SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1999
OR
/ / Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-24708
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AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
10228 "L" Street
Omaha, NE 68127
(Address of principal executive offices)
(Zip Code)
47-0702918
(I.R.S. Employer Identification No.)
(402) 331-3727
(Registrant's telephone number, including area code)
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
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The Registrant had 2,736,248 shares of its $.01 par value common stock
outstanding as of January 28, 2000, as restated for the 10% stock dividend.
Form 10-Q
1st Quarter
INDEX
-------
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Consolidated balance sheets at December 31, 1999
and at September 30, 1999 3
Consolidated statements of income for the
three-month periods ended December 31, 1999
and December 31, 1998 4
Consolidated statements of cash flows for the
three-month periods ended December 31, 1999
and December 31, 1998 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
AMCON Distributing Company
Consolidated Balance Sheets
December 31, 1999 and September 30, 1999
- ---------------------------------------------------------------------------------------
(Unaudited)
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 936,438 $ 1,728,042
Accounts receivable, less allowance for
doubtful accounts of $777,657 and $676,801 19,830,593 18,345,816
Inventories 24,049,868 23,979,639
Deferred income taxes 709,057 717,022
Other 770,794 1,000,189
------------ ------------
Total current assets 46,296,750 45,770,708
Fixed assets, net 7,309,840 7,502,927
Investments 592,191 550,691
Other assets 15,274,003 14,764,890
------------ ------------
$ 69,472,784 $ 68,589,216
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,661,474 $ 11,953,546
Accrued expenses 2,356,278 3,173,231
Accrued wages, salaries and bonuses 399,042 640,933
Income taxes payable 939,691 283,111
Dividends payable 74,625 49,598
Current portion of long-term debt 9,534,190 10,133,393
Current portion of subordinated debt 800,000 800,000
------------ ------------
Total current liabilities 26,765,300 27,033,812
------------ ------------
Deferred income taxes 724,997 678,455
Other liabilities 423,218 423,574
Long-term debt, less current portion 18,129,919 17,995,432
Subordinated debt, less current portion 9,200,000 9,200,000
Commitments
Shareholders' equity (as restated):
Preferred stock, $.01 par value, 1,000,000
shares authorized, none outstanding - -
Common stock, $.01 par value, 15,000,000
shares authorized, 2,731,847 and 2,727,893
issued, respectively 27,318 27,278
Additional paid-in capital 4,108,025 4,097,728
Unrealized gain on investments
available-for-sale, net of $167,585
and $149,664 tax 260,236 234,299
Retained earnings 9,833,771 8,898,998
------------ ------------
14,229,350 13,258,303
Less treasury stock, 0 and 97 shares at cost ( -) (360)
------------ ------------
Total shareholders' equity 14,229,350 13,257,943
------------ ------------
$ 69,472,784 $ 68,589,216
============ ============
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
AMCON Distributing Company
Consolidated Statements of Income
for the three months ended December 31, 1999 and 1998
(Unaudited)
- ----------------------------------------------------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Sales (including excise taxes
of $14.5 million and $13.2 million,
respectively) $ 112,043,760 $ 82,308,760
Cost of sales 98,085,020 71,662,814
------------- ------------
Gross profit 13,958,740 10,645,946
Selling, general and administrative
expenses 10,967,986 7,542,401
Depreciation and amortization 629,824 295,468
------------- ------------
11,597,810 7,837,869
------------- ------------
Income from operations 2,360,930 2,808,077
Other expense (income):
Interest expense 744,602 446,168
Other income, net (8,112) (33,265)
------------- ------------
736,490 412,903
------------- ------------
Income before income taxes 1,624,440 2,395,174
Income tax expense 612,197 951,774
------------- ------------
Net income $ 1,012,243 $ 1,443,400
============= ============
Earnings per share:
Basic $ 0.37 $ 0.53
============= ============
Diluted $ 0.35 $ 0.51
============= ============
Dividends per share $ 0.03 $ 0.02
============= ============
Weighted average shares outstanding:
Basic 2,728,279 2,727,893
============= ============
Diluted 2,864,444 2,825,564
============= ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMCON Distributing Company
Consolidated Statements of Cash Flows
for the three months ended December 31, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,012,243 $ 1,443,400
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 629,824 295,468
Loss (gain) on sales of fixed assets 1,130 (33,772)
Provision for losses on doubtful accounts 65,857 189,894
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable (2,200,634) (2,316,502)
Inventories 224,772 (3,481,817)
Other current assets 229,395 1,568
Other assets (41,630) 9,172
Accounts payable 707,928 2,510,128
Accrued expenses and accrued wages,
salaries and bonuses (1,058,844) 193,937
Income taxes payable and deferred taxes 693,166 554,032
----------- -----------
Net cash provided by (used in)
operating activities 263,207 (634,492)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (337,211) (179,761)
Acquisitions, net of cash acquired (75,000) (1,258,833)
Proceeds from sales of fixed assets 83,863 35,100
----------- -----------
Net cash (used in)investing activities (328,348) (1,403,494)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 1,080,000
Net (payments) proceeds on
bank credit agreement (349,340) 1,301,622
Payments on long-term debt and
and subordinated debt (335,376) (342,152)
Dividends paid (49,598) -
Proceeds from exercise of stock options 7,851 -
----------- -----------
Net cash provided by financing activities (726,463) 2,039,470
----------- -----------
Net (decrease) increase in cash (791,604) 1,484
Cash, beginning of period 1,728,042 38,369
----------- -----------
Cash, end of period $ 936,438 $ 39,853
=========== ===========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of AMCON Distributing Company
and subsidiaries ("AMCON" or the "Company") have been prepared on the same
basis as the audited financial statements for the year ended September 30,
1999, and, in the opinion of management, contain all adjustments necessary to
fairly present the financial information included therein, such adjustments
consist of normal recurring items. It is suggested that these financial
statements be read in conjunction with the audited financial statements and
notes thereto, for the fiscal year ended September 30, 1999, which are
included in the Company's Annual Report to Stockholders filed with Form 10-K.
Results for the interim period are not necessarily indicative of results to be
expected for the entire year.
2. INVENTORIES:
Inventories consist of finished products purchased in bulk quantities to be
redistributed to the Company's customers. Effective in fiscal 1999, the
Company changed the method of accounting for inventory from the first-in,
first-out ("FIFO") method to the last-in, first-out ("LIFO") method. LIFO
inventories at December 31, 1999 were approximately $2.1 million less than the
amount of such inventories valued on a FIFO basis.
3. STOCK DIVIDEND:
In December 1999, the Board of Directors of the Company declared a special 10%
stock dividend payable on February 8, 2000 to shareholders of record on
January 25, 2000. The effect of the special 10% stock dividend has been
retroactively applied to the balance sheet as of December 31, 1999. The
appropriate capital accounts and earnings per share information have been
adjusted to reflect the stock dividend in the first quarter ended December 31,
1999. Additionally, the stock dividend has been reflected retroactively in
the earnings per share calculation for the quarter ended December 31, 1998 and
the capital accounts at September 30, 1999.
4. EARNINGS PER SHARE:
Basic earnings per share is calculated by dividing net income by the weighted
average common shares outstanding for each period. Diluted earnings per share
is calculated by dividing net income by the sum of the weighted average common
shares outstanding and the weighted average dilutive options, using the
treasury stock method.
</TABLE>
<TABLE>
<CAPTION>
For the three-month period ended December, 31,
-------------------------------------------------
1999 1998
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. Weighted average common
shares outstanding, as restated 2,728,279 2,728,279 2,727,990 2,727,990
2. Weighted average treasury
shares outstanding - - (97) (97)
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 136,165 - 97,671
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 2,728,279 2,864,444 2,727,893 2,825,564
=========== =========== =========== ===========
5. Net income $ 1,012,243 $ 1,012,243 $ 1,443,400 $ 1,443,400
=========== =========== =========== ===========
6. Earnings per share $ 0.37 $ 0.35 $ 0.53 $ 0.51
=========== =========== =========== ===========
</TABLE>
In December 1999 the Board of Directors increased the quarterly cash dividend
from $0.02 to $0.03 per share and declared a special 10% stock dividend.
5. COMPREHENSIVE INCOME:
The following is a reconciliation of net income per the accompanying
consolidated statements of income to comprehensive income for the periods
indicated:
<TABLE>
<CAPTION>
For the three-month
period ended December, 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 1,012,243 $ 1,443,400
Other comprehensive income:
Unrealized holding gains (losses)from
investments arising during the period,
net of income taxes of $15,563 and
$52,602, respectively. 25,937 82,274
----------- -----------
Comprehensive income $ 1,038,180 $ 1,525,674
=========== ===========
</TABLE>
6. BUSINESS SEGMENTS:
AMCON operates within two business segments; the wholesale distribution of
consumer products by AMCON Distributing Company and Food For Health Co., Inc.
and the retail sale of health and natural food products by Chamberlin's
Natural Food Products, Inc. (d/b/a Chamberlin's Market and Cafe) and Health
Food Associates, Inc. (d/b/a Akin's Natural Foods Market). The business units
within each segment are evaluated on revenues, operating income and income
before taxes and extraordinary items.
Wholesale
Distribution Retail Consolidated
------------- ----------- -------------
Quarter ended December 31, 1999:
External revenues:
Cigarettes $ 70,165,211 $ - $ 70,165,211
Health food 11,427,664 8,277,509 19,705,173
Confectionery 7,328,608 - 7,328,608
Tobacco, beverage & other 14,844,768 - 14,844,768
------------- ----------- -------------
Total external revenues 103,766,251 8,277,509 112,043,760
Intersegment sales:
Health food 1,338,523 - 1,338,523
------------- ----------- -------------
Total intersegment sales 1,338,523 - 1,338,523
Depreciation and amortization 316,983 312,841 629,824
Operating income 1,647,304 713,626 2,360,930
Interest expense 370,149 374,453 744,602
Income before taxes 1,285,267 339,173 1,624,440
Total assets 49,760,475 19,712,309 69,472,784
Capital expenditures 224,669 112,542 337,211
Quarter ended December 31, 1998:
External revenues:
Cigarettes $ 53,923,807 $ - 53,923,807
Health food 9,404,031 - 9,404,031
Confectionery 6,779,574 - 6,779,574
Tobacco, beverage & other 12,201,348 - 12,201,348
------------- ----------- -------------
Total external revenues 82,308,760 - 82,308,760
Intersegment sales - - -
Depreciation and amortization 295,468 - 295,468
Operating Income 2,808,077 - 2,808,077
Interest expense 446,168 - 446,168
Income before taxes 2,395,174 - 2,395,174
Total assets 48,504,417 - 48,504,417
Capital expenditures 179,761 - 179,761
Intersegment sales are at cost plus a nominal markup and are eliminated in the
consolidated statements of income. The retail segment was acquired in the
third and fourth quarters of fiscal 1999, therefore no segment information is
presented for the retail segment in first quarter of fiscal 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparison of the three-month periods ended December 31, 1999 and
December 31, 1998
Sales for the three months ended December 31, 1999 increased 36.1% to $112.0
million, compared to $82.3 million for the first quarter in prior fiscal year.
Sales increase by business segment is as follows:
Wholesale distribution $ 21.4 million
Retail health food stores 8.3 million
------
$ 29.7 million
======
Sales from the traditional distribution business increased by $19.4 million
during the first quarter over the first quarter in the prior year as follows:
Cigarette sales increased approximately $16.2 million over the first quarter
in the prior year (approximately $14.8 million was due to significant price
increases in the prior fiscal year and approximately $1.4 million was due to
increased volume). Sales of tobacco, confectionery and other products
increased by $3.2 million primarily due to increased volume. Sales from the
natural foods distribution business, Food For Health, Co. Inc. ("FFH")
increased by $2.0 million, primarily due to the acquisition of a Florida
natural foods distributor in the middle of the first quarter of fiscal 1999.
Sales of $8.3 million from the retail health food stores, Chamberlin's Market
& Cafe and Akin's Natural Foods Market, represent new sales for the quarter
since the retail segment was purchased in the third and fourth quarters of
fiscal 1999.
Gross profit increased 31.1% to $14.0 million for the three months ended
December 31, 1999 from $10.6 million over the same period during the prior
year. Gross profit as a percent of sales declined to 12.4% for the quarter
ended December 31, 1999 compared to 12.9% for the quarter ended December 31,
1998. Gross profit by business segment is as follows (dollars in millions):
Quarter ended
December 31,
---------------- Incr/
1999 1998 (Decr)
------ ------ -----
Wholesale distribution (recurring) $ 10.3 $ 8.5 $ 1.8
Wholesale distribution (nonrecurring) 0.0 2.1 (2.1)
Retail health food stores 3.7 n/a 3.7
------ ------ -----
$ 14.0 $ 10.6 $ 3.4
====== ====== =====
The increase in gross profit was primarily the result of $3.7 million in gross
profit generated by the retail health food stores, which were acquired in the
third and fourth quarters of fiscal 1999. Gross profit generated by the
recurring traditional and natural foods distribution businesses increased by
$1.8 million. However, in the first quarter of fiscal 1999, the traditional
distribution business generated $2.1 million in nonrecurring gross profits due
to managing inventory levels prior to a significant increase in cigarette
prices. The cigarette price increase resulted from a settlement that was
reached between the major tobacco manufacturers and the various states that
had filed liability suits against the industry. Price increases of the
magnitude experienced in November 1998 are rare and the profits generated by
this event were not expected to, nor did they, recur in the first quarter of
the current fiscal year. The reduction in the gross profit percentage was
also primarily attributable to the substantial cigarette price increase during
the first quarter of the prior year. The Company expects profit margins to
remain at current levels for the remainder of the fiscal year.
Since 1993, sales of the Company's private label cigarettes have steadily
declined. This trend is primarily due to the price differential between
premium and major generic brands, including the Company's brand. Although
gross profit derived from the sale of the Company's private label cigarettes
was slightly greater in the first quarter ended December 31, 1999 than the
same period of the prior year, primarily due to additional manufacturers
incentives received by the Company in the first quarter to assist promotional
efforts, management anticipates the volume of the Company's private label
cigarettes will continue to decline over the next few years. The rate of
decline is expected to be lower than in prior years; however, gross profit
from the sale of private label cigarettes could decrease by up to $300,000 in
fiscal 2000.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 48.0% or $3.8 million to
$11.6 million for the quarter ended December 31, 1999 compared to the same
period in the prior fiscal year. The increase was primarily due to expenses
associated with the retail health food stores which accounted for $3.0 million
of the increase in operating expenses. The retail health food stores were
acquired in the third and fourth quarters of fiscal 1999; therefore, there
were no operating expenses associated with this business segment in the first
quarter of the prior year. As a percentage of sales, total operating expense
increased to 10.4% from 9.5% during the same period in the prior year. This
increase is primarily due to operating costs incurred by the retail health
food business during the period. Operating expenses incurred by this business
segment are approximately 35% of sales compared to 8% incurred by the
wholesale distribution business.
As a result of the above, income from operations for the quarter ended
December 31, 1999 decreased by $447,000 or 15.9% to $2,360,930.
Interest expense for the three months ended December 31, 1999 increased 66.9%
to $745,000 compared to $446,000 during the same period in the prior year.
The increase was primarily due to interest expense attributable to the debt
incurred to purchase the retail health food stores in fiscal 1999. Interest
expense associated with this acquisition debt was approximately $374,000, or
$75,000 more than the total increase in interest expense for the period.
Other income for the three months ended December 31, 1999 of $8,000 was
generated primarily by the gain or loss associated with the sale of fixed
assets, royalty payments, and dividends received on investment securities.
Other income for the three months ended December 31, 1998 of $33,000 was
generated from similar activities.
As a result of the above factors, net income during the three months ended
December 31, 1999 was $1,012,243 compared to $1,443,400 for the three months
ended December 31, 1998.
As described in Management's Discussion and Analysis in the Company's Annual
Report to Shareholders for the Fiscal Year Ended September 30, 1999, the
Company's distribution and retail businesses operate in very competitive
markets. Pressure on profit margins continue to affect both large and small
distributors and expansion by large natural food retail chains intensifies
competition in the Company's natural food retail markets. This business
climate subjects operating income to a number of factors which are beyond the
control of management, such as competing retail stores opening in close
proximity to the Company's retail stores and changes in manufacturers'
cigarette pricing which affects the market for generic and private label
cigarettes. While the Company sells a diversified product line, it remains
dependent upon cigarette sales which represented approximately 63% of its
revenue and 34% of its gross margin in the first quarter of fiscal 2000. The
Company continuously evaluates steps it may take to improve net income in
future periods, including further acquisitions of other distributing companies
and retail stores in similar business lines and further sales of assets that
are no longer essential to its primary business activities such as investments
in equity securities.
Investments in equity securities at December 31, 1999 and September 30, 1999,
respectively, consisted primarily of 83,000 shares of Consolidated Water
Company Limited ("CWC"), a public company which is listed on NASDAQ. The
Company's basis in the securities is $151,000 and the fair market value of the
securities was $581,000 and $540,000 on December 31, 1999 and September 30,
1999, respectively. The unrealized gain on CWC shares was approximately
$430,000 and $389,000 on December 31, 1999 and September 30, 1999,
respectively. In January 2000, the Company sold 5,000 shares of CWC. The
realized gain associated with the sale was approximately $23,000. The fair
market value of the CWC shares held on January 28, 2000 was $507,000.
YEAR 2000 READINESS
STATE OF READINESS. The Company did not experience any significant Year 2000
problems and did not incur any down time as a result of the Year 2000 issue.
The Company was operating under normal conditions on the first business day
after January 1, 2000.
COSTS. Through December 31, 1999, cumulative costs relating directly to Year
2000 issues totaled approximately $190,000. A portion of the total costs
included the cost of existing personnel who were deployed to work on various
phases of the Year 2000 project. These costs do not include system upgrades
and replacements that were made in the normal course of business. The
deployment of internal resources to the Year 2000 project did not result in
significant delays to other major technology projects which were planned by
the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1999, the Company utilized cash
flow in operating activities to finance increases in accounts receivable which
resulted primarily from new business, to pay bonuses, and to satisfy other
accrued expenses. Cash was provided by operating activities due to increases
in accounts payable resulting from the Company taking advantage of holiday
payment terms offered by manufacturers and due to the first quarter estimated
tax payment being due after quarter end. Cash was utilized in investing
activities during the three month period ended December 31, 1999 primarily for
capital expenditures which totaled $337,000. Cash was utilized in financing
activities to reduce the revolving credit facilities and long-term debt and
for payment of dividends to stockholders.
The Company had working capital of approximately $19.5 million as of December
31, 1999 compared to $18.7 million as of September 30, 1999. The Company's
debt to equity ratio was 3.89 to 1 at December 31, 1999 compared to 4.17 at
September 30, 1999.
The Company maintains two revolving credit facilities, the AMCON Distributing
Company revolving credit facility (the "Facility") and the FFH revolving
credit facility (the "FFH Facility"). The Facility was amended in September
1999 to increase the primary borrowing limit from $20 million to $25 million
and remove the additional $10 million facility which was collateralized by
specific inventory. The Facility allows the Company to borrow up to $25
million at any time, subject to eligible accounts receivable and inventory
requirements, and provides for an additional $1.5 million facility to be used
for transportation equipment purchases. The Facility bears interest at the
bank's base rate ("Prime") less 0.5% or LIBOR plus 1.75%, as selected by the
Company. As of December 31, 1999, the Company had borrowed approximately
$16.3 million under the Facility. The Facility is collateralized by all
equipment, general intangibles, inventories and accounts receivable, and with
a first mortgage on the owned distribution center. The Facility expires on
February 25, 2002.
The FFH Facility was amended in November 1999 to increase the amount provided
for maximum borrowings from $6 million to $8 million. Borrowings under the
FFH Facility are collateralized by the assets of FFH and are guaranteed by the
Company. Amounts under the FFH Facility bear interest at Prime less 0.5% or
LIBOR plus 2.0%, as selected by FFH. A commitment fee of .25% of the annual
average unutilized amount of the commitment is required. As of December 31,
1999, FFH had borrowed approximately $7.0 million under the FFH Facility. The
FFH Facility expires on February 25, 2002.
The FFH Facility contains covenants which, among other things, set forth
certain financial ratios and net worth requirements which adjust semiannually
or annually as specified in the FFH Facility. As of December 31, 1999, FFH
was not in compliance with several of its financial ratios due to the
acquisition of Health Food Associates, Inc. ("HFA")in September 1999.
However, FFH received waivers from the lender for these covenant violations at
December 31, 1999.
The Company has an outstanding term loan from a bank which was used to finance
the purchase of the common stock of FFH (the "Acquisition Loan"). The
Acquisition Loan has a term of five years, bears interest at Prime less 0.5%
or LIBOR plus 1.75%, as selected by the Company and requires monthly payments
equal to accrued interest plus principal payments of $85,096, which began in
August 1998. As of December 31, 1999, the outstanding balance of the
Acquisition Loan was $3.0 million.
FFH has an outstanding term loan from a bank which was used to finance the
purchase of a Florida natural foods distributor in November 1998 (the "Term
Loan"). The Term Loan bears interest at Prime less 0.5%, required payments of
interest only for the first six months and monthly principal payments for the
term of the loan. The Term Loan is collateralized by the assets of FFH. As
of September 30, 1999, the outstanding balance of the Term Loan was $954,000.
In September, 1999, FFH utilized borrowings under an 8% Convertible
Subordinated Note (the "Convertible Note") and under a Collateralized
Subordinated Promissory Note (the "Collateralized Note"), in addition to
borrowing under the Facility, to purchase all of the common stock of HFA.
Funding for the acquisition was provided as follows: $4.0 million through
borrowings under the Facility; $2.0 million through borrowings under the
Convertible Note; and $8.0 million through borrowings under the Collateralized
Note.
Both the Convertible Note and the Collateralized Note have five-year terms and
bear interest at 8% per annum. Principal on the Convertible Note is due in a
single payment at maturity. Principal on the Collateralized Note is payable
in installments of $800,000 per year with the balance due at maturity. The
Collateralized Note is collateralized by a pledge of the stock of HFA. The
principal balance of the Convertible Note may be converted into stock of FFH
under circumstances set forth in the Convertible Note. As of December 31,
1999, the outstanding balances of the Convertible Note and the Collateralized
Note were $2.0 million and $8.0 million, respectively.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility and the FFH Facility, will
provide sufficient liquidity to cover its debt service and any reasonably
foreseeable future working capital and capital expenditure requirements.
CONCERNING FORWARD LOOKING STATEMENTS
This Quarterly Report, including the Management's Discussion and Analysis and
other sections, contains forward looking statements that are subject to risks
and uncertainties and which reflect management's current beliefs and estimates
of future economic circumstances, industry conditions, company performance and
financial results. Forward looking statements include information concerning
the possible or assumed future results of operations of the Company and those
statements preceded by, followed by or that include the words "future,"
"position," "anticipate(s)," "expect," "believe(s)," "see," "plan," "further
improve," "outlook," "should" or similar expressions. For these statements,
we claim the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those
discussed elsewhere in this document, could affect the future results of the
Company and could cause those results to differ materially from those
expressed in our forward looking statements: changing market conditions with
regard to cigarettes and the demand for the Company's products, domestic
regulatory risks, competitive and other risks over which the Company has
little or no control. Any changes in such factors could result in
significantly different results. Consequently, future results may differ from
management's expectations. Moreover, past financial performance should not be
considered a reliable indicator of future performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's exposure to market risk relates
primarily to its investment in the common stock of Consolidated Water Company,
a public company traded on the Nasdaq National Market system, and for changes
in interest rates to its long-term obligations. At December 31, 1999, the
Company held 83,000 shares of common stock of Consolidated Water Company
valued at $581,000. The Company values this investment at market and records
price fluctuations in equity as unrealized gain or loss on investments. At
December 31, 1999, the Company had $27.4 million of variable rate debt
outstanding, with maturities through May 2004. The interest rates on this
debt ranged from 7.10% to 8.00% at December 31, 1999. The Company has the
ability to select the bases on which its variable interest rates are
calculated and may select an interest rate based on its lender's base
interest rate or based on LIBOR. This provides management with some control
of the Company's variable interest rate risk. The Company estimates that its
annual cash flow exposure relating to interest rate risk based on its current
borrowings is approximately $171,000 for each 1% change in its lenders prime
interest rate or LIBOR, as applicable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
2.1 Stock Purchase Agreement dated November 3, 1997, between the
Company and FFH Holdings, Inc. (incorporated by reference to
Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on
November 25, 1997)
2.2 Stock Purchase Agreement dated February 24, 1999, between Food
For Health Company, Inc. ("FFH"), an Arizona corporation and a
wholly-owned subsidiary of AMCON, Chamberlin Natural Foods,
Inc.("Chamberlin"), a Florida corporation, Dale C. Bennett, Dale
C. Bennett as Trustee of the Alice M. Bennett Irrevocable Trust
Dated August 8, 1991, Dale C. Bennett as Trustee of the Dale C.
Bennett Revocable Trust dated August 8, 1991, Kirk D. Bennett and
Chad W. Bennett as Trustees of the Dale C. Bennett Irrevocable
Trust No. 1, Chad W. Bennett and Kirk D. Bennett (incorporated by
reference to Exhibit 2.2 of AMCON's Quarterly Report on Form 10-Q
filed on May 10, 1999)
2.3 Stock Purchase Agreement dated August 30, 1999, by and among Food
For Health Company, Inc., a wholly-owned subsidiary of AMCON
Distributing and Health Food Associates, Inc. (incorporated by
reference to Exhibit 2.1 of AMCON's Current Report of Form 8-K
filed on September 30, 1999)
3.1 Restated Certificate of Incorporation of the Company, as amended
March 19, 1998 (incorporated by reference to Exhibit 3.1 of
AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998)
3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.2
of AMCON's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on August 15, 1994)
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of AMCON's Registration Statement on Form S-1
(Registration No. 33-82848) filed on August 15, 1994)
10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993,
between the Company and Famous Value Brands, a division of Philip
Morris Incorporated, including Private Label Manufacturing
Agreement and Amended and Restated Trademark License Agreement
(incorporated by reference to Exhibit 10.1 of Amendment No. 1 to
AMCON's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on November 8, 1994)
10.2 Amendment No. 1 to Grant of Exclusive Manufacturing Rights, dated
October 1, 1998, between the Company and Famous Value Brands, a
division of Philip Morris Incorporated, including Amendment No. 1
To Private Label Manufacturing Agreement and Amendment No. 1 to
Amended and Restated Trademark License Agreement (incorporated by
reference to Exhibit 10.2 of AMCON's Annual Report on Form 10-K
filed on December 24, 1998)
10.3 Loan Agreement, dated November 10, 1997, between the Company and
LaSalle National Bank (incorporated by reference to Exhibit 10.1
of AMCON's Current Report on Form 8-K filed on November 25, 1997)
10.4 Amended Loan Agreement, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.5 of AMCON's Quarterly Report on Form 10-Q filed on
May 11, 1998)
10.5 Note, dated November 10, 1997, between the Company and LaSalle
National Bank (incorporated by reference to Exhibit 10.2 of
AMCON's Current Report on Form 8-K filed on November 25, 1997)
10.6 First Allonge to Note, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.7 of AMCON's Quarterly Report on Form 10-Q filed on
May 11, 1998)
10.7 Loan and Security Agreement, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.8 of AMCON's Quarterly Report on Form 10-Q filed on
May 11, 1998)
10.8 Promissory Note, dated February 25, 1998, between the Company and
LaSalle National Bank (incorporated by reference to Exhibit 10.9
of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998)
10.9 Loan and Security Agreement, dated February 25, 1998, between
Food For Health Co., Inc. and LaSalle National Bank (incorporated
by reference to Exhibit 10.10 of AMCON's Quarterly Report on
Form 10-Q filed on May 11, 1998)
10.10 Promissory Note, dated February 25, 1998, between Food For
Health Co., Inc. and LaSalle National Bank (incorporated by
reference to Exhibit 10.11 of AMCON's Quarterly Report on
Form 10-Q filed on May 11, 1998)
10.11 First Amendment to Loan and Security Agreement, dated November
18, 1998, between Food For Health Co., Inc. and LaSalle National
Bank (incorporated by reference to Exhibit 10.11 of AMCON's
Quarterly Report on Form 10-Q/A filed on August 5, 1999)
10.12 First Amendment and Allonge to Promissory Note, dated November
18, 1998, between Food For Health Co., Inc. and LaSalle National
Bank (incorporated by reference to Exhibit 10.12 of AMCON's
Quarterly Report on Form 10-Q/A filed on August 5, 1999)
10.13 Unconditional Guarantee, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q
filed on May 11, 1998)
10.14 8% Convertible Subordinated Note, dated September 15, 1999 by
and between Food For Health Company Inc. and Eric Hinkefent,
Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by
reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K
filed on September 30, 1999)
10.15 Secured Promissory Note, dated September 15, 1999, by and
between Food For Health Company, Inc. and James C. Hinkefent and
Marilyn M. Hinkefent, as trustees of the James C. Hinkefent
Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann
O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference
to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on
September 30, 1999)
10.16 Pledge Agreement, dated September 15, 1999, by and between Food
For Health Company, Inc. and James C. Hinkefent and Marilyn M.
Hinkefent, as trustees of the James C. Hinkefent Trust dated
July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell,
Sally Sobol, and Amy Laminsky (incorporated by reference to
Exhibit 10.3 of AMCON's Current Report on Form 8-K filed on
September 30, 1999)
10.17 AMCON Distributing Company 1994 Stock Option Plan (incorporated
by reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-1 (Registration No. 33-82848) filed on
August 15, 1994)
10.18 AMCON Distributing Company Profit Sharing Plan (incorporated by
reference to Exhibit 10.8 of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82848)
filed on November 8, 1994)
10.19 Employment Agreement, dated May 22, 1998, between the Company
and William F. Wright (incorporated by reference to Exhibit
10.14 of the Company's Quarterly Report on Form 10-Q filed on
August 6, 1998)
10.20 Employment Agreement, dated May 22, 1998, between the Company
and Kathleen M. Evans (incorporated by reference to Exhibit
10.15 of the Company's Quarterly Report on Form 10-Q filed on
August 6, 1998)
10.21 Employment Agreement, dated May 22, 1998, between the Food For
Health Co., Inc. and Jerry Fleming (incorporated by reference to
Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q
filed on August 6, 1998)
11.1 Statement re: computation of per share earnings (incorporated by
reference to footnote 4 to the financial statements included in
Item 1 of Part I herein)
27.0 Financial Data Schedules
(b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K on September 30, 1999
under Item 2 regarding the acquisition of Health Food Associates, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: February 7, 2000 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & Principal
Executive Officer
Date: February 7, 2000 Michael D. James
----------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
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<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at December 31, 1999 and the Statement of Income for the Three
Months Ended December 31, 1999 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
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