AMCON Distributing Company — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013; comparisons are with the year ended September 30, 2012. This is an annual filing, and the supplied text does not provide a separate fourth-quarter results table.
Business context
AMCON distributes consumer products through six distribution centers, serving approximately 4,500 retail outlets, and operates 16 natural and health food stores. Wholesale distribution is the dominant business. Cigarettes accounted for 73% of consolidated revenue and 26% of consolidated gross profit in FY2013, versus 73% and 29%, respectively, in FY2012.
Financial performance and liquidity
| Metric | FY2013 / September 30, 2013 | FY2012 / September 30, 2012 |
|---|---|---|
| Sales | $1,211.1 million | $1,174.2 million |
| Gross profit / gross margin | $77.4 million / 6.4% | $79.1 million / 6.7% |
| Operating income / operating margin | $11.1 million / 0.9% | $13.4 million / 1.1% |
| Net income | $5.9 million | $7.4 million |
| Net income available to common shareholders | $5.7 million | $7.1 million |
| Basic / diluted EPS | $9.08 / $7.79 | $11.56 / $9.40 |
| Cash from operating activities | $5.7 million | $9.9 million |
| Cash and working capital at year-end | $0.3 million / $53.4 million | $0.5 million / $49.9 million |
- Wholesale sales were $1,174.0 million, up 3.3%; segment gross margin declined to 5.2% from 5.5%. Retail sales were $37.1 million, down 0.7%; retail gross margin improved to 43.5% from 43.0%.
- Capital expenditures were $2.1 million. Cash used in investing activities was $1.9 million and cash used in financing activities was $4.0 million. Year-end cash declined by $0.2 million.
- Year-end debt comprised $14.8 million under the revolving facility and $5.1 million of long-term debt, including current maturities. The $70 million facility had a collateral-based borrowing limit of $62.1 million, with $47.3 million available at year-end. Average facility interest rate was 2.14%.
- The company paid common dividends of $0.72 per share ($0.5 million total) and preferred dividends of $0.2 million during FY2013.
Material changes versus FY2012
- Revenue increased 3.1%, while gross profit fell 2.2%, operating income fell 17.5%, and net income fell 20.5%. Lower cigarette carton volume and mix, and reduced benefits associated with state excise-tax increases, weighed on wholesale gross profit.
- Wholesale sales growth reflected cigarette manufacturer price increases of $23.9 million, higher state excise taxes of $14.6 million, and $11.8 million growth in other categories; these were partly offset by a $13.2 million decline primarily from cigarette volume and mix.
- Retail sales were pressured by increased competition at Akin’s stores. Two new stores opened during the year; their sales and improved Florida-market sales partly offset weaker existing Akin’s results. Retail operating expenses rose, primarily due to employee costs and new-store openings.
- Operating cash flow declined, primarily reflecting a $7.7 million inventory increase, partly offset by cash generated from lower receivables and other current assets. The credit-facility balance rose by approximately $0.5 million, while long-term debt declined.
Outlook, risks, contingencies, and unusual items
- Management’s stated strategy is to maximize near-term liquidity, reduce debt and invest selectively in technology and product offerings, and pursue longer-term organic growth and acquisitions. The filing gives no quantified earnings or revenue guidance.
- Management expects the operating environment to remain highly competitive and believes distribution increasingly depends on differentiated merchandising and technology services. It considers liquidity adequate to sustain operations, while warning that a sharp deterioration in business conditions could impair revenue, collections, or access to bank credit.
- Key risks include declining cigarette demand and tobacco regulation or taxes; customer and distributor consolidation; competition and margin pressure; fuel and product-cost volatility; customer credit risk; supplier dependence; retail-store competition and execution; and credit-facility covenants. The facility’s fixed-charge coverage covenant applies if excess availability falls below 10% of the defined maximum loan limit.
- The company repurchased preferred and common shares for approximately $2.5 million in one private transaction and acquired additional common stock for approximately $0.8 million in a separate transaction. It also reported $20.4 million of future minimum operating-lease payments.
- No legal proceedings or impairment charges were reported. The independent auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
- After year-end, the company awarded 17,900 restricted stock units, vesting in equal installments from 2014 through 2016. The filing also identifies related-party preferred-stock dividends and a retail warehouse lease with an entity partly owned by a company employee.
Important facts for investors to verify
- Whether cigarette volume and mix continue to decline, and how that affects gross profit given the product’s high share of revenue.
- Whether wholesale incentives, excise-tax changes, and non-cigarette category growth support margins and offset tobacco-related pressure.
- Whether the two new retail stores perform profitably amid expanding national and regional competition.
- Whether inventory levels, customer collections, and seasonal working-capital needs preserve borrowing availability and covenant headroom.
- The terms and effects of share repurchases, preferred-stock conversion and dividends, equity awards, and disclosed related-party arrangements.