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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended April 30, 1999
Commission file number 0-10146
ABRAMS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-0522129
- -------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1945 The Exchange, Suite 300, Atlanta, GA 30339
- -------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 953-0304
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class: which registered:
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.00 Par Value Per Share
(Title of Class)
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 the 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. _____
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AS OF JUNE 15, 1999, WAS $7,032,322. SEE PART III. THE NUMBER OF
SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING AS OF JUNE 15, 1999, WAS
2,936,356.
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION CALLED FOR BY PART III (ITEMS 10, 11, AND 12) IS
INCORPORATED HEREIN BY REFERENCE TO THE REGISTRANT'S DEFINITIVE PROXY STATEMENT
FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS WHICH IS TO BE FILED PURSUANT TO
REGULATION 14A.
PART I
ITEM 1. BUSINESS.
Abrams Industries, Inc. engages in (i) construction of retail and
commercial projects; (ii) manufacturing store fixtures, bank fixtures and
display units for retail outlets; and (iii) asset management, development and
re-development of income-producing properties, including acquisition,
investment, management and sale.
The Company was organized under Delaware law in 1960 to succeed to the
business of A. R. Abrams, Inc., which was founded in 1925 by Alfred R. Abrams as
a sole proprietorship. In 1984, the Company changed its state of incorporation
from Delaware to Georgia. As used herein, the term "Company" refers to Abrams
Industries, Inc. and its subsidiaries and predecessors, unless the context
indicates otherwise.
Financial information by operating segment is set forth in Note 13 to
the Consolidated Financial Statements of the Company.
CONSTRUCTION SEGMENT
The Company, through its wholly owned subsidiary, Abrams Construction,
Inc., has engaged in the construction business since 1925. Although the Company
does work throughout much of the United States, it concentrates its activities
principally in the South. Construction activities consist primarily of new
construction, expansion, and remodeling of retail store buildings, banks, and
shopping centers.
Construction contracts are obtained by competitive bid and by
negotiation. Generally, purchasing of materials and services for the Company's
construction operations is done on a project-by-project basis.
MANUFACTURING SEGMENT
The Company, through its wholly owned subsidiary, Abrams Fixture
Corporation, has engaged in manufacturing and selling store fixtures since 1946,
and has been designing and producing point-of-purchase and other displays since
1975. The Company engineers and fabricates displays, check-out counters,
cabinets, tables and other store fixtures of wood, metal and plastic laminate
for sale primarily to several of the larger national retail store chains.
Substantially all of the store fixtures are fabricated to meet the customer's
requirements for type, size, shape and color and are generally produced against
specific orders. The Company also produces custom-designed point-of-purchase
display units which are sold to floorcovering and wallcovering manufacturers,
distributors, and retailers.
In 1997, the Company began manufacturing and installing custom designed
bank fixtures, including structural wall and ceiling components, for branch
banks in supermarkets throughout the United States.
During the summer of 1998, the Company moved into its new manufacturing
facility. This facility is owned by the Real Estate Segment and leased to the
Manufacturing Segment. See "ITEM 2. PROPERTIES".
The Company maintains raw material inventories of items such as lumber,
plywood, metals, particle board, laminates, and hardware. In the opinion of
management, the raw materials and supplies utilized by this Segment of the
Company are available from numerous sources.
REAL ESTATE SEGMENT
The Company, through its wholly owned subsidiary, Abrams Properties,
Inc., has engaged in real estate development, redevelopment and asset management
activities since 1960. These activities have involved primarily the development
and management of shopping centers in the Southeast and Midwest. Selection of
target markets; evaluation and acquisition of sites; marketing to prospective
tenants; negotiation of tenant leases; securing construction and permanent
financing; contracting for design and construction; management of construction;
expansion, renovation and re-tenanting of properties; maintenance of buildings
and grounds of owned and leased properties; and marketing and sale of properties
to investors are all part of the Company's asset management and development
activities. In 1998, the Company began investing in existing income-producing
properties, including office and retail originally developed by others. Also in
1998, the Company developed an industrial facility for the Manufacturing Segment
and in order to diversify the Company's real estate portfolio.
Excluding the Newnan, Georgia shopping center, which was sold
subsequent to April 30, 1999, the Company currently owns and manages six
shopping centers, all of which are held as long-term investments. Five of the
centers were developed by the Company, and one was purchased. See "ITEM 2.
PROPERTIES - Owned Shopping Centers". The Company is also lessee and manager of
nine Company- developed shopping centers which were sold and leased back by the
Company. See "ITEM 2. PROPERTIES - Leaseback Shopping Centers". Kmart
Corporation is an anchor tenant in most of the Company's shopping centers. The
Company also owns two office properties. See "ITEM 2. PROPERTIES - Office
Buildings".
EMPLOYEES AND EMPLOYEE RELATIONS
At April 30, 1999, the Company employed 171 salaried employees and 163
hourly employees. The hourly employees at Abrams Fixture Corporation were
formerly represented by one union pursuant to a contract which expired in April
1999. The Company has no other union agreements. On its construction jobs, the
Company utilizes local labor whenever practicable, paying the prevailing wage
scale. The Company believes that its relations with its employees are good.
SEASONAL NATURE OF BUSINESS
The Company's business has historically been slightly seasonal, with
the Construction Segment being affected by weather conditions. The Company
limits this exposure by operating in several regions of the country, with
operations primarily in the southern United States where favorable weather
conditions prevail for most of the year. The business of the Real Estate Segment
and Manufacturing Segment is generally less seasonal.
COMPETITION
The businesses of the Company are highly competitive. In its
Construction and Manufacturing Segments, the Company competes with a large
number of national and local construction companies and fixture manufacturers
and suppliers, many of which have greater financial resources than the Company.
The Company also competes with smaller specialized companies. The Real Estate
Segment also operates in an extremely competitive environment, with numerous
companies competing for available financing, properties, tenants and investors.
PRINCIPAL CUSTOMERS
During fiscal 1999, the Company derived approximately 53%
($100,585,000) of its consolidated revenues from direct transactions with The
Home Depot, Inc. These revenues resulted principally from construction
activities and sales of manufactured store fixtures. See Note 13 to the
Consolidated Financial Statements of the Company. No other single customer
accounted for 10% or more of the Company's consolidated revenues during the
year.
BACKLOG
The following table indicates the backlog of contracts, orders,
expected rentals and real estate sales for the next twelve months by industry
segment:
April 30, April 30,
1999 1998
--------------------------------------------------------------------------
Construction $54,460,000 $50,880,000
Manufacturing 12,890,000 4,603,000
Real Estate 16,876,000 9,928,000
-------------------------------------------------------------------------
Total Backlog $84,226,000 $65,411,000
=========================================================================
The Company estimates that most of the backlog at April 30, 1999, will
be completed prior to April 30, 2000. No assurance can be given as to future
backlog levels or whether the Company will realize earnings from the revenues
resulting from the backlog at April 30, 1999.
REGULATION
The Company is subject to the authority of various state and local
regulatory agencies concerned with the licensing of contractors, but it has
experienced no material difficulty in complying with such requirements. The
Company is also subject to local zoning regulations and building codes in
performing its construction and real estate activities. Management believes that
it is in substantial compliance with all such governmental regulations.
Management believes that compliance with federal, state and local provisions
which have been enacted or adopted for regulating the discharge of materials
into the environment does not have a material effect upon the capital
expenditures, earnings and competitive position of the Company.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company are as follows:
Name and Age Positions with the Company Officer Since
___________________________________________________________________________________________________________________________
Alan R. Abrams (44) Co-Chairman of the Board since August 1998 and a Director of the 1988
Company since 1992, he has been Chief Executive Officer since
July 1999. From May 1998 to July 1999, he was President and
Chief Operating Officer. He served as Executive Vice President
from August 1997 to May 1998. From 1994 to 1998 he served as
President and from 1997 to 1998 as Chief Executive Officer of
Abrams Properties, Inc. Prior to that he served as Vice
President of Abrams Properties, Inc.
____________________________________________________________________________________________________________________________
J. Andrew Abrams (39) Co-Chairman of the Board since August 1998 and a Director of the 1988
Company since 1992, he has been President and Chief Operating
Officer since July 1999. From August 1997 to July 1999, he was
Executive Vice President. He has also served as Chief Executive
Officer of Abrams Fixture Corporation since July 1997. From
1994 to July 1997, he served as Vice President of Abrams
Fixture Corporation. Prior to that he served as Vice President
of Abrams Properties, Inc.
____________________________________________________________________________________________________________________________
Name and Age Positions with the Company Officer Since
____________________________________________________________________________________________________________________________
B. Michael Merritt (49) President, Abrams Construction, Inc. since May 1995. Prior to that he 1986
served as Executive Vice President of Abrams Construction, Inc.
____________________________________________________________________________________________________________________________
Richard V. Priegel (46) President, Abrams Fixture Corporation since 1990 and Chief 1988
Operating Officer, Abrams Fixture Corporation since 1997. Prior
to 1990, he served as Executive Vice President and Chief
Financial Officer of Abrams Fixture Corporation.
____________________________________________________________________________________________________________________________
Gerald T. Anderson, II (36) President and Chief Executive Officer, Abrams Properties, Inc. 1995
since May 1998. Prior to that he served as Executive Vice
President and Vice President of Abrams Properties, Inc. Before
joining Abrams Properties, Inc. in 1995, he was employed for
four years by JDN Realty Corporation as Vice
President/Development Leasing.
____________________________________________________________________________________________________________________________
Melinda S. Garrett (43) Chief Financial Officer since February 1997. She has also served 1990
Abrams Properties, Inc. as Chief Financial Officer since May
1998, Vice President since 1993 and Treasurer since 1990.
Executive Officers of the Company are elected by the Board of Directors
of the Company or the Board of Directors of the respective subsidiary to serve
at the pleasure of the Board. Bernard W. Abrams, a member of the Board of
Directors, and Edward M. Abrams, also a member of the Board of Directors, are
brothers. Alan R. Abrams and J. Andrew Abrams are sons of Edward M. Abrams and
nephews of Bernard W. Abrams. There are no other family relationships between
any Executive Officer or Director and any other Executive Officer or Director of
the Company.
ITEM 2. PROPERTIES.
In October 1997, the Company, through its Real Estate Segment,
purchased its corporate headquarters building, which contains approximately
66,000 square feet of office space. The building is located in the North X
Northwest Office Park, 1945 The Exchange, in suburban Atlanta, Georgia. The
Parent Company and the Real Estate and Construction Segments are located in this
building. In addition to the 29,200 square feet of offices occupied by the
Abrams entities, another 34,800 square feet is leased to unrelated tenants, and
the remaining 2,000 square feet is available for lease.
During the summer of 1998, the Manufacturing Segment relocated its wood
manufacturing, warehousing and metal fabrication facilities to a 250,000 square
foot facility, owned by the Real Estate Segment and located in Lithia Springs,
Georgia, a suburb of Atlanta. The former wood manufacturing facility, which
contains approximately 255,000 square feet of light industrial, warehouse and
office space, has been marketed for sale. In June 1999, the Company received
notice from the Georgia State Properties Commission that the former wood
manufacturing facility is needed for public use. The Georgia World Congress
Center Authority (GWCCA) has made the determination to acquire the property and
has offered to acquire the property for $3,500,000. The Company has responded
with what it believes to be a reasonable counterproposal. GWCCA, in its sole
discretion, may choose to accept the counterproposal, negotiate further, or
proceed with eminent domain.
In May 1999, the Company sold its shopping center located in Newnan,
Georgia. The sale was structured as a tax-deferred, like-kind exchange pursuant
to Internal Revenue Code Section 1031, which allows a deferral of the tax gain
if the Company utilizes the proceeds of the sale to purchase other real estate
within 180 days of the sale. The Company recognized a gain on the sale of this
property for financial statement purposes in the first quarter of fiscal year
ending 2000. See "ITEM 7. LIQUIDITY AND CAPITAL RESOURCES" for discussion
regarding the purchase in July 1999, of other real estate located in
Jacksonville, Florida.
In addition, the Company owns, or has an interest in, the following
properties:
OWNED SHOPPING CENTERS
As of April 30, 1999, the Company's Real Estate Segment owned six
shopping centers which it developed and one which it purchased. The following
chart provides relevant information relating to the owned shopping centers:
Principal
Amount of
Leasable Debt Debt
Square Rental Cash Service Outstanding
Feet In Year(s) Income Flow Payments As Of April 30,
Location Acres Building(s) Completed 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
1100 W. Argyle Street 10.5 110,046 1972, 1996 $ 508,148 $ 393,890 $ 397,249 $ 3,293,584
Jackson, MI
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44-56 Bullsboro Drive 16.3 174,059 1974, 1987, 1,024,152 843,213 655,671 5,331,968
Newnan, GA 1989
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1075 W. Jackson Street 7.3 92,120 1980, 1992 475,047 433,707 405,764 3,099,490
Morton, IL
- ------------------------------------------------------------------------------------------------------------------------------------
2500 Airport Thruway 8.0 87,543 1980, 1988 441,286 401,755 391,872 2,609,719
Columbus, GA
- ------------------------------------------------------------------------------------------------------------------------------------
1500 Placida Road 28.7 213,739 1990 1,956,705 1,658,698 1,352,167 12,706,660
Englewood, FL
- ------------------------------------------------------------------------------------------------------------------------------------
15201 N. Cleveland 72.3 293,801 1993, 1996 2,709,807 2,078,001 1,558,105 13,727,932
North Fort Myers, FL
- ------------------------------------------------------------------------------------------------------------------------------------
5700 Harrison Avenue 10.8 86,396 1982 518,426 317,219 -- --
Cincinnati, OH
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flow is defined as net operating income before the following:
depreciation, amortization of loan and lease costs, interest and
principal payments on mortgage notes or other debt.
Includes principal and interest.
Exculpatory provisions limit the Company's liability to the respective
mortgaged properties, except for the North Fort Myers, Florida loan
which has been guaranteed by Abrams Properties, Inc. See Notes 8 and 9
to the Consolidated Financial Statements of the Company.
Shopping center sold in May 1999, as stated above.
Land is leased, not owned.
The Columbus, Georgia center is owned by Abrams-Columbus Limited
Partnership, in which Abrams Properties, Inc. serves as general partner
and owns an 80% interest.
Acquired by the Company in 1998.
The two centers located in Morton, Illinois, and Columbus, Georgia, are
leased exclusively to Kmart. The Columbus, Georgia Kmart lease expires in 2008
and has ten five-year renewal options, and the Morton, Illinois Kmart lease
expires in 2016 and has eight five-year renewal options. Anchor lease terms for
the centers not leased exclusively to Kmart are shown in the table below.
Lease Options
Anchor Square Expiration To
Location Tenant Footage Date Renew
- ------------------------------------------------------------------------------------------------------------------------------------
Jackson, MI Big Lots 26,022 2007 2 for 5 years each
Kroger 63,024 2021 6 for 5 years each
- ------------------------------------------------------------------------------------------------------------------------------------
Newnan, GA Hastings 24,986 2009 3 for 5 years each
Kmart 82,779 2017 10 for 5 years each
Kroger 49,319 2012 6 for 5 years each
- ------------------------------------------------------------------------------------------------------------------------------------
Englewood, FL Beall's 31,255 2006 4 for 5 years each
Kmart 86,479 2015 10 for 5 years each
Publix 48,555 2010 4 for 5 years each
Walgreens 13,500 2040 None
- ------------------------------------------------------------------------------------------------------------------------------------
North Fort Myers, FL AMC 54,805 2016 4 for 5 years each
Beall's 35,600 2009 9 for 5 years each
Food Lion 33,000 2013 4 for 5 years each
Jo-Ann Fabrics 16,000 2004 3 for 5 years each
Kmart 107,806 2018 10 for 5 years each
- ------------------------------------------------------------------------------------------------------------------------------------
Cincinnati, OH Kroger 42,456 2000 4 for 5 years each
- ------------------------------------------------------------------------------------------------------------------------------------
Property was sold in May 1999, as stated above.
Tenant may terminate its lease with six months notice at five year
intervals beginning in 2010.
With the exception of the Kmart lease in Columbus, Georgia, all of the
anchor tenant and most of the small shop leases provide for contingent rentals
if sales exceed specified amounts. Most major tenants have rights to offset
those contingent rentals against certain annual operating expenses paid by them.
In 1999, the Company received $85,152 in contingent rentals, net of offsets,
which amounts are included in the aggregate rentals set forth above.
Typically, tenants are responsible for their pro rata share of ad
valorem taxes, insurance and common area maintenance (subject to the right of
offset discussed above). Kmart has complete maintenance responsibility for the
Morton, Illinois and Columbus, Georgia centers.
LEASEBACK SHOPPING CENTERS
The Company, through its Real Estate Segment, is lessee of nine
shopping centers which it developed, sold, and leased back under leases expiring
from years 2001 to 2014. The nine centers are subleased by the Company to Kmart
Corporation for periods corresponding to the Company's leases. The Kmart
subleases provide for contingent rentals if sales exceed specified amounts, and
contain ten five-year renewal options, except Jacksonville, Florida, which has
eight five-year renewal options. The Company's leases with the fee owners
contain renewal options coextensive with Kmart's renewal options. Kmart is
responsible for insurance and ad valorem taxes, but has the right to offset
against contingent rentals any such taxes paid in excess of specified amounts.
In 1999, the Company received $86,121 in contingent rentals, net of offsets,
which amounts are included in the aggregate annual rentals set forth below. The
Company has responsibility for structural and roof maintenance of the buildings.
The Company also has responsibility for parking lots and driveways, except
routine upkeep, which is the responsibility of the tenant, Kmart. The Company's
leases contain exculpatory provisions which limit the Company's liability to its
interest in the respective subleases.
The following chart provides certain information relating to the
leaseback shopping centers:
- ---------------------------------------------------------------------------------------------------------------------------------
Square Rental Rent
Feet in Year(s) Income Expense
Location Acres Building(s) Completed 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Bayonet Point, FL 10.8 109,340 1976, 1994 $366,658 $269,564
- ---------------------------------------------------------------------------------------------------------------------------------
Orange Park, FL 9.4 84,180 1976 264,000 226,796
- ---------------------------------------------------------------------------------------------------------------------------------
Davenport, IA 10.0 84,180 1977 284,771 211,011
- ---------------------------------------------------------------------------------------------------------------------------------
Minneapolis, MN 7.1 84,180 1978 342,920 230,570
- ---------------------------------------------------------------------------------------------------------------------------------
West St. Paul, MN 10.0 84,180 1978 298,465 229,630
- ---------------------------------------------------------------------------------------------------------------------------------
Ft. Smith, AR 9.2 106,141 1979, 1994 255,350 223,195
- ---------------------------------------------------------------------------------------------------------------------------------
Jacksonville, FL 11.6 97,032 1979 303,419 258,858
- ---------------------------------------------------------------------------------------------------------------------------------
Louisville, KY 9.3 72,897 1979 290,000 251,279
- ---------------------------------------------------------------------------------------------------------------------------------
Richfield, MN 5.7 74,217 1979 300,274 241,904
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICE BUILDINGS
The Company, through its Real Estate Segment, owns two office
properties: the corporate headquarters building located at 1945 The Exchange,
Atlanta, Georgia, and an office park in northwest suburban Atlanta, Georgia.
Both were acquired in fiscal year 1998. The following chart provides pertinent
information relating to the office buildings:
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount of
Leasable Debt Debt
Square Rental Cash Service Outstanding
Feet In Year(s) Income Flow Payments As Of April 30,
Location Acres Building(s) Completed 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
1945 The Exchange 3.12 65,880 1974, 1997 $1,078,842 $609,980 $371,578 $5,028,153
Atlanta, GA
- ------------------------------------------------------------------------------------------------------------------------------------
1501-1523 Johnson Ferry Rd. 8.82 121,476 1980,1985 1,703,676 971,644 539,270 6,404,873
Marietta, GA
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flow is defined as net operating income before the following:
depreciation, amortization of loan and lease costs, interest and
principal payments on mortgage notes and other debt.
Includes principal and interest.
Corporate headquarters building of which the Parent Company,
Construction Segment, and Real Estate Segment occupy approximately
29,200 square feet. Rental income and cash flow includes
intercompany rent at market rates of $523,015 paid by the Parent
Company and the Construction and Real Estate Segments. The debt is
guaranteed by Abrams Properties, Inc.
The Company, through a subsidiary of its Real Estate Segment, is the
lessee of 16,859 square feet of space under a master lease agreement to
satisfy a condition required by the lender. Rental income and cash flow
include intercompany rent at market rates of $166,076 paid by the Real
Estate Segment.
LAND LEASED OR HELD FOR FUTURE DEVELOPMENT OR SALE
The Company, through its Real Estate Segment, owns or has an interest
in the following land leased or held for future development or sale:
- -----------------------------------------------------------------------------------------------------------------------------------
Year Intended
Location Acres Acquired Use
- -----------------------------------------------------------------------------------------------------------------------------------
W. Argyle Street 0.9 1972 One outlot or retail shops
Jackson, MI
- -----------------------------------------------------------------------------------------------------------------------------------
Kimberly Road & Fairmont Street 6.0 1977 Outlot, plus food store and/or retail shops
Davenport, IA
- -----------------------------------------------------------------------------------------------------------------------------------
Dixie Highway 4.7 1979 Food store and/or retail shops
Louisville, KY
- -----------------------------------------------------------------------------------------------------------------------------------
West 15th Street 1.4 1979 Two outlots
Washington, NC
- -----------------------------------------------------------------------------------------------------------------------------------
Mundy Mill Road 5.3 1987 Retail shops and/or four outlots
Oakwood, GA
- -----------------------------------------------------------------------------------------------------------------------------------
North Cleveland Avenue 12.4 1993 Six outlots, anchor pads and retail shops
North Fort Myers, FL
- -----------------------------------------------------------------------------------------------------------------------------------
"Outlot" as used herein refers to a small parcel of land reserved
from the shopping center parcel and is generally sold for,
leased for, or developed as, a fast-food operation, bank or similar use.
Originally part of Jackson, Michigan shopping center. Redevelopment
created separate outlot in 1996.
Leased under leases terminating in years 2005 and 2010 with a right
to extend for three additional five-year periods. Both outlots are
subleased for terms coextensive with the Company's lease.
There is no debt on any of the above properties, except for the North
Fort Myers, Florida retail shop land. See Note 9 to the Consolidated Financial
Statements of the Company. The Company will either develop the properties
described above or will hold them for sale or lease to others.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any pending legal proceedings which are likely, in the opinion of
management, to have a material, adverse effect on the Company's operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
____________________________________________________________________________________________________________________
| | DIVIDENDS PAID
| CLOSING MARKET PRICES | PER SHARE
|______________________________________________________________|___________________________
| FISCAL | FISCAL | FISCAL | FISCAL
| 1999 | 1998 | 1999 | 1998
|______________________________|_______________________________|_____________|_____________
| HIGH LOW | HIGH LOW | |
| TRADE TRADE | TRADE TRADE | |
_________________________|______________________________|_______________________________|_____________|_____________
| | | |
First Quarter | $7.500 $6.250 | $7.875 $5.000 | $.050 | $.070
_________________________|______________________________|_______________________________|_____________|_____________
Second Quarter | 7.750 5.500 | 7.625 5.375 | .050 | .040
_________________________|______________________________|_______________________________|_____________|_____________
Third Quarter | 7.750 4.125 | 8.406 6.000 | .050 | .040
_________________________|______________________________|_______________________________|_____________|_____________
Fourth Quarter | 6.875 3.031 | 8.813 6.500 | .050 | .040
_________________________|______________________________|_______________________________|_____________|_____________
The common stock of Abrams Industries, Inc. is traded over-the-counter
in the NASDAQ National Market System (Symbol: ABRI). The approximate number of
holders of common stock was 500 (including shareholders of record and shares
held in street name) at May 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data for the Company
and should be read in conjunction with the consolidated financial statements and
notes thereto.
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues $188,971,527 $178,590,842 $136,123,601 $134,299,240 $122,608,682
- ----------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ (676,031) $ 2,999,478 $ 2,391,398 $ (304,188) $ (331,019)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Share* $ (.23) $ 1.02 $ .81 $ (.10) $ (.11)
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding at Year-End 2,936,356 2,936,356 2,938,356 2,970,856 2,993,540
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Paid Per Share $ .20 $ .19 $ .07 $ .105 $ .12
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity $ 23,272,560 $ 24,535,863 $ 22,125,214 $ 20,152,376 $ 20,872,035
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity Per Share* $ 7.93 $ 8.36 $ 7.53 $ 6.78 $ 6.97
- ----------------------------------------------------------------------------------------------------------------------------------
Working Capital $ 9,885,902 $ 15,283,031 $ 13,075,119 $ 10,417,697 $ 11,447,872
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization Expense $ 3,123,369 $ 2,853,634 $ 3,401,334 $ 3,242,738 $ 3,078,878
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $126,132,540 $121,309,444 $ 91,499,438 $ 90,635,098 $ 88,576,745
- ----------------------------------------------------------------------------------------------------------------------------------
Income-Producing Property Under
Development, Income-Producing
Properties and Property, Plant and
Equipment, net $ 64,680,003 $ 67,119,159 $ 45,028,355 $ 54,493,842 $ 55,065,157
- ----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 56,554,488 $ 62,938,807 $ 41,118,885 $ 51,202,536 $ 51,580,229
- ----------------------------------------------------------------------------------------------------------------------------------
Return on Average Shareholders' Equity (2.8%) 12.9% 11.3% (1.5%) (1.6%)
==================================================================================================================================
1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues $123,602,954 $82,878,911 $83,818,090 $78,020,796 $54,887,568 $50,331,871
- ----------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 1,359,408 $ 1,710,381 $ 1,021,303 $ 1,027,373 $ 1,534,063 $ 1,435,567
- ----------------------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Share* $ .46 $ .57 $ .34 $ .34 $ .51 $ .48
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding at Year-End 2,993,540 2,977,540 2,977,540 2,977,540 2,994,039 2,978,039
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Paid Per Share $ .11 $ .11 $ .20 $ .20 $ .20 $ .18
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity $ 21,562,279 $20,484,880 $19,102,028 $18,676,233 $18,304,102 $17,310,146
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity Per Share* $ 7.20 $ 6.84 $ 6.38 $ 6.24 $ 6.11 $ 5.78
- ----------------------------------------------------------------------------------------------------------------------------------
Working Capital $ 9,445,073 $ 8,030,898 $ 2,783,427 $ 3,140,650 $21,575,826 $18,830,026
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization Expense $ 2,787,078 $ 2,162,472 $ 2,106,703 $ 1,938,687 $ 1,707,985 $ 1,668,105
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 92,732,567 $90,537,249 $78,260,810 $76,606,498 $64,047,108 $56,318,968
- ----------------------------------------------------------------------------------------------------------------------------------
Income-Producing Property Under
Development, Income-Producing
Properties and Property, Plant and
Equipment, net $ 56,787,858 $64,340,348 $52,976,540 $49,999,625 $22,797,353 $24,088,285
- ----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 52,637,298 $55,197,178 $41,513,804 $39,104,720 $29,955,918 $30,071,322
- ----------------------------------------------------------------------------------------------------------------------------------
Return on Average Shareholders' Equity 6.5% 8.6% 5.4% 5.6% 8.6% 8.5%
==================================================================================================================================
*Adjusted to reflect stock dividends and stock splits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED APRIL 30, 1999, 1998 AND 1997.
RESULTS OF OPERATIONS
REVENUES
Revenues for 1999 were $188,971,527, compared to $178,590,842 and
$136,123,601, for 1998 and 1997, respectively. This represents an increase in
Revenues of 6% and 39% from those of 1998 and 1997, respectively. Revenues
include Interest income of $431,147, $684,270, and $452,992, for 1999, 1998, and
1997, respectively, and Other income of $56,532, $124,357, and $46,262, for
1999, 1998, and 1997, respectively. The figures in Chart A below do not include
Interest income, Other income or Intersegment revenues. When more than one
segment is involved, Revenues are reported by the segment that sells the product
or service to an unaffiliated purchaser.
REVENUE SUMMARY BY SEGMENT
(Dollars in Thousands)
CHART A
Years Ended Increase Years Ended Increase
April 30, (Decrease) April 30, (Decrease)
-------------------------------------------------- ----------------------------------------------------
1999 1998 Amount Percent 1999 1997 Amount Percent
-------------------------------------------------- ----------------------------------------------------
Construction $159,273 $ 141,453 $ 17,820 13 $159,273 $ 97,977 $ 61,296 63
Manufacturing 16,761 14,970 1,791 12 16,761 16,662 99 1
Real Estate 12,450 21,359 (8,909) (42) 12,450 20,985 (8,535) (41)
------------------------------------ ------------------------------------
Total $188,484 $ 177,782 $ 10,702 6 $188,484 $ 135,624 $ 52,860 39
==================================== ====================================
NOTES:
The increases in 1999 from those in 1998 and 1997 primarily are
attributable to the addition of new customers. The amounts reported
exclude $1,114,823 in 1999 and $5,026,181 in 1998 related to construction
of a new facility for the Manufacturing Segment, and $345,000 in 1997
related to construction work at two shopping centers developed by the Real
Estate Segment.
The increase in 1999 from that in 1998 primarily is attributable to an
increase in business from an existing customer. The amounts reported
exclude $501,220 in 1999 and $181,003 in 1998 related to manufactured items
supplied to one of the Construction Segment's customers.
Rental revenues for 1999 were $12,449,850, compared to $11,334,279 in 1998
and $11,770,889 in 1997. Rental revenues exclude $1,485,038 in 1999 and
$200,615 in 1998 received from affiliated companies. Revenues from sales of
real estate were $10,024,650 in 1998 and $9,214,758 in 1997. There were no
sales of real estate in 1999. The 1998 real estate revenues include sales of
a shopping center in Oakwood, Georgia, freestanding Kmarts in Tifton,
Georgia, and Newark, Ohio, and an outparcel in North Fort Myers, Florida.
The 1997 real estate sales include outparcel sales in Englewood, Florida,
and Oakwood, Georgia, and freestanding Kmarts in Niles, Michigan, Shawnee,
Oklahoma, and Warner Robins, Georgia.
COSTS: APPLICABLE TO SEGMENT REVENUES
As a percentage of total Segment Revenues (See Chart A), the applicable
total Segment Costs (See Chart B) of $171,114,071 for 1999, $155,520,419 for
1998, and $115,412,086 for 1997, were 91%, 87%, and 85%, respectively.
COSTS: APPLICABLE TO REVENUES SUMMARY BY SEGMENT
(Dollars in Thousands)
CHART B
Percent of
Segment Revenues
Years Ended For Years Ended
April 30, April 30,
------------------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------------------- -----------------------------------------
Construction $150,603 $133,430 $ 91,638 95 94 94
Manufacturing 13,589 10,547 10,412 81 70 62
Real Estate 6,922 11,543 13,362 56 54 64
-------------------------------------------------
Total $171,114 $155,520 $115,412 91 87 85
=================================================
NOTES:
The increases in costs and percentages in 1999 as compared to 1998 and
1997 are a result of a loss in production efficiencies and increased labor
costs incurred during and after the move to the new manufacturing
facility. As of May 31, 1999, the Company had reduced its Manufacturing
labor force by 27% since it reached its peak in December, 1998. Management
is continuing its review of operations to identify cost saving
opportunities which would generate increased gross margins.
The decrease in the dollar amount in 1999 is attributable to the absence
of real estate sales during the year, as compared to $5,157,462 and
$4,085,881 in costs attributable to real estate sales in 1998 and 1997,
respectively. The decrease in the dollar amount and percentage in 1999 as
compared to 1997 is also attributable to a 1997 provision for impairment
loss of $2,750,000 to reduce the net carrying value of the North Fort
Myers, Florida shopping center to estimated fair value. There was no
impairment loss provision in 1999 or 1998. See Note 6 to the Consolidated
Financial Statements for further discussion.
SELLING, SHIPPING, GENERAL AND ADMINISTRATIVE EXPENSES
For the years 1999, 1998 and 1997, Selling, shipping, general and
administrative expenses (See Chart C) were $13,558,676, $13,571,655 and
$12,084,015, respectively. As a percentage of Consolidated Revenues, these
expenses were 7% for 1999, 8% for 1998, and 9% for 1997. In reviewing Chart C,
the reader should recognize that the volume of revenues generally will affect
these amounts and percentages. The percentages in Chart C are based on expenses
as they relate to segment revenues in Chart A, with the exception that Parent
expenses and total expenses relate to Consolidated Revenues.
SELLING, SHIPPING, GENERAL AND ADMINISTRATIVE EXPENSES SUMMARY BY SEGMENT
(Dollars in Thousands)
CHART C
Percent of
Segment Revenues
Years Ended For Years Ended
April 30, April 30,
------------------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
------------------------------------------------- -----------------------------------------
Construction $ 4,584 $ 4,525 $ 3,386 3 3 3
Manufacturing 4,100 3,941 4,470 24 26 27
Real Estate 2,325 2,500 1,905 19 12 9
Parent 2,550 2,606 2,323 1 2 2
-------------------------------------------------
Total $13,559 $13,572 $12,084 7 8 9
=================================================
NOTES:
On a dollar basis comparison, the higher expenses in 1999 and 1998 as
compared to 1997 stemmed from increased incentive-based compensation
expenses which were a result of increased Segment profits.
The increase in the dollar amount of expenses in 1998 as compared to 1997
was attributable to increased employee compensation expenses which were a
result of increased Segment profits.
INTEREST COSTS
The majority of interest costs expensed of $5,262,399, $4,666,290, and
$4,779,102, in 1999, 1998, and 1997, respectively, is related to debt on real
estate and utilization of lines of credit. Interest costs increased in 1999
primarily due to the debt service on the $11,000,000 industrial development
revenue bonds issued to finance the Manufacturing Segment's new facility. See
"LIQUIDITY AND CAPITAL RESOURCES" below. Interest costs of $199,000, $112,000,
and $25,000, relating to properties under development in 1999, 1998, and 1997,
respectively, were capitalized.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
Property held for sale increased by $3,576,714 in 1999 as a result of
the reclassification of the shopping center in Newnan, Georgia, which was sold
in May 1999, as discussed in "Item 2. Properties." This property was previously
included in Income-producing properties. The only other property held for sale
at April 30, 1999, was the Company's former wood manufacturing facility in
Atlanta, Georgia. See previous discussion in "Item 2. Properties" regarding the
potential sale or eminent domain proceedings to acquire this facility. The
mortgage debt associated with both properties has been reclassified as
short-term.
Property, plant and equipment increased by $2,511,777 during 1999,
primarily as a result of the construction costs related to the completion of the
Manufacturing Segment's new facility. The facility was completed in early summer
1998 and is now fully operational. For further information related to the
financing of this property, see "LIQUIDITY AND CAPITAL RESOURCES".
LIQUIDITY AND CAPITAL RESOURCES
Except for certain real estate construction loans and occasional
short-term operating loans, the Company normally has been able to finance its
working capital needs through funds generated internally. If adequate funds are
not generated through normal operations, the Company has available bank lines of
credit. The Company has also developed relationships with various banks which
management believes could be sources for other short-term and long-term
financing, if required. Working capital decreased to $9,885,902 at the end of
1999, from $15,283,031 and $13,075,119, at the end of 1998 and 1997,
respectively. Operating activities used cash of $8,185,746. Investing activities
used cash of $3,855,868, primarily for construction of the Company's new
manufacturing facility. Financing activities provided cash of $6,249,694.
In April 1992, the Company secured a construction loan for the North
Fort Myers, Florida development from SunTrust Bank, Atlanta. The loan was
amended in April 1994, August 1995, March 1996, July 1997, March 1998, July
1998, and December 1998. The primary term of the construction financing was five
years, and the loan has been extended to June 2000, in accordance with the loan
agreement. The loan carries a floating interest rate of prime plus .375%. The
maximum amount to be funded will be determined by a formula based on future
development. As of April 30, 1999, the principal amount outstanding was
$13,727,933. Although the Company has periodically received extensions on this
loan, there can be no assurance it will be able to continue to do so. If future
extensions were not granted, it would be necessary for the Company to either
refinance or sell the development and pay off this loan prior to its due date.
There can be no assurance that sufficient proceeds from a refinancing or sale
will be available to pay off the loan prior to its maturity.
In August 1997, the Company refinanced the $2,100,000 construction loan
on its Jackson, Michigan shopping center with a permanent loan for $3,500,000.
The permanent loan has a term of 22 years and bears interest at 8.625%. The
provisions of the loan, as amended in August 1998, required the establishment of
a $500,000 letter of credit at closing which is to be used to pay down the loan
in August 1999, if certain leasing requirements are not met. As of April 30,
1999, these requirements have not been met, and there can be no assurance that
they will be met by August 1999.
In October 1997, the Company entered into an acquisition and
construction loan with SunTrust Bank, Atlanta, to fund the purchase and
renovations of the corporate headquarters building in Atlanta, Georgia. The
maximum amount of the loan is $5,200,000. The loan was amended in December 1998
to extend the maturity date to May 2000. There can be no assurance further
extensions will be granted. The Company has the option of paying interest at the
prime rate or based on the Eurodollar rate plus 2.0%, which may be locked in for
one, two, three, or six month periods at the Company's discretion. The Company
plans to refinance this loan prior to maturity, however, there can be no
assurance that a refinancing will take place prior to the loan's due date.
In November 1997, the Company closed on the $11,000,000, twenty-one
year bond financing for its new manufacturing facility. The bonds bear interest
at prevailing market rates, reset weekly. In an effort to minimize exposure to
interest rate fluctuations in connection with the bonds, the Company entered
into two separate interest rate swap agreements with SunTrust Bank, Atlanta, in
February 1998. The first swap agreement terminates in February 2001. The
notional amount reduces annually from $5,500,000 at inception to $5,300,000 at
the expiration of the agreement. The agreement calls for the Company to make
fixed rate payments to SunTrust of 5.57% per annum of the notional amount, in
exchange for SunTrust making floating rate payments based on the 30-day
Non-financial AA Commercial Paper rate. The second interest rate swap agreement
terminates in February 2003. The notional amount reduces annually from
$5,500,000 at inception to $5,057,500 at the expiration of the agreement. The
remaining terms of the second agreement are identical to the terms of the first
except the fixed rate payment is 5.67% per annum. The notional amounts of the
swap agreements are set to match the outstanding principal amount of the bonds.
The swap floating rates are reset weekly, and the Company settles with the
counterparty monthly. The Company expects the counterparty to the agreements to
abide by the terms of the agreements.
At April 30, 1999, the Company had unsecured committed lines of credit
totaling $13,000,000, of which $7,600,000 was outstanding and an additional
$500,000 was reserved for the letter of credit issued for the Jackson, Michigan
loan discussed above. The Company also had a committed line of credit totaling
$2,500,000, secured by the Manufacturing Segment's inventory and receivables, of
which $448,222 was outstanding at year end.
On April 30, 1999, in order to facilitate the sale of the Newnan,
Georgia shopping center, the Company drew $5,600,000 on the lines of credit to
have funds available to pay the related mortgage debt. This draw was repaid in
May 1999. In July 1999, the Company purchased an approximately 174,000 square
foot shopping center located in Jacksonville, Florida, for $9,000,000. The
purchase was financed with funds received from the sale of the Newnan, Georgia
shopping center, cash held by the Company, and the Company's lines of credit.
Subsequently, the Company closed on a permanent mortgage loan secured by the
property and used the proceeds to pay back the lines of credit. The permanent
loan, in the amount of $9,500,000, bears interest at 7.375% and is fully
amortizable over twenty years. Loan proceeds received in excess of the purchase
price were used to pay financing costs and are available for use for tenant
improvements and commissions on future leases. The loan may be called at any
time by the lender after September 1, 2002. If the loan were called, the Company
would have up to thirteen months to prepay the loan without penalty. In
conjunction with the loan, an Additional Interest Agreement was executed which
entitles the lender to be paid additional interest equal to fifty percent of the
quarterly net cash flow and fifty percent of the appreciation in the property
upon sale or refinance.
EFFECTS OF INFLATION ON REVENUES AND OPERATING PROFITS
The effects of inflation upon the Company's operating results are
varied. Inflation in the current year has been modest and has had minimal effect
on the Company. The Construction Segment subcontracts most of its work at fixed
prices, which normally will help that segment protect its profit margin
percentage.
In the Manufacturing Segment, the raw material prices were stable.
In the Real Estate Segment, many of the leases are long-term (over 20
years) with fixed rents except for contingent rent provisions by which the
Company may earn additional rent as a result of increases in tenants' sales. In
most cases, however, the contingent rent provisions permit the tenant to offset
against contingent rents any increases in ad valorem taxes over a specified
amount. If inflation were to rise, ad valorem taxes would probably increase
which, in turn, would cause a decrease in the contingent rents. Furthermore, the
Company has certain repair obligations, and the costs of repairs increase with
inflation.
Inflation causes a rise in interest rates, which has a positive effect
on investment income, but has a negative effect on profit margins because of the
increased costs of contracts, production, and operations. Overall, inflation
will tend to limit the Company's markets and, in turn, will reduce revenues as
well as operating profits.
YEAR 2000
The Year 2000 has presented a problem for companies who use computer
systems which were developed without the ability to properly recognize and
process data relating to the year 2000 and beyond. Such systems may include
hardware, software and other telecommunications information systems (IT), as
well as computer systems that do not relate to information technology, such as
building and other ancillary systems (non-IT). The Company, its vendors,
suppliers, and other significant third party service providers are all exposed
to the potential disruption of operations if such systems are not replaced or
remediated.
The Company substantially has completed its assessment and remediation
efforts for achieving Year 2000 compliance in its IT and non-IT systems. All
computer hardware and software have been inventoried and tested. The
Construction Segment has purchased a new Year 2000 compliant accounting software
package and upgraded its computer hardware system. The cost of the software and
hardware and the installation thereof is not considered to be material. The
Company installed the new hardware and software during the second quarter 1999
and began using it in the third quarter 1999. The Manufacturing Segment, at a
nominal cost, plans to upgrade its current accounting software to be Year 2000
compliant by August 1999, and the Real Estate Segment's accounting software is
Year 2000 compliant. Other non-compliant hardware and software review and
remediation costs are considered to be minimal.
The Company has conducted a written survey of its IT and non-IT
significant third party vendors and service providers to determine their Year
2000 compliance status. The responses have indicated these businesses will be
substantially compliant on a timely basis. The Company, however, cannot ensure
that various third parties with which it deals will be Year 2000 compliant. The
failure of such third parties, such as banks, significant customers, tenants and
vendors to become Year 2000 compliant on a timely basis could have an adverse
impact on the Company's business.
Uncertainty exists concerning the scope and magnitude of the most
reasonably likely worst case scenario. The Company has not developed a
contingency plan for dealing with any catastrophic failure of the government,
utility companies, lending institutions or other regulated agencies, but will
consider the need for such if public or other information regarding the state of
readiness of these entities or other significant third parties indicates
imminent problems.
There can be no assurance that the Company will be able to identify and
correct all aspects of the effect of the Year 2000 issue on the Company.
Management, however, does not believe that the Year 2000 issue will pose
significant problems in its IT or non-IT systems, or that resolution of any
potential problems with respect to these systems will have a material effect on
the Company's financial condition or results of operations. Readers are
cautioned that forward-looking statements regarding Year 2000 issues should be
read in conjunction with the Company's disclosures under the heading "Cautionary
statement regarding forward-looking information."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained or incorporated by reference in this
Annual Report on Form 10-K, including without limitation, statements containing
the words "believes," "anticipates," "expects," and words of similar import, are
forward-looking statements within the meaning of the federal securities laws.
Such forward-looking statements involve known and unknown risks, uncertainties
and other matters which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or uncertainties expressed or implied by such forward-looking
statements. Such risks, uncertainties and other matters include, but are not
limited to, Year 2000 compliance issues.
CONSIDERATION OF STRATEGIC ALTERNATIVES
The Company announced on June 8, 1999, that the Board of Directors
decided to investigate a wide range of possible strategic and financial
alternatives that may be available to maximize shareholder value. In connection
with this activity, the management of the Construction Segment approached the
Company in order to begin discussing the possibility of purchasing their
segment's business. After a period of investigation and deliberation, those
discussions were terminated. The Company has not formalized any alternative
strategy, and although the investigation of other possible strategic and
financial alternatives is ongoing, there is no assurance whatsoever that any
transaction ultimately will result.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is the potential loss arising
from changes in interest rates and its impact on variable rate debt instruments.
The following table summarizes information related to the Company's market risk
sensitive debt instruments as of April 30, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Principal Total Interest
Debt Instrument Balance Availability Maturity Rate
- --------------------------------------------------------------------------------------------------------------------------------
Industrial Development
Revenue Bond $11,000,000 $ 11,000,000 11/1/18 Variable, repricing weekly
- --------------------------------------------------------------------------------------------------------------------------------
Note Payable to Bank $ 5,028,153 $ 5,200,000 5/30/00 Prime rate or LIBOR plus 2%,
at the Company's option
- --------------------------------------------------------------------------------------------------------------------------------
Industrial Development Bond $ 228,564 $ 228,564 3/1/00 79% of Prime rate
- --------------------------------------------------------------------------------------------------------------------------------
Construction Loan $ 8,963,340 $ 8,963,340 6/30/00 Prime rate plus .375%
- --------------------------------------------------------------------------------------------------------------------------------
Amendment to Construction Loan $ 4,764,593 To be determined 6/30/00 Prime rate plus .375%
per formula in
Loan Agreement
- --------------------------------------------------------------------------------------------------------------------------------
Unsecured Lines of Credit $ 7,600,000 $12,000,000 10/31/99 Prime rate or LIBOR plus 2%,
at the Company's option
- --------------------------------------------------------------------------------------------------------------------------------
Unsecured Lines of Credit $ 0 $ 1,000,000 9/30/99 Prime rate or LIBOR plus
2.7%, at the Company's option
- --------------------------------------------------------------------------------------------------------------------------------
Secured Line of Credit $ 448,222 $ 2,500,000 9/30/99 Prime rate or LIBOR plus
2.7%, at the Company's option
- --------------------------------------------------------------------------------------------------------------------------------
In an effort to minimize exposure to interest rate fluctuations in
connection with these bonds, the Company entered into two separate
interest rate swap agreements with SunTrust Bank, Atlanta, in February
1998. The first swap agreement terminates in February 2001. The notional
amount reduces annually from $5,500,000 at inception to $5,300,000 at the
expiration of the agreement. The agreement calls for the Company to make
fixed rate payments to SunTrust of 5.57% per annum of the notional amount,
in exchange for SunTrust making floating rate payments based on the 30-day
Non-financial AA Commercial Paper rate. The second interest rate swap
agreement terminates in February 2003. The notional amount reduces
annually from $5,500,000 at inception to $5,057,500 at the expiration of
the agreement. The remaining terms of the second agreement are identical
to the terms of the first except the fixed rate payment is 5.67% per
annum. The notional amounts of the swap agreements are set to match the
outstanding principal amount of the bonds. The swap floating rates are
reset weekly, and the Company settles with the counterparty monthly.
$500,000 is restricted as it secures a letter of credit. See Note 9 to the
Consolidated Financial Statements of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report 18
Consolidated Balance Sheets - April 30, 1999 and 1998 19
Consolidated Statements of Operations - For the years ended April 30, 1999,
1998 and 1997 20
Consolidated Statements of Shareholders' Equity - For the years ended April
30, 1999, 1998 and 1997 21
Consolidated Statements of Cash Flows - For the years ended April 30, 1999,
1998 and 1997 22
Notes to Consolidated Financial Statements - April 30, 1999, 1998 and 1997 23
Schedules:
Schedule Number
- ---------------
II Valuation and Qualifying Accounts 35
III Real Estate and Accumulated Depreciation 36
Independent Auditors' Report
The Board of Directors and Shareholders
Abrams Industries, Inc.:
We have audited the consolidated financial statements of Abrams
Industries, Inc. and subsidiaries (the "Company") as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Abrams
Industries, Inc. and subsidiaries as of April 30, 1999 and 1998, and the results
of their operations and cash flows for each of the years in the three-year
period ended April 30, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
June 4, 1999
Atlanta, Georgia
CONSOLIDATED BALANCE SHEETS
April 30,
-----------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $95,673
and $4,860,226 in 1999 and 1998, respectively $ 7,448,551 $ 13,240,471
Receivables:
Trade notes and accounts, net 3,298,545 1,996,831
Contracts, net, including retained amounts of
$4,983,746 in 1999 and $5,480,974 in 1998 (note 4) 27,981,694 19,148,413
Inventories, net (note 3) 2,972,663 1,495,063
Costs and earnings in excess of billings (note 4) 3,188,100 5,637,599
Property held for sale (note 5) 5,268,478 1,691,764
Deferred income taxes (note 10) 820,829 848,939
Other 599,715 614,244
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 51,578,575 44,673,324
- ----------------------------------------------------------------------------------------------------------------------------
INCOME-PRODUCING PROPERTIES, NET (notes 6, 8, and 9) 52,311,607 57,262,540
PROPERTY, PLANT AND EQUIPMENT, NET (notes 7 and 9) 12,368,396 9,856,619
OTHER ASSETS:
Land held for future development or sale 4,237,845 4,237,845
Notes receivable 297,209 415,538
Cash surrender value of officers life insurance, net 1,473,963 1,282,790
Deferred loan costs, net 788,356 814,405
Other 3,076,589 2,766,383
- ----------------------------------------------------------------------------------------------------------------------------
$126,132,540 $ 121,309,444
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade and subcontractors payables, including
retained amounts of $2,513,281 in 1999 and
$3,797,162 in 1998 $18,391,697 $ 19,445,101
Accrued expenses 2,834,831 13,664,863
Billings in excess of costs and earnings (note 4) 2,947,814 1,369,148
Accrued profit-sharing (note 11) 2,593,654 3,325,048
Short-term borrowings (note 9) 8,048,222 ---
Current maturities of long-term debt 6,876,455 1,586,133
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 41,692,673 29,390,293
- ----------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES (note 10) 2,910,771 3,018,429
OTHER LIABILITIES 1,702,048 1,426,052
MORTGAGE NOTES PAYABLE, less current maturities (note 8) 27,447,977 33,433,945
OTHER LONG-TERM DEBT, less current maturities (note 9) 29,106,511 29,504,862
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 102,859,980 96,773,581
- ----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (notes 5, 6, 8, and 9)
SHAREHOLDERS' EQUITY (note 12):
Common stock, $1 par value; 5,000,000 shares authorized;
3,014,039 shares issued and 2,936,356 shares outstanding in
1999 and 1998 3,014,039 3,014,039
Additional paid-in capital 2,019,690 2,019,690
Retained earnings 18,651,382 19,914,685
Treasury stock, 77,683 common shares in 1999 and 1998 (412,551) (412,551)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,272,560 24,535,863
- ----------------------------------------------------------------------------------------------------------------------------
$126,132,540 $121,309,444
============================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended April 30,
----------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Construction $159,273,393 $141,453,025 $ 97,976,902
Manufacturing 16,760,605 14,970,261 16,661,798
Rental income 12,449,850 11,334,278 11,770,889
Real estate sales --- 10,024,651 9,214,758
Interest 431,147 684,270 452,992
Other 56,532 124,357 46,262
- ------------------------------------------------------------------------------------------------------------------------------
188,971,527 178,590,842 136,123,601
- ------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Construction 150,603,062 133,430,395 91,637,636
Manufacturing 13,588,788 10,547,381 10,412,263
Rental property operating expenses,
excluding interest 6,922,221 6,385,181 6,526,306
Cost of real estate sold --- 5,157,462 4,085,881
Provision for impairment on income-producing
property (note 6) --- --- 2,750,000
- ------------------------------------------------------------------------------------------------------------------------------
171,114,071 155,520,419 115,412,086
- ------------------------------------------------------------------------------------------------------------------------------
Selling, shipping, general and administrative 13,558,676 13,571,655 12,084,015
Interest costs incurred, less interest capitalized of
$199,000, $112,000, and $25,000 in 1999, 1998 and
1997, respectively 5,262,399 4,666,290 4,779,102
- ------------------------------------------------------------------------------------------------------------------------------
189,935,146 173,758,364 132,275,203
- ------------------------------------------------------------------------------------------------------------------------------
(LOSS) EARNINGS BEFORE INCOME TAXES (963,619) 4,832,478 3,848,398
- ------------------------------------------------------------------------------------------------------------------------------
INCOME TAX (BENEFIT) EXPENSE (note 10):
Current (208,040) 865,642 968,782
Deferred (79,548) 967,358 488,218
- ------------------------------------------------------------------------------------------------------------------------------
(287,588) 1,833,000 1,457,000
- ------------------------------------------------------------------------------------------------------------------------------
NET (LOSS) EARNINGS $ (676,031) $ 2,999,478 $ 2,391,398
==============================================================================================================================
NET (LOSS) EARNINGS PER SHARE (note 12):
Basic $ (.23) $ 1.02 $ .81
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ (.23) $ 1.02 $ .80
==============================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES at April 30, 1996 3,010,039 $3,010,039 $2,012,190 $ 15,289,448 $ (159,301) $ 20,152,376
Net earnings --- --- --- 2,391,398 --- 2,391,398
Cash dividends declared -
$.07 per share --- --- --- (207,310) --- (207,310)
Acquisition of 32,500 shares
of treasury stock --- --- --- --- (211,250) (211,250)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES at April 30, 1997 3,010,039 3,010,039 2,012,190 17,473,536 (370,551) 22,125,214
Net earnings --- --- --- 2,999,478 --- 2,999,478
Cash dividends declared -
$.19 per share --- --- --- (558,329) --- (558,329)
Exercise of stock options 4,000 4,000 7,500 --- --- 11,500
Acquisition of 6,000 shares
of treasury stock --- --- --- --- (42,000) (42,000)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES at April 30, 1998 3,014,039 3,014,039 2,019,690 19,914,685 (412,551) 24,535,863
Net loss --- --- --- (676,031) --- (676,031)
Cash dividends declared -
$.20 per share --- --- --- (587,272) --- (587,272)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES at April 30, 1999 3,014,039 $3,014,039 $2,019,690 $ 18,651,382 $ (412,551) $ 23,272,560
===================================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30,
--------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) earnings $ (676,031) $ 2,999,478 $ 2,391,398
Adjustments to reconcile net (loss) earnings
to net cash (used in) provided by operating activities:
Depreciation and amortization 3,123,369 2,853,634 3,401,334
Deferred tax (benefit) expense (79,548) 967,358 488,218
Gain on sales of real estate and property, plant,
and equipment (25,847) (4,867,189) (5,128,877)
Provision for impairment on income-producing property --- --- 2,750,000
Changes in assets and liabilities:
Receivables, net (10,125,120) (2,230,083) (2,840,330)
Inventories, net (1,477,600) 62,901 118,577
Costs and earnings in excess of billings 2,449,499 (2,852,259) 73,049
Other current assets 14,529 (146,511) (83,441)
Other assets (628,829) (1,112,638) (790,074)
Trade and subcontractors payable (1,053,404) 9,060,022 (861,657)
Accrued expenses (830,032) 226,451 1,542,646
Accrued profit-sharing (731,394) 194,951 1,512,165
Billings in excess of costs and earnings 1,578,666 220,483 366,847
Other liabilities 275,996 577,590 309,199
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (8,185,746) 5,954,188 3,249,054
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of real estate and property, plant,
and equipment 67,355 3,818,393 1,496,831
Additions to income-producing properties (465,385) (16,045,209) (5,205,926)
Additions to property, plant and equipment, net (3,566,292) (8,911,039) (622,667)
Repayments received on notes receivable 108,454 100,294 108,815
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,855,868) (21,037,561) (4,222,947)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Short-term borrowings, net 8,048,222 --- ---
Debt proceeds 234,570 32,145,583 5,061,143
Debt repayments (1,328,567) (10,425,800) (1,486,522)
Deferred loan costs paid (117,259) (418,161) (23,570)
Cash dividends (587,272) (558,329) (207,310)
Repurchases of common stock --- (42,000) (211,250)
Proceeds from exercise of stock options --- 11,500 ---
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,249,694 20,712,793 3,132,491
- ---------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (5,791,920) 5,629,420 2,158,598
Cash and cash equivalents at beginning of year 13,240,471 7,611,051 5,452,453
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,448,551 $ 13,240,471 $ 7,611,051
=================================================================================================================================
Supplemental disclosure of noncash investing activities:
Transfer of income-producing property to property
held for sale $ 3,576,714 $ --- $ ---
Supplemental disclosure of noncash financing activities:
Assumption of mortgage loans by purchasers in
conjunction with sale of income-producing properties $ --- $ 5,733,899 $ 7,723,758
Supplemental cash flow information:
Cash paid during the year for interest,
net of amounts capitalized $ 5,218,298 $ 4,817,206 $ 4,829,201
Cash paid during the year for income taxes $ 118,553 $ 726,733 $ 382,873
=================================================================================================================================
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999, 1998, AND 1997
(1) ORGANIZATION AND BUSINESS
Abrams Industries, Inc. (the "Company") was organized under Delaware
law in 1960. In 1984, the Company changed its state of incorporation from
Delaware to Georgia. The Company engages in (i) construction of retail and
commercial projects, (ii) manufacturing of store fixtures, bank fixtures and
display units for retail outlets, and (iii) asset management, development, and
redevelopment of income-producing properties, including acquisition, investment,
management and sale. The Company's wholly owned subsidiaries include Abrams
Construction, Inc., Abrams Fixture Corporation, and Abrams Properties, Inc. and
subsidiaries.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Abrams
Industries, Inc., its wholly owned subsidiaries and its 80% investment in
Abrams-Columbus Limited Partnership. All significant intercompany balances
and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(b) INCOME RECOGNITION
Construction revenues are reported on the percentage-of-completion method,
using costs incurred to date in relation to estimated total costs of the
contracts to measure the stage of completion. The cumulative effects of
changes in estimated total contract costs and revenues are recorded in the
period in which the facts requiring the revisions become known. At the time
it is determined that a contract will result in a loss, the entire
estimated loss is recorded.
Revenues from the sales of real estate are recognized at the time of
closing. When a portion or unit of a development property is sold, a
proportionate share of the projected total cost of the development is
charged to cost of sales. Costs of sales related to real estate are based
on the specific property sold.
Generally, revenues from the sale of manufactured goods are recognized on
the date products are shipped to the customer. Revenues from certain sales,
on which delivery is delayed at the customer's explicit request, are
recognized when conditions for revenue recognition are met; principally,
the completed product is ready for delivery and transfer of both title and
risk of ownership has passed to the buyer.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market funds and other financial
instruments. The Company considers all highly liquid debt instruments with
maturities of three months or less to be cash equivalents.
In 1999, restricted cash consists of a bond sinking fund which will be used
to pay down the principal on the industrial development revenue bonds. In
1998, restricted cash included proceeds from the issuance of the industrial
development revenue bonds. The proceeds of these bonds were restricted for
use in constructing and equipping the Company's new manufacturing facility.
(d) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. To reflect the inventory at the lower of cost or market, valuation
reserves are established. Management periodically evaluates the adequacy of
reserves based on aging, sales and other relevant factors.
(e) PROPERTY HELD FOR SALE
Property held for sale is expected to be sold in the near term and is
carried at the lower of cost or fair value less costs to sell. Depreciation
and amortization are suspended during the sale period except for
manufacturing facilities that are necessary for operation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(F) INCOME-PRODUCING PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT
Income-producing properties are stated at the lower of cost or fair value
and are depreciated for financial reporting purposes using the
straight-line method over the estimated useful lives of the properties and
related assets.
Property, plant, and equipment is recorded at cost and is depreciated for
financial reporting purposes using the straight-line method over the
estimated useful lives of the assets. Significant additions which extend
asset lives are capitalized. Normal maintenance and repair costs are
expensed as incurred.
Interest and other carrying costs related to assets under construction are
capitalized. Costs of development and construction are also capitalized.
Capitalization of interest and other carrying costs is discontinued when a
project is substantially completed or if active development ceases.
(G) LAND HELD FOR FUTURE DEVELOPMENT OR SALE
Land held for future development or sale is carried at the lower of cost or
fair value less costs to sell.
(H) DEFERRED LOAN COSTS
Costs incurred to obtain loans have been deferred and are being amortized
over the terms of the related loans.
(I) IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF
The Company reviews income-producing properties, property, plant, and
equipment, land held for future development or sale, assets to be disposed
of and certain intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows
expected to be generated by the asset. If an asset is considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the asset exceeds the asset's fair value.
Assets to be disposed of are reported at the lower of their carrying amount
or fair value less cost to sell.
(J) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes that the carrying amounts of cash and cash equivalents,
receivables, other assets, accounts payable, accrued expenses and current
portions of debt instruments are reasonable approximations of their fair
value because of the short-term nature of these instruments.
The fair value of the Company's noncurrent portions of debt instruments is
estimated by discounting the future cash flows of each instrument at rates
currently offered to the Company for similar debt instruments of comparable
maturities by the Company's bankers. Based on this valuation methodology,
management believes that the carrying amount of the noncurrent portions of
debt instruments is a reasonable estimation of their fair value.
(L) STOCK OPTIONS
Prior to May 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB Opinion 25"), and
related interpretations. As such, compensation expense was recorded only to
the extent that the market price of the underlying stock at the date of
grant exceeded the exercise price. On May 1, 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion 25 for
recognizing stock-based compensation expense in the basic financial
statements. Companies not following the fair value based method are
required to provide expanded disclosures in the footnotes. The Company
elected to continue to apply the provisions of APB Opinion 25 and provide
the pro forma disclosure of SFAS No. 123.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(M) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. This statement establishes
standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. SFAS No.
130 requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed in equal prominence with the other financial
statements. The term "comprehensive income" is used in the statement to
describe the total of all components of comprehensive income including net
income. "Other comprehensive income" refers to revenues, expenses, gains,
and losses that are included in comprehensive income but excluded from
earnings under current accounting standards. SFAS No. 130 is effective for
financial statements for years beginning after December 15, 1997. The
Company adopted SFAS No. 130 effective May 1, 1998. Adoption of this
statement did not have an impact on the Company's financial position,
results of operations or liquidity, as the pronouncement only requires
additional disclosure. The Company did not have any components of other
comprehensive income in any of the periods presented in the accompanying
financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This statement establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments using
the "management approach" concept. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company adopted SFAS No. 131
effective May 1, 1998.
(N) RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform with classifications adopted in 1999.
(3) INVENTORIES
The balances of major classes of inventory, net of their related valuation
reserves, at April 30, were as follows:
1999 1998
---------------------------------
Finished goods $1,268,048 $ 787,520
Work-in-progress 845,495 219,802
Raw materials 859,120 487,741
---------------------------------
$2,972,663 $1,495,063
=================================
(4) CONTRACTS IN PROGRESS
Assets and liabilities related to contracts in progress, including
contracts receivable, are included in current assets and current
liabilities as they will be liquidated in the normal course of contract
completion, which is expected to occur within one year. Amounts billed and
costs recognized on contracts in progress, at April 30, were:
1999 1998
---------------------------
Costs and earnings in excess of
billings:
Accumulated costs and earnings $ 27,841,460 $ 48,672,342
Amounts billed 24,653,360 43,034,743
---------------------------
$ 3,188,100 $ 5,637,599
===========================
Billings in excess of costs and
earnings:
Amounts billed $ 33,961,588 $ 27,774,973
Accumulated costs and earnings 31,013,774 26,405,825
---------------------------
$ 2,947,814 $ 1,369,148
===========================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(5) PROPERTY HELD FOR SALE
As of April 30, 1999, the Company has classified its shopping center
located in Newnan, Georgia, as property held for sale. This property was
subsequently sold on May 14, 1999 (note 14). As of April 30, 1998, only the
Company's former manufacturing facility was classified as property held for
sale.
The results of operations for the year ended April 30, 1999, for the
rental property in the Real Estate Segment that is held for sale is summarized
below:
Revenues $1,024,152
Operating expenses, including depreciation
and interest 746,872
----------
Results of operations $ 277,280
==========
(6) INCOME-PRODUCING PROPERTIES
Income-producing properties and their estimated useful lives, at
April 30 were as follows:
Estimated
useful lives 1999 1998
--------------------------------------------------
Land $15,883,977 $ 16,580,806
Buildings and improvements 7-39 years 50,034,275 55,472,762
------------------------------
65,918,252 72,053,568
Less - accumulated depreciation
and amortization 13,606,645 14,791,028
------------------------------
$52,311,607 $ 57,262,540
==============================
During 1999, the Company reclassified its shopping center located in
Newnan, Georgia, from income-producing properties to Property held for sale. The
shopping center was sold May 14, 1999 (note 14).
During 1998, the Company sold income-producing properties located in
Oakwood, Georgia, Newark, Ohio, and Tifton, Georgia, and recognized gains for
financial statement purposes. During fiscal year 1997, income-producing
properties located in Shawnee, Oklahoma, Warner Robins, Georgia, and Niles,
Michigan, were also sold for gains. These sales transactions were structured as
tax-deferred, like-kind exchanges pursuant to Internal Revenue Code Section
1031, which allows a deferral of the tax gain if the Company utilizes proceeds
of the sale to purchase other real estate within 180 days of sale.
During the fourth quarter of fiscal year 1997, management received
market information which it believed indicated that the carrying value of its
shopping center in North Fort Myers, Florida, had been impaired. Management
completed a recoverability review of the carrying value of the shopping center
based upon an estimate of undiscounted future cash flows expected to result from
its use and eventual disposition. As of April 30, 1997, management concluded
that the sum of the undiscounted future cash flows estimated to be generated by
the shopping center was less than the carrying value and, as a result, the
Company recorded a provision for impairment of $2,750,000 which reduced the
shopping center's carrying value to its estimated fair value. The estimated fair
value was determined by using market value studies compiled by two independent
commercial real estate brokerage firms. This shopping center is classified as an
Income-producing property in the accompanying April 30, 1999 and 1998
consolidated balance sheets and is included in the Real Estate Segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(7) PROPERTY, PLANT, AND EQUIPMENT
The major components of property, plant, and equipment and their
estimated useful lives at, April 30, were as follows:
Estimated
useful lives 1999 1998
--------------------------------------------------
Land $ 1,984,405 $ 92,226
Buildings and improvements 3-39 years 8,579,274 1,729,884
Machinery and equipment 3-10 years 7,407,729 5,684,239
-------------------------------
17,971,408 7,506,349
Less - accumulated depreciation 5,603,012 5,505,291
-------------------------------
12,368,396 2,001,058
Construction in progress -
manufacturing facility --- 7,855,561
-------------------------------
$ 12,368,396 $ 9,856,619
===============================
In July 1998, when the construction of the new manufacturing facility
was completed, the Company began depreciating the facility.
(8) MORTGAGE NOTES PAYABLE AND LEASES
As of April 30, 1999, the Company owns five shopping centers and an
office park which are pledged as collateral on related mortgage notes payable.
It is also lessee of nine shopping centers under leaseback arrangements expiring
from 2001 to 2014. Each mortgage note and leaseback arrangement contains an
exculpatory provision limiting the Company's liability to its interest in the
respective mortgaged property or lease.
All of the leaseback centers are leased to the Kmart Corporation, and
Kmart is a tenant in five of the seven owned shopping centers. The owned
shopping centers are leased for periods expiring from fiscal years 2000 to 2040,
while leases on the owned office properties expire from fiscal years 2000 to
2003. Leases on the leaseback centers correspond to the leaseback periods. All
leases are operating leases. The shopping center leases typically require that
the tenant make fixed rental payments over a 5- to 25-year period, and provide
for renewal options and for contingent rentals if the tenants' sales volumes
exceed predetermined amounts. In some cases, the shopping center leases provide
that the tenant bear the cost of insurance, repairs, maintenance and taxes. Base
rental revenue received from owned shopping centers and office properties in
1999, 1998, and 1997 was approximately $10,226,000, $7,708,000, and $7,829,000,
respectively. Base rental revenue received from leaseback centers in 1999, 1998,
and 1997 was approximately $2,620,000, $2,620,000, and $2,694,000, respectively.
Contingent rental revenue received on all centers in 1999, 1998, and 1997 was
approximately $171,000, $195,000, and $164,000, respectively.
Approximate future minimum annual rental receipts from all rental
properties are as follows:
Years ending April 30, Owned Leaseback
------------------------------------------------------------------
2000 $ 8,455,000 $ 2,620,000
2001 7,795,000 2,620,000
2002 7,283,000 2,138,000
2003 6,412,000 1,911,000
2004 5,456,000 1,323,000
Thereafter 53,430,000 3,553,000
-----------------------------------------------------------------
$ 88,831,000 $14,165,000
=================================================================
The Company leases office space from one of its subsidiaries. In
accordance with the noncancelable leases, the subsidiary will receive
approximately $1,550,000 in rental payments from the Company over the term of
the leases. These rental receipts have been reflected in the future minimum
rental receipts from owned properties.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The expected future minimum principal and interest payments on mortgage
notes payable on the owned rental properties and the future minimum rentals to
be paid on leaseback centers are as follows:
Owned Rental Properties
Mortgage Payments Leaseback
----------------------------- Centers
Years ending April 30, Principal Interest Rental Payments
---------------------------------------------------------------------------------------
2000 $ 5,998,316 $ 2,935,133 $ 2,136,000
2001 726,256 2,858,409 2,136,000
2002 12,990,580 2,877,975 1,719,000
2003 659,875 1,542,034 1,536,000
2004 716,663 1,466,975 1,109,000
Thereafter 12,354,603 6,048,056 3,214,000
---------------------------------------------------------------------------------------
$ 33,446,293 $ 17,728,582 $ 11,850,000
======================================================================================
The mortgage notes payable are due at various dates between April 1,
2002, and September 1, 2019, and bear interest at rates ranging from 7.25% to
9.75%, with a weighted average rate of 8.85% at April 30, 1999.
The outstanding principal balance on the Newnan, Georgia shopping
center mortgage loan of $5,331,968 has been included in the Current maturities
of long-term debt at April 30, 1999, as the property is classified as Property
held for sale in the accompanying balance sheet at April 30, 1999
(note 5).
(9) OTHER LONG-TERM DEBT AND CREDIT FACILITIES
Other long-term debt, at April 30, was as follows:
1999 1998
--------------------------------
Industrial development revenue bonds with a variable interest rate, repricing
on a weekly basis, based on rates available for debt instruments of a similar
nature and comparable terms (5.05% at April 30, 1999); required monthly
interest only payments until November 1, 1998, thereafter interest and bond
sinking fund payments required monthly; matures on November 1, 2018;
secured by irrevocable letter of credit $11,000,000 $11,000,000
Note payable to bank with variable interest rate of LIBOR plus 2% (6.90% at
April 30, 1999); requires monthly interest only payments with principal due
May 30, 2000; secured by real property, guaranteed by a subsidiary
of the Company 5,028,153 4,793,583
Industrial development bond bearing interest at 79% of prime rate (6.12% at
April 30, 1999); requires quarterly principal payments of $57,143 plus interest;
matures March 1, 2000; secured by real property 228,564 457,136
Construction loan bearing interest at the prime rate plus .375% (8.125% at
April 30, 1999); requires monthly principal and interest payments of $87,729,
principal matures June 30, 2000; secured by real property and assignment of
leases and rents; guaranteed by a subsidiary of the Company 8,963,340 9,231,297
Amendment to construction loan shown above permitting borrowings of up to
$4,942,419; bearing interest at the prime rate plus .375% (8.125% at
April 30, 1999); requires monthly principal and interest payments of
$42,113; matures June 30, 2000; secured by real property and assignment
of leases and rents; guaranteed by a subsidiary of the Company 4,764,593 4,855,295
--------------------------------
Total other long-term debt 29,984,650 30,337,311
Less current maturities 878,139 832,449
--------------------------------
Total other long-term debt, excluding current maturities $29,106,511 $29,504,862
================================
The future minimum principal payments due on other long-term debt
are as follows:
Year ending April 30,
-------------------------------------------------------
2000 $ 878,139
2001 18,506,511
2002 230,000
2003 255,000
2004 280,000
Thereafter 9,835,000
--------------------------------------------------------
$ 29,984,650
========================================================
The outstanding principal balance of $228,564 and $457,136 at April 30,
1999 and 1998, respectively, on the industrial development bond payable have
been included in the current maturities of long-term debt, as the former wood
manufacturing facility securing this bond is included in Property held for sale
in the accompanying consolidated balance sheet at April 30, 1999 and 1998 (note
5).
At April 30, 1999, the Company had commitments from a bank for
unsecured lines of credit totaling $12,000,000, of which $7,600,000 was
outstanding. An additional $500,000 was restricted as it secures a letter of
credit described below. These lines of credit, which expire during fiscal year
2000, bear interest at the prime rate (7.75% at April 30, 1999) and have a 3/8%
commitment fee on the unused portion. In addition, the Company had a commitment,
which expires during fiscal year 2000, for an unsecured $1,000,000 line of
credit from a bank, of which none was outstanding at April 30, 1999. This line
of credit bears interest at the prime rate or at LIBOR (4.90% at April 30, 1999)
plus 2.7% and has a 3/8% commitment fee on the unused portion. The Company also
had a commitment for a line of credit, which expires during fiscal year 2000,
totaling $2,500,000, secured by the Manufacturing Segment's inventory and
receivables, of which $448,222 was outstanding at April 30, 1999. The secured
line of credit bears interest at the prime rate or at LIBOR plus 2.7% and has a
3/10% commitment fee on the unused portion.
The Company has entered into two interest rate swap agreements related
to the $11,000,000 industrial development revenue bonds shown above. The first
interest rate swap agreement was effective February 4, 1998, and terminates
February 1, 2001. The notional amount reduces annually from $5.5 million, at the
effective date, to $5.3 million prior to expiration of the agreement. The
agreement requires the Company to pay a fixed rate of 5.57% in exchange for
floating rate payments based on the 30-day Non-financial AA Commercial Paper
rate (4.79% at April 30, 1999).
The second interest rate swap agreement was effective February 4, 1998,
and terminates February 1, 2003. The notional amount reduces annually from $5.5
million at the effective date to $5,057,500 prior to the expiration of the
agreement. The interest rate terms of the second agreement are identical to the
terms of the first except that the fixed interest rate paid by the Company is
5.67%. The notional amounts of the swap agreements are set to match the
outstanding principal amounts of the bonds. The swap floating rates are reset
weekly, and the Company settles with the counterparty monthly.
In connection with the issuance of the industrial development revenue
bonds, the Company was required to obtain an irrevocable letter of credit in the
amount of $11,162,740. The letter of credit was issued November 12, 1997, and
expires on November 15, 2002. The letter of credit can be extended for three
additional five-year terms. The letter of credit is guaranteed by the Company
and a subsidiary of the Company. The letter of credit contains covenants that
require the maintenance of certain financial ratios. As of April 30, 1999, the
Company was in compliance with all debt covenants or has obtained waivers in
cases of non-compliance.
In addition, in conjunction with the origination of a mortgage on an
income-producing property, the Company obtained an irrevocable, standby letter
of credit in the amount of $500,000. The letter of credit was originally issued
on July 30, 1997, and amended during August 1998. The amendment extended the
maturity date to November 30, 1999. The mortgage lender is allowed to draw on
the letter in order to paydown the related mortgage loan if certain leasing
requirements are not met. The letter of credit is secured by a portion of a bank
line of credit, discussed above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(10) INCOME TAXES
The provision for income tax expense (benefit) consists of the
following:
Current Deferred Total
--------------------------------------------
Year ended April 30, 1999:
Federal $(325,487) $(17,215) $ (342,702)
State and local 117,447 (62,333) 55,114
--------------------------------------------
$(208,040) $(79,548) $ (287,588)
===========================================
Year ended April 30, 1998:
Federal $ 712,383 $843,817 $1,556,200
State and local 153,259 123,541 276,800
-------------------------------------------
$ 865,642 $967,358 $1,833,000
===========================================
Year ended April 30, 1997:
Federal $ 908,173 $436,827 $1,345,000
State and local 60,609 51,391 112,000
-------------------------------------------
$ 968,782 $488,218 $1,457,000
===========================================
Total income tax expense (benefit) recognized in the consolidated
statements of operations differs from the amounts computed by applying the
Federal income tax rate of 34% to pretax earnings (loss) as a result of the
following:
Years ended
April 30,
---------------------------------------------
1999 1998 1997
---------------------------------------------
Computed "expected" tax expense (benefit) $(327,630) $ 1,643,043 $ 1,308,455
Increase in income taxes resulting from:
State and local income taxes, net
of Federal income tax benefit 36,375 182,688 73,920
Other, net 3,667 7,269 74,625
---------------------------------------------
$(287,588) $ 1,833,000 $ 1,457,000
=============================================
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities,
at April 30, are presented below:
1999 1998
---------------------------------------
Deferred income tax assets:
Inventories, primarily because of additional costs
capitalized for tax purposes and the allowance for
decline in net realizable value $ 275,494 $ 203,760
Items not currently deductible for tax purposes:
Provision for impairment on income-
producing property 1,026,816 1,026,816
Net operating loss carryforwards, state 404,585 307,141
Capitalized costs 594,156 663,566
Accrued directors' fees 223,032 343,907
Deferred compensation plan 419,740 283,250
Compensated absences 174,385 170,450
Other accrued expenses 413,233 472,844
Other 419,524 216,451
---------------------------------------
Gross deferred income tax assets 3,950,965 3,688,185
---------------------------------------
Deferred income tax liabilities:
Income-producing properties and property, plant and
equipment, principally because of differences in
depreciation and capitalized interest 2,355,180 2,230,575
Gain on real estate sales structured as tax-deferred
like-kind exchanges 3,500,887 3,469,700
Profit on installment sale 94,265 124,572
Other 90,575 32,828
---------------------------------------
Gross deferred income tax liabilities 6,040,907 5,857,675
---------------------------------------
Net deferred income tax liability $ 2,089,942 $ 2,169,490
=======================================
The valuation allowance was $0 at April 30, 1999 and 1998.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(11) STOCK OPTION PLAN AND DEFERRED PROFIT-SHARING PLAN
The Company adopted a Key Employee Incentive Stock Option Plan which
expired in May 1996, and which provided that stock options could have been
awarded to officers and key employees with exercise prices no less than the fair
market value of the common stock at the date of grant.
As of April 30, 1999, there were no stock options outstanding, as all
options had been exercised or canceled prior to April 30, 1998.
Information relating to the Company's stock option plan, as adjusted
for stock dividends for the years ended April 30, 1998 and 1997, is summarized
as follows:
1998 1997
----------------------------
Options outstanding at beginning of year 17,666 17,666
Options granted --- ---
Options canceled 13,666 ---
Options exercised 4,000 ---
----------------------------
Options outstanding at end of year --- 17,666
============================
Option prices per share:
Options granted during the year $ --- $ ---
Options canceled $ 2.875-4.50 $ ---
Options exercised $ 2.875 $ ---
Options outstanding at end of year $ --- $ 2.875-4.50
============================
The Company has a deferred Profit-Sharing Plan ("the Plan") which
covers substantially all of its employees. Funded employer contributions to
the Plan for 1999, 1998, and 1997 were approximately $814,000, $843,000, and
$1,032,000, respectively. The net assets in the Plan, which is administered
by an independent trustee, were approximately $18,172,000, $18,962,000, and
$14,304,000 at April 30, 1999, 1998, and 1997, respectively.
(12) NET (LOSS) EARNINGS PER SHARE
The following tables set forth the computations of basic and diluted
net (loss) earnings per share:
For the year ended April 30, 1999
----------------------------------------------------
Loss Shares Per share
(numerator) (denominator) amount
----------------------------------------------------
Basic EPS - loss per share $ (676,031) 2,936,356 $ (.23)
Effect of dilutive securities --- --- ==========
- ---------------------------------------------------------------------------------------------------
Diluted EPS - loss per share plus assumed conversions $ (676,031) 2,936,356 $ (.23)
=======================================================================================================================
For the year ended April 30, 1998
----------------------------------------------------
Earnings Shares Per share
(numerator) (denominator) amount
----------------------------------------------------
Basic EPS - earnings per share $ 2,999,478 2,937,712 $ 1.02
==========
Effect of dilutive securities - weighted-
average outstanding stock options --- 3,851
- ---------------------------------------------------------------------------------------------------
Diluted EPS - earnings per share plus assumed conversions $ 2,999,478 2,941,563 $ 1.02
=======================================================================================================================
For the year ended April 30, 1997
--------------------------------------------------
Earnings Shares Per share
(numerator) (denominator) amount
- -----------------------------------------------------------------------------------------------------------------------
Basic EPS - earnings per share $ 2,391,398 2,971,442 $ .81
=========
Effect of dilutive securities - outstanding
stock options --- 2,129
- ---------------------------------------------------------------------------------------------------
Diluted EPS - earnings per share plus
assumed conversions $ 2,391,398 2,973,571 $ .80
======================================================================================================================
(13) OPERATING SEGMENTS
The Company has three operating segments: construction, manufacturing
and real estate. The Construction Segment provides construction services for
commercial and industrial projects. The Manufacturing Segment produces store
fixtures for retail outlets, display fixtures for point-of-sale merchandising
and other products. The Real Estate Segment develops or acquires
income-producing properties for investment and usually provides property
management for the properties after development or acquisition.
The operating segments are managed separately and maintain separate
personnel due to the differing products offered by each segment. Management of
each of the segments evaluates and monitors the performance of the segments
based on the earnings or losses prior to income taxes. The significant
accounting policies utilized by the operating segments are the same as those
summarized in note 2 to the accompanying financial statements of the Company.
Total revenue by operating segment includes both revenues from
unaffiliated customers, as reported in the Company's consolidated statements of
operations, and intersegment revenues, which are generally at prices negotiated
between segments.
Segment assets are those that are used in the Company's operations in
each segment, including receivables due from other segments. The Parent
Company's segment assets are primarily cash and cash equivalents, cash surrender
value of life insurance, and receivables.
Operating (loss) earnings is total revenue less operating expenses,
including depreciation and interest. Selling, shipping, general and
administrative and interest costs, deducted in the computation of operating
(loss) earnings of each segment, represent the actual costs incurred by that
segment. Parent expenses and income taxes have not been allocated to the other
subsidiaries.
The Company had revenues from The Home Depot, Inc., primarily
representing revenues in the Construction Segment, aggregating 53%, 61%, and 51%
of consolidated revenues in 1999, 1998, and 1997, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Construction Manufacturing Real Estate Parent Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
1999
Revenues from unaffiliated customers $159,273,393 $ 16,760,605 $12,449,850 $ --- $ --- $188,483,848
Interest and other income 223,196 9,832 267,690 40,516 (53,555) 487,679
Intersegment revenue 1,114,823 501,220 1,485,038 --- (3,101,081) ---
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenue $160,611,412 $ 17,271,657 $14,202,578 $ 40,516 $ (3,154,636) $188,971,527
==================================================================================================================================
Operating earnings (loss) $ 4,084,633 $ (1,760,238) $ (226,053) $(3,074,905) $ 12,944 $ (963,619)
==================================================================================================================================
Segment assets $ 33,451,167 $ 10,016,891 $84,572,912 $11,770,775 $(13,679,205) $126,132,540
==================================================================================================================================
Interest expense $ 1,053 $ 156,495 $ 5,144,444 $ 13,962 $ (53,555) $ 5,262,399
==================================================================================================================================
Depreciation and amortization $ 326,053 $ 432,634 $ 2,383,194 $ 30,634 $ (49,146) $ 3,123,369
==================================================================================================================================
Capital expenditures $ 470,807 $ 743,188 $ 2,740,563 $ 77,119 $ --- $ 4,031,677
==================================================================================================================================
1998
Revenues from unaffiliated customers $141,453,025 $ 14,970,261 $21,358,929 $ --- $ --- $177,782,215
Interest and other income 139,672 42,389 522,468 207,999 (103,901) 808,627
Intersegment revenue 5,026,181 181,003 200,615 --- (5,407,799) ---
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenue $146,618,878 $ 15,193,653 $22,082,012 $ 207,999 $ (5,511,700) $178,590,842
==================================================================================================================================
Operating earnings (loss) $ 3,506,217 $ 459,468 $ 2,882,496 $(2,580,307) $ 564,604 $ 4,832,478
==================================================================================================================================
Segment assets $ 30,834,340 $ 8,185,294 $83,017,169 $ 9,470,541 $(10,197,900) $121,309,444
==================================================================================================================================
Interest expense $ 5,638 $ 53,284 $ 4,604,095 $ 54,509 $ (51,236) $ 4,666,290
==================================================================================================================================
Depreciation and amortization $ 276,259 $ 586,629 $ 2,029,121 $ 28,825 $ (67,200) $ 2,853,634
==================================================================================================================================
Capital expenditures $ 771,808 $ 81,164 $24,021,793 $ 81,483 $ --- $ 24,956,248
==================================================================================================================================
1997
Revenues from unaffiliated customers $ 97,976,902 $ 16,661,798 $20,985,647 $ --- $ --- $135,624,347
Interest and other income 138,096 41,460 146,512 257,519 (84,333) 499,254
Intersegment revenue 345,048 --- --- 300,000 (645,048) ---
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 98,460,046 $ 16,703,258 $21,132,159 $ 557,519 $ (729,381) $136,123,601
==================================================================================================================================
Operating earnings (loss) $ 3,088,094 $ 1,749,033 $ 1,003,370 $(1,778,337) $ (213,762) $ 3,848,398
==================================================================================================================================
Segment assets $ 19,582,800 $ 10,300,421 $59,833,984 $ 8,692,770 $ (6,910,537) $ 91,499,438
==================================================================================================================================
Interest expense $ 2,779 $ 59,366 $ 4,788,291 $ 12,999 $ (84,333) $ 4,779,102
==================================================================================================================================
Depreciation and amortization $ 226,929 $ 600,628 $ 2,633,151 $ 25,382 $ (84,756) $ 3,401,334
==================================================================================================================================
Capital expenditures $ 176,539 $ 467,771 $ 5,184,283 $ --- $ --- $ 5,828,593
==================================================================================================================================
(14) SUBSEQUENT EVENT
On May 14, 1999, the Company sold the shopping center property located
in Newnan, Georgia. The property was classified as Property held for sale at
April 30, 1999, in the accompanying balance sheet. The Company recognized a
pre-tax gain of approximately $2,900,000 upon its sale.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Additions
-----------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
- --------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended
April 30, 1999 $ 134,870 $ 96,853 $ --- $ 109,327 $ 122,396
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended
April 30, 1998 $ 65,584 $ 90,496 $ --- $ 21,210 $ 134,870
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended
April 30, 1997 $ 57,541 $ 117,426 $ --- $ 109,383 $ 65,584
=================================================================================================================================
INVENTORY RESERVES
Year ended
April 30, 1999 $ 317,641 $ 662,343 $ --- $ 584,559 $ 395,425
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended
April 30, 1998 $ 374,447 $ 147,564 $ --- $ 204,370 $ 317,641
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended
April 30, 1997 $ 757,896 $ 203,561 $ --- $ 587,010 $ 374,447
=================================================================================================================================
Allowance for doubtful accounts deductions resulted from the subsequent
write-off and/or recovery of the related receivable.
Inventory reserve deductions resulted from the subsequent sale and/or
write-off of the related inventory.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
APRIL 30, 1999
Costs
Capitalized
Subsequent
Initial Cost to Company to Acquisition
-------------------------- --------------- ------
Building
and
Description Encumbrances Land Improvements Improvements Land
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME-PRODUCING PROPERTIES:
Shopping Center - Jackson, MI $ 3,293,584 $ 401,195 $ 1,788,183 $ 1,167,903 $ 453,293
Kmart - Morton, IL 3,099,490 18,005 2,767,765 (220,638) 18,005
Kmart - Columbus, GA 2,609,719 11,710 2,356,920 10,078 11,710
Shopping Center - Englewood, FL 12,706,660 6,072,805 8,823,506 (80,073) 6,072,805
Shopping Center - N. Fort Myers, FL 13,727,933 5,940,143 11,290,778 3,169,051 5,218,754
Leaseback Shopping Center - Davenport, IA --- --- 2,150 193,261 ---
Leaseback Shopping Center - Jacksonville, FL --- --- 42,151 --- ---
Leaseback Shopping Center - Orange Park, FL --- --- 127,487 35,731 ---
Leaseback Shopping Center - W. St. Paul, MN --- --- --- 86,983 ---
Leaseback Shopping Center - Bayonet Point, FL --- --- --- 9,384 ---
Leaseback Shopping Center - Minneapolis, MN --- --- --- 19,818 ---
Office Building - Atlanta, GA 5,028,153 660,000 4,338,102 656,741 660,000
Office Park - Marietta, GA 6,404,873 1,750,000 6,417,275 228,388 1,750,000
Shopping Center - Cincinnati, OH --- 1,699,410 617,102 40,331 1,699,410
- -----------------------------------------------------------------------------------------------------------------------------------
46,870,412 16,553,268 38,571,419 5,316,958 15,883,997
- -----------------------------------------------------------------------------------------------------------------------------------
PROPERTY HELD FOR SALE:
Shopping Center - Newnan, GA 5,331,968 696,829 5,291,120 301,224 696,829
- -----------------------------------------------------------------------------------------------------------------------------------
LAND HELD FOR FUTURE DEVELOPMENT OR SALE:
Davenport, IA --- 183,572 --- --- 183,572
Louisville, KY --- 80,011 --- --- 80,001
Oakwood, GA --- 234,089 --- 543,330 777,419
North Fort Myers, FL --- 2,760,187 --- 345,325 3,105,512
Jackson, MI --- --- --- 74,687 74,687
- -----------------------------------------------------------------------------------------------------------------------------------
--- 3,257,859 --- 963,342 4,221,201
- -----------------------------------------------------------------------------------------------------------------------------------
$52,202,380 $20,507,956 $ 43,862,539 $ 6,581,524 $20,802,007
===================================================================================================================================
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
APRIL 30, 1999 (CONTINUED)
Gross Amounts at Which Life on Which
Carried at Close of Year Depreciation
---------------------------------- In Latest
Building Net Earnings
and Capitalized Accumulated Date(s) of Date Statement
Improvements Interest Total Depreciation Construction Acquired is Computed
-------------------------------------------------------------------------------------
INCOME-PRODUCING PROPERTIES:
Shopping Center - Jackson, MI $ 2,956,086 $ 89,866 $ 3,499,245 $ 1,956,484 1972, 1996 --- 39 years
Kmart - Morton, IL 2,547,127 --- 2,565,132 2,103,552 1980, 1992 --- 25 years
Kmart - Columbus, GA 2,366,998 238,970 2,617,678 1,932,865 1980, 1988 --- 25 years
Shopping Center - Englewood, FL 8,743,433 1,346,273 16,162,511 3,040,847 1990 --- 32 years
Shopping Center - N. Fort Myers, FL 14,459,829 4,470,789 24,149,372 3,755,919 1993, 1996 --- 31.5 years
Leaseback Shopping Center - Davenport, IA 195,411 --- 195,411 93,124 1995 --- 7 years
Leaseback Shopping Center - Jacksonville, FL 42,151 --- 42,151 10,959 1994 --- 25 years
Leaseback Shopping Center - Orange Park, FL 163,218 --- 163,218 104,013 1995 --- 7 years
Leaseback Shopping Center - W. St. Paul, MN 86,983 --- 86,983 28,812 1996 --- 8 years
Leaseback Shopping Center - Bayonet Point, FL 9,384 --- 9,384 -- 1997 --- ---
Leaseback Shopping Center - Minneapolis, MN 19,818 --- 19,818 1,332 1997 --- 15 years
Office Building - Atlanta, GA 4,994,843 --- 5,654,843 283,572 1974, 1997 1997 39 years
Office Park - Marietta, GA 6,645,663 --- 8,395,663 275,522 1980, 1985 1997 39 years
Shopping Center - Cincinnati, OH 657,433 --- 2,356,843 19,644 1982 1998 39 years
- -------------------------------------------------------------------------------------------------
43,888,377 6,145,898 65,918,252 13,606,645
- -------------------------------------------------------------------------------------------------
PROPERTY HELD FOR SALE
Shopping Center - Newnan, GA 5,592,344 311,528 6,600,701 2,980,564 1974, 1987, 1989 --- 31.5 years
- -------------------------------------------------------------------------------------------------
LAND HELD FOR FUTURE DEVELOPMENT OR SALE:
Davenport, IA --- --- 183,572 --- --- 1977 ---
Louisville, KY --- --- 80,011 --- --- 1979 ---
Oakwood, GA --- 16,644 794,063 --- --- 1987 ---
North Fort Myers, FL --- --- 3,105,512 --- --- 1994 ---
Jackson, MI --- --- 74,687 --- --- 1997 ---
- -------------------------------------------------------------------------------------------------
--- 16,644 4,237,845 ---
- -------------------------------------------------------------------------------------------------
$49,480,721 $6,474,070 $76,756,798 $16,587,209
=================================================================================================
Reconciliations of total real estate carrying value and accumulated
depreciation for the three years ended April 30, 1999, are as follows:
Real Estate Accumulated Depreciation
---------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------------------------------------- ------------------------------------------
BALANCE AT BEGINNING OF YEAR $76,291,413 $69,380,403 $75,750,977 $14,791,028 $17,462,301 $20,108,134
ADDITIONS DURING YEAR
Real estate 465,385 16,803,252 4,771,612 --- --- ---
Depreciation --- --- --- 1,796,181 1,800,747 2,102,932
---------------------------------------- ----------------------------------------
465,385 16,803,252 4,771,612 1,796,181 1,800,747 2,102,932
DEDUCTIONS DURING YEAR
Accumulated depreciation on
properties sold or transferred --- --- --- --- 4,472,020 4,748,765
Carrying value of real estate
sold, transferred, or retired --- 9,892,242 8,392,186 --- --- ---
Provision for impairment on income-
producing property --- --- 2,750,000> --- --- ---
---------------------------------------- ------------------------------------------
--- 9,892,242 11,142,186 --- 4,472,020 4,748,765
---------------------------------------- ------------------------------------------
BALANCE AT CLOSE OF YEAR $76,756,798 $76,291,413 $69,380,403 $16,587,209 $14,791,028 $17,462,301
======================================== =========================================
NOTES:
The aggregated cost for land and building and improvements for federal
income tax purposes at April 30, 1999, is $66,575,198.
The former wood manufacturing facility, which is classified as property
held for sale in the April 30, 1999, and 1998, consolidated balance sheets
included herein, is not included in this schedule as it is not part of the
Company's real estate operations.
Primarily represents additions to a shopping center development in North
Fort Myers, Florida, and a Kroger in Jackson, Michigan.
Primarily represents the acquisitions of an office building in Atlanta,
Georgia; an office park in Marietta, Georgia; and a shopping center in
Cincinnati, Ohio.
Primarily represents sales of three freestanding Kmarts in Niles,
Michigan; Warner Robins, Georgia; and Shawnee, Oklahoma.
Represents a provision for impairment which was recorded to reduce the
carrying value of a shopping center in North Fort Myers, Florida, to its
estimated fair value.
Primarily represents sales of two freestanding Kmarts in Newark, Ohio,
and Tifton, Georgia, and a shopping center located in Oakwood, Georgia.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10-13.
The information contained under the headings "Nomination and Election
of Directors," "Principal Holders of the Company's Securities" and "Compensation
of Executive Officers and Directors" in the Company's definitive proxy materials
for its 1999 Annual Meeting of Shareholders, will be filed with the Securities
and Exchange Commission under a separate filing.
For purposes of determining the aggregate market value of the Company's
voting stock held by nonaffiliates, shares held directly or indirectly by all
Directors and Executive Officers of the Company have been excluded. The
exclusion of such shares is not intended to, and shall not, constitute a
determination as to which persons or entities may be "affiliates" of the Company
as defined by the Securities and Exchange Commission.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at April 30, 1999 and 1998
Consolidated Statements of Operations for the Years Ended April 30,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the Years
Ended April 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended April 30,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate and Accumulated Depreciation
3. Exhibits:
Exhibit No.
3a. Articles of Incorporation (1)
3b. Restated Bylaws (2), Amendment to Bylaws (9)
10a. Project Financing Agreement by and among Development
Authority of Fulton County, Abrams Fixture Corporation,
and SunTrust Bank, dated as of June 3, 1985 (3)
10b. Abrams Industries, Inc. 1986 Key Employee Incentive Stock
Option Plan (4), as amended by Amendment No. 1 to
Abrams Industries, Inc. 1986 Key Employee Stock Option Plan,
dated May 24, 1988#
10c. Directors' Deferred Compensation Plan (5)#
10d. Edward M. Abrams Split Dollar Life Insurance Agreement dated
July 29, 1991 (6)#
10e. Joseph H. Rubin Split Dollar Life Insurance Agreement dated
August 27, 1991 (6)#
10f. Bernard W. Abrams Split Dollar Life Insurance Agreement dated
July 16, 1993 (7)#
10g. Bernard W. Abrams Employment Agreement dated August 23,
1995 (8)#
10h. Edward M. Abrams Employment Agreement dated November 18,
1998 #
10i. Lease Agreement between Development Authority of Douglas
County, Georgia, and Abrams Riverside, LLC, dated
as of November 1, 1997
10j. Letter of Credit and Reimbursement Agreement by and between
Abrams Riverside, LLC, and NationsBank, N.A.,
dated as of November 1, 1997.
10k. Amendment to Letter of Credit and Reimbursement Agreement
dated September 1, 1998
10l. Second Amendment to Letter of Credit and Reimbursement
Agreement dated as of October 31, 1998
10m. Guaranty dated as of November 1, 1997, executed and
delivered by Abrams Properties, Inc. (the Guarantor) in
favor of NationsBank, N.A.
10n. Guaranty dated as of November 1, 1997, executed and delivered
by Abrams Industries, Inc. (the Guarantor) in
favor of NationsBank, N.A.
13. Annual Report to Shareholders for the fiscal year ended
April 30, 1999
21. List of the Company's Subsidiaries
27. Financial Data Schedule (For SEC use only)
99. Proxy Statement for 1999 Annual Meeting of Shareholders*
Explanation of Exhibits
(1) These exhibits are incorporated by reference to the
Company's Form 10-K for the year ended April 30, 1985.
(2) This exhibit is incorporated by reference to the Company's
Form 10-K for the year ended April 30, 1997.
(3) This exhibit is incorporated by reference to the Company's
Form 10-Q for the quarter ended July 31, 1985.
(4) This exhibit is incorporated by reference to the Company's
Form 10-K for the year ended April 30, 1986.
(5) This exhibit is incorporated by reference to the Company's
Form 10-K for the year ended April 30, 1991.
(6) These exhibits are incorporated by reference to the
Company's Form 10-K for the year ended April 30, 1993.
(7) This exhibit is incorporated by reference to the Company's
Form 10-K for the year ended April 30, 1994.
(8) This exhibit is incorporated by reference to the Company's
Form 10-Q for the quarter ended October 31, 1995.
(9) This exhibit is incorporated by reference to the Company's
Form 10-K for the year ended April 30, 1998.
# Management compensatory plans or arrangement.
* To be filed by amendment.
(b) Reports on Form 8-K: None filed during the fourth quarter of fiscal 1999.
(c) The Company hereby files as exhibits to this Annual Report on Form 10-K the
exhibits set forth in Item 14(a)3 hereof.
(d) The Company hereby files as financial statement schedules to this Annual
Report on Form 10-K the financial statement schedules set forth in Item
14(a)2 hereof.
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.
ABRAMS INDUSTRIES, INC.
Dated: July 22, 1999 By: /s/ Alan R. Abrams
----------------------------
Alan R. Abrams
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.
Dated: July 22, 1999 /s/ Alan R. Abrams
-----------------------------------------
Alan R. Abrams
Co-Chairman of the Board of Directors,
Chief Executive Officer
Dated: July 22, 1999 /s/ J. Andrew Abrams
-----------------------------------------
J. Andrew Abrams
Co-Chairman of the Board of Directors,
President and Chief Operating Officer
Dated: July 22, 1999 /s/ Edward M. Abrams
-----------------------------------------
Edward M. Abrams
Director, Chairman of the Executive Committee
Dated: July 22, 1999 /s/ Bernard W. Abrams
-----------------------------------------
Bernard W. Abrams
Director, Chairman Emeritus of the
Executive Committee
Dated: July 22, 1999 /s/ Paula Lawton-Bevington
-----------------------------------------
Paula Lawton-Bevington
Director
Dated: July 22, 1999 /s/ Donald W. MacLeod
-----------------------------------------
Donald W. MacLeod
Director
Dated: July 22, 1999 /s/ Anthony Montag
-----------------------------------------
Anthony Montag
Director
Dated: July 22, 1999 /s/ Joseph H. Rubin
-----------------------------------------
Joseph H. Rubin
Director
Dated: July 22, 1999 /s/ Felker W. Ward, Jr.
-----------------------------------------
Felker W. Ward, Jr.
Director
Dated: July 22, 1999 /s/ Melinda S. Garrett
-----------------------------------------
Melinda S. Garrett
Chief Financial Officer and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10h. Edward M. Abrams Employment Agreement dated November 18,
1998
10i. Lease Agreement between Development Authority of Douglas
County, Georgia, and Abrams Riverside, LLC, dated
as of November 1, 1997
10j. Letter of Credit and Reimbursement Agreement by and between
Abrams Riverside, LLC, and NationsBank, N.A.,
dated as of November 1, 1997.
10k. Amendment to Letter of Credit and Reimbursement Agreement
dated September 1, 1998
10l. Second Amendment to Letter of Credit and Reimbursement
Agreement dated as of October 31, 1998
10m. Guaranty dated as of November 1, 1997, executed and
delivered by Abrams Properties, Inc. (the Guarantor) in
favor of NationsBank, N.A.
10n. Guaranty dated as of November 1, 1997, executed and delivered
by Abrams Industries, Inc. (the Guarantor) in
favor of NationsBank, N.A.
13. Annual Report to Shareholders for the fiscal year ended
April 30, 1999
21. List of the Company's Subsidiaries
27. Financial Data Schedule (For SEC use only)