take remedial action including imposing fines or shutting down our operations or we could be subject to increased audit and compliance costs. If any of these events were to occur, our results of operations, business, cash flow, and financial condition would be adversely affected.
We cannot predict the impact that future laws, regulations, interpretations or applications, the effect of additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. While we do not manufacture any products, any of the aforementioned items could disrupt the supply levels of inventory that we sell. Any or all of such requirements could have an adverse effect on our results of operations, business, cash flow, and financial condition.
ITEM 2. PROPERTIES
The location and approximate square footage of the Company’s six distribution centers and twenty two retail stores at September 20192021 are set forth below:
| | |
Location |
| Square Feet |
Distribution—IL, MO, ND, NE, SD, & TN | | 685,000 |
Retail—AR, FL, MO, & OK | | 211,600195,200
|
Total Square Footage | | 896,600880,200
|
The Company leases certain distribution facilities, retail stores, offices, and certain equipment under noncancellable operating leases. Our Quincy, Illinois; both of our Bismarck, North Dakota; and our Rapid City, South Dakota distribution facilities are owned by our Company, and some are subject to first mortgages by banks and other lenders. Management believes that its existing facilities are adequate for the Company’s present level of operations, however, larger facilities and additional cross‑dockcross-dock facilities and retail stores may be required if the Company experiences growth in certain market areas.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of our Company are appointed by the Board of Directors and serve at the discretion of the Board. The following table sets forth certain information with respect to all executive officers of our Company.
| | | | |
Name |
| Age |
| Position |
Christopher H. Atayan | | 5961
| | Chairman of the Board, Chief Executive Officer, Director |
Andrew C. Plummer | | 4547
| | President, Chief FinancialOperating Officer, Director |
Charles J. Schmaderer | | 5052
| | Vice President, Corporate Controller,Chief Financial Officer, Secretary |
CHRISTOPHER H. ATAYAN has served in various senior executive positions with the Company since March 2006, including his service as Chairman of the Board since January 2008 and Chief Executive Officer since October 2006, and has been a director of the Company since 2004. Mr. Atayan has served as the Senior Managing Director of Slusser Associates, Inc., a private equity and investment banking firm, sincefrom 1988 to 2020, and hashad been engaged in private equity and investment banking since 1982. He also serves on the Board of Eastek Holdings, LLC a contract manufacturing company.
ANDREW C. PLUMMER has served as our President and Chief Operating Officer since October 2018, as our Chief Financial Officer sincefrom January 2007 to October 2020, and as our Secretary from January 2007 to October 2018. From 2004 to 2007, Mr. Plummer served our company in various roles including Acting Chief Financial Officer, Corporate Controller, and Manager of SEC Compliance. Prior to joining our company in 2004, Mr. Plummer practiced public accounting, primarily with the accounting firm Deloitte and Touche, LLP (now Deloitte).
CHARLES J. SCHMADERER has served as the Company’s Chief Financial Officer since October 2020, as Vice President and Corporate Controller since April 2018, and as Secretary since October 2018.2018 and as Corporate Controller from April 2018 to October 2020. From 2006 to 2018, Mr. Schmaderer served the Company in various roles including as the Vice President of Financial Reporting and Assistant Secretary, and as the Director of Financial and SEC Reporting. Prior to joining AMCON in 2006, Mr. Schmaderer held financial management roles with Hewlett Packard (HP) and before that practiced public accounting, primarily with the accounting firm Grant Thornton, LLP andLLP. Mr. Schmaderer also holds a Master of Business Administration (MBA).
from the University of Nebraska-Omaha.
PART II
II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON STOCK
The Company’s common stock trades on NYSE American under the trading symbol “DIT”. As of October 31, 2019November 4, 2021, the closing price of our common stock on NYSE American was $73.00$127.28 and there were 565,942582,789 common shares outstanding. As of that date, the Company had approximately 521778 persons holding common shares beneficially of which approximately 121128 are shareholders of record (including direct participants in the Depository Trust Company). The following table reflects the range of the high and low closing prices per share of the Company’s common stock reported by NYSE American for fiscal 2019 and 2018.
| | | | | | | | | | | | |
| | Fiscal 2019 | | Fiscal 2018 |
| | High | | Low | | High | | Low |
4th Quarter | | $ | 100.00 | | $ | 73.41 | | $ | 89.00 | | $ | 81.10 |
3rd Quarter | | | 100.00 | | | 88.27 | | | 98.35 | | | 81.30 |
2nd Quarter | | | 101.51 | | | 88.01 | | | 99.87 | | | 84.10 |
1st Quarter | | | 99.75 | | | 77.92 | | | 97.85 | | | 86.61 |
DIVIDEND POLICY
On a quarterly basis, the Company’s Board of Directors evaluates the potential declaration of dividend payments on the Company’s common stock. Our dividend policy is intended to return capital to shareholders when it is most appropriate. The Company’s revolving credit facility provides that the Company may not pay dividends on its common shares in excess of $1.00 per common share$3.5 million on an annual basis. There is no limit on dividend payments provided that certain excess availability measurements have been maintained for the thirty day period immediately prior to the payment of any such dividends or distributions, and immediately after giving effect to any such dividend or distribution payments, the Company has a fixed charge coverage ratio of at least 1.101.0 to 1.0 as defined in the credit facility agreement.
Our Board of Directors could decide to alter our dividend policy or not pay quarterly dividends at any time in the future. Such an action by the Board of Directors could result from, among other reasons, changes in the marketplace, changes in our performance or capital needs, changes in federal income tax laws, disruptions in the capital markets, or other events affecting our business, liquidity or financial position. The Company paid cash dividends of $3.4 million, or $5.72 per common share during fiscal 2021, and $0.6 million, or $1.00 per common share during fiscal 2019, and $0.7 million, or $1.00 per common share during fiscal 2018.2020.
During the fiscal yearyears ended September 30, 2019,2021 and September 30, 2020, the Company did not sell any unregistered securities. The Company issued unregistered securities to certain members of the Company’s management team in relation to the vesting of restricted stock units as described in Note 11 of Part II, Item 8. These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
REPURCHASE OF COMPANY SHARES
The Company repurchased a total of 75,11368 and 74,88028,727 shares of its common stock during fiscal 20192021 and fiscal 2018,2020, respectively, for cash totaling approximately $7.5less than $0.1 million and $7.7approximately $2.0 million, respectively. All repurchased shares were recorded in treasury stock at cost. At September 2019, 34,8462021, 74,932 shares of the Company’s common shares remained authorized for repurchase in either the open market or privately negotiated transactions, as previously approved by the Company’s Board of Directors. The Company did not repurchase any shares of its common stock during the fourth quarter of fiscal 2021. In October 2019,2021, our Board of Directors renewed the repurchase authorization for up to 75,000 shares of the Company’s common stock.
During the fourth quarter of fiscal 2019, the Company repurchased shares of its common stock for cash totaling approximately $4.3 million. The following table summarizes these repurchases made by or on behalf of our Company or certain affiliated purchasers of shares of our common stock for the quarterly period ended September 30, 2019:
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Period | | (a) Total Number of Shares (or Units) Purchased | | (b) Average Price Paid per Share (or Unit) | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs* |
July 1-31, 2019 | | 293 | | $ | 99.35 | | 293 | | 74,706 |
August 1 - 31, 2019 | | 39,769 | | | 107.71 | | 39,769 | | 34,937 |
September 1 - 30, 2019 | | 91 | | | 75.51 | | 91 | | 34,846 |
Total | | 40,153 | | $ | 107.58 | | 40,153 | | 34,846 |
* In October 2019 and subsequent to the end of fiscal 2019, our Board of Directors authorized purchases of up to 75,000 shares of our Company’s common stock in open market or negotiated transactions. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases.
EQUITY COMPENSATION PLAN INFORMATION
We refer you to Item 12 of this report for the information required by Item 201(d) of SEC Regulation S‑K.S-K.
ITEM 6. [RESERVED]
SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements under Item 8 and other information in this report, including Critical Accounting PoliciesEstimates and Cautionary Information included at the end of this Item 7. The following discussion and analysis includes the results of operations for the twelve month periods ended September 20192021 and September 2018.2020. For more information regarding our business segments, see Item 1 “Business” of this Annual Report.
Business Update - Wholesale Segment
While the Company experienced strong fiscal 2021 results, it remains cautious moving into fiscal 2022 and beyond based on a range of considerations including, but not limited to, those described below.
A numberFirst, since the onset of macrothe COVID-19 pandemic, both of our businesses have experienced an increase in demand and sales across a broad range of products. It remains unclear, however, if these demand trends will remain intact or if they will eventually revert back to more historical levels over time.
Secondly, worldwide supply chains continue to impact the convenience store industryremain highly disrupted, which has impacted product availability and the wholesale distributors which serve this retail segment.
First, theresulted in product pricing inflation and may impact long term demand trend for cigarettes continues to decline as fewer individuals smoke,trends.
Finally, the United States is experiencing an acute workforce shortage, which we believe partially results from higher excise taxes and other regulatory initiatives placed on such products. In recent years, the tobacco industry has worked to develop alternative products (e-cigarettes, vaping etc.), however, the long-term viability of these products remains to be seen, particularly e-cigarette and vaping products given regulatory pressures.
Secondly, the continued popularity of fast casual and on-the-go dining options is fueling interest by convenience stores owners to enhance their existing foodservice programs and build-out new revenue streams.
Lastly, large consumer package goods manufacturers (“CPG’s”) are heavily focused on reinventing their product portfolios and replacing older lower margin offerings. This has resulted in a wave of innovation by CPG manufacturers around design, packaging, and the types of products offered within the convenience store channel. Accordingly, CPG companies continue to rely heavily on wholesale distributors to assist with market introduction and ultimately to obtain shelf space for these new products within the one of their most important sales channels (convenience stores).
At the wholesale distributor level, we continue to see brisk consolidation trends across the industry as the economics and capital requirements of the business has become challenging for many smaller distributors. Accordingly, we continue to carefully evaluate a range of acquisition/expansion opportunities and remain focused on maximizing our liquidity position which provides us the flexibility to move quickly as attractive opportunities arise. In conjunction with this strategy, in fiscal 2019 we redeveloped our Bismarck, North Dakota distribution facilities to better service customers in that region and to support our reach into adjacent markets.
Given these market dynamics, our long term strategic plan remains centered around three core areas: 1) expanding our geographic footprint either through strategic acquisitions or establishing new distribution centers, 2) expanding our foodservice platform, and 3) ongoing investments in our information technology applications and trucking fleet as a means of differentiation and long term customer retention.
Business Update - Retail Segment
The food retailing sector continues to undergo a significant structural shift driven by increased competition, the types of products being demanded by consumers, and changes in how consumers shop and engage with retailers. These factors have resulted in a highly competitive and dynamic operating environment forcing retailers to continuously innovate with improved product offerings and services.
In the health food retailing sector in which our stores operate, a number of factors havealso impacted the performance of industry participants. First, a number of regionalCompany, particularly as it relates to filling warehouse and national health food retailers such as Sprouts Farmers Market, Natural Grocers, Trader Joe’s, Lucky’s Market, Earth Fare, and Fresh Thyme Farmers Market have expanded their geographic reach into areas once dominated by independent health food store operators. Secondly, web-based shopping formats, conventional grocery stores, and mass merchants such as Kroger, Albertsons, Walmart, and Costco have all greatly expanded their offerings of natural products which has impacted sales volumes for many independent health food retailers. Amazon’s ownership of Whole Foods Market, the nation’s largest health food retailer, has added another layer of intense competition across the industry. transportation roles.
All of these factors have contributed to a challenging operatingan inflationary environment for health food retailers, including our stores.
During fiscal year 2019, the Company continued to execute its multi-year repositioning strategy for its retail business. The core of this repositioning strategy focuses on four functional areas: 1) the implementation of a comprehensive program to optimize our merchandising strategy, 2) selectively remodeling existing storesresulting in higher labor costs and adding new stores which incorporate modern design themes and convenience shopping attributes, 3) the use of a new multi-channel branding and marketing program, and 4) targeted closure of non-performing stores. While progress continues on our repositioning strategy, the market conditions in this sector still remain challenging with heightened competition. Accordingly, as discussed in Note 5, the Company recorded impairment charges in its retail reporting unit during fiscal 2019 which reflect this operating environment.
While we can provide no assurances that our business repositioning strategy will be successful, we believe that many of the traditional pillars of successful retailing remain in place. Among these, having modern stores with strong locations that carry a differentiated product mix and offering a high level of consultative customer service, all remain important elements in driving repeat customer traffic and ultimately profitable unit economics. Accordingly, we continue to make investmentsan overall increase in the aforementioned areas in conjunction with our repositioning strategy.Company’s cost structure.
Results of Operations
The following table sets forth an analysis of various components of the Company’s Statement of Operations as a percentage of sales for fiscal years 20192021 and 2018:2020:
| | | | | |
| | Fiscal Years | |
| | 2021 | | 2020 | |
Sales | | 100.0 | % | 100.0 | % |
Cost of sales | | 94.0 | | 94.2 | |
Gross profit | | 6.0 | | 5.8 | |
Selling, general and administrative expenses | | 4.7 | | 5.0 | |
Depreciation | | 0.2 | | 0.2 | |
Operating income | | 1.1 | | 0.6 | |
Interest expense | | 0.1 | | 0.1 | |
Income before income taxes | | 1.0 | | 0.5 | |
Income tax expense | | 0.3 | | 0.1 | |
Equity method investment earnings, net of tax | | 0.2 | | — | |
Net income available to common shareholders | | 0.9 | % | 0.4 | % |
| | | | | | | | | |
| | Fiscal Years | | | |
($ in millions) | | 2021 | | 2020 | | Incr (Decr) (2) |
CONSOLIDATED: | | | | | | | | | |
Sales(1) | | $ | 1,672.4 | | $ | 1,521.3 | | $ | 151.1 |
Cost of sales | | | 1,571.8 | | | 1,433.5 | | | 138.3 |
Gross profit | | | 100.5 | | | 87.7 | | | 12.8 |
Gross profit percentage | | | 6.0 | % | | 5.8 | % | | |
| | | | | | | | | |
Operating expense | | $ | 82.7 | | $ | 78.7 | | $ | 4.0 |
Operating income | | | 17.8 | | | 9.1 | | | 8.7 |
Interest expense | | | 1.3 | | | 1.7 | | | (0.4) |
Income tax expense | | | 4.5 | | | 2.1 | | | 2.4 |
Equity method investment earnings, net of tax | | | 3.4 | | | 0.2 | | | 3.2 |
Net income available to common shareholders | | | 15.5 | | | 5.5 | | | 10.0 |
| | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | |
Wholesale | | | | | | | | | |
Sales | | $ | 1,625.1 | | $ | 1,475.3 | | $ | 149.8 |
Gross profit | | | 82.6 | | | 71.6 | | | 11.0 |
Gross profit percentage | | | 5.1 | % | | 4.9 | % | | |
Retail | | | | | | | | | |
Sales | | $ | 47.3 | | $ | 46.0 | | $ | 1.3 |
Gross profit | | | 17.9 | | | 16.1 | | | 1.8 |
Gross profit percentage | | | 37.8 | % | | 35.0 | % | | |
| | | | | |
| | Fiscal Years | |
| | 2019 | | 2018 | |
Sales | | 100.0 | % | 100.0 | % |
Cost of sales | | 94.0 | | 94.2 | |
Gross profit | | 6.0 | | 5.8 | |
Selling, general and administrative expenses | | 5.4 | | 5.1 | |
Depreciation and amortization | | 0.2 | | 0.2 | |
Operating income | | 0.4 | | 0.5 | |
Interest expense | | 0.1 | | 0.1 | |
Income before income taxes | | 0.3 | | 0.4 | |
Income tax expense | | 0.1 | | 0.1 | |
Net income available to common shareholders | | 0.2 | % | 0.3 | % |
| | | | | | | | | |
| | Fiscal Years | | | |
(In millions) | | 2019 | | 2018 | | Incr (Decr) (2) |
CONSOLIDATED: | | | | | | | | | |
Sales(1) | | $ | 1,392.4 | | $ | 1,322.3 | | $ | 70.1 |
Cost of sales | | | 1,308.4 | | | 1,245.4 | | | 63.0 |
Gross profit | | | 84.0 | | | 76.9 | | | 7.1 |
Gross profit percentage | | | 6.0 | % | | 5.8 | % | | |
| | | | | | | | | |
Operating expense | | $ | 77.7 | | $ | 71.0 | | $ | 6.7 |
Operating income | | | 6.3 | | | 5.9 | | | 0.4 |
Interest expense | | | 1.6 | | | 1.2 | | | 0.4 |
Income tax expense | | | 1.6 | | | 1.1 | | | 0.5 |
Net income | | | 3.2 | | | 3.6 | | | (0.4) |
| | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | |
Wholesale | | | | | | | | | |
Sales | | $ | 1,348.2 | | $ | 1,292.7 | | $ | 55.5 |
Gross profit | | | 67.7 | | | 64.2 | | | 3.5 |
Gross profit percentage | | | 5.0 | % | | 5.0 | % | | |
Retail | | | | | | | | | |
Sales | | $ | 44.2 | | $ | 29.6 | | $ | 14.6 |
Gross profit | | | 16.3 | | | 12.7 | | | 3.6 |
Gross profit percentage | | | 36.9 | % | | 42.9 | % | | |
| (1) | (1)
| | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $25.3$30.1 million and $24.1$26.8 million in fiscal 20192021 and fiscal 2018,2020, respectively. |
| (2) | (2)
| | Calculated based on rounded numbers as presented in the table. |
SALES
Changes in sales are driven by two primary components:
| (i) | (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) | (ii)
| | changes in the volume and mix 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—Fiscal 20192021 vs. Fiscal 20182020
Sales in our Wholesale Segment increased $55.5$149.8 million during fiscal 20192021 as compared to fiscal 2018.2020. Significant items impacting sales during fiscal 20192021 included a $39.6$69.8 million increase in sales related to price increases implemented by cigarette manufacturers, a $33.7$65.2 million increase in sales related to higher sales volume in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, foodservice, and store supplies categories (“Other Products”), and a $12.6$14.8 million increase in sales related to increases in cigarette state excise taxes. These increases were partially offset by a $30.4 million decrease in sales related to the volume and mix of cigarette cartons sold.
Sales in our Retail Segment increased $14.6$1.3 million in fiscal 20192021 as compared to fiscal 2018.2020. Significant items impacting sales during the current periodfiscal 2021 included a $17.4$2.3 million increase in sales related to higher sales volumes in our Earth Origins Market (“EOM”)existing stores, located in Florida, which were acquired during the fourth quarter of fiscal 2018. This increase was partially offset by a $1.2$1.0 million decrease in sales related to the closure of two non-performing stores on a comparative basis.
Sales in the prior year period, andboth of our business segments benefitted from higher consumer demand across a $1.6 million decrease in sales related to lower sales volumes in our existing stores.range of product categories.
GROSS PROFIT—Fiscal 20192021 vs. Fiscal 20182020
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 increased $3.5$11.0 million during fiscal 20192021 as compared to fiscal 2018. This increase was primarily2020. Of this change, approximately $9.4 million related to a $4.9 million increasehigher sales in our Other Products category, sales$1.4 million related to an increase in the benefit recognized from cigarette manufacturer price increases, and a $0.4$0.2 million increase related to increases in cigarette excise taxes. These increases were partially offset by a decrease of $1.8 million in related to the volume and mix of cigarettes sold. Gross profit in our Retail Segment increased $3.6$1.8 million in fiscal 20192021 as compared to fiscal 2018. Significant items impacting gross profit during the current period included a $5.6 million increase in gross profit2020. This change was primarily related to higher sales and gross margins in our EOM stores. These increases wereexisting stores resulting from operational enhancements and variations in volume and product mix between the comparative periods, partially offset by a $0.5 million decrease in gross profit related to the closure of two non-performing stores in the prior year period andon a $1.5 million decrease in gross profit related to lower sales volumes in our existing stores.comparative basis.
OPERATING EXPENSE—Fiscal 20192021 vs. Fiscal 20182020
Operating expense includes selling, general and administrative expenses and depreciation and amortization.depreciation. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, insurance, and professional fees.insurance.
Our fiscal 20192021 consolidated operating expenses increased $6.7$4.1 million as compared to fiscal 2018.2020. Our fiscal 20192021 Wholesale Segment operating expenses increased $1.4$5.9 million as compared to fiscal 2018.2020. Significant items impacting operating expenses in our Wholesale Segment during fiscal 20192021 included a $1.5$4.1 million increase in employee
compensation and benefit costs resulting in part due to a highly competitive labor market which has increased wage levels
across all functional areas of the Company, particularly for warehouse associates and transportation roles. Additionally, the Company experienced a $1.3 million increase in health and other insurance costs, a $0.4 million increase in fuel costs primarily related to higher diesel fuel prices, and a $0.5 million increase in other operating costs. These increases were partially offset by a $0.6 million decrease in health insurance costs.
Our fiscal 2019 Retail Segment operating expenses increased $5.3 million as compared to fiscal 2018. Significant items impacting fiscal 2019 Retail Segment operating expenses included a $5.0 million increase in expenses related to our EOM retail stores, the impact of a $2.9 million impairment charge in the current year, and a $0.2 million increase in othergeneral operating expenses. These increases were partially offset by a $0.9$0.4 million decrease in our customer bad debt expense on a comparative basis.
Our fiscal 2021 Retail Segment operating expenses decreased $1.8 million as compared to fiscal 2020. Significant items impacting operating expenses in our Retail Segment during fiscal 2021 included a $1.0 million decrease in operating expenses related to the closure of two non-performing retail stores on a comparative basis, a decrease of $0.5 million related to impairment charges between the comparative periods, and the impact of a $1.9$0.3 million impairment chargedecrease in the prior year.other operating expenses.
INCOME TAX EXPENSE —Fiscal 20192021 vs. Fiscal 20182020
The change in the Company’s income tax rate between the comparative fiscal periods was primarily related to the impact of the Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law during the first quarter of fiscal 2018 and the impact of nondeductiblenon-deductible compensation expense in relation to the amount of income from operations duringbefore income tax expense between the comparative periods. Among the numerous provisions included in the Tax Reform Act was a reduction in the corporate federal income tax rate from 35% to 21%. The Company applied the newly enacted corporate federal income tax rate during the first quarter of fiscal 2018 resulting in an income tax benefit of approximately $0.8 million, primarily related to the application of the new lower income tax rates to net long term deferred tax liabilities recorded on the Company’s Consolidated Balance Sheet.
Liquidity and Capital Resources
The Company’s 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”“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 our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
In general, the Company finances its operations through a credit facility agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in the loan syndication. The Facility included the following significant terms at September 2019:2021:
| ● | ·
| | A November 2022March 2025 maturity date without a penalty for prepayment. |
| ● | ·
| | $70.0110.0 million revolving credit limit. |
| ● | ·
| | Loan accordion allowing the Company to increase the size of the credit facility agreementFacility by $25.0 million. |
| ● | ·
| | A provision providing an additional $10.0 million of credit advances for certain inventory purchases. |
| ● | ·
| | Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement. |
| ● | ·
| | The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent rate index) plus 125 ‑- 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For these purposes, in no event shall LIBOR be less than 50 basis points. |
| ● | ·
| | Lending limits subject to accounts receivable and inventory limitations. |
| ● | ·
| | An unused commitment fee equal to one‑quarterone-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings. |
| ● | ·
| | Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable. |
| ● | ·
| | A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement. The Company’s fixed charge coverage ratio iswas over 1.0 for the trailing twelve months. |
| ● | ·
| | Provides that the Company may payuse up to $2.0$3.5 million annually, on a collective basis, for the payment of dividends on its common stock, annuallyor other distributions or investments, provided the Company is not in default before or after the dividend.such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $2.0$3.5 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after the dividend. such dividends, distributions or investments. |
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.day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at September 20192021 was $79.5$109.5 million, of which $60.4$43.7 million was outstanding, leaving $19.1$65.8 million available.
At September 2019,2021, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short‑termshort-term LIBOR rate elections made by the Company. The average interest rate was 3.89%1.89% at September 2019.2021.
During fiscal 2019,2021, our peak borrowings under the Facility were $73.5$71.7 million and our average borrowings and average availability was $33.3were $44.3 million and $36.4$46.5 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. At September 2019, our inventory and Facility had increased in comparison to September 2018 primarily related to opportunistic inventory purchases. We expect our inventory and Facility will return to normalized levels during the first quarter of fiscal 2020 as the associated inventory is sold and the Facility is paid down.
Cross Default and Co‑TerminusCo-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause it to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at September 2019.2021. In addition, the Real Estate Loan contains co‑terminusco-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.
Dividend Payments
The Company paid cash dividends of $3.4 million, or $5.72 per common share during fiscal 2021, and $0.6 million, or $1.00 per common share during fiscal 2019, and $0.7 million, or $1.00 per common share during fiscal 2018.2020.
Other
The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self‑insuredself-insured loss control program.
Off‑BalanceOff-Balance Sheet Arrangements
The Company does not have any off‑balanceoff-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 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.
While the Company believes its liquidity position going forward will be adequate to sustain operations, a precipitous change in operating environment could materially impact the Company’s future revenue stream as well as its ability to collect on customer accounts receivable or secure bank credit.
OTHER MATTERS—Critical Accounting Estimates
GENERAL
The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles, which require the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates are set forth below and have not changed during fiscal 2019.2021.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
NATURE OF ESTIMATES REQUIRED. The allowance for doubtful accounts represents our estimate of uncollectible accounts receivable at the balance sheet date. We monitor our credit exposure on a daily basis and regularly assess the adequacy of our allowance for doubtful accounts. Because credit losses can vary significantly over time, estimating the required allowance requires a number of assumptions that are uncertain.
ASSUMPTIONS AND APPROACH USED. We estimate our required allowance for doubtful accounts using the following key assumptions.assumptions:
| ● | ·
| | Historical collections—Represented as the amount of historical uncollectible accounts as a percent of total accounts receivable. |
| ● | ·
| | Specific credit exposure on certain accounts—Identified based on management’s review of the accounts receivable portfolio and taking into account the financial wherewithal of particular customers that management deems to have a higher risk of collection. |
| ● | ·
| | Market conditions—We consider a broad range of industry trends and macro‑economicmacro-economic issues which may impact the creditworthiness of our customers. |
INVENTORIES
INVENTORIES
NATURE OF ESTIMATES REQUIRED. In our businesses, we carry large quantities and dollar amounts of inventory. Inventories primarily consist of finished products purchased in bulk quantities to be sold to our customers. Given the large quantities and broad range of products we carry, there is a risk that inventory may become impaired because it has become unsaleable or unrefundable, slow moving, obsolete, or because it has been discontinued. The use of estimates is required in determining either the net realizable value (for our wholesale business) or the lower of cost or market (“LCM”) under the retail method (for our retail business) of this inventory.
ASSUMPTIONS AND APPROACH USED. We estimate our inventory obsolescence reserve at each balance sheet date based on the following criteria:
| ● | ·
| | Slow moving products—Items identified as slow moving are evaluated on a case‑by‑casecase-by-case basis for impairment. |
| ● | ·
| | Obsolete/discontinued inventory—Products identified that are near or beyond their expiration dates. We may also discontinue carrying certain product lines for our customers. As a result, we estimate either the net realizable value or the LCM of this inventory as if it were to be liquidated. |
| ● | ·
| | Estimated net realizable value/sales price—Thevalue—For our wholesale business, the net realizable value of the inventory is estimated using management’s evaluation of the congestion in the distribution channels and experience with brokers and inventory liquidators to determine the net realizable value of the inventory. |
DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG‑LIVEDLONG-LIVED ASSETS, INCLUDING GOODWILL AND LEASED RIGHT-OF-USE ASSETS
Long‑livedLong-lived assets consist primarily of property and equipment, leased right-of-use (“ROU”) assets, intangible assets, and goodwill acquired in business combinations. Property and equipment, ROU assets and amortizable identified intangible assets are assigned useful lives ranging from 1 to 40 years. Indefinite‑livedIndefinite-lived intangible assets and goodwill are not amortized. Impairment of the Company’s long‑livedlong-lived assets is assessed during the Company’s fourth fiscal quarter using both qualitative and quantitative analysis, or whenever events or circumstances change that indicate the carrying value of such long‑livedlong-lived assets may not be recoverable.
NATURE OF ESTIMATES REQUIRED. Management has to estimate the useful lives of the Company’s long livedlong-lived assets. In regard to the Company’s impairment analysis, the most significant assumptions include management’s estimate of the annual growth rate used to project future sales and expenses.
ASSUMPTIONS AND APPROACH USED. For property and equipment, depreciable lives are based on our accounting policy which is intended to mirror the expected useful life of the asset. In determining the estimated useful life of ROU assets and amortizable intangible assets such as customer lists, we rely on our historical experience in addition to estimates of how long certain assets will generate cash flows. If impairment indicators arise, we then evaluate the potential impairment of property and equipment, ROU assets and amortizable identifiable intangible assets using an undiscounted future cash flow approach.
When evaluating the potential impairment of non‑amortizable indefinite‑livednon-amortizable indefinite-lived assets and goodwill, the Company first assesses a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, market prices, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If after completing this assessment, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative evaluation is performed using the income approach (discounted cash flow method).
A discounted cash flow methodology requires the estimation of a wide range of factors including but not limited to: (i) forecasting future earnings and cash flows (ii) determining the discount rate applicable to the earnings stream being discounted, and (iii) computing a terminal value at some point in the future. These estimations require significant judgment and include making assumptions such as sales growth rates including the addition of new retail stores, future store profitability, planned capital expenditures, our ability to control costs, the successful implementation of initiatives designed to enhance sales and improve inventory management, gross profit estimates, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and
political developments, entity specific factors such as strategy and changes in key personnel, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.
The Company’s retail reporting unit recorded intangibleROU asset and fixed asset impairment charges of approximately $2.9$0.5 million during fiscal 20192020 (See Notes 1 and goodwill impairment charges of $1.9 million during fiscal 2018 (See Note 5)4). These impairment charges arose from a range of considerations including, but not limited to, heightened competition in the industry, retail sector market conditions, and earning shortfalls which impacted the Company’s projections of future cash flows to be generated from such assets. To the extent that management's estimates of future performance for the Company’s retail reporting unit are not realized, our business plans for future operations change, or if there is a further deterioration in the macro retailing operating environment, the future assumptions used in calculating the fair value of assets in the retail unit could differ and result in additional impairment charges.
Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled $4.4 million at both September 20192021 and September 2018.2020. The Company determined that the estimated fair value of its wholesale reporting unit exceeded its carrying value at both September 20192021 and September 2018.2020.
INSURANCE
The Company’s insurance for workers’ compensation, general liability and employee‑relatedemployee-related health care benefits are provided through high‑deductiblehigh-deductible or self‑insuredself-insured programs. As a result, the Company accrues for its workers’ compensation liability based upon claim reserves established with the assistance of a third‑partythird-party administrator, which are then trended and developed. The reserves are evaluated at the end of each reporting period. Due to the uncertainty involved with the realization of claims incurred but unreported, management is required to make estimates of these claims.
ASSUMPTIONS AND APPROACH USED. In order to estimate our reserve for incurred but unreported claims we consider the following key factors:
Employee Health Insurance Claims
| ● | ·
| | Historical claims experience—We review loss runs for each month to calculate the average monthly claims experience. |
| ● | ·
| | Lag period for reporting claims—Based on our analysis, our experience is such that we have a minimum of a one month lag period in which claims are reported. |
Workers’ Compensation Insurance Claims
| ● | ·
| | Historical claims experience—We review prior years’ loss runs to estimate the average annual expected claims and review monthly loss runs to compare our estimates to actual claims. |
| ● | ·
| | Lag period for reporting claims—We review claims trends and use standard insurance industry loss models to develop reserves on reported claims in order to estimate the amount of incurred but unreported claims. |
INCOME TAXES
The Company accounts for its income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as a change in the corporate tax rate, could have a material impact on our financial condition or results of operations.
On a periodic basis, we assess the likelihood that our deferred tax assets will be recovered from future taxable income and establish a related valuation allowance as appropriate. In performing our evaluation, we consider all available evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance, the reversal of deferred tax liabilities and tax planning strategies. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized.
ASSUMPTIONS AND APPROACH USED. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events.
In making that estimate we consider the following key factors:
| ● | ·
| | our current financial position; |
| ● | ·
| | historical financial information; |
| ● | ·
| | future reversals of existing taxable temporary differences; |
| ● | ·
| | future taxable income exclusive of reversing temporary differences and carryforwards; |
| ● | ·
| | taxable income in prior carryback years; and |
| ● | ·
| | tax planning strategies. |
REVENUE RECOGNITION
We recognize revenue in both our Wholesale Segment and our Retail Segment when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods and services. For the majority of our customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods and services transfers to the customer. Sales are shown net of returns, discounts, and sales incentives to customers.
NATURE OF ESTIMATES REQUIRED. We estimate and reserve for anticipated sales discounts. We also estimate and provide a reserve for anticipated sales incentives to customers when earned under established program requirements.
ASSUMPTIONS AND APPROACH USED. We estimate the sales reserves using the following criteria:
| ● | ·
| | Sales discounts—We use historical experience to estimate the amount of accounts receivable that will not be collected due to customers taking advantage of authorized term discounts. |
| ● | ·
| | Volume sales incentives—We use historical experience in combination with quarterly reviews of customers’ sales progress in order to estimate the amount of volume incentives due to the customers on a periodic basis. |
Our estimates and assumptions for each of the aforementioned critical accounting estimates have not changed materially during the periods presented, nor are we aware of any reasons that they would be reasonably likely to change in the future.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncement AdoptedPronouncements
During fiscal 2019, the Company adopted the following Accounting Standards Update (“ASU”). The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” Accounting Standards Codification TopicUpdate (“ASC”ASU”) 606 supersedes the revenue recognition requirements in “ASC 605 - Revenue Recognition” and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The Company adopted the new standard using the modified retrospective approach effective October 1, 2018. The adoption of ASC 606 did not have a material impact on the Company’s consolidated balance sheet or consolidated results of operations as of the adoption date or for the year ended September 30, 2019. Significant areas of consideration in regards to the Company’s adoption of ASC 606 were as follows:
Revenue Recognition
The Company recognizes revenues when the performance obligation is satisfied, which is the point where control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods and services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment due to the simultaneous nature of the Company’s customer arrangements (same day creation and fulfillment). Accordingly, the Company did not have any material contract assets, contract liabilities, or uncompleted contracts at the ASC 606 adoption date or September 2019. After the completion of its performance obligations, the Company has an unconditional right of payment from customers with varying collection and payment terms based on region, credit risk, and other situational factors. Customer receivables are included on the consolidated balance sheets less an allowance for doubtful accounts. The Company has elected the practical expedient permitting it to disregard financing components which may be deemed to be part of its transaction price as its customary payments terms are less than one year. See Footnote 11 “Business Segments” for the disaggregation of net sales for each of our business segments.
Customers’ Sales Incentives
The Company provides consideration to customers, such as sales allowances or discounts on a regular basis. In accordance with ASC 606, the Company will continue its policy of estimating customer sales incentives due as sales are made and record them as a reduction of net sales.
Excise Taxes
As part of the implementation of ASC 606, the Company determined that it is primarily responsible for excise taxes levied on cigarette and other tobacco products and continues to present excise taxes as a component of revenue.
Contract Costs
The Company has elected the practical expedient to expense as incurred any incremental costs to obtain and fulfill customer contracts as the related amortization period would be one year or less.
New Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 “Leases”. This ASU and its related amendments requires lessees to recognize right-of-use assets and corresponding lease liabilities for all leases greater than one year in duration that had
been classified as operating leases under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company has substantially completed its assessment of the accounting required under ASU 2016-12 and does not expect that the implementation of the new standard will have a material effect on the Company’s consolidated statements of operations or cash flows, however, the Company does estimate the adoption of ASU 2016-02 will result in the recognition of additional net lease assets of approximately $20-$25 million and corresponding lease liabilities of approximately $20-$25 million. The Company will adopt the new standard using the optional transition method in the first quarter of fiscal 2020 and will include required disclosures in conjunction with the adoption of the new standard.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective upon issuance for all entities through December 31, 2022. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10‑K,10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward‑lookingforward-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‑lookingForward-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(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward‑lookingforward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward‑Forward- looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.
YouIt should understandbe understood 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‑lookingforward-looking statements:
| ● | risks associated with the Company’s business model which since the onset of the COVID-19 pandemic has experienced both higher sales volumes and labor costs, and the related risk of sales returning to more historical levels without the Company being able to offset increases in its cost structure, |
| ● | risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19) or other public health issues, including the continued health of our employees and management, the imposition of governmental orders restricting our operations and the activities of our employees, suppliers and customers and the reduced demand for our goods and services, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to disruptions in our warehouse operations, or increased credit risk from customer credit defaults resulting from an economic downturn, |
| ● | risks associated with the acquisition of assets or new businesses or investments in equity investees by either of our business segments including, but not limited to, risks associated with purchase price and business valuation risks, |
| ·
vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations, |
| ● | | increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, |
| ● | ·
| | that our repositioning strategy for our retail business will not be successful, |
| ● | ·
| | risks associated with opening new retail stores, |
| ● | ·
| | risks associated with the acquisition of assets or new businesses by either of our business segments including, but not limited to, risks associated with purchase price and business valuation risks, vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations,
|
| ·
| | if online shopping formats such as AmazonAmazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business, |
| ● | ·
| | the potential impact that ongoing, decreasing, or changing trade tariffs and trade policies may have on our product costs or on consumer disposable income and demand, |
| ● | ·
| | increases in fuelincreasing product and operational costs and expenses associated with operating a refrigerated trucking fleet,
|
| ·
| | the risks associated with a highlyresulting from ongoing COVID-19 related supply chain disruptions, an intensely competitive labor market particularly for truck driverswith a limited pool of qualified workers, and warehouse workers, which may impact our ability to recruithigher incremental costs associated with the handling and retain employees and result in higher employee compensation costs,
transportation of certain product categories such as foodservice, |
| ● | ·
| | increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, |
| ● | ·
| | higher commodity prices and general inflation which could impact food ingredient costs and demand for many of the products we sell, |
| ● | ·
| | regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products by the United States Food and Drug Administration (“FDA”), state or local governmental agencies, or other parties, |
| ● | ·
| | increases in manufacturer prices,
|
| ·
| | increases in inventory carrying costs and customer credit risks, |
| ● | ·
| | changes in promotional and pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, |
| ● | ·
| | demand for the Company’s products, particularly cigarette, tobacco and e-cigarette/vaping products, |
| ● | ·
| | risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, |
| ● | ·
| | changes in laws and regulations and ongoing compliance related to health care and associated insurance, |
| ● | ·
| | increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending, |
| ● | ·
| | decreased availability of capital resources, |
| ● | ·
| | domestic regulatory and legislative risks, |
| ● | ·
| | poor weather conditions, and the adverse effects of climate change, |
| ● | ·
| | consolidation trends within the convenience store, wholesale distribution, and retail health food industries, |
| ● | ·
| | natural disasters and domestic or political unrest, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, |
| ● | ·
| | other risks over which the Company has little or no control, and any other factors not identified herein, 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‑lookingforward-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‑lookingforward-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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORTREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of AMCON Distributing Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AMCON Distributing Company and its subsidiaries (the Company) as of September 30, 20192021 and 2018,2020, the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 20192021 and 2018,2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of goodwill
As described in Notes 1 and 5 to the financial statements, the Company performs goodwill impairment testing on an annual basis, or whenever events and changes in circumstances indicate that goodwill may be impaired. The Company’s goodwill impairment testing is performed using the income approach (discounted cash flow method). To estimate fair value, the income approach requires the estimation of a wide range of factors including, but not limited to, forecasting future earnings and cash flows, determining the appropriate discount rate, and computing a terminal value at some point in the future. Significant judgment is needed in performing this analysis.
We identified the valuation of goodwill as a critical audit matter because of the significant assumptions used by the Company in determining fair value, including revenue and gross margin projections, terminal values and the discount rate. Auditing management’s assumptions of revenue and gross margin projections, terminal values and the discount rate
involves a high degree of auditor judgment and the use of valuation specialists as changes in these assumptions could have significant impacts on the fair value of the reporting unit.
Our audit procedures related to the valuation of goodwill included the following, among others:
| ● | We utilized a valuation specialist to evaluate the valuation model used by management to estimate fair value and evaluate whether it is reasonable in the circumstances by: |
| o | Developing independent estimates of the discount rates based on publicly available market data and comparing the resulting reporting unit fair values to management’s estimates. |
| o | Testing the mathematical accuracy of the calculation. |
| ● | We tested the reasonableness of management’s projections by comparing management’s prior forecasts of future revenue and gross margins to historical results. |
| ● | We evaluated the reasonableness of management’s assumptions related to the growth rate and gross margin by comparing to historical results and available market data. |
We have served as the Company's auditor since 2006.
Omaha, Nebraska
November 8, 20192021
AMCON Distributing Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
SHEETS
| | | | | | |
| | September | | September |
| | 2019 | | 2018 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 337,704 | | $ | 520,644 |
Accounts receivable, less allowance for doubtful accounts of $0.9 million at September 2019 and September 2018 | | | 24,665,620 | | | 31,428,845 |
Inventories, net | | | 102,343,517 | | | 78,869,615 |
Income taxes receivable | | | 350,378 | | | 272,112 |
Prepaid and other current assets | | | 7,148,459 | | | 4,940,775 |
Total current assets | | | 134,845,678 | | | 116,031,991 |
| | | | | | |
Property and equipment, net | | | 17,655,415 | | | 15,768,484 |
Goodwill | | | 4,436,950 | | | 4,436,950 |
Other intangible assets, net | | | 500,000 | | | 3,414,936 |
Other assets | | | 273,579 | | | 301,793 |
Total assets | | $ | 157,711,622 | | $ | 139,954,154 |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 18,647,572 | | $ | 20,826,834 |
Accrued expenses | | | 8,577,972 | | | 8,556,620 |
Accrued wages, salaries and bonuses | | | 3,828,847 | | | 3,965,733 |
Current maturities of long-term debt | | | 532,747 | | | 1,096,306 |
Total current liabilities | | | 31,587,138 | | | 34,445,493 |
| | | | | | |
Credit facility | | | 60,376,714 | | | 35,428,597 |
Deferred income tax liability, net | | | 1,823,373 | | | 1,782,801 |
Long-term debt, less current maturities | | | 3,125,644 | | | 3,658,391 |
Other long-term liabilities | | | 42,011 | | | 38,055 |
| | | | | | |
Shareholders’ equity: | | | | | | |
Preferred stock, $.01 par value, 1,000,000 shares authorized | | | — | | | — |
Common stock, $.01 par value, 3,000,000 shares authorized, 552,614 shares outstanding at September 2019 and 615,777 shares outstanding at September 2018 | | | 8,561 | | | 8,441 |
Additional paid-in capital | | | 23,165,639 | | | 22,069,098 |
Retained earnings | | | 66,414,397 | | | 63,848,030 |
Treasury stock at cost | | | (28,831,855) | | | (21,324,752) |
Total shareholders’ equity | | | 60,756,742 | | | 64,600,817 |
Total liabilities and shareholders’ equity | | $ | 157,711,622 | | $ | 139,954,154 |
| | | | | | |
| | September | | September |
| | 2021 | | 2020 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 519,591 | | $ | 661,195 |
Accounts receivable, less allowance for doubtful accounts of $0.9 million at September 2021 and September 2020 | | | 35,844,163 | | | 34,278,429 |
Inventories, net | | | 95,212,085 | | | 98,971,773 |
Prepaid expenses and other current assets | | | 4,999,125 | | | 2,091,645 |
Total current assets | | | 136,574,964 | | | 136,003,042 |
| | | | | | |
Property and equipment, net | | | 16,012,524 | | | 17,497,274 |
Operating lease right-of-use assets, net | | | 17,846,529 | | | 18,936,126 |
Note receivable, net of current portion | | | 3,325,000 | | | 3,500,000 |
Goodwill | | | 4,436,950 | | | 4,436,950 |
Other intangible assets, net | | | 500,000 | | | 500,000 |
Equity method investment | | | 9,380,343 | | | 6,744,095 |
Other assets | | | 334,819 | | | 383,786 |
Total assets | | $ | 188,411,129 | | $ | 188,001,273 |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 24,235,042 | | $ | 22,108,299 |
Accrued expenses | | | 11,468,955 | | | 8,306,160 |
Accrued wages, salaries and bonuses | | | 4,489,852 | | | 4,761,020 |
Income taxes payable | | | 867,160 | | | 567,408 |
Current operating lease liabilities | | | 5,513,390 | | | 5,607,098 |
Current maturities of long-term debt | | | 561,202 | | | 516,850 |
Total current liabilities | | | 47,135,601 | | | 41,866,835 |
| | | | | | |
Credit facility | | | 43,650,865 | | | 61,971,682 |
Deferred income tax liability, net | | | 1,531,228 | | | 1,806,575 |
Long-term operating lease liabilities | | | 12,669,157 | | | 14,028,606 |
Long-term debt, less current maturities | | | 5,054,265 | | | 2,608,794 |
Other long-term liabilities | | | 757,387 | | | 927,241 |
| | | | | | |
Shareholders’ equity: | | | | | | |
Preferred stock, $.01 par value, 1,000,000 shares authorized | | | — | | | — |
Common stock, $.01 par value, 3,000,000 shares authorized, 551,369 shares outstanding at September 2021 and 537,715 shares outstanding at September 2020 | | | 8,834 | | | 8,697 |
Additional paid-in capital | | | 24,918,781 | | | 24,282,058 |
Retained earnings | | | 83,552,298 | | | 71,362,334 |
Treasury stock at cost | | | (30,867,287) | | | (30,861,549) |
Total shareholders’ equity | | | 77,612,626 | | | 64,791,540 |
Total liabilities and shareholders’ equity | | $ | 188,411,129 | | $ | 188,001,273 |
The accompanying notes are an integral part of these consolidated financial statements.
AMCON Distributing Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
OPERATIONS
| | | | | | |
| | Fiscal Years Ended September |
| | 2019 | | 2018 |
Sales (including excise taxes of $370.2 million and $368.4 million, respectively) | | $ | 1,392,388,157 | | $ | 1,322,306,658 |
Cost of sales | | | 1,308,364,726 | | | 1,245,375,460 |
Gross profit | | | 84,023,431 | | | 76,931,198 |
Selling, general and administrative expenses | | | 72,182,883 | | | 66,781,234 |
Depreciation and amortization | | | 2,617,591 | | | 2,318,146 |
Impairment charges | | | 2,873,269 | | | 1,912,877 |
| | | 77,673,743 | | | 71,012,257 |
Operating income | | | 6,349,688 | | | 5,918,941 |
| | | | | | |
Other expense (income): | | | | | | |
Interest expense | | | 1,598,864 | | | 1,194,373 |
Other (income), net | | | (61,119) | | | (54,042) |
| | | 1,537,745 | | | 1,140,331 |
Income from operations before income taxes | | | 4,811,943 | | | 4,778,610 |
Income tax expense | | | 1,609,000 | | | 1,164,000 |
Net income available to common shareholders | | $ | 3,202,943 | | $ | 3,614,610 |
| | | | | | |
Basic earnings per share available to common shareholders | | $ | 5.36 | | $ | 5.47 |
Diluted earnings per share available to common shareholders | | $ | 5.25 | | $ | 5.38 |
| | | | | | |
Basic weighted average shares outstanding | | | 597,961 | | | 660,925 |
Diluted weighted average shares outstanding | | | 609,836 | | | 672,449 |
| | | | | | |
Dividends declared and paid per common share | | $ | 1.00 | | $ | 1.00 |
| | | | | | |
| | Fiscal Years Ended September |
| | 2021 | | 2020 |
Sales (including excise taxes of $403.9 million and $393.3 million, respectively) | | $ | 1,672,378,581 | | $ | 1,521,278,763 |
Cost of sales | | | 1,571,829,805 | | | 1,433,544,831 |
Gross profit | | | 100,548,776 | | | 87,733,932 |
Selling, general and administrative expenses | | | 79,631,140 | | | 75,051,227 |
Depreciation | | | 3,093,017 | | | 3,116,449 |
Impairment charges | | | — | | | 485,270 |
| | | 82,724,157 | | | 78,652,946 |
Operating income | | | 17,824,619 | | | 9,080,986 |
| | | | | | |
Other expense (income): | | | | | | |
Interest expense | | | 1,339,560 | | | 1,693,251 |
Other (income), net | | | (203,228) | | | (114,276) |
| | | 1,136,332 | | | 1,578,975 |
Income from operations before income taxes | | | 16,688,287 | | | 7,502,011 |
Income tax expense | | | 4,501,000 | | | 2,143,000 |
Equity method investment earnings, net of tax | | | 3,357,978 | | | 183,579 |
Net income available to common shareholders | | $ | 15,545,265 | | $ | 5,542,590 |
| | | | | | |
Basic earnings per share available to common shareholders | | $ | 28.24 | | $ | 9.88 |
Diluted earnings per share available to common shareholders | | $ | 27.36 | | $ | 9.76 |
| | | | | | |
Basic weighted average shares outstanding | | | 550,551 | | | 561,166 |
Diluted weighted average shares outstanding | | | 568,103 | | | 567,961 |
| | | | | | |
Dividends declared and paid per common share | | $ | 5.72 | | $ | 1.00 |
The accompanying notes are an integral part of these consolidated financial statements.
AMCON Distributing Company and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | | |
| | Common Stock | | Treasury Stock | | Paid in | | Retained | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Total |
Balance, October 1, 2017 | | 831,438 | | $ | 8,314 | | (153,432) | | $ | (13,601,302) | | $ | 20,825,919 | | $ | 60,935,911 | | $ | 68,168,842 |
Dividends on common stock, $1.00 per share | | — | | | — | | — | | | — | | | — | | | (702,491) | | | (702,491) |
Compensation expense and issuance of stock in connection with equity-based awards | | 12,651 | | | 127 | | — | | | — | | | 1,243,179 | | | — | | | 1,243,306 |
Repurchase of common stock | | — | | | — | | (74,880) | | | (7,723,450) | | | — | | | — | | | (7,723,450) |
Net income | | — | | | — | | — | | | — | | | — | | | 3,614,610 | | | 3,614,610 |
Balance September 30, 2018 | | 844,089 | | $ | 8,441 | | (228,312) | | $ | (21,324,752) | | $ | 22,069,098 | | $ | 63,848,030 | | $ | 64,600,817 |
Dividends on common stock, $1.00 per share | | — | | | — | | — | | | — | | | — | | | (636,576) | | | (636,576) |
Compensation expense and issuance of stock in connection with equity-based awards | | 11,950 | | | 120 | | — | | | — | | | 1,096,541 | | | — | | | 1,096,661 |
Repurchase of common stock | | — | | | — | | (75,113) | | | (7,507,103) | | | — | | | — | | | (7,507,103) |
Net income | | — | | | — | | — | | | — | | | — | | | 3,202,943 | | | 3,202,943 |
Balance, September 30, 2019 | | 856,039 | | $ | 8,561 | | (303,425) | | $ | (28,831,855) | | $ | 23,165,639 | | $ | 66,414,397 | | $ | 60,756,742 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Total |
Balance, October 1, 2019 | | 856,039 | | $ | 8,561 | | (303,425) | | $ | (28,831,855) | | $ | 23,165,639 | | $ | 66,414,397 | | $ | 60,756,742 |
Dividends on common stock, $1.00 per share | | — | | | — | | — | | | — | | | — | | | (594,653) | | | (594,653) |
Compensation expense and issuance of stock in connection with equity-based awards | | 13,828 | | | 136 | | — | | | — | | | 1,116,419 | | | — | | | 1,116,555 |
Repurchase of common stock | | — | | | — | | (28,727) | | | (2,029,694) | | | — | | | — | | | (2,029,694) |
Net income | | — | | | — | | — | | | — | | | — | | | 5,542,590 | | | 5,542,590 |
Balance, September 30, 2020 | | 869,867 | | $ | 8,697 | | (332,152) | | $ | (30,861,549) | | $ | 24,282,058 | | $ | 71,362,334 | | $ | 64,791,540 |
Dividends on common stock, $5.72 per share | | — | | | — | | — | | | — | | | — | | | (3,355,301) | | | (3,355,301) |
Compensation expense and issuance of stock in connection with equity-based awards | | 13,722 | | | 137 | | — | | | — | | | 636,723 | | | — | | | 636,860 |
Repurchase of common stock | | — | | | — | | (68) | | | (5,738) | | | — | | | — | | | (5,738) |
Net income | | — | | | — | | — | | | — | | | — | | | 15,545,265 | | | 15,545,265 |
Balance, September 30, 2021 | | 883,589 | | $ | 8,834 | | (332,220) | | $ | (30,867,287) | | $ | 24,918,781 | | $ | 83,552,298 | | $ | 77,612,626 |
The accompanying notes are an integral part of these consolidated financial statements.
AMCON Distributing Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FLOWS
| | | | | | |
| | Fiscal Years Ended September |
| | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 3,202,943 | | $ | 3,614,610 |
Adjustments to reconcile net income from operations to net cash flows from (used in)
operating activities: | | | | | | |
Depreciation | | | 2,575,924 | | | 2,238,771 |
Amortization | | | 41,667 | | | 79,375 |
Impairment charges | | | 2,873,269 | | | 1,912,877 |
Gain on sales of property and equipment | | | (13,775) | | | (4,070) |
Equity-based compensation | | | 1,299,792 | | | 1,271,840 |
Deferred income taxes | | | 40,572 | | | (553,462) |
Provision for losses on doubtful accounts | | | 21,000 | | | 90,000 |
Inventory allowance | | | 560,610 | | | (291,917) |
Other | | | 3,956 | | | 3,955 |
| | | | | | |
Changes in assets and liabilities: | | | | | | |
Accounts receivable | | | 6,742,225 | | | (828,442) |
Inventories | | | (24,034,512) | | | (5,056,917) |
Prepaid and other current assets | | | (2,207,684) | | | (633,032) |
Other assets | | | 28,214 | | | 8,695 |
Accounts payable | | | (2,247,262) | | | 3,295,390 |
Accrued expenses and accrued wages, salaries and bonuses | | | (262,330) | | | 1,563,964 |
Income taxes receivable | | | (78,266) | | | (816,181) |
Net cash flows from (used in) operating activities | | | (11,453,657) | | | 5,895,456 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchase of property and equipment | | | (4,438,280) | | | (3,226,107) |
Proceeds from sales of property and equipment | | | 57,200 | | | 5,800 |
Net cash flows from (used in) investing activities | | | (4,381,080) | | | (3,220,307) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facility | | | 1,427,544,804 | | | 1,424,929,646 |
Repayments under revolving credit facility | | | (1,402,596,687) | | | (1,418,538,231) |
Principal payments on long-term debt | | | (1,096,306) | | | (541,844) |
Repurchase of common stock | | | (7,507,103) | | | (7,723,450) |
Dividends on common stock | | | (636,576) | | | (702,491) |
Withholdings on the exercise of equity-based awards | | | (56,335) | | | (101,200) |
Net cash flows from (used in) financing activities | | | 15,651,797 | | | (2,677,570) |
Net change in cash | | | (182,940) | | | (2,421) |
Cash, beginning of period | | | 520,644 | | | 523,065 |
Cash, end of period | | $ | 337,704 | | $ | 520,644 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest | | $ | 1,561,531 | | $ | 1,137,691 |
Cash paid during the period for income taxes | | | 1,646,694 | | | 2,533,643 |
| | | | | | |
Supplemental disclosure of non-cash information: | | | | | | |
Equipment acquisitions classified in accounts payable | | $ | 69,253 | | $ | 1,253 |
Purchase of property financed with debt | | | — | | | 1,575,000 |
Acquisition of assets financed with debt | | | — | | | 699,717 |
Issuance of common stock in connection with the vesting and exercise of
equity-based awards | | | 1,005,792 | | | 1,183,091 |
| | | | | | |
| | September | | September |
| | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 15,545,265 | | $ | 5,542,590 |
Adjustments to reconcile net income from operations to net cash flows from (used in) operating activities: | | | | | | |
Depreciation | | | 3,093,017 | | | 3,116,449 |
Equity method investment earnings, net of tax | | | (3,357,978) | | | (183,579) |
Impairment charges | | | — | | | 485,270 |
(Gain) loss on sales of property and equipment | | | (9,864) | | | 105,039 |
Equity-based compensation | | | 2,415,156 | | | 1,085,287 |
Deferred income taxes | | | (275,347) | | | (16,798) |
Provision for losses on doubtful accounts | | | 50,000 | | | (21,000) |
Inventory allowance | | | 37,708 | | | (322,240) |
Changes in assets and liabilities: | | | | | | |
Accounts receivable | | | (1,615,734) | | | (9,591,809) |
Inventories | | | 3,721,980 | | | 3,693,984 |
Prepaid and other current assets | | | (2,732,480) | | | 4,794,469 |
Equity method investment distributions | | | 1,392,730 | | | — |
Other assets | | | 48,967 | | | (110,207) |
Accounts payable | | | 1,998,494 | | | 3,529,980 |
Accrued expenses and accrued wages, salaries and bonuses | | | 1,164,828 | | | 1,353,113 |
Other long-term liabilities | | | (169,854) | | | 885,230 |
Income taxes payable and receivable | | | (371,248) | | | 857,270 |
Net cash flows from (used in) operating activities | | | 20,935,640 | | | 15,203,048 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchase of property and equipment | | | (1,525,882) | | | (3,356,573) |
Proceeds from sales of property and equipment | | | 55,728 | | | 43,600 |
Investment in equity method investee | | | — | | | (6,500,000) |
Issuance of note receivable | | | — | | | (3,500,000) |
Net cash flows from (used in) investing activities | | | (1,470,154) | | | (13,312,973) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facility | | | 1,663,751,276 | | | 1,515,476,055 |
Repayments under revolving credit facility | | | (1,682,072,093) | | | (1,513,881,087) |
Proceeds from borrowings on long-term debt | | | 3,000,000 | | | — |
Principal payments on long-term debt | | | (510,177) | | | (532,747) |
Proceeds from exercise of stock options | | | — | | | 25,750 |
Repurchase of common stock | | | (5,738) | | | (2,029,694) |
Dividends on common stock | | | (3,355,301) | | | (594,653) |
Settlement and withholdings of equity-based awards | | | (415,057) | | | (30,208) |
Net cash flows from (used in) financing activities | | | (19,607,090) | | | (1,566,584) |
Net change in cash | | | (141,604) | | | 323,491 |
Cash, beginning of period | | | 661,195 | | | 337,704 |
Cash, end of period | | $ | 519,591 | | $ | 661,195 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest | | $ | 1,353,985 | | $ | 1,743,098 |
Cash paid during the period for income taxes | | | 5,138,454 | | | 1,302,528 |
| | | | | | |
Supplemental disclosure of non-cash information: | | | | | | |
Equipment acquisitions classified in accounts payable | | $ | 128,249 | | $ | — |
Issuance of common stock in connection with the vesting and exercise of equity-based awards | | | 949,812 | | | 990,653 |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Company Operations:
AMCON Distributing Company and Subsidiaries (“AMCON” andor “the Company”) serves customers in 26 states and is primarily engaged in the wholesale distribution of consumer products in the Central, Rocky Mountain, and Mid-South regions of the United States.
AMCON’s wholesale distribution business includes six6 distribution centers that sell approximately 17,00017,700 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. The Company distributes products primarily to retailers such as convenience stores, discount and general merchandise stores, grocery stores, drug stores, and gas stations. In addition, the Company services institutional customers, including restaurants and bars, schools, sports complexes, as well as other wholesalers.
AMCON, through its Healthy Edge Inc. subsidiary, operates twenty two20 retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry natural supplements, organic and natural groceries, health and beauty care products, and other food items.
The Company’s operations are subject to a number of factors which are beyond the control of management, such as changes in manufacturers’ cigarette pricing, state excise tax increases, or the opening of competing retail stores in close proximity to the Company’s retail stores. While the Company sells a diversified product line, it remains dependent upon the sale of cigarettes which accounted for approximately 69%68% and 71%69% of the Company’s consolidated revenue during fiscal 20192021 and fiscal 2018,2020, respectively, and 17%16% and 20%17% of the Company’s consolidated gross profit during fiscal 20192021 and fiscal 2018,2020, respectively.
(b) Accounting Period:
The Company’s fiscal year ends on September 30 and the fiscal years ended September 30, 20192021 and September 30, 20182020 have been included herein.
(c) Principles of Consolidation and Basis of Presentation:
The Consolidated Financial Statements include the accounts of AMCON and its wholly‑ownedwholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
(d) Cash and Accounts Payable:
AMCON utilizes a cash management system under which an overdraft is the normal book balance in the primary disbursing accounts. Overdrafts included in accounts payable at fiscal 2019September 2021 and fiscal 2018September 2020 totaled approximately $1.1$1.0 million and $1.2$1.3 million, respectively, and reflect checks drawn on the disbursing accounts that have been issued but have not yet cleared through the banking system. The Company’s policy has been to fund these outstanding checks as they clear with borrowings under its revolving credit facility (see Note 6)7). These outstanding checks (book overdrafts) are classified as cash flows from operating activities in the Consolidated Statements of Cash Flows.
(e) Accounts Receivable:
Accounts receivable consist primarily of amounts due to the Company from its normal business activities.activities, including trade receivables from customers and other receivables primarily related to various rebate and promotional incentives with the Company’s suppliers. An allowance for doubtful accounts is maintained to reflect the expected uncollectibility of accounts receivable based on past collection history, evaluation of economic conditions as they may impact our customers, and specific risks identified in the portfolio. The Company determines the past due status of trade receivables based on our terms with each customer. Account balances are charged off against the allowance for doubtful accounts when collection efforts have been exhausted and the account receivable is deemed worthless. Any subsequent recoveries of charged off account balances are recorded as income in the period received. As of September 2021 and September 2020, receivables from transactions with customers, less allowance for doubtful accounts were $34.3 million and $33.3 million, respectively.
(f) Inventories:
At September 20192021 and September 2018,2020, inventories in our wholesale segment consisted of finished goods and are stated at the lower of cost (determinedor net realizable value determined on a FIFO basis forbasis. Inventories in our retail segment consisted of finished goods and are stated at the wholesale segment andlower of cost or market using the retail method for the retail segment) or net realizable value.method. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $1.0$0.8 million and $0.5$0.7 million at September 20192021 and September 2018,2020, respectively. These reserves include the Company’s obsolescence allowance, which reflects estimated unsaleable or non‑refundablenon-refundable inventory based upon an evaluation of slow moving and discontinued products.
(g) Prepaid Expenses and Other Current Assets:
A summary of prepaid expenses and other current assets is as follows (in millions):
| | | | | | |
| | September 2019 | | September 2018 |
Prepaid expenses | | $ | 1.8 | | $ | 1.6 |
Prepaid inventory | | | 5.3 | | | 3.3 |
| | $ | 7.1 | | $ | 4.9 |
| | | | | | |
| | September 2021 | | September 2020 |
Prepaid expenses | | $ | 1.6 | | $ | 1.6 |
Prepaid inventory | | | 3.2 | | | 0.5 |
Note receivable, current portion | | | 0.2 | | | — |
| | $ | 5.0 | | $ | 2.1 |
Prepaid inventory represents inventory in-transit that has been paid for but not received.
(h) Property and Equipment:
Property and equipment are stated at cost less accumulated depreciation or amortization. Major renewals and improvements are capitalized and charged to expense over their useful lives through depreciation or amortization charges. Repairs and maintenance are charged to expense in the period incurred. The straight-line method of depreciation is used to depreciate assets over the estimated useful lives as follows:
| | | | |
| | Years |
Buildings and improvements | | 5 | - | 40 |
Warehouse equipment | | 3 | - | 12 |
Furniture, fixtures and leasehold improvements | | 1 | - | 12 |
Vehicles | | 2 | - | 5 |
| | | | |
| | Years |
Buildings and improvements | | 5 | - | 40 |
Warehouse equipment | | 3 | - | 15 |
Furniture, fixtures and leasehold improvements | | 1 | - | 12 |
Vehicles | | 2 | - | 5 |
Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and the resulting gains or losses are reported as a component of operating income.
The Company reviews property and equipment for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the asset group are estimated over the asset’s useful life of the primary asset and based on updated projections on an undiscounted basis. If the evaluation indicates that the carrying value of the asset group may not be recoverable, the potential impairment is
determined based on the amount by which the carrying value of the asset group exceeds the fair value of the asset group. There was no0 impairment of any property and equipment during fiscal 20192021. The Company recorded impairment charges of approximately $0.5 million during fiscal 2020 related to a non-performing store in our retail reporting unit, of which $0.2 million was related to fixed assets.
(i) Leases:
Lease liabilities are equal to the present value of the remaining fixed lease payments. Right-of-use (“ROU”) assets are determined based on the amount of the lease liability, plus initial direct costs incurred less lease incentives. The Company determines its incremental borrowing rates based on information available at the lease commencement date in calculating the present value of its lease payments. The Company does not recognize assets or fiscal 2018.liabilities for leases with an initial term of twelve months or less and these short-term lease payments are recognized in the consolidated statements of operations on a straight-line basis over the lease term. The Company elected the practical expedient to account for non-lease components as part of the lease for all asset classes. The Company reviews its ROU lease assets for indicators of impairment in the same manner as its other property and equipment as described above in (h) Property and Equipment.
(i)(j) Goodwill and Intangible Assets:
Goodwill consists of the excess purchase price paid in business combinations over the fair value of assets acquired. Intangible assets consist of trademarks, tradenames, and customer relationships acquired as part of acquisitions. Goodwill, trademarks, and tradenames are considered to have indefinite lives.
Goodwill and intangible assets having indefinite useful lives are not amortized into the results of operations, but instead are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. The Company performs its annual goodwill and intangible asset impairment assessment during the fourth fiscal quarter of each year.
When evaluating the potential impairment of non-amortizable indefinite lived assets and goodwill, the Company first assesses a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, market prices, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If after completing this assessment, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative evaluation is performed using the income approach (discounted cash flow method).
A discounted cash flow methodology requires the estimation of a wide range of factors including but not limited to: (i) forecasting future earnings and cash flows, (ii) determining the discount rate applicable to the earnings stream being discounted, and (iii) computing a terminal value at some point in the future. These estimations require significant judgment and include making assumptions such as sales growth rates including the addition of new retail stores, future store profitability, planned capital expenditures, our ability to control costs, the successful implementation of initiatives designed to enhance sales and improve inventory management, gross profit estimates, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.
For goodwill impairment testing, the Company utilizes the guidance in ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” whereby a reporting unit’s carrying value is compared to its fair value and impairment charges are recognized for an amount by which a reporting unit’s carrying amount exceeds its fair value.
The Company’s identifiable intangible assets with finite lives are amortized over their estimated useful lives and are assessed for impairment whenever events or circumstances change which may indicate that the carrying amount of the assets may not be recoverable. Identifiable intangible assets which are subject to amortization are evaluated for impairment using a process similar to that used in evaluating the elements of property and equipment. If impaired, the related assets are written down to their estimated fair value.
(k) Equity Method Investment:
The Company uses the equity method to account for its investment in an investee if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s retail reporting unit recorded intangible assetproportionate share of the net income or loss (net of income taxes) of the investee is included in consolidated net earnings.
Judgment regarding the level of influence over its equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company evaluates its equity method investment for impairment chargeswhenever events or changes in circumstances indicate that the carrying amount of approximately $2.9 million during fiscal 2019the investment might not be recoverable. Factors considered by the Company when reviewing its equity method investment for impairment include the length of time (duration) and goodwillthe extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and future prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment charges of $1.9 million during fiscal 2018 (See Note 5). These impairment charges arose from a range of considerations including, but not limited to, heightened competitionthat is other-than-temporary is recognized in the industry, retail sector market conditions, and earning shortfalls which impactedperiod identified. See Note 6 (Equity Method Investment) for further information relating to the Company’s projections of future cash flows to be generated from these assets.equity method investment.
(j)(l) Revenue Recognition:
The Company recognizes revenues when the performance obligation is satisfied, which is the point where control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the
performance obligation is not subject to significant judgment due to the simultaneous nature of the Company’s customer arrangements (same day creation and fulfillment). After the completion of its performance obligations, the Company has an unconditional right of payment from customers with varying collection and payment terms based on region, credit risk, and other situational factors. Customer receivables are included on the consolidated balance sheets less an allowance for doubtful accounts. The Company has elected the practical expedient permitting it to disregard financing components which may be deemed to be part of its transaction price as its customary payments terms are less than one year. See Footnote 11Note 12 “Business Segments” for the disaggregation of net sales for each of our business segments.
(k)(m) Insurance:
The Company’s workers’ compensation, general liability, and employee‑relatedemployee-related health care benefits are provided through high‑deductiblehigh-deductible or self‑insuranceself-insurance programs. As a result, the Company accrues for its workers’ compensation and general liability based upon a claim reserve analysis. The Company has issued a letter of credit in the amount of $0.5 million to its workers’ compensation insurance carrier as part of its loss control program. The reserve for incurred, but not reported, employee health care benefits is calculated using the Company’s historical claims experience rate, plus specific reserves for large claims. The reserves associated with the exposure to these liabilities are reviewed by management for adequacy at the end of each reporting period.
(l)(n) Income Taxes:
The Company uses the asset and liability method to calculate deferred income taxes. Deferred tax assets and liabilities are recognized on temporary differences between financial statement and tax bases of assets and liabilities using enacted tax rates. The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when we do not consider it more likely than not that some portion or all of the deferred tax assets will be realized.
(o) Share-Based Compensation:
The Company recognizes expense for its share‑basedshare-based compensation based on the fair value of the awards that are granted. The fair value of the stock options isare estimated at the date of grant using the Black‑ScholesBlack-Scholes option pricing model. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility. The fair value of restricted stock units is based on the period ending closing price of the Company’s common stock. Measured compensation cost is recognized ratably over the vesting period of the related share‑basedshare-based compensation award and is reflected in our Consolidated Statement of Operations under “selling, general and administrative expenses.”
(n)(p) Customer Sales Incentives:
The Company provides consideration to customers, such as sales allowances or discounts on a regular basis. In accordance with ASC 606, the Company will continue its policy of estimatingestimates customer sales incentives due as sales are made and recordrecords them as a reduction of net sales.
(o)(q) Excise Taxes:
Under ASC 606, the Company is primarily responsible for excise taxes levied on cigarette and other tobacco products and presents excise taxes as a component of revenue.
(r) Contract Costs:
Under ASC 606, the Company expenses as incurred any incremental costs to obtain and fulfill customer contracts as the related amortization period would be one year or less.
(s) Per-share Results:
Basic earnings or loss per share data are based on the weighted‑averageweighted-average number of common shares outstanding during each period. Diluted earnings or loss per share data are based on the weighted‑averageweighted-average number of common shares outstanding and the effect of all dilutive potential common shares including stock options and conversion features of the Company’s preferredrestricted stock issuances.units.
(p)(t) Use of Estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(q)(u) Fair Value Measurements:
The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of trade accounts receivable, other receivables, trade accounts payable, accounts payable and other accrued liabilities approximates fair value because of the short maturity of these financial instruments. The carrying amount of the Company’s variable and fixed rate debt also approximates fair value. During fiscal 2019, intangible assets with indefinite useful lives were adjusted to fair value, resulting in a pretax, non-cash impairment charge of $2.9 million (see Note 5). During fiscal 2018, goodwill in our retail reporting unit was adjusted to fair value, resulting in a pretax, non-cash impairment charge of $1.9 million (see Note 5).
(r)(v) Accounting Pronouncements:
Recent Accounting Pronouncements Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” Accounting Standards Codification Topic (“ASC”) 606 supersedes the revenue recognition requirements in “ASC 605 - Revenue Recognition” and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The Company adopted the new standard using the modified retrospective approach effective October 1, 2018. The adoption of ASC 606 did not have a material impact on the Company’s consolidated balance sheet or consolidated results of operations as of the adoption date or for the fiscal year ended September 30, 2019. Significant areas of consideration in regards to the Company’s adoption of ASC 606 were as follows:
Revenue Recognition
The Company recognizes revenues when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment due to the simultaneous nature of the Company’s customer arrangements (same day creation and fulfillment). Accordingly, the Company did not have any material contract assets, contract liabilities, or uncompleted contracts at the ASC 606 adoption date or September 2019. After the completion of its performance obligations, the Company has an unconditional right of payment from customers with varying collection and payment terms based on region, credit risk, and other situational factors. Customer receivables are included on the consolidated balance sheets less an allowance for doubtful accounts. The Company has elected the practical expedient permitting it to disregard financing components which may be deemed to be part of its transaction price as its customary payments terms are less than one year. See Footnote 11 “Business Segments” for the disaggregation of net sales for each of our business segments.
Customers’ Sales Incentives
The Company provides consideration to customers, such as sales allowances or discounts on a regular basis. In accordance with ASC 606, the Company will continue its policy of estimating customer sales incentives due as sales are made and record them as a reduction of net sales.
Excise Taxes
As part of the implementation of ASC 606, the Company determined that it is primarily responsible for excise taxes levied on cigarette and other tobacco products and continues to present excise taxes as a component of revenue.
Contract Costs
The Company has elected the practical expedient to expense as incurred any incremental costs to obtain and fulfill customer contracts as the related amortization period would be one year or less.
New Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 “Leases”. This ASU and its related amendments requires lessees to recognize right-of-use assets and corresponding lease liabilities for all leases greater than one year in duration that had been classified as operating leases under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company has substantially completed its assessment of the accounting required under ASU 2016-12 and does not expect that the implementation of the new standard will have a material effect on the Company’s consolidated statements of operations or cash flows, however, the Company does estimate the adoption of ASU 2016-02 will result in the recognition of additional net lease assets of approximately $20.0-$25.0 million and corresponding lease liabilities of approximately $20.0-$25.0 million. The Company will adopt the new standard using the optional transition method in the first quarter of fiscal 2020 and will include required disclosures in conjunction with the adoption of this standard.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to
understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently evaluatingreviewing this ASU and its potential impact on our consolidated financial statements.
2. ACQUISITIONS:
During fiscal 2019,In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective upon issuance for all entities through December 31, 2022. The Company acquired the assets (primarily inventory) from a wholesale distributor for approximately $1.1 million,is currently reviewing this ASU and in fiscal 2018, the Company acquired the assets (primarily inventory) of eight retail stores located in Florida for approximately $0.7 million. No material intangible assets or liabilities were assumed in connection with these transactions and the Company does not consider these transactions material to the Company’sits potential impact on our consolidated financial statements.
3.2. EARNINGS PER SHARE:
Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirements by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations less preferred stock dividend requirements (when anti‑dilutive) by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.
| | | | | | |
| | For Fiscal Years |
| | 2019 | | 2018 |
| | Basic | | Basic |
Weighted average common shares outstanding | | | 597,961 | | | 660,925 |
Net income available to common shareholders | | $ | 3,202,943 | | $ | 3,614,610 |
Net earnings per share available to common shareholders | | $ | 5.36 | | $ | 5.47 |
| | | | | | |
| | For Fiscal Years |
| | 2021 | | 2020 |
| | Basic | | Basic |
Weighted average number of common shares outstanding | | | 550,551 | | | 561,166 |
Net income available to common shareholders | | $ | 15,545,265 | | $ | 5,542,590 |
Net earnings per share available to common shareholders | | $ | 28.24 | | $ | 9.88 |
| | | | | | |
| | For Fiscal Years |
| | 2021 | | 2020 |
| | Diluted | | Diluted |
Weighted average number of common shares outstanding | | | 550,551 | | | 561,166 |
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | | | 17,552 | | | 6,795 |
Weighted average number of shares outstanding | | | 568,103 | | | 567,961 |
Net income available to common shareholders | | $ | 15,545,265 | | $ | 5,542,590 |
Net earnings per share available to common shareholders | | $ | 27.36 | | $ | 9.76 |
| | | | | | |
| | For Fiscal Years |
| | 2019 | | 2018 |
| | Diluted | | Diluted |
Weighted average common shares outstanding | | | 597,961 | | | 660,925 |
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock(1) | | | 11,875 | | | 11,524 |
Weighted average number of shares outstanding | | | 609,836 | | | 672,449 |
Net income available to common shareholders | | $ | 3,202,943 | | $ | 3,614,610 |
Net earnings per share available to common shareholders | | $ | 5.25 | | $ | 5.38 |
| (1) | (1)
| | Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive. |
4.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment at September 20192021 and September 20182020 consisted of the following:
| | | | | | | |
| | 2019 | | 2018 | |
Land | | $ | 773,068 | | $ | 773,068 | |
Buildings and improvements | | | 12,574,893 | | | 12,206,908 | |
Warehouse equipment | | | 15,011,605 | | | 13,424,236 | |
Furniture, fixtures and leasehold improvements | | | 13,155,606 | | | 12,018,984 | |
Vehicles | | | 3,687,901 | | | 3,229,551 | |
Construction in progress | | | 617,881 | | | 743,278 | |
| | | 45,820,954 | | | 42,396,025 | |
Less accumulated depreciation and amortization: | | | (28,165,539) | | | (26,627,541) | |
Owned property and equipment | | $ | 17,655,415 | | $ | 15,768,484 | |
| | | | | | | |
| | 2021 | | 2020 | |
Land | | $ | 773,068 | | $ | 773,068 | |
Buildings and improvements | | | 12,616,923 | | | 12,605,512 | |
Warehouse equipment | | | 15,859,084 | | | 15,409,944 | |
Furniture, fixtures and leasehold improvements | | | 13,426,684 | | | 13,539,336 | |
Vehicles | | | 4,085,971 | | | 3,846,227 | |
Construction in progress | | | 93,162 | | | 33,149 | |
| | | 46,854,892 | | | 46,207,236 | |
Less accumulated depreciation: | | | (30,842,368) | | | (28,709,962) | |
Owned property and equipment | | $ | 16,012,524 | | $ | 17,497,274 | |
4. LEASES:
The Company’s wholesale segment leases certain warehouse facilities, office space, vehicles and office equipment. The Company’s retail segment leases store space in various shopping center complexes. Certain of the warehouse and retail store leases include one or more options to renew or terminate the applicable lease agreement, with the exercise of such options at the Company’s discretion. The Company’s leases do not contain any significant residual value guarantees nor do they impose any significant restrictions or covenants other than those customarily found in similar types of leases.
The operating ROU lease assets and liabilities recorded on the Company’s consolidated balance sheets consist of fixed lease payments. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term. Additionally, certain leases contain variable payments such as vehicle leases with per-mile charges or retail leases with an additional rent payment based on store performance. These variable payments are expensed as incurred. The Company combines lease components and non-lease components for all asset classes for purposes of recognizing lease assets and liabilities. The Company determines its incremental borrowing rates based on information available at the lease commencement date in calculating the present value of lease payments. The Company reviews its ROU lease assets for indicators of impairment in the same manner as its other property and equipment as described in Note 1. The Company recorded impairment charges of approximately $0.5 million during fiscal 2020 related to a non-performing store in our retail reporting unit, of which $0.3 million was related to a ROU asset.
Leases consist of the following:
| | | | | | | | |
Assets | | Classification | | September 2021 | | September 2020 |
Operating | | Operating lease right-of-use assets | | $ | 17,846,529 | | $ | 18,936,126 |
| | | | | | | | |
Liabilities | | | | | | | | |
Current: | | | | | | | | |
Operating | | Operating lease liabilities | | $ | 5,513,390 | | $ | 5,607,098 |
Non-current: | | | | | | | | |
Operating | | Long-term operating lease liabilities | | | 12,669,157 | | | 14,028,606 |
Total lease liabilities | | | | $ | 18,182,547 | | $ | 19,635,704 |
The components of lease costs were as follows:
| | | | | | |
| | Fiscal Year 2021 | | Fiscal Year 2020 |
Operating lease cost | | $ | 6,152,332 | | $ | 6,757,206 |
Short-term lease cost | | | 64,054 | | | 261,708 |
Variable lease cost | | | 472,097 | | | 350,313 |
Net lease cost | | $ | 6,688,483 | | $ | 7,369,227 |
Maturities of lease liabilities as of September 2021 were as follows:
| | | | | | |
| | | | | Operating Leases |
2022 | | | | | $ | 6,095,915 |
2023 | | | | | | 5,121,599 |
2024 | | | | | | 3,623,968 |
2025 | | | | | | 2,365,515 |
2026 | | | | | | 1,407,790 |
2027 and thereafter | | | | | | 966,600 |
Total lease payments | | | | | | 19,581,387 |
Less: interest | | | | | | (1,398,840) |
Present value of lease liabilities | | | | | $ | 18,182,547 |
Weighted-average remaining lease term and weighted-average discount rate information regarding the Company’s leases were as follows:
| | | | | | | |
Lease Term | | | September 2021 | | September 2020 |
Weighted-average remaining lease term (years): | | | | | | | |
Operating | | | 4.0 | | | 4.2 | |
Discount Rate | | | | | | | |
Weighted-average discount rate: | | | | | | | |
Operating | | | 3.82 | % | | 4.04 | % |
Other information regarding the Company’s leases were as follows:
| | | | | | |
| | Fiscal Year 2021 | | Fiscal Year 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows used by operating leases | | $ | 6,490,457 | | $ | 6,661,365 |
Lease liabilities arising from obtaining new ROU assets: | | | | | | |
Operating leases | | $ | 1,873,972 | | $ | 3,116,737 |
5. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill by reporting segment at September 20192021 and September 20182020 was as follows:
| | | | | | |
| | September | | September |
| | 2019 | | 2018 |
Wholesale Segment | | $ | 4,436,950 | | $ | 4,436,950 |
| | | | | | |
| | September | | September |
| | 2021 | | 2020 |
Wholesale Segment | | $ | 4,436,950 | | $ | 4,436,950 |
Other intangible assets at fiscal year ends 2019September 2021 and 2018September 2020 consisted of the following:
| | | | | | |
| | September | | September |
| | 2019 | | 2018 |
Trademarks and tradenames (Retail Segment) | | $ | 500,000 | | $ | 3,373,269 |
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.1 million at both September 2019 and September 2018) | | | — | | | 41,667 |
| | $ | 500,000 | | $ | 3,414,936 |
| | | | | | |
| | September | | September |
| | 2021 | | 2020 |
Trademarks and tradenames (Retail Segment) | | $ | 500,000 | | $ | 500,000 |
Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. The Company’s retail reporting unit recorded intangible asset (trademarks and tradenames) impairment charges of approximately $2.9 million during fiscal 2019 and goodwill impairment charges of approximately $1.9 million during fiscal 2018 when it was determined that the carrying values of these assets exceeded their fair values. These impairment charges arose from a range of considerations including, but not limited to, heightened competition in the industry, retail sector market conditions, and earning shortfalls which impacted the Company’s projections of future cash flows to be generated. These impairment charges were recorded in the Company’s consolidated statement of operations as a component of operating income.
Goodwill recorded on the Company’s consolidated balance sheetsheets represents amounts allocated to its wholesale reporting unit which totaled $4.4 million at both September 20192021 and September 2018.2020. The Company determined that the estimated fair value of its wholesale reporting unit exceeded its carrying value at both September 20192021 and September 2018.2020.
6. EQUITY METHOD INVESTMENT:
In April 2020, the Company completed a transaction with Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, to jointly own and operate Team Sledd, LLC (“Team Sledd”), a limited liability company formed for the purpose of owning and operating Sledd’s wholesale distribution business. Sledd contributed substantially all of its assets and stated liabilities to Team Sledd, while the Company contributed $10.0 million in cash, of which $6.5 million was structured as equity and $3.5 million was structured as a secured loan to Team Sledd which is subordinate to the liens of Team Sledd's existing secured lenders.
At September 2021 and September 2020, AMCON owned approximately 49% and 44% of Team Sledd’s outstanding equity, respectively, with a carrying value of $9.4 million and $6.7 million, respectively. The Company recognized equity in earnings (net of income taxes) from its investment in Team Sledd of approximately $3.4 million and $0.2 million during fiscal 2021 and fiscal 2020, respectively. The Company’s secured loan to Team Sledd had a carrying value of $3.5 million at both September 2021 and September 2020. As of September 2021, approximately $0.2 million of the secured loan
balance is recorded as a component of prepaid expenses and other current assets on the consolidated balance sheets. Pursuant to an operating agreement between the Company and Sledd, certain membership interests in Team Sledd may be redeemed over a period of years, with such redemptions being funded from the operations of Team Sledd. Any such redemptions would result in a corresponding increase in the percentage of the outstanding equity of Team Sledd owned by AMCON.
6.Team Sledd’s summarized financial data for the periods ended September 2021 and September 2020 was as follows:
| | | | | | |
| | For the year ended September 2021 | | For the six months ended September 2020 |
Sales | | $ | 684,539,392 | | $ | 350,685,407 |
Gross profit | | | 34,962,326 | | | 14,218,204 |
Net income before income taxes | | | 8,597,997 | | | 551,280 |
Net income attributable to AMCON, net of tax | | | 3,357,978 | | | 183,579 |
7. DEBT:
The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in a loan syndication.
CREDIT FACILITY
| | | | | | |
| | 2019 | | 2018 |
Revolving portion of the Facility, interest payable at 3.89% at September 2019 | | $ | 60,376,714 | | $ | 35,428,597 |
| | | | | | |
| | 2021 | | 2020 |
Revolving portion of the Facility, interest payable at 1.89% at September 2021 | | $ | 43,650,865 | | $ | 61,971,682 |
The Facility included the following significant terms at September 2019:2021:
| ● | ·
| | A November 2022March 2025 maturity date without a penalty for prepayment. |
| ● | ·
| | $70.0110.0 million revolving credit limit. |
| ● | ·
| | Loan accordion allowing the Company to increase the size of the credit facility agreementFacility by $25.0 million. |
| ● | ·
| | A provision providing an additional $10.0 million of credit advances for certain inventory purchases. |
| ● | ·
| | Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement. |
| ● | ·
| | The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent successor rate index) plus 125 ‑- 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For these purposes, in no event shall LIBOR be less than 50 basis points. |
| ● | ·
| | Lending limits subject to accounts receivable and inventory limitations. |
| ● | ·
| | An unused commitment fee equal to one‑quarterone-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings. |
| ● | ·
| | Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable. |
| ● | ·
| | A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement. The Company’s fixed charge coverage ratio iswas over 1.0 for the trailing twelve months. |
| ● | ·
| | Provides that the Company may payuse up to $2.0$3.5 million annually, on a collective basis, for the payment of dividends on its common stock, annuallyor other distributions or investments, provided the Company is not in default before or after the dividend.such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $2.0$3.5 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after the dividend. such dividends, distributions or investments. |
During fiscal 2019,2021, total borrowings and paymentsrepayments on the Facility were approximately $1.4$1.7 billion and $1.4$1.7 billion, respectively, resulting in net payments of $18.3 million. Total borrowings and repayments on the Facility during fiscal 2020 were approximately $1.5 billion and $1.5 billion, respectively, resulting in net advances of $24.9 million. Total borrowings and repayment on the Facility during fiscal 2018 were approximately $1.4 billion and $1.4 billion, respectively, resulting in net advances of $6.4$1.6 million.
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.day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at September 20192021 was $79.5$109.5 million, of which $60.4$43.7 million was outstanding, leaving $19.1$65.8 million available.
LONG-TERM DEBT
In addition to the Facility, the Company also had the following long‑termlong-term obligations at fiscal 2019September 2021 and fiscal 2018.September 2020.
| | | | | | |
| | 2019 | | 2018 |
Note payable to a bank (“Real Estate Loan”), interest payable at a fixed rate of 2.99% with monthly installments of principal and interest of $38,344 through August 2021 with remaining principal due September 2021, collateralized by three distribution facilities | | $ | 2,263,040 | | $ | 2,648,179 |
Note payable, interest payable at a fixed rate of 4.50% with quarterly installments of principal and interest of $49,114 through June 2023 with remaining principal due September 2023 | | | 1,395,351 | | | 1,476,772 |
Note payable, interest-free with varying installments during fiscal 2019 | | | — | | | 629,746 |
| | | 3,658,391 | | | 4,754,697 |
Less current maturities | | | (532,747) | | | (1,096,306) |
| | $ | 3,125,644 | | $ | 3,658,391 |
| | | | | | |
| | 2021 | | 2020 |
Real Estate Loan, interest payable at a fixed rate of 3.625% with monthly installments of principal and interest of $47,399 through February 2025 with remaining principal due March 2025, collateralized by 3 distribution facilities | | $ | 4,498,213 | | $ | 1,866,231 |
Note payable, interest payable at a fixed rate of 4.50% with quarterly installments of principal and interest of $49,114 through June 2023 with remaining principal due September 2023 | | | 1,117,254 | | | 1,259,413 |
| | | 5,615,467 | | | 3,125,644 |
Less current maturities | | | (561,202) | | | (516,850) |
| | $ | 5,054,265 | | $ | 2,608,794 |
The aggregate minimum principal maturities of the long‑termlong-term debt for each of the next five fiscal years are as follows:
| | | |
Fiscal Year Ending | | | |
2020 | | $ | 532,747 |
2021 | | | 2,008,390 |
2022 | | | 148,665 |
2023 | | | 968,589 |
2024 | | | — |
| | $ | 3,658,391 |
| | | |
Fiscal Year Ending | | | |
2022 | | $ | 561,202 |
2023 | | | 1,396,332 |
2024 | | | 443,508 |
2025 | | | 3,214,425 |
2026 | | | — |
| | $ | 5,615,467 |
Market rate risk for fixed rate debt is estimated as the potential increase in fair value of debt obligations resulting from decreases in interest rates. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the Company’s long‑termlong-term debt approximated its carrying value at September 2019.2021.
Cross Default and Co‑TerminusCo-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loanReal Estate Loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no0 such cross defaults at September 2019.2021. In addition, the Real Estate Loan contains co‑terminusco-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.
Other
The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self‑insuredself-insured loss control program.
7.8. INCOME TAXES:
The components of income tax expense from operations for fiscal 20192021 and fiscal 20182020 consisted of the following:
| | | | | | |
| | 2019 | | 2018 |
Current: Federal | | $ | 1,139,927 | | $ | 1,294,253 |
Current: State | | | 428,501 | | | 423,209 |
| | | 1,568,428 | | | 1,717,462 |
Deferred: Federal | | | 34,466 | | | (470,166) |
Deferred: State | | | 6,106 | | | (83,296) |
| | | 40,572 | | | (553,462) |
Income tax expense | | $ | 1,609,000 | | $ | 1,164,000 |
| | | | | | |
| | 2021 | | 2020 |
Current: Federal | | $ | 3,631,619 | | $ | 1,690,956 |
Current: State | | | 1,144,728 | | | 468,842 |
| | | 4,776,347 | | | 2,159,798 |
Deferred: Federal | | | (233,907) | | | (14,270) |
Deferred: State | | | (41,440) | | | (2,528) |
| | | (275,347) | | | (16,798) |
Income tax expense | | $ | 4,501,000 | | $ | 2,143,000 |
The difference between the Company’s income tax expense in the accompanying consolidated financial statements and that which would be calculated using the statutory income tax rate of approximately 21% and 24% for both fiscal 20192021 and fiscal 2018, respectively,2020 on income before income taxes is as follows:
| | | | | | |
| | 2019 | | 2018 |
Tax at statutory rate | | $ | 1,010,517 | | $ | 1,160,247 |
Nondeductible business expenses | | | 226,670 | | | 405,996 |
State income taxes, net of federal tax benefit | | | 332,931 | | | 513,241 |
Change in deferred tax rate | | | — | | | (778,000) |
Other | | | 38,882 | | | (137,484) |
| | $ | 1,609,000 | | $ | 1,164,000 |
| | | | | | |
| | 2021 | | 2020 |
Tax at statutory rate | | $ | 3,504,540 | | $ | 1,575,422 |
Nondeductible business expenses | | | 232,684 | | | 230,571 |
State income taxes, net of federal tax benefit | | | 867,567 | | | 376,262 |
Other | | | (103,791) | | | (39,255) |
| | $ | 4,501,000 | | $ | 2,143,000 |
Temporary differences between the financial statement carrying balances and tax basis of assets and liabilities giving rise to a net deferred tax assets (liabilities) at September 20192021 and September 20182020 relates to the following:
| | | | | | |
| | 2019 | | 2018 |
Deferred tax assets: | | | | | | |
Allowance for doubtful accounts | | $ | 215,925 | | $ | 210,734 |
Accrued expenses | | | 796,542 | | | 779,282 |
Inventory | | | 452,192 | | | 272,946 |
Intangible assets | | | 71,849 | | | — |
Other | | | 23,237 | | | 23,237 |
Net operating loss carry forwards - federal | | | 63,983 | | | 92,421 |
Net operating loss carry forwards - state | | | 723,306 | | | 697,013 |
Total gross deferred tax assets | | | 2,347,034 | | | 2,075,633 |
Less: Valuation allowance | | | (723,306) | | | (697,013) |
Total net deferred tax assets | | | 1,623,728 | | | 1,378,620 |
Deferred tax liabilities: | | | | | | |
Trade discounts | | | 375,172 | | | 285,439 |
Property and equipment | | | 2,150,130 | | | 1,361,508 |
Goodwill | | | 921,799 | | | 921,799 |
Intangible assets | | | — | | | 592,675 |
Total deferred tax liabilities | | | 3,447,101 | | | 3,161,421 |
Total net deferred income tax liability | | $ | 1,823,373 | | $ | 1,782,801 |
| | | | | | |
| | 2021 | | 2020 |
Deferred tax assets: | | | | | | |
Allowance for doubtful accounts | | $ | 223,094 | | $ | 210,734 |
Accrued expenses | | | 1,369,467 | | | 1,243,132 |
Inventory | | | 362,466 | | | 365,417 |
Intangible assets | | | — | | | 15,803 |
Other | | | 114,206 | | | — |
Net operating loss carry forwards - federal | | | 7,108 | | | 35,545 |
Net operating loss carry forwards - state | | | 697,013 | | | 716,241 |
Total gross deferred tax assets | | | 2,773,354 | | | 2,586,872 |
Less: Valuation allowance | | | (697,013) | | | (716,241) |
Total net deferred tax assets | | | 2,076,341 | | | 1,870,631 |
Deferred tax liabilities: | | | | | | |
Trade discounts | | | 356,901 | | | 318,070 |
Property and equipment | | | 2,101,463 | | | 2,437,337 |
Goodwill | | | 921,799 | | | 921,799 |
Other | | | 187,164 | | | — |
Intangible assets | | | 40,242 | | | — |
Total deferred tax liabilities | | | 3,607,569 | | | 3,677,206 |
Total net deferred income tax liability | | $ | 1,531,228 | | $ | 1,806,575 |
The Company’s fiscal 2018 income tax rate and results of operations were impacted by the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law on December 22, 2017. Among the numerous provisions included in the Tax Reform Act was a reduction in the corporate federal income tax rate from 35% to 21%. The Company applied the newly enacted corporate federal income tax rate during the first quarter of fiscal 2018 resulting in an income tax benefit of approximately $0.8 million, primarily related to the application of the new lower income tax rates to net long term deferred tax liabilities recorded on the Company’s Consolidated Balance Sheet. The application of the Tax Reform Act also resulted in blended federal income tax rate of approximately 24% for fiscal 2018, reflecting a portion of the fiscal year at both the old and new federal income tax rates.
At September 2019,2021, the Company had a $0.1 million noncurrent deferred tax assetassets related to federal net operating loss carryforwards.carryforwards in an amount less than $0.1 million. These federal net operating loss carryforwards totaled approximately $0.3an amount less than $0.1 million and were primarily attributable to the Company’s fiscal 2002 purchase of Hawaiian Natural Water Company, Inc. (“HNWC”), a wholly owned subsidiary of the Company. The utilization of HNWC’s net operating losses is limited by Internal Revenue Code Section 382 to approximately $0.1 million per year through 2022.
The Company had a valuation allowance of approximately $0.7 million at both September 20192021 and September 2018,2020, against certain state net operating losses, which more likely than not will not be utilized. The Company had no material unrecognized tax benefits, interest, or penalties during fiscal 20192021 or fiscal 2018,2020, and the Company does not anticipate any such items during the next twelve months. The Company’s policy is to record interest and penalties directly related to income taxes as income tax expense in the Consolidated Statements of Operations. The Company files income tax returns in the U.S. and various states and the tax years 20162018 and forward remain open under U.S. and state statutes.
8.9. PROFIT SHARING PLAN:
The Company sponsors a profit sharing plan (i.e. a section 401(k) plan) covering substantially all employees. The plan allows employees to make voluntary contributions up to 100% of their compensation, subject to Internal Revenue Service limits. The Company matches 100% of the first 2% contributed and 50% of the next 4% contributed for a maximum match of 4% of employee compensation. The Company made matching contributions to the profit sharing plan of approximately $0.8$1.0 million and $0.7$0.9 million (net of employee forfeitures) in fiscal 20192021 and fiscal 2018,2020, respectively.
9.10. COMMITMENTS AND CONTINGENCIES:
Lease Obligations
The Company leases various office and warehouse facilities and equipment under noncancellable operating leases. Rents charged to expense under these operating leases totaled approximately $7.1 million and $6.1 million in fiscal 2019 and fiscal 2018, respectively.
At September 2019 the minimum future lease commitments were as follows:
| | | |
| | Operating |
Fiscal Year Ending | | Leases |
2020 | | $ | 6,468,837 |
2021 | | | 5,418,617 |
2022 | | | 4,299,261 |
2023 | | | 3,216,671 |
2024 | | | 2,456,810 |
Thereafter | | | 2,387,618 |
Total minimum lease payments | | $ | 24,247,814 |
Liability Insurance
The Company carries property, general liability, vehicle liability, directors’ and officers’ liability and workers’ compensation insurance. Additionally, the Company carries an umbrella liability policy to provide excess coverage over the underlying limits of the aforementioned primary policies.
The Company’s insurance programs for workers’ compensation, general liability, and employee related health care benefits are provided through high deductible or self‑insuredself-insured programs. Claims in excess of self‑insuranceself-insurance levels are fully insured subject to policy limits. Accruals are based on historical claims experience, actual claims filed, and estimates of claims incurred but not reported.
The Company’s liabilities for unpaid and incurred, but not reported claims, for workers’ compensation, general liability, and health insurance at September 2019 and September 2018 was $1.5 million at both September 2021 and $1.6 million, respectively.September 2020. These amounts are included in accrued expenses in the accompanying Consolidated Balance Sheets. While the ultimate amount of claims incurred is dependent on future developments, in the Company’s opinion, recorded reserves are adequate to cover the future payment of claims previously incurred. However, it is possible that recorded reserves may not be adequate to cover the future payment of claims.
Adjustments, if any, to claims estimates previously recorded, resulting from actual claim payments, are reflected in operations in the periods in which such adjustments are known.
A summary of the activity in the Company’s self‑insuredself-insured liabilities reserve is set forth below (in millions):
| | | | | | |
| | 2019 | | 2018 |
Beginning balance | | $ | 1.6 | | $ | 1.5 |
Charged to expense | | | 5.4 | | | 5.8 |
Payments | | | (5.5) | | | (5.7) |
Ending balance | | $ | 1.5 | | $ | 1.6 |
| | | | | | |
| | 2021 | | 2020 |
Beginning balance | | $ | 1.5 | | $ | 1.5 |
Charged to expense | | | 7.9 | | | 6.6 |
Payments | | | (7.9) | | | (6.6) |
Ending balance | | $ | 1.5 | | $ | 1.5 |
11. EQUITY-BASED INCENTIVE AWARDS:
Omnibus Plans
The Company has two2 equity-based incentive plans, the 2014 Omnibus Incentive Plan and 2018 Omnibus Incentive Plan (collectively “the Omnibus Plans”), which provide for equity incentives to employees. Each 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 Plans together permit the issuance of up to 135,000 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. The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. At September 2019,2021, awards with respect to a total of 87,132116,951 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 47,86818,049 shares may be awarded under the Omnibus Plans.
Stock Options
The Company issued 5,450 and 6,000
NaN incentive stock optionoptions awards to employeeswere issued during fiscal 2019 and2021 or fiscal 2018, respectively, pursuant to the provisions of the Company’s 2014 Omnibus Plan. These awards vest in equal installments over a five year service period. Both the fiscal 2019 and fiscal 2018 incentive stock option awards had an estimated grant date fair value of approximately $0.2 million using the Black‑Scholes option pricing model. The following assumptions were used in connection with the Black‑Scholes option pricing calculation as it relates to the fiscal 2019 and fiscal 2018 incentive stock option awards:
| | | | | | |
| | Stock Option | | Stock Option |
| | Pricing | | Pricing |
| | Assumptions | | Assumptions |
| | 2019 | | 2018 |
Risk-free interest rate | | 2.55 | % | | 2.41 | % |
Dividend yield | | 0.8 | % | | 0.8 | % |
Expected volatility | | 45.10 | % | | 33.00 | % |
Expected life in years | | 6 | | | 6 | |
The stock2020. Stock options issued by the Company expire ten years from the grant date and include a five year graded vesting schedule. At September 2019,2021, the Company had 36,45022,250 stock options outstanding with a weighted average exercise price of $78.67$86.76 per share and 19,20015,680 stock options which were exercisable with a weighted average exercise price of $71.01$86.33 per share.
The following is a summary of stock option activity during fiscal 2019:2021:
| | | | | |
| | | | Weighted |
| | Number | | Average |
| | of | | Exercise |
| | Shares | | Price |
Outstanding at September 2018 | | 33,800 | | $ | 77.85 |
Granted | | 5,450 | | | 84.00 |
Exercised | | (2,800) | | | 79.22 |
Forfeited/Expired | | — | | | — |
Outstanding at September 2019 | | 36,450 | | $ | 78.67 |
| | | | | |
| | | | Weighted |
| | Number | | Average |
| | of | | Exercise |
| | Shares | | Price |
Outstanding at September 2020 | | 34,350 | | $ | 80.33 |
Granted | | — | | | — |
Exercised | | (11,600) | | | 67.84 |
Forfeited/Expired | | (500) | | | 84.00 |
Outstanding at September 2021 | | 22,250 | | $ | 86.76 |
Net income before income taxes included compensation expense related to the amortization of the Company’s stock option awards of $0.1 million during both fiscal 20192021 and fiscal 2018.2020. At September 2019,2021, total unamortized compensation expense related to stock options was approximately $0.3$0.1 million. This unamortized compensation expense is expected to be amortized over approximately the next 3820 months.
The aggregate intrinsic value of stock options outstanding was approximately $0.2$1.1 million at September 20192021 and $0.4less than $0.1 million at September 2018.2020. The aggregate intrinsic value of stock options exercisable was approximately $0.2 million and $0.3$0.9 million at September 20192021 and less than $0.1 million at September 2018, respectively.2020.
The total intrinsic value of stock options exercised was approximately $0.9 million in fiscal 2021 and less than $0.1 million in both fiscal 2019 and fiscal 2018.2020. The total fair value of stock options vested was approximately $0.7 million during fiscal 2021 and approximately $0.4 million during both fiscal 2019 and fiscal 2018.
2020.
Restricted Stock Units
At September 2019,2021, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock unit awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:
| | | | | | | | | |
| | Restricted
Stock Units(1) | | Restricted
Stock Units(2) | | Restricted
Stock Units(3) |
Date of award: | | | October 2018 | | | October 2019 | | | October 2020 |
Original number of awards issued: | | | 15,050 | | | 14,550 | | | 20,500 |
Service period: | | | 36 months | | | 36 months | | | 36 months |
Estimated fair value of award at grant date: | | $ | 1,264,000 | | $ | 1,007,000 | | $ | 1,415,000 |
Non-vested awards outstanding at
September 30, 2021: | | | 5,019 | | | 9,701 | | | 20,500 |
Fair value of non-vested awards at
September 30, 2021 of approximately: | | $ | 748,000 | | $ | 1,445,000 | | $ | 3,054,000 |
| | | | | | | | | | | | |
| | Restricted
Stock Units(1) | | Restricted
Stock Units(2) | | Restricted
Stock Units(3) | | Restricted
Stock Units(4) |
Date of award: | | | October 2015 | | | October 2016 | | | October 2017 | | | October 2018 |
Original number of awards issued: | | | 13,250 | | | 13,000 | | | 13,000 | | | 15,050 |
Service period: | | | 36 - 60 months | | | 36 months | | | 36 months | | | 36 months |
Estimated fair value of award at grant date: | | $ | 1,112,000 | | $ | 1,191,000 | | $ | 1,177,000 | | $ | 1,264,000 |
Non-vested awards outstanding at
September 30, 2019: | | | 100 | | | 4,334 | | | 8,667 | | | 15,050 |
Fair value of non-vested awards at
September 30, 2019 of approximately: | | $ | 8,000 | | $ | 330,000 | | $ | 661,000 | | $ | 1,148,000 |
(1)13,150 of the restricted stock units were vested as of September 2019. The remaining 100 restricted stock units will vest in equal amounts in October 2019 and October 2020. (2)8,666 of the restricted stock units were vested as of September 2019. The remaining 4,334 restricted stock units will vest in October 2019.
(3)4,333 of the restricted stock units were vested as of September 2019. 4,333 restricted stock units will vest in October 2019 and 4,334 will vest in October 2020.
(4)The 15,050 restricted stock units will vest in equal amounts in October 2019, October 2020, and October 2021.
| 10,031 of the restricted stock units were vested as of September 2021. The remaining 5,019 restricted stock units will vest in October 2021. |
(2) | 4,849 of the restricted stock units were vested as of September 2021. 4,850 restricted stock units will vest in October 2021 and 4,851 will vest in October 2022. |
(3) | The 20,500 restricted stock units will vest in equal amounts in October 2021, October 2022, and October 2023. |
There is no0 direct cost to the recipients of the restricted stock units, except for any applicable taxes. The recipients of the restricted stock units are entitled to 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 restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Statement of Operations reflects the straight‑linestraight-line amortized fair value based on the liability method under “ASC 718 – Compensation – Stock Compensation”.
Net income before income taxes included compensation expense related to the amortization of the Company’s restricted stock unit awards of approximately $1.2$2.3 million and $1.0 million during both fiscal 20192021 and fiscal 2018.2020, respectively. These amounts were recorded as accrued expenses in the Company’s Consolidated Balance SheetSheets at both September 20192021 and September 2018.2020. The tax benefit related to this compensation expense was approximately $0.3$0.6 million and $0.2 million in both fiscal 20192021 and fiscal 2018.2020, respectively. The total intrinsic value of restricted stock units vested during fiscal 20192021 and fiscal 20182020 was approximately $1.1$2.1 million and $1.2$0.9 million, respectively.
TotalAt September 2021, total unamortized compensation expense for these awards based on the grant date fair value price was approximately $1.2$2.8 million. This unamortized compensation expense, plus any changes in the fair value of the awards through the settlement date, are expected to be amortized over approximately the next 16 months (the weighted‑averageweighted-average period).
The following summarizes restricted stock unit activity under the Omnibus Plans during fiscal 2019:
| | | | | |
| | Number | | Weighted |
| | of | | Average |
| | Shares | | Fair Value |
Nonvested restricted stocks units at September 2018 | | 26,811 | | $ | 86.95 |
Granted | | 15,050 | | | 84.00 |
Vested | | (13,710) | | | 84.00 |
Expired | | — | | | — |
Nonvested restricted stocks units at September 2019 | | 28,151 | | $ | 76.25 |
2021:
| | | | | |
| | Number | | Weighted |
| | of | | Average |
| | Shares | | Fair Value |
Nonvested restricted stocks units at September 2020 | | 28,971 | | $ | 64.59 |
Granted | | 20,500 | | | 69.01 |
Vested | | (14,251) | | | 68.65 |
Expired | | — | | | — |
Nonvested restricted stocks units at September 2021 | | 35,220 | | $ | 148.98 |
11.
12. BUSINESS SEGMENTS:
The Company has two2 reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. Included in the “Other” column are intercompany eliminations, equity method investment earnings, net of tax and assets held and charges incurred and income earned by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income (loss) before taxes.
| | | | | | | | | | | | |
| | Wholesale | | Retail | | | | |
| | Segment | | Segment | | Other | | Consolidated |
FISCAL YEAR ENDED 2019: | | | | | | | | | | | | |
External revenues: | | | | | | | | | | | | |
Cigarettes | | $ | 955,667,916 | | $ | — | | $ | — | | $ | 955,667,916 |
Tobacco | | | 197,678,519 | | | — | | | — | | | 197,678,519 |
Confectionery | | | 83,130,063 | | | — | | | — | | | 83,130,063 |
Health food | | | — | | | 44,210,688 | | | — | | | 44,210,688 |
Foodservice & other | | | 111,700,971 | | | — | | | — | | | 111,700,971 |
Total external revenue | | | 1,348,177,469 | | | 44,210,688 | | | — | | | 1,392,388,157 |
Depreciation | | | 1,569,178 | | | 1,006,746 | | | — | | | 2,575,924 |
Amortization | | | 41,667 | | | — | | | — | | | 41,667 |
Operating income (loss) | | | 17,280,500 | | | (4,731,717) | | | (6,199,095) | | | 6,349,688 |
Interest expense | | | 145,980 | | | — | | | 1,452,884 | | | 1,598,864 |
Income (loss) from operations before taxes | | | 17,186,295 | | | (4,722,375) | | | (7,651,977) | | | 4,811,943 |
Total assets | | | 143,541,723 | | | 14,028,232 | | | 141,667 | | | 157,711,622 |
Capital expenditures | | | 2,982,273 | | | 1,524,007 | | | — | | | 4,506,280 |
| | | | | | | | | | | | |
FISCAL YEAR ENDED 2018: | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | 933,920,414 | | $ | — | | $ | — | | $ | 933,920,414 |
Tobacco | | | 172,904,744 | | | — | | | — | | | 172,904,744 |
Confectionery | | | 78,915,899 | | | — | | | — | | | 78,915,899 |
Health food | | | — | | | 29,572,602 | | | — | | | 29,572,602 |
Foodservice & other | | | 106,992,999 | | | — | | | — | | | 106,992,999 |
Total external revenue | | | 1,292,734,056 | | | 29,572,602 | | | — | | | 1,322,306,658 |
Depreciation | | | 1,338,476 | | | 900,295 | | | — | | | 2,238,771 |
Amortization | | | 79,375 | | | — | | | — | | | 79,375 |
Operating income (loss) | | | 15,000,101 | | | (3,144,133) | | | (5,937,027) | | | 5,918,941 |
Interest expense | | | 91,276 | | | — | | | 1,103,097 | | | 1,194,373 |
Income (loss) from operations before taxes | | | 14,950,647 | | | (3,134,613) | | | (7,037,424) | | | 4,778,610 |
Total assets | | | 125,152,820 | | | 14,639,962 | | | 161,372 | | | 139,954,154 |
Capital expenditures | | | 3,163,272 | | | 1,537,727 | | | — | | | 4,700,999 |
| | | | | | | | | | | | |
| | Wholesale | | Retail | | | | |
| | Segment | | Segment | | Other | | Consolidated |
FISCAL YEAR ENDED 2021: | | | | | | | | | | | | |
External revenues: | | | | | | | | | | | | |
Cigarettes | | $ | 1,130,297,314 | | $ | — | | $ | — | | $ | 1,130,297,314 |
Tobacco | | | 264,453,836 | | | — | | | — | | | 264,453,836 |
Confectionery | | | 92,353,240 | | | — | | | — | | | 92,353,240 |
Health food | | | — | | | 47,321,449 | | | — | | | 47,321,449 |
Foodservice & other | | | 137,952,742 | | | — | | | — | | | 137,952,742 |
Total external revenue | | | 1,625,057,132 | | | 47,321,449 | | | — | | | 1,672,378,581 |
Depreciation | | | 1,905,270 | | | 1,187,747 | | | — | | | 3,093,017 |
Operating income (loss) | | | 24,477,037 | | | 1,797,250 | | | (8,449,668) | | | 17,824,619 |
Interest expense | | | 199,392 | | | — | | | 1,140,168 | | | 1,339,560 |
Income (loss) from operations before taxes | | | 24,354,719 | | | 1,809,130 | | | (9,475,562) | | | 16,688,287 |
Equity method investment earnings, net of tax | | | — | | | — | | | 3,357,978 | | | 3,357,978 |
Total assets | | | 157,038,710 | | | 18,179,614 | | | 13,192,805 | | | 188,411,129 |
Capital expenditures | | | 1,251,617 | | | 402,514 | | | — | | | 1,654,131 |
| | | | | | | | | | | | |
FISCAL YEAR ENDED 2020: | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | 1,045,661,081 | | $ | — | | $ | — | | $ | 1,045,661,081 |
Tobacco | | | 227,807,266 | | | — | | | — | | | 227,807,266 |
Confectionery | | | 82,910,260 | | | — | | | — | | | 82,910,260 |
Health food | | | — | | | 46,010,692 | | | — | | | 46,010,692 |
Foodservice & other | | | 118,889,464 | | | — | | | — | | | 118,889,464 |
Total external revenue | | | 1,475,268,071 | | | 46,010,692 | | | — | | | 1,521,278,763 |
Depreciation | | | 1,791,414 | | | 1,325,035 | | | — | | | 3,116,449 |
Operating income (loss) | | | 17,291,306 | | | (1,824,416) | | | (6,385,904) | | | 9,080,986 |
Interest expense | | | 128,672 | | | — | | | 1,564,579 | | | 1,693,251 |
Income (loss) from operations before taxes | | | 17,207,935 | | | (1,814,850) | | | (7,891,074) | | | 7,502,011 |
Equity method investment earnings, net of tax | | | — | | | — | | | 183,579 | | | 183,579 |
Total assets | | | 158,292,477 | | | 19,124,233 | | | 10,584,563 | | | 188,001,273 |
Capital expenditures | | | 2,071,956 | | | 1,215,364 | | | — | | | 3,287,320 |
12.13. TREASURY STOCK:
The Company repurchased a total of 75,11368 and 74,88028,727 shares of its common stock during fiscal 20192021 and fiscal 2018,2020, respectively, for cash totaling approximately $7.5less than $0.1 million and $7.7approximately $2.0 million, respectively. All repurchased shares were recorded in treasury stock at cost.
13.14. IMPACT OF COVID-19:
The Company continues to monitor a wide range of health, safety, and regulatory matters related to the COVID-19 pandemic including its impact on our business operations. In particular, ongoing supply chain disruptions at consumer packaged goods (CPG) companies have impacted product availability across all markets including the convenience distribution industry in which our company operates. Additionally, the United States is experiencing an acute workforce shortage which has created a hyper-competitive wage environment and has increased the Company’s operating costs and impacted its operations. Accordingly, ongoing and/or future disruptions to consumer demand, our supply chain, product inflation, the ability to attract employees, wage structures, or our ability to procure products or fulfill orders, could negatively impact our results from operations and financial position.
15. SUBSEQUENT EVENTS:
On October 22, 201926, 2021, the Compensation Committee of the Company’s Board of Directors awarded 14,550 long-term incentive equity awards15,100 shares of restricted stock to members of the Company’s executive management team. These awards includedteam, which include a three yearthree-year graded vesting schedule and can be settled in either cash or stock.schedule. At the same time, the Company’s Board of Directors replenished the number of shares authorized for repurchase under AMCON’s existing Common Stock repurchase program. The program provides for periodic repurchases of up to 75,000 shares of AMCON’s common stock in open market or privately negotiated transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
ITEM 9A. CONTROLS AND PROCEDURES
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 (“SEC”) 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 officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a‑15(b)13a-15(b) and 15d‑15(b)15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 20192021 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 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‑benefitcost-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‑makingdecision-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.
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‑effectivecost-effective control system, misstatements due to error or fraud may occur and not be detected.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a‑15(f)13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.
We have completed our evaluation and testing of our internal control over financial reporting as required by Section 404 of Sarbanes‑OxleySarbanes-Oxley and Item 308(a) of Regulation S‑K.S-K. Under the supervision and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of September 30, 2019.2021. In making this assessment, we used the criteria set forth in Internal Control‑IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based on its assessment, management has concluded that our internal control over financial reporting was effective as of September 30, 2019.2021.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange CommissionSEC that permit the Company to provide only management’s report in this annual report.
Other
As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement
schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.
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 September 30, 2019,2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Registrant’s Proxy Statement to be used in connection with the December 2019January 2022 Annual Meeting of Shareholders (the “Proxy Statement”) will contain under the captions “Item 1: Election of Directors—What is the structure of our board and how often are directors elected?”, “Item 1: Election of Directors—Who are this year’s nominees?”, “Item 1: Election of Directors—What is the business experience of the nominees and of our continuing board members and the basis for the conclusion that each such person should serve on our board?”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance and Board Matters—Code of Ethics”, and “Corporate Governance and Board Matters—Committees of the Board—Audit Committee”, certain information required by Item 10 of Form 10‑K10-K and such information is incorporated herein by this reference.
The information appearing under the caption “Executive Officers of the Registrant” in Part I of this report also is incorporated herein by reference. Our Board of Directors has adopted a code of ethical conduct that applies to our executive officers, including our principal executive officer and our principal financial officer. This code of ethical conduct is available without charge to any person who requests it by writing to our corporate secretary. It also is available on our internet website (www.amcon.com) by clicking on the “Corporate Governance” tab under “Investor Relations”. Any substantive amendment to, or waiver from, a provision of this code that applies to our principal executive officer or principal financial officer will be disclosed on our internet website and, if required by rules of the SEC or NYSE American, onin the reports we file with the SEC.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant’s Proxy Statement will contain under the captions “Executive Compensation and Related Matters” and “Corporate Governance and Board Matters—Director Compensation” the information required by Item 11 of Form 10‑K,10-K, and such information is incorporated herein by this reference. Rules of the Securities and Exchange Commission permit the Company to omit the disclosure contemplated by Item 407(e)(4) and (e)(5) relating to “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report”, respectively, and this annual report does not include such disclosure.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The Registrant’s Proxy Statement will contain under the captions “Ownership of Our Common Stock by Our Directors and Executive Officers and Other Principal Stockholders” and “Executive Compensation and Related Matters—Equity Compensation Plan Information” the information required by Item 12 of Form 10‑K10-K and such information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Registrant’s Proxy Statement will contain under the captions “Certain Relationships and Related Party Transactions”, “Item 1: Election of Directors—What is the structure of our board and how often are directors elected?” and “Corporate Governance and Board Matters—Committees of the Board”, the information required by Item 13 of Form 10‑K10-K and such information is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
The Registrant’s Proxy Statement will contain under the caption “Independent Auditor Fees and Services”, the information required by Item 14 of Form 10‑K10-K and such information is incorporated herein by this reference.
PART IV
IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Financial Statements, Financial Statement Schedules, and Exhibits (1)Financial Statements
| Financial Statements, Financial Statement Schedules, and Exhibits |
The financial statements filed as part of this filing are listed on the index to Consolidated Financial Statements under Item 8.
(2)Financial Statement Schedules | Financial Statement Schedules |
Not Applicable.
(3)Exhibits
| |
3.1 | Restated Certificate of Incorporation of AMCON Distributing Company as amended May 12, 2004 (incorporated by reference to Exhibit 3.1 of AMCON’s Annual Report on Form 10‑K10-K filed on November 7, 2008)9, 2020) |
3.2 | Certificate of Amendment of Certificate of Incorporation dated March 18, 2005 (incorporated by reference to Exhibit 3.2 of AMCON’s Annual Report on Form 10‑K filed November 7, 2008)
|
3.3 | Second Corrected Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of AMCON Distributing Company dated August 5, 2004 (incorporated by reference to Exhibit 3.3 of AMCON’s Quarterly Report on Form 10‑Q filed on August 9, 2004)
|
3.4 | Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of AMCON Distributing Company dated October 8, 2004 (incorporated by reference to Exhibit 3.4 of AMCON’s Annual Report on Form 10‑K filed on January 7, 2005)
|
3.5 | Amended and Restated Bylaws of AMCON Distributing Company dated January 29, 2008 (incorporated by reference to Exhibit 3.2 of AMCON’s Current Report on Form 8‑K8-K filed on February 4, 2008). |
4.1 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of AMCON’s Registration Statement on Form S‑1S-1 (Registration No. 33‑82848)33-82848) filed on August 15, 1994) |
4.2 | Securities Purchase Agreement dated October 8, 2004 between AMCON Distributing Company and Spencer Street Investments, Inc. (incorporated by reference to Exhibit 4.5 of AMCON’s Annual Report on Form 10‑K10-K filed on January 7, 2005) |
4.3 | Description of Registrant’s Securities (incorporated by reference to Exhibit 4.3 of AMCON’s Annual Report on Form 10-K filed on November 9, 2020) |
10.1 | Second Amended and Restated Loan and Security Agreement, date April 18, 2011, between AMCON Distributing Company and Bank of America, as agent (incorporated by reference to Exhibit 10.1 of AMCON’s Quarterly Report on Form 10‑Q10-Q filed on April 19, 2011) |
10.2 | Consent and First Amendment to Second Amended and Restated Credit Agreement dated May 27, 2011 (incorporated by reference to Exhibit 10.2 of AMCON’s Form 8‑K8-K filed on May 31, 2011) |
10.3 | Second Amendment to Second Amended and Restated Loan and Security Agreement, date July 16, 2013, between AMCON Distributing Company and Bank of America, (incorporated by reference to Exhibit 10.1 of AMCON’s Quarterly Report on Form 10‑Q10-Q filed on July 18, 2013) |
10.4 | Third Amendment to Second Amended and Restated Loan and Security Agreement, dated November 6, 2017, between AMCON Distributing Company Profit Sharing Planand Bank of America (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Company’s Registration Statement on Form S‑1 (Registration No. 33‑82848) filed on November 8, 1994)* |
10.5 | 2007 Omnibus Incentive Plan dated April 17, 2007 (incorporated herein by reference to Exhibit 10.12 to AMCON’s Annual Report on Form 10‑K filed on November 9, 2007)*
|
10.6 | Security Agreement by and between AMCON Distributing Company and Gold Bank (predecessor to BMO Harris Bank); (incorporated by reference to Exhibit 10.24 of AMCON’s Quarterly Report on Form 10‑Q filed on February 14, 2005)
|
10.7 | Change of Control Agreement between the Company and Christopher H. Atayan, dated December 29, 2006 (incorporated by reference to Exhibit 10.4010.16 of AMCON’s Annual Report on Form 10‑K10-K filed on December 29, 2006)*November 8, 2017).
|
10.910.5 | Executive Restricted Stock AwardFourth Amendment to Second Amended and Restated Loan and Security Agreement, under the 2007 Omnibus Incentive Plandated March 20, 2020, between AMCON Distributing Company and Bank of America (incorporated by reference to Exhibit 10.45 to10.1 of AMCON’s Annual Report on Form 10‑K8-K filed on November 7, 2008)*March 24, 2020)
|
10.1010.6 | Director Restricted Stock AwardFifth Amendment to Second Amended and Restated Loan and Security Agreement, under the 2007 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.46dated December 22, 2020, between AMCON Distributing Company and Bank of AMCON’s Annual Report on Form 10‑K filed on November 7, 2008)
|
10.11 | Form of Stock Option Award Agreement under the 2007 Omnibus Incentive Plan, together with a schedule identifying individual award recipients and the related termsAmerica (incorporated by reference to Exhibit 10.2 of AMCON’s Quarterly Report on Form 10‑Q10-Q filed on AprilJanuary 19, 2011)2021)
|
10.1210.7 | Form of Restricted Stock Unit Award Agreement under the 2007 Omnibus Incentive Plan, together with a schedule identifying individual award recipients and the related terms (incorporated by reference to Exhibit 10.3 of AMCON’s Quarterly Report on Form 10‑Q filed on April 19, 2011)
|
10.13 | Amended and Restated Term Real Estate Promissory Note, dated September 30, 2016, issued by AMCON Distributing Company to BMO Harris, NA (incorporated by reference to Exhibit 10.13 of AMCON’s Annual Report on form 10-K filed on November 8, 2016) |
10.1410.8 | Second Amended and Restated Term Real Estate Promissory Note, dated December 22, 2020, issued by AMCON Distributing Company to BMO Harris, NA (incorporated by reference to Exhibit 10.1 of AMCON’s Quarterly Report on Form 10-Q filed on January 19, 2021) |
10.9 | AMCON Distributing Company Profit Sharing Plan (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994)* |
10.10 | Security Agreement by and between AMCON Distributing Company and Gold Bank (predecessor to BMO Harris Bank); (incorporated by reference to Exhibit 10.24 of AMCON’s Quarterly Report on Form 10-Q filed on February 14, 2005) |
10.11 | Change of Control Agreement between the Company and Christopher H. Atayan, dated December 29, 2006 (incorporated by reference to Exhibit 10.40 of AMCON’s Annual Report on Form 10-K filed on December 29, 2006)* |
10.12 | 2014 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to AMCON’s Current Report on Form 8‑K8-K filed with the Commission on December 22, 2014)* |
10.1510.13 | Form of Restricted Stock Unit Award Agreement under the 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to AMCON’s Current Report on Form 8‑K8-K filed with the Commission on December 22, 2014)* |
10.1610.14 | Third Amendment to Second Amended and Restated Loan and Security Agreement, dated November 6, 2017, between AMCON Distributing Company and Bank of America (incorporated by reference to Exhibit 10.16 of AMCON’s Annual Report on Form 10‑K filed on November 8, 2017)*.
|
10.17 | 2018 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to AMCON’s Quarterly Report on Form 10-Q filed on January 18, 2019)* |
10.1810.15 | Form of Restricted Stock Unit Award Agreement under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to AMCON’s Quarterly Report on Form 10-Q filed on January 18, 2019)* |
10.1910.16 | Form of Stock Option Award Agreement under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 of AMCON’s Quarterly Report on Form 10-Q filed on January 18, 2019)* |
11.121.1 | Statement regarding computation of per share earnings (incorporated by reference to Note 3 to the Consolidated Financial Statements included as a part of this report on Form 10-K under Item 8)
|
21.1 | Subsidiaries of the Company |
31.1 | Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, pursuant to section 302 of the Sarbanes‑OxleySarbanes-Oxley Act |
31.2 | Certification by Andrew C. Plummer,Charles J. Schmaderer, Vice President, and Chief Financial Officer and Secretary, pursuant to section 302 of the Sarbanes‑OxleySarbanes-Oxley Act |
32.1 | Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes‑OxleySarbanes-Oxley Act |
32.2 | Certification by Andrew C. Plummer,Charles J. Schmaderer, Vice President, and Chief Financial Officer and Secretary, furnished pursuant to section 906 of the Sarbanes‑OxleySarbanes-Oxley Act |
101 | Inline XBRL Interactive Data File (filed herewith electronically). |
104 | Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101 |
* Represents management contract or compensation plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| | |
November 8, 20192021 | AMCON DISTRIBUTING COMPANY
(registrant) |
| | |
| | |
| By: | /s/ Christopher H. Atayan |
| | Christopher H. Atayan |
| | Chief Executive Officer and Chairman |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| |
November 8, 20192021 | /s/ Christopher H. Atayan |
| Christopher H. Atayan |
| Chief Executive Officer |
| Chairman of the Board and Director |
| (Principal Executive Officer) |
| |
| |
November 8, 20192021 | /s/ Andrew C. PlummerCharles J. Schmaderer |
| Charles J. Schmaderer |
| Vice President, Chief Financial Officer and Secretary |
| (Principal Financial and Accounting Officer) |
| |
November 8, 2021 | /s/ Andrew C. Plummer |
| Andrew C. Plummer |
| President, Chief FinancialOperating Officer and Director |
| (Principal Financial and Accounting Officer)
|
| |
November 8, 20192021 | /s/ Jeremy W. Hobbs |
| Jeremy W. Hobbs |
| Director |
| |
November 8, 20192021 | /s/ John R. Loyack |
| John R. Loyack |
| Director |
| |
November 8, 20192021 | /s/ Raymond F. Bentele |
| Raymond F. Bentele |
| Director |
| |
November 8, 20192021 | /s/ Stanley Mayer |
| Stanley Mayer |
| Director |
| |
November 8, 20192021 | /s/ Timothy R. Pestotnik |
| Timothy R. Pestotnik |
| Director |
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