<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
AUGUST 24, 1997 0-13944
GOODMARK FOODS, INC.(R)
(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 September 26, 1997 6,961,612
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GOODMARK FOODS, INC.(R)
Form 10-Q Quarterly Report
Index
Page
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 10
Item 6. Exhibits and reports on Form 8-K 10
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
AUGUST 24, 1997 AND MAY 25, 1997
($000's)
<TABLE>
<CAPTION>
August 24, 1997 May 25, 1997
--------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 738 $ 1,443
Accounts and notes receivable 8,463 7,618
Inventories 13,168 13,081
Prepaid expenses 5,487 5,475
Net assets of discontinued operations 1,040 1,227
Other assets 2,239 2,984
------- -------
Total current assets 31,135 31,828
Property and equipment, net 50,182 50,926
Other assets 1,835 1,951
------- -------
Total $83,152 $84,705
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,365 $ 5,762
Accrued expenses and other liabilities 8,332 7,959
------- -------
Total current liabilities 13,697 13,721
Long-term debt and other long-term obligations 15,189 18,431
Deferred income taxes 5,762 5,762
Commitments and contingencies
Shareholders' equity 48,504 46,791
------- -------
Total $83,152 $84,705
======= =======
</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 WEEK PERIODS ENDED
AUGUST 24, 1997 AND AUGUST 25, 1996
($000's, except per share data)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------
August 24, August 25,
1997 1996
--------- ----------
<S> <C> <C>
Net sales $42,296 $40,922
Cost of goods sold 25,149 24,067
------- -------
Gross profit 17,147 16,855
Selling, general, and administrative expenses 13,585 13,409
------- -------
Income from operations 3,562 3,446
Interest and other net expense (income) 211 217
------- -------
Income before income taxes 3,351 3,229
Income taxes 1,260 1,179
------- -------
Income from continuing operations 2,091 2,050
Income from discontinued operations, net of tax -- 15
------- -------
Net income $ 2,091 $ 2,065
======= =======
Earnings per common share - primary and fully diluted $ 0.28 $ 0.26
======= =======
Average shares outstanding - primary 7,485 7,868
======= =======
Average shares outstanding - fully diluted 7,485 7,887
======= =======
Dividends per share $ 0.06 $ 0.05
======= =======
</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 13 WEEK PERIODS ENDED
AUGUST 24, 1997 AND AUGUST 25, 1996
($000's)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------
August 24, August 25,
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,091 $ 2,065
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,403 1,464
Amortization of deferred expenses 25 25
(Gain) loss on disposal of fixed assets 8 (6)
Changes in assets and liabilities:
Net increase in assets (199) (2,619)
Net decrease in liabilities (13) (1,430)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,315 (501)
------- -------
Cash flows from (used in) investing activities:
Proceeds from disposal of fixed assets -- 1,406
Capital expenditures (624) (673)
Decrease in other assets 5 5
Net cash provided by discontinued operations 238 --
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (381) 738
------- -------
Cash flows from (used in) financing activities:
Proceeds from issuance of long-term debt 3,400 6,500
Principal payments on long-term debt and
other long-term obligations (6,650) (7,300)
Common stock issued under dividend reinvestment plan 17 19
Repurchase of common stock -- (24)
Stock options exercised 27 112
Cash dividends paid (433) (380)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (3,639) (1,073)
------- -------
Net decrease in cash and cash equivalents (705) (836)
Cash and cash equivalents at beginning of period 1,443 858
------- -------
Cash and cash equivalents at end of period $ 738 $ 22
======= =======
</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 25, 1997 as incorporated in
Form 10-K filed with the Securities and Exchange Commission on August
22, 1997 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 financial statements to conform to the classifications used in
fiscal 1998.
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:
8/24/97 5/25/97
------- -------
Raw materials $ 5,559 $ 5,131
Work-in-process 934 768
Finished goods 7,784 7,898
Less LIFO reserve (1,109) (716)
------- -------
Inventories, net $13,168 $13,081
======= =======
4) Interest and other net expense (income) consisted of the following in
thousands of dollars:
13 Weeks Ended
----------------------
8/24/97 5/25/97
------- -------
Interest expense $254 $246
Interest income (29) (16)
Other expense (income) (14) (13)
---- ----
Other expense (income), net $211 $217
==== ====
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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
first quarter of fiscal 1998 include 260,592 of equivalent shares from
options. Weighted average shares outstanding under the fully diluted
earnings per share calculation for the first quarter of fiscal 1998
include 260,597 of equivalent shares from options.
Weighted average shares outstanding under the primary earnings per
share calculation for the first quarter of fiscal 1997 include 270,182
of equivalent shares from options. Weighted average shares outstanding
under the fully diluted earnings per share calculation for the first
quarter of fiscal 1997 include 288,400 of equivalent shares from
options.
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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
The Company maintains a strong position of liquidity and has sufficient
financial resources to meet its ongoing operating needs, cash dividend payments,
capital expenditures, and stock repurchases through cash flow generated from
current operations and exiting bank lines of credit. There were no material
changes in financial condition during the first quarter. The current ratio at
August 24, 1997 was 2.3, unchanged from May 25, 1997. Long term debt and
obligations were 24% of total capitalization compared to 28% at fiscal year end.
Material Changes in Results of Operations for the First Fiscal Quarter
Due to the fiscal 1997 decision to sell the Jesse Jones packaged meats business,
the Company has reclassified all sales and earnings of the Jesse Jones packaged
meats business into discontinued operations for all fiscal periods for
comparison purposes. See Note 2 of the Notes to Consolidated Financial
Statements in the 1997 Annual Report to Shareholders. Net sales from continuing
operations, which are snack items only, for the first quarter of fiscal 1998
were 3% favorable to the first quarter of fiscal 1997. Led by the Slim Jim
brand, which increased 8%, total branded business increased 5% over last year's
first quarter.
First quarter gross profit margin rate was 41% for both this year and last year
despite this year's higher meat costs and general inflationary costs. This was
achieved through improved manufacturing efficiencies.
Selling, general, and administrative expenses were 32% as a percentage of sales
for the first quarter compared to 33% for last year's first quarter. This level
of spending reflects our continuing support of our major brands through
advertising, merchandising, and new product programs designed to maintain our
leadership position in meat snacks.
Net income for the first quarter was $2,091, or $.28 per share, compared to
2,065, or $.26 per share for last year's first quarter.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 25, 1997, the Company held its Annual Meeting of Shareholders. A
quorum of 94.6% of the shares outstanding were represented by proxy at the
meeting. At the Annual Meeting, the appointment of Deloitte & Touche LLP as
independent auditors for the Company and its subsidiaries for the fiscal year
ending May 31, 1998, was ratified. The only other proposal considered by
shareholders was the election of directors. The following seven nominees were
elected to the Board of Directors: Ron E. Doggett, Richard C. Miller, Eric J.
Lomas, Donald H. Grubb, Thomas W. D'Alonzo, Rollie Tillman, Jr., and Robert B.
Seidensticker. The number of votes cast for, against or withheld, as well as the
number of abstentions and broker nonvotes, as to the election of directors, and
as to the ratification of Deloitte & Touche LLP, were as follows:
A. Election of Directors
Absten-
tions and
Director Votes Votes Broker
Nominee For Withheld Nonvotes
- -------- ----- -------- --------
Ron E. Doggett 6,826,803 11,887 432,641
Richard C. Miller 6,826,843 11,847 432,641
Eric J. Lomas 6,610,743 227,947 432,641
Donald H. Grubb 6,817,486 21,203 432,641
Thomas W. D'Alonzo 6,826,843 11,847 432,641
Rollie Tillman, Jr. 6,824,843 13,847 432,641
Robert B. Seidensticker 6,817,786 20,903 432,641
B. Ratification of Appointment of Auditors
Absten-
tions and
Votes Votes Broker
For Against Nonvotes
----- ------- --------
Ratification of
Deloitte & Touche LLP 6,824,813 10,019 436,498
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ITEM 5. OTHER INFORMATION
On September 25, 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 through the end of fiscal 1999. The previous repurchase
authorization for 500,000 shares, which was announced in March 1997, was
completed in September 1997.
On September 25, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.06 per share. The dividend is payable November 3, 1997, to
shareholders of record as of the close of business on October 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 the Company's FORM 10K, PART I, ITEM 1.,
"Narrative Description of the Business" to better understand the unique
characteristics of the Company's business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: (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 August 24, 1997.
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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: October 3, 1997 /s/ Ron E. Doggett
------------------
Ron E. Doggett
Chairman and Chief Executive Officer
Date: October 3, 1997 /s/ Paul L. Brunswick
---------------------
Paul L. Brunswick
Vice President and Chief Financial
Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER ENDED AUGUST 24, 1997 FOR GOODMARK FOODS, INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-26-1997
<PERIOD-END> AUG-24-1997
<CASH> 738
<SECURITIES> 0
<RECEIVABLES> 8,463
<ALLOWANCES> 0
<INVENTORY> 13,168
<CURRENT-ASSETS> 31,135
<PP&E> 50,182
<DEPRECIATION> 0
<TOTAL-ASSETS> 83,152
<CURRENT-LIABILITIES> 13,697
<BONDS> 15,000
0
0
<COMMON> 72
<OTHER-SE> 48,432
<TOTAL-LIABILITY-AND-EQUITY> 83,152
<SALES> 42,296
<TOTAL-REVENUES> 42,296
<CGS> 25,149
<TOTAL-COSTS> 25,149
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 3,351
<INCOME-TAX> 1,260
<INCOME-CONTINUING> 2,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,091
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
