Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 27, 1999
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)
P.O. Box 2328, 418A Battlefield Pkwy., Fort Oglethorpe, GA 30742
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (706) 861-3347
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES (X) NO ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 6, 1999
COMMON STOCK - $.10 PAR VALUE 872,517
NON VOTING COMMON STOCK - $.00 PAR VALUE 0
NON VOTING PREFERRED STOCK - $.00 PAR VALUE 0
Exhibit Index on Page ____
(1)
<PAGE>
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------------- ----------------------------------
February 27, February 28, February 27, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 6,383,791 $ 6,717,154 $ 19,322,815 $ 20,324,782
COST OF GOODS SOLD 4,914,116 5,201,650 15,031,948 15,904,383
------------ ------------ ------------ ------------
Gross Margin 1,469,675 1,515,504 4,290,867 4,420,399
OPERATING EXPENSES 1,463,653 1,453,584 4,343,005 4,366,216
------------ ------------ ------------ ------------
Operating Income 6,022 61,920 (52,138) 54,183
OTHER INCOME (EXPENSE)
Interest income 4,698 3,428 18,203 16,371
Other income 16,687 13,376 48,842 39,917
Interest expense (14,263) (14,765) (38,749) (45,002)
------------ ------------ ------------ ------------
Income Before Income Taxes 13,144 63,959 (23,842) 65,469
PROVISION (BENEFIT) FOR
INCOME TAXES 5,484 17,220 (10,429) 17,577
------------ ------------ ------------ ------------
NET INCOME (LOSS) 7,660 46,739 (13,413) 47,892
RETAINED EARNINGS:
Beginning 1,781,756 1,720,657 1,803,098 1,719,552
Redemption of common stock (925) (1,863) (1,194) (1,911)
------------ ------------ ------------ ------------
Ending 1,788,491 1,765,533 1,788,491 1,765,533
============ ============ ============ ============
PER SHARE:
Net income $ 0.009 $ 0.051 ($ 0.015) $ 0.053
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 888,316 916,450 887,094 911,633
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
(2)
<PAGE>
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
February 27, May 30,
1999 1998
------------ ----------
<S> <C> <C>
--A S S E T S--
CURRENT ASSETS:
Cash and short-term investments $1,039,607 $ 945,222
Certificate of deposit 405,202 394,792
Accounts receivable 198,332 175,135
Inventories 1,825,406 1,830,003
Prepaid expenses 15,173 14,613
Refundable income taxes 26,597 0
---------- ----------
Total current assets 3,510,317 3,359,765
---------- ----------
PROPERTY - At cost:
Property 2,969,565 2,939,838
Less accumulated depreciation 2,252,774 2,046,381
---------- ----------
Property - Net 716,791 893,457
---------- ----------
OTHER ASSETS 4,000 4,000
---------- ----------
TOTAL ASSETS $4,231,108 $4,257,222
========== ==========
- -LIABILITIES AND STOCKHOLDERS' EQUITY- -
CURRENT LIABILITIES:
Accounts payable $ 662,528 $ 655,937
Short-term borrowings 385,697 208,945
Obligations under capital leases, current portion 118,944 144,077
Accrued sales tax 57,011 106,239
Accrued income taxes - - - 24,634
Other accrued liabilities 153,727 128,652
---------- ----------
Total Current Liabilities 1,377,907 1,268,484
---------- ----------
DEFERRED INCOME TAX LIABILITY 59,504 62,504
---------- ----------
DEFERRED INCOME 91,650 107,546
---------- ----------
OBLIGATIONS UNDER CAPITALIZED LEASE AGREEMENTS 98,693 183,842
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY:
Non voting preferred stock; authorized 5,000,000
shares of no par value; no shares issued - - - - - -
Non voting common stock; authorized 5,000,000
shares of $.10 par value; no shares issued - - - - - -
Common stock; authorized 5,000,000 shares
of $.10 par value; issued 872,517 and 890,600 87,252 89,060
Additional paid-in capital 727,611 742,688
Retained earnings 1,788,491 1,803,098
---------- ----------
Total Stockholders' Equity 2,603,354 2,634,846
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $4,231,108 $4,257,222
========== ==========
</TABLE>
See Notes to Financial Statements
(3)
<PAGE>
FINANCIAL INFORMATION
AMERICAN CONSUMER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------------
February 27, February 28,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ($ 13,413) $ 47,892
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 206,392 217,070
Deferred income taxes (3,000) (2,000)
Deferred income (15,896) (12,558)
Change in operating assets and liabilities:
Certificate of deposit (10,410) (10,118)
Accounts receivable (23,197) (26,757)
Refundable income taxes (26,597) 80,953
Inventories 4,597 (47,025)
Prepaid expenses (560) (1,728)
Accounts payable 6,591 (86,577)
Accrued sales tax (49,228) (3,711)
Accrued income taxes (24,634) 19,993
Other accrued liabilities 25,075 (9,728)
----------- -----------
Net Cash provided by operating activities 75,720 165,706
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (29,727) (91,383)
Other - - - - 6,000
----------- -----------
Net cash used in investing activities (29,727) (85,383)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in short-term borrowings 176,752 74,694
Principal payments on obligations under capital leases (110,282) (106,041)
----------- -----------
Redemption of common stock (18,080) (28,920)
----------- -----------
Net cash provided by (used in) financing activities 48,390 (60,267)
----------- -----------
Net increase in cash 94,382 20,055
Cash and cash equivalents at beginning of period 945,222 860,472
----------- -----------
Cash and cash equivalents at end of period 1,039,604 880,527
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 46,818 $ 0
=========== ===========
Interest $ 38,749 $ 45,002
=========== ===========
</TABLE>
See Notes to Financial Statements
(4)
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation.
The financial statements have been prepared in conformity with generally
accepted accounting principles and general practices within the industry.
The interim financial statements should be read in conjunction with the
notes to the financial statements presented in the Corporation's 1998
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 results to be expected for the complete
fiscal year.
(2) Commitments and Contingencies.
Capital expenditures are not expected to exceed $100,000 during the current
fiscal year.
The Company adopted a retirement plan effective January 1, 1995. The plan
is a 401(k) plan administered by BISYS Qualified Plan Services.
Participation in the plan is available to all full-time employees after one
year of service and age 19. Any contribution by the Company will be at the
discretion of the Board of Directors, which will make such decisions
annually at its quarterly meeting in January. At the Board Meeting in
January 1999, the Board voted to contribute $7,500 to the plan on behalf of
plan participants, with $2,000 being funded with forfeitures and $5,500
being paid by the Company. The Board voted to contribute $10,000 to the
plan in 1998. The expense for these contributions is included in the
accompanying financial statements.
None of the Company's employees are represented by a union.
(3) Securities Purchased Under Agreement to Resell.
The Company invests excess funds in U.S. Government or U.S. Government
Agency securities which are purchased under an agreement to resell (reverse
repurchase agreement). The securities are purchased from a bank but do not
constitute deposits at the bank and are not insured by the Federal Deposit
Insurance Corporation. The bank maintains possession of the securities, but
title of ownership passes to the Company according to the terms of the
agreement. The bank repurchases the securities the business day immediately
following the Company's purchase date. The carrying amount of securities
purchased under agreement to resell approximates fair value. Risk of market
value deterioration is mitigated by the short-term nature of the
transaction and the type of securities purchased. There were no funds
invested at February 27, 1999, or at February 28, 1998, while $161,256 was
invested at May 30, 1998.
(5)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------- -------------------------------
February 27, February 28, February 27, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $6,383,791 $6,717,154 $19,322,815 $20,324,782
% Sales Increase (Decrease) (4.96) (4.71) (4.93) (3.26)
Gross Margin % 23.02 22.56 22.21 21.75
Operating and Administrative
Expense:
Amount $1,463,653 $1,453,584 4,343,005 4,366,216
% of Sales 22.93 21.64 22.48 21.48
Net Income 7,660 46,739 (13,413) 47,892
</TABLE>
Overall sales decreased 4.96% from sales for the same quarter last year.
This decrease is attributable to increased pressure from competition on the
Company's market share and sales, the effects of which are threatening the
profitability of the Company. The Company's competitors are constantly
conducting sales promotions which are expensive for an operation the size of the
Company to match. Management believes that competitive pressures on the Company
will continue to increase over time as a result of its competitors opening more
new stores in the Company's trade area. Management is continuously seeking to
improve the gross margin and increase profitability by obtaining the lowest cost
for the Company's inventory. Actions taken to improve the gross margin may also
be having an adverse effect on sales. However, the increase in the gross margin
did result in a small profit for the quarter.
Operating and administrative expense increased as a percent of sales in the
quarter and the year to date periods presented. The fixed charge components of
the Company's expenses of operations have remained constant but are a greater
percentage of sales because of decreased sales. Management is working on
reducing variable expenses in order to keep total operating expenses in line
with the reduced sales.
Refundable income taxes at February 27, 1999 are a result of estimated
taxes paid exceeding the liability due. At May 30, 1998 a liability of $24,634
was recorded.
Income Taxes:
The provision for income taxes for the quarter ended February 27, 1999 was
$5,484 while the liability was $17,220 for the quarter ended February 28, 1998.
The provision for income taxes does not vary significantly from the statutory
rate of 34% and State rates of 5% - 6%.
Inflation:
Although not a currently 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)
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Resources:
The Company finances its working capital requirements principally through
its cash flow from operations and short-term borrowing. Short-term borrowing to
finance inventory purchases is provided by the Company's $800,000 line of credit
with a regional bank. An additional line of credit in the amount of $300,000 is
also available from its principal inventory supplier. Long-term borrowing
generally finances capital expansion.
Short-term borrowings consist of notes payable to the following:
2/27/99 5/30/98 2/28/98
-------- -------- --------
Estate of Beatrice Richardson $111,072 $158,125 $ 92,117
Richardson Testamentary Trust 51,216 50,820 5,092
Line of Credit-Wachovia Bank 223,410 0 106,484
-------- -------- --------
Total $385,697 $208,945 $203,693
======== ======== ========
Notes to the Estate and to the Richardson Trust are unsecured, payable on
demand and bear interest at .25% below the base rate charged by the regional
bank which provides the Company with its line of credit.
The ratio of current assets to current liabilities was 2.55 to 1 at the end
of the latest quarter, February 27, 1999, as compared to 2.66 to 1 on February
28, 1998 and 2.65 to 1 at the end of the fiscal year ended May 30, 1998. Cash
and cash equivalents constituted 41.16% of the total current assets at February
27, 1999 as compared to 38.97% at February 28, 1998 and 39.88% at May 30, 1998.
Cash activity is detailed in the Condensed Statements of Cash Flows on page
four.
During the quarter ended February 27, 1999 retained earnings increased as a
result of the Company's net income for the quarter.
(7)
<PAGE>
Year 2000:
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. As the year 2000
approaches, systems using such programs may be unable to accurately process
certain date-based information. To the extent that the Company's software
applications contain source code that is unable to interpret appropriately the
upcoming calendar year 2000 and beyond, some level of modification or
replacement of such applications will be necessary to avoid system failures and
the temporary inability to process transactions or engage in other normal
business activities.
During fiscal 1998, the Company began evaluating both its information
technology systems and other systems and equipment in order to identify and
adjust date sensitive systems for Year 2000 compliance. The Company's assessment
in its information technology ("IT") area is approximately 40% complete and its
assessment in the non-information technology ("Non-IT") area is approximately 33
% complete. The Company currently expects to complete its primary remediation
efforts (including acquisition and installation of any necessary new equipment
and software by July 31, 1999, leaving approximately five months for testing and
verification of any new systems prior to January 1, 2000.
The total operating expenditures to address the Company's Year 2000 issues
are estimated to be approximately $12,000. Approximately $5,000 of these costs
have been incurred through the second quarter of fiscal 1999. In addition, the
Company expects to incur additional capital expenditures of approximately
$38,000 for new equipment during the remainder of fiscal 1999 and the first
quarter of fiscal 2000.
The Company's IT issues fall into two principal areas: compliance of the
Company's corporate accounting and other record-keeping hardware and software
and compliance of the electronic scanning equipment and related software
utilized for inventory control and the processing of retail customer
transactions in each of the Company's six grocery stores. The Company has
received documentation from the provider of the software utilized in the
Company's corporate accounting and record-keeping functions, certifying the Year
2000 compliant status of all of such software. The Company anticipates replacing
all of the hardware employed in such functions with new hardware that is
certified as Year 2000 compliant by no later than July 31, 1999 at an estimated
cost not to exceed $18,000. Under the terms of the Company's lease of its
electronic scanning equipment from Fleming Companies, Inc., Fleming will be
responsible for testing such equipment for Year 2000 compliance and making any
necessary modifications or replacements. Based on its discussions with Fleming,
the Company also anticipates that this process will be completed by no later
than July 31, 1999.
The risks of Year 2000 issues from a Non-IT standpoint are principally as
follows: electrical outages resulting in breakdown of point of sale systems,
lighting and refrigeration equipment and the loss of utility service. In
addition, certain store equipment may have imbedded chips or microprocessors
that are not Year 2000 compliant. The Company is in the process of identifying
such equipment and either replacing the affected chips or microprocessors or
purchasing new equipment that is compliant. The events noted above could
severely affect Company operations. The Company plans to mitigate the potential
effect of such issues by preparing a contingency plan as discussed below.
(8)
<PAGE>
Significant risk also arises out of the possible failure of vendors to
respond to Year 2000 issues. The Company's only significant vendor is its
primary inventory supplier, Fleming Companies, Inc. The Company has had
discussions with representatives of Fleming to determine the state if its
readiness and to review its Year 2000 contingency plans. The Company believes
that Fleming is making adequate progress toward Year 2000 compliance for all of
its systems that could impact on Fleming's relationship with the Company, and
does not expect that the Company's business will suffer any material adverse
effects as a result of non-compliance by any of Fleming's systems.
With respect to contingencies, a program is being developed to identify the
additional resources that will be necessary to fully run the Company when and if
it is affected by the foregoing risk factors. Over the remainder of fiscal 1999
and the first six months of fiscal 2000, the Company will continue to expand its
contingency plans and detailed procedures in order to mitigate the effects of
the Year 2000 issues that might affect the Company.
The Company believes that it has allocated sufficient resources to resolve all
significant Year 2000 issues in a timely manner. Accordingly, the Company plans
to be fully Year 2000 compliant (including the completion of all necessary
testing procedures) by November 1999.
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, other than statements of historical facts, 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 have previously been
identified in filings or statements made by or on behalf of the Company,
including filings with the Securities and Exchange Commission of 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, changes in consumer spending, competitive factors, 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,
issues and uncertainties related to Year 2000, and other issues detailed from
time-to-time in the Company's filings with the Securities and Exchange
Commission.
(9)
<PAGE>
AMERICAN CONSUMERS, INC.
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS OF FORM 8-K
(a) The following exhibits are filed as a part of the report.
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule (EDGAR version only).
(b) During the most recent quarter, the Company has not filed a
report on Form 8-K.
(10)
<PAGE>
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: 4/13/99 /s/ Michael A. Richardson
------------------------------------------------
Michael A. Richardson
CHAIRMAN
(Principal Executive Officer)
Date: 4/13/99 /s/ Paul R. Cook
------------------------------------------------
Paul R. Cook
EXECUTIVE VICE PRESIDENT - TREASURER
(Principal Financial Officer & Chief Accounting
Officer)
(11)
AMERICAN CONSUMERS, INC.
NET INCOME PER COMMON SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------- -----------------------------
February 27, February 28, February 27, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income for computing
earnings per common share $ 7,660 $ 46,739 ($13,413) $ 47,892
======== ======== ======== ========
Weighted average number of
common shares outstanding
during each period 888,316 916,450 887,094 911,633
======== ======== ======== ========
Net income per common share $ 0.009 $ 0.051 ($ 0.015) $ 0.053
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF AMERICAN CONSUMERS, INC. FOR THE FISCAL
QUARTER ENDED FEBRUARY 27, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> FEB-27-1999
<CASH> 1,444,809
<SECURITIES> 0
<RECEIVABLES> 198,332
<ALLOWANCES> 0
<INVENTORY> 1,825,406
<CURRENT-ASSETS> 3,510,317
<PP&E> 2,969,565
<DEPRECIATION> 2,252,774
<TOTAL-ASSETS> 4,231,108
<CURRENT-LIABILITIES> 1,377,907
<BONDS> 0
0
0
<COMMON> 87,252
<OTHER-SE> 2,516,102
<TOTAL-LIABILITY-AND-EQUITY> 4,231,108
<SALES> 19,322,815
<TOTAL-REVENUES> 19,322,815
<CGS> 15,031,948
<TOTAL-COSTS> 15,031,948
<OTHER-EXPENSES> 4,343,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,749
<INCOME-PRETAX> (23,842)
<INCOME-TAX> (10,429)
<INCOME-CONTINUING> (13,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,413)
<EPS-PRIMARY> (0.015)
<EPS-DILUTED> (0.015)
</TABLE>
