10-Q 1 dit-20190331x10q.htm 10-Q dit_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

 

 

For the quarterly period ended March 31, 2019

OR

 

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

 

 

 

For the transition period from ___________to _________

 

Commission File Number 1-15589


 

amcon_4c_logo.eps

(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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files)  Yes ☒  No ☐

 

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

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

Non-accelerated filer ☒

 

 

 

 

 

 

 

 

 

 

Smaller reporting company ☒Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The Registrant had 592,768 shares of its $.01 par value common stock outstanding as of April 15, 2019.

 

 

 


 

Form 10-Q

2nd Quarter

 

INDEX

 

 

PAGE

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

Item 1. Financial Statements 

 

 

 

Condensed consolidated balance sheets at March 31, 2019 (unaudited) and September 30, 2018 

3

 

 

Condensed consolidated unaudited statements of operations for the three and six months ended March 31, 2019 and 2018 

4

 

 

Condensed consolidated unaudited statements of shareholders’ equity for the three and six months ended March 31, 2019 and 2018 

5

 

 

Condensed consolidated unaudited statements of cash flows for the six months ended March 31, 2019 and 2018 

6

 

 

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 

23

 

 

Item 4. Controls and Procedures 

24

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. Legal Proceedings 

25

 

 

Item 1A. Risk Factors 

25

 

 

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

25

 

 

Item 3. Defaults Upon Senior Securities 

25

 

 

Item 4. Mine Safety Disclosures 

25

 

 

Item 5. Other Information 

25

 

 

Item 6. Exhibits 

26

 

2


 

PART I — FINANCIAL INFORMATION

 

Item 1.      Financial Statements  

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, 2019 and September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

March

 

September

 

 

    

2019

    

2018

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

642,116

 

$

520,644

 

Accounts receivable, less allowance for doubtful accounts of $0.9 million at March 2019 and September 2018

 

 

28,016,243

 

 

31,428,845

 

Inventories, net

 

 

57,650,559

 

 

78,869,615

 

Income taxes receivable

 

 

 —

 

 

272,112

 

Prepaid and other current assets

 

 

7,343,497

 

 

4,940,775

 

Total current assets

 

 

93,652,415

 

 

116,031,991

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

16,915,409

 

 

15,768,484

 

Goodwill

 

 

4,436,950

 

 

4,436,950

 

Other intangible assets, net

 

 

3,383,686

 

 

3,414,936

 

Other assets

 

 

293,896

 

 

301,793

 

Total assets

 

$

118,682,356

 

$

139,954,154

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

20,570,694

 

$

20,826,834

 

Accrued expenses

 

 

7,106,050

 

 

8,556,620

 

Accrued wages, salaries and bonuses

 

 

2,683,504

 

 

3,965,733

 

Income taxes payable

 

 

1,630

 

 

 —

 

Current maturities of long-term debt

 

 

803,612

 

 

1,096,306

 

Total current liabilities

 

 

31,165,490

 

 

34,445,493

 

 

 

 

 

 

 

 

 

Credit facility

 

 

17,224,197

 

 

35,428,597

 

Deferred income tax liability, net

 

 

2,009,719

 

 

1,782,801

 

Long-term debt, less current maturities

 

 

3,394,116

 

 

3,658,391

 

Other long-term liabilities

 

 

40,033

 

 

38,055

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 1,000,000 shares authorized

 

 

 —

 

 

 —

 

Common stock, $.01 par value, 3,000,000 shares authorized, 592,768 shares outstanding at March 2019 and 615,777 shares outstanding at September 2018

 

 

8,561

 

 

8,441

 

Additional paid-in capital

 

 

23,148,372

 

 

22,069,098

 

Retained earnings

 

 

66,203,466

 

 

63,848,030

 

Treasury stock at cost

 

 

(24,511,598)

 

 

(21,324,752)

 

Total shareholders’ equity

 

 

64,848,801

 

 

64,600,817

 

Total liabilities and shareholders’ equity

 

$

118,682,356

 

$

139,954,154

 

 

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

 

 

 

3


 

 

 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three and six months ended March 31, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March

 

For the six months ended March

 

 

    

2019

    

2018

    

2019

    

2018

    

Sales (including excise taxes of $82.9 million and $83.1 million, and $175.9 million and $171.7 million respectively)

 

$

310,715,873

 

$

295,207,286

 

$

655,449,793

 

$

610,720,495

 

Cost of sales

 

 

290,126,453

 

 

278,141,110

 

 

614,228,235

 

 

575,462,557

 

Gross profit

 

 

20,589,420

 

 

17,066,176

 

 

41,221,558

 

 

35,257,938

 

Selling, general and administrative expenses

 

 

17,391,681

 

 

15,619,420

 

 

35,348,896

 

 

31,973,028

 

Depreciation and amortization

 

 

641,228

 

 

537,903

 

 

1,249,236

 

 

1,068,908

 

 

 

 

18,032,909

 

 

16,157,323

 

 

36,598,132

 

 

33,041,936

 

Operating income

 

 

2,556,511

 

 

908,853

 

 

4,623,426

 

 

2,216,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

396,576

 

 

313,364

 

 

719,526

 

 

515,555

 

Other (income), net

 

 

(36,280)

 

 

(27,410)

 

 

(39,636)

 

 

(32,543)

 

 

 

 

360,296

 

 

285,954

 

 

679,890

 

 

483,012

 

Income from operations before income taxes

 

 

2,196,215

 

 

622,899

 

 

3,943,536

 

 

1,732,990

 

Income tax expense (benefit)

 

 

673,000

 

 

284,000

 

 

1,175,000

 

 

(86,000)

 

Net income available to common shareholders

 

$

1,523,215

 

$

338,899

 

$

2,768,536

 

$

1,818,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share available to common shareholders

 

$

2.49

 

$

0.49

 

$

4.50

 

$

2.64

 

Diluted earnings per share available to common shareholders

 

$

2.45

 

$

0.49

 

$

4.44

 

$

2.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

611,824

 

 

689,480

 

 

614,874

 

 

688,570

 

Diluted weighted average shares outstanding

 

 

620,769

 

 

697,406

 

 

623,848

 

 

697,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$

0.46

 

$

0.46

 

$

0.64

 

$

0.64

 

 

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

 

 

4


 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Shareholders’ Equity

for the three and six months ended March 31, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Paid in

 

Retained

 

 

 

 

    

Shares

   

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Total

THREE MONTHS ENDED MARCH 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2018

 

844,089

 

$

8,441

 

(153,603)

 

$

(13,616,477)

 

$

22,009,620

 

$

62,086,133

 

$

70,487,717

Dividends on common stock, $0.18 per share

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(128,990)

 

 

(128,990)

Compensation expense and issuance of stock in connection with equity-based awards

 

 —

 

 

 —

 

 —

 

 

 —

 

 

26,942

 

 

 —

 

 

26,942

Repurchase of common stock

 

 —

 

 

 —

 

(6,482)

 

 

(629,353)

 

 

 —

 

 

 —

 

 

(629,353)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

338,899

 

 

338,899

Balance, March 31, 2018

 

844,089

 

$

8,441

 

(160,085)

 

$

(14,245,830)

 

$

22,036,562

 

$

62,296,042

 

$

70,095,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

 

856,039

 

$

8,561

 

(238,744)

 

$

(22,242,837)

 

$

23,110,713

 

$

64,796,415

 

$

65,672,852

Dividends on common stock, $0.18 per share

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(116,164)

 

 

(116,164)

Compensation expense and issuance of stock in connection with equity-based awards

 

 —

 

 

 —

 

 —

 

 

 —

 

 

37,659

 

 

 —

 

 

37,659

Repurchase of common stock

 

 —

 

 

 —

 

(24,527)

 

 

(2,268,761)

 

 

 —

 

 

 —

 

 

(2,268,761)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,523,215

 

 

1,523,215

Balance, March 31, 2019

 

856,039

 

$

8,561

 

(263,271)

 

$

(24,511,598)

 

$

23,148,372

 

$

66,203,466

 

$

64,848,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Paid in

 

Retained

 

 

 

 

   

Shares

  

Amount

   

Shares

 

Amount

 

Capital

 

Earnings

 

Total

SIX MONTHS ENDED  MARCH 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2017

 

831,438

 

$

8,314

 

(153,432)

 

$

(13,601,302)

 

$

20,825,919

 

$

60,935,911

 

$

68,168,842

Dividends on common stock, $0.64 per share

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(458,859)

 

 

(458,859)

Compensation expense and issuance of stock in connection with equity-based awards

 

12,651

 

 

127

 

 —

 

 

 —

 

 

1,210,643

 

 

 —

 

 

1,210,770

Repurchase of common stock

 

 —

 

 

 —

 

(6,653)

 

 

(644,528)

 

 

 —

 

 

 —

 

 

(644,528)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,818,990

 

 

1,818,990

Balance, March 31, 2018

 

844,089

 

$

8,441

 

(160,085)

 

$

(14,245,830)

 

$

22,036,562

 

$

62,296,042

 

$

70,095,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED  MARCH 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2018

 

844,089

 

$

8,441

 

(228,312)

 

$

(21,324,752)

 

$

22,069,098

 

$

63,848,030

 

$

64,600,817

Dividends on common stock, $0.64 per share

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(413,100)

 

 

(413,100)

Compensation expense and issuance of stock in connection with equity-based awards

 

11,950

 

 

120

 

 —

 

 

 —

 

 

1,079,274

 

 

 —

 

 

1,079,394

Repurchase of common stock

 

 —

 

 

 —

 

(34,959)

 

 

(3,186,846)

 

 

 —

 

 

 —

 

 

(3,186,846)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2,768,536

 

 

2,768,536

Balance, March 31, 2019

 

856,039

 

$

8,561

 

(263,271)

 

$

(24,511,598)

 

$

23,148,372

 

$

66,203,466

 

$

64,848,801

 

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

5


 

 

 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the six months ended March 31, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

March

 

 

March

 

 

    

 

2019

    

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

2,768,536

 

$

1,818,990

 

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

 

 

 

 

 

 

 

Depreciation

 

 

1,217,986

 

 

1,020,783

 

Amortization

 

 

31,250

 

 

48,125

 

Gain on sale of property and equipment

 

 

(17,832)

 

 

(300)

 

Equity-based compensation

 

 

622,390

 

 

642,785

 

Deferred income taxes

 

 

226,918

 

 

(423,322)

 

Provision (recovery) for losses on doubtful accounts

 

 

59,000

 

 

(77,000)

 

Inventory allowance

 

 

240,699

 

 

(231,625)

 

Other

 

 

1,978

 

 

1,978

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

3,353,602

 

 

1,521,705

 

Inventories

 

 

20,978,357

 

 

(2,951,171)

 

Prepaid and other current assets

 

 

(2,402,722)

 

 

1,216,336

 

Other assets

 

 

7,897

 

 

(19,903)

 

Accounts payable

 

 

(467,687)

 

 

126,012

 

Accrued expenses and accrued wages, salaries and bonuses

 

 

(2,275,795)

 

 

(1,059,839)

 

Income taxes payable / receivable

 

 

273,742

 

 

(368,469)

 

Net cash flows from operating activities

 

 

24,618,319

 

 

1,265,085

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,159,232)

 

 

(1,366,767)

 

Proceeds from sales of property and equipment

 

 

23,700

 

 

300

 

Net cash flows (used in) investing activities

 

 

(2,135,532)

 

 

(1,366,467)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

642,850,736

 

 

623,945,799

 

Repayments under revolving credit facility

 

 

(661,055,136)

 

 

(622,433,675)

 

Principal payments on long-term debt

 

 

(556,969)

 

 

(185,753)

 

Repurchase of common stock

 

 

(3,186,846)

 

 

(644,528)

 

Dividends on common stock

 

 

(413,100)

 

 

(458,859)

 

Withholdings on the exercise of equity-based awards

 

 

 —

 

 

(79,850)

 

Net cash flows from (used in) financing activities

 

 

(22,361,315)

 

 

143,134

 

Net change in cash

 

 

121,472

 

 

41,752

 

Cash, beginning of period

 

 

520,644

 

 

523,065

 

Cash, end of period

 

$

642,116

 

$

564,817

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

774,784

 

$

489,840

 

Cash paid during the period for income taxes

 

 

674,340

 

 

705,790

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash information:

 

 

 

 

 

 

 

Equipment acquisitions classified in accounts payable

 

$

212,800

 

$

63,962

 

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

 

 

1,005,792

 

 

1,183,091

 

 

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

 

6


 

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 and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We primarily operate in the Central, Rocky Mountain, and Southern regions of the United States.

 

·

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

 

WHOLESALE SEGMENT

 

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,000 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. Convenience stores represent our largest customer category. In November 2018, Convenience Store News ranked us as the eighth (8th) largest convenience store distributor in the United States based on annual sales.

 

Our wholesale business offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory, merchandising expertise, information systems, and accessing trade credit.

 

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 689,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

 

RETAIL SEGMENT

 

Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

 

7


 

We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.

 

Our Retail Segment operates twenty-two retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akins”), and Earth Origins Market (“EOM”). These stores carry over 32,000 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. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of seven locations in Arkansas, Missouri, and Oklahoma. Earth Origins Market has a total of eight locations in Florida.

    

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, 2018, 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” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended March 31, 2019 and March 31, 2018 have been referred to throughout this quarterly report as Q2 2019 and Q2 2018, respectively. The fiscal balance sheet dates as of March 31, 2019 and September 30, 2018 have been referred to as March 2019 and September 2018, respectively.

 

ACCOUNTING PRONOUNCEMENTS

 

Accounting Pronouncement Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” Accounting Standards Codification Topic (“ASC”) 606 supersedes the revenue recognition requirements in “ASC 605 - Revenue Recognition” and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The Company adopted the new standard using the modified retrospective approach effective October 1, 2018. The adoption of ASC 606 did not have a material impact on the Company’s consolidated balance sheet or consolidated results of operations as of the adoption date or for the three and six months ended March 31, 2019. Significant areas of consideration in regards to the Company’s adoption of ASC 606 were as follows: 

 

Revenue Recognition

 

The Company recognizes revenues when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment. See Footnote 8 “Business Segments” for the disaggregation of net sales for each of our business segments.

 

8


 

Customers’ Sales Incentives

 

The Company provides consideration to customers, such as sales allowances or discounts to its customers on a regular basis. Under ASC 606, these customers’ sales incentives will continue to be recorded as a reduction to net sales as the sales incentive is earned by the customer.

 

Excise Taxes

 

As part of the implementation of ASC 606, the Company determined that it is primarily responsible for excise taxes levied on cigarette and other tobacco products and continues to present excise taxes as a component of revenue.

 

Contract Costs

 

Based on the nature of the Company’s business, the costs to obtain and fulfill customer contracts are not material.

 

New Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02 “Leases”. This ASU and its related amendments requires lessees to recognize right-of-use assets and corresponding lease liabilities for all leases greater than one year in duration that had been classified as operating leases under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently in the data aggregation and quantification phase of its review of this new standard and continues to evaluate its impact on the consolidated financial statements, including the potential capitalization of all operating leases on the Company’s balance sheet.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2019 (fiscal 2021 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

 

2. INVENTORIES

 

Inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) or net realizable value. 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 $0.7 million at March 2019 and $0.5 million at September 2018. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

9


 

3. GOODWILL AND OTHER INTANGIBLE ASSETS

 

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

 

 

 

 

 

 

 

 

 

    

March

    

September

 

 

2019

 

2018

Wholesale Segment

 

$

4,436,950

 

$

4,436,950

 

 

Other intangible assets of the Company consisted of the following:

 

 

 

 

 

 

 

 

    

March

    

September

 

 

2019

    

2018

Trademarks and tradenames (Retail Segment)

 

$

3,373,269

 

$

3,373,269

Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.1 million at both March 2019 and September 2018)

 

 

10,417

 

 

41,667

 

 

$

3,383,686

 

$

3,414,936

 

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At March 2019 identifiable intangible assets considered to have finite lives were represented by customer relationships which are being amortized over eight years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted.

 

At March 2019, goodwill allocated to our wholesale reporting unit totaled $4.4 million. In conjunction with the Company’s annual impairment testing for the fiscal year ended September 30, 2018, the Company determined that the estimated fair value of this reporting unit exceeded its carrying value at September 30, 2018. There has been no material changes to this assessment by the Company through March 2019.

 

4. DIVIDENDS

 

The Company paid cash dividends on its common stock totaling $0.3 million and $0.4 million for the three and six month periods ended March 2019, respectively, and $0.3 million and $0.5 million for the three and six month periods ended March 2018, respectively.

 

5. 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March

 

 

2019

 

2018

 

    

Basic

    

Diluted

    

Basic

    

Diluted

Weighted average common shares outstanding

 

 

611,824

 

 

611,824

 

 

689,480

 

 

689,480

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

 

 

 —

 

 

8,945

 

 

 —

 

 

7,926

Weighted average number of shares outstanding

 

 

611,824

 

 

620,769

 

 

689,480

 

 

697,406

Net income available to common shareholders

 

$

1,523,215

 

$

1,523,215

 

$

338,899

 

$

338,899

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders

 

$

2.49

 

$

2.45

 

$

0.49

 

$

0.49


(1)

Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

 

10


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended March

 

 

2019

 

2018

 

    

Basic

    

Diluted

    

Basic

    

Diluted

Weighted average common shares outstanding

 

 

614,874

 

 

614,874

 

 

688,570

 

 

688,570

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

 

 

 

 

8,974

 

 

 

 

8,993

Weighted average number of shares outstanding

 

 

614,874

 

 

623,848

 

 

688,570

 

 

697,563

Net income available to common shareholders

 

$

2,768,536

 

$

2,768,536

 

$

1,818,990

 

$

1,818,990

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders

 

$

4.50

 

$

4.44

 

$

2.64

 

$

2.61


(1)

Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

 

 

 

 

6. DEBT

 

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank participating in a loan syndication.

 

The Facility included the following significant terms at March 2019:

 

·

A November 2022 maturity date without a penalty for prepayment.

 

·

$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 $10.0 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 any original or renewal term of the agreement.

 

·

The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 150 basis points depending on certain credit facility utilization measures, 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.

 

·

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

 

·

A financial covenant requiring a fixed charge coverage ratio of at least 1.0 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 Company’s availability has not fallen below 10% of the maximum loan limit and the Company’s fixed charge coverage ratio is over 1.0 for the trailing twelve months.

 

11


 

·

Provides that the Company may pay up to $2.0 million of dividends on its common stock annually provided the Company is not in default before or after the dividend. Additionally, the Company may pay dividends on its common stock in excess of $2.0 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after the dividend.

 

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 March 2019 was $68.4 million, of which $17.2 million was outstanding, leaving $51.2 million available.

 

At March 2019, 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 3.87% at March 2019. For the six months ended March 2019, our peak borrowings under the Facility were $46.8 million, and our average borrowings and average availability under the Facility were $28.9 million and $40.2 million, respectively.

 

Cross Default and Co-Terminus Provisions

 

The Company owns certain real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, are in default. There were no such cross defaults at March 2019. In addition, the Real Estate 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 $0.5 million letter of credit to its workers’ compensation insurance carrier as part of its self‑insured loss control program.

 

 

 

7. INCOME TAXES

 

The Company’s results of operations for the six months ended March 2019 and March 2018 were impacted by the  enactment of the Tax Cuts and Jobs Act (“Tax Reform”) which was signed into law on December 22, 2017. Among the numerous provisions included in the new law was a reduction in the corporate federal income tax rate from 35% to 21% which resulted in a $0.8 million income tax benefit to the Company as reflected in our Statement of Operations for the six months ended March 2018 and a lower federal income tax rate for the six months ended March 2019. The $0.8 million tax benefit recognized in the prior fiscal year period (six months ended March 2018) primarily resulted from applying the new lower federal income tax rates to the Company’s net long term deferred tax liabilities recorded on its Consolidated Balance Sheet.

 

12


 

8. BUSINESS SEGMENTS

 

The Company 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 (loss) before taxes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Wholesale

    

Retail

    

 

 

    

 

 

 

 

 

Segment

 

Segment

 

Other

 

Consolidated

 

THREE MONTHS ENDED MARCH 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

211,572,049

 

$

 —

 

$

 —

 

$

211,572,049

 

Tobacco 

 

 

44,665,339

 

 

 —

 

 

 —

 

 

44,665,339

 

Confectionery

 

 

18,092,990

 

 

 —

 

 

 —

 

 

18,092,990

 

Health food

 

 

 —

 

 

11,973,455

 

 

 —

 

 

11,973,455

 

Foodservice & other

 

 

24,412,040

 

 

 —

 

 

 —

 

 

24,412,040

 

Total external revenue

 

 

298,742,418

 

 

11,973,455

 

 

 —

 

 

310,715,873

 

Depreciation

 

 

378,172

 

 

247,431

 

 

 —

 

 

625,603

 

Amortization

 

 

15,625

 

 

 

 

 

 

15,625

 

Operating income (loss)

 

 

3,797,109

 

 

259,043

 

 

(1,499,641)

 

 

2,556,511

 

Interest expense

 

 

36,823

 

 

 —

 

 

359,753

 

 

396,576

 

Income (loss) from operations before taxes

 

 

3,793,759

 

 

261,849

 

 

(1,859,393)

 

 

2,196,215

 

Total assets

 

 

100,479,809

 

 

17,961,404

 

 

241,143

 

 

118,682,356

 

Capital expenditures

 

 

824,557

 

 

389,717

 

 

 —

 

 

1,214,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 2018