-----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, SGU5vOkHhBa2awg65Q1+y6Ukxb+vWE/4Iv2ESNYZQRtIKwhEuG403gsVgw5qLcNB f+p7HXbNNp2l54bEMAi6/w== 0000760775-99-000118.txt : 19991117 0000760775-99-000118.hdr.sgml : 19991117 ACCESSION NUMBER: 0000760775-99-000118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 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: SEC FILE NUMBER: 000-17060 FILM NUMBER: 99758423 BUSINESS ADDRESS: STREET 1: P O BOX 7000 CITY: BROADWAY STATE: VA ZIP: 22815 BUSINESS PHONE: 5408967001 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 EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ COMMISSION FILE NUMBER 0-17060 WLR FOODS, INC. (Exact name of Registrant as specified in its charter) Virginia 54-1295923 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) P.O. Box 7000 Broadway, Virginia 22815 (Address including Zip Code of Registrant's principal executive offices) (540) 896-7001 (Registrant's telephone number, including area code) Indicate by cross mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No () The number of shares outstanding of Registrant's Common Stock, no par value, at October 29, 1999 was 16,563,847 shares. 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 October 2, September 26, 1999 1998 Net sales $202,007 $237,941 Cost of sales 172,705 196,644 ------- ------- Gross profit 29,302 41,297 Selling, general and administrative expenses 24,355 25,408 ------- ------- Operating income 4,947 15,889 Other expense (income): Interest expense 1,233 4,885 Gain on sale of Goldsboro complex - (7,872) Other income, net (371) (22) ------- ------- Other expense (income), net 862 (3,009) ------- ------- Earnings before income taxes 4,085 18,898 Income tax expense 1,542 7,181 ------- ------- Net earnings from continuing operations $2,543 $11,717 Earnings from discontinued operations, net of tax - 664 Gain on disposal of discontinued operations, net of tax - 15,499 ------- ------- Total earnings from discontinued operations - 16,163 Extraordinary charge on early extinguishment of debt, net of tax - (1,606) ------- ------- Net earnings $2,543 $26,274 ======= ======= Basic net earnings per common share, continuing operations $0.15 $0.72 Basic net earnings per common share, discontinued operations - 0.98 Basic net loss per common share, extinguishment of debt - (0.10) ------- ------- Total basic net earnings per common share $0.15 $1.60 ======= ======= Diluted net earnings per common share, continuing operations $0.15 $0.70 Diluted net earnings per common share, discontinued operations - 0.96 Diluted net loss per common share, extinguishment of debt - (0.10) ------- ------- Total diluted net earnings per common share $0.15 $1.56 ======= ======= See accompanying Notes to Consolidated Financial Statements.
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WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Dollars in thousands October 2, July 3, 1999 1999 ASSETS (unaudited) Current Assets Cash and cash equivalents $258 $210 Accounts receivable, less allowance for doubtful accounts of $2,157 and $1,909. 58,372 59,026 Inventories (Note 2) 112,428 106,679 Income taxes receivable - 355 Other current assets 6,433 6,427 ------- ------- Total current assets 177,491 172,697 Property, plant and equipment, net 105,474 107,945 Deferred income taxes 1,596 3,009 Other assets 5,272 5,446 ------- ------- TOTAL ASSETS $289,833 $289,097 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt $5,297 $5,046 Excess checks over bank balances 11,561 13,912 Trade accounts payable 26,017 26,500 Accrued payroll and related benefits 16,902 24,729 Other accrued expenses 14,565 8,677 Deferred income taxes 7,231 9,817 ------- ------- Total current liabilities 81,573 88,681 Long-term debt, excluding current maturities 53,935 48,845 Other liabilities and deferred credits 7,701 7,636 3 Shareholders' equity: Common stock, no par value 69,271 69,125 Additional paid-in capital 2,974 2,974 Retained earnings 74,379 71,836 ------- ------- Total shareholders' equity 146,624 143,935 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $289,833 $289,097 ======= ======= See accompanying Notes to Consolidated Financial Statements.
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WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Thirteen weeks ended Dollars in thousands October 2, September 26, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $2,543 $26,274 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Extraordinary loss on early extinguishment of debt - 1,606 Depreciation and amortization 4,831 6,100 (Gain) loss on sale of property, plant and equipment (131) 5 Gain on sale of Goldsboro complex - (7,872) Gain on sale of discontinued operation - (24,998) Deferred income taxes (1,172) 12,013 Other, net - (36) Change in operating assets and liabilities: Decrease in accounts receivable 654 5,370 (Increase) decrease in inventories (5,749) 5,405 Decrease in other current assets 350 832 Increase in long-term assets (44) (520) Increase (decrease) in accounts payable (483) 3,785 Increase (decrease) in accrued expenses and other (1,874) 5,782 ------- ------- Net Cash Provided by (Used in) Operating Activities (1,075) 33,746 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (2,254) (8,122) Proceeds from sale of discontinued operation - 53,928 Proceeds from sale of Goldsboro complex - 37,582 5 Proceeds from sale of property, plant and equipment 241 16 ------- ------- Net Cash Provided by (Used in) Investing Activities (2,013) 83,404 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of revolver and long-term debt 199,213 42,850 Payments on revolver and long-term debt (193,872) (160,079) Decrease in checks drawn not presented (2,351) (161) Issuance of common stock 146 183 ------- ------- Net Cash Provided by (Used in) Financing Activities 3,136 (117,207) ------- ------- Increase (Decrease) in Cash and Cash Equivalents 48 (57) Cash and Cash Equivalents at Beginning of Fiscal Year 210 335 ------- ------- Cash and Cash Equivalents at End of Period $258 $278 ======= ======= Supplemental cash flow information: Cash paid for: Interest $1,146 $6,014 Income taxes 456 148 The Company considers all highly liquid investments with maturities of 3 months or less at purchase to be cash equivalents. Non-cash financing activities: In fiscal 1999: The Company recorded 142,384 stock warrants at a value of $904,136 which related to the February 1998 debt refinancing in the first quarter. The Company had 28,180 stock warrants expired at a value of $178,943 when a portion of the February 1998 debt was repaid in the first quarter. 6 The Company incurred an extraordinary charge on early extinguishment of debt in the amount of $2.6 million in the first quarter. See accompanying Notes to Consolidated Financial Statements.
7 Notes to Consolidated Financial Statements WLR Foods, Inc. and Subsidiaries 1. Accounting Policies The consolidated financial statements presented herein, include the accounts of WLR Foods, Inc. and its wholly-owned subsidiaries. All material balances and transactions have been eliminated in consolidation. The consolidated balance sheet as of October 2, 1999, and the consolidated statements of operations for the thirteen weeks ended October 2, 1999 and September 26, 1998, and the consolidated statements of cash flows for the thirteen weeks ended October 2, 1999 and September 26, 1998 are unaudited. In the opinion of management, all adjustments necessary for fair presentation of such consolidated financial statements have been included. Such adjustments consisted only of normal recurring accruals and the use of estimates. Interim results are not necessarily indicative of results for the entire fiscal year. The consolidated financial statements and notes are presented in conformity with the requirements for Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. The Company's unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Annual Report to Shareholders for the fiscal year ended July 3, 1999. In both, the accounting policies and principles used are consistent in all material respects. 2. Inventories A summary of inventories at October 2, 1999 and July 3, 1999 follows: (unaudited) Dollars in thousands October 2, July 3, 1999 1999 Live poultry and breeder flocks $48,955 $48,275 Processed poultry and meat products 36,329 31,510 Packaging supplies, parts and other 12,592 12,859 Feed, grain and eggs 14,552 14,035 ------- ------- Total inventories $112,428 $106,679 ======= ======= 8 3. Earnings Per Share The following is a reconciliation between the calculation of basic and diluted net earnings per common share: In thousands, except for per 13 weeks ended 13 weeks ended share data October 2, September 26, 1999 1998 Basic EPS Computation Numerator - Net earnings $2,543 $26,274 Denominator: Common shares outstanding 16,550 16,427 Effect of outstanding stock warrants 302 22 ------ ------ Basic weighted average common shares outstanding 16,852 16,449 Basic earnings per common share $0.15 $1.60 ====== ====== Diluted EPS Computation Numerator - Net earnings $2,543 $26,274 Denominator: Common shares outstanding 16,550 16,427 Effect of outstanding stock options 5 8 Effect of outstanding stock warrants 302 378 ------ ------ Diluted weighted average common shares outstanding 16,857 16,813 Diluted earnings per common share $0.15 $1.56 ====== ====== 4. Sale of Assets The Company completed the sale of its Cassco Ice & Cold Storage subsidiary on July 31, 1998 for net proceeds of approximately $54 million, resulting in a gain of approximately $25 million ($15 million after tax). Earnings from operations in the first quarter of fiscal 1999 were approximately $1 million ($0.7 million after tax). Both items relating to the sale have been segregated from continuing operations and reported as separate line items on the statement of operations. In August 1998, the Company completed the sale of its Goldsboro, North Carolina chicken complex. Net proceeds of approximately $37 million resulted in a gain of approximately $8 million ($5 million after tax). 9 Due to the permanent reduction in long-term debt resulting from the sale of the Cassco subsidiary and the Goldsboro complex, the Company incurred an extraordinary loss of approximately $2.6 million ($1.6 million after tax) on the write-off of capitalized debt costs. 5. Segment Information The Company retroactively adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" for the year ended July 3, 1999. This statement requires companies to report certain information about operating segments in their financial statements and establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. The Company has two reportable segments: Chicken and Turkey. The third segment, Other, includes revenues from the Company's protein conversion plants, unallocated corporate related items and other miscellaneous items. Chicken segment revenues are primarily sales of chicken related products, such as retail tray pack items, whole birds cut up for fast food restaurants and portion-controlled products for food service distributors. Turkey segment revenues are primarily sales of turkey related products and further processed products, including both turkey and chicken items, produced at the Company's further processing plants. These items include fresh and frozen whole birds and parts, including retail tray pack items, turkey burgers and a full line of further processed products, including deli meats, frankfurters and salads. To better utilize its feed manufacturing capabilities, the Company sells feed to other users, primarily from its Marshville, NC feedmill. Sales from this mill were included in Turkey segment sales through the first quarter of fiscal 1999, when the complex was converted to chicken processing and the sales since then have been included in the Chicken segment. Each segment is evaluated by management based on operating profit (loss) and net earnings (loss). The following tables set forth specific operating information about each segment as reviewed by the Company's management. Net earnings (loss) for segment reporting is prepared on the same basis as that used for consolidated net earnings (loss). Administrative services provided by the corporate offices are primarily allocated to the individual segments based on levels of inventories and property, plant and equipment. Due to certain assets which are shared between segments, management evaluates assets and capital expenditures on a 10 consolidated basis; therefore, such information is not presented on a segment basis.
Chicken Turkey Other Elimina- Total tions Dollars in thousands Thirteen Weeks ended October 2, 1999 External segment revenues $102,351 $97,771 $1,885 $ - $202,007 Intersegment revenues - - 3,143 (3,143) - ------- -------- ------ ----- ------- Total revenues 102,351 97,771 5,028 (3,143) 202,007 Interest expense 627 629 - (23) 1,233 Depreciation expense 2,524 1,762 329 - 4,615 Interest income - 98 58 (23) 133 Income taxes (benefit) (37) 1,020 559 - 1,542 Net earnings (loss) from continuing operations (61) 1,682 922 - 2,543 Thirteen Weeks ended September 26, 1998 External segment revenues $119,225 $116,528 $2,188 $ - $237,941 Intersegment revenues - - 3,362 (3,362) - ------- ------- ----- ----- ------- Total revenues 119,225 116,528 5,550 (3,362) 237,941 Interest expense 1,914 2,819 172 (20) 4,885 Depreciation expense 1,928 2,280 377 - 4,585 Gain on sale of Goldsboro complex 7,872 - - - 7,872 Interest income 1 2 20 (20) 3 Income taxes (benefit) 9,193 (1,969) (43) - 7,181 Net earnings (loss) from continuing operations 15,000 (3,213) (70) - 11,717 Extraordinary charge - - (1,606) - (1,606)
A reconciliation of total segment profits to consolidated net earnings is as follows: October 2, September 26, 1999 1998 Segment profit $2,543 $11,717 Unallocated: Income from discontinued operation, net of tax - 664 Gain on sale of discontinued operation, net of tax - 15,499 Extraordinary charge on early extinguishment of debt, net of tax - (1,606) ------ ------- Net earnings $2,543 $26,274 ====== ======= 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations WLR Foods, Inc. (the Company) is a fully integrated poultry production, processing and marketing business with operations in Virginia, West Virginia, Pennsylvania and North Carolina. Operating income for the first quarter of fiscal 2000 was $4.9 million, a decrease of $11.0 million when compared to the same quarter last year. The decrease is primarily due to lower chicken segment pricing of $24.1 million, offset by increased turkey segment pricing of $1.8 million, lower corn and soybean meal costs approximating $6 million, and other improvements of approximately $5 million. RESULTS OF OPERATIONS The Company's results are reported on a consolidated basis. Portions of the following discussions of operating results pertain to the chicken and turkey segments, which account for over 99% of the Company's revenues. Any revenues and expenses not included in the chicken and turkey segments are reported in the Company's other segment for purposes of segment reporting. Net sales from continuing operations for the quarter were $202.0 million, a decrease of $35.9 million, or 15.1% from the first quarter of fiscal 1999. The $35.9 million decrease is from reductions in chicken, turkey and other segment net sales of $16.8 million, $18.8 million and $0.3 million, respectively. In the chicken segment, the decrease in net sales of $16.8 million, or 14.1%, to $102.4 million in the first quarter of fiscal 2000 is due to decreased poultry product sales of $16.3 million and decreased outside feed sales of $0.5 million. The $16.3 million decrease, or 14.2%, in net sales of poultry products, primarily chicken, resulted in first quarter poultry product sales of $98.9 million for fiscal 2000. The 14.2% decrease was the result of a price decrease of 20.9%, partially offset by a volume increase of 6.7%. The turkey segment net sales decline of $18.8 million, or 16.1%, to $97.8 million in sales for the first quarter of fiscal 2000 is primarily from reduced volumes in poultry products. Poultry products, primarily turkey, are the largest component of turkey segment revenues. Poultry product sales in the turkey segment decreased 14.3%, or $16.3 million, to $97.4 million in the first quarter of fiscal 2000. The 14.3% decrease is the result of decreased volumes of 15.9%, primarily the result of planned cutbacks at the Marshville 12 facility which was converted from turkey to chicken processing, offset partially by increased pricing of 1.6%. Cost of sales from continuing operations were $172.7 million, a decrease of $23.9 million, or 12.2% from the first quarter of fiscal 1999. In the chicken segment, cost of sales decreased 0.7%, or $0.6 million, to $91.7 million in the first quarter of fiscal 2000. This decrease is primarily attributable to lower corn and soybean meal costs of approximately $3.5 million, partially offset by increased volumes, primarily due to the conversion of the Marshville facility to a chicken complex. Cost of sales in the turkey segment decreased 22.3%, or $23.0 million, to $80.1 million in the first quarter of fiscal 2000. This decrease is primarily the result of planned decreases in production and sales volumes in turkey products. Lower costs of corn and soybean meal also lowered costs in the turkey segment by approximately $2.4 million during the quarter. Gross profit on continuing operations was $29.3 million, a decrease of $12.0 million, or 29.0% from the same quarter last year. The net effect of product pricing was a decline of $22.3 million for the quarter, with lower chicken pricing of $24.1 million more than offsetting higher turkey prices of $1.8 million. Lower grain costs for corn and soybean meal contributed approximately $5.9 million of improvements during the quarter. Other improvements of approximately $4.4 million in gross profits were primarily the result of improved live bird performance, higher plant utilization, and improvements in other feed ingredient costs and formulations. Selling, general and administrative expenses for the first quarter were $24.4 million, a decrease of $1.0 million, or 4.1% when compared to the same quarter last year. The decrease is primarily the result of a one-time charge of $1.5 million during the first quarter of fiscal 1999 for assets, primarily at the Monroe facility, that could not be utilized in the Company's turkey operations, offset partially by increased promotional spending in the first quarter of fiscal 2000. Interest expense was $1.2 million for the first quarter of fiscal 2000, a decrease of $3.7 million, or approximately 75%, when compared to the same quarter in fiscal 1999. The decrease is the result of substantially lower debt levels and lower interest rates resulting from a new credit facility entered into during November of 1998. The gain on the sale of the Goldsboro complex resulted from the Company's sale, on August 14, 1998, of its Goldsboro, North Carolina chicken processing plant, feed mill and hatchery for approximately $37 million in net proceeds, which were used to reduce long term debt. The pre-tax gain on the sale was approximately $8 million. 13 Net earnings from continuing operations were $2.5 million (or $0.15 per diluted share) for the first quarter of fiscal 2000, a decrease of $9.2 million as compared to the net earnings of $11.7 million (or $0.70 per diluted share) for the first quarter of fiscal 1999. Net earnings from the chicken segment decreased $15.1 million, offset partially by increased net earnings in the turkey and other segments of $4.9 million and $1.0 million, respectively. On July 31, 1998 the Company sold its Cassco Ice and Cold Storage, Inc. subsidiary for approximately $54 million in net proceeds. The net proceeds from the sale were used to reduce long-term debt. During the first quarter of fiscal 1999, the Company recorded a $15.5 million after-tax gain on the sale. The after-tax Cassco income from discontinued operations was $0.7 million in the first quarter of fiscal 1999. During the first quarter of fiscal 1999, the Company recorded an extraordinary after-tax charge of $1.6 million for the early extinguishment of debt, due to the permanent reduction in long-term debt resulting from the sale of the Cassco subsidiary and the Goldsboro complex. Net earnings for the first quarter of fiscal 2000 were $2.5 million, or $0.15 per diluted share, compared with net earnings for the same quarter of fiscal 1999 of $26.3 million, or $1.56 per diluted share. The prior year net earnings included income from discontinued operations, gains on the sales of the Cassco subsidiary and the Goldsboro complex, and extraordinary charges. Financial Condition and Liquidity Accounts receivable were $0.7 million lower than the fiscal year-end level while inventories increased $5.7 million during the same period, primarily due to seasonal increases in turkey inventories. Debt levels increased $5.3 million during the quarter, from $53.9 million at year-end, to $59.2 million at the end of the first quarter of fiscal 2000. The increase is due primarily to the payment of the prior years accrued bonuses and to seasonal increases in turkey inventories. Capital Resources The Company's capital spending for the quarter was $2.3 million. The majority of the capital spending was primarily for the replacement of existing equipment and for safety and regulatory requirements. 14 Depreciation expense was $4.6 million for the quarter. Capital spending for fiscal 2000 is expected to total $16 to $20 million. Year 2000 Matters The Company began addressing Year 2000 issues in 1995 and elected to replace its multiple financial and order management systems with one set of integrated software from Oracle Corporation. An upgrade to a newer release of the Oracle software that supports the Year 2000 was completed in March 1999. The Company has assessed all personal computers and communication networks and believes there are no significant Year 2000 problems in these areas. A review of operational systems, including processing plants, feed mills, warehouses and hatcheries has been performed. This review has resulted in a plan for minor upgrades or replacements of equipment. At the present time, management is not aware of any significant operational problems resulting from Year 2000 related equipment. To ensure that WLR Foods' business with its vendors and customers will continue without interruption in the new millennium, the Company began assessing vendor and customer Year 2000 readiness by written questionnaires in November of 1998. Questionnaires were sent to customers comprising a majority of our sales revenue and to all significant vendors. Presently, the Company has no reason to believe that such parties will not be Year 2000 compliant, but the Company has not yet completed its inquiry and, even where it has, the Company is not normally in a position to test or challenge the information provided by such third parties. If the responses of such parties are not satisfactory, the Company will consider new business relationships with alternate parties to the extent alternatives are available. The Company believes that its most significant exposure related to the Year 2000 issue is from reliance upon third parties for transportation services to deliver feed grains and for utilities such as electricity, natural gas and water that are necessary for operating the Company's plants. The Company's supply of feed grain on hand does not usually exceed that used in a matter of days. Shipping routes normally involve, at one or more points, rail transportation for which alternate suppliers are not readily available. Similarly, there are no effective alternative suppliers of utilities. Disruption of more than a few days in these transportation and utilities services used by the Company would begin to have a material adverse effect that would increase as any such disruption continued. While the Company has no information that causes it to expect a prolonged disruption that would have a material adverse effect, the Company does not believe it can develop adequate contingency plans for any prolonged disruption. The 15 Company considers disruptions of this nature to be its worst case Year 2000 scenario, but the Company cannot predict the likelihood of such disruptions or, if they occur, the duration. The Company is developing contingency plans, where practical, to help mitigate the effects of potential Year 2000 problems. Those plans include increasing supplies of feed grains and ingredients, preparing for manual, instead of electronic, operating procedures and the appointment of adequate personnel to test systems and address problems that might arise on January 1, 2000. The Company routinely receives inquiries from its suppliers and customers as to the Company's state of readiness for the Year 2000, just as the Company seeks such information from others. The Company believes that its own systems will be ready, however, there is no assurance that the systems of third parties upon which the Company relies will be converted on a timely basis. The Company cannot verify all of the information it has gathered or will gather, and cannot compel third parties to respond at all. Additionally, the Company can not predict the extent to which its financial condition and operations would be adversely affected if third persons are not ready for the Year 2000 on a timely basis. The Company has a committee that meets regularly to discuss progress and issues pertaining to the Year 2000 and reports, on a regular basis, to the Board of Directors. In light of recent computer upgrades, the Company's costs related to Year 2000 compliance are immaterial. Accounting Matters The Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities in June 1998. The statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires, among other things, that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company does not believe the adoption of this statement, which is required to be adopted by the Company in fiscal 2001, will have a significant impact on the consolidated financial statements. 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risks relating to the Company's operations result primarily from changes in interest rates and commodity prices. To address these risks, the Company enters into various hedging transactions as described below. The Company does not use financial instruments for trading purposes and is not party to any leveraged derivatives. Interest Rate Sensitivity The Company hedges exposures to changes in interest rates on certain of its financial instruments. The Company enters into interest rate swap agreements to effectively lock in a fixed interest rate for a portion of these borrowings. In addition, the Company enters into interest rate cap agreements to effectively limit the Company's exposure to increases in interest rates. The table below provides information about the Company's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract.
Expected Maturity Date ------------------------------------------------------ Liabilities: There- Fair Dollars in thousands 2000 2001 2002 2003 2004 after Total Value - ----------------------------------------------------------------------------- Liabilities: Long-term debt, including Current Portion Fixed Rate $177 $202 $215 $89 $95 $50 $828 $828 Average interest rate 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Variable Rate $3,575 $5,850 $48,979 $0 $0 $0 $58,404 $58,404 Average interest rate 6.77% 6.77% 6.93% 0.00 0.00 0.00 6.91% 17 Interest Rate Derivatives There- Fair Dollars in thousands 2000 2001 2002 2003 2004 after Total Value - ----------------------------------------------------------------------------- Interest Rate Swaps Variable to Fixed $50,000 $0 $0 $0 $0 $0 $50,000 ($42) Average pay rate 6.29% 0.00 0.00 0.00 0.00 0.00 6.29% Average receive rate - USD 1 month Libor Interest Rate Cap $75,000 $0.00 $0.00 $0.00 $0.00 $0.00 $75,000 $26 Average pay rate 6.50% 0.00 0.00 0.00 0.00 0.00 6.50% Average receive rate - USD 1 month Libor
On October 15, 1999, the Company terminated the $50 million interest rate swap agreement. Commodity Price Sensitivity The Company is a purchaser of certain commodities, primarily corn and soybean meal. The Company uses commodity futures and forward purchasing for hedging purposes to reduce the effect of changing commodity prices on a portion of its commodity purchases. The contracts that effectively meet risk reduction and correlation criteria are recorded using hedge accounting. Gains and losses on hedge transactions are recorded as a component of the underlying inventory purchase. The following table provides information about the Company's corn, soybean meal, other feed ingredient inventory and futures contracts that are sensitive to changes in commodity prices. For inventory, the table presents the carrying amount and fair value at October 2, 1999. For the futures contracts the table presents the notional amounts in bushels, the weighted average contract prices, and the total dollar contract amount by expected maturity dates, the latest of which occurs in May 2000. Contract amounts are used to calculate the contractual payments and quantity of corn and soybean meal to be exchanged under the futures contracts. There were no outstanding soybean meal positions on October 2, 1999. On Balance Sheet Commodity Position and Related Derivatives Carrying Fair Dollars in thousands Amount Value - ----------------------------------------------------------------- Corn, Soybean Meal and Other Feed Ingredient Inventory 11,305 11,305 18 Contractual Fair Related Derivatives Amount Value - ----------------------------------------------------------------- Corn Futures Contracts Contract Volumes (100,000 bushels) 76 Weighted Average Price (per bushel) $2.25 $2.16 Contract Amount (dollars in thousands) 17,086 16,426 19 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of shareholders was held on October 30, 1999 at 10:00 a.m. in Bridgewater, Virginia. The voting results were as follows:
______________________________________________________________________________ Votes Broker Proposal For Against Withheld Abstention Non-Votes ______________________________________________________________________________ #1 Election of Directors Class A Director (to serve until 2000 Annual Meeting of Shareholders) Phillip C. Stone 12,074,545 1,045,634 Class C Directors (to serve until 2002 Annual Meeting of Shareholders) Charles L. Campbell 12,079,709 1,040,470 William H. Groseclose 12,078,655 1,041,524 William D. Wampler 12,081,448 1,038,731 Directors whose term continued after the meeting were: Keith E. Alessi J. Craig Hott Katherine K. Clark Stephen W. Custer James L. Keeler #2 Ratification of Appointment of Independent Auditors 12,939,947 99,307 82,151
20 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed this 16th day of November, 1999, by the Registrant's principal financial officer who is also authorized by the Registrant to sign on its behalf. WLR FOODS, INC. ___/s/ Dale S. Lam___ Dale S. Lam, Chief Financial Officer and duly authorized signator for Registrant 22 EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule 23 EX-27 2 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 3-MOS JUL-01-2000 OCT-02-1999 258 0 58,372 2,157 112,428 177,491 296,948 191,474 289,833 81,573 53,935 0 0 69,271 77,353 289,833 202,007 202,007 172,705 172,705 24,355 0 1,233 4,085 1,542 2,543 0 0 0 2,543 .15 .15
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