WSMP, INC.
1995
ANNUAL
REPORT
{DESIGN OF A PLATE DIVIDED IN
THE FORM OF A PIE CHART SHOWING THE
SOURCES OF REVENUE BY SEGMENT. A KNIFE,
SPOON, AND FORK ARE SHOWN BESIDE THE PLATE}
A
FOOD
SERVICE
COMPANY
WWSMP PROFILE
WSMP, Inc., is a North Carolina-based food manufacturing and restaurant
company that in the last three decades has grown from humble origins in the
foothills of the Blue Ridge Mountains to become nationally recognized in the
food service industry with nearly $100 million in annual revenues. The
Company is comprised of two separate food manufacturing divisions and a
division that develops, owns, operates and franchises restaurants.
The Bakery Division is the larger of WSMP's food manufacturing operations
and includes the largest single-site microwaveable sandwich manufacturing
facility in the United States. The facility in Claremont, N.C. has the capacity
to produce more than four million microwaveable sandwiches per week. In
addition to manufacturing a wide variety of sandwiches, including meat-filled
biscuits, under private and company labels, the division also produces
buttermilk biscuit, yeast rolls and other items for institutional and retail
sales.
The Ham Curing Division is one of the largest country ham producers in the
United States, with a capacity to cure 650,000 hams annually. This division
traces its root to the earliest days of WSMP, and in the last two decades its
products have regularly won top national and regional prizes as being among the
best in the nation. Its products are sold under the Mom `n' Pop's brand label
to both institutional and retail markets, and are provided whole and in packages
of slices for both retail and restaurant usage and in closely controlled sliced
portions for the restaurant and fast-food industry.
Restaurant operations comprise ninety-eight Company owned and
franchised units, primarily in the Southeast. A majority of these restaurants
are Western Steer units, including the traditional Western Steer Family
Restaurant and new or remodeled Western Steer Steaks, Buffet and Bakery
restaurants. Prime Sirloin and Bennett's are the other two main segments of
the restaurant division. Both of these concepts are growing and play an
important part in the Company's plans for the future. Mega-sized Prime Sirloin
Buffet, Bakery and Steaks restaurants are being built to directly compete with
recognized leaders in the economy steak and buffet restaurant segment.
Bennett's Smokehouse and Saloon restaurants are a result of a partnership
between WSMP and Bennett's Bar-B-Que, Inc., of Denver, CO, and represent the
Company's entry into the growing Texas-style roadhouse themed category.
CONTENTS
ANNUAL REPORT FOR THE YEAR ENDED FEBRUARY 24, 1995
Profile Inside Front Cover
Financial Highlights 1
Letter to Shareholders 2
Management's Discussion 4
Consolidated Financial Statements 7
Report of Management 22
Independent Auditor's Report 22
Unaudited Quarterly Financial Data 23
Selected Financial Data 24
Officers and Directors Inside Back Cover
Market Information Inside Back Cover
General Information Inside Back Cover
FINANCIAL HIGHLIGHTS
Fiscal Years ended February 24, 1995, and February 25, 1994
(in thousands, except per share amounts)
Percent
1995 1994 Change
------ ------ --------
Operating Revenues $ 94,100 $ 73,059 28.8
Operating Income (Loss) $ 2,245 $ (.39) *
Net Income (Loss) $ 1,097 $ (785) *
Net Income (Loss) Per Share $ 0.38 $ (.03) *
Weighted Average Shares Outstanding 2,879 2,624 9.7
Total Assets $ 46,721 $ 50,349 (7.2)
Long-Term Debt $ 18,473 $ 21,495 (14.1)
Shareholder's Equity $ 17,638 $ 16,584 6.4
Company common stock is traded on the national over-the-counter market under the
NASDAQ symbol, `WSMP.''
* Not meaningful
SOURCES OF REVENUE
The plate design incorporated on this annual report's cover and below also
serves as a chart indicating your Company's sources of revenue for the last
fiscal year: Restaurant Operations accounted for 30.71% of revenue; the Bakery
Division, 52,65%; the Ham Division, 13.59%; and Restaurant Franchising, 3.05%;
adding up to 100% of your Company's Fiscal 1995 revenue.
{GRAPH}
LETTER TO SHAREHOLDERS
- -----------------------
To Our Shareholders and Friends:
Fiscal 1995 was one of the more important in WSMP's history. As you review
the financial performance of your company, you will find that we began to
receive benefits from the previous year's positioning of WSMP in all categories
for strong growth. We generated record revenues during fiscal 1995 and recorded
a turnaround in profitability that equaled about $0.68 per share of common
stock. WSMP also continued to focus on how best to position itself to respond
to the changing food service environment. We recognize that the achievements of
fiscal 1995 are just the beginning steps of what WSMP must accomplish. Let me
provide you some details about what we did in the last fiscal year and tell you
how we are trying to maximize our potential for the future.
First, the $8.2 million expansion of the Bakery facilities completed just
prior to the beginning of fiscal 1995 helped this division achieve a significant
growth in operations of 17% compared to the preceding fiscal year. The
expansion increased our bakery capacity by 60%. We are using a significant
portion of this additional capacity to produce products to be sold under private
labels as well as our own Mom `n' Pop's label.
As far as we can determine, the division is the largest single-site
sandwich maker in the United States, and is now producing three million
microwaveable sandwiches per week. We feel sales of bakery products will
continue to grow and we have the capacity to manufacture an additional one and a
half million sandwiches per week. Our Bakery Division maintains and excellent
customer base and as a result of new co-pack contracts, this year it will
introduce several line extensions to products now being produced for private
label sales.
Secondly, in our Ham Curing Division we made appropriate adjustments to raw
ham purchasing procedures so that we could successfully deal with the abnormal
pork pricing problem that had a very negative effect on margins for Mom `n'
Pop's Country Ham during the preceding fiscal year. In our last annual report,
we projected that the Ham Curing Division would recover and reach the level of
profitability it had reported in the five years immediately prior to fiscal
1994. In fact, we totally reversed our margins on ham products compared to the
prior year, resulting in the division's most successful year since being founded
in 1972.
Based on pork futures markets, it appears that prices for raw hams, also
called green hams, will remain low during the current fiscal year. This should
provide the opportunity for another outstanding year for the division. WSMP has
the capacity to cure 650,000 hams annually, which makes us one of the largest
country ham producers in the country. During Fiscal 1995, we operated the Ham
Curing Division at total capacity and anticipate it will operate at capacity
again during the current year.
Third, our restaurant operations met many of their objectives during
the year. Our first prototype Prime Sirloin Buffet, Bakery & Steak restaurant,
featuring a large, up-to-date prototype building design, was opened in
Spartanburg, S.C., and five additional prototype Prime Sirloin restaurants will
open in the current fiscal year. This concept has received favorable publicity
in national restaurant trade media, has generated inquires from potential
franchisees, and is successfully competing with leaders in the economy steak and
buffet restaurant segment, including the Ryan's and Golden Corral mega concept.
WSMP also opened the first Bennett's Smokehouse and Saloon in Spartanburg
and converted its Conover, N.C., Bennett's Pit Barbeque restaurant to a
Bennett's Smokehouse & Saloon. The parent company of Bennett's Pit Barbeque
also opened new Bennett's Smokehouse and Saloon restaurants in Colorado Springs,
CO, and Salt Lake City, Utah. Consumer acceptance and sales achieved by these
new units reinforced our decision to move forward with this concept of
merchandising Texas-style ribs, steaks and barbeque in a casual, saloon
atmosphere. These restaurants are designed to compete directly with the
successful Western-style concepts such as Longhorn and Lone Star.
WSMP feels that the concept has a unique menu-mix, and by offering a wide
range of western smoked barbeque as well as the steaks, salads, and other items
available at competing restaurants, we fit a nitch in the market that is not
served. The Company, which has rights as Bennett's sub-franchisor in all areas
except Denver, CO, the state of Texas, and Atlanta, GA., has one Bennett's under
construction now and anticipated the opening of at least five new Bennett's
Smokehouse & Saloons during the fiscal year.
WSMP's franchisees and the Company continued the program of remodeling
Western Steer Family Restaurant locations to convert them to Western Steer
Steaks, Buffet and Bakery restaurants during fiscal 1995. Also, WSMP plans to
plans to convert the final four Company-owned traditional Western Steers to
bakery-style restaurants during the current fiscal year. The remodeled Western
Steer bakery-style units have enjoyed an annualized same-store sales increase
average of 20%. Menu enhancement and marketing activities to support our
Western Steer concept and franchise community received significant emphasis
during fiscal 1995 and plans for the promotion of these restaurants have been
completed for the current fiscal year.
In addition to focusing on the activities of its three operating segments,
WSMP's management has launched a program to closely examine all overhead costs.
This is part of the effect to further improve profitability by controlling
general and administrative expenses that directly affect revenue centers.
Shortly after the end of fiscal 1995, WSMP's board of directors declared a
25% stock dividend and the distribution was made April 11,1995. We feel this
was a good way to help recognize the loyalty of stock holders who continued to
support WSMP while we realigned to seek new level of sales and profitability.
As we reported last year, the management of WSMP fully understand our
obligation to shareholders, employees and franchisees to not only be profitable
in all segments, but to maximize profits in all operating segments.
Accomplishing that obligation is our primary objective for fiscal 1996.
WSMP's management and board want each of you to be comfortable with your
investment in our modern food service company. Therefore, if you have questions
about anything disclosed in the annual report, including anything discussed in
this letter, please feel free to visit us in Claremont, NC, or telephone me
directly.
Sincerely,
James C. Richardson, Jr.
President and Chief Executive Officer
MANAGEMENT'S DISCUSSION
- -----------------------
RESULTS OF OPERATIONS
RESTAURANT REVENUES
Revenues from Company-owned restaurants for fiscal 1995 decreased $2.1 million,
or 6.9% in comparison with fiscal 1994. This decrease in revenues is the direct
result of closing nine restaurant units during these years, four of which were
closed in fiscal 1995. Offsetting this decrease are revenues received from a
unit acquired at the beginning of fiscal 1995 which totaled $1 million and an
increase in same store sales of $.9 million, or 3.8%. This increase in same
store sales for fiscal 1995 compares with a 3.8% decrease for fiscal 1994 and
represents a turnaround in restaurant operations. Management attributes this
turnaround to the renovations of Western Steer restaurant properties which have
occurred during the past three years, as well as enhancements during the current
year of the Bennett's and Prime Sirloin concepts.
Company-owned restaurant revenues for fiscal 1994 decreased by $4.4 million, or
12.5% in comparison with fiscal 1993. This decrease is the result of the
decrease in same store sales, mentioned previously, as well as the closing of
several unprofitable restaurants units during fiscal 1994 and fiscal 1993.
FOOD PROCESSING REVENUES
The food processing segment recorded record revenues of $62.3 million during
fiscal 1995 compared to revenues of $39.0 million in fiscal 1994 and $38.1
million in fiscal 1993. A major reason for the increase in revenues in fiscal
1995 was a change in contract terms, which occurred in December of 1993, with
the Bakery's largest contract customer. Prior to this contract change, the
customer provided the meat component and packaging material used in the
production of its meat-filled sandwiches. Sales to this customer consisted only
of the bakery component and cost of production and packing. In December 1993,
the Company entered into a new agreement with this customer whereby the Company
would purchase the meat components and packaging material from the customer and
adjust the sales price accordingly. These amounts are subsequently reported as
sales and cost of goods sold. Purchases by the Company of the meat component
and packaging from this customer during fiscal 1995 and 1994 totaled $23.4
million and $4.8 million, respectively. Although this change does not affect
total gross profit for the years involved, it does impact total sales and cost
of goods sold. Had this change not occurred, revenues relating to the food
processing segment during fiscal 1995 would have shown an increase over fiscal
1994 of only $4.6 million, or 13.5%. Approximately $.9 million of this
increase is attributable to the ham curing operations which generated total
revenues of $12.8 million. The remaining increase represent growth in the
bakery operations during fiscal 1995 and utilization of the increased capacity
in this division.
Fiscal 1994 revenues of the food processing segment totaled $39.0 million
compared to $38.1 million in fiscal 1993. However, the contract change
discussed above also impacted food processing revenues in fiscal 1994. Had this
contract change not occurred, revenues relating to this segment would have shown
a decrease in fiscal 1994 compared to fiscal 1993 of $3.9 million.
Approximately $1.6 million of the decrease was attributed to falling pork prices
which directly affected revenues of the ham curing operations. The remaining
decrease resulted due to constraints on production in the bakery operations
during fiscal 1994 as the expansion project was completed.
Management anticipates continued long-term growth in the food processing
segment. However, a decrease of approximately 15.3% in the level of sales in
this segment is expected for the first quarter of fiscal 1996 as compared to the
first quarter of fiscal 1995. This is due to the largest customer of the bakery
repositioning itself in certain of its own markets and , as a result,
discontinuing a line of product previously purchased from the Company. The
customer has developed a well refined program to replace this volume, and
management believes that the impact will not extend significantly beyond the
first quarter of fiscal 1996.
FRANCHISE, ROYALTY AND OTHER FEES
Franchise, royalty and other fees have declined for the last three fiscal years
from $3.4 million in fiscal 1993, to $3.0 million in fiscal 1994, to $2.9
million in fiscal 1993. This decrease is attributed to a reduction in the
number of operating franchised units during this same period. During fiscal
1995 this decline was partially offset by a 2.8% increase in sales in franchised
restaurants that were opened for both fiscal 1995 and 1994.
COSTS AND EXPENSES
Cost of goods sold as a percentage of food sales was 72.4% in fiscal 1995
compared with 65.8% in fiscal 1994 and 62.4% in fiscal 1993. The fluctuation
over this three year period is due to the contract change with the bakery
operation's largest customer which is discussed above as it relates to food
processing revenues. As previously mentioned, this change affected revenues and
cost of goods sold, but has no net effect on total gross profit. If the cost of
the meat component and packaging material purchased from this customer during
fiscal 1995 and 1994 were eliminated from food sales and cost of goods sold, and
these years were restated consistent with 1993, cost of goods sold as a
percentage of food sales would be 62.9% in fiscal 1995 and 63.3% in fiscal 1994.
The higher percentage for fiscal 1994 is attributed to higher raw material costs
in the ham-curing division during that year, as well as increased operating
costs in the bakery division associated with the plant expansion.
As discussed in note 1 to the consolidated financial statements, operating
expenses include indirect costs associated with restaurant product sales and
other revenues, which consist primarily of franchise, royalty and other fees.
These expenses, as a percentage of revenues of the restaurant and franchising
segments were 45.7% in fiscal 1995, 45.4% in fiscal 1994 and 44.1% in fiscal
1993. The gradual increase is primarily attributed to the decline in
franchising revenues which cannot be offset with corresponding reductions in
certain fixed costs in the franchising segment.
Selling, general and administrative expenses have shown little fluctuation
during the three years presented. The small increase in fiscal 1994 over 1993
is primarily the result of the $.6 million increase in the management fee which
was approved by the Company's shareholders in fiscal 1994, offset by a
concentrated effort by management to control expenses in this category. Further
cost control measures resulted in the decrease for fiscal 1995.
INFLATION
The effects of inflation on the cost of labor, material and supplies, and plant
and equipment have resulted in increased costs to the Company during the past
three years. Ongoing programs of cost control and elimination of overhead
expenses have helped to offset much of the impact of inflation. Although the
Company cannot determine the precise effect of inflation on its business, the
restaurant operations are believed to be the most susceptible to the adverse
effects of inflation as compared to other divisions of the Company. This is
due to price discounting which has prevailed in the family and fast food
restaurant segments throughout the nation for the past three years, making it
difficult to cover increased costs by increasing menu prices.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Liquidity of WSMP, Inc., can be evaluated in light of the working capital
position and cash flows of the Company. As of February 24, 1995 the Company had
net working capital of $904,000 which compares with $(450,000) at February 25,
1994 and $2,131,000 at February 26, 1993. The working capital of the Company
was significantly reduced in fiscal 1994 by the major capital expansion of the
bakery facility. This project was completed in December of 1993 at a total cost
of approximately $8 million. Half of the project was financed by the issuance
of Industrial Revenue Bonds totaling $4 million. The remaining portion was
financed by internally generated cash and short-term borrowings which reduced
the net working capital of the Company. During 1995, the Company was able to
restore approximately $1.35 million of this working capital, as well as provide
for necessary capital expenditures totaling $1.2 million and debt repayments
totaling $3.7 million. This was accomplished through profitable operations
during fiscal 1995 and the sale of certain under-performing restaurant
properties.
Operating activities continue to provide positive cash flow to the Company.
During fiscal 1995, net cash of $.8 million was provided by operations compared
to $2.8 million in fiscal 1994 and $2.5 million in fiscal 1993. The decrease
in cash provided by operations in fiscal 1995 is due to repayments to certain
vendors who provided the Company with extended credit terms in fiscal 1994 in
order to assist in the cash flow requirements necessary to bring the bakery
project on line. This is evidenced by the $1.4 million reduction in trade
accounts payable between February 25, 1994 and February 24, 1995.
Additional cash was generated in fiscal 1995 through the investing activities of
the Company. Net cash provided by investing activities was $2.7 million in
fiscal 1995 compared to net cash used in investing activities of $3.5 million
and $5.1 million in fiscal 1994 and fiscal 1993. Negative cash flows during
fiscal 1994 and 1993 were the result of capital expenditures relating to the
Company's expansion of its bakery facility and the renovation of certain
restaurants properties. In fiscal 1995, the positive cash flows from investing
activities were generated through the sale of assets. During the year,
approximately $.8 million was received from the sale of real estate classified
as "Properties held for sale" at February 25, 1994. An additional $2.9
million was received from the sale of under-performing assets consisting
primarily of restaurants closed during fiscal 1995, which were sold without
adversely affecting the profitability of the Company.
Cash generated from operating and investing activities during fiscal 1995 was
used by the Company in financing activities. Net cash used in financing
activities was $4.0 million in fiscal 1995 and $.5 million in fiscal 1994
compared to net cash provided by financing activities of $3.4 million in fiscal
1993. The use of cash in fiscal 1995 relates to repayments of debt totaling
$3.7 million. In fiscal 1994, repayments of long term debt were offset by short
term borrowings of approximately $1.3 million and the proceeds from issuance of
stock totaling $.6 million. Fiscal 1993 reflects the issuance of long-term debt
associated with the bakery plant expansion and the renovation program of the
Company's restaurant segment.
For fiscal 1996, management feels that continued profitable operations and the
sales of additional non-core properties, will generate cash and working capital
levels sufficient for the needs of the Company. At February 24, 1995, the
Company had $3.3 million in real estate held for sale. The recent improved real
estate environment in the Southeastern United States allowed the Company to
dispose of several excess properties during fiscal 1995, and the Company views
the remaining properties as a valuable source of future working capital.
Approximately $1.0 million is expected to be generated in fiscal 1996 from the
sales of excess real estate.
In addition, the Company is currently seeking to refinance amounts outstanding
under its Senior Notes and short-term secured note on an intermediate to long
term basis through a private placement of debt. The Senior Notes require semi-
annual principal payments of $769,230 and mature on October 1, 1996 with a
balloon payment of approximately $9,231,000. The short-term secured note
represents line of credit borrowings which were utilized as partial funding for
the $8 million bakery expansion. Refinancing of these amounts will allow the
Company to replenish working capital as well as provide capital to sustain and
grow all segments of the Company. Management feels that an agreement will be
completed prior to the end of fiscal 1996.
The Company believes that revenues from operations, together with available
sources of financing, will be sufficient to provide the necessary long-term
capital resources required to fund the Company's capital requirements for the
coming three years.
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 24, 1995 and February 25, 1994
- ---------------------------------------
ASSETS
- ------
1995 1994
------- --------
Current Assets:
Cash and cash equivalents $ 940,120 $1,507,519
Marketable equity securities 120,564 165,658
Accounts receivable and current
portion of notes receivable, net:
Trade and others (notes 2 and 6) 4,809,950 5,027,548
Related party (notes 2 and 18) 1,178,213 1,164,837
Income taxes refundable 118,137 41,225
Inventories (notes 3 and 6) 5,126,335 4,489,453
Prepaid expenses and other 120,520 176,485
Deferred income taxes (note 9) 259,821 337,510
Properties held for sale (note 5) 285,000
------------ ----------
Total current assets 12,673,660 13,195,235
------------ ----------
Property, Plant and Equipment, net
(notes 4 and 7) 27,157,887 32,316,642
------------ ----------
Other Assets:
Properties held for sale (note 5) 3,322,372 2,107,099
Excess of cost over fair value of
net assets of businesses acquired,
net (note 13) 696,456 739,023
Noncurrent notes receivable (note 2) 368,181 96,783
Noncurrent related party notes
receivable (notes 2 and 18) 833,110 1,125,298
Investment in affiliates (note 15) 742,633 380,494
Other (note 16) 927,105 388,823
------------ -----------
Total other assets 6,889,857 4,837,520
------------ -----------
Total assets $ 46,721,401 $ 50,349,397
============ ============
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 24, 1995 and February 25, 1994
- ---------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
1995 1994
-------- --------
Current Liabilities:
Notes payable (note 6) $ 3,000,000 $ 3,375,000
Current installments of long-term debt (note 7) 2,939,844 3,374,918
Trade accounts payable 3,016,776 4,413,311
Income taxes payable 46,737
Other accrued liabilities (note 8) 2,766,415 2,482,445
------------ -----------
Total current liabilities 11,769,772 13,645,674
Deferred franchise fees 30,000 90,000
Deferred income taxes (note 9) 1,749,957 1,909,330
Long-term debt, excluding current
installments (note 7) 15,533,554 18,120,328
------------ ------------
Total liabilities 29,083,283 33,765,332
------------ ------------
Commitments and Contingencies (notes 10 and 16)
Shareholders' Equity (notes 7, 12, and 19):
Common stock - par value $1, authorized
10,000,000 shares; issued 2,660,338 shares
in 1995 and 2,133,489 shares in 1994 2,660,338 2,133,489
Capital in excess of par value 6,389,347 6,419,972
Unrealized loss on securities available for
sale, net of (5,214)
deferred income taxes of $3,351
Retained earnings 8,593,647 8,030,604
------------ -----------
Total shareholders' equity 17,638,118 16,584,065
------------ ------------
Total liabilities and shareholders' equity $ 46,721,401 $ 50,349,397
============ =============
See accompanying notes to consolidated financial statements
WSMP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years ended February 24, 1995, February 25, 1994
- -------------------------------------------------------
and February 26, 1993
---------------------
1995 1994 1993
---- ---- ----
Operating revenues:
Food sales (note 14) $91,231,774 $70,032,184 $73,503,786
Franchise, royalty and other fees (note 18 -
includes related party transactions totaling
$1,030,000 in 1995, $1,017,000 in 1994 and
$983,000 in 1993) 2,868,199 3,027,252 3,418,876
----------- ----------- -----------
Total operating revenues 94,099,973 73,059,436 76,922,662
----------- ----------- -----------
Costs and expenses:
Cost of goods sold (note 18 - includes related
party transactions totaling $506,000 in 1995,
$514,000 in 1994 and $362,000 in 1993) 66,051,173 46,097,768 45,872,816
Operating expenses (note 18 - includes related
party transactions totaling $883,000 in 1995,
$786,000 in 1994 and $1,010,000 in 1993) 14,519,552 15,452,214 17,137,583
Selling, general and administrative expenses
(note 18 - includes related party transactions
totaling $2,236,000 in 1995, $1,819,000 in 1994
and $1,282,000 in 1993) 8,405,957 8,542,448 8,385,187
Depreciation and amortization 2,878,624 3,006,055 3,182,647
----------- ----------- -----------
Total costs and expenses 91,855,306 73,098,485 74,578,233
----------- ----------- -----------
Operating income (loss) 2,244,667 (39,049) 2,344,429
----------- ------------ -----------
Other income (expense):
Other income (including interest) (note 18 -
includes related party transactions totaling
$90,000 in 1995, $117,000 in 1994 and $140,000 316,737 59,722 330,744
in 1993)
Net gain on dispositions of assets (note 18 -
includes gain on sale of assets to related
parties totaling $128,000 in 1995, $18,000 in
1994 and $569,000 in 1993) 940,091 894,756 216,252
Interest expense (1,993,094) (1,840,203) (1,788,417)
------------ ------------ ------------
Net other expense (736,266) (885,725) (1,241,421)
------------ ------------ ------------
Earnings (loss) before income taxes and
cumulative effect of a change in accounting
principle 1,508,401 (924,774) 1,103,008
----------- ------------ -----------
Provision for income taxes (benefit) (note 9):
Current 490,064 (69,424) 661,197
Deferred (78,333) (315,350) (228,189)
------------ ------------ ------------
Total provision for income taxes (benefit) 411,731 (384,774) 433,008
----------- ------------ -----------
Earnings (loss) before cumulative effect of a
change in accounting principle 1,096,670 (540,000) 670,000
Cumulative effect on prior years of a change
in accounting for income taxes (notes 1 and 9) (245,000)
------------ ------------ -----------
Net earnings (loss) $ 1,096,670 $ (785,000) $ 670,000
============ ============ ===========
Earnings (loss) per common share and common
equivalent share (note 1):
Before cumulative effect of a change in
accounting principle $ .38 $ (.21) $ .23
Cumulative effect of a change in accounting
principle (.09)
----------- ----------- -----------
Net earnings (loss) $ .38 $ (.30) $ .23
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended February 24, 1995, February 25, 1994
- -------------------------------------------------------
and February 26, 1993
---------------------
Unrealized
Loss on
Capital in Securities
Common Excess of Available Retained
Stock Par Value For Sale Earnings
----- --------- ---------- -----------
Balance at February 28,
1992 $ 1,942,905 $ 5,787,674 $8,145,604
Net earnings 670,000
Common stock purchased and
retired (9,062 shares) (9,062) (62,618)
(note 19)
Common stock issued
(62,251 shares)
62,251 267,704
---------- ----------- ----------
Balance at February 26, 1,996,094 5,992,760 8,815,604
1993
Net loss (785,000)
Common stock purchased and
retired (10,000 shares)
(note 19) (10,000) (40,004)
Common stock issued (47,395
shares) 47,395 204,716
Common stock options
exercised (100,000 shares)
(note 12) 100,000 262,500
---------- ----------- ----------
Balance at February 25,
1994 2,133,489 6,419,972 8,030,604
Net earnings 1,096,670
Common stock purchased and
retired (5,000 shares)
(note 19) (5,000) (30,625)
Five-for-four stock split
effected in the form of a
25% stock dividend (note
19):
Shares issued 531,849 (531,849)
Fractional shares payable
in cash (1,778)
Unrealized loss on
securities available for
sale, net of income taxes
of $3,351 $(5,214)
----------- ----------- ---------- -----------
Balance at February 24, $ 2,660,338 $ 6,389,347 $(5,214) $8,593,647
1995 =========== =========== ========== ===========
See accompanying notes to consolidated financial statements.
WSMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended February 24, 1995, February 25, 1994
- -------------------------------------------------------
and February 26, 1993
---------------------
1995 1994 1993
---- ---- ----
Cash Flows From Operating Activities:
Net earnings (loss) $ 1,096,670 $ (785,000) $ 670,000
------------ ------------- -----------
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,878,624 3,006,055 3,182,647
Depreciation of properties
leased to others 379,599 257,551 252,510
Cumulative effect of a change in
accounting principle 245,000
Decrease in deferred income
taxes, net (78,333) (315,350) (228,189)
Net gain on dispositions of assets (940,091) (894,756) (216,252)
Provision for losses on receivables 430,128 247,857 155,222
Other non-cash adjustments to
earnings (153,733) 73,115 80,411
Changes in operating assets and
liabilities (net of effects from
purchase of restaurant companies)
providing (using) cash:
Receivables (848,883) (27,542) (971,328)
Inventories (627,401) (164,213) (867,727)
Income taxes refundable, prepaid
expenses and other (4,598) 271,866 (97,491)
Trade accounts and income taxes
payable and other accrued
liabilities (1,283,107) 846,705 794,932
Other (51,946) 38,113 (281,195)
------------- ------------ ------------
Total adjustments (299,741) 3,584,401 1,803,540
------------- ------------ -----------
Net cash provided by operating
activities 796,929 2,799,401 2,473,540
------------ ------------ -----------
Cash Flows From Investing Activities:
Capital expenditures to related
parties (note 18) (386,359) (817,063) (1,433,063)
Capital expenditures - other (807,489) (4,319,837) (5,583,158)
Proceeds from sale of assets to
related parties (note 18) 623,734 465,060 1,182,976
Proceeds from sales of assets to
others 3,082,789 828,964 444,532
Deposits, net of refunds (12,581) 16,480 (6,750)
Decrease (increase) in marketable
equity securities 36,528 (60,770) 194,057
Decrease in related party notes
receivable (note 18) 417,574 81,547 151,321
Decrease (increase) in other notes
receivable (1,635) 127,332 278,763
Other investing activities, net (292,251) 209,865 (354,045)
------------ ----------- -----------
Net cash provided by (used in)
investing activities 2,660,310 (3,468,422) (5,125,367)
----------- ------------ -----------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term
debt 250,000 547,846 5,792,552
Principal payments on
long-term debt (3,364,013) (2,933,247) (2,610,489)
Cash restricted for secured letter of
credit (note 16) (500,000)
Net proceeds (repayments) under short-
term borrowing agreements (375,000) 1,275,000
Proceeds from exercise of stock
options 362,500
Proceeds from stock rights offering 252,111 329,955
Acquisition of treasury stock (35,625) (50,004) (71,680)
----------- ------------ -----------
Net cash provided by (used in)
financing activities (4,024,638) (545,794) 3,440,338
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents (567,399) (1,214,815) 788,511
Cash and cash equivalents at
beginning of year 1,507,519 2,722,334 1,933,823
----------- ------------ -----------
Cash and cash equivalents at
end of year $ 940,120 $ 1,507,519 $ 2,722,334
============ ============ ============
See accompanying notes to consolidated financial statements.
WSMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended February 24, 1995, February 25, 1994, and February 26, 1993
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of WSMP, Inc. and subsidiaries (the Company) in which it has an
ownership percentage greater than 50%. These subsidiaries, all of which are
100% owned, unless otherwise indicated, are as follows:
Elloree Foods, Inc. Seven Stars, Inc.
Georgia WSMP, Inc. South Carolina WSMP, Inc.
Greenville Food Systems, Inc. St. Augustine Foods, Inc. (80%)
Kentucky WSMP, Inc. Sunshine WSMP, Inc.
Matthews Prime Sirloin, Inc. (80%) Tennessee WSMP, Inc.
Naples Foods, Inc. (55%) Virginia WSMP, Inc.
Prime Sirloin, Inc.
All significant intercompany accounts and transactions are eliminated in
consolidation.
FINANCIAL STATEMENT PRESENTATION - Financial statements for fiscal 1994
and 1993 have been reclassified, where applicable, to conform to the financial
statement presentation used in fiscal 1995.
FISCAL YEAR - The Company's fiscal year ends on the last Friday in
February. All fiscal years presented represent fifty-two week periods.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
INVESTMENTS - Effective February 26, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires that
investments in debt and equity securities be classified in the following three
categories: trading, held-to-maturity, or available-for-sale. Securities
classified as trading securities are carried at fair market value with
unrealized gains and losses reflected in earnings. Debt securities classified
as held-to-maturity securities are carried at amortized cost. Securities
classified as available-for-sale are carried at fair market value with
unrealized gains and losses excluded from earnings but shown as a separate
component of shareholders' equity. All investments of the Company are comprised
of marketable equity securities held in broker managed accounts. The Company
has classified all investments as available-for-sale. At February 25, 1994,
investments are stated at the lower of aggregate cost or market value. Realized
and unrealized gains and losses on investments were not significant in fiscal
1995, 1994 and 1993.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-
out) or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Expenditures for maintenance and repairs which do not significantly
extend useful lives of assets are charged to earnings whereas additions and
betterments, including interest costs incurred during construction, are
capitalized. Gains and losses on dispositions are reflected in other income
except for gains on traded properties which are reflected in the basis of the
new asset.
Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets on the straight-line basis.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or terms of the respective leases. Property under capital leases
is amortized in accordance with the Company's normal depreciation policy.
Depreciation and other expenses on properties leased to others are deducted
from rental income and reported net as other income.
INTANGIBLE ASSETS - The excess of cost over fair value of net assets of
businesses acquired is being amortized on the straight-line method over periods
of fifteen and forty years ($294,297 over fifteen years and $933,100 over forty
years as of February 24, 1995).
INVESTMENTS IN AFFILIATES - Investments in common stock of unconsolidated
affiliates are accounted for using the equity method.
COSTS AND EXPENSES - Cost of goods sold includes the direct and indirect
costs of tangible products sold by the food processing segment and the direct
costs of tangible products sold through restaurant operations. Operating
expenses include additional indirect costs such as labor, insurance and
occupancy costs, other than depreciation, associated with restaurant product
sales and other revenues. Selling, general and administrative expenses reflect
costs of marketing, selling and general administration not included in cost of
goods sold or operating expenses.
PREOPENING EXPENSES - Preopening expenses associated with new restaurant
openings are expensed as incurred.
INCOME TAXES - Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), required a change from the deferral
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for the tax
consequences of temporary differences between the tax and financial accounting
bases of existing assets and liabilities by applying enacted tax rates
applicable to the years when such differences are scheduled to reverse. Under
SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in
the period that includes the enactment date. The Company adopted SFAS 109
during the year beginning February 27, 1993 and has reported the cumulative
effect on prior years of the change in the consolidated statement of operations
for the fiscal year ended February 25, 1994. Under the deferral method, prior
to February 27, 1993, deferred taxes were recognized using the tax rate
applicable to the year of the calculation and were not adjusted for subsequent
changes in tax rates.
FRANCHISE, ROYALTY AND OTHER FEES - Initial franchise fees are recognized
as revenue when substantially all of the services required of the Company by the
franchise agreement have been performed, which is generally the date the
franchised unit opens. Royalty and other fees are accrued as earned based on
franchisees' sales.
EARNINGS PER SHARE - Earnings per share is based on the weighted average
number of common shares and dilutive common equivalent shares outstanding during
each fiscal year. Common equivalent shares relate to outstanding stock options.
The weighted average number of shares used in the calculations are 2,879,021 in
fiscal 1995, 2,624,015 in fiscal 1994 and 2,875,100 in fiscal 1993. Amounts for
1994 and 1993 have been restated to reflect a five-for-four stock split,
effected in the form of a stock dividend declared in 1995. (See note 19).
NOTE 2 - ACCOUNTS AND NOTES RECEIVABLE:
Accounts and notes receivable are comprised of the following:
1995 1994
------- -------
Accounts receivable:
Trade accounts receivable (less allowance for doubtful
receivables of $15,000 in 1995 and $60,000 in 1994) $3,699,550 $3,606,862
Accounts receivable - franchisees (less allowance for
doubtful receivables of $235,000 in 1995 and $225,000
in 1994) 243,797 453,447
Accounts receivable - related parties (See note 18) 335,785 159,667
---------- ----------
Total accounts receivable, net $4,279,132 $4,219,976
========== ==========
Notes receivable - related parties; interest rates 4.5%
to 12% (See note 18) $1,675,538 $2,130,468
Less current portion 842,428 1,005,170
---------- ----------
Noncurrent related parties notes receivable $ 833,110 $1,125,298
========== ==========
Notes receivable - other; interest rates 6% to 12% (less
allowance for doubtful receivables of $292,000 in 1995
and $155,000 in 1994) $1,234,784 $1,064,022
Less current portion 866,603 967,239
---------- ----------
Noncurrent notes receivable $ 368,181 $ 96,783
========== ==========
Noncurrent notes receivable have maturities ranging from 1996 to 2001.
Trade accounts receivable are generated by sales of the food processing
segment and have terms ranging between fourteen and thirty days. A
concentration of receivables exists relating to one Bakery customer which
accounted for 63% of the food processing segment sales in fiscal 1995.
Receivables from this customer totaled $1,625,738 at February 24, 1995 and
represent 43.8% of the total.
An analysis of the allowance for doubtful notes and accounts receivable
is as follows:
Additions
Fiscal Year Balance at Charged to (1) Balance at
ended: Beginning of Year Costs and Expenses Deductions End of Year
- ----------- ----------------- ------------------ ---------- -----------
1995 $440,000 $430,128 $328,128 $542,000
1994 $225,000 $247,857 $32,857 $440,000
1993 $250,000 $155,222 $180,222 $225,000
(1) Uncollectible receivables charged against the allowance.
NOTE 3 - INVENTORIES:
A summary of inventories, by major classification, follows:
1995 1994
--------- ---------
Hams in curing process $1,748,375 $1,729,997
Other food (includes cured
hams) 2,104,940 1,357,837
Supplies 1,273,020 1,401,619
--------- ---------
Totals $5,126,335 $4,489,453
========== ==========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
Estimated
Useful Life 1995 1994
------------- ----------- ----------
Land $5,531,105 $6,788,463
Land improvements 10 years 1,377,356 1,660,690
Buildings 20-40 years 16,920,654 19,036,438
Leasehold improvements 5-20 years 1,202,009 1,076,018
Machinery and equipment 5-15 years 15,479,264 17,563,709
Machinery and equipment under
capital lease 5-15 years 787,283 787,283
Furniture and fixtures 5-10 3,759,205 4,644,117
Automotive equipment 2-5 years 664,252 646,706
Construction in progress 105,284 8,650
--------- ---------
Totals 45,826,412 52,212,074
Less accumulated depreciation 18,668,528 19,895,432
---------- ----------
Property, plant and equipment,net $ 27,157,884 $ 32,316,642
============ ============
Depreciation and amortization expense of property, plant and equipment
was $3,198,638, $3,184,365 and $3,020,514 for fiscal 1995, 1994 and 1993,
respectively. Accumulated depreciation applicable to property under
capital leases was $445,006, $365,366 and $330,552 for fiscal 1995, 1994
and 1993, respectively. Approximately $266,792 and $186,000 in interest
costs were capitalized in fiscal 1994 and 1993, respectively. No interest
costs were capitalized in fiscal 1995.
NOTE 5 - PROPERTIES HELD FOR SALE:
During fiscal 1991, the Company began a restructuring of its owned
restaurant operations to improve profitability by, among other things,
updating restaurant formats and disposing of less profitable stores. As a
result of this restructuring, the Company has closed various stores and
transferred the related real properties, in addition to certain undeveloped
land holdings, from the classification of property, plant and equipment to
other assets as properties held for sale. The Company is selling these
properties as reasonable purchase offers are received. At February 24, 1995,
the Company had $3,322,372 in properties held for sale. These properties are
being carried at their net book value which does not exceed their estimated
net realizable value.
The Company has evaluated the recently issued Statement of Financial
Accounting Standards No. 121, ``Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of'' and does not believe that
this new standard will have any material effect on the Company's financial
statements as it relates to properties held for sale or other long-lived
assets.
NOTE 6 - SHORT -TERM NOTES PAYABLE:
The Company has agreements with various banks which provide for short-
term secured borrowings up to $3,000,000, all of which was utilized at
February 24, 1995. Substantially all of the Company's manufacturing
inventory and receivables (approximately $7,900,000 in the aggregate) are
pledged as collateral under these borrowings.
The weighted average interest rate on short-term borrowings was 9.75% and
6.75% at February 24, 1995 and February 25, 1994, respectively.
NOTE 7 - LONG-TERM DEBT:
Long-term debt is comprised of the following:
1995 1994
----------- -----------
10.0% Senior Notes payable to
insurance companies, maturing 1996 $ 11,538,462 $ 13,076,923
Variable rate Industrial Revenue Bonds
maturing in 2005 3,505,000 3,835,000
Prime plus 1/2% to 2% notes
payable to banks maturing 1993 to 1998 1,595,361 2,488,340
4.5% Settlement Notes maturing in 1998
(see note 18) 790,000 970,000
7.0% to 12.5% other notes payable
maturing 1993 to 2001 789,239 749,940
9.23% capitalized lease obligations
maturing in 1997 (see note 10) 255,336 375,043
----------- -----------
Total long-term debt 18,473,398 21,495,246
Less current installments 2,939,844 3,374,918
------------ -----------
Long-term debt, excluding current
installments $ 15,533,554 $ 18,120,328
============ ============
The applicable prime interest rate at February 24, 1995 was 9%. The
variable rate payable on the Industrial Revenue Bonds at February 24, 1995 was
4%. At February 24, 1995, the net book value of the Company's property, plant
and equipment pledged as collateral under the above obligations was
$19,989,000.
The Senior Notes provide for monthly interest payments and semi-annual
principal payments of $769,230 beginning on October 1, 1991; a maturity date
of October 1, 1996; a security interest in certain of the Company's real
properties; and the annual payment of additional amounts that may be available
from excess cash flows (as defined). All payments made under the excess cash
flow provision will be applied to the reduction of principal. A balloon
payment of approximately $9,231,000, less any payments previously made under
the excess cash flow provision, will be required at October 1, 1996.
Additionally, the Senior Note terms require a current ratio of at least 125%
and the adjusted funded debt to adjusted equity ratio to not exceed 135%. At
February 24, 1995, the Company's ratio of adjusted funded debt to adjusted
shareholders' equity was 85.8%. No payments under the excess cash flow
provisions were required in fiscal 1995 and no such payments are anticipated
in fiscal 1996.
The Senior Note agreement also restricts future cash dividend payments
to shareholders to 25% of accumulated net earnings, with certain adjustments,
subsequent to February 28, 1986. After giving effect to such adjustments and
payment of cash dividends since February 28, 1986, there are no consolidated
retained earnings available for payment of cash dividends as of February 24,
1995.
The Industrial Revenue Bond agreements require the Company to maintain
tangible net worth (as defined) at specified levels, to maintain a ratio of
total liabilities to tangible net worth not greater than 240%, a current ratio
of at least 90% at February 24, 1995, and 125% thereafter, and a fixed charges
ratio (as defined) of at least 110% for the year ended February 24, 1995, and
125% thereafter. The agreements also place limitations on capital
expenditures and investments.
At February 24, 1995, the Company was not in compliance with certain loan
covenants relating to the Senior Notes and the Industrial Revenue Bonds. The
Company has received waivers of these violations and the lenders have agreed
to amend certain of the covenants to enable compliance for fiscal 1995 and to
facilitate compliance in fiscal 1996.
Long-term debt maturities, including capital leases (note 10), for the
five years subsequent to February 24, 1995 are as follows:
Fiscal Year
Ending Amount
------------ ------------
1996 $ 2,939,844
1997 $ 11,190,333
1998 $ 661,735
1999 $ 729,677
2000 $ 456,893
NOTE 8 - OTHER ACCRUED LIABILITIES:
Other accrued liabilities are as follows:
1995 1994
---- ----
Accrued salaries and wages $ 700,406 $701,869
Accrued insurance claims 773,251 560,156
Taxes, other than income 355,719 391,696
Accrued interest 79,883 91,220
Other 857,156 737,504
--------- --------
Totals $2,766,415 $2,482,445
========== ==========
NOTE 9 - INCOME TAXES:
As discussed in Note 1, the Company adopted SFAS 109 as of February 27,
1993. The cumulative effect of adopting SFAS 109 on the Company's financial
statements was to decrease net earnings by $245,000 for the fiscal year ended
February 25, 1994. Prior years' financial statements have not been restated
to apply the provisions of SFAS 109.
The provision for income taxes (benefit) is summarized as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $ 421,663 $ (95,485) $526,422
State 68,401 26,061 134,775
-------- --------- --------
Total current
490,064 (69,424) 661,197
--------- ---------- --------
Deferred:
Federal (102,544) (224,757) (225,144)
State 24,211 (90,593) (3,045)
--------- ---------- ---------
Total deferred (78,333) (315,350) (228,189)
---------- ---------- ---------
Total provision for
income taxes (benefit) $ 411,731 $(384,774) $433,008
========== ========== =========
Actual provisions for income tax expense (benefit) are different from
amounts computed by applying a statutory federal income tax rate to earnings
(loss) before income taxes. The computed amount is reconciled to total income
tax expense (benefit) as follows:
1995 1994 1993
-------------------- ---------------------- --------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Earnings Amount Loss Amount Earnings
---------- --------- ---------- --------- --------- ----------
Computed tax (benefit) at
statutory rate $ 512,856 34.0 $(314,423) (34.0) $ 375,023 34.0
Tax effect resulting from:
State income taxes
net of federal
tax benefit 92,584 6.1 (83,224) (9.0) 86,942 7.9
New general
business credits
(net) (110,308) (7.3) (15,431) (1.7) (58,775) (5.3)
Permanent differences (8,992) (.6) 60,380 6.5 64,423 5.8
Tax benefit of pre-acquisition
(SRLY) losses utilized (82,307) (5.4)
Other 7,898 .5 (32,076) (3.4) (34,605) (3.1)
---------- --------- ---------- --------- ---------- ---------
Provision for income taxes (benefit) $ 411,731 27.3 $(384,774) (41.6) $ 433,008 39.3
========= ========= ========== ========= ========== =========
The approximate tax effect of each type of temporary difference and
carryforward that gave rise to the Company's deferred income tax assets and
liabilities for fiscal 1995 and 1994 under SFAS 109 is as follows:
1995 1994
------------------------------- --------------------------------
Assets Liabilities Total Assets Liabilities Total
----------- ----------- --------- ---------- ----------- ---------
Current:
Allowance for
doubtful receivables $ 212,030 $ 212,030 $ 172,128 $ 172,128
Inventory 57,500 57,500 41,288 41,288
Accrued promotional
expense 6,973 6,973 17,096 17,096
Advertising reserve 242 242
Accrued vacation pay 54,768 54,768 54,768 54,768
Reserve for returns 15,649 15,649 29,340 29,340
Installment sales $ (249,339) (249,339) $ (345,239) (345,239)
Unrealized loss on
securities available-
for-sale 3,351 3,351
State loss carryforward 26,980 26,980 119,509 119,509
General business
credit carryforward 131,909 131,909 91,018 91,018
Alternative minimum
tax credit
carryforward 157,360 157,360
------------ ------------- ----------- ----------- ------------ -----------
Total current $ 509,160 $ (249,339) $ 259,821 $ 682,749 $ (345,239) $ 337,510
============ ============= =========== =========== ============ ===========
1995 1994
-------------------------------- --------------------------------
Assets Liabilities Total Assets Liabilities Total
------------ ------------- ------------ ----------- ----------- -----------
Noncurrent:
Property, plant and
equipment $ (2,060,220) $ (2,060,220) $ (1,939,748) $ (1,939,748)
Installment sales (55,913) (55,913) (81,856) (81,856)
Earnings in
unconsolidated
subsidiaries $ 67,874 67,874 $ 77,066 77,066
Deferred franchise
fees 11,736 11,736 35,208 35,208
General business
credit carryforward 80,145 80,145
Alternative
minimum tax credit
carryforward 206,421 206,421
Pre-acquisition (SRLY) loss
carryforward 83,281 83,281
State loss carryforward 441,511 441,511 390,058 390,058
Less valuation
allowance (524,792) (524,792) (390,058) (390,058)
------------- -------------- ------------- ------------- -------------- --------------
Total noncurrent $ 366,176 $ (2,116,133) $ (1,749,957) $ 112,274 $ (2,021,604) $ (1,909,330)
============= ============== ============= ============= ============= ==============
Total current and
noncurrent $ 875,336 $ (2,365,472) $ (1,490,136) $ 795,023 $ (2,366,843) $ (1,571,820)
============= ============== ============= ============= ============= ==============
The components of the provision for deferred income taxes for fiscal 1993
as reported under Accounting Principles Board Opinion No. 11, consist of the
following:
1993
---------
Depreciation $(140,011)
Installment sales (30,756)
Allowances for doubtful
receivables 8,500
Deferred franchise fees net of
expenses (5,100)
Write-downs and dispositions of
assets, net (59,587)
Other (1,235)
-----------
Totals $(228,189)
===========
As of February 24, 1995, operating loss carryovers of approximately
$7,800,000 are available to offset future taxable income in various states.
The carryover periods range from five to fifteen years which will result in
expirations of varying amounts beginning in fiscal 1996 and continuing through
fiscal 2010.
Various credits and loss carryforwards also exist to offset future
federal income taxes. As of February 24, 1995, alternative minimum tax credit
carryovers are approximately $206,421 and general business credit
carryforwards are approximately $212,054. The general business credits will
expire in varying amounts beginning in fiscal 2008. In addition, pre-
acquisition (SRLY) loss carryforwards of approximately $245,000 are available
to offset future taxable income of certain consolidated subsidiaries and
expire in varying amounts beginning in fiscal 2002.
NOTE 10 - LEASED PROPERTIES:
Nine of the Company's restaurant locations are operated in leased
premises. The related leases are classified as operating leases and their
terms are effective for varying periods until 2007, except for one lease for
land which expires in 2022. Most contain terms that provide for a modest
increase in rental payments at specified intervals within the lease term.
As of February 24, 1995, future minimum rental payments required under
these leases and under capital leases, which are for machinery and equipment,
are summarized as follows:
Operating Leases
-----------------------------
Minimum
Fiscal Year Minimum Sublease Capital
Ending Payments Receipts Total Leases Total
- ---------- ---------- ---------- --------- ----------- ----------
1996 $1,118,807 $ 202,760 $ 916,047 $ 153,936 $1,069,983
1997 1,031,170 199,760 831,410 128,280 959,690
1998 880,649 199,760 680,889 680,889
1999 804,288 199,760 604,528 604,528
2000 591,556 199,760 391,796 391,796
2001-2005 1,786,200 845,000 941,200 941,200
2006-2010 714,383 253,583 460,800 460,800
2011-2015 57,600 57,600 57,600
Later years 94,150 94,150 94,150
---------- ------------ ---------- ---------- ----------
Total minimum
lease payments $7,078,803 $ 2,100,383 $4,978,420 282,216 $5,260,636
========== ============ ========== ==========
Less amount representing interest (26,880)
-----------
Present value of minimum lease
payment under capital leases (see note 7) $255,336
===========
Rental expenses charged to earnings are as follows:
1995 1994 1993
---------- ----------- -----------
Real estate $1,061,057 $ 1,101,189 $1,081,262
Less sublease
rentals (227,148) (272,336) (331,736)
Equipment 196,673 207,898 197,985
---------- ----------- -----------
Totals $1,030,582 $ 1,036,751 $ 947,511
========== =========== ===========
NOTE 11 - EMPLOYEE BENEFITS:
On March 1, 1994, the Company established an employee stock purchase plan
through which employees, after meeting minimum eligibility requirements, may
contribute up to 10% of their base earnings toward the purchase of the
Company's common stock. The plan provides that the Company will make matching
contributions of 25% of the employee's contribution. Participation in the
plan is voluntary and all contributions of the Company are funded monthly and
vest immediately. The Company's contributions to the plan totaled $10,091 in
1995. The Company also maintains a 401-k Retirement Plan for its employees.
The Plan provides that the Company will make a matching contribution of up to
25% of an employee's voluntary contribution, limited to the lesser of 8% of
that employee's annual compensation or $9,240 for fiscal 1995. The Company's
contributions to this Plan were $67,869, $52,042 and $47,112 in fiscal 1995,
1994 and 1993, respectively. The Company also provides employee health
insurance benefits under a 501-c(9) trust arrangement. These benefits are
partially self-funded by the Company. The Company has $45,000 per claim and
$1,000,000 annual aggregate stop loss coverage on group medical claims with an
insurance carrier. A third-party administrator handles all claims. Company
contributions to this plan were $388,488, $504,500 and $536,827 in fiscal
1995, 1994 and 1993, respectively. Certain officers of the Company are
trustees of the stock purchase plan, the retirement plan and the employee
health plan.
The Company also has two Employee Stock Option Plans as described in Note
12.
NOTE 12 - EMPLOYEE STOCK OPTIONS:
The Company's 1987 Incentive Stock Option Plan provides for the issuance
of up to 625,000 shares of common stock to key employees, including officers,
of the Company. The Company may grant Incentive Stock Options ("ISOs") or
nonqualified stock options to eligible employees.
The Company's 1987 Special Stock Option Plan, as amended, provides for
the issuance of up to 625,000 shares of common stock to key management
employees, including officers of the Company. All options granted under this
Plan are nonqualified stock options. During fiscal 1994, options for 100,000
shares were repriced from $9.50 to the fair market value at the date of
repricing.
All options must be granted at not less than 100% of the fair market
value of the common stock at the date of the grant and must be exercised no
later than ten years from the date of grant.
A summary of the changes in shares under option for both Plans follows:
Incentive Stock Special Stock
Option Plan Option Plan
---------------- --------------
Balance at February 28, 1992 350,000 450,000
============ =============
Balance at February 26, 1993 350,000 450,000
Cancelled (150,000) (100,000)
Issued 100,000
Exercised at $3.625 per share (100,000)
------------- -------------
Balance at February 25, 1994 100,000 450,000
Cancelled (10,000)
Issued 157,500
Adjustment to options outstanding
to reflect five-for-four stock split 61,875 112,500
------------ -------------
Balance at February 24, 1995 309,375 562,500
============ =============
Price range of options $ 2.90 to $5.20 $2.90 to $4.60
=============== ==============
Exercisable at February 24, 1995 100,000 562,500
=============== ==============
The exercise prices of the options have been adjusted to reflect the
five-for-four stock split effected in the form of a 25% stock dividend
discussed in Note 19.
NOTE 13 - OTHER INFORMATION:
Accumulated amortization of intangible assets is as follows:
1995 1994
-------- --------
Excess of cost over fair value of net
assets of businesses acquired $398,756 $407,905
Franchise rights $ 12,885 $ 21,647
NOTE 14 - LINES OF BUSINESS:
The Company operates in three principal lines of business. Segment
information is presented as follows:
1995 1994 1993
---------- ---------- ----------
Amount Percent Amount Percent Amount Percent
------------ ------- ------------ ------- ------------ -------
Revenues:
Restaurant operations $ 28,895,738 30.7 $ 31,022,111 42.5 $ 35,440,057 46.1
Food processing 62,563,395 66.4 39,274,536 53.8 38,341,431 49.9
Restaurant franchising 2,868,199 3.1 3,027,252 4.1 3,418,876 4.4
------------ -------- ------------ ------ ------------ -------
94,327,332 100.2 73,323,899 100.4 77,200,364 100.4
Elimination of inter-segment
sales (1) (227,359) (.2) (264,463) (.4) (277,702) (.4)
--------------- --------- ------------- ------ ------------ --------
$ 94,099,973 100.0 $ 73,059,436 100.0 $ 76,922,662 100.0
=============== ========= ============= ======= ============= ========
Operating profit:
Restaurant operations $ 1,713,863 24.3 $ 815,673 17.5 $ 829,514 12.8
Food processing 4,110,751 58.4 2,099,209 45.1 3,784,194 58.4
Restaurant franchising 1,214,374 17.3 1,741,051 37.4 1,869,820 28.8
-------------- --------- ------------- ------- ------------- --------
7,038,988 100.0 4,655,933 100.0 6,483,528 100.0
========= ======= ========
Corporate expenses (4,794,321) (4,694,982) (4,139,099)
Other income 1,256,828 954,478 546,996
Interest expense (1,993,094) (1,840,203) (1,788,417)
--------------- -------------- --------------
Earnings (loss) before
income taxes $ 1,508,401 $ (924,774) $ 1,103,008
=============== ============== ==============
Identifiable assets:
Restaurant operations $ 18,115,517 38.8 $ 20,358,626 40.4 $ 24,293,435 48.0
Food processing 19,646,658 42.0 19,348,140 38.4 15,278,018 30.2
Restaurant franchising 688,049 1.5 827,881 1.7 687,988 1.4
Corporate 8,271,177 17.7 9,814,750 19.5 10,330,124 20.4
-------------- --------- -------------- ------- -------------- -------
$ 46,721,401 100.0 $ 50,349,397 100.0 $ 50,589,565 100.0
============== ========= ============== ======= ============== =======
Depreciation and
amortization:
Restaurant operations $ 1,316,636 45.7 $ 1,548,174 51.5 $ 1,626,119 51.1
Food processing 1,314,001 45.7 1,148,016 38.2 919,992 28.9
Restaurant franchising 38,082 1.3 46,278 1.5 245,278 7.7
Corporate 209,905 7.3 263,587 8.8 391,258 12.3
-------------- -------- -------------- ------- -------------- -------
$ 2,878,624 100.0 $ 3,006,055 100.0 $ 3,182,647 100.0
============== ======== ============== ======= ============== =======
Capital expenditures:
Restaurant operations $ 574,272 47.5 $ 695,835 13.3 $ 3,464,364 42.0
Food processing 368,497 30.5 4,455,934 85.1 4,408,593 53.4
Restaurant franchising 50,550 4.2
Corporate 214,876 17.8 84,696 1.6 383,657 4.6
------------- -------- ------------- ------- ------------- -------
$ 1,208,195 100.0 $ 5,236,465 100.0 $ 8,256,614 100.0
============== ======== ============= ======= ============= =======
<FN>
(1) Intersegment sales are recorded based on prevailing prices and relate
solely to the food processing segment.
In December 1993, the Company entered into a new agreement with its
largest customer of bakery products whereby the Company would purchase the
meat components and the customer's brand name packaging material from the
customer, produce and pack the final meat-filled bakery product and sell the
finished product to the customer. Prior to this agreement, sales to this
customer consisted only of the bakery component and cost of production and
packing. The meat component and packaging were supplied and owned by the
customer throughout the process. Purchases by the Company of the meat
component and packaging totaled $23,441,000 in fiscal 1995 and $4,764,000 in
fiscal 1994. These amounts are reported as both sales and cost of goods sold,
thus approximately $18,677,000 of the fiscal 1995 increase in food sales is
attributable to this agreement.
During fiscal 1995, 1994 and 1993, a single customer of the Company's
bakery products accounted for 63%, 47% and 40%, respectively, of the food
processing segment sales and 42%, 25% and 20%, respectively, of the Company's
total operating revenues.
NOTE 15 - INVESTMENT IN AFFILIATES:
The Company maintains investments in several companies which operate
Prime Sirloin restaurants, Sagebrush Steakhouse and Saloons, Mom `n' Pop's
Buffet and Bakery restaurants, Western Steer Family Restaurants and Bennett's
Smokehouse and Saloons. All of the companies are accounted for under the
equity method. Names of these companies and percentages of ownership are as
follows:
Percentage Owned Percentage Owned
in 1995 in 1994
--------------- ---------------
Georgia Buffet Restaurants, Inc. 50% 50%
Greenville Foods, Inc. 50%
Knoxville Foods, Inc. 50% 50%
Matthews Prime Sirloin, Inc. (1) 50%
Primo Foods, Inc. 50%
Sagebrush of Asheville, Inc. 50% 50%
Sagebrush of Rock Hill, Inc. 50% 50%
Spartanburg Foods, Inc. 50%
Starke Foods, Inc. 50% 50%
Summarized financial information for the above companies is as follows:
1995 1994
--------- ---------
Current Assets $ 476,187 $ 424,271
Noncurrent Assets 2,181,774 1,946,901
Current Liabilities 1,559,115 1,464,556
Noncurrent Liabilities 76,577 125,900
Operating Revenue 9,566,779 9,213,949
Gross Profit 5,686,828 5,571,789
Net Earnings 173,298 279,354
Dividends received from these companies totaled $143,500 and $220,500 in
fiscal 1995 and 1994, respectively.
(1) On February 26, 1994, the Company purchased an additional 30%
ownership interest in Matthews Prime Sirloin, Inc., bringing the
total ownership interest to 80%. This acquisition has been
accounted for as a purchase transaction , and results of
operations for fiscal 1995 have been included in the Company's
consolidated statement of operations. Net assets of the acquired
company and operating results prior to acquisition are not
material to the Company's consolidated financial statement.
NOTE 16 - COMMITMENTS AND CONTINGENCIES:
On May 3, 1994, the Company guaranteed a loan obligation of one of its
franchisees in an amount not to exceed $322,000. The loan is secured by
certain restaurant equipment purchased by the franchisee.
During fiscal 1995, the Company entered into two 50% joint ventures
involving the construction and operation of two restaurant units. Remaining
capital investments required under these two agreements totaled $311,000 at
February 24, 1995.
During fiscal 1995, the Company was required to provide a secured letter
of credit in the amount of $500,000 to its insurance carrier for outstanding
worker's compensation and general liability claims. This letter of credit is
being secured by $500,000 on deposit with the issuing financial institution.
Since this deposit is restricted and will not be available for current
operations in fiscal 1996, the amount has been reclassified from current
assets, and is presented in other non-current assets at February 24, 1995.
Effective December 1, 1993, the Company entered into a three year
endorsement agreement with Richard Childress Racing Enterprises, Inc. and Dale
Earnhardt, Inc. The agreement calls for total payments of $1,200,000 over the
three year period. As of February 24, 1995, remaining payments under this
agreement are $900,000.
NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes is as follows:
1995 1994 1993
---- ---- ----
Interest $2,004,431 $1,835,074 $1,823,635
========== ========== ==========
Income taxes $ 673,500 $ 52,833 $ 858,856
========== ========== ==========
The Company received accounts and notes receivable totaling $385,537 and
$1,321,565 from the sale of property, plant and equipment in fiscal 1995 and
1994, respectively.
Upon delivery and installation of equipment, the Company transferred
deposits to property, plant and equipment totaling $14,346, $6,210 and $34,634
for fiscal 1995, 1994 and 1993, respectively.
Accounts receivable from certain franchisees totaling $ 110,156, $458,392
and $694,816 in fiscal 1995, 1994 and 1993, respectively, were converted to
notes receivable.
In fiscal 1995, the Company executed a note payable and obtained a note
receivable for $92,165 relating to the settlement of certain lawsuits with two
franchisees.
In fiscal 1993, the Company incurred debt totaling $655,000 relating to
leasehold improvements.
In fiscal 1993, the Company executed a note payable and obtained a note
receivable for $1,200,000 relating to the settlement of certain lawsuits and
the exercise of a guaranty and hold harmless agreement. (See note 18).
NOTE 18 - TRANSACTIONS WITH RELATED PARTIES:
Related party transactions during the fiscal years ended 1995, 1994 and
1993 arose in connection with the following relationships.
Certain current and past officers, directors and principal shareholders
of the Company have ownership interests in franchisee companies as well as an
insurance company and a marketing services company which transact business
with the Company. In addition, immediate family members of a director and
principal shareholder have ownership interests in two companies from which the
Company purchases restaurant equipment and furnishings.
The Company has mutual leasing agreements with a partnership and
corporations which include a principal shareholder. Sales of restaurant
properties were made to a partnership which includes a principal shareholder.
Under a contract with a management services company owned by certain
officers and directors of the Company, the Company receives general management
services which include, among other things, the review and supervision of
financing, cost analysis services and review of franchise relationships.
Management fees paid under this contract are in lieu of salary compensation
for certain of the Company's senior executives. Effective April 1, 1993, this
contract was renewed for a three year period at an annual maximum management
fee of $1,500,000, payable quarterly in advance.
The Company's related party transactions are summarized as follows:
1995 1994 1993
-------- -------- ---------
Royalty and accounting fee income
from related party franchisee
companies $ 1,030,000 $ 1,017,000 $ 983,000
Management services expense 1,500,000 1,500,000 875,000
Purchases of restaurant equipment,
furnishings and construction 386,000 817,000 1,433,000
Purchases of other services 632,000 213,000 374,000
Casualty insurance premiums 1,066,000 1,070,000 1,314,000
Sales of restaurant properties 624,000 465,000 1,183,000
Assumption of debt and related assets 655,000
Income from leased properties 90,000 117,000 140,000
Leasing of property 427,000 336,000 91,000
1995 1994 1993
-------- -------- ---------
Related party receivables are as
follows:
Trade accounts receivable $ 335,785 $ 159,667 $ 553,728
Notes receivable (interest rates
ranging from 4.5% to 12%, payable 1,675,538 2,130,468 1,971,660
over 1 to 5 years)
Litigation involving an unrelated party holding a security interest in
the trade receivables of a bankrupt company, which was one of the Company's
significant customers and vendors, was settled in May 1993. Under the terms
of this settlement the Company agreed to pay $1,200,000, comprised of an
initial payment of $230,000 in 1993, four annual payments of $180,000 each on
April 1 beginning in 1994 and a final payment of $250,000 on April 1, 1998.
Interest on the unpaid principal balance is payable quarterly at 4.5%. Under
the terms of a guaranty and hold harmless agreement with the Company's
president, who was a former principal of the bankrupt company, the Company
obtained unsecured promissory notes from the president in amounts sufficient
to reimburse the Company for all payments of principal and interest required
by the Settlement Agreement and to liquidate the net receivable and accrued
interest thereon arising from the initial set-off discussed above. The terms
of the promissory notes correspond to the payment terms stipulated by the
Settlement Agreement. The Company's financial statements as of February 24,
1995 reflect both the remaining settlement liability of $790,000 and the
related receivable.
NOTE 19 - CAPITAL STOCK:
On February 22, 1995, the Board of Directors announced a five-for-four
stock split effected in the form of a 25% stock dividend. In connection
therewith, 531,849 shares of common stock and $1,778 for fractional shares
were distributed on April 11, 1995 to shareholders of record as of March 15,
1995.
During fiscal 1995, 1994 and 1993 the Company acquired and retired 5,000
common shares at a cost of $35,625, 10,000 common shares at a cost of $50,004
and 9,062 common shares at a cost of $71,680, respectively.
The Company is authorized to issue 2,500,000 shares of preferred stock
with a par value of ten cents ($.10) per share in one or more series. All
rights and preferences of each series are to be established by the Company
prior to issuance. There are no issues of this class of stock at February 24,
1995.
On November 25, 1992, the Company filed a Registration Statement with the
Securities and Exchange Commission stating its intent to issue common stock
subscription rights to existing shareholders of 1,933,843 shares of its common
stock. On April 6, 1993 the Company completed the offering. The net proceeds
from 109,646 newly issued shares totaled $582,066.
WSMP, INC.
REPORT OF MANAGEMENT
- --------------------
The management of WSMP, Inc. is responsible for the preparation and
integrity of the consolidated financial statements of the Company. The
financial statements and notes have been prepared by the Company in
accordance with generally accepted accounting principles and, in the judgment
of management, present fairly and consistently the Company's financial
position and results of operations and cash flows. The financial information
contained elsewhere in this annual report is consistent with that in the
financial statements. The financial statements and other financial
information in this annual report include amounts that are based on
management's best estimates and judgments.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that transactions are
executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with
generally accepted accounting principles.
The Company's financial statements have been audited by Deloitte & Touche
LLP. Management has made available to them all of the Company's financial
records and related data, and believes that all representations made to
Deloitte & Touche LLP during this audit were valid and appropriate. Their
report provides an independent opinion upon the fairness of the financial
statements.
The Board of Directors discharges its responsibility for the Company's
financial statements through its three-member Audit Committee, all of which
are non-management directors. The Audit Committee meets periodically with
Deloitte & Touche LLP, the accounting and reporting departments and
management. Both Deloitte & Touche LLP and the reporting staff have direct
access to the Audit Committee to discuss the scope and results of their work,
the adequacy of internal accounting controls and the quality of financial
reporting.
Bobby G. Holman
Chief Financial Officer
Matthew V. Hollifield
Chief Accounting Officer
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Shareholders and Board of Directors
WSMP, Inc.
Claremont, North Carolina
We have audited the accompanying consolidated balance sheets of WSMP,
Inc. and subsidiaries as of February 24, 1995 and February 25, 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three fiscal years in the period ended February 24,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of WSMP, Inc. and subsidiaries
at February 24, 1995 and February 25, 1994, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended February 24, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the consolidated financial statements, in
fiscal 1994 the Company changed its method of accounting for income taxes
effective February 27, 1993 to conform with Statement of Financial Accounting
Standards No. 109.
Deloitte & Touche LLP
Hickory, North Carolina
April 28, 1995
WSMP, INC. AND SUBSIDIARIES
Unaudited Quarterly Financial Data
- ----------------------------------
Quarters Ended
August 12, November 4, February 24, 1995
May 20, 1994 1994 1994 (1)(2)
------------ ---------- ----------- -----------------
Operating revenues $21,042,514 $21,760,026 $ 22,623,595 $ 28,673,838
Gross profit $ 3,127,896 $ 3,347,675 $ 3,296,178 $ 3,757,499
Pretax earnings $ 626,508 $ 303,001 $ 463,334 $ 115,558
Provision for income $ 265,508 $ 97,001 $ 180,334 $ (131,112)
tax
Net earnings $ 361,000 $ 206,000 $ 283,000 $ 246,670
Earnings per share $ .13 $ .07 $ .10 $ .08
August 13, November 5, February 25, 1994
May 21, 1993 1993 1993 (2)
------------ ---------- ----------- -----------------
Operating revenues $16,505,661 $14,933,459 $ 16,567,136 $ 24,768,210
Gross profit $ 2,639,781 $ 2,631,153 $ 3,076,382 $ 3,362,063
Pretax loss $ (177,485) $ (390,861) $ (127,654) $ (228,774)
Provision for income $ (69,485) $ (151,861) $ (50,654) $ (112,774)
tax
Cumulative effect of
change in accounting
method $ (245,000)
Net loss $ (353,000) $ (239,000) $ (77,000) $ (116,000)
Loss per share $ (.12) $ (.08) $ (.03) $ (.04)
(1) The tax benefit shown in the quarter ended February 24, 1995 was the result
of general business credits originating during that quarter, as well as the
utilization of pre-acquisition loss carryforwards by certain consolidated
subsidiaries.
(2) There were no material fourth quarter adjustments in fiscal 1995 or fiscal
1994.
WSMP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
- -----------------------
Selected Operating Data
- -----------------------
Fiscal Year Ended
February 24 February 25 February 26 February 28 February 22
1995 1994 1993 1992 (1) 1991
---- ---- ---- ----- ----
Operating revenues:
Food sales (7) $91,231,774 $70,032,184 $73,503,786 $65,008,966 $ 57,969,367
Franchise, royalty
and other fees 2,868,199 3,027,252 3,418,876 3,478,977 4,007,202
----------- ----------- ----------- ----------- ------------
Total operating
revenues $94,099,973 $73,059,436 $76,922,662 $68,487,943 $ 61,976,569
=========== =========== =========== =========== ============
Total operating
income (loss) $ 2,244,667 $ (39,049) $ 2,344,429 $ 2,956,987 $ (1,536,074)
=========== ============ =========== =========== =============
Earnings (loss)
before income taxes $ 1,508,401 $ (924,774) $ 1,103,008 $ 1,019,198 $ (3,515,246)
=========== ============ =========== =========== =============
Net earnings (loss)
(5) $ 1,096,670 $ (785,000) $ 670,000 $ 630,000 $ (2,196,000)
=========== ============ =========== =========== =============
Net earnings (loss)
per common share and
common equivalent
share (2, 3 and 6) $ .38 $ (.30) $ .23 $ .24 $ (.85)
=========== =========== =========== =========== ============
Dividends per
share (3, 4 and 6) $ .00 $ .00 $ .00 $ .00 $ .00
=========== =========== =========== =========== ============
Book value per
share (2 and 6) $ 6.63 $ 6.22 $ 6.73 $ 6.54 $ 6.12
=========== =========== =========== =========== ============
Selected Balance
Sheet Data
- ----------------
Total assets $46,382,396 $50,076,967 $50,284,420 $43,035,334 $ 47,993,513
=========== =========== =========== =========== ============
Long-term debt $18,473,398 $21,495,246 $23,880,647 $18,872,551 $ 23,173,337
=========== =========== =========== =========== ============
Shareholders' $17,638,118 $16,584,065 $16,804,458 $15,876,183 $ 15,548,738
equity (2) =========== =========== =========== =========== ============
<FN>
(1) Fifty three week year.
(2) During the year ended February 24, 1995, the Company repurchased 5,000
common shares for $35,625 and declared a five-for-four stock split, effected
in the form of a stock dividend, through which 531,849 common stock were
distributed on April 11, 1995. During the year ended February 25, 1994 the
Company repurchased 10,000 common shares for $50,004, issued 47,395 common
shares for $319,916 pursuant to a shareholder rights offering, and 100,000
stock option shares were exercised by a former officer at a gross price of
$362,500. During the year ended February 26, 1993 the Company repurchased
9,062 common shares for $71,680 and issued 62,251 common shares for $420,194
pursuant to a shareholders rights offering. During the year ended February
28, 1992 the Company repurchased 89,645 common shares for $302,555. During
the year ended February 22, 1991, the Company repurchased 67,170 common
shares for $343,350. In addition, 622,762 treasury shares were retired.
(3) Earnings (loss) per share are based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during each
fiscal year. The weighted average number of shares used in the calculations
are 2,879,021 in 1995; 2,624,015 in 1994; 2,875,100 in 1993; 2,649,336 in
1992; and 2,570,618 in 1991.
(4) Due to limitations imposed by debt covenants, the Company suspended the
payments of its regular 4 cents per share quarterly dividend beginning with
the third quarter of fiscal 1990.
(5) The net loss for February 25, 1994 includes a charge against earnings
reflecting the cumulative effect of a change in accounting for income taxes
in the amount of $245,000 related to the adoption of SFAS 109 "Accounting for
Income Taxes."
(6) Per share amounts have been restated to reflect the five-for-four stock
split, effected in the form of a stock dividend declared in 1995.
(7) In December 1993, the Company entered into a new agreement with its largest
customer of bakery products whereby the Company would purchase the meat
components and the customer's brand name packaging from the customer, produce
and package the final meat-filled bakery product and sell the finished
product to the customer. Prior to this agreement, sales to this customer
consisted only of the bakery component and cost of production and packaging.
The meat component and packaging were supplied and owned by the customer
throughout the process. Purchases by the Company of the meat component and
packaging during fiscal 1995 and 1994 totaled $23,441,000 and $4,764,000,
respectively. These amounts are reported as both sales and cost of goods
sold during 1995 and 1994, and affect the comparability of food sales for the
five years presented.
OFFICERS
AND
DIRECTORS
Officers Directors
-------- ---------
Richard F. Howard Ronnie L. Digh Richard F. Howard
Chairman of the Board Vice President, Chairman of the Board
and Secretary Bakery Operations and Secretary
WSMP, Inc.
James C. Richardson, Jr. Larry D. Hefner
President and Chief Vice President, James C. Richardson, Jr.
Executive Officer Procurement President and Chief
Executive Officer
Bobby G. Holman Fred H. Keller WSMP, Inc.
Chief Financial Officer Vice President,
Treasurer, and Ham Curing Operations Bobby G. Holman
Assistant Secretary Treasurer and
James M. Templeton Chief Financial Officer
Matthew V. Hollifield Senior Vice President, WSMP, Inc.
Vice President of Accounting, Real Estate & Franchising
Chief Accounting Officer James M. Templeton
and Assistant Secretary Trey F. Safrit Senior Vice President
Group Vice President, Real Estate & Franchising
Ken Moser Restaurant Operations WSMP, Inc.
Vice President,
Franchising James W. Berry Richard F. Hendrickson
Controller and Assistant York Properties, Inc.
Gregory A. Edgell Treasurer
Vice President, Lewis C. Lanier
Strategic Planning Partner, Horger, Horger
and Lanier, Attorneys at Law
Dwight A. Sherrill
Vice President, William R. McDonald
Real Estate Vice President, Medipack
Miles Aldridge
Assistant Football Coach
Clemson University
E. Edwin Bradford
Bradford Communications, Inc.
MARKET The Company's common stock is traded on the National Market
INFORMATION System of the over-the-counter markets under the NASDAQ symbol
of "WSMP". As of May 11, 1995, WSMP, Inc. had approximately 1,400
shareholders based on the number of holders of record and an estimate of
the number of individual participants represented by security position
listing. The quarterly high and low closing bid price quotations are
presented below as reported by National Association of Securities Dealers
Incorporated and as adjusted for the five-for-four stock split,
effected in the form of a stock dividend, declared February 22, 1995
and distributed April 11, 1995. These quotations represent interdealer prices,
without tail mark-up, mark-down or commissions, and may not
necessarily reflect actual transactions.
1995 1994
------------------ --------------------
High Low High Low
First Quarter $ 5.200 $ 3.600 $ 6.000 $ 4.600
Second Quarter $ 4.400 $ 3.600 $ 5.200 $ 4.000
Third Quarter $ 5.900 $ 3.600 $ 4.600 $ 3.600
Fourth Quarter $ 6.000 $ 5.200 $ 5.200 $ 4.200
The closing price on May 11, 1995, was $4.25.
No cash dividends have been declared during fiscal 1995 or 1994.
GENERAL
INFORMATION
-----------
REGISTRAR AND
TRANSFER AGENT
First Citizens Bank
Raleigh, North Carolina
GENERAL COUNSEL
Simpson Aycock, P.A.
Morganton, North Carolina
AUDITORS
Deloitte & Touche LLP
Hickory, North Carolina
ANNUAL MEETING
The Annual Meeting of the Shareholders of
WSMP, Inc. will be held at 10:00 a.m. Eastern
Daylight Savings Time, June 22, 1995, at
the Holiday Inn, Piedmont Center,
Hickory, North Carolina
10-K REPORT
A copy of WSMP, Inc., 10-K Report
filed with the Securities and Exchange
Commission for Fiscal 1995 can be
obtained free of charge by writing:
Vice President of Accounting
WSMP, Inc.
P O Box 399
Claremont, NC 28610
EXECUTIVE OFFICES
WSMP, Inc.
1 WSMP Drive
Claremont, NC 28610
WSMP Inc.
1 WSMP DRIVE
P O BOX 399
Claremont, NC 28610