UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended |
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
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files)
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 ◻ | |||||
Smaller reporting 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
Form 10-Q
2nd Quarter
INDEX
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 2022 and September 30, 2021
March | September | |||||
| 2022 |
| 2021 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash | $ | | $ | | ||
Accounts receivable, less allowance for doubtful accounts of $ |
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Inventories, net |
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Income taxes receivable | | — | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net | | | ||||
Note receivable, net of current portion | | | ||||
Goodwill |
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Other intangible assets, net |
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Equity method investment | | | ||||
Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses |
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Accrued wages, salaries and bonuses |
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Income taxes payable |
| — |
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Current operating lease liabilities | | | ||||
Current maturities of long-term debt |
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Total current liabilities |
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Credit facility |
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Deferred income tax liability, net |
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Long-term operating lease liabilities | | | ||||
Long-term debt, less current maturities |
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Other long-term liabilities |
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Shareholders’ equity: | ||||||
Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock at cost |
| ( |
| ( | ||
Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three and six months ended March 31, 2022 and 2021
For the three months ended March | For the six months ended March | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Sales (including excise taxes of $ | $ | | $ | | $ | | $ | | ||||
Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Depreciation |
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Operating income |
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Other expense (income): | ||||||||||||
Interest expense |
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Other (income), net |
| ( |
| ( |
| ( |
| ( | ||||
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Income from operations before income taxes |
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Income tax expense |
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Equity method investment earnings, net of tax |
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Net income available to common shareholders | $ | | $ | | $ | | $ | | ||||
Basic earnings per share available to common shareholders | $ | | $ | | $ | | $ | | ||||
Diluted earnings per share available to common shareholders | $ | | $ | | $ | | $ | | ||||
Basic weighted average shares outstanding |
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Diluted weighted average shares outstanding |
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Dividends paid per common share | $ | | $ | | $ | | $ | | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Shareholders’ Equity
for the three and six months ended March 31, 2022 and 2021
Additional | |||||||||||||||||||
Common Stock | Treasury Stock | Paid-in | Retained | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | ||||||
THREE MONTHS ENDED MARCH 2021 | |||||||||||||||||||
Balance, January 1, 2021 |
| $ | |
| ( | $ | ( | $ | | $ | | $ | |||||||
Dividends on common stock, $ |
| — | — | — | — | — | ( | ( | |||||||||||
Compensation expense and settlement of equity-based awards |
| — | — | — | — | ( | — | ( | |||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | ||||||||||||
Net income |
| — |
| — | — | — | — | | | ||||||||||
Balance, March 31, 2021 |
| $ | |
| ( | $ | ( | $ | | $ | | $ | |||||||
THREE MONTHS ENDED MARCH 2022 | |||||||||||||||||||
Balance, January 1, 2022 |
| $ | |
| ( | $ | ( | $ | | $ | | $ | |||||||
Dividends on common stock, $ |
| — | — | — | — | — | ( | ( | |||||||||||
Compensation expense and settlement of equity-based awards |
| | | — | — | ( | — | ( | |||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | ||||||||||||
Net income |
| — |
| — | — | — | — | | | ||||||||||
Balance, March 31, 2022 |
| $ | |
| ( | $ | ( | $ | | $ | | $ | |||||||
Additional | |||||||||||||||||||
Common Stock | Treasury Stock | Paid-in | Retained | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | ||||||
SIX MONTHS ENDED MARCH 2021 | |||||||||||||||||||
Balance, October 1, 2020 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
Dividends on common stock, $ | — | — | — | — | — | ( | ( | ||||||||||||
Compensation expense and settlement of equity-based awards | | | — | — | | — | | ||||||||||||
Repurchase of common stock | — | — | ( | ( | — | — | ( | ||||||||||||
Net income | — |
| — | — | — | — | | | |||||||||||
Balance, March 31, 2021 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
SIX MONTHS ENDED MARCH 2022 | |||||||||||||||||||
Balance, October 1, 2021 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
Dividends on common stock, $ | — | — | — | — | — | ( | ( | ||||||||||||
Compensation expense and settlement of equity-based awards | | | — | — | | — | | ||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | ||||||||||||
Net income | — |
| — | — | — | — | | | |||||||||||
Balance, March 31, 2022 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the six months ended March 31, 2022 and 2021
March | March | |||||
| 2022 |
| 2021 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income from operations to net cash flows from (used in) | ||||||
Depreciation | | | ||||
Equity method investment earnings, net of tax | ( | ( | ||||
(Gain) loss on sales of property and equipment | ( | ( | ||||
Equity-based compensation | | | ||||
Deferred income taxes | | | ||||
Provision for losses on doubtful accounts | ( | | ||||
Inventory allowance | | | ||||
Changes in assets and liabilities: | ||||||
Accounts receivable | | | ||||
Inventories | | | ||||
Prepaid and other current assets | ( | ( | ||||
Equity method investment distributions | | — | ||||
Other assets | ( | | ||||
Accounts payable | | | ||||
Accrued expenses and accrued wages, salaries and bonuses | ( | ( | ||||
Other long-term liabilities | ( | ( | ||||
Income taxes payable and receivable | ( | ( | ||||
Net cash flows from (used in) operating activities | | | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchase of property and equipment | ( | ( | ||||
Proceeds from sales of property and equipment | | | ||||
Principal payment received on note receivable | | — | ||||
Net cash flows from (used in) investing activities | ( | ( | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Borrowings under revolving credit facility | | | ||||
Repayments under revolving credit facility | ( | ( | ||||
Proceeds from borrowings on long-term debt | — | | ||||
Principal payments on long-term debt | ( | ( | ||||
Proceeds from exercise of stock options | | — | ||||
Repurchase of common stock | — | ( | ||||
Dividends on common stock | ( | ( | ||||
Settlement and withholdings of equity-based awards | ( | ( | ||||
Net cash flows from (used in) financing activities | ( | ( | ||||
Net change in cash | | ( | ||||
Cash, beginning of period | | | ||||
Cash, end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid during the period for interest | $ | | $ | | ||
Cash paid during the period for income taxes |
| |
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Supplemental disclosure of non-cash information: | ||||||
Equipment acquisitions classified in accounts payable | $ | | $ | | ||
Issuance of common stock in connection with the vesting and exercise of |
| |
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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
| ● | 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 |
| ● | 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
Our Wholesale 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, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates
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.
7
Our Retail Segment operates
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. 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, 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 March 31, 2022 and March 31, 2021 have been referred to throughout this quarterly report as Q2 2022 and Q2 2021, respectively. The fiscal balance sheet dates as of March 31, 2022 and September 30, 2021 have been referred to as March 2022 and September 2021, respectively.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
2. INVENTORIES
Inventories in our wholesale segment consisted of finished goods and are stated at the lower of cost or net realizable value, determined on a FIFO basis. Inventories in our retail segment consisted of finished goods and are stated at the lower of cost or market using the retail 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 $
8
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at March 2022 and September 2021 was as follows:
| March |
| September | |||
2022 | 2021 | |||||
Wholesale Segment | $ | | $ | | ||
Other intangible assets at March 2022 and September 2021 consisted of the following:
| March |
| September | |||
2022 | 2021 | |||||
Trademarks and tradenames (Retail Segment) | $ | | $ | | ||
Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled $
4. EQUITY METHOD INVESTMENT
The Company and Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, formed and jointly own and operate Team Sledd, LLC (“Team Sledd”), a limited liability company which owns and operates Sledd’s wholesale distribution business. In conjunction with the formation of Team Sledd, Sledd contributed substantially all of its assets and stated liabilities to Team Sledd, while the Company contributed $
At March 2022, AMCON owned approximately
Team Sledd’s summarized unaudited financial data for the three and six months ended March 2022 and March 2021 was as follows:
| For the three months ended March 2022 |
| For the three months ended March 2021 |
| For the six months ended March 2022 |
| For the six months ended March 2021 | |||||
Sales | $ | | $ | | $ | | $ | | ||||
Gross profit | | | | | ||||||||
Net income before income taxes | | | | | ||||||||
Net income attributable to AMCON, net of tax | | | | | ||||||||
5. DIVIDENDS
The Company paid cash dividends on its common stock totaling $
9
6. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing net income by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.
For the three months ended March | ||||||||||||
2022 | 2021 | |||||||||||
| Basic |
| Diluted |
| Basic |
| Diluted | |||||
Weighted average number of common shares outstanding | | | | | ||||||||
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | — | | — | | ||||||||
Weighted average number of shares outstanding | | | | | ||||||||
Net income available to common shareholders | $ | | $ | | $ | | $ | |||||
Net earnings per share available to common shareholders | $ | | $ | | $ | | $ | | ||||
| (1) | Diluted earnings per share calculation includes all equity-based awards deemed to be dilutive. |
For the six months ended March | ||||||||||||
2022 | 2021 | |||||||||||
| Basic |
| Diluted |
| Basic |
| Diluted | |||||
Weighted average number of common shares outstanding | | | | | ||||||||
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | — | | — | | ||||||||
Weighted average number of shares outstanding | | | | | ||||||||
Net income available to common shareholders | $ | | $ | | $ | | $ | | ||||
Net earnings per share available to common shareholders | $ | | $ | | $ | | $ | | ||||
7. DEBT
The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in a loan syndication.
CREDIT FACILITY
The Facility included the following significant terms at March 2022:
| ● | A March 2025 maturity date without a penalty for prepayment. |
| ● | $ |
| ● | Loan accordion allowing the Company to increase the size of the Facility by $ |
| ● | A provision providing an additional $ |
10
| ● | Evergreen renewal clause automatically renewing the Facility for |
| ● | The Facility bears interest at either the bank’s |
| ● | Lending limits subject to accounts receivable and inventory limitations. |
| ● | An unused commitment fee equal to one-quarter of one percent per annum on the difference between the maximum loan limit and average monthly borrowings. |
| ● | Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable. |
| ● | A financial covenant requiring a fixed charge coverage ratio of at least |
| ● | Provides that the Company may use up to $ |
The amount available for use from the Facility at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at March 2022 was $
At March 2022, the revolving portion of the Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was
Cross Default and Co-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO (the “Real Estate Loan”) which is also a participant lender on the 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 Facility, were in default. There were
Other
The Company has issued a letter of credit for $
8. INCOME TAXES
The Company’s effective income tax rate increased during the three and six month periods ended March 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.
11
9. EQUITY-BASED INCENTIVE AWARDS
Omnibus Plans
The Company has
Stock Options
The following is a summary of stock option activity during the six months ended March 2022:
|
| Weighted | |||
Number | Average | ||||
of | Exercise | ||||
Shares | Price | ||||
Outstanding at September 2021 |
| | $ | | |
Granted |
| — | — | ||
Exercised |
| ( |
| | |
Forfeited/Expired |
| — |
| — | |
Outstanding at March 2022 |
| — | $ | — | |
10. BUSINESS SEGMENTS
The Company has
Wholesale | Retail | |||||||||||
| Segment |
| Segment |
| Other |
| Consolidated | |||||
THREE MONTHS ENDED MARCH 2022 | ||||||||||||
External revenues: | ||||||||||||
Cigarettes | $ | | $ | — | $ | — | $ | | ||||
Tobacco | | — | — | | ||||||||
Confectionery | | — | — | | ||||||||
Health food | — | | — | | ||||||||
Foodservice & other | | — | — | | ||||||||
Total external revenue | | | — | | ||||||||
Depreciation | | | — | | ||||||||
Operating income (loss) | | | ( | | ||||||||
Interest expense | | — | | |||||||||