-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fk3MGzSMSOYfUR5BxtmqWU9ScqdWSV0s7Bn9LSYZg6NO5IBSz1s+kpkArHZSckLU 2xkoxt9zqSatHPh0wltNUw== 0000928465-00-000004.txt : 20000208 0000928465-00-000004.hdr.sgml : 20000208 ACCESSION NUMBER: 0000928465-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCON DISTRIBUTING CO CENTRAL INDEX KEY: 0000928465 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 470702918 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15589 FILM NUMBER: 524856 BUSINESS ADDRESS: STREET 1: 10228 L ST STREET 2: POST OFFICE BOX 241230 CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4023313727 MAIL ADDRESS: STREET 1: 10228 L STREET STREET 2: POST OFFICE 241230 CITY: OMAHA STATE: NE ZIP: 68127 10-Q 1 AMCON DISTRIBUTING COMPANY FORM 10-Q, 12/31/99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 1999 OR / / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------------------------ COMMISSION FILE NUMBER 0-24708 ------------------------------ 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 ------- ------- The Registrant had 2,736,248 shares of its $.01 par value common stock outstanding as of January 28, 2000, as restated for the 10% stock dividend. Form 10-Q 1st Quarter INDEX ------- PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements: --------------------- Consolidated balance sheets at December 31, 1999 and at September 30, 1999 3 Consolidated statements of income for the three-month periods ended December 31, 1999 and December 31, 1998 4 Consolidated statements of cash flows for the three-month periods ended December 31, 1999 and December 31, 1998 5 Notes to unaudited financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 PART I - FINANCIAL INFORMATION Item 1. Financial Statements
AMCON Distributing Company Consolidated Balance Sheets December 31, 1999 and September 30, 1999 - --------------------------------------------------------------------------------------- (Unaudited) December 31, September 30, 1999 1999 ------------ ------------- ASSETS Current assets: Cash $ 936,438 $ 1,728,042 Accounts receivable, less allowance for doubtful accounts of $777,657 and $676,801 19,830,593 18,345,816 Inventories 24,049,868 23,979,639 Deferred income taxes 709,057 717,022 Other 770,794 1,000,189 ------------ ------------ Total current assets 46,296,750 45,770,708 Fixed assets, net 7,309,840 7,502,927 Investments 592,191 550,691 Other assets 15,274,003 14,764,890 ------------ ------------ $ 69,472,784 $ 68,589,216 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,661,474 $ 11,953,546 Accrued expenses 2,356,278 3,173,231 Accrued wages, salaries and bonuses 399,042 640,933 Income taxes payable 939,691 283,111 Dividends payable 74,625 49,598 Current portion of long-term debt 9,534,190 10,133,393 Current portion of subordinated debt 800,000 800,000 ------------ ------------ Total current liabilities 26,765,300 27,033,812 ------------ ------------ Deferred income taxes 724,997 678,455 Other liabilities 423,218 423,574 Long-term debt, less current portion 18,129,919 17,995,432 Subordinated debt, less current portion 9,200,000 9,200,000 Commitments Shareholders' equity (as restated): Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding - - Common stock, $.01 par value, 15,000,000 shares authorized, 2,731,847 and 2,727,893 issued, respectively 27,318 27,278 Additional paid-in capital 4,108,025 4,097,728 Unrealized gain on investments available-for-sale, net of $167,585 and $149,664 tax 260,236 234,299 Retained earnings 9,833,771 8,898,998 ------------ ------------ 14,229,350 13,258,303 Less treasury stock, 0 and 97 shares at cost ( -) (360) ------------ ------------ Total shareholders' equity 14,229,350 13,257,943 ------------ ------------ $ 69,472,784 $ 68,589,216 ============ ============ The accompanying notes are an integral part of these financial statements
AMCON Distributing Company Consolidated Statements of Income for the three months ended December 31, 1999 and 1998 (Unaudited) - ---------------------------------------------------------------------------- 1999 1998 ------------- ------------ Sales (including excise taxes of $14.5 million and $13.2 million, respectively) $ 112,043,760 $ 82,308,760 Cost of sales 98,085,020 71,662,814 ------------- ------------ Gross profit 13,958,740 10,645,946 Selling, general and administrative expenses 10,967,986 7,542,401 Depreciation and amortization 629,824 295,468 ------------- ------------ 11,597,810 7,837,869 ------------- ------------ Income from operations 2,360,930 2,808,077 Other expense (income): Interest expense 744,602 446,168 Other income, net (8,112) (33,265) ------------- ------------ 736,490 412,903 ------------- ------------ Income before income taxes 1,624,440 2,395,174 Income tax expense 612,197 951,774 ------------- ------------ Net income $ 1,012,243 $ 1,443,400 ============= ============ Earnings per share: Basic $ 0.37 $ 0.53 ============= ============ Diluted $ 0.35 $ 0.51 ============= ============ Dividends per share $ 0.03 $ 0.02 ============= ============ Weighted average shares outstanding: Basic 2,728,279 2,727,893 ============= ============ Diluted 2,864,444 2,825,564 ============= ============ The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company Consolidated Statements of Cash Flows for the three months ended December 31, 1999 and 1998 (Unaudited) - -------------------------------------------------------------------------------- 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,012,243 $ 1,443,400 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 629,824 295,468 Loss (gain) on sales of fixed assets 1,130 (33,772) Provision for losses on doubtful accounts 65,857 189,894 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (2,200,634) (2,316,502) Inventories 224,772 (3,481,817) Other current assets 229,395 1,568 Other assets (41,630) 9,172 Accounts payable 707,928 2,510,128 Accrued expenses and accrued wages, salaries and bonuses (1,058,844) 193,937 Income taxes payable and deferred taxes 693,166 554,032 ----------- ----------- Net cash provided by (used in) operating activities 263,207 (634,492) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (337,211) (179,761) Acquisitions, net of cash acquired (75,000) (1,258,833) Proceeds from sales of fixed assets 83,863 35,100 ----------- ----------- Net cash (used in)investing activities (328,348) (1,403,494) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt - 1,080,000 Net (payments) proceeds on bank credit agreement (349,340) 1,301,622 Payments on long-term debt and and subordinated debt (335,376) (342,152) Dividends paid (49,598) - Proceeds from exercise of stock options 7,851 - ----------- ----------- Net cash provided by financing activities (726,463) 2,039,470 ----------- ----------- Net (decrease) increase in cash (791,604) 1,484 Cash, beginning of period 1,728,042 38,369 ----------- ----------- Cash, end of period $ 936,438 $ 39,853 =========== =========== The accompanying notes are an integral part of these financial statements. AMCON Distributing Company Notes to Consolidated Financial Statements December 31, 1999 and 1998 - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying unaudited financial statements of AMCON Distributing Company and subsidiaries ("AMCON" or the "Company") have been prepared on the same basis as the audited financial statements for the year ended September 30, 1999, and, in the opinion of management, contain all adjustments necessary to fairly present the financial information included therein, such adjustments consist of normal recurring items. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto, for the fiscal year ended September 30, 1999, which are included in the Company's Annual Report to Stockholders filed with Form 10-K. Results for the interim period are not necessarily indicative of results to be expected for the entire year. 2. INVENTORIES: Inventories consist of finished products purchased in bulk quantities to be redistributed to the Company's customers. Effective in fiscal 1999, the Company changed the method of accounting for inventory from the first-in, first-out ("FIFO") method to the last-in, first-out ("LIFO") method. LIFO inventories at December 31, 1999 were approximately $2.1 million less than the amount of such inventories valued on a FIFO basis. 3. STOCK DIVIDEND: In December 1999, the Board of Directors of the Company declared a special 10% stock dividend payable on February 8, 2000 to shareholders of record on January 25, 2000. The effect of the special 10% stock dividend has been retroactively applied to the balance sheet as of December 31, 1999. The appropriate capital accounts and earnings per share information have been adjusted to reflect the stock dividend in the first quarter ended December 31, 1999. Additionally, the stock dividend has been reflected retroactively in the earnings per share calculation for the quarter ended December 31, 1998 and the capital accounts at September 30, 1999. 4. EARNINGS PER SHARE: Basic earnings per share is calculated by dividing net income by the weighted average common shares outstanding for each period. Diluted earnings per share is calculated by dividing net income by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method.
For the three-month period ended December, 31, ------------------------------------------------- 1999 1998 ------------------------- ------------------------- Basic Diluted Basic Diluted ----------- ----------- ----------- ----------- 1. Weighted average common shares outstanding, as restated 2,728,279 2,728,279 2,727,990 2,727,990 2. Weighted average treasury shares outstanding - - (97) (97) 3. Weighted average of net additional shares outstanding assuming dilutive options and warrants exercised and proceeds used to purchase treasury stock - 136,165 - 97,671 ----------- ----------- ----------- ----------- 4. Weighted average number of shares outstanding 2,728,279 2,864,444 2,727,893 2,825,564 =========== =========== =========== =========== 5. Net income $ 1,012,243 $ 1,012,243 $ 1,443,400 $ 1,443,400 =========== =========== =========== =========== 6. Earnings per share $ 0.37 $ 0.35 $ 0.53 $ 0.51 =========== =========== =========== ===========
In December 1999 the Board of Directors increased the quarterly cash dividend from $0.02 to $0.03 per share and declared a special 10% stock dividend. 5. COMPREHENSIVE INCOME: The following is a reconciliation of net income per the accompanying consolidated statements of income to comprehensive income for the periods indicated:
For the three-month period ended December, 31, ----------------------------- 1999 1998 ----------- ----------- Net income $ 1,012,243 $ 1,443,400 Other comprehensive income: Unrealized holding gains (losses)from investments arising during the period, net of income taxes of $15,563 and $52,602, respectively. 25,937 82,274 ----------- ----------- Comprehensive income $ 1,038,180 $ 1,525,674 =========== ===========
6. BUSINESS SEGMENTS: AMCON operates within two business segments; the wholesale distribution of consumer products by AMCON Distributing Company and Food For Health Co., Inc. and the retail sale of health and natural food products by Chamberlin's Natural Food Products, Inc. (d/b/a Chamberlin's Market and Cafe) and Health Food Associates, Inc. (d/b/a Akin's Natural Foods Market). The business units within each segment are evaluated on revenues, operating income and income before taxes and extraordinary items. Wholesale Distribution Retail Consolidated ------------- ----------- ------------- Quarter ended December 31, 1999: External revenues: Cigarettes $ 70,165,211 $ - $ 70,165,211 Health food 11,427,664 8,277,509 19,705,173 Confectionery 7,328,608 - 7,328,608 Tobacco, beverage & other 14,844,768 - 14,844,768 ------------- ----------- ------------- Total external revenues 103,766,251 8,277,509 112,043,760 Intersegment sales: Health food 1,338,523 - 1,338,523 ------------- ----------- ------------- Total intersegment sales 1,338,523 - 1,338,523 Depreciation and amortization 316,983 312,841 629,824 Operating income 1,647,304 713,626 2,360,930 Interest expense 370,149 374,453 744,602 Income before taxes 1,285,267 339,173 1,624,440 Total assets 49,760,475 19,712,309 69,472,784 Capital expenditures 224,669 112,542 337,211 Quarter ended December 31, 1998: External revenues: Cigarettes $ 53,923,807 $ - 53,923,807 Health food 9,404,031 - 9,404,031 Confectionery 6,779,574 - 6,779,574 Tobacco, beverage & other 12,201,348 - 12,201,348 ------------- ----------- ------------- Total external revenues 82,308,760 - 82,308,760 Intersegment sales - - - Depreciation and amortization 295,468 - 295,468 Operating Income 2,808,077 - 2,808,077 Interest expense 446,168 - 446,168 Income before taxes 2,395,174 - 2,395,174 Total assets 48,504,417 - 48,504,417 Capital expenditures 179,761 - 179,761 Intersegment sales are at cost plus a nominal markup and are eliminated in the consolidated statements of income. The retail segment was acquired in the third and fourth quarters of fiscal 1999, therefore no segment information is presented for the retail segment in first quarter of fiscal 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Comparison of the three-month periods ended December 31, 1999 and December 31, 1998 Sales for the three months ended December 31, 1999 increased 36.1% to $112.0 million, compared to $82.3 million for the first quarter in prior fiscal year. Sales increase by business segment is as follows: Wholesale distribution $ 21.4 million Retail health food stores 8.3 million ------ $ 29.7 million ====== Sales from the traditional distribution business increased by $19.4 million during the first quarter over the first quarter in the prior year as follows: Cigarette sales increased approximately $16.2 million over the first quarter in the prior year (approximately $14.8 million was due to significant price increases in the prior fiscal year and approximately $1.4 million was due to increased volume). Sales of tobacco, confectionery and other products increased by $3.2 million primarily due to increased volume. Sales from the natural foods distribution business, Food For Health, Co. Inc. ("FFH") increased by $2.0 million, primarily due to the acquisition of a Florida natural foods distributor in the middle of the first quarter of fiscal 1999. Sales of $8.3 million from the retail health food stores, Chamberlin's Market & Cafe and Akin's Natural Foods Market, represent new sales for the quarter since the retail segment was purchased in the third and fourth quarters of fiscal 1999. Gross profit increased 31.1% to $14.0 million for the three months ended December 31, 1999 from $10.6 million over the same period during the prior year. Gross profit as a percent of sales declined to 12.4% for the quarter ended December 31, 1999 compared to 12.9% for the quarter ended December 31, 1998. Gross profit by business segment is as follows (dollars in millions): Quarter ended December 31, ---------------- Incr/ 1999 1998 (Decr) ------ ------ ----- Wholesale distribution (recurring) $ 10.3 $ 8.5 $ 1.8 Wholesale distribution (nonrecurring) 0.0 2.1 (2.1) Retail health food stores 3.7 n/a 3.7 ------ ------ ----- $ 14.0 $ 10.6 $ 3.4 ====== ====== ===== The increase in gross profit was primarily the result of $3.7 million in gross profit generated by the retail health food stores, which were acquired in the third and fourth quarters of fiscal 1999. Gross profit generated by the recurring traditional and natural foods distribution businesses increased by $1.8 million. However, in the first quarter of fiscal 1999, the traditional distribution business generated $2.1 million in nonrecurring gross profits due to managing inventory levels prior to a significant increase in cigarette prices. The cigarette price increase resulted from a settlement that was reached between the major tobacco manufacturers and the various states that had filed liability suits against the industry. Price increases of the magnitude experienced in November 1998 are rare and the profits generated by this event were not expected to, nor did they, recur in the first quarter of the current fiscal year. The reduction in the gross profit percentage was also primarily attributable to the substantial cigarette price increase during the first quarter of the prior year. The Company expects profit margins to remain at current levels for the remainder of the fiscal year. Since 1993, sales of the Company's private label cigarettes have steadily declined. This trend is primarily due to the price differential between premium and major generic brands, including the Company's brand. Although gross profit derived from the sale of the Company's private label cigarettes was slightly greater in the first quarter ended December 31, 1999 than the same period of the prior year, primarily due to additional manufacturers incentives received by the Company in the first quarter to assist promotional efforts, management anticipates the volume of the Company's private label cigarettes will continue to decline over the next few years. The rate of decline is expected to be lower than in prior years; however, gross profit from the sale of private label cigarettes could decrease by up to $300,000 in fiscal 2000. Total operating expense, which includes selling, general and administrative expenses and depreciation and amortization, increased 48.0% or $3.8 million to $11.6 million for the quarter ended December 31, 1999 compared to the same period in the prior fiscal year. The increase was primarily due to expenses associated with the retail health food stores which accounted for $3.0 million of the increase in operating expenses. The retail health food stores were acquired in the third and fourth quarters of fiscal 1999; therefore, there were no operating expenses associated with this business segment in the first quarter of the prior year. As a percentage of sales, total operating expense increased to 10.4% from 9.5% during the same period in the prior year. This increase is primarily due to operating costs incurred by the retail health food business during the period. Operating expenses incurred by this business segment are approximately 35% of sales compared to 8% incurred by the wholesale distribution business. As a result of the above, income from operations for the quarter ended December 31, 1999 decreased by $447,000 or 15.9% to $2,360,930. Interest expense for the three months ended December 31, 1999 increased 66.9% to $745,000 compared to $446,000 during the same period in the prior year. The increase was primarily due to interest expense attributable to the debt incurred to purchase the retail health food stores in fiscal 1999. Interest expense associated with this acquisition debt was approximately $374,000, or $75,000 more than the total increase in interest expense for the period. Other income for the three months ended December 31, 1999 of $8,000 was generated primarily by the gain or loss associated with the sale of fixed assets, royalty payments, and dividends received on investment securities. Other income for the three months ended December 31, 1998 of $33,000 was generated from similar activities. As a result of the above factors, net income during the three months ended December 31, 1999 was $1,012,243 compared to $1,443,400 for the three months ended December 31, 1998. As described in Management's Discussion and Analysis in the Company's Annual Report to Shareholders for the Fiscal Year Ended September 30, 1999, the Company's distribution and retail businesses operate in very competitive markets. Pressure on profit margins continue to affect both large and small distributors and expansion by large natural food retail chains intensifies competition in the Company's natural food retail markets. This business climate subjects operating income to a number of factors which are beyond the control of management, such as competing retail stores opening in close proximity to the Company's retail stores and changes in manufacturers' cigarette pricing which affects the market for generic and private label cigarettes. While the Company sells a diversified product line, it remains dependent upon cigarette sales which represented approximately 63% of its revenue and 34% of its gross margin in the first quarter of fiscal 2000. The Company continuously evaluates steps it may take to improve net income in future periods, including further acquisitions of other distributing companies and retail stores in similar business lines and further sales of assets that are no longer essential to its primary business activities such as investments in equity securities. Investments in equity securities at December 31, 1999 and September 30, 1999, respectively, consisted primarily of 83,000 shares of Consolidated Water Company Limited ("CWC"), a public company which is listed on NASDAQ. The Company's basis in the securities is $151,000 and the fair market value of the securities was $581,000 and $540,000 on December 31, 1999 and September 30, 1999, respectively. The unrealized gain on CWC shares was approximately $430,000 and $389,000 on December 31, 1999 and September 30, 1999, respectively. In January 2000, the Company sold 5,000 shares of CWC. The realized gain associated with the sale was approximately $23,000. The fair market value of the CWC shares held on January 28, 2000 was $507,000. YEAR 2000 READINESS STATE OF READINESS. The Company did not experience any significant Year 2000 problems and did not incur any down time as a result of the Year 2000 issue. The Company was operating under normal conditions on the first business day after January 1, 2000. COSTS. Through December 31, 1999, cumulative costs relating directly to Year 2000 issues totaled approximately $190,000. A portion of the total costs included the cost of existing personnel who were deployed to work on various phases of the Year 2000 project. These costs do not include system upgrades and replacements that were made in the normal course of business. The deployment of internal resources to the Year 2000 project did not result in significant delays to other major technology projects which were planned by the Company. LIQUIDITY AND CAPITAL RESOURCES During the three months ended December 31, 1999, the Company utilized cash flow in operating activities to finance increases in accounts receivable which resulted primarily from new business, to pay bonuses, and to satisfy other accrued expenses. Cash was provided by operating activities due to increases in accounts payable resulting from the Company taking advantage of holiday payment terms offered by manufacturers and due to the first quarter estimated tax payment being due after quarter end. Cash was utilized in investing activities during the three month period ended December 31, 1999 primarily for capital expenditures which totaled $337,000. Cash was utilized in financing activities to reduce the revolving credit facilities and long-term debt and for payment of dividends to stockholders. The Company had working capital of approximately $19.5 million as of December 31, 1999 compared to $18.7 million as of September 30, 1999. The Company's debt to equity ratio was 3.89 to 1 at December 31, 1999 compared to 4.17 at September 30, 1999. The Company maintains two revolving credit facilities, the AMCON Distributing Company revolving credit facility (the "Facility") and the FFH revolving credit facility (the "FFH Facility"). The Facility was amended in September 1999 to increase the primary borrowing limit from $20 million to $25 million and remove the additional $10 million facility which was collateralized by specific inventory. The Facility allows the Company to borrow up to $25 million at any time, subject to eligible accounts receivable and inventory requirements, and provides for an additional $1.5 million facility to be used for transportation equipment purchases. The Facility bears interest at the bank's base rate ("Prime") less 0.5% or LIBOR plus 1.75%, as selected by the Company. As of December 31, 1999, the Company had borrowed approximately $16.3 million under the Facility. The Facility is collateralized by all equipment, general intangibles, inventories and accounts receivable, and with a first mortgage on the owned distribution center. The Facility expires on February 25, 2002. The FFH Facility was amended in November 1999 to increase the amount provided for maximum borrowings from $6 million to $8 million. Borrowings under the FFH Facility are collateralized by the assets of FFH and are guaranteed by the Company. Amounts under the FFH Facility bear interest at Prime less 0.5% or LIBOR plus 2.0%, as selected by FFH. A commitment fee of .25% of the annual average unutilized amount of the commitment is required. As of December 31, 1999, FFH had borrowed approximately $7.0 million under the FFH Facility. The FFH Facility expires on February 25, 2002. The FFH Facility contains covenants which, among other things, set forth certain financial ratios and net worth requirements which adjust semiannually or annually as specified in the FFH Facility. As of December 31, 1999, FFH was not in compliance with several of its financial ratios due to the acquisition of Health Food Associates, Inc. ("HFA")in September 1999. However, FFH received waivers from the lender for these covenant violations at December 31, 1999. The Company has an outstanding term loan from a bank which was used to finance the purchase of the common stock of FFH (the "Acquisition Loan"). The Acquisition Loan has a term of five years, bears interest at Prime less 0.5% or LIBOR plus 1.75%, as selected by the Company and requires monthly payments equal to accrued interest plus principal payments of $85,096, which began in August 1998. As of December 31, 1999, the outstanding balance of the Acquisition Loan was $3.0 million. FFH has an outstanding term loan from a bank which was used to finance the purchase of a Florida natural foods distributor in November 1998 (the "Term Loan"). The Term Loan bears interest at Prime less 0.5%, required payments of interest only for the first six months and monthly principal payments for the term of the loan. The Term Loan is collateralized by the assets of FFH. As of September 30, 1999, the outstanding balance of the Term Loan was $954,000. In September, 1999, FFH utilized borrowings under an 8% Convertible Subordinated Note (the "Convertible Note") and under a Collateralized Subordinated Promissory Note (the "Collateralized Note"), in addition to borrowing under the Facility, to purchase all of the common stock of HFA. Funding for the acquisition was provided as follows: $4.0 million through borrowings under the Facility; $2.0 million through borrowings under the Convertible Note; and $8.0 million through borrowings under the Collateralized Note. Both the Convertible Note and the Collateralized Note have five-year terms and bear interest at 8% per annum. Principal on the Convertible Note is due in a single payment at maturity. Principal on the Collateralized Note is payable in installments of $800,000 per year with the balance due at maturity. The Collateralized Note is collateralized by a pledge of the stock of HFA. The principal balance of the Convertible Note may be converted into stock of FFH under circumstances set forth in the Convertible Note. As of December 31, 1999, the outstanding balances of the Convertible Note and the Collateralized Note were $2.0 million and $8.0 million, respectively. The Company believes that funds generated from operations, supplemented as necessary with funds available under the Facility and the FFH Facility, will provide sufficient liquidity to cover its debt service and any reasonably foreseeable future working capital and capital expenditure requirements. CONCERNING FORWARD LOOKING STATEMENTS This Quarterly Report, including the Management's Discussion and Analysis and other sections, contains forward looking statements that are subject to risks and uncertainties and which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words "future," "position," "anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve," "outlook," "should" or similar expressions. For these statements, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward looking statements: changing market conditions with regard to cigarettes and the demand for the Company's products, domestic regulatory risks, competitive and other risks over which the Company has little or no control. Any changes in such factors could result in significantly different results. Consequently, future results may differ from management's expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the Company to significant market risk. The Company's exposure to market risk relates primarily to its investment in the common stock of Consolidated Water Company, a public company traded on the Nasdaq National Market system, and for changes in interest rates to its long-term obligations. At December 31, 1999, the Company held 83,000 shares of common stock of Consolidated Water Company valued at $581,000. The Company values this investment at market and records price fluctuations in equity as unrealized gain or loss on investments. At December 31, 1999, the Company had $27.4 million of variable rate debt outstanding, with maturities through May 2004. The interest rates on this debt ranged from 7.10% to 8.00% at December 31, 1999. The Company has the ability to select the bases on which its variable interest rates are calculated and may select an interest rate based on its lender's base interest rate or based on LIBOR. This provides management with some control of the Company's variable interest rate risk. The Company estimates that its annual cash flow exposure relating to interest rate risk based on its current borrowings is approximately $171,000 for each 1% change in its lenders prime interest rate or LIBOR, as applicable. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) EXHIBITS 2.1 Stock Purchase Agreement dated November 3, 1997, between the Company and FFH Holdings, Inc. (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 2.2 Stock Purchase Agreement dated February 24, 1999, between Food For Health Company, Inc. ("FFH"), an Arizona corporation and a wholly-owned subsidiary of AMCON, Chamberlin Natural Foods, Inc.("Chamberlin"), a Florida corporation, Dale C. Bennett, Dale C. Bennett as Trustee of the Alice M. Bennett Irrevocable Trust Dated August 8, 1991, Dale C. Bennett as Trustee of the Dale C. Bennett Revocable Trust dated August 8, 1991, Kirk D. Bennett and Chad W. Bennett as Trustees of the Dale C. Bennett Irrevocable Trust No. 1, Chad W. Bennett and Kirk D. Bennett (incorporated by reference to Exhibit 2.2 of AMCON's Quarterly Report on Form 10-Q filed on May 10, 1999) 2.3 Stock Purchase Agreement dated August 30, 1999, by and among Food For Health Company, Inc., a wholly-owned subsidiary of AMCON Distributing and Health Food Associates, Inc. (incorporated by reference to Exhibit 2.1 of AMCON's Current Report of Form 8-K filed on September 30, 1999) 3.1 Restated Certificate of Incorporation of the Company, as amended March 19, 1998 (incorporated by reference to Exhibit 3.1 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993, between the Company and Famous Value Brands, a division of Philip Morris Incorporated, including Private Label Manufacturing Agreement and Amended and Restated Trademark License Agreement (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.2 Amendment No. 1 to Grant of Exclusive Manufacturing Rights, dated October 1, 1998, between the Company and Famous Value Brands, a division of Philip Morris Incorporated, including Amendment No. 1 To Private Label Manufacturing Agreement and Amendment No. 1 to Amended and Restated Trademark License Agreement (incorporated by reference to Exhibit 10.2 of AMCON's Annual Report on Form 10-K filed on December 24, 1998) 10.3 Loan Agreement, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 10.4 Amended Loan Agreement, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.5 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.5 Note, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 10.6 First Allonge to Note, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.7 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.7 Loan and Security Agreement, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.8 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.8 Promissory Note, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.9 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.9 Loan and Security Agreement, dated February 25, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.10 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.10 Promissory Note, dated February 25, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.11 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.11 First Amendment to Loan and Security Agreement, dated November 18, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.11 of AMCON's Quarterly Report on Form 10-Q/A filed on August 5, 1999) 10.12 First Amendment and Allonge to Promissory Note, dated November 18, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q/A filed on August 5, 1999) 10.13 Unconditional Guarantee, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.14 8% Convertible Subordinated Note, dated September 15, 1999 by and between Food For Health Company Inc. and Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.15 Secured Promissory Note, dated September 15, 1999, by and between Food For Health Company, Inc. and James C. Hinkefent and Marilyn M. Hinkefent, as trustees of the James C. Hinkefent Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.16 Pledge Agreement, dated September 15, 1999, by and between Food For Health Company, Inc. and James C. Hinkefent and Marilyn M. Hinkefent, as trustees of the James C. Hinkefent Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.3 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.17 AMCON Distributing Company 1994 Stock Option Plan (incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.18 AMCON Distributing Company Profit Sharing Plan (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.19 Employment Agreement, dated May 22, 1998, between the Company and William F. Wright (incorporated by reference to Exhibit 10.14 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 10.20 Employment Agreement, dated May 22, 1998, between the Company and Kathleen M. Evans (incorporated by reference to Exhibit 10.15 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 10.21 Employment Agreement, dated May 22, 1998, between the Food For Health Co., Inc. and Jerry Fleming (incorporated by reference to Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 11.1 Statement re: computation of per share earnings (incorporated by reference to footnote 4 to the financial statements included in Item 1 of Part I herein) 27.0 Financial Data Schedules (b) REPORTS ON FORM 8-K The Company filed a current report on Form 8-K on September 30, 1999 under Item 2 regarding the acquisition of Health Food Associates, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. AMCON DISTRIBUTING COMPANY (registrant) Date: February 7, 2000 Kathleen M. Evans ----------------- ------------------------- Kathleen M. Evans President & Principal Executive Officer Date: February 7, 2000 Michael D. James ----------------- ------------------------- Michael D. James Treasurer & CFO and Principal Financial and Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheet at December 31, 1999 and the Statement of Income for the Three Months Ended December 31, 1999 (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 936 0 20,608 778 24,050 46,297 14,321 7,011 69,473 26,765 27,330 0 0 27 14,202 69,473 112,044 112,044 98,085 98,085 0 0 745 1,624 612 1,012 0 0 0 1,012 .37 .35
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