Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 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 No. 0-5815
AMERICAN CONSUMERS, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1033765
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(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
55 Hannah Way, Rossville, GA 30741
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (706) 861-3347
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(Former name, former address and former fiscal year, if changed since last
report)
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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 10, 2002
COMMON STOCK - $.10 PAR VALUE 817,987
NON VOTING COMMON STOCK - $.10 PAR VALUE -
NON VOTING PREFERRED STOCK - NO PAR VALUE -
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
THIRTEEN WEEKS ENDED
----------------------------
August 31, September 1,
2002 2001
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NET SALES $ 7,315,993 $ 7,135,256
COST OF GOODS SOLD 5,600,649 5,481,959
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Gross Margin 1,715,344 1,653,297
OPERATING EXPENSES 1,757,060 1,726,684
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Operating Loss (41,716) (73,387)
OTHER INCOME (EXPENSE)
Interest income 4,310 5,408
Other income 22,626 27,454
Gain on sale of assets - 5,000
Interest expense (15,051) (19,097)
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Loss Before Income Tax (Benefit) (29,831) (54,622)
INCOME TAXES (BENEFIT) - (11,573)
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NET LOSS (29,831) (43,049)
RETAINED EARNINGS:
Beginning 1,471,997 1,699,105
Redemption of common stock (29) (53)
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Ending $ 1,442,137 $ 1,656,003
============ ==============
PER SHARE:
Net loss $ (0.036) $ (0.052)
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Cash dividends $ 0.000 $ 0.000
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING $ 822,837 $ 827,131
============ ==============
See Notes to Financial Statements
2
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
August 31, June 1,
2002 2002
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--A S S E T S--
CURRENT ASSETS
Cash and short-term investments $ 646,221 $ 743,370
Certificate of deposit 450,000 450,000
Accounts receivable 107,290 108,756
Inventories 1,988,697 2,001,339
Prepaid expenses 91,632 40,657
Refundable income taxes 43,891 43,891
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Total current assets 3,327,731 3,388,013
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PROPERTY AND EQUIPMENT - at cost
Leasehold improvements 258,122 258,122
Furniture, fixtures and equipment 2,960,827 2,959,273
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3,218,949 3,217,395
Less accumulated depreciation (2,208,521) (2,136,594)
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1,010,428 1,080,801
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TOTAL ASSETS $ 4,338,159 $ 4,468,814
============ ============
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable $ 769,422 $ 801,407
Short-term borrowings 401,038 410,323
Current maturities of long-term debt 123,614 131,451
Accrued sales tax 94,519 138,948
Federal and state income taxes 4,630 4,000
Other 200,395 169,743
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Total current liabilities 1,593,618 1,655,872
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LONG-TERM DEBT 516,872 549,703
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DEFERRED INCOME 17,281 22,580
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STOCKHOLDERS' EQUITY
Nonvoting preferred stock - authorized 5,000,000
Shares of no par value; no shares issued - -
Nonvoting common stock - authorized 5,000,000
Shares of $.10 par value; no shares issued - -
Common stock - $.10 par value; authorized 5,000,000
Shares; shares issued of 822,607 and 823,047, respectively 82,261 82,305
Additional paid-in capital 685,990 686,357
Retained earnings 1,442,137 1,471,997
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Total Stockholders' Equity 2,210,388 2,240,659
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,338,159 $ 4,468,814
============ ============
See Notes to Financial Statements
3
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED
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August 31, September 1,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (29,831) $ (43,049)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 72,812 66,195
Deferred income taxes - (1,000)
Deferred income (5,298) (5,298)
Change in operating assets and liabilities:
Accounts receivable 1,466 14,226
Inventories 12,642 (15,924)
Prepaid expenses (50,975) 10,681
Refundable income taxes - (6,354)
Accounts payable (31,985) 56,279
Accrued sales tax (44,429) (10,650)
Accrued income taxes 630 (9,422)
Other accrued liabilities 30,652 33,287
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Net cash provided by (used in) operating activities (44,316) 88,971
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CASH FLOWS FROM INVESTING ACTIVITIES
Increase in certificate of deposit - 4,764
Purchase of property and equipment (2,836) (272,840)
Proceeds from disposal of property and equipment - 5,000
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Net cash used in investing activities (2,836) (263,076)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in short-term borrowings (9,285) (313,067)
Net increase (decrease) in long-term borrowing (40,668) 468,539
Principal payments on obligations under capital leases - (3,195)
Redemption of common stock (44) (804)
------------ --------------
Net cash provided by (used in) financing activities (49,997) 151,473
------------ --------------
Net decrease in cash (97,149) (22,632)
Cash and cash equivalents at beginning of period 1,193,370 1,245,135
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Cash and cash equivalents at end of period $ 1,096,221 $ 1,222,503
============ ==============
See Notes to Financial Statements
4
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation.
The financial statements have been prepared in conformity with generally
accepted accounting principles and general practices within the industry.
The interim financial statements should be read in conjunction with the
notes to the financial statements presented in the Company's 2002 Annual
Report to Shareholders. The quarterly financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for interim periods. All such adjustments are
of a normal recurring nature. The results for the interim periods are not
necessarily indicative of the results to be expected for the complete
fiscal year.
(2) Commitments and Contingencies.
Capital expenditures are not expected to exceed $200,000 for the fiscal
year.
The Company adopted a retirement plan effective January 1, 1995. The plan
is a 401(k) plan administered by BISYS Qualified Plan Services.
Participation in the plan is available to all full-time employees after one
year of service and age 19. Any contribution by the Company is at the
discretion of the Board of Directors, which makes its decision annually at
the quarterly meeting in January. The Board voted to contribute $7,500 to
the plan for both calendar year 2002 and 2001.
None of the Company's employees are represented by a union.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED
----------------------------
August 31, September 1,
2002 2001
------------ --------------
Sales $ 7,315,993 $ 7,135,256
% Sales Increase 2.53% 11.49%
Gross Margin % 23.45% 23.17%
Operating and Administrative
Expense:
Amount 1,757,060 1,726,684
% of Sales 24.02% 24.20%
Net (Loss) (29,831) (43,049)
The Company realized a net loss during the quarter ended August 31, 2002,
of $29,831 compared to a net loss of $43,049 for the quarter ended September 1,
2001. The reduced loss for the first quarter of fiscal 2003 as compared to the
prior year period was primarily due to increased sales and a small decrease in
operating and administrative expense as a percentage of sales from the quarter
ended September 1, 2001. Gross margins improved slightly due in part to ongoing
efforts by management to strategically adjust the Company's mix of retail
prices. Management believes the slower growth in sales of 2.53% for the quarter
ended August 31, 2002 is primarily attributable to direct competition in the
Company's trade area. A significant portion of the 11.49% increase in sales for
the quarter ended September 1, 2001 was due to sales generated by the addition
of the Company's seventh retail store in Jasper, Tennessee, which was purchased
in April 2001. Pressure from competition on the Company's market share, sales
and profits during the past quarter continued to be a major factor impacting the
ability of the Company to make a profit. Management believes that competitive
pressures on the Company, which have been threatening the profitability of the
Company, will continue to increase over time as a result of competitors opening
more new stores in the Company's trade area. In response to these developments,
management continuously seeks to improve the gross margin and increase
profitability by obtaining the lowest cost for the Company's inventory and by
periodically implementing strategic adjustments in the Company's overall mix of
retail prices.
Operating and administrative expense as a percent of sales for the quarter
ended August 31, 2002 decreased slightly to 24.02% compared to 24.20% for the
quarter ended September 1, 2001. This slight decrease was due in part to the
integration of the operations at the Company's Jasper store.
Income Taxes:
At the end of its latest fiscal year, June 1, 2002, the Company had net
operating loss carryforwards for federal and state income tax purposes of
$45,000 and $221,000, respectively. Due to the loss incurred for the current
quarter, no tax benefit has been reported in the financial statements for the
period.
Inflation:
Although currently not a significant factor, the Company continues to seek
ways to cope with the threat of renewed inflation. To the extent permitted by
competition, increased costs of goods and services to the Company are reflected
in increased selling prices for the goods sold by the Company.
6
FINANCIAL CONDITION
Liquidity and Capital Resources:
The Company finances its working capital requirements principally through
its cash flow from operations and short-term borrowings. Short-term borrowing to
finance inventory purchases is provided by the Company's $600,000 line of credit
from its lead bank, Northwest Georgia Bank, Fort Oglethorpe, Georgia. Short-term
borrowings at the end of specific quarters are presented below:
8/31/02 6/1/02 9/1/01
------- ------ ------
Michael and Diana Richardson $ 23,895 $ 23,626 $ 38,027
Matthew Richardson 37,143 41,697 46,100
Line of Credit 340,000 345,000 400,000
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Total $ 401,038 $ 410,323 $ 484,127
========== ========== ==========
Notes to Michael and Diana Richardson and to Matthew Richardson are
unsecured, payable on demand and bear interest at .25% below the base rate
charged by Northwest Georgia Bank, which provides the Company with its line of
credit.
Long- Term Debt:
At August 31, 2002, long-term debt consisted of a note payable to Northwest
Georgia Bank of $129,254 that was incurred in April 2001 to finance the addition
of the Company's seventh grocery store in Jasper, Tennessee, and a note payable
to Northwest Georgia Bank of $474,667 to finance cash registers and peripheral
equipment. In addition, two vehicles were purchased and financed through GMAC
with a balance due at August 31, 2002, of $36,565.
Long-term debt at August 31, 2002, June 1, 2002 and September 1, 2001,
consisted of the following:
8/31/02 6/1/02 9/1/01
-------- -------- -------
Note payable, Bank, secured by all inventory and
machinery and equipment of the Company, due
$3,576 monthly plus interest at 6.25% to April,
2006 $129,254 $137,850 $169,421
Note payable, Bank, secured by all inventory and
machinery and equipment of the Company, due
$11,381 monthly plus interest at 6.25% to
September, 2006 474,667 502,822 -
Vehicle installment loans; due in monthly
installments of $1,305, through December 2004;
collateralized by automobiles 36,565 40,482 -
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640,486 $681,154 $169,421
Less current maturities 123,614 131,451 28,688
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516,872 $549,703 $140,733
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7
FINANCIAL CONDITION (Continued)
The following is a schedule by years of the amount of maturities of all
long-term debt:
Year Amount
---- ------
2003 $ 123,614
2004 150,104
2005 153,203
2006 153,609
2007 59,956
The ratio of current assets to current liabilities was 2.09 to 1 at the end
of the latest quarter, August 31, 2002 compared to 2.14 to 1 on September 1,
2001 and 2.05 to 1 at the end of the fiscal year ended on June 1, 2002. Cash and
cash equivalents constituted 32.94% of the total current assets at August 31,
2002, as compared to 44.68% at September 1, 2001 and 35.22% at June 1, 2002.
During the quarter ended August 31, 2002 retained earnings decreased as a
result of the Company's net loss for the quarter.
Forward - Looking Statements
- ----------------------------
Information provided by the Company, including written or oral statements
made by its representatives, may contain "forward-looking information" as
defined in Section 21E of the Securities Exchange Act of 1934, as amended. All
statements which address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including such things as
expansion and growth of the Company's business, the effects of future
competition, future capital expenditures and the Company's business strategy,
are forward-looking statements. In reviewing such information it should be kept
in mind that actual results may differ materially from those projected or
suggested in such forward-looking statements. This forward-looking information
is based on various factors and was derived utilizing numerous assumptions. Many
of these factors previously have been identified in filings or statements made
by or on behalf of the Company, including filings with the Securities and
Exchange Commission on Forms 10-Q, 10-K and 8-K. Important assumptions and other
important factors that could cause actual results to differ materially from
those set forth in the forward-looking statements include: changes in the
general economy or in the Company's primary markets, the effects of ongoing
price competition from competitors with greater financial resources than those
of the Company, changes in consumer spending, the nature and extent of continued
consolidation in the grocery store industry, changes in the rate of inflation,
changes in state or federal legislation or regulation, adverse determinations
with respect to any litigation or other claims, inability to develop new stores
or complete remodels as rapidly as planned, stability of product costs, supply
or quality control problems with the Company's vendors, and other issues and
uncertainties detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not engage in speculative or derivative transactions, nor
does it hold or issue financial instruments for trading purposes. The Company is
exposed to changes in interest rates primarily as a result of its borrowing
activities. The effective interest rate on the Company's borrowings under its
Line of Credit Agreements and under its outstanding notes varies with the prime
rate. We believe that our present exposure to market risk relating to interest
rate risk is not material. The Company does not maintain any interest rate
hedging arrangements. All of the Company's business is transacted in U.S.
dollars and, accordingly, foreign exchange rate fluctuations have never had a
significant impact on the Company and they are not expected to in the
foreseeable future.
8
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. As of a date (the
------------------------------------------------
"Evaluation Date") within 90 days prior to the filing date of this report, the
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and Chief Financial Officer, of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15d-14(c)). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that as of the Evaluation Date the Company's
disclosure controls and procedures were adequate and designed to ensure that
material information relating to the Company would be made known to them by
others within the Company.
(b) Changes in internal controls. There were no significant changes in the
----------------------------
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
9
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on September 26, 2002,
at which shareholders were asked to vote on the election of directors for the
fiscal year ending in 2003. Proxies were solicited by management in favor of
seven nominees, with no solicitation in opposition to management's nominees. All
of such nominees were elected, with the number of votes cast for, against, or
withheld as well as the number of broker non votes and abstentions as to each
nominee having been as follows:
TOTAL VOTES VOTES BROKER
SHARES CAST CAST VOTES NON
NOMINEE VOTED FOR AGAINST WITHHELD VOTES
- --------------------- ------- ------- ------- -------- ------
Michael A. Richardson 567,392 566,951 441 255,215 33,796
Paul R. Cook 567,392 566,951 441 255,215 33,796
Virgil E. Bishop 567,392 566,951 441 255,215 33,796
Thomas L. Richardson 567,392 566,951 441 255,215 33,796
Jerome P. Sims, Sr. 567,392 566,951 441 255,215 33,796
Andrew V. Douglas 567,392 566,951 441 255,215 33,796
Danny R. Skates 567,392 566,951 441 255,215 33,796
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of the report.
(11) Statement re: computation of per share earnings.
(b) During the most recent quarter, the Company filed a report on Form 8-K
on August 29, 2002, to furnish copies for purposes of Regulation FD of
the certifications of the Chief Executive Officer and Chief Financial
Officer provided in connection with the Company's Annual Report on
Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10
SIGNATURES
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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 thereunto duly authorized.
AMERICAN CONSUMERS, INC.
(Registrant)
Date: October 15, 2002 /s/ Michael A. Richardson
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Michael A. Richardson
CHAIRMAN
(Principal Executive Officer)
Date: October 15, 2002 /s/ Paul R. Cook
---------------- ------------------
Paul R. Cook
EXECUTIVE VICE PRESIDENT AND
TREASURER
(Principal Financial Officer & Chief
Accounting Officer)
CERTIFICATIONS
I, Michael A. Richardson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Consumers, 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 registrant's 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
11
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 registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's 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 registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's 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 weaknesses.
Date: October 15, 2002 /s/ Michael A. Richardson
---------------- --------------------------------------------------
Michael A. Richardson, Principal Executive Officer
I, Paul R. Cook, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
Consumers, 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 registrant's 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 registrant's 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 registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
12
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's 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 weaknesses.
Date: October 15, 2002 /s/ Paul R. Cook
---------------- -------------------------------------------------
Paul R. Cook, Principal Financial Officer & Chief
Accounting Officer
13