AMCON Distributing Company — FY2012 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended September 30, 2012, compared with FY2011; it is not a standalone fourth-quarter report. AMCON distributes consumer products through six distribution centers and operates 14 natural-food stores. Wholesale distribution is the dominant business. The financial statements received an unqualified audit opinion.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Sales | $1,174.2 million | $1,041.6 million | +12.7% |
| Gross profit / gross margin | $79.1 million / 6.7% | $74.2 million / 7.1% | Profit +6.6%; margin down 0.4 percentage points |
| Operating income | $13.4 million | $15.6 million | -13.7% |
| Net income | $7.4 million | $8.1 million | -8.6% |
| Net income available to common shareholders | $7.1 million | $7.8 million | Down |
| Basic / diluted EPS | $11.56 / $9.40 | $13.09 / $10.44 | Down |
| Operating cash flow | $9.9 million | $16.0 million | Down $6.1 million |
Wholesale sales were $1,136.8 million, up 13.3%; gross profit was $63.0 million, with a 5.5% margin versus 5.8%. Retail sales were $37.3 million, down 1.3%; gross profit was $16.0 million, with a 43.0% margin versus 42.9%. Cigarettes accounted for 73% of consolidated sales and 29% of gross profit.
Cash, debt and liquidity. Cash was $0.5 million at year-end, versus $1.4 million a year earlier; working capital was $49.9 million, versus $49.0 million. Net investing cash use was $1.4 million, primarily capital expenditures. Financing cash use was $9.4 million, including $6.4 million of net credit-facility repayments, $1.3 million of long-term debt repayments, share repurchases and dividends. Credit-facility borrowings were $14.4 million; reported availability was $48.8 million against a borrowing base-adjusted limit of $63.2 million. Long-term debt, including current maturities, was $6.3 million. The revolving facility had a $70 million stated limit and an April 2014 maturity. Its fixed-charge coverage covenant applies if excess availability falls below 10% of the maximum loan limit.
Material changes and management commentary
- Wholesale sales growth included $120.0 million attributed to the L.P. Shanks acquisition, $25.4 million from cigarette manufacturer price increases and $4.6 million from state excise-tax increases. These were partly offset by a $22.1 million decline, primarily reflecting cigarette carton volume and mix.
- The acquisition increased wholesale gross profit by approximately $6.4 million, but operating expenses rose $7.0 million overall, including $5.9 million to service the acquired business. Management reported a $3.9 million wholesale gross-profit reduction primarily from cigarette sales volume and mix.
- Retail performance diverged: Chamberlin’s sales improved by $1.6 million, while Akin’s sales declined by $2.1 million amid greater chain competition. The company signed leases for two new stores, planned to open in FY2013.
- Management described convenience distribution as competitive and changing, with consolidation, declining cigarette demand and increasing customer demand for merchandising and technology services. Its stated strategy is to maximize near-term liquidity, reduce debt while investing in technology and foodservice in the medium term, and pursue longer-term organic and acquisition growth.
Outlook, risks and unusual items
The filing gives no numerical earnings or revenue guidance. Management said it believed liquidity would be adequate to sustain operations, while warning that a sharp deterioration in conditions could hurt revenue, collections or access to bank credit. Key risks include cigarette concentration and declining category demand; tobacco regulation, taxes and litigation exposure; customer consolidation and credit risk; fuel and product-cost volatility; competition; and reliance on suppliers without long-term purchase contracts. Retail risks include intense competition, store expansion execution, perishable inventory losses and product availability.
There were no reported legal proceedings or off-balance-sheet arrangements. The company reported no impairment charges in FY2012 or FY2011. It had $18.1 million in future minimum operating-lease commitments and $1.4 million of self-insured workers’ compensation, general-liability and health claims liabilities at year-end. FY2012 included a $918,000 repurchase of 17,000 shares at $54 per share; common dividends were $0.72 per share. The revolving facility caps annual common dividends at $1.00 per share.
Investor verification priorities
- Check how much reported sales growth reflects the L.P. Shanks acquisition and price/tax increases versus underlying volume; assess cigarette volume and product mix.
- Monitor gross-margin compression, operating costs tied to acquired operations, and whether Akin’s sales stabilize.
- Verify borrowing-base availability, covenant headroom and refinancing plans ahead of the facility’s April 2014 maturity.
- Review customer receivable quality, inventory needs and cash-flow seasonality, especially during peak warm-weather months.
- Track execution and funding for the two planned store openings, alongside tobacco regulation, excise taxes and cigarette-demand trends.