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, 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 2,737,991 shares of its $.01 par value common stock
outstanding as of January 31, 2001.
Form 10-Q
1st Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Condensed consolidated balance sheets at
December 31, 2000 and at September 30, 2000 3
Condensed consolidated statements of income
for the three-month periods ended
December 31, 2000 and December 31, 1999 4
Condensed consolidated statements of cash flows
for the three-month periods ended December 31, 2000
and December 31, 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 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company
Condensed Consolidated Balance Sheets
December 31, 2000 and September 30, 2000
- ---------------------------------------------------------------------------------------
(Unaudited)
December 31, September 30,
2000 2000
------------ -------------
ASSETS
Current assets:
Cash $ 1,414,270 $ 1,148,276
Accounts receivable, less allowance for
doubtful accounts of $818,914 and $783,606 17,341,106 18,743,026
Inventories 24,528,190 29,397,579
Notes receivable - 350,000
Deferred income taxes 1,653,871 888,805
Other 614,049 752,126
------------ ------------
Total current assets 45,551,486 51,279,812
Fixed assets, net 5,771,799 5,886,773
Notes receivable 750,000 -
Investments 495,062 509,162
Other assets 15,172,915 15,319,764
------------ ------------
$ 67,741,262 $ 72,995,511
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,267,770 $ 10,747,124
Accrued expenses 4,092,186 3,902,035
Income taxes payable 440,781 -
Dividends payable 82,137 -
Current portion of long-term debt 2,830,282 8,345,243
Current portion of subordinated debt 906,318 912,694
------------ ------------
Total current liabilities 19,619,474 23,907,096
------------ ------------
Other liabilities 1,204,647 908,158
Long-term debt, less current portion 21,251,544 22,580,116
Subordinated debt, less current portion 8,735,236 8,745,236
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, 2,737,881 and 2,737,551
issued, respectively 27,379 27,376
Additional paid-in capital 4,122,464 4,121,981
Unrealized gain on investments
available-for-sale, net of $136,069
and $139,482 tax 223,237 228,924
Retained earnings 12,557,281 12,476,624
------------ ------------
Total shareholders' equity 16,930,361 16,854,905
------------ ------------
$ 67,741,262 $ 72,995,511
============ ============
The accompanying notes are an integral part of these financial statements
AMCON Distributing Company
Condensed Consolidated Statements of Income
for the three months ended December 31, 2000 and 1999
(Unaudited)
- ----------------------------------------------------------------------------
2000 1999
------------- ------------
Sales (including excise taxes
of $17.5 million and $14.5 million,
respectively) $ 109,251,278 $ 112,043,760
Cost of sales 96,351,902 98,085,020
------------- -------------
Gross profit 12,899,376 13,958,740
Selling, general and administrative
expenses 11,190,434 10,967,986
Depreciation and amortization 628,192 629,824
------------- -------------
11,818,626 11,597,810
------------- -------------
Income from operations 1,080,750 2,360,930
Other expense (income):
Interest expense 853,549 744,602
Other income, net (21,234) (8,112)
------------- -------------
832,315 736,490
------------- -------------
Income before income taxes 248,435 1,624,440
Income tax expense 85,641 612,197
------------- -------------
Net income $ 162,794 $ 1,012,243
============= =============
Earnings per share:
Basic $ 0.06 $ 0.37
============= =============
Diluted $ 0.06 $ 0.35
============= =============
Dividends per share $ 0.03 $ 0.03
============= =============
Weighted average shares outstanding:
Basic 2,737,688 2,728,279
============= =============
Diluted 2,819,743 2,864,444
============= =============
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Condensed Consolidated Statements of Cash Flows
for the three months ended December 31, 2000 and 1999
(Unaudited)
- --------------------------------------------------------------------------------
2000 1999
----------- -----------
Net cash provided by operating activities $ 7,847,666 $ 263,207
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (263,740) (337,211)
Purchase of debt security (400,000) -
Acquisitions, net of cash acquired - (75,000)
Proceeds from sales of fixed assets 1,350 83,863
Other (66,718) -
----------- -----------
Net cash (used in) investing activities (729,108) (328,348)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) on bank credit agreement (5,876,089) (349,340)
Payments on long-term debt and
subordinated debt (894,826) (335,376)
Dividends paid (82,137) (49,598)
Proceeds from exercise of stock options 488 7,851
----------- -----------
Net cash (used in) financing activities (6,852,564) (726,463)
----------- -----------
Net increase (decrease) in cash 265,994 (791,604)
Cash, beginning of period 1,148,276 1,728,042
----------- -----------
Cash, end of period $ 1,414,270 $ 936,438
=========== ===========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Notes to Condensed Consolidated Financial Statements
December 31, 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,
2000, 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. The condensed consolidated balance sheet
at September 30, 2000 has been taken from the audited financial statements at
that date and condensed. All other condensed consolidated financial
statements contained herein have been prepared by management and are
unaudited. 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, 2000, 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 first quarters ended on December 29, 2000 and December 24,
1999, respectively. For convenience, the fiscal quarters have been indicated
as December 31 and each quarter comprised 13 weeks.
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, 2000 were approximately $2.5 million less than
the amount of such inventories valued on a FIFO basis.
3. DIVIDENDS:
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
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, in December 1999, the Board of Directors increased
the cash dividend to $0.03 per share. The Company paid cash dividends of
$0.12 per share during fiscal 2000.
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. Stock options outstanding at December 31, 2000
and 1999, respectively, which were not included in the computations of
diluted earnings per share because the option's exercise price was greater
than the average market price on the common shares totaled 172,380 with an
average exercise price of $7.25 and 96,880 with an average exercise price of
$8.44.
For the three-month period ended December, 31,
-------------------------------------------------------
2000 1999
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 2,737,688 2,737,688 2,728,279 2,728,279
2. Weighted average treasury
shares outstanding - - - -
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 82,055 - 136,165
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 2,737,688 2,819,743 2,728,279 2,864,444
=========== =========== =========== ===========
5. Net income $ 162,794 $ 162,794 $ 1,012,243 $ 1,012,243
=========== =========== =========== ===========
6. Earnings per share $ 0.06 $ 0.06 $ 0.37 $ 0.35
=========== =========== =========== ===========
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 which
was paid in February 2000.
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-month
period ended December, 31,
---------------------------
2000 1999
----------- -----------
Net income $ 162,794 $ 1,012,243
Other comprehensive income:
Unrealized holding gains (losses)from
investments arising during the period,
net of income taxes of $(3,414) and
$15,563, respectively. (5,687) 25,937
Less reclassification adjustments for
gains included in net income - -
----------- -----------
Comprehensive income $ 157,107 $ 1,038,180
=========== ===========
6. BUSINESS SEGMENTS:
AMCON currently believes that it has three reportable business segments; the
wholesale traditional distribution of consumer products by AMCON Distributing
Company, the wholesale distribution health and natural food products by 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 Company previously aggregated the two distribution businesses and
presented them as one reportable segment. Given the operating results of the
health food distribution business, management believes the current
presentation is more meaningful. Prior period segment data has been restated
to conform to the current presentation. The business units within each
segment are evaluated on revenues, operating income and income before taxes
and extraordinary items.
Traditional Health Food
Distribution Distribution Retail Consolidated
------------- ------------ ------------ -------------
Quarter ended December 31, 2000:
External revenues:
Cigarettes $ 71,717,001 $ - $ - $ 71,717,001
Health food - 8,228,774 7,466,761 15,695,535
Confectionery 6,600,145 - - 6,600,145
Tobacco, beverage & other 15,238,597 - - 15,238,597
------------- ------------ ------------ -------------
Total external revenues 93,555,743 8,228,774 7,466,761 109,251,278
Intersegment sales - Health food - 1,993,288 - 1,993,288
Depreciation and amortization 158,181 131,270 338,741 628,192
Operating Income 1,878,183 (824,860) 27,427 1,080,750
Interest expense 299,123 139,490 414,936 853,549
Income (loss) before taxes 1,586,903 (953,310) (385,158) 248,435
Total assets 33,732,345 14,447,756 19,561,161 67,741,262
Capital expenditures 92,282 4,216 167,242 263,740
Quarter ended December 31, 1999 (restated):
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 92,338,587 11,427,664 8,277,509 112,043,760
Intersegment sales- Health food - 1,338,523 - 1,338,523
Depreciation and amortization 198,847 118,136 312,841 629,824
Operating income 1,599,551 47,753 713,626 2,360,930
Interest expense 230,385 139,764 374,453 744,602
Income before taxes 1,384,960 (99,693) 339,173 1,624,440
Total assets 33,099,174 16,661,301 19,712,309 69,472,784
Capital expenditures 208,136 16,533 112,542 337,211
Intersegment sales are at cost plus a nominal markup and are eliminated in
the consolidated statements of income.
7. RECENT DEVELOPMENTS
On February 8, 2001, the Company entered into an agreement to purchase
substantially all of the distribution business and assets of Merchants
Wholesale, Inc. ("Merchants") located in Quincy, IL. In addition, the
Company has agreed to purchase the real estate, including a 206,000 square
foot building currently occupied by Merchants. The transaction is scheduled
to close in May 2001 pending regulatory approvals. The purchase price will
be based on assets held at the closing date and is estimated to be between
$40 and $50 million. The transaction will be accounted for using the
purchase method of accounting. Merchants operates through eight states as a
wholesale distributor of consumers products in the Company's traditional
business. Merchant's distribution territory is within and contiguous to the
Company's current traditional business territory.
Funding for the Merchants acquisition will be provided through borrowings
under a revolving credit facility, which is in the process of being
negotiated to accommodate the additional business. Funding for the real
estate and building will be provided by a term loan from a bank, which is
also being negotiated.
In November 2000, the Company entered into a merger agreement with Hawaiian
Natural Water Company, Inc. (OTC: HNWC), pursuant to which HNWC would be
merged with and into, and thereby become, a wholly-owned subsidiary of the
Company. As a result, the Company will issue between 358,168 and 477,558
shares of its common stock to HNWC shareholders, representing between 11.6%
and 14.9% of the Company's outstanding shares after giving effect to the
merger. The ultimate purchase price will be determined based on the Company's
stock price at the closing of the transaction. Based on the Company's
closing stock price on January 31, 2001, the maximum purchase price would be
$2.9 million (including the $750,000 of debt securities).
The Company has provided HNWC with certain interim debt financing pending the
consummation of the merger. The Company loaned HNWC $350,000 in September
2000 and $400,000 in October 2000 for a total of $750,000 to be used for
working capital and other general corporate purposes, including redemption of
outstanding preferred stock. The loan is evidenced by promissory notes,
bearing interest at the rate of 10% per annum, due on March 31, 2001 which
are secured by substantially all of HNWC's assets. In the event that the
merger agreement is terminated for any reason or HNWC defaults on its
obligations under the notes, the Company will be entitled to convert the
notes into Series C Convertible Preferred Stock which, among other things,
would entitle the Company to elect a majority of HNWC's Board of Directors.
The notes are also convertible upon 61 days' advance notice into HNWC common
stock at the same exchange ratio as in the merger. Due to the anticipated
acquisition of HNWC, the notes have been classified as noncurrent as of
December 31, 2000. In January 2001, the Company invested an additional
$300,000 in HNWC in exchange for common stock at substantially the same
exchange ratio as provided for in the merger agreement. In addition, in
February 2001, the Company agreed to obtain, and placed an order for, certain
water bottling equipment to be utilized by HNWC in order to increase
production capacity to achieve its growth targets. The estimated cost of the
equipment is $1.3 million and will be financed through an operating lease.
While there is no commitment to do so, the Company may consider negotiating
future financing needs as they arise.
The merger is expected to qualify as a tax-free reorganization and to be
recorded on the Company's books using the purchase method of accounting. The
merger is subject to various conditions, including the effectiveness of a
registration statement covering the shares to be issued in the merger, the
listing of such shares on AMEX and approval of the stockholders of HNWC. It
is expected that the merger will be consummated in the third quarter.
It is possible that the Company may experience an increase in interest rates
on its borrowings as a result of these acquisitions.
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, 2000 and
December 31, 1999
Sales for the three months ended December 31, 2000 decreased 2.5% to $109.3
million, compared to $112.0 million for the first quarter in prior fiscal
year. Sales decrease by business segment is as follows:
Traditional distribution $ 1.2 million
Health food distribution (3.2) million
Retail health food stores (0.8) million
------
$ (2.8) million
======
Sales from the traditional distribution business increased by $1.2 million
during the first quarter over the first quarter in the prior year as follows:
Cigarette sales increased approximately $1.5 million over the first quarter
in the prior year, although carton volume declined by approximately 4.1%.
Sales of tobacco, confectionery and other products were lower than the prior
year by $335,000 or 1.5%. Severe winter weather in the Midwest in November
and December of 2000 which inhibited travel and other outdoor activities, as
well as, pricing strategies implemented by several competitors since the
prior year, had a negative impact on sales growth for the quarter.
Sales from the natural foods distribution business, Food For Health, Co. Inc.
("FFH"), decreased by $3.2 million primarily due to the loss of three major
accounts and an overall softening of the natural food retail market. Sales
in subsequent quarters are expected to be lower than the prior year as well.
Sales from the natural food retail segment, Chamberlin's Market & Cafe
("CNF") and Akin's Health Food Market ("HFA") fell by $811,000 when compared
to the prior year. This drop in sales is attributed to increased competition
by national chains who have opened stores in the same markets as the
Company's stores and an overall softening of the natural food retail market
over the past six months as few new products have been developed.
Gross profit decreased 7.6% to $12.9 million for the three months ended
December 31, 2000 from $14.0 million for the same period during the prior
year. Gross profit as a percent of sales declined to 11.8% for the quarter
ended December 31, 2000 compared to 12.4% for the quarter ended December 31,
1999. Gross profit by business segment is as follows (dollars in millions):
Quarter ended
December 31,
---------------- Incr/
2000 1999 (Decr)
------ ------ -----
Traditional distribution $ 7.7 $ 7.4 $ 0.3
Health food distribution 2.2 2.9 (0.7)
Retail health food stores 3.0 3.7 (0.7)
------ ------ -----
$ 12.9 $ 14.0 $(1.1)
====== ====== =====
The decrease in gross profit was the result of the loss of several major
customers by FFH and an overall decline in same store sales in the retail
segment as compared to the first quarter of the prior year. Management is
actively reviewing strategies to improve sales and gross profit in the retail
segment, including evaluation of retail locations and promotional activities.
The reduction in the gross profit percentage was primarily attributable to
increases in cigarette prices since the first quarter of the prior year.
Generally, when the Company experiences increases in the price of cigarettes,
it is able to pass the cost of the increase to its customers. However, the
increase in gross profit per unit sold does not increase proportionately with
the percentage of increase in cost. Therefore, the Company generally
experiences a decline in gross profit percentage as the cost and the sales
price of cigarettes increase.
Since 1993, sales of the Company's private label cigarettes have declined an
average of 30% annually. This trend is primarily due to the price
differential between premium and major generic brands, including the
Company's brand and to the price of sub-generic brands being substantially
less than the Company's brand. Sales of the Company's private label
cigarettes were down by approximately 36% compared to the first quarter of
the prior year and the volume incentive payment related to those sales was
$336,000 less than the first quarter of the prior year. Management
anticipates the volume of the Company's private label cigarettes will
continue to decline over the next few years. Based on these estimates, gross
profit from the sale of private label cigarettes could decrease by up to
$200,000 through the remainder of fiscal 2001.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 1.9% or $221,000 to
$11.8 million for the quarter ended December 31, 2000 compared to the same
period in the prior fiscal year. The increase was primarily due to expenses
associated with the retail and wholesale health food businesses which
accounted for $200,000 of the increase in operating expenses. Operating
expenses incurred by these segments increased due to higher fuel and delivery
costs than were experienced in the prior year and additional administrative
costs associated with development of new retail business opportunities. The
traditional distribution business likewise experienced an increase in
delivery and fuel costs, as these costs were approximately 12.5% higher than
the prior year, which was offset principally through reduction in bad debt
expense. As a percentage of sales, total operating expense increased to
10.8% from 10.4% 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 40% of sales compared to 35% for the prior year.
As a result of the above, income from operations for the quarter ended
December 31, 2000 decreased by $1.3 million or 54.3% to $1,080,750.
Interest expense for the three months ended December 31, 2000 increased 14.6%
to $854,000 compared to $745,000 during the same period in the prior year.
The increase was primarily due to interest expense attributable to the debt
incurred to increase inventory levels in order to take advantage of
manufacturer price incentives. Interest expense associated with this program
was approximately $95,000, or 87% of the total increase in interest expense
for the period.
Other income for the three months ended December 31, 2000 of $21,000 was
generated primarily by royalty payments and dividends received on investment
securities. Other income for the three months ended December 31, 1999 of
$8,000 was generated from similar activities.
The effective tax rate for the first quarter ended December 31, 2000 was
34.5% compared to 37.7% for the prior fiscal quarter. The decrease was
primarily attributable to the relative impact of state tax credits on a lower
base of pre-tax income.
As a result of the above factors, net income during the three months ended
December 31, 2000 was $162,794 compared to 1,012,243 for the three months
ended December 31, 1999.
As described in Management's Discussion and Analysis in the Company's Annual
Report to Shareholders for the Fiscal Year Ended September 30, 2000, the
distribution industry is in a state of consolidation as intense competition
and pressure on profit margins continue to affect both large and small
distributors. The retail natural foods industry is highly fragmented, with
more than 9,000 stores operated independently or as part of small chains.
The two leading natural food chains continue to expand their geographic
markets and acquire smaller independent competitors. In addition,
conventional supermarkets and mass market outlets have also begun to increase
their emphasis on the sale of natural products. 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 manufacturers' changing prices and
promotional programs.
While the Company sells a diversified product line, it remains dependent on
cigarette sales which represented approximately 66% of its revenue and 38% of
its gross margin in the first quarter ended December 31, 2000. Changes in
manufacturers' cigarette pricing affects the market for generic and private
label cigarettes and net income is heavily dependent upon sales of the
Company's private label cigarettes and volume discounts received from
manufacturers in connection with such sales. 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, 2000 and September 30, 2000,
respectively, consisted primarily of 70,000 shares of Consolidated Water
Company Limited ("CWC"), a public company which is listed on NASDAQ. The
Company's basis in the securities is $127,000 and the fair market value of
the securities was $490,000 and $499,000 on December 31, 2000 and September
30, 2000, respectively. The unrealized gain on CWC shares was approximately
$363,000 and $372,000 on December 31, 2000 and September 30, 2000,
respectively. The fair market value of the CWC shares held on January 31,
2001 was $499,000.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 2000, cash of $7.8 million was
provided by operating activities primarily through reductions in accounts
receivable and inventory and due to increases in accounts payable resulting
from the Company taking advantage of holiday payment terms offered by
manufacturers. Cash of $729,100 was utilized in investing activities during
the three month period ended December 31, 2000 primarily for an additional
investment of $400,000 in notes receivable from Hawaiian Natural Water
Company and for capital expenditures of approximately $264,000. Cash of $6.9
million 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 $25.9 million as of December
31, 2000 compared to $27.4 million as of September 30, 2000. The Company's
debt to equity ratio was 3.00 at December 31, 2000 compared to 3.33 at
September 30, 2000.
The Company maintains two revolving credit facilities. One 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 was amended in November 2000 to increase the
borrowing limit to $30 million for a six month period. 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, 2000, the Company had borrowed
approximately $16.6 million under the facility. The facility is
collateralized by all equipment, general intangibles, inventories and
accounts receivable. The facility expires on February 25, 2002. Borrowings
of $15.1 million under the facility have been classified as long-term based
on expected borrowing levels.
The second facility provides for maximum borrowings of $8 million.
Borrowings under the facility are collateralized by the assets of FFH and are
guaranteed by AMCON. Amounts under the facility bear interest at Prime less
0.5% or LIBOR plus 2.00%, as selected by the Company. A commitment fee of
.25% of the annual average unutilized amount of the commitment is required.
As of December 31, 2000, approximately $4.6 million had been borrowed under
this facility. The facility expires on February 25, 2002. Borrowings under
this facility have been classified as long-term based on expected borrowing
levels.
The second facility contains covenants which, among other things, (i)
restrict the incurrence of additional debt, (ii) restrict payments,
prepayments and repurchases of subordinated debt or capital stock, and (iii)
restrict mergers and acquisitions and changes in business or conduct of
business. In addition, dividends may not be paid without the consent of the
lender. In December 2000, the facility was amended to remove certain
covenants that related to financial ratios and net worth.
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 AMCON, and requires monthly payments
equal to accrued interest plus principal payments of $85,096, which began in
August 1998. As of December 31, 2000, the outstanding balance of the
Acquisition Loan was $2.0 million.
The Company 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% and
required payments of interest only for six months and monthly principal and
interest payments for the term of the loan. The Term Loan is collateralized
by the assets of FFH. As of December 31, 2000, the outstanding balance of
the Term Loan was $738,000.
In September 1999, borrowings under an 8% Convertible Subordinated Note (the
"Convertible Note") and a Collateralized Promissory Note (the "Collateralized
Note"), in addition to borrowings under the revolving credit facility were
used to purchase all of the common stock of HFA.
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, 2000, the outstanding balances of the Convertible Note and the
Collateralized Note were $2.0 million and $7.2 million, respectively.
In November 1999, borrowings under a $220,000 subordinated note (the "MDF
Note") were used to purchase the assets of MDF Health, Inc. ("MDF"). The MDF
Note has a term of 3 years and bears interest at 8% per annum. Principal and
interest payments are due monthly. As of December 31, 2000, the outstanding
balances of the MDF Note was $181,500.
In August 2000, borrowings of $600,000 under the revolving credit facility
were utilized, in addition to $300,000 under a subordinated note (the "TINK
Note"), to purchase all of the outstanding common stock of TINK, Inc. The
TINK Note has a term of 5 years and bears interest at 7% per annum. Interest
payments are due monthly with annual principal payments ranging from $40,000
to $80,000. As of December 31, 2000, the outstanding balance of the TINK
Note was $260,000.
As of December 31, 2000, the Company had additional outstanding long-term
indebtedness of approximately $143,000 consisting of capital leases for
computer equipment, the current portion of which equaled approximately
$93,000. The interest rates on the notes relating to such indebtedness range
from 6.9% to 9.5% per annum.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the two revolving credit facilities,
will provide sufficient liquidity to cover its debt service and any
reasonably foreseeable future working capital and capital expenditure
requirements associated with existing operations.
RECENT DEVELOPMENTS
On February 8, 2001, the Company entered into an agreement to purchase
substantially all of the distribution business and assets of Merchants
Wholesale, Inc. ("Merchants") located in Quincy, IL. In addition, the
Company has agreed to purchase the real estate, including a 206,000 square
foot building currently occupied by Merchants. The transaction is scheduled
to close in May 2001 pending regulatory approvals. The purchase price will
be based on assets held at the closing date and is estimated to be between
$40 and $50 million. The transaction will be accounted for using the
purchase method of accounting. Merchants operates through eight states as a
wholesale distributor of consumers products in the Company's traditional
business. Merchant's distribution territory is within and contiguous to the
Company's current traditional business territory.
Funding for the Merchants acquisition will be provided through borrowings
under a revolving credit facility, which is in the process of being
negotiated to accommodate the additional business. Funding for the real
estate and building will be provided by a term loan from a bank, which is
also being negotiated.
In November 2000, the Company entered into a merger agreement with Hawaiian
Natural Water Company, Inc. (OTC: HNWC), pursuant to which HNWC would be
merged with and into, and thereby become, a wholly-owned subsidiary of the
Company. As a result, the Company will issue between 358,168 and 477,558
shares of its common stock to HNWC shareholders, representing between 11.6%
and 14.9% of the Company's outstanding shares after giving effect to the
merger. The ultimate purchase price will be determined based on the Company's
stock price at the closing of the transaction. Based on the Company's
closing stock price on January 31, 2001, the maximum purchase price would be
$2.9 million (including the $750,000 of debt securities).
The Company has provided HNWC with certain interim debt financing pending the
consummation of the merger. The Company loaned HNWC $350,000 in September
2000 and $400,000 in October 2000 for a total of $750,000 to be used for
working capital and other general corporate purposes, including redemption of
outstanding preferred stock. The loan is evidenced by promissory notes,
bearing interest at the rate of 10% per annum, due on March 31, 2001 which
are secured by substantially all of HNWC's assets. In the event that the
merger agreement is terminated for any reason or HNWC defaults on its
obligations under the notes, the Company will be entitled to convert the
notes into Series C Convertible Preferred Stock which, among other things,
would entitle the Company to elect a majority of HNWC's Board of Directors.
The notes are also convertible upon 61 days' advance notice into HNWC common
stock at the same exchange ratio as in the merger. Due to the anticipated
acquisition of HNWC, the notes have been classified as noncurrent as of
December 31, 2000. In January 2001, the Company invested an additional
$300,000 in HNWC in exchange for common stock at substantially the same
exchange ratio as provided for in the merger agreement. In addition, in
February 2001, the Company agreed to obtain, and placed an order for, certain
water bottling equipment to be utilized by HNWC in order to increase
production capacity to achieve its growth targets. The estimated cost of the
equipment is $1.3 million and will be financed through an operating lease.
While there is no commitment to do so, the Company may consider negotiating
future financing needs as they arise.
The merger is expected to qualify as a tax-free reorganization and to be
recorded on the Company's books using the purchase method of accounting. The
merger is subject to various conditions, including the effectiveness of a
registration statement covering the shares to be issued in the merger, the
listing of such shares on AMEX and approval of the stockholders of HNWC. It
is expected that the merger will be consummated in the third quarter.
It is possible that the Company may experience an increase in interest rates
on its borrowings as a result of these acquisitions.
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 on its long-term obligations. At December 31,
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 December 31, 2000, the Company had $23.9 million of variable
rate debt outstanding, with maturities through May 2004. The interest rates
on this debt ranged from 8.0% to 9.0% at December 31, 2000. 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 $147,000 for each 1% change in its lender's prime
interest rate or LIBOR, as applicable.
The Company is also exposed to market risk through its investment in $750,000
of convertible notes receivable from HNWC. The notes are recorded at
amortized cost, accrue interest at 10% per annum and mature on March 31,
2001. The notes are convertible into HNWC common stock. Market increases in
interest rates and in HNWC's stock price could increase the likelihood that
such notes would be converted. Alternatively, market decreases in interest
rates and HNWC's stock price could decrease the likelihood of conversion.
Likewise, market changes in HNWC's stock price and interest rates impact the
fair value of the convertible note receivable.
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"), Chamberlin Natural Foods, Inc.
("Chamberlin") and its shareholders (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., Health Food Associates, Inc. and
its shareholders (incorporated by reference to Exhibit 2.1 of
AMCON's Current Report of Form 8-K filed on September 30, 1999)
2.4 Second Amended and Restated Agreement and Plan of Merger dated
January 30, 2001 by and between AMCON Distributing Company,
AMCON Merger Sub, Inc. and Hawaiian Natural Water Company Inc.
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 (incorporated by reference to Exhibit 10.17
of AMCON's Current Report on Form 10-Q filed on August 4, 2000)
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)
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 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: February 12, 2001 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & Principal
Executive Officer
Date: February 12, 2001 Michael D. James
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Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer