-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTpO0y/MBQ7L4jAyACHY/8bB0iPwrsz20ca9s40d7esw7FnZbaZxrLcFDVhO3zp3 hOBCZBHoJh8Vv7/YC/I86w== 0000760775-95-000011.txt : 19951003 0000760775-95-000011.hdr.sgml : 19951003 ACCESSION NUMBER: 0000760775-95-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19950929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WLR FOODS INC CENTRAL INDEX KEY: 0000760775 STANDARD INDUSTRIAL CLASSIFICATION: POULTRY SLAUGHTERING AND PROCESSING [2015] IRS NUMBER: 541295923 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17060 FILM NUMBER: 95577237 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 10-K 1 10-K TEXT 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, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission File Number 0-17060 WLR FOODS, INC. (Exact name of registrant as specified in its charter) Virginia 54-1295923 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) P.O. Box 7000, Broadway, Virginia 22815 (Address of principal executive offices) Registrant's telephone number, including area code 540-896-7000 Securities registered pursuant Name of exchange on which required to Section 12(b) of the Act: N/A N/A 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 22, 1995 was approximately $195,035,033. The number of shares outstanding of registrant's common stock, no par value, as of such date was 17,216,068 shares. Documents Incorporated by Reference Annual Report to Shareholders for fiscal year ended July 1, 1995 Part II Proxy Statement for Annual Meeting of Shareholders to be held October 28, 1995 Part III PART I Item 1. BUSINESS. General WLR Foods, Inc. (WLR Foods) is a fully-integrated poultry processing company involved in the production, further processing and marketing of turkey and chicken products, and the distribution of poultry and meat products. In addition, WLR manufactures ice for retail distribution and is a provider of public refrigerated warehousing services. WLR Foods markets more than 250 branded, as well as private label, commodity and value-added poultry and related products to selected retail, food service and institutional markets, primarily in the mid-Atlantic, northeastern, and southeastern regions of the United States and, to a lesser extent, the upper Midwest and California. WLR Foods exports to more than 40 countries, with particular customer strength in the Far East, the Caribbean and United States military installations. WLR Foods is a combination of three poultry companies, Wampler Foods, Inc., Horace W. Longacre, Inc. and Rockingham Poultry Marketing Cooperative Incorporated, all of which trace their beginnings to before 1945. The three companies combined in 1985 and 1988, and in 1992 were joined by Round Hill Foods, Inc. and its affiliates (Round Hill) of New Oxford, Pennsylvania. Previously, WLR Foods' poultry operations were conducted through two wholly-owned subsidiaries, Wampler-Longacre Chicken, Inc. and Wampler-Longacre Turkey, Inc. These subsidiaries, along with Round Hill, were merged on January 1, 1994 to form one subsidiary, Wampler-Longacre, Inc. (Wampler- Longacre). WLR Foods expanded its operations into North Carolina in September 1994 with the acquisition of Cuddy Farms, Inc.-USA Food Division of Marshville, North Carolina and its turkey processing, further processing, feedmill and distribution facilities. The Cuddy acquisition also provided WLR Foods with an additional cold storage facility. In April 1990, the Company expanded into the cold storage and ice manufacturing and distribution business with the acquisition of Cassco Ice & Cold Storage, Inc. (Cassco). In 1992, WLR Foods acquired all the Virginia ice business assets of Southern Ice Company, Inc., a Norfolk-based ice manufacturing and distribution company, and in 1993, the Company acquired the assets of two ice manufacturing and distribution companies located in the greater Washington, D.C. area and in Richmond, Virginia. WLR Foods acquired an additional cold storage facility as part of the Cuddy acquisition. The Company also owns 65% of May Supply Company, Inc., a wholesale distributor of plumbing supplies and equipment. Poultry Production WLR Foods controls the breeding, hatching, grow-out and processing of its turkeys and chickens. For fiscal 1995, WLR Foods produced approximately 574 million pounds of dressed turkey and 545 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 50% of the Company's poult supply. The balance of the Company's poults are purchased from outside sources. 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 149 breeder growers who grow most 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 820 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 feed mills and provides grower support through WLR Foods' technicians and veterinarians. Grow-out and breeder farms provide WLR Foods with more than 54 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 90% 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 its primary feed ingredients on the open market. These ingredients consist primarily of corn and soybean meal and represent approximately 65% of WLR Foods' total cost to grow turkeys and chickens and approximately 32% of its cost of sales for fiscal 1995. Because the quality and composition of feed is critical to the feed conversion rate, WLR Foods formulates and produces a majority of its own feed at one of its four feed mills. WLR Foods has an annual feed manufacturing capacity in excess of 1.8 million tons and anticipates no difficulty in meeting the Company's feed requirements in the future. Once the turkeys and chickens reach processing weight, they are transported in WLR Foods' trucks to one of its seven poultry processing plants. These plants utilize modern, highly automated equipment to process and package the turkeys and chickens for sale or preparation for 2 further processing. WLR Foods further processes bulk poultry in its processing plants and in three additional further processing plants by adding value beyond deboning and skinning, such as slicing, grinding, marinating, spicing and cooking to produce delicatessen products, frankfurters, meat salads, ground turkey and chicken, and food service products. Distribution, Public Refrigerated Warehousing, Ice and Other WLR Foods' distribution business, with its warehousing and transportation equipment, includes fresh poultry, beef, and other meat products purchased from third parties for resale, and is conducted within a radius of approximately 75 miles of WLR Foods' further processing facility in Franconia, Pennsylvania. In fiscal 1995, Cassco sold 23 million eight-pound equivalent bags of retail ice, making it one of the largest ice manufacturers in the mid-Atlantic region. In addition, Cassco operates public refrigerated warehouses at five locations. WLR Foods' protein conversion plants convert the nonedible by-products of its poultry processing plants into feed ingredients, with the balance sold to pet food manufacturers. The following table sets out sales revenues from WLR Foods' products for the last three fiscal years. Fiscal 1995 Fiscal 1994 Fiscal 1993 ----------- ----------- ----------- (Dollars in Millions) Chicken, fresh and frozen $300.8 $287.5 $238.2 Turkey, fresh and frozen 218.0 171.4 123.7 Further processed 248.8 152.1 147.7 Distribution 86.1 82.4 80.0 Other 55.1 33.9 27.1 ------ ------ ------ Total Net Sales $908.8 $727.3 $616.7 ====== ====== ====== Competition Poultry production requires continuous growing and processing, with limited storage, making the poultry industry highly competitive. WLR Foods markets its products in competition with 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 products in the highly competitive northeastern, mid-Atlantic and southeastern sections of the United States. In June 1995 WLR Foods was ranked as the tenth largest in poultry processing/further processing according to Meat & Poultry Magazine. WLR Foods was the second largest American turkey producer according to Turkey World magazine's December 1994 issue. WLR 3 Foods was cited as the sixteenth largest chicken producer in the December 1994 issue of Broiler Industry magazine. Seasonality In general, WLR Foods consistently produces and sells its products throughout the year. Highest demand for poultry is in May, June, July, November and December. The early summer months have strong demand for chicken and further processed products and November and December are high demand months for turkey products. The highest demand for ice is during the period from mid-May to mid-September. Trademarks and Patents Wampler-Longacre markets its products under the trademarks WAMPLER LONGACRE and design, TRIM FREE and chicken in heart design, MOUNTAIN MAID, SALADFEST, TENDERLINGS and TURKEY WITH A TWIST, all of which are federally registered trademarks. Wampler-Longacre also markets under the trademarks CHEF'S QUALITY and CHEF'S SELECT, which have pending federal applications. Following the acquisition of Cuddy Foods, Wampler-Longacre obtained the right to market products under the CUDDY FAMILY FARMS, COLONY FARMS, FARMERS CHOICE, TOP ROUND OF TURKEY, and DELI ROAST COLLECTION marks. Wampler-Longacre markets its export and foreign military sales under the COLONEL ROCKINGHAM design and ROCKINGHAM trademarks. Products are also sold under the GENUINE SHENVALLEY VIRGINIA POULTRY mark. Cassco distributes its products under the federally registered trademark CASSCO. Wampler-Longacre holds a patent for pasteurized salads. Government Contracts WLR Foods' government contracts are a small segment of its total sales, consisting of bids on particular products for delivery at specified locations. Contracts are generally bid, and the product is 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 approximately $0.9 million of governmental contracts outstanding as of July 1, 1995, the same as at July 2, 1994. Foreign Sales WLR Foods' foreign sales constituted approximately 8% of its total annual sales in fiscal 1995, compared to 7% for fiscal year 1994 and 6% for fiscal year 1993. Wampler-Longacre has a full-time staffed foreign sales office which coordinates foreign sales efforts on behalf of WLR Foods. Foreign sales originate from that office and use independent brokers as needed. Sales are made in over 40 countries. 4 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 and outside purchasers, transporting poultry to the processing plants, and transporting products to customers. WLR Foods has contracts with two railroad companies for the delivery of feed ingredients to WLR Foods' feedmills. Delivery of the Company's products are generally made by truck. WLR Foods maintains a fleet of refrigerated trucks and uses them, along with refrigerated common carrier and customer-owned vehicles, to deliver its products. Export products are loaded in refrigerated containers and shipped overseas. Raw Materials WLR Foods' largest cost is for basic feed ingredients, namely corn and soybean meal. Feed costs represented approximately 32% of the Company's total cost of sales in fiscal year ended July 1, 1995. Feed grains are commodities subject to volatile price changes caused by weather, size of harvest, transportation and storage cost and the agricultural policies of the United States and foreign governments. Although WLR Foods can, and sometimes does, purchase grain in the forward markets, it cannot completely eliminate the potential adverse effect of grain price increases. Environmental and Other Regulatory Compliance WLR Foods' facilities and operations are subject to the regulatory jurisdiction of various federal agencies, including the Food and Drug Administration, Department of Agriculture, Environmental Protection Agency, Occupational Safety and Health Administration, and of corresponding state agencies in Virginia, West Virginia, North Carolina and Pennsylvania. All environmental permits, such as air, water and solid waste disposal permits, are issued by appropriate state agencies. A total of seven environmental permits are held by Wampler- Longacre's Virginia facilities, all of which were issued by the Virginia Department of Environmental Quality. The Hinton turkey processing facility holds an air permit which regulates certain combustion equipment and a water permit which regulates the treatment of process wastewater. The Harrisonburg turkey processing facility holds a water permit requiring pretreatment of its process wastewater to meet certain effluent standards before discharging into the regional sewer system. Wampler-Longacre's Timberville chicken processing and rendering facility holds a water permit which regulates the discharge of process wastewater and an air permit which regulates the operation of its protein conversion facility, as well as certain combustion equipment. The chicken processing facility in Alma/Stanley holds one water permit which regulates the discharge of process wastewater. 5 Finally, the Broadway feedmill holds an air permit which was issued primarily for the control and abatement of dust. In addition to the seven environmental permits held by Wampler-Longacre, WLR Foods holds a Virginia Pollution Abatement permit which allows Wampler-Longacre's Virginia facilities to apply to land in Virginia certain wastewater biosolids generated by the facilities' wastewater treatment systems. In West Virginia, Wampler-Longacre's 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 rendering facility holds a water permit which regulates the discharge of process wastewater, an air permit which regulates the operation of the company's protein conversion facility, and a sludge management permit regulating the land application in West Virginia of certain wastewater biosolids generated at the Moorefield facilities wastewater treatment works. The Moorefield feedmill holds one air permit which was issued primarily for the control and abatement of dust. Wampler-Longacre's North Carolina facilities hold a total of ten environmental permits, all of which were issued by the North Carolina Department of Environment, Health & Natural Resources. The Monroe turkey processing plant holds three permits: an industrial wastewater discharge permit which requires process wastewater to be pretreated prior to discharge to a regional sewer system, a stormwater permit which regulates stormwater discharges, and an air permit which regulates boiler emissions. The Marshville turkey processing plant and Charlotte turkey processing plant each hold an industrial wastewater discharge permit and stormwater permit which are similar to the counterpart permits held by the Monroe facility. In addition, the Marshville facility holds a stormwater permit which regulates cooling water and boiler blowdown discharges. Finally, 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-Longacre hold a total of six environmental permits. The Franconia turkey processing plant holds five permits: two water permits for the treatment of process wastewater, two air permits to regulate operation of certain combustion and incineration equipment, and one municipal solid waste disposal permit for the disposal of incinerator ash. The New Oxford turkey processing facility holds one air permit which regulates combustion equipment. All of the Pennsylvania permits were issued by the Pennsylvania Department of Environmental Resources. In addition to the foregoing environmental permits, and where not otherwise addressed above, all facilities have taken steps to ensure compliance with stormwater regulations. Where applicable, facilities have applied for the necessary group, individual or general storm water permit in accordance with state and federal guidelines. Further, each facility has registered aboveground and underground storage tanks in accordance with relevant state and federal regulations. 6 Management believes that all facilities and operations are currently in compliance with environmental and regulatory standards. Compliance has not had a materially adverse effect upon WLR Foods' earnings or competitive position in the past, and it is not anticipated to have a materially adverse effect in the future. Employees WLR Foods employed over 9,000 persons as of July 1, 1995, none of whom were covered by a collective bargaining agreement. Item 2. PROPERTIES. WLR Foods' seven poultry processing facilities and three further processing plants are located in Virginia, West Virginia, Pennsylvania and North Carolina, and have a total slaughter capacity of approximately 650,000 turkeys per week (single shift) and 3.1 million chickens per week (double shift). WLR Foods owns and operates four feed mills with a production capacity in excess of 1.8 million tons of finished feed per year; a turkey hatchery with a production capacity of approximately 335,000 poults per week and two chicken hatcheries with a production capacity of approximately 3.2 million chicks per week; freezer and cold storage for finished products with approximately 5.2 million cubic feet of capacity; and two protein conversion plants with a total production capacity of 4,500 tons of raw product weekly. The diversity, number and geographic proximity of its processing and support facilities provide WLR Foods with operating flexibility and enable it to alter the size and mix of poultry processed among the various facilities, as market conditions change. Cassco operates public refrigerated facilities at five locations with approximately 9.2 million cubic feet. These facilities are located close to major food processors in Virginia, West Virginia and North Carolina. Cassco also operates seven ice manufacturing facilities in Virginia, West Virginia and Washington, D.C. with a capacity of approximately 1,000 tons per day. From fiscal 1988 through the end of fiscal 1995, WLR Foods has spent over $169 million (excluding capital leases) for replacement and productivity improvements, acquisitions and expansion of facilities, and protein conversion plant construction. WLR Foods owns virtually all of its manufacturing and production equipment which is in good repair and is updated periodically. Replacement parts and service for the equipment are readily available, which allows for timely processing of the Company's products. Item 3. LEGAL PROCEEDINGS. On February 6, 1994, WLR Foods filed suit in the United States District Court for the Western District of Virginia against Tyson Foods, Inc. (Tyson), seeking, among other things, (1) a declaratory judgment as to the validity of the Company's Shareholder Protection Rights 7 Plan, and (2) a declaratory judgment as to the constitutionality of Article 14, Virginia Code Sections 13.1-725 et seq. (Virginia Affiliated Transactions Statute), and Article 14.1, Virginia Code Sections 13.1-728 et seq. (Virginia Control Share Acquisitions Statute), of the Virginia Stock Corporation Act under the Virginia and United States Constitutions. In response, on February 25, 1994, Tyson, joined later by Tyson's WLR Acquisition Corp., filed counterclaims against the Company and all its directors, except Peter A.W. Green, seeking, among other things, to invalidate the Company's Shareholder Protection Rights Plan and certain severance agreements, and a declaratory judgment that the Virginia Affiliated Transactions Statute, the Virginia Control Share Acquisitions Statute and other Virginia statutes, facially and as applied, are unconstitutional under the United States Constitution. Tyson also sought a declaratory judgment that four of the Company's directors who resigned as employees of the Company in February 1994 were not disinterested shareholders, and, therefore, were ineligible to vote their shares at a Special Meeting of the Shareholders held on May 21, 1994, and that the Company's directors breached their fiduciary duties in taking certain actions described in Tyson's counterclaims. The United States District Court entered final judgment on December 6, 1994, upholding the legality of the directors' actions and the validity of Virginia's corporate laws relied upon by WLR and its directors. Tyson appealed to the United States Court of Appeals for the Fourth Circuit. On September 22, 1995, a three-judge panel of the Fourth Circuit Court of Appeals ruled unanimously in favor of WLR and its directors on all issues. Finding that Tyson's arguments lacked merit, the Fourth Circuit affirmed the judgment of the United States District Court. Wampler-Longacre, Inc., is a named third-party defendant in United States v. Keystone Sanitation Co., Inc., et al., United States District Court for the Middle District of Pennsylvania, Civil Action No. 1:CV-93-1482. In general, the third-party plaintiffs are seeking to hold Wampler-Longacre jointly and severally liable under federal and state laws for the costs of cleaning up hazardous wastes at the Keystone Sanitation Co., Inc. ("Keystone") municipal landfill located in Union Township, Adams County, Pennsylvania. The Keystone landfill is on the federal government's National Priorities List of sites eligible for cleanup under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq. (also known as the federal Superfund law). Wampler-Longacre's predecessor, Round Hill Foods, Inc., used the Keystone landfill from 1974 to 1990. At this time there are approximately 165 parties named in the civil action who are potentially liable for the cleanup costs. In addition, a fourth party action may be filed in the coming months which will add an additional 700 to 900 parties. In CERCLA actions, although liable parties are jointly and severally liable for the cleanup costs, in practice a liable party's contribution toward the cleanup costs is generally based on the party's waste allocation. Waste allocation is determined based on the amount of waste a party contributed to a site in proportion to all of the other named parties. At this time, Wampler- 8 Longacre's waste allocation is 1.02898%. This waste allocation percentage presupposes the unlikely event that all of the waste generated by the Company's predecessor was actually disposed of by Keystone Sanitation Company, Inc. in the Keystone landfill and not in any of the other nearby landfills. This waste allocation percentage, moreover, does not account for 50-60% of the overall waste in the landfill that was contributed by potential fourth-party defendants. Thus, Wampler-Longacre's waste allocation is expected to decrease significantly once these fourth-parties are brought into this civil action. Wampler-Longacre denies liability. As a food processor, only non-hazardous trash has been deposited at the landfill by Wampler- Longacre. Nevertheless, if Wampler-Longacre is held liable, its liability could reach $206,000. However, current settlement negotiations are underway which would make third-party defendants, including WLR Foods, responsible solely for a portion of the cleanup costs. If this settlement is reached, and provided that Wampler- Longacre's waste allocation does not change significantly, Wampler- Longacre's liability is expected to be approximately $50,000. Of course, numerous factors could cause Wampler-Longacre's exposure to increase or decrease. Nonetheless, a reasonable estimate of Wampler- Longacre's exposure in this matter is in the range set forth above. 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, 1995. Executive Officers of the Registrant The following information is given regarding WLR Foods' executive officers.
______________________________________________________________________________ Name and Position Principal Occupation with the Company Age During the Last Five Years ______________________________________________________________________________ James L. Keeler 60 Chief Executive Officer since February 1988 President Chief Executive Officer James L. Mason 46 General Manager and President of Wampler-Longacre General Manager of Turkey since April 1990 Wampler-Longacre V. Eugene Misner 58 Vice President of Live Production since January 1994; Vice President of previously, General Manager and President of Wampler-Longacre Wampler-Longacre Chicken since April 1990 9 Delbert L. Seitz 53 Chief Financial Officer since November 1989; Treasurer, Chief Financial Officer John J. Broaddus 45 General Manager of Cassco since April 1990; General Manager of Cassco Henry L. Holler 66 Vice President Sales and Marketing since October Vice President 1993; previously, Vice President of Sales for Sales and Marketing Wampler-Longacre Chicken Jane T. Brookshire 50 Vice President of Human Resources since October Vice President 1993; previously, Director of Human Resources for Human Resources WLR Foods ________________ James L. Mason is the son of Herman D. Mason, who is Vice Chairman of the Company's Board.
PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. Public trading of shares of WLR Foods' common stock commenced on May 10, 1988. The stock was included in NASDAQ as of September 12, 1988, and was included in NASDAQ/National Market System as of March 7, 1989. The range of high and low bid information for the stock, as well as information regarding dividends declared by WLR Foods, for each full quarterly period within the two most recent fiscal years is incorporated by reference to Note 12 to the Registrant's Consolidated Financial Statements in the Annual Report, attached hereto as Exhibit 13.3. As of September 1, 1995, the approximate number of shareholders of record was 3,514. Item 6. SELECTED FINANCIAL DATA. Selected financial data for each of the fiscal years in the eight-year period ended July 1, 1995 is incorporated by reference to the table entitled "Financial Highlights" in the Annual Report, attached hereto as Exhibit 13.1. A summary of significant accounting policies and business acquisitions and dispositions is incorporated by reference to Notes 1 and 2 to the Registrant's Consolidated Financial Statements in the Annual Report, attached hereto as Exhibit 13.3. 10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations is incorporated by reference to that section in the Annual Report, attached hereto as Exhibit 13.2. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item, except for the required financial statement schedules, is incorporated by reference to the Consolidated Financial Statements and Notes thereto into the Annual Report, attached hereto as Exhibit 13.3. The required financial statement schedule are included on page 19 of this report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There were no changes in or disagreements with accountants on accounting and financial disclosure during WLR Foods' two most recent fiscal years or any subsequent interim period. PART III Items 10 - 13 inclusive. These items have been omitted in accordance with instructions to Form 10-K Annual Report. The Registrant will file with the Commission in October 1996, pursuant to Regulation 14A, a definitive proxy statement that will involve the election of directors. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial Statements, Schedules and Exhibits Financial Statements Location Consolidated Statements of Earnings - Fiscal years ended Exhibit 13.3 July 1, 1995, July 2, 1994 and July 3, 1993 Consolidated Balance Sheets - July 1, 1995 and July 2, 1994 Exhibit 13.3 Consolidated Statements of Shareholders' Equity - Fiscal years Exhibit 13.3 ended July 1, 1995, July 2, 1994 and July 3, 1993 11 Consolidated Statements of Cash Flows - Fiscal years ended Exhibit 13.3 July 1, 1995, July 2, 1994 and July 3, 1993 Notes to Consolidated Financial Statements - Fiscal years Exhibit 13.3 ended July 1, 1995, July 2, 1994 and July 3, 1993 Financial Statement Schedules Independent Auditors' Report on Financial Statement Schedule Page 18 Schedule II - Valuation and Qualifying Accounts Page 19 (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of fiscal 1995 that ended on July 1, 1995. (c) Exhibits 3.1 Articles of Incorporation of the Registrant, restated effective May 30, 1995 3.2 Bylaws of the Registrant, as amended on October 29, 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, 1991 4.2 Note Agreement dated May 1, 1991 with Minnesota Mutual Life Insurance Company, Inc. and others, incorporated by reference to Exhibit 4.4 of Form 10-K filed with the Securities and Exchange Commission on September 27, 1991 4.3 First Amendment, dated October 16, 1992, to the Note Agreement dated May 1, 1991 with Minnesota Mutual Life Insurance Company, Inc. 4.4 Agreement of the Company, dated September 27, 1995, to furnish a copy of the Second Amendment, dated June 1, 1995, to the Note Agreement dated May 1, 1991 with Minnesota Mutual Life Insurance Company, Inc. to the Securities and Exchange Commission upon its request 4.5 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 12 4.6 Loan Agreement dated March 1, 1995 with First Union National Bank, incorporated by reference to Exhibit 4.1 of Form 8-K filed with the Securities and Exchange Commission on May 11, 1995 4.7 Credit Agreement dated March 1, 1995 with First Union National Bank of Virginia and others incorporated by reference to Exhibit 4.2 of Form 8-K filed with the Securities and Exchange Commission on May 11, 1995 4.8 Amendment, dated as of July 1, 1995, to the Credit Agreement dated March 1, 1995 with First Union National Bank of Virginia and others 4.9 Agreement of the Company, dated September 27, 1995, to furnish a copy of the Note Agreement dated June 1, 1995 with respect to the issuance of certain long-term debt to the Securities and Exchange Commission upon its request 9 Voting Trust Agreement dated August 29, 1994 incorporated by reference to Exhibit 9.1 of Form 8-K filed with the Securities and Exchange Commission on September 13, 1994 10.1 Employment Agreement dated July 4, 1993 between the Registrant and James L. Keeler (Deferred Compensation Agreement attached thereto as Exhibit A) incorporated by reference to Exhibit 10.6 of Form 10-K filed with the Securities and Exchange Commission on September 30, 1993 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 Long-Term Incentive Plan, as amended, incorporated by reference to Exhibit 28 of Post-Effective Amendment Number One to Form S-8 (No. 33-27037) filed with the Securities and Exchange Commission on November 18, 1992 10.4 Amendment to Employment Agreement dated February 4, 1994 between the Registrant and James L. Keeler incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Securities and Exchange Commission on February 15, 1994 10.5 Amendment to Deferred Compensation Agreement dated February 4, 1994 between the Registrant and James L. Keeler incorporated by reference to exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on February 15, 1994 10.6 Severance Agreement dated February 4, 1994 between the Registrant and James L. Keeler incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 13 10.7 Severance Agreement dated February 4, 1994 between the Registrant and Delbert L. Seitz incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.8 Severance Agreement dated February 4, 1994 between the Registrant and James L. Mason incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.9 Severance Agreement dated February 4, 1994 between the Registrant and John J. Broaddus incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.10 Severance Agreement dated February 4, 1994 between the Registrant and V. Eugene Misner incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.11 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and Charles W. Wampler, Jr. incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.12 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and Herman D. Mason incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.13 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and George E. Bryan incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.14 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and William D. Wampler incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 13.1 Financial Highlights, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 1, 1995 13.2 Management's and Discussion and Analysis, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 1, 1995 13.3 Consolidated Financial Statements and Notes to Consolidated Financial Statements, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 1, 1995 13.4 Independent Auditors' Report on Consolidated Financial Statements, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 1, 1995 14 21 List of Subsidiaries of the Registrant 23 Consent of Independent Certified Public Accountants 24 Power of Attorney 27 Financial Data Schedule 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. [The remainder of this page is intentionally left blank.] 15 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 27, 1995 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 27, 1995 ___/s/ Delbert L. Seitz_______________ Chief Financial Officer Date: September 27, 1995 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 on September 29, 1993. Signature Title ______________________________ Director George E. Bryan* ______________________________ Director Charles L. Campbell* ______________________________ Director Stephen W. Custer* ______________________________ Director Calvin G. Germroth* 16 ______________________________ Director William H. Groseclose* ______________________________ Director J. Craig Hott* ___/s/ James L. Keeler________ Director James L. Keeler ______________________________ Director Herman D. Mason* ______________________________ Director Charles W. Wampler, Jr.* ______________________________ Director William D. Wampler* *By __/S/ Delbert L. Seitz_____________ Delbert L. Seitz, attorney-in-fact 17 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors and Shareholders WLR Foods, Inc.: Under date of August 16, 1995, we reported on the consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of July 1, 1995 and July 2, 1994, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended July 1, 1995, as contained in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1995. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. 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 PEAT MARWICK LLP Richmond, Virginia August 16, 1995 18 WLR FOODS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED JULY 1, 1995, JULY 2, 1994 AND JULY 3, 1993 (in thousands)
Description Balance at Charged to Charged to Balance at beginning cost and other end of of period expenses accounts period - ---------------------------------------------------------------------------------------------------------------------- Fiscal year ended July 1, 1995 Allowance for Doubtful Accounts $360 $686 $433 $613 ---- ---- ---- ---- Total $360 $686 $433 $613 ==== ==== ==== ==== Fiscal year ended July 2, 1994 Allowance for Doubtful Accounts $363 $156 $159 $360 ---- ---- ---- ---- Total $363 $156 $159 $360 ==== ==== ==== ==== Fiscal year ended July 3, 1993 Allowance for Doubtful Accounts $372 $4 $13 $363 ---- ---- ---- ---- Total $372 $4 $13 $363 ==== ==== ==== ==== 19 20
EX-3.1 2 ARTICLES OF INCORPORATION Exhibit 3.1 ARTICLES OF RESTATEMENT OF WLR FOODS, INC. Pursuant to Va. Code Section 13.1-639 and Section 13.1-711, WLR Foods, Inc. (the Corporation) amends and restates its Articles of Incorporation as follows: ARTICLE ONE NAME The name of the Corporation is WLR Foods, Inc. ARTICLE TWO CAPITAL STOCK Section One. Authorized Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is two hundred fifty million (250,000,000), divided into fifty million (50,000,000) shares of preferred stock without par value, one hundred million (100,000,000) shares of Class A Common Stock, no par value (Class A Common Stock), and one hundred million (100,000,000) shares of Class B Common Stock, no par value (Class B Common Stock). Upon the Articles of Amendment of the Articles of Incorporation becoming effective pursuant to the Virginia Stock Corporation Act (the Effective Time), and without any further action on the part of the Corporation or its shareholders, each whole share of the Corporation's Common Stock, no par value (the Old Common Stock), then issued (including shares held in the treasury of the Corporation) shall automatically be reclassified, changed and converted into one fully paid and nonassessable share of Class A Common Stock and certificates previously representing shares of Old Common Stock shall be deemed to represent the same number of shares of Class A Common Stock. (a) Class A Common Stock and Class B Common Stock. (1) The powers, preferences and rights of the Class A Common Stock and the Class B Common Stock, and the qualifications, limitations or restrictions thereof, shall be in all respects identical, except as otherwise required by law or expressly provided in these Articles of Incorporation, as amended. (2) (i) At each annual or special meeting of shareholders, each holder of Class A Common Stock shall be entitled to one (1) vote in person or by proxy for each share of Class A Common Stock standing in his name on the stock transfer records of the Corporation in connection with the election of directors and all other actions submitted to a vote of shareholders. Each holder of Class B Common Stock shall be entitled to one-tenth of one vote in person or by proxy for each share of Class B Common Stock standing in his name on the stock transfer records of the Corporation in connection with the election of directors and all other actions submitted to a vote of shareholders; except as otherwise provided by this Articles of Incorporation, as amended, and the Virginia Stock Corporation Act. (ii) The holders of the Class B Common Stock shall each be entitled to vote separately as a class only with respect to (A) proposals to change the par value of the Class B Common Stock, (B) other amendments to these Articles of Incorporation that alter or change the powers, preferences or special rights of the holders of Class B Common Stock so as 2 to affect them adversely, and (C) such other matters as may require class voting under the Virginia Stock Corporation Act. (iii) The number of authorized shares of Class B Common Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority of the Class A Common Stock. (3) Dividends may be declared and paid to the holders of the Class A Common Stock and the Class B Common Stock in cash, property, or other securities of the Corporation out of any net profits or net assets of the Corporation legally available therefor. If and when dividends on the Class A Common Stock and the Class B Common Stock are declared payable from time to time by the Board of Directors, whether payable in cash, in property or in shares of stock of the Corporation, the holders of the Class A Common Stock and the holders of the Class B Common Stock shall be entitled to share equally, on a per share basis, in such dividends, except that, dividends or other distributions payable on the Common Stock in shares of Common Stock shall be made to all holders of Common Stock and may be made (i) in shares of Class B Common Stock to the record holders of Class A Common Stock and to the record holders of Class B Common Stock, (ii) in shares of Class A Common Stock to the record holders of Class A Common Stock and in shares of Class B Common Stock to the record holders of Class B Common Stock or (iii) in any other authorized class or series of capital stock to the holders of both classes of Common Stock. (4) (i) All outstanding shares of Class B Common Stock may be converted into shares of Class A Common Stock on a share-for-share basis by the Board of Directors if, 3 as a result of the existence of the Class B Common Stock, either the Class A Common Stock or Class B Common Stock is or both are excluded from trading on the New York Stock Exchange, the American Stock Exchange and all other principal national securities exchanges then in use and is also excluded from quotation on the National Association of Securities Dealers Automated Quotation System (NASDAQ) and any other comparable national quotation system then in use. (ii) All outstanding shares of Class B Common Stock shall be converted into shares of Class A Common Stock on a share-for- share basis if at any time the number of outstanding shares of Class A Common Stock as reflected on the stock transfer records of the Corporation falls below 10% of the aggregate number of outstanding shares of Class A Common Stock and of Class B Common Stock. For purposes of the immediately preceding sentence, any shares of Common Stock repurchased by the Corporation shall no longer be deemed "outstanding" from and after the date of repurchase. (iii) In the event of any conversion of the Class B Common Stock pursuant to subdivision (4)(i) or (4)(ii), certificates which formerly represented outstanding shares of Class B Common Stock will thereafter be deemed to represent a like number of shares of Class A Common Stock and all authorized shares of Common Stock shall consist of only Class A Common Stock. (5) (i) If any person or group acquires beneficial ownership of 30% or more of the then issued and outstanding shares of Class A Common Stock after the Effective Time (other than upon original issuance by the Corporation, by operation of law, by will or the laws of descent and distribution, by gift or by foreclosure of a bona fide loan), and such person 4 or group (a "Related Person") does not own an equal or greater percentage of the Class B Common Stock acquired after the record date for the first issuance of Class B Common Stock (the "Distribution Date"), such person or group must, within a 90-day period beginning the day after becoming a Related Person, make a public tender offer in compliance with all applicable laws and regulations to acquire additional Class B Common Stock as provided in this subsection (5) of Article Two, Section One (a "Minority Protection Transaction"). (ii) In each Minority Protection Transaction, the Related Person must make a public tender offer to acquire that number of shares of Class B Common Stock determined by (A) multiplying the percentage of outstanding Class A Common Stock beneficially owned on such date and acquired after the Effective Time by such Related Person by the total number of shares of Class B Common Stock outstanding on the date such person or group became a Related Person, and (B) subtracting therefrom the total number of shares of Class B Common Stock beneficially owned on such date and acquired after the Distribution Date by such Related Person (including shares acquired on such date at or prior to the time such person or group became a Related Person). The Related Person must acquire all of such shares validly tendered; provided, however, that if the number of shares of Class B Common Stock tendered to the Related Person exceeds the number of shares required to be acquired pursuant to the formula set forth in this clause (ii), the number of shares of Class B Common Stock acquired from each tendering holder shall be pro rata in proportion to the total number of shares of Class B Common Stock tendered by all tendering holders. 5 (iii) The offer price for any shares of Class B Common Stock required to be purchased by the Related Person pursuant to this provision shall be the greater of (A) the highest price per share paid by the Related Person for any share of Class A Common Stock in the six-month period ending on the date such person or group became a Related Person or (B) the highest bid price of a share of Class A Common Stock or Class B Common Stock on the NASDAQ National Market System (or such other exchange or quotation system as is then the principal trading market for such shares) on the date such person or group became a Related Person. For purposes of clause (iv) below, the applicable date for the calculations required by the preceding sentence shall be the date on which the Related Person becomes required to engage in a Minority Protection Transaction. In the event that the Related Person has acquired Class A Common Stock in the six- month period ending on the date such person or group becomes a Related Person for consideration other than cash, the value of such consideration per share of Class A Common Stock shall be as determined in good faith by the Board of Directors. (iv) A Minority Protection Transaction shall also be required to be effected by any Related Person that acquires beneficial ownership of the next higher integral multiple of 5% (e.g., 35%, 40%, 45%, etc.) of the outstanding shares of Class A Common Stock after the Effective Time (other than upon issuance or sale by the Corporation, by operation of law, by will or the laws of descent and distribution, by gift, or by foreclosure of a bona fide loan) if such Related Person does not then own an equal or greater percentage of the shares of Class B Common Stock acquired after the Distribution Date. Such Related Person shall be required to make a public tender offer to acquire that number of shares of Class B Common Stock 6 prescribed by the formula set forth in clause (ii) above, and must acquire all shares validly tendered or a pro rata portion thereof, as specified in said clause (ii), at the price determined pursuant to clause (iii) above. (v) If any Related Person fails to make an offer required by this subsection (5) of Article Two, Section One, or to purchase shares validly tendered and not withdrawn (after proration, if any), such Related Person shall not be entitled to vote any shares of Class A Common Stock beneficially owned by such Related Person and acquired by such Related Person after the Effective Time unless and until such requirements are complied with or unless and until all shares of Class A Common Stock causing such offer requirement to be effective are no longer beneficially owned by such Related Person. (vi) The Minority Protection Transaction requirement shall not apply to any increase in percentage ownership of Class A Common Stock resulting solely from a change in the total amount of Class A Common Stock outstanding, provided that any acquisition after such change which results in any person or group owning 30% or more of the Class A Common Stock excluding, in the case of the numerator but not of the denominator of the calculation of such percentage, shares of Class A Common Stock held by such Related Person immediately after the Effective Time, shall be subject to any Minority Protection Transaction requirement that would be imposed with respect to a Related Person pursuant to this subsection (5) of Article Two, Section One. (vii) All calculations with respect to percentage ownership of issued and outstanding shares of either class of Common Stock will be based upon the numbers of issued 7 and outstanding shares reported by the Corporation on the last filed of (A) the Corporation's most recent annual report on Form 10-K, (B) its most recent Quarterly Report on Form 10-Q, or (C) if any, its most recent Current Report on Form 8-K. (viii) For purposes of this subsection (5) of this Article Two, Section One, the term "person" means a natural person, company, government, or political subdivision, agency or instrumentality of a government, or other entity. "Beneficial ownership" shall be determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the 1934 Act), or any successor regulation. The formation or existence of a "group" shall be determined pursuant to Rule 13d-5(b) under the 1934 Act or any successor regulation. (6) Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the remaining net assets of the Corporation shall be distributed pro rata to the holders of the Class A Common Stock and the Class B Common Stock in accordance with their respective rights and interests. (7) In the event of a merger or consolidation of the Corporation with or into another entity (whether or not the Corporation is the surviving entity), the holders of Class B Common Stock shall be entitled to receive the same per share consideration as the per share consideration, if any, received by any holder of the Class A Common Stock in such merger or consolidation. (8) If the Corporation shall in any manner split, subdivide or combine the outstanding shares of Class A Common Stock or Class B Common Stock, the outstanding shares of the other such class of Common Stock shall be proportionally subdivided or combined in the 8 same manner and on the same basis as the outstanding shares of the other class of Common Stock have been split, subdivided or combined. (9) No holder of shares of Class A Common Stock or Class B Common Stock shall, by reason of such holding, have any preemptive right to subscribe to any additional issue of stock of any class or series of the Corporation or to any security of the Corporation convertible into such stock. (10) The Board of Directors shall have the power to issue and sell all or any part of any class of stock herein or hereafter authorized to such persons, firms, associations or corporations, and for such consideration as the Board of Directors shall from time to time, in its sole discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. (11) The Board of Directors shall have the power to purchase any class of stock herein or hereafter authorized from such persons, firms, associations or corporations, and for such consideration as the Board of Directors shall from time to time, in its sole discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law. Section Two. Preferred Stock. The Board of Directors of the Corporation is authorized at any time or from time to time to divide the shares of preferred stock into classes and into series within any class or classes of preferred stock; to determine for any such class or series its designation, relative rights, preferences and limitations; to determine the number of shares in any such class or series (including a determination that such class or series shall consist of a single 9 share); to increase the number of shares of any such class or series previously determined by it and to decrease such previously determined number of shares to a number not less than that of the shares of such class or series then outstanding; to change the designation or number of shares, or the relative rights, preferences and limitations of the shares, of any theretofor established class or series, no shares of which have been issued; and to cause to be executed and filed without further approval of the shareholders such amendment or amendments to these articles of incorporation as may be required in order to accomplish any of the foregoing. In particular, but without limiting the generality of the foregoing, the Board of Directors is authorized to determine with respect to the share of any class or series of preferred stock: (a) whether the holders thereof shall be entitled to cumulative, non-cumulative or partially cumulative dividends or to no dividends and, with respect to shares entitled to dividends, the dividend rate or rates (which may be fixed or variable and may be made dependent upon facts ascertainable outside of the articles of incorporation) and any other terms and conditions relating to such dividends; (b) whether the holders thereof shall be entitled to receive dividends payable on a parity with or subordinate or in preference to the dividends payable on any other class or series of shares of the Corporation; (c) whether, and if so upon what terms and conditions, the holders thereof shall be entitled to preferential rights upon the liquidation of, or upon any distribution of the assets of, the Corporation; 10 (d) whether, and if so upon what terms and conditions, such shares shall be convertible into other securities; (e) whether, and if so upon what terms and conditions, such shares shall be redeemable; (f) the terms and amount of any sinking fund provided for the purchase or redemption of such shares; and (g) the voting rights, if any, to be enjoyed by such shares and the terms and conditions for the exercise thereof. Section Three. Preemptive Rights. No holder of any shares of common or preferred stock of the Corporation shall have any right as such holder (other than such right, if any, as the Board of Directors in its discretion may determine) to purchase, subscribe for or otherwise acquire any unissued shares, or any option rights, or securities having conversion or option rights, of the Corporation now or hereafter authorized. ARTICLE THREE BOARD OF DIRECTORS Section One. Term. Commencing with the election of directors at the annual meeting of shareholders in 1990, the directors shall be divided into three Classes, A, B, and C, as nearly equal in number as possible following such procedure as shall be established by the Board of Directors. The initial term of office for members of Class A shall expire at the annual meeting of shareholders in 1991; the initial term of office for members of Class B shall expire at the annual meeting of shareholders in 1992; and the initial term of office for members of Class C 11 shall expire at the annual meeting of shareholders in 1993. At each annual meeting of shareholders following such initial classification and election, successive elections of those directors, or directors elected to succeed those directors, shall be selected for a term of office to expire at the third succeeding annual meeting of shareholders after their election and shall continue to hold office until their respective successors are elected and qualify. However, any director named between any annual meeting of shareholders shall be for the term ending with the next annual meeting of shareholders. If the number of directors fixed by the bylaws increases or decreases, all Classes of directors shall be increased or decreased as equally as possible. Section Two. Removal. Shareholders may remove one or more directors only with cause, defined as willful misconduct or knowing violation of criminal law or of any federal or state securities law. However, shareholders may remove one or more directors with or without cause upon a recommendation for removal without cause from the Board of Directors passed by a two-thirds vote of the Board of Directors. ARTICLE FOUR AMENDMENTS Section One. Articles of Incorporation. The Articles of Incorporation of the Corporation shall be amended by approval of each voting group entitled to vote on the amendment by a majority of all votes entitled to be cast by the voting group, provided such amendment has been recommended for approval to the shareholders of the Corporation by a majority of the Board of Directors. 12 Section Two. Bylaws The Bylaws may be amended, in whole or in part, by a two-thirds (2/3) vote of the Board of Directors, or by the holders of two-thirds (2/3) of all shares entitled to vote by each voting group of the shareholders of the Corporation, at any meeting of the Board of Directors or of the shareholders, as the case may be, except that the shareholder vote for Bylaw amendments that have been recommended to the shareholders by a two-thirds (2/3) vote of the Board of Directors shall require only a majority of all votes entitled to be cast by each voting group. Bylaws made or amended by the Board of Directors may be altered or repealed by the shareholders according to this Section, but shall remain in effect unless and until such action be taken by the shareholders. 13 EX-3.2 3 BYLAWS Exhibit 3.2 BYLAWS OF WLR FOODS, INC. ARTICLE I Shareholders Section 1. Place of Meetings. All meetings of the shareholders shall be held at such place as may be designated in writing by the Board of Directors. Section 2. Voting. Shareholders shall be entitled to vote at meetings of the shareholders in person or by proxy. If by proxy, such proxy shall be appointed by an instrument in writing, subscribed by the shareholder or by his duly authorized attorney. A shareholder shall be entitled to one vote for each share of stock entitled to vote registered in his name on the books of the Corporation. Section 3. Quorum. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. Section 4. Adjournment of Meetings. If less than a quorum shall be in attendance at the shareholders' meeting, the meeting shall be adjourned from time to time by a majority vote of the shareholders entitled to vote present or represented by proxy until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner for such time upon such call as may be determined by the shareholders entitled to vote present in person or by proxy at such meetings. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted if the meeting had been held as originally called. Section 5. Annual Election of Directors. The annual meeting of the shareholders for the election of directors and the transaction of other business shall be held in October of each year, the date and time of such meeting to be fixed from time to time by resolution of the Board of Directors. Section 6. Special Meetings - How Called. Special meetings of the shareholders shall be held upon the call of the Chairman of the Board, the President, or the Board of Directors. Section 7. Inspectors of Election. (a) In advance of any meeting of the shareholders of the Corporation, the Board may appoint inspectors of election, who may be officers or employees, but not directors, of the Company, to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any person so appointed fails to appear or refuses to act, the chairman of any meeting of shareholders may appoint at the meeting inspectors of election or persons to replace those who so fail or refuse to act. The number of inspectors shall be three (3). (b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; they shall receive votes, ballots or consents and shall hear and determine all challenges and questions if any may arise in connection with the right to vote; they shall count and tabulate all votes or consents, determine when the polls shall close, and determine the result; and they shall do such acts as may be proper to conduct the election or vote with fairness to all shareholders. (c) The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability, and as expeditiously as is practical. The decision, act or certificate of a majority of the inspectors is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Section 8. Organization. The Chairman of the Board of Directors, or such other officer or board member as the Board of Directors may designate, shall preside at each meeting of shareholders. The Secretary or an Assistant Secretary shall act as secretary of the meeting and keep a record of the proceedings thereof. The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures, and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, establishing rules and procedures for maintaining order at the meeting and the safety of those present, limiting the participation in such meeting to shareholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restricting entry to the meeting after the time fixed for the commencement thereof, limiting the time allotted to questions or comments by participants, and regulating the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. Section 9. Record Date for Special Meeting. For purposes of setting the record date for determination of the holders of common stock of the Corporation entitled to vote at any special meeting of shareholders called pursuant to the provisions of the Virginia Control Share Acquisition Act (the Act), the record date shall be the date on which the Acquiring Person (as defined by the Act) requests such shareholders' meeting pursuant to Va. Code Section 13.1-728.5. 2 ARTICLE II Directors Section 1. Board of Directors. The Board of Directors shall have power to manage and administer the business and affairs of the Corporation. Except as expressly limited by law, all corporate powers of the Corporation shall be vested in and may be exercised by the Board of Directors. Section 2. Number. The Board shall consist of not less than ten (10) nor more than twelve (12) directors, the exact number within such minimum and maximum to be fixed and determined by the Board of Directors or the shareholders. Section 3. Retirement. No person shall be eligible for election to the Board of Directors after his 72nd birthday. The provision of this Section shall not apply to those directors on the Board of Directors as of January 1, 1989. Section 4. Notification of Nominations. Nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Any shareholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such shareholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated, a representation that such shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons specified in the notice, a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder, such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors, and the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of a shareholders' meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 5. Regular Meeting, Election of Officers. A regular meeting of the Board of Directors shall be held immediately following each annual meeting of the shareholders of the Corporation at the same place such shareholders' meeting is held. No notice thereof shall be 3 required. At such meeting, the directors shall elect a President and a Secretary and may elect a Chief Executive Officer, a Chief Operating Officer, a Chief Financial Officer, one or more Vice Presidents, an Assistant Secretary, a Treasurer, and such other officers as the Board may decide, and may transact such other business as shall properly come before the meeting, including the election of directors to committees of the Board of Directors. Unless sooner removed, such officers shall hold office until the next annual election of officers, and until their successors shall have been elected and have qualified. Section 6. Special Meetings, How Called, Notice. Special meetings of the Board of Directors shall be held upon notice by word-of-mouth, letter, facsimile communication, or cable delivered not later than twenty-four (24) hours preceding the time for the meeting upon call of the Chairman of the Board, President or Secretary, and upon call by the Secretary upon the written request of any four (4) directors. Notice of any such meeting may be waived in writing signed by the persons entitled to notice whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in the notice or waiver of notice of the meeting. Section 7. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business. Section 8. Consents. Any and all notices herein required, including the time and place of the meeting and the nature of the business to be transacted, may be waived by written instrument executed by all the directors. Further, any action by the directors of the Corporation may be taken without a meeting by the unanimous written consent of all of the directors. Section 9. Committees. The Board of Directors may, by resolution adopted by a majority of the Board of Directors, create one or more committees of the Board of Directors and elect members of the Board of Directors to serve on them at the pleasure of the Board of Directors. To the extent specified by the Board of Directors or these Bylaws, each committee may exercise the authority of the Board of Directors to the extent permitted by law. Section 10. Officers of the Board. By resolution adopted by a majority of the Board of Directors, the Board of Directors may create such offices of the Board, including Chairman of the Board and Vice Chairman of the Board, as it deems appropriate for the carrying out of Board functions and assignments, to serve at the pleasure of the Board. Such persons are not, nor shall they by virtue of their service to the Board be deemed to be, officers of the Corporation as defined in Section 1, Article VII herein. Section 11. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors, and shall approve the minutes of all meetings at which he presides. He shall have concurrent power, along with the President, and Chief Executive Officer, to call or cause to be called all meetings of the Board of Directors, and shall be an ex officio member of all committees of the Board of Directors. He shall also serve the Corporation in an 4 advisory capacity and perform such other duties as may be assigned to him by the Board of Directors. Section 12. Vice Chairman of the Board. The Vice Chairman of the Board shall have concurrent power with the Chairman and shall preside at all meetings of the Board of Directors in the absence of the Chairman of the Board. ARTICLE III Executive Committee Section 1. Qualifications, Elections. The Board of Directors may elect from its number an Executive Committee composed entirely of members of the Board of Directors. The Chief Executive Officer, and the Chief Operating Officer, provided such officers are Board members, shall be members by virtue of their office with the Corporation. Section 2. Powers and Duties. During the intervals between the Board of Directors' meetings, the Executive Committee shall possess, and may exercise, all the powers of the Board of Directors in the management of the affairs of the Corporation. The Executive Committee shall keep minutes of the proceedings of its meetings to be submitted to the Board of Directors for its approval. ARTICLE IV Audit Committee Section 1. Qualifications, Elections. The Board of Directors shall elect from its number an Audit Committee composed entirely of members of the Board of Directors. A majority of the Audit Committee shall be comprised of independent directors of the Board of Directors. Section 2. Powers and Duties. The Audit Committee shall recommend to the Board of Directors the independent audit firm to be employed by the Corporation to examine and report on the financial statements issued by the Corporation; shall meet with the independent auditor to discuss pertinent matters including quality of management, financial, accounting and internal audit procedures; may establish an internal audit department and thereafter periodically review its functions and its personnel to assure effectiveness, independence and competence; and may direct special investigations into significant matters brought to the Audit Committee's attention within the scope of its duties. The Audit Committee also shall monitor the Corporation's compliance with the applicable requirements of the National Association of Securities Dealers, Inc. relating to independent directors and shall conduct an appropriate review of all related party transactions and potential conflicts of interest relating to the directors, as required by the National Association of Securities Dealers, Inc., on at least an annual basis, and shall recommend to the Board of Directors such action as it deems appropriate if it determines that an impermissible relationship or interest exists. 5 ARTICLE V Nominating Committee Section 1. Qualifications, Elections. The Board of Directors may elect from its number a Nominating Committee composed entirely of members of the Board of Directors. Section 2. Powers and Duties. The Nominating Committee shall propose to the Board of Directors a slate of nominees for the Board of Directors toconsider in recommending to the Corporation's shareholders persons to be elected at the annual meeting of shareholders to the Board of Directors, which slate shall consist of at least two independent directors; shall propose to the Board of Directors nominees who meet criteria for Board membership to fill vacancies on the Board as they occur; and shall propose to the Board of Directors for Board approval director nominees for appointment to, and the filling of vacancies on, committees of the Board of Directors. ARTICLE VI Executive Compensation Committee Section 1. Qualifications, Elections. The Board of Directors may elect from its number an Executive Compensation Committee composed entirely of members of the Board of Directors. Section 2. Powers and Duties. The Executive Compensation Committee shall determine the annual salary, bonus and other benefits, direct and indirect, of the Chief Executive Officer and shall make grants pursuant to the Corporation's Long Term Incentive Plan. ARTICLE VII Officers Section 1. General. The officers of the Corporation shall consist of a President and a Secretary, and may consist of a Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, one or more Vice Presidents, Assistant Secretary, Treasurer, and such other officers as the Board may decide. One person may hold more than one office. Section 2. President. The President of the Corporation shall have concurrent power, along with the Chairman of the Board and Chief Executive Officer, to call or cause to be called all meetings of the Board of Directors. He shall be an ex officio member of all committees of the Board of Directors. He shall also preside at all meetings of the Board of Directors in the absence of the Chairman or Vice Chairman of the Board. He shall make and sign contracts and instruments in the name and on behalf of the Corporation, including checks,drafts, notes and orders for the payment of money, subject to the approval of the Board of Directors, make reports to the shareholders and directors, and perform all such other duties as are incident to his office or which may properly be required of him by the Board of Directors. 6 Section 3. Chief Executive Officer. The Chief Executive Officer shall give counsel and advice as may be deemed essential for the best interest of the Corporation. He shall have concurrent power, along with the Chairman of the Board and President, to call or cause to be called all meetings of the Board of Directors. He shall be responsible for all administration of the business and affairs of the Corporation. He shall make and sign contracts and instruments in the name and on behalf of the Corporation, including checks, drafts, notes and orders for the payment of money, subject to the approval of the Board of Directors, make reports to the shareholders and directors, and perform all such other duties as are incident to his office of which may properly be required of him by the Board of Directors. Section 4. Chief Operating Officer. The Chief Operating Officer shall give counsel and advice as may be deemed essential for the best interest of the Corporation. He shall effect active supervision over the operations of the business. He shall perform all other duties as may be assigned to him by the Board of Directors or Chief Executive Officer. Section 5. Chief Financial Officer. The Chief Financial Officer shall give counsel and advice as may be deemed essential for the best interest of the Corporation. He shall be responsible for the fair presentation of financial statements of the Corporation. He shall supervise the controllers of the subsidiary corporations. He shall perform all other duties as may be assigned to him by the Board of Directors or Chief Executive Officer. Section 6. Vice Presidents. Each Vice President shall perform such duties as may be assigned to him by the Board of Directors. Section 7. Secretary. The Secretary shall give, or cause to be given, notice of all meetings of shareholders and the Board of Directors, and all other notices required by law or by these Bylaws, or by the Board of Directors. He shall record the proceedings of the meetings of the shareholders and the Board of Directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the Board of Directors, President or Chief Executive Officer. He shall sign the stock certificates of the Corporation, and shall keep a current register of the names and addresses of the shareholders. He shall be the custodian of the corporate seal, the stock certificate book, minute book and all other records of the Corporation, other than those hereinafter delegated to the care and custody of the Treasurer, and shall affix and attest the corporate seal to any certificate or writing of the Corporation requiring the same. The Secretary may, but shall not be required to, guarantee the signatures of endorsers of the Corporation's stock pursuant to Va. Code Section 8.8-312(1) (Supp. 1989), as amended. Section 8. Assistant Secretary. The Assistant Secretary shall be vested with all of the powers and perform all of the duties of the Secretary in the absence of the Secretary. He shall also perform such other duties as may be prescribed by the Board of Directors. Section 9. Treasurer. The Treasurer shall have the custody of, and be responsible for, the funds and securities of the Corporation. He shall receive and give, or cause to be given, receipts and acquittances for monies paid to the Corporation, pay out funds of the Corporation, 7 and keep full and accurate records and books of account showing his transactions, which records and books of account he shall exhibit to any shareholder or director upon request therefor. He shall also perform such other duties as may be required of him by the Board of Directors. ARTICLE VIII Capital Stock Section 1. Issue of Certificates of Stock. The Corporation shall cause to be issued to each shareholder one or more certificates under the seal or its facsimile of the Corporation, signed by the President, Chairman of the Board, Chief Executive Officer, Chief Operating Officer, Vice Chairman of the Board or Executive Vice President and Secretary or Assistant Secretary, which signatures may be by facsimile, certifying the number of shares owned by the shareholders. All references in these Bylaws to an officer's signature of the Corporation's stock certificates shall be deemed to permit signature by facsimile. Section 2. Transfer of Shares. The shares of the Corporation shall be transferable only on its books. Transfers of stock shall be madupon the corporate records only when an old or previously issued certificate shall have been surrendered for cancellation, whereupon it shall be marked CANCELLED by the Secretary, with the date of such cancellation, before a new certificate is issued therefor. Section 3. Distributions. To the extent consistent with the Corporation's Articles of Incorporation and these Bylaws, the provisions of Title 13.1, Chapter 9, Article VII of the Code of Virginia of 1950, as amended, shall apply to any distributions with respect to the Corporation's shares, as well as any other matters respecting such shares. Section 4. Lost Certificates. In case any certificate for the capital stock of the Corporation shall be lost, stolen or destroyed, the Corporation may require such proof of the fact, such indemnity to be given to it and to its Transfer Agent and Registrar, and payment of reasonable fees incurred, as shall be deemed necessary or advisable by it. Section 5. Holder of Record. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Section 6. Closing of Books. The Board of Directors may fix in advance a date, not exceeding seventy (70) days preceding the date of any meeting of the shareholders, or the date for payment of any dividend or the date for allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividends, or any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock, and in such case only 8 shareholders of record on the dates so fixed shall be entitled to such notice of and to vote at such meeting, or to receive payment of such dividend or allotment of rights, or exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as herein provided. ARTICLE IX Limitation of Liability and Indemnification Section 1. Limitation or Elimination of Liability. To the full extent that the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors or officers, a director or officer of the Corporation shall not be liable to the Corporation or its shareholders for any monetary damages in excess of one dollar. Section 2. Indemnification. The Corporation shall indemnify a director or officer of the Corporation who is or was a party to any proceeding by reason of the fact that he is or was such a director or officer or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against all liabilities and expenses incurred in the proceeding except such liabilities and expenses as are incurred because of his willful misconduct or knowing violation of the criminal law. Section 3. Determination to Indemnify. Subject to the provisions of Section 7 of this Article, a determination to indemnify a director or officer under Section 2 of this Article shall be made, in the first instance, by a majority vote of a quorum of the Board of Directors, such quorum consisting of disinterested directors. If a quorum of disinterested directors cannot be obtained, then the determination shall be made by majority vote of a committee designated by the Board of Directors (in which designation interested directors may participate), the committee to consist solely of two or more disinterested directors. If such a committee cannot be designated, the determination shall be made by special legal counsel selected by a majority vote of a quorum consisting of disinterested directors, or, if the same cannot be obtained, by the committee described above. If neither a quorum consisting of disinterested directors or the committee described above can be obtained, the selection of special legal counsel shall be made by majority vote of the Board of Directors (in which selection interested directors may participate). Notwithstanding any other provision of this Article, in any instance, the determination to indemnify a director or officer may be made by vote of the shareholders, except that any shares owned, or voted under the control of, directors or officers who are parties to the proceeding may not be voted. Section 4. Advances and Reimbursements of Expenses. Once a determination to indemnify has been made pursuant to the provisions of Section 3 of this Article, the Corporation shall make advances for expenses of, and reimbursements for expenses incurred by, any director or officer in any proceeding described in Section 2 of this Article, upon receipt of an undertaking from the director or officer to repay the same if it is ultimately determined that he is not entitled 9 to indemnification. Such undertaking shall be an unlimited, unsecured general obligation of the director or officer and shall be accepted without reference to his ability to make repayment. The director or officer also shall furnish the Corporation with a written statement of his good faith belief that he has met the standard of conduct described in Va. Code Section 13.1-697, as amended. Section 5. Indemnification of Agents and Employees. The Board of Directors may cause the Corporation to indemnify and make advances and reimbursements to any person not specified in Section 2 of this Article who was or is a party to any proceeding by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such person were specified as one to whom indemnification is granted in Section 2. The provisions of Section 2 through 4 of this Article shall be applicable to any indemnification, determination, advancements and reimbursements provided pursuant to this Section. Section 6. Indemnification Insurance. The Corporation may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article, and also may procure insurance in such amounts as the Board of Directors may determine on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against liability asserted against or incurred by any such person in any such capacity or arising from his status as such, whether or not the Corporation would have power to indemnify him against such liability under the provisions of this Article. Section 7. Changes in the Board Composition. In the event there has been a change in the composition of a majority of the Board of Directors after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification, advancement or reimbursement of expenses with respect to any claim for indemnification made pursuant to Sections 2 or 5 of this Article shall be made by special legal counsel agreed upon by the Board of Directors and the proposed indemnitee. If the Board of Directors and the proposed indemnitee are unable to agree upon such special legal counsel, the Board of Directors and the proposed indemnitee each shall select a nominee, and the nominee shall select such special legal counsel. Section 8. Applicability of this Article. The provisions of this Article shall be applicable to all actions, claims, suits or proceedings commenced after the adoption hereof, whether arising from any action taken or failure to act before or after such adoption. No amendment, modification or repeals of this Article shall diminish the rights provided hereby or diminish the right to indemnification with respect to any claim, issue or matter in any then pending or subsequent proceeding that is based in any material respect on any alleged action or failure to act prior to such amendment, modification or repeal. Reference herein to directors, officers, 10 employees or agents shall include former directors, officers, employees and agents and their respective heirs, executors and administrators. ARTICLE X Redemption Rights To the full extent permitted by the Control Share Acquisition Act, Article 14.1 of Title 13.1 of the Code of Virginia of 1950, as amended, the Corporation is authorized to redeem shares acquired in a control share acquisition, as that term is defined under the Control Share Acquisition Act. ARTICLE XI Fiscal Year The Board of Directors shall have power to fix, and, from time to time, change, the fiscal year of the Corporation. Unless otherwise fixed by the Board, the fiscal year shall end on the Saturday closest to June 30th. ARTICLE XII Amendments These Bylaws may be amended, in whole or in part, by a two-thirds (2/3) vote of the Board of Directors, or by the holders of two-thirds (2/3) of all shares entitled to vote by each voting group of the shareholders of the Corporation, at any meeting of the Board of Directors or of the shareholders, as the case may be, except that the shareholder vote for Bylaw amendments that have been recommended to the shareholders by a two-thirds (2/3) vote of the Board of Directors shall require only a majority of all votes entitled to be cast by each voting group. Bylaws made or amended by the Board of Directors may be altered or repealed by the shareholders, but shall remain in effect unless and until such action be taken by the shareholders. ARTICLE XIII Implied Amendments Any action taken or authorized by the shareholders or by the Board of Directors which would be inconsistent with the Bylaws then in effect, but which is taken or authorized by the affirmative vote of not less than that number of shares or the number of directors that would be required to amend these Bylaws so that the Bylaws would be consistent with such action, shall be given the same effect as if these Bylaws had been temporarily amended or suspended to the extent necessary to permit the specific action so taken or authorized. 11 EX-4.3 4 NOTE AGREEMENT Exhibit 4.3 FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT dated as of October 16, 1992 WHEREAS, WLR Foods, Inc. and the undersigned Purchasers entered into a Note Agreement dated as of May 1, 1991; WHEREAS, WLR Foods, Inc. and the undersigned Purchasers desire to amend the Note Agreement as set forth herein. NOW, THEREFORE, WLR Foods, Inc. and the undersigned Purchasers agree as follows: 1. Section 5.11 of the Note Agreement is hereby amended by deleting the last paragraph of said section and replacing with the following The Company will not declare any dividend which constitutes a Restricted Payment payable more than 90 days after its date of declaration. Notwithstanding the foregoing, the Company may not and will not declare any dividend on preferred stock which constitutes a Restricted Payment payable more than 180 days after its date of declaration. 2. All other terms and conditions of the Note Agreement shall remain the same. 3. This Amendment shall be effective upon the execution of this Agreement by the Company and the holders of 66-2/3% in aggregate principal amount of the Notes outstanding. IN WITNESS WHEREOF, the Company and the Purchasers have caused this Agreement to be executed and delivered by their respective officer or officers thereunto duly authorized. WLR Foods, Inc. MIMLIC FUNDING, INC. By: /s/ Delbert L. Seitz By: MIMLIC Asset Management Company Title: Treasurer By: /s/ Alan Notvik THE MINNESOTA MUTUAL LIFE Title: Alan Notvik, INSURANCE COMPANY Second Vice President By: /s/ Alan Notvik NATIONWIDE LIFE INSURANCE Title: Alan Notvik, Second Vice President COMPANY THE RELIABLE LIFE INSURANCE By: /s/ Jeffrey G. Mulburn COMPANY Title: Vice President By: MIMLIC Asset Management Company EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU By: /s/ Alan Notvik Title: Alan Notvik, Second Vice President By: /s/ Jeffrey G. Mulburn Title: Vice President MUTUAL TRUST LIFE INSURANCE COMPANY By: MIMLIC Asset Management Company By: /s/ Alan Notvik STAUNTON FARM CREDIT, ACA Title: Alan Notvik, Second Vice President By: /s/ Richard E. Reeves FEDERATED LIFE INSURANCE COMPANY Title: President By: MIMLIC Asset Management Company By: /s/ Alan Notvik Title: Alan Notvik, Second Vice President TEXAS LIFE INSURANCE COMPANY By: MIMLIC Asset Management Company By: /s/ Alan Notvik Title: Alan Notvik, Second Vice President EX-4.4 5 NOTE AGREEMENT Exhibit 4.4 AGREEMENT TO FURNISH COPY OF SECOND AMENDMENT TO NOTE AGREEMENT DATED SEPTEMBER 27, 1995 Pursuant to Item 601(B)(4)(3)(A) of Regulation S-K, the Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of the Second Amendment, dated June 1, 1995, to the Note Agreement dated May 1, 1991 with Minnesota Mutual Life Insurance Company, Inc. WLR FOODS, INC. By:_/s/ Delbert L Seitz_____________________ Delbert L. Seitz, Chief Financial Officer EX-4.8 6 CREDIT AGREEMENT Exhibit 4.8 AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT TO CREDIT AGREEMENT, made and entered into as of the first day of July, 1995, by and among WLR FOODS, INC. (the "Borrower"), WAMPLER-LONGACRE, INC., CASSCO ICE & COLD STORAGE, INC., FIRST UNION NATIONAL BANK OF VIRGINIA, as Agent, and FIRST UNION NATIONAL BANK OF VIRGINIA, CORESTATES BANK, N.A., also doing business as Philadelphia National Bank, HARRIS TRUST AND SAVINGS BANK and CRESTAR BANK (collectively, the "Lenders"); WITNESSETH: WHEREAS, the parties hereto have previously entered into a Credit Agreement dated as of March 1, 1995 (the "Agreement"); and WHEREAS, the parties desire to amend the Agreement as herein provided; NOW, THEREFORE, IN CONSIDERATION of the mutual covenants herein contained, the parties agree that the Agreement is hereby amended as follows: 1. In the first sentence of Section 2.3(c) of the Agreement, the language "one (1) Business Day's" is changed to read "Contemporaneous". 2. In Schedule 10.1(d) to the Agreement, "$16,000,000" is changed to read "$22,000,000". As consideration for the Lender's execution and delivery of this Amendment, the Borrower shall pay each Lender the sum of $5.00 in cash. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on their behalf by their officers duly authorized, all as of the date first above written. WLR FOODS, INC. By: /s/ Delbert L. Seitz Its: Secretary WAMPLER-LONGACRE, INC. By: /s/ Delbert L. Seitz Its: Secretary CASSCO ICE & COLD STORAGE, INC. By: /s/ Delbert L. Seitz Its: Secretary FIRST UNION NATIONAL BANK OF VIRGINIA, as Agent and Lender By: /s/ Stewart H. Manley Its: SVP CORESTATES BANK, N.A., also doing business as Philadelphia National Bank By: /s/ Christina S. Pietrangelo Its: Commercial Officer HARRIS TRUST AND SAVINGS BANK By: /s/ Carl A. Blackham Its: Vice President CRESTAR BANK By: /s/ Martha D. Shifflett Its: Vice President EX-4.9 7 NOTE AGREEMENT Exhibit 4.9 AGREEMENT TO FURNISH COPY OF NOTE AGREEMENT DATED SEPTEMBER 27, 1995 Pursuant to Item 601(B)(4)(3)(A) of Regulation S-K, the Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of the Note Agreement dated June 1, 1995 for the issuance of $22 million of 7.47% Senior Notes, Series B due June 1, 2007. WLR FOODS, INC. By:_/s/ Delbert L. Seitz_________________ Delbert L. Seitz, Chief Financial Officer EX-13.1 8 FINANCIAL HIGHLIGHTS Exhibit 13.1 Financial Highlights from Registrant's Annual Report to Shareholders WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS Dollars in thousands, except per share data
July 1, July 2, July 3, June 27, Fiscal year ended: 1995 1994 1993 1992 --------- --------- --------- --------- OPERATIONS Net sales $908,776 $727,270 $616,702 $514,465 Cost of sales 785,085 632,620 535,014 454,331 -------- -------- -------- -------- Gross profit 123,691 94,650 81,688 60,134 Selling, general and administrative expenses 91,420 63,606 55,732 48,191 -------- -------- -------- -------- Operating income 32,271 31,044 25,956 11,943 Interest expense 6,666 4,989 3,816 2,755 Other (income) expense net (332) (431) (567) (251) --------- -------- -------- -------- Total other 6,334 4,558 3,249 2,504 Earnings before income taxes and minority interest 25,937 26,486 22,707 9,439 Income tax expense 9,749 9,897 8,057 3,518 Minority interest 55 38 43 25 -------- --------- -------- -------- Net earnings before cumulative effect of change in accounting 16,133 16,551 14,607 5,896 Cumulative effect on prior years of change in accounting - - - - -------- -------- -------- -------- Net earnings 16,133 16,551 14,607 5,896 Less preferred stock dividends - - 1,389 982 -------- -------- -------- -------- Net earnings available to common shareholders $16,133 $16,551 $13,218 $4,914 ======= ======= ======= ====== PER COMMON SHARE Net earnings before cumulative effect of change in accounting $0.90 $1.01 $0.95 $0.35 Cumulative effect on prior years of change in accounting - - - - -------- -------- -------- -------- Net earnings per share (primary) $0.90 $1.01 $0.95 $0.35 Net earnings per share (fully diluted) $0.90 $1.01 $0.93 $0.35 Dividends declared (excluding Cassco pooling) 0.22 0.21 0.21 0.21 Book value 10.47 9.45 8.66 6.44 Year-end stock price 14.38 17.00 11.33 9.67
1 WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS-Continued Dollars in thousands, except per share data
July 1, July 2, July 3, June 27, Fiscal year ended: 1995 1994 1993 1992 --------- --------- --------- --------- Common shares outstanding (in thousands): Average for the year 17,859 16,451 15,66614,277 At year end 17,298 16,514 16,427 12,719 ======== ======= ======= ======= FINANCIAL POSITION AT END OF YEAR Working capital $120,563 $69,989 $57,509 $40,337 Property, plant and equipment, net 174,163 139,854 140,540 113,017 Total assets 372,525 283,051 265,626 207,736 Long-term debt 106,481 46,368 52,253 38,148 Common stock subject to repurchase 17,750 - - - Preferred shareholders' equity * - - - 29,507 Common shareholders' equity 163,344 156,157 142,255 81,881 ======= ======= ======= ======= ANALYTICAL & OTHER INFORMATION Current ratio (compared to 1) 2.67 2.02 1.92 1.80 Total debt/total capitalization 44.7% 28.4% 33.5% 32.0% Return on beginning total equity 10.3% 11.6% 13.1% 5.1% Capital expenditures $17,251 $19,186 $31,766 $36,107 Depreciation expense 24,817 21,333 18,115 14,041 Amortization expense 598 520 445 168 Interest expense 6,666 4,989 3,816 2,755 Dividends declared: Common stock 4,073 3,513 3,124 2,854 Preferred stock - - 1,389 982 Market capitalization of common stock at year end 248,654 280,738 186,168 122,942 ======= ======= ======= ======= All information reflects the three-for two stock split in the form of a 50% stock dividend declared on February 28, 1995. * In March 1993, the Company repurchased all the preferred stock issued in January 1992. Fully diluted shares
2 WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS-Continued Dollars in thousands, except per share data June 29, June 30, July 1, July 2, Fiscal year ended: 1991 1990 1989 1988 --------- -------- -------- -------- OPERATIONS Net sales $502,238 $494,156 $465,951 $381,363 Cost of sales 434,509 415,803 391,640 335,855 -------- -------- -------- -------- Gross profit 67,729 78,353 74,311 45,508 Selling, general and administrative expenses 50,019 49,595 44,566 37,420 -------- -------- -------- -------- Operating income 17,710 28,758 29,745 8,088 Interest expense 928 925 2,037 1,536 Other (income) expense, net (453) (491) 166 (184) -------- -------- -------- -------- Total other 475 434 2,203 1,352 Earnings before income taxes and minority interest 17,235 28,324 27,542 6,736 Income tax expense 6,521 10,895 10,520 2,952 Minority interest 33 34 (206) 60 -------- -------- -------- -------- Net earnings before cumulative effect of change in accounting 10,681 17,395 17,228 3,724 Cumulative effect on prior years of change in accounting - - - 1,112 -------- -------- -------- -------- Net earnings 10,681 17,395 17,228 4,836 Less preferred stock dividends - - - - -------- -------- -------- -------- Net earnings available to common shareholders $10,681 $17,395 $17,228 $4,836 ======== ======== ======== ======== PER COMMON SHARE Net earnings before cumulative effect of change in accounting $0.68 $1.11 $1.11 $0.24 Cumulative effect on prior years of change in accounting - - - $0.07 -------- --------- -------- -------- Net earnings per share (primary) $0.68 $1.11 $1.11 $0.31 Net earnings per share (fully diluted) $0.68 $1.11 $1.11 $0.31 Dividends declared (excluding Cassco pooling) 0.21 0.19 0.18 0.21
3 WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS-Continued
June 29, June 30, July 1, July 2, Fiscal year ended: 1991 1990 1989 1988 -------- -------- -------- -------- Book value 7.33 6.86 5.86 4.95 Year-end stock price 12.00 12.33 11.87 5.63 Common shares outstanding (in thousands): Average for the year 15,782 15,645 15,600 15,600 At year end 15,782 15,782 15,600 15,600 ======= ======= ======= ======= FINANCIAL POSITION AT END OF YEAR Working capital $49,532 $46,039 $42,914 $35,169 Property, plant and equipment, net 88,807 71,414 59,687 53,524 Total assets 175,329 157,763 142,832 124,810 Long-term debt 18,678 6,402 7,858 8,995 Common Stock subject to repurchase - - - - Preferred shareholders' equity * - - - - Common shareholders' equity 115,625 108,258 91,455 77,181 ======= ======= ======= ======= ANALYTICAL & OTHER INFORMATION Current ratio (compared to 1) 2.42 2.20 2.12 2.03 Total debt/total capitalization 16.1% 8.5% 13.9% 16.0% Return on beginning total equity 9.9% 19.0% 22.3% 6.6% Capital expenditures $29,471 $20,360 $16,001 $8,163 Depreciation expense 11,544 9,932 8,595 7,057 Amortization expense - - - - Interest expense 928 925 2,037 1,536 Dividends declared: Common stock 3,314 2,948 2,643 2,503 Preferred stock - - - - Market capitalization of common stock at year end 189,378 194,638 185,432 87,880 ======= ======= ======= ======= All information reflects the three-for two stock split in the form of a 50% stock dividend declared on February 28, 1995. * In March 1993, the Company repurchased all the preferred stock issued in January 1992.
4 EX-13.2 9 MD&A Exhibit 13.2 Management's Discussion and Analysis from Annual Report to Shareholders MANAGEMENT'S DISCUSSION AND ANALYSIS GENERAL INFORMATION WLR Foods, Inc. posted record sales for the seventh consecutive year. The Company experienced significant changes during fiscal 1995, a result of the August 1994 acquisition of the Cuddy Farms, Inc. - USA Food Division (Carolina Division) in North Carolina. The acquisition moved WLR Foods to the second largest turkey processor in the nation, and increased the Company's presence in foodservice. The Company continued to oppose the Tyson Foods, Inc. hostile takeover attempt through the year, although expenses have been minimal since January 1995. At the current level of activity, management does not anticipate the continuing costs to have a material impact on operations in fiscal 1996. The United States Court of Appeals for the Fourth Circuit, upheld the lower court ruling in favor of WLR Foods on September 22, 1995. During fiscal 1995, WLR Foods expanded and renegotiated its line of credit with several banks. The new facility is a $110 million revolving line of credit, of which $15 million is available for standby letters of credit. The terms of the revolver led to the renegotiation of the financial covenants on the existing long-term fixed rate debt. Additionally, two new debt facilities were placed during the year: a $25 million, variable rate, seven-year term loan to finance the Carolina acquisition and a $22 million, 12-year, fixed rate term loan which replaced the variable rate term loan placed in 1991. This refinancing allows for greater operating flexibility for the future. Fiscal 1995 was a year of changes in the capital stock for WLR Foods. The Board of Directors announced a $20 million stock repurchase plan in February and in June authorized an additional $10 million to be repurchased. As of September 10, 1995, 1.16 million shares of stock have been repurchased at a cost of $17.7 million. Management expects to continue the repurchase plan during fiscal 1996. The Board also declared a three-for-two stock split, and a 12.5% increase in the regular quarterly dividend. The current annual dividend is $0.24 per share, based on the split-effected shares. 1 For the periods indicated, this table sets forth selected information from WLR Foods Consolidated Statements of Earnings:
Operations as a Percentage of Net Sales Fiscal Year -------------------------------------------- 1995 1994 1993 -------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of sales 86.4 87.0 86.8 ------ ------ ------ Gross profit margin 13.6 13.0 13.2 Selling, general and administrative expenses 10.1 8.7 9.0 ------ ------ ------ Operating profit margin 3.5 4.3 4.2 Interest expense 0.7 0.7 0.6 Other income, net (0.1) (0.1) (0.1) ------ ------ ------ Earnings before income taxes and minority interest 2.9 3.7 3.7 Income tax expense and minority interest 1.1 1.4 1.3 ------ ------ ------ Net earnings margin 1.8% 2.3% 2.4% ====== ===== ======
The next table shows changes in the components of operating results over the past three fiscal years.
Changes In Results of Operations Fiscal Year Fiscal Year 1995 vs. 1994 1994 vs. 1993 Increase % Increase % In millions, except per share data (Decrease) Change (Decrease) Change ------------ ------------ ---------- -------- Net sales $181.5 25.0% $110.6 17.9% Cost of sales 152.5 24.1 97.6 18.2 ------ ----- ------ ------ Gross profit 29.0 30.7 13.0 15.9 Selling, general and administrative expenses 29.6 48.9 4.8 8.6 Hostile takeover defense costs (1.8) (58.1) 3.1 - ------ ----- ------ ------ Operating profit 1.2 4.0 5.1 19.6 Interest expense 1.7 33.6 1.2 30.7 Other income, net - - (0.1) (24.0) ------ ----- ------ ------ Earnings before income taxes and minority interest (0.5) (2.1) 3.8 16.6 Income tax expense and minority interest (0.1) (1.3) 1.9 22.7 ------ ----- ------ ------ Net earnings (0.4) (2.5) 1.9 13.3 Preferred Dividends - - (1.4) (100.0) ------ ----- ------ ------ Earnings available to common shareholders $(0.4) (2.5)% $3.3 25.2% ===== ===== ====== ====== Earnings per share ($0.11) (10.9%) $0.06 6.3% ====== ====== ====== ======
2 RESULTS OF OPERATIONS Fiscal 1995 Compared to Fiscal 1994 Sales increased 25% to $908.8 million in fiscal 1995, primarily the result of the acquisition of the Carolina Division in late August 1994. Sales pounds increased 18%, comprised of a 2% increase in chicken pounds sold, and a 40% increase in turkey and further processed pounds sold. Average quoted commodity prices for whole chickens and turkeys were down 8% and 1%, respectively, compared to fiscal 1994 average prices, resulting from abundant supplies of not only poultry but of competing meats. As export demand for dark turkey meat dropped due to the devaluation of the Mexican peso, prices for dark turkey meat decreased to low levels, averaging 25% lower than the fourth quarter of fiscal 1994. In the new fiscal year, an increase in export demand for dark turkey products is moving prices upward. Domestic demand for whole turkeys and further processed white meat products has also increased these commodity prices since fiscal year end. Cost of sales increased 24%, primarily due to higher volumes sold somewhat offset by lower average grain costs. Corn prices were down 10% and soybean meal was 16% lower than in fiscal 1994. Corn prices have moved somewhat higher since year end, and management anticipates the average price of corn to be above the fiscal 1995 average. Soybean meal prices have remained stable through the last six months, but due to weather patterns in the Midwest, prices have moved higher since fiscal year end. Currently, WLR Foods does not have any commitments to purchase corn or soybean meal in the future. Overall, management anticipates corn and soybean meal costs to be in the range of the five year average cost of both commodity grain inputs. Operating costs remained steady, with efficiency improvements offsetting increases in labor and packaging costs. Disease is always a risk of raising poultry. This summer, the poultry industry, and the Company experienced live production losses due to heat and disease. WLR Foods most notable losses occurred in the Carolina Division from spiking mortality of turkeys. This disease affects young turkeys during periods of high temperatures. The impact of this situation is two-fold: reduced numbers of live birds available for slaughter and the failure of surviving birds to mature as uniformly as healthy flocks, thereby increasing processing costs. Management has taken several approaches to combat the disease with positive initial results. Extensive research supported by WLR Foods and the industry is underway in an attempt to isolate the cause. Gross profit margin improved as a result of lower grain prices and increased sales of value-added products. This trend reversed in the fourth quarter as prices dropped for dark turkey meat products and as grain prices increased. Since fiscal year end, average quoted prices for whole turkeys and breastmeat have increased seasonally and are expected to remain in a more normal range through the end of calendar 1995. Total selling, general and administrative expenses rose 43.7% because of a significant increase in volumes sold. Selling, marketing, advertising and delivery costs were due to the acquisition of the Carolina Division and higher volumes sold. Higher sales volumes of further processed and foodservice products also resulted in increased selling, marketing and advertising expenses. Administrative costs increased only 6% over the prior year. Fiscal 1995 includes $1.3 million in defense costs for the hostile takeover attempt of the Company by Tyson Foods compared to $3.1 million in fiscal 1994. 3 WLR Foods other expenses increased due to increases in the amounts borrowed along with higher interest rates on the variable rate loans. Additional funds were borrowed to finance two acquisitions, and an additional $16.3 million was used to repurchase 1.06 million shares of the Company's common stock in fiscal 1995. The effective tax rate was 37.6%, compared to 37.4% for fiscal 1994. Fiscal 1994 compared to Fiscal 1993. Net sales for fiscal 1994 increased 18% over the previous year. Sales volumes were up 15%, the result of a 14% increase in chicken pounds sold and a 19% increase in turkey sales due to internal growth and the New Oxford acquisition. Cassco Ice & Cold Storage's revenues rose 34% in fiscal 1994, reflecting a full year of revenues from operations acquired in fiscal 1993. Average quoted commodity prices were up 5% for chickens and 6% for turkeys over the previous year. This trend continued the fiscal 1993 price movement. Cost of sales increased 18% in fiscal 1994 with higher sales volumes and higher feed costs. These costs reduced the gross margin to 13%. Feed costs were up $16 million compared to fiscal 1993. Operating efficiencies continued to improve over previous years, as higher volumes of product were processed. Selling, general and administrative expenses were up 14% over fiscal 1993, with nearly half, 6%, resulting from advisory fees for the hostile takeover defense. Higher sales volumes increased delivery costs and selling expenses. Although selling, general and administrative expenses were up in total dollars, the percentage of net sales for these expenses fell from 9% to 8.7%. The Company's interest expense increased in fiscal 1994 due to higher interest rates and increased borrowings. The effective tax rate increased from 35.5% to 37.4% as a result of lower tax credits available to WLR Foods. LIQUIDITY AND FINANCIAL CONDITION The Company's working capital position improved in fiscal 1995. At year end, working capital was $120.6 million, up from $70.0 million last year. The increase was the result of the $110 million revolving credit facility established in March 1995. The revolving credit facility allows WLR Foods to borrow funds for general corporate purposes, with no repayments until the facility matures in 1998. The change in terms on the bank facility allowed WLR Foods to reclassify nearly all of the revolver borrowing as long-term financing for statement purposes. Working capital changes, in addition to the acquired businesses and refinancing were due to changes in operating accounts of $10 million, primarily made up of increased finished goods inventories. Since fiscal year end, finished goods inventories have been sold down to prior year post-acquisition levels. WLR Foods current ratio improved to 2.7-to-1 compared to 2.0-to-1 for last year. Management anticipates the current ratio to remain strong over the next two years as a result of the debt restructuring during fiscal 1995. The Company refinanced two variable rate term loans, extending the scheduled repayments into the future. The refinancing revised the financial covenants reflecting the financial strength of WLR Foods. The revised covenants will allow the Company more operating flexibility for the 4 future. One of the loans was expanded to $22 million and fixed at a rate of 7.47% for 12 years. The second remains a variable rate note, with pricing at one quarter of a percent lower than the facility it replaced. As of July 1, 1995, total debt-to-total capitalization was 44.7%, up from 28.4% a year ago. The increase is the result of borrowing used for the Carolina Division acquisition, and the repurchase of WLR Foods stock. The common stock subject to repurchase is classified as debt for the total debt-to-total capital calculation. Management expects this percentage to fluctuate based on usage of the revolving line of credit, but anticipates levels remaining below 50%. Book value per share of common stock was $10.47 compared to $9.45 last year, both of which reflect the three-for-two stock split. The book value per share calculation includes as equity the $17.8 million common stock subject to repurchase. This approach assumes the shares outstanding will become non-contingent shares at the termination of the put-agreement in 1998 which was part of the original purchase agreement for the Carolina Division. The net increase in book value reflects $16.1 million in earnings and $29.1 million of additional shares issued (including stock issued for acquisitions), less $4.1 million of dividends paid and $16.3 million to repurchase shares. The regular quarterly dividend was increased by 12.5% to six cents per share during the year. CAPITAL RESOURCES WLR Foods spent $17.3 million on capital improvements in fiscal 1995. These include $1.8 million expended on the expansion of the Moorefield plant to add a portion control chicken product line for foodservice customers, $1.4 million on the completion of the Monroe turkey plant expansion, and the balance on normal replacement and upgrades of equipment and facilities. For fiscal 1996 capital expenditures are budgeted at $30 million. Approximately $23 million is budgeted for normal replacements and upgrades. The remainder is available for longer term projects: renovations to the Marshville processing plant to increase capacity and efficiency, and building an ice manufacturing facility and installing equipment in Richmond, Virginia. The Marshville project will be operational this fall with anticipated contributions realized for the second half of fiscal 1996. The Richmond ice facility should be operational by fiscal year end with contributions not realized until fiscal 1997. Depreciation expense for the year was $24.8 million with an additional $0.6 million of amortization. For fiscal 1996, depreciation and amortization is forecast at $25 million. Management anticipates the cash generated from operations and the available revolving credit balance to be adequate to fund capital spending, scheduled debt service and dividend needs for fiscal 1996, with additional capital available to pursue acquisitions when opportunities arise. Management is not aware of any significant environmental, legal or accounting issue or pronouncement that will materially impact the operations or financial position of WLR Foods. 5 EX-13.3 10 CONSOLIDATED FIN STATEMENTS & NOTES Exhibit 13.3 Consolidated Financial Statements and Notes to Consolidated Financial Statements WLR Foods, Inc. and Subsidiaries Consolidated Statements of Earnings
Dollars in thousands, except per share data Fiscal years ended July 1, 1995, July 2, 1994, and July 3, 1993 1995 1994 1993 - ---------------------------------------------------------------- -------- -------- -------- Net sales (Note 11) $908,776 $727,270 $616,702 Cost of sales (Note 11) 785,085 632,620 535,014 -------- -------- -------- Gross profit 123,691 94,650 81,688 Selling, general and administrative expenses 91,420 63,606 55,732 -------- -------- -------- Operating income 32,271 31,044 25,956 Other expense: Interest expense (Note 4) 6,666 4,989 3,816 Other income, net (332) (431) (567) -------- -------- -------- Other expense, net 6,334 4,558 3,249 -------- -------- -------- Earnings before income taxes and minority interest 25,937 26,486 22,707 Income tax expense (Note 7) 9,749 9,897 8,057 Minority interest in net earnings of consolidated subsidiary 55 38 43 -------- -------- -------- Net Earnings 16,133 16,551 14,607 Less preferred stock dividends - - 1,389 -------- -------- -------- Net Earnings Available to Common Shareholders $16,133 $16,551 $13,218 ======== ======== ======= Net Earnings Per Common Share (Primary) $0.90 $1.01 $0.95 ======== ======== ======= Net Earnings Per Common Share (Fully diluted) $0.90 $1.01 $0.93 ======== ======== ======= See accompanying Notes to Consolidated Financial Statements.
1 WLR Foods, Inc. and Subsidiaries Consolidated Balance Sheets
Dollars in thousands July 1, 1995 and July 2, 1994 1995 1994 - --------------------------------------------------------- ----------- --------- Assets Current Assets Cash and cash equivalents $706 $771 Accounts receivable, less allowance for doubtful accounts of $613 and $360 63,194 52,305 Inventories (Note 3) 125,849 83,047 Other current assets 3,183 2,270 -------- -------- Total current assets 192,932 138,393 Investments 949 954 Property, plant and equipment, net (Note 4) 174,163 139,854 Other assets 4,481 3,850 -------- -------- Total Assets $372,525 $283,051 ======== ======== Liabilities and Shareholders' Equity Current Liabilities Notes payable to banks $ - $9,400 Current maturities of long-term debt (Note 5) 8,028 6,275 Excess checks over bank balances 3,948 8,511 Trade accounts payable 28,021 20,937 Accrued expenses 22,036 16,103 Deferred income taxes (Note 7) 9,299 6,297 Other current liabilities 1,038 881 -------- -------- Total current liabilities 72,370 68,404 Long-term debt, excluding current maturities (Note 5) 106,481 46,368 Deferred income taxes (Note 7) 8,730 9,813 Minority interest in consolidated subsidiary 527 475 Other liabilities and deferred credits 3,323 1,834 Commitments and other matters (Notes 6, 8, 10, 11 and 13) Common stock subject to repurchase (Notes 2 and 8) 17,750 - 2 WLR Foods, Inc. and Subsidiaries Consolidated Balance Sheets Continued Shareholders' equity (Notes 8 and 9) Common stock, no par value 56,782 61,416 Additional paid-in capital 3,014 3,253 Retained earnings 103,548 91,488 -------- -------- Total shareholders' equity 163,344 156,157 -------- -------- Total Liabilities and Shareholders' Equity $372,525 $283,051 ======== ======== See accompanying Notes to Consolidated Financial Statements.
3 WLR Foods, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity Dollars and shares in thousands, except per share data
Additional Preferred Stock Common Stock Paid-In Retained Fiscal years ended July 1, 1995, July 2, 1994, Shares Amount Shares Amount Capital Earnings Total and July 3, 1993 - ---------------------------------------------- ------ ------ --------- --------- --------- ---------- ---------- Balance at June 27, 1992 29.507 $29,507 12,719 $10,272 $3,253 $68,356 $111,388 Net earnings 14,607 14,607 Dividends declared: Preferred dividends - $47.08 per share (1,389) (1,389) Common dividends - $0.21 per share (3,124) (3,124) Issuance of common stock for acquisition of businesses (Note 2) 672 8,668 8,668 Issuance of common stock through public offering 3,000 41,365 41,365 Repurchase of preferred stock (29.507) (29,507) (29,507) Common stock issued under Stock Option Plan including tax benefit of $167 27 130 130 Other common stock issued 9 117 117 -------- -------- ------ ------ ------ ------- ------- Balance at July 3, 1993 - - 16,427 60,552 3,253 78,450 142,255 Net earnings 16,551 16,551 Common stock dividends declared- $0.21 per share (3,513) (3,513) Common stock issued under Stock Option Plan including tax benefit of $423 60 450 450 Other common stock issued 27 414 414 ------- -------- ----- ------- ------ ------ ------ Balance at July 2, 1994 - - 16,514 61,416 3,253 91,488 156,157 Net earnings 16,133 16,133 Common stock dividends declared-$0.22 per share (4,073) (4,073) Issuance of common stock for acquisition of businesses (Note 2) 1,775 10,650 10,650 Common stock issued under Stock Option Plan including tax benefit of $182 29 173 173 Other common stock issued 38 563 563 Common stock repurchased (1,058) (16,020) (239) (16,259) ------ ------- ------- -------- ------- -------- -------- Balance at July 1, 1995 - - 17,298 $56,782 $3,014 $103,548 $163,344 ====== ======= ====== ======= ======= ======== ======== See accompanying Notes to Consolidated Financial Statements.
4 WLR Foods, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Dollars in thousands Fiscal years ended July 1, 1995, July 2, 1994, and July 3, 1993 1995 1994 1993 - ----------------------------------------------------------------- -------- -------- --------- Cash Flows from Operating Activities: Net earnings $16,133 $16,551 $14,607 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 24,817 21,333 18,115 Gain on sales of property, plant and equipment (218) (12) (17) Deferred income taxes 1,919 8,449 1,100 Other, net 498 520 445 Change in operating assets and liabilities net of acquired businesses: (Increase) decrease in accounts receivable 4,069 (11,215) (2,380) Increase in inventories (14,430) (6,319) (13,138) (Increase) decrease in other current assets (878) (961) 601 Increase (decrease) in accounts payable (2,713) 2,486 509 Increase (decrease) in accrued expenses and other 3,500 (350) 99 ------- ------- ------- Net cash provided by operating activities 32,697 30,482 19,941 Cash Flows From Investing Activities: Additions to property, plant and equipment (17,251) (19,186) (31,766) Acquisition of businesses (Note 2) (42,489) - (2,061) Proceeds from sales of property, plant and equipment 1,505 140 132 (Additions to) proceeds from dispositions of other assets 302 (44) (1,199) Minority interest in net earnings of consolidated subsidiary, net of dividends 52 34 39 ------- ------- ------- Net cash used in investing activities (57,881) (19,056) (34,855) Cash Flows From Financing Activities: Net decrease in notes payable to banks (9,400) (3,500) (6,171) Issuance of long-term debt 83,541 - 15,193 Principal payments on long-term debt (25,020) (6,489) (962) Issuance of common stock 736 864 41,612 Repurchase of common stock (16,259) - - Repurchase of preferred stock - - (29,507) Increase (decrease) in excess checks over bank balances (4,563) 1,298 366 Dividends paid (3,916) (3,508) (5,298) ------- ------- ------- Net cash provided by (used in) financing activities 25,119 (11,335) 15,233 ------- ------- ------- Increase (decrease) in cash and cash equivalents (65) 91 319 Cash and cash equivalents at beginning of fiscal year 771 680 361 ------- ------- ------- Cash and cash equivalents at end of fiscal year $706 $771 $680 ======= ======= ======= 5 WLR Foods, Inc. and Subsidiaries Consolidated Statements of Cash Flows Continued Supplemental cash flow information: Cash paid for: Interest $6,555 $4,808 $4,237 Income taxes 8,418 2,039 7,958 ====== ====== ======
Non-cash financing activities: In fiscal 1995: The Company issued 1,774,999 shares of WLR Foods, Inc. common stock valued at $28,400,000, including $17,750,000 common stock subject to repurchase, in conjunction with the acquisition of Cuddy Farms, Inc. - USA Food Division. (Notes 2 and 8) In fiscal 1993: The Company issued 176,694 shares of WLR Foods, Inc. common stock valued at $2,554,000 and $733,000 in notes payable to purchase the assets of two ice manufacturing and distribution companies. (Note 2) The Company issued 495,708 shares of WLR Foods, Inc. common stock valued at $6,114,000 and a five year promissory note payable for $842,000 as consideration for the acquisition of Round Hill Foods, Inc. (Note 2) See accompanying Notes to Consolidated Financial Statements. 6 Notes to Consolidated Financial Statements Fiscal Years 7/1/95, 7/2/94 and 7/2/93 WLR FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION Organization WLR Foods, Inc. (the Company) is primarily engaged in fully integrated turkey and chicken production, processing, further processing and marketing. WLR Foods sells products through a variety of selected national and international retail, foodservice and institutional markets. Fiscal year The Company's fiscal year ends on the Saturday closest to June 30. Fiscal years 1995, 1994 and 1993 ended on July 1, 1995, July 2, 1994 and July 3, 1993, respectively, and included 52 weeks in fiscal 1995 and fiscal 1994, and 53 weeks in fiscal 1993. Principles of Consolidation and Presentation The accompanying consolidated financial statements include the accounts of WLR Foods and all of its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories of feed, grain, eggs, packaging supplies, processed poultry and meat products are stated at the lower of cost or market as determined by the first-in, first-out valuation method. Live poultry and breeder flocks consist of poultry raised for slaughter and breeders. Poultry raised for slaughter are stated at the lower of average cost or market. Breeders are stated at average cost less accumulated amortization. The costs of breeders are 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 pricing, grain options, and hedging with futures contracts. Each purchasing method creates varying degrees of risk for WLR Foods. During the fiscal years presented, the Company has used only cash purchasing and forward pricing to buy its grain. As of July 1, 1995, WLR Foods does not have any forward contractual agreements for the purchase of grains. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. The costs of maintenance and repairs are charged to operations, while costs associated with renewals, improvements and major replacements are capitalized. Income Taxes Effective July 4, 1993, WLR Foods adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax 7 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 carry- forwards. 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. Under SFAS 109, 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. The Company adopted SFAS 109 using the cumulative effect of a change in accounting principle, although the adoption of the new statement did not have a material effect on the consolidated statement of earnings or the consolidated balance sheet. Net Earnings Per Common Share Net earnings per common share are based on the weighted average number of common shares and common share equivalents outstanding during the fiscal years (17,858,942 shares, 16,450,718 shares and 13,983,228 shares in 1995, 1994 and 1993, respectively). Net earnings are reduced by the preferred stock dividend to arrive at the net earnings available to common shareholders. Fully diluted earnings per share assume the full conversion of the Series L Convertible Preferred Stock during the period they were outstanding. Fully diluted earnings per share were based on the fully diluted weighted average common shares and common share equivalents of 15,666,522 for fiscal 1993. Stock Split On February 28, 1995, the Company declared a three-for-two stock split effected in the form of a 50% stock dividend paid on May 12, 1995 to shareholders of record on April 14, 1995. The split resulted in the issuance of an additional 6.1 million shares of common stock. All numbers of common shares and per share data have been restated to reflect the stock split. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Company using available market information. Except for debt instruments (Note 5), the carrying amounts of all financial instruments approximate their fair values due to their short maturities. Reclassifications Certain 1994 and 1993 amounts have been reclassified to conform with fiscal 1995 presentations. 2. BUSINESS ACQUISITIONS Each transaction discussed below has been accounted for as a purchase, and, accordingly, the consolidated financial statements included herein include the net assets acquired at fair value and the results of operations from the date of acquisition. On April 3, 1995, the Company's wholly owned subsidiary, Cassco Ice & Cold Storage, Inc., acquired the remaining 50% interest in a cold storage and distribution facility in Marshville, North Carolina for $2.3 million in cash. The business is a refrigerated distribution center that operates as a public refrigerated warehouse, located on approximately 15 acres. The Company acquired its initial 50% interest in the facility as part of its purchase of Cuddy Farms, Inc.-USA Food Division mentioned below. 8 Dollars in thousands - --------------------------------------- -------- Total assets acquired $ 5,881 Cash paid (including costs) 2,346) -------- Total liabilities assumed $ 3,535 ======= On August 29, 1994, the Company acquired the turkey processing and production assets of Cuddy Farms, Inc. for $39.1 million in cash and 1,774,999 shares of common stock valued at $28.4 million. The transaction was recorded as follows: Dollars in thousands - -------------------------------------- -------- Accounts receivable $ 14,758 Inventories 28,372 Other current assets 30 Property, plant and equipment 36,289 Other assets 2,611 -------- Total assets acquired 82,060 Cash paid (including costs of $1,043) (40,143) Issuance of common stock (10,650) Common stock subject to repurchase (17,750) -------- Total liabilities assumed $ 13,517 ======== The following table shows the unaudited pro forma information as if the transaction had been consummated at the beginning of the periods presented. This pro forma information is not necessarily indicative of the results which may have occurred if the transaction had been consummated at the beginning of the periods presented. Pro-forma Unaudited Fiscal year ended Dollars in thousands, except per share data July 1, 1995 July 2, 1994 - ------------------------------------------- ------------ ------------ Net sales $947,199 $939,464 Net earnings 14,774 13,713 Net earnings per common share $ 0.82 $ 0.75 In May 1993, the Company issued 176,694 shares of WLR Foods common stock valued at $2.6 million, debt of $732,900 and cash of $806,000 for net assets of two ice manufacturing operations. In November 1992, WLR Foods acquired Round Hill Foods, Inc. and affiliated companies for 495,708 shares of WLR Foods common stock valued at $6.1 million, $1 million in cash, $842,000 in notes and assumed $11 million in debt of the acquired companies. 9 3 INVENTORIES A summary of inventories at July 1, 1995 and July 2, 1994 follows: Dollars in thousands 1995 1994 - ------------------------------------- ----------- --------- Live poultry and breeder flocks $54,487 $39,719 Processed poultry and meat products 41,262 22,969 Packaging supplies, parts and other 19,704 13,302 Feed, grain and eggs 10,396 7,057 -------- ------- Total inventories $125,849 $83,047 ======== ======= 4. PROPERTY, PLANT AND EQUIPMENT WLR Foods investment in property, plant and equipment at July 1, 1995 and July 2, 1994 was as follows: Dollars in thousands 1995 1994 - ------------------------------- -------- -------- Land and improvements $20,361 $14,260 Buildings and improvements 109,368 82,514 Machinery and equipment 168,228 141,289 Transportation equipment 25,371 24,710 Construction in progress 3,236 6,000 -------- -------- 326,564 268,773 Less accumulated depreciation 152,401 128,919 -------- -------- Property, plant and equipment, net $174,163 $139,854 ======== ======== The Company capitalized interest costs with respect to certain major construction projects of $146,000, $82,000 and $800,000 in fiscal years 1995, 1994 and 1993, respectively. 5. LONG-TERM DEBT AND BANK REVOLVING CREDIT Long-term debt at July 1, 1995 and July 2, 1994 consisted of the following obligations: Dollars in thousands 1995 1994 - -------------------------------------- --------- ---------- Fixed Rate Notes: 9.41% Senior Unsecured Notes due 2001 $24,000 $27,000 7.47% Senior Unsecured Notes due 2007 22,000 - 10 Variable Rate Notes: Unsecured Bank Term Note due 2002 24,107 - Unsecured Bank Revolving Credit due 1998 35,000 - Unsecured Private Placement Notes due 2001 - 17,750 Other Notes: Various notes with varying terms and rates 9,402 7,893 ------- ------- Total long-term debt 114,509 52,643 Less current maturities of long-term debt 8,028 6,275 ------- ------- Long-term debt, excluding current maturities $106,481 $46,368 ======== ======= The 9.41% Senior Unsecured Notes have $3 million principal payments due in May of each year through 2000. In 2001, a final balloon payment of $9 million is due. Interest is payable semi-annually. The 7.47% Senior Unsecured Notes due 2007 were placed in June 1995. The notes require interest payments on a semi-annual basis through maturity. Principal payments of $4.4 million begin in 2003. The financial covenants for both senior notes include fixed charge coverage, debt-to-capital, tangible net worth and current ratio requirements. The Unsecured Bank Term Note is a seven-year fully amortizing variable rate note, priced at London Interbank Offered Rates (LIBOR) plus 75 basis points. With initial funding in April 1995, WLR Foods made the first payment on June 30, 1995. Principal and interest payments are due quarterly, with repricing occurring on or about the due date of the payment. Annual principal payments are $3,571,000. WLR Foods has two unsecured revolving credit facilities totaling $110 million with banks. The first facility is a three-year, $100 million syndicated facility, which matures on April 1, 1998. On July 1, 1995, $35 million was outstanding, with $50 million available for borrowing. The facility provides for $15 million of standby letters of credit, including $6.5 million currently available for new standby letters of credit. Pricing is LIBOR plus 35 basis points. The second revolving credit facility is a $10 million facility maturing in March 1996. No amounts were outstanding on July 1, 1995. The revolving credit and bank term agreements contain various covenants, including maintenance of a minimum net worth, current ratio, fixed charge coverage, and a maximum debt-to-capitalization ratio. The fair value of the fixed rate notes is estimated at $47.8 million based on quoted market prices for similar issues at July 1, 1995. The carrying value of all other debt approximates fair value at July 1, 1995. Required annual principal repayments of long-term debt are as follows: Dollars in thousands - -------------------------------------------- -------- Fiscal 1996 $ 8,028 Fiscal 1997 8,027 Fiscal 1998 43,067 Fiscal 1999 7,610 Fiscal 2000 7,609 11 6. 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. Most participants may elect to make contributions of up to 15% of their salary. For each employee dollar contributed (limited to the first 4% of an employee's compensation), the Company is required to contribute a matching amount of 50 cents. The Company can also make additional contributions at its discretion. WLR Foods total contributions under this plan were approximately $2.3 million, $2.1 million, and $1.5 million, for fiscal 1995, 1994, and 1993, respectively. 7. INCOME TAXES Effective July 4, 1993, WLR Foods, Inc. adopted SFAS 109. See Note 1 for a discussion of the effects of the accounting change. The provisions for income taxes from operations were as follows for fiscal years 1995, 1994 and 1993: Dollars in thousands 1995 1994 1993 ------- ------- ------- Current: Federal $6,211 $948 $5,985 State 1,619 500 972 ------ ----- ------ 7,830 1,448 6,957 Deferred: Federal 1,638 7,477 846 State 281 972 254 ------ ------ ------ 1,919 8,449 1,100 ------ ------ ------ Total tax provision $9,749 $9,897 $8,057 ====== ====== ====== The provision for income taxes differs from the amounts resulting from applying the federal statutory tax rates (35% for fiscal years 1995 and 1994 and 34% for 1993) to earnings before income taxes and minority interest as follows for fiscal years 1995, 1994 and 1993: Dollars in thousands 1995 1994 1993 - ------------------------- ------- ------- ------- Taxes computed using federal statutory tax rates $9,078 $9,270 $7,720 State income tax expense, net of federal tax benefit 908 957 809 Other, net (237) (330) (472) ------ ------ ------ Total tax provision $9,749 $9,897 $8,057 ====== ====== ====== Effective tax rate 37.6% 37.4% 35.5% 12 The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and deferred tax liabilities at July 1, 1995 and July 2, 1994 are listed below. Dollars in thousands 1995 1994 - --------------------------------------- --------- --------- Deferred tax liabilities: Inventories, principally due to live inventories accounted for on the farm price method for tax purposes ($14,376) ($11,901) Plant and equipment, principally due to differences in depreciation and capitalized interest (9,465) (10,343) Investments in subsidiary, principally due to undistributed net income of the subsidiary (357) (319) Other - (136) -------- -------- Gross deferred tax liabilities (24,198) (22,699) Deferred tax assets: Insurance accruals, principally due to the timing of payments vs. the recording of expense $2,478 $1,599 Net operating loss carryforwards - 1,428 Deferred compensation, principally due to accrual for financial reporting purposes 955 1,217 Alternative minimum tax credit carryforward 836 948 Compensated absences, principally due to accrual for financial reporting purposes 970 794 Accounts receivable, principally due to allowance for doubtful accounts 241 140 Other 689 463 -------- -------- Gross deferred tax assets 6,169 6,589 Valuation allowance on deferred tax assets - - -------- -------- Net deferred tax liability ($18,029) ($16,110) ========= ========= 13 At the adoption of SFAS 109 management determined a valuation allowance was unnecessary, and during fiscal 1995 and fiscal 1994, no valuation allowance was recorded. Based on the Company's historical earnings, future expectations of taxable income, the reversing of gross deferred tax liabilities and potential net operating loss carrybacks, management believes that it is more likely than not that the Company will realize the gross deferred tax assets. The sources of deferred income taxes and their related tax effects are as follows for fiscal year 1993: Dollars in thousands 1993 ------ Excess of tax over financial statement depreciation $936 Accrued expenses deductible in different periods for financial reporting and tax purposes (586) Difference between financial statement and tax bases of inventories 773 Other, Net (23) ----- Deferred tax provision $1,100 ====== 8. SHAREHOLDERS' EQUITY AND COMMON STOCK SUBJECT TO REPURCHASE 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 tenth business day (or such later date the Board may decide) after any person commences a tender offer that would result in such person or group holding a total of 15% or more of the common stock. Additionally, rights owned by the acquiring person or group would automatically become void. If a person or group 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 of 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 17,297,671 shares outstanding on July 1, 1995 and 16,513,992 outstanding on July 2, 1994. Additionally, there are 50,000,000 shares of preferred stock authorized with none outstanding as of July 1, 1995 or July 2, 1994. The Common Stock Subject to Repurchase arises from WLR Foods commitment to repurchase 14 the shares held by a trustee on behalf of Cuddy Farms, Inc. for $17,750,000 in cash if Cuddy Farms has a payment default under its credit facilities. The obligation is in effect until August 1998, at which point the obligation is terminated. 9. STOCK OPTION AND STOCK PURCHASE PLANS WLR Foods Stock Option Plan was adopted by the Board of Directors in accordance with the Long-Term Incentive Plan which was ratified by the shareholders of the Company on November 1, 1988. 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 over a three-year period and are exercisable at varying dates not to exceed 10 years from the grant. The changes in the outstanding common shares under option for fiscal 1995, 1994, and 1993 are listed below: Common shares Option under option price - ----------------------------- -------------- ------------- Outstanding at June 27, 1992 793,875 $8.22 to $12.33 Canceled or expired (119,250) $8.22 to $12.33 Exercised (70,875) $8.22 Granted in fiscal 1993 156,375 $14.67 -------- ---------------- Outstanding at July 3, 1993 760,125 $8.22 to $14.67 Canceled or expired (3,000) $11.92 Exercised (164,625) $8.22 to $12.33 Granted in fiscal 1994 150,375 $20.00 -------- ---------------- Outstanding at July 2, 1994 742,875 $11.92 to $20.00 Exercised (137,625) $12.33 Granted in fiscal 1995 163,000 $15.00 -------- ---------------- Outstanding at July 1, 1995 768,250 $11.92 to $20.00 ======== ================ At July 1, 1995 452,875 options are exercisable. 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 off 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. 15 10. LEASES WLR Foods has entered into various operating lease agreements for machinery and equipment. The leases are noncancelable and expire on various dates through 2001. Total rent expense was approximately $2.7 million, $1.4 million and $1.2 million for fiscal 1995, 1994, and 1993, 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, 1995: Dollars in thousands - ----------------------------------------- Fiscal 1996 $2,168 Fiscal 1997 1,548 Fiscal 1998 1,324 Fiscal 1999 626 Fiscal 2000 460 Fiscal 2001 and thereafter 374 ------ Total minimum lease payments $6,500 ====== 11. Related Party Transactions Certain directors of WLR Foods are contract producers of live poultry for the Company. In addition, a WLR Foods director is a director/officer of a company which supplies fuel and related products to certain locations of the Company. A second director provided consulting services to WLR Foods during each fiscal year presented. As a result of the August 1994 acquisition (Note 2), Cuddy Farms, Inc. became a related party. The 1995 transactions include poult purchases and feed sales to Cuddy Farms, Inc. at prices established when the acquisition was completed. The contract terms are through 1998 with extensions available. Transactions with these related parties during the past three fiscal years are as follows: Purchases Sales to Dollars in thousands from related parties related parties - ----------------------------- ------------------------- ----------------- Fiscal 1995 $21,020 $7,939 Fiscal 1994 1,522 - Fiscal 1993 1,921 - In management's opinion, all related party transactions are conducted under normal business conditions, with no preferential treatment given to related parties. 16 12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The unaudited summary quarterly results for fiscal 1995 and 1994 follows:
Dollars in thousands, except per share data Fiscal year ended July 1, 1995 First Second Third Fourth - -------------------------------------------- --------- -------- -------- -------- Net sales $210,285 $247,840 $211,469 $239,182 Operating income 11,823 13,186 4,403 2,859 Net earnings 6,508 6,785 2,033 807 Per share data: Net earnings per common share $0.38 $0.37 $0.11 $0.05 Dividends declared per common share 0.05 0.05 0.06 0.06 Market price (bid)-high 18.67 18.17 18.17 18.00 -low 13.00 15.33 16.83 12.00
Fiscal year ended July 2, 1994 First Second Third Fourth - ------------------------------------------- --------- -------- -------- --------- Net sales $179,028 $182,315 $171,090 $194,837 Operating income 7,293 7,901 3,171 12,679 Net earnings 3,784 4,133 1,303 7,331 Per share data: Net earnings per common share $0.23 $0.25 $0.08 $0.45 Dividends declared per common share 0.05 0.05 0.05 0.05 Market price (bid)-high 13.33 12.83 20.92 21.17 -low 11.17 11.50 18.33 17.17
13. SUBSEQUENT EVENT On August 22, 1995, WLR Foods entered into an agreement to acquire the net assets of New Hope Feeds, Inc. and Economy Truck Leasing, Inc. for $18 million, including stock and debt. The consummation of the acquisition is contingent on several conditions including regulatory approval, and resolution of a third party right of first refusal. Closing is anticipated by September 30, 1995. 17 EX-13.4 11 AUDITOR'S REPORT Exhibit 13.4 Independents Auditors Report on Consolidated Financial Statements 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, 1995 and July 2, 1994, and the related consolidated statements of earnings, shareholders equity and cash flows for each of the fiscal years in the three-year period ended July 1, 1995. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above represent fairly, in all material respects, the financial position of WLR Foods, Inc. and subsidiaries as of July 1, 1995 and July 2, 1994, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended July 1, 1995, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Richmond, Virginia August 16, 1995 EX-21 12 SUBSIDIARIES Exhibit 21 Subsidiary State of Incorporation Wampler-Longacre, Inc. Virginia P. O. Box 7275 Broadway, VA 22815 Cassco Ice & Cold Storage, Inc. Virginia 75 W. Bruce Street Harrisonburg, VA 22801 May Supply Company, Inc. Virginia P. O. Box 347 Harrisonburg, VA 22801 EX-23 13 CONSENT INDEPENDENT AUDITORS Exhibit 23 Consent of Independent Certified Public Accountants CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors WLR Foods, Inc.: We consent to incorporation by reference in the registration statements on Form S-8 (No. 33-27037, No. 33-63364 and No. 33-55649) and on Form S-3 (No. 33-48293, No. 33-54692, No. 33-63368 and No. 33- 56775) of WLR Foods, Inc. of our reports dated August 16, 1995, relating to the consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of July 1, 1995 and July 2, 1994 and the related consolidated statements of earnings, shareholders' equity and cash flows and related schedule for each of the fiscal years in the three- year period ended July 1, 1995, which reports appear or are incorporated by reference in the July 1, 1995 annual report on Form 10-K of WLR Food, Inc. KPMG PEAT MARWICK LLP Richmond, Virginia September 27, 1995 EX-24 14 POWER OF ATTORNEY Exhibit 24 SPECIAL POWER OF ATTORNEY Each of the undersigned officers and directors of WLR Foods, Inc. (WLR Foods), a Virginia corporation, appoints James L. Keeler and Delbert L. Seitz, or either of them (with full power to each of them to act alone) as his or her attorneys-in-fact and agents for him or her in such capacity either as an officer or director, or both, of WLR Foods, and authorizes such persons on behalf of WLR Foods, to sign and file any and all WLR Foods' registration statements, reports, schedules and other filings, and all amendments thereto, required or permitted to be filed under federal or state securities laws, including without limitation Forms 3, 4 and 5, registration statements, Form 10-K annual reports, Form 10-Q quarterly reports and Form 8-K current reports, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission, National Association of Securities Dealers, and any regulatory authority for any U.S. state or territory, and each of us hereby ratifies and confirms all that our attorneys-in-fact and agents or each of them may lawfully do or cause to be done by virtue hereof. WITNESS the following signatures and seals. 10/28/94 /s/ John J. Broaddus (SEAL) Date John J. Broaddus 10/28/94 /s/ Jane T. Brookshire (SEAL) Date Jane T. Brookshire 10/28/94 /s/ George E. Bryan (SEAL) Date George E. Bryan 10/28/94 /s/ Charles L. Campbell (SEAL) Date Charles L. Campbell 10/28/94 /s/ Stephen W. Custer (SEAL) Date Stephen W. Custer 10/28/94 /s/ Calvin G. Germroth (SEAL) Date Calvin G. Germroth 10/28/94 /s/ William H. Groseclose (SEAL) Date William H. Groseclose 10/28/94 /s/ J. Craig Hott (SEAL) Date J. Craig Hott 10/28/94 /s/ Peter A.W. Green (SEAL) Date Peter A.W. Green 10/28/94 /s/ Herman D. Mason (SEAL) Date Herman D. Mason 10/28/94 /s/ Charles W. Wampler, Jr. (SEAL) Date Charles W. Wampler, Jr. 10/28/94 /s/ William D. Wampler (SEAL) Date William D. Wampler 10/28/94 /s/ Henry L. Holler (SEAL) Date Henry L. Holler 10/28/94 /s/ Kenneth D. Marshall (SEAL) Date Kenneth D. Marshall 10/28/94 /s/ James L. Keeler (SEAL) Date James L. Keeler 10/28/94 /s/ James L. Mason (SEAL) Date James L. Mason 10/28/94 /s/ V. Eugene Misner (SEAL) Date V. Eugene Misner 10/28/94 /s/ Delbert L. Seitz(SEAL) Date Delbert L. Seitz 2 EX-27 15 FDS
5 1000 YEAR JUL-01-1995 JUL-01-1995 706 0 63,807 613 125,849 192,932 326,564 152,401 372,525 72,370 114,509 56,782 0 0 106,562 372,525 908,776 908,776 785,085 785,085 91,420 253 6,666 25,882 9,749 16,133 0 0 0 16,133 0.90 0.90
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