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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 November 27, 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
------- ----------
(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 [ ] NO [X]
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 January 10, 2005
COMMON STOCK - $ .10 PAR VALUE 804,872
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 TWENTY-SIX WEEKS ENDED
------------------------------ ------------------------------
November 27, November 29, November 27, November 29,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
NET SALES $ 8,182,495 $ 7,201,004 $ 16,208,466 $ 14,534,717
COST OF GOODS SOLD 6,206,884 5,491,030 12,303,633 11,077,976
-------------- -------------- -------------- --------------
Gross Margin 1,975,611 1,709,974 3,904,833 3,456,741
OPERATING EXPENSES 1,969,071 1,754,769 4,032,490 3,528,466
-------------- -------------- -------------- --------------
Operating Income (Loss) 6,540 (44,795) (127,657) (71,725)
OTHER INCOME (EXPENSE)
Interest income 860 3,418 1,807 6,836
Other income 30,179 21,526 53,226 40,621
Interest expense (14,881) (8,864) (29,562) (18,732)
-------------- -------------- -------------- --------------
Income (Loss) Before Income Tax 22,698 (28,715) (102,186) (43,000)
INCOME TAXES (BENEFIT) - - - -
-------------- -------------- -------------- --------------
NET INCOME (LOSS) 22,698 (28,715) (102,186) (43,000)
RETAINED EARNINGS:
Beginning 1,150,455 1,497,364 1,275,445 1,511,665
Redemption of common stock (400) (67) (506) (83)
-------------- -------------- -------------- --------------
Ending $ 1,172,753 $ 1,468,582 $ 1,172,753 $ 1,468,582
============== ============== ============== ==============
PER SHARE:
Net income (loss) $ 0.028 $ (0.035) $ (0.126) $ (0.053)
============== ============== ============== ==============
Cash dividends $ - $ - $ - $ -
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 810,425 815,618 808,941 815,406
============== ============== ============== ==============
See Notes to Financial Statements
2
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
November 27, May 29,
2004 2004
-------------- ------------
--A S S E T S--
CURRENT ASSETS
Cash and short-term investments $ 309,554 $ 335,135
Certificate of deposit 300,869 323,488
Accounts receivable 173,113 137,463
Inventories 2,357,209 2,363,973
Prepaid expenses 119,136 65,369
-------------- ------------
Total current assets 3,259,881 3,225,428
-------------- ------------
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements 273,615 273,615
Furniture, fixtures and equipment 3,260,359 3,236,063
-------------- ------------
3,533,974 3,509,678
Less accumulated depreciation (2,791,179) (2,644,738)
-------------- ------------
742,795 864,940
-------------- ------------
TOTAL ASSETS $ 4,002,676 $ 4,090,368
============== ============
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable $ 792,999 $ 788,330
Short-term borrowings 437,387 340,050
Current maturities of long-term debt 241,835 241,510
Accrued sales tax 104,345 96,259
Federal and state income taxes 503 957
Other 198,666 167,588
-------------- ------------
Total current liabilities 1,775,735 1,634,694
-------------- ------------
LONG-TERM DEBT 301,679 420,568
-------------- ------------
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 805,752 and 813,410 respectively 80,575 81,341
Additional paid-in capital 671,934 678,320
Retained earnings 1,172,753 1,275,445
-------------- ------------
Total Stockholders' Equity 1,925,262 2,035,106
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,002,676 $ 4,090,368
============== ============
See Notes to Financial Statements
3
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONSENSED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED
------------------------------
November 27, November 29,
2004 2003
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (102,186) $ (43,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 152,132 141,926
Deferred income - 530
Change in operating assets and liabilities:
Accounts receivable (35,650) (5,999)
Inventories 6,764 (55,706)
Prepaid expenses (53,767) (57,384)
Accounts payable 4,669 10,134
Accrued sales tax 8,086 (20,393)
Accrued income taxes (454) 582
Other accrued liabilities 31,078 7,640
-------------- --------------
Net cash provided by (used in) operating activities 10,672 (21,670)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (29,987) (119,803)
-------------- --------------
Decrease (increase) in certificate of deposit 22,619 (6,800)
-------------- --------------
Net cash used in investing activities (7,368) (126,603)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 97,337 (57,533)
Net decrease in long-term borrowing (118,564) (68,963)
Redemption of common stock (7,658) (1,266)
-------------- --------------
Net cash used in financing activities (28,885) (127,762)
-------------- --------------
Net decrease in cash (25,581) (276,035)
Cash and cash equivalents at beginning of period 335,135 745,659
-------------- --------------
Cash and cash equivalents at end of period $ 309,554 $ 469,624
============== ==============
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 Company'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 2004 and 2003.
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 TWENTY-SIX WEEKS ENDED
------------------------------ ------------------------------
November 27, November 29, November 27, November 29,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Sales $ 8,182,495 $ 7,201,004 $ 16,208,466 $ 14,534,717
% Sales Increase (Decrease) 13.63% (0.51)% 11.52% (0.13)%
Gross Margin % 24.14% 23.75% 24.09% 23.78%
Operating and Administrative
Expense:
Amount $ 1,969,071 $ 1,754,769 $ 4,032,490 $ 3,528,466
% of Sales 24.06% 24.37% 24.88% 24.28%
Net Income (Loss) $ 22,698 $ (28,715) $ (102,186) $ (43,000)
The Company realized a pre-tax net income of $22,698 during the quarter ended
November 27, 2004 compared to a pre-tax net loss of $28,715 for the quarter
ended November 29, 2003. For the six months ended November 27, 2004, the
Company realized a pre-tax net loss of $102,186 compared to a pre-tax net loss
of $43,000 for the prior year period. The majority of the sales increases of
13.63% and 11.52% for the quarter and six month periods, respectively, is
attributable to the addition of the Company's eighth grocery store in December
2003. The remainder of the sales increase (3.92% for the quarter and 1.85% for
the six month period) is primarily attributable to increased sales at one store,
where a nearby competitor recently closed.
The gross margin increased slightly for both the quarter and six month periods
presented, as compared to the prior year. This is consistent with the slight
increase recorded for the previous quarter ended August 28, 2004, at which time
the gross margin was 24.04%. Management began working on the Company's gross
margin during the quarter ended August 31, 2002, at which time the gross margin
stood at 22.79% for the fiscal year ended June 1, 2002. Management actively
monitors both the gross margin and the Company's retail pricing structure. As
we have previously noted, however, it is difficult to maintain a trend of
consistent improvement in the gross margin due to competitive conditions which
often delay the Company's ability to pass through price increases experienced at
the wholesale level. Accordingly, 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, the trend noted in prior quarters of operating
and administrative expenses increasing as a percent of sales appears to have
moderated, as operating and administrative expenses remained fairly consistent
in relation to sales for the periods presented. This is attributable to the
slight increases in same-store sales noted above for the quarter and six-month
periods, which had the effect of balancing some of the increases in store
payroll, repairs and insurance that led to the increased ratio for prior
periods.
6
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.
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:
November 27, May 29, November 29,
2004 2004 2003
------------- -------- -------------
Michael and Diana Richardson $ 13,466 $ 13,166 $ 12,904
Matthew Richardson 23,941 26,884 27,833
Line of Credit 400,000 300,000 175,000
------------- -------- -------------
TOTAL $ 437,387 $340,050 $ 215,737
============= ======== =============
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.
Michael Richardson is Chairman of the Board and Chief Executive Officer of the
Company. Diana Richardson is the wife of Michael Richardson, and Matthew
Richardson is their son.
Long-Term Debt:
- --------------
At November 27, 2004, long-term debt consisted of a note payable to Northwest
Georgia Bank of $200,900 to finance cash registers and peripheral equipment, as
well as notes payable to Northwest Georgia Bank of $47,766 incurred in April
2001 to finance the addition of the Company's seventh grocery store and $293,542
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 November 27, 2004, of $1,306. Long-term debt as of
specific dates is presented below:
7
November 27, May 29, November 29,
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. $ 200,900 $264,000 $ 326,213
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $6,781 monthly
plus interest at 6% through
December 2008. 293,542 324,725 -
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $3,576 monthly
plus interest at 5.75% through
April 2006. 47,766 64,212 83,561
Vehicle loans; collateralized by
automobiles due $1,305 monthly
through December 2004. 1,306 9,141 16,976
------------- -------- -------------
$ 543,514 $662,078 $ 426,750
Less current maturities 241,835 241,510 157,661
------------- -------- -------------
$ 301,679 $420,568 $ 269,089
============= ======== =============
The following is a schedule by years of the amount of maturities of all
long-term debt:
Year Amount
---- --------
2005 $241,835
2006 143,275
2007 73,883
2008 78,440
2009 6,081
The ratio of current assets to current liabilities was 1.84 to 1 at the end of
the latest quarter, November 27, 2004 compared to 2.23 to 1 on November 29, 2003
and 1.97 to 1 at the end of the fiscal year ended on May 29, 2004. Cash, cash
equivalents and the certificate of deposit constituted 18.73% of the total
current assets at November 27, 2004, as compared to 25.59% of the total current
assets at November 29, 2003 and 20.42% at May 29, 2004.
During the quarter ended November 27, 2004 retained earnings increased as a
result of the Company's net income 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.
8
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 November 27,
2004.
Related Party Transactions
- --------------------------
Except as discussed under "Liquidity and Capital Resources," there were no
material related party transactions during the twenty-six week period ended
November 27, 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 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 71% of the
outstanding balance of such debt is subject to a fixed "floor" rate of 6.00%,
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
9
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 the Company's Chief Executive Officer and the 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.
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
- ------------------ ------------- --------- ------------------- -------------------
August 29 -
Sept. 25, 2004 5,280 $ 1.00 - -
Sept. 26 -
October 30, 2004 264 1.00 - -
October 31 -
Nov. 27, 2004 506 1.00 - -
------------- --------- ------------------- -------------------
TOTAL 6,050 $ 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: January 11, 2005 /s/ Michael A. Richardson
------------------ ------------------------------
Michael A. Richardson
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
Date: January 11, 2005 /s/ Paul R. Cook
------------------ ------------------------------
Paul R. Cook
EXECUTIVE VICE PRESIDENT AND
TREASURER
(Principal Financial Officer & Chief
Accounting Officer)
13