10-Q 1 tenqa.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to______________ Commission file number ________________0-4339___________________ (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 _________________________________ ______________________ (205) 933-9300 (Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes__X__ No _____ Indicate the number of shares outstanding of each of the issuers classes of common stock, as of ecember 31, 2002. Outstanding at Class December 31, 2002 Common Stock, Par Value $0.66 2/3 11,883,305 GOLDEN ENTERPRISES, INC. INDEX Part I. Financial Information Page No. Item 1 Condensed Consolidated Balance Sheets November 30, 2002 and May 31, 2002 3 Item 1 Condensed Consolidated Statements of Operations Three Months and Six Months ended November 30, 2002 and 2001 4 Item 1 Condensed Consolidated Statements of Cash Flows- Six Months Ended November 30, 2002 and 2001 5 Item 1 Notes to Condensed Consolidated Financial Statements 6 Item 1 Independent Accountants Report 7 Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations 8,9,10,11 Item 3 Quantitative and Qualitative Disclosure About Market Risk 12 Item 4 Controls and Procedures 12 Part II. Other Information Item 6 Exhibits and Report on Form 8-K 13 ITEM 1- PART I. FINANCIAL INFORMATION GOLDEN ENTERPRISES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS November 30, May 31, 2002 2002 (Unaudited) (Audited) ASSETS Cash and cash equivalents $172,177 $286,480 Investment securities 103,464 15,998 Receivables, net 8,382,759 9,750,661 Note receivable, current 47,785 45,918 Inventories: Raw material and supplies 2,165,255 1,605,640 Finished goods 2,749,736 3,604,482 4,914,991 5,210,122 Prepaid expense 4,909,065 4,031,037 Total current assets 18,530,241 19,340,216 Property, plate and equipment, net 16,143,817 17,096,260 Long-term note receivable 1,957,350 1,981,718 Other assets 2,800,673 2,800,673 $39,432,081 $41,218,867 LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Checks outstanding in excess of bank balance $1,238,635 $621,326 Accounts payable 2,951,887 2,803,182 Accrued and deferred Income taxes 673,663 607,489 Other accrued expenses 926,552 975,047 Salary continuation plan 85,132 81,805 Note payable- bank, current 813,491 850,410 Total current liabilities 6,689,360 5,939,259 Long-Term Liabilities Salary continuation plan 1,902,672 1,932,586 Note payable- bank, non-current 2,581,205 3,150,020 Total long-term liabilities: 4,483,877 5,082,606 Deferred income taxes 514,211 551,742 Stockholders Equity Common Stock - $66 - 2/3 par value: 9,219,195 9,219,195 35,000,000 shares Authorized 6,497,954 6,497,954 Retained earnings 2,560,661 24,461,288 38,277,810 40,178,437 Less: Cost of common shares In treasury (1,945,488 at November 30, 2002 and May 31, 2002) (10,533,177) (10,533,177) Total stockholders equity 27,744,633 29,645,260 Total $39,432,081 $41,218,867 ITEM 1- GOLDEN ENTERPRISES, INC AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Six Months Ended NOVEMBER 30, NOVEMBER 30, 2002 2001 2002 2001 (UNAUDITED) Net sales $23,424,863 $25,058,717 $48,228,286 $50,915,441 Cost of sales 12,697,000 13,006,626 25,594,329 26,040,829 Gross margin 10,727,863 12,052,091 22,633,957 24,874,612 Selling, general and administrative expenses 11,349,067 11,153,514 23,544,964 22,520,655 Operating income (621,204) 898,577 (911,007) 2,353,957 Other income (expenses): Investment income 41,632 50,222 83,050 116,088 Gain on sale of assets 9,300 (5,379) 246,589 151,912 Other income 22,605 27,209 45,944 56,021 Interest expense (70,715) (51,076) (140,817) (83,551) Total other income (expenses) 2,822 20,976 234,766 240,470 Income (loss) before income taxes (618,382) 919,553 (676,241) 2,594,427 Income tax expense (236,853) 354,449 (261,031) 969,354 Net income (loss) $(381,529) $565,104 $(415,210) $1,625,073 PER SHARE OF COMMON STOCK: Net income (loss) -$0.03 $0.05 -$0.03 $0.14 Weighted average number of common shares outstanding 11,883,305 11,897,288 11,883,305 11,912,528 Cash dividends paid per share of common stock $0.0625 $0.0625 $0.1250 $0.1250 See Accompanying Notes to Condensed Consolidated Financial Statements. ITEM 1 GOLDEN ENTERPRISES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED November 30, November 30, 2002 2001 Cash flows from operating activities: Net income (Loss) $(415,210) $1,625,073 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,287,773 1,235,076 Deferred income taxes (37,531) (75,835) Gain on sale of property and equipment (246,589) (151,912) Changes in operating assets and liabilities: Decrease (Increase) in receivable- net 1,367,902 (79,075) Decrease (Increase) in inventories 295,131 (1,916,673) (Increase) in pre-paid expenses (878,028) (1,483,342) Decrease in other assets- long term 0 1 Increase in accounts payable 148,705 299,509 Increase in accrued income taxes 66,174 0 (Decrease) increase in accrued expenses (48,495) 21,399 (Decrease) increase in salary continuation (26,587) 43,690 Net cash provided by (used in) operating activities 1,513,245 (482,089) Cash flows from investing activities: Purchase of property, plant and equipment -444,541 -4,453,964 Proceeds from sale of property, plant and equipment 355,800 293,994 Collection of note receivable 22,501 20,777 Investment securities available- for sale: Purchases -1,957,466 -5,261,047 Proceeds from disposal 1,870,000 7,745,325 Net cash (used in) Investing activities (153,706) (1,654,915) Cash flows from financing activities: Debt proceeds 0 2,088,316 Debt repayments -605,734 0 Increase in checks outstanding in excess of bank balances 617,309 1,265,860 Purchases of treasury shares 0 -165,880 Cash dividends paid -1,485,417 -1,488,607 Net cash (used in) provided by financing activities (1,473,842) 1,699,689 Net (decrease) in cash and cash equivalents (114,303) (437,315) Cash and cash equivalents at beginning of year 286,480 710,278 Cash and cash equivalents at end of quarter $172,177 $272,963 Supplemental information: Cash paid during the year for: Income taxes $49,267 $1,409,853 Interest 140,817 83,551 See Accompanying Notes to Condensed Consolidated Financial Statements. ITEM 1 GOLDEN ENTERPRISES, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1- BASIS OF PRESENTATION 1. The accompanying unaudited condensed consolidated financial statements Have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 to Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the Golden Enterprises, Inc. and subsidiary (the Company) Annual Report on Form 10-K for the year ended May 31, 2002. As of June 1, 2001, the Company changed its method of accounting with regard to slotting fees. The Company previously expensed slotting fees as incurred. As of June 1, 2001 payments for slotting fees were capitalized and amortized over the expected benefit period, which is generally one year. The change in accounting resulted in a pre-tax adjustment in the second quarter of fiscal 2002 of $39,924 The net effect increased earnings $24,169 net of $15,755 of taxes or $0.00 per share. This change in accounting also resulted in corresponding changes to net income, accrued income taxes and prepaid expenses in the Consolidated Statement of Cash flows unaudited) for six-months ended November 30, 2001. NOTE 2- RECLASSIFICATION 2. Reclassifications have been made in the second quarter of the fiscal year 2002 statement of operations to conform to classifications used in the current year in accordance with EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendors Products. EITF 01-09 was effective for the Company beginning March 1, 2002 and requires certain payments made to customers by the Company, that were previously classified as selling, general and administrative expenses to be classified as reductions in net sales. The Company reclassified as reductions in net sales approximately $2,886,000 of selling expenses, which were previously classified as selling, general and administrative expenses in the statement of operations for the quarter ended November 30, 2001. NOTE 3- 3. The results of operations for the six months ended November 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year. INDEPENDENT ACCOUNTANTS REPORT We have reviewed the accompanying interim consolidated balance sheet of Golden Enterprises, Inc. and subsidiary as of November 30, 2002 and the related interim consolidated statements of operations and cash flows for the six-month period then ended. These financial statements are the responsibility of the Companys management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial statements consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. Birmingham, Alabama January 13, 2003 DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Presentation The Companys discussion and analysis of its financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 to Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. As of June 1, 2001, the Company changed its method of accounting with regard to slotting fees. The Company previously expensed slotting fees as incurred. As of June 1, 2001, payments for slotting fees were capitalized and amortized over the expected benefit period, which is generally one year. The change in accounting resulted in a pre-tax adjustment in the second quarter of fiscal 2002 of $39,924. The net effect increased earnings $24,169 net of $15,755 of taxes or $0.00 per share. This change in accounting also resulted in corresponding changes to net income, accrued income taxes and prepaid expenses in the Consolidated Statement of Cash Flows (unaudited) for the six months ended November 30, 2001. Reclassifications have been made in the second quarter of fiscal 2002 statement of operations to conform to classifications used in the current year in accordance with EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendors Products, EITF 01-09 was effective for the Company beginning March 1, 2002 and requires certain payments made to customers by the Company that were previously classified as selling, general and administrative expenses, to be classified as reductions in net sales. The Company reclassified as reductions in net sales approximately $2,886,000 of selling expenses which were previously classified as selling, general and administrative expenses in the statement of operations for the quarter ended November 30, 2001. 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 The Company does not have off-balance sheet arrangement, financings, or other relationships with unconsolidated entities or other persons, also known as special purpose entities. Transactions with related parties, reported in Note 15 of Notes to Consolidated Financial Statements in the Annual Report to Stockholders for fiscal year ended May 31, 2002 are conducted on an arms-length basis in the ordinary course of business. Liquidity and Capital Resources Working Capital was $13.4 million at June 1, 2002 and $11.8 million at the end of the second quarter. Net cash provided by operating activities amounted to $1.51 million for the six months this year compared to $.48 million used for last years first six months. Additions to property, plant and equipment, net of disposals, were $.34 million this year and $4.31 million last year. Cash dividends of $1.49 million were paid during this years first six months compared to $1.49 million last year. No cash was used to purchase treasury stock this year and $.17 million was used last year, and $0.09 million of cash was used to increase investment securities this year compared to a net decrease in investment securities providing $2.48 million of cash last year. The Companys current ratio was 2.77 to 1.00 at November 30, 2002. On January 7, 2003 the quarterly cash dividend was reduced 50% to $.03125 per share due to lower earnings caused by sales weakness in the U.S. salty snack category and significant increases in employee medical costs. Operating Results For the three months ended November 30, 2002, net sales decreased 6.5% from the comparable period in fiscal 2002. The decrease in sales is primarily attributed to continued sales weakness in the U.S. salty snacks category during the three months. This years second quarter cost of sales was 54.2% of net sales compared to 51.9% last year, and selling, general and administrative expenses were 48.4% of net sales this year and 44.5% last year. These cost and expense percentages were adversely affected by a combination of the decrease in net sales and significant increases in employee medical costs. The Company also invested heavily in advertising and promotional spending in its core market to match competitive activity during the second quarter of this year and last year. For the year-to-date, net sales decreased 5.3% from last year. Cost of sales was 53.1% of net sales compared to 51.1% last year. Selling, general and administrative expenses were 48.8% of net sales this year and 44.2% last year. The Companys second quarter investment income decreased 17.1% from last year because investment levels and interest rates were lower. For the six months, investment income was down 28.5%. The Companys effective tax rate for the second quarter was -38.3% compared to 38.5% for last years second quarter and -38.6% for the six months this year and 37.4% last year. Managements Discussion and Analysis of Financial Condition and Results of Operations Market Risk The principal markets risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed are interest rates on its investment securities, bank loans, and commodity prices, affecting the cost of its raw materials. The Companys investment securities consist of short-term marketable securities. Presently these are variable rate money market mutual funds. Assuming November 30, 2002 variable rate investment levels and bank loan balances, a one-point change in interest rates would impact interest income by $1,034 on an annual basis and interest expense by $33,947. The Company is subject to market risk with respect to commodities because its ability to recover increased costs through higher pricing may be limited by the competitive environment in which it operates. The Company purchases its raw materials on the open market, under contract through brokers and directly from growers. Future contracts have been used occasionally to hedge immaterial amounts of commodity purchases but none are presently being used. 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 Companys filings with the Securities and Exchange Commission. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Included in Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations- Market Risk beginning on page 11. ITEM 4 Controls and Procedures Within the 90 days prior to the date of this Report, The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys Disclosure Controls and Procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, The Chief Executive Officer and Chief Financial Officer concluded that the Companys Disclosure Controls and Procedures are effective. There were no significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 99.1 Certification by Mark W. McCutcheon pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification by John H. Shannon pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended November 30, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GOLDEN ENTERPRISES, INC. (Registrant) Dated: January 13, 2003 /s/Mark W. McCutcheon Mark W. McCutcheon President and Chief Executive Officer Dated: January 13, 2003 /s/ John H. Shannon John H. Shannon Vice-President and Chief Financial Officer (Principal Accounting Officer) CERTIFICATION BY MARK W. MCCUTCHEON PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14 I, Mark W. McCutcheon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Golden Enterprises, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrants other certifying officers and I are responsible for and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have significant role in the registrants internal controls; and 6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and material weakness. Date: January 13, 2003 /s/ Mark W. McCutcheon Mark W. McCutcheon President and Chief Executive Officer CERTIFICATION BY JOHN H. SHANNON PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14 I, John H. Shannon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Golden Enterprises, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors(or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have significant role in the registrants internal controls; and 6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: January 13, 2003 /s/ John H. Shannon John H. Shannon Vice-President and Chief Financial Officer EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Golden Enterprises, Inc. (the Company) on Form 10-Q for the quarter ended November 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark W. McCutcheon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: January 13, 2003 /s/Mark W. McCutcheon Mark W. McCutcheon President and Chief Executive Officer EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Golden Enterprises, Inc. (the Company) on Form 10-Q for the quarter ended November 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John H. Shannon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: January 13, 2003 /s/John H. Shannon John H. Shannon Vice-President and Chief Financial Officer