capital 2,974 2,974
Retained earnings 86,534 94,629
-------- --------
Total shareholders' equity 151,227 159,010
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $433,675 $451,121
======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(unaudited) Thirteen Weeks Ended
Dollars in thousands September 28, September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(8,095) $4,296
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 7,203 6,631
(Gain) on sale of property, plant and equipment (92) (26)
Deferred income taxes (963) 125
Other, net 195 102
Change in operating assets and liabilities:
(net of acquired assets)
Increase in accounts receivable (47) (7,106)
Decrease in inventories 9,998 2,578
Decrease in other current assets 2,408 1,817
Increase in accounts payable 252 2,327
Decrease in accrued expenses and other (151) (1,471)
------- -------
Net cash provided by operating activities 10,708 9,273
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,441) (5,856)
Cash used in acquisition, (including costs) - (10,535)
Proceeds from sales of property, plant and equipment 55 46
(Investment in) disposal of other assets (119) 63
Minority interest in net earnings of consolidated
subsidiary 13 16
------- -------
Net cash used in investing activities (2,492) (16,266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (13,296) (9,197)
Notes payable to banks (net of principal payments) 1,991 7,300
Increase in checks drawn not presented 3,552 11,075
Issuance of common stock 312 259
Repurchase of common stock - (1,733)
Dividends paid (1,061) (1,034)
------- -------
Net cash provided by (used in) financing activities (8,502) 6,670
------- -------
Decrease in cash and cash equivalents (286) (323)
Cash and cash equivalents at beginning of fiscal year 724 706
------- -------
Cash and cash equivalents at end of period $438 $383
======= =======
Supplemental cash flow information:
Cash paid (received) for
Interest $1,659 $1,140
Income taxes refunded (3,899) (1,494)
The Company considers all highly liquid investments with an original maturity of 3
months or less at purchase to be cash equivalents.
Non cash transactions:
The Company issued 411,216 shares of common stock valued at $5.4 million,
for the acquisition of New Hope Feeds, Inc. on September 29, 1995.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
Notes to Consolidated Financial Statements
WLR Foods, Inc. and Subsidiaries
1. Accounting Policies
The consolidated financial statements presented herein, include the
accounts of WLR Foods, Inc. and its wholly-owned and majority-owned
subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation. The consolidated balance sheet
as of September 28, 1996, and the consolidated statements of
operations and cash flows for the thirteen weeks ended September 28,
1996 and September 30, 1995 are unaudited. In the opinion of
management, all adjustments necessary for fair presentation of such
consolidated financial statements have been included. Such
adjustments consisted only of normal recurring accruals and the use of
estimates. Interim results are not necessarily indicative of results
for the entire fiscal year.
The consolidated financial statements and notes are presented in
conformity with the requirements of Form 10-Q and do not contain
certain information included in the Company s annual consolidated
financial statements and notes.
The Company s unaudited interim consolidated financial statements
should be read in conjunction with the consolidated financial
statements included in the Annual Report to Shareholders for the
fiscal year ended June 29, 1996. In both, the accounting policies and
principles used are consistent in all material respects.
Certain fiscal 1996 amounts have been reclassified to conform with
fiscal 1997 presentations.
2. Inventories
A summary of inventories at September 28, 1996 and June 29, 1996
follows:
(unaudited)
Dollars in thousands September 28, June 29,
1996 1996
Live poultry and breeder flocks $71,945 $71,263
Processed poultry and meat products 58,543 66,895
Packaging supplies, parts and other 17,340 18,046
Feed, grain and eggs 14,120 15,742
-------- --------
Total inventories $161,948 $171,946
======== ========
3. Subsequent Event
On September 30, 1996, the Board of Directors declared the regular
quarterly dividend of $0.06 cents per share payable on November 1,
1996 to shareholders of record on October 11, 1996.
4. Debt Refinancing and Modification
The Company is in negotiations with its lenders to refinance the
revolving credit facility and expects to conclude such negotiations
shortly. The Company is also negotiating with its senior note holders
to restructure the financial covenants of those debt agreements.
5
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
General
WLR Foods, Inc. (the Company) is a fully integrated poultry
production, processing and marketing business with operations in
Virginia, West Virginia, Pennsylvania and North Carolina.
For the third consecutive quarter, the Company experienced challenging
business conditions. Grain costs in the poultry processed during the
quarter remained high, up approximately $30 million as compared to the
same quarter last year after adjusting for changes in volume.
Furthermore, grain costs were over $10 million higher as compared to
prices in the fourth quarter of fiscal 1996. Prices for corn and
soybean meal have decreased substantially since the end of the
quarter, the result of improving expectations for the fall harvest of
these grains.
In early September, severe weather from Hurricane Fran disrupted
operations and damaged facilities in North Carolina, Virginia and West
Virginia. However, out-of-pocket costs after anticipated insurance
settlements are not expected to be material.
Results of operations
Net sales rose $21.3 million or 8.5%, while overall sales volumes
increased 5.1% for the quarter ended September 28, 1996 compared to
the same period last year. Chicken sales volume was up 18 %, largely
due to the Goldsboro acquisition which was not reflected in the
results of operations in the first quarter last year. Additionally,
the Company s export volume was up 46% over the same period last year.
The average realized sales price for chicken was about the same
compared to the first quarter last year. Commodity turkey sales volume
increased nearly 8%, and average realized sales prices increased about
2%. Further processed sales volume declined nearly 19% compared to the
same period last year, while average realized sales prices rose almost
12%.
Costs of sales increased $42.7 million or 20% this quarter largely due
to the $30 million in higher grain costs discussed above. Delivered
costs for corn and soybean meal averaged 53% and 51% higher,
respectively, than last year s first quarter. Prices of both
commodities have decreased substantially from this summer s record
highs in response to positive news about the harvest. Due to the
length of the growing cycle of the Company s poultry, it takes
approximately three months before the cost of birds arriving at
processing facilities is significantly impacted by changes in grain
costs. Gross profit decreased $21.4 million or 61%, and the gross
profit margin percentage from 14.0% to 5.0%. The decrease was the
result of higher grain costs mentioned above and inadequate poultry
prices due to excess supplies of poultry and other competing meats.
Poult Enteritis Mortality Syndrome (PEMS), a disease also referred to
as spiking mortality, continues to affect the North Carolina turkey
operations. The impact of PEMS in the first and second quarters of
fiscal 1997 is expected to be approximately the same as last year.
Selling, general and administrative expenses decreased $2.8 million
compared to the first quarter last year, a drop from 10.4% to 8.5% as
a percentage of sales. The cut in spending resulted from a
combination of cost reductions and a decrease in volume related costs
associated with the decline in further processed sales. Furthermore,
sales generated by the Goldsboro acquisition without adding
significantly to expenses, contributed to the decline in the ratio of
selling, general and administrative costs to sales.
Interest expense was up $1.0 million, due to higher levels of
borrowing necessary to carry increased working capital levels.
Income taxes decreased from an expense of $2.7 million in last year s
first quarter to a benefit of $4.6 million due to the current first
quarter loss. The tax rate decreased from 38.4% last year to 36.5%
due to limitations on the use of operating losses in some states where
the Company does business.
6
<PAGE>
Net earnings decreased from a profit of $4.3 million in the first
quarter of last year to a loss of $8.1 million in the first quarter
of this year.
Financial Condition and Liquidity
WLR Foods closed the first quarter of fiscal 1997 with a strong
balance sheet. Total inventory decreased $10.0 million compared to
the end of fiscal 1996. Most of the decrease was in finished goods
where holdings were reduced by $7.2 million. Management expects to
see continued improvement in debt levels over the near-term, as a
result of lower grain costs and a further reduction in finished
product inventory. Net working capital was $128.1 million, down from
$144.6 million at June 29, 1996, due largely to lower inventory levels
and the increase in current liabilities. The ratio of total debt to
total capital, including common stock subject to repurchase as debt,
was 54.9% down from 55.1% at the end of fiscal 1996. Total debt
decreased by $11.3 million mainly as a result of lower inventory
levels at the end of the period.
Capital Resources
The Company's capital spending for the quarter was $2.4 million,
primarily for replacements of existing equipment, safety requirements,
or projects with rapid pay backs. Depreciation expense was $7.2
million. The projected capital budget for fiscal 1997 remains at $15
million, although this amount may be increased based on long-term
strategic projects and industry conditions.
On September 30, 1996, the Board of Directors approved the regular
quarterly dividend of $0.06 per share payable on November 1, 1996.
Management negotiated a waiver of the fixed charge covenant for the
quarter ended September 28, 1996 from its lenders. The Company is
continuing discussions to modify certain of its loan agreements and to
replace the revolving credit facility with a new facility in the near
future. The new revolving credit facility is expected to give the
Company the flexibility necessary to meet the demands of the current
difficult operating environment.
The Company remains in material compliance with all regulatory
requirements at the present time. WLR Foods will adopt SFAS No. 123,
Accounting for Stock Based Compensation in fiscal 1997, will elect
the disclosure provisions of the statement and continue to account for
stock-based compensation in accordance with APB Opinion No. 25. SFAS
No. 121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of will also be adopted in fiscal
1997. These accounting standards are not anticipated to materially
impact the financial position of the Company or results of operations
at the time of adoption.
Company performance expectations or forward looking statements
expressed from time to time are always subject to the possible
material impact of any risks of the business. These risks include
weather conditions impacting grain production and harvesting and live
growout of poultry; feed supplies and prices; supplies and selling
prices of poultry and competing meats; consumer preferences;
governmental and regulatory intervention in the export/import of
poultry; changes in the regulations governing production processes;
and fluctuations in the general business climate.
7
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on October 26,
1996 at 10:00 a.m. in Bridgewater, Virginia. The voting results were
as follows:
______________________________________________________________________________
Votes
Broker
Proposal For Against Withheld Abstention Non-Votes
______________________________________________________________________________
#1 Election of
Class C Directors
(to serve until 1999
Annual Meeting
of Shareholders)
George E. Bryan 13,763,112 597,361
Charles L. Campbell 14,015,159 345,314
William H. Groseclose 14,014,396 346,077
William D. Wampler 14,015,436 345,037
#2 Ratification of
Appointment of
Independent
Auditors 14,327,167 17,660 15,647
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Form 8-K
Reporting Date July 26, 1996. Item Reported - Item 5,
Other Events. WLR Foods, Inc. reported the change of the name of its
wholly-owned subsidiary from Wampler-Longacre, Inc. to Wampler Foods,
Inc.
8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed this 8th day of November, 1996 by the
Registrant's principal financial officer who is also authorized by the
Registrant to sign on its behalf.
WLR FOODS, INC.
__/s/ Robert T. Ritter__________
Robert T. Ritter, Chief Financial
Officer and duly authorized signator
for Registrant
9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<EXCHANGE-RATE> 1
<CASH> 438
<SECURITIES> 0
<RECEIVABLES> 79,979
<ALLOWANCES> 710
<INVENTORY> 161,948
<CURRENT-ASSETS> 255,034
<PP&E> 345,108
<DEPRECIATION> 173,142
<TOTAL-ASSETS> 433,675
<CURRENT-LIABILITIES> 126,953
<BONDS> 133,197
0
0
<COMMON> 79,469
<OTHER-SE> 89,508
<TOTAL-LIABILITY-AND-EQUITY> 433,675
<SALES> 272,135
<TOTAL-REVENUES> 272,135
<CGS> 258,514
<TOTAL-COSTS> 258,514
<OTHER-EXPENSES> 23,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,080
<INCOME-PRETAX> (12,726)
<INCOME-TAX> (4,644)
<INCOME-CONTINUING> (8,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,095)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
