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 (fourteen week) period ended March 04, 2005
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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.
------------------------
(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 the number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 2005.
Outstanding at
Class March 31, 2005
----- --------------
Common Stock, Par Value $0.66 2/3 11,835,330
GOLDEN ENTERPRISES, INC.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1 Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
March 4, 2005 (unaudited) and May 28, 2004 3
Condensed Consolidated Statements of Operations (unaudited)
Fourteen and Forty Weeks Ended March 4, 2005 and Thirteen
and Thirty-Nine Weeks Ended February 27, 2004 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Forty Weeks Ended March 4, 2005 and Thirty-Nine Weeks
Ended February 27, 2004 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Report of Independent Registered Public Accounting Firm 14
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3 Quantitative and Qualitative
Disclosure About Market Risk 21
Item 5 Controls and Procedures 21
Part II. OTHER INFORMATION
Item 6 Exhibits and Report on Form 8-K 22
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 4, May 28,
2005 2004
------------- -------------
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents $ 324,246 $ 565,195
Receivables, net 6,997,791 7,492,151
Note Receivable, current 48,580 45,760
Inventories:
Raw material and supplies 1,573,642 1,198,534
Finished goods 2,901,155 2,504,515
------------- -------------
4,474,797 3,703,049
------------- -------------
Prepaid expense 2,863,377 2,292,943
Deferred income taxes 618,803 618,803
------------- -------------
Total current assets 15,327,594 14,717,901
------------- -------------
Property, plant and equipment, net 14,475,260 13,846,342
Long-term Note Receivable 1,783,191 1,819,986
Other assets 3,389,507 3,238,327
------------- -------------
$ 34,975,552 $ 33,622,556
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding in excess of bank balances $ 1,896,454 $ 1,293,534
Accounts payable 2,117,497 1,816,879
Other accrued expenses 4,435,949 4,334,798
Salary continuation plan 101,861 95,948
Note payable- bank, current 1,679,854 477,980
------------- -------------
Total current liabilities 10,231,615 8,019,139
------------- -------------
Long-Term Liabilities:
Note payable-bank, non-current 1,198,182 521,582
Salary Continuation Plan 1,754,101 1,805,619
------------- -------------
Total long-term liabilities 2,952,283 2,327,201
------------- -------------
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 15,989,031 17,363,237
------------- -------------
31,706,180 33,080,386
Less: Cost of common shares in treasury (1,993,463
at March 4, 2005 and 1,975,963 at May 28, 2004) (10,677,594) (10,624,602)
------------- -------------
Total stockholders' equity 21,028,586 22,455,784
------------- -------------
Total $ 34,975,552 $ 33,622,556
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
3
GOLDEN ENTERPRISES, INC. AND SUBSIDARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Fourteen and Forty Weeks Ended March 4, 2005 and the Thirteen and Thirty-Nine
Weeks Ended February 27, 2004
-------------------------------------------------------------
Fourteen Thirteen Forty Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
MARCH FEBRUARY MARCH FEBRUARY
04, 27, 04, 27,
2005 2004 2005 2004
-------------------------------------------------------------
Net Sales $ 27,012,648 $ 24,102,358 $ 76,630,834 $ 71,980,117
Cost of sales 14,455,299 13,021,969 40,756,362 38,065,955
------------- ------------- ------------- -------------
Gross margin 12,557,349 11,080,389 35,874,472 33,914,162
Selling, general and administrative expenses 13,266,783 12,079,649 36,433,786 34,634,938
------------- ------------- ------------- -------------
Operating (loss) (709,434) (999,260) (559,314) (720,776)
------------- ------------- ------------- -------------
Other income (expenses):
Investment income 37,531 37,730 113,837 117,204
Gain on sale of assets 29,900 2,787 69,068 67,672
Other income 15,358 31,989 122,456 72,921
Interest expense (69,183) (48,778) (162,690) (150,727)
------------- ------------- ------------- -------------
Total other income (expenses) 13,606 23,728 142,671 107,070
------------- ------------- ------------- -------------
(Loss) before income taxes (695,828) (975,532) (416,643) (613,706)
Income tax expense (251,869) (369,504) (153,646) (243,349)
------------- ------------- ------------- -------------
Net (loss) $ (443,959) $ (606,028) $ (262,997) $ (370,357)
============= ============= ============= =============
PER SHARE OF COMMON STOCK:
Net (loss) $ (0.04) $ (0.05) $ (0.02) $ (0.03)
============= ============= ============= =============
Weighted average number of common stock
shares outstanding 11,844,468 11,883,305 11,850,023 11,883,305
============= ============= ============= =============
Cash dividends paid per share of common
Stock $ 0.0313 $ 0.0313 $ 0.0938 $ 0.0938
============= ============= ============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
4
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Forty Thirty-Nine
Weeks Ended Weeks Ended
March 4, February 27,
2005 2004
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 77,125,194 $ 71,924,242
Interest income 113,837 117,204
Rental income 26,413 26,060
Misc. income 96,043 46,861
Cash paid to suppliers & employees (41,227,492) (37,991,498)
Cash paid for operating expenses (35,330,266) (33,229,146)
Income taxes (paid) -0- (42,958)
Interest expenses paid (162,690) (150,727)
------------- -------------
Net cash from operating activities 641,039 700,038
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property plant & equipment (2,330,450) (608,318)
Proceeds from sale of property, plant & equip 97,294 147,488
Collection of notes rec. 33,976 31,372
------------- -------------
Net cash used in investing activities (2,199,180) (429,458)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 12,916,230 -0-
Debt repayments (11,037,757) (503,158)
Increase (decrease) in checks outstanding in
excess of bank balance 602,920 547,295
Purchases of treasury shares (52,992) -0-
Proceeds from exercise of stock options -0- -0-
Cash dividends paid (1,111,209) (1,114,066)
------------- -------------
Net cash used in financing activities 1,317,192 (1,069,929)
Net increase (decrease) in cash and cash equivalent (240,949) (799,349)
Cash and Cash equivalents at beginning of year 565,195 1,278,333
------------- -------------
Cash and Cash equivalents at end of period $ 324,246 $ 478,984
============= =============
5
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) CONTINUED...
Reconciliation Of Net Income To Net Cash From Operating Activities
For the Forty Weeks Ended March 4, 2005 and the Thirty-Nine Weeks Ended
February 27, 2004
Forty Thirty-Nine
Weeks Ended Weeks Ended
March 04, February 27,
2005 2004
-----------------------------
NET INCOME
Net (Loss) $ (262,997) $ (370,357)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,673,307 1,771,247
Deferred income taxes (57,364) 137,708
Gain on sale of property and equipment (69,069) (67,672)
Changes in operating assets and liabilities:
(Increase) Decrease in receivable- net 494,360 (55,875)
(Increase) Decrease in inventories (771,748) (504,097)
(Increase) in pre-paid expenses (570,434) (1,206,368)
Decrease in other assets- long term (151,180) 150
Increase in accounts payable 300,618 578,554
Increase (Decrease) in accrued expenses 101,151 459,596
(Decrease) in salary continuation (45,605) (42,848)
------------- -------------
Net cash provided by operating activities $ 641,039 $ 700,038
See Accompanying Notes to Condensed Consolidated Financial Statements
6
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 Company's current reporting period ends on the first Friday in March.
The current period ended March 4, 2005 included fourteen weeks for the
quarter and forty weeks for the year to date then ended. The prior year for
the same period ended February 27, 2004 and included thirteen weeks for the
quarter and thirty-nine weeks for the nine months then ended. The prior
fiscal year referred to in this report included fifty-two weeks. Prior
filings referred to in this report have been titled to correspond to the
actual period covered based on the fifty-two and fifty-three week year in
which the company operates. This change in title had no effect on the
previously reported amounts in the consolidated balance sheets, the
consolidated statements of operations and cash flows.
2. 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 fifty-two weeks ended May 28, 2004.
3. The Company's quarterly financial information previously reported on Form
10-Q/A for the thirty-nine weeks ended February 27, 2004 includes restated
consolidated financial statements at February 27, 2004.
The following table presents the impact of the restatement adjustments on net
earnings for the thirteen and thirty-nine weeks ended February 27, 2004.
Thirteen Thirty-Nine
Weeks Ended Weeks Ended
February 27, February 27,
2004 2004
-----------------------------
Net loss as originally reported $ (549,956) $ (610,126)
Adjustments (pre-tax):
Accrued Vacation Liability (633) (1,901)
Self Insurance Liability (87,907) 380,503
Other 0 0
------------- -------------
Total adjustments (pre-tax) (88,540) 378,602
Total taxes (32,468) 138,833
------------- -------------
Total net adjustments (56,072) 239,769
Net (loss) as restated $ (606,028) $ (370,357)
------------- -------------
Per share of Common Stock:
Net Loss- Basic as originally reported $ (0.05) $ (0.05)
Effect of net adjustments 0 0.02
------------- -------------
Net loss- Basic as restated $ (0.05) $ (0.03)
============= =============
Net loss- Diluted as originally reported $ (0.05) $ (0.05)
Effect of net adjustments 0 0.02
------------- -------------
Net (loss)- Diluted as restated $ (0.05) $ (0.03)
============= =============
7
The following tables set forth the effects of the restatement adjustments
discussed below on the Consolidated Statement of Operations for the thirteen
weeks and thirty-nine weeks ended February 27, 2004.
Thirteen Weeks Ended
February 27, 2004
As Originally
Reported As Restated
-----------------------------
Net Sales $ 24,102,358 $ 24,102,358
Cost of Goods Sold 12,876,483 13,021,969
Selling, General and Administrative Expenses 12,136,595 12,079,649
Other income (expenses) 23,728 23,728
------------- -------------
(Loss) income before cumulative effect of a
change in accounting policy and income taxes (886,992) (975,532)
Provision for income taxes (337,036) (369,504)
------------- -------------
Net (Loss) income $ (549,956) $ (606,028)
============= =============
Net Loss per share- Basic $ (0.05) $ (0.05)
Average Shares Outstanding 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.05) $ (0.05)
Average Shares Outstanding 11,883,305 11,883,305
Thirty-Nine Weeks Ended
February 27, 2004
As Originally
Reported As Restated
-----------------------------
Net Sales $ 71,980,117 $ 71,980,117
Cost of Goods Sold 37,991,551 38,065,955
Selling, General and Administrative Expenses 35,087,945 34,634,938
Other income (expenses) 107,070 107,070
------------- -------------
(Loss) income before cumulative effect of a
change in accounting policy and income taxes (992,309) (613,706)
Provision for income taxes (382,183) (243,349)
------------- -------------
Net (Loss) $ (610,126) $ (370,357)
============= =============
Net Loss per share- Basic $ (0.05) $ (0.03)
Average Shares Outstanding 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.05) $ (0.03)
Average Shares Outstanding 11,883,305 11,883,305
8
The following tables set forth the effects of the restatement adjustments
discussed below on the Consolidated Balance Sheet at February 27, 2004.
February 27, 2004
As Originally
Reported As Restated
-----------------------------
Assets
Current Assets
Cash and cash equivalents $ 478,984 $ 478,984
Receivables, net 7,994,790 7,902,129
Notes receivable, current 44,857 44,857
Inventories 4,290,234 4,290,234
Prepaid expenses 4,333,975 4,087,489
Deferred income taxes -0- 344,770
------------- -------------
Total current assets 17,142,840 17,148,770
Property, Plant and Equipment 14,118,829 14,118,829
Notes receivable, long-term 1,831,771 1,831,771
Other 2,777,822 2,777,822
------------- -------------
Total Assets $ 35,871,262 $ 35,876,885
============= =============
Liabilities and Stockholders' Equity
Current liabilities
Checks outstanding in excess of bank balances $ 1,704,403 $ 1,704,403
Accounts payable 2,279,488 2,279,488
Current portion of long-term debt 1,195,304 1,195,304
Other accrued expenses 2,751,030 4,749,044
Deferred income taxes 304,699 -0-
Salary continuation plan 94,055 94,055
------------- -------------
Total current liabilities 8,328,979 10,022,294
Long-term liabilities
Note payable- bank, non- current 724,447 724,447
Salary continuation plan 1,822,683 1,822,683
Deferred income taxes 714,358 714,358
------------- -------------
Total Liabilities 11,590,467 13,283,782
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 19,096,823 17,409,131
Treasury shares - at cost (1,945,488) (10,533,177) (10,533,177)
------------- -------------
Total stockholders' equity 24,280,795 22,593,103
------------- -------------
Total liabilities and stockholders' equity $ 35,871,262 $ 35,876,885
============= =============
9
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.
4. The results of operations for the fourteen weeks and forty weeks ended
March 4, 2005 and for the thirteen weeks and thirty-nine weeks ended
February 27, 2004 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.
5. The following tables summarize the prepaid assets accounts:
Prepaid Breakdown
March 4, 2005 May 28, 2004
------------- -------------
Truck Shop Supplies $ 632,769 $ 702,133
Insurance Deposit 393,155 393,155
Slotting Fees 332,465 376,295
Deferred Advertising Fees 181,012 -0-
Prepaid Insurance 645,797 327,771
Prepaid Taxes/ Licenses 568,851 420,940
Prepaid Dues/ Supplies 44,982 51,070
Other 64,346 21,579
------------- -------------
$ 2,863,377 $ 2,292,943
============= =============
10
6. 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.
7. 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.
8. 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 10 below.
9. 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 forty weeks ended March 4, 2005 and
thirty-nine weeks ended February 27, 2004:
Forty Weeks Thirty- Nine
Ended Weeks Ended
March 4, February 27,
2005 2004
-----------------------------
Weighted average number of common shares used
in computing basic earnings per share 11,850,023 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 11,850,023 11,883,305
============= =============
Stock options excluded from the above
reconciliation because they are anti-dilutive 369,000 369,000
============= =============
10. 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.
11
Fourteen Thirteen Forty Thirty-Nine
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
March 4, February 27, March 4, February 27,
2005 2004 2005 2004
----------- ------------ ----------- ------------
Net (loss) as reported $ (443,959) $ (606,028) $ (262,997) $ (370,357)
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) (7,842) (9,219)
----------- ------------ ----------- ------------
Pro-forma net (loss) $ (446,573) $ (609,101) $ (270,839) $ (379,576)
=========== ============ =========== ============
(Loss) per share as reported-basic $ (.04) $ (.05) $ (.02) (.03)
(Loss) per share as reported-diluted (.04) (.05) (.02) (.03)
Pro-forma (loss) per share-basic (.04) (.05) (.02) (.03)
Pro-forma (loss) per share-diluted (.04) (.05) (.02) (.03)
11. The Company entered into a five year term product purchase commitment
during the fifty-two weeks ending June 1, 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.
12. 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 forty weeks ended March 4, 2005 the
Company's bank debt was increased by $1.88 million compared to a decrease
of $.50 million last year. The interest rate at March 4, 2005 was 4.33%
compared to 2.85% at February 27, 2004.
13. 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.
12
14. During the fourteen weeks ended March 4, 2005, the Company changed its
method of presenting the statement of cash flows for operating activities
from the indirect method (which adjusts net income to remove the effects of
non cash operating transactions) to direct method (which shows principal
components of operating cash receipts and payments). This change has been
applied in the thirteen weeks ended February 27, 2004.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
We have reviewed the accompanying interim consolidated balance sheet of
Golden Enterprises, Inc. and subsidiary as of March 4, 2005 and the related
interim consolidated statements of operations and cash flows for the forty
week 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 28, 2004, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the
fiscal 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 28, 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 3 to the accompanying consolidated financial
statements, the Company has restated previously issued financial
statements.
Birmingham, Alabama
April 12, 2005 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
14
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 February 27, 2004 10-Q/A
Amendment No. 1 "Restatement."
RESTATEMENT
The Company restated its consolidated balance sheet as of February 27,
2004, its consolidated statements of operations for the thirteen and thirty-nine
weeks ended February 27, 2004, and cash flows for the thirty-nine weeks ended
February 27, 2004. 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 thirteen week period ended February 27,
2004.
The restatement adjustment for the thirteen weeks ended February 27, 2004
resulted in an increase in net loss of approximately $.06 million. For the
thirty-nine weeks ended February 27, 2004, the restatement adjustments resulted
in a decrease in net loss of approximately $0.24 million. Basic and Diluted net
loss per share was increased $.00 per share for the thirteen weeks ended
February 27, 2004. Basic and Diluted net loss per share was decreased $.02 per
share for the thirty-nine weeks ended February 27, 2004. 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 447 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.
15
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's 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 March 4, 2005 and May 28, 2004, the
Company had accounts receivables in the amount of $7.0 million and $7.5 million,
net of an allowance for doubtful accounts of $0.3 million and $0.2 million,
respectively.
On February 21, 2005, Winn Dixie Stores, Inc. and 23 of its subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. The bad debt expense related to these filings that the Company
recognized, net of tax, for this customer is approximately $489,000 for the
period ended March 4, 2005.
16
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on
the first-in, first out method.
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 28, 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 $5.1 million at the
end of the fourteen weeks ended March 4, 2005. Net cash provided by operating
activities amounted to $0.64 million for the forty weeks this year compared to
$0.70 million for the thirty-nine weeks ended February 27, 2004.
Additions to property, plant and equipment, net of disposals, were $2.30
million for the forty weeks ended March 4, 2005, which included $1.18 million
for transportation equipment and $0.93 million for manufacturing equipment, and
$0.53 million for the thirty-nine weeks ended February 27, 2004. Cash dividends
of $1.11 million were paid during this year's forty weeks ended March 4, 2005
compared to $1.11 million for the thirty-nine weeks ended February 27, 2004.
Cash in the amount of $52,992 was used to purchase treasury stock for the forty
weeks ended March 4, 2005, and none was used last year, and no cash was used to
increase investment securities this year or last year. The Company's current
ratio was 1.50 to 1.00 at March 4, 2005.
The following table summarizes the significant contractual obligations of
the Company as of March 4, 2005:
Contractual Obligations Total 2005 2006-2007 2008-2009 Thereafter
----------------------- ------------ ------------ ------------ ---------- ------------
Long-Term Debt $ -0- $ 679,854 $ 722,384 $ 475,798 $ -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 $ 2,266,802 $ 1,543,832 $ 729,668 $ 1,335,301
============ ============ ============ ========== ============
17
OFF-BALANCE SHEET ARRANGEMENT
The Company entered into a five-year term product purchase commitment
during the year ending June 1, 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.
Other Commitments
The Company had letters of credit in the amount of $1,785,987 outstanding
at March 4, 2005 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 increased its line-of-credit agreement with a local bank to
permit borrowing up to $2 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 fourteen weeks ended March 4, 2005, net sales increased 12.1% from
the thirteen weeks ended February 27, 2004. This year's period included fourteen
weeks of snack food sales and costs. Without the extra week, total revenues
would have been up 4% which 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 fourteen weeks cost of sales was 53.5%
of net sales compared to 54.0% for the thirteen weeks ended February 27, 2004,
and selling, general and administrative expenses were 49.1% of net sales for the
fourteen weeks ended March 4, 2005 and 50.1% for the thirteen weeks ended
February 27, 2004. The decrease was primarily due to the revenue growth.
For the year-to-date net sales increased 6.5% in this year's forty week
period from last year's thirty- nine week period. Cost of sales was 53.2% of net
sales compared to 52.9% last year. Selling, general and administrative expenses
were 47.5% of net sales this year, and 48.1% last year.
18
The following tables compare manufactured products to resale products:
Manufactured Products-Resale Products
Fourteen Weeks Ended Thirteen Weeks Ended
March 4, 2005 February 27, 2004
Sales % %
------- -------
Manufactured Products $ 21,247,911 78.7% $ 19,436,318 80.6%
Resale Products 5,764,737 21.3% 4,666,040 19.4%
------------- ------- ------------- -------
Total $ 27,012,648 100.0% $ 24,102,358 100.0%
GM GM
% %
------- -------
Gross Margin
Manufactured Products $ 10,172,479 47.9% $ 9,199,181 47.3%
Resale Products 2,384,870 41.4% 1,881,208 40.3%
------------- -------------
Total $ 12,557,349 46.5% $ 11,080,389 46.0%
Manufactured Products-Resale Products
Forty Weeks Ended Thirty-Nine Weeks Ended
March 4, 2005 February 27, 2004
Sales % %
------- -------
Manufactured Products $ 60,790,225 79.3% $ 57,785,080 80.3%
Resale Products 15,840,609 20.7% 14,195,037 19.7%
------------- ------- ------------- -------
Total $ 76,630,834 100.0% $ 71,980,117 100.0%
GM GM
% %
------- -------
Gross Margin
Manufactured Products $ 29,253,880 48.1% $ 28,112,194 48.6%
Resale Products 6,620,592 41.8% 5,801,968 40.9%
------------- -------------
Total $ 35,874,472 46.8% $ 33,914,162 47.1%
19
The Company's gain on sales of assets for the fourteen weeks ended March 4,
2005 in the amount of $29,900 was from the sale of used transportation equipment
for cash.
For last year's thirteen weeks ended February 27, 2004, the gain on sale of
assets was $2,787, which was from the sale of used transportation equipment for
cash.
The Company's fourteen weeks of investment income decreased 0.5% from last
year. For the forty weeks, ended March 4, 2005, investment income was down 2.9%.
The Company's effective tax rate for the fourteen weeks ended March 4, 2005
was -36.2% compared to -37.9%, for the thirty-nine weeks ended February 27, 2004
and -36.9% for the forty weeks ended March 4, 2005 and -39.7% for the
thirty-nine weeks ended February 27, 2004.
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 March 4, 2005 variable rate investment levels and bank loan balances, a
one-point change in interest rates would impact interest income by $51 on an
annual basis and interest expense by $28,780.
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.
20
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 20.
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 the period ended 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.
During the performance of the audit for the fiscal year ended May 28, 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 thirteen week period ended February 27, 2004,
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.
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.
21
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 January 6, 2005, we filed a current report on Form 8-K dated
January 6, 2005 disclosing that on January 6, 2005, Golden
Enterprises, Inc. issued a press release announcing its earnings for
the thirteen weeks and twenty-six weeks ended November 26, 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: April 12, 2005 /s/ Mark W. McCutcheon
----------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: April 12, 2005 /s/ Patty Townsend
------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
22