-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OSzoxKYXKpN8/qTp/lkrH2xg9ye09G9LEnklUD+TOUZq4TRv6nOres2gOmxiI3jU VKYTX9ga5ZEemFnZwOwXnA== 0000760775-94-000031.txt : 19941116 0000760775-94-000031.hdr.sgml : 19941116 ACCESSION NUMBER: 0000760775-94-000031 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940829 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WLR FOODS INC CENTRAL INDEX KEY: 0000760775 STANDARD INDUSTRIAL CLASSIFICATION: 2015 IRS NUMBER: 541295923 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17060 FILM NUMBER: 94559485 BUSINESS ADDRESS: STREET 1: P O BOX 7000 CITY: BROADWAY STATE: VA ZIP: 22815 BUSINESS PHONE: 7038674001 MAIL ADDRESS: STREET 1: 800 CO OP DRIVE CITY: TIMBERVILLE STATE: VA ZIP: 22853 FORMER COMPANY: FORMER CONFORMED NAME: WAMPLER LONGACRE ROCKINGHAM INC DATE OF NAME CHANGE: 19881114 FORMER COMPANY: FORMER CONFORMED NAME: WAMPLER LONGACRE INC DATE OF NAME CHANGE: 19880209 8-K/A 1 FORM 8K/A AMENDMENT NO. 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 2) CURRENT REPORT Pursuant to Section 13 or 15d of the Securities and Exchange Act of 1934 --------------------------- Date of Report (Date of earliest event reported) August 29, 1994 WLR Foods, Inc. (Exact name of registrant as specified in its charter) Virginia 0-17060 54-1295923 (State of Incorporation) (Commission File Number) (IRS Employer Identification No.) P.O. Box 7000 22815 Broadway, Virginia (Zip Code) (Address of Principal executive offices) (703) 896-7001 (Registrant's telephone number, including area code) Exhibit Index is on Page 37 1 Amendment No. 2 The undersigned hereby amends the following items, financial statements, exhibits or other portions of its current report on Form 8-K previously filed with the Commission on September 13, 1994. Item 2. Acquisition of Assets The Asset Purchase Agreement dated July 27, 1994 between WLR Foods, Inc. (the Registrant), Wampler-Longacre, Inc., the Registrant's wholly-owned subsidiary (Wampler-Longacre) (collectively, Wampler), Cuddy Farms, Inc. (Cuddy) and Cuddy International Corporation (Cuddy International) (collectively, the Cuddy Corporations) provided for an audited schedule of the working capital of Cuddy's Food Division (Cuddy Foods), and for certain post-closing adjustments that may be necessary as a result of such audit. Following the completion of such an audit by the Registrant's independent auditors KPMG Peat Marwick, Wampler and Cuddy executed a First Amendment to Asset Purchase Agreement dated October 26, 1994 (the Amendment). Pursuant to the Amendment, the purchase price of the acquisition was adjusted downward by $6,300,000, resulting in a final purchase price of $67 million. Under the terms of the Asset Purchase Agreement, $2,400,000 of the stock portion of the purchase price was withheld by Wampler pending the completion of the working capital audit, and consequently will not be issued. Cuddy has remitted the balance of the post-closing adjustments to Wampler in cash. Item 7. (a) Financial Statements. 2 CUDDY FARMS, INC. Food Division Audited Financial Statements October 30, 1993 and October 31, 1992 3 CUDDY FARMS, INC. Food Division Audited Financial Statements As Of October 30, 1993 and October 31, 1992 And For The Years Then Ended * * * * * * * * * * 4 CONTENTS Independent Auditors' Report . . . . . . . . . . Page 6 Financial Statements: Balance Sheets . . . . . . . . . . . . . . . . 7 - 8 Statements Of Operations . . . . . . . . . . . 9 Statements Of Changes In Division Equity . . . 10 Statements Of Cash Flows . . . . . . . . . . . 11 - 12 Notes To Financial Statements . . . . . . . . 13 - 26 5 INDEPENDENT AUDITORS' REPORT To The Shareholders of Cuddy Farms, Inc. Marshville, North Carolina We have audited the accompanying balance sheets of The Food Division of Cuddy Farms, Inc. as of October 30, 1993 and October 31, 1992, and the related statements of operations, changes in division equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Food Division of Cuddy Farms, Inc. at October 30, 1993 and October 31, 1992, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. POTTER & COMPANY, P.A. September 22 , 1994 Monroe, North Carolina 6 CUDDY FARMS, INC. FOOD DIVISION BALANCE SHEETS October 30, 1993 and October 31, 1992
ASSETS 1993 1992 ---------- ---------- CURRENT ASSETS Cash and cash equivalents $ 1,417,114 $ 838,013 Accounts receivable (net of allowance for doubtful accounts of $25,000 in 1993 and 1992) 14,836,908 13,130,779 Current portion of notes receivable 201,140 108,432 Inventories 26,116,778 29,417,501 Prepaid expenses 129,288 133,653 ----------- ------------ 42,701,228 43,628,378 ------------ ----------- PROPERTY, PLANT AND EQUIPMENT Building and land improvements 17,703,679 16,595,027 Equipment 32,537,873 30,870,700 Trucks and automobiles 2,089,837 1,983,257 Office furniture and fixtures 936,877 883,151 Leasehold improvements 38,732 34,732 Construction in progress 317,035 358,940 ------------ ------------ 53,624,033 50,725,807 Less accumulated depreciation 27,097,263 24,003,416 ------------ ------------ 26,526,770 26,722,391 Land 2,875,330 3,349,522 ------------ ------------ Total Property, Plant And Equipment, Net 29,402,100 30,071,913 ------------ ------------ OTHER ASSETS Notes receivable 464,263 529,131 Investments 644,383 421,375 Deposits 199,724 - Non-competition agreement 63,307 83,310 ------------ ------------ Total Other Assets 1,371,677 1,033,816 ------------ ------------ TOTAL ASSETS $ 73,475,005 $ 74,734,107 =========== ===========
See Accompanying Notes to Financial Statements. 7
LIABILITIES AND DIVISION EQUITY 1993 1992 --------- ---------- CURRENT LIABILITIES Bank overdraft $ 3,627,229 $ 3,758,079 Current maturities of long-term debt 1,923,000 3,958,000 Accounts payable 5,955,204 6,625,589 Amounts due affiliated companies 33,915,852 34,416,334 Amounts withheld from employees 164,346 182,820 Employee savings 66,354 78,452 Accrued expenses: Salaries and wages 843,631 395,887 Insurance and payroll taxes 64,356 67,014 Property and other taxes 251,533 255,226 Interest 182,080 191,463 Other 83,716 110,828 ---------- ----------- Total Current Liabilities 47,077,301 50,039,692 DEFERRED INCOME TAXES 6,979,134 3,524,377 LONG-TERM DEBT 21,328,000 23,251,000 ----------- ----------- Total Liabilities 75,384,435 76,815,069 ----------- ----------- DIVISION EQUITY (1,909,430) (2,080,962) ----------- ----------- TOTAL LIABILITIES AND DIVISION EQUITY $ 73,475,005 $ 74,734,107 =========== ===========
8 CUDDY FARMS, INC. FOOD DIVISION STATEMENTS OF OPERATIONS For The Years Ended October 30, 1993 and October 31, 1992
1993 1992 ------------ ------------- Sales $ 163,277,281 $ 161,369,666 Cost of Goods Sold 149,307,217 145,957,748 ------------- ------------ Gross Profit 13,970,064 15,411,918 Selling, General And Administrative Expenses 8,447,447 15,629,540 ------------ ------------ Income (Loss) From Operations 5,522,617 (217,622) Other Income And (Expenses) - Net 269,182 (135,442) ------------ ------------ Income (Loss) Before Interest Expense And Income Taxes 5,791,799 (353,064) Interest Expense (3,501,151) (3,787,207) ------------ ------------ Income (Loss) Before Income Taxes 2,290,648 (4,140,271) Provision For (Benefit From) Income Taxes 2,119,116 (1,606,947) ------------ ------------ Net Income (Loss) $ 171,532 $ (2,533,324) ============ ============
See Accompanying Notes to Financial Statements. 9 CUDDY FARMS, INC. FOOD DIVISIONS STATEMENTS OF CHANGES IN DIVISION EQUITY For The Years Ended October 30, 1993 and October 31, 1992 Beginning of Year, October 26, 1991 $ 452,362 Net Income (Loss) (2,533,324) ----------- End of Year, October 31, 1992 (2,080,962) Net Income (Loss) 171,532 End of Year, October 30, 1993 $ (1,909,430) =========== See Accompanying Notes To Financial Statements. 10 CUDDY FARMS, INC. FOOD DIVISION STATEMENTS OF CASH FLOWS For The Years Ended October 30, 1993 And October 31, 1992
1993 1992 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ 171,532 $ (2,533,324) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: (Gain) Loss in disposal of fixed assets 28,202 (17,623) Depreciation and amortization 2,917,620 2,939,363 Increase (decrease) in deferred income taxes 3,454,757 (254,277) Equity (Gain) Loss in partnership investments (222,688) 325 ----------- ----------- 6,349,423 134,464 Net change in non-cash operating assets and liabilities Items related to affiliated companies (500,482) 6,967,473 Other items 1,302,900 (1,009,623) ------------ ------------ Net Cash Provided By Operating Activities 7,151,841 6,092,314 ------------ ------------ CASH FLOWS FROM INVESTMENT ACTIVITIES Additions to fixed assets (2,028,774) (2,271,012) Proceeds from disposal of assets 648,477 293,473 Inter-company transfers to fixed assets (876,029) (294,762) Decrease (Increase) in other non-current assets (199,724) (11,274) ------------- ------------ Net Cash Used In Investment Activities (2,456,050) (2,283,575) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net change in inter-company cash transfer account - (1,774,000) Repayments of long-term debt (3,958,000) (2,133,000) Collection of notes receivable 62,160 38,686 Additions to notes receivable (90,000) - ------------- ------------ Net Cash Used In Financing Activities (3,985,840) (3,868,314) ------------- ------------ NET INCREASE (DECREASE) IN CASH 709,951 (59,575) Net Cash Position At Beginning Of Year (2,920,066) (2,860,491) ------------- ------------ Net Cash Position At End Of Year $ (2,210,115) $ (2,920,066) ============= ============ See Accompanying Notes To Financial Statements.
11
1993 1992 ------------- ------------- CHANGES IN NON-CASH OPERATING ASSETS AND LIABILITIES (Increase) Decrease In Current Assets Accounts receivable - trade and other $ (1,706,129) $ (1,855,338) Inventories 3,300,723 (2,051,810) Prepaid expenses 4,365 124,635 ------------- ------------ Total (Increase) Decrease In Non-Cash Operating Assets 1,598,959 (3,782,513) ------------- ------------ Increase (Decrease) In Current Liabilities Accounts payable (670,385) 3,301,022 Amounts due - affiliated companies (500,482) 6,967,473 Amounts withheld from employees (18,474) 46,270 Employee savings (12,098) 16,535 Accrued expenses 404,898 (590,937) -------------- ------------ Total Increase (Decrease) In Non-Cash Operating Liabilities (796,541) 9,740,363 -------------- ------------ NET CHANGE IN NON-CASH OPERATING ASSETS AND LIABILITIES $ 802,418 $ 5,957,850 ======== =========
12 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description Of The Business Cuddy Farms, Inc. is a major supplier of turkey eggs and poults. The Company has a farm division with breeding and hatching facilities located in North Carolina, South Carolina, Iowa, Missouri, Ohio, Virginia and Minnesota. The food division operates three turkey processing facilities and a feed manufacturing facility in North Carolina. B. Basis Of Presentation The accompanying financial statements include the accounts of The Food Division of Cuddy Farms, Inc. Significant inter-company transactions and balances have not been eliminated. C. Inventories Inventory values are determined using the following policies: 1) Turkey Flocks Live poultry flocks are valued at the accumulated flock cost including poult and feed costs. 2) Processed Turkey Products Processed turkey is valued at the lower of cost, or market with cost determined on first-in, first- out basis. 4) Supplies and Feed Ingredients Supply and feed ingredient inventories are valued at the lower of cost or market on a first-in, first-out basis. D. Accounting Period The Company has adopted a 52-53 week fiscal year that ends on the last Saturday in October for both financial and tax reporting purposes. E. Allowance For Doubtful Accounts The allowance for doubtful accounts is based on a historical bad debt experience and on an evaluation of individual accounts. Accounts are charged against the allowance when deemed uncollectible. - - Continued - 13 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued F. Property, Plant And Equipment Property, plant and equipment are recorded at cost. Depreciation starts when the asset is placed in service. For financial reporting purposes, depreciation expense is generally provided on a straight-line basis. Estimated useful lives are as follows: Category Years Buildings and land 15 - 40 improvements 3 - 15 Equipment 3 - 5 Trucks and automobiles 5 - 10 Office furniture and 5 fixtures Leasehold improvements Analysis of depreciation expense: 1993 1992 ------------- ------------ Charged to cost of goods sold $ 2,716,486 $ 2,841,703 Charged to general and administrative expense 181,127 77,657 -------------- ------------ Total depreciation expense $ 2,897,613 $ 2,919,360 ============== ============ Expenditures that result in the enhancement of the assets involved are capitalized. Maintenance and repair costs are expensed when incurred. Upon sale or other disposition, any gain or loss is included in income. Equipment leased under capital leases is recorded in property, plant and equipment, with corresponding obligations carried in long-term debt. The amount capitalized is the lower of the present value of minimum lease payments or the fair market value of the leased property. Depreciation on capital leases is recorded on a straight-line basis, generally over the estimated useful life of the equipment. - - Continued - 14 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued G. Non-competition Agreement Non-competition agreement represents the unamortized balance of an amount paid to an individual in connection with the purchase of the operating assets of Stout Enterprises; the agreement amount is being amortized over 10 years. H. Investments Investments include 50% ownership of Cuddy/Modern Storage partnership. The Company accounts for investments under the equity method, in which the Company's share of net income or loss is directly reflected in the financial statements and the investment account is adjusted accordingly. (See also Note 11). I. Income Taxes Deferred income taxes are provided for temporary differences in reporting income and expenses for financial statement and tax purposes. These differences arise primarily from the use of accelerated depreciation and cash basis accounting methods previously used for tax reporting purposes. Those differences expected to be recognized in the subsequent year are reported as a current liability. The Company adopted Statement of Financial Standard (SFAS) No. 109 as a method of reporting income taxes. SFAS 109 requires that deferred income tax liabilities be determined using the tax rate expected to be in effect when the taxes are actually paid. Accordingly, income tax expense provisions will increase or decrease in the same period in which a change in the tax rates is enacted. Previous rules required providing deferred taxes using rates in effect when the liability was first recorded, without subsequent adjustment solely for the tax rate changes. J. Cash And Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. - - Continued - 15 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued K. Reclassifications Certain items on the October 31, 1992, financial statement have been reclassified to conform with current year classifications and financial statement presentations. NOTE 2 - SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS 1993 1992 --------------- -------------- Net cash paid during the year for: Interest, net $ 3,510,534 $ 3,741,656 ========= ========= NOTE 3 - NOTES RECEIVABLE 1993 1992 ------------ ------------ Note receivable due from contract growers at varying interest rates and maturities $ 665,403 $ 637,563 Less portion due within one year 201,140 108,432 ------- ------- Amounts Due After One Year $ 464,263 $ 529,131 ======= ======= NOTE 4 - INVENTORIES 1993 1992 ----------- ----------- Inventories On Hand: Live poultry flocks $ 12,269,760 $ 13,732,807 Processed turkey products 8,404,286 10,242,851 Supplies and feed ingredients 5,442,732 5,441,843 -------------- ------------ Total Inventories $ 26,116,778 $ 29,417,501 ============== ============ - - Continued - 16 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 5 - LONG-TERM DEBT 1993 1992 ----------- --------- Note payable to an insurance company, repayment provisions provide for monthly installments of $34,000 plus interest at 13.25%. Principal payments began October 1, 1983 and continue until August 1, 1995. The remaining balance will be due September 1, 1995. The loan is secured by a renewable irrevocable letter of credit drawn on a bank. $ 1,136,000 $ 1,544,000 Note payable to an insurance company, repayment provisions provide for monthly installments of $12,500 plus interest at 14.5%. The balance was paid September 1, 1993. - 1,975,000 Note payable to an unrelated individual payable in annual installments of $15,000 plus interest at 10% on the unpaid balance, secured by real estate. 15,000 30,000 On October 25, 1989, the Company entered into a note agreement with a mortgage company. Interest is payable quarterly beginning on January 1, 1990 at 9.66%. Semi-annual principal payments of $750,000 (Food Division portion) are due beginning October 1, 1992 through April 1, 2004, with the remaining principal due on October 1,2004. The loan is secured by all real and personal property (except office equipment and rolling stock) held in Union and Anson Counties, North Carolina and Chesterfield County, South Carolina and a third priority security interest in accounts receivable and inventories. The amount shown represents only the portionallocated to the Food Division. 22,100,000 23,660,000 ----------- ----------- 23,251,000 27,209,000 Less payments due within one year 1,923,000 3,958,000 ----------- ---------- LONG-TERM DEBT $ 21,328,000 $ 23,251,000 ========== ========== - - Continued - 17 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 5 - LONG-TERM DEBT - Continued Required principal payments on long-term debt are as follows: Year Ending Amount ----------- -------------- 1994 $ 1,923,000 1995 2,228,000 1996 1,500,000 1997 1,500,000 1998 1,500,000 Subsequent to 1998 14,600,000 ---------- Total Long-Term Debt $ 23,251,000 ========== Interest cost associated with notes payable and long-term debt was $3,501,151 for 1993 and $3,787,207 for 1992. Various loan agreements contain covenants relating to the ownership, maintenance of net worth and tangible assets, dividend restrictions, life insurance coverage, repair expenditures, and others. As of October 30, 1993 and October 31, 1992 the Company had complied with or obtained waivers relating to the loan covenants. NOTE 6 - COMMITMENTS During 1993, the company bought back part of its rolling stock from a financing company under a sale/leaseback agreement. The payments were calculated at a 20% payoff and totaled $270,309. The Company is also obligated under several noncancellable operating leases for transportation and data processing equipment, plant facilities and store facilities that expire over the next five years. Certain lease agreements provide an option to purchase the property equal to 20% of their cost. - - Continued - 18 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 6 - COMMITMENTS - Continued The approximate annual minimum lease payments under all noncancellable operating leases as of October 30, 1993 are as follows: 1994 $ 1,164,263 1995 839,504 1996 306,015 1997 137,076 1998 64,026 --------- Total $ 2,510,884 ========= Rent expense for all operating leases for the years ended October 30, 1993 and October 31, 1992 amounted to $1,214,943 and $1,361,097, respectively. The Company is also party to several contracts in which it agrees to the joint investment and/or operation of growing farms and hatcheries. Under these agreements, the Company must make fixed payments for compensation of management services and variable payment based on a fixed rate per unit of production provided to Cuddy Farms, Inc. NOTE 7 - RELATED PARTY TRANSACTIONS Cuddy Farms, Inc. is related to several other companies; Descriptions of the affiliations and transactions with affiliated companies are provided below: Cuddy Farms, Inc. is related to Cuddy International Corporation a Canadian Corporation, by stock ownership and common management. Cuddy Farms, Inc. is related to several Canadian entities owned and operated by Cuddy International Corporation and/or the Cuddy family. Cuddy Farms, Inc. owns all the outstanding stock of Colony Foods,Inc. Mr. D. Bruce Cuddy is the President of Cuddy Farms, Inc. and a Director of Cuddy International Corporation. Cuddy Farms, Inc. - Food Division is related to Cuddy Farms, Inc. Farms Division. - - Continued - 19 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 7 - RELATED PARTY TRANSACTIONS - Continued Cuddy Farms TRANSACTIONS D. Bruce Inc.-Farms DURING 1993 Cuddy Division ----------- -------- ------------ Sales to $ - $ 6,981,050 Purchases from - 15,221,556 Administrative fees paid to - 2,561,853 Amount due to - 33,915,852 Growers fees 510,991 TRANSACTIONS DURING 1992 Sales to $ - $ 7,119,206 Purchases from - 17,087,875 Administrative fees paid to - 2,047,475 Amount due to - 34,416,334 Grower fees 523,907 NOTE 8 - INCOME TAXES The 1986 Tax Reform Act required substantial change to the tax accounting methods previously adopted by the Company. Previous tax regulations permitted family owned farming businesses to use the cash basis of accounting for income tax purposes. The Company had consistently followed the cash basis of accounting for income tax purposes. Current tax regulations disallow the cash basis of accounting for certain agriculture companies that previously used the cash basis of accounting. These corporations are now required to use the accrual method of accounting for determining taxable income. - - Continued - 20 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 8 - INCOME TAXES - Continued In similar accounting changes, the IRS has usually required the taxpayer to make adjustments, over a period of time, to report the effect of the accounting change into taxable income. In such cases the deferred income taxes are absorbed (timing differences reverse) over the adjustment period required by the IRS. In the case of family owned farming corporations there are special provisions. The amount of the adjustment that would be required as a result of the change from the cash to the accrual method of accounting is not required to be reflected in taxable income unless one of two situations occur. The tax laws refer to this unrecognized adjustment as a "suspense account". This suspense account will only have to be recognized as taxable income if: 1) The corporation ceases to be a family owned farming corporation, or 2) The gross receipts from farming activities in any year are less than the gross receipts in the last year (base year) the corporation was allowed to use the cash basis of accounting, which will cause a prorata portion of the suspense account to be recognized in taxable income. Base year sales for this purpose are $126,270,839. As described in Note 13 Cuddy Farms, Inc. sold the assets of the Food Division to WLR, Inc. on August 29, 1994. As a result, the gross receipts of Cuddy Farms, Inc. will drop below the base year sales of $126,270,839. Unused net operating losses and tax credits will be used to offset the expected tax liability. Because the gross receipts for fiscal year 1994 will be greater than the base year sales, the suspended taxes are not expected to come due until the end of fiscal year 1995. The Company has reduced deferred income taxes to the extent that it has net operating losses and tax credit carryforward items. An analysis of income taxes is provided below: 1993 1992 ----------- ------------ Net change in deferred income taxes $ 2,372,285 $ (254,277) State net economic loss expiration 1,082,472 - Net change in benefit from division tax receivable (1,335,641) (1,352,670) ----------- ----------- Provision For (Benefit From) Income Taxes $ 2,119,116 $(1,606,947) =========== ============ - - Continued - 21 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 8 - INCOME TAXES - Continued An analysis of deferred income taxes is provided below: 1993 1992 ------------- ------------ Beginning of year $ 3,524,377 $ 3,778,654 Expired state operating loss carryforward (1,082,472) - Increase (decrease) in deferred taxes due to temporary differences of determining financial basis and tax basis income 4,537,229 (254,277) --------- --------- End of Year $ 6,979,134 $ 3,524,377 ========== ========= Deferred income taxes consist of the following: 1993 1992 ---------- ---------- Suspended deferred income taxes relating to the past use of cash basis accounting for tax purposes $ 12,768,375 $ 12,768,375 Deferred income taxes relating to the use of accelerated depreciation, and non-capitalized interest and leases for tax purposes 5,458,153 5,251,237 Deferred charges as a result of unused tax credits (404,890) (275,029) Deferred income taxes relating to difference in valuation of inventory for tax purposes (146,577) (137,578) Tax effect of net operating loss carryforward (10,829,496) (14,199,624) Other miscellaneous amounts 133,569 116,996 ------------ ----------- Deferred income taxes $ 6,979,134 $ 3,524,377 ============ ============= - - Continued - 22 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 8 - INCOME TAXES - Continued An analysis of income taxes for Cuddy Farms, Inc. as reported in the October 30, 1993 and October 31, 1992 consolidated financial statements is provided below: 1993 1992 ------------ ---------- Provision for federal and state income taxes $ 142,045 $ - Adjustment for under (over) accrual 4,889 10,507 Net change in deferred income taxes 2,474,317 131,823 Expiration of state net economic loss carryforward 1,462,800 - --------- ------- 4,084,051 $ 142,330 ========= ======= The amount of current and deferred tax expense allocated to the Foods and Farms Divisions of Cuddy Farms, Inc. has been computed as if each division were a separate taxpayer. The Foods Division had tax related balances due from Cuddy Farms, Inc. in the amounts of $3,725,550 and $2,389,909 respectively at October 30, 1993 and October 31, 1992 resulting from utilization of Foods Division's net operating losses by Cuddy Farms, Inc. For tax purposes as of October 30, 1993, Cuddy Farms, Inc. has the following carryforward items to offset future federal income tax liabilities: Expiration Amount Years -------------- ------------ Net operating loss carryforward $ 30,156,833 Through 2004 Unused tax credits carryforward $ 809,780 Through 2006 The portion of the carryforward items attributable to the Foods Division is provided below: Expiration Amount Years -------------- ------------ Net operating loss carryforward $ 30,156,833 Through 2004 Unused tax credits carryforward $ 404,890 Through 2006 - - Continued - 23 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 9 - EMPLOYEE BENEFIT PLANS The Company maintains three employee benefit plans, a 401(k) Plan and Trust, and a Profit Sharing Plan and a non qualified retirement/survivor benefit plan. Effective November 1, 1992 the Profit Sharing Plan was merged into the 401(k) Plan. The 401(k) plan provides that certain hourly and salaried employees may contribute the maximum percent of gross earnings allowable by the IRS in any plan year. The Company in turn will match at least 50% of the employees' contributions up to 3% of compensation. Total contributions for the 401(K) Plan and Trust above referenced plans for 1993 and 1992 were $193,945 and $170,842, respectively. A Non-Qualified Retirement/Survivor Benefit Plan was adopted January 1, 1993. The plan provides that select key management employees may defer any amount of gross earnings, subject to IRS regulations, in any plan year. The Company and the employee enter into a Salary Deferral Agreement and a Split Dollar Agreement. Under the Deferral Agreement the employee elects to defer a certain amount of gross earnings for a minimum period of 5 years. The Company agrees to match employee's deferral up to a maximum of 4% of gross earnings and to credit the account for a defined annual interest rate throughout the life of the agreement. Under the Survivor Benefit Plan the employee and the Company enter into a Split Dollar Agreement whereby the Company assists the employee in purchasing life insurance utilizing the combined proceeds of the employee's deferral and the Company's match. The life insurance policy is assigned to the Company to assure the recovery of premiums paid by the Company prior to disbursement to the employee's named beneficiary. Total Company contribution for 1993 was $55,356. NOTE 10 - CONTINGENCIES The Company has a co-insurance group hospitalization plan. Under the plan the Company is self-insured for $60,000 per employee. The insurance company will pay all claims over $60,000 per individual per year not to exceed a lifetime benefit of $1,000,000 per salaried employee or $250,000 per hourly employee. No reasonable estimate can be made for future losses under the co-insurance plan described above. As of October 30, 1993, the Company had outstanding letters of credit in the amount of $2,039,657 as collateral on certain notes payable to an insurance company as described in Note 5. The Food Division's allocation of this amount is $1,136,000. The Company is self insured for its workers' compensation. - - Continued - 24 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 11 - INVESTMENTS Investments consist of the following: 1993 1992 ------------ ----------- Investment in Cuddy/Modern Storage $ 644,383 $ 421,375 partnership ======= ======= On November 19, 1990, the Company entered into a general partnership with a food storage vendor to construct and operate a cold storage distribution facility in Marshville, North Carolina. Construction began on the facility in December, 1990, and operations began in March, 1992. The partnership facility will operate under a partnership agreement through November 1, 2005, at which time it may be extended on an annual basis. All profits, leases and investment requirements are to be on an equal basis. Cuddy Farms, Inc. is listed as a guarantor of the $5,500,000 partnership note payable to a bank up to a maximum of $2,750,000. The note payable balance as of October 30, 1993 was $4,070,044. Significant financial items of the partnership at October 30, 1993 and October 31, 1992 are provided below: 1993 1992 --------- --------- Total assets $ 5,441,664 $ 6,120,847 Total liabilities 4,153,089 5,278,297 Total partners' capital 1,288,575 842,500 Total revenue 2,610,514 2,025,542 Net income (loss) 446,025 (651) - - Continued - 25 CUDDY FARMS, INC. FOOD DIVISION NOTES TO FINANCIAL STATEMENTS October 30, 1993 and October 31, 1992 NOTE 12 - RESTATEMENT The Foods Division of Cuddy Farms, Inc was included as supplemental financial information in the consolidated financial statements of Cuddy Farms, Inc. as of October 30, 1993 and October 31, 1992. Certain amounts have been restated to more clearly reflect the deferred tax liability and the provision for income taxes of the Foods Division. A summary of the restatement is provided below: 1993 1992 --------- --------- Decrease in deferred income taxes $ 4,492,198 $ 5,226,959 Increase in tax related balance due from the Farms Division $ 3,725,550 $ 2,389,909 Increase in division equity $ 8,217,748 $ 7,616,868 NOTE 13 - SUBSEQUENT EVENTS Cuddy Farms, Inc. sold substantially all of the assets of the Food Division to WLR, Inc. on August 29, 1994. 26 CUDDY FARMS, INC. FOOD DIVISION BALANCE SHEET JULY 30, 1994 (unaudited) ASSETS Current Assets Cash $21,056 Accounts receivable, net of allowances for doubtful accounts of 100,000 15,679,144 Notes receivable 84,267 Inventories (Note 2) 29,532,547 Prepaids and other current assets 3,249,085 ------------ Total current assets 48,566,099 Property, plant and equipment Land 2,875,330 Building & land improvements 17,703,679 Machinery and equipment 35,593,633 Leasehold improvements 38,732 Construction in progress 3,182,981 ------------ Total property, plant and equipment 59,394,355 Less accumulated depreciation (29,193,875) ------------ Total property, plant and equipment, net 30,200,480 Investments and other assets Other assets 513,077 Investment in partnership 597,224 ------------ Total investments and other assets 1,110,301 ------------ TOTAL ASSETS $79,876,880 ============ 27 (Balance Sheet Continued) LIABILITIES AND EQUITY Current Liabilities Bank overdrafts $1,697,346 Accounts payable 9,190,194 Amounts due affiliated companies 42,637,380 Current maturities of long-term debt 1,983,000 Amounts withheld from employees 725,782 Employee savings 74,794 Accrued expenses 2,877,426 ------------ Total current liabilities 59,185,922 Deferred income taxes 6,979,134 Long-term debt 20,167,000 Division equity (6,455,176) ------------ Total equity (6,455,176) ------------ OTAL LIABILITIES AND EQUITY $79,876,880 ============ See Accompanying Notes to the Financial Statements 28 CUDDY FARMS, INC. FOOD DIVISION STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JULY 30, 1994 AND JULY 31, 1993 (unaudited) NINE MONTHS ENDED July 30, 1994 July 31, 1994 Sales $125,962,650 $114,645,801 Cost of sales 121,437,767 104,267,996 ------------- ------------ Gross profit 4,524,883 10,377,805 Selling, general and admnistrative expenses 8,740,668 6,343,885 ------------- ------------ Operating income (loss) (4,215,785) 4,033,920 Other expenses Interest expense 2,338,252 2,668,674 Other expense (income), net 898,008 (162,815) ------------- ------------ Income (loss) before taxes (7,452,045) 1,528,061 Income tax expense (benefit) (2,906,298) 595,945 ------------- ------------ Net income (loss) ($4,545,747) $932,116 ============= ============ See Accompanying Notes to the Financial Statements. 29 CUDDY FARMS, INC. FOOD DIVISION STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 30, 1994 AND JULY 31, 1993 (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: July 30, 1994 July 31, 1993 Net earnings (loss) ($4,545,747) $932,116 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,096,612 2,332,218 Deferred income taxes 2,906,298 595,945 Change in operating assets and liabilities: (Increase) decrease in accounts receivabl (725,363) 727,838 Increase in inventories (3,415,769) (891,682) Increase in other current assets (6,026,095) (338,677) Increase (decrease) in accounts payable 13,978,505 (110,591) ------------ ----------- Net Cash Provided by Operating Activities 4,268,441 3,247,167 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (2,894,992) (2,035,875) Investments in other assets 261,376 217,607 ------------ ------------- Net Cash Used in Investing Activities (2,633,616) (1,818,269) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (1,101,000) (1,213,500) ------------ ------------ Net Cash Used in Financing Activities (1,101,000) (1,213,500) ------------ ------------ Increase in Cash and Cash Equivalents 533,825 215,398 Net Cash Position at Beginning of Fiscal Year (2,210,115) (2,860,491) ------------ ------------ t Cash Position at End of Period ($1,676,290) ($2,645,093) ============ ============ Supplemental cash flow information: Cash paid for: Interest $2,338,041 $2,649,423 Income taxes - - See Accompanying Notes to Financial Statements. 30 Notes to Financial Statements 1. Accounting Policies The financial statements presented herein include the accounts of Cuddy Farms, Inc. Food Division. The balance sheet as of July 30, 1994, and the statements of operations and cashflows for the nine months ended July 30, 1994 and July 31, 1993 are unaudited. In the opinion of management, all adjustments necessary for fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring accruals and the use of estimates. Interim results are not necessarily indicative of results for the entire fiscal year. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual financial statements and notes. The Company's unaudited interim financial statements should be read in conjunction with the annual financial statements for the fiscal year ended October 30, 1993 included elsewhere herein. In both, the accounting policies and principles used are consistent in all material respects. 2. Inventories A summary of inventories at July 30, 1994 follows. (unaudited) July 30, 1994 Live poultry and breeder flocks $14,738,253 Processed poultry and meat products 9,850,656 Supplies, feed and other 4,943,638 ------------ Total inventories $29,532,547 ========== 3. Subsequent event On August 29, 1994 Cuddy Farms, Inc. sold substantially all of the net assets of the Food Division to WLR Foods, Inc. except for long-term debt, tax liabilities and amounts due to affiliated companies. 31 (b) Pro forma combined financial information. The following sets forth the Registrant's unaudited pro forma statements of operations for the year ended July 2, 1994 adjusted to reflect the transaction related to the acquisition of Cuddy Foods. The Registrant issued 1,183,333 shares of common stock, along with $38,600,000 cash in exchange for the acquired business. Additionally, WLR Foods, Inc. paid $500,000 for the covenant of the Cuddy Corporations, A.M.C. Family Holdings, Ltd. and A.M. Cuddy not to compete with Wampler-Longacre for four years. The pro forma combined financial statements reflect the acquisition of the business as of the beginning of fiscal 1994 for the statement of operations and as of July 2, 1994 for the combined balance sheet. The unaudited pro forma combined statement of operations present the results as if Cuddy Foods had been acquired as of July 4, 1993. Such unaudited pro forma combined statement of operations shows the historical statements of the two entities combined with the material impacts of the transaction reflected in the pro forma adjustment column. These pro forma statements are to be used for comparison purposes only. The following pro forma information does not purport to be indicative of the actual results that would have been obtained if the transaction had occurred at the beginning of the period. Furthermore, these statements do not represent the expected future results of the combined company. These statements and the accompanying Notes should be read in conjunction with the historical consolidated statements and accompanying Notes of WLR Foods, Inc. and subsidiaries (WLR Foods) and the historical financial statements and footnotes of Cuddy Farms, Inc. Food Division included in this document. For purposes of the pro forma balance sheet included herein, the WLR Foods July 2, 1994 balance sheet is combined with the July 30, 1994 Cuddy Foods balance sheet. For the pro forma combined statement of operations, WLR Foods' fiscal year ended July 2, 1994 is combined with the Cuddy Farms, Inc. Food Division's 12 months of operations ended July 30, 1994. 32 PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED JULY 2, 1994 In thousands, except per share data (unaudited)
WLR Foods, Inc. Cuddy Farms, Inc. Pro Forma Combined Historical Foods Division 1 Adjustments Notes Pro Forma Net sales $727,270 $174,594 $37,600 2 $939,464 Cost of sales 632,620 166,086 20,868 2,3 819,574 -------- -------- -------- ------- Gross profit 94,650 8,508 16,732 119,890 Selling, general and administrative expenses 63,606 11,234 14,780 2,4 89,620 -------- --------- -------- ------- Operating income 31,044 (2,726) 1,952 30,270 Other expenses: Interest expense 4,989 3,170 (700) 5 7,459 Other expense (income), net (431) (172) 206 6 (397) -------- --------- -------- ------- Total other expenses 4,558 2,998 (494) 7,062 -------- --------- -------- ------- Earnings before taxes and minority interest 26,486 (5,724) 2,446 23,208 Income tax expense (benefit) 9,897 (1,383) 942 7 9,456 Minority interest 38 - 38 -------- --------- -------- ------- Net earnings (loss) $16,551 ($4,341) $1,504 $13,714 ======== ========= ======== ======= Net earnings per common share $1.51 - $1.13 Average common shares outstanding 10,967 - 1,183 12,150
Notes 1 Cuddy Farms, Inc., Food Division operating statement is for the period August 1, 1993 through July 30, 1994. 2 Sales and cost of sales and selling general and administrative expenses are adjusted to conform with WLR statement presentation and to eliminate intercompany transactions. 3 To reflect additional depreciation expense as a result of the acquisition. 4 To reflect the elimination of administrative fees paid to related parties. 5 To reflect the lower interest rates and lower borrowing levels as a result of the acquisition. 6 To reflect amortization of the investment in partnership over 5 years. 7 To reflect additional tax expense at 38.5%. 33 PRO FORMA COMBINED BALANCE SHEET July 2, 1994 (unaudited)
Cuddy Farms, Inc. WLR Foods, Inc. Food Division Pro Forma Combined Dollars in thousands Historical Historical Adjustments Note # Pro forma ASSETS Current Assets Cash and cash equivalents $771 $21 $792 Accounts receivable 52,305 15,763 68,068 Inventories 83,047 29,533 112,580 Other current assets 2,270 3,249 (3,027) 1 2,492 -------- ------- ------- --------- Total current assets 138,393 48,566 (3,027) 183,932 Investments 954 597 1,003 2 2,554 Property, plant and equipment, net 139,854 30,200 5,143 3 175,197 Other assets 3,850 513 500 4 4,863 -------- -------- -------- --------- TOTAL ASSETS $283,051 $79,876 $3,619 $366,546 ========= ======== ======= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable to banks $9,400 - 15,300 5 $24,700 Current maturities of long-term debt 6,275 1,983 1,721 6 9,979 Excess checks over bank balances 8,511 1,697 (1,697) 8 8,511 Trade accounts payable 20,937 9,191 30,128 Accrued expenses 16,103 3,678 1,026 10 20,807 Deferred income taxes 6,297 6,297 Other current liabilities 881 881 Amounts due affiliated companies - 42,636 (42,636) 9 -------- -------- -------- --------- Total current liabilities 68,404 59,185 (26,286) 101,303 Long-term debt, excluding current maturities 46,368 20,167 1,129 7 67,664 Deferred income taxes 9,813 6,979 (6,979) 11 9,813 Minority interest in consolidated subsidiary 475 475 Other liabilities and deferred credits 1,834 900 12 2,734 Common stock subject to repurchase - 17,750 13 17,750 Shareholders' equity : Common stock 61,416 10,650 14 72,066 Additional paid-in capital 3,253 3,253 Retained earnings 91,488 (6,455) 6,455 15 91,488 -------- -------- -------- --------- Total shareholders' equity 156,157 (6,455) 17,105 166,807 -------- -------- -------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $283,051 $79,876 $3,619 $366,546 ======== ======== ====== ========
34 Notes 1 Reducing current assets for items not acquired. 2 Allocation of the purchase price to the investment in partnership to record it at fair value. 3 Allocation of the purchase price to the fixed assets to record them at fair value net of certain fixed assets not acquired. 4 Recording of covenant not to compete to be amortized over five years. 5 Recording of borrowing $18.0 million plus costs of $1.2 million less $3.9 million paid back by the seller following the post closing adjustment process. 6 Recording the incremental portion of the current maturities of long-term debt as a result of borrowing $25 million. The total current portion is $3.7 million net of debt not assumed of $2.0 million. 7 Recording the incremental portion of long-term debt payable as a result of borrowing $25 million. The long term portion is $21.3 million net of debt not assumed of $20.2 million. 8 Eliminating the excess checks over bank balances not assumed in the acquisition. 9 Eliminating the intercompany payables not assumed in the acquisition. 10 Adjusting the accrued expenses to the values assumed in the acquisition. 11 Eliminating the deferred tax liabilities not assumed in the acquisition. 12 Recording long-term liabiities assumed in the acquisition. 13 Recording the common stock subject to repurchase issued to Cuddy Farms, Inc. 14 Recording the residual value of common stock issued in excess of the value of the common stock subject to repurchase. 15 Elimination of the division equity of the Foods Division of Cuddy Farms, Inc. 35 SIGNATURE Pursuant to the requirements 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/_Delbert L. Seitz__________ Delbert L. Seitz Chief Financial Officer Secretary and Treasurer 27215 36 EXHIBIT INDEX Exhibit No. Description Page Number 2.2 First Amendment to Asset Purchase Agreement 38 23 Consent of Potter & Company, P.A. 47 37 EX-2.2 2 EXHIBIT 2.2 1ST AMEND TO ASSET PURCHASE AGREEMENT Exhibit 2.2 FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT This First Amending Agreement is made and entered into this 26th day of October, 1994, by and among CUDDY FARMS, INC., a North Carolina corporation (Cuddy), CUDDY INTERNATIONAL CORPORATION, a corporation incorporated under the laws of Ontario and controlling shareholders of Cuddy (Cuddy International), WLR FOODS, INC., a Virginia corporation (WLR Foods), and WAMPLER-LONGACRE, INC., a Virginia corporation and wholly-owned subsidiary of WLR Foods (Wampler-Longacre) ("WLR Foods" and "Wampler-Longacre" collectively referred to herein as "Wampler"). RECITALS A. The parties entered into an asset purchase agreement (the "Purchase Agreement") dated July 27, 1994 providing for the sale by Cuddy and the purchase by Wampler of substantially all of the assets related to the Business and certain additional assets more particularly described in the Purchase Agreement. The expressions used in this First Amending Agreement have the meanings ascribed to them in the Purchase Agreement. B. Sections 2.1(b) and 2.1(c) of the Purchase Agreement provide for the determination of certain Post-Closing Adjustments and for adjustment of the purchase price set forth in Section 2.1(a) of the Purchase Agreement in accordance therewith. Section 2.1(d) of the 38 Purchase Agreement provides for the making of any adjusting payments in respect of the purchase price on the Second Closing Date. C. Section 5.9 of the Purchase Agreement refers to an environmental audit and provides for the allocation of cost and responsibility for any corrective action recommended as a result thereof. D. The parties have today agreed to the Post-Closing Adjustments and have agreed to amend the Purchase Agreement to fix a new Second Closing Date and clarify the obligations of the parties with respect to certain liabilities of the Business. NOW THEREFORE in consideration of the premises and the mutual covenants and agreements contained herein, the parties represent and agree as follows: 1. Post-Closing Adjustments For the purposes of Section 2.1(c)(i) of the Purchase Agreement, it is agreed that the Closing Date Working Capital is $33,486,368 as set forth in Schedule 1 and accordingly the purchase price is decreased by $6,913,632 being the excess of $40,400,000 over the Closing Date Working Capital. For the purposes of Section 2.1(c)(ii) of the Purchase Agreement, it is agreed that the capital expenditure program adjustment is $613,632 and that the purchase price is increased by said amount. The resulting price reduction of $6,300,000, less the Stock Value of 100,000 shares of WLR Foods common 39 stock ($2,400,000) is $3,900,000 which is payable by Cuddy pursuant to Section 2.2(c) of the Purchase Agreement in cash on the Second Closing Date. 2. Liabilities Assumed by Wampler-Longacre 2.1 It is agreed that Assumed Liabilities include, but are not limited to, all liabilities of the nature or type reflected in the computation of Closing Date Working Capital as set forth in Schedule 1. For the purpose of further clarification, it is agreed that Assumed Liabilities also include all liabilities relating to any post-retirement health care plan adopted by Wampler to replace, if necessary pursuant to the provisions of section 3.3 of the Purchase Agreement, the post-retirement health care plan sponsored by Cuddy, certain details of which are referred to in Note (3) of the Notes to Statement of Net Assets Sold and Supplementary Information as at August 29, 1994 as reported on by KPMG Peat Marwick LLP dated September 28, 1994, a copy of which is attached as Schedule 2.1. 2.2. It is agreed that the trade payables totalling $203,510.90, particulars of which have been provided by Wampler to Cuddy, are Assumed Liabilities which were inadvertently omitted from the financial records of Cuddy as at August 29, 1994 and which Wampler represents have now been paid. Cuddy shall reimburse the said sum to Wampler on the Second Closing Date. Any other unrecorded Assumed Liabilities shall be dealt with under Section 16.1 of the Purchase Agreement. 3. Excluded Liabilities 40 3.1 It is agreed that Wampler assumes no liability to pay any of the workers compensation claims, post retirement health benefits, longevity pay and other debts, liabilities or obligations relating to certain employee matters which are described in Schedule 3.1 and which, although they relate to the Business, shall remain the responsibility of Cuddy. 3.2 The sum of $80,892.02, which Wampler-Longacre represents it has paid since the Closing Date in respect of workers compensation claims for which Cuddy remains responsible, particulars of which have been provided by Wampler-Longacre to Cuddy, shall be reimbursed to Wampler-Longacre on the Second Closing Date. 4. Environmental Audit It is agreed that Wampler shall be responsible to perform and carry out, at its expense, the following corrective action (much of which is recommended by the report on environmental audit referred to in section 5.9 of the Purchase Agreement) and shall promptly cause such corrective action to be undertaken and completed, except as otherwise provided below: a. Cleanup of petroleum/oil stains on ground at the following locations: i. Monroe Processing Plant: behind guard shack, area of drumsof hydraulic/lubeoil, rearof oldlive shed; 41 ii. Marshville Processing Plant: two ASTs area north of vehicle maintenance, waste oil drums area east of plant, waste oil storage area north of plant; iii. Wingate Feedmill: waste oil fill; iv. Brown Creek Farm: gasoline storage tank area; and v. Charlotte Plant: various dike and pavement stains (clean only). b. Drains to control runoff at the following locations: i. Monroe Processing Plant: install collector drain in wastewater pretreatment area, repair drain at solid waste disposal trailer; ii. Marshville Processing Plant: clean wastewater pretreatment plant drain, install drains front of truck wash, west and south sides equipment maintenance building, vacuum pump discharge and east side live cooling shed; iii. Lonely Oaks farm: treat drain at truck disinfection area; and iv. Brown Creek Farm: treat drains at truck disinfection area and poultry litter site. c. Removal and replacement of two USTs by December 1998: i. Monroe Processing Plant: 4,000 gal. gasoline UST; ii. Wingate Feedmill: 1,000 gal. used oil UST. 42 d. If requested and required by appropriate North Carolina agency, soil testing and required remediation at locations of the following six (6) removed USTs: i. Monroe Processing Plant: 20,000 gal. diesel UST reportedly removed May 1988 and 10,000 gal. diesel UST reportedly removed July 1976. ii. Marshville Processing Plant: 750 gal. gasoline UST and 8,000 gal. diesel UST, both reportedly removed September 1987; and iii. Wingate Feedmill: 1,000 gal. fuel oil UST and 500 gal. fuel oil UST, both reportedly removed in 1986 from south side of old feedmill building. 5. Second Closing Date It is agreed that the Second Closing Date shall be October 26, 1994 and not as provided for in Section 2.1(d) of the Purchase Agreement. 6. Allocation In light of the post-closing adjustments, it is agreed that the allocation of the purchase price contained in Section 2.3 of the Purchase Agreement should be revised to reflect the following allocations: Land $ 3,491,634 Land Improvements 864,797 Buildings and related components 14,398,022 Equipment 15,574,485 ---------- Total $34,328,938 Investment in Partnership $ 1,413,728 43 The parties also agree to file as required Form 8594 in substantially the form as attached hereto as Schedule 6. 7. Indemnification For the purposes of Section 16.1(a)(iii) of the Purchase Agreement, the liabilities and obligations specifically assumed by Wampler-Longacre shall include all liabilities of the nature or type described or referred to in Section 2 hereof. 8. No Default Each party acknowledges and agrees that no party has been or is now in default under the Purchase Agreement in the performance of its obligations relating to the determination of Post Closing Adjustments, Assumed Liabilities and liabilities of the Business to be retained by Cuddy. 9. Confirmation of Purchase Agreement The Purchase Agreement as supplemented and amended by this First Amending Agreement is hereby confirmed and the Purchase Agreement and this First Amending Agreement shall hereafter be read together and shall have effect as if all the provisions thereof and hereof were contained in one instrument. Unless the context otherwise 44 requires, the word "Agreement" and the expressions "herein", "hereof", "hereunder" and similar expressions used in the Purchase Agreement mean or refer to the Purchase Agreement as supplemented and amended by this First Amending Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 45 IN WITNESS WHEREOF the parties have caused this First Amending Agreement to be executed by their respective officers hereunto duly authorized as of the day and year first above written. CUDDY FARMS, INC. a North Carolina corporation By:____/s/ Vaughn L. Correll_____________ Its Executive V.P., Sec/Treas CUDDY INTERNATIONAL CORPORATION an Ontario corporation By:___/s/ Robert B. Clark_______________ Its Secretary WAMPLER-LONGACRE, INC. a Virginia Corporation By:___/s/ James L. Mason_______________ Its President WLR FOODS, INC. a Virginia Corporation By:__/s/ James L. Keeler________________ Its President 46 EX-23 3 EXHIBIT 23 CONSENT OF AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS Board of Directors of WLR Foods, Inc. We hereby consent to the use of our report on the Foods Division of Cuddy Farms, Inc. dated September 22, 1994 (and all references to our firm) included in WLR Foods, Inc.'s Form 8K/A, Amendment No. Two to Current Report as of November 14, 1994 or incorporated by reference in the following Registration Statements of WLR Foods, Inc.: Form S-8 Registration Statement as of September 28, 1994; Form S-8 Registration Statement as of May 27, 1993; Form S-3 Registration Statement as of May 27, 1993; Form S-3(D) Registration Statement as of November 18, 1992; Form S-3 Registration Statement as of June 1, 1992; and Form S-8 Registration Statement as of February 13, 1989 (as amended November 18, 1992). Potter & Company, P.A. is not associated with the unaudited, proforma, or any other information presented in the 8-K filing except our audit report dated September 22, 1994. POTTER & COMPANY, P.A. Monroe, North Carolina November 14, 1994 47 -----END PRIVACY-ENHANCED MESSAGE-----