Business Context and Reporting Period
Company: AMCON Distributing Company (AMCON)
Filing Type: Form 8-K (Current Report)
Reporting Period: Second fiscal quarter ended March 31, 2009 (Three and six months ended March 31, 2009)
Business Overview: AMCON is a wholesale distributor of consumer products (beverages, tobacco, groceries, food service) and operates retail health food stores (Chamberlin's Market & Cafe, Akins Natural Foods Market). The company operates distribution centers in the Midwest and retail stores in Florida, Kansas, Missouri, Nebraska, and Oklahoma.
Key Financial Metrics
| Metric | Q2 2009 (3 Months) | Q2 2008 (3 Months) | YTD 2009 (6 Months) | YTD 2008 (6 Months) |
|---|---|---|---|---|
| Sales | $195.4 million | $190.4 million | $412.8 million | $401.1 million |
| Gross Profit | $17.2 million | $15.7 million | $33.1 million | $30.9 million |
| Operating Income | $3.9 million | $2.7 million | $6.7 million | $5.3 million |
| Net Income | $2.1 million | $1.2 million | $3.4 million | $2.1 million |
| Diluted EPS (Common) | $2.60 | $1.37 | $4.09 | $2.49 |
| Operating Cash Flow (YTD) | $18.5 million (2009) vs $6.0 million (2008) | |||
| Cash & Equivalents | $0.4 million (as of March 31, 2009) | |||
| Total Debt (Current + Long-term) | $26.7 million (as of March 31, 2009) |
Segment Performance (Q2 2009):
- Wholesale Distribution: Revenues of $185.9 million; Operating income (pre-DA) of $4.4 million.
- Retail Health Food: Revenues of $9.6 million; Operating income (pre-DA) of $1.1 million.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 2.6% year-over-year for the quarter and 2.9% year-over-year for the six-month period, despite a challenging economic environment.
- Profitability: Operating income increased significantly, rising 44.9% for the quarter and 24.9% for the six-month period compared to the prior year.
- Inventory Management: Inventories decreased by $6.5 million year-to-date (from $37.3 million to $30.5 million) as the company reduced stock levels to minimize tax liability ahead of federal excise tax increases.
- Debt Reduction: The company made significant net payments on bank credit agreements ($15.4 million YTD), reducing the credit facility balance from $32.2 million to $16.8 million (excluding current maturities).
- Preferred Stock: The company redeemed all Series C convertible preferred stock ($2.0 million) during the period.
Guidance, Outlook, and Risks
Management Commentary:
- Tax Impact: Congress passed legislation in February 2009 significantly increasing excise taxes on tobacco. This disrupted buying patterns and imposed a "floor stocks tax" on inventory held at quarter-end. The estimated liability is $1.7 million, due by July 31, 2009.
- Liquidity Strategy: Management emphasized a conservative posture and high liquidity to meet customer needs prior to the tax hike. Inventory was reduced to minimize tax exposure.
- Future Debt Levels: Management expects debt levels to rise in the coming quarter as the company moves back to normalized inventory levels.
Risks and Contingencies:
- Economic Headwinds: Fuel price volatility, potential for further tax increases, and continuing economic weakness.
- Forward-Looking Statements: Future results may differ materially due to cash resource availability and capital expenditure needs.
Investor Verification Checklist
- Floor Stocks Tax Liability: Verify the $1.7 million estimated liability and the July 31, 2009 payment deadline.
- Inventory Rebuild: Monitor the upcoming quarter for the expected increase in debt levels as inventory is restocked to normalized levels.
- Cash Position: Note the low cash balance ($0.4 million) relative to the significant debt reduction and upcoming tax payment obligations.
- Preferred Stock Redemption: Confirm the impact of the Series C redemption on future dividend obligations and earnings per share.
- Segment Mix: Assess the resilience of the wholesale tobacco segment given the recent federal tax increases.