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 27, 1997
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, 1997 was 16,290,095 shares.
<PAGE>
PART I. 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 27, SEPTEMBER 28,
1997 1996
<S> <C> <C>
Net sales $251,552 $272,135
Cost of sales 229,324 258,503
-------- --------
Gross profit 22,228 13,632
Selling, general and administrative expenses 25,269 23,242
-------- --------
Operating loss (3,041) (9,610)
Other expense (income):
Interest expense 4,367 3,080
Miscellaneous expense (income) (554) 36
-------- --------
Other expense 3,813 3,116
-------- --------
Loss before income taxes and minority interest (6,854) (12,726)
Income tax benefit (2,468) (4,644)
Minority interest in net earnings of consolidated
subsidiary 66 13
-------- --------
NET LOSS ($4,452) ($8,095)
====== ======
NET LOSS PER COMMON SHARE ($0.27) ($0.46)
AVERAGE COMMON SHARES OUTSTANDING 16,242 17,697
CASH DIVIDENDS DECLARED PER COMMON SHARE (Note 5) -- --
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Dollars in thousands
September 27, June 28,
1997 1997
ASSETS (unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $260 $283
Accounts receivable, less allowance for
doubtful accounts of $1,237 and $708 68,389 72,462
Inventories (Note 2) 160,010 165,551
Income taxes receivable - 4,567
Other current assets 2,248 2,301
-------- --------
Total current assets 230,907 245,164
Property, plant and equipment, net 155,952 159,426
Deferred income taxes 7,202 4,996
Other assets 6,386 7,142
------- -------
TOTAL ASSETS $400,447 $416,728
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks -- $4,031
Current maturities of long-term debt $196,370 186,391
Excess checks over bank balances 6,165 12,118
Trade accounts payable 32,603 35,005
Accrued expenses 24,521 26,657
Deferred income taxes 10,229 12,359
-------- --------
Total current liabilities 269,888 276,561
Long-term debt, excluding current maturities 4,631 5,040
Minority interest in consolidated subsidiary -- 592
Other liabilities and deferred credits 3,607 3,539
Common stock subject to repurchase -- 4,438
Shareholders' equity:
Common stock, no par value 65,379 64,206
Additional paid-in capital 2,974 2,974
Retained earnings 53,968 59,378
-------- --------
Total shareholders' equity 122,321 126,558
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $400,447 $416,728
======== ========
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 27, September 28,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<C> <S> <S>
Net loss ($4,452) ($8,095)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 6,658 7,203
Gain on sale of property, plant and equipment (305) (92)
Deferred income taxes (4,336) (963)
Other, net (159) 208
Change in operating assets and liabilities:
Decrease(increase) in accounts receivable 4,073 (47)
Decrease in inventories 5,541 9,998
Decrease in other current assets 4,620 2,408
(Decrease)increase in accounts payable (2,402) 252
Decrease in accrued expenses and other (2,068) (151)
------ ------
Net Cash Provided by Operating Activities 7,170 10,721
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,994) (2,441)
Proceeds from sales of property, plant and equipment 1,115 55
(Investments in) disposals of other assets 323 (119)
------ ------
Net Cash Used in Investing Activities (2,556) (2,505)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term and revolver debt, net of
principal payments on long-term debt 9,570 (13,296)
Notes payable to banks (net of principal payments) (4,031) 1,991
Increase (decrease) in checks drawn not presented (5,953) 3,552
Issuance of common stock 215 312
Repurchase of common stock (4,438) --
Dividends paid -- (1,061)
------ ------
Net Cash Used in Financing Activities (4,637) (8,502)
------ ------
Decrease in Cash and Cash Equivalents (23) (286)
Cash and Cash Equivalents at Beginning of Fiscal Year 283 724
------ ------
Cash and Cash Equivalents at End of Period $260 $438
====== ======
Supplemental cash flow information:
Cash paid (refunded) for:
Interest $3,105 $1,659
Income taxes refunded (3,310) (3,899)
The Company considers all highly liquid investments with maturities of 3 months
or less at purchase to be cash equivalents.
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 subsidiaries. All
material intercompany balances and transactions have been eliminated
in consolidation. The consolidated balance sheet as of September 27,
1997, and the consolidated statements of operations for the thirteen
weeks ended September 27, 1997 and September 28, 1996, and the
consolidated statements of cash flows for the thirteen weeks ended
September 27, 1997 and September 28, 1996 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. 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 for Form 10-Q and accordingly, 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 28, 1997. In both, the accounting policies and
principles used are consistent in all material respects. Certain
fiscal 1997 amounts have been reclassified to conform with fiscal 1998
presentations.
2. Inventories
A summary of inventories at September 27, 1997 and June 28, 1997
follows:
(unaudited)
Dollars in thousands September 27, June 28,
1997 1997
------------- --------
Live poultry and breeder flocks $68,427 $74,984
Processed poultry and meat products 56,296 53,981
Packaging supplies, parts and other 16,052 17,188
Feed, grain and eggs 19,235 19,398
-------- -------
Total inventories $160,010 $165,551
======== ========
3. Acquisition of Common Stock
The Company completed the final repurchase of stock from Cuddy Farms,
Inc. early in this quarter by purchasing approximately 446,000 shares
of stock for $10 per share.
4. Debt Refinancing and Modification
The Company's credit agreements contain covenants which require the
maintenance of minimum tangible net worth, as defined, and certain
other financial ratios. The Company has classified $192 million of
debt under these agreements as current liabilities since the waivers,
related to certain covenants, which were obtained previously granted
5
<PAGE>
the Company relief only for the year ended June 28, 1997. As
expected, as of the quarter ended September 27, 1997, the Company was
not in compliance with the financial covenants in its credit
agreements. In the absence of waivers, the lenders have the right to
increase interest rates and/or require the repayments of such debt
prior to normal maturity. Since the Company is negotiating amendments
to the revolving credit facility and is actively exploring a
refinancing to replace a portion of its existing debt, it has not
requested waivers covering the period ended September 27, 1997.
5. Stock Dividend
On June 24, 1997, the Company's Board of Directors declared a stock
dividend that was distributed on August 1, 1997 to shareholders of
record on July 11, 1997. In lieu of the regular cash dividend, the
dividend was paid in stock with .0064 shares being distributed for
each share of common stock outstanding.
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations
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.
Despite a reduction in revenues for the quarter versus the same
quarter last year, the Company reported a $6.6 million reduction in
its operating loss. Improved performance for the first quarter was
the result of lower feed costs, better live performance and an
improved mix of products sold in chicken, and stronger earnings from
the Company s Cassco Ice & Cold Storage subsidiary.
The Company has continued to be negatively impacted by higher than
normal feed costs since the third quarter of fiscal year 1996.
Although feed costs decreased by approximately $18 million this
quarter as compared to the same quarter last year, feed costs remained
significantly above the more normal levels last seen in fiscal year
1995. Corn prices decreased, but were offset by higher soybean meal
costs.
Results of Operations
Net sales for the quarter decreased 7.5% to $251.6 million as compared
to $272.1 million for the same quarter last year. Chicken revenues
for the quarter increased as compared to last year s first quarter
primarily due to an increase in volume sold. This was partially
offset by a decline in prices this quarter in comparison to strong
pricing last year. Turkey revenues were down as prices and volume
each declined from the same quarter last year.
Gross profit for the first quarter was $22.2 million or 8.8% of sales,
an increase of $8.6 million, as compared to $13.6 million or 5.0% of
sales in the first quarter of fiscal year 1997. This improvement was
primarily attributable to a decrease of approximately $18 million in
feed costs offset by sales price decreases in both chicken and turkey.
Selling, general and administrative expenses increased $2.0 million or
8.7% compared to the first quarter last year, or from 8.5% to 10.0% as
a percent of sales. The increase was due to higher program costs
related to sales of further processed products and increased freight
costs driven by larger volumes of turkey export sales.
6
<PAGE>
Interest expense was $1.3 million higher for the quarter due primarily
to increased borrowing levels. For the quarter, the income tax
benefit decreased $2.2 million from fiscal year 1997 levels due to
the improved operating results.
The Company had a net loss of $4.5 million or $0.27 per share compared
to a net loss of $8.1 million or $0.46 per share for the same period
last year. The combined effect of fewer shares outstanding and higher
interest costs resulting from the acquisition of the Company s common
stock held by Cuddy Farms, Inc. increased the loss per share in the
most recent quarter by approximately four cents per share.
Financial Condition and Liquidity
Total inventory was $5.5 million lower compared to the end of fiscal
year 1997. All of the decrease was in live poultry where inventories
were reduced by $6.6 million. Debt levels increased during the first
quarter due to the final repurchase of stock held by Cuddy Farms,
Inc., and the investment in the hatchery project at the Goldsboro, NC
chicken complex. The ratio of total debt to total capital, including
common stock subject to repurchase as debt, was 62.2%, up from 61.2%
at the end of fiscal 1997.
The Company s credit agreements contain covenants which require the
maintenance of minimum tangible net worth, as defined, and certain
other financial ratios. The Company has classified $192 million of
debt under these agreements as current liabilities since the waivers,
related to certain covenants, which were obtained previously, granted
the Company relief only for the year ended June 28, 1997. As
expected, as of the quarter ended September 27, 1997, the Company was
not in compliance with the financial covenants in its credit
agreements. In the absence of waivers, the lenders have the right to
increase interest rates and/or require the repayment of such debt
prior to normal maturity. Since the Company is negotiating amendments
to the revolving credit facility and is actively exploring a
refinancing to replace a portion of its existing debt, it has not
requested waivers covering the period ended September 27, 1997.
Capital Resources
The Company s capital spending for the quarter was $4.0 million,
primarily for the normal replacement of existing equipment, safety
requirements, and projects with rapid pay backs (including the new
hatchery and related equipment at the Goldsboro complex). Projected
capital spending for fiscal 1998 is expected to be approximately $20
to $25 million. Depreciation expense during the quarter was $6.7
million.
The Company remains in material compliance with all regulatory
requirements at the present time. WLR Foods will adopt FASB Statement
128, "Earnings Per Share" which serves to simplify the computation of
earnings per share, during the second fiscal quarter of 1998 in the
current fiscal year. The Company will also adopt FASB Statement 129,
"Disclosure of Information about Capital Structure" which requires
certain disclosures about capital structure. Neither statement is
expected to have a material impact on the Company s operations or
financial position.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. SFAS 131 requires that companies report certain
information about operating segments in complete sets of financial
statements and in condensed financial statements of interim periods
issued to shareholders. Both SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997.
7
<PAGE>
The Company does not believe the adoption of these Statements of
Financial Accounting Standards will have a significant impact on the
Company s financial condition or results of operations.
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 which could cause actual
results to differ materially from those expected. 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.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 10, 1997, WLR Foods, Inc. and its wholly-owned subsidiary,
WLR Poultry Products, Inc., obtained summary judgment in their pending
litigation with Case Foods, Inc. and its subsidiary (Case). The
complaint had alleged that the Company's 1995 acquisition of certain
assets of New Hope Feeds, Inc. and its affiliates (New Hope) violated
the terms of a right of first refusal previously granted by New Hope
to Case. See the Company's Form 10-K for the year ended June 28,
1997, filed with the Securities and Exchange Commission on September
26, 1997. The Company anticipates that all appeal rights will be
extinguished upon consummation of a pending settlement agreement among
Case, the Company and other co-defendants.
Item 3. Defaults Upon Senior Securities
The Company s Unsecured Bank Revolving Credit Facility, 9.41% Senior
Unsecured Notes and 7.47% Senior Unsecured Notes contain covenants
which require the maintenance of minimum tangible net worth, as
defined, and certain other financial ratios. As of September 27,
1997, the Company had outstanding debt under these agreements of
approximately $195 million. As expected, as of the quarter ended
September 27, 1997, the Company was not in compliance with the
financial covenants in these credit agreements. In the absence of
waivers, the lenders have the right to increase interest rates and/or
require the repayment of such debt prior to normal maturity. Since
the Company is negotiating amendments to the revolving credit facility
and is actively exploring a refinancing to replace a portion of its
existing debt, it has not requested waivers covering the period ended
September 27, 1997. All interest and principal payments on the
Company s debt have continued to be made on a timely basis.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on October 25,
1997 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 A
Directors (to serve until
the 2000 Annual Meeting of
Shareholders)
J. Craig Hott 12,097,209 295,807
Herman D. Mason 12,103,757 289,259
Charles W. Wampler, Jr. 12,097,517 295,499
#2 Ratification of
Appointment of
Independent Auditor 12,327,375 42,906 22,735
9
<PAGE>
Item 5. Other Information
James L. Mason, the President of the Company's Wampler Foods, Inc.
subsidiary, has left the Company. In addition to his current
responsibilities as President and Chief Executive Officer of WLR
Foods, James L. Keeler will assume Mr. Mason's position.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
99 Press Release
(b) Form 8-K
Reporting Date August 21, 1997. Item Reported - Item 5, Other
Events. WLR Foods, Inc. reported that it had obtained waivers from
its lenders for noncompliance as of June 28, 1997, of certain
financial covenants. The Company also announced it is exploring the
private placement of up to $150,000,000 of senior subordinated notes.
Reporting Date October 9, 1997. Item Reported - Item 5, Other
Events. WLR Foods, Inc. reported that it was suspending its quarterly
stock dividends in response to concerns about record keeping and tax
reporting issues, and that it would instead consider stock dividends
on an annual basis.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed this 12th day of November, 1997, 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.
11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
99 Press Release
12
<PAGE>
'
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> SEP-27-1997
<CASH> 260
<SECURITIES> 0
<RECEIVABLES> 68,389
<ALLOWANCES> 1,237
<INVENTORY> 160,010
<CURRENT-ASSETS> 230,907
<PP&E> 351,686
<DEPRECIATION> 195,734
<TOTAL-ASSETS> 400,447
<CURRENT-LIABILITIES> 269,888
<BONDS> 201,001
0
0
<COMMON> 65,379
<OTHER-SE> 56,942
<TOTAL-LIABILITY-AND-EQUITY> 400,447
<SALES> 251,552
<TOTAL-REVENUES> 251,552
<CGS> 229,324
<TOTAL-COSTS> 229,324
<OTHER-EXPENSES> 25,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,367
<INCOME-PRETAX> (6,854)
<INCOME-TAX> (2,467)
<INCOME-CONTINUING> (4,452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,452)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
Exhibit 99
FOR IMMEDIATE RELEASE
Investor Contact: Robert Ritter
Chief Financial Officer
540-896-7001
Media Contact: Gail Price, Director of
Corporate Communication
540-896-0406
540-743-4007 (Evening)
WLR FOODS ANNOUNCES ORGANIZATIONAL CHANGES
Broadway, VA, November 10, 1997 -- WLR Foods, Inc. (NASDAQ:WLRF)
President and Chief Executive Officer James L. Keeler today announced
several management changes effective immediately.
In making the announcement, Mr. Keeler stated, "As we continually
improve our competitive position and strive to enhance shareholder
value, we must streamline decision making and increase our
effectiveness. These management changes will move us closer to these
goals."
At Wampler Foods, Inc., the poultry subsidiary, Walter F. Shafer, III,
has been promoted to Vice President of Chicken Operations and Ronald
E. Morris has been promoted to Vice President of Turkey Operations.
Both will join the Operations Committee and report directly to Mr.
Keeler. Separately, John J. (Jack) Broaddus has been named President
of the Cassco Ice & Cold Storage, Inc. subsidiary, and will also
report directly to Mr. Keeler.
Neil D. Showalter has been appointed Vice President of Finance for WLR
Foods. In this newly created position, Mr. Showalter will report
directly to Robert T. Ritter, Chief Financial Officer. Mr. Ritter has
additionally been named a vice president of WLR Foods.
James L. Mason, previously President of Wampler Foods, has left his
position. Mr. Keeler commended Mr. Mason "for his many years of
dedicated service to Wampler Foods and the poultry industry. We
appreciate the contributions Jim has made to our company through the
years." In addition to Mr. Keeler s current responsibilities, he will
also serve as President of Wampler Foods, Inc.
WLR Foods, Inc. is the parent of Wampler Foods, Inc. and Cassco Ice
and Cold Storage, Inc. Wampler Foods, the seventh largest poultry
company, is a fully integrated processor and marketer of high quality
turkey and chicken products sold nationally and internationally,
primarily under the Wampler Foods(R) label. Cassco is a public
refrigerated warehousing and retail ice company serving the mid-
Atlantic region.
###
