UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 15, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-7277
WSMP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0945643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CLAREMONT, NORTH CAROLINA 28610
(Address of principal executive offices) (Zip Code)
(704)459-7626
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 26, 1997
Common Stock, $1.00 par value 3,271,029
WSMP, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
-------------------------------------------------
Page No.
--------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
August 15, 1997 and February 28, 1997.............................. 1-2
Consolidated Condensed Statements of
Operations and Retained Earnings -
Three Months Ended August 15, 1997
and August 9, 1996 and Six Months Ended
August 15, 1997 and August 9, 1996................................ 3-4
Consolidated Condensed Statements of Cash
Flows - Six Months Ended August 15, 1997 and
August 9, 1996.................................................... 5
Notes to Consolidated Condensed Financial
Statements........................................................ 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.................. 9-11
Part II. Other Information:
---------------------------------------------------
Item 4. Submission of Matters of a Vote of Security Holders...... 12
Item 6. Exhibits and Reports on Form 8-K......................... 12
Signatures........................................................ 13
Index to Exhibits................................................. 14
Exhibit 11 - Computation of Earnings (Loss) per
Common and Common Equivalent Share.............................. 15
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WSMP, INC. AND SUBSIDIARIES
- ----------------------------------------------------
Consolidated Condensed Balance Sheets
(Unaudited)
August 15, February 28,
ASSETS 1997 1997
- ------ ----------- ------------
Current assets:
Cash and cash equivalents $ 615,953 $ 2,424,982
Marketable equity securities 192,590 171,910
Accounts receivable, net:
Trade and other 6,848,881 3,206,256
Related party 154,001 254,744
Current portion of notes receivable, net:
Related party 393,508 409,996
Other 526,174 563,644
Inventories 7,057,925 6,210,990
Income taxes refundable 67,955 343,557
Prepaid expenses and other 168,154 27,710
Deferred income taxes 289,721 454,259
------------ ------------
Total current assets 16,314,862 14,068,048
------------ ------------
Property, plant and equipment, net 23,650,076 22,952,785
------------ ------------
Other assets:
Properties held for sale 2,518,086 3,277,670
Excess of cost over fair value of net assets
of businesses acquired, net 3,013,682 628,186
Covenant not to compete 861,404
Noncurrent notes receivable 596,824 470,345
Noncurrent related party notes receivable 795,493 963,117
Investment in affiliates 374,533
Other 428,706 391,916
------------ ------------
Total other assets 8,214,195 6,105,767
------------ ------------
Total assets $48,179,133 $43,126,600
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
- ----------------------------------------------------
(Unaudited)
August 15, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
- ------------------------------------ ----------- ------------
Current liabilities:
Notes payable $ 3,530,175 $ 4,027,776
Current installments of long-term debt 1,540,036 1,297,792
Trade accounts payable 4,981,269 2,879,309
Income taxes payable 278,165 9,572
Other accrued liabilities 3,279,604 2,952,899
------------ ------------
Total current liabilities 13,609,249 11,167,348
Deferred income taxes 1,217,765 1,247,504
Long-term debt, excluding current installments 11,158,568 12,422,150
------------ ------------
Total liabilities 25,985,582 24,837,002
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock - par value $.10, authorized
2,500,000 shares; no shares issued
Common stock - par value $1, authorized
10,000,000 shares; issued 3,260,839 shares at
August 15, 1997 and 2,919,088 shares at
February 28, 1997 3,260,839 2,919,088
Capital in excess of par value 9,807,697 7,141,097
Unrealized gain on securities available for sale 10,250 10,059
Retained earnings 9,114,765 8,219,354
------------ ------------
Total shareholders' equity 22,193,551 18,289,598
------------ ------------
Total liabilities and shareholders' equity $ 48,179,133 $ 43,126,600
============ ============
WSMP, INC. AND SUBSIDIARIES
- ----------------------------------------------------
Consolidated Condensed Statements of Operations and Retained Earnings
Three Months Ended August 15, 1997 and August 9, 1996
(Unaudited)
1997 1996
---- ----
Operating revenues:
Food sales $ 27,006,146 $ 18,735,866
Franchise, royalty and other fees
(includes related party transactions
totaling $70,523 in 1997 and $216,288
in 1996) 477,112 627,287
-------------- --------------
Total operating revenues 27,483,258 19,363,153
-------------- --------------
Costs and expenses:
Cost of goods sold (includes related
party transactions totaling $79,720 in
1997 and $142,456 in 1996) 19,129,054 13,895,959
Operating expenses (includes related
party transactions totaling $224,818
in 1997 and $235,601 in 1996) 4,373,018 2,845,243
Selling, general and administrative
expenses (includes related party
transactions totaling $421,587 in 1997
and $444,945 in 1996) 2,123,876 1,736,137
Depreciation and amortization 703,335 594,362
-------------- --------------
Total costs and expenses 26,329,283 19,071,701
-------------- --------------
Operating income 1,153,975 291,452
-------------- --------------
Other income (expense):
Other income (includes interest and
related party transactions totaling
$40,897 in 1997 and $91,032 in 1996) 198,201 411,320
Net gain (loss) on dispositions and
write-downs of assets (includes
related party transactions totaling
$111,518 in 1997) 66,533 (4,489)
Equity in loss of affiliates (14,000) (50,500)
Interest expense (includes related
party transactions totaling $16,209
in 1997 and $9,627 in 1996) (355,100) (416,304)
Other expense (includes related party
transactions totaling $29,548 in 1997
and $14,623 in 1996) (101,300) (234,227)
-------------- --------------
Net other expense (205,666) (294,200)
-------------- --------------
Earnings (loss) before income tax
(benefit) 948,309 (2,748)
Provision for income tax (benefit) 346,133 (1,479)
-------------- --------------
Net earnings (loss) $ 602,176 $ (1,269)
============== ==============
Retained earnings:
Balance at beginning of period $ 8,512,589 $ 7,346,557
Net earnings (loss) 602,176 (1,269)
-------------- --------------
Balance at end of period $ 9,114,765 $ 7,345,288
============== ==============
Net earnings (loss) per common and
common equivalent share $ .16 $ (.00)
============== ==============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations and Retained Earnings
Six Months Ended August 15, 1997 and August 9, 1996
(Unaudited)
1997 1996
---- ----
Operating revenues:
Food sales $ 51,850,008 $ 38,465,071
Franchise, royalty and other fees
(includes related party transactions
totaling $161,535 in 1997 and $443,493
in 1996) 928,904 1,277,437
-------------- --------------
Total operating revenues 52,778,912 39,742,508
-------------- --------------
Costs and expenses:
Cost of goods sold (includes related
party transactions totaling $209,118
in 1997 and $270,703 in 1996) 36,435,063 28,487,256
Operating expenses (includes related party
transactions totaling $584,527 in 1997
and $403,964 in 1996) 8,724,639 5,611,408
Selling, general and administrative expenses
(includes related party transactions totaling
$853,456 in 1997 and $924,983 in 1996) 4,260,424 3,396,903
Depreciation and amortization 1,417,050 1,183,835
-------------- --------------
Total costs and expenses 50,837,176 38,679,402
-------------- --------------
Operating income 1,941,736 1,063,106
-------------- --------------
Other income (expense):
Other income (includes interest and related
party transactions totaling $62,717 in 1997
and $129,719 in 1996) 391,460 641,491
Net gain (loss) on dispositions and write-
downs of assets(includes gains from related
party transactions totaling $111,518 in 1997) 20,486 150
Equity in earnings (loss) of affiliates 4,000 (84,500)
Interest expense (includes related party
transactions totaling $33,965 in 1997 and
$17,948 in 1996) (738,626) (833,627)
Other expense (includes related party
transactions totaling $64,564 in 1997 and
$30,556 in 1996) (208,960) (382,309)
-------------- --------------
Net other expense (531,640) (658,795)
-------------- --------------
Earnings before income taxes 1,410,096 404,311
Provision for income taxes 514,685 157,681
-------------- --------------
Net earnings $ 895,411 $ 246,630
============== ==============
Retained earnings:
Balance at beginning of period $ 8,219,354 $ 7,098,658
Net earnings 895,411 246,630
-------------- --------------
Balance at end of period $ 9,114,765 $ 7,345,288
============== ==============
Net earnings per common and common
equivalent share $ .24 $ .08
============== ==============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Condensed Statements of Cash Flows
Six Months Ended August 15, 1997 and August 9, 1996
(Unaudited)
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 895,411 $ 246,630
------------ ------------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,466,292 1,183,835
Depreciation of properties leased to others 42,225 130,488
Decrease in deferred income taxes, net 134,990 (50,578)
Provision for losses on receivables 24,633 143,206
Net gain on dispositions of assets (net of write-downs) (20,486) (150)
Other non-cash adjustments to earnings (77,004) 99,110
Changes in operating assets and liabilities
(net of effects from purchase of restaurant
companies) providing (using) cash:
Receivables (3,623,432) (263,010)
Inventories (726,883) (991,915)
Income taxes refundable, prepaid expenses and other 131,460 88,728
Trade accounts payable and other accrued liabilities 2,457,915 718,380
------------ ------------
Total adjustments (190,290) 1,058,094
------------ ------------
Net cash provided by operating activities 705,121 1,304,724
------------ ------------
Cash flows from investing activities:
Increase in marketable equity securities (20,680) (2,169)
Proceeds from sales of assets to others 1,261,892 202,211
Proceeds from sales of assets to related parties 310,000
Decrease in related party notes receivables 179,452 176,460
Decrease in other notes receivable 364,213 144,416
Deposits, net of refunds (27,632) (14,670)
Capital expenditures to related parties (342,851) (126,155)
Capital expenditures-others (1,457,207) (733,875)
------------ ------------
Net cash provided by (used in) investing activities 267,187 (353,782)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (2,379,936) (740,816)
Net repayments under short-term borrowing agreements (497,601)
Proceeds from exercise of stock options 96,200
------------ ------------
Net cash used in financing activities (2,781,337) (740,816)
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,809,029) 210,126
Cash and cash equivalents at beginning of period 2,424,982 430,311
------------ ------------
Cash and cash equivalents at end of period $ 615,953 $ 640,437
============ ============
</TABLE>
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 necessary to present
fairly the financial position as of August 15, 1997 and February 28, 1997
and the results of operations for the fiscal quarters and six months ended
August 15, 1997 and August 9, 1996 and the cash flows for the six months
ended August 15, 1997 and August 9, 1996.
2. The results of operations for the fiscal quarters and six months ended
August 15, 1997 and August 9, 1996 are not necessarily indicative of the
results to be expected for the full year.
3. Financial statements for fiscal 1997 periods have been reclassified, where
applicable, to conform to financial statement presentation used in fiscal
1998.
4. Earnings (loss) per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during each
fiscal period. Common equivalent shares relate to outstanding stock
options. The weighted average number of shares used in the calculations
are 3,716,092 and 2,973,523 for the six months ended in 1997 and 1996,
respectively. The weighted average number of shares used in the
calculations for the second fiscal quarter in 1997 and 1996, are 3,748,561
and 2,760,338, respectively.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128) was issued to simplify the standards for
computing earnings per share (EPS) and make them comparable to interna-
tional EPS standards. SFAS 128 is effective for periods ending after
December 15, 1997 and can not be adopted at an earlier date. SFAS 128
will require dual presentation of basic and diluted EPS on the face of the
statement of current earnings and a reconciliation of the components of the
basic and diluted EPS calculations in the notes to the financial state-
ments. Basic EPS excludes dilution and is computed by dividing net
earnings by the weighted-average number of common shares outstanding for
the period. Diluted EPS is similar to fully diluted EPS pursuant to
Accounting Principles Board (APB) Opinion No. 15. The Company will adopt
SFAS 128 in the quarter and year ending February 27, 1998. Had the new
standard been applied in the quarter ended August 15, 1997, diluted EPS
would have been the same as primary EPS under APB Opinion No. 15. Basic
EPS would have been as follows:
Three Months Ended Six Months Ended
------------------------ ------------------------
August 15, August 9, August 15, August 9,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Basic EPS $ .18 $ (.00) $ .28 $ .09
========== ========== ========== ==========
Weighted Average
Number of Common
Shares Outstanding 3,260,641 2,760,338 3,254,092 2,760,338
========== ========== ========== ==========
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>
August 15, February 28, August 9, February 23,
1997 1997 1996 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Hams in curing process $ 1,768,068 $ 1,734,178 $ 2,490,855 $ 1,326,420
Other food (includes cured hams) 3,741,552 2,716,670 2,549,074 2,818,418
Supplies 1,548,305 1,760,142 1,505,627 1,408,803
----------- ----------- ----------- -----------
Totals $ 7,057,925 $ 6,210,990 $ 6,545,556 $ 5,553,641
=========== =========== =========== ===========
</TABLE>
7. The Company has certain debt obligations that contain restrictive
covenants. The Company was in compliance with these covenants at August
15, 1997.
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.
9. Supplemental cash flow disclosures - cash paid during the period for:
Six Months Ended
-----------------------------------
August 15, 1997 August 9, 1996
--------------- --------------
Interest $ 654,378 $ 812,598
=============== ==============
Income taxes $ 10,595 $ 14,666
=============== ==============
During the first quarter of fiscal 1998, the Company purchased fixed
assets, goodwill and inventories of certain franchised restaurants in
exchange for cash, the assumption of current and long-term liabilities,
the issuance of long-term notes, and the forgiveness of a note receivable.
Also, as part of the same transaction, the Company issued 98,750 shares
of common stock in exchange for a non-competition agreement. Specific
amounts relating to items purchased and consideration given are set forth
in Note 10.
During fiscal 1998, the Company sold its investment in two affiliated
companies, accounted for under the equity method, for cash totaling
$150,000 and notes receivables totaling $295,450.
The Company acquired machinery and equipment totaling $81,877 through
capital leases and the issuance of notes payable during fiscal 1998.
During fiscal 1998, the Company issued 890 common shares to employees under
its services award program. The fair value of the stock issued and the
related expense recorded totaled $10,903.
Accounts receivable totaling $61,420 and $53,595 were converted to notes
receivable in fiscal 1998 and fiscal 1997, respectively.
During fiscal 1997, the Company purchased a restaurant property by
exchanging land with a book value of $260,236 and assuming a note payable
in the amount of $527,695.
10. On March 1, 1997, the Company acquired fourteen franchised restaurants from
various corporations predominantly owned by a former executive officer of
the Company for a total purchase price of $3,767,500 payable as follows:
$500 in cash; $352,780 in assumed current liabilities; $476,720 in assumed
long-term liabilities; $125,000 in forgiveness of a note receivable from
seller; $2,012,500 in common stock of the Company; and a two year 5%
promissory note in the amount of $800,000. As part of this transaction,
223,611 shares of common stock were issued to the selling corporations. In
addition, costs associated with the acquisition totaling $64,707 were
capitalized as part of the transaction. The acquisition price is
allocated as follows: $1,203,413 to fixed assets, $2,477,481 to excess of
cost over fair value of net assets of businesses acquired and $151,313 to
restaurant inventories.
In addition, existing lease agreements for eleven of the restaurant
properties were assigned to the Company. Also the Company signed new lease
agreements on the remaining three properties. All of these leases are
classified as operating leases.
Also as part of this transaction, the former executive officer, which was
also the single largest franchisee, entered into a fifteen-year non-
competition agreement with the Company in exchange for 98,750 shares of
common stock valued at $888,750. These shares are restricted securities
and their resale is subject to certain conditions.
11. On August 28, 1997, subsequent to the end of the current year second
quarter, the board of directors declared a dividend of preferred stock
purchase rights and established a new series of preferred stock issuable
upon exercise of the rights. The preferred stock purchase rights were
distributed to common stock shareholders of record on September 10, 1997,
and will expire on September 10, 2007, unless redeemed earlier at $.001
right.
The rights are designed to make it more likely that all of the Company's
shareholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to guard against the use of coercive tactics
to gain control of the Company. The rights also provide protection against
a controlling shareholder taking advantage of its position by engaging in
transactions for its benefit and to other shareholders detriment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth for the periods indicated percentages which
certain items reflected in the financial data bear to operating revenue of the
Company:
<TABLE>
<CAPTION>
Relationship to Total Operating Revenue
----------------------------------------------------
Three Months Ended Six Months Ended
------------------------ ------------------------
August 15, August 9, August 15, August 9,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Restaurant food sales 35.1% 32.3% 36.4% 31.1%
Manufacturing sales 63.1 64.5 61.9 65.7
Franchise, royalty and other fees 1.8 3.2 1.7 3.2
-------- -------- -------- --------
Total operating revenue 100.0 100.0 100.0 100.0
Cost of goods sold 69.6 71.7 69.0 71.7
Operating expenses 15.9 14.7 16.5 14.1
Selling, general and administrative
expenses 7.7 9.0 8.1 8.5
Depreciation and amortization 2.6 3.1 2.7 3.0
-------- -------- -------- --------
Total operating income 4.2 1.5 3.7 2.7
Net other income (expenses) (.7) (1.5) (1.0) (1.7)
-------- -------- -------- --------
Earnings before income taxes 3.5 .0 2.7 1.0
Provision for income taxes 1.3 .0 1.0 .4
-------- -------- -------- --------
Net earnings 2.2% .0% 1.7% .6%
======== ======== ======== ========
</TABLE>
The Company operates in three principal lines of business. Segment information
is presented as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
August 15, 1997 August 9, 1996 August 15, 1997 August 9, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating Revenues:
- -------------------
Food processing $ 17,349,671 $ 12,480,872 $ 32,649,839 $ 26,104,433
Restaurant operations 9,656,475 6,254,994 19,200,169 12,360,638
Restaurant franchising 477,112 627,287 928,904 1,277,437
------------- ------------- ------------- -------------
Total operating revenues $ 27,483,258 $ 19,363,153 $ 52,778,912 $ 39,742,508
============= ============= ============= =============
Operating Profits:
- ------------------
Food processing $ 913,267 $ 283,213 $ 1,618,039 $ 896,237
Restaurant operations 957,000 683,427 1,901,625 1,392,106
Restaurant franchising 349,489 365,179 636,686 754,267
Corporate expenses (1,065,781) (1,040,367) (2,214,614) (1,979,504)
------------- ------------- ------------- -------------
Operating Income 1,153,975 291,452 1,941,736 1,063,106
Other income (expense) 149,434 122,104 206,987 174,832
Interest expense (355,100) (416,304) (738,627) (833,627)
------------- ------------- ------------- -------------
Earnings (loss) before
income taxes (benefit) $ 948,309 $ (2,748) $ 1,410,096 $ 404,311
============= ============= ============= =============
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Second Quarter Ended August 15, 1997 Compared with Second Quarter Ended August
9, 1996
------------------------------------------------------------------------------
Consolidated food sales revenue increased $8.3 million, or 44.1%, to $27.0
million during the second quarter of fiscal 1998, compared to the second
quarter of fiscal 1997. Approximately $3.4 million of this increase occurred
in the restaurant segment and is due to a net increase in the number of
company owned units from twenty at the end of the second quarter of fiscal
1997 to thirty-four at the end of the current year second quarter. This
increase in number of units reflects the purchase of thirteen Western Steer
restaurants and one Prime Sirloin restaurant on March 1, 1997 from the single
largest franchisee of the Company. These units were acquired primarily
through the issuance of stock and the assumption of certain liabilities in a
transaction accounted for under the purchase method of accounting (see Note
10). In addition, the Company purchased three other Western Steer units
during the first quarter of the current fiscal year from other franchise
operators. The number of units added through these acquisitions were offset
by the closing of two stores during the last two quarters of fiscal 1997, as
well as the sale of a store at the beginning of the current quarter.
The food processing segment accounted for the remaining $4.9 million increase
in food sales revenue during the second quarter of fiscal 1998. Approximately
$4.8 million relates to increased sales of items in the prepared foods
category. This category represents fully cooked items that are sold frozen or
refrigerated. It includes all items produced and packaged as part of the
bakery and sandwich packaging operations, as well as items being developed and
packaged for the developing home meal replacement market. Approximately $2.4
million of the increase relates to sales of sandwich items, with the remaining
increase relating to sales of newly developed home meal replacement items.
The ham curing division also experienced an increase in sales of approximately
$111,000 during the second quarter of fiscal 1998 over the corresponding
quarter of fiscal 1997.
Franchise, royalty and other fees in the second quarter of fiscal 1998
declined 23.9%, or $150,000, over the comparable period in fiscal 1997. This
decrease is attributed to a net decline in the number of franchise units from
seventy at the beginning of the second quarter of fiscal 1997 to forty-seven
at the end of the current quarter. A major factor in the decrease in
franchise units is the Company's acquisition of seventeen franchise units
during the first quarter of fiscal 1998 as discussed previously.
Total operating income increased from $291,452 in the second quarter of fiscal
1997 to $1,153,975 in the second quarter of fiscal 1998. Approximately
$630,000 of this increase occurred in the food processing segment. The ham
curing division contributed $112,000 to this increase as a result of revenues
increasing while costs were held relatively stable. The remaining increase in
operating profits in the food processing segment reflects the increase in
sales of prepared food items discussed above. The restaurant segment also
experienced an increase in operating profits during the second quarter of
fiscal 1998 over the comparable period of fiscal 1997. This increase,
totaling approximately $274,000, is due to the increase in restaurant units
and related revenues.
Six Months Ended August 15, 1997 Compared with Six Months Ended August 9, 1996
------------------------------------------------------------------------------
Consolidated food sales revenue increased $13.4 million, or 34.8%, during the
first six months of fiscal 1998, compared to the first six months of fiscal
1997. Approximately $6.8 million of this increase occurred in the restaurant
segment and is attributed to the net increase in company owned units as
discussed previously. The food processing segment also experienced a
significant increase in food sales revenue during the first half of fiscal
1998, compared with the corresponding period of the prior year. Total revenue
for this segment increased $6.5 million, or 25.1%, during this period. The
prepared foods division led this growth with sales from bakery and sandwich
packaging operations increasing $3.0 million. In addition, new items
developed for the home meal replacement market generated increased revenue
totaling $3.8 million during the first six months of fiscal 1998. These
increases helped offset a decrease in revenue in the ham curing division
totaling $321,000 during the first six months of fiscal 1998.
Franchise, royalty and other fees for the first half of fiscal 1998 declined
$349,000 from the corresponding period of fiscal 1997. As discussed above,
this is the result of the reduction in the overall number of franchise units,
with a major portion of this reduction being attributed to the Company's
acquisition of several franchise units.
Total operating income increased $878,630, or 82.6%, in the first half of
fiscal 1998, compared with the same period in fiscal 1997. The restaurant
segment contributed approximately $510,000 of this increase as a result of the
increase in number of company owned units as previously discussed. The food
processing segment also experienced an increase in operating profits totaling
$722,000 due to the increase in revenues during the first half of fiscal 1998.
These increases in operating profits were offset by a decline in operating
profits in restaurant franchising segment which is attributed to the decrease
in the number of franchise units. In addition, corporate expenses increased
$235,000 during the first six months of fiscal 1998, due primarily to
increased legal and accounting costs incurred during the first quarter of
fiscal 1998, as well as increased costs associated with investor relation
activities.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
---------------------------------------------------
The Company had working capital of $2.7 million at August 15, 1997, reflecting
little change from $2.9 million at February 28, 1997. Accounts receivable,
inventories, and accounts payable increased between February 28, 1997, and
August 15, 1997 as a result of the increased level of sales, while cash and
cash equivalents decreased as described in the following paragraph. Working
capital provided from operations and the sale of assets totaled $2.3 million
and $1.6 million, respectively, and was used to fund capital expenditures and
repayments on long-term debt totaling $1.8 million and $2.4 million respective-
ly. Management anticipates growth in the working capital position of the
Company as a result of continued profitability of operations and anticipated
sales of certain non-core assets.
Total cash and cash equivalents decreased during the first six months of fiscal
1998 from $2.4 million at February 28, 1997 to $615,953 at August 15, 1997.
Profitable operations and the sale of certain assets during the first six
months of fiscal 1998 generated cash totaling $705,000 and $1.6 million,
respectively. This was offset by capital expenditures and repayments of long-
term debt, as mentioned above, as well as reductions in short-term borrowings
totaling $498,000.
Total other assets increased from $6.1 million at February 28, 1997 to $8.2
million at August 15, 1997. This increase occurred as a result of the purchase
of fourteen franchise units from the Company's largest franchisee. This
transaction, as described in Note 10 to the financial statements, resulted
in the Company recording $2.5 million as excess of cost over fair value of
net assets of businesses acquired. In addition, a non-competition agreement
was entered into with the former franchisee as part of this acquisition,
resulting in the Company recording an asset for the covenant not to compete.
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The annual meeting of Shareholders of WSMP, Inc. was held on June 27, 1997.
The two matters submitted to the vote of the shareholders were the election of
directors and a proposal to approve the WSMP, Inc. 1997 Incentive Stock Option
Plan.
The following directors were elected at the annual meeting:
David R. Clark Lewis C. Lanier
William R. McDonald, III
The following directors continued in office after this meeting:
Richard F. Howard Richard F. Hendrickson
James M. Templeton Bobby G. Holman
James C. Richardson, Jr. E. Edwin Bradford
The Board of Directors, unanimously approved and voted to recommend to the
Shareholders the acceptance and approval of the proposed WSMP, Inc. 1997
Incentive Stock Option Plan. The Plan was approved by the Shareholders of WSMP,
Inc. at this annual meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
- -------------------------------------------
(a) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
August 15, 1997.
SIGNATURES
----------
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: September 29, 1997 By: JAMES C. RICHARDSON, JR.
------------------- -------------------------------
James C. Richardson, Jr.
(Chief Executive Officer)
Date: September 29, 1997 By: MATTHEW V. HOLLIFIELD
------------------- -------------------------------
Matthew V. Hollifield
(Vice President of Finance and
Principal Accounting Officer)
INDEX TO EXHIBITS
For inclusion in Quarterly Report on Form 10-Q Quarter Ended August 15, 1997
Exhibit No. Page No.
- ----------- --------
11 Computation of Per Share Earnings (Loss) 14
Exhibit 11
----------
WSMP, INC. AND SUBSIDIARIES
- ----------------------------------------
Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
August 15, August 9, August 15, August 9,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computation of Earnings (Loss) Per
Common and Common Equivalent Share:
Net earnings (loss) $ 602,176 $ (1,269) $ 895,411 $ 246,630
=========== =========== =========== ===========
Weighted average shares computation:
Actual outstanding shares at
beginning of period 2,919,088 2,760,338 2,919,088 2,760,338
Add weighted average
shares applicable to:
Common stock issued 323,220 322,790
Common stock options exercised 18,333 12,214
Common stock options outstanding 487,920 462,000 213,185
----------- ----------- ----------- -----------
Weighted average shares as
Adjusted 3,748,561 2,760,338 3,716,092 2,973,523
=========== =========== =========== ===========
Earnings (loss) per common and
common equivalent share $ .16 $ (.00) $ .24 $ .08
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1997 2nd
quarter 10-Q for WSMP, Inc. and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-27-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-15-1997
<CASH> 615,953
<SECURITIES> 192,590
<RECEIVABLES> 6,712,430
<ALLOWANCES> 35,000
<INVENTORY> 7,057,925
<CURRENT-ASSETS> 16,314,862
<PP&E> 45,820,512
<DEPRECIATION> 22,170,436
<TOTAL-ASSETS> 48,179,133
<CURRENT-LIABILITIES> 13,609,249
<BONDS> 12,698,604
0
0
<COMMON> 3,260,839
<OTHER-SE> 18,932,712
<TOTAL-LIABILITY-AND-EQUITY> 48,179,133
<SALES> 51,850,008
<TOTAL-REVENUES> 52,778,912
<CGS> 36,435,063
<TOTAL-COSTS> 36,435,063
<OTHER-EXPENSES> 8,724,639
<LOSS-PROVISION> 24,633
<INTEREST-EXPENSE> 738,626
<INCOME-PRETAX> 1,410,096
<INCOME-TAX> 514,685
<INCOME-CONTINUING> 895,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 895,411
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
