UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 25, 2004
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)
7405 Irvington Road
Omaha, NE 68122
(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
------- -------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
------- -------
The Registrant had 527,062 shares of its $.01 par value common stock
outstanding as of August 2, 2004.
Form 10-Q
3rd Quarter
INDEX
-------
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
--------------------------------------------
Condensed consolidated unaudited balance sheets
at June 2004 and September 2003 3
Condensed consolidated unaudited statements of
operations for the three and nine month periods
ended June 2004 and 2003 4
Condensed consolidated unaudited statements of
cash flows for the nine month periods ended
June 2004 and 2003 5
Notes to unaudited condensed consolidated
financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
2
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Balance Sheets
June 2004 and September 2003
- ----------------------------------------------------------------------------------------
June 2004 September 2003
------------ --------------
ASSETS
Current assets:
Cash $ 711,257 $ 668,073
Available-for-sale securities - 512,694
Accounts receivable, less allowance for doubtful
accounts of $0.9 million and $0.8 million,
respectively 28,491,176 28,170,129
Inventories 30,798,156 32,489,051
Income tax receivable 1,075,629 -
Deferred income taxes 1,568,476 1,568,476
Other 1,124,721 581,950
------------- ------------
Total current assets 63,769,415 63,990,373
Fixed assets, net 19,842,824 16,951,615
Goodwill 6,091,397 6,091,397
Other intangible assets 19,267,938 11,420,542
Other assets 1,021,310 1,045,503
------------- ------------
$ 109,992,884 $ 99,499,430
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,319,600 $ 15,092,091
Accrued expenses and other current liabilities 4,447,798 3,715,370
Accrued wages, salaries, bonuses 1,702,029 1,462,678
Income tax payable - 540,414
Current liabilities of discontinued operations 122,976 117,612
Current portion of long-term debt 10,762,065 15,348,167
Current portion of subordinated debt 7,785,486 7,762,666
------------- ------------
Total current liabilities 41,139,954 44,038,998
------------- ------------
Deferred income taxes 1,291,429 1,367,367
Non-current liabilities of discontinued operations - 161,025
Other long-term liabilities 5,146,551 -
Long-term debt, less current portion 43,457,833 35,654,423
Subordinated debt, less current portion 80,000 976,220
Minority interest - -
Commitments and contingencies
Shareholders' equity:
Series A, cumulative, convertible, preferred
stock, $.01 par value, 100,000 shares authorized
and issued 1,000 -
Common stock, $.01 par value, 2,500,000
shares authorized, 527,062 and 528,159
shares issued, respectively 5,271 31,690
Additional paid-in capital - preferred stock 2,454,568 -
Additional paid-in capital - common stock 6,406,575 5,997,977
Accumulated other comprehensive income,
net of tax of $0.1 million and $0.1 million,
respectively 95,933 220,732
Retained earnings 9,913,770 11,050,998
------------- ------------
Total shareholders' equity 18,877,117 17,301,397
------------- ------------
$ 109,992,884 $ 99,499,430
============= ============
The accompanying notes are an integral part of these condensed consolidated financial
statements.
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Statements of Operations
for the three and nine month periods ended June 2004 and 2003
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
For the three months For the nine months
ended June ended June
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Sales (including excise taxes of
$50.3 million and $42.8 million, and
$141.3 million and $123.4 million,
respectively) $ 218,891,060 $ 189,949,079 $ 605,345,475 $ 564,678,909
Cost of sales 203,794,520 173,924,679 561,580,512 520,979,369
------------- ------------- ------------- -------------
Gross profit 15,096,540 16,024,400 43,764,963 43,699,540
------------- ------------- ------------- -------------
Selling, general and administrative
expenses 14,235,975 13,628,524 41,618,177 38,803,228
Depreciation and amortization 554,862 574,332 1,683,313 1,706,844
------------- ------------- ------------- -------------
14,790,837 14,202,856 43,301,490 40,510,072
------------- ------------- ------------- -------------
Income from operations 305,703 1,821,544 463,473 3,189,468
------------- ------------- ------------- -------------
Other expense (income):
Interest expense 842,260 788,898 2,445,401 2,436,769
Other (108,797) (85,159) (555,663) (367,294)
------------- ------------- ------------- -------------
733,463 703,739 1,889,738 2,069,475
------------- ------------- ------------- -------------
Income (loss) before income taxes (427,760) 1,117,805 (1,426,265) 1,119,993
Income tax expense (benefit) (163,000) 427,000 (574,000) 428,000
Minority interest, net of tax - - - -
------------- ------------- ------------- -------------
Net income (loss) available to
common shareholders $ (264,760) $ 690,805 $ (852,265) $ 691,993
============= ============= ============= =============
Earnings (loss) per share:
Basic $ (0.50) $ 1.31 $ (1.61) $ 1.31
============= ============= ============= =============
Diluted $ (0.50) $ 1.29 $ (1.61) $ 1.29
============= ============= ============= =============
Dividends per share $ 0.18 $ 0.18 $ 0.54 $ 0.54
============= ============= ============= =============
Weighted average shares outstanding:
Basic 527,671 528,159 528,010 527,545
Diluted 527,671 534,858 528,010 536,857
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
for the nine month periods ended June 2004 and 2003
(Unaudited)
- ---------------------------------------------------------------------------------
2004 2003
------------ ------------
Net cash flows from operating activities $ 2,255,780 $ 13,226,704
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,624,650) (1,705,061)
Acquisitions, net of cash acquired ( 2,126,338) -
Proceeds from sales of fixed assets 60,550 42,425
Proceeds from sales of available-for-sale
securities 561,910 112,926
------------ ------------
Net cash flows from investing activities ( 3,128,528) (1,549,710)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on bank credit agreement (2,687) (9,857,184)
Proceeds from issuance of preferred stock 2,500,000 -
Payments on long-term debt and
subordinated debt (1,270,617) (1,110,175)
Dividends paid (284,959) (286,961)
Proceeds from issuance of short-term debt - 7,998
Proceeds from exercise of stock options 523 20,489
Retirement of common stock (26,328) (36)
------------ ------------
Net cash flows from financing activities 915,932 (11,225,869)
------------ ------------
Net increase in cash 43,184 451,125
Cash, beginning of period 668,073 130,091
------------ ------------
Cash, end of period $ 711,257 $ 581,216
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,668,801 $ 3,475,783
Cash paid (refunded) during the
period for income taxes 1,131,242 (219,895)
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Acquisition of equipment through capital leases $ 125,840 $ -
Business combinations
Fair value of assets acquired 11,265,013 -
Notes payable issued 3,328,440 -
Issuance of options 407,984 -
Present value of future water royalty payments
and water rights guarantee 5,245,975 -
Other liabilities assumed 156,276 -
The accompanying notes are an integral part of these condensed consolidated financial
statements.
5
AMCON Distributing Company and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 2004 and 2003
- ----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
include the accounts of AMCON Distributing Company and its subsidiaries
("AMCON" or the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation. Certain information and
footnote disclosures normally included in our annual financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
necessary to fairly present the financial information included therein, such
adjustments consisting of normal recurring items. The Company's consolidated
balance sheet at September 26, 2003 is derived from audited financial
statements. It is suggested that these unaudited condensed consolidated
financial statements be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended September 26, 2003,
which are included in the Company's Annual Report to Shareholders filed with
Form 10-K ("2003 Annual Report"). Results for the interim period are not
necessarily indicative of results to be expected for the entire year.
AMCON's fiscal third quarters ended on June 25, 2004 and June 27, 2003. For
convenience, the fiscal third quarters have been indicated herein as June
2004 and 2003, respectively. Each fiscal quarter was comprised of 13 weeks.
During the third quarter ended June 2004, the Company, through its newly
formed subsidiary, TSL Acquisition Corp., acquired substantially all of the
assets of Trinity Springs, Ltd. in an asset acquisition. TSL Acquisition
Corp. changed its name to Trinity Springs, Inc., and Trinity Springs, Ltd.
changed its name to Crystal Paradise Holdings, Inc. ("the Seller") following
the acquisition. The Seller received a 15% minority interest in Trinity
Springs, Inc. As a result of its 85% ownership interest, the Company has
included the operating results of Trinity Springs, Inc. in the accompanying
unaudited condensed consolidated financial statements since the date of
acquisition (June 17, 2004) and has presented the 15% non-owned interest in
this subsidiary as minority interest. Based on the preliminary purchase
price allocation (see Note 2), there is no historical basis for the minority
interest and since the minority shareholders has not guaranteed Trinity
Springs, Inc.'s debt or committed to provide additional capital and as such,
it has not received an allocation of the loss from Trinity Springs, Inc.
since the date of acquisition.
On May 11, 2004, the shareholders' approved a one-for-six reverse stock split
of the outstanding shares of its common stock. On May 14, 2004, the Company
effected the reverse stock split and those shareholders who held fewer than
six shares of AMCON's common stock immediately prior to the reverse stock
split received a cash payment in exchange for their shares. The total cash
paid for all fractional shares was $26,328. All common stock shares and per
share data (except par value) for all periods presented have been adjusted to
reflect the reverse stock split.
Stock-based Compensation
- ------------------------
AMCON maintains a stock-based compensation plan which provides that the
Compensation Committee of the Board of Directors may grant incentive stock
6
options and non-qualified stock options. AMCON accounts for stock option
grants using the intrinsic value method under which compensation cost is
measured by the excess, if any, of the fair market value of its common stock
on the date of grant over the exercise price of the stock option.
Accordingly, stock-based compensation costs related to stock option grants
are not reflected in net income as all options granted under the plan had an
exercise price equal to the market value of the underlying stock on the date
of grant.
The following table provides required pro forma information regarding net
income (loss) and earnings (loss) per share assuming the Company recognized
expense for its stock options using the fair value method rather than the
intrinsic value method. The fair value of options was estimated at the date
of the grant using the Black-Scholes option pricing model. See Note 11 to
the unaudited condensed consolidated financial statements for discussion of
the proposed accounting standard related to the treatment of stock options.
Pro forma net income (loss) and earnings (loss) per share are as follows:
For the three months For the nine months
ended June ended June
------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ----------- ----------
Net earnings
- ------------
Net income (loss), as reported $ (264,760) $ 690,805 $ (852,265) $ 691,993
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of
related tax effects (15,303) (15,571) (45,909) (46,713)
----------- ----------- ----------- ----------
Pro forma net income (loss) $ (280,063) $ 675,234 $ (898,174) $ 645,280
=========== =========== =========== ==========
Earnings (loss) per share
- -------------------------
As reported: Basic $ (0.50) $ 1.31 $ (1.61) $ 1.31
=========== =========== =========== ==========
Diluted $ (0.50) $ 1.29 $ (1.61) $ 1.29
=========== =========== =========== ==========
Pro forma: Basic $ (0.53) $ 1.28 $ (1.70) $ 1.22
=========== =========== =========== ==========
Diluted $ (0.53) $ 1.26 $ (1.70) $ 1.20
=========== =========== =========== ==========
2. ACQUISITIONS:
On June 17, 2004, a newly formed subsidiary of AMCON, TSL Acquisition Corp.
(which subsequently changed its name to Trinity Springs, Inc.) acquired the
tradename, water rights, customer list and substantially all of the operating
assets of Trinity Springs, Ltd., which subsequently changed its name to
Crystal Paradise Holdings, Inc. The Seller was headquartered in Sun
Valley/Ketchum, Idaho, once bottled and sold a geothermal bottled water and a
natural mineral supplement.
7
The purchase price was paid through a combination of $2.1 million in cash,
$3.3 million in notes (see Note 9) which were issued by Trinity Springs, Inc.
and guaranteed by AMCON; the assumption of approximately $0.2 million of
liabilities and the issuance of common stock representing 15% ownership
Trinity Springs, Inc. The Trinity Springs, Inc. stock is convertible into
16,666 shares of AMCON common stock at the option of the Seller which had a
fair value of $0.4 million. Included in the $2.1 million paid in cash are
transaction costs totaling approximately $0.7 million that were incurred to
complete the acquisition and consist primarily of fees and expenses for
attorneys and investment bankers. In addition, Trinity Springs, Inc. will
pay an annual water royalty to the Seller in perpetuity in an amount equal to
the greater of $0.03 per liter of water extracted from the source or 4% of
water revenues (as defined by the purchase agreement) which is guaranteed by
AMCON up to a maximum of $5 million, subject to a floor of $206,400 for the
first year and $288,000 annually thereafter. The Company has recorded a $5.2
million liability for the present value of the $2.8 million future minimum
water royalty payments and the $5.0 million cancellation payment related to
water rights as discussed below.
The promissory notes referred to above and the water royalty are secured by a
first priority security and mortgage on the acquired assets, other than
inventory and accounts receivable. The Seller retains the right to receive
any water royalty payment for the first five years in shares of AMCON common
stock up to a maximum of 41,666 shares. The water royalty can be cancelled
after ten years have elapsed following the closing of the sale of assets of
Trinity Springs, Inc., if the business of Trinity Springs, Inc. is sold to an
unaffiliated third party, in which case the Seller would be entitled to
receive the appraised fair market value of the water royalty but not less
than $5 million. The Company's Chairman has in turn guaranteed AMCON for
these payments as well as the promissory notes referred to above. In order
to facilitate the transaction, AMCON completed a $2.5 million private
placement of Series A Convertible Preferred Stock representing 100,000 shares
at $25 per share as more fully described in Note 5.
The asset acquisition has been recorded on the Company's books using the
purchase method of accounting. The estimated purchase price was allocated to
the assets acquired and liabilities assumed based on their estimated fair
values. Due to the timing of the acquisition, the Company is in the process
of obtaining a valuation of certain assets acquired in the transaction. As a
result, the following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition based on a
preliminary allocation of the purchase price and are subject to refinement.
At June 17, 2004
($000's)
--------------------------------------
Current assets $ 0.5
Fixed assets 3.0
Intangible assets 7.8
----
Total assets acquired 11.3
----
Current liabilities 0.2
----
Total liabilities assumed 0.2
----
Net assets acquired $ 11.1
====
8
The estimated portion of the purchase price in excess of the fair value of
the net assets acquired to be allocated to identifiable intangible assets is
approximately $7.8 million. The identifiable intangible assets consist of a
customer list, water rights and the Trinity tradename. The water rights and
the Trinity tradename are considered to have indefinite lives and therefore
are not amortized. The customer list is amortized over a five year period.
Assuming the above acquisition had occurred on the first day of fiscal 2003
(September 27, 2002) unaudited pro forma consolidated sales, income (loss)
from operations, net income (loss) and net earnings (loss) per share would
have been as follows:
For the three months For the nine months
ended June ended June
---------------------------- ----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Sales $ 220,098,813 $ 190,972,319 $ 608,054,490 $ 567,232,969
Income (loss) from operations (512,447) 363,936 (2,078,933) (788,447)
Net income (loss) (512,447) 363,936 (2,078,933) (788,447)
Net earnings (loss) per share:
Basic $ (0.97) $ 0.69 $ (3.94) $ (1.49)
Diluted $ (0.97) $ 0.68 $ (3.94) $ (1.49)
3. INVENTORIES:
Inventories consisted of the following at June 2004 and September 2003:
June September
2004 2003
------------ ------------
Finished goods $ 33,767,860 $ 35,877,552
Raw materials 1,331,184 310,242
LIFO reserve (4,300,888) (3,698,743)
------------ ------------
$ 30,798,156 $ 32,489,051
============ ============
The wholesale distribution and retail health food segment inventories consist
of finished products purchased in bulk quantities to be redistributed to the
Company's customers or sold at retail. The wholesale distribution
operation's inventories are stated at the lower of cost (last-in, first-out
or "LIFO" method) or market. The retail health food operation utilizes the
retail LIFO inventory method of accounting stated at the lower of cost (LIFO)
or market. The beverage operation's inventories are stated at the lower of
cost (LIFO) or market and consist of raw materials and finished goods. The
beverage operation's finished goods inventory includes materials, labor and
manufacturing overhead costs. Raw materials inventory consists of pre-forms
used to make bottles, caps, labels and various packaging and shipping
materials. The LIFO reserve at June 2004 and September 2003 represents the
amount by which LIFO inventories were less than the amount of such
9
inventories valued on a first-in, first-out basis. An allowance for obsolete
inventory is maintained in the retail health food segment to reflect the
expected unsaleable or non-refundable inventory based on evaluation of slow
moving products.
4. OTHER INTANGIBLE ASSETS:
Other intangible assets at June 2004 and September 2003 consisted of the
following:
June September
2004 2003
------------ ------------
Trademarks and tradenames $ 13,360,748 $ 10,928,793
Covenants not to compete (less accumulated
amortization of $814,223 and $724,625) 106,002 195,600
Favorable leases (less accumulated
amortization of $325,067 and $280,273) 160,933 205,727
Debt issue costs (less accumulated
amortization of $489,769 and $399,347) - 90,422
Water rights 5,245,975 -
Customer list 394,280 -
------------ ------------
$ 19,267,938 $ 11,420,542
============ ============
Trademarks, tradenames and water rights are considered to have indefinite
useful lives and, therefore, no amortization is recorded on these assets. In
Q1 2004, the beverage segment purchased the tradename Bahia/R/ for $0.3
million in connection with the purchase of inventory and other assets from
Bahia Company. As discussed in Note 2, in June 2004, the Company acquired
the tradename Trinity/R/, water rights and a customer list from Trinity
Springs, Ltd. for $2.2 million, $5.2 million and $0.4 million, respectively.
Amortization expense for the intangible assets that are considered to have
finite lives was $66,844, $102,515, $224,814 and $306,227 for the three and
nine months ended June 2004 and 2003, respectively.
Annual amortization expense related to the amortizing intangible assets held
at June 2004 for the current year and for each of the next four years is
estimated to be as follows:
Fiscal Fiscal Fiscal Fiscal Fiscal
2004 2005 2006 2007 2008
--------- --------- --------- --------- ---------
Covenants not to compete $ 119,000 $ 78,000 $ - $ - $ -
Customer list 20,000 79,000 79,000 79,000 79,000
Favorable leases 60,000 40,000 40,000 40,000 27,000
Debt issue costs 90,000 - - - -
--------- --------- --------- --------- ---------
$ 289,000 $ 197,000 $ 119,000 $ 119,000 $ 106,000
========= ========= ========= ========= =========
10
5. SHAREHOLDERS EQUITY:
In order to finance the cash portion of the purchase price paid for the
acquisition described in Note 2, the Company issued $2.5 million of Series A
Convertible Preferred Stock representing 100,000 shares at a purchase price
of $25 per share (the "Liquidation preference"). The Series A Convertible
Preferred Stock is convertible at any time by the holders into a number of
shares of AMCON common stock equal to the number of Preferred Shares being
converted times a fraction equal to $25.00 divided by the conversion price.
The conversion price is initially $30.31 per share, but is subject to
customary adjustments in the event of stock splits, stock dividends and
certain other distributions on the Common Stock. Cumulative dividends on the
Series A Convertible Preferred Stock are payable at a rate of 6.785% per
annum and are payable in arrears, when, as and if declared by the Board of
Directors, on March 31, June 30, September 30 and December 31 of each year.
Upon liquidation of the Company, the holders of the Series A Preferred Stock
are entitled to receive the Liquidation Preference plus any accrued and
unpaid dividends prior to the distribution of any amount to the holders of
the Common Stock. The Series A Convertible Preferred Stock also contain
redemption features in certain circumstances such as a change of control,
minimum thresholds of ownership by the Chairman and his family in AMCON, or
bankruptcy. Finally, the Series A Convertible Preferred Stock is optionally
redeemable by the Company beginning June 17, 2006 at a redemption price equal
to 112% of the Liquidation Preference. The redemption price decreases 1%
annually thereafter until June 16, 2018, after which date it remains the
liquidation preference. These securities were issued to the Company's
Chairman and Draupnir, LLC., of which one of the Company's directors is a
member and director.
6. DIVIDENDS:
On May 12, 2004, the Company declared a cash dividend of $0.18 per common
share payable on June 18, 2004 to shareholders of record as of May 28, 2004.
7. EARNINGS PER SHARE:
Basic earnings per share is calculated by dividing net income by the weighted
average common shares outstanding for each period. Diluted earnings per
share is calculated by dividing net income by the sum of the weighted average
common shares outstanding and the weighted average dilutive options, using
the treasury stock method. Stock options outstanding at June 2004 and 2003,
which were not included in the computations of diluted earnings per share
because the option's exercise price was greater than the average market price
of the Company's common shares, totaled 31,440 with an average exercise price
of $39.75 for the three and nine months ended June 2004, and 32,390 with an
average exercise price of $43.02 for the three months ended June 2003 and
29,890 with an average exercise price of $44.46 for the nine month period
ended June 2003.
11
For the three month period ended June
-------------------------------------------------------
2004 2003
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 527,671 527,671 528,159 528,159
2. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 9,480 - 6,699
3. Exclusion of the weighted average
of net additional shares
outstanding assuming dilutive
options and warrants exercised
and proceeds used to purchase
treasury stock as their
inclusion would be anti-dilutive - (9,480) - -
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 527,671 527,671 528,159 534,858
=========== =========== =========== ===========
5. Net income (loss) $ (264,760) $ (264,760) $ 690,805 $ 690,805
=========== =========== =========== ===========
6. Net income (loss) per share $ (0.50) $ (0.50) $ 1.31 $ 1.29
=========== =========== =========== ===========
For the nine month period ended June
-------------------------------------------------------
2004 2003
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 528,010 528,010 527,545 527,545
2. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 8,123 - 9,312
3. Exclusion of the weighted average
of net additional shares
outstanding assuming dilutive
options and warrants exercised
and proceeds used to purchase
treasury stock as their
inclusion would be anti-dilutive - (8,123) - -
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 528,010 528,010 527,545 536,857
=========== =========== =========== ===========
5. Net income (loss) $ (852,265) $ (852,265) $ 691,993 $ 691,993
=========== =========== =========== ===========
6. Net earnings (loss) per share $ (1.61) $ (1.61) $ 1.31 $ 1.29
=========== =========== =========== ===========
12
8. COMPREHENSIVE INCOME (LOSS):
The following is a reconciliation of net income (loss) per the accompanying
unaudited condensed consolidated statements of operations to comprehensive
income for the periods indicated:
For the three months For the nine months
ended June ended June
------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ----------- ----------
Net income (loss) $ (264,760) $ 690,805 $ (852,265) $ 691,993
Other comprehensive income (loss):
Unrealized holding gains (loss) from
investments arising during the
period, net of income tax expense
(benefit) of $0 and $17,000
for the three months ended June
2004 and 2003 and $3,000 and
$83,000 for the nine months ended
June 2004 and 2003, respectively - 28,194 4,216 134,709
Reclassification adjustments for
gains included in net income
in prior periods, net of income
tax expense of $32,000 and $0 for
the three months ended June 2004
and 2003 and $177,000 and $36,000
for the nine months ended June 2004
and 2003, respectively (51,564) - (288,305) (58,374)
Interest rate swap valuation
adjustment, net of income tax
expense (benefit) of $99,000 and
($72,000) for the three months ended
June 2004 and 2003 and $98,000 and
($72,000) for the nine months ended
June 2004 and 2003, respectively 161,821 (118,226) 159,290 (118,226)
----------- ----------- ----------- ----------
Comprehensive income (loss) $ (154,503) $ 600,773 $ (977,064) $ 650,102
=========== =========== =========== ==========
9. DEBT
The Company maintains a revolving credit facility (the "Facility") with
LaSalle Bank which allows it to borrow up to $55.0 million at any time,
subject to eligible accounts receivable and inventory requirements. As of
June 2004, the outstanding balance on the Facility was $38.0 million. The
Facility bears interest at the bank's base rate, which was 4.00% at June
2004, or LIBOR plus 2.50%, as selected by the Company. The Company is
required to pay an unused commitment fee equal to 0.25% per annum on the
difference between the maximum loan limit and the average monthly borrowing
for the month. The Facility is collateralized by all of the wholesale
distribution segment's equipment, intangibles, inventories, and accounts
receivable. The Facility also restricts borrowings for intercompany advances
to Trinity Springs, Inc.
13
The Company hedges its variable rate interest risk on a portion of its
borrowings under the Facility by use of interest rate swap agreements. The
variable interest payable on notional amounts of $15.0 million is subject to
interest rate swap agreements which have the effect of converting this amount
to fixed rates ranging between 4.38% and 4.87%. The interest rate swaps are
accounted for as cash flow hedges and resulted in no recognition of
ineffectiveness in the unaudited condensed consolidated financials statements
as the interest rate swaps' provisions matched the applicable provisions of
the hedged debt.
In connection with the acquisition discussed in Note 2, the Company incurred
additional indebtedness by issuing notes payable in the amounts of $2.8
million and $0.5 million. The $2.8 million note bears interest at 5% and is
payable in monthly installments of $30,000 through July 1, 2009, with a
balloon payment of the remaining principal due on the same date. The $0.5
million note bears interest at 5% and is due July 1, 2007. The Company also
assumed long term obligations in connection with existing capital leases that
have principal monthly payments totaling $7,000 and expire at various dates
between August 2004 and February 2007. In addition, the Company assumed the
remaining debt obligation on a warehouse with three annual payments of
$50,000 remaining through June 1, 2007. Certain obligations incurred in
connection with the acquisition of the assets of Trinity Springs, Ltd. are
guaranteed by the Company's Chairman.
10. 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 natural spring and geothermal
water, as well as, a natural mineral supplement and other beverage products.
The results of Trinity Springs, Inc., which was acquired in June 2004, are
included in the beverage segment due to the existence of similar economic
characteristics, the nature of production of the products, as well as, the
methods used to sell and distribute the products. The segments are evaluated
on revenue, income (loss) from operations and income (loss) before taxes.
14
Wholesale
Distribution Retail Beverage Other /2/ Consolidated
------------- ----------- ----------- ---------- -------------
THREE MONTHS ENDED JUNE 2004:
External revenue:
Cigarettes $ 157,737,225 $ - $ - $ - $ 157,737,225
Confectionery 15,514,033 - - - 15,514,033
Health food - 7,957,858 - - 7,957,858
Tobacco, beverage & other 36,086,949 - 1,668,674 (73,679) 37,681,944
------------- ----------- ----------- ---------- -------------
Total external revenue 209,338,207 7,957,858 1,668,674 (73,679) 218,891,060
Depreciation and amortization /1/ 312,493 206,418 79,445 - 598,356
Operating income (loss) 2,269,221 (271,338) (1,653,024) (39,156) 305,703
Interest expense 286,853 309,924 245,483 - 842,260
Income (loss) before taxes 2,084,954 (573,576) (1,899,979) (39,159) (427,760)
Total assets 70,916,191 17,493,523 21,391,067 192,103 109,992,884
Capital expenditures, net 263,082 256,619 150,830 - 670,531
THREE MONTHS ENDED JUNE 2003:
External revenue:
Cigarettes $ 135,446,471 $ - $ - $ - $ 135,446,471
Confectionery 14,150,458 - - - 14,150,458
Health food - 8,315,500 - - 8,315,500
Tobacco, beverage & other 31,010,861 - 1,025,880 (91) 32,036,650
------------- ----------- ----------- ---------- -------------
Total external revenue 180,607,790 8,315,500 1,025,880 (91) 189,949,079
Depreciation and amortization /1/ 311,977 244,683 46,365 - 603,025
Operating income (loss) 2,988,164 176,946 (1,349,753) 6,187 1,821,544
Interest expense 333,456 338,128 117,314 - 788,898
Income (loss) before taxes 2,730,841 (153,725) (1,465,498) 6,187 1,117,805
Total assets 60,933,876 17,661,428 9,303,572 - 87,898,876
Capital expenditures 121,064 60,172 92,759 - 273,995
NINE MONTHS ENDED JUNE 2004:
External revenue:
Cigarettes $ 440,381,292 $ - $ - $ - $ 440,381,292
Confectionery 40,429,845 - - - 40,429,845
Health food - 24,781,688 - - 24,781,688
Tobacco, beverage & other 96,259,785 - 3,704,812 (211,947) 99,752,650
------------- ----------- ----------- ---------- -------------
Total external revenue 577,070,922 24,781,688 3,704,812 (211,947) 605,345,475
Depreciation and amortization /1/ 950,683 641,898 190,249 - 1,782,830
Operating income (loss) 4,852,521 228,912 (4,505,144) (112,816) 463,473
Interest expense 914,335 892,248 638,818 - 2,445,401
Income (loss) before taxes 4,471,267 (639,419) (5,145,294) (112,819) (1,426,265)
Total assets 70,916,191 17,493,523 21,391,067 192,103 109,992,884
Capital expenditures, net 505,142 500,331 619,177 - 1,624,650
NINE MONTHS ENDED JUNE 2003:
External revenue:
Cigarettes $ 414,575,090 $ - $ - $ - $ 414,575,090
Confectionery 37,390,510 - - - 37,390,510
Health food - 24,713,813 - - 24,713,813
Tobacco, beverage & other 85,567,462 - 2,585,125 (153,091) 87,999,496
------------- ----------- ----------- ---------- -------------
Total external revenue 537,533,062 24,713,813 2,585,125 (153,091) 564,678,909
Depreciation and amortization /1/ 949,931 706,950 136,038 - 1,792,919
Operating income (loss) 5,225,925 453,590 (2,443,362) (46,685) 3,189,468
Interest expense 1,090,500 1,049,157 297,112 - 2,436,769
Income (loss) before taxes 4,462,954 (586,167) (2,710,109) (46,685) 1,119,993
Total assets 60,933,876 17,661,428 9,303,572 - 87,898,876
Capital expenditures 575,578 369,046 760,437 - 1,705,061
15
/1/ Includes depreciation reported in cost of sales for the beverage segment.
/2/ Includes charges to operations incurred by discontinued operations and
intercompany eliminations. Intersegment sales have been recorded at amounts
approximating market.
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"), to address perceived weaknesses in accounting for entities commonly
known as special-purpose or off-balance-sheet. In addition to numerous FASB
Staff Positions written to clarify and improve the application of FIN 46, the
FASB recently announced a deferral for certain entities, and an amendment to
FIN 46 entitled FASB Interpretation No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46R"). Since the Company
does not have any variable interest entities, this revision had no impact on
the Company.
In March 2004, the FASB issued an Exposure Draft, "Share-Based Payment - an
amendment of Statements No. 123 and 95," that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity
instruments. The proposed Statement would eliminate the ability to account
for share-based compensation transactions using APB Opinion No. 25,
"Accounting for Stock Issued to Employees." If finalized as drafted, the
Company would be required to record compensation expense based on the fair
value of the awards granted to employees for stock options issued after
October 1, 2005 (fiscal 2006 for the Company). Fair value will be measured
using an acceptable fair value based pricing model. The comment period for
the exposure draft ended on June 30, 2004 but formal guidance is yet to be
issued. We are currently assessing the impact that this standard will have
on the Company.
12. SUBSEQUENT EVENTS
On July 1, 2004, the Company's water bottling subsidiary in Hawaii entered
into an agreement to acquire certain assets of another water bottling company
in Hawaii for $1.2 million in cash and notes in addition to the assumption of
$0.1 million of liabilities.
16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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. Forward-looking statements are not guarantees of future performance
or results. They involve risks, uncertainties and assumptions. 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,
- changes in promotional and incentive programs offered by cigarette
manufacturers,
- the demand for the Company's products,
- new business ventures,
- domestic regulatory risks,
- competition,
- other risks over which the Company has little or no control, and
- any other factors not identified herein could also have such an effect.
Changes in these 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. Any forward looking statement contained
herein is made as of the date of this document. The Company undertakes no
obligation to publicly update or correct any of these forward looking
statements in the future to reflect changed assumptions, the occurrence of
material events or changes in future operating results, financial conditions
or business over time.
17
CRITICAL ACCOUNTING POLICIES
Certain accounting policies used in the preparation of the Company's
financial statements require us to make judgments and estimates and the
financial results we report may vary depending on how we make these
judgements and estimates. The Company's critical accounting policies are
discussed in the Company's 2003 Annual Report to Shareholders on Form 10-K
for the fiscal year ended September 26, 2003. There have been no significant
changes with respect to these policies during the Company's third quarter of
fiscal 2004.
COMPANY OVERVIEW - THIRD FISCAL QUARTER 2004
AMCON Distributing Company ("AMCON" or the "Company") is primarily engaged in
the wholesale distribution business in the Great Plains and Rocky Mountain
regions of the United States. In addition, AMCON operates 14 retail health
food stores and a non-alcoholic beverage business that includes natural
spring and geothermal water bottling operations in the States of Hawaii and
Idaho and a marketing and distribution operation which is focused on selling
the Company's proprietary water and other specialty beverages. As used
herein, unless the context indicates otherwise, the term "ADC" means the
wholesale distribution segment and "AMCON" or the "Company" means AMCON
Distributing Company and its consolidated subsidiaries.
During the third quarter of fiscal 2004, the Company:
- acquired the tradename, water rights, customer list and substantially
all of the operating assets of Trinity Springs, Ltd. for approximately
$11.3 million through a combination of cash and notes, the issuance of a
15% interest in Trinity Springs, Inc. and the payments of an annual
water royalty.
- completed a $2.5 million private placement of Series A Convertible
Preferred Stock and applied a portion of the proceeds to pay the cash
consideration for the Trinity Springs, Ltd. acquisition.
- opened a new retail health food store in Oklahoma City, OK.
- completed a one-for-six reverse stock split as approved by the
shareholders at the May 2004 Annual Meeting.
- experienced a 15.2% increase in sales compared to the third quarter of
2003 primarily due to increases in the customer base in the wholesale
segment.
- incurred a $1.9 million loss before income taxes in our beverage segment
as the beverage marketing and distribution division, which was formed in
fiscal 2003, continued to focus its efforts on developing a
customer base in which to sell the Company's specialty beverage
products.
- recognized a loss per diluted share of $0.50 for the three months ended
June 2004 compared to earnings per diluted share of $1.29 in the same
period of the prior year.
- declared a $0.18 per common share cash dividend.
18
INDUSTRY SEGMENT OVERVIEWS
Wholesale Distribution Segment
- ------------------------------
The wholesale distribution of cigarettes has been significantly affected
during the past year due to changing promotional programs implemented by the
major cigarette manufacturers. Reductions in these promotional programs have
caused wholesalers to react by increasing cigarette prices to retailers.
This occurred for the first time at the beginning of fiscal 2004 without a
corresponding price increase from manufacturers and occurred again at the
beginning of the second quarter of fiscal 2004. Due to timing of recognition
of manufacturer program incentive payments, the price increase in the first
quarter provided the Company with a $0.8 million non-recurring boost in gross
profit during the first nine months of fiscal 2004. Certain manufacturers
changed their promotional programs again for the second quarter of fiscal
2004; therefore, it is difficult to predict how these changes will impact the
Company and the industry in the future.
As a result of one of the manufacturer program changes discussed above,
certain small wholesalers filed suit against Philip Morris and RJ Reynolds
alleging unfair trade practices. In addition, due to the heightened level of
competition in the marketplace from both a wholesale and retail perspective,
a number of wholesalers and retailers have sought bankruptcy protection, been
acquired or are on the market to be sold. Therefore, we expect that
competition and pressure on profit margins will continue to affect both large
and small distributors and demand that distributors consolidate in order to
become more efficient.
Retail Health Food Segment
- --------------------------
Although this segment has not achieved profitability, realignment of top
management and development of a new marketing department was completed in
fiscal 2003, and operating results improved significantly in our Midwest
stores in fiscal year 2003. A new central point-of-sale inventory control
system was implemented in the first quarter of fiscal 2004 and progress was
made in the first two quarters of 2004 as the segment incurred a minimal
loss. However, the retail segment has experienced a decline in Q3 2004 in
sales and gross profit resulting from a planned reduction in the size of the
deli/bakery operations in the Florida stores, reduced supplement sales
resulting from unfavorable media coverage related to the government ban on
ephedra based products and a general softening of the low-carb market coupled
with continued expansion of low-carb offerings and sales through mainstream
grocery channels. Management is currently reviewing all store locations for
opportunities to close or relocate marginally performing stores, remodel and
expand good performing stores and identify new locations for one or two
additional stores in fiscal 2005.
Beverage Segment
- ----------------
Construction of an expanded warehouse and packaging building at our plant in
Hawaii, which began in the second quarter of 2003, was completed in the first
quarter of fiscal 2004. Our water bottling operation in Hawaii has
historically operated at a loss, however, management expects this operation
to begin generating profits by the end of the present fiscal year as the
Company expands its markets and takes advantage of its new operations. In
June 2004, the Company acquired substantially all of the assets of Trinity
Springs, Ltd., headquartered in Sun Valley/Ketchum, Idaho, which bottled and
19
sold geothermal bottled water and a natural mineral supplement. The Trinity
Springs water and mineral supplements are currently sold primarily in health
food stores and the Company plans to extend the distribution channels outside
the health food market. The beverage marketing and distribution business
continued to incur significant losses during the third quarter of 2004 as
significant expenditures were made for product development, distribution
network development and marketing efforts to promote our portfolio of
specialty beverages. The resulting sales were less than expected due, in
part, to grocery strikes on the West Coast during Q1 and Q2 2004 and longer
than anticipated time frame for market penetration of our new beverage
products. We continue to expect incremental increases in sales throughout
the remainder of the fiscal year and management is taking steps to reduce on-
going operating expenses.
RESULTS OF OPERATIONS
AMCON's fiscal third quarters ended on June 25, 2004 and June 27, 2003. For
ease of discussion, the fiscal quarters are referred to herein as June 2004
and 2003, respectively or Q3 2004 and Q3 2003, respectively.
Comparison of the three and nine month periods ended June 2004 and 2003
- -----------------------------------------------------------------------
SALES
Sales for Q3 2004 increased 15.2% to $218.9 million, compared to $189.9
million in Q3 2003. Sales are reported net of costs associated with sales
incentives provided to retailers, totaling $3.6 million and $1.9 million, for
Q3 2004 and Q3 2003, respectively. The change in sales by business segment
from Q3 2003 to Q3 2004 is as follows:
Incr
(Decr)
------
Wholesale distribution $ 28.7 million
Retail health food stores (0.3) million
Beverage 0.6 million
Intersegment eliminations (0.1) million
------
$ 28.9 million
======
Sales from the wholesale distribution business increased by $28.7 million in
Q3 2004 compared to Q3 2003. Cigarette sales increased by $22.3 million
compared to Q3 2003, and sales of tobacco, confectionary and other products
increased by $6.4 million during the period. Of the increase in sales of
cigarettes, $1.7 million related to price increases implemented by the
Company in response to the elimination of vendor program incentives, and
$20.6 million related to increased sales from a 13.3% increase in carton
volume, primarily from sales to new customers within our current market area.
Sales to new customers also contributed to the $6.4 million increase in sales
of tobacco, confectionary and other products. We continue to market our full
service capabilities in an effort to differentiate our Company from
competitors who utilize pricing as their primary marketing tool.
20
Sales from the retail health food segment during Q3 2004 decreased $0.3
million when compared to Q3 2003. Sales in the new Oklahoma City store,
which opened in April 2004, were $0.3 million. Sales declined in the
remaining stores $0.6 million primarily because of a planned reduction in the
size of the deli/bakery operations in the Florida stores, reduced supplement
sales resulting from unfavorable media coverage related to the government ban
on ephedra based products and a general softening of the low-carb market
coupled with continued expansion of low-carb offerings and sales through
mainstream grocery channels.
In the beverage segment, sales increased $0.6 million from Q3 2003 to Q3
2004. The newly acquired water bottling operation in Idaho accounted for
$0.1 million of the sales increase in Q3 2004. The marketing and
distribution business accounted for $0.7 million of the increase due to the
continued focus of management to increase market penetration. Sales from our
Hawaiian Springs natural water bottling operation increased by $0.2 million
due to market penetration in the Hawaiian islands. These increases were
offset by a $0.3 million decrease in sales from our home and office bottling
and delivery business in Hawaii which was sold in October 2003.
Sales for the nine months ended June 2004 increased to $605.3 million,
compared to $564.7 million for the same period in the prior fiscal year.
Sales changes by business segment are as follows:
Incr
(Decr)
------
Wholesale distribution $ 39.5 million
Retail health food stores 0.1 million
Beverage 1.1 million
Intersegment eliminations (0.1) million
------
$ 40.6 million
======
Sales from the wholesale distribution business increased by $39.5 million for
the nine months ended June 2004 as compared to the same period in the prior
year. Cigarette sales increased by $25.8 million compared to the first nine
months of fiscal 2003, and sales of tobacco, confectionary and other products
increased by $13.7 million during the period. Of the increase in sales of
cigarettes, $4.2 million related to price increases implemented by the
Company in response to the elimination of vendor program incentives, and
$44.3 million in increased sales related to an 8.9% increase in carton
volume, primarily to new customers within our current market area. These
increases were offset by a $22.7 million decrease in cigarette sales related
to a decrease in prices on Philip Morris and Brown & Williamson brands which
began in Q2 2003. Although the Philip Morris price reduction program was
communicated as a temporary reduction, Philip Morris has extended the program
through September 2004 and could extend it further. Brown & Williamson
stated that their price reduction program is permanent. The $13.7 million
increase in sales of tobacco, confectionary and other products was
attributable primarily to new business obtained in our current market area.
21
Sales from the retail health food segment during first nine months of 2004
increased $0.1 million when compared to same period in 2003. Sales in the
new Oklahoma City store, which opened in April 2004, were $0.3 million.
Sales declined in the remaining stores $0.2 million primarily due to a
planned migration from the deli operation in the Florida stores, unfavorable
national media coverage that related to a government ban on ephedra-based
supplements and a shift in sales of low-carb products to main stream grocery
stores.
The beverage segment accounted for $3.7 million in sales for the nine months
ended June 2004, compared to $2.6 million for the same period in 2003. The
improvement is primarily due to increases in case volume of Hawaiian Natural
spring water, which was possible due to completion of plant construction and
a change to a new distributor in the Hawaii market in October 2003, and sales
of other premium beverage products which were developed or licensed for sale
late in fiscal 2003. The acquisition of substantially all of the operating
assets of Trinity Springs, Ltd. at the end of June 2004 also contributed $0.1
million of sales for Q3 2004. Additionally, there were no sales from our
home and office bottling and delivery business in Hawaii for the nine months
ended June 2004 because it was sold in October 2003. Sales for the nine
months ended June 2003 totaled $0.3 million.
Intersegment sales for the nine months ended June 2004 were relatively flat
compared to the nine months ended June 2003. Intersegment sales were
eliminated in consolidation, all of which related to beverage segment sales
to wholesale distribution.
GROSS PROFIT
Gross profit decreased 5.8% to $15.1 million in Q3 2004 from $16.0 million in
Q3 2003. Gross profit as a percent of sales decreased to 6.9% in Q3 2004
compared to 8.4% in Q3 2003. Gross profit by business segment is as follows:
(dollars in millions)
Quarter ended
June
---------------- Incr
2004 2003 (Decr)
------ ------ -----
Wholesale distribution $ 12.1 $ 12.3 $(0.2)
Retail health food stores 3.0 3.4 (0.4)
Beverage 0.0 0.3 (0.3)
------ ------ -----
$ 15.1 $ 16.0 $ (0.9)
====== ====== =====
Gross profit from our wholesale distribution business for Q3 2004 decreased
1.6% or $0.2 million compared to Q3 2003. Gross profit increased by $1.7
million in Q3 2004, compared to Q3 2003, from cigarette price increases
implemented during Q1 and Q2 2004 in response to the elimination of vendor
program incentive payments that the Company has historically received. In
addition, gross profit increased in Q3 2004 by $1.3 million due to increased
22
sales of all products to new customers, as compared to Q3 2003. These
increases in gross profit were more than offset by a $0.1 million increase
to cost of sales in Q3 2004 as compared to a decrease to cost of sales of
$1.3 million in Q3 2003 related to the LIFO reserve, decreases in incentive
allowances received primarily from cigarette manufacturers of $1.5 million
and a $0.3 million decrease in the margin related to the Company's private
label cigarettes.
Gross profit for the retail health food segment decreased to $3.0 million in
Q3 2004 as compared to $3.4 million in Q3 2003. The decrease in sales in the
retail segment resulted in a lower margin contribution of $0.2 million for Q3
2004. In addition, the retail segment increased its LIFO reserve by $0.2
million in Q3 2004 as compared to Q3 2003 which also decreased gross margin.
The beverage segment had no gross profit in Q3 2004 compared to $0.3 million
of gross profit in Q3 2003. The decrease is primarily the result of the lack
of sales sufficient to cover related inventory carrying costs that are
charged to cost of sales as incurred and a $0.2 million decrease in gross
margin related to our home and office bottling and delivery business which
was sold in October 2003.
Gross profit as a percentage of sales decreased primarily due to a reduction
in cigarette manufacturer incentive payments in the wholesale segment, higher
cost of sales charges related to increases in the LIFO reserves in Q3 2004 as
compared to Q3 2003 and significant inventory carrying costs in the beverage
business.
For the nine months ended June 2004, gross profit increased 0.1% to $43.8
million from $43.7 million for the same period during the prior fiscal year.
Gross profit as a percent of sales decreased to 7.2% for the nine month
period ended June 2004 as compared to 7.7% for the nine month period ended
June 2003. Gross profit by business segment is as follows (dollars in
millions):
Nine months ended
June
---------------- Incr
2004 2003 (Decr)
------ ------ -----
Wholesale distribution $ 33.8 $ 33.3 $ 0.5
Retail health food stores 9.8 9.9 (0.1)
Beverage segment 0.2 0.6 (0.4)
Intersegment elimination 0.0 (0.1) 0.1
------ ------ -----
$ 43.8 $ 43.7 $ 0.1
====== ====== =====
Gross profit from our wholesale distribution business for the nine months
ended June 2004 increased approximately $0.5 million, as compared to the
prior year. Gross profit of $3.9 million was generated from cigarette price
increases implemented during Q1 and Q2 2004 in response to the elimination of
vendor program incentive payments that the Company historically received.
23
Because vendor programs incentive payments are generally received and
recognized by the Company in the quarter following the period in which the
related cigarette sales were made, as that is when it is estimable, gross
profit during the nine months ended June 2004 includes both the normal vendor
program incentive payments relating to Q4 2003 but received during Q1 2004 of
approximately $0.8 million, and the amount earned from the price increases
that were implemented to replace vendor program incentive payments. This
increase in gross profit was partially offset by a decrease of $0.8 million
in incentive payments received on our private label cigarettes, a decrease in
incentive allowances received from manufacturers of approximately $4.4
million (net of amounts paid to customers) and a $1.3 million larger charge
to cost of sales for the first nine months in 2004 as compared to the first
nine months in 2003 related to the change in the required LIFO reserve
balance. The remainder of the increase in gross profit of $3.1 million was
primarily due to increased sales in all products to new customers. The
Company expects that gross profit related to private label cigarettes will
decrease by up to $1.0 million in fiscal 2004, as compared to fiscal 2003 and
will no longer represent a significant source of gross profit for the
Company.
Gross profit for the retail health food segment decreased $0.1 million
compared with the nine months ended June 2003 primarily due to a $0.1 million
increase in the LIFO reserve compared to the first nine months of the prior
year.
Gross profit from the beverage segment decreased $0.4 million during the nine
months ended June 2004, compared to the nine months ended June 2003,
primarily due to significant inventory carrying costs incurred during 2004
and a decrease of $0.2 million in gross profit from our home and office
bottling and delivery business in Hawaii which was sold in October 2003.
Gross profit from intersegment sales for the nine month periods in 2004 and
2003 was minimal and eliminated in consolidation. The intersegmental gross
profit relates to beverage segment sales to wholesale distribution.
OPERATING EXPENSE
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 4.1% or approximately
$0.6 million to $14.8 million in Q3 2004 compared to Q3 2003. The largest
increase was in the wholesale business which increased $0.5 million due to
higher operating expenses relating to new business and higher delivery and
health insurance costs.
For the nine month period ended June 2004, total operating expense increased
6.9% or approximately $2.8 million to $43.3 million compared to the same
period in the prior fiscal year. The increase was primarily due to expenses
associated with the beverage segment which accounted for $1.7 million of the
increase, primarily due to the formation of the beverage marketing and
distribution business late in Q1 2003. The wholesale distribution segment
incurred additional operating costs of $0.9 million during the nine months
ended June 2004, primarily related to new business and increased delivery
costs, health insurance and bad debts, as compared to the same prior year
period. Total operating expenses in our retail segment were relatively flat
for the nine months ended June 2004, compared to the same period in the prior
year.
24
As a result of the above, income from operations for Q3 2004 decreased by
$1.5 million to $0.3 million, as compared to Q3 2003. Income from operations
for the nine months ended June 2004 decreased by $2.7 million to $0.5
million.
INTEREST EXPENSE
Interest expense for Q3 2004 was $0.8 million, an increase of 6.8% when
compared to Q3 2003. The increase was primarily due to additional borrowing
on the Company's revolving line of credit to support operations.
Interest expense for the nine months ended June 2004 was relatively flat
compared with the same period in the prior year. The increase in interest
expense in Q3 2004 was offset by decreases in interest expense earlier in
fiscal 2004 resulting from the Company's ability to select LIBOR as a
borrowing rate being reinstated in Q3 2003.
OTHER
Other income for Q3 2004 and Q3 2003 of $0.1 million was generated primarily
from gains on sales of available-for-sale securities and interest income on
tax refunds.
Other income for the nine months ended June 2004 of $0.6 million was
generated primarily from gains on sales of available-for-sale securities, as
well as, interest income, dividends and royalty payments. Included in other
income for the nine months ended June 2003 of approximately $0.4 million is
$0.1 million received from a settlement related to a former distribution
facility, $0.1 million from gains on sales of available-for-sale securities
and $0.1 million in interest on income tax refunds, as well as, interest
income and dividends on investment securities.
As a result of the above factors, net income (loss) for the three and nine
months ended June 2004 was ($0.3) million and ($0.9) million, respectively
compared to $0.7 million for both the three and nine months ended June 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash to pay its operating expenses, purchase inventory,
make capital investments and pay dividends. In general, the Company finances
these cash needs from the cash flow generated by its operating activities and
from borrowings, as necessary. During the nine months ended June 2004, the
Company generated cash flow of approximately $2.3 million from operating
activities, primarily through increases in accounts payable and accrued
expenses resulting primarily from extended terms received on product
promotions and vendor payment incentives. Cash of $3.7 million was utilized
during the nine months ended June 2004 for capital expenditures and the
Company's acquisition of the tradename, water rights and other operating
assets from Trinity Springs, Ltd. These expenditures were partially offset
by the sales of certain fixed assets and available-for-sale securities which
generated a net cash inflow during the period of $0.6 million. The Company
generated net cash of $2.5 million from financing activities primarily from
the private placement of Series A Convertible Preferred Stock, which was
offset by $1.3 million in cash used to pay down long-term debt and
25
subordinated debt during the period and $0.3 million to pay dividends and
retire fractional shares of common stock resulting from the one-for-six
reverse stock split.
The Company's primary source of borrowing for liquidity purposes is its $55.0
million revolving credit facility with LaSalle Bank (the "Facility"). The
Facility allows ADC to borrow up to $55.0 million at any time through June
2005, subject to eligible accounts receivable and inventory requirements. As
of June 2004, the outstanding balance on the Facility was $38.0 million. The
Facility bears interest at a variable rate equal to the bank's base rate,
which was 4.00% at June 2004, or LIBOR plus 2.50%, as selected by the
Company. The Facility also restricts borrowing for intercompany advances to
Trinity Springs, Inc. The Company hedges its variable rate risk on $15.0
million of its borrowings under the Facility by use of interest rate swap
agreements. These swap agreements have the effect of converting the interest
on this amount of debt to fixed rates ranging between 4.38% and 4.87% per
annum.
In June 2004 the Company completed a $2.5 million private placement of Series
A Convertible Preferred Stock representing 100,000 shares at $25 per share
which was primarily used to fund the acquisition of Trinity Springs, Ltd.
As of June 2004, the Company had cash on hand of $0.7 million and working
capital (current assets less current liabilities) of approximately $22.6
million. This compares to cash on hand of $0.7 million and working capital
of $20.0 million as of September 2003. The Company's ratio of debt to equity
decreased to 3.29 at June 2004 compared to 3.45 at September 2003. For the
first six months of 2004 the Company was paying down the outstanding balance
on the Facility. Subsequently, the Company increased borrowing on the
Facility to fund the beverage operations and used a combination of cash
raised from the issuance of preferred stock discussed above and other debt to
fund the acquisition of the tradename, water rights and operating assets of
Trinity Springs, Ltd.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility, will provide sufficient
liquidity for the operation of its wholesale distribution segment. However,
$6.8 million of subordinated debt related to The Healthy Edge, Inc.'s
acquisition of Health Food Associates in September 1999 is due in September
2004. The Facility does not have sufficient availability to allow the
Company to fund this obligation on behalf of The Healthy Edge, Inc. In
addition, the Company's beverage segment is expected to require additional
funding through fiscal 2005 and the Company believes that there may not be
sufficient availability on the Facility to fund those operations. Management
is presently negotiating with investors to privately place subordinated debt
or preferred stock to provide funding for these purposes. Although
management is optimistic that such financing will be committed, the ultimate
outcome of this financing is not certain at this time. Without such
refinancing, the Company would be in default of the subordinated debt, which
could potentially result in the loss of the stock of Health Food Associates,
which collateralizes the debt.
26
The following table summarizes our outstanding contractual obligations and
commitments as of fiscal year end 2003. Other than the issuance of long-term
debt totaling $3.5 million and the agreement to pay future royalties in
connection with the Trinity Springs, Ltd. acquisition, as noted in the table
below, there have been no significant changes to debt or contractual
obligations since September 2003. (Amounts in thousands):
Payments Due By Period
--------------------------------------------------------------------
Contractual Fiscal Fiscal Fiscal Fiscal Fiscal
Obligations Total 2004 2005 2006 2007 2008 Thereafter
- ------------------ --------- -------- -------- ------- ------- ------- ----------
Long-term debt $ 49,301 $ 14,927 $ 28,180 $ 6,194 $ - $ - $ -
Long-term debt - Trinity 3,464 54 267 281 796 261 1,805
Subordinated debt 8,739 7,763 976 - - - -
Minimum water royalty
payments 7,798 206 288 288 288 288 6,440
Capital lease 1,701 421 489 486 284 21 -
Operating leases 22,981 5,150 4,616 3,829 2,269 1,617 5,500
--------- -------- -------- ------- ------- ------- ---------
Total $ 93,984 $ 28,521 $ 34,816 $11,078 $ 3,637 $ 2,187 $ 13,745
========= ======== ======== ======= ======= ======= =========
Total
Other Commercial Amounts Fiscal Fiscal Fiscal Fiscal Fiscal
Commitments Committed 2004 2005 2006 2007 2008 Thereafter
- ------------------ --------- -------- -------- ------- ------- ------- ----------
Lines of credit $ 59,750 $ 4,750 $ 55,000 $ - $ - $ - $ -
Letters of credit 967 967 - - - - -
--------- -------- -------- ------- ------- ------- ---------
Total $ 60,717 $ 5,717 $ 55,000 $ - $ - $ - $ -
========= ======== ======== ======= ======= ======= =========
CERTAIN ACCOUNTING CONSIDERATIONS
In March 2004, the FASB issued an Exposure Draft, "Share-Based Payment - an
amendment of Statements No. 123 and 95 ", that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity
instruments. The proposed Statement would eliminate the ability to account
for share-based compensation transactions using APB Opinion No. 25,
"Accounting for Stock Issued to Employees." If finalized as drafted, the
Company would be required to record compensation expense based on the fair
value of the awards granted to employees for stock options issued after
October 1, 2005 (fiscal 2006 for the Company). Fair value will be measured
using an acceptable fair value based pricing model. The comment period for
the exposure draft ended on June 30, 2004 but formal guidance is yet to be
issued. We are currently assessing the impact that this standard will have
on the Company.
27
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are
reasonably expected to have a material effect on the Company's financial
position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate risk on its variable rate debt. At
June 2004, we had $27.7 million of variable rate debt outstanding (excluding
$15.0 million variable rate debt which is fixed through the swaps described
below), with maturities through June 2005. The interest rates on this debt
ranged from 3.60% to 6.75% at June 2004. We have the ability to select the
bases on which our variable interest rates are calculated on the Facility by
selecting an interest rate based on our lender's base interest rate or based
on LIBOR. This provides management with some control of our variable
interest rate risk. We estimate that our annual cash flow exposure relating
to interest rate risk based on our current borrowings is approximately $0.2
million for each 1% change in our lender's prime interest rate.
In June 2003, the Company entered into two interest rate swap agreements with
a bank in order to mitigate the Company's exposure to interest rate risk on
this variable rate debt. Under the agreements, the Company agrees to
exchange, at specified intervals, fixed interest amounts for variable
interest amounts calculated by reference to agreed-upon notional principal
amounts of $10.0 million and $5.0 million. The interest rate swaps
effectively convert $15.0 million of variable-rate senior debt to fixed-rate
debt at rates of 4.87% and 4.38% on the $10.0 million and $5.0 million
notional amounts through the maturity of the swap agreements on June 2, 2006
and 2005, respectively. These interest rate swap agreements have been
designated as hedges and are accounted for as such for financial accounting
purposes.
We do not utilize financial instruments for trading purposes and hold no
derivative financial instruments other than the interest rate swaps which
could expose us to significant market risk.
During Q3 2004,the Company sold its remaining 5,000 shares of common stock of
Consolidated Water Company Limited ("CWCO") a public company traded on the
NASDAQ National Market and realized a gain of $0.1 million. The Company is,
therefore, no longer exposed to market risk relating to this investment.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure
that information required to be disclosed in the Company's reports under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures. Any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
28
desired control objectives. The Company's management, including the
Company's Principal Executive Officer and Chief Financial Officer, reviewed
and evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by
this report. Based on that evaluation and subject to the foregoing, the
Principal Executive Officer and Chief Financial Officer have concluded that
the Company's current disclosure controls and procedures, as designed and
implemented provided reasonable assurance that the disclosure controls and
procedures are effective as of the end of the period covered by this report.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
AMCON announced in May 2004 that it was filing suit against Trinity Springs,
Ltd. in order to obtain an order from the United States District Court for
the District of Idaho declaring that a majority of the votes entitled to be
cast by the shareholders of Trinity Springs, Ltd. were cast in favor of the
sale of substantially all of its assets to AMCON's subsidiary, TSL
Acquisition Corp. and thereby satisfied the shareholder approval condition of
the asset purchase transaction. Subsequent to AMCON's filing of its lawsuit,
the Inspectors of Election and the Board of Directors of Trinity Springs,
Ltd. certified the shareholder voting results in favor of the asset purchase
transaction.
After the certification of the voting results, certain minority shareholders
filed a complaint and motion for injunctive relief in the District Court of
the Fifth Judicial District of the State of Idaho. The Court granted a
temporary restraining order on June 11, 2004, which prevented the closing of
the asset purchase transaction until the Court had an opportunity to receive
additional briefing on the issues presented and the parties could be heard by
the Court. On June 16, 2004, the Court heard arguments on whether to extend
the temporary restraining order and grant the minority shareholders' motion
for preliminary injunction. As a result of the parties' briefing and the
arguments presented, the Court dissolved the temporary restraining order and
thereby enabled the asset sale transaction to be consummated.
On July 19, 2004, without having requested or been granted permission by the
Court, several of the same minority shareholders, along with some additional
shareholders filed an amended complaint in the same Idaho state court action.
While it is questionable whether the amended complaint was properly filed,
the amended pleading raises claims of fiduciary breaches by the directors of
Trinity Springs, Ltd. and again alleges that the asset sale transaction did
not receive the requisite approval by the shareholders of Trinity Springs,
Ltd. The minority shareholders' amended complaint seeks (I) a declaration
that the asset sale transaction is void and injunctive relief rescinding that
transaction or, alternatively, that a new shareholder vote on the asset sale
transaction be ordered, (ii) damages for the alleged breaches of fiduciary
duty which are claimed to have arisen out of the disclosure made in
connection with the solicitation of proxies, how the votes were counted, and
29
conducting the closing without the requisite shareholder vote, and
(iii) imposition of a constructive trust on the sale proceeds and requiring
separate books to be maintained. AMCON continues to believe that the
shareholders of Trinity Springs, Ltd. approved the sale of assets to the
Company in accordance with applicable law and that the asset sale transaction
was properly completed.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
The Company made no repurchases of its common stock during the three and
nine-month periods ended June 25, 2004. However, in May 2004, the
shareholders approved and the Company effected a one-for-six reverse stock
split of the outstanding shares of its common stock. Shareholders who held
fewer than six shares of AMCON's common stock immediately prior to the
reverse stock split received a cash payment in exchange for their remaining
fractional shares after the reverse stock split. As a result, the Company
paid $26,328 for approximately 960 post reverse split common shares. All
common stock share and per share data (except par value) for all periods
presented have been adjusted to reflect the reverse stock split.
In June 2004, the Company completed a $2.5 million private placement of
Series A Convertible Preferred Stock representing 100,000 shares at $25 per
share which was primarily used to fund the acquisition of Trinity Springs,
Ltd. The Series A Convertible Preferred Stock is senior to the Company's
outstanding common stock and provides for preferential treatment for
preferred shareholders in the event of distributions, proceeds upon
liquidation of the Company or the redemption of the stock.
In connection with the acquisition of Trinity Springs, Ltd., the Company
issued 16,666 unregistered common shares of TSL Acquisition Corp. (a
consolidated subsidiary of the Company which subsequently changed its name to
Trinity Springs, Inc.) These shares are convertible into the same number of
shares of AMCON Distributing Company at the election of the shareholder.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 11, 2004 for the
purpose of electing three directors, ratifying the appointment of its
auditors and amending the Certificate of Incorporation of the Company to
effect a one-for-six reverse stock split of the Company's common stock.
The following sets forth the results of the election of directors:
NAME OF NOMINEE FOR WITHHELD
Mr. William F. Wright 2,335,612 99.6% 9,170
Mr. William R. Hoppner 2,335,739 99.6% 9,043
Mr. Stanley J. Mayer 2,335,739 99.6% 9,043
There was no solicitation in opposition to the nominees proposed to be
elected by the Stockholders in the Proxy Statement. In addition to the
directors elected at the Annual Meeting, the following directors continued
their term of office: Kathleen M. Evans, Timothy R. Pestotnik, Tony Howard,
Allen D. Petersen, Raymond F. Bentele and John R. Loyack.
30
The ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending September 24, 2004 was
approved by the Stockholders with 2,240,547 votes FOR (95.6% of votes cast),
96,916 votes AGAINST, and 7,319 votes ABSTAINED.
The proposal to amend the Certificate of Incorporation of the Company to
effect a one-for-six reverse stock split of the Company's common stock was
approved with 2,238,231 votes FOR (72.1% of total shares outstanding), 55,908
votes AGAINST, and 5,643 votes ABSTAINED OR BROKER NON-VOTES.
Item 6. Exhibits and Reports on Form 8-K
(a) 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)
2.8 Asset Purchase Agreement, dated April 24, 2004, between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs, Ltd.
2.9 First Amendment to Asset Purchase Agreement dated June 17, 2004 between
TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs,
Ltd.
31
3.1 Restated Certificate of Incorporation of the Company, as amended May
11, 2004
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)
3.3 Second Corrected Certificate of Designations, Preferences and Rights of
Series A Preferred Securities of AMCON Distributing Company dated August
5, 2004.
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)
4.2 Specimen Series A Convertible Preferred Stock Certificate
4.3 Securities Purchase Agreement dated June 17, 2004 between AMCON
Distributing Company, William F. Wright and Draupnir, LLC.
10.1 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)
10.2 Sixth Amendment to Loan and Security Agreement dated June 28, 2004
between the Company and LaSalle Bank.
10.3 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)
10.4 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)
10.5 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)
10.6 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)
10.7 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)
32
10.8 First Amended and Restated AMCON Distributing Company 1994 Stock
Option Plan (incorporated by reference to Exhibit 10.17 of AMCON's
Current Report on Form 10-Q filed on August 4, 2000)
10.9 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)
10.10 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)
10.11 Employment Agreement, dated May 22, 1998, between the Company and
Kathleen M. Evans (incorporated by reference to Exhibit 10.15 of
AMCON's Quarterly Report on Form 10-Q filed on August 6, 1998)
10.12 ISDA Master Agreement, dated as of May 12, 2003 between the Company
and LaSalle Bank National Association (incorporated by reference to
Exhibit 10.13 of AMCON's Quarterly Report on Form 10-Q filed on
August 11, 2003)
10.13 Swap Transaction Confirmation ($10,000,000) dated as of May 23, 2003
between the Company and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.14 of AMCON's Quarterly
Report on Form 10-Q filed on August 11, 2003)
10.14 Swap Transaction Confirmation ($5,000,000) dated as of May 23, 2003
between the Company and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.15 of AMCON's Quarterly
Report on Form 10-Q filed on August 11, 2003)
10.15 Promissory Note ($2,828,440), dated as of June 17, 2004 between the
Company and Trinity Springs, Ltd.
10.16 Promissory Note ($500,000), dated as of June 17, 2004 between the
Company and Trinity Springs, Ltd.
10.17 Security Agreement, dated June 17, 2004 by and between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs, Ltd.
10.18 Shareholders Agreement, dated June 17,2004, by and between TSL
Acquisition Corp, AMCON Distributing Company and Trinity Springs,
Ltd.
10.19 Guaranty and Suretyship Agreement, dated June 17, 2004, by and between
AMCON Distributing Company and Trinity Springs, Ltd.
10.20 Mortgage, dated June 17, 2004, by and between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs, Ltd.
11.1 Statement re: computation of per share earnings (incorporated by
reference to footnote 7 to the financial statements which are
incorporated herein by reference to Item 1 of Part I herein)
33
14.1 Code of Ethics for Principal Executive and Financial Officers
(incorporated by reference to Exhibit 14.1 of AMCON's Annual Report on
Form 10-K filed on December 24, 2003)
31.1 Certification by William F. Wright, Chairman and Principal Executive
Officer, furnished pursuant to section 302 of the Sarbanes-Oxley Act
31.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 302 of the Sarbanes-Oxley Act
32.1 Certification by William F. Wright, Chairman and Principal Executive
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act
32.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act
(b) REPORTS ON FORM 8-K
On April 26, 2004, the Company filed a report on Form 8-K announcing the
execution of an asset purchase agreement relating to the acquisition of
Trinity Springs, Ltd. under Item 5, Other Events and Regulation FD
Disclosure. Reference was made to a press release therewith as Exhibit 99.1.
On May 14, 2004, the Company furnished a report on Form 8-K announcing its
earnings for the second quarter ended March 26,2004 under Item 12, Results of
Operation and Financial Condition. Reference was made to a press release
therewith as exhibit 99.1.
On May 26, 2004, the Company filed a report on Form 8-K announcing that the
Company was seeking a judicial determination of the approval of the Company's
acquisition of Trinity Springs, Ltd. under Item 5, Other Events and
Regulation FD Disclosure. Reference was made to a press release therewith as
Exhibit 99.1.
On June 18, 2004, the Company filed a report on Form 8-K announcing the
completion of the acquisition of substantially all of the assets on Trinity
Springs, LTD. under Item 2, Acquisition or Disposition of Assets.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: August 9, 2004 /s/ William F. Wright
---------------- -----------------------------
William F. Wright
Chairman of the Board and
Principal Executive Officer
Date: August 9, 2004 /s/ Michael D. James
---------------- -----------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
35