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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 February 28, 2004
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.
------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 8-1033765
- -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
55 Hannah Way, Rossville, GA 30741
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (706) 861-3347
- --------------------------------------------------------------------------------
(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 ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule
12b-2 of the Exchange Act). ( ) 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 April 9, 2004
COMMON STOCK - $.10 PAR VALUE 813,410
NON VOTING COMMON STOCK - $.10 PAR VALUE -----
1
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
THIRTEEN WEEKS ENDED THIRTY-NINE-WEEKS ENDED
--------------------------- -----------------------------
February 28, March 1, February 28, March 1,
2004 2003 2004 2003
-------------- ----------- -------------- -------------
NET SALES $ 7,604,053 $7,496,786 $ 22,138,770 $ 22,050,757
COST OF GOODS SOLD 5,704,260 5,681,465 16,782,236 16,761,814
-------------- ----------- -------------- -------------
Gross Margin 1,899,793 1,815,321 5,356,534 5,288,943
OPERATING EXPENSES 1,950,405 1,813,083 5,478,871 5,327,250
-------------- ----------- -------------- -------------
Operating Income (Loss) (50,612) 2,238 (122,337) (38,307)
OTHER INCOME (EXPENSE)
Interest income 3,449 4,324 10,285 12,982
Other income 18,946 24,394 59,567 77,052
Loss on sale of assets - (1,217) - (1,217)
Interest expense (13,521) (13,535) (32,253) (44,071)
-------------- ----------- -------------- -------------
Income (Loss) Before Income Taxes (41,738) 16,204 (84,738) 6,439
INCOME TAXES - - - -
-------------- ----------- -------------- -------------
NET INCOME (LOSS) (41,738) 16,204 (84,738) 6,439
RETAINED EARNINGS:
Beginning 1,468,582 1,461,898 1,511,665 1,471,997
Redemption of common stock (22) (44) (105) (378)
-------------- ----------- -------------- -------------
Ending $ 1,426,822 $1,478,058 $ 1,426,822 $ 1,478,058
============== =========== ============== =============
PER SHARE:
Net income (loss) $ (0.051) $ 0.020 $ ($0.104) $ 0.008
============== =========== ============== =============
Cash dividends $ - $ - $ - $ -
============== =========== ============== =============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 814,919 818,290 815,082 818,655
============== =========== ============== =============
See Notes to Financial Statements
2
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
February 28, May 31,
2004 2003
-------------- ------------
--A S S E T S--
CURRENT ASSETS
Cash and short-term investments $ 598,736 $ 745,659
Certificate of deposit 320,039 309,821
Accounts receivable 106,658 113,267
Inventories 2,300,098 1,997,929
Prepaid expenses 96,496 56,141
-------------- ------------
Total current assets 3,422,027 3,222,817
-------------- ------------
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements 273,615 258,122
Furniture, fixtures and equipment 3,229,113 2,974,836
-------------- ------------
3,502,728 3,232,958
Less accumulated depreciation (2,586,273) (2,409,558)
-------------- ------------
916,455 823,400
-------------- ------------
TOTAL ASSETS $ 4,338,482 $ 4,046,217
============== ============
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable $ 884,373 $ 702,170
Short-term borrowings 241,150 254,747
Current maturities of long-term debt 241,245 176,184
Accrued sales tax 95,585 115,064
Federal and state income taxes 1,736 905
Other 205,008 185,353
-------------- ------------
Total current liabilities 1,669,097 1,434,423
-------------- ------------
LONG-TERM DEBT 481,875 338,052
-------------- ------------
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-$.10 par value; no shares issued - -
Common stock - $.10 par value; authorized 5,000,000
shares; shares issued of 814,510 and 815,996 respectively 81,451 81,600
Additional paid-in capital 679,237 680,477
Retained earnings 1,426,822 1,511,665
-------------- ------------
Total Stockholders' Equity 2,187,510 2,273,742
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,338,482 $ 4,046,217
============== ============
See Notes to Financial Statements
3
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED
-----------------------------
February 28, March 1,
2004 2003
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (84,738) $ 6,439
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 220,211 217,364
Deferred income - (19,048)
Loss on sale of property and equipment - 1,217
Change in operating assets and liabilities:
Accounts receivable 6,609 13,181
Inventories (302,169) (85,874)
Prepaid expenses (40,355) (66,918)
Refundable income taxes - 42,207
Accounts payable 182,203 (66,086)
Accrued sales tax (19,479) (42,292)
Accrued income taxes 831 (4,000)
Other accrued liabilities 19,655 14,137
-------------- -------------
Net cash provided by (used in) operating activities (17,232) 10,327
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in certificate of deposit (10,218) (12,416)
Purchase of property and equipment (313,266) (27,374)
Proceeds from disposal of equipment - 6,350
-------------- -------------
Net cash used in investing activities (323,484) (33,440)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in short-term borrowings (13,597) (54,530)
Proceeds from long-term borrowings 350,020 -
Principal payments on long-term debt (141,136) (123,900)
Redemption of common stock (1,494) (5,720)
-------------- -------------
Net cash provided by (used in) financing activities 193,793 (184,150)
-------------- -------------
Net (decrease) in cash (146,923) (207,263)
Cash and cash equivalents at beginning of period 745,659 743,370
-------------- -------------
Cash and cash equivalents at end of period $ 598,736 $ 536,107
============== =============
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 United
States generally accepted accounting principles.
The interim financial statements should be read in conjunction with the
notes to the financial statements presented in the Corporation's 2003
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, other than the addition of the Company's eighth store
in December 2003, are not expected to exceed $250,000 for the 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 years 2003 and 2002.
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 THIRTY-NINE WEEKS ENDED
--------------------------- -----------------------------
February 28, March 1, February 28, March 1,
2004 2003 2004 2003
-------------- ----------- -------------- -------------
Sales $ 7,604,053 $7,496,786 $ 22,138,770 $ 22,050,757
% Sales Increase 1.43% 2.51% 0.40% 1.62%
Gross Margin % 24.98% 24.21% 24.20% 23.99%
Operating and Administrative Expense:
Amount $ 1,950,405 $1,813,083 $ 5,478,871 $ 5,327,250
% of Sales 25.65% 24.18% 24.75% 24.16%
Net Income (Loss) $ (41,738) $ 16,204 $ (84,738) $ 6,439
The Company realized a pre-tax net loss of $41,738 during the quarter ended
February 28, 2004 compared to a pre-tax net income of $16,204 for the quarter
ended March 1, 2003. The gross margin increase from 24.21% to 24.98% is a
result of the Company adjusting its retail prices to catch up with recent
wholesale price increases which were not passed on to the customer immediately.
However, the increase in gross margin was offset by increased expenses related
to the establishment of our eighth grocery store and same-store sales declines,
as discussed below, resulting in the net loss for the period. Management is
actively monitoring the Company's mix of retail prices. Due to competitive
conditions, however, further improvements in the gross margin may not be
achievable at this time. 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 will continue seeking to improve the gross margin and increase
profitability by obtaining the lowest cost for the Company's inventory, and as
competition permits, by periodically implementing strategic adjustments in the
Company's overall mix of retail prices.
As indicated in the table above, operating and administrative expenses increased
from 24.18% of sales to 25.65% for the most recent quarter. This increase is a
result of establishing the Company's eighth store in December of 2003 and hiring
employees for a two week period prior to opening the store in order to clean the
store and make necessary repairs prior to opening. During this two week period
the Company incurred additional labor and occupancy expenses without any
offsetting increase in revenue from sales at the new location. The
relationship of operating and administrative expenses to sales was also impacted
by the fact that, excluding the addition of our eighth store, sales for the
quarter and thirty-nine weeks ended February 28, 2004 decreased by 3.55% and
1.29%, respectively, compared to the corresponding periods in 2003.
Income Taxes:
No taxes were reflected for the periods presented due to the impact of net
operating loss carry forward provisions under current tax laws.
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. Short-term borrowing to finance inventory purchases
is provided by the Company's $500,000 line of credit from its bank. Short-term
borrowings as of specific dates are presented below:
February 28, May 31, March 1,
2004 2003 2003
------------- -------- ---------
Michael and Diana Richardson $ 13,035 $ 22,631 $ 22,404
Matthew Richardson 28,115 32,216 33,389
Line of Credit 200,000 199,900 300,000
------------- -------- ---------
TOTAL $ 241,150 $254,747 $ 355,793
============= ======== =========
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 February 28, 2004, long-term debt consisted of a note payable to Northwest
Georgia Bank of $295,261 to finance cash registers and peripheral equipment and
notes payable to Northwest Georgia Bank of $73,954 incurred in April 2001 to
finance the addition of the Company's seventh grocery store and $340,846
incurred in December 2003 to finance the addition of the Company's eighth
grocery store. In addition, two vehicles were purchased and financed through
GMAC with a balance due at February 28, 2004, of $13,059. Long-term debt as of
specific dates are presented below:
February 28, May 31, March 1,
2004 2003 2003
------------- -------- ---------
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $6,781 monthly
plus interest at 6% through
December 2008. $ 340,846 $ - $ -
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $11,381 monthly
plus interest at the prime rate plus
1.5 % through September 2006. 295,261 387,013 417,014
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $3,576 monthly
plus interest at 5.75% through
April, 2006. 73,954 102,411 111,511
Vehicle loans; collateralized by
automobiles due $1,305 monthly
through December 2004. 13,059 24,812 28,729
------------- -------- ---------
$ 723,120 $514,236 $ 557,254
Less current maturities 241,245 176,184 170,775
------------- -------- ---------
$ 481,875 $338,052 $ 386,479
============= ======== =========
7
FINANCIAL CONDITION (Continued)
The following is a schedule by years of the amount of maturities of all
long-term debt:
Year Amount
---- --------
2004 $241,245
2005 232,396
2006 108,350
2007 74,948
2008 66,181
The ratio of current assets to current liabilities was 2.05 to 1 at the end of
the latest quarter, February 28, 2004 compared to 2.13 to 1 on March 1, 2003 and
2.25 to 1 at the end of the fiscal year ended on May 31, 2003. Cash, cash
equivalents and the certificate of deposit constituted 26.85% of the total
current assets at February 28, 2004, as compared to 30.34% of the total current
assets at March 1, 2003 and 32.75% at May 31, 2003.
During the quarter ended February 28, 2004 retained earnings decreased as a
result of the Company's net loss for the quarter.
Critical Accounting Policies
- ----------------------------
Critical accounting policies are those policies that management believes are
important to the portrayal of the Company's financial condition and results of
operations and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Management has determined valuation of its inventories as a critical accounting
policy. Inventories are stated at the lower of cost or market. Cost is
determined through use of the first-in, first-out ("FIFO") method, for
substantially all inventories.
Off-Balance Sheet Arrangements
- ------------------------------
The Company had no significant off-balance sheet arrangements as of February 28,
2004.
Related Party Transactions
- --------------------------
Except as discussed under "Liquidity and Capital Resources," there were no
material related party transactions during the thirty-nine week period ended
February 28, 2004.
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
8
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 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 (some of which have 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 form 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 derivative transactions, nor does it hold or
issue financial instruments for trading or other speculative purposes. The
Company is exposed to market risk related 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.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this quarterly report, an evaluation was
performed, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. No change in the
Company's internal control over financial reporting occurred during the period
covered by this quarterly report that materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
9
AMERICAN CONSUMERS, INC.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of the report.
(10.1) Asset Purchase Agreement dated December 20, 2003 between the
Company and Russell's Food Stores, Inc.
(10.2) Lease Agreement for the Company's Tunnel Hill, Georgia location,
dated December 20, 2003 between the Company and Tunnel
Properties, LLC.
(10.3) Commercial Variable Rate Promissory Note between the Company and
Northwest Georgia Bank, dated December 17, 2003.
(11) Statement re: computation of per share earnings.
(31.1) CEO Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a).
(31.2) CFO Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a).
(32.1) CEO Certification pursuant to Exchange Act Rules 13a-14(b) and
15d-14(b).
(32.2) CFO Certification pursuant to Exchange Act Rules 13a-14(b) and
15d-14(b).
(b) During the most recent quarter, the Company has not filed a report on Form
8-K.
10
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 thereunto duly authorized.
AMERICAN CONSUMERS, INC.
(Registrant)
Date: April 13, 2004 /s/ Michael A. Richardson
-------------- ------------------------------------
Michael A. Richardson
CHAIRMAN
(Principal Executive Officer)
Date: April 13, 2004 /s/ Paul R. Cook
-------------- ------------------------------------
Paul R. Cook
EXECUTIVE VICE PRESIDENT
AND TREASURER
(Principal Financial Officer & Chief
Accounting Officer)
11
AMERICAN CONSUMERS, INC.
EXHIBIT INDEX
Exhibits filed with this report:
(10.1) Asset Purchase Agreement dated December 20, 2003 between the
Company and Russell's Food Stores, Inc.
(10.2) Lease Agreement for the Company's Tunnel Hill, Georgia location,
dated December 20, 2003 between the Company and Tunnel
Properties, LLC.
(10.3) Commercial Variable Rate Promissory Note between the Company and
Northwest Georgia Bank, dated December 17, 2003.
(11) Statement re: computation of per share earnings.
(31.1) CEO Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a).
(31.2) CFO Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a).
(32.1) CEO Certification pursuant to Exchange Act Rules 13a- 14(b) and
15d-14(b).
(32.2) CFO Certification pursuant to Exchange Act Rules 13a-14(b) and
15d-14(b).
12