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Amcon Distributing Co (DIT) SEC Filing 10-Q Quarterly Report for the period ending Thursday, March 31, 2022

Amcon Distributing Co

CIK: 928465 Ticker: DIT
Exhibit 99.1

AMCON Distributing Company Reports Results for the Quarter Ended March 31, 2022

OMAHA, Neb.--(BUSINESS WIRE)--April 18, 2022--AMCON Distributing Company (“AMCON” or “Company”) (NYSE American: DIT), an Omaha, Nebraska based consumer products company, is pleased to announce fully diluted earnings per share of $5.19 on net income available to common shareholders of $3.0 million for its second fiscal quarter ended March 31, 2022.

“We are pleased with our results for the second fiscal quarter. Our management team has remained highly focused on delivering a consistently superior level of customer service in a highly challenging operating environment,” said Christopher H. Atayan, AMCON’s Chairman and Chief Executive Officer. Mr. Atayan further noted, “AMCON continues to seek out acquisition opportunities for distributors who want to align with our growing platform and customer centric management philosophy.”

The wholesale distribution segment reported revenues of $379.5 million and operating income of $6.3 million for the second quarter of fiscal 2022. The retail health food segment reported revenues of $12.4 million and operating income of $0.7 million for the second quarter of fiscal 2022.

“Ongoing supply chain disruptions with the consumer-packaged goods companies we partner with have impacted product availability across all markets, including the convenience distribution industry in which our company operates. The United States continues to experience an acute workforce shortage which we work diligently to address in our daily operations. Our Annual Spring Trade Show was well received and provides momentum as we enter our summer season. AMCON’s customer base continues to grow geographically and we are deploying the capital and human resources necessary to support this growth in a collaborative fashion,” said Andrew C. Plummer, AMCON’s President and Chief Operating Officer. Mr. Plummer further noted, “We are actively searching for facilities in, and adjacent to, the geographic markets we serve.”

Charles J. Schmaderer, AMCON’s Chief Financial Officer said, “We are pleased with the ongoing progress of our strategic investment in Team Sledd, LLC. As a core operating principle we continue to maintain consistently high levels of liquidity to support the Company’s various strategic initiatives and long-term growth plan. We ended the quarter with $82.0 million of shareholders’ equity.”

AMCON’s Healthy Edge Retail Group plays an important role in the health and wellness of the communities it serves. Our long-term relationship with the organic/natural products vendor community has enabled our stores to meet the demands of our customers for total wellness solutions. Our strategy is to offer a broad selection of the highest quality organic and natural merchandise available supported by a high degree of customer service not found at other big box retailers within our industry.


The following information was filed by Amcon Distributing Co (DIT) on Monday, April 18, 2022 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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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 March 31, 2022

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

amcon_4c_logo.eps

(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, Omaha NE

68122

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (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 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)  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 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 584,789 shares of its $.01 par value common stock outstanding as of April 15, 2022.

Form 10-Q

2nd Quarter

INDEX

March 31, 2022

PAGE

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed consolidated balance sheets at March 31, 2022 (unaudited) and September 30, 2021

3

Condensed consolidated unaudited statements of operations for the three and six months ended March 31, 2022 and 2021

4

Condensed consolidated unaudited statements of shareholders’ equity for the three and six months ended March 31, 2022 and 2021

5

Condensed consolidated unaudited statements of cash flows for the six months ended March 31, 2022 and 2021

6

Notes to condensed consolidated unaudited financial statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3. Quantitative and Qualitative Disclosures About Market Risk

23

Item 4. Controls and Procedures

23

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

25

Item 1A. Risk Factors

25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3. Defaults Upon Senior Securities

25

Item 4. Mine Safety Disclosures

25

Item 5. Other Information

25

Item 6. Exhibits

26

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

$

527,555

$

519,591

Accounts receivable, less allowance for doubtful accounts of $0.9 million at March 2022 and September 2021

 

33,556,601

 

35,844,163

Inventories, net

 

90,248,795

 

95,212,085

Income taxes receivable

670,234

Prepaid expenses and other current assets

 

5,476,104

 

4,999,125

Total current assets

 

130,479,289

 

136,574,964

Property and equipment, net

 

15,282,499

 

16,012,524

Operating lease right-of-use assets, net

16,280,827

17,846,529

Note receivable, net of current portion

3,325,000

3,325,000

Goodwill

 

4,436,950

 

4,436,950

Other intangible assets, net

 

500,000

 

500,000

Equity method investment

10,451,386

9,380,343

Other assets

 

414,120

 

334,819

Total assets

$

181,170,071

$

188,411,129

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

25,601,210

$

24,235,042

Accrued expenses

 

9,747,031

 

11,468,955

Accrued wages, salaries and bonuses

 

4,011,309

 

4,489,852

Income taxes payable

 

 

867,160

Current operating lease liabilities

5,458,358

5,513,390

Current maturities of long-term debt

 

572,100

 

561,202

Total current liabilities

 

45,390,008

 

47,135,601

Credit facility

 

35,191,547

 

43,650,865

Deferred income tax liability, net

 

2,630,427

 

1,531,228

Long-term operating lease liabilities

11,123,103

12,669,157

Long-term debt, less current maturities

 

4,765,465

 

5,054,265

Other long-term liabilities

 

36,069

 

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 March 2022 and 551,369 shares outstanding at September 2021

 

9,168

 

8,834

Additional paid-in capital

 

26,555,046

 

24,918,781

Retained earnings

 

86,336,525

 

83,552,298

Treasury stock at cost

 

(30,867,287)

 

(30,867,287)

Total shareholders’ equity

 

82,033,452

 

77,612,626

Total liabilities and shareholders’ equity

$

181,170,071

$

188,411,129

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 $89.1 million and $92.0 million, and $186.2 million and $192.5 million, respectively)

$

391,888,192

$

378,513,490

$

814,459,469

$

783,258,263

Cost of sales

 

365,211,270

 

355,540,704

 

760,849,885

 

736,823,498

Gross profit

 

26,676,922

 

22,972,786

 

53,609,584

 

46,434,765

Selling, general and administrative expenses

 

21,915,351

 

19,022,167

 

44,306,090

 

37,621,983

Depreciation

 

818,222

 

779,925

 

1,602,467

 

1,554,210

 

22,733,573

 

19,802,092

 

45,908,557

 

39,176,193

Operating income

 

3,943,349

 

3,170,694

 

7,701,027

 

7,258,572

Other expense (income):

Interest expense

 

244,920

 

310,543

 

567,018

 

686,973

Other (income), net

 

(60,958)

 

(84,265)

 

(101,068)

 

(126,088)

 

183,962

 

226,278

 

465,950

 

560,885

Income from operations before income taxes

 

3,759,387

 

2,944,416

 

7,235,077

 

6,697,687

Income tax expense

 

1,345,000

 

829,000

 

2,590,000

 

1,840,000

Equity method investment earnings, net of tax

 

591,795

 

313,492

 

1,362,161

 

648,831

Net income available to common shareholders

$

3,006,182

$

2,428,908

$

6,007,238

$

5,506,518

Basic earnings per share available to common shareholders

$

5.29

$

4.41

$

10.62

$

10.02

Diluted earnings per share available to common shareholders

$

5.19

$

4.33

$

10.33

$

9.87

Basic weighted average shares outstanding

 

567,889

 

551,369

 

565,694

 

549,729

Diluted weighted average shares outstanding

 

578,751

 

560,941

 

581,328

 

557,741

 

Dividends paid per common share

$

0.18

$

5.18

$

5.36

$

5.36

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

 

883,589

$

8,834

 

(332,220)

$

(30,867,287)

$

25,007,239

$

71,401,400

$

65,550,186

Dividends on common stock, $0.18 per share

 

(105,586)

(105,586)

Compensation expense and settlement of equity-based awards

 

(89,474)

(89,474)

Repurchase of common stock

Net income

 

 

2,428,908

2,428,908

Balance, March 31, 2021

 

883,589

$

8,834

 

(332,220)

$

(30,867,287)

$

24,917,765

$

73,724,722

$

67,784,034

THREE MONTHS ENDED MARCH 2022

Balance, January 1, 2022

 

915,009

$

9,148

 

(332,220)

$

(30,867,287)

$

26,999,735

$

83,438,578

$

79,580,174

Dividends on common stock, $0.18 per share

 

(108,235)

(108,235)

Compensation expense and settlement of equity-based awards

 

2,000

20

(444,689)

(444,669)

Repurchase of common stock

Net income

 

 

3,006,182

3,006,182

Balance, March 31, 2022

 

917,009

$

9,168

 

(332,220)

$

(30,867,287)

$

26,555,046

$

86,336,525

$

82,033,452

Additional

Common Stock

Treasury Stock

Paid-in

Retained

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Total

SIX MONTHS ENDED MARCH 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, $5.36 per share

(3,144,130)

(3,144,130)

Compensation expense and settlement of equity-based awards

13,722

137

635,707

635,844

Repurchase of common stock

(68)

(5,738)

(5,738)

Net income

 

5,506,518

5,506,518

Balance, March 31, 2021

883,589

$

8,834

(332,220)

$

(30,867,287)

$

24,917,765

$

73,724,722

$

67,784,034

SIX MONTHS ENDED MARCH 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, $5.36 per share

(3,223,011)

(3,223,011)

Compensation expense and settlement of equity-based awards

33,420

334

1,636,265

1,636,599

Repurchase of common stock

Net income

 

6,007,238

6,007,238

Balance, March 31, 2022

917,009

$

9,168

(332,220)

$

(30,867,287)

$

26,555,046

$

86,336,525

$

82,033,452

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

$

6,007,238

$

5,506,518

Adjustments to reconcile net income from operations to net cash flows from (used in)
operating activities:

Depreciation

1,602,467

1,554,210

Equity method investment earnings, net of tax

(1,362,161)

(648,831)

(Gain) loss on sales of property and equipment

(76,220)

(1,374)

Equity-based compensation

1,208,655

833,624

Deferred income taxes

1,099,199

48,248

Provision for losses on doubtful accounts

(3,000)

5,000

Inventory allowance

155,534

110,769

Changes in assets and liabilities:

Accounts receivable

2,290,562

1,390,027

Inventories

4,807,756

17,772,604

Prepaid and other current assets

(651,979)

(4,096,452)

Equity method investment distributions

744,118

Other assets

(79,301)

23,327

Accounts payable

1,465,370

429,389

Accrued expenses and accrued wages, salaries and bonuses

(700,748)

(610,589)

Other long-term liabilities

(721,318)

(169,854)

Income taxes payable and receivable

(1,990,394)

(867,112)

Net cash flows from (used in) operating activities

13,795,778

21,279,504

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

(974,424)

(720,567)

Proceeds from sales of property and equipment

79,000

10,938

Principal payment received on note receivable

175,000

Net cash flows from (used in) investing activities

(720,424)

(709,629)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving credit facility

819,125,190

771,182,879

Repayments under revolving credit facility

(827,584,508)

(791,045,384)

Proceeds from borrowings on long-term debt

3,000,000

Principal payments on long-term debt

(277,902)

(237,566)

Proceeds from exercise of stock options

173,590

Repurchase of common stock

(5,738)

Dividends on common stock

(3,223,011)

(3,144,130)

Settlement and withholdings of equity-based awards

(1,280,749)

(365,022)

Net cash flows from (used in) financing activities

(13,067,390)

(20,614,961)

Net change in cash

7,964

(45,086)

Cash, beginning of period

519,591

661,195

Cash, end of period

$

527,555

$

616,109

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

582,394

$

690,134

Cash paid during the period for income taxes

 

3,481,196

 

2,658,865

Supplemental disclosure of non-cash information:

Equipment acquisitions classified in accounts payable

$

29,047

$

16,230

Issuance of common stock in connection with the vesting and exercise of
equity-based awards

 

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 two 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 26 states and primarily operate in the Central, Rocky Mountain, and Mid-South regions of the United States.

Our retail health food segment (“Retail Segment”) operates twenty health food retail stores located throughout the Midwest and Florida.

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,100 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,700 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In December 2021, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

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 six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately 685,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft, and 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.

7

Our Retail Segment operates twenty retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 35,000 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, has a total of seven locations in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of six locations in Arkansas, Missouri, and Oklahoma. EOM has a total of seven locations in Florida.

    

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 $0.9 million at March 2022 and $0.8 million at September 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

3. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill at March 2022 and September 2021 was as follows:

    

March

    

September

2022

2021

Wholesale Segment

$

4,436,950

$

4,436,950

Other intangible assets at March 2022 and September 2021 consisted of the following:

    

March

    

September

2022

2021

Trademarks and tradenames (Retail Segment)

$

500,000

$

500,000

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled $4.4 million at both March 2022 and September 2021. 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.

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 $10.0 million in cash, of which $6.5 million was structured as equity and $3.5 million was structured as a secured loan to Team Sledd which is subordinate to the liens of Team Sledd's existing secured lenders.

At March 2022, AMCON owned approximately 49% of Team Sledd’s outstanding equity, with a carrying value of $10.5 million. For the three and six months ended March 2022, the Company recognized $0.6 million and $1.4 million, respectively, in equity investment earnings (net of income taxes) from its investment in Team Sledd. For the three and six months ended March 2021, the Company recognized $0.3 million and $0.6 million, respectively, in equity investment earnings (net of income taxes) from its investment in Team Sledd. The Company’s secured loan to Team Sledd had a carrying value of $3.3 million and $3.5 million as of March 2022 and September 2021, respectively. As of September 2021, approximately $0.2 million of the secured loan balance was recorded as a component of prepaid expenses and other current assets on the consolidated balance sheet. Pursuant to an operating agreement between the Company and Sledd, certain membership interests in Team Sledd may be redeemed over a period of years, with such redemptions being funded from the operations of Team Sledd. Any such redemptions would result in a corresponding increase in the percentage of the outstanding equity of Team Sledd owned by AMCON.

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

$

148,066,173

$

158,459,384

$

329,483,268

$

323,027,468

Gross profit

8,219,808

7,719,918

18,037,786

15,567,308

Net income before income taxes

1,594,579

941,027

3,669,415

1,944,820

Net income attributable to AMCON, net of tax

591,795

313,492

1,362,161

648,831

5. DIVIDENDS

The Company paid cash dividends on its common stock totaling $0.1 million and $3.2 million for the three and six month periods ended March 2022, respectively, and $3.0 million and $3.1 million for the three and six month periods ended March 2021, respectively.

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

567,889

567,889

551,369

551,369

Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1)

10,862

9,572

Weighted average number of shares outstanding

567,889

578,751

551,369

560,941

Net income available to common shareholders

$

3,006,182

$

3,006,182

$

2,428,908

$

2,428,908

Net earnings per share available to common shareholders

$

5.29

$

5.19

$

4.41

$

4.33

(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

565,694

565,694

549,729

549,729

Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1)

15,634

8,012

Weighted average number of shares outstanding

565,694

581,328

549,729

557,741

Net income available to common shareholders

$

6,007,238

$

6,007,238

$

5,506,518

$

5,506,518

Net earnings per share available to common shareholders

$

10.62

$

10.33

$

10.02

$

9.87

(1)Diluted earnings per share calculation includes all equity-based awards deemed to be dilutive.

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.

$110.0 million revolving credit limit.

Loan accordion allowing the Company to increase the size of the Facility by $25.0 million.

A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

10

Evergreen renewal clause automatically renewing the Facility for one year unless either the borrower or lender provides written notice terminating the Facility at least 90 days prior to the end of any original or renewal term of the Facility.

The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent successor rate index) plus 125 - 150 basis points depending on certain Facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than zero basis points.

Lending limits subject to accounts receivable and inventory limitations.

An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the Facility. The Company’s fixed charge coverage ratio was over 1.0 for the trailing twelve months.

Provides that the Company may use up to $5.0 million annually, on a collective basis, for the payment of dividends on its common stock, or other distributions or investments, provided the Company is not in default before or after such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $5.0 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions or investments.

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 $106.0 million, of which $35.2 million was outstanding, leaving $70.8 million available.

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 1.76% at March 2022. For the six months ended March 2022, our peak borrowings under the Facility were $64.3 million, and our average borrowings and average availability under the Facility were $39.1 million and $56.5 million, respectively.

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 no such cross defaults at March 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.

Other

The Company has issued a letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

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 three equity-based incentive plans, the 2014 Omnibus Incentive Plan, the 2018 Omnibus Incentive Plan, and the 2022 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 195,000 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 March 2022, awards with respect to a total of 111,420 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 83,580 shares may be awarded under the Omnibus Plans.

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

 

22,250

$

86.76

Granted

 

Exercised

 

(22,250)

 

86.76

Forfeited/Expired

 

 

Outstanding at March 2022

 

$

10. BUSINESS SEGMENTS

The Company has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. Included in the “Other” column 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 MARCH 2022

External revenues:

Cigarettes

$

256,539,579

$

$

$

256,539,579

Tobacco

66,739,280

66,739,280

Confectionery

22,671,755

22,671,755

Health food

12,419,296

12,419,296

Foodservice & other

33,518,282

33,518,282

Total external revenue

379,468,896

12,419,296

391,888,192

Depreciation

499,567

318,655

818,222

Operating income (loss)

6,303,312

746,068

(3,106,031)

3,943,349

Interest expense

53,067

191,853