-----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, B7rZSROYjplhCMWk3lksnQZi0+m1GEXbqKHXoDZBXMBIUU4LuZT/ofX+C2xbxW+H +kMTtXqieQvtwhC5TZX8yw== 0000928465-97-000027.txt : 19971224 0000928465-97-000027.hdr.sgml : 19971224 ACCESSION NUMBER: 0000928465-97-000027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971223 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: SEC FILE NUMBER: 000-24708 FILM NUMBER: 97743223 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, 9/30/97 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, 1997 ----------------------------------- / / 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 12, 1997 was approximately $3.25. As of December 12, 1997 there were 2,449,903 shares of common stock outstanding. - Documents Incorporated by Reference - --------------------------------------- Portions of the 1997 Annual Report to Stockholders are incorporated therein by reference into Parts I, II and IV. Portions of the Proxy Statement pertaining to the February 19, 1998 Annual Stockholders' Meeting are incorporated herein by reference into Part III. 1 AMCON DISTRIBUTING COMPANY -------------------------- 1997 FORM 10-K ANNUAL REPORT ---------------------------- Table of Contents Page ---- PART I Item 1. Business.........................................................3 Item 2. Properties.......................................................7 Item 3. Litigation and Regulatory Proceedings............................8 Item 4. Submission of Matters to Vote of Security Holders................8 Item 4A. Executive Officers of the Company................................9 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters..............................................9 Item 6. Selected Financial Data..........................................9 Item 7. Management's Discussion of Analysis of Financial Condition and Results of Operations.............................10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk......10 Item 8. Financial Statements and Supplementary Data.....................10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................10 PART III Item 10. Directors and Executive Officers of the Registrant..............10 Item 11. Executive Compensation................................ .........11 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................................11 Item 13. Certain Relationships and Related Transactions....................................................11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................12 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 approximately 1,200 distributors of such products in the United States based on 1996 sales volume. From its inception, the Company pursued a strategy of growth through acquisition. 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, Proctor & Gamble, Hershey, Mars, William Wrigley and Planters-Lifesavers. The Company also markets private label lines of cigarettes, tobacco, snuff, water and candy products. While cigarettes accounted for approximately 66% of the Company's sales 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 8,500 customers and no single account represented more than 5% of ADC's total revenues during fiscal 1997. 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 self-service health and beauty programs, grocery products and custom food service programs 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. 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 3 period ("inventory turns") for the same level of sales. Inventory turns improved from 16.3 times in fiscal 1994, 17.5 times in fiscal 1995 and 21.2 times in fiscal 1996 to 21.8 times in fiscal 1997. 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 eight distribution centers located in Kansas, Missouri, Nebraska, North Dakota, South Dakota, and Wyoming. These distribution centers contain a total of approximately 242,100 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 92 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. Since 1981, the Company has acquired 20 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. On November 15, 1996, ADC purchased a water bottling business from American Star Water Company, Inc. located in Arkansas. The assets of the business were relocated to the Company's facility in Springfield, Missouri and ADC began bottling drinking water for sale to its customers and other distributors in January 1997. Subsequent to year end, the Company purchased the assets of a traditional candy and tobacco distribution company in St. Louis MO, thereby expanding the Company's market area to include eastern Missouri, Illinois and Indiana. In addition, the Company purchased all of the outstanding stock of a Phoenix, AZ based company that distributes health and natural food products in the western United States. PRINCIPAL PRODUCTS CIGARETTES AND TOBACCO. Sales of cigarettes and the gross margin derived therefrom for the fiscal years ending September 30, 1997, 1996, and 1995 are set forth below: (Dollars in Millions) Fiscal Year Ended September 30, ------------------------------------ 1997 1996 1995 ------ ------ ------ Sales $117.6 $112.5 $108.7 Gross Margin 10.8 10.8 11.4 Gross Margin Percentage 9.2% 9.6% 10.5% Revenues from the sale of cigarettes during fiscal 1997 increased by approximately 4.6% as compared to fiscal 1996, while gross profit from the sale of cigarettes remained constant during the same period (see "MANAGEMENT'S DISCUSSION AND ANALYSIS-Results of Operations-Year Ended September 30, 1997 Versus Year Ended September 30, 1996" in the Annual Report to Stockholders for 4 the Fiscal Year Ended September 30, 1997). Sales of cigarettes represented approximately 66% of the Company's sales volume during fiscal 1997. 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 late 1980's and early 1990's 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 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 the significant reduction in demand for private label cigarettes since 1993. The volume of private label cigarettes declined by 22% during 1997. The Company believes that there will continue to be a market for its 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 20% to 30% in fiscal 1998. 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 $15.7 million during fiscal 1997 and represented approximately 8.7% 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. CONFECTIONERY. Candy and related confectionery items constitute ADC's second largest-selling product line, representing approximately 12.1% of the Company's total sales volume during fiscal 1997. Sales of confectionery items and the gross margin derived therefrom for the fiscal years ending September 30, 1997, 1996 and 1995 are set forth below: (Dollars in Millions) Fiscal Year Ended September 30, ------------------------------------- 1997 1996 1995 ----- ----- ----- Sales $21.8 $20.6 $19.4 Gross Margin 3.0 3.0 2.5 Gross Margin Percentage 13.8% 14.6% 13.1% 5 The Company supplies customers with over 1,900 different types of candy and related products, including chocolate bars, cookies, chewing gum, nuts and other snack items. 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 seven 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 1997, the Company sold its Denver beer distributorship, which accounted for $6.3 million in sales in fiscal 1996. Excluding sales of beer products from the Denver beer distributorship, ADC's sales of other product increased $1.4 million or 6.5%. During fiscal 1997 the gross profit margin on these types of products was 17.5%, compared to a 9.2% 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 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, 1997, the Company had 352 full-time and part-time employees in the following areas: Managerial 12 Administrative 41 Sales & Marketing 76 Warehouse 162 Delivery 61 --- Total Employees 352 === 6 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 eight principal distribution centers operated by ADC as of September 30, 1997 are set forth below: Location Square Feet -------- ----------- Aberdeen, South Dakota 13,500 Bismarck, North Dakota 9,600 Casper, Wyoming 19,100 Hutchinson, Kansas 3,500 Olathe, Kansas 7,500 Omaha, Nebraska 70,300 Rapid City, South Dakota 21,600 Springfield, Missouri 97,000 ------- Total 242,100 ======= 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 leased to a third party. 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, 1997). The Company leases its remaining distribution facilities, various offices and certain equipment under noncancelable operating leases. Leases for the seven distribution facilities leased by the Company have terms expiring from 1998 to 2002. Minimum future lease commitments for these properties and equipment total approximately $1,925,000 as of September 30, 1997. On November 1, 1996, the Company vacated its 31,950 square foot Hutchinson, KS distribution facility and leased a 3,500 square foot facility which operates as a cross-dock distribution point. At the end of fiscal 1997, the Company was in the process of constructing an addition of approximately 18,500 square feet to its Bismarck, ND distribution facility. The construction is expected to be completed in December 1997, at which time, the Company plans to down-size its Aberdeen, SD facility and operate it as a cross-dock distribution point serviced by the Bismarck facility. Effective October 10, 1997, the Company leased a 70,000 square foot facility in St. Louis, Missouri in connection with the asset purchase of a distribution business in St. Louis. Also, effective November 10, 1997, the Company purchased all of the outstanding stock of Food For Health Company, Inc., which operates in a 130,000 square foot facility in Phoenix, AZ (see Note 13 in the Annual Report to Stockholders for the Fiscal Year Ended September 30, 1997). 7 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 $787,800 as of September 30, 1997. 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 Item 13 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." 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, 1997. 8 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 executive officers of ADC are as follows: Name Age Position ---- --- -------- William F. Wright 55 Chairman of the Board and Chief Corporate Officer, Director Kathleen M. Evans 50 President and Chief Executive Officer, Director Michael D. James 36 Secretary, Treasurer and Chief Financial Officer 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 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 since 1985. From 1978 until 1985, Ms. Evans acted in various capacities with AMCON Corporation and its operating subsidiaries. MICHAEL D. JAMES became Treasurer and Chief Financial Officer of ADC in June 1994. In November 1997, he assumed the responsibilities of Secretary of the Company. 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. 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, 1997 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, 1997 under the heading "Selected Financial Data" on pages 2 and 3. 9 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, 1997 under the heading "Managements Discussion and Analysis" on pages 5 through 11. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The requirements of this Item 7A are not applicable to the Company prior to its Annual Report filed on Form 10-K for the period ending September 30, 1998. 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, 1997 on pages F-1 through F-17. 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 1998 Annual Meeting of Stockholders (the "Proxy Statement") 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, William F. Wright, Matthew F. Wright, and Mark A. Wright, each of which was a more than ten percent owner of the Company's outstanding Common Stock, and Michael D. James and Chris M. Pudenz, each of which was an officer of the Company, failed to file, on a timely basis, Statement of Changes of Beneficial Ownership (Form 4), 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. 10 ITEM 11. EXECUTIVE COMPENSATION. The Proxy Statement 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 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 Proxy Statement 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. The Proxy Statement contains under the caption "Certain Relationships and Related Transactions" the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(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, 1997 is attached as Exhibit 13. Reference Page Annual Stockholders Report Report of Independent Accountants F-1 Balance Sheets as of September 30, 1997 and 1996 F-2 Statements of Income for the Years Ended September 30, 1997, 1996, and 1995 F-3 Statements of Shareholders' Equity for the Years Ended September 30, 1997, 1996 and 1995 F-4 Statements of Cash Flows for the Years Ended September 30, 1997, 1996 and 1995 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 (3) EXHIBITS 2.1 Stock Purchase Agreement dated November 3, 1997, between the Company and FFH Holdings, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on November 25, 1997) 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 12 (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 Amendment to Credit and Security Agreement, dated October 10, 1997, between the Company and Norwest Bank Minnesota, National Association 10.4 Loan Agreement, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on November 25, 1997) 10.5 Note, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed on November 25, 1997) 10.6 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) 10.7 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) 10.8 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) 10.9 Employment Agreement, dated July 1, 1994, between the Company and Kathleen M. Evans (incorporated by reference to Exhibit 10.9 of the Company's Registration Statement of Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.10 Consulting Agreement, dated July 1, 1994, between the Company and Nebraska Distributing Company relating to services of J. Tony Howard (incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.11 Asset Purchase Agreement, dated October 2, 1996, between the Company and Western Distributing Company (incorporated by reference to the Company's Current Report on Form 8-K filed on October 15, 1996) 10.12 Purchase Agreement, dated September 6, 1997, between the Company and Marcus Distributors, Inc. (incorporated by reference to the Company's Current Report on Form 8-K filed on October 24, 1997) 13 11.1 Statement re: computation of per share earnings 13.1 Annual Report to Stockholders for the Fiscal Year Ended September 30, 1997 23.1 Consent of Coopers & Lybrand L.L.P. 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, 1997. 14 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, 1997. AMCON DISTRIBUTING COMPANY By: /s/ Kathleen M. Evans ---------------------- Kathleen M. Evans, President 15 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, 1997. 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, - ------------------------ Treasurer and Secretary (Principal Michael D. James Financial and Accounting Officer) /s/ J. Tony Howard Director - ------------------------ J. Tony Howard /s/ Allen D. Petersen Director - ------------------------ Allen D. Petersen Director - ------------------------ Jerry Fleming 16 EX-10.3 2 AMENDMENT TO CREDIT AND SECURITY AGREEMENT EXHIBIT 10.3 FOURTH AMENDMENT TO CREDIT AGREEMENT This amendment is made effective as of the 10th day of October, 1997 by and between AMCON Distributing Company, a Delaware corporation (the "Borrower"), and Norwest Bank Minnesota, National Association, a national banking association (the "Lender"). RECITALS The Borrower and the Lender have entered into a Credit and Security Agreement dated as of July 25, 1994, (as amended, the "Credit Agreement"). The Lender has agreed to make certain loan advances to the Borrower pursuant to the terms and conditions set forth in the Credit Agreement. The loan advances under the Credit Agreement are evidenced by the Borrower's revolving note dated as of December 31, 1996, in the maximum principal amount of $13,000,000 and payable to the order of the Lender (the "Note"). All indebtedness of the Borrower to the Lender is secured pursuant to the terms of the Credit Agreement and all other Security Documents as defined therein (collectively, the "Security Documents"). The Borrower has requested that certain amendments be made to the Credit Agreement, which the Lender is willing to make pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 1. Terms used in this Amendment which are defined in the Credit Agreement shall have the same meanings as defined therein, unless otherwise defined herein. 2. A. The following definitions set forth in Section 1.1 of the Credit Agreement are hereby amended as follows or to read as follows, as the case may be: "BORROWING BASE" means, at any time and subject to change from time to time in the Lender's sole discretion, the lesser of (a) the Commitment, or (b) the sum of (i) eighty five percent (85%) of Eligible Accounts, plus (ii) (I) for the period from October 10, 1997 until and including April 10, 1998 the sum of (1) seventy five percent (75%) of the value of Eligible Cigarette Inventory up to $4,750,000, plus (2) one hundred percent (100%) of the value of Eligible Cigarette Inventory in excess of $4,750,000 (provided, that the maximum amount which may be advanced against Eligible Cigarette Inventory at the 100% advance rate shall be limited to $10,000,000), and (II) after April 10, 1998, seventy five percent (75%) of the value of Eligible Cigarette Inventory, plus (iii) fifty percent (50%) of the value of Other Eligible Inventory. "COLLATERAL" is amended to add the phrase "Investment Property," after the word "Inventory" and before the word "and". "COMMITMENT" means (unless said amount is reduced pursuant to Section 2.4(b) hereof; in which event it means the amount to which said amount is reduced), $25,000,000 until and including April 10, 1998, and $15,000,000 and after April 10, 1998, provided, however, that subject to the other terms and conditions contained herein and so long as no Default or Event of Default has occurred, the Borrower may on or after May 1, 1998, increase such amount in excess of $15,000,000 but in no event in excess of $18,000,000, upon written notice to the Lender and provided further, however, that such increase shall be subject to the condition that such amount may only be increased twice during any fiscal year of the Borrower for, in each case, a maximum period of up to ninety (90) consecutive calendar days and at the end of any such increase, the amount of the Commitment shall return to $15,000,000." "NOTE" means that certain Second Amended and Restated Revolving Note dated effective as of October 10, 1997 executed by the Borrower and payable to the order of the Lender in the original principal amount of $25,000,000." "TERMINATION DATE" means January 31, 2000." B. The following definition is hereby added to Section 1.1 of the Loan Agreement: "INVESTMENT PROPERTY" means all of the Borrower's investment property including, without limitation, securities, securities entitlements, financial assets and certificates of deposit of the Borrower and all funds of the Borrower on deposit with and all property in the possession of the Lender or any depository institution, each whether now owned or hereafter acquired." C. Section 2.2 of the Credit Agreement is hereby amended to delete the third sentence thereof. D. The second sentence of Section 2.5 of the Credit Agreement is hereby amended in its entirety to read as follows: "Without limiting the generality of the foregoing, (i) as of April 10, 1998, the "Commitment" shall automatically reduce from $25,000,000 to $15,000,000 and the Borrower shall immediately prepay the Advances to the extent necessary to reduce the sum of the outstanding principal balance of the Advances to the Borrowing Base, and (ii) at the end of any period for which the Commitment has been increased from $15,000,000 to $18,000,000, the Borrower shall immediately prepay the Advances to the extent necessary to reduce the sum of the outstanding principal balance of the Advances to the Borrowing Base." E. Section 2.11(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) The Borrower agrees to pay the Lender a commitment fee at the rate of one-quarter of one percent (.25%) per annum on the average daily unused amount of the Commitment from the date hereof to and including the date on which such facility is terminated, due and payable monthly in arrears on the first day of each month occurring on or after the date hereof, provided that any such commitment fee remaining unpaid upon termination of the Credit Facility or acceleration of the Note by the Lender pursuant to Section 8.2 hereof shall be due and payable on the date of such termination or acceleration. Such fee shall be calculated on the basis of actual days elapsed in 360 day year." F. Section 6.12 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 6.12 FIXED CHARGE COVERAGE RATIO. The Borrower will at all times maintain (exclusive of any Subsidiaries or Affiliates unless the Lender specifically consents in writing to their inclusion in such calculation), a Fixed Charge Coverage Ratio (calculated monthly using the average of the preceding 12 months actual results) of at least 1.1 to 1.0 until and including January 31, 1998, and at least 1.15 to 1.0 from February 1, 1998 until and including January 31, 1999; and 1.2 to 1.0 thereafter." G. Section 6.13 is hereby amended in its entirety to read as follows: "Section 6.13 INTEREST COVERAGE RATIO. The Borrower will at all times maintain (exclusive of any Subsidiaries or Affiliates unless the Lender specifically consents in writing to their inclusion in such calculation), an Interest Coverage Ratio (calculated monthly using the average of the preceding 12 months actual results) of at least 1.5 to 1.0." H. Section 6.15 is hereby amended in its entirety to read as follows: "Section 6.15 MINIMUM NET INCOME. The Borrower will at all times maintain (exclusive of any Subsidiaries or Affiliates unless the Lender specifically consents in writing to their inclusion in such calculation), Net Income calculated as of the last day of each fiscal year of the Borrower of at least $1,000,000." I. Section 7.10 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 7.10 CAPITAL EXPENDITURES. The Borrower will not make or contract to make Capital Expenditures in excess of $1,250,000 in the aggregate during any fiscal year, whether such Capital Expenditures are payable currently or in the future; provided, however, that in addition to said $1,250,000 limit, the Borrower may incur up to an additional $600,000 in Capital Expenditures so long as such additional Capital Expenditures consist of fixtures and improvements permanently affixed to the real property upon which the Borrower's Bismarck, North Dakota facility is located (and not including any equipment or other capital assets to be located in such premises but not permanently affixed therto)." 3. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any advance thereunder. 4. The Lender hereby consents to the acquisition by the Borrower of certain of the assets of Marcus Distributors, Inc. pursuant to that certain agreement of sale and purchase dated as of September 6, 1997. 5. This Amendment shall be effective upon receipt by the Lender of an executed original hereof, together with each of the following, each in substance and form acceptable to the Lender in its sole discretion: (a) The second amended and restated revolving note duly executed on behalf of the Borrower (the "Replacement Note"). (b) Certificate of the Secretary of the Borrower certifying as to (i) the resolutions of the board of directors of the Borrower approving the execution and delivery of this Amendment, the Replacement Note and all prior amendments (ii) the fact that the Articles of Incorporation and Bylaws of the Borrower, which were certified and delivered to the Lender pursuant to the Certificate of the Borrower's Secretary dated as of July 25, 1994 in connection with the execution and delivery of the Credit Agreement continue in full force and effect and have not been amended or otherwise modified except as set forth in the Certificate to be delivered, and (iii) certifying that the officers and agents of the Borrower who have been certified to the Lender, pursuant to the Certificate of the Borrower's Secretary dated as of July 25, 1994, as being authorized to sign and to act on behalf of the Borrower continue to be so authorized or setting forth the sample signatures of each of the officers and agents of the Borrower authorized to execute and deliver this Amendment and all other documents, agreements and certificates on behalf of the Borrower. (c) A UCC-1 financing statement duly executed by the Borrower for filing in St. Louis County, Missouri. (d) UCC-3 amendments duly executed by the Borrower amending the existing financing statements filed in Green County, Missouri, and with the Secretaries of State of the States of Nebraska, Missouri, Kansas, North Dakota, South Dakota, and Wyoming, which amendments will amend the description of the collateral covered by the prior filings to include Investment Property. (e) A landlord's disclaimer and consent agreement, duly executed by the landlord of the Borrower's new facility at 4815 North Lindbergh Boulevard, St. Louis, Missouri, 63044, together with a copy of the lease for such premises. (f) An acknowledgment of security interest and waiver of liens (warehouse) duly executed by the warehousemen of the Borrower's new bonded warehouse facility at 7402 L Street, Omaha, NE together with the consent of the Borrower thereto. 6. The Borrower hereby represents and warrants to the Lender as follows: (a) The Borrower has requisite power and authority to execute this Amendment and the Replacement Note and to perform all of it obligations hereunder, and this Amendment and the Replacement Note have been duly executed and delivered by the Borrower and constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms. (b) The execution, delivery and performance by the Borrower of this Amendment and the Replacement Note have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected. (c) All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. 7. All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. Upon the satisfaction of each of the conditions set forth in paragraph 5 hereof, the definition of "Note" and all references thereto in the Credit Agreement and the Security Documents shall be deemed amended to describe the Replacement Note, which Replacement Note shall be issued by the Borrower to the Lender in replacement, renewal and amendment, but not in repayment, of the Note. 8. The execution of this Amendment and acceptance of the Replacement Note and any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Amendment. 9. The Borrower hereby absolutely and unconditionally releases and forever discharges the Lender, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which the Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown. 10. The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Credit Agreement, the Security Documents and all other documents contemplated thereby, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses. 11. This Amendment and the Acknowledgment and Consent of Participants may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed effective as of the day and year first above written. AMCON DISTRIBUTING COMPANY By: Michael D. James ----------------- Its: CFO ------------ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: Patricia Lodholz ------------------- Its: Vice President -------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed effective as of the day and year first above written. AMCON DISTRIBUTING COMPANY By: Michael D. James ---------------- Its: CFO ----------- NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: Patricia Lodholz -------------------- Its: Vice President --------------- ACKNOWLEDGMENT AND CONSENT OF PARTICIPANTS The undersigned, Norwest Business Credit, Inc., a Minnesota corporation ("NBCI") and Norwest Bank Nebraska, National Association, a national banking corporation ("Nebraska"), have each purchased participation interests in, among other things, all "Loans" made under the Credit Agreement, pursuant to, respectively, that certain Participation and Servicing Agreement (Pro Rate Basis) dated as of November 3, 1994 by and between the Lender and NBCI, and that certain Participation Agreement (Pro Rate Basis) dated as of November 3, 1994 by and between NBCI and Nebraska, and each hereby acknowledges the foregoing amendments, and consents to such amendments. NORWEST BUSINESS CREDIT, INC. By: Gary P. Yakel ------------------ Its: Vice President -------------- NORWEST BANK NEBRASKA, NATIONAL ASSOCIATION By: James D. Vokal, Jr. ------------------ Its: Asst. VP ------------- EX-11.1 3 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, 1997, 1996, and 1995
Primary Earning Per Share for the years ended September 30, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- 1. Weighted average common shares outstanding 2,449,903 2,445,903 2,449,357 2. Weighted average of net additional shares outstanding assuming dilutive warrants exercised and proceeds used to purchase treasury stock 3,024 - 28,690 ----------- ----------- ----------- 3. Weighted average number of common and common equivalent shares outstanding 2,452,927 2,445,903 2,478,047 =========== =========== =========== 4. Net income $ 1,940,534 $ 1,336,374 $ 921,560 Accretion of preferred stock - (83,333) (100,000) ----------- ----------- ----------- Net income attributable to common shareholders $ 1,940,534 $ 1,253,041 $ 821,560 =========== =========== =========== 5. Earnings per common and common equivalent share attributable to common shareholders $0.79 $0.51 $0.33 =========== =========== ===========
Fully-diluted Earnings Per Share for the years ended September 30, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- 1. Weighted average common shares outstanding 2,449,903 2,445,903 2,449,357 2. Weighted average of net additional shares outstanding assuming dilutive warrants exercised and proceeds used to purchase treasury stock 8,000 - 28,690 ----------- ----------- ----------- 3. Weighted average number of common and common equivalent shares outstanding 2,457,903 2,445,903 2,478,047 =========== =========== =========== 4. Net income $ 1,940,534 $ 1,336,374 $ 921,560 Accretion of preferred stock - (83,333) (100,000) ----------- ----------- ----------- Net income attributable to common shareholders $ 1,940,534 $ 1,253,041 $ 821,560 =========== =========== =========== 5. Earnings per common and common equivalent share attributable to common shareholders $0.79 $0.51 $0.33 =========== =========== ===========
EX-13.1 4 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13.1 Annual Report to Stockholders for the Fiscal Year Ended September 30, 1997 TO OUR SHAREHOLDERS: Fiscal 1997 was another year of records for AMCON -- record sales and record earnings. It was also a year in which your Company continued to demonstrate its commitment to becoming one of America's premier full-line distributors of consumer convenience products. Although we remain disappointed in the financial market's perception of the valuation of the Company, we believe that will change. FINANCIAL REVIEW The new sales record of $179.0 million was achieved despite the sale of our Denver operation early in the fiscal year. Although much of our increase in earnings was also attributable to that sale, it is noteworthy that core earnings were steady despite the ongoing decline in sales and gross margins in our private label tobacco products. Operating efficiencies improved during the year as did inventory turnover rates, reflecting management's ongoing program to enhance productivity throughout the Company's facilities. STRATEGIES We have recently made two acquisitions which we expect will add significantly to our results in fiscal 1998 and beyond. First, in October 1997, we acquired the assets of Marcus Distributors, Inc., based in St. Louis, Missouri. This acquisition expands the Company's geographic territory and adds efficiencies to our existing Springfield, Missouri warehouse. We continue to look for other acquisition opportunities in our traditional distribution business. Second, in November 1997, we acquired all of the capital stock of Food For Health Company, Inc. (FFH), a Phoenix, Arizona-based distributor of health foods and related products throughout much of the Western United States. This acquisition represents our entry into a new product category, one that is growing rapidly as more and more consumers become health-conscious. We are very pleased with the quality and commitment of the people associated with FFH. Jerry Fleming, a highly-regarded veteran of the health food distribution industry and Chief Executive Officer of FFH, was recently added to the Company's Board of Directors, replacing William Hoppner who resigned to pursue political office. THE FUTURE In conjunction with the FFH acquisition, we are presently in the process of restructuring the Company by placing our traditional distribution business into a newly-formed subsidiary. When the restructuring is complete, the Company will be, in essence, a holding company with two operating subsidiaries, one focusing on the traditional product categories , and one focusing on health-related products. At the same time, we will be making some other changes as well, including the reallocation of responsibilities within our management team and a possible change in the Company's name to reflect the new structure. Although change is never easy, we firmly believe that these moves will best position your Company strategically to grow both the traditional distribution business and the health food business, while at the same time allowing us to realize synergies as and when they become apparent. If we sound excited about our future, its because we are. In addition to thanking you, our shareholders, for you continuing support, we want to express our thanks and appreciation to the hundreds of employees at every level of our operation. As always, dedicated people are our greatest asset. William F. Wright Kathleen M. Evans Chairman President 1 SELECTED FINANCIAL DATA The selected financial data presented below have been derived from the Company's audited financial statements. 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, 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Sales................................... $ 178,991 $ 176,145 $ 169,790 $ 170,143 $ 150,514 Cost of sales........................... 159,435 155,885 149,756 147,533 130,727 --------- --------- --------- --------- --------- Gross profit............................ 19,556 20,260 20,034 22,610 19,787 Operating expense....................... 16,753 17,504 17,183 18,859 15,678 --------- --------- --------- --------- --------- Income from operations.................. 2,803 2,756 2,851 3,751 4,109 Interest expense........................ 867 1,149 1,543 1,553 1,770 Other (income) expense, net............. (1,353) (697) (228) 36 136 --------- --------- --------- --------- --------- Income before income taxes, extraordinary item.................... 3,289 2,304 1,536 2,162 2,203 Income before extraordinary item....... 1,941 1,336 922 1,297 1,322 Extraordinary item...................... - - - (295)/1/ - --------- --------- --------- --------- --------- Net income.............................. 1,941 1,336 922 1,002 1,322 Accretion of warrants /2/............... - - - (133) (814) Accretion of preferred stock /3/ ....... - (83) (100) (17) - --------- --------- --------- --------- --------- Net income attributable to common shareholders .................. $ 1,941 $ 1,253 $ 822 $ 852 $ 508 ========= ========= ========= ========= ========= Net income per common and common equivalent share attributable to common shareholders: Income before extraordinary item (net of accretion)........... $ 0.79 $ 0.51 $ 0.33 $ 0.46 $ 0.22 Extraordinary item.................. $ - $ - $ - $ (0.12) $ - --------- --------- --------- --------- --------- Net income.......................... $ 0.79 $ 0.51 $ 0.33 $ 0.34 $ 0.22 ========= ========= ========= ========= ========= Weighted average shares outstanding.......................... 2,452,927 2,445,903 2,478,047 2,491,996 2,260,573
2
(Dollars in thousands) - ------------------------------------------------------------------------------------------------------------ FISCAL YEAR ENDED SEPTEMBER 30, 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Working capital ....................... $ 11,158 $ 11,572 $ 12,098 $ 10,971 $ 12,130 Total assets............................ 23,497 23,026 22,919 23,476 24,524 Long-term obligations and subordinated debt /4/............................... 9,123 10,245 12,705 13,206 14,525 Shareholders' equity.................... 7,208 /7/ 6,621 5,122 4,097 /5/ 1,959 /6/
- ------------------------ /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 had the right to redeem the preferred stock at any time after April1, 1996 for $1,200,000. The preferred stock accreted to the redemption price in lieu of cash dividends and was redeemed in December 1996. /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. /7/ Reflects redemption of preferred stock described in footnote 3 above for $1,200,000 in December 1996. 3 MARKET FOR COMMON STOCK The Company's Common Stock trades on the NASDAQ SmallCap Market under the symbol "DIST". The following table reflects the range of the high and low prices per share of the Company's Common Stock reported by NASDAQ for the years ended September 30, 1997 and 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 12, 1997, the Company had approximately 1,000 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, 1997: 4th Quarter $ 3.38 $ 1.50 3rd Quarter 2.28 1.50 2nd Quarter 2.75 1.75 1st Quarter 2.75 1.50 Year ended September 30, 1996: 4th Quarter $ 2.50 $ 1.50 3rd Quarter 2.63 1.88 2nd Quarter 3.13 1.75 1st Quarter 3.00 2.25 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, 1997, 1996, and 1995:
Fiscal Year Ended September 30, ------------------------------------ 1997 1996 1995 -------- -------- -------- Sales.......................................... 100.0% 100.0% 100.0% Cost of sales.................................. 89.1 88.5 88.2 ------- -------- -------- Gross profit................................... 10.9 11.5 11.8 Selling, general and administrative expense.... 8.9 9.5 9.7 Depreciation and amortization.................. 0.5 0.4 0.4 -------- -------- -------- Income from operations......................... 1.5 1.6 1.7 Interest expense............................... 0.5 0.7 0.9 Other (income) expense, net.................... (0.8) (0.4) (0.1) -------- -------- -------- Income before income taxes..................... 1.8 1.3 0.9 Income tax expense............................. 0.7 0.5 0.4 -------- -------- -------- Net income..................................... 1.1 0.8 0.5 Accretion of warrants/ preferred stock........................... 0.0 (0.1) 0.0 -------- -------- -------- Net income attributable to common shareholders....................... 1.1% 0.7% 0.5% ======== ======== ========
5 YEAR ENDED SEPTEMBER 30, 1997 VERSUS YEAR ENDED SEPTEMBER 30, 1996. Sales for the year ended September 30, 1997 increased 1.6% to $179.0 million, compared to $176.1 million for the year ended September 30, 1996. Beer and beverage sales related to the Denver facility decreased $6.3 million during the year ended September 30, 1997 as compared to the prior year as a result of disposing of the operation in October 1996. Sales from the core distribution business increased by $9.1 million for the year ended September 30, 1997 compared to the prior year as follows: Cigarette sales increased $5.1 million primarily due to price increases from manufacturers over the prior year. Food service sales increased $841,000 due to increased sales related to the Company's branded food program. Tobacco sales increased $1.4 million, candy sales increased $719,000 and all other product sales increased $1.0 million due to increase in demand for such products from the customer base. Gross profit decreased 3.5% to $19.6 million for the year ended September 30, 1997 from $20.3 million in fiscal 1996. Gross profit as a percent of sales declined to 10.9% for the year ended September 30, 1997 compared to 11.5% for the prior fiscal year. The decrease in the Company's gross profit margin was primarily due to the sale of the Denver beer distributorship which accounted for a $1.3 million reduction in gross profit and a $771,000 or 14.8% reduction in purchase discounts from manufacturers on the Company's private label cigarettes. These reductions in gross profit were offset by a $1.4 million increase in gross profit from the increased sales of cigarette, tobacco, candy and other products. Sales of the Company's private label cigarettes have continued to decline since 1993 when cigarette manufacturers substantially reduced the price of premium brand cigarettes. Although price increases in cigarettes over the past two years have had a positive impact on gross profit from premium cigarettes, sales in the private label category have not shown improvement and continue to decline. The volume of private label cigarettes declined by 22% during fiscal 1997. Management anticipates that the volume of private label cigarettes could continue to decline by as much as 20% to 30%. If such a decline is realized, gross profit from private label cigarette sales could decrease annually by $200,000 to $400,000 in fiscal 1998 and 1999. Total operating expense decreased 4.3% to $16.8 million from $17.5 million during fiscal 1996. The decrease was primarily due to the sale of the Denver beer distributorship and the subsequent closing of the Denver facility which accounted for a reduction in operating expenses of $1.6 million. This reduction was offset by an increase of $848,000 in operating expense by the other distribution centers which was incurred to support the increase in sales. As a percentage of sales, total operating expense declined to 9.4% for the year ended September 30, 1997 compared to 9.9% for fiscal 1996. As a result of the above, income from operations for the fiscal year ended September 30, 1997 increased 1.7% to $2.8 million. Interest expense for the fiscal year ended September 30, 1997 decreased 24.5%, or $282,000, compared to fiscal 1996. The decrease was primarily due to a $3.1 million reduction in the average amount borrowed under the Company's revolving credit facility with a bank (the "Facility") during the fiscal year ended September 30, 1997, as compared to fiscal 1996. Notwithstanding the $499,000 borrowed to finance the purchase and installation of the water bottling assets from November 1996 through January 1997 and the $1.2 million borrowed to finance the purchase of the Company's outstanding preferred stock in December 6 1996, the Company was able to reduce average borrowings under the Facility as a result of the cash generated from the sale of the Denver beer distributorship during the first quarter of fiscal 1997 and the sale of a building in the fourth quarter of fiscal 1996. Other income for the year ended September 30, 1997 was generated primarily by the gain associated with the sale of the Denver beer distributorship of $1.1 million. As a result of the above factors, net income attributable to common shareholders for the fiscal year ended September 30, 1997 was $1,940,534 compared to net income of $1,253,041 for fiscal 1996. 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 66% 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, 1997 and 1996 is as follows: ESTIMATE OF GAIN ----------------------------------------- DESCRIPTION OF ASSET September 30, 1997 September 30, 1996 - -------------------- ------------------ ------------------ Investments (available for sale) $ 409,500 $ 686,200 Condominium & furnishings 480,000 450,000 Investments consisted of 83,000 and 86,500 shares of Cayman Water Company Limited (CWC) at September 30, 1997 and 1996, respectively, a public company which is listed on NASDAQ. The Company's basis in the securities was $151,000 and $157,000, and the fair market value of the securities was $560,000 and $843,000 on September 30, 1997 and September 30, 1996, respectively. During the fiscal year ended September 30, 1997, the Company sold 3,500 shares of CWC and recognized a gain of approximately $27,600. 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. 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, 1997 would have been $480,000. The costs and benefits associated with retaining the condominium are being evaluated in relation to the current business strategies of the Company. The Company relies heavily on technology to operate in an efficient manner. As the millennium approaches, the Company is preparing all of its computer systems to be Year 2000 compliant. A taskforce has been assembled to review all systems to ensure that they do not malfunction as a result of the Year 2000. In this process, the Company expects to both replace some systems and upgrade others. The current cost of this effort is still being evaluated. 7 While this is a substantial effort, it will give the Company the benefit of new technology and further improve the efficiency of the operational and office systems. 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 cigarettes 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. 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. 8 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 $1,120,000 and $2,566,000 for the fiscal years ended September 30, 1997 and 1996, respectively. Capital expenditures during those periods equaled approximately $892,000 and $723,000, respectively. The remaining cash provided by operations was applied to debt service. The Company anticipates that capital expenditures during fiscal 1998 will be approximately $1,900,000 and will be used for construction of an addition to the Bismarck, ND distribution facility and for the purposes stated above. The Company had working capital of approximately $11.1 million as of September 30, 1997. The Company's ratio of debt to equity was 2.26 at September 30, 1997 compared to 2.48 at September 30, 1996. The Company has a revolving credit facility (the "Facility") with a bank allowing the Company to borrow up to $10 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, 1997, the Company had borrowed approximately $8.1 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 October 10, 1997 in order to provide financing to support the operation of a new distribution facility in St. Louis, Missouri (See Note 13). The amendment increased the borrowing limit to $15,000,000 with an option to borrow an additional $3,000,000 for a 90-day period twice a year. The amendment also provided for an additional $10 million facility which expires in April 1998 and is collateralized by specific inventory. In addition, the credit agreement was extended to expire January 2000. 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 1998 and 1997, the Facility includes covenants that (i) restrict capital expenditures to $1,250,000 during the year, except for expenditures related to the construction of the addition to the Bismarck, ND distribution facility, (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 (1.15 to 1.0 from February 1, 1998 through January 31, 1999), 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 without the consent of the lender of the Facility. As of September 30, 1997 the Company was in compliance with all covenants under the Facility. 9 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 to $1,250,000. The bank's base rate at September 30, 1997 was 8.50%. 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 $811,000 at September 30, 1997. The line of credit is collateralized by a first lien on the delivery vehicles purchased with the loan proceeds. 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, 1997, the Company had additional outstanding long-term indebtedness of approximately $190,000 consisting of a capital lease for computer equipment, the current portion of which equaled approximately $47,000. The interest rate on the note relating to such indebtedness is 9.5% per annum. On November 10, 1997, the Company purchased all of the outstanding stock of Food For Health Company, Inc. ("FFH"), a distributor of health and natural foods based in Phoenix, AZ, for $4.4 million in cash. The acquisition was funded by a $4.5 million five year term loan from a bank. The loan bears interest at LIBOR plus 1.75% and requires monthly payments of $75,000 plus accrued interest. The loan is collateralized by the common stock of FFH. 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 10 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. 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, 1997 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, 1997 and 1996, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Omaha, Nebraska December 1, 1997 F-1 BALANCE SHEETS AMCON Distributing Company
- ------------------------------------------------------------------------------------------------------------ September 30, 1997 1996 - ------------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash $ 26,973 $ 21,497 Marketable securities 127,786 148,113 Accounts receivable, less allowance for doubtful accounts of $206,249 and $195,961 10,788,979 10,344,002 Note and interest receivable from officer 130,795 144,695 Inventories 7,183,245 6,849,515 Deferred income taxes 119,017 75,209 Other 84,616 164,777 ------------- ------------- Total current assets 18,461,411 17,747,808 Fixed assets, net 3,608,891 3,033,257 Investments 560,250 843,375 Other assets 866,749 1,401,153 ------------- ------------- $ 23,497,301 $ 23,025,593 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 4,764,816 $ 4,102,868 Accrued expenses 906,282 675,958 Accrued wages, salaries and bonuses 719,962 459,873 Income taxes payable 579,802 643,568 Current portion of long-term debt 332,338 293,665 ------------- ------------- Total current liabilities 7,303,200 6,175,932 ------------- ------------- Deferred income taxes 195,458 276,556 Long-term debt, less current portion 8,790,524 9,951,495 Commitments (Note 12) Shareholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none and 250,000 shares outstanding as of September 30, 1997 and 1996, respectively - 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 2,213,828 3,411,328 Unrealized gain on investments available-for-sale, net of $171,985 and $288,227 tax 237,503 398,028 Retained earnings 4,732,603 2,798,569 ------------- ------------- 7,208,434 6,634,925 Less treasury stock, 97 shares and 4,097 shares, respectively, at cost (315) (13,315) ------------- ------------- Total shareholders' equity 7,208,119 6,621,610 ------------- ------------- $ 23,497,301 $ 23,025,593 ============= =============
The accompanying notes are an integral part of these financial statements F-2 STATEMENTS OF INCOME AMCON Distributing Company
- ----------------------------------------------------------------------------------------------------------- Fiscal Year Ended September 30, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Sales (including excise taxes of $40.1 million, $ 178,990,978 $ 176,144,966 $ 169,790,387 $40.7 million and $40.5 million, respectively) Cost of sales 159,434,631 155,885,022 149,756,786 ------------- ------------- ------------- Gross profit 19,556,347 20,259,944 20,033,601 Selling, general and administrative expenses 15,883,969 16,682,845 16,421,558 Depreciation and amortization 868,744 820,672 761,356 ------------- ------------- ------------- 16,752,713 17,503,517 17,182,914 ------------- ------------- ------------- Income from operations 2,803,634 2,756,427 2,850,687 Other expense (income): Interest expense 867,327 1,149,162 1,543,297 Other (income) expense, net (1,352,733) (696,828) (228,543) ------------- ------------- ------------- (485,406) 452,334 1,314,754 ------------- ------------- ------------- Income before income taxes 3,289,040 2,304,093 1,535,933 Income tax expense 1,348,506 967,719 614,373 ------------- ------------- ------------- Net income 1,940,534 1,336,374 921,560 Accretion of preferred stock - (83,333) (100,000) ------------- ------------- ------------- Net income attributable to common shareholders $ 1,940,534 $ 1,253,041 $ 821,560 ============= ============= ============= Income (loss) per common and common equivalent share attributable to common shareholders: $ 0.79 $ .51 $ .33 ============= ============= ============= Weighted average common and common equivalent shares outstanding 2,452,927 2,445,903 2,478,047 ============= ============= =============
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, 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 Unrealized gain on investments available-for-sale, net of tax - - - - - Redemption of preferred stock (250,000) $(2,500) - - (1,197,500) Issuance of treasury stock - - - - - Net income - - - - - -------- ------- --------- -------- ----------- Balance, September 30, 1997 - - 2,450,000 $ 24,500 $ 2,213,828 ======== ======= ========= ======== ===========
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, 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 Unrealized gain on investments available-for-sale, net of tax (160,525) - - - (160,525) Redemption of preferred stock - - - - (1,200,000) Issuance of treasury stock - (6,500) 4,000 13,000 6,500 Net income - 1,940,534 - - 1,940,534 --------- ----------- ------ --------- ----------- Balance, September 30, 1997 $ 237,503 $ 4,732,603 97 $ 315 $ 7,208,119 ========= =========== ====== ========= ===========
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, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 1,940,534 $ 1,336,374 $ 921,560 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 868,744 820,672 761,356 Treasury stock received as a dividend - - (13,315) Gain on sales of fixed assets, land held for sale and securities (112,520) (588,659) (111,693) Gain on sale of Denver beer distributorship (1,102,205) - - Proceeds from sales of trading securities 92,548 147,993 - Purchases of trading securities - (14,825) - Deferred income taxes (8,664) 36,948 181,700 Changes in assets and liabilities: Accounts and interest receivable (912,323) (404,090) (711,771) Inventories (771,978) 477,021 1,700,526 Other current assets 80,161 (23,885) (71,008) Other assets (42,648) (78,397) (104,911) Accounts payable 661,948 340,933 (27,592) Accrued expenses and accrued wages, salaries and bonuses 490,413 191,207 (367,457) Income taxes payable (63,766) 324,265 (751,896) ----------- ----------- ----------- Net cash provided by operating activities 1,120,244 2,565,557 1,405,499 ----------- ----------- ----------- Cash flows from investing activities: Purchases of fixed assets (891,783) (723,308) (942,808) Purchase of water bottling assets (499,109) - - Proceeds from sales of fixed assets 160,961 516,162 63,417 Advances to officer - - (125,000) Proceeds from repayment of advance to officer 25,000 - - Proceeds from sale of Denver beer distributorship 2,371,994 - - Proceeds from sales of available-for-sale securities 33,967 357,170 64,182 ----------- ----------- ----------- Net cash provided by (used in) investing activities 1,201,030 150,024 (940,209) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from borrowings of long-term debt 516,741 188,615 726,267 Net (payments) proceeds on bank credit agreement (1,239,484) (2,082,930) 1,409,642 Payments on long-term and subordinated debt (399,555) (814,366) (2,637,033) Redemption of preferred stock (1,200,000) - - Proceeds from issuance of treasury stock 6,500 - - ----------- ----------- ----------- Net cash used in financing activities (2,315,798) (2,708,681) (501,124) ----------- ----------- ----------- Net increase (decrease) in cash 5,476 6,900 (35,834) Cash, beginning of year 21,497 14,597 50,431 ----------- ----------- ----------- Cash, end of year $ 26,973 $ 21,497 $ 14,597 =========== =========== =========== Supplemental cash flow information: Cash paid during the year for interest $ 868,378 $1,199,396 $ 1,543,591 Cash paid during the year for income taxes 1,420,936 714,696 1,139,620 Supplemental noncash information: Accretion of preferred stock - 83,333 100,000 Unrealized gain on available-for-sale securities, net (160,525) 163,128 182,400 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 Kansas, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. 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 66% 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 26, 1997, September 27, 1996 and September 29, 1995. Each fiscal year was comprised of 52 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 $1,988,915 and $1,797,734 at September 30, 1997 and 1996, 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). 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. F-7 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 redistributed 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. 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 options, using the treasury stock method. Earnings used in the calculation are reduced by accretion on preferred stock. (See Note 6). Fully-diluted earnings per share are not presented since the dilutive effect is less that 3% of primary earnings per share. Financial Accounting Standards No. 128, EARNINGS PER SHARE (FASB 128): FASB 128 was issued in February 1997 and is effective for financial statements issued for fiscal periods ending after December 15, 1997. The standard revises the calculation and presentation of earnings per share and requires the presentation of "basic earnings per share" and "diluted earnings per F-8 share." Management believes the amount reported as earnings per share in the accompanying income statement would approximate basic earnings per share under FASB 128 and that diluted earnings per share would be less than 1% dilutive. Long Lived Assets: The Company reviews goodwill and other long lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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. 2. Fixed Assets, Net: Fixed assets at September 30, 1997 and 1996 consisted of the following: 1997 1996 ----------- ----------- Land and buildings $ 490,955 $ 130,676 Condominium and furnishings 1,228,801 1,210,859 Warehouse equipment 2,283,580 1,727,834 Furniture, fixtures and leasehold improvements 1,288,773 1,335,777 Vehicles 1,775,999 1,820,370 ----------- ----------- 7,068,108 6,225,516 Less accumulated depreciation 3,459,217 3,192,259 ----------- ----------- $ 3,608,891 $ 3,033,257 =========== =========== Included in land and buildings is a warehouse leased to a third party. Future minimum rentals are $14,205 and $7,103 in fiscal 1998 and 1999, respectively. 3. Marketable Securities and Investments: Investments in equity securities at September 30, 1997 and 1996 consisted of the following: September 30, 1997 ------------------------------------ Unrealized Market Cost Gain Value --------- --------- --------- Marketable securities(trading) $ 39,700 $ 88,086 $ 127,786 ========= ========= ========= Investments (available-for-sale) $ 150,762 $ 409,488 $ 560,250 ========= ========= ========= F-9 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 ========= ========= ========= The Company realized gains on the sale of available-for-sale investments of $27,600, $281,789 and $26,882 in fiscal 1997, 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 which was included in the determination of net income for the period. The Company recognized gains of $72,222 and $42,455 on trading securities during 1997 and 1996, respectively. Subsequent to fiscal year end, the Company sold the balance of its trading securities for $157,200, recognizing a gain of $29,400. 4. Other Assets: Other assets at September 30, 1997 and 1996 consisted of the following: 1997 1996 --------- ----------- Goodwill (less accumulated amortization of $238,810 and $335,794) $ 585,238 $ 985,716 Covenants not to compete (less accumulated amortization of $232,666 and $169,041) 2,333 65,959 Cash surrender value of life insurance policies 279,178 236,529 Buildings held for sale - 112,949 --------- ----------- $ 866,749 $ 1,401,153 ========= =========== 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 $41,926, $68,381 and $68,299 for the years ended September 30, 1997, 1996, and 1995, respectively. During 1997, the Company disposed of goodwill in the amount of $358,553 (net) in connection with the sale of the Denver beer distributorship. The covenants not to compete are amortized using the straight-line method over 2-5 year terms of the related agreements. Amortization expense was $63,625, $65,500 and $53,000 for the years ended September 30, 1997, 1996 and 1995, respectively. The building held for sale was leased to a third party during 1997 and transferred to fixed assets on the balance sheet. F-10 5. Long-term Obligations: Long-term obligations at September 30, 1997 and 1996 consisted of the following: 1997 1996 ----------- ----------- Credit agreement with a bank, interest payable monthly at the bank's base rate (8.50 at September 30, 1997); principal due January 2000 $ 8,122,086 $ 9,361,570 Nonrevolving line of credit, interest payable monthly (at rates ranging between 8.00% and 8.50% at September 30, 1997); principal due in monthly installments through December 2001 collateralized by delivery vehicles 810,859 637,320 Promissory note, interest payable quarterly at 8%; principal due in quarterly installments through February 1997 - 16,422 Obligations under capital lease, payable in monthly installments at 9.5% through April 2001 (Note 11) 189,917 228,967 Other - 881 ----------- ----------- 9,122,862 10,245,160 Less current portion 332,338 293,665 ----------- ----------- $ 8,790,524 $ 9,951,495 =========== =========== 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 $10,000,000 ($15,000,000 in 1996) with an option to borrow an additional $3,000,000 for a 90-day period twice a year. Advances made under the Facility are limited to a "borrowing base" determined by various percentages of eligible accounts receivable and inventory. The agreement bears interest at the bank's base rate. At September 30, 1997 and 1996, the unused portion of the credit agreement was $1,877,914 and $5,638,430, respectively. The Company is required to pay a commitment fee of 0.25% of the unused amount of the primary commitment. The credit agreement contains 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 (1.15 to 1.0 from February 1, 1998 through January 31, 1999), an F-11 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, 1997, the Company was in compliance with all covenants described above. The credit agreement was amended effective October 10, 1997 in order to provide financing to support the operation of a new distribution facility in St. Louis, Missouri (See Note 13). The amendment increased the borrowing limit to $15,000,000 with an option to borrow an additional $3,000,000 for a 90-day period twice a year. The amendment also provided for an additional $10 million facility which expires in April 1998 and is collateralized by specific inventory. In addition, the credit agreement was extended to expire January 2000. The above long-term obligations, excluding obligations under the capital lease, have the maturities as follows (See Note 11): Year ending September 30 - ------------------------ 1998 $ 285,639 1999 258,656 2000 8,281,209 2001 98,819 2002 8,622 ---------- $8,932,945 ========== 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, 1997 and 1996. 6. Preferred Stock: In June 1994, the Company issued 250,000 shares of Series A Cumulative Redeemable Convertible Preferred Stock (the "Preferred Stock") to the holder of a senior subordinated note. The note was repaid in November 1995. Dividends related to the preferred stock were to begin to accrue on February 4, 1997, at an annual rate of $.576 per share and were to be payable as and when declared by the Board of Directors. The Company could redeem the Preferred Stock at any time after April 1, 1996 at a price of $4.80 per share or $1,200,000. The Preferred Stock was accreted to the redemption price in lieu of cash dividends. The Preferred Stock was 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 redeemed all 250,000 shares of the Preferred Stock on December 23, 1996 for $1,200,000. F-12 7. Other (Income) Expense: Other (income) expense consisted of the following for the years ended September 30, 1997, 1996 and 1995: 1997 1996 1995 ---------- ---------- ---------- Dividends $ (13,909) $ (8,658) $ (31,321) Rent income (14,462) (12,462) (15,886) Royalties (34,568) (34,628) - Gain on marketable securities and investments (99,831) (324,244) (122,832) Loss (gain) from disposition of fixed assets (12,689) (264,516) 11,140 Gain on sale of beer distributorship and distribution rights (1,102,205) - (35,000) Other (75,069) (52,320) (34,644) ----------- ---------- ---------- $(1,352,733) $ (696,828) $ (228,543) =========== ========== ========== On October 4, 1996, the Company sold all beverage products and inventory manufactured or supplied to 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 $1,102,205. The Company then closed the Denver distribution facility. 8. Income Taxes: Components of income tax expense (benefit) for the fiscal years ended September 30, 1997, 1996 and 1995 consisted of the following: 1997 1996 1995 ----------- ---------- ---------- Current: Federal $ 1,201,058 $ 865,764 $ 385,077 State 156,112 65,003 47,596 ----------- ---------- ---------- 1,357,170 930,767 432,673 ----------- ---------- ---------- Deferred: Federal (7,689) 34,215 161,712 State (975) 2,737 19,988 ----------- ---------- ---------- (8,664) 36,952 181,700 ----------- ---------- ---------- Provision for income taxes $ 1,348,506 $ 967,719 $ 614,373 =========== ========== ========== F-13 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 taxes is as follows for the fiscal years ended September 30, 1997, 1996 and 1995: 1997 1996 1995 ----------- ---------- ---------- Tax at statutory rate $ 1,118,274 $ 783,392 $ 522,217 Amortization of goodwill 14,255 21,300 22,692 Nondeductible business expenses 15,207 17,504 17,040 State income taxes, net of federal tax benefit 102,397 44,708 44,605 Other 98,373 100,815 7,819 ----------- ---------- ---------- $ 1,348,506 $ 967,719 $ 614,373 =========== ========== ========== 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, 1997 and 1996 relate to the following: 1997 1996 ---------- ---------- Deferred tax assets: Current: Allowance for doubtful accounts $ 75,892 $ 71,939 Accrued vacation 29,896 32,330 Net operating loss carryforwards 36,796 36,640 Inventory 64,458 27,138 Other 16,174 16,136 ---------- ---------- 223,216 184,183 Noncurrent: Net operating loss carryforwards 146,388 182,759 ---------- ---------- Total deferred tax assets $ 369,604 $ 366,942 ========== ========== Deferred tax liabilities: Current: Unrealized gains on marketable securities $ 32,412 $ 28,785 Excess book over tax trade discounts 71,787 80,189 ---------- ---------- 104,199 108,974 ---------- ---------- Noncurrent: Excess tax over book depreciation 169,861 161,923 Unrealized gains on investments available-for-sale 171,985 288,227 Other - 9,165 ---------- ---------- 341,846 459,315 ---------- ---------- Total deferred tax liabilities $ 446,045 $ 568,289 ========== ========== F-14 Net deferred tax assets (liabilities): Current $ 119,017 $ 75,209 Noncurrent (195,458) (276,556) ---------- ---------- $ (76,441) $ (201,347) ========== ========== The Company did not record any valuation allowances against deferred tax assets at September 30, 1997 or 1996 because management believes future taxable income will more likely than not be sufficient to realize such amounts. The net operating loss was acquired in connection with the acquisition of Sheya Brothers in 1993. The utilization of the net operating loss of $498,000 at September 30, 1997 is limited (by Internal Revenue Code Section 382) to approximately $100,000 per year through 2002. 9. 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 $143,098, $196,552 and $181,343, (net of employee forfeitures) to the profit sharing plan during the years ended September 30, 1997, 1996, and 1995, respectively. 10. Related Party Transactions: In 1995, the Company made an advance of $125,000 to an officer of the Company. The balance of the note receivable, plus accrued interest was $130,795 and $144,695 at September 30, 1997 and 1996, respectively. Total interest recognized on the advance was $11,100 and $19,695 in fiscal 1997 and 1996, respectively. The note was paid in full in December 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, 1997. The Company was charged $60,000 by AMCON Corporation ("AMCON"), the former parent of the Company for each of the years ended September 30, 1997, 1996 and 1995, 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 Corporation 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, 1997 would have been $480,000. 11. Commitments: The Company leases certain office equipment under a capital lease. The carrying value of these assets was $ 189,917 and $228,967 as of September 30, 1997 and 1996, respectively, net of accumulated amortization of $63,943 and $24,893. F-15 The Company leases various office and warehouse facilities and equipment under noncancelable operating leases. Rent charged to expense during the years ended September 30, 1997, 1996 and 1995 under such lease agreements was $644,753, $731,944 and $892,202, respectively. As of September 30, 1997, minimum future lease commitments are as follows: Year ending September 30, Capital Operating Lease Lease ---------- ---------- 1998 $ 62,735 $ 546,835 1999 62,735 374,303 2000 62,735 290,093 2001 36,590 248,422 2002 - 15,850 Thereafter - 224,450 ---------- ---------- Total minimum lease payments 224,795 $1,699,953 Less amount representing interest 34,878 ========== ---------- Present value of net minimum lease payments $ 189,917 ========== 12. 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 the Stock Option Plan is 300,000. On December 15, 1995, options to purchase 22,000 shares of common stock were issued to management employees at an exercise price of $2.78. On September 27, 1996, such options were canceled and reissued 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 initial grant date. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined on the fair value at the grant date for awards issued in or subsequent to 1995 consistent with the provisions of SFAS 123, the Company's net income and earnings per share on a pro forma basis would have been as follows: 1997 1996 1995 ----------- ----------- ----------- Net income - as reported $ 1,940,534 $ 1,253,041 $ 821,560 Net income - pro forma $ 1,940,534 $ 1,240,451 $ 821,560 Earnings per share - as reported $ 0.79 $ 0.51 $ 0.33 Earnings per share - pro forma $ 0.79 $ 0.50 $ 0.33 The above pro forma results are not likely to be representative of the effects on reported net income for future years since additional awards are made periodically. F-16 The fair value of the weighted average of each year's option grants is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996: dividend yield of 0%; expected volatility of 58.91%; risk free interest rate based on U.S. Treasury strip yield at the date of grant of 6.74%; and expected lives of 7.0 years. The table below summarizes information about stock options outstanding at of the following fiscal year ends:
September 30, 1997 September 30, 1996 September 30, 1995 ------------------ ------------------ ------------------ Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise ------------------ ------------------ ------------------ Shares Price Shares Price Shares Price --------- ------- --------- ------- --------- ------- Outstanding beginning of period 22,000 $1.63 - - - - Granted - - 44,000 $2.21 - - Exercised (4,000) $1.63 - - - - Forfeited/Expired (2,000) $1.63 (22,000) $2.78 - - --------- ------- --------- ------- --------- ------- Outstanding exercisable at end of period 16,000 $1.63 22,000 $1.63 - - ========= ======= ========= ======= ========= ======= Shares available for options that may be granted 280,000 278,000 300,000 ========= ========= ========= Weighed-average grant date fair value of options, granted during the period - exercise price equals stock market price at grant - $1.08 - ======= ======= =======
As of September 30, 1997, the weighted-average remaining contractual life of the options was 8.3 years. 13. Subsequent Events On October 10, 1997, the Company purchased certain inventory and fixed assets from Marcus Distributors, Inc. ("Marcus") of St. Louis, Missouri for $2.8 million in cash. In addition, the Company entered into a five year lease agreement with Marcus to lease a distribution facility in St. Louis, Missouri. The acquisition was funded through borrowings on the Facility, which was increased in October 1997 to accommodate the purchase. On November 10, 1997, the Company purchased all of the outstanding stock of Food For Health Company, Inc. ("FFH"), a distributor of health and natural foods based in Phoenix, AZ, for $4.4 million in cash. The acquisition was funded by a $4.5 million five year term loan from a bank. The loan bears interest at LIBOR plus 1.75% and requires monthly payments of $75,000 plus accrued interest. The loan is collateralized by the common stock of FFH. F-17 DIRECTORS AND CORPORATE OFFICERS DIRECTORS William F. Wright /1/ Chairman and Chief Corporate Officer Kathleen M. Evans President and Chief Executive Officer Jerry Fleming President and Chief Executive Officer of Food For Health Company, Inc. J. Tony Howard /1/ /2/ President of Nebraska Distributing Company Allen D. Petersen /1/ /2/ Chairman and Chief Executive Officer of American Tool Companies, Inc. /1/ Audit Committee /2/ Compensation Committee CORPORATE OFFICERS William F. Wright Chairman and Chief Corporate Officer Kathleen M. Evans President and Chief Executive Officer Michael D. James Secretary, Treasurer and Chief Financial Officer 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 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. 1299 Landmark Center Omaha, Nebraska 68102 ANNUAL STOCKHOLDERS' MEETING To be determined 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, Secretary, 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 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, 1997, 1996 and 1995. 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, 1997 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, 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 Oct 1, 1996 195,961 11,357 - (1,069) Sep. 30, 1997 206,249
S-2 EX-23.1 5 CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of AMCON Distributing Company on Form S-8 of our report dated December 1, 1997, on our audits of the financial statements and financial statement schedules of AMCON Distributing Company as of September 30, 1997 and 1996, and for each of the three years in the period ended September 30, 1997, which report is incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Omaha, Nebraska December 22, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheet at September 30, 1997 and the Statement of Income for the Year Ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS SEP-30-1997 OCT-01-1996 SEP-30-1997 27 128 10,995 206 7,183 18,461 7,068 3,459 23,497 7,303 8,791 0 0 25 7,183 23,497 178,991 178,891 159,435 159,435 0 0 867 3,289 1,349 1,941 0 0 0 1,941 .79 .79
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