UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2004
---------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission file number 0-4339
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GOLDEN ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0250005
-------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Golden Flake Drive
Birmingham, Alabama 35205
-------------------------------- --------------------------------
(205) 458-7316
--------------
(Registrant's telephone number, including area code)
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 whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 30, 2004.
Outstanding At
Class September 30, 2004
----- ------------------
Common Stock, Par Value $0.66 2/3 11,852,830
GOLDEN ENTERPRISES, INC.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1 Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
August 31, 2004 (unaudited) and May 31, 2004 3
Condensed Consolidated Statements of Income (unaudited)
Three Months Ended August 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash
Flows (unaudited) - Three Months Ended August 31, 2004
and 2003 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Independent Accountant's Report 11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative
Disclosure About Market Risk 16
Item 4 Controls and Procedures 16
Part II. OTHER INFORMATION
Item 6 Exhibits 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2004 2004
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents $ 1,235,373 $ 565,195
Receivables, net 7,419,631 7,492,151
Note receivable, current 46,682 45,760
Inventories:
Raw material and supplies 1,378,552 1,198,534
Finished goods 2,663,386 2,504,515
------------ ------------
4,041,938 3,703,049
------------ ------------
Prepaid expense 2,296,595 2,292,943
Deferred income taxes 618,803 618,803
------------ ------------
Total current assets 15,659,022 14,717,901
------------ ------------
Property, plant and equipment, net 14,104,892 13,846,342
Long-term note receivable 1,807,965 1,819,986
Other assets 3,258,814 3,238,327
------------ ------------
$ 34,830,693 $ 33,622,556
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding in excess of bank balances $ 1,413,468 $ 1,293,534
Accounts payable 2,749,184 1,816,879
Other accrued expenses 4,240,745 4,334,798
Salary continuation plan 97,880 95,948
Note payable- bank, current 1,506,662 477,980
------------ ------------
Total current liabilities 10,007,939 8,019,139
------------ ------------
Long-Term Liabilities:
Note payable-bank, non-current 0 521,582
Salary continuation plan 1,788,957 1,805,619
------------ ------------
Total long-term liabilities 1,788,957 2,327,201
------------ ------------
Deferred income taxes 760,241 820,432
------------ ------------
Stockholder's Equity:
Common Stock - $.66 - 2/3 par value:
35,000,000 shares authorized
Issued 13,828,793 shares 9,219,195 9,219,195
Additional paid-in capital 6,497,954 6,497,954
Retained earnings 17,181,009 17,363,237
------------ ------------
32,898,158 33,080,386
Less: Cost of common shares in treasury (1,975,963 at
August 31, 2004 and May 31, 2004) (10,624,602) (10,624,602)
------------ ------------
Total stockholders' equity 22,273,556 22,455,784
------------ ------------
Total $ 34,830,693 $ 33,622,556
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
3
GOLDEN ENTERPRISES, INC & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
August 31,
Restated
------------ ------------
2004 2003
------------ ------------
Net sales $ 24,766,426 $ 24,580,778
Cost of sales 13,022,389 13,186,328
------------ ------------
Gross margin 11,744,037 11,394,450
Selling, general and administrative expenses 11,549,736 10,762,608
------------ ------------
Operating income 194,301 631,842
------------ ------------
Other income (expenses):
Investment income 37,519 39,909
Gain on sale of assets 12,952 47,431
Other income 98,669 19,784
Interest expense (44,916) (53,629)
------------ ------------
Total other income (expenses) 104,224 53,495
Income before income taxes 298,525 685,337
Income tax expense 110,350 253,645
------------ ------------
Net income $ 188,175 $ 431,692
============ ============
PER SHARE OF COMMON STOCK:
Net income $ 0.02 $ 0.04
============ ============
Weighted average number of common shares outstanding 11,852,830 11,883,305
============ ============
Cash dividends paid per share of common stock $ 0.0313 $ 0.0313
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
ITEM 1
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
Restated
August 31, August 31,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 188,175 431,692
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 547,387 594,933
Deferred income taxes (60,191) 41,535
Gain on sale of property and equipment (12,952) (47,431)
Changes in operating assets and liabilities:
(Increase) decrease in receivable- net 72,520 (3,222)
(Increase) in inventories (338,889) (63,011)
(Increase) decrease in pre-paid expenses (3,652) 247,276
(Increase) in other assets- long term (20,487) 0
Increase in accounts payable 932,305 1,205,284
(Decrease) in accrued expenses (94,053) (94,540)
(Decrease in salary continuation (14,730) (13,847)
----------- -----------
Net cash provided by operating activities 1,195,433 2,298,669
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (825,128) (119,783)
Proceeds from sale of property, plant and equipment 32,143 66,234
Collection of note receivable 11,099 10,250
----------- -----------
Net cash (used in) investing activities (781,886) (43,299)
----------- -----------
Cash flows from financing activities:
Debt proceeds 1,506,662 0
Debt repayments (999,562) (925,162)
Increase (decrease) in checks outstanding in
excess of bank balances 119,934 (457,414)
Cash dividends paid (370,403) (371,356)
----------- -----------
Net cash provided by (used in) financing
activities 256,631 (1,753,932)
----------- -----------
Net increase in cash and cash equivalents 670,178 501,438
Cash and cash equivalents at beginning of year 565,195 1,278,333
----------- -----------
Cash and cash equivalents at end of quarter $ 1,235,373 $ 1,779,771
=========== ===========
Supplemental information:
Cash paid during the year for:
Income taxes $ 0 $ (248,830)
Interest 44,916 53,629
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Throughout these notes to consolidated financial statements all referenced
amounts for prior periods and prior period comparisons reflect the balances and
amounts on a restated basis.
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 to
Regulation S-X. Accordingly, they do not include all information and
footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments consisting of normal recurring
accruals considered necessary for a fair presentation have been
included. For further information, refer to the consolidated financial
statements and footnotes included in the Golden Enterprises, Inc. and
subsidiary ("the Company") Annual Report on Form 10-K for the year
ended May 31, 2004.
2. The Company's quarterly financial information previously reported on
Form 10-Q/A for the quarterly period ended August 31, 2003 includes
restated consolidated financial statements at August 31, 2003 and for
the three months ended August 31, 2003.
The following table presents the impact of the restatement adjustments on net
earnings for the three months ended August 2003.
Three Months Ended
August 31, 2003
-------------------
2003
-------------------
Net Income as originally reported $ 258,945
Adjustments (pre-tax):
Accrued vacation liability (634)
Self insurance liability 273,407
---------
Total adjustments (pre-tax) 272,773
Total taxes 100,026
---------
Total net adjustments 172,747
---------
Net income as restated $ 431,692
=========
Per share of common stock:
Net income-basic as originally reported $ 0.02
Effect of net adjustments 0.02
---------
Net income- basic as restated $ 0.04
=========
Net income-diluted as originally reported $ 0.02
Effect of net adjustments 0.02
---------
Net income-diluted as restated $ 0.04
=========
6
The following table sets forth the effects of the restatement adjustments
discussed below on the Consolidated Statement of Operations for the 3 months
ended August 31, 2003.
Quarter Ended August 31, 2003
As
Originally
Reported As Restated
--------------- ---------------
Net sales $ 24,580,778 $ 24,580,778
Cost of goods sold 12,882,936 13,186,328
Selling, general and administrative expenses 11,338,773 10,762,608
Other income (expenses) 53,495 53,495
--------------- ---------------
Income before cumulative effect of a
change in accounting policy and income taxes 412,564 685,337
Provision for income taxes 153,619 253,645
--------------- ---------------
Net income $ 258,945 $ 431,692
=============== ===============
Net Income per share- basic $ 0.02 $ 0.04
Average shares outstanding 11,883,305 11,883,305
Net Income per share- diluted $ 0.02 $ 0.04
Average shares outstanding 11,883,305 11,883,305
The following table sets forth the effects of the restatement discussed below on
the Consolidated Balance Sheet at August 31, 2003.
August 31, 2003
As Originally
Reported As Restated
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 1,779,771 $ 1,779,771
Receivables, net 7,942,137 7,849,476
Notes receivable, current 43,104 43,104
Inventories 3,849,148 3,849,148
Prepaid expenses 3,279,208 2,633,845
Deferred income taxes -0- 469,692
--------------- ---------------
Total current assets 16,893,368 16,625,036
--------------- ---------------
Property, Plant and Equipment 14,867,620 14,867,620
Notes receivable, long-term 1,854,646 1,854,646
Other 2,777,972 2,777,972
--------------- ---------------
TOTAL ASSETS $ 36,393,606 $ 36,125,274
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of bank balances $ 699,694 $ 699,694
Accounts payable 2,906,218 2,906,218
Current portion of long-term debt 435,457 435,457
Other accrued expenses 2,403,827 4,194,908
Deferred income taxes 304,698 0
Salary continuation plan 90,379 90,379
--------------- ---------------
Total current liabilities 6,840,273 8,326,656
Long-term liabilities:
Note payable- bank, non- current 1,062,290 1,062,290
Salary continuation plan 1,855,360 1,855,360
Deferred income taxes 743,107 743,107
--------------- ---------------
TOTAL LIABILITIES 10,501,030 11,987,413
STOCKHOLDERS' EQUITY
Common stock - $.66 2/3 par value:
Authorized 35,000,000 shares:
issued 13,828,793 shares 9,219,195 9,219,195
Additional paid-in capital 6,497,954 6,497,954
Retained earnings 20,708,604 18,953,889
Treasury shares - at cost (1,945,488) (10,533,177) (10,533,177)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 25,892,576 24,137,861
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,393,606 $ 36,125,274
=============== ===============
7
The following table presents the impact of the restatement adjustments on
stockholders' equity as of June 1, 2000.
Stockholders' Equity - June 1, 2000, as previously reported $ 24,686,435
Self-insurance liability (1,336,817)
Compensated absences (1,643,177)
Tax effect of restatement adjustments 1,092,764
-------------
Decrease in stockholders equity (1,887,230)
-------------
Stockholders' equity - June 1, 2000, as restated $ 22,799,205
=============
SELF-INSURANCE LIABILITY: The Company determined that there had been an error in
its accounting for self-insurance related liabilities. The adjustments required
included recognition of previously unrecorded liabilities and reductions in
amounts previously recognized as pre-paid amounts to an employee trust which
were incorrect.
COMPENSATED ABSENCES: The Company determined that it had not recorded
liabilities for earned vacation not yet taken as required by GAAP.
OTHER ITEMS: This category includes adjustments previously identified but deemed
to be immaterial. Adjustments in this category change the timing of the items
that were previously recognized.
3. The results of operations for the three months ended August 31, 2004 and
2003 are not necessarily indicative of the results to be expected for the
full year. Certain prior year amounts have been reclassified to conform to
the current year presentation.
4. The principal raw materials used in the manufacture of the Company's snack
food products are potatoes, corn, vegetable oils and seasoning. The
principal supplies used are flexible film, cartons, trays, boxes and bags.
These raw material and supplies are generally available in adequate
quantities in the open market from sources in the United States and are
generally contracted up to a year in advance.
5. In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Costs covered by SFAS No. 146 includes lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing or other exit disposal activity.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. The adoption of this standard did not have a material
impact on the Company's financial position, results of operations or cash
flows.
6. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No.
123." SFAS No. 148. amends SFAS No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No.123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company has adopted the disclosure requirements of
SFAS No. 148 effective May 31, 2003 in its consolidated financial
statements. The Company will continue to account for stock-based
compensation using the methods described in Note 8 below.
8
7. The following table provides a reconciliation of the denominator used in
computing basic earnings per share to the denominator used in computing
diluted earnings per share for the three months ended August 31, 2004 and
2003:
August 31, 2004 August 31, 2003
--------------- ---------------
Weighted average number of common shares used in computing basic
earnings per share 11,852,830 11,883,305
Effect of dilutive stock options 0 0
--------------- ----------
Weighted average number of common shares and dilutive potential common
stock used in computing dilutive earnings per share 11,852,830 11,883,305
=============== ==========
Stock options excluded from the above reconciliation because they are 369,000 369,000
anti- dilutive =============== ==========
8. The Company applies APB Opinion No. 25 in accounting for all of its stock
option plans and, accordingly, no compensation cost has been recognized for
its stock options in the financial statements. The table below presents the
pro-forma net income effect of the options using the Black-Scholes option
pricing model prescribed under SFAS No. 123.
For the Three Months Ended
August 31, 2004 August 31, 2003
----------------------------------
Net income as reported $188,175 $431,692
Earnings per share as reported-basic .02 . 04
Earnings per share as reported-diluted .02 .04
Stock based compensation costs, net of income
tax, that would have been included in net
income if the fair value method had been
applied (2,614) (3,073)
-------------- -------------
Pro-forma net income $185,561 $428,619
============== =============
Pro-forma earnings per share-basic $ .02 $ .04
Pro-for Pro-forma earnings per share-diluted $ .02 $ .04
9. The Company entered into a five year term product purchase commitment
during the year ending May 31, 2001 with a supplier. Under the terms of
the agreement the minimum purchase quantity and the unit purchase price
were fixed resulting in a minimum first year commitment of
approximately $2,171,000. After the first year, the minimum purchase
quantity was fixed and the purchase unit price was negotiable, based on
current market. Subsequently, in September 2002, the product purchase
agreement was amended to fix the purchase unit price and establish
specific annual quantities.
10. The interest rate on the Company's bank debt is reset monthly to
reflect the 30 days LIBOR rate. Consequently, the carrying value of the
bank debt approximates fair value. During the three months ended August
31, 2004 the Company's bank debt was increased by $.51 million compared
to a decrease of $.92 million last year. The interest rate at August
31, 2004 was 3.29% compared to 2.86% at August 31, 2003.
9
11. The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash equivalents and trade
receivables.
The Company maintains deposit relationships with high credit quality
financial institutions. The Company's trade receivables result
primarily from its snack food operations and reflect a broad customer
base, primarily large grocery store chains located in the Southeastern
United States. The Company routinely assesses the financial strength of
its customers. As a consequence, concentrations of credit risk is
limited.
The Company's notes receivable require collateral and buyer investment
and management believes they are well secured.
10
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying interim consolidated balance sheet of Golden
Enterprises, Inc. and subsidiary as of August 31, 2004 and the related interim
consolidated statements of income and cash flows for the three-month period then
ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
statements consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with the standards of the Public Company Accounting Oversight Board, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
May 31, 2004, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended (not presented
herein), and in our report dated July 21, 2004 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of May 31, 2004, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
As discussed in Note 2 to the accompanying consolidated financial statements,
the Company has restated previously issued financial statements.
Birmingham, Alabama
October 8, 2004 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
11
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion is to provide additional information about
Golden Enterprises, Inc., its financial condition and the results of its
operations. Readers should refer to the consolidated financial statements and
other financial data presented throughout this report to fully understand the
following discussion and analysis.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth in this Item 2 reflects the August 31, 2003 10-Q/A
Amendment No. 1 "Restatement."
RESTATEMENT
The Company restated its consolidated balance sheets as of August 31, 2003
and its consolidated statements of operations and cash flows for the three
months ended August 31, 2003. The restatement affects periods prior to 2002. The
impact of the restatement on such prior periods was reflected as an adjustment
to retained earnings June 1, 2001. The restatement was reported in the Quarterly
Report on Form 10-Q/A for its quarterly period ended August 31, 2003.
The restatement adjustment for the three months ended August 31, 2003
resulted in an increase in net income of approximately $.17 million. Basic and
Diluted net income per share was increase $.02 per share for the three month
ended August 31, 2003. For a discussion of individual adjustment items, see Note
2 to the Condensed Consolidated Financial Statements.
OVERVIEW
The Company manufactures and distributes a full line of snack items, such as
potato chips, tortilla chips, corn chips, fried pork skins, baked and fried
cheese curls, onion rings and buttered popcorn. The products are all packaged in
flexible bags or other suitable wrapping material. The Company also sells a line
of cakes and cookie items, canned dips, pretzels, peanut butter cracker, cheese
cracker, dried meat products and nuts packaged by other manufacturers using the
Golden Flake label.
No single product or product line accounts for more than 50% of the
Company's sales, which affords some protection against loss of volume due to a
crop failure of major agricultural raw materials. Raw materials used in
manufacturing and processing the Company's snack food products are purchased on
the open market and under contract through brokers and directly from growers. A
large part of the raw materials used by the Company consists of farm commodities
which are subject to precipitous changes in supply and price. Weather varies
from season to season and directly affects both the quality and supply
available. The Company has no control of the agricultural aspects and its
profits are affected accordingly.
The Company sells its products through its own sales organization and
independent distributors to commercial establishments that sell food products
primarily in the Southeastern United States. The products are distributed by
approximately 436 route representatives who are supplied with selling inventory
by the Company's trucking fleet. All of the route representatives are employees
of the Company and use the Company's direct-store delivery system.
12
BASIS OF PRESENTATION
The Company's discussion and analysis of its financial condition and results
of operations are based upon the accompanying unaudited condensed consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 to
Regulation S-X. Accordingly, they do not include all information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments consisting of normal recurring accruals considered
necessary for a fair presentation have been included.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company unaudited condensed consolidated
financial statements, the preparation of which in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that in certain circumstances
affect amounts reported in the consolidated financial statements. In preparing
these financial statements, management has made its best estimate and judgments
of certain amounts included in the financial statements, giving due
considerations to materiality. The Company does not believe there is a great
likelihood that materially different amounts would be reported under different
conditions or using different assumptions related to the accounting policies
described below. However, application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates.
The Company believes the following to be critical accounting policies. That
is, they are both important to the portrayal of the company's financial
condition and results and they require management to make judgments and
estimates about matters that are inherently uncertain.
Revenue Recognition
The Company recognizes sales and related costs upon delivery or shipment of
products to its customers. Sales are reduced by returns and allowances to
customers.
Accounts Receivable
The Company records accounts receivable at the time revenue is recognized.
Amounts for bad debt expense are recorded in selling, general and administrative
expenses on the Consolidated Statements of Income. The amount of the allowance
for doubtful accounts is based on management's estimate of the accounts
receivable amount that is uncollectible. Management records a general reserve
based on analysis of historical data. In addition, management records specific
reserves for receivable balances that are considered high-risk due to known
facts regarding the customer. The allowance for bad debts is reviewed quarterly,
and it is determined whether the amount should be changed. Failure of a major
customer to pay the Company amounts owed could have a material impact on the
financial statements of the Company. At August 31, 2004 and May 31, 2004 the
Company had accounts receivables in the amount of $7.4 million and $7.5 million,
net of an allowance for doubtful accounts of $0.2 million and $0.2 million,
respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on
the first-in, first out method.
13
Accrued Expenses
Management estimates certain material expenses in an effort to record those
expenses in the period incurred. The most material accrued estimates relate to a
salary continuation plan for certain key executives of the Company, and to
insurance-related expenses, including self-insurance. Workers' compensation and
general liability insurance accruals are recorded based on insurance claims
processed as well as historical claims experience for claims incurred, but not
yet reported. These estimates are based on historical loss development factors.
Employee medical insurance accruals are recorded based on medical claims
processed as well as historical medical claims experienced for claims incurred
but not yet reported. Differences in estimates and assumption could result in an
accrual requirement materially different from the calculated accrual.
OTHER MATTERS
Transactions with related parties, reported in Note 14 of the Notes to
Consolidated Financial Statements in the Annual Report to Stockholders for
fiscal year ended May 31, 2004 are conducted on an arm's-length basis in the
ordinary course of business.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital was $6.7 million at June 1, 2004 and $5.7 million at the end
of the first quarter. Net cash provided by operating activities amounted to
$1.20 million for the first quarter this year compared to $2.30 million for last
year's first quarter.
Additions to property, plant and equipment, net of disposals, were $0.81
million this year and $0.10 million last year. Cash dividends of $0.37 million
were paid during this year's first quarter compared to $0.37 million last year.
No cash was used to purchase treasury stock this year and last year, and no cash
was used to increase investment securities this year and the Company's current
ratio was 1.56 to 1.00 at August 31, 2004.
The following table summarizes the significant contractual obligations of
the Company as of August 31, 2004:
CONTRACTUAL OBLIGATIONS TOTAL 2005 2006-2007 2008-2009 THEREAFTER
----------------------- -------------- -------------- -------------- ------------- -------------
Long-Term Debt -0- -0- -0- -0- -0-
Purchase Commitment 2,096,000 1,491,000 605,000 -0- -0-
Salary Continuation Plan 1,901,567 95,948 216,448 253,870 1,335,301
-------------- -------------- -------------- ------------- -------------
Total Contractual Obligations $ 3,997,567 $ 1,586,948 $ 821,448 $ 253,870 $ 1,335,301
OFF-BALANCE SHEET ARRANGEMENT
The Company entered into a five-year term product purchase commitment during
the year ending May 31, 2001 with a supplier. Under the terms of the agreement
the minimum purchase quantity and the unit purchase price were fixed resulting
in a minimum first year commitment of approximately $2,171,000. After the first
year, the minimum purchase quantity was fixed and the purchase unit price was
negotiable, based on current market. Subsequently, in September 2002, the
product purchase agreement was amended to fix the purchase unit price and
establish specific annual quantities.
14
Other Commitments
The Company had letters of credit in the amount of $1,785,987 outstanding at
August 31, 2004 to support the Company's commercial self-insurance program.
The Company signed a line of credit note with a financial institution with a
limit of $2,262,500 on July 6, 2004. The interest rate will be a monthly
variable rate based on the LIBOR rate plus 1.75%. The purpose of the line of
credit is to pay off the current line of credit and to purchase new vehicles.
The line of credit note expires on November 30, 2004, at which time the Company
plans to convert the line of credit into a note with a fixed monthly payment and
maturity date which will be collateralized by the above equipment purchased.
Available cash, cash from operations and available credit under the line of
credit are expected to be sufficient to meet anticipated cash expenditures and
normal operating requirements for the foreseeable future.
OPERATING RESULTS
For the three months ended August 31, 2004, net sales increased 0.8% from
the comparable period in fiscal 2004. This year's first quarter cost of sales
was 52.6% of net sales compared to 53.6% last year, and selling, general and
administrative expenses were 46.6% of net sales this year and 43.8% last year.
The increase in selling, general and administrative expenses, was primarily in
selling and delivery expenses and employee benefit costs.
The Company's Gain on sales of assets for the first quarter in the amount of
$12,952 was from the sale of used transportation equipment for cash.
For last year's first quarter the Gain on sale of assets was $47,431 from
the sale of used transportation equipment for cash.
The Company's investment income decreased 6.0% from last year.
The Company's effective tax rate for the first quarter was 37.0% compared to
37.0% for last year's first quarter.
MARKET RISK
The principal markets risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on its investment securities, bank loans, and commodity prices, affecting
the cost of its raw materials.
The Company's investment securities consist of short-term marketable
securities. Presently these are variable rate money market mutual funds.
Assuming August 31, 2004 variable rate investment levels and bank loan balances,
a one-point change in interest rates would impact interest income by $8,274 on
an annual basis and interest expense by $15,067.
The Company is subject to market risk with respect to commodities because
its ability to recover increased costs through higher pricing may be limited by
the competitive environment in which it operates. The Company purchases its raw
materials on the open market, under contract through brokers and directly from
growers. Future contracts have been used occasionally to hedge immaterial
amounts of commodity purchases but none are presently being used.
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INFLATION
Certain costs and expenses of the Company are affected by inflation, and the
Company's prices for its products over the past several years have remained
relatively flat. The Company will contend with the effect of further inflation
through efficient purchasing, improved manufacturing methods, pricing, and by
monitoring and controlling expenses.
ENVIRONMENTAL MATTERS
There have been no material effects of compliance with governmental
provisions regulating discharge of materials into the environment.
FORWARD-LOOKING STATEMENTS
This discussion contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those forward-looking statements. Factors that may
cause actual results to differ materially include price competition, industry
consolidation, raw material costs and effectiveness of sales and marketing
activities, as described in the Company's filings with the Securities and
Exchange Commission.
ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Included in Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations under the heading- Market Risk- beginning on
page 15.
ITEM 4
CONTROLS AND PROCEDURES
The Company performed an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this quarterly report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that as of the end of the period covered by this quarterly report, the Company's
disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports that the Company files or submits under the
Security and Exchange Act of 1934 is recorded, processed summarized and reported
within the specified time periods. There has not been any change in the
Company's internal controls over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
During the performance of the audit for the fiscal year ended May 31, 2004,
the Company's independent auditors, Dudley, Hopton-Jones, Sims & Freeman, PLLP
(the "Auditor"), identified and communicated to the Company material weaknesses
relating to the Company's accounting for its vacation pay (which was not in
conformity with generally accepted accounting principles ("GAAP")) and self
insured obligations. During the quarterly period ended August 31, 2003, the
Company did not accrue for earned vacation pay and its liabilities were
understated for certain incurred as well as incurred but not reported
self-insured casualty claims and health costs. Based upon the forgoing, the
Company restated its audited financial statements for fiscal year 2003 and for
the first three quarters of fiscal year 2004 to properly account for accruals
for its vacation pay and self-insured health and casualty obligations. The
Company believed, during the years being restated, that it was correctly
following proper accounting practices.
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The Company has accepted the recommendations of its Auditor to reduce the
recurrence of material weaknesses and is implementing policies and procedures to
strengthen the Company's internal controls, including, among other things, the
following: (1) developing written policies and procedures to be followed with
respect to accounting for vacation pay and self-insured obligations; (2)
formally designating management level personnel responsible for accounting for
vacation pay and self-insured obligations; (3) expanding internal audit
activities to include a quarterly examination of vacation pay and self-insured
obligations; (4) implementing a fully developed actuarially based method of
measuring liabilities related to self-insured obligations; and (5) implementing
quarterly communications among management, internal auditor, and the Audit
Committee prior to filing Forms 10-Q.
Other than as described above, there has not been any change in the
Company's internal controls over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 6. EXHIBITS
Exhibit 31.1 Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
GOLDEN ENTERPRISES, INC.
--------------------------------
(Registrant)
Dated: October 8, 2004 /s/ MARK W. MCCUTCHEON
----------------------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: October 8, 2004 /s/ PATTY TOWNSEND
-----------------------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
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