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 September 1, 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 September 1, 2006
Outstanding at
Class September 29, 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
September 1, 2006 (unaudited) and June 2, 2006 3
Condensed Consolidated Statements of Operations (unaudited)
Thirteen Weeks Ended September 1, 2006 and September 2, 2005
4
Condensed Consolidated Statements of Cash Flows
(unaudited)- Thirteen Weeks Ended September 1, 2006 and September 2,
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 16
Item 4 Controls and Procedures 16
Part II. OTHER INFORMATION 16
Item 1 Legal Proceedings 17
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
September 1, June 2,
2006 2006
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 320,004 $ 321,627
Receivables, net 8,129,729 8,363,356
Notes receivable, current 54,752 53,672
Inventories:
Raw materials and supplies 1,298,831 1,425,605
Finished goods 2,795,597 2,850,466
------------ ------------
4,094,428 4,276,071
------------ ------------
Prepaid expenses 2,224,433 1,608,459
Deferred income taxes 669,976 669,976
------------ ------------
Total current assets 15,493,322 15,293,161
------------ ------------
Property, plant and equipment, net 13,364,850 13,583,051
Long-term Note Receivable 1,702,657 1,716,756
Other assets 3,017,140 3,135,114
------------ ------------
$ 33,577,969 $ 33,728,082
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Checks outstanding in excess of bank balances $ 2,380,031 $ 2,619,026
Accounts payable 3,252,808 2,210,026
Accrued income taxes 145,459 509,318
Other accrued expenses 4,624,760 4,727,753
Salary continuation plan 114,802 112,536
Note payable-bank current 759,215 750,177
Line of credit outstanding 171,460 313,923
------------ ------------
Total current liabilities 11,448,535 11,242,759
------------ ------------
LONG-TERM LIABILITIES
Note payable - bank, non-current 66,202 253,618
Salary Continuation Plan 1,642,522 1,661,363
------------ ------------
Total long-term liabilities 1,708,724 1,914,981
------------ ------------
DEFERRED INCOME TAXES 854,028 854,028
------------ ------------
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 14,527,127 14,676,759
------------ ------------
30,244,276 30,393,908
Less: Cost of common shares in treasury (1,993,463
at September 1, 2006 and June 2, 2006) (10,677,594) (10,677,594)
------------ ------------
Total stockholder's equity 19,566,682 19,716,314
------------ ------------
Total $ 33,577,969 $ 33,728,082
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
3
GOLDEN ENTERPRISES, INC. AND SUDSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------
Thirteen Thirteen
Weeks Weeks
Ended Ended
9/1/06 9/2/05
--------------------------------
Net sales $ 27,824,938 $ 26,031,836
Cost of sales 14,671,202 14,227,905
------------- -------------
Gross Margin 13,153,736 11,803,931
Selling, General and Administrative Expenses 12,800,024 11,965,810
------------- -------------
Operating Income (loss) 353,712 (161,879)
------------- -------------
Other income (expenses):
Investment income 35,987 36,875
Gain on sale of assets 6,942 78,634
Other income 5,963 8,868
Interest expense (53,569) (64,231)
------------- -------------
Total other (expenses) income (4,677) 60,146
------------- -------------
Income (loss) before income taxes 349,035 (101,733)
Income taxes 128,812 (37,491)
------------- -------------
Net income (loss) $ 220,223 $ (64,242)
------------- -------------
PER SHARE OF COMMON STOCK
Basic earnings $ 0.02 $ (0.01)
Diluted earnings $ 0.02 $ (0.01)
------------- -------------
Weighted average number of common
stock share outstanding:
Basic 11,835,330 11,835,330
Diluted 11,835,330 11,861,949
Cash dividends paid per share of
common stock $ 0.0313 $ 0.0313
See Accompanying Notes to Condensed Consolidated Financial Statements
4
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirteen Thirteen
Weeks Ended Weeks Ended
09/01/06 09/02/05
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 28,058,565 $ 25,924,431
Interest income 35,987 36,875
Rental income 4,783 8,556
Miscellaneous income 1,180 312
Cash paid to suppliers & employees (13,056,609) (13,070,741)
Cash paid for operating expenses (13,253,826) (12,164,284)
Income taxes paid (492,671) -
Interest expenses paid (53,569) (64,231)
------------ ------------
Net cash from operating activities 1,243,840 670,918
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (339,490) (413,931)
Proceeds from sale of property, plant and equipment 10,700 110,700
Collection of notes receivable 13,019 12,021
------------ ------------
Net cash used in investing activities (315,771) (291,210)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 3,591,714 5,378,745
Debt repayments (3,912,555) (5,509,104)
Change in checks outstanding in excess of bank
balances (238,995) 39,390
Purchases of treasury shares - -
Cash dividends paid (369,856) (369,856)
------------ ------------
Net cash used in financing activities (929,692) (460,825)
Net change in cash and cash equivalents (1,623) (81,117)
Cash and cash equivalents at beginning of period 321,627 371,204
------------ ------------
Cash and cash equivalents at end of period $ 320,004 $ 290,087
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 THIRTEEN WEEKS ENDED SEPTEMBER 1, 2006 AND SEPTEMBER 2, 2005
Thirteen Thirteen
Weeks Ended Weeks Ended
09/01/06 09/02/05
------------ ------------
Net Income (Loss) $ 220,223 $ (64,242)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 553,933 575,644
Gain on sale of property and equipment (6,942) (78,634)
Changes in operating assets and liabilities:
Change in receivables- net 233,627 (107,405)
Change in inventories 181,643 119,037
Change in pre-paid expenses (615,974) (316,676)
Change in other assets 117,975 25,962
Change in accounts payable 1,042,782 619,179
Change in accrued expenses (102,993) (86,255)
Change in salary continuation (16,575) (15,692)
Change in accrued income taxes (363,859) -
------------ ------------
Net cash from operating activities $ 1,243,840 $ 670,918
------------ ------------
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 2, 2006.
2. The consolidated results of operations for the thirteen weeks ended
September 1, 2006 are not necessarily indicative of the results to be
expected for the fifty-two week fiscal year ending June 1, 2007.
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 2, 2006.
4. The following tables summarize the prepaid assets accounts:
Prepaid Breakdown
Thirteen Thirteen
Weeks Ended Weeks Ended
September 1, 2006 September 2, 2005
------------------- --------------------
Truck Shop Supplies $ 686,045 $ 657,189
Insurance Deposit 227,640 393,155
Slotting Fees 191,949 247,473
Deferred Advertising Fees 592,498 543,004
Prepaid Insurance 336,516 690,971
Prepaid Taxes/Licenses 122,322 149,106
Prepaid Dues/Supplies 36,919 6,978
Other 30,544 65,548
------------------- --------------------
$ 2,224,433 $ 2,753,424
=================== ====================
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. Beginning June 3, 2006, we adopted SFAS No. 123 (R), "Share-Based Payment"
which requires measurement of the cost of employee services received in
exchange for an award of an equity instrument based on the fair value and
the date of grant of the award.
Prior to our adoption of SFAS No. 123 (R), we applied APB Opinion No. 25
"Accounting for Stock Issued to Employees" in accounting for stock option
plans. SFAS No. 123, "Accounting for Stock- Based Compensation," as amended
by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," required the Company to provide pro forma information
regarding net income (loss) as if the compensation cost for the Company's
stock option plans had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. To provide the required pro forma
information, the Company estimated the fair value of each stock option at
the grant date by using the Black-Scholes option-pricing model.
We adopted the "modified prospective method" in adopting SFAS 123 (R)
described in FASB No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", and prior amounts have not been restated. As of
June 3, 2006, all outstanding options were fully vested. Additionally, no
options were granted during the thirteen week period ended September 1,
2006. The adoption of SFAS 123 (R) did not have a material effect on the
current period financial position, results of operations, or cash flows.
Statement 123 (R) also requires that the benefits of tax deductions in
excess of recognized compensation cost be reported as a financing cash flow
rather than an operating cash flow as required under current literature.
This requirement will reduce net operating cash flows and increase net
financing cash flows in periods after the effective date. The company
cannot estimate what those amounts will be in the future because they
depend on, among other things, when employees exercise stock options.
For further information regarding our Incentive Stock Option plans in
effect including share-based payment arrangements, the number and
weighted-average exercise prices for outstanding options, and the number
and weighted-average grant-date fair value refer to the consolidated
financial statements and footnotes included in the Golden Enterprises, Inc.
and subsidiary ("the Company") Annual Report on Form 10-K for the year
ended June 2, 2006.
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 thirteen weeks ended September 1, 2006
and September 2, 2005:
-------------------------
Thirteen Thirteen
Weeks Ended Weeks Ended
09/01/06 09/02/05
-------------------------
Weighted average number of common shares used in 11,835,330 11,835,330
computing basic earnings per share
Effect of dilutive stock options 0 26,619
------------ ------------
Weighted average number of common shares and
dilutive potential common stock used in computing
dilutive earnings per share 11,835,330 11,861,949
Stock options excluded from the above
reconciliation because they are anti-dilutive 369,000 0
============ ============
8
8. The following table shows the effect on net income and earnings per share
for the 13 weeks ended September 2, 2005 had compensation expense been
recognized based upon the estimated fair value on the grant date of awards,
in accordance with SFAS 123, as amended by SFAS No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure":
--------------
Thirteen
Weeks
Ended
9/2/2005
--------------
Net loss as reported $ (64,242)
Stock based compensation costs, net of
income tax, that would have been included in
net income if the fair value method had applied (2,614)
--------------
Pro-forma net loss $ (66,856)
==============
Loss per share as reported-basic $ (0.01)
Loss per share as reported-diluted $ (0.01)
Pro-forma loss per share-basic $ (0.01)
Pro-forma loss per share-diluted $ (0.01)
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, 2006. The
Company is prohibited from purchasing certain products from any other
vendor until October 25, 2007.
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 thirteen weeks ended September 1, 2006
the Company's bank debt was decreased by $.32 million compared to a
decrease of $.13 million last year. The interest rate at September 1, 2006
was 7.15% compared to 5.26% at September 2, 2005.
11. The Company has a letter of credit in the amount of $2,668,846 outstanding
at September 1, 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 September 1,
2006 was $171,460 with an interest rate of 8.25%, leaving the Company with
$1,828,540 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.
9
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.
The Company's notes receivable requires collateral 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 September 1, 2006 and the related interim
consolidated statements of income and cash flows for the thirteen 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 2, 2006 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 24, 2006 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 2, 2006, 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
October 6, 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 430 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
12
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.
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 September 1, 2006 and June 2, 2006
the Company had accounts receivables in the amount of $8.1 million and $8.4
million, net of an allowance for doubtful accounts of $0.1 million and $0.1
million, respectively.
The following table summarizes the Company's customer accounts receivable
profile as of September 1, 2006:
Amount Range No. of Customers
------------ ----------------
Less than $1,000.00 ........................... 1299
$1,001.00-$10,000.00 .......................... 556
$10,001.00-$100,000.00 ........................ 112
$100,001.00-$500,000.00 ....................... 7
$500,001.00-$1,000,000.00 ..................... 1
$1,000,001.00-$2,500,000.00 ................... 0
----
Total All Accounts............................. 1975
====
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 expenses in an effort to record those expenses in
the period incurred. The most significant 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 13 of the Notes to
Consolidated Financial Statements in the Annual Report to Stockholders for
fiscal year ended June 2, 2006, are conducted on an arm's-length basis in the
ordinary course of business.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital was $4.1 million at June 2, 2006 and $4.0 million at the end of
the first quarter. Net cash provided by operating activities amounted to $1.2
million for the first quarter this year compared to $0.7 million for last year's
first quarter.
Additions to property, plant and equipment, net of disposals, were $0.24 million
this year and $0.20 million last year. Cash dividends of $0.37 million were paid
during this year's first quarter compared to $0.37 million last year. No cash
was used to purchase treasury stock this year, and no cash was used to increase
investment securities this year. The Company's current ratio was 1.35 to 1.00 at
September 1, 2006.
The following table summarizes the significant contractual obligations of the
Company as of September 1, 2006:
Contractual Obligations Total Current 2-3 Years 4-5 Years Thereafter
------------------------------ ------------ ----------- ----------- ----------- -------------
Long-Term Debt $ 825,417 $ 759,215 $ 66,202 $ 0 $ 0
Salary Continuation Plan 1,757,324 114,802 258,981 303,756 1,079,785
------------ ----------- ----------- ----------- -------------
Total Contractual Obligations $ 2,582,741 $ 874,017 $ 325,183 $ 303,756 $ 1,079,785
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
14
October 25, 2005. The Company is prohibited from purchasing certain products
from any other vendor until October 25, 2006.
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 September 1, 2006, net sales increased 7% from the
comparable period in fiscal 2006. This year's first quarter cost of sales were
52.7% of net sales compared to 54.7% last year, and selling, general and
administrative expenses were 46.0% of net sales this year and 46.0% last year.
The following tables compare manufactured products to resale products:
Manufactured Products-Resale Products
Thirteen Weeks Ended Thirteen Weeks Ended
September 1, 2006 September 2, 2005
Sales % %
Manufactured Products $22,241,872 79.9% $20,636,098 79.3%
Resale Products 5,583,066 20.1% 5,395,738 20.7%
------------ ------ ------------ ------
Total $27,824,938 100.0% $26,031,836 100.0%
GM GM
Gross Margin % %
Manufactured Products $10,672,078 48.0% $ 9,720,624 47.1%
Resale Products 2,481,658 44.4% 2,082,967 38.6%
------------ ------------
Total $13,153,736 47.3% $11,803,591 45.3%
The Company's gain on sales of assets for the thirteen weeks ended in the amount
of $6,942 was from the sale of used transportation equipment.
For last year's thirteen weeks the gain on sale of assets was $78,634 from the
sale of used transportation equipment for cash.
The Company's investment income decreased 2.4% from last year.
The Company's effective tax rate for the first quarter was 37.0% compared to
37.0% for the last year's first quarter.
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 September
1, 2006 variable rate investment levels and bank loan balances, a one-point
change in interest rates would impact interest income by $87 on an annual basis
and interest expense by $8,254.
15
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.
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
------
16
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
There have been no material changes to the Risk Factors since the filing of Form
10-K for the Company's fiscal year ended June 2, 2006.
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.
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.
17
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).
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).
18
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).
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).
19
(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
2, 2006. (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.
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: October 11, 2006 /s/Mark W. McCutcheon
---------------- --------------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: October 11, 2006 /s/ Patty Townsend
---------------- --------------------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
20