-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FSawI/wCjSTCWZGEopTk6xDt9lCcoc3Vdt5VDaaGR9zMoAIjf3oaQY9I4mjIaA1C tIMq5X/I2tG7lYXAN5SeZw== 0000910650-95-000019.txt : 19950530 0000910650-95-000019.hdr.sgml : 19950530 ACCESSION NUMBER: 0000910650-95-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950224 FILED AS OF DATE: 19950519 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WSMP INC CENTRAL INDEX KEY: 0000067494 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 560945643 STATE OF INCORPORATION: NC FISCAL YEAR END: 0222 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07277 FILM NUMBER: 95541301 BUSINESS ADDRESS: STREET 1: PO BOX 399 CITY: CLAREMONT STATE: NC ZIP: 28610 BUSINESS PHONE: 7044597626 MAIL ADDRESS: STREET 1: PO BOX 399 CITY: CLAREMONT STATE: NC ZIP: 28610 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN STEER MOM N POPS INC DATE OF NAME CHANGE: 19880719 FORMER COMPANY: FORMER CONFORMED NAME: MOM N POPS HAM HOUSE INC DATE OF NAME CHANGE: 19810827 10-K 1 FILE NO. 0-7277 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT Pursuant to Section 13 of the Securities Exchange Act of 1934 For the Fiscal Year Ended February 24, 1995 WSMP, INC. Incorporated in North Carolina CLAREMONT, NORTH CAROLINA 28610 56-0945643 (704) 459 - 7626 (I.R.S. Employer Identification No.) Securities filed pursuant to Section 12(g) of the Securities Exchange Act of 1934: COMMON STOCK, PAR VALUE $1 PER SHARE WSMP, Inc. has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and has been subject to such filing requirements for the past 90 days. Disclosure of delinquent filers pursuant to Item 405 of regulation S-K is contained in WSMP, Inc.'s proxy statement for WSMP, Inc.'s Annual Meeting of Shareholders to be held on June 22, 1995, and incorporated by reference in Part III of this Form 10-K. The number of shares of WSMP, Inc. Common Stock outstanding as of May 11, 1995 was 2,710,338. The aggregate market value of WSMP, Inc. Common Stock held by nonaffiliates of WSMP, Inc. as of May 11, 1995 was $5,952,376. DOCUMENTS OF WHICH PORTIONS PARTS OF FORM 10-K INTO WHICH PORTIONS ARE INCORPORATED BY REFERENCE OF DOCUMENTS ARE INCORPORATED - ----------------------------- ----------------------------- Annual Report to Shareholders for the Fiscal Year Ended February 24, 1995 I, II Proxy Statement for WSMP, Inc.'s Annual Meeting of Shareholders to be held on June 22, 1995 III PART I ITEM 1. BUSINESS. BUSINESS SEGMENTS. - ------------------ The Company operates in three principal business segments: restaurant franchising, restaurant operations and food processing. Information as to revenue, operating profit, identifiable assets, depreciation and amortization expense, and capital expenditures, for each of the Company's business segments for fiscal 1995 is contained on page 18 of the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, under the caption "Lines of Business", and is incorporated herein by reference. RESTAURANT FRANCHISING - ---------------------- RESTAURANT FRANCHISING - WESTERN STEER. The most significant segment of the - --------------------------------------- Company's franchising operations centers around the Western Steer chain of restaurants, which includes the Western Steer Family Restaurant concept and the Western Steer - Steaks, Buffet & Bakery concept. The Western Steer Family Restaurant concept originated in 1975 as a family oriented, reasonably priced steakhouse restaurant, and features a rustic western-style design, steaks and other entrees cooked to order, and an "all-you-can-eat" buffet food bar. Beginning in 1992, the Company began a extensive program of renovation of this concept which included updating the buffet food bar, adding an in-house bakery and changing the store appearance to highlight a new format. Restaurants updated to this new format have been renamed "Western Steer - Steaks, Buffet & Bakery". The Company has 58 franchised Western Steer restaurants located in North Carolina (28), Kentucky (7), West Virginia (5), Georgia (4), South Carolina (4), Florida (3), Virginia (3), Tennessee (3), and Alabama (1). Of this total, 26 are operated as Western Steer - Steaks, Buffet & Bakery restaurants. The Company no longer offers the Western Steer Family Restaurant franchise, and believes that many of the existing units will eventually elect to convert to the Western Steer - Steaks, Buffet & Bakery format. Although the decision regarding whether to renovate and the timing thereof rests with the franchisee, the Company encourages its franchisees to renovate franchised restaurants and provides assistance in doing so, primarily through consulting with franchisees regarding the renovations and subsequent operational changes and training of franchisee personnel. The Company anticipates that most of the remaining 32 franchised restaurants will be renovated within the next twenty-four months. The primary costs of renovating franchised restaurants are borne by the franchisees. The average sales volume during the fiscal year ended February 24, 1995 for franchised Western Steer - Steaks, Buffet & Bakery restaurants that have been open for one year or more was $1,237,000. This represents a decrease of 3.6% from the fiscal 1994 average of $1,283,000. The average sales volume for fiscal 1995 for Western Steer Family Restaurant units that have been open for one year or more was $1,011,000, representing an increase over average sales for fiscal 1994 which totaled $994,000. The Company granted no franchises during fiscal 1995 for Western Steer - Steaks, Buffet & Bakery restaurants. This was due to the Company's focus on reformulating requirements for franchises, as well as improving sales and profitability of existing restaurants. Although the Company intends to support any future interest in franchise expansion of this concept, it is felt that most new franchising interest will center around the Prime Sirloin and Bennett's' concepts discussed below. At February 24, 1995, major shareholders of the Company had ownership interests in 19 of the 58 franchised restaurants. See Item 13, "Certain Relationships and Related Transactions." RESTAURANT FRANCHISING - PRIME SIRLOIN In 1987, the Company acquired Prime - -------------------------------------- Sirloin, Inc., a regional franchised steakhouse chain composed of seven units and headquartered in Morristown, Tennessee. This concept, although similar to Western Steer, was slightly more upscale, with larger building designs, different interiors, and a higher average ticket price. At February 24, 1995, there were 10 franchised Prime Sirloin restaurants located in Tennessee (6), North Carolina (1), South Carolina (1), Georgia (1), and Kentucky (1). Major shareholders of the Company have an ownership interest in four of the franchised Prime Sirloin restaurants. See Item 13 "Certain Relationships and Related Transactions." Due to the success of the Western Steer redesign, management has offered its Prime Sirloin franchise operators a remodel and redesign program similar to the Western Steer reformat. As of February 24, 1995, three of the franchised units in Tennessee had been remodeled and the name changed to "Prime Sirloin - Buffet, Bakery & Steaks." During fiscal 1995, management of the Company introduced a new Prime Sirloin prototype designed to capitalize on the industry's success with larger buffet style formats. This "mega-sized" prototype centers around a budget steak and buffet concept with seating for over 400 patrons. Significant alterations from the original Prime Sirloin design include a panoramic entry, which gives customers a view of the buffet and dining area, a "double-line" system, directing guests to the buffet floor quickly, and a "scatter-bar" buffet design which allows guests to visit different areas for different phases of their meal. The new Prime Sirloin design costs approximately $2.1 million per unit, and each unit is anticipated to gross approximately $3.1 million in first year sales. One new prototype Prime Sirloin franchise was opened in Spartanburg, South Carolina in August of 1994. Management anticipates the opening of five additional new prototype franchise units during fiscal 1996. RESTAURANT FRANCHISING - BENNETT'S SMOKEHOUSE & SALOON In 1990, WSMP became a - ------------------------------------------------------ sub-franchiser of Denver-based Bennett's Bar-B-Que, Inc., with development rights exclusively for Tennessee, North Carolina and Virginia, and expansion rights elsewhere in the United States, except for Colorado, Texas, and metropolitan Atlanta, Georgia. As a sub-franchiser, the Company pays royalty fees to the franchiser equal to 1% of revenues for each Bennett's restaurant owned or sub-franchised by the Company. In 1994, management redesigned the Bennett's Bar-B-Que concept into Bennett's Smokehouse & Saloon, a Texas roadhouse theme concept merging steaks and barbecue in a 186-seat casual dinner house. This concept represents the Company's first entry into the rapidly growing casual dining market. At February 24, 1995, the Company had four franchised Bennett's restaurants located in Tennessee (3) and South Carolina (1). The South Carolina franchise, which is operated through a joint venture in which the Company owns 50%, was opened during fiscal 1995 and incorporates the Bennett's Smokehouse & Saloon concept. Management feels that the Bennett's Smokehouse and Saloon concept offers a promising vehicle for growth in franchise operations with five units being planned for fiscal 1996. Units operating under this concept are expected to generate average annual revenues of $2.1 million per unit. Management anticipates the opening of five franchise units during fiscal 1996. The first of the five new Bennett's to open in fiscal 1996 will be a 50% joint venture with an individual investor for a restaurant attached to the Holiday Inn in Greenville, South Carolina. The restaurant will operate the total food service program for the hotel under a five-year lease, with three 5- year renewal options. In conjunction with this new location, Bennett's became an approved foodservice operator for Holiday Inn. As a result, there may be opportunities to expand with Holiday Inn as the hotel company recently decided to stop the ownership and management of on-site restaurants and will be turning over such opportunities to independent, approved restaurant operators. However, future opportunities, if they arise, will be evaluated on an individual basis. RESTAURANT FRANCHISING - OTHER. WSMP has created the "Mom `n' Pop's Buffet and - ------------------------------- Bakery" restaurant concept, to fit existing Western Steer buildings in areas in which competition has grown, or in which past performance necessitates other market approaches. This restaurant concept consists of food bars from which customers make selections. At fiscal year end, there were only two franchised units under this concept, both located in Georgia. At the present time, the Company does not consider these restaurants or their franchising as being significant to its overall operations. RESTAURANT FRANCHISING - FRANCHISE AGREEMENTS. Generally, older franchise - ---------------------------------------------- agreements have a 20-year term and no advertising fee, although some franchisees subsequently entered into supplementary agreements providing for advertising fees. Newer agreements have a 10-year term, with a right to renew for a 10-year period at the franchisee's option, and an advertising fee of 2% of gross sales. Franchise agreements provide for a royalty of 3% of gross sales. All agreements provide for an exclusive territory and for in-term and post-term non-competition agreements. No single franchisee or groups of franchisees under common control provides revenues equal to 10% or more of the Company's consolidated revenues. RESTAURANT OPERATIONS. - ---------------------- WESTERN STEER, PRIME SIRLOIN, AND BENNETT'S RESTAURANTS. The Company and - -------------------------------------------------------- certain consolidated subsidiaries own and operate 11 Western Steer - Steaks, Buffet & Bakery restaurants and 4 Western Steer Family Restaurants. These restaurants are located in North Carolina (7), Georgia (3), Maryland (2), South Carolina (1), Florida (1), and Tennessee (1). The Company expects to complete renovation of the four additional Company owned restaurants by the end of fiscal 1996 at an approximate aggregate cost to the Company of $550,000. In addition, the Company and certain consolidated subsidiaries own and operate five Prime Sirloin - Buffet, Bakery & Steaks restaurants in North Carolina (4) and Florida(1). One North Carolina unit was acquired during fiscal 1995 when the Company purchased an additional 30% ownership interest in an existing subsidiary, bring the total ownership to 80%. One Bennett's Smokehouse & Saloon restaurant is owned by the Company and is located in North Carolina. The Company does not intend to build or acquire any additional wholly-owned Western Steer, Prime Sirloin, or Bennett's restaurants during fiscal 1996. Expansion of these concepts is planned to be accomplished through franchising activities. OTHER RESTAURANTS. The Company owns one Mom 'n' Pop's Buffet & Bakery restaurant - ------------------ in Florida. One other restaurant in Morganton, North Carolina is operated in a different format. The Company also owns 50% interests in three "Sagebrush Steakhouse & Saloon" restaurants in North Carolina, South Carolina and Tennessee, with Charles F. Connor, Jr., a major shareholder of the Company, whose company owns the "Sagebrush" concept. See Item 13, "Certain Relationships and Related Transactions." The Company does not consider these restaurants, in total, significant to its overall operation. The Company considers its restaurant segment to be somewhat seasonal in nature, with stronger sales during the Christmas season and during Spring, and weaker sales during the mid-summer and late winter months. OPENINGS AND CLOSINGS. The following is a summary of all Company-owned - ---------------------- restaurants opened and closed during the previous three years: Fiscal Fiscal Fiscal 1993 1994 1995 ----- ----- ----- Western Steer restaurants Opened 7 0 0 Closed 11 3 3 Total at year end 22 19 15 Prime Sirloin restaurants Opened 3 0 1 Closed 0 1 0 Total at year end 5 4 5 Bennett's Bar-B-Que restaurants Opened 1 0 0 Closed 0 1 0 Total at year end 2 1 1 Other restaurants Opened 2 0 0 Closed 0 0 1 Total at year end 3 3 2 Total restaurants (at year end) 32 27 23 RESTAURANT MEAL PRICES. The average meal price for Company-owned Western Steer - ----------------------- restaurants is $5.93 and the average meal price for Company-owned Prime Sirloin restaurants is $6.12. Meal prices vary depending on geographic location, degree of renovation, and whether the restaurant is Company-owned or franchised. SUPPLIERS. The Company has established a purchase program with Institutional - ---------- Food House, Inc. ("IFH") of Hickory, North Carolina. This program allows Company-owned restaurants and franchisees to obtain substantially all staple items on a regular basis from one purchasing source and promotes the consistency and high quality of goods delivered to its restaurants and participating franchisees. Any purchase program is voluntary for franchisees, and franchisees are free to buy their food from IFH or elsewhere as long as it meets the Company's specifications. The Company does not feel that the loss of the IFH agreement would have a material adverse effect on the Company. FOOD PRODUCTION. - ---------------- MOM 'N' POP'S COUNTRY HAM. The Company produces, through its Smokehouse - -------------------------- Division, sugar-cured hams and ham products for the retail and institutional markets. In the Company's modern curing facilities in Claremont, North Carolina, the atmospheric conditions of traditional air curing of pork hams are simulated, resulting in a curing process that fully cures raw hams in a period of approximately 70 days. The Company cured over 10,009,000 pounds of ham during fiscal 1995 in its 55,000 square foot facility. The Company produces whole cured hams, packaged cured ham slices, pre- portioned ham for portion control customers, and various "side meat" products. A portion of ham production is sold directly or through distributors to retail supermarkets under the "Mom 'n' Pop's" brand name, primarily in North Carolina, South Carolina, Virginia, Tennessee and Georgia. The remainder of production is sold to institutional food distributors. One supermarket customer accounted for 24.2% of cured ham sales during the past fiscal year. The Company is confident, based upon historical customer demand, that numerous other outlets exist for these products. Raw hams are available from numerous sources, although the Company relies upon four suppliers for most of its hams. Loss of one or more of the four suppliers would not have a material adverse effect upon the Company. Sales for the Company's Smokehouse division are seasonal in nature, with sales volume increases occurring around Thanksgiving, Christmas and Easter. The Company mitigates the seasonality of its sales by continuing to buy hams in non- peak periods and storing them until peak seasons. MOM 'N' POP'S BAKERY PRODUCTS. The Company produces through its Mom `n' Pop's - ------------------------------ Bakery Division, a variety of biscuits, yeast rolls and other flour-based products. The Company's biscuits are processed both plain and as sandwiches filled with items such as sausage, cheese, eggs and country ham. These frozen products are directly marketed under the "Mom `n' Pop's" brand name to institutional buyers, vending companies, delicatessens and supermarkets and are also packed for several of the Company's customers under private labels. The Company's yeast rolls are used primarily in frozen microwavable sandwiches. The Company packs microwavable hamburger, cheeseburger, chicken, barbecue and other sandwiches using its own fresh baked yeast rolls for two customers under custom manufacturing agreements. In addition, similar sandwiches are produced under the "Mom `n' Pop's" brand name and marketed directly to supermarkets, vending companies and institutional buyers. The Company has also developed several pre- mixed baking products for sale to institutional customers. These pre-mixed products include items such as cookie dough, biscuit and roll dough, dumplings and pizza crust, most of which are prepared simply with the addition of water. During fiscal 1994, the Company completed a plant upfitting and expansion for the Bakery Division, which cost approximately $8,000,000. The expansion was financed partially through a $4,000,000 Industrial Revenue Bond Offering. This project resulted in a 60% increase in the Company's capability to produce bakery products. The ingredients used in this Division's products and mixes are purchased primarily from five vendors but alternative sources are available. Three customers accounted for approximately 89.2% of sales during fiscal 1995. One of these customers, Hudson Foods, Inc., accounted for approximately 80.0% of bakery sales, and the Company has entered into a contractual arrangement to supply that company's requirements for those products. The Company believes that a loss of this customer would have an adverse short-term effect on the Company; however, the long-term impact would be minimal due to the demand for the Company's food products from other customers and potential customers. Although the Company does not consider its Bakery division to be seasonal, its somewhat slower sales periods typically occur in the mid-summer months. REVENUES. Revenues for the two divisions that make up the Food Production - --------- segment of the Company's business, for the past three fiscal years, are as follows: FISCAL YEAR ENDED BAKERY DIVISION HAM CURING DIVISION ----------------- --------------- ------------------- 1995 $49,600,000 $12,800,000 1994 $27,100,000 $11,900,000 1993 $24,500,000 $13,500,000 EMPLOYEES. - ---------- The Company employed 1,624 persons (812 full time and 812 part time) in its operations at February 24, 1995. These included 85 administrative and accounting personnel, 495 Bakery and Smokehouse employees, and 1,044 restaurant workers. The Company offers its employees various benefits, including major medical coverage, and participation in its cafeteria plan, its profit-sharing retirement plan, and its employee stock purchase plan. None of the Company's employees are represented by a union. The Company has experienced no work stoppage attributed to labor disputes and considers its employee relations to be good. WORKING CAPITAL. - ---------------- The Company's working capital needs in its restaurant segment do not vary appreciably on a seasonal basis or from year to year. All Company-owned and most franchised restaurants participate in the Company's IFH purchase program and do not carry substantial food inventories. The Company does not provide customers or franchisees with the right to return products, other than major grocery store chains which it may supply, except where required under contract law. Also, the Company does not give extended payment terms to its customers or franchisees. The Company's food production segment working capital needs vary with the seasonality of its revenues. The Company does provide standard Food and Drug Administration warranties to its retailers and distributors of ham or bakery products, concerning the unadulterated nature of its products and their introduction into interstate commerce. MARKETING AND ADVERTISING. - -------------------------- The Company relies upon advertising to help promote Western Steer and Prime Sirloin restaurants. Local advertising has been the responsibility of individual restaurant operators. The Company and its Western Steer and Prime Sirloin franchisees have advertised their restaurants primarily in newspapers and billboards and with point-of-sale materials. Most Western Steer franchisees, through franchise agreements or supplementary agreements, are obligated to pay the Company an advertising fee of two percent of the gross sales of each franchised restaurant. This fee is intended to provide funds for future national, regional and local advertising of Western Steer restaurants. The Company actively markets its ham and bakery products to large grocery distributors, institutional food brokers and in some cases, directly to retail grocery chains. In 1990, the Company entered into an Endorsement Agreement with Dale Earnhardt, Inc. and affiliated corporations by which the Company became an endorsement sponsor of the Dale Earnhardt automobile racing team on the NASCAR Winston Cup Series and the NASCAR Busch Grand National Series. This agreement has been extended through 1997. Mr. Earnhardt is currently one of the best- known and most successful stock car drivers on the Winston Cup circuit. As part of its sponsorship, the Company has the right to use Mr. Earnhardt's likeness and that of his racing car in advertising campaigns, as well as his endorsement of the Company's food products and restaurants. The Company has developed and intends to further develop advertising and promotional campaigns based upon Mr. Earnhardt's association with Western Steer, Prime Sirloin, and Bennett's restaurants and with Smokehouse and Bakery products. COMPETITION. - ------------ The restaurant and food manufacturing businesses are highly competitive and are often affected by changes in tastes and eating habits of the public, and economic conditions affecting spending habits, population and traffic patterns. Company-operated restaurants and Western Steer and Prime Sirloin restaurants operated by franchisees generally compete with national and regional family- oriented restaurant chains, local establishments and fast food restaurants. The Company believes that family-oriented steakhouses compete primarily on the basis of consistency and quality of product, price and location of restaurants. In marketing franchises, the Company competes with numerous other family steakhouse and restaurant franchisors, many of which have substantially greater financial resources and higher sales volume than the Company. In its production of retail and institutional ham products, the Company faces strong price competition from a variety of large meat processing concerns and smaller local and regional operations. The Company does not believe that any one company is dominant in the sale of ham products. The principal methods of competition in the sale of ham products are price, quality, and name recognition. In sales of biscuit and yeast roll products, the Company competes with a number of large bakeries in various parts of the country, as well as national frozen meal manufacturers, with competition strongest for sales to institutional food vendors. The principal methods of competition for the sale of bakery products are price and quality. TRADEMARKS. - ----------- The Company has registered the Western Steer logotype and the names "Western Steer", "Western Steer Family Restaurant", "Western Steer Steaks, Buffet & Bakery", "Prime Sirloin - Buffet, Bakery & Steaks", the "Prime Sirloin" logotype and the "Mom 'n' Pop's" logotype and variations thereof, as well as several distinct Western Steer menu items, as trademarks and service marks with the United States Patent and Trademark Office. The Company actively uses these trademarks to identify its restaurants and products and believes they are important to its business. Generally, trademarks remain valid as long as they are used properly for identification purposes. REGULATION. - ---------- The Company is subject to Federal Trade Commission regulations relating to disclosure requirements in the sale of franchises. Many states also have laws regulating franchise operations, including registration and disclosure requirements in the offer and sale of franchises and the application of statutory standards regulating franchise relationships. The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations. The conduct of the Company's businesses is subject to various other federal and state laws, including the Food, Drug and Cosmetic Act and the Occupational Safety and Health Act. The Company is also subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime and other working conditions. A significant portion of the Company's food service personnel are paid at rates related to the Federal minimum wage, and, accordingly, future increases in the minimum wage will increase the Company's labor cost. The Company believes itself to be in material compliance with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, and feels that such compliance should not have a material effect on the Company's capital expenditures, earnings and competitive position. EXECUTIVE OFFICERS OF THE REGISTRANT. - ------------------------------------- Officers are elected annually by the Company's Board of Directors and serve indefinitely at the pleasure of the Board. The following table sets forth certain information with respect to the executive officers of the Company at May 11, 1995: Executive Officer Name Position Age Since - ---- -------- --- ----- James C. Richardson, Jr. President & Chief Executive Officer 46 1988 Richard F. Howard Chairman of the Board, & Secretary 45 1988 Bobby G. Holman Treasurer, Chief Financial Officer 59 1994 & Assistant Secretary James M. Templeton Senior Vice President, Real Estate 58 1988 and Franchising Trey F. Safrit Group Vice President, 35 1988 Restaurant Operations Ronnie L. Digh Vice President, Bakery Operations 51 1981 Gregory A. Edgell Vice President, Strategic Planning 48 1994 Larry D. Hefner Vice President, Procurement 45 1991 Matthew V. Hollifield Vice President of Accounting, Chief Accounting Officer & Assistant Secretary 28 1995 Fred H. Keller Vice President, Ham Curing Operations 67 1981 Ken L. Moser Vice President, Franchising 51 1984 Dwight A. Sherrill Vice President, Real Estate 46 1994 James W. Berry Controller and Assistant Treasurer 52 1981
Mr. Holman was an assistant vice president with Aetna Life and Casualty Insurance Company in Hartford, Connecticut, and managing director of the food industry segment of Aetna's Bond Investment Department since 1985, prior to assuming the position of Chief Financial Officer, Treasurer and Assistant Secretary of the Company. Mr. Hollifield was an audit manager with the accounting firm of Deloitte & Touche LLP prior to assuming the position of Vice President of Accounting, Chief Accounting Officer and Assistant Secretary of the Company, and had been employed by that firm since 1988. Mr. Hefner was president of The Wes-Mar Group, Inc., a South Carolina food supplier, prior to joining the Company in 1991. He had served Wes-Mar as its president since 1986. The Wes-Mar Group, Inc. filed for bankruptcy protection in 1991. Mr. Edgell, a member of the HERTH Management, Inc. group, was an executive officer and majority shareholder of the Wes-Mar Group, Inc. from 1988 until its bankruptcy in 1991. He has since been employed as an accountant with Abernathy & Co., a Columbia, South Carolina, accounting firm. Mr. Sherrill has been engaged in the real estate and construction business with Sigmon Construction Company since 1984. Both Mr. Edgell and Mr. Sherrill will serve the Company through its Management Services Agreement with HERTH Management, Inc. and will maintain their current employment in addition to the services they render to the Company. All other officers have been employed by the Company in their respective positions or similar positions for more than five years. ITEM 2. PROPERTIES. The Company owns its principal office, warehouse, ham-curing and bakery facilities, which are located on a 62 acre tract in Claremont, North Carolina. The executive offices of the Company are located in a 23,000 square foot building. The principal ham curing plant is contained in a modern 55,000 square foot building. The Company's bakery operations occupies buildings totaling 137,460 square feet, including 18,941 square feet of freezer and cooler space. A 7,675 square foot facility in Maiden, North Carolina, provides storage space. The Company also owns various parcels of undeveloped property in North Carolina for future development or sale, and five vacant restaurant buildings in North Carolina(3), South Carolina(1) and Florida(1). In addition, the Company owns eleven properties which were previously operated as restaurants and are now leased to others in North Carolina (4), South Carolina (1), Florida (4) and Tennessee (2). Of the 23 restaurants owned by the Company and its wholly owned subsidiaries as of February 24, 1995, 14 are located on property owned by the Company or its subsidiaries in North Carolina(8), Florida(3), Maryland(2) and Georgia(1). Other restaurants operated by the Company or its subsidiaries are held under long-term leases. Eleven of the Company's restaurant properties, as well as the Company's corporate headquarters, ham curing facility and bakery facility are pledged as collateral under long-term debt obligations. Information as to the Company's long-term debt is contained on page 14 of the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, under the caption "Long-Term Debt," and is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. WSMP, Inc. and its subsidiaries are involved in various claims and legal proceedings in the ordinary course of their business, the resolution of which management believes will not have a material effect on the Company's business or financial condition. The Company intends to prosecute or defend vigorously, as the case may be, all such matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. Information on the market for the Company's common stock, the range of market prices for and the dividends declared on common stock for each of the last two fiscal years, and the number of record holders of common stock are contained under the caption "Market Information" on the inside back cover of the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, and is incorporated herein by reference. Information on restrictions that currently limit the Company's ability to pay cash dividends is contained on page 14 of the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, under the caption "Long-Term Debt", and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for each of the five fiscal years in the period ended February 24, 1995, is contained under the caption "Selected Financial Data" on page 24 of the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company's discussion and analysis of financial condition and the results of operations appears under the caption "Management's Discussion", on pages 4 through 6 of the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. An index to the financial statements and supplementary data contained in the Company's Annual Report to Shareholders for the fiscal year ended February 24, 1995, which is incorporated herein by reference is contained on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The name, age and background information for each of the Company's directors is contained under the caption "Election of Directors" in the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders and is incorporated herein by reference. The name, age and background information for each of the Company's executive officers is contained under the caption "Executive Officers of the Registrant" in Item 1 of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. Information on remuneration of the Company's officers and directors is contained in the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the caption "Election of Directors" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information on security ownership of certain beneficial owners and management is contained in the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the caption "Principal Shareholders and Management Ownership" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information on certain relationships and related transactions involving the Company and its management is contained in the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the caption "Certain Transactions", and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. FINANCIAL STATEMENTS See Index to Financial Information 2. FINANCIAL STATEMENT SCHEDULES See Index to Financial Information 3. EXHIBITS See Index to Exhibits (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended February 24, 1995. SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, WSMP, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated May 10, 1995 WSMP, INC. By:James C. Richardson, Jr. ---------------------- President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of WSMP, Inc., and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- Richard F. Howard Chairman of the Board, May 10, 1995 - -------------------------- (Richard F. Howard) Secretary James C. Richardson, Jr. President and Director May 10, 1995 - -------------------------- (James C. Richardson, Jr.) (Principal Executive Officer) Bobby G. Holman Treasurer and Director May 10, 1995 - -------------------------- (Bobby G. Holman) (Principal Financial Officer) Matthew V. Hollifield Vice President, Accounting May 10, 1995 - -------------------------- (Matthew V. Hollifield) (Principal Accounting Officer) James M. Templeton Vice President, Real Estate, May 10, 1995 - -------------------------- (James M. Templeton) and Director Lewis C. Lanier Director May 10, 1995 - -------------------------- (Lewis C. Lanier) William R. McDonald, III Director May 10, 1995 - -------------------------- (William R. McDonald, III) Miles M. Aldridge Director May 10, 1995 - -------------------------- (Miles M. Aldridge) Richard F. Hendrickson Director May 10, 1995 - -------------------------- (Richard F. Hendrickson) E. Edwin Bradford Director May 10, 1995 - -------------------------- (E. Edwin Bradford) WSMP, INC. AND SUBSIDIARIES FINANCIAL INFORMATION FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED FEBRUARY 24, 1995 WSMP, INC. AND SUBSIDIARIES INDEX TO FINANCIAL INFORMATION ITEM 14 (A) (1) - (2) REFERENCE ------------------ ANNUAL REPORT TO SHAREHOLDERS ------------------ DATA INCORPORATED BY REFERENCE FROM ATTACHED ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED FEBRUARY 24, 1995 Consolidated balance sheets at February 24, 1995 and February 25, 1994 ........... 7 Consolidated statements of operations for the fiscal years ended February 24, 1995, February 25, 1994, and February 26, 1993 ........................ 8 Consolidated statements of shareholders' equity for the fiscal years ended February 24, 1995, February 25, 1994, and February 26, 1993 ................................. 9 Consolidated statements of cash flows for the fiscal years ended February 24, 1995, February 25, 1994, and February 26, 1993 ................................. 10 Notes to consolidated financial statements ............................... 11-21 Independent auditors' report ................ 22 All financial statement schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in the above-listed financial statements or the notes thereto. The consolidated financial statements listed in the above index which are included in the Annual Report to Shareholders for the fiscal year ended February 24, 1995, are hereby incorporated by reference. With the exception of the pages listed in the above index and the items incorporated by reference in Items 1, 2, 5, 6 and 7 in this Report, the Annual Report to Shareholders for the fiscal year ended February 24, 1995, is not to be deemed filed as part of this Report. WSMP, INC. AND SUBSIDIARIES EXHIBITS FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED FEBRUARY 24, 1995 EXHIBITS FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K YEAR ENDED FEBRUARY 24, 1995 INDEX TO EXHIBITS ITEM 14 (A) (3) Sequential Exhibit Page Number - ------- ----------- 3 (a) Restated Charter of the Registrant, dated October 19, 1988,which is incorporated herein by reference to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the year ended February 24, 1989. * 3 (b) Statement of Change of Registered Office and Registered Agent dated January 6, 1995 and filed with the Secretary of State of the State of North Carolina on February 14, 1995. Included 3 (c) By-Laws of the Registrant as amended to September 1990, which are incorporated herein by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended February 22, 1991 * 4 (a) Note Agreement for Registrant's $20,000,000 9.17% Senior Notes due 2002, incorporated by reference to Exhibit 4 to the Registrant's Annual Report on Form 10-K for the year ended February 27, 1989. Amendment No. 1 to Note Agreement dated February 12, 1992, incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended February 28, 1992. * 10 (a) Management Services Agreement dated March 31, 1993, between the Registrant and RSH Management, Inc., incorporated by reference to Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the year ended February 26, 1993. * 10 (b) Registrant's Special Stock Option Plan, dated January 26, 1988, which is incorporated herein by reference to Exhibit 10(g) to the Registrant's Annual Report on Form 10-K for the year ended February 26, 1988. Amendment to Special Stock Option Plan, dated March 9, 1989, which is incorporated herein by reference to Exhibit 10(e)(2) to the Registrant's Annual Report on Form 10-K for the year ended February 24, 1989. * 11 Computation of per share earnings. Included 13 WSMP, Inc.'s Annual Report to Shareholders for the year ended February 24, 1995. Included 21 Subsidiaries of WSMP, Inc. Included 23 Consent of Independent Auditors Included 99 WSMP, Inc. 1994 Employee Stock Purchase Plan Annual Report on Form 11k for the year ended February 24, 1995 Included - -------------------------- * Incorporated by reference. The Registrant hereby agrees to provide to the Commission upon request copies of long-term debt instruments omitted pursuant to Item 601 (b) (4) (iii) (A) of Regulation S-K. EX-3.B 2 EXHIBIT 3(b) STATEMENT OF CHANGE OF REGISTERED OFFICE AND REGISTERED AGENT OF WSMP, INC. The undersigned corporation hereby submits the following for the purpose of changing its registered office and its registered agent in the State of North Carolina: 1. The name of the Corporation is WSMP, Inc. 2. The street address and county of the current registered office of the Corporation are WSMP Drive, Claremont, Catawba County, North Carolina. The mailing address of the current registered office is P. O. Box 399, Claremont, North Carolina 28610. 3. The street address and county of the new registered office of the Corporation are 1 WSMP Drive, Claremont, Catawba County, North Carolina. The mailing address of the new registered office is P. O. Box 399, Claremont, North Carolina 28610. 4. The name of the current registered agent is Richard G. Craft. 5. The name of the new registered agent and the new agent's written consent to appointment appear below: BOB G. HOLMAN Bob G. Holman ------------------------------ Name of Agent Signature Title: Chief Financial Officer and Treasurer 6. The address of the corporation's registered office and the address of the business office of its registered agent, as changed, will be identical. This the 6th day of January, 1995. WSMP, INC. By: James C. Richardson, Jr. --------------------------------- James C. Richardson, Jr. President EX-11 3 EXHIBIT 11 WSMP, INC. AND SUBSIDIARIES
Computation of Per Share Earnings (Loss) 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Earnings (loss) per share computation: Net earnings (loss) $1,096,670 $(785,000) $ 670,000 $ 630,000 $ (2,196,000) =========== ========== ========== ========== ============= Actual outstanding shares beginning of year 2,666,588 2,494,844 2,428,358 2,540,415 2,624,377 Add (deduct) weighted average shares applicable to: Common stock options outstanding 214,219 452,466 130,970 Treasury stock acquisitions (1,786) (5,803) (6,417) (22,049) (53,759) Common stock issued 57,364 693 Common stock options exercised 77,610 ----------- --------- ---------- ----------- ----------- Weighted average shares, as adjusted 2,879,021 2,624,015 2,875,100 2,649,336 2,570,618 =========== ========== =========== =========== =========== Earnings (loss) per common share and common equivalent share $ .38 $ (.30) $ .23 $ .24 $ (.85) =========== =========== ========== ========== =========== Note: Share amounts for all years presented have been adjusted to reflect the five-for-four stock split, effected in the form of a stock dividend declared in 1995.
EX-13 4 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 =========== =========== =========== 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 ============== ======== ============= ======= ============= ======= (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) =========== =========== =========== =========== ============ (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 EX-21 5 EXHIBIT 21 SUBSIDIARIES OF WSMP, INC. Elloree Foods, Inc. (South Carolina) Georgia Buffet Restaurants, Inc. (Georgia) 50% owned Georgia WSMP, Inc. (Georgia) Greenville Foods, Inc. (South Carolina) 50% owned Greenville Food Systems, Inc. (North Carolina) Knoxville Foods, Inc. (Tennessee) 50% owned Matthews Prime Sirloin, Inc. (North Carolina) 80% owned Naples Foods Inc. (Florida) 55% owned Prime Sirloin, Inc. (Tennessee) Primo Food Service, Inc. (Virginia) 50% owned Sagebrush of Asheville, Inc. (North Carolina) 50% owned Sagebrush of Rock Hill, Inc. (South Carolina) 50% owned Seven Stars, Inc. (Maryland) South Carolina WSMP, Inc. (South Carolina) Spartanburg Foods, Inc. (South Carolina) 50% owned Starke Foods, Inc. (Florida) 50% owned St. Augustine Foods, Inc. (Florida) 80% owned Sunshine WSMP, Inc. (Florida) Tennessee WSMP, Inc. (Tennessee) Virginia WSMP, Inc. (Virginia) Omitted from the above list is one inactive subsidiary which does not constitute a significant subsidiary. EX-23 6 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Post-Effective Amendment No. 7 to Registration Statement No. 33-15017 on Form S-8 and in Post-Effective Amendment No. 2 to Registration Statement No. 33-79014 on Form S-8 of our report dated April 28, 1995 appearing in and incorporated by reference in this Annual Report on Form 10-K of WSMP, Inc. for the fiscal year ended February 24, 1995. DELOITTE & TOUCHE LLP Hickory, North Carolina May 18, 1995 EX-27 7
5 This schedule contains summary financial information extracted from WSMP, Incorporated's 1995 10-K and is qualified in its entirety by reference to such 10-K. YEAR FEB-24-1995 FEB-24-1995 940,120 120,564 3,714,550 15,000 5,126,335 12,673,660 45,826,412 18,668,528 46,721,401 11,769,772 18,473,398 2,660,338 0 0 14,977,780 46,721,401 91,231,774 94,099,973 66,051,173 66,051,173 14,519,552 430,128 1,993,094 1,508,401 411,731 1,096,670 0 0 0 1,096,670 0.38 0
EX-99 8 EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: February 24, 1995 Commission File Number: 33-79014 Full title of the plan: WSMP, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN Name and address of issuer of the securities held pursuant to the plan: WSMP, INC. 1 WSMP Drive P.O. Box 399 Claremont, N.C. 28610 WSMP, Inc. 1994 Employee Stock Purchase Plan Index to Financial Information For the Fiscal Year Ended February 24, 1995 Page No. -------- Independent Auditor's Report 2 Financial Statements: Statement of Financial Condition at February 24, 1995 3 Statement of Income and Changes in Plan Equity for the Fiscal Year Ended February 24, 1995 4 Notes to Financial Statements 5-6 All financial statement schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in the above-listed financial statements or the notes thereto. INDEPENDENT AUDITORS' REPORT WSMP, Inc. 1994 Employee Stock Purchase Plan Claremont, North Carolina We have audited the accompanying statement of financial condition of WSMP, Inc. 1994 Employee Stock Purchase Plan as of February 24, 1995, and the related statement of income and changes in plan equity for the fiscal year then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Plan at February 24, 1995, and the results of its operations for the fiscal year then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Hickory, North Carolina May 11, 1995 WSMP, Inc. 1994 Employee Stock Purchase Plan Statement of Financial Condition February 24, 1995 ASSETS: Investments in common stock of WSMP, Inc. (cost of $40,779) (note 3) $ 37,161 Cash 4,458 Contributions receivable: Employer 1,941 Employee 7,764 ----------- Total Assets $ 51,323 =========== PLAN EQUITY $ 51,323 =========== See accompanying notes to financial statements. WSMP, Inc. 1994 Employee Stock Purchase Plan Statement of Income and Changes in Plan Equity For the Fiscal Year Ended February 24, 1995 INCREASES: Interest Income $ 61 Cash Contributions (note 4): Employer 10,976 Employee 43,904 ----------- Total Increases 54,941 DECREASE - Unrealized depreciation in market value of investments (note 3) 3,618 ----------- Net increase 51,323 PLAN EQUITY: Beginning of Fiscal Year 0 ----------- End of Fiscal Year $ 51,323 =========== See accompanying notes to financial statements. WSMP, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN Notes to Financial Statements For the Fiscal Year Ended February 24, 1995 NOTE 1 GENERAL INFORMATION: WSMP, Inc. (''the Company'') established WSMP, Inc. 1994 Employee Stock Purchase Plan (the ''Plan'') on March 1, 1994. The Plan is not a ''qualified'' plan as such is defined pursuant to section 401 of the Internal Revenue Code, nor is the Plan subject to compliance with the Employee Retirement Income Security Act of 1974. The plan is administered by the Plan's trustee which is an independent third-party bank. The Plan trust is not subject to federal income tax since all tax burden is borne by the participants (See note 5). Employees, officers, and directors of the Company and its subsidiaries are eligible to participate in the Plan subject to certain minimal requirements. All participants must be at least 21 years of age and must have been employed by the Company (or have been an officer or director) for at least 90 days. Eligible individuals who wish to enroll in the Plan may do so January 1 or July 1 of each year. Participants contribute amounts of not less than $10.00 per week and not more than 10% of weekly salary, wages and bonuses through biweekly after-tax payroll deductions. Participants may elect to change the rate of contribution as of January 1 and July 1 of each year. The Company is required to contribute monthly to the Plan an amount equal to 25% of the participants' contributions. Participants are immediately vested in their after-tax contribution as well as the amount matched by the Company. Contributions are submitted to the trustee of the Plan who purchases common stock of the Company at the prevailing market price. The trustee delivers the stock to the participant subsequent to voluntary or involuntary withdrawal from the Plan along with cash for any fractional shares. Participants may voluntarily elect to withdraw from the Plan as of January 1 or July 1 each year and then or at any time thereafter, request the distribution of their account. Death or termination of a participant results in an involuntary withdrawal and an immediate distribution of the participant's account. The plan is responsible for all administrative costs. However, the Company may elect to pay these expenses on behalf of the plan. For the fiscal year ended February 24, 1995, all costs of administrating the plan were borne by the Company. At February 24, 1995, there were 204 active participants in the Plan. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNT POLICIES: VALUATION OF INVESTMENTS - Investments in securities are valued at current market value (closing bid quotation). STOCK DIVIDEND - On February 22, 1995, WSMP, Inc. declared a five-for-four stock split effected in the form of a stock dividend which was distributed on April 11, 1995 to shareholders of record as of March 15, 1995. Since the ex- dividend date for this stock dividend was subsequent to the Plan's fiscal year end, the number of share of WSMP, Inc. common stock held by the Plan at February 24, 1995 has not been adjusted to reflect the stock split. PAYMENT OF DISTRIBUTIONS - Distributions are recorded when paid. At February 24, 1995, distributions payable to participants who had withdrawn from the Plan totaled $3,088. NOTE 3 INVESTMENTS: All of the Plan's investments are in common stock of WSMP, Inc. At February 24, 1995, the Plan held 5,717 shares with a market value of $37,161. The cost of these shares totaled $40,779, resulting in the recognition of unrealized depreciation in the amount of $3,618. There were no sales or disbursements of WSMP, Inc., common stock during the fiscal year ended February 24, 1995. NOTE 4 CONTRIBUTIONS: Contributions by WSMP, Inc. and subsidiary companies and employees for the period ended February 24, 1995 are as follows: Participating Company Employer Employee - --------------------- -------- -------- WSMP, Inc. $ 8,098 $ 32,393 South Carolina WSMP, Inc. 386 1,544 Sunshine WSMP, Inc. 138 550 Georgia WSMP, Inc. 376 1,503 Elloree Foods, Inc. 171 685 Tennessee WSMP, Inc. 60 240 Naples Foods, Inc. 77 310 Matthews Prime Sirloin, Inc. 154 615 Seven Stars 185 740 St. Augustine Foods, Inc. 446 1,784 Spartanburg Foods, Inc. 372 1,488 Greenville Foods, Inc. 25 100 Georgia Buffet Restaurants, Inc. 488 1,952 ---------- ---------- Total $ 10,976 $ 43,904 ========== ========== NOTE 5 INCOME TAX STATUS OF PARTICIPANTS: Employee contributions to the Plan are made from after-tax payroll earnings. In addition, the Participants are taxed currently on investment earnings of the Plan. The Participant's tax basis in any Company stock received in a distribution is equal to the value of the stock at the time at which it was purchased and credited to his account by the trustee. Upon subsequent sale of the stock, the participant will recognize income in the amount of the difference in the selling price and the tax basis. The foregoing is only a brief description of the federal income tax consequences of participation in the Plan. For a complete understanding of the tax consequences, a participant should consult their own tax advisor. -----END PRIVACY-ENHANCED MESSAGE-----