Sales & Marketing Alignment: How to Synergize for Success
Amcon Distributing Final
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2. Leverage: Despite reducing its debt profile over the years, AMCON relies on a credit facility and long-term debt that represents 27% of its total capitalization and 70% of market capitalization. Interest expense, thus, requires management to be disciplined in its operations. The credit facility restricts annual dividends to $0.72 per share.
3. Credit Facility terminates January 1, 2012: AMCON has a $55 million credit facility with Bank of America. The Company has steadily reduced the balance from an initial $49.1 million on September 30, 2005 to the $19.6 million balance as of September 30, 2010. AMCON has amended the credit facility three times before. There is no indication that Bank of America will not renegotiate/extend the credit agreement after the existing one expires January 1, 2012. There is a risk that the spread will widen as credit conditions have deteriorated since the credit crisis. According to the terms of the credit agreement, the interest rate is either the bank’s prime rate (currently 3.25%) or at LIBOR (1 month: 0.26%) plus 250 bps – at the election of the Company.
4. New cigarette/tobacco regulation could negatively affect sales: On June 22, 2009, President Obama signed the Family Smoking Prevention and Tobacco Control Act, landmark legislation that gives the U.S. Food and Drug Administration authority to regulate the manufacturing and marketing of tobacco. Two months earlier, federal taxes on cigarettes increased from 39 cents per pack to $1.01 per pack. Federal and state taxes have steadily increased to discourage smoking.
6. In April 2010, President Obama signed the Prevent All Cigarette Trafficking (PACT) Act which restricts remote sales of cigarette and tobacco products. Remote sellers are required to charge applicable state cigarette and sales taxes when they ship tobacco products, and the U.S. Postal Service (USPS) is prohibited from delivering tobacco products. USPS was one of few shipping methods left for tobacco products, as other carriers including Fedex and DHL had previously adopted policies against delivering tobacco products. The PACT should boost sales that had been diverted to online cigarette sellers.
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8. The Facility bears interest at either the bank’s prime rate or LIBOR plus 250 basis points, at the election of the Company
9. The Facility provides an additional $5.0 million of credit advances 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.
11. An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings
12. Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.
13. Provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis.
14. 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 January 1, 2011.
15. The Facility includes a final covenant which requires the Company to maintain a debt service ratio of 1.0 to 1.0 as measured by the previous twelve month period that ended. The Company was in compliance with this covenant at September 2010.