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 May 23, 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 June 30, 1997
Common Stock, $1.00 par value 3,259,949
WSMP, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
-------------------------------------------------
Page No.
--------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
May 23, 1997 and February 28, 1997.................................. 1-2
Consolidated Condensed Statements of
Operations and Retained Earnings -
Quarters Ended May 23, 1997 and
May 17, 1996........................................................ 3
Consolidated Condensed Statements of Cash
Flows - Quarters Ended May 23, 1997 and
May 17, 1996........................................................ 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 23, February 28,
1997 1997
ASSETS ----------- ------------
- -------------
Current assets:
Cash and cash equivalents $ 997,690 $ 2,424,982
Marketable equity securities 178,639 171,910
Accounts receivable, net:
Trade and others 5,598,535 3,206,256
Related party 179,333 254,744
Current portion of notes receivable, net:
Related party 426,508 563,644
Other 499,563 409,996
Inventories 6,420,978 6,210,990
Prepaid expenses and other 354,661 371,267
Deferred income taxes 386,557 454,259
----------- -----------
Total current assets 15,042,464 14,068,048
----------- -----------
Property, plant and equipment, net 24,120,783 22,952,785
----------- -----------
Other assets:
Properties held for sale 3,227,670 3,277,670
Excess of cost over fair value of net assets
of businesses acquired, net 3,054,602 628,186
Covenant not to compete 875,100
Noncurrent notes receivable 355,658 470,345
Noncurrent related party notes receivable 795,493 963,117
Investment in affiliates 392,533 374,533
Other 548,264 391,916
----------- -----------
Total other assets 9,249,320 6,105,767
----------- -----------
Total assets $48,412,567 $43,126,600
=========== ===========
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
(Unaudited)
May 23, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
- ------------------------------------ ------------ ------------
Current Liabilities:
Notes payable $ 3,225,478 $ 4,027,776
Current installments of long-term debt 1,477,404 1,297,792
Trade accounts payable 4,947,534 2,879,309
Other accrued liabilities 3,482,917 2,962,471
------------ ------------
Total current liabilities 13,133,333 11,167,348
Deferred income taxes 1,245,840 1,247,504
Long-term debt, excluding current installments 12,481,494 12,422,150
------------ ------------
Total liabilities 26,860,667 24,837,002
------------ ------------
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 3,253,949 shares at
May 23, 1997 and 2,919,088 at February 28, 1997 3,253,949 2,919,088
Capital in excess of par value 9,772,485 7,141,097
Unrealized gain on securities available for sale 12,877 10,059
Retained earnings 8,512,589 8,219,354
------------ ------------
Total shareholders' equity 21,551,900 18,289,598
------------ ------------
Total liabilities and shareholders' equity $ 48,412,567 $ 43,126,600
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Consolidated Condensed Statements of Operations and Retained Earnings
Quarters Ended May 23, 1997 and May 17, 1996
(Unaudited)
1997 1996
Operating revenues: ------------- -------------
Food sales $ 24,843,862 $ 19,729,205
Franchise, royalty and other fees (includes
related party transactions totaling
$91,012 in 1997 and $227,205 in 1996) 451,792 650,150
------------- -------------
Total operating revenues 25,295,654 20,379,355
------------- -------------
Costs and expenses:
Cost of goods sold (includes related party
transactions totaling $129,398 in 1997 and
$128,247 in 1996) 17,306,009 14,591,298
Operating expenses (includes related party
transactions totaling $359,709 in 1997 and
$168,363 in 1996) 4,351,621 2,766,165
Selling, general and administrative expenses
(includes related party transactions totaling
$431,869 in 1997 and $480,038 in 1996) 2,136,548 1,660,766
Depreciation and amortization 713,715 589,473
------------- -------------
Total costs and expenses 24,507,893 19,607,702
------------- -------------
Operating income 787,761 771,653
------------- -------------
Other income (expense):
Other income (including interest, and related
party transactions totaling $21,820 in 1997
and $38,687 in 1996) 193,259 230,171
Net gain (loss) on dispositions and write-downs
of assets (46,047) 4,639
Equity in earnings (loss) of affiliates 18,000 (34,000)
Interest expense (includes related party
transactions totaling $17,756 in 1997 and
$8,321 in 1996) (383,526) (417,323)
Other expense (includes related party transactions
totaling $35,016 in 1997 and $15,933 in 1996) (107,660) (148,082)
------------- -------------
Net other expense (325,974) (364,595)
------------- -------------
Earnings before income taxes 461,787 407,058
Provision for income taxes 168,552 159,159
------------- -------------
Net earnings $ 293,235 $ 247,899
============= =============
Retained earnings:
Balance at beginning of period $ 8,219,354 $ 7,098,658
Net earnings 293,235 247,899
------------- ------------
Balance at end of period $ 8,512,589 $ 7,346,557
============= =============
Net earnings per common and common
equivalent share $ .08 $ .08
============= =============
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Condensed Statements of Cash Flows
Quarters Ended May 23, 1997 and May 17, 1996
(Unaudited)
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 293,235 $ 247,899
----------- ------------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 713,714 589,542
Depreciation of properties leased to others 42,225 64,577
Provision for losses on receivables 12,810 69,000
Net (gain) loss on disposition of assets 46,047 (4,639)
Other non-cash adjustments to earnings (35,676) 24,142
Changes in operating assets and liabilities
(net of effects from purchase of restaurant
companies providing (using) cash:
Receivables (2,329,370) (119,090)
Inventories (74,300) (99,620)
Income taxes refundable, prepaid expenses and other 16,606 174,499
Trade accounts payable and other accrued liabilities 2,235,892 (99,751)
------------ ------------
Total adjustments 627,948 598,660
------------ ------------
Net cash provided by operating activities 921,183 846,559
------------ ------------
Cash flows from investing activities:
Increase in marketable equity securities (2,591) (1,283)
Proceeds from sales of assets to others 5,220 132,103
Decrease in related party notes receivables 179,452 193,885
Decrease in other notes receivable 25,120 195,388
Deposits, net of refunds (123,958) (1,414)
Capital expenditures to related parties (178,060) (33,399)
Capital expenditures - others (428,595) (327,967)
------------ ------------
Net cash provided by (used in) investing activities (523,412) 157,313
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (1,087,765) (474,680)
Net repayments under short-term borrowing agreements (802,298)
Proceeds from exercise of stock options 65,000
------------ ------------
Net cash used in financing activities (1,825,063) (474,680)
------------ ------------
Net increase (decease) in cash and cash equivalents (1,427,292) 529,192
Cash and cash equivalents at beginning of period 2,424,982 430,311
------------ ------------
Cash and cash equivalents at end of period $ 997,690 $ 959,503
============ ============
</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 (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of May 23, 1997 and February 28, 1997 and the results of
operations and the cash flows for the fiscal quarters ended May 23, 1997
and May 17, 1996.
2. The results of operations for the fiscal quarters ended May 23, 1997 and
May 17, 1996 are not necessarily indicative of the results to be expected
for the full year.
3. Financial statements for fiscal 1997 have been reclassified, where
applicable, to conform to financial statement presentation used in fiscal
1998.
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 of earnings
per common and common equivalent shares are 3,664,607 and 2,936,769 for the
three months ended in 1997 and 1996, 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 international
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 statements. 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 ending May 23, 1997, basic and diluted EPS would
have been the same as primary and fully diluted EPS under APB Opinion
No. 15.
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 23, February 28, May 17, February 23,
1997 1997 1996 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Hams in curing process $ 1,766,767 $ 1,734,178 $ 1,933,953 $ 1,326,420
Other food (includes cured hams) 3,088,862 2,716,670 2,248,629 2,818,418
Supplies 1,565,349 1,760,142 1,470,679 1,408,803
----------- ----------- ----------- -----------
Totals $ 6,420,978 $ 6,210,990 $ 5,653,261 $ 5,553,641
=========== =========== =========== ===========
</TABLE>
7. The Company has certain debt obligations that contain restrictive covenants.
The Company was in compliance with these covenants at May 23, 1997, or had
received waivers for noncompliance.
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:
Quarters Ended
------------------------------
May 23, 1997 May 17, 1996
------------ ------------
Interest $ 343,788 $ 411,295
============ ============
Income taxes $ 10,595 $ 11,000
============ ============
An accounts receivable from a certain franchisee totaling $53,595 in fiscal
1997 was converted to notes receivable.
During the first quarter of fiscal 1998, the Company purchased fixed assets,
goodwill and restaurant inventories 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 fifteen-
year non-competition agreement. Specific amounts relating to items purchased
and consideration given are set forth in Note 10.
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.
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 23, 1997 May 17, 1996 1998-97
------------ ------------ -------
<S> <C> <C> <C>
Restaurant food sales 37.7 30.0 56.3
Manufacturing sales 60.5 66.8 12.3
Franchise, royalty and other fees 1.8 3.2 (30.5)
-------- --------
Total operating revenue 100.0 100.0 24.1
Cost of goods sold 68.4 71.6 18.6
Operating expenses 17.2 13.6 57.3
Selling, general and administrative
expenses 8.5 8.1 28.6
Depreciation and amortization 2.8 2.9 21.1
-------- --------
Total operating income 3.1 3.8 2.1
Net other income (expense) (1.3) (1.8) (10.6)
-------- --------
Earnings before income taxes 1.8 2.0 13.4
Provision for income taxes .6 .8 5.9
-------- --------
Net earnings 1.2 1.2 18.3
======== ======== ========
</TABLE>
The Company operates in three principal lines of business. Segment information
is presented as follows:
Quarters Ended
------------------------------
May 23, 1997 May 17, 1996
------------ ------------
Operating Revenues:
- ---------------------------
Food processing $ 15,300,168 $ 13,623,561
Restaurant operations 9,543,694 6,105,644
Restaurant franchising 451,792 650,150
------------- -------------
Total operating revenues $ 25,295,654 $ 20,379,355
============= =============
Operating Income
- ---------------------------
Food processing $ 704,772 $ 613,024
Restaurant operations 944,625 708,679
Restaurant franchising 287,197 389,088
Corporate expenses (1,148,833) (939,138)
------------- -------------
Operating Income 787,761 771,653
Other Income 57,552 52,728
Interest expense (383,526) (417,323)
------------- -------------
Earnings before income taxes $ 461,787 $ 407,058
============= =============
RESULTS OF OPERATIONS
- ---------------------
Consolidated food sales revenue increased from $19,729,205 in the first quarter
of fiscal 1997 to $24,843,862 in the first quarter of fiscal 1998.
Approximately $3.4 million of this increase occurred in the restaurant segment
as a result of a net increase in the number of company owned units from twenty
at the end of the first quarter of fiscal 1997 to thirty-five at the end of the
current year first quarter. A major event attributing to this increase was 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 purchased primarily through the issuance of stock and the assumption of
certain liabilities (see Note 10). In addition, three other Western Steer units
were acquired during the first quarter of the current year from other franchise
operators. Offsetting the effects of these new units is the closing of three
units, which occurred during the last three quarters of fiscal 1997. Average
same store sales in company-owned units increased 1.2% during the first quarter
of fiscal 1998 over the same quarter of fiscal 1997.
The food processing segment also contributed to the increase in food sales
revenue. Total revenue for this segment during the first quarter of 1998 showed
an increase of $1.7 million over the first three months of fiscal 1997. The
newly created home meal replacement division accounted for $1.4 million of this
increase. The creation of this division was announced during the first quarter
of fiscal 1998 and grew out of research and development efforts in the bakery
division.
Franchise, royalty and other fees in the first three months of fiscal 1998
declined 30.5%, or $198,000, over the comparable period of fiscal 1997. This
decrease is attributed to a net decline in the number of franchise units from
seventy-three at the beginning of fiscal 1997 to fifty-one at the end of the
first quarter of fiscal 1998. A major factor in this 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 $771,653 in the first quarter of fiscal
1997 to $787,761 in the first quarter of fiscal 1998. The restaurant segment
experienced an increase in operating income of $236,000, attributed to the
increase in restaurant units and relating revenues. Also, operating income in
the food processing segment increased $92,000 during the first three months of
fiscal 1998 over the same period in fiscal 1997. These increases were offset by
a reduction in operating income in the franchise segment totaling $102,000, due
to the reduction in the number of franchised units mentioned earlier. In
addition, total operating income during the first quarter of fiscal 1998 was
reduced by an increase in corporate expenses. These increased expenses relate
primarily to increased legal and accounting costs incurred during the first
quarter of fiscal 1998, as well as increased costs associated with investor
relations activities.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had working capital of $1.9 million at May 23, 1997, down from $2.9
million at February 28, 1997. This decrease is primarily the result of
repayments of long-term debt totaling $1.1 million during the first quarter of
fiscal 1998. This amount includes $600,000 related to an early repayment which
was made to achieve interest savings. Management anticipates growth in the
working capital position of the Company during the coming quarters 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 quarter of fiscal
1998 from $2.4 million at February 28, 1997 to $998,000 at May 23, 1997.
Profitable operations during the first quarter generated cash totaling $921,000.
Offsetting this during the first three months of fiscal 1998 were capital
expenditures totaling $607,000, as well as repayments of long-term debt totaling
$1.1 million, as mentioned above, and reductions in short term borrowings of
$802,000.
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 23, 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: June 30, 1997 By: JAMES C. RICHARDSON, JR.
-------------- -----------------------------
James C. Richardson, Jr.
(Chief Executive Officer)
Date: June 30, 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 May 23, 1997
Exhibit No. Page No.
- ----------- --------
11 Computation of Per Share Earnings 11
Exhibit 11
----------
WSMP, INC. AND SUBSIDIARIES
----------------------------------------------------
Computation of Per Share Earnings
Quarter Ended
-----------------------
May 23, May 17,
1997 1996
------- -------
Computation of Earnings Per Common and
Common Equivalent Share:
Net earnings $ 293,235 $ 247,899
========== ==========
Weighted average shares computation:
Actual outstanding shares at
beginning of period 2,919,088 2,760,338
Add weighted average shares applicable to:
Common stock issued 322,361
Common stock options exercised 1,185
Common stock options outstanding 421,973 176,431
---------- ----------
Weighted average shares as adjusted 3,664,607 2,936,769
========== ==========
Earnings per common and common equivalent share $ .08 $ .08
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1997 1st
quarter 10Q for WSMP, Inc. and is qualified in its entirety by reference to such
10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1998
<PERIOD-START> MAR-1-1997
<PERIOD-END> MAY-23-1997
<CASH> 997,690
<SECURITIES> 178,639
<RECEIVABLES> 5,456,374
<ALLOWANCES> 35,000
<INVENTORY> 6,420,978
<CURRENT-ASSETS> 15,042,464
<PP&E> 45,374,583
<DEPRECIATION> 21,253,800
<TOTAL-ASSETS> 48,412,567
<CURRENT-LIABILITIES> 13,133,333
<BONDS> 13,958,898
0
0
<COMMON> 3,253,949
<OTHER-SE> 18,297,951
<TOTAL-LIABILITY-AND-EQUITY> 48,412,567
<SALES> 24,843,862
<TOTAL-REVENUES> 25,295,654
<CGS> 17,306,009
<TOTAL-COSTS> 17,306,009
<OTHER-EXPENSES> 4,351,621
<LOSS-PROVISION> 12,810
<INTEREST-EXPENSE> 383,526
<INCOME-PRETAX> 461,787
<INCOME-TAX> 168,552
<INCOME-CONTINUING> 293,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293,235
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
