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 November 30, 2004
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4339
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GOLDEN ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 63-0250005
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Golden Flake Drive
Birmingham, Alabama 35205
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(205) 458-7316
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(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 the number of shares outstanding of each of the issuer's classes
of common stock, as of December 31, 2004.
Outstanding at
Class December 31, 2004
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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 3
November 30, 2004 (unaudited) and May 31, 2004
Condensed Consolidated Statements of Operations (unaudited)
Three Months and Six Months ended November 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash
Flows (unaudited)- Six Months ended November 30, 2004 5
and 2003
Notes to Condensed Consolidated Financial Statements (unaudited)
6
Report of Independent Registered Public Accounting Firm 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3 Quantitative and Qualitative
Disclosure About Market Risk 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Controls and Procedures 18
Part II. OTHER INFORMATION
Item 6 Exhibits and Report on Form 8-K 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, May 31,
2004 2004
----------------- ---------------
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents $ 772,103 $ 565,195
Receivables, net 7,391,967 7,492,151
Note Receivable, current 47,621 45,760
Inventories:
Raw material and supplies 1,702,408 1,198,534
Finished goods 2,632,928 2,504,515
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4,335,336 3,703,049
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Prepaid expense 2,805,134 2,292,943
Deferred income taxes 618,803 618,803
------------- ------------
Total current assets 15,970,964 14,717,901
Property, plant and equipment, net 14,463,432 13,846,342
Long-term Note Receivable 1,795,701 1,819,986
Other assets 3,276,658 3,238,327
------------- ------------
$ 35,506,755 $ 33,622,556
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding in excess of bank balances $ 964,116 $ 1,293,534
Accounts payable 3,382,339 1,816,879
Other accrued expenses 4,303,590 4,334,798
Salary continuation plan 99,851 95,948
Note payable- bank, current 2,326,064 477,980
------------- ------------
Total current liabilities 11,075,960 8,019,139
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Long-Term Liabilities:
Note payable-bank, non-current 0 521,582
Salary Continuation Plan 1,771,787 1,805,619
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Total long-term liabilities 1,771,787 2,327,201
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Deferred income taxes 763,068 820,432
------------- ------------
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 16,803,393 17,363,237
------------- ------------
32,520,542 33,080,386
Less: Cost of common shares in treasury (1,975,963 at
November 30, 2004 and May 31, 2004) (10,624,602) (10,624,602)
------------- ------------
Total stockholders' equity 21,895,940 22,455,784
------------- ------------
Total $ 35,506,755 $ 33,622,556
============= ============
See Accompanying Notes to Condensed Consolidated Financial Statements
3
ITEM1- GOLDEN ENTERPRISES, INC. AND SUBSIDARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
NOVEMBER 30, NOVEMBER 30,
Restated Restated
2004 2003 2004 2003
--------------------------------------------------------------------------
Net Sales $ 24,851,760 $ 23,296,981 $ 49,618,186 $ 47,877,759
Cost of sales 13,278,674 12,218,622 26,301,063 25,043,986
-------------- --------------- -------------- --------------
Gross margin 11,573,086 11,078,359 23,317,123 22,833,773
Selling, general and administrative expenses 11,617,267 11,431,717 23,167,003 22,555,289
-------------- --------------- -------------- --------------
Operating (loss) income (44,181) (353,358) 150,120 278,484
-------------- --------------- -------------- --------------
Other income (expenses):
Investment income 38,787 39,565 76,306 79,474
Gain on sale of assets 26,216 17,454 39,168 64,885
Other income 8,429 21,148 107,098 40,932
Interest expense (48,591) (48,320) (93,507) (101,949)
-------------- --------------- -------------- --------------
Total other income (expenses) 24,841 29,847 129,065 83,342
-------------- --------------- -------------- --------------
(Loss) income before income taxes (19,340) (323,511) 279,185 361,826
Income tax expense (12,127) (127,490) 98,223 126,155
-------------- --------------- -------------- --------------
Net (loss) income $ (7,213) $ (196,021) $ 180,962 $ 235,671
============== =============== ============== ==============
PER SHARE OF COMMON STOCK:
Net (loss) income $ (0.00) $ (0.02) $ 0.02 $ 0.02
============== =============== ============== ==============
Weighted average number of common stock
shares outstanding 11,852,830 11,883,305 11,852,830 11,883,305
============== =============== ============== ==============
Cash dividends paid per share of common
Stock $ 0.0313 $ 0.0313 $ 0.0626 $ 0.0626
============== =============== ============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
4
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
Restated
November 30, November 30,
2004 2003
---------------------------------------
Cash flows from operating activities:
Net income $ 180,962 $ 235,671
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,095,314 1,184,264
Deferred income taxes (57,364) 83,193
Gain on sale of property and equipment (39,169) (64,885)
Changes in operating assets and liabilities:
Decrease in receivable- net 100,184 419,802
(Increase) in inventories (632,287) (627,837)
(Increase) in pre-paid expenses (512,191) (993,531)
(Increase) Decrease in other assets- long term (38,331) 150
Increase in accounts payable 1,565,460 993,224
(Decrease) in accrued expenses (31,208) (15,285)
(Decrease) in salary continuation (29,929) (28,127)
----------- ----------
Net cash provided by operating activities 1,601,441 1,186,639
Cash flows from investing activities:
Purchase of property, plant and equipment (1,740,630) (434,515)
Proceeds from sale of property, plant and equipment 67,395 132,804
Collection of note receivable 22,424 20,706
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Net cash (used in)
Investing activities (1,650,811) (281,005)
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Cash flows from financing activities:
Debt Proceeds 7,736,272 0
Debt repayments 6,409,770 (1,140,251)
(Decrease) Increase in checks outstanding in
excess of bank balances (329,418) 126,828
Cash dividends paid (740,806) (742,711)
----------- ----------
Net cash provided by (used in) financing
activities 256,278 (1,756,134)
Net increase (decrease) in cash and cash equivalents 206,908 (850,500)
Cash and cash equivalents at beginning of year 565,195 1,278,333
----------- ----------
Cash and cash equivalents at end of quarter $ 772,103 $ 427,833
=========== ==========
Supplemental information:
Cash paid during the year for:
Income taxes $ 0 $ 71,170
Interest 93,507 101,949
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 November 30, 2003 includes restated
consolidated financial statements at November 30, 2003 and for the six
months ended November 30, 2003.
The following table presents the impact of the restatement adjustments on
net earnings for the three and six months ended November 30, 2003.
Three Months Ended Six Months Ended
November 30, November 30,
2003 2003
-----------------------------------------------
Net (loss) as originally reported $ (319,115) $ (60,170)
Adjustments (pre-tax):
Accrued Vacation Liability (634) (1,268)
Self Insurance Liability 195,004 468,410
Other
-0- -0-
----------- ---------
Total adjustments (pre-tax) 194,370 467,142
Total taxes 71,275 171,301
Total net adjustments 123,095 295,841
Net (loss) income as restated $ (196,021) $ 235,671
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Per share of Common Stock:
Net loss - Basic as originally reported $ (0.03) $ (0.01)
Effect of net adjustments 0.01 0.03
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Net (loss) income - Basic as restated $ (0.02) $ 0.02
=========== =========
Net loss-Diluted as originally reported $ (0.03) $ (0.01)
Effect of net adjustments 0.01 0.03
Net (loss) income-Diluted as restated $ (0.02) $ 0.02
=========== =========
6
The following table sets forth the effects of the restatement adjustments
discussed below on the Consolidated Statement of Operations for the three and
six months ended November 30, 2003, respectively.
Quarter Ended November 30, 2003
As Originally
Reported As Restated
---------------------------------
Net Sales $ 23,296,981 $ 23,296,981
Cost of Goods Sold 12,232,132 12,218,622
Selling, General and Administrative Expenses 11,612,577 11,431,717
Other income (expenses) 29,847 29,847
------------- --------------
(Loss) before cumulative effect of a
change in accounting policy and income taxes (517,881) (323,511)
Provision for income taxes (198,766) (127,490)
Net (Loss) $ (319,115) $ (196,021)
============= ==============
Net Loss per share- Basic $ (0.03) $ (0.02)
Average Shares Outstanding 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.03) $ (0.02)
Average Shares Outstanding 11,883,305 11,883,305
Six Months
Ended November 30, 2003
As Originally
Reported As Restated
---------------------------------
Net Sales $ 47,877,759 $ 47,877,759
Cost of Goods Sold 25,115,068 25,043,986
Selling, General and Administrative Expenses 22,951,350 22,555,289
Other income (expenses) 83,342 83,342
-------------- -------------
(Loss) income before cumulative effect of a
change in accounting policy and income taxes (105,317) 361,826
Provision for income taxes (45,147) 126,155
-------------- -------------
Net (Loss) income $ (60,170) $ 235,671
============== =============
Net (Loss) income per share- Basic $ (0.01) $ 0.02
Average Shares Outstanding 11,883,305 11,883,305
Net (Loss) income per share- Diluted $ (0.01) $ 0.02
Average Shares Outstanding 11,883,305 11,883,305
7
The following table sets forth the effects of the restatement discussed
below on the Consolidated Balance Sheet at November 30, 2003.
November 30, 2003
As Originally
Reported As Restated
------------------------------
Assets
Current Assets
Cash and cash equivalents $ 427,833 $ 427,833
Receivables, net 7,519,113 7,426,452
Notes receivable, current 43,972 43,972
Inventories 4,413,974 4,413,974
Prepaid expenses 4,372,447 3,874,652
Deferred income taxes -0- 407,230
Total current assets 16,777,339 16,594,113
Property, Plant and Equipment 14,543,906 14,543,906
Notes receivable, long-term 1,843,322 1,843,322
Other 2,777,822 2,777,822
------------- --------------
Total Assets $ 35,942,389 $ 35,759,163
=============== ================
Liabilities and Stockholders' Equity
Current liabilities
Checks outstanding in excess of bank balances $ 1,283,936 $ 1,283,936
Accounts payable 2,694,158 2,694,158
Current portion of long-term debt 438,796 438,796
Other accrued expenses 2,521,070 4,274,163
Deferred income taxes 304,698 -0-
Salary continuation plan 92,198 92,198
------------- --------------
Total current liabilities 7,334,857 8,783,251
Long-term liabilities
Note payable- bank, non- current 843,862 843,862
Salary continuation plan 1,839,261 1,839,261
Deferred income taxes 722,303 722,303
------------- --------------
Total Liabilities 10,740,283 12,188,677
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 18,386,514
Treasury shares - at cost (1,945,488) (10,533,177) (10,533,177)
------------- --------------
Total stockholders' equity 25,202,106 23,570,486
------------- --------------
Total liabilities and stockholders' equity $ 35,942,389 $ 35,759,163
=============== ================
8
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 and six-months ended
November 30, 2004 and 2003 are not necessarily indicative of the results to
be expected for the full year. Certain prior year amounts have been
re-classified 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.
9
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 six months ended November 30, 2004 and
2003:
November 30, November 30,
2004 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 anti-dilutive 369,000 369,000
========== ==========
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 For the Six Months Ended
November 30, November 30,
2004 2003 2004 2003
-----------------------------------------------------------
Net (loss) income as reported $ (7,213) $ (196,021) $ 180,962 $ 235,671
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) (5,228) (6,146)
----------- ------------ --------- ----------
Pro-forma net (loss) income $ (9,827) $ (199,094) $ 175,734 $ 229,525
=========== ============ ========= ==========
(Loss) income per share as reported-basic $ (.00) $ (.02) $ .02 $ .02
(Loss) income per share as reported-diluted $ (.00) $ (.02) $ .02 $ .02
Pro-forma (loss) income per share-basic $ (.00) $ (.02) $ .02 $ .02
Pro-forma (loss) income per share-diluted $ (.00) $ (.02) $ .01 $ .02
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
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 six months ended November 30, 2004 the
Company's bank debt was increased by $1.33 million compared to a decrease
of $1.14 million last year. The interest rate at November 30, 2004 was
3.81% compared to 2.87% at November 30, 2003.
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.
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
We have reviewed the accompanying interim consolidated balance sheet of
Golden Enterprises, Inc. and subsidiary as of November 30, 2004 and the related
interim consolidated statements of income and cash flows for the six-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
January 12, 2005 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
12
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 November 30, 2003 10-Q/A
Amendment No. 1 "Restatement."
RESTATEMENT
The Company restated its consolidated balance sheets as of November 30,
2003 and its consolidated statements of operations and cash flows for the six
months ended November 30, 2003. The restatement affects periods prior to 2002.
The impact of the restatement on such prior periods was reflected as an
adjustment to operating retained earnings June 1, 2001. The restatement was
reported in the Quarterly Report on Form 10-Q/A for its quarterly period ended
November 30, 2003.
The restatement adjustment for the three months ended November 30, 2003
resulted in a decrease in net loss of approximately $.12 million. For the six
months ended November 30, 2003, the restatement adjustments resulted in a
decrease in net loss of approximately $0.30 million. Basic and Diluted net loss
per share was decreased $.01 per share for the three month ended November 30,
2003. Basic and Diluted net loss per share was decreased $.03 per share for the
six months ended November 30, 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 443 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.
13
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 Operations. 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 November 30, 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.
14
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 $4.9 million at the
end of the second quarter. Net cash provided by operating activities amounted to
$1.60 million for the six months this year compared to $1.19 million for last
year's first six months.
Additions to property, plant and equipment, net of disposals, were $1.71
million this year and $0.37 million last year. Cash dividends of $0.74 million
were paid during this year's first six months compared to $0.74 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 last year. The
Company's current ratio was 1.44 to 1.00 at November 30, 2004.
The following table summarizes the significant contractual obligations of
the Company as of November 30, 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.
15
Other Commitments
The Company had letters of credit in the amount of $1,785,987 outstanding
at November 30, 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 was a monthly variable
rate based on the LIBOR rate plus 1.75%. The purpose of the line of credit was
to pay off the current line of credit and to purchase new vehicles and plant
equipment. The line of credit note expired on December 1, 2004, at which time
the Company converted the line of credit into a note in the amount of $2,137,500
with a fixed monthly payment and maturity date collateralized by the above
equipment purchased. The interest rate on this note is also based on the LIBOR
rate plus 1.75%.
The Company has a line-of-credit agreement with a local bank that permits
borrowing up to $1 million. The line-of-credit is subject to the Company's
continued credit worthiness and compliance with the terms and conditions of the
advance application.
Available cash, cash from operations and available credit under the line of
credit are expected to be sufficient to meet anticipated cash expenditures and
normal operating requirements for the foreseeable future.
OPERATING RESULTS
For the three months ended November 30, 2004, basic and diluted (loss) per
share were ($.00) compared to a ($.02) loss last year (restated), on net sales
of $24,851,760 versus $23,296,981, a sales increase of $1.6 million or 7%. The
revenue growth can be attributed to an increase in consumer demand for Golden
Flake products, an increase in the number of products offered for sale to our
consumers and a planned territory expansion on the western edge of our current
marketing area. This year's second quarter cost of sales was 53.4% of net sales
compared to 52.4% last year, and selling, general and administrative expenses
were 46.7% of net sales this year and 49.1% last year. The decrease was
primarily due to the revenue growth.
For the year-to-date net sales increased 3.6% from last year. Cost of sales
was 53.0% of net sales compared to 52.3% last year. Selling, general and
administrative expenses were 46.7% of net sales this year, and 47.1% last year.
The Company's Gain on sales of assets for the second quarter in the amount
of $26,216 was from the sale of used transportation equipment for cash.
For last year's second quarter the Gain on sale of assets was $17,454 which
was from the sale of used transportation equipment for cash.
The Company's second quarter investment income decreased 2.0% from last
year. For the six months investment income was down 4.0%.
The Company's effective tax rate for the second quarter was -62.7% compared
to -39.4% for last year's second quarter and 35.2% for the six months this year
and 34.9% last year.
MARKET RISK
The principal market 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 November 30, 2004 variable rate investment levels and
bank loan balances, a one-point change in interest rates would impact interest
income by $4,643 on an annual basis and interest expense by $23,261.
16
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.
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- Market Risk beginning on page 16.
ITEM 4
------
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Golden Enterprises, Inc. was held
on September 23, 2004.
(b) All director nominees were elected.
(c) The following is a tabulation of the voting:
17
ELECTION OF DIRECTORS
Names Votes For Votes Withheld
----- --------- --------------
John S. Stein 8,293,316 220,487
Edward R. Pascoe 8,453,818 59,985
John P. McKleroy, Jr. 8,293,616 220,187
James I. Rotenstreich 8,499,771 14,032
John S.P. Samford 8,499,874 13,929
J. Wallace Nall, Jr. 8,499,874 13,929
F. Wayne Pate 8,293,873 219,930
Joann F. Bashinsky 8,407,673 106,130
Mark W. McCutcheon 8,293,676 220,127
ITEM 5
------
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 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
Securities 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 control 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 November 30, 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 has 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.
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.
18
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 and Reports on Form 8-K
------- --------------------------------
(a) 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.
(b) Reports on Form 8-K:
On September 24, 2004, we filed a current report on Form 8-K
dated September 24, 2004 disclosing that on September 24,
2004, Golden Enterprises, Inc. issued a press release
announcing its earnings for the first quarter and ended
August 31, 2004. A copy of the Earnings Press Release was
attached as Exhibit 99.1.
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: January 12, 2005 /s/Mark W. McCutcheon
---------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: January 12, 2005 /s/Patty Townsend
-----------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
19