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, 1998
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 2,479,903 shares of its $.01 par value common stock
outstanding as of January 29, 1999.
Form 10-Q
1st Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Balance sheets at December 31, 1998
and at September 30, 1998 3
Statements of income for the three month periods
ended December 31, 1998 and December 31, 1997 4
Statements of cash flows for the three-month periods
ended December 31, 1998 and December 31, 1997 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company
Consolidated Balance Sheets
December 31, 1998 and September 30, 1998
- ---------------------------------------------------------------------------------------
(Unaudited)
December 31, September 30,
1998 1998
------------ -------------
ASSETS
Current assets:
Cash $ 39,853 $ 38,369
Accounts receivable, less allowance for
doubtful accounts of $501,853 and $460,753 17,389,043 15,229,107
Inventories 20,440,261 16,127,250
Deferred income taxes 783,900 570,743
Other 368,555 327,997
------------ ------------
Total current assets 39,021,612 32,293,466
Fixed assets, net 4,467,803 4,466,707
Investments 643,250 508,375
Deferred income taxes 10,170 -
Other assets 4,361,581 2,375,189
------------ ------------
$ 48,504,416 $ 39,643,737
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,558,457 $ 7,350,645
Accrued expenses 1,807,473 1,329,843
Accrued wages, salaries and bonuses 568,616 675,562
Income taxes payable 2,119,335 1,023,944
Dividends payable 49,598 -
Current portion of long-term debt 6,103,280 3,439,169
------------ ------------
Total current liabilities 22,206,759 13,819,163
------------ ------------
Deferred income taxes - 24,799
Other liabilities 430,465 427,419
Long-term debt, less current portion 14,786,419 15,767,659
Commitments
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none outstanding - -
Common stock, $.01 par value, 15,000,000
shares authorized and 2,480,000 issued 24,800 24,800
Additional paid-in capital 2,271,278 2,271,278
Unrealized gain on investments
available-for-sale, net of $192,070
and $139,468 tax 300,419 218,145
Retained earnings 8,484,591 7,090,789
------------ ------------
11,081,088 9,605,012
Less treasury stock, 97 shares at cost (315) (315)
------------ ------------
Total shareholders' equity 11,080,773 9,604,697
------------ ------------
$ 48,504,416 $ 39,643,737
============ ============
The accompanying notes are an integral part of these financial statements
AMCON Distributing Company
Consolidated Statements of Income
for the three months ended December 31, 1998 and 1997
(Unaudited)
- ----------------------------------------------------------------------------
1998 1997
------------ ------------
Sales (including excise taxes
of $13.2 million and $12.9 million,
respectively) $ 82,308,760 $ 64,948,559
Cost of sales 71,662,814 57,782,548
------------ ------------
Gross profit 10,645,946 7,166,011
Selling, general and administrative
expenses 7,542,401 5,437,930
Depreciation and amortization 295,468 276,742
------------ ------------
7,837,869 5,714,672
------------ ------------
Income from operations 2,808,077 1,451,339
Other expense (income):
Interest expense 446,168 402,510
Other income, net (33,265) (106,247)
------------ ------------
412,903 296,263
------------ ------------
Income before income taxes 2,395,174 1,155,076
Income tax expense 951,774 483,298
------------ ------------
Net income $ 1,443,400 $ 671,778
============ ============
Earnings per share:
Basic $ 0.58 $ 0.27
============ ============
Diluted $ 0.56 $ 0.27
============ ============
Weighted average shares outstanding:
Basic 2,479,903 2,449,903
============ ============
Diluted 2,568,695 2,486,168
============ ============
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Consolidated Statements of Cash Flows
for the three months ended December 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,443,400 $ 671,778
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 295,468 276,742
Gain on sales of fixed assets and securities (33,772) (34,670)
Proceeds from sale of trading securities - 157,206
Provision for losses on doubtful accounts 189,894 50,000
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts and notes receivable (2,316,502) (2,097,599)
Inventories (3,481,817) (7,159,986)
Other current assets 1,568 175,205
Other assets 9,172 (192,503)
Accounts payable 2,510,128 1,298,703
Accrued expenses and accrued wages,
salaries and bonuses 193,937 (125,834)
Income taxes payable and deferred taxes 554,032 421,148
----------- -----------
Net cash (used in) operating activities (634,492) (6,559,810)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (179,761) (432,507)
Acquisitions, net of cash acquired (1,258,833) (7,044,857)
Proceeds from sales of fixed assets 35,100 29,250
Proceeds from repayment of advance to officer - 100,000
----------- -----------
Net cash (used in)investing activities (1,403,494) (7,348,114)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,080,000 4,500,000
Net proceeds on bank credit agreement 1,301,622 9,673,325
Payments on long-term debt (342,152) (172,055)
----------- -----------
Net cash provided by financing activities 2,039,470 14,001,270
----------- -----------
Net increase in cash 1,484 93,346
Cash, beginning of period 38,369 26,973
----------- -----------
Cash, end of period $ 39,853 $ 120,319
=========== ===========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of AMCON Distributing Company
and subsidiary (the "Company") have been prepared on the same basis as the
audited financial statements for the year ended September 30, 1998, and, in
the opinion of management, contain all adjustments necessary to fairly present
the financial information included therein, such adjustments consist of normal
recurring items. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes thereto, for the
fiscal year ended September 30, 1998, which are included in the Company's
Annual Report to Stockholders filed with Form 10-K. Results for the interim
period are not necessarily indicative of results to be expected for the entire
year.
2. EARNINGS PER SHARE:
Earnings per share was computed as presented below in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Basic earnings per share is calculated by dividing net income by the weighted
average common shares outstanding for each period. Diluted earnings per share
is calculated by dividing net income by the sum of the weighted average common
shares outstanding and the weighted average dilutive options, using the
treasury stock method.
For the three-month period ended December, 31,
------------------------------------------------
1998 1997
-------------------------- ----------------------
Basic Diluted Basic Diluted
----------- ----------- --------- ---------
1. Weighted average common
shares outstanding 2,480,000 2,480,000 2,450,000 2,450,000
2. Weighted average treasury
shares outstanding (97) (97) (97) (97)
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 88,792 - 36,265
----------- ----------- --------- ---------
4. Weighted average number of
shares outstanding 2,479,903 2,568,695 2,449,903 2,486,168
=========== =========== ========= =========
5. Net income $ 1,443,400 $ 1,443,400 $ 671,778 $ 671,778
=========== =========== ========= =========
6. Earnings per share $ 0.58 $ 0.56 $ 0.27 $ 0.27
=========== =========== ========= =========
In December 1998, the Board of Directors declared a cash dividend of $0.02 per
share which was paid in January 1999.
3. COMPREHENSIVE INCOME:
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes reporting standards for reporting and display of
comprehensive income and its components in the financial statements.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. 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,
-----------------------------
1998 1997
------------ ------------
Net income $ 1,443,400 $ 671,778
Other comprehensive income:
Unrealized holding gains (losses)
from investments arising during
the period, net of income taxes
of $52,602 and $(34,860),
respectively. 82,274 (48,140)
------------ ------------
Comprehensive income $ 1,525,674 $ 623,638
============ ============
4. ACQUISITIONS:
In November 1997, the Company acquired all of the outstanding stock of Food
For Health Company, Inc. ("FFH") for $4.4 million in cash. The acquisition
was accounted for using the purchase method. Accordingly, the purchase price
was allocated to assets acquired based on their estimated fair values. The
final allocation of the purchase price resulted in certain adjustments in the
quarter ended December 31, 1998. The purchase price adjustments resulted in
an increase of approximately $161,000 to goodwill, primarily due to decreases
in deferred taxes. The final allocation resulted in approximately $1.4
million of cost in excess of net assets acquired. Such excess is being
amortized on a straight-line basis over 25 years.
On November 20, 1998, FFH, purchased all of the outstanding stock of U.S.
Health Distributors, Inc. ("USHD"), a distributor of health and natural foods
based in Melbourne, FL, for $1.3 million in cash. The acquisition was funded
by a $1.1 million, five and one-half year, term loan from a bank. The loan
bears interest at the bank's prime rate less 0.5%, requires payments of
interest only for the first six months and monthly principal payments for
remaining the term of the loan. The loan is collateralized by the common
stock of USHD. The acquisition was accounted for using the purchase method.
Based on a preliminary allocation of the purchase price, goodwill is estimated
to be $1.7 million and will be amortized over 25 years. Operating results
since the acquisition were not material.
5. NEW ACCOUNTING PRONOUNCEMENTS:
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes
reporting standards for reporting disclosures about segments of an enterprise
and related information about different types of business activities in which
an enterprise engages and the different economic environments in which it
operates. This statement is effective for fiscal years beginning after
December 15, 1997, but is not required to be adopted in interim periods.
Therefore, the Company will adopt SFAS 131 in its annual report for the fiscal
year ended September 30, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparison of the three-month periods ended December 31, 1998 and
December 31, 1997
Sales for the three months ended December 31, 1998 increased 26.7% to $82.3
million, compared to $64.9 million for the same period in prior fiscal year.
Sales from the traditional distribution business increased by $12.7 million
during the first quarter over the prior year as follows: Cigarette sales
increased approximately $11.5 million over the prior year(approximately $7.7
million was due to price increases over the past 12 months and approximately
$3.8 million was due to increased volume). Sales of tobacco and other
products increased by $1.2 million primarily due to increased volume. Sales
from the health and natural foods business, Food For Health, Co. Inc. ("FFH")
increased by $4.6 million. FFH was purchased in November 1997, therefore,
FFH's sales in the prior year represent approximately one-half of the quarter.
Gross profit increased 48.6% to $10.6 million for the three months ended
December 31, 1998 from $7.2 million over the same period during the prior
year. Gross profit as a percent of sales increased to 12.9% for the quarter
ended December 31, 1998 compared to 11.0% for the quarter ended December 31,
1997. The increase in gross profit and gross profit percentage was primarily
attributable to a substantial cigarette price increase during the quarter
which resulted from a settlement that was reached between the major tobacco
manufacturers and the various states that had filed liability suits against
the industry. This price increase accounted for approximately $2.1 million in
additional gross margin during the quarter as compared to the prior year. As
a result of this price increase, the Company expects higher gross margins to
continue into the second quarter as well. Margins are expected to return to
historical levels thereafter. The Company is considering electing the LIFO
method of accounting for inventories which would reduce the impact in the
second quarter. Additionally, if the LIFO method of accounting is adopted, a
retroactive adjustment will be required to restate first quarter earnings.
The Company does not expect a material adjustment to the first quarter's
earnings as a result of adopting LIFO.
While sales of cigarettes have increased over the past five years, sales of
the Company's private label cigarettes have continued to decline since 1993
when cigarette manufacturers substantially reduced the price of premium brand
cigarettes. Since that time, the premium cigarette brands have thrived at the
expense of most generic brands. Also, cigarette price increases since 1993
have been identical for both premium and generic brands. Therefore, the price
differential between premium and major generic brands has not increased in the
past five years. Most recently, in November 1998, an announcement was made
that a settlement had been reached between the major tobacco manufacturers and
the various states that had filed liability suits against the industry.
Immediately thereafter, the major cigarette manufacturers increased the price
of cigarettes by 30 - 35% on both premium and generic brands, including the
Company's private label brand. As a result, management anticipates the volume
of the Company's private label cigarettes will continue to decline over the
next few years. If such a decline is realized, gross profit from private
label cigarettes could decrease annually by $300,000 to $500,000 in fiscal
1999 and 2000.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 37.2% or $2.1 million to
$7.8 million for the quarter ended December 31, 1998 compared to the same
period in fiscal 1997. The increase was primarily due to expenses associated
with FFH which accounted for $1.2 million of the increase in operating
expenses. Since FFH was purchased midway through the first quarter of fiscal
1998, FFH's operating expenses in the prior year represent approximately one-
half of the quarter. As a percentage of sales, total operating expense
increased to 9.5% from 8.8% during the same period in the prior year due to
higher operating costs incurred by FFH during the period. FFH's operating
costs are proportionately higher than operating costs incurred by the
traditional business.
As a result of the above, income from operations for the quarter ended
December 31, 1998 increased by $1,357,000 or 93.5% to $2,808,000.
Interest expense for the three months ended December 31, 1998 increased 10.8%
to $446,000 compared to $403,000 during the same period in the prior year.
The increase was primarily due to interest expense attributable to FFH's
operations. Since FFH was purchased midway through the first quarter of
fiscal 1998, FFH's interest expense in the prior year represents approximately
one-half of the quarter.
Other income for the three months ended December 31, 1998 of $33,265 was
generated primarily by the gain associated with the sale of fixed assets,
royalty payments associated with the sale of the Denver non-alcoholic beverage
business and dividends received on investment securities. Other income for
the three months ended December 31, 1997 of $106,247 was generated from
similar activities as well as the gain associated with the sale of marketable
securities.
As a result of the above factors, net income during the three months ended
December 31, 1998 was $1,443,400 compared to $671,778 for the three months
ended December 31, 1997.
The Company remains dependent on cigarette sales which represent approximately
66% of its revenue. As described in Management's Discussion and Analysis in
the Company's Annual Report to Shareholders for the Fiscal Year Ended
September 30, 1998, the convenience store distribution industry is very
competitive and the Company's operating income is subject to a number of
factors which are beyond the control of management. For example, changes in
manufacturers' cigarette pricing may affect the market for generic and private
label cigarettes as well as impact distributor's carrying costs of inventory
and accounts receivable and increase exposure to bad debt losses. Net income
is also dependent on sales of the Company's private label cigarettes. The
Company continues to evaluate various steps it may take to improve net income
in future periods, including acquisitions of distributing companies such as
the St. Louis distribution center and FFH, which were purchased in October
and November 1997, and continued sales of assets that are no longer essential
to its primary business activities, such as, investments and certain real
estate. An analysis of such assets held at December 31, 1998 is as follows:
ESTIMATE OF GAIN
-------------------------------
December 31, September 30,
DESCRIPTION OF ASSET 1998 1998
-------------------- ------------ -------------
Investments (available-for-sale) $492,000 $358,000
Condominium & furnishings 500,000 500,000
Investments consist of 83,000 shares of Consolidated Water Company Limited
(formerly Cayman Water Company Limited), a public company which is listed on
NASDAQ, at December 31, 1998 and September 30, 1998, respectively. The
Company's basis in the securities was $151,000 and the fair market value of
the securities was $643,000 and $508,000 on December 31, 1997 and September
30, 1997, respectively. The fair market value of the securities on January
29, 1999 was $643,000.
The condominium and furnishings consist of a condominium in the Cayman Islands
which is used in furtherance of the Company's business marketing strategies.
The costs and benefits associated with retaining the condominium are being
evaluated in relation to the current business strategies of the Company.
YEAR 2000 READINESS
STATE OF READINESS. The Year 2000 computer issue is real and does impact the
way the Company's systems perform. In addition, the Company has business
relationships with a number of third parties whose Year 2000 problems could
impact the Company. Accordingly, the Company has recognized the Year 2000
issue as a major management and technology project. A taskforce has been
assembled to review all systems to ensure that they do not malfunction as a
result of the Year 2000 issue. The Year 2000 project includes review of
internal operating systems and equipment, other internal systems and equipment
(such as telephones, copiers and fax machines) and external services and
systems that are depended upon to operate the Company's business. In this
process, the Company expects to both replace some systems and upgrade others.
AMCON's internal operating system consists of midrange computers which are
used for the sales, accounts receivable and inventory systems. With the
exception of the accounts receivable system, the software operating on the
midrange computers does not generally operate or depend upon any date
structure, but rather the day-of-week and week-of-month. Therefore, software
risk to the Year 2000 issue is considered low. The remaining accounting
systems and other record keeping functions performed by the Company are
conducted on personal computers which are connected by a local area network.
AMCON has engaged third party computer consultants to review, test and modify
the midrange computer hardware and software to ensure they will function
correctly after December 31, 1999. The Company expects the critical portions
of this process will be completed by June 30, 1999 and believes that the Year
2000 problems relating to its internal operating systems will be resolved
without significant operational difficulties. However, there can be no
assurance that testing will discover all potential Year 2000 problems or that
it will not reveal unanticipated material problems with the Company's systems
that will need to be resolved.
Other internal systems are being evaluated by AMCON personnel, along with the
providers that service and maintain the systems with emphasis placed on
critical systems such as telephone systems. AMCON believes that the critical
systems are currently Year 2000 compliant and expects to have non-critical
systems modified or replaced by June 30, 1999.
AMCON has no control over the efforts of third parties with which it has
material business relationships. AMCON has undertaken the process of
contacting each major third party to determine their state of readiness for
Year 2000. Such parties include, but are not limited to, AMCON's suppliers of
inventory, customers, financial institutions and utility companies. AMCON has
received initial assurances from its major suppliers and financial
institutions that they will not be adversely affected by Year 2000 problems.
AMCON will continue to request updated information from these third parties in
order to assess their Year 2000 readiness.
COSTS. Through December 31, 1998, cumulative costs relating directly to Year
2000 issues have totaled approximately $12,000. A portion of the estimated
total costs include the cost of existing personnel who have been deployed to
work on various phases of the Year 2000 project. These costs do not include
system upgrades and replacements that were made in the normal course of
business. The deployment of internal resources to the Year 2000 project has
not resulted in significant delays to other major technology projects which
were planned by the Company. The Company estimates that remaining Year 2000
costs will total approximately $150,000, of which approximately $90,000, will
be capitalized and depreciated over a five year period.
RISKS. The Company believes that its internal operating systems will be Year
2000 compliant before December 31, 1999. Therefore, the Company believes that
the most reasonably likely worst-case scenario will be that one or more of the
third parties with which the Company has a material business relationship will
not have successfully dealt with its Year 2000 issues. A critical third party
failure (such as telecommunication, utilities or financial institutions) could
have a material adverse affect on the Company by eliminating the Company's
ability to order and pay for products from suppliers and receive orders and
payments from customers. It is also possible that one or more of the internal
operating systems will not function properly and make it difficult to complete
routine tasks, such as accounting and other record keeping duties. Based on
information currently available, the Company does not believe there will be
any long-term operating system failures. However, the Company will continue
to monitor these issues as part of its Year 2000 project and will concentrate
its efforts on minimizing their impact.
CONTINGENCY PLANS. The Company has not yet made any specific contingency
plans with respect to its internal operating systems. The Company will begin
developing contingency plans during the first few months of 1999 as certain
phases on its Year 2000 project reach completion. These contingency plans
will be modified throughout 1999 as the final phases of the Year 2000 project
are completed or if it becomes apparent that they will not be completed by
December 31, 1999. The Company currently does not foresee contingency
planning in the product receiving, selling, order filling and delivery phases
of the Company's business as these areas are very labor intensive. The
Company may be required to perform certain accounting and other record keeping
functions manually should a Year 2000 problem become apparent in one or more
of those areas. Additionally, remote dial-up connectivity from remote
branches has been put in place in the event that certain telecommunication
services fail to operate. AMCON also plans to terminate relationships with
third party service providers that are not able to demonstrate that they have
successfully resolved their Year 2000 problems in a timely manner. There will
inevitably be some third parties who will not have made proper Year 2000
modification. The Company's contingency plan only addresses those third
parties that are considered critical to the Company's operation.
The foregoing Year 2000 discussion contains certain forward-looking
statements, including without limitation anticipated costs and the dates by
which the Company expects to substantially complete the modifications and
testing of systems and are based upon management's best current estimates,
which were derived utilizing numerous assumptions about future events,
including the continued availability of certain resources, representations
received from third parties and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Specific matters that might cause
such material differences include, but are not limited to, the availability
and cost of trained personnel, the ability to identify and convert all
relevant computer systems, results of Year 2000 testing, adequate
identification and resolution of Year 2000 issues by third party service
providers, suppliers or customers of the Company, unanticipated system costs,
the need to replace additional hardware, the adequacy of and ability to
implement contingency plans and similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1998, the Company utilized cash
flow in operating activities to finance increases in inventory in all branches
in anticipation of calendar year-end price increases and to finance accounts
receivable. Cash was utilized in investing activities during the three month
period ended December 31, 1998 primarily to purchase the common stock of U.S.
Health Distributors, Inc. ("USHD") in Melbourne, FL in November 1998 for $1.3
million. Cash was provided in financing activities through increases in the
FFH revolving credit facility and from a term note to finance the purchase of
USHD.
The Company had working capital of approximately $16.8 million as of December
31, 1998 compared to $18.5 million as of September 30, 1998. The Company's
debt to equity ratio was 3.38 to 1 at December 31, 1998 compared to 3.13 at
September 30, 1998. The increase was due to additional borrowing incurred by
the Company to finance the acquisition of USHD.
The Company maintains two revolving credit facilities, the AMCON Distributing
Company revolving credit facility (the "Facility") and the FFH revolving
credit facility (the "FFH Facility"). The Facility allows the Company to
borrow up to $15 million at any time, subject to eligible accounts receivable
and inventory requirements. The Facility also provides for an additional $10
million facility which would be collateralized by specific inventory and a
$1.5 million facility to be used for transportation equipment purchases. The
Facility bears interest at the bank's prime rate ("Prime") less 0.5% or LIBOR
plus 1.75%, as selected by the Company. As of December 31, 1998, the Company
had borrowed approximately $10.2 million under the Facility. The Facility is
collateralized by all equipment, general intangibles, inventories and accounts
receivable of the Company, and with first mortgages on the Company's owned
distribution center and certain other real estate. The Facility expires on
February 25, 2002.
The FFH Facility provides for maximum borrowings of $6,000,000. Amounts under
the facility bear interest at Prime less 0.5% or LIBOR plus 2.00%, as selected
by FFH. The borrowings under the FFH Facility are secured by the assets of
FFH and guaranteed by the Company. As of December 31, 1998, FFH had borrowed
approximately $5.1 million under the FFH Facility. The FFH Facility expires
on February 25, 2002.
The FFH Facility contains covenants which, among other things, set forth
certain financial ratios and net worth requirements which adjust semiannually
or annually as specified in the FFH Facility. As of December 31, 1998, the
Company was not in compliance with several of its financial ratio covenants
due to the acquisition of USHD. However, the lender has agreed to amend the
loan agreement to eliminate such covenants.
The Company has an outstanding term loan from a bank which was used to finance
the purchase of the common stock of FFH (the "Acquisition Loan"). The
Acquisition Loan has a term of five years, bears interest at Prime less 0.5%
or LIBOR plus 1.75%, as selected by the Company and requires monthly payments
equal to accrued interest plus principal payments of $85,096, which began in
August 1998. As of December 31, 1998, the outstanding balance of the
Acquisition Loan was $4.0 million.
On November 20, 1998, FFH purchased all of the outstanding stock of USHD for
$1.3 million in cash. The acquisition was funded by a $1.1 million, five and
one-half year, term loan from a bank. The loan bears interest at Prime less
0.5%, requires payments of interest only for the first six months and monthly
principal payments for the term of the loan. The loan is collateralized by
the common stock of USHD.
The Company also maintains a $1,250,000 non-revolving line of credit with a
bank used to finance the purchase of trucks and delivery equipment. Advances
against the non-revolving line of credit were $408,000 through December 31,
1998. The amount available on the non-revolving line of credit was $842,000
at December 31, 1998. The remaining balance on the non-revolving line of
credit was paid in full in January 1999 with proceeds from the Facility.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility and the FFH Facility, will
provide sufficient liquidity to cover its debt service and any reasonably
foreseeable future working capital and capital expenditure requirements.
CONCERNING FORWARD LOOKING STATEMENTS
This Quarterly Report, including the Management's Discussion and Analysis and
other sections, contains forward looking statements that are subject to risks
and uncertainties and which reflect management's current beliefs and estimates
of future economic circumstances, industry conditions, company performance and
financial results. Forward looking statements include information concerning
the possible or assumed future results of operations of the Company and those
statements preceded by, followed by or include the words "future," "position,"
"anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve,"
"outlook," "should" or similar expressions. For these statements, we claim
the protection of the safe harbor for forward looking statements contained in
the Private Securities Litigation Reform Act of 1995. You should understand
that the following important factors, in addition to those discussed elsewhere
in this document, could affect the future results of the Company and could
cause those results to differ materially from those expressed in our forward
looking statements: changing market conditions with regard to cigarettes and
the demand for the Company's products, domestic regulatory risks, competitive
and other risks over which the Company has little or no control. Any changes
in such factors could result in significantly different results.
Consequently, future results may differ from management's expectations.
Moreover, past financial performance should not be considered a reliable
indicator of future performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's exposure to market risk relates
primarily to its investment in the common stock of Consolidated Water Company
(formerly Cayman Water Company), a public company traded on the Nasdaq
National Market system, and for changes in interest rates to its long-term
obligations. At December 31, 1998, the Company held 83,000 shares of common
stock of Consolidated Water Company valued at $643,000. The Company values
this investment at market and records price fluctuations in equity as
unrealized gain or loss on investments. At December 31, 1998, the Company had
$20,351,000 of variable rate debt outstanding, with maturities through May
2004. The interest rates on this debt ranged from 6.875% to 7.25% at December
31, 1998. The Company's remaining obligations of $539,000 consisted of fixed
rate debt with maturities through August 2001 and interest rates ranging from
8.00% to 9.50%. Approximately $408,000 of the fixed rate debt was paid in
full in January 1999 through borrowings with variable interest rates. The
Company has the ability to select the base on which its variable interest
rates are calculated. The Company may select an interest rate based on its
lenders prime interest rate or based on LIBOR. This provides the Company with
some control of its variable interest rate risk. The Company estimates that
its cash flow exposure relating to interest rate risk based on its current
borrowings is approximately $124,000 for each 1% change in its lenders prime
interest rate or LIBOR, as applicable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
2.1 Stock Purchase Agreement dated November 3, 1997, between the
Company and FFH Holdings, Inc. (incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed on
November 25, 1997)
3.1 Restated Certificate of Incorporation of the Company, as amended
March 19, 1998 (incorporated by reference to Exhibit 3.1 of the
Company'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 the Company'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 the Company'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
the Company'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 the Company's Annual Report on Form
10-K filed on December 24,
10.3 Loan Agreement, dated November 10, 1997, between the Company and
LaSalle National Bank (incorporated by reference to Exhibit 10.1
of the Company'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 the Company'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 the
Company'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 the Company'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 the Company'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 the Company'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 the Company'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 the Company's Quarterly Report on
Form 10-Q filed on May 11, 1998)
10.11 Loan and Security Agreement, dated November 20, 1998, between
Food For Health Co., Inc. and LaSalle National Bank (to be
supplied by amendment)
10.12 Promissory Note, dated November 20, 1998, between Food For
Health Co., Inc. and LaSalle National Bank (to be supplied by
amendment)
10.13 Unconditional Guarantee, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.12 of the Company's Quarterly Report on Form 10-Q
filed on May 11, 1998)
10.14 AMCON Distributing Company 1994 Stock Option Plan (incorporated
by reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-1 (Registration No. 33-82848) filed on
August 15, 1994)
10.15 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)
10.16 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)
10.17 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)
10.18 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 3 to the financial statements included in
Item 13 herein)
27.0 Financial Data Schedules
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the first
quarter ended December 31, 1998.
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 8, 1999 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & Principal
Executive Officer
Date: February 8, 1999 Michael D. James
----------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer