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 December 31, 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 February 7, 2005.
Form 10-Q
1st Quarter
INDEX
-------
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
--------------------------------------------
Condensed consolidated unaudited balance sheets at
December 2004 and September 2004 3
Condensed consolidated unaudited statements of operations
for the three months ended December 2004 and 2003 4
Condensed consolidated unaudited statements of cash flows
for the three months ended December 2004 and 2003 5
Notes to condensed consolidated unaudited
financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 6. Exhibits 31
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Balance Sheets
December 2004 and September 2004
- -------------------------------------------------------------------------------------------------------
December 2004 September 2004
------------ --------------
ASSETS
Current assets:
Cash $ 904,670 $ 416,073
Accounts receivable, less allowance for doubtful
accounts of $0.5 million and $0.7 million,
respectively 27,190,236 29,586,255
Inventories 36,617,385 36,481,014
Income tax receivable 955,839 1,162,625
Deferred income taxes 2,618,391 2,548,391
Other 1,179,421 708,916
------------ ------------
Total current assets 69,465,942 70,903,274
Fixed assets, net 20,958,714 20,095,334
Goodwill 6,449,741 6,449,741
Other intangible assets 13,216,751 13,271,211
Other assets 1,485,457 1,010,303
------------ ------------
$111,576,605 $111,729,863
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,924,157 $ 17,762,392
Accrued expenses 5,767,555 4,427,976
Accrued wages, salaries, bonuses 1,103,555 1,380,477
Current liabilities of discontinued operations 78,024 107,724
Current portion of long-term debt 9,562,560 11,409,234
Current portion of subordinated debt 1,076,219 7,876,219
------------ ------------
Total current liabilities 29,512,070 42,964,022
------------ ------------
Deferred income taxes 617,794 593,018
Other long-term liabilities 2,807,000 2,807,000
Long-term debt, less current portion 61,622,121 50,063,571
Minority interest - 97,100
Commitments and contingencies
Shareholders' equity:
Series A and B cumulative, convertible preferred stock,
$.01 par value 180,000 and 100,000 shares authorized
and issued, respectively 1,800 1,000
Common stock, $.01 par value, 15,000,000
shares authorized, 527,062 shares issued 5,271 5,271
Additional paid-in capital- preferred stock 4,294,200 2,437,355
Additional paid-in capital- common stock 6,218,476 6,218,476
Accumulated other comprehensive income,
net of tax of $0.1 million and $0.03 million, respectively 100,323 59,900
Retained earnings 6,397,550 6,483,150
------------ ------------
Total shareholders' equity 17,017,620 15,205,152
---------- ------------
$111,576,605 $111,729,863
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three months ended December 2004 and 2003
- ----------------------------------------------------------------------------
2004 2003
------------- ------------
Sales (including excise taxes of
$49.6 million and $45.3 million,
respectively) $ 215,178,466 $ 193,037,116
Cost of sales 199,282,768 177,972,857
------------- -------------
Gross profit 15,895,698 15,064,259
------------- -------------
Selling, general and administrative
expenses 14,383,140 13,370,097
Depreciation and amortization 676,083 561,118
------------- -------------
15,059,223 13,931,215
------------- -------------
Income from operations 836,475 1,133,044
------------- -------------
Other expense (income):
Interest expense 1,076,082 778,908
Other income, net (59,389) (430,108)
------------- -------------
1,016,693 348,800
------------- -------------
(Loss) income from operations
before income taxes (180,218) 784,244
Income tax (benefit) expense (70,000) 270,000
Minority interest in loss, net of tax (97,100) -
------------- -------------
Net (loss) income $ (13,118) $ 514,244
Preferred stock dividend requirements 72,481 -
------------- -------------
(Loss) income available to common
shareholders $ (85,599) $ 514,244
============= =============
(Loss) earnings per share:
Basic $ (0.16) $ 0.97
============= =============
Diluted $ (0.16) $ 0.96
============= =============
Dividends per share $ - $ 0.18
============= =============
Weighted average shares outstanding:
Basic 527,062 528,165
Diluted 527,062 535,549
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the three months ended December 2004 and 2003
- ---------------------------------------------------------------------------------
2004 2003
------------ ------------
Net cash flows from operating activities $ (2,493,207) $ 4,759,176
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,278,617) (422,123)
Proceeds from sales of fixed assets 16,500 55,000
Proceeds from sales of available-for-sale
securities - 457,053
Other (6,476) -
------------ ------------
Net cash flows from investing activities (1,268,593) 89,930
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on bank
credit agreements 13,621,209 (4,745,546)
Net proceeds from preferred stock issuance 1,857,645 -
Proceeds from borrowings of long-term debt 1,272,667 -
Preferred stock dividend requirements (72,481) -
Payments on long-term debt and
subordinated debt (11,982,000) (149,172)
Proceeds from exercise of stock options - 523
Debt issue costs (446,643) -
------------ ------------
Net cash flows from financing activities 4,250,397 (4,894,195)
------------ ------------
Net change in cash 488,597 (45,089)
Cash, beginning of period 416,073 668,073
------------ ------------
Cash, end of period $ 904,670 $ 622,984
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,012,476 $ 855,112
Cash paid (refunded) during the period
for income taxes (206,786) 879,813
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
December 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"). As a result of its 85% ownership in Trinity
Springs, Inc. (TSI), the Company has included the operating results of TSI in
the accompanying consolidated financial statements since the date of
acquisition (June 17, 2004) and has presented the 15% non-owned interest in
this subsidiary as a minority interest. During the first quarter of fiscal
2005, the Company suspended the allocation of TSI's losses to minority
shareholders once their basis was reduced to zero because the minority
shareholders have not guaranteed TSI debt or committed additional capital to
TSI.
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. 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 24, 2004, which are included in the Company's
Annual Report to Shareholders filed with Form 10-K ("2004 Annual Report").
Results for the interim period are not necessarily indicative of results to
be expected for the entire year.
AMCON's fiscal first quarters ended on December 31, 2004 and December 26,
2003. For convenience, the fiscal first quarters of 2005 and 2004 have been
indicated as December 2004 and 2003, respectively. During the first quarter
of fiscal 2005, the Company changed its reporting period from a 52-53 week
year ending on the last Friday in September to a calendar month reporting
period ending on September 30. As a result of this change, the first quarter
of fiscal 2005 comprises 14 weeks of operations as compared to 13 weeks of
operations in the first quarter of fiscal 2004. The additional week of
operations increased sales, gross profit and net income by approximately
$14.4 million, $0.8 million and $0.1 million, respectively.
During fiscal 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.
All common stock shares and per share data (except par value) for all periods
presented have been adjusted to reflect the reverse stock split.
6
Stock-based Compensation
- ------------------------
Prior its expiration in June 2004, AMCON maintained a stock-based
compensation plan which provided that the Compensation Committee of the Board
of Directors granted incentive stock options and non-qualified stock options.
AMCON accounted for these stock option grants in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" using the intrinsic value method under which compensation cost was
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 cost related to stock option grants was
not reflected in income or loss as all options granted under the plan had an
exercise price equal to or above the market value of the underlying stock on
the date of grant.
The following table illustrates the required pro forma effect on income
(loss) and earnings (loss) per share assuming the Company had applied the
fair value recognition provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" to
stock-based employee compensation:
For the three months
ended December
-------------------------
2004 2003
----------- -----------
(Loss) earnings
===============================
(Loss) income available to common
shareholders, as reported $ (85,599) $ 514,244
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (14,008) (15,303)
----------- -----------
Pro forma (loss) income $ (99,607) $ 498,941
=========== ===========
(Loss) earnings per share
=========================================
As reported: Basic $ (0.16) $ 0.97
=========== ===========
Diluted $ (0.16) $ 0.96
=========== ===========
Pro forma: Basic $ (0.19) $ 0.94
=========== ===========
Diluted $ (0.19) $ 0.93
=========== ===========
7
2. ACQUISITIONS
Trinity Springs, Inc.
- ---------------------
On June 17, 2004, a newly formed subsidiary of AMCON, TSL Acquisition Corp.
acquired the tradename, water source, customer list and substantially all of
the operating assets of Trinity Springs, Ltd. (the "Seller," which
subsequently changed its name to Crystal Paradise Holdings, Inc.), a bottler
of geothermal bottled water and a natural mineral supplement. TSL
Acquisition Corp. subsequently changed its name to TSI and continues to
operate under that name.
The total purchase price of $8.8 million was paid through a combination of
$2.3 million in cash, $3.3 million in notes which were issued by TSI and
guaranteed by AMCON; the assumption of approximately $0.2 million of
liabilities and the issuance of TSI common stock representing 15% ownership
of TSI which had an estimated fair value of $0.2 million. The TSI common
stock is convertible into 16,666 shares of AMCON common stock at the option
of the Seller. Additionally, the conversion option had an estimated fair
value of $0.2 million. Included in the $2.3 million paid in cash are
transaction costs totaling approximately $0.8 million that were incurred to
complete the acquisition and consists primarily of fees and expenses for
attorneys and investment bankers. In addition, TSI 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 $2.8 million
liability for the present value of future minimum water royalty payments and
related brokers fees to be paid in perpetuity. The discount rate utilized by
the Company to determine the present value of the future minimum water
royalty was based on a weighted average cost of capital which incorporated
the Company's equity discount rate, dividend rate on the Series A Convertible
Preferred Stock and the Company's average borrowing rate for all outstanding
debt.
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
TSI, or if the business of TSI 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.
The acquisition has been recorded on the Company's books using the purchase
method of accounting. The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values. 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.
8
At June 17, 2004
(Dollars in millions)
---------------------------------------
Current assets $ 0.5
Fixed assets 3.0
Intangible assets 5.5
------
Total assets acquired 9.0
------
Current liabilities 0.2
------
Total liabilities assumed 0.2
------
Net assets acquired $ 8.8
======
The portion of the purchase price in excess of the estimated fair value of
the net assets acquired to be allocated to identifiable intangible assets is
approximately $5.5 million.
The initial purchase price allocation performed in the third quarter of
fiscal 2004 was based on management's internal preliminary allocation and
resulted in an estimated purchase price of approximately $11.1 million, with
approximately $7.8 million of the purchase price being allocated to
intangible assets, including customer list, the Trinity tradename and the
water source. Subsequently, the Company engaged an independent valuation
firm to further analyze the transaction and based on preliminary input from
the independent valuation firm, the amount of purchase price was reduced from
$11.1 million to $8.8 million based on reassessment of the future water
royalty obligation and related brokers fees and the weighted average cost of
capital rate applied to the payment stream in perpetuity. Accordingly, the
amount allocated to intangible assets was also reduced from $7.8 million to
$5.5 million. At this stage, the purchase price allocation remains
preliminary and is subject to completion of an independent appraisal. The
Company has engaged an independent valuation firm to value the identifiable
intangible assets and it is expected that a final report will be completed by
the end of the second fiscal quarter of 2005, at which time any differences
from the preliminary purchase price allocation will be recorded.
The Company has determined that it has acquired a unique water source as part
of the transaction which represents an intangible asset and the Company has
assigned a preliminary value of $2.8 million to this intangible asset.
Additionally, the Company has acquired the Trinity tradename and has assigned
a preliminary value of $2.3 million to this intangible asset. Upon
completion of the independent valuation, the amount assigned to the water
source and/or the Trinity tradename could be different and any residual
amount would then be assigned to goodwill. Since both the water source and
the Trinity tradename have indefinite lives, as does any goodwill, the assets
are not amortized. Therefore, any change resulting from completion of the
independent valuation in the allocation of purchase price from water source
or tradename to goodwill would not have any impact on operating income.
Additionally, the Company has assigned a preliminary value of $0.4 million to
a customer list which will be amortized over a five year period.
9
Assuming the above acquisition had hypothetically occurred on the first day
of fiscal 2004 (September 27, 2003) unaudited pro forma consolidated sales,
loss from operations, net loss and net loss per share would have been as
follows:
For the three months
ended December 2003
--------------------
Sales $ 193,582,389
Loss from operations (846,064)
Net loss (89,277)
Loss per share:
Basic $ (0.17)
Diluted $ (0.17)
Nesco Hawaii
- ------------
On July 1, 2004, the Company's water bottling subsidiary in Hawaii entered
into an agreement to acquire certain water bottling assets and liabilities
from a water bottling company on the island of Oahu in Hawaii ("Nesco
Hawaii") for $0.5 million in cash, and $0.7 million in notes and the
assumption of $0.1 million of liabilities. The acquisition has been recorded
on the Company's books using the purchase method of accounting. The purchase
price was allocated to the assets acquired and liabilities assumed based on
their estimated fair values. The preliminary allocation of the purchase price
is as follows:
At July 1, 2004
(Dollars in millions)
----------------------------------------
Current assets $ 0.1
Fixed assets 0.5
Intangible assets 0.7
------
Total assets acquired 1.3
Current liabilities 0.1
------
Total liabilities assumed 0.1
------
Net assets acquired $ 1.2
======
The portion of the purchase price in excess of the estimated fair value of
the net assets acquired to be allocated to identifiable intangible assets is
approximately $0.7 million. The identifiable intangible assets consists of
tradenames and a customer list. The tradenames of $0.1 million have
indefinite lives and therefore are not amortized. The customer list of $0.2
million is amortized over a five year period. The remaining portion of the
excess purchase price allocated to goodwill was $0.4 million. Proforma
information is not presented due to the insignificance of the acquisition.
10
3. SHAREHOLDERS' EQUITY
In October 2004, the Company issued $2.0 million of Series B Convertible
Preferred Stock ("Series B Preferred") representing 80,000 shares at a
purchase price of $25 per share (the "Liquidation Preference"). The Series B
Preferred 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 $24.65 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 B
Preferred are payable at a rate of 6.37% 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. In the event of a
liquidation of the Company, the holders of the Series B 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 B Preferred also contains 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 B Preferred are optionally redeemable by the Company beginning
October 8, 2006 at a redemption price equal to 112% of the Liquidation
Preference. The redemption price decreases 1% annually thereafter until
October 8, 2018, after which date it remains the Liquidation Preference.
In addition, the Company has Series A Convertible Preferred Stock ("Series A
Preferred") outstanding as of December 2004 that was issued during fiscal
2004. The Series A Preferred generated gross proceeds of $2.5 million and
consisted of 100,000 Series A shares. All terms of the Series A Preferred
are the same as Series B Preferred except for the dividend rate which is
6.785% for Series A and that the Series A is optionally redeemable by the
Company beginning June 17, 2006.
4. INVENTORIES:
Inventories consisted of the following at December 2004 and September 2004:
December September
2004 2004
------------ ------------
Finished goods $ 39,386,083 $ 39,617,912
Raw materials 1,411,780 926,237
LIFO reserve (4,180,478) (4,063,135)
------------ ------------
$ 36,617,385 $ 36,481,014
============ ============
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
Company's finished goods inventory includes materials, labor and
11
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 December 2004 and September 2004 represents
the amount by which LIFO inventories were less than the amount of such
inventories valued on a first-in, first-out basis, respectively. An
allowance for obsolete inventory is maintained in the retail health food and
beverage segments to reflect the expected unsaleable or non-refundable
inventory based on evaluation of slow moving and discontinued products.
5. OTHER INTANGIBLE ASSETS:
Other intangible assets at December 2004 and September 2004 consisted of the
following:
December September
2004 2004
------------ ------------
Trademarks and tradenames $ 9,686,997 $ 9,680,521
Water source 2,807,000 2,807,000
Covenants not to compete (less accumulated
amortization of $872,835 and $843,527) 47,390 76,698
Favorable leases (less accumulated
amortization of $349,936 and $340,003) 136,064 145,997
Customer lists (less accumulated
amortization of ($47,980 and $26,285) 539,300 560,995
------------ ------------
$ 13,216,751 $ 13,271,211
============ ============
Trademarks, tradenames and the water source are considered to have indefinite
useful lives, therefore, no amortization is taken on these assets.
Amortization expense for the intangible assets that are considered to have
finite lives was $60,936 and $79,822 for the three months ended December 2004
and 2003, respectively.
Amortization expense related to the amortizing intangible assets held at
December 2004 for each of the five years subsequent to September 2004 is
estimated to be as follows:
Fiscal Fiscal Fiscal Fiscal Fiscal
2005 2006 2007 2008 2009
--------- --------- -------- -------- --------
Covenants not to compete $ 77,000 $ - $ - $ - $ -
Favorable leases 40,000 40,000 40,000 26,000 -
Customer lists 117,000 117,000 117,000 117,000 92,000
--------- --------- -------- -------- --------
$ 234,000 $ 157,000 $157,000 $143,000 $ 92,000
========= ========= ======== ======== ========
12
6. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share is calculated by dividing net income (loss)
available to common shareholders by the weighted average common shares
outstanding for each period. Diluted earnings per share is calculated by
dividing net income (loss) available to common shareholders by the sum of the
weighted average common shares outstanding and the weighted average dilutive
options, using the treasury stock method. Stock options outstanding at
December 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 194,195
with an average exercise price of $29.32 and 31,440 with an average exercise
price of $39.75, respectively.
For the three months ended December
-------------------------------------------------------
2004 2003
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 527,062 527,062 528,165 528,165
2. Weighted average of net
additional shares outstanding
assuming dilutive options
exercised and proceeds
used to purchase treasury
stock/1/ - - - 7,384
----------- ----------- ----------- -----------
3. Weighted average number of
shares outstanding 527,062 527,062 528,165 535,549
=========== =========== =========== ===========
4. (Loss) income available to
common shareholders $ (85,599) $ (85,599) $ 514,244 $ 514,244
=========== =========== =========== ===========
5. (Loss) earnings per share $ (0.16) $ (0.16) $ 0.97 $ 0.96
=========== =========== =========== ===========
/1/ Weighted average of net additional shares not included for the
period in 2004 as such shares are anti-dilutive due to the net loss incurred
during the period.
13
7. COMPREHENSIVE INCOME (LOSS):
The following is a reconciliation of (loss) income available to common
shareholders per the accompanying condensed consolidated unaudited statements
of operations to comprehensive income for the periods indicated:
For the three months
ended December
-------------------------
2004 2003
----------- -----------
(Loss) income available to
common shareholders $ (85,599) $ 514,244
Other comprehensive income:
Unrealized holding gains from
investments arising during the
period, net of income tax expense of
$5,000 in 2003 - 7,471
Reclassification adjustments for
gains included in net income
in prior periods, net of income
tax expense of $145,000 in 2003 - (236,741)
Interest rate swap valuation
adjustment, net of income tax
expense $25,000 and $32,000,
respectively 40,423 50,702
----------- -----------
Comprehensive income (loss) $ (45,176) $ 335,676
=========== ===========
8. DEBT
CREDIT AGREEMENT
- ----------------
In order to finance the payment of $6.8 million in subordinated notes related
to the Company's acquisition of Health Food Associates, Inc. in 1999 and $4.8
million of long-term debt related to the funding of operations in the
beverage segment, the Company refinanced its existing credit agreement in
October 2004. The amended credit agreement provides for a $55.0 million
credit limit consisting of a $53.8 million revolving credit line and a $1.2
million term note ("Term Note A"). As payments are made on Term Note A, the
revolving credit limit increases accordingly to a maximum of $55.0 million.
In addition, the amended credit agreement provided for a separate term loan
in the amount of $5.0 million ("Term Note B").
The Company's amended $55.0 million revolving credit facility (the "New
Facility") with LaSalle Bank extends the credit agreement through April 2007
and retains many of the existing facility's terms including lending limits
subject to accounts receivable and inventory limitations, an unused
commitment fee and financial covenants. The significant changes under the
New Facility are as follows:
- Inclusion of the subsidiaries, except TSI, as borrowers.
- Inclusion of Term Note A within the $55.0 million revolving limit that
is amortized in equal monthly installments over 60 months.
14
- Replacement of the LIBOR interest rate borrowing option (LIBOR plus
2.50%) on the revolving portion of the New Facility and the $1.2 million
term loan with the bank's base rate, except for $15.0 million of
the new facility that corresponds with the Company's existing interest
rate swap agreements which will remain at LIBOR plus 2.50%.
- Inclusion of a fixed charge coverage ratio of 0.8 to 1.0 through
June 2005 and 1.0 to 1.0 thereafter in lieu of a debt service coverage
ratio, which was subsequently amended in Q2 2005, effective December
2004 and decreased to 0.7 to 1.0.
- Amendment of the definition of minimum tangible net worth and reduction
of the minimum tangible net worth requirement to $3.0 million through
June 2005 which was subsequently amended in Q2 2005, effective December
2004 and decreased to $1.5 million through the end September 29, 2005
and $2.5 million thereafter.
- Inclusion of a prepayment penalty should the loans be paid off prior to
September 30, 2006.
The Company's New Facility, including Term Note A, maintains the maximum
borrowing limit at $55.0 million, subject to eligible accounts receivable and
inventory requirements. As of December 2004, the outstanding balance on the
New Facility was $53.4 million. The New Facility bears interest at the
bank's base rate, which was 5.25% at December 2004. 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 New Facility is collateralized by all of the Company's equipment,
intangibles, inventories, and accounts receivable, except those held by TSI.
The outstanding balance on Term Note B was $5.0 million at December 2004. It
bears interest at the banks base rate, plus 2.0%, which was 7.25% at December
2004 and is payable in equal monthly installments of $0.3 million beginning
May 1, 2005.
The Company's Chairman has personally guaranteed repayment of up to $10
million of the combined amount of the New Facility and the term loans. AMCON
will pay the Company's Chairman an annual fee equal to 2% of the guaranteed
principal then outstanding in return for the personal guarantee. This
guarantee is secured by a pledge of the shares of Chamberlin Natural Foods,
Inc., Health Food Associates, Inc., HNWC and TSI.
The Company was not in compliance with the minimum tangible net worth
covenant as of December 2004 and has obtained a waiver from the lender for
first quarter of fiscal 2005. In Q2 2005, the minimum tangible net worth
covenant was amended effective December 2004 to reduce the tangible net worth
covenant to $1.5 million through September 29, 2005 and $2.5 million
thereafter, and to redefine and reduce the fixed charge coverage ratio to 0.7
for the remainder of fiscal 2005. The Company is currently in compliance with
the covenants of the New Facility, as amended, effective December 2004 and
expects to be in compliance with the amended covenant for the remainder of
fiscal 2005.
15
TSI REVOLVING CREDIT FACILITY
- -----------------------------
In December 2004, a director of the Company extended a revolving credit
facility to TSI in a principal amount of up to $1,000,000 at an interest rate
of 8.0% per annum with an initial advance of $500,000 during Q1 2005. To
induce the director to extend this loan to TSI, the Company agreed to allow
the director to receive a second mortgage on TSI's real property on an equal
basis with the Company's existing second mortgage on TSI's real property.
The revolving credit line matures on December 14, 2005 at which time
principal and accrued interest will be due.
CONSTRUCTION FINANCING
- ----------------------
In December 2004, the Company purchased a building in order to relocate its
distribution facility in Rapid City, South Dakota and began construction of
an addition to the building. The lease on the current Rapid City facility
was extended through April 2005 to coincide with the completion of
construction. The Company expects capital expenditures relating to the
building, construction of the addition and related equipment purchases to be
approximately $1.8 million.
At December 2004, the Company had borrowed $0.8 million of the $1.0 million
maximum borrowings intended to finance the purchase of the building and the
construction of the addition to the building. The additional $0.2 million of
funds are expected to be borrowed in the second and third quarters of fiscal
2005 as the Company completes the addition. The terms of repayment are
interest only through July 31, 2005 and then payable in 54 equal monthly
installments of principal of $4,100 based on a twenty year amortization
schedule with the entire remaining principal due and payable on December 31,
2009. The interest rate is 6.33%.
The Company also arranged the financing of certain equipment expenditures
totaling $0.5 million, however at December 2004, the Company has not drawn on
these funds. Once drawn upon, the principal payments will be made in 60
equal monthly installments of $8,000 beginning April 1, 2005. The interest
rate is 6.33%.
INTEREST RATE SWAPS
- -------------------
The Company hedges its variable rate risk on $15.0 million of its borrowings
under the Facility by utilizing interest rate swap agreements. The variable
interest payable on this amount 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%.
16
9. 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 bottled water and other beverage
products. The segments are evaluated on revenue, gross margins, operating
income (loss) and income (loss) before taxes.
Wholesale
Distribution Retail Beverage Other /2/ Consolidated
------------- ----------- ----------- ------------ -------------
QUARTER ENDED DECEMBER 2004:
External revenue:
Cigarettes $ 155,561,138 $ - $ - $ - $ 155,561,138
Confectionery 14,038,345 - - - 14,038,345
Health food - 8,574,131 - - 8,574,131
Tobacco, beverage & other 34,240,324 - 2,805,634 (41,106) 37,004,852
------------- ----------- ----------- ---------- -------------
Total external revenue 203,839,807 8,574,131 2,805,634 (41,106) 215,178,466
Depreciation & amortization /1/ 312,955 212,114 205,479 - 730,548
Operating income (loss) 2,239,819 137,997 (1,557,703) 16,362 836,475
Interest expense 261,260 401,501 413,321 - 1,076,082
Income (loss) before taxes 2,024,309 (249,865) (1,971,024) 16,362 (180,218)
Total assets 70,482,360 17,287,930 23,629,968 176,347 111,576,605
Capital expenditures 1,140,534 6,656 131,427 - 1,278,617
QUARTER ENDED DECEMBER 2003:
External revenue:
Cigarettes $ 141,234,663 $ - $ - $ - $ 141,234,663
Confectionery 12,386,357 - - - 12,386,357
Health food - 8,169,000 - - 8,169,000
Tobacco, beverage & other 30,100,823 - 1,192,460 (46,187) 31,247,096
------------- ----------- ----------- ---------- -------------
Total external revenue 183,721,843 8,169,000 1,192,460 (46,187) 193,037,116
Depreciation & amortization /1/ 317,123 219,996 52,011 - 589,130
Operating income (loss) 2,079,718 277,874 (1,184,842) (39,706) 1,133,044
Interest expense 294,749 298,681 185,478 - 778,908
Income (loss) before taxes 2,207,135 (12,891) (1,370,294) (39,706) 784,244
Total assets 68,755,348 16,891,332 11,848,041 25,861 97,520,582
Capital expenditures 94,094 110,568 217,461 - 422,123
/1/ Includes depreciation reported in cost of sales for the beverage segment.
/2/ Includes charges to operations incurred by discontinued operations and
intercompany eliminations.
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In November 2004, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 151 "Inventory Costs." This statement amends Accounting Research
Bulletin No. 43, Chapter 4, "Inventory Pricing" and removes the "so abnormal"
criterion that under certain circumstances could have led to the
capitalization of these items. SFAS No. 151 requires that idle facility
expense, excess spoilage, double freight and rehandling costs be recognized
as current-period charges regardless of whether they meet the criterion of
"so abnormal." SFAS 151 also requires that allocation of fixed production
overhead expenses to the costs of conversion be based on the normal capacity
of the production facilities. SFAS No. 151 is effective for all fiscal years
beginning after June 15, 2005 (fiscal 2006 for AMCON). Management does not
17
believe there will be a significant impact on the Company's results of
operations or financial condition as a result of adopting this Statement.
In December 2004, the FASB published FASB Statement No. 123 (revised 2004),
"Share-Based Payment." Statement 123(R) will provide investors and other
users of financial statements with more complete and neutral financial
information by requiring that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will
be measured based on the fair value of the equity or liability instruments
issued. This Statement is the result of a two-year effort to respond to
requests from investors and many others that the FASB improve the accounting
for share-based payment arrangements with employees. Statement 123(R)
replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Statement 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in Opinion 25, as long as the
footnotes to financial statements disclosed what net income would have been
had the preferable fair-value-based method been used. Although those
disclosures helped to mitigate the problems associated with accounting under
Opinion 25, many investors and other users of financial statements said that
the failure to include employee compensation costs in the income statement
impaired the transparency, comparability, and credibility of financial
statements. Public entities (other than those filing as small business
issuers) will be required to apply Statement 123(R) as of the first interim
or annual reporting period that begins after June 15, 2005 (the fourth
quarter of fiscal 2005 for the Company). The Company is currently assessing
the impact that this standard will have on the Company.
In December 2004, the FASB issued Statement No. 152, "Accounting for Real
Estate Time-Sharing Transactions." Statement 152 amends FASB Statements No.
66, "Accounting for the Sales of Real Estate," and No. 67, "Accounting for
Costs and Initial Rental Operations of Real Estate Projects," in association
with the issuance of AICPA Statement of Position (SOP) 04-2, Accounting for
Real Estate Time-Sharing Transactions. The guidance is effective for
financial statements for fiscal years beginning after June 15, 2005 (fiscal
2006 for the Company), with earlier application encouraged. Management does
not believe there will be an impact on the Company's results of operations or
financial condition as a result of adopting this Statement.
In December 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets," an amendment of APB Opinion No. 29, "Accounting for
Nonmonetary Transactions." The amendments made by Statement 153 are based on
the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. Further, the amendments eliminate
the narrow exception for nonmonetary exchanges of similar productive assets
and replace it with a broader exception for exchanges of nonmonetary assets
that do not have commercial substance. Previously, Opinion 29 required that
the accounting for an exchange of a productive asset for a similar productive
asset or an equivalent interest in the same or similar productive asset
should be based on the recorded amount of the asset relinquished. The
Statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005 (fiscal 2006 for the Company). Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The Company is currently
assessing the impact that this standard will have on the Company.
18
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. Except as required by law,
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.
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 2004 Annual Report to Shareholders on Form 10-K
for the fiscal year ended September 24, 2004. There have been no significant
changes with respect to these policies during the Company's first quarter of
fiscal 2005.
19
COMPANY OVERVIEW - FIRST FISCAL QUARTER 2005
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 thirteen 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 licensed speciality beverages and private label energy drinks. 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 first quarter of fiscal 2005, the Company:
- changed its reporting period from a 52-53 week year ending on the last
Friday in September to a calendar month reporting period ending on
September 30 which resulted in 14 weeks of operations during the first
quarter of fiscal 2005 as compared to 13 weeks in Q1 2004.
- amended and restated its existing credit facility and security agreement
in order to fund the payment of $6.8 million in subordinated term debt
in the retail segment and $4.8 million of revolving debt in the beverage
segment.
- completed a $2.0 million private placement of Series B Convertible
Preferred Stock, a portion of which was used to fund the payment of
the subordinated debt described above.
- purchased a building in order to relocate its distribution facility in
Rapid City, South Dakota to replace the existing facility which will
continue to be leased until the new distribution facility is ready for
operation in the third quarter of fiscal 2005.
- experienced a 11.5% increase in sales compared to the first quarter of
fiscal 2004 primarily due to the extra week of operations which resulted
from the change in reporting periods from fiscal month to calendar
month.
- recognized a loss per diluted share of $0.16 for the three months ended
December 2004 compared to earnings per diluted share of $0.96 in the
same period of the prior year.
- suspended payment of dividends on its common stock in order to conserve
capital to fund operations.
INDUSTRY SEGMENT OVERVIEWS
Wholesale Distribution Segment
- ------------------------------
The wholesale distribution of cigarettes and convenience store products 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
20
manufacturers and occurred again at the beginning of the second quarter of
fiscal 2004. The manufacturers followed by implementing promotional programs
later in fiscal 2004 and then increased prices in Q1 2005 on certain brands.
Based on these activities, it is difficult to predict how future changes in
promotional programs 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 convenience
store 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
- --------------------------
The retail health food industry has experienced declining sales and gross
profit over the past several periods and our retail health food segment has
felt the impacts of this trend as well. The impact of 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 has caused management to closely review 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
- ----------------
The beverage segment consists of Hawaiian Natural Water Co., Inc. ("HNWC"),
The Beverage Group, Inc. ("TBG") and Trinity Springs, Inc. ("TSI"). HNWC
completed the construction of an expanded warehouse and packaging building at
our plant on the Big Island in Hawaii in the first quarter of fiscal 2004 and
management is hopeful that HNWC will now generate profits as we focus on
expansion of our markets and take advantage of the new operations. In
addition, the acquisition of a purified water bottling operations on the
island of Oahu in Hawaii ("Nesco Hawaii") in Q4 2004 will better able us to
compete in the private label water bottling channel and diversify our water
production to include premium spring water and purified water. TSI, acquired
in June 2004, bottles and sells geothermal bottled water and a natural
mineral supplement. The company, which is an 85% owned subsidiary of AMCON,
is now headquartered in Boise, Idaho. The TSI water and mineral supplements
are currently sold primarily in health food stores where they represent the
number one selling water products. The Company plans to extend the
distribution channels for this water and mineral supplement outside the
health food market.
The beverage marketing and distribution business (TBG) incurred significant
losses during 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 to lack of market penetration of our new beverage products.
21
In October 2004, we took steps to reduce on-going operating expenses by
reducing the work force and consolidating certain activities of marketing and
distribution with other companies in the affiliated group. In addition, we
are evaluating the line of product offerings and plan to discontinue non-
contributing brands and focus on the brands with the greatest potential for
market penetration.
RESULTS OF OPERATIONS
AMCON's fiscal first quarters ended on December 31, 2004 and December 26,
2003. For ease of discussion, these fiscal quarters are referred to herein
as December 2004 and 2003, respectively or Q1 2005 and Q1 2004, respectively.
Comparison of the three months ended December 2004 and 2003
- -----------------------------------------------------------
Sales for Q1 2005 increased 11.5%, or $22.1 million, compared to Q1 2004.
Sales are reported net of costs associated with sales incentives provided to
retailers, totaling $3.8 million and $3.4 million, for Q1 2005 and Q1 2004,
respectively. The increase in sales by business segment from Q1 2004 to Q1
2005 is as follows:
Wholesale distribution segment $ 20.1 million
Retail health food stores segment 0.4 million
Beverage segment 1.6 million
Intersegment eliminations - million
------
$ 22.1 million
======
Cigarette sales in the wholesale distribution business increased by $14.3
million and the sales of tobacco, confectionary and other products
contributed an additional $5.8 million in Q1 2005 compared to Q1 2004. Of
the increase in cigarette sales, $10.4 million was a result of the change in
our monthly reporting period which added an extra week of sales in Q1 2005 as
compared to Q1 2004, $0.7 million was attributable to price increases
implemented by major cigarette manufacturers in December 2004 and $3.2
million was due to a 2.4% increase in carton volume (excluding the extra
week). Of the increase in tobacco, confectionary and other products, $3.2
million was due to the extra week and $2.6 million was attributable primarily
to new business obtained through expansion of our market area. 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.
Sales from the retail health food segment during Q1 2005 increased by $0.4
million when compared to Q1 2004 primarily due to the extra week of
operations in Q1 2005 as compared to Q1 2004 resulting from the change in the
Company's monthly reporting period. The retail health food segment
experienced lower grocery sales of low carb products in Q1 2005 as these
products continued to move to mainstream grocery channels.
The beverage segment accounted for $2.8 million in sales for Q1 2005 compared
to $1.2 million in Q1 2004. TSI, which was acquired in June 2004, accounted
for $0.7 of the increase in sales. The addition of Nesco Hawaii increased
sales in Q1 2005 by $0.3 million. The remaining increase is primarily due to
increased sales of Hawaiian Natural spring water, due to completion of plant
construction in 2004, a change to a new distributor in the Hawaii market in
22
2004, and the extra week of operations in Q1 2005 resulting from the change
in the Company's monthly reporting period which increased sales by $0.2
million as compared to Q1 2004.
Gross profit increased 5.5%, or $0.8 million, in Q1 2005 as compared to Q1
2004. Gross profit as a percent of sales decreased to 7.4% in Q1 2005
compared to 7.8% in Q1 2004. Gross profit by business segment is as follows:
(dollars in millions)
Quarter ended
December
---------------- Incr
2004 2003 (Decr)
------ ------ -----
Wholesale distribution segment $ 12.2 $ 11.5 $ 0.7
Retail health food stores segment 3.4 3.4 0.0
Beverage segment 0.3 0.2 0.1
------ ------ -----
$ 15.9 $ 15.1 $ 0.8
====== ====== =====
Items increasing gross profit during Q1 2005 from our wholesale distribution
business as compared to Q1 2004 were $0.6 million attributable to the extra
week of operations resulting from the reporting period change, $0.3 million
due to cigarette price increases implemented by major cigarette manufacturers
in December 2004, a decrease in the quarterly impact of the LIFO reserve of
$0.1 million and incentive payments of $0.4 million received from a non-
cigarette vendors based on the Company's buying volumes. These increases
were offset primarily by a decrease in cigarette manufacturer promotional
allowances of $0.7 million resulting from changes in promotional programs.
Gross profit for the retail health food segment was flat at $3.4 million
compared with Q1 2004, including the extra week of operations which
contributed approximately $0.2 million in gross profit during the period.
Gross profit for the beverage segment increased in Q1 2005 primarily due to
the incremental sales from TSI which was acquired in June 2004.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 8.1% or approximately
$1.1 million in Q1 2005 compared to Q1 2004. The increase is primarily
related to the extra week of operations which increased the amount of payroll
and certain other expenses during Q1 2005 as compared to Q1 2004 and the
addition of TSI in June 2004 which added $1.0 million of additional operating
expenses. These increases were offset by a $0.6 million decrease in
operating expenses at TBG as a result of cost reduction strategies that were
implemented in October 2004. In addition, the wholesale business had
increases in bad debt expense and professional fees. The retail health food
segment's operating expense increased slightly ($0.1 million) as a result of
the additional week in Q1 2005.
23
As a result of the above, income from operations for Q1 2005 decreased $0.3
million compared to Q1 2004.
Interest expense for Q1 2005 increased 38.2%, or $0.3 million, during Q1
2005. The increase was primarily due to increases in the prime rate, which
under the terms of the amended and restated credit facility, is the rate at
which the Company primarily borrows and an increase in the Company's average
borrowings of approximately $14.7 million. On average, the Company's
borrowing rates on its variable rate debt were 0.95% higher in Q1 2005 as
compared to Q1 2004.
Other income decreased $0.4 million in Q1 2005 because of the sale of
available-for-sale securities in Q1 2004 that did not recur in Q1 2005.
During Q1 2005, the Company paid preferred dividends of $0.1 million on its
Series A and B, Cumulative, Convertible Preferred Stock.
Minority interest in loss, net of tax, increased during the period (which
decreased the net loss) by $0.1 million in Q1 2005 due to the 15% ownership
of TSI that is not owned by AMCON.
LIQUIDITY AND CAPITAL RESOURCES
Overview
- ----------
The Company requires cash to pay its operating expenses, purchase inventory
and make capital investments and acquisitions of businesses. In general, the
Company finances these cash needs from the cash flow generated by its
operating activities and from borrowings, as necessary. During the three
months ended December 31, 2004, the Company used $2.5 million of cash from
operating activities, primarily the result of quicker accounts receivable
turns and an increase in accrued expenses offset by a reduction of our
accounts payable. Cash of $1.3 million was utilized in investing activities
during the Q1 2005 for capital expenditures. The Company generated net cash
of $4.3 million from financing activities in Q1 2005 primarily from
borrowings of $14.9 million on bank credit agreements and other long-term
debt arrangements and the private placement of $1.9 million of Series B
Convertible Preferred Stock (net of costs incurred to issue the securities).
Cash of $12.0 million was used in financing activities in Q1 2005 to pay down
revolving lines of credit totaling $4.8 million used to fund our beverage
segment, $6.8 million in subordinated debt in the retail segment and other
long-term debt totaling $0.4 million. During Q1 2005, $0.1 million was used
to pay dividends on preferred stock and $0.4 million was used to pay for
costs incurred to amend and restate our revolving credit facility.
As of December 2004, the Company had cash on hand of $0.9 million and working
capital (current assets less current liabilities) of $40.0 million. This
compares to cash on hand of $0.4 million and working capital of $27.9 million
as of September 2004. The Company's ratio of debt to equity decreased to
4.25 at December 2004 compared to 4.56 in September 2004.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the New Facility will provide sufficient
liquidity for the operation of its wholesale and retail businesses.
Management is presently negotiating with LaSalle Bank to bring TSI into the
Company's revolving credit facility and with investors to privately place
24
additional debt or equity to provide additional funding for TSI. Although
management is optimistic that additional financing will be committed, the
ultimate outcome of this financing is not certain at this time. If the
Company is unable to raise the additional funds in the near future, plans for
growth within TSI would be negatively impacted and could potentially impact
the carrying value of the business.
Dividend Payments
- -----------------
During the first quarter of fiscal 2005, the Board of Directors suspended
payment of cash dividends on our common shares. The Company is implementing
a strategy to invest its cash resources into growth-oriented businesses and
has therefore determined to suspend the payment of cash dividends on common
stock for the foreseeable future. The Company will periodically revisit its
dividend policy to determine whether it has adequate internally generated
funds, together with other needed financing to fund its growth and operations
in order to resume the payment of cash dividends on common stock.
Contractual Obligations
- -----------------------
The following table summarizes our outstanding contractual obligations and
commitments as of December 2004. Significant changes to this schedule since
fiscal year end 2004, that are reflected below, are the amendment to the
$55.0 million credit facility to include a $1.2 million term note ("Term Note
A") which reduces the amount available under the $55.0 million revolving
limit by the amount outstanding under Term Note A, to include the
subsidiaries, except TSI, as borrowers and to payoff $4.8 million of
revolving credit related to our beverage segment. In addition, the Company
obtained a $5.0 term note ("Term Note B") which was used in addition to funds
raised from the Series B Convertible Preferred Stock offering to retire $6.8
million of subordinated debt at the retail health food segment. (Amounts in
thousands):
Payments Due By Period
--------------------------------------------------------------------
Contractual Fiscal Fiscal Fiscal Fiscal Fiscal
Obligations Total 2005/1/ 2006 2007 2008 2009 Thereafter
- ------------------ --------- -------- -------- ------- ------- ------- ----------
Long-term debt/2/ $ 71,185 $ 7,612 $ 15,844 $44,959 $ 321 $ 2,449 $ -
Subordinated debt 1,076 1,076 - - - - -
Operating leases 19,108 4,037 4,489 2,712 1,963 1,505 4,402
Minimum water royalty/3/ 4,114 155 288 288 288 288 2,807
--------- -------- -------- ------- ------- ------- ---------
Total $ 95,483 $ 12,880 $ 20,621 $47,959 $ 2,572 $ 4,242 $ 7,209
========= ======== ======== ======= ======= ======= =========
Total
Other Commercial Amounts Fiscal Fiscal Fiscal Fiscal Fiscal
Commitments Committed 2005/1/ 2006 2007 2008 2009 Thereafter
- ------------------ --------- -------- -------- ------- ------- ------- ----------
Lines of credit (LOC) $ 56,000 $ - $ 1,000 $ 55,000 $ - $ - $ -
LOC in use (53,931) - (500) (53,431) - - -
--------- -------- -------- ------- ------- ------- ----------
LOC available 2,069 - 500 1,569 - - -
Water source guarantee 5,000 - - - - - 5,000
Letters of credit 837 837 - - - - -
--------- -------- -------- ------- ------- ------- ----------
Total $ 7,906 $ 837 $ 500 $ 1,569 $ - $ - $ 5,000
========= ======== ======== ======= ======= ======= =========
25
/1/ Includes remaining payments scheduled to be made in the last nine
months of fiscal 2005
/2/ Includes capital leases of $1.4 million.
/3/ Fiscal 2005 - 2009 represent the annual minimum water royalty and
the balance thereafter represents the minimum water royalty in perpetuity.
Credit Agreement
- -------------------
The Company's primary source of borrowing for liquidity purposes is its
revolving credit facility with LaSalle Bank (the "Facility"). As of December
2004, the outstanding balance on the Facility was $53.4 million. In October
2004, the Facility was amended (the "New Facility") to transfer $1.2 million
of revolving debt to term debt and add the subsidiaries, except TSI, as
borrowers. The New Facility bears interest at a variable rate equal to the
bank's base rate, which was 5.25% at December 2004. The Company may,
however, select a rate equal to LIBOR plus 2.50%, for an amount of the New
Facility up to $15.0 million which relates to our swap agreements. The New
Facility continues to restrict borrowings for intercompany advances to TBG
and TSI to $1.0 million in the aggregate and to the retail health food
subsidiaries and HNWC to $0.9 million in the aggregate in fiscal 2005 and
$0.1 million in the aggregate in subsequent years.
The Company hedges its variable rate risk on a notional $15.0 million of its
borrowings under the New 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.
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 average monthly
borrowing for the month. The New Facility is collateralized by all of the
Company's equipment, intangibles, inventories, and accounts receivable,
except those held by TSI. The New Facility expires in April 2007.
The New Facility contains covenants which, among other things, set certain
financial ratios and net worth requirements. The New Facility includes
covenants that (i) restrict permitted investments, (ii) restrict intercompany
advances to certain subsidiaries as described above, (iii) restrict
incurrence of additional debt, (iv) restrict mergers and acquisitions and
changes in business or conduct of business and (v) require the maintenance of
certain financial ratios and net worth levels including an average annual
fixed charge ratio of 0.8 to 1.0, and a minimum tangible net worth of $3.0
million through June 2005 and increases to $3.5 million in September 2005.
The Facility also provides that the Company may not pay dividends on its
common stock in excess of $0.72 per share on an annual basis. The Company
was not in compliance with the minimum tangible net worth covenant as of
December 2004 and has obtained a waiver from the lender for first quarter of
fiscal 2005. In Q2 2005, the minimum tangible net worth covenant was amended
effective December 2004 to reduce the tangible net worth covenant to $1.5
million through September 29, 2005 and $2.5 million thereafter, and to
redefine and reduce the minimum fixed charge coverage ration to 0.7 for the
remainder of fiscal 2005. The Company is currently in compliance with the
covenants of the New Facility, as amended, effective December 2004 and
expects to be in compliance with the amended covenant for the remainder of
fiscal 2005.
26
In addition, the Company obtained Term Note B, which had an outstanding
balance of $5.0 million at December 2004. Term Note B bears interest at the
bank's base rate plus 2.00%, which was 7.25% at December 2004 and is required
to be repaid in eighteen monthly installments of $0.3 million beginning March
2005.
The Company's Chairman has personally guaranteed repayment of up to $10
million of the combined amount of the New Facility and the term loans. AMCON
will pay the Company's Chairman an annual fee equal to 2% of the guaranteed
principal in return for the personal guarantee. This guarantee is secured by
a pledge of the shares of Chamberlin Natural Foods, Inc., Health Food
Associates, Inc., HNWC and TSI.
The Company's $2.8 million and $2.0 million credit facilities with a bank
which were used to fund operating activities of our beverage segment were
eliminated in October 2004 as they were brought into the Company's revolving
credit facility as part of the debt restructuring transaction.
Preferred Stock
- ---------------
In October 2004 the Company completed a $2.0 million private placement of
Series B Convertible Preferred Stock representing 80,000 shares at $25 per
share, the proceeds of which were used in combination with funds from Term
Note B to retire $6.8 million of subordinated debt.
Real Estate Term Debt
- ---------------------
In December 2004, the Company purchased a distribution facility in Rapid
City, South Dakota and began construction of an addition to the building.
The lease on the current Rapid City facility was extended to coincide with
the completion of construction in the second quarter of fiscal 2005. The
Company expects capital expenditures relating to the building, construction
of the addition and related equipment purchases to be approximately $1.8
million. The Company has arranged permanent financing for the building and
equipment in an amount equal to 80% of the acquisition cost or approximately
$1.5 million. The remainder of the capital expenditures related to the
facility will be provided from the Facility.
TSI Revolving Debt
- ------------------
In December 2004, a director of the Company extended a revolving credit
facility to TSI in a principal amount of up to $1.0 million at an interest
rate of 8% per annum with an initial advance of $0.5 million. To induce the
director to extend this loan to TSI, the Company agreed to allow the director
to receive a second mortgage on TSI's real property on an equal basis with
the Company's existing second mortgage on TSI's real property.
27
CERTAIN ACCOUNTING CONSIDERATIONS
In December 2004, the FASB published FASB Statement No. 123 (revised 2004),
"Share-Based Payment." Statement 123(R) will provide investors and other
users of financial statements with more complete and neutral financial
information by requiring that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will
be measured based on the fair value of the equity or liability instruments
issued. This Statement is the result of a two-year effort to respond to
requests from investors and many others that the FASB improve the accounting
for share-based payment arrangements with employees. Statement 123(R)
replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Statement 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in Opinion 25, as long as the
footnotes to financial statements disclosed what net income would have been
had the preferable fair-value-based method been used. Although those
disclosures helped to mitigate the problems associated with accounting under
Opinion 25, many investors and other users of financial statements said that
the failure to include employee compensation costs in the income statement
impaired the transparency, comparability, and credibility of financial
statements. Public entities (other than those filing as small business
issuers) will be required to apply Statement 123(R) as of the first interim
or annual reporting period that begins after June 15, 2005 (the fourth
quarter of fiscal 2005 for the Company). The Company is currently assessing
the impact that this standard will have on the Company.
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.
RELATED PARTY TRANSACTIONS
As described under the headings LIQUIDITY AND CAPITAL RESOURCES - Credit
Facilities and TSI Revolving Debt, the Company's Chairman has personally
guaranteed repayment of certain obligations of the Company and is being paid
a guarantee fee for that service. In addition, a director of the Company has
extended a $1.0 million revolving line of credit to TSI.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to interest rate risk on its variable rate debt. At
December 2004, we had $38.4 million of variable rate debt outstanding
(excluding $15.0 million variable rate debt which is fixed through the swaps
described below), with maturities through April 2007. The interest rate on
this debt was 5.25% at December 2004. We estimate that our annual cash flow
exposure relating to interest rate risk based on our current borrowings is
approximately $0.3 million for each 1% change in our lender's prime interest
rate.
28
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.
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
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 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,
29
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 seeking 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 review
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, several of the same minority shareholders, along with some
additional shareholders filed an amended complaint in the same Idaho state
court action. 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 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.
The Company is also party to other lawsuits and claims arising out of the
operation of its businesses. Management believes the ultimate resolution of
such matters should not have a material adverse effect on the Company's
financial condition, results of operations or liquidity after giving
consideration to amounts already recorded in the Company's financial
statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2004, the Company completed a $2.0 million private placement of
Series B Convertible Preferred Stock representing 80,000 shares at $25 per
share which was primarily used in part to fund subordinated debt obligations
of the Company. The Series B 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.
Item 3. Defaults Upon Senior Securities
During the fiscal quarter ended December 2004, the Company's minimum tangible
net worth dropped below that required by the New Facility. LaSalle has
waived this default and we have entered into an amendment to the Credit
Agreement effective December 31, 2004 which reduced the minimum tangible net
worth covenant requirement to $1.5 million to September 29, 2005 and $2.5
million thereafter, and redefined and reduced the minimum fixed charge
coverage ration to 0.7 million for the remainder of fiscal 2005.
30
Item 6. Exhibits
(a) EXHIBITS
2.1 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)
2.2 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)
2.3 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)
2.4 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)
2.5 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)
2.6 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)
2.7 Asset Purchase Agreement, dated April 24, 2004, between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs, Ltd.
(incorporated by reference to Exhibit 2.8 of AMCON's Quarterly Report on
Form 10-Q filed on August 9, 2004)
2.8 First Amendment to Asset Purchase Agreement dated June 17, 2004 between
TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs,
Ltd. (incorporated by reference to Exhibit 2.9 of AMCON's Quarterly
Report on Form 10-Q filed on August 9, 2004)
3.1 Restated Certificate of Incorporation of the Company, as amended May
11, 2004 (incorporated by reference to Exhibit 3.1 of AMCON's Quarterly
Report on Form 10-Q filed on August 9, 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)
31
3.3 Second Corrected Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Securities of AMCON Distributing Company
dated August 5, 2004 (incorporated by reference to Exhibit 3.3 of
AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
3.4 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Securities of AMCON Distributing Company dated
October 8, 2004 (incorporated by reference to Exhibit 3.4 of AMCON's
Annual Report on Form 10-K filed on January 7, 2005)
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 (incorporated
by reference to Exhibit 4.2 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
4.3 Specimen Series B Convertible Preferred Stock Certificate (incorporated
by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)
4.4 Securities Purchase Agreement dated June 17, 2004 between AMCON
Distributing Company, William F. Wright and Draupnir, LLC (incorporated
by reference to Exhibit 4.3 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
4.5 Securities Purchase Agreement dated October 8, 2004 between AMCON
Distributing Company and Spencer Street Investments, Inc. (incorporated
by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)
10.1 Amended and Restated Loan and Security Agreement, dated September 30,
2004, between the Company and LaSalle National Bank, as agent
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.2 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)
10.3 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)
10.4 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)
10.5 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)
32
10.6 Agreement, dated December 10, 2004 between AMCON Distributing Company
and William F. Wright with respect to split dollar life insurance
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.7 Agreement, dated December 15, 2004 between AMCON Distributing Company
and Kathleen M. Evans with respect to split dollar life insurance
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.8 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)
10.9 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)
10.10 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)
10.11 Promissory Note ($2,828,440), dated as of June 17, 2004 between the
Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit
10.15 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.12 Promissory Note ($500,000), dated as of June 17, 2004 between the
Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit
10.16 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.13 Security Agreement, dated June 17, 2004 by and between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs,Ltd.(incorporated
by reference to Exhibit 10.17 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
10.14 Shareholders Agreement, dated June 17,2004, by and between TSL
Acquisition Corp, AMCON Distributing Company and Trinity Springs, Ltd.
(incorporated by reference to Exhibit 10.18 of AMCON's Quarterly Report
on Form 10-Q filed on August 9, 2004)
10.15 Guaranty and Suretyship Agreement, dated June 17, 2004, by and between
AMCON Distributing Company and Trinity Springs, Ltd. (incorporated by
reference to Exhibit 10.19 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
10.16 Mortgage, dated June 17, 2004, by and between TSL Acquisition Corp.,
AMCON Distributing Company and Trinity Springs, Ltd.(incorporated by
reference to Exhibit 10.20 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
33
10.17 Guaranty Fee, Reimbursement and Indemnification Agreement, dated as of
September 30, 2004, between AMCON Distributing Company and William F.
Wright (incorporated by reference to Exhibit 3.4 of AMCON's Annual
Report on Form 10-K filed on January 7, 2005)
10.18 Unconditional Guaranty, dated as of September 30, 2004 between William
F. Wright and LaSalle Bank, N.A.(incorporated by reference to Exhibit
3.4 of AMCON's Annual Report on Form 10-K filed on January 7, 2005)
10.19 Secured Promissory Note ($1,000,000), dated December 14, 2004, issued
by Trinity Springs, Inc. to Allen D. Petersen (incorporated by
reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)
10.20 Modification and Extension of Second Lien Commercial Mortgage,
Assignment of Leases and Rents, and Fixture Filing, dated as of
December 14, 2004 between Trinity Springs, Inc. and Allen D. Petersen
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.21 Term Real Estate Promissory Note, dated December 21, 2004, issued by
AMCON Distributing Company to Gold Bank
10.22 Term Equipment Promissory Note, dated December 21, 2004 issued by AMCON
Distributing Company to Gold Bank
10.23 One Hundred Eighty Day Redemption Mortgage and Security Agreement by
and between AMCON Distributing Company and Gold Bank
10.24 Security Agreement by and between AMCON Distributing Company and Gold
Bank
11.1 Statement re: computation of per share earnings (incorporated by
reference to footnote 4 to the financial statements which are
incorporated herein by reference to Item 1 of Part I herein)
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
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: February 14, 2005 /s/ William F. Wright
----------------- -----------------------------
William F. Wright
Chairman of the Board and
Principal Executive Officer
Date: February 14, 2005 /s/ Michael D. James
----------------- -----------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
35