SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1996
OR
/ / Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------------------------
COMMISSION FILE NUMBER 0-24708
------------------------------
AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
10228 "L" Street
Omaha, NE 68127
(Address of principal executive offices)
(Zip Code)
47-0702918
(I.R.S. Employer Identification No.)
(402) 331-3727
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
The Registrant had 2,445,903 shares of its $.01 par value common stock
outstanding as of January 31, 1997.
Form 10-Q
1st Quarter
INDEX
-------
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Balance sheets at December 31, 1996
and at September 30, 1996 3
Statements of income for the three month periods
ended December 31, 1996 and December 31, 1995 4
Statements of cash flows for the three-month periods
ended December 31, 1996 and December 31, 1995 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company
Balance Sheets
December 31, 1996 and September 30, 1996
- - --------------------------------------------------------------------------------
(Unaudited)
December 31, September 30,
1996 1996
------------ ------------
ASSETS
Current assets:
Cash $ 17,007 $ 21,497
Marketable securities 136,191 148,113
Accounts receivable, less allowance
for doubtful accounts of $197,695
and $195,961 10,512,700 10,344,002
Note and interest receivable from officer 147,500 144,695
Inventories 7,804,415 6,849,515
Deferred income taxes 75,209 75,209
Other 163,486 164,777
------------ ------------
Total current assets 18,856,508 17,747,808
Fixed assets, net 3,496,829 3,033,257
Investments 478,547 843,375
Other assets 1,015,744 1,401,153
------------ ------------
$ 23,847,628 $ 23,025,593
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,547,841 $ 4,102,868
Accrued expenses 644,045 675,958
Accrued wages, salaries and bonuses 306,005 459,873
Income taxes payable 1,203,778 643,568
Current portion of long-term debt 356,593 293,665
------------ ------------
Total current liabilities 9,058,262 6,175,932
------------ ------------
Deferred income taxes 125,998 276,556
Long-term debt, less current portion 8,472,703 9,951,495
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none and 250,000 shares
issued and outstanding (redemption value:
$1,200,000) - 2,500
Common stock, $.01 par value, 5,000,000
shares authorized, 2,450,000 shares
issued and outstanding 24,500 24,500
Additional paid-in capital 2,213,828 3,411,328
Unrealized gain on investments available-
for-sale, net of $137,670 and $288,227 tax 190,115 398,028
Retained earnings 3,775,537 2,798,569
------------ ------------
6,203,980 6,634,925
Less treasury stock, 4,097 shares, at cost (13,315 (13,315)
------------ ------------
Total shareholders' equity 6,190,665 6,621,610
------------ ------------
$ 23,847,628 $ 23,025,593
============ ============
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Statements of Income
for the three months ended December 31, 1996 and 1995
(Unaudited)
- - --------------------------------------------------------------------------------
1996 1995
----------- -----------
Sales (including excise taxes
of $9.8 million and $9.7 million,
respectively) $41,375,261 $41,266,106
Cost of sales 36,684,198 36,103,998
----------- -----------
Gross profit 4,691,063 5,162,108
Selling, general and administrative
expenses 3,797,862 4,184,936
Depreciation and amortization 196,964 184,485
----------- -----------
3,994,826 4,369,421
----------- -----------
Income from operations 696,237 792,687
Other expense (income):
Interest expense 192,805 306,962
Other income, net (1,152,445) (74,864)
----------- -----------
(959,640) 232,098
----------- -----------
Income before income taxes 1,655,877 560,589
Income tax expense 678,910 235,447
----------- -----------
Net income 976,967 325,142
Accretion of preferred stock - 25,000
----------- -----------
Net income attributable
to common shareholders $ 976,967 $ 300,142
=========== ===========
Earnings per common and common
equivalent share attributable
to common shareholders $ 0.40 $ 0.12
=========== ===========
Weighted average common and common
equivalent shares outstanding 2,450,028 2,471,134
=========== ===========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Statements of Cash Flows
for the three months ended December 31, 1996 and 1995
(Unaudited)
- - -------------------------------------------------------------------------------
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 976,967 $ 325,142
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 196,964 184,485
Gain on sales of fixed assets, land
held for sale and securities (24,681) (19,096)
Gain on sale of Denver beer distributorship (1,102,205) -
Proceeds from sale of trading securities 24,600 -
Purchases of trading securities - (14,825)
Changes in assets and liabilities:
Accounts receivable (627,748) (288,042)
Inventories (1,393,148) (60,916)
Other current assets 1,291 (15,188)
Accounts payable 2,444,973 268,162
Accrued expenses and accrued wages,
salaries and bonuses (185,781) (178,154)
Income taxes payable 560,210 105,047
---------- ----------
Net cash provided by operating activities 871,442 306,615
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (255,111) (84,316)
Purchase of water bottling assets (456,705) -
Proceeds from sales of fixed assets 45,787 53,191
Proceeds from sale of Denver beer
distributorship 2,371,994 -
Proceeds from sale of available-for-sale
securities 33,967 -
---------- ----------
Net cash provided by (used in)
investing activities 1,739,932 (31,125)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 363,961 -
Net (payments) proceeds on bank credit agreement (1,694,414) 146,994
Payments on long-term and subordinated debt (85,411) (405,724)
Redemption of preferred stock (1,200,000) -
---------- ----------
Net cash used in financing activities (2,615,864) (258,730)
---------- ----------
Net (decrease) increase in cash (4,490) 16,760
Cash, beginning of period 21,497 14,597
---------- ----------
Cash, end of period $ 17,007 $ 31,357
========== ==========
The accompanying notes are an integral part of these financial statements.
AMCON Distributing Company
Notes to Financial Statements
December 31, 1996 and 1995
- - -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of AMCON Distributing Company
(the "Company") have been prepared on the same basis as the audited financial
statements for the year ended September 30, 1996, and, in the opinion of
management, contain all adjustments necessary to fairly present the financial
information included therein, such adjustments consist of normal recurring
items. It is suggested that these financial statements be read in conjunction
with the audited financial statements and notes thereto, for the fiscal year
ended September 30, 1996, which are included in the Company's Annual Report to
Stockholders filed with Form 10-K. Results for the interim period are not
necessarily indicative of results to be expected for the entire year.
2. NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Net income attributable to common shareholders was computed under the treasury
stock method using the weighted average number of common shares and dilutive
common stock equivalent shares outstanding during the period.
3. SALE OF BEER DISTRIBUTORSHIP
On October 4, 1996, the Company sold its beer distributorship assets located in
Denver, Colorado for $2.4 million. The gain associated with the sale was
$1,102,000. The Company's operating expenses associated with closing the
Denver facility were $255,000 during the first quarter ended December 31, 1996.
4. PURCHASE OF WATER BOTTLING ASSETS
On November 18, 1996, the Company purchased the equipment, inventory,
trademarks and franchises of a water bottling company. The Company moved the
equipment to one of its existing distribution facilities and began bottling
water, under the American Star label, for sale to its customers and other
wholesale distributors in January 1997. The cost of the water bottling assets
plus moving and installation charges was $457,000.
5. REDEMPTION OF PREFERRED STOCK
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 the Preferred
Stock that would accrue after December 23, 1996. The redemption was financed
through the Facility.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparison of the three-month periods ended December 31, 1996 and
December 31, 1995
Sales for the three months ended December 31, 1996 increased 0.3% to $41.4
million, compared to $41.3 million for the same period in prior fiscal year.
The beer distributorship in Denver, Colorado was sold in October 1996. Beer
and beverage sales related to the Denver facility declined $1.2 million during
the first quarter as compared to the prior year as a result of the sale of the
operation. Sales from the core distribution business during the first quarter
increased by $1.3 million over the prior year as follows: Cigarette sales
increased $291,000 primarily due to price increases over the prior year. Food
service sales increased $274,000 primarily due to increased sales related to
the Company's branded food service program. Tobacco sales increased $221,000,
candy sales increased $285,000 and all other product sales increased by
$184,000 due to increase in the demand for such products from the customer
base.
Gross profit decreased 9.1% to $4.7 million for the three months ended December
31, 1996 from $5.2 million over the same period during the prior year. Gross
profit as a percent of sales declined to 11.3% for the quarter ended December
31, 1996 compared to 12.5% for the quarter ended December 31, 1995. The
decrease in gross profit was primarily attributable to the sale of the Denver
beer distributorship which accounted for a $441,000 reduction in gross profit,
and a $320,000 or 16.7% reduction in purchase discounts from cigarette
manufacturers on the Company's private label cigarettes. These reductions in
gross profit were offset by a $290,000 increase in gross profit from the
increased sales of cigarettes, tobacco, food service and other products.
Sales of the Company's private label cigarette have continued to decline since
1993 when cigarette manufacturers substantially reduced the price of premium
brand cigarettes. Management anticipates that the volume of private label
cigarettes could continue to decline by as much as 10% to 20%. If such a
decline is realized, gross profit from private label cigarette sales could
decrease annually by $150,000 to $300,000 in fiscal 1997 and 1998.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, decreased 8.6% or $375,000 to $4.0
million for the quarter ended December 31, 1996 compared to the same period in
fiscal 1995. The decrease was primarily due to the sale of the Denver beer
distributorship and the subsequent closing of the Denver facility. As a
percentage of sales, total operating expense decreased to 9.7% from 10.6%
during the same period in the prior year.
As a result of the above, income from operations for the quarter ended December
31, 1996 decreased $96,000 to $696,000.
Interest expense for the three months ended December 31, 1996 decreased 37.2%
over the same period in the prior year. The decrease was primarily due to a
$5.1 million reduction in the average amount borrowed under the Company's
revolving credit facility with a bank (the "Facility") during the period. The
Company was able to reduce average borrowings under the Facility as a result of
the cash generated from the sale of the Denver beer distributorship during the
quarter and the sale of a building in the fourth quarter of fiscal 1996.
Other income for the three months ended December 31, 1996 was generated
primarily by the gain associated with the sale of the Denver beer
distributorship of $1.1 million.
As a result of the above factors, net income attributable to common
shareholders during the three months ended December 31, 1996 was $976,967
compared to $300,142 for the three months ended December 31, 1995.
As described in Management's Discussion and Analysis in the Company's Annual
Report to Shareholders for the Fiscal Year Ended September 30, 1996, the
Company's operating income is subject to a number of factors which are beyond
the control of management, such as changes in manufacturers' cigarette pricing
which affects the market for generic and private label cigarettes. The Company
continues to remain dependent on cigarette sales which represent approximately
66% of its revenue. Net income remains heavily dependent on sales of the
Company's private label cigarettes and volume discounts received in connection
with such sales. The Company continues to evaluate various steps it may take to
improve net income in future periods, including acquisitions of distributing
companies and continued 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 December 31, 1996 is
as follows:
ESTIMATE OF GAIN
-------------------------------
December 31, September 30,
DESCRIPTION OF ASSET 1996 1996
-------------------- ------------ -------------
Investments (available-for-sale) $328,000 $686,000
Condominium & furnishings 450,000 450,000
Investments consist of 83,000 and 86,500 shares of Cayman Water Company Limited
(CWC), a public company which is listed on NASDAQ, at December 31, 1996 and
September 30, 1996, respectively. The Company's basis in the securities was
$151,000 and $157,000 and the fair market value of the securities was $479,000
and $843,000 on December 31, 1996 and September 30, 1996, respectively. The
fair market value of the securities on January 31, 1997 was $399,000. During
the quarter ended December 31, 1996, the Company sold 3,500 shares of CWC and
recognized a gain of approximately $28,000.
The condominium and furnishings consist of a condominium in the Cayman Islands
which is used in 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.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1996, the Company increased cash
flow from operating activities through increases in accounts payable due to
additions to the cigarette inventory to supply calendar year end promotions
offered by cigarette manufacturers. Cash was provided by investing activities
through the sale of the Denver, Colorado beer distributorship for $2.4 million
and was utilized in investing activities during the three month period ended
December 31, 1996 primarily to purchase water bottling assets for $457,000 and
to purchase additional delivery vehicles. Cash was utilized in financing
activities to make payments on the Facility and to redeem all of the Company's
outstanding Preferred Stock.
The Company had working capital of approximately $9.8 million as of December
31, 1996 compared to $11.6 million as of September 30, 1996. The Company's
debt to equity ratio was 2.85 at December 31, 1996 compared to 2.48 at
September 30, 1996.
The Facility allows the Company to borrow up to $10 million at any time with an
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. As of December 31,
1996, the Company had borrowed approximately $7.7 million under the Facility.
The Company also maintains a $1,250,000 non-revolving line of credit used to
finance the purchase of trucks and delivery equipment. Advances against the
non-revolving line of credit were $932,000 through December 31, 1996. The
amount available on the non-revolving line of credit was $318,000 at December
31, 1996. The line of credit is secured by a first lien on the delivery
vehicles purchased with the loan proceeds.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility and the non-revolving line of
credit, 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 Quarterly Report, including the Management's Discussion and Analysis and
other sections, contains forward looking statements that are subject to risks
and uncertainties and which reflect management's current beliefs and estimates
of future economic circumstances, industry conditions, company performance and
financial results. Forward looking statements include information concerning
the possible or assumed future results of operations of the Company and those
statements preceded by, followed by or include the words "future," "position,"
"anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve,"
"outlook," "should" or similar expressions. For these statements, we claim the
protection of the safe harbor for forward looking statements contained in the
Private Securities Litigation Reform Act of 1995. You should understand that
the following important factors, in addition to those discussed elsewhere in
this document, could affect the future results of the Company and could cause
those results to differ materially from those expressed in our forward looking
statements: changing market conditions with regard to cigarettes and the demand
for the Company's products, domestic regulatory risks, 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
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 is accounting for its stock-based employee compensation
plans and transactions in accordance with Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees."
PART II - OTHER INFORMATION
ITEM 6. 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 Purchase Agreement, dated November 29, 1989, between the Company, AMCON
Corporation and MLBC, Inc. (incorporated by reference to Exhibit 10.2
of the Company's Registration Statement on Form S-1 (Registration No.
33-82848) filed on August 15, 1994)
10.3 Restructuring Agreement, dated as of July 25, 1994, between the Company
and MLBC, Inc. (incorporated by reference to Exhibit 10.2 of the
Company's Registration on Form S-1 (Registration No. 33-82848) filed on
August 15, 1994)
10.4 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)
10.7 AMCON Distributing Company 1994 Stock Option Plan (incorporated by ref-
erence to Exhibit 10.7 of the Company's Registration Statement on Form
S-1 (Registration No. 33-82848) filed on August 15, 1994)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
10.12 Agreement, dated November 2, 1994, between Company and Cable Car
Beverage Corporation (incorporated by reference to Exhibit 10.12 of
Amendment No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-82848) filed on November 8, 1994)
11.1 Statement re: computation of per share earnings
27.0 Financial Data Schedules
(b) Reports on Form 8-K
A report on Form 8-K was filed on October 15, 1996 to report an Item 2
transaction regarding the sale of the Denver beer distributorship
assets. A report on Form 8-K/A was filed on December 3, 1996 to report
the same transaction and to include pro-forma financial statements for
the year ended September 30, 1996 reflecting such transaction.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: February 10, 1997 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & CEO and
Principal Executive Officer
Date: February 10, 1997 Michael D. James
----------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
EXHIBIT 11.1
AMCON Distributing Company
Statement of Computation of Per Share Earnings
For the three months ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
1. Weighted average common
shares outstanding 2,450,000 2,450,000
2. Weighted average treasury
shares outstanding (4,097) (4,097)
3. Weighted average of net
additional shares outstanding
assuming dilutive warrants
exercised and proceeds used
to purchase treasury stock 4,125 25,231
--------- ---------
4. Weighted average number of
common and common equivalent
shares outstanding 2,450,028 2,471,134
========= =========
5. Net income $ 976,967 $ 325,142
Accretion of preferred stock - (25,000)
--------- ---------
Net income attributable to
common shareholders $ 976,967 $ 300,142
========= =========
6. Earnings per common and
common equivalent share
attributable to common
shareholders $ 0.40 $ 0.12
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at December 31, 1996 and the Statement of Income for the Three Months
Ended December 31, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 17
<SECURITIES> 136
<RECEIVABLES> 10,858
<ALLOWANCES> 198
<INVENTORY> 7,804
<CURRENT-ASSETS> 18,857
<PP&E> 6,682
<DEPRECIATION> 3,185
<TOTAL-ASSETS> 23,848
<CURRENT-LIABILITIES> 9,058
<BONDS> 8,473
0
0
<COMMON> 25
<OTHER-SE> 6,166
<TOTAL-LIABILITY-AND-EQUITY> 23,848
<SALES> 41,375
<TOTAL-REVENUES> 41,375
<CGS> 36,684
<TOTAL-COSTS> 36,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 1,656
<INCOME-TAX> 679
<INCOME-CONTINUING> 977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 977
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
