-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DR8b/VWGWMxV8Eo1HXP99zzav5wqblt3OL/u3SnX5jkZf83t8gj0n/3Es2BTsud2 37G9WpwqQmhnC9tjkmrodw== 0000928465-96-000008.txt : 19961224 0000928465-96-000008.hdr.sgml : 19961224 ACCESSION NUMBER: 0000928465-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961223 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCON DISTRIBUTING CO CENTRAL INDEX KEY: 0000928465 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 470702918 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24708 FILM NUMBER: 96684623 BUSINESS ADDRESS: STREET 1: 10228 L ST STREET 2: POST OFFICE BOX 241230 CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4023313727 MAIL ADDRESS: STREET 1: 10228 L STREET STREET 2: POST OFFICE 241230 CITY: OMAHA STATE: NE ZIP: 68127 10-K 1 AMCON DISTRIBUTING COMPANY FORM 10-K, 9/30/96 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- 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 ------------------------------------- / / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to Commission File Number 0-24708 ------------ AMCON Distributing Company - ----------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 47-0702918 - -------------------------------- ------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) 10228 "L" Street, Omaha NE 68127 - ----------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (402) 331-3727 --------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None ---------------- ----------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value - ----------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any other amendment to this Form 10-K. / / 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 -------------------------- 1996 FORM 10-K ANNUAL REPORT ---------------------------- 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 6 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 -------- ----------- 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 ------- 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 EX-11.1 2 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 AMCON Distributing Company Statement of Computation of Per Share Earnings for the years ended September 30, 1996, 1995, and 1994
for the years ended September 30, -------------------------------------- 1996 1995 1994 ----------- --------- ----------- 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 =========== ========= ===========
EX-13.1 3 ANNUAL REPORT TO STOCKHOLDERS 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.
(Dollars in thousands, except per share data) - ------------------------------------------------------------------------------------------------------------ FISCAL YEAR ENDED SEPTEMBER 30, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------ 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
2
(Dollars in thousands) - ------------------------------------------------------------------------------------------------------------ FISCAL YEAR ENDED SEPTEMBER 30, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------ 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
- ------------------------ /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:
Fiscal Year Ended September 30, ------------------------------------ 1996 1995 1994 -------- -------- -------- 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% ======== ======== ========
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
- ------------------------------------------------------------------------------------------------------------ September 30, 1996 1995 - ------------------------------------------------------------------------------------------------------------ ASSETS 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 ============= ============
The accompanying notes are an integral part of these financial statements F-2 STATEMENTS OF INCOME AMCON Distributing Company
- ------------------------------------------------------------------------------------------------------------ Fiscal Year Ended September 30, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ 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
The accompanying notes are an integral part of these financial statements F-3 STATEMENTS OF SHAREHOLDERS' EQUITY AMCON Distributing Company
- ---------------------------------------------------------------------------------------------------------------- Preferred Stock Common Stock Additional ----------------------- ---------------------- Paid-In Shares Amount Shares Amount Capital - ---------------------------------------------------------------------------------------------------------------- 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 ======== ========= ========== ========= ===========
The accompanying notes are an integral part of these financial statements. F-4 STATEMENTS OF SHAREHOLDERS' EQUITY AMCON Distributing Company
- --------------------------------------------------------------------------------------------------------------- Unrealized Gain on Investments Available- Retained Treasury Stock for-sale Earnings Shares Amount Total - --------------------------------------------------------------------------------------------------------------- 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 ========== =========== ========== ========= ===========
The accompanying notes are an integral part of these financial statements. F-5 STATEMENTS OF CASH FLOWS AMCON Distributing Company
- ------------------------------------------------------------------------------------------------------------ Fiscal Year Ended September 30, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ 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 - -
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 - -----------------------------------------------
Net Amounts Balance at Provision (Written Off) Balance at Description Beginning of Period (Benefit) Other Recovered End of Period - ------------------ --------------------- --------- ----- ------------- ----------------------- 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
S-2 EX-27 4 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS SEP-30-1996 OCT-01-1995 SEP-30-1996 21 148 10,540 196 6,849 17,785 6,225 3,192 23,026 6,175 9,951 0 3 25 6,595 23,026 176,145 176,145 155,885 155,885 17,504 0 1,149 2,304 968 1,336 0 0 0 1,253 .51 .51
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