Company Quick10K Filing
Amcon Distributing
Price78.25 EPS5
Shares1 P/E15
MCap48 P/FCF-4
Net Debt3 EBIT7
TEV51 TEV/EBIT7
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-07-20
10-Q 2020-03-31 Filed 2020-04-20
10-Q 2019-12-31 Filed 2020-01-21
10-K 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-07-18
10-Q 2019-03-31 Filed 2019-04-18
10-Q 2018-12-31 Filed 2019-01-18
10-K 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-07-18
10-Q 2018-03-31 Filed 2018-04-18
10-Q 2017-12-31 Filed 2018-01-18
10-K 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-07-18
10-Q 2017-03-31 Filed 2017-04-18
10-Q 2016-12-31 Filed 2017-01-18
10-K 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-07-18
10-Q 2016-03-31 Filed 2016-04-18
10-Q 2015-12-31 Filed 2016-01-19
10-K 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-07-17
10-Q 2015-03-31 Filed 2015-04-17
10-Q 2014-12-31 Filed 2015-01-20
10-K 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-07-18
10-Q 2014-03-31 Filed 2014-04-18
10-Q 2013-12-31 Filed 2014-01-21
10-K 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-07-18
10-Q 2013-03-31 Filed 2013-04-18
10-Q 2012-12-31 Filed 2013-01-18
10-K 2012-09-30 Filed 2012-11-08
10-Q 2012-03-31 Filed 2012-04-19
10-Q 2011-12-31 Filed 2012-01-19
10-K 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-07-19
10-Q 2011-03-31 Filed 2011-04-19
10-Q 2010-12-31 Filed 2011-01-19
10-K 2010-09-30 Filed 2010-11-08
10-Q 2010-06-30 Filed 2010-07-20
10-Q 2010-03-31 Filed 2010-04-19
10-Q 2009-12-31 Filed 2010-01-19
8-K 2020-07-20 Earnings, Exhibits
8-K 2020-04-20
8-K 2020-04-01
8-K 2020-03-20
8-K 2020-01-20
8-K 2020-01-03
8-K 2019-12-23
8-K 2019-11-08
8-K 2019-07-18
8-K 2019-04-18
8-K 2018-12-31
8-K 2018-12-21
8-K 2018-11-08
8-K 2018-08-07
8-K 2018-07-18
8-K 2018-05-23
8-K 2018-04-18
8-K 2018-01-18

DIT 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 dit-20200630ex3114669d5.htm
EX-31.2 dit-20200630ex3127e792f.htm
EX-32.1 dit-20200630ex321600eff.htm
EX-32.2 dit-20200630ex322fe0568.htm

Amcon Distributing Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
16012896643202012201420172020
Assets, Equity
3702952211477302012201420172020
Rev, G Profit, Net Income
25155-5-15-252012201420172020
Ops, Inv, Fin

10-Q 1 dit-20200630x10q.htm 10-Q UNITED STATES

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 June 30, 2020

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, 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 564,878 shares of its $.01 par value common stock outstanding as of July 17, 2020.


Form 10-Q

3rd Quarter

INDEX

June 30, 2020

PAGE

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed consolidated balance sheets at June 30, 2020 (unaudited) and September 30, 2019

3

Condensed consolidated unaudited statements of operations for the three and nine months ended June 30, 2020 and 2019

4

Condensed consolidated unaudited statements of shareholders’ equity for the three and nine months ended June 30, 2020 and 2019

5

Condensed consolidated unaudited statements of cash flows for the nine months ended June 30, 2020 and 2019

6

Notes to condensed consolidated unaudited financial statements

7

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

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

Item 4. Controls and Procedures

25

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

26

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

26

Item 3. Defaults Upon Senior Securities

26

Item 4. Mine Safety Disclosures

26

Item 5. Other Information

26

Item 6. Exhibits

27

2


PART I — FINANCIAL INFORMATION

Item 1.      Financial Statements

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2020 and September 30, 2019

June

September

    

2020

    

2019

(Unaudited)

ASSETS

Current assets:

Cash

$

596,564

$

337,704

Accounts receivable, less allowance for doubtful accounts of $1.2 million at June 2020 and $0.9 million at September 2019

 

33,626,042

 

24,665,620

Inventories, net

 

82,009,219

 

102,343,517

Income taxes receivable

350,378

Prepaid and other current assets

 

7,259,528

 

7,148,459

Total current assets

 

123,491,353

 

134,845,678

Property and equipment, net

 

18,236,033

 

17,655,415

Operating lease right-of-use assets, net

19,705,044

Note receivable

3,500,000

Goodwill

 

4,436,950

 

4,436,950

Other intangible assets, net

 

500,000

 

500,000

Equity method investment

6,648,666

Other assets

 

399,943

 

273,579

Total assets

$

176,917,989

$

157,711,622

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

20,719,129

$

18,647,572

Accrued expenses

 

7,067,083

 

8,577,972

Accrued wages, salaries and bonuses

 

2,968,148

 

3,828,847

Income taxes payable

 

480,649

 

Current operating lease liabilities

5,486,963

Current maturities of long-term debt

 

546,657

 

532,747

Total current liabilities

 

37,268,629

 

31,587,138

Credit facility

 

56,384,002

 

60,376,714

Deferred income tax liability, net

 

1,820,511

 

1,823,373

Long-term operating lease liabilities

14,578,728

Long-term debt, less current maturities

 

2,713,798

 

3,125,644

Other long-term liabilities

 

167,755

 

42,011

Shareholders’ equity:

Preferred stock, $.01 par value, 1,000,000 shares authorized

 

 

Common stock, $.01 par value, 3,000,000 shares authorized, 564,878 shares outstanding at June 2020 and 552,614 shares outstanding at September 2019

 

8,697

 

8,561

Additional paid-in capital

 

24,250,873

 

23,165,639

Retained earnings

 

68,657,375

 

66,414,397

Treasury stock at cost

 

(28,932,379)

 

(28,831,855)

Total shareholders’ equity

 

63,984,566

 

60,756,742

Total liabilities and shareholders’ equity

$

176,917,989

$

157,711,622

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 nine months ended June 30, 2020 and 2019

For the three months ended June

For the nine months ended June

    

2020

  

2019

  

2020

  

2019

Sales (including excise taxes of $103.6 million and $98.0 million, and $285.1 million and $274.0 million, respectively)

$

396,854,324

$

369,981,516

$

1,094,841,943

$

1,025,431,309

Cost of sales

 

375,202,044

 

349,455,624

 

1,031,651,499

 

963,683,859

Gross profit

 

21,652,280

 

20,525,892

 

63,190,444

 

61,747,450

Selling, general and administrative expenses

 

18,377,641

 

18,513,048

 

55,843,266

 

53,861,943

Depreciation and amortization

 

801,683

 

620,142

 

2,318,045

 

1,869,378

 

19,179,324

 

19,133,190

 

58,161,311

 

55,731,321

Operating income

 

2,472,956

 

1,392,702

 

5,029,133

 

6,016,129

Other expense (income):

Interest expense

 

461,581

 

381,469

 

1,321,267

 

1,100,995

Other (income), net

 

(42,525)

 

(15,446)

 

(79,222)

 

(55,081)

 

419,056

 

366,023

 

1,242,045

 

1,045,914

Income from operations before income taxes

 

2,053,900

 

1,026,679

 

3,787,088

 

4,970,215

Income tax expense

 

586,000

 

361,000

 

1,168,000

 

1,536,000

Equity method investment earnings, net of tax

 

111,666

 

 

111,666

 

Net income available to common shareholders

$

1,579,566

$

665,679

$

2,730,754

$

3,434,215

Basic earnings per share available to common shareholders

$

2.79

$

1.12

$

4.84

$

5.65

Diluted earnings per share available to common shareholders

$

2.77

$

1.10

$

4.79

$

5.56

Basic weighted average shares outstanding

 

565,483

 

592,768

 

564,578

 

607,505

Diluted weighted average shares outstanding

 

569,902

 

606,278

 

569,873

 

617,887

 

Dividends declared and paid per common share

$

0.18

$

0.18

$

0.82

$

0.82

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 nine months ended June 30, 2020 and 2019

Additional

Common Stock

Treasury Stock

Paid-in

Retained

   

Shares

   

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Total

THREE MONTHS ENDED JUNE 2019

Balance, April 1, 2019

 

856,039

$

8,561

 

(263,271)

$

(24,511,598)

$

23,148,372

$

66,203,466

$

64,848,801

Dividends on common stock, $0.18 per share

 

(111,766)

(111,766)

Compensation expense and issuance of stock in connection with equity-based awards

 

36,801

36,801

Repurchase of common stock

(1)

(141)

(141)

Net income

 

 

665,679

665,679

Balance, June 30, 2019

 

856,039

$

8,561

 

(263,272)

$

(24,511,739)

$

23,185,173

$

66,757,379

$

65,439,374

THREE MONTHS ENDED JUNE 2020

Balance, April 1, 2020

 

869,367

$

8,692

 

(303,841)

$

(28,863,654)

$

24,224,145

$

67,184,900

$

62,554,083

Dividends on common stock, $0.18 per share

 

(107,091)

(107,091)

Compensation expense and issuance of stock in connection with equity-based awards

 

500

5

26,728

26,733

Repurchase of common stock

(1,148)

(68,725)

(68,725)

Net income

 

 

1,579,566

1,579,566

Balance, June 30, 2020

 

869,867

$

8,697

 

(304,989)

$

(28,932,379)

$

24,250,873

$

68,657,375

$

63,984,566

Additional

Common Stock

Treasury Stock

Paid-in

Retained

 

Shares

   

Amount

   

Shares

 

Amount

   

Capital

   

Earnings

   

Total

NINE MONTHS ENDED JUNE 2019

Balance, October 1, 2018

844,089

$

8,441

(228,312)

$

(21,324,752)

$

22,069,098

$

63,848,030

$

64,600,817

Dividends on common stock, $0.82 per share

(524,866)

(524,866)

Compensation expense and issuance of stock in connection with equity-based awards

11,950

120

1,116,075

1,116,195

Repurchase of common stock

(34,960)

(3,186,987)

(3,186,987)

Net income

 

3,434,215

3,434,215

Balance, June 30, 2019

856,039

$

8,561

(263,272)

$

(24,511,739)

$

23,185,173

$

66,757,379

$

65,439,374

NINE MONTHS ENDED JUNE 2020

Balance, October 1, 2019

856,039

$

8,561

(303,425)

$

(28,831,855)

$

23,165,639

$

66,414,397

$

60,756,742

Dividends on common stock, $0.82 per share

(487,776)

(487,776)

Compensation expense and issuance of stock in connection with equity-based awards

13,828

136

1,085,234

1,085,370

Repurchase of common stock

(1,564)

(100,524)

(100,524)

Net income

 

2,730,754

2,730,754

Balance, June 30, 2020

869,867

$

8,697

(304,989)

$

(28,932,379)

$

24,250,873

$

68,657,375

$

63,984,566

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 nine months ended June 30, 2020 and 2019

June

June

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

2,730,754

$

3,434,215

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

Depreciation

2,318,045

1,827,711

Amortization

41,667

Equity method investment earnings, net of income tax

(111,666)

Loss (gain) on sales of property and equipment

17,042

(15,376)

Equity-based compensation

765,704

1,035,128

Deferred income taxes

(2,862)

112,439

Provision for losses on doubtful accounts

349,000

179,000

Inventory allowance

182,218

454,357

Changes in assets and liabilities:

Accounts receivable

(9,309,422)

(3,209,941)

Inventories

20,152,080

11,468,718

Prepaid and other current assets

(373,414)

(5,698,021)

Other assets

(126,364)

19,712

Accounts payable

2,040,386

2,485,721

Accrued expenses and accrued wages, salaries and bonuses

(1,424,472)

(1,460,935)

Other long-term liabilities

125,744

2,967

Income taxes payable and receivable

794,027

157,836

Net cash flows from (used in) operating activities

18,126,800

10,835,198

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

(2,901,134)

(3,385,977)

Proceeds from sales of property and equipment

16,600

56,200

Investment in equity method investee

(6,500,000)

Issuance of note receivable

(3,500,000)

Net cash flows from (used in) investing activities

(12,884,534)

(3,329,777)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving credit facility

1,083,878,207

1,022,309,940

Repayments under revolving credit facility

(1,087,870,919)

(1,025,624,006)

Principal payments on long-term debt

(397,936)

(686,139)

Proceeds from exercise of stock options

25,750

Repurchase of common stock

(100,524)

(3,186,987)

Dividends on common stock

(487,776)

(524,866)

Settlement and withholdings of equity-based awards

(30,208)

Net cash flows from (used in) financing activities

(4,983,406)

(7,712,058)

Net change in cash

258,860

(206,637)

Cash, beginning of period

337,704

520,644

Cash, end of period

$

596,564

$

314,007

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

1,387,381

$

1,140,562

Cash paid during the period for income taxes

 

376,835

 

1,265,725

Supplemental disclosure of non-cash information:

Equipment acquisitions classified in accounts payable

$

100,424

$

91,838

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

 

990,653

 

1,005,792

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-one 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 17,000 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 November 2019, Convenience Store News ranked us as the eighth (8th) 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 access to 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, Kelloggs, Kraft, and Mars. 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-one retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akins”), and Earth Origins Market (“EOM”). These stores carry over 33,000 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. Earth Origins Market has a total of eight 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, 2019, 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 June 30, 2020 and June 30, 2019 have been referred to throughout this quarterly report as Q3 2020 and Q3 2019, respectively. The fiscal balance sheet dates as of June 30, 2020 and September 30, 2019 have been referred to as June 2020 and September 2019, respectively.

SIGNIFICANT ACCOUNTING POLICIES

Equity Method Investment

The Company uses the equity method to account for its investment in an investee if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss (net of income taxes) of the investee is included in consolidated net earnings. Judgment regarding the level of influence over its equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company evaluates its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing its equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and future prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified. See Note 5 (Equity Method Investment) for further information relating to the Company’s equity method investment.

ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncement Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 “Leases (Topic 842)”. Accounting Standards Codification Topic (“ASC”) 842 superseded the lease accounting requirements in “ASC 840 - Leases”. The most significant among the changes in ASU 2016-02 is the recognition of right-of-use (“ROU”) assets and corresponding lease liabilities for leases classified as operating leases. The accounting for finance leases, which were classified as capital leases under historical GAAP, remains substantially unchanged. The lease liabilities are equal to the present value of the remaining lease payments while the ROU asset is determined based on the amount of the lease liability, plus initial direct costs incurred less lease incentives. The Company elected the optional transition method to apply ASU 2016-02 prospectively at adoption during the Company’s first quarter of fiscal year 2020 (“Q1 2020”), which resulted in recognition of ROU assets of approximately $21.9 million, lease

8


liabilities of $22.2 million, and a decrease of deferred rent recorded under ASC 840 of $0.3 million. The adoption of ASC 842 did not have a material effect on the Company’s consolidated statements of operations or cash flows. Comparative periods presented in the financial statements prior to Q1 2020 continue to be presented under ASC 840. The adoption of ASC 842 did not have a material impact on the Company’s debt-covenant compliance under its revolving credit facility.

In accordance with an accounting policy election under ASC 842, the Company does not recognize assets or liabilities for leases with an initial term of twelve months or less as these short-term lease payments are recognized in the consolidated statements of operations on a straight-line basis over the lease term. The Company elected the package of practical expedients within ASC 842 that allows an entity to not reassess, prior to the effective date, (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases. The Company also elected the practical expedient to account for non-lease components as part of the lease for all asset classes.

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective upon issuance for all entities through December 31, 2022. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

2. INVENTORIES

Inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) or net realizable value. 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 $1.2 million at June 2020 and $1.0 million at September 2019. 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.

3. LEASES

The Company’s wholesale segment leases certain warehouse facilities, office space, vehicles and office equipment. The Company’s retail segment leases store space in various shopping center complexes. Certain of the warehouse and retail store leases include one or more options to renew or terminate the applicable lease agreement, with the exercise of such options at the Company’s discretion. The Company’s leases do not contain any significant residual value guarantees nor do they impose any significant restrictions or covenants other than those customarily found in similar types of leases.

The operating right-of-use (ROU) lease assets and liabilities recorded on the Company’s consolidated balance sheet consist of fixed lease payments. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term. Additionally, certain leases contain variable payments such as vehicle leases with per-mile charges or retail leases with an additional rent payment based on store performance. These variable payments are expensed as incurred. The Company combines lease components and non-lease components for all asset classes for purposes of recognizing lease assets and liabilities. The Company determines its incremental

9


borrowing rates based on information available at the lease commencement date in calculating the present value of lease payments.

Leases consist of the following:

Assets

    

Classification

    

June 2020

Operating

Operating lease right-of-use assets

$

19,705,044

Liabilities

Current:

Operating

Operating lease liabilities

$

5,486,963

Non-current:

Operating

Long-term operating lease liabilities

14,578,728

Total lease liabilities

$

20,065,691

The components of lease costs were as follows:

    

Total

THREE MONTHS ENDED JUNE 2020

Operating lease cost

$

1,674,003

Short-term lease cost

79,334

Variable lease cost

82,092

Net lease cost

$

1,835,429

Total

NINE MONTHS ENDED JUNE 2020

Operating lease cost

$

5,005,627

Short-term lease cost

246,776

Variable lease cost

251,319

Net lease cost

$

5,503,722

Maturities of lease liabilities as of June 2020 were as follows:

    

Operating Leases

2020

$

6,177,926

2021

5,223,564

2022

4,031,833

2023

3,200,980

2024

1,878,839

2025 and thereafter

1,345,755

Total lease payments

21,858,897

Less: interest

(1,793,206)

Present value of lease liabilities

$

20,065,691

Weighted-average remaining lease term and weighted-average discount rate information regarding the Company’s leases were as follows:

Lease Term

June 2020

Weighted-average remaining lease term (years):

Operating

4.4

Discount Rate

Weighted-average discount rate:

Operating

4.04

%  

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Other information regarding the Company’s leases were as follows:

    

For the nine months ended June 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used by operating leases

$

4,949,672

Lease liabilities arising from obtaining new ROU assets:

Operating leases

$

2,188,685

Future minimum operating lease payments as of September 2019, as reported in the 2019 Form 10-K under ASC 840, were as follows:

    

Operating

Fiscal Year Ending

Leases

2020

$

6,468,837

2021

 

5,418,617

2022

 

4,299,261

2023

 

3,216,671

2024

 

2,456,810

Thereafter

 

2,387,618

Total minimum lease payments

$

24,247,814

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reporting segment of the Company consisted of the following:

    

June

    

September

2020

2019

Wholesale Segment

$

4,436,950

$

4,436,950

Other intangible assets of the Company consisted of the following:

    

June

    

September

2020

    

2019

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 June 2020 and September 2019. 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 2019.

 

5. EQUITY METHOD INVESTMENT

In April 2020, the Company completed its previously announced transaction with Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, to jointly own and operate a limited liability company (“Team Sledd”) formed for the purpose of owning and operating Sledd’s wholesale distribution business. In conjunction with the transaction, 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 June 2020, AMCON owned approximately 44% of Team Sledd’s outstanding equity, with a carrying value of $6.6 million. For the three months ended June 2020, the Company recognized $0.1 million in equity in earnings (net of income

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taxes) from its investment in Team Sledd. The Company’s secured loan to Team Sledd had a carrying value of $3.5 million as of June 2020.

6. DIVIDENDS

The Company paid cash dividends on its common stock totaling $0.1 million and $0.5 million for the three and nine month periods ended June 2020, respectively, and $0.1 million and $0.5 million for the three and nine month periods ended June 2019, respectively.

7. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income by the weighted average 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 common shares outstanding and the weighted average dilutive equity awards.

For the three months ended June

2020

2019

    

Basic

    

Diluted

    

Basic

    

Diluted

Weighted average common shares outstanding

565,483

565,483

592,768

592,768

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

4,419

13,510

Weighted average number of shares outstanding

565,483

569,902

592,768

606,278

Net income available to common shareholders

$

1,579,566

$

1,579,566

$

665,679

$

665,679

Net earnings per share available to common shareholders

$

2.79

$

2.77

$

1.12

$

1.10


(1)Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

For the nine months ended June

2020

2019

    

Basic

    

Diluted

    

Basic

    

Diluted

Weighted average common shares outstanding

564,578

564,578

607,505

607,505

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

5,295

10,382

Weighted average number of shares outstanding

564,578

569,873

607,505

617,887

Net income available to common shareholders

$

2,730,754

$

2,730,754

$

3,434,215

$

3,434,215

Net earnings per share available to common shareholders

$

4.84

$

4.79

$

5.65

$

5.56


(1)Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

8. 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 participating in a loan syndication.

The Facility included the following significant terms at June 2020:

A March 2025 maturity date without a penalty for prepayment.

$110.0 million revolving credit limit.

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Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

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

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

The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent successor rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. In no event shall LIBOR be less than 100 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 credit agreement. The Company’s fixed charge coverage ratio was over 1.0 for the trailing twelve months.

Provides that the Company may use up to $3.5 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 $3.5 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions or investments.

The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at June 2020 was $95.0 million, of which $56.4 million was outstanding, leaving $38.6 million available.

At June 2020, the revolving portion 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. The average interest rate was 2.42% at June 2020. For the nine months ended June 2020, our peak borrowings under the Facility were $72.7 million, and our average borrowings and average availability under the Facility were $50.1 million and $30.8 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 Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, are in default. There were no such cross defaults at June 2020. 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 $0.5 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

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9. 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, 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 2020

External revenues:

Cigarettes

$

276,348,474

$

$

$

276,348,474

Tobacco

59,487,110

59,487,110

Confectionery

20,614,034

20,614,034

Health food

11,538,319

11,538,319

Foodservice & other

28,866,387

28,866,387

Total external revenue

385,316,005

11,538,319

396,854,324

Depreciation

452,025

349,658

801,683

Amortization

Operating income (loss)

4,350,347

(159,706)

(1,717,685)

2,472,956

Interest expense

31,623

429,958

461,581

Income (loss) from operations before taxes

4,329,679

(157,273)

(2,118,506)

2,053,900

Equity method investment earnings, net of tax

111,666

111,666

Total assets

146,782,772

19,584,013

10,551,204

176,917,989

Capital expenditures

575,462

174,374

749,836

THREE MONTHS ENDED JUNE 2019

External revenue:

Cigarettes

$

255,049,572

$

$

$

255,049,572

Tobacco

52,014,713

52,014,713

Confectionery

22,541,448

22,541,448

Health food

11,037,533

11,037,533

Foodservice & other

29,338,250

29,338,250

Total external revenue

358,943,983

11,037,533

369,981,516

Depreciation

350,701

259,024

609,725

Amortization

10,417

10,417

Operating income (loss)

3,592,787

(702,888)

(1,497,197)

1,392,702

Interest expense

36,240

345,229

381,469

Income (loss) from operations before taxes

3,569,182

(700,076)

(1,842,427)

1,026,679

Total assets

120,567,974

17,187,420

186,822

137,942,216

Capital expenditures

757,993

347,790

1,105,783

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Wholesale

Retail

    

Segment

    

Segment

    

Other

    

Consolidated

NINE MONTHS ENDED JUNE 2020

External revenue:

Cigarettes

$

750,264,131

$

$

$

750,264,131

Tobacco

165,443,803

165,443,803

Confectionery

59,477,946

59,477,946

Health food

34,629,465

34,629,465

Foodservice & other

85,026,598

85,026,598

Total external revenue

1,060,212,478

34,629,465

1,094,841,943

Depreciation

1,327,431

990,614

2,318,045

Amortization

Operating income (loss)

10,907,179

(1,216,491)

(4,661,555)

5,029,133

Interest expense

98,187

1,223,080

1,321,267

Income (loss) from operations before taxes

10,852,250

(1,209,665)

(5,855,497)

3,787,088

Equity method investment earnings, net of tax

111,666

111,666

Total assets

146,782,772

19,584,013

10,551,204

176,917,989

Capital expenditures

1,808,162

1,124,143

2,932,305

NINE MONTHS ENDED JUNE 2019

External revenue: