UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
/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 1-15589
------------------------------
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.
EXPLANATORY NOTE
Subsequent to the issuance of the Company's Form 10-Q for the quarter ended
December 31, 2004, management and the Company's Audit Committee determined
that the Company would restate its balance sheets as of September 24, 2004
and as of December 31, 2004 to reflect (i) a correction in the classification
of Series A (issued in June 2004) and Series B (issued in October 2004)
Preferred Stock from permanent equity to mezzanine financing, and (ii) a
correction in the classification of its revolving credit facility from
long-term to short-term debt. The balance sheet as of September 24, 2004 has
been restated on Form 10-K/A filed with the Securities and Exchange
Commission.
Under Emerging Issue Task Force ("EITF") Topic No. D-98, "Classification and
Measurement of Redeemable Securities," the possibility of a redemption of
securities that is not solely within the control of the issuer without
regard to probability requires the security to be classified outside of
permanent equity. The Certificate of Designation creating the Series A and
Series B Preferred Stock each contain provisions that give the holders the
optional right to redeem such stock if either there is a change of control
(as defined in the Certificate of Designation) or the Wright Family (as
defined in the Certificate of Designation to include William F. Wright, the
Company's Chief Executive Officer, Chairman of the Board and largest
stockholder) beneficially owns less than 20% of the outstanding shares of
common stock. The Company believes it is unlikely that either of those
events will occur without support of the Board of Directors since the two
owners of the Series A Preferred Stock and the sole owner of the Series B
Preferred Stock each have a representative on the Board of Directors, the
interests of the Company and those representatives are aligned, and the
aggregate ownership of all of the Board members is in excess of two-thirds of
the outstanding shares of common stock. However, there can be no assurance
that this will not occur.
EITF 95-22 "Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements That Include both a Subjective Acceleration
Clause and a Lock-Box Arrangement," requires borrowings under an agreement
that includes both a subjective acceleration clause and a lock-box
arrangement to be classified as short-term indebtedness. Because the
Company's agreement contains both of these features, the borrowings have been
restated to be classified as short-term for September 2004 and December 2004.
The lending banks and the Company amended the revolving loan agreement after
the Company's second fiscal quarter of 2005 to replace the lockbox provision
with a springing lockbox arrangement that would require the Company's cash to
be placed in a lockbox account that would be used to automatically pay down
the revolving indebtedness only in the instance of an event of default. EITF
95-22, nevertheless, requires the correction to the classification of the
revolving credit facility for reports filed prior to such amendment to the
revolving loan agreement.
These restatements do not impact amounts already reported as sales, net
income (loss) available to common shareholders or earnings (loss) per share,
nor will they result in a default under any provisions in the credit
agreement.
In addition, in March 2005, the Company discontinued the operations of its
beverage marketing and distribution business. As a result, the balance
sheets as of December 31, 2004 and September 24, 2004 and the statements of
operations and statements of cash flows for the fiscal quarters ended
December 31, 2004 and December 26, 2003 have been prepared reflecting this
disposition as discontinued operations in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets."
This amendment is being filed to restate the December 31, 2004 Condensed
Consolidated Unaudited Balance Sheets and to reflect the discontinued
operations subsequent event discussed in Notes 12 and 13, respectively, to
the Condensed Consolidated financial statements. Except for Items 1, 2 and 4
of Part I and the associated certifications, no other information included in
the original reports on Form 10-Q is amended by this Form 10-Q/A.
Form 10-Q
1st Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
--------------------------------------------
Condensed consolidated unaudited balance sheets at
December 2004 (as restated) and September 2004 4
Condensed consolidated unaudited statements of operations
for the three months ended December 2004 and 2003 5
Condensed consolidated unaudited statements of cash flows
for the three months ended December 2004 and 2003 6
Notes to condensed consolidated unaudited
financial statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
Item 4. Controls and Procedures 38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 39
Item 3. Defaults Upon Senior Securities 39
Item 4. Submission of Matters to a Vote of Security Holders 40
Item 5. Other Information 40
Item 6. Exhibits 41
3
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
(As restated -
see notes 1 and 12)
------------ --------------
ASSETS
Current assets:
Cash $ 904,670 $ 416,073
Accounts receivable, less allowance for doubtful
accounts of $0.4 million and $0.6 million, respectively 26,439,525 29,109,826
Inventories 35,454,419 35,088,568
Income tax receivable 955,839 1,162,625
Deferred income taxes 2,618,391 2,548,391
Current assets of discontinued operations 1,960,306 1,941,950
Other 1,132,792 635,841
------------ ------------
Total current assets 69,465,942 70,903,274
Fixed assets, net 20,806,795 19,951,664
Goodwill 6,449,741 6,449,741
Other intangible assets 13,216,751 13,271,211
Noncurrent assets of discontinued operations 151,919 143,670
Other assets 1,485,457 1,010,303
------------ ------------
$111,576,605 $111,729,863
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,586,892 $ 17,180,649
Accrued expenses 5,141,522 3,800,506
Accrued wages, salaries, bonuses 1,087,363 1,365,837
Current liabilities of discontinued operations 1,060,612 2,166,414
Credit facility 58,431,021 44,809,814
Current portion of long-term debt 1,505,529 5,574,397
Current portion of long-term debt due related party 500,000 -
Current portion of subordinated debt 1,076,219 7,876,219
------------ ------------
Total current liabilities 80,389,158 82,773,836
------------ ------------
Deferred income taxes 617,794 593,018
Noncurrent liabilities of discontinued operations 3,282 3,603
Other long-term liabilities 2,807,000 2,807,000
Long-term debt, less current portion 10,741,751 10,250,154
Minority interest - 97,100
Series A cumulative, convertible preferred stock, $.01 par value
100,000 shares authorized and issued, liquidation preference
$25.00 per share 2,438,355 2,438,355
Series B cumulative, convertible preferred stock, $.01 par value
80,000 shares authorized and issued, liquidation preference
$25.00 per share 1,857,645 -
Commitments and contingencies (Note 11)
Shareholders' equity:
Preferred stock, $.01 par, 1,000,000 shares authorized,
none outstanding - -
Common stock, $.01 par value, 15,000,000
shares authorized, 527,062 shares issued 5,271 5,271
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 12,721,620 12,766,797
---------- ------------
$111,576,605 $111,729,863
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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) $ 214,386,628 $ 192,571,704
Cost of sales 198,459,240 177,524,964
------------- -------------
Gross profit 15,927,388 15,046,740
------------- -------------
Selling, general and administrative expenses 13,824,366 12,174,928
Depreciation and amortization 662,766 552,582
------------- -------------
14,487,132 12,727,510
------------- -------------
Operating income 1,440,256 2,319,230
------------- -------------
Other expense (income):
Interest expense 906,201 715,625
Other (59,389) (430,083)
------------- -------------
846,812 285,542
------------- -------------
Income from continuing operations before income taxes 593,444 2,033,688
Income tax expense 224,000 744,000
Minority interest in loss, net of tax (97,100) -
------------- -------------
Income from continuing operations 466,544 1,289,688
Loss from discontinued operations, net of income tax benefit
of $0.3 million and $0.5 million, respectively (479,662) (775,444)
Preferred stock dividend requirements (72,481) -
------------- -------------
Net (loss) income available to common shareholders $ (85,599) $ 514,244
============= =============
Basic earnings (loss) per share
available to common shareholders:
Continuing operations $ 0.75 $ 2.44
Discontinued operations (0.91) (1.47)
------------- -------------
Basic earnings (loss) per share available
to common shareholders $ (0.16) $ 0.97
============= =============
Diluted earnings (loss) per share
available to common shareholders:
Continuing operations $ 0.85 $ 2.41
Discontinued operations (0.87) (1.45)
------------- -------------
Diluted earnings (loss) per share available
to common shareholders $ (0.02) $ 0.96
============= =============
Weighted average shares outstanding:
Basic 527,062 528,165
Diluted 547,728 535,549
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the three months ended December 2004 and 2003
----------------------------------------------------------------------------------------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations available to common shareholders $ 394,063 $ 1,289,688
Preferred stock dividend requirements 72,481 -
------------ ------------
Income from continuing operations 466,544 1,289,688
Adjustments to reconcile income from continuing operations
to net cash flows from operating activities:
Depreciation 656,294 534,677
Amortization 60,936 45,916
(Gain) loss on sale of fixed assets (7,082) (14,815)
(Gain) loss on sale of securities - (411,643)
Deferred income taxes (45,224) 31,626
Provision for losses on doubtful accounts 51,537 37,055
Provision for losses on inventory obsolescence 99,111 220,435
Minority interest (97,100) -
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable 2,618,764 2,793,424
Inventories (464,962) (835,925)
Other current assets (456,528) (5,854)
Other assets (28,512) 100,616
Accounts payable (5,593,757) 3,490,268
Accrued expenses and accrued wages, salaries and bonuses 1,062,542 (95,674)
Income tax receivable 206,786 (552,656)
------------ ------------
Net cash flows from operating activities - continuing operations (1,470,651) 6,627,138
Net cash flows from operating activities - discontinued operations (758,761) (1,867,962)
------------ ------------
(2,229,412) 4,759,176
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,520,843) (390,845)
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 - continuing operations (1,510,819) 121,208
Net cash flows from investing activities - discontinued operations (21,569) (31,278)
------------ ------------
(1,532,388) 89,930
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) 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 dividends paid (72,481) -
Payments on long-term debt and subordinated debt (11,146,920) (148,482)
Proceeds from exercise of stock options - 523
Debt issue costs (446,643) -
------------ ------------
Net cash flows from financing activities - continuing operations 5,085,477 (4,893,505)
Net cash flows from financing activities - discontinued operations (835,080) (690)
------------ ------------
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 (refunded) paid during the period
for income taxes (206,786) 879,813
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
December 2004 and 2003
----------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:
As more fully described in Note 12, the Company has restated its December
2004 and September 2004 balance sheets in the accompanying condensed
consolidated unaudited financial statements to correct classification errors
related to the Series A and B Preferred Stock and its revolving credit
facility (discussed in Notes 3 and 8, respectively).
In addition, as discussed in Note 13, in March 2005, the Company discontinued
the operations of its beverage marketing and distribution business. As a
result, the balance sheets as of December 31, 2004 and September 24, 2004 and
the statements of operations and statements of cash flows for the fiscal
quarters ended December 31, 2004 and December 26, 2003 have been prepared
reflecting this disposition as discontinued operations in accordance with
Statement of Financial Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets."
Results for the interim period are not necessarily indicative of results to
be expected for the entire year.
The accompanying condensed consolidated unaudited 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 condensed consolidated unaudited
financial statements contain all adjustments necessary to fairly present the
financial information included therein, such adjustments consisting of normal
recurring items. The Company believes that, although the disclosures are
adequate to prevent the information presented from being misleading, these
condensed consolidated financial statements should be read in conjunction
with the Company's amended annual audited consolidated financial statements
for the year ended September 24, 2004, as filed with the Securities and
Exchange Commission on Form 10-K/A ("2004 Annual Report").
Certain reclassifications have been made to prior years' financial statements
to conform with the current year presentation.
7
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
$14.3 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.
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) available to common shareholders and the
associated per share amounts 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
----------- -----------
Net (loss) earnings
===============================
Net (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)
----------- -----------
8
Pro forma net (loss) income available
to common shareholders $ (99,607) $ 498,941
=========== ===========
Net (loss) earnings per share
=========================================
As reported: Basic $ (0.16) $ 0.97
=========== ===========
Diluted $ (0.02) $ 0.96
=========== ===========
Pro forma: Basic $ (0.19) $ 0.94
=========== ===========
Diluted $ (0.05) $ 0.93
=========== ===========
Related Party Transactions
--------------------------
As of December 2004, the Company's subsidiary, TSI, owes a director of the
Company $0.5 million on a $1.0 million revolving credit facility extended to
TSI in December 2004 with an interest rate of 8% per annum. The director is
secured by 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. Interest incurred during Q1 2005 was insignificant.
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
9
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.
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
10
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.
Assuming the above acquisition had hypothetically occurred on the first day
of fiscal 2004 (September 27, 2003) unaudited pro forma consolidated sales,
operating income, net loss and net loss per share would have been as follows:
For the three months
ended December 2003
--------------------
Sales $ 193,116,977
Operating income 1,473,166
Net loss available to common
shareholders (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:
11
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.
3. CONVERTIBLE PREFERRED STOCK
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 $25.00 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, the conversion price which is $30.31 per share for
Series A and the Series A is optionally redeemable by the Company beginning
June 17, 2006.
12
The Company believes that redemption of these securities by the holders is
not probable based on the following evaluation. As shown in the table under
the caption "Ownership of Our Common Stock By Our Directors And Executive
Officers And Other Principal Stockholder," in our proxy statement, our
executive officers and directors as a group own approximately 64% of the
outstanding common stock. Mr. William Wright, who has been AMCON's Chairman
of the Board and Chief Executive Officer from the time AMCON was originally
founded, beneficially owns 31% of the outstanding common stock without giving
effect to shares owned by his adult children. There is an identity of
interest among AMCON and its officers and directors for purposes of the
determination of whether the triggering redemption events described above are
within the control of AMCON since AMCON can only make decisions on control or
other matters through those persons. Moreover, the Series A Preferred Stock
is owned by Mr. Wright and a private equity firm of which Mr. Petersen, one
of our long-standing directors, is an owner of a significant portion of the
equity. In addition, the Series B Preferred Stock is owned by an
institutional investor which has elected its representative to AMCON's Board
of Directors pursuant to voting rights in the Certificate of Designation
creating the Series B Preferred Stock. The Series A and Series B Preferred
Stock is thus in friendly hands with no expectation that there would be any
effort by the holders of such preferred stock to seek optional redemption
without the Board being supportive of the events that may trigger that right.
In view of the foregoing, the Company believes that it is not probable under
Rule 5-02.28 of Regulation S-X that either Series A or Series B Preferred
Stock will become redeemable in the future as a result of redemption features
described above. However, there can be no assurance that this will not
occur.
As discussed in Note 12, these financial instruments have been classified as
mezzanine financing between long-term debt and shareholders' equity in the
balance sheet.
4. INVENTORIES:
Inventories consisted of the following at December 2004 and September 2004:
December September
2004 2004
------------ ------------
Finished goods $ 38,639,814 $ 38,194,478
Raw materials 945,642 926,237
LIFO reserve (4,131,037) (4,032,147)
------------ ------------
$ 35,454,419 $ 35,088,568
============ ============
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 and consists of the cost of finished goods. The
retail health food operation utilizes the retail inventory method of
accounting stated at the lower of cost (LIFO) or market and consists of the
costs of finished goods. 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 raw
materials, related plant labor and manufacturing overhead costs to convert
13
raw materials to finished goods. 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. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill by reporting segment at December 2004 and September 2004 was as
follows:
December September
2004 2004
------------ ------------
Wholesale $ 3,935,931 $ 3,935,931
Retail 2,155,465 2,155,465
Beverage 358,345 358,345
------------ ------------
$ 6,449,741 $ 6,449,741
============ ============
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
============ ============
Goodwill, trademarks, tradenames and the water source are considered to have
indefinite useful lives, therefore, no amortization is taken on these assets.
Impairment of the reporting units carrying these assets is evaluated annually
in the Company's fourth fiscal quarter in order to coincide with its
budgeting process, unless circumstances dictate earlier evaluation is
necessary.
Amortization expense for the intangible assets that are considered to have
finite lives was $60,936 and $45,917 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:
14
Fiscal Fiscal Fiscal Fiscal Fiscal
2005 /1/ 2006 2007 2008 2009
--------- --------- -------- -------- --------
Covenants not to compete $ 47,000 $ - $ - $ - $ -
Favorable leases 30,000 40,000 40,000 26,000 -
Customer lists 113,000 117,000 117,000 117,000 92,000
--------- --------- -------- -------- --------
$ 190,000 $ 157,000 $157,000 $143,000 $ 92,000
========= ========= ======== ======== ========
/1/ Fiscal 2005 amortization represents amortization of amortizable
intangible assets for the remaining nine months of Fiscal 2005.
6. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share available to common shareholders is
calculated by dividing (loss) income available to common shareholders by the
weighted average common shares outstanding for each period. Diluted earnings
per share is calculated by dividing (loss) income 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 and potential common stock outstanding at December 2004 and
2003 that were anti-dilutive were not included in the computations of diluted
earnings per share. Such potential 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 - 20,666 - 7,384
----------- ----------- ----------- -----------
3. Weighted average number of
shares outstanding 527,062 547,728 528,165 535,549
=========== =========== =========== ===========
4. Income from continuing operations $ 466,544 $ 466,544 $ 1,289,688 $ 1,289,688
Deduct: preferred stock dividend (72,481) - - -
requirements
----------- ----------- ----------- -----------
Income from continuing operations
available to common shareholders 394,063 466,544 1,289,688 1,289,688
=========== =========== =========== ===========
15
5. Loss from discontinued
operations $ (479,622) $ (479,622) $ (775,444) $ (775,444)
=========== =========== =========== ===========
6. Net (loss) income available
to common shareholders $ (85,599) $ (13,078) $ 514,244 $ 514,244
=========== =========== =========== ===========
7. Earnings per share available to
common shareholders from
continuing operations $ 0.75 $ 0.85 $ 2.44 $ 2.41
=========== =========== =========== ===========
8. (Loss) per share available
to common shareholders from
from discontinued operations $ (0.91) $ (0.87) $ (1.47) $ (1.45)
=========== =========== =========== ===========
9. (Loss) earnings per share
available to common shareholders $ (0.16) $ (0.02) $ 0.97 $ 0.96
=========== =========== =========== ===========
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
----------- -----------
Net (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
=========== ===========
The accumulated balances for each classification of accumulated comprehensive
income (loss) is as follows:
Unrealized Interest Accumulated
gains on rate swap Other
securities mark-to Comprehensive
-market Income
-------------------------------------------
Balance, September 24, 2004 $ 2,638 $ 57,262 $ 59,900
Current period change - 40,423 40,423
--------- --------- ----------
Balance, December 31, 2004 $ 2,638 $ 97,685 $ 100,323
========= ========= ==========
16
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 and TBG, 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.
- 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 of $0.6 million and $0.3 million
should the loans be paid off prior to September 30, 2005 and September
30, 2006, respectively.
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.
17
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.
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 from a bank 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 through a loan from a bank, however at December 2004,
18
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%.
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 and distribution of bottled water and other beverage products.
As discussed in Note 13, TBG, a business component of the beverage segment
ceased operations on March 31, 2005 and its assets accordingly are included
in the "Other" column below. 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 - 2,013,796 (41,106) 36,213,014
------------- ----------- ----------- ---------- -------------
Total external revenue 203,839,807 8,574,131 2,013,796 (41,106) 214,386,628
Depreciation /1/ 291,298 194,531 170,465 - 656,294
Amortization 21,657 17,583 21,696 - 60,936
Operating income (loss) 2,239,819 137,997 (953,922) 16,362 1,440,256
Interest expense 261,260 401,501 243,440 - 906,201
Income (loss) before taxes 2,024,309 (249,865) (1,197,362) 16,362 593,444
Total assets 70,482,360 17,287,930 21,517,742 2,288,573 111,576,605
Capital expenditures 1,404,329 6,656 109,859 21,568 1,542,412
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 - 727,048 (46,187) 30,781,684
------------- ----------- ----------- ---------- -------------
Total external revenue 183,721,843 8,169,000 727,048 (46,187) 192,571,704
Depreciation /1/ 295,466 195,736 43,475 - 534,677
Amortization 21,657 24,259 - - 45,916
Operating income (loss) 2,079,718 277,874 1,344 (39,706) 2,319,230
Interest expense 294,749 298,681 122,195 - 715,625
Income (loss) before taxes 2,207,135 (12,891) (120,850) (39,706) 2,033,688
Total assets 68,755,348 16,891,332 8,996,338 2,877,564 97,520,582
Capital expenditures 94,094 110,568 186,183 31,278 422,123
/1/ Includes depreciation reported in cost of sales for the beverage segment.
/2/ Includes charges to operations incurred by discontinued operations and
intercompany eliminations.
19
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In November 2004, the Financial Accounting Standards Board ("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 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 issued Statement No. 123 (revised 2004) ("SFAS
123R), "Share-Based Payment." SFAS No. 123R will require the Company to
measure the cost of all employee stock-based compensation awards based on the
grant date fair value of those awards and to record that cost as compensation
expense over the period during which the employee is required to perform
service in exchange for the award (generally over the vesting period of the
award). SFAS No. 123R is effective for the Company's fiscal 2006.
Management is currently assessing the impact that this standard will have on
the Company's financial position, results of operations and cash flows.
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's financial
position, results of operations and cash flows.
11. CONTINGENCIES
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,
20
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 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. On the basis of advice from trial counsel,
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.
12. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's Form 10-Q for the quarter ended
December 31, 2004, management and the Company's Audit Committee determined
that the Company would restate its balance sheets as of September 24, 2004
and as of December 31, 2004 to reflect (i) a correction in the classification
of Series A (issued in June 2004) and Series B (issued in October 2004)
Preferred Stock from permanent equity to mezzanine financing, and (ii) a
correction in the classification of its revolving credit facility from
long-term to short-term debt. The balance sheet as of September 24, 2004 has
been restated on Form 10-K/A filed with the Securities and Exchange
Commission.
Under Emerging Issue Task Force ("EITF") Topic No. D-98, "Classification and
Measurement of Redeemable Securities," the possibility of a redemption of
securities that is not solely within the control of the issuer without
regard to probability requires the security to be classified outside of
permanent equity. The Certificate of Designation creating the Series A and
21
Series B Preferred Stock each contain provisions that give the holders the
optional right to redeem such stock if either there is a change of control
(as defined in the Certificate of Designation) or the Wright Family (as
defined in the Certificate of Designation to include William F. Wright, the
Company's Chief Executive Officer, Chairman of the Board and largest
stockholder) beneficially owns less than 20% of the outstanding shares of
common stock. The Company believes it is unlikely that either of those
events will occur without support of the Board of Directors since the two
owners of the Series A Preferred Stock and the sole owner of the Series B
Preferred Stock each have a representative on the Board of Directors, the
interests of the Company and those representatives are aligned, and the
aggregate ownership of all of the Board members is in excess of two-thirds of
the outstanding shares of common stock. However, there can be no assurance
that this will not occur.
EITF 95-22 "Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements That Include both a Subjective Acceleration
Clause and a Lock-Box Arrangement," requires borrowings under an agreement
that includes both a subjective acceleration clause and a lock-box
arrangement to be classified as short-term indebtedness. Because the
Company's agreement contains both of these features, the borrowings have been
restated to be classified as short-term for December 2004. The lending banks
and the Company amended the revolving loan agreement after the Company's
second fiscal quarter of 2005 to replace the lockbox provision with a
springing lockbox arrangement that would require the Company's cash to be
placed in a lockbox account that would be used to automatically pay down the
revolving indebtedness subsequent to an event of default. EITF 95-22,
nevertheless, requires the correction to the classification of the revolving
credit facility for reports filed prior to such amendment to the revolving
loan agreement.
These restatements do not impact amounts already reported as sales, net
income (loss) available to common shareholders or earnings (loss) per share,
nor will they result in a default under any provisions in the credit
agreement.
A summary of the significant effects of the restatement is as follows:
December 31, 2004
------------------------------------------------------------
Retroactive
effect of
discontinued
As previously operations - As
reported See Note 13 Restatement restated
------------- ------------- -------------- -----------
Current liabilities $ 29,512,070 $ - $ 50,877,089 $80,389,159
Long-term debt, less current portion 61,622,121 (3,281) (50,877,089) 10,741,751
Series A cumulative, convertible
preferred stock, $.01 par value
100,000 authorized and issued,
liquidation preference
$25.00 per share - - 2,438,355 2,438,355
Series B cumulative, convertible
preferred stock, $.01 par value
80,000 authorized and issued,
liquidation preference
$25.00 per share - - 1,857,645 1,857,645
Shareholders' equity 17,017,620 - (4,296,000) 12,721,620
22
13. SUBSEQUENT EVENT
The Beverage Group, Inc.
------------------------
Effective March 31, 2005, the Company's subsidiary, The Beverage Group, Inc.
("TBG") which comprised the beverage marketing and distribution business
portion component of the beverage segment, ceased on-going operations due to
recurring losses since its December 2002 inception. All TBG employees were
terminated effective March 31, 2005 and the Company outsourced various
responsibilities in order to maximize the value of the assets by collecting
receivables and evaluating its payables. In addition, management is working
to sell the remaining TBG inventory to unrelated beverage companies,
distributors or liquidators. Our water bottling manufacturing subsidiaries
in Hawaii (HNWC) and Idaho (TSI), which are also part of the beverage
segment, were unaffected.
This transaction has been reflected as discontinued operations in the
condensed consolidated unaudited financial statements in accordance with SFAS
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
because it represents a component of an entity in which the operations and
cash flows have (or will be) eliminated from the ongoing operations and the
Company will not have any significant continuing involvement in the
operations of TBG.
Sales from the discontinued operations, which have been excluded from income
(loss) from continuing operations in the accompanying condensed consolidated
unaudited statements of operations for the three month periods ended December
31, 2004 and December 26, 2003, are presented below. The effects of the
discontinued operations on net (loss) income available to common shareholders
and per share data are reflected within the accompanying condensed
consolidated unaudited statements of operations.
Three months ended
December
--------------------------
2004 2003
----------- ------------
Sales $ 791,839 $ 465,413
23
The carrying amount of the major classes of assets and liabilities that are
included in the disposal group are as follows (in millions):
December September
2004 2004
---------- ----------
Accounts receivable $ 0.8 $ 0.5
Inventories 1.2 1.4
---------- ----------
Total current assets of discontinued operations $ 2.0 $ 1.9
========== ==========
Fixed assets $ 0.2 $ 0.1
========== ==========
Accounts payable $ 0.3 $ 0.6
Accrued expenses 0.7 0.7
Current portion of long-term debt - 0.9
---------- ----------
Total current liabilities of discontinued operations $ 1.0 $ 2.2
========== ==========
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.
24
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 ESTIMATES
Certain accounting estimates 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
judgments and estimates. Our critical accounting estimates are set forth in
our amended 2004 Annual Report to Shareholders on Form 10-K/A for the fiscal
year ended September 24, 2004 filed with the Securities and Exchange
Commission. There have been no significant changes with respect to these
policies during fiscal 2005.
RESTATEMENT
As discussed in Note 12 to the condensed consolidated financial statements,
subsequent to the issuance of the Company's Form 10-Q for the quarter ended
December 31, 2004, management and the Company's Audit Committee determined
that the Company would restate its balance sheets as of September 24, 2004
and as of December 31, 2004 to reflect (i) a correction in the classification
of Series A (issued in June 2004) and Series B (issued in October 2004)
Preferred Stock from permanent equity to mezzanine financing, and (ii) a
correction in the classification of its revolving credit facility from
long-term to short-term debt. The balance sheet as of September 24, 2004 has
been restated on Form 10-K/A filed with the Securities and Exchange
Commission.
Under Emerging Issue Task Force ("EITF") Topic No. D-98, "Classification and
Measurement of Redeemable Securities," the possibility of a redemption of
securities that is not solely within the control of the issuer without
regard to probability requires the security to be classified outside of
permanent equity. The Certificates of Designation creating the Series A and
Series B Preferred Stock each contain provisions that give the holders the
optional right to redeem such stock if either there is a change of control
(as defined in the Certificates of Designation) or the Wright Family (as
defined in the Certificates of Designation to include William F. Wright, the
Company's Chief Executive Officer, Chairman of the Board and largest
stockholder) beneficially owns less than 20% of the outstanding shares of
common stock. The Company believes it is unlikely that either of those
events will occur without support of the Board of Directors since the two
owners of the Series A Preferred Stock and the sole owner of the Series B
Preferred Stock each have a representative on the Board of Directors, the
interests of the Company and those representatives are aligned, and the
aggregate ownership of all of the Board members is in excess of two-thirds of
the outstanding shares of common stock. However, there can be no assurance
that this will not occur.
EITF 95-22 "Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements That Include both a Subjective Acceleration
Clause and a Lock-Box Arrangement," requires borrowings under an agreement
25
that includes both a subjective acceleration clause and a lock-box
arrangement to be classified as short-term indebtedness. Because the
Company's agreement contains both of these features, the borrowings have been
restated to be classified as short-term for December 2004. The lending banks
and the Company amended the revolving loan agreement after the Company's
second fiscal quarter of 2005 to replace the lockbox provision with a
springing lockbox arrangement that would require the Company's cash to be
placed in a lockbox account that would be used to automatically pay down the
revolving indebtedness only in the instance of an event of default. EITF 95-
22, nevertheless, requires the correction to the classification of the
revolving credit facility for reports filed prior to such amendment to the
revolving loan agreement.
These restatements do not impact amounts already reported as sales, net
income (loss) available to common shareholders or earnings (loss) per share,
nor will they result in a default under any provisions in the credit
agreement.
A summary of the significant effects of the restatement is as follows:
December 31, 2004
------------------------------------------------------------
Retroactive
effect of
discontinued
As previously operations - Restatement As
reported See Note 13 See Note 12 restated
------------- ------------- -------------- -----------
Current liabilities $ 29,512,070 $ - $ 50,877,089 $80,389,159
Long-term debt, less current portion 61,622,121 (3,281) (50,877,089) 10,741,751
Series A cumulative, convertible
preferred stock, $.01 par value
100,000 authorized and issued,
liquidation preference
$25.00 per share - - 2,438,355 2,438,355
Series B cumulative, convertible
preferred stock, $.01 par value
80,000 authorized and issued,
liquidation preference
$25.00 per share - - 1,857,645 1,857,645
Shareholders' equity 17,017,620 - (4,296,000) 12,721,620
DISCONTINUED OPERATIONS
In March 2005, the Company discontinued the operations of its beverage
marketing and distribution business. As a result, the balance sheets as of
December 31, 2004 and September 24, 2004 and the statements of operations and
statements of cash flows for the fiscal quarters ended December 31, 2004 and
December 26, 2003 have been prepared reflecting this disposition as
discontinued operations in accordance with Statement of Financial Standards
("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets."
The accompanying management discussion and analysis and results of operations
give effect to the restatements and to the discontinued operations subsequent
event.
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
26
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 Hawaii and Idaho.
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 11.3% 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 common share of $0.02 for the three months
ended December 2004 compared to earnings per diluted common 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
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.
27
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
----------------
With the discontinuation of The Beverage Group, Inc. in March 2005, which
comprised the beverage marketing and distribution business portion of the
beverage segment, the segment now consists of Hawaiian Natural Water Co.,
Inc. ("HNWC") and ("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.
Discontinued Operations
-----------------------
In management's discussion and analysis of the results of operations for Q1
2005 compared to Q1 2004, TBG's sales, gross profit (loss), selling, general
and administrative, depreciation and amortization, interest, other expenses
and income tax benefit have been aggregated and reported as a loss from
discontinued operations in accordance with SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" and is therefore not a component
of the discussion of the aforementioned items.
28
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
Sales for Q1 2005 increased 11.3%, or $21.8 million, compared to Q1 2004.
Sales are reported net of costs associated with sales incentives provided to
retailers, totaling $3.7 million and $3.3 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 1.3 million
Intersegment eliminations - million
------
$ 21.8 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 $2.0 million in sales for Q1 2005 compared
to $0.7 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 and a change to a new distributor in the Hawaii market
in 2004 which added $0.1 million to sales. 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.
29
GROSS PROFIT
Our gross profit does not include fulfillment costs and costs related to the
distribution network which are included in selling, general and
administrative costs, and may not be comparable to those of other entities.
Some entities may classify such costs as a component of cost of sales. Cost
of sales, a component used in determining gross profit, for wholesale and
retail segments includes the cost of products purchased from manufacturers,
less incentives that we receive which are netted against such costs. In the
beverage segment, cost of sales includes the cost of the raw materials and
related plant labor and manufacturing overhead costs required to convert raw
materials into finished goods (including labor, warehousing, depreciation and
utilities).
Gross profit increased 5.9%, or $0.9 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 0.1 0.2
------ ------ -----
$ 15.9 $ 15.0 $ 0.9
====== ====== =====
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 and Nesco Hawaii which were acquired in June
2004 and July 2004, respectively.
30
OPERATING EXPENSE
Operating expense includes selling, general and administrative expenses and
depreciation and amortization. Selling, general and administrative expenses
include costs related to our sales, warehouse, delivery and administrative
departments for all segments. Specifically, purchasing and receiving costs,
inspection costs, warehousing costs and costs of picking and loading customer
orders are all classified as selling, general and administrative expenses.
Our most significant expenses relate to employee costs, facility and
equipment leases, transportation costs, insurance and professional fees.
In Q1 2005, operating expense increased 13.8% or approximately $1.8 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. 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.
As a result of the above, operating income for Q1 2005 decreased $0.9 million
compared to Q1 2004.
INTEREST EXPENSE
Interest expense for Q1 2005 increased 26.6%, or $0.2 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
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. Additionally, losses were not allocated
due to the reduction of the third parties investment to zero as a result of
the cumulative losses.
DISCONTINUED OPERATIONS
Effective March 31, 2005, the Company's beverage marketing and distribution
business, TBG, ceased on-going operations due to recurring losses since its
December 2002 inception. In Q1 2005, TBG incurred a net loss, net of tax of
$0.5 million as compared to a net loss, net of tax of $0.8 million for the
comparable period in fiscal 2004.
31
The balance sheets as of December 31, 2004 and September 24, 2004 and the
statements of operations and statements of cash flows for the fiscal quarters
ended December 31, 2004 and December 26, 2003 have been prepared reflecting
this disposition as discontinued operations in accordance with Statement of
Financial Standards ("SFAS") No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets."
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 $2.2 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. Our variability in cash flows from operating activities is
heavily dependent on the timing of inventory purchases and seasonal
fluctuations. For example, in the circumstance where we are "buying-in" to
obtain favorable terms on particular product or to maintain our LIFO layers,
we may have to retain the inventory for a period longer than the payment
terms. This generates cash outflow from operating activities that we expect
to reverse in a later period. Additionally, during the summer, which is our
busiest time of the year, we generally carry larger inventory back stock to
ensure high fill rates to maintain customer satisfaction. Our inventory
levels fluctuate, but are usually at their highest levels in the third and
fourth fiscal quarters. We generally experience reductions in inventory
levels during the first fiscal quarter, as compared to year end, and maintain
these levels until the beginning of the third fiscal quarter when we begin
building for increased summer business.
Cash of $1.5 million was utilized in investing activities during the Q1 2005
for capital expenditures primarily related to the purchase of a building so
that we could relocate one of our wholesale distribution facilities. A
significant portion of the cash flows used in investing activities were
financed through the real estate term debt discussed below.
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 and TBG, $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
negative working capital (current assets less current liabilities) of $10.9
million. This compares to cash on hand of $0.4 million and negative working
capital of $11.9 million as of September 2004. The Company's working capital
is significantly impacted by the classification of the revolving credit
32
facility as a short-term obligation even though the New Facility does not
expire until April 2007. The amounts on the credit facility (including the
revolving credit facility, $1.2 million Term A and $5.0 million Term B Notes)
classified as current were $58.4 million and $44.8 million at December 31,
2004 and September 24, 2004, respectively. The Company expects that the
revolving credit facility would be reduced through net payments on the
revolver of approximately $5.0 million at both reporting periods and that
working capital would be increased by the incremental difference. The
Company's ratio of debt to equity is 5.68 at December 2004 compared to 5.37
in September 2004. For purposes of this calculation, the Series A and Series
B Preferred Stock and other long-term liabilities (the water royalty) are
excluded.
The Company's maximum revolving credit limit on the New Facility was $53.8
million at December 31, 2004, however the amount available for use at any
given time is subject to many factors including eligible accounts receivable
and inventory balances that are evaluated on a daily basis. On December 31,
2004, the balance on the facility was $52.3 million. Based on our collateral
and the loan limits, there was approximately $0.6 million of availability at
December 31, 2004. During the three months ended December 31, 2004 our peak
borrowing was $52.9 million, our average borrowings were $47.5 million and
our average availability was $4.7 million. Our availability to borrow under
the New Facility generally decreases as inventory and accounts receivable
levels go up because of the borrowing limitations that are placed on the
collateralized assets.
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 for the
next twelve months. Management is presently negotiating with the lenders to
bring TSI into the Company's revolving credit facility and with investors to
privately place 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
33
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 and TBG. 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 $ 7,806 $ 16,087 $44,040 $ 563 $ 2,084 $ 605
Subordinated debt 1,076 1,076 - - - - -
Interest on long-term
and subordinated
debt/3/ 8,492 2,948 3,371 1,630 184 346 13
Operating leases 19,108 4,037 4,489 2,712 1,963 1,505 4,402
Minimum water royalty/4/ 4,114 155 288 288 288 288 2,807
--------- -------- -------- ------- ------- ------- ---------
Total $ 103,975 $ 16,022 $ 24,235 $48,670 $ 2,998 $ 4,223 $ 7,827
========= ======== ======== ======= ======= ======= =========
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
========= ======== ======== ======= ======= ======= =========
/1/ Includes remaining payments scheduled to be made in the last nine
months of fiscal 2005.
/2/ Includes principal portion of capital leases totaling $1.3 million.
/3/ Represents estimated interest payments on long-term debt, including
capital leases and subordinated debt. Certain obligations contain variable
interest rates. For illustrative purposes, the Company has projected future
interest payments assuming that interest rates will remain unchanged and
additionally, that the outstanding revolving credit facility balance will be
reduced by $5.0 million in Fiscal 2005 and 2006 with the remaining principal
falling due when the agreement expires in April 2007
/4/ Fiscal 2005 - 2009 represent the annual minimum water royalty and
the balance thereafter represents the minimum water royalty in perpetuity.
Both amounts are representative of the present value of the obligation
reflected in our balance sheet together with the imputed interest portions of
required payments.
34
Credit Agreement
-------------------
The Company's primary source of borrowing for liquidity purposes is its
credit facility with LaSalle Bank (the "Facility"). As of December 2004, the
outstanding balance on the Facility was $58.4 million including Term Note A
($1.2 million) and Term Note B ($5.0 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.
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.
35
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
building and the building addition will be provided from the New 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.
Cross Default and Co-Terminus Provisions
----------------------------------------
The Company's owned real estate in Bismarck, ND, Quincy, IL, and Rapid City,
SD, and certain warehouse equipment in the Rapid City, SD warehouse is
financed through term loans with Gold Bank (the "Gold Bank Loans"), who is
also a participant lender on the Company's revolving line of credit. The
Gold Bank Loans contain cross default provisions which cause all loans with
Gold Bank to be considered in default if any one of the loans where Gold Bank
is a lender, including the revolving credit facility, is in default. Since
Gold Bank approved the waivers of the covenant violations in the Facility,
the Gold Bank Loans are not considered to be in default.
In addition, the Gold Bank Loans contain co-terminus provisions which require
all loans with Gold Bank to be paid in full if any of the loans are paid in
full prior to the end of their specified terms.
36
CERTAIN ACCOUNTING CONSIDERATIONS
In December 2004, the FASB issued Statement No. 123 (revised 2004) (SFAS
123R), "Share-Based Payment." SFAS No. 123R will require the Company to
measure the cost of all employee stock-based compensation awards based on the
grant date fair value of those awards and to record that cost as compensation
expense over the period during which the employee is required to perform
service in exchange for the award (generally over the vesting period of the
award). SFAS No. 123R is effective for the Company's fiscal 2006.
Management is currently assessing the impact that this standard will have on
the Company's financial position, results of operations and cash flows.
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 $43.4 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 $0.4 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.
37
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. As set forth below, our Chief Executive Officer
and Chief Financial Officer concluded that, as of the end of the period
covered by this report, the design and operation of these disclosure controls
and procedures were ineffective.
As more fully described in Note 12 of the Company's condensed consolidated
unaudited financial statements for the period ended December 2004, the
Company has restated its December 2004 consolidated balance sheet to correct
classification errors of the Series A and B Preferred Stock and the Company's
revolving credit facility. The Company's Chief Executive Officer and Chief
Financial Officer concluded that a material weakness (as defined under
standards established by the American Institute of Certified Public
Accountants) existed in the Company's disclosure controls and procedures with
respect to the application of accounting guidance contained in certain
Emerging Issues Task Force Applications ("EITFs") and other accounting
standards relating to the Company's recent financing transactions. This
material weakness resulted in the restatements described above. The Company
has enhanced the training of our accounting staff and required periodic
review of a wider variety of current technical accounting literature to
obtain a reasonable level of assurance that all appropriate accounting
guidance is applied to the classification of indebtedness it incurs and
equity securities it issues which we believe has corrected this material
weakness.
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 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
38
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. On the basis of advice from trial counsel,
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 $25.00 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.
The Series B 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 $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.
This transaction was affected in reliance upon exemption for securities
registration provided by Section 4(ii) of the Securities Act of 1933 and Rule
506 of Regulation (D) thereunder.
Item 3. Defaults Upon Senior Securities
During the fiscal quarter ended December 2004, our 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
39
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.
Item 4. Submission of Matters to a Vote of Security Holders
There were no submission of matters to a vote of security holders to be
reported during the first quarter ended December 31, 2004.
Item 5. Other Information
There is no other information to be reported during the first quarter ended
December 31, 2004.
40
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)
41
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)*
10.6 Director and Officer Compensation (incorporated by reference to Exhibit
10.8 of AMCON's Quarterly Report on Form 10-Q filed on May 27, 2005)
42
10.7 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)*
10.8 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)*
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 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)
10.17 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)
43
10.18 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)
10.19 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)
10.20 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)
10.21 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)
10.22 Term Real Estate Promissory Note, dated December 21, 2004, issued by
AMCON Distributing Company to Gold Bank (incorporated by
reference to Exhibit 10.21 of AMCON's Quarterly Report on Form 10-Q
filed on February 14, 2005)
10.23 Term Equipment Promissory Note, dated December 21, 2004 issued by AMCON
Distributing Company to Gold Bank (incorporated by reference to Exhibit
10.22 of AMCON's Quarterly Report on Form 10-Q filed on February 14,
2005)
10.24 One Hundred Eighty Day Redemption Mortgage and Security Agreement by
and between AMCON Distributing Company and Gold Bank (incorporated by
reference to Exhibit 10.23 of AMCON's Quarterly Report on Form 10-Q
filed on February 14, 2005)
10.25 Security Agreement by and between AMCON Distributing Company and Gold
Bank (incorporated by reference to Exhibit 10.24 of AMCON's Quarterly
Report on Form 10-Q filed on February 14, 2005)
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
44
32.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act
* Represents management contract or compensation plan or arrangement.
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 19, 2005 /s/ William F. Wright
----------------- -----------------------------
William F. Wright
Chairman of the Board and
Principal Executive Officer
Date: August 19, 2005 /s/ Michael D. James
----------------- -----------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
45