SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED September 30, 1996
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
Commission File Number 0-24708
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AMCON Distributing Company
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(Exact name of Registrant as specified in its charter)
Delaware 47-0702918
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(State or other jurisdiction (I.R.S. Employer of
incorporation or organization) identification No.)
10228 "L" Street, Omaha NE 68127
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(Address of principal executive offices)
Registrant's telephone number, including area code: (402) 331-3727
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K
or any other amendment to this Form 10-K. / /
The aggregate market value of equity securities held by non-affiliates
of the Registrant on December 13, 1996 was approximately $978,019.
As of December 13, 1996 there were 2,445,903 shares of common stock
outstanding.
- Documents Incorporated by Reference -
---------------------------------------
Portions of the 1996 Annual Report to Stockholders are incorporated
therein by reference into Parts I, II and IV. Portions of the Proxy
Statement pertaining to the March 12, 1997 Annual Stockholders' Meeting
are incorporated herein by reference into Part III.
1
AMCON DISTRIBUTING COMPANY
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1996 FORM 10-K ANNUAL REPORT
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Table of Contents
Page
----
PART I
Item 1. Business.........................................................3
Item 2. Properties.......................................................7
Item 3. Legal Proceedings................................................9
Item 4. Submission of Matters to Vote of Security Holders................9
Item 4A. Executive Officers of the Company................................9
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.............................................10
Item 6. Selected Financial Data.........................................10
Item 7. Management's Discussion of Analysis of Financial
Condition and Results of Operations.............................11
Item 8. Financial Statements and Supplementary Data.....................11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................11
PART III
Item 10. Directors and Executive Officers of the Registrant..............11
Item 11. Executive Compensation................................ .........11
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................................12
Item 13. Certain Relationships and Related
Transactions....................................................12
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..............................................13
2
PART I
ITEM 1. BUSINESS
GENERAL
AMCON Distributing Company ("ADC" or the "Company") is a distributor of
consumer products in the Great Plains and Rocky Mountain regions. The
Company serves approximately 11,000 retail outlets and is ranked by the U.S.
Distribution Journal as the twenty-fifth largest distributor of such products
in the United States based on 1995 sales volume. The Company pursued a
strategy of growth through acquisition from 1981 through 1993. Since 1993,
the Company has focused on increasing operating efficiency by merging smaller
branch distribution facilities into larger ones. In addition, the Company
has controlled growth through expansion of its market area into contiguous
regions and by introduction of new product lines to customers.
The Company distributes approximately 10,000 different consumer
products, including cigarettes and tobacco products, candy and other
confectionery, soft drinks and other beverages, groceries, paper products,
health and beauty care products and institutional food service products.
ADC's principal suppliers include Philip Morris, RJR Nabisco, Lorillard,
Brown & Williamson, Liggett Group, Hershey, Mars, William Wrigley and
Planters-Lifesavers. The Company also markets private label lines of
cigarettes, tobacco, snuff and candy products. While cigarettes accounted
for approximately 64% of the Company's sale volume during its most recent
fiscal year, the Company continues to diversify its product line in an
attempt to lessen the Company's dependence on cigarette sales.
The Company has over 11,000 customers and no single account
represented more than 6% of ADC's total revenues during fiscal 1996. The
Company distributes products primarily to retailers such as convenience
stores, discount and general merchandise stores, grocery stores and
supermarkets, drug stores and gas stations. In addition, the Company
services institutional customers, including restaurants and bars, schools,
sports complexes and vendors, as well as other wholesalers.
The Company has sought to increase sales to convenience stores and
petroleum marketers by adopting a number of operating strategies which it
believes gives it a competitive advantage with these types of retailers.
One key operating strategy is a commitment to customer service. In a
continuing effort to provide better service than its competitors, the Company
carries a broad and diverse product line which allows the Company to offer
"one-stop shopping" to its customers. The Company offers both full-service
and self-service health and beauty programs and offers grocery products which
have proven to be profitable to convenience store customers. In addition,
the Company has a policy of next-day delivery and employs a concept of
selling products in cut-case quantities or "by the each" (i.e., individual
units). ADC also offers planograms to convenience store customers to assist
in the design of a store and display of products in the store.
3
The Company has worked to improve its operating efficiency by investing
in the latest in systems technology, including computerization of buying and
financial control functions. The Company has also sought to reduce inventory
expenses by improving the number of times its inventory is renewed during a
period ("inventory turns") for the same level of sales. Inventory turns
improved from 16.3 times in fiscal 1994 and 17.5 times in fiscal 1995 to 21.2
times in fiscal 1996. By keeping its operating costs down, the Company is
better able to price its products in such a manner to achieve an advantage
over less efficient distributors in its market areas.
The Company has nine distribution centers located in Colorado, Kansas,
Missouri, Nebraska, North Dakota, South Dakota, and Wyoming. These
distribution centers contain a total of approximately 307,450 square feet of
floor space and employ state-of-the-art equipment for the efficient
distribution of the large and diverse product mix sold by the Company. The
Company also operates a fleet of approximately 110 delivery vehicles, ranging
from half-ton vans to over-the-road vehicles with refrigerated trailers.
ADC was incorporated in Delaware in 1986 to carry on the business of
General Tobacco and Candy Company ("General Tobacco"), a Nebraska corporation
which was the predecessor to ADC. General Tobacco began operation in 1981.
Since 1981, the Company has acquired 19 consumer product distributors in the
Great Plains and Rocky Mountain regions. In June 1993, ADC acquired Sheya
Brothers Specialty Beverages, Inc. ("Sheya Brothers"), a beer, malt beverage
and "New Age" beverage distribution company, serving metropolitan Denver.
Effective September 29, 1995, ADC sold the "New Age" beverage distribution
business to Vancol Industries, Inc., but retained the beer and malt beverage
business. Effective October 4, 1996, ADC sold the beer and malt beverage
business in Denver, Colorado to Western Distributing Company and closed the
Denver facility.
PRINCIPAL PRODUCTS
CIGARETTES AND TOBACCO. Sales of cigarettes and the gross margin derived
therefrom for the fiscal years ending September 30, 1996, 1995, and 1994 are
set forth below:
(Dollars in Millions)
Fiscal Year Ended September 30,
------------------------------------
1996 1995 1994
------ ------ ------
Sales $112.5 $108.7 $108.8
Gross Margin 10.8 11.4 13.1
Gross Margin Percentage 9.6% 10.5% 12.0%
4
Revenues from the sale of cigarettes during fiscal 1996 increased by
approximately 3.5% as compared to fiscal 1995, while gross profit from the
sale of cigarettes declined by 5.4% during the same period (see "MANAGEMENT'S
DISCUSSION AND ANALYSIS-Results of Operations-Year Ended September 30, 1996
Versus Year Ended September 30, 1995" in the Annual Report to Stockholders
for the Fiscal Year Ended September 30, 1996). Sales of cigarettes
represented approximately 64% of the Company's sales volume during fiscal
1996.
ADC has sought to position itself to capitalize on consumer demand for
discount or value-priced cigarettes by marketing its own private label
cigarette. Substantial price increases implemented by manufacturers of
premium cigarettes during the last decade resulted in a demand for private
label cigarettes, which are sold at lower prices than premium brands. The
Company began marketing private label cigarettes in 1983 as a high-quality,
value-priced alternative to premium cigarettes. Since 1988, ADC's private
label cigarettes have been manufactured under an exclusive agreement with a
division of Philip Morris Incorporated. This agreement was renewed in
October 1993 for a term of five years. However, the Company may terminate
the agreement on each anniversary thereof.
Faced with a significant loss of market share, many premium brand
manufacturers, including Philip Morris and RJR Nabisco, began to lower the
prices on their premium cigarettes beginning in 1993. While a price
differential continues to exist between the premium cigarettes and the
Company's private label cigarettes at the retail level, the price reductions
on premium cigarettes have been primarily responsible for a significant
reduction in demand for private label cigarettes. The Company believes that
there will be a continued demand for the Company's private label cigarettes
and that its cigarettes have established brand loyalty among consumers,
however, it is anticipated that the volume of private label cigarette sales
could decline by as much as 10% to 20% in fiscal 1997. In an effort to
stabilize its market share, the Company introduced a brand extension
consisting of box packages for three of its private label cigarette products
in the second quarter of fiscal 1996.
In addition to cigarettes, the Company also distributes other tobacco
products, including cigars, snuff and chewing tobacco. Sales of these types
of products were approximately $14.2 million during fiscal 1996 and
represented approximately 8.1% of the Company's total sales volume during the
year. The Company began marketing private label snuff and chewing tobacco in
July 1992 under a manufacturing agreement with Superior Value Tobacco
Company, a division of Swisher International Inc. ("Swisher").
CONFECTIONERY. Candy and related confectionery items constitute ADC's
second largest-selling product line, representing approximately 11.7% of the
Company's total sales volume during fiscal 1996. Sales of confectionery
items and the gross margin derived therefrom for the fiscal years ending
September 30, 1996, 1995 and 1994 are set forth below:
5
(Dollars in Millions)
Fiscal Year Ended September 30,
-------------------------------------
1996 1995 1994
------ ------ ------
Sales $20.6 $19.4 $19.6
Gross Margin 3.0 2.5 2.8
Gross Margin Percentage 14.6% 13.1% 14.5%
The Company supplies customers with over 1,800 different types of candy
and related products, including chocolate bars, chewing gum, peanuts and
cough drops. Major brand names include products manufactured by Hershey
(Reese's, Kit Kat and Hershey), Mars (Snickers, M&M's and Milky Way), William
Wrigley and Planters-Lifesavers. The Company also markets its own private
label candy under a manufacturing agreement with Willmar Cookie & Nut
Company.
OTHER PRODUCT LINES. Over the past six years, ADC's strategy has been
to expand its portfolio of consumer products in order to better serve its
customer base. ADC's other product lines include water, soft drinks and
other beverages, groceries, paper products, health and beauty care products
and institutional food products. In fiscal 1996, ADC's sales of these
product lines increased slightly to $28.9 million compared to $28.8 million
in fiscal 1995. This increase was the result of a 20% increase in sales of
other products in the Springfield, Missouri distribution center due to
expansion of the customer base. This increase more than offset a $1.8
million reduction in sales of nonalcoholic beverages due to downsizing the
Denver facility in September 1995. During fiscal 1996 the gross profit
margin on these types of products was 17.7%, compared to a 9.6% margin on
cigarette and tobacco products.
COMPETITION
The distribution business is highly competitive. There are many
distribution companies operating in the same geographical regions as the
Company, and competition in the distribution industry is intense. ADC's
principal competitors are national wholesalers such as McLane Co., Inc.
(Temple, Texas) and regional wholesalers such as Minter-Weisman Co.
(Minneapolis, Minnesota) and Farner-Bocken (Carroll, Iowa) along with a host
of smaller grocery and tobacco wholesalers. Most of these competitors
generally offer a wide range of products at prices comparable to the
Company's. Therefore, the Company seeks to distinguish itself from its
competitors by offering a higher level of customer service.
GOVERNMENT REGULATION
Various state government agencies regulate the distribution of
cigarettes and tobacco products in several ways, including the imposition of
excise taxes, licensing and bonding requirements. Complying with these
regulations is a very
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time-consuming, expensive and labor-intensive undertaking. For example, each
state (as well as certain cities and counties) require the Company to collect
excise taxes ranging from $1.20 to $4.80 per carton on all cigarettes sold by
it in the state. Such excise taxes must be paid in advance and, in most
states, is evidenced by a stamp which must be affixed to each package of
cigarettes.
EMPLOYEES
As of September 30, 1996, the Company had 400 full-time and part-time
employees in the following areas:
Managerial 13
Administrative 52
Sales & Marketing 98
Warehouse 159
Delivery 78
---
Total Employees 400
===
None of the Company's employees are subject to any collective bargaining
agreements with the Company and management believes its relations with its
employees are good.
ITEM 2. PROPERTIES
The location and approximate square footage of the nine principal
distribution centers operated by ADC as of September 30, 1996 are set forth
below:
Location Square Feet
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Aberdeen, South Dakota 13,500
Bismarck, North Dakota 9,600
Casper, Wyoming 15,000
Denver, Colorado 41,000
Hutchinson, Kansas 31,950
Olathe, Kansas 7,500
Omaha, Nebraska 70,300
Rapid City, South Dakota 21,600
Springfield, Missouri 97,000
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Total 307,450
=======
ADC owns its distribution facility in Bismarck, North Dakota. The
Company owns one other building that is no longer used as distribution
facility and is
7
listed for sale. Each of these facilities is subject to a first mortgage
securing borrowings under the Company's revolving credit facility (see
"MANAGEMENT'S DISCUSSION AND ANALYSIS-Liquidity and Capital Resources" in the
Annual Report to Stockholders for the Fiscal Year Ended September 30, 1996).
The Company leases its remaining distribution facilities, various
offices and certain equipment under noncancelable operating leases. Leases
for the eight distribution facilities leased by the Company have terms
expiring from 1996 to 2002. Minimum future lease commitments for these
properties and equipment total approximately $2,237,000 as of September 30,
1996. Minimum payments will be reduced by minimum sublease rentals totaling
$107,532 due in the future under noncancelable subleases.
Effective October 15, 1996, the Company closed its Denver facility and
subleased the remaining 41,000 square feet of facility to the tenant who
occupies the other one-half of the building. Also, effective November 1,
1996, the Company vacated its 31,950 square foot Hutchinson distribution
facility and leased a 3,500 square foot facility which operates as a cross-dock
distribution point. Management believes that its existing facilities
are adequate for the Company's present level of operations and will be
capable of accommodating the Company's anticipated growth.
In addition, the Company owns a condominium in the Cayman Islands which
had a book value of approximately $838,000 as of September 30, 1996. The
Company uses the condominium in furtherance of its business strategies and is
evaluating the costs and benefits associated with retaining the condominium.
The Company and AMCON Corporation, the former parent of the Company,
purchased the condominium in 1990 for total consideration of $1,099,250. Of
this amount, the Company paid $474,970 in cash. AMCON Corporation paid the
remaining $624,280 and financed $550,000 of this amount through a loan from a
bank which was evidenced by a note (the "Note") and was secured by a first
mortgage on the condominium.
AMCON Corporation transferred its ownership interest in the condominium
to the Company as of September 30, 1992 at its net book value of $591,596 in
partial payment of an intercompany debt owed by AMCON Corporation to the
Company. AMCON Corporation made all payments on the Note prior to the
transfer of the condominium to the Company. On the date of transfer, the
outstanding principal balance of the Note was $424,822 and the Company
recorded a subordinated note payable to AMCON Corporation of an equal amount.
The terms of the subordinated note were the same as the terms of the Note and
the Company made payments on the subordinated note by making payments on
behalf of AMCON Corporation to the bank holding the Note. The Note was
repaid in full in April 1996.
The Company owns the condominium in fee simple. However, under an
agreement with AMCON Corporation, the greater of the first $400,000 of the
net gain or one-half of the net gain from the ultimate sale of this property
will be allocated to AMCON Corporation. See "CERTAIN TRANSACTIONS."
8
ITEM 3. LITIGATION AND REGULATORY PROCEEDINGS.
The Company is subject to claims and litigation in the ordinary course
of its business. However, in the opinion of management, no currently pending
legal proceedings or claims against the Company will, individually or in the
aggregate, have a material adverse effect on the Company's financial
condition or results of operations. The Company believes that all of its
real property is in compliance with all regulations regarding the discharge
of toxic substances into the environment and is not aware of any condition at
its properties that could have a material adverse affect on its financial
condition or results of operations. In that regard, the Company has not been
notified by any governmental authority of any potential liability or other
claim in connection with any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of all security holders during
the fourth quarter ended September 30, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The Company's day-to-day affairs are managed by its executive officers,
who are appointed by the Board of Directors for terms of one year. The
Company has entered into employment agreements with Mr. Wright and Ms. Evans,
each with a term expiring on December 31, 1997. Mr. Howard performs his
duties under the terms of a consulting agreement which expires on December
31, 1997. The executive officers of ADC are as follows:
Name Age Position
---- --- --------
William F. Wright 54 Chairman of the Board and Chief
Corporate Officer, Director
Kathleen M. Evans 49 President and Chief Executieve
Officer, Director
J. Tony Howard 52 Executive Vice President
and Secretary, Director
Michael D. James 35 Chief Financial Officer and
Treasurer
Chris M. Pudenz 29 Controller and Assistant
Secretary
WILLIAM F. WRIGHT has served as the Chairman and Chief Executive Officer
of AMCON Corporation (the former parent of ADC) since 1976 and as Chairman
9
of the Company since 1981. From 1968 to 1984, Mr. Wright practiced
corporate and securities law in Lincoln, Nebraska. Mr. Wright is a graduate
of the University of Nebraska and Duke University School of Law and is a
certified public accountant. Mr. Wright is also a director of Gold Banc
Corporation, Inc.
KATHLEEN M. EVANS became President and Chief Executive Officer of ADC in
February 1991. Prior to that time she served as Vice President of AMCON
Corporation from 1985. From 1978 until 1985, Ms. Evans acted in various
capacities with AMCON Corporation and its operating subsidiaries.
J. TONY HOWARD has served as President of Nebraska Distributing Company
("NDC") since 1978. NDC is engaged in the beer and wine wholesaling business
and is a wholly owned subsidiary of AMCON Corporation, the former parent of
the Company. In February 1991, Mr. Howard was appointed as Secretary and
Treasurer of the Company, and in 1993 he became the Executive Vice-President
of the Company. He served as Treasurer until June 1994.
MICHAEL D. JAMES became Chief Financial Officer and Treasurer of ADC in
June 1994. He is a certified public accountant and is responsible for all
financial functions within the Company. Prior to joining ADC, Mr. James
practiced accounting for ten years with the firm of Price Waterhouse, serving
as the senior tax manager of the Omaha, Nebraska office from 1992 until 1994.
Mr. James graduated from Kansas State University in 1983.
CHRIS M. PUDENZ joined ADC in August 1993 as Controller and Assistant
Secretary. Mr. Pudenz is a certified public accountant, and before joining
the Company he served in the audit and international consulting practices of
Price Waterhouse for four years. He graduated from Creighton University in
1989.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is incorporated by reference from
the Annual Report to Stockholders for the fiscal year ended September 30,
1996 under the heading "Market for Common Stock" on page 4.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference from
the Annual Report to Stockholders for the fiscal year ended September 30,
1996 under the heading "Selected Financial Data" on pages 2 and 3.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is incorporated by reference from
the Annual Report to Stockholders for the fiscal year ended September 30,
1996 under the heading "Managements Discussion and Analysis" on pages 5
through 11.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and accompanying notes, together with the
report of independent accountants are incorporated by reference from the
Annual Report to Stockholders for the fiscal year ended September 30, 1996 on
pages F-1 through F-19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on March 12, 1997, contains under
the caption "Election of Directors" certain information required by Item 10
of Form 10-K and such information is incorporated herein by this reference.
The information required by Item 10 of Form 10-K as to executive officers is
set forth in Item 4A of Part I hereof.
During the Company's most recent fiscal year, Matthew F. Wright and Mark
A. Wright, each of which is a more than ten percent owner of the Company's
outstanding Common Stock failed to file, on a timely basis, Statement of
Changes of Beneficial Ownership (Form), as required by section 16(a) of the
Securities Exchange Act of 1934, as amended. None of these failures resulted
in any transactions with respect to the Common Stock of the Company being
unreported.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on March 12, 1997, contains
under the captions "Compensation of Directors", Compensation of Executive
Officers" and "Compensation Committee Interlocks and Insider Participation",
the information required by Item 11 of Form 10-K, and such information is
incorporated herein by this reference. The information set forth under the
11
captions "Report of Compensation Committee on Executive Compensation" and
"Company Performance" is expressly excluded from such incorporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on March 12, 1997, contains under
the caption "Voting Securities and Beneficial Ownership Thereof by Principal
Stockholders, Directors and Officers" the information required by Item 12 of
Form 10-K and such information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 1995, the Company made an advance of $125,000 to William F.
Wright, Chairman of the Board, Chief Corporate Officer and a principal
shareholder of the Company. This advance was recorded as a note receivable,
bearing interest at 7.5%, and was due September 30, 1996. The interest rate
on the note was retroactively amended during the year to 9.0%. The balance
of the note receivable, plus accrued interest was $144,695 at September 30,
1996. Subsequent to September 30, 1996, the terms of the note were amended
to require installments of $25,000 in January 1997, $50,000 in June 1997 and
the balance in September 1997.
Prior to February 25, 1994, the Company was a subsidiary of AMCON
Corporation, which owned 87.5% of the issued and outstanding shares of the
Company's Common Stock. AMCON Corporation's other principal asset is a
subsidiary corporation that is engaged in the beer distribution business in
Omaha, Nebraska. As a condition to obtaining an additional distribution
franchise with a major U.S. beer brewery, AMCON Corporation agreed to divest
its interest in the Company. Therefore, on February 25, 1994, AMCON
Corporation distributed its shares of the Company's Common Stock to the
shareholders of AMCON Corporation who, as a result, became shareholders of
the Company.
AMCON Corporation engages in certain transactions with the Company,
including the provision of offices and administrative services by AMCON
Corporation to the Company. The cost of the shared facilities are
apportioned between them based on their respective usages thereof and on
terms no less favorable than would otherwise be available from unaffiliated
parties. The Company was charged $60,000, $60,000, and $60,000 by AMCON
Corporation during the years ended September 30, 1996, 1995, and 1994,
respectively, as consideration for such services, which is included in the
Company's selling, general and administrative expenses for those years.
In September 1992, the Company was the maker of a junior subordinated
promissory note in the amount of $424,822 to AMCON Corporation. The note was
repaid in full in April 1996. Interest on the loan was 3.0% over prime rate.
Amounts paid to AMCON Corporation on this note were applied by AMCON
12
Corporation to principal and interest payments on the first mortgage loan
secured by the condominium in the Cayman Islands.
The Company borrowed $550,000 from Allen D. Petersen, a director and
principal shareholder of the Company, in June 1993 in connection with the
acquisition of Sheya Brothers. See "BUSINESS-General." This loan was repaid
in November 1993. Interest on the loan was payable at an annual rate equal
to 2% over Mr. Petersen's cost of funds. In connection with the loan, the
Company issued Mr. Petersen a warrant to purchase 61,250 shares of the
Company's Common Stock (as adjusted for the stock split of approximately 214
to one declared on June 2, 1994) at an exercise price equal to the per share
book value of the Company as of the end of the most recent quarter. The
warrant expired on May 28, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(1) FINANCIAL STATEMENTS
The following financial statements of AMCON Distributing Company are
incorporated by reference under Item 8. The Annual Report to
Stockholders for the Fiscal Year Ended September 30, 1996 is attached
as Exhibit 13.
Reference Page
Annual Stockholders
Report
Report of Independent Accountants F-1
Balance Sheets as of September 30, 1996
and 1995 F-2
Statements of Income for the Years Ended
September 30, 1996, 1995, and 1994 F-3
Statements of Shareholders' Equity for the Years
Ended September 30, 1996, 1995 and 1994 F-4
Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-7
(2)FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
13
(B) EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 (Registration No. 33-82848) filed on August
15, 1994)
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of
the Company's Registration Statement on Form S-1 (Registration No.
33-82848) filed on August 15, 1994)
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-1
(Registration No. 33-82848) filed on August 15, 1994)
10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993,
between the Company and Famous Value Brands, a division of Philip
Morris Incorporated, including Private Label Manufacturing
Agreement and Amended and Restated Trademark License Agreement
(incorporated by reference to Exhibit 10.1 of Amendment No. 1 to
the Company's Registration Statement on Form S-1 (Registration No.
33-82848) filed on November 8, 1994)
10.2 Credit and Security Agreement, dated July 25, 1994, between the
Company and Norwest Bank Minnesota, National Association
(incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement on Form S-1 (Registration No. 33-82848)
filed on August 15, 1994)
10.3 AMCON Distributing Company 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.7 of the Company's Registration Statement
on Form S-1 (Registration No. 33-82848) filed on August 15, 1994)
10.4 AMCON Distributing Company Profit Sharing Plan (incorporated by
reference to Exhibit 10.8 of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82848)
filed on November 8, 1994)
10.5 Employment Agreement, dated July 1, 1994, between the Company and
William F. Wright (incorporated by reference to Exhibit 10.9 of
the Company's Registration Statement on Form S-1 (Registration No.
33-82848) filed on August 15, 1994)
10.6 Employment Agreement, dated July 1, 1994, between the Company and
Kathleen M. Evans (incorporated by reference to Exhibit 10.9 of
the Company's Registration Statement of Form S-1 (Registration No.
33-82848) filed on August 15, 1994)
14
10.7 Consulting Agreement, dated July 1, 1994, between the Company and
Nebraska Distributing Company relating to services of J. Tony
Howard (incorporated by reference to Exhibit 10.10 of the
Company's Registration Statement on Form S-1 (Registration No. 33-
82848) filed on August 15, 1994)
11.1 Statement re: computation of per share earnings
13.1 Annual Report to Stockholders for the Fiscal Year Ended September
30, 1996.
27.0 Financial Data Schedules
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter ended September 30, 1996.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of
1934, the Registrant, AMCON Distributing Company, a Delaware corporation, has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Omaha, State of Nebraska, on the
23rd day of December, 1996.
AMCON DISTRIBUTING COMPANY
By: /s/ Kathleen M. Evans
----------------------
Kathleen M. Evans, President
16
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities indicated on
the 23rd day of December, 1996.
Signature Title
--------- -----
/s/ William F. Wright Chairman of the Board, Chief
- ------------------------ Corporate Officer and Director
William F. Wright
/s/ Kathleen M. Evans Chief Executive Officer, President
- ------------------------ (Principal Executive Officer) and
Kathleen M. Evans Director
/s/ Michael D. James Chief Financial Officer and
- ------------------------ Treasurer (Principal Financial and
Michael D. James Accounting Officer)
/s/ J. Tony Howard Executive Vice President,
- ------------------------ Secretary and Director
J. Tony Howard
/s/ Allen D. Petersen Director
- ------------------------
Allen D. Petersen
/s/ William R. Hoppner Director
- ------------------------
William R. Hoppner
17
<PAGE>
EXHIBIT 11.1
AMCON Distributing Company
Statement of Computation of Per Share Earnings
for the years ended September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
for the years ended September 30,
--------------------------------------
1996 1995 1994
----------- --------- -----------
<S> <C> <C> <C>
1. Weighted average common
shares outstanding 2,445,903 2,449,357 2,450,000
2. Weighted average of net additional
shares outstanding assuming dilutive
warrants exercised and proceeds used
to purchase treasury stock - 28,690 41,996
--------- --------- ---------
3. Weighted average number of common
and common equivalent shares
outstanding 2,445,903 2,478,047 2,491,996
========= ========= =========
4. Income before extraordinary item $ 1,336,374 $ 921,560 $ 1,297,228
Extraordinary item - - (295,693)
Net income 1,336,374 921,560 1,001,535
Accretion of warrants - - (133,312)
Accretion of preferred stock (83,333) (100,000) (16,667)
----------- --------- -----------
Net income attributable to common
shareholders $ 1,253,041 $ 821,560 $ 851,556
=========== ========= ===========
5. Earnings per common and common
equivalent share attributable to
common shareholders:
Income before extraordinary item
(net of accretion) $0.51 $0.33 $0.46
Extraordinary item - - (0.12)
----------- --------- -----------
Net earnings $0.51 $0.33 $0.34
=========== ========= ===========
</TABLE>
EXHIBIT 13.1
Annual Report to Stockholders
for the Fiscal Year Ended
September 30, 1996
TO OUR SHAREHOLDERS:
Welcome to all new and existing AMCON Distributing Company shareholders. It
has been over a year since AMCON's common stock commenced trading on the
NASDAQ SmallCap Market. Although, we are disappointed with the market's
perception of the value of our Company, earnings have increased
substantially, and we remain confident that the market will come to see our
real value.
FINANCIAL REVIEW
Fiscal 1996 sales of $176.1 million and net income of $1,336,374 represent
significant increases over 1995 sales and net income of $169.8 million and
$921,560, respectively. Income from operations declined $95,000 in fiscal
1996 primarily due to reductions in purchase discounts received by the
Company from the manufacturer of its private label cigarettes. These
discounts decreased as the volume of private label cigarette sales decreased.
The decrease in sales of private label cigarettes continued as the result of
1993 price reductions on premium cigarettes.
STRATEGIES
In fiscal 1996, the Company realized the benefits associated with
consolidation of four distribution centers into two during the prior year.
This enabled the Company to reduce average inventory levels by approximately
15% in fiscal 1996, as compared to fiscal 1995. The Company will continue to
explore opportunities for further consolidation in the future and continue to
focus on its other key operating strategies including: diversification of its
product line in an attempt to lessen the Company's dependence on cigarette
sales, growth through acquisitions of smaller distribution companies,
investing in the latest delivery equipment and systems technology, and
commitment to customer service. We believe the Company's customer service
strategy allows AMCON to distinguish itself from its competitors and provides
a competitive advantage with convenience stores and petroleum marketers.
THE FUTURE
Maintaining profit margins continues to be a challenge as competition in the
distribution industry remains high. We believe consolidation within the
industry will continue in 1997 due to a number of factors, many of which are
beyond the control of the Company and its competitors control, yet affect
operating income and value. For example, a change in cigarette pricing by
manufacturers can have a dramatic affect on the market for generic and
private label cigarettes, directly impacting operating results. We believe
that there will be a continued demand for the Company's private label
cigarettes, although further declines in volume are expected in fiscal 1997.
Therefore, the Company is evaluating various options to improve operating
results in future periods, including future acquisitions of smaller
distributing companies, the continued sale of assets that are no longer
essential to our primary business activities and the introduction of new
private label products and Company owned branded products.
Once again, we would like to take this opportunity to recognize and thank all
AMCON employees. They are the most valuable component for the continued
success of the Company. All of us at AMCON look forward to 1997 and
appreciate your support as our shareholders.
William F. Wright Kathleen M. Evans
Chairman President and Chief Executive Officer
1
SELECTED FINANCIAL DATA
The selected financial data presented below have been derived from the Company's
financial statements. The financial statements for the fiscal years ended
September 30, 1996, 1995, 1994 and 1993, have been audited by Coopers & Lybrand
L.L.P., the Company's independent auditors. The balance sheet as of
September 30, 1992 and the related statement of income for the year ended
September 30, 1992 have also been audited. The information set forth below
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS" and
with the Financial Statements and Notes thereto included in this Annual Report.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales................................... $ 176,145 $ 169,790 $ 170,143 $ 150,514 $ 118,770
Cost of sales........................... 155,885 149,756 147,533 130,727 103,750
--------- --------- --------- --------- ---------
Gross profit............................ 20,260 20,034 22,610 19,787 15,020
Operating expense....................... 17,504 17,183 18,859 15,678 12,218
--------- --------- --------- --------- ---------
Income from operations.................. 2,756 2,851 3,751 4,109 2,802
Interest expense........................ 1,149 1,543 1,553 1,770 1,641
Other (income) expense, net............. (697) (228) 36 136 (7)
--------- --------- --------- --------- ---------
Income before income taxes,
extraordinary item.................... 2,304 1,536 2,162 2,203 1,168
Income before extraordinary item....... 1,336 922 1,297 1,322 701
Extraordinary item...................... - - (295)/1/ - -
--------- --------- --------- --------- ---------
Net income.............................. 1,336 922 1,002 1,322 701
Accretion of warrants /2/............... - - (133) (814) (425)
Accretion of preferred stock /3/ ....... (83) (100) (17) - -
--------- --------- --------- --------- ---------
Net income attributable to
common shareholders .................. $ 1,253 $ 822 $ 852 $ 508 $ 276
========= ========= ========= ========= =========
Net income per common and
common equivalent share
attributable to common
shareholders:
Income before extraordinary
item (net of accretion)........... $ 0.51 $ 0.33 $ 0.46 $ 0.22 $ 0.13
Extraordinary item.................. $ - $ - $ (0.12) $ - $ -
---------- --------- --------- --------- ---------
Net income.......................... $ 0.51 $ 0.33 $ 0.34 $ 0.22 $ 0.02
========== ========= ========= ========= =========
Weighted average shares
outstanding.......................... 2,445,903 2,478,047 2,491,996 2,260,573 2,143,857
</TABLE>
2
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital ....................... $ 11,572 $ 12,098 $ 10,971 $ 12,130 $ 8,858
Total assets............................ 23,026 22,919 23,476 24,524 20,250
Long-term obligations and subordinated
debt /4/............................... 10,245 12,705 13,206 14,525 13,484
Shareholders' equity.................... 6,621 5,122 4,097 /5/ 1,959 /6/ 3,274
</TABLE>
- ------------------------
/1/ Includes $205,913 of debt issue costs and $86,908 of unamortized
discount on senior secured and subordinated notes which were written off as a
result of extinguishing the related debt in January and July 1994 and a
$200,000 prepayment premium paid in connection with restructuring senior
subordinated notes in July 1994. The extraordinary item is presented net of
a $197,128 related tax benefit.
/2/ Represents the accretion of warrants issued in conjunction with a
$4 million loan made in 1989 by MLBC, Inc. to the Company which entitled MLBC
to acquire 22.84% of the common stock of the Company (19.98% after June
1993). MLBC also had the right to require the Company to repurchase the
warrants after October 31, 1995 at a formula price based on earnings and
indebtedness. The original fair value of the warrants was recorded at
$400,000 and the Company was accreting the warrants to the highest redemption
price over the period to October 31, 1995. In July 1994, the warrants were
repurchased for $2,000,000.
/3/ Preferred stock was issued in partial payment for repurchase of
warrants described in footnote 2 above and was valued at $1,000,000. The
Company may redeem the preferred stock at any time after April 1, 1996 for
$1,200,000. The preferred stock accreted to the redemption price in lieu of
cash dividends.
/4/ Includes current portion of long-term obligations and subordinated
debt.
/5/ Reflects issuance of preferred stock valued at $1,000,000 to MLBC,
Inc., in connection with partial payment for repurchase of warrants described
in footnote 2 above.
/6/ Reflects a return of capital to AMCON Corporation (the former
parent of the Company) of $3.9 million made in fiscal 1993 in connection with
a contemplated reorganization of AMCON Corporation and its subsidiaries.
3
MARKET FOR COMMON STOCK
The Company's Common Stock trades on the NASDAQ SmallCap Market under the
symbol "DIST". The Company's stock commenced trading on August 4, 1995. The
following table reflects the range of the high and low bid prices per share
of the Company's Common Stock reported by NASDAQ from August 4, 1995 through
September 30, 1996. These quotations represent inter-dealer quotations,
without adjustment for retail mark-ups, mark-downs or commissions and may not
necessarily represent market transactions. As of December 13, 1996, the
Company had approximately 980 holders of record of its shares and the Company
believes that approximately 2,200 additional persons hold shares
beneficially.
COMMON STOCK
------------------------
HIGH LOW
------ ------
Year ended September 30, 1996:
1st Quarter $ 3.00 $ 2.25
2nd Quarter 3.13 1.75
3rd Quarter 2.63 1.88
4th Quarter 2.50 1.50
Year ended September 30, 1995:
Period from August 4, 1995
through September 30, 1995 $ 4.00 $ 3.00
The Company has never declared or paid a cash dividend on its Common Stock
and does not anticipate a change in this policy in the foreseeable future.
The Board of Directors currently intends to retain earnings to finance
acquisitions of other distributing companies, development of new products,
expansion of markets and for other corporate purposes.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth an analysis of various components of the
Income Statement as a percentage of sales for the fiscal years ended
September 30, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales.......................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 88.5 88.2 86.7
------- -------- --------
Gross profit................................... 11.5 11.8 13.3
Selling, general and administrative expense.... 9.5 9.7 10.6
Depreciation and amortization.................. 0.4 0.4 0.5
-------- -------- --------
Income from operations......................... 1.6 1.7 2.2
Interest expense............................... 0.7 0.9 0.9
Other (income) expense, net.................... (0.4) (0.1) 0.0
-------- -------- --------
Income before income taxes, extraordinary
item.......................................... 1.3 0.9 1.3
Income tax expense............................. 0.5 0.4 0.5
-------- -------- --------
Income before extraordinary item............... 0.8 0.5 0.8
Extraordinary item............................. 0.0 0.0 (0.2)
-------- -------- --------
Net income..................................... 0.8 0.5 0.6
Accretion of warrants/
preferred stock........................... (0.1) 0.0 (0.1)
-------- -------- --------
Net income attributable to
common shareholders....................... 0.7% 0.5% 0.5%
======== ======== ========
</TABLE>
5
YEAR ENDED SEPTEMBER 30, 1996 VERSUS YEAR ENDED SEPTEMBER 30, 1995. Sales
for the year ended September 30, 1996 increased 3.7% to $176.1 million,
compared to $169.8 million for the year ended September 30, 1995. This
increase in sales was principally due to an increased customer base and a
cigarette price increase in April 1996. For fiscal 1996, cigarette sales
increased $3.8 million, confectionery sales increased $1.2 million, tobacco
sales increased $1.2 million, beer sales increased $607,000 and other product
sales were up $2.2 million. These increases, offset by a decline in
nonalcoholic beverage sales of $2.1 million due to downsizing of the Denver
facility, accounted for the net increase in sales.
Gross profit increased 1.1% to $20.3 million for the year ended September 30,
1996 from $20.0 million in fiscal 1995. The increase in the Company's gross
profit was primarily due to the 3.7% increase in sales. The increase in
sales effected an increase in premium and generic cigarette gross profit of
$611,000, confectionery gross profit of $472,000 and beer gross profit of
$270,000. Gross profit as a percentage of sales declined to 11.5% in fiscal
1996 compared to 11.8% in fiscal 1995 primarily due to the decline in the
Company's private label cigarette business. Gross profit from sales of the
Company's private label cigarette declined $1.2 million or 19.9% due to the
heightened competition in the generic and private label cigarette markets.
The Company believes that there will be a continued demand for the Company's
private label cigarettes and that its cigarettes have established brand
loyalty among consumers, however, it is anticipated that the volume of
private label cigarette sales could decline by as much as 10% to 20% in
fiscal 1997. The continued downsizing of the Denver facility caused a
$520,000 decrease in nonalcoholic beverages profit margin. Gross profit,
from other products including beer, health and beauty care, store supplies,
tobacco and food-service, increased $618,000 on improved gross profit margin
percentages.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 1.9% to $17.5 million
in fiscal 1996 from $17.2 million in fiscal 1995. However, total operating
expense as a percentage of sales decreased to 9.9% compared to 10.1% during
fiscal 1995. This decrease is primarily attributable to the continued
efficiencies gained from the consolidation of five smaller branch facilities
into two existing branch facilities in fiscal 1995.
As a result of the above, income from operations for fiscal 1996 decreased
3.3% to approximately $2.8 million.
Interest expense decreased 25.5% in fiscal 1996 to approximately $1,149,000
from $1,543,000 in fiscal 1995. The decrease was primarily the result of
lower interest rates on the Company's revolving credit line and a $2.2
million decrease in average subordinated debt outstanding.
Other income increased primarily due to gains of $43,000 on sales of trading
securities, realized gains of $282,000 on investments which were sold in
fiscal 1996, and gains of $215,000 on sales of nonessential fixed assets.
6
As a result of the above factors, net income increased by 45.0% to $1,336,374
during fiscal 1996, compared to net income of $921,560 in fiscal 1995. Net
income attributable to common shareholders was $1,253,041 for the year ended
September 30, 1996, compared to $821,560 for fiscal 1995.
Competition in the distribution industry is intense and profit margins
continue to be tight. The Company's operating income is subject to a number
of factors which are beyond its control, such as changes in manufacturers'
cigarette pricing which affects the market for generic and private label
cigarettes. While the Company sells a diversified product line, it remains
dependent on cigarette sales which represent approximately 64% of its
revenue. Net income is heavily dependent on sales of the Company's private
label cigarettes and volume discounts received from manufacturers in
connection with such sales. The Company continuously evaluates steps it may
take to improve net income in future periods, including further acquisitions
of smaller distributing companies in similar business lines and further sales
of assets that are no longer essential to its primary business activities
such as marketable securities, investments and certain real estate. An
analysis of such assets held at September 30, 1996 and 1995 is as follows:
ESTIMATE OF GAIN
-----------------------------------------
DESCRIPTION OF ASSET September 30, 1996 September 30, 1995
- -------------------- ------------------ ------------------
Investments (available for sale) $ 686,200 $ 391,500
Condominium & furnishings 450,000 400,000
Investments consisted of 86,500 and 128,000 shares of Cayman Water Company
Limited (CWC) at September 30, 1996 and 1995, respectively, a public company
which is listed on NASDAQ. The Company's basis in the securities was $157,000
and $232,500, and the fair market value of the securities was $843,000 and
$422,000 on September 30, 1996 and September 30, 1995, respectively. During
the fiscal year ended September 30, 1996, the Company sold 41,500 shares of
CWC and recognized a gain of approximately $282,000. Subsequent to fiscal
year end, the Company sold an additional 3,500 shares of CWC and the market
value had declined to $498,000 at December 13, 1996.
The condominium and furnishings consist of a condominium in the Cayman
Islands which is used in the furtherance of the Company's business marketing
strategies. The costs and benefits associated with retaining the condominium
are being evaluated in relation to the current business strategies of the
Company.
YEAR ENDED SEPTEMBER 30, 1995 VERSUS YEAR ENDED SEPTEMBER 30, 1994. Sales
for the year ended September 30, 1995 decreased 0.2% to $169.8 million,
compared to $170.1 million for the year ended September 30, 1994. This
decrease in sales was principally due to fiscal 1995 being a 52-week year
compared to fiscal 1994 which was a 53-week year. For fiscal 1995, cigarette
sales declined $148,000, confectionery sales declined $215,000 and
nonalcoholic beverage sales from the Denver facility declined by $1.8
million. These decreases, combined with an increase in tobacco sales of
$271,000, an increase in beer sales from the Denver facility of $190,000 and
an increase in sales of other products of $1.4 million, accounted for the
marginal decline in sales.
7
Gross profit decreased 11.4% to $20.0 million for the year ended September
30, 1995 from $22.6 million in fiscal 1994. The decrease in the Company's
gross profit margin was primarily due to $1.6 million reduction in purchase
discounts received by the Company from cigarette manufacturers on premium,
generic and the Company's private label cigarettes. These purchase discounts
declined 16.9% compared to the prior year. The amount of these discounts
decreased as cigarette manufacturers changed incentive programs and as the
volume of private label cigarette sales decreased. The decrease in sales of
private label cigarettes continued as the result of substantial price
reductions on premium cigarettes effective in 1993. In addition, a $410,000
decrease in the gross profit margin resulted from reduced sales of
nonalcoholic beverages from the Denver facility due to its downsizing.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, decreased 8.9% to $17.2 million
in fiscal 1995 from $18.9 million in fiscal 1994. Total operating expense as
a percentage of sales decreased to 10.1%, compared to 11.1% during fiscal
1994. This decrease was primarily attributable to the consolidation of five
smaller branch facilities into two existing branch facilities and decreases
in bad debt losses of approximately $457,000.
As a result of the above, income from operations for fiscal 1995 decreased
24.0% to approximately $2.9 million. Interest expense decreased 0.6% in
fiscal 1995 to approximately $1,543,000 from $1,553,000 in fiscal 1994. The
decrease was primarily the result of the repayment of $2.4 million of
subordinated debt bearing interest at 14% per annum offset by an increase in
borrowings to fund operations and to finance the purchase of delivery
vehicles. In prior years, most delivery vehicles were leased rather than
purchased.
Other (income) expense increased primarily due to recognized gains of $28,000
from the sale of available-for-sale securities and realized gains of $95,000
on marketable securities which were marked to market as trading securities in
fiscal 1995 compared to a loss of $83,000 on disposition of warrants in
fiscal 1994.
As a result of the above factors, net income decreased by 8.0% to $921,560
during fiscal 1995, compared to net income of $1,001,535 in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company makes capital expenditures primarily for additional equipment for
its distribution facilities including computers, delivery vehicles and other
equipment. The Company has historically financed its working capital
requirements with a combination of internally generated funds and bank
borrowings. Cash provided by operations equaled approximately $2,566,000 and
$1,405,000 for the fiscal years ended September 30, 1996 and 1995,
respectively. Capital expenditures during those periods equaled
approximately $723,000 and $943,000, respectively. The remaining cash
provided by operations was applied to debt service. The Company anticipates
that capital expenditures during fiscal 1997 will be approximately $1,200,000
and will be used primarily for the purposes stated above.
8
The Company had working capital of approximately $11.6 million as of
September 30, 1996. The Company's ratio of debt to equity was 2.48 at
September 30, 1996 compared to 3.47 at September 30, 1995.
The Company has a revolving credit facility (the "Facility") with a bank
allowing the Company to borrow up to $15 million at any time with the option
to borrow up to an additional $3 million for a period of 90 days. The Company
may exercise this option up to twice per year. Advances made under the
Facility are limited to a "borrowing base" determined by various percentages
of eligible accounts receivable and inventories. As of September 30, 1996,
the Company had borrowed approximately $9.4 million under the Facility. The
Facility is collateralized by all equipment, general intangibles, inventories
and receivables of the Company, except as noted below, along with first
mortgages on the Company's distribution centers and other real estate. The
Facility expires on January 31, 1998.
The Facility was amended effective December 1, 1996. The amendment decreased
the interest rate to the bank's base rate and reduced the borrowings limit to
$10,000,000 with an option to borrow an additional $3,000,000 for a 90-day
period twice a year. The amendment also reduced the commitment fee to 0.25%
of the unused amount of the $10,000,000 commitment.
The Facility contains covenants which, among other things, set forth certain
financial ratios and net income requirements which adjust semiannually or
annually as specified in the Facility. For fiscal 1996 and 1997, the Facility
includes covenants that (i) restrict capital expenditures to $1,250,000
during the year, (ii) restrict the incurrence of debt, (iii) restrict
payments, prepayments and repurchases of subordinated debt or capital stock,
(iv) restrict mergers and acquisitions and changes in business or conduct of
business and (v) require the maintenance of certain financial ratios and net
income levels including an average annual fixed charge ratio of 1.1 to 1.0,
an average annual interest coverage ratio of 1.5 to 1.0, a debt to equity
ratio of 4.0 to 1.0 and minimum annual net income of $1,000,000. In
addition, the Company may not pay dividends with respect to its Common Stock
and may pay dividends with respect to its Series A Cumulative Redeemable
Convertible Preferred Stock only with the consent of the lender of the
Facility. As of September 30, 1996 the Company was in compliance with all
covenants under the Facility.
In October 1994, the Company negotiated a $500,000 non-revolving line of
credit, bearing interest at the bank's base rate, to finance the purchase of
delivery vehicles. In July 1995, the line of credit was increased by
$750,000. The bank's base rate at September 30, 1996 was 8.25%. The
non-revolving line of credit was amended effective December 1, 1996 to change
the interest rate from the bank's base rate to two hundred basis points above
the five-year U.S. Treasury Note rate on the date of each advance. As the
Company takes advances, a note is drawn and is payable in monthly
installments from 36 to 60 months. Advances against the line were
approximately $637,000 at September 30, 1996. The line of credit is
collateralized by a first lien on the delivery vehicles purchased with the
loan proceeds.
9
In 1989, MLBC, Inc. ("MLBC") lent $4 million to the Company (the "MLBC Loan")
and, in connection therewith, the Company issued a 14% senior subordinated
note, due 1995, to MLBC (the "Subordinated Note"). In July 1994, the Company
and AMCON Corporation entered into a restructuring agreement with MLBC (the
"Restructuring Agreement") under which ADC agreed to prepay the Subordinated
Note and issued to MLBC 250,000 shares of the Company's Series A Cumulative
Redeemable Convertible Preferred Stock. The Subordinated Note was repaid in
full on November 1, 1995. The preferred stock was redeemed on December 23,
1996 at a price of $4.80 per share or $1,200,000. The redemption was
financed through the Facility.
As of September 30, 1996, the Company had additional outstanding long-term
indebtedness of approximately $246,000, the current portion of which equaled
approximately $60,000. Interest rates on the various notes relating to such
indebtedness range from 8.0% to 9.5% per annum.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility, will provide sufficient
liquidity to cover its debt service and any reasonably foreseeable future
working capital and capital expenditure requirements.
CONCERNING FORWARD LOOKING STATEMENTS
This Annual Report, including the Letter to Shareholders, Management's
Discussion and Analysis and other sections, contains forward looking
statements that are subject to risks and uncertainties and which reflect
management's current beliefs and estimates of future economic circumstances,
industry conditions, company performance and financial results. Forward
looking statements include information concerning the possible or assumed
future results of operations of the Company and those statements preceded by,
followed by or include the words "future", "position", "anticipate(s)",
"expect", "believe(s)", "see", "plan", "further improve", "outlook", "should"
or similar expressions. For these statements, we claim the protection of the
safe harbor for forward looking statements contained in the Private
Securities Litigation Reform Act of 1995. You should understand that the
following important factors, in addition to those discussed elsewhere in this
document, could affect the future results of the Company and could cause
thoses results to differ materially from those expressed in our forward
looking statements: changing market conditions with regard to cigarettes and
the demand for the Company's products, domestic regulatory risks, competitive
and other risks over which the Company has little or no control. Any changes
in such factors could result in significantly different results.
Consequently, future results may differ from management's expectations.
Moreover, past financial performance should not be considered a reliable
indicator of future performance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans and transactions in which goods or services are the consideration
received for the issuance of equity instruments. This statement requires
that an employer's
10
financial statements include certain disclosures about stock-based
compensation regardless of the method used to account for them. Adoption is
required for fiscal years beginning after December 15, 1995, the Company's
Fiscal 1997 or earlier. The Company expects to continue its accounting in
accordance with Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees".
11
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements. The financial statements and the notes thereto have been
prepared in accordance with generally accepted accounting principles to
reflect, in all material aspects, the substance of financial events and
transactions occurring during the year. Coopers & Lybrand L.L.P.,
independent certified public accountants, have audited our financial
statements as described in their report.
The Company maintains financial control systems designed to provide
reasonable assurance that assets are safeguarded and that transactions are
executed and recorded in accordance with management authorization. The
control systems are evaluated annually by the Company.
Kathleen M. Evans
President and Chief Executive Officer
Michael D. James
Treasurer and Chief Financial Officer
December 1, 1996
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of AMCON Distributing Company:
We have audited the accompanying balance sheets of AMCON Distributing Company
as of September 30, 1996 and 1995, and the related statements of income,
shareholders' equity and cash flows for each of the three years ended
September 30, 1996. 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 AMCON Distributing Company
as of September 30, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years ended September 30, 1996 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
December 1, 1996, except for Notes 11 and 14
as to which the date is December 23, 1996
F-1
BALANCE SHEETS
AMCON Distributing Company
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
September 30, 1996 1995
- ------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 21,497 $ 14,597
Marketable securities 148,113 237,926
Accounts receivable, less allowance for
doubtful accounts of $195,961 and $177,331 10,344,002 9,959,607
Note and interest receivable from officer 144,695 125,000
Inventories 6,849,515 7,326,536
Deferred income taxes 75,209 33,746
Other 164,777 140,892
------------- -------------
Total current assets 17,747,808 17,838,304
Fixed assets, net 3,033,257 2,974,368
Investments 843,375 624,000
Other assets 1,401,153 1,482,728
------------- -------------
$ 23,025,593 $ 22,919,400
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,102,868 $ 3,761,935
Accrued expenses 675,958 587,244
Accrued wages, salaries and bonuses 459,873 357,380
Income taxes payable 643,568 319,303
Current portion of long-term debt 293,665 207,994
Current portion of subordinated debt - 506,932
------------- -------------
Total current liabilities 6,175,932 5,740,788
------------- -------------
Deferred income taxes 276,556 66,517
Long-term debt, less current portion 9,951,495 11,942,097
Subordinated debt, less current portion - 47,890
Commitments (Note 12)
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 250,000 shares issued and outstanding
(redemption value: $1,200,000) 2,500 2,500
Common stock, $.01 par value, 5,000,000 shares
authorized, 2,450,000 shares issued 24,500 24,500
Additional paid-in capital 3,411,328 3,327,995
Unrealized gain on investments available-for-sale,
net of $288,227 and $156,600 tax 398,028 234,900
Retained earnings 2,798,569 1,545,528
------------- ------------
6,634,925 5,135,423
Less treasury stock, 4,097 shares, at cost (13,315) (13,315)
------------- ------------
Total shareholders' equity 6,621,610 5,122,108
------------- ------------
$ 23,025,593 $ 22,919,400
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
STATEMENTS OF INCOME
AMCON Distributing Company
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended September 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales (including excise taxes of $40.7 million, $ 176,144,966 $ 169,790,387 $ 170,143,467
$40.5 million and $40.2 million, respectively)
Cost of sales 155,885,022 149,756,786 147,533,414
------------- ------------- -------------
Gross profit 20,259,944 20,033,601 22,610,053
Selling, general and administrative expenses 16,682,845 16,421,558 17,984,752
Depreciation and amortization 820,672 761,356 874,520
------------- ------------- -------------
17,503,517 17,182,914 18,859,272
------------- ------------- -------------
Income from operations 2,756,427 2,850,687 3,750,781
Other expense (income):
Interest expense 1,149,162 1,543,297 1,552,705
Other (income) expense, net (696,828) (228,543) 36,030
------------- ------------- -------------
452,334 1,314,754 1,588,735
------------- ------------- -------------
Income before income taxes and extraordinary item 2,304,093 1,535,933 2,162,046
Income tax expense 967,719 614,373 864,818
------------- ------------- -------------
Income before extraordinary item 1,336,374 921,560 1,297,228
Extraordinary item:
Extinguishment of debt,
net of $197,128 tax benefit - - (295,693)
------------- ------------- -------------
Net income 1,336,374 921,560 1,001,535
Accretion of warrants - - (133,312)
Accretion of preferred stock (83,333) (100,000) (16,667)
------------- ------------- -------------
Net income attributable to common shareholders $ 1,253,041 $ 821,560 $ 851,556
============= ============= =============
Earnings per common and common equivalent share
attributable to common shareholders:
Income before extraordinary item
(net of accretion) $ 0.51 $ .33 $ .46
Extraordinary item - - (.12)
-------------- ------------- -------------
Net income $ 0.51 $ .33 $ .34
============== ============= =============
Weighted average common and
common equivalent shares outstanding 2,445,903 2,478,047 2,491,996
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-3
STATEMENTS OF SHAREHOLDERS' EQUITY
AMCON Distributing Company
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
----------------------- ---------------------- Paid-In
Shares Amount Shares Amount Capital
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1993 - $ - 2,450,000 $ 24,500 $ 2,061,832
Preferred stock issued 250,000 2,500 - - 997,500
Contribution from former parent - - - - 151,996
Cumulative effect of adopting
SFAS No. 115:
Unrealized gain on investments
available-for-sale, net of tax - - - - -
Accretion of warrants - - - - -
Accretion of preferred stock - - - - 16,667
Net income - - - - -
------- --------- ---------- --------- -----------
Balance, September 30, 1994 250,000 2,500 2,450,000 24,500 3,227,995
Investments available-for-sale
reclassified to trading securities,
net of tax - - - - -
Unrealized gain on investments
available- for-sale, net of tax - - - - -
Accretion of preferred stock - - - - 100,000
Receipt of treasury stock - - - - -
Net income - - - - -
-------- --------- ---------- --------- -----------
Balance, September 30, 1995 250,000 2,500 2,450,000 24,500 3,327,995
Unrealized gain on investments
available-for-sale, net of tax - - - - -
Accretion of preferred stock - - - - 83,333
Net income - - - - -
-------- --------- ---------- --------- -----------
Balance, September 30, 1996 250,000 $ 2,500 2,450,000 $ 24,500 $ 3,411,328
======== ========= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
STATEMENTS OF SHAREHOLDERS' EQUITY
AMCON Distributing Company
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Unrealized
Gain on
Investments
Available- Retained Treasury Stock
for-sale Earnings Shares Amount Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $ - $ (127,588) - $ - $ 1,958,744
Preferred stock issued - - - - 1,000,000
Contribution from former parent - - - - 151,996
Cumulative effect of adopting
SFAS No. 115:
Unrealized gain on investments
available-for-sale, net of tax 118,256 - - - 118,256
Accretion of warrants - (133,312) - - (133,312)
Accretion of preferred stock - (16,667) - - -
Net income - 1,001,535 - - 1,001,535
--------- ----------- --------- --------- -----------
Balance, September 30, 1994 118,256 723,968 - - 4,097,219
Investments available-for-sale
reclassified to trading securities,
net of tax (65,756) - - - (65,756)
Unrealized gain on investments
available- for-sale, net of tax 182,400 - - - 182,400
Accretion of preferred stock - (100,000) - - -
Receipt of treasury stock - - (4,097) (13,315) 13,315
Net income - 921,560 - - 921,560
--------- ----------- ---------- --------- -----------
Balance, September 30, 1995 234,900 1,545,528 (4,097) (13,315) 5,122,108
Unrealized gain on investments
available-for-sale, net of tax 163,128 - - - 163,128
Accretion of preferred stock - (83,333) - - -
Net income - 1,336,374 - - 1,336,374
---------- ----------- ---------- --------- -----------
Balance, September 30, 1996 $ 398,028 $ 2,798,569 (4,097) $ (13,315) $ 6,621,610
========== =========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
STATEMENTS OF CASH FLOWS
AMCON Distributing Company
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Fiscal Year Ended September 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,336,374 $ 921,560 $ 1,001,535
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary items - - 295,693
Depreciation, amortization and accretion 820,672 761,356 932,056
Treasury stock received as a dividend - (13,315) -
(Gain) loss on sales of fixed assets, land held for sale
and securities (588,659) (111,693) (5,755)
Proceeds from sale of trading securities 147,993 - -
Purchases of trading securities (14,825) - -
Loss from disposition of warrants - - 83,000
Prepayment premium for extinguished debt - - (200,000)
Deferred income taxes 36,948 181,700 (67,704)
Changes in assets and liabilities:
Accounts and interest receivable (404,090) (711,771) (632,796)
Inventories 477,021 1,700,526 912,137
Other current assets (23,885) (71,008) 132,818
Other assets (78,397) (104,911) (101,330)
Accounts payable 340,933 (27,592) (373,638)
Accrued expenses and accrued wages, salaries and
bonuses 191,207 (367,457) 203,228
Income taxes payable 324,265 (751,896) 257,642
----------- ----------- ------------
Net cash provided by operating activities 2,565,557 1,405,499 2,436,886
Cash flows from investing activities:
Purchases of fixed assets (723,308) (942,808) (464,770)
Proceeds from sales of fixed assets and land held for sale 516,162 63,417 257,204
Advances to officer - (125,000) -
Proceeds from sales of available-for-sale securities 357,170 64,182 -
Purchases of available-for-sale securities - - (12,276)
----------- ----------- ------------
Net cash provided by (used in) investing
activities 150,024 (940,209) (219,842)
Cash flows from financing activities:
Proceeds from long-term debt 188,615 726,267 -
Net (payments) proceeds on bank credit agreement (2,082,930) 1,409,642 3,062,140
Payments on long-term and subordinated debt (814,366) (2,637,033) (4,571,702)
Repurchase of AMCON warrants - - (1,000,000)
Cash acquired from former parent contribution - - 725
----------- ----------- ------------
Net cash used in financing activities (2,708,681) (501,124) (2,508,837)
----------- ------------ ------------
Net increase (decrease) in cash 6,900 (35,834) (291,793)
Cash, beginning of year 14,597 50,431 342,224
----------- ----------- ------------
Cash, end of year $ 21,497 $ 14,597 $ 50,431
=========== =========== ============
Supplemental cash flow information:
Cash paid during the year for interest $1,199,396 $ 1,543,591 $ 1,511,140
Cash paid during the year for income taxes 714,696 1,139,620 674,880
Supplemental noncash information:
Preferred stock issued - - 1,000,000
Cash surrender value of life insurance policy
transferred from former parent - - 151,271
Fixed assets acquired through new debt - - 46,339
Land sold on account - - 40,000
Accretion of warrants - - 133,312
Accretion of preferred stock 83,333 100,000 16,667
Unrealized gain on available-for-sale securities, net 163,128 182,400 118,256
Fixed assets acquired through capital lease 248,928 - -
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
AMCON Distributing Company
1. Summary of Significant Accounting Policies:
Company Operations:
AMCON Distributing Company ("the Company") is a leading wholesale distributor
of consumer products in the Great Plains and Rocky Mountain Regions. The
Company distributes a broad portfolio of consumer products including
beverages, candy, cigarettes, groceries and health and beauty care products
through its distribution centers located in Colorado, Kansas, Missouri,
Nebraska, North Dakota, South Dakota and Wyoming. Prior to February 1994,
AMCON Corporation ("AMCON") owned 87.5% of the Company and Cable Car Beverage
Corporation owned 12.5% of the Company. On February 25, 1994, AMCON
distributed its shares in the Company to its shareholders who, as a result,
became shareholders of the Company.
Competition in the distribution industry is intense and profit margins
continue to be tight. The Company's operating income is subject to a number
of factors which are beyond its control, such as changes in manufacturers'
cigarette pricing which affects the market for generic and private label
cigarettes. While the Company sells a diversified product line, it remains
dependent on cigarette sales which represent approximately 64% of its
revenue. Net income is heavily dependent on sales of the Company's private
label cigarettes and volume discounts received from manufacturers in
connection with such sales. The Company continuously evaluates steps it may
take to improve net income in future periods, including further acquisitions
of smaller distributing companies in similar business lines and further sales
of assets that are no longer essential to its primary business activities
such as marketable securities, investments and certain real estate.
Accounting Period:
The Company's fiscal year ends on the last Friday in September. For
convenience, the fiscal years have been indicated as September 30, whereas
the actual year ends were September 27, 1996, September 29, 1995, and
September 30, 1994. Each fiscal year was comprised of 52 weeks except for
the year ended September 30, 1994 which was comprised of 53 weeks.
Cash and Accounts Payable:
The Company uses a cash management system under which an overdraft is the
normal book balance in the primary disbursing accounts. The overdrafts
included in accounts payable which were $1,797,734 and $1,349,625 at
September 30, 1996 and 1995, respectively, reflect the checks drawn on the
disbursing accounts that have been issued but have not yet cleared through
the banking system. The Company's policy has been to fund these outstanding
checks as they clear with borrowings under the credit agreement (see Note 5).
F-7
Marketable Securities and Investments:
In 1994, the Company adopted Statement of Financial Accounting Standards No.
115 (SFAS No. 115), "Accounting for Certain Investments in Debt and Equity
Securities," pursuant to which the Company has classified marketable
securities and investments as either available-for-sale or trading
securities. The carrying amounts of the securities used in computing
unrealized and realized gains and losses are determined by specific
identification. Fair values are determined using quoted market prices. For
available-for-sale securities, net unrealized holding gains and losses are
reported as a separate component of shareholders' equity, net of tax. For
trading securities, net unrealized holding gains and losses are included in
the determination of net income. The cumulative effect of adopting SFAS No.
115 increased shareholders' equity at September 30, 1994 by $118,256, net of
tax. There was no impact on net income for the year ended September 30,
1994.
Accounts Receivable:
Accounts receivable consist of amounts due to the Company from its normal
business activities. The Company's customers are retailers, institutions and
other wholesalers located throughout the Great Plains and Rocky Mountain
regions. The Company maintains an allowance for doubtful accounts to reflect
the expected uncollectibility of accounts receivable based on past collection
history and specific risks identified in the portfolio.
Inventories:
Inventories consist of finished products purchased in bulk quantities to be
repacked and distributed to the Company's customers. Inventories are valued
at the lower of first-in, first-out ("FIFO") cost or market.
Fixed Assets:
Fixed assets are stated at cost. Major renewals and improvements are
capitalized and charged to expense through depreciation charges. Repairs and
maintenance are charged to expense as incurred. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of depreciable assets. Estimated useful lives are as follows:
Years
--------
Buildings 7 - 40
Warehouse equipment 5 - 7
Furniture, fixtures and leasehold
improvements 5 - 18
Vehicles 5
Costs and accumulated depreciation applicable to assets retired or sold are
eliminated from the accounts, and the resulting gains or losses are reported
in the statement of income.
Revenue Recognition:
The Company recognizes revenue when products are shipped. Sales are shown
net of returns and discounts.
F-8
Income Taxes:
Deferred income taxes are determined based on temporary differences between
the financial reporting and tax basis of the Company's assets and
liabilities, using enacted tax rates in effect during the years in which the
differences are expected to reverse.
Earnings Per Share:
Earnings per share attributable to common shareholders have been computed
using the weighted average number of common and common equivalent shares
outstanding. Common stock equivalents include dilutive warrants and options,
using the treasury stock method. Earnings used in the calculation are
reduced by accretion on preferred stock and warrants (Note 7).
Goodwill:
The Company reviews the carrying value of goodwill at each balance sheet date
to assess recoverability based on estimated undiscounted future operating
cash flows. Impairments would be recognized in operating results if a
permanent diminution in value were to occur based on discounted cash flows.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the prior year financial
statements to conform to the 1996 presentation.
2. Fixed Assets, Net:
Fixed assets at September 30, 1996 and 1995 consisted of the following:
1996 1995
----------- -----------
Land and buildings $ 130,676 $ 700,583
Condominium and furnishings 1,210,859 1,197,469
Warehouse equipment 1,727,834 1,779,916
Furniture, fixtures and
leasehold improvements 1,335,777 1,318,714
Vehicles 1,820,370 1,523,210
----------- -----------
6,225,516 6,519,892
Less accumulated depreciation 3,192,259 3,545,524
----------- -----------
$ 3,033,257 $ 2,974,368
=========== ===========
F-9
3. Marketable Securities and Investments:
Investments in equity securities at September 30, 1996 and 1995 consisted of
the following:
September 30, 1996
------------------------------------
Unrealized Market
Cost Gain Value
--------- --------- ---------
Marketable securities (trading) $ 69,700 $ 78,413 $ 148,113
========= ========= =========
Investments (available-for sale) $ 157,119 $ 686,256 $ 843,375
========= ========= =========
September 30, 1995
------------------------------------
Unrealized Market
Cost Gain Value
--------- --------- ---------
Marketable securities(trading) $ 141,976 $ 95,950 $ 237,926
========= ========= =========
Investments (available-for-sale) $ 232,500 $ 391,500 $ 624,000
========= ========= =========
The Company realized gains on the sale of available-for-sale investments of
$281,789 and $26,882 in 1996 and 1995, respectively. At September 30, 1995,
the Company transferred securities with a market value of $237,926 from
available-for-sale investments to trading marketable securities and
recognized a gain of $95,950 included in the determination of net income for
the period. The Company recognized gains of $42,455 on trading securities
during 1996. Subsequent to fiscal year end, the Company sold investments
available-for-sale realizing a gain of $27,600 and the fair market value of
the remaining investments declined to $498,000 at December 13, 1996.
4. Other Assets:
Other assets at September 30, 1996 and 1995 consisted of the following:
1996 1995
----------- -----------
Goodwill (less accumulated amortization
of $335,794 and $267,413) $ 985,716 $ 1,054,098
Covenants not to compete (less
accumulated amortization of $169,041
and $103,541) 65,959 111,459
Cash surrender value of life
insurance policies 236,529 178,131
Buildings held for sale 112,949 139,040
---------- -----------
$1,401,153 $ 1,482,728
========== ===========
F-10
Goodwill arose from the acquisition of certain businesses and is amortized
using the straight-line method over periods ranging from 5 to 25 years.
Amortization expense was $68,381, $68,299, and $64,206 for the years ended
September 30, 1996, 1995, and 1994, respectively.
The covenants not to compete are amortized using the straight-line method
over 2-5 year terms of the related agreements. Amortization expense was
$65,500, $53,000 and $46,500 for the years ended September 30, 1996, 1995 and
1994, respectively
5. Long-term Obligations:
Long-term obligations at September 30, 1996 and 1995 consisted of the
following:
1996 1995
----------- ------------
Credit agreement with a bank,
interest payable monthly at the
bank's base rate (8.25% at
September 30, 1996) plus 0.5%;
principal due January 1998 $ 9,361,570 $ 11,444,500
Nonrevolving line of credit,
interest payable monthly at the
bank's base rate (8.25% at
September 30, 1996);
principal due in monthly
installments through January 2001
collateralized by delivery vehicles 637,320 640,585
Promissory note, interest payable
quarterly at 8%; principal due in
quarterly installments through
February 1997 16,422 47,378
Obligations under capital lease, payable
in monthly installments at 9.5% through
April 2001 (Note 12) 228,967 -
Other 881 17,628
----------- -----------
10,245,160 2,150,091
Less current portion 293,665 207,994
----------- -----------
$ 9,951,495 $11,942,097
=========== ===========
F-11
Under the terms of the credit agreement, all of the Company's assets have
been pledged as collateral to the lenders. The credit agreement allows for
borrowings of up to $15,000,000 with an option to borrow an additional
$3,000,000 for a 90-day period twice a year. The agreement bears interest at
the bank's base rate plus 0.5%. At September 30, 1996 and 1995, the unused
portion of the credit agreement was $5,638,430 and $3,555,500, respectively.
The Company is required to pay a commitment fee of 0.5% of the unused amount
of the $15,000,000 commitment.
The credit agreement contain covenants which, among other things, (i)restrict
capital expenditures to $1,250,000, (ii) restrict the incurrence of debt,
(iii) restrict payments, prepayments, and repurchases of subordinated debt or
capital stock, (iv) restrict mergers and acquisitions and changes of business
or conduct of business, and (v) require the maintenance of certain financial
ratios and net income levels including an average annual fixed charge ratio
of 1.1 to 1.0, an average annual interest coverage ratio of 1.5 to 1.0, a
debt to equity ratio of 4.0 to 1.0 and minimum annual net income of
$1,000,000. In addition, the Company must receive consent from the lender
prior to the declaration or payment of any dividends. At September 30, 1996,
the Company was in compliance with all covenants described above.
The credit agreement was amended effective December 1, 1996. The amendment
decreased the interest rate to the bank's base rate and reduced the
borrowings limit to $10,000,000 with an option to borrow an additional
$3,000,000 for a 90-day period twice a year. The amendment also reduced the
commitment fee to 0.25% of the unused amount of the $10,000,000 commitment.
The above long-term obligations, excluding obligations under capital lease,
have the maturities as follows:
Year ending September 30
- ------------------------
1997 $ 293,665
1998 9,595,747
1999 194,908
2000 128,706
2001 32,134
------------
$ 10,245,160
============
Based on discounted cash flows using current market rates for similar
agreements, the fair value of the Company's long-term debt obligations
approximated carrying value at September 30, 1996.
F-12
6. Subordinated Debt:
Subordinated debt at September 30, 1996 and 1995 consisted of the following:
1996 1995
------------ ------------
Senior subordinated note, interest
payable monthly at 14% per
annum; principal payment of
$400,000 due November 1995;
collateralized by a junior lien on
all of the Company's assets. $ - $ 400,000
Junior subordinated note payable
to AMCON, interest payable
monthly at prime (prime at
September 30, 1995 was 8.75%)
plus 3%; principal due in monthly
installments of $10,000 including
interest through February 1997. - $ 154,822
------------ ------------
- 554,822
Less current portion - 506,932
------------ ------------
$ - $ 47,890
============ ============
The senior subordinated note was restructured in July 1994 (see Note 7).
Prior to the restructuring, there was an unamortized discount of $86,908
which was written off in 1994. Also in 1994, $205,913 of debt issue costs
related to a senior secured note and the senior subordinated note were
written off. The prepayment premium and the related unamortized costs are
included in the income statement as an extraordinary item due to
extinguishing the related debt.
The junior subordinated note payable to AMCON related to an obligation of
AMCON which was incurred to purchase a partial interest in a condominium.
The related interest in the condominium was subsequently transferred to the
Company at book value, subject to this note. The terms of the subordinated
note were identical to the terms of the AMCON obligation to a third party
creditor. The note was repaid in full in April 1996.
7. Preferred Stock and Warrants:
In June 1994, the Company issued 250,000 shares of Series A Cumulative
Redeemable Convertible Preferred Stock (the "Preferred Stock") to the holder
of the senior subordinated note as described in Note 6 ("the Note") in
connection with the July 1994 restructuring of the Note and the repurchase of
certain warrants by the Company that had entitled the holder to purchase
common stock of the Company. The warrants were purchased in exchange for a
cash payment of $1,000,000 and issuance of 250,000 shares of the Company's
F-13
Preferred Stock valued at $1,000,000. The warrants were accreted to the
repurchase price of $2,000,000. The Company also agreed to pay the holder a
prepayment premium of $200,000 to allow acceleration of the remaining balance
of the Note to be repaid in semi-annual installments of $1,200,000 with the
balance due November 1, 1995.
Dividends related to the preferred stock will begin to accrue on February 4,
1997, at an annual rate of $.576 per share and will be payable as and when
declared by the Board of Directors. The Company may redeem the Preferred
Stock at any time after April 1, 1996 at a price of $4.80 per share or
$1,200,000. Preferred Stock was being accreted to the redemption price in
lieu of cash dividends. The Preferred Stock is convertible by the holders
thereof into 250,000 shares of fully paid and nonassessable common stock of
the Company, subject to certain anti-dilution adjustments.
The Company issued a certain shareholder warrants to purchase shares of the
Company's common stock equal to 2.5% of the total issued and outstanding
shares on the date of the grant at an exercise price equal to the per share
book value of the Company on the exercise date. The warrants expired on May
28, 1996.
8. Other (Income) Expense:
Other (income) expense consisted of the following for the years ended
September 30, 1996, 1995 and 1994:
1996 1995 1994
---------- ----------- -----------
Dividends $ (8,658) $ (31,321) $ (18,590)
Rent income (12,462) (15,886) (8,294)
Gain on sale of
distribution rights - (35,000) -
Gain on marketable
securities and
investments (324,244) (122,832) -
Loss (gain) from
disposition of fixed
assets (264,516) 11,140 (10,578)
Other (86,948) (34,644) (9,508)
Loss on cancellation
of warrants - - 83,000
--------- ----------- -----------
$(696,828) $ (228,543) $ 36,030
========= =========== ===========
F-14
9. Income Taxes:
Components of income tax expense (benefit) for the fiscal years ended
September 30, 1996, 1995 and 1994 consisted of the following:
1996 1995 1994
---------- ---------- ----------
Current:
Federal $ 865,764 $ 385,077 $ 783,116
State 65,003 47,596 149,406
---------- ---------- ----------
930,767 432,673 932,522
---------- ---------- ----------
Deferred:
Federal 34,215 161,712 (57,003)
State 2,737 19,988 (10,701)
---------- ---------- ----------
36,952 181,700 (67,704)
---------- ---------- ----------
Provision for income
taxes on income
before extraordinary
item 967,719 614,373 864,818
Tax benefit of
extraordinary
items - - (197,128)
---------- ---------- ----------
$ 967,719 $ 614,373 $ 667,690
========== ========== ==========
The difference between the Company's income tax expense as reported in the
accompanying financial statements and that which would be calculated using
the statutory income tax rate of 34% on income before extraordinary items is
as follows for the fiscal years ended September 30, 1996, 1995 and 1994:
1996 1995 1994
---------- ---------- ----------
Tax at statutory rate $ 783,392 $ 522,217 $ 735,096
Amortization of
goodwill 21,300 22,692 25,682
Nondeductible business
expenses 17,504 17,040 16,655
State income taxes, net of
federal tax benefit 67,740 43,254 91,545
Other 77,783 9,170 (4,160)
---------- ---------- ----------
$ 967,719 $ 614,373 $ 864,818
========== ========== ==========
F-15
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities giving rise to the net deferred tax asset
at September 30, 1996 and 1995 relate to the following:
1996 1995
------------ -----------
Deferred tax assets:
Current:
Allowance for doubtful accounts $ 71,939 $ 64,974
Accrued vacation 32,330 30,630
Net operating loss carryforwards 36,640 36,640
Capital loss carryforwards - 20,562
Inventory 27,138 -
------------ -----------
168,047 152,806
Noncurrent:
Net operating loss carryforwards 182,759 219,047
------------ -----------
Total deferred tax assets $ 350,806 $ 371,853
============ ===========
Deferred tax liabilities:
Current:
Unrealized gains on marketable
securities $ 12,649 $ 35,156
Excess book over tax trade discounts 80,189 83,904
------------ -----------
92,838 119,060
------------ -----------
Noncurrent:
Excess tax over book depreciation 161,923 119,245
Unrealized gains on investments
available-for-sale 288,227 156,600
Other 9,165 9,719
------------ -----------
459,315 285,564
------------ -----------
Total deferred tax liabilities $ 552,153 $ 404,624
============ ===========
Net deferred tax assets (liabilities):
Current $ 75,209 $ 33,746
Noncurrent (276,556) (66,517)
------------ -----------
$ (201,347) $ (32,771)
============ ===========
F-16
The Company did not record any valuation allowances against deferred tax
assets at September 30, 1996 or 1995. The net operating loss was acquired in
connection with the acquisition of Sheya Brothers in 1993. The utilization
of the net operating loss of $598,000 at September 30, 1996 is limited (by
IRS Code Section 382) to approximately $100,000 per year through 2002.
10. Profit Sharing Plan:
The Company has a profit sharing plan covering substantially all full-time
employees. The Company makes contributions of not less than 1% of qualified
employees' gross wages. Employees may also make additional voluntary
contributions of which the first 6% contributed is matched 50% by the
Company.
The Company contributed 196,552, $181,343, and $147,587, (net of employee
forfeitures) to the profit sharing plan during the years ended September 30,
1996, 1995, and 1994, respectively.
11. Related Party Transactions:
In 1995, the Company made an advance of $125,000 to an officer of the
Company. This advance was recorded as a note receivable, bearing interest at
7.5% and was due September 30, 1996. The interest rate on the note was
retroactively amended during the year to 9.0%. The balance of the note
receivable, plus accrued interest was $144,695 at September 30, 1996.
Subsequent to September 30, 1996, the terms of the note were amended to
require installments of $25,000 in January 1997, $50,000 in June 1997 and the
balance in September 1997. Based on discounted cash flows using current
estimated market rates of similar arrangements, the fair value of the note
approximates carrying value at September 30, 1996.
The Company was charged $60,000 by AMCON for each of the years ended
September 30, 1996, 1995 and 1994, as consideration for office rent and
management services, which is included in selling, general and administrative
expenses.
The remaining interest in a condominium and furnishings and related mortgage
loan, was transferred from AMCON to the Company in 1992, as partial
settlement of intercompany balances. The condominium is used by the Company
in furtherance of its business strategies. Under a profit sharing agreement
with AMCON, the greater of $400,000 of the net gain or one-half of the net
gain from the ultimate sale of the real estate will be allocated to AMCON.
The Company estimates the amount of gain payable to AMCON had the real estate
sold on September 30, 1996 would have been $450,000.
12. Commitments:
The Company leases certain office equipment under a capital lease. The
carrying value of these assets was $224,035 as of September 30, 1996, net of
accumulated amortization of $24,893.
F-17
The Company leases various office and warehouse facilities and equipment
under noncancelable operating leases. Rent charged to expense during the
years ended September 30, 1996, 1995 and 1994 under such lease agreements was
$731,944, $892,202, and $803,860, respectively. As of September 30, 1996,
minimum future lease commitments are as follows:
Year ending September 30
Capital Operating
Lease Lease
------------ ------------
1997 $ 62,735 $ 719,828
1998 62,735 479,199
1999 62,735 331,494
2000 62,735 252,502
2001 31,369 229,062
Thereafter - 224,450
---------- ------------
Total minimum lease payments 282,309 $ 2,236,535
Less amount representing interest 53,342 ============
----------
Present value of net minimum
lease payments $ 228,967
==========
Minimum payments will be reduced by minimum sublease rentals totaling $107,532
due in the future under noncancellable subleases.
13. Stock Option Plan:
In June 1994, the Company adopted the 1994 Stock Option Plan (the "Stock
Option Plan"). The maximum number of shares of common stock which may be
issued pursuant to options is 300,000. On September 27, 1996, options to
purchase 22,000 shares of common stock were issued to management employees at
an exercise price of $1.63. All of the options were fully vested and
exercisable at September 27, 1996 and expire ten years after the grant date.
In October 1995, FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans and transactions in which goods or services are
the consideration received for the issuance of equity instruments. This
statement requires that an employer's financial statements include certain
disclosures about stock-based employee compensation regardless of the method
used to account for them. Adoption is required for fiscal years, beginning
after December 15, 1995, the Company's fiscal 1997, or earlier. The Company
expects to continue its accounting in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
F-18
14. Subsequent Events
On October 4, 1996, the Company sold all beverage products and inventory
manufactured or supplied by Stroh Brewing Company (successor in interest to
G. Heileman Brewing Company) and Minnesota Brewing Company (together the
"Suppliers"), the distributorship agreements with the Suppliers, accounts
receivable and certain equipment for a purchase price of $2.4 million,
subject to post-closing adjustments as defined in the Asset Purchase
Agreement. The gain associated with disposition of the assets was
approximately $580,000, net of tax. The Company then closed the Denver
distribution facility and subleased the facility to the tenant who occupies
the other one-half of the building.
On November 18, 1996, the Company purchased the plant and equipment,
inventory, trademarks and franchises of a water bottling company. The Company
moved the plant and equipment to one of its existing distribution facilities
and will begin bottling water for sale to its customers and other wholesale
distributors in the second quarter of fiscal 1997. The cost of the water
bottling assets plus moving and installation charges is expected to be
approximately $500,000.
On December 23, 1996, the Company redeemed all 250,000 shares of Series A
Cumulative Redeemable Convertible Preferred Stock at a price of $4.80 per
share or $1,200,000. The Company redeemed the Preferred Stock in order to
avoid the future payment of the 12% cumulative dividend associated with
Preferred Stock. The redemption was financed through the Facility.
F-19
DIRECTORS AND CORPORATE OFFICERS
DIRECTORS
William F. Wright /1/
Chairman and Chief Corporate Officer
Kathleen M. Evans
President and Chief Executive Officer
J. Tony Howard
Secretary and
President of Nebraska Distributing Company
Allen D. Petersen /1/ /2/
Chairman and Chief Executive Officer of
American Tool Companies, Inc.
William R. Hoppner /1/ /2/
Consultant
/1/ Audit Committee
/2/ Compensation Committee
CORPORATE OFFICERS
William F. Wright
Chairman and Chief Corporate Officer
Kathleen M. Evans
President and Chief Executive Officer
J. Tony Howard
Secretary
Michael D. James
Treasurer and Chief Financial Officer
Chris M. Pudenz
Asst. Secretary and Controller
F-20
AMCON DISTRIBUTING COMPANY
CORPORATE HEADQUARTERS
AMCON Distributing Company
10228 L Street
Omaha, Nebraska 68127
(402) 331-3727
TRANSFER AGENT
First National Bank of Omaha
One First National Center
Omaha, Nebraska 68102-1596
CORPORATE COUNSEL
Kutak Rock
1650 Farnam Street
Omaha, Nebraska 68102
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1299 Landmark Center
Omaha, Nebraska 68108
ANNUAL STOCKHOLDERS' MEETING
Wednesday, March 12, 1997
9:00 a.m.
Sheraton Inn Omhaa
Omaha, Nebraska 68137
ADDITIONAL INFORMATION
The Form 10-K Annual Report to the Securities and
Exchange Commission provides certain additional
information and is available upon request to
Michael D. James, Treasurer and Chief Financial
Officer of the Company.
STOCK INFORMATION
AMCON Distributing Company's Common Shares
are traded on the NASDAQ SmallCap Market. The
symbol for the Common Stock is "DIST".
WEB SITE
http://www.amcon-dist.com
F-21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of AMCON Distributing Company:
Our report on the financial statements of AMCON Distributing Company is
included in this Form 10-K. In connection with our audit of such financial
statements, we have also audited the related financial statement schedule
listed in Item 14 for the years ended September 30, 1994, 1995 and 1996.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
December 1, 1996
S-1
AMCON Distributing Company
Financial Statement Schedule
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
<TABLE>
<CAPTION>
Net
Amounts
Balance at Provision (Written Off) Balance at
Description Beginning of Period (Benefit) Other Recovered End of Period
- ------------------ --------------------- --------- ----- ------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts Oct 1, 1993 $190,096 $424,455 - $(437,507) Sep. 30, 1994 $177,044
Oct 1, 1994 177,044 (32,775) - 33,062 Sep. 30, 1995 177,331
Oct 1, 1995 177,331 3,836 - 14,794 Sep. 30, 1996 195,961
</TABLE>
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance
Sheet at September 30, 1996 and the Statement of Income for the Year Ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 21
<SECURITIES> 148
<RECEIVABLES> 10,540
<ALLOWANCES> 196
<INVENTORY> 6,849
<CURRENT-ASSETS> 17,785
<PP&E> 6,225
<DEPRECIATION> 3,192
<TOTAL-ASSETS> 23,026
<CURRENT-LIABILITIES> 6,175
<BONDS> 9,951
0
3
<COMMON> 25
<OTHER-SE> 6,595
<TOTAL-LIABILITY-AND-EQUITY> 23,026
<SALES> 176,145
<TOTAL-REVENUES> 176,145
<CGS> 155,885
<TOTAL-COSTS> 155,885
<OTHER-EXPENSES> 17,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,149
<INCOME-PRETAX> 2,304
<INCOME-TAX> 968
<INCOME-CONTINUING> 1,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,253
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
