8-K/A 1 mwiclose8ka.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 Date of Report (Date of earliest event reported) June 1, 2001 ------------------------------------------------------------- AMCON DISTRIBUTING COMPANY -------------------------- (Exact name of registrant as specified in its charter) DELAWARE 0-24708 47-0702918 ------------------------------------------------------------------------------ (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 10228 "L" Street, Omaha, NE 68127 --------------------------------- (Address of principal executive offices) (Zip Code) (402) 331-3727 -------------- (Registrant's telephone number, including area code) Not Applicable -------------- (Former name or former address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS AMCON Distributing Company ("AMCON"), a Delaware corporation, Merchants Wholesale Inc. ("MWI"), an Illinois corporation, and Robert and Marcia Lansing are parties to an Asset Purchase Agreement (the "Asset Purchase Agreement") and a Noncompete, Nonsolicitation and Nondisclosure Agreement (the "Noncompete Agreement"), both dated February 8, 2001 and addendums to the Asset Purchase Agreement and Noncompete Agreement(the "Asset Purchase Addendum" and the "Noncompete Addendum," respectively), both dated May 30, 2001. In addition, AMCON and Robert and Marcia Lansing are parties to a Real Estate Purchase Agreement (the "Real Estate Purchase Agreement") dated February 8, 2001 and an addendum to the Real Estate Purchase Agreement (the "Real Estate Addendum") dated May 30, 2001. The agreements referred to above are collectively referred to as the "Purchase Agreements." On June 1, 2001, upon terms set forth in the Purchase Agreements, AMCON completed its purchase of the distribution business and assets of MWI for a purchase price of $36.7 million, net of liabilities assumed of $6.1 million. There are no material relationships between AMCON, MWI and Robert and Marcia Lansing and the purchase price was determined by arm's-length negotiations. Funding for the acquisition was provided as follows: $27.0 million through borrowings under a revolving loan agreement with LaSalle National Bank (the "Revolving Loan"); $6.3 million through a real estate loan with Gold Bank (the "Real Estate Loan"); and $3.4 million of deferred payment to the sole stockholder of MWI. Costs and expenses associated with the acquisition were paid from AMCON's Revolving Loan proceeds. The Revolving Loan is secured by all of AMCON's assets, excluding real estate. The Real Estate Loan is secured by AMCON's two owned distribution centers. The transaction under the Asset Purchase Agreement will be accounted for using the purchase method of accounting. The portion of the purchase price to be allocated to goodwill is currently estimated to be approximately $5.1 million and will be amortized over 25 years up through the Company's year ending September 30, 2001. At such time, the Company intends to early adopt the guidance under the newly issued Statement of Financial Accounting Standards No. 142 and the remaining unamortized goodwill asset will no longer be amortized. The carrying value of the goodwill will then be reviewed for impairment and written down and charged to the results of operations if and when the impairment recognition criteria is met and the recorded value of the asset exceeds its measured fair value. The real estate purchased under the Real Estate Purchase Agreement represents a 206,000 square foot building formerly occupied by MWI. MWI operated through eight states as a wholesale distributor of consumer products in AMCON's traditional distribution business. MWI's distribution territory was within and contiguous to AMCON's current traditional distribution business territory. On June 4, 2001, AMCON issued a press release announcing the completion of the transactions under the Purchase Agreements. The press release is filed herewith as an exhibit and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORM FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY Quincy, Illinois CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 23, 2001 (Unaudited) MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED BALANCE SHEET March 23, 2001 and October 6, 2000 (Unaudited)
ASSETS 3/23/2001 10/6/2000 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ - $ - Accounts receivable, less allowance for doubtful accounts of $583,350 and $78,650 18,980,008 24,175,496 Inventories 11,325,670 12,878,768 Prepaid expenses 593,111 2,517,587 Note receivable from affiliate 719,788 434,930 ----------- ----------- Total current assets 31,618,577 40,006,781 ----------- ----------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS Leasehold improvements 152,697 6,223 Equipment 6,376,628 6,003,231 ----------- ----------- Total, at cost 6,529,325 6,009,454 Less accumulated depreciation (4,474,177) (4,265,616) ----------- ----------- Total equipment and leasehold improvements 2,055,148 1,743,838 ----------- ----------- OTHER ASSETS Unamortized loan fees 170,192 56,562 Advance to affiliate - 1,080,291 Other assets 80,291 100 ----------- ----------- TOTAL ASSETS $33,924,208 $42,887,572 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Bank overdraft $ 3,676,761 $ 4,987,566 Accounts payable 3,987,645 5,149,060 Current maturities of long-term debt 21,115,965 26,004,695 Current maturities of obligations under capital lease 68,604 77,604 Current income taxes payable 310,958 346,205 Accrued expenses 1,702,866 1,045,641 ----------- ----------- Total current liabilities 30,862,799 37,610,771 ----------- ----------- LONG-TERM LIABILITIES Other liabilities 951,995 - Notes payable to stockholder 1,174,117 2,313,413 Long-term debt, less current maturities above - 519,883 Obligations under capital lease, less current maturities above 865,401 67,527 ----------- ----------- Total long-term liabilities 2,039,518 2,900,823 ----------- ----------- Total liabilities 33,854,312 40,511,594 ----------- ----------- STOCKHOLDER'S EQUITY Common stock, $50 par value; 100,000 shares authorized, 3,000 shares issued and 88 shares outstanding 150,000 151,000 Additional paid-in capital 398,237 398,237 Retained earnings 2,072,369 4,377,451 ----------- ----------- 2,620,606 4,926,688 Treasury stock, 2,912 shares at cost (2,550,710) (2,550,710) ----------- ----------- Total stockholder's equity 69,896 2,375,978 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $33,924,208 $42,887,572 =========== ===========
MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS Six Months Ended March 23, 2001 and March 24, 2000 (Unaudited)
2001 2000 ------------- ------------- NET SALES $ 225,640,942 $ 205,418,489 COST OF SALES 215,750,750 195,253,322 ------------- ------------- Gross profit 9,890,192 10,165,167 OPERATING EXPENSES Selling, general, and administrative expenses 9,907,388 8,218,263 ------------- ------------- Income (loss) from operations (17,196) 1,946,904 ------------- ------------- OTHER EXPENSE Interest expense (1,648,637) (796,689) ------------- ------------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1,665,833) 1,150,215 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (639,243) - ------------- ------------- NET INCOME (LOSS) $ (2,305,076) $ 1,150,215 ============= =============
MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended March 23, 2001 and March 24, 2000 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 2001 2000 ----------- ----------- Net income (loss) $(2,305,076) $ 1,150,215 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Bad debt expense 504,700 3,000 Depreciation 291,527 383,070 Gain on sale of equipment (39,304) - Effects of changes in operating assets and liabilities: Accounts receivable 4,690,788 (6,255,260) Inventory 1,553,098 (3,716,064) Prepaid expenses 1,924,476 109,341 Other assets (193,821) - Accounts payable (1,161,415) 673,046 Accrued expenses 657,225 (786,212) Income taxes payable (35,247) (130,497) Other liabilities 951,995 - ----------- ----------- Net cash provided by (used in) operating activities 6,838,946 (8,569,361) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment and leasehold improvements - (779,179) Proceeds from sale of equipment 264,143 - Amounts due from affiliate 795,433 - ----------- ----------- Net cash provided by (used in) investing activities 1,059,576 (779,179) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft (1,310,804) (1,904,442) Payment of loan fees payable - (132) Payments from affiliate - - Payments on stockholder's notes (1,139,296) - Proceeds on long-term debt - 3,007 Payments on long-term debt - (187,605) Net proceeds (payments) on line of credit (5,408,614) 11,634,860 Principal payments on capital lease obligation (39,808) - ----------- ----------- Net cash (used in) provided by financing activities (7,898,522) 9,545,688 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS - 197,148 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - - ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 197,148 =========== ===========
MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 23, 2001 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Merchants Wholesale, Inc. and its wholly-owned subsidiary ("MWI" or the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the financial information included therein, such adjustments consisting of normal recurring items. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 29, 2000. Results for the interim period are not necessarily indicative of results to be expected for the entire year. The Company has established its fiscal year using the 52-53 week year method. MWI's interim period ended March 23, 2001 includes 24 weeks. The first 12 weeks of the period are also included in the audited financial statements for the year ended December 29, 2000. 2. INVENTORIES Inventories consist of finished product purchased in bulk quantities to be redistributed to the Company's customers. Inventories are stated at lower of cost or market. The Company uses the last-in, first-out (LIFO) method to determine the cost of its cigarette inventory. The Company uses the first-in, first-out (FIFO) method to determine the cost of the remainder of its inventory. If the FIFO method of inventory accounting had been used by the Company to determine the cost of its cigarette inventory, inventories would have been $2,034,688 higher than reported at March 23, 2001. 3. ADOPTION OF SFAS NO. 133 The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS No 133), "Accounting for Derivative Instruments and Hedging Activities'" on December 30, 2000. In accordance with the transition provisions of SFAS No. 133, the Company recorded a cumulative effect of change in accounting principle-type adjustment of $639,243 in earnings to reflect the negative fair value at December 30, 2000 of an interest rate swap derivative that did not meet the criteria for hedge accounting under FAS 133. The fair value of the interest rate swap derivative further decreased to a negative fair value of $951,995 as of March 23, 2001, with the impact of the adjustment to fair value recorded in earnings (interest expense). The interest rate swap derivative is recognized on the balance sheet (other liabilities) at its fair value. Under the swap agreement, the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount of $25,000,000. The interest rate swap converts the Company's variable-rate senior debt to fixed-rate debt. 4. SUBSEQUENT EVENTS Subsequent to March 23, 2001, the assets and liabilities of the Company's subsidiary were transferred at fair market value, which approximates book value, to the Parent and the distribution facility in Davenport, IA was closed. On February 8, 2001, MWI entered into an Asset Purchase Agreement with AMCON Distributing Company ("AMCON"). On June 1, 2001, pursuant to the Asset Purchase Agreement, the Company sold substantially all of its operating assets and liabilities to AMCON for $36.7 million, net of liabilities assumed by AMCON of $6.0 million. The Company's senior debt facility was retired with the proceeds from the sale. 5. RECENT ACCOUNTING CHANGES In July 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Standards No. 141 (SFAS No. 141), "Business Combinations" and SFAS No. 142,"Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles being classified as goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the impairment recognition criteria had been met and the recorded value of goodwill and certain intangibles is more than its measured fair value. The provisions of each statement which apply to goodwill and intangible assets acquired prior to June 30, 2001 must be adopted by the Company on January 1, 2002. MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY Quincy, Illinois CONSOLIDATED FINANCIAL STATEMENTS December 29, 2000 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT..................................... FINANCIAL STATEMENTS Consolidated Balance Sheet..................................... Consolidated Statement of Operations........................... Consolidated Statement of Retained Earnings.................... Consolidated Statement of Cash Flows........................... Summary of Significant Accounting Policies..................... Notes to Consolidated Financial Statements..................... Independent Auditor's Report Board of Directors Merchants Wholesale, Inc. Quincy, Illinois We have audited the accompanying consolidated balance sheet of Merchants Wholesale, Inc. and its subsidiary as of December 29, 2000, and the related consolidated statements of operations, retained earnings, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Merchants Wholesale, Inc. and its subsidiary as of December 29, 2000, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As explained in Note 12 to the consolidated financial statements, the stockholder of Merchants Wholesale, Inc. has entered into an agreement to sell substantially all operating assets and related liabilities of the Company. CLIFTON GUNDERSON L.L.C. Peoria, Illinois February 23, 2001 (except for Note 2 and Note 12, as to which the date is June 1, 2001) MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED BALANCE SHEET December 29, 2000 ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,587 Accounts receivable, less allowance for doubtful accounts of $326,387 22,631,778 Inventories 13,575,731 Prepaid expenses 262,944 Note receivable from affiliate 578,445 ----------- Total current assets 37,053,485 ----------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS Leasehold improvements 142,697 Equipment 6,368,323 ----------- Total, at cost 6,511,020 Less accumulated depreciation (4,397,341) ----------- Total equipment and leasehold improvements 2,113,679 ----------- OTHER ASSETS Unamortized loan fees 177,404 ----------- TOTAL ASSETS $39,344,568 =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Bank overdraft $ 5,090,059 Accounts payable 5,243,582 Current maturities of long-term debt 88,588 Current maturities of loan fees payable 43,750 Current maturities of obligations under capital lease 68,604 Current income taxes payable 179,613 Accrued expenses 1,659,968 Obligation under purchase agreement 310,000 ----------- Total current liabilities 12,684,164 ----------- LONG-TERM LIABILITIES Notes payable to stockholder 411,124 Senior debt 23,365,155 Long-term debt, less current maturities above 830,343 Loan fees payable, less current maturities above 43,750 Obligations under capital lease, less current maturities above 130,638 Income taxes payable, less current 131,345 ----------- Total long-term liabilities 24,912,355 ----------- Total liabilities 37,596,519 ----------- STOCKHOLDER'S EQUITY Common stock, $50 par value; 100,000 shares authorized, 3,000 shares issued and 88 shares outstanding 150,000 Additional paid-in capital 398,237 Retained earnings 3,750,522 ----------- 4,298,759 Treasury stock, 2,912 shares at cost (2,550,710) ----------- Total stockholder's equity 1,748,049 ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $39,344,568 =========== MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 29, 2000 NET SALES $506,199,544 COST OF SALES 482,205,858 ------------ Gross profit 23,993,686 OPERATING EXPENSES Selling, general, and administrative expenses 21,811,478 ------------ Income from operations 2,182,208 ------------ OTHER EXPENSE, NET Interest expense (2,594,815) Other expense, net (68,358) ------------ Other expense, net (2,663,173) ------------ NET LOSS $ (480,965) ============ MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF RETAINED EARNINGS Year Ended December 29, 2000 BALANCE, BEGINNING OF YEAR $ 6,424,837 Net loss (480,965) Dividends paid (2,193,350) ----------- BALANCE, END OF YEAR $ 3,750,522 =========== MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 29, 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (480,965) Adjustments to reconcile net loss to net cash provided by operating activities: Bad debt expense 456,000 Depreciation 742,885 Gain on sale of equipment (39,304) Amortization of loan fees 35,929 Effects of changes in operating assets and liabilities: Accounts receivable (5,325,340) Inventory 3,265,046 Prepaid expenses 340,932 Accounts payable 652,478 Accrued expenses 533,503 Income taxes payable (151,485) ----------- Net cash provided by operating activities 29,679 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment and leasehold improvements (383,369) Proceeds from sale of equipment 264,143 ----------- Net cash used in investing activities (119,226) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft 1,213,356 Payment of loan fees payable (93,750) Payments to affiliate (578,445) Payments on stockholder's notes (435,310) Proceeds on long-term debt 918,931 Payments on long-term debt (746,092) Net proceeds on line of credit 2,304,082 Principal payments on capital lease obligation (145,588) Payments on purchase agreement (150,000) Dividends paid (2,193,350) ----------- Net cash provided by financing activities 93,834 ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 4,287 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 300 ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,587 =========== MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES December 29, 2000 Merchants Wholesale, Inc. was incorporated on July 9, 1954 in the state of Illinois. The Company's principal business activity is the distribution of tobacco, candy, and various sundry products throughout Missouri, Illinois, and other adjacent states. The Company's 100 percent owned subsidiary, Merchants Wholesale of Iowa, Inc., principal business activity is also the distribution of tobacco, candy, and various sundry products throughout Iowa, Illinois, and other adjacent states. Significant accounting policies followed by the Company are presented below. The Company has established its fiscal year using the 52-53 week tax year method. A 52-53 week tax year varies from 52 to 53 weeks and always ends the year on the same day of the week. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS 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. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its 100 percent owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation. CASH EQUIVALENTS The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES Inventories are stated at lower of cost or market. The Company uses the last- in, first-out (LIFO) method to determine the cost of its cigarette inventory. The Company uses the first-in, first-out (FIFO) method to determine the cost of the remainder of its inventory. If the FIFO method of inventory accounting had been used by the Company to determine the cost of its cigarette inventory, inventories would have been $2,217,049 higher than reported at December 29, 2000. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are stated at cost. Equipment and leasehold improvements are depreciated using straight-line and accelerated methods over the estimated lives of the assets which range from three to fifteen years. UNAMORTIZED LOAN FEES The Company amortizes its loan fees on a straight-line basis over the respective lives of the loans. ADVERTISING The Company expenses advertising costs as incurred. INCOME TAXES Effective January 30, 1999, the Company, with the consent of its stockholder, has elected to be taxed under sections of federal and state income tax law as an S corporation. Under such election, the stockholder separately pays income tax on his pro rata shares of the Company's income, deductions, losses, and credits. As such, no provision for federal income taxes has been calculated for the Company. The Company is subject to state replacement taxes; however, a provision is not made as the amount has been deemed insignificant to the financial statements. MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 29, 2000 NOTE 1 - NOTES RECEIVABLE FROM AFFILIATE At December 29, 2000, the Company had notes receivable from Lansing's Novelty, Inc. totaling $578,445. Lansing's Novelty, Inc. is 100 percent owned by the shareholder of the Company. NOTE 2 - SENIOR DEBT (Dated June 1, 2001) The Company has a loan agreement with a bank for a $30,000,000 total commitment of which $23,365,155 is utilized. The commitment is a revolving credit arrangement whereby the Company may periodically borrow and repay funds as needed. The total balance is due on the termination date of the loan agreement, December 2003. The loan agreement provides for interest on outstanding borrowings at the prime rate (9.50 percent at December 29, 2000) paid monthly. The line of credit is collateralized by substantially all of the Company's assets and contains restrictive covenants relating to the Company's financial position and operations. At December 29, 2000, the Company was not in compliance with certain covenants. The line of credit has subsequently been assumed in conjunction with an asset purchase agreement (see Note 12). NOTE 3 - DEBT Notes Payable to Stockholder (Related Party Transactions) The notes payable to stockholder, totaling $411,124, are unsecured and bear interest at 7.50 percent, requiring monthly interest payments, with various maturity dates. Long-term Debt Long-term debt consists of the following: Equipment loan requiring monthly installments of $14,268 including interest at 9.40 percent. The final payment is due December 2006 and the loan is secured by equipment. $918,931 Less current portion 88,588 -------- Long-term portion $830,343 ======== Future maturities of long-term debt and note payable to stockholder are as follows: 2001 $ 88,588 2002 97,284 2003 106,833 2004 189,529 2005 208,133 Later years 639,688 ---------- Total $1,330,055 ========== NOTE 4 - SWAP AGREEMENT The Company entered into an interest rate swap agreement during the year ended December 29, 2000 to reduce the impact of changes in interest rates on its floating rate senior debt. The swap agreement resulted in a gain of $4,488 which was recognized in interest expense for the year ended December 29, 2000. At December 29, 2000, the Company had an outstanding interest rate swap agreement with a bank having a total principal amount of $25,000,000. The agreement effectively changed the Company's interest rate exposure on $25,000,000 of a floating rate note to a fixed 6.48 percent. The $25,000,000 interest rate swap agreement matures on May 27, 2003. At December 29, 2000, the interest rate swap derivative had a negative fair value of $639,243. NOTE 5 - LOAN FEES PAYABLE In connection with the revolving line of credit loan agreement, the Company incurred $181,250 of loan fees. The Company paid $93,750 during 2000. The remaining balance is due in two installments of $43,750 in December 2001 and December 2002. NOTE 6 - INCOME TAXES The Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for both federal and state income tax reporting effective January 30, 1999. After that date, the Company's earnings and losses will be included in the stockholder's personal income tax return. The election required that the Company include the $1,545,255 excess of the cost of its inventory calculated using the first-in, first-out method of accounting over the amount reported under the last-in, first-out method of accounting in its year ended January 29, 1999 taxable income. That amount also was added to the tax basis of the inventory and increased year ended January 29, 1999 taxes by $525,386. The increase is payable in four equal installments beginning with the filing of the year ended January 29, 1999 tax return. Since the resulting excess of the inventory's tax basis over its financial basis will be deductible when the Company is a nontaxable entity, no deferred tax benefit is recognized for it. Schedule of required income tax payments (payments are due by due dates of the returns): 2001 $179,613 2002 131,345 -------- Total $310,958 ======== NOTE 7 - LEASE COMMITMENTS Obligations Under Capital Lease The Company leases equipment under capitalized leases expiring in years ranging from 2001 through 2004. Accumulated depreciation on the equipment was $160,884 as of December 29, 2000. Future minimum lease payments under the leases are as follows: 2001 $ 85,141 2002 66,720 2003 66,720 2004 13,200 -------- Total 231,781 Less amount representing interest 32,539 -------- Present value of minimum lease payments $199,242 ======== Operating Lease With Stockholder - Related Party Transaction The Company leases its Quincy, Illinois facility from its sole stockholder, under a noncancellable operating lease expiring in January 2008. Future minimum lease payments under this lease are as follows: 2001 $ 540,960 2002 540,960 2003 540,960 2004 540,960 2005 540,960 Thereafter 1,127,000 ---------- Total $3,831,800 ========== Total lease expense paid to the Company's sole stockholder for the year ended December 29, 2000 was $540,960. Other Operating Leases The Company has various other noncancellable operating leases expiring in various years through 2007. Future minimum payments under these leases are as follows: 2001 $1,199,717 2002 899,717 2003 834,019 2004 835,929 2005 835,929 Thereafter 840,429 ---------- Total $5,445,740 ========== The Company has various operating leases for delivery equipment which are cancelable with 60 days written notice. Total rent expense for the year ended December 29, 2000 under all operating leases was $2,448,683. NOTE 8 - PROFIT SHARING PLAN The Company has established defined contribution profit sharing plans covering employees who have completed one year of service. Contributions are made at the discretion of the Company. The Company contributed $207,015 for the year ended December 29, 2000. NOTE 9 - CONCENTRATION OF CREDIT RISK The Company's major customers include companies in the convenience store industry. Sales to one customer were approximately $60,700,000 for the year ended December 29, 2000 and accounts receivable from two customers were approximately $2,538,000 at December 29, 2000. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Tobacco products sold to this industry account for approximately 86 percent of the Company's sales in 2000. NOTE 10 - CASH FLOW DISCLOSURES Cash paid for interest and income taxes was as follows: Interest $2,475,814 Income taxes 151,485 The Company had the following noncash investing and financing transactions: Equipment costing $460,000 was obtained through a purchase agreement. At December 29, 2000, $150,000 was paid on this purchase agreement. The remaining $310,000 is reflected as a current liability at December 29, 2000. Loan fees of $131,250 were incurred for which long-term financing was provided by the lender. A payment of $43,750 was made by December 29, 2000. Leasehold improvements of $90,000 were purchased in 2000 and included in accounts payable at December 29, 2000. NOTE 11 - SELF INSURANCE The Parent and Subsidiary have partial self-insurance programs for employees' health benefits. The maximum potential self-insurance cost to each of the Companies for the year ended December 29, 2000, as determined by the insurance provider, is approximately $1,265,051 and $308,000, respectively. The Companies also pay premiums for specific and aggregate excess coverage for claims in excess of the maximum claims to be paid by the Companies. During the year ended December 29, 2000, the Companies incurred $710,232 and $238,078, respectively, of their maximum potential cost. NOTE 12 - SUBSEQUENT EVENTS (Dated June 1, 2001) Subsequent to year end, assets and liabilities of the Subsidiary were transferred at book value, to the Parent. On February 8, 2001, the Parent Company (seller) entered into an Asset Purchase Agreement (Agreement) with AMCON Distributing Company (buyer). Pursuant to the Agreement, it is the intent of the seller to sell substantially all operating assets and related liabilities to the buyer for fair market value plus an additional amount to be paid by the buyer over 5 years. The closing date of the Agreement is June 1, 2001. MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY Quincy, Illinois CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT...................................... FINANCIAL STATEMENTS Consolidated Balance Sheet........................................ Consolidated Statement of Operations.............................. Consolidated Statement of Retained Earnings....................... Consolidated Statement of Cash Flows.............................. Summary of Significant Accounting Policies........................ Notes to Consolidated Financial Statements........................ Independent Auditor's Report Board of Directors Merchants Wholesale, Inc. Quincy, Illinois We have audited the accompanying consolidated balance sheet of Merchants Wholesale, Inc. and its subsidiary as of December 31, 1999, and the related consolidated statements of operations, retained earnings, and cash flows for the eleven month period then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Merchants Wholesale, Inc. and its subsidiary as of December 31, 1999, and the results of their operations and their cash flows for the eleven month period then ended in conformity with generally accepted accounting principles. CLIFTON GUNDERSON L.L.C. Peoria, Illinois February 24, 2000 MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED BALANCE SHEET December 31, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 300 Accounts receivable, less allowance for doubtful accounts of $126,250 17,751,985 Inventories 16,840,777 Prepaid expenses 603,876 ----------- Total current assets 35,196,938 EQUIPMENT AND LEASEHOLD IMPROVEMENTS Leasehold improvements 6,223 Equipment 5,797,079 Equipment under capital lease 387,720 Total, at cost 6,191,022 Less accumulated depreciation (4,042,988) ----------- Total equipment and leasehold improvements 2,148,034 OTHER ASSETS Unamortized loan fees 32,083 ----------- TOTAL ASSETS $37,377,055 =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Bank overdraft $3,876,703 Accounts payable 4,490,651 Current maturities of note payable to stockholder 160,000 Current maturities of long-term debt 133,753 Current maturities of obligations under capital lease 145,597 Current maturities of income taxes payable 199,749 Accrued expenses 1,126,465 ----------- Total current liabilities 10,132,918 LONG-TERM LIABILITIES Notes payable to stockholder, less current maturities above 686,434 Senior debt 21,061,073 Long-term debt, less current maturities above 612,339 Obligations under capital lease, less current maturities above 199,233 Income taxes payable, less current maturities above 262,694 ----------- Total long-term liabilities 22,821,773 ----------- Total liabilities 32,954,691 STOCKHOLDER'S EQUITY Common stock, $50 par value; 100,000 shares authorized, 3,000 shares issued and 88 shares outstanding 150,000 Additional paid-in capital 398,237 Retained earnings 6,424,837 ----------- 6,973,074 Treasury stock, 2,912 shares at cost (2,550,710) ----------- Total stockholder's equity 4,422,364 ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $37,377,055 =========== MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS Eleven Months Ended December 31, 1999 NET SALES $342,993,776 COST OF SALES 325,811,641 ------------ Gross profit 17,182,135 OPERATING EXPENSES Selling, general, and administrative expenses 13,691,611 ------------ Income from operations 3,490,524 OTHER EXPENSE, NET Interest expense (1,063,302) Other income, net 3,668 ------------ Other expense, net (1,059,634) ------------ NET INCOME $2,430,890 ============ MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF RETAINED EARNINGS Eleven Months Ended December 31, 1999 BALANCE, BEGINNING OF PERIOD $3,993,947 Net income 2,430,890 ------------ BALANCE, END OF PERIOD $6,424,837 ============ MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Eleven Months Ended December 31, 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net income $2,430,890 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 753,686 Loss on sale of equipment 14,557 Amortization of loan fees 14,576 Effects of changes in operating assets and liabilities: Accounts receivable (5,870,772) Inventory 751,904 Prepaid expenses (496,404) Accounts payable 1,977,960 Accrued expenses (23,337) Income taxes payable (546,815) ---------- Net cash used in operating activities (993,755) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment and leasehold improvements (940,516) Proceeds from sale of equipment 16,583 ---------- Net cash used in investing activities (923,933) CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft (948,884) Payment of costs to maintain debt financing (35,000) Proceeds from stockholder's loans payable 600,000 Principal payments on stockholder's loans payable (379,961) Principal payments on notes payable (115,838) Net proceeds on line of credit 2,844,318 Principal payments on capital lease obligation (46,947) ---------- Net cash provided by financing activities 1,917,688 NET INCREASE IN CASH AND CASH EQUIVALENTS - ---------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 300 ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 300 ========== MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES December 31, 1999 Merchants Wholesale, Inc. was incorporated on July 9, 1954 in the state of Illinois. The Company's principal business activity is the distribution of tobacco, candy, and various sundry products throughout Missouri, Illinois, and other adjacent states. The Company's 100 percent owned subsidiary, Merchants Wholesale of Iowa, Inc., principal business activity is also the distribution of tobacco, candy, and various sundry products throughout Iowa, Illinois, and other adjacent states. Significant accounting policies followed by the Company are presented below. The Company has established its fiscal year using the 52-53 week tax year method. A 52-53 week tax year varies from 52 to 53 weeks and always ends the year on the same day of the week. Effective January 30, 1999, the Company elected S corporation status pursuant to IRS regulations. The Company also changed its year end to a calendar year end resulting in a period covering January 30, 1999 to December 31, 1999. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS 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. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its 100 percent owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation. CASH EQUIVALENTS The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES Inventories are stated at lower of cost or market. The Company uses the last- in, first-out (LIFO) method to determine the cost of its cigarette inventory. The Company uses the first-in, first-out (FIFO) method to determine the cost of the remainder of its inventory. If the FIFO method of inventory accounting had been used by the Company to determine the cost of its cigarette inventory, inventories would have been $2,048,925 higher than reported at December 31, 1999. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are stated at cost. Equipment and leasehold improvements are depreciated using an accelerated method over the estimated lives of the assets which range from three to fifteen years. UNAMORTIZED LOAN FEES The Company amortizes its loan fees on a straight-line basis over the respective lives of the loans. ADVERTISING The Company expenses advertising costs as incurred. MERCHANTS WHOLESALE, INC. AND ITS SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 NOTE 1 - ACQUISITION At the close of business on December 3, 1999, the Subsidiary acquired certain assets of a company that distributes tobacco, candy, and various sundry products. The purchase price was $4,850,157, consisting of a cash payment of $4,765,476 and the issuance of a capital lease obligation for $84,681. A summary of the net assets acquired is as follows: Inventory $ 4,765,476 Equipment 84,681 ---------- Net assets acquired $4,850,157 ========== The acquisition was accounted for using the purchase method of accounting and, accordingly, the assets assumed were recorded at their fair values. The results of the Company's operations subsequent to the acquisition have been included in the results of operations of the Company. NOTE 2 - SENIOR DEBT The Company has a loan agreement with a bank for a $32,500,000 total commitment of which $21,061,073 is utilized. The commitment is a revolving credit agreement whereby the Company may periodically borrow and repay funds as needed. The balance of the loan is due on the termination date of the loan agreement, July 30, 2001. The loan agreement provides for interest on outstanding borrowings at 1.75 percent over the LIBOR index rate (5.82 percent at December 31, 1999) paid monthly for $12,000,000 of the revolving credit agreement. The borrowings in excess of $12,000,000 require interest to be paid monthly at the bank's prime index rate (8.50 percent at December 31, 1999). The line of credit is collateralized by substantially all of the Company's assets and contains restrictive covenants relating to the Company's financial position and operations. NOTE 3 - DEBT Notes Payable to Stockholder (Related Party Transactions) The notes payable to stockholder, totaling $846,434, are unsecured and bear interest at 7.50 percent, requiring monthly interest payments, with maturity dates ranging from 2003 to 2005. A balance of $160,000 is classified as current as the Company is making semiannual principal payments of $80,000 on February 1 and August 1. Long-term debt consists of the following: Equipment loan requiring monthly installments of $14,650 including interest at variable rate of 71 percent of the published prime rate. The interest rate at the period ended December 31, 1999 was 6.035 percent. The final payment is due December 2004 and the loan is secured by equipment. The loan agreement contains restrictive covenants relating to the Company's financial position and operations. $746,092 Less current portion 133,753 -------- Long-term portion $612,339 ======== Future maturities of senior debt, long-term debt, and note payable to stockholder are as follows: 2000 $ 293,753 2001 21,363,372 2002 311,256 2003 320,775 2004 318,009 Later years 46,434 ----------- Total $22,653,599 =========== NOTE 4 - LEASE COMMITMENTS Obligations Under Capital Lease The Company leases equipment under capitalized leases expiring in years ranging from 2000 through 2004. Accumulated depreciation on the equipment was $94,653 as of December 31, 1999. Future minimum lease payments under the leases are as follows: 2000 $170,865 2001 85,141 2002 66,720 2003 66,720 2004 13,200 -------- Total 402,646 Less amount representing interest 57,816 -------- Present value of minimum lease payments $344,830 ======== Operating Lease With Stockholder - Related Party Transaction The Company leases its facility from its sole stockholder, under a noncancellable operating lease expiring in January 2008. Future minimum lease payments under this lease are as follows: 2000 $ 345,960 2001 336,960 2002 336,960 2003 336,960 2004 336,960 Later years 1,038,960 ---------- Total $2,732,760 ========== Total lease expense paid to the Company's sole stockholder for the eleven month period ended December 31, 1999 was $345,960. Other Operating Leases The Company has various other noncancellable operating leases expiring in various years through 2004. Future minimum payments under these leases are as follows: 2000 $607,625 2001 77,546 2002 66,722 2003 66,722 2004 13,200 -------- Total $831,815 ======== The Company has various operating leases for delivery equipment which are cancelable with 60 days written notice. Total rent expense for the eleven month period ended December 31, 1999 under all operating leases was $1,196,887. NOTE 5 - PROFIT SHARING PLAN The Company has established a profit sharing plan covering all of the Parent Company employees who have completed one year of service. A profit sharing plan covering all employees of the subsidiary was being negotiated at December 31, 1999. Contributions are made at the discretion of the Company. The Company contributed $283,502 for the eleven month period ended December 31, 1999. NOTE 6 - CONCENTRATION OF CREDIT RISK The Company's major customers include companies in the convenience store industry. Sales to one customer were approximately $53,800,000 for the eleven month period ended December 31, 1999 and accounts receivable from three customers exceeded ten percent of the Company's total stockholder's equity at December 31, 1999. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Tobacco products sold to this industry account for approximately 83 percent of the Company's sales in 1999. The Company purchased approximately 79 percent of their tobacco products from three major suppliers for the eleven month period ended December 31, 1999. NOTE 7 - INCOME TAXES The Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for both federal and state income tax reporting effective January 30, 1999. After that date, the Company's earnings and losses will be included in the stockholder's personal income tax return. The election required that the Company include the $1,545,255 excess of the cost of its inventory calculated using the first-in, first-out method of accounting over the amount reported under the last-in, first-out method of accounting in its year ended January 29, 1999 taxable income. That amount also was added to the tax basis of the inventory and increased year ended January 29, 1999 taxes by $525,386. The increase is payable in four equal installments beginning with the filing of the year ended January 29, 1999 tax return. Since the resulting excess of the inventory's tax basis over its financial basis will be deductible when the Company is a nontaxable entity, no deferred tax benefit is recognized for it. Schedule of required income tax payments (payments are due by due dates of the returns): 2000 $199,749 2001 131,347 2002 131,347 -------- Total $462,443 ======== NOTE 8 - SELF INSURANCE The Company has a modified self insurance program for its employee health insurance, effective February 1, 1993. Actual amounts paid by the Company totaled $422,906, which included health claims paid by the Company and administration fees. The Company's maximum exposure for the plan year beginning January 1, 2000 has been estimated to be $512,000 based on actual participation levels at December 31, 1999. NOTE 9 - CASH FLOW DISCLOSURES Cash paid for interest and income taxes was as follows: Interest $1,033,885 Income taxes 555,879 The Company had the following noncash financing transactions: During the eleven months ended December 31, 1999, the Company purchased equipment for $141,806 for which long-term financing was provided by the seller. MERCHANTS WHOLESALE, INC. Quincy, Illinois FINANCIAL STATEMENTS January 29, 1999 and January 30, 1998 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT...................................... FINANCIAL STATEMENTS Balance Sheets.................................................. Statements of Operations........................................ Statements of Retained Earnings................................. Statements of Cash Flows........................................ Summary of Significant Accounting Policies...................... Notes to Financial Statements................................... Independent Auditor's Report Board of Directors Merchants Wholesale, Inc. Quincy, Illinois We have audited the accompanying balance sheets of Merchants Wholesale, Inc. as of January 29, 1999 and January 30, 1998, and the related statements of operations, retained earnings, and cash flows for the years then ended. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Merchants Wholesale, Inc. as of January 29, 1999 and January 30, 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. CLIFTON GUNDERSON L.L.C. Peoria, Illinois March 19, 1999 MERCHANTS WHOLESALE, INC. BALANCE SHEETS January 29, 1999 and January 30, 1998
CURRENT ASSETS 1999 1998 ----------- ----------- Cash and cash equivalents $ 300 $ 300 Accounts receivable, less allowance for doubtful accounts of $70,250 in 1999 and 1998 11,891,666 7,934,783 Inventories 12,827,205 6,654,546 Prepaid expenses 107,472 506,635 Deferred income tax - 120,000 ----------- ----------- Total current assets 24,826,643 15,216,264 EQUIPMENT AND LEASEHOLD IMPROVEMENTS Leasehold improvements 6,223 - Equipment 5,080,514 3,803,430 Equipment under capital lease 204,441 53,441 Total, at cost 5,291,178 3,856,871 Less accumulated depreciation (3,525,320) (3,210,283) ----------- ----------- Total equipment and leasehold improvements 1,765,858 646,588 OTHER ASSETS Unamortized loan fees 11,659 33,398 ----------- ----------- TOTAL ASSETS $26,604,160 $15,896,250 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES 1999 1998 ----------- ----------- Bank overdraft $ 4,825,587 $ 2,169,903 Accounts payable 2,523,144 1,647,740 Note payable to bank - 8,252,178 Current maturities of note payable to stockholder 160,000 160,000 Current maturities of long-term debt 126,610 119,114 Current maturities of obligations under capital lease 39,814 12,552 Income taxes payable 615,219 8,337 Accrued expenses 1,149,802 371,792 ----------- ----------- Total current liabilities 9,440,176 12,741,616 LONG-TERM LIABILITIES Notes payable to stockholder, less current maturities above 466,396 417,236 Long-term debt, less current maturities above 735,320 861,931 Obligations under capital lease, less current maturities above 125,476 13,245 Senior debt 13,451,279 - Income taxes payable, less current maturities above 394,039 - Total long-term liabilities 15,172,510 1,292,412 ----------- ----------- Total liabilities 24,612,686 14,034,028 STOCKHOLDER'S EQUITY Common stock, $50 par value; 100,000 shares authorized, 3,000 shares issued 150,000 150,000 Additional paid-in capital 398,237 398,237 Retained earnings 3,993,947 3,864,695 ----------- ----------- 4,542,184 4,412,932 Treasury stock, 2,912 shares at cost (2,550,710) (2,550,710) ----------- ----------- Total stockholder's equity 1,991,474 1,862,222 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $26,604,160 $15,896,250 =========== ===========
MERCHANTS WHOLESALE, INC. STATEMENTS OF OPERATIONS Years Ended January 29, 1999 and January 30, 1998
1999 1998 ------------ ------------ NET SALES $257,166,591 $167,454,387 COST OF SALES 241,080,476 157,425,760 ------------ ------------ Gross profit 16,086,115 10,028,627 OPERATING EXPENSES Selling, general, and administrative expenses 13,369,693 8,677,705 ------------ ------------ Income from operations 2,716,422 1,350,922 OTHER EXPENSE, NET Interest expense (1,136,368) (824,642) Other expense, net (295,802) (23,928) ------------ ------------ Income before income taxes and cumulative effect of a change in accounting principle 1,284,252 502,352 PROVISION FOR INCOME TAXES 1,155,000 222,000 ------------ ------------ Income before cumulative effect of a change in accounting principle 129,252 280,352 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, net of related income tax of $182,000 in 1998 - (275,452) ------------ ------------ NET INCOME $ 129,252 $ 4,900 ============ ============
MERCHANTS WHOLESALE, INC. STATEMENTS OF RETAINED EARNINGS Years Ended January 29, 1999 and January 30, 1998
1999 1998 ---------- ---------- BALANCE, BEGINNING OF YEAR $3,864,695 $3,859,795 Net income 129,252 4,900 ---------- ---------- BALANCE, END OF YEAR $3,993,947 $3,864,695 ========== ==========
MERCHANTS WHOLESALE, INC. STATEMENTS OF CASH FLOWS Years Ended January 29, 1999 and January 30, 1998
1999 1998 ------------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 129,252 $ 4,900 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 570,749 358,176 Loss on sale of equipment 7,703 35,156 Amortization of loan fees 36,739 58,434 Deferred income tax assets 120,000 (39,000) Effects of changes in operating assets and liabilities: Accounts receivable (3,956,883) (1,343,964) Inventory (6,172,659) (2,890,406) Prepaid expenses 399,163 (386,899) Accounts payable 875,404 94,610 Accrued expenses 778,010 101,529 Income taxes payable 1,000,921 (22,476) ------------ ---------- Net cash used in operating activities (6,211,601) (4,029,940) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from redemption of cash value of life insurance - 6,555 Purchases of equipment and leasehold improvements (1,547,992) (110,771) Proceeds from sale of equipment 1,270 19,108 ------------ ---------- Net cash used in investing activities (1,546,722) (85,108) CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft 2,655,684 812,687 Payment of costs to maintain debt financing (15,000) (36,699) Proceeds from stockholder's loans payable 998,280 554,180 Principal payments on stockholder's loans payable (949,121) (616,794) Proceeds from notes payable - 1,000,000 Principal payments on notes payable (119,114) (574,274) Net proceeds on line of credit 5,199,101 2,986,744 Principal payments on capital lease obligation (11,507) (11,131) ------------ ---------- Net cash provided by financing activities 7,758,323 4,114,713 ------------ ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS - (335) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 300 635 ------------ ---------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 300 $ 300 ============ ==========
MERCHANTS WHOLESALE, INC. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES January 29, 1999 and January 30, 1998 Merchants Wholesale, Inc. was incorporated on July 9, 1954 in the state of Illinois. The Company's principal business activity is the distribution of tobacco, candy, and various sundry products throughout Missouri, Illinois, and other adjacent states. Significant accounting policies followed by the Company are presented below. The Company has established its fiscal year using the 52-53 week tax year method. A 52-53 week tax year varies from 52 to 53 weeks and always ends the year on the same day of the week. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS 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. CASH EQUIVALENTS The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES Inventories are stated at lower of cost or market. Prior to 1998, cost was determined using the first-in, first-out (FIFO) method. However, as described in Note 1, effective February 1, 1997, the Company adopted the last-in, first- out (LIFO) method to determine the cost of its cigarette inventory. The Company still uses the FIFO method to determine the cost of the remainder of its inventory. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are stated at cost. Equipment and leasehold improvements are depreciated using an accelerated method over the estimated lives of the assets which range from five to fifteen years. UNAMORTIZED LOAN FEES The Company amortizes its loan fees on a straight-line basis over the respective lives of the loans. INCOME TAXES Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years' tax returns. Deferred tax assets are recognized for temporary differences that will be deductible in future years' tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. At January 29, 1999, deferred income taxes are not recorded due to the Company's election of S corporation status pursuant to IRS regulations effective January 30, 1999. MERCHANTS WHOLESALE, INC. NOTES TO FINANCIAL STATEMENTS January 29, 1999 and January 30, 1998 NOTE 1 - CHANGE IN ACCOUNTING PRINCIPLE In 1998, the Company adopted the last-in, first-out (LIFO) method of costing its cigarette inventory. Previously, the first-in, first-out (FIFO) method was used. Management believes that the LIFO method minimizes the effect of price level changes on cigarette inventory valuations and generally matches current costs against current revenues in the statement of operations. The change decreased the 1998 net income by $275,452, net of related tax of $182,000. There is no cumulative effect on beginning retained earnings since the ending cigarette inventory as previously reported at January 31, 1997 is considered to be the beginning inventory for LIFO purposes. Pro forma results of operations for the prior year, as if LIFO had been followed, are not determinable. NOTE 2 - SENIOR DEBT The Company at January 29, 1999 has a loan agreement with a bank for a $20,000,000 total commitment of which $13,451,279 is utilized. The commitment is a revolving credit arrangement whereby the Company may periodically borrow and repay funds as needed. The termination date of the loan agreement is July 30, 2001. The loan agreement provides for interest on outstanding borrowings at 1.75 percent over the LIBOR index rate paid monthly. The line of credit is collateralized by substantially all of the Company's assets and contains restrictive covenants relating to the Company's financial position and operations. The Company also has locked in part of its borrowings at 1.75 percent over the LIBOR index rate with the principal amount due September 25, 2001. The LIBOR interest is paid monthly. At January 29, 1999, the Company had $12,000,000 borrowed at 7.02 percent (1.75 percent over LIBOR index rate of 5.27 percent). The $12,000,000 that the Company locked into is included in the above $13,451,279. NOTE 3 - DEBT Note Payable to Bank The note payable to bank at January 30, 1998 is a $12,000,000 revolving line of credit. During 1998, the balance of the $12,000,000 revolving line of credit was paid off with the proceeds received with the senior debt agreement. At January 30, 1998, $8,252,178 of the line of credit was used. Amounts drawn against the line of credit are payable on demand and bear interest at the local prime lending rate at January 30, 1998 (8.50 percent at January 30, 1998). The line of credit is collateralized by substantially all of the Company's assets and contains restrictive covenants relating to the Company's financial position and operations. Notes Payable to Stockholder (Related Party Transactions) The notes payable to stockholder, totaling $626,396, are unsecured and bear interest ranging from 7.0 to 8.5 percent, requiring monthly interest payments, with maturity dates ranging from 2001 to 2003. A balance of $160,000 is classified as current as the Company is making semiannual principal payments of $80,000 on February 1 and August 1. Long-term debt consists of the following: 1999 1998 -------- -------- Equipment loan requiring monthly installments of $14,650 including interest at variable rate of 71 percent of the published prime rate. The interest rate at the year ended January 29, 1999 was 5.503 percent. The final payment is due December 2004 and the loan is secured by equipment. $861,930 $981,045 Less current portion 126,610 119,114 -------- -------- Long-term portion $735,320 $861,931 ======== ======== Future maturities of senior debt, long-term debt, and note payable to stockholder are as follows: 2000 $ 286,610 2001 294,448 2002 13,754,318 2003 298,438 2004 161,610 Later years 144,181 ----------- Total $14,939,605 =========== NOTE 4 - LEASE COMMITMENTS Obligations Under Capital Lease The Company leases equipment under capitalized leases expiring in years ranging from 2000 through 2004. Accumulated depreciation on the equipment was $80,563 and $44,206 as of January 29, 1999 and January 30, 1998, respectively. Obligations Under Capital Lease (Continued) Future minimum lease payments under the leases are as follows: 2000 $ 58,550 2001 40,320 2002 40,320 2003 40,320 2004 36,960 -------- Total 216,470 Less amount representing interest 51,180 -------- Present value of minimum lease payments $165,290 ======== Operating Lease With Stockholder - Related Party Transaction The Company leases its facility from its sole stockholder, under a noncancellable operating lease expiring in January 2008. Future minimum lease payments under this lease are as follows: 2000 $ 336,960 2001 336,960 2002 336,960 2003 336,960 2004 336,960 Later years 1,375,920 ---------- Total $3,060,720 ========== Total lease expense paid to the Company's sole stockholder for the year ended January 29, 1999 was $336,960. Other Operating Leases The Company has various operating leases for delivery equipment which are cancelable with 60 days written notice. Total rent expense for the years ended January 29, 1999 and January 30, 1998 was $1,151,616 and $870,394, respectively. NOTE 5 - CONSULTING FEES - RELATED PARTY TRANSACTION The Company paid approximately $246,000 to related parties during the year ended January 29, 1999 for consulting services provided. NOTE 6 - PROFIT SHARING PLAN The Company has established a profit sharing plan covering all employees who have completed one year of service. Contributions are made at the discretion of the Company. The Company contributed $157,302 and $50,000 for the years ended January 29, 1999 and January 30, 1998, respectively. NOTE 7 - CONCENTRATION OF CREDIT RISK The Company's major customers include companies in the convenience store industry. Sales to one customer were approximately $33,100,000 for the year ended January 29, 1999 and accounts receivable from 13 customers exceeded ten percent of the Company's total stockholder's equity at January 29, 1999. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Tobacco products sold to this industry account for approximately 79 percent of the Company's sales in 1999 and 75 percent in 1998. The Company purchased approximately 81 percent of their tobacco products from 3 major suppliers for the years ended January 29, 1999 and January 30, 1998. NOTE 8 - INCOME TAXES The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for both federal and state income tax reporting effective January 30, 1999. After that date, the Company's earnings and losses will be included in the stockholder's personal income tax return. The election requires that the Company include the $1,545,255 excess of the cost of its inventory calculated using the first-in, first-out method of accounting over the amount reported under the last-in, first-out method of accounting in its 1999 taxable income. That amount also is added to the tax basis of the inventory and increases 1999 taxes by $525,386. The increase is payable in four equal installments beginning with the filing of the 1999 tax return. Since the resulting excess of the inventory's tax basis over its financial basis will be deductible when the Company is a nontaxable entity, no deferred tax benefit is recognized for it. Consequently, the tax provision is $525,386 more than the amount that would be obtained by applying statutory rates to pretax income. Schedule of required income tax payments (payments are due by due dates of the returns): 2000($509,612 + 25 percent of $525,386) $ 640,959 2001 131,347 2002 131,347 2003 131,347 ---------- Total $1,035,000 ========== The sources of deferred tax assets and liabilities and the tax effect of each are as follows: 1999 1998 ------ --------- Deferred tax assets: Allowance for doubtful accounts $ - $ 28,000 Capitalized inventory costs - 92,000 ------ --------- - 120,000 Valuation allowance for deferred tax assets - - ------ --------- Total deferred tax assets $ - $ 120,000 ====== ========= The entire deferred tax asset is classified in the accompanying balance sheets as current. The Company's provision for income taxes differs from the tax that would result from applying statutory federal tax rates to income before income taxes primarily because of State income taxes and nondeductible expenses. The provision for income taxes before the cumulative effect of change in accounting principle consists of the following components: 1999 1998 ---------- -------- Current $1,035,000 $261,000 Deferred 120,000 (39,000) ---------- -------- Total provision for income taxes $1,155,000 $222,000 ========== ======== NOTE 9 - SELF INSURANCE The Company has a modified self insurance program for its employee health insurance, effective February 1, 1993. Actual amounts paid by the Company totaled $433,712, which included health claims paid by the Company and administration fees. The Company's maximum exposure for the plan year beginning February 1, 1999 has been estimated to be $512,000 based on actual participation levels at January 29, 1999. NOTE 10 - CASH FLOW DISCLOSURES Cash paid for interest and income taxes was as follows: 1999 1998 Interest $1,106,268 $878,342 Income taxes 34,079 101,712 The Company had the following noncash financing transactions: During 1999, the Company purchased equipment for $151,000 for which long-term financing was provided by the seller. NOTE 11 - YEAR 2000 UNCERTAINTIES Like most entities, the Company may be exposed to risks associated with Year 2000 dating problems. This problem affects computer software and hardware; transactions with customers, vendors, and other entities; and equipment dependent on microchips. The Company has begun but not yet completed the process of identifying and remediating potential Year 2000 problems. It is not possible for any entity to guarantee the results of its own remediation efforts or to accurately predict the impact of Year 2000 dating problems on third parties with which the Company does business. If remediation efforts of the Company or third parties with which it does business are not successful, it is possible the Year 2000 dating problem could negatively impact the Company's financial condition and results of operations. (b) Pro Forma Financial Information AMCON Distributing Company Pro Forma Financial Data The accompanying unaudited pro forma balance sheet and statements of operations give effect to the purchase of the distribution business and related net assets of Merchants Wholesale Inc. ("MWI") and certain real estate of MWI's sole stockholder. The unaudited pro forma balance sheet is based on the individual historical balance sheets of AMCON and MWI and has been prepared to reflect the acquisition of MWI as of March 31, 2001. The unaudited pro forma statements of operations are based on the individual historical statements of AMCON and MWI and combine the results of operations of AMCON and MWI for the year ended September 30, 2000 and the six months ended March 31, 2001 as if the acquisition of MWI's net assets had occurred on October 1, 1999. The pro forma financial data is not necessarily indicative of future results or the results that would have occurred had these transactions actually occurred on the dates specified. It is suggested that this financial data be read in conjunction with the Company's annual report for the years ended September 30, 2000 and 1999, respectively, and the Company's quarterly report for the six months ended March 31, 2001. The historical financial information for MWI is as of March 31, 2001, and for the 52 weeks ended December 29, 2000, and the 24 weeks ended March 31, 2001. The acquisition of the distribution business and related net assets of MWI will be accounted for under the purchase method of accounting. Under this method of accounting, the purchase price will be allocated to the assets acquired and liabilities assumed based on their estimated fair values. It is the Company's intention to more fully evaluate the fair value, classification and useful lives of the acquired net assets, including the intangible assets, and, as a result, the final allocation of the purchase price to the intangible assets acquired may ultimately differ from that reflected herein.
AMCON Distributing Company and Subsidiaries Pro Forma Consolidated Condensed Combined Balance Sheet March 31, 2001 (Unaudited) AMCON MWI Pro Forma Pro Forma Historical Historical Adjustments (A) Combined ------------ ------------ ------------ ------------ ASSETS Current Assets Cash $ 497,820 $ - $ - $ 497,820 Accounts receivable, less allowance for doubtful accounts of $349,848 15,283,044 18,980,008 (666,650) 33,596,402 Inventories 16,024,393 11,325,670 1,234,688 28,584,751 Deferred income taxes 632,423 - - 632,423 Other 800,284 1,312,899 (719,788) 1,393,395 ------------ ------------ ------------ ------------ Total Current Assets 33,237,964 31,618,577 (151,750) 64,704,791 Fixed assets, net 4,811,863 2,055,148 7,800,000 14,667,011 Notes receivable 750,000 - - 750,000 Investments 1,026,936 - - 1,026,936 Deferred income taxes 744,000 - - 744,000 Other assets 12,078,411 250,483 4,514,007 16,842,901 ------------ ------------ ------------ ------------ TOTAL ASSETS $ 52,649,174 $ 33,924,208 $ 12,162,257 $ 98,735,639 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 8,833,624 $ 7,664,406 $ (3,676,761) 12,821,269 Accrued expenses 3,812,764 1,702,866 - 5,515,630 Income taxes payable - 310,958 (310,958) - Current portion of long-term debt 1,099,053 21,115,965 (20,012,247) 2,202,771 Current portion of subordinated debt 893,108 - - 893,108 Current portion of obligations under capital lease - 68,604 - 68,604 ------------ ------------ ------------ ------------ Total Current Liabilities 14,638,549 30,862,799 (23,999,966) 21,501,382 Other liabilities 1,470,369 2,126,112 (1,174,117) 2,422,364 Long-term debt, less current 12,407,411 - 37,406,236 49,813,647 Subordinated debt, less current 8,735,236 - - 8,735,236 Obligations under capital lease, less current - 865,401 - 865,401 Shareholders' Equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding - - - - Common stock, $.01 par value, 15,000,000 shares authorized, 2,738,211 issued and outstanding 27,382 150,000 (150,000) 27,382 Additional paid-in capital 4,122,949 398,237 (398,237) 4,122,949 Unrealized gain on investments 332,612 - - 332,612 Retained earnings 10,914,751 2,072,369 (2,072,369) 10,914,751 ------------ ------------ ------------ ------------ 15,397,694 2,620,606 (2,620,606) 15,397,694 Less treasury stock (85) (2,550,710) 2,550,710 [1] (85) ------------ ------------ ------------ ------------ Total Shareholders' Equity 15,397,609 69,896 (69,896) 15,397,609 ------------ ------------ ------------ ------------ $ 52,649,174 $ 33,924,208 $ 12,162,257 $ 98,735,639 ============ ============ ============ ============ (A) See components of the pro forma adjustment summarized in the notes to the unaudited pro forma consolidated condensed combined balance sheet.
AMCON Distributing Company and Subsidiaries Balance Sheet Pro Forma Adjustments March 31, 2001
As of March 31, Balance sheet component Note Adjustment 2001 ----------------------- ---- ------------------------------------ ------------- Accounts receivable, less allowance for doubtful accounts [1] Accounts receivable not purchased $ (1,250,000) [1] Allowance for doubtful accounts not purchased 583,350 ------------- (666,650) ------------- Inventories [2] Step-up inventory to fair value 1,234,688 ------------- Other [1] Other current assets not purchased (719,988) ------------- Fixed assets, net [3] Quincy, Illinois distribution facility purchased 7,800,000 ------------- Other assets [1] Other assets not purchased (250,483) [4] Debt issuance costs on new debt 337,000 [5] Noncompete intangible asset purchased 346,510 [5] Goodwill in connection with purchased net assets 4,080,980 ------------- 4,514,007 ------------- Accounts payable [1] Bank overdraft not assumed (3,676,761) ------------- Income taxes payable [1] Income taxes payable not assumed (310,958) ------------- Current portion of long-term debt [1] MWI senior debt not assumed (21,115,965) [5] Current portion of amounts due to MWI sole stockholder 943,400 [7] Current portion of Gold Bank debt 160,318 ------------- (20,012,247) ------------- Other liabilities [1] Notes payable to MWI sole stockholder not assumed (1,174,117) ------------- Long-term debt, less current [5] Noncurrent amounts due to MWI sole stockholder 2,482,095 [6] Incremental debt with LaSalle Bank for purchase of MWI net assets 28,507,459 [4] Payment of LaSalle Bank debt issuance costs 300,000 [7] Net new debt with Gold Bank for purchase of Quincy, IL distribution facility 6,240,000 [4] Payment of Gold Bank debt issuance costs 37,000 [7] Reclass current portion of Gold Bank long-term debt to current (160,318) ------------- 37,406,236 ------------- Common stock [1] MWI historical common stock not purchased (net asset purchase) (150,000) ------------- Additional paid-in capital [1] MWI historical additional paid-in capital not purchased (net asset purchase) (398,237) ------------- Retained earnings [1] MWI historical retained earnings not purchased (net asset purchase) (2,072,369) ------------- Treasury stock [1] MWI historical treasury stock not purchased (net asset purchase) 2,550,710 -------------
AMCON Distributing Company and Subsidiaries Pro Forma Consolidated Condensed Combined Statement of Operations for the six months ended March 31, 2001 (Unaudited) AMCON MWI Pro Forma Pro Forma Historical Historical(A) Adjustments (B) Combined ------------- ------------- ------------- ------------- Sales $ 202,262,059 $ 225,640,942 - $ 427,903,001 Cost of sales 182,136,166 215,750,750 - 397,886,916 ------------- ------------- ------------- ------------- Gross profit 20,125,893 9,890,192 - 30,016,085 Selling, general & administrative expenses 17,435,334 9,612,674 (172,980) 26,875,028 Depreciation & amortization 1,115,853 294,714 124,933 1,535,500 ------------- ------------- ------------- ------------- 18,551,187 9,907,388 48,047 28,410,528 ------------- ------------- ------------- ------------- Income (loss) from operations 1,574,706 (17,196) 48,047) 1,605,557 Other expense (income): Interest expense 1,347,316 1,648,637 (243,527) 2,752,426 Other income, net (48,224) - - (48,224) ------------- ------------- ------------- ------------- 1,299,092 1,648,637 (243,527) 2,704,202 ------------- ------------- ------------- ------------- Income from continuing operations before income taxes 275,614 (1,665,833) 291,574 (1,098,645) Income tax expense (benefit) 103,356 - (515,348) (411,992) ------------- ------------- ------------- ------------- Income from continuing operations $ 172,258 $ (1,665,833) $ 806,922 $ (686,653) ============= ============= ============= ============= Net earnings (loss) per share: Basic $ (0.06) $ (0.25) Diluted $ (0.06) $ (0.25) Weighed average shares outstanding: Basic 2,737,859 2,737,859 Diluted 2,823,479 2,823,479 ------------------- (A) MWI's historical financial information for the six months ended March 31, 2001 includes the operating results for the 12 week period from October 6, 2000 through December 29, 2000, representing sales and pre-tax loss of $116,565,044 and $626,923, respectively. The activity for this 12 week period is also included in MWI's historical information for the year ended December 29, 2000. (B) See components of the pro forma adjustments summarized in the notes to the unaudited pro forma consolidated condensed combined statements of operations.
AMCON Distributing Company and Subsidiaries Pro Forma Consolidated Condensed Combined Statement of Operations for the year ended September 30, 2000 (Unaudited) FFH AMCON Discontinued AMCON MWI Pro Forma Pro Forma Historical Operations(B) Restated Historical(A) Adjustments(C) Combined ------------ ------------ ------------ ------------ ------------ ------------ Sales $466,125,245 $(41,393,914) $424,731,331 $506,199,544 - $930,930,875 Cost of Sales 410,511,066 (30,542,869) 379,968,197 482,205,858 - 862,174,055 ------------ ------------ ------------ ------------ ------------ ------------ Gross Profit 55,614,179 (10,851,045) 44,763,134 23,993,686 - 68,756,820 Selling, General & Administrative expenses 45,910,903 (10,876,540) 35,034,363 21,032,664 (345,960) 55,721,067 Depreciation & Amortization 2,794,996 (585,578) 2,209,418 778,814 249,867 3,238,099 ------------ ------------ ------------ ------------ ------------ ------------ 48,705,899 (11,462,118) 37,243,781 21,811,478 (96,093) 58,959,166 ------------ ------------ ------------ ------------ ------------ ------------ Income from continuing operations 6,908,280 611,073 7,519,353 2,182,208 96,093 9,797,654 Other expense (income): Interest expense 3,048,314 (846,508) 2,201,806 2,590,592 210,940 5,003,338 Other income (2,159,995) (87,847) (2,247,842) 72,581 - (2,175,261) ------------ ------------ ------------ ------------ ------------ ------------ 888,319 (934,355) (46,036) 2,663,173 210,940 2,828,077 ------------ ------------ ------------ ------------ ------------ ------------ Income before taxes 6,019,961 1,545,428 7,565,389 (480,965) (114,847) 6,969,577 Income tax expense (benefit) 2,115,522 656,926 2,772,448 - (158,857) 2,613,591 ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) from continuing operations $ 3,904,439 $ 888,502 $ 4,792,941 $ (480,965) $ 44,010 $ 4,355,986 ============ ============ ============ ============ ============= ============ Earnings per share: Basic $ 1.75 $ 1.59 Diluted $ 1.68 $ 1.53 Weighted average shares outstanding: Basic 2,734,862 2,734,862 Diluted 2,853,320 2,853,320 ------------------------ (A) MWI's historical financial information for the year ended September 30, 2000 includes the operating results for the 12 week period from October 6, 2000 through December 29, 2000, representing sales and pre-tax loss of $116,565,044 and $626,923, respectively. The activity for this 12 week period is also included in MWI's historical information for the six months ended March 31, 2001. (B) Represents the discontinued operations of Food For Health Co., Inc., a wholly owned subsidiary of AMCON Distributing Company, which was disposed of in March 2001. (C) See components of the pro forma adjustments summarized in the notes to the unaudited pro forma consolidated condensed combined statements of operations.
AMCON Distributing Company and Subsidiaries Combined Statement of Operations Pro Forma Adjustments For the six months ended March 31, 2001 and for the year ended September 30, 2000 (Unaudited)
For the For the six months year ended ended March 31, September 30, Statement of Operations Component Note Adjustment 2001 2000 --------------------------------- ---- ------------------------------------ ------------ ------------ Selling, general and administrative expenses [1] Operating lease expense on purchased distribution facility $ (270,480) $ (540,960) [2] Depreciation on purchased distribution facility 97,500 195,500 ------------ ------------ (172,980) (345,960) ------------ ------------ Depreciation and amortization [3] Amortization of noncompete intangible asset 43,614 86,628 [4] Amortization of goodwill 81,620 163,239 ------------ ------------ 124,933 249,867 ------------ ------------ Interest expense [5] MWI historical interest expense (1,601,937) (2,501,415) [6] Interest expense on the LaSalle Bank debt incurred to purchase MWI assets 1,201,372 2,402,743 [7] Amortization of LaSalle Bank debt issuance costs 50,000 100,000 [8] Interest expense on the Gold Bank debt incurred to purchase distribution facility 261,264 518,064 [9] Interest on debt paid off with portion of Gold Bank proceeds (27,000) (54,000) [10] Amortization of Gold Bank debt issuance costs 3,700 7,400 [11] Interest expense on amounts due to MWI sole stockholder 102,765 205,530 [12] Impact of interest rate swap financial instrument (219,691) (439,382) [13] Amortization relating to MWI historical debt issuance cots (14,000) (28,000) ------------ ------------ (243,527) 210,940) ------------ ------------ Pre-tax (income) loss impact (291,574) 114,847 [14] To adjust tax expense for the net pro forma adjustments and the combined pro forma results (515,348) (158,857) ------------ ------------ Net (income) loss impact of pro forma adjustments $ (806,922) $ (44,010) ============ ============
AMCON Distributing Company Notes to Unaudited Pro Forma Consolidated Condensed Combined Balance Sheet: [1] To eliminate Merchant Wholesale, Inc. ("MWI") assets, liabilities and equity (purchase of net assets as opposed to stock) not purchased or assumed under the Asset Purchase Agreement and the Asset Purchase Addendum. [2] To record the purchased inventory at its fair value, represented by its selling price, less costs of disposal and estimated selling profit. [3] In connection with the purchase of MWI's net assets, AMCON entered into the Real Estate Purchase Agreement and the Real Estate Addendum to purchase the Quincy, Illinois distribution facility from MWI's sole stockholder. The facility is recorded at its appraised value of $7.8 million. Prior to June 1, 2001, MWI leased this facility from the sole stockholder under a noncancelable operating lease for an amount of $540,960 per year. [4] To purchase the net assets of MWI, Amcon restructured its existing debt arrangement with LaSalle Bank to increase its availability under its existing line of credit from $25M to $55M. To purchase the Quincy, Illinois distribution facility from MWI's sole stockholder and to pay off other existing Amcon debt, the Company entered into a term loan arrangement with Gold Bank for an amount of $6,960,000. To secure the financing with LaSalle Bank and Gold Bank, the Company paid debt issuance costs fees totaling approximately $300,000 and $37,000, respectively. [5] In purchasing the net assets of MWI and the Quincy, Illinois distribution facility, the Company recorded the following preliminary purchase price allocation: Account Amount --------------------------- ------------ Assets purchased: Accounts receivable $ 18,313,358 Inventories 12,560,358 Other 593,111 Fixed assets (including distribution facility) 9,855,148 Debt issuance costs 337,000 Noncompete intangible asset 346,510 Liabilities assumed/incurred: Accounts payable (3,987,645) Accrued expenses (1,702,866) Obligations under capital lease (934,005) Other liabilities (951,995) Long-term debt (38,509,954) ------------ Goodwill intangible asset $ 4,080,980 ============ The goodwill will be amortized over an estimated useful life of 25 years, up through the Company's year ending September 30, 2001. At such time, the Company intends to early adopt the guidance under the newly issued Statement of Financial Accounting Standards No. 142 and the remaining unamortized goodwill asset will no longer be amortized. The carrying value of the goodwill will then be reviewed for impairment and written down and charged to the results of operations if and when the impairment recognition criteria is met and the recorded value of the asset exceeds its measured fair value. In connection with the purchase of MWI's net assets, Amcon entered into the Noncompete Agreement and the Noncompete Addendum with MWI's sole stockholder. The term of the Noncompete Agreement is four years. The noncompete asset of $346,510 represents the present value of the total payments of $400,000 that will be made to the MWI sole stockholder over a four year period. The present value of the future payments to be made in connection with the net asset purchase and noncompete arrangements within the 12 months subsequent to the pro forma balance sheet date total $943,400 and, therefore, have been classified within the current portion of the long-term debt component in the accompanying pro forma balance sheet. The present value of the payments to be made in connection with the arrangements in years 2 through 4 subsequent to the pro forma balance sheet date total $2,482,095 and, therefore, have been classified within the long-term debt, less current component in the accompanying pro forma balance sheet. [6] To finance the purchase of the MWI net assets and a portion of the Quincy, Illinois distribution facility, the Company entered into a new debt arrangement with LaSalle Bank to increase the availability under its existing line of credit from $25M to $55M. The new debt bears interest at LIBOR plus 1.75% (5.75% at June 1, 2001) or Prime (7.00% at June 1, 2001), as selected by the Company and is collateralized by the Company's accounts receivable and inventories. As part of the purchase of MWI's net assets, the Company assumed MWI's existing interest rate swap financial instrument with a notional amount of $25 million that had been tied to MWI's variable rate senior debt. On March 31, 2001, the financial instrument had a negative fair value of $951,995 and, therefore, was recorded as a liability in MWI's balance sheet at March 31, 2001. The swap agreement effectively fixes the interest rate on the incremental LaSalle Debt at 8.33% until the maturity of the contract. The interest rate swap agreement matures on May 27, 2003. Incremental advances under the line of credit, which are all classified within the long-term debt, less current component in the accompanying pro forma balance sheet, were as follows: Uses of line of credit advances: Amount ------------------------------- ------------ Purchase of MWI net assets $ 28,247,459 Financing of a portion of the Quincy, IL distribution facility 260,000 Debt issuance costs 337,000 ------------ Total advances $ 28,844,459 ============ [7] To purchase the Quincy, Illinois distribution facility from MWI's sole stockholder (and to pay off other existing Amcon debt of $720,000), the Company entered into a term loan arrangement with Gold Bank for an amount of $6,960,000. The term loan is payable in equal installments of $56,532 over a period of 60 months and bears interest at 7.5% per annum. The debt is collateralized by the distribution facility. The use of the funds from the term loan were as follows: Uses of the term debt: Amount -------------------------------- ------------ Purchase of the Quincy, IL distribution facility $ 6,240,000 Payment of other existing AMCON debt 720,000 ------------ Total term debt $ 6,960,000 ============ The present value of the payments due within the 12 months subsequent to the pro forma balance sheet date total $160,318 and, therefore, have been classified within the current portion of long-term debt component within the accompanying pro forma balance sheet. The present value of the amounts due beyond one year from the pro forma balance sheet date total $6,799,682 and, therefore, have been classified within the long-term debt, less current component in the accompanying pro forma balance sheet. Notes to Unaudited Pro Forma Consolidated Condensed Combined Statements of Operations: [1] To eliminate the historical operating lease expense on the Quincy, Illinois distribution facility of $270,480 and $540,960 for the six months ended March 31, 2001 and the year ended September 30, 2000, respectively, that was leased from the MWI sole stockholder under a noncancelable operating lease through June 1, 2001. Amcon purchased the building on June 1, 2001 for $6,500,000. [2] To record pro forma depreciation expense on the $7,800,000 Quincy, Illinois distribution facility of $97,500 and $195,000 for the six months ended March 31, 2001 and the year ended September 30, 2000, respectively. The facility is being depreciated over its estimated useful life of 40 years. [3] To record the pro forma amortization on the noncompete intangible asset of $346,510 for the six months ended March 31, 2001 and the year ended September 30, 2000 of $43,314 and $86,628, respectively. [4] To record the pro forma amortization on the goodwill of $4,080,980 for the six months ended March 31, 2001 and the year ended September 30, 2000 of $81,620 and $163,239, respectively. [5] To eliminate 100% of MWI's historical interest expense with the exception of interest incurred on the capital leases obligations, as the only debt that was assumed in the purchase of MWI's net assets were certain obligations under capital lease. [6] To record the incremental debt incurred under the LaSalle Bank line of credit arrangement to purchase the net assets of MWI, to finance a portion of the Quincy, IL distribution facility and to pay the $337,000 in debt issuance costs was $28,844,459. Therefore, the pro forma interest expense on the incremental debt at 8.33% for the six months ended March 31, 2001 and the year ended September 30, 2000 is $1,201,372 and $2,402,743, respectively. [7] To record the pro forma amortization of the LaSalle Bank debt issuance costs of $300,000 for the six months ended March 31, 2001 and the year ended September 30, 2000 of $50,000 and $100,000, respectively. [8] To record the pro forma interest expense on the Gold Bank 7.5% term debt of $6,960,000 for the six months ended March 31, 2001 and the year ended September 30, 2000 of $261,264 and $518,064, respectively. [9] To eliminate the historical interest expense for the six months ended March 31, 2001 and the year ended September 30, 2000 of $27,000 and $54,000, respectively, relating to $720,000 of existing AMCON debt that was paid off with a portion of the Gold Bank term loan proceeds. [10] To record the pro forma amortization on the Gold Bank debt issuance costs of $37,000 for the six months ended March 31, 2001 and the year ended September 30, 2000 of $3,700 and $7,400, respectively. [11] To record the pro forma interest expense on the amounts due to the MWI sole stockholder relating to the noncompete and goodwill arrangements for the six months ended March 31, 2001 and the year ended September 30, 2000 of $102,765 and $205,530, respectively. [12] To record the interest expense reduction impact of marking to market the interest rate swap financial instrument from a negative fair value (liability) of $951,995 as of the date of the acquisition to zero as of the contract's maturity date for the six months ended March 31, 2001 and the year ended September 30, 2000 of $219,691 and $439,382, respectively. [13] To record the historical MWI debt issuance costs amortization for the six months ended March 31, 2001 and the year ended September 30, 2000 of approximately $14,000 and $28,000, respectively. [14] The net impact of the pro forma adjustments have been tax-effected at the Company's historical effective tax rate of 37.5%. Additionally, due to the fact that MWI was an S-corporation for tax purposes, no income tax expense (benefit) was recorded in its historical results for the six months ended March 31, 2001 or for the year ended December 29, 2000. Accordingly, the pro forma tax adjustments include amounts to tax-effect the pro forma consolidated condensed combined pre-tax results for the six months ended March 31, 2001 and the year ended September 30, 2000 at the Company's effective tax rate of 37.5%. (c) Exhibits The following items are filed as exhibits to this report: EXHIBIT NO. DESCRIPTION 2.1 Asset Purchase Agreement, dated February 8, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.2 Addendum to Asset Purchase Agreement, dated May 30, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.2 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.3 Real Estate Purchase Agreement, dated February 8, 2001, between AMCON Distributing Company, and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.3 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.4 Addendum to Real Estate Purchase Agreement, dated May 30, 2001, between AMCON Distributing Company, and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.4 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.5 Noncompete, Nonsolicitation and Nondisclosure Agreement, dated February 8, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.5 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.6 Addendum to Noncompete, Nonsolicitation and Nondisclosure Agreement, dated May 30, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.6 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 99.1 Press release, dated June 4, 2001, issued by AMCON Distributing Company (incorporated by reference to Exhibit 99.1 of AMCON's Current Report on Form 8-K filed on June 18, 2001) SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AMCON DISTRIBUTING COMPANY (Registrant) Date: August 10, 2001 By : Michael D. James ------------------------- Name: Michael D. James Title: Treasurer & Chief Financial Officer EXHIBIT INDEX ------------- Exhibit Description 2.1 Asset Purchase Agreement, dated February 8, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.2 Addendum to Asset Purchase Agreement, dated May 30, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.2 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.3 Real Estate Purchase Agreement, dated February 8, 2001, between AMCON Distributing Company, and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.3 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.4 Addendum to Real Estate Purchase Agreement, dated May 30, 2001, between AMCON Distributing Company, and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.4 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.5 Noncompete, Nonsolicitation and Nondisclosure Agreement, dated February 8, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.5 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 2.6 Addendum to Noncompete, Nonsolicitation and Nondisclosure Agreement, dated May 30, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.6 of AMCON's Current Report on Form 8-K filed on June 18, 2001) 99.1 Press release, dated June 4, 2001, issued by AMCON Distributing Company (incorporated by reference to Exhibit 99.1 of AMCON's Current Report on Form 8-K filed on June 18, 2001)