The consolidated financial statements of
the registrant and its subsidiary for the year ended June 3, 2016, consisting of the following, are contained herein:
In the period ending June 3, 2016 the Company entered into capital
leases totaling $239,382.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accounting and reporting policies of
Golden Enterprises, Inc. and subsidiary (the “Company”) conform to accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and to general practices 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. (“Golden Enterprises”) and its wholly-owned subsidiary, Golden Flake Snack
Foods, Inc., (“Golden Flake”). All significant inter-company transactions and balances have been eliminated.
Fiscal Year
The Company ends its fiscal year on the
Friday closest to the last day in May. The year ended June 3, 2016 included 53 weeks and the year ended May 29, 2015 included 52
weeks.
Segment
Information
The Company has identified one operating
segment for management reporting purposes. The consolidated results of operations are the basis on which management evaluates operations
and makes business decisions.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP 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 consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes sales and related
costs upon delivery or shipment of products to its customers. Allowances for sales returns, stale products, promotions, and discounts
are recorded as reductions of revenue in the consolidated financial statements. Costs associated with the delivery or shipment
of these products are recorded gross and shown as part of selling, general and administrative expenses on the consolidated statement
of income. Shipping and handling costs amounted to $3,570,571 and $3,827,583 for the fiscal years 2016 and 2015, respectively.
Revenue for products sold to our distributors
is recognized when the distributor purchases the inventory from our warehouses or the products are shipped to their stockroom.
Revenue for products sold to retail customers through company routes is recognized when the product is delivered to the customer.
Revenue for products shipped directly to customers from our warehouses is recognized based on the shipping terms listed on the
shipping documentation. Products shipped with terms FOB shipping point are recognized as revenue at the time the product leaves
our warehouse. Products shipped with terms FOB destination are recognized as revenue based on the anticipated receipt date by the
customer.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – CONTINUED
We record an allowance for stales and damaged
products. This allowance is estimated based on a percentage of historical sales returns and current market information. We record
certain reductions to revenue for promotional allowances. There are several different types of promotional allowances such as off-invoice
allowances, rebates and shelf space allowances. Shelf space allowances are capitalized and amortized over thirty-six months and
recorded as a reduction to revenue. Capitalized shelf space allowances are evaluated for impairment on an ongoing basis. Capitalized
shelf space included in other assets amounted to $917,533 and $973,195 as of June 3, 2016 and May 29, 2015, respectively.
Fair Value of Financial Instruments
The Company uses fair value measurements
to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with
the “
Fair Value Measures and Disclosures
” Topic 820 of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC), the fair value of a financial instrument is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best
determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s
various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement
of the instrument.
Fair value guidance provides a consistent
definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed
sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease
in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation
techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at
the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant
judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market
conditions.
See Note 13 for more information on fair
value.
Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivables
The Company records accounts receivable
at the time revenue is recognized. Amounts for bad debt expense are recorded in selling, general and administrative expenses. The
determination of the allowance for doubtful accounts is based on management’s estimate of uncollectible accounts receivables.
The Company records a reserve based on analysis of historical data and specific reserves for receivable balances that are considered
at higher risk due to known facts regarding the customer.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – CONTINUED
Inventories
Inventories are stated at the lower of
cost or market. Cost is computed on the first-in, first-out method.
Income Taxes
The Company accounts for income taxes in
accordance with the FASB ASC Topic 740,
Income Taxes
. The Company has not recognized any liability for unrecognized tax
benefits as it has no known tax positions that would subject the Company to any material income tax exposure. The federal and state
tax returns for the Company for open tax years (generally three years from the date filed) are subject to examination by the applicable
taxing authority.
Deferred income taxes are provided using
the asset and liability method to measure tax consequences resulting from differences between financial accounting standards and
applicable income tax laws. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Property, Plant and Equipment
Property, plant and equipment are stated
at cost. Expenditures to acquire and install, and those for betterments and renewals, are capitalized. 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.
Property retired or sold is removed from
the asset and related accumulated depreciation accounts and any gain or loss resulting there from is reflected in the statements
of operations. The following table summarizes the majority of our estimated useful lives of long-term depreciable assets:
|
|
|
Useful life
|
Buildings and building improvements
|
|
|
20 - 30 years
|
Machinery and equipment
|
|
|
5 - 10 years
|
Transportation equipment
|
|
|
5 - 15 years
|
Self-Insurance
The Company maintains reserves for the
self-funded portion of employee medical insurance benefits. The Company also has stop loss coverage to limit the exposure arising
from these claims. The accrual for incurred but not reported (IBNR) medical insurance claims was $361,000 and $311,000 at June
3, 2016 and May 29, 2015, respectively.
The Company is self-insured for certain
casualty losses relating to automobile liability, general liability, workers’ compensation, and property losses. Automobile
liability, general liability, workers’ compensation, and property losses costs are covered by letters of credit with the
company’s claim administrators. As of June 3, 2016, the Company’s casualty reserve was $1,441,459 and at May 29, 2015,
the casualty reserve was $1,472,182.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – CONTINUED
Due to the complexity of estimating the
timing and amounts of insurance claims, the Company uses a third-party actuary to estimate the casualty insurance obligations on
an annual basis. In determining the ultimate loss and reserve requirements, the Company uses various actuarial assumptions including
compensation trends, health care cost trends, and discount rates. In 2016, we used a discount rate of 4%, the same rate was used
in 2015, based on treasury rates over the estimated future payout period. The third-party actuary also uses historical information
for claims frequency and severity in order to establish loss development factors. Large fluctuations in claims can have a significant
impact on selling, general and administrative expenses.
Advertising
The Company expenses advertising costs
as incurred. These costs are included in selling, general and administrative expenses. Advertising expense amounted to $8,319,193
and $7,973,958 for the fiscal years 2016 and 2015, respectively.
Stock
Options
The Company accounts for option awards
based on the fair value-method using the Black-Scholes model. The following assumptions were used to determine the weighted average
fair value of options granted during 2016 and 2015.
|
|
2016
|
|
|
2015
|
|
Assumptions used in Black-Scholes pricing model:
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
2.41
|
%
|
|
|
3.20
|
%
|
Risk-free interest rate
|
|
|
1.22
|
%
|
|
|
1.40
|
%
|
Weighted average expected life
|
|
|
5.5 years
|
|
|
|
5.6 years
|
|
Expected volatility
|
|
|
39
|
%
|
|
|
43.3
|
%
|
The expected dividend yield is based on
the projected annual dividend payment per share divided by the stock price at the date of grant. The risk free interest rate is
based on rates of U.S. Treasury issues with a remaining life equal to the expected life of the option. We used the simplified method
to calculate expected life using the vesting term of the option and the option expiration date, as we did not have sufficient exercise
history at the time to calculate a reasonable estimate.
NOTE 2 – RECENTLY ISSUED ACCOUNTING
STANDARDS
Revenue Recognition
In May 2014, the FASB issued Accounting
Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
, to update its revenue recognition standard to clarify
the principles for recognizing revenue and eliminate industry
-
specific
guidance. In addition, the updated standard revises current disclosure requirements in an effort to help financial statement users
better understand the nature, amount, timing, and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU
2015-14 which deferred the effective date by one year. This revised standard will be effective for the Company for the interim
and annual reporting period beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts
with Customers (Principal versus Agent Considerations)
, to clarify the implementation guidance on principal versus agent considerations.
The FASB will permit early adoption of the standard, but not before the original effective date of December 15, 2016. The Company
is currently evaluating the impact of this standard.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 2 – RECENTLY ISSUED ACCOUNTING
STANDARDS - CONTINUED
Measurement of Inventory
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. An entity should measure inventory within the scope of this update at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. The standard is effective for annual reporting periods
beginning after December 15, 2016 and related interim periods. Early adoption is permitted. The Company does not believe this standard
will have a material effect on its financial position, results of operations, or cash flows.
Balance Sheet Classification of Deferred
Taxes
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
. This accounting standard requires deferred tax assets and liabilities, along
with related valuation allowances, to be classified as noncurrent on the balance sheet. As a result, each tax jurisdiction will
now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that
prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The standard
is effective for annual reporting periods beginning after December 15, 2016, and related interim periods. Early adoption is permitted.
The Company has chosen to early adopt this guidance retrospectively as indicated on the consolidated balance sheet and detailed
in the accompanying Note 9. The following table summarizes the adjustments made to conform prior period classifications to the
new guidance:
|
|
May 29, 2015
|
|
Balance Sheet Line
|
|
As Filed
|
|
|
Reclass
|
|
|
As Adjusted
|
|
Current deferred income tax assets
|
|
$
|
1,139,433
|
|
|
$
|
(1,139,433
|
)
|
|
$
|
-
|
|
Long-term deferred income tax liabilities
|
|
$
|
(3,856,793
|
)
|
|
$
|
1,139,433
|
|
|
$
|
(2,717,360
|
)
|
Net noncurrent deferred tax liability
|
|
$
|
(2,717,360
|
)
|
|
$
|
-
|
|
|
$
|
(2,717,360
|
)
|
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases
. This accounting standard requires lessees to recognize assets and liabilities related to lease arrangements longer
than 12 months on the balance sheet. This standard also requires additional disclosures by lessees and contains targeted changes
to accounting by lessors. The updated guidance is effective for interim and annual periods beginning after December 15, 2018. Early
adoption is permitted. The Company is currently evaluating the impact of the provisions of this standard.
NOTE 3 – RECLASSIFICATIONS
Certain prior period consolidated financial
statement amounts have been reclassified to be consistent with the presentation for the current period. These reclassifications
had no effect on the reported results of operations.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 4 – ALLOWANCE FOR DOUBTFUL
ACCOUNTS
The following table summarizes the allowance
for doubtful accounts for the years ended June 3, 2016 and May 29, 2015, respectively:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
Additions/(Reductions) to expense
|
|
|
90,000
|
|
|
|
-
|
|
Deductions
|
|
|
-
|
|
|
|
-
|
|
Ending balance
|
|
$
|
160,000
|
|
|
$
|
70,000
|
|
NOTE 5 – PREPAID EXPENSES
At June 3, 2016 and May 29, 2015, prepaid expenses consist of
the following:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Truck shop supplies
|
|
$
|
299,532
|
|
|
$
|
320,622
|
|
Insurance deposit
|
|
|
48,548
|
|
|
|
48,548
|
|
Prepaid marketplace spending
|
|
|
156,609
|
|
|
|
201,373
|
|
Prepaid insurance
|
|
|
357,431
|
|
|
|
369,864
|
|
Prepaid taxes/licenses
|
|
|
108,375
|
|
|
|
113,042
|
|
Prepaid dues/supplies
|
|
|
20,917
|
|
|
|
22,412
|
|
Other
|
|
|
284,506
|
|
|
|
274,340
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,275,918
|
|
|
$
|
1,350,201
|
|
NOTE 6 – OTHER ACCRUED EXPENSES
The following table summarizes other accrued
expenses as of June 3, 2016 and May 29, 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accrued salary and benefits
|
|
$
|
2,379,266
|
|
|
$
|
2,215,338
|
|
Accrued casualty losses
|
|
|
1,441,459
|
|
|
|
1,472,182
|
|
Accrued IBNR
|
|
|
361,000
|
|
|
|
311,000
|
|
Accrued other
|
|
|
976,511
|
|
|
|
1,022,766
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
5,158,236
|
|
|
$
|
5,021,286
|
|
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 7 - LINE OF CREDIT
The Company
has a line-of-credit agreement with a local bank that permitted borrowing up to $3,000,000 at June 3, 2016 and May 29, 2015. The
line-of-credit is subject to the Company’s continued credit worthiness and compliance with the terms and conditions of the
loan agreement which is renewed on an annual basis. The following table summarizes the line of credit as of June 3, 2016 and May
29, 2015
:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Interest rate
|
|
|
3.50
|
%
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
$
|
-
|
|
|
$
|
2,823,477
|
|
Available
|
|
|
3,000,000
|
|
|
|
176,523
|
|
|
|
|
|
|
|
|
|
|
Total line of credit
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
NOTE 8 – LONG-TERM LIABILITIES
The Company has two notes payable with
a local bank. The agreement on the note payable maturing March 10, 2021, contains a financial covenant for minimum tangible net
worth of $16 million. The Company was in compliance with the financial covenant as of June 3, 2016. Debt outstanding as of June
3, 2016 and May 29, 2015, consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Note payable maturing March 10, 2021 interest at 3.00%, principal and interest due
monthly
|
|
$
|
4,587,642
|
|
|
$
|
4,944,233
|
|
|
|
|
|
|
|
|
|
|
Note payable maturing January 31, 2020 interest at 3.30%, principal and interest due
monthly
|
|
|
1,600,640
|
|
|
|
2,068,484
|
|
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt
|
|
|
(837,225
|
)
|
|
|
(799,204
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
5,351,057
|
|
|
$
|
6,213,513
|
|
In July 2015, a capital lease obligation
of $98,586 was incurred when the Company entered into a 36-month lease for new server equipment. In March 2016, another capital
lease obligation of $140,796 was incurred when the Company entered into a 60-month lease for new telephone equipment. The balance
of the capital lease obligations was $208,412 as of June 3, 2016 with the current portion of $56,203.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 9 – INCOME TAXES
At June 3, 2016 and May 29, 2015 the provision
for income taxes consists of the following:
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,288,468
|
|
|
$
|
797,788
|
|
State
|
|
|
305,404
|
|
|
|
187,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,593,872
|
|
|
|
984,946
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(68,525
|
)
|
|
|
249,191
|
|
State
|
|
|
(16,073
|
)
|
|
|
58,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,598
|
)
|
|
|
307,643
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,509,274
|
|
|
$
|
1,292,589
|
|
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 9 – 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:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Tax on income at statutory rates
|
|
$
|
1,595,986
|
|
|
$
|
1,042,483
|
|
Increase resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, less Federal income tax effect
|
|
|
181,584
|
|
|
|
123,525
|
|
Other - net
|
|
|
(268,296
|
)
|
|
|
126,581
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,509,274
|
|
|
$
|
1,292,589
|
|
The above difference is primarily due to
a tax payment rectification. The tax effects of temporary differences that result in net noncurrent deferred tax liabilities are
as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax liability
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
(3,868,351
|
)
|
|
$
|
(3,780,271
|
)
|
Prepaid expenses
|
|
|
(59,511
|
)
|
|
|
(76,522
|
)
|
Salary continuation plan
|
|
|
502,070
|
|
|
|
390,651
|
|
Accrued vacation
|
|
|
480,519
|
|
|
|
476,504
|
|
Inventory capitalization
|
|
|
64,399
|
|
|
|
80,430
|
|
Allowance for doubtful accounts
|
|
|
60,800
|
|
|
|
26,600
|
|
Other accrued expenses
|
|
|
187,312
|
|
|
|
165,248
|
|
Net deferred tax liability
|
|
$
|
(2,632,762
|
)
|
|
$
|
(2,717,360
|
)
|
The Company and its subsidiary are subject
to federal income tax as well as income tax of various states. The Company is no longer subject to examination for years before
2012.
NOTE 10 – EMPLOYEE BENEFIT PLANS
The Company has a trusteed “Qualified
Profit-Sharing Plan” that was amended and restated effective September 1, 2010, known as the Golden Flake Snack Foods, Inc.
401(k) Retirement Savings Plan (the “Plan”). The Plan’s trustee and investment custodian is State Street Bank
and Trust Company. Transamerica Retirement Solutions provides recordkeeping and general administrative services for the Plan.
The Company’s contributions to the
Plan are reviewed and approved by the Board of Directors. The Company match is 25% of an employee’s eligible contributions
up to 4%. Total plan contributions for the years ended June 3, 2016 and May 29, 2015 were $160,046 and $150,586, respectively.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 10 – EMPLOYEE BENEFIT PLANS
- CONTINUED
The Company has a non-qualified salary
continuation plan with certain of its key officers whereby monthly benefits will be paid for a period of fifteen years following
death or retirement at age 65. The Company is accruing the present value of the estimated future retirement payments at a 3.75%
discount rate from the date of the agreements to the normal retirement age at which time the principal portion of the retirement
benefits paid are applied to the liability previously accrued. The Plan is funded in part with life insurance on the key officers.
As of June 3, 2016, the cash surrender value of the life insurance was $438,429 as compared to $630,259 as of May 29, 2015.
The change in the liability for the salary
continuation plan is as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accrued salary continuation plan - beginning of year
|
|
$
|
1,028,030
|
|
|
$
|
1,133,154
|
|
|
|
|
|
|
|
|
|
|
Benefits accrued
|
|
|
127,368
|
|
|
|
134,876
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(120,000
|
)
|
|
|
(240,000
|
)
|
|
|
|
|
|
|
|
|
|
Accrued salary continuation plan - end of year
|
|
$
|
1,035,398
|
|
|
$
|
1,028,030
|
|
NOTE 11 – LONG-TERM INCENTIVE
PLANS
The Company has a long-term incentive plan
currently in effect under which stock option grants may be issued. This Plan (the 2014 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 and make all other determinations required in the administration thereof.
The 2014 Plan provides for, among other
things, the granting of Incentive Stock Options as defined under the Internal Revenue Code. Under the Plan, grants of incentive
stock options may be made to selected officers and employees, 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. On April 9, 2015, 310,000 options
were granted with an exercise price of $3.84 per share, which was the fair market value of the Company’s stock at the grant
date. On April 7, 2016, 30,000 options were granted with an exercise price of $5.40 per share, which was the fair market value
of the Company’s stock at the grant date. During the year ended June 3, 2016, 30,000 options were forfeited. The options
granted vest over a period of 1 to 2 years from the date of grant with accelerated vesting provisions if there is a change in control.
Compensation expense is being recognized for the options over the vesting schedule. Total compensation expense for the year June
3, 2016 was $253,011 as compared to $55,019 for the year ended May 29, 2015. As of June 3, 2016 there was $63,570 in unrecognized
compensation expense related to outstanding stock options that will be recognized during the ten-months. The unrecognized compensation
expense as of May 29, 2015, was $304,581.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 11 – LONG-TERM INCENTIVE
PLANS - CONTINUED
At June 3, 2016, 310,000 options were granted
and outstanding. The following is a summary of the transactions for the years ended June 3, 2016 and May 29, 2015:
|
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding - beginning of year
|
|
|
310,000
|
|
|
$
|
3.84
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
30,000
|
|
|
|
5.40
|
|
|
|
310,000
|
|
|
|
3.84
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(30,000
|
)
|
|
|
3.84
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - end of year
|
|
|
310,000
|
|
|
$
|
3.99
|
|
|
|
310,000
|
|
|
$
|
3.84
|
|
750,000 shares of the Company’s stock
were authorized for issuance under this Plan. 440,000 shares remain under this plan
for future issuance. At June 3, 2016,
229,167 options were vested and exercisable. In April 2017, the remaining 80,833 options will be vested and exercisable. See Note
17 for additional information affecting long-term incentive plans.
NOTE 12 – 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 FASB ASC 260, “
Earnings per Share
”. At May 29, 2015, options on
the 310,000 shares were not included in the computation of diluted earnings per share because the effect of stock options using
treasury stock method was antidilutive.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 12 – NET INCOME PER SHARE
- CONTINUED
The following reconciles the information
used to compute basic and diluted earnings per share for the years ended June 3, 2016 and May 29, 2015:
|
|
2016
|
|
|
2015
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,184,803
|
|
|
$
|
1,773,841
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
11,291,757
|
|
|
|
11,552,164
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - Basic
|
|
$
|
0.28
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
11,307,497
|
|
|
|
11,552,164
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - Diluted
|
|
$
|
0.28
|
|
|
$
|
0.15
|
|
NOTE 13 – DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS
The FASB ASC 825 “
Financial Instruments
”
excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. The following summarizes
information regarding the methods and assumptions used by the Company in estimating its fair value for financial instruments.
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 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.
The fair value of outstanding debt, including
current maturities, was approximately $6,153,000 and $6,967,000 for June 3, 2016 and May 29, 2015, respectively. The Level 2 fair
value estimates were based on similar debt with the same maturities, Company credit rating and interest rates.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 14– COMMITMENTS AND CONTINGENCIES
Rental expense was $528,434 in 2016 and
$725,947 in 2015.
The Company leases certain facilities and
equipment classified as operating leases. The Company has also entered into agreements with suppliers for the purchase of certain
ingredients and packaging materials used in the production process. These agreements are entered into in the normal course of business
and consist of agreements to purchase a certain quantity over a certain period of time. These purchase commitments range in length
from three to twelve months. Future purchase commitments and operating lease obligations at June 3, 2016 were as follows:
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
Purchase commitments
|
|
$
|
8,223,235
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating lease obligations
|
|
|
647,289
|
|
|
|
641,685
|
|
|
|
516,694
|
|
|
|
327,778
|
|
|
|
309,430
|
|
|
|
22,212
|
|
Debt obligations
|
|
|
837,225
|
|
|
|
864,402
|
|
|
|
892,464
|
|
|
|
702,484
|
|
|
|
2,891,707
|
|
|
|
-
|
|
Capital lease obligations
|
|
|
56,203
|
|
|
|
59,526
|
|
|
|
31,009
|
|
|
|
30,830
|
|
|
|
30,844
|
|
|
|
-
|
|
Total contractual obligations
|
|
$
|
9,763,952
|
|
|
$
|
1,565,613
|
|
|
$
|
1,440,167
|
|
|
$
|
1,061,092
|
|
|
$
|
3,231,981
|
|
|
$
|
22,212
|
|
The Company has a letter
of credit in the amount of $1,925,000 outstanding at June 3, 2016 and $1,850,000 at May 29, 2015. The letter of credit supports
the Company’s commercial self-insurance program. The Company pays an annual commitment fee of 0.72% to maintain the letters
of credit.
The Company is subject to routine litigation
and claims incidental to its business. In the opinion of management, such routine litigation and claims should not have a material
adverse effect upon the Company’s consolidated financial statements taken as a whole.
NOTE 15 - 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. Total sales attributed to our largest retail customer, through both
Company owned and independent distributor routes, accounted for approximately 12% and 11% of our total sales attributed to all
retail customers for the years ended June 3, 2016 and May 29, 2015, respectively.
GOLDEN ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
– CONTINUED
For the Fiscal Years Ended June 3, 2016
and May 29, 2015
NOTE 16– SUPPLEMENTARY STATEMENT
OF INCOME INFORMATION
The following tabulation gives certain
supplementary statement of income information for the years ended June 3, 2016 and May 29, 2015:
|
|
2016
|
|
|
2015
|
|
Maintenance and repairs
|
|
$
|
7,253,211
|
|
|
$
|
6,569,215
|
|
Depreciation
|
|
|
3,876,111
|
|
|
|
3,906,766
|
|
Payroll taxes
|
|
|
2,214,613
|
|
|
|
2,103,563
|
|
Amounts for other taxes, rents, and research
and development costs are not presented because each of such amounts is less than 1% of total revenues.
NOTE 17– SUBSEQUENT EVENTS
In July of 2016, the Company amended the
salary continuation plan for one key officer to remove the annual consumer price index adjustment factor effective as of the inception
of the agreement. See Note 10 for further information about the salary continuation plan.
Golden Enterprises, Inc. and Utz Quality
Foods, Inc. of Hanover, PA (“Utz”) announced that they entered into a definitive merger agreement (“Merger Agreement”)
on July 18, 2016, pursuant to which Utz will acquire the Company and Company stockholders will receive $12.00 per share in cash.
On July 20, 2016, Golden Enterprises, Inc.
executed Retention Bonus Agreements with Mark W. McCutcheon, Chief Executive Officer, Paul R. Bates, Executive Vice President,
David A. Jones, Executive Vice President and Patty R. Townsend, Chief Financial Officer (the “Key Employees” or singularly,
“Key Employee”). Upon the terms and subject to the conditions set forth in the Retention Bonus Agreements, Key Employees
are paid to remain in the employment of the Company or its wholly-owned subsidiary, after the Company merges with a wholly-owned
subsidiary of Utz. Payment of the retention bonus is contingent on satisfaction of certain conditions and will be made at the end
of the “Retention Period” which is one year after the Merger. The amount of payment is 75% of their base salary as
of July 18, 2016.
Pursuant to the Merger Agreement, the Company
agreed to terminate each incentive stock option (“Stock Option”) outstanding prior to the effective time of the Merger
(the “Option Cancellation Agreement”). The Option Cancellation Agreement will provide that each holder of a Stock Option
shall be entitled to receive, in consideration of the cancellation of such options held by such Stock Option Holder, subject to
the consummation of the Merger, a cash payment per share equal to the product of (x) the aggregate number of shares of Company
Common Stock subject to such Company Stock Option, whether or not the Stock Option is currently exercisable, multiplied by (y)
the excess, if any, of the Merger Consideration, as defined in the Merger Agreement, over the per share exercise price of the Company
Stock Options, less any taxes required to be withheld in accordance with the Merger Agreement.
Also, Golden Enterprises entered into Option
Cancellation Agreements with each of the Key Employees. As a result of entering into the Option Cancellation Agreements, at the
time of the Merger each Key Employee will be entitled to receive the amount determined by the formula set forth above. The Company
will recognize the remaining incentive compensation expense at the time of the Merger. See Note 11 for further information about
the incentive plan.