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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
1, 2000
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.
P.O. Box 7000
Broadway, Virginia 22815
(Address of principal executive offices)
540-896-7001
Registrant's telephone number, including area code
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. X
The aggregate value of the voting stock held by non-affiliates of the registrant as of September 1, 2000 was approximately $69,827,246. As of that date 16,194,081 shares of the registrant's common stock were issued and outstanding.
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 2000, 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 2000 were $833 million, including approximately
$403 million of chicken segment sales and $422 million of turkey segment sales, and
representing approximately 584 million pounds and 436 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 offers 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 approximately 4% of total Company sales in 1990 to approximately 10% of sales in 2000.
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 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.
On September 27, 2000, the Company entered into an Agreement and Plan of Merger with Pilgrim's Pride Corporation ("Pilgrim's") whereby the Company will become a wholly-owned subsidiary of Pilgrim's and the Company's shareholders will receive $14.25 cash for each share of Company common stock owned by them at the effective time of the merger. The Company's Board of Directors has unanimously approved the agreement. The agreement is subject to regulatory and shareholder approvals and other customary closing conditions. The merger is expected to be completed as soon as practicable thereafter.
Poultry Production
WLR Foods' primary operations include the breeding, hatching, grow-out and
processing of turkeys and chickens. For fiscal 2000, WLR Foods produced approximately 442
million pounds of dressed turkey and 723 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-owned feedmills and provides grower support through WLR Foods' technicians and veterinarians.
Grow-out and breeder farms provide WLR Foods with approximately 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 by-products from the Marshville,
North Carolina processing plant, which are sold 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.
(Dollars in Millions) | Fiscal 2000 |
Fiscal 1999 |
Fiscal 1998 |
Chicken segment | $ 403 |
$ 453 |
$ 389 |
Turkey segment | 422 |
428 |
546 |
Other | 8 |
7 |
11 |
Total Net Sales | $ 833 |
$ 888 |
$ 946 |
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 ROUND HILL, FARMER'S CHOICE, EASY
CARVERS and WAMPLER, IT'S REALLY THAT GOOD ... FOR YOUR BUSINESS trademarks. Wampler Foods
markets its export and foreign military sales 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 $0.8 million of governmental contracts outstanding as of
July 1, 2000, compared to approximately $0.2 million as of July 3, 1999.
Foreign Sales
WLR Foods' export sales constituted approximately 10% of its total annual sales in
each of fiscal 2000, 1999 and 1998. 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 third party refrigerated trucking companies. 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 costs
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, grain options and forward purchases to hedge the risk of fluctuating grain
prices. The gains and 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.
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 thirteen environmental permits or registrations are held by Wampler Foods' Virginia facilities, all but one 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 and stormwater. The Harrisonburg turkey processing facility holds an air permit which regulates certain combustion equipment and a water permit issued by the Harrisonburg Regional Sewer Authority requiring pretreatment of its process wastewater to meet certain effluent standards. Additionally, it has a general permit for stormwater. Wampler Foods' Timberville chicken processing and protein conversion facility holds a water permit which regulates the discharge of process wastewater and the disposition of stormwater, and an air permit which regulates the operation of its protein conversion facility, as well as certain combustion equipment. Wampler's recent connection to a private wastewater treatment system effectively ends the requirement for a waste permit at its Timberville facility, other than the one addressing stormwater. The chicken processing facility in Alma/Stanley holds a registration certificate for its combustion equipment and a water permit which regulates the discharge of process wastewater and stormwater. Finally, the Broadway and Harrisonburg feedmills hold air permits which were issued primarily for the control and abatement of dust, as well as general permits for stormwater. In addition to the thirteen 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 and an air permit which regulates the operation of the Company's protein conversion facility. The Moorefield feedmill holds one air permit which was issued primarily for the control and abatement of dust. The Moorefield hatchery and truck garage has a permit for stormwater.
Wampler Foods' North Carolina facilities hold a total of six 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 and a land application permit for food processing biosolids. 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 four environmental permits. The Franconia further processing plant holds two permits: a water permit for the treatment of process wastewater, and an air permit to regulate operation of certain combustion equipment. The New Oxford turkey processing facility holds two air permits which regulate 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 approximately 7,000 persons as of July 1, 2000, none of whom
were covered by a collective bargaining agreement.
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 expected 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 existing 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 5,500 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, in February 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. The Second Amended Complaint and Motion for Preliminary Injunction alleged that Wampler provided substandard chicks and feed to broiler growers who raise chicks for Wampler, in violation of the West Virginia Consumer Credit and Protection Act; and that Wampler exercised monopoly control over the market for broiler growers' services in several West Virginia counties, in violation of the West Virginia Antitrust Act. Beyond seeking injunction relief, the suit requests treble damages and a $100,000 civil penalty for alleged violations of the West Virginia Antitrust Act, civil penalties of $5,000 for each alleged violation of the West Virginia Consumer Credit and Protection Act, and other unspecified damages.
On February 14, 2000, the Circuit Court dismissed the suit, ruling that the West Virginia Consumer Credit and Protection Act did not apply and that the claimed violations of the West Virginia Antitrust Act lacked essential elements as a matter of law. The West Virginia Attorney General has filed a petition for appeal with the West Virginia Supreme Court, and the Company has filed its brief in opposition to the appeal. A decision as to whether an appeal will be granted is not expected before late October or November.
The lawsuit is not expected to have a material effect on the Companys financial statements. The Company continues to believe the suit is without merit, and intends to continue defending it vigorously.
On August 7, 2000, five employees of Wampler Foods, Inc. filed a collective action against Wampler Foods in the United States District Court for the Northern District of West Virginia, Elkins Division, under the federal Fair Labor Standards Act of 1938 (FLSA). The complaint alleges that Wampler Foods permitted plaintiffs and others similarly situated to work "off the clock" without credit or compensation. The suit seeks damages of an unspecified amount, including hourly and overtime compensation for unrecorded work time.
The Company believes the FLSA suit is without merit, and intends to defend it vigorously. The suit is not expected to have a material effect on the Companys financial statements.
There were no other material pending legal proceedings during the fiscal year ended July 1, 2000, other than ordinary routine litigation incidental to the Companys 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 1, 2000.
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 following table sets forth 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:
2000 |
High |
Low |
First Quarter | $8.25 |
$6.63 |
Second Quarter | 7.13 |
5.50 |
Third Quarter | 6.22 |
5.25 |
Fourth Quarter | 5.63 |
3.63 |
1999 |
||
First Quarter | $9.13 |
$6.25 |
Second Quarter | 9.13 |
7.25 |
Third Quarter | 9.63 |
7.25 |
Fourth Quarter | 8.38 |
6.50 |
The Company paid no cash dividends to its shareholders during the last two fiscal years. The Companys current credit facility restricts the payment of dividends. In view of such restriction, and other relevant factors, it is unlikely that the Company will pay a dividend in the foreseeable future.
As of September 1, 2000, the approximate number of shareholders of record was 3,820.
Item 6. SELECTED FINANCIAL DATA.
WLR Foods, Inc. and Subsidiaries Financial Highlights | ||||||
Dollars in thousands, except per share data | ||||||
July 1, |
July 3, |
June 27, |
June 28, |
June 29, |
July 1, |
|
Fiscal year ended: | 2000 |
1999 |
1998 |
1997 |
1996 |
1995 |
OPERATIONS | ||||||
Net sales | $ 832,728 | $ 888,086 | $ 945,967 | $ 994,591 | $ 978,258 | $ 890,815 |
Cost of sales | 726,253 | 750,942 | 876,287 | 948,060 | 889,904 | 776,945 |
Gross profit | 106,475 | 137,144 | 69,680 | 46,531 | 88,354 | 113,870 |
Selling, general and administrative expenses | 99,958 | 98,478 | 91,745 | 89,657 | 91,167 | 84,877 |
Operating income (loss) | 6,517 | 38,666 | (22,065) | (43,126) | (2,813) | 28,993 |
Interest expense | 4,968 | 10,931 | 22,539 | 12,804 | 8,922 | 6,386 |
Other (income) expense, net | (1,280) |
(8,214) | (106) | (1,792) | 129 | (311) |
Total other (income) expense, net | 3,688 | 2,717 | 22,433 | 11,012 | 9,051 | 6,075 |
Earnings (loss) before income taxes and minority interest | 2,829 | 35,949 | (44,498) | (54,138) | (11,864) | 22,918 |
Income tax expense (benefit) | 596 | 13,211 | (16,352) | (19,577) | (4,381) | 8,614 |
Minority interest | - | - | 66 | 47 | 32 | 55 |
Net earnings (loss) from continuing operations | 2,233 | 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 |
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) | 2,233 | 38,770 | (25,354) | (32,183) | (4,686) | 16,133 |
Less preferred stock dividends | - | - | - | - | - | - |
Net earnings (loss) available to | ||||||
Common shareholders | $ 2,233 | $ 38,770 | $ (25,354) | $ (32,183) | $ (4,686) | $ 16,133 |
PER COMMON SHARE | ||||||
Basic earnings (loss), continuing operations | $ 0.13 | $ 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 | 0.13 | 2.31 | (1.55) | (1.85) | (0.26) | 0.89 |
Diluted earnings (loss), continuing operations | 0.13 | 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 | $ 0.13 | $ 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) | 8.90 | 8.70 | 6.33 | 7.89 | 10.00 | 10.47 |
Year-end stock price | 4.63 | 8.19 | 7.00 | 8.50 | 14.00 | 14.38 |
FINANCIAL POSITION AT END OF YEAR | ||||||
Working capital (deficit) | $ 92,413 | $ 84,016 | $ 118,695 | $ (31,397) | $ 144,621 | $ 120,562 |
Property, plant and equipment, net | 102,070 | 107,945 | 153,702 | 159,426 | 176,691 | 174,163 |
Total assets | 283,515 | 289,097 | 381,742 | 416,728 | 451,121 | 372,525 |
Long-term debt, excluding current maturities | 51,036 | 48,845 | 189,225 | 5,040 | 138,510 | 106,481 |
Common stock subject to repurchase | - | - | - | 4,438 | 17,750 | 17,750 |
Preferred shareholders' equity (1) | - | - | - | - | - | - |
Common shareholders' equity | $ 144,004 | $ 143,935 | $ 103,891 | $ 126,558 | $ 159,010 | $ 163,344 |
ANALYTICAL & OTHER INFORMATION | ||||||
Current ratio ( compared to 1) | 2.14 | 1.95 | 2.40 | 0.89 | 2.18 | 2.67 |
Total debt/total capitalization (2) | 28.4% | 27.2% | 65.0% | 61.2% | 55.1% | 44.7% |
Return on beginning total equity (3) | 1.6% | 21.9% | NMF | NMF | NMF | 10.3% |
Capital expenditures | $ 12,225 | $ 22,072 | $ 22,149 | $ 11,245 | $ 18,771 | $ 17,251 |
Depreciation expense | 17,844 | 19,653 | 25,901 | 28,088 | 28,243 | 24,817 |
Amortization expense | 830 | 2,102 | 2,420 | 500 | 742 | 598 |
Interest expense | 4,968 | 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 | $ 74,878 | $ 135,435 | $ 114,800 | $ 141,075 | $ 247,547 | $ 248,654 |
Financial Highlights - Continued
Dollars in thousands, except per share data | ||||
July 2, |
July 3, |
June 27, |
June 29, |
|
Fiscal year ended: | 1994 |
1993 |
1992 |
1991 |
OPERATIONS | ||||
Net sales | $ 709,703 | $ 603,634 | $ 503,877 | $ 491,618 |
Cost of sales | 625,180 | 529,791 | 449,785 | 429,430 |
Gross profit | 84,523 | 73,843 | 54,092 | 62,188 |
Selling, general and administrative expenses | 57,373 | 51,141 | 44,794 | 46,733 |
Operating income (loss) | 27,150 | 22,702 | 9,298 | 15,455 |
Interest expense | 4,816 | 3,660 | 2,523 | 619 |
Other (income) expense, net | (342) | (494) | (142) | (347) |
Total other (income) expense, net | 4,474 | 3,166 | 2,381 | 272 |
Earnings (loss) before income taxes and minority interest | 22,676 | 19,536 | 6,917 | 15,183 |
Income tax expense (benefit) | 8,446 | 6,850 | 2,587 | 5,741 |
Minority interest | 38 | 43 | 25 | 33 |
Net earnings (loss) from continuing operations | 14,192 | 12,643 | 4,305 | 9,409 |
Earnings from discontinued operations, net of tax | 2,359 | 1,964 | 1,591 | 1,272 |
Gain on disposal of discontinued operations, net of tax | - | - | - | - |
Total earnings from discontinued operations | 2,359 | 1,964 | 1,591 | 1,272 |
Extraordinary charge on early extinguishment of debt, net of tax | - | - | - | - |
Net earnings (loss) | 16,551 | 14,607 | 5,896 | 10,681 |
Less preferred stock dividends | - | 1,389 | 982 | - |
Net earnings (loss) available to common shareholders | $ 16,551 | $ 13,218 | $ 4,914 | $ 10,681 |
PER COMMON SHARE | ||||
Basic earnings (loss), continuing operations | $ 0.85 | $ 0.79 | $ 0.23 | $ 0.59 |
Basic earnings, discontinued operations | 0.14 | 0.14 | 0.11 | 0.08 |
Basic loss, extraordinary charge | - | - | - | - |
Total basic earnings (loss) per common share | 0.99 | 0.93 | 0.34 | 0.67 |
Diluted earnings (loss), continuing operations | 0.85 | 0.78 | 0.23 | 0.59 |
Diluted earnings, discontinued operations | 0.14 | 0.14 | 0.11 | 0.08 |
Diluted loss, extraordinary charge | - | - | - | - |
Total diluted earnings (loss) per common share | $ 0.99 | $ 0.92 | $ 0.34 | $ 0.67 |
Cash dividends declared | 0.21 | 0.21 | 0.21 | 0.21 |
Book value (based on actual shares outstanding) | 9.45 | 8.66 | 6.44 | 7.33 |
Year-end stock price | 17.00 | 11.33 | 9.67 | 12.00 |
FINANCIAL POSITION AT END OF YEAR | ||||
Working capital (deficit) | $ 69,989 | $ 57,509 | $ 40,337 | $ 49,532 |
Property, plant and equipment, net | 139,854 | 140,540 | 113,017 | 88,807 |
Total assets | 283,051 | 265,626 | 207,736 | 175,329 |
Long-term debt, excluding current maturities | 46,368 | 52,253 | 38,148 | 18,678 |
Common stock subject to repurchase | - | - | - | - |
Preferred shareholders' equity (1) | - | - | 29,507 | - |
Common shareholders' equity | $ 156,157 | $ 142,255 | $ 81,881 | $ 115,625 |
ANALYTICAL & OTHER INFORMATION | ||||
Current ratio ( compared to 1) | 2.02 | 1.92 | 1.80 | 2.42 |
Total debt/total capitalization (2) | 28.4% | 33.5% | 32.0% | 16.1% |
Return on beginning total equity (3) | 11.6% | 13.1% | 5.1% | 9.9% |
Capital expenditures | $ 19,186 | $ 31,766 | $ 36,107 | $ 29,471 |
Depreciation expense | 21,333 | 18,115 | 14,041 | 11,544 |
Amortization expense | 520 | 445 | 168 | - |
Interest expense | 4,989 | 3,816 | 2,755 | 928 |
Cash dividends declared: Common stock | 3,513 | 3,124 | 2,854 | 3,314 |
Preferred stock | - | 1,389 | 982 | - |
Market capitalization of common stock at year end | $ 280,738 | $ 186,168 | $ 122,942 | $ 189,378 |
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.
(1) In March 1993, the Company repurchased all the preferred stock issued in January
1992.
(2) Common stock subject to repurchase classified as debt.
(3) For 1999, return on beginning total equity is based on net earnings from continuing
operations.
Item 7. 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 and live bird grow-out, through 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.
Chicken pricing during fiscal 2000 was among the lowest on record, with pricing for the year ended July 1, 2000 down 11.7%, or approximately $51 million, from the levels seen in the prior fiscal year. The industry suffered throughout the year from excess supplies driven by increased production within the industry that began in the latter part of fiscal 1999. Fiscal 1999 chicken segment pricing was 1.6% below fiscal 1998.
Turkey pricing during fiscal 2000 continued to increase modestly over the prior fiscal year levels, with pricing increasing 1.6%, or approximately $7 million, when compared to fiscal 1999. Fiscal 1999 pricing increased 2.0% when compared to fiscal 1998, when prices were very unfavorable by historical standards.
Grain prices continued to be favorable in fiscal 2000, with declines in corn costs more than offsetting increases in the cost of soybean meal, resulting in a net savings to the Company of approximately $2 million when compared to the prior fiscal year. In fiscal 1999, corn and soybean meal costs declined considerably from fiscal 1998, saving the company approximately $50 million in feed costs. The fiscal 1998 grain pricing was the last of three continuous years of very high grain costs.
Pending Transaction
On September 27, 2000, the Company entered into an Agreement and Plan of Merger with
Pilgrim's Pride Corporation ("Pilgrim's") whereby the Company will become a
wholly-owned subsidiary of Pilgrim's and the Company's shareholders will receive $14.25 cash
for each share of Company common stock owned by them at the effective time of the merger.
The Company's Board of Directors has unanimously approved the agreement. The agreement is
subject to regulatory and shareholder approvals and other customary closing conditions.
The merger is expected to be completed as soon as practicable thereafter.
RESULTS OF OPERATIONS
The Companys 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 Companys revenues. Any revenues and expenses not included in the chicken and turkey segments are reported in the Companys other segment for purposes of segment reporting.
Fiscal 2000 Compared to Fiscal 1999
Net sales from continuing operations were $832.7 million, a decrease of $55.4
million, or 6.2% from fiscal 1999. The decrease is from lower chicken and turkey segment
sales of $49.5 million and $6.0 million, respectively, offset slightly by an increase in
other segment sales of $0.1 million.
The chicken segment net sales decline of $49.5 million, or 10.9%, to $403.1 million for fiscal 2000 is primarily due to decreased poultry product sales of $50.6 million, partially offset by an increase in other sales, primarily outside feed sales, of approximately $1.1 million. The $50.6 million decrease, or 11.6%, in poultry product sales, primarily chicken, was the result of price decreases of 11.7%, offset partially by increases in volume of 0.1%.
The turkey segment net sales decline of $6.0 million, or 1.4%, to $421.6 million in fiscal 2000 is the result of lower poultry product sales of $4.4 million, combined with a decrease in other sales of $1.6 million. The $4.4 million decrease, or 1.0%, in poultry product sales, primarily turkey, was the result of lower volumes of 2.6%, offset partially by increased pricing of 1.6%. The $1.6 million decline in other sales is primarily the result of the discontinuation of the Companys Pennsylvania distribution business, a non-core poultry business, in the prior fiscal year.
Cost of sales on continuing operations was $726.3 million, a decrease of $24.7 million, or 3.3% from fiscal 1999. Cost of sales in the chicken segment decreased 1.4%, or $5.3 million, to $377.8 million in fiscal 2000. This decrease is primarily due to improvements in processing costs at the Marshville facility, which was converted from turkey processing to chicken processing during fiscal 1999. In the turkey segment, cost of sales decreased 5.4%, or $19.5 million, to $344.4 million in fiscal 2000. This decrease is primarily the result of improved operating costs at the Franconia further processing facility of approximately $5 million and improved grain costs of approximately $2 million, coupled with decreased volumes in poultry product sales of approximately 2.6% from the prior year. Partially offsetting the decreases in chicken and turkey segment cost of sales is a $0.1 million increase in other segment cost of sales.
Gross profits on continuing operations were $106.5 million, a decrease of $30.7 million, or 22.4% from fiscal 1999. The net effect of product pricing was a decline of approximately $44.2 million for the year, with lower chicken pricing of $51.0 million partially offset by improved turkey prices of $6.8 million. Lower grain costs for corn and soybean meal contributed approximately $2.3 million of improvements. Other improvements of approximately $11.2 million in gross profits were primarily the result of lower plant costs at the Franconia and Marshville facilities.
Selling, general and administrative expenses on continuing operations for fiscal 2000 were $100.0 million, an increase of $1.5 million, or 1.5%, when compared to the prior year. The increase is primarily the result of increased promotional spending of $7.6 million, partially offset by lower delivery expenses of approximately $2.0 million, lower bonus incentives of approximately $2.0 million, and one-time charges in the prior fiscal year of approximately $2.1 million, primarily for the write-down of assets at the Companys Monroe facility that was sold during the year.
Interest expense from continuing operations was $5.0 million for fiscal 2000, a decrease of $6.0 million, or 54.6%, when compared to fiscal 1999. The decrease is the result of substantially lower debt levels and lower interest rates.
In the prior year, other income included the gain on the sale of the Goldsboro, North Carolina complex. The Goldsboro complex, consisting of a chicken processing plant, feed mill and hatchery, was sold on August 14, 1998, for approximately $38 million in net proceeds, which were used to reduce long- term debt. The pre-tax gain on the sale was approximately $8 million.
The effective tax rates for continuing operations for fiscal 2000 and fiscal 1999 were 21.1% and 36.7%, respectively. The decrease is the result of changes in job tax credits, prior year adjustments, and a lower federal statutory rate.
Net earnings from continuing operations were $2.2 million (or $0.13 per diluted share) for fiscal 2000, a decrease of $20.5 million as compared to the net earnings from continuing operations of $22.7 million (or $1.34 per diluted share) for fiscal 1999. Chicken net earnings were $33.3 million lower than fiscal 1999, offset partially by an increase in turkey net earnings of $12.4 million. The remaining $0.4 million increase in net earnings was in the Companys other segment.
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 lower turkey segment and other
segment sales of $118.6 million and $3.3 million, respectively, partially 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 in sales 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 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 14.0% 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 fiscal 1998. 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 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 live performance in both turkey and chicken improved 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 during the first quarter for assets, primarily at the Monroe facility, that could not be utilized in the Companys 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 fiscal 1998.
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 in November 1998.
The gain on the sale of the Goldsboro complex resulted from the Companys 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 were 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 on 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.
On July 31, 1998 the Company sold its Cassco Ice and 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 was $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 during the second quarter, 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.
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 Companys 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 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.
Financial Condition and Liquidity
The Companys 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,
repurchase shares of common stock, and make acquisitions.
On July 1, 2000, the Company had net working capital of $92.4 million, compared to net working capital of $84.0 million on July 3, 1999. Accounts receivable and total inventory, on July 1, 2000, were $0.5 million and $4.3 million higher, respectively, when compared to the end of fiscal year 1999. Live inventories increased $3.0 million and feed inventories increased $2.4 million, both primarily attributable to increased feed costs at the end of the fiscal year. Processed and supply inventories decreased $0.9 million and $0.2 million, respectively.
Operating activities generated cash of $6.3 million in fiscal 2000, $71.1 million in fiscal 1999, and $30.1 million in fiscal 1998. The decrease in cash generated in fiscal 2000 as compared to fiscal 1999 is primarily due to decreased earnings, coupled with increased inventory levels, lower deferred income taxes, increased accounts receivables, and decreased accrued expenses. The increase in cash generated in fiscal 1999 as compared to fiscal 1998 resulted primarily from increased earnings.
Capital expenditures were $12.2 million in fiscal 2000. The Company also leased equipment totaling $2.7 million using operating leases. Capital expenditures in fiscal 1999 totaled $22.1 million and operating lease payments totaled $2.3 million. Capital expenditures in fiscal years 2000 and 1999 were generally for normal replacements and upgrades of existing assets, except for $9.7 million in fiscal 1999 in expenditures to convert the Marshville turkey complex to chicken processing. The Company expects capital expenditures in fiscal 2001 to range from $12 to $15 million to cover normal replacement and upgrades of existing facilities.
Total debt to total capital at July 1, 2000 was 28.4%, a slight increase from 27.2% at July 3, 1999. Debt levels increased during fiscal 2000, from $53.9 million at fiscal 1999 year-end to $57.1 million on July 1, 2000. The increase of $3.2 million is the result of $12.2 million in capital expenditures, $2.7 million for repurchase of company stock, offset partially by $0.9 million of proceeds from the sale of property, plant and equipment and $3.7 million collected on notes receivable, with the remaining $7.1 million primarily the result of cash flow from continuing operations.
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 anticipates that the adoption of this statement,
which will occur in fiscal 2001, will result primarily in quarterly fluctuations to
accumulated other comprehensive income, which is a component of shareholders equity,
but will not have a significant impact on the Companys consolidated statements of
operations. The Company anticipates that the implementation of this statement on July 2,
2000 will result in a charge of approximately $3.3 million to accumulated other
comprehensive income, representing the deferred losses on grain options and futures
contracts at July 1, 2000.
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.
Interest Rate Sensitivity
The Company may hedge exposures to changes in interest rates on certain of its
financial instruments by entering into interest rate cap agreements to effectively limit
the Company's exposure to increases in interest rates. As of July 1, 2000, there were no
outstanding interest rate cap agreements.
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.
Expected Maturity Date |
|||||||
Liabilities: | Fair |
||||||
Dollars in thousands | 2001 |
2002 |
2003 |
2004 |
2005 |
Total |
Value |
Liabilities: | |||||||
Long-term debt, including Current Portion | |||||||
Fixed Rate | $ 202 |
$ 214 |
$ 89 |
$ 95 |
$ 50 |
$ 650 |
$ 650 |
Average interest rate | 6.00% |
6.00% |
6.00% |
6.00% |
6.00% |
6.00% |
|
Variable Rate | $ 5,850 |
$ 50,588 |
$ 0 |
$ 0 |
$ 0 |
$ 56,438 |
$ 56,438 |
Average interest rate | 8.07% |
8.09% |
0 |
0 |
0 |
8.09% |
Commodity Price Sensitivity
The Company is a purchaser of certain commodities, primarily corn and soybean
meal. The Company uses commodity futures contracts, grain options 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 and are expensed during the
time period for which the hedge was intended.
The following table provides information about the Company's corn, soybean meal, other feed ingredient inventory option contracts and futures contracts that are sensitive to changes in commodity prices. For inventory, the table presents the carrying amount and fair value at July 1, 2000. 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 December 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 July 1, 2000. For option contracts, the table presents the notional and fair value in dollars. There were no outstanding option contracts on July 3, 1999.
On Balance Sheet Commodity Position | |||||
and Related Derivatives | 2000 |
1999 |
|||
Carrying |
Fair |
Carrying |
Fair |
||
Dollars in thousands | Amount |
Value |
Amount |
Value |
|
Corn, Soybean Meal and Other Feed | |||||
Ingredient Inventory | $ 13,249 | $ 13,249 | $ 11,050 | $ 11,050 | |
Contractual |
Fair |
Contractual |
Fair |
||
Related Derivatives | Amount |
Value |
Amount |
Value |
|
Corn Futures Contracts | |||||
Contract Volumes (100,000 bushels) | 3 | 100 | |||
Weighted Average Price (per bushel) | $ 2.08 | $ 2.53 | $ 2.31 | $ 2.06 | |
Contract Amount (dollars in thousands) | 550 | 671 | 23,194 | 20,679 | |
Corn Option Contracts | |||||
Contract Amount (dollars in thousands) | $ 1,095 | $(2,340) | - | - |
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements and Notes to Consolidated Financial Statements
WLR Foods, Inc. and Subsidiaries Consolidated Statements of Operations
Dollars in thousands, except per share data | |||
Fiscal years ended July 1, 2000, July 3, 1999, and June 27, 1998 | 2000 |
1999 |
1998 |
Net sales | $ 832,728 | $ 888,086 | $ 945,967 |
Cost of sales | 726,253 | 750,942 | 876,287 |
Gross profit | 106,475 | 137,144 | 69,680 |
Selling, general and administrative expenses | 99,958 | 98,478 | 91,745 |
Operating income (loss) | 6,517 | 38,666 | (22,065) |
Other (income) expense: | |||
Interest expense (Note 4) | 4,968 | 10,931 | 22,539 |
Gain on sale of Goldsboro complex (Note 13) | - | (7,699) | - |
Other income, net | (1,280) | (515) | (106) |
Other expense, net | 3,688 | 2,717 | 22,433 |
Earnings (loss) before income taxes and minority interest | 2,829 | 35,949 | (44,498) |
Income tax expense (benefit) (Note 6) | 596 | 13,211 | (16,352) |
Minority interest in net earnings of consolidated subsidiary | - | - | 66 |
Net earnings (loss) from continuing operations | $ 2,233 | $ 22,738 | $ (28,212) |
Earnings from discontinued operations, net of tax (Note 12) | - | 664 | 2,858 |
Gain on disposal of discontinued operations, net of tax (Note 12) | - | 17,927 | - |
Total earnings from discontinued operations | - | 18,591 | 2,858 |
Extraordinary charge on early extinguishment of debt, net of tax (Note 4) | - | (2,559) | - |
Net earnings (loss) | $ 2,233 | $ 38,770 | $ (25,354) |
Basic net earnings (loss) per common share, continuing operations | $ 0.13 | $ 1.35 | $ (1.72) |
Basic earnings per common share, discontinued operations | - | 1.11 | 0.17 |
Basic loss per common share, extinguishment of debt | - | (0.15) | - |
Total basic earnings (loss) per common share | $ 0.13 | $ 2.31 | $ (1.55) |
Diluted net earnings (loss) per common share, continuing operations | $ 0.13 | $ 1.34 | $ (1.72) |
Diluted earnings per common share, discontinued operations | - | 1.10 | 0.17 |
Diluted loss per common share, extinguishment of debt | - | (0.15) | - |
Total diluted earnings (loss) per common share | $ 0.13 | $ 2.29 | $ (1.55) |
See accompanying Notes to Consolidated Financial Statements. |
WLR Foods, Inc. and Subsidiaries Consolidated Balance Sheets
Dollars in thousands | ||
July 1, 2000 and July 3, 1999 | 2000 |
1999 |
Assets | ||
Current Assets | ||
Cash and cash equivalents | $ 85 | $ 210 |
Accounts receivable, less allowance for doubtful accounts | ||
of $1,628 and $1,909 | 59,541 | 59,026 |
Inventories (Note 2) | 110,980 | 106,679 |
Income taxes receivable | 323 | 355 |
Prepaid expenses | 2,670 | 2,574 |
Other current assets | 39 | 3,853 |
Total current assets | 173,638 | 172,697 |
Property, plant and equipment, net (Note 3) | 102,070 | 107,945 |
Deferred income taxes (Note 6) | 2,910 | 3,009 |
Other assets | 4,897 | 5,446 |
Total Assets | $ 283,515 | $ 289,097 |
Liabilities and Shareholders' Equity | ||
Current Liabilities | ||
Current maturities of long-term debt (Note 4) | $ 6,052 | $ 5,046 |
Excess checks over bank balances | 14,014 | 13,912 |
Trade accounts payable | 24,627 | 26,500 |
Accrued payroll and related benefits | 15,148 | 24,729 |
Other accrued expenses | 12,659 | 8,677 |
Deferred income taxes (Note 6) | 8,725 | 9,817 |
Total current liabilities | 81,225 | 88,681 |
Long-term debt, excluding current maturities (Note 4) | 51,036 | 48,845 |
Other liabilities | 7,250 | 7,636 |
Commitments and other matters (Notes 9, 14 and 17) | ||
Shareholders' Equity (Notes 7 and 8) | ||
Common stock, no par value (authorized 100,000,000 shares, issued and outstanding 16,172,410 and 16,541,691 shares) | 66,961 | 69,125 |
Additional paid-in capital | 2,974 | 2,974 |
Retained earnings | 74,069 | 71,836 |
Total shareholders' equity | 144,004 | 143,935 |
Total Liabilities and Shareholders' Equity | $ 283,515 | $ 289,097 |
See accompanying Notes to Consolidated Financial Statements. |
WLR Foods, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity
Additional |
|||||
Dollars in thousands | Common Stock |
Paid-In |
Retained |
||
Fiscal years ended July 1, 2000, July 3, 1999, and June 27, 1998 | Shares |
Amount |
Capital |
Earnings |
Total |
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) | - |
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) |
Common stock issued | 159 | 1,426 | - | - | 1,426 |
Balance at July 3, 1999 | 16,542 | 69,125 | 2,974 | 71,836 | 143,935 |
Net earnings | - | - | - | 2,233 | 2,233 |
Common stock repurchased | (470) | (2,719) | - | - | (2,719) |
Common stock issued | 100 | 555 | - | - | 555 |
Balance at July 1, 2000 | 16,172 | $ 66,961 | $ 2,974 | $ 74,069 | $ 144,004 |
See accompanying Notes to Consolidated Financial Statements
WLR Foods, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Dollars in thousands | |||
Fiscal years ended July 1, 2000, July 3, 1999, and June 27, 1998 | 2000 |
1999 |
1998 |
Cash Flows from Operating Activities: | |||
Net earnings (loss) | $ 2,233 | $ 38,770 | $ (25,354) |
Adjustments to reconcile net earnings (loss) to net cash provided | |||
by operating activities: | |||
Extraordinary loss on early extinguishment of debt, net of tax | - | 2,559 | - |
Depreciation and amortization | 18,674 | 21,755 | 28,321 |
(Gain) loss on sales of property, plant and equipment | (631) | 1,159 | 916 |
Gain on sale of Goldsboro complex | - | (7,699) | - |
Gain on sale of discontinued operation | - | (28,187) | - |
Deferred income taxes | (993) | 14,419 | (14,974) |
Other, net | - | 107 | (592) |
Change in operating assets and liabilities: | |||
(Increase) decrease in accounts receivable | (515) | 8,355 | 5 |
(Increase) decrease in inventories | (4,301) | 12,234 | 37,520 |
(Increase) decrease in prepaid expenses | (96) | (704) | 341 |
Decrease in other current assets | 96 | 106 | 3,655 |
(Increase) decrease in long-term assets | (281) | (170) | 815 |
Decrease in accounts payable | (1,873) | (655) | (6,263) |
Increase (decrease) in accrued expenses and other | (5,985) | 9,042 | 5,675 |
Net cash provided by operating activities | 6,328 | 71,091 | 30,065 |
Cash Flows from Investing Activities: | |||
Additions to property, plant and equipment | (12,225) | (22,072) | (22,149) |
Acquisition of businesses | - | - | (650) |
Proceeds from notes receivable | 3,750 | - | - |
Proceeds from sale of Goldsboro complex | - | 37,582 | - |
Proceeds from sale of discontinued operation | - | 55,068 | - |
Proceeds from sales of property, plant and equipment | 887 | 1,245 | 1,706 |
Net cash provided by (used in) investing activities | (7,588) | 71,823 | (21,093) |
Cash Flows from Financing Activities: | |||
Proceeds from issuance of revolver and long-term debt | 730,430 | 634,724 | 41,485 |
Payments on revolver and long-term debt | (727,233) | (780,482) | (35,234) |
Financing costs paid | - | (1,969) | (5,401) |
Notes payable to banks | - | - | (4,031) |
Issuance of common stock | 555 | 701 | 892 |
Repurchase of common stock | (2,719) | - | (4,438) |
Increase (decrease) in excess checks over bank balances | 102 | 3,987 | (2,193) |
Net cash provided by (used in) financing activities | 1,135 | (143,039) | (8,920) |
Increase (decrease) in cash and cash equivalents | (125) | (125) | 52 |
Cash and cash equivalents at beginning of fiscal year | 210 | 335 | 283 |
Cash and cash equivalents at end of fiscal year | $ 85 | $ 210 | $ 335 |
Supplemental cash flow information: | |||
Cash paid (received) for: | |||
Interest | $ 4,403 | $ 13,366 | $ 15,365 |
Income taxes | 2,404 | 6,204 | (3,139) |
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.
See accompanying Notes to Consolidated Financial Statements.
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 Companys 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, foodservice and institutional markets.
Fiscal Year
The Companys fiscal year ends on the Saturday closest to June 30. Fiscal
years 2000, 1999 and 1998 ended on July 1, July 3, and June 27, respectively, and included
52 weeks in fiscal year 2000, 53 weeks in fiscal year 1999 and 52 weeks in fiscal year
1998.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts of WLR
Foods and all of its wholly-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 is accumulated during their development stage and then amortized into the
cost of the 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, grain options 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.
Advertising and Promotion Expenses
Advertising and promotion expenses are charged to operations in the period
incurred.
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 other financial
instruments approximate their fair values due to their short maturities.
Stock-Based Compensation
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, 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.
Recently Issued Accounting Standards
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. The Company adopted SFAS 133 on July 2, 2000. The Company
anticipates that the adoption of this statement, which will occur in fiscal 2001, will
result primarily in quarterly fluctuations to accumulated other comprehensive income,
which is a component of shareholders equity, but will not have a significant impact
on the Companys consolidated statements of operations. The Company anticipates that
the implementation of this statement on July 2, 2000 will result in a charge of
approximately $3.3 million to accumulated other comprehensive income, representing the
deferred losses on grain options and futures contracts on July 1, 2000.
2. Inventories
A summary of inventories at July 1, 2000 and July 3, 1999 follows: | ||
Dollars in thousands | 2000 |
1999 |
Live poultry and breeder flocks | $ 51,283 |
$ 48,275 |
Processed poultry and meat products | 30,655 |
31,510 |
Packaging supplies, parts and other | 12,654 |
12,859 |
Feed, grain and eggs | 16,388 |
14,035 |
Total inventories | $ 110,980 |
$ 106,679 |
The cost of grain, the principal feed ingredient for live birds, is subject to price changes caused by weather, size of harvest, changes in demand, transportation and storage costs. To reduce the risks of price fluctuations, the Company has entered into grain option and futures contracts. As of July 1, 2000, the Company had $3.4 million of deferred losses on option contracts. There were no deferred amounts relating to options for fiscal year 1999. The notional amount of grain futures contracts at July 1, 2000 and July 3, 1999 was $0.5 million and $23.2 million, respectively. The fair value of grain futures contracts used in hedging at July 1, 2000 and July 3, 1999 was $0.6 million and $20.6 million, respectively. The Company had $0.1 million of deferred gains on futures contracts at July 1, 2000 and $2.6 million of deferred losses on futures contracts at July 3, 1999. The notional amount and fair value of open grain options at July 1, 2000 was $1.1 million and ($2.3) million, respectively. There were no open grain option contracts at July 3, 1999.
3. Property, Plant and Equipment
WLR Foods' investment in property, plant and equipment at July 1, 2000 and July 3, 1999 was as follows:
Dollars in thousands | 2000 |
1999 |
Land and improvements | $ 18,520 |
$ 18,198 |
Buildings and improvements | 98,531 |
97,670 |
Machinery and equipment | 162,993 |
156,281 |
Transportation equipment | 18,518 |
22,020 |
Construction in progress | 3,846 |
2,382 |
302,408 |
296,551 |
|
Less accumulated depreciation | 200,338 |
188,606 |
Property, plant and equipment, net | $ 102,070 |
$ 107,945 |
4. Long-Term Debt and Bank Revolving Credits
Long-term debt and other credit facilities at July 1, 2000 and July 3, 1999 consisted of the following obligations:Dollars in thousands | 2000 |
1999 |
Variable Rate Note: | ||
Secured Bank Term Note due 2001 | $ 40,435 |
$ 49,000 |
Revolving Credit Note: | ||
Secured Bank Revolving Credit Note due 2001 | 15,811 |
3,753 |
Other Notes: | ||
Notes with various terms and rates | 842 |
1,138 |
Total long-term debt | 57,088 |
53,891 |
Less current maturities of long-term debt | 6,052 |
5,046 |
Long-term debt, excluding current maturities | $ 51,036 |
$ 48,845 |
The Company refinanced certain term notes and revolving credit notes due in 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 facilities have a maturity date of November 20, 2001 and are secured by virtually all of the Companys assets. The carrying value of all debt approximates fair value at July 1, 2000, based on quoted market prices for similar issues.
At July 1, 2000, borrowings on the term loan, which had $40.4 million outstanding, were based on LIBOR of 6.68% plus the applicable margin of 140 basis points for a total rate of 8.08%. Revolving credit borrowings totaled $15.8 million as of July 1, 2000, with $15.0 million tied to LIBOR of 6.66% plus the 140 basis point applicable margin for a total rate of 8.06%. The remaining $0.8 million in revolving credit borrowings was based on the prime rate of 9.5%. At the end of each quarter, the applicable margin is adjusted based upon certain Company performance metrics.
Principal payments of $1.25 to $1.5 million are required at the end of each fiscal quarter, and began with the fourth quarter of fiscal 1999 for the term loan portion of the credit facility. Additionally, principal payments are required from the proceeds of asset sales in excess of $1.0 million annually and for substantial new issuances of common stock.
During the first quarter of fiscal year 1999, 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 also recorded an extraordinary non-cash charge to write off the remaining unamortized debt issue costs of the prior credit facility during the second quarter of fiscal 1999 of $1.5 million ($1.0 million after tax). This charge is also shown as an extraordinary item for the early extinguishment of debt. Total charges for the early extinguishment of debt during fiscal 1999 were $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 new facility.
In relation to the debt refinancing in fiscal year 1998, warrants totaling 320,363 are outstanding and exercisable with an exercise price of $0.01.
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 recorded as interest expense. As of July 1, 2000, the interest rate swap and the interest rate cap were no longer outstanding.
The Companys credit agreement with its lenders contains restrictive covenants. As of July 1, 2000, the Company was in compliance with all covenants.
Required annual principal repayments of long-term debt with original maturities of greater than one year are as follows:
Dollars in thousands
Fiscal 2001 $ 6,052
Fiscal 2002 50,802
Fiscal 2003 89
Fiscal 2004 95
Fiscal 2005 50
Total $57,088
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 year 1998, most participants could contribute up to 15% of their salary. Under the Company's restated plan, most participants could contribute up to 20% of their salary for fiscal years 1999 and 2000. For each employee dollar contributed (limited to the first 4% of an employee's compensation), the Company contributes 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 $1.4 million, $2.4 million and $1.6 million, for fiscal 2000, 1999 and 1998, respectively.
6. Income Taxes
The provision for income taxes for continuing operations was as follows for fiscal years 2000, 1999 and 1998:
Dollars in thousands | 2000 |
1999 |
1998 |
Current: | |||
Federal | $ 1,373 | $ 3,908 |
$ - |
State | 216 | 2,178 |
166 |
1,589 | 6,086 |
166 | |
Deferred: | |||
Federal | (866) | 6,664 |
(14,625) |
State | (127) | 461 |
(1,893) |
(993) | 7,125 |
(16,518) | |
Total tax expense (benefit) | $ 596 | $ 13,211 |
$ (16,352) |
Dollars in thousands | 2000 |
1999 |
1998 |
Taxes computed using federal | |||
statutory tax rates | $ 962 | $ 12,582 | $ (15,574) |
State income taxes, | |||
net of federal tax effect | 59 | 1,715 | (1,123) |
Work opportunity tax credit | (218) | (293) | (97) |
Foreign sales corporation | (153) | (344) | (221) |
Other, net | (54) | (449) | 663 |
Total tax expense (benefit) | $ 596 | $ 13,211 | $ (16,352) |
Effective tax rate | 21.1% | 36.7% | 36.7% |
Dollars in thousands | 2000 |
1999 |
1998 |
Continuing operations | $ 596 | $ 13,211 | $ (16,352) |
Discontinued operations | - | 10,667 | 1,671 |
Extraordinary charge | - | (1,569) | - |
$ 596 | $ 22,309 | $ (14,681) |
Dollars in thousands | 2000 |
1999 |
Deferred tax liabilities: | ||
Inventories, principally due to the | ||
Accounting for live inventories | ||
on the farm price method for | ||
tax purposes | $ (13,357) | $ (13,577) |
Plant and equipment, principally | ||
due to differences in depreciation | ||
and capitalized interest | (1,963) | (2,854) |
Employee benefit deduction | (497) | (1,326) |
Gross deferred tax liabilities | (15,817) | (17,757) |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 1,217 | $ 1,230 |
Insurance accruals, principally due to | ||
Timing of payments versus the | ||
Recording of expenses | 2,768 | 3,085 |
Deferred compensation, principally due | ||
to accrual for financial reporting purposes | 1,362 | 1,356 |
Tax credits | 2,269 | 2,544 |
Financing costs, principally due to | ||
Accrual for financial purposes | 642 | 642 |
Compensated absences, principally due | ||
to accrual for financial reporting purposes | 1,000 | 972 |
Accounts receivable, principally due to | ||
Allowance for doubtful accounts | 635 | 745 |
Other | 109 | 375 |
Gross deferred tax assets | 10,002 | 10,949 |
Net deferred tax (liability) asset | $ (5,815) | $ (6,808) |
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 1, 2000 and July 3, 1999.
7. Shareholders Equity
In February 1994, the Board of Directors approved the adoption of the Shareholder Protection Rights Plan (the Plan) wherein one right 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 10th 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 16,172,410 outstanding on July 1, 2000 and 16,541,691 outstanding on July 3, 1999. Additionally, there are 50,000,000 shares of preferred stock authorized with none outstanding as of July 1, 2000 or July 3, 1999.
8. Stock Option and Stock Purchase Plans
Stock Option Plan
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 2000, 1999 and 1998 are listed
below:
Common shares |
Weighted Average |
|
under option |
Exercise Price |
|
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 | 144,000 |
$ 8.34 |
Outstanding at July 3, 1999 | 519,416 |
$10.07 |
Canceled or expired | (27,000) |
$ 8.96 |
Granted in fiscal 2000 | 215,250 |
$ 5.05 |
Outstanding at July 1, 2000 | 707,666 |
$ 8.58 |
There were 327,497, 270,416, and 343,374 shares exercisable under option with weighted average exercise prices of $11.17, $12.06, and $15.08 at fiscal year end 2000, 1999 and 1998, respectively. The following table summarizes information about stock options outstanding as of July 1, 2000:
Stock Options Outstanding: | Stock Options Exercisable: | ||
Weighted Average |
|||
Remaining Contractual |
|||
Exercise Price | Shares |
Life (Years) |
Shares |
$ 5.047 | 213,000 |
9.8 |
- |
6.875 | 105,000 |
8.0 |
69,998 |
8.281 | 126,500 |
9.0 |
- |
8.310 | 88,500 |
7.0 |
88,500 |
9.219 | 8,500 |
8.4 |
2,833 |
14.125 | 88,666 |
5.5 |
88,666 |
15.000 | 77,500 |
4.6 |
77,500 |
Total |
707,666 |
327,497 |
Accounting for Stock Option Plan
The Company has elected to account for its employee stock option plan using the
intrinsic value method of accounting. Accordingly, no compensation cost has been
recognized in the accompanying consolidated 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 |
|||
Dollars in thousands, except per share data | July 1, 2000 |
July 3, 1999 |
June 27, 1998 |
Net earnings (loss) from continuing operations | |||
As Reported | $ 2,233 | $ 22,738 | $ (28,212) |
Pro Forma | $ 1,838 | $ 22,292 | $ (28,537) |
Net earnings (loss) per common share from continuing operations | |||
As Reported, basic | $ 0.13 | $ 1.35 | $ (1.72) |
As Reported, diluted | $ 0.13 | $ 1.34 | $ (1.72) |
Pro Forma, basic | $ 0.11 | $ 1.33 | $ (1.74) |
Pro Forma, diluted | $ 0.11 | $ 1.32 | $ (1.74) |
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 (loss) and net earnings (loss) 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:
2000 |
1999 |
1998 |
|
Expected dividend yield | 0.0% |
0.0% |
0.0% |
Expected volatility | 54% |
55% |
31% |
Risk-free interest rate | 6.5% |
5.5% |
5.7% |
Expected term (in years) | 10 |
10 |
10 |
Using these assumptions in the Black-Scholes model, the weighted average fair value of options granted was $0.7 million, $0.8 million, and $0.6 million in fiscal years 2000, 1999 and 1998, 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 2006. Total rent expense was approximately $3.4 million, $3.4 million, and $5.1 million for fiscal 2000, 1999 and 1998, 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 1, 2000:
Dollars in thousands | |
Fiscal 2001 | $ 2,399 |
Fiscal 2002 | 1,347 |
Fiscal 2003 | 623 |
Fiscal 2004 | 150 |
Fiscal 2005 | 36 |
Fiscal 2006 | 12 |
Total minimum lease payments | $ 4,567 |
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.
Transactions with these related parties during the past three fiscal years are as follows:
(Dollars in thousands) | Purchases from Related parties |
Fiscal 2000 | $ 700 |
Fiscal 1999 | 967 |
Fiscal 1998 | 1,381 |
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:
Dollars in thousands | 2000 |
1999 |
1998 |
Numerator: | |||
Net earnings (loss) from | |||
continuing operations | $ 2,233 | $ 22,738 | $ (28,212) |
Denominator: | |||
Weighted average common | |||
shares outstanding | 16,419 | 16,479 | 16,315 |
Effect of outstanding stock warrants | 320 | 300 | 88 |
Basic weighted average common shares outstanding | 16,739 | 16,779 | 16,403 |
Basic net earnings (loss) from continuing | |||
operations per common share | $ 0.13 | $ 1.35 | $ (1.72) |
Numerator: | |||
Net earnings (loss) from | |||
continuing operations | $ 2,233 | $ 22,738 | $ (28,212) |
Denominator: | |||
Weighted average common | |||
shares outstanding | 16,419 | 16,479 | 16,315 |
Effect of outstanding stock options | 22 | 11 | - |
Effect of outstanding stock warrants | 320 | 407 | 88 |
Diluted weighted average common shares outstanding | 16,761 | 16,897 | 16,403 |
Diluted net earnings (loss) from continuing | |||
operations per common share | $ 0.13 | $ 1.34 | $ (1.72) |
Options to purchase 707,666, 519,416 and 643,375 shares of common stock, at prices between $5.05 and $15.00, $6.88 and $15.00, and $6.88 and $20.00 per share were outstanding in 2000, 1999, and 1998, respectively. The outstanding options were not included in the computation of diluted earnings per share for fiscal year 1998 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). Earnings from discontinued operations in fiscal year 1999 were 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 of discontinued operations were as follows:
Dollars in thousands | 2000 |
1999 |
1998 |
Net sales | $ - |
$ 4,641 |
$ 22,063 |
Income before tax | - |
1,071 |
4,529 |
Income tax expense | - |
407 |
1,671 |
Net earnings | $ - |
$ 664 |
$ 2,858 |
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 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. The suit was dismissed by the Hardy County Circuit Court and is currently being appealed before the West Virginia Supreme Court. While any potential damages in the suit cannot be determined, the lawsuit is not expected to have a material effect on the Companys consolidated financial statements. The Company believes the suit is without merit and intends to defend it vigorously.
15. Segment, Geographic, and Major Customer Information
In fiscal year 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." 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.
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 traypack items, whole birds cut up for fast-food restaurants and portion-controlled products for foodservice 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 traypack 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, North Carolina 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. 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 presented 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.
Dollars in thousands | Chicken |
Turkey |
Other |
Elimina- |
Total |
Year ended July 1, 2000 | tions |
||||
External segment revenues | $ 403,060 | $ 421,616 | $ 8,052 | $ - | $ 832,728 |
Intersegment revenues | - | - | 12,655 | (12,655) | - |
Total revenues | 403,060 | 421,616 | 20,707 | (12,655) | 832,728 |
Interest expense | 2,520 | 2,549 | - | (101) | 4,968 |
Interest income | - | 205 | 145 | (101) | 249 |
Income taxes (benefit) | (6,718) | 5,675 | 1,639 | - | 596 |
Net earnings (loss) from continuing operations | (11,078) | 9,360 | 3,951 | - | 2,233 |
Depreciation expense | 9,852 | 6,678 | 1,314 | - | 17,844 |
Year ended July 3, 1999 | |||||
External segment revenues | $ 452,513 | $ 427,637 | $ 7,936 | $ - | $ 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 |
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) |
Depreciation expense | 9,754 | 8,218 | 1,408 | - | 19,380 |
Year ended June 27, 1998 | |||||
External segment revenues | $ 388,559 | $ 546,256 | $ 11,152 | $ - | $ 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 |
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) |
Depreciation expense | 9,432 | 11,169 | 2,242 | - | 22,843 |
A reconciliation of total segment earnings (loss) to consolidated net earnings (loss) is as follows:
July 1, 2000 |
July 3, 1999 |
June 27, 1998 |
|
Segment earnings (loss) | $ 2,233 | $ 22,738 | $ (28,212) |
Unallocated: | |||
Earnings from discontinued operations, net of tax | - | 664 | 2,858 |
Gain on sale of discontinued operations, net of tax | - | 17,927 | - |
Extraordinary charge on early extinguishment of debt, net of tax | - | (2,559) | - |
Net earnings (loss) | $ 2,233 | $ 38,770 | $ (25,354) |
Geographic Information.
No individual foreign country accounts for 10% or more of sales to external
customers.
Major Customers.
Revenues from one customer represented approximately $129 million and $113
million, or 16% and 13%, of total Company net sales in fiscal years 2000 and 1999,
respectively. No customer represented 10% or more of total Company's net sales in fiscal
year 1998.
16. Selected Quarterly Financial Data (Unaudited)
The unaudited summary of quarterly results of continuing operations for fiscal 2000 and 1999 follows:
Dollars in thousands, except per share data | ||||
Fiscal year ended July 1, 2000 | First |
Second |
Third |
Fourth |
Net sales | $ 202,007 | $ 218,803 | $ 199,182 | $ 212,736 |
Operating income (loss) | 4,946 | 8,233 | (6,961) | 299 |
Net earnings (loss) from continuing operations | 2,543 | 4,784 | (4,970) | (124) |
Per share data: | ||||
Diluted earnings (loss) from continuing operations per common share | $ 0.15 | $ 0.28 | $ (0.30) | $ (0.01) |
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) from continuing operations per common share | $ 0.70 | $ 0.43 | $ (0.01) | $ 0.23 |
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.
17. Subsequent Event
On September 27, 2000, the Company entered into an Agreement and Plan of Merger with Pilgrim's Pride Corporation ("Pilgrim's") whereby the Company will become a wholly-owned subsidiary of Pilgrim's and the Company's shareholders will receive
$14.25 cash for each share of Company common stock owned by them at the effective time of the merger. The Company's Board of Directors has unanimously approved the agreement. The agreement is subject to regulatory and shareholder approvals and other customary closing conditions. The merger is expected to be completed as soon as practicable thereafter.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 1, 2000 and July 3, 1999 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 1, 2000. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 1, 2000 and July 3, 1999 and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended July 1, 2000, in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Richmond, Virginia
August 11, 2000, except as to Note 17, which is as of September 27, 2000
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders
WLR Foods, Inc.:
Under date of August 11, 2000, except as to Note 17, which is as of September 27, 2000, we reported on the consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of July 1, 2000 and July 3, 1999, 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 1, 2000. These consolidated financial statements and our report thereon are included in the July 1, 2000 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 11, 2000
WLR FOODS,
INC. |
||||
Charged to |
||||
Balance at |
cost and |
Balance |
||
Beginning |
other |
Charged to |
at end of |
|
Description |
of period |
expenses |
accounts |
period |
Fiscal year ended July 1, 2000 | ||||
Allowance for Doubtful Accounts | $1,909 |
$1,060 |
$1,341 |
$1,628 |
Total |
$1,909 |
$1,060 |
$1,341 |
$1,628 |
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 |
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.
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.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors of the Company
The following information is given regarding WLR Foods Directors.
Name and Position |
Director |
Principal Occupation |
|
with the Company |
Age |
Since |
During the Last 5 Years |
Class A Directors |
|||
(to serve until the 2000 annual meeting of shareholders) |
|||
J. Craig Hott | 47 |
1988 |
Vice President of Hott's Farming, Inc. and Hott's Ag-Services, Inc. |
Marie C. Johns | 48 |
2000 |
President of Verizon - Washington DC Inc. Previously, President and Chief Executive Officer of Bell Atlantic - Washington, D.C., Inc.; and Vice President, External Affairs for Bell Atlantic-Washington. |
Phillip C. Stone | 58 |
1999 |
President of Bridgewater College, Bridgewater, Virginia since 1994 |
Class B Directors |
|||
(to serve until the 2001 annual meeting of shareholders) |
|||
Katherine K. Clark | 43 |
1998 |
Founder and Chief Executive Officer of Landmark Systems Corporation |
Stephen W. Custer | 58 |
1984 |
President of Custer Associates, Inc. (consulting firm) |
James L. Keeler | 65 |
1988 |
Chief Executive Officer of the company since February 1988 |
President | |||
Class C Directors |
|||
(to serve until the 2002 annual meeting of shareholders) |
|||
Charles L. Campbell | 52 |
1988 |
Commissioner of Revenue for Page County, Virginia; broiler producer |
William H. Groseclose, Jr. | 69 |
1993 |
Chairman of Harrisonburg Regional Board and Winchester Regional Board of First Union National Bank; previously Chief Executive Officer of Shenandoah Valley region of Dominion Bank |
William D. Wampler | 72 |
1984 |
Poultry and livestock farmer |
Executive Officers of the Company
The following information is given regarding WLR Foods Executive Officers.
Name and Position | Principal Occupation |
|
with the Company | Age |
During the Last 5 Years |
James L. Keeler President, Chief Executive Officer | 65 |
Chief Executive Officer since February 1988 |
Jane T. Brookshire Vice President of Administration, Secretary | 54 |
Vice President of Administration since November 1998, previously Vice President of Human Resources from 1993 to 1998. |
Dale S. Lam Chief Financial Officer, Vice President of Finance, Treasurer | 37 |
Chief Financial Officer since November 1998, Vice President of Finance and Treasurer since August 1988, previously Controller. Co-owner and Treasurer of Office Products, Inc. from 1989 to 1997. |
Ronald E. Morris Vice President of Turkey Operations for Wampler Foods, Inc. | 47 |
Vice President of Turkey Operations for Wampler Foods, Inc. since November 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 Vice President of Chicken Operations for Wampler Foods, Inc. | 42 |
Vice President of Chicken Operations for Wampler Foods, Inc. since 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 Vice President of Sales and Marketing for Wampler Foods, Inc. | 49 |
Vice President of Sales and Marketing for Wampler Foods, Inc. since June, 1999; previously, Vice President of Sales and Marketing for Hatfield Quality Meats from 1996 to 1998, and President, Consumer Consumer Products Division of Rich Products Corporation from 1990 to 1996. |
Item 11. EXECUTIVE COMPENSATION.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
Compensation Philosophy
The Executive Compensation Committee of the Company's Board of Directors
establishes the annual salary, bonus and other benefits of the Company's Chief Executive
Officer and makes decisions relating to stock option awards to executive officers and
other key personnel pursuant to the Company's Long-Term Incentive Plan. The Company's
overall goals regarding executive compensation include providing competitive compensation
packages that attract and retain qualified executives, and rewarding its executives for
financial and operating results, both annual and long-term, which enhance the value of
shareholders' investment in the Company.
Base Salary
Executive Officers salaries are determined by evaluating the responsibilities of
their positions and their performance, and by reference to salaries paid in the
competitive marketplace for comparable executive ability and experience. Companies
considered in determining executive compensation are not the same as the peer group
reflected in the stock price performance graph due to the Committees belief that,
unlike the performance of stock traded on a national market, executive compensation should
be evaluated in comparison with similar companies in the same geographic area. Individual
salary increases, which are considered annually, are based on evaluations of past and
current performance, market conditions and company performance. Based on available
figures, the Company Executives base salaries are generally more conservative than
salaries of executives in other companies within Virginia and the industry.
With respect to the Chief Executive Officer, the Committee believes that a significant portion of annual compensation should be tied directly to Company performance, and that adjustments to base salary should be consistent with Company wide salary adjustments. This philosophy was evident in prior years when, because of challenges presented by industry conditions, executive base salaries remained constant except for changes resulting from promotions.
Cash Bonus
The Company's Incentive Bonus Program focuses on the second goal of the Company's
compensation philosophy, that of rewarding financial and operating results on an annual
basis. The Company developed the Incentive Bonus Program in 1988 with the assistance of
independent executive compensation consultants, and the Program has been administered
since then by the Company's Human Resources Department for the benefit of executive
officers and other key personnel. The bonus pool is determined annually by reference to
the Company's operating return on equity (ROE), and each individual's specific bonus
allocation is calculated by multiplying ROE (adjusted for accrued incentive pay and taxes)
by his or her base salary and by a bonus factor which is based on his or her position
within the Company. Thus, bonuses comprise a significant part of management compensation
that is "at risk" based on the Company's annual performance. As borne out in
more recent years, for years in which the Company did not have a strong return on equity,
a significant portion of management's annual compensation was reduced.
Long-Term Incentive Plan
The Companys Long-Term Incentive Plan, a stock option plan approved by the
Company's shareholders at the 1998 annual meeting, rewards Company executives on a
long-term basis and provides an incentive for executive officers to maximize long-term
shareholder value. By encouraging management investment in Company stock, the Plan aligns
management's interests with those of the shareholders: namely, to enjoy long-term
appreciation in the value of the Company's common stock.
The Company has, twice during the past several years, engaged independent executive compensation consulting firms to review the Company's compensation package, including its Long-Term Incentive Plan. Since the inception of the first Long-Term Incentive Plan in 1988, the Company has consistently awarded options at levels below those recommended by the consultants. In 1995, the consultants made several recommendations regarding the level of options granted, the term of the options and whether the Company should grant incentive stock options (ISOS) or non-qualified options as in the past. The granting of ISOS permits executives to defer the income tax consequences of their options with no impact on the Company's earnings. The consultants also recommended that the Company implement a supplemental employee retirement plan (SERP) in order for executive compensation to be more competitive with companies of similar size.
In fiscal year 1995, the Company began granting options with a term of 10 years rather than 5 years as in the past, and began granting ISOS to the extent permitted by the current Internal Revenue Code, neither of which affect the Company's earnings. While the Company deferred implementation of the SERP recommended by the consultants, the Company did establish the 1995 Nonqualified Deferred Compensation Plan. See "Deferred Compensation" below.
Deferred Compensation
The final significant component of the Chief Executive Officer's compensation is
deferred compensation, providing a competitive compensation package and rewarding
operating results. Mr. Keeler's deferred compensation is essentially a retirement plan
with payouts beginning the year after Mr. Keeler retires as Chief Executive Officer, but
payouts are calculated by reference to the increase in the Company's book value due to
earnings over the term of Mr. Keeler's service. Specifically, 1.5% of the annual increase
in the Company's book value is allocated to a deferred compensation account which,
together with accrued interest, is payable to him in one or more installments beginning in
the year after his retirement.
In 1995, the Company established the 1995 Nonqualified Deferred Compensation Plan (Nonqualified Plan). The purpose of this nonqualified, unfunded plan is to permit certain members of management and other employees to supplement their retirement savings beyond the limits imposed by federal tax law on the Company's Profit Sharing and Salary Savings Plan and Trust (Profit Sharing Plan). Pursuant to the Nonqualified Plan, employees may elect to defer a portion of their salary and bonus until their retirement or other termination. The Company does not contribute to the Plan. However, to the extent that deferrals under the Nonqualified Plan reduce a participant's compensation base for purposes of the Company's contribution to the Profit Sharing Plan, the Company will credit to the participant's Nonqualified Plan account an amount equal to the difference between the Company's actual contribution to the Profit Sharing Plan and the amount which the Company would have contributed had the participant not elected to defer an additional amount under the Nonqualified Plan.
Chief Executive Officer Compensation
Mr. Keelers base salary for the current fiscal year is $310,790.
This base salary is competitive with chief executive positions within the state and
industry. Like all Company executives, Mr. Keelers bonus is a function of the
Companys ROE, and his bonus factor has remained at 4.0 for the past 5 years. Mr.
Keelers deferred compensation allocation is singularly a function of an increase in
the Companys book value. The number of stock options, the
benefit of which is tied solely to Company performance, awarded to Mr. Keeler under the
Long-Term Incentive Plan increased proportionately with the increase in the number of
options granted to all members of management, reflecting a systematic effort to enhance
management's personal financial interest in Company proformance.
Limitation on Deductibility of Certain Compensation for Federal Income Tax Purposes
Section 162(m) of the Internal Revenue Code, enacted as part of the Omnibus Budget
Reconciliation Act of 1993, limits the annual compensation deduction, for federal income
tax purposes, of publicly held companies such as WLR Foods, Inc. to $1 million for
compensation paid to each of its chief executive officer and its four highest compensated
executive officers other than the chief executive officer. However, this limit does not
apply to "performance-based" compensation as defined in that section and the
regulations thereunder.
The Company does not anticipate that the total annual compensation paid to any executive, including the Chief Executive Officer, will exceed the $1 million limit. Moreover, options granted pursuant to the 1998 Long-Term Incentive Plan qualify as performance-based compensation, and will therefore not be subject to the limitation. Accordingly, Section 162(m) is expected to have no impact on the Company during the current fiscal year.
William H. Groseclose, Jr.
Katherine K. Clark
Phillip C. Stone
Executive Compensation Committee Members
SUMMARY COMPENSATION
The Summary Compensation Table below contains information concerning annual and
long-term compensation provided to the Company's Chief Executive Officer, and the five
other most highly compensated executive officers of the Company, for all services rendered
to the Company and its subsidiaries for the fiscal years ending July 1, 2000, July 3,
1999 and June 27, 1998.
SUMMARY COMPENSATION TABLE |
||||||
Long-Term |
Other |
|||||
Annual Compensation |
Compensation |
Compensation (2) |
||||
Name and |
Other Annual |
|||||
Principal Position |
Year |
Salary($)1 |
Bonus($) |
Compensation ($) |
Options |
($) |
James L. Keeler | 99-00 |
301,738 |
0 |
0 |
90,000 |
29,498 (3) |
Chief Executive | 98-99 |
297,868 |
325,201 |
0 |
60,000 |
258,635 |
Officer & President | 97-98 |
267,248 |
0 |
0 |
60,000 |
3,595 |
Dale S. Lam | 99-00 |
175,000 |
0 |
0 |
15,000 |
3,200 |
Chief Financial | 98-99 |
143,779 |
85,960 |
0 |
18,500 |
2,683 |
Officer, Treasurer | ||||||
Jane T. Brookshire | 99-00 |
175,000 |
0 |
0 |
15,000 |
3,200 |
Vice President | 98-99 |
150,887 |
61,785 |
0 |
10,000 |
4,099 |
Administration, | 97-98 |
131,115 |
0 |
0 |
10,000 |
2,570 |
Secretary | ||||||
Ronald E. Morris | 99-00 |
180,000 |
0 |
0 |
15,000 |
3,200 |
Vice President | 98-99 |
168,187 |
91,663 |
0 |
10,000 |
4,589 |
Turkey Operations | 97-98 |
139,039 |
0 |
0 |
10,000 |
1,500 |
Wampler Foods, Inc. | ||||||
Walter F. Shafer, III | 99-00 |
180,000 |
0 |
0 |
15,000 |
3,200 |
Vice President | 98-99 |
168,187 |
91,663 |
0 |
10,000 |
4,578 |
Chicken Operations | 97-98 |
138,654 |
0 |
0 |
10,000 |
2,715 |
Wampler Foods, Inc. | ||||||
John A. Turner | 99-00 |
220,000 |
0 |
0 |
15,000 |
3,200 |
Vice President | 98-99 |
20,000 |
10,200 |
0 |
10,000 |
0 |
Sales and Marketing | ||||||
Wampler Foods, Inc. |
1 Includes 53 weeks for the fiscal year ending July 3, 1999, and 52 weeks for fiscal years ending July 1, 2000 and June 27, 1998.
2 Includes Company contributions made to the Company's Profit Sharing and Salary Savings Plan of $3,200 for each of Messrs. Keeler, Lam, Morris, Shafer and Turner, and Ms. Brookshire.
3 Includes $26,298 of deferred compensation which is based on increases in the Companys book value due to earnings.
OPTION GRANTS IN LAST FISCAL YEAR |
|||||
% of Total |
|||||
Options |
Exercise |
||||
Granted to |
or Base |
||||
Options |
Employee in |
Price |
Expiration |
Grant Date |
|
Name |
Granted |
Fiscal Year |
Share ($) |
Date |
Present Value ($)1 |
James L. Keeler | 90,000 |
67.2 |
5.0469 |
4/24/10 |
295,870 |
Dale S. Lam | 15,000 |
11.2 |
5.0469 |
4/24/10 |
49,312 |
Jane T. Brookshire | 15,000 |
11.2 |
5.0469 |
4/24/10 |
49,312 |
Ronald E. Morris | 15,000 |
11.2 |
5.0469 |
4/24/10 |
49,312 |
Walter F. Shafer, III | 15,000 |
11.2 |
5.0469 |
4/24/10 |
49,312 |
John A. Turner | 15,000 |
11.2 |
5.0469 |
4/24/10 |
49,312 |
1 The values shown reflect a standard application of the Black-Scholes Option Pricing Model, assuming a risk-free rate of return of 6.5% and an annualized volatility factor of 54%. Values shown do not take into account risk factors such as nontransferability and restrictions on exercisability. The Black-Scholes Model is a commonly utilized model for valuing options which assumes that the possibilities of future stock returns (dividends plus stock value appreciation) resemble a bell shaped curve. The model applies a statistical analysis to the Company's historical data to project the value of the options.
AGGREGATED
OPTION EXERCISES IN LAST FISCAL YEAR |
||||
Value of |
||||
Number of |
Unexercised |
|||
Unexercised |
In-The-Money |
|||
Options at |
Options at |
|||
Fiscal (1) |
Fiscal |
|||
Shares |
Year-End |
Year-End |
||
Acquired |
Value |
Exercisable/ |
Exercisable/ |
|
Name | On Exercise |
Realized ($) |
Unexercisable |
Unexercisable |
James L. Keeler | 0 |
0 |
220,000/170,000 |
$0/0 |
Dale S. Lam | 0 |
0 |
3,833/31,167 |
0/0 |
Jane T. Brookshire | 0 |
0 |
36,666/28,334 |
0/0 |
Ronald E. Morris | 0 |
0 |
9,666/28,334 |
0/0 |
Walter F. Shafer, III | 0 |
0 |
16,666/28,334 |
0/0 |
John A. Turner | 0 |
0 |
0/25,000 |
0/0 |
(1) Adjusted to give effect to the May 12, 1995 3-for-2 stock split.
EXECUTIVE AGREEMENTS
In 1998 the Company entered into a three-year employment agreement with the Chief
Executive Officer, which expires at the end of Fiscal Year 2001. The agreement governs Mr.
Keeler's compensation, specifically his base salary, bonus, perquisites and benefits.
Mr. Keeler's deferred compensation allocation will be calculated at 1.5% of the increase in the Company's book value over each preceding year, as explained previously under "Deferred Compensation." The Company has also agreed to provide group health insurance coverage to Mr. Keeler and his wife for the remainder of their lives, provided he does not retire before age 65. Mr. Keeler's perquisites and benefits are consistent with those provided to the Company's senior management.
Under the terms of the 1998 Employment Agreement, Mr. Keeler served as President and Chief Executive Officer of the Company for the first two years of the contract. The third year is anticipated to be a transition year, and the position and duties may be adjusted by the Board of Directors. Under the Agreement, Mr. Keeler agrees to work with the Board of Directors in identifying a successor, but also agrees to give serious consideration to an extension of the Employment Agreement if the Board requests additional time to identify a successor.
The Company has entered into severance agreements with each of the executive officers named in the above Summary Compensation Table (the Severance Agreements). Pursuant to the Severance Agreements, each of these individuals is entitled to certain payments (described below) if the Company terminates his or her employment during a specified period following a "Change in Control" of the Company.
For purposes of the Severance Agreements, a "Change in Control" occurs (A) when an individual, entity or group acquires beneficial ownership of 20% or more of the combined voting power of the Company's outstanding stock, subject to certain exceptions set forth in the executive's Severance Agreement, (B) when individuals who, as of February 4, 1994, constituted the Board of Directors (the "Incumbent Board") and individuals whose election, or nomination for election by the shareholders of the Company, was approved by a vote of at least seventy-five percent of the directors then comprising the Incumbent Board (who shall after election be considered members of the Incumbent Board unless such election occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Company's Board of Directors) shall cease to constitute a majority of the Company's Board of Directors, (C) upon the approval by the shareholders of the Company of a reorganization, merger or consolidation except in certain instances set forth in the executive's Severance Agreement, or (D) upon approval by the shareholders of the Company of the complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company, except in certain instances set forth in the Severance Agreements.
The Severance Agreements provide that if the Company terminates an executive officers employment during the three year period following a Change in Control of the Company, other than for death, Cause (willful and continued failure to perform duties or willfully engaging in illegal conduct, defined more specifically in the Severance Agreements) or Disability (as defined in the Severance Agreement), or if he or she resigns for Good Reason (includes an adverse change in status or position, a reduction in base salary or benefits, or relocation, defined more specifically in the Severance Agreements) during such three year period, he or she is entitled to receive an amount in cash (the Severance Payment) equal to three times his or her total annual compensation, which includes: (A) the higher of (x) his or her annual base salary on the date of termination or (y) his or her annual base salary in effect immediately prior to the Change in Control and (B) an amount equal to the average of the bonuses awarded to him or her in each of the three previous years, including, in the case of Mr. Keeler, any bonuses awarded pursuant to any deferred compensation arrangements. In the event that such payments become subject to an excise tax imposed by Section 4999 of the Internal Revenue Code (or any similar tax), the executive shall be entitled to receive a "gross-up" payment in respect of such taxes and in respect of any taxes on such gross-up payment as specified in the Severance Agreement. These Severance Agreements also provide for the payment in cash of the difference between the Termination Fair Market Value (as defined in the Severance Agreements) and the exercise price, of all unvested stock options, and for the continuation of employee welfare benefits (such as health insurance) for three years after termination if his or her employment is terminated during such three year period. In addition, Mr. Keeler will be entitled to receive the Severance Payment and other severance benefits if he resigns for any reason during the 30-day period immediately following the first anniversary of a Change in Control.
The Company has also entered into Termination of Severance Agreements with Messrs. Keeler and Lam in connection with the pending merger with Pilgrim's Pride, which would provide Messrs. Keeler and Lam with lump sum severance payments of $900,000 and $447,750, respectively, upon completion of the merger. The Termination Agreements, which are conditional upon consumation of the merger, would replace the Severance Agreements described above with respect to those two executives, and would significantly reduce the cost to the Company of their severance benefits.
STOCK PRICE PERFORMANCE TABLE
The graph on this page presents a comparison of five-year cumulative total shareholder returns for WLR Foods, Inc., the S&P 500 Index and a Peer Group Index. The graph reflects the annual return from the Company's five previous fiscal years-end, developed with a monthly index, assuming dividends are reinvested monthly. The graph also assumes an initial investment of $100 on July 1, 1995. The Peer Group Index consists of Cagles, Inc., Pilgrims Pride Corporation and Sanderson Farms, Inc., companies within the same industry and with similar equity market capitalization.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
Among WLR Foods, Comparable Companies, and the S & P 500
Jun-95 |
Jun-96 |
Jun-97 |
Jun-98 |
Jun-99 |
Jun-00 |
|
Composite | 100 |
111.26 |
143.94 |
177.06 |
227.6 |
97.735 |
S&P 500 | 100 |
126.01 |
169.74 |
220.94 |
271.21 |
290.88 |
WLR Foods | 100 |
99.112 |
58.664 |
48.142 |
59.042 |
33.609 |
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of shares of Company common stock
held as of July 1, 2000 (i) by each of the Company's directors, (ii) by the executive
officers named in the Summary Compensation Table, and (iii) by all directors and executive
officers as a group.
Number |
Percent |
|
Name |
Beneficially Owned |
of Class (1) |
Jane T. Brookshire | 51,300 (2) |
* |
Charles L. Campbell | 19,137 (3) |
* |
Katherine K. Clark | 3,663 (3) |
* |
Stephen W. Custer | 40,201 (4) |
* |
William H. Groseclose, Jr. | 13,771 (4) |
* |
J. Craig Hott | 111,106 (5) |
* |
Marie C. Johns | 662 (3) |
* |
James L. Keeler | 320,379 (6) |
1.95 |
Dale S. Lam | 12,748 (7) |
* |
Ronald E. Morris | 18,369 (8) |
* |
Walter F. Shafer, III | 34,222 (9) |
* |
Phillip C. Stone | 107,799 (10) |
* |
John A. Turner | 6,116 (11) |
* |
William D. Wampler | 765,937 (12) |
4.73 |
All directors and executive | 1,505,410 (13) |
9.12 |
officers as a group | ||
(consisting of 14 persons) |
(*) Denotes percent ownership not exceeding 1% of the class of common stock.
(1) Based on 16,176,910 shares outstanding as of July 1, 2000 plus shares which members of management have the option to purchase within 60 days of July 1, 2000.
(2) Includes 9,867 owned directly, through the WLR Foods, Inc. Employee Stock Purchase Plan and her retirement accounts, 1 share owned jointly with her husband, 1,433 shares held by her husband through his self-directed retirement account, and 39,999 shares which Ms. Brookshire has the right to purchase within 60 days of July 1, 2000 through the exercise of options. Ms. Brookshire disclaims beneficial interest in the shares held by her husband.
(3) All shares owned directly.
(4) All shares owned directly and through his self-directed retirement account.
(5) Includes 105,992 shares owned by E. E. Hott, Inc., of which Mr. Hott is an officer and director, 4,964 shares owned jointly with his wife, and 150 shares held by his wife as custodian for Mr. Hott's son. Mr. Hott disclaims beneficial interest in the shares held by his wife as custodian.
(6) Includes 56,457 shares owned directly and through the Employee Stock Purchase Plan and his retirement accounts, 23,922 shares owned by his wife directly and through her self-directed retirement account, and 240,000 shares which Mr. Keeler has the right to purchase within 60 days of July 1, 2000 through the exercise of options. Mr. Keeler disclaims beneficial interest in the shares owned by his wife.
(7) Includes 5,347 shares owned directly, through the WLR Foods, Inc. Employee Stock Purchase Plan or through his self-directed retirement accounts, 235 shares held by his wife through her self-directed retirement account, and 7,166 shares which Mr. Lam has the right to purchase within 60 days of July 1, 2000 through the exercise of options. Mr. Lam disclaims beneficial interest in the shares held by his wife.
(8) Includes 370 shares owned through the WLR Foods, Inc. Employee Stock Purchase Plan, 5,000 shares owned by his wife, and 12,999 shares which Mr. Morris has the right to purchase within 60 days of July 1, 2000 through the exercise of options. Mr. Morris disclaims beneficial interest in the shares held by his wife.
(9) Includes 14,223 shares owned directly and through the WLR Foods, Inc. Employee Stock Purchase Plan and 19,999 shares which Mr. Shafer has the right to purchase within 60 days of July 1, 2000 through the exercise of options.
(10) Includes 2,302 shares owned directly and 105,497 shares owned by Bridgewater College, of which Mr. Stone is president. Mr. Stone disclaims beneficial interest in the shares owned by Bridgewater College.
(11) Includes 179 shares owned directly, 2,604 shares owned jointly with his wife and 3,333 shares which Mr. Turner has the right to purchase within 60 days of July 1, 2000 through the exercise of options.
(13) Includes 258,155 shares owned directly and as general partner of Wampler Land, 204,260 shares owned by his wife, 28,517 shares owned by May Meadows Farms, Inc., of which Mr. Wampler is an officer and director, 194,469 shares held as trustee of the Charles W. Wampler, Sr. Family Trust, and 80,536 shares held as trustee of the Charles W. Wampler, Sr. Charitable Annuity Trust. Mr. Wampler disclaims beneficial interest in the shares owned by his wife or held by the Trusts.
(14) Includes 323,496 shares which the group has the
right to purchase within 60 days of July 1, 2000 through the exercise of options.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
The Company's directors and officers are actively involved in, and
knowledgeable about, the Company's businesses. This is largely a result of the
relationship between the Company and certain of its directors and their families.
The following table identifies (i) amounts in excess of $60,000 paid by the Company to each of the directors and executive officers, members of their immediate family, and entities related to the directors and executive officers who were contract growers with the Company during the fiscal year ended July 1, 2000, and (ii) amounts paid to entities related to directors and executive officers which were contract growers if such payments exceeded five percent of such entities' gross revenues for such activity during the fiscal year ended July 1, 2000. All such transactions were on the same bases and terms as transactions with unrelated parties.
Directors and |
Total Amount Received from the |
Executive Officers |
Company and its Subsidiaries |
Charles L. Campbell, Director | $82,959 |
Timothy Campbell, his son | $71,264 |
J. Craig Hott, Director | |
Hott's Farming, Inc. | $234,440 |
James L. Keeler, President, Chief | |
Executive Officer and Director | |
Gregory Keeler, his son | $165,085 |
William D. Wampler, Director | |
C. W. Wampler & Sons | $146,469 |
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 1, 2000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedule and Exhibits
Financial Statements
Consolidated Statements of Operations - Fiscal years ended July 1, 2000, July 3, 1999 and June 27, 1998
Consolidated Balance Sheets - July 1, 2000 and July 3, 1999
Consolidated Statements of Shareholders' Equity - Fiscal years ended July 1, 2000, July 3, 1999 and June 27, 1998
Consolidated Statements of Cash Flows - Fiscal years ended July 1, 2000, July 3, 1999 and June 27, 1998
Notes to Consolidated Financial Statements - Fiscal years ended July 1, 2000, July 3, 1999 and June 27, 1998
Independent Auditors' Report
Financial Statement Schedule
Independent Auditors' Report on Schedule
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) Reports on Form 8-K
None
(c) Exhibits
See Exhibit Index.
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, 2000
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, 2000
____/s/ Dale
S. Lam________________
Chief Financial Officer and Treasurer
Date: September 29, 2000
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
Charles L. Campbell*
___________________________
Director
Katherine K. Clark*
___________________________
Director
Stephen W. Custer*
___________________________
Director
William H. Groseclose, Jr.*
___________________________
Director
J. Craig Hott*
___________________________
Director
Marie C. Johns*
___________________________
Director
James L. Keeler
___________________________
Director
Phillip C. Stone*
___________________________
Director
William D. Wampler*
*By ___/s/ Dale S. Lam_________
Dale S. Lam, attorney-in-fact
EXHIBIT INDEX
2 Agreement and Plan of Merger dated September 27, 2000
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, incorporated by reference to Exhibit 4.8 of Form 10-K filed with the Securities and Exchange Commission on September 29, 1999.
4.9 Second Amendment, dated as of July 1, 1999, to the Credit Agreement dated as of November 20, 1998, incorporated by reference to Exhibit 4.9 to 10-K filed with the Securities and Exchange Commission on September 29, 1999.
4.10 Third Amendment, dated as of September 14, 1999, to the Credit Agreement dated as of November 20, 1998, incorporated by reference to Exhibit 4.10 to 10-K filed with the Securities and Exchange Commission on September 29, 1999.
4.11 Fourth Amendment, dated as of May _____, 2000, to the Credit Agreement dated as of November 20, 1998.
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, incorporated by reference to Exhibit 10.6 of Form 10-K filed with the Securities and Exchange Commission on September 29, 1999.
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, incorporated by reference to Exhibit 10.9 to Form 10-K filed with the Securities and Exchange Commission on September 29, 1999.
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.
10.15 Termination of Severance Agreement, dated September 27, 2000, between the registrant and James L. Keeler
10.16 Termination of Severance Agreement, dated September 27, 2000, between the registrant and Dale S. Lam
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.
24.2 Power of Attorney of Phillip C. Stone, incorporated by reference to Exhibit 24.3 of Form 10-K filed with the Securities and Exchange Commission on September 29, 1999.
24.3 Power of Attorney of Marie C. Johns.
27 Financial Data Schedule.
|