<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended Commission File Number
NOVEMBER 23, 1997 0-13944
GOODMARK FOODS, INC.(R)
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 56-1330788
(State of incorporation) (I.R.S. Employer Identification No.)
6131 FALLS OF NEUSE ROAD, RALEIGH, NORTH CAROLINA 27609
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 790-9940
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No
Number of shares outstanding of Registrant's Common Stock,
$.01 par value, as of December 31, 1997 6,983,610
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GOODMARK FOODS, INC.(R)
Form 10-Q Quarterly Report
Index
Page
PART I. Financial Information
Item 1. Consolidated financial statements
Consolidated balance sheets 3
Consolidated statements of income 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6
Item 2. Management's discussion and analysis of financial
condition and results of operations 8
Part II. Other Information
Item 4. Submission of matters to a vote of security holders 9
Item 5. Other information 9
Item 6. Exhibits and reports on Form 8-K 10
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GOODMARK FOODS, INC
UNAUDITED CONSOLIDATED BALANCE SHEETS
NOVEMBER 23, 1997 AND MAY 25, 1997
($000's)
<TABLE>
<CAPTION>
November 23, May 25,
1997 1997
------------ --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 500 $ 1,443
Accounts and notes receivable 6,574 7,618
Inventories 14,400 13,081
Prepaid expenses 5,358 5,475
Net assets of discontinued operations 209 1,227
Other assets 2,239 2,984
------- -------
Total current assets 29,280 31,828
Property and equipment, net 49,787 50,926
Other assets 1,718 1,951
------- -------
Total $80,785 $84,705
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,158 $ 5,762
Accrued expenses and other liabilities 9,153 7,959
------- -------
Total current liabilities 13,311 13,721
Long-term debt and other long-term obligations 15,692 18,431
Deferred income taxes 5,762 5,762
Commitments and contingencies
Shareholders' equity 46,020 46,791
------- -------
Total $80,785 $84,705
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE 13 AND 26 WEEK PERIODS ENDED
NOVEMBER 23, 1997 AND NOVEMBER 24, 1996
($000's)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
---------------------------- -----------------------------
Nov. 23, 1997 Nov. 24, 1996 Nov. 23, 1997 Nov. 24, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $42,453 $ 42,783 $84,749 $83,705
Cost of goods sold 25,468 25,698 50,617 49,765
------- -------- ------- -------
Gross profit 16,985 17,085 34,132 33,940
Selling, general, and
administrative expenses 13,017 14,000 26,602 27,409
------- -------- ------- -------
Income from operations 3,968 3,085 7,530 6,531
Interest and other net expense (income) 121 (65) 332 152
------- -------- ------- -------
Income before income taxes 3,847 3,150 7,198 6,379
Income taxes 1,447 1,186 2,707 2,365
------- -------- ------- -------
Income from continuing operations 2,400 1,964 4,491 4,014
Income from discontinued operations,
net of tax -- -- -- 15
------- -------- ------- -------
Net income $ 2,400 $ 1,964 $ 4,491 $ 4,029
======= ======== ======= =======
Earnings per common share-primary
and fully diluted $ 0.33 $ 0.25 $ 0.61 $ 0.51
======= ======== ======= =======
Average shares outstanding-primary 7,235 7,886 7,360 7,878
======= ======== ======= =======
Average shares outstanding-fully diluted 7,238 7,890 7,364 7,897
======= ======== ======= =======
Dividends per share $ 0.06 $ 0.05 $ 0.12 $ 0.10
======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 26 WEEK PERIODS ENDED
NOVEMBER 23, 1997 AND NOVEMBER 24, 1996
($000's)
<TABLE>
<CAPTION>
26 Weeks Ended
------------------------------------
November 23, 1997 November 24, 1996
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,491 $ 4,029
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,807 2,938
Amortization of deferred expenses 51 50
Loss on disposal of fixed assets 12 25
Changes in assets and liabilities:
Net (increase) decrease in assets 581 (5,612)
Net decrease in liabilities (196) (724)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,746 706
------- --------
Cash flows from (used in) investing activities:
Proceeds from disposal of fixed assets 10 1,470
Capital expenditures (1,534) (1,818)
Decrease in other assets 10 11
Net cash provided by discontinued operations 1,051 --
------- --------
NET CASH USED IN INVESTING ACTIVITIES (463) (337)
------- --------
Cash flows from (used in) financing activities:
Proceeds from issuance of long-term debt 5,800 15,650
Principal payments on long-term debt and
other long-term obligations (8,550) (14,250)
Common stock issued under dividend reinvestment plan 32 36
Repurchase of common stock (5,012) (2,200)
Stock options exercised 356 338
Cash dividends paid (852) (761)
------- --------
NET CASH USED IN FINANCING ACTIVITIES (8,226) (1,187)
------- --------
Net decrease in cash and cash equivalents (943) (818)
Cash and cash equivalents at beginning of period 1,443 858
------- --------
Cash and cash equivalents at end of period $ 500 $ 40
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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PART I, ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GOODMARK FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's)
1) The Notes to Consolidated Financial Statements included in Registrant's
annual report for the fiscal year ended May 25, 1997 as incorporated in
Form 10-K filed with the Securities and Exchange Commission on August
22, 1997 should be read in conjunction with these quarterly financial
statements.
2) The financial information herein is unaudited. The information reflects
all normal recurring adjustments which are necessary in management's
opinion for a fair statement of results for the interim periods
presented. Interim results are not necessarily indicative of results
for the fiscal year. Certain reclassifications have been made to prior
year's financial statements to conform to the classifications used in
fiscal 1998.
In preparing financial statements that conform with generally accepted
accounting principles, management must make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial
statements and amounts of revenues and expenses reflected during the
reporting period. Actual results could differ from those estimates.
3) Inventories are stated at the lower of last-in, first-out (LIFO) cost
or market. Inventories consisted of the following in thousands of
dollars:
<TABLE>
<CAPTION>
11/23/97 5/25/97
-------- --------
<S> <C> <C>
Raw materials $ 5,651 $ 5,131
Work-in-process 880 768
Finished goods 8,978 7,898
Less LIFO reserve (1,109) (716)
-------- --------
Inventories, net $ 14,400 $ 13,081
======== ========
</TABLE>
4) Interest and other net expense (income) consisted of the following in
thousands of dollars:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
11/23/97 11/24/96 11/23/97 11/24/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $ 245 $ 233 $ 499 $ 479
Interest income (43) (18) (72) (34)
Other expense (income) (81) (280) (95) (293)
----- ----- ----- -----
Other expense (income), net $ 121 ($ 65) $ 332 $ 152
===== ===== ===== =====
</TABLE>
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5) The computation of earnings per common and common equivalent share is
based upon the weighted average number of common shares outstanding
during the period plus (in periods in which they have a dilutive
effect) the effect of common shares contingently issuable from stock
options using the treasury stock method. Weighted average shares
outstanding under the primary earnings per share calculation for the
second quarter and first half of fiscal 1998 include 246,502 and
253,561, respectively, of equivalent shares from options. Weighted
average shares outstanding under the fully diluted earnings per share
calculation for the second quarter and first half of fiscal 1998
include 249,477 and 256,926, respectively, of equivalent shares from
options.
Weighted average shares outstanding under the primary earnings per
share calculation for the second quarter and first half of fiscal 1997
include 287,204 and 279,669, respectively, of equivalent shares from
options. Weighted average shares outstanding under the fully diluted
earnings per share calculation for the second quarter and first half of
fiscal 1997 include 292,029 and 298,505, respectively, of equivalent
shares from options.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
($000's)
Material Changes in Financial Condition from Fiscal Year End
The Company maintains a strong position of liquidity and has sufficient
financial resources to meet its ongoing operating needs, cash dividend payments,
capital expenditures, and stock repurchases through cash flow generated from
current operations and existing bank lines of credit. There were no material
changes in financial condition during the second quarter. The current ratio at
November 23, 1997 was 2.2 compared to 2.3 at May 25, 1997. Long term debt and
obligations were 25% of total capitalization at November 23, 1997 compared to
28% at fiscal year end. In September, the Company repurchased 300,000 shares of
its common stock at an average price of $16.71 per share.
The sale of the Jesse Jones packaged meats business was completed on October 6,
1997, and the transition production will conclude in the third quarter.
Material Changes in Results of Operations for the Second Fiscal Quarter and Six
Months
Due to the fiscal 1997 decision to sell the Jesse Jones packaged meats business,
the Company has reclassified all sales and earnings of the Jesse Jones packaged
meats business into discontinued operations for all fiscal periods for
comparison purposes. See Note 2 of the Notes to Consolidated Financial
Statements in the 1997 Annual Report to Shareholders. Net sales from continuing
operations, which are snack items only, for the second quarter of fiscal 1998
were $42,453 compared with $42,783 in the second quarter last year. For the
first six months, net sales from continuing operations increased 1% to $84,749
from $83,705 in the first half of last year. As expected, net sales comparisons
with the prior year were difficult due to exceptionally heavy promotional
activity and customers buying in anticipation of the third quarter price advance
last year.
Second quarter gross profit margin rate was 40% for both this year and last
year. For the first six months the gross profit margin rate was 40% versus 41%
last year.
Selling, general, and administrative expenses were 31% as a percentage of sales
for the second quarter and first six months of this year compared to 33% for
last year's second quarter and first six months.
Net income for the second quarter was $2,400 or $.33 per share, up from $1,964,
or $.25 per share for last year's second quarter. Net income for the first six
months was up to $4,491 or $.61 per share, from $4,029 or $.51 per share in the
year-earlier period. The share repurchases favorably impacted per share
comparisons to last year's second quarter and first six months by $.03 and $.04,
respectively.
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<PAGE> 9
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 25, 1997, the Company held its Annual Meeting of Shareholders at
which the appointment of auditors was ratified and the Board of Directors was
elected. Information regarding these matters is reported in the Company's 10-Q
for the period ended August 24, 1997 as filed on October 3, 1997 with the SEC.
ITEM 5. OTHER INFORMATION
On September 25, 1997, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's common stock from time to time in open market
transactions through the end of fiscal 1999. The previous repurchase
authorization for 500,000 shares, which was announced in March 1997, was
completed in September 1997.
On December 19, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.06 per share. The dividend is payable February 2, 1998, to
shareholders of record as of the close of business on January 15, 1998.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company made by, or on behalf of, the Company. The Company wishes to
advise readers that the following important factors, among others, in some cases
have affected and in the future could affect, the Company's actual results and
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company:
a. Specific risks and uncertainties to the Company's financial performance
include all the macro and micro economic factors that affect any
business operating in competitive markets in a competitive world
economy.*
b. Risk factors most relevant to the Company's short term and longer term
financial performance are attainment of its assumptions concerning unit
volumes, pricing, raw material costs, operating costs, and operating
efficiencies.
c. The attainment of these assumptions is determined by the successful
execution of management's plans as well as external factors. External
factors include general economic conditions, snack market growth, meat
snack category growth, competitors actions, and customer acceptance of
the Company's products and promotions.
* The reader is urged to refer to the Company's FORM 10K, PART I, ITEM
1., "Narrative Description of the Business" to better understand the
unique characteristics of the Company's business.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: (27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended November 23, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOODMARK FOODS, INC.
(Registrant)
Date: January 7, 1998 /s/ Ron E. Doggett
--------------------------------------------
Ron E. Doggett
Chairman and Chief Executive Officer
Date: January 7, 1998 /s/ Paul L. Brunswick
--------------------------------------------
Paul L. Brunswick
Vice President and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER ENDED NOVEMBER 23, 1997 FOR GOODMARK FOODS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-26-1997
<PERIOD-END> NOV-23-1997
<CASH> 500
<SECURITIES> 0
<RECEIVABLES> 6,574
<ALLOWANCES> 0
<INVENTORY> 14,400
<CURRENT-ASSETS> 29,280
<PP&E> 49,787
<DEPRECIATION> 0
<TOTAL-ASSETS> 80,785
<CURRENT-LIABILITIES> 13,311
<BONDS> 15,692
0
0
<COMMON> 70
<OTHER-SE> 45,950
<TOTAL-LIABILITY-AND-EQUITY> 80,785
<SALES> 84,749
<TOTAL-REVENUES> 84,749
<CGS> 50,617
<TOTAL-COSTS> 50,617
<OTHER-EXPENSES> (81)
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 245
<INCOME-PRETAX> 7,198
<INCOME-TAX> 2,707
<INCOME-CONTINUING> 4,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,491
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
