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 (thirteen week) period ended March 03, 2006
--------------
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
------------------------------------------------ -------------------------
(Address of Principle Executive Offices) (Zip Code)
(205) 458-7316
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer Accelerated filer Non-accelerated filer X
----- ------ ------
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 2006.
Outstanding at
Class March 31, 2006
----- --------------
Common Stock, Par Value $0.66 2/3 11,835,330
GOLDEN ENTERPRISES, INC.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1 Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
March 3, 2006 (unaudited) and June 3, 2005 3
Condensed Consolidated Statements of Operations (unaudited)
Thirteen and Thirty-Nine Weeks Ended March 3, 2006 and Fourteen and
Forty Weeks Ended March 4, 2005 4
Condensed Consolidated Statements of Cash Flows
(unaudited)- Thirty-Nine Weeks Ended March 3, 2006 and Forty Weeks
Ended March 4, 2005 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Report of Independent Registered Public Accounting Firm 11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative
Disclosure About Market Risk 17
Item 4 Controls and Procedures 17
Part II. OTHER INFORMATION 17
Item 1 Legal Proceedings 17
Item 1-A Risk Factors 17
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
March 3, June 3,
2006 2005
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 320,129 $ 371,204
Receivables, net 7,830,516 7,691,464
Notes receivable, current 52,612 49,558
Inventories:
Raw materials and supplies 1,671,366 1,100,715
Finished goods 2,627,505 2,869,352
------------ ----------------
4,298,871 3,970,067
------------ ----------------
Prepaid expenses 2,112,500 2,436,748
Deferred income taxes 589,946 589,946
------------ ----------------
Total current assets 15,204,574 15,108,987
------------ ----------------
Property, plant and equipment, net 13,702,488 14,247,036
Long-term Note Receivable 1,730,578 1,770,428
Other assets 3,262,944 3,275,296
------------ ----------------
$ 33,900,584 $ 34,401,747
============ ================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Checks outstanding in excess of bank balances $ 3,109,516 $ 1,493,153
Accounts payable 1,378,864 2,270,035
Other accrued expenses 4,245,309 4,701,726
Salary continuation plan 110,315 103,912
Note payable-bank current 741,246 690,332
Line of credit outstanding 1,297,137 522,008
------------ ----------------
Total current liabilities 10,882,387 9,781,166
------------ ----------------
LONG-TERM LIABILITIES
Note payable - bank, non-current 439,062 1,013,846
Salary Continuation Plan 1,680,829 1,735,885
------------ ----------------
Total long-term liabilities 2,119,891 2,749,731
------------ ----------------
DEFERRED INCOME TAXES 964,047 964,047
------------ ----------------
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 14,894,704 15,867,248
------------ ----------------
30,611,853 31,584,397
Less: Cost of common shares in treasury (1,993,463 at March 3, 2006
and June 3, 2005) (10,677,594) (10,677,594)
------------ ----------------
Total stockholder's equity 19,934,259 20,906,803
------------ ----------------
Total $ 33,900,584 $ 34,401,747
============ ================
See Accompanying Notes to Condensed Consolidated Financial Statements
3
GOLDEN ENTERPRISES, INC. AND SUDSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED MARCH 3, 2006 AND THE FOURTEEN AND
FORTY WEEKS ENDED MARCH 4, 2005
---------------------------------------------------
Thirteen Fourteen Thirty-Nine Forty
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
3/3/06 3/4/05 3/3/06 3/4/05
---------------------------------------------------
Net sales $26,819,759 $27,012,648 $78,281,710 $76,630,834
Cost of sales 14,214,526 14,455,299 42,243,972 40,756,362
----------- ----------- ----------- -----------
Gross Margin 12,605,233 12,557,349 36,037,738 35,874,472
Selling, General and Administrative Expenses 11,872,534 13,266,783 35,926,656 36,433,786
----------- ----------- ----------- -----------
Operating Income (loss) 732,699 (709,434) 111,082 (559,314)
----------- ----------- ----------- -----------
Other income (expenses):
Investment income 35,896 37,531 109,724 113,837
Gain on sale of assets 47,847 29,900 146,801 69,068
Other income 39,050 15,358 67,313 122,456
Interest expense (78,492) (69,183) (217,680) (162,690)
----------- ----------- ----------- -----------
Total other income (expenses) 44,301 13,606 106,158 142,671
----------- ----------- ----------- -----------
Income (loss) before income taxes 777,000 (695,828) 217,240 (416,643)
Income taxes 286,703 (251,869) 80,216 (153,646)
----------- ----------- ----------- -----------
Net (loss) income $ 490,297 $ (443,959) $ 137,024 $ (262,997)
----------- ----------- ----------- -----------
PER SHARE OF COMMON STOCK
Net Income (loss) $ 0.04 $ (0.04) $ 0.01 $ (0.02)
----------- ----------- ----------- -----------
Weighted average number of common
stock share outstanding:
Basic 11,835,330 11,844,468 11,835,330 11,850,023
Diluted 11,835,330 11,844,468 11,837,696 11,850,023
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)
Thirty-Nine Forty
Weeks Ended Weeks Ended
March 3, March 4,
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 78,142,658 $ 77,125,194
Interest income 109,724 113,837
Rental income 28,599 26,413
Miscellaneous income 38,714 96,043
Cash paid to suppliers & employees (42,231,437) (41,227,492)
Cash paid for operating expenses (35,878,200) (35,330,266)
Income taxes received 200,587 -
Interest expenses paid (217,680) (162,690)
------------ ------------
Net cash from operating activities 192,965 641,039
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,206,006) (2,330,450)
Proceeds from sale of property, plant and equipment 167,116 97,294
Collection of notes receivable 36,796 33,976
------------ ------------
Net cash used in investing activities (1,002,094) (2,199,180)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 16,334,046 12,916,230
Debt repayments (16,082,787) (11,037,757)
Change in checks outstanding in excess of bank
balances 1,616,363 602,920
Purchases of treasury shares - (52,992)
Cash dividends paid (1,109,568) (1,111,209)
------------ ------------
Net cash provided by financing activities 758,054 1,317,192
Net change in cash and cash equivalents (51,075) (240,949)
Cash and cash equivalents at beginning of period 371,204 565,195
------------ ------------
Cash and cash equivalents at end of period $ 320,129 $ 324,246
5
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
FOR THE THIRTY-NINE WEEKS ENDED MARCH 3, 2006 AND FORTY WEEKS ENDED MARCH 4, 2005
Thirty-Nine Forty
Weeks Ended Weeks Ended
March 3, 2006 March 4, 2005
----------- -----------
Net Income
Net Income (Loss) $ 137,024 $ (262,997)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,730,239 1,673,307
Deferred income taxes - (57,364)
Gain on sale of property and equipment (146,801) (69,069)
Changes in operating assets and liabilities:
Change in receivable- net (139,052) 494,360
Change in receivable- inventories (328,804) (771,748)
Change in pre-paid expenses 324,248 (570,434)
Change in other assets-long term 12,352 (151,180)
Change in accounts payable (891,171) 300,618
Change in accrued expenses (456,417) 101,151
Change in salary continuation (48,653) (45,605)
----------- -----------
Net cash provided by operating activities $ 192,965 $ 641,039
----------- -----------
6
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. The accompanying unaudited condensed consolidated financial statements of
Golden Enterprises, Inc. (the "Company") 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 year ended June 3, 2005.
2. The consolidated results of operations for the thirty-nine weeks ended
March 3, 2006 and forty weeks ended March 4, 2005 are not necessarily
indicative of the results to be expected for the fifty-two week fiscal year
ending June 2, 2006. Certain prior year amounts have been reclassified to
conform to the current year presentation.
3. The Company changed its accounting policy in the fourth quarter of fiscal
2005 with regard to casualty insurance reserves. The effect of this
accounting change was to adopt this policy as of the beginning of fiscal
2005 (May 29, 2004). Previously, casualty insurance reserves were
calculated using the case reserves method. The Company changed this
accounting policy to the fully developed actuarial method of estimating
insurance reserves. This change in accounting policy was made to improve
the quality of the accounting estimate. The fully developed method reflects
future costs inherent in the total population of claims including claims
reported and IBNR (incurred but not reported). The estimate includes the
recognition of inflation trends and the fact that injuries may become more
severe over time. The cumulative effect of this change in accounting policy
did not have a material effect on the financial statements. 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 year ended June 3, 2005.
4. The following tables summarize the prepaid assets accounts:
Prepaid Breakdown
Thirty-Nine Forty
Weeks Ended Weeks Ended
March 3, 2006 March 4, 2005
---------------- ----------------
Truck Shop Supplies $ 635,623 $ 632,769
Insurance Deposit 242,517 393,155
Slotting Fees 304,017 332,465
Deferred Advertising Fees 181,012 181,012
Prepaid Insurance 423,310 645,797
Prepaid Taxes/Licenses 241,521 568,851
Prepaid Dues/Supplies 55,770 44,982
Other 28,730 64,346
---------------- ----------------
$ 2,112,500 $ 2,863,377
================ ================
7
5. 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 materials 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.
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.
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 thirty-nine ended weeks ended March 3,
2006 and forty weeks ended March 4, 2005:
-----------------------
Thirty-Nine Forty
Weeks Ended Weeks Ended
March 3, March 4,
2006 2005
-----------------------
Weighted average number of common shares used in computing basic 11,835,330 11,850,023
earnings per share
Effect of dilutive stock options 2,366 0
----------- -----------
Weighted average number of common shares and dilutive potential
common stock used in computing dilutive earnings per share 11,837,696 11,850,023
Stock options excluded from the above reconciliation because they are
anti-dilutive 329,000 369,000
=========== ===========
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.
8
-------------------------------------------
Thirteen Fourteen Thirty-Nine Forty
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
3/3/2006 3/4/2005 3/3/2006 3/4/2005
-------------------------------------------
Net (loss) income as reported $ 490,297 $(443,959)$ 137,024 $(262,997)
Stock based compensation costs, net of
income tax, that would have been included in
net income if the fair value method had applied (2,615) (2,614) (7,844) (7,842)
---------- --------- ----------- ---------
Pro-forma net (loss) income $ 487,682 $(446,573)$ 129,180 $(270,839)
========== ========= =========== =========
(Loss) income per share as reported-basic $ 0.04 $ (0.04)$ 0.01 $ (0.02)
(Loss) income per share as reported-diluted $ 0.04 $ (0.04)$ 0.01 $ (0.02)
Pro-forma (loss) income per share-basic $ 0.04 $ (0.04)$ 0.01 $ (0.02)
Pro-forma (loss) income per share-diluted $ 0.04 $ (0.04)$ 0.01 $ (0.02)
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.
The purchase commitment with the supplier, based on a specific purchase
price and specific annual quantities, ended as of October 25, 2005. The
Company is prohibited from purchasing the product from any other vendor
until October 25, 2006.
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 thirty-nine weeks ended March 3, 2006
the Company's bank debt was decreased by $.70 million compared to an
increase of $.71 million last year. The interest rate at March 3, 2006 was
6.31% compared to 5.83% at March 4, 2005.
11. The Company has a letter of credit in the amount of $3,084,365 outstanding
at March 3, 2006 to support the Company's commercial self-insurance
program.
12. Currently, the Company has a line-of-credit agreement with a local bank
that permits borrowing up to $2 million, compared to $1 million at this
time last year. The line-of-credit is subject to the Company's continued
credit worthiness and compliance with the terms and conditions of the
advance application. The Company's line-of-credit debt as of March 3, 2006
was $1,297,137 with an interest rate of 7.50%, leaving the Company with
$702,863 of credit availability. The Company's line-of-credit debt as of
March 4, 2005 was $1,000,000 with an interest rate of 5.50%, leaving the
Company with $0 of credit availability.
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 are
limited.
9
The Company's notes receivable requires collateral and buyer investment
and management believes they are well secured.
10
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 3, 2006 and the related interim
consolidated statements of income and cash flows for the thirty-nine week period
then ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the Public
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 expressions 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
June 3, 2005 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 August 5, 2005 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 June 3, 2005, 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 changed its accounting policy with respect to the casualty
insurance liability.
Birmingham, Alabama
April 11, 2006 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
11
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion is to provide additional information about Golden
Enterprises, Inc., its financial condition and the results of its operations.
Readers should refer to the consolidated financial statements and other
financial data presented throughout this report to fully understand the
following discussion and analysis.
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 puff corn. 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 crackers, cheese
crackers, 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
through the independent distributors and approximately 433 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.
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 estimates 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.
12
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.
Change in Accounting Policy
The Company is self-insured for certain casualty losses relating to automobile
liability, general liability, workers' compensation, property losses and medical
claims. The Company also has stop loss coverage to limit the exposure arising
from these claims. Automobile liability, general liability, workers'
compensation, and property losses costs are covered by letters of credit with
the Company's claim administrators.
The Company changed its accounting policy in the fourth quarter of fiscal 2005
with regard to the casualty insurance obligations. The Company adopted the use
of a third-party actuary to estimate the casualty insurance obligations on an
annual basis. This change in accounting policy was made to determine the
ultimate loss and reserve requirements through actuarial assumptions including
compensation trends, health care cost trends and discount rates. The third-party
actuary also uses historical information for claims frequency and severity in
order to establish loss development factors. The cumulative effect of this
change in accounting policy did not have a material effect on the financial
statements.
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 3, 2006 and June 3, 2005 the
Company had accounts receivables in the amount of $7.8 million and $7.7 million,
net of an allowance for doubtful accounts of $0.1 million and $0.2 million,
respectively.
The following table summarizes the Company's customer accounts receivable
profile as of March 3, 2006:
Amount Range No. of Customers
------------ ----------------
Less than $1,000.00 ............................... 1416
$1,001.00-$10,000.00 .............................. 556
$10,001.00-$100,000.00 ............................ 107
$100,001.00-$500,000.00 ........................... 7
$500,001.00-$1,000,000.00 ......................... 0
$1,000,001.00-$2,500,000.00 ....................... 1
--------------------------
Total All Accounts ................................ 2087
==========================
13
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. In 2005, the Company
adopted the use of a third-party actuary to estimate the casualty insurance
obligations on an annual basis. In determining the ultimate loss and reserve
requirements, the third-party actuary uses various actuarial assumptions
including compensation trends, health care cost trends and discount rates. The
third-party actuary also uses historical information for claims frequency and
severity in order to establish loss development factors.
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 June 3, 2005, are conducted on an arm's-length basis in the
ordinary course of business.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital was $5.3 million at June 3, 2005 and $4.3 million at the end of
the thirty-nine weeks ended March 3, 2006. Net cash provided by operating
activities amounted to $0.2 million for the thirty-nine weeks this year compared
to $0.6 million for last year's forty weeks.
Additions to property, plant and equipment, net of disposals, were $0.69 million
this year and $2.30 million last year. Cash dividends of $1.11 million were paid
during this year's thirty-nine weeks compared to $1.11 million last year. No
cash was used to purchase treasury stock this year, and no cash was used to
increase investment securities this year. The Company's current ratio was 1.40
to 1.00 at March 3, 2006.
The following table summarizes the significant contractual obligations of the
Company as of March 3, 2006:
Contractual Obligations Total 2007 2008-2009 2010-2011 Thereafter
------------------------------ ------------ ----------- ----------- ----------- -------------
Long-Term Debt $ 1,180,308 $ 741,246 $ 200,148 $ 238,914 $ -
Salary Continuation Plan 1,791,144 110,315 248,859 291,884 1,140,086
------------ ----------- ----------- ----------- -------------
Total Contractual Obligations $ 2,971,452 $ 851,561 $ 449,007 $ 530,798 $ 1,140,086
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. The purchase commitment with the supplier,
based on a specific purchase price and specific annual quantities, ended as of
October 25, 2005. The Company is prohibited from purchasing the product from any
other vendor until October 25, 2006.
14
Other Commitments
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 thirteen weeks ended March 3, 2006, net sales decreased 1% from the
comparable period in fiscal 2005. Last year's third quarter included fourteen
weeks of snack food sales and costs compared to the normal thirteen weeks this
year. Without the extra week, net sales would have increased 6%. For the
year-to-date, net sales increased 2.15% in this year's thirty-nine week period
from last year's forty-week period. This year's thirteen weeks cost of sales was
53.0% of net sales compared to 53.5% last year, and selling, general, and
administrative expenses were 44.3% of net sales this year and 49.1% last year.
The year-to-date cost of sales was 54.0% of net sales compared to 53.2% last
year, and selling, general, and administrative expenses were 45.9% of net sales
this year and 47.5% last year.
The following tables compare manufactured products to resale products:
Manufactured Products-Resale Products
Thirteen Weeks Ended Fourteen Weeks Ended
March 3, 2006 March 4, 2005
Sales % %
Manufactured Products $21,085,340 78.6% $21,247,911 78.7%
Resale Products 5,734,419 21.4% 5,764,737 21.3%
------------------- ---------- ------------ -----------
Total $26,819,759 100.0% $27,012,648 100.0%
GM GM
Gross Margin % %
Manufactured Products $10,133,822 48.1% $10,172,479 47.9%
Resale Products 2,471,411 43.1% 2,384,870 41.4%
------------------- ------------
Total $12,605,233 47.0% $12,557,349 46.5%
Manufactured Products-Resale Products
Thirteen Weeks Ended Fourteen Weeks Ended
March 3, 2006 March 4, 2005
Sales % %
Manufactured Products $61,774,448 78.9% $60,790,225 79.3%
Resale Products 16,507,262 21.1% 15,840,609 20.7%
------------------- ---------- ------------ -----------
Total $78,281,710 100.0% $76,630,834 100.0%
GM GM
Gross Margin % %
Manufactured Products $29,280,997 47.4% $29,253,880 48.1%
Resale Products 6,756,741 40.9% 6,620,592 41.8%
------------------- ------------
Total $36,037,738 46.0% $35,874,472 46.8%
15
The Company's gain on sales of assets for the thirteen weeks ended in the amount
of $47,847 was from the sale of used transportation equipment.
For last year's fourteen weeks the gain on sale of assets was $29,900 from the
sale of used transportation equipment for cash.
The Company's investment income decreased 4.3% from last year. For the
thirty-nine weeks ended investment income was down 3.6%.
The Company's effective tax rate for the thirteen weeks was 36.9% compared to
-36.2% for the last year's fourteen weeks and 36.9% for the thirty-nine weeks
this year and -36.9% last year.
MARKET RISK
The principal market's 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,
2006 variable rate investment levels and bank loan balances, a one-point change
in interest rates would impact interest income by $71 on an annual basis and
interest expense by $11,803.
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. 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.
16
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 15.
ITEM 4
------
CONTROLS AND PROCEDURES
The Company performed an evaluation, under the supervision and with the
participation of the Company's management (including the Company's Chief
Executive Officer and Chief Financial Officer), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this quarterly report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that as of the end of the period covered by this quarterly report, the Company's
disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports that the Company files or submits under the
Securities and Exchange Act of 1934 is recorded, processed, summarized and
reported within the specified time periods.
There were no changes in the Company's internal control over financial reporting
which occurred during the period covered by this report which have materially
affected or are reasonably likely to materially affect the Company's internal
control over financial reporting.
PART II OTHER INFORMATION
ITEM 1
------
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company or its
subsidiary other than routine litigation incidental to the business of the
Company and its subsidiary.
ITEM 1-A
--------
RISK FACTORS
Not applicable.
ITEM 2
------
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
The Company did not sell any equity securities during the period covered by this
report.
Registrant Purchases of Equity Securities.
The Company did not purchase any shares of its equity securities during the
period covered by this report.
17
ITEM 3
------
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4
------
SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5
OTHER INFORMATION
Not applicable.
ITEM 6
EXHIBITS
(3) Articles of Incorporation and By-laws of Golden Enterprises, Inc.
3.1 Certificate of Incorporation of Golden Enterprises, Inc. (originally
known as "Golden Flake, Inc.") dated December 11, 1967 (incorporated
by reference to Exhibit 3.1 to Golden Enterprises, Inc. May 31, 2004
Form 10-K filed with the Commission).
3.2 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises, Inc. dated December 22, 1976 (incorporated by reference
to Exhibit 3.2 to Golden Enterprises, Inc. May 31, 2004 Form 10-K
filed with the Commission).
3.3 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises, Inc. dated October 2, 1978 (incorporated by reference to
Exhibit 3 to Golden Enterprises, Inc. May 31, 1979 Form 10-K filed
with the Commission).
3.4 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises, Inc. dated October 4, 1979 (incorporated by reference to
Exhibit 3 to Golden Enterprises, Inc. May 31, 1980 Form 10-K filed
with the Commission).
3.5 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises, Inc. dated September 24, 1982 (incorporated by reference
to Exhibit 3.1 to Golden Enterprises, Inc. May 31, 1983 Form 10-K
filed with the Commission).
3.6 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises, Inc. dated September 22, 1983 (incorporated by reference
to Exhibit 19.1 to Golden Enterprises, Inc. Form 10-Q Report for the
quarter ended November 30, 1983 filed with the Commission).
18
3.7 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises. Inc. dated October 3, 1985 (incorporated by reference to
Exhibit 19.1 to Golden Enterprises, inc. Form l0-Q Report for the
quarter ended November 30, 1985 filed with the Commission).
3.8 Certificate of Amendment of Certificate of Incorporation of Golden
Enterprises, Inc. dated September 23, 1987 (incorporated by reference
to Exhibit 3.1 to Golden Enterprises, Inc. May 31, 1988 Form 10-K
filed with the Commission).
3.9 By-Laws of Golden Enterprises, Inc. (incorporated by reference to
Exhibit 3.4 to Golden Enterprises, Inc. May 31, 1988 Form 10-K filed
with the Commission).
(10) Material Contracts.
10.1 A Form of Indemnity Agreement executed by and between Golden
Enterprises, Inc. and Each of its Directors (incorporated by reference
as Exhibit 19.1 to Golden Enterprises, Inc. Form 10-Q Report for the
quarter ended November 30, 1987 flIed with the Commission).
10.2 Amended and Restated Salary Continuation Plans for John S. Stein
(incorporated by reference to Exhibit 19.1 to Golden Enterprises, Inc.
May 31, 1990 Form 10-K filed with the Commission).
10.3 Indemnity Agreement executed by and between the Company and S. Wallace
Nall, Jr. (incorporated by reference as Exhibit 19.4 to Golden
Enterprises, Inc. May 31, 1991 Form 10-K filed with the Commission).
10.4 Salary Continuation Plans - Retirement Disability and Death Benefits
for F. Wayne Pate (incorporated by reference to Exhibit 19.1 to Golden
Enterprises, Inc. May 31, 1992 Form 10-K filed with the Commission).
10.5 Indemnity Agreement executed by and between the Registrant and F.
Wayne Pate (incorporated by reference as Exhibit 19.3 to Golden
Enterprises, Inc. May 31, 1992 Form 10-K filed with the Commission).
10.6 Golden Enterprises, Inc. 1996 Long-Term Incentive Plan (incorporated
by reference as Exhibit 10.1 to Golden Enterprises, Inc. May 31, 1997
Form 10-K filed with the Commission).
10.7 Lease of Aircraft executed by and between Golden Flake Snack Foods,
Inc., a wholly-owned subsidiary of Golden Enterprises, Inc., and Sloan
Y. Bashinsky, Sr. (incorporated by reference as Exhibit 10.1 to Golden
Enterprises, Inc. May 31, 1999 Form 10-K filed with the Commission).
10.8 Equipment Purchase and Sale Agreement dated October 2000 whereby
Golden Flake Snack Foods. Inc., a wholly-owned subsidiary of Golden
Enterprises, Inc., sold the Nashville, Tennessee Plant Equipment
(incorporated by reference as Exhibit 10.1 to Golden Enterprises, Inc.
May 31, 2001 Form 10-K filed with the Commission).
19
10.9 Real Property Contract of Sale dated October 2000 whereby Golden Flake
Snack Foods, Inc. sold the Nashville, Tennessee Plant Real Property
(incorporated by reference as Exhibit 10.2 to Golden Enterprises, Inc.
May 31, 2001 Form 10-K filed with the Commission).
10.10 Amendment to Salary Continuation Plans, Retirement and Disability for
F. Wayne Pate dated April 9. 2002 (incorporated by reference to
Exhibit 10.2 to Golden Enterprises, Inc. May 31, 2002 Form 10-K filed
with the Commission).
10.11 Amendment to Salary Continuation Plans, Retirement and Disability for
John S. Stein dated April 9, 2002 (incorporated by reference to
Exhibit 10.3 to Golden Enterprises, Inc. May 31, 2002 Form 10-K filed
with the Commission).
10.12 Amendment to Salary Continuation Plan, Death Benefits for John S.
Stein dated April 9, 2002 (incorporated by reference to Exhibit 10.4
to Golden Enterprises, Inc. May 31, 2002 Form 10-K filed with the
Commission).
10.13 Retirement and Consulting Agreement for John S. Stein dated April 9,
2002 (incorporated by reference to Exhibit 10.5 to Golden Enterprises,
Inc. May 31, 2002 Form 10-K filed with the Commission).
10.14 Salary Continuation Plan for Mark W. McCutcheon dated May 15, 2002
(incorporated by reference to Exhibit 10.6 to Golden Enterprises, Inc.
May 31, 2002 Form 10-K filed with the Commission).
10.15 Trust Under Salary Continuation Plan for Mark W. McCutcheon dated May
15, 2002 (incorporated by reference to Exhibit 10.7 to Golden
Enterprises, Inc. May 31. 2002 Form 10-K filed with the Commission).
(18) Letter Re: Change in Accounting Principles
18.1 Letter from the Registrant's Independent Accountant dated August 12,
2005 indicating a change in the method of applying accounting
practices followed by the Registrant for the fiscal year ended June 3,
2005. (incorporated by reference to Exhibit 18.1 to Golden
Enterprises, inc. May 31, 2005 Form 10-K filed with the Commission)
(31) Certifications
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes Oxley Act of 2002.
20
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes Oxley Act of 2002,
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(99) Additional Exhibits
99.1 A copy of excerpts of the Last Will and Testament and Codicils thereto
of Sloan Y. Bashinsky, Sr. and of the SYB Common Stock Trust created
by Sloan Y. Bashinsky, Sr. providing for the creation of a Voting
Committee to vote the shares of common stock of Golden Enterprises,
Inc. held by SYB, Inc. and the Estate/Testamentary Trust of Sloan Y.
Bashinsky, Sr. (Incorporated by reference to Exhibit 99.1 to Golden
Enterprises, Inc. May 31, 2005 Form 10-k filed with the Commission).
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 11, 2006 /s/Mark W. McCutcheon
-------------- ---------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: April 11, 2006 /s/ Patty Townsend
-------------- ------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
21