<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
November 24, 1996 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 December 29, 1996 7,415,344
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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 4. Submission of matters to a vote of security
holders 9
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
NOVEMBER 24, 1996 AND MAY 26, 1996
($000's)
<TABLE>
<CAPTION>
November 24, 1996 May 26, 1996
----------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 40 $ 858
Accounts and notes receivable 11,228 9,323
Inventories 15,511 12,336
Prepaid expenses 5,229 4,543
Other assets 2,042 1,980
------- -------
Total current assets 34,050 29,040
Property and equipment, net 51,658 53,936
Other assets 1,981 2,231
------- -------
Total $87,689 $85,207
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,040 $ 6,021
Accrued expenses and other liabilities 6,060 7,671
------- -------
Total current liabilities 13,100 13,692
Long-term debt and other long-term obligations 19,200 17,800
Deferred income taxes 4,907 4,907
Commitments and contingencies
Shareholders' equity 50,482 48,808
------- -------
Total $87,689 $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 26 WEEK PERIODS ENDED
NOVEMBER 24, 1996 AND NOVEMBER 26, 1995
(000's)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------------- -------------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 48,153 $ 43,538 $ 94,535 $ 89,811
Cost of goods sold 29,757 28,567 57,860 57,250
-------- -------- -------- --------
Gross profit 18,396 14,971 36,675 32,561
Selling, general, and
administrative expenses 15,326 12,447 30,054 25,523
-------- -------- -------- --------
Income from operations 3,070 2,524 6,621 7,038
Interest and other net expense (income) (80) 389 165 639
-------- -------- -------- --------
Income before income taxes 3,150 2,135 6,456 6,399
Income taxes 1,186 862 2,427 2,406
-------- -------- -------- --------
Net income $ 1,964 $ 1,273 $ 4,029 $ 3,993
======== ======== ======== ========
Earnings per common share-primary
and fully diluted $ 0.25 $ 0.16 $ 0.51 $ 0.49
======== ======== ======== ========
Average shares outstanding-primary 7,886 8,152 7,878 8,124
======== ======== ======== ========
Average shares outstanding-fully diluted 7,890 8,155 7,897 8,139
======== ======== ======== ========
Dividends per share $ 0.05 $ 0.04 $ 0.10 $ 0.08
======== ======== ======== ========
</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 26 WEEK PERIODS ENDED
NOVEMBER 24, 1996 AND NOVEMBER 26, 1995
($000's)
<TABLE>
<CAPTION>
26 Weeks Ended
-------------------------------
Nov. 24, 1996 Nov. 26, 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,029 $ 3,993
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,938 2,946
Amortization of deferred expense 50 8
Provision for deferred income taxes 499
(Gain) loss on disposal of fixed assets 25 (3)
Changes in assets and liabilities:
Net (increase) decrease in assets (5,612) 2,061
Net decrease in liabilities (724) (5,213)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 706 4,291
-------- --------
Cash flows from (used in) investing activities:
Proceeds from disposal of fixed assets 1,470 8
Capital expenditures (1,818) (3,001)
(Increase) decrease in other assets 11 (13)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (337) (3,006)
-------- --------
Cash flows from (used in) financing activities:
Proceeds from issuance of long-term debt 15,650 29,450
Principal payments on long-term debt and
other long-term obligations (14,250) (29,350)
Common stock issued under dividend reinvestment plan 36 30
Repurchase of common stock (2,200) --
Stock options exercised 338 740
Cash dividends paid (761) (625)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,187) 245
-------- --------
Net increase (decrease) in cash and cash equivalents (818) 1,530
Cash and cash equivalents at beginning of period 858 386
-------- --------
Cash and cash equivalents at end of period $ 40 $ 1,916
======== ========
</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.
Certain reclassifications have been made to prior year's financial
statements to conform to the classifications used in 1997.
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>
11/24/96 5/26/96
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<S> <C> <C>
Raw materials $ 5,471 $ 4,862
Work-in-process 1,300 799
Finished goods 8,949 6,884
Less LIFO reserve (209) (209)
------- -------
Inventories, net $15,511 $12,336
======= =======
</TABLE>
4) Interest and other net expense (income) consisted of the following in
thousands of dollars:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
----------------- ------------------
11/24/96 11/26/95 11/24/96 11/26/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $ 265 $308 $ 543 $638
Interest income (20) (24) (38) (44)
Other expense (income) (325) 105 (340) 45
----- ---- ----- ----
Other expense (income), net $ (80) $389 $ 165 $639
===== ==== ===== ====
</TABLE>
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
($000's)
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 second quarter and first
half of fiscal 1997 include 287,204 and 279,669, respectively, of
equivalent shares from options. Weighted average shares outstanding under
the fully diluted earnings per share calculation for the second quarter
and first half of fiscal 1997 include 292,029 and 298,505, respectively,
of equivalent shares from options.
Weighted average shares outstanding under the primary earnings per share
calculation for the second quarter and first half of fiscal 1996 include
324,051 and 321,285, respectively, of equivalent shares from options.
Weighted average shares outstanding under the fully diluted earnings per
share calculation for the second quarter and first half of fiscal 1996
include 327,283 and 335,562, respectively, of equivalent shares from
options.
6) Interim results are not necessarily indicative of results for the fiscal
year.
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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 during the second quarter.
The current ratio at November 24, 1996 was 2.6 compared to 2.1 at May 26, 1996.
Long term debt and obligations were 28% of total capitalization versus 27% at
fiscal year end.
The increase in accounts and notes receivable since fiscal year end is due
mostly to increased sales but also includes an $800 insurance claim related to
Hurricane Fran. Inventories are up due to management's decision to raise
safety stock levels to accommodate service demands of increased sales momentum.
Material Changes in Results of Operations for the Second Fiscal Quarter and Six
Months
Sales for the second quarter of fiscal 1997 were 11% above last year's second
quarter. Snack sales were up 11%. Packaged meats sales were up 6%. For the
first six months, total sales were up 5%. Both snack and packaged meats sales
were up 5%.
Branded snack sales were up 17% for the second quarter and 9% for the first
half, led by Slim Jim meat snacks which were up 26% for the second quarter and
16% for the first half of fiscal 1997. This volume growth was driven by
intensive new selling and marketing programs which were designed to recapture
sales momentum that was adversely affected by operating issues relating to
plant expansion and start-up in the first half of fiscal 1996.
Second quarter gross profit margin rate was 38% compared to 34% a year ago. For
the first six months, the gross profit margin rate was 39% versus 36% last
year. Notwithstanding higher meat costs, profit margin rates are higher
compared to last year due mostly to efficiencies related to increased
utilization of our expanded Garner, North Carolina facility, which continues to
perform well.
Selling, general, and administrative expenses were 32% as a percentage of sales
for the second quarter and first six months compared to 29% for last year's
second quarter and first six months. The rate of spending was increased to
support the 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 second quarter was $1,964, or $.25 per share, up from
$1,273, or $.16 per share, in last year's second quarter. Net income for the
first six months was up to $4,029, or $.51 per share, compared to $3,993, or
$.49 per share, for last year.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 19, 1996, the Company held its Annual Meeting of Shareholders at
which the appointment of auditors was ratified, an amendment to the Company's
bylaws to increase the maximum number of Directors from seven to nine members
was approved and ratified, and the Board of Directors was elected. Information
regarding these matters is reported in the Company's Form 10-Q for the period
ended August 25, 1996 as filed on October 9, 1996 with the Securities and
Exchange Commission.
ITEM 5. OTHER INFORMATION
On July 9, 1996, the Board of Directors authorized the repurchase of up to
250,000 shares of the Company's common stock from time to time in open market
transactions during the current 1997 fiscal year. As of December 31, 1996, the
Company had completed the authorized fiscal 1997 repurchase of 250,000 shares
of its common stock on the open market at an average price of $17.019.
On December 18, 1996, the Board of Directors declared a regular quarterly cash
dividend of $.05 per share. The dividend is payable February 3, 1997, to
shareholders of record as of the close of business on January 15, 1997.
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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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 November 24, 1996.
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)
Date: January 8, 1997 /s/ Ron E. Doggett
-------------------------------
Ron E. Doggett
Chairman and
Chief Executive Officer
Date: January 8, 1997 /s/ Paul L. Brunswick
-------------------------------
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 SECOND
QUARTER ENDED NOVEMBER 24, 1996 FOR GOODMARK FOODS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-START> MAY-27-1996
<PERIOD-END> NOV-24-1996
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 11,228
<ALLOWANCES> 0
<INVENTORY> 15,511
<CURRENT-ASSETS> 34,050
<PP&E> 51,658
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,689
<CURRENT-LIABILITIES> 13,100
<BONDS> 19,200
0
0
<COMMON> 75
<OTHER-SE> 50,407
<TOTAL-LIABILITY-AND-EQUITY> 87,689
<SALES> 94,535
<TOTAL-REVENUES> 94,535
<CGS> 57,860
<TOTAL-COSTS> 57,860
<OTHER-EXPENSES> (340)
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 543
<INCOME-PRETAX> 6,456
<INCOME-TAX> 2,427
<INCOME-CONTINUING> 4,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,029
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
