<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MAY 25, 1997 Commission file number 0-13944
GoodMark Foods, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
North Carolina 56-1330788
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(State of Incorporation) (I.R.S. Employer
Identification Number)
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
Securities registered pursuant to Section 12(g) of the Act:
$.01 Par Value Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [X]
As of August 4, 1997, there were 7,225,635 shares of the Registrant's
common stock outstanding, $.01 par value per share. The aggregate market value
of the Registrant's common stock at August 4, 1997 held by those persons deemed
by the Registrant to be nonaffiliates was approximately $70 million.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Where Incorporated
- --------- ------------------
1. Annual Report to Shareholders for year ended
May 25, 1997 Part II
2. Proxy Statement for Annual Meeting of Shareholders
to be held September 25, 1997 Part III
<PAGE> 2
GOODMARK FOODS, INC.
Form 10-K Annual Report
Index
Page
----
PART I.
Item 1. Business
General Development of Business 3
Narrative Description of Business 3
Financial Information About Export Sales 6
Statement of Forward Looking Information 6
Executive Officers of the Registrant 7
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
PART III.
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. 10
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS. GoodMark Foods, Inc. (the "Company") was formed
in May 1982 as a management buyout of the business from General Mills, Inc. It
became publicly-owned in November, 1985.
NARRATIVE DESCRIPTION OF BUSINESS. The Company manufactures consumer food
products including meat snacks, packaged meats, and extruded grain snacks.
The Company is the leading producer and marketer of meat snacks in the United
States. Its principal products are meat sticks, beef jerky, and pickled sausage
sold under the SLIM JIM(R), PEMMICAN(R), and PENROSE(R), brand names.
These brands are leading brands in their respective niches of the meat snack
industry.
The Company makes extruded grain snacks under the ANDY CAPP'S(R), brand.
The Company also manufactures a line of packaged meats including hot dogs,
bologna, sausage, and luncheon meats marketed in Virginia and the Carolinas
under the JESSE JONES brand. In March, 1997, the Company announced its strategic
decision to discontinue the operations comprising its JESSE JONES packaged meats
business. See note 2 to the Consolidated Financial Statements on page 15 of
Exhibit 13 of this Annual Report on Form 10-K.
SLIM JIM meat sticks are a ready-to-eat dry sausage made of meat, spices, and
seasonings. SLIM JIM is a widely-recognized brand name in the snack food
industry. The Company markets over thirty different types of SLIM JIM meat
sticks including Spicy, TABASCO(R), Beef `n Cheese, Mild flavors, Beef Steak,
and Pepperoni. SLIM JIM's are sold in various sizes including the original SLIM
JIM, BIG SLIM(R), SUPER SLIM(R), and SLIM JIM GIANT(R).
SLIM JIM jerky is made from beef which has been chopped, seasoned, formed,
thinly sliced, and dried. SLIM JIM chopped and formed jerky comes in both Spicy
and TABASCO flavors.
PEMMICAN natural style beef jerky is made from thinly-sliced beef which has been
seasoned, smoked, and dried. PEMMICAN natural style jerky comes in several
flavors including natural, teriyaki, peppered, and hickory.
PENROSE beef and pork products are sausages which are seasoned, cooked, pickled,
and packed in a variety of sizes. A large segment of the pickled meat snack
market is the single serving pouch which is an alternative to the traditional
glass containers of pickled sausages.
ANDY CAPP'S extruded products are french fry shaped snacks that are baked rather
than fried from a grain and vegetable base. ANDY CAPP'S are sold in five
flavors: Hot, Pub, Cheddar, Salsa, and Ranch.
<PAGE> 4
The Company also manufactures products for sale by others under private label
and co-packing agreements. These products include meat snacks and hot dogs.
DISTRIBUTION. The Company's branded snack products are sold nationally to
retailers, and to wholesalers and distributors for resale through convenience
stores, supermarkets, service stations, drug stores, warehouse clubs, vending
machines, military commissaries and exchanges, and ships' stores afloat. The
Company relies primarily on food brokers to represent its snack products on a
nationwide basis.
Export sales are made directly to foreign importers and distributors and through
duty-free stores within and outside the United States.
RAW MATERIALS. The Company's primary ingredients are beef, chicken, pork, and
spices. Other raw materials include casings, vegetable oil, packaging films, and
glass containers. These materials are purchased at prevailing market prices from
a number of vendors. The Company believes that there is currently a sufficient
supply of raw materials at competitive prices.
TRADEMARKS. The Company owns the rights to numerous trademarks which are
important to the business of the Company. In June, 1992, the Company established
GFI Holdings, Inc., a California corporation and wholly-owned subsidiary of
GoodMark Foods, Inc. to own, manage, and control all of the trademarks,
tradenames, licenses, and patents of the Company. GFI Holdings, Inc. by
assignment from GoodMark Foods, Inc. is the owner and licensor of all tradenames
and trademarks of the Company and by separate agreement licenses these
tradenames and trademarks to the Company.
The Company has an agreement with Field Enterprises, Inc. to use the ANDY CAPP's
trademark in connection with snack foods sold in the United States, Canada, and
Mexico. This license agreement continues to 2001.
The Company has an agreement with McIlhenny Company to use the TABASCO trademark
in connection with TABASCO-flavored meat snacks. This license agreement
continues to 2002 and may be extended to 2017 at the Company's option.
SEASONALITY. Meat snacks sales are higher in the warm weather months and lower
in the cool weather months with December being the lowest month due to the
holiday season. There is less seasonality in the extruded snacks market. The
seasonality is influenced by the seasonality of convenience stores' sales.
WORKING CAPITAL ITEMS. Because of its emphasis on product freshness, the Company
maintains finished goods inventories at a level equal to two weeks' sales or
less. The Company generally reimburses a customer's return of any snack product
not sold by the end of its shelf life in accordance with general industry
practice. Industry terms of payment cause accounts receivable to be less than
four weeks of sales.
<PAGE> 5
CUSTOMER CONCENTRATION. In fiscal year 1997 sales to WalMart Stores, Inc. and
its subsidiaries' represented more than 10% of the Company net sales. All of the
sales to WalMart Inc. were comprised of the Company's branded products. A
significant portion of the sales to WalMart Inc. are to its McLane Division
which is the largest food and grocery distributor in the U.S.
BACKLOG. Orders are filled promptly from product on hand so there is a limited
order backlog.
BUSINESS WITH THE U.S. GOVERNMENT. The Company sells its snacks on open account
to the U.S. military for resale in commissaries, post exchanges, and ships'
stores afloat. None of this business is subject to profit renegotiation.
COMPETITION. The Company's products compete in the snack food and packaged meat
categories both with similar products and with products which are substitute
foods. Competitive factors include product quality, taste, brand awareness,
method of distribution, promotional support, and price. The Company believes
that it has a competitive advantage in the meat snack portion of the snack food
market because of its reputation, brand identity, product quality, marketing
skills, and distribution system. While the Company maintains a market share of
approximately 40% of the meat snack segment of the snack food industry, it is a
relatively small competitor in the total snack food industry.
The Company's principal competitors in the meat stick and beef jerky market are;
Oberto Sausage Co., Frito-lay, Inc., a subsidiary of PepsiCo., Inc.; and
Tombstone Pizza Corp., a subsidiary of Phillip Morris Cos. Within the pickled
meat snack market, Geo. A. Hormel & Company is the Company's principal
competitor. Numerous small regional companies also compete in the meat snack
market. The meat snack market generally has low barriers to entry and is subject
to competition from large, multi-line companies as well as small, regional
producers.
REGULATION. The Company's meat snack and packaged meats operations are regulated
by the United States Department of Agriculture ("USDA"). The Food and Drug
Administration ("FDA") regulates the production and labeling of the Company's
non-meat products. The Company maintains strict quality control standards and
believes that it is in full compliance with all applicable USDA and FDA
regulations.
The Company is subject to and believes that it is in compliance with numerous
environmental protection requirements, including the regulation of its waste
water discharge. The Company believes compliance with federal, state, and local
provisions regulating the discharge of materials into the environment will not
have a material effect upon its capital expenditures, earnings, or competitive
position.
EMPLOYEES. The Company employs approximately 1,100 persons, including 300
salaried employees and 800 hourly employees of whom 680 are covered by
collective bargaining agreements. The Company believes that its relations with
its employees are good.
<PAGE> 6
FINANCIAL INFORMATION ABOUT EXPORT SALES. Financial information relating to
export sales is as follows:
<TABLE>
<CAPTION>
Year (in $000's)
---------------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Export Sales $5,134 $ 4,504 $ 3,884
Income (Loss) Before Taxes 319 (28) (668)
Identifiable Assets -0- -0- 206
</TABLE>
The Company's major export markets are currently in the Pacific Rim and Puerto
Rico, and the Company believes Mexico and selected European markets also offer
potential long-term growth.
FORWARD-LOOKING INFORMATION:
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.
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information on the executive officers of the
Company. There are no family relationships between any of the executive officers
or directors of the Company.
Position with Company and
Name Age Business Experience
- ---- --- -------------------
Ron E. Doggett 62 Chairman of the Board since June 1, 1987 and
a Director since 1982; Chief Executive
Officer since 1985; President from 1983 to
1989; Executive Vice President and Chief
Financial Officer from 1982 to 1983; Vice
President from 1968 to 1982. Mr. Doggett
served as Interim Chief Financial Officer
from July 1, 1992 until December, 1992
because of the medical disability of Edward
B. McLean who ceased serving as Vice
President and Chief Financial Officer.
Richard C. Miller 58 President and Chief Operating Officer since
April 1989 and a Director since September
1989. Previously with Sun-Diamond Growers of
California Inc., Pleasanton, CA as President
from 1988 to March 1989 and as Senior Vice
President Business Management/Marketing from
1986 to 1989; President and Chief Executive
Officer of S. B. Thomas division of CPC
International, Inc. from 1984 to 1986.
Paul L. Brunswick 57 Vice President and Chief Financial Officer
since December 1, 1992. Previously with
CompuChem Corporation as Vice President,
Chief Financial Officer from 1987 to 1992
and as Vice President, Finance for Castle
Company, Division of Sybron Corporation from
1984 to 1987.
Alvin C. Blalock 51 Vice President and Director of Manufacturing
since February 16, 1994 and Secretary since
June 1, 1987; Vice President and Chief
Administrative officer from June 1, 1992 to
February 15, 1994; Vice President Personnel
and Corporate Relations from 1985 to May 31,
1992; Director of Personnel from 1983 to
1985; Personnel Manager of Garner plant from
1971 to 1983.
<PAGE> 8
Richard E. Kennedy 52 Vice President since January 10, 1994 and
Director of Snack Sales since 1984; Regional
Sales Manager from 1979 to 1984.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
Size
Location (Sq,. Ft) Ownership Activity
- -------- --------- --------- --------
<S> <C> <C> <C>
Garner, NC 277,000 owned Manufacture of SLIM JIM, and PENROSE
meat snack products and JESSE JONES
packaged meats products.
Folcroft, PA 125,000 owned Packaging of PENROSE meat snacks,
36,800 leased manufacture of ANDY CAPP'S extruded
snacks, and eastern U.S. distribution of
all snack products.
San Jose, CA 45,000 owned Manufacture of PEMMICAN natural style
10,400 leased beef jerky and western U.S. distribution of
all snack products.
Raleigh, NC 27,676 leased Corporate offices.
</TABLE>
All the Company's properties are considered suitable for their present use.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference from page 6, "Market and Dividend
Information", of the Company's 1997 Annual Report to Shareholders included as
exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 7, "Selected Financial
Data" of the Company's 1997 Annual Report to Shareholders included as exhibit
13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is incorporated by reference from pages 8 and 9, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", of
the Company's 1997 Annual Report to Shareholders included as exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, supplementary financial information, and
independent auditors' report dated July 10, 1997 are incorporated by reference
from page 6 and pages 10 - 24 of the Company's 1997 Annual Report to
Shareholders included as exhibit 13.
Reference to
---------------------------
1997 Annual Form
Report Page 10-K Page
----------- ---------
Consolidated Balance Sheets 10 39
Consolidated Statements of Income 11 40
Consolidated Statements of Stockholders'
Equity 12 41
Consolidated Statements of Cash Flows 13 42
Notes to Consolidated Financial Statements 14 - 24 43 - 53
Independent Auditors' Report 24 53
Supplementary Financial Information
Quarterly Financial Data (Unaudited) 6 35
Independent Auditors Report re:
Financial Statement Schedule 12
Valuation and Qualifying Accounts (Schedule II) 13
The financial statement schedule should be read in conjunction with the
consolidated financial statements. Financial statement schedules not included in
this Annual Report on Form 10-K have been omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
<PAGE> 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the directors is incorporated by reference from pages 4 through
6, "Proposal 1: Election of Directors" , in the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held September 25, 1997. Information on
executive officers is included under the caption "Executive Officers of the
Registrant" on pages 7 and 8 of this report.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from pages 7 through 12,
"Executive Compensation", in the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held September 25, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from pages 2 and 3, "Share
Ownership of Management and Others", in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held September 25, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS. See Item 8 for a listing of all Financial
Statements, Independent Auditors' Report, and Supplementary Data.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
quarter ended May 25, 1997.
(c) EXHIBITS. The exhibits required by Item 601 of Regulation S-K are
listed below. Executive compensation plans and arrangements are listed
in exhibits 10.1 through 10.5
(3) Articles of Incorporation and Bylaws.
(4) Specimen copy of certificate for common stock, $0.01 face
value.
(4.1) Loan Agreement dated November 21, 1995.
<PAGE> 11
(10.1) Severance Compensation Agreements between the Company and the
executive officers other than Mr. Doggett.
(10.2) Employment Agreement dated August 1, 1988 between the Company
and Mr. Doggett as amended August 1, 1996.
(10.3) 1985 Non-Qualified Stock Option Plan as amended and restated
December 18, 1996.
(10.4) Restricted Stock Award Plan.
(10.5) Phantom Unit Plan effective December 18, 1996.
(13) Pages 6 - 24 of Annual Report to Shareholders for year ended
May 25, 1997.
(21) Subsidiaries of the Company.
(23) Consent of independent auditors.
(27) Financial Data schedule (for SEC use only).
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of GoodMark Foods, Inc.:
We have audited the consolidated financial statements of GoodMark Foods, Inc.
and its subsidiaries as of May 25, 1997 and May 26, 1996, and for each of the
three fiscal years in the period ended May 25, 1997, and have issued our report
thereon dated July 10, 1997; such consolidated financial statements and report
are included in your 1997 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also included the financial statement schedule
of GoodMark Foods, Inc. and its subsidiaries, listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
July 10, 1997
<PAGE> 13
GOODMARK FOODS, INC.
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions Collections
Balance at Charged to of Accounts
Beginning Costs and Previously Deductions Balance at
Year Description of Period Expenses Written Off Write Offs End of Period
- ---- ----------- --------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 28, 1995 Allowance for
doubtful accounts $238,171 $125,004 $ 4,063 $ 90,680 $276,558
May 26, 1996 Allowance for
doubtful accounts $276,558 $140,000 $ 5,086 $ 97,123 $324,521
May 25, 1997 Allowance for
doubtful accounts $324,521 $130,000 $20,699 $104,790 $370,430
</TABLE>
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Raleigh, North
Carolina, on the 21st day of August, 1997.
GOODMARK FOODS, INC.
By: /s/ Ron E. Doggett
----------------------------------
Ron E. Doggett
Chairman & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ron E. Doggett Chairman, Chief August 21, 1997
- ----------------------------- Executive Officer
Ron E. Doggett
/s/ Alvin C. Blalock Vice President, August 21, 1997
- ----------------------------- Director of Manufacturing,
Alvin C. Blalock and Secretary
/s/ Paul L. Brunswick Vice President, August 21, 1997
- ----------------------------- Chief Financial Officer
Paul L. Brunswick
/s/ Thomas W. D'Alonzo Director August 21, 1997
- -----------------------------
Thomas W. D'Alonzo
/s/ Donald H. Grubb Director August 21, 1997
- -----------------------------
Donald H. Grubb
/s/ Eric J. Lomas Director August 21, 1997
- -----------------------------
Eric J. Lomas
/s/ Richard C. Miller President, Chief Operating August 21, 1997
- ----------------------------- Officer, and Director
Richard C. Miller
/s/ Robert B. Seidensticker Director August 21, 1997
- -----------------------------
Robert B. Seidensticker
/s/ Rollie Tillman Director August 21, 1997
- -----------------------------
Rollie Tillman
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Form 10-K
Exhibit Sequential
Number Description of and Reference to Exhibit Page No.
- ------ --------------------------------------- ----------
<C> <S> <C>
(3) Restated Articles of Incorporation and Bylaws filed as *
Exhibit 3 to Form 10-K for the fiscal year ended May 27,
1990 and incorporated herein by reference.
(4) Specimen copy of certificate for common stock, $.01 par value, *
filed as Exhibit 4.1 to the Registration Statement (No. 33-660)
on Form S-1, Amendment No. 1, filed with the Commission on
November 5, 1985 and incorporated herein by reference.
(4.1). Loan agreement dated November 21, 1995 filed as Exhibit 4.1 to Form *
10K for fiscal year ended May 26, 1996.
Loan agreement dated January 12, 1995 filed as Exhibit 4.1 to Form 10K
for fiscal year ended May 27, 1995. Amendment dated February 7, 1995 to
Loam Agreement dated January 7, 1994 filed as Exhibit 4.2 to Form 10K
for the fiscal year ended May 29, 1994. Amendments dated February 7,
1995 and May 25, 1995 to Loan Agreement dated May 22, 1990. Amendments
dated October 4, 1993 and December 21, 1993 to Loan Agreement dated May
22, 1990 filed as Exhibit 4.2 to Form 10K for the fiscal year ended May
29, 1994, both incorporated herein by reference.
(10.1) Severance Compensation Agreements between the Company *
and executive officers other than Mr. Doggett filed as Exhibit
10.1 to Form 10-K for the fiscal year ended May 29, 1988 and
incorporated herein by reference.
(10.2) Amendment dated August 1, 1997 to Employment Agreement 18
dated August 1, 1988 between the Company and Mr. Doggett.
Employment Agreement filed as Exhibit 10.2 to Form 10-K
for the fiscal year ended May 29, 1988 incorporated herein by
reference.
(10.3) 1985 Non-Qualified Stock Option Plan as amended and restated 20
December 18, 1996.
(10.4) Restricted Stock Award Plan dated October 15, 1985 filed as *
Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended
May 28, 1989 and incorporated herein by reference.
(10.5) Phantom Unit Plan effective December 18, 1996. 29
(13) Pages 6 - 24 of Annual Report to Shareholders for year ended 35
May 25, 1997.
(21) Subsidiaries of the Company 17
(23) Consent of Independent Auditors. 54
(27) Financial Data Schedule (for SEC use only).
</TABLE>
*Incorporated by reference
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is entered into effective the 1st day of August, 1997
("Effective Date"), by and between GOODMARK FOODS, INC., a corporation with
offices located in Raleigh, North Carolina (the "Company"), and RON E. DOGGETT
(the "Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated August 1, 1988, a copy of which is attached as Exhibit A (the
"Employment Agreement"), whereby the Employee agrees to serve as the Company's
employee and officer;
WHEREAS, the Employment Agreement has been amended from time to time
by amendments; and
WHEREAS, the Employee wishes to receive the compensation and benefits
of continued employment by the Company, and the Company wishes to receive the
continued services of Employee;
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties hereby agree to amend the Employment Agreement further as follows:
1. The Employment Agreement is amended by deleting section "2."
entitled "TERM" of the August 1, 1996 Amendment, a copy of which is attached
hereto as Exhibit B, and replacing it with a new section to read as follows:
2. TERM
The Employee's employment shall continue for a period beginning on the
Effective Date of this Agreement and ending on August 1, 2002. By mutual
agreement of the Company and the Employee, the term of this Agreement may
<PAGE> 2
be extended for additional successive periods of mutually agreed
duration as the parties shall agree.
2. Except as herein set forth, the Employment Agreement, as Amended;
is not modified or amended and the parties hereto hereby reaffirm and agree to
all the terms and provisions of the Employment Agreement, as amended, in all
other respects.
IN WITNESS WHEREOF, the parties have executed this Amendment and
with due authorization set or adopted their seals effective the 1st day of
August, 1997.
GOODMARK FOODS, INC.
(Employer)
ATTEST:
By:
/s/ Alvin C. Blalock /s/ Paul L. Brunswick
- -------------------------------- -------------------------------
Secretary Vice President,
Chief Financial Officer
[Corporate Seal]
/s/ Ron E. Doggett
-----------------------------(SEAL)
Ron E. Doggett
(Employee)
-2-
<PAGE> 1
EXHIBIT 10.3
GOODMARK FOODS, INC.
1985 NON-QUALIFIED STOCK OPTION PLAN
Amended and Restated December 18, 1996
1. Purpose of Plan. The purpose of the GoodMark Foods, Inc. 1985
Non-Qualified Stock Option Plan (the "Plan") is to further the success of
GoodMark Foods, Inc., a North Carolina corporation (the "Company"), by making
shares of the Company's common stock available for purchase by the Company's
eligible employees in order to provide an additional incentive to such
employees to continue their employment with the Company and in order to give
such employees a greater interest in the Company's success. The Company intends
options granted under the Plan to be options which do not meet the statutory
requirements of Section 422 of the Federal Internal Revenue Code of 1986, as
amended.
2. Stock Subject to Plan. Subject to the provisions of paragraph 12 of
the Plan, the Company shall reserve for issuance or transfer upon the exercise
of options to be granted under the Plan from time to time initially twenty-five
thousand (25,000) shares of the Company's common stock, par value one cent
($0.01) per share ("Common Stock"), and subsequently such number of shares as
the Company shall determine, which shares may be in whole or in part, as the
Company's Board of Directors shall determine, authorized and unissued shares of
Common Stock or issued shares of Common Stock which the Company shall have
reacquired and shall hold as treasury stock. If any option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares of the Common Stock subject to the expired or
terminated option shall again be available for the purposes of the Plan.
Subject to the provisions of paragraph 12 of the Plan, shares of
Common Stock subject to options granted pursuant to the Plan in any fiscal
year, shall not exceed 300,000 shares.
3. Administration. The Company's Board of Directors shall appoint a
committee that is composed solely of two or more "Non-Employee Directors" as
defined in Securities and
<PAGE> 2
Exchange Commission Rule 16b-3(b)(3) promulgated under the Securities Exchange
Act of 1934, as amended and as in effect from time to time (the "Committee").
The Committee shall report all of its actions to the Company's Board of
Directors. The Company's Board of Directors may from time to time remove
members from the Committee and appoint their successors. The Company's Board of
Directors shall fill all vacancies on the Committee however caused.
Except as otherwise expressly provided in the Plan, the Committee
shall have absolute discretionary authority (a) to determine (i) the purchase
price of the shares of Common Stock covered by each option, (ii) the employees
to whom and the time or times at which options shall be granted and (iii) the
number of shares of Common Stock to be subject to each option; (b) to
determine when an option can be exercised and whether in whole or in
installments; (c) to interpret the Plan; (d) to prescribe, amend and rescind
rules and regulations relating to the Plan; (e) to determine the terms and
provisions (and amendments of the terms and provisions) of the option
agreements (which need not be identical), including such terms and provisions
(and amendments of terms and provisions) as shall be required in the
Committee's Judgment to conform to any change in any applicable law or
regulation; and (f) to make all other determinations the Committee shall deem
necessary or advisable for the Plan's administration.
The Committee shall select one of its members as its chairman and
shall hold its meetings at such times and places as it may determine. The
Committee shall make all decisions and determinations by not less than a
majority vote of its members. Any decision or determination which the Committee
reduces to a writing signed by all its members shall be fully as effective as
if such decision or determination had been made by a majority vote of the
Committee at a meeting which shall have been duly called and held. The
Committee shall appoint a secretary who shall keep minutes of its meetings. The
Committee shall make such
-2-
<PAGE> 3
rules and regulations for the conduct of its business as it shall deem
advisable. No member of the Committee shall be liable to any person for any
action or determination he shall make in good faith.
4. Eligibility. The persons who shall be eligible to receive options
shall be employees of the Company whom the Committee may select from time to
time. In determining the employees to whom options shall be granted and the
number of shares of Common Stock to be covered by each option, the Committee
may take into account the nature of the services rendered by each eligible
employee, his present and potential contributions to the Company's success and
such other factors as the Committee in its discretion shall deem relevant. An
employee who has been granted an option under the Plan may be granted an
additional option or options under the Plan if the Committee shall so
determine. Subject to the provisions of paragraph 2 of the Plan limiting the
aggregate number of options which may be granted, there shall be no limit on
the aggregate fair market value (determined as of the time an option is
granted) of the Common Stock for which any employee may be granted options
under the Plan in any fiscal year.
5. Option Prices. The Committee shall determine the purchase price of
the shares of Common Stock under each option; however, the purchase price for
any share shall not be less than the par value of such share. Except as
determined by the Committee and subject to the provisions of paragraph 2 of the
Plan, there shall be no annual limit on the total value of options granted
pursuant to the Plan.
6. Exercise of Options. Except as otherwise expressly provided in an
option agreement, each option shall be exercisable from time to time over a
period commencing no earlier than one year from the date of the option's grant,
and ending upon the option's expiration or termination; provided, however, the
Committee may by the provisions of any
-3-
<PAGE> 4
option agreement limit the number of shares of Common Stock purchasable under
the option in any period or periods of time during which the option is
exercisable. No option may be exercised for a fractional share of Common Stock.
The purchase price of the shares of Common Stock subject to the option shall be
paid in full in cash upon the exercise of the option, and the Company shall not
be required to deliver certificates for such shares until such payment shall
have been made. The Committee, in its discretion, may permit the option holder
to make an irrevocable election at least six months before the exercise of an
option or a revocable election within six months before the exercise of an
option to have the Company withhold from the exercise of an option under the
Plan (or otherwise withhold) shares of Common Stock to satisfy the tax
withholding consequences related to the option exercise. If the option holder
elects within six months before the exercise of an option to have the Company
withhold shares of Common Stock to satisfy such taxes, the Committee shall
retain the right to approve or disapprove the election at any time after the
election. The term of each option shall be for such period as the Committee
shall determine, but such term shall not extend for more than ten years and
thirty days from the date of the option's grant or such shorter period as is
prescribed in Paragraphs 8, 9, 10, 11 and 13 of the Plan. Except as otherwise
expressly provided in an option agreement, and except as provided in Paragraphs
9, 10, and 11, an option may not be exercised at any time unless the option's
holder shall have been in the Company's continuous employ from the date of the
option's grant to the date of the option's exercise. The holder of an option
shall not have any of the rights of a shareholder with respect to the shares of
Common Stock subject to the option until such shares shall be issued or
transferred to him upon the exercise of the option and payment of the purchase
price, and the Company shall make no adjustments for dividends or other rights
for which the record date is before the date the Company issues or transfers
the certificate
-4-
<PAGE> 5
representing such shares.
7. Nontransferabilitv of Options. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and during the lifetime of the option's holder only he (or his
duly appointed legal representative) may exercise the option.
8. Termination of Employment. Except as otherwise expressly provided
in an option agreement, in the event of termination of the employment of an
employee to whom an option has been granted under the Plan, other than by
reason of his death, his disability, or his retirement in accordance with the
Company's normal retirement policies, his option shall terminate (except to the
extent exercised before termination of the employee's employment). Options
granted under the Plan shall not be affected by any change in the holder's
position of employment so long as the holder continues to be an employee of the
Company. The option agreement may contain such provisions as the Committee
shall approve regarding the effect of approved leaves of absence. Nothing in
the Plan or in any option granted pursuant to the Plan shall (a) confer on any
individual any right to continue in the Company's employ or (b) interfere
in any way with the Company's right to terminate his employment at any time.
9. Death of Holder of Option. If an employee to whom an option has
been granted under the Plan should die while he is employed by the Company or
shall die after the termination of his employment with the Company by reason of
his disability or retirement in accordance with the Company's normal retirement
policies, the option held by the employee may be exercised by any legatee of
such option under the employee's will, by the employee's personal
representative or by any distributee of any such option at any time after his
death but (a) not earlier than the date the option would otherwise be
exercisable and (b) not later than ten years and thirty days from the date
of the option's grant; provided, however, such
-5-
<PAGE> 6
option may not be exercised if it was previously terminated pursuant to any
other provision of the Plan or if such exercise is barred by the provisions of
the option agreement.
10. Disability of Holder of Option. In the event of any termination
of the employment of an option holder by reason of his disability (as
determined in the Committee's sole discretion), the option holder may exercise
the option at any time after the termination of his employment but (a) not
earlier than the date the option would otherwise be exercisable and (b) not
later than ten years and thirty days from the date of the option's grant;
provided, however, such option may not be exercised if it was previously
terminated pursuant to any other provision of the Plan or if such exercise is
barred by the provisions of the option agreement.
11. Retirement of Holder of Option. In the event that an employee to
whom an option has been granted under the Plan shall retire from employment in
accordance with the Company's normal retirement policies (as determined in the
Committee's sole discretion), the employee may exercise the option at any time
after such termination but (a) not earlier than the date the option would
otherwise be exercisable and (b) not later than ten years and thirty days
after the date of the option's grant; provided, however, the option may not be
exercised if it was previously terminated under any other provision of the Plan
or if such exercise is barred by the provisions of the option agreement.
12. Adjustment Upon Changes in Capitalization. Subject to the
provisions of Paragraph 13 of the Plan, each option agreement may contain such
provisions as the Committee shall determine to be appropriate for the
adjustment of (a) the number and class of shares of Common Stock subject to
such option and (b) the option price in the event of changes in the
outstanding Common Stock by reason of any stock dividend, split-up,
recapitalization, combination or exchange of shares, merger, consolidation,
acquisition of
-6-
<PAGE> 7
property or stock, separation, reorganization or liquidation or similar action.
In the event of any such change in the outstanding Common Stock, the Committee
shall adjust the aggregate number and class of shares of Common Stock available
under the Plan appropriately, and the Committee's determination on adjustment
shall be conclusive.
13. Termination of Options on Merger or Sale of Assets. A dissolution
or liquidation of the Company, a merger or consolidation in which the Company
is not the surviving or resulting corporation or a sale of all or substantially
all of the company's assets shall cause every option outstanding under the Plan
to terminate on the effective date of such action. Notwithstanding the
preceding sentence, upon a dissolution or liquidation of the Company, a merger
or consolidation in which the Company is not the surviving or resulting
corporation or a sale of all or substantially all of the Company's assets, each
option holder shall have the right, within his sole discretion and without
regard to whether the period of one year shall have passed since the option's
grant, to exercise before the effective date of such action any or all of the
options he may hold. Any options not so exercised shall terminate on the
effective date of such action.
14. Agreement to Serve. Each employee to whom an option is granted
under the Plan shall, as one of the terms of the option agreement, agree that
he will remain in the Company's employ for a period of at least one year from
the date the option is granted to him (or until his earlier compulsory
retirement date as the company shall prescribe from time to time), and that he
will, during such employment, devote his time, energy, and skill to the
Company's service and the promotion of the Company's interests, subject to
vacations, sick leave and other absences in accordance with the Company's
policies. Such employment shall (subject to the terms of any contract between
the Company and such employee) be at the pleasure of the Company, terminable at
will by the Company and at such compensation as
-7-
<PAGE> 8
the Company shall determine from time to time. The Committee may in its
discretion waive the requirements of this Paragraph with respect to the grant
of any option.
15. Amendment and Termination. Unless terminated earlier as provided
for in this Paragraph, the Plan shall terminate when all shares of Common Stock
reserved for issuance or transfer under the Plan have been issued or
transferred. The Company's Board of Directors may terminate the Plan at any
time for any reason or make such modifications or amendments to the Plan as the
Board of Directors shall deem advisable in order to conform to any change in
any applicable law or regulation or for any other reason. No termination,
modification, or amendment of the Plan without the consent of the employee to
whom any option shall previously have been granted shall adversely affect such
employee's rights under such option.
16. Effectiveness of Plan. The Plan shall become effective when
counsel shall advise the Committee in writing that the Company or the Committee
has complied with all applicable legal requirements necessary to the Plan's
effectiveness. The exercise of each option shall be subject to the condition
that if at any time the Company shall determine in its discretion that (a) the
satisfaction of withholding tax or other withholding liabilities, (b) the
listing upon any securities exchange or the registration or qualification under
any state or federal law of any shares of Common Stock otherwise deliverable
upon such exercise or (c) the consent or approval of any regulatory body is
necessary or desirable as a condition of, or in connection with, such exercise
or the delivery or purchase of shares of Common Stock pursuant to such
exercise, then in any such event, such exercise shall not be effective unless
such withholding, listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
17. Time of Granting Options. Nothing contained in the Plan or in any
resolution adopted or to be adopted by the Committee, the Company's Board of
Directors, or the
-8-
<PAGE> 9
Company's stockholders shall constitute the granting of any option under the
Plan. The granting of an option under the Plan shall take place only when a
written option agreement shall have been duly executed and delivered by or on
behalf of the Company and the employee to whom such option is to be granted.
Each option agreement shall state the total number of shares of Common Stock
subject to the option and the purchase price for such shares.
IN WITNESS WHEREOF the Company causes the Plan as amended and
restated to be adopted by the action of its duly authorized officers effective
the 18th day of December, 1996.
GOODMARK FOODS, INC.
By:
/s/ Ron E. Doggett
--------------------------------
Ron E. Doggett
Chief Executive Officer
(CORPORATE SEAL)
ATTEST:
/s/ Alvin C. Blalock
- --------------------------------------
Secretary
-9-
<PAGE> 1
EXHIBIT 10.5
GOODMARK FOODS, INC.
PHANTOM UNIT PLAN
ARTICLE I
PURPOSES
The purposes of the Plan are to assist the Company in recruiting and
retaining executive officers and other key managers of the Company by enabling
such persons to participate in the future success of the Company and to
encourage such persons to associate their interests with those of the Company
and its shareholders. These purposes will be carried out through the grant of
Phantom Units.
ARTICLE II
DEFINITIONS
2.01. Administrator means the Committee and any delegate of the
Committee that is appointed in accordance with Article III.
2.02. Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Phantom Unit granted to such Participant.
2.03. Board means the Board of Directors of the Company.
2 04. Code means the Internal Revenue Code of 1986, as amended and as
in effect from time to time.
2.05. Committee means the Human Resources Committee of the Board which
shall be comprised solely of two or more "Non-Employee Directors" as defined in
Securities and Exchange Commission Rule 16b-3(b)(3) promulgated under the
Exchange Act. The Committee shall be appointed by the Board.
2.06. Common Stock means the Common Stock of the Company.
2.07. Company means GoodMark Foods, Inc.
2.08. Exchange Act means the Securities Exchange Act of 1934, as
amended and as in effect from time to time.
2.09. Fair Market Value means, on any given date, the current fair
market value of the shares of Common Stock determined as follows: if the Common
Stock is not listed on an established stock exchange, the Fair Market Value
shall be the reported "closing" price of shares of Common Stock in the New York
over-the-counter market as reported by the National Association of Securities
Dealers, Inc. If the Common Stock is listed on an established stock exchange or
exchanges, Fair Market Value shall be deemed to be the highest closing price of
shares of Common Stock reported on that stock exchange or exchanges or, if no
sale of
<PAGE> 2
Common Stock shall be made on any stock exchange on that day, then the next
preceding day on which there was a sale.
2.10. Initial Value means with respect to a Phantom Unit the Fair
Market Value of one share of Common Stock on the date of grant.
2.11. Participant means an executive officer or other key manager of
the Company, including any such person who is a member of the Board and who
satisfies the requirements of Article IV or an individual who provides services
to the Company and who satisfies the requirements of Article IV and is selected
by the Administrator to receive a Phantom Unit.
2.12. Plan means the GoodMark Foods, Inc. Phantom Unit Plan.
2.13. Phantom Unit means a corporate book entry that entitles the
holder to receive, with respect to each share of Common Stock encompassed by
the exercise of such Phantom Unit, the amount determined by the Administrator
and specified in an Agreement. In the absence of such a determination, the
holder shall be entitled to receive, with respect to each share of Common Stock
encompassed by the exercise of such Phantom Unit, the excess of the Fair Market
Value on the date of exercise over the Initial Value.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Phantom Units upon such terms (not inconsistent
with the provisions of this Plan) as the Administrator may consider
appropriate. Such terms may include conditions (in addition to those contained
in this Plan) on the exercisability of all or any part of a Phantom Unit.
Notwithstanding any such conditions, the Administrator may, in its discretion,
accelerate the time at which any Phantom Unit may be exercised. In addition,
the Administrator shall have complete authority to interpret all provisions of
this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind
rules and regulations pertaining to the administration of the Plan; and to make
all other determinations necessary or advisable for the administration of this
Plan. The express grant in the Plan of any specific power to the Administrator
shall not be construed as limiting any power or authority of the Administrator.
Any decision made, or action taken, by the Administrator or in connection with
the administration of this Plan shall be final and conclusive. Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Agreement or Phantom Unit. All
expenses of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more officers
of the Company all or part of the Committee's authority and duties with respect
to grants and awards to individuals who are not subject to the reporting and
other provisions of Section 16 of the Exchange Act. The Committee may revoke or
amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee's delegate or delegates that were
consistent with the terms of the Plan.
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<PAGE> 3
ARTICLE IV
ELIGIBILITY
4.01. General. Any executive officer or other key manager of the
Company is eligible to participate in this Plan if the Administrator, in its
sole discretion, determines that such person has contributed significantly or
can be expected to contribute significantly to the profits or growth of the
Company. Directors of the Company may be selected to participate in this Plan.
4.02. Grants. The Administrator will designate individuals to whom
Phantom Units are to be granted and will specify the number of shares of Common
Stock subject to each grant. All Phantom Units granted under this Plan shall be
evidenced by Agreements which shall be subject to the applicable provisions of
this Plan and to such other provisions as the Administrator may adopt.
ARTICLE V
ESTABLISHMENT OF PHANTOM UNITS
The Company shall set up an appropriate record (hereinafter called the
"Phantom Unit Ledger"), and thereafter from time to time enter therein the name
of each Participant, the number of Phantom Units awarded to him by the
Committee, and an amount equivalent to the Initial Value of an equal number of
shares of Common Stock on the day such Phantom Units were awarded to him.
ARTICLE VI
EXERCISE OF PHANTOM UNITS
6.01. Vesting. The Phantom Units granted under this Plan shall be
fully exercisable, in whole or in part, as of the date of grant.
6.02. Maximum Phantom Unit Period. The maximum period in which a
Phantom Unit may be exercised shall be determined by the Administrator on the
date of grant; provided, however, that no Phantom Unit shall be exercisable
after the expiration of ten years and thirty days from the date such Phantom
Unit was granted.
6.03. Nontransferabilitvy. Any Phantom Unit granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. During the lifetime of the Participant to whom the Phantom Unit
is granted, the Phantom Unit may be exercised only by the Participant. No right
or interest of a Participant in any Phantom Unit shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
-3-
<PAGE> 4
6.04. Termination of Relationship with the Company. The times and
conditions upon which a Phantom Unit will terminate where a Participant to whom
a Phantom Unit has been granted under the Plan terminates, or the Company
terminates, his or her relationship with the Company shall be determined by the
Committee when the Phantom Unit is granted; provided, however, that in no event
shall a Phantom Unit be exercisable more than ten years and thirty days from
the date it was granted.
ARTICLE VII
METHOD OF EXERCISE
7.01. Exercise. Subject to the provisions of Articles V, VI and IX, a
Phantom Unit may be exercised in whole at any time or in part from time to time
at such times and in compliance with such requirements as the Administrator
shall determine. A Phantom Unit granted under this Plan may be exercised with
respect to any number of whole shares less than the full number for which the
Phantom Unit could be exercised. A partial exercise of a Phantom Unit shall not
affect the right to exercise the Phantom Unit from time to time in accordance
with this Plan and the applicable Agreement with respect to the remaining
shares related to the Phantom Unit.
7.02. Payment of Cash Upon Exercise of Phantom Unit. The amount
payable as a result of the exercise of a Phantom Unit shall be settled in cash
within thirty days after exercise.
7.03. Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares subject to his Phantom Unit.
ARTICLE VIII
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The terms of outstanding awards of Phantom Units shall be adjusted, as
the Committee shall determine to be equitably required in the event that (a)
the Company effects one or more stock dividends, stock split-ups, subdivisions
or consolidations of shares or (b) there occurs any other event which, in the
judgment of the Committee, necessitates such action. Any determination made
under this Article VIII by the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, outstanding awards of Phantom Units.
-4-
<PAGE> 5
The Committee may grant awards of Phantom Units in substitution for
performance shares, stock awards, stock options, stock appreciation rights, or
similar awards held by an individual who becomes an employee of the Company in
connection with a transaction described in the first paragraph of this Article
VIII. Notwithstanding any provision of the Plan, the terms of such substituted
Phantom Unit grants shall be as the Committee, in its discretion, determines is
appropriate.
ARTICLE IX
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Phantom Unit shall be exercisable and no payment shall be made
under this Plan except in compliance with all applicable federal and state laws
and regulations (including, without limitation, withholding tax requirements),
any listing agreement to which the Company is a party, and the rules of all
domestic stock exchanges on which the Company's shares may be listed. No
Phantom Unit shall be exercisable and no payment shall be made under this Plan
until the Company has obtained such consent or approval as the Administrator
may deem advisable from regulatory bodies having jurisdiction over such
matters.
ARTICLE X
GENERAL PROVISIONS
10.01. Effect on Employment and Service. Neither the adoption of this
Plan, its operation, nor any documents describing or referring to this Plan (or
any part thereof) shall confer upon any individual any right to continue in the
employ or service of the Company or in any way affect any right and power of
the Company to terminate the employment or service of any individual at any
time with or without assigning a reason therefor.
10.02. Unfunded Plan. The Plan, insofar as it provides for grants,
shall be unfunded, and the Company shall not be required to segregate any
assets that may at any time be represented by grants under this Plan. Any
liability of the Company to any person with respect to any grant under this
Plan shall be based solely upon any contractual obligations that may be created
pursuant to this Plan. No such obligation of the Company shall be deemed to be
secured by any pledge of, or other encumbrance on, any property of the Company.
10.03. Rules of Construction. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
10.04. Employee Status. In the event that the terms of any grant of
any Phantom Unit provide that such Phantom Unit may become transferable and
nonforfeitable or exercisable thereunder only after completion of a specified
period of employment or during employment, the Administrator may decide in each
Case to what extent leaves of absence for
-5-
<PAGE> 6
governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment.
10.05. Tax Withholding. Each Participant shall be responsible for
satisfying any income and employment tax withholding obligation attributable to
participation in this Plan. Unless otherwise provided by the applicable
Agreement, any such withholding tax obligation may be satisfied in cash
(including from any cash payable in settlement of an Phantom Unit) or a cash
equivalent acceptable to the Administrator.
10.06. Limitation on Awards. Notwithstanding any other provision of
the Plan, if any award under this Plan, either alone or together with payments
that a Participant has the right to receive from the Company would constitute a
"parachute payment" (as defined in section 280G of the Code), all such payments
shall be reduced to the largest amount that will result in no portion being
subject to the excise tax imposed by section 4999 of the Code.
ARTICLE XI
AMENDMENT
The Board may amend from time to time or terminate the Plan. No
amendment shall, without a Participant's consent, adversely affect any rights
of such Participant under any Phantom Unit outstanding at the time such
amendment is made.
ARTICLE XII
DURATION OF PLAN
No Phantom Unit may be granted under this Plan more than ten years
after the earlier of the date that the Plan is adopted by the Board. Phantom
Units granted before that date shall remain valid in accordance with their
terms.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
Phantom Units may be granted under this Plan upon its adoption by
the Board.
ARTICLE XIV
APPLICABLE LAW
Except as otherwise provided herein, the Plan shall be construed and
enforced according to the laws of the State of North Carolina.
-6-
<PAGE> 1
EXHIBIT 13
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)(1)
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
(In thousands, except per share data) Quarter Ended
----------------------------------------------------------------------
Aug. 25, 1996 Nov. 24, 1996 Feb. 23, 1997 May 25, 1997 Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $40,922 $42,783 $35,094 $42,235 $161,034
Gross profit 16,855 17,085 12,912 17,245 64,097
Income from continuing operations 2,050 1,964 471 1,446 5,931
Net income 2,065 1,964 476 989 5,494
Income per share from continuing operations .26 .25 .06 .19 .77
Net income per share .26 .25 .06 .13 .71
Average shares outstanding 7,868 7,886 7,726 7,516 7,749
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
Aug. 27, 1995 Nov. 26, 1995 Feb. 25, 1996 May 26, 1996 Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $41,059 $38,470 $37,968 $40,222 $157,719
Gross profit 15,826 13,469 14,251 15,952 59,498
Income from continuing operations 2,488 1,164 1,463 1,006 6,121
Net income 2,720 1,273 1,600 1,106 6,699
Income per share from continuing operations .31 .14 .18 .13 .76
Net income per share .34 .16 .20 .14 .83
Average shares outstanding 8,095 8,152 8,085 7,885 8,055
</TABLE>
(1) See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2 of the Notes to Consolidated Financial
Statements for a discussion of the discontinuation of the operations
comprising the Jesse Jones packaged meats business.
MARKET AND DIVIDEND INFORMATION
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
Stock Price/Dividend Data Quarter Ended
-----------------------------------------------------------------------
Aug. 25, 1996 Nov. 24, 1996 Feb. 23, 1997 May 25, 1997 Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High $16 1/4 $ 17 1/4 $18 3/4 $ 17 1/2 $18 3/4
Low 13 1/4 15 1/4 14 1/4 12 12
Cash dividend declared per common share .05 .05 .05 .05 .20
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------
Aug. 27, 1995 Nov. 26, 1995 Feb. 25, 1996 May 26, 1996 Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High $18 1/4 $19 $18 3/4 $16 7/8 $19
Low 15 1/2 16 1/4 14 1/4 14 14
Cash dividend declared per common share .04 .04 .04 .04 .16
</TABLE>
The common stock of GoodMark Foods, Inc. is listed and traded on the
Nasdaq National Market under the symbol GDMK. At May 25, 1997, the approximate
number of shareholders was 2,000.
The Company's common stock commenced trading on the Nasdaq National Market
on November 7, 1985. On June 24, 1993, the Company's Board of Directors
approved the payment of quarterly cash dividends.
6
<PAGE> 2
SELECTED FINANCIAL DATA(1)
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
Fiscal Year Ended May 25, 1997 May 26, 1996 May 29, 1995 May 30, 1994 May 31, 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $161,033,507 $157,718,908 $156,758,669 $138,586,808 $120,457,039
Cost of goods sold 96,936,755 98,221,297 97,925,338 86,759,425 76,104,169
- --------------------------------------------------------------------------------------------------------------------
Gross profit 64,096,752 59,497,611 58,833,331 51,827,383 44,352,870
Selling, general and administrative expenses 53,659,467 47,966,196 46,257,846 42,936,953 38,500,164
- --------------------------------------------------------------------------------------------------------------------
Income from operations 10,437,285 11,531,415 12,575,485 8,890,430 5,582,706
- --------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense, net (1,082,585) (1,171,749) 25,043 (70,618) (290,762)
Other 153,511 (551,427) (38,860) (274,257) (237,424)
- --------------------------------------------------------------------------------------------------------------------
Total (929,074) (1,723,176) (13,817) (344,875) (528,186)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 9,508,211 9,808,239 12,561,668 8,545,555 5,324,520
Income taxes 3,576,960 3,687,636 4,723,605 3,207,522 2,076,563
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations 5,931,251 6,120,603 7,838,063 5,338,033 3,247,957
Income (loss) from discontinued
operations, net of tax (436,861) 578,136 1,759,805 1,776,522 1,607,563
- --------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 5,494,390 6,698,739 9,597,868 7,114,555 4,855,520
Cumulative effect of accounting change -- -- -- (211,300) --
- --------------------------------------------------------------------------------------------------------------------
Net income $ 5,494,390 $ 6,698,739 $ 9,597,868 $ 6,903,255 $ 4,855,520
- --------------------------------------------------------------------------------------------------------------------
Income per common share
from continuing operations $ .77 $ .76 $ .98 $ .66 $ .38
- --------------------------------------------------------------------------------------------------------------------
Income (loss) per common share from
discontinued operations $ (.06) $ .07 $ .22 $ .22 $ .18
- --------------------------------------------------------------------------------------------------------------------
Income per common share before
cumulative effect of accounting change $ .71 $ .83 $ 1.20 $ .88 $ .56
- --------------------------------------------------------------------------------------------------------------------
Net income per common share $ .71 $ .83 $ 1.20 $ .86 $ .56
- --------------------------------------------------------------------------------------------------------------------
Average shares outstanding 7,749,365 8,054,849 8,017,764 8,043,800 8,637,916
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ 18,107,749 $16,161,535 $14,581,159 $ 11,842,741 $ 13,909,831
Total assets 84,705,408 85,028,223 86,814,432 59,558,993 57,709,403
Long-term debt and other liabilities 18,431,475 17,956,167 20,150,000 5,500,000 4,547,373
Stockholders' equity 46,791,170 48,808,327 46,190,491 37,394,212 38,571,693
Cash dividends declared
per common share $ .20 $ .16 $ .12 $ .10 --
</TABLE>
(1) See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2 of the Notes to Consolidated Financial
Statements for a discussion of the discontinuation of the operations
comprising the Jesse Jones packaged meats business.
7
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GOODMARK FOODS, INC.
OPERATIONS
The following table shows the components of our net income statements as a
percentage of net sales:
<TABLE>
<CAPTION>
As a Percentage of Net Sales for Fiscal Years Ended May 25, May 26, May 29,
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 60.2 62.3 62.5
- -------------------------------------------------------------------------------------------
Gross profit 39.8 37.7 37.5
Selling, general and administrative expenses 33.3 30.4 29.5
- -------------------------------------------------------------------------------------------
Income from operations 6.5 7.3 8.0
Other expenses 0.6 1.1 --
- -------------------------------------------------------------------------------------------
Income before income taxes 5.9 6.2 8.0
Income taxes 2.2 2.3 3.0
- -------------------------------------------------------------------------------------------
Income from continuing operations 3.7 3.9 5.0
Income (loss) from discontinued operations (0.3) .3 1.1
- -------------------------------------------------------------------------------------------
Net income 3.4% 4.2% 6.1%
===========================================================================================
</TABLE>
FISCAL 1997 COMPARED WITH FISCAL 1996
Due to the fiscal 1997 decision to sell the packaged meats business, the
Company has reclassified all sales and earnings of the packaged meats business
into discontinued operations for all fiscal years for comparison purposes. See
Note 2 of the Notes to Consolidated Financial Statements. Net sales, which
reflect sales from continuing operations, which are snack items only, for the
fiscal year ended May 25, 1997, increased by 2% over fiscal 1996.
Net sales of branded products and Slim Jim brand in particular increased 5%
and 10% respectively, over last year. Private label sales, which represent only
6% of total revenues, were 25% below last year.
Due to higher costs of materials and increased levels of trade and marketing
support, price increases of approximately 8% went into effect on December 1,
1996 for most of the Company's Slim Jim product line.
Gross profit margin increased to 40%, up from 38% last year. The improvement
in gross profit was due to favorable product mix, productivity improvements
from increased plant utilization, and the December price increases.
Selling, general, and administrative expense as a percentage of sales was
33%, compared with last year's 30%. This increase resulted from an intensified
level of promotional, advertising, merchandising, and new product programs
designed to regain momentum and revenue growth from our branded snack business.
The Company has signed a letter of intent with a privately held company for
the sale of the packaged meats business. The Company has recorded a charge to
reflect the estimated loss on the sale of assets together with the operating
results and transition costs related to the divestiture.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales from continuing operations, which are snack items only, for the
fiscal year ended May 26, 1996, were $157,719,000 compared with $156,759,000 in
fiscal 1995. Revenues from snack items were only 1% above fiscal 1995 mostly
due to a 28% decline in our private label volume, along with operational
problems related to our plant expansion, and the unusually adverse winter
weather conditions in our largest market area, the eastern United States.
Notwithstanding these problems, our branded snack sales were 5% over fiscal
1995. There were no price changes in snack items.
Gross profit margin and selling, general, and administrative expense as a
percentage of sales were both unchanged from fiscal 1995 at 38% and 30%,
respectively.
Net interest expense compares unfavorably with fiscal 1995 due to an
increase in the average level of debt and fiscal 1995's interest cost of
$524,000 being capitalized as part of the cost of expanding the Garner, North
Carolina production facility.
8
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GOODMARK FOODS, INC.
The unfavorable comparison in other expense is due to a pre-tax charge of
$508,000 to reserve for a note receivable related to the divestiture of
Fleetwood Snacks in fiscal 1993. The company that bought Fleetwood Snacks has
filed for Chapter 11 bankruptcy protection.
FINANCIAL CONDITION
Cash provided by operating activities for the year ended May 25, 1997 was
$9,904,000 versus $13,426,000 last year.
Cash and cash equivalents increased to $1,443,000 from $858,000 at the end
of last year. Inventories increased 14% primarily due to management's decision
to raise safety stock levels to accommodate service demands. Working capital
increased to $18,108,000 from $16,162,000 a year ago. The current ratio was
2.3 compared to 2.2 a year ago.
Notwithstanding the repurchase of 450,000 shares of the Company's stock at a
total cost of $6,815,000, long-term debt and other liabilities were held to an
increase of $475,000, from $17,956,000 to $18,431,000, or from 27% to 28% of
capitalization since the end of last fiscal year.
Cash from operating activities, plus amounts available under unused bank
lines of credit, are expected to be sufficient to fund planned capital
expenditures, required amortization of long-term obligations, working capital
requirements, dividends, and authorized stock repurchases.
INFLATION
Inflation affects GoodMark principally through higher costs for materials
and wages. Historically, we have been able to offset cost increases by more
effective purchasing, productivity improvements and price increases. We do not
expect cost changes in these two areas to have a material effect on our net
income.
<TABLE>
<CAPTION>
Net Cash Provided by Return on Return on
Operating Activities Average Equity Average Assets
($ in millions)
<S> <C> <C> <C> <C> <C>
1993 $12.8 1993 13.5% 1993 7.8%
1994 $10.8 1994 18.2% 1994 11.8%
1995 $10.5 1995 23.0% 1995 13.1%
1996 $13.4 1996 14.1% 1996 7.8%
1997 $ 9.9 1997 11.5% 1997 6.5%
</TABLE>
9
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
May 25, 1997 May 26, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 1,443,493 $ 857,529
Accounts receivable (net of allowance for doubtful
accounts: 1997 - $370,500; 1996 - $324,500) 7,588,175 8,101,739
Inventories (Note 3) 13,081,364 11,482,351
Prepaid expenses (Note 8) 5,474,931 4,683,096
Notes receivable 29,353 27,104
Income taxes receivable 745,275 812,953
Deferred income taxes (Note 10) 2,239,000 867,000
Net assets of discontinued operations (Note 2) 1,226,921 2,686,492
- -------------------------------------------------------------------------------------------------
Total current assets 31,828,512 29,518,264
PROPERTY AND EQUIPMENT, net (Note 4) 50,925,582 53,122,703
OTHER ASSETS (including net goodwill: 1997 - $1,253,526;
1996 - $1,629,570) (Note 1) 1,951,314 2,387,256
- -------------------------------------------------------------------------------------------------
TOTAL $ 84,705,408 $ 85,028,223
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,762,321 $ 5,970,780
Accrued expenses and other liabilities (Notes 5,8, and 9) 7,958,442 7,385,949
- -------------------------------------------------------------------------------------------------
Total current liabilities 13,720,763 13,356,729
- -------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt (Note 6) 18,250,000 17,800,000
Deferred income taxes (Note 10) 5,762,000 4,907,000
Other long-term liabilities 181,475 156,167
- -------------------------------------------------------------------------------------------------
Total long-term liabilities 24,193,475 22,863,167
- -------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Note 11):
Common stock 72,226 75,924
Additional paid-in capital 6,107,522 5,313,406
Retained earnings 40,611,677 43,420,104
Unearned stock award compensation (255) (1,107)
- -------------------------------------------------------------------------------------------------
Stockholders' equity 46,791,170 48,808,327
- -------------------------------------------------------------------------------------------------
TOTAL $ 84,705,408 $ 85,028,223
=================================================================================================
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------
May 25, 1997 May 26, 1996 May 28,1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 161,033,507 $ 157,718,908 $ 156,758,669
COST OF GOODS SOLD 96,936,755 98,221,297 97,925,338
- ------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 64,096,752 59,497,611 58,833,331
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (Notes 5,7,8, and 9) 53,659,467 47,966,196 46,257,846
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 10,437,285 11,531,415 12,575,485
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 20,479 89,827 74,628
Interest expense (Note 6) (1,103,064) (1,261,576) (49,585)
Other 153,511 (551,427) (38,860)
- ------------------------------------------------------------------------------------------------------------------
Total (929,074) (1,723,176) (13,817)
- ------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 9,508,211 9,808,239 12,561,668
- ------------------------------------------------------------------------------------------------------------------
INCOME TAXES (Note 10):
Current 4,093,960 2,272,636 3,848,605
Deferred (517,000) 1,415,000 875,000
- ------------------------------------------------------------------------------------------------------------------
Total 3,576,960 3,687,636 4,723,605
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 5,931,251 6,120,603 7,838,063
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX (Note 2) (436,861) 578,136 1,759,805
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,494,390 $ 6,698,739 $ 9,597,868
==================================================================================================================
Income (loss) per common and common share equivalent (Note 1):
Income from continuing operations $ .77 $ .76 $ .98
Discontinued operations (.06) .07 .22
- ------------------------------------------------------------------------------------------------------------------
Net Income $ .71 $ .83 $ 1.20
- ------------------------------------------------------------------------------------------------------------------
Cash dividends per common share (Note 11) $ .20 $ .16 $ .12
Average shares outstanding 7,749,365 8,054,849 8,017,764
==================================================================================================================
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
Fiscal Years Ended Additional Unearned
May 25, 1997; May 26, 1996; Common Paid-in Retained Stock Awards
and May 28, 1995 Stock Capital Earnings Compensation Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 29, 1994 $ 77,148 $ 4,004,582 $ 33,317,921 $ (5,439) $ 37,394,212
- --------------------------------------------------------------------------------------------------------------
Stock options exercised 149 86,212 86,361
Amortization of stock award plan 2,712 2,712
Payments of dividends (926,769) (926,769)
Issuance of common stock under
reinvestment plan 26 36,081 36,107
Net income 9,597,868 9,597,868
- --------------------------------------------------------------------------------------------------------------
Balance, May 28, 1995 77,323 4,126,875 41,989,020 (2,727) 46,190,491
- --------------------------------------------------------------------------------------------------------------
Stock options exercised 1,064 788,186 789,250
Amortization of stock award plan 1,620 1,620
Payments of dividends (1,239,242) (1,239,242)
Issuance of common stock under
reinvestment plan 37 59,638 59,675
Stock repurchase (2,500) (4,028,413) (4,030,913)
Tax benefit of stock options exercised 338,707 338,707
Net income 6,698,739 6,698,739
- --------------------------------------------------------------------------------------------------------------
Balance, May 26, 1996 75,924 5,313,406 43,420,104 (1,107) 48,808,327
- --------------------------------------------------------------------------------------------------------------
Stock options exercised 758 426,386 427,144
Amortization of stock award plan 852 852
Payments of dividends (1,492,623) (1,492,623)
Issuance of common stock
under reinvestment plan 44 65,062 65,106
Stock repurchase (4,500) (6,810,194) (6,814,694)
Tax benefit of stock options exercised 302,668 302,668
Net income 5,494,390 5,494,390
- --------------------------------------------------------------------------------------------------------------
Balance, May 25, 1997 $ 72,226 $ 6,107,522 $ 40,611,677 $ (255) $ 46,791,170
==============================================================================================================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------
May 25, 1997 May 26, 1996 May 28,1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,494,390 $ 6,698,739 $ 9,597,868
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,606,440 5,469,538 4,588,980
Deferred income tax provision (benefit) (517,000) 1,415,000 875,000
Net loss on disposal of fixed assets 2,950 13,512 109,995
Loss (income) from discontinued operations 436,861 (578,136) (1,759,805)
Provision for loss on note receivable -- 486,279 --
Changes in assets and liabilities:
Accounts receivable 513,564 1,757,867 (2,026,852)
Inventories (1,599,013) 761,718 (2,385,728)
Prepaid expenses (791,835) 257,504 (1,407,865)
Notes receivable (2,249) (17,582) 144,314
Accounts payable (208,459) (2,796,667) 4,421,314
Accrued expenses and other liabilities 572,493 (200,694) 173,876
Other long-term liabilities 25,308 83,803 72,364
Income taxes receivable 370,346 75,278 (1,872,943)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,903,796 13,426,159 10,530,518
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from disposal of fixed assets 1,446,333 20,128 208,111
Capital expenditures (4,379,230) (6,583,228) (25,930,210)
Decrease (increase) in other assets, net of amortization (42,578) (263,523) (95,029)
Net cash provided by discontinued operations 1,022,710 642,942 1,353,035
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,952,765) (6,183,681) (24,464,093)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 34,450,000 42,250,000 43,510,000
Principal payments on long-term debt and obligations under licensing agreement (34,000,000) (44,600,000) (28,907,373)
Stock options exercised 427,144 789,250 86,361
Dividends paid (1,492,623) (1,239,242) (926,769)
Repurchase of common stock (6,814,694) (4,030,913) --
Issuance of common stock under dividend reinvestment plan 65,106 59,675 36,107
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (7,365,067) (6,771,230) 13,798,326
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 585,964 471,248 (135,249)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 857,529 386,281 521,530
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,443,493 $ 857,529 $ 386,281
================================================================================================================================
</TABLE>
Non-cash Financing Activities:
During 1997 and 1996, the Company received a tax benefit from the exercise
of stock options totaling $302,668 and $338,707, respectively.
See notes to consolidated financial statements.
13
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
Fiscal Years Ended May 25, 1997; May 26, 1996 and May 28, 1995
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation -- GoodMark Foods, Inc. (the "Company") makes consumer
food products from meat and grain. These products include meat snacks, packaged
meats and extruded snacks. They are marketed throughout the United States and
exported.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of intercompany
accounts and transactions.
Certain reclassifications have been made to prior years' financial
statements to conform to the classifications used in 1997.
Significant Accounting Policies -- The significant accounting policies of
the Company are summarized below:
a. Cash and Cash Equivalents -- Cash and cash equivalents include currency
and short-term, highly liquid investments that are readily convertible to cash,
having an original maturity of three months or less.
b. Inventories -- Inventories are stated at the lower of cost, determined by
the last-in, first-out (LIFO) method, or market.
c. Property, Depreciation and Amortization -- Property is carried at cost.
Depreciation is provided over the estimated useful lives of the property using
the straight-line method. Property under capital leases is recorded at the
lower of the present value of the minimum lease payments or the fair value of
the leased property at the inception of the lease. Amortization of the leased
property is computed using the straight-line method over the term of the lease.
d. Deferred Income Taxes -- Deferred income taxes are accounted for in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Deferred income taxes (benefits) are provided on
temporary differences between the financial statement carrying values and the
tax basis of assets and liabilities.
e. Pension and Other Post-retirement Benefit Costs -- Pension costs are
funded as accrued. Prior service costs are amortized over the future service
periods of active employees. Other post-retirement benefit costs are accrued
during the years as employees provide services.
f. Other Policies -- The Company provides a reserve for estimated sales
returns and vacation pay when earned. Unearned stock award compensation is
recorded as an expense in the period in which the restrictions lapse. Goodwill
is amortized straight-line over ten years and is shown net of amortization of
$2,715,478 and $2,339,437 at May 25, 1997 and May 26, 1996, respectively.
g. Customer Concentration -- In fiscal 1997, 1996, and 1995, sales to
WalMart Stores, Inc. and affiliates totaled approximately $35,000,000,
$30,000,000, and $27,000,000, respectively. No other customer accounted for
more than 10% of the Company's sales in those years.
h. Accounting for Stock-Based Compensation -- The Company accounts for
employee stock compensation in accordance with Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Under APB
No. 25, the total compensation expense is equal to the difference between the
award's exercise price and the intrinsic value at the measurement date which is
the first date that both the exercise price and number of shares to be issued
is known. SFAS No. 123, "Accounting for Stock-Based Compensation," became
effective January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are, however, permitted to continue to
apply APB No. 25. The Company continues to apply APB No. 25 to its stock-based
compensation awards to employees and has disclosed the required pro forma
effect on net income and earnings per share in the notes to consolidated
financial statements.
i. Earnings Per Share -- In fiscal 1997, 1996, and 1995, earnings per common
and common share equivalent are based on the weighted-average number of common
shares and common share equivalents outstanding during the period. Common share
equivalents represent the dilutive effect of outstanding stock options. Fully
diluted earnings per share have not been presented because the differences are
insignificant.
j. Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
k. Accounting for Long-Lived Assets-- The Company accounts for long-lived
assets in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which became
effective for the fiscal year ended May 25, 1997. Under SFAS No. 121,
long-lived assets and certain identifiable intangibles are required to be
reported at the lower of carrying amount or fair value less cost to sell. The
adoption of SFAS No. 121 did not have a material effect on the consolidated
financial statements.
14
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
l. Newly Issued Accounting Pronouncements Not Yet Adopted -- In February
1997, SFAS No. 128, "Earnings Per Share", was issued. This statement
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
This Statement simplifies the current standards for computing earnings per
share, and makes them comparable to international EPS standards. This Statement
is effective for financial statements issued for periods ending after December
15, 1997; earlier application is not permitted. This Statement requires
restatement of all prior period EPS data presented. The Company has not
evaluated the impact of the adoption of this statement on the consolidated
financial statements.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
This Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods presented is required. The Company has not
evaluated the impact of the adoption of this Statement on the consolidated
financial statements.
2. DISCONTINUED OPERATIONS
On March 17, 1997, the Company announced its strategic decision to
discontinue the operations comprising its Jesse Jones packaged meats business.
Accordingly, the operations of the discontinued business have been segregated
in the accompanying income statements. Net sales from these operations were
$20,829,000, $20,196,000, and $20,667,000 for the years ended May 25, 1997, May
26, 1996 and May 28, 1995, respectively. Net sales, operating expenses, other
income and expense, and income taxes for fiscal years 1996 and 1995 have been
reclassified for amounts associated with the discontinued business. Certain
expenses have been allocated to discontinued operations, including plant
overhead, based on the current year incremental costs associated with the
discontinued operations.
Income from discontinued operations consists of the following items for the
years ended May 25, 1997, May 26, 1996, and May 28, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discontinued operations:
Income from the operations of discontinued packaged meat business (net of
applicable income taxes of $12,446 in 1997; $348,364 in 1996;
and $1,060,395 in 1995) $ 20,656 $578,136 $1,759,805
Loss on disposal of packaged meats business including a provision
of $66,800 for operating profits during the phase-out period
(net of applicable income tax benefit of $275,683) (457,517) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $(436,861) $578,136 $1,759,805
===========================================================================================================================
</TABLE>
The assets held for disposition, net of applicable liabilities, have been
reclassified as net current assets of discontinued operations. The components
of net assets of discontinued operations included in the Consolidated Balance
Sheets at May 25, 1997 and May 26, 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $ 933,696 $ 1,194,212
Inventories 867,483 854,037
Prepaid expenses 2,215 160,000
Property and equipment 645,563 813,107
Accounts payable (51,530) (50,000)
Accrued expenses and other liabilities (1,170,506) (284,864)
- --------------------------------------------------------------------------------------------
Net assets of discontinued operations $ 1,226,921 $ 2,686,492
============================================================================================
</TABLE>
The sale of the Jesse Jones packaged meats business is expected to be
completed by September 1997. The actual pre-tax operating profits of $226,800
for the period subsequent to the measurement date approximated amounts
estimated for at the measurement date.
15
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
3. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and packaging $ 5,131,148 $ 4,558,076
Work in process 767,961 768,763
Finished goods 7,897,846 6,364,376
- --------------------------------------------------------------------------------------------
Total 13,796,955 11,691,215
Less LIFO reserve 715,591 208,864
- --------------------------------------------------------------------------------------------
Inventories $13,081,364 $11,482,351
============================================================================================
</TABLE>
If the Company had used first-in, first-out (FIFO) inventory costing, net
income would increase (decrease) by $316,000, or $.04 per share; ($74,000),
or ($.01 per share); and ($344,000), or ($.04) per share for the years ended
May 25, 1997, May 26, 1996, and May 28, 1995, respectively, from that which has
been reported.
4. PROPERTY AND EQUIPMENT
Property and equipment balances are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,478,288 $ 2,402,140
Land improvements 870,563 536,961
Buildings 24,329,157 25,557,549
Machinery and equipment 54,272,148 50,522,051
Transportation equipment 44,560 23,882
Construction in progress 845,179 2,212,825
- --------------------------------------------------------------------------------------------
Total 82,839,895 81,255,408
Less accumulated depreciation 31,914,313 28,132,705
- --------------------------------------------------------------------------------------------
Property and equipment, net $50,925,582 $53,122,703
============================================================================================
</TABLE>
During June 1996, the Company entered into an agreement for the sale and
leaseback of office space. The lease term is five years with the option to
renew the lease for one two-year renewal term. The lease is classified as an
operating lease. Proceeds of $1,360,577 were received from the sale of the
property. A deferred gain of $108,066 was recorded due to the difference
between the net book value of the property and the proceeds. The deferred gain
is being amortized over the life of the lease.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities included the following:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve for sales returns $ 2,685,307 $ 2,095,994
Accrued incentives 371,158 426,090
Accrued vacation 1,553,227 1,541,285
Workers' Compensation 993,898 430,492
Income taxes 46,486 150,787
Other 2,308,366 2,741,301
- --------------------------------------------------------------------------------------------
Total $ 7,958,442 $ 7,385,949
============================================================================================
</TABLE>
16
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
6. LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
Long-term debt and other long-term obligations consisted of:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured revolving bank lines of credit due November 21, 2000; interest due quarterly
at varied rates based on LIBOR (6.058% to 6.34% and 5.795% to 6.06% at May 25, 1997
and May 26, 1996, respectively). $ 3,250,000 $ 2,800,000
Term notes due November 21, 2000; interest due monthly at an annual rate of 6.5% 15,000,000 15,000,000
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt $18,250,000 $17,800,000
======================================================================================================================
</TABLE>
Interest paid on the above obligations in 1997, 1996, and 1995 was
approximately $1,148,000, $1,274,000, and $646,000, respectively.
Unused bank lines of credit are also available in the amount of $26,750,000
at May 25, 1997.
The bank revolving credit agreements contain various covenants and
restrictions. In the event of default, the amounts owed under the agreements
become due and payable at the option of the bank. The Company was not in
compliance with certain covenants of the agreements at May 25, 1997, but has
received waivers from its lenders.
7. COMMITMENTS AND CONTINGENCIES
The future minimum lease payments under operating leases are summarized as
follows:
<TABLE>
<CAPTION>
Year
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 652,445
1999 584,148
2000 585,905
2001 554,016
2002 58,007
- ----------------------------------------------------------------------------------------------------------------------
Total $2,434,521
======================================================================================================================
</TABLE>
Rental expense incurred for operating leases and leases whose terms are
less than one year in duration, during fiscal 1997, 1996, and 1995 was
approximately $1,754,062, $1,415,000, and $1,229,000, respectively. Certain
operating leases for transportation equipment contain rental clauses based on
miles driven.
At May 25, 1997, the Company had outstanding commitments under letters of
credit totaling $737,127 and outstanding purchase commitments totaling
$752,958.
17
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
8. EMPLOYEEB ENEFIT PLANS
The Company has defined benefit pension plans covering substantially all of
its employees who are generally eligible to participate in such plans after no
more than one year of service.
At May 25, 1997, and May 26, 1996, the plans' funded status and amounts
recognized in the consolidated balance sheets are:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 12,632,185 $ 11,866,060
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations $ 12,852,132 $ 12,040,497
- ------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations $(15,959,431) $(15,449,955)
Plan assets at fair value 18,794,126 16,896,516
- ------------------------------------------------------------------------------------------------------------------------------
Excess of assets over projected obligations 2,834,695 1,446,561
Unrecognized net transition obligation 456,962 548,351
Unrecognized prior service cost 640,086 705,694
Unrecognized loss (1,394,031) (867,072)
- ------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost 2,537,712 1,833,534
Reduction of obligation for employees of discontinued operations due to curtailment of plan 165,000 --
- ------------------------------------------------------------------------------------------------------------------------------
Total prepaid pension cost $ 2,702,712 $ 1,833,534
==============================================================================================================================
</TABLE>
Net pension cost for 1997, 1996, and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 755,412 $ 790,620 $ 666,336
Interest cost on the projected benefit obligation 1,220,657 1,120,203 965,004
Expected return on plan assets (1,723,777) (1,371,418) (1,179,483)
Net amortization of prior service cost 65,608 53,292 32,382
Loss from prior years 3,691 37,979 14,789
Net amortization of unrecognized transition asset 91,391 91,391 91,391
- -------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 412,982 $ 722,067 $ 590,419
===================================================================================================================
</TABLE>
The various rates assumed in the determination of the actuarial present
value of accumulated plan benefits are as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.0% 8.0%
Assumed long-term rate of return 10.0% 10.0%
Rate of compensation increase 5.0% 5.0%
</TABLE>
18
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
The Company has an executive defined benefit pension plan covering select
management or highly compensated employees who are generally eligible to
participate in such plan upon designation and approval by the plan committee.
At May 25, 1997 and May 26, 1996, the executive plan's funded status and
amounts recognized in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(116,167) $(119,575)
- -----------------------------------------------------------------------------------------
Accumulated benefit obligations $(116,167) $(119,575)
- -----------------------------------------------------------------------------------------
Projected benefit obligations $(233,001) $(436,311)
Plan assets at fair value -- --
Deficiency of assets over projected obligations (233,001) (436,311)
Unrecognized net transition obligation 101,079 204,385
Unrecognized (gain) loss (85,747) 100,789
- -----------------------------------------------------------------------------------------
Accrued pension cost $(217,669) $(131,137)
- -----------------------------------------------------------------------------------------
</TABLE>
Net pension cost for 1997, 1996, and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $21,705 $19,348 $ 9,291
Interest cost on the projected benefit obligation 34,905 33,047 18,809
Expected return on plan assets -- -- --
Loss from prior years 13,987 19,918 --
Net amortization of unrecognized transition asset 23,869 15,362 15,362
- -------------------------------------------------------------------------------------
Net periodic pension cost $94,466 $87,675 $43,462
=====================================================================================
</TABLE>
The various rates assumed in the determination of the actuarial present
value of accumulated plan benefits are as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.0% 8.0%
Assumed long-term rate of return N/A N/A
Rate of compensation increase 5.0% 5.0%
</TABLE>
The Company has established an Investment and Savings Plan for its
salaried employees, who are allowed to make contributions by salary deduction
pursuant to Section 401(k) of the Internal Revenue Code. During the year ended
May 28, 1995, the Company matched 50% of the tax-deferred contributions up to a
maximum contribution of 3% of each participant's compensation. Effective
January 1, 1996, the Company began matching 50% of the tax-deferred
contributions up to a maximum of 4% of each participant's income. Participants
may contribute up to a maximum of 8% of their compensation in tax-deferred
contributions and 10% in voluntary contributions. Employees vest immediately in
their contribution and vest in the Company's contribution over a five-year
period of service. The Company's contributions to the plan for the fiscal years
ended May 25, 1997, May 26, 1996, and May 28, 1995, were $233,990, $195,858,
and $167,791, respectively.
The Company has established an Investment and Savings Plan for hourly
employees at its Garner, North Carolina, manufacturing facility. The plan
allows participants to make contributions by salary deduction pursuant to
Section 401(k) of the Internal Revenue Code. Effective January 1, 1995, the
Company began matching 25% of the tax-deferred contributions up to a maximum
contribution of 3% of each participant's compensation. Participants vest
immediately in their contribution and vest in the Company's contribution over a
five-year period of service. During the years ended May 25, 1997, May 26, 1996,
and May 28, 1995, the Company contributed $26,672, $28,383, and $13,128,
respectively, to the plan.
19
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
Effective January 1, 1996, the Company established an Investment and Savings
Plan for the hourly employees at its Folcroft, Pennsylvania, manufacturing
facility. The plan allows participants to make contributions by salary
deduction pursuant to section 401(k) of the Internal Revenue Code. Effective
January 1, 1997, the Company began matching 25% of the tax-deferred
contributions up to a maximum contribution of 3% of each participant's
compensation. Participant vest immediately in their contribution and vest in
the Company's contribution over a five-year period of service. During the year
ended May 25, 1997, the Company contributed $4,209 to the plan. There were no
Company contributions to the plan for the years ended May 26, 1996 and May
28, 1995.
9. POST-RETIREMENT BENEFITS OTHER THAN PENSION BENEFITS
The Company offers health care benefits to current and future salaried
retirees. Salaried employees who retired prior to January 1, 1994, receive
benefits with no premium contribution from the retiree. Salaried employees who
retire after January 1, 1994, receive health care benefits; however, these
retirees may be required to contribute premiums based upon the employee's
length of service and chosen health care options.
The following table reconciles the actuarial present value of the Company's
accumulated post-retirement benefit obligation (APBO) relating to health care
to the amount recorded on the consolidated balance sheet at May 25, 1997 and
May 26, 1996. There are no funded plan assets that have been designated to
provide post-retirement benefits.
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of APBO:
Retirees $ 548,396 $ 364,000
Active employees who are fully eligible 460,739 485,000
Active employees who are not fully eligible 1,044,689 1,041,000
- -----------------------------------------------------------------------------------------
Total APBO 2,053,824 1,890,000
Unrecognized net loss from changes in assumptions (314,275) (308,760)
Unrecognized transition obligations (929,078) (987,145)
- -----------------------------------------------------------------------------------------
Accrued post-retirement benefit cost $ 810,471 $ 594,095
=========================================================================================
</TABLE>
The following table presents the components of net periodic post-retirement
benefit cost for 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of benefits earned during the period $ 77,896 $ 85,053 $ 74,937
Interest cost on APBO 158,486 138,867 108,314
Amortization of transition obligation 58,067 58,067 58,067
Amortization of gains and losses 20,172 28,073 6,529
- --------------------------------------------------------------------------------
Net periodic post-retirement benefit cost $314,621 $310,060 $247,847
================================================================================
</TABLE>
The APBO at May 25, 1997, was computed using several actuarial assumptions.
The assumed discount rate was 10%. The health care cost trend rate was assumed
to be 8% for the first year, declining one percent for each of the next five
years, and leveling to a trend rate of 5% after the sixth year. There are no
assumptions for salary increases as benefits are not pay-related. If the
assumed health care cost trend rate factors were increased one percentage
point, the net periodic post-retirement benefit cost would increase by $6,136,
and the APBO would increase by $76,700.
20
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
10. INCOME TAXES
Income tax expense consisted of:
<TABLE>
<CAPTION>
Federal State Total
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Year Ended May 25, 1997:
Current $ 3,877,960 $ 216,000 $ 4,093,960
Deferred (504,312) (12,688) (517,000)
- ------------------------------------------------------------------------
Total $ 3,373,648 $ 203,312 $ 3,576,960
========================================================================
Year Ended May 26, 1996:
Current $ 2,161,636 $ 111,000 $ 2,272,636
Deferred 1,274,000 141,000 1,415,000
- ------------------------------------------------------------------------
Total $ 3,435,636 $ 252,000 $ 3,687,636
========================================================================
Year Ended May 28, 1995:
Current $ 3,301,805 $ 546,800 $ 3,848,605
Deferred 875,000 -- 875,000
- ------------------------------------------------------------------------
Total $ 4,176,805 $ 546,800 $ 4,723,605
========================================================================
</TABLE>
A reconciliation of anticipated income tax expense (computed by applying the
statutory federal income tax rate of 34% to income before income taxes) to
income tax expense in the consolidated statements of income follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anticipated income tax expense $ 3,232,792 $3,334,801 $4,270,967
Increase (decrease) resulting from:
State income taxes, net of federal benefit 342,296 132,966 273,255
Amortization of goodwill 119,732 119,732 116,061
Other, net (117,860) 100,137 63,322
- --------------------------------------------------------------------------------------------
Income tax expense $ 3,576,960 $3,687,636 $4,723,605
============================================================================================
</TABLE>
The approximate tax effect on each type of temporary difference that gave
rise to the Company's deferred income tax assets and liabilities for 1997 under
SFAS 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Inventory reserve for finished goods and packaging $ 141,066 $ -- $ 141,066
Reserve for sales returns 1,020,417 -- 1,020,417
Prepayments to employee benefit plans (1,088,825) (1,088,825)
Reserve for bad debts 140,763 -- 140,763
Vacation accrual 514,002 -- 514,002
Worker's Compensation Accrual 377,681 -- 377,681
Capitalization of inventory costs 58,298 -- 58,298
Package design costs 240,574 -- 240,574
Discontinued operations 364,800 -- 364,800
Other reserves and accruals 462,251 -- 462,251
Other 9,148 (1,175) 7,973
- -------------------------------------------------------------------------------------------------------
Total current $ 3,329,000 $(1,090,000) $2,239,000
=======================================================================================================
</TABLE>
21
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
<TABLE>
<CAPTION>
Assets Liabilities Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent:
Property and equipment $ - $(6,080,744) $(6,080,744)
Trademarks 99,857 -- 99,857
Capitalized interest 22,966 -- 22,966
Unamortized earnout payments 23,892 -- 23,892
Unamortized royalty payment 127,372 -- 127,372
Deferred gain on sale of real estate -- (70,990) (70,990)
Unamortized inventory writedown -- (30,266) (30,266)
Deferred compensation 68,718 -- 68,718
General business credit carryforwards 36,643 -- 36,643
Other 40,552 -- 40,552
- ----------------------------------------------------------------------------------------
Total noncurrent 420,000 (6,182,000) (5,762,000)
- ----------------------------------------------------------------------------------------
Total $3,749,000 $(7,272,000) $(3,523,000)
========================================================================================
</TABLE>
The approximate tax effect on each type of temporary difference that gave
rise to the Company's deferred income tax assets and liabilities for 1996 under
SFAS 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Inventory reserve for finished goods and packaging $ 34,846 $ -- $ 34,846
Reserve for sales returns 796,478 -- 796,478
Prepayments to employee benefit plans -- (1,095,639) (1,095,639
Reserve for bad debts 123,318 -- 123,318
Vacation accrual 504,048 -- 504,048
Capitalization of inventory costs 65,658 -- 65,658
Package design costs 187,357 -- 187,357
Other reserves and accruals 250,579 -- 250,579
Other 716 (361) 355
------------------------------------------------------------------------------------------------
Total current $1,963,000 $(1,096,000) $ 867,000
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Assets Liabilities Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent:
Property and equipment $ -- $(5,088,004) $(5,088,004)
Capitalized interest 26,117 -- 26,117
Unamortized earnout payments 37,653 -- 37,653
Unamortized royalty payment 142,500 -- 142,500
Deferred gain on sale of real estate -- (74,027) (74,027)
Unamortized inventory writedown -- (39,341) (39,341)
Deferred compensation 53,200 -- 53,200
General business credit carryforwards 36,643 -- 36,643
Other 887 (2,628) (1,741)
----------------------------------------------------------------------------------------
Total noncurrent 297,000 (5,204,000) (4,907,000)
----------------------------------------------------------------------------------------
Total $2,260,000 $(6,300,000) $(4,040,000)
===========================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred income tax assets will not be realized. At May 25,
1997, and May 26, 1996, no valuation allowance is necessary.
Income taxes paid in fiscal 1997, 1996, and 1995 were approximately
$3,222,800, $2,562,900, and $5,699,400, respectively.
22
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
11. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock shares authorized - $0.01 par value 20,000,000 20,000,000
- ---------------------------------------------------------------------------------------------------------------
Shares issued and outstanding 7,222,600 7,592,400
===============================================================================================================
</TABLE>
At May 25, 1997, the Company had stock options outstanding to certain
employees for 865,195 shares of common stock at prices ranging from $4.75 to
$18.25 per share, exercisable until 1997 - 2003. Unexercised options are
forfeited upon termination of employment.
The number of shares exercised under stock options in fiscal 1997, 1996, and
1995, and the respective average price, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares exercised 75,825 106,400 14,920
Average price per share $ 5.63 $ 7.42 $ 5.79
</TABLE>
In July 1991, the Company's Board of Directors (the "Board") authorized an
Employee Non-Qualified Stock Option Plan ("the Plan"). The number of authorized
shares is determined periodically by the Company's Board. At May 25, 1997,
1,700,000 shares of common stock were authorized for issuance under the Plan.
Options are granted to key employees at prices as determined by the Board and
vest one year from the date of the option's grant. Additionally, terms and
conditions of stock awards granted under the Plan may differ from one grant to
another. A summary of the status of the Plan for 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
- ----------------------------------------------------------------------------------
<S> <C> <C>
Balance, May 30, 1994 999,990 $ 7.42
Exercised (14,920) 5.79
Granted 10,000 11.50
Forfeited (200) 6.03
- --------------------------------------------------------------
Balance, May 28, 1995 994,870 $ 7.48
Exercised (106,400) 7.42
Granted 63,025 18.25
Forfeited (200) 9.13
- --------------------------------------------------------------
Balance, May 26, 1996 951,295 $ 8.20
Exercised (75,825) 5.63
Forfeited (10,275) 6.30
- --------------------------------------------------------------
Balance, May 25, 1997 865,195 8.37
==============================================================
</TABLE>
The following table summarizes information about stock options outstanding
at May 25, 1997:
<TABLE>
<CAPTION>
Weighted Average
Number of Shares Remaining Contractual Weighted Average
Range of Exercise Prices Outstanding Life (Years) Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 4.75 - 9.25 798,070 2.19 $ 7.63
$ 11.50 -18.25 67,125 4.33 $17.24
</TABLE>
The number of exercisable options approximate the numbers of options
outstanding at May 25, 1997.
The Company applies APB No. 25 and related Interpretations in accounting
for the stock option plan. Accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Plan been determined
based on the fair value at the grant dates for
23
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC.
awards under the Plan, the Company's pro forma net income and pro forma primary
earnings per share for the years ended May 25, 1997 and May 26, 1996 would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
May 15, 1997 May 26, 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net Income:
As Reported $ 5,494,390 $ 6,698,739
Pro forma 5,310,603 6,517,673
Net Income per common and common share equivalent:
As Reported $ .71 $ .83
Pro forma .69 .81
</TABLE>
The fair value of options granted under the Company's plan during 1996 and
1995 was estimated using the Black-Scholes option pricing model. The
weighted-average assumptions used are as follows: expected dividend yield rate
of 1.00%, expected volatility of 39.64%, risk free interest rate of 5.43%, and
expected lives of 4.7 years.
This method of accounting has not been applied to options granted prior to
January 1, 1995, and accordingly the resulting pro forma compensation cost
disclosed above may not be representative of that expected in future years.
On June 19, 1997, the Company declared a quarterly cash dividend of $.06
per share payable on August 1, 1997, to stockholders of record on July 15,
1997. This rate represents a 20% increase from the previous quarterly rate of
$.05 per share.
REPORT OF INDEPENDENT AUDITORS
GOODMARK FOODS, INC.
GoodMark Foods, Inc.
Board of Directors:
We have audited the accompanying consolidated balance sheets of GoodMark
Foods, Inc. and its subsidiaries as of May 25, 1997, and May 26, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three fiscal years in the period ended May 25, 1997. 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 GoodMark Foods, Inc. and its
subsidiaries at May 25, 1997 and May 26, 1996, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended May 25, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
July 10, 1997
This Annual Report may include forward-looking statements. These
forward-looking statements involve risk factors and uncertainties that could
cause actual results to differ materially. Information regarding these factors
and other uncertainties is included in the Company's SEC Forms 10-K and 10-Q
filings.
<PAGE> 1
EXHIBIT 21
GoodMark Foods, Inc.
Subsidiaries
Name State of Incorporation
---- ----------------------
(1) Specialty Snacks, Inc. Pennsylvania
(2) Acme Foods Company Maryland
(3) GoodMark Foreign Sales
Corporation, Inc. U.S. Virgin Islands
(4) GFI Holdings, Inc. California
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-9097, No. 33-18616, No. 33-64767 and No. 33-41947 on Forms S-8 and
Registration Statement No. 33-70090 on Form S-3 of GoodMark Foods, Inc. of our
reports dated July 10, 1997, appearing in and incorporated by reference in the
Annual Report on Form 10-K of GoodMark Foods, Inc. for the year ended May 25,
1997.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
August 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
YEAR ENDED MAY 25, 1997 FOR GOODMARK FOODS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-START> MAY-26-1996
<PERIOD-END> MAY-25-1997
<CASH> 1,443
<SECURITIES> 0
<RECEIVABLES> 7,618
<ALLOWANCES> 0
<INVENTORY> 13,081
<CURRENT-ASSETS> 31,829
<PP&E> 50,926
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,705
<CURRENT-LIABILITIES> 13,721
<BONDS> 18,250
0
0
<COMMON> 72
<OTHER-SE> 46,719
<TOTAL-LIABILITY-AND-EQUITY> 84,705
<SALES> 161,034
<TOTAL-REVENUES> 161,034
<CGS> 96,937
<TOTAL-COSTS> 96,937
<OTHER-EXPENSES> 154
<LOSS-PROVISION> 371
<INTEREST-EXPENSE> 1,103
<INCOME-PRETAX> 9,508
<INCOME-TAX> 3,577
<INCOME-CONTINUING> 5,931
<DISCONTINUED> (437)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,494
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
