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 August 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 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
__________________________________________________________________
(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. [X] YES [_] 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 October 8, 2004
COMMON STOCK - $ .10 PAR VALUE 806,522
NON VOTING COMMON STOCK - $ .10 PAR VALUE ----
NON VOTING PREFERRED STOCK - NO PAR VALUE ----
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
THIRTEEN WEEKS ENDED
---------------------------
August 28, August 30,
2004 2003
------------- ------------
NET SALES $ 8,025,971 $ 7,333,712
COST OF GOODS SOLD 6,096,749 5,586,946
------------- ------------
Gross Margin 1,929,222 1,746,766
OPERATING EXPENSES 2,063,419 1,773,696
------------- ------------
Operating Loss (134,197) (26,930)
OTHER INCOME (EXPENSE)
Interest income 947 3,418
Other income 23,047 19,095
Interest expense (14,681) (9,868)
------------- ------------
Loss Before Income Tax (Benefit) (124,884) (14,285)
INCOME TAXES (BENEFIT) - -
------------- ------------
NET LOSS (124,884) (14,285)
RETAINED EARNINGS:
Beginning 1,275,445 1,511,665
Redemption of common stock (106) (16)
------------- ------------
Ending $ 1,150,455 $ 1,497,364
============= ============
PER SHARE:
Net loss $ (0.154) $ (0.018)
============= ============
Cash dividends $ 0.000 $ 0.000
============= ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 811,910 815,830
============= ============
See Notes to Financial Statements
2
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
August 28, May 29,
2004 2004
------------ ------------
--A S S E T S--
CURRENT ASSETS
Cash and short-term investments $ 437,083 $ 335,135
Certificate of deposit 300,000 323,488
Accounts receivable 98,630 137,463
Inventories 2,196,777 2,363,973
Prepaid expenses 115,065 65,369
------------ ------------
Total current assets 3,147,555 3,225,428
------------ ------------
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements 273,615 273,615
Furniture, fixtures and equipment 3,251,515 3,236,063
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3,525,130 3,509,678
Less accumulated depreciation (2,720,486) (2,644,738)
------------ ------------
804,644 864,940
------------ ------------
TOTAL ASSETS $ 3,952,199 $ 4,090,368
============ ============
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable $ 798,528 $ 788,330
Short-term borrowings 365,466 340,050
Current maturities of long-term debt 239,399 241,510
Accrued sales tax 97,687 96,259
Federal and state income taxes 1,557 957
Other 179,034 167,588
------------ ------------
Total current liabilities 1,681,671 1,634,694
------------ ------------
LONG-TERM DEBT 361,914 420,568
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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-$.10 par value; no shares issued - -
Common stock - $.10 par value; authorized 5,000,000
shares; shares issued of 811,802 and 813,410 respectively 81,180 81,341
Additional paid-in capital 676,979 678,320
Retained earnings 1,150,455 1,275,445
------------ ------------
Total Stockholders' Equity 1,908,614 2,035,106
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,952,199 $ 4,090,368
============ ============
See Notes to Financial Statements
3
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONSENSED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED
--------------------------
August 28, August 30,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (124,884) $ (14,285)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 75,748 68,812
Deferred income - 2,119
Change in operating assets and liabilities:
Accounts receivable 38,833 26,555
Inventories 167,196 23,218
Prepaid expenses (49,696) (34,013)
Accounts payable 10,198 117,374
Accrued sales tax 1,428 (22,720)
Accrued income taxes 600 1,609
Other accrued liabilities 11,446 617
------------ ------------
Net cash provided by operating activities 130,869 169,286
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (15,452) (84,022)
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Net cash used in investing activities (15,452) (84,022)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 25,416 (37,439)
Net (decrease) in long-term borrowing (60,765) (43,455)
Redemption of common stock (1,608) (248)
------------ ------------
Net cash (used in) financing activities (36,957) (81,142)
------------ ------------
Net increase in cash 78,460 4,122
Cash and cash equivalents at beginning of period 658,623 1,055,480
------------ ------------
Cash and cash equivalents at end of period $ 737,083 $ 1,059,602
============ ============
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 practices within the industry.
The interim financial statements should be read in conjunction with the
notes to the financial statements presented in the Corporation's 2004
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 $150,000 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
--------------------------
August 28, August 30,
2004 2003
------------ ------------
Sales $ 8,025,971 $ 7,333,712
% Sales Increase 9.44% .24%
Gross Margin 24.04% 23.82%
Operating and Administrative Expense:
Amount $ 2,063,419 $ 1,773,696
% of Sales 25.71% 24.19%
Net Loss $ (124,884) $ (14,285)
The Company realized a pre-tax net loss of $124,884 during the quarter ended
August 28, 2004 compared to a pre-tax net loss of $14,285 for the quarter ended
August 30, 2003. The 9.44% increase in sales for the 2004 period as compared to
the first quarter of fiscal 2003 is nearly all attributable to the addition of
the Company's eighth grocery store in December 2003, as sales remained
essentially flat at the other seven locations. Since management began working
on the Company's gross margin during the quarter ended August 31, 2002, gross
margin increased from 22.79% for the fiscal year ended June 1, 2002 to 23.97%
for both the past two fiscal years. As the results of recent quarters
demonstrate, however, the Company has not been able to sustain additional
improvements in the gross margin. Thus, while the gross margin was slightly
higher for the quarter ended August 28, 2004 as compared to the first quarter of
the prior year, it remained relatively flat versus results for the full fiscal
year. 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's sales and profits 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 24.19% of sales to 25.71% for the most recent quarter. This reflects the
continuation of a trend which saw operating and administrative expenses equal to
25.40% of sales for the quarter ended May 29, 2004 and 25.65% of sales for the
quarter ended February 28, 2004. The overall increase in operating and
administrative expenses in recent periods is due primarily to increases in store
payroll, repairs and insurance. A portion of this increase resulted from the
addition of the Company's eighth grocery store in December 2003, while the
remainder reflects an increase in these expenses at the Company's other seven
stores while same store sales remained essentially flat as compared to the
quarter ended August 30, 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.
6
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.
7
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:
August 28, May 29, August 30,
2004 2004 2003
----------- -------- -----------
Michael and Diana Richardson $ 13,302 $ 13,166 $ 12,774
Matthew Richardson 27,164 26,884 29,534
Line of Credit 325,000 300,000 175,000
----------- -------- -----------
TOTAL $ 365,466 $340,050 $ 217,308
=========== ======== ===========
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 28, 2004, long-term debt consisted of a note payable to Northwest
Georgia Bank of $232,483 to finance cash registers and peripheral equipment, as
well as notes payable to Northwest Georgia Bank of $54,381 incurred in April
2001 to finance the addition of the Company's seventh grocery store and $309,226
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 August 28, 2004, of $5,223. Long-term debt as of
specific dates are presented below:
August 28, May 29, August 30,
2004 2004 2003
----------- -------- -----------
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. $ 232,483 $264,000 $ 356,849
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $6,781 monthly
plus interest at 6% through
December 2008. 309,226 324,725 -
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $3,576 monthly
plus interest at 5.75% through
April, 2006. 54,381 64,212 93,038
Vehicle loans; collateralized by
automobiles due $1,305 monthly
through December 2004. 5,223 9,141 20,894
----------- -------- -----------
$ 601,313 $662,078 $ 470,781
Less current maturities 239,399 241,510 173,807
----------- -------- -----------
$ 361,914 $420,568 $ 296,974
=========== ======== ===========
8
FINANCIAL CONDITION (Continued)
The following is a schedule by years of the amount of maturities of all
long-term debt:
Year Amount
---- --------
2004 $239,399
2005 185,832
2006 72,793
2007 77,282
2008 26,007
The ratio of current assets to current liabilities was 1.87 to 1 at the end of
the latest quarter, August 28, 2004 compared to 2.15 to 1 on August 30, 2003 and
1.97 to 1 at the end of the fiscal year ended on May 29, 2004. Cash and cash
equivalents constituted 23.42% of the total current assets at August 28, 2004,
as compared to 33.00% of the total current assets at August 30, 2003 and 20.42%
at May 29, 2004.
During the quarter ended August 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 average cost or market.
Off-Balance Sheet Arrangements
- ------------------------------
The Company had no significant off-balance sheet arrangements as of August 28,
2004.
Related Party Transactions
- --------------------------
Except as discussed under "Liquidity and Capital Resources," there were no
material related party transactions during the thirteen week period ended August
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 by kept in mind that actual
results
9
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 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 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, but approximately 85% of the
outstanding balance of such debt is subject to a fixed "floor" rate of 6.0%,
which exceeds the current prime rate. Accordingly, 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 the 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.
10
AMERICAN CONSUMERS, INC.
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer Repurchases:
------------------
The following table presents information with respect to repurchases of common
stock made by the Company during the fiscal quarter covered by this report:
Average Total Number of Maximum Number of
Total Number Price Shares Purchased as Shares that May Yet
of Shares Paid per Part of a Publicly Be Purchased
Period Purchased (1) Share Announced Plan Under the Plan
- --------------- ------------- --------- ------------------- -------------------
May 30 -
June 26, 2004 1375.0 $ 1.00 - -
June 27 -
July 31, 2004 - - - -
August 1 -
August 28, 2004 233.2 1.00 - -
------------- --------- ------------------- -------------------
TOTAL 1,608.2 $ 1.00 - -
============= ========= =================== ===================
(1) Represents shares repurchased at $1.00 per share in response to unsolicited
requests from unaffiliated shareholders during the quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on September 23, 2004, at
which shareholders were asked to vote on the election of directors for the
fiscal year ending in 2004. 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 553,723 553,712 11 262,026 31,934
Paul R. Cook 553,723 553,712 11 262,026 31,934
Virgil E. Bishop 553,723 553,712 11 262,026 31,934
Thomas L. Richardson 553,723 553,712 11 262,026 31,934
Jerome P. Sims, Sr. 553,723 553,492 231 262,026 31,934
Andrew V. Douglas 553,723 553,712 11 262,026 31,934
Danny R. Skates 553,723 553,712 11 262,026 31,934
11
Item 6 EXHIBITS
The following exhibits are filed as a part of the report.
(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
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: October 12, 2004 /s/ Michael A. Richardson
---------------- -----------------------------------------------
Michael A. Richardson
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
Date: October 12, 2004 /s/ Paul R. Cook
---------------- -----------------------------------------------
Paul R. Cook
EXECUTIVE VICE PRESIDENT AND
TREASURER
(Principal Financial Officer & Chief Accounting
Officer)
13