AMCON DISTRIBUTING CO
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
| o | 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 Distributing Company
(Exact name of registrant as specified in its charter)
| Delaware | 47-0702918 | |
|
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer
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
þ
No
o
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
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
The
Registrant had 575,508 shares of its $.01 par value common stock outstanding as of April 12,
2010.
Form 10-Q
2nd Quarter
2nd Quarter
INDEX
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| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
2
Table of Contents
| Item 1. |
Financial Statements
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AMCON Distributing Company and Subsidiaries
March 31, 2010 and September 30, 2009
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March
2010 |
September
2009 |
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| (Unaudited) | ||||||||
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ASSETS
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Current assets:
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Cash
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$ | 529,408 | $ | 309,914 | ||||
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Accounts receivable, less allowance for doubtful
accounts of $1.1 million and $0.9 million,
at March 2010 and September 2009
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27,723,560 | 28,393,198 | ||||||
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Inventories, net
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35,325,691 | 34,486,027 | ||||||
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Deferred income taxes
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1,706,641 | 1,701,568 | ||||||
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Prepaid and other current assets
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2,243,351 | 1,728,576 | ||||||
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Total current assets
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67,528,651 | 66,619,283 | ||||||
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Property and equipment, net
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11,863,643 | 11,256,627 | ||||||
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Goodwill
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6,149,168 | 5,848,808 | ||||||
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Other intangible assets
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4,908,894 | 3,373,269 | ||||||
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Other assets
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1,073,482 | 1,026,395 | ||||||
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$ | 91,523,838 | $ | 88,124,382 | ||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$ | 16,453,293 | $ | 15,222,689 | ||||
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Accrued expenses
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5,706,747 | 6,768,924 | ||||||
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Accrued wages, salaries and bonuses
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2,441,473 | 3,257,832 | ||||||
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Income taxes payable
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876,919 | 3,984,258 | ||||||
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Current maturities of credit facility
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76,267 | 177,867 | ||||||
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Current maturities of long-term debt
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965,905 | 1,470,445 | ||||||
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Total current liabilities
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26,520,604 | 30,882,015 | ||||||
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Credit facility, less current maturities
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25,782,537 | 22,655,861 | ||||||
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Deferred income taxes
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1,227,590 | 1,256,713 | ||||||
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Long-term debt, less current maturities
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5,637,282 | 5,066,185 | ||||||
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Other long-term liabilities
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459,966 | — | ||||||
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Series A cumulative, convertible preferred stock, $.01 par value
100,000 shares authorized and issued, liquidation preference
$25.00 per share
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2,500,000 | 2,500,000 | ||||||
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Series B cumulative, convertible preferred stock, $.01 par value
80,000 shares authorized and issued, liquidation preference
$25.00 per share
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2,000,000 | 2,000,000 | ||||||
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Shareholders’ equity:
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Preferred stock, $0.01 par, 1,000,000 shares authorized,
180,000 shares outstanding and issued in Series A and B
referred to above
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— | — | ||||||
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Common stock, $0.01 par value, 3,000,000 shares authorized,
575,508 shares outstanding at March 2010 and 573,232 shares
outstanding at September 2009
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5,755 | 5,732 | ||||||
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Additional paid-in capital
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8,084,026 | 7,617,494 | ||||||
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Retained earnings
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19,306,078 | 16,140,382 | ||||||
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Total shareholders’ equity
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27,395,859 | 23,763,608 | ||||||
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$ | 91,523,838 | $ | 88,124,382 | ||||
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The accompanying notes are an integral part of these condensed consolidated unaudited financial
statements.
3
Table of Contents
AMCON Distributing Company and Subsidiaries
for the three and six months ended March 31, 2010 and 2009
| For the three months | For the six months | |||||||||||||||
| ended March | ended March | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
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Sales (including excise taxes of $76.9
million and $43.3 million, and $158.4
million and $93.6 million, respectively)
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$ | 230,499,129 | $ | 195,442,246 | $ | 474,440,167 | $ | 412,819,608 | ||||||||
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Cost of sales
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213,558,955 | 178,195,212 | 440,271,980 | 379,727,926 | ||||||||||||
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Gross profit
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16,940,174 | 17,247,034 | 34,168,187 | 33,091,682 | ||||||||||||
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Selling, general and administrative expenses
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13,365,802 | 13,027,140 | 27,144,541 | 25,824,722 | ||||||||||||
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Depreciation and amortization
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415,572 | 300,988 | 802,841 | 611,322 | ||||||||||||
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13,781,374 | 13,328,128 | 27,947,382 | 26,436,044 | ||||||||||||
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Operating income
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3,158,800 | 3,918,906 | 6,220,805 | 6,655,638 | ||||||||||||
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Other expense (income):
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Interest expense
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368,425 | 408,587 | 773,670 | 897,786 | ||||||||||||
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Other (income), net
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(23,046 | ) | (26,476 | ) | (36,426 | ) | (40,543 | ) | ||||||||
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345,379 | 382,111 | 737,244 | 857,243 | ||||||||||||
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Income from continuing operations
before income tax
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2,813,421 | 3,536,795 | 5,483,561 | 5,798,395 | ||||||||||||
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Income tax expense
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1,022,000 | 1,343,000 | 1,963,000 | 2,203,000 | ||||||||||||
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Income from continuing operations
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1,791,421 | 2,193,795 | 3,520,561 | 3,595,395 | ||||||||||||
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Loss from discontinued operations,
net of income tax benefit of $0.1
million in each fiscal period
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— | (97,437 | ) | — | (199,475 | ) | ||||||||||
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Net income
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1,791,421 | 2,096,358 | 3,520,561 | 3,395,920 | ||||||||||||
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Preferred stock dividend requirements
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(73,239 | ) | (314,201 | ) | (148,106 | ) | (419,734 | ) | ||||||||
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Net income available to common shareholders
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$ | 1,718,182 | $ | 1,782,157 | $ | 3,372,455 | $ | 2,976,186 | ||||||||
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Basic earnings (loss) per share
available to common shareholders:
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Continuing operations
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$ | 3.05 | $ | 3.43 | $ | 6.00 | $ | 5.80 | ||||||||
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Discontinued operations
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— | (0.18 | ) | — | (0.36 | ) | ||||||||||
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Net basic earnings per share
available to common shareholders
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$ | 3.05 | $ | 3.25 | $ | 6.00 | $ | 5.44 | ||||||||
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Diluted earnings (loss) per share
available to common shareholders:
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Continuing operations
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$ | 2.40 | $ | 2.72 | $ | 4.72 | $ | 4.33 | ||||||||
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Discontinued operations
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— | (0.12 | ) | — | (0.24 | ) | ||||||||||
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Net diluted earnings per share
available to common shareholders
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$ | 2.40 | $ | 2.60 | $ | 4.72 | $ | 4.09 | ||||||||
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Weighted average shares outstanding:
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Basic
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564,216 | 548,619 | 562,145 | 547,089 | ||||||||||||
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Diluted
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746,873 | 805,236 | 745,773 | 830,923 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial
statements.
4
Table of Contents
AMCON Distributing Company and Subsidiaries
for the six months ended March 31, 2010 and 2009
| 2010 | 2009 | |||||||
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income
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$ | 3,520,561 | $ | 3,395,920 | ||||
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Deduct: Loss from discontinued operations, net of tax
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— | (199,475 | ) | |||||
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Income from continuing operations
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3,520,561 | 3,595,395 | ||||||
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Adjustments to reconcile net income from
continuing operations to net cash flows
from operating activities:
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Depreciation
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678,860 | 611,322 | ||||||
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Amortization
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123,981 | — | ||||||
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Gain on sale of property and equipment
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(16,935 | ) | (47,700 | ) | ||||
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Stock based compensation
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267,464 | 265,800 | ||||||
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Net excess tax (benefit) deficiency on equity-based awards
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(130,126 | ) | 16,592 | |||||
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Deferred income taxes
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(34,196 | ) | (222,412 | ) | ||||
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Provision for losses on doubtful accounts
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178,367 | 346,000 | ||||||
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Provision for losses on inventory obsolescence
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16,393 | 327,673 | ||||||
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Changes in assets and liabilities:
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Accounts receivable
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491,271 | 5,859,370 | ||||||
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Inventories
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1,125,441 | 6,480,136 | ||||||
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Prepaid and other current assets
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(519,415 | ) | (735,490 | ) | ||||
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Other assets
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(47,087 | ) | 107,646 | |||||
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Accounts payable
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1,144,665 | (2,852,021 | ) | |||||
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Accrued expenses and accrued wages, salaries and bonuses
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(1,878,536 | ) | 2,641,991 | |||||
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Income tax payable
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(2,977,213 | ) | 2,045,058 | |||||
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Net cash flows from operating activities — continuing operations
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1,943,495 | 18,439,360 | ||||||
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Net cash flows from operating activities — discontinued operations
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— | 42,692 | ||||||
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Net cash flows from operating activities
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1,943,495 | 18,482,052 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Purchases of property and equipment
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(1,102,929 | ) | (497,401 | ) | ||||
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Proceeds from sales of property and equipment
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42,905 | 76,405 | ||||||
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Acquisition
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(3,099,836 | ) | — | |||||
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Net cash flows from investing activities
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(4,159,860 | ) | (420,996 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
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Net borrowings (payments) on bank credit agreements
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3,025,076 | (15,380,790 | ) | |||||
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Principal payments on long-term debt
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(433,443 | ) | (397,410 | ) | ||||
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Proceeds from exercise of stock options
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68,965 | — | ||||||
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Net excess tax benefit (deficiency) on equity-based awards
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130,126 | (16,592 | ) | |||||
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Redemption of Series C convertible preferred stock
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— | (2,000,000 | ) | |||||
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Dividends paid on preferred stock
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(148,106 | ) | (198,106 | ) | ||||
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Dividends on common stock
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(206,759 | ) | (114,079 | ) | ||||
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Net cash flows from financing activities
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2,435,859 | (18,106,977 | ) | |||||
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Net change in cash
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219,494 | (45,921 | ) | |||||
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Cash, beginning of period
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309,914 | 457,681 | ||||||
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Cash, end of period
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$ | 529,408 | $ | 411,760 | ||||
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5
Table of Contents
| 2010 | 2009 | |||||||
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Supplemental disclosure of cash flow information:
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Cash paid during the period for interest
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$ | 760,727 | $ | 968,296 | ||||
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Cash paid during the period for income taxes
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4,974,408 | 264,355 | ||||||
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Supplemental disclosure of non-cash information:
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Equipment acquisitions classified as accounts payable
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85,939 | — | ||||||
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Constructive dividends on Series A, B, and C
Convertible Preferred Stock
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— | 221,628 | ||||||
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Business acquisition (see Note 2):
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Inventory
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1,981,498 | — | ||||||
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Property and equipment
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122,978 | — | ||||||
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Customer relationships intangible asset
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1,620,000 | — | ||||||
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Goodwill
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300,360 | — | ||||||
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Note payable
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500,000 | — | ||||||
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Contingent consideration
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425,000 | — | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
Table of Contents
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 (“ADC”) distributes consumer products in the Central and
Rocky Mountain regions of the United States.
|
||
| • |
Our retail health food segment operates fourteen health food retail stores located
throughout the Midwest and Florida.
|
WHOLESALE
DISTRIBUTION SEGMENT
ADC serves approximately 4,200 retail outlets including convenience stores, grocery stores, liquor
stores, drug stores, and tobacco shops. In October 2009, Convenience Store News ranked ADC as the
eighth (8th) largest convenience store distributor in the United States based on annual sales.
ADC distributes approximately 14,000 different consumer products, including cigarettes and tobacco
products, candy and other confectionery products, beverages, groceries, paper products, health and
beauty care products, frozen and chilled products and institutional food service products.
RETAIL
HEALTH FOOD SEGMENT
The Company’s retail health food stores, which are operated as Chamberlin’s Market & Café
(“Chamberlin’s” or “CNF”) and Akin’s Natural Foods Market (“Akin’s” or “ANF”), carry over 30,000
different national and regionally branded and private label products. These products include
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 first established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which
was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and
Kansas.
7
Table of Contents
FINANCIAL
STATEMENTS
The Company’s fiscal year ends on September 30. The results for the interim periods 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, 2009, 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, 2010 and March 31, 2009 have been
referred to throughout this quarterly report as Q2 2010 and Q2 2009, respectively. The fiscal
balance sheet dates as of March 31, 2010, March 31, 2009, and September 30, 2009 have been referred
to as March 2010, March 2009, and September 2009, respectively.
Adoption of New Accounting Standards
The Company adopted the following accounting standards during Q2 2010, none of which had an impact
on our consolidated results of operations or financial condition.
Accounting Standard Update No. 2010-09 “Amendments to Certain Recognition and Disclosure
Requirements” (“ASU No. 2010-09”) — amended Financial Accounting Standards Board (“FASB”) ASC 855
“Subsequent Events” to remove the requirement that Security and Exchange Commission filers disclose
the date through which an entity has evaluated subsequent events. This amendment was made to
alleviate potential conflicts with existing Securities and Exchange Commission guidance.
ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” — requires additional
disclosures about the different classes of assets and liabilities measured at fair value, the
valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the
transfers between Levels 1, 2, and 3. The Company adopted this new accounting standards during Q2
2010 except for the provisions of this update which will be effective for fiscal years beginning
after December 15, 2010 (fiscal 2012 for the Company).
Recently Issued Accounting Pronouncements
The Company is currently evaluating the impact of implementing the following new accounting
standards:
FASB ASC 860
(“Accounting for Transfers of Financial Assets”)
— requires additional disclosures
regarding the transfer and derecognition of financial assets and eliminates the concept of
qualifying special-purpose entities. This pronouncement is effective for fiscal years beginning
after November 15, 2009 (fiscal 2011 for the Company).
FASB ASC 810
(“Amendments to FASB Interpretation: Consolidation of Variable Interest Entities”)
—
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise
is the primary beneficiary of a variable interest entity. Additionally, this pronouncement requires
additional disclosures about an enterprise’s involvement in variable interest entities and is
effective for fiscal periods beginning after November 15, 2009 (fiscal 2011 for the Company).
8
Table of Contents
2. ACQUISITION
On October 30, 2009, the Company acquired the convenience store distribution assets of Discount
Distributors from its parent Harps Food Stores, Inc. (“Harps”). Discount Distributors was a
wholesale distributor to convenience stores in Arkansas, Oklahoma, and Missouri with annual sales
of approximately $59.8 million. The Company paid $3.1 million cash, issued a $0.5 million note
payable in quarterly installments over two years, and could pay an additional $1.0 million in
contingent consideration for certain fixed assets, inventory, and customer lists of Discount
Distributors. The contingent consideration is based on achieving predetermined two-year revenue
targets. This transaction was funded through the Company’s existing credit facility. No significant
liabilities were assumed in connection with the transaction and the costs incurred to effect the
acquisition were not significant and were expensed as incurred. The acquisition expands the
Company’s strategic footprint in the southern portion of the United States and enhances our ability
to service customers in that region.
The following table summarizes the consideration paid for the acquired assets and their related
acquisition date fair values. The fair value of the assets acquired has been measured in accordance
with ASC 805 “Business Combinations.” In valuing identifiable intangible assets, the Company has
estimated the fair value using the discounted cash flows methodology. The purchase price allocation
reflects various preliminary estimates and analyses and is subject to change during the measurement
period (generally one year from the acquisition date). The acquired assets are reported as a
component of our wholesale distribution segment.
| Total Consideration (in millions): | Amount | |||
|
Cash
|
$ | 3.1 | ||
|
Note payable
|
0.5 | |||
|
Fair value of contingent consideration
|
0.4 | |||
|
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Fair value of consideration transferred
|
$ | 4.0 | ||
|
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||||
| Weighted | ||||||||
| Average | ||||||||
| Amortization | ||||||||
| Recognized amounts of identifiable assets acquired (in millions): | Amount | Period | ||||||
|
Inventory
|
$ | 2.0 | — | |||||
|
Property and equipment
|
0.1 | 5 years | ||||||
|
Identifiable intangible assets:
|
||||||||
|
Customer relationships
|
1.6 | 8 years | ||||||
|
|
||||||||
|
Total identifiable net assets
|
3.7 | |||||||
|
Goodwill
|
0.3 | |||||||
|
|
||||||||
|
Total identifiable assets and goodwill
|
$ | 4.0 | ||||||
|
|
||||||||
9
Table of Contents
The Company has estimated that the undiscounted payments required under the contingent
consideration arrangement will approximate $0.7 million ($0.4 million fair value). The $0.3 million
of goodwill arising from the acquisition primarily represents synergies and economies of scale
generated through reductions in selling, general, and administrative expenses. This goodwill has
been assigned to the Company’s wholesale
distribution segment and is expected to be deductible for tax purposes. No measurement adjustments
related to this transaction were recorded during Q2 2010.
The following table sets forth the unaudited actual revenue and earnings included in the Company’s
statement of operations related to the acquisition and the pro forma revenue and earnings of the
combined entity had the acquisition occurred as of the beginning of the Company’s prior fiscal
year. These pro forma amounts do not purport to be indicative of the actual results that would have
been obtained had the acquisition occurred at that time.
| Three months ended | Six months ended | ||||||||||||||||
| March | March | ||||||||||||||||
| (In millions) | 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Revenue — Actual Results
|
$ | 12.9 | $ | — | $ | 22.2 | $ | — | |||||||||
|
Revenue — Supplemental pro forma results
|
$ | 12.9 | $ | 12.9 | $ | 27.2 | $ | 24.5 | |||||||||
|
|
|||||||||||||||||
|
Net Income — Actual Results
|
$ | 0.1 | $ | — | $ | 0.2 | $ | — | |||||||||
|
Net Income — Supplemental pro forma results
|
$ | 0.1 | $ | 0.2 | $ | 0.2 | $ | 0.2 | |||||||||
3. CONVERTIBLE PREFERRED STOCK
The Company had two convertible preferred stock series outstanding at March 2010 as identified in
the following table:
| Series A | Series B | |||||||
|
Date of issuance:
|
June 17, 2004 | October 8, 2004 | ||||||
|
Optionally redeemable beginning
|
June 18, 2006 | October 9, 2006 | ||||||
|
Par value (gross proceeds):
|
$ | 2,500,000 | $ | 2,000,000 | ||||
|
Number of shares:
|
100,000 | 80,000 | ||||||
|
Liquidation preference per share:
|
$ | 25.00 | $ | 25.00 | ||||
|
Conversion price per share:
|
$ | 30.31 | $ | 24.65 | ||||
|
Number of common shares in
which to be converted:
|
82,481 | 81,136 | ||||||
|
Dividend rate:
|
6.785 | % | 6.37 | % | ||||
The Series A Convertible Preferred Stock (“Series A”) and Series B Convertible Preferred Stock
(“Series B”), (collectively, the “Preferred Stock”), are convertible at any time by the holders
into a number of shares of AMCON common stock equal to the number of preferred shares being
converted multiplied by a fraction, which is equal to $25.00 divided by the conversion price. The
conversion prices for the Preferred Stock are subject to customary adjustments in the event of
stock splits, stock dividends, and certain other distributions on the Common Stock. Cumulative
dividends for the Preferred Stock are payable in arrears, when, and if declared by the Board of
Directors, on March 31, June 30, September 30 and December 31 of each year.
10
Table of Contents
In the event of a liquidation of the Company, the holders of the Preferred Stock are
entitled to receive the liquidation preference plus any accrued and unpaid dividends prior to the
distribution of any amount to the holders of the Common Stock.
The shares of Preferred Stock are optionally redeemable by the Company beginning on various dates,
as listed in the above table, at redemption prices equal to 112% of the liquidation preference. The
redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation
preference, after which date it remains the liquidation preference. The Preferred Stock is
redeemable at the liquidation value at the option of the holder. The Series A Preferred Stock is
owned by Mr. Chris Atayan, AMCON’s Chief Executive Officer and Chairman of the Board. The Series B
Preferred Stock is owned by an institutional investor which has elected Mr. Atayan, pursuant to the
voting rights in the Certificate of Designation creating the Series B, as its representative on our
Board of Directors.
4. INVENTORIES
Inventories consisted of finished goods at March 2010 and September 2009 and are stated at the
lower of cost, determined on a first in first out, or FIFO basis, or market. The wholesale
distribution and retail health food segment inventories consist of products purchased in bulk
quantities to be redistributed to the Company’s customers or sold at retail. Finished goods include
total reserves of approximately $0.9 million at both March 2010 and September 2009. These reserves
include the Company’s obsolescence allowance, which reflects estimated unsaleable or non-refundable
inventory based on an evaluation of slow moving and discontinued products.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill by reporting segment of the Company consisted of the following:
| March | September | |||||||
| 2010 | 2009 | |||||||
|
Wholesale Distribution Segment
|
$ | 4,236,291 | $ | 3,935,931 | ||||
|
Retail Health Food Segment
|
1,912,877 | 1,912,877 | ||||||
|
|
||||||||
|
|
$ | 6,149,168 | $ | 5,848,808 | ||||
|
|
||||||||
Other intangible assets of the Company consisted of the following:
| March | September | |||||||
| 2010 | 2009 | |||||||
|
Trademarks and tradenames
|
$ | 3,373,269 | $ | 3,373,269 | ||||
|
Customer relationships (less accumulated
amortization of $84,375)
|
1,535,625 | — | ||||||
|
|
||||||||
|
|
$ | 4,908,894 | $ | 3,373,269 | ||||
|
|
||||||||
11
Table of Contents
Goodwill, trademarks and tradenames are considered to have indefinite useful lives and
therefore no amortization has been taken on these assets. The Company performs annual impairment
testing of goodwill and other intangible assets during the fourth fiscal quarter of each year.
At March 2010, identifiable intangible assets considered to have finite lives represented acquired
customer relationships. These customer relationships are being amortized over eight years.
Amortization expense related to these assets totaled $50,625 and $84,375, respectively, for the
three and six month periods ended March 2010. Amortization expense for customer relationships for
the periods subsequent to March 2010 is estimated as follows:
| Fiscal | Fiscal | Fiscal | Fiscal | |||||||||||||||||
| 2010/1/ | 2011 | 2012 | 2013 | Thereafter | ||||||||||||||||
|
Customer relationships
|
101,250 | 202,500 | 202,500 | 202,500 | 826,875 | |||||||||||||||
|
|
||||||||||||||||||||
| /1/ |
Represents amortization for the remaining six months of Fiscal 2010.
|
6. DIVIDENDS:
On January 26, 2010, the Company declared a cash dividend of $0.18 per common share payable on
March 2, 2010 to shareholders of record as of February 9, 2010. Cash dividends paid to common
shareholders for the three and six months ended March 2010 totaled $103,578 and $206,759,
respectively.
7. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share available to common shareholders is calculated by dividing income
(loss) from continuing operations less preferred stock dividend requirements and income (loss) from
discontinued operations, by the weighted average common shares outstanding for each period. Diluted
earnings (loss) per share available to common shareholders is calculated by dividing income (loss)
from continuing operations less preferred stock dividend requirements (when anti-dilutive) and
income (loss) from discontinued operations, by the sum of the weighted average common shares
outstanding and the weighted average dilutive options, using the treasury stock method. There were
no anti-dilutive stock options or potential common stock excluded from the computation of diluted
earnings per share for the three and six months ended March 2010.
12
Table of Contents
| For the three months ended March | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||||||
|
Weighted average common
shares outstanding
|
564,216 | 564,216 | 548,619 | 548,619 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average of net
additional shares outstanding
assuming dilutive options
exercised and proceeds
used to purchase treasury
stock and conversion of
preferred stock /1/
|
— | 182,657 | — | 256,617 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average number of
shares outstanding
|
564,216 | 746,873 | 548,619 | 805,236 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income from continuing operations
|
$ | 1,791,421 | $ | 1,791,421 | $ | 2,193,795 | $ | 2,193,795 | ||||||||
|
Deduct: convertible preferred
stock dividends /2/
|
(73,239 | ) | — | (314,201 | ) | — | ||||||||||
|
|
||||||||||||||||
|
|
1,718,182 | 1,791,421 | 1,879,594 | 2,193,795 | ||||||||||||
|
|
||||||||||||||||
|
Loss from discontinued operations
|
$ | — | $ | — | $ | (97,437 | ) | $ | (97,437 | ) | ||||||
|
|
||||||||||||||||
|
Net income available
to common shareholders
|
$ | 1,718,182 | $ | 1,791,421 | $ | 1,782,157 | $ | 2,096,358 | ||||||||
|
|
||||||||||||||||
|
Income per share from
continuing operations
|
$ | 3.05 | $ | 2.40 | $ | 3.43 | $ | 2.72 | ||||||||
|
|
||||||||||||||||
|
Loss per share from
discontinued operations
|
$ | — | $ | — | $ | (0.18 | ) | $ | (0.12 | ) | ||||||
|
|
||||||||||||||||
|
Net earnings per share
available to common shareholders
|
$ | 3.05 | $ | 2.40 | $ | 3.25 | $ | 2.60 | ||||||||
|
|
||||||||||||||||
| /1/ |
Diluted earnings per share calculation includes all stock options,
convertible preferred stock, and restricted stock 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.
|
13
Table of Contents
| For the six months ended March | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||||||
|
Weighted average common
shares outstanding
|
562,145 | 562,145 | 547,089 | 547,089 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average of net
additional shares outstanding
assuming dilutive options
exercised and proceeds
used to purchase treasury
stock and conversion of
preferred stock /1/
|
— | 183,628 | — | 283,834 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average number of
shares outstanding
|
562,145 | 745,773 | 547,089 | 830,923 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Income from continuing operations
|
$ | 3,520,561 | $ | 3,520,561 | $ | 3,595,395 | $ | 3,595,395 | ||||||||
|
Deduct: convertible preferred
stock dividends /2/
|
(148,106 | ) | — | (419,734 | ) | — | ||||||||||
|
|
||||||||||||||||
|
|
3,372,455 | 3,520,561 | 3,175,661 | 3,595,395 | ||||||||||||
|
|
||||||||||||||||
|
Loss from discontinued operations
|
$ | — | $ | — | $ | (199,475 | ) | $ | (199,475 | ) | ||||||
|
|
||||||||||||||||
|
Net income available
to common shareholders
|
$ | 3,372,455 | $ | 3,520,561 | $ | 2,976,186 | $ | 3,395,920 | ||||||||
|
|
||||||||||||||||
|
Income per share from
continuing operations
|
$ | 6.00 | $ | 4.72 | $ | 5.80 | $ | 4.33 | ||||||||
|
|
||||||||||||||||
|
Loss per share from
discontinued operations
|
$ | — | $ | — | $ | (0.36 | ) | $ | (0.24 | ) | ||||||
|
|
||||||||||||||||
|
Net earnings per share
available to common shareholders
|
$ | 6.00 | $ | 4.72 | $ | 5.44 | $ | 4.09 | ||||||||
|
|
||||||||||||||||
| /1/ |
Diluted earnings per share calculation includes all stock options,
convertible preferred stock, and restricted stock 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.
|
14
Table of Contents
The Company has a credit agreement with Bank of America (the “Facility”), which includes the
following significant terms:
| • |
A June 2011 maturity date.
|
||
| • |
A $55.0 million revolving credit limit, plus the outstanding balance
on Term Note A. Term Note A had an outstanding balance of $0.1
million at March 2010.
|
||
| • |
The Facility bears interest at either the bank’s prime rate or at
LIBOR plus 250 basis points, at the election of the Company.
|
||
| • |
The Facility provides for an additional $5.0 million of credit
advances available for certain inventory purchases. These advances
bear interest at the bank’s prime rate plus one-quarter of one-percent
(1/4%) per annum and are payable within 45 days of each advance.
|
||
| • |
Lending limits that are subject to accounts receivable and inventory
limitations.
|
||
| • |
An unused commitment fee for the facility is payable 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.
|
||
| • |
Provides that the Company may not pay dividends on its common stock in
excess of $0.72 per share on an annual basis.
|
||
| • |
The Facility includes a prepayment penalty equal to one-half of one
percent (1/2%) of the original maximum loan limit ($60.4 million) if
the Company prepays the entire Facility or terminates the credit
agreement on or before June 30, 2010.
|
The Facility includes a financial covenant which requires the Company to maintain a minimum debt
service ratio of 1.0 to 1.0 as measured by the previous twelve month period then ended. The Company
was in compliance with this covenant at March 2010.
The amount available for use on the Facility at any given time is subject to a number of factors
including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on
our collateral and loan limits as defined in the Facility agreement. The calculated credit limit
of the Facility at March 2010 was $50.9 million, of which $25.9 million was outstanding,
leaving $25.0 million available.
At March 2010, the revolving portion of the Company’s Facility balance bore interest based on the
bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average
interest rate was 2.99% at March 2010.
15
Table of Contents
At March 2010, the Company had $6.6 million in long-term debt outstanding. Based on the
borrowing rates currently available to the Company for bank loans with similar terms and average
maturities, the fair value of this long-term debt approximated its carrying value at March 2010.
Cross Default and Co-Terminus Provisions
The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, and certain
warehouse equipment in the Rapid City, SD warehouse is financed through term loans with Marshall
and Ilsley Bank
(“M&I”), which is also a participant lender on the Company’s revolving line of credit. The M&I
loans contain cross default provisions which cause all loans with M&I to be considered in default
if any one of the loans where M&I is a lender, including the revolving credit facility, is in
default. There were no such cross defaults at March 2010. In addition, the M&I loans contain
co-terminus provisions which require all loans with M&I 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 for $0.5 million to its workers’ compensation insurance carrier
as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
9. EQUITY-BASED INCENTIVE AWARDS
Stock Options
The Company’s stock options have varying vesting schedules ranging up to five years and expire ten
years from the grant date. Stock options issued and outstanding to management employees at March
2010 are summarized as follows:
| Number of | |||||||||||||
| Options | Number | ||||||||||||
| Date | Exercise Price | Outstanding | Exercisable | ||||||||||
|
Fiscal 2000
|
$ | 34.50 | 1,380 | 1,380 | |||||||||
|
Fiscal 2003
|
$ | 28.80 | 627 | 627 | |||||||||
|
Fiscal 2007
|
$ | 18.00 | 25,000 | 25,000 | |||||||||
|
|
|||||||||||||
|
|
27,007 | 27,007 | |||||||||||
|
|
|||||||||||||
Stock options issued and outstanding to the Company’s outside directors at March 2010 are
summarized as follows:
| Number of | |||||||||||||
| Options | Number | ||||||||||||
| Date | Exercise Price | Outstanding | Exercisable | ||||||||||
|
Fiscal 2002
|
$ | 26.94 | 834 | 834 | |||||||||
|
|
|||||||||||||
16
Table of Contents
The following summarizes all stock options outstanding at March 2010:
| Remaining | Exercisable | |||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||||||
| Price | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||||||
|
2000 Options
|
$ | 34.50 | 1,380 | 0.20 years | $ | 34.50 | 1,380 | $ | 34.50 | |||||||||||||||
|
2002 Options
|
$ | 26.94 | 834 | 2.37 years | $ | 26.94 | 834 | $ | 26.94 | |||||||||||||||
|
2003 Options
|
$ | 28.80 | 627 | 2.56 years | $ | 28.80 | 627 | $ | 28.80 | |||||||||||||||
|
2007 Options
|
$ | 18.00 | 25,000 | 6.70 years | $ | 18.00 | 25,000 | $ | 18.00 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
|
27,841 | $ | 19.33 | 27,841 | $ | 19.33 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
The following is a summary of the activity of the stock plans for the six months ended March 2010:
| Weighted | ||||||||
| Number | Average | |||||||
| of | Exercise | |||||||
| Shares | Price | |||||||
|
Outstanding at September 2009
|
30,117 | $ | 20.16 | |||||
|
Granted
|
— | — | ||||||
|
Exercised
|
(2,276 | ) | $ | 30.24 | ||||
|
Forfeited/Expired
|
— | — | ||||||
|
|
||||||||
|
Outstanding at March 2010
|
27,841 | $ | 19.33 | |||||
|
|
||||||||
Net income before income taxes included compensation expense related to stock options of
approximately $0.1 million for the six months ended March 2010, and approximately $0.03 million and
$0.1 million for the three and six months ended March 2009. At March 2010 there was no unamortized
compensation expense related to stock options. Additionally, no amortization expense related to
stock options was recorded during Q2 2010. The aggregate intrinsic value of stock options
outstanding and exercisable at March 2010 was approximately $1.1 million.
Omnibus Plan
The Company has an Omnibus Incentive Plan (“the Omnibus Plan”) which provides for equity incentives
to employees. The Omnibus Plan was designed with the intent of encouraging employees to acquire a
vested interest in the growth and performance of the Company. The Omnibus Plan permits the issuance
of up to 150,000 shares of the Company’s common stock in the form of stock options, restricted
stock awards, restricted stock units, performance share awards as well as awards such as stock
appreciation rights, performance units, performance shares, bonus shares, and dividend share awards
payable in the form of common stock or cash.
17
Table of Contents
Pursuant to the Omnibus Plan, the Compensation Committee of the Board of Directors has authorized
and approved the restricted stock awards as summarized below:
| Restricted Stock /1/ | Restricted Stock /2/ | |||||||
|
Date of award:
|
December 6, 2007 | January 29, 2008 | ||||||
|
Number of shares:
|
24,000 | 7,500 | ||||||
|
Service period:
|
34 months | 36 months | ||||||
|
Estimated fair value of award at grant date /3/:
|
$ | 963,000 | $ | 229,000 | ||||
|
Intrinsic value of awards outstanding at March 2010:
|
$ | 477,000 | $ | 149,000 | ||||
| /1/ |
16,000 shares were vested at March 2010. The remaining 8,000 shares
will vest on October 16, 2010.
|
|
| /2/ |
5,000 shares were vested at March 2010. The remaining 2,500 shares
will vest on January 29, 2011.
|
|
| /3/ |
Amount is net of estimated forfeitures.
|
There is no direct cost to the recipients of the restricted stock awards, except for any
applicable taxes. The recipients of restricted stock are entitled to full voting rights and the
customary adjustments in the event of stock splits, stock dividends, and certain other
distributions on the Company’s common stock. All cash dividends and/or distributions payable to
restricted stock recipients will be held in escrow until all the conditions of vesting have been
met.
The Company recognizes compensation expense related to restricted stock awards on a straight-line
basis over the requisite service period. Accordingly, net income before income taxes included
compensation expense of $0.1 million and $0.2 million in each of the three and six month fiscal
periods ended March 2010 and March 2009, respectively. Total unamortized compensation expense
related to restricted stock awards at March 2010 was approximately $0.2 million. This unamortized
compensation expense is expected to be amortized over approximately the next seven months (the
expected weighted-average period).
The following summarizes restricted stock activity under the Omnibus Plan for the six months ended
March 2010:
| Number | Weighted Average | |||||||
| of | Grant Date | |||||||
| Shares | Fair Value | |||||||
|
Nonvested restricted stock at September 2009
|
21,000 | $ | 40.16 | |||||
|
Granted
|
— | — | ||||||
|
Vested
|
(10,500 | ) | $ | 40.16 | ||||
|
Expired
|
— | — | ||||||
|
|
||||||||
|
Nonvested restricted stock at March 2010
|
10,500 | $ | 40.16 | |||||
|
|
||||||||
18
Table of Contents
10. BUSINESS SEGMENTS
AMCON 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 is intercompany eliminations, charges incurred by the
holding company, and assets of discontinued operations. The segments are evaluated on revenues,
gross margins, operating income (loss), and income before taxes.
| Wholesale | ||||||||||||||||
| Distribution | Retail | Other /1/ | Consolidated | |||||||||||||
|
THREE MONTHS ENDED MARCH 2010:
|
||||||||||||||||
|
External revenue:
|
||||||||||||||||
|
Cigarettes
|
$ | 166,914,751 | $ | — | $ | — | $ | 166,914,751 | ||||||||
|
Confectionery
|
14,887,515 | — | — | 14,887,515 | ||||||||||||
|
Health food
|
— | 9,492,904 | — | 9,492,904 | ||||||||||||
|
Tobacco, food service & other
|
39,203,959 | — | — | 39,203,959 | ||||||||||||
|
|
||||||||||||||||
|
Total external revenue
|
221,006,225 | 9,492,904 | — | 230,499,129 | ||||||||||||
|
Depreciation
|
271,131 | 68,483 | 1,147 | 340,761 | ||||||||||||
|
Amortization
|
74,811 | — | — | 74,811 | ||||||||||||
|
Operating income (loss)
|
3,535,284 | 1,093,182 | (1,469,666 | ) | 3,158,800 | |||||||||||
|
Interest expense
|
124,994 | 115,666 | 127,765 | 368,425 | ||||||||||||
|
Income (loss) from continuing
operations before taxes
|
3,422,768 | 987,668 | (1,597,015 | ) | 2,813,421 | |||||||||||
|
Total assets
|
78,290,787 | 12,198,955 | 1,034,096 | 91,523,838 | ||||||||||||
|
Capital expenditures
|
166,270 | 340,048 | — | 506,318 | ||||||||||||
|
|
||||||||||||||||
|
THREE MONTHS ENDED MARCH 2009:
|
||||||||||||||||
|
External revenue:
|
||||||||||||||||
|
Cigarettes
|
$ | 136,018,967 | $ | — | $ | — | $ | 136,018,967 | ||||||||
|
Confectionery
|
14,667,301 | — | — | 14,667,301 | ||||||||||||
|
Health food
|
— | 9,564,810 | — | 9,564,810 | ||||||||||||
|
Tobacco, food service & other
|
35,191,168 | — | — | 35,191,168 | ||||||||||||
|
|
||||||||||||||||
|
Total external revenue
|
185,877,436 | 9,564,810 | — | 195,442,246 | ||||||||||||
|
Depreciation
|
244,988 | 54,854 | 1,146 | 300,988 | ||||||||||||
|
Amortization
|
— | — | — | — | ||||||||||||
|
Operating income (loss)
|
4,180,906 | 1,076,330 | (1,338,330 | ) | 3,918,906 | |||||||||||
|
Interest expense
|
126,365 | 140,313 | 141,909 | 408,587 | ||||||||||||
|
Income (loss) from continuing
operations before taxes
|
4,070,742 | 946,290 | (1,480,237 | ) | 3,536,795 | |||||||||||
|
Total assets
|
65,160,730 | 11,416,692 | 4,366,108 | 80,943,530 | ||||||||||||
|
Capital expenditures
|
174,540 | 56,890 | — | 231,430 | ||||||||||||
| /1/ |
Includes intercompany eliminations, charges incurred by the holding company, and the assets
of discontinued operations.
|
19
Table of Contents
| Wholesale | ||||||||||||||||
| Distribution | Retail | Other /1/ | Consolidated | |||||||||||||
|
SIX MONTHS ENDED MARCH 2010:
|
||||||||||||||||
|
External revenue:
|
||||||||||||||||
|
Cigarettes
|
$ | 344,498,796 | $ | — | $ | — | $ | 344,498,796 | ||||||||
|
Confectionery
|
30,195,336 | — | — | 30,195,336 | ||||||||||||
|
Health food
|
— | 18,419,393 | — | 18,419,393 | ||||||||||||
|
Tobacco, food service & other
|
81,326,642 | — | — | 81,326,642 | ||||||||||||
|
|
||||||||||||||||
|
Total external revenue
|
456,020,774 | 18,419,393 | — | 474,440,167 | ||||||||||||
|
Depreciation
|
537,711 | 138,855 | 2,294 | 678,860 | ||||||||||||
|
Amortization
|
123,981 | — | — | 123,981 | ||||||||||||
|
Operating income (loss)
|
7,533,896 | 2,010,489 | (3,323,580 | ) | 6,220,805 | |||||||||||
|
Interest expense
|
247,191 | 240,290 | 286,189 | 773,670 | ||||||||||||
|
Income (loss) from continuing
operations before taxes
|
7,302,417 | 1,790,498 | (3,609,354 | ) | 5,483,561 | |||||||||||
|
Total assets
|
78,290,787 | 12,198,955 | 1,034,096 | 91,523,838 | ||||||||||||
|
Capital expenditures
|
603,584 | 499,345 | — | 1,102,929 | ||||||||||||
|
|
||||||||||||||||
|
SIX MONTHS ENDED MARCH 2009:
|
||||||||||||||||
|
External revenue:
|
||||||||||||||||
|
Cigarettes
|
$ | 288,281,912 | $ | — | $ | — | $ | 288,281,912 | ||||||||
|
Confectionery
|
30,128,997 | — | — | 30,128,997 | ||||||||||||
|
Health food
|
— | 18,545,603 | — | 18,545,603 | ||||||||||||
|
Tobacco, food service & other
|
75,863,096 | — | — | 75,863,096 | ||||||||||||
|
|
||||||||||||||||
|
Total external revenue
|
394,274,005 | 18,545,603 | — | 412,819,608 | ||||||||||||
|
Depreciation
|
493,152 | 115,877 | 2,293 | 611,322 | ||||||||||||
|
Amortization
|
— | — | — | — | ||||||||||||
|
Operating income (loss)
|
7,468,983 | 1,664,169 | (2,477,514 | ) | 6,655,638 | |||||||||||
|
Interest expense
|
259,044 | 309,858 | 328,884 | 897,786 | ||||||||||||
|
Income (loss) from continuing
operations before taxes
|
7,229,893 | 1,374,899 | (2,806,397 | ) | 5,798,395 | |||||||||||
|
Total assets
|
65,160,730 | 11,416,692 | 4,366,108 | 80,943,530 | ||||||||||||
|
Capital expenditures
|
303,030 | 194,371 | — | 497,401 | ||||||||||||
| /1/ |
Includes intercompany eliminations, charges incurred by the holding company, and the assets
of discontinued operations.
|
20
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 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:
| • |
increases in state and federal excise taxes on cigarette and tobacco products, including recent increases in federal excise
taxes imposed in connection with the State Children’s Health Insurance Program (“SCHIP”) law,
|
||
| • |
regulation of cigarette and tobacco products by the U.S. Food and Drug Administration (“FDA”), in addition to existing
state and federal regulations by other agencies,
|
||
| • |
increases in manufacturer prices,
|
||
| • |
increases in inventory carrying costs and customer credit risk,
|
||
| • |
changes in promotional and incentive programs offered by manufacturers,
|
||
| • |
decreased availability of capital resources
|
||
| • |
demand for the Company’s products, particularly cigarette and tobacco products,
|
||
| • |
new business ventures or acquisitions,
|
||
| • |
domestic regulatory and legislative risks,
|
||
| • |
competition,
|
||
| • |
poor weather conditions,
|
||
| • |
increases in fuel prices,
|
||
| • |
consolidation within the convenience store industry,
|
||
| • |
other risks over which the Company has little or no control, and
|
||
| • |
any other factors not identified herein.
|
Changes in these factors could result in significantly different results. Consequently, future
results may differ from management’s expectations. Moreover, past financial performance should not
be considered a reliable indicator of future performance. Any forward-looking statement contained
herein is made as of the date of this document. Except as required by law, the Company undertakes
no obligation to publicly update or correct any of these forward-looking statements in the future
to reflect changed assumptions, the occurrence of material events or changes in future operating
results, financial conditions or business over time.
21
Table of Contents
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates used in the preparation of the Company’s financial statements require
us to make judgments and estimates and the financial results we report may vary depending on how we
make these judgments and estimates. Our critical accounting estimates are set forth in our Form
10-K for the fiscal year ended September 30, 2009, as filed with the Securities and Exchange
Commission. There have been no significant changes with respect to these policies during the
fiscal quarter ended March 2010.
SECOND FISCAL QUARTER 2010 (Q2 2010)
The following discussion and analysis includes the Company’s results of operations from continuing
operations for the three and six months ended March 2010 and March 2009. Continuing operations are
comprised of our wholesale distribution and retail health food segments. A separate discussion of
our discontinued operations has been presented following our analysis of continuing operations.
During Q2 2010, the Company:
| • |
opened a new Akin’s Natural Foods Market store in Tulsa, OK.
|
|
| • |
recorded net income available to common shareholders of $1.7 million.
|
|
| • |
paid a $0.18 dividend per common share.
|
Wholesale Distribution Segment (ADC)
ADC serves approximately 4,200 retail outlets including convenience stores, grocery stores, liquor
stores, drug stores, and tobacco shops. In October 2009, Convenience Store News ranked ADC as the
eighth (8th) largest convenience store distributor in the United States based on annual sales.
ADC distributes approximately 14,000 different consumer products, including cigarettes and tobacco
products, candy and other confectionery products, beverages, groceries, paper products, health and
beauty care products, frozen and chilled products and institutional food service products.
RETAIL HEALTH FOOD SEGMENT
The Company’s retail health food stores, which are operated as Chamberlin’s Market & Café
(“Chamberlin’s” or “CNF”) and Akin’s Natural Foods Market (“Akin’s” or “ANF”), carry over 30,000
different national and regionally branded and private label products. These products include
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 first established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which
was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and
Kansas.
22
Table of Contents
Business Update — General
Economic conditions continue to impact consumer confidence and discretionary spending patterns
across the states in which we operate. Customers in both of our businesses are increasingly
value-conscious and price-sensitive. Accordingly, we have undertaken a number of initiatives
designed to highlight the value propositions we offer customers in a number of areas such as
exclusive product offerings and the delivery of customized technology solutions at competitive
prices.
Looking forward, we believe that a combination of economic and regulatory factors and the potential
of higher fuel prices could adversely affect our sales, gross margins, and operating profits into
the foreseeable future. However, we anticipate that our conservative strategy of cost containment,
aggressively targeting new business, and maintaining maximum liquidity, will position us well to
capture market share, execute strategic acquisitions, open
new retail stores, and ultimately create shareholder value.
Business Update — Wholesale Distribution Segment
The wholesale distribution industry is mature and highly competitive. Historically, cigarette and
tobacco products have represented one of the largest sales categories for convenience stores and
their distributors alike. Legislative actions such as excise tax increases and smoking bans,
however, have decreased the demand for these products. The FDA has now been granted regulatory
authority over the manufacturing, distribution, and sale of cigarette and tobacco products. We
believe FDA actions impacting these products could further accelerate decreasing demand trends.
The long-term implications of the above considerations are far reaching. A combination of declining
revenue streams and limited access to credit and/or new capital may force many smaller distributors
from the market, resulting in substantial industry consolidation. As one of the nation’s largest
wholesale distributors, we believe the Company is well-positioned to capitalize on these trends and
expand our strategic footprint.
Business Update — Retail Health Food Segment
Sales in our retail health food segment have been negatively impacted by weakness in both of our
geographic markets. In particular, sales in our Florida stores have been hurt by the severe
economic downturn in that state, in addition to increased competition from other natural food
chains.
In the near term, our retail segment faces a challenging operating environment as consumer behavior
has been adversely impacted by the recession. In response, we have worked to better align our cost
structure to demand, while reemphasizing the value choices found throughout our stores, such as our
private label offerings and other product lines unique to our stores.
Despite the impact of the recession, we believe the long-term prospects for this segment remain
attractive and continue to pursue growth through ongoing evaluations of potential new locations.
Accordingly, we successfully opened a new store in Tulsa, OK during Q2 2010. We believe if health
food retailers can demonstrate value and provide consumers with affordable choices, overall demand
for natural food products will rebound as the current economic conditions begin to dissipate.
23
Table of Contents
RESULTS OF OPERATIONS — Continuing Operations
| For the three months | ||||||||||||||||
| ended March | ||||||||||||||||
| Incr | ||||||||||||||||
| 2010 | 2009 | (Decr) | % Change | |||||||||||||
|
CONSOLIDATED:
|
||||||||||||||||
|
Sales /1/
|
$ | 230,499,129 | $ | 195,442,246 | $ | 35,056,883 | 17.9 | |||||||||
|
Cost of sales
|
213,558,955 | 178,195,212 | 35,363,743 | 19.8 | ||||||||||||
|
Gross profit
|
16,940,174 | 17,247,034 | (306,860 | ) | (1.8 | ) | ||||||||||
|
Gross profit percentage
|
7.3 | % | 8.8 | % | ||||||||||||
|
Operating expense
|
13,781,374 | 13,328,128 | 453,246 | 3.4 | ||||||||||||
|
Operating income
|
3,158,800 | 3,918,906 | (760,106 | ) | (19.4 | ) | ||||||||||
|
Interest expense
|
368,425 | 408,587 | (40,162 | ) | (9.8 | ) | ||||||||||
|
Income tax expense
|
1,022,000 | 1,343,000 | (321,000 | ) | (23.9 | ) | ||||||||||
|
Income from continuing operations
|
1,791,421 | 2,193,795 | (402,374 | ) | (18.3 | ) | ||||||||||
|
|
||||||||||||||||
|
BUSINESS SEGMENTS:
|
||||||||||||||||
|
Wholesale
|
||||||||||||||||
|
Sales
|
$ | 221,006,225 | $ | 185,877,436 | $ | 35,128,789 | 18.9 | |||||||||
|
Gross profit
|
12,809,400 | 13,241,596 | (432,196 | ) | (3.3 | ) | ||||||||||
|
Gross profit percentage
|
5.8 | % | 7.1 | % | ||||||||||||
|
Retail
|
||||||||||||||||
|
Sales
|
$ | 9,492,904 | $ | 9,564,810 | $ | (71,906 | ) | (0.8 | ) | |||||||
|
Gross profit
|
4,130,774 | 4,005,438 | 125,336 | 3.1 | ||||||||||||
|
Gross profit percentage
|
43.5 | % | 41.9 | % | ||||||||||||
| /1/ |
Sales are reported net of costs associated with incentives provided to retailers. These
incentives totaled $3.7 million in Q2 2010 and $4.0 million in Q2 2009.
|
SALES:
Changes in sales are driven by two primary components:
| (i) |
changes to selling prices, which are largely controlled by our product
suppliers, and excise taxes imposed on cigarettes and tobacco products by various
states; and
|
| (ii) |
changes in the volume of products sold to our customers, either due to a change
in purchasing patterns resulting from consumer preferences or the fluctuation in the
comparable number of business days in our reporting period.
|
SALES — Q2 2010 vs. Q2 2009
Sales in our wholesale distribution segment (“wholesale”) increased $35.1 million during Q2 2010 as
compared to the same prior year period. Significant items impacting sales during Q2 2010 included
the following:
| • |
$12.9 million increase related to our acquisition of Discount
Distributors.
|
|
| • |
$21.2 million increase due to cigarette price increases implemented by
manufacturers.
|
|
| • |
$0.8 million decrease, primarily related to a reduction in cigarette
cartons sold.
|
|
| • |
$1.8 million increase in our tobacco, beverages, snacks, candy,
grocery, health & beauty products, automotive, food service, and store
supplies categories (“Other Products”).
|
24
Table of Contents
Sales in our retail health food segment decreased approximately $0.1 million in Q2 2010 as
compared to Q2 2009. This decrease was primarily related to our Florida retail stores which have
been impacted by depressed economic conditions in that region as well as increased competition from
other natural food chains.
GROSS PROFIT — Q2 2010 vs. Q2 2009
Our gross profit does not include fulfillment costs and costs related to the distribution network
which are included in selling, general and administrative costs, and may not be comparable to those
of other entities. Some entities may classify such costs as a component of cost of sales. Cost of
sales, a component used in determining gross profit, for the wholesale and retail segments includes
the cost of products purchased from manufacturers, less incentives we receive which are netted
against such costs.
Gross profit in our wholesale segment decreased $0.4 million in Q2 2010 as compared to Q2 2009. During Q2 2009, our gross profit included a benefit of $2.6 million
due to price increases implemented by cigarette and tobacco manufacturers. In Q2 2010, the
decrease was partially offset by $0.6 million in gross profit
generated by Discount Distributors, $0.5 million in gross profit due to higher gross margins in our
cigarette and tobacco categories, and $1.1 million in gross profit related to higher overall sales
volume and changes in promotional allowances.
Gross profit for the retail health food segment increased $0.1 million in Q2 2010 as compared to Q2
2009. This increase was primarily related to lower throw-out costs and improved gross margins.
OPERATING EXPENSE — Q2 2010 vs. Q2 2009
Operating expense includes selling, general and administrative expenses and depreciation and
amortization. Selling, general and administrative expenses include costs related to our sales,
warehouse, delivery and administrative departments for all segments. Specifically, purchasing and
receiving costs, warehousing costs and costs of picking and loading customer orders are all
classified as selling, general and administrative expenses. Our most significant expenses relate to
employee costs, facility and equipment leases, transportation costs, fuel costs, insurance and
professional fees.
Operating expenses increased approximately $0.5 million in Q2 2010 as compared to Q2 2009. This
increase is primarily attributable to operating costs in connection
with our Discount Distributors acquisition including compensation, fuel, and amortization costs, partially
offset by lower insurance expense.
INTEREST EXPENSE — Q2 2010 vs. Q2 2009
Q2 2010 interest expense decreased $0.04 million as compared to Q2 2009. This change was
principally related to lower interest rates and average borrowings on the Company’s credit
facility. In Q2 2010, average interest rates and borrowings on the Company’s revolving credit
facility were 0.24% and $2.9 million lower, respectively, as compared to Q2 2009.
25
Table of Contents
RESULTS OF OPERATIONS — SIX MONTHS ENDED MARCH 2010:
| For the six months | ||||||||||||||||
| ended March | ||||||||||||||||
| Incr | ||||||||||||||||
| 2010 | 2009 | (Decr) | % Change | |||||||||||||
|
CONSOLIDATED:
|
||||||||||||||||
|
Sales /1/
|
$ | 474,440,167 | $ | 412,819,608 | $ | 61,620,559 | 14.9 | |||||||||
|
Cost of sales
|
440,271,980 | 379,727,926 | 60,544,054 | 15.9 | ||||||||||||
|
Gross profit
|
34,168,187 | 33,091,682 | 1,076,505 | 3.3 | ||||||||||||
|
Gross profit percentage
|
7.2 | % | 8.0 | % | ||||||||||||
|
Operating expenses
|
27,947,382 | 26,436,044 | 1,511,338 | 5.7 | ||||||||||||
|
Operating income
|
6,220,805 | 6,655,638 | (434,833 | ) | (6.5 | ) | ||||||||||
|
Interest expense
|
773,670 | 897,786 | (124,116 | ) | (13.8 | ) | ||||||||||
|
Income tax expense
|
1,963,000 | 2,203,000 | (240,000 | ) | (10.9 | ) | ||||||||||
|
Income from continuing operations
|
3,520,561 | 3,595,395 | (74,834 | ) | (2.1 | ) | ||||||||||
|
|
||||||||||||||||
|
BUSINESS SEGMENTS:
|
||||||||||||||||
|
Wholesale
|
||||||||||||||||
|
Sales
|
$ | 456,020,774 | $ | 394,274,005 | $ | 61,746,769 | 15.7 | |||||||||
|
Gross profit
|
26,196,176 | 25,438,624 | 757,552 | 3.0 | ||||||||||||
|
Gross profit percentage
|
5.7 | % | 6.5 | % | ||||||||||||
|
Retail
|
||||||||||||||||
|
Sales
|
$ | 18,419,393 | $ | 18,545,603 | $ | (126,210 | ) | (0.7 | ) | |||||||
|
Gross profit
|
7,972,011 | 7,653,058 | 318,953 | 4.2 | ||||||||||||
|
Gross profit percentage
|
43.3 | % | 41.3 | % | ||||||||||||
| /1/ |
Sales are reported net of costs associated with incentives provided to retailers. These
incentives totaled $7.5 million for the six months ended March 2010 and $7.9 million for the
six months ended March 2009.
|
SALES — Six Months Ended March 2010
Sales in our wholesale distribution segment increased $61.7 million for the six months ended March
2010 as compared to the same prior year period. Significant items impacting sales during the period
included the following:
| • |
$22.2 million increase related to our acquisition of Discount
Distributors.
|
|
| • |
$53.2 million increase due to cigarette price increases implemented by
manufacturers.
|
|
| • |
$14.9 million decrease, primarily related to a reduction in cigarette
cartons sold.
|
|
| • |
$1.2 million increase in our Other Products category.
|
Sales in our retail health food segment decreased approximately $0.1 million, for the six months
ended March 2010 as compared to the same prior year period.
This decrease was primarily related to our Florida retail stores which have been impacted by
depressed economic conditions in that region as well as increased competition from other natural
food chains.
26
Table of Contents
GROSS PROFIT — Six Months Ended March 2010
Gross profit in our wholesale segment increased $0.8 million for the six months ended March 2010 as
compared to the same prior year period. During the comparable prior year period, our gross profit
included a benefit of $2.6 million due to price increases implemented by cigarette and
tobacco manufacturers. This decrease was offset by $1.1 million in gross profit generated by Discount Distributors, $1.9 million due to
higher gross margins in our cigarette and tobacco categories, and $0.4 million related to changes
in promotional allowances and overall sales volume.
Gross profit for the retail health food segment increased $0.3 million for the six months ended
March 2010 as compared to the same prior year period. This increase was primarily related to lower
throw-out costs and improved gross margins.
OPERATING EXPENSE — Six Months Ended March 2010
Operating expenses for the six month period ended March 2010 increased approximately $1.5 million
as compared to the same prior year period. This increase primarily resulted from higher
compensation expense and costs incurred to service our Discount Distributors business.
INTEREST EXPENSE — Six Months Ended March 2010
Interest expense for six months ended March 2010 decreased approximately $0.1 million as compared
to the same prior year period. This change was principally related to lower interest rates and
average borrowings on the Company’s credit facility. For the six months ended March 2010, average
interest rates and borrowings on the Company’s revolving credit facility were 0.67% and $1.9
million lower, respectively, as compared to the same prior year period.
DISCONTINUED OPERATIONS — Q2 2010 vs. Q2 2009
Losses from discontinued operations in Q2 2009 primarily represented interest charges and costs
incurred to preserve the Company’s assets. All discounted operations were wound-down during the
Company’s prior fiscal year (fiscal 2009).
A summary of discontinued operations is as follows:
| Three months ended | Six months ended | |||||||||||||||
| March | March | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Operating loss
|
— | (41,434 | ) | — | (85,562 | ) | ||||||||||
|
Interest expense
|
— | (114,003 | ) | — | (230,012 | ) | ||||||||||
|
Income tax benefit
|
— | (58,000 | ) | — | (116,000 | ) | ||||||||||
|
Loss from discontinued operations
|
— | (97,437 | ) | — | (199,475 | ) | ||||||||||
27
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Overview
Operating Activities
. The Company requires cash to pay operating expenses, purchase
inventory, and make capital investments. In general, the Company finances its cash flow
requirements with cash generated from operating activities and credit facility borrowings. For the
six months ended March 2010, the Company generated cash of approximately $1.9 million from
operating activities. The cash was generated from earnings, reductions in accounts receivable, and
higher accounts payable balances. These items were partially offset by higher prepaid asset
balances and reductions in accrued expenses and income taxes payable.
Our variability in cash flows from operating activities is dependent on the timing of inventory
purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in”
opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory
for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later
periods. Additionally, during the warm weather months, which is our peak time of operations, we
generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
Investing Activities
. The Company used approximately $4.2 million of cash during the six
months ended March 2010 for investing activities, primarily related to capital expenditures for
property and equipment and the acquisition of Discount Distributors.
Financing Activities
. The Company generated cash of $2.4 million from financing activities
during the six months ended March 2010. Of this amount, $3.0 million related to net borrowings on
the Company’s credit facility which was used to fund the Company’s acquisition of Discount
Distributors and $0.2 million related to the exercise of stock options. Offsetting these items was
$0.4 million of payments on long-term debt, and $0.4 million related to dividends on the Company’s
common and preferred stock.
Cash on Hand/Working Capital
. At March 2010, the Company had cash on hand of $0.5 million
and working capital (current assets less current liabilities) of $41.0 million. This compares to
cash on hand of $0.3 million and working capital of $35.7 million at September 2009.
CREDIT AGREEMENT
The Company has a credit agreement with Bank of America (the “Facility”), which includes the
following significant terms:
| • |
A June 2011 maturity date.
|
||
| • |
A $55.0 million revolving credit limit, plus the outstanding balance
on Term Note A. Term Note A had an outstanding balance of $0.1
million at March 2010.
|
28
Table of Contents
CREDIT AGREEMENT (continued)
| • |
The Facility bears interest at either the bank’s prime rate or at
LIBOR plus 250 basis points, at the election of the Company.
|
||
| • |
The Facility provides for an additional $5.0 million of credit
advances available for certain inventory purchases. These advances
bear interest at the bank’s prime rate plus one-quarter of one-percent
(1/4%) per annum and are payable within 45 days of each advance.
|
||
| • |
Lending limits that are subject to accounts receivable and inventory
limitations.
|
||
| • |
An unused commitment fee for the facility is payable 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.
|
||
| • |
Provides that the Company may not pay dividends on its common stock in
excess of $0.72 per share on an annual basis.
|
||
| • |
The Facility includes a prepayment penalty equal to one-half of one
percent (1/2%) of the original maximum loan limit ($60.4 million) if
the Company prepays the entire Facility or terminates the credit
agreement on or before June 30, 2010.
|
The Facility includes a financial covenant which requires the Company to maintain a minimum debt
service ratio of 1.0 to 1.0 as measured by the previous twelve month period then ended. The Company
was in compliance with this covenant at March 2010.
The amount available for use on the Facility at any given time is subject to a number of factors
including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on
our collateral and loan limits as defined in the Facility agreement. The calculated credit limit
of the Facility at March 2010 was $50.9 million, of which $25.9 million was outstanding,
leaving $25.0 million available.
At March 2010, the revolving portion of the Company’s Facility balance bore interest based on the
bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average
interest rate was 2.99% at March 2010.
At March 2010, the Company had $6.6 million in long-term debt outstanding. Based on the borrowing
rates currently available to the Company for bank loans with similar terms and average maturities,
the fair value of this long-term debt approximated its carrying value at March 2010.
During the six months ended March 2010, our peak borrowings under the Facility were $39.6 million
and our average borrowings and average availability were $31.0 and $19.5 million, respectively. Our
availability to borrow under the Facility generally decreases as inventory and accounts receivable
levels increase because of the borrowing limitations that are placed on collateralized assets.
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Cross Default and Co-Terminus Provisions
The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, and certain
warehouse equipment in the Rapid City, SD warehouse is financed through term loans with Marshall
and Ilsley Bank (“M&I”), which is also a participant lender on the Company’s revolving line of
credit. The M&I loans contain cross default provisions which cause all loans with M&I to be
considered in default if any one of the loans where M&I is a lender, including the revolving credit
facility, is in default. There were no such cross defaults at March 2010. In addition, the M&I
loans contain co-terminus provisions which require all loans with M&I to be paid in full if any of
the loans are paid in full prior to the end of their specified terms.
Dividend Payments
The Company paid cash dividends on its common shares of $103,578 and $57,040 for the three months
ended March 2010 and March 2009, respectively, and $206,759 and $114,079 for the six months ended
March 2010 and March 2009, respectively.
The Company also paid cash dividends on its convertible preferred stock issuances (Series A, and
Series B) of $73,239 and $92,573 for the three months ended March 2010 and March 2009,
respectively, and $148,106 and $198,106 for the six months ended March 2010 and March 2009,
respectively.
Contractual Obligations
There have been no significant changes to the Company’s contractual obligations as set forth in the
Company’s Form 10-K for the fiscal period ended September 30, 2009.
OTHER
The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance
carrier as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient
levels of working capital. For our Company and industry in general, customer credit risk and
ongoing access to bank credit heavily influence liquidity positions.
The Company’s credit facility with Bank of America expires in June 2011. We believe the Company
continues to have a strong working relationship with Bank of America and have maintained compliance
with all related debt covenants. However, no assurances can be given that our credit facility with
Bank of America will be renewed on acceptable terms, if at all. The Company also aggressively
monitors its customer credit risk to limit exposure in that area.
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Liquidity Risk (continued)
The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly,
significant price movements in these areas can and do impact the Company’s profitability.
The Company believes its liquidity position going forward will be adequate to sustain operations.
However, a precipitous change in market conditions or a deterioration in economic conditions could
materially impact the Company’s future revenue stream as well as its ability to collect on customer
accounts receivable balances and secure bank credit.
Not applicable.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure
that information required to be disclosed in company reports filed or submitted under the
Securities Exchange Act
of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in company reports filed or submitted under the Exchange Act
is accumulated and communicated to management, including our principal executive officer and
principal financial and accounting officer, as appropriate to allow timely decisions regarding
required disclosure.
As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures as of March 31,
2010 was made under the supervision and with the participation of our senior management, including
our principal executive officer and principal financial officer. Based upon that evaluation, our
principal executive officer and principal financial and accounting officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this
report.
Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect
that our disclosure controls and procedures will prevent all errors and fraud. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance of achieving the desired control objectives. Further, the design of a control system must
reflect the fact that there are resource constraints, and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management’s override of the control.
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The design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March
31, 2010, that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
None.
There have been no material changes to the Company’s risk factors as previously disclosed in Item
1A “Risk Factors” on Form 10-K for the fiscal year ended September 30, 2009.
Not applicable.
Not Applicable.
Not applicable.
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| 31.1 |
Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished
pursuant to section 302 of the Sarbanes-Oxley Act
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| 31.2 |
Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal
Financial Officer furnished pursuant to section 302 of the Sarbanes-Oxley Act
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| 32.1 |
Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished
pursuant to section 906 of the Sarbanes-Oxley Act
|
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| 32.2 |
Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal
Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
AMCON DISTRIBUTING COMPANY
(registrant) |
||||
| Date: April 16, 2010 | /s/ Christopher H. Atayan | |||
| Christopher H. Atayan, | ||||
| Chief Executive Officer and Chairman | ||||
| Date: April 16, 2010 | /s/ Andrew C. Plummer | |||
| Andrew C. Plummer, | ||||
|
Vice President, Chief Financial Officer, and
Principal Financial Officer |
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. [removed and Reserved]Item 5. Other InformationItem 6. Exhibits