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 29, 1999
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 [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 10, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $165,311. (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.
842,294 shares of Common Stock, $0.10 par value, as of August 10, 1999.
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 29, 1999, 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 16, 1999 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 "Best Yet," "Rainbow" and "Marquee." Bread and related bakery
items are also offered as controlled-label groceries.
During the fiscal year ended May 29, 1999, the Company's major supplier of
staple groceries was Fleming Co., Inc. ("Fleming"), with its principal corporate
offices in Oklahoma City, Oklahoma. For the fiscal year ended May 29, 1999,
approximately 74% of the Company's total inventory purchases of $20,267,610 were
made from Fleming. Prior years purchases from Fleming were approximately 73%.
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 26% 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, in previous years, the
principal method of competition has been the pricing of groceries. The Company's
current major competitors now include various local and four 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, loyalty card programs, 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 and Wal-Mart in addition to the presence of Ingle's and Bi-Lo, have created
a situation of ongoing price competition and increasingly expensive advertising
and promotional activities which place an operation the size of the Company at a
significant competitive disadvantage. These developments have resulted in
increased pressure on the Company's market share, sales and profits during
fiscal 1999, 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.
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 began an effort in the third quarter of fiscal 1998 to
increase gross margin by increasing retail prices on certain items, to the
extent permitted by competition. This effort has succeeded in producing a slight
increase in the Company's gross margin, but may also have an adverse effect on
overall sales.
Backlog is not a significant factor in the Company's business.
The Company employs approximately 81 full-time employees and approximately
98 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
<PAGE>
retail sales and revenues of the Company in the last three (3) fiscal years. All
years presented consisted of 52 weeks.
1999 1998 1997
----------- ----------- -----------
Meat $ 5,858,943 $ 6,201,052 $ 6,595,208
Produce 1,771,291 1,846,159 1,803,984
Grocery & Non-
Food Items 17,852,328 18,872,986 19,605,801
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
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 01/01/96 - 12/31/04 2-5 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.
<PAGE>
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:
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 53
1977 Directors, President, Chief
Executive Officer, member
of the Executive Committee
of the Board of Directors.
Virgil Bishop Vice-President, Director, 60
1974 member of the Executive
Committee of the Board
of Directors.
Paul R. Cook Executive Vice-President, 49
1987 Treasurer, Chief Financial
Officer, Director, member
of the Executive Committee
of the Board of Directors.
Director of Capital Bank,
Fort Oglethorpe, Georgia
since May 1993.
James E. Floyd Vice-President, member of 55
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 46
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 29, 1999.
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 29, 1999.
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 9 of the Company's annual report to security holders for the
fiscal year ended May 29, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to
pages 10 through 21 of the Company's annual report to security holders for the
fiscal year ended May 29, 1999.
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 16, 1999, 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 16, 1999,
under the headings "DIRECTORS' FEES AND ATTENDANCE," "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 16, 1999, under the headings "PRINCIPAL
SHAREHOLDERS" and "INFORMATION ABOUT NOMINEES FOR DIRECTOR."
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 16, 1999, 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 1999
Annual Report to the security holders for the fiscal year ended May
29, 1999, are incorporated by reference in Item 8 hereof:
- Report of Independent Accountants
- Balance Sheets - May 29, 1999 and May 30, 1998
- Statements of Income and Retained Earnings - Fiscal Years Ended
May 29, 1999; May 30, 1998 and May 31, 1997
- Statements of Cash Flows - Fiscal Years Ended May 29, 1999; May
30, 1998 and May 31, 1997
- 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 Executive offices.
Incorporated by reference to Exhibit 10(l) to Form 10-K for
the year ended May 29, 1993.
Exhibit 10(m) 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(n) Collateral Substitution Agreement, together with related
Collateral Assignment of Deposit, between the
<PAGE>
Company and Wachovia Bank of Georgia, N.A., dated November
16, 1998. Incorporated by referenced to Exhibit 10(c) to
Form 10-Q for the quarterly period ended November 28, 1998.
Exhibit 10(o) Commitment Letter dated November 16, 1998 between the
Company and Wachovia Bank of Georgia, N.A. Incorporated by
referenced to Exhibit 10(d) to Form 10-Q for the quarterly
period ended November 28, 1998.
Exhibit 13 Annual Report to Shareholders for the Fiscal Year ended May
29, 1999.
Exhibit 23 Consent of Messrs. Hazlett, Lewis & Bieter.
Exhibit 27 Financial Data Schedule (EDGAR version 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 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 24, 1999 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 24, 1999
- ------------------------ President and Chief
Michael A. Richardson Executive Officer
s/Paul R. Cook Executive Vice- August 24, 1999
- ------------------------ President, Chief
Paul R. Cook Financial Officer,
Treasurer (Chief
Accounting Officer) and
Director
s/Virgil E. Bishop Vice-President and August 24, 1999
- ------------------------ Director
Virgil E. Bishop
s/John P. Price Director August 24, 1999
- ------------------------
John P. Price
Director August __, 1999
- ------------------------
Thomas L. Richardson
s/Jerome P. Sims Director August 24, 1999
- ------------------------
Jerome P. Sims, Sr.
s/ Andrew V. Douglas Director August 24, 1999
- ------------------------
Andrew V. Douglas
TO OUR STOCKHOLDERS
Sales for the 52-week fiscal year ended May 29, 1999, were $25,482,561. The
Company operated six stores during the fiscal years ended May 29, 1999 and May
30, 1998. The Company operated at a net loss for the fiscal year of $56,963 as
compared to net profits of $85,589 for the previous year. Earnings per share
were 6 cents for the current fiscal year as compared to 9 cents per share for
the previous fiscal year. Book value per share at May 29, 1999, and May 30,
1998, was $2.94 and $2.96, respectively.
The Board of Directors elected not to pay dividends during the year. The
Company repurchased 20,242 shares of common stock from unaffiliated shareholders
in response to several unsolicited requests during the year.
The past year has been a very difficult year for the Company. Wal-Mart
Super Centers have opened in two geographical areas in which the Company
operates. United Grocers Outlet and Save-A-Lot have opened against another
location and a Food Lion opened in May of 1999 in yet another location in which
the Company operates. Increased pressure from competition is making it difficult
to remain profitable.
Management continues to believe there is a place for small independent
retailers in the grocery business. While the reduction in sales and profits seem
to negate that belief, management believes factors other than the size alone are
responsible for the reductions.
It is difficult to anticipate the effect of current and future events and
actions in the marketplace, but it is the intent of management of ACI to
consider any and all legal means that may be available to have your Company
strive to grow.
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)
Retail Counselor (Retired)
Fleming Companies, Inc.
</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 29 MAY 30 MAY 31 JUNE 1 JUNE 3
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET SALES ....................... $ 25,482 $ 26,920 $ 28,005 $ 29,286 $ 28,835
-------- -------- -------- -------- --------
COST AND EXPENSES:
Cost of goods sold .......... 19,831 21,015 22,047 22,996 22,896
Operating, general and
administrative expenses ... 5,759 5,788 5,802 5,895 5,675
Interest expense ............ 52 58 72 46 18
Other income, net ............... (71) (64) (45) (27) (41)
-------- -------- -------- -------- --------
Total ..................... 25,571 26,797 27,876 28,910 28,548
-------- -------- -------- -------- --------
Income (loss) before income taxes (89) 123 129 376 287
-------- -------- -------- -------- --------
INCOME TAXES:
Federal ..................... (26) 29 14 119 99
State ....................... (6) 8 6 21 16
-------- -------- -------- -------- --------
Total ..................... (32) 37 20 140 115
-------- -------- -------- -------- --------
NET INCOME (LOSS) ............... $ (57) $ 86 $ 109 $ 236 $ 172
======== ======== ======== ======== ========
PER SHARE AMOUNTS:
Net income (loss) ........... $ (.06) $ .09 $ .12 $ .25 $ .18
======== ======== ======== ======== ========
Cash dividends .............. $ -- $ -- $ .06 $ .04 $ .08
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ....... 883 907 923 926 93
======== ======== ======== ======== ========
TOTAL ASSETS .................... $ 4,033 $ 4,257 $ 4,301 $ 4,503 $ 3,737
======== ======== ======== ======== ========
OBLIGATIONS UNDER CAPITAL
LEASE AGREEMENTS ............ $ 185 $ 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 29,
1999, was 901. 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>
1999
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
1998
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
</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 29, 1999, 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
ABN - Amro Chicago Corporation Chicago (800) 621-1674
Seidler Companies (THE), Inc. Los Angeles (800) 421-0164
Sharpe Capital, Inc. New York (800) 355-5781
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company experienced an after-tax loss in its fiscal year ended May 29,
1999, of $56,963 as compared to a profit of $85,589 for the prior fiscal year.
Net sales for the current fiscal year decreased 5.3% from net sales for the
previous fiscal year. The decrease in sales is due primarily to direct
competition.
Increased pressure from competition on the Company's market share, sales
and profits during fiscal year 1999 is threatening the profitability of the
Company. Management believes that competitive pressure on the Company will
continue to increase over time as a result of its competitors opening more new
stores in the Company's trade area. Management is continuously seeking to
imporve the gross margin and increase profitability by obtaining the lowest cost
for the Company's inventory. Actions taken to improve the gross margin may also
be having an adverse effect on sales.
The Company's gross margin increased from 21.94% to 22.18% during the past
year. The gross margin was 21.27% for the year ended May 31, 1997. The Company
began an effort in the third quarter of fiscal year 1998 to increase gross
margin by increasing retail prices on certain items, to the extent permitted by
competition. The success of this effort has resulted in the increase in gross
margin.
The Company's Operating, General and Administrative Expenses for the fiscal
year ended May 29, 1999, decreased form the previous fiscal year. However, such
expenses as a percentage of sales increased from 21.50% to 22.60% over the past
fiscal year. The fixed charge components of the Company's expenses of operations
have remained constant but are a greater percentage of sales because of
decreased sales. Management is working on reducing variable expenses in order to
keep total operating expenses in line with the reduced sales. Operating, General
and Administrative Expenses amounted to 20.72% of net sales for fiscal year
1997.
Interest expense decreased throughout the fiscal years presented, from
$72,116 in 1997 to $58,538 in 1998 to $51,643 in 1999. The decrease is
attributable to interest on capitalized leases decreasing over the three-year
period. Interest expense on the Company's line of credit actually increased due
to an increase in the amount of funds borrowed during the latest fiscal year.
-5-
<PAGE>
Other income for the past three (3) 52-week fiscal years consists of the
following:
1999 1998 1997
-------- -------- --------
Vendors' compensation $ 14,049 $ 15,507 $ 15,338
Gain (loss) on sale of assets -- 6,510 (28,973)
Interest income 22,949 24,713 40,236
Other income 33,768 17,544 18,777
-------- -------- --------
Totals $ 70,766 $ 64,274 $ 45,378
======== ======== ========
Other income increased as a result of an increase in the collection of a
check-cashing charge for induviduals wishing to cash their check but not making
a purchase. Also, insurance recoveries in the amount of $5,808 have been
included in other income.
The Company seeks to improve its profitability by obtaining the lowest cost
for its goods. The Company's major supplier of staple groceries is Fleming Co.,
Inc. ("Fleming"), a supplier with its principal corporate office in Tulsa,
Oklahoma.
Income Taxes
The provision for income taxes does not vary significantly from the Federal
statutory rate of 34% and State rates of 5% - 6%. The components of income tax
are detailed in Note 5 of the Company's financial statements.
Federal and state income taxes are included as a current asset for the
current fiscal year and as a current liability for fiscal 1998.
Inflation
The Company continues to seek ways to cope with the threat of 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 the end of
the 1999 and 1998 fiscal year ends are as follows:
1999 1998
-------- --------
Line of credit at Wachovia Bank $156,790 $ --
Note to Michael and Diana Richardson 97,972 158,125
Note to trust for son of Michael and Diana Richardson 52,193 50,820
-------- --------
Totals $306,955 $208,945
======== ========
-6-
<PAGE>
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 1999, as compared to 2.65 to 1 at the end of fiscal 1998, and 2.54 to
1 at the end of fiscal 1997. Cash constituted 39.38% of total current assets at
May 29, 1999, as compared to 39.88% of total current assets of May 30, 1998 and
38.33% at May 31, 1997.
Accounts receivable decreased due to a decrease in receibles for
advertising and merchandise as of May 29, 1999.
Other current liabilities decreased due to a decrease in accrued bonuses at
May 29, 1999.
During the fiscal year ended May 29, 1999, retained earnings decreased as a
result of the operating loss for the fiscal year.
Material Commitments
Capital expenditures are not expected to exceed $150,000 for the year.
The Company adopted a retirement plan effective January 1, 1995. The plan
is a 401(k) plan administered by 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 $7,500 in 1999 and $10,000 in 1998.
None of the Company's employees are represented by a union.
Year 2000
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. As the year 2000
approaches, systems using such programs may be unable to accurately process
certain date-base information. To the extent that the Company's software
applications contain source code that is unable to interpret appropriately the
upcoming calendar year 2000 and beyond, some level of modification or
replacement of such applications will be necessary to avoid system failures and
the temporary inability to process transactions or engage in other normal
business activities.
During fiscal 1998, the Company began evaluating both its information
technology systems and other systems and equipment in order to identify and
adjust date sensitive systems for Year 2000 compliance. The Company's assessment
in its information technology ("IT") area is approximately 50% complete and its
assessment in the non-information technology ("Non-IT") area is approximately
45% complete. The Company currently expects to complete its primary remediation
efforts (including acquisition and installation of any necessary new equipment
and software) by September 30, 1999, leaving approvimately three monts for
testing and verification of any new systems proir to January 1, 2000.
The total operating expenditures to address the Company's Year 2000 issues
are estimated to be approximately $12,000. Approximately $5,000 of these costs
have been incurred through the end
-7-
<PAGE>
of fiscal 1999. In additions, the Compay expects to incur additional capital
expenditures of approximately $20,000 for new equipment during the first quarter
of fiscal 2000.
The Company's IT issues fall into two principal areas: compliance of the
Company's corporate accounting and other record-keeping hardware and software
and compliance of the electronic scanning equipment and related software
utilized for inventory control and the processing of retail customer
transactions in each of the Company's six grocery stores. The Company has
received documentation from the provider of the software utilized in the
Company's corporate accounting and record-keeping functions, certifying the Year
2000 compliant status of all of such software. The Company anticipates replacing
all of the hardware employed in such functions with new hardware that is
certified as Year 2000 compliant by no later than September 30, 1999, at an
estimated cost not to exceed $18,000. Under the terms of the Company's lease of
its electronic scanning equipment form Fleming Companies, Inc., Fleming will be
responsible for testing such equipment for Year 2000 compliance and making any
necessary modifications or replacements. Based on its discussions with Fleming,
the Company also anticipates that this process will be completed by no later
than Septmeber 30, 1999.
The risks of Year 2000 issues from a Non-IT standpoint are principally as
follows: electrical outages resulting in breakdown of point of sales systems,
lighting and refrigeration equipment and the loss of utility service. In
addition, certain store equipment may have imbedded chips or microprocessors
that are not Year 2000 compliant. The Company is in the process of identifying
such equipment and either replacing the affected chips or microprocessors or
purchasing new equipment that is compliant. The events noted above could
severely affect Company operations. The Company plans to mitigate the potential
effect of such issues by preparing a contigency plan as discussed below.
Significant risk also arises out of the possible failure of vendors to
respond to Year 2000 issues. The Company's only significant vendor is its
primary inventory supplieer, Fleming Companies, Inc. The Company has had
discussions with representatives of Fleming to determine the state of its
readiness and to review its Year 2000 contigency plans. The Company believes
that Fleming is making adequate progress toward Year 2000 compliance for all of
its systems that could impact on Fleming's relationship with the Company, and
does not expect that the Company's business will suffer any material adverse
effects as a result of non-compliance by any of Fleming's systems.
With respect to contigencies, a program is being developed to identify the
additional resources that will be necessary to fully run the Company when and if
it is affected by the foregoing risk factors. During the first six months of
fiscal 2000, the Company will continue to expand its contigency plans and
detailed procedures in order to mitigate the effects of the Year 2000 issues
that might affect the Company.
The Company believes that it has allocated sufficient resources to resolve
all significat Year 2000 issues in a timely manner. Accoudingly, the Company
plans to be fully Year 2000 complaint (including the completion of all necessary
testing procedures) by November 1999.
Forward-Looking Statements
Information provided by the Company, including written or oral statements
made by its representatives, may contain "forward-looking information" as
defined in Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of of historical
-8-
<PAGE>
facts, which addresses activities, events or developments that the Company
expects or anticipates will or may occur in the future, including such things as
espansion and growth of the Company's business, the effects of future
competition, future capital expenditures and the Company's business strategy,
are forward-looking statements. In reviewing such information it should be kept
in mind that actual results may differ materially from those projected or
suggested in such forward-looking statements. Thes forward-looking information
is based on various factors and was derived utilizing numerous assumptions. Many
of these factors have previously been identified in filings of statements made
by or on behalf of the Company, including filings with the Securities and
Exchange Commission of Forms 10-Q, 10-K and 8-K. Important assumptions and other
important factors that could cause actual results to differ materially from
those set forth in the forward-looking statements include: changes in the
general economy or in the Company's primary markets, changes in consumer
spending, competitive factors, the nature and extent of continued consolidation
in the grocery store industry, changes in the rate of inflation, changes in
state or federal legislation or regulation, adverse determinations with respect
to any litigation or other claims, inability to develop new stores or complete
remodels as rapidly as planned, stability of product costs, supply or quality
control problems with the Company's vendors, issues and uncertainties related to
Year 2000, and other issues detailed from time-to-time in the Company's filings
with the Securities and Exchange Commission.
-9-
<PAGE>
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 29, 1999, and May 30, 1998, and the related statements of income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended May 29, 1999. 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 29 1999, and May 30, 1998, and the results of its operations and its cash
flows for each of the three years in the period ended May 29, 1999, in
conformity with generally accepted accounting principles.
Chattanooga, Tennessee
June 25, 1999
-10-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF INCOME
For the Fiscal Years Ended May 29, 1999, May 30, 1998, and May 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(52 Weeks) (52 Weeks) (52 Weeks)
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 25,482,561 $ 26,920,197 $ 28,004,993
COST OF GOODS SOLD 19,831,422 21,014,735 22,047,027
------------ ------------ ------------
Gross profit 5,651,139 5,905,462 5,957,966
OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,759,329 5,788,657 5,802,594
------------ ------------ ------------
Operating income (loss) (108,190) 116,805 155,372
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (51,643) (58,538) (72,116)
Other income 70,766 64,274 45,378
------------ ------------ ------------
19,123 5,736 (26,738)
------------ ------------ ------------
Income (loss) before income taxes (89,067) 122,541 128,634
FEDERAL AND STATE INCOME
TAXES (Note 5) (32,104) 36,952 19,719
------------ ------------ ------------
NET INCOME (LOSS) $ (56,963) $ 85,589 $ 108,915
============ ============ ============
EARNINGS (LOSS) PER SHARE $ (.06) $ .09 $ .12
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 883,203 906,602 922,977
============ ============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-11-
<PAGE>
AMERICAN CONSUMERS, INC.
BALANCE SHEETS
May 29, 1999 and May 30, 1998
- --------------------------------------------------------------------------------
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash and short-term investments (Note 2) $ 917,438 $ 945,222
Certificate of deposit (Note 3) 414,520 394,792
Accounts receivable 149,521 175,135
Inventories (Note 3) 1,860,037 1,830,003
Prepaid expenses 13,078 14,613
Refundable income taxes 28,119 --
----------- -----------
Total current assets 3,382,713 3,359,765
----------- -----------
PROPERTY AND EQUIPMENT - at cost (Notes 3 and 4)
Leasehold improvements 185,689 185,831
Furniture, fixtures and equipment 2,752,410 2,754,007
----------- -----------
2,938,099 2,939,838
Less accumulated depreciation (2,287,484) (2,046,381)
----------- -----------
650,615 893,457
----------- -----------
OTHER ASSETS -- 4,000
----------- -----------
$ 4,033,328 $ 4,257,222
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
-12-
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 653,117 $ 655,937
Short-term borrowings (Note 3) 306,955 208,945
Obligations under capital leases, current portion
(Note 4) 117,414 144,077
Accrued sales tax 96,852 106,239
Federal and state income taxes -- 24,634
Other 106,219 128,652
---------- ----------
Total current liabilities 1,280,557 1,268,484
---------- ----------
DEFERRED INCOME TAXES (Note 5) 40,335 62,504
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
(Note 4) 67,898 183,842
---------- ----------
DEFERRED INCOME (Note 6) 86,897 107,546
---------- ----------
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 870,355 in 1999 and 890,597
in 1998 87,036 89,060
Additional paid-in capital 725,807 742,688
Retained earnings 1,744,798 1,803,098
---------- ----------
2,557,641 2,634,846
---------- ----------
$4,033,328 $4,257,222
========== ==========
</TABLE>
-13-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Fiscal Years Ended May 29, 1999, May 30, 1998, and May 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
Net income for year -- -- (56,963) (56,963)
Redemption of common stock (2,024) (16,881) (1,337) (20,242)
----------- ----------- ----------- -----------
Balance, May 29, 1999 $ 87,036 $ 725,807 $ 1,744,798 $ 2,557,641
=========== =========== =========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-14-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended May 29, 1999, May 30, 1998, and May 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(52 Weeks) (52 Weeks) (52 Weeks)
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (56,963) $ 85,589 $ 108,915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 250,105 271,792 278,659
Deferred income taxes (22,169) 14,234 7,937
(Gain) loss on sale of property and equipment 10 (6,510) 28,973
Change in operating assets and liabilities:
Accounts receivable 25,614 (28,384) 43,474
Inventories (30,034) (92,194) (74,505)
Prepaid expenses and other assets 5,535 12,673 42,469
Refundable income taxes (28,119) 80,953 (80,953)
Accounts payable and accrued liabilities (34,640) (56,489) (115,730)
Federal and state income taxes (24,634) 24,634 (24,067)
--------- --------- ---------
Net cash provided by operating activities 84,705 306,298 215,172
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit (414,520) (394,792) (374,396)
Proceeds from maturity of certificate of deposit 394,792 374,396 355,932
Purchase of property and equipment (27,922) (113,762) (70,690)
Proceeds from disposal of property and equipment -- 6,950 13,700
--------- --------- ---------
Net cash used in investing activities (47,650) (127,208) (75,454)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 98,010 79,945 (72,000)
Principal payments on obligations under capital leases (142,607) (143,376) (126,169)
Cash dividends -- -- (55,480)
Redemption of common stock (20,242) (30,909) (3,146)
--------- --------- ---------
Net cash used in financing activities (64,839) (94,340) (256,795)
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (27,784) 84,750 (117,077)
Cash and cash equivalents, beginning of year 945,222 860,472 977,549
--------- --------- ---------
Cash and cash equivalents, end of year $ 917,438 $ 945,222 $ 860,472
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Income taxes $ 46,818 $ (78,370) $ 121,102
Interest 50,310 59,551 72,532
========= ========= =========
NONCASH FINANCING ACTIVITIES
Capital lease obligations incurred for use of equipment $ -- $ -- $ 99,716
========= ========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-15-
<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 $407,004, $454,847, and $442,522, in
1999, 1998, and 1997, 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
-16-
<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. There were no
amounts outstanding under the agreement at May 29, 1999. Amounts
outstanding under the agreement were $161,256 at May 30, 1998.
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 29, 1999, and May 30, 1998. During
1999 and 1998, 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 $414,520 certificate of deposit
owned by the Company. At May 29, 2999, $156,790 was outstanding under
this line of credit. There were no amounts outstanding under this line
of credit at May 30, 1998.
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 29, 1999, and May 30, 1998, consisted of
unsecured notes payable totaling $150,165 and $208,945, respectively,
to Michael and Diana Richardson, principal shareholders of the
Company, and to a trust for the benefit of their son. 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 7.84% and 8.25% at May 29, 1999, and May 30,
1998, 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 $154,703 and
$290,101 net of accumulated depreciation of $492,511 and $357,113 at
May 29, 1999, and May 30, 1998, 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.
-17-
<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
-----------
2000 $131,865
2001 66,824
2002 3,947
--------
202,636
Less amount representing interest (17,324)
--------
Total obligation under capital leases 185,312
Less current maturities of obligation under
capital leases (117,414)
--------
$ 67,898
========
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 December 2004. 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 29, 1999:
Fiscal
Year Ending
-----------
2000 $ 440,626
2001 435,826
2002 415,326
2003 263,034
2004 136,960
After 2004 24,220
----------
Total $1,715,992
==========
-18-
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Lease Commitments (continued)
Operating leases: (continued)
Rental expense for the fiscal years ended May 29, 1999, May 30, 1998,
and May 31, 1997, is as follows:
1999 1998 1997
-------- -------- --------
Minimum rentals $445,426 $433,594 $429,994
Contingent rentals based on sales 4,963 11,985 20,160
-------- -------- --------
Total $450,389 $445,579 $450,154
======== ======== ========
Note 5. Federal and State Income Taxes
The components of income tax expense for the fiscal years ended May
29, 1999, May 30, 1998, and May 31, 1997, are as follows:
1999 1998 1997
-------- -------- --------
Current tax expense:
Federal $ (7,704) $ 15,729 $ 8,545
State (2,231) 6,989 3,237
-------- -------- --------
(9,935) 22,718 11,782
-------- -------- --------
Deferred tax expense:
Federal (18,369) 13,466 5,397
State (3,800) 768 2,540
-------- -------- --------
(22,169) 14,234 7,937
-------- -------- --------
Total income tax expense $(32,104) $ 36,952 $ 19,719
======== ======== ========
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:
1999 1998 1997
-------- -------- --------
Federal income tax expense
computed at the statutory rate $(18,500) $ 31,000 $ 33,400
State income tax, net of federal
income tax benefit (4,500) 5,900 4,600
Other (9,104) 52 (18,281)
-------- -------- --------
Total income tax expense $(32,104) $ 36,952 $ 19,719
======== ======== ========
-19-
<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 29, 1999, and May 30,
1998, are as follows:
1999 1998
-------- --------
Assets:
Deferred income $(23,708) $(29,761)
Other (7,311) (1,909)
Liabilities:
Depreciable basis of property and equipment 66,925 94,174
Other 4,429 --
-------- --------
$ 40,335 $ 62,504
======== ========
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 were leased to others and
approximately 24,360 square feet were 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 $7,500 in 1999 and $10,000 in 1998.
-20-
<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 $707,070 at May
29, 1999. 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.
Note 9. Related Party Transactions
As described in greater detail in Note 3 above, the Company finances a
portion of its working capital requirements through borrowings
consisting of two unsecured notes, payable to Michael and Diana
Richardson, principal shareholders of the Company, and to a trust for
the benefit of their son. These notes bear interest at a rate per
annum .25% below the base rate of interest charged on the Company's
borrowings from its lead bank and are payable on demand.
-21-
[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 29, 1999, of our report dated June 25, 1999, with respect
to the financial statements of American Consumers, Inc.
/s/ HAZLETT, LEWIS & BIETER, PLLC
Chattanooga, Tennessee
August 24, 1999
<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 29, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-29-1999
<PERIOD-END> MAY-29-1999
<CASH> 1,331,958
<SECURITIES> 0
<RECEIVABLES> 149,521
<ALLOWANCES> 0
<INVENTORY> 1,860,037
<CURRENT-ASSETS> 3,382,713
<PP&E> 2,938,099
<DEPRECIATION> 2,287,484
<TOTAL-ASSETS> 4,033,328
<CURRENT-LIABILITIES> 1,280,557
<BONDS> 0
0
0
<COMMON> 87,036
<OTHER-SE> 2,470,605
<TOTAL-LIABILITY-AND-EQUITY> 4,033,328
<SALES> 25,482,561
<TOTAL-REVENUES> 25,482,561
<CGS> 19,831,422
<TOTAL-COSTS> 19,831,422
<OTHER-EXPENSES> 5,759,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,643
<INCOME-PRETAX> (89,067)
<INCOME-TAX> (32,104)
<INCOME-CONTINUING> (56,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,963)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
