================================================================================
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 26, 2005
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 (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 5, 2005
COMMON STOCK - $.10 PAR VALUE 803,988
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 26, February 28, February 26, February 28,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
NET SALES $ 7,903,607 $ 7,604,053 $ 24,112,073 $ 22,138,770
COST OF GOODS SOLD 6,039,155 5,704,260 18,342,788 16,782,236
-------------- -------------- -------------- --------------
Gross Margin 1,864,452 1,899,793 5,769,285 5,356,534
OPERATING EXPENSES 2,010,879 1,950,405 6,043,369 5,478,871
-------------- -------------- -------------- --------------
Operating Loss (146,427) (50,612) (274,084) (122,337)
OTHER INCOME (EXPENSE)
Interest income 1,118 3,449 2,925 10,285
Other income 10,491 18,946 63,717 59,567
Interest expense (15,288) (13,521) (44,850) (32,253)
-------------- -------------- -------------- --------------
Loss Before Income Taxes (150,106) (41,738) (252,292) (84,738)
INCOME TAXES - - - -
-------------- -------------- -------------- --------------
NET LOSS (150,106) (41,738) (252,292) (84,738)
RETAINED EARNINGS:
Beginning 1,172,753 1,468,582 1,275,445 1,511,665
Redemption of common stock (102) (22) (608) (105)
-------------- -------------- -------------- --------------
Ending $ 1,022,545 $ 1,426,822 $ 1,022,545 $ 1,426,822
============== ============== ============== ==============
PER SHARE:
Net loss $ (0.186) $ (0.051) $ (0.312) $ (0.104)
============== ============== ============== ==============
Cash dividends $ - $ - $ - $ -
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 806,666 814,919 807,424 815,082
============== ============== ============== ==============
See Notes to Financial Statements
2
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
February 26, May 29,
2005 2004
-------------- ------------
--A S S E T S--
CURRENT ASSETS
Cash and short-term investments $ 278,244 $ 335,135
Certificate of deposit 301,732 323,488
Accounts receivable 133,685 137,463
Inventories 2,261,916 2,363,973
Prepaid expenses 118,928 65,369
-------------- ------------
Total current assets 3,094,505 3,225,428
-------------- ------------
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements 274,601 273,615
Furniture, fixtures and equipment 3,262,661 3,236,063
-------------- ------------
3,537,262 3,509,678
Less accumulated depreciation (2,862,558) (2,644,738)
-------------- ------------
674,704 864,940
-------------- ------------
TOTAL ASSETS $ 3,769,209 $ 4,090,368
============== ============
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable $ 792,054 $ 788,330
Short-term borrowings 436,853 340,050
Current maturities of long-term debt 235,124 241,510
Accrued sales tax 91,814 96,259
Federal and state income taxes 753 957
Other 189,438 167,588
-------------- ------------
Total current liabilities 1,746,036 1,634,694
-------------- ------------
LONG-TERM DEBT 249,558 420,568
-------------- ------------
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 804,212 and 813,410 respectively 80,421 81,341
Additional paid-in capital 670,649 678,320
Retained earnings 1,022,545 1,275,445
-------------- ------------
Total Stockholders' Equity 1,773,615 2,035,106
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,769,209 $ 4,090,368
============== ============
See Notes to Financial Statements
3
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED
------------------------------
February 26, February 28,
2005 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (252,292) $ (84,738)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 229,329 220,211
Change in operating assets and liabilities:
Accounts receivable 3,778 6,609
Inventories 102,057 (302,169)
Prepaid expenses (53,559) (40,355)
Accounts payable 3,724 182,203
Accrued sales tax (4,445) (19,479)
Accrued income taxes (204) 831
Other accrued liabilities 21,850 19,655
-------------- --------------
Net cash provided by (used in) operating activities 50,238 (17,232)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (Increase) in certificate of deposit 21,756 (10,218)
Purchase of property and equipment (39,093) (313,266)
-------------- --------------
Net cash used in investing activities (17,337) (323,484)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 96,803 (13,597)
Proceeds from long-term borrowings - 350,020
Principal payments on long-term debt (177,396) (141,136)
Redemption of common stock (9,199) (1,494)
-------------- --------------
Net cash (used in) provided by financing activities (89,792) 193,793
-------------- --------------
Net (decrease) in cash (56,891) (146,923)
Cash and cash equivalents at beginning of period 335,135 745,659
-------------- --------------
Cash and cash equivalents at end of period $ 278,244 $ 598,736
============== ==============
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 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.
In our Quarterly Reports on Form 10-Q filed for the first two quarters of
our fiscal year ending May 28, 2005, we indicated that capital expenditures
were not expected to exceed $150,000 for the year. This estimate was based
on the anticipated replacement of two or three vehicles during the fiscal
year, as well as anticipated equipment failures that would be replaced
during the course of the year (estimated based on prior experience).
We have subsequently revised our anticipated capital expenditures to
exclude vehicle replacements prior to the end of the current fiscal year.
As of February 26, 2005, capital expenditures for the fiscal year to date
totaled $39,093 (primarily for ordinary course equipment replacements) and,
apart from any other ordinary course replacements that might arise, there
are no capital expenditures budgeted or expected, except for approximately
$2,500 to purchase a cash counting machine for one of our stores, prior to
the end of the current fiscal year. Capital expenditures are normally
funded from a combination of funds generated by operations and, to the
extent necessary, additional borrowings under our bank line of credit.
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.
(3) Cost of Goods Sold.
Cost of goods sold is comprised of the cost of purchasing the Company's
products (such as groceries and other vendor-supplied products) which are
sold during the period. Cost of goods sold is equal to the beginning
inventory, plus the cost of goods purchased during the period, less the
amount comprising ending inventory. The cost of goods sold shown on the
Company's Statement of Income and Retained Earnings is presented net of
rebates from suppliers. These rebates represent cash consideration received
from suppliers based primarily on the Company's volume of purchases from
such suppliers. These rebates do not include reimbursement of costs
incurred to sell the supplier's products. In accordance with EITF 02-16,
the Company applies rebates from suppliers (excluding rebates for
advertising costs) as a reduction in cost of goods sold.
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 26, February 28, February 26, February 28,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
Sales $ 7,903,607 $ 7,604,053 $ 24,112,073 $ 22,138,770
% Sales Increase 3.94% 1.43% 8.91% 0.40%
Gross Margin % 23.59% 24.98% 23.93% 24.20%
Operating and Administrative Expense:
Amount $ 2,010,879 $ 1,950,405 $ 6,043,369 $ 5,478,871
% of Sales 25.44% 25.65% 25.06% 24.75%
Net Loss $ (150,106) $ (41,738) $ (252,292) $ (84,738)
Overview:
- --------
As has been the case in recent periods, the Company continues to struggle with
operating losses as we are faced with increasing competition from larger grocery
retailers moving into the smaller markets served by our stores. The Company
realized a net loss for the thirteen weeks (quarter) ended February 26, 2005 of
$150,106, bringing the net loss for the first thirty-nine weeks (nine months) of
fiscal 2005 to $252,292. This compares to a net loss for the same quarter last
year of $41,738, and a loss of $84,738 for the 2004 year to date period.
The increased losses for both the quarter and year to date periods were greatly
impacted by the reductions that we experienced in our gross margins as compared
to the prior year (1.39% for the quarter and 0.27% for the nine month period).
Although the gross margin for the quarter ended February 26, 2005 was down only
0.55% from the prior quarter, the comparison to the prior year period was
negatively impacted by the fact that our primary inventory supplier increased
its wholesale markup from 3.0% to 3.5% during the most recent quarter, and we
have not been able to recover this increase through adjustments to the Company's
retail prices.
Management actively monitors both the gross margin and the Company's retail
pricing structure in an attempt to maximize profitability. 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. While occasional improvements in gross profit have been seen in recent
periods, as we have previously noted, 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, while management will attempt to offset the
recent increase by our principal supplier through strategic adjustments to our
pricing mix during the final quarter of the current fiscal year, further
improvements in the gross margin may not be achievable at this time, and further
deterioration in the Company's gross margin is possible. Management believes
that competitive pressures on the Company, which have led to the losses
experienced in recent periods, 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 working to obtain the lowest cost for the
Company's inventory, and as competition permits, by periodically implementing
adjustments in the Company's overall mix of retail prices.
6
Our gross margins may not be directly comparable to those of our larger
competitors, since some of those companies may include the costs of their
internal distribution networks in cost of goods sold - thus impacting the gross
margin - while others reflect such costs elsewhere (such as in operating,
general and administrative expenses). Unlike many of the larger grocery store
chains with which we compete, the Company does not have an internal distribution
network. Inventory is delivered directly to our individual store locations by
our wholesale supplier, which recovers its distribution costs through the markup
that it charges to the Company.
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
sales increases discussed below for the quarter and nine-month periods, which
primarily resulted from the addition of our eighth grocery store location in
Tunnel Hill, Georgia during January 2004. These additional sales partially
offset some of the increases in store payroll, repairs and insurance that led to
an increased ratio for prior periods. The relatively fixed nature of certain of
these expenses, however, means that any future decrease in sales due to the
effects of ongoing competition will likely trigger further increases in this
ratio, which could intensify the Company's operating losses.
Finally, an additional factor which contributed to the losses experienced by the
Company for the quarter and nine months ended February 26, 2005 is the fact that
interest expense increased by $1,767 and $12,597 for the quarter and nine month
periods, respectively, principally due to increases in our average outstanding
debt. At the same time, interest income decreased by $2,331 and $7,360 for the
quarter and nine month periods, respectively, due to the repricing of the
Company's bank certificate of deposit during fiscal 2005.
Three Months Ended February 26, 2005 Compared to Three Months Ended February 28,
- --------------------------------------------------------------------------------
2004:
- ----
Sales:
The three months ended February 26, 2005 include an entire quarter of sales for
our Tunnel Hill store, opened on January 5, 2004. Sales without Tunnel Hill for
the current quarter increased 0.14%, while the addition of the Tunnel Hill store
accounted for the remaining sales increase of 3.8% over the 2004 period.
Excluding the impact of the Tunnel Hill store addition, sales for the quarter
ended February 28, 2004 actually decreased 3.55% as compared to the quarter
ended March 1, 2003. The improvement in same store sales for the three months
ended February 26, 2005 versus the three months ended February 28, 2004,
excluding the Tunnel Hill store, is primarily attributable to the closing of one
of the Company's main competitors in Dayton, Tennessee. Other Company store
locations saw either very negligible growth in sales or minimal declines.
Management believes that the difficulties experienced by the Company in
increasing its sales volume, apart from the addition of new store locations, are
indicative of the effects of ongoing price competition from larger competitors
with greater financial resources than the Company.
Gross Margin:
The Company's gross margin percentage for the three months ended February 26,
2005 decreased by 1.39% as compared to the three months ended February 28, 2004,
from 24.98% to 23.59%. This amounts to a decrease in gross margin of $109,860
on the Company's sales of
7
$7,903,607 for the 2005 period, which equates to 73% of the Company's $150,106
net loss for the quarter. Our gross margin for the quarter ended February 26,
2005 was down 0.55% from the Company's gross margin of 24.14% for the quarter
ended November 27, 2004. Nearly all of this decrease from the prior quarter is
attributable to our primary inventory supplier increasing its wholesale markup
from 3.0% to 3.5% during the quarter ended February 26, 2005, combined with the
fact that we have not yet been able to recover this increase in cost through
adjustments to the Company's retail prices.
Operating Expense:
The Company's operating expenses are comprised primarily of operating, general
and administrative expenses, including personnel salary costs and related
payroll costs, depreciation expense, lease expense, professional fees, bank
service charges and credit card fees, costs for office supplies, insurance
expense, advertising expense, telephone and utilities expense, repairs and
maintenance and other minor miscellaneous expenses. For the quarter ended
February 26, 2005, the primary components of the $60,474 increase in these
expenses were increases in advertising and promotional expenditures ($21,498),
bank service charges and credit card fees ($13,027), payroll expense ($12,466),
insurance expense ($12,397) and repairs and maintenance ($11,328), partially
offset by decreases aggregating to $10,242 in other operating, general and
administrative expense items, principally taxes and licenses and professional
fees. In accordance with EITF 02-16, advertising rebates received from suppliers
are deducted from advertising expense within this category.
Other Income:
Other income decreased from $18,946 for the quarter ended February 28, 2004 to
$10,491 for the quarter ended February 26, 2005 due to an accounting error
during the second quarter ended November 27, 2004, which was corrected in the
third quarter. The adjustments made during the current quarter (which are the
cause of the two "negative" net amounts presented in the table below) correct
the year to date figures to $63,717 and $59,567 for the thirty-nine weeks ended
February 26, 2005 and February 28, 2004, respectively. The components of other
income for the quarters ended February 26, 2005 and February 28, 2004 were as
follows:
THIRTEEN WEEKS ENDED
----------------------------------------
Description February 26, 2005 February 28, 2004
- ----------- ------------------- -------------------
Check cashing fees $ 12,429 $ 12,068
Funds received for handling money orders (8,159) 2,120
Vendor's compensation from the States of
Alabama and Georgia for collecting and
remitting sales taxes on a timely basis 3,490 3,484
Returned check fees 862 1,567
Revenue related to Fed-Ex shipments/other 1,869 (293)
------------------- -------------------
TOTAL $ 10,491 $ 18,946
=================== ===================
Nine Months Ended February 26, 2005 Compared to Nine Months Ended February 28,
- ------------------------------------------------------------------------------
2004:
- ----
Sales:
As noted above, the three months ended February 26, 2005 included an entire
quarter of sales for our Tunnel Hill store, opened on January 5, 2004. This
also affected the sales comparisons for
8
the first nine months of fiscal 2004 and 2005. Excluding the Tunnel Hill store,
sales for the nine months ended February 26, 2005 only increased 1.49% versus
the nine months ended February 28, 2004, as compared to the reported increase of
8.91% when the results from the Tunnel Hill location are included. Excluding
the impact of the Tunnel Hill store addition, sales for the nine months ended
February 28, 2004 actually decreased 1.04% as compared to the nine months ended
March 1, 2003.
Gross Margin:
The Company's gross margin percentage for the nine months ended February 26,
2005 decreased by 0.27% as compared to the nine months ended February 28, 2004,
from 24.20% to 23.93%. This amounts to a decrease in gross margin of $65,103 on
the Company's sales of $24,112,073 for the 2005 period, which amounts to
approximately 25.8% of the Company's $252,292 net loss for the nine month
period. This erosion in the Company's current gross margin as compared to the
first nine months of fiscal 2004 is principally due to the effects of ongoing
price competition from competitors with greater financial resources than those
of the Company, exacerbated by an increase from 3.0% to 3.5% in the wholesale
markup charged by our primary inventory supplier during the quarter ended
February 26, 2005, which we have not yet been able to recover through
adjustments to the Company's retail prices.
Operating Expense:
For the thirty-nine weeks ended February 26, 2005, apart from the $9,118
increase in non-cash depreciation and amortization charges, the primary
components of the $564,498 increase in operating and administrative expenses
were increases in payroll expense ($214,172), insurance expense ($74,505),
advertising and promotional expenditures ($72,759), utilities expense ($44,111),
bank service charges and credit card fees ($28,956) and general supplies expense
($23,928).
Other Income:
As noted above, other income decreased from $18,946 for the quarter ended
February 28, 2004 to $10,491 for the quarter ended February 26, 2005 due to an
accounting error during the second quarter ended November 27, 2004. The
adjustment made during the current quarter corrects the year to date figures to
$63,717 and $59,567 for the thirty-nine weeks ended February 26, 2005 and
February 28, 2004, respectively. The components of other income for the
thirty-nine weeks ended February 26, 2005 and February 28, 2004 were as follows:
THIRTY-NINE WEEKS ENDED
--------------------------------------
Description February 26, 2005 February 28, 2004
- ----------- ------------------ ------------------
Check cashing fees $ 39,046 $ 33,207
Funds received for handling money orders 3,659 7,990
Vendor's compensation from the States of
Alabama and Georgia for collecting and
remitting sales taxes on a timely basis 10,617 10,100
Returned check fees 5,344 7,298
Revenue related to Fed-Ex shipments/other 5,051 972
------------------ ------------------
TOTAL $ 63,717 $ 59,567
================== ==================
9
Income Taxes:
- ------------
The Company accounts for income taxes in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes," which requires that deferred income
taxes be determined based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities given
the provisions of the enacted tax laws. Valuation allowances are used to reduce
deferred tax assets to the amount considered likely to be realized.
No taxes were reflected for the periods presented due to the impact of net
operating loss carryforward 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:
- -------------------------------
Changes in the Company's liquidity and capital resources during the periods
presented resulted primarily from the following:
During the thirty-nine weeks ending February 26, 2005, the Company increased its
draws under its line of credit with Northwest Georgia Bank by $100,000 and
reduced its cash, cash equivalents and certificates of deposit by approximately
$80,000. These funds were utilized to reduce the Company's long-term debt by
approximately $180,000 during this thirty-nine week period. While the Company
has encountered a year to date net loss of $252,292 for fiscal 2005, its full
impact on the Company's liquidity has been softened, as much of this loss was
comprised of $229,329 in depreciation and amortization which has no impact on
the Company's cash flow. Management also has concentrated on reducing the
Company's overall inventories during the first nine months of fiscal 2005 by
$102,057, which has had a positive impact on our liquidity. Purchases of
property and equipment approximated $40,000 for this thirty-nine week period.
During the thirty-nine weeks ending February 28, 2004, the Company was required
to borrow an additional $350,000 under a note payable to Northwest Georgia Bank.
Further, the Company's cash, cash equivalents and certificates of deposit
declined by $133,326, while accounts payable and accrued expenses increased by
approximately $180,000. These additional borrowings and the decline in cash,
cash equivalents and the certificate of deposit are principally the result of
three major factors. The first factor was the Company's net loss for the
thirty-nine week period of $84,738. However, this loss, from a cash flow
standpoint, was more than offset by the $220,211 in depreciation expense taken
during this period. The second of these factors was expenditures related to the
opening of the Company's eighth grocery store location in Tunnel Hill, Georgia
in January, 2004. We purchased approximately $300,000 in inventory and spent an
additional $300,000 on fixed asset improvements in connection with the opening
of this new store. The final factor is the Company's repayment of long-term debt
during the thirty-nine week period ended February 28, 2004 of $141,136.
10
The ratio of current assets to current liabilities was 1.77 to 1 at the end of
the latest quarter, February 26, 2005 compared to 2.05 to 1 on February 28, 2004
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 18.74% of the total
current assets at February 26, 2005, as compared to 26.85% of the total current
assets at February 28, 2004 and 20.42% at May 29, 2004. These ratios reflect
the trends discussed above, in that the Company increased its reliance on bank
financing during recent periods, due to increased losses which coincided with
increased inventory and capital spending requirements related to the
establishment of our eighth grocery store location. During the first nine
months of fiscal 2005, management has been working to gradually reduce the
Company's inventory level in order to moderate the effects of these developments
on the Company's overall liquidity.
Historically, the Company has financed 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 and through borrowings from related parties, as discussed below.
The bank line of credit is secured by the Company's certificate of deposit.
While we believe that these sources will continue to provide us with adequate
liquidity to supply the Company's working capital needs, if the Company's
operating losses were to increase relative to depreciation and other non-cash
charges, our operating cash flows could be adversely affected. If this happens,
we could be required to seek additional financing through bank loans, or other
sources, in order to meet our working capital needs. If we were required to
seek such additional financing and were not able to obtain it, or were unable to
do so on commercially reasonable terms, we could be required to reduce the
Company's current level of operations in order to lower our working capital
requirements to a level that our present financing arrangements would support.
Short-term borrowings as of specific dates are presented below:
February 26, May 29, February 28,
2005 2004 2004
------------- -------- -------------
Michael and Diana Richardson $ 12,607 $ 13,166 $ 13,035
Matthew Richardson 24,246 26,884 28,115
Line of Credit 400,000 300,000 200,000
------------- -------- -------------
TOTAL $ 436,853 $340,050 $ 241,150
============= ======== =============
The Company's line of credit with Northwest Georgia Bank bears interest at prime
plus 0.5%, subject to a 6.0% floor. 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 on the 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 February 26, 2005, long-term debt consisted of a note payable to Northwest
Georgia Bank of $169,273 to finance cash registers and peripheral equipment and
notes payable to Northwest Georgia Bank of $37,790 incurred in April 2001 to
finance the addition of the Company's seventh grocery store and $277,619
incurred in December 2003 to finance the addition of the
11
Company's eighth grocery store. In addition, two vehicles were purchased and
financed through GMAC with a balance due at February 26, 2005, of zero.
Long-term debt as of specific dates are presented below:
February 26, May 29, February 28,
2005 2004 2004
------------- -------- -------------
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $6,781 monthly
plus interest at prime with 6% floor
through December 2008. $ 277,619 $324,725 $ 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. 169,273 264,000 295,261
Note payable, Bank, secured by
all inventory, machinery and
equipment, due $3,576 monthly
plus interest at prime plus 0.5% with
6% floor through April, 2006. 37,790 64,212 73,954
Vehicle loans; collateralized by
automobiles due $1,305 monthly
through December 2004. - 9,141 13,059
------------- -------- -------------
$ 484,682 $662,078 $ 723,120
Less current maturities 235,124 241,510 241,245
------------- -------- -------------
$ 249,558 $420,568 $ 481,875
============= ======== =============
The following is a schedule by years of the amount of maturities of all
long-term debt subsequent to February 26, 2005:
Twelve Months
Ending February Amount
--------------- --------
2006 $235,124
2007 109,102
2008 74,990
2009 65,466
During the quarter ended February 26, 2005 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.
12
Off-Balance Sheet Arrangements:
- ------------------------------
The Company had no significant off-balance sheet arrangements as of February 26,
2005.
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 26, 2005.
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.
13
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. At present, only one loan in the
amount of $37,790 bears an interest rate above the fixed "floor" rate of 6.0%
(6.0% at February 26, 2005; currently 6.25%), which exceeds the current prime
rate. The Company does not maintain any interest rate hedging arrangements.
Based on the Company's outstanding indebtedness at February 26, 2005 (and
annualized to represent a full twelve months of results), a one percent (1.0%)
increase in the prime interest rate would increase interest expense applicable
to our variable rate debt (and our net loss) by approximately $8,200 annually.
Due to the effect of the interest rate floor provisions in a majority of the
Company's variable rate debt, a one percent (1.0%) decrease in the prime
interest rate would not be expected to have a material impact on the Company's
annualized interest expense at February 26, 2005. 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 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.
14
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
- ----------------- ------------- --------- ------------------- -------------------
November 28 - 110 $ 1.00 - -
Dec. 25, 2004
Dec. 26, 2004 - 1,210 1.00 - -
January 29, 2005
January 30 - 220 1.00 - -
February 26, 2005 ------------- --------- ------------------- -------------------
TOTAL 1,540 $ 1.00 - -
============= ========= =================== ===================
(1) Represents shares repurchased at $1.00 per share in response to unsolicited
requests from unaffiliated shareholders during the quarter.
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).
15
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)
April 12, 2005 /s/ Michael A. Richardson
Date: ____________________ _________________________
Michael A. Richardson
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
April 12, 2005 /s/ Paul R. Cook
Date: ____________________ __________________________
Paul R. Cook
EXECUTIVE VICE PRESIDENT AND
TREASURER
(Principal Financial Officer & Chief
Accounting Officer)
16
AMERICAN CONSUMERS, INC.
EXHIBIT INDEX
Exhibits filed with this 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).
17