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 30, 1998
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 12
<PAGE>
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 [ ]
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, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $189,463. (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.
890,597 shares of Common Stock, $0.10 par value, as of August 11, 1998.
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 30, 1998, 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 17, 1998 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 30, 1998, 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 30, 1998, approximately 73% of the Company's total inventory purchases
of $21,547,994 were made from Fleming. Prior years purchases from Fleming were
approximately 72%. 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 27%
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 items at
below cost prices as "loss-leaders" or "advertised specials", the
<PAGE>
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.
Management believes that, in recent periods, 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 activities. These developments have
resulted in increased pressure on the Company's market share, sales and profits
during fiscal 1998, the effects of which are threatening the profitability of
the Company. The Company began a promotional program at the end of its 1998
fiscal year, in an effort to increase sales without an adverse effect on gross
margin. As described above, the Company's competitors are constantly conducting
sales promotions which are expensive for an operation the size of the Company to
match over long periods of time. Management believes that competitive pressures
on the Company will continue to increase over time as a result of larger
competitors, which are in a better position than the Company to withstand
prolonged price competition, opening more new stores in the Company's trade
area. A continuous effort is made to improve the gross margin and increase
profitability by obtaining the lowest cost for the Company's inventory.
Additionally, 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 93 full-time employees and approximately
97 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. All years presented
consisted of 52 weeks.
<PAGE>
1998 1997 1996
---- ---- ----
Meat $ 6,201,052 $ 6,595,208 $ 6,763,852
Produce 1,846,159 1,803,984 1,915,763
Grocery & Non-
Food Items 18,872,986 19,605,801 20,606,311
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 12/01/97 - 11/30/02 1-5 yr. term
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:
<PAGE>
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 52
1977 Directors, President, Chief
Executive Officer, member
of the Executive Committee
of the Board of Directors.
Virgil Bishop Vice-President, Director, 59
1974 member of the Executive
Committee and the Board
of Directors.
Paul R. Cook Executive Vice-President, 48
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 54
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 45
1991 Executive Committee (ex-
officio). From 1972 to 1991,
Mrs. Southern was Administra-
tive Assistant for the Company.
<PAGE>
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 30, 1998.
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 30, 1998.
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 30, 1998.
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 30, 1998.
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 17, 1998, under the heading
"INFORMATION ABOUT NOMINEES FOR DIRECTOR" and "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE."
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
<PAGE>
for the Company's Annual Meeting of Shareholders to be held September 17, 1998,
under the headings "EXECUTIVE COMPENSATION" and "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION."
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 17, 1998, under the heading "PRINCIPAL
SHAREHOLDERS."
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 17, 1998, under the headings "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" 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 1998
Annual Report to the security holders for the fiscal year ended May
30, 1998, are incorporated by reference in Item 8 hereof:
- Report of Independent Accountants
- Balance Sheets - May 30, 1998 and May 31, 1997
- Statements of Income and Retained Earnings - Fiscal Years Ended
May 30, 1998; May 31, 1997 and June 1, 1996
- Statements of Cash Flows - Fiscal Years Ended May 30, 1998; May
31, 1997 and June 1, 1996
- 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.
<PAGE>
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.
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) 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) Note and Security Agreement dated December 5, 1997,
together with related Commitment Letter dated December 3,
1997, between the Company and Wachovia Bank of Georgia, N.A.
Incorporated by reference to Exhibits 10(c) (Note and
Security Agmt.) and 10(d) (Commitment Letter) to Form 10-Q
for the quarterly period ended November 29, 1997.
<PAGE>
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) Lease 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.
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.
<PAGE>
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. Incorporated by referenced to Exhibit 10(o) to Form
10-K for the year ended May 31, 1997.
Exhibit 13 Annual Report to Shareholders for the Fiscal Year ended
May 30, 1998.
Exhibit 23 Consent of Messrs. Hazlett, Lewis & Bieter.
Exhibit 27 Financial Data Schedule (EDGAR only)
(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 9 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 17, 1998 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 17, 1998
- ------------------------ President and Chief
Michael A. Richardson Executive Officer
s/Paul R. Cook Executive Vice- August 17, 1998
- ------------------------ President, Chief
Paul R. Cook Financial Officer,
Treasurer (Chief
Accounting Officer) and
Director
s/Virgil E. Bishop Vice-President and August 17, 1998
- ------------------------ Director
Virgil E. Bishop
s/John P. Price Director August 20, 1998
- ------------------------
John P. Price
s/Thomas L. Richardson Director August 20, 1998
- ------------------------
Thomas L. Richardson
s/Jerome P. Sims Director August 20, 1998
- ------------------------
Jerome P. Sims, Sr.
s/Andrew V. Douglas Director August 17, 1998
- ------------------------
Andrew V. Douglas
[LOGO]
American
Consumers,
Inc.
1997
Annual
Report
<PAGE>
TO OUR STOCKHOLDERS
Sales for the 52-week fiscal year ended May 30, 1998, were $26,920,197. The
Company operated six stores during the fiscal years ended May 30, 1998 and May
31, 1997. Net profits for the fiscal year were $85,589 as compared to net
profits of $108,915 for the previous year. Earnings per share were 9 cents for
the current fiscal year as compared to 12 cents per share for the previous
fiscal year. Book value per share at May 30, 1998, and May 31, 1997, was $2.96
and $2.80, respectively.
The Board of Directors elected not to pay dividends during the year. The
Company repurchased 30,910 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>
<S> <C> <C>
BOARD OF DIRECTORS CORPORATE OFFICERS CORPORATE INFORMATION
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,
JEROME P. SIMS, SR. (2)(3) Ft. Oglethorpe, GA 30742
Physician
ANDREW V. DOUGLAS (2)(3)
Fleming Meat Director (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 30 MAY 31 JUNE 1 JUNE 3 MAY 28
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET SALES ..................................... $ 26,920 $ 28,005 $ 29,286 $ 28,835 $ 28,542
-------- -------- -------- -------- --------
COST AND EXPENSES:
Cost of goods sold ........................ 21,015 22,047 22,996 22,896 22,727
Operating, general and
administrative expenses ................. 5,788 5,802 5,895 5,675 5,467
Interest expense .......................... 58 72 46 18 14
Other income, net ......................... (64) (45) (27) (41) (51)
-------- -------- -------- -------- --------
Total ................................... 26,797 27,876 28,910 28,548 28,157
-------- -------- -------- -------- --------
Income before income taxes .................... 123 129 376 287 385
-------- -------- -------- -------- --------
INCOME TAXES:
Federal ................................... 29 14 119 99 123
State ..................................... 8 6 21 16 23
-------- -------- -------- -------- --------
Total ..................................... 37 20 140 115 146
-------- -------- -------- -------- --------
NET INCOME .................................... $ 86 $ 109 $ 236 $ 172 $ 239
======== ======== ======== ======== ========
PER SHARE AMOUNTS:
Net income ................................ $ .09 $ .12 $ .25 $ .18 $ .25
======== ======== ======== ======== ========
Cash dividends ............................ $ -- $ .06 $ .04 $ .08 $ .04
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ..................... 907 923 926 933 944
======== ======== ======== ======== ========
TOTAL ASSETS .................................. $ 4,257 $ 4,301 $ 4,503 $ 3,737 $ 3,808
======== ======== ======== ======== ========
OBLIGATIONS UNDER CAPITAL
LEASE AGREEMENTS .......................... $ 328 $ 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 30,
1998, 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
---- --- ---- --- ---------
1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $0.50 $0.50 None None None
- ----------------------------------------------------------------------------------------------------------------------
Second Quarter $0.50 $0.50 None None None
- ----------------------------------------------------------------------------------------------------------------------
Third Quarter $0.50 $0.50 None None None
- ----------------------------------------------------------------------------------------------------------------------
Fourth Quarter $0.50 $0.50 None None None
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
</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 30, 1998, are:
Amro Chicago Corp. New York
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
Sharp Capital, Inc. New York
- 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
30, 1998, of $85,589 as compared to a profit of $108,915 for the prior fiscal
year. Net sales for the current 52-week fiscal year decreased approximately 3.9%
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 1998.
The Company's gross margin increased slightly to 21.94% during the past
year versus 21.27% for fiscal year 1997 and 21.48% for fiscal year 1996.
The amount of Operating, General and Administrative Expenses for the fiscal
year ended May 30, 1998, decreased from the previous fiscal year. Such expenses
as a percentage of sales remained fairly consistent at 21.50% for fiscal year
1998 as compared to 20.72% for fiscal year 1997 and 20.13% for fiscal 1996. The
increase in the percentage in fiscal 1998 as compared to fiscal 1997 is due to a
decrease in net sales.
The decrease in interest expense is attributable to interest expensed on
capitalized leases in the amount of $44,483 during fiscal 1998 compared to
$57,243 in fiscal 1997 and $23,539 in fiscal 1996.
Other income for the past three (3) fiscal years consists of the following:
1998 1997 1996
---------- ---------- ----------
Vendors' compensation $ 15,507 $ 15,338 $ 16,752
Loss on sale of assets 6,510 (28,973) (21,621)
Interest income 24,713 40,236 25,364
Other income 17,544 18,777 7,852
-------- -------- --------
Totals $ 64,274 $ 45,378 $ 28,347
======== ======== ========
- 5 -<PAGE>
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 30, 1998, was
$36,952 or 30% of income before income taxes. The provision for income taxes for
1997 was 15% of income before income taxes. The provision for income taxes for
fiscal 1996 was 37% of income before income 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 current liability for the
current fiscal year and as refundable income taxes for fiscal 1997.
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 30,
1998, and May 31, 1997, are unsecured notes payable totaling $208,945 and
$129,000, respectively, to a stockholder and the estate of a former principal
stockholder. 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 2.65 to 1 at the end
of fiscal 1998, as compared to 2.64 to 1 at the end of fiscal 1997. Cash and
temporary investments constituted 39.88% of total current assets at May 30,
1998, as compared to 38.33% of total current assets at May 31, 1997.
Accounts receivable increased $28,384 due to an increase in receivables for
advertising and merchandise rebates and a loan to an employee as of May 30,
1998.
Inventories increased $92,194 over last year due to purchases of
merchandise at a reduced price prior to year-end.
- 6 -
<PAGE>
The decrease in prepaid expenses was caused by a decrease in prepaid
insurance premiums and other prepaids for the periods presented.
Other current liabilities increased due to a increase in accrued bonuses at
May 30, 1998.
During the fiscal year ended May 30, 1998, 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. Any contribution by the Company will be at
the discretion of the Board of Directors. The Company's contribution to the plan
was $10,000 in 1998 and $15,000 in 1997.
None of the Company's employees are represented by a union.
- 7 -
<PAGE>
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 30, 1998, and May 31, 1997, and the related statements of income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended May 30, 1998. 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 30, 1998, and May 31, 1997, and the results of its operations and its cash
flows for each of the three years in the period ended May 30, 1998, in
conformity with generally accepted accounting principles.
Chattanooga, Tennessee
June 24, 1998
- 8 -
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF INCOME
For the Fiscal Years Ended May 30, 1998, May 31, 1997, and June 1, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
(52 Weeks) (52 Weeks) (52 Weeks)
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES .............................................................. $ 26,920,197 $ 28,004,993 $ 29,285,926
COST OF GOODS SOLD ..................................................... 21,014,735 22,047,027 22,996,383
------------ ------------ ------------
Gross profit ..................................................... 5,905,462 5,957,966 6,289,543
OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES ............................................ 5,788,657 5,802,594 5,895,329
------------ ------------ ------------
Operating income ................................................. 116,805 155,372 394,214
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense ................................................... (58,538) (72,116) (46,153)
Other income ....................................................... 64,274 45,378 28,347
------------ ------------ ------------
5,736 (26,738) (17,806)
------------ ------------ ------------
Income before income taxes ....................................... 122,541 128,634 376,408
FEDERAL AND STATE INCOME
TAXES (Note 5) ..................................................... 36,952 19,719 140,457
------------ ------------ ------------
NET INCOME ............................................................. $ 85,589 $ 108,915 $ 235,951
============ ============ ============
EARNINGS PER SHARE...................................................... $ .09 $ .12 $ .25
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .............................................. 906,602 922,977 925,961
============ ============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
- 9 -
<PAGE>
AMERICAN CONSUMERS, INC.
BALANCE SHEETS
May 30, 1998, and May 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and short-term investments (Note 2) ..................................... $ 945,222 $ 860,472
Certificate of deposit (Note 3) .............................................. 394,792 374,396
Accounts receivable .......................................................... 175,135 146,751
Inventories (Note 3) ......................................................... 1,830,003 1,737,809
Prepaid expenses ............................................................. 14,613 21,286
Refundable income tax ........................................................ - 80,953
---------- ----------
Total current assets .................................................... 3,359,765 3,221,667
========== ==========
PROPERTY AND EQUIPMENT - at cost (Notes 3 and 4)
Leasehold improvements ....................................................... 185,831 180,945
Furniture, fixtures and equipment ............................................ 2,754,007 2,692,069
---------- ----------
2,939,838 2,873,014
Less accumulated depreciation ................................................ 2,046,381 1,803,230
---------- ----------
893,457 1,069,784
---------- ----------
OTHER ASSETS ..................................................................... 4,000 10,000
---------- ----------
$4,257,222 $4,301,451
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable ................................................................... $ 655,937 $ 718,216
Short-term borrowings (Note 3) ..................................................... 208,945 129,000
Obligations under capital leases, current portion (Note 4) ......................... 144,077 144,926
Accrued sales tax .................................................................. 106,239 113,308
Federal and state income taxes ..................................................... 24,634 -
Other .............................................................................. 128,652 115,793
---------- ----------
Total current liabilities ..................................................... 1,268,484 1,221,243
---------- ----------
DEFERRED INCOME TAXES (Note 5) ......................................................... 62,504 48,270
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
(Note 4) ........................................................................... 183,842 326,369
---------- ----------
DEFERRED INCOME (Note 6) ............................................................... 107,546 125,403
---------- ----------
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 .......................................................................... 89,060 92,150
Additional paid-in capital ......................................................... 742,688 768,464
Retained earnings .................................................................. 1,803,098 1,719,552
---------- ----------
2,634,846 2,580,166
---------- ----------
$4,257,222 $4,301,451
========== ==========
</TABLE>
- 11 -
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Fiscal Years Ended May 30, 1998, May 31, 1997, and June 1, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----------- ----------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
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
Net income for year ............................ -- -- 85,589 85,589
Redemption of common stock ..................... (3,090) (25,776) (2,043) (30,909)
----------- ----------- ----------- -----------
-----------
Balance, May 30, 1998 .............................. $ 89,060 $ 742,688 $ 1,803,098 $ 2,634,846
=========== =========== =========== ===========
</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 30, 1998, May 31, 1997, and June 1, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
(52 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................................. $ 85,589 $ 108,915 $ 235,951
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................................... 271,792 278,659 183,974
Deferred income taxes ................................................... 14,234 7,937 13,574
Loss on sale of property and equipment .................................. (6,510) 28,973 21,621
Change in operating assets and liabilities:
Accounts receivable ................................................... (28,384) 43,474 48,298
Inventories ........................................................... (92,194) (74,505) (63,869)
Prepaid expenses and other assets ..................................... 12,673 42,469 46,311
Refundable income taxes ............................................... 80,953 (80,953) --
Accounts payable and accrued liabilities .............................. (56,489) (115,730) 52,774
Federal and state income taxes ........................................ 24,634 (24,067) 24,067
--------- --------- ---------
Net cash provided by operating activities ........................... 306,298 215,082 562,701
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit .......................................... (394,792) (374,396) (355,932)
Proceeds from maturity of certificate of deposit ............................ 374,396 355,932 337,021
Purchase of property and equipment .......................................... (113,762) (70,690) (88,411)
Proceeds from disposal of property and equipment ............................ 6,950 13,700 4,648
--------- --------- ---------
Net cash used in investing activities ............................... (127,208) (75,454) (102,674)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings ............................ 79,945 (72,000) 3,000
Principal payments on obligations under capital leases ...................... (143,376) (126,169) (49,750)
Cash dividends .............................................................. -- (55,480) (37,093)
Redemption of common stock .................................................. (30,909) (3,146) (2,791)
--------- --------- ---------
Net cash used in financing activities ............................... (94,340) (256,795) (86,634)
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents .......................................................... 84,750 (117,077) 373,393
Cash and cash equivalents, beginning of year .................................... 860,472 977,549 604,156
--------- --------- ---------
Cash and cash equivalents, end of year .......................................... $ 945,222 $ 860,472 $ 977,549
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes ............................................................ $ (78,370) $ 121,102 $ 92,496
Interest ................................................................ 59,551 72,532 46,361
========= ========= =========
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.
<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 $454,847, $442,522, and $485,156 in
1998, 1997, and 1996, 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
- 14 -
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Securities Purchased Under Agreement to Resell (continued)
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. Amounts outstanding
under the agreement were $161,256 at May 30, 1998, and $190,878 at May
31, 1997.
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 30, 1998, and May 31, 1997. During
1998 and 1997, 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 $394,792 certificate of deposit
owned by the Company. There were no amounts outstanding on this line
of credit at May 30, 1998, or May 31, 1997.
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 30, 1998, and May 31, 1997, consisted of
unsecured notes payable totaling $208,945 and $129,000, respectively,
to a stockholder and the estate of a former 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 8.25% at May 30, 1998, and May 31,
1997, 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 $290,101 and
$439,426 net of accumulated depreciation of $357,113 and $207,788 at
May 30, 1998, and May 31, 1997, 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.
-15 -
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Lease Commitments (continued)
Capital leases: (continued)
Future minimum lease payments, by year and in the aggregate, under
noncancelable capital leases are as follows:
Fiscal
Year Ending
-----------
1999 $172,465
2000 130,365
2001 66,824
2002 3,588
----------
373,242
Less amount representing interest (45,323)
----------
Total obligation under capital leases 327,919
Less current maturities of obligation under
capital leases (144,077)
----------
$183,842
=========
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 30, 1998:
Fiscal
Year Ending
-----------
1999 $ 416,475
2000 394,306
2001 394,306
2002 373,806
2003 122,440
After 2003 194,514
----------
Total $1,895,847
==========
- 16 -
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Lease Commitments (continued)
Operating leases: (continued)
<TABLE>
<CAPTION>
Rental expense for the fiscal years ended May 30, 1998, May 31, 1997,
and June 1, 1996, is as follows: 1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Minimum rentals ............................................... $433,594 $429,994 $433,050
Contingent rentals based on sales ............................. 11,985 20,160 48,529
-------- -------- --------
Total ..................................................... $445,579 $450,154 $481,579
======== ======== ========
Note 5. Federal and State Income Taxes
<CAPTION>
The components of income tax expense for the fiscal years ended May
30, 1998, May 31, 1997, and June 1, 1996, are as follows:
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Current tax expense:
Federal...................................... $15,729 $ 8,545 $107,697
State........................................ 6,989 3,237 19,186
------- ------- --------
22,718 11,782 26,883
Deferred tax expense: ------- ------- --------
Federal...................................... 13,466 5,397 11,284
State........................................ 768 2,540 2,290
------- ------- --------
14,234 7,937 13,574
------- ------- --------
Total income tax expense $36,952 $19,719 $140,457
======= ======= ========
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:
<CAPTION>
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
Federal income tax expense
computed at the statutory rate ........................... $ 31,000 $ 33,400 $ 128,000
State income tax, net of federal
income tax benefit ....................................... 5,900 4,600 14,000
Other ....................................................... 52 (18,281) (1,543)
--------- --------- ---------
Total income tax expense ................................. $ 36,952 $ 19,719 $ 140,457
========= ========= =========
</TABLE>
- 17 -
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 30, 1998, and May 31,
1997, are as follows:
1998 1997
------------ -----------
Assets:
Deferred income ........................... $ (29,761) $ (37,621)
Other ..................................... (1,909) (15,283)
Liabilities:
Depreciable basis of property and
equipment ............................... 94,174 101,174
--------- ---------
$ 62,504 $ 48,270
========= =========
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 $10,000 in 1998 and $15,000 in 1997.
-18 -
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 $579,814 at May
30, 1998. 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.
- 19 -
[LOGO OF HAZLETT, LEWIS & BIETER, PLLC]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K)
for the year ended May 30, 1998, of our report dated June 24, 1998, with respect
to the financial statements of American Consumers, Inc.
HAZLETT, LEWIS & BIETER, PLLC
Chattanooga, Tennessee
August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF AMERICAN CONSUMERS, INC. FOR THE YEAR
ENDED MAY 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> MAY-30-1998
<CASH> 1,178,758
<SECURITIES> 161,256
<RECEIVABLES> 175,135
<ALLOWANCES> 0
<INVENTORY> 1,830,003
<CURRENT-ASSETS> 3,359,765
<PP&E> 2,939,838
<DEPRECIATION> 2,046,381
<TOTAL-ASSETS> 4,257,222
<CURRENT-LIABILITIES> 1,268,484
<BONDS> 0
0
0
<COMMON> 89,060
<OTHER-SE> 2,545,786
<TOTAL-LIABILITY-AND-EQUITY> 4,257,222
<SALES> 26,920,197
<TOTAL-REVENUES> 26,920,197
<CGS> 21,014,735
<TOTAL-COSTS> 21,014,735
<OTHER-EXPENSES> 5,788,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,538
<INCOME-PRETAX> 122,541
<INCOME-TAX> 36,952
<INCOME-CONTINUING> 85,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,589
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
