1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
/ / Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-24708
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AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
10228 "L" Street
Omaha, NE 68127
(Address of principal executive offices)
(Zip Code)
47-0702918
(I.R.S. Employer Identification No.)
(402) 331-3727
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The Registrant had 2,450,000 shares of its $.01 par value common stock
outstanding as of July 31, 1996.
2
Form 10-Q
3rd Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Balance sheets at June 30, 1996
and at September 30, 1995 3
Statements of income for the three and nine-month
periods ended June 30, 1996 and June 30, 1995 4
Statements of cash flows for the nine-month
periods ended June 30, 1996 and June 30, 1995 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
3
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company
Balance Sheets
June 30, 1996 and September 30, 1995
- - --------------------------------------------------------------------------------
(Unaudited)
June 30, September 30,
1996 1995
------------ ------------
ASSETS
Current assets:
Cash $ 33,952 $ 14,597
Marketable securities 235,081 237,926
Accounts receivable, less allowance
for doubtful accounts of $193,180
and $177,331 11,245,221 9,959,607
Note receivable from officer 125,000 125,000
Inventories 7,762,885 7,326,536
Deferred income taxes 33,746 33,746
Other 139,136 140,892
------------ ------------
Total current assets 19,575,021 17,838,304
Fixed assets, net 3,108,502 2,974,368
Investments 975,875 624,000
Other assets 1,392,226 1,482,728
------------ ------------
$ 25,051,624 $ 22,919,400
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,763,641 $ 3,761,935
Accrued expenses 708,474 587,244
Accrued wages, salaries and bonuses 205,089 357,380
Income taxes payable 571,031 319,303
Current portion of long-term debt 301,441 207,994
Current portion of subordinated debt - 506,932
------------ ------------
Total current liabilities 6,549,676 5,740,788
------------ ------------
Deferred income taxes 239,300 66,517
Long-term debt, less current portion 12,083,305 11,942,097
Subordinated debt, less current portion - 47,890
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, 250,000 shares issued and
outstanding (redemption value: $1,200,000) 2,500 2,500
Common stock, $.01 par value, 5,000,000 shares
authorized, 2,450,000 shares issued and
outstanding 24,500 24,500
Additional paid-in capital 3,402,995 3,327,995
Unrealized gain on investments available-
for-sale, net of $329,383 and $156,600 tax 454,862 234,900
Retained earnings 2,307,801 1,545,528
------------ ------------
6,192,658 5,135,423
Less treasury stock, 4,097 shares, at cost (13,315) (13,315)
------------ ------------
Total shareholders' equity 6,179,343 5,122,108
------------ ------------
$ 25,051,624 $ 22,919,400
============ ============
The accompanying notes are an integral part of these financial statements.
4
AMCON Distributing Company
Statements of Income
for the three and nine months ended June 30, 1996 and 1995
(Unaudited)
- - --------------------------------------------------------------------------------
Three months Nine months
ended June 30, ended June 30,
------------------------ -------------------------
1996 1995 1996 1995
Sales (including excise taxes
of $10.5 million, $10.3 million,
$29.4 million and $29.2 million,
respectively) $47,088,243 $45,271,112 $127,863,467 $122,746,885
Cost of sales 41,739,778 40,131,178 112,941,146 107,533,989
----------- ----------- ------------ ------------
Gross profit 5,348,465 5,139,934 14,922,321 15,212,896
Selling, general and administrative
expenses 4,153,615 4,085,950 12,333,836 12,012,763
Depreciation and amortization 204,950 201,291 589,662 544,498
----------- ----------- ------------ ------------
Income from operations 989,900 852,693 1,998,823 2,655,635
Other expense (income):
Interest expense 266,100 396,059 868,910 1,131,673
Other income, net (277,929) (14,228) (313,662) (27,841)
----------- ----------- ------------ ------------
Income before income taxes 1,001,729 470,862 1,443,575 1,551,803
Income tax expense 420,726 188,345 606,302 620,721
----------- ----------- ------------ ------------
Net income 581,003 282,517 837,273 931,082
Accretion of preferred stock (25,000) (25,000) (75,000) (75,000)
----------- ----------- ------------ ------------
Net income attributable
to common shareholders $ 556,003 $ 257,517 $ 762,273 $ 856,082
=========== =========== ============ ============
Earnings per common and common
equivalent share attributable
to common shareholders $ 0.23 $ 0.10 $ 0.31 $ 0.34
=========== =========== ============ ============
Weighted average common and common
equivalent shares outstanding 2,445,903 2,485,866 2,445,903 2,485,866
=========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
5
AMCON Distributing Company
Statements of Cash Flows
for the nine months ended June 30, 1996 and 1995
(Unaudited)
- - -------------------------------------------------------------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 837,273 $ 931,082
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 589,662 544,498
(Gain) loss on sales of fixed assets, buildings
held for sale, investments and trading
securities (233,737) 644
Proceeds from sale of trading securities 31,643 -
Purchases of trading securities (14,825) -
Deferred income taxes - 23,865
Changes in assets and liabilities:
Accounts receivable (1,285,614) (2,009,242)
Inventories (436,349) (570,857)
Other current assets 1,756 (132,067)
Other assets (36,000) (97,075)
Accounts payable 1,001,706 915,630
Accrued expenses and accrued wages,
salaries and bonuses (31,061) (531,246)
Income taxes payable 251,728 (407,364)
---------- ----------
Net cash provided by (used in) operating
activities 676,182 (1,332,132)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (428,158) (854,781)
Proceeds from sales of fixed assets and
buildings held for sale 148,517 62,117
Proceeds from sales of investments 190,008 -
---------- ----------
Net cash used in investing activities (89,633) (792,664)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 188,615 551,770
Net (payments) proceeds on bank credit agreement (27,345) 2,923,370
Payments on long-term and subordinated debt (728,464) (1,365,198)
---------- ----------
Net cash (used in) provided by
financing activities (567,194) 2,109,942
---------- ----------
Net increase (decrease) in cash 19,355 (14,854)
Cash, beginning of period 14,597 50,431
---------- ----------
Cash, end of period $ 33,952 $ 35,577
========== ==========
The accompanying notes are an integral part of these financial statements.
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AMCON Distributing Company
Notes to Financial Statements
June 30, 1996 and 1995
- - -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of AMCON Distributing Company
(the "Company") have been prepared on the same basis as the audited financial
statements for the year ended September 30, 1995, and, in the opinion of
management, contain all adjustments necessary to fairly present the financial
information included therein, such adjustments consist of normal recurring
items. It is suggested that these financial statements be read in conjunction
with the audited financial statements and notes thereto, for the fiscal year
ended September 30, 1995, which are included in the Company's Annual Report to
Stockholders filed with Form 10-K for September 30, 1995. Results for the
interim period are not necessarily indicative of results to be expected for the
entire year.
2. NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Net income attributable to common shareholders was computed under the treasury
stock method using the weighted average number of common shares and dilutive
common stock equivalent shares outstanding during the period.
3. SUBSEQUENT EVENT:
On August 1, 1996, the Company sold a building utilized for office and storage
space. The sales price was $450,000. The gain realized by the Company from the
sale, after reduction for selling expenses, is expected to be approximately
$250,000. The Company leased back a portion of the building as office space,
therefore, approximately $195,000 of the gain will be recognized in the fourth
quarter of the current year and approximately $55,000 of the gain will be
recognized over the life of the lease.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparison of the three-month and nine-month periods ended June 30, 1996 and
June 30, 1995
Sales for the three months ended June 30, 1996 increased 4.0% to $47.1 million,
compared to $45.3 million for the same period in fiscal 1995. Cigarette sales
increased $858,000 due to price increases from manufacturers during the quarter
and by consumers returning to premium brand cigarettes. Tobacco sales increased
$395,000, beverage sales decreased $303,000 as a result of disposing of the
Denver non-alcoholic beverage business, and other product sales, which include
candy, snacks, health and beauty care, food service and beer, etc., increased
$867,000 for the three months ended June 30, 1996 compared to the three months
ended June 30, 1995.
Sales for the nine months ended June 30, 1996 increased 4.2% to $127.9 million,
compared to $122.7 million for the same period in fiscal 1995. Cigarette sales
increased $2.9 million primarily due to price increases from manufacturers,
tobacco sales increased $947,000, beverage sales decreased $935,000, as a result
of disposing of the Denver non-alcoholic beverage business, and other product
sales increased $2.2 million for the nine months ended June 30, 1996 compared to
the nine months ended June 30, 1995.
Gross profit increased 4.1% to $5.3 million for the three months ended June 30,
1996 from $5.1 million over the same period during the prior year primarily due
to the increase in sales. Gross profit as a percent of sales remained at 11.4%
for the quarter ended June 30, 1996 compared to the quarter ended June 30, 1995.
Gross profit decreased 1.9% to $14.9 million for the nine months ended June 30,
1996 from $15.2 million over the same period during the prior year. Gross
profit as a percent of sales declined to 11.7% for the nine months ended June
30, 1996 compared to 12.4% for the nine months ended June 30, 1995. The
decrease in the Company's gross profit margin was primarily due to a $929,000
reduction in purchase discounts from the manufacturer of the Company's private
label cigarettes, offset by a $288,000 increase in purchase discounts on premium
brand and generic cigarettes. The amount of these discounts decreased as private
label cigarette sales continued to shift to premium brand cigarettes during 1995
and 1996. The shift is the result of the substantial price reductions on
premium brand cigarettes in 1993. Prices for premium-brand, generic and private
label cigarettes have stabilized and, in fact, increased slightly in recent
months. The price spread between brand categories has not increased since 1993.
Management expects that the volume of private label cigarettes will continue to
decline during 1996 and further reductions in the amount of purchase discounts
is anticipated as compared to prior years. Gross profit from other products
including, beer, candy, health and beauty care, store supplies, tobacco and food
8
service products increased by $605,000 for the nine months ended June 30, 1996.
This increase was partially offset by a $254,000 decrease in the gross profit
margin resulting primarily from reduced sales of nonalcoholic beverages from the
Denver facility due to its downsizing.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 1.7% or $71,000 to $4.4
million for the quarter ended June 30, 1996 compared to the same period in
fiscal 1995. The increase is primarily due to additional expenses associated
with the increase in sales. As a percentage of sales, total operating expense
decreased to 9.26% from 9.47% during the same period in the prior year.
Total operating expense increased 2.9% to $12.9 million from $12.6 million
during the first nine months of fiscal 1995. The increase is primarily due to
additional expenses associated with the increase in sales. Administrative
bonuses, legal and professional fees and additional property and casualty
insurance premiums increased by approximately $271,000 during the period, offset
by a reduction in rent expense of $110,000 due to subleasing a portion of the
Denver building. As a percentage of sales, total operating expense declined to
10.1% compared to 10.2% for the same period in the prior year.
As a result of the above, income from operations for the quarter ended June 30,
1996 increased $137,000 to $990,000 and for the nine months of fiscal 1996
decreased 24.7% to approximately $2.0 million.
Interest expense for the three months ended June 30, 1996 decreased 32.8% over
the same period in the prior year. The decrease was primarily due to the
repayment of $1.6 million of subordinated debt bearing interest at 14% per
annum. In addition, the average amount borrowed under the Company's revolving
credit facility with a bank (the "Facility")during the period decreased by
approximately $1.1 million.
For the nine months ended June 30, 1996 interest decreased 23.2% over the same
period in the prior year. The decrease was primarily due to the repayment of
subordinated debt bearing interest at 14% per annum in installments of $1.2
million in March and September 1995 and $400,000 in November 1995. In addition,
interest rates on the Facility were lower during the first nine months of fiscal
1996 than fiscal 1995.
Other income for the three and nine months ended June 30, 1996 was generated
primarily by gains on sales of investments of approximately $149,000 the gain on
sale of a building held for sale of approximately $49,000, and royalty payments
from the sale of the Denver non-alcoholic beverage business of approximately
$20,000.
As a result of the above factors, net income attributable to common shareholders
during the three months ended June 30, 1996 was $556,003 compared to net income
of $257,517 for the three months ended June 30, 1995. Net income attributable
to common shareholders during the nine months ended June 30, 1996 was $762,273
compared to net income of $856,082 for the same period of fiscal 1995.
9
As described in Management's Discussion and Analysis in the Company's Annual
Report to Shareholders for the Fiscal Year Ended September 30, 1995, the
Company's operating income is subject to a number of factors which are beyond
the control of management, such as changes in manufacturers' cigarette pricing
which affects the market for generic and private label cigarettes.
The Company continues to remain dependent on cigarette sales which represent
approximately 65% of its revenue. Net income is heavily dependent on sales of
the Company's private label cigarettes and volume discounts received in
connection with such sales. As sales of the Company's private label cigarettes
continue to decline, the Company is evaluating various steps it may take to
improve net income in future periods, including acquisitions of distributing
companies and continued sales of assets that are no longer essential to its
primary business activities, such as, marketable securities, investments and
certain real estate. An analysis of such assets held at June 30, 1996 is as
follows:
ESTIMATE OF GAIN
-----------------------------------
DESCRIPTION OF ASSET June 30, 1996 September 30, 1995
-------------------- ------------- ------------------
Investments (available for sale) $784,200 $ 323,000
Condominium & furnishings 400,000 400,000
Land and building 250,000 275,000
Investments consist of 105,500 shares of Cayman Water Company Limited (CWC), a
public company which is listed on NASDAQ. The Company's basis in the securities
is $191,200 and the fair market value of the securities was $976,000 and
$514,000 on June 30, 1996 and September 30, 1995, respectively. The fair market
value of the securities on July 31, 1996 was $936,000. During the quarter ended
June 30, 1996, the Company sold 22,500 shares of CWC and recognized a gain of
approximately $149,000.
The condominium and furnishings consist of a condominium in the Cayman Islands
which is used in furtherance of the Company's business marketing strategies.
The costs and benefits associated with retaining the condominium are being
evaluated in relation to the current business strategies of the Company.
Land and building consist of a former distribution facility which is utilized
for office and storage space. The Company is in need of the office space, but
could use other distribution centers for storage, if needed. On August 1, 1996,
the Company sold the land and building at a selling price of $450,000. The gain
realized by the Company from the sale, after reduction for selling expenses, was
approximately $250,000. The Company leased back a portion of the building as
office space, therefore, approximately $195,000 of the gain will be recognized
in the fourth quarter of the year and approximately $55,000 of the gain will be
recognized over the life of the lease.
10
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 1996, the Company increased cash flow from
operating activities through improved accounts receivable management.
Additionally, proceeds from sales of fixed assets, buildings and investments,
combined with fewer delivery vehicle purchases resulted in less cash used for
investing activities compared to the prior year.
The Company had working capital of approximately $13.0 million as of June 30,
1996 compared to $12.1 million as of September 30, 1995. The Company's debt to
equity ratio was 2.7 to 1.0 at June 30, 1996 compared to 3.4 to 1.0 at September
30, 1995.
The Facility allows the Company to borrow up to $15 million at any time with an
option to borrow up to an additional $3 million for a period of 90 days. The
Company may exercise this option up to twice per year. As of June 30, 1996, the
Company had borrowed approximately $12.1 million under the Facility.
The Company also maintains a $1,250,000 non-revolving line of credit used to
finance the purchase of trucks and delivery equipment. Advances against the
non-revolving line of credit were $915,000 through June 30, 1996. The amount
available on the non-revolving line of credit was $335,000 at June 30, 1996. The
line of credit is secured by a first lien on the delivery vehicles purchased
with the loan proceeds.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility and the non-revolving line of
credit, will provide sufficient liquidity to cover its debt service and any
reasonably foreseeable future working capital and capital expenditure
requirements.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on Form
S-1 (Registration No. 33-82848) filed on August 15, 1994)
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 (Registration No. 33-82848)
filed on August 15, 1994)
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on August 15, 1994)
10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993, between
the Company and Famous Value Brands, a division of Philip Morris
Incorporated, including Private Label Manufacturing Agreement and Amended
and Restated Trademark License Agreement (incorporated by reference to
Exhibit 10.1 of Amendment No. 1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.2
Purchase Agreement, dated November 29, 1989, between the Company, AMCON
Corporation and MLBC, Inc. (incorporated by reference to Exhibit 10.2 of
the Company's Registration Statement on Form S-1 (Registration No.
33-82848) filed on August 15, 1994)
10.3 Restructuring Agreement, dated as of July 25, 1994, between the Company
and MLBC, Inc. (incorporated by reference to Exhibit 10.2 of the
Company's Registration on Form S-1 (Registration No. 33-82848) filed on
August 15, 1994)
10.4 Credit and Security Agreement, dated July 25, 1994, between the Company
and Norwest Bank Minnesota, National Association (incorporated by
reference to Exhibit 10.4 of the Company's Registration Statement on
Form S-1 (Registration No. 33-82848) filed on August 15, 1994)
10.7 AMCON Distributing Company 1994 Stock Option Plan (incorporated by ref-
erence to Exhibit 10.7 of the Company's Registration Statement on Form
S-1 (Registration No. 33-82848) filed on August 15, 1994)
10.8 AMCON Distributing Company Profit Sharing Plan (incorporated by reference
to Exhibit 10.8 of Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-82848) filed on November 8,
1994)
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10.9 Employment Agreement, dated July 1, 1994, between the Company and William
F. Wright (incorporated by reference to Exhibit 10.9 of the Company's
Registration Statement on Form S-1 (Registration No. 33-82848) filed on
August 15, 1994)
10.10 Employment Agreement, dated July 1, 1994, between the Company and
Kathleen M. Evans (incorporated by reference to Exhibit 10.9 of the
Company's Registration Statement of Form S-1 (Registration No. 33-82848)
filed on August 15, 1994)
10.11 Consulting Agreement, dated July 1, 1994, between the Company and
Nebraska Distributing Company relating to services of J. Tony Howard
(incorporated by reference to Exhibit 10.10 of the Company's Registration
Statement on Form S-1 (Registration No. 33-82848) filed on August 15,
1994)
10.12 Agreement, dated November 2, 1994, between Company and Cable Car Beverage
Corporation (incorporated by reference to Exhibit 10.12 of Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on November 8, 1994)
11.1 Statement re: computation of per share earnings
27.0 Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: August 12, 1996 Kathleen M. Evans
--------------- -------------------------
Kathleen M. Evans
President & CEO and
Principal Executive Officer
Date: August 12, 1996 Michael D. James
--------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer