AMCONDistributing Company7405Irvington RoadOmaha,Nebraska68122amcon.comearthoriginsmarket.comchamberlins.comakins.comANNUAL REPORT3591_Cov.indd13591_Cov.indd111/9/203:14PM11/9/203:14PM CHAMBERLIN’
Lakeland, Florida
S
AKIN’ S
OKC, Oklahoma
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OUR FOO TPRINT
AMCON Warehouse Locations
Akin’s
Chamberlin’s
Earth Origins Market
AMCON Warehouse Locations & Akin’s
• Bismarck, North Dakota
• Altamonte Springs, Florida
• Oklahoma City, Oklahoma
• Lake Mary, Florida
• Crossville, Tennessee
• Kissimmee, Florida
• Rogers, Arkansas
• Palm Harbor, Florida
• Omaha, Nebraska
• Quincy, Illinois
• Lakeland, Florida (2)
• Springfield, Missouri
• Port Charlotte, Florida
• Orlando, Florida
• Tulsa, Oklahoma (3)
• Sarasota, Florida (2)
• Rapid City, South Dakota
• Oviedo, Florida
• Springfield, Missouri
• East Orlando, Florida
• Ocala, Florida
• Gainesville, Florida
• St. Petersburg, Florida
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L E T T E R TO O U R S H A R E H O L D E R S
LADIES AND GENTLEMEN,
We are pleased to report earnings of $5.5 million, or $9.76 per diluted common share for the fiscal year ended September 30, 2020.
Our adjusted shareholders’ equity per share increased to $115.50. AMCON Distributing Company’s (“AMCON” or “the Company”)
leadership team and associates have achieved these financial results by implementing a focused strategic plan centered on short,
medium, and long-term objectives. The overall objective of our strategic plan is to increase shareholder value, as defined by
adjusted shareholders’ equity per share, in a conservative, low risk fashion over the long term.
SHORT TERM
In the short term, which we define as up to six months, navigating the numerous challenges presented to our business due to
the COVID-19 global pandemic (the “Pandemic”) is a critical mission of our management team. At the same time, maximizing the
liquidity of the Company’s balance sheet continues to be central to management’s daily decision making.
As an essential service provider in the United States supply chain, AMCON’s wholesale segment has a large economic footprint,
servicing various trade classes such as convenience stores, truck stops, and rural grocery stores. In addition, the Company’s Healthy
Edge Retail Group plays an important role in providing organic and natural products to consumers in the communities they serve.
Our management team served our various stakeholders well during the year by delivering high quality, branded consumer products
in a timely, reliable, and safe manner in the midst of this current crisis. In the early phases of the Pandemic, and continuing to this
day, our leadership team established protocols which were aligned with federal, state, and local agencies in an effort to keep our
associates and their families safe. Throughout this unprecedented time, AMCON has remained open for business, serving our local
communities, all while maintaining full employment.
Working capital management is one of our core competencies. We believe balance sheet expertise is a critical success factor in
the distribution industry as this discipline provides the foundation for our ability to generate profits and free cash flow. The highly
liquid posture AMCON maintains supports our commitment to excellence in operations, logistics, financial reporting, and cash
management. Our business is capital intensive and requires that we carry thousands of inventory items, which we manage in a
dynamic and real-time fashion. During fiscal 2020, we turned our inventory 19 times while still maintaining high levels of availability
on our credit line.
A relentless focus on liquidity enables AMCON to utilize our capital advantage decisively when strategic and tactical opportunities
present themselves. In fiscal 2020, our financial strength enabled us to meet one of our long-term objectives - a strategic investment
in Team Sledd, LLC (“Team Sledd”), a leading convenience distributor in the Appalachian region of the United States. In addition,
in an effort to support front line Pandemic operations, the strength of our balance sheet allowed us to maintain deep in-stock
inventory positions across many critical product categories. Finally, in fiscal 2020 we continued to make targeted investments
in our facilities and trucking fleet, and executed common share repurchases from long-term shareholders who desired their own
liquidity.
Our banking relationships are strong and long term in nature. The partnership AMCON has with our banking group affords us
significant availability under our credit facility. We understand that we are stewards of the banks’ capital and treat it as if it was our
own. During 2020, we were delighted to renew and expand the size of our long-term credit facility, which was done at the height of
the onset of the Pandemic.
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L E T T E R TO O U R S H A R E H O L D E R S CO N T ’ D
MEDIUM TERM
In the medium term, which we define as six to eighteen months, we seek to generate free cash flow which we can use to reduce
overall debt. We established this objective as a medium-term goal because we frequently leverage our credit facility on an interim
basis to enhance profits. As a leading convenience distributor, we periodically have access to attractive mercantile product
opportunities which benefit our customers. Accordingly, on a short-term basis, borrowings on our credit facility may increase as
these opportunities present themselves. Such opportunities are managed by a highly rigorous and disciplined process whereby we
quickly liquidate the balance sheet after realizing the opportunity. In addition, we frequently utilize capital for acquisitions, share
repurchases, and infrastructure development. Over time, through profits, we seek to reduce our total debt and debt-to-equity ratio.
We began the year with consolidated debt of $64.0 million and ended the year with $65.1 million. The increase in consolidated debt
was temporary as we leveraged our credit facility at the end of fiscal 2020, just as we did in fiscal 2019. At its lowest point during
fiscal 2020, our consolidated debt was $22.2 million. Our total shareholders’ equity increased from $60.8 million at September
30, 2019 to $64.8 million at September 30, 2020. Additionally, during the year we repurchased $2.0 million of common stock from
shareholders and deployed approximately $3.3 million towards capital expenditures. AMCON is a balance sheet driven Company
and our primary focus from a financial perspective is on risk-adjusted return on assets and capital deployed as we build adjusted
shareholders’ equity per share.
In order to maintain and extend our leadership position in the convenience distribution industry, our operational infrastructure
requires continual upgrades. These enhancements are financed primarily through the free cash flow we generate and are necessary
to maintain our competitive position. We continue to evaluate potential locations for new distribution centers as our customer base
expands its geographic footprint.
The continual development of our technology platform remains a major focus of our capital deployment strategy. Technology is
a broad area and expenditures in this area are for our customers and internal users. We service approximately 4,100 locations for
which there is no universal information technology (IT) interface. Hence, our flexibility in this area is a key competitive strength.
To enhance that strength, AMCON has developed the capability to design custom software that capitalizes on current advances
in mobile technology. Our ability to seamlessly integrate with our customers from an IT perspective adds value and increases
customer loyalty. In addition, the associated network requirements necessary to efficiently and securely process the high volume
of transactions requires constant and careful attention on a daily basis. The continued development of proprietary software is
an important strategic objective of the Company. In particular, due to the rapid onset of the Pandemic, our IT group developed
customer friendly modules to enable our trade show series to proceed as planned in a virtual environment.
Our Healthy Edge Retail Group subsidiary operates 21 retail locations under the Akin’s Natural Foods, Chamberlin’s Natural Foods,
and Earth Origins Market store banners. Technology upgrades and merchandise optimization are important components of our
medium-term strategy. Health and wellness are core values of our associates and underpin the Total Wellness solution we seek
to deliver to our customers each day. In particular, during the onset of the Pandemic, our associates were on the front lines. Our
top priority from the beginning was, and continues to be, ensuring the health and safety of our staff as well as our customers. We
remain mindful of the extreme competitive pressures in the retail health food market and the evolution of technology in the retail
sector in general. As such, we are utilizing every opportunity to reduce the Company’s exposure to underperforming store locations
as lease renewals come due. During fiscal 2020, we were able to renew several leases on more favorable terms, while letting one of
our leases expire. In the medium term, our objective is to restore this business segment to consistent profitability and enhance the
strategic alternatives for this business over the long term.
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L E T T E R TO O U R S H A R E H O L D E R S CO N T ’ D
LONG TERM
In the long term, which we define as eighteen months to five years, our strategic objective is to increase AMCON’s presence
in the markets we presently serve, as well as expanding our geographic footprint. We are strategic in our approach to growth.
Relationship building with the management of Team Sledd occurred over a period of many years prior to finalizing a transformative
agreement for a strategic investment in fiscal 2020. Team Sledd brings an outstanding group of management and associates to the
AMCON family, sharing a similar set of cultural beliefs centered on providing an exceptional level of customer service and respect
for colleagues. Team Sledd is the premier service provider in the markets they serve, and has a long history of innovation in the
foodservice offerings category, and will play an important role as we pursue future growth opportunities.
New business development efforts in the convenience distribution industry have long lead times. We believe the intrinsic value
of our Company is enhanced, and risk is reduced, when we expand through acquisitions. Hence, we are continually seeking new
acquisition and investment opportunities which can benefit from our platform and suite of services. However, our evaluation
process is measured and pragmatic. We are willing to pay a fair price for assets acquired and close transactions in a very efficient
manner. We carefully examine all opportunities to deploy capital and rank them on a spectrum overlaying our strategic plan. This
dynamic prioritization enables AMCON to consider acquisitions, new facilities, inventory purchases, capital expenditures, share
repurchases, and new store opening/relocation opportunities as they best fit our strategic plan and goals.
The tobacco industry continues to be in a well-documented long-term decline. In fact, many industry leaders are openly moving
away from combustible cigarettes, a trend which reinforces the Company’s high prioritization and long-term commitment to
developing and maintaining robust foodservice offerings. While the Pandemic environment has impacted foodservice in the short
and medium term, we continue to believe the future of convenience distribution is closely tied to the ability to complete against
quick service restaurants by offering best in class foodservice programs. Accordingly, we continue to make long-term investments
to our foodservice platforms, as we develop a wide variety of high quality foodservice offerings and help our customers’ competitive
position and profitability. Each customer is evaluated in regards to their own specific needs and our management team tailors
foodservice solutions to maximize the potential benefits to their individual business. We believe the breadth of our foodservice
programs provide our customers with a deep menu of options which can be tailored to their staffing and facility capabilities.
Critical to our food service mission is AMCON’s commitment to maintaining the highest standards for quality and food safety,
which we believe are a differentiating position for our customers. Our commitment to foodservice means continued investments in
equipment, facilities, and the systems necessary to be a trusted supplier.
OUR PHILOSOPHY
The centerpiece of our organizational philosophy is our Customer First approach to delivering value-added service. Our ability to
operate efficiently and effectively under the duress of the Pandemic built upon, and reinforced, this core value. AMCON’s financial
success is a direct result of our Company-wide adherence to this philosophy. Our customers’ financial success is dependent on our
ability to deliver high quality branded consumer products in a timely and manner while providing superior service, develop leading
edge technologies, and maintaining an exceptional array of product offerings. In the summer of 2020, our local teams maintained
focus on the flow of goods to our customers while working through the complexities of social unrest and the significant supply
chain challenges the Pandemic presented. This “can do” philosophy of our staff is a long-term outgrowth of our original legacy of
providing high quality service for the pioneering convenience store operators of the Great Plains region.
Competition in the convenience store industry is fierce. Our objective is for our customers’ convenience stores to be the finest
merchandised and managed operations in their rural and urban regions. The investments we are making at AMCON are with this
customer-oriented objective in mind. Our organization is entirely geared towards our partnership with customers, with a focus
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LETTER T O OUR SHAREHOLDERS C
ONT’D
on helping them grow their enterprises and enhance profitability. We believe AMCON’s customer centric heritage and approach
meaningfully differentiates us from our competition. Our talented group of managers and associates enthusiastically drive our
strategic plan with this philosophy as a tailwind. We are actively seeking new additions to our management and associate teams
as we believe that AMCON has the opportunity to provide meaningful career paths at every level for those who possess an
entrepreneurial spirit.
2020 was a year for the ages. AMCON delivered on every aspect of its strategic business plan in a meaningful fashion. It is with
great thanks and appreciation to all our colleagues, customers, vendors and financial partners whose hard work, courage, faith and
dedication led to this year of progress and achievement.
We look forward to building your enterprise in fiscal 2021 and beyond. Thank you for your continued support.
Sincerely,
Christopher H. Atayan
Chairman and Chief Executive Officer
Debt in Millions
Net Worth in Millions
$62.9
$54.3
$50.3
$29.4
$28.4
$24.9
$20.6 $19.9 $19.2
$24.6
$13.9
$65.1
$64.0
$40.2
$32.1
$68.2
$65.8
$64.6
$64.8
$60.8
$61.4
$55.4
$52.7
$48.5
$41.7
$32.8
$23.8
$11.0
$5.5
($1.7)
2006
2007 2008
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2020
2006
2007
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2020
Adjusted Shareholders’ Equity Per Share
$115.50
$106.56
$96.03$99.24
$102.85
$88.23
$80.62
$74.91
$67.54
$59.11
$49.08
$37.65
$20.50
$14.70
$9.94
2006
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2020
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-15589
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
7405 Irvington Road, Omaha NE
(Address of principal executive offices)
47-0702918
(I.R.S. Employer
Identification No.)
68122
(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
Common Stock, $0.01 Par Value
Trading Symbol(s)
DIT
Name of Each Exchange on Which Registered
NYSE American
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 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
Non-accelerated filer
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 Act). Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on March 31, 2020 was $11,353,860 computed by reference
to the $63.00 closing price of such common stock equity on March 31, 2020.
As of November 6, 2020 there were 551,437 shares of common stock outstanding.
Portions of the following document are incorporated by reference into the indicated parts of this report: definitive proxy statement for the December 2020 annual meeting of
stockholders to be filed with the Commission pursuant to Regulation 14A—Part III.
Page
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16
17
17
17
18
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20
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31
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AMCON DISTRIBUTING COMPANY
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A.
Controls and Procedures
Other Information
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
2
PART I
For purposes of this report, unless the context indicates otherwise, all references to “we,” “us,” “our,” “Company,” and
“AMCON” shall mean AMCON Distributing Company and its subsidiaries. The Company’s 2020 and 2019 fiscal years
ended September 30, are herein referred to as fiscal 2020 and fiscal 2019, respectively. The fiscal year-end balance sheet
dates of September 30, 2020 and September 30, 2019 are referred to herein as September 2020 and September 2019,
respectively. This report and the documents incorporated by reference herein, if any, contain forward looking statements,
which are inherently subject to risks and uncertainties. See “Forward Looking Statements” under Item 7 of this report.
ITEM 1. BUSINESS
COMPANY OVERVIEW
AMCON Distributing Company was incorporated in Delaware in 1986 and our common stock is listed on NYSE American
under the symbol “DIT.” The Company operates 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 December 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 accessing trade credit.
Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South
Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately 685,000
square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs,
Kraft, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We
do not maintain any long-term purchase contracts with our suppliers.
3
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.
Our Retail Segment operates twenty-one retail health food stores as Chamberlin’s Natural Foods (Chamberlin’s), Akin’s
Natural Foods (Akin’s), and Earth Origins Market (EOM). These stores carry over 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. EOM has a total of eight locations in Florida.
COMPETITIVE STRENGTHS
We believe that we benefit from a number of competitive strengths, including the following:
Industry Experience
The management teams for both of our business segments include substantial depth in the areas of finance, information
technology, business development, retail store support, logistics, sales, and marketing. This experience is beneficial for
the management of vendor and customer relationships as well as overall operational execution.
Flexible Distribution Capabilities and Customer Service Programs
Wholesale distributors typically provide convenience store retailers access to a broad product line, the ability to place small
quantity orders, inventory management, and access to trade credit. As a large, full-service wholesale distributor, we offer
retailers a wide array of manufacturer and Company sponsored sales and marketing programs, merchandising and product
category management services, and the use of information systems that are focused on minimizing retailers’ investment in
inventory, while seeking to maximize their sales and profit.
The wholesale distribution industry is highly fragmented and historically has consisted of a small number of large, full
service wholesale distributors serving multiple geographic regions and a large number of small, privately-owned
businesses. Relative to smaller competitors, large distributors such as our Company benefit from several competitive
advantages including: increased purchasing power, the ability to service large chain accounts, economies of scale in sales
and operations, and the resources to invest in information technology and other productivity-enhancing technologies.
Broad Product Selection
Our retail health foods business prides itself in carrying a broad and superior-quality selection of organic and natural food
products and vitamin supplements. The breadth of our product offerings, combined with highly trained and knowledgeable
in-store associates, has created a loyal customer following where our stores are sought out destinations, providing a
personalized shopping experience.
4
BUSINESS STRATEGY
Our business strategy focuses on short, medium, and long term objectives designed to create shareholder value. Our
strategic objectives are:
• Maximizing liquidity and generating cash flow from operations in the short term.
• Developing new customer focused technology applications, expanding our foodservice platform, and investing in our
infrastructure in the medium term.
• Growing both organically and through acquisitions, and expanding our geographic footprint in the long term.
To execute this strategy, our Company has rigorous operational processes in place designed to control costs, manage credit
risk, monitor inventory levels, and maintain maximum liquidity. The success of our strategy, however, is ultimately
dependent on our ability to provide superior service, develop leading edge technologies, and maintain an exceptional array
of product offerings.
PRINCIPAL PRODUCTS
The sales of cigarettes represented approximately 69% of our consolidated revenue in both fiscal 2020 and fiscal 2019.
Sales of candy, beverages, foodservice, groceries, health food products, paper products, health and beauty care products,
and tobacco products represented approximately 31% of our consolidated revenue in both fiscal 2020 and fiscal 2019.
INFORMATION ON SEGMENTS
Information about our segments is presented in Note 13 to the Consolidated Financial Statements included in this Annual
Report.
COMPETITION—Wholesale Segment
Our Wholesale Segment has a significant presence in the regions in which we operate. There are, however, a number of
both national and regional wholesale distributors operating in the same geographical regions as our Company, resulting in
a highly competitive marketplace. Our principal competitors are national wholesalers such as McLane Co., Inc. (Temple,
Texas) and Core-Mark International (Westlake, Texas), as well as regional wholesalers such as Eby-Brown LLC (Chicago,
Illinois), H.T. Hackney (Knoxville, Tennessee) and Imperial Trading (Elmwood, Louisiana) along with a host of smaller
grocery and tobacco wholesalers. We also face competition from Whole Foods Market and/or its parent company
Amazon™ which continue to pursue a vertical, multi-channel sales strategy whereby both retail consumers and business
level customers are targeted.
Competition within the wholesale distribution industry is primarily based on the range and quality of the services provided,
pricing, variety of products offered, and the reliability of deliveries. Our larger competitors principally compete on pricing
and breadth of product offerings, while our smaller competitors focus on customer service and their delivery arrangements.
We believe our business model positions us to compete with a wide range of competitors including national, regional, and
local wholesalers. As the eighth (8th) largest convenience store distributor in the United States based on annual sales
(according to Convenience Store News), our wholesale distribution business has sufficient economies of scale to offer
competitive pricing as compared to national wholesalers. Additionally, we believe our flexible distribution and support
model allows us to provide a high level of service and customized merchandising solutions.
5
COMPETITION—Retail Segment
Natural food and supplement retailing is an intensely competitive business. We face competition from a variety of sales
channels including local, regional, and national retailers, specialty supermarkets, membership clubs, farmers markets, other
natural foods stores, and internet and/or digital direct-to-consumer retailers, each of which competes with us on the basis
of product selection, quality, customer service, and price.
The natural food retail industry is highly fragmented. According to The Natural Foods Merchandiser (“NFM”), there are
approximately 9,600 natural food retail stores operating independently or as part of small retail chains and nearly 24,500
stores when national chains are included. These competitors include companies such as Sprouts Farmers Market, Natural
Grocers, Trader Joe’s, Fresh Thyme Farmers Market, General Nutrition Centers and Vitamin Shoppe. We also face
competition from Whole Foods Market and/or its parent company Amazon™ and other online competitors which continue
to pursue vertical, multi-channel sales strategies whereby both retail consumers and business level customers are targeted.
We also compete with specialty supermarkets, other independent natural foods stores chains, small specialty stores, and
restaurants. In recent years, conventional supermarkets and mass market outlets such as Krogers, Albertsons, Walmart,
Publix, Aldi and Costco have significantly increased their offerings of organic and natural products adding another layer
of competition.
SEASONALITY
Sales in the wholesale distribution industry are somewhat seasonal and tend to be higher in warm weather months during
which our convenience store customers experience increased customer traffic. The warm weather months generally fall
within the Company’s third and fourth fiscal quarters. Our retail health food business does not generally experience
significant seasonal fluctuations in its business.
GOVERNMENT REGULATION
AMCON is subject to regulation by federal, state and local governmental agencies, including but not limited to the U.S.
Department of Agriculture (“USDA”), the U.S. Food and Drug Administration (“FDA”), the Occupational Safety and
Health Administration (“OSHA”), the Bureau of Alcohol Tobacco and Firearms (“ATF”) and the U.S. Department of
Transportation (“DOT”). These regulatory agencies generally impose standards for product quality and sanitation,
workplace safety, and security and distribution policies.
The Company operates in 26 states and is subject to state regulations related to the distribution and sale of cigarettes and
tobacco products, generally in the form of licensing and bonding requirements. Additionally, both state and federal
regulatory agencies have the ability to impose excise taxes on cigarette and tobacco products. In recent years a number of
states, as well as the federal government, have increased the excise taxes levied on cigarettes and tobacco products. We
expect this trend to continue as legislators look for alternatives to fund budget shortfalls and as a mechanism to discourage
tobacco product use.
ENVIRONMENTAL MATTERS
All of AMCON’s facilities and operations are subject to state and federal environmental regulations. The Company
believes it is in compliance with all such regulations and is not aware of any violations that could have a material adverse
effect on its financial condition or results of operations. Further, the Company has not been notified by any governmental
authority of any potential liability or other claim in connection with any of its properties. The costs and effect on the
Company to comply with state and federal environmental regulations were not significant during either fiscal 2020 or
fiscal 2019.
6
EMPLOYEES
At September 2020, the Company had 760 full-time and 169 part-time employees, which together serve in the following
areas:
Managerial
Administrative
Delivery
Sales & Marketing
Warehouse
Total Employees
45
93
144
353
294
929
Approximately thirty of our wholesale delivery employees in our Quincy, Illinois distribution center are represented by
the International Association of Machinists and Aerospace Workers (“IAMAW”). The current labor agreement with the
union is effective through December 2020.
CORPORATE AND AVAILABLE INFORMATION
The Company’s principal executive offices are located at 7405 Irvington Road, Omaha, Nebraska 68122. The telephone
number at that address is 402-331-3727 and our website address is www.amcon.com. We provide free access to the various
reports we file with the United States Securities and Exchange Commission through our website. These reports include,
but are not limited to, our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Please note that any internet
addresses provided in this report are for information purposes only and are not intended to be hyperlinks. Accordingly, no
information found and/or provided at such internet addresses is intended or deemed to be incorporated by reference herein.
You may also read and copy any materials we file with the Commission at the SEC’s Public Reference Room at 100 F
Street NE, Washington, DC 20549 on official business days during the hours of 10:00 a.m. to 3:00 p.m. You can get
information about the Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains a website at
www.sec.gov which contains reports, proxies and other company information.
ITEM 1A. RISK FACTORS
IN GENERAL
You should carefully consider the risks described below before making an investment decision concerning our securities.
If any of the following risks actually materialize, our business, financial condition or results of operations could be
materially adversely affected. In that case, the trading price of our common stock could decline substantially. This Annual
Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks
described below and elsewhere in this Annual Report. See “Forward Looking Statements” under Item 7 of this report for
a discussion of forward looking statements.
RISK FACTORS RELATED TO THE WHOLESALE BUSINESS
• Regulation of Cigarette, Tobacco and Tobacco Related Products by the FDA May Negatively Impact Our Operations.
In 2009, the Family Smoking Prevention and Tobacco Control Act was signed into law which granted the FDA the
authority to regulate the production, distribution, and marketing of tobacco products in the United States. Specifically, the
legislation established an FDA office to regulate changes to nicotine yields, chemicals, flavors, ingredients, and the labeling
used to produce and market tobacco products. The FDA office is financed through user fees paid by tobacco companies,
which is passed on to wholesale distributors and end consumers in the form of higher costs.
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To date, most of the regulatory and compliance burden related to this legislation has fallen upon product manufacturers.
However, if the FDA were to impose new regulations impacting wholesale distributors that we are not able to comply
with, we could face remedial actions such as fines, suspension of product distribution rights, and/or termination of
operations. Further, if the FDA were to issue product bans or product restrictions on cigarettes, tobacco or other nicotine
delivery devices, our future revenue stream could materially decrease. If any of these items were to occur, our results from
operations, cash flow, business, and overall financial condition could be negatively impacted.
• The Regulation of Electronic Cigarettes (e-cigarettes) and Vaping Products May Negatively Impact Our Results of
Operations.
The regulation of e-cigarettes and related vaping product categories by federal, state, and local governmental agencies, as
well as potential litigation against product manufacturers and/or entities which distribute or sell such products may
negatively impact our sales, costs, results of operations, and cash flows should the current regulatory environment persist
or expand, or if related litigation should arise.
• Our Sales Volume Is Largely Dependent upon the Distribution of Cigarette Products, Which is a Declining Sales
Category.
The distribution of cigarettes represents a significant portion of our business. During fiscal 2020 approximately 69% of
our consolidated revenues came from the distribution of cigarettes which generated approximately 17% of our consolidated
gross profit. Due to manufacturer price increases, restrictions on advertising and promotions, regulation, higher excise and
other taxes, health concerns, smoking bans, and other factors, the demand for cigarettes may continue to decline. If this
occurs, our results from operations, cash flow, business, and overall financial condition could be negatively impacted.
• Cigarettes and Other Tobacco Products Are Subject to Substantial Excise Taxes and If These Taxes Are Increased,
Our Sales of Cigarettes and Other Tobacco Products Could Decline.
Cigarette and tobacco products are subject to substantial excise taxes. Significant increases in cigarette and tobacco-related
taxes and fees have been imposed by city, state, and federal governments in recent years. Further, the evolving regulatory
responsibilities of the FDA are being funded by fees imposed on tobacco companies. These fees have been passed on to
wholesale distributors and end consumers in the form of higher prices for cigarette and tobacco products.
Increases in excise taxes and fees imposed by the FDA may reduce the long-term demand for cigarette and tobacco products
and/or result in a sales shift from higher margin premium cigarette and tobacco products to lower margin deep-discount
brands, while at the same time increasing the Company’s accounts receivable risk and inventory carrying costs. If any of
these events were to occur, our results from operations, cash flow, liquidity position, and overall financial condition could
be negatively impacted.
• Divestiture and Consolidation Trends Within the Convenience Store Industry May Negatively Impact Our Operations.
Divestitures and consolidations within the convenience store industry reflect a trend that may result in customer losses for
us if the acquiring entity is served by another wholesale distributor and we are unable to retain the business. If we were to
lose a substantial volume of business because of these trends, our results from operations, cash flow, business, and overall
financial condition could be negatively impacted.
• Volatility in Fuel Prices Could Reduce Profit Margins and Adversely Affect Our Business.
Increases or decreases in fuel prices can and do have an impact on our profit margins. If we are not able to meaningfully
pass on these costs to customers, it could adversely impact our results of operations, business, cash flow, and financial
condition.
8
• The Wholesale Distribution of Convenience Store Products Is Significantly Affected by Pricing Decisions and
Promotional Programs Offered by Manufacturers and State Taxing Authorities.
We are subject to changes in pricing strategies utilized by manufacturers of the products we distribute. We also receive
payments from these manufacturers including allowances, discounts, volume rebates, and other merchandising incentives
in connection with various incentive programs. In addition, we receive discounts from states in connection with the
purchase of excise stamps for cigarettes. If the pricing strategies of the manufacturers change or the manufacturers or states
change or discontinue these promotional programs or we are unable to maintain the volume of our sales, our results of
operations, business, cash flow, and financial condition could be negatively affected. There are no assurances that the
manufacturers or states will maintain these promotional programs.
• Competition Within The Wholesale Distribution Industry May Have an Adverse Effect on Our Business.
The wholesale distribution industry is highly competitive. There are many distribution companies operating in the same
geographical regions as our Company. Our Company’s principal competitors are national and regional wholesalers, along
with a host of smaller grocery and tobacco wholesalers. We also face competition from Whole Foods Market and/or its
parent company Amazon™ which pose a threat to the supply chains of food and grocery retailers as well as convenience
stores served by wholesale distribution companies as they continue to pursue a vertical, multi-channel sales strategy
whereby both retail consumers and business level customers are targeted. Most of these competitors generally offer a wide
range of products at prices comparable to those offered by our Company. Some of our competitors have substantial
financial resources and long-standing customer relationships. This competition may reduce our margins and/or cause a
loss in market share, adversely impacting our results of operations, cash flow, and financial condition.
• We Occasionally Purchase Cigarettes From Manufacturers Not Covered by The Tobacco Industry’s Master Settlement
Agreement (“MSA”), Which May Expose Us to Certain Potential Liabilities and Financial Risks for Which We Are
Not Indemnified.
In 1994, the Mississippi attorney general brought an action against various tobacco industry members on behalf of the state
to recover state funds paid for health-care costs related to tobacco use. Subsequently, most other states sued the major U.S.
cigarette manufacturers based on similar theories. The cigarette manufacturer defendants settled the first four of these cases
with Mississippi, Florida, Texas and Minnesota by separate agreements. These states are referred to as non-MSA states.
In November 1998, the major U.S. tobacco product manufacturers entered into the MSA with 46 states, the District of
Columbia and certain U.S. territories. The MSA and the other state settlement agreements settled health-care cost recovery
actions and monetary claims relating to future conduct arising out of the use of, or exposure to, tobacco products, imposed
a stream of future payment obligations on major U.S. cigarette manufacturers and placed significant restrictions on the
ability to market and sell cigarettes. The payments required under the MSA resulted in the products sold by the participating
manufacturers being priced at higher levels than the products sold by non-MSA manufacturers.
In order to limit our potential tobacco related liabilities, we try to limit our purchases of cigarettes from non-MSA
manufacturers for sale in MSA states. The benefits of liability limitations and indemnities we are entitled to under the
MSA do not apply to sales of cigarettes manufactured by non-MSA manufacturers. From time-to-time, however, we find
it necessary to purchase a limited amount of cigarettes from non-MSA manufacturers. For example, during a transition
period while integrating distribution operations from an acquisition we may need to purchase and distribute cigarettes
manufactured by non-MSA manufacturers to satisfy the demands of customers of the acquired business. With respect to
sales of such non-MSA cigarettes, we could be subject to litigation that could expose us to liabilities for which we would
not be indemnified.
•
If the Tobacco Industry’s Master Settlement Agreement Is Invalidated, or Tobacco Manufacturers Cannot Meet Their
Obligations to Indemnify Us, We Could Be Subject to Substantial Litigation Liability.
In connection with the MSA, we are indemnified by many of the tobacco product manufacturers from whom we purchase
cigarettes and other tobacco products for liabilities arising from the sale of the tobacco products that they supply to us.
However, if litigation challenging the validity of the MSA were to be successful and all or part of the MSA is invalidated,
we could be subject to substantial litigation due to the sales of cigarettes and other tobacco products, and we may not be
9
indemnified for such costs by the tobacco product manufacturers in the future. In addition, even if we continue to be
indemnified by cigarette manufacturers that are parties to the MSA, future litigation awards against such cigarette
manufacturers could be so large as to eliminate the ability of the manufacturers to satisfy their indemnification obligations.
Our results of operations, business, cash flow, and overall financial condition could be negatively impacted due to increased
litigation costs and potential adverse rulings against us.
• We Face Competition From Sales of Deep-Discount Brands and Illicit and Other Low Priced Sales of Cigarettes.
Increased selling prices for cigarettes and higher cigarette taxes have resulted in the growth of deep-discount cigarette
brands. Deep-discount cigarette brands are brands generally manufactured by companies that are not original participants
to the MSA, and accordingly do not have cost structures burdened by the MSA. Since the MSA was signed, the category
of deep-discount brands manufactured by smaller manufacturers or supplied by importers has grown substantially. If this
growth continues, our results of operations, business cash flows, and overall financial condition would be negatively
impacted.
RISK FACTORS RELATED TO THE RETAIL BUSINESS
•
Increased Competition in the Retail Health Food Industry May Have an Adverse Effect on Our Business.
In our retail health food business, we compete with a wide range of well financed regional and national competitors such
as Whole Foods Markets, Trader Joe’s, Sprouts Farmers Market, Natural Grocers, Fresh Thyme Farmers Market, General
Nutrition Centers, Vitamin Shoppe, and other online competitors such as Amazon™ all who have embarked on aggressive
expansion strategies. Additionally, we compete with specialty supermarkets, other and independent natural foods stores
chains, small specialty stores, and restaurants. Conventional supermarkets and mass market outlets such as Krogers,
Albertsons, Walmart, and Costco have also significantly increased their offerings of organic and natural products providing
another layer of competition. Finally, if online shopping continues to grow in popularity and further disrupts traditional
sales channels, it may present a significant direct risk to brick and mortar retailers, including the Company. We face
competition from Whole Foods Market and/or its parent company Amazon™ which pose a threat to the supply chains of
the grocery and natural foods business as they continue to pursue a vertical, multi-channel sales strategy whereby both
retail consumers and business level customers are targeted. Most of these competitors may have greater financial and
marketing resources than our Company and may be able to devote greater resources to sourcing, promoting, and selling
their products. In response to heightened competition, the Company is implementing a repositioning strategy for our retail
business. This repositioning strategy calls for a wide range of initiatives including the possible addition of one or more of
our new retail store prototypes per year into the foreseeable future. The opening of new retail stores inherently brings
additional risk to the business. Further, if our repositioning strategy in response to this increase in competition is not
successful, it may have a material adverse effect on our results of operations, business, cash flow, and financial condition,
and could potentially result in the impairment of assets within this business segment.
• Changes in the Availability of Quality Natural and Organic Products Could Impact Our Business.
There is no assurance that quality natural and organic products including dietary supplements, fresh and processed foods
and vitamins will be available to meet our stores future needs. If conventional supermarkets increase their natural and
organic product offerings or if new laws require the reformulation of certain products to meet tougher standards, the supply
of these products may be constrained. Any significant disruption in the supply of quality natural and organic products
could have a material adverse impact on our overall sales and product costs.
• Perishable Food Product Losses Could Materially Impact Our Results.
Our retail stores carry many perishable products which may result in significant product inventory losses in the event of
extended power outages, natural disasters, or other catastrophic occurrences.
10
• A Reduction in Traffic to Anchor Stores in the Shopping Areas in Close Proximity to Our Stores Could Significantly
Reduce Our Sales and Leave Us With Unsold Inventory, Which Could Have a Material Adverse Effect on Our
Business, Financial Condition and Results of Operations.
Many of our stores are located in close proximity to shopping areas that also accommodate other well-known anchor stores.
Sales at our stores are derived, in part, from the volume of traffic generated by the other anchor stores in the shopping
areas where our stores are located. Customer traffic may be adversely affected by regional economic downturns, a general
downturn in the local area where our store is located, long-term nearby road construction projects, the closing of nearby
anchor stores or other nearby stores or the decline of the shopping environment in a particular shopping area. Any of these
events would reduce our sales and leave us with excess inventory, which could have a material adverse impact on our
business, financial condition, and results of operation. In response to such events, we may be required to increase
markdowns or initiate marketing promotions to reduce excess inventory, which would further decrease our gross profits
and net income.
•
If We Are Unable to Successfully Identify Market Trends and React to Changing Consumer Preferences in a Timely
Manner, Our Sales May Decrease.
We believe our success depends, in substantial part, on our ability to:
•
•
•
anticipate, identify and react to natural and organic grocery and dietary supplement trends and changing consumer
preferences in a timely manner;
translate market trends into appropriate, saleable product and service offerings in our stores before our
competitors; and
develop and maintain vendor relationships that provide us access to the newest merchandise on reasonable terms.
If we are unable to anticipate and satisfy consumer merchandise preferences in the regions where we operate, our sales
may decrease, and we may be forced to increase markdowns of slow-moving merchandise, either of which could negatively
impact our business, results of operations, cash flow, and financial condition.
•
If We or Our Third-Party Suppliers Fail to Comply With Regulatory Requirements, or are Unable to Provide Products
that Meet Our Specifications, Our Business and Our Reputation Could be Negatively Impacted.
If we or our third-party suppliers, including suppliers of our private label products, fail to comply with applicable regulatory
requirements or to meet our specifications for quality, we could be required to take costly corrective action and our
reputation could be negatively impacted. We do not own or operate any manufacturing facilities, and therefore depend
upon independent third-party vendors to produce our private label branded products, such as vitamins, minerals, dietary
supplements, body care products, food products and bottled water. Third-party suppliers of our private label products may
not maintain adequate controls with respect to product specifications and quality. Such suppliers may be unable to produce
products on a timely basis or in a manner consistent with regulatory requirements. Additionally, there are no assurances
that we would be successful in finding new third-party suppliers that meet our quality guidelines if needed. If any of these
events were to occur, our results from operations, cash flow, liquidity position, and overall financial condition could be
negatively impacted.
11
RISK FACTORS RELATED TO ALL OF OUR BUSINESSES
• A Major Epidemic or Pandemic or other Widespread Public Health Issue Could Adversely Affect Our Results of
Operations and Financial Condition.
The emergence and spread of a major epidemic or pandemic (such as the recent COVID-19 or coronavirus) or other
widespread public health issue could affect our employees, suppliers and/or customers and cause disruption in our
operations including, but not limited to, travel restrictions, temporary closing of one or more of our distribution warehouses
or retail stores, labor shortages, business shutdowns, or regional quarantines. These disruptions could negatively affect our
ability to service our customers, could contribute to adverse economic conditions including decreases in demand for the
products we distribute, resulting in lower sales and profitability, or could present increased credit risk to the Company
from customer credit defaults resulting from an economic downturn. In addition to the potential operational risks described
above, disruptions caused by a widespread public health issue could present increased reputational risk to the Company or
result in legal claims or costly response measures.
• Risk Associated with Equity Investments or the Acquisition of Assets or New Businesses.
From time to time, one or both of the Company’s business segments may acquire assets from other businesses, may acquire
all or a portion of another business, or may make an equity investment in another business through the purchase of stock
or other means. The purchase of assets or of all or part of a business or an equity investment in another business can bring
significant risks to the Company in a number of areas including purchase price, amount of equity investment, business
valuation and recording risks, customer retention risks, risks associated with the assumption of liabilities or obligations,
integration risks, technology risks, risks associated with the addition of new employees such as health care costs, and a
wide range of other risks and considerations. While the Company strives to minimize the risks associated with its
acquisition or equity investment activities, issues may arise which could have a material negative impact on the Company’s
results of operations, balance sheet, and cash flows.
•
Risks Associated with Trade Tariffs.
The Company purchases products from a wide range of vendors in both of its businesses. Some of our vendors may import
certain products as part of their manufacturing processes and could be impacted by higher costs resulting from trade tariffs.
Further, the impact of higher costs at the retail level may negatively impact consumer disposable income and demand. In
the event that our product purchase costs from our vendors increase and we cannot pass on those price increases or if the
retail level demand for the products we sell decreases, the Company’s results of operations, balance sheet, and cash flows
could be negatively impacted.
• Employee Healthcare Benefits Represent a Significant Expense for Our Company and May Negatively Affect Our
Profitability.
Healthcare represents a significant expense item for our Company and there is a general upward trend in healthcare costs
nationwide. While we strive to control these costs through modifications to insurance coverage, including co-pays and
deductibles, there can be no assurance that we will be as successful in controlling such costs in the future. Continued
increases in healthcare costs, as well as changes in laws, regulations, and assumptions used to calculate health and benefit
expenses, may adversely affect our business, financial position and results of operations.
• We May Be Subject to Product Liability Claims Which Could Adversely Affect Our Business.
We may face exposure to product liability claims in the event that the use of products sold by us is alleged to cause injury
or illness. However, product liability insurance may not continue to be available at a reasonable cost, or, if available, may
not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from
parties supplying the products we sell, but this indemnification or insurance coverage is limited, as a practical matter, to
the creditworthiness of the indemnifying party and the insurance limits of any insurance provided by suppliers. If we do
not have adequate insurance or if contractual indemnification is not available or if the counterparty cannot fulfill its
12
indemnification obligation, product liability relating to allegedly defective products could have a material adverse impact
our results of operations, cash flow, business, and overall financial condition.
• Risk Associated with Insurance Plans Claims.
The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’
compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability, and
employee health care benefits. Liabilities associated with these risks are estimated by the Company, in part, by considering
historical claims experience, demographic factors, severity factors, and other assumptions. Our results could be materially
impacted by claims and other expenses related to such insurance plans if future occurrences and claims differ from these
assumptions and historical trends.
• A Deterioration in Economic Conditions May Negatively Impact Sales in Both Our Business Segments.
Our results of operations and financial condition are particularly sensitive to changes in the overall economy, including
the level of consumer spending. Changes in discretionary spending patterns may decrease demand from our convenience
store customers and/or impact the demand for natural food products in our retail health food stores as customers purchase
less expensive product alternatives.
Additionally, many of our wholesale segment customers are thinly capitalized and their access to credit in the current
business environment may be impacted by their ability to operate as a going concern, presenting additional credit risk for
the Company. In a period of economic downturn or if the economy deteriorates, it could result in lower sales and
profitability as well as customer credit defaults.
• Periods of Significant or Prolonged Inflation or Deflation Affect Our Product Costs and Profitability.
Volatile product costs have a direct impact on our business. Prolonged periods of product cost inflation may have a negative
impact on our profit margins and earnings to the extent that we are unable to pass on all or a portion of such product cost
increases to our customers, which may have a negative impact on our business and our profitability. In addition, product
cost inflation may negatively impact consumer spending decisions, which could adversely impact our sales. Conversely,
our business may be adversely impacted by periods of prolonged product cost deflation because we make a significant
portion of our sales at prices that are based on the cost of products we sell plus a percentage markup. As a result, our profit
levels may be negatively impacted during periods of product cost deflation, even though our gross profit percentage may
remain relatively constant.
• We Rely Heavily on Our Information Technology Systems to Operate Our Business. Any Disruptions to These
Technology Systems Including Security Breaches, Cyber-Attacks, Malware, or Other Methods by Which Our
Information Systems Could Be Compromised, May Have a Material Negative Impact on Our Business.
We rely extensively on our information technology systems to run all aspects of our business. If any of our information
technology systems are damaged or made unavailable due to a wide range of issues such as power outages, computer and
telecommunications failures, computer viruses, security breaches, malware, or compromised by any other method, it could
have a material negative impact on our operations and profits.
• Adverse Publicity About Us or Lack of Confidence in The Products We Carry Could Negatively Impact Our
Reputation and Reduce Earnings.
Maintaining a good reputation and public confidence in the products we distribute is critical to our business. Anything that
damages that reputation or the public’s confidence in our products, whether or not justified, including adverse publicity
about the quality, safety or integrity of our products, could quickly and adversely affect our revenues and profits. In
addition, such adverse publicity may result in product liability claims, a loss of reputation, and product recalls which would
have a material adverse effect on our sales and operations.
13
•
Impairment Charges for Goodwill or Other Intangible Assets Could Adversely Affect Our Financial Condition and
Results of Operations.
We annually test goodwill and intangible assets with indefinite useful lives to determine if impairment has occurred.
Additionally, interim reviews must be performed whenever events or changes in circumstances indicate that impairment
may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash
impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied
fair value of the goodwill or other intangible assets in the period the determination is made.
The testing of goodwill and other intangible assets for impairment requires management to make significant estimates
about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous
factors, including potential changes in economic, industry or market conditions, changes in business operations, changes
in competition or changes in our stock price and market capitalization. Changes in these factors, or changes in actual
performance compared with estimates of our future performance, may affect the fair value of goodwill or other intangible
assets, which may result in impairment charges. We cannot accurately predict the amount and timing of any impairment
of assets. Should the value of goodwill or other intangible assets become impaired, our financial condition and results of
operations may be adversely affected.
• Capital Needed for Expansion May Not Be Available.
The acquisition of other distributors or existing retail stores, the development and opening of new retail stores and
distribution facilities, and the expansion of existing distribution facilities requires significant amounts of capital. In the
past, our growth has been funded primarily through proceeds from bank debt, private placements of equity and debt and
internally generated cash flow. These and other sources of capital may not be available to us in the future, which could
impair our ability to further expand our business.
• Covenants in Our Revolving Credit Facility May Restrict Our Ability to React to Changes Within Our Business or
Industry.
Our revolving credit facility imposes certain restrictions on us that could increase our vulnerability to general adverse
economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and
industry. Specifically, these restrictions limit our ability, among other things, to incur additional indebtedness, make
distributions, pay dividends, issue stock of subsidiaries, make investments, repurchase stock, create liens, enter into
transactions with affiliates, merge or consolidate, or transfer and sell our assets.
• Failure to Meet Restrictive Covenants in Our Revolving Credit Facility Could Result in Acceleration of the Facility
and We May not be Able to Find Alternative Financing.
Under our credit facility, we are required to maintain a minimum debt service ratio if our excess availability falls below
10% of the maximum loan limit as defined in our revolving credit agreement. Our ability to comply with this covenant
may be affected by factors beyond our control. If we breach, or if our lender contends that we have breached this covenant
or any other restrictions, it could result in an event of default under our revolving credit facility, which would permit our
lenders to declare all amounts outstanding thereunder to be immediately due and payable, and our lenders under our
revolving credit facility could terminate their commitments to make further extensions of credit under our revolving credit
facility. Additionally, our real estate note payable includes a cross-default provision that would cause it to be in default
and due immediately if our credit facility was deemed to be in default.
14
• We May Not Be Able to Obtain Capital or Borrow Funds to Provide Us with Sufficient Liquidity and Capital
Resources Necessary to Meet Our Future Financial Obligations.
We expect that our principal sources of funds will be cash generated from our operations and if necessary, borrowings
under our revolving credit facility. However, the current and future conditions in the credit markets may impact the
availability of capital resources required to meet our future financial obligations, or to provide funds for our working
capital, capital expenditures and other needs for the foreseeable future. We may require additional equity or debt financing
to meet our working capital requirements or to fund our capital expenditures. We may not be able to obtain financing on
terms satisfactory to us, or at all.
• We Depend on Relatively Few Suppliers for a Large Portion of Our Products, and Any Interruptions in the Supply of
the Products That We Sell Could Adversely Affect Our Results of Operations and Financial Condition.
We do not have any significant long-term contracts with suppliers in our wholesale business committing them to provide
products to us. Although our purchasing volume can provide leverage when dealing with suppliers, suppliers may not
provide the products we sell in the quantities we request or on favorable terms. Because we do not control the actual
production of the products we sell, we are also subject to delays caused by interruption in production based on conditions
beyond our control. These conditions include job actions or strikes by employees of suppliers, transportation interruptions,
inclement weather, drought, natural disasters, epidemics, pandemics or other widespread public health issues, or other
catastrophic events and the adverse effects of climate change. Our inability to obtain adequate supplies of the products we
sell as a result of any of the foregoing factors or otherwise, could cause us to fail to meet our obligations to our customers.
• We Would Lose Business if Cigarette or Other Manufacturers That We Use Decide to Engage in Direct Distribution
of Their Products.
In the past, some large manufacturers have decided to engage in direct distribution of their products and eliminate
distributors such as our Company. If other manufacturers make similar product distribution decisions in the future, our
revenues and profits would be adversely affected and there can be no assurance that we will be able to take action to
compensate for such losses.
• We Depend on Our Senior Management and Key Personnel.
We depend on the continued services and performance of our senior management and other key personnel. While we have
employment agreements with certain key personnel, the loss of service from any of our executive officers or key employees
could harm our business.
• We Operate in a Competitive Labor Market and Some of Our Employees Are Covered by Collective Bargaining
Agreements.
We compete with other businesses in each of our markets with respect to attracting and retaining qualified employees,
particularly in the area of truck drivers and warehouse workers. A shortage of qualified employees could require us to
enhance our wage and benefits packages in order to compete effectively in the hiring and retention of qualified employees
or to hire more expensive temporary employees.
In addition, at September 2020 approximately thirty of our delivery drivers in our Wholesale Segment are covered by a
collective bargaining agreement with a labor organization, which expires in December 2020.
• We Are Subject to Significant Governmental Regulation and If We Are Unable to Comply with Regulations That
Affect Our Business or If There Are Substantial Changes in These Regulations, Our Business Could Be Adversely
Affected.
As a distributor and retailer of food products, we are subject to regulation by the FDA. Our operations are also subject to
regulation by the USDA, OSHA, ATF, DOT and other federal, state and local agencies. Each of these regulatory authorities
has broad administrative powers with respect to our operations. If we fail to adequately comply with government
regulations or regulations become more stringent, we could experience increased inspections, regulatory authorities could
take remedial action including imposing fines or shutting down our operations or we could be subject to increased audit
15
and compliance costs. If any of these events were to occur, our results of operations, business, cash flow, and financial
condition would be adversely affected.
We cannot predict the impact that future laws, regulations, interpretations or applications, the effect of additional
government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory
schemes would have on our business in the future. They could, however, require the reformulation of certain products to
meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping,
expanded documentation of the properties of certain products, expanded or different labeling and/or scientific
substantiation. While we do not manufacture any products, any of the aforementioned items could disrupt the supply levels
of inventory that we sell. Any or all of such requirements could have an adverse effect on our results of operations, business,
cash flow, and financial condition.
RISK FACTORS RELATED TO OUR COMMON STOCK
• The Company Has Few Shareholders of Record And, If this Number Drops below 300, as was true as of September
30, 2020, the Company Will No Longer Be Obligated to Report under the Securities Exchange Act of 1934 and in
Such Case We May Be Delisted from NYSE American, Reducing the Ability of Investors to Trade in Our Common
Stock.
If the number of owners of record (including direct participants in the Depository Trust Company) of our common stock
falls below 300, as was true as of September 30, 2020, our obligation to file reports under the Securities Exchange Act of
1934 could be suspended. If we take advantage of this right we will likely reduce administrative costs of complying with
public company rules, but periodic and current information updates about the Company would not be available to investors.
In addition, the common stock of the Company would be removed from listing on NYSE American. This would likely
impact investors’ ability to trade in our common stock.
• We Have Various Mechanisms in Place to Discourage Takeover Attempts, Which May Reduce or Eliminate Our
Stockholders’ Ability to Sell Their Shares for a Premium in a Change of Control Transaction.
Various provisions of our bylaws and of corporate law may discourage, delay or prevent a change in control or takeover
attempt of our company by a third party that is opposed by our management and Board of Directors. These anti-takeover
provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in
our management and Board of Directors. These provisions include:
•
•
•
•
•
•
classification of our directors into three classes with respect to the time for which they hold office;
supermajority voting requirements to amend the provision in our certificate of incorporation providing for the
classification of our directors into three such classes;
non-cumulative voting for directors;
control by our Board of Directors of the size of our Board of Directors;
limitations on the ability of stockholders to call special meetings of stockholders; and
advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing
matters that can be acted upon by our stockholders at stockholder meetings.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
16
ITEM 2. PROPERTIES
The location and approximate square footage of the Company’s six distribution centers and twenty-one retail stores at
September 2020 are set forth below:
Location
Distribution—IL, MO, ND, NE, SD, & TN
Retail—AR, FL, MO, & OK
Total Square Footage
Square Feet
685,000
203,600
888,600
The Company leases certain distribution facilities, retail stores, offices, and certain equipment under noncancellable
operating leases. Our Quincy, Illinois; both of our Bismarck, North Dakota; and our Rapid City, South Dakota distribution
facilities are owned by our Company, and some are subject to first mortgages by banks and other lenders. Management
believes that its existing facilities are adequate for the Company’s present level of operations, however, larger facilities
and additional cross-dock facilities and retail stores may be required if the Company experiences growth in certain market
areas.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of our Company are appointed by the Board of Directors and serve at the discretion of the Board. The
following table sets forth certain information with respect to all executive officers of our Company.
Name
Christopher H. Atayan
Andrew C. Plummer
Charles J. Schmaderer
Age
60
46
51
Chairman of the Board, Chief Executive Officer, Director
President, Chief Operating Officer, Director
Vice President, Chief Financial Officer, Secretary
Position
CHRISTOPHER H. ATAYAN has served in various senior executive positions with the Company since March 2006,
including his service as Chairman of the Board since January 2008 and Chief Executive Officer since October 2006, and
has been a director of the Company since 2004. Mr. Atayan served as Senior Managing Director of Slusser Associates,
Inc., a private equity and investment banking firm, from 1988 to 2020, and had been engaged in private equity and
investment banking since 1982. He also serves on the Board of Eastek Holdings, LLC a contract manufacturing company.
ANDREW C. PLUMMER has served as our President and Chief Operating Officer since October 2018, as our Chief
Financial Officer from January 2007 to October 2020, and as our Secretary from January 2007 to October 2018. From
2004 to 2007, Mr. Plummer served our company in various roles including Acting Chief Financial Officer, Corporate
Controller, and Manager of SEC Compliance. Prior to joining our company in 2004, Mr. Plummer practiced public
accounting, primarily with the accounting firm Deloitte and Touche, LLP (now Deloitte).
CHARLES J. SCHMADERER has served as the Company’s Chief Financial Officer since October 2020, as Vice President
since April 2018, as Secretary since October 2018 and as Corporate Controller from April 2018 to October 2020. From
2006 to 2018, Mr. Schmaderer served the Company in various roles including as the Vice President of Financial Reporting
and Assistant Secretary, and as the Director of Financial and SEC Reporting. Prior to joining AMCON in 2006,
Mr. Schmaderer held financial management roles with Hewlett Packard (HP) and before that practiced public accounting,
primarily with the accounting firm Grant Thornton, LLP. Mr. Schmaderer also holds a Master of Business Administration
(MBA) from the University of Nebraska-Omaha.
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON STOCK
The Company’s common stock trades on NYSE American under the trading symbol “DIT”. As of November 4, 2020 the
closing price of our common stock on NYSE American was $65.95 and there were 551,437 common shares outstanding.
As of that date, the Company had approximately 462 persons holding common shares beneficially of which approximately
127 are shareholders of record (including direct participants in the Depository Trust Company). The following table reflects
the range of the high and low closing prices per share of the Company’s common stock reported by NYSE American for
fiscal 2020 and 2019.
Fiscal 2020
Fiscal 2019
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
DIVIDEND POLICY
Low
High
High
$ 78.90 $ 56.05 $ 100.00 $ 73.41
88.27
88.01
77.92
100.00
101.51
99.75
52.40
62.01
69.20
73.97
81.48
79.00
Low
On a quarterly basis, the Company’s Board of Directors evaluates the potential declaration of dividend payments on the
Company’s common stock. Our dividend policy is intended to return capital to shareholders when it is most appropriate.
The Company’s revolving credit facility provides that the Company may not pay dividends on its common shares in excess
of $3.5 million on an annual basis. There is no limit on dividend payments provided that certain excess availability
measurements have been maintained for the thirty day period immediately prior to the payment of any such dividends or
distributions, and immediately after giving effect to any such dividend or distribution payments, the Company has a fixed
charge coverage ratio of at least 1.0 to 1.0 as defined in the credit facility agreement.
Our Board of Directors could decide to alter our dividend policy or not pay quarterly dividends at any time in the future.
Such an action by the Board of Directors could result from, among other reasons, changes in the marketplace, changes in
our performance or capital needs, changes in federal income tax laws, disruptions in the capital markets, or other events
affecting our business, liquidity or financial position. The Company paid cash dividends of $0.6 million, or $1.00 per
common share during fiscal 2020, and $0.6 million, or $1.00 per common share during fiscal 2019.
During the fiscal year ended September 30, 2020, the Company did not sell any unregistered securities.
18
REPURCHASE OF COMPANY SHARES
The Company repurchased a total of 28,727 and 75,113 shares of its common stock during fiscal 2020 and fiscal 2019,
respectively, for cash totaling approximately $2.0 million and $7.5 million, respectively. All repurchased shares were
recorded in treasury stock at cost. At September 2020, 47,837 shares of the Company’s common shares remained
authorized for repurchase in either the open market or privately negotiated transactions, as previously approved by the
Company’s Board of Directors. In October 2020, our Board of Directors renewed the repurchase authorization for up to
75,000 shares of the Company’s common stock.
During the fourth quarter of fiscal 2020, the Company repurchased shares of its common stock for cash totaling
approximately $1.9 million. The following table summarizes these repurchases made by or on behalf of our Company or
certain affiliated purchasers of shares of our common stock for the quarterly period ended September 30, 2020:
(c) Total
Number of
Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
86
27,006
71
27,163
(d) Maximum
Number (or
Approximate
Dollar Value)
of Shares (or
Units) that
May Yet Be
Purchased
Under the
Plans or
Programs*
74,914
47,908
47,837
47,837
(a) Total
Number of
Shares (or
Units)
Purchased
(b) Average
Price Paid per
Share (or Unit)
66.74
71.01
69.32
70.99
86 $
27,006
71
27,163 $
Period
July 1-31, 2020
August 1 - 31, 2020
September 1 - 30, 2020
Total
* In October 2020 and subsequent to the end of fiscal 2020, our Board of Directors authorized purchases of up to
75,000 shares of our Company’s common stock in open market or negotiated transactions. Management was
given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any
such purchases.
EQUITY COMPENSATION PLAN INFORMATION
We refer you to Item 12 of this report for the information required by Item 201(d) of SEC Regulation S-K.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements under Item 8 and other information in this report, including Critical Accounting Policies
and Cautionary Information included at the end of this Item 7. The following discussion and analysis includes the results
of operations for the twelve month periods ended September 2020 and September 2019. For more information regarding
our business segments, see Item 1 “Business” of this Annual Report.
Results of Operations
The following table sets forth an analysis of various components of the Company’s Statement of Operations as a percentage
of sales for fiscal years 2020 and 2019:
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Operating income
Interest expense
Income before income taxes
Income tax expense
Net income available to common shareholders
Fiscal Years
2020
100.0 % 100.0 %
2019
94.2
5.8
5.0
0.2
0.6
0.1
0.5
0.1
0.4 %
94.0
6.0
5.4
0.2
0.4
0.1
0.3
0.1
0.2 %
(In millions)
CONSOLIDATED:
Sales(1)
Cost of sales
Gross profit
Gross profit percentage
Operating expense
Operating income
Interest expense
Income tax expense
Net income
BUSINESS SEGMENTS:
Wholesale
Sales
Gross profit
Gross profit percentage
Retail
Sales
Gross profit
Gross profit percentage
$
$
$
$
Fiscal Years
2020
2019
Incr (Decr) (2)
$
1,521.3
1,433.5
87.7
5.8 %
$
1,392.4
1,308.4
84.0
6.0 %
$
78.7
9.1
1.7
2.1
5.5
$
77.7
6.3
1.6
1.6
3.2
$
1,475.3
71.6
4.9 %
$
1,348.2
67.7
5.0 %
$
46.0
16.1
35.0 %
$
44.2
16.3
36.9 %
128.9
125.1
3.7
1.0
2.8
0.1
0.5
2.3
127.1
3.9
1.8
(0.2)
(1) Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $26.8 million
and $25.3 million in fiscal 2020 and fiscal 2019, respectively.
(2) Calculated based on rounded numbers as presented in the table.
20
SALES
Changes in sales are driven by two primary components:
(i) changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes
and tobacco products by various states; and
(ii) changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns
resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting
period.
SALES—Fiscal 2020 vs. Fiscal 2019
Sales in our Wholesale Segment increased $127.1 million during fiscal 2020 as compared to fiscal 2019. Significant items
impacting sales during fiscal 2020 included a $45.5 million increase in sales related to price increases implemented by
cigarette manufacturers, a $37.1 million increase in sales related to higher sales volume in our tobacco, beverage, snacks,
candy, grocery, health & beauty products, automotive, foodservice, and store supplies categories (“Other Products”), a
$32.7 million increase in sales related to the volume and mix of cigarette cartons sold and a $11.8 million increase in sales
related to increases in cigarette state excise taxes.
Sales in our Retail Segment increased $1.8 million in fiscal 2020 as compared to fiscal 2019. Significant items impacting
sales during the current period included a $2.6 million increase in sales related to higher sales volumes in our existing
stores, partially offset by a $0.8 million decrease in sales related to the closure of one non-performing store in our Midwest
market that was nearing the end of its lease term.
GROSS PROFIT—Fiscal 2020 vs. Fiscal 2019
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 $3.9 million during fiscal 2020 as compared to fiscal 2019. Of this
change, approximately $3.7 million related to higher sales in our Other Products category, $1.0 million related to an
increase in the benefit recognized from cigarette manufacturer price increases, and $0.7 million related to the volume and
mix of cigarettes sold. These increases were partially offset by a decrease of $1.5 million related to gains on cigarette
excise tax increases in the prior year. Gross profit in our Retail Segment decreased $0.2 million in fiscal 2020 as compared
to fiscal 2019. This change was primarily related to lower gross margins in our existing stores resulting from changes in
volume and product mix between the comparative periods and the closure of one non-performing store in our Midwest
market.
OPERATING EXPENSE—Fiscal 2020 vs. Fiscal 2019
Operating expense includes selling, general and administrative expenses and depreciation and amortization. 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 fiscal 2020 consolidated operating expenses increased $1.0 million as compared to fiscal 2019. Our fiscal 2020
Wholesale Segment operating expenses increased $4.2 million as compared to fiscal 2019. Significant items impacting
operating expenses in our Wholesale Segment during fiscal 2020 included a $2.5 million increase in employee
21
compensation and benefit costs, a $0.5 million increase in health insurance costs, an $0.8 million increase in other insurance
costs, and a $0.4 million increase in our provision for doubtful accounts.
Our fiscal 2020 Retail Segment operating expenses decreased $3.2 million as compared to fiscal 2019. Significant items
impacting fiscal 2020 Retail Segment operating expenses included a net decrease of $2.4 million related to impairment
charges between the comparative periods, a $0.5 million decrease in other operating expenses and a $0.3 million decrease
in operating expenses related to the closure of one non-performing store in our Midwest market.
INCOME TAX EXPENSE —Fiscal 2020 vs. Fiscal 2019
The change in the Company’s income tax rate between the comparative fiscal periods was primarily related to non-
deductible compensation expense in relation to the amount of income from operations before income tax expense between
the comparative periods. During fiscal 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to
the coronavirus outbreak which, among other things, contains numerous income tax provisions. The Company evaluated
the impact of the legislation and determined that while there was an impact on the timing of certain future tax payments,
there is no material impact on the Company’s consolidated financial statements or related disclosures.
Liquidity and Capital Resources
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 which 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.
In general, the Company finances its operations through a credit facility agreement (the “Facility”) with Bank of America
acting as the senior agent and with BMO Harris Bank (“BMO”) participating in the loan syndication. The Facility included
the following significant terms at September 2020:
• A March 2025 maturity date without a penalty for prepayment.
•
$110.0 million revolving credit limit.
• Loan accordion allowing the Company to increase the size of the 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 rate index) plus 125 - 150 basis
points depending on certain credit facility utilization measures, at the election of the Company. For these purposes, 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.
22
• 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 September 2020 was $109.6 million, of which $62.0 million was
outstanding, leaving $47.6 million available.
At September 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 2.41% at September
2020.
During fiscal 2020, our peak borrowings under the Facility were $73.3 million and our average borrowings and average
availability were $49.7 million and $33.0 million, respectively. Our availability to borrow under the Facility generally
decreases as inventory and accounts receivable levels increase because of the borrowing limitations that are placed on
collateralized assets. At September 2020, our inventory and Facility were elevated primarily due to opportunistic inventory
purchases. We expect our inventory and Facility will return to normalized levels during the first quarter of fiscal 2021 as
the associated inventory is sold and the Facility is paid down.
Cross Default and Co-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term
loan with BMO (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The
Real Estate Loan contains cross default provisions which cause it to be considered in default if the loans where BMO is a
lender, including the revolving credit facility, is in default. There were no such cross defaults at September 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.
Dividend Payments
The Company paid cash dividends of $0.6 million, or $1.00 per common share during fiscal 2020, and $0.6 million, or
$1.00 per common share during fiscal 2019.
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.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
23
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital.
For our Company and 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, a precipitous
change in operating environment could materially impact the Company’s future revenue stream as well as its ability to
collect on customer accounts receivable or secure bank credit.
OTHER MATTERS—Critical Accounting Estimates
GENERAL
The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted
accounting principles, which require the Company to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. The
Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The Company believes that the accounting estimates employed
and the resulting balances are reasonable; however, actual results may differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting policies reflect the significant estimates and assumptions used in
the preparation of the Consolidated Financial Statements. Our critical accounting estimates are set forth below and have
not changed during fiscal 2020.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
NATURE OF ESTIMATES REQUIRED. The allowance for doubtful accounts represents our estimate of uncollectible
accounts receivable at the balance sheet date. We monitor our credit exposure on a daily basis and regularly assess the
adequacy of our allowance for doubtful accounts. Because credit losses can vary significantly over time, estimating the
required allowance requires a number of assumptions that are uncertain.
ASSUMPTIONS AND APPROACH USED. We estimate our required allowance for doubtful accounts using the following
key assumptions:
• Historical collections—Represented as the amount of historical uncollectible accounts as a percent of total accounts
receivable.
• Specific credit exposure on certain accounts—Identified based on management’s review of the accounts receivable
portfolio and taking into account the financial wherewithal of particular customers that management deems to have a
higher risk of collection.
• Market conditions—We consider a broad range of industry trends and macro-economic issues which may impact the
creditworthiness of our customers.
24
INVENTORIES
NATURE OF ESTIMATES REQUIRED. In our businesses, we carry large quantities and dollar amounts of inventory.
Inventories primarily consist of finished products purchased in bulk quantities to be sold to our customers. Given the large
quantities and broad range of products we carry, there is a risk that inventory may become impaired because it has become
unsaleable or unrefundable, slow moving, obsolete, or because it has been discontinued. The use of estimates is required
in determining either the net realizable value (for our wholesale business) or the lower of cost or market (“LCM”) under
the retail method (for our retail business) of this inventory.
ASSUMPTIONS AND APPROACH USED. We estimate our inventory obsolescence reserve at each balance sheet date
based on the following criteria:
• Slow moving products—Items identified as slow moving are evaluated on a case-by-case basis for impairment.
• Obsolete/discontinued inventory—Products identified that are near or beyond their expiration dates. We may also
discontinue carrying certain product lines for our customers. As a result, we estimate either the net realizable value or
the LCM of this inventory as if it were to be liquidated.
• Estimated net realizable value—For our wholesale business, the net realizable value of the inventory is estimated
using management’s evaluation of the congestion in the distribution channels and experience with brokers and
inventory liquidators to determine the net realizable value of the inventory.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL
AND LEASED RIGHT-OF-USE ASSETS
Long-lived assets consist primarily of property and equipment, leased right-of-use (“ROU”) assets, intangible assets, and
goodwill acquired in business combinations. Property and equipment, ROU assets and amortizable identified intangible
assets are assigned useful lives ranging from 1 to 40 years. Indefinite-lived intangible assets and goodwill are not
amortized. Impairment of the Company’s long-lived assets is assessed during the Company’s fourth fiscal quarter using
both qualitative and quantitative analysis, or whenever events or circumstances change that indicate the carrying value of
such long-lived assets may not be recoverable.
NATURE OF ESTIMATES REQUIRED. Management has to estimate the useful lives of the Company’s long-lived assets.
In regard to the Company’s impairment analysis, the most significant assumptions include management’s estimate of the
annual growth rate used to project future sales and expenses.
ASSUMPTIONS AND APPROACH USED. For property and equipment, depreciable lives are based on our accounting
policy which is intended to mirror the expected useful life of the asset. In determining the estimated useful life of ROU
assets and amortizable intangible assets such as customer lists, we rely on our historical experience in addition to estimates
of how long certain assets will generate cash flows. If impairment indicators arise, we then evaluate the potential
impairment of property and equipment, ROU assets and amortizable identifiable intangible assets using an undiscounted
future cash flow approach.
When evaluating the potential impairment of non-amortizable indefinite-lived assets and goodwill, the Company first
assesses a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the
competitive environment, changes in the market for the Company’s products and services, market prices, regulatory and
political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial
performance for each of the Company’s reporting units. If after completing this assessment, the Company determines that
it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative evaluation is
performed using the income approach (discounted cash flow method).
A discounted cash flow methodology requires the estimation of a wide range of factors including but not limited to:
(i) forecasting future earnings and cash flows (ii) determining the discount rate applicable to the earnings stream being
discounted, and (iii) computing a terminal value at some point in the future. These estimations require significant judgment
25
and include making assumptions such as sales growth rates including the addition of new retail stores, future store
profitability, planned capital expenditures, our ability to control costs, the successful implementation of initiatives designed
to enhance sales and improve inventory management, gross profit estimates, macroeconomic conditions, industry
conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and
political developments, entity specific factors such as strategy and changes in key personnel, working capital requirements,
weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or
estimates for future cash flows could produce different results.
The Company’s retail reporting unit recorded ROU asset and fixed asset impairment charges of approximately $0.5 million
during fiscal 2020 (See Notes 1 and 5) and intangible asset impairment charges of approximately $2.9 million during fiscal
2019 (See Note 6). These impairment charges arose from a range of considerations including, but not limited to, heightened
competition in the industry, retail sector market conditions, and earning shortfalls which impacted the Company’s
projections of future cash flows to be generated from such assets. To the extent that management's estimates of future
performance for the Company’s retail reporting unit are not realized, our business plans for future operations change, or if
there is a further deterioration in the macro retailing operating environment, the future assumptions used in calculating the
fair value of assets in the retail unit could differ and result in additional impairment charges.
Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting
unit which totaled $4.4 million at both September 2020 and September 2019. The Company determined that the estimated
fair value of its wholesale reporting unit exceeded its carrying value at both September 2020 and September 2019.
INSURANCE
The Company’s insurance for workers’ compensation, general liability and employee-related health care benefits are
provided through high-deductible or self-insured programs. As a result, the Company accrues for its workers’
compensation liability based upon claim reserves established with the assistance of a third-party administrator, which are
then trended and developed. The reserves are evaluated at the end of each reporting period. Due to the uncertainty involved
with the realization of claims incurred but unreported, management is required to make estimates of these claims.
ASSUMPTIONS AND APPROACH USED. In order to estimate our reserve for incurred but unreported claims we consider
the following key factors:
Employee Health Insurance Claims
• Historical claims experience—We review loss runs for each month to calculate the average monthly claims
experience.
• Lag period for reporting claims—Based on our analysis, our experience is such that we have a minimum of a one
month lag period in which claims are reported.
Workers’ Compensation Insurance Claims
• Historical claims experience—We review prior years’ loss runs to estimate the average annual expected claims and
review monthly loss runs to compare our estimates to actual claims.
• Lag period for reporting claims—We review claims trends and use standard insurance industry loss models to develop
reserves on reported claims in order to estimate the amount of incurred but unreported claims.
INCOME TAXES
The Company accounts for its income taxes by recording taxes payable or refundable for the current year and deferred tax
assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax
returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the
26
effects of future changes in tax laws are not anticipated. Future tax law changes, such as a change in the corporate tax rate,
could have a material impact on our financial condition or results of operations.
On a periodic basis, we assess the likelihood that our deferred tax assets will be recovered from future taxable income and
establish a related valuation allowance as appropriate. In performing our evaluation, we consider all available evidence,
both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance is needed.
Evidence used includes information about our current financial position and our results of operations for the current and
preceding years, as well as all currently available information about future years, including our anticipated future
performance, the reversal of deferred tax liabilities and tax planning strategies. When appropriate, we record a valuation
allowance against deferred tax assets to offset future tax benefits that may not be realized.
ASSUMPTIONS AND APPROACH USED. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon
management’s judgments regarding future events.
In making that estimate we consider the following key factors:
•
•
•
•
•
•
our current financial position;
historical financial information;
future reversals of existing taxable temporary differences;
future taxable income exclusive of reversing temporary differences and carryforwards;
taxable income in prior carryback years; and
tax planning strategies.
REVENUE RECOGNITION
We recognize revenue in both our Wholesale Segment and our Retail Segment when the performance obligation is
satisfied, which is the point at which control of the promised goods or services are transferred to our customers, in an
amount that reflects the consideration we expect to be entitled to receive in exchange for those goods and services. For
the majority of our customer arrangements, control transfers to customers at a point-in-time when goods have been
delivered, as that is generally when legal title, physical possession and risks and rewards of goods and services transfers
to the customer. Sales are shown net of returns, discounts, and sales incentives to customers.
NATURE OF ESTIMATES REQUIRED. We estimate and reserve for anticipated sales discounts. We also estimate and
provide a reserve for anticipated sales incentives to customers when earned under established program requirements.
ASSUMPTIONS AND APPROACH USED. We estimate the sales reserves using the following criteria:
• Sales discounts—We use historical experience to estimate the amount of accounts receivable that will not be collected
due to customers taking advantage of authorized term discounts.
• Volume sales incentives—We use historical experience in combination with quarterly reviews of customers’ sales
progress in order to estimate the amount of volume incentives due to the customers on a periodic basis.
Our estimates and assumptions for each of the aforementioned critical accounting estimates have not changed materially
during the periods presented, nor are we aware of any reasons that they would be reasonably likely to change in the future.
27
ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncement Adopted
During fiscal 2020, the Company adopted the following Accounting Standards Update (“ASU”):
In February 2016, the Financial Accounting Standards Board (“FASB”) issued 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, which resulted in recognition of
ROU assets of approximately $21.9 million, lease 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. The fiscal 2019 comparative period presented in the financial statements continues
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.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results
of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which
reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, 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
28
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 the threat or occurrence of epidemics or pandemics (such as the recent COVID-19 or coronavirus
outbreak) or other public health issues, including the continued health of our employees and management, the
imposition of governmental orders restricting our operations and the activities of our employees, suppliers and
customers and the reduced demand for our goods and services, in particular, disruptions to our supply chain or our
ability to procure products or fulfill orders due to disruptions in our warehouse operations, or increased credit risk
from customer credit defaults resulting from an economic downturn,
risks associated with the acquisition of assets or new businesses or investments in equity investees by either of our
business segments including, but not limited to, risks associated with purchase price and business valuation risks,
vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption
of certain liabilities or obligations,
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,
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 ongoing trade tariffs may have on our product costs or on consumer disposable income and
demand,
increases in fuel costs and expenses associated with operating a refrigerated trucking fleet,
the risks associated with a competitive labor market, particularly for truck drivers and warehouse workers, which may
impact our ability to recruit and retain employees and result in higher employee compensation costs,
increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand,
higher commodity prices and general inflation which could impact food ingredient costs and demand for many of the
products we sell,
regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette,
tobacco, and e-cigarette/vaping products by the United States Food and Drug Administration (“FDA”), state or local
governmental agencies, or other parties,
increases in manufacturer prices,
increases in inventory carrying costs and customer credit risks,
changes in pricing strategies utilized by cigarette and tobacco manufacturers,
29
•
•
•
•
•
•
•
•
•
•
•
changes in promotional and incentive programs offered by manufacturers,
demand for the Company’s products, particularly cigarette, tobacco and e-cigarette/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,
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,
natural disasters and domestic or political unrest,
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to 2020 and 2019 Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 2020 and September 2019
Consolidated Statements of Operations for the Fiscal Years Ended September 2020 and September 2019
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended September 2020 and September
2019
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 2020 and September 2019
Notes to Consolidated Financial Statements
32
33
34
35
36
37
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of AMCON Distributing Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AMCON Distributing Company and its subsidiaries
(the Company) as of September 30, 2020 and 2019, the related consolidated statements of operations, shareholders' equity
and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the
financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2006.
Omaha, Nebraska
November 9, 2020
32
AMCON Distributing Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash
Accounts receivable, less allowance for doubtful accounts of $0.9 million at
September 2020 and September 2019
Inventories, net
Income taxes receivable
Prepaid and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets, net
Note receivable
Goodwill
Other intangible assets, net
Equity method investment
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Accrued wages, salaries and bonuses
Income taxes payable
Current operating lease liabilities
Current maturities of long-term debt
Total current liabilities
Credit facility
Deferred income tax liability, net
Long-term operating lease liabilities
Long-term debt, less current maturities
Other long-term liabilities
Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized
Common stock, $.01 par value, 3,000,000 shares authorized, 537,715 shares
outstanding at September 2020 and 552,614 shares outstanding at
September 2019
Additional paid-in capital
Retained earnings
Treasury stock at cost
Total shareholders’ equity
Total liabilities and shareholders’ equity
September
2020
September
2019
$
661,195
$
337,704
34,278,429
98,971,773
—
2,091,645
136,003,042
17,497,274
18,936,126
3,500,000
4,436,950
500,000
6,744,095
383,786
$ 188,001,273
$
22,108,299
8,306,160
4,761,020
567,408
5,607,098
516,850
41,866,835
61,971,682
1,806,575
14,028,606
2,608,794
927,241
24,665,620
102,343,517
350,378
7,148,459
134,845,678
17,655,415
—
—
4,436,950
500,000
—
273,579
157,711,622
18,647,572
8,577,972
3,828,847
—
—
532,747
31,587,138
60,376,714
1,823,373
—
3,125,644
42,011
$
$
—
—
8,697
24,282,058
71,362,334
(30,861,549)
64,791,540
$ 188,001,273
8,561
23,165,639
66,414,397
(28,831,855)
60,756,742
157,711,622
$
The accompanying notes are an integral part of these consolidated financial statements.
33
AMCON Distributing Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Sales (including excise taxes of $393.3 million and $370.2 million,
respectively)
Cost of sales
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment charges
Operating income
Other expense (income):
Interest expense
Other (income), net
Income from operations before income taxes
Income tax expense
Equity method investment earnings, net of tax
Net income available to common shareholders
Basic earnings per share available to common shareholders
Diluted earnings per share available to common shareholders
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Dividends declared and paid per common share
Fiscal Years Ended September
2019
2020
$
$
$
$
1,521,278,763
1,433,544,831
87,733,932
75,051,227
3,116,449
485,270
78,652,946
9,080,986
1,693,251
(114,276)
1,578,975
7,502,011
2,143,000
183,579
5,542,590
9.88
9.76
561,166
567,961
1,392,388,157
1,308,364,726
84,023,431
72,182,883
2,617,591
2,873,269
77,673,743
6,349,688
1,598,864
(61,119)
1,537,745
4,811,943
1,609,000
—
3,202,943
5.36
5.25
597,961
609,836
1.00
$
1.00
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
34
AMCON Distributing Company and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Additional
Common Stock
Treasury Stock
Shares
844,089 $ 8,441 (228,312) $ (21,324,752) $ 22,069,098 $ 63,848,030 $ 64,600,817
Amount Shares
Amount
Total
Paid-in
Capital
Retained
Earnings
Balance, October 1, 2018
Dividends on common stock,
$1.00 per share
Compensation expense and
issuance of stock in connection
with equity-based awards
Repurchase of common stock
Net income
Balance September 30, 2019
Dividends on common stock,
$1.00 per share
Compensation expense and
issuance of stock in connection
with equity-based awards
Repurchase of common stock
Net income
Balance, September 30, 2020
—
—
—
—
—
(636,576)
(636,576)
11,950
—
—
1,096,661
—
(7,507,103)
(7,507,103)
3,202,943
—
856,039 $ 8,561 (303,425) $ (28,831,855) $ 23,165,639 $ 66,414,397 $ 60,756,742
1,096,541
—
—
—
—
3,202,943
—
(75,113)
—
120
—
—
—
—
—
—
—
(594,653)
(594,653)
13,828
—
—
1,116,555
—
(2,029,694)
(2,029,694)
5,542,590
—
869,867 $ 8,697 (332,152) $ (30,861,549) $ 24,282,058 $ 71,362,334 $ 64,791,540
—
—
5,542,590
1,116,419
—
—
—
(28,727)
—
136
—
—
The accompanying notes are an integral part of these consolidated financial statements.
35
AMCON Distributing Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income from operations to net cash flows from (used in)
operating activities:
Depreciation
Amortization
Equity method investment earnings, net of tax
Impairment charges
Loss (gain) on sales of property and equipment
Equity-based compensation
Deferred income taxes
Provision for losses on doubtful accounts
Inventory allowance
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid and other current assets
Other assets
Accounts payable
Accrued expenses and accrued wages, salaries and bonuses
Other long-term liabilities
Income taxes payable and receivable
Net cash flows from (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Proceeds from sales of property and equipment
Investment in equity method investee
Issuance of note receivable
Net cash flows from (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility
Repayments under revolving credit facility
Principal payments on long-term debt
Proceeds from exercise of stock options
Repurchase of common stock
Dividends on common stock
Settlement and withholdings of equity-based awards
Net cash flows from (used in) financing activities
Net change in cash
Cash, beginning of period
Cash, end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes
Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable
Issuance of common stock in connection with the vesting and exercise of
equity-based awards
Fiscal Years Ended September
2020
2019
$
5,542,590 $
3,202,943
3,116,449
—
(183,579)
485,270
105,039
1,085,287
(16,798)
(21,000)
(322,240)
(9,591,809)
3,693,984
4,794,469
(110,207)
3,529,980
1,353,113
885,230
857,270
15,203,048
(3,356,573)
43,600
(6,500,000)
(3,500,000)
(13,312,973)
2,575,924
41,667
—
2,873,269
(13,775)
1,299,792
40,572
21,000
560,610
6,742,225
(24,034,512)
(2,207,684)
28,214
(2,247,262)
(262,330)
3,956
(78,266)
(11,453,657)
(4,438,280)
57,200
—
—
(4,381,080)
1,515,476,055
(1,513,881,087)
(532,747)
25,750
(2,029,694)
(594,653)
(30,208)
(1,566,584)
323,491
337,704
661,195 $
1,427,544,804
(1,402,596,687)
(1,096,306)
—
(7,507,103)
(636,576)
(56,335)
15,651,797
(182,940)
520,644
337,704
$
$
$
1,743,098 $
1,302,528
1,561,531
1,646,694
— $
69,253
990,653
1,005,792
The accompanying notes are an integral part of these consolidated financial statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Company Operations:
AMCON Distributing Company and Subsidiaries (“AMCON” and “the Company”) serves customers in 26 states and is
primarily engaged in the wholesale distribution of consumer products in the Central, Rocky Mountain, and Mid-South
regions of the United States.
AMCON’s wholesale distribution business includes six distribution centers that sell approximately 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. The
Company distributes products primarily to retailers such as convenience stores, discount and general merchandise stores,
grocery stores, drug stores, and gas stations. In addition, the Company services institutional customers, including
restaurants and bars, schools, sports complexes, as well as other wholesalers.
AMCON, through its Healthy Edge Inc. subsidiary, operates twenty-one retail health food stores as Chamberlin’s Natural
Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry natural
supplements, organic and natural groceries, health and beauty care products, and other food items.
The Company’s operations are subject to a number of factors which are beyond the control of management, such as changes
in manufacturers’ cigarette pricing, state excise tax increases, or the opening of competing retail stores in close proximity
to the Company’s retail stores. While the Company sells a diversified product line, it remains dependent upon the sale of
cigarettes which accounted for approximately 69% of the Company’s consolidated revenue during both fiscal 2020 and
fiscal 2019, and 17% of the Company’s consolidated gross profit during both fiscal 2020 and fiscal 2019.
(b) Accounting Period:
The Company’s fiscal year ends on September 30 and the fiscal years ended September 30, 2020 and September 30, 2019
have been included herein.
(c) Principles of Consolidation and Basis of Presentation:
The Consolidated Financial Statements include the accounts of AMCON and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
(d) Cash and Accounts Payable:
AMCON utilizes a cash management system under which an overdraft is the normal book balance in the primary disbursing
accounts. Overdrafts included in accounts payable at fiscal 2020 and fiscal 2019 totaled approximately $1.3 million and
$1.1 million, respectively, and reflect checks drawn on the disbursing accounts that have been issued but have not yet
cleared through the banking system. The Company’s policy has been to fund these outstanding checks as they clear with
borrowings under its revolving credit facility (see Note 8). These outstanding checks (book overdrafts) are classified as
cash flows from operating activities in the Consolidated Statements of Cash Flows.
37
(e) Accounts Receivable:
Accounts receivable consist primarily of amounts due to the Company from its normal business activities, including trade
receivables from customers and other receivables primarily related to various rebate and promotional incentives with the
Company’s suppliers. An allowance for doubtful accounts is maintained to reflect the expected uncollectibility of accounts
receivable based on past collection history, evaluation of economic conditions as they may impact our customers, and
specific risks identified in the portfolio. The Company determines the past due status of trade receivables based on our
terms with each customer. Account balances are charged off against the allowance for doubtful accounts 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. As of September 2020 and September 2019, receivables
from transactions with customers, less allowance for doubtful accounts were $33.3 million and $23.7 million, respectively.
(f) Inventories:
At September 2020 and September 2019, inventories in our wholesale segment consisted of finished goods and are stated
at the lower of cost or net realizable value determined on a FIFO basis. Inventories in our retail segment consisted of
finished goods and are stated at the lower of cost or market using the retail method. The wholesale distribution and retail
health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the
Company’s customers or sold at retail. Finished goods included total reserves of approximately $0.7 million and $1.0
million at September 2020 and September 2019, respectively. These reserves include the Company’s obsolescence
allowance, which reflects estimated unsaleable or non-refundable inventory based upon an evaluation of slow moving and
discontinued products.
(g) Prepaid Expenses and Other Current Assets:
A summary of prepaid expenses and other current assets is as follows (in millions):
Prepaid expenses
Prepaid inventory
Prepaid inventory represents inventory in-transit that has been paid for but not received.
(h) Property and Equipment:
$
September 2020
$
September 2019
1.8
5.3
7.1
1.6 $
0.5
2.1 $
Property and equipment are stated at cost less accumulated depreciation or amortization. Major renewals and
improvements are capitalized and charged to expense over their useful lives through depreciation or amortization charges.
Repairs and maintenance are charged to expense in the period incurred. The straight-line method of depreciation is used
to depreciate assets over the estimated useful lives as follows:
Buildings and improvements
Warehouse equipment
Furniture, fixtures and leasehold improvements
Vehicles
Years
5 - 40
3 - 15
1 - 12
2 - 5
Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and the resulting
gains or losses are reported as a component of operating income.
The Company reviews property and equipment for indicators of impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the asset group are
estimated over the asset’s useful life of the primary asset and based on updated projections on an undiscounted basis. If
the evaluation indicates that the carrying value of the asset group may not be recoverable, the potential impairment is
determined based on the amount by which the carrying value of the asset group exceeds the fair value of the asset group.
38
The Company recorded impairment charges of approximately $0.5 million during fiscal 2020 related to a non-performing
store in our retail reporting unit, of which $0.2 million was related to fixed assets. There was no impairment of any property
and equipment during fiscal 2019.
(i) Goodwill and Intangible Assets:
Goodwill consists of the excess purchase price paid in business combinations over the fair value of assets acquired.
Intangible assets consist of trademarks, tradenames, and customer relationships acquired as part of acquisitions. Goodwill,
trademarks, and tradenames are considered to have indefinite lives.
Goodwill and intangible assets having indefinite useful lives are not amortized into the results of operations, but instead
are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired,
to assess whether their fair value exceeds their carrying value. The Company performs its annual goodwill and intangible
asset impairment assessment during the fourth fiscal quarter of each year.
When evaluating the potential impairment of non-amortizable indefinite lived assets and goodwill, the Company first
assesses a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the
competitive environment, changes in the market for the Company’s products and services, market prices, regulatory and
political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial
performance for each of the Company’s reporting units. If after completing this assessment, the Company determines that
it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative evaluation is
performed using the income approach (discounted cash flow method).
A discounted cash flow methodology requires the estimation of a wide range of factors including but not limited to: (i)
forecasting future earnings and cash flows (ii) determining the discount rate applicable to the earnings stream being
discounted, and (iii) computing a terminal value at some point in the future. These estimations require significant judgment
and include making assumptions such as sales growth rates including the addition of new retail stores, future store
profitability, planned capital expenditures, our ability to control costs, the successful implementation of initiatives designed
to enhance sales and improve inventory management, gross profit estimates, macroeconomic conditions, industry
conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and
political developments, entity specific factors such as strategy and changes in key personnel, working capital requirements,
weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or
estimates for future cash flows could produce different results.
For goodwill impairment testing, the Company utilizes the guidance in ASU No. 2017-04, “Intangibles - Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment” whereby a reporting unit’s carrying value is compared
to its fair value and impairment charges are recognized for an amount by which a reporting unit’s carrying amount exceeds
its fair value.
The Company’s identifiable intangible assets with finite lives are amortized over their estimated useful lives and are
assessed for impairment whenever events or circumstances change which may indicate that the carrying amount of the
assets may not be recoverable. Identifiable intangible assets which are subject to amortization are evaluated for impairment
using a process similar to that used in evaluating the elements of property and equipment. If impaired, the related assets
are written down to their estimated fair value.
The Company’s retail reporting unit recorded intangible asset impairment charges of approximately $2.9 million during
fiscal 2019 (See Note 6). These impairment charges arose from a range of considerations including, but not limited to,
heightened competition in the industry, retail sector market conditions, and earning shortfalls which impacted the
Company’s projections of future cash flows to be generated from these assets.
39
(j) 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 7 (Equity Method Investment) for further information relating to the Company’s equity method
investment.
(k) Revenue Recognition:
The Company recognizes revenues when the performance obligation is satisfied, which is the point where control of the
promised goods or services is transferred to its customers, in an amount that reflects the consideration the Company expects
to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements,
control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title,
physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the
performance obligation is not subject to significant judgment due to the simultaneous nature of the Company’s customer
arrangements (same day creation and fulfillment). After the completion of its performance obligations, the Company has
an unconditional right of payment from customers with varying collection and payment terms based on region, credit risk,
and other situational factors. Customer receivables are included on the consolidated balance sheets less an allowance for
doubtful accounts. The Company has elected the practical expedient permitting it to disregard financing components which
may be deemed to be part of its transaction price as its customary payments terms are less than one year. See Footnote 13
“Business Segments” for the disaggregation of net sales for each of our business segments.
(l) Insurance:
The Company’s workers’ compensation, general liability, and employee-related health care benefits are provided through
high-deductible or self-insurance programs. As a result, the Company accrues for its workers’ compensation and general
liability based upon a claim reserve analysis. The Company has issued a letter of credit in the amount of $0.5 million to its
workers’ compensation insurance carrier as part of its loss control program. The reserve for incurred, but not reported,
employee health care benefits is calculated using the Company’s historical claims experience rate, plus specific reserves
for large claims. The reserves associated with the exposure to these liabilities are reviewed by management for adequacy
at the end of each reporting period.
(m) Income Taxes:
The Company uses the asset and liability method to calculate deferred income taxes. Deferred tax assets and liabilities are
recognized on temporary differences between financial statement and tax bases of assets and liabilities using enacted tax
rates. The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the period that
includes the enactment date. Deferred tax assets are reduced by a valuation allowance when we do not consider it more
likely than not that some portion or all of the deferred tax assets will be realized.
(n) Share-Based Compensation:
The Company recognizes expense for its share-based compensation based on the fair value of the awards that are granted.
The fair value of stock options are estimated at the date of grant using the Black-Scholes option pricing model. Option
pricing methods require the input of highly subjective assumptions, including the expected stock price volatility. The fair
40
value of restricted stock units is based on the period ending closing price of the Company’s common stock. Measured
compensation cost is recognized ratably over the vesting period of the related share-based compensation award and is
reflected in our Consolidated Statement of Operations under “selling, general and administrative expenses.”
(o) Customer Sales Incentives:
The Company provides consideration to customers, such as sales allowances or discounts on a regular basis. In accordance
with ASC 606, the Company estimates customer sales incentives due as sales are made and records them as a reduction of
net sales.
(p) Excise Taxes:
Under ASC 606, the Company is primarily responsible for excise taxes levied on cigarette and other tobacco products and
presents excise taxes as a component of revenue.
(q) Contract Costs:
Under ASC 606, the Company expenses as incurred any incremental costs to obtain and fulfill customer contracts as the
related amortization period would be one year or less.
(r) Per-share Results:
Basic earnings or loss per share data are based on the weighted-average number of common shares outstanding during
each period. Diluted earnings or loss per share data are based on the weighted-average number of common shares
outstanding and the effect of all dilutive potential common shares including stock options and conversion features of the
Company’s preferred stock issuances.
(s) Use of Estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(t) Fair Value Measurements:
The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a
recurring basis. The carrying amount of trade accounts receivable, other receivables, trade accounts payable, accounts
payable and other accrued liabilities approximates fair value because of the short maturity of these financial instruments.
The carrying amount of the Company’s variable and fixed rate debt also approximates fair value. During fiscal 2019,
intangible assets with indefinite useful lives were adjusted to fair value, resulting in a pretax, non-cash impairment charge
of $2.9 million (see Note 6).
(u) Accounting Pronouncements:
Accounting Pronouncements 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
41
elected the optional transition method to apply ASU 2016-02 prospectively at adoption during the Company’s first quarter
of fiscal 2020, which resulted in recognition of ROU assets of approximately $21.9 million, lease 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. The fiscal 2019 comparative
period presented in the financial statements continues 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. ACQUISITIONS AND INVESTMENTS:
During fiscal 2020, the Company made a $10.0 million investment in Team Sledd LLC (“Team Sledd”) as discussed
further in Note 7. During fiscal 2019, the Company acquired the assets (primarily inventory) from a wholesale distributor
for approximately $1.1 million. No material intangible assets or liabilities were assumed in connection with this transaction
and the Company does not consider this transaction material to the Company’s consolidated financial statements.
3. 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.
Weighted average common shares outstanding
Net income available to common shareholders
Net earnings per share available to common shareholders
42
For Fiscal Years
2020
Basic
561,166
5,542,590 $
9.88 $
2019
Basic
597,961
3,202,943
5.36
$
$
Weighted average common shares outstanding
Weighted average of net additional shares outstanding assuming dilutive options
exercised and proceeds used to purchase treasury stock and conversion of preferred
stock(1)
Weighted average number of shares outstanding
Net income available to common shareholders
Net earnings per share available to common shareholders
$
$
For Fiscal Years
2020
Diluted
2019
Diluted
561,166
597,961
6,795
567,961
5,542,590 $
9.76 $
11,875
609,836
3,202,943
5.25
(1)
Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment at September 2020 and September 2019 consisted of the following:
Land
Buildings and improvements
Warehouse equipment
Furniture, fixtures and leasehold improvements
Vehicles
Construction in progress
Less accumulated depreciation and amortization:
Owned property and equipment
5. LEASES:
$
2020
773,068 $
2019
773,068
12,574,893
15,011,605
13,155,606
3,687,901
617,881
45,820,954
(28,165,539)
$ 17,497,274 $ 17,655,415
12,605,512
15,409,944
13,539,336
3,846,227
33,149
46,207,236
(28,709,962)
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
borrowing rates based on information available at the lease commencement date in calculating the present value of lease
payments. The Company reviews its ROU lease assets for indicators of impairment in the same manner as its other property
and equipment as described in Note 1. The Company recorded impairment charges of approximately $0.5 million during
fiscal 2020 related to a non-performing store in our retail reporting unit, of which $0.3 million was related to a ROU asset.
43
Leases consist of the following:
Assets
Operating
Liabilities
Current:
Operating
Non-current:
Operating
Total lease liabilities
The components of lease costs were as follows:
Operating lease cost
Short-term lease cost
Variable lease cost
Net lease cost
Classification
Operating lease right-of-use assets
September 2020
18,936,126
$
Operating lease liabilities
Long-term operating lease liabilities
$
5,607,098
14,028,606
19,635,704
$
$
Fiscal Year 2020
6,757,206
261,708
350,313
7,369,227
$
Maturities of lease liabilities as of September 2020 were as follows:
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: interest
Present value of lease liabilities
$
Operating Leases
6,279,478
5,309,736
4,032,833
2,841,950
1,795,480
1,050,961
21,310,438
(1,674,734)
19,635,704
$
Weighted-average remaining lease term and weighted-average discount rate information regarding the Company’s leases
were as follows:
Lease Term
Weighted-average remaining lease term (years):
Operating
Discount Rate
Weighted-average discount rate:
Operating
Other information regarding the Company’s leases were as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases
Lease liabilities arising from obtaining new ROU assets:
Operating leases
September 2020
4.2
4.04 %
For the year ended
September 2020
$
$
6,661,365
3,116,737
44
Future minimum operating lease payments as of September 2019, as reported in the 2019 Form 10-K under ASC 840, were
as follows:
Fiscal Year Ending
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Operating
Leases
6,468,837
5,418,617
4,299,261
3,216,671
2,456,810
2,387,618
24,247,814
$
$
6. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill at September 2020 and September 2019 was as follows:
Wholesale Segment
September
2020
September
2019
$ 4,436,950 $ 4,436,950
Other intangible assets at September 2020 and September 2019 consisted of the following:
Trademarks and tradenames (Retail Segment)
September
2020
500,000 $
September
2019
500,000
$
Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been
taken on these assets. The Company’s retail reporting unit recorded intangible asset (trademarks and tradenames)
impairment charges of approximately $2.9 million during fiscal 2019 when it was determined that the carrying values of
these assets exceeded their fair values. These impairment charges arose from a range of considerations including, but not
limited to, heightened competition in the industry, retail sector market conditions, and earning shortfalls which impacted
the Company’s projections of future cash flows to be generated. These impairment charges were recorded in the
Company’s consolidated statement of operations as a component of operating income.
Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting
unit which totaled $4.4 million at both September 2020 and September 2019. The Company determined that the estimated
fair value of its wholesale reporting unit exceeded its carrying value at both September 2020 and September 2019.
7. EQUITY METHOD INVESTMENT:
In April 2020, the Company completed a transaction with Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale
distributor serving the convenience store industry, to jointly own and operate Team Sledd, a limited liability company
formed for the purpose of owning and operating Sledd’s wholesale distribution business. In conjunction with the
transaction, Sledd contributed substantially all of its operating 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. The transaction
was primarily funded from the Company’s revolving line of credit and profits from operations.
At September 2020, AMCON owned approximately 44% of Team Sledd’s outstanding equity, with a carrying value of
$6.7 million. During fiscal 2020, the Company recognized $0.2 million in equity in earnings (net of income taxes) from
its investment in Team Sledd. The Company’s secured loan to Team Sledd had a carrying value of $3.5 million as of
September 2020.
45
Team Sledd’s summarized financial data for the six months ended September 2020 was as follows:
Sales
Gross profit
Net income (loss) before income taxes
Net income (loss) attributable to AMCON, net of tax
8. DEBT:
For the six months
ended September
2020
$ 350,685,407
14,218,204
$
551,280
$
183,579
$
The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt
agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris
Bank (“BMO”) participating in a loan syndication.
CREDIT FACILITY
Revolving portion of the Facility, interest payable at 2.41% at September 2020
$ 61,971,682 $ 60,376,714
2020
2019
The Facility included the following significant terms at September 2020:
• A March 2025 maturity date without a penalty for prepayment.
•
$110.0 million revolving credit limit.
• Loan accordion allowing the Company to increase the size of the 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. For
these purposes, 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
46
availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions
or investments.
During fiscal 2020, total borrowings and payments on the Facility were approximately $1.5 billion and $1.5 billion,
respectively, resulting in net advances of $1.6 million. Total borrowings and repayment on the Facility during fiscal 2019
were approximately $1.4 billion and $1.4 billion, respectively, resulting in net advances of $24.9 million.
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 September 2020 was $109.6 million, of which $62.0 million was
outstanding, leaving $47.6 million available.
LONG-TERM DEBT
In addition to the Facility, the Company also had the following long-term obligations at fiscal 2020 and fiscal 2019.
Note payable to a bank (“Real Estate Loan”), interest payable at a fixed rate of 2.99%
with monthly installments of principal and interest of $38,344 through August 2021
with remaining principal due October 2021, collateralized by three distribution
facilities
Note payable, interest payable at a fixed rate of 4.50% with quarterly installments of
principal and interest of $49,114 through June 2023 with remaining principal due
September 2023
Less current maturities
2020
2019
$ 1,866,231 $ 2,263,040
1,259,413
3,125,644
(516,850)
1,395,351
3,658,391
(532,747)
$ 2,608,794 $ 3,125,644
The aggregate minimum principal maturities of the long-term debt for each of the next five fiscal years are as follows:
Fiscal Year Ending
2021
2022
2023
2024
2025
$
$
516,850
1,640,205
968,589
—
—
3,125,644
Market rate risk for fixed rate debt is estimated as the potential increase in fair value of debt obligations resulting from
decreases in interest rates. Based on the borrowing rates currently available to the Company for bank loans with similar
terms and average maturities, the fair value of the Company’s long-term debt approximated its carrying value at September
2020.
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
Real Estate Loan with BMO 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, is in default. There were no such cross defaults at September 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.
47
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.
9. INCOME TAXES:
The components of income tax expense from operations for fiscal 2020 and fiscal 2019 consisted of the following:
Current: Federal
Current: State
Deferred: Federal
Deferred: State
Income tax expense
2020
2019
$ 1,690,956 $ 1,139,927
428,501
1,568,428
34,466
6,106
40,572
$ 2,143,000 $ 1,609,000
468,842
2,159,798
(14,270)
(2,528)
(16,798)
The difference between the Company’s income tax expense in the accompanying consolidated financial statements and
that which would be calculated using the statutory income tax rate of 21% for both fiscal 2020 and fiscal 2019 on income
before income taxes is as follows:
Tax at statutory rate
Nondeductible business expenses
State income taxes, net of federal tax benefit
Other
2020
2019
$ 1,575,422 $ 1,010,517
226,670
332,931
38,882
$ 2,143,000 $ 1,609,000
230,571
376,262
(39,255)
Temporary differences between the financial statement carrying balances and tax basis of assets and liabilities giving rise
to net deferred tax assets (liabilities) at September 2020 and September 2019 relates to the following:
Deferred tax assets:
Allowance for doubtful accounts
Accrued expenses
Inventory
Intangible assets
Other
Net operating loss carry forwards - federal
Net operating loss carry forwards - state
Total gross deferred tax assets
Less: Valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Trade discounts
Property and equipment
Goodwill
Total deferred tax liabilities
Total net deferred income tax liability
48
2020
2019
$
210,734 $
1,243,132
365,417
15,803
—
35,545
716,241
2,586,872
(716,241)
1,870,631
215,925
796,542
452,192
71,849
23,237
63,983
723,306
2,347,034
(723,306)
1,623,728
318,070
2,437,337
921,799
3,677,206
375,172
2,150,130
921,799
3,447,101
$ 1,806,575 $ 1,823,373
At September 2020, the Company had noncurrent deferred tax assets related to federal net operating loss carryforwards in
an amount less than $0.1 million. These federal net operating loss carryforwards totaled approximately $0.2 million and
were primarily attributable to the Company’s fiscal 2002 purchase of Hawaiian Natural Water Company, Inc. (“HNWC”),
a wholly owned subsidiary of the Company. The utilization of HNWC’s net operating losses is limited by Internal Revenue
Code Section 382 to approximately $0.1 million per year through 2022.
The Company had a valuation allowance of approximately $0.7 million at both September 2020 and September 2019,
against certain state net operating losses, which more likely than not will not be utilized. The Company had no material
unrecognized tax benefits, interest, or penalties during fiscal 2020 or fiscal 2019, and the Company does not anticipate any
such items during the next twelve months. The Company’s policy is to record interest and penalties directly related to
income taxes as income tax expense in the Consolidated Statements of Operations. The Company files income tax returns
in the U.S. and various states and the tax years 2017 and forward remain open under U.S. and state statutes.
During fiscal 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak
which, among other things, contains numerous income tax provisions. The Company evaluated the impact of the legislation
and determined that while there was an impact on the timing of certain future tax payments, there is no material impact on
the Company’s consolidated financial statements or related disclosures.
10. PROFIT SHARING PLAN:
The Company sponsors a profit sharing plan (i.e. a section 401(k) plan) covering substantially all employees. The plan
allows employees to make voluntary contributions up to 100% of their compensation, subject to Internal Revenue Service
limits. The Company matches 100% of the first 2% contributed and 50% of the next 4% contributed for a maximum match
of 4% of employee compensation. The Company made matching contributions to the profit sharing plan of approximately
$0.9 million and $0.8 million (net of employee forfeitures) in fiscal 2020 and fiscal 2019, respectively.
11. COMMITMENTS AND CONTINGENCIES:
Liability Insurance
The Company carries property, general liability, vehicle liability, directors’ and officers’ liability and workers’
compensation insurance. Additionally, the Company carries an umbrella liability policy to provide excess coverage over
the underlying limits of the aforementioned primary policies.
The Company’s insurance programs for workers’ compensation, general liability, and employee related health care benefits
are provided through high deductible or self-insured programs. Claims in excess of self-insurance levels are fully insured
subject to policy limits. Accruals are based on historical claims experience, actual claims filed, and estimates of claims
incurred but not reported.
The Company’s liabilities for unpaid and incurred, but not reported claims, for workers’ compensation, general liability,
and health insurance was $1.5 million at both September 2020 and September 2019. These amounts are included in accrued
expenses in the accompanying Consolidated Balance Sheets. While the ultimate amount of claims incurred is dependent
on future developments, in the Company’s opinion, recorded reserves are adequate to cover the future payment of claims
previously incurred. However, it is possible that recorded reserves may not be adequate to cover the future payment of
claims.
Adjustments, if any, to claims estimates previously recorded, resulting from actual claim payments, are reflected in
operations in the periods in which such adjustments are known.
49
A summary of the activity in the Company’s self-insured liabilities reserve is set forth below (in millions):
Beginning balance
Charged to expense
Payments
Ending balance
12. EQUITY-BASED INCENTIVE AWARDS:
Omnibus Plans
$
$
2020
2019
1.5 $
6.6
(6.6)
1.5 $
1.6
5.4
(5.5)
1.5
The Company has two equity-based incentive plans, the 2014 Omnibus Incentive Plan and 2018 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 135,000 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 September
2020, awards with respect to a total of 101,280 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans
and awards with respect to another 33,720 shares may be awarded under the Omnibus Plans.
Stock Options
No incentive stock options awards were issued during fiscal 2020. The Company issued 5,450 incentive stock option
awards to employees during fiscal 2019 pursuant to the provisions of the Company’s 2014 Omnibus Plan. These awards
vest in equal installments over a five year service period. The fiscal 2019 incentive stock option awards had an estimated
grant date fair value of approximately $0.2 million using the Black-Scholes option pricing model. The following
assumptions were used in connection with the Black-Scholes option pricing calculation as it relates to the fiscal 2019
incentive stock option awards:
Risk-free interest rate
Dividend yield
Expected volatility
Expected life in years
Stock Option
Pricing
Assumptions
2019
2.55 %
0.8 %
45.10 %
6
The stock options issued by the Company expire ten years from the grant date and include a five year graded vesting
schedule. At September 2020, the Company had 34,350 stock options outstanding with a weighted average exercise price
of $80.33 per share and 22,890 stock options which were exercisable with a weighted average exercise price of $72.67 per
share.
The following is a summary of stock option activity during fiscal 2020:
Outstanding at September 2019
Granted
Exercised
Forfeited/Expired
Outstanding at September 2020
50
Number
of
Shares
36,450
—
(2,100)
—
34,350
$
$
Weighted
Average
Exercise
Price
78.67
—
51.50
—
80.33
Net income before income taxes included compensation expense related to the amortization of the Company’s stock option
awards of $0.1 million during both fiscal 2020 and fiscal 2019. At September 2020, total unamortized compensation
expense related to stock options was approximately $0.2 million. This unamortized compensation expense is expected to
be amortized over approximately the next 29 months.
The aggregate intrinsic value of stock options outstanding was less than $0.1 million at September 2020 and $0.2 million
at September 2019. The aggregate intrinsic value of stock options exercisable was less than $0.1 million and $0.2 million
at September 2020 and September 2019, respectively.
The total intrinsic value of stock options exercised was less than $0.1 million in both fiscal 2020 and fiscal 2019. The total
fair value of stock options vested was $0.4 million during both fiscal 2020 and fiscal 2019.
Restricted Stock Units
At September 2020, the Compensation Committee of the Board of Directors had authorized and approved the following
restricted stock unit awards to members of the Company’s management team pursuant to the provisions of the Company’s
Omnibus Plans:
Date of award:
Original number of awards issued:
Service period:
Estimated fair value of award at grant date:
Non-vested awards outstanding at
September 30, 2020:
Fair value of non-vested awards at
September 30, 2020 of approximately:
Restricted
Stock Units(1)
October 2015
13,250
36 - 60 months
1,112,000
$
Restricted
Stock Units(2)
October 2017
13,000
36 months
1,177,000 $
Restricted
Stock Units(3)
October 2018
15,050
36 months
1,264,000 $
Restricted
Stock Units(4)
October 2019
14,550
36 months
1,007,000
$
50
4,334
10,037
14,550
$
3,000
$
280,000 $
648,000 $
940,000
(1)
(2)
(3)
13,200 of the restricted stock units were vested as of September 2020. The remaining 50 restricted stock units
will vest in October 2020.
8,666 of the restricted stock units were vested as of September 2020. The remaining 4,334 restricted stock units
will vest in October 2020.
5,013 of the restricted stock units were vested as of September 2020. 5,018 restricted stock units will vest in
October 2020 and 5,019 will vest in October 2021.
(4)
The 14,550 restricted stock units will vest in equal amounts in October 2020, October 2021, and October 2022.
There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. The recipients of the
restricted stock units 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 restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the
Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on
these award provisions, the compensation expense recorded in the Company’s Statement of Operations reflects the
straight-line amortized fair value based on the liability method under “ASC 718 – Compensation – Stock Compensation”.
Net income before income taxes included compensation expense related to the amortization of the Company’s restricted
stock unit awards of approximately $1.0 million and $1.2 million during fiscal 2020 and fiscal 2019, respectively. These
amounts were recorded as accrued expenses in the Company’s Consolidated Balance Sheets at both September 2020 and
September 2019. The tax benefit related to this compensation expense was approximately $0.2 million and $0.3 million in
51
fiscal 2020 and fiscal 2019, respectively. The total intrinsic value of restricted stock units vested during fiscal 2020 and
fiscal 2019 was approximately $0.9 million and $1.1 million, respectively.
Total unamortized compensation expense for these awards based on the grant date fair value price was approximately
$1.1 million. This unamortized compensation expense, plus any changes in the fair value of the awards through the
settlement date, are expected to be amortized over approximately the next 16 months (the weighted-average period).
The following summarizes restricted stock unit activity under the Omnibus Plans during fiscal 2020:
Weighted
Average
Number
of
Shares
28,151 $
14,550
(13,730)
—
28,971 $
Fair Value
76.25
69.20
74.02
—
64.59
Nonvested restricted stocks units at September 2019
Granted
Vested
Expired
Nonvested restricted stocks units at September 2020
52
13. 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 by our holding
company. The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes.
Wholesale
Segment
Retail
Segment
Other
Consolidated
FISCAL YEAR ENDED 2020:
External revenues:
Cigarettes
Tobacco
Confectionery
Health food
Foodservice & other
Total external revenue
Depreciation
Amortization
Operating income (loss)
Interest expense
Income (loss) from operations before taxes
Equity method investment earnings, net of tax
Total assets
Capital expenditures
FISCAL YEAR ENDED 2019:
External revenue:
Cigarettes
Tobacco
Confectionery
Health food
Foodservice & other
Total external revenue
Depreciation
Amortization
Operating income (loss)
Interest expense
Income (loss) from operations before taxes
Total assets
Capital expenditures
14. TREASURY STOCK:
$ 1,045,661,081 $
227,807,266
82,910,260
—
118,889,464
1,475,268,071
1,791,414
—
17,291,306
128,672
17,207,935
—
158,292,477
2,071,956
— $
—
—
46,010,692
—
46,010,692
1,325,035
—
(1,824,416)
—
(1,814,850)
—
19,124,233
1,215,364
— $ 1,045,661,081
227,807,266
—
82,910,260
—
46,010,692
—
118,889,464
—
1,521,278,763
—
3,116,449
—
—
—
9,080,986
(6,385,904)
1,693,251
1,564,579
7,502,011
(7,891,074)
183,579
183,579
188,001,273
10,584,563
3,287,320
—
$ 955,667,916 $
197,678,519
83,130,063
—
111,700,971
1,348,177,469
1,569,178
41,667
17,280,500
145,980
17,186,295
143,541,723
2,982,273
— $
—
—
44,210,688
—
44,210,688
1,006,746
—
(4,731,717)
—
(4,722,375)
14,028,232
1,524,007
— $ 955,667,916
197,678,519
—
83,130,063
—
44,210,688
—
111,700,971
—
1,392,388,157
—
2,575,924
—
41,667
—
6,349,688
(6,199,095)
1,598,864
1,452,884
(7,651,977)
4,811,943
157,711,622
141,667
4,506,280
—
The Company repurchased a total of 28,727 and 75,113 shares of its common stock during fiscal 2020 and fiscal 2019,
respectively, for cash totaling approximately $2.0 million and $7.5 million, respectively. All repurchased shares were
recorded in treasury stock at cost.
15. IMPACT OF COVID-19:
In March 2020, the World Health Organization (WHO) declared the novel strain of coronavirus (COVID-19) a global
pandemic. The Company has been designated as a critical infrastructure supplier to the Convenience Store Industry. Both
53
of the Company’s business segments have continued to operate during the pandemic as essential suppliers of goods and
services and the Company has taken certain proactive and precautionary steps to ensure the safety of its employees,
customers, and suppliers, including frequent cleaning and disinfection of workspaces, property and equipment, instituting
social distancing measures, and mandating remote working environments for certain employees.
The Company continues to monitor medical, regulatory and consumer developments, and community-based regulations,
however, we cannot predict the long-term effects on our business, including our financial position or results of operations,
if governmental restrictions such as Stay-At-Home orders or other such directives continue or are reinstated for a prolonged
period of time and materially disrupt consumer demand, our supply chain or our ability to procure products or fulfill orders
due to disruptions in our warehouse operations.
16. SUBSEQUENT EVENTS:
On October 27, 2020 the Compensation Committee of the Company’s Board of Directors awarded 20,500 restricted stock
units to members of the Company’s executive management team. These awards include a three year graded vesting
schedule and can be settled in either cash or stock. At the same time, the Company’s Board of Directors replenished the
number of shares authorized for repurchase under AMCON’s existing Common Stock repurchase program. The program
provides for periodic repurchases of up to 75,000 shares of AMCON’s common stock in open market or privately
negotiated transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
NONE
ITEM 9A. 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 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 September 30, 2020 was made under the supervision and with the participation of our senior
management, including our principal executive officer and principal financial officer. Based upon that evaluation, our
principal executive officer and principal financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure
controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control
system must reflect the fact that there are resource constraints, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in
54
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s
override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable
assurance and may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of
changes in conditions, effectiveness of internal control over financial reporting may vary over time.
We have completed our evaluation and testing of our internal control over financial reporting as required by Section 404
of Sarbanes-Oxley and Item 308(a) of Regulation S-K. Under the supervision and with the participation of our
management, we assessed the effectiveness of our internal control over financial reporting as of September 30, 2020. In
making this assessment, we used the criteria set forth in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based on its assessment, management has
concluded that our internal control over financial reporting was effective as of September 30, 2020.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide
only management’s report in this annual report.
Other
As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over
financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement
schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over
financial reporting with respect to equity method investees did include controls over the recording of amounts related to
our investment that are recorded in the consolidated financial statements, including controls over the selection of
accounting methods for our investments, the recognition of equity method earnings and losses and the determination,
valuation and recording of our investment account balances.
55
Changes in Internal Control Over Financial Reporting
Except as described above under “Other” in Part II, Item 9A., there were no changes in our internal control over financial
reporting that occurred during the fiscal quarter ended September 30, 2020, that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
56
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Registrant’s Proxy Statement to be used in connection with the December 2020 Annual Meeting of Shareholders (the
“Proxy Statement”) will contain under the captions “Item 1: Election of Directors—What is the structure of our board and
how often are directors elected?”, “Item 1: Election of Directors—Who are this year’s nominees?”, “Item 1: Election of
Directors—What is the business experience of the nominees and of our continuing board members and the basis for the
conclusion that each such person should serve on our board?”, “Section 16(a) Beneficial Ownership Reporting
Compliance”, “Corporate Governance and Board Matters—Code of Ethics”, and “Corporate Governance and Board
Matters—Committees of the Board—Audit Committee”, certain information required by Item 10 of Form 10-K and such
information is incorporated herein by this reference.
The information appearing under the caption “Executive Officers of the Registrant” in Part I of this report also is
incorporated herein by reference. Our Board of Directors has adopted a code of ethical conduct that applies to our executive
officers, including our principal executive officer and our principal financial officer. This code of ethical conduct is
available without charge to any person who requests it by writing to our corporate secretary. It also is available on our
internet website (www.amcon.com) by clicking on the “Corporate Governance” tab under “Investor Relations”. Any
substantive amendment to, or waiver from, a provision of this code that applies to our principal executive officer or
principal financial officer will be disclosed on our internet website and, if required by rules of the SEC or NYSE American,
on the reports we file with the SEC.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant’s Proxy Statement will contain under the captions “Executive Compensation and Related Matters” and
“Corporate Governance and Board Matters—Director Compensation” the information required by Item 11 of Form 10-K,
and such information is incorporated herein by this reference. Rules of the Securities and Exchange Commission permit
the Company to omit the disclosure contemplated by Item 407(e)(4) and (e)(5) relating to “Compensation Committee
Interlocks and Insider Participation” and “Compensation Committee Report”, respectively, and this annual report does not
include such disclosure.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The Registrant’s Proxy Statement will contain under the captions “Ownership of Our Common Stock by Our Directors
and Executive Officers and Other Principal Stockholders” and “Executive Compensation and Related Matters—Equity
Compensation Plan Information” the information required by Item 12 of Form 10-K and such information is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Registrant’s Proxy Statement will contain under the captions “Certain Relationships and Related Party Transactions”,
“Item 1: Election of Directors—What is the structure of our board and how often are directors elected?” and “Corporate
Governance and Board Matters—Committees of the Board”, the information required by Item 13 of Form 10-K and such
information is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Registrant’s Proxy Statement will contain under the caption “Independent Auditor Fees and Services”, the information
required by Item 14 of Form 10-K and such information is incorporated herein by this reference.
57
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(1)
Financial Statements, Financial Statement Schedules, and Exhibits
Financial Statements
The financial statements filed as part of this filing are listed on the index to Consolidated Financial Statements under
Item 8.
(2)
Financial Statement Schedules
Not Applicable.
(3)
Exhibits
3.1 Restated Certificate of Incorporation of AMCON Distributing Company
3.2 Amended and Restated Bylaws of AMCON Distributing Company dated January 29, 2008 (incorporated by
reference to Exhibit 3.2 of AMCON’s Current Report on Form 8-K filed on February 4, 2008).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of AMCON’s Registration
Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994)
4.2 Securities Purchase Agreement dated October 8, 2004 between AMCON Distributing Company and Spencer
Street Investments, Inc. (incorporated by reference to Exhibit 4.5 of AMCON’s Annual Report on Form 10-K
filed on January 7, 2005)
4.3 Description of Registrant’s Securities
10.1 Second Amended and Restated Loan and Security Agreement, date April 18, 2011, between AMCON
Distributing Company and Bank of America, as agent (incorporated by reference to Exhibit 10.1 of AMCON’s
Quarterly Report on Form 10-Q filed on April 19, 2011)
10.2 Consent and First Amendment to Second Amended and Restated Credit Agreement dated May 27, 2011
(incorporated by reference to Exhibit 10.2 of AMCON’s Form 8-K filed on May 31, 2011)
10.3 Second Amendment to Second Amended and Restated Loan and Security Agreement, date July 16, 2013,
between AMCON Distributing Company and Bank of America, (incorporated by reference to Exhibit 10.1 of
AMCON’s Quarterly Report on Form 10-Q filed on July 18, 2013)
10.4 AMCON Distributing Company Profit Sharing Plan (incorporated by reference to Exhibit 10.8 of Amendment
No. 1 to the Company’s Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8,
1994)*
10.5 2007 Omnibus Incentive Plan dated April 17, 2007 (incorporated herein by reference to Exhibit 10.12 to
AMCON’s Annual Report on Form 10-K filed on November 9, 2007)*
10.6 Security Agreement by and between AMCON Distributing Company and Gold Bank (predecessor to BMO
Harris Bank); (incorporated by reference to Exhibit 10.24 of AMCON’s Quarterly Report on Form 10-Q filed
on February 14, 2005)
10.7 Change of Control Agreement between the Company and Christopher H. Atayan, dated December 29, 2006
(incorporated by reference to Exhibit 10.40 of AMCON’s Annual Report on Form 10-K filed on December 29,
2006)*
10.9 Executive Restricted Stock Award Agreement under the 2007 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.45 to AMCON’s Annual Report on Form 10-K filed on November 7, 2008)*
10.10 Director Restricted Stock Award Agreement under the 2007 Omnibus Incentive Plan (incorporated by reference
to Exhibit 10.46 of AMCON’s Annual Report on Form 10-K filed on November 7, 2008)
58
10.11 Form of Stock Option Award Agreement under the 2007 Omnibus Incentive Plan, together with a schedule
identifying individual award recipients and the related terms (incorporated by reference to Exhibit 10.2 of
AMCON’s Quarterly Report on Form 10-Q filed on April 19, 2011)
10.12 Form of Restricted Stock Unit Award Agreement under the 2007 Omnibus Incentive Plan, together with a
schedule identifying individual award recipients and the related terms (incorporated by reference to Exhibit 10.3
of AMCON’s Quarterly Report on Form 10-Q filed on April 19, 2011)
10.13 Amended and Restated Term Real Estate Promissory Note, dated September 30, 2016, issued by AMCON
Distributing Company to BMO Harris, NA (incorporated by reference to Exhibit 10.13 of AMCON’s Annual
Report on form 10-K filed on November 8, 2016)
10.14 2014 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to AMCON’s Current Report
on Form 8-K filed with the Commission on December 22, 2014)*
10.15 Form of Restricted Stock Unit Award Agreement under the 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.2 to AMCON’s Current Report on Form 8-K filed with the Commission on
December 22, 2014)*
10.16 Third Amendment to Second Amended and Restated Loan and Security Agreement, dated November 6, 2017,
between AMCON Distributing Company and Bank of America (incorporated by reference to Exhibit 10.16 of
AMCON’s Annual Report on Form 10-K filed on November 8, 2017)*.
10.17 2018 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to AMCON’s Quarterly Report
on Form 10-Q filed on January 18, 2019)*
10.18 Form of Restricted Stock Unit Award Agreement under the 2018 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.2 to AMCON’s Quarterly Report on Form 10-Q filed on January 18, 2019)*
10.19 Form of Stock Option Award Agreement under the 2018 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.3 of AMCON’s Quarterly Report on Form 10-Q filed on January 18, 2019)
10.20 Fourth Amendment to Second Amended and Restated Loan and Security Agreement, dated March 20, 2020,
between AMCON Distributing Company and Bank of America (incorporated by reference to Exhibit 10.1 of
AMCON’s From 8-K filed on March 24, 2020)
11.1 Statement regarding computation of per share earnings (incorporated by reference to Note 3 to the Consolidated
Financial Statements included as a part of this report on Form 10-K under Item 8)
21.1 Subsidiaries of the Company
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).
* Represents management contract or compensation plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
November 9, 2020
AMCON DISTRIBUTING COMPANY
(registrant)
By:
/s/ CHRISTOPHER H. ATAYAN
Christopher H. Atayan
Chief Executive Officer and Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
November 9, 2020
November 9, 2020
November 9, 2020
November 9, 2020
November 9, 2020
November 9, 2020
November 9, 2020
November 9, 2020
/s/ CHRISTOPHER H. ATAYAN
Christopher H. Atayan
Chief Executive Officer
Chairman of the Board and Director
(Principal Executive Officer)
/s/ CHARLES J. SCHMADERER
Charles J. Schmaderer
Vice President, Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ ANDREW C. PLUMMER
Andrew C. Plummer
President, Chief Operating Officer and Director
/s/ JEREMY W. HOBBS
Jeremy W. Hobbs
Director
/s/ JOHN R. LOYACK
John R. Loyack
Director
/s/ RAYMOND F. BENTELE
Raymond F. Bentele
Director
/s/ STANLEY MAYER
Stanley Mayer
Director
/s/ TIMOTHY R. PESTOTNIK
Timothy R. Pestotnik
Director
60
CO R P O R AT E D I R EC TO RY
DIRECTORS
PRINCIPAL EXECUTIVE OFFICES
Christopher H. Atayan
Chairman & Chief Executive Officer
Raymond F. Bentele (2), (3)
Retired President & CEO of Mallinckrodt, Inc.
Jeremy W. Hobbs
Executive Director, Western Wind Foundation
John R. Loyack (1), (2), (3)
President of Alvernia University
Stanley Mayer (1), (2)
Retired General Manager of CMC Rebar, Albuquerque
Timothy R. Pestotnik (1), (3)
Pestotnik LLP
Andrew C. Plummer
President & Chief Operating Officer
(1) AUDIT COMMITTEE
(2) COMPENSATION COMMITTEE
(3) NOMINATING/GOVERNANCE COMMITTEE
SENIOR EXECUTIVES
Christopher H. Atayan
Chief Executive Officer
Andrew C. Plummer
President & Chief Operating Officer
Charles J. Schmaderer
Vice President & Chief Financial Officer
Frank Briola
Vice President
MAILING ADDRESS:
AMCON Distributing Company
7405 Irvington Road
Omaha, Nebraska 68122
STOCK TRANSFER AGENT
COMPUTERSHARE
P.O. Box 505000
Louisville, KY 40233-5000
800-368-5948
ComputerShare.com
INDEPENDENT AUDITORS
RSM US LLP
1299 Farnam Street
Suite 530
Omaha, Nebraska 68102
ANNUAL SHAREHOLDERS’ MEETING
Tuesday, December 22, 2020
10:00 a.m.
Omaha Hilton Hotel
1001 Cass Street
Omaha, Nebraska 68102
SHAREHOLDER INFORMATION
AMCON Distributing Company’s Common
Shares are traded on the NYSE American
The symbol for our Common Stock is “DIT”
WEBSITE
AMCON.com
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CHAMBERLIN’
Lakeland, Florida
S
AKIN’ S
OKC, Oklahoma
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AMCONDistributing Company7405Irvington RoadOmaha,Nebraska68122amcon.comearthoriginsmarket.comchamberlins.comakins.comANNUAL REPORT3591_Cov.indd13591_Cov.indd111/9/203:14PM11/9/203:14PM