File No. 0-7277
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MAY 17, 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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WSMP, Inc. has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
The number of shares of WSMP, Inc. Common Stock outstanding as of June 20, 1996
was 2,760,338.
WSMP, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
-------------------------------------------------
Page No.
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
May 17, 1996 and February 23, 1996............................... 1-2
Consolidated Condensed Statements of
Operations and Retained Earnings -
Quarters Ended May 17, 1996 and
May 19, 1995..................................................... 3
Consolidated Condensed Statements of Cash
Flows - Quarters Ended May 17, 1996 and
May 19, 1995..................................................... 4
Notes to Consolidated Condensed Financial
Statements....................................................... 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................................... 7-8
Part II. Other Information:
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K........................ 9
Signatures....................................................... 9
Index to Exhibits................................................ 10
Exhibit 11 - Computation of Earnings per
Common and Common Equivalent Share.............................. 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Consolidated Condensed Balance Sheets
(Unaudited)
May 17, February 23,
1996 1996
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 959,503 $ 430,311
Marketable equity securities 151,816 148,997
Accounts receivable and current
portion of notes receivable, net:
Trade and other 3,791,321 3,981,563
Related party 1,193,224 1,257,280
Inventories 5,653,261 5,553,641
Income taxes refundable 204,464 369,728
Prepaid expenses and other 107,166 116,400
Deferred income taxes 511,264 518,490
------------ -------------
Total current assets 12,572,019 12,376,410
------------ -------------
Property, plant and equipment, net 25,000,335 25,288,033
------------ -------------
Other assets:
Properties held for sale 1,569,752 1,569,752
Excess of cost over fair value of net
assets of businesses acquired, net 654,444 662,321
Noncurrent notes receivable 183,860 204,941
Noncurrent related party notes receivable 328,837 515,944
Investment in affiliates 347,533 381,533
Investment in restricted equity securities 242,050 242,050
Other 415,783 393,390
------------ -------------
Total other assets 3,742,259 3,969,931
------------ -------------
Total assets $ 41,314,613 $ 41,634,374
============ =============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
(Unaudited)
May 17, February 23,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1996
- ------------------------------------ ----------- -----------
Current Liabilities:
Notes payable $ 4,000,000 $ 4,000,000
Current installments of long-term debt 2,644,802 2,030,953
Trade accounts payable 2,672,471 2,810,229
Income taxes payable 3,366 10,651
Other accrued liabilities 2,585,514 2,540,221
------------ ------------
Total current liabilities 11,906,153 11,392,054
Deferred income 5,000 5,000
Deferred income taxes 909,449 903,639
Long-term debt, excluding current installments 11,801,531 12,890,060
------------ ------------
Total liabilities 24,622,133 25,190,753
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock - par value $.10, authorized
2,500,000 share; no shares issued
Common stock - par value $1, authorized
10,000,000 shares; issued 2,760,338 shares
at May 17, 1996 and at February 23, 1996 2,760,338 2,760,338
Capital in excess of par value 6,579,347 6,579,347
Unrealized gain on securities available for
sale, net of deferred income taxes of
$(3,740) at May 17, 1996 and $(3,164) at
February 23, 1996 6,238 5,278
Retained earnings 7,346,557 7,098,658
------------ ------------
Total shareholders' equity 16,692,480 16,443,621
------------ ------------
Total liabilities and shareholders' equity $ 41,314,613 $ 41,634,374
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Consolidated Condensed Statements of Operations and Retained Earnings
Quarters Ended May 17, 1996 and May 19, 1995
(Unaudited)
1996 1995
Operating revenues: ------------- -------------
Food sales $ 19,729,205 $ 17,600,790
Franchise, royalty and other fees
(includes related party transactions
totaling $227,205 in 1996 and $270,982
in 1995) 650,150 711,769
------------- -------------
Total operating revenues 20,379,355 18,312,559
------------- -------------
Costs and expenses:
Cost of goods sold (includes related
party transactions totaling $128,247
in 1996 and $103,290 in 1995) 14,591,298 12,452,960
Operating expenses (includes related
party transactions totaling $168,363
in 1996 and $223,804 in 1995) 2,766,165 3,070,682
Selling, general and administrative
expenses (includes related party
transactions totaling $480,038 in 1996
and $505,041 in 1995) 1,660,766 1,777,241
Depreciation and amortization 589,473 624,228
------------- -------------
Total costs and expenses 19,607,702 17,925,111
------------- -------------
Operating income 771,653 387,448
------------- -------------
Other income (expense):
Other income (including interest)
(includes related party transactions
totaling $16,187 in 1996 and $49,810
in 1995) 230,171 239,910
Net gain (loss) on dispositions and
write-downs of assets 4,639 (460)
Equity in earnings (loss) of affiliates (34,000) 17,000
Interest expense (417,323) (485,289)
Other expense (includes related party
transactions totaling $15,933 in 1996
and $24,182 in 1995) (148,082) (147,508)
-------------- --------------
Net other expense (364,595) (376,347)
-------------- --------------
Earnings before income taxes and
cumulative effect of a change in
accounting principle 407,058 11,101
Provision for income taxes 159,159 3,442
------------- -------------
Net earnings $ 247,899 $ 7,659
============= =============
Retained earnings:
Balance at beginning of period $ 7,098,658 $ 8,593,647
Net earnings 247,899 7,659
------------- -------------
Balance at end of period $ 7,346,557 $ 8,601,306
============= =============
Net earnings per common and common
equivalent share $ .08 $ .00
============= =============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Consolidated Condensed Statements of Cash Flows
Quarters Ended May 17, 1996 and May 19, 1995
(Unaudited)
1996 1995
------------ -----------
Cash flows from operating activities:
Net earnings $ 247,899 $ 7,659
------------ ------------
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 589,542 624,228
Depreciation of properties leased to others 64,577 56,735
Provision for losses on receivables 69,000 40,107
Net (gain)loss on disposition of assets (4,639) 460
Other non-cash adjustments to earnings 24,142 (24,778)
Changes in operating assets and liabilities
(net of effects from purchase of restaurant
companies providing (using) cash:
Receivables (119,090) 738,160
Inventories (99,620) 162,361
Income taxes refundable, prepaid expenses
and other 174,499 (29,069)
Trade accounts payable and other accrued
liabilities (99,751) (1,183,048)
------------ ------------
Total adjustments 598,660 385,156
------------ ------------
Net cash provided by operating activities 846,559 392,815
------------ ------------
Cash flows from investing activities:
Increase in marketable equity securities (1,283) (1,220)
Proceeds from sales of assets to others 132,103 347,214
Decrease in related party notes receivables 193,885 214,307
Decrease in other notes receivable 195,388 256,282
Deposits, net of refunds (1,414) (25,117)
Capital expenditures to related parties (33,399) (95,199)
Capital expenditures - others (327,967) (130,606)
Other investing activities (282,522)
------------ ------------
Net cash provided by investing activities 157,313 283,139
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (474,680) (1,411,077)
Net proceeds under short-term borrowing
agreements 1,000,000
Proceeds from exercise of stock options 145,000
------------ ------------
Net cash used in financing activities (474,680) (266,077)
------------ ------------
Net increase in cash and cash equivalents 529,192 409,877
Cash and cash equivalents at beginning of
period 430,311 940,120
------------ ------------
Cash and cash equivalents at end of period $ 959,503 $ 1,349,997
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1.In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of May 17, 1996 and February 23, 1996 and the results of operations and
the cash flows for the fiscal quarters ended May 17, 1996 and May 19, 1995.
2.The results of operations for the fiscal quarters ended May 17, 1996 and May
19, 1995 are not necessarily indicative of the results to be expected for the
full year.
3.Financial statements for fiscal 1996 have been reclassified, where
applicable, to conform to financial statement presentation used in fiscal
1997.
4.Earnings per share are based on the weighted average number of common shares
and dilutive common equivalent shares outstanding during each fiscal quarter.
Common equivalent shares relate to outstanding stock options. The weighted
average number of shares used in the calculations are 2,936,769 and 2,903,484
for the three months ended in 1996 and 1995, respectively.
5.The Company reports the results of its operations using a 52-53 week basis.
In line with this, reports for interim fiscal periods are prepared on the
basis of 12-12-12-16 week periods. The Company follows this policy
consistently.
6.A summary of inventories entering into cost of goods sold is:
<TABLE>
<CAPTION>
May 17, February 23, May 19, February 24,
1996 1996 1995 1995
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Hams in curing process $ 1,933,953 $ 1,326,420 $ 1,894,799 $ 1,748,375
Other food (includes cured hams) 2,248,629 2,818,418 2,080,525 2,104,940
Supplies 1,470,679 1,408,803 988,650 1,273,020
------------ ------------- ------------ ------------
Totals $ 5,653,261 $ 5,553,641 $ 4,963,974 $ 5,126,335
============ ============= ============ ============
</TABLE>
7.The Company has certain debt obligations that contain restrictive covenants
including a restriction on payment of cash dividends. The Company was either
in compliance with these covenants at May 17, 1996, or had received waivers
for noncompliance. There were no consolidated retained earnings available
for payment of dividends as of May 17, 1996.
8.The Company has 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.
Effective December 1, 1993, the Company entered into a three year endorsement
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 May 17, 1996, remaining payments under this agreement are $400,000.
9.Supplemental cash flow disclosures - cash paid during the period for:
Quarters Ended
----------------------------------
May 17, 1996 May 19, 1995
------------ ------------
Interest $ 411,295 $ 465,757
============ ============
Income taxes $ 11,000 $ 45,000
============ ============
Accounts receivable from certain franchisees totaling $53,595 and $22,488 in
fiscal 1997 and 1996, respectively, were converted to notes receivable.
The Company received notes receivable totaling $6,392 from the sale of property,
plant and equipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the financial data bear to operating revenue
of the Company and (ii) the percentage change of such items as compared to the
indicated prior period:
<TABLE>
<CAPTION>
Relationship to Period-to-Period
Total Revenue Increase (Decrease)
Quarters Ended Quarters Ended
---------------------------- -------------------
May 17, 1996 May 19, 1995 1996-95
------------ ------------ -------
<S> <C> <C> <C>
Restaurant food sales 30.0 35.9 (7.0)
Manufacturing sales 66.8 60.3 23.5
Franchise, royalty and other fees 3.2 3.8 (8.7)
------ ------
Total operating revenue 100.0 100.0 11.3
Cost of goods sold 71.6 68.0 17.2
Operating expenses 13.6 16.8 (9.9)
Selling, general and administrative
expenses 8.1 9.7 (6.6)
Depreciation and amortization 2.9 3.4 (5.6)
------- -------
Total operating income 3.8 2.1 99.2
Net other income (expense) (1.8) (2.0)
------- -------
Earnings before income taxes 2.0 .1 3566.9
Provision for income taxes .8 .0 4524.0
------- -------
Net earnings 1.2 .1 3136.7
======= ======= =======
</TABLE>
The Company operates in three principal lines of business. Segment information
is presented as follows:
Quarters Ended
-----------------------------------
May 17, 1996 May 19, 1995
-------------- --------------
Operating Revenues:
---------------------------
Food processing $ 13,623,561 $ 11,034,235
Restaurant operations 6,105,644 6,566,555
Restaurant franchising 650,150 711,769
-------------- --------------
Total operating revenues $ 20,379,355 $ 18,312,559
============== ==============
Operating Profits
---------------------------
Food processing $ 613,024 $ 388,417
Restaurant operations 701,500 518,891
Restaurant franchising 389,088 455,621
-------------- --------------
1,703,612 1,362,929
Corporate expenses (931,959) (975,481)
Other Income 52,728 108,942
Interest expense (417,323) (485,289)
-------------- --------------
Earnings before income taxes $ 407,058 $ 11,101
============== ==============
RESULTS OF OPERATIONS:
- ----------------------
Consolidated food sales revenue increased $2.1 million from $18,312,559 in the
first quarter of fiscal 1996 to $20,379,355 in the first quarter of fiscal 1997.
This positive change is the result of an increase in revenues from the food
processing segment totaling $2.6 million, offset by a decrease in revenues from
restaurant operations. The increase in revenue in the food processing segment
reflects improvements in sales in the bakery division. As previously discussed,
the bakery division's sales during fiscal 1996 were negatively impacted due to
its largest customer discontinuing a line of product previously purchased from
the Company. Although actions to replace this business were put in place early
in fiscal 1996, benefits from these actions were realized at a slower pace than
originally expected, and significant improvements in bakery sales did not occur
until late in the fourth quarter of fiscal 1996. Sales in the bakery division
have continued to improve during fiscal 1997, with first quarter sales showing
a $3.0 million increase over the corresponding period of fiscal 1996. This
increase in sales from the food processing segment during the first quarter of
fiscal 1997 is offset by a decrease in sales from restaurant operations
totaling $461,000. A decrease in revenues totaling $552,000 occurred due to
the closing of three stores since the beginning of fiscal 1996 and was offset
by increases in same store sales totaling approximately $92,000.
Franchise, royalty and other fees in the first three months of fiscal 1997
experienced an 8.7% decrease over the comparable period in fiscal 1995. This
is a partially the result of a net decline in the number of franchise units
from seventy five at the beginning of fiscal 1996 to seventy at the end of the
first quarter of fiscal 1997. A second factor contributing to this decline was
an overall decline of approximately 6.1% in franchise unit same store sales
during the first quarter of fiscal 1997 compared with the first quarter of
fiscal 1996.
Total operating income increased from $387,000 in the first quarter of fiscal
1996 to $772,000 in the first quarter of fiscal 1997. This increase is the
result of increases in operating profits in the food processing and restaurant
operations segments, as well as reductions in corporate expenses, offset by
decreased profitability in the restaurant franchising segment. Total operating
profits in the food processing segment increased approximately $225,000 during
the first quarter of fiscal 1997 compared to the same period in fiscal 1996.
This increase is directly attributed to the increase in food sales revenues
described above which this segment has experienced. In addition, operating
profits from restaurant operations increased $183,000 over the comparable prior
year quarter despite an overall decline in operating revenue from this division.
This increase in profitability is attributed to the closing of several poorly
performing restaurants during fiscal 1996, as well as better management of
costs and expenses in existing restaurants and an increase in same store sales
during the first quarter of fiscal 1997. These increases in operating profits
were partly offset by a $67,000 reduction in profitability in the restaurant
franchising segment which was brought about by the decline in franchise,
royalty and other fees discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had total working capital of $666,000 at May 17, 1996, down from
$984,000 at February 23, 1996. The main reason for this decrease is that as of
February 23, 1996, the semi-annual senior note principal payment due April 1,
1996 had been prepaid from the proceeds received on the sale of certain assets
as required by the amended terms of the notes. Therefore, current liabilities
as of February 23, 1996 includes only one of the $769,230 semi-annual senior
note payments. However, as of May 17, 1996 two of the semi-annual payments are
reflected in current liabilities. The effect of this is partially offset by
working capital generated during the first quarter through profitable
operations. In addition, management anticipates additional improvement in the
working capital position of the Company during the coming quarter as the
Company continues its return to profitability.
Total cash and cash equivalents increased $529,000 during the three month
period ended May 17, 1996. This increase was driven by profitable operations
during the first quarter which generated cash totaling $847,000. In addition,
collections on notes receivable and proceeds from sales of assets generated
$389,000 and $132,000, respectively. Offsetting these inflows of cash were
repayments of long-term debt and capital expenditures which totaled $475,000
and $361,000, respectively during the first quarter.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
- -------------------------------------------
(a) Exhibits
See Index to Exhibits Page 10
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended May 17, 1996.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSMP, INC.
----------
Date: 6-26-96 By: James C. Richardson, Jr.
------------- ----------------------------
James C. Richardson, Jr.
(President and Chief Executive Officer)
Date: 6-26-96 By: Matthew V. Hollifield
------------- ----------------------------
Matthew V. Hollifield
(Vice President of Accounting and
Chief Accounting Officer)
INDEX TO EXHIBITS
For inclusion in Quarterly Report on Form 10-Q Quarter Ended May 17, 1996
Exhibit No. Page No.
- ----------- --------
11 Computation of Per Common and
Common Equivalent Share 11
Exhibit 11
----------
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Computation of Earnings Per Common and Common Equivalent Share
Quarter Ended
-------------------
May 17, May 19,
1996 1995
------- -------
Earnings computations:
Net earnings $ 247,899 $ 7,659
========== ==========
Weighted average shares
computation:
Actual outstanding shares at
beginning of period 2,760,338 2,660,338
Add weighted average
shares applicable to:
Common stock issued 27,753
Common stock options outstanding 176,431 215,393
---------- ----------
Weighted average shares as adjusted 2,936,769 2,903,484
========== ==========
Earnings per common and common
equivalent share $ .08 $ .00
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1996 1st
quarter 10-Q for WSMP, Inc. and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-24-1996
<PERIOD-END> MAY-17-1996
<CASH> 959,503
<SECURITIES> 151,816
<RECEIVABLES> 3,060,254
<ALLOWANCES> 35,000
<INVENTORY> 5,653,261
<CURRENT-ASSETS> 12,572,019
<PP&E> 46,305,069
<DEPRECIATION> 21,304,734
<TOTAL-ASSETS> 41,314,613
<CURRENT-LIABILITIES> 11,906,153
<BONDS> 14,446,333
0
0
<COMMON> 2,760,338
<OTHER-SE> 13,932,142
<TOTAL-LIABILITY-AND-EQUITY> 41,314,613
<SALES> 19,729,205
<TOTAL-REVENUES> 20,379,355
<CGS> 14,591,298
<TOTAL-COSTS> 14,591,298
<OTHER-EXPENSES> 2,766,165
<LOSS-PROVISION> 69,000
<INTEREST-EXPENSE> 417,323
<INCOME-PRETAX> 407,058
<INCOME-TAX> 159,159
<INCOME-CONTINUING> 247,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,899
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
