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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-4339
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.)
Suite 208, 2140 11th Avenue, South
Birmingham, Alabama 35205
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number including area code (205) 933-9300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Capital Stock, Par Value $0.662.3
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes_____ No__X__
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of August 8, 2003.
Common Stock, Par Value $0.662.3 --$11,155,451
Indicate the number of shares outstanding of each of the Registrant's
Classes of Common Stock, as of August 8, 2003.
Class Outstanding at August 8, 2003
----- -----------------------------
Common Stock, Par Value $0.66 2/3 11,883,305 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the Annual Meeting of
Stockholders to be held on September 30, 2003 are incorporated by reference into
Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT-- 2003
GOLDEN ENTERPRISES, INC.
PART I Page
Item 1. Business............................................................3
Item 2. Properties..........................................................5
Item 3. Legal Proceedings...................................................6
Item 4. Submission of Matters to a Vote of Security Holders.................6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters....................................7
Item 6. Selected Financial Data.............................................8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................9
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..........16
Item 8. Financial Statements and Supplementary Data........................16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................39
Item 9A. Controls and Procedures............................................39
PART III
Item 10. Directors and Executive Officers of the Registrant.................39
Item 11. Executive Compensation.............................................39
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.............39
Item 13. Certain Relationships and Related Transactions.....................39
Item 14. Controls and Procedures............................................39
Item 15. Principal Accountant Fees and Services.............................39
PART IV
Item 16. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K...........................................40
2
PART I
ITEM 1. -- BUSINESS
Golden Enterprises, Inc. (the "Company") is a holding company which owns
all of the issued and outstanding capital stock of Golden Flake Snack Foods,
Inc., a wholly-owned operating subsidiary company ("Golden Flake"). Golden
Enterprises is paid a fee by Golden Flake for providing management services for
it.
The Company was originally organized under the laws of the State of Alabama
as Magic City Food Products, Inc. on June 11, 1946. On March 11, 1958, it
adopted the name Golden Flake, Inc. On June 15, 1963, the Company purchased
Don's Foods, Inc. a Tennessee corporation which was merged into the Company on
December 10, 1966. The Company was reorganized December 31, 1967 as a Delaware
corporation without changing any of its assets, liabilities or business. On
January 1, 1977, the Company, which had been engaged in the business of
manufacturing and distributing potato chips, fried pork skins, cheese curls and
other snack foods, spun off its operating division into a separate Delaware
corporation known as Golden Flake Snack Foods, Inc. and adopted its present name
of Golden Enterprises, Inc.
The Company owns all of the issued and outstanding capital stock of Golden
Flake Snack Foods, Inc.
Golden Flake Snack Foods, Inc.
General
Golden Flake Snack Foods, Inc. ("Golden Flake") is a Delaware corporation
with its principal place of business and home office located at One Golden Flake
Drive, Birmingham, Alabama. Golden Flake manufactures and distributes a full
line of salted snack items, such as potato chips, tortilla chips, corn chips,
fried pork skins, baked and fried cheese curls, onion rings and buttered
popcorn. These products are all packaged in flexible bags or other suitable
wrapping material. Golden Flake also sells a line of cakes and cookie items,
canned dips, pretzel, 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 Golden Flake's
sales, which affords some protection against loss of volume due to a crop
failure of major agricultural raw materials.
Raw Materials
Golden Flake purchases raw materials used in manufacturing and processing
its snack food products on the open market and under contract through brokers
and directly from growers. A large part of the raw materials used by Golden
Flake consists of farm commodities which are subject to precipitous change in
supply and price. Weather varies from season to season and directly affects both
the quality and supply available. Golden Flake has no control of the
agricultural aspects and its profits are affected accordingly.
Distribution
Golden Flake sells its products through its own sales organization and
independent distributors to commercial establishments which sell food products
in Alabama and in parts of Tennessee, Kentucky, Georgia, Florida, Mississippi,
Louisiana, North Carolina, South Carolina, Arkansas and Missouri. The products
are distributed by approximated 433 route salesmen who are supplied with selling
inventory by the Company's trucking fleet which operates out of Birmingham,
Alabama, Nashville, Tennessee, and Ocala, Florida. All of the route salesmen are
employees of Golden Flake and use the direct store door delivery method. Golden
Flake is not dependent upon any single customer, or a few customers, the loss of
any one or more of which would have a material adverse effect on its business.
No single customer accounts for more than 10% of its total sales. Golden Flake
has a fleet of 835 company owned vehicles to support the route sales system,
including 37 tractors and 96 trailers for long haul delivery to the various
company warehouses located throughout its distribution areas, 644 store delivery
vehicles and 58 cars and miscellaneous vehicles. Golden Flake also leases 20
store delivery vehicles.
3
Competition
The snack foods business is highly competitive. In the area in which Golden
Flake operates, many companies engage in the production and distribution of food
products similar to those produced and sold by Golden Flake. Most, if not all,
of Golden Flake's products are in direct competition with similar products of
several local and regional companies and at least one national company, the
Frito Lay Division of Pepsi Co., Inc., which is larger in terms of capital and
sales volume than is Golden Flake. Golden Flake is unable to state its relative
position in the industry. Golden Flake's marketing thrust is aimed at selling
the highest quality product possible and giving good service to its customers,
while being competitive with its prices. Golden Flake constantly tests the
quality of its products for comparison with other similar products of
competitors and maintains tight quality controls over its products.
Employees
Golden Flake employs approximately 1,100 employees. Approximately 650
employees are involved in route sales and sales supervision, approximately 350
are in production and production supervision, and approximately 100 are
management and administrative personnel.
Golden Flake believes that the performance and loyalty of its employees are
the most important factors in the growth and profitability of its business.
Since labor costs represent a significant portion of Golden Flake's expenses,
employee productivity is important to profitability. Golden Flake considers its
relations with its employees to be excellent.
Golden Flake has a 401(k) Profit Sharing Plan and an Employee Stock
Ownership Plan designed to reward the long term employee for his loyalty. In
addition, the employees are provided medical insurance, life insurance, and an
accident and sickness salary continuance plan. Golden Flake believes that its
employee wage rates are competitive with those of its industry and with
prevailing rates in its area of operations.
Other Matters
The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and amendments to these reports, are available
via the Company's website. The website address is www.goldenflake.com. All
required reports are made available on the website as soon as reasonably
practicable after they are electronically filed with the Securities and Exchange
Commission.
Environmental Matters
There have been no material effects of compliance with government
provisions regulating discharge of materials into the environment.
Recent Developments
No significant changes have occurred in the kinds of products manufactured
or in the markets of methods of distribution, and no material changes or
developments have occurred in the business done and intended to be done by
Golden Flake.
4
Executive Officers Of Registrant
And Its Subsidiary
Name and Age Position and Offices with Management
------------ ------------------------------------
John S. Stein, 66 Mr. Stein is Chairman of the Board. He was elected
Chairman on June 1, 1996. He served as Chief Executive
Officer from 1991 to April 4, 2001, and as President
from 1985 to 1998 and from June 1, 2000 to April 4,
2001. Mr. Stein also served as President of Golden Flake
Snack Foods, Inc. from 1976 to 1991. Mr. Stein retired
as an employee with the Company on May 31, 2002. Mr.
Stein is elected Chairman annually, and his present term
will expire on May 31, 2004.
Mark W. McCutcheon, 48 Mr. McCutcheon is Chief Executive Officer and President
of the Company and President of Golden Flake Snack
Foods, Inc., a wholly owned subsidiary of the Company.
He was elected President and Chief Executive Officer of
the Company on April 4, 2001 and President of Golden
Flake on November 1, 1998. He has been employed by
Golden Flake since 1980. Mr. McCutcheon is elected Chief
Executive Officer and President of the Company and
President of Golden Flake annually, and his present
terms will expire on May 31, 2004.
John H. Shannon, 66 Mr. Shannon has been employed with the Company since
1962. He was elected Controller in 1976, Secretary in
1978 and Vice-President in 1979, and has served in these
capacities since then, Mr. Shannon is elected to his
positions on an annual basis, and his present term of
office will expire on May 31, 2004.
Randy Bates, 49 Mr. Bates is Executive Vice-President of Sales,
Marketing and Transportation for Golden Flake. He has
held these positions since October 26, 1998. Mr. Bates
was Vice- President of Sales from October 1, 1994 to
1998. Mr. Bates has been employed by Golden Flake since
March 1979. Mr. Bates is elected to his positions on an
annual basis, and his present term of office will expire
on May 31, 2004.
David Jones, 51 Mr. Jones is Executive Vice-President of Operations,
Human Resources and Quality Control for Golden Flake. He
has held these positions since May 20, 2002. Mr. Jones
was Vice-President of Manufacturing from 1998 to 2002
and Vice-President of Operations from 2000 to 2002. Mr.
Jones has been employed by Golden Flake since 1984. Mr.
Jones is elected to his positions on an annual basis,
and his present term of office will expire on May 31,
2004.
ITEM 2. -- PROPERTIES
The headquarters of the Company are located at Suite 208, 2140 11th Avenue
South, Birmingham Alabama 35205. The Company occupies approximately 1500 square
feet of office space under lease. The properties of the subsidiary are described
below.
5
Golden Flake
Manufacturing Plants and Office Headquarters
The main plant and office headquarters of Golden Flake are located at One
Golden Flake Drive, Birmingham, Alabama, and are situated on approximately 40
acres of land which is serviced by a railroad spur track. This facility consists
of three buildings which have a total of approximately 300,000 square feet of
floor area. The plant manufactures a full line of Golden Flake products. Golden
Flake maintains a garage and vehicle maintenance service center from which it
services, maintains, repairs and rebuilds its fleet and delivery trucks. Golden
Flake has adequate employee and fleet parking.
Approximately 17 acres of the Birmingham property is undeveloped. This
property is zoned for industrial use and is readily available for future use.
Plans for the utilization of this property have not been finalized.
Golden Flake also has a manufacturing plant in Ocala, Florida. This plant
was placed in service in November 1984. The plant consists of approximately
100,000 square feet, with allowance for future expansion, and is located on a
28-acre site on Silver Springs Boulevard. The Company manufactures corn chips,
tortilla chips and potato chips from this facility.
The manufacturing plants, office headquarters and additional lands are
owned by Golden Flake free and clear of any debts.
Distribution Warehouses
Golden Flake owns branch warehouses in Birmingham, Montgomery, Midfield,
Demopolis, Fort Payne, Muscle Shoals, Huntsville, Phenix City, Tuscaloosa,
Mobile, Dothan and Oxford, Alabama; Gulfport and Jackson, Mississippi;
Chattanooga, Knoxville, and Memphis, Tennessee; Decatur, Marietta, and Macon
Georgia; Jacksonville, Panama City, Tallahassee and Pensacola, Florida; Baton
Rouge and New Orleans, Louisiana; and Little Rock, Arkansas. The warehouses vary
in size from 2,400 to 8,000 square feet. All distribution warehouses are owned
free and clear of any debts.
Vehicles
Golden Flake owns a fleet of 835 vehicles which includes 644 route trucks,
37 tractors, 96 trailers and 58 cars and miscellaneous vehicles. There are no
liens or encumbrances on Golden Flake's vehicle fleet. Golden Flake also leases
20 route trucks and owns a 1987 Cessna Citation II aircraft.
ITEM 3. -- LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company or its
subsidiary other than ordinary routine litigation incidental to the business of
the Company and its subsidiary.
ITEM 4. -- SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
Not Applicable.
6
PART II
ITEM 5. -- MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded in the over-the-counter market under
the "NASDAQ" symbol, GLDC, and transactions are reported through the National
Association of Securities Dealers Automated Quotation (NASDAQ) National Market
System. The following tabulation sets forth the high and low sale prices for the
common stock during each quarter of the fiscal years ended May 31, 2003 and 2002
and the amount of dividends paid per share in each quarter. The Company
currently expects that comparable regular cash dividends will be paid in the
future.
Market Price
----------------
Dividend Paid
Quarter High Low Per Share
- ------- ------- ------- -------------
Fiscal 2003
- -----------
First $ 4.490 $ 3.710 $ .0625
Second 5.530 2.760 .0625
Third 4.100 2.160 .0313
Fourth 2.500 1.640 .0313
Fiscal 2002
- -----------
First $ 4.150 $ 2.950 $ .0625
Second 4.020 3.150 .0625
Third 3.950 3.400 .0625
Fourth 4.550 3.450 .0625
As of August 8, 2003, there were approximately 1,500 shareholders of record.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
The following table provides Equity Compensation Plan information under
which equity securities of the Registrant are authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Plan category Number of securities to be Weighted-average exercise Number of securities remaining
issued upon exercise of out- price of outstanding options, available for future issuance
standing options, warrants warrants and rights under equity compensations plans
and rights (excluding securities reflected in
column (a))
- -------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 369,000 $3.776 130,000
- -------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security 0 0 0
holders
- -------------------------------------------------------------------------------------------------------------------------------
Total 369,000 $3.776 130,000
- -------------------------------------------------------------------------------------------------------------------------------
7
ITEM 6. - SELECTED FINANCIAL DATA
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
FINANCIAL REVIEW (Dollar amounts in thousands, except per share data)
Year Ended May 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
Operations
Net sales (b) $ 96,367 $ 104,573 $ 102,797 $ 113,227 $ 115,662
Gain on sales of assets 304 756 599 250 537
Other income 506 563 691 67 66
Total revenues 97,177 105,892 104,087 113,544 116,265
Cost of sales 51,191 54,258 53,637 57,146 60,283
Selling, general and administrative expenses 47,959 47,206 46,252 51,679 54,306
Interest 269 189 85 -- --
Restructuring charge -- -- 2,565 -- --
(Loss) income before cumulative effect of a change in accounting
policy and income taxes (2,242) 4,239 4,113 2,154 1,676
Federal and state income taxes (830) 1,643 1,413 911 603
Net (loss) income before cumulative effect of a change in
accounting policy (1,412) 2,596 2,700 1,243 1,073
Cumulative effect of a change in accounting policy net of taxes -- 413 -- -- --
Net (loss) income $ (1,412) $ 3,009 $ 2,700 $ 1,243 $ 1,073
- -----------------------------------------------------------------------------------------------------------------------------------
Financial data
Depreciation and amortization $ 2,490 $ 2,594 $ 2,436 $ 3,230 $ 3,309
Capital expenditures, net of disposals 287 3,802 1,294 149 1,861
Working capital 10,625 13,401 12,909 15,915 11,642
Long-term debt 3,862 5,083 2,527 1,807 1,579
Stockholders' equity 26,005 29,645 29,800 30,528 32,504
Total assets 36,696 41,219 39,247 41,433 41,912
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock data
Net (loss) income before cumulative effect of a change in
accounting policy $ (0.12) $ 0.22 $ 0.23 $ 0.10 $ 0.09
Cumulative effect of a change in accounting policy net of taxes -- 0.03 -- -- --
Basic and diluted net (loss) income (0.12) 0.25 0.23 0.10 0.09
Dividends .1875 0.25 0.25 0.24 0.36
Book value 2.19 2.49 2.50 2.53 2.67
Price range 5.530-1.640 4.550-2.950 4.750-2.875 4.125-2.313 6.625-2.500
- -----------------------------------------------------------------------------------------------------------------------------------
Financial statistics
Current ratio 2.75 3.26 3.00 3.12 2.99
Net (loss) income as percent of total revenues (1.5)% 2.8% 2.6% 1.1% 0.9%
Net (loss) income as percent of stockholders' equity (a) (5.1)% 10.1% 9.0% 3.9% 3.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Other data
Weighted average common shares outstanding 11,883,305 11,898,097 11,965,671 12,154,057 12,171,043
Common shares outstanding at year-end 11,883,305 11,883,305 11,932,741 12,065,000 12,160,950
Approximate number of stockholders 1,500 1,500 1,500 1,600 1,600
(a) Average amounts at beginning and end of fiscal year.
(b) Reflects, on all periods presented, the effect on revenues of adopting the
provisions of the Emerging Issues Task Force of the Financial Accounting
Standards Board issue No. 01-9 Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products) (EITF
01-9).
8
ITEM 7.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion gives an assessment of the Company's financial condition,
liquidity and capital resources and results of operations. It should be read in
conjunction with the accompanying financial statements and notes.
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 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 by
approximately 433 route representatives who are supplied with selling inventory
by the Company's trucking fleet. All of the route representatives are employees
of the Company and use the Company's direct-store delivery system.
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 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 judgements 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
judgement and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates.
9
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 judgements 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.
In November 2001, the Emerging Issues Task Force reached a consensus on
Issue No. 01-09 Accounting for Consideration given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) effective for annual or interim
periods beginning after December 15, 2001. The issue addresses the recognition,
measurement and income statement classification for certain sales incentives.
The Company implemented this new accounting policy in the fourth quarter of
fiscal 2002. The effect of this accounting change is to adopt this policy as of
the beginning of the fiscal 2002 (June 1, 2001). Certain of these expenses,
including slotting fees, previously classified as selling, general and
administrative expenses, are now characterized as offsets to net sales.
Reclassifications have been made to prior period financial statements to conform
to current year presentation. Total vendor sales incentives now characterized as
reductions of net sales that previously would have been classified as selling,
general and administrative expenses were approximately $12.8 million, $11.7
million and $12.9 million for the years ended 2003, 2002 and 2001, respectively.
There was no resulting impact on net operating results from adopting EITF 01-09.
Change in Accounting Policy
The Company changed its accounting policy in the fourth quarter of fiscal
2002 with regard to slotting fees. The effect of this accounting change was to
adopt this policy as of the beginning of fiscal 2002 (June 1, 2001). Previously,
slotting fees were expensed as incurred. The Company changed this accounting
policy to capitalize and amortize such costs over the expected benefit period,
which is generally one year. This change in accounting policy was made to more
closely match the cost of the shelf space obtained with the slotting fees with
the revenues produced by the shelf space. The cumulative effect of this change
in accounting policy resulted in a non-cash cumulative adjustment of $413,401
($0.03 per share), net of taxes. The accounting change also increased net income
before the cumulative effect in 2002 by $197,141 ($0.02 per share). Quarterly
results for 2002 reflecting this change in accounting are included in Note 15,
Quarterly Results of Operations.
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 10
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 May 31, 2003 and 2002 the Company
had accounts receivables in the amount of $7.9 million and $9.8 million, net of
an allowance for doubtful accounts of $0.2 million and $0.2 million,
respectively.
10
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 13 of the Notes to
Consolidated Financial Statements, are conducted on an arm's-length basis in the
ordinary course of business.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $10.6 million at May 31, 2003 compared to $13.4 million
at May 31, 2002. Net cash provided by operations amounted to $4.6 million in
fiscal year 2003, $1.9 million in fiscal year 2002 and $0.05 million in fiscal
year 2001. The increase in net cash provided by operations is primarily related
to decreases in receivables, inventories, prepaid expenses and an increase in
accrued expenses offset by the net loss for fiscal year 2003 of $1.4 million
compared to the net income for fiscal year 2002 of $3.0 million.
Additions to property, plant and equipment, net of disposals were $0.3
million, $3.8 million and $1.3 million in fiscal years 2003, 2002 and 2001,
respectively, and are expected to be about $1.7 million in 2004.
Cash dividends of $2.2 million, $3.0 million and $3.0 million were paid
during fiscal years 2003, 2002, and 2001, respectively. The quarterly dividend
was reduced to $.03125 from $.0625 in the third quarter in response to a
decrease in earnings.
No cash was used to purchase treasury shares in fiscal 2003, $0.2 million
was used in 2002, and $0.5 million was used for this purpose in 2001.
11
During fiscal 2003, the company re-paid debt, net of borrowings, of $1.6
million.
The following table summarizes the significant contractual obligations of
the Company as of May 31, 2003:
Contractual Obligations Total 2004 2005-2006 2007-2008 Thereafter
- ----------------------- ---------- ---------- ---------- ---------- ----------
Long-Term Debt $2,422,909 $ 432,142 $ 904,933 $ 961,970 $ 123,864
Purchase Commitment 3,684,000 1,588,000 2,096,000 -0- -0-
Salary Continuation Plan 1,959,586 88,595 199,860 234,413 1,436,718
---------- ---------- ---------- ---------- ----------
Total Contractual Obligations $8,066,495 $2,108,737 $3,200,793 $1,196,383 $1,560,582
========== ========== ========== ========== ==========
Other Commitments
The Company had letters of credit in the amount of $1,790,000 outstanding
at May 31, 2003 to support the Company's commercial self-insurance program.
The Company has a line-of-credit agreement with a local bank that permits
borrowing up to $1 million. The line-of-credit is subject to the Company's
continued credit worthiness and compliance with the terms and conditions of the
advance application.
Long-term liabilities as a percentage of total capitalization was 12.6% at
May 31, 2003. The Company's current ratio at year end was 2.75 to l.00.
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
Net sales decreased by 7.8% in fiscal year 2003, increased by 1.7% in
fiscal year 2002, and decreased by 8.8% in fiscal year 2001. The decrease in
fiscal 2003 was due to a general sales weakness in the U.S. salty snacks
category, particularly during the first part of the fiscal year. The increase in
fiscal 2002 was primarily due to less promotional payments to vendors that were
subtracted from sales as required by EITF 01-9. The sales decrease for fiscal
2001 was primarily a result of discontinuing the Company-operated distribution
of Golden Flake Branded products in three fringe sales regions in Central
Florida as part of the fiscal year 2000 restructuring plan.
12
Cost of sales as a percentage of net sales amounted to 53.1% in 2003, 51.9%
in 2002, and 52.2% in 2001. The percentage increase in cost of sales for fiscal
2003 was caused by the lower sales volume and higher commodity prices and energy
cost. The cost decrease in 2002 was due primarily to lower energy costs, while
the higher cost in 2001 was attributed to higher energy prices.
Selling, general and administrative expenses were 49.8% of net sales in
2003, 45.1% in 2002, and 45.0% in 2001. The higher percentage cost for fiscal
2003 is attributed to significant increases in employee medical, worker's
compensation, general and auto liability insurance costs, and energy costs. The
more favorable cost percentages for fiscal 2002 and 2001 were primarily due to
lower selling and delivery cost brought about by the exiting of the fringe sales
regions in Central Florida as part of the fiscal 2000 restructuring plan.
The Company's effective tax rates for 2003, 2002, and 2001 were (37.0%),
38.8% and 34.3%, respectively. Note 8 to the Consolidated Financial Statements
provides additional information about the provision for income taxes.
OFF-BALANCE SHEET ARRANGEMENT
The Company entered into a five-year term product purchase agreement during
the year ending May 31, 2001 with a supplier. Under the terms of the agreement
the minimum purchase quantity and the 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 the current market. The purchase product agreement as
subsequently amended is described in more detail in Note 13 of the Notes to
Consolidated Financial Statements.
MARKET RISK
The principal market risks (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on its cash equivalents, investment securities and bank loans, and
commodity prices affecting the cost of its raw materials.
The Company's cash equivalents consist of short-term marketable securities.
Presently these are variable rate money market funds. Its bank loans also carry
variable rates. Assuming year end 2003 variable rate investment levels and bank
loan balances, a one-point change in interest rates would impact interest income
by $10,159 and interest expense by $24,229.
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. Futures contracts have been used occasionally to hedge immaterial
amounts of commodity purchases, but none are presently being used.
INFLATION
Certain costs and expenses of the Company are affected by inflation, and
the Company's prices for its products over the past several years have remained
relatively flat. The Company will contend with the effect of further inflation
through efficient purchasing, improved manufacturing methods, pricing, and by
monitoring and controlling expenses.
13
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 Securities and Exchange
Commission.
RECENT ISSUED ACCOUNTING PRONOUNCEMENTS
Effective June 1, 2002, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", which requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead, subjected to impairment testing. Intangible assets with finite lives
will continue to be amortized over their useful lives. SFAS No. 142 requires an
initial goodwill and indefinite life intangible asset impairment assessment in
the year of adoption and annual impairment testing thereafter based on fair
value. The adoption of SFAS No. 142 did not have a material impact on the
Company's financial position, results of operations or cash flows.
Effective June 1, 2002, the Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets to be held and used, to be disposed of other than by sale and to be
disposed of by sale. The adoption of this standard did not have a material
impact on the Company's financial position, results of operations or cash flows.
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 or disposal activity. SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002. Management does not
believe that the adoption of this standard will have a material impact on the
Company's financial position, results of operations or cash flows.
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 14 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 detailed in the stock-based
compensation accounting policy as described earlier.
14
In November, 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation 45 requires a guarantor to
include disclosure of certain obligations and, if applicable, at the inception
of the guarantee, to recognize a liability for the fair value of other certain
obligations undertaken in issuing a guarantee. The recognition requirement is
effective for guarantees issued or modified after December 31, 2002 and did not
have material impact on the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN No. 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company does not expect FIN
No. 46 to have a material effect on its results of operations, financial
condition or cash flows.
15
ITEM 7 A.- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Included in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations- Market Risk beginning on page 13.
ITEM 8.- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and its subsidiary
for the year ended May 31, 2003, consisting of the following, are contained
herein:
Consolidated Balance Sheets - May 31, 2003 and 2002
Consolidated Statements of Operations - Years ended May 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended May 31, 2003, 2002 and 2001
Consolidated Statements of Changes in
Stockholders' Equity - Years ended May 31, 2003, 2002 and 2001
Notes to Consolidated Financial
Statements - Years ended May 31, 2003, 2002 and 2001
Quarterly Results of Operations - Years ended May 31, 2003, and 2002
16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Golden Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Golden
Enterprises, Inc. and subsidiary as of May 31, 2003 and 2002, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended May 31, 2003. Our audits
also included the financial statement schedule listed at Item 16(a)2. These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Golden
Enterprises, Inc. and subsidiary as of May 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
As discussed in Note 2 to the financial statements, effective June 1, 2001 the
Company changed its accounting policy with respect to slotting fees.
Birmingham, Alabama
July 15, 2003 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
17
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31, 2003 and 2002
ASSETS 2003 2002
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 1,278,333 $ 302,478
Receivables:
Trade accounts 7,835,874 9,014,850
Other 299,142 931,911
------------- -------------
8,135,016 9,946,761
Less: Allowance for doubtful accounts 196,100 196,100
------------- -------------
7,938,916 9,750,661
Notes receivable, current 42,253 45,918
7,981,169 9,796,579
Inventories:
Raw materials 1,496,992 1,605,640
Finished goods 2,289,145 3,604,482
------------- -------------
3,786,137 5,210,122
------------- -------------
Prepaid expenses 3,645,298 4,031,037
------------- -------------
Total current assets 16,690,937 19,340,216
------------- -------------
PROPERTY, PLANT AND EQUIPMENT
Land 3,030,974 3,086,571
Buildings 16,897,204 17,040,006
Machinery and equipment 41,478,108 40,819,601
Transportation equipment 15,113,558 15,286,803
------------- -------------
76,519,844 76,232,981
Less: Accumulated depreciation 61,158,271 59,136,721
------------- -------------
15,361,573 17,096,260
OTHER ASSETS
Notes receivable, long-term 1,865,747 1,981,718
Cash surrender value of life insurance 2,762,739 2,785,336
Other 15,233 15,337
------------- -------------
Total other assets 4,643,719 4,782,391
------------- -------------
TOTAL $ 36,696,229 $ 41,218,867
============= =============
See Accompanying Notes to Consolidated Financial Statements
18
LIABILITIES AND STOCKHOLDERS' EQUITY
2003 2002
------------- -------------
CURRENT LIABILITIES
Checks outstanding in excess of bank balances $ 1,157,108 $ 621,326
Accounts payable 1,700,934 2,189,729
Current portion of long-term debt 432,142 371,516
Note payable - line of credit -- 478,894
Other accrued expenses 2,381,975 1,588,500
Deferred income taxes 304,698 607,489
Salary continuation plan 88,595 81,805
------------- -------------
Total current liabilities 6,065,452 5,939,259
------------- -------------
LONG-TERM LIABILITIES
Note payable - bank, non-current 1,990,767 3,150,020
Salary continuation plan 1,870,991 1,932,586
------------- -------------
Total long-term liabilities 3,861,758 5,082,606
------------- -------------
DEFERRED INCOME TAXES 764,032 551,742
------------- -------------
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
Additional paid-in capital 6,497,954 6,497,954
Retained earnings 20,821,015 24,461,288
Treasury shares - at cost (1,945,488) (10,533,177) (10,533,177)
------------- -------------
Total stockholders' equity 26,004,987 29,645,260
------------- -------------
TOTAL $ 36,696,229 $ 41,218,867
============= =============
19
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended May 31, 2003, 2002 and 2001
2003 2002 2001
------------- -------------- --------------
Net sales $ 96,367,088 $ 104,572,608 $ 102,796,741
Cost of sales 51,191,313 54,257,812 53,636,803
------------- -------------- --------------
Gross margin 45,175,775 50,314,796 49,159,938
Selling, general and administrative expenses 47,959,449 47,205,695 46,252,224
------------- -------------- --------------
Operating (loss) income (2,783,674) 3,109,101 2,907,714
------------- -------------- --------------
Other income (expenses):
Gain on sale of assets 304,221 756,259 599,497
Interest expense (268,489) (190,159) (85,420)
Other income 506,296 563,383 691,027
------------- -------------- --------------
Total other income (expenses) 542,028 1,129,483 1,205,104
------------- -------------- --------------
(Loss) income before cumulative effect of a change
in accounting policy and income taxes (2,241,646) 4,238,584 4,112,818
------------- -------------- --------------
Provision for income taxes (829,501) 1,643,037 1,412,663
------------- -------------- --------------
Net (loss) income before cumulative effect of a
change in accounting policy (1,412,145) 2,595,547 2,700,155
Cumulative effect of a change in accounting policy
net of taxes of $262,037 -- 413,401 --
------------- -------------- --------------
Net (loss) income $ (1,412,145) $ 3,008,948 $ 2,700,155
============= ============== ==============
PER SHARE OF COMMON STOCK
Net (loss) income before cumulative effect of a
change in accounting policy $ (0.12) $ 0.22 $ 0.23
Cumulative effect of a change in accounting policy
net of taxes -- 0.03 --
------------- -------------- --------------
Basic earnings $ (0.12) $ 0.25 $ 0.23
------------- -------------- --------------
Diluted earnings $ (0.12) $ 0.25 $ 0.23
============= ============== ==============
See Accompanying Notes to Consolidated Financial Statements
20
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31, 2003, 2002 and 2001
2003 2002 2001
------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (1,412,145) $ 3,008,948 $ 2,700,155
Adjustment to reconcile net (loss) income to net
cash provided by operating activities:
Cumulative effect of a change in accounting
policy -- (413,401) --
Depreciation 2,490,330 2,593,621 2,435,262
Deferred income taxes (90,501) (344,000) (463,663)
Gain on sale of property and equipment (304,221) (756,259) (599,497)
Decrease (increase) in receivables - net 1,811,745 (648,679) (497,688)
Decrease (increase) in inventories 1,423,985 (470,362) (697,415)
Decrease (increase) in prepaid expenses 385,843 (1,079,977) (71,729)
Decrease in cash surrender value of insurance 22,597 50,614 30,591
(Decrease) increase in accounts payable (488,795) 265,301 (1,473,900)
Increase (decrease) in accrued expenses 793,475 (352,860) (1,395,999)
(Decrease) increase in salary continuation plan (54,805) 86,568 83,542
------------- -------------- --------------
Net cash provided by operating activities 4,577,508 1,939,514 49,659
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (851,111) (5,236,601) (2,443,988)
Proceeds from sale of property, plant and equipment 399,690 1,301,160 253,972
Cash received from disposal of Nashville plant and
equipment -- -- 1,710,000
Collection of notes receivable 119,636 42,399 19,965
Investment securities available-for-sale
Purchases -- -- (357,332)
Proceeds from disposals 625,326 243,477
------------- -------------- --------------
Net cash used in investing activities (331,785) (3,267,716) (573,906)
------------- -------------- --------------
21
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended May 31, 2003, 2002 and 2001
2003 2002 2001
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 11,543,823 7,806,676 860,100
Debt repayments (13,121,345) (4,666,346) --
Increase (decrease) in checks outstanding in
excess of bank balances 535,782 (931,135) 931,996
Purchases of treasury shares -- (193,419) (467,951)
Proceeds from exercise of stock options -- 3,810 --
Cash dividends paid (2,228,128) (2,974,005) (2,960,245)
------------- -------------- --------------
Net cash used in financing activities (3,269,868) (954,419) (1,636,100)
------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 975,855 (2,282,621) (2,160,347)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 302,478 2,585,099 4,745,446
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,278,333 $ 302,478 $ 2,585,099
============= ============== ==============
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Income taxes $ (626,349) $ 2,343,597 $ 1,898,808
Interest 268,489 190,159 85,420
Noncash items:
Equipment traded in 22,123 -- --
Notes receivable issued in connection with sale
of property -- -- 2,090,000
See Accompanying Notes to Consolidated Financial Statements
22
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended May 31, 2003, 2002 and 2001
Additional Total
Common Paid-in Retained Treasury Stockholders'
Stock Capital Earnings Shares Equity
------------- -------------- -------------- ------------- -------------
Balance - May 31, 2000 $ 9,219,195 $ 6,499,554 $ 24,686,435 $ (9,877,217) $ 30,527,967
Net income - 2001 -- -- 2,700,155 -- 2,700,155
Cash dividends paid -- -- (2,960,245) -- (2,960,245)
Treasury shares purchased -- -- -- (467,951) (467,951)
------------- -------------- -------------- ------------- -------------
Balance - May 31, 2001 9,219,195 6,499,554 24,426,345 (10,345,168) 29,799,926
Net income - 2002 -- -- 3,008,948 -- 3,008,948
Cash dividends paid -- -- (2,974,005) -- (2,974,005)
Treasury shares purchased -- -- -- (193,419) (193,419)
Stock options exercised -- (1,600) -- 5,410 3,810
------------- -------------- -------------- ------------- -------------
Balance - May 31, 2002 9,219,195 6,497,954 24,461,288 (10,533,177) 29,645,260
Net loss - 2003 -- -- (1,412,145) -- (1,412,145)
Cash dividends paid -- -- (2,228,128) -- (2,228,128)
------------- -------------- -------------- ------------- -------------
Balance - May 31, 2003 $ 9,219,195 $ 6,497,954 $ 20,821,015 $(10,533,177) $ 26,004,987
============= ============== ============== ============= =============
See Accompanying Notes to Consolidated Financial Statement
23
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Golden Enterprises, Inc. and subsidiary
(Company) conform to accounting principles generally accepted in the United
States of America and to general principles within the snack foods industry. The
following is a description of the more significant accounting policies:
Nature of the Business
The Company manufactures and distributes a full line of snack items that are
sold through its own sales organization and independent distributors to
commercial establishments that sell food products primarily in the Southeastern
United States.
Consolidation
The consolidated financial statements include the accounts of Golden
Enterprises, Inc. and its wholly-owned subsidiary, Golden Flake Snack Foods,
Inc., (the Company). All significant intercompany transactions and balances have
been eliminated.
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.
Revenue Classification Changes
In November 2001, the Emerging Issues Task Force reached a consensus on Issue
No. 01-09 Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) effective for annual or interim
periods beginning after December 15, 2001. The issue addresses the recognition,
measurement and income statement classification for certain sales incentives.
The Company implemented this new accounting policy in the fourth quarter of
fiscal 2002. The effect of this accounting change is to adopt this policy as of
the beginning of the fiscal 2002 (June 1, 2001). Certain of these expenses,
including slotting fees, previously classified as selling, general and
administrative expenses, are now characterized as offsets to net sales.
Reclassifications have been made to prior period financial statements to conform
to current year presentation. Total vendor sales incentives now characterized as
reductions of net sales that previously would have been classified as selling,
general and administrative expenses were approximately $12.8 million, $11.7
million and $12.9 million for the years ended 2003, 2002 and 2001, respectively.
There was no resulting impact on net operating results from adopting EITF 01-09.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on the
first-in, first-out method.
24
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Property, Plant and Equipment
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation and amortization have been provided principally on the
straight-line method over the estimated useful lives of the respective assets.
Accelerated methods are used for tax purposes.
Expenditures for maintenance and repairs are charged to operations as incurred;
expenditures for renewals and betterments are capitalized and written off by
depreciation and amortization charges. Property retired or sold is removed from
the asset and related accumulated depreciation accounts and any profit or loss
resulting therefrom is reflected in the statements of operations.
Self-Insurance
The Company is self-insured for certain losses relating to automobile liability,
general liability, workers' compensation and property losses. The Company has
stop loss coverage to limit the exposure arising from these claims.
Self-insurance claims filed and claims incurred but not reported are accrued
based upon management's estimates of the aggregate liability for uninsured
claims incurred. These reserves are necessarily based on estimates; thus actual
results may differ. The Company is insured for losses in excess of $100,000,
$50,000, $250,000 and $100,000 per occurrence for automobile liability, general
liability, workers' compensation and property losses, respectively.
Advertising
The Company expenses advertising costs as incurred. These costs are included in
selling, general and administrative expenses in the Consolidated Statement of
Operations. Advertising expense amounted to $5,031,409, $4,371,719 and
$5,739,488 for the fiscal years 2003, 2002 and 2001, respectively.
Income Taxes
Deferred income taxes are recorded on the differences between the tax bases of
assets and liabilities and the amounts at which they are reported in the
consolidated financial statements. Recorded amounts are adjusted to reflect
changes in income tax rates and other tax law provisions as they become enacted.
Segment Information
The Company does not identify separate operating segments for management
reporting purposes. The results of operations are the basis on which management
evaluates operations and makes business decisions. The Company's sales are
generated primarily within the Southeastern United States.
Stock Options
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for all stock option plans. No
stock-based compensation cost has been recognized in operations for stock
options granted because the option exercise price was equal to or more than the
market price of the underlying common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No.
148, Accounting for Stock-Based Compensation -- Transition and Disclosure,
requires 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 estimates the
fair value of each stock option at the grant date by using the Black-Scholes
option-pricing model.
25
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The following table represents the pro forma effect on net income (loss) and
earnings (loss per share as if the Company had applied the fair value based
method recognition provisions of SFAS No. 123 to stockbased employee
compensation:
Years Ended May 31,
-------------------------------------------
2003 2002 2001
------------- -------------- --------------
Net (loss) income as reported $ (1,412,145) $ 3,008,948 $ 2,700,155
Deduct: total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (12,660) (52,289) --
------------- -------------- --------------
Pro forma net (loss) income (1,424,805) 2,956,659 2,700,155
============= ============== ==============
(Loss) earnings per share:
Basic - as reported $ (0.12) $ .25 $ .23
============= ============== ==============
Basic - Pro forma $ (0.12) $ .25 $ .23
============= ============== ==============
Diluted - as reported $ (0.12) $ .25 $ .23
============= ============== ==============
Diluted - Pro forma $ (0.12) $ .25 $ .23
============= ============== ==============
Shipping and Handling Costs
Shipping and handling costs, which include salaries and vehicle operations
expenses relating to the delivery of products to customers by the Company are
classified as Selling, General and Administrative (SG&A) expenses. Shipping and
handling costs classified as SG&A amounted to $2.3 million, $2.5 million and
$2.4 million for the fiscal year 2003, 2002, and 2001, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Recent Issued Accounting Pronouncements
Effective June 1, 2002, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets", which requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead, subjected to
impairment testing. Intangible assets with finite lives will continue to be
amoritzed over their useful lives. SFAS No. 142 requires an initial goodwill and
indefinite life intangible asset impairment assessment in the year of adoption
and annual impairment testing thereafter based on fair value. The adoption of
SFAS No. 142 did not have a material impact on the Company's Financial position,
results of operations or cash flows.
26
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Effective June 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets to
be held and used, to be disposed of other than by sale and to be disposed of by
sale. The adoption of this standard did not have a material impact on the
Company's financial position, results of operations or cash flows.
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 or disposal activity. SFAS No. 146 is effective for exit or
disposal activities initiated after December 31, 2002. Management does not
believe that the adoption of this standard will have a material impact on the
Company's financial position, results of operations or cash flows.
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 detailed in the stock-based
compensation accounting policy as described earlier.
In November, 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation 45 requires a guarantor to
include disclosure of certain obligations and, if applicable, at the inception
of the guarantee, to recognize a liability for the fair value of other certain
obligations undertaken in issuing a guarantee. The recognition requirement is
effective for guarantees issued or modified after December 31, 2002 and did not
have a material impact on the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN No. 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company does not expect FIN
No. 46 to have a material effect on its results of operations, financial
condition or cash flows.
Reclassifications
Certain items included in prior years' consolidated financial statements have
been reclassified to conform to current year presentation.
27
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 2 - CHANGE IN ACCOUNTING POLICY
The Company changed its accounting policy in the fourth quarter of fiscal 2002
with regard to slotting fees. The effect of this accounting change was to adopt
this policy as of the beginning of fiscal 2002 (June 1, 2001). Previously,
slotting fees were expensed as incurred. The Company changed this accounting
policy to capitalize and amortize such costs over the expected benefit period,
which is generally one year. This change in accounting policy was made to more
closely match the cost of the shelf space obtained with the slotting fees with
the revenues produced by the shelf space. The cumulative effect of this change
in accounting policy resulted in a noncash cumulative adjustment of $413,401
($0.03 per share), net of taxes. The accounting change also increased net income
before the cumulative effect in 2002 by $197,141 ($0.02 per share). Quarterly
results for 2002 reflecting this change in accounting are included in Note 15,
Quarterly Results of Operations.
NOTE 3 - NOTES RECEIVABLE
Notes receivable as of May 31, 2003 and 2002 consist of the following:
2003 2002
-------------- --------------
8% note, originally due in 120 monthly installments of $1,092
through November 1, 2010, collateralized by equipment and
personal guarantee; paid off $ -- $ 80,625
8% note, due in 120 monthly installments of $3,640 through
November 1, 2010, collateralized by property 245,743 268,749
8% note, due in 360 monthly installments of $12,474 through
November 1, 2030, collateriazed by property 1,662,257 1,678,262
-------------- --------------
1,908,000 2,027,636
Less current portion 42,253 45,918
-------------- --------------
$ 1,865,747 $ 1,981,718
============== ==============
Maturities at May 31,
2005 $ 45,760
2006 49,558
2007 53,672
2008 58,126
2009 62,951
Thereafter 1,595,680
28
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 4 - PREPAID EXPENSES
At May 31, prepaid expenses consist of the following:
2003 2002
-------------- --------------
Prepaid slotting fees $ 333,799 $ 1,001,087
Other prepaid expenses 3,311,499 3,029,950
-------------- --------------
$ 3,645,298 $ 4,031,037
============== ==============
NOTE 5 - OTHER ACCRUED EXPENSES
At May 31, other accrued expenses consist of the following:
2003 2002
-------------- --------------
Accrued payroll $ 448,251 $ 490,000
Self insurance liability 1,386,122 613,453
Other accrued expenses 547,602 485,047
-------------- --------------
$ 2,381,975 $ 1,588,500
============== ==============
NOTE 6 - LINE OF CREDIT
The Company has a line of credit agreement with a local bank which 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.
NOTE 7 - LONG-TERM LIABILITIES
Long-term debt consist of the following: 2003 2002
-------------- --------------
Note payable - bank - payable in equal monthly installments of
$41,688 including interest at the LIBOR index rate plus 1.75%
(3.06% at May 31, 2003) through April 3, 2011, secured by
equipment $ 2,422,909 $ 3,521,536
Less: current portion 432,142 371,516
-------------- --------------
$ 1,990,767 $ 3,150,020
============== ==============
29
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 7 - LONG-TERM LIABILITIES - CONTINUED
Maturities at May 31,
2005 $ 445,553
2006 459,380
2007 473,636
2008 488,334
2009 123,864
Other long-term obligations at May 31, 2003 and 2002, consist of the following:
2003 2002
-------------- --------------
Salary continuation plan $ 1,959,586 $ 2,014,391
Less current portion (88,595) (81,805)
-------------- --------------
$ 1,870,991 $ 1,932,586
============== ==============
The Company is accruing the present values of the estimated future retirement
payments over the period from the date of the agreements to the retirement
dates, for certain key executives. The Company recognized compensation expense
of approximately $27,000, $127,341 and $121,000 for fiscal 2003, 2002 and 2001,
respectively.
NOTE 8 - INCOME TAXES
The provision for income taxes consists of the following:
2003 2002 2001
------------- -------------- --------------
Current:
Federal $ (657,000) $ 1,535,000 $ 844,000
State (82,000) 190,000 105,000
------------- -------------- --------------
(739,000) 1,725,000 949,000
Deferred:
Federal (80,529) (72,933) 412,580
State (9,972) (9,030) 51,083
------------- -------------- --------------
(90,501) (81,963) 463,663
------------- -------------- --------------
Total $ (829,501) $ 1,643,037 $ 1,412,663
============= ============== ==============
30
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 8 - INCOME TAXES - CONTINUED
The effective tax rate for continuing operations differs from the expected tax
using statutory rates. A reconciliation between the expected tax and actual tax
follows:
2003 2002 2001
------------- -------------- --------------
Tax on income at statutory rates $ (762,160) $ 1,441,000 $ 1,398,358
(Decrease) increase resulting from:
State income taxes, less Federal income tax effect (61,309) 149,000 70,000
Tax exempt interest (1,356) (9,303) (59,317)
Other - net (4,676) 62,340 3,622
------------- -------------- --------------
Total $ (829,501) $ 1,643,037 $ 1,412,663
============= ============== ==============
The tax effects of temporary differences that result in deferred tax assets and
liabilities are as follows:
2003 2002
-------------- --------------
Deferred tax assets
Salary continuation plan $ 718,580 $ 723,500
Contribution carryforward 121,491 --
Inventory capitalization 58,922 --
Allowance for doubtful accounts 71,910 66,674
-------------- --------------
Total deferred tax assets 970,903 790,174
-------------- --------------
Deferred tax liabilities
Property and equipment 1,604,103 1,275,242
Prepaid expenses 435,530 674,163
-------------- --------------
Total deferred tax liabilities 2,039,633 1,949,405
-------------- --------------
Net deferred tax liability $ (1,068,730) $ (1,159,231)
============== ==============
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company has trusted "Qualified Profit-Sharing Plans" that were amended and
restated effective June 1, 1996 to add a 401(k) salary reduction provision.
Under this provision, employees can contribute up to fifteen percent of their
compensation to the plan on a pretax basis subject to regulatory limits; and the
Company, at its discretion, can match up to 4 percent of the participants'
compensation. The annual contributions to the plans are determined by the Board
of Directors. Total plan expenses for the years ended May 31, 2003, 2002 and
2001 were $231,332, $177,405, and $181,055, respectively.
31
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 9 - EMPLOYEE BENEFIT PLANS - CONTINUED
The Company has an Employee Stock Ownership Plan that covers all full-time
employees. The annual contributions to the plan are amounts determined by the
Board of Directors of the Company. Annual contributions are made in cash or
common stock of the Company. The Employee Stock Ownership Plan expenses for the
years ended May 31, 2003, 2002 and 2001 were $-0-. Each participant's account is
credited with an allocation of shares acquired with the Company's annual
contributions, dividends received on ESOP shares and forfeitures of terminated
participants' nonvested accounts.
The Company has a Salary Continuation Plan with certain of its key officers
whereby monthly benefits will be paid for a period of fifteen years following
retirement. The Company is accruing the present value of such retirement
benefits until the key officers reach normal retirement age at which time the
principal portion of the retirement benefits paid are applied to the liability
previously accrued. The change in the liability for the Salary Continuation Plan
is as follows:
2003 2002
------------ ------------
Accrued Salary Continuation Plan - beginning of year $ 2,014,391 $ 1,927,823
Benefits accrued 27,000 127,341
Benefits paid (81,805) (40,773)
------------ ------------
Accrued Salary Continuation Plan - end of year $ 1,959,586 $ 2,014,391
============ ============
NOTE 10 - LONG-TERM INCENTIVE PLANS
The Company has a long-term incentive plan currently in effect under which
future stock option grants may be issued. This Plan (the 1996 Plan) is
administered by the Stock Option Committee of the Board of Directors, which has
sole discretion, subject to the terms of the Plan, to determine those employees,
including executive officers, eligible to receive awards and the amount and type
of such awards. The Stock Option Committee also has the authority to interpret
the Plan, formulate the terms and conditions of award agreements and make all
other determinations required in the administration thereof. All options
outstanding at the end of the 2003, 2002, and 2001 are exercisable.
The Company had a stock option plan (the 1988 Plan) that expired July 6, 2002.
There were no stock options or stock appreciation rights outstanding under this
Plan at July 6, 2002, May 31, 2002 and 2001.
The 1996 Plan provides for the granting of incentive stock options as defined
under the Internal Revenue Code. Under the Plan, grants may be made to selected
officers and employees, of incentive stock option with a term not exceeding ten
years from the issue date and at a price not less than the fair market value of
the Company's stock at the date of grant.
32
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 10 - LONG-TERM INCENTIVE PLANS - CONTINUED
Five hundred thousand shares of the Company's stock have been reserved for
issuance under this Plan. The following is a summary of transactions:
Shares Under Option 2003 2002 2001
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- -------- --------
Outstanding - beginning of year 369,000 $ 3.78 40,000 $ 3.50 340,000 $ 6.92
Granted -- -- 330,000 3.81 -- --
Exercised -- -- (1,000) 3.81 -- --
Forfeited -- -- -- -- -- --
Cancelled -- -- -- -- (300,000) 7.38
------- ------- ------- -------- --------- --------
Outstanding - end of year 369,000 $ 3.78 369,000 $ 3.78 40,000 $ 3.50
======= ======= ======= ======== ========= ========
Pro forma information regarding net income and earnings per share is presented
as if the Company had accounted for its employees stock options under the fair
value method. The per share weighted average fair value of the stock options
granted during fiscal 2002 was $.25. The fair value of these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest rate 5.05
percent; dividend yield 6.56 percent; expected option life of 5 years; and
expected volatility of 15 percent. No options were granted during 2003 or 2001.
The Black-Scholes options pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect an option's fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of it employee stock options.
33
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11 - NET INCOME PER SHARE
Basic earnings per common share are computed by dividing earnings available to
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects per share amounts that would
have resulted if dilutive potential common stock equivalents had been converted
to common stock, as prescribed by Statement of Financial Accounting Standards
No. 128, "Earnings per Share". Options to purchase 369,000 and 329,000 shares of
common stock at May 31, 2003, and 2002, respectively, were not included in the
computation of diluted earnings per share because the options' exercise price
were greater than the average market price of the common shares and, therefore,
the effect would be antidulitive. No such antidulitive options were outstanding
at May 31, 2001. The following reconciles the information used to compute basic
and diluted earnings per share:
Average Common Stock Shares
-----------------------------------
2003 2002 2001
---------- ---------- ----------
Basic weighted average shares outstanding 11,883,305 11,898,097 11,965,671
Effect of options -- 2,796 2,152
---------- ---------- ----------
Diluted shares 11,883,305 11,900,893 11,967,823
========== ========== ==========
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" requires disclosure of fair value information
about financial instruments, whether or not recognized on the face of the
balance sheet, for which it is practical to estimate that value. SFAS 107
defines fair value as the quoted market prices for those instruments that are
actively traded in financial markets. In cases where quoted market prices are
not available, fair values are estimated using present value or other valuation
techniques. The fair value estimates are made at a specific point in time, based
on available market information and judgments about the financial instrument,
such as estimates of timing and amount of expected future cash flows. Such
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of unrealized
gains or losses. In many cases, the fair value estimates cannot be substantiated
by comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument.
The carrying amounts for cash and cash equivalents approximate fair value
because of the short maturity, generally less than three months, of these
instruments. The fair value of notes receivable is estimated by using a discount
rate that approximates the current rate for comparable notes. At May 31, 2003
and 2002 the aggregate fair value was approximately $2,507,357 and $2,208,839
compared to a carrying amount of $1,908,000 and $2,027,636, respectively.
34
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -CONTINUED
The interest rate on the Company's bank debt is reset monthly to reflect the 30
day LIBOR rate. Consequently, the carrying value of the bank debt approximates
fair value.
The carrying value of the Company's salary continuation plan and
accrued liability approximates fair value because present value is used in
accruing this liability.
The Company does not hold or issue financial instruments for trading purposes
and has no involvement with forward currency exchange contracts.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Rental expense was $498,031 in 2003, $547,742 in 2002, and $410,189 in 2001. At
May 31, 2003, the Company was obligated under certain operating leases for
buildings, office space and equipment. The following amounts represent future
payment commitments under these leases:
May 31, Office Space Equipment Total
------- ------------ --------- ---------
2004 $ 24,000 $ 187,000 $ 211,000
The Company leases equipment for approximately $16,000 per month from a company
which is principally owned by a major shareholder of Golden Enterprises, Inc.
The Company leases its airplane to a major shareholder of the Company for
approximately $20,000 per month. The lease provides for his personal use of the
airplane for up to 100 flight hours per year and is for a term of one year with
automatic renewal at the option of either party.
The Company had letters of credit in the amount of $1,790,000 outstanding at May
31, 2003 to support the Company's commercial self-insurance program. The Company
pays a commitment fee of 0.375% to maintain the letters of credit.
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. As of May 31, 2003 the Company's
outstanding purchase commitments were as follows:
Years ending
May 31, Amount
------------ -----------
2004 $ 1,588,000
2005 1,491,000
2006 605,000
35
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 14 -CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents and trade receivables.
The Company maintains deposit relationships with high credit quality financial
institutions. The Company's trade receivables result primarily from its snack
food operations and reflect a broad customer base, primarily large grocery store
chains located in the Southeastern United States. The Company routinely assesses
the financial strength of its customers. As a consequence, concentrations of
credit risk are limited.
The Company's notes receivable require collateral and buyer investment and
management believes they are well secured.
NOTE 15 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations of
the years ended May 31, 2003 and 2002.
Per Share
Net (Loss) Net (Loss)
Net Sales Income Income
------------- ------------ -----------
Quarter
2003
First $ 24,803,423 $ (33,681) $ --
Second 23,424,863 (381,529) (0.03)
Third 23,954,925 (433,780) (0.04)
Fourth 24,183,877 (563,155) (0.05)
------------- ------------ -----------
For the year $ 96,367,088 $(1,412,145) $ (0.12)
============= ============ ===========
2002
First $ 25,856,724 $ 1,059,969 $ 0.09
Second 25,058,717 565,104 0.05
Third 27,026,714 1,122,950 0.09
Fourth 26,630,453 260,925 0.02
------------- ------------ -----------
For the year $ 104,572,608 $ 3,008,948 $ 0.25
============= ============ ===========
Revenues for the quarterly information have been adjusted from the amounts
previously reported in the Company's 2002 10-Q's. The revised amounts reflect
the adoption of EITF 01-9, which requires reclassification of certain expenses.
The reclassification involves removing certain expenses from selling, general
and administrative expenses and including them as a direct reduction of
revenues. The adoption of EITF 01-9 does not affect net income. Quarterly net
income amounts for 2002 have been adjusted from amounts reported in the
Company's 10-Q's to reflect the change in accounting discussed in Note 2.
36
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 2003, 2002 and 2001
NOTE 16 - SUPPLEMENTARY STATEMENT OF INCOME INFORMATION
The following tabulation gives certain supplementary statement of income
information for continuing operations for the years ended May 31, 2003, 2002,
and 2001:
2003 2002 2001
----------- ----------- -----------
Maintenance and repairs $ 5,625,851 $ 5,290,498 $ 5,375,639
Depreciation 2,490,330 2,593,621 2,435,262
Payroll taxes 2,337,330 2,473,871 2,388,828
Advertising costs 5,031,409 4,371,719 5,739,488
Amounts for depreciation, other taxes, rents and research and development costs
are not presented because each of such amounts is less than 1% of total
revenues.
37
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL INFORMATION
Selected quarterly financial data for the
fiscal years ended May 31, 2003 and 2002 (unaudited)
(Dollar amounts in thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2003
Net sales $ 24,803 $ 23,425 $ 23,955 $ 24,184
========= ========= ========= =========
Loss before income taxes $ (58) $ (618) (701) $ (865)
========= ========= ========= =========
Net loss $ (34) $ (382) $ (434) $ (562)
========= ========= ========= =========
Net loss per share $ -- $ (0.03) $ (0.04) $ (0.05)
========= ========= ========= =========
Cash dividends per share $0.0625 $ 0.0625 $ 0.0313 $ 0.0313
========= ========= ========= =========
2002
Net sales $ 25,857 $ 25,059 $ 27,027 $ 26,630
========= ========= ========= =========
Income before income taxes $ 1,675 $ 920 $ 1,787 $ 533
========= ========= ========= =========
Net income $ 1,060 $ 565 $ 1,123 $ 261
========= ========= ========= =========
Net income per share $ 0.09 $ 0.05 $ 0.09 $ 0.02
========= ========= ========= =========
Cash dividends per share $ 0.0625 $ 0.0625 $ 0.0625 $ 0.0625
========= ========= ========= =========
Quarterly net sales amounts for 2002 have been adjusted from the amounts
previously reported in the Company's 10-Q's. The revised amounts reflect the
adoption of EITF 01-9, which requires reclassification of certain expenses. The
reclassification involves removing certain expenses from selling, general and
administrative expenses and including them as a direct reduction of revenues.
Quarterly net income amounts for 2002 have been adjusted from amounts reported
in the Company's 10-Q's to reflect the change in accounting discussed in Note 2
to the Company's consolidated financial statements.
38
ITEM 9. -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A. -- 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 fiscal year ended May 31, 2003. Based upon that evaluation, and
as of the end of the fiscal year ended May 31, 2003, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's Disclosure Controls and
Procedures were effective. There were no changes in the Company's internal
controls over financial reporting during the Company's quarter ended May 31,
2003 that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART III
ITEM 10. -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. -- EXECUTIVE COMPENSATION
ITEM 12. -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. -- CONTROLS AND PROCEDURES
Included under Item 9A hereof.
ITEM 15.-- PRINCIPAL ACCOUNTANT FEES AND SERVICES
With the exception of a description of Executive Officers of The Registrant
which appears on page 5 herein, Part III is omitted because prior to September
28, 2003, the Company will file a definitive Proxy Statement with the Securities
and Exchange Commission pursuant to Regulation 14A which involves the election
of directors.
39
PART IV
ITEM 16.- EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Golden Enterprises,
Inc., and subsidiary required to be included in Item 8 are listed below:
Consolidated Balance Sheets-- May 31, 2003 and 2002
Consolidated Statements of Operations- Years ended May 31, 2003, 2002, and
2001
Consolidated Statements of Changes in Stockholders' Equity- Years ended May
31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows- Years ended May 31, 2003, 2002 and
2001
Notes to Consolidated Financial Statements
The following consolidated financial statements schedule is included in
Item 16 (d):
Schedule II- Valuation and Qualifying Accounts
All other schedules are omitted because the information required therein is
not applicable, or the information is given in the financial statements and
notes thereto.
3. Exhibits:
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.
(b) Report on Form 8-K-- During the last quarter of the period covered by
this report, the Registrant filed an 8-K Report on April 8, 2003 reporting the
resignation of D. Paul Jones, Jr. as a member of the Board of Directors.
(c) Exhibits. See (a) 3. above.
(d) Financial Statement Schedules. The response to this portion of Item 16,
is submitted under Item 16.(a) 1. and 2. above.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOLDEN ENTERPRISES, INC.
By_/s/_John_H._Shannon___________________ August 25, 2003
John H. Shannon Date
Vice President, Principal Financial
Officer and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/_John_S._Stein_____________ Chairman of Board August 25, 2003
John S. Stein
/s/_Mark_W._McCutcheon________ Chief Executive August 25, 2003
Mark W. McCutcheon Officer, President and Director
/s/_John_H._Shannon___________ Vice President, Secretary, August 25, 2003
John H. Shannon Principal Financial Officer
and Controller
/s/_F._Wayne_Pate_____________ Director August 25, 2003
F. Wayne Pate
Director August 25, 2003
______________________________
Edward R. Pascoe
/s/_John_P._McKleroy, Jr._____ Director August 25, 2003
John P. McKleroy, Jr.
/s/_James_I._Rotenstreich_____ Director August 25, 2003
James I. Rotenstreich
______________________________ Director August 25, 2003
John S. P. Samford
/s/_J._Wallace_Nall,_Jr.______ Director August 25, 2003
J. Wallace Nall, Jr.
/s/_Joann_F._Bashinsky________ Director August 25, 2003
Joann F. Bashinsky
41
Schedule II
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Years ended May 31, 2001, 2002 and 2003
Additions
Balance at Charged to Balance
Beginning Costs and at End
Allowance for Doubtful Accounts of Year Expenses Deductions of Year
- ------------------------------- ---------- ---------- ---------- --------
Year ended May 31, 2001 $600,000 $(194,938) $58,962 $346,100
========== ========== ========== ========
Year ended May 31, 2002 $346,100 $(113,175) $36,825 $196,100
========== ========== ========== ========
Year ended May 31, 2003 $196,100 $224,722 $224,722 $196,100
========== ========== ========== ========
42
INDEX TO EXHIBITS
Exhibit Number Page
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. 44
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. 45
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 46
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 47
43