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), PENROSE(R), and SMOKEY MOUNTAIN(R) brand names. The first three brands are leading brands in their respective niches of the meat snack industry.
The Company makes extruded grain snacks under the ANDY CAPP'S\ 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.
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), Summer Sausage, 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.
SMOKEY MOUNTAIN premium quality chopped and formed jerky was introduced in fiscal year 1991. It is packaged in both a pouch and a stick, and is offered in Hickory Smoked, Sweet Barbecue, and Hot & Spicy 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.
JESSE JONES packaged meats include premium quality hot dogs, bologna, sausage, and luncheon meats. These products have been marketed regionally for over sixty-five years and are well established in their market area of North Carolina, South Carolina, and Virginia. Other meat products sold under the JESSE JONES brand name include sliced cooked ham, country ham, bacon, corn dogs, and chili.
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.
JESSE JONES packaged meats are sold directly or delivered by route trucks to retailers by a combination of Company sales personnel and independent distributors.
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 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 snack 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. Packaged meats sales are traditionally higher in the warm weather months. There is no seasonality in the extruded snacks.
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.
CUSTOMER CONCENTRATION. In fiscal year 1996 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 over 40% of the meat snack portion 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. The Company's competitors in the packaged meats business include many regional and national manufacturers. The Company believes it has a competitive advantage in its regional market because of strong brand name recognition, superior quality, and direct sales and distribution system.
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 1,125 persons, including 316 salaried employees and 809 hourly employees of whom 625 are covered by collective bargaining agreements. The Company believes that its relations with its employees are good.
FINANCIAL INFORMATION ABOUT EXPORT SALES. Financial information relating to export sales is as follows:
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.
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.
ITEM 2.

ITEM 2. PROPERTIES
All the Company's properties are considered suitable for their present use. All properties owned by the Company are free of major encumbrances. In July 1995, construction was completed on a project that increased capacity at the Garner, North Carolina plant to accommodate increased unit volume and to achieve gains in efficiency and productivity. This expansion project added 128,000 square feet to the Garner plant.
ITEM 3.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.

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 1996 Annual Report to Shareholders included as exhibit 13.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 7, "Selected Financial Data" of the Company's 1996 Annual Report to Shareholders included as exhibit 13.
ITEM 7.

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 Results of Operations and Financial Condition", of the Company's 1996 Annual Report to Shareholders included as exhibit 13.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, supplementary financial information, and independent auditors report dated July 9, 1996 are incorporated by reference from pages 6 - 19 of the Company's 1996 Annual Report to Shareholders included as exhibit 13.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None PART III
ITEM 10.

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 19, 1996. Information on executive officers is included under the caption "Executive Officers of the Registrant" on pages 7 and 8 of this report.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from pages 7 through 11, "Executive Compensation", in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held September 19, 1996.
ITEM 12.

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 19, 1996.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.

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 26, 1996.
(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 10.4.
(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.
(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.
(10.4) Restricted Stock Award Plan.
(13) Pages 6 - 19 of Annual Report to Shareholders for year ended May 26, 1996.
(21) Subsidiaries of the Company.
(23) Consent of independent auditors.
(27) Financial Data schedule (for SEC use only). REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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 26, 1996 and May 28, 1995, and for each of the three fiscal years in the period ended May 26, 1996, and have issued our report thereon dated July 9, 1996; such consolidated financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also comprehended the supplemental schedules of GoodMark Foods, Inc. and its subsidiaries, listed in Item 14. These supplemental schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such supplemental schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina July 9, 1996
GoodMark Foods, Inc. Schedule II - Valuation and Qualifying Accounts
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 23rd day of August, 1996.
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.
EXHIBIT INDEX
*Incorporated by reference