-----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, IxyEKqNQcy95iXRr9GQA4ND7OuRD5S9C+dk1/cexrFgUPjPkHfQ1car7jquQM4vg uD5SyS0XDt3CrCaPFPtrtA== 0000760775-97-000035.txt : 19970221 0000760775-97-000035.hdr.sgml : 19970221 ACCESSION NUMBER: 0000760775-97-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970211 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17060 FILM NUMBER: 97523930 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-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended December 28, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ COMMISSION FILE NUMBER 0-17060 WLR FOODS, INC. (Exact name of Registrant as specified in its charter) Virginia 54-1295923 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) P.O. Box 7000 Broadway, Virginia 22815 (Address including Zip Code of Registrant's principal executive offices) (540) 896-7001 (Registrant's telephone number, including area code) Indicate by cross mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No () The number of shares outstanding of Registrant's Common Stock, no par value, at February 6, 1997 was 16,903,321 shares. PART I. FINANCIAL INFORMATION Item 1. Financial Statements WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Thirteen weeks ended In thousands, except per share data December 28, December 30, 1996 1995 Net sales $264,424 $267,795 Cost of sales 246,307 233,533 -------- -------- Gross profit 18,117 34,262 Selling, general and administrative expenses 24,342 24,343 -------- -------- Operating income (loss) (6,225) 9,919 Other expense: Interest expense 3,029 2,097 Miscellaneous income (818) (62) -------- -------- Other expense 2,211 2,035 -------- -------- Earnings (loss) before income taxes and minority interest (8,436) 7,884 Income tax expense (benefit) (3,081) 3,036 Minority interest in net earnings of consolidated subsidiary 13 5 -------- -------- NET EARNINGS (LOSS) $(5,368) $4,843 ======== ======== NET EARNINGS (LOSS) PER COMMON SHARE ($0.30) $0.28 AVERAGE COMMON SHARES OUTSTANDING 17,739 17,591 DIVIDENDS DECLARED PER COMMON SHARE $0.12 $0.06 See accompanying Notes to Consolidated Financial Statements.
WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Twenty-six weeks ended In thousands, except per share data December 28, December 30, 1996 1995 Net sales $536,559 $518,593 Cost of sales 504,821 449,344 -------- -------- Gross profit 31,738 69,249 Selling, general and administrative expenses 47,584 50,383 -------- -------- Operating income (loss) (15,846) 18,866 Other expense: Interest expense 6,109 4,182 Miscellaneous income (793) (203) -------- -------- Other expense 5,316 3,979 -------- -------- Earnings (loss) before income taxes and minority interest (21,162) 14,887 Income tax expense (benefit) (7,725) 5,727 Minority interest in net earnings of consolidated subsidiary 26 21 -------- -------- NET EARNINGS (LOSS) $(13,463) $9,139 ======== ======== NET EARNINGS (LOSS) PER COMMON SHARE ($0.76) $0.52 AVERAGE COMMON SHARES OUTSTANDING 17,718 17,413 DIVIDENDS DECLARED PER COMMON SHARE $0.12 $0.12 See accompanying Notes to Consolidated Financial Statements.
1 WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Dollars in thousands December 28, June 29, 1996 1996 (unaudited) ASSETS Current Assets Cash and cash equivalents $320 $724 Accounts receivable, less allowance for doubtful accounts of $1,257 and $708 79,076 79,932 Inventories (Note 2) 136,476 171,946 Income taxes receivable 1,212 10,802 Other current assets 7,366 4,275 -------- -------- Total current assets 224,450 267,679 Property, plant and equipment, net 167,459 176,691 Other assets 6,598 6,751 -------- -------- TOTAL ASSETS $398,507 $451,121 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable to banks $30,000 $30,776 Current maturities of long-term debt 7,829 7,983 Excess checks over bank balances 13,514 14,788 Trade accounts payable 35,543 31,989 Accrued expenses 22,030 23,887 Deferred income taxes 10,673 12,574 Other current liabilities 1,066 1,061 -------- -------- Total current liabilities 120,655 123,058 Long-term debt, excluding current maturities 103,018 138,510 Deferred income taxes 8,406 8,849 Minority interest in consolidated subsidiary 578 552 Other liabilities and deferred credits 3,448 3,392 Common stock subject to repurchase (Note 4) 17,750 17,750 Shareholders' equity : Common stock, no par value 62,642 61,407 Additional paid-in capital 2,974 2,974 Retained earnings 79,036 94,629 -------- -------- Total shareholders' equity 144,652 159,010 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $398,507 $451,121 ======== ======== See accompanying Notes to Consolidated Financial Statements.
2 WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Twenty-six weeks ended Dollars in thousands December 28, December 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $(13,463) $9,139 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 14,289 13,776 (Gain) loss on sale of property, plant and equipment 6 (2) Deferred income taxes (2,344) (242) Other, net 939 299 Change in operating assets and liabilities: (net of acquired assets) (Increase) decrease in accounts receivable 307 (2,670) Decrease in inventories 35,475 2,393 Decrease in other current assets 6,499 1,446 Increase in accounts payable 3,546 7,079 Decrease in accrued expenses and other (1,801) (5,466) -------- ------- Net Cash Provided by Operating Activities 43,453 25,752 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (4,583) (10,415) Cash used in acquisition, (including costs) - (10,563) Proceeds from sales of property, plant and equipment 97 252 (Investments in) disposals of other assets (237) 158 Minority interest in net earnings of consolidated subsidiary 26 21 -------- ------- Net Cash Used in Investing Activities (4,697) (20,547) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (35,646) (12,548) Notes payable to banks (net of principal payments) (776) 2,750 Increase (decrease) in checks drawn not presented (1,274) 8,830 Issuance of common stock 661 629 Repurchase of common stock - (2,820) Dividends paid (2,125) (2,092) -------- ------- Net Cash Used in Financing Activities (39,160) (5,251) -------- ------- Decrease in Cash and Cash Equivalents (404) (46) Cash and Cash Equivalents at Beginning of Fiscal Year 724 706 -------- ------- Cash and Cash Equivalents at End of Period $320 $660 ======== ======= Supplemental cash flow information: Cash paid (refunded) for : Interest $4,604 $4,042 Income taxes (10,091) 2,401
The Company considers all highly liquid investments with an original maturity of 3 months or less at purchase to be cash equivalents. Non cash transactions in: Fiscal 1997: The Company issued 45,000 shares of common stock valued at $0.6 million for the acquisition of Jennings Ice, Inc. in December 1996. (Note 3) Fiscal 1996: The Company issued 411,216 shares of common stock valued at $5.4 million, for the acquisition of New Hope Feeds, Inc. on September 29, 1995. See accompanying Notes to Consolidated Financial Statements. 3 Notes to Consolidated Financial Statements WLR Foods, Inc. and Subsidiaries 1. Accounting Policies The consolidated financial statements presented herein, include the accounts of WLR Foods, Inc. and its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The consolidated balance sheet as of December 28, 1996, and the consolidated statements of operations for the thirteen and twenty-six weeks ended December 28, 1996 and December 30, 1995, and the consolidated statements of cash flows for the twenty-six weeks ended December 28, 1996 and December 30, 1995 are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of such consolidated financial statements have been included. Such adjustments consisted only of normal recurring accruals and the use of estimates. Interim results are not necessarily indicative of results for the entire fiscal year. The consolidated financial statements and notes are presented in conformity with the requirements of Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. The Company's unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report to Shareholders for the fiscal year ended June 29, 1996. In both, the accounting policies and principles used are consistent in all material respects. Certain fiscal 1996 amounts have been reclassified to conform with fiscal 1997 presentations. 2. Inventories A summary of inventories at December 28, 1996 and June 29, 1996 follows: (unaudited) Dollars in thousands December 28, June 29, 1996 1996 Live poultry and breeder flocks $72,191 $71,263 Processed poultry and meat products 36,075 66,895 Packaging supplies, parts and other 16,534 18,046 Feed, grain and eggs 11,676 15,742 ------- ------- Total inventories $136,476 $171,946 ======== ======== 3. Acquisition In December 1996, the Company issued 45,000 shares of common stock to acquire the ice operation in Lynchburg, Virginia. The acquisition was recorded as a purchase by the Company's subsidiary, Cassco Ice & Cold Storage, Inc. The total value of the transaction including costs was $581,000. 4. Subsequent Event Following the close of the quarter, the company entered into an agreement to repurchase 1,774,999 shares of its common stock, which were reflected as common stock subject to repurchase in the balance sheet. The stock is being repurchased at $10 per share, in a private transaction. The repurchase will occur over the next six months with 50% repurchased in January 1997, 25% to be repurchased in late March 1997, and the final 25% to be repurchased in late June 1997. 5. Debt Refinancing and Modification The Company completed the refinancing of its bank debt during early February. The new facility is a three year $160 million revolver, which will be used for general corporate purposes. The new facility replaces the revolving credit note and two bank term notes. Negotiations are progressing on modifying the senior debt facilities with completion anticipated within the third quarter. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General WLR Foods, Inc. (the Company) is a fully integrated poultry production, processing and marketing business with operations in Virginia, West Virginia, Pennsylvania and North Carolina. Grain costs in the poultry processed during the quarter remained high, increasing approximately $15 million as compared to the second quarter last year after adjusting for changes in volume. Higher market prices increased feed costs for the first half of 1997 by approximately $45 million as compared to the first half of fiscal 1996. Although prices for corn and soybean meal remain above their five year average, they have now settled substantially below their summer highs. Moreover, sales prices of turkey products in the quarter and the first half were not sufficient to offset the effects of higher costs. Although developments in chicken have been encouraging, operating results in turkey will require further improvement in order to return to historical levels of profitability. Although feed costs are coming down, dramatically improved results in turkey will be dependent on selling prices which are more reflective of the costs to produce the product, the maintenance of more normal levels of grain pricing overall, and improved turkey health; particularly in our Carolina operations. Subsequent to the close of the second quarter, WLR Foods announced a private agreement to purchase 1,774,999 shares (approximately 10 % of the outstanding shares of its common stock) from Cuddy Farms, Inc. for $10 per share. Fifty percent of the shares were purchased in mid January, and the remaining shares will be purchased in March (25%) and June (25%) of 1997. The purchase will be financed through the Company s revolving credit facility. On February 6, 1997, the Company completed the refinancing of its Bank Revolving Credit Agreement. Borrowings under the new facility replaced those under the previous revolving credit facility, a $30 million borrowing made in June 1996 and approximately $19 million of long term debt. The new facility amends certain financial covenants and will mature in the year 2000. Results of operations Net sales decreased $3.4 million or 1.3%, while overall sales pounds decreased 2.7% for the quarter ended December 28, 1996 compared to the same period last year. Chicken sales pounds decreased 5.4 % compared to the second quarter last year, due to the impact of production cuts announced last spring. The average realized sales price for chicken was up 6.0% compared to the same quarter last year. Commodity turkey sales pounds increased 6.2%, while the average realized sales price decreased 5.0% compared to the same quarter last year. Further processed sales pounds decreased 7.3%, while the average realized sales price for further processed products was approximately the same as last year. For the twenty-six weeks, net sales increased $17.9 million or 3.5%, primarily due to a 5.4% increase in chicken sales pounds and a 3.5% increase in the average selling price of chicken. The volume increase in chicken was due to the acquisition of the Goldsboro operations in September 1995 which is not reflected for the full first half of fiscal 1996. Sales pounds for commodity and further processed turkey decreased 1.3%. Average quoted commodity prices were mixed for the first six months with chicken 8.8% higher and turkey 6.6% lower. Cost of sales was up $12.8 million or 5.5% for the quarter. After adjusting for volume differences, feed costs were approximately $15 million higher in the poultry processed during the quarter as compared to the same period last year. Delivered corn prices averaged 5.2% lower while delivered soybean meal increased 24.7% on a quarter to quarter comparison with last year. For the first six months, cost of sales was up $55.5 million or 12.3% primarily due to increased feed costs. The delivered cost for corn and soybean meal have decreased significantly since the beginning of the 5 fiscal year, but they were still 22.9% and 36.3%, respectively, higher for the six months ended December 1996 than in the prior year. Disease continued to adversely impact the Company s live turkey operations during the second quarter. The combination of excessive mortality and poor feed conversion increased live production costs over those of unaffected flocks. The poor live operating results are expected to improve with the onset of cooler weather, although poor live performance may return during the hotter months. Management continues to support public and private research to find acceptable solutions to reduce the financial impact of the disease. For the second quarter gross profit decreased $16.2 million or 47.2%, while the gross margin decreased from 12.8% to 6.9%. The decrease is attributed primarily to higher feed costs and lower selling prices for commodity turkey. The sales volume of commodity turkey increased 6.2%, however the average realized selling price decreased 5.0%. For the twenty-six weeks gross profit decreased $37.5 million or 54.2%. The gross margin decreased from 13.4% to 5.9%. Higher sales volume and prices for chicken were offset by significantly higher feed costs and lower sales volume for turkey . Selling, general and administrative expenses were flat compared to the second quarter last year, but increased from 9.1% to 9.2% as a percent of sales. Year to date selling, general and administrative expenses decreased $2.8 million, a drop from 9.7% to 8.9% as a percentage of sales. The cut in spending reflects the effects of cost reductions and a 14% decrease in volume of further processed turkey for the first six months. Interest expense was up $0.9 million for the quarter and $1.9 million for the fiscal year due to higher levels of borrowing necessary to carry increased working capital levels. For the quarter, income taxes changed from an expense of $3.0 million to a benefit of $3.1 million due to the current quarter loss. For the first six months, income taxes decreased from an expense of $5.7 million to a benefit of $7.7 million due to the loss for the year. The tax rate decrease for both periods in 1997 was due to limitations on the use of operating losses in some states where the Company does business. Financial Condition and Liquidity WLR Foods closed the second quarter of fiscal 1997 with a strong balance sheet. Total inventory decreased $35.5 million compared to the end of fiscal 1996. It is expected that debt levels will increase during the second half of the fiscal year due to the repurchase of Cuddy Farms, Inc. stock and seasonal increases in finished goods inventories. Net working capital was $103.8 million, down from $144.6 million at June 29, 1996, due largely to lower inventory levels. The ratio of total debt to total capital, including common stock subject to repurchase as debt, was 52.3%, down from 55.1% at the end of fiscal 1996. As of December 28, 1996, total debt has been reduced by $36.4 million since fiscal year-end. Capital Resources The Company s capital spending for the quarter was $2.1 million, primarily for replacement of existing equipment, safety requirements, or projects with rapid pay backs. Depreciation expense was $7.1 million. On a year to date basis, capital spending was $4.6 million and depreciation expense was $14.3 million. The projected capital budget for fiscal 1997 remains at $15 million, although this amount may be increased based on long-term strategic projects and industry conditions. On December 18, 1996, the Board of Directors approved the regular quarterly dividend of $0.06 per share payable on February 7, 1997. Management negotiated a waiver of the fixed charge covenant for the quarter ended December 28, 1996 from its senior note lenders. The Company is continuing discussions to modify certain of its senior note agreements. The modifications to the senior note agreements are expected to give the Company the flexibility necessary to meet the demands of the current difficult operating environment. 6 The Company remains in material compliance with all regulatory requirements at the present time. WLR Foods will adopt SFAS No. 123, Accounting for Stock Based Compensation in fiscal 1997, and will elect the disclosure provisions of the statement and continue to account for stock-based compensation in accordance with APB Opinion No. 25. This accounting standard is not anticipated to materially impact the financial position of the Company or results of operations at the time of adoption. Company performance expectations or forward looking statements expressed from time to time are always subject to the possible material impact of any risks of the business. These risks include weather conditions impacting grain production and harvesting and live growout of poultry; feed supplies and prices; supplies and selling prices of poultry and competing meats; consumer preferences; governmental and regulatory intervention in the export/import of poultry; changes in the regulations governing production processes; and fluctuations in the general business climate. PART II. OTHER INFORMATION Item 2. Changes in Securities On December 2, 1996, the registrant issued 45,000 shares of its no par common stock to Jennings Ice Company of Lynchburg, Virginia (Jennings), in connection with the acquisition by the Registrant's wholly owned subsidiary, Cassco Ice & Cold Storage, Inc. (Cassco) of substantially all the assets of Jennings. The acquired assets included Jennings' ice merchandisers, inventory, machinery and equipment, and ice inventories. The shares, which were issued to a single purchaser with no general advertising, were not registered under the Securities Act of 1933, but were instead issued in reliance on Section 4(2) of the Securities Act. Consequently, the resale of the shares is restricted, and the certificates are legended accordingly. As reported on Form 8-K, filed by the Registrant with the Securities Exchange Commission on October 10, 1995, on September 29, 1995 and January 11, 1996, the Registrant issued a total of 456,936 shares of its no par common stock in connection with its acquisition of the chicken processing assets of New Hope Feeds, Inc. and its affiliate, Economy Truck Leasing, Inc. Valued for purposes of this transaction at $6,028,700, the issued shares represented a portion of the total purchase price of $16,103,222. The stock was issued to Crestar Bank as trustee for the benefit of New Hope Feeds, Inc. and Economy Truck Leasing, Inc, and is subject to the terms of a Voting Trust Agreement which will expire in September 1999. Given the limited number of investors, the acquisitive nature of the transaction and the fact that, pursuant to the terms of the voting trust, the stock may not be resold to the public for a period of four years except under limited circumstances, the stock was not registered, but was issued in reliance on the exemption afforded by Section 4(2) of the Securities Act of 1933. On June 22, 1995, the Registrant issued for cash $22,000,000 of its 7.47% Senior Notes, Series B, due June 1, 2007 to a syndicate of 13 institutional investors. First Union National Bank of North Carolina served as placement agent for the Registrant. The securities were sold to a limited number of sophisticated, accredited investors, all of whom represented that they were purchasing the Notes for the purpose of investing and not with a view toward resale or distribution, and were sold with extensive disclosure and without general advertising. Consequently, the Notes were issued in reliance on Section 4(2) of the Securities Act. In addition, the Registrant took advantage of the safe harbor provided by Rule 506, filing Form D with the Securities Exchange Commission on August 21, 1995. On August 29, 1994, the Registrant acquired substantially all the assets of the turkey processing division of Cuddy Farms, Inc. (Cuddy), in exchange for 1,774,999 shares (as adjusted for a 3 for 2 stock split on May 12, 1995) of its no par value common stock. The stock was issued to Crestar Bank as trustee for the benefit of Cuddy pursuant to a Voting Trust Agreement dated August 29, 1994, which Agreement will terminate August 29, 1998. The stock issued in connection with the Cuddy acquisition was exempt from registration under Section 4(2), given the single purchaser, the acquisitive nature of the transaction and the four-year holding period imposed by virtue of the voting trust. The transaction was reported by the Registrant on Form 8-K, filed with the Commission on September 13, 1994. 7 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Form 8-K None. 8 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed this 11th day of February, 1997, by the Registrant's principal financial officer who is also authorized by the Registrant to sign on its behalf. WLR FOODS, INC. ___/s/ Robert T. Ritter___________ Robert T. Ritter, Chief Financial Officer and duly authorized signator for Registrant 9 EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS 3-MOS JUN-28-1997 DEC-28-1996 1 $320 0 $79,076 $1,257 136,476 224,450 347,122 179,663 $398,507 120,655 110,847 0 0 80,392 82,010 398,507 264,424 264,424 246,307 246,307 24,342 550 3,029 (8,436) (3,081) (5,368) 0 0 0 (5,368) $(0.30) $(0.30)
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