UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 22, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
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COMMISSION FILE NUMBER: 0-7277
FRESH FOODS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA
(State or other jurisdiction of incorporation or organization)
56-0945643
(I.R.S. Employer Identification No.)
3437 EAST MAIN STREET
CLAREMONT, NORTH CAROLINA 28610
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (828) 459-7626
WSMP, INC.
1 WSMP DRIVE, CLAREMONT, NORTH CAROLINA 28610
---------------------------------------------
(Former name or former address, 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 (3) 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 July 1, 1998
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COMMON STOCK, $1.00 PAR VALUE 5,906,009
FRESH FOODS, INC. AND SUBSIDIARIES
INDEX
Page No.
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Part I. Financial Information:
--------------------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
May 22, 1998 and February 27, 1998................................ 1-2
Consolidated Condensed Statements of
Operations and Retained Earnings -
Twelve Weeks Ended May 22, 1998
and May 23, 1997.................................................. 3
Consolidated Condensed Statements of Cash
Flows - Twelve Weeks Ended May 22, 1998 and
May 23, 1997...................................................... 4
Notes to Consolidated Condensed Financial
Statements........................................................ 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.................. 8-11
Part II. Other Information:
----------------------------------------------
Item 6. Exhibits and Reports on Form 8-K......................... 12
Signatures........................................................ 12
Index to Exhibits................................................. 13
Exhibit 11 - Computation of Earnings per
Common and Common Equivalent Share............................ 14
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
May 22, February 27,
ASSETS 1998 1998
- ------- ------------- -------------
Current assets:
Cash and cash equivalents $ 2,430,517 $ 2,818,071
Marketable equity securities 220,766 206,706
Accounts receivable, net(includes
related party receivables of
$179,146 and $181,367 at
May 22, 1998 and February 27, 1998) 4,083,905 5,204,700
Notes receivable-current, net(includes
related party notes receivable of
$973,037 and $526,592 at May 22,
1998 and February 27, 1998) 1,615,951 1,150,906
Inventories 7,611,973 7,361,347
Income taxes refundable 780,586 872,157
Deferred income taxes 413,131 424,786
Prepaid expenses and other current assets 579,893 269,222
------------ ------------
Total current assets 17,736,722 18,307,895
------------ ------------
Property, plant and equipment, net 48,130,675 45,023,793
------------ ------------
Other assets:
Properties held for sale 1,685,511 1,680,993
Intangible assets, net 3,676,992 3,735,866
Notes receivable(includes related
party notes receivable of $849,895
and $1,550,638 at May 22, 1998 and
February 27, 1998) 1,065,805 1,886,249
Deferred income taxes 682,808 685,458
Other 936,576 335,545
------------ ------------
Total other assets 8,047,692 8,324,111
------------ ------------
Total assets $ 73,915,089 $ 71,655,799
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ 6,351,875 $ 5,105,144
Current installments of long-term debt 2,410,073 2,189,401
Trade accounts payable 8,099,431 6,605,893
Other accrued liabilities 4,755,069 4,904,841
------------ ------------
Total current liabilities 21,616,448 18,805,279
Long-term debt, excluding
current installments 12,705,515 13,623,532
------------ ------------
Total liabilities 34,321,963 32,428,811
------------ ------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock - par value $.10,
authorized 2,500,000 shares;
no shares issued
Common stock - par value $1, authorized
100,000,000 shares; issued 5,902,824
shares at May 22, 1998 and 5,898,449
shares at February 27, 1998 5,902,824 5,898,449
Capital in excess of par value 23,665,395 23,647,020
Unrealized gain on securities
available for sale 23,641 19,261
Retained earnings 10,001,266 9,662,258
------------ -------------
Total shareholders' equity 39,593,126 39,226,988
------------ -------------
Total liabilities and
shareholders' equity $ 73,915,089 $ 71,655,799
============ =============
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations and Retained Earnings
Twelve Weeks Ended May 22, 1998 and May 23, 1997
(Unaudited)
1998 1997
------------ -------------
Operating revenues:
Food processing $ 13,394,846 $ 15,300,168
Restaurant operations and franchising
(includes related party transactions
totaling $25,296 in 1998 and $91,012
in 1997) 21,799,595 21,135,430
------------- -------------
Total operating revenues 35,194,441 36,435,598
------------- -------------
Costs and expenses:
Cost of goods sold (includes related
party transactions totaling $101,041
in 1998 and $129,398 in 1997) 20,227,927 21,478,981
Restaurant operating expenses
(includes related party transactions
totaling $850,295 in 1998 and $711,391
in 1997) 9,799,996 9,019,966
Selling, general and administrative
expenses (includes related party
transactions totaling $425,474 in 1998
and $431,869 in 1997) 2,765,919 2,915,953
Depreciation and amortization 1,126,334 1,015,764
------------- ------------
Total costs and expenses 33,920,176 34,430,664
------------- ------------
Operating income 1,274,265 2,004,934
------------- ------------
Other income (expense):
Other income (including interest)
(includes related party transactions
totaling $41,337 in 1998 and $21,820
in 1997) 180,633 167,228
Net loss on dispositions and write-downs
of assets (261,564) (46,047)
Equity in earnings (loss) of affiliates (7,964) 18,000
Interest expense (includes related party
transactions totaling $24,688 in 1998
and $17,756 in 1997) (419,668) (414,396)
Other expense (includes related party
transactions totaling $34,484 in 1998
and $35,016 in 1997) (221,548) (107,660)
------------- -------------
Net other income (expense) (730,111) (382,875)
------------- -------------
Earnings before income tax 544,154 1,622,059
Provision for income tax 205,146 620,047
------------- -------------
Net earnings $ 339,008 $ 1,002,012
============= =============
Retained earnings:
Balance at beginning of period $ 9,662,258 $ 7,143,090
Net earnings 339,008 1,002,012
------------- -------------
Balance at end of period $ 10,001,266 $ 8,145,102
============= =============
Net earnings per common share-basic $ .06 $ .18
============= =============
Net earnings per common share-diluted $ .05 $ .17
============= =============
See accompanying notes to unaudited consolidated condensed financial statements.
<TABLE>
<CAPTION>
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Twelve Weeks Ended May 22, 1998 and May 22, 1997
(Unaudited)
1998 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 339,008 $ 1,002,011
------------- -------------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,126,334 1,015,763
Depreciation on properties leased to others 91,057 42,225
Increase in deferred income taxes 11,655
Provision for losses on receivables 3,157 12,810
Net loss on disposition and write-down of assets 261,565 46,047
Other non-cash adjustments to earnings (81,576) (35,676)
Changes in operating assets and liabilities
(net of effects from purchase of restaurant companies)
providing (using) cash:
Receivables 1,117,637 (2,323,109)
Inventories (250,626) (128,912)
Income taxes refundable, prepaid expenses and other (14,748) 19,123
Trade accounts payable and other accrued liabilities 1,139,412 1,972,626
------------- -------------
Total adjustments 3,403,867 620,897
------------- -------------
Net cash provided by operating activities 3,742,875 1,622,908
------------- -------------
Cash flows from investing activities:
Increase in marketable equity securities (7,030) (2,591)
Proceeds from sales of assets to others 15,550 5,220
Decrease in related party notes receivables 257,284 179,452
Decrease in other notes receivable 98,115 25,120
Deposits, net of refunds (51,555) (123,958)
Capital expenditures to related parties (452,364) (178,060)
Capital expenditures -- others (4,562,565) (1,642,604)
------------- -------------
Net cash used in investing activities (4,702,565) (1,737,421)
------------- -------------
Cash flows from financing activities:
Principal payments on long-term debt (697,345) (1,097,007)
Repurchase of Common Stock (1,983,750)
Net short-term borrowings 1,246,731 1,181,452
Proceeds from exercise of stock options 22,750 65,000
------------- -------------
Net cash provided by (used in) financing activities 572,136 (1,834,305)
------------- -------------
Net decrease in cash and cash equivalents (387,554) (1,948,818)
Cash and cash equivalents at beginning of period 2,818,071 4,275,031
------------- -------------
Cash and cash equivalents at end of period $ 2,430,517 $ 2,326,213
============= =============
See accompanying notes to unaudited consolidated condensed financial statements.
</TABLE>
FRESH FOODS, 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 May 22, 1998 and February 27, 1998, the
results of operations for the fiscal quarters ended May 22, 1998 and May 23,
1997 and the cash flows for the twelve weeks ended May 22, 1998 and May 23,
1997.
2. The results of operations for the fiscal quarter ended May 22, 1998 are not
necessarily indicative of the results to be expected for the full year.
3. Financial statements for fiscal 1998 have been reclassified, where
applicable, to conform to financial statement presentation used in fiscal
1999. In addition, amounts for the fiscal quarter ended May 23, 1997 have
been restated to reflect the merger with Sagebrush, Inc. which was completed
on January 30, 1998 and accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16.
4. In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which was required to be adopted for both interim
and year-end financial statement periods ending December 15, 1997. The
Company adopted this new method of computing earnings per share and restated
earnings per share for all prior periods. The following is a reconciliation
between basic and diluted earnings per share:
Per Share
Net Income Shares Amount
----------- ----------- ----------
Quarter Ended May 22, 1998
--------------------------
Earnings per common share-basic $ 339,008 5,901,581 $.06
Stock-based compensation awards 544,276 (.01)
---------- ----------- ---------
Earnings per common share-diluted $ 339,008 6,445,857 $.05
========== =========== =========
Quarter Ended May 23, 1997
--------------------------
Earnings per common share- basic $ 1,002,012 5,638,741 $.18
Stock-based compensation awards 421,310 (.01)
----------- ----------- ---------
Earnings per common share-diluted $ 1,002,012 6,060,051 $.17
=========== =========== =========
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 22, February 27, May 23, February 28,
1998 1998 1997 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Hams in curing process $ 1,289,765 $ 1,211,799 $ 1,655,574 $ 1,326,420
Other food (includes cured hams) 4,794,092 4,649,591 3,605,897 3,971,615
Supplies 1,528,116 1,499,957 1,700,423 1,408,803
------------- ------------- ------------- -------------
Totals $ 7,611,973 $ 7,361,347 $ 6,961,894 $ 6,706,838
============= ============= ============= =============
</TABLE>
7. The Company has certain debt obligations that contain restrictive covenants.
Although the Company was not in compliance with certain of these covenants at
May 22, 1998, waivers were not requested since the debt subject to such
covenants was extinguished as part of the refinancing of the Company that
occurred on June 9, 1998, concurrent with the acquisition of Pierre Foods.
(See Note 11).
9. Supplemental cash flow disclosures - cash paid during the period for:
Twelve Weeks Ended
-------------------------------
May 22, May 23,
1998 1997
------------ --------------
Interest $ 368,995 $ 374,658
============ ==============
Income taxes $ 236,918 $ 509,681
============ ==============
During the first quarter of fiscal 1998, the Company purchased fixed assets,
goodwill and inventories of certain commonly controlled franchised units 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.
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 which are classified as
operating leases.
Also as part of this transaction, the former executive officer, who 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 April 10, 1998, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Hudson Foods, Inc. ("Hudson") (a wholly owned sub-
sidiary of Tyson Foods, Inc.) to purchase certain of the net operating assets
of the Pierre Foods Division ("Pierre") of Hudson for $122,000,000 and to
assume certain of Hudson's liabilities, consisting principally of
trade payables and other similar liabilities (estimated at $8.1 million in
the aggregate as of February 28, 1998.)
This transaction (the "Acquisition") was consummated on June 9, 1998, and
will be accounted for as a purchase in the second quarter of fiscal 1999.
The purchase was financed by the proceeds of an institutional private
placement of $115.0 million aggregate principal amount of the Company's
10 3/4% Senior Notes Due 2006 and an initial borrowing under a new five-year,
$75.0 million revolving bank credit facility (the "Bank Facility"), with
availability subject to a borrowing base formula. In addition, borrowings
under the Bank Facility were used to extinguish all existing debt of the
Company, with the exception of outstanding industrial revenue bonds and
certain capital lease obligations.
The Senior Notes are unsecured obligation of the Company, unconditionally
guaranteed on a senior unsecured basis by all existing subsidiaries of the
Company. Interest on the Notes is payable on June 1 and December 1 of each
year, commencing December 1, 1998. The Notes mature on June 1, 2006, unless
previously redeemed, and are not subject to any sinking fund requirement.
The Bank Facility provides for a revolving line of credit under which the
Company may borrow up to an amount equal to the lesser of $75.0 million or a
borrowing base (comprised of eligible accounts receivable, inventory,
machinery and equipment and real property). Borrowings under the Bank
Facility will bear interest at floating rates based upon the interest rate
option selected from time to time by the Company. The borrowings are
secured by a first priority security interest in substantially all of the
personal property of the Company and its subsidiaries, together with all
real property included in the borrowing base.
12.Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) was issued in June 1997 and became effective
for the Company in the current fiscal year. SFAS 130 requires disclosure of
comprehensive income (which is defined as "the change in equity during a
period excluding changes resulting from investments by shareholders and
distributions to shareholders") and its components. Total comprehensive
income, comprised of net earnings and unrealized holding gains (losses) on
available-for-sale securities, was $343,388 and $1,004,829 for the quarters
ended May 22, 1998 and May 23, 1997, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations are classified into two business segments: food
processing operations, principally sandwich production; and restaurant
operations, comprised of the Sagebrush, Western Steer, Prime Sirloin and
Bennett's concepts. The financial information presented and analyzed herein
is financial information of the Company without giving effect to the
Acquisition, except where it is stated otherwise. Results for the fiscal
quarters ended May 23, 1997 and May 22, 1998, are shown below:
Fiscal Quarter Ended
--------------------------
May 22, 1998 May 23, 1997
------------ ------------
(In millions)
Revenues:
Food processing operations $ 13.4 $ 15.3
Restaurant operations 21.8 21.1
------- -------
Total 35.2 36.4
======= =======
Cost of goods sold:
Food processing operations 12.3 13.8
Restaurant operations 7.9 7.7
------- -------
Total 20.2 21.5
------- -------
Restaurant operating expenses 9.8 9.0
Selling, general and administrative 2.8 2.9
Depreciation and amortization 1.1 1.0
------- -------
Operating income 1.2 2.0
------- -------
Other income (expense) (0.8) (0.4)
------- -------
Earnings before income taxes 0.5 1.6
Provision for income taxes (benefit) 0.2 0.6
------- -------
Net earnings $ 0.3 $ 1.0
======= =======
Fiscal Quarter Ended May 22, 1998 Compared to Fiscal Quarter Ended May 23, 1997
Revenues. Revenues decreased by $1.2 million, or 3.4%, due to a $1.9
million (12.5%) decrease in the food processing segment that more than offset a
$664,000 (3.1%) increase in the restaurant segment. The increase in restaurant
revenues was due to the opening, following the fiscal quarter ended May 23,
1997, of eleven Sagebrush restaurants, consisting of five new restaurants and
six conversions. The revenue effect of these eleven new Sagebrush restaurants
was offset somewhat by the closing of six non-Sagebrush restaurants. The
decrease in food processing revenues resulted primarily from inventory
management efforts in the fiscal quarter ended May 22, 1998 by the Company's
largest customer, Pierre, in anticipation of the consummation of the Acquisiton,
which was consummated on June 9, 1998 (see Note 11 to the unaudited consolidated
financial statements), as well as declines in sales of hams and ham products
during such fiscal quarter.
Cost of goods sold. Cost of goods sold decreased by $1.3 million, or 5.8%,
due to a $1.5 million (10.7%) decrease in such cost in the food processing
segment. Cost of goods sold in the restaurant segment increased by $228,000, or
3.0%, due to the operation of additional restaurants in the fiscal quarter ended
May 22, 1998. The decrease in such cost in the food processing segment was
attributable to lower volume in the latter period. Cost of goods sold in the
food processing segment increased as a percentage of operating revenues of that
segment from 90.2% to 91.9% due to the Company's inability to decrease fixed
costs concurrently with its decrease in business volume.
Restaurant operating expenses. Such expenses increased by $780,000, or
8.6%, as a result of the opening and operation of additional restaurants in the
fiscal quarter ended May 22, 1998. As a percentage of restaurant revenues,
restaurant operating expenses increased from 42.8% to 44.9% due to the
incurrence, in the latter period, of pre-opening costs associated with a larger
number of new restaurants.
Selling, general and administrative. Such expenses were essentially
unchanged, both in absolute terms and as a percentage of revenues.
Depreciation and amortization. Depreciation and amortization increased
slightly in absolute terms (by $111,000) and as a percentage of revenues (from
2.8% to 3.2%). Both business segments contributed to such increases.
Operating income. Operating income decreased by $731,000, or 36.4%, and
decreased as a percentage of revenues from 5.5% to 3.6%, for the reasons stated
above.
Other income (expense). Net other expense increased by $347,000, or 90.7%,
due to (1) write-downs in the book values of certain fixtures and equipment
recorded in the latter period upon conversion of older restaurants to the
Sagebrush concept, (2)the cost of carrying restaurants closed during fiscal
1998, and (3) a write-down of the book value of computer software that
management had determined not to utilize in the future.
Earnings before income taxes. Such earnings decreased by $1.1 million, or
66.5%, and decreased as a percentage of revenues from 4.5% to 1.5%, for the
reasons stated above.
Provisions for income taxes. The effective tax rate for the fiscal quarter
ended May 22, 1998 was 37.7%, as compared to 38.2% for the year-earlier quarter.
Net earnings. Net earnings decreased by $663,000, or 66.2%, for the
reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $3.9 million at May 22, 1998,
as compared to a deficit of $497,000 at February 27, 1998. Most of the decrease
in working capital was attributable to restaurant conversions and, to a lesser
extent, new restaurant construction. The remainder resulted from legal and
accounting fees incurred in connection with the Acquisition and related
financing transactions and, to a lesser extent, from normal seasonal
fluctuations in working capital requirements.
The Company has traditionally financed its working capital needs through a
combination of cash flow from operations and bank borrowings and, from time to
time, sales of underutilized assets. During fiscal 1997, the Company entered
into an agreement with a bank to provide a $6.0 million revolving credit
facility, secured by a lien on inventory and receivables. At May 22, 1998,
approximately $4.1 million was outstanding under this facility subject to the
applicable borrowing base formula. The Company also obtained construction loans
from a bank in amounts of up to $1.0 million per restaurant to finance the
construction of new restaurants. At May 22, 1998, an aggregate of approximately
$548,000 was outstanding under such facilities with respect to three
restaurants.
Funding for capital expenditures has been obtained primarily through
current earnings and term loans. Capital expenditures were $5.0 million for the
fiscal quarter ended May 22, 1998, as compared to $1.8 million for the first
quarter of fiscal 1998. The reason for the $3.2 million increase was the
construction of one new Sagebrush restaurant and the conversion of four
restaurants to the Sagebrush concept during the first quarter of fiscal 1999.
On June 9, 1998, the Company completed the Acquisition. The $122.0 million
cash purchase price was financed by the proceeds of an institutional private
placement of $115.0 million aggregate principal amount of the Company's 10 3/4%
Senior Notes Due 2006 (the "Notes") and an initial borrowing under a new five-
year, $75.0 million revolving Bank Facility, with availability subject to a
borrowing base formula. In addition, borrowings under the Bank Facility were
used to extinguish all existing debt of the Company, with the exception of
outstanding industrial revenue bonds and certain capital lease obligations
(see Note 11 to the unaudited consolidated financial statements).
The Company anticipates that its cash requirements, including working
capital, capital expenditures and required principal and interest payments due
under the Bank Facility and interest payments due under the Notes, which
represent significant liquidity requirements, will be met though a combination
of funds provided by operations, borrowings under the Bank Facility and,
depending upon stock market conditions and other factors, the net proceeds of a
possible offering of its common stock. In addition, from time to time the
Company expects to continue its practice of acquiring equipment with the
proceeds of secured bank loans or capital or operating leases.
The Company has budgeted approximately $13.5 million for capital
expenditures in fiscal 1999, including expenditures for Pierre subsequent to the
Acquisition. These expenditures are expected to be devoted to (i) restaurant
conversions and the construction of three new Sagebrush restaurants
(approximately $10.6 million) and (ii) routine equipment upgrading and
maintenance (approximately $2.9 million).
The Bank Facility provides for a five-year revolving line of credit under
which the Company may borrow up to an amount (including standby letters of
credit up to $2.5 million) equal to the lessor of $75.0 million or a borrowing
base (comprised of eligible accounts receivable, inventory, machinery and real
property). The portion of the Bank Facility not used in connection with
consummation of the Acquisition may be used for working capital requirements,
permitted acquisitions and general corporate purposes. Borrowings under the
Bank Facility will bear interest at floating rates based upon the interest rate
option selected from time to time by the Company.
As of June 9, 1998, after giving effect to the Acquisition and related
financial transactions, the Company had approximately $33.1 million in out-
standing borrowings under the revolving line of credit and approximately $20.5
million of additional availability under the Bank Facility.
SEASONALITY
The Company considers its restaurant operations to be somewhat seasonal in
nature, with stronger sales during the Christmas season and spring, weaker sales
during the mid-summer and late winter. Except for sales to school districts,
which decline significantly during the summer, there is no seasonal variation in
the Company's sales of food products. The Company's food production is steady
thoughout the year.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the first twelve weeks of fiscal 1999 and 1998.
"YEAR 2000" ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. "Year 2000" issues affect virtually all companies and organizations,
including the Company. The Company has engaged consultants who have studied its
information systems and have made recommendations with a view to upgrading and
improving such systems. A definitive plan of action has been approved based on
such recommendations and is expected to be implemented this year. The Company
estimates the cost of the necessary software modifications at less that $500,000
in the aggregate, an amount the Company considers immaterial to its consolidated
financial position.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
standard redefines how operating segments are determined and requires disclosure
of certain financial and descriptive information about a company's operating
segments. The statement is effective for fiscal years beginning after December
31, 1997. The Company has not yet completed its analysis of the effect of this
new standard on its financial statement disclosures.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements contained in this report as to the Company's outlook for sales,
operations, capital expenditures and other amounts, budgeted amounts and other
projections of future financial or economic performance of the Company, and
statements of the Company's plans and objectives for future operations,
are "forward looking" statements provided in reliance upon the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Important
factors that could cause actual results or events to differ materially from
those projected, estimated, assumed or anticipated in any such forward looking
statements include, among others, the substantial leverage of the Company,
restrictions imposed on the Company by the terms of its Bank Facility and Notes,
risks relating to the Company's ability to execute its business strategy
following the Acquisition, competitive considerations, government regulation and
general risks of the food industry, the possibility of adverse changes in food
costs and the availability of supplies, the Company's dependence on key
personnel, potential labor disruptions and "Year 2000" issues.
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 7, 1998, a special meeting of shareholders was held in Hickory,
North Carolina to consider: 1) a proposal to increase the membership of the
Board of Directors from nine to eleven, and 2) a proposal to change the
corporate name from WSMP, Inc. to Fresh Foods, Inc. The first proposal received
3,521,173 votes "for" and 5,771 votes "against"; 31 shares abstained from
voting. Regarding the second proposal, 3,509,574 shares voted in favor and
17,243 shares voted against the proposal; and 158 shares abstained.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
Exhibit No. Description Page No.
----------- ----------- ----------
11 Computation of Per Share Earnings 14
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on April 28, 1998, announcing the
Company's operating results for the first twenty-eight days subsequent to
the pooling of interests acquisition of Sagebrush, Inc.
A Current Report on Form 8-K was filed on May 13, 1998, announcing that the
Company had entered into a definitive Asset Purchase Agreement.
A Current Report on Form 8-K was filed on June 24, 1998, announcing the
consummation of the Acquisition.
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.
FRESH FOODS, INC.
-----------------
Date 7-6-98 By: /s/James C. Richardson, Jr.
---------- --------------------------------
James C. Richardson, Jr.
(Chief Executive Officer)
Date 7-6-98 By: /s/Noland M. Mewborn
----------- -------------------------------
Noland M. Mewborn
(Vice President of Finance and
Chief Accounting Officer)
INDEX TO EXHIBITS
For inclusion in Quarterly Report on Form 10-Q Quarter Ended May 22, 1998
Exhibit No. Page No.
- ----------- ----------
11 Computation of Per Share Earnings 14
Exhibit 11
- ----------
FRESH FOODS, INC. AND SUBSIDIARIES
Computation of Per Share Earnings
Twelve Weeks Ended
---------------------------
May 22, May 23,
1998 1997
------------ ------------
Computation of Earnings Per Common
Share-Basic:
Net earnings $ 339,008 $ 1,002,012
============ ============
Actual outstanding shares at
beginning of period 5,898,449 5,326,948
Add (deduct)weighted average
shares applicable to:
Common stock purchased (18,769)
Common stock issued 326,989
Common stock options exercised 3,132 3,573
------------ ------------
Weighted average shares as adjusted 5,901,581 5,638,741
============ ============
Earnings per common and common equivalent share $ .06 $ .18
============ ============
Computation of Earnings Per Common
Share-Diluted:
Net earning $ 339,008 $ 1,002,012
============ ============
Actual outstanding shares at
beginning of period 5,898,449 5,326,948
Add (deduct) weighted average shares
applicable to:
Common stock purchased (18,769)
Common stock issued 326,989
Common stock options exercised 3,132 3,573
Common stock options outstanding 544,276 421,310
------------- ------------
Weighted average shares as adjusted 6,445,857 6,060,051
============= ============
Earnings per common share -- diluted $ .05 $ .17
============= ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1998 1st
quarter 10Q for Fresh Foods, Inc. and is qualified in its entirety by reference
to such 10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-26-1999
<PERIOD-END> MAY-22-1998
<CASH> 2,430,517
<SECURITIES> 220,766
<RECEIVABLES> 3,601,834
<ALLOWANCES> 111,133
<INVENTORY> 7,611,973
<CURRENT-ASSETS> 17,736,722
<PP&E> 75,065,462
<DEPRECIATION> 26,934,788
<TOTAL-ASSETS> 73,915,089
<CURRENT-LIABILITIES> 21,616,448
<BONDS> 15,115,588
0
0
<COMMON> 5,902,824
<OTHER-SE> 33,690,302
<TOTAL-LIABILITY-AND-EQUITY> 73,915,089
<SALES> 35,194,441
<TOTAL-REVENUES> 35,194,441
<CGS> 20,227,927
<TOTAL-COSTS> 30,027,923
<OTHER-EXPENSES> 1,126,334
<LOSS-PROVISION> 3,157
<INTEREST-EXPENSE> 419,668
<INCOME-PRETAX> 544,154
<INCOME-TAX> 205,146
<INCOME-CONTINUING> 339,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339,008
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
