UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2003
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4339
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GOLDEN ENTERPRISES, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0250005
---------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Golden Flake Drive
Birmingham, Alabama 35205
---------------------------------- ------------------------
(205) 458-7316
----------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of December 31, 2003.
Outstanding at
Class December 31, 2003
----- -----------------
Common Stock, Par Value $0.66 2/3 11,883,305
Explanatory Note
This form 10-Q/A amends the Registrant's quarterly report on form 10-Q as
of and for the three months ended November 30, 2003 as filed on January 13, 2004
and is being filed to reflect the restatement of the Registrant's Consolidated
Financial Statements for accruals for its vacation pay and self-insured health
and casualty obligations. See Note 2 to the Restated Consolidated Financial
Statements for the year ended May 31, 2003 for further discussion on this
matter. Each item of the 2004 second quarter Form 10-Q as filed on January 13,
2004 that was affected by the restatement has been amended and restated.
The Registrant did not amend its Annual Report on Form 10-K or Quarterly
Reports on Form 10-Q for periods affected by the restatement that ended prior to
May 31, 2003, and the financial statements and related financial information
contained in such reports should no longer be relied on.
2
GOLDEN ENTERPRISES, INC.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1 Restated Consolidated Financial Statements (unaudited) 4
Condensed Consolidated Balance Sheets
November 30, 2003 (unaudited) and May 31, 2003
Condensed Consolidated Statements of Operations (unaudited)
Three Months and Six Months ended November 30, 2003 and
2002 5
Condensed Consolidated Statements of Cash
Flows (unaudited)- Six Months ended November 30, 2003 6
and 2002
Notes to Restated Condensed Consolidated Financial Statements
(unaudited) 7
Independent Accountant's Report 13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3 Quantitative and Qualitative
Disclosure About Market Risk 18
Item 4 Controls and Procedures 18
Part II. OTHER INFORMATION
Item 6 Exhibits and Report on Form 8-K 19
3
PART I. FINANCIAL INFORMATION
ITEM 1. RESTATED FINANCIAL STATEMENTS
The restated consolidated financial statements, including the notes to
the restated consolidated financial statements, set forth in this item
1 have been revised to reflect the restatement of the original Form
10-Q.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
Restated Restated
November 30, May 31,
2003 2003
------------- -------------
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents $ 427,833 $ 1,278,333
Receivables, net 7,426,452 7,846,254
Note Receivable, current 43,972 42,253
Inventories:
Raw material and supplies 1,943,367 1,496,992
Finished goods 2,470,607 2,289,145
------------- -------------
4,413,974 3,786,137
------------- -------------
Prepaid expense $ 3,874,652 2,881,121
Deferred income taxes 407,230 652,153
------------- -------------
Total current assets 16,594,113 16,486,251
------------- -------------
Property, plant and equipment, net 14,543,906 15,361,573
Long-term Note Receivable 1,843,322 1,865,747
Other assets 2,777,822 2,777,972
------------- -------------
$ 35,759,163 $ 36,491,543
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding in excess of bank balances $ 1,283,936 $ 1,157,108
Accounts payable 2,694,158 1,700,934
Other accrued expenses 4,274,163 4,289,448
Salary continuation plan 92,198 88,595
Note payable- bank, current 438,796 432,142
------------- -------------
Total current liabilities 8,783,251 7,668,227
------------- -------------
Long-Term Liabilities:
Note payable-bank, non-current 843,862 1,990,767
Salary Continuation Plan 1,839,261 1,870,991
------------- -------------
Total long-term liabilities 2,683,123 3,861,758
------------- -------------
Deferred income taxes 722,303 884,033
------------- -------------
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 18,386,514 18,893,553
------------- -------------
34,103,663 34,610,702
Less: Cost of common shares in treasury (1,945,488
at November 30, 2003 and May 31, 2003) (10,533,177) (10,533,177)
------------- -------------
Total stockholders' equity 23,570,486 24,077,525
------------- -------------
Total $ 35,759,163 $ 36,491,543
============= =============
See Accompanying Notes to Restated Condensed Consolidated Financial Statements
4
ITEM1- GOLDEN ENTERPRISES, INC. AND SUBSIDARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Restated Restated
Three Months Ended Six Months Ended
NOVEMBER 30, NOVEMBER 30,
----------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------
Net Sales $ 23,296,981 $ 23,491,688 $ 47,877,759 $ 48,332,010
Cost of sales 12,218,622 12,727,270 25,043,986 25,407,483
------------- ------------- ------------- -------------
Gross margin 11,078,359 10,764,418 22,833,773 22,924,527
Selling, general and administrative expenses
11,431,717 11,391,793 22,555,289 23,437,614
------------- ------------- ------------- -------------
Operating (loss) (353,358) (627,375) 278,484 (513,087)
------------- ------------- ------------- -------------
Other income (expenses):
Investment income 39,565 41,632 79,474 83,050
Gain on sale of assets 17,454 9,300 64,885 246,589
Other income 21,148 22,605 40,932 45,944
Interest expense (48,320) (70,715) (101,949) (140,817)
------------- ------------- ------------- -------------
Total other income (expenses) 29,847 2,822 83,342 234,766
------------- ------------- ------------- -------------
(Loss) before income taxes (323,511) (624,553) 361,826 (278,321)
Income tax expense (127,490) (239,116) 126,155 (115,114)
------------- ------------- ------------- -------------
Net (loss) $ (196,021) $ (385,437) $ 235,671 $ (163,207)
============= ============= ============= =============
PER SHARE OF COMMON STOCK:
Net (loss) $ (0.02) $ (0.03) $ (0.02) $ (0.01)
============= ============= ============= =============
Weighted average number of common stock
shares outstanding 11,883,305 11,883,305 11,883,305 11,883,305
============= ============= ============= =============
Cash dividends paid per share of common
Stock $ 0.0313 $ 0.0625 $ 0.0626 $ 0.1250
============= ============= ============= =============
See Accompanying Notes to Restated Condensed Consolidated Financial Statements
5
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Restated Restated
SIX MONTHS ENDED
November 30, November 30,
2003 2002
---------------------------
Cash flows from operating activities:
Net (Loss) $ 235,671 $ (163,207)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,184,264 1,287,773
Deferred income taxes 83,193 (293,186)
Gain on sale of property and equipment (64,885) (246,589)
Changes in operating assets and liabilities:
Decrease in receivable- net 419,802 1,264,178
(Increase) Decrease in inventories (627,837) 295,131
(Increase) in pre-paid expenses (993,531) (400,483)
Increase in other assets- long term 150 0
Increase in accounts payable 993,224 762,158
(Decrease) in accrued expenses (15,285) (965,942)
(Decrease) increase in salary continuation (28,127) (26,587)
------------- -------------
Net cash provided by operating activities 1,186,639 1,513,246
------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (434,515) (444,541)
Proceeds from sale of property, plant and equipment 132,804 355,799
Collection of note receivable 20,706 22,501
Investment securities available- for sale:
Purchases (1,957,466)
Proceeds from disposal 1,870,000
------------- -------------
Net cash (used in)
Investing activities (281,005) (153,707)
Cash flows from financing activities:
Debt repayments (1,140,251) (605,734)
Increase in checks outstanding in
excess of bank balances 126,828 617,309
Cash dividends paid (742,711) (1,485,417)
------------- -------------
Net cash (used in) financing activities (1,756,134) (1,473,842)
------------- -------------
Net (decrease) in cash and cash equivalents (850,500) (114,303)
Cash and cash equivalents at beginning of year 1,278,333 286,480
------------- -------------
Cash and cash equivalents at end of quarter $ 427,833 $ 172,177
============= =============
Supplemental information:
Cash paid during the year for:
Income taxes $ 71,170 $ 49,267
Interest 101,949 140,817
See Accompanying Notes to Restated Condensed Consolidated Financial Statements
6
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Throughout these notes to restated consolidated financial statements all
referenced amounts for current and prior periods and prior period comparisons
reflect the balances and amounts on a restated basis.
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP) for interim financial information
and with the instructions to Form 10-Q and Article 10 to Regulation S-X.
Accordingly, they do not include all information and footnotes required by
GAAP for complete financial statements. In the opinion of management, all
adjustments consisting of normal recurring accruals considered necessary
for a fair presentation have been included. For further information, refer
to the restated consolidated financial statements and footnotes included in
the Golden Enterprises, Inc. and subsidiary ("the Company") Amended Annual
Report on Form 10-K/A for the year ended May 31, 2003.
2. This amendment to the Company's quarterly financial information previously
reported on Form 10-Q for the quarterly period ended November 30, 2003
includes restated consolidated financial statements at November 30, 2003
and May 31, 2002 and for the six months ended November 30, 2003 and
November 30, 2002.
The following table presents the impact of the restatement adjustments on net
earnings for the three and six months ended November 30, 2003 and 2002,
respectively.
Three Months Ended Six Months Ended
November 30, November 30,
2003 2002 2003 2002
--------------------------------------------
Net Income (loss) as originally reported $(319,115) $(381,529) $(60,170) $(415,210)
Adjustments (pre-tax):
Accrued Vacation Liability (634) 10,950 (1,268) 21,900
Self Insurance Liability 195,004 (83,946) 468,410 272,296
Other -0- 66,825 -0- 103,724
---------- ---------- --------- ----------
Total adjustments (pre-tax) 194,370 (6,171) 467,142 397,920
Total taxes 71,276 (2,263) 171,301 145,917
---------- ---------- --------- ----------
Total net adjustments 123,094 (3,908) 295,841 252,003
Net (loss) income as restated $(196,021) $(385,437) $235,671 $(163,207)
========== ========== ========= ==========
Per share of Common Stock:
Net loss - Basic as originally reported $ (0.03) $ (0.03) $ (0.01) $ (0.03)
Effect of net adjustments 0.01 -0- 0.03 0.02
---------- ---------- --------- ----------
Net (loss) income - Basic as restated $ (0.02) $ (0.03) $ 0.02 $ (0.01)
========== ========== ========= ==========
Net loss-Diluted as originally reported $ (0.03) $ (0.03) $ (0.01) $ (0.04)
Effect of net adjustments 0.01 -0- 0.03 0.03
---------- ---------- --------- ----------
Net (loss) income-Diluted as restated $ (0.02) $ (0.03) $ 0.02 $ (0.01)
========== ========== ========= ==========
7
The following table sets forth the effects of the restatement adjustments
discussed below on the Consolidated Statement of Operations for each of the
quarters ended November 30, 2003 and 2002, respectively.
Quarter Ended Quarter Ended
November 30, 2003 November 30, 2002
As Originally As Originally
Reported As Restated Reported As Restated
----------------------------------------------------------
Net Sales $ 23,296,981 $ 23,296,981 $ 23,424,863 $ 23,491,688
Cost of Goods Sold 12,232,132 12,218,622 12,697,000 12,727,270
Selling, General and Administrative
Expenses 11,612,577 11,431,717 11,349,067 11,391,793
Other income (expenses) 29,847 29,847 2,822 2,822
------------- ------------- ------------- -------------
(Loss) income before cumulative
effect of a change in accounting
policy and income taxes (517,881) (323,511) (618,382) (624,553)
Provision for income taxes (198,766) (127,490) (236,853) (239,116)
------------- ------------- ------------- -------------
Net (Loss) income $ (319,115) $ (196,021) $ (381,529) $ (385,437)
============= ============= ============= =============
Net Loss per share- Basic $ (0.03) $ (0.02) $ (0.03) $ (0.03)
Average Shares Outstanding 11,883,305 11,883,305 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.03) $ (0.02) $ (0.03) $ (0.03)
Average Shares Outstanding 11,883,305 11,883,305 11,902,341 11,902,341
Six Months Six Months
Ended November 30, 2003 Ended November 30, 2002
As Originally As Originally
Reported As Restated Reported As Restated
----------------------------------------------------------
Net Sales $ 47,877,759 $ 47,877,759 $ 48,228,286 $ 48,332,010
Cost of Goods Sold 25,115,068 25,043,986 25,594,329 25,407,483
Selling, General and Administrative
Expenses 22,951,350 22,555,289 23,544,964 23,437,614
Other income (expenses) 83,342 83,342 234,766 234,766
------------- ------------- ------------- -------------
(Loss) income before cumulative
effect of a change in accounting
policy and income taxes (105,317) 361,826 (676,241) (278,321)
Provision for income taxes (45,147) 126,155 (261,031) (115,114)
------------- ------------- ------------- -------------
Net (Loss) income $ (60,170) $ 235,671 $ (415,210) $ (163,207)
============= ============= ============= =============
Net Loss per share- Basic $ (0.01) $ 0.02 $ (0.03) $ (0.01)
Average Shares Outstanding 11,883,305 11,883,305 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.01) $ 0.02 $ (0.04) $ (0.01)
Average Shares Outstanding 11,883,305 11,883,305 11,902,341 11,902,341
8
The following table sets forth the effects of the restatement discussed below on
the Consolidated Balance Sheet at November 30, 2003 and May 31, 2003.
November 30, 2003 May 31, 2003
As Originally As Originally
Reported As Restated Reported As Restated
----------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 427,833 $ 427,833 $ 1,278,333 $ 1,278,333
Receivables, net 7,519,113 7,426,452 7,938,916 7,846,254
Notes receivable, current 43,972 43,972 42,253 42,253
Inventories 4,413,974 4,413,974 3,786,137 3,786,137
Prepaid expenses 4,372,447 3,874,652 3,645,298 2,881,121
Deferred income taxes -0- 407,230 -0- 652,153
------------- ------------- ------------- -------------
Total current assets 16,777,339 16,594,113 16,690,937 16,486,251
Property, Plant and Equipment 14,543,906 14,543,906 15,361,573 15,361,573
Notes receivable, long-term 1,843,322 1,843,322 1,865,747 1,865,747
Other 2,777,822 2,777,822 2,777,972 2,777,972
------------- ------------- ------------- -------------
Total Assets $ 35,942,389 $ 35,739,163 $ 36,696,229 $ 36,491,543
============= ============= ============= =============
Liabilities and Stockholders' Equity
Current liabilities
Checks outstanding in excess of bank
balances $ 1,283,936 $ 1,283,936 $ 1,157,108 $ 1,157,108
Accounts payable 2,694,158 2,694,158 1,700,934 1,700,934
Current portion of long-term debt 438,796 438,796 432,142 432,142
Other accrued expenses 2,521,070 4,274,163 2,381,975 4,289,448
Deferred income taxes 304,698 -0- 304,698 -0-
Salary continuation plan 92,198 92,198 88,595 88,595
------------- ------------- ------------- -------------
Total current liabilities 7,334,857 8,783,251 6,065,452 7,668,227
Long-term liabilities
Note payable- bank, non- current 843,862 843,862 1,990,767 1,990,767
Salary continuation plan 1,839,261 1,839,261 1,870,991 1,870,991
Deferred income taxes 722,303 722,303 764,032 884,033
------------- ------------- ------------- -------------
Total Liabilities 10,740,283 12,188,677 10,691,242 12,417,018
Stockholders' equity
Common stock - $.66 2/3 par value:
Authorized 35,000,000 shares:
issued 13,828,793 shares 9,219,195 9,219,195 9,219,195 9,219,195
Additional paid-in capital 6,497,954 6,497,954 6,497,954 6,497,954
Retained earnings 20,708,604 18,386,514 20,821,015 18,893,553
Treasury shares - at cost
(1,945,488) (10,533,177) (10,533,177) (10,533,177) (10,533,177)
------------- ------------- ------------- -------------
Total stockholders' equity 25,202,106 23,570,486 26,004,987 24,077,525
------------- ------------- ------------- -------------
Total liabilities and stockholders'
equity $ 35,942,389 $ 35,759,163 $ 36,696,229 $ 36,494,543
============= ============= ============= =============
9
The following table presents the impact of the restatement adjustments on
stockholders' equity as of June 1, 2000.
Stockholders' Equity - June 1, 2000, as previously reported $ 24,686,435
Self-Insurance liability (1,336,817)
Compensated absences (1,643,177)
Tax effect of restatement adjustments 1,092,764
-------------
Decrease in Stockholders Equity $ (1,887,230)
-------------
Stockholders' Equity - June 1, 2000, as restated $ 22,799,205
=============
Self-Insurance liability: The Company determined that there had been an error in
its accounting for self-insurance related liabilities. The adjustments required
included recognition of previously unrecorded liabilities and reductions in
amounts previously recognized as pre-paid amounts to an employee trust which
were incorrect.
Compensated absences: The Company determined that it had not recorded
liabilities for earned vacation not yet taken as required by GAAP.
Other items: This category includes adjustments previously identified but deemed
to be immaterial. Adjustments in this category change the timing of the items
that were previously recognized.
3. The results of operations for the three months ended and six-months ended
November 30, 2003 and 2002 are not necessarily indicative of the results to
be expected for the full year.
4. The principal raw materials used in the manufacture of the Company's snack
food products are potatoes, corn, vegetable oils and seasoning. The
principal supplies used are flexible film, cartons, trays, boxes and bags.
These raw material and supplies are generally available in adequate
quantities in the open market from sources in the United States and are
generally contracted up to a year in advance.
5. In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal
plan. Costs covered by SFAS No. 146 includes lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing or other exit disposal activity.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. The adoption of this standard did not have a material
impact on the Company's financial position, results of operations or cash
flows.
6. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No.123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company has adopted the disclosure requirements of
SFAS No. 148 effective May 31, 2003 in its consolidated financial
statements. The Company will continue to account for stock-based
compensation using the methods described in Note 8 below.
10
7. The following table provides a reconciliation of the denominator used in
computing basic earnings per share to the denominator used in computing
diluted earnings per share for the six months ended November 30, 2003 and
2002:
November 30,
2003 2002
-------------------------
Weighted average number of common shares used
in computing basic earnings per share 11,883,305 11,883,305
Effect of dilutive stock options 0 19,036
------------ ------------
Weighted average number of common shares and dilutive
potential common stock used in computing dilutive
earnings per share 11,883,305 11,902,341
============ ============
Stock options excluded from the above reconciliation
because they are anti-dilutive 369,000 329,000
============ ============
8. The Company applies APB Opinion No. 25 in accounting for all of its stock
option plans and, accordingly, no compensation cost has been recognized for
its stock options in the financial statements. The table below presents the
pro-forma net income effect of the options using the Black-Scholes option
pricing model prescribed under SFAS No. 123.
For the three For the Six
Months Ended Months Ended
November 30, November 30,
2003 2002 2003 2002
-------------------------------------------
Net (loss) as reported ($196,021) ($385,437) $235,671 ($163,207)
(Loss) per share as reported-basic (.02) (.03) .02 (.01)
(Loss) per share as reported-diluted (.02) (.03) .02 (.01)
Stock based compensation costs, net
of income tax, that would have been
included in net income if the fair
value method had been applied (3,073) (3,165) (6,146) (6,330)
Pro-forma net (loss) (199,094) (388,602) 229,525 (169,537)
Pro-forma (loss) per share-basic (.02) (.03) .02 (.01)
Pro-forma (loss) per share-diluted (.02) (.03) .02 (.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.
11
10. The interest rate on the Company's bank debt is reset monthly to reflect
the 30 days LIBOR rate. Consequently, the carrying value of the bank debt
approximates fair value. During the six months ended November 30, 2003 the
Company's bank debt was reduced by $1.14 million compared to $.61 million
last year. The interest rate at November 30, 2003 was 2.87% compared to
3.44% at November 30, 2002.
11. The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents and trade receivables.
The Company maintains deposit relationships with high credit quality
financial institutions. The Company's trade receivables result primarily
from its snack food operations and reflect a broad customer base, primarily
large grocery store chains located in the Southeastern United States. The
Company routinely assesses the financial strength of its customers. As a
consequence, concentrations of credit risk is limited.
The Company's notes receivable require collateral and buyer investment and
management believes they are well secured.
12
INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------
We have reviewed the accompanying restated interim consolidated balance
sheet of Golden Enterprises, Inc. and subsidiary as of November 30, 2003
and the related restated interim consolidated statements of operations and
cash flows for the six-month period then ended. These restated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial statements consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
As discussed in Note 2 to the accompanying restated consolidated financial
statements, the Company has restated previously issued financial
statements.
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 restated
consolidated balance sheet as of May 31, 2003, and the related restated
consolidated statements of operations, changes in stockholders' equity and
cash flows for the year then ended (not presented herein), and in our
report dated July 21, 2004 we expressed an unqualified opinion on those
related consolidated financial statements. In our opinion, the information
set forth in the accompanying restated condensed consolidated balance sheet
as of May 31, 2003, is fairly stated in all material respects in relation
to the restated consolidated balance sheet from which it has been derived.
Birmingham, Alabama
July 21, 2004 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
13
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth in this Item 2 has been revised to reflect the November
30, 2003 10-Q/A Amendment No. 1 "Restatement."
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.
RESTATEMENT
The Company has restated its consolidated balance sheets as of November 30,
2003 and May 31, 2003 and its consolidated statements of operations and cash
flows for the three months ended November 30, 2003 and 2002. The restatement
affects periods prior to 2002. The impact of the restatement on such prior
periods was reflected as an adjustment to operating retained earnings June 1,
2001. The restatement is reported in this Quarterly Report on Form 10-Q/A for
its quarterly period ended November 30, 2003.
The restatement adjustment for the three months ended November 30, 2003 and
2002 resulted in a decrease in net loss of approximately $.12 million and an
increase in net loss of $.004 million respectively. For the six months ended
November 30, 2003 and 2002, the restatement adjustments resulted in a decrease
in net loss of approximately $0.30 million and $.25 million respectively. Basic
and Diluted net loss per share was decreased $.01 per share for the three month
ended November 30, 2003 and $.00 for the prior year. Basic and Diluted net loss
per share was decreased $.03 per share for the six months ended November 30,
2003 and $.02 for the prior year. For a discussion of individual adjustment
items, see Note 2 to the Restated Condensed Consolidated Financial Statements.
OVERVIEW
The Company manufactures and distributes a full line of snack items, such
as potato chips, tortilla chips, corn chips, fried pork skins, baked and fried
cheese curls, onion rings and buttered popcorn. The products are all packaged in
flexible bags or other suitable wrapping material. The Company also sells a line
of cakes and cookie items, canned dips, pretzels, peanut butter cracker, cheese
cracker, dried meat products and nuts packaged by other manufacturers using the
Golden Flake label.
No single product or product line accounts for more than 50% of the
Company's sales, which affords some protection against loss of volume due to a
crop failure of major agricultural raw materials. Raw materials used in
manufacturing and processing the Company's snack food products are purchased on
the open market and under contract through brokers and directly from growers. A
large part of the raw materials used by the Company consists of farm commodities
which are subject to precipitous changes in supply and price. Weather varies
from season to season and directly affects both the quality and supply
available. The Company has no control of the agricultural aspects and its
profits are affected accordingly.
The Company sells its products through its own sales organization and
independent distributors to commercial establishments that sell food products
primarily in the Southeastern United States. The products are distributed by
approximately 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.
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BASIS OF PRESENTATION
The Company's discussion and analysis of its financial condition and
results of operations are based upon the accompanying unaudited condensed
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP)
for interim financial information and with the instructions to Form 10-Q and
Article 10 to Regulation S-X. Accordingly, they do not include all information
and footnotes required by GAAP for complete financial statements. In the opinion
of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company unaudited condensed
consolidated financial statements, the preparation of which in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that in certain
circumstances affect amounts reported in the consolidated financial statements.
In preparing these financial statements, management has made its best estimate
and judgments of certain amounts included in the financial statements, giving
due considerations to materiality. The Company does not believe there is a great
likelihood that materially different amounts would be reported under different
conditions or using different assumptions related to the accounting policies
described below. However, application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates.
The Company believes the following to be critical accounting policies. That
is, they are both important to the portrayal of the company's financial
condition and results and they require management to make judgments and
estimates about matters that are inherently uncertain.
Revenue Recognition
The Company recognizes sales and related costs upon delivery or shipment of
products to its customers. Sales are reduced by returns and allowances to
customers.
Accounts Receivable
The Company records accounts receivable at the time revenue is recognized.
Amounts for bad debt expense are recorded in selling, general and administrative
expenses on the Consolidated Statements of Operations. The amount of the
allowance for doubtful accounts is based on management's estimate of the
accounts receivable amount that is uncollectible. Management records a general
reserve based on analysis of historical data. In addition, management records
specific reserves for receivable balances that are considered high-risk due to
known facts regarding the customer. The allowance for bad debts is reviewed
quarterly, and it is determined whether the amount should be changed. Failure of
a major customer to pay the Company amounts owed could have a material impact on
the financial statements of the Company. At November 30, 2003 and May 31, 2003
the Company had accounts receivables in the amount of $7.4 million and $7.8
million, net of an allowance for doubtful accounts of $0.2 million and $0.2
million, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on
the first-in, first out method.
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Accrued Expenses
Management estimates certain material expenses in an effort to record those
expenses in the period incurred. The most material accrued estimates relate to a
salary continuation plan for certain key executives of the Company, and to
insurance-related expenses, including self-insurance. Workers' compensation and
general liability insurance accruals are recorded based on insurance claims
processed as well as historical claims experience for claims incurred, but not
yet reported. These estimates are based on historical loss development factors.
Employee medical insurance accruals are recorded based on medical claims
processed as well as historical medical claims experienced for claims incurred
but not yet reported. Differences in estimates and assumption could result in an
accrual requirement materially different from the calculated accrual.
OTHER MATTERS
Transactions with related parties, reported in Note 14 of the Notes to
Consolidated Financial Statements in the Annual Report to Stockholders for
fiscal year ended May 31, 2003 are conducted on an arm's-length basis in the
ordinary course of business.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital was $8.8 million at June 1, 2003 and $7.8 million at the
end of the second quarter. Net cash provided by operating activities amounted to
$1.19 million for the six months this year compared to $1.51 million for last
year's first six months.
Additions to property, plant and equipment, net of disposals, were $0.37
million this year and $0.34 million last year. Cash dividends of $0.74 million
were paid during this year's first six months compared to $1.49 million last
year. No cash was used to purchase treasury stock this year and last year, and
no cash was used to increase investment securities this year compared to a net
increase in investment securities using $0.09 million of cash last year. The
Company's current ratio was 1.89 to 1.00 at November 30, 2003.
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.
Other Commitments
The Company had letters of credit in the amount of $1,759,000 outstanding
at November 30, 2003 to support the Company's commercial self-insurance program.
The Company has a line-of-credit agreement with a local bank that permits
borrowing up to $1 million. The line-of-credit is subject to the Company's
continued credit worthiness and compliance with the terms and conditions of the
advance application.
Available cash, cash from operations and available credit under the line of
credit are expected to be sufficient to meet anticipated cash expenditures and
normal operating requirements for the foreseeable future.
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OPERATING RESULTS
For the three months ended November 30, 2003, net sales decreased 0.8% from
the comparable period in fiscal 2003. The decrease in net sales was distributed
evenly between private label and branded sales. This year's second quarter cost
of sales was 52.4% of net sales compared to 54.2% last year, and selling,
general and administrative expenses were 49.1% of net sales this year and 48.5%
last year. The increase was primarily due to significant increases in employee
medical costs.
For the year-to-date net sales decreased 0.9% from last year. Cost of sales
was 52.3% of net sales compared to 52.6% last year. Selling, general and
administrative expenses were 47.1% of net sales this year, and 48.5% last year.
The Company's Gain on sales of assets for the second quarter in the amount
of $17,454 was from the sale of used transportation equipment for cash.
For last year's second quarter the Gain on sale of assets was $9,300 which
was from the sale of used transportation equipment for cash.
The Company's second quarter investment income decreased 5.0% from last
year. For the six months investment increase was down 4.3%.
The Company's effective tax rate for the second quarter was -39.4% compared
to -38.3% for last year's second quarter and 34.9% for the six months this year
and -41.4% last year.
MARKET RISK
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on its investment securities, bank loans, and commodity prices, affecting
the cost of its raw materials.
The Company's investment securities consist of short-term marketable
securities. Presently these are variable rate money market mutual funds.
Assuming November 30, 2003 variable rate investment levels and bank loan
balances, a one-point change in interest rates would impact interest income by
$1,966 on an annual basis and interest expense by $12,827.
The Company is subject to market risk with respect to commodities because
its ability to recover increased costs through higher pricing may be limited by
the competitive environment in which it operates. The Company purchases its raw
materials on the open market, under contract through brokers and directly from
growers. Future contracts have been used occasionally to hedge immaterial
amounts of commodity purchases but none are presently being used.
INFLATION
Certain costs and expenses of the Company are affected by inflation, and
the Company's prices for its products over the past several years have remained
relatively flat. The Company will contend with the effect of further inflation
through efficient purchasing, improved manufacturing methods, pricing, and by
monitoring and controlling expenses.
ENVIRONMENTAL MATTERS
There have been no material effects of compliance with governmental
provisions regulating discharge of materials into the environment.
17
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 17.
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 quarterly period ended November 30, 2003. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that as of the end of the quarterly period ended November 30, 2003, the
Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed in reports that the Company files or
submits under the Securities and Exchange Act of 1934 is recorded, processed,
summarized and reported within the specified time periods.
During the performance of the audit for the fiscal year ended May 31, 2004,
the Company's independent auditors, Dudley, Hopton-Jones, Sims & Freeman, PLLP
(the "Auditor"), identified and communicated to the Company material weaknesses
relating to the Company's accounting for its vacation pay (which was not in
conformity with generally accepted accounting principles ("GAAP")) and self
insured obligations. During the quarterly period ended November 30, 2003, the
Company did not accrue for earned vacation pay and its liabilities were
understated for certain incurred as well as incurred but not reported
self-insured casualty claims and health costs. Based upon the forgoing, the
Company has restated its audited financial statements for fiscal year 2003 and
for the first three quarters of fiscal year 2004 to properly account for
accruals for its vacation pay and self-insured health and casualty obligations.
The Company believed, during the years being restated, that it was correctly
following proper accounting practices. For a full discussion of the Restatement
see "Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations." and Note 2 to "Notes to Restated Consolidated Financial
Statements (Unaudited)" in this amendment.
The Company has accepted the recommendations of its Auditor to reduce the
recurrence of material weaknesses and is implementing policies and procedures to
strengthen the Company's internal controls, including, among other things, the
following: (1) developing written policies and procedures to be followed with
respect to accounting for vacation pay and self-insured obligations; (2)
formally designating management level personnel responsible for accounting for
vacation pay and self-insured obligations; (3) expanding internal audit
activities to include a quarterly examination of vacation pay and self-insured
obligations; (4) implementing a fully developed actuarially based method of
measuring liabilities related to self-insured obligations; and (5) implementing
quarterly communications among management, internal auditor, and the Audit
Committee prior to filing Forms 10-Q.
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Other than as described above, there has not been any change in the
Company's internal controls over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On September 30, 2003, we filed a current report on Form 8-K dated
September 30, 2003 disclosing that on September 30, 2003, Golden
Enterprises, Inc. issued a press release announcing its earnings for
the first quarter and ended August 31, 2003. A copy of the Earnings
Press Release was attached as Exhibit 99.1.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOLDEN ENTERPRISES, INC.
------------------------
(Registrant)
Dated: August 26. 2004 /s/ Mark W. McCutcheon
----------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: August 26, 2004 /s/ Patty Townsend
------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
19