0001104659-13-003429.txt : 20130118 0001104659-13-003429.hdr.sgml : 20130118 20130118162337 ACCESSION NUMBER: 0001104659-13-003429 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20130118 DATE AS OF CHANGE: 20130118 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15589 FILM NUMBER: 13537829 BUSINESS ADDRESS: STREET 1: 7405 IRVINGTON ROAD STREET 2: POST OFFICE BOX 641940 (68164-7940) CITY: OMAHA STATE: NE ZIP: 68122 BUSINESS PHONE: 4023313727 MAIL ADDRESS: STREET 1: 7405 IRVINGTON ROAD STREET 2: POST OFFICE BOX 641940 (68164-7940) CITY: OMAHA STATE: NE ZIP: 68122 10-Q 1 a12-28840_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2012

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from             to             

 

Commission File Number 1-15589

 


 

GRAPHIC

(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.)

 

 

 

7405 Irvington Road, Omaha NE

 

68122

(Address of principal executive offices)

 

(Zip code)

 

Registrant’s telephone number, including area code: (402) 331-3727

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

 

The Registrant had 623,115 shares of its $.01 par value common stock outstanding as of January 14, 2013.

 

 

 



Table of Contents

 

Form 10-Q

1st Quarter

 

INDEX

 

 

 

PAGE

PART I — FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements:

 

 

Condensed consolidated balance sheets at December 31, 2012 (unaudited) and September 30, 2012

 

3

 

 

 

Condensed consolidated unaudited statements of operations for the three months ended December 31, 2012 and 2011

 

4

 

 

 

Condensed consolidated unaudited statements of cash flows for the three months ended December 31, 2012 and 2011

 

5

 

 

 

Notes to condensed consolidated unaudited financial statements

 

7

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

Item 4. Controls and Procedures

 

21

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

22

 

 

 

Item 1A. Risk Factors

 

22

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

 

Item 3. Defaults Upon Senior Securities

 

23

 

 

 

Item 4. Mine Safety Disclosures

 

23

 

 

 

Item 5. Other Information

 

23

 

 

 

Item 6. Exhibits

 

23

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1.      Financial Statements

 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2012 and September 30, 2012

 

 

 

December
 2012

 

September
 2012

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

34,802

 

$

491,387

 

Accounts receivable, less allowance for doubtful accounts of $1.3 million and $1.2 million at December 2012 and September 2012, respectively

 

32,335,062

 

32,681,835

 

Inventories, net

 

49,705,411

 

38,364,621

 

Deferred income taxes

 

1,618,414

 

1,916,619

 

Prepaid and other current assets

 

7,355,045

 

6,476,702

 

Total current assets

 

91,048,734

 

79,931,164

 

 

 

 

 

 

 

Property and equipment, net

 

12,895,924

 

13,083,912

 

Goodwill

 

6,349,827

 

6,349,827

 

Other intangible assets, net

 

5,094,728

 

5,185,978

 

Other assets

 

441,409

 

1,258,985

 

 

 

$

115,830,622

 

$

105,809,866

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

15,220,297

 

$

17,189,208

 

Accrued expenses

 

5,709,984

 

6,931,859

 

Accrued wages, salaries and bonuses

 

2,146,303

 

2,503,361

 

Income taxes payable

 

625,784

 

2,194,966

 

Current maturities of long-term debt

 

1,192,560

 

1,182,829

 

Total current liabilities

 

24,894,928

 

30,002,223

 

 

 

 

 

 

 

Credit facility

 

30,379,181

 

14,353,732

 

Deferred income taxes

 

3,754,812

 

3,633,390

 

Long-term debt, less current maturities

 

4,773,604

 

5,075,680

 

Other long-term liabilities

 

334,175

 

336,186

 

 

 

 

 

 

 

Series A cumulative, Convertible Preferred Stock, $.01 par value 100,000 shares authorized and issued, and a total liquidation preference of $2.5 million at both December 2012 and September 2012.

 

2,500,000

 

2,500,000

 

Series B cumulative, Convertible Preferred Stock, $.01 par value 80,000 shares authorized, 16,000 shares issued and outstanding at December 31, 2012 and 58,000 shares issued and outstanding at September 30, 2012, and a total liquidation preference of $0.4 million and $1.5 million at December 2012 and September 2012, respectively.

 

400,000

 

1,450,000

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized, 116,000 and 158,000 shares outstanding and issued in Series A and B referred to above

 

 

 

Common stock, $.01 par value, 3,000,000 shares authorized, 623,115 shares outstanding at December 2012 and 612,327 shares outstanding at September 2012

 

6,543

 

6,293

 

Additional paid-in capital

 

12,453,049

 

11,021,109

 

Retained earnings

 

39,635,286

 

38,349,253

 

Treasury stock at cost

 

(3,300,956

)

(918,000

)

Total shareholders’ equity

 

48,793,922

 

48,458,655

 

 

 

$

115,830,622

 

$

105,809,866

 

 

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

 

3



Table of Contents

 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three months ended December 31, 2012 and 2011

 

 

 

2012

 

2011

 

Sales (including excise taxes of $98.0 million and $90.5 million, respectively)

 

$

302,218,321

 

$

283,563,050

 

Cost of sales

 

282,988,532

 

264,925,373

 

Gross profit

 

19,229,789

 

18,637,677

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

15,848,472

 

15,350,002

 

Depreciation and amortization

 

593,862

 

613,494

 

 

 

16,442,334

 

15,963,496

 

Operating income

 

2,787,455

 

2,674,181

 

Other expense (income):

 

 

 

 

 

Interest expense

 

316,052

 

424,110

 

Other (income), net

 

(61,349

)

(151,264

)

 

 

254,703

 

272,846

 

Income from operations before income tax expense

 

2,532,752

 

2,401,335

 

Income tax expense

 

1,070,000

 

963,000

 

Net income

 

1,462,752

 

1,438,335

 

Preferred stock dividend requirements

 

(59,291

)

(67,641

)

Net income available to common shareholders

 

$

1,403,461

 

$

1,370,694

 

 

 

 

 

 

 

Basic earnings per share available to common shareholders

 

$

2.26

 

$

2.21

 

Diluted earnings per share available to common shareholders

 

$

1.90

 

$

1.83

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

622,277

 

619,910

 

Diluted weighted average shares outstanding

 

767,957

 

783,994

 

 

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

 

4



Table of Contents

 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the three months ended December 31, 2012 and 2011

 

 

 

2012

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

1,462,752

 

$

1,438,335

 

Adjustments to reconcile net income from operations to net cash flows from operating activities:

 

 

 

 

 

Depreciation

 

502,612

 

512,555

 

Amortization

 

91,250

 

100,939

 

Gain on sale of property and equipment

 

(70,631

)

(3,600

)

Equity-based compensation

 

327,476

 

318,894

 

Deferred income taxes

 

419,627

 

449,159

 

Provision for losses on doubtful accounts

 

105,000

 

87,735

 

Provision for losses on inventory obsolescence

 

71,603

 

46,563

 

Other

 

(2,011

)

(2,012

)

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

241,773

 

3,652,086

 

Inventories

 

(11,412,393

)

(9,538,609

)

Prepaid and other current assets

 

(878,343

)

1,122,163

 

Other assets

 

56,705

 

(4,175

)

Accounts payable

 

(2,021,716

)

(2,586,190

)

Accrued expenses and accrued wages, salaries and bonuses

 

(500,789

)

(1,731,517

)

Income tax payable

 

(1,569,182

)

(1,367,567

)

Net cash flows from operating activities

 

(13,176,267

)

(7,505,241

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property and equipment

 

(330,228

)

(261,717

)

Proceeds from sales of property and equipment

 

139,040

 

3,600

 

Net cash flows from investing activities

 

(191,188

)

(258,117

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Net borrowings on bank credit agreements

 

16,025,449

 

7,996,506

 

Principal payments on long-term debt

 

(292,345

)

(410,772

)

Repurchase of Series B Convertible Preferred Stock and common stock

 

(2,572,085

)

 

Dividends paid on convertible preferred stock

 

(59,291

)

(67,641

)

Dividends on common stock

 

(117,428

)

(119,313

)

Proceeds from exercise of stock options

 

1,180

 

1,180

 

Withholdings on the exercise of equity-based awards

 

(74,610

)

(51,452

)

Net cash flows from financing activities

 

12,910,870

 

7,348,508

 

Net change in cash

 

(456,585

)

(414,850

)

 

 

 

 

 

 

Cash, beginning of period

 

491,387

 

1,389,665

 

Cash, end of period

 

$

34,802

 

$

974,815

 

 

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

 

5



Table of Contents

 

 

 

2012

 

2011

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid during the period for interest

 

$

279,667

 

$

401,312

 

Cash paid during the period for income taxes

 

2,219,555

 

1,881,407

 

 

 

 

 

 

 

Supplemental disclosure of non-cash information:

 

 

 

 

 

Equipment acquisitions classified as accounts payable

 

$

64,042

 

$

3,254

 

Issuance of common stock in connection with the vesting and exercise of equity-based awards

 

1,389,258

 

950,562

 

Conversion by holder of Series B Convertible Preferred Stock to common stock

 

100,000

 

 

Common stock acquired with other consideration

 

760,871

 

 

 

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

 

6



Table of Contents

 

AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

 

AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two business segments:

 

·                  Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products in the Central, Rocky Mountain, and Southern regions of the United States.  Additionally, our Wholesale Segment provides programs and services to assist our customers in managing their business and profitability.

 

·                  Our retail health food segment (“Retail Segment”) operates fourteen health food retail stores located throughout the Midwest and Florida.

 

WHOLESALE SEGMENT

 

Our Wholesale Segment is one of the largest wholesale convenience store distributors in the United States serving approximately 5,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. We also provide a full range of consultative services to our customers in the areas of marketing, merchandising, inventory optimization, and information systems that allow our customers to better compete and maximize their profitability. Convenience stores represent our largest customer category. In October 2012, Convenience Store News ranked us as the ninth (9th) largest convenience store distributor in the United States based on annual sales.

 

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately 601,000 square feet of permanent floor space. Our principal suppliers include Philip Morris USA, RJ Reynolds, Commonwealth Brands, Lorillard, Proctor & Gamble, Hershey, Mars, Quaker, and Nabisco. We also market private label lines of water, candy products, batteries, film, and other products. We do not maintain any long-term purchase contracts with our suppliers.

 

RETAIL SEGMENT

 

Our Retail Segment is a specialty retailer of natural and organic groceries and dietary supplements, which is a subset of the larger U.S. grocery industry.  We operate fourteen retail health food stores doing business as Chamberlin’s Market & Café (“Chamberlin’s”) and Akin’s Natural Foods Market (“Akin’s”).  Chamberlin’s, which was established in 1935, operates six stores in and around Orlando, Florida.  Akin’s, which was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and Kansas.  We are also scheduled to open two new Akin’s retail stores during fiscal 2013.  These stores will be located in Arkansas and Nebraska.

 

Our stores carry over 30,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.  We compete against a wide range retailers including, conventional, natural, gourmet, and discount retailers, as well as warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order, online retailers, and multi-level marketers.

 

FINANCIAL STATEMENTS

 

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2012, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON”

 

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Table of Contents

 

shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended December 31, 2012 and December 31, 2011 have been referred to throughout this quarterly report as Q1 2013 and Q1 2012, respectively. The fiscal balance sheet dates as of December 31, 2012, December 31, 2011, and September 30, 2012 have been referred to as December 2012, December 2011, and September 2012, respectively.

 

2. CONVERTIBLE PREFERRED STOCK:

 

The Company has two series of convertible preferred stock outstanding at December 2012 as identified in the following table:

 

 

 

Series A

 

Series B

 

Date of issuance:

 

June 17, 2004

 

October 8, 2004

 

Optionally redeemable beginning

 

June 18, 2006

 

October 9, 2006

 

Par value (gross proceeds):

 

$

2,500,000

 

$

400,000

 

Number of shares:

 

100,000

 

16,000

 

Liquidation preference per share:

 

$

25.00

 

$

25.00

 

Conversion price per share:

 

$

30.31

 

$

24.65

 

Number of common shares in which to be converted:

 

82,481

 

16,227

 

Dividend rate:

 

6.785

%

6.37

%

 

The Series A Convertible Preferred Stock (“Series A”) and Series B Convertible Preferred Stock (“Series B”), (collectively, the “Preferred Stock”), are convertible at any time by the holders into a number of shares of AMCON common stock equal to the number of preferred shares being converted multiplied by a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.

 

In the event of a liquidation of the Company, the holders of the Preferred Stock would be entitled to receive the liquidation preference plus any accrued and unpaid dividends prior to the distribution of any amount to the holders of the Common Stock. The shares of Preferred Stock are optionally redeemable by the Company beginning on various dates, as listed in the above table, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference. The Preferred Stock is redeemable at the liquidation value and at the option of the holder.  The Series A Preferred Stock and 8,000 shares of the Series B Preferred Stock are owned by Mr. Christopher Atayan, AMCON’s Chief Executive Officer and Chairman of the Board.  The Series B Preferred Stock holders have the right to elect one member of our Board of Directors, pursuant to the voting rights in the Certificate of Designation creating the Series B.  Mr. Atayan was first nominated and elected to this seat in 2004.

 

On November 30, 2012, AMCON Distributing Company repurchased 38,000 shares of its Series B Convertible Preferred Stock, $0.01 par value and 1,255 shares of its common stock, $0.01 par value for $2.5 million. The shares acquired by AMCON were purchased from an institutional investor in a privately negotiated transaction that was not effected on any trading market.  Prior to the Company’s repurchase of the preferred and common shares, the institutional holder of the Series B Preferred Stock converted 4,000 of its Series B share holdings into 4,056 common shares of the Company.

 

3. INVENTORIES

 

Inventories consists of finished goods at December 2012 and September 2012 and are stated at the lower of cost, determined on a First-in, First-out (“FIFO”) basis, or market. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $1.0 million and $0.9 million at December 2012 and September 2012, respectively. These reserves include the Company’s obsolescence allowance, which reflects estimated unsaleable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

 

8



Table of Contents

 

4. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill by reporting segment of the Company consisted of the following:

 

 

 

December
 2012

 

September
 2012

 

Wholesale Segment

 

$

4,436,950

 

$

4,436,950

 

Retail Segment

 

1,912,877

 

1,912,877

 

 

 

$

6,349,827

 

$

6,349,827

 

 

Other intangible assets of the Company consisted of the following:

 

 

 

December
 2012

 

September
 2012

 

Trademarks and tradenames

 

$

3,373,269

 

$

3,373,269

 

Non-competition agreement (less accumulated amortization of approximately $0.2 million at December 2012 and $0.1 million at September 2012)

 

341,667

 

366,667

 

Customer relationships (less accumulated amortization of $0.8 million and $0.7 million at December 2012 and September 2012, respectively)

 

1,379,792

 

1,446,042

 

 

 

$

5,094,728

 

$

5,185,978

 

 

Goodwill, trademarks, and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At December 2012, identifiable intangible assets considered to have finite lives were represented by customer relationships and the value of a non-competition agreement acquired as part of acquisitions. The customer relationships are being amortized over eight years and the value of the non-competition agreement is being amortized over five years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense related to identifiable intangible assets was $0.1 million during both Q1 2013 and Q1 2012.

 

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at December 2012:

 

 

 

December
 2012

 

Fiscal 2013 (1)

 

$

273,750

 

Fiscal 2014

 

365,000

 

Fiscal 2015

 

365,000

 

Fiscal 2016

 

331,667

 

Fiscal 2017

 

265,000

 

Thereafter

 

121,041

 

 

 

$

1,721,458

 

 


(1)  Represents amortization for the remaining nine months of Fiscal 2013.

 

5. DIVIDENDS:

 

The Company paid cash dividends on its common stock and convertible preferred stock totaling approximately $0.2 million during both Q1 2013 and Q1 2012.

 

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Table of Contents

 

6. EARNINGS PER SHARE

 

Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirements by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations less preferred stock dividend requirements (when anti-dilutive) by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method.

 

 

 

For the three months ended December

 

 

 

2012

 

2011

 

 

 

Basic

 

Diluted

 

Basic

 

Diluted

 

Weighted average common shares outstanding

 

622,277

 

622,277

 

619,910

 

619,910

 

Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)

 

 

145,680

 

 

164,084

 

Weighted average number of shares outstanding

 

622,277

 

767,957

 

619,910

 

783,994

 

Income from continuing operations

 

$

1,462,752

 

$

1,462,752

 

$

1,438,335

 

$

1,438,335

 

Deduct: convertible preferred stock dividends (2)

 

(59,291

)

 

(67,641

)

 

Net income available to common shareholders

 

$

1,403,461

 

$

1,462,752

 

$

1,370,694

 

$

1,438,335

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders

 

$

2.26

 

$

1.90

 

$

2.21

 

$

1.83

 

 


(1)         Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units deemed to be dilutive.

 

(2)         Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.

 

7. DEBT

 

The Company primarily finances its operations through a credit facility provided under an agreement with Bank of America (the “Facility”).  The Facility included the following significant terms at December 2012:

 

·                  April 2011 origination date and an April 2014 maturity date.

 

·                  $70.0 million revolving credit limit.

 

·                  Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

 

·                  A provision providing an additional $5.0 million of credit advances for certain inventory purchases.

 

·                  Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of the original term of the agreement or the end of any renewal period.

 

·                 Prepayment penalty equal to one-fourth of one percent (1/4%) if the Company prepays the entire Facility or terminates it in year two of the agreement. The prepayment penalty is calculated based on the maximum loan limit.

 

·                  The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 175 basis points, at the election of the Company.

 

·                  Lending limits subject to accounts receivable and inventory limitations.

 

·                  An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

 

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·                  Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

 

·                  Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis.

 

·                  A financial covenant requiring a fixed charge coverage ratio of at least 1.1 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement.

 

Cross Default and Co-Terminus Provisions

 

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, is financed through a term loan with BMO Harris, NA (“BMO”) which is also a participant lender on the Company’s revolving line of credit. The BMO loan contains cross default provisions which cause the loan with BMO to be considered in default if the loans where BMO is the lender, including the revolving credit facility, is in default. There were no such cross defaults at December 2012. In addition, the BMO loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

 

Other

 

AMCON has issued a letter of credit in the amount of approximately $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

8. EQUITY-BASED INCENTIVE AWARDS

 

Omnibus Plan

 

The Company has an Omnibus Incentive Plan (“the Omnibus Plan”) which provides for equity incentives to employees. The Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plan permits the issuance of up to 150,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plan is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. At December 2012, awards with respect to a total of 131,195 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plan and awards with respect to another 18,805 shares may be awarded under the plan.

 

Stock Options

 

During Q1 2013, the Company issued 8,000 incentive stock options to various employees, pursuant to the provisions of the Company’s Omnibus Plan.  These awards vest in equal installments over three and five year service periods.  The awards had an estimated fair value at the grant date of approximately $0.1 million using the Black-Scholes option pricing model. The following assumptions were used in connection with the Black- Scholes option pricing calculation:

 

 

 

Stock Option Pricing Assumptions

 

 

 

Q1 2013

 

Risk-free interest rate

 

1.46%

 

Dividend yield

 

1.10%

 

Expected volatility

 

25.00%

 

Expected life in years

 

6

 

 

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Table of Contents

 

The stock options issued by the Company expire ten years from the grant date and include graded vesting schedules ranging between three and five years. Stock options issued and outstanding at December 2012 are summarized as follows:

 

 

 

 

 

 

 

Remaining

 

 

 

Exercisable

 

 

 

Exercise
Price

 

Number
Outstanding

 

Weighted-Average
Contractual Life

 

Weighted-Average
Exercise Price

 

Number
Exercisable

 

Weighted-Average
Exercise Price

 

Fiscal 2007

 

$18.00

 

25,000

 

3.95 years

 

$

18.00

 

25,000

 

$

18.00

 

Fiscal 2010

 

$51.50

 

5,500

 

7.33 years

 

$

51.50

 

2,200

 

$

51.50

 

Fiscal 2012

 

$53.80 - $65.97

 

6,500

 

8.84 years

 

$

54.74

 

1,200

 

$

53.80

 

Fiscal 2013

 

$62.33

 

8,000

 

4.38 years

 

$

62.33

 

 

$

 

 

 

 

 

45,000

 

 

 

$

35.28

 

28,400

 

$

22.11

 

 

The following is a summary of stock option activity for the three months ended December 2012:

 

 

 

Number
of
Shares

 

Weighted
Average
Exercise
Price

 

Outstanding at September 2012

 

37,042

 

$

29.43

 

Granted

 

8,000

 

62.33

 

Exercised

 

(42

)

28.80

 

Forfeited/Expired

 

 

 

Outstanding at December 2012

 

45,000

 

$

35.28

 

 

Restricted Stock Units

 

During Q1 2013 the Company issued 15,000 restricted stock unit awards to members of its management team pursuant to the provisions of the Company’s Omnibus Plan.  Nonvested restricted stock units at December 2012 are as follows:

 

 

 

Restricted Stock
Units(1)

 

Restricted Stock
Units(2)

 

Restricted Stock
Units(3)

 

Date of award:

 

November 22, 2010

 

October 26, 2011

 

October 23, 2012

 

Original number of awards issued:

 

12,000

 

15,900

 

15,000

 

Service period:

 

36 months

 

36 months

 

36 months

 

Estimated fair value of award at grant date

 

$864,000

 

$855,000

 

$935,000

 

Awards outstanding at December 2012

 

4,000

 

10,600

 

15,000

 

Fair value of non-vested awards at December 2012:

 

$258,000

 

$683,000

 

$967,000

 

 


(1)                                 8,000 of the restricted stock units were vested at December 2012. The remaining 4,000 restricted stock units will vest on November 22, 2013.

 

(2)                                 5,300 of the restricted stock units were vested as of December 2012.  The remaining 10,600 restricted stock units will vest in equal amounts on October 25, 2013 and October 25, 2014.

 

(3)                                 The 15,000 restricted stock units will vest in equal amounts on October 23, 2013, October 23, 2014 and October 23, 2015.

 

There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. The recipients of the restricted stock units are entitled to the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met.

 

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The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Condensed Statement of Operations reflects the straight-line amortized fair value based on the period end closing price.

 

 

 

Number
of
Shares

 

Weighted
Average
Fair Value

 

Nonvested restricted stock units at September 2012

 

36,700

 

$

65.00

 

Granted

 

15,000

 

62.33

 

Vested

 

(22,100

)

62.86

 

Expired

 

 

 

Nonvested restricted stock units at December 2012

 

29,600

 

$

64.45

 

 

All Equity-Based Awards (stock options and restricted stock units)

 

Net income before income taxes included compensation expense of approximately $0.3 million during both Q1 2013 and Q1 2012 related to the amortization of all equity-based compensation awards.  Total unamortized compensation expense related to these awards at December 2012 and December 2011 was approximately $1.9 million and $2.3 million, respectively.

 

9. BUSINESS SEGMENTS

 

AMCON has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products.  Included in the “Other” column are intercompany eliminations, and assets held and charges incurred by our holding company.  The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes.

 

 

 

Wholesale
Segment

 

Retail
Segment

 

Other

 

Consolidated

 

THREE MONTHS ENDED DECEMBER 2012:

 

 

 

 

 

 

 

 

 

External revenue:

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

221,730,182

 

$

 

$

 

$

221,730,182

 

Confectionery

 

17,956,072

 

 

 

17,956,072

 

Health food

 

 

8,704,643

 

 

8,704,643

 

Tobacco, food service & other

 

53,827,424

 

 

 

53,827,424

 

Total external revenue

 

293,513,678

 

8,704,643

 

 

302,218,321

 

Depreciation

 

408,743

 

92,932

 

937

 

502,612

 

Amortization

 

91,250

 

 

 

91,250

 

Operating income (loss)

 

3,802,737

 

371,798

 

(1,387,080

)

2,787,455

 

Interest expense

 

55,132

 

58,968

 

201,952

 

316,052

 

Income (loss) from operations before taxes

 

3,753,457

 

317,770

 

(1,538,475

)

2,532,752

 

Total assets

 

103,284,807

 

12,358,555

 

187,260

 

115,830,622

 

Capital expenditures

 

293,650

 

36,578

 

 

330,228

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED DECEMBER 2011:

 

 

 

 

 

 

 

 

 

External revenue:

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

206,172,858

 

$

 

$

 

$

206,172,858

 

Confectionery

 

17,498,941

 

 

 

17,498,941

 

Health food

 

 

8,533,427

 

 

8,533,427

 

Tobacco, food service & other

 

51,357,824

 

 

 

51,357,824

 

Total external revenue

 

275,029,623

 

8,533,427

 

 

283,563,050

 

Depreciation

 

410,582

 

101,036

 

937

 

512,555

 

Amortization

 

100,939

 

 

 

100,939

 

Operating income (loss)

 

3,368,146

 

413,163

 

(1,107,128

)

2,674,181

 

Interest expense

 

135,067

 

82,994

 

206,049

 

424,110

 

Income (loss) from operations before taxes

 

3,281,094

 

335,002

 

(1,214,761

)

2,401,335

 

Total assets

 

97,403,795

 

12,710,053

 

938,884

 

111,052,732

 

Capital expenditures

 

227,391

 

34,326

 

 

261,717

 

 

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10. TREASURY STOCK

 

During Q1 2013, the Company repurchased 38,000 shares of its Series B Convertible Preferred Stock and 1,255 shares of its common stock from its holders in a private transaction for approximately $2.5 million.  In a separate and unrelated private transaction, the Company also repurchased 12,954 shares of its common stock during Q1 2013 from an independent third party for cash and other consideration totaling approximately $0.8 million.  The Company held 31,209 shares of common stock and 38,000 shares of preferred stock in treasury at December 2012, and 17,000 shares of common stock in treasury at September 2012. All repurchased shares are recorded in treasury stock at cost.

 

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Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect,” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

 

·                  increases in state and federal excise taxes on cigarette and tobacco products,

 

·                  integration risk related to acquisitions or other efforts to expand,

 

·                  higher commodity prices which could impact food ingredient costs for many of the products we sell,

 

·                  regulation of cigarette and tobacco products by the FDA, in addition to existing state and federal regulations by other agencies,

 

·      potential bans or restrictions imposed by the FDA on the manufacture, distribution, and sale of certain cigarette and tobacco products,

 

·                  increases in manufacturer prices,

 

·                  increases in inventory carrying costs and customer credit risk,

 

·                  changes in promotional and incentive programs offered by manufacturers,

 

·                  decreased availability of capital resources,

 

·                  demand for the Company’s products, particularly cigarette and tobacco products,

 

·                  new business ventures or acquisitions,

 

·                  domestic regulatory and legislative risks,

 

·                  competition,

 

·                  poor weather conditions,

 

·                  increases in fuel prices,

 

·                  consolidation trends within the convenience store and wholesale distribution industries,

 

·                  natural disasters and domestic unrest,

 

·                  other risks over which the Company has little or no control, and any other factors not identified herein,

 

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Changes in these 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. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.

 

CRITICAL ACCOUNTING ESTIMATES

 

Certain accounting estimates used in the preparation of the Company’s financial statements require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2012, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during our fiscal quarter ended December 2012.

 

FIRST FISCAL QUARTER 2013 (Q1 2013)

 

The following discussion and analysis includes the Company’s results of operations for the three months ended December 2012 and December 2011.

 

Wholesale Segment

 

Our wholesale segment is one of the largest wholesale convenience store distributors in the United States serving approximately 5,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops.  In October 2012, Convenience Store News ranked us as the ninth (9th) largest convenience store distributor in the United States based on annual sales.

 

We currently distribute over 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products. We also provide consultative services to our customers in the areas of marketing, merchandising, inventory optimization, and information systems which are designed to enhance the ability of our customers to compete and maximize their profitability. Convenience stores represent our largest customer category.

 

Retail Segment

 

Our Retail Segment is a specialty retailer of natural and organic groceries and dietary supplements, which is a subset of the larger U.S. grocery industry.  We operate fourteen retail health food stores doing business as Chamberlin’s Market & Café (“Chamberlin’s”) and Akin’s Natural Foods Market (“Akin’s”).  Chamberlin’s, which was established in 1935, operates six stores in and around Orlando, Florida.  Akin’s, which was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and Kansas.  We are also scheduled to open two new Akin’s retail stores during fiscal 2013.  These stores will be located in Arkansas and Nebraska.

 

Our stores carry over 30,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.  We compete against a wide range of retailers including, conventional, natural, gourmet, and discount retailers, as well as warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers markets, mail order, online retailers, and multi-level marketers.

 

Business Update — Wholesale Segment

 

Legislative initiatives across the country continue to take aim at many of the products sold by our convenience stores customers.  Tobacco products in particular are facing higher sales and excise taxes from state and local governments struggling to deal with budget shortfalls.  Other profitable products such as sugary drinks are gaining tax focus as well.  Additionally, both the convenience store industry, and the wholesale distributors that serve them, are undergoing significant structural changes (i.e. consolidation, product diversification, increasing reliance on technology etc.).

 

Despite these considerations, the demand for convenience shopping in the United States has remained steady.  The convenience store industry, which represents the largest portion of our customer base, continues to show long term growth and has demonstrated resiliency compared to that of the general economy.

 

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Table of Contents

 

We believe the future of wholesale distribution will be less about transporting highly commoditized products and will be more about providing differentiated merchandising and technology solutions to customers.  While we expect the operating environment to remain highly competitive, we believe our long legacy of serving independent and fast growing small convenience store operations positions us well in the present environment.

 

Business Update — Retail Segment

 

Sales in the retail health food industry have remained strong.  Industry-wide, we believe a number of key factors are influencing overall demand trends.  In particular, increased media coverage regarding possible linkages between food additives and disease, as well as premature development in children, has created tremendous awareness about the benefits of natural products. Additionally, food additives such as sugars, aspartame included in diet sodas, and the use of growth hormones and antibiotics in the production of chicken, beef, and dairy products have also come under a high degree of scrutiny in terms of dietary consumption, which has increased the interest in natural products.

 

During Q1 2013, our Florida market stores continued to experience sales growth, benefitting from the growing demand for natural products, as well as the improved economic conditions in that region.  Our Akin’s stores also performed well during Q1 2013, however, we continue to see increased competition in our Akin’s stores resulting from the expansion of both regional and national health food chains.

 

Identifying both organic and strategic growth opportunities will continue to be a top priority throughout the remainder of fiscal 2013.  We are currently scheduled to open two new Akin’s retail stores located in Arkansas and Nebraska during fiscal 2013 and have ongoing efforts to identify potential acquisition opportunities.

 

RESULTS OF OPERATIONS

 

 

 

For the three months ended December

 

 

 

2012

 

2011

 

Incr
(Decr)

 

% Change

 

CONSOLIDATED:

 

 

 

 

 

 

 

 

 

Sales (1)

 

$

302,218,321

 

$

283,563,050

 

$

18,655,271

 

6.6

 

Cost of sales

 

282,988,532

 

264,925,373

 

18,063,159

 

6.8

 

Gross profit

 

19,229,789

 

18,637,677

 

592,112

 

3.2

 

Gross profit percentage

 

6.4

%

6.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expense

 

16,442,334

 

15,963,496

 

478,838

 

3.0

 

Operating income

 

2,787,455

 

2,674,181

 

113,274

 

4.2

 

Interest expense

 

316,052

 

424,110

 

(108,058

)

(25.5

)

Income tax expense

 

1,070,000

 

963,000

 

107,000

 

11.1

 

Net income

 

1,462,752

 

1,438,335

 

24,417

 

1.7

 

 

 

 

 

 

 

 

 

 

 

BUSINESS SEGMENTS:

 

 

 

 

 

 

 

 

 

Wholesale

 

 

 

 

 

 

 

 

 

Sales

 

$

293,513,678

 

$

275,029,623

 

$

18,484,055

 

6.7

 

Gross profit

 

15,562,002

 

15,057,558

 

504,444

 

3.4

 

Gross profit percentage

 

5.3

%

5.5

%

 

 

 

 

Retail

 

 

 

 

 

 

 

 

 

Sales

 

$

8,704,643

 

$

8,533,427

 

$

171,216

 

2.0

 

Gross profit

 

3,667,787

 

3,580,119

 

87,668

 

2.4

 

Gross profit percentage

 

42.1

%

42.0

%

 

 

 

 

 


(1)              Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $4.6 million in Q1 2013 and $4.0 million in Q1 2012.

 

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Table of Contents

 

SALES:

 

Changes in sales are driven by two primary components:

 

(i)

changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and

 

 

(ii)

changes in the volume of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period.

 

SALES — Q1 2013 vs. Q1 2012

 

Sales in our Wholesale Segment increased $18.5 million during Q1 2013 as compared to Q1 2012.  Significant items impacting sales during Q1 2013 included a $6.0 million increase in sales related to price increases implemented by cigarette manufacturers, a $4.8 million increase in sales related to the volume and mix of cigarette cartons sold, a $4.8 million increase in sales related to higher state excise taxes during the comparative periods, and a $2.9 million increase in sales related to higher sales in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, food service, and store supplies categories (“Other Products”).

 

Sales in our Retail Segment increased approximately $0.2 million in Q1 2013 as compared to Q1 2012. This change in sales was primarily related to higher sales in our Florida market stores which continue to benefit from the growing demand for natural products, as well as the strengthening economic conditions in that region.

 

GROSS PROFIT — Q1 2013 vs. Q1 2012

 

Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.

 

Gross profit in our Wholesale Segment increased $0.5 million in Q1 2013 as compared to Q1 2012.  This increase in gross profit was primarily related to higher sales volume and mix in our Other Products categories.  Gross profit for the Retail Segment increased $0.1 million in Q1 2013 as compared to Q1 2012.  This increase was primarily related to higher sales volumes in our Chamberlin’s retail stores.

 

OPERATING EXPENSE — Q1 2013 vs. Q1 2012

 

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, insurance, and professional fees. Q1 2013 operating expenses increased $0.5 million as compared to Q1 2012. This increase in operating expenses was primarily related to higher compensation and other operating expenses.

 

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Table of Contents

 

LIQUIDITY AND CAPITAL RESOURCES

 

Overview

 

·

General.  The Company requires cash to pay operating expenses, purchase inventory, and make capital investments. In general, the Company finances its cash flow requirements with cash generated from operating activities and credit facility borrowings.

 

 

·

Operating Activities.  During Q1 2013, the Company used cash of approximately $13.2 million for operating activities.  Significant uses of cash during Q1 2013 included increases in inventory, prepaid assets and other current assets, and decreases in accounts payable, accrued expenses, and income taxes payable.  These uses of cash were partially offset by decreases in accounts receivable and deferred income taxes, and the impact of net earnings.

 

 

 

Our variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during the warm weather months, which is our peak time of operations, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.

 

 

·

Investing Activities.  The Company used approximately $0.2 million of cash during Q1 2013 for investing activities, primarily related to capital expenditures for property and equipment.

 

 

·

Financing Activities.  The Company generated cash of $12.9 million from financing activities during Q1 2013. Of this amount, approximately $16.0 million related to net borrowings on the Company’s credit facility. This was partially offset by $0.3 million related to repayments on long-term debt, $2.6 million related to the repurchase of shares of the Company’s common stock and Series B Convertible Preferred Stock, $0.2 million related to dividends on the Company’s common and preferred stock.

 

 

·

Cash on Hand/Working Capital.  At December 2012, the Company had cash on hand of $0.1 million and working capital (current assets less current liabilities) of $66.2 million.  This compares to cash on hand of $0.5 million and working capital of $49.9 million at September 2012.

 

CREDIT AGREEMENT

 

The Company primarily finances its operations through a credit facility provided under an agreement with Bank of America (the “Facility”).  The Facility included the following significant terms at December 2012:

 

·

April 2011 origination date and an April 2014 maturity date.

 

 

·

$70.0 million revolving credit limit.

 

 

·

Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

 

 

·

A provision providing an additional $5.0 million of credit advances for certain inventory purchases.

 

 

·

Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of the original term of the agreement or the end of any renewal period.

 

 

·

Prepayment penalty equal to one-fourth of one percent (1/4%) if the Company prepays the entire Facility or terminates it in year two of the agreement. The prepayment penalty is calculated based on the maximum loan limit.

 

 

·

The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 175 basis points, at the election of the Company.

 

 

·

Lending limits subject to accounts receivable and inventory limitations.

 

 

·

An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

 

19



Table of Contents

 

·

Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

 

 

·

Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis.

 

 

·

A financial covenant requiring a fixed charge coverage ratio of at least 1.1 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement.

 

The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at December 2012 was $69.6 million, of which $30.4 million was outstanding, leaving $39.2 million available.

 

At December 2012, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 2.52% at December 2012.

 

During Q1 2013, our peak borrowings under the Facility were $45.9 million, and our average borrowings and average availability under the Facility were $33.9 million and $34.0 million, respectively.  Our availability to borrow under the Facility generally decreases as inventory and accounts receivable levels increase because of the borrowing limitations that are placed on collateralized assets.

 

Cross Default and Co-Terminus Provisions

 

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, is financed through a term loan with BMO Harris, NA (“BMO”) which is also a participant lender on the Company’s revolving line of credit. The BMO loan contains cross default provisions which cause the loan with BMO to be considered in default if the loans where BMO is the lender, including the revolving credit facility, is in default. There were no such cross defaults at December 2012. In addition, the BMO loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

 

Dividends Payments

 

The Company paid cash dividends on its common stock and convertible preferred stock totaling approximately $0.2 million during both Q1 2013 and Q1 2012.

 

Contractual Obligations

 

There have been no significant changes to the Company’s contractual obligations as set forth in the Company’s annual report on Form 10-K for the fiscal period ended September 30, 2012.

 

OTHER

 

AMCON has issued a letter of credit in the amount of approximately $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

Liquidity Risk

 

The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.

 

The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.

 

20



Table of Contents

 

The Company believes its liquidity position going forward will be adequate to sustain operations. However, a precipitous change in operating environment could materially impact the Company’s future revenue stream as well as its ability to collect on customer accounts receivable or secure bank credit.

 

Item 3.      Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4.      Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2012 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Limitations on Effectiveness of Controls

 

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control that occurred during the fiscal quarter ended December 31, 2012, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

21



Table of Contents

 

PART II — OTHER INFORMATION

 

Item 1.      Legal Proceedings

 

None.

 

Item 1A.      Risk Factors

 

There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2012.

 

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

 

On October 23, 2012, our company awarded restricted stock units (“RSUs”) and incentive stock options (“Options”) under the AMCON Distributing Company 2007 Omnibus Incentive Plan (the “Plan”), including RSUs to two executives of our company (namely: Christopher H. Atayan and Andrew C. Plummer) and Options to one executive of our company (namely: Eric J. Hinkefent).  The RSUs provide the award recipient with the right to receive, subject to being employed on the applicable vesting date, (i) an amount of cash equal to the per share fair market value of our company’s common stock as of the vesting date multiplied by the number of shares underlying the RSUs then becoming vested and held by the award recipient or (ii) a number of shares of common stock equal to the whole number of shares underlying the RSUs then becoming vested and held by the award recipient, as elected by the award recipient.  Each Option has an exercise price of $62.33 per share, which represents the closing trading price for our common stock on the NYSE MKT on the grant date.  Subject to earlier forfeiture under certain limited circumstances, the RSUs and Options each vest as to one-third of the award on each of October 23, 2013, October 23, 2014, and October 23, 2015.  If all RSUs were to fully vest and be settled in shares of our company’s common stock, a total of 15,000 shares of our company’s common stock would be issued.  If all the Options were to fully vest and be exercised for shares of our company’s common stock, a total of 8,000 shares of our company’s common stock would be issued.

 

On October 25, 2012, our company issued a total of 4,975 shares of common stock, par value $.01 per share, pursuant to the settlement of restricted stock units previously awarded under the Plan to four executives of our company (namely: Christopher H. Atayan, Andrew C. Plummer, Eric J. Hinkefent, and Philip E. Campbell).

 

On October 26, 2012, our company issued a total of 12,394 shares of common stock, par value $.01 per share, pursuant to the settlement of restricted stock units previously awarded under the Plan to four executives of our company (namely: Christopher H. Atayan, Andrew C. Plummer, Eric J. Hinkefent, and Philip E. Campbell).

 

On November 22, 2012, our company issued a total of 3,531 shares of common stock, par value $.01 per share, pursuant to the settlement of restricted stock units previously awarded under the Plan to four executives of our company (namely: Christopher H. Atayan, Andrew C. Plummer, Eric J. Hinkefent, and Philip E. Campbell).

 

The securities described above in this item were issued for services and in furtherance of the Plan’s purpose of encouraging employees of our company and its affiliates to acquire a proprietary and vested interest in the growth and performance of our company.  The securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 for transactions not involving any public offering.  Our company received no payment in connection with such issuances.  No underwriters were involved with the issuance of the securities described in this item and no commissions were paid in connection with such issuances.  There was no advertisement or general solicitation made in connection with the issuance of the securities described in this item.

 

Pursuant to the exercise of conversion rights with respect to the Company’s Series B Convertible Preferred Stock on October 4 and 26, 2012, a total of 4,056 shares of our Company’s common stock were issued pursuant to the conversion of 4,000 shares of Series B Convertible Preferred Stock.  The shares of common stock issued pursuant to such conversion were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, which exemption is available for transactions involving securities exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.  Our company received no payment in connection with the issuances of such shares.  No underwriters were involved with the issuance of the shares of common stock described above and no commissions were paid in connection with such issuances.  There was no advertisement or general solicitation made in connection with the issuance of the shares of common stock described above.

 

22



Table of Contents

 

Item 3.      Defaults Upon Senior Securities

 

Not Applicable

 

Item 4.      Mine Safety Disclosures

 

Not Applicable

 

Item 5.      Other Information

 

Not applicable.

 

Item 6.      Exhibits

 

(a) Exhibits

 

31.1

Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 302 of the Sarbanes-Oxley Act

 

 

31.2

Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 302 of the Sarbanes-Oxley Act

 

 

32.1

Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act

 

 

32.2

Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act

 

 

101

Interactive Data File (filed herewithin electronically)

 

23



Table of Contents

 

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 thereunto duly authorized.

 

 

AMCON DISTRIBUTING COMPANY

 

(registrant)

 

 

Date: January 18, 2013

/s/ Christopher H. Atayan

 

Christopher H. Atayan,

 

Chief Executive Officer and Chairman

 

 

Date: January 18, 2013

/s/ Andrew C. Plummer

 

Andrew C. Plummer,

 

Vice President, Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

24


 

 

EX-31.1 2 a12-28840_1ex31d1.htm EX-31.1

EXHIBIT 31.1

 

CERTIFICATION

 

I, Christopher H. Atayan, certify that:

 

1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 18, 2013

/s/ Christopher H. Atayan

 

Christopher H. Atayan,

 

Chief Executive Officer and Chairman

 


 

EX-31.2 3 a12-28840_1ex31d2.htm EX-31.2

EXHIBIT 31.2

 

CERTIFICATION

 

I, Andrew C. Plummer, certify that:

 

1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 18, 2013

/s/ Andrew C. Plummer

 

Andrew C. Plummer, Vice President,

 

Chief Financial Officer and Secretary

 


EX-32.1 4 a12-28840_1ex32d1.htm EX-32.1

EXHIBIT 32.1

 

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

 

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended December 31, 2012, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, have executed this certification for furnishing to the Securities and Exchange Commission. I hereby certify that, to the best of my knowledge and belief:

 

1.

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: January18, 2013

/s/ Christopher H. Atayan

 

Title: Chief Executive Officer and Chairman

 

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

 


 

 

EX-32.2 5 a12-28840_1ex32d2.htm EX-32.2

EXHIBIT 32.2

 

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

 

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended December 31, 2012, I, Andrew C. Plummer, Vice President and Chief Financial Officer of the Company, have executed this certification for furnishing to the Securities and Exchange Commission. I hereby certify that, to the best of my knowledge and belief:

 

1.

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: January 18, 2013

/s/ Andrew C. Plummer

 

Title: Vice President,

 

Chief Financial Officer and Secretary

 

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

 


 

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