FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly (thirteen and thirty-nine weeks) period ended March 2, 2007
-------------
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 30, 2007.
Outstanding at
Class March 30, 2007
----- --------------
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 2, 2007 (unaudited) and June 2, 2006 3
Condensed Consolidated Statements of Operations (unaudited)
Thirteen and Thirty-Nine Weeks Ended March 2, 2007 and
March 3, 2006 4
Condensed Consolidated Statements of Cash Flows
(unaudited)- Thirty-Nine Weeks Ended March 2, 2007 and
March 3, 2006 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Report of Independent Registered Public Accounting Firm 10
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosure About Market Risk 15
Item 4 Controls and Procedures 16
Part II. OTHER INFORMATION 16
Item 1 Legal Proceedings 16
Item 1-A Risk Factors 16
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 16
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)
March 2, June 2,
2007 2006
-------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 373,709 $ 321,627
Receivables, net 7,828,168 8,363,356
Notes receivable, current 56,979 53,672
Inventories:
Raw materials and supplies 1,535,263 1,425,605
Finished goods 3,111,960 2,850,466
-------------- --------------
4,647,223 4,276,071
-------------- --------------
Prepaid expenses 2,101,708 1,608,459
Deferred income taxes 669,976 669,976
-------------- --------------
Total current assets 15,677,763 15,293,161
-------------- --------------
Property, plant and equipment, net 13,231,570 13,583,051
Long-term note receivable 1,673,599 1,716,756
Other assets 2,970,573 3,135,114
-------------- --------------
$ 33,553,505 $ 33,728,082
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Checks outstanding in excess of bank balances $ 2,806,732 $ 2,619,026
Accounts payable 2,059,562 2,210,026
Accrued income taxes 95,483 509,318
Other accrued expenses 4,485,906 4,727,753
Salary continuation plan 119,471 112,536
Note payable - current 458,787 750,177
Line of credit outstanding 1,871,185 313,923
-------------- --------------
Total current liabilities 11,897,126 11,242,759
-------------- --------------
LONG-TERM LIABILITIES
Note payable - non-current - 253,618
Salary continuation plan 1,603,081 1,661,363
-------------- --------------
Total long-term liabilities 1,603,081 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 14,159,715 14,676,759
-------------- --------------
29,876,864 30,393,908
Less: Cost of common shares in treasury
(1,993,463 at March 2, 2007 and June 2, 2006) (10,677,594) (10,677,594)
-------------- --------------
Total stockholder's equity 19,199,270 19,716,314
-------------- --------------
Total $ 33,553,505 $ 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 Thirty-Nine Thirty-Nine
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
3/2/07 3/3/06 3/2/07 3/3/06
----------------------------------------------------------
Net sales $ 27,124,000 $ 26,819,759 $ 81,545,150 $ 78,281,710
Cost of sales 14,099,930 14,214,526 43,006,828 42,243,972
------------- ------------- ------------- -------------
Gross Margin 13,024,070 12,605,233 38,538,322 36,037,738
Selling, General and Administrative Expenses 12,244,243 11,872,534 37,800,794 35,926,656
------------- ------------- ------------- -------------
Operating Income 779,827 732,699 737,528 111,082
------------- ------------- ------------- -------------
Other income (expenses):
Investment income 35,094 35,896 106,497 109,724
Gain on sale of assets 213,728 47,847 249,638 146,801
Other income 13,637 39,050 37,847 67,313
Interest expense (73,321) (78,492) (192,483) (217,680)
------------- ------------- ------------- -------------
Total other income (expenses) 189,138 44,301 201,499 106,158
------------- ------------- ------------- -------------
Income before income taxes 968,965 777,000 939,027 217,240
Income taxes 357,537 286,703 346,504 80,216
------------- ------------- ------------- -------------
Net income $ 611,428 $ 490,297 $ 592,523 $ 137,024
============= ============= ============= =============
PER SHARE OF COMMON STOCK
Basic Earnings Per Share $ 0.05 $ 0.04 $ 0.05 $ 0.01
Diluted Earnings Per Share $ 0.05 $ 0.04 $ 0.05 $ 0.01
Weighted average number of common stock
share outstanding:
Basic 11,835,330 11,835,330 11,835,330 11,835,330
Diluted 11,835,330 11,835,330 11,835,330 11,837,696
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 Thirty-Nine
Weeks Ended Weeks Ended
March 2, 2007 March 3, 2006
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 82,080,338 $ 78,142,658
Interest income 106,497 109,724
Rental income 26,401 28,599
Miscellaneous income 11,446 38,714
Cash paid to suppliers & employees (42,334,444) (42,231,437)
Cash paid for operating expenses (37,924,555) (35,878,200)
Income taxes (paid)/received (760,339) 200,587
Interest expenses paid (192,483) (217,680)
-------------- --------------
Net cash from operating activities 1,012,861 192,965
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,398,184) (1,206,006)
Proceeds from sale of property, plant and
equipment 307,163 167,116
Collection of notes receivable 39,850 36,796
-------------- --------------
Net cash used in investing activities (1,051,171) (1,002,094)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 16,811,368 16,334,046
Debt repayments (15,799,114) (16,082,787)
Change in checks outstanding in excess of bank
balances 187,706 1,616,363
Cash dividends paid (1,109,568) (1,109,568)
-------------- --------------
Net cash provided by financing activities 90,392 758,054
Net change in cash and cash equivalents 52,082 (51,075)
Cash and cash equivalents at beginning of period 321,627 371,204
-------------- --------------
Cash and cash equivalents at end of period $ 373,709 $ 320,129
============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
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 THIRTY-NINE WEEKS ENDED MARCH 2, 2007 AND MARCH 3, 2006
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
March 2, 2007 March 3, 2006
------------- -------------
Net Income $ 592,523 $ 137,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,692,139 1,730,239
Gain on sale of property and equipment (249,638) (146,801)
Changes in operating assets and liabilities:
Change in receivables - net 535,188 (139,052)
Change in inventories (371,152) (328,804)
Change in prepaid expenses (493,249) 324,248
Change in other assets 164,543 12,352
Change in accounts payable (150,464) (891,171)
Change in accrued expenses (241,847) (456,417)
Change in salary continuation (51,347) (48,653)
Change in accrued income taxes (413,835) -
------------- -------------
Net cash provided by operating activities $ 1,012,861 $ 192,965
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
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 thirty-nine weeks ended
March 2, 2007 are not necessarily indicative of the results to be expected
for the fifty-two week fiscal year ending June 1, 2007.
3. The following tables summarize the prepaid assets accounts:
Prepaid Breakdown
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
March 2, 2007 March 3, 2006
------------- -------------
Truck Shop Supplies $ 689,097 $ 635,623
Insurance Deposit 227,640 242,517
Slotting Fees 239,541 304,017
Deferred Advertising Fees 197,494 181,012
Prepaid Insurance 477,494 423,310
Prepaid Taxes/Licenses 183,839 241,521
Prepaid Dues/Supplies 64,099 55,770
Other 22,504 28,730
------------- -------------
$ 2,101,708 $ 2,112,500
============= =============
4. The principal raw materials used in the manufacture of the Company's snack
food products are potatoes, corn, vegetable oils and seasoning. The
principal supplies used are flexible film, cartons, trays, boxes and bags.
These raw 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.
5. In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting For Uncertainty in Income Taxes - an
Interpretation of FASB Statement 109", (FIN 48). FIN 48 is effective for
fiscal years beginning after December 15, 2006. We are evaluating the
impact that FIN 48 will have on our financial conditions, results of
operation and cash flows. FIN 48 will be adopted in the first quarter of
the fiscal year ended May 30, 2008 and is not expected to have a material
impact on our results of operations or financial positition.
7
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 thirty-nine week period ended March 2,
2007. 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 thirty-nine weeks ended March 2, 2007
and March 3, 2006:
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
March 2, 2007 March 3, 2006
----------------------------
Weighted average number of common shares used in
computing basic earnings per share 11,835,330 11,835,330
Effect of dilutive stock options 0 2,366
------------- -------------
Weighted average number of common shares and
dilutive potential common stock used in computing
dilutive earnings per share 11,835,330 11,837,696
Stock options excluded from the above reconciliation
because they are anti-dilutive 369,000 329,000
============= =============
8
8. The following table shows the effect on net income and earnings per share
for the thirteen and thirty-nine weeks ended March 3, 2006 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 Thirty-Nine
Weeks Weeks
Ended Ended
3/3/2006 3/3/2006
------------- -------------
Net income as reported $ 490,297 $ 137,024
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) (7,844)
------------- -------------
Pro-forma net income $ 487,682 $ 129,180
============= =============
Income per share as reported-basic $ 0.04 $ 0.01
Income per share as reported-diluted $ 0.04 $ 0.01
Pro-forma income per share-basic $ 0.04 $ 0.01
Pro-forma income per share-diluted $ 0.04 $ 0.01
9. The interest rate on the Company's note payable is reset monthly to reflect
the 30 days LIBOR rate. Consequently, the carrying value of the note
payable approximates fair value. The interest rate at March 2, 2007 was
7.07% compared to 6.31% at March 3, 2006. The Company's notes payable
decreased by $721,520 compared to a decrease of $697,727 last year.
10. The Company has a letter of credit in the amount of $2,668,846 outstanding
at March 2, 2007, compared to $3,084,365 at March 3, 2006, a decrease of
$415,519. The letter of credit supports the Company's commercial
self-insurance program.
11. Currently, the Company has a line-of-credit agreement with a local bank
that permits borrowing up to $2 million, compared to $2 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 2, 2007
was $1,871,185 with an interest rate of 8.25%, leaving the Company with
$128,815 of credit availability. 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.
12. 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.
The Company's notes receivable require collateral and management believes
they are well secured.
9
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 2, 2007 and the related interim
consolidated statements of income and cash flows for the thirteen and
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 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.
Birmingham, Alabama
April 6, 2007 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
10
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
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.
11
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 2, 2007 and June 2, 2006 the
Company had accounts receivables in the amount of $7,828,168 and $8,363,356, net
of an allowance for doubtful accounts of $114,249 and $133,422, respectively.
The following table summarizes the Company's customer accounts receivable
profile as of March 2, 2007:
Amount Range No. of Customers
------------ ----------------
Less than $1,000.00 ............................... 1,251
$1,001.00-$10,000.00 .............................. 544
$10,001.00-$100,000.00 ............................ 109
$100,001.00-$500,000.00 ........................... 8
$500,001.00-$1,000,000.00 ......................... 1
$1,000,001.00-$2,500,000.00 ....................... 0
-------
Total All Accounts................................. 1,913
=======
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. 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 uses 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.
12
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 $4,050,402 at June 2, 2006 and $3,780,637 at the end of the
third quarter. Net cash provided by operating activities amounted to $1,012,861
for the thirty-nine weeks ended March 2, 2007 compared to $192,965 for the same
period last year.
Additions to property, plant and equipment, net of disposals, were $676,681 this
year and $690,210 last year. Cash dividends of $1,109,568 were paid during this
year's thirty-nine weeks ended compared to $1,109,568 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 1.32 to 1.00 at
March 2, 2007.
The following table summarizes the significant contractual obligations of the
Company as of March 2, 2007:
Contractual Obligations Total Current 2-3 Years 4-5 Years Thereafter
----------------------- ------------ ---------- ---------- ---------- ------------
Note Payable $ 458,787 $ 458,787 $ - $ - $ -
Salary Continuation Plan 1,722,552 119,471 269,514 316,110 1,017,457
------------ ---------- ---------- ---------- ------------
Total Contractual Obligations $ 2,181,339 $ 578,258 $ 269,514 $ 316,110 $ 1,017,457
============ ========== ========== ========== ============
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 2, 2007, net sales increased 1.1% from the
comparable period in fiscal 2006. For the thirty-nine weeks ended March 2, 2007,
net sales increased 4.2% from the comparable period in fiscal 2006. This year's
third quarter cost of sales was 52.0% of net sales compared to 53.0% for last
year's third quarter. This year's third quarter, selling, general, and
administrative expenses were 45.1% of net sales compared to 44.3% for last
year's third quarter. This year's year to date cost of sales was 52.7% of net
sales compared to 54.0% for last year's year to date. This year's year to date,
selling, general and administrative expenses were 46.4% of net sales compared to
45.9% for last year's year to date.
13
The following tables compare manufactured products to resale products:
Manufactured Products-Resale Products
Thirteen Weeks Ended Thirteen Weeks Ended
March 2, 2007 March 3, 2006
Sales % %
Manufactured Products $ 21,773,968 80.3% $ 21,085,340 78.6%
Resale Products 5,350,032 19.7% 5,734,419 21.4%
------------- ------- ------------- -------
Total $ 27,124,000 100.0% $ 26,819,759 100.0%
GM GM
Gross Margin % %
Manufactured Products $ 11,317,227 52.0% $ 10,133,822 48.1%
Resale Products 1,706,843 31.9% 2,471,411 43.1%
------------- ------- ------------- -------
Total $ 13,024,070 48.0% $ 12,605,233 47.0%
Manufactured Products-Resale Products
Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended
March 2, 2007 March 3, 2006
Sales % %
Manufactured Products $ 65,245,644 80.0% $ 61,774,448 78.9%
Resale Products 16,299,506 20.0% 16,507,262 21.1%
------------- ------- ------------- -------
Total $ 81,545,150 100.0% $ 78,281,710 100.0%
GM GM
Gross Margin % %
Manufactured Products $ 33,347,221 51.1% $ 29,280,997 47.4%
Resale Products 5,191,101 31.8% 6,756,741 40.9%
------------- ------- ------------- -------
Total $ 38,538,322 47.3% $ 36,037,738 46.0%
The Company's gain on sales of assets for the thirteen weeks ended March 2, 2007
in the amount of $213,728 is from the sale of the Chattanooga warehouse and the
sale of used equipment.
GAIN ON SALE OF FIXED ASSETS
----------------------------
Chattanooga warehouse $ 200,738
Sale of used equipment 12,990
----------
Total gain on sale of assets $ 213,728
==========
For last year's thirteen weeks the gain on sale of assets was $47,847 from the
sale of used equipment for cash.
The Company's investment income decreased 2.2% from last year for the current
quarter's thirteen week period. For the thirty-nine weeks investment income was
down 2.9%.
The Company's effective tax rate for the thirteen weeks was 36.9% compared to
36.9% for the last year's thirteen weeks and 36.9% for the thirty-nine weeks
this year and 36.9% last year.
14
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 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,
2007 variable rate investment levels and bank loan balances, a one-point change
in interest rates would impact interest income by $96 on an annual basis and
interest expense by $4,588.
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.
SUBSEQUENT EVENT
On March 29, 2007, Golden Flake Snack Foods, Inc. sold a warehouse located in
Little Rock, Arkansas. The selling price was $285,000.
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 11.
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
There are no material changes in our risk factors from those disclosed in our
2006 Annual Report on Form 10-K.
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.
16
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).
17
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 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).
10.8 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).
18
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 Lease of aircraft executed by and between Golden Flake Snack Foods,
Inc., a wholly-owned subsidiary of Golden Enterprises, Inc., and Joann
F. Bashinsky dated February 1, 2006 (incorporated by reference to
Exhibit 10.15 to Golden Enterprises, Inc. June 2, 2006 Form 10-K filed
with the Commission).
10.16 Purchase and Sale Agreement executed by and between Golden Flake
Snack Foods, Inc., as Seller, and Educational Development Company of
America, LLC & Waterbury Companies, LLC, as Purchaser, with an
effective date of June 26, 2006, for the sale of approximately 12
acres of land located adjacent to the Company's Office Headquarters
and Manufacturing Plant in Birmingham, Alabama (incorporated by
reference to Exhibit 10.16 to Golden Enterprises, Inc. June 2, 2006
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.
19
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: April 11, 2007 /s/ Mark W. McCutcheon
-------------- ----------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: April 11, 2007 /s/ Patty Townsend
-------------- ------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
20