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
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AMCON DISTRIBUTING COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 0-24708 47-0702918
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(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
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(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
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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
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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
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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
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Gross profit 9,890,192 10,165,167
OPERATING EXPENSES
Selling, general, and administrative expenses 9,907,388 8,218,263
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Income (loss) from operations (17,196) 1,946,904
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OTHER EXPENSE
Interest expense (1,648,637) (796,689)
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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)