<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended Commission File Number
February 23, 1997 0-13944
GoodMark Foods, Inc.
(Exact name of Registrant as specified in its charter)
North Carolina 56-1330788
(State of incorporation) (I.R.S. Employer
Identification No.)
6131 Falls of Neuse Road, Raleigh, North Carolina 27609
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 790-9940
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of Registrant's Common Stock,
$.01 par value, as of March 30, 1997 7,385,708
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GoodMark Foods, Inc.
Form 10-Q Quarterly Report
Index
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. Financial information
Item 1. Consolidated financial statements
Consolidated balance sheets 3
Consolidated statements of income 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6
Item 2. Management's discussion and analysis of
financial condition and results of operations 8
PART II. Other information
Item 5. Other information 9
Item 6. Exhibits and reports on Form 8-K 10
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
FEBRUARY 23, 1997 AND MAY 26, 1996
($000's)
<TABLE>
<CAPTION>
February 23, 1997 May 26, 1996
----------------- ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,617 $ 858
Accounts and notes receivable 8,523 9,323
Inventories 16,173 12,336
Prepaid expenses 5,803 4,543
Other assets 2,114 1,980
------- -------
Total current assets 34,230 29,040
Property and equipment, net 51,583 53,936
Other assets 1,858 2,231
------- -------
Total $87,671 $85,207
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,942 $ 6,021
Accrued expenses and other liabilities 6,629 7,671
------- -------
Total current liabilities 12,571 13,692
Long-term debt and other long-term obligations 21,500 17,800
Deferred income taxes 4,907 4,907
Commitments and contingencies
Shareholders' equity 48,693 48,808
------- -------
Total $87,671 $85,207
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 AND 39 WEEK PERIODS ENDED
FEBRUARY 23, 1997 AND FEBRUARY 25, 1996
(000's)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
------------------- -------------------
Feb. 23, Feb. 25, Feb. 23, Feb. 25,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $39,977 $42,737 $134,512 $132,548
Cost of goods sold 25,843 26,897 83,703 84,147
------- ------- ------- -------
Gross profit 14,134 15,840 50,809 48,401
Selling, general, and
administrative expenses 13,085 12,973 43,139 38,496
------- ------- ------- -------
Income from operations 1,049 2,867 7,670 9,905
Interest and other net expense (income) 287 302 452 941
------- ------- ------- -------
Income before income taxes 762 2,565 7,218 8,964
Income taxes 286 965 2,713 3,371
------- ------- ------- -------
Net income $ 476 $ 1,600 $ 4,505 $ 5,593
======= ======= ======= =======
Earnings per common share-primary
and fully diluted $ 0.06 $ 0.20 $ 0.58 $ 0.69
======= ======= ======= =======
Average shares outstanding-primary 7,726 8,085 7,826 8,111
======= ======= ======= =======
Average shares outstanding-fully diluted 7,726 8,085 7,826 8,112
======= ======= ======= =======
Dividends per share $ 0.05 $ 0.04 $ 0.15 $ 0.12
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 39 WEEK PERIODS ENDED
FEBRUARY 23, 1997 AND FEBRUARY 25, 1996
($000's)
<TABLE>
<CAPTION>
39 Weeks Ended
--------------------------------
Feb. 23, 1997 Feb. 25, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,505 $ 5,593
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,406 4,382
Amortization of deferred expense 76 33
Provision for deferred income taxes - 924
Loss on disposal of fixed assets 29 18
Changes in assets and liabilities:
Net (increase) decrease in assets (4,131) 229
Net decrease in liabilities (1,268) (4,594)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,617 6,585
------ ------
Cash flows from (used in) investing activities:
Proceeds from disposal of fixed assets 1,481 15
Capital expenditures (3,133) (3,774)
(Increase) decrease in other assets 15 (224)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (1,637) (3,983)
------ ------
Cash flows from (used in) financing activities:
Proceeds from issuance of long-term debt 26,950 36,850
Principal payments on long-term debt and
other long-term obligations (23,250) (36,950)
Repurchase of common stock (4,255) (2,144)
Common stock issued under dividend reinvestment plan 50 43
Stock options exercised 422 747
Cash dividends paid (1,138) (936)
------ ------
NET CASH USED IN FINANCING ACTIVITIES (1,221) (2,390)
------ ------
Net increase in cash and cash equivalents 759 212
Cash and cash equivalents at beginning of period 858 386
------ ------
Cash and cash equivalents at end of period $ 1,617 $ 598
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's)
1) The Notes to Consolidated Financial Statements included in
Registrant's annual report for the fiscal year ended May 26, 1996 as
incorporated in Form 10-K filed with the Securities and Exchange
Commission on August 23, 1996 should be read in conjunction with
these quarterly financial statements.
2) The financial information herein is unaudited. The information reflects
all normal recurring adjustments which are necessary in management's
opinion for a fair statement of results for the interim periods
presented. Interim results are not necessarily indicative of results
for the fiscal year. Certain reclassifications have been
made to prior year's financial statements to conform to the
classifications used in 1997.
In preparing financial statements that conform with generally accepted
accounting principles, management must make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial
statements and amounts of revenues and expenses reflected during the
reporting period. Actual results could differ from those estimates.
3) Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories consisted of the following in thousands of
dollars:
<TABLE>
<CAPTION>
2/23/97 5/26/96
-------- -------
<S> <C> <C>
Raw materials $5,576 $4,862
Work-in-process 622 799
Finished goods 10,409 6,884
Less LIFO reserve (434) (209)
------- -------
Inventories, net $16,173 $12,336
======= =======
</TABLE>
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($000's)
4) Interest and other net expense (income) consisted of the
following in thousands of dollars:
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
----------------- ------------------
2/23/97 2/25/96 2/23/97 2/25/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest expense $327 $319 $870 $957
Interest income (9) (22) (47) (66)
Other expense (income) (31) 5 (371) 50
----- ----- ----- -----
Other expense (income), net $287 $302 $452 $941
===== ===== ===== =====
</TABLE>
5) The computation of earnings per common and common equivalent share is
based upon the weighted average number of common shares outstanding
during the period plus (in periods in which they have a dilutive effect)
the effect of common shares contingently issuable from stock options
using the treasury stock method. Weighted average shares outstanding
under the primary earnings per share calculation for the third
quarter and year-to-date periods of fiscal 1997 include 281,042 and
280,923, respectively, of equivalent shares from options. Weighted
average shares outstanding under the fully diluted earnings per
share calculation for the third quarter and year-to-date periods of
fiscal 1997 include 281,062 and 281,156, respectively, of
equivalent shares from options.
Weighted average shares outstanding under the primary earnings per
share calculation for the third quarter and year-to-date periods of
fiscal 1996 include 317,650 and 320,112, respectively, of equivalent
shares from options. Weighted average shares outstanding under
the fully diluted earnings per share calculation for the third
quarter and year-to-date periods of fiscal 1996 include 317,650
and 320,978, respectively, of equivalent shares from options.
6) On March 17, 1997, the Board of Directors approved the
divestiture of the Jesse Jones packaged meats business. The decision
was based on resource reallocation and the strategic goal of focusing
capital investment and human resources on the Company's core snack food
business. The impact of this decision on the consolidated financial
statements cannot be determined at this time.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
($000's)
Material Changes in Financial Condition from Fiscal Year End
There were no material changes in financial condition since the fiscal year
end date. The current ratio at February 23, 1997 was 2.7 compared to 2.1 at
May 26, 1996. Long term debt and obligations were 31% of total
capitalization versus 27% at fiscal year end. Long term debt increased as
a result of additional borrowing for inventories and stock repurchase
activities.
The increase in inventories is primarily due to management's decision to raise
safety stock levels to accommodate service demands. The sales shortfall in
the third quarter also contributed to the increase.
Material Changes in Results of Operations for the Third Fiscal Quarter and
Nine Months
Net sales for the third quarter of fiscal 1997 were $39,977 compared to
$42,737 for last year's third quarter. Snack sales were down by $2,874.
Packaged meats sales were up by $114. For the first nine months, total sales
were up 1%. Snack sales and packaged meats sales were up 1% and 4%,
respectively.
Branded snack sales were down 6% for the third quarter after being up 17%
for the second quarter and up 9% for the first half. Slim Jim meat snacks
were down 5% for the third quarter after being up 26% for the second
quarter and 16% for the first half. Heavy promotional activity and buy-ins
in advance of a price increase created much stronger sales in November and an
inventory overload among the wholesale trade going into December and
January. This overload, combined with the effect of the price advance in a
normally slow winter seasonal period for consumer purchases produced the
shortfall in the third quarter.
Third quarter gross profit margin rate was 35% compared to 37% a year ago.
For the first nine months, the gross profit margin rate was 38% versus 37%
last year.
Selling, general, and administrative expenses were 33% of sales for the third
quarter and 32% for the first nine months compared to 30% for last year's third
quarter and 29% for the first nine months. The rate of spending was
increased to support new selling and marketing programs designed to
recapture sales momentum interrupted during the start-up of the new plant
expansion in fiscal 1996.
Net income for the third quarter was $476, or $.06 per share, compared to
$1,600, or $.20 per share, for last year's third quarter. Net income for the
first nine months was $4,505, or $.58 per share, down from $5,593, or
$.69 per share, for last year.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On March 17, 1997, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's common stock from time to time in open market
transactions during the 1997 and 1998 fiscal years. Since this
authorization, as of April 7, 1997, the Company has repurchased 200,000
shares of its common stock on the open market at an average price of
$12.80.
On March 17, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.05 per share. The dividend is payable May 1, 1997, to
shareholders of record as of the close of business on April 15, 1997.
On March 17, 1997, the Board of Directors approved the divestiture of the
Jesse Jones packaged meats business. The decision was based on resource
reallocation and the strategic goal of focusing capital investment and
human resources on the Company's core snack food business. The
financial impact of this decision can not be determined at this time. Hill
Thompson Capital Markets, Inc. has been retained to find a buyer for the
packaged meats business.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in
forward-looking statements of the Company made by, or on behalf of, the
Company. The Company wishes to advise readers that the following
important factors, among others, in some cases have affected and in the future
could affect, the Company's actual results and could cause the Company's
actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company:
a. Specific risks and uncertainties to the Company's financial
performance include all the macro and micro economic factors that affect
any business operating in competitive markets in a competitive world
economy.*
b. Risk factors most relevant to the Company's short term and longer
term financial performance are attainment of its assumptions concerning
unit volumes, pricing, raw material costs, operating costs, and operating
efficiencies.
c. The attainment of these assumptions is determined by the successful
execution of management's plans as well as external factors. External
factors include general economic conditions, snack market growth, meat
snack category growth, competitors actions, and customer acceptance of the
Company's products and promotions.
* The reader is urged to refer to FORM 10-K, PART I, ITEM 1., "Narrative
Description of the Business" to better understand the unique characteristics
of the Company's business.
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<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Ex. 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the quarter ended February 23, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GoodMark Foods, Inc.
(Registrant)
/s/ Ron E. Doggett
Date: April 9, 1997 -------------------------------
Ron E. Doggett
Chairman and
Chief Executive Officer
/s/ Paul L. Brunswick
Date: April 9, 1997 -------------------------------
Paul L. Brunswick
Vice President
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER ENDED FEBRUARY 23, 1997 FOR GOODMARK FOODS, INC AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-START> MAY-27-1996
<PERIOD-END> FEB-23-1997
<EXCHANGE-RATE> 1
<CASH> 1,617
<SECURITIES> 0
<RECEIVABLES> 8,523
<ALLOWANCES> 0
<INVENTORY> 16,173
<CURRENT-ASSETS> 34,230
<PP&E> 51,583
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,671
<CURRENT-LIABILITIES> 12,571
<BONDS> 21,500
0
0
<COMMON> 74
<OTHER-SE> 48,619
<TOTAL-LIABILITY-AND-EQUITY> 87,671
<SALES> 134,512
<TOTAL-REVENUES> 134,512
<CGS> 83,703
<TOTAL-COSTS> 83,703
<OTHER-EXPENSES> (371)
<LOSS-PROVISION> 98
<INTEREST-EXPENSE> 870
<INCOME-PRETAX> 7,218
<INCOME-TAX> 2,713
<INCOME-CONTINUING> 4,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,505
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
