dit_Current_Folio_10Q

Table of Contents

 

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, 2017

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☐

 

 

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

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 678,938 shares of its $.01 par value common stock outstanding as of April 17, 2017.

 

 

 


 

Table of Contents

Form 10-Q

2nd Quarter

 

INDEX

 

 

PAGE

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

Item 1. Financial Statements 

 

 

 

Condensed consolidated balance sheets at March 31, 2017 (unaudited) and September 30, 2016 

3

 

 

Condensed consolidated unaudited statements of operations for the three and six months ended March 31, 2017 and 2016 

4

 

 

Condensed consolidated unaudited statements of cash flows for the six months ended March 31, 2017 and 2016 

5

 

 

Notes to condensed consolidated unaudited financial statements 

6

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

14

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

23

 

 

Item 4. Controls and Procedures 

23

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. Legal Proceedings 

24

 

 

Item 1A. Risk Factors 

24

 

 

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

24

 

 

Item 3. Defaults Upon Senior Securities 

24

 

 

Item 4. Mine Safety Disclosures 

24

 

 

Item 5. Other Information 

24

 

 

Item 6. Exhibits 

24

 

2


 

Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1.      Financial Statements  

 

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, 2017 and September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

March

 

September

 

 

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

248,760

 

$

605,380

 

Accounts receivable, less allowance for doubtful accounts of

$0.7 million at March 2017 and $0.7 million at September 2016

 

 

27,737,863

 

 

30,033,104

 

Inventories, net

 

 

45,707,269

 

 

48,404,882

 

Deferred income taxes

 

 

1,182,299

 

 

1,441,919

 

Income taxes receivable

 

 

282,435

 

 

164,959

 

Prepaid and other current assets

 

 

7,829,685

 

 

8,608,049

 

Total current assets

 

 

82,988,311

 

 

89,258,293

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

12,373,290

 

 

12,607,877

 

Goodwill

 

 

6,349,827

 

 

6,349,827

 

Other intangible assets, net

 

 

3,626,812

 

 

3,759,311

 

Other assets

 

 

340,936

 

 

288,082

 

Total assets

 

$

105,679,176

 

$

112,263,390

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

17,255,595

 

$

18,164,983

 

Accrued expenses

 

 

6,299,199

 

 

6,792,884

 

Accrued wages, salaries and bonuses

 

 

2,653,577

 

 

3,580,996

 

Current maturities of long-term debt

 

 

367,982

 

 

362,495

 

Total current liabilities

 

 

26,576,353

 

 

28,901,358

 

 

 

 

 

 

 

 

 

Credit facility

 

 

5,102,578

 

 

10,537,226

 

Deferred income taxes

 

 

4,080,631

 

 

4,021,569

 

Long-term debt, less current maturities

 

 

2,836,070

 

 

3,021,824

 

Other long-term liabilities

 

 

32,123

 

 

30,815

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

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

 

 

 —

 

 

 —

 

Common stock, $.01 par value, 3,000,000 shares authorized, 678,938 shares

outstanding and issued at March 2017 and 677,057 shares outstanding

and issued at September 2016

 

 

8,314

 

 

8,184

 

Additional paid-in capital

 

 

20,782,045

 

 

19,525,554

 

Retained earnings

 

 

59,775,503

 

 

58,693,241

 

Treasury stock at cost

 

 

(13,514,441)

 

 

(12,476,381)

 

Total shareholders’ equity

 

 

67,051,421

 

 

65,750,598

 

Total liabilities and shareholders' equity

 

$

105,679,176

 

$

112,263,390

 

 

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

 

 

 

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three and six months ended March 31, 2017 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March

 

For the six months ended March

 

 

    

2017

    

2016

    

2017

    

2016

    

Sales (including excise taxes of $85.7 million and $88.7 million, and $176.7 million and $186.0 million, respectively)

 

$

294,047,870

 

$

296,449,126

 

$

604,152,099

 

$

618,457,375

 

Cost of sales

 

 

276,573,968

 

 

278,908,888

 

 

568,362,211

 

 

581,955,233

 

Gross profit

 

 

17,473,902

 

 

17,540,238

 

 

35,789,888

 

 

36,502,142

 

Selling, general and administrative expenses

 

 

15,820,504

 

 

14,770,358

 

 

31,518,823

 

 

30,615,492

 

Depreciation and amortization

 

 

529,969

 

 

575,681

 

 

1,056,402

 

 

1,142,630

 

 

 

 

16,350,473

 

 

15,346,039

 

 

32,575,225

 

 

31,758,122

 

Operating income

 

 

1,123,429

 

 

2,194,199

 

 

3,214,663

 

 

4,744,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

147,910

 

 

161,402

 

 

365,453

 

 

373,856

 

Other (income), net

 

 

(14,964)

 

 

(35,827)

 

 

(20,737)

 

 

(63,082)

 

 

 

 

132,946

 

 

125,575

 

 

344,716

 

 

310,774

 

Income from operations before income tax expense

 

 

990,483

 

 

2,068,624

 

 

2,869,947

 

 

4,433,246

 

Income tax expense

 

 

502,000

 

 

922,000

 

 

1,335,000

 

 

1,931,000

 

Net income

 

 

488,483

 

 

1,146,624

 

 

1,534,947

 

 

2,502,246

 

Preferred stock dividend requirements

 

 

 —

 

 

(48,643)

 

 

 —

 

 

(97,820)

 

Net income available to common shareholders

 

$

488,483

 

$

1,097,981

 

$

1,534,947

 

$

2,404,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share available to common shareholders

 

$

0.72

 

$

1.81

 

$

2.26

 

$

3.90

 

Diluted earnings per share available to common shareholders

 

$

0.71

 

$

1.61

 

$

2.22

 

$

3.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

678,938

 

 

606,080

 

 

680,318

 

 

615,768

 

Diluted weighted average shares outstanding

 

 

688,016

 

 

712,547

 

 

690,190

 

 

723,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the six months ended March 31, 2017 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

March

 

 

March

 

 

    

 

2017

    

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

1,534,947

 

$

2,502,246

 

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

 

 

 

 

 

 

 

Depreciation

 

 

923,903

 

 

960,130

 

Amortization

 

 

132,499

 

 

182,500

 

Gain on sale of property and equipment

 

 

(21,624)

 

 

(34,482)

 

Equity-based compensation

 

 

765,554

 

 

660,203

 

Deferred income taxes

 

 

318,682

 

 

352,242

 

Provision (recovery) for losses on doubtful accounts

 

 

29,000

 

 

(67,000)

 

Provision for losses on inventory obsolescence

 

 

72,197

 

 

70,818

 

Other

 

 

1,308

 

 

(4,022)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

2,266,241

 

 

2,677,840

 

Inventories

 

 

2,625,416

 

 

4,128,553

 

Prepaid and other current assets

 

 

778,364

 

 

(1,954,372)

 

Other assets

 

 

(52,854)

 

 

20,467

 

Accounts payable

 

 

(771,163)

 

 

(1,005,681)

 

Accrued expenses and accrued wages, salaries and bonuses

 

 

(822,955)

 

 

(1,479,465)

 

Income taxes receivable

 

 

(117,476)

 

 

343,304

 

Net cash flows from operating activities

 

 

7,662,039

 

 

7,353,281

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(837,895)

 

 

(692,402)

 

Proceeds from sales of property and equipment

 

 

31,978

 

 

48,164

 

Net cash flows from investing activities

 

 

(805,917)

 

 

(644,238)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Net payments on bank credit agreements

 

 

(5,434,648)

 

 

(3,292,820)

 

Principal payments on long-term debt

 

 

(180,267)

 

 

(174,650)

 

Repurchase of common stock

 

 

(1,038,060)

 

 

(2,547,683)

 

Dividends paid on convertible preferred stock

 

 

 —

 

 

(97,820)

 

Dividends on common stock

 

 

(452,685)

 

 

(412,210)

 

Withholdings on the exercise of equity-based awards

 

 

(107,082)

 

 

(81,406)

 

Net cash flows from financing activities

 

 

(7,212,742)

 

 

(6,606,589)

 

Net change in cash

 

 

(356,620)

 

 

102,454

 

Cash, beginning of period

 

 

605,380

 

 

219,536

 

Cash, end of period

 

$

248,760

 

$

321,990

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

365,620

 

$

391,130

 

Cash paid during the period for income taxes

 

 

1,133,794

 

 

1,235,454

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash information:

 

 

 

 

 

 

 

Equipment acquisitions classified as accounts payable

 

 

29,219

 

 

17,500

 

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

 

 

1,262,763

 

 

1,174,981

 

 

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

 

5


 

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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 and is 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 sixteen 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 16,000 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 September 2016, Convenience Store News ranked us as the seventh (7th) 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 641,000 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 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 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.

 

We operate within the natural products retail industry, which is a subset of the large and stable 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.

 

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Our Retail Segment operates sixteen  retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. 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 six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ten locations in Arkansas, Kansas, Missouri, Nebraska, and Oklahoma.

    

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, 2016, 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, 2017 and March 31, 2016 have been referred to throughout this quarterly report as Q2 2017 and Q2 2016, respectively. The fiscal balance sheet dates as of March 31, 2017 and September 30, 2016 have been referred to as March 2017 and September 2016, respectively.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company). The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

 

In November 2015, FASB issued ASU No. 2015-17 "Income Taxes: Balance Sheet Classification of Deferred Taxes” ("ASU 2015-17"). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company), and for interim periods within those fiscal years. The amendments for ASU 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

 

In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of how companies account for share-based compensation, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 (Fiscal 2018 for the Company) and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

 

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In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments supersedes the revenue recognition requirements in "Accounting Standard Codification 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. This ASU is effective for fiscal years beginning after December 15, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

 

In August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance regarding the classification of certain items within the statements of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 (Fiscal 2019 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

 

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 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 evaluating this ASU and its potential impact on our consolidated financial statements.

 

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

 

2. CONVERTIBLE PREFERRED STOCK

 

In fiscal 2016, the Company had 100,000 shares of Series A Preferred Stock (“Series A”) and 16,000 shares of Series B Preferred Stock (“Series B”) outstanding. During the fourth quarter of fiscal 2016, all outstanding shares of Series A and Series B were converted to 98,707 common shares of the Company pursuant to terms provided in the preferred stock agreements. Mr. Christopher Atayan, AMCON’s Chief Executive Officer and Chairman of the Board, owned all of the outstanding shares of the Series A and 8,000 shares of the Series B. For the six month period ending March 2016, the Company paid cash dividends of approximately $0.1 million to Mr. Atayan related to his ownership of the Series A and Series B.

3. INVENTORIES

 

At March 2017 and September 2016, 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 market. 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 $0.9 million at both March 2017 and September 2016. 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.

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4. GOODWILL AND OTHER INTANGIBLE ASSETS

 

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

 

 

 

 

 

 

 

 

 

 

    

March

    

September

 

 

 

2017

 

2016

 

Wholesale Segment

 

$

4,436,950

 

$

4,436,950

 

Retail Segment

 

 

1,912,877

 

 

1,912,877

 

 

 

$

6,349,827

 

$

6,349,827

 

 

Other intangible assets of the Company consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

March

    

September

 

 

 

2017

    

2016

 

Trademarks and tradenames (Retail Segment)

 

$

3,373,269

 

$

3,373,269

 

Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $1.9 million and $1.7 million at March 2017 and September 2016, respectively)

 

 

253,543

 

 

386,042

 

 

 

$

3,626,812

 

$

3,759,311

 

 

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At March  2017, 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. Amortization expense related to these assets was approximately $0.1 million for both the three and six month periods ended March 2017, respectively, and $0.1 million and $0.2 million for the three and six month periods ended March 2016, respectively.

 

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at March 2017:

 

 

 

 

 

 

 

 

March

 

 

    

2017

 

Fiscal 2017  (1)

 

$

132,501

 

Fiscal 2018

 

 

79,375

 

Fiscal 2019

 

 

41,667

 

 

 

$

253,543

 


(1)

Represents amortization for the remaining six months of Fiscal 2017.

   

5. DIVIDENDS

 

The Company paid cash dividends on its common stock and convertible preferred stock totaling $0.3 million and $0.5 million for the three and six month periods ended March 2017, respectively, and $0.2 million and $0.5 million for the three and six month periods ended March 2016, respectively.

 

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6. 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, using the treasury stock method.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March

 

 

 

2017

 

2016

 

 

    

Basic

    

Diluted

    

Basic

    

Diluted

 

Weighted average common shares outstanding

 

 

678,938

 

 

678,938

 

 

606,080

 

 

606,080

 

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

 

 

 —

 

 

9,078

 

 

 —

 

 

106,467

 

Weighted average number of shares outstanding

 

 

678,938

 

 

688,016

 

 

606,080

 

 

712,547

 

Net income

 

$

488,483

 

$

488,483

 

$

1,146,624

 

$

1,146,624

 

Deduct: convertible preferred stock dividends (2)

 

 

 —

 

 

 —

 

 

(48,643)

 

 

 —

 

Net income available to common shareholders

 

$

488,483

 

$

488,483

 

$

1,097,981

 

$

1,146,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders

 

$

0.72

 

$

0.71

 

$

1.81

 

$

1.61

 


(1)

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

(2)

Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended March

 

 

 

2017

 

2016

 

 

    

Basic

    

Diluted

    

Basic

    

Diluted

    

Weighted average common shares outstanding

 

 

680,318

 

 

680,318

 

 

615,768

 

 

615,768

 

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

 

 

 

 

9,872

 

 

 

 

107,549

 

Weighted average number of shares outstanding

 

 

680,318

 

 

690,190

 

 

615,768

 

 

723,317

 

Net income

 

$

1,534,947

 

$

1,534,947

 

$

2,502,246

 

$

2,502,246

 

Deduct: convertible preferred stock dividends (2)

 

 

 —

 

 

 

 

(97,820)

 

 

 

Net income available to common shareholders

 

$

1,534,947

 

$

1,534,947

 

$

2,404,426

 

$

2,502,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders

 

$

2.26

 

$

2.22

 

$

3.90

 

$

3.46

 


(1)

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

(2)

Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.

 

 

7. 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.

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The Facility included the following significant terms at March 2017:

 

·

A July 2018 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 - 175 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 ratio is over 1.0.

 

·

Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis.  There is, however, no limit on common stock dividends if certain excess availability measurements have been maintained for the thirty day period immediately prior to the payment of any such dividends or distributions and if immediately after giving effect to any such dividend or distribution payments the Company has a fixed charge coverage ratio of at least 1.10 to 1.0 as defined in the credit facility agreement.

 

 

Cross Default and Co-Terminus Provisions

 

The Company owns 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, is in default. There were no such cross defaults at March 2017. 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 letter of credit in the amount of approximately $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

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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, and income before taxes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Wholesale

    

Retail

    

 

 

    

 

 

 

 

 

Segment

 

Segment

 

Other

 

Consolidated

 

THREE MONTHS ENDED MARCH 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

209,646,918

 

$

 

$

 —

 

$

209,646,918

 

Tobacco 

 

 

37,371,108

 

 

 

 

 —

 

 

37,371,108

 

Confectionery

 

 

17,980,905

 

 

 

 

 —

 

 

17,980,905

 

Health food

 

 

 

 

6,718,058

 

 

 —

 

 

6,718,058

 

Foodservice & other

 

 

22,330,881

 

 

 

 

 —

 

 

22,330,881

 

Total external revenue

 

 

287,329,812

 

 

6,718,058

 

 

 —

 

 

294,047,870

 

Depreciation

 

 

346,264

 

 

117,456

 

 

 —

 

 

463,720

 

Amortization

 

 

66,249

 

 

 

 

 

 

66,249

 

Operating income (loss)

 

 

2,737,099

 

 

(209,189)

 

 

(1,404,481)

 

 

1,123,429

 

Interest expense

 

 

25,428

 

 

 —

 

 

122,482

 

 

147,910

 

Income (loss) from operations before taxes

 

 

2,722,619

 

 

(205,173)

 

 

(1,526,963)

 

 

990,483

 

Total assets

 

 

91,608,744

 

 

13,989,794

 

 

80,638

 

 

105,679,176

 

Capital expenditures

 

 

153,469

 

 

283,648

 

 

 —

 

 

437,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

211,638,962

 

$

 

$

 —

 

$

211,638,962

 

Tobacco

 

 

35,756,254

 

 

 

 

 —

 

 

35,756,254

 

Confectionery

 

 

19,045,686

 

 

 

 

 —

 

 

19,045,686

 

Health food

 

 

 

 

7,537,713

 

 

 —

 

 

7,537,713

 

Foodservice & other

 

 

22,470,511

 

 

 

 

 —

 

 

22,470,511

 

Total external revenue

 

 

288,911,413

 

 

7,537,713

 

 

 —

 

 

296,449,126

 

Depreciation

 

 

367,530

 

 

116,901

 

 

 —

 

 

484,431

 

Amortization

 

 

91,250

 

 

 

 

 

 

91,250

 

Operating income (loss)

 

 

3,073,641

 

 

474,545

 

 

(1,353,987)

 

 

2,194,199

 

Interest expense

 

 

29,368

 

 

 —

 

 

132,034

 

 

161,402

 

Income (loss) from operations before taxes

 

 

3,075,629

 

 

479,017

 

 

(1,486,022)

 

 

2,068,624

 

Total assets

 

 

101,775,492

 

 

12,554,229

 

 

221,537

 

 

114,551,258

 

Capital expenditures

 

 

255,324

 

 

75,513

 

 

 

 

330,837

 

 

 

12


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Wholesale

    

Retail

    

 

 

    

 

 

 

 

 

Segment

 

Segment

 

Other

 

Consolidated

 

SIX MONTHS ENDED  MARCH 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

431,415,941

 

$

 —

 

$

 —

 

$

431,415,941

 

Tobacco 

 

 

76,056,934

 

 

 —

 

 

 —

 

 

76,056,934

 

Confectionery

 

 

36,581,352

 

 

 —

 

 

 —

 

 

36,581,352

 

Health food

 

 

 

 

12,957,362

 

 

 —

 

 

12,957,362

 

Foodservice & other

 

 

47,140,510

 

 

 —

 

 

 —

 

 

47,140,510

 

Total external revenue

 

 

591,194,737

 

 

12,957,362

 

 

 —

 

 

604,152,099

 

Depreciation

 

 

688,938

 

 

234,965

 

 

 —

 

 

923,903

 

Amortization

 

 

132,499

 

 

 

 

 

 

132,499

 

Operating income (loss)

 

 

6,705,891

 

 

(507,675)

 

 

(2,983,553)

 

 

3,214,663

 

Interest expense

 

 

51,821

 

 

 —

 

 

313,632

 

 

365,453

 

Income (loss) from operations before taxes

 

 

6,666,521

 

 

(499,388)

 

 

(3,297,186)

 

 

2,869,947

 

Total assets

 

 

91,608,744

 

 

13,989,794

 

 

80,638

 

 

105,679,176

 

Capital expenditures

 

 

320,244

 

 

517,651

 

 

 —

 

 

837,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED  MARCH 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

External revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cigarettes

 

$

443,592,290

 

$

 —

 

$

 —

 

$

443,592,290

 

Tobacco

 

 

73,384,745

 

 

 

 

 

 

 

 

73,384,745

 

Confectionery

 

 

38,891,522

 

 

 —

 

 

 —

 

 

38,891,522

 

Health food

 

 

 

 

14,811,831

 

 

 —

 

 

14,811,831

 

Foodservice & other

 

 

47,776,987

 

 

 —

 

 

 —

 

 

47,776,987

 

Total external revenue

 

 

603,645,544

 

 

14,811,831

 

 

 —

 

 

618,457,375

 

Depreciation

 

 

726,097

 

 

234,033

 

 

 —

 

 

960,130

 

Amortization

 

 

182,500

 

 

 

 

 

 

182,500

 

Operating income (loss)

 

 

6,922,793

 

 

538,670

 

 

(2,717,443)

 

 

4,744,020

 

Interest expense

 

 

59,400

 

 

 —

 

 

314,456

 

 

373,856

 

Income (loss) from operations before taxes

 

 

6,917,371

 

 

547,775

 

 

(3,031,900)

 

 

4,433,246

 

Total assets

 

 

101,775,492

 

 

12,554,229

 

 

221,537

 

 

114,551,258

 

Capital expenditures

 

 

581,877

 

 

110,525

 

 

 —

 

 

692,402

 

 

 

 

9. COMMON STOCK REPURCHASE

 

For the six months ended March 2017, the Company had repurchased 11,104 shares of its common stock for cash totaling approximately $1.0 million. All repurchased shares are recorded in treasury stock at cost. No shares of the Company’s common stock were repurchased during Q2 2017.

 

 

 

 

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Table of Contents

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect,” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.

 

You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

 

·

increasing competition in our wholesale and retail health food businesses and any associated impact on the carrying value of intangible assets within those businesses,

 

·

increases in fuel costs and expenses associated with operating a refrigerated trucking fleet,

 

·

increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand,

 

·

higher commodity prices which could impact food ingredient costs for many of the products we sell,

 

·

regulation of cigarette, tobacco, and e-cigarette products by the FDA, in addition to existing state and federal regulations by other agencies,

 

·

potential bans or restrictions imposed by the FDA on the manufacture, distribution, and sale of certain cigarette and tobacco products,

 

·

increases in manufacturer prices,

 

·

increases in inventory carrying costs and customer credit risk,

 

·

changes in promotional and incentive programs offered by manufacturers,

 

·

demand for the Company’s products, particularly cigarette and tobacco products,

 

·