UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| |
⌧ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| For the quarterly period ended |
OR
OR
| |
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| For the transition period from ___________to _________ |
Commission File Number 1-15589
(Exact name of registrant as specified in its charter)
| | |
Delaware | 47-0702918 | |
(State or other jurisdiction | | (I.R.S. Employer |
of incorporation or organization) | | Identification No.) |
| | |
7405 Irvington Road, OmahaNE | | 68122 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (402) (402) 331-3727
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 Par Value | DIT | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ◻ | Accelerated filer | Non-accelerated filer ⌧ |
| | |
| | |
| |
Smaller reporting company ☒Emerging⌧Emerging growth company ☐◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐◻ No ☒⌧
The Registrant had 690,486584,789 shares of its $.01 par value common stock outstanding as of JanuaryJuly 15, 2018.2022.
Form 10-Q
1st3rd Quarter
INDEX
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June 30, 2022 | PAGE |
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3 | |
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4 | |
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5 | |
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6 | |
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Notes to condensed consolidated unaudited financial statements | 7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | 23 |
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24 | |
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25 | |
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25 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
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25 | |
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25 | |
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25 | |
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26 |
2
2
PART I — FINANCIAL INFORMATION
Item 1.Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2017June 30, 2022 and September 30, 20172021
|
|
|
|
|
|
|
|
|
| December |
| September |
| ||
|
| 2017 |
| 2017 |
| ||
|
| (Unaudited) |
|
|
|
| |
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
| $ | 570,560 |
| $ | 523,065 |
|
Accounts receivable, less allowance for doubtful accounts of $0.8 million at both December 2017 and September 2017 |
|
| 30,511,104 |
|
| 30,690,403 |
|
Inventories, net |
|
| 49,699,948 |
|
| 72,909,996 |
|
Prepaid and other current assets |
|
| 7,982,638 |
|
| 4,218,811 |
|
Total current assets |
|
| 88,764,250 |
|
| 108,342,275 |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 13,014,903 |
|
| 13,307,986 |
|
Goodwill |
|
| 6,349,827 |
|
| 6,349,827 |
|
Other intangible assets, net |
|
| 3,461,811 |
|
| 3,494,311 |
|
Other assets |
|
| 323,643 |
|
| 310,488 |
|
Total assets |
| $ | 111,914,434 |
| $ | 131,804,887 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
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|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 15,022,223 |
| $ | 17,631,552 |
|
Accrued expenses |
|
| 6,735,349 |
|
| 7,553,089 |
|
Accrued wages, salaries and bonuses |
|
| 1,555,176 |
|
| 3,477,966 |
|
Income taxes payable |
|
| 657,095 |
|
| 544,069 |
|
Current maturities of long-term debt |
|
| 376,478 |
|
| 373,645 |
|
Total current liabilities |
|
| 24,346,321 |
|
| 29,580,321 |
|
|
|
|
|
|
|
|
|
Credit facility |
|
| 12,638,221 |
|
| 29,037,182 |
|
Deferred income tax liability, net |
|
| 1,854,151 |
|
| 2,336,263 |
|
Long-term debt, less current maturities |
|
| 2,552,935 |
|
| 2,648,179 |
|
Other long-term liabilities |
|
| 35,089 |
|
| 34,100 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 1,000,000 shares authorized |
|
| — |
|
| — |
|
Common stock, $.01 par value, 3,000,000 shares authorized, 690,486 shares outstanding at December 2017 and 678,006 shares outstanding at September 2017 |
|
| 8,441 |
|
| 8,314 |
|
Additional paid-in capital |
|
| 22,009,620 |
|
| 20,825,919 |
|
Retained earnings |
|
| 62,086,133 |
|
| 60,935,911 |
|
Treasury stock at cost |
|
| (13,616,477) |
|
| (13,601,302) |
|
Total shareholders’ equity |
|
| 70,487,717 |
|
| 68,168,842 |
|
Total liabilities and shareholders' equity |
| $ | 111,914,434 |
| $ | 131,804,887 |
|
| | | | | | |
| | June | | September | ||
|
| 2022 |
| 2021 | ||
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 600,936 | | $ | 519,591 |
Accounts receivable, less allowance for doubtful accounts of $2.6 million at June 2022 and $0.9 million September 2021 | |
| 66,500,582 | |
| 35,844,163 |
Inventories, net | |
| 142,093,610 | |
| 95,212,085 |
Income taxes receivable | | | 468,289 | | | — |
Prepaid expenses and other current assets | |
| 10,343,497 | |
| 4,999,125 |
Total current assets | |
| 220,006,914 | |
| 136,574,964 |
| | | | | | |
Property and equipment, net | |
| 48,452,634 | |
| 16,012,524 |
Operating lease right-of-use assets, net | | | 19,672,900 | | | 17,846,529 |
Note receivable, net of current portion | | | — | | | 3,325,000 |
Goodwill | |
| 5,277,950 | |
| 4,436,950 |
Other intangible assets, net | |
| 2,135,645 | |
| 500,000 |
Equity method investment | | | — | | | 9,380,343 |
Other assets | |
| 2,749,360 | |
| 334,819 |
Total assets | | $ | 298,295,403 | | $ | 188,411,129 |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 40,975,820 | | $ | 24,235,042 |
Accrued expenses | |
| 13,339,837 | |
| 11,468,955 |
Accrued wages, salaries and bonuses | |
| 7,346,300 | |
| 4,489,852 |
Income taxes payable | |
| — | |
| 867,160 |
Current operating lease liabilities | | | 6,204,257 | | | 5,513,390 |
Current maturities of long-term debt | |
| 1,204,348 | |
| 561,202 |
Total current liabilities | |
| 69,070,562 | |
| 47,135,601 |
| | | | | | |
Credit facilities | |
| 101,228,521 | |
| 43,650,865 |
Deferred income tax liability, net | |
| 2,938,240 | |
| 1,531,228 |
Long-term operating lease liabilities | | | 13,759,819 | | | 12,669,157 |
Long-term debt, less current maturities | |
| 12,159,895 | |
| 5,054,265 |
Other long-term liabilities | |
| 66,694 | |
| 757,387 |
| | | | | | |
Shareholders’ equity: | | | | | | |
Preferred stock, $.01 par value, 1,000,000 shares authorized | |
| — | |
| — |
Common stock, $.01 par value, 3,000,000 shares authorized, 584,789 shares outstanding at June 2022 and 551,369 shares outstanding at September 2021 | |
| 9,168 | |
| 8,834 |
Additional paid-in capital | |
| 26,729,124 | |
| 24,918,781 |
Retained earnings | |
| 92,210,760 | |
| 83,552,298 |
Treasury stock at cost | |
| (30,867,287) | |
| (30,867,287) |
Total parent shareholders’ equity | |
| 88,081,765 | |
| 77,612,626 |
Non-controlling interest | | | 10,989,907 | | | — |
Total shareholders’ equity | | | 99,071,672 | | | 77,612,626 |
Total liabilities and shareholders’ equity | | $ | 298,295,403 | | $ | 188,411,129 |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three and nine months ended December 31, 2017June 30, 2022 and 20162021
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| For the three months ended December |
| ||||
|
| 2017 |
| 2016 |
| ||
Sales (including excise taxes of $88.6 million and $91.0 million, respectively) |
| $ | 315,513,209 |
| $ | 310,104,229 |
|
Cost of sales |
|
| 297,321,447 |
|
| 291,788,243 |
|
Gross profit |
|
| 18,191,762 |
|
| 18,315,986 |
|
Selling, general and administrative expenses |
|
| 16,353,608 |
|
| 15,698,319 |
|
Depreciation and amortization |
|
| 531,005 |
|
| 526,433 |
|
|
|
| 16,884,613 |
|
| 16,224,752 |
|
Operating income |
|
| 1,307,149 |
|
| 2,091,234 |
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|
|
|
|
|
|
|
|
Other expense (income): |
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|
|
|
|
|
|
Interest expense |
|
| 202,191 |
|
| 217,543 |
|
Other (income), net |
|
| (5,133) |
|
| (5,773) |
|
|
|
| 197,058 |
|
| 211,770 |
|
Income from operations before income tax expense |
|
| 1,110,091 |
|
| 1,879,464 |
|
Income tax expense (benefit) |
|
| (370,000) |
|
| 833,000 |
|
Net income available to common shareholders |
| $ | 1,480,091 |
| $ | 1,046,464 |
|
|
|
|
|
|
|
|
|
Basic earnings per share available to common shareholders |
| $ | 2.15 |
| $ | 1.54 |
|
Diluted earnings per share available to common shareholders |
| $ | 2.13 |
| $ | 1.52 |
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 687,679 |
|
| 681,668 |
|
Diluted weighted average shares outstanding |
|
| 695,950 |
|
| 688,676 |
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|
|
|
|
|
|
|
|
Dividends declared and paid per common share |
| $ | 0.18 |
| $ | 0.18 |
|
| | | | | | | | | | | | |
| | For the three months ended June | | For the nine months ended June | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Sales (including excise taxes of $129.2 million and $104.9 million, and $315.5 million and $297.4 million, respectively) | | $ | 550,584,152 | | $ | 438,313,030 | | $ | 1,365,043,621 | | $ | 1,221,571,294 |
Cost of sales | |
| 516,907,540 | |
| 412,771,324 | |
| 1,277,757,425 | |
| 1,149,594,823 |
Gross profit | |
| 33,676,612 | |
| 25,541,706 | |
| 87,286,196 | |
| 71,976,471 |
Selling, general and administrative expenses | |
| 25,862,325 | |
| 20,501,117 | |
| 70,168,415 | |
| 58,123,100 |
Depreciation and amortization | |
| 912,501 | |
| 741,180 | |
| 2,514,968 | |
| 2,295,390 |
| |
| 26,774,826 | |
| 21,242,297 | |
| 72,683,383 | |
| 60,418,490 |
Operating income | |
| 6,901,786 | |
| 4,299,409 | |
| 14,602,813 | |
| 11,557,981 |
| | | | | | | | | | | | |
Other expense (income): | | | | | | | | | | | | |
Interest expense | |
| 655,811 | |
| 329,929 | |
| 1,222,829 | |
| 1,016,902 |
Other (income), net | |
| (2,417,252) | |
| (43,437) | |
| (2,518,320) | |
| (169,525) |
| |
| (1,761,441) | |
| 286,492 | |
| (1,295,491) | |
| 847,377 |
Income from operations before income taxes | |
| 8,663,227 | |
| 4,012,917 | |
| 15,898,304 | |
| 10,710,604 |
Income tax expense | |
| 2,397,000 | |
| 1,076,000 | |
| 4,987,000 | |
| 2,916,000 |
Equity method investment earnings, net of tax | |
| 307,973 | |
| 754,293 | |
| 1,670,133 | |
| 1,403,124 |
Net income | | | 6,574,200 | | | 3,691,210 | | | 12,581,437 | | | 9,197,728 |
Less: Net income attributable to non-controlling interest | | | (591,369) | | | — | | | (591,369) | | | — |
Net income available to common shareholders | | $ | 5,982,831 | | $ | 3,691,210 | | $ | 11,990,068 | | $ | 9,197,728 |
| | | | | | | | | | | | |
Basic earnings per share available to common shareholders | | $ | 10.50 | | $ | 6.69 | | $ | 21.15 | | $ | 16.71 |
Diluted earnings per share available to common shareholders | | $ | 10.27 | | $ | 6.48 | | $ | 20.62 | | $ | 16.37 |
| | | | | | | | | | | | |
Basic weighted average shares outstanding | |
| 569,689 | |
| 551,369 | |
| 567,026 | |
| 550,276 |
Diluted weighted average shares outstanding | |
| 582,370 | |
| 569,481 | |
| 581,578 | |
| 561,940 |
| |
| | | | | | | | | | |
Dividends paid per common share | | $ | 0.18 | | $ | 0.18 | | $ | 5.54 | | $ | 5.54 |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
4
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash FlowsShareholders’ Equity
for the three and nine months ended December 31, 2017June 30, 2022 and 20162021
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|
| December |
|
| December |
|
|
|
| 2017 |
|
| 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net income |
| $ | 1,480,091 |
| $ | 1,046,464 |
|
Adjustments to reconcile net income from operations to net cash flows from operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
| 498,505 |
|
| 460,183 |
|
Amortization |
|
| 32,500 |
|
| 66,250 |
|
Gain on sale of property and equipment |
|
| (300) |
|
| (23,559) |
|
Equity-based compensation |
|
| 334,256 |
|
| 459,278 |
|
Deferred income taxes |
|
| (482,112) |
|
| 406,972 |
|
Provision (recovery) for losses on doubtful accounts |
|
| (3,000) |
|
| 183 |
|
Provision for losses on inventory obsolescence |
|
| 30,660 |
|
| 58,776 |
|
Other |
|
| 989 |
|
| 319 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
| 182,299 |
|
| 3,605,673 |
|
Inventories |
|
| 23,179,388 |
|
| (1,385,731) |
|
Prepaid and other current assets |
|
| (3,763,827) |
|
| 1,969,853 |
|
Other assets |
|
| (13,155) |
|
| 24,074 |
|
Accounts payable |
|
| (2,523,433) |
|
| (2,179,939) |
|
Accrued expenses and accrued wages, salaries and bonuses |
|
| (2,011,951) |
|
| (2,370,918) |
|
Income taxes payable |
|
| 113,026 |
|
| 28,134 |
|
Net cash flows from operating activities |
|
| 17,053,936 |
|
| 2,166,012 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (291,318) |
|
| (400,778) |
|
Proceeds from sales of property and equipment |
|
| 300 |
|
| 31,478 |
|
Net cash flows from investing activities |
|
| (291,018) |
|
| (369,300) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
| 305,522,554 |
|
| 319,265,456 |
|
Repayments under revolving credit facility |
|
| (321,921,515) |
|
| (319,998,237) |
|
Principal payments on long-term debt |
|
| (92,411) |
|
| (89,662) |
|
Repurchase of common stock |
|
| (15,175) |
|
| (1,038,060) |
|
Dividends on common stock |
|
| (129,026) |
|
| (127,713) |
|
Withholdings on the exercise of equity-based awards |
|
| (79,850) |
|
| (82,456) |
|
Net cash flows from financing activities |
|
| (16,715,423) |
|
| (2,070,672) |
|
Net change in cash |
|
| 47,495 |
|
| (273,960) |
|
Cash, beginning of period |
|
| 523,065 |
|
| 605,380 |
|
Cash, end of period |
| $ | 570,560 |
| $ | 331,420 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 199,423 |
| $ | 223,802 |
|
Cash paid during the period for income taxes |
|
| — |
|
| 397,894 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash information: |
|
|
|
|
|
|
|
Equipment acquisitions classified in accounts payable |
|
| 15,465 |
|
| 2,128 |
|
Dividends declared, not paid |
|
| 200,843 |
|
| 194,173 |
|
Issuance of common stock in connection with the vesting and exercise of equity-based awards |
|
| 1,183,091 |
|
| 1,262,763 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | Non-controlling | | | | |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Interest |
| Total | ||||||
THREE MONTHS ENDED JUNE 2021 | | | | | | | | | | | | | | | | | | | | | | |
Balance, April 1, 2021 | | 883,589 | | $ | 8,834 | | (332,220) | | $ | (30,867,287) | | $ | 24,917,765 | | $ | 73,724,722 | | $ | — | | $ | 67,784,034 |
Dividends on common stock, $0.18 per share | | — | | | — | | — | | | — | | | — | | | (105,586) | | | — | | | (105,586) |
Compensation expense and settlement of equity-based awards | | — | | | — | | — | | | — | | | 25,527 | | | — | | | — | | | 25,527 |
Net income | | — | |
| — | | — | | | — | | | — | | | 3,691,210 | | | — | | | 3,691,210 |
Balance, June 30, 2021 | | 883,589 | | $ | 8,834 | | (332,220) | | $ | (30,867,287) | | $ | 24,943,292 | | $ | 77,310,346 | | $ | — | | $ | 71,395,185 |
| | | | | | | | | | | | | | | | | | | | | | |
THREE MONTHS ENDED JUNE 2022 | | | | | | | | | | | | | | | | | | | | | | |
Balance, April 1, 2022 | | 917,009 | | $ | 9,168 | | (332,220) | | $ | (30,867,287) | | $ | 26,555,046 | | $ | 86,336,525 | | $ | — | | $ | 82,033,452 |
Dividends on common stock, $0.18 per share | | — | | | — | | — | | | — | | | — | | | (108,596) | | | — | | | (108,596) |
Compensation expense and settlement of equity-based awards | | — | | | — | | — | | | — | | | 174,078 | | | — | | | — | | | 174,078 |
Fair value measurement of non-controlling interest | | — | | | — | | — | | | — | | | — | | | — | | | 10,419,138 | | | 10,419,138 |
Distributions | | — | | | — | | — | | | — | | | — | | | — | | | (20,600) | | | (20,600) |
Net income | | — | |
| — | | — | | | — | | | — | | | 5,982,831 | | | 591,369 | | | 6,574,200 |
Balance, June 30, 2022 | | 917,009 | | $ | 9,168 | | (332,220) | | $ | (30,867,287) | | $ | 26,729,124 | | $ | 92,210,760 | | $ | 10,989,907 | | $ | 99,071,672 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | Non-controlling | | | | |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Interest |
| Total | ||||||
NINE MONTHS ENDED JUNE 2021 | | | | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2020 | | 869,867 | | $ | 8,697 | | (332,152) | | $ | (30,861,549) | | $ | 24,282,058 | | $ | 71,362,334 | | $ | — | | $ | 64,791,540 |
Dividends on common stock, $5.54 per share | | — | | | — | | — | | | — | | | — | | | (3,249,716) | | | — | | | (3,249,716) |
Compensation expense and settlement of equity-based awards | | 13,722 | | | 137 | | — | | | — | | | 661,234 | | | — | | | — | | | 661,371 |
Repurchase of common stock | | — | | | — | | (68) | | | (5,738) | | | — | | | — | | | — | | | (5,738) |
Net income | | — | |
| — | | — | | | — | | | — | | | 9,197,728 | | | — | | | 9,197,728 |
Balance, June 30, 2021 | | 883,589 | | $ | 8,834 | | (332,220) | | $ | (30,867,287) | | $ | 24,943,292 | | $ | 77,310,346 | | $ | — | | $ | 71,395,185 |
| | | | | | | | | | | | | | | | | | | | | | |
NINE MONTHS ENDED JUNE 2022 | | | | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2021 | | 883,589 | | $ | 8,834 | | (332,220) | | $ | (30,867,287) | | $ | 24,918,781 | | $ | 83,552,298 | | $ | — | | $ | 77,612,626 |
Dividends on common stock, $5.54 per share | | — | | | — | | — | | | — | | | — | | | (3,331,606) | | | — | | | (3,331,606) |
Compensation expense and settlement of equity-based awards | | 33,420 | | | 334 | | — | | | — | | | 1,810,343 | | | — | | | — | | | 1,810,677 |
Fair value measurement of non-controlling interest | | — | | | — | | — | | | — | | | — | | | — | | | 10,419,138 | | | 10,419,138 |
Distributions | | — | | | — | | — | | | — | | | — | | | — | | | (20,600) | | | (20,600) |
Net income | | — | |
| — | | — | | | — | | | — | | | 11,990,068 | | | 591,369 | | | 12,581,437 |
Balance, June 30, 2022 | | 917,009 | | $ | 9,168 | | (332,220) | | $ | (30,867,287) | | $ | 26,729,124 | | $ | 92,210,760 | | $ | 10,989,907 | | $ | 99,071,672 |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
5
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the nine months ended June 30, 2022 and 2021
| | | | | | |
| | June | | June | ||
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 12,581,437 | | $ | 9,197,728 |
Adjustments to reconcile net income to net cash flows from (used in) operating activities: | | | | | | |
Depreciation | | | 2,486,613 | | | 2,295,390 |
Amortization | | | 28,355 | | | — |
Equity method investment earnings, net of tax | | | (1,670,133) | | | (1,403,124) |
Gain on re-valuation of equity method investment to fair value | | | (2,387,411) | | | — |
Gain on sales of property and equipment | | | (133,639) | | | (8,057) |
Equity-based compensation | | | 1,903,884 | | | 1,819,272 |
Deferred income taxes | | | 1,407,012 | | | (220,693) |
Provision for losses on doubtful accounts | | | 83,000 | | | 86,000 |
Inventory allowance | | | 688,902 | | | 238,148 |
Changes in assets and liabilities net of effects of business acquisition: | | | | | | |
Accounts receivable | | | (1,215,238) | | | (2,334,341) |
Inventories | | | (4,674,292) | | | 3,093,184 |
Prepaid and other current assets | | | (2,986,167) | | | (3,677,421) |
Equity method investment distributions | | | 1,095,467 | | | 828,466 |
Other assets | | | (728,596) | | | 34,647 |
Accounts payable | | | 1,313,711 | | | 2,680,540 |
Accrued expenses and accrued wages, salaries and bonuses | | | 1,926,479 | | | 804,983 |
Other long-term liabilities | | | (690,693) | | | (169,854) |
Income taxes payable and receivable | | | (1,890,449) | | | (537,548) |
Net cash flows from (used in) operating activities | | | 7,138,242 | | | 12,727,320 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchase of property and equipment | | | (13,940,428) | | | (1,254,958) |
Proceeds from sales of property and equipment | | | 145,500 | | | 39,728 |
Principal payment received on note receivable | | | 175,000 | | | — |
Cash acquired in business acquisition | | | 7,958 | | | — |
Net cash flows from (used in) investing activities | | | (13,611,970) | | | (1,215,230) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facilities | | | 1,393,048,057 | | | 1,217,375,073 |
Repayments under revolving credit facilities | | | (1,381,508,745) | | | (1,227,854,771) |
Proceeds from borrowings on long-term debt | | | — | | | 3,000,000 |
Principal payments on long-term debt | | | (524,874) | | | (373,216) |
Proceeds from exercise of stock options | | | 173,590 | | | — |
Repurchase of common stock | | | — | | | (5,738) |
Dividends on common stock | | | (3,331,606) | | | (3,249,716) |
Settlement and withholdings of equity-based awards | | | (1,280,749) | | | (365,022) |
Distributions to non-controlling interest | | | (20,600) | | | — |
Net cash flows from (used in) financing activities | | | 6,555,073 | | | (11,473,390) |
Net change in cash | | | 81,345 | | | 38,700 |
Cash, beginning of period | | | 519,591 | | | 661,195 |
Cash, end of period | | $ | 600,936 | | $ | 699,895 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest | | $ | 1,201,073 | | $ | 1,031,457 |
Cash paid during the period for income taxes | |
| 5,468,488 | |
| 3,667,036 |
| | | | | | |
Supplemental disclosure of non-cash information: | | | | | | |
Equipment acquisitions classified in accounts payable | | $ | 123,801 | | $ | — |
Effect of business acquisition (see Note 2) | | | 23,308,624 | | | — |
Issuance of common stock in connection with the vesting and exercise of | |
| 2,280,783 | |
| 949,812 |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two2 business segments:
| Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers in 29 states and primarily operate in the Central, Rocky Mountain, Mid-South and |
| Our retail health food segment (“Retail Segment”) operates |
WHOLESALE SEGMENT
Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,0005,300 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,00020,600 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilledrefrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In November 2017,December 2021, Convenience Store News ranked us as the seventh (7th)sixth (6th) largest convenience store distributor in the United States based on annual sales.
Our wholesale businessWholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates six7 distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and Tennessee.West Virginia. These distribution centers, combined with cross dockcross-dock facilities, include approximately 641,000885,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs,Kellogg’s, Kraft Heinz, and Mars.Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.
RETAIL SEGMENT
Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.
6
Our Retail Segment operates sixteen19 retail health food stores as Chamberlin’s Market & Café andNatural Foods (“Chamberlin’s”), Akin’s Natural Foods Market.(“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 32,00035,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total
7
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30.30th, except for one non-wholly owned subsidiary whose fiscal year ends on the last Friday of September. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. To the extent a subsidiary is not wholly owned, any related non-controlling interests are included as a separate component of shareholders’ equity. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items.herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2017,2021, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended December 31, 2017June 30, 2022 and December 31, 2016June 30, 2021 have been referred to throughout this quarterly report as Q1 2018Q3 2022 and Q1 2017,Q3 2021, respectively. The fiscal balance sheet dates as of December 31, 2017June 30, 2022 and September 30, 20172021 have been referred to as December 2017June 2022 and September 2017,2021, respectively.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements Adopted
In July 2015,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company). The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this ASU did not have a material impact on our consolidated financial statements.
In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of how companies account for share-based compensation, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 (Fiscal 2018 for the Company) and early adoption is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements.
7
New Accounting Pronouncements
In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments supersedes the revenue recognition requirements in "Accounting Standard Codification 605 - Revenue Recognition" and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is in the data aggregation and quantification phase of its review of this new standard, and is working to assess the impact and our approach towards adopting this ASU.
In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements including the potential capitalization of all operating leases on the Company’s balance sheet.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), 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, 20192022 (fiscal 20212024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
2. ACQUISITION
The Company and Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, jointly own and operate Team Sledd, LLC (“Team Sledd”), a limited liability company which owns and operates Sledd’s wholesale distribution business.
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 AMCON’s ownership percentage in Team Sledd. In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): SimplifyingMay 2022 (the “Control Date”), Team Sledd redeemed additional membership interests from certain members. Prior to May 2022, the TestCompany had a minority interest in Team Sledd, which had been accounted for Goodwill Impairment” (“ASU 2017-04”)under the equity method. As a result of the May 2022 redemption, the Company became the majority owner of Team Sledd with a controlling interest of approximately 56%. The new guidance simplifiesCompany provided no additional consideration to acquire control of Team Sledd. The costs incurred to effectuate the subsequentacquisition were not significant and were expensed as incurred. The acquisition expands the Company’s footprint and enhances our ability to service customers in the Mid-Atlantic region of the United States.
The transaction has been accounted for in accordance with Accounting Standards Codification (“ASC”) 805 – Business Combinations and the Company has measured the fair value of its previously held equity interest and the related non-controlling interest using the discounted cash flow methodology with the assistance of independent valuation consultants. The preliminary total fair value of Team Sledd was approximately $23.3 million, which resulted in a gain of approximately $2.4 million related to the fair value remeasurement of the Company’s ownership interest in Team Sledd. The gain was recorded as a component of other income in the Company’s Condensed Consolidated Unaudited Statement of Operations for Q3 2022. In connection with the transaction, the Company recorded a deferred tax liability of approximately $0.6
8
million which will be recognized in future periods when the associated taxes become due. Inputs used to measure the acquisition-date fair value of the Company’s previously held equity interest and the related non-controlling interest in the entity included sales growth, gross profit estimates, economic and industry conditions, working capital requirements and the contractual requirements of the operating agreement. Team Sledd is being reported as a component of the Company’s Wholesale Segment.
The following tables summarize the acquisition-date fair value of Team Sledd, the preliminary fair value of Team Sledd’s assets and liabilities at the Control Date, and the resulting goodwill. The fair values are based on preliminary estimates and are subject to change as the Company obtains additional information during the measurement of goodwill by eliminating Step 2period (up to one year from the goodwill impairment test. ASU 2017-04 requires goodwill impairment to be measured asacquisition date).
| | | |
Acquisition-date fair value of non-controlling interest |
| $ | 10,419,138 |
Acquisition-date fair value of previously held interest | | | 12,897,444 |
Fair value of Team Sledd at the Control Date | | $ | 23,316,582 |
| | | |
Preliminary amounts of identifiable assets and liabilities at fair value: | | | |
| | | |
Cash | | $ | 7,958 |
Accounts receivable | | | 29,524,181 |
Inventories | | | 42,896,135 |
Prepaid and other current assets | | | 2,533,205 |
Property and equipment | | | 21,002,604 |
Operating lease right-of use assets | | | 1,501,996 |
Other intangible assets | | | 1,664,000 |
Other assets | | | 1,685,945 |
Liabilities assumed | | | (78,340,442) |
Total identifiable net assets | | $ | 22,475,582 |
| | | |
Goodwill | | | 841,000 |
| | $ | 23,316,582 |
Accounts receivable were recorded at their fair value representing the amount by which a reporting unit’s carrying amount exceeds itswe expect to collect. Gross contractual amounts receivable were approximately $1.7 million more than their acquisition-date fair value, notvalue.
Goodwill totaling approximately $0.8 million arose from the acquisition and primarily represents synergies and economies of scale generated through reductions in selling, general, and administrative expenses. This goodwill has been assigned to exceed the carrying amount of its goodwill. ASU 2017-04 requires prospective applicationCompany’s Wholesale Segment and is effectivedeductible for annual periods beginning after December 15, 2019 (Fiscal 2021 fortax purposes.
Other intangible assets acquired consisted of the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact onfollowing:
| | | | | | |
|
| Acquisition-Date | | | Useful Life | |
Other Intangible Asset |
| Fair Value |
|
| (Years) | |
Customer list | | $ | 1,442,000 | | | 15 |
Non-competition agreement | | | 222,000 | | | 3 |
| | $ | 1,664,000 | | | |
3. INVENTORIES
Inventories in our consolidated financial statements.
2. INVENTORIES
At December 2017 and September 2017, inventorieswholesale 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 wholesaleretail segment consisted of finished goods and are stated at the lower of cost or market using the retail method for our 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 $1.5 million at June 2022 and $0.8 million at both December 2017 and September 2017.2021. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.
8
9
3.4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill by reporting segment of the Companyat June 2022 and September 2021 was as follows:
| | | | | | |
|
| June |
| September | ||
Wholesale Segment |
| 2022 |
| 2021 | ||
Beginning Balance | | $ | 4,436,950 | | $ | 4,436,950 |
Acquisition of Team Sledd, LLC | |
| 841,000 | |
| — |
Ending Balance | | $ | 5,277,950 | | $ | 4,436,950 |
Other intangible assets at June 2022 and September 2021 consisted of the following:
|
|
|
|
|
|
|
|
|
| December |
| September |
| ||
|
| 2017 |
| 2017 |
| ||
Wholesale Segment |
| $ | 4,436,950 |
| $ | 4,436,950 |
|
Retail Segment |
|
| 1,912,877 |
|
| 1,912,877 |
|
|
| $ | 6,349,827 |
| $ | 6,349,827 |
|
| | | | | | |
|
| June |
| September | ||
|
| 2022 |
| 2021 | ||
Customer list (Wholesale Segment) | | $ | 1,425,978 | | $ | — |
Non-competition agreement (Wholesale Segment) | | | 209,667 | | | — |
Trademarks and tradenames (Retail Segment) | | | 500,000 | | | 500,000 |
| | $ | 2,135,645 | | $ | 500,000 |
Other intangible assets of the Company consisted of the following:
|
|
|
|
|
|
|
|
|
| December |
| September |
| ||
|
| 2017 |
| 2017 |
| ||
Trademarks and tradenames (Retail Segment) |
| $ | 3,373,269 |
| $ | 3,373,269 |
|
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.0 million at both December 2017 and September 2017) |
|
| 88,542 |
|
| 121,042 |
|
|
| $ | 3,461,811 |
| $ | 3,494,311 |
|
Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been takenrecorded on these assets. Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled approximately $5.3 million and $4.4 million at June 2022 and September 2021, respectively. The Company performs its annual impairment testing during the fourth fiscal quarter of each year or as circumstances change or necessitate. There have been no material changes to the Company’s impairment assessments since its fiscal year ended September 2021.
At December 2017,June 2022, identifiable intangible assets considered to have finite lives were represented by a customer relationshipslist which areis being amortized over eightfifteen years and a non-competition agreement which is being amortized over three years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense related to these assets was less than $0.1 million for both the three and nine month periods ended June 2022.
Estimated future amortization expense related to identifiable intangible assets with finite lives iswas as follows at December 2017:June 2022:
| | | |
| | June | |
|
| 2022 | |
Fiscal 2022 (1) | | $ | 42,533 |
Fiscal 2023 | | | 170,130 |
Fiscal 2024 | | | 170,130 |
Fiscal 2025 | | | 139,303 |
Fiscal 2026 and thereafter | | | 1,113,549 |
| | $ | 1,635,645 |
|
|
|
|
| ||||
|
| December | ||||||
|
| 2017 | ||||||
Fiscal 2018 (1) |
| $ | 46,875 |
| ||||
Fiscal 2019 |
|
| 41,667 |
| ||||
|
| $ | 88,542 |
|
(1) |
| Represents amortization for the remaining |
4.
5. DIVIDENDS
The Company paid cash dividends on its common stock totaling $0.1 million in each ofand $3.3 million for the three and nine month periods ended December 2017June 2022, respectively, and December 2016.$0.1 million and $3.2 million for the three and nine month periods ended June 2021, respectively.
9
10
5.6. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirementsavailable to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing net income from operations less preferred stock dividend requirements (when anti-dilutive)available to common shareholders by the sum of the weighted average number of common shares outstanding and the weighted average dilutive options.equity awards.
| | | | | | | | | | | | |
| | For the three months ended June | ||||||||||
| | 2022 | | 2021 | ||||||||
|
| Basic |
| Diluted |
| Basic |
| Diluted | ||||
Weighted average number of common shares outstanding | | | 569,689 | | | 569,689 | | | 551,369 | | | 551,369 |
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | | | — | | | 12,681 | | | — | | | 18,112 |
Weighted average number of shares outstanding | | | 569,689 | | | 582,370 | | | 551,369 | | | 569,481 |
Net income available to common shareholders | | $ | 5,982,831 | | $ | 5,982,831 | | $ | 3,691,210 | | $ | 3,691,210 |
| | | | | | | | | | | | |
Net earnings per share available to common shareholders | | $ | 10.50 | | $ | 10.27 | | $ | 6.69 | | $ | 6.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended December |
| ||||||||||
|
| 2017 |
| 2016 |
| ||||||||
|
| Basic |
| Diluted |
| Basic |
| Diluted |
| ||||
Weighted average common shares outstanding |
|
| 687,679 |
|
| 687,679 |
|
| 681,668 |
|
| 681,668 |
|
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1) |
|
| — |
|
| 8,271 |
|
| — |
|
| 7,008 |
|
Weighted average number of shares outstanding |
|
| 687,679 |
|
| 695,950 |
|
| 681,668 |
|
| 688,676 |
|
Net income available to common shareholders |
| $ | 1,480,091 |
| $ | 1,480,091 |
| $ | 1,046,464 |
| $ | 1,046,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share available to common shareholders |
| $ | 2.15 |
| $ | 2.13 |
| $ | 1.54 |
| $ | 1.52 |
|
(1) |
| Diluted earnings per share calculation includes all |
| | | | | | | | | | | | |
| | For the nine months ended June | ||||||||||
| | 2022 | | 2021 | ||||||||
|
| Basic |
| Diluted |
| Basic |
| Diluted | ||||
Weighted average number of common shares outstanding | | | 567,026 | | | 567,026 | | | 550,276 | | | 550,276 |
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | | | — | | | 14,552 | | | — | | | 11,664 |
Weighted average number of shares outstanding | | | 567,026 | | | 581,578 | | | 550,276 | | | 561,940 |
Net income available to common shareholders | | $ | 11,990,068 | | $ | 11,990,068 | | $ | 9,197,728 | | $ | 9,197,728 |
| | | | | | | | | | | | |
Net earnings per share available to common shareholders | | $ | 21.15 | | $ | 20.62 | | $ | 16.71 | | $ | 16.37 |
(1) | Diluted earnings per share calculation includes all equity-based awards deemed to be dilutive. |
6.
7. DEBT
The Company primarily finances its operations through a2 credit facility agreementagreements (the “Facility”“AMCON Facility” and the “Team Sledd Facility”, and together “the Facilities”) and long-term debt agreements with banks.In Q3 2022, the Company amended the AMCON Facility, increasing its aggregate borrowing capacity from $110.0 million to $150.0 million, extending the maturity date from March 2025 to June 2027, and adding certain real estate properties as eligible borrowing collateral under the credit agreement.
At June 2022, the Facilities have a total combined borrowing capacity of $250.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The Team Sledd Facility matures in March 2027 and the AMCON Facility matures in June 2027, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and in the case of the AMCON Facility, certain of the Company’s real estate. The Facilities each feature an unused commitment fee and financial covenants including fixed charge coverage ratios. Borrowings under the Facilities bear interest at either the bank’s prime rate, the Secured Overnight Financing Rate (“SOFR”) or the London Interbank Offered Rate (“LIBOR”), plus any applicable spreads.
11
The amount available for use from the Facilities at any given time is provided through Banksubject to a number of America actingfactors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the senior agentvalue of certain real estate collateral. Based on the collateral and with BMO Harris Bank participatingloan limits as defined in a loan syndication.the Facility agreements, the credit limit of the combined Facilities at June 2022 was $194.4 million, of which $101.2 million was outstanding, leaving $93.2 million available.
The Facility includedaverage interest rate of the Facilities was 3.23% at June 2022. For the nine months ended June 2022, the peak borrowings under the Facilities was $123.5 million, and the average borrowings and average availability under the Facilities was $51.2 million and $60.7 million, respectively.
LONG-TERM DEBT
In addition to the Facilities, the Company also had the following significant termslong-term obligations at December 2017:June 2022 and September 2021.
| | | | | | |
|
| June 2022 |
| September 2021 | ||
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 | | $ | 4,190,214 | | $ | 4,498,213 |
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 | | | 1,006,381 | | | 1,117,254 |
Note payable, interest payable at a fixed rate of 4.10% with monthly installments of principal and interest of $53,361 through June 2033 with remaining principal due July 2033, collateralized by Team Sledd’s principal office and warehouse | | | 5,674,355 | | | — |
Note payable, interest payable at a fixed rate of 3.25% with monthly installments of principal and interest of $17,016 through August 2034 with remaining principal due September 2034, collateralized by Team Sledd’s principal office and warehouse | | | 2,086,721 | | | — |
Note payable with monthly installments of principal and interest of $7,934 through February 2025 with remaining principal due March 2025, and an effective variable rate of 2.90% at June 2022, collateralized by certain of Team Sledd’s equipment | |
| 406,572 | |
| — |
| |
| 13,364,243 | |
| 5,615,467 |
Less current maturities | |
| (1,204,348) | |
| (561,202) |
| | $ | 12,159,895 | | $ | 5,054,265 |
The aggregate minimum principal maturities of the long-term debt for each of the next five fiscal years are as follows:
| | | |
Fiscal Year Ending |
| | |
2022 (1) | | $ | 302,592 |
2023 | | | 2,050,814 |
2024 | | | 1,120,121 |
2025 | |
| 4,011,184 |
2026 and thereafter | |
| 5,879,532 |
| | $ | 13,364,243 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
Cross Default and Co-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan (the “Real Estate Loan”) with BMO Harris Bank (the “Real Estate Loan”N.A. (“BMO”) which is also a participant lender on the Company’s revolving line of credit.AMCON Facility. The Real Estate Loan contains cross default provisions which would cause itthe loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, isAMCON Facility, were in default. There were no0 such cross defaults at December 2017.June 2022. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms. As discussed in Note 12, the Real Estate
12
Loan was subsequently terminated and repaid in connection with the Company entering into the amendment to the AMCON Facility during Q3 2022.
OtherTeam Sledd’s 3 notes payable and the Team Sledd Facility contain cross default provisions. There were 0 such cross defaults at June 2022.
AMCONThe Company was in compliance with all of its financial covenants under the Facilities at June 2022.
Other
The Company has issued a $0.5 million letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self‑insuredself-insured loss control program.
7. EQUITY-BASED INCENTIVE AWARDS8. INCOME TAXES
Omnibus PlanThe Company’s effective income tax rate increased during the three and nine month periods ended June 2022 as compared to the respective prior year periods, primarily due to higher non-deductible compensation during the current year periods, resulting in effective income tax rates in excess of statutory rates.
9. SUPPLEMENTAL PRO FORMA INFORMATION
Prior to May 2022, the Company held a minority interest in Team Sledd, and accounted for its ownership interest as an equity method investment. At the Control Date in May 2022, the Company’s equity method investment in Team Sledd became a controlling interest with the Company holding an equity interest in Team Sledd of approximately 56% at June 2022.
Team Sledd’s summarized unaudited financial data prior to the Control Date for the three and nine months ended June 2022 and June 2021 was as follows:
| | | | | | | | | | | | |
|
| For the |
| For the |
| For the |
| For the | ||||
Sales | | $ | 64,123,105 | | $ | 179,676,748 | | $ | 393,606,372 | | $ | 502,704,216 |
Gross profit | | | 3,721,966 | | | 9,711,966 | | | 21,759,753 | | | 25,279,274 |
Net income before income taxes | | | 828,775 | | | 2,034,258 | | | 4,498,190 | | | 3,979,078 |
Net income attributable to AMCON, net of tax | | | 307,973 | | | 754,293 | | | 1,670,133 | | | 1,403,124 |
The following table presents unaudited supplemental pro forma information for Team Sledd from the Control Date through June 2022, which is included in the Company’s consolidated results for the three and nine months ended June 2022.
| | | |
Revenue |
| $ | 108,674,587 |
Net income available to common shareholders | | $ | 1,340,811 |
The following table presents unaudited supplemental pro forma information assuming the Company acquired a 56% interest in Team Sledd on October 1, 2020.These pro forma amounts do not purport to be indicative of the actual results that would have been obtained had the acquisition occurred at that time.
| | | | | | | | | | | | |
|
| For the three months ended June 2022 |
| For the three months ended June 2021 |
| For the nine months ended June 2022 |
| For the nine months ended June 2021 | ||||
Revenue | | $ | 614,707,257 | | $ | 617,672,972 | | $ | 1,758,649,994 | | $ | 1,724,275,510 |
Net income available to common shareholders | | $ | 6,022,099 | | $ | 3,789,960 | | $ | 12,205,185 | | $ | 9,462,698 |
13
10. BUSINESS SEGMENTS
The Company has two equity-based incentive plans, the 2007 Omnibus Incentive Plan and 2014 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 225,000 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 December 2017, awards with respect to a total of 208,815 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 16,185 shares may be awarded under the Omnibus Plans.
11
Stock Options
The Company issued 6,000 incentive stock options during both Q1 2018 and Q1 2017 to various employees pursuant to the provisions of the Company’s 2014 Omnibus Plan. The stock options issued by the Company expire ten years from the grant date and include a five year graded annual vesting schedule. The awards had an estimated grant date fair value of approximately $0.2 million in Q1 2018 and $0.1 million in Q1 2017 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 Q1 2018 and Q1 2017 incentive stock option awards:
|
|
|
|
|
|
|
|
| Stock Option |
| Stock Option | ||
|
| Pricing |
| Pricing | ||
|
| Assumptions |
| Assumptions | ||
|
| 2018 |
| 2017 | ||
Risk-free interest rate |
| 2.41 | % |
| 2.12 | % |
Dividend yield |
| 0.8 | % |
| 0.6 | % |
Expected volatility |
| 33.00 | % |
| 22.40 | % |
Expected life in years |
| 6 |
|
| 6 |
|
The following is a summary of stock option activity during Q1 2018:
|
|
|
|
|
|
|
|
|
|
| Weighted |
| |
|
| Number |
| Average |
| |
|
| of |
| Exercise |
| |
|
| Shares |
| Price |
| |
Outstanding at September 2017 |
| 28,300 |
| $ | 74.75 |
|
Granted |
| 6,000 |
|
| 90.50 |
|
Exercised |
| — |
|
| — |
|
Forfeited/Expired |
| — |
|
| — |
|
Outstanding at December 2017 |
| 34,300 |
| $ | 77.50 |
|
12
Restricted Stock Units
At December 2017, 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 |
| Restricted |
| Restricted |
| Restricted | ||||
Date of award: |
|
| October 2013 |
|
| October 2015 |
|
| October 2016 |
|
| October 2017 |
Original number of awards issued: |
|
| 17,600 |
|
| 13,250 |
|
| 13,000 |
|
| 13,000 |
Service period: |
|
| 36 - 60 months |
|
| 36 - 60 months |
|
| 36 months |
|
| 36 months |
Estimated fair value of award at grant date: |
| $ | 1,486,000 |
| $ | 1,112,000 |
| $ | 1,191,000 |
| $ | 1,177,000 |
Non-vested awards outstanding at December 31, 2017: |
|
| 660 |
|
| 4,484 |
|
| 8,667 |
|
| 13,000 |
Fair value of non-vested awards at |
| $ | 65,000 |
| $ | 439,000 |
| $ | 848,000 |
| $ | 1,272,000 |
(1)16,940 restricted stock units were vested as of December 2017. The remaining 660 restricted stock units will vest in October 2018.
There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. The restricted stock units are subject 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‑line amortized fair value based on the period end closing price under the liability method.
13
The following summarizes restricted stock unit activity under the Omnibus Plans during Q1 2018:
|
|
|
|
|
|
|
|
| Number |
| Weighted |
| |
|
| of |
| Average |
| |
|
| Shares |
| Fair Value |
| |
Nonvested restricted stocks units at September 2017 |
| 27,521 |
| $ | 92.25 |
|
Granted |
| 13,000 |
|
| 90.50 |
|
Vested |
| (13,710) |
|
| 90.97 |
|
Expired |
| — |
|
| — |
|
Nonvested restricted stocks units at December 2017 |
| 26,811 |
| $ | 97.85 |
|
All Equity-Based Awards (stock options and restricted stock units)
Net income before income taxes included compensation expense of approximately $0.3 million and $0.5 million during Q1 2018 and Q1 2017, respectively, related to the amortization of all equity-based compensation awards. Total unamortized compensation expense related to these awards at December 2017 and September 2017 was approximately $2.7 million and $1.5 million, respectively.
8. INCOME TAXES
The Company’s Q1 2018 results of operations included the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform”), which was signed into law on December 22, 2017. Among numerous provisions included in the new law was the reduction of the corporate federal income tax rate from 35% to 21%. In Q1 2018, the Company applied the newly enacted corporate federal income tax rate of 21% resulting in approximately a $0.9 million income tax benefit which is reflected in the Company’s Q1 2018 Statement Of Operations. This tax benefit was primarily the result of applying the new lower income tax rates to the Company’s net long term deferred tax liabilities recorded on its Consolidated Balance Sheet. The final impact of Tax Reform may differ due to and among other things, changes in interpretations, assumptions made by the Company, the issuance of additional guidance, and actions Company may take as a result of Tax Reform.
14
9. BUSINESS SEGMENTS
The Company has two2 reportable business segments: the wholesale distribution of consumer products which includes Team Sledd, and the retail sale of health and natural food products. The retail health food stores’aggregation of the Company’s business operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respectinto these business segments was based on a range of considerations including but not limited to the characteristics of each business, similarities in the nature and type of products sold, the type and class of customers for the health food products and thecustomer classes, methods used to sell the products.products and economic profiles. 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 | ||||
THREE MONTHS ENDED JUNE 2022 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | 364,771,496 | | $ | — | | $ | — | | $ | 364,771,496 |
Tobacco | | | 93,957,495 | | | — | | | — | | | 93,957,495 |
Confectionery | | | 32,541,090 | | | — | | | — | | | 32,541,090 |
Health food | | | — | | | 11,350,797 | | | — | | | 11,350,797 |
Foodservice & other | | | 47,963,274 | | | — | | | — | | | 47,963,274 |
Total external revenue | | | 539,233,355 | | | 11,350,797 | | | — | | | 550,584,152 |
Depreciation | | | 602,770 | | | 281,376 | | | — | | | 884,146 |
Amortization | | | 28,355 | | | — | | | — | | | 28,355 |
Operating income (loss) | | | 9,432,660 | | | 241,225 | | | (2,772,099) | | | 6,901,786 |
Interest expense | | | 320,103 | | | — | | | 335,708 | | | 655,811 |
Income (loss) from operations before taxes | | | 9,094,511 | | | 256,392 | | | (687,676) | | | 8,663,227 |
Equity method investment earnings, net of tax | | | — | | | — | | | 307,973 | | | 307,973 |
Total assets | | | 278,824,259 | | | 18,656,853 | | | 814,291 | | | 298,295,403 |
Capital expenditures | | | 12,074,922 | | | 985,835 | | | — | | | 13,060,757 |
| | | | | | | | | | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED JUNE 2021 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | 294,690,427 | | $ | — | | $ | — | | $ | 294,690,427 |
Tobacco | | | 68,525,147 | | | — | | | — | | | 68,525,147 |
Confectionery | | | 25,703,325 | | | — | | | — | | | 25,703,325 |
Health food | | | — | | | 11,745,769 | | | — | | | 11,745,769 |
Foodservice & other | | | 37,648,362 | | | — | | | — | | | 37,648,362 |
Total external revenue | | | 426,567,261 | | | 11,745,769 | | | — | | | 438,313,030 |
Depreciation | | | 445,831 | | | 295,349 | | | — | | | 741,180 |
Operating income (loss) | | | 6,349,783 | | | 621,421 | | | (2,671,795) | | | 4,299,409 |
Interest expense | | | 56,924 | | | — | | | 273,005 | | | 329,929 |
Income (loss) from operations before taxes | | | 6,304,328 | | | 624,447 | | | (2,915,858) | | | 4,012,917 |
Equity method investment earnings, net of tax | | | — | | | — | | | 754,293 | | | 754,293 |
Total assets | | | 159,766,283 | | | 17,140,050 | | | 11,874,597 | | | 188,780,930 |
Capital expenditures | | | 384,429 | | | 133,732 | | | — | | | 518,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wholesale |
| Retail |
|
|
|
|
|
|
| ||
|
| Segment |
| Segment |
| Other |
| Consolidated |
| ||||
THREE MONTHS ENDED DECEMBER 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cigarettes |
| $ | 223,265,578 |
| $ | — |
| $ | — |
| $ | 223,265,578 |
|
Tobacco |
|
| 41,641,678 |
|
| — |
|
| — |
|
| 41,641,678 |
|
Confectionery |
|
| 18,516,318 |
|
| — |
|
| — |
|
| 18,516,318 |
|
Health food |
|
| — |
|
| 6,289,897 |
|
| — |
|
| 6,289,897 |
|
Foodservice & other |
|
| 25,799,738 |
|
| — |
|
| — |
|
| 25,799,738 |
|
Total external revenue |
|
| 309,223,312 |
|
| 6,289,897 |
|
| — |
|
| 315,513,209 |
|
Depreciation |
|
| 310,485 |
|
| 188,020 |
|
| — |
|
| 498,505 |
|
Amortization |
|
| 32,500 |
|
| — |
|
| — |
|
| 32,500 |
|
Operating income (loss) |
|
| 3,188,983 |
|
| (472,981) |
|
| (1,408,853) |
|
| 1,307,149 |
|
Interest expense |
|
| 23,708 |
|
| — |
|
| 178,483 |
|
| 202,191 |
|
Income (loss) from operations before taxes |
|
| 3,167,932 |
|
| (470,505) |
|
| (1,587,336) |
|
| 1,110,091 |
|
Total assets |
|
| 97,487,611 |
|
| 14,302,363 |
|
| 124,460 |
|
| 111,914,434 |
|
Capital expenditures |
|
| 54,646 |
|
| 236,672 |
|
| — |
|
| 291,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED DECEMBER 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cigarettes |
| $ | 221,769,023 |
| $ | — |
| $ | — |
| $ | 221,769,023 |
|
Tobacco |
|
| 38,685,826 |
|
| — |
|
| — |
|
| 38,685,826 |
|
Confectionery |
|
| 18,600,447 |
|
| — |
|
| — |
|
| 18,600,447 |
|
Health food |
|
| — |
|
| 6,239,304 |
|
| — |
|
| 6,239,304 |
|
Foodservice & other |
|
| 24,809,629 |
|
| — |
|
| — |
|
| 24,809,629 |
|
Total external revenue |
|
| 303,864,925 |
|
| 6,239,304 |
|
| — |
|
| 310,104,229 |
|
Depreciation |
|
| 342,674 |
|
| 117,509 |
|
| — |
|
| 460,183 |
|
Amortization |
|
| 66,250 |
|
| — |
|
| — |
|
| 66,250 |
|
Operating income (loss) |
|
| 3,968,792 |
|
| (298,486) |
|
| (1,579,072) |
|
| 2,091,234 |
|
Interest expense |
|
| 26,393 |
|
| — |
|
| 191,150 |
|
| 217,543 |
|
Income (loss) from operations before taxes |
|
| 3,943,902 |
|
| (294,215) |
|
| (1,770,223) |
|
| 1,879,464 |
|
Total assets |
|
| 93,912,144 |
|
| 13,038,299 |
|
| 85,364 |
|
| 107,035,807 |
|
Capital expenditures |
|
| 166,775 |
|
| 234,003 |
|
| — |
|
| 400,778 |
|
14
| | | | | | | | | | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
NINE MONTHS ENDED JUNE 2022 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | 900,677,466 | | $ | — | | $ | — | | $ | 900,677,466 |
Tobacco | | | 229,765,009 | | | — | | | — | | | 229,765,009 |
Confectionery | | | 79,691,881 | | | — | | | — | | | 79,691,881 |
Health food | | | — | | | 35,695,298 | | | — | | | 35,695,298 |
Foodservice & other | | | 119,213,967 | | | — | | | — | | | 119,213,967 |
Total external revenue | | | 1,329,348,323 | | | 35,695,298 | | | — | | | 1,365,043,621 |
Depreciation | | | 1,589,102 | | | 897,511 | | | — | | | 2,486,613 |
Amortization | | | 28,355 | | | — | | | — | | | 28,355 |
Operating income (loss) | | | 23,174,638 | | | 1,448,878 | | | (10,020,703) | | | 14,602,813 |
Interest expense | | | 428,665 | | | — | | | 794,164 | | | 1,222,829 |
Income (loss) from operations before taxes | | | 22,767,606 | | | 1,469,705 | | | (8,339,007) | | | 15,898,304 |
Equity method investment earnings, net of tax | | | — | | | — | | | 1,670,133 | | | 1,670,133 |
Total assets | | | 278,824,259 | | | 18,656,853 | | | 814,291 | | | 298,295,403 |
Capital expenditures | | | 12,718,606 | | | 1,217,373 | | | — | | | 13,935,979 |
| | | | | | | | | | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
NINE MONTHS ENDED JUNE 2021 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | 826,838,177 | | $ | — | | $ | — | | $ | 826,838,177 |
Tobacco | | | 194,802,459 | | | — | | | — | | | 194,802,459 |
Confectionery | | | 65,769,418 | | | — | | | — | | | 65,769,418 |
Health food | | | — | | | 35,199,199 | | | — | | | 35,199,199 |
Foodservice & other | | | 98,962,041 | | | — | | | — | | | 98,962,041 |
Total external revenue | | | 1,186,372,095 | | | 35,199,199 | | | — | | | 1,221,571,294 |
Depreciation | | | 1,405,528 | | | 889,862 | | | — | | | 2,295,390 |
Operating income (loss) | | | 16,569,154 | | | 1,167,737 | | | (6,178,910) | | | 11,557,981 |
Interest expense | | | 144,569 | | | — | | | 872,333 | | | 1,016,902 |
Income (loss) from operations before taxes | | | 16,499,529 | | | 1,176,481 | | | (6,965,406) | | | 10,710,604 |
Equity method investment earnings, net of tax | | | — | | | — | | | 1,403,124 | | | 1,403,124 |
Total assets | | | 159,766,283 | | | 17,140,050 | | | 11,874,597 | | | 188,780,930 |
Capital expenditures | | | 977,860 | | | 277,098 | | | — | | | 1,254,958 |
10.
11. COMMON STOCK REPURCHASEREPURCHASES
The Company repurchased a total of 171 and 11,104did 0t repurchase any shares of its common stock during Q1 2018the three and Q1 2017, respectively,nine months ended June 2022. The Company did 0t repurchase any shares of its common stock during the three months ended June 2021, and repurchased 68 shares of its common stock during the nine months ended June 2021 for cash totaling approximatelyless than $0.1 million and $1.0 million, respectively.million. All repurchased shares arewere recorded in treasury stock at cost.
12. SUBSEQUENT EVENT
15On July 1, 2022, in connection with an amendment to the AMCON Facility during Q3 2022, the Company’s existing Real Estate Loan with BMO described in Note 7 was terminated and the $4.2 million remaining principal was paid in full. The Company’s real properties that were subject to the terminated agreement are now collateral under the AMCON Facility.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS UPDATE AND IMPACT OF COVID-19
Our businesses continue to be impacted by a number of macro-economic factors including the trailing impact of the COVID-19 pandemic and continuing challenges relating to global supply chains and product availability. These factors, combined with a highly inflationary operating environment have resulted in cost pressures across both of our businesssegments as product, labor, fuel, and interest costs have all increased.
Since the onset of the COVID-19 pandemic, both of our business segments have experienced an increase in demand and sales across a broad range of product categories. It remains unclear, however, if these demand trends will remain intact or if they will revert back to more historical levels over time, particularly as inflation begins to impact consumer discretionary spending.
Finally, we continue to closely monitor proposals from governmental and regulatory bodies including the United States Food and Drug Administration (“FDA”) which are evaluating the prohibition and/or limitations on the sale of certain cigarette (menthol flavored) tobacco and e-cigarette/vaping products. If such regulations were to be implemented, they would have a negative impact on the Company’s financial results.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, companyCompany performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect,“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-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.
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-looking statements:
● | risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest and commodity prices which impact our operating cost structure and 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 FDA, state or local governmental agencies, or other parties, including proposed forthcoming regulations around the manufacture and distribution of certain menthol and flavored tobacco products, |
● | risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, |
● | risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, |
● | 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, |
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● |
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● | 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 |
● |
| that our repositioning strategy for our retail business will not be successful, |
● |
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● | if online shopping formats such as |
● |
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● |
|
● |
| increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, |
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● |
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● |
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|
|
|
| increases in inventory carrying costs and customer credit |
● |
| changes in |
● |
| changing demand for the Company’s products, particularly cigarette, tobacco and |
● |
| risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, |
● |
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|
| 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 |
16
● |
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|
| 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, |
● |
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|
| other risks over which the Company has little or no control, and any other factors not identified |
17
Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“financial statements”) require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2017,2021, as filed with the Securities and Exchange Commission. ThereOther than the critical accounting estimate below, there have been no significant changes with respect to these estimates and related policies during our fiscal quarterthe nine months ended December 2017.June 2022.
FIRSTBUSINESS COMBINATIONS
Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. Determining fair value of identifiable assets acquired, particularly intangibles, and liabilities assumed also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.
THIRD FISCAL QUARTER 2017 (Q1 2018)2022 (Q3 2022)
The following discussion and analysis includes the Company’s results of operations for the three and nine months ended December 2017June 2022 and December 2016:June 2021:
Wholesale Segment
Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,0005,300 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,00020,600 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilledrefrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In November 2017,December 2021, Convenience Store News ranked us as the seventh (7th)sixth (6th) largest convenience store distributor in the United States based on annual sales.
17
Our wholesale businessWholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates sixseven distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and Tennessee.West Virginia. These distribution centers, combined with cross dockcross-dock facilities, include approximately 641,000885,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs,Kellogg’s, Kraft Heinz, and Mars.Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.
Retail Segment
Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of
18
customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.
Our Retail Segment operates sixteennineteen retail health food stores as Chamberlin’s Market & Café andNatural Foods (“Chamberlin’s”), Akin’s Natural Foods Market.(“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 32,00035,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of nine locations in Arkansas, Missouri, Nebraska, and Oklahoma.
Business Update - Wholesale Segment
A number of trends continue to impact the convenience store industry. First, the long term demand trend for cigarettes continues to decline as fewer individuals smoke, in part because of the impact of higher excise taxes. Most recently, one of the world’s largest tobacco product manufacturers (Philip Morris), announced a long term strategic plan to primarily focus on alternative smoking products (i.e. vaporized tobacco delivery systems) and to reduce its long term reliance on the sale of cigarettes. Secondly, the lines between convenience stores and other retail formats continues to blur as quick serve restaurants (“QSRs”), drugstores, dollar stores, and smaller footprint grocery stores all add competing products and services.
In response, the convenience store industry is migrating towards higher end offerings such as foodservice and is increasingly using digital technologies to help run and promote their businesses. Long term, we believe these trends benefit larger distributors such as our Company which have built robust foodservice and technology platforms. We also believe these trends will result in additional consolidation amongst industry distributors which may provide the Company with opportunities to expand its geographic footprint via strategic acquisitions.
Forward looking, we remain optimistic about the opportunities available to the Company. While retailers across all consumer sectors face a challenging operating environment, many of the trends impacting independent convenience stores operators will likely only heighten the demand for the services offered by the most progressive distributors.
18
Business Update - Retail Segment
The food retailing sector continues to undergo significant change, creating a highly competitive operating environment. Specific to the health and natural products sector, conventional grocery stores and mass merchants such as Krogers, Albertsons, and Costco have all aggressively moved into certain product lines traditionally dominated by health food retailers. Additionally, both regional and national health food stores such as Whole Foods Market (now owned by AMAZON), Trader Joe’s, Sprouts Farmers Market, Natural Grocers, Vitamin Shoppe, Lucky’s Market, and Fresh Thyme Farmers Market continue to expand.
In response to this operating environment, we previously disclosed as long term strategic plan to reposition our retail business. The core of this repositioning strategy is focused on four functional areas: 1) targeted closure of non-performing stores, 2) selectively remodeling existing stores and adding new stores which incorporate modern design themes and convenience shopping attributes, 3) the implementation of a comprehensive program to optimize our merchandising strategy, and 4) the use of a new multi-channel branding and marketing program.
An important long term element of our turnaround plan will be the deployment of a flexible store operating model for each location. As consumer shopping habits and preferences change, we are also exploring a range of programs and initiatives to enhance the level of engagement with customers.
In connection with the aforementioned strategic plan, during Q1 2018 we opened one new store in our Florida market. We also anticipate completing two additional remodeling projects in existing stores during fiscal 2018.
RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER 2017:JUNE:
| | | | | | | | | | | |
|
| 2022 |
| 2021 |
| Incr (Decr) |
| % Change | |||
CONSOLIDATED: | | | | | | | | | | | |
Sales (1) | | $ | 550,584,152 | | $ | 438,313,030 | | $ | 112,271,122 |
| 25.6 |
Cost of sales | |
| 516,907,540 | |
| 412,771,324 | |
| 104,136,216 |
| 25.2 |
Gross profit | |
| 33,676,612 | |
| 25,541,706 | |
| 8,134,906 |
| 31.8 |
Gross profit percentage | |
| 6.1 | % |
| 5.8 | % |
| | | |
| | | | | | | | | | | |
Operating expense | | $ | 26,774,826 | | $ | 21,242,297 | | $ | 5,532,529 |
| 26.0 |
Operating income | |
| 6,901,786 | |
| 4,299,409 | |
| 2,602,377 |
| 60.5 |
Interest expense | |
| 655,811 | |
| 329,929 | |
| 325,882 |
| 98.8 |
Income tax expense | |
| 2,397,000 | |
| 1,076,000 | |
| 1,321,000 |
| 122.8 |
Equity method investment earnings, | | | 307,973 | | | 754,293 | | | (446,320) | | (59.2) |
Net income available to common shareholders | |
| 5,982,831 | |
| 3,691,210 | |
| 2,291,621 |
| 62.1 |
| | | | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | | | |
Wholesale | | | | | | | | | | | |
Sales | | $ | 539,233,355 | | $ | 426,567,261 | | $ | 112,666,094 |
| 26.4 |
Gross profit | |
| 29,442,578 | |
| 21,157,711 | |
| 8,284,867 |
| 39.2 |
Gross profit percentage | |
| 5.5 | % |
| 5.0 | % |
| | | |
Retail | | | | | | | | | | | |
Sales | | $ | 11,350,797 | | $ | 11,745,769 | | $ | (394,972) |
| (3.4) |
Gross profit | |
| 4,234,034 | |
| 4,383,995 | |
| (149,961) |
| (3.4) |
Gross profit percentage | |
| 37.3 | % |
| 37.3 | % |
| | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended December |
| |||||||||
|
| 2017 |
| 2016 |
| Incr (Decr) |
| % Change |
| |||
CONSOLIDATED: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales(1) |
| $ | 315,513,209 |
| $ | 310,104,229 |
| $ | 5,408,980 |
| 1.7 |
|
Cost of sales |
|
| 297,321,447 |
|
| 291,788,243 |
|
| 5,533,204 |
| 1.9 |
|
Gross profit |
|
| 18,191,762 |
|
| 18,315,986 |
|
| (124,224) |
| (0.7) |
|
Gross profit percentage |
|
| 5.8 | % |
| 5.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense |
| $ | 16,884,613 |
| $ | 16,224,752 |
| $ | 659,861 |
| 4.1 |
|
Operating income |
|
| 1,307,149 |
|
| 2,091,234 |
|
| (784,085) |
| (37.5) |
|
Interest expense |
|
| 202,191 |
|
| 217,543 |
|
| (15,352) |
| (7.1) |
|
Income tax expense (benefit) |
|
| (370,000) |
|
| 833,000 |
|
| (1,203,000) |
| (144.4) |
|
Net income |
|
| 1,480,091 |
|
| 1,046,464 |
|
| 433,627 |
| 41.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BUSINESS SEGMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 309,223,312 |
| $ | 303,864,925 |
| $ | 5,358,387 |
| 1.8 |
|
Gross profit |
|
| 15,478,295 |
|
| 15,568,583 |
|
| (90,288) |
| (0.6) |
|
Gross profit percentage |
|
| 5.0 | % |
| 5.1 | % |
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 6,289,897 |
| $ | 6,239,304 |
| $ | 50,593 |
| 0.8 |
|
Gross profit |
|
| 2,713,467 |
|
| 2,747,403 |
|
| (33,936) |
| (1.2) |
|
Gross profit percentage |
|
| 43.1 | % |
| 44.0 | % |
|
|
|
|
|
(1) |
| Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled |
19
19
SALES
SALES
Changes in sales are driven by two primary components:
(i) | changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and |
(ii) | changes in the volume 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 – Q1 2018Q3 2022 vs. Q1 2017Q3 2021
Sales in our Wholesale Segment increased $5.4$112.7 million during Q1 2018Q3 2022 as compared to Q1 2017.Q3 2021. Significant items impacting sales during Q3 2022 included $9.2a $108.7 million increase in sales related to the acquisition of Team Sledd, LLC (“Team Sledd”), a $20.5 million increase in sales related to price increases implemented by cigarette manufacturers, and a $3.9$9.9 million increase in sales related to higher sales volumes in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive,confectionery, foodservice, and store suppliesother categories (“Other Products”). These increases were, partially offset by a $7.7$26.4 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment increased $0.1decreased $0.4 million in Q1 2018during Q3 2022 as compared to Q1 2017. Significant items impactingQ3 2021. This decrease was due to approximately $0.1 million related to lower sales volumes in our Q1 2018 Retail Segment sales included a 0.4existing stores and approximately $0.3 million increase in sales related to the openingclosure of a new store in our Florida market which was partially offset by lower sales in our existing stores, which have experienced increased competition.during the current year period.
GROSS PROFIT – Q1 2018Q3 2022 vs. Q1 2017Q3 2021
Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.
Gross profit in our Wholesale Segment decreased $0.1increased $8.3 million during Q1 2018Q3 2022 as compared to Q1 2017.Q3 2021. Significant items impacting gross marginsprofit during Q1 2018Q3 2022 included a $0.3$5.8 million decreaseincrease in gross profit primarily related to the volume and mixacquisition of cigarette cartons sold, partially offset byTeam Sledd, a $0.2$2.2 million increase in gross profit related to higher sales volumes and promotions in our Other Products category. Q1 2018category, a $0.6 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods, partially offset by a $0.3 million decrease in gross profit related to net impact of cigarette manufacturer promotions and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment decreased $0.1 million during Q3 2022 as compared to Q3 2021. This decrease was even with Q1 2017. Significant items impacting our Q1 2018 Retail Segment gross profit included a $0.2 million increase in gross profitprimarily related to the openingclosure of a store in our new Florida market store which was offset byduring the impact of lower sales and gross profit in our existing stores as previously discussed. current year period.
OPERATING EXPENSE – Q1 2018Q3 2022 vs. Q1 2017Q3 2021
Operating expense includes selling, general and administrative expenses and depreciation and amortization.depreciation. Selling, general, and administrative expenses includeprimarily consist of costs related to our sales, warehouse, delivery and administrative departments, for all segments. Specifically,including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses.orders. Our most significant expenses relate to employee costs associated with employees, facility and equipment leases, transportation, costs, fuel, costs, and insurance costs.insurance. Our Q1 2018Q3 2022 operating expenses increased $0.7$5.5 million as compared to Q1 2017.Q3 2021. Significant items impacting operating expenses during Q3 2022 included a $4.1 million increase in operating expenses related to the acquisition of Team Sledd, a $1.1 million increase in employee compensation and benefit costs largely due to a highly competitive labor market which has increased wage levels across all functional areas of the Company. In addition, the Company experienced a $0.6 million increase in fuel costs primarily related to higher diesel fuel prices, and a $0.2 million increase in operating expenses in our Retail Segment. These higher operating costs were partially offset by a $0.4 million decrease in health and other insurance costs, and a $0.1 million decrease in other Wholesale Segment operating expenses.
20
INCOME TAX EXPENSE – Q3 2022 vs. Q3 2021
The Company’s effective income tax rate increased during the three month period ended June 2022 as compared to the respective prior year period, primarily due to higher non-deductible compensation during the current year period, resulting in effective income tax rates in excess of statutory rates.
RESULTS OF OPERATIONS – NINE MONTHS ENDED JUNE:
| | | | | | | | | | | |
|
| 2022 |
| 2021 |
| Incr (Decr) |
| % Change | |||
CONSOLIDATED: | | | | | | | | | | | |
Sales (1) | | $ | 1,365,043,621 | | $ | 1,221,571,294 | | $ | 143,472,327 |
| 11.7 |
Cost of sales | | | 1,277,757,425 | | | 1,149,594,823 | | | 128,162,602 |
| 11.1 |
Gross profit | | | 87,286,196 | | | 71,976,471 | | | 15,309,725 |
| 21.3 |
Gross profit percentage | | | 6.4 | % | | 5.9 | % | | | | |
| | | | | | | | | | | |
Operating expense | | $ | 72,683,383 | | $ | 60,418,490 | | $ | 12,264,893 |
| 20.3 |
Operating income | | | 14,602,813 | | | 11,557,981 | | | 3,044,832 |
| 26.3 |
Interest expense | | | 1,222,829 | | | 1,016,902 | | | 205,927 |
| 20.3 |
Income tax expense | | | 4,987,000 | | | 2,916,000 | | | 2,071,000 |
| 71.0 |
Equity method investment earnings, | | | 1,670,133 | | | 1,403,124 | | | 267,009 |
| 19.0 |
Net income available to common shareholders | | | 11,990,068 | | | 9,197,728 | | | 2,792,340 |
| 30.4 |
| | | | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | | | |
Wholesale | | | | | | | | | | | |
Sales | | $ | 1,329,348,323 | | $ | 1,186,372,095 | | $ | 142,976,228 |
| 12.1 |
Gross profit | | | 73,761,372 | | | 58,804,594 | | | 14,956,778 |
| 25.4 |
Gross profit percentage | | | 5.5 | % | | 5.0 | % | | | | |
Retail | | | | | | | | | | | |
Sales | | $ | 35,695,298 | | $ | 35,199,199 | | $ | 496,099 |
| 1.4 |
Gross profit | |
| 13,524,824 | |
| 13,171,877 | |
| 352,947 |
| 2.7 |
Gross profit percentage | |
| 37.9 | % |
| 37.4 | % | | | | |
(1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $24.2 million for the nine months ended June 2022 and $22.4 million for the nine months ended June 2021. |
SALES – Nine months ended June 2022
Sales in our Wholesale Segment increased $143.0 million for the nine months ended June 2022 as compared to the same prior year period. Significant items impacting sales during the period included a $108.7 million increase in sales related to the acquisition of Team Sledd, a $56.1 million increase in sales related to price increases implemented by cigarette manufacturers and a $36.6 million increase in sales related to higher sales volumes in our Other Products category, partially offset by a $58.4 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment increased $0.5 million for the nine months ended June 2022 as compared to the same prior year period. Of this increase, approximately $1.5 million related to higher sales volumes in our existing stores, partially offset by a $0.6 million decrease in sales volume related to the closure of a non-performing store in our Florida market during the comparative prior year period, and a $0.3 million decrease in sales volume related to the closure of a store in our Florida market during the current year period. Sales in both of our business segments continue to benefit from high consumer demand across a range of product categories.
GROSS PROFIT – Nine months ended June 2022
Gross profit in our Wholesale Segment increased $15.0 million for the nine months ended June 2022 as compared to the same prior year period. Significant items impacting gross profit during the period included a $5.8 million increase in gross profit related to the acquisition of Team Sledd, a $8.6 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, a $0.4 million increase in gross profit due to the timing and related benefits of
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cigarette manufacturer price increases between the comparative periods, and a $0.2 million increase in gross profit related to the net impact of cigarette manufacturer promotions and gross margin enhancement, and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment increased $0.4 million for the nine months ended June 2022 as compared to the same prior year period. This change was due to a $0.7 million increase in gross margin in our existing stores which have benefited from higher sales volume and improved product mix, partially offset by a $0.2 million decrease related to the closure of a non-performing store in our Florida market during the comparative prior year period, and a $0.1 million decrease related to the closure of a store in our Florida market during the current year period.
OPERATING EXPENSE – Nine months ended June 2022
Operating expenses increased $12.3 million during the nine months ended June 2022 as compared to the same prior year period. Significant items impacting operating expenses during the current period included a $0.4$4.1 million increase in operating expenses related the acquisition of Team Sledd and a $5.6 million increase in employee benefitscompensation and compensationbenefit costs including health insurance costs,largely due to a $0.2highly competitive labor market which has increased wage levels across all functional areas of the Company. In addition, the Company experienced a $1.5 million increase in fuel costs primarily related to higher diesel fuel prices, a $0.5 million increase in health and other insurance costs, a $0.5 million increase in other Wholesale Segment operating expenses, and a $0.1 million increase in operating costs in our Retail Segment primarily related to the opening of our new Florida market store.operating expenses.
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INCOME TAX EXPENSE – Q1 2018 vs. Q1 2017Nine months ended June 2022
The Company’s Q1 2018 results of operations included the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform”), which was signed into law on December 22, 2017. Among numerous provisions included in the new law was the reduction of the corporate federaleffective income tax rate from 35%increased during the nine month period ended June 2022 as compared to 21%. In Q1 2018, the Company appliedrespective prior year period, primarily due to higher non-deductible compensation during the newly enacted corporate federal income tax rate of 21%current year period, resulting in approximately a $0.9 million income tax benefit which is reflected in the Company’s Q1 2018 Statement Of Operations. This tax benefit was primarily the result of applying the new lowereffective income tax rates to the Company’s net long term deferred tax liabilities recorded on its Consolidated Balance Sheet. The final impactin excess of Tax Reform may differ due to and among other things, changes in interpretations, assumptions made by the Company, the issuance of additional guidance, and actions Company may take as a result of Tax Reform.statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
Overview
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 the warm weather months which is 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
The Company primarily finances its operations through two credit facility agreements (the “AMCON Facility” and the “Team Sledd Facility”, and together “the Facilities”) and long-term debt agreements with banks. In Q3 2022, the Company amended the AMCON Facility, increasing its aggregate borrowing capacity from $110.0 million to $150.0 million, extending the maturity date from March 2025 to June 2027, and adding certain real estate properties as eligible borrowing collateral under the credit agreement.
At June 2022, the Facilities have a total combined borrowing capacity of $250.0 million, which includes provisions for up to $30.0 million in credit agreement (the “Facility”) with Bankadvances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of America acting ascertain real estate collateral. The Team Sledd Facility matures in March 2027 and the senior agentAMCON Facility matures in June 2027, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and with BMO Harris Bank participating in the loan syndication.case of the AMCON Facility, certain of the Company’s real estate. The Facility includedFacilities each feature an unused commitment fee and financial covenants including fixed charge coverage ratios. Borrowings under the following significant termsFacilities bear interest at December 2017:
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either the bank’s prime rate, the Secured Overnight Financing Rate (“SOFR”) or the London Interbank Offered Rate (“LIBOR”), plus any applicable spreads.
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The amount available for use onfrom the FacilityFacilities 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, as well as the value of certain real estate collateral. Based on ourthe collateral and loan limits as defined in the Facility agreement,agreements, the credit limit of the Facilitycombined Facilities at December 2017June 2022 was $64.2$194.4 million, of which $12.6$101.2 million was outstanding, leaving $51.6$93.2 million available.
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At December 2017, the revolving portionTable of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. Contents
The average interest rate of the Facilities was 3.49%3.23% at December 2017.June 2022. For the threenine months ended December 2017, ourJune 2022, the peak borrowings under the Facility were $35.6Facilities was $123.5 million, and ourthe average borrowings and average availability under the Facility were $17.3Facilities was $51.2 million and $50.9$60.7 million, respectively.
Cross Default and Co-Terminus Provisions
The Company’s ownedCompany owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan (the “Real Estate Loan”) with BMO Harris Bank (the “Real Estate Loan”N.A. (“BMO”) which is also a participant lender on the Company’s revolving line of credit.AMCON Facility. The Real Estate Loan contains cross default provisions which would cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, isAMCON Facility, were in default. There were no such cross defaults at December 2017.June 2022. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms. The Real Estate Loan was subsequently terminated and repaid in connection with the Company entering into the amendment to the AMCON Facility during Q3 2022.
DividendsTeam Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions. There were no such cross defaults at June 2022.
The Company was in compliance with all of its financial covenants under the Facilities at June 2022.
Dividend Payments
The Company paid cash dividends on its common stock totaling $0.1 million in each ofand $3.3 million for the three and nine month periods ended December 2017June 30, 2022, respectively, and December 2016.
Contractual Obligations
There have been no significant changes to the Company’s contractual obligations as set forth in the Company’s annual report on Form 10-K$0.1 million and $3.2 million for the fiscal periodthree and nine month periods ended SeptemberJune 30, 2017.2021, respectively.
Other
The Company has issued a letter of credit for $0.5$0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our 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.
TheWhile the Company believes its liquidity position going forward will be adequate to sustain operations. However,operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streamstreams as well as its ability to collect on customer accounts receivable or secure bank credit.
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Item 4. 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(e)13a-15(b) and 15d-15(e)15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2017June 30, 2022 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-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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
ThereOther than controls implemented to address the consolidation of our majority interest in Team Sledd, LLC, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2017,June 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
None.
There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2017.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
The following table summarizes the purchases made by or on behalf of our Company or certain affiliated purchasers of shares of our common stock during the quarterly period ended December 2017:
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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* |
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October 1 - 31, 2017 |
| — |
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| — |
| — |
| 49,068 |
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November 1 - 30, 2017 |
| 171 |
| $ | 88.70 |
| 171 |
| 48,897 |
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December 1 - 31, 2017 |
| — |
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| — |
| — |
| 50,000 |
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Total |
| 171 |
| $ | 88.70 |
| 171 |
| 50,000 |
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*In December 2017, the Company’s Board of Directors authorized purchases of up to 50,000 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.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
During Q1 2018, the Company renewed a labor agreement with approximately thirty wholesale delivery employees in its Quincy, Illinois distribution center who are represented by the International Association of Machinists and Aerospace Workers (“IAMAW”) which was due to expire at the end of December 2017. The new labor agreement was renewed on substantially the same terms as the expiring agreement and is effective through December 2020.Not applicable.
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(a) Exhibits
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| 10.1 | |
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| 10.2 | |
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| 10.3 | |
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| 10.4 | |
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| 10.5 | |
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| 31.1 | |
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| 32.1 | |
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| 32.2 | |
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| 101 | Interactive Data File (filed herewith electronically) |
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| 104 | Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101 |
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SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMCON DISTRIBUTING COMPANY |
| (registrant) |
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Date: | /s/ Christopher H. Atayan |
| Christopher H. Atayan, |
| Chief Executive Officer and Chairman |
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Date: | /s/ |
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| Vice President, Chief Financial Officer and Secretary |
| (Principal Financial and Accounting Officer) |
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