<PAGE>
Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended May 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer Identification
of incorporation or Number)
organization)
P.O. Box 2328, 418-A Battlefield Pkwy., Ft. Oglethorpe, GA 30742
-------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (706) 861-3347
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
- --------------------------------------------------------------------------------
(Title of Class)
Exhibit Index on Page __
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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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
As of August 11, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $191,225. (Calculated for
these purposes by multiplying the total number of outstanding shares held by
non-affiliates by available bid price information.)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
921,507 shares of Common Stock, $0.10 par value, as of August 11, 1997.
List hereunder the following documents, if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: (1) any annual
report to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes:
(1) specified portions of the Registrant's Annual Report to Shareholders for
the fiscal year ended May 31, 1997, incorporated by reference into Part II of
this report on Form 10-K.
(2) specified portions of the Registrant's Definitive Proxy Statement filed
with the Securities and Exchange Commission for the Registrant's Annual Meeting
of Shareholders to be held September 18, 1997 incorporated by reference into
Part III of this report on Form 10-K.
<PAGE>
Part I
ITEM 1. BUSINESS
Incorporated in Georgia in 1968, American Consumers, Inc. (the "Company"),
operates six (6) supermarkets within a compact geographical area that comprises
Northwest Georgia, Northeast Alabama, and Southeast Tennessee.
All of the Company's supermarkets are operated under the name "Shop-Rite." All
of the Company's supermarkets are self-service and are engaged in the retail
selling of groceries including meats, fresh produce, dairy products, frozen
foods, bakery products, tobacco products, and miscellaneous other non-food
items. The Company's supermarkets feature national brand merchandise with only
a minor part of sales from controlled-label, private-label or generic
merchandise. "Controlled-label" or "private-label" merchandise is merchandise
purchased from national or local suppliers under a trade name chosen by the
wholesaler supplying the merchandise. The Company's supermarkets offer milk and
certain dairy products, as well as frozen vegetables and jellies, under the
controlled-labels "Hyde Park," "Rainbow" and "Marquee." Bread and related
bakery items are also offered as controlled-label groceries.
During the fiscal year ended May 31, 1997, Company's major supplier of staple
groceries was Fleming Co., Inc. ("Fleming") formerly, Malone & Hyde, Inc., with
its principal corporate offices in Oklahoma City, Oklahoma. For the fiscal year
ended May 31, 1997, approximately 72% of the Company's total inventory purchases
of $22,659,414 were made from Fleming. Prior years purchases from Fleming were
approximately 75%. The inventory purchases from Fleming covered all lines of
the Company's groceries. Fleming was the Company's principal supplier of
tobacco products and meat products. Purchases from Specialty Produce Company, a
local produce supplier, account for the majority of the Company's produce
purchases.
Various local suppliers within the geographical area served by the Company's
supermarkets provide the Company with approximately half of its requirements of
certain perishable items, including produce, and account for approximately 28%
of the Company's total inventory purchases. The Company believes that there are
other adequate and convenient sources of groceries, including several area and
local suppliers, which could meet its needs. Accordingly, the Company is not
dependent upon any particular supplier for its requirements of groceries.
The supermarket industry is highly competitive, and the principal method of
competition has been, in previous years, the pricing of groceries. The
Company's current major competitors now include various local and three regional
chains. The nature of such price competition now includes the sale of selected
<PAGE>
items at below cost prices as "loss-leaders" or "advertised specials", the
practice of "double couponing" or matching coupon discounts with additional cash
discounts, as well as the sale of certain main line items at prices below the
Company's wholesale cost. The Company believes that its major competitors have
been and are able to obtain preferential treatment from suppliers in the form of
advertising allowances, lower prices and other concessions not available to the
Company which put the Company at a competitive disadvantage. The Company will
continue to strive to remain competitive; however, the Company's current major
competitors are much larger operations than the Company and, it believes, are in
a better position to withstand prolonged price competition. The two locations
closed during the 1992-1993 fiscal year were closed in response, primarily, to
intense price competition. As part of its response to such price competition,
the Company seeks to retain supermarket locations in areas where competition
from larger chains is less direct.
Backlog is not a significant factor in the business of the Company.
The Company employs approximately 107 full-time employees and approximately
78 part-time and seasonal employees.
The Company believes it is in compliance with all federal, state and local
laws relating to environmental protection. No capital expenditures for
equipment relating to environmental protection are presently anticipated.
The Company is engaged in a single line of business; namely, the retail,
self-service grocery business which is not divisible into separate segments.
The following table sets forth information for the last three (3) fiscal years
as to the total sales and revenue of the Company contributed by each class of
products which contributed a significant percentage of the total retail sales
and revenues of the Company in the last three (3) fiscal years. 1995 consisted
of 53 weeks while 1997 and 1996 consisted of 52 weeks.
1997 1996 1995
---- ---- ----
Meat $ 6,595,208 $ 6,763,852 $ 6,698,449
Produce 1,803,984 1,915,763 1,875,671
Grocery & Non-
Food Items 19,605,801 20,606,311 20,260,751
<PAGE>
ITEM 2. PROPERTIES
The executive offices of the Company are located in an 1,800 square-foot office
building on Battlefield Parkway in Fort Oglethorpe, Georgia, which the Company
holds under a lease for a term of three years, expiring in November 1998, with a
one year option to renew through November, 1999.
The Company's supermarkets are located in Ringgold, LaFayette, Chatsworth, and
Chickamauga, Georgia; Stevenson, Alabama; and Dayton, Tennessee. All of the six
locations are leased from unaffiliated landlords. These leases are presented
below:
Square Current Lease Renewal
Location Footage Term Options
- -------- ------- ------------- -------
Ringgold, GA 14,400 12/01/92 - 11/30/97 2-5 yr. terms
LaFayette, GA 20,500 02/26/92 - 01/31/02 3-5 yr. terms
Chatsworth, GA 24,360 04/29/88 - 04/28/03 3-5 yr. terms
Chickamauga, GA 13,840 04/07/86 - 12/31/98 3-5 yr. terms
Stevenson, AL 23,860 06/01/94 - 05/31/04 3-5 yr. terms
Dayton, TN 23,004 08/01/92 - 07/31/02 2-5 yr. terms
-------
119,964
-------
-------
The supermarkets in Ringgold, LaFayette, and Chatsworth, Georgia; Stevenson,
Alabama; and Dayton, Tennessee, are located in strip shopping centers. The
store in Chickamauga, Georgia, is free standing.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party,
or of which any of its property is the subject, nor have any material legal
proceedings been terminated during the fourth quarter of the Company's fiscal
year.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's Board of Directors appoints the Company's Executive Officers for a
term of one year. The names, ages, offices held with the Company, business
experience during the past five years, and certain directorships held by each of
the Company's Executive Officers are set forth in the following table:
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Name and Year Office(s) Presently
First Elected as Held, Business Experience
Executive Officer and Certain Directorships Age
- ----------------- -------------------------- ---
Michael A. Richardson Chairman of the Board of 51
1977 Directors, President, Chief
Executive Officer, member of
the Executive Committee of
the Board of Directors.
Virgil Bishop Vice-President, Director, 58
1974 member of the Executive
Committee and the Board
of Directors.
Paul R. Cook Executive Vice-President, 47
1987 Treasurer, Chief Financial
Officer, Director, member of
the Executive Committee and
the Board of Directors.
Director of Capital Bank,
Fort Oglethorpe, Georgia
since May 1993.
James E. Floyd Vice-President, member of 53
1991 the Executive Committee
(ex-officio). From 1966 to
1991, Mr. Floyd was
Grocery Supervisor for
the Company.
Reba S. Southern Secretary, member of the 44
1991 Executive Committee (ex-
officio). From 1972 to 1991,
Mrs. Southern was Administra-
tive Assistant for the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to
page 4 of the Company's annual report to security holders for the fiscal year
ended May 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to
page 3 of the Company's annual report to security holders for the fiscal year
ended May 31, 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by reference to
pages 5 through 7 of the Company's annual report to security holders for the
fiscal year ended May 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to
pages 8 through 19 of the Company's annual report to security holders for the
fiscal year ended May 31, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's Executive Officers is set forth in Part I
of this report on Form 10-K under the caption "Executive Officers of the
Company." The remaining information required by this Item is incorporated
herein by reference to the Company's definitive proxy statement filed with the
Securities and Exchange Commission pursuant to Regulation 14A for the Company's
Annual Meeting of Shareholders to be held September 18, 1997, under the heading
"INFORMATION ABOUT NOMINEES FOR DIRECTOR."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Company's definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A for the Company's Annual Meeting of
Shareholders to be held September 18, 1997, under the headings "EXECUTIVE
COMPENSATION" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Company's definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A for the Company's Annual Meeting of
Shareholders to be held September 18, 1997, under the heading "PRINCIPAL
SHAREHOLDERS."
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Company's definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A for the Company's Annual Meeting of
Shareholders to be held September 18, 1997, under the headings "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS" AND
"CERTAIN TRANSACTIONS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following Financial Statements included in the Company's 1997
Annual Report to the security holders for the fiscal year ended May
31, 1997, are incorporated by reference in Item 8 hereof:
- Report of Independent Accountants
- Balance Sheets - May 31, 1997 and June 1, 1996
- Statements of Income and Retained Earnings - Fiscal Years Ended
May 31, 1997; June 1, 1996; and June 3, 1995
- Statements of Cash Flows - Fiscal Years Ended May 31, 1997; June
1, 1996; and June 3, 1995
- Notes to Financial Statements
2. None of the schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
required under the related instructions, or else are inapplicable to
the Company, and therefore no such schedules have been filed.
3. The following exhibits are either incorporated by reference or
attached to and made a part of this report:
Exhibit 3 Articles of Incorporation and By-Laws. Incorporated by
reference to Exhibit 3 to Form 10-K for the year ended
May 29, 1993.
Exhibit 10(a) Line of Credit Loan Agreement, related Note and
Security Agreement dated as of August 1992 by and
between the Company and Wachovia Bank of Georgia, N.A.
Incorporated by reference to Exhibit 10(a) to Form 10-K
for the year ended May 29, 1993.
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Exhibit 10(b) Financial Management Account Investment/Commercial Loan
Access Agreement dated October 1, 1993, Amending Line
of Credit Loan Agreement dated as of August 1992 by and
between the Company and Wachovia Bank of Georgia, N.A.
Incorporated by reference to Exhibit 10(b) to Form 10-K
for the year ended June 3, 1995.
Exhibit 10(c) Note and Security Agreement, together with related
Addendum to Financial Management Account Investment/
Commercial Loan Access Agreement between the Company
and Wachovia Bank of Georgia, N.A., dated July 6, 1994.
Incorporated by reference to Exhibit 10(c) to Form 10-K
for the year ended June 3, 1995.
Exhibit 10(d) Letter Agreement dated December 5, 1994 amending
Financial Management Account Investment/Commercial Loan
Access Agreement between the Company and Wachovia Bank
of Georgia, N.A. Incorporated by reference to Exhibit
10(d) to Form 10-K for the year ended June 3, 1995.
Exhibit 10(e) Promissory Notes to related stockholder. Incorporated
by reference to Exhibit 10(d) to Form 10-K for the year
ended May 29, 1993.
Exhibit 10(f) Lease for the Company's Ringgold, Georgia location.
Incorporated by reference to Exhibit 10(e) to Form 10-K
for the year ended May 29, 1993.
Exhibit 10(g) Agreement for the Company's LaFayette, Georgia
location. Incorporated by reference to Exhibit 10(f)
to Form 10-K for the year ended May 29, 1993.
Exhibit 10(h) Lease Agreement for the Company's Chatsworth, Georgia
location. Incorporated by reference to Exhibit 10(g)
to Form 10-K for the year ended May 29, 1993.
<PAGE>
Exhibit 10(i) Lease Agreement for the Company's Chickamauga, Georgia
location. Incorporated by reference to Exhibit 10(h)
to Form 10-K for the year ended May 29, 1993.
Exhibit 10(j) Renewal Lease Agreement for the Company's Stevenson,
Alabama location. Incorporated by reference to Exhibit
10(h) to Form 10-K for the year ended May 28, 1994.
Exhibit 10(k) Lease Agreement for the Company's Dayton, Tennessee
location. Incorporated by referenced to Exhibit 10(j)
to Form 10-K for the year ended May 29, 1993.
Exhibit 10(l) Lease Agreement for the Company's Trenton, Georgia
location. Incorporated by reference to Exhibit 10(k)
to Form 10-K for the year ended May 29, 1993.
Exhibit 10(m) Lease Agreement for the Company's Executive offices.
Incorporated by reference to Exhibit 10(l) to Form 10-K
for the year ended May 29, 1993.
Exhibit 10(n) Equipment Lease and Master License Agreement dated
March 31, 1995 between the Company and Fleming
Companies, Inc. pertaining to the equipment and
software for the Company's electronic cash registers
and scanning equipment. Incorporated by reference to
Exhibit 10(n) to Form 10-K for the year ended June 1,
1996.
Exhibit 10(o) Collateral Substitution Agreement, together with
related Collateral Assignment of Deposit, between the
Company and Wachovia Bank of Georgia, N.A., dated May
19, 1997.
Exhibit 13 Annual Report to Shareholders for the Fiscal Year ended
May 31, 1997.
Exhibit 23 Consent of Messrs. Hazlett, Lewis & Bieter.
(b) The Company has not filed any report on Form 8-K during the last quarter of
the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 26, 1997 By: s/MICHAEL A. RICHARDSON
-----------------------
Michael A. Richardson
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
s/MICHAEL A. RICHARDSON Chairman of the Board, August 26, 1997
- ------------------------ President and Chief
Michael A. Richardson Executive Officer
s/PAUL R. COOK Executive Vice- August 26, 1997
- ------------------------ President, Chief
Paul R. Cook Financial Officer,
Treasurer (Chief
Accounting Officer) and
Director
s/VIRGIL E. BISHOP Vice-President and August 26, 1997
- ------------------------ Director
Virgil E. Bishop
s/JOHN P. PRICE Director August 26, 1997
- ------------------------
John P. Price
Director August ___, 1997
- ------------------------
Thomas L. Richardson
s/JEROME P. SIMS Director August 26, 1997
- ------------------------
Jerome P. Sims, Sr.
Director August __, 1997
- ------------------------
Herbert S. Willbanks
<PAGE>
Exhibit 10(o)
Collateral Assignment of Deposit
The undersigned, American Consumers, Inc. (hereinafter collectively and/or
individually referred to as "Pledgor"), for value received and in consideration
of extensions of credit as may from time to time be made by Wachovia Bank of
Georgia, N.A. (hereinafter referred to as "Lender"), a national banking
association (hereinafter referred to as "Bank") or by any entity or entities now
or hereafter directly or indirectly controlled by Wachovia Corporation or any
successor (hereinafter referred to as "Bank's Affiliates" and Bank and Bank's
Affiliates hereinafter collectively and/or individually, as the context shall
require, referred to as "Lender") to Pledgor, either directly or indirectly,
and/or _______________________________________________ (hereinafter collectively
and/or individually referred to as "Borrower") and to secure any existing or
future indebtedness, liability or obligation whatsoever of Pledgor and/or
Borrower to Lender, whether absolute or contingent, and whether incurred as
principal, maker, endorser, surety, account party or otherwise (hereinafter
collectively referred to as the "Obligations"), Pledgor hereby transfers, sets
over, assigns and conveys to Lender, and grants Lender a security interest in
Certificate of Deposit account number 6139539 standing in the Pledgor's name on
the books of Wachovia Bank of Georgia, N.A. (hereinafter referred to as
"Financial Institution") and all Pledgor's right, title, equity and interest
therein including, without limitation, all interest now or hereafter accruing
thereon, together with any renewals, replacements and/or substitutions thereof,
or any portion thereof and any deposits hereafter made therein or in any
renewals, replacements and/or substitutions thereof and any and all proceeds of
the foregoing (hereinafter collectively referred to as the "Collateral").
Pledgor hereby delivers all evidence of the foregoing Collateral to Bank and/or
Bank's Affiliates, as requested. Pledgor hereby irrevocably constitutes and
appoints each Lender its attorney in fact to transfer said Collateral on the
books of such Financial Institution, with full power of substitution and
transfer, including full power and authority to demand and receive such
Collateral, or to transfer it into Lender's name.
Pledgor agrees that all or any part of the Collateral, including any
interest accrued thereon, may be redeemed, appropriated and applied to the
payment of the Obligations (even if such application and redemption shall result
in a penalty for early withdrawal), whether or not the Obligations or any part
thereof is due or payable.
In the event a Borrower is named in the first paragraph, Pledgor consents
that, at any time, and from time to time, either with or without consideration,
the whole or any part of any security now or hereafter held for any Obligations
may be exchanged, compromised, or surrendered; the time or place of payment of
any Obligations or of any security thereof may be changed or extended, in whole
or in part, to a time certain or otherwise, and may be renewed or accelerated,
in whole or in part; Borrower may be granted indulgences generally; any of the
provisions of any note or other instrument evidencing any Obligations or any
security therefor may be modified or waived; any party liable for the payment
thereof may be granted indulgences or released; the death, termination of
existence, bankruptcy, insolvency, incapacity, lack of authority or disability
of Borrower or any endorser, surety or guarantor of the Obligations (hereinafter
collectively and/or individually referred to as "Obligor") shall not affect the
obligations of Pledgor hereunder and no claim need be asserted against the
personal representative, guardian, custodian, trustee or debtor in bankruptcy or
receiver of any deceased, incompetent, bankrupt or insolvent Borrower or
Obligor; any deposit balance to the credit of Borrower, Obligor or any party
liable upon any security therefor may be released, in whole or in part, at,
before and/or after the stated, extended or accelerated maturity of any
Obligations; and Lender may release, discharge, compromise or enter into any
accord and satisfaction with respect to any collateral for the Obligations, or
the liability of Borrower or Obligor, all without notice to or further assent by
Pledgor, who shall remain bound hereon, notwithstanding any such exchange,
compromise, surrender, extension, renewal, acceleration, modification,
indulgence, release, discharge or accord and satisfaction. Further, Pledgor
expressly waives: (i) notice of acceptance of this Agreement and all extensions
or renewals of credit or other financial accommodations to Borrower; (ii)
presentment and demand for payment of any of the Obligations; (iii) protest and
notice of dishonor or of default to Borrower, Obligor or to any other party with
respect to any of the Obligations or with respect to any security therefor; (iv)
any invalidity or disability in whole or in part at the time of the acceptance
of, or at any time with respect to, any security for the Obligations or with
respect to any party primarily or secondarily liable for the payment of the
Obligations to Lender; (v) the fact that any security for the Obligations may at
any time or from time to time be in default or be inaccurately estimated or may
deteriorate in value for any cause whatsoever; (vi) any diligence in the
creation or perfection of a security interest or collection or protection of or
realization upon the Obligations or any security therefor, any liability
hereunder, or any party primarily or secondarily liable for the Obligations or
any lack of commercial reasonableness in dealing with any security for the
Obligations; (vii) any duty or obligation on the part of Lender to ascertain the
extent or nature of any security for the Obligations, or any insurance or other
rights respecting such security, or the liability of any party primarily or
secondarily liable for the Obligations, or to take any steps or action to
safeguard, protect, handle, obtain or convey information respecting, or
otherwise follow in any manner, any such security, insurance or other rights;
(viii) any duty or obligation of Lender to proceed to collect the Obligations
from, or to commence an action against, Borrower, Obligor, or any other person,
or to resort to any security or to any balance of any deposit account or credit
on the books of Lender in favor of Borrower, Obligor, or any other person,
despite any notice or request of Pledgor to do so; (ix) any rights of Pledgor,
if any, pursuant to Official Code of Georgia Section 10-7-24 or any similar or
subsequent law; (x) all other notices to which Pledgor might otherwise be
entitled; (xi) any defense as to invalidity or unenforceability of any
Obligation; and (xii) any other legal or equitable defenses whatsoever to which
Pledgor might otherwise be entitled. In addition, Pledgor hereby agrees and
acknowledges that Lender, Borrower and Obligor have not made any representations
or warranties with respect to: (i) Borrower or Obligor or the financial
condition or solvency of Borrower or Obligor, or (ii) the value or nature of any
collateral in which the Lender may have been granted a security interest.
This Collateral Assignment shall be in full force and effect until all of
the Obligations to Lender have been indefeasibly paid in full and such payments
are no longer subject to recission, recovery or repayment upon the bankruptcy,
insolvency, reorganization, moratorium, receivership or similar proceeding
affecting Borrower or Obligor, and Lender shall not be obligated to extend any
further Obligations and has terminated the Agreement in writing.
<PAGE>
This Collateral Assignment shall be governed by and construed and interpreted in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the Pledgor has caused this Collateral Assignment to be
executed under seal this 19th day
of May, 1997 .
If Pledgor is a corporation: American Consumers. Inc.
------------------------
Name of Corporation
(Corporate Seal to be affixed here)
Attest: ______________________________ By: /s/ MICHAEL A. RICHARDSON
------------------------------
Title: President
If Pledgor is a partnership:
____________________________ (SEAL)
Name of Partnership
By: ________________________
General Partner
By: ________________________
General Partner
If Pledgor is an individual/sole proprietor:
_______________________________________ ___________________________ (SEAL)
Pledgor's Social Security Number Signature
_______________________________________ ____________________________ (SEAL)
Pledgor's Social Security Number Signature
ACKNOWLEDGEMENT OF ASSIGNMENT
The Undersigned consents to, acknowledges and accepts service of the above
and foregoing assignment, and agrees to make payments to Wachovia Bank of
Georgia, N.A. in accordance with the terms of said assignment, and the
undersigned recognizes and accepts the above assignment as valid and binding
upon the undersigned.
The value of said account on the undersigned's books as of
_________________, is $_____________________________ and there have been no
withdrawals since that date. The undersigned's records do not disclose any liens
or claims of any kind against said account except
_________________________________________.
This __________ day of ________________________, ____________.
___________________________________
By: ______________________________
Title
By: ______________________________
Title
(SEAL)
RELEASE OF ASSIGNMENT
The foregoing assignment is hereby released as of the __________ day of
__________, ____.
Wachovia Bank of Georgia, N.A.
By: ______________________________
Title
<PAGE>
Collateral Substitution
Agreement
This Collateral Substitution Agreement entered into by and between American
Consumers, Inc. (hereinafter the "Borrower") and Wachovia Bank of Georgia, N.A.
(hereinafter the "Lender")
WHEREAS, Borrower did on the 21st day of 0ctober , 1996, execute and
deliver to Lender a promissory note in the original Principal amount of Eight
Hundred Thousand and 00/100 -- DOLLARS, maturing on 0ctober 1, 1997 (hereinafter
the "Note") secured by certain collateral, a portion of which is as follows:
Wachovia Bank of Georgia,. N.A. Certificate of Deposit #6139585
(hereinafter the "Collateral"); and
WHEREAS, Borrower now requests that Lender release the Collateral and
hereby acknowledges receipt of the same, and that the following property be
substituted in its place, the receipt of which is hereby acknowledged by Lender:
Wachovia Bank of Georgia, N.A. Certificate of Deposit #6139539
(hereinafter the "New Collateral").
NOW THEREFORE, in consideration of $1.00 in hand paid by the Borrower to
the Lender, receipt of which is hereby acknowledged, and in further
consideration of the mutual covenants and agreements between the parties hereto,
it is agreed that:
1. The Collateral be and is hereby released upon delivery by Borrower to
Lender of the New Collateral, which is substituted in the place and stead of the
originally pledged collateral.
2. The New Collateral is the Borrower's property and title to it is vested
in Borrower and Borrower makes the same representations as to the New Collateral
as if it had been originally pledged as security for payment of the Note and the
New Collateral is and shall be subject to each and every term and condition of
the Note and of any security agreement executed in connection therewith, if
applicable, as if the New Collateral had been pledged as security for the
payment of the Note at the time of its execution and delivery.
3. Borrower will sign such financing statement or statements, in form
satisfactory to Lender, which Lender may at any time wish to file in order to
perfect or maintain perfection of its security interest in the New Collateral or
any other property at any time hereafter pledged by Borrower to Lender and shall
reimburse Lender for the costs of filing same. Borrower will execute and/or
deliver to Lender any instrument, invoice, document, assignment or other writing
or do such other acts which may be necessary or appropriate, in the sole
judgment of Lender, to carry out the terms of this Agreement, and to perfect its
security interest in and facilitate the collection of the New Collateral, the
proceeds thereof, and any other property constituting security to Lender.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
signed and sealed, as of the day and year first above written.
If Borrower is an individual/sole proprietor: _______________________ (SEAL)
_______________________ (SEAL)
(Execution continues on reverse side.)
<PAGE>
If Borrower is a corporation: American Consumers, Inc.
-----------------------------------
Name of Corporation
(Corporate seal to be affixed here) By: /s/ MICHAEL A. RICHARDSON
Title President
Attest: /s/ REBA SOUTHERN
Secretary
If Borrower is a partnership: ________________________________(SEAL)
Name of Partnership
By:
------------------------
General Partner
By:
------------------------
General Partner
Wachovia Bank of Georgia, N.A.
By: /s/ T. ERNEST HARRIS
--------------------------
Title: Vice President
<PAGE>
TO OUR STOCKHOLDERS
Sales for the 52-week fiscal year ended May 31, 1997, were $28,004,993. The
Company operated six stores during the fiscal years ended May 31, 1997, and June
1, 1996. Net profits for the fiscal year were $108,915 as compared to net
profits of $235,951 for the previous year. Earnings per share were 12 cents for
the current fiscal year as compared to 25 cents per share for the previous
fiscal year. Book value per share at May 31, 1997, and June 1, 1996, was $2.80
and $2.74, respectively.
The Board of Directors elected to pay dividends during the year. A dividend
of 6 cents per share was paid in the second quarter of the current year. The
Company repurchased 3,146 shares of common stock from certain unaffiliated
shareholders in response to several unsolicited requests during the year.
Entry into the Company's trade area by Winn Dixie and Save-A-Lot, and
further expansion of Food Lion, a foreign-owned competitor, has caused Ingles
and Bi-Lo to react negatively by further reducing prices and increasing
advertising and promotional activity. These developments have resulted in
further pressures on the Company's sales and profits.
Despite intense competition, the Company has managed to sustain its
profitability during the year through carefully controlling costs and managing
prices.
It is difficult to anticipate the effect of current and future events and
actions in the marketplace, but management intends to continue its efforts to
maintain the Company's profitability for the well-being of its shareholders,
employees, and customers.
Your support is very much appreciated.
SINCERELY,
AMERICAN CONSUMERS, INC.
Michael A. Richardson
Chairman & C.E.O.
<PAGE>
<TABLE>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS CORPORATE INFORMATION
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
VIRGIL BISHOP (1) MICHAEL A. RICHARDSON EXECUTIVE OFFICES
Vice President Chairman of the Board, P.O. Box 2328
American Consumers, Inc. Chief Executive Officer Fort Oglethorpe, GA 30742
and President
PAUL R. COOK (1) PAUL R. COOK AUDITORS
Executive Vice-President Executive Vice-President Hazlett, Lewis & Bieter, PLLC
and Treasurer and Treasurer Tivoli Center, Suite 300
American Consumers, Inc. 701 Broad Street
Chattanooga, TN 37402
JOHN PRICE (2)(3) JAMES E. FLOYD (1) COUNSEL
Pharmacist (Retired) Vice-President Witt, Gaither & Whitaker, P.C.
1100 SunTrust Bank Building
Chattanooga, TN 37402
MICHAEL A. RICHARDSON (1) VIRGIL BISHOP 10-K REPORT
Chairman of the Board, Vice-President American Consumers, Inc.'s
Chief Executive Officer annual report on Form 10-K
and President as filed with The Securities
American Consumers, Inc. and Exchange Commission is
available to stockholders free
THOMAS L. RICHARDSON (2)(3) REBA S. SOUTHERN (1) of charge upon written request
Chairman of the Board Secretary to Corporate Secretary
Learning Labs, Inc. American Consumers, Inc.
P.O. Box 2328,
Ft. Oglethorpe, GA 30742
JEROME P. SIMS, SR. (2)(3)
Physician (Retired)
H. S. WILLBANKS (2)(3)
Former owner of Willbanks
Paint Center (Retired)
</TABLE>
- ------------------------
(1) Executive Committee (Mr. Floyd and Mrs. Southern are ex officio members of
the committee.)
(2) Audit Committee
(3) Compensation Committee
-2-
<PAGE>
AMERICAN CONSUMERS, INC.
FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
MAY 31 JUNE 1 JUNE 3 MAY 28 MAY 29
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES......................................................... $ 28,005 $ 29,286 $ 28,835 $ 28,542 $ 30,153
--------- --------- --------- --------- ---------
COST AND EXPENSES:
Cost of goods sold.............................................. 22,047 22,996 22,896 22,727 24,399
Operating, general and administrative expenses.................. 5,802 5,895 5,675 5,467 5,706
Interest expense................................................ 72 46 18 14 23
Other income, net............................................... (45) (27) (41) (51) (12)
--------- --------- --------- --------- ---------
Total......................................................... 27,876 28,910 28,548 28,157 30,116
--------- --------- --------- --------- ---------
Income before income taxes........................................ 129 376 287 385 37
--------- --------- --------- --------- ---------
INCOME TAXES:
Federal......................................................... 14 119 99 123 3
State........................................................... 6 21 16 23 1
--------- --------- --------- --------- ---------
Total......................................................... 20 140 115 146 4
--------- --------- --------- --------- ---------
NET INCOME........................................................ $ 109 $ 236 $ 172 $ 239 $ 33
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE AMOUNTS:
Net income...................................................... $ .12 $ .25 $ .18 $ .25 $ .03
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash dividends.................................................. $ .06 $ .04 $ .08 $ .04 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING..................... 923 926 933 944 944
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL ASSETS...................................................... $ 4,301 $ 4,503 $ 3,737 $ 3,808 $ 3,560
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS........................ $ 471 $ 498 $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
-3-
<PAGE>
MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded in the over-the-counter market. The
approximate number of record holders of the Company's common stock at May 31,
1997, was 945. The following table gives the range of high and low bid
quotations and dividends for each quarterly period for the two most recent
fiscal years.
<TABLE>
<CAPTION>
BID PRICES ASKED PRICES
-------------------- -------------------- DIVIDENDS
HIGH LOW HIGH LOW PER SHARE
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
1997
First Quarter..................... $ 0.50 $ 0.50 None None None
Second Quarter.................... $ 0.50 $ 0.50 None None $ 0.06
Third Quarter..................... $ 0.50 $ 0.50 None None None
Fourth Quarter.................... $ 0.50 $ 0.50 None None None
1996
First Quarter..................... None None None None $ 0.02
Second Quarter.................... None None None None $ 0.02
Third Quarter..................... $ 0.50 $ 0.50 None None None
Fourth Quarter.................... $ 0.50 $ 0.50 None None None
</TABLE>
The information set forth in the above table is supplied through the
National Quotation Bureau, Inc. where available.
There is no established public trading market for the Company's stock. The
market-makers as of May 31, 1997, are:
Carr Securities Corporation New York (800)221-2243
Hill Thompson Magid & Co. New Jersey (800)631-3083
Paragon Capital Corporation Boca Raton (800)521-8877
Chicago Corporation Chicago (800)621-1674
Knight Securities LP New Jersey (800)232-3684
Seidler Companies (THE), Inc. Los Angeles (800)966-7022
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company experienced an after-tax profit in its fiscal year ended May 31,
1997, of $108,915 as compared to a profit of $235,951 for the prior fiscal year.
Net sales for the current 52-week fiscal year decreased approximately 4.4% from
net sales for the previous 52-week fiscal year, due to direct competition.
Management believes that entry into the Company's trade area by Winn Dixie
and Save-A-Lot, and further expansion in the area by Food Lion, has caused
Ingle's and Bi-Lo to react by further reducing prices and increasing advertising
and promotional activity. These developments have resulted in increased pressure
on the Company's market share, sales and profits during fiscal 1997.
The Company's gross margin decreased slightly to 21.27% during the past year
versus 21.48% for fiscal year 1996 and 20.60% for fiscal year 1995. This
decrease is attributable to pricing strategies employed in order to remain
competitive and regain market share. The Company utilizes a retail inventory
system in all stores which is designed to maintain the lowest possible inventory
levels.
The amount of Operating, General and Administrative Expenses for the fiscal
year ended May 31, 1997, decreased from the previous fiscal year. Such expenses
as a percentage of sales remained fairly consistent at 20.72% for fiscal year
1997 as compared to 20.13% for fiscal 1996 and 19.68% for fiscal 1995. The
increase in the percentage in fiscal 1997 as compared to fiscal 1996 is due to a
decrease in net sales.
The increase in interest expense is attributable to interest expensed on
capitalized leases in the amount of $57,243 during fiscal 1997 compared to
$23,539 in fiscal 1996 and $0 in fiscal 1995. This increase, and the increase in
depreciation expense occurred because the equipment was installed throughout the
1996 fiscal year and was in place for all of fiscal year 1997.
Other income for the past three (3) fiscal years consists of the following:
1997 1996 1995
--------- --------- ---------
Vendors' compensation.................... $ 15,338 $ 16,752 $ 16,025
Loss on sale of assets................... (28,973) (21,621) (12,455)
Interest income.......................... 40,236 25,364 27,515
Other income............................. 18,777 7,852 10,389
--------- --------- ---------
Totals................................. $ 45,378 $ 28,347 $ 41,474
--------- --------- ---------
--------- --------- ---------
-5-
<PAGE>
The $14,872 increase in interest income for fiscal 1997 as compared to 1996
resulted from certain changes in the Company's cash management practices
involving greater utilization of, and increased interest income from, short-term
investments in securities purchased under agreement to resell as described in
Note 2 to the Financial Statements. A significant portion of the $10,925
increase in other income from fiscal 1996 to fiscal year 1997 is attributable to
the Company's decision to institute a $3.00 service charge applicable to the
cashing of payroll checks without the purchase of groceries at its stores.
Price competition remained a significant factor in the Company's results of
operations. The Company's major competitors advertise a variety of mainline
items at prices below the Company's cost and sell at everyday low prices several
entire categories of items (pet foods, cereals, baby foods, etc.) at or below
the Company's cost. Accordingly, the Company seeks to improve its profitability
by obtaining the lowest cost for its goods and by carefully managing its
pricing. The Company's major supplier of staple groceries is Fleming Co., Inc.
("Fleming") a supplier with its principal corporate offices in Oklahoma City,
Oklahoma.
INCOME TAXES
The provision for income taxes for the fiscal year ended May 31, 1997, was
$19,719 or 15% of income before taxes. The provision for income taxes for 1996
was 37% of income before taxes. The provision for income taxes for fiscal 1995
was 40% of income before taxes. The components of income taxes are detailed in
Note 5 of the Company's financial statements.
Federal and state income taxes are included as a refundable income tax for
the current fiscal year and as a current liability for fiscal 1996.
INFLATION
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
Company's goods. When the Company is forced to raise overall prices of its
goods, the Company attempts to preserve its market share by competitive pricing
strategies which emphasize weekly advertised specials.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its working capital requirements principally through
its cash flow from operations and short-term borrowings. Short-term borrowing to
finance inventory purchases is provided by the Company's $300,000 line of credit
with its principal inventory supplier and an $800,000 line of credit from its
lead bank, Wachovia Bank, Dalton, Georgia. Short-term borrowings at May 31,
1997, and June 1, 1996, are unsecured notes payable totaling $129,000 and
$201,000, respectively, to a principal shareholder. For detailed information
concerning the Company's short-term borrowings, see Note 3 to the Company's
financial statements.
The ratio of current assets to current liabilities was 2.64 to 1 at the end
of fiscal 1997, as compared to 2.32 to 1 at the end of fiscal 1996. Cash and
temporary investments constituted 38.33% of total current assets at May 31,
1997, as compared to 41.13% of total current assets at June 1, 1996. The
decrease to 38.33% was due primarily to cash outflows during the past fiscal
year for equipment,
-6-
<PAGE>
lease payments, income taxes, dividends, redemption of common stock, and
payments to reduce short-term borrowings.
Accounts receivable decreased because in fiscal 1997, our supplier began
shipping a number of inventory items at a discounted price, rather than paying
the Company a rebate after purchase.
The decrease in prepaid expenses was caused by a decrease in prepaid rent
and other prepaids for the periods presented.
Other current liabilities decreased due to a decrease in accrued bonuses and
other liabilities at May 31, 1997.
During the fiscal year ended May 31, 1997, retained earnings increased as a
result of the Company's profitability.
MATERIAL COMMITMENTS
Capital expenditures are not expected to exceed $100,000 during the next
fiscal year.
The Company adopted a retirement plan effective January 1, 1995. The plan is
a 401(k) plan administered by Capital Guardian. 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.
The Company's contribution to the plan was $15,000 in 1997 and $20,000 in 1996.
None of the Company's employees are represented by a union.
-7-
<PAGE>
[LOGO]
Hazlett, Lewis & Bieter, PLLC
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
American Consumers, Inc.
Fort Oglethorpe, Georgia
We have audited the accompanying balance sheets of American Consumers, Inc.
as of May 31, 1997, and June 1, 1996, and the related statements of income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended May 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements mentioned above present fairly, in
all material respects, the financial position of American Consumers, Inc. as of
May 31, 1997, and June 1, 1996, and the results of its operations and its cash
flows for each of the three years in the period ended May 31, 1997, in
conformity with generally accepted accounting principles.
/s/ HAZLETT, LEWIS & BIETER, PLLC
Chattanooga, Tennessee
June 27, 1997
-8-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED MAY 31, 1997, JUNE 1, 1996, AND JUNE 3, 1995
<TABLE>
<CAPTION>
1997 1996 1995
(52 WEEKS) (52 WEEKS) (53 WEEKS)
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES........................................................... $ 28,004,993 $ 29,285,926 $ 28,834,871
COST OF GOODS SOLD.................................................. 22,047,027 22,996,383 22,895,821
------------- ------------- -------------
Gross profit...................................................... 5,957,966 6,289,543 5,939,050
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES...................... 5,802,594 5,895,329 5,675,490
------------- ------------- -------------
Operating income.................................................. 155,372 394,214 263,560
------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense.................................................. (72,116) (46,153) (18,068)
Other income...................................................... 45,378 28,347 41,474
------------- ------------- -------------
(26,738) (17,806) 23,406
------------- ------------- -------------
Income before income taxes........................................ 128,634 376,408 286,966
FEDERAL AND STATE INCOME TAXES (Note 5)............................. 19,719 140,457 114,850
------------- ------------- -------------
NET INCOME.......................................................... $ 108,915 $ 235,951 $ 172,116
------------- ------------- -------------
------------- ------------- -------------
EARNINGS PER SHARE.................................................. $ .12 $ .25 $ .18
------------- ------------- -------------
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING....................... 922,977 925,961 933,370
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-9-
<PAGE>
AMERICAN CONSUMERS, INC.
BALANCE SHEETS
MAY 31, 1997, AND JUNE 1, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments (Note 2)............................................ $ 860,472 $ 977,549
Certificate of deposit (Note 3)..................................................... 374,396 355,932
Accounts receivable................................................................. 146,751 190,225
Inventories (Note 3)................................................................ 1,737,809 1,663,304
Prepaid expenses.................................................................... 21,286 55,264
Refundable income tax............................................................... 80,953 --
------------ ------------
Total current assets.............................................................. 3,221,667 3,242,274
------------ ------------
PROPERTY AND EQUIPMENT--at cost (Notes 3 and 4)
Leasehold improvements.............................................................. 180,945 180,945
Furniture, fixtures and equipment................................................... 2,692,069 2,675,647
------------ ------------
2,873,014 2,856,592
Less accumulated depreciation....................................................... 1,803,230 1,614,687
------------ ------------
1,069,784 1,241,905
------------ ------------
OTHER ASSETS.......................................................................... 10,000 18,491
------------ ------------
$ 4,301,451 $ 4,502,670
------------ ------------
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-10-
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................................................... $ 718,216 $ 731,029
Short-term borrowings (Note 3)......................................................... 129,000 201,000
Obligations under capital leases, current portion (Note 4)............................. 144,926 109,102
Accrued sales tax...................................................................... 113,308 170,433
Federal and state income taxes......................................................... -- 24,067
Other.................................................................................. 115,793 161,585
------------ ------------
Total current liabilities............................................................ 1,221,243 1,397,216
------------ ------------
DEFERRED INCOME TAXES (Note 5)........................................................... 48,270 40,333
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS (Note 4)...................................... 326,369 388,646
------------ ------------
DEFERRED INCOME (Note 6)................................................................. 125,403 146,598
------------ ------------
STOCKHOLDERS' EQUITY (Note 3)
Nonvoting preferred stock--authorized 5,000,000 shares of no par value; no shares
issued............................................................................... -- --
Nonvoting common stock--$.10 par value; authorized 5,000,000 shares; no shares
issued............................................................................... -- --
Common stock--$.10 par value; authorized 5,000,000 shares; shares issued of 921,507 in
1997 and 924,653 in 1996............................................................. 92,150 92,465
Additional paid-in capital............................................................. 768,464 771,088
Retained earnings...................................................................... 1,719,552 1,666,324
------------ ------------
2,580,166 2,529,877
------------ ------------
$ 4,301,451 $ 4,502,670
------------ ------------
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-11-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED MAY 31, 1997, JUNE 1, 1996, AND JUNE 3, 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, May 28, 1994......................................... $ 94,212 $ 785,659 $ 1,371,264 $ 2,251,135
Net income for year......................................... -- -- 172,116 172,116
Cash dividends, $.08 per share.............................. -- -- (74,759) (74,759)
Redemption of common stock.................................. (1,468) (12,244) (970) (14,682)
--------- ---------- ------------ ------------
Balance, June 3, 1995......................................... 92,744 773,415 1,467,651 2,333,810
Net income for year......................................... -- -- 235,951 235,951
Cash dividends, $.04 per share.............................. -- -- (37,093) (37,093)
Redemption of common stock.................................. (279) (2,327) (185) (2,791)
--------- ---------- ------------ ------------
Balance, June 1, 1996......................................... 92,465 771,088 1,666,324 2,529,877
Net income for year......................................... -- -- 108,915 108,915
Cash dividends, $.06 per share.............................. -- -- (55,480) (55,480)
Redemption of common stock.................................. (315) (2,624) (207) (3,146)
--------- ---------- ------------ ------------
Balance, May 31, 1997......................................... $ 92,150 $ 768,464 $ 1,719,552 $ 2,580,166
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-12-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MAY 31, 1997, JUNE 1, 1996, AND JUNE 3, 1995
<TABLE>
<CAPTION>
1997 1996 1995
(52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 108,915 $ 235,951 $ 172,116
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 278,659 183,974 149,696
Deferred income taxes.................................................. 7,937 13,574 9,117
Loss on sale of property and equipment................................. 28,973 21,621 12,175
Change in operating assets and liabilities:
Accounts receivable.................................................. 43,474 48,298 (82,971)
Inventories.......................................................... (74,505) (63,869) (58,386)
Prepaid expenses and other assets.................................... 42,379 46,311 (57,149)
Refundable income taxes.............................................. (80,953) -- --
Accounts payable and accrued liabilities............................. (115,730) 52,774 (462)
Federal and state income taxes....................................... (24,067) 24,067 (121,580)
----------- ----------- -----------
Net cash provided by operating activities.......................... 215,082 562,701 22,556
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit......................................... (374,396) (355,932) (337,021)
Proceeds from maturity of certificate of deposit........................... 355,932 337,021 323,391
Purchase of property and equipment......................................... (70,690) (88,411) (272,045)
Proceeds from disposal of property and equipment........................... 13,700 4,648 2,000
----------- ----------- -----------
Net cash used in investing activities.................................... (75,454) (102,674) (283,675)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings........................... (72,000) 3,000 (20,000)
Principal payments on obligations under capital leases..................... (126,169) (49,750) --
Cash dividends............................................................. (55,480) (37,093) (74,759)
Redemption of common stock................................................. (3,146) (2,791) (14,682)
----------- ----------- -----------
Net cash used in financing activities.................................... (256,795) (86,634) (109,441)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... (117,077) 373,393 (370,560)
CASH AND CASH EQUIVALENTS, beginning of year................................. 977,549 604,156 974,716
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year....................................... $ 860,472 $ 977,549 $ 604,156
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes............................................................. $ 121,102 $ 92,496 $ 232,203
Interest................................................................. 72,532 46,361 17,525
----------- ----------- -----------
----------- ----------- -----------
NONCASH FINANCING ACTIVITIES
Capital lease obligations incurred for use of equipment.................... $ 99,716 $ 547,498 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-13-
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business:
The Company is engaged in a single line of business, the operation of a
chain of retail grocery stores. The stores are located in Georgia, Tennessee,
and Alabama and operate under the name of Shop-Rite Supermarket.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all
highly-liquid debt instruments with an original maturity of three months or less
to be cash equivalents.
Inventories:
Inventories are stated at the lower of average cost or market.
Depreciation of property and equipment:
Depreciation is provided on the straight-line and declining-balance methods
at rates based upon the estimated useful lives of the various classes of
depreciable property.
Advertising costs:
Advertising costs are charged to operations when incurred. Advertising costs
charged to operations were $442,522, $485,156, and $465,683 in 1997, 1996, and
1995, respectively.
Deferred income taxes:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Note 2. Securities Purchased Under Agreement to Resell
Included in cash and short-term investments are 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
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AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. Securities Purchased Under Agreement to Resell (Continued)
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. Amounts outstanding under
the agreement were $190,878 at May 31, 1997, and $371,150 at June 1, 1996.
Note 3. Short-term Borrowings
The Company had line-of-credit agreements with a bank and a major supplier
totaling $1,100,000 at May 31, 1997, and June 1, 1996. During 1996 and 1995,
only the bank line of credit was used.
Amounts outstanding under the bank agreement bear interest at the bank's
base rate, and the maximum amount available is $800,000. The line of credit is
collateralized by a $374,396 certificate of deposit owned by the Company. There
were no amounts outstanding on this line of credit at May 31, 1997, or June 1,
1996.
Amounts outstanding under the agreement with the major supplier bear
interest at the prime rate plus 3%, and the maximum amount available is
$300,000. Any outstanding debt under this agreement is collateralized by
inventory, equipment, and trade fixtures. The credit agreement contains
restrictions regarding the maintenance of minimum inventory and net worth
levels.
Short-term borrowings at May 31, 1997, and June 1, 1996, consisted of
unsecured notes payable totaling $129,000 and $201,000, respectively, to a
principal stockholder. These notes provide for interest at .25% below the bank's
base rate and are payable on demand. The carrying amount of short-term
borrowings approximates fair value.
The weighted average interest rate on amounts outstanding under short-term
borrowings was 8.25% and 8.00% at May 31, 1997, and June 1, 1996, respectively.
Note 4. Lease Commitments
Capital leases:
The Company leases cash registers and scanning equipment under agreements
which are classified as capital leases. The leased capital assets included in
property and equipment totaled $439,426 and $497,748 net of accumulated
depreciation of $207,788 and $49,750 at May 31, 1997, and June 1, 1996,
respectively. Depreciation expense for leased capital assets is included in
total depreciation expense as a part of operating, general and administrative
expenses in the statements of income.
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<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 4. Lease Commitments (Continued)
Future minimum lease payments, by year and in the aggregate, under
noncancelable capital leases are as follows:
FISCAL
YEAR ENDING
--------
1998 $ 189,461
1999 170,632
2000 130,365
2001 66,824
2002 3,588
----------
560,870
Less amount representing interest (89,575)
----------
Total obligation under capital leases 471,295
Less current maturities of obligation under
capital leases (144,926)
----------
$ 326,369
----------
----------
Operating leases:
The Company leases the facilities in which its retail grocery operations are
located under noncancelable operating leases which expire at various dates
through November 2003. Substantially all of the leases include renewal options.
The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of May 31, 1997:
FISCAL
YEAR ENDING
-----------
1998 $ 429,994
1999 412,875
2000 295,266
2001 295,266
2002 274,766
After 2002 124,274
------------
Total $1,832,441
------------
------------
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<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 4. Lease Commitments (Continued)
Operating leases: (Continued)
Rental expense for the fiscal years ended May 31, 1997, June 1, 1996, and
June 3, 1995, is as follows:
1997 1996 1995
---------- ---------- ----------
Minimum rentals............................. $ 429,994 $ 433,050 $ 465,396
Contingent rentals based on sales........... 20,160 48,529 33,512
---------- ---------- ----------
Total..................................... $ 450,154 $ 481,579 $ 498,908
---------- ---------- ----------
---------- ---------- ----------
Note 5. Federal and State Income Taxes
The components of income tax expense for the fiscal years ended May 31,
1997, June 1, 1996, and June 3, 1995, are as follows:
1997 1996 1995
--------- ---------- ----------
Current tax expense:
Federal.............................. $ 8,545 $ 107,697 $ 89,133
State................................ 3,237 19,186 16,600
--------- ---------- ----------
11,782 26,883 105,733
--------- ---------- ----------
Deferred tax expense:
Federal.............................. 5,397 11,284 9,103
State................................ 2,540 2,290 14
--------- ---------- ----------
7,937 13,574 9,117
--------- ---------- ----------
Total income tax expense........... $ 19,719 $ 140,457 $ 114,850
--------- ---------- ----------
--------- ---------- ----------
A reconciliation of income tax expense computed by applying the U.S. Federal
statutory rate to income before income taxes and actual income tax expense is as
follows:
1997 1996 1995
--------- ---------- ----------
Federal income tax expense
computed at the statutory rate....... $ 33,400 $ 128,000 $ 94,600
State income tax, net of federal
income tax benefit.................. 4,600 14,000 11,300
Other.................................. (18,281) (1,543) 8,950
--------- ---------- ----------
Total income tax expense........... $ 19,719 $ 140,457 $ 114,850
--------- ---------- ----------
--------- ---------- ----------
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AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 5. Federal and State Income Taxes (Continued)
The tax effects of significant temporary differences which comprise the
deferred tax assets and liabilities at May 31, 1997, and June 1, 1996, are as
follows:
1997 1996
---------- ----------
Assets:
Deferred income..................................... ($ 37,621) ($ 55,649)
Other............................................... (15,283) (4,673)
Liabilities:
Depreciable basis of property and equipment......... 101,174 100,655
---------- ----------
$ 48,270 $ 40,333
---------- ----------
---------- ----------
Deferred taxes for 1997 result principally from amortization of deferred
income and depreciation of assets.
Note 6. Sale of Assets and Deferred Income
On April 29, 1988, the Company sold its strip shopping center located in
Chatsworth, Georgia. The strip shopping center consisted of two separate
buildings with a total of 42,900 square feet. Approximately 18,540 square feet
of the shopping center was leased to others and approximately 24,360 square feet
was used by the Company for its retail grocery store.
Effective as of the date of sale, the Company leased back its store location
in the center for a period of 15 years. The minimum annual rental payments of
$91,350 are included in the minimum annual rental payments of operating leases
described in Note 4. The gain resulting from the sale of these assets has been
deferred for financial reporting purposes and is being amortized over the
15-year lease term.
Note 7. Employee Benefit Plan
Effective January 1, 1995, the Company adopted a 401(k) employee benefit
plan covering substantially all employees who have met minimum service and age
requirements. The service and age requirements were waived for the initial plan
participants to encourage participation. The Company's annual contribution is
discretionary. The Company's contribution to the plan was $15,000 in 1997 and
$20,000 in 1996.
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AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. CONCENTRATION OF CREDIT RISK
The Company maintains a certificate of deposit and other deposit accounts
at financial institutions in amounts which exceed the Federal Deposit
Insurance Corporation (FDIC) insurance limit. The total of deposits which
exceeded the FDIC insurance limit was $467,941 at May 31, 1997. The Company
believes that maintaining deposits in these financial institutions does not
represent a significant credit risk and that the Company benefits from
favorable banking relationships as a result of maintaining deposits with
these institutions.
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<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K)
for the year ended May 31,1997, of our report dated June 27, 1997, with respect
to the financial statements of American Consumers, Inc.
HAZLETT, LEWIS & BIETER, PLLC
Chattanooga, Tennessee
August 27, 1997
