UNITED STATES 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 July 3, 1999
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 or organization) Identification No.)
P.O. Box 7000, Broadway, Virginia 22815
(Address of principal executive offices)
Registrant's telephone number, including area code
540-896-7001
Securities registered pursuant Name of exchange on which
to Section 12(b) of the Act: registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - no par value
(Title of Class)
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 (Section 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.
The aggregate value of the voting stock held by non-affiliates of the
registrant as of September 3, 1999 was approximately $119,525,045. As
of that date 16,557,582 shares of the registrant's common stock were
issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for the fiscal
year ending July 3, 1999 are incorporated by reference in Items 5-8 of
Part II. Portions of the Company's Proxy Statement, to be filed
within 120 days of the end of the Company's fiscal year, are
incorporated by reference in Items 10-13 of Part III.
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PART I
Item 1. BUSINESS.
General
WLR Foods, Inc. (with its subsidiaries, "WLR" or the "Company")
was incorporated in the Commonwealth of Virginia in 1984. WLR is a
leading producer, processor and marketer of poultry-based products,
including fresh, frozen and further processed chicken and turkey. The
Company markets products under its Wampler Foods(R) brand trademark
and under various private labels to customers in the retail,
foodservice and institutional markets, as well as to export customers
in more than 60 countries. In 1999, WLR was ranked the fourth largest
turkey producer by Turkey World magazine, the twelfth largest chicken
producer by Broiler Industry magazine, and the seventh largest poultry
company by Poultry magazine. Company sales for fiscal 1999 were $888
million, including approximately $453 million of chicken segment sales
and $428 million of turkey segment sales, and representing approx-
imately 584 million pounds and 441 million pounds of poultry products
in the chicken and turkey segments, respectively. Remaining sales were
comprised of revenues from the Company's protein conversion plants.
The Company markets a full line of chicken and turkey products,
including individually packaged fresh and frozen whole birds, fresh
and frozen bulk parts, fresh and frozen tray packs of individual parts
and a large assortment of further processed products. By offering a
broad array of products, the Company is able to shift production among
whole birds, parts and further processed products in response to
changes in customer demands and product prices. WLR is also actively
expanding its offering of further processed products, which offer
consumers added convenience and taste while generating higher margins
for WLR, and for which grain costs represent a smaller percentage of
overall production cost. Further processed products include a variety
of salads, turkey burgers and sausage, ground turkey and chicken and
various fully cooked breast products.
WLR markets branded and private label poultry products to
retail, fast food, foodservice and institutional customers throughout
the United States with an emphasis on the East Coast. The Company is
positioning itself as a full-service supplier to these customers for
poultry-based products, offering a broad assortment of branded and
private label products across multiple price points. In addition, WLR
continues to expand its export sales, which have grown from 4% of
total Company sales in 1990 to 10% of sales in 1999.
The Company is vertically integrated and controls the growing of
its poultry, and the processing, preparation, packaging and marketing
of its products. Such integration enables WLR to ensure a
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consistently high degree of product quality, and to adjust its product
mix to changes in the prices of products, changes in customer
requirements and to geographic imbalances in supply. As an integrated
producer, the Company also is able to reduce operating costs, improve
operating efficiency and deliver a higher yield of harvestable birds
to its processing plants through improvements in processing
facilities, automation and the active monitoring and management of its
breeder stock, hatching and growing conditions and feed components.
Through July 1998, the Company operated a cold storage and ice
manufacturing and distribution business through its Cassco Ice and
Cold Storage, Inc. (Cassco) operating subsidiary. In July 1998, the
Company sold its Cassco subsidiary. The Company also sold its
Goldsboro, North Carolina chicken complex in August 1998. The volume
produced at the Goldsboro complex was replaced by the conversion
of the Marshville, North Carolina turkey complex to chicken
processing, which was completed in the first fiscal quarter of 1999.
Poultry Production
WLR Foods' primary operations include the breeding, hatching,
grow-out and processing of turkeys and chickens. For fiscal 1999, WLR
Foods produced approximately 471 million pounds of dressed turkey and
685 million pounds of dressed chicken.
WLR Foods purchases breeder stock turkey eggs which it hatches
and places with growers who supply labor and housing to produce
breeder flocks. These breeder flocks produce eggs that are taken to
the company-owned turkey hatchery for incubation and hatching into
poults, providing approximately 69% of the Company's poult supply.
The balance of the Company's poults are purchased from a third party.
In its chicken operations, WLR Foods purchases breeder flock chicks
and places them with growers who supply labor and housing to raise the
birds. The birds are then moved to breeder farms where they begin
providing eggs, which are in turn transported to company-owned
hatcheries. Once hatched, day-old poults and chicks are inspected and
vaccinated against common poultry diseases. In total, WLR Foods
contracts with 173 breeder growers who grow approximately one-half of
WLR Foods' turkey, and all of WLR Foods' chicken, breeder flocks.
After hatching and vaccination, poults and chicks are transported
to one of WLR Foods' approximately 900 contract growers located in
Virginia, West Virginia, Pennsylvania, Maryland, North Carolina and
South Carolina who supply labor and housing to raise the turkeys and
chickens to maturity. WLR Foods supplies feed primarily from company-
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2
owned feedmills and provides grower support through WLR Foods'
technicians and veterinarians.
Grow-out and breeder farms provide WLR Foods with more than 53
million square feet of growing facilities. These farms typically are
grower-owned and operate under contract with WLR Foods, providing
facilities, utilities and labor. Contract growers are compensated on
a cost-based formula and several incentive-based formulas.
Approximately 97% of WLR Foods' turkeys and 100% of its chickens are
raised by contract growers, with the balance grown by independent
growers and company-owned farms. WLR Foods strives to maintain good
contract grower relationships and believes the availability of
contract growers is sufficient for anticipated needs.
An important factor in the grow-out of poultry is the rate at
which poultry converts feed into body weight. The Company purchases
it primary feed ingredients on the open market. These ingredients
consist primarily of corn and soybean meal. Because the quality and
composition of feed is critical to the feed conversion rate, WLR Foods
formulates and manufactures a majority of its feed at one of its four
feedmills. WLR Foods has an annual feed manufacturing capacity of
approximately 2 million tons and anticipates no difficulty in meeting
the Company's feed requirements in the future.
Once the turkeys and chickens reach marketable weight, they are
transported to one of the Company's seven poultry processing plants.
These plants utilize modern, highly automated equipment to process and
package the turkeys and chickens for sale or preparation for further
processing. Some further processing, such as deboning, skinning and
ground turkey is also conducted in a number of these processing
plants. Additional further processing, including grinding,
marinating, spicing and cooking to produce delicatessen products,
frankfurters, meat salads and foodservice products is conducted at
the Company's further processing plant.
Processing and Other
The non-edible by-products of WLR Foods' poultry processing
plants are sent to either of its two protein conversion plants, except
for the Marshville, North Carolina processing plant, which sells its
by-products to a third party vendor. The Company's two protein
conversion plants convert the non-edible by-products into feed
ingredients for use in its own operations or for sale to pet food
manufacturers.
The following table shows approximate sales revenues by operating
segment from WLR Foods' products for the last three fiscal years.
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3
Fiscal 1999 Fiscal 1998 Fiscal 1997
(Dollars in Millions)
Chicken segment $ 453 $ 389 $ 378
Turkey segment 428 546 601
Other 7 11 16
---- ---- ----
Total Net Sales $ 888 $ 946 $ 995
==== ==== ====
Competition
The poultry industry is highly competitive. WLR Foods markets
its products in competition with both larger and smaller poultry
companies on the basis of price, quality and service, with WLR Foods'
greatest competition coming from four or five of the country's larger
poultry producers and processors. The pricing of poultry products is
so competitive that any company with a cost advantage is in a
favorable competitive position. Seasonal increases in production and
customer buying patterns contribute to fluctuations in prices which
are controlled more by supply and demand than by cost of production.
WLR Foods primarily markets its chicken and turkey products in the
highly competitive eastern sections of the United States.
Seasonality
In general, the Company's sales are relatively stable throughout
the year. However, demand for chicken and further processed products
is typically strongest in May through August while demand for turkey
products is typically strongest in September through December.
Management responds to this seasonality by attempting to manage
operating volumes and inventory levels, and the associated working
capital requirements, to meet expected demand. As a consequence, the
Company's short-term borrowings typically peak in the third and fourth
quarters of each fiscal year, reflecting the buildup of turkey product
inventories.
Trademarks and Patents
The Company's Wampler Foods subsidiary markets products under the
trademarks WAMPLER FOODS and WAMPLER FOODS and design, both of which
are registered with the U.S. Patent and Trademark Office. Wampler
Foods continues to market its products under the trademarks TRIM FREE
and THE DELI ROAST COLLECTION and design, both of which are federally
registered trademarks. Products are also sold under the LEAN LITE
DELI, ROUND HILL, FARMER'S CHOICE, KAFETERIA KIT and VALLEY PRIDE
marks. Wampler Foods markets its export and foreign military sales
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4
under the COLONEL ROCKINGHAM design, ROCKINGHAM and SHENVALLEY
trademarks, as well as the WAMPLER FOODS trademark.
Government Contracts
WLR Foods' government contracts are a small percent of its total
sales, consisting of bids on particular products for delivery at
specified locations. Contracts are generally bid, and the product
delivered, within a one to two month period. These contracts include
both chicken and turkey products and can involve further processed
products. WLR Foods had less than $0.2 million of governmental
contracts outstanding as of July 3, 1999, compared to approximately
$5.1 million as of June 27, 1998.
Foreign Sales
WLR Foods' export sales constituted approximately 10% of its
total annual sales in each of fiscal 1999, 1998 and 1997. Wampler
Foods has a full-time staffed export sales office which coordinates
export sales efforts on behalf of WLR Foods. Export sales originate
from that office and use independent brokers as needed. Sales are
made to customers in over 60 countries.
Transportation
Transportation logistics, including the availability of
transportation equipment and the efficiency of transportation systems,
are key elements in the raising of poultry, transporting feed to the
contract growers, transporting poultry to the processing plants, and
transporting products to customers. Delivery of the Company's
products to its customers is generally performed by refrigerated third
party trucking companies. The Company works with a third party vendor
to provide logistics services for the delivery of its products. WLR
Foods has contracts with two railroad companies for the delivery of
feed ingredients to WLR Foods' feedmills.
Raw Materials
WLR Foods' largest cost is for basic feed ingredients, namely
corn and soybean meal. Feed grains are commodities and, as such, are
subject to volatile price changes caused by weather, size of harvest,
changes in demand, transportation and storage cost and the
agricultural policies of the United States and foreign governments.
Although WLR Foods can, and sometimes does, purchase grain in the
forward markets, it cannot completely eliminate the potential adverse
effect of grain price increases. The Company uses futures contracts
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5
and forward purchases to hedge the risk of fluctuating grain prices.
The results of closed hedging transactions become part of the cost of
the related inventory items, and gains and losses in the market value
of open hedging contracts are reported as an adjustment to the
carrying amount of the hedged item.
Environmental and Other Regulatory Compliance
WLR Foods' facilities and operations are subject to the
regulatory jurisdiction of various federal agencies, including the
Food and Drug Administration, Department of Agriculture, Environmental
Protection Agency, Occupational Safety and Health Administration, and
of corresponding state agencies in Virginia, West Virginia, North
Carolina and Pennsylvania. All environmental permits, such as air,
water and solid waste disposal permits, are issued by appropriate
state agencies.
A total of seven environmental permits are held by Wampler Foods'
Virginia facilities, all of which were issued by the Virginia
Department of Environmental Quality. The Hinton turkey processing
facility holds an air permit which regulates certain combustion
equipment and a water permit which regulates the treatment of process
wastewater. The Harrisonburg turkey processing facility holds a water
permit requiring pretreatment of its process wastewater to meet
certain effluent standards before discharging into the regional sewer
system. Wampler Foods' Timberville chicken processing and protein
conversion facility holds a water permit which regulates the discharge
of process wastewater and an air permit which regulates the operation
of its protein conversion facility, as well as certain combustion
equipment. The chicken processing facility in Alma/Stanley holds one
water permit which regulates the discharge of process wastewater.
Finally, the Broadway feedmill holds an air permit which was issued
primarily for the control and abatement of dust. In addition to the
seven environmental permits held by Wampler Foods, WLR Foods holds a
Virginia Pollution Abatement permit which allows Wampler Foods'
Virginia facilities to land apply certain wastewater biosolids
generated by the facilities' wastewater treatment systems.
In West Virginia, Wampler Foods' Moorefield facilities hold four
environmental permits, all of which were issued by the West Virginia
Department of Commerce, Labor & Environmental Resources. The chicken
processing and protein conversion facility holds a water permit which
regulates the discharge of process wastewater, an air permit which
regulates the operation of the Company's protein conversion facility,
and a biosolids management permit regulating the land application in
West Virginia of certain wastewater biosolids generated at the
Moorefield facilities wastewater treatment works. The Moorefield
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6
feedmill holds one air permit which was issued primarily for the
control and abatement of dust.
Wampler Foods' North Carolina facilities hold a total of five
environmental permits, all of which were issued by the North Carolina
Department of Environment, Health & Natural Resources. The
Marshville processing plant holds an industrial wastewater discharge
permit which requires processed wastewater to be pretreated prior to
discharge to a regional sewer system, and a stormwater permit which
regulates stormwater discharges. In addition, the Marshville facility
holds a stormwater permit which regulates cooling water and boiler
blowdown discharges. The Wingate feedmill holds a stormwater permit
which regulates stormwater discharges and an air permit which
regulates emissions from boilers, bagfilters, and related equipment.
Pennsylvania facilities owned by Wampler Foods hold a total of
six environmental permits. The Franconia turkey processing plant
holds five permits: two water permits for the treatment of process
wastewater, two air permits to regulate operation of certain
combustion and incineration equipment, and one municipal solid waste
disposal permit for the disposal of incinerator ash. Wampler Foods
recently applied for a third air permit at its Franconia facility to
install and operate a wet scrubber to remove and abate odors. The New
Oxford turkey processing facility holds one air permit which regulates
combustion equipment. All of the Pennsylvania permits were issued by
the Pennsylvania Department of Environmental Resources.
In addition to the foregoing environmental permits, and where not
otherwise addressed above, all facilities have taken steps to ensure
compliance with stormwater regulations. Where applicable, facilities
have applied for the necessary group, individual or general storm
water permit in accordance with state and federal guidelines.
Further, each facility has registered aboveground and underground
storage tanks in accordance with relevant state and federal
regulations.
Management believes that all facilities and operations are
currently in compliance with environmental and regulatory standards.
Compliance has not had a materially adverse effect upon WLR Foods'
earnings or competitive position in the past, and it is not
anticipated to have a materially adverse effect in the future.
Employees
WLR Foods employed over 7,100 persons as of July 3, 1999, none of
whom were covered by a collective bargaining agreement.
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7
Cautionary Statement Concerning Forward Looking Information
This report contains certain forward-looking statements which
are based on management's current views and assumptions, and involve
risks and uncertainties that could significantly affect unexpected
results. WLR Foods' actual results may differ materially from
those in the forward-looking statements. For example, operating
results may be affected by external factors such as: actions of
competitors, changes in laws and regulations, including changes in
governmental interpretations of regulations and changes in accounting
standards, customer demand and fluctuations in cost and availability
of feed ingredients.
Item 2. PROPERTIES.
WLR Foods' seven poultry processing facilities and one further
processing plant are located in Virginia, West Virginia, Pennsylvania
and North Carolina. The processing facilities consist of three turkey
facilities and four chicken facilities having a total slaughter
capacity of approximately 450,000 turkeys per week (single shift) and
3.65 million chickens per week (double shift). WLR Foods owns and
operates four feedmills with a total production capacity of approximately
2 million tons of finished feed per year; a turkey hatchery with a
production capacity of approximately 350,000 poults per week and three
chicken hatcheries with a total production capacity of approximately
4.0 million chicks per week; and two protein conversion plants with a
total production capacity of 4,500 tons of raw product weekly. The
diversity, number and geographic proximity of its processing and
support facilities provide WLR Foods with operating flexibility and
enable it to alter the size and mix of poultry processed among the
various facilities as market conditions change. The Company's assets
are depreciated on a straight-line basis, based on the following asset
lives:
Land Improvements 10-20 years
Buildings & Improvements 15-20 years
Machinery & Equipment 3-8 years
Transportation Equipment 3-5 years
Item 3. LEGAL PROCEEDINGS.
As previously reported, on February 24, 1999, the Attorney General
of the State of West Virginia filed suit against WLR Foods and its
Wampler Foods, Inc. subsidiary in the Circuit Court of Hardy County,
West Virginia under the West Virginia Consumer Credit and Protection
Act, seeking unspecified damages. The suit alleged that Wampler provided
substandard chicks and feed to broiler growers who raise chickens for
Wampler.
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8
On April 6, 1999, the Company was served with an Amended Complaint,
alleging that the Company violated the West Virginia Consumer Credit
and Protection Act, The West Virginia Antitrust Act and the federal
Packers and Stockyard Act dealing with its broiler growers in West
Virginia. In addition to seeking restitution to growers and damages of
an unspecified amount, which would be trebled in the case of violations
of the West Virginia Antitrust Act, the suit seekd a $100,000 civil
penalty for alleged violations of the Antitrust Act and civil penalties
of $5,000 for each alleged violation of the Consumer Credit and
Protection Act. The State has also requested a preliminary injunction,
enjoining Wampler foods from paying any grower less than the current
average base rate, and from terminating any existing grower's contract.
The Company filed a Notice of Removal in the U.S. District Court
in Elkins, West Virginia, removing the case to federal court. On
August 13, 1999, the District Court remanded the case back to the state
Circuit Court.
The lawsuit is not expected to have a material effect on the
Company's financial statements. The Company continues to believe
the suit is without merit, and intends to defend it vigorously.
There were no other material pending legal proceedings during
the fiscal year ended July 3, 1999, other than ordinary routine
litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders of the Company
during the fourth quarter of the fiscal year ended July 3, 1999.
Executive Officers of the Registrant
The following information is given regarding WLR Foods' executive
officers.
- ----------------------------------------------------------------------
Name and Position Principal Occupation
with the Company Age During the Last Five Years
- ----------------------------------------------------------------------
James L. Keeler 64 Chief Executive Officer
President,Chief since February 1988 Executive
Officer
Jane T. Brookshire 53 Vice President of
Vice President of Administration since
Administration, November 1998, previously
Secretary Vice President of Human
Resources from 1993 to
1998.
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9
Dale S. Lam 36 Chief Financial Officer
Chief Financial Officer, since November 1998, Vice
Vice President of Finance, President of Finance and
Treasurer Treasurer since August
1998, previously Controller.
Co-owner and Treasurer of
Office Products, Inc. from
1989 to 1997.
Ronald E. Morris 46 Vice President of Turkey
Vice President of Turkey Operations for Wampler
Operations for Wampler Foods, Inc. since November
Foods, Inc. 1997; previously, Complex
Manager for Marshville,
North Carolina Turkey
Complex for Wampler Foods,
Inc. from 1996 to 1997 and
Complex Manager for
Butterball from 1994 to
1996.
Walter F. Shaffer, III 41 Vice President of Chicken Vice
President of Chicken Operations for Wampler
Operations for Wampler Foods,Inc. since November
Foods, Inc. 1997; previously, Director
of Chicken Operations
for Wampler Foods, Inc.
from 1996 to 1997,
Director of Chicken
Processing for Wampler
Foods, Inc. from 1995 to
1996, and Plant Manager of
Moorefield Chicken
operations for Wampler
Foods, Inc. from 1991 to
1995.
John A. Turner 48 Vice President of Sales
Vice President of Sales and Marketing for Wampler
and Marketing for Wampler Foods, Inc. since June,
Foods, Inc. 1999; previously,Vice
President of Sales and
Marketing for Hatfield
Quality Meats from 1996 to
1998, and President,
Consumer Products Division
of Rich Products
Corporation from 1990 to
1996.
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10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Public trading of shares of WLR Foods' common stock commenced on
May 10, 1988. The stock was included in NASDAQ as of September 12,
1988, and was included in NASDAQ/National Market System as of March 7,
1989. The range of high and low bid information for the stock, as
well as information regarding dividends declared by WLR Foods, for
each full quarterly period within the two most recent fiscal years is
incorporated by reference to Note 16 to the Registrant's Consolidated
Financial Statements in the Annual Report, attached hereto as Exhibit
13.3. As of September 3, 1999, the approximate number of shareholders
of record was 3,910.
Item 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the fiscal years in the ten-
year period ended July 3, 1999 is incorporated by reference to the
table entitled "Financial Highlights" in the Annual Report, attached
hereto as Exhibit 13.1. A summary of significant accounting policies
and business dispositions is incorporated by reference to Notes 1, 12
and 13 to the Registrant's Consolidated Financial Statements in the
Annual Report, attached hereto as Exhibit 13.3.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and
results of operations is incorporated by reference to that section in
the Annual Report, attached hereto as Exhibit 13.2.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Market risks relating to the Company's operations result
primarily from changes in interest rates and commodity prices. To
address these risks, the Company enters into various hedging
transactions as described below. The Company does not use financial
instruments for trading purposes and is not party to any leveraged
derivatives.
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11
Interest Rate Sensitivity
The Company hedges exposures to changes in interest rates on
certain of its financial instruments. The Company enters into
interest rate swap agreements to effectively lock in a fixed interest
rate for a portion of these borrowings. In addition, the Company
enters into interest rate cap agreements to effectively limit the
Company's exposure to increases in interest rates.
The table below provides information about the Company's
derivative financial instruments and other financial instruments that
are sensitive to changes in interest rates. For debt obligations, the
table presents principal cash flows and related weighted average
interest rates by expected maturity dates. For interest rate swaps,
the table presents notional amounts and weighted average interest
rates by expected (contractual) maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the
contract.
Expected Maturity Date
Liabilities: --------------------------
Dollars in thousands 2000 2001 2002 2003
- -------------------- ---- ---- ---- ----
Liabilities:
Long-term debt, including
Current Portion
Fixed Rate $196 $202 $215 $89
Average interest rate 6.00% 6.00% 6.00% 6.00%
Variable Rate $4,850 $5,850 $42,345 $0
Average interest rate 6.54% 6.54% 6.57% 0.00%
Interest Rate Derivatives
Dollars in thousands 2000 2001 2002 2003
- ------------------------- ---- ---- ---- ----
Interest Rate Swaps
Variable to Fixed $50,000 $0 $0 $0
Average pay rate 6.29% - - -
Average receive rate - USD 1 month Libor
Interest Rate Cap $75,000 $0 $0 $0
Average pay rate 6.50% - - -
Average receive rate - USD 1 month Libor
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Expected Maturity Date
Liabilities: There- Fair
Dollars in thousands 2004 after Total Value
- -------------------- ---- ------ ----- -----
Liabilities:
Long-term debt,
including Current Portion
Fixed Rate $95 $49 $846 $846
Average interest rate 6.00% 6.00% 6.00%
Variable Rate $0 $0 $53,045 $53,045
Average interest rate 0.00% 0.00% 6.56%
Interest Rate Derivatives There- Fair
Dollars in thousands 2004 after Total Value
- ------------------------- ---- ------ ----- -----
Interest Rate Swaps
Variable to Fixed $0 $0 $50,000 ($237)
Average pay rate - - 6.29%
Average receive rate - USD 1 month Libor
Interest Rate Cap $0 $0 $75,000 $0
Average pay rate - - 6.50%
Average receive rate - USD 1 month Libor
Commodity Price Sensitivity
The Company is a purchaser of certain commodities, primarily corn
and soybeans. The Company uses commodity futures and forward
purchasing for hedging purposes to reduce the effect of changing
commodity prices on a portion of its commodity purchases. The
contracts that effectively meet risk reduction and correlation
criteria are recorded using hedge accounting. Gains and losses on
hedge transactions are recorded as a component of the underlying
inventory purchase.
The following table provides information about the Company's
corn, soybean meal, other feed ingredient inventory and futures
contracts that are sensitive to changes in commodity prices. For
inventory, the table presents the carrying amount and fair value at
July 3, 1999. For the futures contracts the table presents the
notional amounts in bushels, the weighted average contract prices,
and the total dollar contract amount by expected maturity dates, the
latest of which occurs in May 2000. Contract amounts are used to
calculate the contractual payments and quantity of corn and soybean
meal to be exchanged under the futures contracts.
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13
On Balance Sheet Commodity 1999 1998
Position and Related ---------------- ----------------
Derivatives Carrying Fair Carrying Fair
Dollars in thousands Amount Value Amount Value
- ----------------------- -------- ----- ------- -----
Corn, Soybean Meal and
Other Feed Ingredient
Inventory $11,050 $11,050 $11,009 $11,009
1999 1998
------------------- -------------------
Contractual Fair Contractual Fair
Related Derivatives Amount Value Amount Value
- ------------------- ----------- ----- ----------- -----
Corn Futures Contracts
Contract Volumes
(100,000 bushels) 60 11
Weighted Average Price
(per bushel) $2.43 $2.11 $2.67 $2.64
Contract Amount
(dollars in thousands) 14,494 12,564 2,942 2,906
Soy Bean Meal Futures
Contracts
Contract Volumes
(100 tons) 541 -
Weighted Average Price
(per ton) $142.18 $129.15 $ - $ -
Contract Amount
(dollars in thousands) 7,692 6,987 - -
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item, except for the required
financial statement schedule, is incorporated by reference to the
Consolidated Financial Statements and Notes thereto in the Annual
Report, attached hereto as Exhibit 13.3. The required financial
statement schedule is included on page 19 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on
accounting and financial disclosure during WLR Foods' two most recent
fiscal years or any subsequent interim period.
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14
PART III
Items 10 - 13 inclusive.
These items have been omitted in accordance with instructions to
Form 10-K Annual Report. The Registrant will file with the Commission
in September 1999, pursuant to Regulation 14A, a definitive proxy
statement that will involve the election of directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16 of the Securities Exchange Act of 1934, the
Company's directors, executive officers and beneficial owners of more
than 10% of the outstanding common stock are required to file reports
with the Securities and Exchange Commission concerning their ownership
of and transactions in common stock. Based on copies of those reports
and related information furnished to the Company, the Company believes
that all such filing requirements were complied with in a timely
manner for the fiscal year ended July 3, 1999, except for the filing
of a Form 4 to report the purchase by Mr. Morris s wife, in May, 1998,
of 2,000 shares of WLR Foods stock. A Form 4 was filed promptly upon
discovery of the omission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and
Exhibits
Financial Statements
Consolidated Statements of Operations - Fiscal years ended July 3,
1999, June 27, 1998, and June 28, 1997
Consolidated Balance Sheets - July 3, 1999 and June 27, 1998
Consolidated Statements of Shareholders' Equity - Fiscal years
ended July 3, 1999, June 27, 1998 and June 28, 1997
Consolidated Statements of Cash Flows - Fiscal years ended July 3,
1999, June 27, 1998 and June 28, 1997
Notes to Consolidated Financial Statements - Fiscal years
ended July 3, 1999, June 27, 1998, June 28, 1997
Independent Auditors' Report
<PAGE>
15
Financial Statement Schedules
Independent Auditors' Report on Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules not included in this Item have been omitted because they are
either not applicable or the information is included in the
Consolidated Financial Statements or notes thereto.
(b) Exhibits
See Exhibit Index.
[The remainder of this page is intentionally left blank.]
<PAGE>
16
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.
WLR Foods, Inc.
By:__/s/ James L. Keeler__
Its President & Chief
Executive Officer
Date: September 29, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
__/s/ James L. Keeler__
President & Chief Executive
Officer
Date: September 29, 1999
__/s/ Dale S. Lam__
Chief Financial Officer and
Treasurer
Date: September 29, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title
--------- -----
______________________ Director
Keith E. Alessi*
______________________ Director
Charles L. Campbell*
<PAGE>
17
______________________ Director
Katherine K. Clark*
______________________ Director
Stephen W. Custer*
______________________ Director
William H. Groseclose*
______________________ Director
J. Craig Hott*
__/S/ James L. Keeler__ Director
James L. Keeler
______________________ Director
Phillip C. Stone*
______________________ Director
William D. Wampler*
*By __/s/ Dale S. Lam__
Dale S. Lam, attorney-in-fact
<PAGE>
18
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders WLR Foods, Inc.:
Under date of August 13, 1999, we reported on the consolidated balance
sheets of WLR Foods, Inc. and subsidiaries as of July 3, 1999 and June
27, 1998, and the related consolidated statements of operations,
shareholders equity and cash flows for each of the fiscal years in
the three-year period ended July 3, 1999, as contained in the July 3,
1999 annual report to shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
July 3, 1999 annual report on Form 10-K of WLR Foods, Inc. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement
schedule as listed in Item 14(a) of this Form 10-K. This financial
statement schedule is the responsibility of the Company s management.
Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
KPMG LLP
Richmond, Virginia
August 13, 1999
<PAGE>
19
WLR FOODS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JULY 3, 1999, JUNE 27, 1998 AND
JUNE 28, 1997
(in thousands)
Charged to
Balance at cost and Balance
beginning other Charged to at end of
Description of period expenses accounts period
- ----------- --------- ---------- ---------- ----------
Fiscal year ended July 3,
1999 Allowance for Doubtful
Accounts $1,515 $1,056 $662 $1,909
------ ------ ---- ------
Total $1,515 $1,056 $662 $1,909
====== ====== ==== ======
Fiscal year ended June 27,
1998 Allowance for Doubtful
Accounts $1,550 $828 $863 $1,515
------ ---- ---- ------
Total $1,550 $828 $863 $1,515
====== ==== ==== ======
Fiscal year ended June 28,
1997 Allowance for Doubtful
Accounts $708 $946 $104 $1,550
---- ---- ---- ------
Total $708 $946 $104 $1,550
==== ==== ==== ======
<PAGE>
20
EXHIBIT INDEX
3.1 Articles of Incorporation of the Registrant, restated
effective May 30, 1995, incorporated by reference to
Exhibit 3.1 of Form 10-K filed with the Securities and
Exchange Commission on October 2, 1995.
3.2 Bylaws of the Registrant, as amended on November 2,
1994, incorporated by reference to Exhibit 3.2 of Form
10-K filed with the Securities and Exchange Commission on
October 2, 1995.
4.1 Specimen Stock Certificate incorporated by reference to
Exhibit 4 of Form 10-K filed with the Securities and Exchange
Commission on September 27, 1990.
4.2 Shareholder Protection Rights Agreement, dated as of
February 4, 1994, which includes as Exhibit A the forms
of Rights Certificate and Election to Exercise and as
Exhibit B the Form of Certificate of Designation and
Terms of the Participating Preferred Stock incorporated
by reference to Exhibit 1 of Form 8-A filed with the
Securities and Exchange Commission on September 30,
1993.
4.3 Warrant Holders Rights Agreement, dated as of February
25, 1998, incorporated by reference to Exhibit 2.5 of
Form 10-Q, filed with the Securities and Exchange
Commission on May 11, 1998.
4.4 Form of Warrant to Purchase Common Stock at $0.1 Per
Share, incorporated by reference to Exhibit 2.6 of Form
10-Q, filed with the Securities and Exchange Commission
on May 11, 1998.
4.5 Credit Agreement, dated as of November 20, 1998,
incorporated by reference to Exhibit 2.1 of Form 10-Q
filed with the Securities and Exchange Commission on
February 9, 1999.
4.6 Form of Revolving Credit Note, dated as of November 20,
1998, incorporated by reference to Exhibit 2.2 of Form
10-Q filed with the Securities and Exchange Commission on
February 9, 1999.
4.7 Form of Term Credit Note, dated as of November 20,
1998, incorporated by reference to Exhibit 2.3 of Form
10-Q filed with the Securities and Exchange Commission on
February 9, 1999.
4.8 First Amendment, dated as of February 25, 1999, to the
Credit Agreement dated as of November 20, 1998.
<PAGE>
21
4.9 Second Amendment, dated as of July 1, 1999, to the
Credit Agreement dated as of November 20, 1999.
4.10 Third Amendment, dated as of September 14, 1999, to the
Credit Agreement dated as of November 20, 1999.
10.1 Employment Agreement, dated June 23, 1998 between the
Registrant and James L. Keeler (Deferred Compensation
Agreement attached thereto as Exhibit A), incorporated
by reference to Exhibit 10.1 of Form 10-K filed with
the Securities and Exchange Commission on September 25,
1998.
10.2 Executive Cash Bonus Program, incorporated by reference
to Exhibit 10.7 of Form 10-K filed with the Securities
and Exchange Commission on September 30, 1993.
10.3 1998 Long-Term Incentive Plan, incorporated by
reference to Appendix A to the Company's definitive
proxy statement (Schedule 14A), filed with the
Securities and Exchange Commission on September 30,
1998.
10.4 Severance Agreement, dated February 4, 1994 between the
Registrant and James L. Keeler, incorporated by
reference to Exhibit 10.4 of Form 10-Q filed with the
Securities and Exchange Commission on February 15,
1994.
10.5 Severance Agreement, dated May 13, 1997 between the
Registrant and Jane T. Brookshire, incorporated by
reference to Exhibit 10.18 of Form 10-K filed with the
Securities and Exchange Commission on September 26,
1997.
10.6 Severance Agreement, dated November 2, 1998 between the
Registrant and Dale S. Lam.
10.7 Severance Agreement, dated February 6, 1998 between the
Registrant and Ronald E. Morris, incorporated by
reference to Exhibit 10.8 of Form 10-K filed with the
Securities and Exchange Commission on September 25,
1998.
10.8 Severance Agreement, dated February 6, 1998 between the
Registrant and Walter F. Shafer, III, incorporated by
reference to Exhibit 10.9 of Form 10-K filed with the
Securities and Exchange Commission on September 25,
1998.
10.9 Severance Agreement, dated June 1, 1999 between the
Registrant and John A. Turner.
<PAGE>
22
10.10 Deferred Compensation Agreement, dated February 4,
1994, between the Registrant and William D. Wampler,
incorporated by reference to Exhibit 10.12 of Form 10-Q
filed with the Securities and Exchange Commission on
February 15, 1994.
10.11 1995 Nonqualified Deferred Compensation Plan,
incorporated by reference to Exhibit 10.16 of Form 10-K
filed with the SEC on September 29, 1996.
10.12 Amendment No. One to 1995 Deferred Compensation Plan,
incorporated by reference to Exhibit 10.17 of Form 10-K
filed with the SEC on September 29, 1996.
10.13 Trust Under WLR Foods, Inc. Nonqualified Deferred
Compensation Plan, incorporated by reference to Exhibit
10.18 of Form 10-K filed with the SEC on September 29,
1996.
10.14 Description of Plan to Issue Stock for Director
Compensation, incorporated by reference to Exhibit
10.19 of Form 10-K filed with the SEC on September 29,
1996.
13.1 Financial highlights, from the Registrant's Annual
Report to Shareholders for the fiscal year ended July
3, 1999.
13.2 Management's Discussion and Analysis, from the
Registrant's Annual Report to Shareholders for the
fiscal year ended July 3, 1999.
13.3 Consolidated Financial Statements and Notes to
Consolidated Financial Statements, from the
Registrant's Annual Report to Shareholders for the
fiscal year ended July 3, 1999.
13.4 Independent Auditor Report on Consolidated Financial
Statements, from the Registrant's Annual Report to
Shareholders for the fiscal year ended July 3, 1999.
21 List of Subsidiaries of the Registrant.
23 Consent of Independent Certified Public Accountants.
24.1 Power of Attorney, incorporated by reference to Exhibit
24.1 to Form 10-K, filed with the Securities and
Exchange Commission on September 25, 1998.
<PAGE>
23
24.2 Power of Attorney of Keith A. Alessi, incorporated by
reference to Exhibit 24.2 of Form 10-K filed with the
Securities and Exchange Commission on September 25,
1998.
24.3 Power of Attorney of Phillip C. Stone
27 Financial Data Schedule.
<PAGE>
24
Exhibit 4.8
Wampler Foods, Inc.
First Admendment To Credit Agreement
This First Amendment to Credit Agreement (herein, the
"Amendment") is entered into as of February 25, 1999, between Wampler
Foods, Inc., a Virginia corporation (the "Company"), WLR Foods, Inc.,
a Virginia corporation (the "Parent"), each of the Lenders party to
the Credit Agreement (as such term is defined below) and Harris Trust
and Savings Bank, as a Lender and in its capacity as agent under the
Credit Agreement (the "Administrative Agent").
Preliminary Statements
A. The Company and the Lenders entered into a certain Credit
Agreement, dated as of November 20, 1998 (the "Credit Agreement").
All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
B. The Company has requested that the Lenders confirm that
limited sales of capital stock of the Parent and the Company pursuant
to a dividend reinvestment plan do not in all events trigger a
mandatory prepayment of the Term Loans, and the Lenders are willing to
do so under the terms and conditions set forth in this Amendment.
Now, Therefore, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Amendment.
Effective upon the acceptance hereof by the Required Lenders in
the spaces provided for that purpose below, Section 3.3(c) of the
Credit Agreement shall be amended by striking the phrase "any sale of
capital stock of the Parent of the Company pursuant to a dividend
reinvestment plan for its employees, producers and directors"
appearing in clause (iii) of such Section and substituting therefor
the following:
"any sale of the capital stock of the Parent of the
Company pursuant to a dividend reinvestment plan for its
respective shareholders to the extent the cash proceeds from
such sales aggregate not more than $100,000 during any one
calendar year."
Section 2. Representations.
In order to induce the Lenders to execute and deliver this
Amendment, the Company and Parent each hereby represents to each
Lender that as of the date hereof, after giving effect to this
<PAGE>
Amendment, the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct in all material respects
(except that the representations contained in Section 6.5 shall be
deemed to refer to the most recent financial statements of the Parent
and Company delivered to the Administrative Agent) and no Default or
Event of Default has occurred and is continuing under the Credit
Agreement.
Section 3.Miscellaneous.
(a) Except as specifically amended herein, the Credit Agreement
shall continue in full force and effect in accordance with its
original terms. Reference to this specific Amendment need not be made
in the Credit Agreement, the Notes, or any other instrument or
document executed in connection therewith, or in any certificate,
letter or communication issued or made pursuant to or with respect to
the Credit Agreement, any reference in any of such items to the Credit
Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all reasonable costs and
expenses of or incurred by the Administrative Agent in connection with
the negotiation, preparation, execution and delivery of this
Amendment, as and to the extent provided in Section 12.4 of the Credit
Agreement.
(c) This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart
signature pages, all of which taken together shall constitute one and
the same agreement. Any of the parties hereto may execute this
Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of
Illinois.
<PAGE>
2
Dated as of February 25, 1999.
Wampler Foods, Inc.
By: /s/ Dale S. Lam
Name: Dale S. Lam
Title: Treasurer
WLR Foods, Inc.
By: /s/ Dale S. Lam
Name: Dale S. Lam
Title: Treasurer
Accepted and agreed to as of the date and year last above written.
Harris Trust And Savings
Bank, in its individual
capacity as a Lender and
as Administrative Agent
By: /s/ William J. Kane
Name: William J. Kane
Title: Vice President
Green Tree Financial
Servicing Corporation
By: /s/ C. A. Gouskos
Name: C. A. Gouskos
Title: Sr. Vice President
NationsBank, N.A.
By: /s/ Steven R. Kluemper
Name: Steven R. Kluemper
Title: Vice President
U.S. Bancorp AG Credit,
Inc.
By: /s/ Alan J. Schuler
Name: Alan J. Schuler
Title: Vice President
<PAGE>
3
The CIT Group/Business
Credit, Inc.
By: /s/ Levi K. Schatz
Name: Levi K. Schatz
Title: Vice President
Blue Ridge Farm Credit,
ACA
By: /s/ Thomas H. Byerly
Name: Thomas H. Byerly
Title: Exec. Vice President
Branch Banking and Trust
Company of Virginia
By: /s/ J. Charles Link
Name: J. Charles Link
Title: Vice President
Mercantile Bank National
Association
By: /s/ Wayne C. Lewis
Name: Wayne C. Lewis
Title: Vice President
<PAGE>
4
Exhibit 4.9
Wampler Foods, Inc.
Second Amendment To Credit Agreement
This Second Amendment to Credit Agreement (herein, the
"Amendment") is entered into as of July 1, 1999, between Wampler
Foods, Inc., a Virginia corporation (the "Company"), WLR Foods, Inc.,
a Virginia corporation (the "Parent"), each of the Lenders party to
the Credit Agreement (as such term is defined below) and Harris Trust
and Savings Bank, as a Lender and in its capacity as agent under the
Credit Agreement (the "Administrative Agent").
Preliminary Statements
A. The Company and the Lenders entered into that certain Credit
Agreement, dated as of November 20, 1998 (said Credit Agreement as
heretofore amended and as the same may from time to time hereafter be
amended, modified or restated being referred to herein as the "Credit
Agreement"). All capitalized terms used herein without definition
shall have the same meanings herein as such terms have in the Credit
Agreement.
B. The Company has requested that the Lenders modify the
Capital Expenditures covenant contained in the Credit Agreement to
permit the Company to carry forward a portion of its unused Capital
Expenditures in any year and the Lenders are willing to do so under
the terms and conditions set forth in this Amendment.
Now, Therefore, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Amendment.
Effective upon the acceptance hereof by the Required Lenders in
the spaces provided for that purpose below, the Credit Agreement shall
be and hereby is amended as follows:
1.1 Section 8.7 of the Credit Agreement shall be amended in its
entirety and as so amended shall be restated to read as follows:
Section 8.7. Capital Expenditures. Each of the Parent and Company
shall not, nor shall it permit any subsidiary to, expend or become
obligated for Capital Expenditures (as determined in accordance with
GAAP), in an aggregate amount for the Parent, the Company and their
Subsidiaries in excess of the Maximum Permitted Amount. For the
purposes hereof the term "Maximum Permitted Amount" shall mean (i)
during the Parent's fiscal year ending June 30, 1999 an amount equal
to $26,000,000, and (ii) during any fiscal year of the Parent ending
subsequent to June 30, 1999 an amount equal to 115% of the amount
properly charged to depreciation on the books of the Parent, the
<PAGE>
Company and their Subsidiaries during such fiscal year (as determined
in accordance with GAAP); provided, however, that the Maximum
Permitted Amount for any fiscal year of the Parent ending subsequent
to June 30, 1999 shall be increased by up to $3,000,000 of the amount,
if any, by which the Maximum Permitted Amount for the immediately
preceding fiscal year, computed without giving effect to any increase
therein by reason of this proviso, exceeds the Capital Expenditures
for such preceding year.
1.2 Schedule I to Exhibit D to the Credit Agreement shall be
amended in its entirety and as so amended shall be restated to read as
set forth on Exhibit A hereto.
Section 2. Conditions Precedent.
The effectiveness of this Amendment is subject to the
satisfaction of all of the following conditions precedent:
(a) The Company, the Parent, the Administrative Agent
and the Required Lenders shall have executed and delivered
this Amendment.
(b) Legal matters incident to the execution and delivery of
this Amendment shall be satisfactory to the Acquired Lenders
and their counsel.
Section 3. Representations.
In order to induce the Lenders to execute and deliver this
Amendment, the Company and Parent each hereby represents to each
Lender that as of the date hereof, after giving effect to this
Amendment, the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct in all material respects
(except that the representations contained in Section 6.5 shall be
deemed to refer to the most recent financial statements of the Parent
and Company delivered to the Administrative Agent) and no Default or
Event of Default has occurred and is continuing under the Credit
Agreement.
Section 4. Miscellaneous.
(a) Each of the Company and the Parent acknowledges and
agrees that all of the Collateral Documents to which it is a
party remain in full force and effect for the benefit and
security of, among other things, the Obligations.
(b) Except as specifically amended herein, the Credit
Agreement shall continue in full force and effect in
accordance with its original terms. Reference to this
specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in
connection therewith, or in any certificate, letter or
<PAGE>
2
communication issued or made pursuant to or with respect to
the Credit Agreement, any reference in any of such items to
the Credit Agreement being sufficient to refer to the Credit
Agreement as amended hereby.
(c) The Company agrees to pay on demand all reasonable
costs and expenses of or incurred by the Administrative
Agent in connection with the negotiation, preparation,
execution and delivery of this Amendment, as and to the
extent provided in Section 12.4 of the Credit Agreement.
(d) This Amendment may be executed in any number of
counterparts, and by the different parties on different
counterpart signature pages, all of which taken together
shall constitute one and the same agreement. Any of the
parties hereto may execute this Amendment by signing any
such counterpart and each of such counterparts shall for all
purposes be deemed to be an original. This Amendment shall
be governed by the internal laws of the State of Illinois.
<PAGE>
3
Dated as of July 1, 1999.
Wampler Foods, Inc.
By: /s/ Dale S. Lam
Name: Dale S. Lam
Title: Treasurer
WLR Foods, Inc.
By: /s/ Dale S. Lam
Name: Dale S. Lam
Title: Treasurer
<PAGE>
4
Accepted and agreed to as of the date and year last above written.
Harris Trust And Savings
Bank, in its individual
capacity as a Lender and
as Administrative Agent
By: /s/ William H. Kane
Name: William H. Kane
Title: Vice President
Green Tree Financial
Servicing Corporation
By: /s/ C. A. Gouskos
Name: C. A. Gouskos
Title: Sr. Vice President
NationsBank, N.A.
By: /s/ Steven R. Kluemper
Name: Steven R. Kluemper
Title: Vice President
U.S. Bancorp AG Credit,
Inc.
By: /s/ Alan V. Schuler
Name: Alan V. Schuler
Title: Vice President
The CIT Group/Business
Credit, Inc.
By: /s/ Levi K. Schatz
Name: Levi K. Schatz
Title: Vice President
<PAGE>
5
Blue Ridge Farm Credit,
ACA
By: /s/ Thomas H. Byerly
Name: Thomas H. Byerly
Title: Exec. Vice President
Branch Banking and Trust
Company of Virginia
By: /s/ J. Charles Link
Name: J. Charles Link
Title: Vice President
Mercantile Bank National
Association
By: /s/ Wayne C. Lewis
Name: Wayne C. Lewis
Title: Vice President
<PAGE>
6
Exhibit A
Schedule I
Attachment To Compliance Certificate
Wampler Foods, Inc.
Compliance Calculations for Credit Agreement
Dated as of ___________, 1998
Calculations as of _____________, 19___
- ----------------------------------------------------------------
A. Capital Expenditures (Section 8.7)
1. Capital expenditures $__________
2. As set forth in Section 8.8,
net capital expenditures (Line 3)
must not exceed (NOTE: $26 million
during year ending 6/30/99 and thereafter,
115% of depreciation plus up to $3,000,000
of unused capital expenditures from
immediately preceding fiscal year) $__________
3. Company is in compliance?
(Circle yes or no) Yes/No
B. Consolidated Tangible Net Worth (Section 8.8)
1. Total shareholders' equity __________
2. Subordinated Indebtedness __________
3. Sum of Lines 1 and 2 __________
4. Intangible Assets as defined
(book value) __________
5. Write up of assets above cost __________
6. Sum of Lines 4 and 5 __________
7. Line 3 minus Line 6 __________
("Consolidated Tangible Net Worth")
8. As listed in Section 8.8, for the
date of this Certificate, Consolidated
Tangible Net Worth must not be less than $__________
<PAGE>
7
9. Company is in compliance?
(Circle yes or no) Yes/No
C. Leverage Ratio (Section 8.9)
1. Senior Funded Debt __________
2. Net Income for the Parent and Subsidiary $__________
specified four fiscal quarters of the
Company most recently completed
3. Net Income from Cassco Ice & Cold
Storage, Inc. $__________
4. Subtract Line 3 from Line 2 $__________
(Consolidated Net Income)
5. Interest Expense for the same period $_________
6. Federal, state and local income taxes $__________
for the same period
7. Depreciation of fixed assets for the $__________
same period
8. Amortization for the same period $__________
9. Other non-cash charges $__________
10. Add Lines 4 through 9 $__________
("Consolidated Gross EBITDA")
11. Income from sale of Cassco Ice & Cold $__________
Storage and Goldsboro, NC broiler
complex
12. Subtract Line 11 from Line 10 $__________
("Consolidated EBITDA")
13. Senior Funded Debt (Line 1)
to Consolidated EBITDA (Line 12)
("Leverage Ratio") ________:1
14. As listed in Section 8.8, for
the date of this Certificate,
the Leverage Ratio shall not
be less than ________:1
15. Company is in compliance?
(Circle yes or no) Yes/No
<PAGE>
8
D. Fixed Charge Coverage Ratio (Section 8.10)
1. Consolidated EBITDA $__________
2. Net cash federal, state and local
income taxes paid $__________
3. Taxes in respect of Net Income
attributable to Cassco $__________
Ice & Cold Storage, Inc.
4. Taxes in respect of income from sale
of Cassco Ice &Cold Storage, Inc. $__________
5. Taxes in respect of income from sale
of Company's Goldsboro, NC broker
complex. $__________
6. Add Lines 3 through 5 $__________
7. Line 2 minus Line 6 $__________
8. Capital Expenditures $__________
9. Marshville conversion expenditures $__________
10. Expenditures financed by other
indebtedness $__________
11. Net Capital Expenditures $__________
(Line 8 minus Lines 9 and 10)
12. Restricted Payments $__________
13. Sum of Lines 3, 11 & 12 $__________
14. Line 1 minus Line 13 $__________
15. Fixed Charges $__________
(a) Principal payments on Funded Debt $__________
(b) Interest Expense $__________
16. Sum of 15(a) and 15(b)
("Fixed Charges") $__________
17. Ratio of Line 14 to Line 11
("Fixed Charge Coverage Ratio") ________:1
18. As listed in Section 8.10 for the date
of this Certificate, the Fixed Charge
Coverage Ratio shall not be less than ________:1
<PAGE>
9
19. Company is in compliance?
(Circle yes or no) Yes/No
E. Minimum Consolidated EBITDA (Section 8.11)
1. Consolidated EBITDA on rolling 4 quarter
basis $__________
2. As listed in Section 8.11 for the date
of this Certificate, Consolidated
EBITDA shall not be less than $__________
3. Company is in compliance? Yes/No
(Circle yes or no)
<PAGE>
10
Exhibit 4.10
Wampler Foods, Inc.
Third Amendment To Credit Agreement
This third Amendment to Credit Agreement (herein, the
"Amendment") is entered into as of September 14, 1999, between
Wampler Foods, Inc., a Virginia corporation (the "Company"), WLR
Foods, Inc., a Virginia corporation (the "Parent"), each of the
Lenders party to the Credit Agreement (as such term is defined below)
and Harris Trust and Savings Bank, as a Lender and in its capacity as
agent under the Credit Agreement (the "Administrative Agent").
Preliminary Statements
A. The Company, the Parent and the Lenders have entered into
that certain Credit Agreement, dated as of November 20, 1998 (said
Credit Agreement as heretofore amended being referred to herein as the
"Credit Agreement"). All capitalized terms used herein without
definition shall have the same meanings herein as such terms have in
the Credit Agreement.
B. The Company has requested that the Lenders modify the
Restricted Payments covenant contained in the Credit Agreement to
permit the Parent to repurchase a limited amount of its capital stock
and make certain cash dividend payments to its shareholders and the
Lenders are willing to do so under the terms and conditions set forth
in this Amendment.
Now, Therefore, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Amendment.
Effective upon the acceptance hereof by the Required Lenders in
the spaces provided for that purpose below, the Credit Agreement shall
be and hereby is amended as follows:
1.1 Section 8.18 of the Credit Agreement shall be amended in
its entirety and as so amended shall be restated to read as follows:
Section 8.18. Dividends and Other Restricted Payments.
Without the prior written consent of the Required Lenders, neither the
Parent nor the Company shall during any fiscal year (a) declare or pay
any dividends on or make any other distributions in respect of any
class or series of its capital stock (other than dividends payable
solely in its capital stock) of any class or any warrants, rights or
options to purchase any such shares or (b) directly or indirectly
purchase, redeem or otherwise acquire or retire any of its capital
stock of any class or any warrants, rights or options to purchase any
<PAGE>
such shares. Notwithstanding the foregoing, the Parent may (i) make
cash dividend payments to the holders of its capital stock in an
aggregate amount not in excess of $2,200,000 during any fiscal year of
the Parent, and (ii) purchase, redeem or otherwise acquire or retire
its capital stock for an aggregate consideration which does not on a
cumulative basis exceed $15,000,000 during the period from and
including the date hereof to and including the Termination Date so
long as at the time of, and after giving effect to, such dividend or
any such purchase, redemption or acquisition no Default or Event of
Default exists; provided, however, that the sum of (a) the aggregate
amount of cash dividends so made by the Parent and (b) the aggregate
consideration paid by the Parent to so purchase, redeem or otherwise
acquire or retire its capital stock, shall in no event exceed
$15,000,000 on a cumulative basis during such period.
1.2 The definition of Fixed Charge Coverage Ratio appearing in
Section 5.1 of the Credit Agreement shall be amended by striking the
phrase "minus Restricted Payments" appearing in the twelfth line
thereof and substituting therefor the phrase "minus Restricted
Payments (other than distributions by the Parent as consideration for
repurchases, redemptions or other acquisitions or retirements of its
capital stock permitted by Section 8.18 hereto during such period".
Section 2. Collateral Release.
The Company has informed the Lenders that neither Company's real
estate parcels known as the "Hilltop Hatchery" and "Timberville
Warehouse" is used as a processing plant, further processing plant,
feedmill or hatchery. Accordingly, Section 4.1 of the Credit Agreement
does not require the Company to grant a lien on such parcels and the
Company has requested that the Lenders release from the lien of the
Collateral Documents the Company's real estate known as the "Hilltop
Hatchery" and the "Timberville Warehouse". Each Lender by its
execution hereof hereby consents to the release by the Administrative
Agent from the lien of the Collateral Documents the real property
owned by the Company known as the "Hilltop Hatchery" and the
"Timberville Warehouse".
Section 3. Conditions Precedent.
The effectiveness of this Amendment is subject to the
satisfaction of all of the following conditions precedent:
(a) The Company, the Parent, the Administrative Agent
and the Required Lenders shall have executed and delivered this
Amendment.
<PAGE>
2
(b) Legal matters incident to the execution and delivery
of this Amendment shall be satisfactory to the Required
Lenders and their counsel.
Section 4. Representations.
In order to induce the Lenders to execute and deliver this
Amendment, the Company and Parent each hereby represents to each
Lender that as of the date hereof, after giving effect to this
Amendment, the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct in all material respects
(except that the representations contained in Section 6.5 shall be
deemed to refer to the most recent financial statements of the Parent
and Company delivered to the Administrative Agent) and no Default or
Event of Default has occurred and is continuing under the Credit
Agreement.
Section 5. Miscellaneous.
(a) Each of the Company and the Parent acknowledges and agrees
that all of the Collateral Documents to which it is a party remain in
full force and effect for the benefit and security of, among other
things, the Obligations.
(b) Except as specifically amended herein, the Credit Agreement
shall continue in full force and effect in accordance with its
original terms. Reference to this specific Amendment need not be made
in the Credit Agreement, the Notes, or any other instrument or
document executed in connection therewith, or in any certificate,
letter or communication issued or made pursuant to or with respect to
the Credit Agreement, any reference in any of such items to the Credit
Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(c) The Company agrees to pay on demand all reasonable costs and
expenses of or incurred by the Administrative Agent in connection with
the negotiation, preparation, execution and delivery of this
Amendment, as and to the extent provided in Section 12.4 of the Credit
Agreement.
(d) This Amendment may be executed in any number of
counterparts, and by the different parties on different counterpart
signature pages, all of which taken together shall constitute one and
the same agreement. Any of the parties hereto may execute this
Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of
Illinois.
<PAGE>
3
Dated as of September 14, 1999.
Wampler Foods, Inc.
By: /s/ Dale S. Lam
Name: Dale S. Lam
Title: Treasurer
WLR Foods, Inc.
By: /s/ Dale S. Lam
Name: Dale S. Lam
Title: Treasurer
<PAGE>
4
Accepted and agreed to as of the date and year last above written.
Harris Trust And Savings
Bank, in its individual
capacity as a Lender and
as Administrative Agent
By: /s/ William J. Kane
Name: William J. Kane
Title: Vice President
Green Tree Financial
Servicing Corporation
By: /s/ C. A. Groukos
Name: C. A. Grouskos
Title: Sr. Vice President
Bank of America, N.A.
(formerly "NationsBank,
N.A.")
By: /s/ Steven R. Kluemper
Name: Steven R. Kluemper
Title: Vice President
U.S. Bancorp AG Credit,
Inc.
By: /s/ Alan V. Schuler
Name: Alan V. Schuler
Title: Vice President
The CIT Group/Business
Credit, Inc.
By: /s/ Levi K. Schatz
Name: Levi K. Schatz
Title: Vice President
<PAGE>
5
Blue Ridge Farm Credit,
ACA
By: /s/ Thomas H. Byerly
Name: Thomas H. Byerly
Title: Exec. Vice President
Branch Banking and Trust
Company of Virginia
By: /s/ J. Charles Link
Name: J. Charles Link
Title: Vice President
Mercantile Bank National
Association
By: /s/ Wayne C. Lewis
Name: Wayne C. Lewis
Title: Vice President
<PAGE>
6
Exhibit 10.6
November 2, 1998
Mr. Dale S. Lam
Chief Financial Officer
WLR Foods, Inc.
Post Office Box 7000
Broadway, Virginia 22815-7000
Dear Mr. Lam:
WLR Foods, Inc., a Virginia corporation (the "Company"),
considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection,
the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control (as defined
herein) may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of
the Company and its shareholders. Accordingly, the Board of Directors
of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned
duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company. In particular, the
Board believes it important, should the Company or its shareholders
receive a proposal for transfer of control of the Company, that you be
able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take
such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of
your own situation.
In order to induce you to remain in the employ of the Company,
this letter agreement ("Agreement"), which has been approved by the
Board, sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is
terminated subsequent to a Change in Control of the Company under the
circumstances described below. This Agreement supercedes all previous
severance agreements between you and the Company or any or its
subsidiaries.
<PAGE>
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below,
the Company or you may terminate your employment at any time following
a Change in Control as defined herein, subject to the Company's
providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a Person (as hereinafter defined) makes an
offer which, if accepted by the Company and subsequently consummated,
would constitute a Change in Control, you agree that you will not
leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will
render the services contemplated in the recitals to this Agreement
until such Change in Control offer has been abandoned or terminated or
a Change in Control has occurred. For the purposes of this Agreement,
Retirement shall mean a termination of your employment by you on or
after you have reached age sixty-five (65) and have completed at least
five (5) years of service for the Company (including any service for a
predecessor of the Company where such prior service is recognized by
the Company for the purpose of awarding other benefits). For purposes
of this Section 1, "years of service" shall be defined as in the WLR
Profit Sharing and Salary Savings Plan.
2. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until December 31, 1998;
provided, however, that commencing on January 1, 1999 and each January
1 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless at least ninety (90) days
prior to such January 1st date, the Company or you shall have given
notice that this Agreement shall not be extended; and provided,
further, that, notwithstanding the delivery of any such notice, this
Agreement shall continue in effect for a period of thirty-six (36)
months after a Change in Control, if such Change in Control shall have
occurred while this Agreement is in effect. Notwithstanding anything
in this Section 2 to the contrary, this Agreement shall terminate if
you or the Company terminate your employment prior to a Change in
Control of the Company.
3. Change in Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
2
<PAGE>
promulgated under the Exchange Act) of twenty percent (20%) or more of
either the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that in no event may the
following acquisitions constitute a Change in Control: (a) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (d) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (a), (b) and (c) of paragraph (iii) of this
Section 3 are satisfied, or (e) any sale or other disposition of all
or substantially all of the assets of the Company, if , following such
sale or other disposition, the conditions described in (1), (2) and
(3) of paragraph (iv) of this Section 3 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least seventy-five percent (75%) of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, unless, in each case
following such reorganization, merger or consolidation, (a) more than
sixty percent (60%) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
<PAGE>
3
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (b) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or a
corporation resulting from such reorganization, merger or
consolidation) beneficially owns, directly or indirectly, thirty-nine
percent (39%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (c) at least a majority of
the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation with respect to which following
such sale or other disposition, (1) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (2) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation)
beneficially owns, directly or indirectly, thirty-nine percent (39%)
or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (3) at least a majority of
the members of the board of directors of such corporation were members
of the Incumbent Board at the time of the execution of the initial
<PAGE>
4
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
(v) Notwithstanding anything in the paragraphs (i) - (iv)
of this Section 3 to the contrary, no Change in Control shall be
deemed to have occurred for purposes of this Agreement by virtue of
any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, twenty percent (20%)
or more of the combined voting power of the Company's Voting
Securities.
4. Termination Following Change in Control. If any of the
events described in Section 3 hereof constituting a Change in Control
of the Company shall have occurred, you shall be entitled to the
benefits provided in Section 5 hereof upon the termination of your
employment with the Company within thirty-six (36) months after such
Change in Control, unless such termination is (a) because of your
death, (b) by the Company for Cause or Disability or (c) by you other
than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your
employment based on "Disability" shall mean termination because of
your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty
(30) days after Notice of Termination (as hereinafter defined) is
given to you following such absence, you shall have returned to the
full time performance of your duties.
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (a) the willful and continued
failure by you to perform substantially your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner(s)
in which such executive believes that you have not substantially
performed your duties, or (b) the willful engaging by you in illegal
conduct which is materially and demonstrably injurious to the Company.
For purposes of this paragraph (ii), no act, or failure to act, on
your part shall be considered "willful" unless done, or failed to be
done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
<PAGE>
5
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood that your
attention to matters not directly related to the business of the
Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth
above in clauses (a) or (b) of this paragraph (ii) and specifying the
particulars thereof in detail.
(iii) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been an adverse change in your status or
position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in your status or position as a result
of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the
Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint
or reelect you to, such positions(s) (except in connection with the
termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing
you with at least substantially similar benefits) other than as a
result of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by the Company which
would adversely affect your continued participation in any of such
<PAGE>
6
Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your
benefits in the future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in
effect immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than thirty (30) miles from where your office
is located immediately prior to the Change in Control except for
required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on
behalf of the Company prior to the Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 6 hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (iv) below (and, if
applicable, paragraph (ii) above); and for purposes of this Agreement,
no such purported termination shall be effective; or
(H) any refusal by the Company to continue to allow
you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control,
you were permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any
compensation plan such as the Company Incentive Bonus Plan or any
employee benefit plan such as a thrift, pension, profit sharing,
medical, disability, accident, life insurance plan or a relocation
plan or policy or any other plan, program or policy of the Company
intended to benefit employees, except for the Company Restated Long-
Term Incentive Plan.
(iv) Notice of Termination. Any purported termination by
the Company or by you following a Change in Control shall be
communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
<PAGE>
7
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon.
(v) Date of Termination. "Date of Termination" following a
Change in Control shall mean (a) if your employment is to be
terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty
(30) day period), (b) if your employment is to be terminated by the
Company for Cause or by you pursuant to Sections 4(iii)(F) or 6 hereof
or for any other Good Reason, the date specified in the Notice of
Termination, (c) if your employment is to be terminated by the Company
for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety
(90) days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination,
or (d) if your employment is terminated on account of your death, the
day after your death. In the case of termination of your employment
by the Company for Cause, if you have not previously expressly agreed
in writing to the termination, then within thirty (30) days after
receipt by you of the Notice of Termination with respect thereto, you
may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by such court
having the matter before it. During the pendency of any such dispute,
the Company will continue to pay you your full compensation in effect
just prior to the time the Notice of Termination is given and until
the dispute is resolved. However, if such court issues a final and
non-appealable order finding that the Company had Cause to terminate
you then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously
received by you.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity
due to physical or mental illness, you shall continue to receive your
base salary at the rate then in effect and any benefits or awards
under any Plans shall continue to accrue during such period, to the
extent not inconsistent with such Plans, until your employment is
terminated pursuant to and in accordance with paragraphs 4(iv) - 4(v)
hereof. Thereafter, your benefits shall be determined in accordance
<PAGE>
8
with the Plans then in effect.
(ii) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your
base salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon the Company shall
have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within thirty-six
(36) months after a Change in Control of the Company has occurred,
your employment by the Company is terminated other than on account of
your death and is terminated (a) by the Company other than for Cause
or Disability or (b) by you for Good Reason, then the Company shall
pay to you, no later than the fifth (5th) day following the Date of
Termination, without regard to any contrary provisions of any Plan,
the following:
(A) your base salary through the Date of Termination
at the rate in effect just prior to the time a Notice of Termination
is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you
(including amounts which previously had been deferred at your
request);
(B) an amount in cash equal to three times the sum of
(i) the higher of (a) your annual base salary on the Date of
Termination or (b) your annual base salary in effect immediately prior
to the Change in Control plus (ii) an amount equal to the average of
the bonuses awarded to you in each of the three previous years.
For the purposes of this Agreement, the term "base salary"
shall include any amounts deducted by the Company with respect to you
or for your account pursuant to Sections 125 and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code").
(iv) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated for any reason other than retirement, the Company shall pay
to you, on the date specified below, an amount ("Spread") in cash
<PAGE>
9
equal to the Termination Fair Market Value (as hereinafter defined)
less the exercise price of all options which were granted to you
pursuant to the Company's Restated Long-Term Incentive Plan or any
Plan succeeding thereto, and which shall not become exercisable prior
to (a) the end of the one (1) year period immediately following the
Date of Termination if your employment is terminated on account of
your death, or (b) the end of the third (3rd) month following the Date
of Termination if your employment is terminated for any reason other
than death. The Company shall make such payment upon the fifth (5th)
day following such Date of Termination.
For the purposes of this Agreement, the "Termination Fair
Market Value" shall be the higher of (a) the highest price of the
Company's stock as quoted on the NASDAQ, or any other exchange
complying with the requirements of the Securities and Exchange Act of
1934, as amended, within the period beginning ninety (90) days prior
to the Date of Termination and ending upon such Date of Termination,
and (b) the highest price of the Company's stock as quoted on the
NASDAQ, or any other exchange complying with the requirements of the
Securities and Exchange Act of 1934, as amended, within the period
beginning ninety (90) days prior to a Change of Control and ending
upon the date of a Change of Control.
(v) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated (a) by the Company other than for Cause or Disability, or
(b) by you for Good Reason, then the Company shall maintain in full
force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three (3) years after
the Date of Termination or (b) the commencement date of equivalent
benefits from a new employer, insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you
continue to pay an amount equal to your regular contribution under
such Plans for such participation. If three (3) years after the Date
of Termination you have not previously received, nor are then
receiving, equivalent benefits from a new employer, the Company shall
offer you continuation coverage under COBRA as prescribed under
Section 4980B of the Code. At the expiration of such continuation
coverage (or, if COBRA continuation coverage is not applicable to the
Plan, then upon the expiration of the three (3) year period beginning
on the Termination Date), the Company shall arrange, at its sole cost
and expense, to enable you to convert you and your dependents'
coverage under such plans to individual policies and programs upon the
<PAGE>
10
same terms as employees of the Company may apply for such conversions.
In the event that your participation in any such Plan is barred, the
Company, at its sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of
insurance providing benefits substantially similar (on an after-tax
basis) to those which you otherwise would have been entitled to
receive under such Plans pursuant to this paragraph (v) or, if such
insurance is not available at a reasonable cost to the Company, the
Company shall otherwise provide you and your dependents with
equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater
than that which you would have paid in order to participate in such
Plans.
(vi) Except as specifically provided in paragraph (v) above,
the amount of any payment provided for in this Section 5 shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise.
(vii) In the event that you become entitled to the
payments provided by paragraphs (iii) and (iv) of Section 5(iii)
hereof (the "Agreement Payments"), if any of the Agreement Payments
will be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (or any similar tax that may hereafter be imposed), the
Company shall pay to you at the time specified in paragraph (viii)
below an additional amount (the "Gross-up Payment") such that the net
amount retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the Gross-up Payment provided for by
this paragraph (vii), but before deduction for any federal, state or
local income tax on the Agreement Payments, shall be equal to the sum
of (a) the Total Payments and (b) an amount equal to the product of
any deductions disallowed because of the inclusion of the Gross-up
Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made.
For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (a) any other payments or benefits received or to be
received by you in connection with a Change in Control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control of the
<PAGE>
11
Company or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the
"Total Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax; (b) the amount of the
Total Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (a),
above); and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to (a) pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (b) pay the applicable
state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (determined
without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (c) have otherwise allowable
deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-up Payment in your
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, you shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal state and local
income tax imposed on the portion of the Gross-up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction), plus interest on
<PAGE>
12
the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest payable with
respect to such excess at the rate provided in Section 1274(b)(2)(B)
of the Code) at the time that the amount of such excess is finally
determined.
(viii) The Gross-up Payment or portion thereof provided
for in paragraph (vii) above shall be paid not later than the
thirtieth (30th) day following payment of any amounts under paragraphs
(iii) and (iv) of Section 5; provided, however, that if the amount of
such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined, but in
no event later than the forty-fifth (45th) day after payment of any
amounts under paragraphs (iii) and (iv) of Section 5. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Company to you, payable on the fifth (5th) day after
demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as
hereinafter defined), to have such Person, by agreement in form and
substance satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to
furnish such assent by the later of (a) three (3) business days prior
to the time such Person becomes a Successor or (b) two (2) business
days after such Person receives a written request to so assent shall
constitute Good Reason for termination by you of your employment if a
Change in Control of the Company occurs or has occurred. For purposes
of this Agreement, "Successor" shall mean any Person that succeeds to,
or has the practical ability to control (either immediately or with
the passage of time), the Company's business directly, by merger or
<PAGE>
13
consolidation, or indirectly, by purchase of the Company's Voting
Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(iii) For purposes of this Agreement, the "Company"
shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of
any merger, consolidation or form of business combination in which the
Company ceases to exist; provided, however, for purposes of
determining whether a Change in Control has occurred herein, the term
"Company" shall refer to WLR Foods, Inc. or its successor(s).
7. Fees and Expenses; Mitigation.
(i) The Company shall reimburse you, on a current basis,
for all reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a Change in Control of the
Company, including without limitation, (a) all such fees and expenses,
if any, incurred in contesting or disputing any termination of your
employment or incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced
by you in bad faith.
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection
with this Agreement, by seeking other employment or otherwise.
8. Taxes. Subject to the provisions of Section 5(vii), all
payments to be made to you under this Agreement will be subject to
<PAGE>
14
required withholding of federal, state and local income and employment
taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7,
8, 12 and 14 of this Agreement shall survive termination of this
Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage
prepaid and addressed, in the case of the Company, to the address set
forth on the first page of this Agreement or, in the case of the
undersigned employee, to the address set forth below his signature,
provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board or President of the Company,
with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or
discharge is agreed to in a writing signed by you and the Chairman of
the Board or President of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or of
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law and Venue. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the Commonwealth of Virginia. Venue for any proceeding
related to the performance or interpretation of this Agreement, or in
any way arising out of this Agreement, shall be either the Circuit
Court of Rockingham County, Virginia, or the United States District
Court for the Western District of Virginia, Harrisonburg Division.
13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
<PAGE>
15
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company, you will not at any time
communicate or disclose to any unauthorized person, without the
written consent of the Company, any proprietary processes of the
Company or other confidential information concerning its business,
affairs, products, suppliers or customers which, if disclosed, would
have a material adverse effect upon the business or operations of the
Company, taken as a whole; it being understood, however, that the
obligations under this Section 14 shall not apply to the extent that
the aforesaid matters (a) are disclosed in circumstances where you are
legally required to do so or (b) become generally known to, and
available for use by, the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company and you shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes
of this Agreement, while the same shall remain in force, the provision
of such other agreement shall be deemed to have been superseded, and
to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
Notwithstanding the effect of the preceding sentence, the letter
agreement dated July 29, 1996 between the Company and you is hereby
cancelled and shall be of no force or effect.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement
on this subject.
Sincerely,
WLR Foods, Inc.
By__/s/ William H. Groseclose, Jr.__
William H. Groseclose, Jr. Chair
Executive Compensation Committee
WLR Foods, Inc.
Agreed to this __2nd__ day of __November__, 1998
__/s/ Dale S. Lam__
Dale S. Lam
<PAGE>
16
Exhibit 10.9
June 1, 1999
Mr. John A. Turner
Vice President of Sales and Marketing
Wampler Foods, Inc.
P. O. Box 7275
Broadway, VA 22815-7275
Dear Mr. Turner:
WLR Foods, Inc., a Virginia corporation (the "Company"),
considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection,
the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control (as defined
herein) may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of
the Company and its shareholders. Accordingly, the Board of Directors
of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned
duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company. In particular, the
Board believes it important, should the Company or its shareholders
receive a proposal for transfer of control of the Company, that you be
able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take
such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of
your own situation.
In order to induce you to remain in the employ of the Company,
this letter agreement ("Agreement"), which has been approved by the
Board, sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is
terminated subsequent to a Change in Control of the Company under the
circumstances described below. This Agreement supercedes all previous
severance agreements between you and the Company or any or its
subsidiaries.
<PAGE>
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below,
the Company or you may terminate your employment at any time following
a Change in Control as defined herein, subject to the Company's
providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a Person (as hereinafter defined) makes an
offer which, if accepted by the Company and subsequently consummated,
would constitute a Change in Control, you agree that you will not
leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will
render the services contemplated in the recitals to this Agreement
until such Change in Control offer has been abandoned or terminated or
a Change in Control has occurred. For the purposes of this Agreement,
Retirement shall mean a termination of your employment by you on or
after you have reached age sixty-five (65) and have completed at least
five (5) years of service for the Company (including any service for a
predecessor of the Company where such prior service is recognized by
the Company for the purpose of awarding other benefits). For purposes
of this Section 1, "years of service" shall be defined as in the WLR
Profit Sharing and Salary Savings Plan.
2. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until December 31, 1999;
provided, however, that commencing on January 1, 2000 and each January
1 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless at least ninety (90) days
prior to such January 1st date, the Company or you shall have given
notice that this Agreement shall not be extended; and provided,
further, that, notwithstanding the delivery of any such notice, this
Agreement shall continue in effect for a period of thirty-six (36)
months after a Change in Control, if such Change in Control shall have
occurred while this Agreement is in effect. Notwithstanding anything
in this Section 2 to the contrary, this Agreement shall terminate if
you or the Company terminate your employment prior to a Change in
Control of the Company.
3. Change in Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
either the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or the combined voting power of
the then outstanding voting securities of the Company entitled to vote
<PAGE>
2
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that in no event may the
following acquisitions constitute a Change in Control: (a) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (d) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (a), (b) and (c) of paragraph (iii) of this
Section 3 are satisfied, or (e) any sale or other disposition of all
or substantially all of the assets of the Company, if , following such
sale or other disposition, the conditions described in (1), (2) and
(3) of paragraph (iv) of this Section 3 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least seventy-five percent (75%) of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, unless, in each case
following such reorganization, merger or consolidation, (a) more than
sixty percent (60%) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (b) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or a
<PAGE>
3
corporation resulting from such reorganization, merger or
consolidation) beneficially owns, directly or indirectly, thirty-nine
percent (39%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (c) at least a majority of
the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation with respect to which following
such sale or other disposition, (1) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (2) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation)
beneficially owns, directly or indirectly, thirty-nine percent (39%)
or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (3) at least a majority of
the members of the board of directors of such corporation were members
of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
(v) Notwithstanding anything in the paragraphs (i) - (iv)
of this Section 3 to the contrary, no Change in Control shall be
deemed to have occurred for purposes of this Agreement by virtue of
any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, twenty percent (20%)
or more of the combined voting power of the Company's Voting
Securities.
<PAGE>
4
4. Termination Following Change in Control. If any of the
events described in Section 3 hereof constituting a Change in Control
of the Company shall have occurred, you shall be entitled to the
benefits provided in Section 5 hereof upon the termination of your
employment with the Company within thirty-six (36) months after such
Change in Control, unless such termination is (a) because of your
death, (b) by the Company for Cause or Disability or (c) by you other
than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your
employment based on "Disability" shall mean termination because of
your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty
(30) days after Notice of Termination (as hereinafter defined) is
given to you following such absence, you shall have returned to the
full time performance of your duties.
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (a) the willful and continued
failure by you to perform substantially your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner(s)
in which such executive believes that you have not substantially
performed your duties, or (b) the willful engaging by you in illegal
conduct which is materially and demonstrably injurious to the Company.
For purposes of this paragraph (ii), no act, or failure to act, on
your part shall be considered "willful" unless done, or failed to be
done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood that your
attention to matters not directly related to the business of the
Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth
<PAGE>
5
above in clauses (a) or (b) of this paragraph (ii) and specifying the
particulars thereof in detail.
(iii) Good Reason. Termination by you of your employment
for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been an adverse change in your status or
position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in your status or position as a result
of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the
Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint
or reelect you to, such positions(s) (except in connection with the
termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing
you with at least substantially similar benefits) other than as a
result of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by the Company which
would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your
benefits in the future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in
effect immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than thirty (30) miles from where your office
is located immediately prior to the Change in Control except for
required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on
behalf of the Company prior to the Change in Control;
<PAGE>
6
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 6 hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (iv) below (and, if
applicable, paragraph (ii) above); and for purposes of this Agreement,
no such purported termination shall be effective; or
(H) any refusal by the Company to continue to allow
you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control,
you were permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any
compensation plan such as the Company Incentive Bonus Plan or any
employee benefit plan such as a thrift, pension, profit sharing,
medical, disability, accident, life insurance plan or a relocation
plan or policy or any other plan, program or policy of the Company
intended to benefit employees, except for the Company Restated Long-
Term Incentive Plan.
(iv) Notice of Termination. Any purported termination by
the Company or by you following a Change in Control shall be
communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon.
(v) Date of Termination. "Date of Termination" following a
Change in Control shall mean (a) if your employment is to be
terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty
(30) day period), (b) if your employment is to be terminated by the
Company for Cause or by you pursuant to Sections 4(iii)(F) or 6 hereof
or for any other Good Reason, the date specified in the Notice of
Termination, (c) if your employment is to be terminated by the Company
for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety
(90) days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination,
or (d) if your employment is terminated on account of your death, the
day after your death. In the case of termination of your employment
by the Company for Cause, if you have not previously expressly agreed
in writing to the termination, then within thirty (30) days after
<PAGE>
7
receipt by you of the Notice of Termination with respect thereto, you
may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by such court
having the matter before it. During the pendency of any such dispute,
the Company will continue to pay you your full compensation in effect
just prior to the time the Notice of Termination is given and until
the dispute is resolved. However, if such court issues a final and
non-appealable order finding that the Company had Cause to terminate
you then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously
received by you.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity
due to physical or mental illness, you shall continue to receive your
base salary at the rate then in effect and any benefits or awards
under any Plans shall continue to accrue during such period, to the
extent not inconsistent with such Plans, until your employment is
terminated pursuant to and in accordance with paragraphs 4(iv) - 4(v)
hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your
base salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon the Company shall
have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within thirty-six
(36) months after a Change in Control of the Company has occurred,
your employment by the Company is terminated other than on account of
your death and is terminated (a) by the Company other than for Cause
or Disability or (b) by you for Good Reason, then the Company shall
pay to you, no later than the fifth (5th) day following the Date of
Termination, without regard to any contrary provisions of any Plan,
the following:
(A) your base salary through the Date of Termination
at the rate in effect just prior to the time a Notice of Termination
is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you
<PAGE>
8
(including amounts which previously had been deferred at your
request);
(B) an amount in cash equal to three times the sum of
(i) the higher of (a) your annual base salary on the Date of
Termination or (b) your annual base salary in effect immediately prior
to the Change in Control plus (ii) an amount equal to the average of
the bonuses awarded to you in each of the three previous years.
For the purposes of this Agreement, the term "base salary"
shall include any amounts deducted by the Company with respect to you
or for your account pursuant to Sections 125 and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code").
(iv) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated for any reason other than retirement, the Company shall pay
to you, on the date specified below, an amount ("Spread") in cash
equal to the Termination Fair Market Value (as hereinafter defined)
less the exercise price of all options which were granted to you
pursuant to the Company's Restated Long-Term Incentive Plan or any
Plan succeeding thereto, and which shall not become exercisable prior
to (a) the end of the one (1) year period immediately following the
Date of Termination if your employment is terminated on account of
your death, or (b) the end of the third (3rd) month following the Date
of Termination if your employment is terminated for any reason other
than death. The Company shall make such payment upon the fifth (5th)
day following such Date of Termination.
For the purposes of this Agreement, the "Termination Fair
Market Value" shall be the higher of (a) the highest price of the
Company's stock as quoted on the NASDAQ, or any other exchange
complying with the requirements of the Securities and Exchange Act of
1934, as amended, within the period beginning ninety (90) days prior
to the Date of Termination and ending upon such Date of Termination,
and (b) the highest price of the Company's stock as quoted on the
NASDAQ, or any other exchange complying with the requirements of the
Securities and Exchange Act of 1934, as amended, within the period
beginning ninety (90) days prior to a Change of Control and ending
upon the date of a Change of Control.
(v) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated (a) by the Company other than for Cause or Disability, or
(b) by you for Good Reason, then the Company shall maintain in full
force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three (3) years after
the Date of Termination or (b) the commencement date of equivalent
<PAGE>
9
benefits from a new employer, insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you
continue to pay an amount equal to your regular contribution under
such Plans for such participation. If three (3) years after the Date
of Termination you have not previously received, nor are then
receiving, equivalent benefits from a new employer, the Company shall
offer you continuation coverage under COBRA as prescribed under
Section 4980B of the Code. At the expiration of such continuation
coverage (or, if COBRA continuation coverage is not applicable to the
Plan, then upon the expiration of the three (3) year period beginning
on the Termination Date), the Company shall arrange, at its sole cost
and expense, to enable you to convert you and your dependents'
coverage under such plans to individual policies and programs upon the
same terms as employees of the Company may apply for such conversions.
In the event that your participation in any such Plan is barred, the
Company, at its sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of
insurance providing benefits substantially similar (on an after-tax
basis) to those which you otherwise would have been entitled to
receive under such Plans pursuant to this paragraph (v) or, if such
insurance is not available at a reasonable cost to the Company, the
Company shall otherwise provide you and your dependents with
equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater
than that which you would have paid in order to participate in such
Plans.
(vi) Except as specifically provided in paragraph (v) above,
the amount of any payment provided for in this Section 5 shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise.
(vii) In the event that you become entitled to the
payments provided by paragraphs (iii) and (iv) of Section 5(iii)
hereof (the "Agreement Payments"), if any of the Agreement Payments
will be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (or any similar tax that may hereafter be imposed), the
Company shall pay to you at the time specified in paragraph (viii)
below an additional amount (the "Gross-up Payment") such that the net
amount retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the Gross-up Payment provided for by
this paragraph (vii), but before deduction for any federal, state or
local income tax on the Agreement Payments, shall be equal to the sum
<PAGE>
10
of (a) the Total Payments and (b) an amount equal to the product of
any deductions disallowed because of the inclusion of the Gross-up
Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made.
For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (a) any other payments or benefits received or to be
received by you in connection with a Change in Control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the
"Total Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax; (b) the amount of the
Total Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (a),
above); and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to (a) pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (b) pay the applicable
state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (determined
without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (c) have otherwise allowable
deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-up Payment in your
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
<PAGE>
11
hereunder at the time the Gross-up Payment is made, you shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal state and local
income tax imposed on the portion of the Gross-up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction), plus interest on
the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest payable with
respect to such excess at the rate provided in Section 1274(b)(2)(B)
of the Code) at the time that the amount of such excess is finally
determined.
(viii) The Gross-up Payment or portion thereof provided for
in paragraph (vii) above shall be paid not later than the thirtieth
(30th) day following payment of any amounts under paragraphs (iii) and
(iv) of Section 5; provided, however, that if the amount of such
Gross-up Payment or portion thereof cannot be finally determined on or
before such day, the Company shall pay to you on such day an estimate,
as determined in good faith by the Company, of the minimum amount of
such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined, but in no event
later than the forty-fifth (45th) day after payment of any amounts
under paragraphs (iii) and (iv) of Section 5. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by
the Company to you, payable on the fifth (5th) day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as
hereinafter defined), to have such Person, by agreement in form and
substance satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to
furnish such assent by the later of (a) three (3) business days prior
to the time such Person becomes a Successor or (b) two (2) business
days after such Person receives a written request to so assent shall
constitute Good Reason for termination by you of your employment if a
<PAGE>
12
Change in Control of the Company occurs or has occurred. For purposes
of this Agreement, "Successor" shall mean any Person that succeeds to,
or has the practical ability to control (either immediately or with
the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting
Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(iii) For purposes of this Agreement, the "Company"
shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of
any merger, consolidation or form of business combination in which the
Company ceases to exist; provided, however, for purposes of
determining whether a Change in Control has occurred herein, the term
"Company" shall refer to WLR Foods, Inc. or its successor(s).
7. Fees and Expenses; Mitigation.
(i) The Company shall reimburse you, on a current basis,
for all reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a Change in Control of the
Company, including without limitation, (a) all such fees and expenses,
if any, incurred in contesting or disputing any termination of your
employment or incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced
by you in bad faith.
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection
with this Agreement, by seeking other employment or otherwise.
8. Taxes. Subject to the provisions of Section 5(vii), all
payments to be made to you under this Agreement will be subject to
<PAGE>
13
required withholding of federal, state and local income and employment
taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7,
8, 12 and 14 of this Agreement shall survive termination of this
Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage
prepaid and addressed, in the case of the Company, to the address set
forth on the first page of this Agreement or, in the case of the
undersigned employee, to the address set forth below his signature,
provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board or President of the Company,
with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or
discharge is agreed to in a writing signed by you and the Chairman of
the Board or President of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or of
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law and Venue. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the Commonwealth of Virginia. Venue for any proceeding
related to the performance or interpretation of this Agreement, or in
any way arising out of this Agreement, shall be either the Circuit
Court of Rockingham County, Virginia, or the United States District
Court for the Western District of Virginia, Harrisonburg Division.
13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company, you will not at any time
<PAGE>
14
communicate or disclose to any unauthorized person, without the
written consent of the Company, any proprietary processes of the
Company or other confidential information concerning its business,
affairs, products, suppliers or customers which, if disclosed, would
have a material adverse effect upon the business or operations of the
Company, taken as a whole; it being understood, however, that the
obligations under this Section 14 shall not apply to the extent that
the aforesaid matters (a) are disclosed in circumstances where you are
legally required to do so or (b) become generally known to, and
available for use by, the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company and you shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes
of this Agreement, while the same shall remain in force, the provision
of such other agreement shall be deemed to have been superseded, and
to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement
on this subject.
Sincerely,
WLR Foods, Inc.
By__/s/ William H. Groseclose, Jr.__
William H. Groseclose, Jr. Chair
Executive Compensation Committee
WLR Foods, Inc.
Agreed to this __1st__ day of __June__, 1999
__/John A. Turner__
John A. Turner
<PAGE>
15
<TABLE>
Exhibit 13.1
Financial Highlights from Registrant's Annual Report of Shareholders
<CAPTION>
WLR Foods, Inc. and Subsidiaries Financial Highlights
Dollars in thousands,
except per share data
July 3, June 27, June 28, June 29, July 1,
Fiscal year ended: 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $888,086 $945,967 $994,591 $978,258 $890,815
Cost of sales 750,942 876,287 948,060 889,904 776,945
------- ------- ------- ------- -------
Gross profit 137,144 69,680 46,531 88,354 113,870
Selling, general and
adminstrative
expenses 98,478 91,745 89,657 91,167 84,877
------- ------- ------- ------- -------
Operating income (loss) 38,666 (22,065) (43,126) (2,813) 28,993
Interest expense 10,931 22,539 12,804 8,922 6,386
Other (income) expense,
net (8,214) (106) (1,792) 129 (311)
------- ------- ------- ------- -------
Total other (income)
expense, net 2,717 22,433 11,012 9,051 6,075
------- ------- ------- ------- -------
Earnings (loss) before
income taxes and
minority interest 35,949 (44,498) (54,138) (11,864) 22,918
Income tax expense
(benefit) 13,211 (16,352) (19,577) (4,381) 8,614
Minority interest - 66 47 32 55
------- ------- ------- ------- -------
Net earnings (loss)
from continuing
operations 22,738 (28,212) (34,608) (7,515) 14,249
Earnings from
discontinued
operations, net of tax 664 2,858 2,425 2,829 1,884
<PAGE>
Gain on disposal of
discontinued
operations, net of tax 17,927 - - - -
------- ------- ------- ------- -------
Total earnings from
discontinued
operations 18,591 2,858 2,425 2,829 1,884
Extraordinary charge on
early extinguishment of
debt, net of tax (2,559) - - - -
Net earnings (loss) 38,770 (25,354) (32,183) (4,686) 16,133
Less preferred stock
dividends - - - - -
------- ------- ------- ------- -------
Net earnings (loss)
available to common
shareholders $38,770 ($25,354)($32,183) ($4,686) $16,133
======= ======= ======= ======= =======
PER COMMON SHARE
Basic earnings (loss),
continuing operations $1.35 ($1.72) ($1.99) ($0.42) $0.79
Basic earnings,
discontinued operations 1.11 0.17 0.14 0.16 0.10
Basic loss,
extraordinary
charge (0.15) - - - -
------- ------- ------- ------- -------
Total basic earnings
(loss) per common
share 2.31 (1.55) (1.85) (0.26) 0.89
Diluted earnings (loss),
continuing operations 1.34 (1.72) (1.99) (0.42) 0.79
Diluted earnings,
discontinued operations 1.10 0.17 0.14 0.16 0.10
Diluted loss,
extraordinary charge (0.15) - - - -
------- ------- ------- ------- -------
Total diluted earnings
(loss) per common
share $2.29 ($1.55) ($1.85) ($0.26) $0.89
Cash dividends declared - - 0.12 0.24 0.22
Book value(based on
actual shares
outstanding) 8.70 6.33 7.89 10.00 10.47
<PAGE>
Year-end stock price 8.19 7.00 8.50 14.00 14.38
FINANCIAL POSITION AT
END OF YEAR
Working capital
(deficit) $84,016 $118,695 ($31,397) $144,621 $120,562
Property, plant and
equipment, net 107,945 153,702 159,426 176,691 174,163
Total assets 289,097 381,742 416,728 451,121 372,525
Long-term debt 48,845 189,225 5,040 138,510 106,481
Common stock subject
to repurchase - - 4,438 17,750 17,750
Preferred shareholders'
equity <F1> - - - - -
Common shareholders' $143,935 $103,891 $126,558 $159,010 $163,344
======= ======= ======= ======= =======
ANALYTICAL & OTHER
INFORMATION
Current ratio
(compared to 1) 1.95 2.40 0.89 2.18 2.67
Total debt/total
capitalization <F2> 27.2% 65.0% 61.2% 55.1% 44.7%
Return on beginning
total equity <F3> 21.9% NMF NMF NMF 10.3%
Capital expenditures $22,072 $22,149 $11,245 $18,771 $17,251
Depreciation expense 19,653 25,901 28,088 28,243 24,817
Amortization expense 2,102 2,420 500 742 598
Interest expense 10,931 22,635 13,143 9,359 6,666
Cash dividends
declared:
Common stock - - 2,078 4,233 4,073
Preferred stock - - - - -
Market capitalization
of common stock at
year end $135,435 $114,800 $141,075 $247,547 $248,654
======= ======= ======= ======= =======
All information reflects the stock dividends issued in May 1997 and
August 1997, and the three-for-two stock split in the form of a 50%
stock dividend declared on February 28, 1995.
<FN>
<F1>) In March 1993, the Company repurchased all the preferred stock
issued in January 1992.
<F2> Common stock subject to repurchase classified as debt.
<F3> For 1999, return on beginning equity is based on net earnings from
continuing operations.
</FN>
</TABLE>
<PAGE>
<TABLE>
WLR Foods, Inc. and Subsidiaries Financial Highlights - Continued
Dollars in thousands,
except per share data
<CAPTION>
Fiscal year ended: July 2, July 3, June 27, June 29, June 30,
1994 1993 1992 1991 1990
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net sales $709,703 $603,634 $503,877 $491,618 $483,219
Cost Of Sales 625,180 529,791 449,785 429,430 410,546
------- ------- ------- ------- -------
Gross Profit 84,523 73,843 54,092 62,188 72,673
Selling, general and
adminstrative
expenses 57,373 51,141 44,794 46,733 45,465
-------- ------- ------- ------- -------
Operating income
(loss) 27,150 22,702 9,298 15,455 27,208
Interest expense 4,816 3,660 2,523 619 505
Other (income)
expense, net (342) (494) (142) (347) (651)
------- ------- ------- ------- -------
Total other (income)
expense, net 4,474 3,166 2,381 272 (146)
------- ------- ------- ------- -------
Earnings (loss) before
income taxes and
minority interest 22,676 19,536 6,917 15,183 27,354
Income tax expense
(benefit) 8,446 6,850 2,587 5,741 10,546
Minority interest 38 43 25 33 34
------- ------- ------- ------- -------
Net earnings (loss)
from continuing
operations 14,192 12,643 4,305 9,409 16,774
Earnings from
discontinued
operations, net
of tax 2,359 1,964 1,591 1,272 621
Gain on disposal of
discontinued
operations, net
of tax - - - - -
------- ------- ------- ------- -------
<PAGE>
Total earnings from
discontinued
operations 2,359 1,964 1,591 1,272 621
Extraordinary charge
on early
extinguishment of
debt, net of tax - - - - -
Net earnings (loss) 16,551 14,607 5,896 10,681 17,395
Less preferred stock
dividends - 1,389 982 - -
------- ------- ------- ------- -------
Net earnings (loss)
available to common
shareholders $16,551 $13,218 $4,914 $10,681 $17,395
======= ======= ======= ======= =======
PER COMMON SHARE
Basic earnings (loss),
continuing operations $0.85 $0.79 $0.23 $0.59 $1.06
Basic earnings,
discontinued
operations 0.14 0.14 0.11 0.08 0.04
Basic loss,
extraordinary charge - - - - -
------- ------- ------- ------- -------
Total basic earnings
(loss) per common
share 0.99 0.93 0.34 0.67 1.10
Diluted earnings
(loss), continuing
operations 0.85 0.78 0.23 0.59 1.05
Diluted earnings,
discontinued
operations 0.14 0.14 0.11 0.08 0.04
Diluted loss,
extraordinary charge - - - - -
------- ------- ------- ------- -------
Total diluted earnings
(loss) per common
share $0.99 $0.92 $0.34 $0.67 $1.09
Cash dividends declared 0.21 0.21 0.21 0.21 0.19
Book value(based on
actual shares
outstanding) 9.45 8.66 6.44 7.33 6.86
Year-end stock price 17.00 11.33 9.67 12.00 12.33
FINANCIAL POSITION AT
END OF YEAR
Working capital
(deficit) $69,989 $57,509 $40,337 $49,532 $46,039
<PAGE>
Property, plant and
equipment, net 139,854 140,540 113,017 88,807 71,414
Total assets 283,051 265,626 207,736 175,329 157,763
Long-term debt 46,368 52,253 38,148 18,678 6,402
Common stock subject
to repurchase - - - - -
Preferred shareholders'
equity <F1> - - 29,507 - -
Common shareholders'
equity $156,157 $142,255 $81,881 $115,625 $108,258
======= ======= ======= ======= =======
ANALYTICAL & OTHER
INFORMATION
Current ratio
(compared to 1) 2.02 1.92 1.80 2.42 2.20
Total debt/total
capitalization <F2> 28.4% 33.5% 32.0% 16.1% 8.5%
Return on beginning
total equity <F3> 11.6% 13.1% 5.1% 9.9% 19.0%
Capital expenditures $19,186 $31,766 $36,107 $29,471 $20,360
Depreciation expense 21,333 18,115 14,041 11,544 9,932
Amortization expense 520 445 168 - -
Interest expense 4,989 3,816 2,755 928 925
Cash dividends
declared:
Common stock 3,513 3,124 2,854 3,314 2,948
Preferred stock - 1,389 982 - -
Market capitalization
of common stock at
year end $280,738 $186,168 $122,942 $189,378 $194,638
======= ======= ======= ======= =======
All information reflects the stock dividends issued in May 1997 and
August 1997, and the three-for-two stock split in the form of a 50%
stock dividend declared on February 28, 1995.
<FN>
<F1> In March 1993, the Company repurchased all the preferred stock
issued in January 1992.
<F2> Common stock subject to repurchase classified as debt.
<F3> For 1999, return on beginning equity is based on net earnings from
continuing operations.
</FN>
</TABLE>
<PAGE>
Exhibit 13.2
Management's Discussion and Analysis of Financial Condition
and Results of operations
GENERAL
WLR Foods, Inc. (WLR Foods or the Company) is a fully integrated
processor of chicken and turkey products, controlling all aspects of
production from the hatching of eggs, live bird grow-out, processing,
sales, and distribution. Consistent with other poultry processors,
the Company is subject to fluctuations in commodity prices for chicken
and turkey products, as well as for corn and soybean meal, the primary
grain ingredients in the feed for its birds.
Turkey segment pricing increased approximately 2.0% in fiscal
1999 when compared to fiscal 1998, responding to decreased production
during calendar year 1998. Fiscal 1998 pricing was very unfavorable,
coming in at 3.4% below the already low levels of fiscal 1997.
Chicken segment pricing for fiscal 1999 was approximately 1.6%
below the levels seen in fiscal 1998. During the early months of
fiscal 1999, chicken supplies were limited and resulted in extremely
favorable breast meat pricing. Supplies increased during the year,
resulting in declining breast meat prices. Dark meat prices were
depressed for the majority of the year as weaknesses in the export
markets, particularly Russia, suppressed demand.
Grain prices continued their improvement from the extremely high
levels seen in the three prior fiscal years, with the 1999 average
delivered price for corn and soybean meal declining 16% and 34%,
respectively, over fiscal 1998, saving the company approximately $50
million in feed costs. This improvement was a continuation of the
correction in grain pricing that began during the latter half of
fiscal 1998, which resulted in 1998 average delivered pricing for corn
and soybean meal declining 19% and 15%, respectively, over the fiscal
1997 levels. These price improvements were a relief from the high
grain costs incurred during the latter half of fiscal 1996, all of
fiscal 1997 and the first half of fiscal 1998. The prices reached in
those years were the highest levels for corn in the last 30 years, and
for soybean meal, the costs were the highest seen in the last 10
years.
ORGANIZATIONAL CHANGES
During fiscal 1999, WLR Foods, Inc. completed several significant
organizational changes to align its operations for future
competitiveness in the poultry industry.
<PAGE>
The conversion of the Marshville, North Carolina complex from
turkey to chicken processing was completed during the first quarter.
The goal of the conversion was to reduce the Company's excess supply
of commodity turkey and to improve utilization of the Marshville
facility. This process began during the latter part of fiscal 1998,
but the conversion of the processing plant, the most significant
aspect of the conversion process, did not occur until the first fiscal
quarter of 1999. The plant reached full capacity in the third quarter
of the fiscal year and improvements in operating performance at the
plant have been significant. As expected, the plant was not
profitable during the conversion and start-up phase, but progress has
met or exceeded management's expectations, with the plant reporting a
modest profit in June 1999.
In July 1998, the Company sold its Cassco Ice & Cold Storage,
Inc. subsidiary to concentrate on its core poultry business. The net
proceeds from the sale were used to reduce long-term debt by
approximately $55 million.
As a result of the increased chicken capacity from the Marshville
conversion, the Company sold its Goldsboro, North Carolina chicken
complex in August 1998, resulting in net proceeds of approximately $38
million, which were used to reduce long term debt. In addition to
the benefits of the reduced debt, the Marshville complex provides more
economical expansion alternatives for the Company than were available
at the Goldsboro complex.
The Company closed its direct store distribution business in
Pennsylvania during the first quarter of fiscal 1999. The Company's
sales declined approximately $40 million during fiscal 1999 as a
result of this decision, which eliminated the distribution of
competing meats that were not produced by the Company. The Company
estimates that the gross profits from the distribution business were
not fully covering the expenses of the operations. Additionally, the
closure of the business resulted in excess space available at the
Franconia plant for the consolidation of all further processing
operations to Pennsylvania.
During the third quarter of the year, the Company transferred all
further processing capabilities from its Monroe, North Carolina plant
to the Franconia, Pennsylvania plant to increase cost effectiveness.
The Monroe facility was sold during the fourth quarter of the year for
approximately $4.3 million, with $0.6 million of the consideration in
cash and the balance in a secured note from the purchasers.
<PAGE>
2
RESULTS OF OPERATIONS
The Company's results are reported on a consolidated basis.
Portions of the following discussions of operating results pertain to
the chicken and turkey segments, which account for over 98% of the
Company's revenues. Any revenues and expenses not included in the
chicken and turkey segments are reported in the Company's other
segment for purposes of segment reporting.
Fiscal 1999 Compared to Fiscal 1998:
Net sales from continuing operations were $888.1 million, a
decrease of $57.9 million, or 6.1% from fiscal 1998. The decrease is
from decreases in turkey segment and other segment sales of $118.6
million and $3.3 million, respectively, offset by an increase in
chicken segment sales of $64.0 million.
The turkey segment net sales decline of $118.6 million, or 21.7%,
to $427.6 million for fiscal 1999 is the result of the discontinuation
of the distribution business, which reduced sales approximately $40
million, a decrease in outside feed sales of approximately $24 million
at the Marshville plant, which was converted to chicken processing,
with the balance primarily from reduced volumes in turkey production.
Poultry products, primarily turkey, are the largest component of
turkey segment revenues. Poultry product sales in the turkey segment
decreased 10.9%, or $51.5 million, to $422.4 million in fiscal 1999.
The 10.9% decrease is a result of decreased volumes of 12.9%,
primarily the result of planned cutbacks at the Marshville facility,
offset by increased prices of approximately 2.0%.
In the chicken segment, the increase in net sales of $64.0
million, or 16.5%, to $452.5 million in fiscal 1999 is due to
increased poultry product sales of approximately $54 million and
increased outside feed sales of approximately $11 million. The $54
million increase, or 14.0%, in net sales of poultry products,
primarily chicken, resulted in fiscal 1999 poultry product sales of
$437.6 million. The 14% increase was the result of a volume increase
of 15.6%, offset by a 1.6% decrease in pricing.
Cost of sales on continuing operations was $750.9 million, a
decrease of $125.4 million, or 14.3% from fiscal 1998. Cost of sales
in the turkey segment decreased 30.8%, or $161.7 million, to $363.9
million in fiscal 1999. This decrease is primarily the result of
planned decreases in production and sales volumes in turkey products,
coupled with the closing of the distribution business. Lower costs of
corn and soybean meal also lowered costs by approximately $20 million,
as the average delivered cost of corn and soybean meal declined
approximately 16% and 34%, respectively, over the prior year. In the
chicken segment, cost of sales increased 12.3%, or $41.9 million, to
$383.1 million in fiscal 1999. This increase is primarily
<PAGE>
3
attributable to increased poultry pounds sold and additional outside
feed sales, partially offset by lower costs of corn and soybean meal,
which reduced cost of sales in the chicken segment approximately $30
million.
Gross profits on continuing operations were $137.1 million, an
increase of $67.5 million, or 96.8% from fiscal 1998. Lower grain
costs for corn and soybean meal contributed approximately $50 million
of the improvement. Improved performance in live bird growout,
exclusive of grain costs, in both turkey and chicken increased gross
profits by over $10 million during the year. The net effect of
product pricing was an improvement of $3.5 million for the year, with
higher turkey pricing of $9.6 million more than offsetting lower
chicken prices of $6.1 million.
Selling, general and administrative expenses on continuing
operations for fiscal 1999 were $98.5 million, an increase of $6.7
million, or 7.3%. The increase includes two one-time charges: a non-
cash charge of $1.5 million in the first quarter for assets,
primarily at the Monroe facility, that could not be utilized in the
company s turkey operations, and $0.6 million for one time deferred
compensation accruals. Additionally, employee incentives based upon
profitability resulted in an additional $2.0 million in expense during
the year. There were no employee incentives in the prior year.
Interest expense from continuing operations was $10.9 million for
fiscal 1999, a decrease of $11.6 million when compared to fiscal 1998.
The decrease is the result of substantially lower debt levels and
lower interest rates resulting from a new credit facility entered into
in November 1998.
The gain on the sale of the Goldsboro complex resulted from the
Company's sale, on August 14, 1998, of its Goldsboro, North Carolina
chicken processing plant, feed mill and hatchery for approximately $38
million in net proceeds, which was used to reduce long term debt. The
pre-tax gain on the sale was approximately $8 million.
The effective tax rate for continuing operations was 36.7% for
both fiscal 1999 and 1998.
Net earnings from continuing operations were $22.7 million (or
$1.34 per diluted share) for fiscal 1999, an increase of $50.9
million, as compared to the net loss of $28.2 million (or $1.72 per
diluted share) for fiscal 1998. Turkey and chicken segment net income
improved $33.1 million and $16.1 million, respectively.
<PAGE>
4
On July 31, 1998, the Company sold its Cassco Ice & Cold Storage,
Inc. subsidiary for approximately $55 million in net proceeds. The
net proceeds from the sale were used to reduce long-term debt. The
after-tax Cassco income from discontinued operations was $0.7 million
in fiscal 1999 compared to $2.9 million for fiscal 1998. During the
first quarter of fiscal 1999, the Company recorded a $15.5 million
after-tax gain on the sale. Additional consideration was received in
the third and fourth quarters of fiscal 1999. The final after-tax
gain for the Cassco sale is $17.9 million.
During fiscal 1999, the Company recorded extraordinary after-tax
charges of $2.6 million for the early extinguishment of debt, with
$1.6 million of the charge in the first quarter and $1.0 million in
the second quarter of the year. In the first quarter, the permanent
reduction in long-term debt resulting from the sale of the Cassco
subsidiary and the Goldsboro complex resulted in an extraordinary
after-tax charge of $1.6 million to write off capitalized debt costs.
In conjunction with the November 20, 1998 debt refinancing, the
Company recorded an extraordinary after-tax charge of $1.0 million to
write off the remaining capitalized debt costs pertaining to the
refinanced credit facility during the second quarter.
Net earnings for fiscal 1999 were $38.8 million, or $2.29 per
diluted share, and included: after-tax income of $0.7 million, or
$0.04 per diluted share from the Company's Cassco Ice & Cold Storage
subsidiary; an after-tax gain of $17.9 million or $1.06 per diluted
share on the sale of Cassco; and an after-tax, non-cash write-off
totaling $2.6 million, or $0.15 per diluted share, on the early
extinguishment of debt. The net loss for fiscal 1998 was $25.4
million, or $1.55 per diluted share, and included after-tax income of
$2.9 million, or $0.17 per diluted share, from the Cassco subsidiary.
Fiscal 1998 Compared to Fiscal 1997:
Net sales from continuing operations were $946.0 million in
fiscal 1998, a decrease of $48.6 million, or 4.9% from fiscal 1997.
The decrease was from reduced turkey segment and other segment sales
of $54.3 million and $5.1 million, respectively, partially offset by
an increase in chicken segment sales of $10.8 million.
The turkey segment net sales decline of $54.3 million, or 9.0%,
to $546.3 million in net sales for fiscal 1998 is the result of
decreased outside feed sales of approximately $6 million, lower
poultry sales pricing of approximately $17 million, with the balance
primarily from reduced poultry product sales. Poultry products,
<PAGE>
5
primarily turkey, are the largest component of turkey segment
revenues. Poultry product sales in the turkey segment decreased
5.4%, or $27.1 million, to $473.9 million in fiscal 1998. The 5.4%
decrease is a result of decreased volumes and prices of 2.0% and 3.4%,
respectively.
In the chicken segment, the increase in net sales of $10.8
million, or 2.9%, to $388.6 million in fiscal 1998 was due to
increased poultry product sales of approximately $10 million and
increased outside feed sales of approximately $1 million. The $10
million increase, or 2.6%, in net sales of poultry products, primarily
chicken, resulted in fiscal 1998 poultry product sales of $383.7
million. The 2.6% increase was the result of a volume increase of
4.8%, offset partially by a 2.2% decrease in pricing.
Cost of sales on continuing operations was $876.3 million, a
decrease of $71.8 million, or 7.6% from fiscal 1997. Cost of sales in
the turkey segment decreased $62.6 million, or 10.6%, to $525.6
million in fiscal 1998. The decrease was attributable to lower turkey
volumes and a $21 million improvement in grain costs, as the average
delivered cost of corn and soybean meal declined approximately 19% and
15%, respectively, over the prior year. In the chicken segment, cost
of sales decreased $5.9 million, or 1.7%, to $341.2 million in fiscal
1998 as a $33 million improvement in the costs of corn and soybean
meal was offset by increases in production volumes.
Gross profits on continuing operations for fiscal 1998 were $69.7
million, an increase of $23.1 million, or 49.7%, from fiscal 1997.
This increase was primarily the result of improved grain costs for
corn and soybean meal of $54 million, offset by lower poultry product
pricing of $25 million. The lower pricing is a combination of $17
million and $8 million from the turkey and chicken segments,
respectively.
Selling, general and administrative expenses on continuing
operations for fiscal 1998 were $91.7 million, an increase of $2.1
million, or 2.3%, when compared to fiscal 1997. This increase was
primarily the result of one-time costs for debt restructuring during
the third quarter of fiscal 1998.
Interest expense from continuing operations was $22.5 million for
fiscal 1998, an increase of $9.7 million over $12.8 million for fiscal
1997. This $9.7 million increase was attributable to higher
borrowings and higher interest rates.
The effective tax benefit rate for continuing operations in
fiscal 1998 was 36.7% versus 36.2% in fiscal 1997.
Net loss for fiscal 1998 on continuing operations was $28.2
million (or $1.72 per diluted share), a decrease of $6.4 million as
compared to the net loss of $34.6 million (or $1.99 per diluted share)
for fiscal 1997. The turkey segment net loss from continuing
operations increased $1.3 million in fiscal 1998 to $36.2 million,
<PAGE>
6
while the chicken segment had an improvement in income from continuing
operations of $7.4 million, from a net loss of $1.3 million in 1997 to
a net income of $6.1 million in 1998.
FINANCIAL CONDITION AND LIQUIDITY
The Company's capital resources historically have included funds
from operations, the public offering of common stock, bank lines of
credit and other borrowings. The primary uses of cash have been to
provide funds for operations, make expenditures for capital
improvements, equipment and facilities, repay indebtedness, pay cash
dividends to shareholders, repurchase shares of common stock and make
acquisitions.
On July 3, 1999, the Company had net working capital of $84.0
million, compared to net working capital of $118.7 million on June 27,
1998. Accounts receivable and total inventory on July 3, 1999 were
$13.4 million and $21.4 million lower, respectively, when compared to
the end of fiscal year 1998. Live and processed inventories decreased
$10.7 million and $7.3 million, respectively. The decrease in live
inventory was primarily due to the reduction in the number of turkeys
grown and lower feed costs, while the processed inventories decreased
primarily due to decreased turkey production.
Operating activities generated cash of $71.1 million in fiscal
1999, $30.1 million in fiscal 1998, and $10.3 million in fiscal 1997.
The increase in cash generated in fiscal 1999 as compared to fiscal
1998 resulted primarily from increased earnings, but was partially
offset by lower decreases of inventories. The increase in cash
generated in fiscal 1998 as compared to fiscal 1997 resulted primarily
from the reduction of inventories, but was partially offset by a
decrease in accounts payable.
Capital expenditures were $22.1 million in fiscal 1999 and
operating lease payments totaled $2.3 million. Capital expenditures
in fiscal 1998 totaled $22.1 million and operating lease payments
totaled $3.0 million. Capital expenditures in fiscal years 1999 and
1998 were generally for normal replacements and upgrades of existing
assets, except for $9.7 million in fiscal 1999 and $3.4 million in
fiscal 1998 for expenditures to convert the Marshville turkey complex
to chicken processing. The Company expects capital expenditures in
fiscal 2000 to range from $17 to $20 million to cover normal
replacement and upgrades of existing facilities.
Total debt to total capital at July 3, 1999 was 27.2%, a
significant decrease from 65.0% at June 27, 1998. Debt levels were
reduced substantially during fiscal 1999, from $192.7 million at
<PAGE>
7
fiscal 1998 year-end to $53.9 million on July 3, 1999. The decrease
of $138.8 million is the result of approximately $93 million from the
sales of the Cassco Ice & Cold Storage, Inc. division and the
Goldsboro complex, with the remaining $45.8 million primarily the
result of cash flow from continuing operations.
YEAR 2000 MATTERS
The Company began addressing Year 2000 issues in 1995 and elected
to replace its multiple financial and order management systems with
one set of integrated software from Oracle Corporation. An upgrade to
a newer release of the Oracle software that supports the Year 2000 was
completed in March 1999. The Company has assessed all personal
computers and communication networks and believes there are no
significant Year 2000 problems in these areas.
A review of operational systems, including processing plants,
feed mills, warehouses and hatcheries has been performed. This review
has resulted in a plan for minor upgrades or replacements of
equipment. At the present time, management is not aware of any
significant operational problems resulting from Year 2000 related
equipment.
To ensure that WLR Foods' business with its vendors and customers
will continue without interruption in the new millennium, the Company
began assessing vendor and customer Year 2000 readiness by written
questionnaires in November of 1998. Questionnaires were sent to
customers comprising a majority of sales revenues and to all
significant vendors. Presently, the Company has no reason to believe
that such parties will not be Year 2000 compliant, but the Company has
not yet completed its inquiry and, even where it has, the Company is
not normally in a position to test or challenge the information
provided by such third parties. If the responses of such parties are
not satisfactory, the Company will consider new business relationships
with alternate parties to the extent alternatives are available.
The Company believes that its most significant exposure related
to the Year 2000 issue is from reliance upon third parties for
transportation services to deliver feed grains and for utilities such
as electricity, natural gas and water that are necessary for operating
the Company's plants. The Company's supply of feed grain on hand does
not usually exceed that used in a matter of days. Shipping routes
normally involve, at one or more points, rail transportation for which
alternate suppliers are not readily available. Similarly, there are
no effective alternative suppliers of utilities. Disruption of more
than a few days in these transportation and utilities services used by
<PAGE>
8
the Company would begin to have a material adverse effect that would
increase as any such disruption continued. While the Company has no
information that causes it to expect a prolonged disruption that would
have a material adverse effect, the Company does not believe it can
develop adequate contingency plans for any prolonged disruption. The
Company considers disruptions of this nature to be its worst case Year
2000 scenario, but the Company cannot predict the likelihood of such
disruptions or, if they occur, the duration.
The Company is developing contingency plans, where practical, to
help mitigate the effects of potential Year 2000 problems. Those
plans include increasing supplies of feed grains and ingredients,
preparing for manual, instead of electronic, operating procedures and
the appointment of adequate personnel to test systems and address
problems that might arise on January 1, 2000.
The Company routinely receives inquiries from its suppliers and
customers as to the Company's state of readiness for the Year 2000,
just as the Company seeks such information from others. The Company
believes that its own systems will be ready, however, there is no
assurance that the systems of third parties upon which the Company
relies will be converted on a timely basis. The Company cannot verify
all of the information it has gathered or will gather, and cannot
compel third parties to respond at all. Additionally, the Company can
not predict the extent to which its financial condition and operations
would be adversely affected if third persons are not ready for the
Year 2000 on a timely basis.
The Company has a committee that meets regularly to discuss
progress and issues pertaining to the Year 2000 and reports, on a
regular basis, to the Board of Directors. In light of recent computer
upgrades, the Company's costs related to Year 2000 compliance are
immaterial.
ACCOUNTING MATTERS
The Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities in
June 1998. The statement establishes accounting and reporting
standards for derivative instruments and hedging activities and
requires, among other things, that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company does not believe the adoption
of this statement; which is required to be adopted by the Company in
fiscal 2001, will have a significant impact on the consolidated
financial statements.
<PAGE>
9
Exhibit 13.3
<TABLE>
Consolidated Financial Statements and Notes to Consolidated Financial
Statements
<CAPTION>
WLR Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
Dollars in thousands, except per share data
Fiscal years ended July 3, 1999,
June 27, 1998 and June 28, 1997 1999 1998 1997
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net sales (Note 10) $888,086 $945,967 $994,591
Cost of sales (Note 10) 750,942 876,287 948,060
------- ------- -------
Gross profit 137,144 69,680 46,531
Selling, general and
administrative expenses 98,478 91,745 89,657
------- ------- -------
Operating income (loss) 38,666 (22,065) (43,126)
Other (income) expense:
Interest expense (Note 4) 10,931 22,539 12,804
Gain on sale of Goldsboro
complex (Note 13) (7,699) - -
Other income, net (515) (106) (1,792)
------ ------ ------
Other expense, net 2,717 22,433 11,012
------- ------- -------
Earnings (loss) before income
taxes and minority interest 35,949 (44,498) (54,138)
Income tax expense (benefit)
(Note 6) 13,211 (16,352) (19,577)
Minority interest in net
earnings of consolidated
subsidiary - 66 47
------- ------- -------
Net earnings (loss) from
continuing operations $22,738 ($28,212) ($34,608)
Earnings from discontinued
operations, net of tax (Note 12) 664 2,858 2,425
<PAGE>
Gain on disposal of discontinued
operations, net of tax (Note 12) 17,927 - -
------- ------- -------
Total earnings from discontinued
operations 18,591 2,858 2,425
Extraordinary charge on early
extinguishment of debt, net
of tax (Note 4) (2,559) - -
------- ------- -------
Net earnings (loss) $38,770 ($25,354) ($32,183)
======= ======= =======
Basic net earnings (loss)
per common share, continuing
operations $1.35 ($1.72) ($1.99)
Basic earnings per common share,
discontinued operations 1.11 0.17 0.14
Basic loss per common share,
extinguishment of debt (0.15) - -
------- ------- -------
Total basic earnings (loss) per
common share $2.31 ($1.55) ($1.85)
======= ======= =======
Diluted net earnings (loss) per
common share, continuing
operations $1.34 ($1.72) ($1.99)
Diluted earnings per common share,
discontinued operations 1.10 0.17 0.14
Diluted loss per common share,
extinguishment of debt (0.15) - -
------- ------- -------
Total diluted earnings (loss)
per common share $2.29 ($1.55) ($1.85)
======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
2
<TABLE>
WLR Foods, Inc. and Subsidiaries
<CAPTION>
Consolidated Balance Sheets
Dollars in thousands,
July 3, 1999 and June 27, 1998 1999 1998
- ------------------------------ ---- ----
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $210 $335
Accounts receivable, less
allowance for doubtful accounts
of $1,909 and $1,515 59,026 72,457
Inventories (Note 2) 106,679 128,031
Income taxes receivable 355 1,002
Other current assets 6,427 1,870
------- -------
Total current assets 172,697 203,695
Property, plant and equipment,
net (Note 3) 107,945 153,702
Deferred income taxes (Note 6 3,009 18,247
Other assets 5,446 6,098
------- -------
Total Assets $289,097 $381,742
======= =======
Liabilities and Shareholders'
Equity
Current Liabilities
Current maturities of long-term
debt (Note 4) $5,046 $3,452
Excess checks over bank balances 13,912 9,925
Trade accounts payable 26,500 28,742
Accrued payroll and related
benefits 24,729 20,026
Other accrued expenses 8,677 12,219
Deferred income taxes (Note 6) 9,817 10,636
------- -------
Total current liabilities 88,681 85,000
Long-term debt, excluding current
maturities (Note 4) 48,845 189,225
Other liabilities 7,636 3,626
Commitments and other matters
(Notes 9 and 14)
Shareholders' equity (Notes 7 and 8)
<PAGE>
3
Common stock, no par value
(authorized 100,000,000 shares,
issued and outstanding 16,541,691
and 16,399,511 shares) 69,125 67,851
Additional paid-in capital 2,974 2,974
Retained earnings 71,836 33,066
------- -------
Total shareholders' equity 143,935 103,891
------- -------
Total Liabilities and
Shareholders' Equity $289,097 $381,742
======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
4
<TABLE>
WLR Foods, Inc. and Subsidiaries
<CAPTION>
Consolidated Statements of Shareholders' Equity
Dollars in thousands, except per share data
Fiscal years ended Additional
July 3, 1999, June 27, 1998 Common Stock Paid-In Retained
and June 28, 1997 Shares Amount Capital Earnings Total
- --------------------------- ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at June 29, 1996 17,682 61,407 2,974 94,629 159,010
Net loss - - - (32,183) (32,183)
Cash dividends declared-
$0.12 per share - - - (2,078) (2,078)
Stock dividend 85 976 - (990) (14)
Other common stock issued 161 1,823 - - 1,823
Common stock repurchased (1,331) - - - -
------- ------- ------- ------- -------
Balance at June 28, 1997 16,597 64,206 2,974 59,378 126,558
Net loss - - - (25,354) (25,354)
Stock dividend 102 958 - (958) -
Other common stock issued 147 2,710 - - 2,710
Common stock repurchased (446) (23) - - (23)
------- ------- ------- ------- -------
Balance at June 27, 1998 16,400 67,851 2,974 33,066 103,891
Net earnings - - - 38,770 38,770
Common stock repurchased (17) (152) - - (152)
Other common stock issued 159 1,426 - - 1,426
------- ------- ------- ------- -------
Balance at July 3, 1999 $16,542 $69,125 $2,974 $71,836 $143,935
======= ======= ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
5
WLR Foods, Inc. and Subsidiaries
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Dollars in thousands
Fiscal years ended July 3, 1999,
June 27, 1998 and June 28, 1997 1999 1998 1997
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $38,770 ($25,354) ($32,183)
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used in) operating activities:
Extraordinary loss on early
extinguishment of debt 2,559 - -
Depreciation and amortization 21,755 28,321 28,088
Loss on sales of property,
plant and equipment 1,159 916 772
Gain on sale of Goldsboro complex (7,699) - -
Gain on sale of discontinued operation (28,187) - -
Deferred income taxes 14,419 (14,974) (14,060)
Other, net 107 (592) 326
Change in operating assets and
liabilities net of acquired
businesses:
Decrease in accounts receivable 8,355 5 7,470
Decrease in inventories 12,234 37,520 6,395
Increase) decrease in other current
assets (598) 3,996 8,209
(Increase) decrease in long-term
assets (170) 815 (677)
Increase (decrease) in accounts
payable (655) (6,263) 3,016
Increase in accrued expenses and
other 9,042 5,675 2,917
------- ------- -------
Net cash provided by operating
activities 71,091 30,065 10,273
Cash Flows from Investing Activities:
Additions to property, plant and
equipment (22,072) (22,149) (11,245)
Acquisition of businesses - (650) (200)
Proceeds from sale of Goldsboro
complex 37,582 - -
Proceeds from sale of discontinued
operation 55,068 - -
<PAGE>
6
Proceeds from sales of property,
plant and equipment 1,245 1,706 424
------- ------- -------
Net cash provided by (used in)
investing activities 71,823 (21,093) (11,021)
Cash flows from Financing Activities:
Proceeds from issuance of revolver
and long-term debt 634,724 41,485 74,031
Payments on revolver and long-term
debt (780,482) (35,234) (29,093)
Financing costs paid (1,969) (5,401) -
Notes payable to banks - (4,031) (26,745)
Issuance of common stock 701 892 1,235
Repurchase of common stock - (4,438) (13,312)
Increase (decrease) in excess checks
over bank balances 3,987 (2,193) (2,670)
Dividends paid - - (3,139)
------- ------- -------
Net cash provided by (used in)
financing activities (143,039) (8,920) 307
Increase (decrease) in cash and cash
equivalents (125) 52 (441)
Cash and cash equivalents at beginning
of fiscal year 335 283 724
------- ------- -------
Cash and cash equivalents at end of
fiscal year $210 $335 $283
======= ======= =======
<PAGE>
7
Supplemental cash flow information:
Cash paid (received) for:
Interest $13,366 $15,365 $12,297
Income taxes 6,204 (3,139) (10,608)
======= ======= =======
</TABLE>
Non-cash financing activities:
In fiscal 1999:
The Company recorded 142,384 stock warrants at a value of $904,136
which related to the February 1998 debt refinancing.
The Company had 28,180 stock warrants expire at a value of $178,943
when a portion of the February 1998 debt was repaid in the first
quarter.
The Company incurred an extraordinary charge on early extinguishment
of debt in the amount of $4.1 million.
The Company recorded a note receivable in the amount of $3,750,000
for the sale of its Monroe division, due in fiscal year 2000.
In fiscal 1998:
The Company issued 102,296 shares as a stock dividend in the first
quarter.
The Company issued 889,898 stock warrants in the third quarter
relating to the debt refinancing; of these 266,969 were immediately
exercisable and were recorded at a value of $1,695,256.
In fiscal 1997:
The Company issued 85,519 shares of stock in lieu of a cash dividend
in the fourth quarter.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
8
WLR Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies and Other
Information
Organization
WLR Foods, Inc. and subsidiaries (WLR Foods or the Company) are
primarily engaged in fully integrated turkey and chicken production,
processing, further processing and marketing. The Company's
operations are predominantly located in the mid-Atlantic region of the
United States. WLR Foods sells products through a variety of selected
national and international retail, food-service and institutional
markets.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to June
30. Fiscal years 1999, 1998 and 1997 ended on July 3, June 27 and
June 28, respectively, and included 53 weeks in fiscal year 1999 and
52 weeks in fiscal years 1998 and 1997.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the
accounts of WLR Foods and all of its wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories of feed, grain, eggs, packaging supplies, processed
poultry and meat products are stated at the lower of cost or market as
determined by the first-in, first-out valuation method. Live poultry
and breeder flocks consist of poultry raised for slaughter and
breeders. Poultry raised for slaughter are stated at the lower of
average cost or market. Breeders are stated at average cost less
accumulated amortization. The cost of breeders are accumulated
during their development stage and then amortized into the cost of the
<PAGE>
9
eggs produced over the egg production cycle of the breeders. The
Company has four methods of purchasing grain: cash purchasing, forward
purchasing, grain options, and hedging with futures contracts. Each
purchasing method creates varying degrees of risk for WLR Foods. The
Company uses futures contracts and forward purchases to hedge the risk
of fluctuating grain prices. The gains or losses from hedging
transactions become part of the cost of the related inventory items
and are expensed during the time period for which the hedge was
intended.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is computed using the straight-line method over the useful lives of
the respective assets. In general, the estimated useful lives for
computing depreciation are: 15 to 20 years for buildings and
improvements; 3 to 8 years for machinery and equipment; and 3 to 5
years for transportation equipment. The costs of maintenance and
repairs are charged to operations, while costs associated with
renewals, improvements, and major replacements are capitalized.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to the differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
for the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Financial Instruments
The estimated fair value of financial instruments has been
determined by the Company using available market information. Except
for financial instruments used for hedging and debt instruments (Notes
2 and 4), the carrying amounts of all financial instruments
approximate their fair values due to their short maturities.
<PAGE>
10
Stock-Based Compensation
The Company accounts for employee stock compensation plans in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation.
As permitted under SFAS No. 123, the Company continues to account for
employee stock option plans using the intrinsic value method of
accounting and provides the pro-forma disclosures of SFAS No. 123.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires the
Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
2. Inventories
A summary of inventories at July 3, 1999 and June 27, 1998 follows:
Dollars in thousands 1999 1998
- -------------------- ---- ----
Live poultry and breeder flocks $48,275 $58,947
Processed poultry and meat products 31,510 38,837
Packaging supplies, parts and other 12,859 15,879
Feed, grain and eggs 14,035 14,368
------ ------
Total inventories $106,679 $128,031
======= =======
The notional amount of grain futures contracts at July 3, 1999 and
June 27, 1998 was $22.2 million and $2.9 million, respectively. The
fair value of all derivative instruments used in hedging at July 3,
1999 and June 27, 1998 was $19.6 million and $2.9 million,
respectively.
3. Property, Plant and Equipment
WLR Foods' investment in property, plant and equipment at July 3, 1999
and June 27, 1998 was as follows:
<PAGE>
11
Dollars in thousands 1999 1998
- -------------------- ---- ----
Land and improvements $18,198 $22,133
Buildings and improvements 97,670 123,620
Machinery and equipment 156,281 186,528
Transportation equipment 22,020 27,424
Construction in progress 2,382 5,054
------- -------
296,551 364,759
Less accumulated depreciation 188,606 211,057
------- -------
Property, plant and equipment, net $107,945 $153,702
======= =======
4. Long-Term Debt and Bank Revolving Credits
Long-term debt and other credit facilities at July 3, 1999 and June
27, 1998 consisted of the following obligations:
Dollars in thousands 1999 1998
- -------------------- ---- ----
Variable Rate Notes:
Secured Bank Term Note due 2001 $49,000 $0
Secured Bank Term Note due 2000 - 110,000
Senior Secured Notes - 42,040
Revolving Credit Notes:
Secured Bank Revolving Credit Note
due 2001 3,753 -
Secured Bank Revolving Credit Note
due 2000 - 40,825
Unamortized debt discount - (5,003)
Other Notes:
Notes with various terms and rates 1,138 4,815
------ -------
Total debt 53,891 192,677
Less current maturities of long-
term debt 5,046 3,452
------ -------
Long-term debt and revolving debt,
excluding current maturities $48,845 $189,225
====== =======
The Company refinanced its Secured Term Notes and Secured
Revolving Credit Notes due 2000 as of November 20, 1998. The new
facility is a three-year financing agreement that provides a total
borrowing capacity of $150 million. The Agreement includes a $50
million term loan and $100 million revolving credit facility. Both
<PAGE>
12
facilities have a maturity date of November 20, 2001 and are secured
by virtually all of the Company's assets. The carrying value of all
debt approximates fair value at July 3, 1999, based on quoted market
prices for similar issues.
At July 3, 1999, borrowings on the term loan, which had $49
million outstanding, were based on a LIBOR rate of 5.14% plus the
applicable margin of 140 basis points for a total rate of 6.54%.
Revolving credit borrowings totaled $3.8 million as of July 3, 1999,
with $3.0 million tied to a LIBOR rate of 5.14% plus the 140 basis
point applicable margin for a total rate of 6.54%. The remaining $0.8
million in revolving credit borrowings was based on the prime rate of
8.00%. At the end of each quarter, the applicable margin is adjusted
based upon certain Company performance metrics. As of July 3, 1999
the applicable margin was at its lowest possible point.
Principal payments of $1.0 to $1.5 million are required at the
end of each fiscal quarter beginning with the fourth quarter of fiscal
1999 for the Term Loan portion of the credit facility. Additionally,
principal payments are required on the proceeds of asset sales in
excess of $1.0 million annually and for substantial new issuances of
common stock.
During the first quarter ended September 26, 1998, the Company
recorded an extraordinary charge of $2.6 million ($1.6 million after
tax) for the early extinguishment of debt resulting from the permanent
reduction of its prior credit facility due to the sale of its Cassco
Ice & Cold Storage, Inc. subsidiary and its Goldsboro, North Carolina
chicken complex. The Company recorded an extraordinary non-cash
charge to write off the remaining unamortized debt issue costs of the
prior credit facility during the quarter ended December 26, 1998 of
$1.5 million ($1.0 million after tax). The charge is shown as an
extraordinary item for the early extinguishment of debt. Total charges
for the early extinguishment of debt are $4.1 million ($2.6 million
after tax).
The Company incurred approximately $2.0 million in costs to
establish the new credit facility. These costs have been capitalized,
included in other assets, and are being amortized to interest expense
over the life of the loan.
In connection with the refinancing, an interest rate swap and an
interest rate cap that were required under the prior credit facility
were assigned from First Union National Bank to the Bank of Montreal.
Accordingly, the swap was marked to market as of November 20, 1998,
with a non-cash charge of $0.6 million taken into interest expense.
The related $0.6 million mark to market credit is being amortized as
an offset to interest expense over the remaining life of the swap
agreement. The variable to fixed interest rate swap agreement has a
notional amount of $50.0 million, and fixes the Company's variable
interest rate at 6.29% through January 4, 2000. The notional amount
<PAGE>
13
of the interest rate cap at the balance sheet date is $75 million, and
the cap rate is 6.5%. At July 3, 1999, the fair value of both
contracts was not significantly different than the notional value.
The Company's credit agreement with its lenders contain
restrictive covenants. As of July 3, 1999, the Company was in
compliance with all covenants.
Required annual principal repayments of long-term debt and
revolving credits with original maturities of greater than one year
are as follows:
Dollars in thousands
- --------------------
Fiscal 2000 $ 5,046
Fiscal 2001 6,052
Fiscal 2002 42,559
Fiscal 2003 89
Fiscal 2004 94
5. Employee Benefits
The Company maintains a Profit Sharing and Salary Savings Plan
that is available to substantially all employees who meet certain age
and service requirements. In fiscal years 1998 and 1997, most
participants could contribute up to 15% of their salary. Under the
Company's restated plan in 1999, most participants can contribute up
to 20% of their salary. For each employee dollar contributed (limited
to the first 4% of an employee's compensation), the Company is
required to contribute a matching amount of 50 cents.
The Company can also make additional contributions at its
discretion. WLR Foods' total contributions under this plan were
approximately $2.4 million, $1.6 million and $1.6 million, for fiscal
1999, 1998 and 1997, respectively.
6. Income Taxes
The provision for income taxes from continuing operations was as
follows for fiscal years 1999, 1998 and 1997:
Dollars in thousands 1999 1998 1997
- -------------------- ---- ---- ----
Current:
Federal $3,908 $0 ($4,120)
State 2,178 166 (199)
----- ---- ----
6,086 166 (4,319)
<PAGE>
14
Deferred:
Federal 6,664 (14,625) (13,242)
State 461 (1,893) (2,016)
------ ------ ------
7,125 (16,518) (15,258)
------ ------ ------
Total tax expense (benefit) $13,211 ($16,352)($19,577)
====== ====== ======
The provision for income taxes from continuing operations differs from
the amounts resulting from applying the federal statutory tax rates
(35%) to earnings before income taxes and minority interest as follows
for fiscal years 1999, 1998 and 1997:
Dollars in thousands 1999 1998 1997
- -------------------- ---- ---- ----
Taxes computed using federal
statutory tax rates $12,582 ($15,574) ($18,948)
State income taxes,
net of federal tax effect 1,715 (1,123) (1,440)
Other, net (1,086) 345 811
------ ------ ------
Total tax expense (benefit) $13,211 ($16,352) ($19,577)
====== ====== ======
Effective tax rate 36.7% 36.7% 36.2%
Income tax expense (benefit) is included in the financial
statements as follows for the fiscal year presented:
Dollars in thousands 1999 1998 1997
- -------------------- ---- ---- ----
Continuing operations $13,211 ($16,352) ($19,577)
Discontinued operations 10,667 1,671 1,317
Extraordinary charge (1,569) - -
------ ------ ------
$22,309 ($14,681) ($18,260)
====== ====== ======
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at July
3, 1999 and June 27, 1998 are listed below:
Dollars in thousands 1999 1998
- -------------------- ---- ----
Deferred tax liabilities:
Inventories, principally due to
the accounting for live
inventories on the farm price
method for tax purposes ($13,577) ($15,230)
<PAGE>
15
Plant and equipment, principally
due to differences in depreciation
and capitalized interest (2,854) (6,386)
Employee benefit deduction (1,326) -
Other - (369)
------ ------
Gross deferred tax liabilities (17,757) (21,985)
Deferred tax assets:
Net operating loss carryforwards $1,230 $20,150
Insurance accruals, principally
due to timing of payments versus
the recording of expenses 3,085 2,944
Deferred compensation, principally
due to accrual for financial
reporting purposes 1,356 1,062
Tax credits 2,544 2,861
Financing costs, principally due to
accrual for financial purposes 642 310
Compensated absences, principally
due to accrual for financial
reporting purposes 972 1,107
Accounts receivable, principally
due to allowance for doubtful
accounts 745 591
Other 375 571
----- ------
Gross deferred tax assets 10,949 29,596
------ ------
Net deferred tax (liability) asset ($6,808) $7,611
====== ======
In assessing the recoverability of deferred tax assets,
management considers whether it is reasonably probable that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets is dependent on the
generation of future taxable income, during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.
Based on the future expectation of taxable income and reversal of
deferred tax liabilities, management believes it is more likely than
not that the Company will realize the benefits of these deductible
differences as reflected at July 3, 1999 and June 27, 1998.
7. Shareholders' Equity
In February 1994, the Board of Directors approved the adoption of
the Shareholder Protection Rights Plan (the Plan) wherein one right
<PAGE>
16
attaches to and trades with each share of common stock. Each right
entitles the registered holder to purchase from the Company at an
exercise price of $45.33, the number of shares of common stock or
participating preferred stock having a market value of twice the
exercise price. Such participating preferred stock is designed to
have economic and voting terms similar to those of one share of common
stock. Rights will separate from the common stock and become
exercisable following the earlier of 1) the date a person or group
acquires 15% or more of the outstanding stock, or 2) the tenth
business day (or such later date the Board may decide) after any
person commences a tender offer that would result in such person or
group holding a total of 15% or more of the common stock.
Additionally, in either case, rights owned by the acquiring person or
group would automatically become void.
If a person acquires between 15% and 50% of the outstanding
common stock, the Board may, in lieu of allowing rights to be
exercised, require each outstanding right to be exchanged for one
share of common stock or participating preferred stock. A provision
in the Plan allows for rights holders to acquire stock of the
acquiring person or group, in the event a change in control of the
Company has occurred.
The rights are redeemable by the Company at $0.01 per right prior
to becoming exercisable and expire 10 years from issuance. WLR Foods
has 100,000,000 shares of common stock authorized, with 16,541,691
outstanding on July 3, 1999 and 16,399,511 outstanding on June 27,
1998. Additionally, there are 50,000,000 shares of preferred stock
authorized with none outstanding as of July 3, 1999 or June 27, 1998.
8. Stock Option and Stock Purchase Plans
Stock Option Plans
WLR Foods' Stock Option Plan was adopted by the Board of
Directors in accordance with the Long-Term Incentive Plan which was
ratified by the shareholders of the Company on October 31, 1998. The
Plan provides for the granting of incentive or nonqualified common
stock options. The option price under the Plan shall not be less than
the fair market value of the common shares as of the date of the
grant. The options vest after three years, with one-third vesting each
year after the date of grant. The options are exercisable at varying
dates not to exceed 10 years from the date of grant. The changes in
the outstanding common shares under option for fiscal 1999, 1998 and
1997 are listed below:
<PAGE>
17
Common Weighted
shares Average
under Exercise
option Price
------ --------
Outstanding at June 29, 1996 700,375 $15.08
Canceled or expired (168,459) $12.12
Granted in fiscal 1997 178,750 $8.31
------- -----
Outstanding at June 28, 1997 710,666 $13.85
Canceled or expired (226,041) $14.29
Granted in fiscal 1998 158,750 $6.88
------- -----
Outstanding at June 27, 1998 643,375 $11.98
Canceled or expired (262,126) $13.85
Exercised (5,833) $8.31
Granted in fiscal 1999 142,500 $8.34
------- -----
Outstanding at July 3, 1999 517,916 $10.07
======= =====
There were 270,416, 343,374, and 385,247 shares exercisable under
option with weighted average exercise prices of $12.06, $15.08 and
$16.21 at fiscal 1999, 1998 and 1997, respectively. The following
table summarizes information about stock options outstanding as of
July 3, 1999:
Stock Options Stock Options
Outstanding: Exercisable:
- ----------------------------------------------------------------
Weighted Average
Remaining Contractual
Exercise Price Shares Life (Years) Shares
- -------------- ------- --------------------- ------
$ 6.875 111,000 9 36,999
8.281 134,000 10 -
8.310 93,000 8 62,001
9.219 8,500 9.4 -
14.125 90,166 6.5 90,166
15.000 81,250 5.4 81,250
------ -------
Total 517,916 270,416
======= =======
<PAGE>
18
Accounting for Stock Option Plans
The Company has elected to account for its employee stock option plans
using the intrinsic value method of accounting. Accordingly, no
compensation cost has been recognized in the accompanying financial
statements because the exercise price of the stock options equals the
market price of the underlying stock on the date of grant. Pro forma
information regarding net earnings (loss) and net earnings (loss) per
share is required by SFAS No. 123. Assuming the Company accounted for
its employee stock options using the fair value method, the Company's
net earnings (loss) and net earnings (loss) per share from continuing
operations would approximate the pro forma amounts indicated below:
Fiscal years ended July 3, June 27, June 28,
1999 1998 1997
Dollars in thousands, ------- -------- --------
except per share data
- ---------------------
Net earnings (loss) from
continuing operations
As Reported $22,738 ($28,212) ($34,608)
Pro Forma $22,292 ($28,537) ($34,823)
Net earnings (loss) per
common share from continuing
operations
As Reported, basic $1.35 ($1.72) ($1.99)
As Reported, diluted $1.34 ($1.72) ($1.99)
Pro Forma, basic $1.33 ($1.74) ($2.00)
Pro Forma, diluted $1.32 ($1.74) ($2.00)
Note: The pro forma disclosures shown may not be representative of the
effects on reported net earnings in future years.
The fair value of each stock option grant used to compute pro forma
net earnings and net earnings per share disclosures is estimated at
the time of the grant using the Black-Scholes option-pricing model.
The weighted-average assumptions used in the model are as follows:
1999 1998 1997
---- ---- ----
Expected dividend yield 0.0% 0.0% 1.1%
Expected volatility 55% 31% 43%
Risk-free interest rate 5.5% 5.7% 6.8%
Expected term (in years) 10 10 10
<PAGE>
19
Using these assumptions in the Black-Scholes model, the weighted
average fair value of options granted was $0.8 million in 1999 and
$0.6 million in 1998 and 1997, respectively.
On October 29, 1994, the shareholders of WLR Foods approved the
Poultry Producer Stock Purchase Plan and amended and restated the
Employee Stock Purchase Plan. These plans allow contract producers
and employees to purchase stock at a 10% discount from the market
price. All shares must be held in the plans for a period of two years.
Upon termination of employment or contract, participants are
terminated from the respective plans.
9. Leases
WLR Foods has entered into various operating lease agreements for
machinery and equipment. The leases are noncancelable and expire on
various dates through 2005. Total rent expense was approximately $3.4
million, $5.1 million, and $5.7 million for fiscal 1999, 1998 and
1997, respectively.
The following schedule presents the future minimum rental payments
required under the operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of July 3, 1999:
Dollars in thousands
- --------------------
Fiscal 2000 $2,319
Fiscal 2001 1,855
Fiscal 2002 902
Fiscal 2003 431
Fiscal 2004 139
Fiscal 2005 35
-----
Total minimum
lease payments $5,681
=====
10. Related Party Transactions
Certain directors of WLR Foods are contract growers of live
poultry for the Company. In addition, a WLR Foods director is a
director/officer of a company which supplies fuel and related products
to certain locations of the Company. A second director provided
consulting services to WLR Foods during fiscal year 1997. As a result
of an August 1994 acquisition, Cuddy Farms, Inc. (as an affiliate of
Cuddy International) was a related party shareholder through fiscal
<PAGE>
20
year 1997. The transactions included poultry purchases and feed sales
to Cuddy Farms at pricing formulas established when the acquisition
was completed.
Transactions with these related parties during the past three fiscal
years are as follows (Dollars in thousands):
Purchases Sales
from to
related related
parties parties
--------- -------
Fiscal 1999 $967 $-
Fiscal 1998 1,381 -
Fiscal 1997 23,381 8,998
In management's opinion, all related party transactions are conducted
under normal business conditions, with no preferential treatment given
to related parties.
11. Earnings Per Share
The following is a reconciliation between the calculation of basic and
diluted net earnings (loss) per share:
July 3, June 27, June 28,
Dollars in thousands 1999 1998 1997
- -------------------- ------- -------- --------
Numerator:
Basic net earnings (loss)
per common share numerator,
continuing operations $22,738 ($28,212) ($34,608)
Denominator:
Weighted average common
shares outstanding 16,479 16,315 17,378
Effect of outstanding stock
warrants 300 88 -
------ ------ ------
Basic weighted average common
shares outstanding 16,779 16,403 17,378
====== ====== ======
Basic earnings (loss) per
share, continuing
operations $1.35 ($1.72) ($1.99)
====== ======= ======
<PAGE>
21
Numerator:
Diluted net earnings (loss)
per common share numerator,
continuing operations $22,738 ($28,212) ($34,608)
Denominator:
Weighted average common shares
outstanding 16,479 16,315 17,378
Effect of outstanding options 11 - -
Effect of outstanding stock
warrants 407 88 -
------ ------ ------
Diluted weighted average common
shares outstanding 16,897 16,403 17,378
====== ====== ======
Diluted earnings (loss) per
share, continuing operations $1.34 ($1.72) ($1.99)
====== ====== ======
Options to purchase 517,916, 643,375 and 710,666 shares of common
stock, at prices between $6.88 and $15.00, $6.88 and $20.00, and $8.31
and $20.00 per share were outstanding in 1999, 1998, and 1997,
respectively. The outstanding options were not included in the
computation of diluted earnings per share for fiscal years 1998 and
1997 because the effect of including these options would have been
anti-dilutive.
12. Discontinued Operations
During fiscal year 1998, the Company's Board of Directors adopted
a plan to discontinue operations of its subsidiary, Cassco Ice & Cold
Storage. The transaction involved the sale of the division and was
completed on July 31, 1998. Net proceeds of approximately $55 million
were received resulting in a gain of approximately $28 million ($18
million after tax). Income from operations in the current fiscal year
was approximately $1 million ($0.7 million after tax). Accordingly,
the operating results of the Cassco Ice operations have been segregated
from continuing operations and reported as separate line items on the
consolidated statement of operations.
Operating results and net assets from discontinued operations are as
follows:
<PAGE>
22
Dollars in thousands 1999 1998 1997
- -------------------- ---- ---- ----
Net sales $4,641 $22,063 $19,186
Income before tax 1,071 4,529 3,742
Income tax expense 407 1,671 1,317
----- ------ ------
Net earnings $664 $2,858 $2,425
===== ====== ======
Net assets of discontinued operations:
Dollars in thousands 1998
- -------------------- ----
Current assets $9,065
Property, plant and equipment,
net 22,840
Other assets 398
Current liabilities (4,124)
Other liabilities (3,573)
------
Net assets of discontinued
operations $24,606
======
13. Sale of Assets
On August 14, 1998, the Company completed the sale of its
Goldsboro, North Carolina chicken complex. Net proceeds of
approximately $38 million were received in exchange for assets
totaling approximately $30 million. The gain of approximately $8
million ($5 million after-tax) is included in the results of operations
for the fiscal year 1999.
The Company also completed the sale of its Monroe, North Carolina
processing plant in fiscal year 1999. The sale resulted in a loss of
approximately $1.5 million ($0.9 million after tax).
14. Contingencies
The Company is a defendant in a pending litigation proceeding in the
state of West Virginia alleging violations of the West Virginia
Consumer Credit Protection Act and West Virginia Antitrust Law. The
suit alleges, among other things, that the Company provided
substandard chicks and feed to growers who raise chickens for the
Company in West Virginia. While damages in the suit cannot be
determined, the lawsuit is not expected to have a material effect on
the Company's financial statements. The Company believes the suit is
without merit, and intends to defend it vigorously.
<PAGE>
23
15. Segment and Geographic Information
The Company retroactively adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" for the year
ended July 3, 1999. This statement requires companies to report
certain information about operating segments in their financial
statements and establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated
regularly by management in deciding how to allocate resources and in
assessing performance. Comparative information for prior years has
been presented to conform to the requirements of SFAS 131.
The Company has two reportable segments: Chicken and Turkey. The
third segment, Other, includes revenues from the Company's protein
conversion plants, unallocated corporate related items and other
miscellaneous items. Chicken segment revenues are primarily sales of
chicken related products, such as retail tray pack items, whole birds
cut up for fast food restaurants and portion-controlled products for
food service distributors. Turkey segment revenues are primariliy
sales of turkey related products and further processed products,
including both turkey and chicken items, produced at the Company's
further processing plants. These items include fresh and frozen whole
birds and parts, including retail tray pack items, turkey burgers and
a full line of further processed products, including deli meats,
frankfurters and salads. To better utilize its feed manufacturing
capabilities, the Company sells feed to other users, primarily from
its Marshville, NC feedmill. Sales from this mill were included in
Turkey segment sales until the first quarter of fiscal 1999, when the
complex was converted to chicken processing and the sales for the
remaining three quarters were included in the Chicken segment. Each
segment is evaluated by management based on operating profit (loss)
and net earnings (loss).
The following tables set forth specific operating information
about each segment as reviewed by the Company's management. Net
earnings (loss) for segment reporting is prepared on the same basis as
that used for consolidated net earnings (loss). The accounting
policies of the segments are the same as those described in the
summary of significant accounting policies. Administrative services
provided by the corporate offices are primarily allocated to the
individual segments based on levels of inventories and property, plant
and equipment. Due to certain assets which are shared between
segments, management evaluates assets and capital expenditures on a
consolidated basis; therefore, such information is not presented on a
segment basis.
<PAGE>
24
<TABLE>
Dollars in thousands Elimna-
Year ended July 3, 1999 Chicken Turkey Other tions Total
- ----------------------- ------- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
External segment
revenues $452,513 $427,637 $7,936 $0 $888,086
Intersegment revenues - - 12,882 (12,882) -
------- ------- ------ ------ -------
Total revenues 452,513 427,637 20,818 (12,882) 888,086
Interest expense 4,974 6,060 - (103) 10,931
Depreciation expense 9,754 8,218 1,408 - 19,380
Gain on sale of
Goldsboro complex 7,699 - - - 7,699
Interest income 1 103 299 (103) 300
Income taxes (benefit) 13,561 (1,861) 1,511 - 13,211
Net earnings (loss)
from continuing
operations 22,193 (3,046) 3,591 - 22,738
Extraordinary charge - - (2,559) - (2,559)
Year ended June 27, 1998
External segment
revenues $388,559 $546,256 $11,152 $0 $945,967
Intersegment revenues 22,912 - 13,460 (36,372) -
------- ------- ------ ------ -------
Total revenues 411,471 546,256 24,612 (36,372) 945,967
Interest expense 8,239 14,376 13 (89) 22,539
Depreciation expense 9,432 11,169 2,242 - 22,843
Interest income 70 6 88 (89) 75
Income taxes (benefit) 3,277 (20,563) 934 - (16,352)
Net earnings (loss)
from continuing
operations 6,085 (36,158) 1,927 (66) (28,212)
Year ended June 28, 1997
External segment
revenues $377,784 $600,531 $16,276 $0 $994,591
Intersegment revenues 41,735 - 16,695 (58,430) -
------- ------- ------ ------ -------
Total revenues 419,519 600,531 32,971 (58,430) 994,591
Interest expense 4,413 8,340 56 (5) 12,804
Depreciation expense 9,592 12,453 3,181 - 25,226
Interest income 39 15 29 (5) 78
Income taxes (benefit) (720) (21,285) 2,428 - (19,577)
Net earnings (loss)
from continuing
operations (1,268) (34,867) 1,574 (47) (34,608)
</TABLE>
A reconciliation of total segment profits to consolidated net earnings
(loss) is as follows:
<PAGE>
25
July 3, June 27, June 28,
1999 1998 1997
------- -------- -------
Segment profit (loss) $22,738 ($28,212) ($34,608)
Unallocated:
Income from discontinued
operation, net of tax 664 2,858 2,425
Gain on sale of discontinued
operation, net of tax 17,927 - -
Extraordinary charge on early
extinguishment of debt,
net of tax (2,559) - -
------ ------ ------
$38,770 ($25,354) ($32,183)
====== ====== ======
Geographic Information.
No individual foreign country accounts for 10% or more of sales to
external customers.
Revenues from one customer represent approximately $113 million, or
13% of the total Company sales in fiscal year 1999. No customer
represented 10% or more of the total Company's sales in fiscal years
1998 or 1997.
16. Selected Quarterly Financial Data (Unaudited)
The unaudited summary of quarterly results of continuing operations
for fiscal 1999 and 1998 follows:
Dollars in thousands except per share data
Fiscal year ended
July 3, 1999 First Second Third Fourth
- ----------------- ----- ------ ----- ------
Net sales $237,941 $229,276 $192,881 $227,988
Operating income 15,889 15,094 759 6,924
Net earnings (loss)
from continuing
operations 11,717 7,222 (127) 3,926
Per share data:
Diluted earnings
(loss) per common
share, continuing
operations $0.70 $0.43 ($0.01) $0.23
Market price(bid)
- high 9.25 9.38 9.69 8.50
- low 6.38 7.63 7.75 6.75
<PAGE>
26
Fiscal year ended
June 27, 1998 First Second Third Fourth
- ----------------- ----- ------ ----- ------
Net sales $242,541 $247,683 $212,487 $243,256
Operating income
(loss) (6,209) (7,627) (11,359) 3,130
Net loss from
continuing
operations (6,435) (8,089) (11,117) (2,571)
Per share data:
Diluted loss per
common share,
continuing
operations ($0.40) ($0.50) ($0.68) ($0.15)
Market price(bid)
- high 10.00 10.25 8.63 7.38
- low 8.13 8.38 5.19 5.56
Per share calculations are based on each stand alone period presented;
therefore, the annual per share results may not be the sum of the four
quarters.
<PAGE>
27
Exhibit 13.4
Independent Auditors' Report
The Board of Directors and Shareholders
WLR Foods, Inc.:
We have audited the accompanying consolidated balance sheets of WLR
Foods, Inc. and subsidiaries as of July 3, 1999 and June 27, 1998 and
the related consolidated statements of operations, shareholders
equity and cash flows for each of the fiscal years in the three-year
period ended July 3, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall 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 financial position
of WLR Foods, Inc. and subsidiaries as of July 3, 1999 and June 27,
1998 and the results of their operations and their cash flows for each
of the fiscal years in the three-year period ended July 3, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Richmond, Virginia
August 13, 1999
<PAGE>
Exhibit 21
Subsidiary State of Incorporation
Wampler Foods, Inc. Virginia
P.O. Box 7275
Broadway, Virginia 22815
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
WLR Foods, Inc.:
We consent to incorporation by reference in the registration
statements on Form S-8 (No. 33-63364 and No. 33-55649), on Form S-3
(No. 33-56775) and on Form S-3(D) (No. 33-54692) of WLR Foods, Inc. of
our reports dated August 13, 1999, relating to the consolidated
balance sheets of WLR Foods, Inc. and subsidiaries as of July 3, 1999
and June 27, 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the fiscal
years in the three-year period ended July 3, 1999, and the related
schedule, which reports appear or are incorporated by reference in the
July 3, 1999 annual report on Form 10-K of WLR Foods, Inc.
KPMG LLP
Richmond, Virginia
September 29, 1999
Exhibit 24.3
SPECIAL POWER OF ATTORNEY
The undersigned director of WLR Foods, Inc., a Virginia
corporation, and its subsidiaries (WLR Foods) appoints James L. Keeler
and Dale S. Lam, or either of them (with full power to each of them to
act alone) as his attorney-in-fact and agent for him in his capacity
as a director of WLR Foods, and authorizes such persons, on behalf of
WLR Foods or on his behalf individually, to sign and file any and all
WLR Foods' registration statements, reports, schedules and other
filings, and all amendments thereto, required or permitted to be filed
under federal or state securities laws, including without limitation
Forms 3, 4 and 5, registration statements, Form 10-K annual reports,
Form 10-Q quarterly reports and Form 8-K current reports, with all
exhibits and any and all documents required to be filed with respect
thereto, with the Securities and Exchange Commission, National
Association of Securities Dealers, and any regulatory authority for
any U.S. state or territory, and he hereby ratifies and confirms all
that his attorneys-in-fact and agents or each of them may lawfully do
or cause to be done by virtue hereof.
WITNESS the following signatures and seals.
September 27, 1999 __/s/ Phillip C. Stone___(SEAL)
Date Phillip C. Stone
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-END> JUL-03-1999
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 59,026
<ALLOWANCES> 1,909
<INVENTORY> 106,679
<CURRENT-ASSETS> 172,697
<PP&E> 296,551
<DEPRECIATION> 188,606
<TOTAL-ASSETS> 289,097
<CURRENT-LIABILITIES> 88,681
<BONDS> 53,891
0
0
<COMMON> 69,125
<OTHER-SE> 74,810
<TOTAL-LIABILITY-AND-EQUITY> 289,097
<SALES> 888,086
<TOTAL-REVENUES> 888,086
<CGS> 750,942
<TOTAL-COSTS> 750,942
<OTHER-EXPENSES> 98,478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,931
<INCOME-PRETAX> 35,949
<INCOME-TAX> 13,211
<INCOME-CONTINUING> 22,738
<DISCONTINUED> 18,591
<EXTRAORDINARY> (2,559)
<CHANGES> 0
<NET-INCOME> 38,770
<EPS-BASIC> 2.31
<EPS-DILUTED> 2.29
</TABLE>
