-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DB40tQWp1NsayeFTywJOtjsEeehklJyWp7D8dKmFniXXuJKW58qWiVi09RheT6+K LsB6fie6kuguvgTBlxL3CQ== 0000928465-00-000034.txt : 20001229 0000928465-00-000034.hdr.sgml : 20001229 ACCESSION NUMBER: 0000928465-00-000034 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCON DISTRIBUTING CO CENTRAL INDEX KEY: 0000928465 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 470702918 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-15589 FILM NUMBER: 797414 BUSINESS ADDRESS: STREET 1: 10228 L ST STREET 2: POST OFFICE BOX 241230 CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4023313727 MAIL ADDRESS: STREET 1: 10228 L STREET STREET 2: POST OFFICE 241230 CITY: OMAHA STATE: NE ZIP: 68127 10-K 1 0001.txt AMCON DISTRIBUTING COMPANY FORM 10-K, 9/30/2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED September 30, 2000 --------------------------------- / / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to ------- ------- Commission File Number 0-24708 -------- AMCON Distributing Company - ----------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 47-0702918 - -------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) 10228 "L" Street, Omaha NE 68127 - ----------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (402) 331-3727 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None ---------------- ----------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value - ----------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any other amendment to this Form 10-K. /X/ The aggregate market value of equity securities held by non-affiliates of the Registrant on December 15, 2000 was approximately $5,056,327. As of December 15, 2000 there were 2,737,661 shares of common stock outstanding. - Documents Incorporated by Reference - --------------------------------------- Portions of the 2000 Annual Report to Stockholders are incorporated herein by reference into Parts I, II and IV. Portions of the Proxy Statement pertaining to the March 9, 2001 Annual Stockholders' Meeting are incorporated herein by reference into Part III. 1 AMCON DISTRIBUTING COMPANY -------------------------- 2000 FORM 10-K ANNUAL REPORT ---------------------------- Table of Contents Page ---- PART I Item 1. Business.........................................................3 Item 2. Properties......................................................10 Item 3. Legal Proceedings...............................................11 Item 4. Submission of Matters to Vote of Security Holders...............11 Item 4A. Executive Officers of the Company...............................11 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............................................12 Item 6. Selected Financial Data.........................................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......12 Item 8. Financial Statements and Supplementary Data.....................12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................13 PART III Item 10. Directors and Executive Officers of the Registrant..............13 Item 11. Executive Compensation................................ .........13 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................................13 Item 13. Certain Relationships and Related Transactions....................................................13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................14 2 PART I ITEM 1. BUSINESS GENERAL AMCON Distributing Company (together with its wholly-owned subsidiary, Food For Health Co., Inc. and its wholly-owned subsidiaries Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc.) operates 8 distribution centers and 14 retail health food stores in the Great Plains, Rocky Mountain, Western and Southern regions of the United States. Food for Health's former wholly- owned subsidiary, U.S. Health Distributors, Inc. was merged into Food For Health during fiscal 2000. As used herein, unless the context indicates otherwise, the term "ADC" means the separate company operations or "traditional distribution business" of AMCON Distributing Company, the term "FFH" means the "natural food distribution business" of Food For Health Co., Inc., the terms "CNF" and "HFA" represent the "retail health food stores" operated by Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc., respectively, both wholly-owned subsidiaries of FFH, and the term "AMCON" or the "Company" means AMCON Distributing Company and its subsidiaries. AMCON sells approximately 24,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, natural food and related products, frozen and chilled products and institutional food service products. AMCON has over 8,500 retail customers, the largest of which accounted for less than 5.2% of AMCON's total revenues during fiscal 2000. The Company distributes products primarily to retailers such as convenience stores, discount and general merchandise stores, grocery stores and supermarkets, health food stores, natural food stores, drug stores and gas stations. In addition, the Company services institutional customers, including restaurants and bars, schools, sports complexes and vendors, as well as other wholesalers. AMCON operates eight (8) retail health food stores in Florida and six (6) in the Midwest. These stores carry natural supplements, groceries, health and beauty care products and other food items. While cigarettes accounted for approximately 63% of the Company's sales volume during its most recent fiscal year, AMCON continues to diversify its businesses and product lines in an attempt to lessen its dependence upon cigarette sales. AMCON maintains a 52-53 week fiscal year which ends on the last Friday in September. For convenience, the fiscal years have been indicated as September 30, whereas the actual year ends were September 29, 2000, September 24, 1999 and September 25, 1998. Fiscal 2000 comprised 53 weeks. Fiscal 1999 and 1998 each comprised 52 weeks. TRADITIONAL DISTRIBUTION BUSINESS ADC serves approximately 7,500 retail outlets in the Great Plains and Rocky Mountain regions. Food Logistics, a trade periodical, ranked ADC as the thirteenth (13th) largest distributor in its industry out of approximately 1,000 distributors in the United States based upon 1999 sales volume. From its inception, ADC has pursued a strategy of growth through increased sales 3 and through acquisitions. Since 1993, ADC has focused on increasing operating efficiency in its traditional distribution business by merging smaller branch distribution facilities into larger ones. In addition, ADC has grown through expansion of its market area into contiguous regions and by introduction of new product lines to customers. ADC distributes approximately 9,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products. ADC's principal suppliers include Philip Morris USA, RJ Reynolds Tobacco, Brown & Williamson, Proctor & Gamble, Hershey, Mars, William Wrigley and Nabisco. ADC also markets private label lines of cigarettes, tobacco, snuff, water, candy products, batteries and film. ADC has sought to increase sales to convenience stores and petroleum marketers by adopting a number of operating strategies which it believes gives it a competitive advantage with these types of retailers. One key operating strategy is a commitment to customer service. In a continuing effort to provide better service than its competitors, ADC carries a broad and diverse product line which allows ADC to offer "one-stop shopping" to its customers. ADC offers self-service health and beauty programs, grocery products and custom food service programs which have proven to be profitable to convenience store customers. In addition, ADC has a policy of next-day delivery and employs a concept of selling products in cut-case quantities or "by the each" (i.e., individual units). ADC also offers planograms to convenience store customers to assist in the design of their store and display of products within the store. ADC has worked to improve its operating efficiency by investing in the latest in systems technology, including computerization of buying and financial control functions and introduction in 1999 of internet-based customer maintenance and reporting options. Inventory management has become even more critical due to significant increases in the price of cigarettes over the past three years. ADC has also sought to reduce inventory expenses by improving the number of times its inventory is renewed during a period ("inventory turns") for the same level of sales. Inventory turns improved to 25.4 times in 2000. Inventory turns for the past five years are as follows: Year Times Inventory Turned ---- ---------------------- 2000 25.4 1999 24.5 1998 19.6* 1997 21.8 1996 21.2 * Inventory turns declined slightly in fiscal 1998 as ADC managed its inventory levels to take advantage of anticipated manufacturers' price increases. By keeping its operating costs down, ADC is better able to price its products in such a manner to achieve an advantage over less efficient distributors in its market areas. ADC's main office is in Omaha, Nebraska. ADC has six distribution centers located in Missouri (2), Nebraska, North Dakota, South Dakota, and Wyoming. 4 These distribution centers contain a total of approximately 306,200 square feet of floor space and employ state-of-the-art equipment for the efficient distribution of the large and diverse product mix sold by ADC. ADC also operates a fleet of approximately 110 delivery vehicles, ranging from over-the-road vehicles with refrigerated trailers to half-ton vans. NATURAL FOOD DISTRIBUTION BUSINESS FFH is a distributor of natural foods and related products serving approximately 1,000 health and natural food retailers in the Southern and Western United States. FFH distributes approximately 15,000 different products consisting of national brands, regional brands, private label and master distribution products including vitamin and mineral supplements, herbal preparations, skin and hair care, dairy and dairy substitutes, frozen foods, general grocery and organic produce. FFH's suppliers number approximately 600 and include well known national brands such as Twin Labs, Schiff Bio Foods, Weider, Hain Pure Foods, Arrowhead Mills, Knudsen, Nature's Way and Health Valley. FFH also markets proprietary brand products under the trade names Healthy Edge and Nutri-Value . The products offered are consumer packages of nuts, seeds, grains, pastas, sweeteners, cereals and snack items. The Company believes that FFH is positioned to provide service to independent health and natural food retail stores of all sizes and types, as well as FFH's 14 retail stores operated by CNF and HFA. FFH pays particular attention to the ongoing needs of its customers and is forward looking in developing progressive marketing programs such as the Nutri-Value Retailers Association which provides co-operative and preferential buying advantages beyond those generally available through other types of programs offered in the market. FFH's primary distribution location and main office is located in a 132,000 square foot facility located in Phoenix, Arizona. FFH also operates out of a facility in Melbourne, Florida and a cross-dock facility located near Dallas, Texas. FFH operates its own fleet of approximately 33 over-the-road and straight trucks equipped to provide full refrigerated, dry and frozen food service. RETAIL HEALTH FOOD STORES FFH's retail health food stores are operated by CNF and HFA as Chamberlin's Market & Cafe ("Chamberlin's") and Akin's Natural Food Market ("Akin's"), respectively. Chamberlin's, which was acquired in March 1999, was first established in 1935, and is an award-winning and highly-acclaimed chain of eight health and natural product retail stores, all offering an extensive selection of natural supplements and herbs, baked goods, dairy products, delicatessen items and organic produce. Chamberlin's was selected the best health food chain in the United States by Health Foods Business, a trade publication. Chamberlin's is headquartered in Winter Park, Florida and operates all of its stores in and around Orlando, Florida. Akin's Natural Foods Market, also established in 1935 and headquartered in Tulsa, Oklahoma, is a well-recognized chain of six health and natural product retail stores, each offering an extensive line of natural supplements and herbs, dairy products, delicatessen items and organic produce. Akin's has locations in Tulsa (2 stores) and Oklahoma City, Oklahoma; Lincoln, Nebraska; Springfield, Missouri; and Topeka, Kansas. 5 FFH's new retail health food store segment is being organized to utilize the name recognition of the established health food retail chains that are acquired. Both retail chains are unique in their market areas. The Company plans to maintain the local identity of each chain while providing a means to achieve operating synergies leading to cost savings. ACQUISITIONS ADC was incorporated in Delaware in 1986 to carry on the business of General Tobacco and Candy Company ("General Tobacco"), a Nebraska corporation which was the predecessor to ADC. Since 1981, the Company has acquired 23 consumer product distributors in the Great Plains, Rocky Mountain and Southern regions of the United States. In October 1997, ADC purchased the assets of a traditional candy and tobacco distribution company in St. Louis, Missouri, thereby expanding ADC's market area to include eastern Missouri, Illinois and Indiana. In November 1997, ADC purchased all of the outstanding stock of FFH. In November 1998, FFH purchased all of the outstanding stock of U.S. Health Distributors, Inc., which was merged into FFH during fiscal 2000. In March 1999, FFH purchased all of the outstanding stock of CNF. In September 1999, FFH purchased all of the outstanding stock of HFA. In November 1999, CNF acquired all of the assets of MDF Health, Inc. In August 2000, CNF acquired all of the outstanding stock of TINK, Inc. (d/b/a Natural Way Foods). TINK, Inc. was subsequently merged into CNF. In November 2000, the Company entered into a merger agreement with Hawaiian Natural Water Company, Inc. (OTC: HNWC), pursuant to which HNWC would be merged with and into, and thereby become, a wholly-owned subsidiary of AMCON Distributing Company. As a result, the Company will issue between 358,168 and 477,558 shares of its common stock to HNWC shareholders, representing between 11.6% and 14.9% of the Company's outstanding shares after giving effect to the merger. The merger is expected to qualify as a tax-free reorganization and to be recorded on the Company's books using the purchase method of accounting. The merger is subject to various conditions, including the effectiveness of a registration statement covering the shares to be issued in the merger, the listing of such shares on AMEX and approval of the stockholders of HNWC. It is expected that the merger will be consummated on or before March 31, 2001. PRINCIPAL PRODUCTS CIGARETTES. Sales of cigarettes and the gross margin derived therefrom for the fiscal years ending September 30, 2000, 1999, and 1998 are set forth below: (Dollars in Millions) Fiscal Year Ended September 30, -------------------------------------- 2000 1999 1998 ------ ------ ------ Sales $296.5 $251.1 $185.5 Sales as a % of Total Sales 63.3% 65.1% 63.0% Gross Margin $ 18.2 $ 17.0 $ 13.3 Gross Margin as a % of Total Gross Margin 32.8% 40.1% 42.0% Gross Margin Percentage 6.2% 6.8% 7.2% 6 Revenues from the sale of cigarettes during fiscal 2000 increased by 18.1% as compared to fiscal 1999, while gross profit from the sale of cigarettes increased by 7.1% during the same period (see "MANAGEMENT'S DISCUSSION AND ANALYSIS-Results of Operations-Year Ended September 30, 2000 Versus Year Ended September 30, 1999" in the Annual Report to Stockholders for the Fiscal Year Ended September 30, 2000). Sales of cigarettes represented approximately 63% of the Company's sales volume during fiscal 2000. This represents a 1.8% decline from the prior year and related primarily to diversification into the retail health food business in fiscal 1999. The Company's retail segment, CNF and HFA, which were both acquired in fiscal 1999, generated approximately $14 million in gross profit in fiscal 2000 compared to $2.9 million in fiscal 1999. Since 1983, ADC has sought to position itself to capitalize on consumer demand for discount or value-priced cigarettes by marketing its own private label cigarettes as a high-quality, value-priced alternative to premium cigarettes. Substantial price increases implemented by manufacturers of premium cigarettes during the late 1980's and early 1990's resulted in a demand for private label cigarettes, which are sold at lower prices than premium brands. A significant manufacturers' price decreases in premium brand cigarettes, aimed at recapturing market share, occurred in 1993 and has caused a steady decline in the sales of private label cigarettes since that point. Sales of ADC's private label cigarettes have declined an average of 31.5% annually since 1993. Philip Morris USA has manufactured ADC's private label cigarettes since 1998 under an exclusive agreement. This agreement was renewed in October 1998 for a term of three years. NATURAL FOODS AND RELATED PRODUCTS. Natural foods and related products, which are primarily sold by FFH, CNF and HFA, constitute the Company's second largest-selling product line, representing approximately 16.2% of the Company's total sales volume during fiscal 2000. Sales of natural foods and related products and the gross margin derived therefrom for the fiscal years ending September 30, 2000, 1999 and 1998 are set forth below: (Dollars in Millions) Fiscal Year Ended September 30, ------------------------------------- 2000 1999 1998 ------ ------ ------ Sales $ 75.5 $ 49.6 $ 31.2 Gross Margin 24.9 13.5 7.7 Gross Margin Percentage 33.0% 27.2% 24.8% CONFECTIONERY. Candy, related confectionery items and snacks, which are primarily sold by ADC, constitute the Company's third largest-selling product line, representing approximately 7.0% of the Company's total sales volume during fiscal 2000. Sales of confectionery items and the gross margin derived therefrom for the fiscal years ending September 30, 2000, 1999, and 1998 are set forth below: 7 (Dollars in Millions) Fiscal Year Ended September 30, -------------------------------------- 2000 1999 1998 ------ ------ ------ Sales $ 31.1 $ 30.2 $ 29.3 Gross Margin 3.7 3.8 3.6 Gross Margin Percentage 11.9% 12.6% 12.3% ADC supplies customers with over 1,900 different types of candy and related products, including chocolate bars, cookies, chewing gum, nuts and other snack items. Major brand names include products manufactured by Hershey (Reese's, Kit Kat, and Hershey), Mars (Snickers, M&M's, and Milky Way), William Wrigley and Nabisco. The Company also markets its own private label candy under a manufacturing agreement with Palmer Candy Company. OTHER PRODUCT LINES. Over the past decade, ADC's strategy has been to expand its portfolio of consumer products in order to better serve its customer base. ADC's other product lines include cigars and other tobacco products, water and other beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food products. During fiscal 2000, ADC's sales of other products increased $8.4 million or 15.4%. During fiscal 2000 the gross profit margin on these types of products was 13.9%. COMPETITION Both the traditional and natural food distribution businesses are highly competitive. There are many similar distribution companies operating in the same geographical regions as ADC and FFH. Management believes that ADC is one of the largest distribution companies of its type operating in its market area. ADC's principal competitors are national wholesalers such as McLane Co., Inc. (Temple, TX) and regional wholesalers such as Farner-Bocken (Carroll, IA), Merchants Wholesale (Quincy, IL) and Minter-Weisman Co. (Minneapolis, MN) along with a host of smaller grocery and tobacco wholesalers. FFH's principal competitors are national distributors such as Tree of Life and United Natural Foods and regional distributors such as Nature's Best along with numerous smaller specialty distributors of natural products. Most of these competitors generally offer a wide range of products at prices comparable to the Company's. Therefore, the Company seeks to distinguish itself from its competitors by offering a higher level of technology and customer service. The natural food retail industry is highly fragmented, with more than 9,000 stores operating independently or as part of small chains. The two leading natural food chains, Whole Foods Market and Wild Oats, continue to expand their geographic markets by opening stores in new markets and acquiring smaller independent competitors. In addition, conventional supermarkets and mass market outlets have also begun to increase their emphasis on the sale of natural products. These strategies have contributed to the saturation of health food retail stores in some markets and have caused same store sales to generate minimal increases over the past year. Management believes the Company's retail stores separate themselves from other competitors by offering smaller, more friendly, community-oriented settings run by people who share a passion for healthy living and natural foods and that this approach will continue to attract health food consumers. 8 GOVERNMENT REGULATION Various state government agencies regulate the distribution of cigarettes and tobacco products in several ways, including the imposition of excise taxes, licensing and bonding requirements. Complying with these regulations is a very time-consuming, expensive and labor-intensive undertaking. For example, each state (as well as certain cities and counties) requires the Company to collect excise taxes ranging from $1.20 to $5.80 per carton on all cigarettes sold by it in the state. Such excise taxes must be paid in advance and, in most states, is evidenced by a stamp which must be affixed to each package of cigarettes. The Company is also subject to regulation by state and local health departments, the U.S. Department of Agriculture, the Food and Drug Administration and the Drug Enforcement Administration. These agencies generally impose standards for product quality and sanitation, as well as for security and distribution policies. EMPLOYEES As of September 30, 2000, the Company had 1,009 full-time and part-time employees in the following areas: Managerial 20 Administrative 139 Sales & Marketing 458 Warehouse 288 Delivery 104 ----- Total Employees 1,009 ===== None of AMCON's employees are subject to any collective bargaining agreements with the Company and management believes its relations with its employees are good. 9 ITEM 2. PROPERTIES The location and approximate square footage of the eight principal distribution centers and 14 retail stores operated by AMCON as of September 30, 2000 are set forth below: LOCATION SQUARE FEET -------- ----------- DISTRIBUTION ------------ ADC - Missouri, Nebraska, North Dakota South Dakota & Wyoming 306,200 FFH - Arizona & Florida 167,000 ------- Total Distribution 473,200 ------- RETAIL ------ CNF - Florida 47,700 HFA - Kansas, Missouri, Nebraska & Oklahoma 50,800 ------- Total Retail 98,500 ------- Total Square Footage 571,700 ======= AMCON owns its distribution facility in Bismarck, North Dakota. This facility is subject to a first mortgage securing borrowings under the Company's revolving credit facility (see "MANAGEMENT'S DISCUSSION AND ANALYSIS-Liquidity and Capital Resources" in the Annual Report to Stockholders for the Fiscal Year Ended September 30, 2000). AMCON leases its remaining distribution facilities, retail stores, offices and certain equipment under noncancellable operating leases. Leases for the eight distribution facilities and 14 retail stores leased by the Company have terms expiring from 2001 to 2006. Minimum future lease commitments for these properties and equipment total approximately $15.3 million as of September 30, 2000. Management believes that its existing facilities are adequate for the Company's present level of operations; however, larger facilities and additional cross-dock facilities and retail stores will be required to accommodate the Company's anticipated growth in certain market areas. AMCON owned a condominium in the Cayman Islands that was sold during fiscal 2000. In accordance with an agreement with its former parent, one-half of the gain from the sale was allocated to the former parent. See Item 13 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." 10 ITEM 3. LEGAL PROCEEDINGS. The Company is subject to claims and litigation in the ordinary course of its business. However, in the opinion of management, no currently pending legal proceedings or claims against the Company will, individually or in the aggregate, have a material adverse effect on the Company's financial condition or results of operations. The Company believes that all of its real property is in compliance with all regulations regarding the discharge of toxic substances into the environment and is not aware of any condition at its properties that could have a material adverse affect on its financial condition or results of operations. In that regard, the Company has not been notified by any governmental authority of any potential liability or other claim in connection with any of its properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter ended September 30, 2000. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY. The Company's day-to-day affairs are managed by its executive officers, who are appointed by the Board of Directors for terms of one year. The Company has entered into employment agreements with Mr. Wright, Ms. Evans and Mr. Fleming, each with a term expiring on December 31, 2002. The executive officers of AMCON are as follows: Name Age Position ---- --- -------- William F. Wright 58 Chairman of the Board, Director Kathleen M. Evans 53 President of ADC, Director Jerry Fleming 62 President of FFH, Director Michael D. James 39 Secretary, Treasurer and Chief Financial Officer WILLIAM F. WRIGHT has served as the Chairman and Chief Executive Officer of AMCON Corporation (the former parent of ADC) since 1976 and as Chairman of the Company since 1981. From 1968 to 1984, Mr. Wright practiced corporate and securities law in Lincoln, Nebraska. Mr. Wright is a graduate of the University of Nebraska and Duke University School of Law and is a certified public accountant. Mr. Wright is also a director of Gold Banc Corporation, Inc., a NASDAQ company. KATHLEEN M. EVANS became President of the Company in February 1991. Prior to that time she served as Vice President of AMCON Corporation from 1985 to 1991. From 1978 until 1985, Ms. Evans acted in various capacities with AMCON Corporation and its operating subsidiaries. 11 JERRY FLEMING became President of FFH in 1992. Mr. Fleming is a 37 year veteran of the health and natural foods industry and prior to joining FFH, served as President of Nature's Way (Murdock Health Care),a leading manufacturer of herbal remedies; Vice President of the Natural Foods Group for Tree of Life, Inc.; President of the South East division of Tree of Life; President of Collegedale Distributors; President of Healthway Specialty Foods, Inc.; Vice President of Landstrom Specialty Foods, Inc. and served eight years on the board of directors of the National Nutritional Foods Association. MICHAEL D. JAMES became Treasurer and Chief Financial Officer of the Company in June 1994. In November 1997, he assumed the responsibilities of Secretary of the Company. He is a certified public accountant and is responsible for all financial and reporting functions within the Company. Prior to joining AMCON, Mr. James practiced accounting for ten years with the firm of PricewaterhouseCoopers LLP, serving as the senior tax manager of the Omaha, Nebraska office from 1992 until 1994. Mr. James graduated from Kansas State University in 1983. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The information required by this item is incorporated by reference from the Annual Report to Stockholders for the fiscal year ended September 30, 2000 under the heading "Market for Common Stock" on pages 4 and 5. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item is incorporated by reference from the Annual Report to Stockholders for the fiscal year ended September 30, 2000 under the heading "Selected Financial Data" on pages 2 through 4. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is incorporated by reference from the Annual Report to Stockholders for the fiscal year ended September 30, 2000 under the heading "Management's Discussion and Analysis" on pages 5 through 14. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by this item is incorporated by reference from the Annual Report to Stockholders for the fiscal year ended September 30, 2000 under the heading "Management's Discussion and Analysis" on pages 5 through 14. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and accompanying notes, together with the report of independent accountants are incorporated by reference from the Annual Report to Stockholders for the fiscal year ended September 30, 2000 on pages F-1 through F-25. Supplemental financial information is incorporated by reference from the Annual Report to Stockholders for the fiscal year ended September 30, 2000 under the heading "Selected Quarterly Financial Data" on pages 3 and 4. 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Registrant's Proxy Statement to be used in connection with the 2001 Annual Meeting of Stockholders (the "Proxy Statement") contains under the caption "Election of Directors" certain information required by Item 10 of Form 10-K and such information is incorporated herein by this reference. The information required by Item 10 of Form 10-K as to executive officers is set forth in Item 4A of Part I hereof. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and certain persons who own more than ten percent of the Company's Common Stock, to file with the Securities and Exchange Commission (the "SEC") reports of their ownership of Company Common Stock. Officers, directors and greater-than-ten-percent shareowners are required by SEC regulation to furnish the Company with copies of such reports received by the 16(a) reports they file. Based solely upon review of the copies of such reports received by the Company and written representations from each such person who did not file an annual report with the SEC (Form 5) that no other reports were required, the Company believes that there was compliance for the fiscal year ended September 30, 2000 with all Section 16(a) filing requirements applicable to the Company officers, directors and greater- than-ten-percent beneficial owners. ITEM 11. EXECUTIVE COMPENSATION. The Proxy Statement contains under the captions "Compensation of Directors", "Compensation of Executive Officers" and "Compensation Committee Interlocks and Insider Participation", the information required by Item 11 of Form 10-K, and such information is incorporated herein by this reference. The information set forth under the captions "Report of Compensation Committee on Executive Compensation" and "Company Performance" is expressly excluded from such incorporation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Proxy Statement contains under the caption "Voting Securities and Beneficial Ownership Thereof by Principal Stockholders, Directors and Officers" the information required by Item 12 of Form 10-K and such information is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Proxy Statement contains under the caption "Certain Relationships and Related Transactions" the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference. 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) FINANCIAL STATEMENTS The following financial statements of AMCON Distributing Company are incorporated by reference under Item 8. The Annual Report to Stockholders for the Fiscal Year Ended September 30, 2000 is attached as Exhibit 13. Reference Page Report of Independent Accountants F-1 Consolidated Balance Sheets as of September 30, 2000 and 1999 F-2 Consolidated Statements of Income for the Years Ended September 30, 2000, 1999, and 1998 F-3 Consolidated Statements of Shareholders' Equity and Comprehensive Income for the Years Ended September 30, 2000, 1999 and 1998 F-4 Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998 F-6 Notes to Consolidated Financial Statements F-7 (2) FINANCIAL STATEMENT SCHEDULES Report of Independent Accountants S-1 Schedule II - Valuation and Qualifying Accounts S-2 (3) EXHIBITS 2.1 Stock Purchase Agreement dated November 3, 1997, between the Company and FFH Holdings, Inc. (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 2.2 Stock Purchase Agreement dated February 24, 1999, between Food For Health Company, Inc. ("FFH"), Chamberlin Natural Foods, Inc. ("Chamberlin") and its shareholders (incorporated by reference to Exhibit 2.2 of AMCON's Quarterly Report on Form 10-Q filed on May 10, 1999) 2.3 Stock Purchase Agreement dated August 30, 1999, by and among Food For Health Company, Inc., Health Food Associates, Inc. and its shareholders (incorporated by reference to Exhibit 2.1 of AMCON's Current Report of Form 8-K filed on September 30, 1999) 3.1 Restated Certificate of Incorporation of the Company, as amended March 19, 1998 (incorporated by reference to Exhibit 3.1 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 14 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993, between the Company and Famous Value Brands, a division of Philip Morris Incorporated, including Private Label Manufacturing Agreement and Amended and Restated Trademark License Agreement (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.2 Amendment No. 1 to Grant of Exclusive Manufacturing Rights, dated October 1, 1998, between the Company and Famous Value Brands, a division of Philip Morris Incorporated, including Amendment No. 1 To Private Label Manufacturing Agreement and Amendment No. 1 to Amended and Restated Trademark License Agreement (incorporated by reference to Exhibit 10.2 of AMCON's Annual Report on Form 10-K filed on December 24, 1998) 10.3 Loan Agreement, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 10.4 Amended Loan Agreement, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.5 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.5 Note, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 10.6 First Allonge to Note, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.7 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.7 Loan and Security Agreement, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.8 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.8 Promissory Note, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.9 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.9 Loan and Security Agreement, dated February 25, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.10 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.10 Promissory Note, dated February 25, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.11 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 15 10.11 First Amendment to Loan and Security Agreement, dated November 18, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.11 of AMCON's Quarterly Report on Form 10-Q/A filed on August 5, 1999) 10.12 First Amendment and Allonge to Promissory Note, dated November 18, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q/A filed on August 5, 1999) 10.13 Unconditional Guarantee, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.14 8% Convertible Subordinated Note, dated September 15, 1999 by and between Food For Health Company Inc. and Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.15 Secured Promissory Note, dated September 15, 1999, by and between Food For Health Company, Inc. and James C. Hinkefent and Marilyn M. Hinkefent, as trustees of the James C. Hinkefent Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.16 Pledge Agreement, dated September 15, 1999, by and between Food For Health Company, Inc. and James C. Hinkefent and Marilyn M. Hinkefent, as trustees of the James C. Hinkefent Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.3 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.17 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) 10.18 AMCON Distributing Company Profit Sharing Plan (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.19 Employment Agreement, dated May 22, 1998, between the Company and William F. Wright (incorporated by reference to Exhibit 10.14 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 10.20 Employment Agreement, dated May 22, 1998, between the Company and Kathleen M. Evans (incorporated by reference to Exhibit 10.15 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 16 10.21 Employment Agreement, dated May 22, 1998, between the Food For Health Co., Inc. and Jerry Fleming (incorporated by reference to Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 11.1 Statement re: computation of per share earnings (incorporated by reference to footnote 4 to the financial statements included in Item 1 of Part I herein) 13.1 Annual Report to Stockholders for the Fiscal Year Ended September 30, 2000 21.0 Subsidiaries of the Company 23.1 Consent of PricewaterhouseCoopers LLP 27.0 Financial Data Schedules (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the fourth quarter ended September 30, 2000 17 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, the Registrant, AMCON Distributing Company, a Delaware corporation, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on the 28th day of December, 2000. AMCON DISTRIBUTING COMPANY By: /s/ William F. Wright ---------------------- William F. Wright, Chairman 18 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities indicated on the 28th day of December, 2000. Signature Title ---------- ----- /s/ William F. Wright Chairman of the Board (Principal - ------------------------ Executive Officer) and Director William F. Wright /s/ Kathleen M. Evans President and Director - ------------------------ Kathleen M. Evans /s/ Michael D. James Treasurer, Chief Financial Officer - ------------------------ and Secretary (Principal Financial Michael D. James and Accounting Officer) /s/ J. Tony Howard Director - ------------------------ J. Tony Howard /s/ Allen D. Petersen Director - ------------------------ Allen D. Petersen /s/ Jerry Fleming Director - ------------------------ Jerry Fleming /s/ Timothy R. Pestotnik Director - ------------------------ Timothy R. Pestotnik /s/ William R. Hoppner Director - ------------------------ William R. Hoppner 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of AMCON Distributing Company: Our report on the consolidated financial statements of AMCON Distributing Company is included in this Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in Item 14 for the years ended September 30, 2000, 1999 and 1998. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PRICEWATERHOUSECOOPERS LLP Omaha, Nebraska November 22, 2000 S-1 AMCON Distributing Company Financial Statement Schedule SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - -----------------------------------------------
Net Amounts Balance at Provision Other (Written Off) Balance at Description Beginning of Period (Benefit) /1/ Recovered End of Period - ------------------ --------------------- --------- ------- ------------- ----------------------- Allowance for doubtful accounts Oct 1, 1997 206,249 386,630 339,545 (471,671) Sep 30, 1998 460,753 Oct 1, 1998 460,753 314,720 - (98,672) Sep 30, 1999 676,801 Oct 1, 1999 676,801 372,724 - (265,919) Sep 30, 2000 783,606 Allowance for inventory obsolescence Oct 1, 1997 30,000 253,864 76,000 (30,000) Sep 30, 1998 329,864 Oct 1, 1998 329,864 - - (253,864) Sep 30, 1999 76,000 Oct 1, 1999 76,000 40,000 - - Sep 30, 2000 116,000 /1/ Recorded as a result of the acquisition of Food For Health Co., Inc.
S-2 EX-13.1 2 0002.txt ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13.1 Annual Report to Stockholders for the Fiscal Year Ended September 30, 2000 TO OUR SHAREHOLDERS: In this age of revised forecasts and earnings' adjustments, we at AMCON are proud to advise you that, for fiscal year 2000, we achieved record sales and record earnings per share for the fifth consecutive year. This was not achieved without extremely hard work on the part of all of the people of AMCON. We are also proud of the fact that, over the past five years, sales have increased a total of 176% and earnings per share have increased a total of 198%. Part of our earnings for the fiscal year 2000 were aided by non-recurring gains from the sale of the Company's condominium and settlement of a trademark dispute. By the same token, part of our earnings for the fiscal year 1999 were aided by extraordinary price increases in some of our basic products. For the present fiscal year we are striving hard to continue our record of growth, in both sales and earnings per share, knowing full well that we cannot rely upon such extraordinary events to repeat themselves. Whether or not we can achieve such continued growth is uncertain. However, we will not fail for lack of effort. Fiscal year 2000 saw continued strong performance in our traditional distribution area. It also saw disappointments in the natural foods segment, as competition became increasingly more difficult. We believe that our health food retail segment is beginning to show the results which we expected when we entered that area. We continue to believe that we need to grow, by acquisition and internally, in this area. During last year, we expanded our retail health food operations by adding two locations through acquisition. At the same time, we are re-appraising the validity of our commitment to wholesale distribution in the health food sector. Last year we committed to acquire Hawaiian Natural Water and expect that acquisition to come on line in 2001. We believe that Hawaiian Natural owns attractive trademarks and names, and know that the company produces a superb product. As we add our efforts to distribute that product, we hope that you will have the opportunity to try the products and trust that you will agree with our analysis. Having in the past a relatively small number of sales means that the addition of a relatively small amount of additional sales can make that acquisition accretive to our Company. In addition, we are looking at acquisitions in our traditional distribution area and hope to expand that business in a financially sound way. We believe we operate that segment in a very efficient manner and can utilize our operating philosophies to effectively expand in the future by acquisition. At the beginning of year 2000, we moved our stock listing to the American Stock Exchange and changed our trading symbol to "DIT." In addition, throughout the year, we continued to pay a cash dividend. That dividend was increased by 50% to $.03 per share on a quarterly basis. Although we cannot predict the future, nor can we guarantee continuation, it is our hope that the dividends will continue with regularity. As always, both of us are interested in hearing from you with any questions, suggestions, or comments. We await our future with growing anticipation. However, we are also cognizant that, with the vagaries of the national economy and other factors, continued success will not come to us without continued hard work. We appreciate the support which you, our shareholders, give us, and hope that, in the short-term future, the equity markets will come to appreciate our Company to a much greater degree. In addition, we are most grateful to our suppliers and customers without whom there would be no business. But most of all we appreciate the efforts of every single one of our employees it is they who truly are AMCON, and it is they who have made our success to date possible. William F. Wright Kathleen M. Evans Chairman President 1 SELECTED FINANCIAL DATA The selected financial data presented below have been derived from the Company's audited financial statements. The information set forth below should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS" and with the Consolidated Financial Statements and Notes thereto included in this Annual Report.
(Dollars in thousands, except per share data) - -------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- Sales................................... $ 466,125 $ 385,501 $ 294,281 $ 178,991 $ 176,145 Cost of sales........................... 410,511 343,021 262,633 159,435 155,885 --------- --------- --------- --------- -------- Gross profit............................ 55,614 42,480 31,648 19,556 20,260 Operating expense....................... 48,706 34,616 26,209 16,753 17,504 --------- --------- --------- --------- --------- Income from operations.................. 6,908 7,864 5,439 2,803 2,756 Interest expense........................ 3,048 1,754 1,814 867 1,149 Other (income) expense, net............. (2,160) (72) (276) (1,353) (697) --------- --------- --------- --------- --------- Income before income taxes 6,020 6,182 3,901 3,289 2,304 Income taxes 2,116 2,346 1,543 1,348 968 --------- --------- --------- --------- --------- Net income.............................. 3,904 3,836 2,358 1,941 1,336 Accretion of preferred stock /1/ ....... - - - - (83) --------- --------- --------- --------- --------- Net income.............................. $ 3,904 $ 3,836 $ 2,358 $ 1,941 $ 1,253 ========= ========= ========= ========= ========= Earnings per common and common equivalent share attributable to common shareholders: Basic: $ 1.43 $ 1.41 $ 0.87 $ 0.72 $ 0.46 ========= ========= ========= ========= ========= Diluted: $ 1.37 $ 1.35 $ 0.85 $ 0.72 $ 0.46 ========= ========= ========= ========= ========= Weighted average shares outstanding: Basic................................ 2,734,862 2,727,892 2,703,868 2,692,560 2,690,493 Diluted.............................. 2,853,320 2,855,419 2,788,996 2,696,608 2,690,493
2
(Dollars in thousands) - -------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED SEPTEMBER 30, 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- Working capital ....................... $ 27,373 $ 18,737 $ 18,474 $ 11,158 $ 11,572 Total assets............................ 72,996 68,589 39,644 23,497 23,026 Long-term obligations and subordinated debt /2/............................... 40,583 38,129 19,207 9,123 10,245 Shareholders' equity /4/................ 16,855 13,258 9,605 7,208 /3/ 6,621
- ------------------------ /1/ Preferred stock valued at $1,000,000 was issued in partial payment for repurchase of warrants which were originally issued in 1989. The preferred stock accreted to the redemption price of $1,200,000 in lieu of cash dividends and was redeemed in December 1996. /2/ Includes current portion of long-term obligations and subordinated debt. /3/ Reflects redemption of preferred stock described in footnote 1 above for $1,200,000 in December 1996. /4/ Net of dividends declared of $322,691 and $198,392 in fiscal 2000 and 1999, respectively. SELECTED QUARTERLY FINANCIAL DATA (unaudited) The following table sets forth selected financial information for each of the eight quarters in the two-year period ended September 30, 2000. This information has been prepared by the Company on the same basis as the consolidated financial statements and includes all normal and recurring adjustments necessary to present fairly this information when read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in this Annual Report.
(Dollars in thousands) - -------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED SEPTEMBER 30, 2000 Fourth Third Second First - -------------------------------------------------------------------------------------------------------- Sales................................... $126,461 $115,884 $111,736 $112,044 Gross profit............................ 13,932 13,008 14,715 13,959 Income before taxes..................... 327 2,175 /1/ 1,894 1,624 Net income.............................. 306 1,381 1,206 1,012 Earnings per common and common equivalent share: Basic: $ 0.11 $ 0.50 $ 0.44 $ 0.37 ======== ======== ======= ======= Diluted: $ 0.11 $ 0.49 $ 0.42 $ 0.35 ======== ======== ======= =======
3
(Dollars in thousands) - -------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED SEPTEMBER 30, 1999 Fourth Third Second First - -------------------------------------------------------------------------------------------------------- Sales................................... $109,501 $103,651 $90,040 $82,309 Gross profit............................ 11,814 10,665 9,353 /2/ 10,646 /2/ Income before taxes..................... 1,001 1,360 1,425 2,395 Net income.............................. 682 850 861 1,443 Earnings per common and common equivalent share: Basic: $ 0.25 $ 0.31 $ 0.32 $ 0.53 ======== ======== ======= ======= Diluted: $ 0.24 $ 0.30 $ 0.30 $ 0.51 ======== ======== ======= =======
/1/ Income before taxes includes gains associated with the sale of real estate and intangible assets. /2/ Gross profit in the first and second quarters include margin from a significant cigarette price increase which took effect during the first quarter. Quarterly earnings are based on weighted average shares outstanding for the quarter, therefore, the sum of the quarters may not equal the full year earnings per share amount. MARKET FOR COMMON STOCK On December 31, 1999, the Company moved from the NASDAQ SmallCap Market to the American Stock Exchange ("AMEX"). The Company's trading symbol changed to "DIT". The following table reflects the range of the high and low prices per share of the Company's Common Stock reported by NASDAQ and AMEX for the years ended September 29, 2000 and September 24, 1999. Quotations for fiscal 1999 and for the first quarter of fiscal 2000 represent inter-dealer quotations, without adjustment for retail mark-ups, mark-downs or commissions and may not necessarily represent market transactions. Quotations for the second, third and fourth quarters of fiscal 2000 represent the high and low sales price of the Company's common stock. All quotations have been adjusted to reflect the 10% stock dividend paid in February 2000. As of December 15, 2000, the Company had approximately 1,000 holders of record of its shares and the Company believes that approximately 1,600 additional persons hold shares beneficially. COMMON STOCK --------------------- HIGH LOW ------ ------ Year ended September 29, 2000: 4th Quarter $ 6.00 $ 5.00 3rd Quarter 6.81 5.25 2nd Quarter 7.72 6.13 1st Quarter 9.09 6.42 4 Year ended September 24, 1999: 4th Quarter $ 9.09 $ 6.71 3rd Quarter 9.32 5.45 2nd Quarter 7.73 5.17 1st Quarter 7.39 3.86 During the fiscal year ended September 29, 2000, the Board of Directors declared cash dividends of $0.03 per share per quarter or $0.12 per share for the year. In December 1999, the Board of Directors declared a special 10% stock dividend. The Board of Directors will evaluate payment of future dividends at their regular meetings. In addition to possible dividends in the future, retained earnings will be used to finance acquisitions of other distributing and retail companies, develop new products, expand markets and for other corporate purposes. The payment of dividends requires the prior approval of the lender under various borrowing arrangements entered into by the Company. On September 27, 1996, AMCON issued options to purchase 24,200 shares of its common stock to management employees at an exercise price of $1.48 per share (shares and exercise price adjusted for 10% stock dividend paid in February 2000). On November 10, 1997, options to purchase 154,000 shares of common stock were issued to management employees at exercise prices of $2.61 and $2.88 (shares and exercise price adjusted for 10% stock dividend paid in February 2000). During fiscal 1999, options to purchase 115,500 shares of common stock were issued to management employees at exercise prices between $5.91 and $9.00 (shares and exercise price adjusted for 10% stock dividend paid in February 2000). During fiscal 2000, options to purchase 32,900 shares of common stock were issued to management employees at an exercise price of $5.75. At September 29, 2000, options to acquire 131,076 shares of common stock were fully vested and exercisable. In November 1997, AMCON issued options to acquire 33,000 shares of its common stock at an exercise price of $2.61 per share (shares and exercise price adjusted for 10% stock dividend paid in February 2000). The options were issued to two independent directors of the Company as consideration for past service to the Company. The options have a termination date of November 10, 2007 and vest over a three year period. In December 1998, options to acquire 22,000 shares of AMCON's stock were issued to the Company's four independent directors at an exercise price of $6.14 per share (shares and exercise price adjusted for 10% stock dividend paid in February 2000). The options were fully vested at the date of grant. In June 1999, AMCON issued options to acquire 8,800 shares of its common stock to its four independent directors at an exercise price of $8.18 per share (shares and exercise price adjusted for 10% stock dividend paid in February 2000). The options were fully vested at the date of grant. At September 29, 2000, 57,200 options issued to independent directors were fully vested and exercisable. MANAGEMENT'S DISCUSSION AND ANALYSIS AMCON Distributing Company (together with its wholly-owned subsidiary, Food For Health Co., Inc. and its wholly-owned subsidiaries, Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc.) operates 8 distribution centers and 14 retail health food stores in the Great Plains, Rocky Mountain, Western and Southern regions of the United States. As used herein, unless the context indicates otherwise, the term "ADC" means the separate company operations or 5 "traditional distribution business" of AMCON Distributing Company, the term "FFH" means the "natural food distribution business" of Food For Health Co., Inc. The terms "CNF" and "HFA" represent the "retail health food stores" operated by Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc., respectively, both wholly-owned subsidiaries of FFH, and the term "AMCON" or the "Company" means AMCON Distributing Company and its subsidiaries. AMCON's fiscal year ends on the last Friday in September. For convenience, the fiscal years have been indicated as September 30, whereas the actual year ends were September 29, 2000, September 24, 1999, and September 25, 1998. Fiscal 2000 comprised 53 weeks. Fiscal 1999 and 1998 each comprised 52 weeks. RESULTS OF OPERATIONS The following table sets forth an analysis of various components of the Income Statement as a percentage of sales for the fiscal years ended September 30, 2000, 1999, and 1998:
Fiscal Year Ended September 30, ------------------------------- 2000 1999 1998 -------- -------- -------- Sales.......................................... 100.0% 100.0% 100.0% Cost of sales.................................. 88.1 89.0 89.3 ------- ------- -------- Gross profit................................... 11.9 11.0 10.7 Selling, general and administrative expense...................... 9.8 8.5 8.5 Depreciation and amortization.................. 0.6 0.5 0.4 ------- ------- -------- Income from operations......................... 1.5 2.0 1.8 Interest expense............................... 0.7 0.5 0.6 Other (income) expense, net.................... (0.5) (0.1) (0.1) ------- ------- -------- Income before income taxes..................... 1.3 1.6 1.3 Income tax expense............................. 0.5 0.6 0.5 ------- ------- -------- Net income 0.8% 1.0% 0.8% ======= ======== ========
6 YEAR ENDED SEPTEMBER 30, 2000 VERSUS YEAR ENDED SEPTEMBER 30, 1999. Sales for the year ended September 30, 2000 increased 21% to $466.1 million, compared to $385.5 million for the year ended September 30, 1999. Sales increase by business segment is as follows (dollars in millions): Wholesale distribution $ 53.5 million Retail health food stores 27.1 million ------ $ 80.6 million ====== Sales from the traditional distribution business increased by $54.7 million for the year ended September 30, 2000 as compared to the same period in the prior year as follows: Cigarette sales increased approximately $45.4 million over the prior year (approximately $32.3 million was due to price increases and the balance was due to increased volume). Sales of non-cigarette products increased by $9.3 million primarily due to increased volume. Sales from the health and natural foods distribution business decreased by $1.2 million primarily due to the loss of several significant customers who either were acquired or implemented an internal distribution system during the year. The increase in sales of $27.1 million from the retail health food stores, Chamberlin's Market & Cafe and Akin's Natural Foods Market, is primarily due to new sales generated since the retail segment was purchased in the third and fourth quarters of fiscal 1999. Gross profit increased 30.9% to $55.6 million for the year ended September 30, 2000 compared to $42.5 million for the prior fiscal year. Gross profit as a percentage of sales increased to 11.9% for the period compared to 11.0% for fiscal 1999. Gross profit by business segment for the year ended September 30, 2000 is as follows (dollars in millions): Incr/ 2000 1999 (Decr) ------ ------ ------ Wholesale distribution (recurring) $ 41.6 $ 36.0 $ 5.6 Wholesale distribution (nonrecurring) - 3.7 (3.7) Retail health food stores 14.0 2.8 11.2 ------ ------ ------ $ 55.6 $ 42.5 $ 13.1 ====== ====== ====== The increases in gross profit and gross profit percentage were primarily attributable to $14.0 million in gross profit generated by the retail health food stores, which were acquired in the third and fourth quarters of fiscal 1999. Profit margins generated by the retail food stores are typically 40-45% compared to profit margins of 9-11% generated by the distribution segment. Gross profit generated by the recurring distribution businesses increased by $5.6 million due to additional sales generated by the traditional distribution business. However, the traditional distribution business experienced a decrease of $3.7 million in nonrecurring gross profit in fiscal 2000, as compared to the same period of the prior year, due to the absence of cigarette price increases of the magnitude of which occurred in the prior year. A significant cigarette price increase was implemented by cigarette manufacturers in the first quarter of fiscal 1999 as the result of a settlement that was reached between the major tobacco manufacturers and the 7 various states that had filed liability suits against the industry. Price increases of the magnitude experienced in November 1998 have historically been rare and the level of profits generated by this event are not expected to recur on a regular basis. Manufacturers increased the price of cigarettes on several occasions since November 1998. Management considers gross profits derived from these increases to occur in the normal course of business even though their occurrence is irregular and unpredictable. Sales of the Company's private label cigarettes declined significantly from 1993 through 1999 primarily due to the price differential between premium and major generic brands. The rate of decline in private label cigarette sales slowed in fiscal 2000 and gross profit derived from such sales increased slightly in the year ended September 30, 2000 as compared to the prior year due to enhancements in the manufacturer's promotional program. Management expects the gross profit derived from the sale of its private label cigarettes to remain at current levels in fiscal 2001. For the year ended September 30, 2000, total operating expense, which includes selling, general and administrative expenses, depreciation and amortization, increased 40.7% or $14.1 million to $48.7 million compared to fiscal 1999. The increase was primarily due to expenses associated with the retail health food stores which accounted for $10.2 million of the increase in operating expenses. The retail health food stores were acquired in the third and fourth quarters of fiscal 1999; therefore, there were no operating expenses associated with this business segment in the first six months of the prior fiscal year. Operating expenses incurred by the distribution segment increased by $3.9 million primarily due to increased labor costs in the distribution centers resulting from tight labor markets, an increase in fuel and other delivery expenses, and additional administrative costs associated with development of new retail business opportunities. As a percentage of sales, total operating expense increased to 10.4% from 9.0% during the prior year. This increase is primarily due to operating costs incurred by the retail health food business during the period. Operating expenses incurred by this business segment were approximately 37.6% of sales compared to 8.3% incurred by the wholesale distribution business. As a result of the above, income from operations for the year ended September 30, 2000 decreased $955,700 or 12.2% to $6,908,280. Interest expense for the year ended September 30, 2000 increased 73.7% to $3.0 million compared to $1.8 million during the prior year. The increase was primarily due to interest expense attributable to the debt incurred to purchase the retail health food stores in fiscal 1999. Interest expense associated with this acquisition debt was approximately $1.6 million for the year ended September 30, 2000, compared to $204,000 in the prior year. Interest expense associated with the Company's operating lines of credit decreased approximately $152,000 for the year ended September 30, 2000, as compared to the prior year. The decrease was primarily attributable to reductions to the revolving credit balances from the proceeds of the sale of the Company's interest in a condominium. Other income for the year ended September 30, 2000 of $2.2 million was generated primarily by $1.9 million in gains associated with the sale of the Company's interest in a condominium and resolution of an intellectual property matter involving a trademark. Sale of fixed assets and marketable securities, 8 royalty payments and dividends received on investment securities were also included in other income. Other income for the year ended September 30, 1999 of $72,000 was generated from similar activities. The effective tax rate was 35% in fiscal 2000, compared to 38% in fiscal 1999. The decrease was attributable to release of tax reserves that were previously recorded and are no longer required due to expiration of the related statute or favorable tax audit determination. As a result of the above factors, net income for the year ended September 30, 2000 was $3,904,439 compared to $3,835,529 for fiscal 1999. The distribution industry is in a state of consolidation as intense competition and pressure on profit margins continue to affect both large and small distributors. The retail natural foods industry is highly fragmented, with more than 9,000 stores operated independently or as part of small chains. The two leading natural food chains continue to expand their geographic markets and acquire smaller independent competitors. In addition, conventional supermarkets and mass market outlets have also begun to increase their emphasis on the sale of natural products. This business climate subjects operating income to a number of factors which are beyond the control of management, such as competing retail stores opening in close proximity to the Company's retail stores and manufacturers' changing prices and promotional programs. While the Company sells a diversified product line, it remains dependent on cigarette sales which represented approximately 63% of its revenue and 33% of its gross margin in fiscal 2000. Changes in manufacturers' cigarette pricing affects the market for generic and private label cigarettes and net income is heavily dependent upon sales of the Company's private label cigarettes and volume discounts received from manufacturers in connection with such sales. The Company continuously evaluates steps it may take to improve net income in future periods, including further acquisitions of other distributing companies and retail stores in similar business lines and further sales of assets that are no longer essential to its primary business activities such as investments in equity securities. Investments in equity securities at September 30, 2000 and 1999 consisted primarily of 70,000 and 83,000 shares, respectively, of Consolidated Water Company Limited ("CWC,"), a public company which is listed on NASDAQ. The Company's basis in the securities was $127,000 and $151,000, and the fair market value of the securities was $499,000 and $540,000 on September 30, 2000 and September 30, 1999, respectively. The unrealized gain on CWC shares was approximately $372,000 and $389,000 on September 30, 2000 and 1999, respectively. The fair market value of the CWC shares on December 15, 2000 was $485,800. YEAR ENDED SEPTEMBER 30, 1999 VERSUS YEAR ENDED SEPTEMBER 30, 1998. Sales for the year ended September 30, 1999 increased 31% to $385.5 million, compared to $294.3 million for the year ended September 30, 1998. Sales from the traditional distribution business through September 30, 1999 were $72.8 million over the prior year. Component increases were as follows: Cigarette sales increased approximately $65.5 million over the prior year (approximately 61% was due to price increases over the past 12 months and the balance was due 9 to increased volume). Sales of non-cigarette products increased by $7.3 million primarily due to increased volume. Sales from the health and natural foods distribution business increased by $11.4 million. This increase was partially due to $5.8 million of sales generated by U.S. Health Distributors, Inc. ("USHD") which was acquired by FFH in November 1998 and merged into FFH in fiscal 2000. Additionally, since FFH was acquired mid-way through the first quarter of fiscal 1998, FFH's sales in the first quarter of 1999 were approximately $4.1 million greater than the prior year. New sales generated by the retail health food stores acquired by FFH during fiscal 1999 totaled $7.0 million. CNF, acquired on March 29, 1999, contributed $6.4 million of new sales and HFA, acquired on September 15, 1999, contributed $569,000 of new sales. Gross profit increased 34.2% to $42.5 million for the year ended September 30, 1999 compared to $31.6 million for the prior fiscal year. Gross profit as a percent of sales increased to 11.0% for the period compared to 10.7% for the year ended September 30, 1998. The increases in gross profit and gross profit percentage were primarily attributable to a substantial cigarette price increase during the first quarter of the year which resulted from a settlement that was reached between the major tobacco manufacturers and the various states that had filed liability suits against the industry. This nonrecurring price increase accounted for approximately $4.2 million in gross margin for the year ended September 30, 1999 versus $1.5 million in the prior year. Gross margin from the distribution businesses operated by ADC and FFH increased by $5.2 million due to increases in volume and an additional 6 weeks of operations by FFH, which was acquired in mid-November 1997. In addition, gross profit generated by USHD and the retail businesses, CNF & HFA, which were acquired during the fiscal 1999, was $4.5 million. These increases in gross profit were partially offset by a $2.0 million LIFO inventory adjustment during the second, third and fourth quarters. For the year ended September 30, 1999, total operating expense, which includes selling, general and administrative expenses, depreciation and amortization, increased 32.1% to $34.6 million compared to fiscal 1998. The increase was partially due to expenses attributable to USHD, CNF and HFA, which were acquired during fiscal 1999. These subsidiaries accounted for $4.4 million of the increase in operating expenses. In addition, since FFH was purchased midway through the first quarter of fiscal 1998, FFH's operating expenses in the prior year represent approximately 88% of a full 12 month period. As a result, FFH's operating expenses were approximately $1.0 million greater in 1999 than 1998. The remaining increase in operating expenses was due to additional expenses incurred by ADC to support increased volume for the year. As a percentage of sales, total operating expense increased to 9.0% from 8.9% during the same period in the prior year. This increase was primarily due to the acquisition of USHD, CNF and HFA, whose operating expenses as a percent of sales are much higher than AMCON's historical average. As a result of the above, income from operations for the fiscal year ended September 30, 1999 increased by $2.4 million to $7.9 million. Interest expense for the fiscal year ended September 30, 1999 decreased 3.3% to $1.75 million compared to $1.81 million during the prior year. The decrease was primarily due to a 40 to 80 basis point reduction in the average borrowing rate during the year ended September 30, 1999 combined with a $1.4 million reduction in the average amount borrowed by ADC. These factors more 10 than offset an increase in the average amount borrowed by FFH during the year to finance internal growth and the acquisition of USHD. Other income for the year ended September 30, 1999 of $72,000 was generated by gains associated with the sale of fixed assets, royalty payments, miscellaneous industry promotional income and dividends received on investment securities. Other income for the year ended September 30, 1998 of $276,000 was generated from similar activities as well as the gain associated with the sale of marketable securities. As a result of the above factors, net income for the fiscal year ended September 30, 1999 was $3,835,529 compared to $2,358,186 for fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES During the fiscal year ended September 30, 2000, AMCON utilized cash flow in operating activities to finance increases in inventory in the traditional distribution business for operational and tax planning purposes. Cash was utilized in investing activities during the fiscal year to purchase the common stock of TINK, Inc. in August 2000 for $905,000 and to invest in Hawaiian Natural Water Company by providing $350,000 of financing in September 2000. Cash was provided from investing activities through settlement of an intellectual property matter and the sale of the Company's condominium in April 2000. Cash was provided by financing activities through increases in ADC's revolving credit facility of $4.2 million to finance the purchase of additional inventory. In addition, cash was utilized to repay $1.0 million in term debt related to the acquisition of FFH in fiscal 1998 and $800,000 of subordinated debt related to the acquisition of HFA in fiscal 1999. Cash of $372,000 was also used to pay dividends to common shareholders. The Company makes capital expenditures primarily for equipment for its distribution facilities including computers, delivery vehicles and warehouse equipment and for remodeling of existing retail health food stores. The Company has historically financed its working capital requirements with a combination of internally generated funds and bank borrowings. Cash used in operations approximated $3.1 million in fiscal 2000. Cash provided by operating activities approximated $2.4 million in fiscal 1999. Capital expenditures during those periods equaled approximately $959,000 and $762,000, respectively. Any remaining cash provided by operations is applied to debt service. The Company anticipates that capital expenditures during fiscal 2001 will be approximately $1.4 million and will be used for the purposes stated above. The Company had working capital of approximately $27.7 million as of September 30, 2000. The Company's ratio of debt to equity was 3.33 at September 30, 2000 compared to 4.17 at September 30, 1999. AMCON maintains two revolving credit facilities, the ADC revolving credit facility (the "Facility") and the FFH revolving credit facility (the "FFH Facility"). The Facility allows ADC to borrow up to $25 million at any time, subject to eligible accounts receivable and inventory requirements, and provides for an additional $1.5 million facility to be used for transportation equipment purchases. The Facility was amended in November 2000 to increase the borrowing limit to $30 million for a six month period. The Facility bears interest at the bank's base rate ("Prime") less 0.5% or LIBOR plus 1.75%, as 11 selected by ADC. As of September 30, 2000, ADC had borrowed approximately $22.5 million under the Facility. The Facility is collateralized by all equipment, general intangibles, inventories and accounts receivable, and with a first mortgage on the owned distribution center. The Facility expires on February 25, 2002. Borrowings of $15.5 million under the Facility have been classified as long-term based on expected borrowing levels. The Facility contains covenants which, among other things, set forth certain financial ratios and net worth requirements which adjust semiannually or annually as specified in the Facility. For fiscal 2001 and 2000, the Facility includes covenants that (i) restrict the incurrence of additional debt, (ii) restrict payments, prepayments and repurchases of subordinated debt or capital stock, (iii) restrict mergers and acquisitions and changes in business or conduct of business and (iv) require the maintenance of certain financial ratios and net worth levels including an average annual fixed charge ratio of 1.1 to 1.0, an average annual debt service coverage ratio of 1.50 to 1.0, a debt to equity ratio of 4.0 to 1.0 (excluding debt associated with the acquisition of FFH) and minimum tangible net worth of $4,500,000. In addition, AMCON may not pay dividends with respect to its Common Stock without the consent of the lender of the Facility. In December 1999, AMCON received consent to pay cash dividends of up to $0.03 per share per quarter and to pay a special 10% stock dividend in February 2000. The FFH Facility was amended in November 1999 to increase the amount provided for maximum borrowings from $6 million to $8 million. Borrowings under the FFH Facility are collateralized by the assets of FFH and are guaranteed by AMCON. Amounts under the FFH Facility bear interest at Prime less 0.5% or LIBOR plus 2.00%, as selected by FFH. A commitment fee of .25% of the annual average unutilized amount of the commitment is required. As of September 30, 2000, FFH had borrowed approximately $5.3 million under the FFH Facility. The FFH Facility expires on February 25, 2002. Borrowings under the FFH Facility have been classified as long-term based on expected borrowing levels. The FFH Facility contains covenants which, among other things, (i) restrict the incurrence of additional debt, (ii) restrict payments, prepayments and repurchases of subordinated debt or capital stock, and (iii) restrict mergers and acquisitions and changes in business or conduct of business. In addition, FFH may not pay dividends with respect to its Common Stock without the consent of the lender of the FFH Facility. In December 2000, the FFH Facility was amended to remove certain covenants that related to financial ratios and net worth. In November 1997, AMCON borrowed $4.5 million from a bank to finance the purchase of the common stock of FFH (the "Acquisition Loan"). The Acquisition Loan has a term of five years, bears interest at Prime less 0.5% or LIBOR plus 1.75%, as selected by AMCON, and requires monthly payments equal to accrued interest plus principal payments of $85,096, which began in August 1998. As of September 30, 2000, the outstanding balance of the Acquisition Loan was $2.2 million. On November 20, 1998, FFH purchased all of the outstanding stock of U.S. Health Distributors, Inc. ("USHD"), a distributor of health and natural foods based in Melbourne, FL, for $1.3 million in cash. The acquisition was funded by a $1.1 million five and one-half year term loan from a bank (the "USHD Acquisition Loan"). The loan bears interest at Prime less 0.5%, requires 12 payments of interest only for the first six months and monthly principal payments for the term of the loan. USHD was merged into FFH during fiscal 2000. The loan is collateralized by the assets of FFH. As of September 30, 2000, the outstanding balance of the USHD Acquisition Loan was $792,000. In January 1999, ADC utilized proceeds from the Facility to satisfy its obligation associated with a $1,250,000 non-revolving line of credit with a bank which was used to finance the purchase of trucks and delivery equipment. In March 1999, FFH purchased all of the outstanding stock of CNF (d/b/a Chamberlin's Market & Cafe), a chain of six health and natural food product retail stores based in Winter Park, Florida, for $2.2 million in cash. The acquisition was funded through borrowings on the Facility. In addition, CNF's existing short and long-term debt of $2.8 million was paid in full through borrowings under the Facility. In September 1999, FFH purchased of all of the outstanding stock of HFA (d/b/a Akin's Natural Foods Market) for a purchase price of $14.0 million. Funding for the acquisition was provided as follows: $4.0 million through borrowings under the Facility; $2.0 million through borrowings under an 8% Convertible Subordinated Note (the "Convertible Note") from FFH to the sellers; and $8.0 million through borrowings under a Collateralized Promissory Note (the "Collateralized Note") from FFH to the sellers. Both the Convertible Note and the Collateralized Note have five-year terms and bear interest at 8% per annum. Principal on the Convertible Note is due in a single payment at maturity. Principal on the Collateralized Note is payable in installments of $800,000 per year with the balance due at maturity. The Collateralized Note is collateralized by a pledge of the stock of HFA. The principal balance of the Convertible Note may be converted into stock of FFH under circumstances set forth in the Convertible Note. As of September 30, 2000, the outstanding balances of the Convertible Note and the Collateralized Note were $2.0 million and $7.2 million, respectively. In November 1999, CNF purchased the assets of MDF Health, Inc. ("MDF") for a purchase price of $220,000. Funding for the acquisition was provided through borrowings under a subordinated note from CNF to the sellers in the amount of $220,000 (the "MDF Note"). The MDF Note has a term of 3 years and bears interest at 8% per annum. Principal and interest payments are due monthly. As of September 30, 2000, the outstanding balances of the MDF Note was $157,900. In August 2000, CNF purchased all of the outstanding common stock of TINK, Inc. for a purchase price of $900,000. Funding for the acquisition was provided as follows: $600,000 in borrowings under the Facility and $300,000 through borrowings under a subordinated note from CNF to the sellers (the "TINK Note"). The TINK Note has a term of 5 years and bears interest at 7% per annum. Interest payments are due monthly with annual principal payments ranging from $40,000 to $80,000. As of September 30, 2000, the outstanding balances of the TINK Note was $300,000. 13 As of September 30, 2000, the Company had additional outstanding long-term indebtedness of approximately $174,000 consisting of capital leases for computer equipment, the current portion of which equaled approximately $108,000. The interest rates on the notes relating to such indebtedness range from 6.9% to 9.5% per annum. Management believes that funds generated from operations, supplemented as necessary with funds available under the Facility and the FFH Facility, will provide sufficient liquidity to cover its debt service and any reasonably foreseeable future working capital and capital expenditure requirements associated with existing operations. RECENT DEVELOPMENTS In November 2000, the Company entered into a merger agreement with Hawaiian Natural Water Company, Inc. (OTC: HNWC), pursuant to which HNWC would be merged with and into, and thereby become, a wholly-owned subsidiary of AMCON Distributing Company. As a result, the Company will issue between 358,168 and 477,558 shares of its common stock to HNWC shareholders, representing between 11.6% and 14.9% of the Company's outstanding shares after giving effect to the merger. The Company has provided HNWC with certain interim debt financing pending the consummation of the merger. The Company loaned HNWC $350,000 in September 2000 and $400,000 in October 2000 for a total of $750,000 to be used for working capital and other general corporate purposes, including redemption of outstanding preferred stock. The loan is evidenced by promissory notes, bearing interest at the rate of 10% per annum, due on March 31, 2001 which are secured by substantially all of HNWC's assets. In the event that the merger agreement is terminated for any reason or HNWC defaults on its obligations under the notes, the Company will be entitled to convert the notes into Series C Convertible Preferred Stock which, among other things, would entitle the Company to elect a majority of HNWC's Board of Directors. The notes are also convertible upon 61 days' advance notice into HNWC common stock at the same exchange ratio as in the merger. The merger is expected to qualify as a tax-free reorganization and to be recorded on the Company's books using the purchase method of accounting. The merger is subject to various conditions, including the effectiveness of a registration statement covering the shares to be issued in the merger, the listing of such shares on AMEX and approval of the stockholders of HNWC. It is expected that the merger will be consummated on or before March 31, 2001. In order to achieve HNWC's growth targets, it is anticipated that HNWC will need to obtain additional bottling equipment in amounts up to $1.5 million. Financing sources for these capital acquisitions have not yet been determined. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AMCON does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the Company to significant market risk. AMCON's exposure to market risk relates primarily to its investment in the common stock of Consolidated Water Company, a public company traded on the Nasdaq National Market system, and to changes in interest rates 14 on its long-term obligations. At September 30, 2000, the Company held 70,000 shares of common stock of Consolidated Water Company valued at $499,000. AMCON values this investment at market and records price fluctuations in equity as unrealized gain or loss on investments. At September 30, 2000, AMCON had $30.0 million of variable rate debt outstanding, with maturities through May 2004. The interest rates on this debt ranged from 8.38% to 9.0% at September 30, 2000. The Company has the ability to select the bases on which its variable interest rates are calculated and may select an interest rate based upon the lender's base interest rate or based upon LIBOR. This provides management with some control of AMCON's variable interest rate risk. Management estimates that AMCON's cash flow exposure relating to interest rate risk based upon its current borrowings is approximately $185,000 annually for each 1% change in the lender's base interest rate or LIBOR, as applicable. The Company is also exposed to market risk through its investment in a $350,000 convertible note receivable from HNWC. The note is recorded at amortized cost, accrues interest at 10% per annum and matures on March 31, 2001. The note is convertible into HNWC common stock. Market increases in interest rates and in HNWC's stock price could increase the likelihood that such notes would be converted. Alternatively, market decreases in interest rates and HNWC's stock price could decrease the likelihood of conversion. Likewise, market changes in HNWC's stock price and interest rates impact the fair value of the convertible note receivable. CONCERNING FORWARD LOOKING STATEMENTS This Annual Report, including the Letter to Shareholders, Management's Discussion and Analysis, and other sections, contains certain forward looking statements that are subject to risks and uncertainties and which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance, and financial results. Forward looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words "future", "position", "anticipate(s)", "expect", "believe(s)", "see", "plan", "further improve", "outlook", "should" or similar expressions. For these statements, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward looking statements: changing market conditions with regard to cigarettes and the demand for the Company's products, domestic regulatory risks, and competitive and other risks (such as overall business conditions) over which the Company has little or no control. Any changes in such factors could result in significantly different results. Consequently, future results may differ from management's expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. 15 REPORT OF MANAGEMENT Management is responsible for the preparation of the accompanying consolidated financial statements. The consolidated financial statements and the notes thereto have been prepared in accordance with generally accepted accounting principles to reflect, in all material aspects, the substance of financial events and transactions occurring during the year. PricewaterhouseCoopers LLP, independent certified public accountants, have audited our consolidated financial statements as described in their report. The Company maintains financial control systems designed to provide reasonable assurance that assets are safeguarded and that transactions are executed and recorded in accordance with management authorization. The control systems are evaluated annually by the Company. Kathleen M. Evans President Michael D. James Treasurer and Chief Financial Officer November 22, 2000 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of AMCON Distributing Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and shareholders' equity and comprehensive income and of cash flows present fairly, in all material respects, the consolidated financial position of AMCON Distributing Company and its subsidiaries as of September 30, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for inventory in fiscal 1999. PRICEWATERHOUSECOOPERS LLP Omaha, Nebraska November 22, 2000, except for paragraph 5 of Note 8, for which the date is December 22, 2000 F-1 CONSOLIDATED BALANCE SHEETS AMCON Distributing Company
- ------------------------------------------------------------------------------------------------------------ September 30, 2000 1999 - ------------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash $ 1,148,276 $ 1,728,042 Accounts receivable, less allowance for doubtful accounts of $783,606 and $676,801 18,743,026 18,345,816 Inventories 29,397,579 23,979,639 Notes receivable 350,000 - Deferred income taxes 888,805 717,022 Other 752,126 1,000,189 ------------- ------------- Total current assets 51,279,812 45,770,708 Fixed assets, net 5,886,773 7,502,927 Investments 509,162 561,941 Other assets 15,319,764 14,753,640 ------------- ------------- $ 72,995,511 $ 68,589,216 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,747,124 $ 11,953,546 Accrued expenses 2,934,652 3,173,231 Accrued wages, salaries and bonuses 967,383 640,933 Income taxes payable - 283,111 Current portion of long-term debt 8,345,243 10,133,393 Current portion of subordinated debt 912,694 800,000 Dividends payable - 49,598 ------------- ------------- Total current liabilities 23,907,096 27,033,812 ------------- ------------- Deferred income taxes 486,408 678,455 Other liabilities 421,750 423,574 Long-term debt, less current portion 22,580,116 17,995,432 Subordinated debt, less current portion 8,745,236 9,200,000 Commitments (Note 13) Shareholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding - - Common stock, $.01 par value, 15,000,000 shares authorized and 2,737,551 and 2,480,000 issued at September 30, 2000 and 1999 27,376 24,800 Additional paid-in capital 4,121,981 2,271,278 Accumulated other comprehensive income, net of $139,482 and $149,664 tax 228,924 234,299 Retained earnings 12,476,624 10,727,926 ------------- ------------- 16,854,905 13,258,303 Less treasury stock,102 shares at cost at September 30, 1999 - (360) ------------- ------------- Total shareholders' equity 16,854,905 13,257,943 ------------- ------------- $ 72,995,511 $ 68,589,216 ============= ============= The accompanying notes are an integral part of these financial statements
F-2 CONSOLIDATED STATEMENTS OF INCOME AMCON Distributing Company
- ------------------------------------------------------------------------------------------------------------ Fiscal Year Ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ Sales (including excise taxes of $72.6 million, $ 466,125,245 $ 385,501,178 $ 294,281,323 $54.5 million and $52.9 million, respectively) Cost of sales 410,511,066 343,021,443 262,632,767 ------------- ------------- ------------- Gross profit 55,614,179 42,479,735 31,648,556 Selling, general and administrative expenses 45,910,903 32,754,406 25,088,767 Depreciation and amortization 2,794,996 1,861,364 1,120,482 ------------- ------------- ------------- 48,705,899 34,615,770 26,209,249 ------------- ------------- ------------- Income from operations 6,908,280 7,863,965 5,439,307 Other expense (income): Interest expense 3,048,314 1,754,837 1,814,555 Other (income) expense, net (2,159,995) (72,325) (276,287) ------------- ------------- ------------- 888,319 1,682,512 1,538,268 ------------- ------------- ------------- Income before income taxes 6,019,961 6,181,453 3,901,039 Income tax expense 2,115,522 2,345,924 1,542,853 ------------- ------------- ------------- Net income $ 3,904,439 $ 3,835,529 $ 2,358,186 ============= ============= ============= Earnings per common and common equivalent share: Basic $ 1.43 $ 1.41 $ 0.87 ============= ============= ============= Diluted $ 1.37 $ 1.35 $ 0.85 ============= ============= ============= Weighted average shares outstanding: Basic 2,734,862 2,727,892 2,703,868 ============= ============= ============= Diluted 2,853,320 2,855,419 2,788,996 ============= ============= ============= The accompanying notes are an integral part of these financial statements
F-3 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME AMCON Distributing Company
- ---------------------------------------------------------------------------------------------------------------- Preferred Stock Common Stock Additional ------------------- ---------------------- Paid-In Shares Amount Shares Amount Capital - --------------------------------------------------------------------------------------------------------------- Balance, September 30, 1997 - - 2,450,000 $24,500 $2,213,828 Issuance and exercise of warrants - - 30,000 300 57,450 Net income - - - - - Unrealized gain (loss) on investments available-for-sale, net of tax - - - - - Total comprehensive income -------- ------- --------- -------- ----------- Balance, September 30, 1998 - - 2,480,000 24,800 2,271,278 Purchase of treasury stock - - - - - Dividends - - - - - Net income - - - - - Unrealized gain on investments available-for-sale, net of tax - - - - - Total comprehensive income -------- ------- --------- -------- ----------- Balance, September 30, 1999 - - 2,480,000 24,800 2,271,278 Exercise of options - - 9,032 91 20,361 Purchase of treasury stock - - - - - Dividends - - - - - 10% stock dividend - - 248,519 2,485 1,830,342 Net income - - - - - Unrealized gain (loss) on investments available-for-sale, net of tax - - - - - Total comprehensive income -------- ------- --------- -------- ----------- Balance, September 30, 2000 - - 2,737,551 $ 27,376 $ 4,121,981 ======== ======= ========= ======== =========== The accompanying notes are an integral part of these financial statements.
F-4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (continued) AMCON Distributing Company
- --------------------------------------------------------------------------------------------------------------- Accumulated Other Comprehensive Retained Treasury Stock Income Earnings Shares Amount Total - --------------------------------------------------------------------------------------------------------------- Balance, September 30, 1997 $237,503 $4,732,603 (97) $(315) $7,208,119 Issuance and exercise of warrants - - - - 57,750 Net income - 2,358,186 - - 2,358,186 Unrealized gain (loss) on investments available-for-sale, net of tax (19,358) - - - (19,358) ----------- Total comprehensive income 2,338,828 --------- ----------- ------ --------- ----------- Balance, September 30, 1998 218,145 7,090,789 (97) (315) 9,604,697 Purchase of treasury stock - - (5) (45) (45) Dividends - (198,392) - - (198,392) Net income - 3,835,529 - - 3,835,529 Unrealized gain on investments available-for-sale, net of tax 16,154 - - - 16,154 ----------- Total comprehensive income 3,851,683 --------- ----------- ------ --------- ----------- Balance, September 30, 1999 234,299 10,727,926 (102) (360) 13,257,943 Exercise of options - (223) 108 399 20,628 Purchase of treasury stock - - (6) (39) (39) Dividends - (322,691) - - (322,691) 10% stock dividend - (1,832,827) - - - Net income - 3,904,439 - - 3,904,439 Unrealized gain (loss) on investments available-for-sale, net of tax (5,375) - - - (5,375) ----------- Total comprehensive income 3,899,064 --------- ----------- ------ --------- ----------- Balance, September 30, 2000 $228,924 $12,476,624 - $ - $16,854,905 ========= =========== ====== ========= =========== The accompanying notes are an integral part of these financial statements.
F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS AMCON Distributing Company
- ------------------------------------------------------------------------------------------------------------ Fiscal Year Ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 3,904,439 $ 3,835,529 $ 2,358,186 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,794,996 1,861,364 1,120,482 (Gain) loss on sales of fixed assets, intangibles, land held for sale and securities (2,102,857) 259 (46,955) Proceeds from sales of trading securities - - 157,207 Deferred income taxes (363,830) (89,875) 11,167 Provision for losses on doubtful accounts and inventory obsolescence 412,724 314,720 640,494 Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable (443,449) (3,303,670) (1,629,334) Inventories (5,130,597) (2,082,434) (2,554,073) Other current assets (194,117) (537,548) (180,622) Other assets (109,962) (119,505) (45,366) Accounts payable (1,324,110) 2,632,025 432,398 Accrued expenses and accrued wages, salaries and bonuses (82,129) 720,564 (44,771) Income taxes payable and receivable (490,931) (858,360) 471,985 Other liabilities - - (2,577) ----------- ----------- ----------- Net cash (used in) provided by operating activities (3,129,823) 2,373,069 688,221 ----------- ----------- ----------- Cash flows from investing activities: Purchases of fixed assets (966,018) (761,706) (782,440) Acquisitions, net of cash acquired (606,183) (5,879,143) (7,119,254) Proceeds from sales of fixed assets and intangibles 2,887,234 54,880 86,887 Proceeds from sales of available-for-sale securities 92,260 - - Purchase of debt security (350,000) - - Proceeds from repayment of advance to officer - - 100,000 ----------- ----------- ----------- Net cash provided by (used in) investing activities 1,057,293 (6,585,969) (7,714,807) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from borrowings of long-term debt - 1,100,000 4,500,000 Net (payments) proceeds on bank credit agreement 4,177,095 9,599,775 3,483,241 Payments on long-term and subordinated debt (2,332,631) (4,648,363) (766,025) Debt issue costs - - (182,234) Proceeds from exercise of warrants - - 3,000 Dividends paid (372,289) (148,794) - Purchase of treasury stock (39) (45) - Proceeds from exercise of stock options 20,628 - - ----------- ----------- ---------- Net cash provided by financing activities 1,492,764 5,902,573 7,037,982 ----------- ----------- ----------- Net (decrease) increase in cash (579,766) 1,689,673 11,396 Cash, beginning of year 1,728,042 38,369 26,973 ----------- ----------- ----------- Cash, end of year $ 1,148,276 $ 1,728,042 $ 38,369 =========== =========== =========== Supplemental cash flow information: Cash paid during the year for interest $ 3,016,285 $ 1,675,323 $ 1,745,609 Cash paid during the year for income taxes 2,899,950 3,166,246 1,145,770 Supplemental noncash information: Acquisition of equipment through capital leases - 80,676 - Business combinations: Fair value of assets acquired 1,195,995 24,061,292 $12,988,719 Subordinated debt assumed 520,000 10,000,000 - Other liabilities assumed 995 6,917,274 5,869,053 Warrants issued - - 54,750 The accompanying notes are an integral part of these financial statements.
F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMCON Distributing Company 1. Summary of Significant Accounting Policies: Company Operations: AMCON Distributing Company (together with its wholly-owned subsidiary, Food For Health Co., Inc. ("FFH")and its wholly-owned subsidiaries, U.S. Health Distributors, Inc. ("USHD"), Chamberlin's Natural Foods, Inc. ("CNF") and Health Food Associates, Inc. ("HFA")) operates 8 distribution centers and 14 retail health food stores in the Great Plains, Rocky Mountain, Western and Southern regions of the United States. During fiscal 2000, USHD was merged into FFH. AMCON sells approximately 24,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, natural food and related products, frozen and chilled products, and institutional food service products. The Company distributes products primarily to retailers such as convenience stores, discount and general merchandise stores, grocery stores and supermarkets, health food stores, natural food stores, drug stores and gas stations. In addition, the Company services institutional customers, including restaurants and bars, schools, sports complexes and vendors, as well as other wholesalers. AMCON also operates eight (8) retail health food stores in Florida under the name Chamberlin's Market & Cafe and six (6) in the Midwest under the name Akin's Natural Foods Market. These stores, which were acquired during fiscal 1999, carry natural supplements, groceries, health and beauty care products and other food items. The Company's operating income is subject to a number of factors which are beyond the control of management, such as changes in manufacturers' cigarette pricing which affects the market for generic and private label cigarettes and competing retail stores opening in close proximity to the Company's retail stores. While the Company sells a diversified product line, it remains dependent upon cigarette sales which represented approximately 63% of its revenue and 33% of its gross margin in fiscal 2000. Net income is heavily dependent on sales of the Company's private label cigarettes and volume discounts received from manufacturers in connection with such sales. Accounting Period: AMCON maintains a 52-53 week fiscal year which ends on the last Friday in September. For convenience, the fiscal years have been indicated as September 30, whereas the actual year ends were September 29, 2000, September 24, 1999 and September 25, 1998. Fiscal 2000 comprised 53 weeks. Fiscal 1999 and 1998 each comprised 52 weeks. Principles of Consolidation: The consolidated financial statements include the accounts of AMCON and its subsidiaries. Intercompany accounts and transactions have been eliminated. Cash and Accounts Payable: AMCON uses a cash management system under which an overdraft is the normal book balance in the primary disbursing accounts. The overdrafts included in accounts payable which were $2,852,720 and $4,423,433 at September 30, 2000 and 1999, respectively, reflect the checks drawn on the disbursing accounts that have been issued but have not yet cleared through the banking system. The Company's policy has been to fund these outstanding checks as they clear with borrowings under its revolving credit facilities (see Note 8). F-7 Debt and Equity Investments: AMCON classifies marketable securities, debt securities and investments as held to maturity, available-for-sale or trading securities. Investments classified as available-for-sale or trading are stated at market value. Investments classified as held to maturity are stated at amortized cost. The carrying amounts of the securities used in computing unrealized and realized gains and losses are determined by specific identification. Fair values are determined using quoted market prices. For available-for-sale securities, net unrealized holding gains and losses are reported as a separate component of shareholders' equity, net of tax. For trading securities, net unrealized holding gains and losses are included in the determination of net income. Accounts Receivable: Accounts receivable consist primarily of amounts due to the Company from its normal business activities. An allowance for doubtful accounts is maintained to reflect the expected uncollectibility of accounts receivable based on past collection history and specific risks identified in the portfolio. Inventories: Inventories consist of finished products purchased in bulk quantities to be sold to the Company's customers. Effective in fiscal 1999, AMCON changed the method of accounting for inventory from the first-in, first-out, ("FIFO") method to the last-in, first-out ("LIFO") method. LIFO inventories at September 30, 2000 and 1999 were approximately $2.4 million and $2.0 million less than the amount of such inventories valued on a FIFO basis, respectively. The change in the inventory valuation method was made to better match current costs with current revenue. The change to LIFO reduced net income and basic earnings per share for the year ended September 30, 1999 by $1,284,000 and $0.47, respectively. Pro forma effects of retroactive application of LIFO are not determinable and there is no cumulative effect on retained earnings at the beginning of the year. Fixed Assets: Fixed assets are stated at cost. Major renewals and improvements are capitalized and charged to expense through depreciation charges. Repairs and maintenance are charged to expense as incurred. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of depreciable assets. Estimated useful lives are as follows: Years -------- Buildings 7 - 40 Warehouse equipment 5 - 7 Furniture, fixtures and leasehold improvements 5 - 18 Vehicles 5 Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and the resulting gains or losses are reported in the statement of income. Revenue Recognition: AMCON recognizes revenue when products are shipped from distribution centers or sold to consumers in retail stores. Sales are shown net of returns and discounts. F-8 Income Taxes: Deferred income taxes are determined based on temporary differences between the financial reporting and tax basis of the Company's assets and liabilities, using enacted tax rates in effect during the years in which the differences are expected to reverse. Comprehensive Income: Comprehensive income includes all changes in stock-holders' equity with the exception of additional investments by shareholders or distributions to shareholders. Comprehensive income for the Company includes net income and the changes in net unrealized holding gains on investments charged or credited to stockholders' equity. Long Lived Assets: Management reviews goodwill and other long lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments would be recognized in operating results if a permanent reduction in value were to occur based on discounted cash flows. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Acquisitions: In August 2000, the Company acquired all of the outstanding shares of TINK, Inc. (doing business as Natural Way Foods) for $900,000. The acquisition was financed through borrowings under the Company's revolving credit facility totaling $600,000 and a subordinated promissory note with the seller in the amount of $300,000. In November 1999, the Company acquired all of the outstanding assets of MDF Health, Inc. for $220,000 financed by a seller-held subordinated note payable of $220,000. Both acquisitions were accounted for using the purchase method of accounting. The purchase price for the above acquisitions was allocated to assets acquired based on their estimated fair values. The portion of the purchase prices allocated to goodwill totaled $750,000 and is being amortized on a straight line basis over 20 years. The Company acquired HFA, CNF and USHD in September 1999, March 1999 and November 1998, respectively. FFH and the St. Louis distribution center were acquired in November 1997 and October 1997, respectively. These acquisitions were accounted for using the purchase method of accounting. Goodwill and other intangibles are described in Note 7. F-9 The results of operations for each of the above are included in the accompanying financial statements from the date of acquisition. Assuming the above acquisitions had occurred on the first day preceding the year of acquisition, unaudited pro forma consolidated sales, net income and earnings per share would have been as follows: 2000 1999 1998 ------------- ------------- ------------- Sales $ 466,980,000 $ 420,652,000 $ 348,459,000 Net income $ 3,906,000 4,197,000 2,857,000 Earnings per share: Basic $ 1.43 $ 1.54 $ 1.06 Diluted $ 1.37 $ 1.47 $ 1.02 The pro forma information provided above is based on assumptions that management deems appropriate, but does not purport to be indicative of the results that would have actually occurred had the acquisitions taken place on the first day of the year preceding the acquisition. 3. Earnings Per Share: Basic earnings per share is calculated by dividing net income by the weighted average common shares outstanding for each period. Diluted earnings per share is calculated by dividing net income by the sum of the weighted average common shares outstanding and the weighted average dilutive options and warrants, using the treasury stock method. All per share data has been restated to reflect the special 10% stock dividend paid in February 2000.
For the years ended September 30, ------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Basic Basic Basic ----------- ----------- ----------- Weighted average common shares outstanding 2,734,862 2,727,990 2,703,965 Weighted average treasury shares - (98) (97) ----------- ----------- ----------- Weighted average number of shares outstanding 2,734,862 2,727,892 2,703,868 =========== =========== =========== Net income $ 3,904,439 $ 3,835,529 $ 2,358,186 =========== =========== =========== Earnings per share $ 1.43 $ 1.41 $ 0.87 =========== =========== =========== F-10 Diluted Diluted Diluted ----------- ----------- ----------- Weighted average common shares outstanding 2,734,862 2,727,990 2,703,965 Weighted average treasury shares - (98) (97) Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock 118,458 127,527 85,128 ----------- ----------- ----------- Weighted average number of shares outstanding 2,853,320 2,855,419 2,788,996 =========== =========== =========== Net income $ 3,904,439 $ 3,835,529 $ 2,358,186 =========== =========== =========== Earnings per share $ 1.37 $ 1.35 $ 0.85 =========== =========== ===========
4. Comprehensive Income (Loss): The components of other comprehensive income (loss) were as follows:
2000 1999 1998 --------- --------- --------- Unrealized holding gains (losses) during the period: Unrealized gains (losses) $ 53,089 $ 28,700 $ (51,875) Related tax (expense) benefit (34,747) (12,546) 32,517 --------- --------- --------- Net 18,342 16,154 (19,358) Less reclassification adjustments for net gains realized on sale of investments during the period: Realized net gains 68,646 - - Related tax expense (44,929) - - --------- --------- --------- Net 23,717 - - --------- --------- --------- Total other comprehensive income (loss) $ (5,375) $ 16,154 $ (19,358) ========= ========= =========
F-11 5. Fixed Assets, Net: Fixed assets at September 30, 2000 and 1999 consisted of the following: 2000 1999 ----------- ----------- Land and buildings $ 617,228 $ 725,597 Condominium and furnishings - 1,246,625 Warehouse equipment 6,536,990 5,238,860 Furniture, fixtures and leasehold improvements 4,256,189 4,667,681 Vehicles 1,486,106 1,733,182 Capital equipment leases 482,701 482,701 ----------- ----------- 13,379,214 14,094,646 Less accumulated depreciation & amortization: Owned equipment 7,166,280 6,405,944 Capital equipment leases 326,161 185,775 ----------- ----------- $ 5,886,773 $ 7,502,927 =========== =========== At September 30, 1999, land and buildings included a warehouse held for sale which was recorded at its net realizable fair value. The property was sold in November 1999. 6. Debt and Equity Investments: Investments in equity securities at September 30, 2000 and 1999 consisted of the following: September 30, 2000 ------------------------------------ Unrealized Market Cost Gain(Loss) Value --------- ---------- --------- Investments (available-for-sale) $ 140,756 $ 368,406 $ 509,162 ========= ========= ========= September 30, 1999 ------------------------------------ Unrealized Market Cost Gain Value --------- --------- --------- Investments (available-for-sale) $ 177,978 $ 383,963 $ 561,941 ========= ========= ========= The Company sold 13,000 shares of its available-for-sale investments and realized gains on the sale of $68,646 in fiscal 2000. No shares were sold in 1999 or 1998. The Company recognized gains of $29,400 on trading securities during fiscal 1998. At September 30, 2000, the Company held a convertible note receivable of $350,000 from Hawaiian Natural Water Company, Inc. ("HNWC"). The note accrues interest at 10% and matures on March 31, 2001. The note is classified as held to maturity and the fair value approximates the carrying amount. See Note 17. F-12 7. Other Assets: Other assets at September 30, 2000 and 1999 consisted of the following: 2000 1999 ------------ ----------- Trademarks and tradenames (less accumulated amortization of $477,786 and $13,542) $ 8,222,214 $ 8,686,458 Goodwill (less accumulated amortization of $797,047 and $534,440) 5,503,631 4,279,235 Covenants not to compete (less accumulated amortization of $287,481 and $153,850) 536,234 724,615 Favorable leases (less accumulated (amortization of $90,671 and $56,375) 518,329 552,625 Cash surrender value of life insurance policies 430,850 382,044 Debt issue costs (less accumulated amortization of $102,748 and $66,062) 79,486 116,172 Other 29,020 12,491 ------------ ----------- $ 15,319,764 $14,753,640 ============ =========== Trademarks and tradenames arose from the acquisitions of CNF and HFA during 1999 and are amortized using the straight-line method over 20 years. Goodwill arose from the acquisition of certain businesses and is amortized using the straight-line method over periods ranging from 20 to 25 years. Amortization expense was $262,607, $198,712, and $96,919 for the years ended September 30, 2000, 1999, and 1998, respectively. The covenants not to compete are amortized using the straight-line method over periods ranging from 2 to 5 years. Amortization expense was $287,484, $126,475, and $29,708 for the years ended September 30, 2000, 1999, and 1998, respectively. Favorable leases arose from the acquisitions of USHD and HFA during fiscal 1999 and represent lease agreements in which the lease rates were below market value on the acquisition date. The leases are amortized over periods ranging from 3 to 11 years. 8. Long-term Obligations: Long-term obligations at September 30, 2000 and 1999 consisted of the following: F-13 2000 1999 ------------ ----------- Revolving credit facility with a bank, interest payable monthly at the bank's base rate less 0.5% or LIBOR plus 1.75%, as selected by the Company (ranging from 8.44% to 9.0% at September 30, 2000); principal due February 2002 $ 22,477,301 $18,317,309 FFH revolving credit facility with a bank, interest payable monthly at the bank's base rate less 0.5% or LIBOR plus 2.0%, as selected by FFH (9.0% at September 30, 2000); principal due February 2002 5,269,213 5,252,110 Note payable to a bank, interest payable monthly at the bank's base rate less 0.5% or LIBOR plus 1.75% (ranging from 8.38% to 8.44% at September 30, 2000); principal payments of $85,096 due monthly through November 2002 2,212,500 3,233,653 Note payable to bank, interest payable monthly at the bank's base rate less 0.5% (9.0% at September 30, 2000); principal payments of $18,000 due monthly through May 2004 792,000 1,008,000 Obligations under capital leases, payable in monthly installments with interest ranging from 6.9% to 9.5% through April 2001 (Note 14) 174,345 317,753 ------------ ----------- 30,925,359 28,128,825 Less current portion 8,345,243 10,133,393 ------------ ----------- $ 22,580,116 $17,995,432 ============ =========== In March 1998, ADC entered into a revolving credit facility with a bank (the "Facility"). The Facility allows ADC to borrow up to $25 million at any time, subject to eligible accounts receivable and inventory requirements, and provides for an additional $1.5 million facility to be used for transportation equipment purchases. The Facility was amended in November 2000 to increase the borrowing limit to $30 million for a six month period. The Facility bears interest at the bank's base rate ("Prime") less 0.5% or LIBOR plus 1.75%, as selected by ADC. The Facility is collateralized by all equipment, general intangibles, inventories and accounts receivable, and with a first mortgage on the owned distribution center. As of September 30, 2000 the unused portion of the credit agreement was $2,522,699. The Facility expires on February 25, 2002. The Facility contains covenants which, among other things, set forth certain financial ratios and net worth requirements which adjust semiannually or annually as specified in the Facility. For fiscal 2001 and 2000, the Facility includes covenants that (i) restrict the incurrence of additional debt, (ii) restrict payments, prepayments and repurchases of subordinated debt or capital stock, (iii) restrict mergers and acquisitions and changes in business or F-14 conduct of business and (iv) require the maintenance of certain financial ratios and net worth levels including an average annual fixed charge ratio of 1.1 to 1.0, an average annual debt service coverage ratio of 1.5 to 1.0, a debt to equity ratio of 4.0 to 1.0 (excluding debt associated with the acquisition of FFH) and minimum tangible net worth of $4,500,000. In addition, AMCON may not pay dividends with respect to its Common Stock without the consent of the lender of the Facility. In December 1999, AMCON received consent to pay cash dividends of up to $0.03 per share per quarter and to pay a special 10% stock dividend in February 2000. In March 1998, FFH entered into a revolving credit facility with a bank (the "FFH Facility"). The FFH Facility was amended in November 1999 to increase the amount provided for maximum borrowings from $6 million to $8 million. Borrowings under the FFH Facility are collateralized by the assets of FFH and are guaranteed by AMCON. Amounts under the FFH Facility bear interest at Prime less 0.5% or LIBOR plus 2.0%, as selected by FFH. A commitment fee of .25% of the annual average unutilized amount of the commitment is required. As of September 30, 2000, FFH had borrowed approximately $5.3 million under the FFH Facility. The FFH Facility expires on February 25, 2002. The FFH Facility contains covenants which, among other things, set forth certain financial ratios and net worth requirements which adjust semiannual or annually as specified in the FFH Facility. For fiscal 2001 and 2000, the FFH Facility includes covenants that (i) restrict the incurrence of additional debt, (ii) restrict payments, prepayments and repurchases of subordinated debt or capital stock, (iii) restrict mergers and acquisitions and changes in business or conduct of business and (iv) require the maintenance of certain financial ratios and net worth levels including a debt to equity ratio of 4.0 to 1.0 and minimum tangible net worth of $200,000. In addition, FFH may not pay dividends with respect to its Common Stock without the consent of the lender of the FFH Facility. As of September 30, 2000, FFH was not in compliance with the debt to equity or the net worth covenant. In December 2000, the FFH Facility was amended to remove certain covenants that related to financial ratios and net worth. In November 1997, the Company borrowed $4.5 million from a bank to finance the purchase of the common stock of FFH (the "Acquisition Loan"). The Acquisition Loan has a term of five years, bears interest at Prime less 0.5% or LIBOR plus 1.75%, as selected by the Company, and requires monthly payments equal to accrued interest plus principal payments of $85,096, which began in August 1998. The loan is collateralized by the common stock of FFH. In November 1998, FFH borrowed $1.1 million from a bank to finance the purchase of the common stock of US Health Distributors, Inc. ("USHD"). The loan has a term of five and one-half years, bears interest at Prime less 0.5%, requires interest payments only for the first six months and monthly principal payments of $18,000 for the term of the loan. USHD was merged into FFH during fiscal 2000. The loan is collateralized by the assets of FFH. F-15 The above long-term obligations, excluding obligations under the revolving credit facilities, have contractual maturities as follows: Year ending September 30 ------------------------ 2001 $ 1,344,689 2002 1,299,786 2003 390,370 2004 144,000 ----------- $ 3,178,845 =========== Borrowings under the revolving credit facilities in the amount of $20,746,514 have been classified as long-term based on expected borrowing levels. Based on discounted cash flows using current market rates for similar agreements, the fair value of the Company's long-term debt obligations approximated carrying value at September 30, 2000. 9. Subordinated Debt: Subordinated debt at September 30, 2000 and September 30, 1999 consisted of the following: 2000 1999 ------------ ------------ Convertible subordinated note payable, interest payable quarterly at 8% per annum; principal due at maturity of the note, September 15, 2004 $ 2,000,000 $ 2,000,000 Collateralized subordinated promissory note payable, interest payable quarterly at 8% per annum; annual principal payments of $800,000 due annually through September 2004 with balance of $4,000,000 due September 2004 7,200,000 8,000,000 Collateralized subordinated promissory note payable bearing interest at 8% per annum; principal and interest payments due monthly through October 2002 157,930 - Collateralized subordinated promissory note payable, interest payable monthly at 7.0% per annum; annual interest payments ranging from $40,000 to $80,000 due annually from August 2001 through August 2005 300,000 - ------------ ------------ 9,657,930 10,000,000 Less current portion 912,694 800,000 ------------ ------------ $ 8,745,236 $ 9,200,000 ============ ============ F-16 In September, 1999, FFH issued subordinated debt of $10.0 million, in addition to $4.0 million borrowed on the Facility, to purchase all of the outstanding stock of HFA. The subordinated debt is comprised of the following: a $2.0 million 8% Convertible Subordinated Note (the "Convertible Note") from FFH to the sellers; and an $8.0 million Collateralized Promissory Note (the "Collateralized Note") from FFH to the sellers. The Collateralized Note is collateralized by a pledge of the stock of HFA. The principal balance of the Convertible Note may be converted into stock of FFH if AMCON distributes its interest in FFH to its shareholders (the "Spin-Off") at which time FFH would become a publicly held corporation. The Convertible Note must be converted within 60 days of any announcement regarding a Spin-Off of FFH. The number of shares of FFH stock to be received upon conversion is determined based upon a formula that takes into account FFH's consolidated gross sales, the outstanding balance of the Convertible Note and the number of shares of FFH's common stock outstanding at the time a Spin-Off is announced. As of September 30, 2000, principal payments are due on subordinated debt as follows: Year ending September 30 ------------------------ 2001 $ 912,694 2002 928,727 2003 866,509 2004 6,870,000 2005 80,000 ----------- $ 9,657,930 =========== Based on discounted cash flows using current market rates for similar agreements, the fair value of the Company's long-term debt obligations approximated carrying value at September 30, 2000. 10. Other (Income) Expense: Other (income) expense consisted of the following for the years ended September 30, 2000, 1999 and 1998: 2000 1999 1998 ----------- ----------- ----------- Interest income $ (39,079) $ (2,468) $ (61,398) Dividends (21,609) (17,850) (14,941) Rent income (6,787) (18,880) (24,880) Royalties (1,625) (15,924) (41,710) Gain on marketable securities and investments (68,646) - (29,420) Gain from disposition of fixed and intangible assets (2,034,211) (22,119) (22,312) Other 11,962 4,916 (81,626) ----------- ----------- ----------- $(2,159,995) $ (72,325) $ (276,287) =========== =========== =========== F-17 11. Income Taxes: Components of income tax expense (benefit) for the fiscal years ended September 30, 2000, 1999 and 1998 consisted of the following: 2000 1999 1998 ----------- ----------- ---------- Current: Federal $ 2,115,958 $ 2,125,264 $1,325,618 State 363,394 310,535 206,068 ----------- ----------- ---------- 2,479,352 2,435,799 1,531,686 ----------- ----------- ---------- Deferred: Federal (310,504) (78,417) 9,735 State (53,326) (11,458) 1,432 ----------- ----------- ---------- (363,830) (89,875) 11,167 ----------- ----------- ---------- Provision for income taxes $ 2,115,522 $ 2,345,924 $1,542,853 =========== =========== ========== During fiscal 2000, the Company recognized income tax benefit of approximately $184,000 related to tax reserves that were previously recorded and are no longer required due to expiration of the related statute or favorable tax audit determination. The difference between the Company's income tax expense as reported in the accompanying financial statements and that which would be calculated using the statutory income tax rate of 34% on income before taxes is as follows for the fiscal years ended September 30, 2000, 1999 and 1998: 2000 1999 1998 ----------- ----------- ---------- Tax at statutory rate $ 2,046,787 $ 2,101,694 $1,326,353 Amortization of goodwill 69,590 70,462 42,742 Nondeductible business expenses 20,953 21,741 26,351 State income taxes, net of federal tax benefit 201,573 205,811 156,551 Release of tax reserves (186,737) - - Other (36,644) (53,784) (9,144) ----------- ----------- ---------- $ 2,115,522 $ 2,345,924 $1,542,853 =========== =========== ========== Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities giving rise to the net deferred tax asset at September 30, 2000 and 1999 relate to the following: F-18 2000 1999 ----------- ----------- Deferred tax assets: Current: Allowance for doubtful accounts $ 284,546 $ 260,509 Accrued expenses 175,570 144,575 Net operating loss carryforwards 124,068 96,145 Inventory 443,319 276,053 Other - 14,930 ----------- ----------- 1,027,503 792,212 Noncurrent: Net operating loss carryforwards 280,275 211,138 Other liabilities 170,030 169,458 Other 59,719 24,530 ----------- ----------- 510,024 405,126 ----------- ----------- Total deferred tax assets $ 1,537,527 $ 1,197,338 =========== =========== Deferred tax liabilities: Current: Trade discounts $ 128,204 $ 75,190 Other 10,494 - ----------- ----------- 138,698 75,190 Noncurrent: Fixed assets 330,165 373,318 Tradenames 484,695 514,583 Leases 42,090 46,016 Unrealized gains on available-for-sale investments 139,482 149,664 ----------- ----------- 996,432 1,083,581 ----------- ----------- Total deferred tax liabilities $ 1,135,130 $ 1,158,771 =========== =========== Net deferred tax assets (liabilities): Current $ 888,805 $ 717,022 Noncurrent (486,408) (678,455) ----------- ----------- $ 402,397 $ 38,567 =========== =========== The Company did not record any valuation allowances against deferred tax assets at September 30, 2000 or 1999 because management believes future taxable income will more likely than not be sufficient to realize such amounts. The net operating loss was acquired in connection with the acquisition of Sheya Brothers in 1993 and FFH in 1997. The utilization of the net operating loss related to Sheya Brothers of $198,000 at September 30, 2000 is limited (by Internal Revenue Code Section 382) to approximately $100,000 per year through 2002. The utilization of the net operating loss related to FFH of $884,000 at September 30, 2000 is limited (by Internal Revenue Code Section 382) to approximately $232,000 per year through 2009. F-19 12. Profit Sharing Plan: AMCON maintains profit sharing plans covering substantially all full-time employees. The plans provide for AMCON to make profit sharing contributions of up to 1% of qualified employees' gross wages. Employees may also make additional voluntary contributions which may be matched 50% by the Company up to the first 6% contributed. The Company contributed $367,818, $272,234, and $241,009 (net of employee forfeitures) to the profit sharing plans during the years ended September 30, 2000, 1999 and 1998, respectively. 13. Related Party Transactions: The Company was charged $60,000 by AMCON Corporation, the former parent of the Company for each of the years ended September 30, 2000, 1999 and 1998, as consideration for office rent and management services, which is included in selling, general and administrative expenses. The remaining interest in a condominium and furnishings and related mortgage loan, was transferred from AMCON Corporation to the Company in 1992, as partial settlement of intercompany balances. The condominium was sold in 2000. Under a profit sharing agreement with AMCON Corporation, one-half of the net gain from the sale of the real estate was allocated to AMCON Corporation. 14. Commitments: The Company leases certain office equipment under a capital lease. The carrying value of these assets was $156,540 and $296,926 as of September 30, 2000 and 1999, respectively, net of accumulated amortization of $326,161 and $185,775. The Company leases various office and warehouse facilities and equipment under noncancellable operating leases. Rent charged to expense during the years ended September 30, 2000, 1999 and 1998 under such lease agreements was $3,820,925, $2,974,431 and $2,138,042, respectively. As of September 30, 2000, minimum future lease commitments are as follows: Year ending September 30, Capital Operating Leases Leases ---------- ------------ 2001 $ 116,974 $ 3,967,884 2002 66,480 3,355,825 2003 4,216 2,584,060 2004 - 2,015,005 2005 - 1,670,162 Thereafter - 1,486,138 ---------- ------------ Total minimum lease payments 187,670 $ 15,079,074 Less amount representing interest 13,325 ============ ---------- Present value of net minimum lease payments $ 174,345 ========== F-20 15. Stock Option Plan: In June 1994, the Company adopted the 1994 Stock Option Plan (the "Stock Option Plan"). In March 2000, the Stock Option Plan was amended to increase the maximum number of shares of common stock which may be issued pursuant to the Stock Option Plan from 300,000 to 550,000. A special 10% stock dividend was paid in February 2000 and all share and price information has been restated to reflect the dividend. Options are generally granted at the stock's fair market value at date of grant. Options issued to shareholders holding 10% or more of the Company's stock are generally issued at 110% of the stock's fair market value at date of grant. On September 27, 1996, options to purchase 24,200 shares of common stock were issued to management employees at an exercise price of $1.48. On November 10, 1997, options to purchase 154,000 shares of common stock were issued to management employees at exercise prices of $2.62 and $2.87. During fiscal 1999, options to purchase 115,500 shares of common stock were issued to management employees at exercise prices between $6.14 and $9.00. During fiscal 2000, options to purchase 32,900 shares of common stock were issued to management employees at an exercise price of $5.75. At September 30, 2000, 131,076 options were fully vested and exercisable. In addition, options to purchase 33,000 shares of common stock were issued to certain outside directors at an exercise price of $2.62 in fiscal 1998 and options to purchase 30,800 shares of common stock were issued to outside directors at exercise prices of $6.14 and $8.18 in fiscal 1999. These options were not issued pursuant to the Stock Option Plan. At September 30, 2000, 57,200 shares issued to certain outside directors were fully vested and exercisable. The options have varying vesting schedules ranging up to five years and expire ten years after the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined on the fair value at the grant date for awards issued in or subsequent to 1995 consistent with the provisions of SFAS 123, the Company's net income and earnings per share on a pro forma basis would have been as follows: 2000 1999 1998 ----------- ----------- ----------- Net income - as reported $ 3,904,439 $ 3,835,529 $ 2,358,187 Net income - pro forma $ 3,823,138 $ 3,657,477 $ 2,293,014 Basic EPS - as reported $ 1.43 $ 1.41 $ 0.87 Basic EPS - pro forma $ 1.40 $ 1.35 $ 0.85 Diluted EPS - as reported $ 1.37 $ 1.35 $ 0.85 Diluted EPS - pro forma $ 1.34 $ 1.29 $ 0.82 The above pro forma results are not likely to be representative of the effects on reported net income for future years since additional awards are made periodically. The fair value of the weighted average of each year's option grants is estimated as of the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions: dividend yield of 2.0% for 2000, 1.0% for 1999 and 1.8% for 1998; expected volatility of 52.01% for 2000, 58.31% for 1999 and 60.30% for 1998; risk free interest rate based on U.S. Treasury strip yield at the date of grant of 6.57% for 2000, 5.68% for 1999 and 5.90% for 1998; and expected lives of 5 to 10 years. F-21 The table below summarizes information about stock options outstanding as of the following fiscal year ends (all share and price information has been restated to reflect the special 10% stock dividend in February 2000):
September 30, 2000 September 30, 1999 September 30, 1998 ------------------ ------------------ ------------------ Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise ------------------ ------------------ ------------------ Shares Price Shares Price Shares Price --------- ------- --------- ------- --------- ------- Outstanding at beginning of period 346,500 $4.72 200,200 $2.58 17,600 $1.48 Granted 32,900 5.75 146,300 7.65 187,000 2.68 Exercised (9,900) 2.08 - - - - Forfeited/Expired (9,020) 7.08 - - (4,400) $2.05 --------- ------- --------- ------- --------- ------- Outstanding at end of period 360,480 $4.83 346,500 $4.72 200,200 $2.58 ========= ======= ========= ======= ========= ======= Shares available for options that may be granted 239,020 42,900 158,400 ========= ========= ========= Weighted-average grant date fair value of options granted during the period - exercise price equals stock market price at grant $3.19 $4.73 $1.55 ======= ======= ======= Weighted-average grant date fair value of options granted during the period - exercise price exceeds stock market price at grant - $4.06 $1.25 ======= ======= =======
The following summarizes options outstanding at September 30, 2000:
Exercisable Remaining ----------------------------- Exercise Number Weighted-Average Weighted-Average Number Weighted-Average Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price ------------- ----------- ---------------- ---------------- ----------- ---------------- 1995 Options $1.48 10,780 5.2 years $1.48 10,780 $1.48 1997 Options $2.62 - $2.87 177,320 5.9 years $2.68 110,760 $2.70 1999 Options $5.91 - $6.14 49,500 8.3 years $6.09 27,500 $6.12 1999 Options $7.62 - $9.00 89,980 8.4 years $8.43 38,236 $8.41 2000 Options $5.75 32,900 9.7 years $5.75 - $5.75
F-22 16. Business Segments: AMCON operates within two reportable business segments; the wholesale distribution of consumer products by ADC and the wholesale distribution of natural food products by FFH are aggregated as the "Wholesale Distribution" segment. The other reportable segment represents the retail sale of health and natural food products. The business units within each segment are evaluated on revenues, operating income and income before taxes and extraordinary items.
Wholesale Distribution Retail Consolidated ------------- ----------- ------------- Year ended September 30, 2000: External revenues: Cigarettes $ 296,533,411 $ - $ 296,533,411 Health food 41,393,914 34,089,817 75,483,731 Confectionery 31,051,435 - 31,051,435 Tobacco, beverage & other 63,056,668 - 63,056,668 ------------- ----------- ------------- Total external revenues 432,035,428 34,089,817 466,125,245 Intersegment sales: Health food 7,726,612 - 7,726,612 ------------- ----------- ------------- Total intersegment sales 7,726,612 - 7,726,612 Depreciation and amortization 1,371,906 1,423,090 2,794,996 Operating income 5,685,565 1,222,715 6,908,280 Interest expense 1,399,134 1,649,180 3,048,314 Income before taxes 6,366,618 (346,657) 6,019,961 Total assets 53,454,401 19,541,110 72,995,511 Capital expenditures 561,851 404,167 966,018 Year ended September 30, 1999: External revenues: Cigarettes $ 251,076,045 $ - $ 251,076,045 Health food 42,637,607 6,961,742 49,599,349 Confectionery 30,191,317 - 30,191,317 Tobacco, beverage & other 54,634,467 - 54,634,467 ------------- ----------- ------------- Total external revenues 378,539,436 6,961,742 385,501,178 Intersegment sales: Health food 701,101 - 701,101 ------------- ----------- ------------- Total intersegment sales 701,101 - 701,101 Depreciation and amortization 1,560,222 301,142 1,861,364 Operating income 7,664,526 199,439 7,863,965 Interest expense 1,564,096 190,741 1,754,837 Income before taxes 5,994,405 187,048 6,181,453 Total assets 47,965,695 20,623,521 68,589,216 Capital expenditures 740,919 20,787 761,706 F-23 Year ended September 30, 1998: External revenues: Cigarettes $ 185,524,096 $ - $ 185,524,096 Health food 31,197,993 - 31,197,993 Confectionery 29,286,831 - 29,286,831 Tobacco, beverage & other 48,272,403 - 48,272,403 ------------- ----------- ------------- Total external revenues 294,281,323 - 294,281,323 Intersegment sales - - - Depreciation and amortization 1,120,482 - 1,120,482 Operating Income 5,439,307 - 5,439,307 Interest expense 1,814,555 - 1,814,555 Income before taxes 3,901,039 - 3,901,039 Total assets 39,643,737 - 39,643,737 Capital expenditures 782,440 - 782,440
Intersegment sales are at cost plus a nominal markup and are eliminated in the consolidated statements of income. The retail segment was acquired in fiscal 1999, therefore no segment information is presented for the retail segment in fiscal 1998. Segment information for the retail segment presented in fiscal 1999 represents approximately six months of operations of CNF and two weeks of operations of HFA. 17. Subsequent Event: In November 2000, the Company entered into a merger agreement with Hawaiian Natural Water Company, Inc. (OTC: HNWC), pursuant to which HNWC would be merged with and into, and thereby become, a wholly-owned subsidiary of AMCON Distributing Company. The merger consideration values the entire common equity interest in HNWC at $2,865,348, payable in common stock of the Company, which will be priced no lower than $6.00 and no greater than $8.00 per share based on a 20 trading day measuring period ending three trading days before the date of the HNWC stockholder vote on the merger. As a result, the Company will issue an aggregate of not less than 358,168 or more than 477,558 shares, representing between 11.6% and 14.9% of the Company's outstanding shares after giving effect to the merger. HNWC optionholders and warrantholders would also receive comparable options and warrants of The Company but with the exercise price and number of shares covered thereby being adjusted to reflect the exchange ratio. The Company has provided HNWC with certain interim debt financing pending the consummation of the merger. The Company loaned HNWC $350,000 in September 2000 and $400,000 in October 2000 for a total of $750,000 to be used for working capital and other general corporate purposes, including redemption of outstanding preferred stock. The loan is evidenced by promissory notes, bearing interest at the rate of 10% per annum, due on March 31, 2001 which are secured by substantially all of HNWC's assets. In the event that the merger agreement is terminated for any reason or HNWC defaults on its obligations under the notes, the Company will be entitled to convert the notes into Series C Convertible Preferred Stock which, among other things, would entitle the Company to elect a majority of HNWC's Board of Directors. The notes are also convertible upon 61 days' advance notice into HNWC common stock at the same exchange ratio as in the merger. F-24 The merger is expected to qualify as a tax-free reorganization and to be recorded on the Company's books using the purchase method of accounting. The merger is subject to various conditions, including the effectiveness of a registration statement covering the shares to be issued in the merger, the listing of such shares on AMEX and approval of the stockholders of HNWC. All of HNWC's officers and directors and any of their affiliated entities that own shares of HNWC common stock (constituting approximately 40% of the currently outstanding shares) have agreed to vote their shares in favor of the merger. It is expected that the merger will be consummated on or before March 31, 2001. F-25 DIRECTORS AND CORPORATE OFFICERS DIRECTORS William F. Wright Chairman Kathleen M. Evans President Jerry Fleming President of Food For Health Company, Inc. J. Tony Howard /2/ President of Nebraska Distributing Company Allen D. Petersen /1/ Chairman and Chief Executive Officer of American Tool Companies, Inc. Timothy R. Pestotnik /1/ Partner with the law firm Luce, Forward, Hamilton & Scripps, LLP William R. Hoppner /1/2/ Consultant /1/ Audit Committee /2/ Compensation Committee CORPORATE OFFICERS William F. Wright Chairman Kathleen M. Evans President Jerry Fleming President of Food For Health Company, Inc. Michael D. James Secretary, Treasurer and Chief Financial Officer AMCON DISTRIBUTING COMPANY CORPORATE HEADQUARTERS AMCON Distributing Company 10228 L Street Omaha, Nebraska 68127 (402) 331-3727 TRANSFER AGENT Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016-3572 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1299 Landmark Center Omaha, Nebraska 68102 ANNUAL STOCKHOLDERS' MEETING Tuesday, March 9, 2001 9:00 a.m. Embassy Suites Hotel Omaha, Nebraska 68102 ADDITIONAL INFORMATION The Form 10-K Annual Report to the Securities and Exchange Commission provides certain additional information and is available without charge upon request to Michael D. James, Secretary, Treasurer and Chief Financial Officer of the Company. STOCK INFORMATION AMCON Distributing Company's Common Shares are traded on the American Stock Exchange. The symbol for the Common Stock is "DIT". WEB SITE http://www.amcon-dist.com EX-21.0 3 0003.txt SUBSIDIARIES OF THE COMPANY State of Names Incorporation D/B/A (if applicable) - ------------------------------ ------------- -------------------------- Food For Health Company, Inc. Arizona Chamberlin Natural Foods, Inc. Florida Chamberlin's Market & Cafe Health Food Associates, Inc. Oklahoma Akin's Natural Foods Market /DOCUMENT> EX-23.1 4 0004.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the registration statement of AMCON Distributing Company on Form S-8 of our report dated November 22, 2000, except for paragraph 5 of Note 8, for which the date is December 22, 2000, relating to the financial statements, which appears in this Form 10-K. We also consent to the incorporation by reference of our report dated November 22, 2000 relating to the financial statement schedules which appears in this Annual Report on Form 10-K. PRICEWATERHOUSECOOPERS LLP Omaha, Nebraska December 28, 2000 EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheet at September 30, 2000 and the Statement of Income for the Year Ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS SEP-30-2000 OCT-01-1999 SEP-30-2000 1,148 0 19,527 784 29,397 51,280 13,379 7,492 72,996 23,907 23,907 0 0 27 16,828 72,996 466,125 466,125 410,511 410,511 0 0 3,048 6,020 2,116 3,904 0 0 0 3,904 1.43 1.37
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