FILE NO. 0-7277
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 of the Securities Exchange Act of 1934
For the Fiscal Year Ended February 23, 1996
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WSMP, INC.
Incorporated in North Carolina
CLAREMONT, NORTH CAROLINA 28610 56-0945643
(704) 459 - 7626 (I.R.S. Employer Identification No.)
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Securities filed pursuant to Section 12(g) of
the Securities Exchange Act of 1934:
COMMON STOCK, PAR VALUE $1 PER SHARE
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 twelve months (or for such shorter period that the
registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein and will not be contained, to the
best of the 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 number of shares of WSMP, Inc. Common Stock outstanding as of May 10,
1996 was 2,760,338. The aggregate market value of WSMP, Inc. Common Stock held
by nonaffiliates of WSMP, Inc. as of May 10, 1996 was $ 7,258,700.
DOCUMENTS OF WHICH PORTIONS PARTS OF FORM 10-K INTO WHICH PORTIONS
ARE INCORPORATED BY REFERENCE OF DOCUMENTS ARE INCORPORATED
- ------------------------------ --------------------------------------
Annual Report to Shareholders for the
Fiscal Year Ended February 23, 1996 I, II
Proxy Statement for WSMP, Inc.'s Annual
Meeting of Shareholders to be held
on June 27, 1996 III
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PART I
ITEM 1. BUSINESS
BUSINESS SEGMENTS
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The Company operates in three principal business segments: restaurant
franchising, restaurant operations and food processing. Information as to
revenue, operating profit, identifiable assets, depreciation and amortization
expense, and capital expenditures, for each of the Company's business segments
for fiscal 1996 is contained on page 21 of the Company's Annual Report to
Shareholders for the fiscal year ended February 23, 1996, under the caption
"Lines of Business", and is incorporated herein by reference.
RESTAURANT FRANCHISING
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RESTAURANT FRANCHISING - WESTERN STEER. The most significant segment of the
Company's franchising operations currently centers around the Western Steer
chain of restaurants, which includes the Western Steer Family Restaurant concept
and the Western Steer - Steaks, Buffet & Bakery concept. The Western Steer
Family Restaurant concept originated in 1975 as a family oriented, reasonably
priced steakhouse restaurant, and features a rustic western-style design, steaks
and other entrees cooked to order, and an "all-you-can-eat" buffet food bar.
Beginning in 1992, the Company began an extensive program of renovation of this
concept which included updating the buffet food bar, adding an in-house bakery
and changing the store appearance to highlight a new format. Restaurants
updated to this new format have been renamed "Western Steer - Steaks, Buffet &
Bakery".
The Company has 55 franchised Western Steer restaurants located in North
Carolina (26), Kentucky (7), West Virginia (5), Georgia (4), South Carolina (5),
Florida (2), Virginia (3), and Tennessee (3). Of this total, 25 are operated as
Western Steer - Steaks, Buffet & Bakery restaurants. The Company no longer
offers the Western Steer Family Restaurant franchise, and believes that many of
the existing units will eventually elect to convert to the Western Steer -
Steaks, Buffet & Bakery format. Although the decision regarding whether to
renovate and the timing thereof rests with the franchisee, the Company
encourages its franchisees to renovate franchised restaurants and provides
assistance in doing so, primarily through consulting with franchisees regarding
the renovations and subsequent operational changes and training of franchisee
personnel. The primary costs of renovating franchised restaurants are borne by
the franchisees.
The average sales volume during the fiscal year ended February 23, 1996 for
franchised Western Steer - Steaks, Buffet & Bakery restaurants that have been
open for one year or more was $1,230,500. This represents only a slight
decrease from the fiscal 1995 average of $1,237,000. The average sales volume
for fiscal 1996 for Western Steer Family Restaurant units that have been open
for one year or more was $989,000, representing a decrease of 2.2% from the
average for fiscal 1995 which totaled $1,011,000.
The Company granted one franchise during fiscal 1996 for a Western Steer -
Steaks, Buffet & Bakery restaurant which opened in South Carolina. Although
the Company intends to support any future interest in franchise expansion of
this concept, it is felt that most new franchising interest will center around
the Prime Sirloin and Bennett's' concepts discussed below.
At February 23, 1996, major shareholders of the Company had ownership
interests in 19 of the 55 franchised restaurants. See Item 13, "Certain
Relationships and Related Transactions."
RESTAURANT FRANCHISING - PRIME SIRLOIN. In 1987, the Company acquired Prime
Sirloin, Inc., a regional franchised steakhouse chain composed of seven units
and headquartered in Morristown, Tennessee. This concept, although similar to
Western Steer, was slightly more upscale, with larger building designs,
different interiors, and a higher average ticket price. Due to the success of
the Western Steer redesign, management has offered its Prime Sirloin franchise
operators a remodel and redesign program similar to the Western Steer reformat.
As of February 23, 1996, two of the original franchised units had been remodeled
and the name changed to "Prime Sirloin - Buffet, Bakery & Steaks." In addition,
two Western Steer locations have been converted to Prime Sirloin - Buffet,
Bakery & Steaks franchises, including one unit converted in the current year.
During fiscal 1995, management of the Company introduced a new Prime
Sirloin prototype designed to capitalize on the industry's success with larger
buffet style formats. This "mega-sized" prototype centers around a budget steak
and buffet concept with seating for over 400 patrons. Significant alterations
from the original Prime Sirloin design include a panoramic entry, which gives
customers a view of the buffet and dining area, a "double-line" system,
directing guests to the buffet floor quickly, and a "scatter-bar" buffet design
which allows guests to visit different areas for different phases of their meal.
The new Prime Sirloin design costs approximately $2.1 million per unit, and each
unit is anticipated to gross approximately $2.5 million to $3.0 million in first
year sales. The first prototype Prime Sirloin franchise was opened in
Spartanburg, South Carolina in August of 1994. During fiscal 1996 two additional
franchises were opened in Bristol, Tennessee and Greenville, South Carolina.
Management anticipates the opening of approximately two additional new
prototype franchise units during fiscal 1997.
At February 23, 1996, there were 12 franchised Prime Sirloin restaurants
located in Tennessee(6), North Carolina (1), South Carolina (2), Virginia (1),
Florida (1), and Kentucky (1). Major shareholders of the Company have an
ownership interest in four of the franchised Prime Sirloin restaurants. In
addition, the Bristol, Tennesse location, which opened during fiscal 1996, is
operated through a joint venture in which the Company owns 50%. See Item 13
"Certain Relationships and Related Transactions."
RESTAURANT FRANCHISING - BENNETT'S SMOKEHOUSE & SALOON. In 1990, WSMP became a
sub-franchiser of Denver-based Bennett's Bar-B-Que, Inc., with development
rights exclusively for Tennessee, North Carolina and Virginia, and expansion
rights elsewhere in the United States, except for Colorado, Texas, and
metropolitan Atlanta, Georgia. As a sub-franchiser, the Company pays royalty
fees to the franchiser equal to 1% of revenues for each Bennett's restaurant
owned or sub-franchised by the Company.
In 1994, management redesigned the Bennett's Bar-B-Que concept into
Bennett's Smokehouse & Saloon, a Texas roadhouse theme concept merging steaks
and barbecue in a 186-seat casual dinner house. This concept represents the
Company's entry into the rapidly expanding casual dining market. At February
23, 1996, the Company had four franchised Bennett's restaurants located in
Tennessee (2) and South Carolina (2). The two South Carolina franchises
incorporate the Bennett's Smokehouse & Saloon concept and are operated through
joint ventures in which the Company owns 50%.
One new South Carolina franchise was opened during fiscal 1996. Although
management feels that the Bennett's Smokehouse and Saloon concept can be a
promising vehicle for future franchise growth, current year growth failed to
meet management's original expectations due to declining profitability in
certain existing locations. Therefore, management has concentrated its focus
during fiscal 1996 on improving sales and profitability of existing restaurants.
Management intends to increase its franchising efforts once these issues have
been fully addressed, and expects the opening of approximately two franchise
units during fiscal 1997.
RESTAURANT FRANCHISING - OTHER. WSMP has created the "Mom 'n' Pop's Buffet and
Bakery" restaurant concept, to fit existing Western Steer buildings in areas in
which competition has grown, or in which past performance necessitates other
market approaches. This restaurant concept consists of food bars from which
customers make selections. At fiscal year end, there were only two franchised
units under this concept, both located in Georgia. At the present time, the
Company does not consider these restaurants or their franchising as being
significant to its overall operations.
RESTAURANT FRANCHISING - FRANCHISE AGREEMENTS. The Company utilizes standard
franchise agreements for its Western Steer; Western Steer-Steak, Bakery &
Buffet; Prime Sirloin; Prime Sirloin-Bakery, Buffet & Steaks and Bennett's
Smokehouse & Saloon restaurants. The terms of the franchise agreements are
dependent upon when the agreement was executed.
Generally, franchise agreements executed prior to 1990 are for a period of 20
years, renewable for a period of 20 years, whereas those executed after this
date are based on 10 year terms. The initial franchise fee is $25,000. In
addition, royalty fees of 3% of the franchised restaurant's gross sales
throughout the term of the agreement are also payable to the Company. Franchise
agreements executed after 1981 require the franchisee to pay the Company an
advertising fee of 2% of each franchised restaurant's gross sales. Although the
Company reserves the right to collect this total fee, it is currently requiring
payment at a rate of .25% of gross sales. All agreements provide for an
exclusive territory and for in-term and post-term non-competition agreements.
No single franchisee or group of franchisees under common control provides
revenues equal to 10% or more of the Company's consolidated revenues.
RESTAURANT OPERATIONS.
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WESTERN STEER, PRIME SIRLOIN, AND BENNETT'S RESTAURANTS. The Company and
certain consolidated subsidiaries own and operate 12 Western Steer - Steaks,
Buffet & Bakery restaurants. These restaurants are located in North Carolina
(7), Georgia (1), Maryland (2), Florida (1), and Tennessee (1). In addition,
the Company and certain consolidated subsidiaries own and operate five Prime
Sirloin - Buffet, Bakery & Steaks restaurants in North Carolina (4) and South
Carolina(1). One Bennett's Smokehouse & Saloon restaurant is owned by the
Company and is located in North Carolina.
The Company does not intend to build or acquire any additional wholly-owned
Western Steer, Prime Sirloin, or Bennett's restaurants during fiscal 1997.
Expansion of these concepts is planned to be accomplished through franchising
activities.
OTHER RESTAURANTS. The Company owns one Mom 'n' Pop's Buffet & Bakery restaurant
in Florida. One other restaurant in Morganton, North Carolina is operated in a
different format. The Company does not consider these restaurants, in total,
significant to its overall operation.
At the beginning of fiscal 1996, the Company owned 50% interests in three
"Sagebrush Steakhouse & Saloon" restaurants in North Carolina, South Carolina
and Tennessee, with Charles F. Connor, Jr., a major shareholder of the Company.
However, during fiscal 1996, the Company exchanged its shares of ownership in
these restaurants for shares in Sagebrush, Inc. as part of that corporation's
initial public offering of stock. See note 16 on page 22 of the Company's
Annual Report to Shareholders for the fiscal year ended February 23, 1996.
The Company considers its restaurant segment to be somewhat seasonal in
nature, with stronger sales during the Christmas season and during Spring, and
weaker sales during the mid-summer and late winter months.
OPENINGS AND CLOSINGS. The following is a summary of all Company-owned
restaurants opened and closed during the previous three years:
Fiscal Fiscal Fiscal
1994 1995 1996
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Western Steer restaurants
Opened 0 0
Closed 3 3 3
Total at year end 18 15 12
Prime Sirloin restaurants
Opened 0 1 1
Closed 1 0 1
Total at year end 4 5 5
Bennett's Bar-B-Que restaurants
Opened 0 0
Closed 1 0
Total at year end 1 1 1
Other restaurants
Opened 0 0
Closed 0 1
Total at year end 3 2 2
Total restaurants
(at year end) 26 23 20
RESTAURANT MEAL PRICES. The average meal price for Company-owned Western Steer
restaurants is $ 5.84 and the average meal price for Company-owned Prime Sirloin
restaurants is $ 6.21. Meal prices vary depending on geographic location,
degree of renovation, and whether the restaurant is Company-owned or franchised.
SUPPLIERS. The Company has established a purchase program with Institutional
Food House, Inc. ("IFH") of Hickory, North Carolina. This program allows
Company-owned restaurants and franchisees to obtain substantially all staple
items on a regular basis from one purchasing source and promotes the consistency
and high quality of goods delivered to its restaurants and participating
franchisees. Any purchase program is voluntary for franchisees, and franchisees
are free to buy their food from IFH or elsewhere as long as it meets the
Company's specifications. The Company does not feel that the loss of the IFH
agreement would have a material adverse effect on the Company.
FOOD PROCESSING.
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MOM 'N' POP'S COUNTRY HAM. The Company produces, through its Smokehouse
division, sugar-cured hams and ham products for the retail and institutional
markets. In the Company's modern curing facilities in Claremont, North
Carolina, the atmospheric conditions of traditional air curing of pork hams are
simulated, resulting in a curing process that fully cures raw hams in a period
of approximately 70 days. The Company cured over 10,700,000 pounds of ham
during fiscal 1996 in its 55,000 square foot facility.
The Company produces whole cured hams, packaged cured ham slices, pre-
portioned ham for portion control customers, and various "side meat" products.
A portion of ham production is sold directly or through distributors to retail
supermarkets under the "Mom 'n' Pop's" brand name, primarily in North Carolina,
South Carolina, Virginia, Tennessee, Alabama and Georgia. The remainder of
production is sold to institutional food distributors. One supermarket customer
accounted for 20.6% of cured ham sales during fiscal 1996. The Company is
confident, based upon historical customer demand, that numerous other outlets
exist for these products.
Raw hams are available from numerous sources, although the Company relies
mainly upon two suppliers for most of its hams. Loss of one or both of these
suppliers would not have a material adverse effect upon the Company.
Sales for the Company's Smokehouse division are seasonal in nature, with
sales volume increases occurring around Thanksgiving, Christmas and Easter. The
Company mitigates the seasonality of its sales by continuing to buy hams in non-
peak periods and storing them until peak seasons.
MOM 'N' POP'S BAKERY PRODUCTS. The Company produces through its Mom `n' Pop's
Bakery division, a variety of biscuits, yeast rolls and other flour-based
products. The Company's biscuits are processed both plain and as sandwiches
filled with items such as sausage, cheese, eggs and country ham. These frozen
products are directly marketed under the "Mom `n' Pop's" brand name to
institutional buyers, vending companies, delicatessens and supermarkets and are
also packed for several of the Company's customers under private labels. The
Company's yeast rolls are used primarily in frozen microwavable sandwiches. The
Company packs microwavable hamburger, cheeseburger, chicken, barbecue and other
sandwiches using its own fresh baked yeast rolls for two customers under custom
manufacturing agreements. In addition, similar sandwiches are produced under
the "Mom `n' Pop's" brand name and marketed directly to supermarkets, vending
companies and institutional buyers. The Company has also developed several pre-
mixed baking products for sale to institutional customers. These pre-mixed
products include items such as cookie dough, biscuit and roll dough, dumplings
and pizza crust, most of which are prepared simply with the addition of water.
During fiscal 1994, the Company completed a plant upfitting and expansion
for the Bakery division, which cost approximately $8,000,000. The expansion was
financed partially through a $4,000,000 Industrial Revenue Bond Offering. This
project resulted in a 60% increase in the Company's capability to produce bakery
products.
The ingredients used in this division's products and mixes are purchased
primarily from five vendors but alternative sources are available. Three
customers accounted for approximately 85.6% of sales during fiscal 1996. One of
these customers, Hudson Foods, Inc., accounted for approximately 76.5% of bakery
sales, and the Company has entered into a contractual arrangement to supply that
company's requirements for those products. The Company believes that a loss of
this customer would have an adverse short-term effect on the Company; however,
the long-term impact would be minimal due to the demand for the Company's food
products from other customers and potential customers.
Although the Company does not consider its Bakery division to be seasonal,
its somewhat slower sales periods typically occur in the mid-summer months.
REVENUES. Revenues for the two divisions that make up the Food Processing
segment of the Company's business, for the past three fiscal years, are as
follows:
FISCAL YEAR ENDED BAKERY DIVISION HAM CURING DIVISION
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1996 $38,600,000 $12,300,000
1995 $49,600,000 $12,800,000
1994 $27,100,000 $11,900,000
EMPLOYEES.
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The Company employed 1559 persons (1050 full time and 509 part time) in its
operations at February 23, 1996. These included 67 administrative and
accounting personnel, 509 Bakery and Smokehouse employees, and 983 restaurant
workers. The Company offers its employees various benefits, including major
medical coverage, and participation in its cafeteria plan, its profit-sharing
retirement plan, and its employee stock purchase plan.
None of the Company's employees are represented by a union. The Company
has experienced no work stoppage attributed to labor disputes and considers its
employee relations to be good.
WORKING CAPITAL.
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The Company's working capital needs in its restaurant segment do not vary
appreciably on a seasonal basis or from year to year. All Company-owned and
most franchised restaurants participate in the Company's IFH purchase program
and do not carry substantial food inventories. The Company does not provide
customers or franchisees with the right to return products, other than major
grocery store chains which it may supply, except where required under contract
law. Also, the Company does not give extended payment terms to its customers or
franchisees. The Company's food production segment working capital needs vary
with the seasonality of its revenues.
The Company does provide standard Food and Drug Administration warranties
to its retailers and distributors of ham or bakery products, concerning the
unadulterated nature of its products and their introduction into interstate
commerce.
MARKETING AND ADVERTISING.
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The Company relies upon advertising to help promote its Western Steer,
Prime Sirloin, and Bennett's restaurants. Local advertising has been the
responsibility of individual restaurant operators. The Company and its Western
Steer, Prime Sirloin, and Bennett's franchisees have advertised their
restaurants primarily in newspapers and billboards and with point-of-sale
materials.
Most Western Steer franchisees, through franchise agreements or
supplementary agreements, are obligated to pay the Company an advertising fee of
two percent of the gross sales of each franchised restaurant. This fee is
intended to provide funds for future national, regional and local advertising of
Western Steer restaurants.
The Company actively markets its ham and bakery products to large grocery
distributors, institutional food brokers and in some cases, directly to grocery
chains. The Company utilizes a combination of direct employees and food brokers
to market these products. The Company's President is also actively involved
with marketing to the largest food manufacturing customers.
In 1990, the Company entered into an Endorsement Agreement with Dale
Earnhardt, Inc. and affiliated corporations by which the Company became an
endorsement sponsor of the Dale Earnhardt automobile racing team on the NASCAR
Winston Cup Series and the NASCAR Busch Grand National Series. This agreement
has been extended through 1997. Mr. Earnhardt is currently one of the best-
known and most successful stock car drivers on the Winston Cup circuit. As part
of its sponsorship, the Company has the right to use Mr. Earnhardt's likeness
and that of his racing car in advertising campaigns, as well as his endorsement
of the Company's food products and restaurants. The Company has developed and
intends to further develop advertising and promotional campaigns based upon Mr.
Earnhardt's association with Western Steer, Prime Sirloin, and Bennett's
restaurants and with Smokehouse and Bakery products.
COMPETITION.
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The restaurant and food manufacturing businesses are highly competitive and
are often affected by changes in tastes and eating habits of the public, and
economic conditions affecting spending habits, population and traffic patterns.
Company-operated restaurants and Western Steer and Prime Sirloin restaurants
operated by franchisees generally compete with national and regional family-
oriented restaurant chains, local establishments and fast food restaurants. The
Company believes that family-oriented steakhouses compete primarily on the basis
of consistency and quality of product, price and location of restaurants. In
marketing franchises, the Company competes with numerous other family steakhouse
and restaurant franchisors, many of which have substantially greater financial
resources and higher sales volume than the Company.
In its production of retail and institutional ham products, the Company
faces strong price competition from a variety of large meat processing concerns
and smaller local and regional operations. The Company does not believe that
any one company is dominant in the sale of ham products. The principal methods
of competition in the sale of ham products are price, quality, and name
recognition. In sales of biscuit and yeast roll products, the Company competes
with a number of large bakeries in various parts of the country, as well as
national frozen meal manufacturers, with competition strongest for sales to
institutional food vendors. The principal methods of competition for the sale
of bakery products are price and quality.
TRADEMARKS.
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The Company has registered the Western Steer logotype and the names
"Western Steer", "Western Steer Family Restaurant", "Western Steer Steaks,
Buffet & Bakery", "Prime Sirloin - Buffet, Bakery & Steaks", the "Prime Sirloin"
logotype and the "Mom 'n' Pop's" logotype and variations thereof, as well as
several distinct Western Steer menu items, as trademarks and service marks with
the United States Patent and Trademark Office. The Company actively uses these
trademarks to identify its restaurants and products and believes they are
important to its business. Generally, trademarks remain valid as long as they
are used properly for identification purposes.
REGULATION.
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The Company is subject to Federal Trade Commission regulations relating to
disclosure requirements in the sale of franchises. Many states also have laws
regulating franchise operations, including registration and disclosure
requirements in the offer and sale of franchises and the application of
statutory standards regulating franchise relationships. The Company believes it
is operating in substantial compliance with applicable laws and regulations
governing its operations.
The conduct of the Company's businesses is subject to various other federal
and state laws, including the Food, Drug and Cosmetic Act and the Occupational
Safety and Health Act. The Company is also subject to the Fair Labor Standards
Act, which governs such matters as minimum wages, overtime and other working
conditions. A significant portion of the Company's food service personnel are
paid at rates related to the Federal minimum wage, and, accordingly, future
increases in the minimum wage will increase the Company's labor cost.
The Company believes itself to be in material compliance with federal,
state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment, and
feels that such compliance should not have a material effect on the Company's
capital expenditures, earnings and competitive position.
EXECUTIVE OFFICERS OF THE REGISTRANT.
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Officers are elected annually by the Company's Board of Directors and serve
indefinitely at the pleasure of the Board. The following table sets forth
certain information with respect to the executive officers of the Company at May
10, 1996:
Executive
Officer
Name Position Age Since
- ----- ----------- ----- ---------
James C. Richardson, Jr. President & Chief Executive Officer 47 1988
Richard F. Howard Chairman of the Board, & Secretary 46 1988
Bobby G. Holman Treasurer, Chief Financial Officer 60 1994
& Assistant Secretary
James M. Templeton Senior Vice President, Real Estate 59 1988
and Franchising, & Assistant Secretary
Ronnie L. Digh Vice President, Bakery Operations 52 1981
Gregory A. Edgell Vice President, Strategic Planning 49 1994
Larry D. Hefner Vice President, Procurement 46 1991
Matthew V. Hollifield Vice President of Accounting, 29 1995
Chief Accounting Officer &
Assistant Secretary
Fred H. Keller Vice President, Ham Curing Operations 68 1981
Ken L. Moser Vice President, Franchising 52 1984
Dwight A. Sherrill Vice President, Real Estate 47 1994
James W. Berry Controller and Assistant Treasurer 53 1981
Mr. Holman was an assistant vice president with Aetna Life and Casualty
Insurance Company in Hartford, Connecticut, and managing director of the food
industry segment of Aetna's Bond Investment Department since 1985, prior to
assuming the position of Chief Financial Officer, Treasurer and Assistant
Secretary of the Company.
Mr. Hollifield was an audit manager with the accounting firm of Deloitte &
Touche LLP prior to assuming the position of Vice President of Accounting, Chief
Accounting Officer and Assistant Secretary of the Company, and had been employed
by that firm since 1988.
Mr. Hefner was president of The Wes-Mar Group, Inc., a South Carolina food
supplier, prior to joining the Company in 1991. He had served Wes-Mar as its
president since 1986. The Wes-Mar Group, Inc. filed for bankruptcy protection
in 1991.
Mr. Edgell, a member of the HERTH Management, Inc. group, was an executive
officer and majority shareholder of the Wes-Mar Group, Inc. from 1988 until its
bankruptcy in 1991. He has since been employed as an accountant with Abernathy
& Co., a Columbia, South Carolina, accounting firm.
Mr. Sherrill has been engaged in the real estate and construction business
with Sigmon Construction Company since 1984. Both Mr. Edgell and Mr. Sherrill
will serve the Company through its Management Services Agreement with HERTH
Management, Inc. and will maintain their current employment in addition to the
services they render to the Company.
All other officers have been employed by the Company in their respective
positions or similar positions for more than five years.
ITEM 2. PROPERTIES.
The Company owns its principal office, warehouse, ham-curing and bakery
facilities, which are located on a 62 acre tract in Claremont, North Carolina.
The executive offices of the Company are located in a 23,000 square foot
building. The principal ham curing plant is contained in a modern 55,000 square
foot building. The Company's bakery operations occupies buildings totaling
137,460 square feet, including 18,941 square feet of freezer and cooler space.
The Company also owns various parcels of undeveloped property in North
Carolina for future development or sale, and two vacant restaurant buildings in
Florida and Georgia. In addition, the Company owns eight properties which were
previously operated as restaurants and are now leased to others in North
Carolina (3), South Carolina (1), Florida (2) and Tennessee (2).
Of the 20 restaurants owned by the Company and its wholly owned
subsidiaries as of February 23, 1996, 12 are located on property owned by the
Company or its subsidiaries in North Carolina(8), Florida(2) and Maryland(2).
Other restaurants operated by the Company or its subsidiaries are held under
long-term leases.
Substantially all of the Company's restaurant properties, as well as the
Company's corporate headquarters, ham curing facility and bakery facility are
pledged as collateral under long-term debt obligations. Information as to the
Company's long-term debt is contained on page 16 of the Company's Annual
Report to Shareholders for the fiscal year ended February 23, 1996, under the
caption "Long-Term Debt," and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
WSMP, Inc. and its subsidiaries are involved in various claims and legal
proceedings in the ordinary course of their business, the resolution of which
management believes will not have a material effect on the Company's business or
financial condition. The Company intends to prosecute or defend vigorously, as
the case may be, all such matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
Information on the market for the Company's common stock, the range of
market prices for and the dividends declared on common stock for each of the
last two fiscal years, and the number of record holders of common stock are
contained under the caption "Market Information" on page 28 of the Company's
Annual Report to Shareholders for the fiscal year ended February 23,1996,
and is incorporated herein by reference.
Information on restrictions that currently limit the Company's ability to
pay cash dividends is contained on page 16 of the Company's Annual Report to
Shareholders for the fiscal year ended February 23, 1996, under the caption
"Long-Term Debt", and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the five fiscal years in the period
ended February 23, 1996, is contained under the caption "Selected Financial
Data" on page 27 of the Company's Annual Report to Shareholders for the
fiscal year ended February 23, 1996, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company's discussion and analysis of financial condition and the
results of operations appears under the caption "Management's Discussion", on
pages 4 through 7 of the Company's Annual Report to Shareholders for the
fiscal year ended February 23, 1996, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to the financial statements and supplementary data contained in
the Company's Annual Report to Shareholders for the fiscal year ended February
23, 1996, which is incorporated herein by reference is contained on page F-1 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The name, age and background information for each of the Company's
directors is contained under the caption "Election of Directors" in the
Company's Proxy Statement for its 1996 Annual Meeting of Shareholders and is
incorporated herein by reference.
The name, age and background information for each of the Company's
executive officers is contained under the caption "Executive Officers of the
Registrant" in Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information on remuneration of the Company's officers and directors is
contained in the Company's Proxy Statement for its 1996 Annual Meeting of
Shareholders under the caption "Election of Directors" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information on security ownership of certain beneficial owners and
management is contained in the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders under the caption "Principal Shareholders and Management
Ownership" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information on certain relationships and related transactions involving the
Company and its management is contained in the Company's Proxy Statement for its
1996 Annual Meeting of Shareholders under the caption "Certain Transactions",
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
See Index to Financial Information
2. FINANCIAL STATEMENT SCHEDULES
See Index to Financial Information
3. EXHIBITS
See Index to Exhibits
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed with the
Securities and Exchange Commission during the quarter ended February
23, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, WSMP, Inc. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated May 22, 1996
WSMP, INC.
By: James C. Richardson, Jr.
--------------------------
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of WSMP, Inc., and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
Richard F. Howard
- ------------------------- Chairman of the Board, May 22, 1996
(Richard F. Howard) Secretary
James C. Richardson, Jr.
- ------------------------- President and Director May 22, 1996
(James C. Richardson, Jr.) (Principal Executive Officer)
Bobby G. Holman
- ------------------------- Treasurer and Director May 22, 1996
(Bobby G. Holman) (Principal Financial Officer)
Matthew V. Hollifield
- ------------------------- Vice President, Accounting May 22, 1996
(Matthew V. Hollifield) (Principal Accounting Officer)
James M. Templeton
- ------------------------- Vice President, Real Estate, May 22, 1996
(James M. Templeton) and Director
Lewis C. Lanier
- ------------------------- Director May 22, 1996
(Lewis C. Lanier)
William R. McDonald, III
- ------------------------- Director May 22, 1996
(William R. McDonald, III)
Richard F. Hendrickson
- ------------------------- Director May 22, 1996
(Richard F. Hendrickson)
E. Edwin Bradford
- ------------------------- Director May 22, 1996
(E. Edwin Bradford)
WSMP, INC.
AND SUBSIDIARIES
-----------------------------------
FINANCIAL INFORMATION FOR INCLUSION
IN ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED FEBRUARY 23, 1996
WSMP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
ITEM 14 (A) (1) - (2)
REFERENCE
---------------
ANNUAL REPORT
TO SHAREHOLDERS
---------------
DATA INCORPORATED BY REFERENCE FROM
ATTACHED ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED FEBRUARY 23, 1996
Consolidated balance sheets at February
23, 1996 and February 24, 1995 ............ 8
Consolidated statements of operations for
the fiscal years ended February 23,
1996, February 24, 1995, and
February 25, 1994.......................... 9
Consolidated statements of shareholders'
equity for the fiscal years ended February
23, 1996, February 24, 1995, and February
25, 1994................................... 10
Consolidated statements of cash flows
for the fiscal years ended February 23,
1996, February 24, 1995, and February
25, 1994................................... 11
Notes to consolidated financial
statements................................. 12-24
Independent auditors' report................. 25
All financial statement schedules have been omitted because of the absence
of conditions under which they are required or because the required information
is included in the above-listed financial statements or the notes thereto.
The consolidated financial statements listed in the above index which are
included in the Annual Report to Shareholders for the fiscal year ended February
23, 1996, are hereby incorporated by reference. With the exception of the pages
listed in the above index and the items incorporated by reference in Items 1, 2,
5, 6 and 7 in this Report, the Annual Report to Shareholders for the fiscal year
ended February 23, 1996, is not to be deemed filed as part of this Report.
WSMP, INC.
AND SUBSIDIARIES
----------------------------------
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT
ON FORM 10-K
FISCAL YEAR ENDED FEBRUARY 23, 1996
EXHIBITS
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED FEBRUARY 23, 1996 INDEX TO EXHIBITS
ITEM 14 (a) (3)
Sequential
Exhibit Page Number
- ------- -----------
3(a) Restated Charter of the Registrant, dated October
19, 1988, which is incorporated herein by reference
to Exhibit 3(a) to the Registrant's Annual Report
on Form 10-K for the year ended February 24, 1989. *
3(b) Statement of Change of Registered Office and Registered *
Agent dated January 6, 1995 and filed with the Secretary
of State of the State of North Carolina on February 14, 1995.
3(c) By-Laws of the Registrant as amended to September *
1990, which are incorporated herein by reference to
Exhibit 3(b) to the Registrant's Annual Report on
Form 10-K for the year ended February 22, 1991.
4(a) Note Agreement for Registrant's $20,000,000 9.17% *
Senior Notes due 2002, incorporated by reference
to Exhibit 4 to the Registrant's Annual Report on
Form 10-K for the year ended February 27, 1989.
Amendment No. 1 to Note Agreement dated February 12,
1992, incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended February 28, 1992.
4(b) Amendment No. 2 to Note Agreement dated February 12, 1992. Included
10(a) Management Services Agreement dated March 31, 1996, between Included
the Registrant and RSH Management, Inc.
10(b) Registrant's Special Stock Option Plan, dated January *
26, 1988, which is incorporated herein by reference
to Exhibit 10(g) to the Registrant's Annual Report
on Form 10-K for the year ended February 26, 1988.
Amendment to Special Stock Option Plan, dated March 9,
1989, which is incorporated herein by reference to
Exhibit 10 (e) (2) to the Registrant's Annual Report
on Form 10-K for the year ended February 24, 1989.
11 Computation of per share earnings. Included
13 WSMP, Inc.'s Annual Report to Shareholders for the year ended
February 23, 1996. Included
21 Subsidiaries of WSMP, Inc. Included
23 Consent of Independent Auditors Included
27 Financial Data Schedule Included
- ---------------------------------------
* Incorporated by reference.
The Registrant hereby agrees to provide to the Commission upon request
copies of long-term debt instruments omitted pursuant to Item 601 (b) (4) (iii)
(A) of Regulation S-K.
EXHIBIT 4(b)
WSMP, INC.
P.O. Box 399
WSMP Drive
Claremont, North Carolina 28610
AMENDMENT NO. 2 TO NOTE AGREEMENTS
10% Senior Notes due October 1, 1997
(Amended--Previously due October 1, 1996)
November 3, 1995
Aetna Life Insurance Company
151 Farmington Avenue
Hartford, Connecticut 06156-9344
Phoenix Home Life Mutual Insurance Company
One American Row
P.O. Box 5056
Hartford, Connecticut 06115-5056
Dear Noteholders:
WSMP, Inc. (formerly Western Steer-Mom `n' Pop's, Inc.), a North Carolina
corporation (the "Company"), has requested that each of you amend certain
provisions of the Note Agreements dated as of April 2, 1987, as amended by
Amendment No. 1 to Note Agreements dated as of February 12, 1992 between the
Company and each of you (as so amended, the "Note Agreements"), pursuant to
which each of you purchased a portion of the $20,000,000 initial aggregate
principal amount of the Company's 9.17% Senior Notes due October 1, 1996 (the
"Notes"), and to extend the maturity of the Notes. The Company understands
that, subject to certain conditions, you are willing to amend the Note
Agreements and to extend the maturity of the Notes. Now, therefore, the Com-
pany agrees with each of you as follows:
SECTION 1. DEFINITIONS
1.1. Capitalized terms defined in the Note Agreements, as defined herein
and used herein, have the same meanings herein as in the Note Agreements unless
otherwise defined herein.
1.2. As used in this Amendment, the following terms have the respective
meanings set forth below or in the Section indicated:
Amendment--this Amendment No. 2 to the Note Agreements dated as of
November 3, 1995 between the Company and each of you.
Amendment No. 1--Amendment No. 1 to the Note Agreements dated as of
February 12, 1992 between the Company and each
of you.
Amendment Effective Date--Section 2.
SECTION 2. EFFECTIVENESS OF AMENDMENTS, ETC.
The effectiveness of the amendments provided for in Section 3 of this
Amendment is subject to the satisfaction, on or prior to January 15, 1996 (the
"Amendment Closing Date"), of all of the conditions precedent listed in
Attachment C. On or before the Amendment Closing Date, the Company will
deliver to each of you, upon surrender of the Notes then held by you, amended
Notes in the form of Attachment B to this Amendment and in the respective out-
standing principal amounts of the Notes surrendered by you, as reflected on
Attachment A. The amended Notes will be dated the date to which interest has
been paid on the surrendered Notes. The surrender of Notes and delivery of
amended Notes shall occur at a closing to be completed by mail or courier
service on or before January 15, 1996. Should the conditions listed on
Attachment C not be completed by that date, they may be completed within a
reasonable time thereafter, provided they are being diligently prosecuted to
completion. This Amendment shall be effective as of November 3, 1995.
SECTION 3. AMENDMENTS
3.1. All references in the Note Agreements to the maturity date of the
Notes shall be deemed to refer to October 1, 1997.
3.2. The second sentence of Section 1.1 of the Note Agreements shall be
amended and restated to read as follows:
"Each Note will bear interest on the unpaid principal balance
thereof from the date of such Note at the rate of 10.0% per annum,
payable semi-annually on the first day of April and the first day of
October in each year, commencing on October 1, 1987, until the
principal amount thereof shall be due and payable; provided that
commencing as of November 1, 1991 such interest shall be payable
monthly on the first day of each month; provided that the annual
interest rate shall be subject to adjustment in accordance with
Sections 1.7 and 1.8. Any prepayment of the Notes after November 3,
1995 shall be without penalty."
3.3. The last sentence of Section 1.1 of the Note Agreements shall be
amended and restated to read as follows:
"The Notes will be in the form of the Notes set out in Attachment B (the
"Registered Notes"), as such Attachment is amended by this Amendment."
3.4. Attachment B to the Note Agreement (the form of Registered Note)
shall be amended and restated to read as set out in Attachment B to this
Amendment.
3.5. Section 1.6 of the Note Agreements shall be amended and restated to
read as follows:
"1.6 Security for the Notes.
The Notes are to be secured pursuant to the mortgages and deeds of trust
described on Schedule 1 attached hereto (collectively referred to as the
"Deed of Trust"). The Deed of Trust will be in substantially the form of
Attachment E to this Amendment."
Section 1 of the Note Agreement shall be further amended by adding the
following new Section 1.8:
"1.8 Subsequent Interest Rate Adjustments.
Beginning on October 1, 1996 the interest rate under the Notes shall be
increased to the greater of (a) a rate of 15% per annum, or (b) 950 basis
points above the one-year treasury then in effect. Thereafter: (1) on
January 1, 1997, the interest rate shall be increased to the greater of
(a) a rate of 15.25% per annum or (b) 975 basis points above the one-year
treasury rate then in effect; (2) on April 1, 1997, the interest rate
shall be increased to the greater of (a) a rate of 15.50% per annum or
(b) 1,000 basis points above the one-year treasury rate then in effect;
and (3) on July 1, 1997, the interest rate shall be increased to the
greater of (a) a rate of 15.75% per annum, or (b) 1,025 basis points above
the one-year treasury rate then in effect.
3.6. Section 2.1(a) of the Note Agreements shall be amended and restated
to read as follows:
"2.1. Required Payments.
(a) In addition to paying the entire then outstanding principal
amount and any accumulated interest on the Notes on October 1, 1997, the
maturity date thereof, the Company will pay, and there shall become due
and payable (1) on October 1 and April 1 in each year, beginning on
October 1, 1991 and ending on April 1, 1997, inclusive, $769,230.27
principal amount of the Notes and (2) on October 1 in each year, beginning
on October 1, 1992 and ending on October 1, 1996, a principal amount of
the Notes equal to 50% of the Excess Cash Flow Amount for the immediately
preceding fiscal year; provided that no payment on account of Excess Cash
Flow shall be required in any year if the Excess Cash Flow Amount for the
immediately preceding fiscal year is less than $10,000. Each such payment
shall be at 100% of the principal amount prepaid, together with interest
accrued thereon to the date of prepayment."
3.7. Section 2.1(c) of the Note Agreements shall be amended and restated
to read as follows:
"The parties hereto acknowledge that the Company proposes to
sell approximately $2,900,000 of Property, which Propery is set
forth on Schedule 2 attached hereto. The full amount of the
proceeds of such sales (except for the proceeds of the sale of
the Morristown, TN Property) shall be applied in accordance with
Section 1.1 of the Note Agreements. Such proceeds are to be
allocated in inverse order of maturity, except that $769,230.27
of such proceeds may be applied to the payment of principal due
April 1, 1996."
3.8. Section 4.7 of the Note Agreement shall be amended by adding the
following subsections (ix) and (x):
"(ix) Liens resulting from the Company's pledge of the
Morristown, TN, the Waldorf, MD and the California, MD Properties to
Nations Bank.
(x) Liens resulting from the Company's pledge of the Conover,
NC Property to Peoples Bank."
3.9. Section 4.10 of the Note Agreements shall be amended by replacing
"125%" with "100%".
3.10. Section 4 of the Note Agreements shall be further amended by
adding the following Sections 4.20, 4.21 and 4.22.
" 4.20 Payments under the Nations Bank Debt.
The Company shall not make any payments of principal under the
Nations Bank Debt prior to October 1, 1997, other than with
proceeds of the sale of the Morristown, TN, Waldorf, MD, or
California, MD Properties. The Company hereby represents that the
total book value of the Morristown, TN Property, the Waldorf, MD
Property and the California, MD Property is less than $2,000,000 and
that their total fair market value is less than $1,700,000.
4.21 Sale of Properties and Refinancing.
The Company shall use its best efforts to consummate the sale of
$2,500,000 of Property by June 1, 1996. It further agrees to use its
best efforts to refinance its obligations under the Note Agreements
and this Amendment by August 15, 1996. Should the Company fail to
conclude such a refinancing, the Company agrees to deliver to the
Noteholders on or before October 1, 1996 at its own expense, an
appraisal of all of its Property by an appraiser satisfactory to the
Noteholders in form and substance satisfactory to the Noteholders."
4.22 Extension of Maturity of Nations Bank Debt.
The Company agrees that it shall extend the maturity of the Nations
Bank Debt to July 25, 1996.
3.11. Section 5 of the Note Agreements shall be amended by deleting
Section 5.1(i) and by adding the following Sections 5.1(i), 5.1(j) and 5.1(k).
"(i) Event of Default under Deed of Trust -- An event of default
as defined in any of the Deeds of Trust shall occur."
"(j) Failure to Extend Nations Bank Debt. -- (i) The Company fails
to extend the maturity of Nations Bank Debt to July 25, 1997 on or
before June 1, 1996; or (ii) the Company fails to extend the Nations
Bank Debt to October 1, 1997 on or before June 1, 1997;
(k) Payment of Principal of Nations Bank Debt -- The Company makes
any payment of principal under the Nations Bank Debt prior to October
1, 1997, other than payments made with the proceeds of the sale of
the Morristown, TN, Waldorf, MD, or California, MD Properties."
3.12. Section 6.1 of the Note Agreements shall be amended by inserting
the following definitions in alphabetical order in such Section:
"California, MD Property -- the property described on Schedule A
attached hereto."
"Conover, NC Property -- the property described on Schedule A
attached hereto."
"Morristown, TN Property -- the property described on Schedule A
attached hereto. "
"Nations Bank Debt -- The obligations of the Company under the
Agreement dated as of October 30, 1995 between the Company and
Nations Bank and any related agreements."
"Waldorf, MD Property -- the property described on Schedule A
attached hereto."
SECTION 4. MISCELLANEOUS
4.1. Except as specifically set forth in this Amendment or any other
documents satisfying the requirements of Section 8.5(a) of the Note Agreements,
the Note Agreements shall remain in full force and effect and no rights of the
holders of the Notes thereunder shall be amended, modified or waived.
4.2. Two or more duplicate originals of this Amendment may be signed by
the parties, each of which shall be an original but all of which together
shall constitute one and the same instrument.
4.3. Whether or not the amendments provided for in Section 3 of this
Amendment become effective, the Company will pay all reasonable expenses
relating to this Amendment and your consents, including the reasonable fees and
disbursements of your special counsel and local counsel, recording and filing
fees, the cost of title insurance, and your other costs, including travel
expenses, incurred by you with respect to this Amendment and all costs you
incur in exercising your rights under the Note Agreements, as amended, or the
Deed of Trust.
If this Amendment is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart hereof and return a counter-
part to the Company, whereupon this Amendment will become binding between
us in accordance with its terms.
[SIGNATURE PAGES TO FOLLOW]
In witness whereof, the parties to this Amendment have set their hands and
seals, the day and year first above written.
Very truly yours,
[SEAL] WSMP, INC.
By: Bobby G. Holman
---------------------------
Name: Bobby G. Holman
Title: CFO & Treasurer
Accepted:
AETNA LIFE INSURANCE COMPANY [SEAL]
By: Peter C. Nilsen
--------------------------
Name: Peter C. Nilsen
Title: Investment Manager
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY [SEAL]
By: Laurence P. Fleming
-----------------------------
Name: Laurence P. Fleming
Title: Vice President
EXHIBIT 10(a)
NORTH CAROLINA
CATAWBA COUNTY
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT, made and entered into this the 23rd day of June, 1995, by
and between HERTH MANAGEMENT, INC., a North Carolina corporation, hereinafter
referred to as "HERTH", and WSMP, INC., a North Carolina corporation,
hereinafter referred to as "WSMP";
W I T N E S S E T H :
WHEREAS, HERTH provides management services to WSMP pursuant to a
Management Service Agreement dated March 31, 1993, which expires by its own
terms on March 31, 1996; and
WHEREAS, the parties are desirous of continuing the services provided by
HERTH for an additional three years, upon the terms and conditions of the
agreement of March 31, 1993, and restating the Agreement of the parties; and
WHEREAS, the terms of this Agreement have been considered and approved by
the Boards of Directors of the parties;
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
contained herein, the parties hereto are agreed as follows:
1. MANAGEMENT SERVICES. WSMP does hereby retain HERTH to provide
executive management services to WSMP through the employees and agents of
HERTH. The nature and extent of services to be provided may vary from time to
time as agreed upon by the parties, but shall address the following areas of
corporate management:
(a) Those services normally provided by the executive officers of
corporations of similar size and diversity, including those services
normally provided by a chief executive officer.
(b) Management and overseeing of the accounting and financial
functions of WSMP, including those services normally provided by the
chief financial officer.
(c) Management of advertising and promotions for each business
segment.
(d) Sales of WSMP's Western Steer, Prime Sirloin and Bennett's
Bar-B-Que franchises.
(e) Overseeing all divisions, review of contracts, purchasing and
troubleshooting.
(f) Supervision of administration.
(g) Liaison services for external financing, including relationships
with lenders and potential lenders to WSMP.
(h) Strategic planning.
(j) Overseeing of relationships with franchisees of WSMP, and
supervision of management of franchises, cost controls and related
services.
(k) Those services normally provided by a chief operating officer as
to each of WSMP's operating divisions.
These services will include any services rendered by Richard F. Howard,
James C. Richardson, Jr. and James M. Templeton. The parties agree that HERTH
will retain a real estate officer and a strategic planning officer, as soon as
is reasonably possible, to fulfill these functions for WSMP. The parties may
add or remove, or substitute personnel from time to time as they may agree.
2. TERM. This Agreement shall begin as of April 1, 1996, and shall
terminate on March 31, 1999.
3. COMPENSATION. As compensation for the services rendered hereunder,
WSMP shall pay HERTH the sum of One Million Five Hundred Thousand Dollars
($1,500,000.00) per annum, payable in four (4) equal installments of Three
Hundred Seventy-Five Thousand Dollars ($375,000.00), payable at the beginning
of each of WSMP's accounting quarters.
4. STATUS OF HERTH OPERATIONS. HERTH services shall be rendered through
HERTH employees or independent contractors, who shall remain exclusively the
employees or agents of HERTH, and who shall not be regarded as employees of
WSMP.
5. EXTENT AND PLACE OF SERVICES. HERTH shall assume and perform such
further reasonable responsibilities and duties as may be requested from time to
time by WSMP. WSMP acknowledges that certain employees and agents of HERTH are
directors of WSMP or employees and directors of other related entities and
agrees that such persons may continue to devote their services to the affairs
of such other entities, on condition, however, that those services will not
interfere with the services to be performed pursuant to this Agreement. No
HERTH employee shall receive any additional compensation for service as a
member of WSMP's Board of Directors.
6. TRADE SECRETS. During the terms of this agreement, HERTH shall have
access to all facilities and records of WSMP, and, through its employees and
agents, may acquire information which is privileged to or a trade secret of
WSMP. HERTH agrees not to disclose such information in a manner which would be
harmful to or diminish the competitive stance of WSMP, and shall bind its
agents and employees to the same effect.
7. FACILITIES. HERTH, its agents and employees, shall be furnished by
WSMP with such offices, equipment, and services as may be necessary, and such
other facilities and services adequate for the performance of the services
enumerated hereunder. Those persons appointed by HERTH to perform services
under this agreement shall be granted sufficient authority as may be reasonably
necessary to carry out the duties of HERTH hereunder.
8. TERMINATION. This agreement may be terminated by either party upon a
substantial breach of the terms hereof by the other party; provided however
that the party in breach shall be given thirty (30) days written notice of the
breach, with the opportunity to cure the breach; and provided further, that
should the breach not be reasonably curable within thirty (30) days, that he
party in breach have made substantial effort to reasonably cure the breach.
Should either party terminate this agreement except in accordance with the
foregoing, then any money damages recoverable by either party for such
termination shall be limited to any sum paid or earned hereunder, respectively,
to date during the term of this agreement.
9. NOTICES. Any notice required or permitted to be given under this
agreement shall be sufficient if in writing and if sent by registered mail,
with return receipt requested to the address of the parties as follows:
WSMP, Inc.
Post Office Box 399
Claremont, North Carolina 28610
HERTH Management, Inc.
Post Office Box 399
Claremont, North Carolina 28610
Either party may, upon written notice to the other party specify a
different address for the giving of notice during or after the term hereof.
10. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
11. ENTIRE AGREEMENT. The instrument contains the entire agreement of
the parties. It may not be changed orally, but only by agreements in writing
signed by the party against whom enforcement of any waiver, change, modifica-
tion, extension or discharge is sought.
12. BINDING EFFECT. This agreement shall be binding upon the parties
hereto, their successors and assigns.
13. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the law of the State of North Carolina.
14. SEVERABILITY. If any provision herein shall be declared invalid or
unenforceable, the remainder of this agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above indicated.
HERTH MANAGEMENT, INC.
James C. Richardson, Jr.
---------------------------------
By: James C. Richardson, Jr.(SEAL)
President
ATTEST:
Richard F. Howard
- ---------------------
Richard F. Howard
Secretary
(corporate seal)
WSMP, INC.
Bobby G. Holman
---------------------------------
By: Bobby G. Holman(SEAL)
Vice President
ATTEST:
Matthew V. Hollifield
- ----------------------
Matthew V. Hollifield
Asst. Secretary
(corporate seal)
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Amy M. Howard, a Notary Public for said County and State, do hereby
certify that Richard F. Howard personally appeared before me this day and
acknowledged that he is Secretary of HERTH Management, Inc., a North Carolina
corporation, and that by authority duly given and as the act of the corpora-
tion,the foregoing instrument was signed in its name by James C. Richardson,
Jr.,its President, sealed with its corporate seal and attested by him as its
Asst.Secretary.
Witness my hand seal, this the 2nd day of April, 1996.
Amy M. Howard
--------------------
Amy M. Howard
Notary Public
My Commission Expires: July 28, 1997.
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Amy M. Howard, a Notary Public for said County and State, do hereby
certify that Matthew V. Hollifield personally appeared before me this day and
acknowledged that he is Asst. Secretary of WSMP, Inc., a North Carolina
corporation, and that by authority duly given and as the act of the corpora-
tion, the foregoing instrument was signed in its name by Bobby G. Holman, its
Vice President, sealed with its corporate seal and attested by him as its Asst.
Secretary.
Witness my hand seal, this the 2nd day of April, 1996.
Amy M. Howard
---------------------
Amy M. Howard
Notary Public
My Commission Expires: July 28, 1997.
EXHIBIT 11
<TABLE>
WSMP, INC.
AND SUBSIDIARIES
<CAPTION>
Computation of Per Share Earnings (Loss)
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss) per share computation:
Net earnings (loss) $ (1,494,989) $ 1,096,670 $(785,000) $ 670,000 $ 630,000
============= =========== ========== ========== ==========
Actual outstanding shares beginning of year 2,660,338 2,666,588 2,494,844 2,428,358 2,540,415
Add (deduct) weighted average shares applicable to:
Common stock options outstanding 214,219 452,466 130,970
Treasury stock acquisitions (1,786) (5,803) (6,417) (22,049)
Common stock issued 57,364 693
Common stock options exercised 69,179 77,610
------------- ----------- ----------- ---------- -----------
Weighted average shares, as adjusted 2,729,517 2,879,021 2,624,015 2,875,100 2,649,336
============= =========== =========== ========== ===========
Earnings (loss) per common and common
equivalent share $ (.55) $ .38 $ (.30) $ .23 $ .24
============= =========== =========== ========== ===========
</TABLE>
WSMP, INC.
1996
Annual Report
A Food Service Company
PROFILE
WSMP, Inc., is a North Carolina-based food manufacturing and restaurant
company. Since the mid-1960's, it has grown from humble origins in the
foothills of the Blue Ridge Mountains to become nationally recognized in the
food service industry with nearly $80 million in annual revenues. The Company
is comprised of two separate food manufacturing divisions and a division that
develops, owns, operates and franchises restaurants.
The Bakery Division is the larger of WSMP's food manufacturing operations
and includes the largest single-site microwaveable sandwich manufacturing
facility in the United States. The facility in Claremont, N.C., has the
capacity to produce more than four million sandwiches per week. In addition to
manufacturing a wide variety of sandwich, including meat-filled biscuits, under
private and company labels, the division also produces buttermilk biscuits,
yeast rolls and other items for institutional and retail sales.
The Ham Curing Division is one of the largest country ham producers in the
United States, with a capacity to cure more than 500,000 hams annually. This
division traces its roots to the earliest days of WSMP and in the last two
decades its products have regularly won top national and regional prizes as
being among the best in the nation. Its products are sold under the Mom `n'
Pop's(R) brand label to both institutional and retail markets, and are provided
whole and in packages of slices for both retail and restaurant usage and in
closely controlled sliced portions for the restaurant and fast-food industry.
Restaurant operations comprise 20 Company-owned and 73 franchised units,
primarily in the Southeast. A majority of these restaurants are Western
Steer(R) units, including the traditional Western Steer Family Restaurant and
new or remodeled Western Steer Steak, Buffet and Bakery restaurants. Prime
Sirloin(R) and Bennett'sTM are the other two main segments of the restaurant
division. Mega-sized Prime Sirloin Buffet, Bakery and Steak restaurants are
being built to directly compete with recognized leaders in the economy steak
and buffet restaurant segment. Bennett's Smokehouse and Saloon restaurants are
a result of a partnership between WSMP and Bennett's Bar-B-Que, Inc., of
Denver, CO, and is a Texax-style roadhouse themed restaurant which represents
the Company's entry into the casual dining market.
CONTENTS
- -----------
ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 23, 1996
Profile Inside Front Cover
Financial Highlights 1
Letter To Shareholders 2
Management's Discussion 4
Consolidated Financial Statements 8
Report of Management 25
Independent Auditor's Report 25
Unaudited Quarterly Financial Data 26
Selected Financial Data 27
Officers And Directors 28
Market Information 28
General Information 28
FINANCIAL HIGHLIGHTS
- --------------------
Fiscal Years ended February 23, 1996, and February 24, 1995
(in thousands, except per share amounts)
Percent
1996 1995 Change
---------- -------- ---------
Operating Revenues $ 79,439 $94,100 (15.6)
Operating Income (Loss) $ (703) $ 2,245 *
Net Income (Loss) $ (1,495) $ 1,097 *
Net Income (Loss) Per Share $ (0.55) $ 0.38 *
Weighted Average Shares Outstanding 2,730 2,879 (5.2)
Total Assets $ 41,634 $46,721 (10.9)
Long-Term Debt $ 14,921 $18,473 (19.2)
Shareholder's Equity $ 16,444 $17,638 (6.8)
Company common stock is traded on the national over-the-counter market under
the NASDAQ symbol, "WSMP."
* Not meaningful
SOURCES OF REVENUE
- -------------------
The chart below indicates your Company's sources of revenue for the last fiscal
year: the Bakery Division accounted for 48.57% of revenue; the Ham Curing
Division, 15.46%; Restaurant Operations, 32.37%; and Restaurant Franchising
3.60%, adding up to 100% of your Company's Fiscal 1996 revenue.
{GRAPH}
LETTER TO SHAREHOLDERS
- ----------------------
TO OUR SHAREHOLDERS AND FRIENDS:
Our financial performance for fiscal 1996 was very disappointing. We
experienced an after-tax loss of $1.5 million and a pretax loss of $2.7
million. The lack of positive financial results can be primarily attributed to
the following specific occurrences that negatively impacted our Bakery Div-
ision, our Ham Curing Division and Restaurant Operations:
----The loss of a significant customer of a co-packer served by the Bakery
Division just before the beginning of fiscal 1996 reduced sales of bakery
products by about $11 million for the year.
----A recall of a Ham Curing Division product and a negative shift in the
product sale mix reduced the operating results of this portion of the Company
to a break-even basis.
----And harsh weather conditions during January and February, 1996, which
negatively impacted customer counts in Company-owned restaurants and reduced
profitability in this segment of our operations.
Now, I would like to provide you with information about what our future
appears to be.
The loss of sales volume in the Bakery Division has now been replace
through strong efforts by our co-pack customer and new business the Company has
developed under the Mom `n' Pop's label. Bakery Division sales for the first
two periods of the new fiscal year have shown a 36% increase compared to the
same periods of fiscal 1996.
We project improved sales trends and profitability from those sales
through the course of this year. It is our goal during the next 18 months to
fill the total capacity of the bakery facilities multi-million dollar expansion
completed two years ago.
This division includes what we believe is the largest single-site sandwich
production plant in the United States. It is now producing about three million
microwaveable sandwiches a week and has the capacity to manufacture an
additional one and a half million sandwiches per week. We fell that our Bakery
Division has the potential for strong growth patterns and an excellent future.
As mentioned earlier, last year the Ham Curing Division experienced a
curing problem that resulted a recall of selected Mom `n' Pop's ham products.
This virtually eliminated the profitability of this segment. The good news is
that WSMP has maintained all of our Mom `n' Pop's country ham customer base.
This is in no small measure due to the fact that we took the initiative to
institute the product recall and issue credits to our customers.
The product recall was the first of its type in the divisions history of
operations and we see no evidence of the same type problem occurring again.
Genetic changes in hogs being raised by pork producers today have resulted in
larger, leaner animals. Thus, the raw hams we purchase are in general larger
and leaner than in the past, requiring longer curing times. We have taken this
into consideration in making changes in ham curing procedures and feel that the
curing problem has been solved.
We appreciate the loyalty our customers have exhibited and their continued
confidence in our country ham products. Because of this support, we anticipate
that this division will operate at capacity during the current year and return
to its historic level of profitability.
Company-owned restaurant revenues decreased primarily due to the closing
of three units and severe winter weather experienced in January and February
throughout the regions served by our restaurants. Additionally, there was
slight same store sales decreases, and management has taken action to reverse
this trend.
As a result, customer counts in all our restaurant concepts have
significantly improved in the first two months of the current year. We have
taken the approach of aggressively using menu items with a strong price point
and high perceived value to stimulate an increase in customer count growth.
This has been combined with a lower per restaurant cost marketing program than
has been used in recent years. This approach has worked thus far in fiscal
1997 in our Prime Sirloin Buffet, Bakery and Steak and our Western Steer
Steaks, Buffet and Bakery restaurants to give us increases in same store
revenues.
We have several new franchised Western Steer and Prime Sirloin restaurant
openings planned for the current year. The most recent WSMP-franchised
restaurant openings are a Prime Sirloin that opened in Greenville, SC, late
in fiscal 1996 and a Western Steer that has opened in Stephen City, VA, since
the beginning of fiscal 1997.
Moderate growth in both concepts is projected . This along with improved
customer counts in existing units, should provide the profitability to help
support an upward earnings trend this year.
We have not been satisfied with average store sales in our Bennett's
Smokehouse & Saloon restaurants. We are now refocusing this concept in an
attempt to attract a broader base and achieve higher customer counts than were
experienced in fiscal 1996. Failure of Bennett's to achieve sales and revenue
projections is a reason that more of our Company's capital and emphasis will be
place on the Western Steer and Prime Sirloin concepts this year. However, we
feel the Bennett's concept can still be viable in today's marketplace and a new
franchised Bennett's is scheduled to open in Beckley, WVA, in the second
quarter of this fiscal year.
WSMP's management is extremely disappointed with the Company's financial
performance in fiscal 1996. We realize our responsibility to maximize its
potential for the future. Our obligation to shareholders, employees and
franchisees includes achieving operating profitability in all segments during
fiscal 1997. We are very optimistic about WSMP's future and its return to
profitability.
As we said last year, the Company's management and board want each of you
to feel comfortable with your investment in our modern food service corpor-
ation. So, if you have question or comments about anything discussed in this
letter or elsewhere in the annual report, please feel free to visit us in
Claremont, NC, or telephone me directly.
Sincerely,
James C. Richardson, Jr.
James C. Richardson, Jr.
President and Chief
Executive Officer
MANAGEMENT'S DISCUSSION
- ------------------------
RESULTS OF OPERATIONS
RESTAURANT REVENUES
Revenues from Company-owned restaurants for fiscal 1996 decreased $3.2
million, or 11.0% in comparison with fiscal 1995. Approximately $1.7 million
of this decrease is the direct result of closing seven restaurant units during
these years, three of which were closed in fiscal 1996. The remaining decrease
reflects a 5.75%, or $1.5 million, decline in same store sales. Approximately
$1.0 million of the decrease in same store sales occurred in the fourth quarter
of fiscal 1996 and is attributed primarily to the severe winter weather
experienced during January and February of 1996. The remaining decrease in
same store sales relates primarily to the Western Steer concept and is
attributed to increased competition in certain markets where these restaurants
are located.
Company-owned restaurant revenues for fiscal 1995 decreased $2.1 million,
or 6.9% in comparison with fiscal 1994. The major factor contributingto this
decrease is the closing of nine restaurants during fiscal 1995 and fiscal 1994.
Offsetting this decrease are revenues received from a unit acquired at the
beginning of fiscal 1995 which totaled $1 million and an increase in same
store sales of $0.9 million, or 3.8%. The increase in same store sales between
fiscal 1995 and fiscal 1994 reflects the positive impact of renovating certain
restaurant properties during these years.
FOOD PROCESSING REVENUES
Revenues from the food processing segment totaled $50.9 million during
fiscal 1996 compared to $62.3 million during fiscal 1995. Approximately $11.0
million of this decrease occurred in the bakery division which had total
revenues of $38.3 million in fiscal 1996. Late in fiscal 1995, the largest
customer of the bakery repositioned itself in certain of its own markets and
discontinued one line of product previously purchased from the Company, which
accounted for approximately $13.5 million of fiscal 1995 sales. At that time,
the customer developed a specific program to help replace this volume. In
addition, during fiscal 1996, the Company focused additional efforts on
increasing sales to existing customers and on obtaining new customers in both
the bakery and ham curing divisions. However, the benefits from these actions
materialized at a slower pace than initially expected, and significant
improvements in sales were not realized until late in the fourth quarter of
fiscal 1996. Management anticipates sales of the food processing segment in
the first quarter of fiscal 1997 to show an increase of approximately 24% over
the same period of fiscal 1996, and management expects continued long-term
growth in the food processing segment.
Fiscal 1995 revenues of the food processing segment totaled $62.3 million
compared to $39.0 million in fiscal 1994. A major reason for the increase in
revenues in fiscal 1995 was a change in contract terms, which occurred in
December of 1993, with the bakery division's largest contract customer. Prior
to this change, the customer provided the meat component and packaging material
used in the production of its meat-filled sandwiches. Sales to this customer
consisted only of the bakery component and cost of production and packing. In
December 1993, the Company entered into a new agreement with this customer
whereby the Company would purchase the meat components and packaging material
from the customer and adjust the sales price accordingly. These amounts are
subsequently reported as sales and cost of goods sold, with no effect on total
gross profit. Purchases by the Company of the meat component and packaging
from this customer during fiscal 1995 and 1994 totaled $23.4 million and $4.8
million, respectively. Had this change not occurred, revenues relating to the
food processing segment during fiscal 1995 would have shown an increase over
fiscal 1994 of only $4.6 million, or 13.5%. Approximately $0.9 million of this
increase is attributable to the ham curing operations which generated total
revenues of $12.8 million during fiscal 1995. The remaining increase
represents growth in the bakery operations during fiscal 1995 and utilization
of the increased capacity in this division.
FRANCHISE, ROYALTY AND OTHER FEES
Franchise, royalty and other fees remained relatively constant at $2.9
million for fiscal 1996 and fiscal 1995. Although thirteen franchised units
closed during these years, the impact has been offset by the opening of nine
higher volume franchise units, primarily under the Bennett's and Prime Sirloin
concepts. Total sales in franchised units have remained relatively constant as
evidenced by only a 0.2% decline in sales in franchised restaurants that were
opened for both fiscal 1996 and 1995.
Franchise, royalty and other fees declined from $3.0 million in fiscal
1994 to $2.9 million in fiscal 1995. This decrease is attributed to a
reduction in the number of operating franchise units during this same period,
offset by a 2.8% increase in sales in franchised restaurants that were opened
for both fiscal 1995 and 1994.
COST AND EXPENSES
COST OF GOODS SOLD
Cost of goods sold as a percentage of food sales increased to 74.1% in
fiscal 1996 from 72.6% in fiscal 1995 due to a decline in margins in both
divisions of the food processing segment. Cost of goods sold in the food
processing segment was 92.4% of that segment's revenues for fiscal 1996,
compared to 88.2% for fiscal 1995. Margins in the bakery division declined
2.5 percentage points between fiscal 1995 and 1996 due to the decline in sales
during fiscal 1996 and the inability to reduce certain fixed costs proportion-
ally. The remaining decline in margins between fiscal 1995 and 1996 occurred
in the ham curing division. A portion of this decline is attributed to a shift
in the product mix during fiscal 1996. Also contributing to this division's
decrease in margins was a $1.0 million increase in sales returns and credits
during fiscal 1996 attributed primarily to an isolated deficiency in the curing
process which resulted in a recall of improperly cured country ham product.
Although the Company was able to mitigate the problem by reprocessing a portion
of the returned hams, the cost of reprocessing as well as the unrecoverable
cost of damaged product disposed of by the Company and its customers impacted
total margins in the ham curing division negatively. Management anticipates
improvement in the margins of the food processing segment in fiscal 1997 as
bakery sales continue to rebuild and as the benefits from efforts to improve
the product mix in the ham curing division materialize. In addition,
management has taken necessary actions to prevent a recurrence of the defi-
ciencies in the ham curing process experienced in fiscal 1996.
Although the food processing segment experienced a decline in margins
during fiscal 1996, cost of goods sold in the restaurant segment, as a
percentage of that segment's revenues, improved to 37.9% in fiscal 1996 from
39.0% in fiscal 1995. Management attributes this positive swing to better
control over costs in fiscal 1996 as well as the closing of several less
profitable restaurant units during these years. This positive swing in the
restaurant segment partially mitigated the decline in food processing margins.
Cost of goods sold as a percentage of food sales was 66.1% in fiscal 1994
compared with 72.6% in fiscal 1995. The majority of this fluctuation is due to
the contract change with the bakery division's largest customer. As discussed
above as it relates to food processing revenues, this change affected revenues
and cost of goods sold, but has no net effect on total gross profit. If the
cost of the meat component and packaging material purchased from this customer
during fiscal 1995 and 1994 were eliminated from food sales and cost of goods
sold, and these years were restated on a consistent basis, cost of goods sold
as a percentage of food sales would be 63.2% in fiscal 1995 and 63.7% in fiscal
1994. The decrease between fiscal 1994 and 1995 can be attributed to higher
raw material costs in the ham-curing division during fiscal 1994, increased
operating costs in the bakery division during fiscal 1994 associated with the
plant expansion, and improvement in margins in the restaurant segment during
fiscal 1995.
OPERATING EXPENSES
As discussed in note 1 to the consolidated financial statements, operating
expenses include indirect costs associated with restaurant product sales and
other revenues, which consist of franchise, royalty and other fees. Total
operating expenses, as a percentage of revenues of the restaurant and
franchising segments, decreased from 45.7% in fiscal 1995 to 44.7% in fiscal
1996. This decrease is primarily the result of additional operating expense
incurred in the franchising segment in fiscal 1995 as part of designing and
opening a new franchised Prime Sirloin prototype designed to capitalized on the
industry's success with larger buffet style formats, as well as higher write-
offs for uncollectible royalties in fiscal 1995. Fiscal 1996 operating expense
for the franchising segment totaled $722,000, or 25.3% of that segment's total
revenues, compared to $1.3 million, or 45.2%, for fiscal 1995. Although total
operating expenses in the restaurant segment decreased from $13.2 million
during fiscal 1995 to $12.1 million during fiscal 1996, these expenses in-
creased as a percentage of restaurant segment revenue from 45.8% in fiscal 1995
to 46.9% in fiscal 1996. Management attributes this increase as a percentage
of revenue to the harsh winter weather during January and February of 1996
which had a significant negative impact on fiscal 1996 sales as already
discussed. Through the third quarter of fiscal 1996, operating expenses as a
percentage of revenues in the restaurant segment were consistent with the
comparable period of fiscal 1995.
Total operating expenses, as a percentage of revenues of the restaurant
and franchising segments, totaled 45.4% in fiscal 1994 compared to 45.7% in
fiscal 1995. The increase in operating expenses in the franchising segment
during fiscal 1995, as discussed above, was offset by reductions in operating
expenses in the restaurant segment. Total operating expenses in the restaurant
segment for fiscal 1995 were $13.2 million, or 45.8% of that segments revenues,
compared to $14.5 million, or 46.7%, in fiscal 1994. This decrease is the
result of closing several less profitable restaurants during this period, as
well as better management of continuing restaurant units.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses have decreased steadily
during the three years presented. The decrease during fiscal 1996 from fiscal
1995 is primarily the result of reductions in corporate overhead totaling
$451,000 as well as reductions in costs relating to the food processing
segment, offset by an increase in advertising and other administrative costs in
the restaurant segment of approximately $218,000. The decrease during fiscal
1995 from 1994 relates mainly to reductions in expenses in the restaurant
segment.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense has declined for the last three
fiscal years from $3.0 million in fiscal 1994, to $2.9 million in fiscal 1995,
to $2.7 million in fiscal 1996. This reduction is primarily attributed to the
closing and selling of restaurant properties that has occurred during these
years.
OTHER
During fiscal 1996, the Company recorded equity in losses of affiliates
totaling $338,000 compared with equity in income totaling $115,000 and $70,000
in fiscal 1995 and 1994, respectively. Approximately $208,000 of the equity
losses recorded in fiscal 1996 is the result of write-downs in assets by
certain subsidiaries to reflect permanent impairments in value. The remaining
decline in profitability relates primarily to operating losses in two uncon-
solidated subsidiaries, formed in fiscal 1995, which have failed to perform as
originally expected.
INFLATION
The effects of inflation on the cost of labor, materials and supplies, and
plant and equipment have resulted in increased costs to the Company during the
past three years. Ongoing programs of cost control and elimination of overhead
expenses have helped to offset much of the impact of inflation. Although the
Company cannot determine the precise effect of inflation on its business, the
restaurant operations are believed to be the most susceptible to the adverse
effects of inflation as compared to other divisions of the Company. This is
due to price discounting which has prevailed in the family and fast food
restaurant segments throughout the nation for the past three years, making it
difficult to cover increased costs by increasing menu prices.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At February 23, 1996 the Company had net working capital of $984,000 which
compares with $904,000 at February 24, 1995 and $(450,000) at February 25,
1994. The working capital of the Company was depleted in fiscal 1994 by the
completion of the major capital expansion of the bakery facility at a total
cost of approximately $8.0 million. Although $4.0 million of the project was
financed by the issuance of Industrial Revenue Bonds, the other half of the
costs were financed by internally generated cash and short-term borrowings
which reduced the net working capital of the Company. During fiscal 1995, the
Company was able to restore approximately $1.35 million of this working
capital, as well as provide for necessary capital expenditures totaling $1.2
million and debt repayments totaling $3.7 million through profitable operations
and the sale of certain under-performing restaurant properties. During fiscal
1996, the Company's working capital position failed to increase significantly
due to a decline in operating profitability.
The current year decline in profitability also impacted the cash flow of
the Company. During fiscal 1996, net cash of $0.2 million was used in
operations compared to $0.8 million and $2.8 million generated in fiscal 1995
and 1994, respectively. The decrease in cash provided by operations between
fiscal 1995 and 1994 is due primarily to the reduction during fiscal 1995 in
accounts payable to certain vendors who provided the Company with extended
credit terms in fiscal 1994 to assist in the cash flow requirements necessary
to bring the bakery project on line.
During fiscal 1996, the Company generated cash flow of approximately $3.2
million from the sale of assets. Approximately $2.1 million resulted from the
sale of under performing restaurant properties. The remaining $1.1 million was
generated through the sale of certain notes receivable as discussed in note 19
to the consolidated financial statements. In addition, the Company generated
$1.0 million through short-term borrowings and $500,000 by substituting a
restaurant property as collateral for a letter of credit previously secured by
cash. Cash generated from these sources in fiscal 1996 helped to fund princi-
pal payments on debt totaling $3.9 million and capital expenditures totaling
$1.6 million.
During fiscal 1995, the Company generated cash of approximately $3.7
million from the sale of assets, and used this amount to help fund repayments
of long-term debt totaling $3.4 million and capital expenditures of approxima-
tely $1.2 million.
During fiscal 1994, the Company generated cash totaling $1.2 million from
the sale of assets, $1.3 million from short-term borrowings, and $600,000 from
issuance of stock. These amounts, combined with cash generated in operations,
were used to fund debt repayments totaling $2.9 million and capital
expenditures, a majority of which relate to the bakery expansion, of $5.1
million.
For fiscal 1997, management feels that a return to profitable operations
and the sales of additional under performing properties will generate cash and
working capital levels sufficient for the needs of the Company. At February
23, 1996, the Company had $1.6 million in real estate held for sale. The real
estate environment in the Southeastern United States has allowed the Company to
dispose of several excess properties during fiscal 1995 and 1996. The Company
views these remaining properties, as well a certain operating but under
performing properties, as a valuable source of future working capital.
The Company was not successful during fiscal 1996 in refinancing amounts
outstanding under its Senior Notes and short-term secured note on an
intermediate to long term basis due to the decline in profitability. However,
during the third quarter of fiscal 1996, the Company was successful in
negotiating an extension of the maturity date of the Senior Notes from October
1, 1996 to October 1, 1997 as discussed in Note 7 to the consolidated condensed
financial statements. This extension of the maturity will give management the
time needed to evaluate several possible refinancing solutions.
The Company believes that revenues from operations, together with available
sources of financing, will be sufficient to provide the necessary long-term
capital resources required to fund the Company's capital requirements for the
coming three years.
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 23, 1996 and February 24, 1995
- ---------------------------------------
ASSETS
- ------
1996 1995
------ -------
Current Assets:
Cash and cash equivalents $ 430,311 $ 940,120
Marketable equity securities
(at fair value; cost of:1996 -
$140,555 and 1995 - $129,129) 148,997 120,564
Accounts receivable and current portion
of notes receivable, net:
Trade and others (notes 2 and 6) 3,981,563 4,809,950
Related party (notes 2 and 19) 1,257,280 1,178,213
Income taxes refundable 369,728 118,137
Inventories (notes 3 and 6) 5,553,641 5,126,335
Prepaid expenses and other 116,400 120,520
Deferred income taxes (note 10) 518,490 259,821
------------ ------------
Total current assets 12,376,410 12,673,660
------------ ------------
Property, Plant and Equipment, net
(notes 4, 6 and 7) 25,288,033 27,157,884
------------ ------------
Other Assets:
Properties held for sale (note 5) 1,569,752 3,322,372
Excess of cost over fair value
of net assets of businesses acquired,
net (note 14) 662,321 696,456
Noncurrent notes receivable (note 2) 204,941 368,181
Noncurrent related party notes
receivable (notes 2 and 19) 515,944 833,110
Investment in affiliates (note 16) 381,533 742,633
Investment in restricted equity
securities (note 16) 242,050
Other (note 17) 393,390 927,105
------------ ------------
Total other assets 3,969,931 6,889,857
------------ ------------
Total assets $ 41,634,374 $ 46,721,401
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
1996 1995
-------- ---------
Current Liabilities:
Notes payable (note 6) $ 4,000,000 $ 3,000,000
Current installments of long-term
debt (note 7) 2,030,953 2,939,844
Trade accounts payable 2,810,229 3,016,776
Income taxes payable 10,651 46,737
Other accrued liabilities (note 9) 2,540,221 2,766,415
------------ ------------
Total current liabilities 11,392,054 11,769,772
Deferred franchise fees 5,000 30,000
Deferred income taxes (note 10) 903,639 1,749,957
Long-term debt, excluding current
installments (note 7) 12,890,060 15,533,554
------------ ------------
Total liabilities 25,190,753 29,083,283
------------ ------------
Commitments and Contingencies (notes 11 and 17)
Shareholders' Equity (notes 7, 13, and 20):
Preferred stock - par value $.10,
authorized 2,500,000 shares; no
shares issued
Common stock - par value $1, authorized
10,000,000 shares; issued: 1996
- 2,760,338 and 1995 - 2,660,338 shares 2,760,338 2,660,338
Capital in excess of par value 6,579,347 6,389,347
Unrealized gain (loss) on securities
available for sale, net of deferred
income taxes of: 1996 - $(3,164)
and 1995 - $3,351 5,278 (5,214)
Retained earnings 7,098,658 8,593,647
------------- -------------
Total shareholders' equity 16,443,621 17,638,118
------------- -------------
Total liabilities and shareholders' equity $ 41,634,374 $ 46,721,401
============= =============
See accompanying notes to consolidated financial statements
<TABLE>
WSMP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years ended February 23, 1996, February 24, 1995
- -------------------------------------------------------
and February 25, 1994
---------------------
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Operating revenues:
Food sales (note 15) $ 76,582,926 $ 91,231,774 $ 70,032,184
Franchise, royalty and other fees (note
19 - includes related party transactions
totaling $1,079,000 in 1996, $1,044,000
in 1995 and $1,018,000 in 1994) 2,856,284 2,868,199 3,027,252
------------- ------------- -------------
Total operating revenues 79,439,210 94,099,973 73,059,436
------------- ------------- -------------
Costs and expenses:
Cost of goods sold (note 19 - includes related
party transactions totaling $474,000 in 1996,
$506,000 in 1995 and $514,000 in 1994) 56,743,742 66,275,140 46,309,948
Operating expenses (note 19 - includes related
party transactions totaling $825,000 in 1996,
$883,000 in 1995 and $786,000 in 1994) 12,775,983 14,530,232 15,452,214
Selling, general and administrative expenses
(note 19 - includes related party
transactions totaling $2,320,000 in 1996,
$2,236,000 in 1995 and $1,819,000 in 1994) 7,906,971 8,171,310 8,330,268
Depreciation and amortization 2,715,271 2,878,624 3,006,055
------------- ------------- -------------
Total costs and expenses 80,141,967 91,855,306 73,098,485
------------- ------------- -------------
Operating income (loss) (702,757) 2,244,667 (39,049)
------------- ------------- -------------
Other income (expense):
Other income (including interest) (note 19 -
includes related party transactions
totaling $192,000 in 1996, $189,000 in 1995
and $233,000 in 1994) 809,737 949,208 723,311
Net gain on dispositions and write-downs of
assets (note 19 - includes gains (losses)
on sales of assets to related parties
totaling $(360,000) in 1996, $128,000 in 1995
and $18,000 in 1994) 220,199 940,091 894,756
Equity in earnings (loss) of affiliates (338,366) 115,000 70,000
Interest expense (2,011,567) (1,993,094) (1,840,203)
Other expense (note 19 - includes related
party transactions totaling $80,000 in 1996,
$153,000 in 1995 and $151,000 in 1994) (688,580) (747,471) (733,589)
------------- ------------- -------------
Net other expense (2,008,577) (736,266) (885,725)
------------- ------------- -------------
Earnings (loss) before income taxes and
cumulative effect of a change in accounting
principle (2,711,334) 1,508,401 (924,774)
------------- ------------- -------------
Provision for income taxes(benefit)(note 10):
Current (104,843) 490,064 (69,424)
Deferred (1,111,502) (78,333) (315,350)
------------- ------------- -------------
Total provision for income taxes (benefit) (1,216,345) 411,731 (384,774)
------------- ------------- -------------
Earnings (loss) before cumulative effect
of a change in accounting principle (1,494,989) 1,096,670 (540,000)
Cumulative effect on prior years of a change in
accounting for income taxes(notes 1 and 10) (245,000)
------------- ------------ -------------
Net earnings (loss) $(1,494,989) $ 1,096,670 $ (785,000)
============= ============ =============
Earnings (loss) per common and common
equivalent share (note 1):
Before cumulative effect of a change
in accounting principle $ (.55) $ .38 $ (.21)
Cumulative effect of a change in
accounting principle (.09)
------------- ------------ -------------
Net earnings (loss) $ (.55) $ .38 $ (.30)
============= ============ =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended February 23, 1996, February 24, 1995
- -------------------------------------------------------
and February 25, 1994
---------------------
<CAPTION>
Capital in Unrealized Gain
Common Excess of (Loss) On Securities Retained
Stock Par Value Available For Sale Earnings
-------- ----------- -------------------- ---------
<S> <C> <C> <C> <C>
Balance at February 26, 1993 $ 1,996,094 $ 5,992,760 $ 8,815,604
Net loss (785,000)
Common stock purchased and retired
(10,000 shares) (note 20) (10,000) (40,004)
Common stock issued (47,395 shares) 47,395 204,716
Common stock options exercised
(100,000 shares) (note 13) 100,000 262,500
------------ ------------ --------------
Balance at February 25, 1994 2,133,489 6,419,972 8,030,604
Net earnings 1,096,670
Common stock purchased and retired
(5,000 shares) (note 20) (5,000) (30,625)
Five-for-four stock split effected in
the form of a 25% stock dividend (note 20):
Shares issued 531,849 (531,849)
Fractional shares payable in
cash (1,778)
Unrealized loss on securities available for
sale, net of deferred income tax benefit
of $3,351 $ (5,214)
------------ ------------ ------------- --------------
Balance at February 24, 1995 2,660,338 6,389,347 (5,214) 8,593,647
Net loss (1,494,989)
Common stock options exercised
(100,000 shares) (note 13) 100,000 190,000
Unrealized gain on securities available
for sale, net of deferred income
taxes of $6,515 10,492
------------ ------------ ------------- --------------
Balance at February 23, 1996 $ 2,760,338 $ 6,579,347 $ 5,278 $ 7,098,658
============ ============ ============= ==============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended February 23, 1996, February 24, 1995
- -------------------------------------------------------
and February 25, 1994
---------------------
<CAPTION>
1996 1995 1994
------------- ----------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $ (1,494,989) $ 1,096,670 $ (785,000)
------------- ----------- -------------
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,715,271 2,878,624 3,006,055
Depreciation of properties
leased to others 282,104 379,599 257,551
Cumulative effect of a change
in accounting principle 245,000
Decrease in deferred income
taxes, net (1,111,502) (78,333) (315,350)
Net gain on dispositions and
writedowns of assets (220,199) (940,091) (894,756)
Provision for losses on receivables 216,039 430,128 247,857
Equity in loss (earnings) of affiliates 338,366 (115,000) (70,000)
Other non-cash adjustments to earnings 152,598 (90,679) 181,228
Changes in operating assets and
liabilities (net of effects from
purchase of restaurant companies)
providing (using) cash:
Receivables 49,830 (848,883) (27,542)
Inventories (427,306) (627,401) (164,213)
Income taxes refundable, prepaid
expenses and other (247,472) (4,598) 271,866
Trade accounts and income taxes
payable and other accrued
liabilities (468,827) (1,283,107) 846,705
------------- ------------ -------------
Total adjustments 1,278,902 (299,741) 3,584,401
------------- ------------ -------------
Net cash provided by (used in )
operating activities (216,087) 796,929 2,799,401
------------- ------------ -------------
Cash Flows From Investing Activities:
Capital expenditures to related
parties (325,210) (386,359) (817,063)
Capital expenditures - other (1,278,677) (807,489) (4,319,837)
Proceeds from sale of assets
to related parties 1,079,955 623,734 465,060
Proceeds from sales of assets to
others 2,087,983 3,082,789 828,964
Deposits, net of refunds (121,554) (12,581) 16,480
Decrease (increase) in marketable
equity securities (11,425) 36,528 (60,770)
Decrease in related party notes
receivable 203,874 417,574 81,547
Decrease (increase) in other notes
receivable 287,897 (1,635) 127,332
Other investing activities, net (175,539) (292,251) 209,865
------------ ------------ -------------
Net cash provided by (used in)
investing activities 1,747,304 2,660,310 (3,468,422)
------------- ------------ -------------
Cash Flows From Financing Activities:
Net proceeds (repayments) under
short-term borrowing agreements 1,000,000 (375,000) 1,275,000
Proceeds from issuance of long-term debt 85,000 250,000 547,846
Principal payments on long-term debt (3,916,026) (3,364,013) (2,933,247)
Cash restricted for secured letter
of credit (note 17) 500,000 (500,000)
Proceeds from exercise of stock options 290,000 362,500
Proceeds from stock rights offering 252,111
Acquisition of treasury stock (35,625) (50,004)
------------- ------------ -------------
Net cash used in financing activities (2,041,026) (4,024,638) (545,794)
------------- ------------ -------------
Net decrease in cash and cash equivalents (509,809) (567,399) (1,214,815)
Cash and cash equivalents at beginning
of year 940,120 1,507,519 2,722,334
------------- ------------ -------------
Cash and cash equivalents at end of year $ 430,311 940,120 $ 1,507,519
============= ============ =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
WSMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended February 23, 1996, February 24, 1995, and February 25, 1994
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of WSMP, Inc. and subsidiaries (the Company) in which it
has an ownership percentage greater than 50%. These subsidiaries, all of which
are 100% owned, unless otherwise indicated, are as follows:
Elloree Foods, Inc. Seven Stars, Inc.
Georgia WSMP, Inc. South Carolina WSMP, Inc.
Greenville Food Systems, Inc. St. Augustine Foods, Inc. (80%)
Kentucky WSMP, Inc. Sunshine WSMP, Inc.
Matthews Prime Sirloin, Inc. (80%) Tennessee WSMP, Inc.
Naples Foods, Inc. (55%) Virginia WSMP, Inc.
Prime Sirloin, Inc.
All significant intercompany accounts and transactions are eliminated in
consolidation.
FINANCIAL STATEMENT PRESENTATION - Financial statements for fiscal 1995
and 1994 have been reclassified, where applicable, to conform to the financial
statement presentation used in fiscal 1996.
FISCAL YEAR - The Company's fiscal year ends on the last Friday in
February. All fiscal years presented represent fifty-two week periods.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
INVESTMENTS - Effective February 26, 1994, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires that
investments in debt and equity securities be classified in the following three
categories: trading, held-to-maturity, or available-for-sale. Securities
classified as trading securities are carried at fair market value with
unrealized gains and losses reflected in earnings. Debt securities classified
as held-to-maturity securities are carried at amortized cost. Securities
classified as available-for-sale are carried at fair market value with
unrealized gains and losses excluded from earnings but shown as a separate
component of shareholders' equity. All investments of the Company are
comprised of marketable equity securities held in broker managed accounts. The
Company has classified all investments as available-for-sale. Realized and
unrealized gains and losses on investments were not significant in fiscal 1996,
1995 and 1994.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost. Expenditures for maintenance and repairs which do not significantly
extend useful lives of assets are charged to earnings whereas additions and
betterments, including interest costs incurred during construction, are
capitalized. Gains and losses on dispositions are reflected in other income
except for gains on traded properties which are reflected in the basis of the
new asset.
Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets on the straight-line basis.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or terms of the respective leases. Property under capital leases
is amortized in accordance with the Company's normal depreciation policy.
Depreciation on properties leased to others is combined with other
expenses related to rental income and reported as other expense.
During the fourth quarter ended February 23, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company has evaluated the carrying values of its long-
lived assets used in operations based on the criteria set forth in this
statement and has determined that no write-down for impairment is necessary as
of February 23, 1996. See note 5 with regard to assets to be disposed of.
INTANGIBLE ASSETS - The excess of cost over fair value of net assets of
businesses acquired is being amortized on the straight-line method over periods
of fifteen and forty years ($162,113 over fifteen years and $933,100 over forty
years as of February 23, 1996).
INVESTMENTS IN AFFILIATES - Investments in common stock of unconsolidated
affiliates are accounted for using the equity method.
COSTS AND EXPENSES - Cost of goods sold includes the direct and indirect
costs of tangible products sold by the food processing segment and the direct
costs of tangible products sold through restaurant operations. Operating
expenses include additional indirect costs such as labor, insurance and
occupancy costs, other than depreciation, associated with restaurant product
sales and other revenues. Selling, general and administrative expenses reflect
costs of marketing, selling and general administration not included in cost of
goods sold or operating expenses.
ADVERTISING COSTS - The Company expenses advertising costs as incurred.
Advertising expense for fiscal 1996, fiscal 1995 and fiscal 1994 was
$2,183,076, $2,175,206 and $2,518,721, respectively.
PREOPENING EXPENSES - Preopening expenses associated with new restaurant
openings are expensed as incurred.
INCOME TAXES - Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), required a change from the deferral
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for the
tax consequences of temporary differences between the tax and financial
accounting bases of existing assets and liabilities by applying enacted tax
rates applicable to the years when such differences are scheduled to reverse.
Under SFAS 109, the effect on deferred taxes of a change in tax rates is
recognized in the period that includes the enactment date. The Company adopted
SFAS 109 during the year beginning February 27, 1993 and has reported the cumu-
lative effect on prior years of the change in the consolidated statement of
operations for the fiscal year ended February 25, 1994.
FRANCHISE, ROYALTY AND OTHER FEES - Initial franchise fees are recognized
as revenue when substantially all of the services required of the Company by
the franchise agreement have been performed, which is generally the date the
franchised unit opens. Area franchise development fees are not recognized
until the developer exercises his option and opens a restaurant pursuant to the
area development agreement. At the time the Company has substantially
performed all obligations for initial service relating to the restaurant, the
Company recognizes the pro-rata portion of the fee allocated to the option to
develop that particular restaurant. Royalty and other fees are accrued as
earned based on franchisees' sales.
EARNINGS PER SHARE - Earnings per share is based on the weighted average
number of common shares and dilutive common equivalent shares outstanding
during each fiscal year. Common equivalent shares relate to outstanding stock
options. The weighted average number of shares used in the calculations are
2,729,517 in fiscal 1996, 2,879,021 in fiscal 1995 and 2,624,015 in fiscal
1994. Amounts for fiscal 1994 have been restated to reflect a five-for-four
stock split, effected in the form of a stock dividend declared in fiscal 1995.
(See note 20).
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - ACCOUNTS AND NOTES RECEIVABLE:
Accounts and notes receivable are comprised of the following:
1996 1995
----------- -----------
Accounts receivable:
Trade accounts receivable (less allowance
for doubtful receivables of $55,000 in 1996
and $15,000 in 1995) $ 3,020,818 $ 3,699,550
Accounts receivable - franchisees (less
allowance for doubtful receivables of
$252,814 in 1996 and $235,000 in 1995) 321,053 243,797
Accounts receivable - related parties (less
allowance for doubtful receivables of
$62,500 in 1996) (See note 19) 484,951 335,785
----------- -----------
Total accounts receivable, net $ 3,826,822 $ 4,279,132
=========== ===========
Notes receivable - related parties: interest
rates 4.5% to 12% (See note 19) $ 1,288,273 $ 1,675,538
Less current portion 772,329 842,428
----------- -----------
Noncurrent related parties notes receivable $ 515,944 $ 833,110
=========== ===========
Notes receivable - other: interest rates 6%
to 12% (less allowance for doubtful receivables
of $216,693 in 1996 and $292,000 in 1995) $ 844,633 $ 1,234,784
Less current portion 639,692 866,603
----------- -----------
Noncurrent notes receivable $ 204,941 $ 368,181
=========== ===========
Noncurrent notes receivable have maturities ranging from 1997 to 2001.
Trade accounts receivable are generated by sales of the food processing
segment and have terms ranging between fourteen and thirty days. A
concentration of receivables exists relating to one Bakery customer which
accounted for 57.5% and 63.0% of the food processing segment sales in fiscal
1996 and 1995, respectively. Receivables from this customer totaled
$1,366,216 and $1,625,738 and represent 44.4% and 43.8% of the total at
February 23, 1996 and at February 24, 1995, respectively.
An analysis of the allowance for doubtful notes and accounts receivable
is as follows:
Fiscal Year Balance at Additions Charged to (1) Balance at
Ended Beginning of Year Cost and Expenses Deductions End of Year
- ----------- ----------------- -------------------- ---------- -----------
1996 $542,000 $216,039 $171,032 $587,007
1995 $440,000 $430,128 $328,128 $542,000
1994 $225,000 $247,857 $ 32,857 $440,000
(1) Uncollectible receivables charged against the allowance.
NOTE 3 - INVENTORIES:
A summary of inventories, by major classification, follows:
1996 1995
----------- -----------
Hams in curing process $ 1,326,420 $ 1,748,375
Other food (includes cured hams) 2,818,418 2,104,940
Supplies 1,408,803 1,273,020
----------- ------------
Totals $ 5,553,641 $ 5,126,335
=========== ============
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
Estimated
Useful Life 1996 1995
----------- ----------- -----------
Land $ 5,204,997 $ 5,531,105
Land improvements 10 years 1,378,849 1,377,356
Buildings 20-40 years 16,523,205 16,920,654
Leasehold improvements 5-20 years 1,274,897 1,202,009
Machinery and equipment 5-15 years 15,650,598 15,479,264
Machinery and equipment
under capital leases 5-15 years 1,065,925 787,283
Furniture and fixtures 5-10 years 3,946,543 3,759,205
Automotive equipment 2-5 years 626,492 664,252
Construction in progress 313,110 105,284
----------- -----------
Totals 45,984,616 45,826,412
Less accumulated depreciation 20,696,583 18,668,528
----------- ------------
Property, plant and equipment, net $ 25,288,033 $ 27,157,884
============ ============
Depreciation and amortization expense of property, plant and equipment
was $2,960,325, $3,198,638 and $3,184,365 for fiscal 1996, 1995 and 1994,
respectively. Accumulated depreciation applicable to property under
capital leases was $544,391, $445,006 and $365,366 for fiscal 1996, 1995
and 1994, respectively. Approximately $5,998 and $266,792 in interest
costs were capitalized in fiscal 1996 and 1994, respectively. No interest
costs were capitalized in fiscal 1995.
NOTE 5 - PROPERTIES HELD FOR SALE:
During fiscal 1991, the Company began a restructuring of its owned
restaurant operations to improve profitability by, among other things,
updating restaurant formats and disposing of less profitable stores. As a
result of this restructuring, the Company has closed various stores and
transferred the related real properties, in addition to certain undeveloped
land holdings, from the classification of property, plant and equipment to
other assets as properties held for sale. The Company is selling these
properties as reasonable purchase offers are received. At February 23, 1996,
the Company had $1,569,752 in properties held for sale. These properties are
being carried at their estimated fair value less estimated selling costs.
During the fourth quarter ended February 23, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets to be
disposed of when the carrying value of the asset exceeds the fair value less
the estimated selling costs. Prior to adoption of this statement, properties
held for sale were carried at the lower of cost or net realizable value which
approximated the estimated fair value less estimated selling costs.
Therefore, no additional write-downs were necessary related to properties
held for sale at the time of adopting this statement.
NOTE 6 - SHORT -TERM NOTES PAYABLE:
The Company has an agreement with one of its banks which provides for
short-term secured borrowings up to $4,000,000, all of which was utilized at
February 23, 1996. Substantially all of the Company's manufacturing
inventory and receivables (approximately $7,100,000 in the aggregate) as well
as three restaurant properties with book values totaling $1,832,000 are
pledged as collateral under this agreement which is renewed annually.
The weighted average interest rate on short-term borrowings was 9.36% and
9.75% at February 23, 1996 and February 24, 1995, respectively.
NOTE 7 - LONG-TERM DEBT:
Long-term debt is comprised of the following:
1996 1995
------------ ------------
10.0% Senior Notes payable to
insurance companies, maturing 1997 $ 9,062,249 $ 11,538,462
Variable rate Industrial Revenue Bonds
maturing in 2005 3,175,000 3,505,000
Prime plus 1/2% to 11/2% notes
payable to banks maturing 1996 to 2005 718,490 1,283,101
4.5% Settlement Notes maturing in 1998
(see note 19) 610,000 790,000
6.0% to 11.0% other notes payable
maturing 1996 to 2005 980,771 1,101,499
10.7 to 11.5% capitalized lease obligations
maturing in 1996 to 2000 (see note 11) 374,503 255,336
------------ ------------
Total long-term debt 14,921,013 18,473,398
Less current installments 2,030,953 2,939,844
------------ ------------
Long-term debt, excluding current installments $ 12,890,060 $ 15,533,554
============ ============
The applicable prime interest rate at February 23, 1996 was 8.25%. The
variable rate payable on the Industrial Revenue Bonds at February 23, 1996 was
3.21%. At February 23, 1996, the net book value of the Company's property,
plant and equipment and properties held for sale pledged as collateral under
the above obligations was $23,567,025.
The Company has $9,062,249 in Senior Note obligations with two major life
insurance companies. The Company and the two insurance companies amended the
terms of the Senior Notes during fiscal 1996 to extend the maturity dates from
October 1, 1996 to October 1, 1997; to grant additional security interest in
certain of the Company's real properties; to increase the interest rate under
the notes on October 1, 1996 from 10% to the greater of 15% or 950 basis
points above the one year treasury rate with an additional increase of .25% or
25 basis points, respectively, every three months thereafter until maturity;
and to reduce the current ratio requirement from 1.25 to 1.0. The Company
will continue to make semi-annual principal payments of $769,230 on October 1
and April 1 until maturity. In addition, the Company agreed to remit to the
noteholders proceeds received from the future sale of certain assets, to be
applied to principal in inverse order of maturity, except that up to $769,230
may be applied to the April 1, 1996 payment of principal. As of February 23,
1996, the April 1, 1996 payment has been made with such proceeds.
Additionally, the terms of the Senior Notes require the annual payment of
additional amounts that may be available from excess cash flows (as defined).
No payment under the excess cash flow provisions were required in fiscal 1996
and no such payments are anticipated in fiscal 1997.
The Senior Note agreement also restricts future cash dividend payments to
shareholders to 25% of accumulated net earnings, with certain adjustments,
subsequent to February 28, 1986 and requires the Company's adjusted funded
debt to adjusted shareholders' equity ratio to not exceed 135%. After giving
effect to the necessary adjustments and payment of cash dividends since
February 28, 1986, there are no consolidated retained earnings available for
payment of cash dividends as of February 23, 1996. The Company's ratio of
adjusted funded debt to adjusted shareholders' equity was 81.14% at February
23, 1996.
At February 23, 1996, the Company was not in compliance with certain loan
covenants relating to the Industrial Revenue Bonds. The Company has received
waivers of these violations and the lenders have agreed to amend certain of
the covenants to enable compliance for fiscal 1996 and to facilitate
compliance in fiscal 1997.
Long-term debt maturities, including capital leases (note 11), for the
five years subsequent to February 23, 1996 are as follows:
Fiscal Year Ending Amount
------------------ ------
1997 $ 2,030,953
1998 $ 9,036,860
1999 $ 804,420
2000 $ 522,232
2001 $ 500,091
NOTE 8 - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments."
This statement addresses disclosure of estimated fair values of certain
financial instruments. The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
February 23, 1996
------------------------------
Carrying
Amount Fair Value
-------- ----------
Assets:
Cash and Cash Equivalents $ 430,311 $ 430,311
Marketable Equity Securities $ 148,997 $ 148,997
Accounts Receivable $ 3,826,822 $ 3,826,822
Notes Receivable $ 2,132,906 $ 2,047,913
Restricted Equity Securities $ 242,050 $ 720,891
Liabilities
Accounts Payable $ 2,810,229 $ 2,810,229
Short-Term Debt $ 4,000,000 $ 4,000,000
Long-Term Debt $ 14,546,510 $ 14,488,742
Cash and cash equivalents, accounts receivable, accounts payable, and
short-term debt - The carrying amount of these items are a reasonable estimate
of their fair value.
Marketable equity securities - These investments are classified as
available for sale and carried at their fair value in accordance with SFAS
115, "Accounting for Certain Investments in Debt and Equity Securities."
Notes Receivables - The fair value of notes receivable is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Restricted equity securities - The fair value of the restricted equity
securities is based on the fair value of non-restricted securities of the same
class and issue which are actively traded in the over-the-counter market.
Long-term debt - Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value for debt instruments.
NOTE 9 - OTHER ACCRUED LIABILITIES:
Other accrued liabilities are as follows:
1996 1995
---------- -----------
Accrued salaries and wages $ 650,407 $ 700,406
Accrued insurance claims 644,180 773,251
Taxes, other than income 323,059 355,719
Accrued interest 85,297 79,883
Other 837,278 857,156
----------- -----------
Totals $ 2,540,221 $ 2,766,415
=========== ===========
NOTE 10 - INCOME TAXES:
As discussed in Note 1, the Company adopted SFAS 109 as of February 27,
1993. The cumulative effect of adopting SFAS 109 on the Company's financial
statements was to decrease net earnings by $245,000 for the fiscal year ended
February 25, 1994.
The provision for income taxes (benefit) is summarized as follows:
1996 1995 1994
------- ------- -------
Current:
Federal $ (135,072) $ 421,663 $ (95,485)
State 30,229 68,401 26,061
------------ ---------- -----------
Total current (104,843) 490,064 (69,424)
------------ ---------- -----------
Deferred:
Federal (916,840) (102,544) (224,757)
State (194,662) 24,211 (90,593)
------------ ----------- -----------
Total deferred (1,111,502) (78,333) (315,350)
------------ ----------- -----------
Total provision for
income taxes (benefit) $ (1,216,345) $ 411,731 $ (384,774)
============= =========== ===========
Actual provisions for income tax expense (benefit) are different from
amounts computed by applying a statutory federal income tax rate to earnings
(loss) before income taxes. The computed amount is reconciled to total income
tax expense (benefit) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- ------------------------ ----------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Loss Amount Earnings Amount Loss
----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Computed tax (benefit) at
statutory rate $ (921,854) (34.0) $ 512,856 34.0 $ (314,423) (34.0)
Tax effect resulting from:
State income taxes
net of federal
tax benefit (141,481) (5.2) 92,584 6.1 (83,224) (9.0)
New general
business credits (net) (96,867) (3.6) (110,308) (7.3) (15,431) (1.7)
Permanent differences 9,978 .4 (8,992) (.6) 60,380 6.5
Tax benefit of pre-acquisition
(SRLY) losses utilized (22,390) (.8) (82,307) (5.4)
Other (43,731) (1.6) 7,898 .5 (32,076) (3.4)
------------- ------ ----------- ------ ----------- ------
Provision for income taxes (benefit) $ (1,216,345) (44.8) $ 411,731 27.3 $ (384,774) (41.6)
============= ====== =========== ====== =========== ======
</TABLE>
The approximate tax effect of each type of temporary difference and
carryforward that gave rise to the Company's deferred income tax assets and
liabilities for fiscal 1996 and 1995 under SFAS 109 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------- ----------------------------------------
Assets Liabilities Total Assets Liabilities Total
------------ ------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current:
Allowance for doubtful
receivables $ 219,994 $ $ 219,994 $ 212,030 $ 212,030
Inventory 59,904 59,904 57,500 57,500
Accrued promotional
expense 9,788 9,788 6,973 6,973
Accrued bonus 13,701 13,701
Accrued vacation pay 46,847 46,847 54,768 54,768
Reserve for returns 56,216 56,216 15,649 15,649
Installment sales $ (133,704) (133,704) $ (249,339) (249,339)
Unrealized (gain) loss
on securities
available-for-sale (3,164) (3,164) 3,351 3,351
State loss carryforward 123,908 123,908 26,980 26,980
General business
credit carryforward 125,000 125,000 131,909 131,909
------------ ------------- ------------- ------------ ------------- -------------
Total current $ 655,358 $ (136,868) $ 518,490 $ 509,160 $ (249,339) $ 259,821
============ ============= ============= ============ ============= =============
1996 1995
----------------------------------------- ----------------------------------------------
Assets Liabilities Total Assets Liabilities Total
------------- ------------- ------------- ------------ ------------- ------------
Noncurrent:
Property, plant and
equipment $ (1,806,103) $ (1,806,103) $ (2,060,220) $ (2,060,220)
Writedown of property
held for sale $ 54,342 54,342
Installment sales (55,913) (55,913)
Earnings in
unconsolidated
subsidiaries 175,156 175,156 $ 67,874 67,874
Restricted marketable
equity securities 58,269 58,269
Deferred franchise
fees 1,874 1,874 11,736 11,736
General business
credit carryforward 365,732 365,732 80,145 80,145
Alternative
minimum tax credit
carryforward 247,092 247,092 206,421 206,421
Federal loss carryforward 45,033 45,033
Pre-acquisition (SRLY)
loss carryforward 89,544 89,544 83,281 83,281
State loss carryforward 393,162 393,162 441,511 441,511
Less valuation
allowance (527,740) (527,740) (524,792) (524,792)
------------ ------------- ------------- ------------ ------------- -------------
Total noncurrent $ 902,464 $ (1,806,103) $ (903,639) $ 366,176 $ (2,116,133) $ (1,749,957)
============ ============= ============= ============ ============= =============
Total current and
noncurrent $ 1,557,822 $ (1,942,971) $ (385,149) $ 875,336 $ (2,365,472) $ (1,490,136)
============ ============= ============= ============ ============= =============
</TABLE>
As of February 23, 1996, operating loss carryovers of approximately
$8,200,000 are available to offset future taxable income in various states.
The carryover periods range from five to fifteen years which will result in
expirations of varying amounts beginning in fiscal 1997 and continuing through
fiscal 2011.
Various credits and loss carryforwards also exist to offset future
federal income taxes. As of February 23, 1996, alternative minimum tax credit
carryovers are approximately $247,092 and general business credit
carryforwards are approximately $490,732. The general business credits will
expire in varying amounts beginning in fiscal 2007. In addition, pre-
acquisition (SRLY) loss carryforwards of approximately $263,000 are available
to offset future taxable income of certain consolidated subsidiaries and
expire in varying amounts beginning in fiscal 2002.
NOTE 11 - LEASED PROPERTIES:
Eight of the Company's restaurant locations are operated in leased
premises. The related leases are classified as operating leases and their
terms are effective for varying periods until 2007, except for one lease for
land which expires in 2022. Most contain terms that provide for a modest
increase in rental payments at specified intervals within the lease term.
As of February 23, 1996, future minimum rental payments required under
these leases and under capital leases, which are for machinery and equipment,
are summarized as follows:
Operating Leases
----------------------------------
Minimum
Fiscal Year Minimum Sublease Capital
Ending Payments Receipts Total Leases Total
- ----------- -------- -------- ----- ------- -----
1997 $ 981,406 $ 199,760 $ 781,646 $ 201,219 $ 982,865
1998 904,102 199,760 704,342 72,939 777,281
1999 867,510 199,760 667,750 72,939 740,689
2000 652,620 199,760 452,860 72,939 525,799
2001 417,921 169,000 248,921 33,059 281,980
2002-2006 1,739,100 845,000 894,100 894,100
2007-2011 389,983 84,583 305,400 305,400
2012-2016 58,800 58,800 58,800
Later years 82,150 82,150 82,150
---------- ---------- --------- --------- ---------
Total minimum
lease payments $6,093,592 $ 1,897,623 $4,195,969 453,095 $ 4,649,064
========== =========== ========== ===========
Less amount representing interest 78,592
----------
Present value of minimum lease
payments under capital leases (see note 7) $ 374,503
==========
Rental expenses charged to earnings are as follows:
1996 1995 1994
---------- ------------ ------------
Real estate $ 923,442 $ 1,061,057 $ 1,101,189
Less sublease rentals (202,760) (227,148) (272,336)
Equipment 211,349 196,673 207,898
---------- ------------ ------------
Totals $ 932,031 $ 1,030,582 $ 1,036,751
========== ============ ============
NOTE 12 - EMPLOYEE BENEFITS:
On March 1, 1994, the Company established an employee stock purchase plan
through which employees, after meeting minimum eligibility requirements, may
contribute up to 10% of their base earnings toward the purchase of the
Company's common stock. The plan provides that the Company will make matching
contributions of 25% of the employee's contribution. Participation in the
plan is voluntary and all contributions of the Company are funded monthly and
vest immediately. The Company's contributions to the plan totaled $17,046 in
1996 and $10,091 in 1995, respectively. The Company also maintains a 401-k
Retirement Plan for its employees. The Plan provides that the Company will
make a matching contribution of up to 25% of an employee's voluntary
contribution, limited to the lesser of 8% of that employee's annual
compensation or $9,500 for fiscal 1996. The Company's contributions to this
Plan were $71,340, $67,869 and $52,042 in fiscal 1996, 1995 and 1994,
respectively. The Company also provides employee health insurance benefits
under a 501-c(9) trust arrangement. These benefits are partially self-funded
by the Company. The Company has $45,000 per claim and $1,000,000 annual
aggregate stop loss coverage on group medical claims with an insurance
carrier. A third-party administrator handles all claims. Company
contributions to this plan were $466,116, $388,488 and $504,500 in fiscal
1996, 1995 and 1994, respectively. Certain officers of the Company are
trustees of the stock purchase plan, the retirement plan and the employee
health plan.
The Company also has two Employee Stock Option Plans as described in Note
13.
NOTE 13 - EMPLOYEE STOCK OPTIONS:
The Company's 1987 Incentive Stock Option Plan provides for the issuance
of up to 625,000 shares of common stock to key employees, including officers,
of the Company. The Company may grant Incentive Stock Options ("ISOs") or
nonqualified stock options to eligible employees.
The Company's 1987 Special Stock Option Plan, as amended, provides for
the issuance of up to 625,000 shares of common stock to key management
employees, including officers of the Company. All options granted under this
Plan are nonqualified stock options. During fiscal 1994, options for 100,000
shares were repriced from $9.50 to the fair market value at the date of
repricing.
All options must be granted at not less than 100% of the fair market
value of the common stock at the date of the grant and must be exercised no
later than ten years from the date of grant.
A summary of the changes in shares under option for both Plans follows:
Incentive Stock Special Stock
Option Plan Option Plan
--------------- --------------
Balance at February 28, 1992 350,000 450,000
=============== ==============
Balance at February 26, 1993 350,000 450,000
Cancelled (150,000) (100,000)
Issued 100,000
Exercised at $3.625 per share (100,000)
--------------- --------------
Balance at February 25, 1994 100,000 450,000
Cancelled (10,000)
Issued 157,500
Adjustment to options outstanding to
reflect five-for-four stock split 61,875 112,500
--------------- --------------
Balance at February 24, 1995 309,375 562,500
Cancelled (12,500)
Exercised at $2.90 (100,000)
--------------- --------------
Balance at February 23, 1996 196,875 562,500
=============== ==============
Price range of options $ 4.00 to $5.20 $ 2.90 to $4.60
=============== ==============
Exercisable at February 23, 1996 39,375 562,500
=============== ==============
NOTE 14 - OTHER INFORMATION:
Accumulated amortization of intangible assets is as follows:
1996 1995
--------- ---------
Excess of cost over fair value of net
assets of businesses acquired $ 432,892 $ 398,756
Franchise rights $ 15,800 $ 12,885
NOTE 15 - LINES OF BUSINESS:
The Company operates in three principal lines of business. Segment
information is presented as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Restaurant operations $ 25,714,219 32.4 $ 28,895,738 30.7 $ 31,022,111 42.5
Food processing 51,085,716 64.3 62,563,395 66.5 39,274,536 53.8
Restaurant franchising 2,856,284 3.6 2,868,199 3.0 3,027,252 4.1
------------ ------- ------------ ------- ------------ -------
79,656,219 100.3 94,327,332 100.2 73,323,899 100.4
Elimination of inter-
segment sales (1) (217,009) (.3) (227,359) (.2) (264,463) (.4)
------------- ------- ------------- ------- ------------- -------
$ 79,439,210 100.0 $ 94,099,973 100.0 $ 73,059,436 100.0
============= ======= ============= ======= ============= =======
Operating profit:
Restaurant operations $ 1,063,137 29.2 $ 1,649,443 23.4 $ 815,673 17.5
Food processing 778,407 21.4 4,110,751 58.4 2,099,209 45.1
Restaurant franchising 1,799,409 49.4 1,278,794 18.2 1,741,051 37.4
------------- ------- ------------- ------- ------------- -------
3,640,953 100.0 7,038,988 100.0 4,655,933 100.0
======= ======= =======
Corporate expenses (4,343,710) (4,794,321) (4,694,982)
Other income 2,990 1,256,828 954,478
Interest expense (2,011,567) (1,993,094) (1,840,203)
------------- ------------- -------------
Earnings (loss) before
income taxes $ (2,711,334) $ 1,508,401 $ (924,774)
============= ============= =============
Identifiable assets:
Restaurant operations $ 15,423,186 37.0 $ 18,115,517 38.8 $ 20,358,626 40.4
Food processing 18,809,910 45.2 19,646,658 42.0 19,348,140 38.4
Restaurant franchising 608,775 1.5 688,049 1.5 827,881 1.7
Corporate 6,792,503 16.3 8,271,177 17.7 9,814,750 19.5
------------- ------- ------------ ------- ------------- -------
$ 41,634,374 100.0 $ 46,721,401 100.0 $ 50,349,397 100.0
============= ======= ============ ======= ============= =======
Depreciation and amortization:
Restaurant operations $ 1,228,662 45.3 $ 1,316,636 45.7 $ 1,548,174 51.5
Food processing 1,256,931 46.3 1,314,001 45.7 1,148,016 38.2
Restaurant franchising 38,079 1.4 38,082 1.3 46,278 1.5
Corporate 191,599 7.0 209,905 7.3 263,587 8.8
------------- ------- ------------- ------- ------------- -------
$ 2,715,271 100.0 $ 2,878,624 100.0 $ 3,006,055 100.0
============= ======= ============= ======= ============= =======
Capital expenditures:
Restaurant operations $ 950,576 50.5 $ 574,272 47.5 $ 695,835 13.3
Food processing 774,615 41.1 368,497 30.5 4,455,934 85.1
Restaurant franchising 50,550 4.2
Corporate 157,337 8.4 214,876 17.8 84,696 1.6
------------- ------- ------------- ------- ------------- -------
$ 1,882,528 100.0 $ 1,208,195 100.0 $ 5,236,465 100.0
============= ======= ============= ======= ============= =======
<FN>
(1) Intersegment sales are recorded based on prevailing prices and relate
solely to the food processing segment.
</TABLE>
In December 1993, the Company entered into a new agreement with its
largest customer of bakery products whereby the Company would purchase the
meat components and the customer's brand name packaging material from the
customer, produce and pack the final meat-filled bakery product and sell the
finished product to the customer. Prior to this agreement, sales to this
customer consisted only of the bakery component and cost of production and
packing. The meat component and packaging were supplied and owned by the
customer throughout the process. Purchases by the Company of the meat
component and packaging totaled $23,441,000 in fiscal 1995 and $4,764,000 in
fiscal 1994. These amounts are reported as both sales and cost of goods sold,
thus approximately $18,677,000 of the fiscal 1995 increase in food sales is
attributable to this agreement.
During fiscal 1996, 1995 and 1994, a single customer of the Company's
bakery products accounted for 57%, 63% and 47%, respectively, of the food
processing segment sales and 37%, 42% and 25%, respectively, of the Company's
total operating revenues.
NOTE 16 - INVESTMENT IN AFFILIATES:
During fiscal 1996, 1995 and 1994, the Company maintained investments in
several companies which operate Prime Sirloin restaurants, Sagebrush
Steakhouse and Saloons, Mom `n' Pop's Buffet and Bakery restaurants, Western
Steer Family Restaurants and Bennett's Smokehouse and Saloons. All of the
companies are accounted for under the equity method. Names of these companies
and percentages of ownership are as follows:
<TABLE>
<CAPTION>
Percentage Owned Percentage Owned Percentage Owned
at February 23, 1996 at February 24, 1995 at February 25, 1994
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Georgia Buffet Restaurants, Inc. 50% 50% 50%
Greenville Foods, Inc. 50% 50% ---
Knoxville Foods, Inc. --- 50% 50%
Primo Foods, Inc. 50% 50% ---
Sagebrush of Asheville, Inc. --- 50% 50%
Sagebrush of Rock Hill, Inc. --- 50% 50%
Spartanburg Foods, Inc. 50% 50% ---
Starke Foods, Inc. 50% 50% 50%
Matthews Prime Sirloin (1) (1) 50%
</TABLE>
Summarized financial information for the above companies is as follows:
1996 1995 1994
----------- ----------- -----------
Current Assets $ 345,227 $ 476,187 $ 424,271
Noncurrent Assets 2,222,646 2,181,774 1,946,901
Current Liabilities 1,664,067 1,559,115 1,464,556
Noncurrent Liabilities 185,017 76,577 125,900
Operating Revenue 8,640,624 9,566,779 9,213,949
Gross Profit 5,000,389 5,686,828 5,571,789
Net Earnings (loss) (828,279) 173,298 279,354
Dividends received from these companies totaled $91,000, $143,500 and
$220,500 in fiscal 1996, 1995 and 1994, respectively.
At the beginning of fiscal 1996, the Company owned 50% of three
corporations (Knoxville Foods, Inc., Sagebrush of Asheville, Inc. and
Sagebrush of Rock Hill, Inc.) which operated Sagebrush Steakhouse and Saloon
restaurants. In January 1996, a reorganization was effected for these
corporations immediately prior to an initial public offering of common stock
by Sagebrush, Inc. As part of this reorganization, the Company exchanged to
Sagebrush, Inc. its shares of common stock in these three corporations for
cash totaling $87,098 and 111,983 shares of Sagebrush, Inc., common stock.
These shares of stock are designated restricted securities and their resale is
subject to the conditions and limitations of Rule 144 of the Securities Act.
This transaction was accounted for as a like-kind exchange and a gain of
$59,648 was recognized based on the book value of the equity investments in
the three 50% owned corporations at the transaction date, the total fair value
of the stock and cash received, and the percentage of the total proceeds
received in cash. The restricted shares of common stock in Sagebrush, Inc.
are shown separately on the face of the balance sheet as "Investment in
restricted securities" and are carried at cost which represents the book value
of the equity investment in the three corporations at the transaction date,
adjusted for the cash proceeds received and the gain recognized on the
transaction.
(1) On February 26, 1994, the Company purchased an additional 30%
ownership interest in Matthews Prime Sirloin, Inc., bringing the
total ownership interest to 80%. This acquisition has been
accounted for as a purchase transaction , and results of
operations for fiscal 1996 and 1995 have been included in the
Company's consolidated statement of operations. Net assets of
the acquired company and operating results prior to acquisition
are not material to the Company's consolidated financial
statement.
NOTE 17 - COMMITMENTS AND CONTINGENCIES:
On May 3, 1994, the Company guaranteed a loan obligation of one of its
franchisees in an amount not to exceed $322,000. The loan is secured by
certain restaurant equipment purchased by the franchisee.
During fiscal 1995, the Company was required to provide a secured letter
of credit in the amount of $500,000 to its insurance carrier for outstanding
worker's compensation and general liability claims. This letter of credit was
secured by $500,000 on deposit with the issuing financial institution. Since
this deposit was restricted, it was presented in other non-current assets at
February 24, 1995. During fiscal 1996, the Company gave the financial
institution a security interest in a restaurant property with a total book
value of $517,360, in lieu of the $500,000 deposit.
Effective December 1, 1993, the Company entered into a three year
endorsement agreement with Richard Childress Racing Enterprises, Inc. and Dale
Earnhardt, Inc. The agreement calls for total payments of $1,200,000 over the
three year period. As of February 23, 1996, remaining payments under this
agreement are $500,000.
The Company has contractual obligations for construction projects and
equipment purchases totaling $430,000 at February 23, 1996.
NOTE 18 - SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes is as follows:
1996 1995 1994
Interest $ 2,006,154 $ 2,004,431 $ 1,835,074
============ =========== ============
Income taxes $ 207,171 $ 673,500 $ 52,833
============ =========== ============
The Company received accounts and notes receivable totaling $1,198,392,
$385,537 and $1,321,565 from the sale of property, plant and equipment in
fiscal 1996, 1995 and 1994, respectively.
The Company transferred deposits to property, plant and equipment
totaling $14,346 and $6,210 for fiscal 1995 and 1994, respectively.
Accounts receivable from certain franchisees totaling $46,173, $110,156
and $458,392 in fiscal 1996, 1995 and 1994, respectively, were converted to
notes receivable.
In fiscal 1996, the Company exchanged shares representing a 50% ownership
interest in three unconsolidated subsidiaries which operate Sagebrush
Steakhouse & Saloon restaurants to Sagebrush, Inc., for $87,098 and 111,983
shares of common stock of Sagebrush, Inc. (See note 16)
During fiscal 1996, the Company acquired machinery and equipment totaling
$278,641 through capital leases.
In fiscal 1995, the Company executed a note payable and obtained a note
receivable for $92,165 relating to the settlement of certain lawsuits with two
franchisees.
NOTE 19 - TRANSACTIONS WITH RELATED PARTIES:
Related party transactions during the fiscal years ended 1996, 1995 and
1994 arose in connection with the following relationships.
Certain current and past officers, directors and principal shareholders
of the Company have ownership interests in franchisee companies as well as an
insurance company, a marketing services company, and a travel agency which
transact business with the Company. In addition, immediate family members of
a director and principal shareholder have ownership interests in three
companies from which the Company purchases restaurant equipment, furnishings
and supplies.
The Company has mutual leasing agreements with a partnership and
corporations which include a principal shareholder. Sales of restaurant
properties were made to a partnership which includes a principal shareholder.
Under a contract with a management services company owned by certain
officers and directors of the Company, the Company receives general management
services which include, among other things, the review and supervision of
financing, cost analysis services and review of franchise relationships.
Management fees paid under this contract are in lieu of salary compensation
for certain of the Company's senior executives. Effective April 1, 1996, this
contract was renewed for a three year period at an annual maximum management
fee of $1,500,000, payable quarterly in advance.
During fiscal 1996, the Company advanced $43,938 to the employee stock
purchase plan to allow the plan to purchase 9,500 shares of the Company's
common shares from an outside investor. This advance is being repaid as the
plan receives contributions and the shares are allocated to participant
accounts.
During 1996, the Company sold certain secured promissory notes which it
considered high risk indebtedness to an individual who is an executive officer
and principal shareholder of the Company. Most of the notes were secured by
purchase money mortgages and were generated through various sales of real
estate. The notes, which had face values totaling $1,440,000, were sold
without recourse and the Company received cash proceeds from the sale totaling
$1,080,000.
Litigation involving an unrelated party holding a security interest in
the trade receivables of a bankrupt company, which was one of the Company's
significant customers and vendors, was settled in May 1993. Under the terms
of this settlement the Company agreed to pay $1,200,000, comprised of an
initial payment of $230,000 in 1993, four annual payments of $180,000 each on
April 1 beginning in 1994 and a final payment of $250,000 on April 1, 1998.
Interest on the unpaid principal balance is payable quarterly at 4.5%. Under
the terms of a guaranty and hold harmless agreement with the Company's
president, who was a former principal of the bankrupt company, the Company
obtained unsecured promissory notes from the president in amounts sufficient
to reimburse the Company for all payments of principal and interest required
by the Settlement Agreement and to liquidate the net receivable and accrued
interest thereon arising from the initial set-off discussed above. The terms
of the promissory notes correspond to the payment terms stipulated by the
Settlement Agreement. The Company's financial statements as of February 23,
1996 reflect both the remaining settlement liability of $610,000 and the
related receivable.
The Company's related party transactions are summarized as follows:
1996 1995 1994
------ ------ ------
Franchise, royalty and other fees
from related party franchisee companies $ 1,079,000 $ 1,044,000 $ 1,018,000
Management services expense $ 1,500,000 $ 1,500,000 $ 1,500,000
Purchases of restaurant equipment,
furnishings and construction $ 325,000 $ 386,000 $ 817,000
Purchases of other services and supplies $ 872,000 $ 632,000 $ 213,000
Casualty insurance premiums $ 1,334,000 $ 1,066,000 $ 1,070,000
Sales of restaurant properties $ 624,000 $ 465,000
Sale of notes receivable $ 1,080,000
Income from leased properties $ 90,000 $ 90,000 $ 117,000
Leasing of property $ 224,000 $ 334,000 $ 336,000
Related party accounts receivable arise in the ordinary course of
business and relate to unpaid franchise, royalty and other fees as well as
short-term advances to 50% owned affiliates. Notes receivable from related
parties relate primarily to long-term advances to 50% owned affiliates, notes
generated from the sales of assets to related parties, and the settlement
notes from the Company's president. Related party receivables are as follows:
1996 1995 1994
------ ------ ------
Accounts receivable $ 484,951 $ 335,785 $ 159,667
Notes receivable (interest rates
ranging from 4.5% to 12%, payable
over 1 to 5 years) $ 1,288,273 $ 1,675,538 $ 2,130,468
NOTE 20 - CAPITAL STOCK:
On February 22, 1995, the Board of Directors announced a five-for-four
stock split effected in the form of a 25% stock dividend. In connection
therewith, 531,849 shares of common stock and $1,778 for fractional shares
were distributed on April 11, 1995 to shareholders of record as of March 15,
1995.
During fiscal 1995 and 1994, the Company acquired and retired 5,000
common shares at a cost of $35,625 and 10,000 common shares at a cost of
$50,004, respectively.
The Company is authorized to issue 2,500,000 shares of preferred stock
with a par value of ten cents ($.10) per share in one or more series. All
rights and preferences of each series are to be established by the Company
prior to issuance. There are no issues of this class of stock at February 23,
1996.
On November 25, 1992, the Company filed a Registration Statement with the
Securities and Exchange Commission stating its intent to issue common stock
subscription rights to existing shareholders of 1,933,843 shares of its common
stock. On April 6, 1993 the Company completed the offering. The net proceeds
from 109,646 newly issued shares totaled $582,066.
WSMP, INC.
REPORT OF MANAGEMENT
- --------------------
The management of WSMP, Inc. is responsible for the preparation and
integrity of the consolidated financial statements of the Company. The
financial statements and notes have been prepared by the Company in
accordance with generally accepted accounting principles and, in the judgment
of management, present fairly and consistently the Company's financial
position and results of operations and cash flows. The financial information
contained elsewhere in this annual report is consistent with that in the
financial statements. The financial statements and other financial
information in this annual report include amounts that are based on
management's best estimates and judgments.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that transactions are
executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with
generally accepted accounting principles.
The Company's financial statements have been audited by Deloitte & Touche
LLP. Management has made available to them all of the Company's financial
records and related data, and believes that all representations made to
Deloitte & Touche LLP during this audit were valid and appropriate. Their
report provides an independent opinion upon the fairness of the financial
statements.
The Board of Directors discharges its responsibility for the Company's
financial statements through its four-member Audit Committee, all of which
are non-management directors. The Audit Committee meets periodically with
Deloitte & Touche LLP, the accounting and reporting departments and
management. Both Deloitte & Touche LLP and the reporting staff have direct
access to the Audit Committee to discuss the scope and results of their work,
the adequacy of internal accounting controls and the quality of financial
reporting.
Bobby G. Holman
Chief Financial Officer
Matthew V. Hollifield
Chief Accounting Officer
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Shareholders and Board of Directors
WSMP, Inc.
Claremont, North Carolina
We have audited the accompanying consolidated balance sheets of WSMP,
Inc. and subsidiaries as of February 23, 1996 and February 24, 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three fiscal years in the period ended February 23,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of WSMP, Inc. and subsidiaries
at February 23, 1996 and February 24, 1995, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended February 23, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in
fiscal 1994 the Company changed its method of accounting for income taxes
effective February 27, 1993 to conform with Statement of Financial Accounting
Standards No. 109.
Deloitte & Touche LLP
Hickory, North Carolina
May 22, 1996
WSMP, INC. AND SUBSIDIARIES
Unaudited Quarterly Financial Data
- ----------------------------------
Quarters Ended
May 19, August 11, November 3, February 23, 1996
1995 1995 1995 (1)(3)
------------ ------------- ----------- -----------------
Operating revenues $ 18,312,533 $ 19,157,806 $ 18,549,843 $ 23,419,028
Gross profit $ 2,786,850 $ 2,496,076 $ 2,724,357 $ 1,912,202
Pretax earnings $ 11,101 $ (641,594) $ 43,805 $ (2,124,646)
(loss)
Provision for
income tax $ 3,442 $ (277,706) $ 30,788 $ (972,869)
Net earnings (loss) $ 7,659 $ (363,888) $ 13,017 $ (1,151,777)
Earnings (loss) per $ .00 $ (.13) $ .00 $ (.42)
share
May 20, August 12, November 4, February 24, 1995
1994 1994 1994 (1)(2)
----------- ----------- ------------ -----------------
Operating revenues $ 21,099,784 $ 21,821,126 $ 22,685,445 $ 28,493,618
Gross profit $ 3,025,756 $ 3,163,999 $ 3,124,378 $ 3,980,467
Pretax earnings $ 626,508 $ 303,001 $ 463,334 $ 115,558
Provision for $ 265,508 $ 97,001 $ 180,334 $ (131,112)
income tax
Net earnings $ 361,000 $ 206,000 $ 283,000 $ 246,670
Earnings per share $ .13 $ .07 $ .10 $ .08
(1)There were no material fourth quarter adjustments in fiscal 1996 or fiscal
1995.
(2)The tax benefit shown in the quarter ended February 24, 1995 was the result
of general business credits originating during that quarter, as well as the
utilization of pre-acquisition loss carryforwards by certain consolidated
subsidiaries.
(3)The pretax loss which occurred in the fourth quarter of fiscal 1996, as
compared with the three previous quarters, is primarily the combined effect
of (i) the harsh winter weather in January and February which negatively
impacted sales in the restaurant division, (ii) losses suffered in the ham
curing division due to the issuance of credits to customers and disposal of
inventory relating to the recall of improperly cured ham product, and (iii)
equity in losses of affiliates due to the impact of weather conditions, as
well as the write-downs of certain assets by affiliates to recognize
permanent impairment.
<TABLE>
WSMP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
- -----------------------
Selected Operating Data
- -----------------------
Fiscal Year Ended
<CAPTION>
February 23 February 24 February 25 February 26 February 28, 1992
1996 1995 1994 1993 (1)
----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Food sales (7) $ 76,582,926 $ 91,231,774 $ 70,032,184 $ 73,503,786 $ 65,008,966
Franchise, royalty
and other fees 2,856,284 2,868,199 3,027,252 3,418,876 3,478,977
-------------- -------------- -------------- -------------- ----------------
Total operating
revenues $ 79,439,210 $ 94,099,973 $ 73,059,436 $ 76,922,662 $ 68,487,943
============== ============== ============== ============== ================
Total operating
income (loss) $ (702,757) $ 2,244,667 $ (39,049) $ 2,344,429 $ 2,956,987
============== ============== ============== ============== ================
Earnings (loss)
before income taxes $ (2,711,334) $ 1,508,401 $ (924,774) $ 1,103,008 $ 1,019,198
============== ============== ============== ============== ================
Net earnings (loss) (5) $ (1,494,989) $ 1,096,670 $ (785,000) $ 670,000 $ 630,000
============== ============== ============== ============== ================
Net earnings (loss)
per common and common
equivalent share
(2, 3 and 6) $ (.55) $ .38 $ (.30) $ .23 $ .24
============== ============== ============== ============== ================
Dividends per
share (3, 4 and 6) $ .00 $ .00 $ .00 $ .00 $ .00
============== ============== ============== ============== ================
Selected Balance Sheet Data
- ---------------------------
Total assets $ 41,634,374 $ 46,721,401 $ 50,076,967 $ 50,284,420 $ 43,035,334
============== ============== ============== ============== ================
Long-term debt $ 14,921,013 $ 18,473,398 $ 21,495,246 $ 23,880,647 $ 18,872,551
============== ============== ============== ============== ================
Shareholders' equity (2) $ 16,443,621 $ 17,638,118 $ 16,584,065 $ 16,804,458 $ 15,876,183
============== ============== ============== ============== ================
Book value per
share (2 and 6) $ 5.96 $ 6.63 $ 6.22 $ 6.73 $ 6.54
============== ============== ============== ============== ================
<FN>
(1)Fifty three week year.
(2)During the year ended February 23, 1996, 100,000 stock option shares were
exercised by former officers at a gross price of $290,000. During the year
ended February 24, 1995, the Company repurchased 5,000 common shares for
$35,625 and declared a five-for-four stock split, effected in the form of a
stock dividend, through which 531,849 common stock were distributed on April
11, 1995. During the year ended February 25, 1994 the Company repurchased
10,000 common shares for $50,004, issued 47,395 common shares for $319,916
pursuant to a shareholder rights offering, and 100,000 stock option shares
were exercised by a former officer at a gross price of $362,500. During the
year ended February 26, 1993 the Company repurchased 9,062 common shares for
$71,680 and issued 62,251 common shares for $420,194 pursuant to a
shareholders rights offering. During the year ended February 28, 1992 the
Company repurchased 89,645 common shares for $302,555.
(3)Earnings (loss) per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during each
fiscal year. The weighted average number of shares used in the calculations
are 2,729,517 in 1996; 2,879,021 in 1995; 2,624,015 in 1994; 2,875,100 in
1993; and 2,649,336 in 1992.
(4)Due to limitations imposed by debt covenants, the Company suspended the
payments of its regular 4 cents per share quarterly dividend beginning with
the third quarter of fiscal 1990.
(5)The net loss for February 25, 1994 includes a charge against earnings
reflecting the cumulative effect of a change in accounting for income taxes
in the amount of $245,000 related to the adoption of SFAS 109 "Accounting for
Income Taxes."
(6)Per share amounts have been restated to reflect the five-for-four stock
split, effected in the form of a stock dividend declared in 1995.
(7)In December 1993, the Company entered into a new agreement with its largest
customer of bakery products whereby the Company would purchase the meat
components and the customer's brand name packaging from the customer, produce
and package the final meat-filled bakery product and sell the finished
product to the customer. Prior to this agreement, sales to this customer
consisted only of the bakery component and cost of production and packaging.
The meat component and packaging were supplied and owned by the customer
throughout the process. Purchases by the Company of the meat component and
packaging during fiscal 1995 and 1994 totaled $23,441,000 and $4,764,000,
respectively. These amounts are reported as both sales and cost of goods
sold during fiscal 1995 and 1994, and account for approximately $18,677,000
of the increase in food sales between fiscal 1994 and 1995.
</TABLE>
OFFICERS
AND
DIRECTORS
Officers Directors
---------------- -------------
Richard F. Howard Richard F. Howard
Chairman of the Board Chairman of the
and Secretary and Secretary
WSMP, Inc.
James C. Richardson, Jr.
President and Chief James C. Richardson, Jr.
Executive Officer President and Chief
Executive Officer
Bobby G. Holman WSMP, Inc.
Chief Financial Officer
Treasurer, and Bobby G. Holman
Assistant Secretary Treasurer and
Chief Financial Officer
Matthew V. Hollifield WSMP, Inc.
Vice President of Accounting,
Chief Accounting Officer James M. Templeton
and Assistant Secretary Senior Vice President
Real Estate & Franchising
Ken Moser WSMP, Inc.
Vice President,
Franchising Richard F. Hendrickson
York Properties, Inc.
Gregory A. Edgell
Vice President, Lewis C. Lanier
Strategic Planning Partner, Horger, Horger
and Lanier, Attorneys at Law
Ronnie L. Digh
Vice President, William R. McDonald
Bakery Operations Branch Manager, American
Pharmaceutical
Larry D. Hefner
Vice President, Miles Aldridge
Procurement Assistant Football Coach
University of Arkansas
Fred H. Keller
Vice President, E. Edwin Bradford
Ham Curing Operations President, CEO
Bradford Communications, Inc.
James M. Templeton
Senior Vice President
Real Estate & Franchising
James W. Berry
Controller and Assistant
Treasurer
Dwight A. Sherrill
Vice President,
Real Estate
________________________________________________________________
MARKET The Company's common stock trades on the NASDAQ National Market
INFORMATION tier of the NASDAQ stock Market under the symbol: "WSMP". As of
May 10, 1996, WSMP, Inc. had approximately 1400 shareholders based
on the number of holders of record and an estimate of the number of
individual participants represented by security position listing.
The quarterly high and low closing bid price quotations are
presented below as reported by National Association of Securities
Dealers Incorporated and as adjusted for the five-for-four stock
split, effected in the form of a stock dividend, declared February
22, 1995 and distributed April 11, 1995. These quotations represent
interdealer prices, without retail mark-up, mark-down or com-
missions, and may not necessarily reflect actual transactions.
1996 1995
----------------- -----------------
High Low High Low
First Quarter $ 5.600 $ 4.250 $ 5.200 $ 3.600
Second Quarter $ 5.000 $ 4.250 $ 4.400 $ 3.600
Third Quarter $ 5.250 $ 4.000 $ 5.900 $ 3.600
Fourth Quarter $ 5.250 $ 4.250 $ 6.000 $ 5.200
The closing price on May 10, 1996, was $4.875.
No cash dividends have been declared during fiscal 1996 or 1995.
GENERAL
INFORMATION
REGISTRAR AND
TRANSFER AGENT
First Citizens Bank
Raleigh, North Carolina
GENERAL COUNSEL
Simpson Aycock, P.A.
Morganton, North Carolina
AUDITORS
Deloitte & Touche LLP
Hickory, North Carolina
ANNUAL MEETING
The Annual Meeting of the Shareholders of
WSMP, Inc. will be held at 10:00 a.m. Eastern
Daylight Savings Time, June 27, 1996, at
the Holiday Inn, Piedmont Center,
Hickory, North Carolina
10-K REPORT
A copy of WSMP, Inc., 10-K Report
filed with the Securities and Exchange
Commission for Fiscal 1996 can be
obtained free of charge by writing:
Vice President of Accounting
WSMP, Inc.
P O Box 399
Claremont, NC 28610
EXECUTIVE OFFICES
WSMP, Inc.
1 WSMP Drive
Claremont, NC 28610
WSMP Inc.
1 WSMP DRIVE
P O BOX 399
Claremont, NC 28610
EXHIBIT 21
SUBSIDIARIES OF WSMP, INC.
Elloree Foods, Inc. (South Carolina)
Georgia Buffet Restaurants, Inc. (Georgia) 50% owned
Georgia WSMP, Inc. (Georgia)
Greenville Foods, Inc. (South Carolina) 50% owned
Greenville Food Systems, Inc. (North Carolina)
Matthews Prime Sirloin, Inc. (North Carolina) 80% owned
Naples Foods Inc. (Florida) 55% owned
Prime Sirloin, Inc. (Tennessee)
Primo Food Service, Inc. (Virginia) 50% owned
Seven Stars, Inc. (Maryland)
South Carolina WSMP, Inc. (South Carolina)
Spartanburg Foods, Inc. (South Carolina) 50% owned
Starke Foods, Inc. (Florida) 50% owned
St. Augustine Foods, Inc. (Florida) 80% owned
Sunshine WSMP, Inc. (Florida)
Tennessee WSMP, Inc. (Tennessee)
Virginia WSMP, Inc. (Virginia)
Omitted from the above list is one inactive subsidiary which does not
constitute a significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment
No. 8 to Registration Statement No. 33-15017 on Form S-8 of our report dated
May 22, 1996 appearing in and incorporated by reference in this Annual Report
on Form 10-K of WSMP, Inc. for the fiscal year ended February 23, 1996.
DELOITTE & TOUCHE LLP
Hickory, North Carolina
May 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from WSMP, Inc.'s
1996 10-K and is qualified in its entirety by reference to such 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-23-1996
<PERIOD-END> FEB-23-1996
<CASH> 430,311
<SECURITIES> 148,997
<RECEIVABLES> 3,075,818
<ALLOWANCES> 55,000
<INVENTORY> 5,553,641
<CURRENT-ASSETS> 12,376,410
<PP&E> 45,984,616
<DEPRECIATION> 20,696,583
<TOTAL-ASSETS> 41,634,374
<CURRENT-LIABILITIES> 11,392,054
<BONDS> 14,921,013
<COMMON> 2,760,338
0
0
<OTHER-SE> 13,683,283
<TOTAL-LIABILITY-AND-EQUITY> 41,634,374
<SALES> 76,582,926
<TOTAL-REVENUES> 79,439,210
<CGS> 56,743,742
<TOTAL-COSTS> 56,743,742
<OTHER-EXPENSES> 12,775,983
<LOSS-PROVISION> 216,039
<INTEREST-EXPENSE> 2,011,567
<INCOME-PRETAX> (2,711,334)
<INCOME-TAX> (1,216,345)
<INCOME-CONTINUING> (1,494,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,494,989)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> 0
</TABLE>
