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 February 29, 2004
-----------------
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 March 31, 2004.
Outstanding at
Class March 31, 2004
----- --------------
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 nine months ended February 29, 2004 as filed on April 12, 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 third quarter Form 10-Q as filed on April 12, 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)
Condensed Consolidated Balance Sheets
February 29, 2004 (unaudited) and May 31, 2003 4
Condensed Consolidated Statements of Operations (unaudited)
Three Months and Nine Months Ended February 29, 2004
and February 28, 2003 5
Condensed Consolidated Statements of Cash Flows
(unaudited)- Nine Months Ended February 29, 2004 and
February 28, 2003 6
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 20
3
PART I. FINANCIAL INFORMATION
ITEM 1. RESTATED FINANCIAL STATEMENTS (UNAUDITED)
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
February 29, May 31,
2004 2003
--------------- ---------------
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents $ 478,984 $ 1,278,333
Receivables, net 7,902,129 7,846,254
Note Receivable, current 44,857 42,253
Inventories:
Raw material and supplies 1,736,407 1,496,992
Finished goods 2,553,827 2,289,145
--------- ---------
4,290,234 3,786,137
--------- ---------
Prepaid expense 4,087,489 2,881,121
Deferred income taxes 344,770 652,153
------- -------
Total current assets 17,148,463 16,486,251
---------- ----------
Property, plant and equipment, net 14,118,829 15,361,573
Long-term Note Receivable 1,831,771 1,865,747
Other assets 2,777,822 2,777,972
--------- ---------
$ 35,876,885 $ 36,491,543
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding in excess of bank balances $ 1,704,403 $ 1,157,108
Accounts payable 2,279,488 1,700,934
Other accrued expenses 4,749,044 4,289,448
Salary continuation plan 94,055 88,595
Note payable-bank, current 1,195,304 432,142
--------- -------
Total current liabilities 10,022,294 7,668,227
---------- ---------
Long-Term Liabilities:
Note payable-bank, non-current 724,447 1,990,767
Salary Continuation Plan 1,822,683 1,870,991
--------- ---------
Total long-term liabilities 2,547,130 3,861,758
--------- ---------
Deferred income taxes 714,358 884,033
------- -------
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 17,409,131 18,893,553
---------- ----------
33,126,280 34,610,702
Less: Cost of common shares in treasury (1,945,488 at
February 29, 2004 and May 31, 2003) (10,533,177) (10,533,177)
----------- -----------
Total stockholders' equity 22,593,103 24,077,525
---------- ----------
Total $ 35,876,885 $ 36,491,543
============= =============
See Accompanying Notes to Restated Condensed Consolidated Financial Statements
4
GOLDEN ENTERPRISES, INC. AND SUBSIDARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Restated Restated
-----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-----------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
-----------------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------
Net Sales $ 24,102,358 $ 24,021,750 $ 71,980,117 $ 72,353,760
Cost of sales 13,021,969 12,654,027 38,065,955 38,061,510
------------- ---------------- ------------------- ---------------
Gross margin 11,080,389 11,367,723 33,914,162 34,292,250
Selling, general and administrative expenses 12,079,649 12,172,446 34,634,938 35,610,060
------------- ---------------- ------------------- ---------------
Operating (loss) (999,260) (804,723) (720,776) (1,317,810)
------------- ---------------- ------------------- ---------------
Other income (expenses):
Investment income 37,730 39,356 117,204 122,406
Gain on sale of assets 2,787 22,737 67,672 269,326
Other income 31,989 29,365 72,921 75,309
Interest expense (48,778) (66,205) (150,727) (207,022)
------------- ---------------- ------------------- ---------------
Total other income (expenses) 23,728 25,253 107,070 260,019
------------- ---------------- ------------------- ---------------
(Loss) before income taxes (975,532) (779,470) (613,706) (1,057,791)
Income tax expense (369,504) (295,835) (243,349) (410,949)
------------- ---------------- ------------------- ---------------
Net (loss) $ (606,028) $ (483,635) $ (370,357) $ (646,842)
============= ================ =================== ===============
PER SHARE OF COMMON STOCK:
Net (loss) $ (0.05) $ (0.04) $ (0.03) $ (0.05)
============= ================ =================== ===============
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 $ 0.0313 $ 0.0938 $ 0.0938
============= ================ =================== ===============
See Accompanying Notes to Restated Condensed Consolidated Financial Statements
5
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
RESTATED
NINE MONTHS ENDED
February 29, February 28,
2004 2003
---------------------------------------
Cash flows from operating activities:
Net (Loss) $ (370,357) $ (646,842)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,771,247 1,891,986
Deferred income taxes 137,708 (348,486)
Gain on sale of property and equipment (67,672) (269,326)
Changes in operating assets and liabilities:
(Increase) Decrease in receivable- net (55,875) 1,393,583
(Increase) Decrease in inventories (504,097) 394,341
(Increase) in pre-paid expenses (1,206,368) (292,969)
Decrease in other assets- long term 150 (2)
Increase in accounts payable 578,554 854,094
Increase (Decrease) in accrued expenses 459,596 (866,538)
(Decrease) in salary continuation (42,848) (40,488)
------------- -------------
Net cash provided by operating activities 700,038 2,069,353
------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (608,318) (592,032)
Proceeds from sale of property, plant and equipment 147,488 362,739
Collection of note receivable 31,372 109,589
Investment securities available- for sale:
Purchases 0 (2,482,884)
Proceeds from disposal 0 2,494,000
------------- -------------
Net cash (used in)
Investing activities (429,458) (108,588)
Cash flows from financing activities:
Debt repayments (503,158) (979,864)
Increase in checks outstanding in
excess of bank balances 547,295 852,544
Cash dividends paid (1,114,066) (1,856,772)
------------- -------------
Net cash (used in) financing activities (1,069,929) (1,984,092)
------------- -------------
Net (decrease) in cash and cash equivalents (799,349) (23,327)
Cash and cash equivalents at beginning of year 1,278,333 286,480
------------- -------------
Cash and cash equivalents at end of quarter $ 478,984 $ 263,153
============= =============
Supplemental information:
Cash paid during the year for:
Income taxes $ 42,958 $ 88,206
Interest 150,727 207,022
See Accompanying Notes to Restated Condensed Consolidated Financial Statements
6
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Throughout these notes to restated consolidated financial statements, all
referenced amounts for current and prior periods and prior period comparison
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 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
February 29, 2004 includes restated consolidated financial statements
at February 29, 2004 and May 31, 2003 and for the nine months ended
February 29, 2004 and February 28, 2003.
The following table presents the impact of the restatement adjustments on net
earnings for the three and nine months ended February 29, 2004 and February 28,
2003, respectively.
Three Months Ended Nine Months Ended
February 29, February 28, February 29, February 28,
------------ ------------ ------------ ------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net loss as originally reported $ (549,956) $ (433,780) $ (610,126) $ (848,990)
Adjustments (pre-tax):
Accrued Vacation Liability (633) 66,825 (1,901) 32,850
Self Insurance Liability (87,907) 10,950 380,503 115,798
Other -0- (156,498) -0- 170,549
------------ ------------ ------------ ------------
Total adjustments (pre-tax) (88,540) (78,723) 378,602 319,197
Total taxes (32,468) (28,868) 138,833 117,049
------------ ------------ ------------ ------------
Total net adjustments (56,072) (49,855) 239,769 202,148
Net loss as restated $ (606,028) $ (483,635) $ (370,357) $ (646,842)
============ ============ ============ ===========
Per share of Common Stock:
Net Loss -Basic as originally reported $ (0.05) $ (0.04) $ (0.05) $ (0.07)
Effect of net adjustments -0- -0- 0.02 0.02
------------ ------------ ------------ -----------
Net loss- Basic as restated $ (0.05) $ (0.04) $ (0.03) $ (0.05)
============ ============ ============ ===========
Net loss-Diluted as originally reported $ (0.05) $ (0.04) $ (0.05) $ (0.07)
Effect of net adjustments -0- -0- 0.02 0.02
------------ ------------ ------------ -----------
Net loss-Diluted as restated $ (0.05) $ (0.04) $ (0.03) $ (0.05)
============ ============ ============ ===========
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 February 29, 2004 and February 28, 2003, respectively.
Quarter Ended Quarter Ended
February 29, February 29, February 28, February 28,
------------------------------------------------------
2004 2004 2003 2003
------------------------------------------------------
As Originally As Originally
Reported As Restated Reported As Restated
------------------------------------------------------
Net Sales $24,102,358 $24,102,358 $23,954,925 $24,021,750
Cost of Goods Sold 12,876,483 13,021,969 12,582,983 12,654,027
Selling, General and Administrative
Expenses 12,136,595 12,079,649 12,097,942 12,172,446
Other income (expenses) 23,728 23,728 25,253 25,253
-------- -------- -------- --------
(Loss) income before cumulative
effect of a change in accounting
policy and income taxes (886,992) (975,532) (700,747) (779,470)
Provision for income taxes (337,036) (369,504) (266,967) (295,835)
-------- -------- -------- --------
Net (Loss) income $ (549,956) $ (606,028) $ (433,780) $ (483,635)
=========== ========== ========== ==========
Net Loss per share- Basic $ (0.05) $ (0.05) $ (0.04) $ (0.04)
Average Shares Outstanding 11,883,305 11,883,305 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.05) $ (0.05) $ (0.04) $ (0.04)
Average Shares Outstanding 11,883,305 11,883,305 11,884,631 11,884,631
Nine Months Ended Nine Months Ended
February 29, February 29, February 28, February 28,
------------------------------------------------------
2004 2004 2003 2003
------------------------------------------------------
As Originally As Originally
Reported As Restated Reported As Restated
------------------------------------------------------
Net Sales $71,980,117 $71,980,117 $ 72,183,211 $72,353,760
Cost of Goods Sold 37,991,551 38,065,955 38,177,312 38,061,510
Selling, General and Administrative
Expenses 35,087,945 34,634,938 35,642,906 35,610,060
Other income (expenses) 107,070 107,070 260,019 260,019
-------- -------- -------- --------
(Loss) income before cumulative
effect of a
change in accounting policy and
income taxes (992,309) (613,706) (1,376,988) (1,057,791)
Provision for income taxes (382,183) (243,349) (527,998) (410,949)
-------- -------- -------- --------
Net (Loss) $ (610,126) $ (370,357) $ (848,990) $ (646,842)
========== ========== ============ ===========
Net Loss per share- Basic $ (0.05) $ (0.03) $ (0.07) $ (0.05)
Average Shares Outstanding 11,883,305 11,883,305 11,883,305 11,883,305
Net Loss per share- Diluted $ (0.05) $ (0.03) $ (0.07) $ (0.05)
Average Shares Outstanding 11,883,305 11,883,305 11,884,631 11,884,631
8
The following table sets forth the effects of the restatement discussed below on
the Consolidated Balance Sheet at February 29, 2004 and May 31, 2003.
February 29, 2004 May 31, 2003
As Originally As Originally
Reported As Restated Reported As Restated
----------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 478,984 $ 478,984 $ 1,278,333 $ 1,278,333
Receivables, net 7,994,790 7,902,129 7,938,916 7,846,254
Notes receivable, current 44,857 44,857 42,253 42,253
Inventories 4,290,234 4,290,234 3,786,137 3,786,137
Prepaid expenses 4,333,975 4,087,489 3,645,298 2,881,121
Deferred income taxes -0- 344,770 -0- 652,153
------------ ------------ ------------ ------------
Total current assets 17,142,840 17,148,770 16,690,937 16,486,251
Property, Plant and Equipment 14,118,829 14,118,829 15,361,573 15,361,573
Notes receivable, long-term 1,831,771 1,831,771 1,865,747 1,865,747
Other 2,777,822 2,777,822 2,777,972 2,777,972
------------ ------------ ------------ ------------
Total Assets $ 35,871,262 $ 35,876,885 $ 36,696,229 $ 36,491,543
============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities
Checks outstanding in excess of bank balances $ 1,704,403 $ 1,704,403 $ 1,157,108 $ 1,157,108
Accounts payable 2,279,488 2,279,488 1,700,934 1,700,934
Current portion of long-term debt 1,195,304 1,195,304 432,142 432,142
Other accrued expenses 2,751,030 4,749,044 2,381,975 4,289,448
Deferred income taxes 304,699 -0- 304,698 -0-
Salary continuation plan 94,055 94,055 88,595 88,595
------------ ------------ ------------ ------------
Total current liabilities 8,328,979 10,022,294 6,065,452 7,668,227
Long-term liabilities
Note payable- bank, non- current 724,447 724,447 1,990,767 1,990,767
Salary continuation plan 1,822,683 1,822,683 1,870,991 1,870,991
Deferred income taxes 714,358 714,358 764,032 884,033
------------ ------------ ------------ ------------
Total Liabilities 11,590,467 13,283,782 10,691,242 12,414,018
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 19,096,823 17,409,131 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 24,280,795 22,593,103 26,004,987 24,077,525
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 35,871,262 $ 35,876,885 $ 36,696,229 $ 36,491,543
============ ============ ============ ============
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 and nine months ended
February 29, 2004 and February 28, 2003 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 nine months ended
February 29, 2004 and February 28, 2003:
For the Nine Months Ended
February 29, February 28,
2004 2003
------------------ ------------------
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 1,326
------------------ ------------------
Weighted average number of common shares and
dilutive potential common stock used in computing
dilutive earnings per share 11,883,305 11,884,631
================== ==================
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 Months Ended For the Nine Months Ended
February 29, February 28, February 29, February 28,
2004 2003 2004 2003
-----------------------------------------------------------
Net (loss) as reported ($606,028) ($483,635) ($370,357) ($646,842)
(Loss) per share as reported-basic (.05) (.04) (.03) (.05)
(Loss) per share as reported-diluted (.05) (.04) (.03) (.05)
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) (9,219) (9,495)
Pro-forma net (loss) (609,101) (486,800) (379,576) (656,337)
Pro-forma (loss) per share-basic (.05) (.04) (.03) (.06)
Pro-forma (loss) per share-diluted (.05) (.04) (.03) (.06)
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
11
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.
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 nine months ended
February 29, 2004 the Company's bank debt was reduced by $.50 million
compared to $.98 million last year. The interest rate at February 29,
2004 was 2.85% compared to 3.09% at February 28, 2003.
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 February 29, 2004 and the related
restated interim consolidated statements of operations and cash flows for the
nine-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 February
29, 2004 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 February 29,
2004 and May 31, 2003 and its consolidated statements of operations and cash
flows for the three months ended February 29, 2004 and 2003. 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 February 29, 2004.
The restatement adjustment for the three months ended February 29, 2004 and
2003 resulted in an increase in net loss of approximately $.06 million and $.05
million, respectively. For the nine months ended February 29, 2004 and 2003, the
restatement adjustments resulted in a decrease in net loss of approximately
$0.24 million and $.20 million respectively. Basic and Diluted net loss per
share was increased $.00 per share for the three month ended February 29, 2004
and $.00 for the prior year. Basic and Diluted net loss per share was a decrease
$.02 per share for the nine months ended February 29, 2004 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.
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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 434 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 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 February 29, 2004 and May 31, 2003
the Company had accounts receivables in the amount of $7.9 million and $7.8
million, net of an allowance for doubtful accounts of $0.2 million and $0.2
million, respectively.
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Inventories
Inventories are stated at the lower of cost or market. Cost is computed on
the first-in, first out method.
Accrued Expenses
Management estimates certain material expenses in an effort to record those
expenses in the period incurred. The most material accrued estimates relate to a
salary continuation plan for certain key executives of the Company, and to
insurance-related expenses, including self-insurance. 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
Restated 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 $7.1 million at the
end of the third quarter. Net cash provided by operating activities amounted to
$.70 million for the nine months this year compared to $2.07 million for last
year's first nine months.
Additions to property, plant and equipment, net of disposals, were $0.53
million this year and $0.50 million last year. Cash dividends of $1.11 million
were paid during this year's first nine months compared to $1.86 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
decrease in investment securities providing $0.01 million of cash last year. The
Company's current ratio was 1.71 to 1.00 at February 29, 2004.
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 February 29, 2004 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.
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Available cash, cash from operations and available credit under the line of
credit are expected to be sufficient to meet anticipated cash expenditures and
normal operating requirements for the foreseeable future.
OPERATING RESULTS
For the three months ended February 29, 2004, net sales increased 0.3% from
the comparable period in fiscal 2003. The increase in net sales was distributed
evenly between private label and branded sales. This year's third quarter cost
of sales was 54.0% of net sales compared to 52.7% last year, and selling,
general and administrative expenses were 50.1% of net sales this year and 50.7%
last year. The increase was primarily due to significant increases in employee
medical costs and commodity costs.
For the year-to-date net sales decreased 0.5% from last year. Cost of sales
was 52.9% of net sales compared to 52.6% last year. Selling, general and
administrative expenses were 48.1% of net sales this year, and 49.2% last year.
The Company's gain on sales of assets for the third quarter in the amount
of $2,787 was from the sale of used transportation equipment for cash.
For last year's third quarter the gain on sale of assets was $22,737 which
was from the sale of used transportation equipment for cash.
Golden Enterprises Audit Committee has engaged a private CPA firm to
execute an internal audit in compliance with Sarbanes-Oxley. This engagement
will measure the effectiveness of the companies internal control framework plus
establish new guidelines where applicable.
The Company's third quarter investment income decreased 4.1% from last
year. For the nine months investment income was down 4.2%.
The Company's effective tax rate for the third quarter was -37.9% compared
to -38.0% for last year's third quarter and -39.7% for the nine months this year
and -38.8% last year.
MARKET RISK
The principal markets 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 February 29, 2004 variable rate investment levels and bank loan
balances, a one-point change in interest rates would impact interest income by
$38 on an annual basis and interest expense by $19,198.
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
17
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.
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 February 29, 2004. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that as of the end of the quarterly period ended February 29, 2004 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 February 29, 2004, 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
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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. Management's 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.
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.
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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 December 29, 2003, we filed a current report on Form 8-K dated
December 29, 2003 disclosing that on December 29, 2003, Golden
Enterprises, Inc. issued a press release announcing its earnings
for the second quarter and ended November 30, 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)
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