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 June 30, 2000
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 2,737,331 shares of its $.01 par value common stock
outstanding as of July 31, 2000.
Form 10-Q
3rd Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Balance sheets at June 30, 2000
and at September 30, 1999 3
Statements of income for the three and nine-month
periods ended June 30, 2000 and June 30, 1999 4
Statements of cash flows for the nine-month periods
ended June 30, 2000 and June 30, 1999 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company
Consolidated Balance Sheets
June 30, 2000 and September 30, 1999
- ---------------------------------------------------------------------------------------
(Unaudited)
June 30, September 30,
2000 1999
------------ -------------
ASSETS
Current assets:
Cash $ 805,047 $ 1,728,042
Accounts receivable, less allowance for
doubtful accounts of $774,458 and $676,801 18,814,136 18,345,816
Inventories 26,277,365 23,979,639
Deferred income taxes 852,210 717,022
Other 550,984 1,000,189
------------ ------------
Total current assets 47,299,742 45,770,708
Fixed assets, net 6,155,449 7,502,927
Investments 490,000 550,691
Other assets 14,881,630 14,764,890
------------ ------------
$ 68,826,821 $ 68,589,216
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,842,988 $ 11,953,546
Accrued expenses 3,315,867 3,173,231
Accrued wages, salaries and bonuses 1,009,294 640,933
Income taxes payable 578,653 283,111
Dividends payable 82,120 51,297
Current portion of long-term debt 8,776,158 10,133,393
Current portion of subordinated debt 800,000 800,000
------------ ------------
Total current liabilities 27,405,080 27,035,511
------------ ------------
Deferred income taxes 768,639 678,455
Other liabilities 504,677 423,574
Long-term debt, less current portion 14,322,127 17,995,432
Subordinated debt, less current portion 9,200,000 9,200,000
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, 2,737,337 and 2,727,656
issued, respectively 27,373 27,276
Additional paid-in capital 4,121,667 4,101,629
Unrealized gain on investments
available-for-sale, net of $136,069
and $149,664 tax 224,366 234,299
Retained earnings 12,252,931 8,893,400
------------ ------------
16,626,337 13,256,604
Less treasury stock, 6 and 102 shares at cost ( 39) (360)
------------ ------------
Total shareholders' equity 16,626,298 13,256,244
------------ ------------
$ 68,826,821 $ 68,589,216
============ ============
The accompanying notes are an integral part of these financial statements
AMCON Distributing Company
Consolidated Statements of Income
for the three and nine-months ended June 30, 2000 and 1999
(Unaudited)
- ------------------------------------------------------------------------------------
For the three months For the nine months
ended June 30, ended June 30
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------- -----------
Sales (including excise taxes
of $18.8 million and $14.7 million,
and $52.1 million and $41.7
million, respectively) $115,884,327 $103,650,576 $339,664,202 $275,998,896
Cost of sales 102,876,013 92,985,488 297,982,288 245,334,725
------------ ----------- ------------ ------------
Gross profit 13,008,314 10,665,088 41,681,914 30,664,171
Selling, general and
administrative expenses 11,295,876 8,449,417 33,694,970 23,347,446
Depreciation and amortization 733,598 452,401 2,042,777 1,053,122
------------ ----------- ------------ ------------
12,029,474 8,901,818 35,737,747 24,400,568
------------ ----------- ------------ ------------
Income from operations 978,840 1,763,270 5,944,167 6,263,603
Other expense (income):
Interest expense 679,939 409,504 2,243,610 1,234,745
Other expense (income), net (1,876,193) (6,404) (1,992,546) (151,666)
------------ ----------- ------------ ------------
(1,196,254) 403,100 251,064 1,083,079
------------ ----------- ------------ ------------
Income before income taxes 2,175,094 1,360,170 5,693,103 5,180,524
Income tax expense 794,503 510,127 2,094,515 2,025,633
------------ ----------- ------------ ------------
Net income $ 1,380,591 $ 850,043 $ 3,598,588 $ 3,154,891
============ =========== ============ ============
Earnings share
Basic $ 0.50 $ 0.31 $ 1.32 $ 1.16
============ =========== ============ ============
Diluted $ 0.49 $ 0.30 $ 1.26 $ 1.12
============ =========== ============ ============
Weighted average shares
outstanding:
Basic 2,737,333 2,727,662 2,733,954 2,727,662
============ =========== ============ ============
Diluted 2,845,101 2,837,968 2,858,725 2,829,081
============ =========== ============ ============
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Consolidated Statements of Cash Flows
for the nine months ended June 30, 2000 and 1999
(Unaudited)
- ------------------------------------------------------------------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,598,588 $ 3,154,891
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,042,777 1,082,970
Gain on sales of fixed assets and securities (1,263,417) (40,772)
Provision for losses on doubtful accounts 62,659 197,554
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable (599,867) (2,371,556)
Inventories (2,297,726) (818,906)
Other current assets (95,830) (23,510)
Other assets (196,791) 13,705
Accounts payable 1,227,324 2,532,527
Accrued expenses and accrued wages,
salaries, and bonuses 41,928 159,999
Income taxes payable and deferred taxes 266,491 (165,303)
----------- -----------
Net cash provided by operating activities 2,786,136 3,721,599
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (754,695) (491,837)
Acquisitions, net of cash acquired - (3,411,450)
Proceeds from sales of fixed assets 1,945,413 46,830
Proceeds from sale of available for sale securities 92,260 -
----------- -----------
Net cash provided by (used in) investing activities 1,282,978 (3,856,457)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 1,080,000
Net (payments) proceeds on bank credit agreement (4,015,709) 2,997,695
Payments on long-term debt (788,620) (3,533,799)
Dividends paid (208,042) (99,200)
Proceeds from exercise of stock options 19,941 -
Purchase of treasury stock 321 -
----------- -----------
Net cash provided by (used in) financing activities (4,992,109) 444,696
----------- -----------
Net increase (decrease)in cash (922,995) 309,838
Cash, beginning of period 1,728,042 38,369
----------- -----------
Cash, end of period $ 805,047 $ 348,207
=========== ===========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
- ------------------------------------------------------------------------------
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
consisting 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.
AMCON's fiscal third quarters ended on June 23, 2000 and June 25, 1999,
respectively. For convenience, the fiscal quarters have been indicated as
June 30 and each of AMCON's fiscal first, second and third quarters were
comprised of 13 weeks.
2. INVENTORIES:
Inventories consist of finished products purchased in bulk quantities by the
wholesale distribution business to be redistributed to the Company's retail
customers and finished products purchased by the retail health food stores to
be sold to consumers. 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 June
30, 2000 were approximately $2.2 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 paid on February 8, 2000 to shareholders of record on January
25, 2000. The effect of the special 10% stock dividend has been reflected
retroactively in the earnings per share calculation for the quarter ended June
30, 1999 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.
For the three-month period ended June 30,
------------------------------------------------
2000 1999
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 2,737,337 2,737,337 2,727,759 2,727,759
2. Weighted average treasury
shares outstanding (4) (4) (97) (97)
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 107,768 - 110,306
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 2,737,333 2,845,101 2,727,662 2,837,968
=========== =========== =========== ===========
5. Net income $ 1,380,591 $ 1,380,591 $ 850,043 $ 850,043
=========== =========== =========== ===========
6. Earnings per share $ 0.50 $ 0.49 $ 0.31 $ 0.30
=========== =========== =========== ===========
For the nine-month period ended June 30,
------------------------------------------------
2000 1999
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 2,733,955 2,733,955 2,727,759 2,727,759
2. Weighted average treasury
shares outstanding (1) (1) (97) (97)
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 124,771 - 101,419
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 2,733,954 2,858,725 2,727,662 2,829,081
=========== =========== =========== ===========
5. Net income $ 3,598,588 $ 3,598,588 $ 3,154,890 $ 3,154,890
=========== =========== =========== ===========
6. Earnings per share $ 1.32 $ 1.26 $ 1.16 $ 1.12
=========== =========== =========== ===========
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:
For the three months For the nine months
ended June 30 ended June 30
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income $ 1,380,591 $ 850,043 $ 3,598,588 $ 3,154,891
Other comprehensive income:
Unrealized holding gain (losses)
from investments arising during
the period, net of income taxes
of $17,956, $24,277, $19,783
and $44,509, respectively 29,926 37,973 32,971 69,616
Less reclassification adjustments
for gains included in net income (25,533) - (42,904) -
----------- ----------- ----------- -----------
Comprehensive income $ 1,384,984 $ 888,016 $ 3,588,655 $ 3,224,507
=========== =========== =========== ===========
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 June 30, 2000:
External revenues $ 107,508,493 $ 8,375,834 $ 115,884,327
Intersegment sales 2,168,946 - 2,168,946
Income (loss) before taxes 2,399,651 (224,557) 2,175,094
Total assets 48,861,047 19,965,774 68,826,821
Quarter ended June 30, 1999:
External revenues $ 100,483,841 $ 3,166,735 $ 103,650,576
Intersegment sales - - -
Income before taxes 1,327,375 32,795 1,360,170
Total assets 44,751,185 5,659,995 50,411,180
Nine months ended June 30, 2000:
External revenues $ 314,473,929 $ 25,190,273 $ 339,664,202
Intersegment sales 5,735,791 - 5,735,791
Income before taxes 5,204,438 488,665 5,693,103
Total assets 48,861,047 19,965,774 68,826,821
Nine months ended June 30, 1999:
External revenues $ 272,832,161 $ 3,166,735 $ 275,998,896
Intersegment sales - - -
Income before taxes 5,147,729 32,795 5,180,524
Total assets 44,751,185 5,659,995 50,411,180
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 six months 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 and nine-month periods ended June 30, 2000 and
June 30, 1999
Sales for the three months ended June 30, 2000 increased 11.8% to$115.9
million, compared to $103.7 million for the third quarter in prior fiscal
year. Sales increase by business segment is as follows:
Wholesale distribution $ 7.0 million
Retail health food stores 5.2 million
------
$ 12.2 million
======
Sales from the traditional distribution business increased by $8.0 million
during the third quarter over the third quarter in the prior year as follows:
Cigarette sales increased approximately $6.5 million over the third quarter in
the prior year (approximately $3.0 million was due to price increases and
approximately $3.5 million was due to increased volume). Sales of tobacco,
confectionery and other products increased by $1.5 million primarily due to
increased volume. Sales from the natural foods distribution business, Food
For Health, Co. Inc. ("FFH"), decreased by $1.0 million primarily due to the
loss of several significant customers who either were acquired or implemented
an internal distribution system. The increase in sales from the retail health
food stores, Chamberlin's Market & Cafe and Akin's Natural Foods Market, is
related primarily to Akin's Natural Foods Market, which was acquired in the
fourth quarter of fiscal 1999 and whose sales represent new sales for the
quarter.
Sales for the nine months ended June 30, 2000 increased 23.1% to $339.7
million, compared to $276.0 million for the same period in prior fiscal year.
Sales increase by business segment is as follows:
Wholesale distribution $ 41.7 million
Retail health food stores 22.0 million
------
$ 63.7 million
======
Sales from the traditional distribution business increased by $40.1 million
for the nine months ended June 30, 2000 as compared to the same period in the
prior year as follows: Cigarette sales increased approximately $33.5 million
over the prior year (approximately $24.6 million was due to price increases
and the balance was due to increased volume). Sales of non-cigarette products
increased by $6.6 million primarily due to increased volume. Sales from the
health and natural foods distribution business increased by $1.6 million.
This increase was primarily due to the acquisition of a Florida natural foods
distributor in the middle of the first quarter of fiscal 1999. The increase
in sales of $22.0 million from the retail health food stores, Chamberlin's
Market & Cafe and Akin's Natural Foods Market, is primarily due to new sales
generated since the retail segment was purchased in the third and fourth
quarters of fiscal 1999.
Gross profit increased 22.0% to $13.0 million for the three months ended June
30, 2000 from $10.7 million over the same period during the prior year. Gross
profit as a percent of sales increased to 11.2% for the quarter ended June 30,
2000 compared to 10.3% for the quarter ended June 30, 1999. Gross profit by
business segment for the third quarter is as follows (dollars in millions):
Quarter ended
June 30,
---------------- Incr/
2000 1999 (Decr)
------ ------ ------
Wholesale distribution $ 9.7 $ 9.4 $ .3
Retail health food stores 3.3 1.3 2.0
------ ------ ------
$ 13.0 $ 10.7 $ 2.3
====== ====== ======
The increases in gross profit and gross profit percentage were primarily the
result of $3.3 million in gross profit generated by the retail health food
stores, which were acquired in the third and fourth quarters of fiscal 1999.
Profit margins generated by the retail food stores are typically 40-45%
compared to profit margins of 9-11% generated by the distribution segment.
Gross profit increased 35.9% to $41.7 million for the nine months ended June
30, 2000 from $30.7 million over the same period during the prior year. Gross
profit as a percent of sales increased to 12.3% for the period compared to
11.1 % for the nine months ended June 30, 1999. Gross profit by business
segment for the nine months ended June 30, 2000 is as follows (dollars in
millions):
Nine months ended
June 30,
----------------- Incr/
2000 1999 (Decr)
------ ------ ------
Wholesale distribution (recurring) $ 30.3 $ 25.7 $ 4.6
Wholesale distribution (nonrecurring) 0.7 3.7 (3.0)
Retail health food stores 10.7 1.3 9.4
------ ------ ------
$ 41.7 $ 30.7 $ 11.0
====== ====== ======
The increases in gross profit and gross profit percentage were primarily
attributable to $10.7 million in gross profit generated by the retail health
food stores, which were acquired in the third and fourth quarters of fiscal
1999. Profit margins generated by the retail food stores are typically 40-45%
compared to profit margins of 9-11% generated by the distribution segment.
Gross profit generated by the recurring traditional and natural foods
distribution businesses increased by $4.6 million due to additional sales
generated by the segment. However, for the first nine months of fiscal 2000,
the traditional distribution business experienced a decrease of $3.0 million
in gross profit, as compared to the same period of the prior year, due to the
absence of cigarette price increases of the magnitude of which occurred in the
prior year. A significant cigarette price increase was implemented by
cigarette manufacturers in the first quarter of fiscal 1999 as the result of 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 are not expected to recur on a regular basis.
Although manufacturers increased the price of cigarettes again in the second
quarter and early fourth quarter of fiscal 2000, management considers gross
profits derived from such increases as nonrecurring since they occur on an
irregular and unpredictable basis.
Sales of the Company's private label cigarettes declined steadily from 1993
through 1999 primarily due to the price differential between premium and major
generic brands. The rate of decline in private label cigarette sales has
slowed in fiscal 2000 and gross profit derived from such sales increased
slightly in both the three and nine-months ended June 30, 2000 as compared to
the prior year. Management expects the gross profit derived from the sale of
its private label cigarettes to remain at current levels for the remainder of
fiscal 2000.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 35.1% or $3.1 million to
$12.0 million for the third quarter ended June 30, 2000 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 $2.0 million
of the increase in operating expenses. The retail health food stores were
acquired in the third and fourth quarters of fiscal 1999 and incurred $1.1
million in operating costs in the third quarter of the prior year. Operating
expenses incurred by the distribution segment increased by $1.1 primarily due
to increased labor costs in the distribution centers resulting from tight
labor markets, an increase in fuel and other delivery expenses and additional
administrative costs associated with development of new retail business
opportunities. As a percentage of sales, total operating expense increased to
10.4% from 8.6% 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 were
approximately 38.0% of sales compared to 8.2% incurred by the wholesale
distribution business.
For the nine-month period ended June 30, 2000, total operating expense
increased 46.5% or $11.3 million to $35.7 million compared to the same period
in fiscal 1999. The increase was primarily due to expenses associated with the
retail health food stores which accounted for $8.0 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 six months of the
prior fiscal year. Operating expenses incurred by the distribution segment
increased by $3.3 primarily due to increased labor costs in the distribution
centers resulting from tight labor markets, an increase in fuel and other
delivery expenses, and additional administrative costs associated with
development of new retail business opportunities. As a percentage of sales,
total operating expense increased to 10.5% from 8.8% 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 were approximately 36.1% of sales compared
to 8.5% incurred by the wholesale distribution business.
As a result of the above, income from operations for the third quarter ended
June 30, 2000 decreased by $784,000 or 44.5% to $978,000. Income from
operations for the nine-month period ended June 30, 2000 decreased $319,000 or
5.1% to $5,944,000.
Interest expense for the three months ended June 30, 2000 increased 66.0% to
$680,000 compared to $410,000 during the same period in the prior year.
Interest expense for the nine-month period ended June 30, 2000 increased 81.7%
to $2.2 million compared to $1.2 million during 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 $395,000 and
$1,150,000 for the three and nine-months periods ended June 30, 2000,
respectively, compared to $94,000 in both periods of the prior year. Interest
expense associated with the Company's operating lines of credit decreased
approximately $30,000 and $47,000, for the three and nine-month periods ended
June 30, 2000, as compared to the same periods in the prior year. The
decrease was primarily attributable to reductions to the revolving credit
balances from the proceeds of the sale of the Company's interest in a
condominium.
Other income for the three and nine-month periods ended June 30, 2000 of $1.9
and $2.0 million, respectively, was generated primarily by $1.9 million in
gains associated with the sale of the Company's interest in a condominium and
resolution of an intellectual property matter involving a trademark. Sale of
fixed assets and marketable securities, royalty payments and dividends
received on investment securities were also included in other income. Other
income for the three months ended June 30, 1999 of $6,400 was generated from
royalty payments and gains on sales of fixed assets. Other income for the
nine months ended June 30, 1999 of $152,000 was generated from similar
activities and dividends received on investment securities.
As a result of the above factors, net income during the three months ended
June 30, 2000 was $1,381,000 compared to $850,000 for the three months ended
June 30, 1999. Net income during the nine months ended June 30, 2000 was
$3,599,000 compared to $3,155,000 for the first nine months of the prior year.
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 continues 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, acquisition of the Company's retail
customers by other retail chains who are not customers 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 35% of
its gross margin in the first nine months 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 June 30, 2000 and September 30, 1999,
respectively, consisted of 70,000 and 83,000 shares of Consolidated Water
Company Limited ("CWC"), a public company which is listed on NASDAQ,. During
the third quarter ended June 30, 2000, the Company sold 7,000 shares of CWC
and realized a gain of $40,800. The Company's basis in the remaining
securities is $127,000 and the fair market value of the securities was
$490,000 and $540,000 on June 30, 2000 and September 30, 1999, respectively.
The unrealized gain on CWC shares was approximately $363,000 and $389,000 on
June 30, 2000 and September 30, 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 2000, the Company utilized cash flow in
operating activities to build inventory, pay bonuses and satisfy other accrued
expenses. Cash was provided by operating activities through increases in
accounts payable to finance inventory. During the nine-month period ended
June 30, 2000, cash was provided by investing activities primarily through the
sale of real estate and was utilized in investing activities primarily to fund
purchases of fixed assets. Cash was utilized in financing activities to
reduce borrowings on the Company's revolving lines of credit and to satisfy
current long-term debt obligations.
The Company had working capital of approximately $19.9 million as of June 30,
2000 compared to $18.7 million as of September 30, 1999. The Company's debt
to equity ratio was 3.14 to 1 at June 30, 2000 compared to 4.17 at September
30, 1999. The decrease was due to a reduction in the amount borrowed under
the Company's revolving credit facilities.
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 June 30, 2000, the Company had borrowed approximately $13.2
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 June 30, 2000,
FFH had borrowed approximately $6.4 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 June 30, 2000, FFH was
not in compliance with several of its financial ratios due to the acquisition
of Health Food Associates, Inc. ("HFA") in September 1999. The bank has
provided FFH with an amendment to the Facility that, when executed, would
bring FFH into compliance with the revised covenants.
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 June 30, 2000, the outstanding balance of the Acquisition
Loan was $2.5 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 June 30, 2000, the outstanding balance of the Term Loan was $846,000.
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 June 30, 2000,
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 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
(formerly Cayman Water Company), a public company traded on the Nasdaq
National Market system, and to changes in interest rates to its long-term
obligations. At June 30, 2000, the Company held 70,000 shares of common stock
of Consolidated Water Company valued at $490,000. The Company values this
investment at market and records price fluctuations in equity as unrealized
gain or loss on investments. At June 30, 2000, the Company had $23.1 million
of variable rate debt outstanding, with maturities through May 2004. The
interest rates on this debt ranged from 8.38% to 9.00% at June 30, 2000. The
Company has the ability to select the base on which its variable interest
rates are calculated and may select an interest rate based on its lender's
prime 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 $144,000 for each 1% change in its
lender's 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 First Amended and Restated AMCON Distributing Company 1994 Stock
Option Plan
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
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 2000.
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: August 4, 2000 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & Principal
Executive Officer
Date: August 4, 2000 Michael D. James
----------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer