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 (twenty-six week) period ended December 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 December 29, 2006.
Outstanding at
Class December 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
December 1, 2006 (unaudited) and June 2, 2006 3
Condensed Consolidated Statements of Operations (unaudited)
Thirteen Weeks and Twenty-Six Weeks Ended December 1,
2006 and December 2, 2005
4
Condensed Consolidated Statements of Cash Flows
(unaudited)- Twenty-Six Weeks Ended December 1, 2006 and
December 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 17
Item 4 Controls and Procedures 17
Part II. OTHER INFORMATION 17
Item 1 Legal Proceedings 17
Item 1A Risk Factors 17
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
December 1, June 2,
2006 2006
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 571,467 $ 321,627
Receivables, net 7,590,880 8,363,356
Notes receivable, current 55,855 53,672
Inventories:
Raw materials and supplies 1,945,128 1,425,605
Finished goods 2,999,862 2,850,466
------------- ------------
4,944,990 4,276,071
------------- ------------
Prepaid expenses 1,828,325 1,608,459
Deferred income taxes 669,976 669,976
------------- ------------
Total current assets 15,661,493 15,293,161
------------- ------------
Property, plant and equipment, net 13,136,084 13,583,051
Long-term note receivable 1,688,272 1,716,756
Other assets 3,011,281 3,135,114
------------- ------------
$ 33,497,130 $ 33,728,082
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Checks outstanding in excess of bank balances $ 2,504,174 $ 2,619,026
Accounts payable 2,532,550 2,210,026
Accrued income taxes 5,614 509,318
Other accrued expenses 4,787,709 4,727,753
Salary continuation plan 117,114 112,536
Note payable-bank -current 643,776 750,177
Line of credit outstanding 1,471,363 313,923
------------- ------------
Total current liabilities 12,062,300 11,242,759
------------- ------------
LONG-TERM LIABILITIES
Note payable - bank, non-current - 253,618
Salary continuation plan 1,623,104 1,661,363
------------- ------------
Total long-term liabilities 1,623,104 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 13,918,143 14,676,759
------------- ------------
29,635,292 30,393,908
Less: Cost of common shares in treasury (1,993,463 at December 1, 2006
and June 2, 2006) (10,677,594) (10,677,594)
------------- ------------
Total stockholder's equity 18,957,698 19,716,314
------------- ------------
Total $ 33,497,130 $ 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 Twenty-Six Twenty-Six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
12/1/06 12/2/05 12/1/06 12/2/05
------------- ------------ ------------ ------------
Net sales $26,596,212 $25,430,115 $54,421,150 $51,461,951
Cost of sales 14,235,696 13,801,541 28,906,898 28,029,446
------------ ------------ ------------ ------------
Gross margin 12,360,516 11,628,574 25,514,252 23,432,505
Selling, general and administrative expenses 12,756,527 12,088,312 25,556,551 24,054,122
------------ ------------ ------------ ------------
Operating loss (396,011) (459,738) (42,299) (621,617)
------------ ------------ ------------ ------------
Other income (expenses):
Investment income 35,416 36,953 71,403 73,828
Gain on sale of assets 28,968 20,320 35,910 98,954
Other income 18,247 19,395 24,210 28,263
Interest expense (65,593) (74,957) (119,162) (139,188)
------------ ------------ ------------ ------------
Total other income 17,038 1,711 12,361 61,857
------------ ------------ ------------ ------------
Loss before income taxes (378,973) (458,027) (29,938) (559,760)
Income taxes (139,845) (168,996) (11,033) (206,487)
------------ ------------ ------------ ------------
Net loss $(239,128) $(289,031) $(18,905) $(353,273)
------------ ------------ ------------ ------------
PER SHARE OF COMMON STOCK
Basic earnings $(0.02) $(0.02) $- $(0.03)
Diluted earnings $(0.02) $(0.02) $- $(0.03)
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 11,864,453 11,835,330 11,863,456
Cash dividends paid per share of
common stock $0.0313 $0.0313 $0.0626 $0.0626
See Accompanying Notes to Condensed Consolidated Financial Statements
4
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
12/01/06 12/02/05
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 55,193,626 $ 51,780,483
Interest income 71,403 73,828
Rental income 20,135 22,490
Miscellaneous income 4,075 5,773
Cash paid to suppliers & employees (28,462,413) (27,530,243)
Cash paid for operating expenses (25,301,140) (23,660,831)
Income taxes paid (492,671) -
Interest expenses paid (119,162) (139,188)
---------------- ---------------
Net cash from operating activities 913,853 552,312
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (683,221) (975,134)
Proceeds from sale of property, plant and equipment 50,049 113,814
Collection of notes receivable 26,301 24,285
---------------- ---------------
Net cash used in investing activities (606,871) (837,035)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 9,997,205 11,914,771
Debt repayments (9,199,783) (11,200,803)
Change in checks outstanding in excess of bank
balances (114,852) 333,052
Cash dividends paid (739,712) (739,712)
---------------- ---------------
Net cash used in financing activities (57,142) 307,308
---------------- ---------------
Net change in cash and cash equivalents 249,840 22,585
Cash and cash equivalents at beginning of period 321,627 371,204
---------------- ---------------
Cash and cash equivalents at end of period $ 571,467 $ 393,789
================ ===============
See Accompanying Notes to Condensed Consolidated Financial Statements
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 TWENTY-SIX WEEKS ENDED DECEMBER 1, 2006 AND DECEMBER 2, 2005
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
12/01/06 12/02/05
-------------- -------------
Net (loss) $ (18,905) $ (353,273)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,116,050 1,177,552
Gain on sale of property and equipment (35,910) (98,954)
Changes in operating assets and liabilities:
Change in receivables- net 772,476 318,532
Change in inventories (668,919) (311,432)
Change in pre-paid expenses (219,866) 8,190
Change in other assets 123,833 (23,728)
Change in accounts payable 322,524 (31,797)
Change in accrued expenses 59,955 (100,843)
Change in salary continuation (33,681) (31,935)
Change in accrued income taxes (503,704) -
-------------- -------------
Net cash from operating activities $ 913,853 $ 552,312
============== =============
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 twenty-six weeks ended
December 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 following tables summarize the prepaid assets accounts:
Prepaid Breakdown
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
December 1, 2006 December 2, 2005
---------------- ----------------
Truck shop supplies $ 683,195 $ 624,411
Insurance deposit 227,640 242,517
Slotting fees 160,450 235,083
Deferred advertising fees 394,996 362,008
Prepaid Insurance 177,292 224,125
Prepaid taxes/licenses 130,439 675,262
Prepaid dues/supplies 33,562 47,154
Other 20,751 17,998
---------------- ----------------
$ 1,828,325 $ 2,428,558
================ ================
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. 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.
7
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 twenty-six week
period ended December 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.
6. 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 twenty-six weeks ended
December 1, 2006 and December 2, 2005:
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
12/01/06 12/02/05
--------------- ---------------
Weighted average number of common shares used in computing basic 11,835,330 11,835,330
earnings per share
Effect of dilutive stock options 0 28,126
--------------- ---------------
Weighted average number of common shares and dilutive potential
common stock used in computing dilutive earnings per share 11,835,330 11,863,456
Stock options excluded from the above reconciliation because they are
anti-dilutive 369,000 0
=============== ===============
7. The following table shows the effect on net income and earnings per
share for the thirteen and twenty-six weeks ended December 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":
8
------------- --------------
Thirteen Twenty-Six
Weeks Weeks
Ended Ended
12/2/2005 12/2/2005
------------- --------------
Net loss as reported $ (289,031) $ (353,273)
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) (5,228)
----------- ----------
Pro-forma net loss $ (291,645) $(358,501)
=========== ==========
Loss per share as reported-basic $ (0.02) $ (0.03)
Loss per share as reported-diluted $ (0.02) $ (0.03)
Pro-forma loss per share-basic $ (0.02) $ (0.03)
Pro-forma loss per share-diluted $ (0.02) $ (0.03)
8. The Company entered into a five year term product purchase commitment
during the year ending May 31, 2001 with a supplier. Under the terms
of the agreement the minimum purchase quantity and the unit purchase
price were fixed resulting in a minimum first year commitment of
approximately $2,171,000. After the first year, the minimum purchase
quantity was fixed and the purchase unit price was negotiable, based
on current market. Subsequently, in September 2002, the product
purchase agreement was amended to fix the purchase unit price and
establish specific annual quantities. The purchase commitment with the
supplier, based on a specific purchase price and specific annual
quantities, ended as of October 25, 2005. The Company was prohibited
from purchasing certain products from any other vendor until October
25, 2006. As of October 26, 2006, the Company no longer had any
obligation under this product purchase commitment.
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 December 1,
2006 was 7.07% compared to 5.83% at December 2, 2005. The Company's
total bank debt was decreased by $825,015 for the fifty-two week period
ended December 1, 2006 compared to an increase of $614,090 last year.
10. The Company has a letter of credit in the amount of $2,668,846
outstanding at December 1, 2006, compared to $3,084,365 at December 2,
2005, a decrease of $415,519, to support 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 December 1, 2006 was $1,471,363 with an interest rate of
8.25%, leaving the Company with $528,637 of credit availability. The
Company's line-of-credit debt as of December 2, 2005 was $1,584,446
with an interest of 7.00% leaving the Company with $415,554 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.
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 December 1, 2006 and the related interim
consolidated statements of income and cash flows for the twenty-six 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
January 11, 2007 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
likelihood that materially different amounts would be reported under different
conditions or using different assumptions related to the accounting policies
described below. However, application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates.
12
The Company believes the following to be critical accounting policies. That is,
they are both important to the portrayal of the Company's financial condition
and results and they require management to make judgments and estimates about
matters that are inherently uncertain.
Revenue Recognition
The Company recognizes sales and related costs upon delivery or shipment of
products to its customers. Sales are reduced by returns and allowances to
customers.
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 December 1, 2006 and June 2, 2006
the Company had accounts receivables in the amount of $7,590,880 and $8,363,356,
net of an allowance for doubtful accounts of $113,419 and $133,422 respectively.
The following table summarizes the Company's customer accounts receivable
profile as of December 1, 2006:
Amount Range No. of Customers
------------ ----------------
Less than $1,000.00 ..................................................... 1,292
$1,001.00-$10,000.00 .................................................... 528
$10,001.00-$100,000.00 .................................................. 103
$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....................................................... 1,932
=====
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.
13
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.
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 $3,599,193 at the end of the
second quarter. Net cash provided by operating activities amounted to $913,853
for the twenty-six weeks ended December 1, 2006 compared to $552,312 for the
same period last year.
Additions to property, plant and equipment, net of disposals, were $330,256 this
year and $631,727 last year. Cash dividends of $369,856 were paid during this
year's second quarter compared to $369,856 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 1.30 to 1.00 at December
1, 2006.
The following table summarizes the significant contractual obligations of the
Company as of December 1, 2006:
Contractual Obligations Total Current 2-3 Years 4-5 Years Thereafter
----------------------- ----- ------- --------- --------- ----------
Long-Term Debt $ 643,776 $ 643,776 $ - $ - $ -
Salary Continuation Plan 1,740,218 117,114 264,195 309,871 1,049,038
---------- -------- -------- -------- ---------
Total Contractual Obligations $ 2,383,994 $ 760,890 $ 264,195 $ 309,871 $ 1,049,038
========== ======== ======== ======== =========
OFF-BALANCE SHEET ARRANGEMENT
The Company entered into a five-year term product purchase commitment during the
year ending May 31, 2001 with a supplier. Under the terms of the agreement the
minimum purchase quantity and the unit purchase price were fixed resulting in a
minimum first year commitment of approximately $2,171,000. After the first year,
the minimum purchase quantity was fixed and the purchase unit price was
negotiable, based on current market. Subsequently, in September 2002, the
product purchase agreement was amended to fix the purchase unit price and
establish specific annual quantities. The purchase commitment with the supplier,
based on a specific purchase price and specific annual quantities, ended as of
October 25, 2005. The Company was prohibited from purchasing certain products
from any other vendor until October 25, 2006. As of October 26, 2006, the
Company no longer had any obligation under this product purchase commitment.
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.
14
OPERATING RESULTS
For the thirteen weeks ended December 1, 2006, net sales increased 4.6% from the
comparable period in fiscal 2006. For the twenty-six weeks ended December 1,
2006, net sales increased 5.7% from the comparable period in fiscal 2006. This
year's second quarter cost of sales was 53.5% of net sales compared to 54.3% for
last year's second quarter. This year's second quarter, selling, general, and
administrative expenses were 48.0% of net sales compared to 47.5% for last
year's second quarter. This year's year to date cost of sales was 53.1% of net
sales compared to 54.5% for last year's year to date. This year's year to date,
selling, general and administrative expenses were 47.0% of net sales compared to
46.7% for last year's year to date.
The following tables compare manufactured products to resale products:
Manufactured Products-Resale Products
Thirteen Weeks Ended Thirteen Weeks Ended
December 1, 2006 December 2, 2005
Sales % %
Manufactured Products $21,230,021 79.8% $20,053,010 78.9%
Resale Products 5,366,191 20.2% 5,377,105 21.1%
---------- ----- ---------- -----
Total $26,596,212 100.0% $25,430,115 100.0%
========== ====== ========== ======
GM GM
Gross Margin % %
Manufactured Products $10,017,471 47.2% $ 9,426,551 47.0%
Resale Products 2,343,045 43.7% 2,202,023 41.0%
---------- ----------
Total $12,360,516 46.5% $11,628,574 45.7%
=========== ==========
Manufactured Products-Resale Products
Twenty-Six Weeks Ended Twenty-Six Weeks Ended
December 1, 2006 December 2, 2005
Sales % %
Manufactured Products $ 43,471,893 79.9% $ 40,689,108 79.1%
Resale Products 10,949,257 20.1% 10,772,843 20.9%
----------- ----- ----------- -----
Total $ 54,421,150 100.0% $ 51,461,951 100.0%
=========== ====== =========== ======
GM GM
Gross Margin % %
Manufactured Products $ 20,689,550 47.6% $ 19,147,175 47.1%
Resale Products 4,824,702 44.1% 4,285,330 39.8%
---------- ----------
Total $ 25,514,252 46.9% $ 23,432,505 45.5%
========== ==========
The Company's gain on sales of assets for the thirteen weeks ended December 1,
2006 in the amount of $28,968 is from the sale of used equipment for cash.
15
For last year's thirteen weeks, the gain on sale of assets was $20,320 from the
sale of used equipment for cash.
The Company's investment income decreased 4.2% from last year for the current
quarter's thirteen week period. For the twenty-six weeks ended investment income
was down 3.3%.
The Company's effective tax rate for the thirteen weeks was -37.0% compared to
-37.0% for last year's thirteen weeks and -37.0% for the twenty-six weeks this
year and -37.0% last year.
MARKET RISK
The principal market's risks (i.e., the risk of loss arising from adverse
changes in market rates and prices), to which the Company is exposed, are
interest rates on its investment securities, bank loans, and commodity prices
affecting the cost of its raw materials.
The Company's investment securities consist of short-term marketable securities.
Presently, these are variable rate money market mutual funds. Assuming December,
2006 variable rate investment levels and bank loan balances, a one-point change
in interest rates would impact interest income by $1,292 on an annual basis and
interest expense by $6,438.
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
The Purchase and Sales agreement that was executed by and between Golden Flake
Snack Foods, Inc. as Seller, and Educational Development Company of America, LLC
& Waterbury Companies, LLC as Purchaser, discussed in Note 17 to the June 2,
2006 Consolidated Financial Statements, 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 was cancelled
by the Purchaser on October 19, 2006.
16
On December 29, 2006, Golden Flake Snack Foods, Inc. sold a warehouse
located in Chattanooga, Tennessee. The selling price was $248,000.
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 16.
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
------
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.
17
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
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Golden Enterprises, Inc. was
held on September 21, 2006.
(b) All director nominees were elected.
(c) The following is a tabulation of the voting for the election of
Directors:
ELECTION OF DIRECTORS
Names Votes For Votes Withheld
----- --------- --------------
John S. Stein 10,230,705 220,637
Edward R. Pascoe 10,416,687 34,655
John P. McKleroy, Jr. 10,258,214 193,128
James I. Rotenstreich 10,371,301 80,041
John S.P. Samford 10,418,214 33,128
J. Wallace Nall, Jr. 10,266,723 184,619
F. Wayne Pate 10,230,752 220,590
Joann F. Bashinsky 10,264,440 186,902
Mark W. McCutcheon 10,258,670 192,672
ITEM 5
------
OTHER INFORMATION
18
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).
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 10-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).
19
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).
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).
20
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 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).
21
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: January 11, 2007 /s/Mark W. McCutcheon
---------------- ---------------------
Mark W. McCutcheon
President and
Chief Executive Officer
Dated: January 11, 2007 /s/ Patty Townsend
---------------- ------------------
Patty Townsend
Vice-President and
Chief Financial Officer
(Principal Accounting Officer)
22