AMCON Distributing Company — FY2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011; comparisons are with the year ended September 30, 2010. This filing does not provide a clear standalone fourth-quarter results summary.
Business context
AMCON distributes consumer products through six wholesale distribution centers and operates 14 natural-food retail stores. Cigarettes accounted for about 72% of consolidated revenue and 27% of gross profit. The company acquired the distribution assets of L.P. Shanks Company (LPS) in May 2011, expanding its Southeastern U.S. presence.
Financial performance
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Revenue | $1,041.6 million | $1,010.5 million | +3.1% |
| Gross profit / margin | $74.2 million / 7.1% | $71.7 million / 7.1% | Gross profit +3.4% |
| Operating income / margin | $15.6 million / 1.5% | $15.5 million / 1.5% | +0.2% |
| Net income | $8.1 million | $9.0 million | -10.1% |
| Net income available to common shareholders | $7.8 million | $8.7 million | Lower year over year |
| Basic / diluted EPS | $13.09 / $10.44 | $15.36 / $11.99 | Both declined |
| Operating cash flow | $16.0 million | $10.4 million | Higher |
Revenue includes cigarette excise taxes of $340.6 million in FY2011 and $335.8 million in FY2010. The effective tax rate rose to 43.8% from 36.4%, primarily due to limits on deductibility of certain compensation expenses. Wholesale revenue increased 3.1%; retail revenue increased 2.8%, while retail gross margin declined to 42.9% from 43.8%.
Cash, debt and liquidity
- Cash was $1.4 million at year-end, versus $0.4 million a year earlier; working capital was $49.0 million, up from $39.1 million.
- Operating cash flow of $16.0 million funded most investing outflows, including $13.4 million for the LPS acquisition. Investing activities used $15.3 million; financing activities provided $0.3 million.
- At September 30, 2011, the revolving facility had $20.8 million outstanding. Its $70 million commitment was subject to collateral-based borrowing limits; reported availability was $40.3 million. The facility matures in April 2014 and carried an average interest rate of 3.05% at year-end.
- Long-term debt was $7.6 million, including $1.4 million of current maturities. Total reported borrowings under the facility and long-term debt were approximately $28.4 million.
- The company paid common dividends of $0.72 per share and preferred dividends of $0.3 million during FY2011. The credit agreement limits common dividends to $1.00 per share annually.
Changes, outlook and key risks
- LPS contributed $75.4 million of additional wholesale sales and $3.8 million of additional wholesale gross profit. Lower cigarette and other-product volume and mix partially offset these gains. Operating expenses increased, including costs of servicing LPS and higher fuel costs.
- Management said it continued to evaluate organic growth and strategic acquisitions and believed both businesses were positioned to compete. No quantified earnings or revenue guidance was provided.
- Management cited price-sensitive consumers, higher food commodity costs, possible regulatory pressures and excise-tax increases as concerns. It expects cigarette demand to continue declining over time.
- Principal risks include dependence on cigarette distribution, FDA and other tobacco regulation, excise taxes, customer consolidation and credit risk, competition, fuel and commodity costs, supplier concentration, and access to credit. The company does not hedge interest-rate or fuel-cost exposure.
- The credit facility includes a fixed-charge coverage covenant that applies if excess availability falls below 10% of the defined maximum loan limit; cross-default provisions link certain BMO loans. No cross-defaults existed at year-end.
- Operating lease commitments totaled $12.6 million. Self-insured workers’ compensation, general liability and health claims were accrued at $1.6 million. The filing reports no legal proceedings and no off-balance-sheet arrangements.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting, but its internal-control assessment excluded LPS, which represented about 17% of year-end assets and 7% of FY2011 revenue.
Important facts for investors to verify
- How much of FY2011 revenue growth and future performance depends on the LPS acquisition, and how integration is progressing.
- Whether declining cigarette volumes, taxes or regulation are affecting sales, gross profit and customer demand beyond the period reported.
- Current borrowing availability under the collateral-based facility, covenant headroom, refinancing needs and the large debt maturities scheduled for FY2013.
- Whether cash conversion and working capital remain adequate given seasonal inventory needs, customer credit exposure and acquisition-related growth.
- The potential effect of restricted stock compensation, preferred-stock conversion and dilution on per-share results.