UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED September 27, 2002
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 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
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(Exact name of Registrant as specified in its charter)
Delaware 47-0702918
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7405 Irvington Road, Omaha NE 68122
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(Address of principal executive offices)
Registrant's telephone number, including area code: (402) 331-3727
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Annual Report on
Form 10-K or any other amendment to this Form 10-K. / /
The aggregate market value of equity securities held by non-affiliates of the
Registrant on December 13, 2002 was approximately $9.1 million.
As of December 13, 2002 there were 3,157,312 shares of common stock
outstanding.
- Documents Incorporated by Reference -
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Portions of the Company's 2002 Annual Report to Shareholders are incorporated
herein by reference into Parts I, II and IV. Portions of the Company's Proxy
Statement pertaining to the March 13, 2003 Annual Shareholders' Meeting are
incorporated herein by reference into Part III.
1
AMCON DISTRIBUTING COMPANY
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2002 FORM 10-K ANNUAL REPORT
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Table of Contents
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Page
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 4A. Executive Officers of the Company........................... 12
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 13
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.. 13
Item 8. Financial Statements and Supplementary Data................. 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant......... 14
Item 11. Executive Compensation..................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 14
Item 13. Certain Relationships and Related Transactions............. 14
PART IV
Item 14. Controls and Procedures.................................... 15
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ....................................... 15
2
PART I
ITEM 1. BUSINESS
GENERAL
AMCON Distributing Company ("AMCON" or the "Company") was incorporated in
Delaware in 1986. The Company's principal executive offices are located at
7405 Irvington Road, Omaha, Nebraska 68122. The telephone number at that
address is 402-331-3727. AMCON is primarily engaged in the wholesale
distribution of consumer products including cigarettes and tobacco products,
candy and other confectionery, beverages, groceries, paper products and
health and beauty care products. In addition, the Company operates thirteen
retail health food stores in Florida and the Midwest and a natural spring
water bottling operation in the State of Hawaii. As used herein, unless the
context indicates otherwise, the term "ADC" means the wholesale distribution
business and "AMCON" or the "Company" means AMCON Distributing Company and
its subsidiaries.
DISTRIBUTION BUSINESS
ADC serves approximately 7,500 retail outlets in the Great Plains and Rocky
Mountain regions, the largest of which accounted for less than 4.3% of
AMCON's total revenues during fiscal 2002. Convenience Store News, a trade
periodical, ranked ADC as the tenth (10th) largest distributor in its
industry out of approximately 1,000 distributors in the United States based
upon estimated fiscal 2001 sales volume and industry consolidation during
fiscal 2002. From its inception, ADC has pursued a strategy of growth
through increased sales and through acquisitions. Since 1993, ADC has
focused on increasing operating efficiency in its distribution business by
merging smaller branch distribution facilities into larger ones. In
addition, ADC has grown through expansion of its market area into contiguous
regions and by introduction of new product lines to customers.
ADC distributes approximately 9,000 different consumer products, including
cigarettes and tobacco products, candy and other confectionery, beverages,
groceries, paper products, health and beauty care products, frozen and
chilled products and institutional food service products. While cigarettes
accounted for approximately 76% of the Company's sales volume during fiscal
2002, ADC continues to diversify its businesses and product lines in an
attempt to lessen its dependence upon cigarette sales. ADC's principal
suppliers include Philip Morris USA, RJ Reynolds Tobacco, Brown & Williamson,
Proctor & Gamble, Hershey, Mars, William Wrigley and Nabisco. ADC also
markets private label lines of cigarettes, tobacco, snuff, water, candy
products, batteries and film.
ADC has sought to increase sales to convenience stores and petroleum
marketers by adopting a number of operating strategies which it believes
gives it a competitive advantage with these types of retailers. One key
operating strategy is a commitment to customer service. In a continuing
effort to provide better service than its competitors, ADC offers a complete
point-of-sale (POS) program to assist with customer image building and
product promotions, health and beauty programs, a profit building private
label program and custom food service programs, all of which have proven to
be advantageous to convenience store customers. ADC has a policy of next-day
3
delivery and employs a concept of selling products in cut-case quantities or
"by the each" (i.e. individual units). ADC also offers planograms to
convenience store customers to assist in the design of their store and
display of products within the store. In addition, customers are able to use
ADC's web site to manage their inventory and retail prices, as well as obtain
periodic management reports.
ADC has worked to improve its operating efficiency by investing in the latest
in systems technology, including computerization of buying and financial
control functions. Inventory management has become even more critical due to
significant increases in the price of cigarettes over the past five years.
ADC has also sought to reduce inventory expenses by improving the number of
times its inventory is renewed during a period ("inventory turns") for the
same level of sales. Inventory turned 28.5 times in fiscal year 2002.
Inventory turns for the past five years are as follows:
Fiscal Times
Year Inventory Turned
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2002 28.5
2001 26.8
2000 25.4
1999 24.5
1998 19.6
By keeping its operating costs down, ADC is better able to price its products
in such a manner to achieve an advantage over less efficient distributors in
its market areas.
ADC's main office is in Omaha, Nebraska. ADC has six distribution centers
located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and
Wyoming. ADC closed its St. Louis, Missouri distribution center in September
2001 due to synergies resulting from the June 2001 acquisition of the Quincy,
Illinois distribution business.
These distribution centers contain a total of approximately 482,000 square
feet of floor space and employ modern equipment for the efficient
distribution of the large and diverse product mix. ADC also operates a fleet
of approximately 220 delivery vehicles, ranging from over-the-road vehicles
with refrigerated trailers to half-ton vans.
RETAIL HEALTH FOOD BUSINESS
AMCON's retail health food stores, which are operated as Chamberlin's Market
& Cafe ("Chamberlin's" or "CNF") and Akin's Natural Foods Market ("Akin's" or
"HFA"), respectively, offer over 35,000 different product selections for
their customers. Chamberlin's, which was first established in 1935, is an
award-winning and highly-acclaimed chain of seven health and natural product
retail stores, all offering an extensive selection of natural supplements and
herbs, baked goods, dairy products, delicatessen items and organic produce.
Chamberlin's operates all of its stores in and around Orlando, Florida.
Akin's Natural Foods Market, also established in 1935, is a well-recognized
chain of six health and natural product retail stores, each offering an
extensive line of natural supplements and herbs, dairy products,
4
delicatessen items and organic produce. Akin's has locations in Tulsa (2
stores) and Oklahoma City, Oklahoma; Lincoln, Nebraska; Springfield,
Missouri; and Topeka, Kansas.
AMCON's retail health food stores are managed collectively, but utilize the
name recognition of the established health food retail chains that were
acquired. The Company plans to maintain the local identity of each chain
while providing a means to achieve operating synergies leading to cost
savings through centralized management of operations.
BOTTLED WATER BUSINESS
AMCON's bottled water business is operated as Hawaiian Natural Water Company,
Inc. ("HNWC"). HNWC, which was acquired in December 2001, was formed in 1994
for the purpose of bottling, marketing and distributing Hawaiian natural
spring water in Hawaii, the mainland and foreign markets. It currently
includes product lines in premium bottled spring water and home and office
large bottles. HNWC's Hawaiian Springs/R/ brand is the only bottled
"natural" spring water available from Hawaii. All other bottled waters
produced in Hawaii contain "purified" water, from which chemicals and
minerals have been removed by means of reverse osmosis filtration. HNWC
draws its Hawaiian Springs water from a well located at the base of the Mauna
Loa mountain in Kea'au (near Hilo) on the big island of Hawaii. The water is
"bottled at the source" in polyethylene terepthalate ("PET") plastic bottles,
which are produced from pre-forms at HNWC's bottling facility. All of HNWC's
retail PET products are bottled at its facility in Kea'au. These products
consist of the Hawaiian Springs natural spring water line, the Ali'i purified
water line and various limited production co-packaged products.
HNWC also has a home and office bottling facility in Kailua-Kona where it
provides coolers and other dispensing equipment to its customers. This
equipment may either be purchased or rented for a fee.
ACQUISITIONS
Since 1981, the Company has acquired 24 consumer product distributors in the
Great Plains, Rocky Mountain and Southern regions of the United States.
On June 1, 2001, AMCON completed the acquisition of substantially all of the
distribution business and net assets of Merchant's Wholesale, Inc. located in
Quincy, Illinois (the "Quincy" distribution business). In addition, the
Company purchased a 206,000 square foot building occupied by Merchants and
owned by Merchants' sole stockholder.
On December 17, 2001 the Company completed a merger with HNWC, pursuant to
which HNWC merged with and into, and thereby became, a wholly-owned
subsidiary of AMCON Distributing Company. The merger consideration valued
the entire common equity interest in HNWC at approximately $2.9 million,
which was paid in cash of $0.8 million during fiscal 2001 and in common stock
of the Company valued at $2.1 million. As a result, the Company issued
373,558 shares of its common stock to outside HNWC shareholders, representing
12.0% of the Company's outstanding shares after giving effect to the merger.
HNWC option holders and warrant holders also received comparable options and
warrants of the Company, but with the exercise price and number of shares
covered thereby being adjusted to reflect the exchange ratio.
5
These acquisitions are further described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Acquisitions and
Dispositions" of the 2002 Annual Report to Shareholders and are incorporated
herein by reference.
DISCONTINUED OPERATIONS
Effective March 23, 2001, AMCON sold the assets of Food For Health Co. Inc.
for $10.3 million, subject to certain adjustments. That sale is reflected as
discontinued operations in AMCON's consolidated financial statements.
Results from the discontinued operations have been excluded from income from
continuing operations in the accompanying consolidated statements of
operations. The effects of the discontinued operations on net income and per
share data are reflected within the accompanying consolidated statements of
operations. The sale is further described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Acquisitions and
Dispositions" of the 2002 Annual Report to Shareholders and are incorporated
herein by reference.
BUSINESS SEGMENTS
AMCON has three reportable business segments, the wholesale distribution of
consumer products; the retail sale of health and natural food products; and
the bottling, marketing and distribution of Hawaiian natural spring water.
As described above, AMCON disposed of its health food distribution segment
during the second quarter of fiscal 2001. The results of the acquired Quincy
distribution business are included in the wholesale distribution of consumer
products segment due to similar economic characteristics shared by AMCON's
existing distribution business and the Quincy distribution business, as well
as similar characteristics with respect to the nature of products
distributed, the type and class of customers for the distribution products
and the methods used to distribute the products. The results of the retail
health food stores are included in the retail segment due to similar economic
characteristics, as well as similar characteristics with respect to the
nature of products sold, the type and class of customers for the health food
products and the methods used to sell the products. The results of HNWC
comprise the bottled water segment due to the unique economic characteristics
and the nature of the products, as well as the methods used to sell and
distribute the products. The segments are evaluated on revenues, gross
margins, operating income and income before taxes.
PRINCIPAL PRODUCTS
CIGARETTES. Sales of cigarettes and the gross margin derived therefrom for
the fiscal years ending 2002, 2001, and 2000 are set forth below (dollars in
millions):
Fiscal Year Ended
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2002 2001 2000
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Sales $640.4 $420.1 $294.7
Sales as a % of Total Sales 75.6% 72.7% 69.7%
Gross Margin 24.4 $18.1 $18.2
Gross Margin as a % of Total
Gross Margin 39.5% 39.6% 40.7%
Gross Margin Percentage 3.8% 4.3% 6.2%
6
Excluding sales from the Quincy distribution business, revenues from the sale
of cigarettes during fiscal 2002 increased by 3.3% as compared to fiscal
2001, while gross profit from the sale of cigarettes decreased by 8.4% during
the same period (see "MANAGEMENT'S DISCUSSION AND ANALYSIS-Results of
Operations-Fiscal Year Ended 2002 Versus Year Ended 2001" in the Annual
Report to Shareholders for the Fiscal Year Ended September 27, 2002 which is
incorporated herein by reference). Sales of cigarettes represented
approximately 76% of the Company's sales volume during fiscal 2002. This
represents a 2.9% increase from the prior year and related primarily to the
acquisition of the Quincy distribution business in June 2001 where cigarette
sales as a percentage of total sales were approximately 80%.
Since 1983, ADC has sought to position itself to capitalize on consumer
demand for discount or value-priced cigarettes by marketing its own private
label cigarettes as a high-quality, value-priced alternative to premium
cigarettes. Substantial price increases implemented by manufacturers of
premium cigarettes during the late 1980's and early 1990's resulted in a
demand for private label cigarettes, which are sold at lower prices than
premium brands. Significant manufacturers' price decreases in premium brand
cigarettes, aimed at recapturing market share, occurred in 1993 and have
caused a steady decline in the sales of private label cigarettes since that
point. Sales of ADC's private label cigarettes have declined an average of
34% annually since 1993. Philip Morris USA has manufactured ADC's private
label cigarettes since 1988 under an exclusive agreement. The Company is
currently negotiating an extension of this agreement.
CONFECTIONERY. Candy, related confectionery items and snacks constitute the
Company's second largest-selling product line, representing approximately
6.2% of the Company's total sales volume during fiscal 2002. Sales of
confectionery items and the gross margin derived therefrom for the fiscal
years ending 2002, 2001, and 2000 are set forth below (dollars in millions):
Fiscal Year Ended
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2002 2001 2000
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Sales $52.6 $39.3 $31.1
Gross Margin 6.1 4.0 3.7
Gross Margin Percentage 11.5% 10.1% 11.9%
AMCON supplies customers with over 1,900 different types of candy and related
products, including chocolate bars, cookies, chewing gum, nuts and other
snack items. Major brand names include products manufactured by Hershey
(Reese's, Kit Kat, and Hershey), Mars (Snickers, M&M's, and Milky Way),
William Wrigley and Nabisco. The Company also markets its own private label
candy under a manufacturing agreement with Palmer Candy Company.
7
OTHER TOBACCO PRODUCTS. Sales of other tobacco products (cigars, snuff,
chewing tobacco, etc.) represents AMCON's third largest-selling product line,
representing approximately 5.5% of the Company's total sales volume during
fiscal 2002. Sales of other tobacco products and the gross margin derived
therefrom for the fiscal years ending 2002, 2001 and 2000 are set forth below
(dollars in million):
Fiscal Year Ended
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2002 2001 2000
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Sales $46.7 $32.9 $25.8
Gross Margin 3.7 2.5 2.4
Gross Margin Percentage 7.9% 7.7% 9.4%
NATURAL FOODS AND RELATED PRODUCTS. Natural foods and related products,
which are primarily sold by the retail segment, constitute the Company's
fourth largest-selling product line, representing approximately 3.7% of the
Company's total sales volume during fiscal 2002. Sales of natural foods and
related products and the gross margin derived therefrom for the fiscal years
ending 2002, 2001 and 2000 are set forth below (dollars in millions):
Fiscal Year Ended
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2002 2001 2000
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Sales $31.6 $31.8 $34.1
Gross Margin 13.2 11.9 14.0
Gross Margin Percentage 41.7% 37.3% 41.2%
OTHER PRODUCT LINES. Over the past decade, AMCON's strategy has been to
expand its portfolio of consumer products in order to better serve its
customer base. AMCON's other product lines include bottled water and other
beverages, groceries, paper products, health and beauty care products, frozen
and chilled products and institutional food products. During fiscal 2002,
AMCON's sales of other products increased $22.3 million or 41.9%, of which
$20.6 million related to the Quincy distribution business. During fiscal
2002, the gross profit margin on these types of products was 19.2% compared
to 17.2% for fiscal 2001.
COMPETITION
The distribution business is highly competitive. There are many similar
distribution companies operating in the same geographical regions as ADC.
ADC is one of the largest distribution companies of its kind operating in its
market area. ADC's principal competitors are national wholesalers such as
McLane Co., Inc. (Temple, TX) and Fleming Convenience Marketing and
Distribution (Oklahoma City, OK) and regional wholesalers such as Eby-Brown
LLP (Chicago, IL) and Farner-Bocken (Carroll, IA), along with a host of
smaller grocery and tobacco wholesalers. Most of these competitors generally
offer a wide range of products at prices comparable to ADC's. Therefore, ADC
seeks to distinguish itself from its competitors by offering a higher level
of technology than its smaller competitors and higher level of customer
service than its larger competitors.
8
The natural food retail industry is highly fragmented, with more than 9,000
stores operating independently or as part of small chains. The two leading
natural food chains, Whole Foods Market and Wild Oats, continue to expand
their geographic markets by opening stores in new markets. In addition,
conventional supermarkets and mass market outlets have also begun to increase
their emphasis on the sale of natural products. These strategies have
contributed to the saturation of health food retail stores in some markets
and have caused same store sales to generate minimal increases over the past
year. Management believes the Company's retail stores separate themselves
from other competitors by offering smaller, more friendly, community-oriented
settings run by a knowledgeable and well-trained staff offering unique,
varied and higher quality natural and organic food products.
HNWC sells most of its product in Hawaii but also seeks to compete on the
U.S. Mainland and in certain foreign markets. The most popular brands of
bottled water sold in Hawaii include "Aquafina," "Dasani," "Crystal Geyser,"
and "Arrowhead," (all bottled on the U.S. Mainland) and Euorpean sourced
brands, as well as local brands, such as "Menehune," "Hawaiian Isles" and
"Hawaii." All local bottlers, except HNWC sell "purified" municipal water,
not "natural" or "spring" water. HNWC is the only producer of natural spring
water from Hawaii. HNWC believes that it is likely to remain the only such
producer in Hawaii, at least for some time, because of zoning, water use and
other restrictions currently in effect which make development of a competing
natural water source product difficult.
The retail bottled water market is highly competitive, with numerous
participants selling products often perceived as generic by consumers. The
principal bases of competition in the industry are price, brand recognition,
water source and packaging. Price competition has become more pronounced as
the industry has matured. HNWC seeks to develop recognition for its Hawaiian
Springs brand based upon its unique water source. HNWC generally prices this
product at or slightly below the price for other premium brands. Competition
in the market for HNWC's Ali'i brand is largely based upon price.
GOVERNMENT REGULATION
Various state government agencies regulate the distribution of cigarettes and
tobacco products in several ways, including the imposition of excise taxes,
licensing and bonding requirements. Complying with these regulations is a
very time-consuming, expensive and labor-intensive undertaking. For example,
each state (as well as certain cities and counties) requires the Company to
collect excise taxes ranging from $1.20 to $9.80 per carton on all cigarettes
sold by it in the state. Such excise taxes must be paid in advance and, in
most states, is evidenced by a stamp which must be affixed to each package of
cigarettes. A number of states increased their excise tax on cigarettes in
fiscal 2002, and more are expected to do so in the future.
The Company is also subject to regulation by state and local health
departments, the U.S. Department of Agriculture, the Food and Drug
Administration, U.S. Department of Transportation and the Drug Enforcement
Administration. These agencies generally impose standards for product
quality and sanitation, as well as, for security and distribution policies.
9
The bottled water industry is highly regulated both in the United States and
abroad. Various state and Federal regulations, designed to ensure the
quality of the product and the truthfulness of its marketing claims, require
HNWC to monitor each aspect of its production process, including its water
source, bottling operations and packaging and labeling practices. The
Environmental Protection Agency requires a yearly analysis of HNWC's water
source by a certified laboratory with respect to a comprehensive list of
contaminants (including herbicides, pesticides, volatile chemicals and trace
metals). In addition, the Hawaii Department of Health requires weekly
microbiological testing of HNWC's source water.
HNWC's bottling facility has an on-site laboratory, where samples of its
finished product are visually and chemically tested daily. HNWC also
utilizes an independent state certified laboratory to test samples from each
production run. In addition, HNWC's production line is subject to constant
visual inspection. HNWC believes that it meets or exceeds all applicable
regulatory standards concerning the quality of its water.
In addition to U.S. regulations, HNWC must meet the requirements of foreign
regulatory agencies in order to export and sell its product into other
countries. These requirements are generally similar to, and in certain
respects more stringent than, U.S. regulations. HNWC believes that it is in
compliance with applicable regulations in all foreign territories where it
currently markets its product.
Failure to meet applicable regulations in the U.S. or foreign markets could
lead to costly recalls or loss of certification to market products. Even in
the absence of governmental action, loss of revenue could result from adverse
market reaction to negative publicity.
EMPLOYEES
At fiscal year end 2002, the Company had 876 full-time and part-time
employees in the following areas:
Managerial 31
Administrative 88
Delivery 133
Sales & Marketing 227
Warehouse 397
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Total Employees 876
===
All of ADC's delivery employees in the Quincy distribution center,
representing 40% of ADC's delivery employees company-wide, are represented by
the Internal Association of Machinists and Aerospace Workers. As of December
13, 2002, the Quincy delivery employees have not entered into a collective
bargaining agreement, and are still negotiating a contract. Management
believes its relations with its employees are good.
10
ITEM 2. PROPERTIES
The location and approximate square footage of the six distribution centers,
thirteen retail stores and a water bottling plant operated by AMCON as of
fiscal year end 2002 are set forth below:
LOCATION SQUARE FEET
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DISTRIBUTION - IL, MO, ND, NE, SD %WY 482,000
RETAIL - FL, KS, MO, NE & OK 126,600
BOTTLED WATER - HI 20,000
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Total Square Footage 628,600
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AMCON owns its distribution facilities in Quincy, Illinois and Bismarck,
North Dakota. These facilities are subject to a first mortgage securing
borrowings under the Company's mortgage loan and a second mortgage securing
future payments owed in connection with the Merchants Wholesale acquisition
(see "MANAGEMENT'S DISCUSSION AND ANALYSIS - Liquidity and Capital Resources"
in the Annual Report to Shareholders for the Fiscal Year Ended 2002 which is
incorporated herein by reference).
AMCON leases its remaining distribution facilities, retail stores, water
bottling plant, offices and certain equipment under noncancellable operating
and capital leases. The Company entered into a lease to occupy a new
distribution facility and corporate office space in Omaha, Nebraska in the
third quarter of fiscal 2002. This facility replaced the old Omaha facility.
Leases for the Omaha, Nebraska facility, three other distribution facilities,
thirteen retail stores and a water bottling plant leased by the Company have
base terms expiring from 2003 to 2052. Minimum future lease commitments for
these properties and equipment total approximately $26.0 million as of fiscal
year end 2002.
AMCON also has future lease obligations for a facility and equipment related
to the discontinued operations of its former health food distribution
business. The Company estimated its ultimate liabilities related to these
leases and recorded a charge to earnings during the second quarter of fiscal
2001. The Company negotiated a termination settlement during fiscal 2002 on
its former Arizona facility and entered into a sublease agreement on the
remaining facility. Accordingly, no amount related to the lease obligation
has been recorded in the reserve for discontinued operations. Any
differences between these expense estimates and their actual settlement will
change the loss accordingly.
Management believes that its existing facilities are adequate for the
Company's present level of operations; however, larger facilities and
additional cross-dock facilities and retail stores may be required to
accommodate the Company's anticipated growth in certain market areas.
11
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to claims and litigation in the ordinary course of its
business. However, in the opinion of management, no currently pending legal
proceedings or claims against the Company will, individually or in the
aggregate, have a material adverse effect on the Company's financial
condition or results of operations. The Company believes that all of its
real property is in compliance with all regulations regarding the discharge
of toxic substances into the environment and is not aware of any condition at
its properties that could have a material adverse effect on its financial
condition or results of operations. In that regard, the Company has not been
notified by any governmental authority of any potential liability or other
claim in connection with any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 2002.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The Company's day-to-day affairs are managed by its executive officers, who
are appointed by the Board of Directors for terms of one year. The Company
has entered into employment agreements with Mr. Wright and Ms. Evans each
with a term expiring on December 31, 2003. The executive officers of AMCON
are as follows:
Name Age Position
---- --- --------
William F. Wright 60 Chairman of the Board, Director
Kathleen M. Evans 55 President, Director
Eric J. Hinkefent 41 President of CNF and HFA
Michael D. James 41 Secretary, Treasurer and
Chief Financial Officer
WILLIAM F. WRIGHT has served as the Chairman and Chief Executive Officer of
AMCON Corporation (the former parent of AMCON) since 1976 and as Chairman of
the Company since 1981. From 1968 to 1984, Mr. Wright practiced corporate
and securities law in Lincoln, Nebraska. Mr. Wright is a graduate of the
University of Nebraska and Duke University School of Law and is a certified
public accountant. Mr. Wright is also a director of Gold Banc Corporation,
Inc., a NASDAQ company.
KATHLEEN M. EVANS became President of the Company in February 1991. Prior to
that time she served as Vice President of AMCON Corporation from 1985 to
1991. From 1978 until 1985, Ms. Evans acted in various capacities with AMCON
Corporation and its operating subsidiaries.
ERIC J. HINKEFENT has served as President of both Chamberlin Natural Foods,
Inc. and Health Food Associates, Inc. since October 2001. Prior to that time
he served as President of Health Food Associates, Inc. from 1993 through 2002
and served on the board of The Healthy Edge, Inc. from 1999 through 2002.
Mr. Hinkefent is a graduate of Oklahoma State University.
12
MICHAEL D. JAMES became Treasurer and Chief Financial Officer of the Company
in June 1994. In November 1997, he assumed the responsibilities of Secretary
of the Company. He is a certified public accountant and is responsible for
all financial and reporting functions within the Company. Prior to joining
AMCON, Mr. James practiced accounting for ten years with the firm of
PricewaterhouseCoopers LLP, serving as the senior tax manager of the Omaha,
Nebraska office from 1992 until 1994. Mr. James graduated from Kansas State
University in 1983.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal year ended September
27, 2002 under the heading "Market for Common Stock."
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal year ended September
27, 2002 under the heading "Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal year ended September
27, 2002 under the heading "Management's Discussion and Analysis."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal year ended September
27, 2002 under the heading "Management's Discussion and Analysis -
Quantitative and Qualitative Disclosures About Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and accompanying notes, together with the report of
independent accountants, are incorporated by reference from the Company's
Annual Report to Shareholders for the fiscal year ended September 27, 2002
under the heading "Consolidated Financial Statements." Supplemental
financial information is incorporated by reference from the Annual Report to
Shareholders for the fiscal year ended September 27, 2002 under the heading
"Selected Quarterly Financial Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's Proxy Statement to be used in connection with the 2003
Annual Meeting of Shareholders (the "Proxy Statement") will contain under the
caption "Election of Directors" certain information required by Item 10 of
Form 10-K and such information is incorporated herein by this reference. The
information required by Item 10 of Form 10-K as to executive officers is set
forth in Item 4A of Part I hereof.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and certain persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") reports of their ownership of Company Common
Stock. Officers, directors and greater-than-ten-percent shareowners are
required by SEC regulation to furnish the Company with copies of such Section
16(a) reports they file. Based solely upon review of the copies of such
reports received by the Company and written representations from each such
person who did not file an annual report with the SEC (Form 5) that no other
reports were required, the Company believes that there was compliance for the
fiscal year ended 2002 with all Section 16(a) filing requirements applicable
to the Company officers, directors and greater-than-ten-percent beneficial
owners, except for late filings of Form 3 - Initial Statement of Beneficial
Ownership of Securities by (1) Eric J. Hinkefent, due October 10, 2001, filed
May 17, 2002 and (2) Stanley Mayer, due March 30, 2002, filed May 17, 2002.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's Proxy Statement will contain under the captions
"Compensation of Directors", "Compensation of Executive Officers" and
"Compensation Committee Interlocks and Insider Participation", the
information required by Item 11 of Form 10-K, and such information is
incorporated herein by this reference. The information set forth under the
captions "Report of Compensation Committee on Executive Compensation" and
"Company Performance" is expressly excluded from such incorporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant's Proxy Statement will contain under the captions "Voting
Securities and Beneficial Ownership Thereof by Principal Shareholders,
Directors and Officers" and "Equity Compensation Plan Information" the
information required by Item 12 of Form 10-K and such information is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's Proxy Statement will contain under the caption "Certain
Relationships and Related Transactions" the information required by Item 13
of Form 10-K and such information is incorporated herein by this reference.
14
PART IV
ITEM 14. CONTROLS AND PROCEDURES
A review and evaluation was performed by the Company's management, including
the Company's Principal Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing of
this annual report. Based on that review and evaluation, the Principal
Executive Officer and Chief Financial Officer have concluded that the
Company's current disclosure controls and procedures, as designed and
implemented, were effective. There have been no significant changes in the
Company's internal controls or in other factors that could significantly
affect the Company's internal controls subsequent to the date of their
evaluation. There were no significant material weaknesses identified in the
course of such review and evaluation and, therefore, no corrective measures
were taken by the Company.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
The following financial statements of AMCON Distributing Company are
incorporated by reference under Item 8. The Annual Report to Shareholders
for the Fiscal Year Ended September 27, 2002 is attached as Exhibit 13.1.
Reference Page
--------------
Independent Auditors' Report F-1
Consolidated Balance Sheets as of Fiscal Year
Ended 2002 and 2001 F-2
Consolidated Statements of Operations for the
Fiscal Years Ended 2002, 2001 and 2000 F-3
Consolidated Statements of Shareholders' Equity
and Comprehensive Income (Loss) for the Fiscal
Years Ended 2002, 2001 and 2000 F-4
Consolidated Statements of Cash Flows for the
Years Ended September 30, 2002, 2001 and 2000 F-6
Notes to Consolidated Financial Statements F-7
(2) FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report of Deloitte & Touche LLP
Independent Auditors' Report of PricewaterhouseCoopers LLP
Schedule II - Valuation and Qualifying Accounts
15
(3) EXHIBITS
2.1 Fifth Amended and Restated Agreement and Plan of Merger dated
September 27, 2001 by and between AMCON Distributing Company,
AMCON Merger Sub, Inc. and Hawaiian Natural Water Company Inc.
(incorporated by reference to Exhibit 2.1 of AMCON's Registration
Statement on Form S-4 (Registration No. 333-71300) filed on
November 13, 2001)
2.2 Assets Purchase and Sale Agreement by and between Food For Health
Company, Inc., AMCON Distributing Company and Tree of Life, Inc.
dated March 8, 2001 (incorporated by reference to Exhibit 2.1 of
AMCON's Current Report on Form 8-K filed on April 10, 2001)
2.3 Amendment to Assets Purchase and Sale Agreement by and between Food
For Health Company, Inc., AMCON Distributing Company and Tree of
Life, Inc. effective March 23, 2001 (incorporated by reference to
Exhibit 2.2 of AMCON's Current Report on Form 8-K filed on April
10, 2001)
2.4 Asset Purchase Agreement, dated February 8, 2001, between AMCON
Distributing Company, Merchants Wholesale Inc. and Robert and
Marcia Lansing (incorporated by reference to Exhibit 2.1 of AMCON's
Current Report on Form 8-K filed on June 18, 2001)
2.5 Addendum to Asset Purchase Agreement, dated May 30, 2001, between
AMCON Distributing Company, Merchants Wholesale Inc. and Robert and
Marcia Lansing (incorporated by reference to Exhibit 2.2 of AMCON's
Current Report on Form 8-K filed on June 18, 2001)
2.6 Real Estate Purchase Agreement, dated February 8, 2001, between
AMCON Distributing Company and Robert and Marcia Lansing
(incorporated by reference to Exhibit 2.3 of AMCON's Current Report
on Form 8-K filed on June 18, 2001)
2.7 Addendum to Real Estate Purchase Agreement, dated May 30, 2001,
between AMCON Distributing Company and Robert and Marcia Lansing
(incorporated by reference to Exhibit 2.4 of AMCON's Current Report
on Form 8-K filed on June 18, 2001)
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)
3.2 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)
16
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 and Security Agreement, dated June 1, 2001, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.3 on Form 10-Q filed on August 13, 2001)
10.4 ISDA Master Agreement, dated as of December 22, 2000 between
LaSalle Bank National Association and Merchants Wholesale Inc., as
assumed by the Company on June 1, 2001 (incorporated by reference
to Exhibit 10.4 on Form 10-Q/A filed on October 4, 2001)
10.5 Secured Promissory Note, dated as of May 30, 2001 between the
Company and Gold Bank (incorporate by reference to Exhibit 10.5 on
Form 10-Q/A filed on October 4, 2001)
10.6 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)
10.7 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)
10.8 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)
10.9 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)
17
10.10 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)
10.11 Employment Agreement, dated May 22, 1998, between the Company and
William F. Wright (incorporated by reference to Exhibit 10.14 of
AMCON's Quarterly Report on Form 10-Q filed on August 6, 1998)
10.12 Employment Agreement, dated May 22, 1998, between the Company and
Kathleen M. Evans incorpporated by reference to Exhibit 10.15 of
AMCON'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 3 to the financial statements which are
incorporated herein by reference to Item 8 of Part II herein)
13.1 Annual Report to Shareholders for the Fiscal Year Ended September
27, 2002
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
99.j Independent Auditors' Report of PricewaterhouseCoopers LLP
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
ended September 27, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of
1934, the Registrant, AMCON Distributing Company, a Delaware corporation, has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Omaha, State of Nebraska, on the
26th day of December, 2002.
AMCON DISTRIBUTING COMPANY
By: /s/ William F. Wright
-------------------------
William F. Wright, Chairman
18
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities indicated on the
26th day of December, 2002.
Signature Title
--------- -----
/s/ William F. Wright Chairman of the Board, (Principal
- --------------------- Executive Officer), and Director
William F. Wright
/s/ Kathleen M. Evans President and Director
- ---------------------
Kathleen M. Evans
/s/ Michael D. James Secretary, Treasurer and Chief
- -------------------- Financial Officer (Principal
Michael D. James Financial and Accounting Officer)
/s/ Raymond F. Bentele Director
- ----------------------
Raymond F. Bentele
/s/ William R. Hoppner Director
- ----------------------
William R. Hoppner
/s/ J. Tony Howard Director
- ------------------
J. Tony Howard
/s/ Stanley Mayer Director
- -----------------
Stanley Mayer
/s/ Allen D. Petersen Director
- ---------------------
Allen D. Petersen
/s/ Timothy R. Pestotnik Director
- ------------------------
Timothy R. Pestotnik
19
CERTIFICATION
I, William F. Wright, certify that:
1. I have reviewed this annual report on Form 10-K of AMCON
Distributing Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 26, 2002 /s/ William F. Wright
----------------- ---------------------
William F. Wright, Chairman and
Principal Executive Officer
20
CERTIFICATION
I, Michael D. James, certify that:
1. I have reviewed this annual report on Form 10-K of AMCON
Distributing Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 26, 2002 /s/ Michael D. James
----------------- --------------------
Michael D. James, Chief Financial Officer
21
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of AMCON Distributing Company:
We have audited the consolidated financial statements of AMCON Distributing
Company and its subsidiaries (the "Company") as of September 27, 2002 and
September 28, 2001, and for each of the two years in the period ended
September 27, 2002 and have issued our report thereon dated December 20,
2002; such financial statements and report are included in your 2002 Annual
Report to Shareholders and are incorporated herein by reference. Our audits
also included the financial statement schedule of the Company, listed in Item
15. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
December 20, 2002
S-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of AMCON Distributing Company:
Our report on the consolidated financial statements of AMCON Distributing
Company is included in this Form 10-K. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule listed in Item 15 for the year ended September 29, 2000.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PRICEWATERHOUSECOOPERS LLP
Omaha, Nebraska
November 22, 2000
S-2
AMCON Distributing Company
Financial Statement Schedule
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
<Table>
<Caption>
Net
Amounts
Balance at Provision (Written Off) Balance at
Description Beginning of Period (Benefit) Recovered End of Period
- ------------------ ---------------------- --------- ------------- -----------------------
Allowance for
doubtful accounts Sep 24, 1999 315,461 164,000 (150,392) Sep 29, 2000 329,069
Sep 29, 2000 329,069 427,852 (140,742) Sep 28, 2001 616,179
Sep 28, 2001 616,179 390,063 (364,768) Sep 27, 2002 641,474
Allowance for
inventory
obsolescence Sep 24, 1999 - - - Sep 29, 2000 -
Sep 29, 2000 - 222,883 - Sep 28, 2001 222,883
Sep 28, 2001 222,883 20,387 - Sep 27, 2002 243,270
</Table>
S-3