UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 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) Identification No.)
P.O. Box 7000
Broadway, Virginia 22815
(Address including Zip Code of Registrant's
principal executive offices)
(540) 896-7001
(Registrant's telephone number, including area code)
Indicate by cross mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes (X) No ()
The number of shares outstanding of Registrant's Common Stock, no par
value, at October 29, 1999 was 16,563,847 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
(unaudited) Thirteen weeks ended
In thousands, except per share data October 2, September 26,
1999 1998
<S> <C> <C>
Net sales $202,007 $237,941
Cost of sales 172,705 196,644
------- -------
Gross profit 29,302 41,297
Selling, general and administrative
expenses 24,355 25,408
------- -------
Operating income 4,947 15,889
Other expense (income):
Interest expense 1,233 4,885
Gain on sale of Goldsboro complex - (7,872)
Other income, net (371) (22)
------- -------
Other expense (income), net 862 (3,009)
------- -------
Earnings before income taxes 4,085 18,898
Income tax expense 1,542 7,181
------- -------
Net earnings from continuing operations $2,543 $11,717
Earnings from discontinued operations,
net of tax - 664
Gain on disposal of discontinued
operations, net of tax - 15,499
------- -------
Total earnings from discontinued
operations - 16,163
Extraordinary charge on early
extinguishment of debt, net of tax - (1,606)
------- -------
<PAGE>
Net earnings $2,543 $26,274
======= =======
Basic net earnings per common share,
continuing operations $0.15 $0.72
Basic net earnings per common share,
discontinued operations - 0.98
Basic net loss per common share,
extinguishment of debt - (0.10)
------- -------
Total basic net earnings per common
share $0.15 $1.60
======= =======
Diluted net earnings per common share,
continuing operations $0.15 $0.70
Diluted net earnings per common share,
discontinued operations - 0.96
Diluted net loss per common share,
extinguishment of debt - (0.10)
------- -------
Total diluted net earnings per common
share $0.15 $1.56
======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
October 2, July 3,
1999 1999
ASSETS (unaudited)
Current Assets
<S> <C> <C>
Cash and cash equivalents $258 $210
Accounts receivable, less allowance
for doubtful accounts of $2,157
and $1,909. 58,372 59,026
Inventories (Note 2) 112,428 106,679
Income taxes receivable - 355
Other current assets 6,433 6,427
------- -------
Total current assets 177,491 172,697
Property, plant and equipment, net 105,474 107,945
Deferred income taxes 1,596 3,009
Other assets 5,272 5,446
------- -------
TOTAL ASSETS $289,833 $289,097
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $5,297 $5,046
Excess checks over bank balances 11,561 13,912
Trade accounts payable 26,017 26,500
Accrued payroll and related benefits 16,902 24,729
Other accrued expenses 14,565 8,677
Deferred income taxes 7,231 9,817
------- -------
Total current liabilities 81,573 88,681
Long-term debt, excluding current
maturities 53,935 48,845
Other liabilities and deferred credits 7,701 7,636
3
<PAGE>
Shareholders' equity:
Common stock, no par value 69,271 69,125
Additional paid-in capital 2,974 2,974
Retained earnings 74,379 71,836
------- -------
Total shareholders' equity 146,624 143,935
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $289,833 $289,097
======= =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Thirteen weeks ended
Dollars in thousands October 2, September 26,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $2,543 $26,274
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Extraordinary loss on early extinguishment
of debt - 1,606
Depreciation and amortization 4,831 6,100
(Gain) loss on sale of property, plant and
equipment (131) 5
Gain on sale of Goldsboro complex - (7,872)
Gain on sale of discontinued operation - (24,998)
Deferred income taxes (1,172) 12,013
Other, net - (36)
Change in operating assets and liabilities:
Decrease in accounts receivable 654 5,370
(Increase) decrease in inventories (5,749) 5,405
Decrease in other current assets 350 832
Increase in long-term assets (44) (520)
Increase (decrease) in accounts payable (483) 3,785
Increase (decrease) in accrued expenses
and other (1,874) 5,782
------- -------
Net Cash Provided by (Used in) Operating
Activities (1,075) 33,746
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,254) (8,122)
Proceeds from sale of discontinued
operation - 53,928
Proceeds from sale of Goldsboro complex - 37,582
5
<PAGE>
Proceeds from sale of property, plant and
equipment 241 16
------- -------
Net Cash Provided by (Used in) Investing
Activities (2,013) 83,404
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of revolver and
long-term debt 199,213 42,850
Payments on revolver and long-term debt (193,872) (160,079)
Decrease in checks drawn not presented (2,351) (161)
Issuance of common stock 146 183
------- -------
Net Cash Provided by (Used in) Financing
Activities 3,136 (117,207)
------- -------
Increase (Decrease) in Cash and Cash
Equivalents 48 (57)
Cash and Cash Equivalents at Beginning
of Fiscal Year 210 335
------- -------
Cash and Cash Equivalents at End of
Period $258 $278
======= =======
Supplemental cash flow information:
Cash paid for:
Interest $1,146 $6,014
Income taxes 456 148
The Company considers all highly liquid investments with maturities of
3 months or less at purchase to be cash equivalents.
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 in the first quarter.
The Company had 28,180 stock warrants expired at a value of $178,943
when a portion of the February 1998 debt was repaid in the first quarter.
6
<PAGE>
The Company incurred an extraordinary charge on early extinguishment of
debt in the amount of $2.6 million in the first quarter.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
7
<PAGE>
Notes to Consolidated Financial Statements
WLR Foods, Inc. and Subsidiaries
1. Accounting Policies
The consolidated financial statements presented herein, include the
accounts of WLR Foods, Inc. and its wholly-owned subsidiaries. All
material balances and transactions have been eliminated in
consolidation. The consolidated balance sheet as of October 2, 1999,
and the consolidated statements of operations for the thirteen weeks
ended October 2, 1999 and September 26, 1998, and the consolidated
statements of cash flows for the thirteen weeks ended October 2, 1999
and September 26, 1998 are unaudited. In the opinion of management,
all adjustments necessary for fair presentation of such consolidated
financial statements have been included. Such adjustments consisted
only of normal recurring accruals and the use of estimates. Interim
results are not necessarily indicative of results for the entire
fiscal year.
The consolidated financial statements and notes are presented in
conformity with the requirements for Form 10-Q and do not contain
certain information included in the Company's annual consolidated
financial statements and notes.
The Company's unaudited interim consolidated financial statements
should be read in conjunction with the consolidated financial
statements included in the Annual Report to Shareholders for the
fiscal year ended July 3, 1999. In both, the accounting policies and
principles used are consistent in all material respects.
2. Inventories
A summary of inventories at October 2, 1999 and July 3, 1999 follows:
(unaudited)
Dollars in thousands October 2, July 3,
1999 1999
Live poultry and breeder flocks $48,955 $48,275
Processed poultry and meat products 36,329 31,510
Packaging supplies, parts and other 12,592 12,859
Feed, grain and eggs 14,552 14,035
------- -------
Total inventories $112,428 $106,679
======= =======
8
<PAGE>
3. Earnings Per Share
The following is a reconciliation between the calculation of basic
and diluted net earnings per common share:
In thousands, except for per 13 weeks ended 13 weeks ended
share data October 2, September 26,
1999 1998
Basic EPS Computation
Numerator - Net earnings $2,543 $26,274
Denominator:
Common shares outstanding 16,550 16,427
Effect of outstanding stock warrants 302 22
------ ------
Basic weighted average common shares
outstanding 16,852 16,449
Basic earnings per common share $0.15 $1.60
====== ======
Diluted EPS Computation
Numerator - Net earnings $2,543 $26,274
Denominator:
Common shares outstanding 16,550 16,427
Effect of outstanding stock options 5 8
Effect of outstanding stock warrants 302 378
------ ------
Diluted weighted average common shares
outstanding 16,857 16,813
Diluted earnings per common share $0.15 $1.56
====== ======
4. Sale of Assets
The Company completed the sale of its Cassco Ice & Cold Storage
subsidiary on July 31, 1998 for net proceeds of approximately $54
million, resulting in a gain of approximately $25 million ($15 million
after tax). Earnings from operations in the first quarter of fiscal
1999 were approximately $1 million ($0.7 million after tax). Both
items relating to the sale have been segregated from continuing
operations and reported as separate line items on the statement of
operations.
In August 1998, the Company completed the sale of its Goldsboro, North
Carolina chicken complex. Net proceeds of approximately $37 million
resulted in a gain of approximately $8 million ($5 million after tax).
9
<PAGE>
Due to the permanent reduction in long-term debt resulting from the
sale of the Cassco subsidiary and the Goldsboro complex, the Company
incurred an extraordinary loss of approximately $2.6 million ($1.6
million after tax) on the write-off of capitalized debt costs.
5. Segment 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.
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 primarily
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 through the first quarter of fiscal 1999, when
the complex was converted to chicken processing and the sales since
then have been 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). 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
10
<PAGE>
consolidated basis; therefore, such information is not presented on a
segment basis.
<TABLE>
<CAPTION>
Chicken Turkey Other Elimina- Total
tions
Dollars in thousands
Thirteen Weeks ended
October 2, 1999
External segment
<S> <C> <C> <C> <C> <C>
revenues $102,351 $97,771 $1,885 $ - $202,007
Intersegment revenues - - 3,143 (3,143) -
------- -------- ------ ----- -------
Total revenues 102,351 97,771 5,028 (3,143) 202,007
Interest expense 627 629 - (23) 1,233
Depreciation expense 2,524 1,762 329 - 4,615
Interest income - 98 58 (23) 133
Income taxes (benefit) (37) 1,020 559 - 1,542
Net earnings (loss)
from continuing
operations (61) 1,682 922 - 2,543
Thirteen Weeks ended
September 26, 1998
External segment
revenues $119,225 $116,528 $2,188 $ - $237,941
Intersegment revenues - - 3,362 (3,362) -
------- ------- ----- ----- -------
Total revenues 119,225 116,528 5,550 (3,362) 237,941
Interest expense 1,914 2,819 172 (20) 4,885
Depreciation expense 1,928 2,280 377 - 4,585
Gain on sale of
Goldsboro complex 7,872 - - - 7,872
Interest income 1 2 20 (20) 3
Income taxes (benefit) 9,193 (1,969) (43) - 7,181
Net earnings (loss)
from continuing
operations 15,000 (3,213) (70) - 11,717
Extraordinary charge - - (1,606) - (1,606)
</TABLE>
A reconciliation of total segment profits to consolidated net earnings
is as follows:
October 2, September 26,
1999 1998
Segment profit $2,543 $11,717
Unallocated:
Income from discontinued
operation, net of tax - 664
Gain on sale of discontinued
operation, net of tax - 15,499
Extraordinary charge on early
extinguishment of debt,
net of tax - (1,606)
------ -------
Net earnings $2,543 $26,274
====== =======
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
WLR Foods, Inc. (the Company) is a fully integrated poultry
production, processing and marketing business with operations in
Virginia, West Virginia, Pennsylvania and North Carolina.
Operating income for the first quarter of fiscal 2000 was $4.9
million, a decrease of $11.0 million when compared to the same quarter
last year. The decrease is primarily due to lower chicken segment
pricing of $24.1 million, offset by increased turkey segment pricing
of $1.8 million, lower corn and soybean meal costs approximating $6
million, and other improvements of approximately $5 million.
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 99% 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.
Net sales from continuing operations for the quarter were $202.0
million, a decrease of $35.9 million, or 15.1% from the first quarter
of fiscal 1999. The $35.9 million decrease is from reductions in
chicken, turkey and other segment net sales of $16.8 million, $18.8
million and $0.3 million, respectively.
In the chicken segment, the decrease in net sales of $16.8 million,
or 14.1%, to $102.4 million in the first quarter of fiscal 2000 is due
to decreased poultry product sales of $16.3 million and decreased
outside feed sales of $0.5 million. The $16.3 million decrease, or
14.2%, in net sales of poultry products, primarily chicken, resulted
in first quarter poultry product sales of $98.9 million for fiscal
2000. The 14.2% decrease was the result of a price decrease of 20.9%,
partially offset by a volume increase of 6.7%.
The turkey segment net sales decline of $18.8 million, or 16.1%, to
$97.8 million in sales for the first quarter of fiscal 2000 is
primarily from reduced volumes in poultry products. Poultry products,
primarily turkey, are the largest component of turkey segment
revenues. Poultry product sales in the turkey segment decreased
14.3%, or $16.3 million, to $97.4 million in the first quarter of
fiscal 2000. The 14.3% decrease is the result of decreased volumes of
15.9%, primarily the result of planned cutbacks at the Marshville
12
<PAGE>
facility which was converted from turkey to chicken processing, offset
partially by increased pricing of 1.6%.
Cost of sales from continuing operations were $172.7 million, a
decrease of $23.9 million, or 12.2% from the first quarter of fiscal
1999. In the chicken segment, cost of sales decreased 0.7%, or $0.6
million, to $91.7 million in the first quarter of fiscal 2000. This
decrease is primarily attributable to lower corn and soybean meal
costs of approximately $3.5 million, partially offset by increased
volumes, primarily due to the conversion of the Marshville facility to
a chicken complex. Cost of sales in the turkey segment decreased
22.3%, or $23.0 million, to $80.1 million in the first quarter of
fiscal 2000. This decrease is primarily the result of planned
decreases in production and sales volumes in turkey products. Lower
costs of corn and soybean meal also lowered costs in the turkey
segment by approximately $2.4 million during the quarter.
Gross profit on continuing operations was $29.3 million, a decrease of
$12.0 million, or 29.0% from the same quarter last year. The net
effect of product pricing was a decline of $22.3 million for the
quarter, with lower chicken pricing of $24.1 million more than
offsetting higher turkey prices of $1.8 million. Lower grain costs for
corn and soybean meal contributed approximately $5.9 million of
improvements during the quarter. Other improvements of approximately
$4.4 million in gross profits were primarily the result of improved
live bird performance, higher plant utilization, and improvements in
other feed ingredient costs and formulations.
Selling, general and administrative expenses for the first quarter
were $24.4 million, a decrease of $1.0 million, or 4.1% when compared
to the same quarter last year. The decrease is primarily the result
of a one-time charge of $1.5 million during the first quarter of
fiscal 1999 for assets, primarily at the Monroe facility, that could
not be utilized in the Company's turkey operations, offset partially
by increased promotional spending in the first quarter of fiscal 2000.
Interest expense was $1.2 million for the first quarter of fiscal
2000, a decrease of $3.7 million, or approximately 75%, when compared
to the same quarter in fiscal 1999. The decrease is the result of
substantially lower debt levels and lower interest rates resulting
from a new credit facility entered into during November of 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 $37
million in net proceeds, which were used to reduce long term debt.
The pre-tax gain on the sale was approximately $8 million.
13
<PAGE>
Net earnings from continuing operations were $2.5 million (or $0.15
per diluted share) for the first quarter of fiscal 2000, a decrease of
$9.2 million as compared to the net earnings of $11.7 million (or
$0.70 per diluted share) for the first quarter of fiscal 1999. Net
earnings from the chicken segment decreased $15.1 million, offset
partially by increased net earnings in the turkey and other segments
of $4.9 million and $1.0 million, respectively.
On July 31, 1998 the Company sold its Cassco Ice and Cold Storage,
Inc. subsidiary for approximately $54 million in net proceeds. The
net proceeds from the sale were used to reduce long-term debt. During
the first quarter of fiscal 1999, the Company recorded a $15.5 million
after-tax gain on the sale. The after-tax Cassco income from
discontinued operations was $0.7 million in the first quarter of
fiscal 1999.
During the first quarter of fiscal 1999, the Company recorded an
extraordinary after-tax charge of $1.6 million for the early
extinguishment of debt, due to the permanent reduction in long-term
debt resulting from the sale of the Cassco subsidiary and the
Goldsboro complex.
Net earnings for the first quarter of fiscal 2000 were $2.5 million,
or $0.15 per diluted share, compared with net earnings for the same
quarter of fiscal 1999 of $26.3 million, or $1.56 per diluted share.
The prior year net earnings included income from discontinued
operations, gains on the sales of the Cassco subsidiary and the
Goldsboro complex, and extraordinary charges.
Financial Condition and Liquidity
Accounts receivable were $0.7 million lower than the fiscal year-end
level while inventories increased $5.7 million during the same period,
primarily due to seasonal increases in turkey inventories.
Debt levels increased $5.3 million during the quarter, from $53.9
million at year-end, to $59.2 million at the end of the first quarter
of fiscal 2000. The increase is due primarily to the payment of the
prior years accrued bonuses and to seasonal increases in turkey
inventories.
Capital Resources
The Company's capital spending for the quarter was $2.3 million. The
majority of the capital spending was primarily for the replacement of
existing equipment and for safety and regulatory requirements.
14
<PAGE>
Depreciation expense was $4.6 million for the quarter. Capital
spending for fiscal 2000 is expected to total $16 to $20 million.
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 our sales revenue 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
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
15
<PAGE>
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.
16
<PAGE>
Item 3. 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.
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.
<TABLE>
<CAPTION>
Expected Maturity Date
------------------------------------------------------
Liabilities: There- Fair
Dollars in thousands 2000 2001 2002 2003 2004 after Total Value
- -----------------------------------------------------------------------------
Liabilities:
Long-term debt,
including Current
Portion
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $177 $202 $215 $89 $95 $50 $828 $828
Average interest
rate 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Variable Rate $3,575 $5,850 $48,979 $0 $0 $0 $58,404 $58,404
Average interest
rate 6.77% 6.77% 6.93% 0.00 0.00 0.00 6.91%
17
<PAGE>
Interest Rate
Derivatives There- Fair
Dollars in thousands 2000 2001 2002 2003 2004 after Total Value
- -----------------------------------------------------------------------------
Interest Rate Swaps
Variable to Fixed $50,000 $0 $0 $0 $0 $0 $50,000 ($42)
Average pay rate 6.29% 0.00 0.00 0.00 0.00 0.00 6.29%
Average receive rate - USD 1 month Libor
Interest Rate Cap $75,000 $0.00 $0.00 $0.00 $0.00 $0.00 $75,000 $26
Average pay rate 6.50% 0.00 0.00 0.00 0.00 0.00 6.50%
Average receive rate - USD 1 month Libor
</TABLE>
On October 15, 1999, the Company terminated the $50 million interest
rate swap agreement.
Commodity Price Sensitivity
The Company is a purchaser of certain commodities, primarily corn and
soybean meal. 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 October 2, 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. There were no outstanding soybean meal
positions on October 2, 1999.
On Balance Sheet Commodity Position
and Related Derivatives
Carrying Fair
Dollars in thousands Amount Value
- -----------------------------------------------------------------
Corn, Soybean Meal and Other Feed
Ingredient Inventory 11,305 11,305
18
<PAGE>
Contractual Fair
Related Derivatives Amount Value
- -----------------------------------------------------------------
Corn Futures Contracts
Contract Volumes (100,000 bushels) 76
Weighted Average Price (per bushel) $2.25 $2.16
Contract Amount (dollars in thousands) 17,086 16,426
19
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on October 30,
1999 at 10:00 a.m. in Bridgewater, Virginia. The voting results were
as follows:
<TABLE>
<CAPTION>
______________________________________________________________________________
Votes
Broker
Proposal For Against Withheld Abstention Non-Votes
______________________________________________________________________________
#1 Election
of Directors
Class A Director
(to serve until
2000 Annual
Meeting of
Shareholders)
<S> <C> <C> <C> <C>
Phillip C. Stone 12,074,545 1,045,634
Class C Directors
(to serve until
2002 Annual
Meeting of
Shareholders)
Charles L. Campbell 12,079,709 1,040,470
William H. Groseclose 12,078,655 1,041,524
William D. Wampler 12,081,448 1,038,731
Directors whose term continued after the meeting were:
Keith E. Alessi
J. Craig Hott
Katherine K. Clark
Stephen W. Custer
James L. Keeler
#2 Ratification of
Appointment of
Independent Auditors 12,939,947 99,307 82,151
</TABLE>
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed this 16th day of November, 1999, by the
Registrant's principal financial officer who is also authorized by the
Registrant to sign on its behalf.
WLR FOODS, INC.
___/s/ Dale S. Lam___
Dale S. Lam, Chief Financial
Officer and duly authorized
signator for Registrant
22
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 258
<SECURITIES> 0
<RECEIVABLES> 58,372
<ALLOWANCES> 2,157
<INVENTORY> 112,428
<CURRENT-ASSETS> 177,491
<PP&E> 296,948
<DEPRECIATION> 191,474
<TOTAL-ASSETS> 289,833
<CURRENT-LIABILITIES> 81,573
<BONDS> 53,935
0
0
<COMMON> 69,271
<OTHER-SE> 77,353
<TOTAL-LIABILITY-AND-EQUITY> 289,833
<SALES> 202,007
<TOTAL-REVENUES> 202,007
<CGS> 172,705
<TOTAL-COSTS> 172,705
<OTHER-EXPENSES> 24,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,233
<INCOME-PRETAX> 4,085
<INCOME-TAX> 1,542
<INCOME-CONTINUING> 2,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,543
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
