10-Q 1 dit-20231231x10q.htm 10-Q UNITED STATES
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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 December 31, 2023

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

Graphic

(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 630,362 shares of its $.01 par value common stock outstanding as of January 17, 2024.

Form 10-Q

1st Quarter

INDEX

December 31, 2023

PAGE

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed consolidated balance sheets at December 31, 2023 (unaudited) and September 30, 2023

3

Condensed consolidated unaudited statements of operations for the three months ended December 31, 2023 and 2022

4

Condensed consolidated unaudited statements of shareholders’ equity for the three months ended December 31, 2023 and 2022

5

Condensed consolidated unaudited statements of cash flows for the three months ended December 31, 2023 and 2022

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

21

Item 4. Controls and Procedures

21

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

23

Item 1A. Risk Factors

23

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

23

Item 3. Defaults Upon Senior Securities

23

Item 4. Mine Safety Disclosures

23

Item 5. Other Information

23

Item 6. Exhibits

24

2

PART I — FINANCIAL INFORMATION

Item 1.      Financial Statements

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2023 and September 30, 2023

December

September

    

2023

    

2023

(Unaudited)

ASSETS

Current assets:

Cash

$

996,695

$

790,931

Accounts receivable, less allowance for credit losses of $2.3 million at December 2023 and $2.4 million at September 2023

 

68,822,905

 

70,878,420

Inventories, net

 

158,167,362

 

158,582,816

Income taxes receivable

1,517,687

1,854,484

Prepaid expenses and other current assets

 

13,926,848

 

13,564,056

Total current assets

 

243,431,497

 

245,670,707

Property and equipment, net

 

81,730,692

 

80,607,451

Operating lease right-of-use assets, net

23,345,042

23,173,287

Goodwill

 

5,778,325

 

5,778,325

Other intangible assets, net

 

5,150,510

 

5,284,935

Other assets

 

2,936,861

 

2,914,495

Total assets

$

362,372,927

$

363,429,200

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

44,059,086

$

43,099,326

Accrued expenses

 

13,788,439

 

14,922,279

Accrued wages, salaries and bonuses

 

5,160,357

 

8,886,529

Current operating lease liabilities

6,019,749

6,063,048

Current maturities of long-term debt

 

1,972,096

 

1,955,065

Current mandatorily redeemable non-controlling interest

1,757,236

1,703,604

Total current liabilities

 

72,756,963

 

76,629,851

Credit facilities

 

140,073,953

 

140,437,989

Deferred income tax liability, net

 

5,385,163

 

4,917,960

Long-term operating lease liabilities

17,646,454

17,408,758

Long-term debt, less current maturities

 

11,167,890

 

11,675,439

Mandatorily redeemable non-controlling interest, less current portion

7,933,339

7,787,227

Other long-term liabilities

 

523,157

 

402,882

Shareholders’ equity:

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

 

 

Common stock, $.01 par value, 3,000,000 shares authorized, 630,362 shares outstanding at December 2023 and 608,689 shares outstanding at September 2023

 

9,648

 

9,431

Additional paid-in capital

 

32,521,091

 

30,585,388

Retained earnings

 

105,627,432

 

104,846,438

Treasury stock at cost

 

(31,272,163)

 

(31,272,163)

Total shareholders’ equity

106,886,008

104,169,094

Total liabilities and shareholders’ equity

$

362,372,927

$

363,429,200

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 months ended December 31, 2023 and 2022

For the three months ended December

    

2023

    

2022

Sales (including excise taxes of $138.1 million and $130.3 million, respectively)

$

644,959,073

$

565,989,507

Cost of sales

 

601,658,151

 

531,019,924

Gross profit

 

43,300,922

 

34,969,583

Selling, general and administrative expenses

 

37,258,677

 

28,379,186

Depreciation and amortization

 

2,219,168

 

1,070,886

 

39,477,845

 

29,450,072

Operating income

 

3,823,077

 

5,519,511

Other expense (income):

Interest expense

 

2,311,513

 

1,694,158

Change in fair value of mandatorily redeemable non-controlling interest

199,744

(54,916)

Other (income), net

 

(563,141)

 

(53,532)

 

1,948,116

 

1,585,710

Income from operations before income taxes

 

1,874,961

 

3,933,801

Income tax expense

 

804,000

 

1,304,800

Net income available to common shareholders

$

1,070,961

$

2,629,001

Basic earnings per share available to common shareholders

$

1.80

$

4.52

Diluted earnings per share available to common shareholders

$

1.78

$

4.46

Basic weighted average shares outstanding

 

595,623

 

581,612

Diluted weighted average shares outstanding

 

603,300

 

589,881

 

Dividends paid per common share

$

0.18

$

0.18

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 months ended December 31, 2023 and 2022

Additional

Common Stock

Treasury Stock

Paid-in

Retained

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Earnings

    

Total

THREE MONTHS ENDED DECEMBER 2022

Balance, October 1, 2022

917,009

$

9,168

(332,220)

$

(30,867,287)

$

26,903,201

$

96,784,353

$

92,829,435

Dividends on common stock, $5.18 per share

(3,200,650)

(3,200,650)

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

26,263

263

2,453,953

2,454,216

Net income available to common shareholders

 

2,629,001

2,629,001

Balance, December 31, 2022

943,272

$

9,431

(332,220)

$

(30,867,287)

$

29,357,154

$

96,212,704

$

94,712,002

THREE MONTHS ENDED DECEMBER 2023

Balance, October 1, 2023

943,272

$

9,431

(334,583)

$

(31,272,163)

$

30,585,388

$

104,846,438

$

104,169,094

Dividends on common stock, $0.46 per share

(289,967)

(289,967)

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

21,673

217

1,935,703

1,935,920

Net income available to common shareholders

 

1,070,961

1,070,961

Balance, December 31, 2023

964,945

$

9,648

(334,583)

$

(31,272,163)

$

32,521,091

$

105,627,432

$

106,886,008

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 three months ended December 31, 2023 and 2022

December

December

    

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income available to common shareholders

$

1,070,961

$

2,629,001

Adjustments to reconcile net income available to common shareholders to net cash flows from (used in) operating activities:

Depreciation

2,084,743

1,028,353

Amortization

134,425

42,533

(Gain) loss on sales of property and equipment

(53,287)

(36,000)

Equity-based compensation

571,137

390,570

Deferred income taxes

467,203

1,145,822

Provision for credit losses

(91,969)

(496,332)

Inventory allowance

30,988

141,087

Change in fair value of mandatorily redeemable non-controlling interest

199,744

(54,916)

Changes in assets and liabilities:

Accounts receivable

2,147,484

8,381,282

Inventories

384,466

(50,699,513)

Prepaid and other current assets

(362,792)

45,110

Other assets

(22,366)

199,411

Accounts payable

1,627,403

(6,602,785)

Accrued expenses and accrued wages, salaries and bonuses

(3,649,088)

(4,794,015)

Other long-term liabilities

120,275

48,921

Income taxes payable and receivable

336,797

158,978

Net cash flows from (used in) operating activities

4,996,124

(48,472,493)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

(3,947,143)

(1,455,405)

Proceeds from sales of property and equipment

124,803

36,000

Net cash flows from (used in) investing activities

(3,822,340)

(1,419,405)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving credit facilities

603,650,771

639,488,133

Repayments under revolving credit facilities

(604,014,807)

(589,262,053)

Principal payments on long-term debt

(490,518)

(202,396)

Dividends on common stock

(113,466)

(111,220)

Net cash flows from (used in) financing activities

(968,020)

49,912,464

Net change in cash

205,764

20,566

Cash, beginning of period

790,931

431,576

Cash, end of period

$

996,695

$

452,142

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

2,235,562

$

1,458,843

Supplemental disclosure of non-cash information:

Equipment acquisitions classified in accounts payable

$

347,891

$

28,183

Dividends declared, not paid

176,501

3,089,430

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

1,296,372

 

2,044,805

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

Our retail health food segment (“Retail Segment”) operates 15 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 7,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 20,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, 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 2023, 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 distribution 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 nine distribution centers located in Illinois, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia. These distribution centers, combined with cross-dock facilities, include approximately 1.3 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft Heinz, 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 Retail Group 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 United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.

Our Retail Segment operates 15 retail health food stores as Chamberlin’s Natural Foods, Akin’s Natural Foods, and Earth Origins Market. These stores carry over 36,000 different national and regionally branded and private label products

7

including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30th, except for one non-wholly owned subsidiary whose fiscal year ends on the last Friday of September. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. 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, 2023, 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 consolidated subsidiaries. Additionally, the three-month fiscal periods ended December 31, 2023 and December 31, 2022 have been referred to throughout this Quarterly Report as Q1 2024 and Q1 2023, respectively. The fiscal balance sheet dates as of December 31, 2023 and September 30, 2023 have been referred to as December 2023 and September 2023, respectively.

ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncement Adopted

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 requires 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. The Company adopted ASU 2016-13 on October 1, 2023. The adoption of ASU 2016-13 did not have a material effect on the Company’s consolidated financial statements.

Accounts Receivable:

In accordance with the Company’s accounts receivable policy, accounts receivable primarily consists of customer trade receivables arising in the ordinary course of business. These receivables are recorded net of an allowance for expected credit losses. The Company evaluates the expected uncollectibility of accounts receivable based on a combination of factors, including but not limited to, past collection history, customer credit terms, industry, regulatory and economic conditions, and any customer specific risks, including credit concentration risks. The Company determines the past due status of trade receivables based on our payment terms with each customer. If the Company becomes aware of a specific customer’s inability to meet its financial obligations, such as bankruptcy filings or deterioration in the customer’s operating results or financial position, the Company may record a specific reserve for expected credit losses to reduce the related receivable to the amount it reasonably believes is collectible. Account balances are charged off against the allowance for credit losses when collection efforts have been exhausted and the account receivable is deemed worthless. Any subsequent recoveries of charged off account balances are recorded as income in the period received.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. This guidance is effective for fiscal years beginning after December 15, 2023 (fiscal 2025 for the Company),

8

and interim periods within fiscal years beginning after December 15, 2024 (fiscal 2026 for the Company), with early adoption permitted.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This guidance is effective for annual periods beginning after December 15, 2024 (fiscal 2026 for the Company), with early adoption permitted.

2. INVENTORIES

Inventories in our Wholesale Segment consisted of finished goods and are stated at the lower of cost or net realizable value, utilizing FIFO and average cost methods. 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 $1.2 million at both December 2023 and September 2023. 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. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill at December 2023 and September 2023 was as follows:

    

December

    

September

2023

2023

Wholesale Segment

$

5,778,325

$

5,778,325

Other intangible assets at December 2023 and September 2023 consisted of the following:

    

December

    

September

2023

2023

Customer lists (Wholesale Segment) (less accumulated amortization of $0.3 million at December 2023 and $0.2 million at September 2023)

$

3,168,947

$

3,226,480

Non-competition agreements (Wholesale Segment) (less accumulated amortization of $0.1 million at both December 2023 and September 2023)

176,253

199,503

Tradename (Wholesale Segment) (less accumulated amortization of $0.2 million at December 2023 and $0.1 million at September 2023)

1,305,310

1,358,952

Trademarks and tradenames (Retail Segment)

500,000

500,000

$

5,150,510

$

5,284,935

Goodwill and Retail Segment 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 sheets represent amounts allocated to its wholesale reporting unit which totaled approximately $5.8 million at both December 2023 and September 2023. 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 2023.

At December 2023, identifiable intangible assets considered to have finite lives were represented by customer lists which are being amortized over 15 years, a non-competition agreement which is being amortized over three years, a non-competition agreement which is being amortized over five years, and a tradename in our Wholesale Segment that is being amortized over seven years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense related to these assets was approximately $0.1 million for the three-month period ended December 2023 and less than $0.1 million for the three-month period ended December 2022.

9

Estimated future amortization expense related to identifiable intangible assets with finite lives was as follows at December 2023:

December

    

2023

Fiscal 2024 (1)

$

403,276

Fiscal 2025

506,869

Fiscal 2026

463,703

Fiscal 2027

463,703

Fiscal 2028

451,043

Fiscal 2029 and thereafter

2,361,916

$

4,650,510

(1)Represents amortization for the remaining nine months of Fiscal 2024.

4. DIVIDENDS

The Company paid cash dividends on its common stock totaling $0.1 million in each of the three-month periods ended December 2023 and December 2022. During Q1 2024, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that was included in accrued expenses on the condensed consolidated balance sheet at December 2023 and was paid in Q2 2024. During Q1 2023, the Company declared a $5.00 per share special dividend totaling approximately $3.1 million that was paid in Q2 2023.

5. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.

For the three months ended December

2023

2022

    

Basic

    

Diluted

    

Basic

    

Diluted

Weighted average number of common shares outstanding

595,623

595,623

581,612

581,612

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

7,677

8,269

Weighted average number of shares outstanding

595,623

603,300

581,612

589,881

Net income available to common shareholders

$

1,070,961

$

1,070,961

$

2,629,001

$

2,629,001

Net earnings per share available to common shareholders

$

1.80

$

1.78

$

4.52

$

4.46

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

6. DEBT

The Company primarily finances its operations through three credit facility agreements (a) a facility that is an obligation of AMCON Distributing Company (the “AMCON Facility”), (b) a facility that is an obligation of Team Sledd (the “Team Sledd Facility”) and (c) a facility that is an obligation of Henry’s (the “Henry’s Facility”) (collectively, the “Facilities”) and long-term debt agreements with banks. The Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company.

At December 2023, the Facilities had a total combined borrowing capacity of $300.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The Henry’s Facility matures in February 2026, the AMCON Facility matures in June 2027 and the Team Sledd Facility matures in March 2028, each without a penalty for

10

prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and certain real estate. The Facilities each feature an unused commitment fee and springing financial covenants. Borrowings under the Facilities bear interest at either the bank’s prime rate or the Secured Overnight Financing Rate (“SOFR”), plus any applicable spreads.

The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2023 was $228.6 million, of which $140.1 million was outstanding, leaving $88.5 million available.

The average interest rate of the Facilities was 7.17% at December 2023. For the three months ended December 2023, the peak borrowings under the Facilities was $156.8 million, and the average borrowings and average availability under the Facilities was $125.2 million and $86.8 million, respectively.

Cross Default and Co-Terminus Provisions

Team Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions. The Henry’s note payable and the Henry’s Facility contain cross default provisions. There were no such cross defaults for either Team Sledd or Henry’s at December 2023. Additionally, the Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry’s, were in compliance with all of the financial covenants under the respective Facilities at December 2023.

Other

The Company has issued a letter of credit for $1.1 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

7. INCOME TAXES

The change in the Company’s effective income tax rate for the three-month period ended December 2023 as compared to the respective prior year period was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and higher effective state income tax rates between the comparative periods.

11

8. MANDATORILY REDEEMABLE NON-CONTROLLING INTEREST

Mandatorily redeemable non-controlling interest (“MRNCI”) recorded on the Company’s condensed consolidated balance sheets represents the fair value of the non-controlling interest in the Company’s strategic investment in Team Sledd. The Company owned approximately 64% of Team Sledd as of both December 2023 and September 2023. The Company has elected to present the MRNCI liability at fair value under ASC 825 – Financial Instruments as it believes this best represents the potential future liability and cash flows. As such, the MRNCI balance at December 2023 represents the fair value of the remaining future membership interest redemptions and other amounts due to noncontrolling interest holders through April 2026. The Company calculates the estimated fair value of the MRNCI based on a discounted cash flow valuation technique using the best information available at the reporting date, and records changes in the fair value of the MRNCI as a component of other expense (income) in the Condensed Consolidated Statements of Operations. The Company estimates the probability and timing of future redemptions and earnings of Team Sledd based on management’s knowledge and assumptions of certain events as of each reporting date, including the timing of any future redemptions and an appropriate discount rate. At December 2023, the difference between the contractual amount due under the MRNCI and the fair value was approximately $0.8 million. The MRNCI is classified as Level 3 because of the Company’s reliance on unobservable assumptions. The following table presents changes in the fair value of the MRNCI since September 2023:

Fair value of MRNCI as of September 2023

    

$

9,490,831

Redemption of non-controlling interests

Distributions to non-controlling interest

Change in fair value

199,744

Fair value of MRNCI as of December 2023

$

9,690,575

Less current portion at fair value

(1,757,236)

$

7,933,339

9. EQUITY-BASED INCENTIVE AWARDS

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 December 2023, awards with respect to a total of 140,837 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 54,163 shares may be awarded under the Omnibus Plans.

Restricted Stock Units

During October 2023, the remaining 6,834 restricted stock units vested, and there were no unvested restricted stock units remaining as of December 2023.

The following summarizes restricted stock unit activity under the Omnibus Plans during Q1 2024:

Number

Weighted

of

Average

    

Shares

    

Fair Value

Nonvested restricted stock units at September 2023

 

6,834

$

206.00

Granted

 

Vested

 

(6,834)

195.99

Expired

 

Nonvested restricted stock units at December 2023

 

$

12

Restricted Stock Awards

At December 2023, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:

    

Restricted
 Stock Awards (1)

    

Restricted
 Stock Awards (2)

Restricted
 Stock Awards (3)

Date of award:

 

October 2021

 

October 2022

October 2023

Original number of awards issued:

 

15,100

 

15,100

15,100

Service period:

 

36 months

 

36 months

36 months

Estimated fair value of award at grant date:

$

2,089,000

$

2,824,000

2,762,000

Non-vested awards outstanding at December 2023:

5,034

10,067

15,100

Fair value of non-vested awards at December 2023 of approximately:

$

982,000

$

1,963,000

2,945,000

(1)

10,066 of the restricted stock awards were vested as of December 2023. The remaining 5,034 restricted stock awards will vest in October 2024.

(2)

5,033 of the restricted stock awards were vested as of December 2023. 5,033 restricted stock awards will vest in October 2024 and 5,034 will vest in October 2025.

(3)

The 15,100 restricted stock awards will vest in equal amounts in October 2024, October 2025 and October 2026.

There is no direct cost to the recipients of the restricted stock awards, except for any applicable taxes. The restricted stock awards provide that the recipients receive common stock in the Company, subject to certain restrictions until such time as the awards vest. The recipients of the restricted stock awards are entitled to the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met. The compensation expense recorded in the Company’s Statement of Operations reflects the straight-line amortized fair value.

The following summarizes restricted stock award activity under the Omnibus Plans during Q1 2024:

Number

Weighted

of

Average

    

Shares

    

Fair Value

Nonvested restricted stock awards at September 2023

 

25,167

$

206.00

Granted

 

15,100

182.89

Vested

 

(10,066)

189.87

Expired

 

Nonvested restricted stock awards at December 2023

 

30,201

$

195.00

Income from operations before income taxes included compensation expense related to the amortization of the Company’s restricted stock awards of approximately $0.6 million and $0.4 million during Q1 2024 and Q1 2023, respectively. Total unamortized compensation expense related to these awards at December 2023 and September 2023 was approximately $4.7 million and $2.6 million, respectively.

13

10. BUSINESS SEGMENTS

The Company has two reportable business segments: the wholesale distribution of consumer products which includes Team Sledd and Henry’s (the Wholesale Segment), and the retail sale of health and natural food products (the Retail Segment). The aggregation of the Company’s business operations into these business segments was based on a range of considerations, including but not limited to the characteristics of each business, similarities in the nature and type of products sold, customer classes, methods used to sell the products and economic profiles. 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) from operations before taxes. Certain amounts in prior periods have been reclassified to conform with the current presentation.

Wholesale

Retail

    

Segment

    

Segment

    

Other

    

Consolidated

THREE MONTHS ENDED DECEMBER 2023

External revenue:

Cigarettes

$

395,668,708

$

$

$

395,668,708

Tobacco

121,351,701

121,351,701

Confectionery

40,043,130

40,043,130

Health food

10,689,429

10,689,429

Foodservice & other

77,206,105

77,206,105

Total external revenue

634,269,644

10,689,429

644,959,073

Depreciation

1,855,746

228,997

2,084,743

Amortization

134,425

134,425

Operating income (loss)

6,970,125

(16,476)

(3,130,572)

3,823,077

Interest expense

2,311,513

2,311,513

Income (loss) from operations before taxes

6,775,098

541,948

(5,442,085)

1,874,961

Total assets

345,011,110

16,574,317

787,500

362,372,927

Capital expenditures

2,980,331

299,169

3,279,500

Wholesale

Retail

    

Segment

    

Segment

    

Other

    

Consolidated

THREE MONTHS ENDED DECEMBER 2022

External revenue:

Cigarettes

$

367,689,677

$

$

$

367,689,677

Tobacco

104,039,120

104,039,120

Confectionery

32,558,996

32,558,996

Health food

10,261,873

10,261,873

Foodservice & other

51,439,841

51,439,841

Total external revenue

555,727,634

10,261,873

565,989,507

Depreciation

750,130

278,223

1,028,353

Amortization

42,533

42,533

Operating income (loss)

8,240,495

(266,616)

(2,454,368)

5,519,511

Interest expense

1,694,158

1,694,158

Income (loss) from operations before taxes

8,324,827

(242,500)

(4,148,526)

3,933,801

Total assets

313,505,013

16,681,645

687,291

330,873,949

Capital expenditures

1,248,067

143,865

1,391,932

14

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

BUSINESS UPDATE

Our business continues to be impacted by macroeconomic factors, supply chain disruptions, and an extended period of high inflation. These factors have decreased consumer discretionary spending and related retail level demand and have also resulted in sustained cost pressures across our entire business in the form of higher product, equipment, labor, interest and other operating costs.  

We are closely monitoring proposals from governmental and other regulatory bodies, including the United States Food and Drug Administration (“FDA”), which is evaluating the possible prohibition and/or limitations on the sale of certain cigarette, e-cigarette, tobacco, and vaping products, including menthol cigarettes. If such regulations or product sale limitations were to be implemented, they may limit the range of products we are able to sell in related product categories and decrease overall consumer demand. Any such changes may negatively impact our revenues, gross margins, and financial results.

The Company continues to integrate the operations of Henry’s Foods, Inc. (“Henry’s”) which has expanded the Company’s geographic footprint and provided access to an industry-leading foodservice distribution platform. The Company also continues to evaluate other growth and geographic expansion opportunities.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.

It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

risks associated with unrest in certain global regions which could further disrupt world supply chains, manufacturing centers, and shipping routes, impacting commodity/product availability and/or cost, as well as consumer demand trends,

risks associated with higher interest rates or prolonged periods of higher interest rates and the related impact on demand, customer credit risk, profitability and cash flows for both the Company and its customer base, particularly as it relates to variable interest rate borrowings, as well as the risk that such borrowings may not be renewed in the future on favorable terms or at all,

risks associated with any systemic pressures in the banking system, particularly as they relate to customer credit risk and any resulting impact on our cash flow and our ability to collect on our receivables,

risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest, commodity prices, and customer credit risk, which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell,

regulations, potential bans, limitations and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, e-cigarette, tobacco, and vaping products imposed by the FDA, state or local governmental agencies, or other parties, including proposed and pending regulations and/or product approvals/authorizations related to the manufacturing, distribution, and sale of certain menthol, vaping, and flavored tobacco products,

15

risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn,

risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations,

risks associated with the Company’s business model which experienced both higher sales volumes and labor costs during the COVID-19 pandemic, and the risk of sales returning to pre-pandemic levels without the Company being able to offset increases in its cost structure,

risks associated with the acquisition of assets, new businesses or equity investments by either of our business segments including, but not limited to, risks associated with consummating such transactions on expected terms or timing, purchase price and business valuation and recording risks, and risks related to the assumption of certain liabilities or obligations,

risks associated with the integration of new businesses or equity investments by either of our business segments including, but not limited to, risks associated with vendor and customer retention, technology integration, and the potential loss of any key management personnel or employees,

increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses,

risk that our repositioning strategy for our retail business will not be successful,

risks associated with opening new retail stores,

if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business,

the potential impact that ongoing, decreasing, or changing trade tariff and trade policies may have on our product costs or on consumer disposable income and demand,

increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice,

increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes,

risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber and ransomware attacks, malware, or other methods by which such information systems could or may have been compromised or impacted,

increases in inventory carrying costs and customer credit risks,

changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers,

changing demand for the Company’s products, particularly cigarette, tobacco and vaping products,

risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors,

changes in laws and regulations and ongoing compliance related to health care and associated insurance,

16

increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending,

decreased availability of capital resources,

domestic regulatory and legislative risks,

poor weather conditions, and the adverse effects of climate change,

consolidation trends within the convenience store, wholesale distribution, and retail health food industries,

risks associated with labor disputes (strikes), natural disasters, domestic/political unrest and incidents of violence, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, and

other risks over which the Company has little or no control, and any other factors not identified herein.

Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.

CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“financial statements”) require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2023, as filed with the Securities and Exchange Commission. Other than the adoption of ASU 2016-13 as described in Note 1 of Part I, Item 1 of this quarterly report on Form 10-Q, there have been no significant changes with respect to these estimates and related policies during the three months ended December 2023.

FIRST FISCAL QUARTER 2024 (Q1 2024)

The following discussion and analysis includes the Company’s results of operations for the three months ended December 2023 and December 2022:

Wholesale Segment

Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately 7,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 20,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, 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 2023, 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 distribution 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.

17

Our Wholesale Segment operates nine distribution centers located in Illinois, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia. These distribution centers, combined with cross-dock facilities, include approximately 1.3 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft Heinz, 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 Retail Group 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 grocery 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 United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.

Our Retail Segment operates 15 retail health food stores as Chamberlin’s Natural Foods, Akin’s Natural Foods, and Earth Origins Market. These stores carry over 36,000 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.

RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:

    

2023

    

2022

    

Incr (Decr)

    

% Change

CONSOLIDATED:

Sales (1)

$

644,959,073

$

565,989,507

$

78,969,566

 

14.0

Cost of sales

 

601,658,151

 

531,019,924

 

70,638,227

 

13.3

Gross profit

 

43,300,922

 

34,969,583

 

8,331,339

 

23.8

Gross profit percentage

 

6.7

%  

 

6.2

%  

 

Operating expense

$

39,477,845

$

29,450,072

$

10,027,773

 

34.1

Operating income

 

3,823,077

 

5,519,511

 

(1,696,434)

 

(30.7)

Interest expense

 

2,311,513

 

1,694,158

 

617,355

 

36.4

Change in fair value of mandatorily redeemable non-controlling interest

199,744

(54,916)

254,660

(463.7)

Income tax expense

 

804,000

 

1,304,800

 

(500,800)

 

(38.4)

Net income available to common shareholders

 

1,070,961

 

2,629,001

 

(1,558,040)

 

(59.3)

BUSINESS SEGMENTS:

Wholesale

Sales

$

634,269,644

$

555,727,634

$

78,542,010

 

14.1

Gross profit

 

39,353,558

 

31,275,260

 

8,078,298

 

25.8

Gross profit percentage

 

6.2

%  

 

5.6

%  

 

Retail

Sales

$

10,689,429

$

10,261,873

$

427,556

 

4.2

Gross profit

 

3,947,364

 

3,694,323

 

253,041

 

6.8

Gross profit percentage

 

36.9

%  

 

36.0

%  

 

(1)Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $9.5 million in Q1 2024 and $8.9 million in Q1 2023.

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SALES

Changes in sales are primarily driven by:

(i)changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states;
(ii)changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period; and
(iii) acquisitions.

SALES – Q1 2024 vs. Q1 2023

Sales in our Wholesale Segment increased $78.5 million during Q1 2024 as compared to Q1 2023. Significant items impacting sales during Q1 2024 included a $78.7 million increase in sales related to the acquisition of Henry’s during Q2 2023, a $26.3 million increase in sales related to price increases implemented by cigarette manufacturers, and a $5.0 million increase in sales related to the volume and mix of products in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $31.5 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment increased $0.4 million during Q1 2024 as compared to Q1 2023. This increase was due to approximately $0.8 million related to the re-opening of our Port Charlotte store that was damaged during Hurricane Ian and approximately $0.8 million related to higher sales volumes in our existing stores, partially offset by a $1.2 million decrease related to the closure of four stores between the comparative periods.

GROSS PROFIT – Q1 2024 vs. Q1 2023

Our gross profit does not include fulfillment costs and costs related to the distribution network, which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.

Gross profit in our Wholesale Segment increased $8.1 million during Q1 2024 as compared to Q1 2023. Significant items impacting gross profit during Q1 2024 included a $9.0 million increase in gross profit related to the acquisition of Henry’s in Q2 2023, a $0.1 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases, partially offset by a $0.2 million decrease in gross profit related to the volume and mix of cigarette cartons sold between the comparative periods and a $0.8 million decrease in gross profit related to the mix of volumes and promotions in our Other Products category. Gross profit in our Retail Segment increased $0.3 million during Q1 2024 as compared to Q1 2023. This change was primarily related to a $0.3 million increase related to the re-opening of our Port Charlotte store that was damaged during Hurricane Ian and a $0.4 million increase in realized margins in our existing stores, partially offset by a $0.4 million decrease related to the closure of four stores between the comparative periods.

OPERATING EXPENSE – Q1 2024 vs. Q1 2023

Operating expense includes selling, general and administrative expenses and depreciation. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q1 2024 operating expenses increased $10.0 million as compared to Q1 2023. Significant items impacting operating expenses during Q1 2024 included a $7.8 million increase in operating expenses related to the acquisition of Henry’s during Q2 2023, a $1.5 million increase related to employee compensation and benefit costs, a $0.4 million increase in customer expected credit loss expense, a $0.3 million increase in insurance costs and a $0.3 million increase in other Wholesale Segment operating expenses, partially offset by a $0.3 million decrease in fuel costs.

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INTEREST EXPENSE – Q1 2024 vs. Q1 2023

Interest expense increased $0.6 million in Q1 2024 as compared to Q1 2023, primarily related to higher interest rates and higher outstanding debt balances in the current period related to the acquisition of Henry’s in Q2 2023.

OTHER INCOME – Q1 2024 vs. Q1 2023

The change in other income between the comparative periods was primarily related to an insurance recovery in the current year period.

INCOME TAX EXPENSE – Q1 2024 vs. Q1 2023

The change in the Q1 2024 income tax rate as compared to Q1 2023 was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and higher effective state income tax rates between the comparative periods.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities that we expect to reverse in later periods. Additionally, during our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.

The Company primarily finances its operations through three credit facility agreements (a) a facility that is an obligation of AMCON Distributing Company (the “AMCON Facility”), (b) a facility that is an obligation of Team Sledd (the “Team Sledd Facility”) and (c) a facility that is the obligation of Henry’s (the “Henry’s Facility”) (collectively, the “Facilities”) and long-term debt agreements with banks. The Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company.

At December 2023, the Facilities had a total combined borrowing capacity of $300.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The Henry’s Facility matures in February 2026, the AMCON Facility matures in June 2027, and the Team Sledd Facility matures in March 2028, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and certain real estate. The Facilities each feature an unused commitment fee and springing financial covenants. Borrowings under the Facilities bear interest at either the bank’s prime rate or the Secured Overnight Financing Rate (“SOFR”), plus any applicable spreads.

The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2023 was $228.6 million, of which $140.1 million was outstanding, leaving $88.5 million available.

The average interest rate of the Facilities was 7.17% at December 2023. For the three months ended December 2023, the peak borrowings under the Facilities was $156.8 million, and the average borrowings and average availability under the Facilities was $125.2 million and $86.8 million, respectively.

Cross Default and Co-Terminus Provisions

Team Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions. The Henry’s note payable and the Henry’s Facility contain cross default provisions. There were no such cross defaults for either Team Sledd or

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Henry’s at December 2023. Additionally, the Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry’s, were in compliance with all of the financial covenants under the Facilities at December 2023.

Dividend Payments

The Company paid cash dividends on its common stock totaling $0.1 million in each of the three-month periods ended December 2023 and December 2022. During Q1 2024, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that was paid in Q2 2024. During Q1 2023, the Company declared a $5.00 per share special dividend totaling approximately $3.1 million that was paid in Q2 2023.

Other

The Company has issued a letter of credit for $1.1 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Liquidity Risk

The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.

The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.

While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.      Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

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Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

Other than the ongoing implementation of internal controls over financial reporting related to the acquisition of Henry’s, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.      Legal Proceedings

None.

Item 1A.   Risk Factors

There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2023.

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

The Company issued unregistered securities to certain members of the Company’s management team during the quarterly period ended December 31, 2023, in relation to the vesting and granting of equity awards as described in Note 9 of Part I, Item 1 of this quarterly report on Form 10-Q. These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

Item 3.      Defaults Upon Senior Securities

Not applicable.

Item 4.      Mine Safety Disclosures

Not applicable.

Item 5.      Other Information

During the three months ended December 31, 2023, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.

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Item 6.      Exhibits

(a) Exhibits

3.2

Amended and Restated Bylaws of AMCON Distributing Company dated November 6, 2023 (incorporated by reference to Exhibit 3.2 of AMCON’s Annual Report on Form 10-K filed on November 8, 2023)

10.1

AMCON Distributing Company Executive Change in Control Severance Plan dated November 6, 2023 (incorporated by reference to Exhibit 10.29 of AMCON’s Annual Report on Form 10-K filed on November 8, 2023)

10.2

Form of Indemnification Agreement dated November 6, 2023 (incorporated by reference to Exhibit 10.30 of AMCON’s Annual Report on Form 10-K filed on November 8, 2023)

31.1

Certification by Christopher H. Atayan, Chief Executive Officer and Chairman,  pursuant to section 302 of the Sarbanes-Oxley Act

31.2

Certification by Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary, pursuant to section 302 of the Sarbanes-Oxley Act

32.1

Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act

32.2

Certification by Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary, furnished pursuant to section 906 of the Sarbanes-Oxley Act

101

Interactive Data File (filed herewith electronically)

104

Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101

24

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMCON DISTRIBUTING COMPANY

(registrant)

Date: January 18, 2024

/s/ Christopher H. Atayan

Christopher H. Atayan,

Chief Executive Officer and Chairman

Date: January 18, 2024

/s/ Charles J. Schmaderer

Charles J. Schmaderer,

Vice President, Chief Financial Officer and Secretary

(Principal Financial and Accounting Officer)

25