TO OUR STOCKHOLDERS
Sales for the 53-week fiscal year ended June 3, 2000, were $25,618,564. The
Company operated six stores during the fiscal years ended June 3, 2000 and May
29, 1999. The Company operated at a net loss for the fiscal year of $50,537 as
compared to a net loss of $56,963 for the previous year. Net loss per share was
6 cents for the current fiscal year as compared to a net loss of 6 cents per
share for the previous fiscal year. Book value per share at June 3, 2000, and
May 29, 1999, was $2.96 and $2.94, respectively.
The Board of Directors elected not to pay dividends during the year. The
Company repurchased 34,738 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. Increased
pressure from competition is making it difficult to remain profitable. However,
the Company changed its principal inventory supplier in order to improve its
product acquisition cost. This change should allow the Company to better compete
in the marketplace.
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>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS CORPORATE INFORMATION
<S> <C> <C>
VIRGIL BISHOP (1) MICHAEL A. RICHARDSON EXECUTIVE OFFICES
Vice President Chairman of the Board, P.O. Box 2328
American Consumers, Inc. Chief Executive Officer Fort Oglethorpe, GA 30742
and President
PAUL R. COOK (1) PAUL R. COOK AUDITORS
Executive Vice-President Executive Vice-President Hazlett, Lewis & Bieter, PLLC
and Treasurer and Treasurer Market Court, Suite 300
American Consumers, Inc. 537 Market 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
----------------------------------------------------------------------------
JUNE 3 MAY 29 MAY 30 MAY 31 JUNE 1
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET SALES $ 25,619 $ 25,482 $ 26,920 $ 28,005 $ 29,286
-------- -------- -------- -------- --------
COST AND EXPENSES:
Cost of goods sold 19,682 19,831 21,015 22,047 22,996
Operating, general and
administrative expenses 6,020 5,759 5,788 5,802 5,895
Interest expense 56 52 58 72 46
Other income, net (66) (71) (64) (45) (27)
-------- -------- -------- -------- --------
Total 25,692 25,571 26,797 27,876 28,910
-------- -------- -------- -------- --------
Income (loss) before income taxes (73) (89) 123 129 376
-------- -------- -------- -------- --------
INCOME TAXES:
Federal (18) (26) 29 14 119
State (4) (6) 8 6 21
-------- -------- -------- -------- --------
Total (22) (32) 37 20 140
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (51) $ (57) $ 86 $ 109 $ 236
======== ======== ======== ======== ========
PER SHARE AMOUNTS:
Net income (loss) $ (.06) $ (.06) $ .09 $ .12 $ .25
======== ======== ======== ======== ========
Cash dividends $ -- $ -- $ -- $ .06 $ .04
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 838 883 907 923 926
======== ======== ======== ======== ========
TOTAL ASSETS $ 3,674 $ 4,033 $ 4,257 $ 4,301 $ 4,503
======== ======== ======== ======== ========
OBLIGATIONS UNDER CAPITAL
LEASE AGREEMENTS $ 67 $ 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 June 3,
2000, was 880. 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.
Bid Prices Asked Prices Dividends
------------------------------------------------------------------------------
High Low High Low Per Share
2000
------------------------------------------------------------------------------
First Quarter $0.50 $0.50 None None None
------------------------------------------------------------------------------
Second Quarter $0.50 $0.50 $1.25 $1.25 None
------------------------------------------------------------------------------
Third Quarter $0.50 $0.50 $1.25 $1.25 None
------------------------------------------------------------------------------
Fourth Quarter $0.50 $0.30 $1.25 $1.05 None
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
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 June 3, 2000, 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
Knight Securities New Jersey (800) 232-3684
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 June 3,
2000, of $50,537 as compared to a loss of $56,963 for the prior fiscal year. Net
sales for the current fiscal year increased .53% from net sales for the previous
fiscal year. Management believes that the smaller than expected increase in
sales, despite the Company's decision to open its retail outlets on Sundays
beginning in the second quarter of fiscal 2000, is due primarily to direct
competition.
Increased pressure from competition on the Company's market share, sales
and profits during fiscal year 2000 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.
The Company's gross margin increased from 22.18% to 23.17% during the past
year. The gross margin was 21.94% for the year ended May 30, 1998. 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 and a switch of our major inventory
supplier in the last quarter of fiscal 2000 has resulted in the increase in
gross margin.
The Company's Operating, General and Administrative Expenses for the fiscal
year ended June 3, 2000, increased from the previous fiscal year. Expenses as a
percentage of sales increased from 22.60% to 23.50% over the past fiscal year.
Payroll, repairs and services and advertising expenses account for almost 90% of
the increase. Payroll expense for the store personnel has increased in an effort
to maintain competent employees. Repairs and services have increased due to
aging equipment and advertising costs such as paper, supplies and payroll costs
have increased. Management will continue to monitor these costs and make cuts
when deemed to be beneficial to business. Operating, General and Administrative
Expenses amounted to 21.50% of net sales for fiscal year 1998.
Interest expense varied throughout the fiscal years presented, from $58,538
in 1998 to $51,643 in 1999 to $55,206 in 2000. The change 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 fiscal years consists of the following:
2000 1999 1998
------- ------- -------
Vendors' compensation $10,019 $14,049 $15,507
Gain on sale of assets 2,009 -- 6,510
Interest income 21,219 22,949 24,713
Other income 32,639 33,768 17,544
------- ------- -------
Totals $65,886 $70,766 $64,274
======= ======= =======
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 in 1999.
The Company seeks to improve its profitability by obtaining the lowest cost
for its goods. The Company's major supplier of staple groceries was Fleming Co.,
Inc. ("Fleming"), a supplier with its principal corporate offices in Tulsa,
Oklahoma. However, in an effort to lower its cost of goods, the Company began
purchasing its inventory from Mitchell Grocery Corporation in Albertville,
Alabama in March 2000.
Income Taxes
The provision for income taxes does not vary significantly from the Federal
statutory rate of 34% and State rates of 5% to 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 liability for the
current fiscal year and as a current asset for fiscal 1999.
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 $600,000 line of credit
from its lead bank, Wachovia Bank, Dalton, Georgia. Short-term borrowings at the
end of the 2000 and 1999 fiscal year ends are as follows:
2000 1999
-------- --------
Line of credit at Wachovia Bank $ 9,956 $156,790
Note to Michael and Diana Richardson 62,239 97,972
Note to Matthew Richardson 56,480 52,193
-------- --------
Totals $128,675 $306,955
======== ========
-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 2.80 to 1 at the end
of fiscal 2000, as compared to 2.64 to 1 at the end of fiscal 1999, and 2.65 to
1 at the end of fiscal 1998. Cash constituted 40.99% of total current assets at
June 3, 2000, as compared to 39.38% of total current assets of May 29, 1999, and
39.88% at May 31, 1998.
Accounts receivable decreased due to a decrease in receibles for
advertising and merchandise as of June, 3, 2000.
During the fiscal year ended June 3, 2000, 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 2000 and 1999.
None of the Company's employees are represented by a union.
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 facts, which address
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. This forward-looking information is based on various
factors and was derived utilizing numerous assumptions. Many of these factors
have previously been identified in filings or statements made by or on behalf of
the Company, including filings with the Securities and Exchange Commission of
Forms 10-Q, 10-K and 8-K. Important assumptions and other important factors that
could cause actual results to differ materially from those set forth in the
forward-looking statements include: changes in the general economy or in the
Company's primary markets, changes in consumer spending, competitive factors,
the nature and extent of continued consolidation in the grocery store industry,
changes in the rate of inflation, changes in state or federal legislation or
regulation, adverse determinations with respect to any litigation or other
claims, inability to develop new stores or complete remodels as rapidly as
planned, stability of product costs, supply or quality control problems with the
Company's vendors, and other issues detailed from time-to-time in the Company's
filings with the Securities and Exchange Commission.
-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 June 3, 2000, and May 29, 1999, and the related statements of income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended June 3, 2000. 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
June 3, 2000, and May 29, 1999, and the results of its operations and its cash
flows for each of the three years in the period ended June 3, 2000, in
conformity with generally accepted accounting principles.
Chattanooga, Tennessee
June 28, 2000
-8-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF INCOME
For the Fiscal Years Ended June 3, 2000, May 29, 1999, and May 30, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
(53 Weeks) (52 Weeks) (52 Weeks)
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $25,618,564 $25,482,561 $26,920,197
COST OF GOODS SOLD 19,682,468 19,831,422 21,014,735
----------- ----------- -----------
Gross profit 5,936,096 5,651,139 5,905,462
OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,019,545 5,759,329 5,788,657
----------- ----------- -----------
Operating income (loss) (83,449) (108,190) 116,805
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (55,206) (51,643) (58,538)
Other income 65,886 70,766 64,274
----------- ----------- -----------
10,680 19,123 5,736
----------- ----------- -----------
Income (loss) before income taxes (72,769) (89,067) 122,541
FEDERAL AND STATE INCOME
TAXES (22,232) (32,104) 36,952
----------- ----------- -----------
NET INCOME (LOSS) $ (50,537) $ (56,963) $ 85,589
=========== =========== ===========
EARNINGS (LOSS) PER SHARE $ (.06) $ (.06) $ .09
=========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 838,443 883,203 906,602
=========== =========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-9-
<PAGE>
AMERICAN CONSUMERS, INC.
BALANCE SHEETS
June 3, 2000 and May 29, 1999
--------------------------------------------------------------------------------
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 852,652 $ 917,438
Certificate of deposit 434,887 414,520
Accounts receivable 140,593 149,521
Inventories 1,659,588 1,860,037
Prepaid expenses 53,473 13,078
Refundable income taxes -- 28,119
----------- -----------
Total current assets 3,141,193 3,382,713
----------- -----------
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements 201,253 185,689
Furniture, fixtures and equipment 2,755,604 2,752,410
----------- -----------
2,956,857 2,938,099
Less accumulated depreciation (2,424,512) (2,287,484)
----------- -----------
532,345 650,615
----------- -----------
$ 3,673,538 $ 4,033,328
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
-10-
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 696,560 $ 653,117
Short-term borrowings 128,675 306,955
Obligations under capital leases, current portion 63,321 117,414
Accrued sales tax 117,954 96,852
Federal and state income taxes 3,706 --
Other 112,647 106,219
---------- ----------
Total current liabilities 1,122,863 1,280,557
---------- ----------
DEFERRED INCOME TAXES 12,587 40,335
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASE
AGREEMENTS 3,904 67,898
---------- ----------
DEFERRED INCOME 61,818 86,897
---------- ----------
STOCKHOLDERS' EQUITY
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 835,618 in 2000 and 870,355
in 1999 83,562 87,036
Additional paid-in capital 696,839 725,807
Retained earnings 1,691,965 1,744,798
---------- ----------
2,472,366 2,557,641
---------- ----------
$3,673,538 $4,033,328
========== ==========
</TABLE>
-11-
<PAGE>
AMERICAN CONSUMERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Fiscal Years Ended June 3, 2000, May 29, 1999, and May 30, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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 loss 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
Net loss for year -- -- (50,537) (50,537)
Redemption of common stock (3,474) (28,968) (2,296) (34,738)
----------- ----------- ----------- -----------
Balance, June 3, 2000 $ 83,562 $ 696,839 $ 1,691,965 $ 2,472,366
=========== =========== =========== ===========
</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 June 3, 2000, May 29, 1999, and May 30, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
(53 Weeks) (52 Weeks) (52 Weeks)
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (50,537) $ (56,963) $ 85,589
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 232,684 250,105 271,792
Deferred income taxes (27,748) (22,169) 14,234
(Gain) loss on sale of property and equipment (1,971) 10 (6,510)
Change in operating assets and liabilities:
Accounts receivable 8,928 25,614 (28,384)
Inventories 200,449 (30,034) (92,194)
Prepaid expenses and other assets (40,395) 5,535 12,673
Refundable income taxes 28,119 (28,119) 80,953
Accounts payable and accrued liabilities 70,973 (34,640) (56,489)
Federal and state income taxes 3,706 (24,634) 24,634
--------- --------- ---------
Net cash provided by operating activities 424,208 84,705 306,298
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificate of deposit (434,887) (414,520) (394,792)
Proceeds from maturity of certificate of deposit 414,520 394,792 374,396
Purchase of property and equipment (145,822) (27,922) (113,762)
Proceeds from disposal of property and equipment 8,300 -- 6,950
--------- --------- ---------
Net cash used in investing activities (157,889) (47,650) (127,208)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings (178,280) 98,010 79,945
Principal payments on obligations under capital leases (118,087) (142,607) (143,376)
Redemption of common stock (34,738) (20,242) (30,909)
--------- --------- ---------
Net cash used in financing activities (331,105) (64,839) (94,340)
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (64,786) (27,784) 84,750
Cash and cash equivalents, beginning of year 917,438 945,222 860,472
--------- --------- ---------
Cash and cash equivalents, end of year $ 852,652 $ 917,438 $ 945,222
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid (received) during the year for:
Income taxes $ (22,308) $ 46,818 $ (78,370)
Interest 55,206 50,310 59,551
========= ========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
-13-
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1. Nature of Business and Summary of Significant Accounting Policies
Nature of business:
The Company is engaged in a single line of business, the operation of
a chain of retail grocery stores. The stores are located in Georgia,
Tennessee, and Alabama and operate under the name of Shop-Rite
Supermarket.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all
highly-liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Inventories:
Inventories are stated at the lower of average cost or market.
Depreciation of property and equipment:
Depreciation is provided on the straight-line and declining-balance
methods at rates based upon the estimated useful lives of the various
classes of depreciable property.
Advertising costs:
Advertising costs are charged to operations when incurred.
Advertising costs charged to operations were $495,680, $431,188, and
$454,847 in 2000, 1999, and 1998 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.
-14-
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 2. Securities Purchased Under Agreement to Resell
Included in cash and short-term investments are securities purchased
under agreement to resell. The Company invests excess funds in U.S.
Government or U.S. Government Agency securities which are purchased
under an agreement to resell (reverse repurchase agreement). The
securities are purchased from a bank but do not constitute deposits
at the bank and are not insured by the Federal Deposit Insurance
Corporation. The bank maintains possession 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
June 3, 2000 and May 29, 1999. Amounts outstanding under the
agreement were $161,256 at May 30, 1998.
Note 3. Short-Term Borrowings
The Company had a line-of-credit agreement with a bank totaling
$600,000 at June 3, 2000. The Company had line-of-credit agreements
with a bank and a major supplier totaling $1,100,000 at May 29, 1999.
During 2000 and 1999, 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 $600,000. The
line of credit is collateralized by a $434,887 certificate of deposit
owned by the Company. Outstanding balances under this line-of-credit
were $9,956 and $156,790 at June 3, 2000 and May 29, 1999,
respectively.
Short-term borrowings at June 3, 2000, and May 29, 1999, include
unsecured notes payable totaling $118,719 and $150,165, respectively,
to Michael and Diana Richardson, principal shareholders of the
Company, and to their son, Matthew Richardson. 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 8.21% and 7.84% at June 3, 2000, and May
29, 1999, 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 $54,309 and
$154,703 net of accumulated depreciation of $592,904 and $492,511 at
June 3, 2000, and May 29, 1999, 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
-----------
2001 $66,824
2002 3,947
---------
70,053
Less amount representing interest (2,828)
---------
Total obligation under capital leases 67,225
Less current maturities of obligation under
capital leases (63,321)
---------
$ 3,904
=========
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 June 3, 2000:
Fiscal
Year Ending
-----------
2001 $ 446,002
2002 425,502
2003 268,122
2004 136,960
2005 24,220
------------
Total $ 1,300,806
============
-16-
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 4. Lease Commitments (continued)
Operating leases: (continued)
Rental expense for the fiscal years ended June 3, 2000, May 29, 1999,
and May 30, 1998, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals $ 446,002 $ 445,426 $ 433,594
Contingent rentals based on sales 15,389 4,963 11,985
--------- --------- ---------
Total $ 461,391 $ 450,389 $ 445,579
========= ========= =========
</TABLE>
Note 5. Federal and State Income Taxes
The components of income tax expense for the fiscal years ended June
3, 2000, May 29, 1999, and May 30, 1998, are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Current tax expense:
Federal $ 4,583 $ (7,704) $ 15,729
State 993 (2,231) 6,989
--------- --------- ---------
5,516 (9,935) 22,718
--------- --------- ---------
Deferred tax expense:
Federal (22,431) (18,369) 13,466
State (5,317) (3,800) 768
--------- --------- ---------
(27,748) (22,169) 14,234
--------- --------- ---------
Total income tax expense (benefit) $ (22,232) $ (32,104) $ 36,952
========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax expense (benefit)
computed at the statutory rate $ (11,000) $ (18,500) $ 31,000
State income tax, net of federal
income tax benefit (3,700) (4,500) 5,900
Other (7,532) (9,104) 52
--------- --------- ---------
Total income tax expense (benefit) $ (22,232) $ (32,104) $ 36,952
========= ========= =========
</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 June 3, 2000, and May 29,
1999, are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Assets:
Deferred income $(17,655) $(23,708)
Other (17,603) (7,311)
Liabilities:
Depreciable basis of property and equipment 46,926 66,925
Other 919 4,429
-------- --------
$ 12,587 $ 40,335
======== ========
</TABLE>
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
2000 and 1999.
-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
$611,617 at June 3, 2000. 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 their son,
Matthew Richardson. 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.
-19-
