Amcon Distributing Co 10-Q for FY2025 Q1
Amcon Distributing Co (DIT)
About this 10-Q
Amcon Distributing Co filed this 10-Q on January 21, 2025, covering the quarter ended December 31, 2024 (FY2025 Q1).
Headline figures
Quarter ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $711.27M
- up 10.3% from $644.96M a year earlier
- Net income
- $348.42K
- down 67.5% from net income of $1.07M a year earlier
- Diluted EPS
- $0.57
- down 68.0% from $1.78 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the quarterly period ended |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the transition period from ___________to _________ |
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction | | (I.R.S. Employer |
of incorporation or organization) | | Identification No.) |
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(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ | | |
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Smaller reporting company | Emerging growth company | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ◻ No
The Registrant had
Form 10-Q
1st Quarter
INDEX
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2024 and September 30, 2024
| | December | | September | ||
|
| 2024 |
| 2024 | ||
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | | | $ | |
Accounts receivable, less allowance for credit losses of $ | |
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Inventories, net | |
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Income taxes receivable | | | | | | |
Prepaid expenses and other current assets | |
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Total current assets | |
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Property and equipment, net | |
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Operating lease right-of-use assets, net | | | | | | |
Goodwill | |
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Other intangible assets, net | |
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Other assets | |
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Total assets | | $ | | | $ | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | | | $ | |
Accrued expenses | |
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Accrued wages, salaries and bonuses | |
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Current operating lease liabilities | | | | | | |
Current maturities of long-term debt | |
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Current mandatorily redeemable non-controlling interest | | | | | | |
Total current liabilities | |
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Credit facilities | |
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Deferred income tax liability, net | |
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Long-term operating lease liabilities | | | | | | |
Long-term debt, less current maturities | |
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Mandatorily redeemable non-controlling interest, less current portion | | | | | | |
Other long-term liabilities | |
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Shareholders’ equity: | | | | | | |
Preferred stock, $ | |
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Common stock, $ | |
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Additional paid-in capital | |
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Retained earnings | |
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Treasury stock at cost | |
| ( | |
| ( |
Total shareholders’ equity | | | | | | |
Total liabilities and shareholders’ equity | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three months ended December 31, 2024 and 2023
| | For the three months ended December | ||||
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| 2024 |
| 2023 | ||
Sales (including excise taxes of $ | | $ | | | $ | |
Cost of sales | |
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Gross profit | |
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Selling, general and administrative expenses | |
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Depreciation and amortization | |
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Operating income | |
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Other expense (income): | | | | | | |
Interest expense | |
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Change in fair value of mandatorily redeemable non-controlling interest | | | | | | |
Other (income), net | |
| ( | |
| ( |
| |
| | |
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Income from operations before income taxes | |
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Income tax expense | |
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Net income available to common shareholders | | $ | | | $ | |
| | | | | | |
Basic earnings per share available to common shareholders | | $ | | | $ | |
Diluted earnings per share available to common shareholders | | $ | | | $ | |
| | | | | | |
Basic weighted average shares outstanding | |
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Diluted weighted average shares outstanding | |
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| | | | |
Dividends paid per common share | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Shareholders’ Equity
for the three months ended December 31, 2024 and 2023
| | | | | | | | | | | | Additional | | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | | | ||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | |||||
THREE MONTHS ENDED DECEMBER 2023 | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2023 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
Dividends on common stock, $ | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and issuance of stock in connection with equity-based awards | | | | | | | — | | | — | | | | | | — | | | |
Net income available to common shareholders | | — | |
| — | | — | | | — | | | — | | | | | | |
Balance, December 31, 2023 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | |
THREE MONTHS ENDED DECEMBER 2024 | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2024 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
Dividends on common stock, $ | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and issuance of stock in connection with equity-based awards | | | | | | | — | | | — | | | | | | — | | | |
Net income available to common shareholders | | — | |
| — | | — | | | — | | | — | | | | | | |
Balance, December 31, 2024 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the three months ended December 31, 2024 and 2023
| | December | | December | ||
|
| 2024 |
| 2023 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income available to common shareholders | | $ | | | $ | |
Adjustments to reconcile net income available to common shareholders to net cash flows from (used in) operating activities: | | | | | | |
Depreciation | | | | | | |
Amortization | | | | | | |
(Gain) loss on sales of property and equipment | | | ( | | | ( |
Equity-based compensation | | | | | | |
Deferred income taxes | | | | | | |
Provision for credit losses | | | | | | ( |
Inventory allowance | | | | | | |
Change in fair value of contingent consideration | | | ( | | | — |
Change in fair value of mandatorily redeemable non-controlling interest | | | | | | |
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 | | | | | | |
Net cash flows from (used in) investing activities | | | ( | | | ( |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facilities | | | | | | |
Repayments under revolving credit facilities | | | ( | | | ( |
Principal payments on long-term debt | | | ( | | | ( |
Dividends on common stock | | | ( | | | ( |
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, net of amounts capitalized | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of non-cash information: | | | | | | |
Equipment acquisitions classified in accounts payable | | $ | | | $ | |
Dividends declared, not paid | | | | | | |
Issuance of common stock in connection with the vesting of | | | — | |
| |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) serves customers in
| ● | Our wholesale distribution segment (the “Wholesale Segment”), which includes our Team Sledd, LLC (“Team Sledd”) and Henry’s Foods, Inc. (“Henry’s”) subsidiaries, 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 primarily in the Central, Rocky Mountain, Great Lakes, Mid-South and Mid-Atlantic regions of the United States. |
| ● | Our retail health food segment (the “Retail Segment”) operates |
WHOLESALE SEGMENT
Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distribution capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates
RETAIL SEGMENT
Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and operates
Market banners. We operate within the natural products retail industry, which is a subset of the United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. These stores carry over
7
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30th. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2024, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its consolidated subsidiaries. Additionally, the three-month fiscal periods ended December 31, 2024 and December 31, 2023 have been referred to throughout this Quarterly Report as Q1 2025 and Q1 2024, respectively. The fiscal balance sheet dates as of December 31, 2024 and September 30, 2024 have been referred to as December 2024 and September 2024, respectively.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. This guidance is effective for fiscal years beginning after December 15, 2023 (fiscal 2025 for the Company), and interim periods within fiscal years beginning after December 15, 2024 (fiscal 2026 for the Company), with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This guidance is effective for annual periods beginning after December 15, 2024 (fiscal 2026 for the Company), with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures”, which improves disclosure requirements and provides more detailed information about an entity’s expenses, specifically amounts related to purchases of inventory, employee compensation, depreciation, intangible asset amortization, and selling expenses, along with qualitative descriptions of certain other types of expenses. This guidance is effective for fiscal years beginning after December 15, 2026 (fiscal 2028 for the Company), and interim periods within fiscal years beginning after December 15, 2027 (fiscal 2029 for the Company), with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
2. INVENTORIES
Inventories in our Wholesale Segment consisted of finished goods and are stated at the lower of cost or net realizable value, utilizing FIFO and average cost methods. Inventories in our Retail Segment consisted of finished goods and are stated at the lower of cost or market using the retail method. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $
8
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at December 2024 and September 2024 was as follows:
|
| December |
| September | ||
| 2024 | | 2024 | |||
Wholesale Segment | | $ | | | $ | |
Other intangible assets at December 2024 and September 2024 consisted of the following:
|
| December |
| September | ||
| | 2024 | | 2024 | ||
Customer lists (Wholesale Segment) (less accumulated amortization of $ | | $ | | | $ | |
Non-competition agreements (Wholesale Segment) (less accumulated amortization of $ | | | | | | |
Tradename (Wholesale Segment) (less accumulated amortization of $ | | | | | | |
Trademarks and tradenames (Retail Segment) | | | | | | |
| | $ | | | $ | |
Goodwill and Retail Segment trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheets represent amounts allocated to its wholesale reporting unit which totaled approximately $
At December 2024, identifiable intangible assets considered to have finite lives were represented by customer lists which are being amortized over
Estimated future amortization expense related to identifiable intangible assets with finite lives was as follows at December 2024:
| | December | |
|
| 2024 | |
Fiscal 2025 (1) | | $ | |
Fiscal 2026 | | | |
Fiscal 2027 | | | |
Fiscal 2028 | | | |
Fiscal 2029 | | | |
Fiscal 2030 and thereafter | | | |
| | $ | |
| (1) | Represents amortization for the remaining nine months of Fiscal 2025. |
9
4. DIVIDENDS
The Company paid cash dividends on its common stock totaling $
5. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.
| | For the three months ended December | ||||||||||
| | 2024 | | 2023 | ||||||||
|
| Basic |
| Diluted |
| Basic |
| Diluted | ||||
Weighted average number of common shares outstanding | | | | | | | | | | | | |
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | | | — | | | | | | — | | | |
Weighted average number of shares outstanding | | | | | | | | | | | | |
Net income available to common shareholders | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Net earnings per share available to common shareholders | | $ | | | $ | | | $ | | | $ | |
6. DEBT
The Company primarily finances its operations through
At December 2024, the Facilities had a total combined borrowing capacity of $
The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2024 was $
10
The average interest rate of the Facilities was
Cross Default and Co-Terminus Provisions
Team Sledd’s two notes payable and the Team Sledd Facility contain cross default provisions. The Henry’s note payable and the Henry’s Facility contain cross default provisions. There were no such cross defaults for either Team Sledd or Henry’s at December 2024. Additionally, the Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry’s, were in compliance with all of the financial covenants under the respective Facilities at December 2024.
Other
The Company has issued letters of credit totaling $
7. INCOME TAXES
The change in the Company’s effective income tax rate for the three-month period ended December 2024 as compared to the respective prior year period was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and variances in the average effective state income tax rates between the comparative periods.
8. FAIR VALUE DISCLOSURES
Mandatorily Redeemable Non-Controlling Interest
Mandatorily redeemable non-controlling interest (“MRNCI”) recorded on the Company’s condensed consolidated balance sheets represents the fair value of the non-controlling interest in the Company’s strategic investment in Team Sledd. The Company owned approximately
A summary of the MRNCI activity is as follows:
| | For the Three Months Ended December 31, | ||||
| | 2024 | | 2023 | ||
Fair value, beginning of period | | $ | | | $ | |
Redemption of non-controlling interests | | | | | | — |
Distributions to non-controlling interest | | | | | | — |
Change in fair value | | | | | | |
| $ | | | $ | | |
11
Contingent Consideration
On April 5, 2024, the Company acquired substantially all of the net operating assets of Burklund Distributors, Inc. (“Burklund”). A portion of the consideration exchanged in the acquisition of Burklund was in the form of contingent consideration of up to $
At each reporting date, the Company reviews certain inputs, including sales thresholds and an appropriate discount rate, based on management’s knowledge and assumptions of certain events. As of December 2024, the Company determined that due to current sales trends including customer turnover, the achievement of the sales thresholds required to meet the minimum payout of any contingent consideration was not probable. As such, the Company adjusted the fair value of its contingent consideration liability and recognized operating income of approximately $
At September 2024, the difference between the estimated amount due under the contingent consideration arrangement and the fair value was approximately $
The following table presents changes in the fair value of the contingent consideration since September 2024:
Current portion of contingent consideration at fair value as of September 2024 |
| $ | |
Long-term portion of contingent consideration at fair value as of September 2024 | | | |
Fair value of contingent consideration as of September 2024 | | $ | |
| | ( | |
Fair value of contingent consideration as of December 2024 | | $ | — |
9. EQUITY-BASED INCENTIVE AWARDS
The Company has
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Restricted Stock Awards
At December 2024, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:
|
| Restricted |
| Restricted | | Restricted | |||
Date of award: |
| | October 2022 | | | October 2023 | | | October 2024 |
Original number of awards issued: |
| | | | | | |||
Service period: |
| |
| | | | |||
Estimated fair value of award at grant date: | | $ | | $ | | | |||
Non-vested awards outstanding at December 2024: | | | | | | | |||
Fair value of non-vested awards at December 2024 of approximately: | | $ | | $ | | | |||
(1) |
(2) |
(3) | The |
There is
The following summarizes restricted stock award activity under the Omnibus Plans during Q1 2025:
| | Number | | Weighted | |
| | of | | Average | |
|
| Shares |
| Fair Value | |
Nonvested restricted stock awards at September 2024 |
| | | $ | |
Granted |
| | | | |
Vested |
| ( | | | |
Expired |
| — | | | — |
Nonvested restricted stock awards at December 2024 |
| | | $ | |
Income from operations before income taxes included compensation expense related to the amortization of the Company’s restricted stock awards of approximately $
13
10. BUSINESS SEGMENTS
The Company has
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED DECEMBER 2024 | | | | | | | | | | | | |
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 | | | | | | | | | — | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED DECEMBER 2023 | | | | | | | | | | | | |
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 | | | | | | | | | — | | | |
11. SUBSEQUENT EVENT
On January 17, 2025, the Company closed on its previously disclosed acquisition of Arrowrock Supply (“Arrowrock”). The Company paid approximately $
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS UPDATE
Our business continues to be impacted by macroeconomic factors and certain manufacturer supply chain limitations. The cumulative effect of sustained inflation across various consumer product categories has impacted discretionary spending and the related retail level demand for the convenience store customers we serve. These same inflationary pressures have also increased our operating costs, particularly as it relates to labor, equipment, insurance, interest, and the cost of the products we sell.
We continue to closely monitor regulatory actions and proposals from federal and state governmental and regulatory bodies, including the United States Food and Drug Administration (“FDA”), which is evaluating the possible prohibition and/or limitations on the sale of certain cigarette, e-cigarette, tobacco, and vaping products, including menthol cigarettes. If such further regulations or further product sale limitations were to be implemented, they may limit the range of products we are able to sell in related product categories and decrease overall consumer demand. Any such changes may negatively impact our revenues, gross margins, and financial results.
The Company continues to make targeted investments in conjunction with its long-term growth strategy. Integration work continues on the recent acquisitions of Burklund Distributors, Inc. (“Burklund”) and Richmond Master Distributors, Inc. (“Richmond Master”). These acquisitions play a central role in the Company’s long-term geographic expansion initiatives, expand the Company’s regional footprint and will provide customers with an enhanced range of products and services over time.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.
It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:
| ● | risks associated with continued weakness in retail level demand within the convenience store industry, |
| ● | risks associated with workforce availability and/or wage pressures which may be impacted by economic conditions, changes in governmental policy, or other changes in the operating environment which may impact our labor force, |
| ● | risks associated with all forms of insurance renewals and the risk that the Company may not be able to renew various insurance with adequate levels of coverage, at favorable rates, or obtain insurance at all based upon market conditions within the insurance industry and/or because of the industry in which the Company operates, |
| ● | risks associated with unrest in certain global regions which could further disrupt world supply chains, manufacturing centers, and shipping routes, impacting commodity/product availability and/or cost, as well as consumer demand trends, |
| ● | risks associated with higher interest rates or prolonged periods of higher interest rates and the related impact on demand, customer credit risk, profitability and cash flows for both the Company and its customer base, particularly as it relates to variable interest rate borrowings, as well as the risk that such borrowings may not be renewed in the future on favorable terms or at all, |
15
| ● | risks associated with any systemic pressures in the banking system, particularly as they relate to customer credit risk and any resulting impact on our cash flow and our ability to collect on our receivables, |
| ● | risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest, commodity prices, and customer credit risk, which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell, |
| ● | regulations, potential bans, limitations and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, e-cigarette, tobacco, and vaping products imposed by the FDA, state or local governmental agencies, or other parties, including proposed and pending regulations and/or product approvals/authorizations related to the manufacturing, distribution, and sale of certain menthol, vaping, and flavored tobacco products, including proposed rules which would limit nicotine levels in certain cigarette and tobacco products, |
| ● | risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, |
| ● | risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, |
| ● | risks associated with events such as the COVID-19 pandemic, during which the Company experienced both higher sales volumes and labor costs but then subsequently experienced a decline in sales volumes, with limited ability to offset or pass on higher operating costs, |
| ● | risks associated with the acquisition of businesses or assets, capital asset expenditure projects by either of our business segments such as the development of new facilities/locations or upgrades to distribution centers or retail stores, including, but not limited to, risks associated with consummating such transactions on expected terms or timing, purchase price and business valuation and recording risks, customer turnover and retention risks, and risks related to the assumption of certain liabilities or obligations, |
| ● | risks associated with the integration of new businesses or equity investments by either of our business segments including, but not limited to, risks associated with vendor and customer turnover and retention, technology integration, and the potential loss of any key management personnel or employees, |
| ● | increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, |
| ● | risk that our repositioning strategy for our retail business will not be successful, |
| ● | risks associated with opening new, or closing unprofitable, retail stores, |
| ● | risks to our brick and mortar retail business and potentially to our wholesale distribution business if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, |
| ● | the potential impact that ongoing or proposed increases in trade tariffs and/or changes to trade policies may have on raw materials or finished goods sourced from abroad which could result in higher prices for the products we sell while also decreasing consumer disposable income and demand, |
| ● | increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice, |
| ● | increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, |
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| ● | risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber and ransomware attacks, malware, or other methods by which such information systems could or may have been compromised or impacted, |
| ● | increases in inventory carrying costs and customer credit risks, |
| ● | changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, |
| ● | changing demand for the Company’s products, particularly cigarette, tobacco and vaping products, |
| ● | risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, |
| ● | changes in laws and regulations and ongoing compliance related to health care and associated insurance, |
| ● | 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 including, but not limited to, wildfires and violent storms |
| ● | consolidation trends within the convenience store, wholesale distribution, and retail health food industries, |
| ● | risks associated with labor disputes (strikes), natural disasters, domestic/political unrest and incidents of violence, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, and |
| ● | other risks over which the Company has little or no control, and any other factors not identified herein. |
Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“financial statements”) require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2024, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these estimates and related policies during the three months ended December 2024.
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FIRST FISCAL QUARTER 2025 (Q1 2025)
The following discussion and analysis includes the Company’s results of operations for the three months ended December 2024 and December 2023:
Wholesale Segment
Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately 7,900 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 20,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. We have licenses, and operate, in 34 states, and are the third (3rd) largest convenience store distributor by geographic territory served.
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distribution capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates 14 distribution centers located in Colorado, Idaho, Illinois, Indiana, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia. These distribution centers, combined with cross-dock facilities, include approximately 1.7 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellanova, Kraft Heinz, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.
Retail Segment
Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and operates 15 retail health food stores under the Chamberlin’s Natural Foods, Akin’s Natural Foods, and Earth Origins Market banners. We operate within the natural products retail industry, which is a subset of the United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. These stores carry over 32,000 different nationally 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.
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RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:
|
| 2024 |
| 2023 |
| Incr (Decr) |
| % Change | |||
CONSOLIDATED: | | | | | | | | | | | |
Sales (1) | | $ | 711,273,256 | | $ | 644,959,073 | | $ | 66,314,183 |
| 10.3 |
Cost of sales | |
| 664,379,704 | |
| 601,658,151 | |
| 62,721,553 |
| 10.4 |
Gross profit | |
| 46,893,552 | |
| 43,300,922 | |
| 3,592,630 |
| 8.3 |
Gross profit percentage | |
| 6.6 | % |
| 6.7 | % |
| | | |
| | | | | | | | | | | |
Operating expense | | $ | 43,223,231 | | $ | 39,477,845 | | $ | 3,745,386 |
| 9.5 |
Operating income | |
| 3,670,321 | |
| 3,823,077 | |
| (152,756) |
| (4.0) |
Interest expense | |
| 2,846,621 | |
| 2,311,513 | |
| 535,108 |
| 23.1 |
Change in fair value of mandatorily redeemable non-controlling interest | | | 194,812 | | | 199,744 | | | (4,932) | | (2.5) |
Income tax expense | |
| 392,000 | |
| 804,000 | |
| (412,000) |
| (51.2) |
Net income available to common shareholders | |
| 348,419 | |
| 1,070,961 | |
| (722,542) |
| (67.5) |
| | | | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | | | |
Wholesale | | | | | | | | | | | |
Sales | | $ | 700,747,921 | | $ | 634,269,644 | | $ | 66,478,277 |
| 10.5 |
Gross profit | |
| 43,103,716 | |
| 39,353,558 | |
| 3,750,158 |
| 9.5 |
Gross profit percentage | |
| 6.2 | % |
| 6.2 | % |
| | | |
Retail | | | | | | | | | | | |
Sales | | $ | 10,525,335 | | $ | 10,689,429 | | $ | (164,094) |
| (1.5) |
Gross profit | |
| 3,789,836 | |
| 3,947,364 | |
| (157,528) |
| (4.0) |
Gross profit percentage | |
| 36.0 | % |
| 36.9 | % |
| | | |
| (1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $10.0 million in Q1 2025 and $9.5 million in Q1 2024. |
SALES
Changes in sales are primarily driven by:
| (i) | changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; |
| (ii) | changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from shifting consumer preferences or the fluctuation in the comparable number of business days in our reporting period; and |
SALES – Q1 2025 vs. Q1 2024
Sales in our Wholesale Segment increased $66.5 million during Q1 2025 as compared to Q1 2024. Significant items impacting sales during Q1 2025 included an increase of $56.7 million related to the combined acquisitions of Burklund and Richmond Master during Q3 2024, a $29.2 million increase in sales related to price increases implemented by cigarette manufacturers and a $9.7 million increase in sales related to the volume and mix of products in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $29.1 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment decreased $0.2 million during Q1 2025 as compared to Q1 2024. This decrease was due to approximately a $0.8 million decrease related to the closure of three stores between the comparative periods, partially offset by a $0.4 million increase related to the opening of our new Lakewood Ranch, Florida store in Q3 2024 and a $0.2 million increase related to higher sales volumes in our existing stores.
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GROSS PROFIT – Q1 2025 vs. Q1 2024
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 $3.8 million during Q1 2025 as compared to Q1 2024. Significant items impacting gross profit during Q1 2025 included an increase of $3.2 million related to the combined acquisitions of Burklund and Richmond Master during Q3 2024, a $0.5 million increase in gross profit related to the mix of volumes and promotions in our Other Products category, and a $0.1 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases. Gross profit in our Retail Segment decreased $0.2 million during Q1 2025 as compared to Q1 2024. This change was primarily related to a $0.3 million decrease related to the closure of three stores between the comparative periods, partially offset by a $0.1 million increase related to the opening of our new Lakewood Ranch store in Q3 2024.
OPERATING EXPENSE – Q1 2025 vs. Q1 2024
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 Q1 2025 operating expenses increased $3.7 million as compared to Q1 2024. Significant items impacting operating expenses during Q1 2025 included an increase of $2.7 million related to the combined acquisitions of Burklund and Richmond Master during Q3 2024, a $1.1 million increase in other Wholesale Segment operating costs, a $1.0 million increase in health insurance costs, a $0.2 million increase related to employee compensation and benefit costs, and a $0.2 million increase in operating expense costs in our Retail Segment, partially offset by a $1.5 million decrease related to the fair value adjustment of a contingent consideration liability. The increase in our Retail Segment was primarily due to a $0.3 million increase related to the opening of our new Lakewood Ranch store in Q3 2024, an increase of $0.2 million in our existing stores, partially offset by a $0.3 million decrease related to the closure of three stores between the comparative periods.
INTEREST EXPENSE – Q1 2025 vs. Q1 2024
Interest expense increased $0.5 million in Q1 2025 as compared to Q1 2024, primarily related to higher outstanding debt balances in the current period related to the acquisitions of Burklund and Richmond Master in Q3 2024 and increased capital expenditures.
OTHER INCOME – Q1 2025 vs. Q1 2024
The change in other income between the comparative periods was primarily related to an insurance recovery in the prior year period.
INCOME TAX EXPENSE – Q1 2025 vs. Q1 2024
The change in the Q1 2025 income tax rate as compared to Q1 2024 was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and variances in the average effective state income tax rates between the comparative periods.
20
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities that we expect to reverse in later periods. Additionally, during our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
The Company primarily finances its operations through three credit facility agreements (a) a facility that is an obligation of AMCON Distributing Company (the “AMCON Facility”), (b) a facility that is an obligation of Team Sledd, LLC (“Team Sledd” and, the “Team Sledd Facility”) and (c) a facility that is the obligation of Henry’s (the “Henry’s Facility”) (collectively, the “Facilities”) and long-term debt agreements with banks. The Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. In Q1 2025, the Company amended the Henry’s Facility, increasing its aggregate borrowing capacity from $40.0 million to $45.0 million and extending the maturity date to February 2028. In Q1 2025, the Company amended the Team Sledd Facility to designate the Secured Overnight Financing Rate (“SOFR”) as the primary borrowing rate.
At December 2024, the Facilities had a total combined borrowing capacity of $305.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The AMCON Facility matures in June 2027, the Henry’s Facility matures in February 2028, and the Team Sledd Facility matures in March 2028, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and certain real estate. The Facilities each feature an unused commitment fee and springing financial covenants. Borrowings under the Facilities bear interest at SOFR, plus any applicable spreads.
The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2024 was $247.5 million, of which $165.9 million was outstanding, leaving $81.6 million available.
The average interest rate of the Facilities was 5.96% at December 2024. For the three months ended December 2024, the peak borrowings under the Facilities was $197.1 million, and the average borrowings and average availability under the Facilities was $162.1 million and $73.4 million, respectively.
Cross Default and Co-Terminus Provisions
Team Sledd’s two notes payable and the Team Sledd Facility contain cross default provisions. The Henry’s note payable and the Henry’s Facility contain cross default provisions. There were no such cross defaults for either Team Sledd or Henry’s at December 2024. Additionally, the Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry’s, were in compliance with all of the financial covenants under the respective Facilities at December 2024.
Dividend Payments
The Company paid cash dividends on its common stock totaling $0.1 million in each of the three-month periods ended December 2024 and December 2023. During Q1 2025, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that will be paid in Q2 2025. During Q1 2024, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that was paid in Q2 2024.
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Other
The Company has issued letters of credit totaling $2.0 million to its workers’ compensation insurance carriers as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.
The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.
While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2024 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 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.
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The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company issued unregistered securities to certain members of the Company’s management team during the quarterly period ended December 31, 2024, in relation to the vesting and granting of equity awards as described in Note 9 of Part I, Item 1 of this quarterly report on Form 10-Q. These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended December 31, 2024, none of the Company’s directors or officers
24
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMCON DISTRIBUTING COMPANY |
| (registrant) |
| |
Date: January 21, 2025 | /s/ Christopher H. Atayan |
| Christopher H. Atayan, |
| Chief Executive Officer and Chairman |
| |
Date: January 21, 2025 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer, |
| Vice President, Chief Financial Officer and Secretary |
| (Principal Financial and Accounting Officer) |
26
Exhibit 10.1
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “First Amendment”) is entered into on October 24, 2024, by and among BMO BANK N.A. (f/k/a BMO Harris Bank N.A.) (“BMO”) with an office at 320 S Canal St., 16th Floor, Chicago, Illinois 60606, as agent (in such capacity as agent, “Agent”) for itself and all other lenders from time to time a party hereto (“Lenders”), all other Lenders and each of LOL FOODS, INC., a Nebraska corporation (“LOL”), and HF Real Estate, LLC, a Minnesota limited liability company (“HF” and together with LOL, each a “Borrower” and collectively referred to as “Borrowers”).
WHEREAS, Agent, Lenders and Borrowers entered into a certain Loan and Security Agreement dated February 3, 2023 (such Loan and Security Agreement, as amended from time to time, is hereinafter referred to as the “Loan Agreement”);
WHEREAS, Agent, Lenders and Borrowers desire to amend certain provisions of the Loan Agreement pursuant to the terms hereof;
NOW, THEREFORE, in consideration of the foregoing, and the respective agreements, warranties and covenants contained herein, Agent, Lenders and Borrowers agree as follows:
“2024 Intercompany Asset Purchase” means LOL’s purchase of certain assets from one of its affiliates and at such locations in each case as disclosed in writing by Borrowers to Lender prior to the date of the First Amendment and in accordance with Section 13(d) of the Loan Agreement and the 2024 Intercompany Asset Purchase Conditions.
“2024 Intercompany Asset Purchase Conditions” means the Agent's receipt, reasonably prior to the closing of the 2024 Intercompany Asset Purchase, of the following, in each case reasonably satisfactory in form and substance to the Agent: (1) evidence that the assets to be purchased pursuant to the 2024 Intercompany Asset Purchase are free of any Lien, other than Permitted Liens; (2) an executed bill of sale or similar transfer document from the seller under the 2024 Intercompany Asset Purchase to LOL, as buyer, with respect to the assets to be transferred pursuant to the 2024 Intercompany Asset Purchase; (3) an executed purchase agreement negotiated at arm’s length consistent with market terms, (4) a lease, containing market provisions, for any real property leased by LOL in connection with the 2024 Intercompany Asset Purchase; and (5) an access agreement or similar landlord's waiver agreement for each such leased premises whereby the landlord waives any Lien or right of distraint such landlord may have
with respect to any personal property of Borrowers located on such leased premises (but excluding, for the avoidance of doubt, any fixtures, leasehold improvements or other personal property ownership of which is retained by the seller and/or the landlord as set forth in the asset purchase agreement, bill of sale or lease, as the case may be) and which provides the Agent, rights of access with respect to such leased premises to inspect, sell or remove any Collateral located thereon.
“First Amendment” means the First Amendment to Loan and Security Agreement dated as of October 24, 2024 among Borrowers, Agent and the Lenders party thereto.
3.The 2024 Intercompany Asset Purchase, but only insofar as the same does not constitute a transaction arising in the ordinary course of business.
| 2 | |
| 3 | |
| 4 | |
(Signature Pages Follow)
| 5 | |
(Signature Page to First Amendment to
Loan and Security Agreement)
IN WITNESS WHEREOF, this First Amendment to Loan and Security Agreement has been executed by the parties hereto as of the date first written above.
| BORROWERS: Title: Secretary |
| HF REAL ESTATE, LLC, a Minnesota limited liability company Title: Secretary |
| | |
(Signature Page to First Amendment to
Loan and Security Agreement)
| BMO BANK N.A. (f/k/a BMO Harris Bank N.A.), as Agent and a Lender By: /s/ Steven Teufel Title: Director |
| | |
| | |
Exhibit 10.2
FIFTH AMENDMENT TO CREDIT AGREEMENT
This FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of December 23, 2024, is made by and among TEAM SLEDD, LLC, a Delaware limited liability company (the "Borrower"), the financial institutions party hereto (together with their respective successors and assigns, the "Lenders"), and FIRST NATIONAL BANK OF PENNSYLVANIA (in its individual capacity, "FNB"), as administrative agent for the Lenders (in its capacity as "Administrative Agent").
RECITALS
WHEREAS, reference is made to that certain Credit Agreement, dated as of March 27, 2020, by and among the Borrower, the guarantors from time to time party thereto (together with the Borrower, each a "Loan Party" and collectively, the "Loan Parties"), the Lenders from time to time party thereto and the Administrative Agent, as amended by that First Amendment to Credit Agreement dated as of April 9, 2021, as further amended by that Second Amendment to Credit Agreement dated as of October 4, 2021, as further amended by that Third Amendment to Credit Agreement dated as of October 3, 2022, to be effective as of September 30, 2022, and as further amended by that Fourth Amendment to Credit Agreement dated as of April 27, 2023, to be effective as of April 27, 2023 (as may be further amended, restated, amended and restated, modified or supplemented, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders make certain modifications to the Credit Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth, and intending to be legally bound hereby, covenant and agree as follows:
AGREEMENT
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[SIGNATURE PAGES FOLLOW]
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[SIGNATURE PAGE TO FIFTH AMENDMENT TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written to be effective on the Fifth Amendment Effective Date with the intention that this Amendment shall constitute a sealed instrument.
BORROWER:
TEAM SLEDD, LLC,
a Delaware limited liability company
By: /s/ S. Randall Emanuelson (SEAL)
Name: S. Randall Emanuelson
Title:Vice President
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[SIGNATURE PAGE TO FIFTH AMENDMENT TO CREDIT AGREEMENT]
ADMINISTRATIVE AGENT AND LENDER:
FIRST NATIONAL BANK OF PENNSYLVANIA,
as Administrative Agent and as a Lender
By: /s/ Paul Palacios
Name:Paul Palacios
Title: Vice President
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EXHIBIT A – Fifth Amendment to Credit Agreement
CREDIT AGREEMENT
DATED MARCH 27, 2020
BY AND AMONG
TEAM SLEDD, LLC,
as the Borrower
AND
THE GUARANTORS PARTY HERETO
AND
THE LENDERS PARTY HERETO
AND
FIRST NATIONAL BANK OF PENNSYLVANIA, as the Administrative Agent
As amended by that:
First Amendment to Credit Agreement dated as of April 9, 2021
Second Amendment to Credit Agreement dated as of October 4, 2021
Third Amendment to Credit Agreement dated as of October 3, 2022, effective as of September 30, 2022
Fourth Amendment to Credit Agreement dated as of April 27, 2023, effective as of April 27, 2023
Fifth Amendment to Credit Agreement dated as of December 23, 2024
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TABLE OF CONTENTS
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SCHEDULES AND EXHIBITS
EXHIBITS
Exhibit ANotice of Borrowing
Exhibit BBorrowing Base Certificate
Exhibit C[Reserved]
Exhibit DMonthly Collateral Recap
Exhibit EAccounts Receivable Reconciliation
Exhibit FApplicable Margins
Exhibit GCompliance Certificate
Exhibit HForm of Assignment and Assumption Agreement
Exhibit IForm of Collateral Assignment of Contracts
Exhibit J[Reserved]
Exhibit KForm of Indemnity Agreement
Exhibit LForm of East Cove Property (68 and 100) Deed of Trust
Exhibit MForm of Patent, Trademark and Copyright Security Agreement
Exhibit NForm of Revolving Credit Note
Exhibit OForm of Security Agreement
Exhibit P(1) | U.S. Tax Compliance Certificate (For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit P(2) | U.S. Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit P(3) | U.S. Tax Compliance Certificate (For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit P(4) | U.S. Tax Compliance Certificate (For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit QForm of East Cove Property (70) Deed of Trust
Exhibit R | Officer's Certificate (Annual Financial Statement) |
SCHEDULES
ScheduleOneDefinitions
ScheduleTwoConditions Precedent
Schedule ThreeCommitments of Lenders
Schedule5.01Organization, Subsidiaries and Authority
Schedule5.03Litigation
Schedule5.05Ownership
Schedule5.09Assets and Insurance
Schedule5.13Intellectual Property Rights
Schedule5.14Environmental Matters
Schedule5.15Filing Offices
Schedule5.18Locations
Schedule5.19ERISA Plans
Schedule5.20Eligible Accounts
Schedule6.01Use of Proceeds
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Schedule7.04Permitted Indebtedness
Schedule7.06Investments
Schedule7.07Permitted Liens
Schedule7.08Affiliate Transactions
Schedule7.13Guarantees
Schedule7.14Rentals
Schedule11.13Notices
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), made effective as of the 27th day of March, 2020, is by and among TEAM SLEDD, LLC, a Delaware limited liability company (the "Borrower"), the GUARANTORS (as hereinafter defined) from time to time party hereto, the LENDERS (as hereinafter defined) from time to time party hereto, and FIRST NATIONAL BANK OF PENNSYLVANIA, as administrative agent for the Lenders under this Agreement (in such capacity, the "Administrative Agent").
WITNESSETH:
WHEREAS, the Borrower has requested the Lenders make available to it a revolving credit facility, and the Lenders are willing to make such credit facilities available to the Borrower upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto covenant and agree as follows:
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(ii) each such reduction shall be accompanied by a payment of principal and interest sufficient to reduce the aggregate outstanding Revolving Credit Loans after such reduction to the Revolving Credit Commitment as so reduced, and if the Revolving Credit Commitment as so reduced is less than the L/C Obligations, the Borrower shall be required to provide Cash Collateral to the Administrative Agent in the manner provided for in Section 2.14 in an amount equal to 110.0% of the L/C Obligations. Any reduction of the Revolving Credit Commitment to zero shall result in the termination of the Revolving Credit Commitment and shall be accompanied by payment of all outstanding Obligations (and furnishing of Cash Collateral as aforesaid) and all outstanding Unused Revolving Credit Commitment Fees. Any notice to reduce the Revolving Credit Commitments under this Section 2.04 shall be irrevocable. Once reduced in accordance with this Section, the Revolving Credit Commitment may not be increased. All accrued fees to, but not including, the effective date of any reduction or termination of the Revolving Credit Commitment shall be paid on the effective date of such reduction or termination.
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the Closing Date up to the Expiration Date (based on a 360-day year and counting the actual number of days elapsed) in an amount equal to the Applicable Margin per annum multiplied by the average daily unused portion of the Commitment, computed on a monthly basis in arrears on the last Business Day of each calendar month based upon the daily utilization for that month as calculated by the Administrative Agent. For purposes of calculating utilization under this Section, the Commitment shall be deemed used to the extent of the Revolving Credit Loans then outstanding plus the L/C Obligations. The Unused Revolving Credit Commitment Fee shall be due and payable monthly in arrears on the first Business Day of the following calendar month, and on the Expiration Date, provided that, in connection with any reduction or termination of the Revolving Credit Commitment, the accrued Unused Revolving Credit Commitment Fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, and with respect to any reduction, the following monthly payment being calculated on the basis of the period from such reduction date to such monthly payment date. The Unused Revolving Credit Commitment Fee shall accrue at all times after the Closing Date, including at any time during which one or more of the conditions in Article IV has not been satisfied. Notwithstanding anything to the contrary set forth herein, any Unused Revolving Credit Commitment Fee accrued with respect to the Commitment of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such Unused Revolving Credit Commitment Fee shall otherwise have been due and payable by the Borrower prior to such time; and provided further that no Unused Revolving Credit Commitment Fee shall accrue with respect to the Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender.
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(ii) If the Administrative Agent is required at any time to return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of any payment made by any Loan Party to the Administrative Agent for the account of the Issuing Lender pursuant to this Section in reimbursement of a payment made under any Letter of Credit or interest or fees thereon, each Lender shall, on demand of the Administrative
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Agent, forthwith return to the Administrative Agent for the account of the Issuing Lender the amount of its Ratable Share of any amounts so returned by the Administrative Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Administrative Agent, at a rate per annum equal to the Federal Funds Rate in effect from time to time.
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In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Issuing Lender or its Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Issuing Lender or its Affiliates under any resulting liability to the Borrower or any Lender.
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provided, however, the foregoing shall not be construed to restrict or otherwise limit any claim the Borrower may have against any Lender-Related Person permitted under Section 2.12(b).
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If (i) a Bankruptcy Event with respect to a parent company of any Lender shall occur following the date hereof and for so long as such event shall continue, or (ii) the Issuing Lender has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, the Issuing Lender shall not be required to issue, amend or increase any Letter of Credit, unless the Issuing Lender shall have entered into arrangements with the Borrower or such Lender, satisfactory to the Issuing Lender to defease any risk to it in respect of such Lender hereunder.
In the event that the Administrative Agent, the Borrower and the Issuing Lender agree in writing that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Administrative Agent will so notify the parties hereto, and the Ratable Share of the L/C Obligations of the Lenders shall be readjusted to reflect the inclusion of such Lender's Commitment, and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Ratable Share.
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by the Borrower with respect to principal, interest, Unused Revolving Credit Commitment Fees and Letter of Credit Fees (but excluding the Issuing Lender's fronting fee) shall (except as otherwise may be provided with respect to a Defaulting Lender and except as provided in Section 3.04(c) in the case of an event specified in Section 3.04, Section 3.03(c) or Section 3.06) be payable ratably among the Lenders entitled to such payment in accordance with the amount of principal, interest, Unused Revolving Credit Commitment Fees and Letter of Credit Fees, as set forth in this Agreement.
Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Loan Party in the amount of such participation.
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Lenders or the Issuing Lender, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the Issuing Lender, with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
Interest shall be calculated on the basis of a 360-day year, counting the actual number of days elapsed in the period during which it accrues. The Borrower shall pay interest, in arrears, on each Interest Payment Date as applicable to each outstanding Loan. In addition, interest shall be payable on any date upon which a Loan is prepaid, at maturity (whether by demand, at stated maturity, by acceleration, or otherwise), and on demand by the Administrative Agent if an Event of Default has occurred and is continuing. In computing interest, the Borrowing Date shall be included and the date of payment of a Loan shall be excluded, provided, that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan.
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If, at any time, any rate of interest payable hereunder shall be deemed by any Official Body to exceed the maximum rate of interest permitted by applicable Law, then for such time as such rate would be deemed excessive, its application shall be suspended and there shall be charged in lieu thereof the maximum rate of interest permitted under such Law. If any payment of interest or in the nature of interest would cause the foregoing interest rate limitation to be exceeded, then such excess payment shall be credited as a payment of principal, unless the Borrower notifies the Administrative Agent to return the excess payment to the Borrower. The Borrower acknowledges that the increase in rates referred to in this Section 3.01(c) reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lenders are entitled to additional compensation for such risk; and all such interest shall be payable by Borrower upon demand by Administrative Agent.
The Hedging Obligations, for purposes of this Agreement and all other Loan Documents, shall be "Obligations" of such Person and of each other Loan Party, be guaranteed obligations under any Guaranty Agreement and secured obligations under any other Loan Document, as applicable, and otherwise treated as Obligations for purposes of the other Loan Documents, except to the extent constituting Excluded Hedge Liabilities of such Person. The Liens securing the Hedging Obligations shall be pari passu with the Liens securing all other Obligations under this Agreement and the other Loan Documents, subject to the express provisions of Section 9.04.
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Upon: (A) any default by the Borrower in making any borrowing of any SOFR Rate Loan following the Borrower's delivery of a Notice of Borrowing hereunder or (B) any prepayment of a SOFR Rate Loan on any day that is not the last day of the SOFR Interest Period (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise), the Borrower shall pay an amount ("SOFR Breakage Fee"), as calculated by the Administrative Agent, equal to the amount of any losses, expenses and liabilities (including any loss of margin and anticipated profits) that the Lenders may sustain as a result of such default or payment. Borrower understands, agrees and acknowledges that: (x) the Administrative Agent and the Lenders do not have any obligation to purchase, sell and/or match funds in connection with the use of Term SOFR as a basis for calculating the rate of interest on a SOFR Rate Loan, (y) Term SOFR may be used merely as a reference in determining such rate, and (z) Borrower has accepted Term SOFR as a reasonable and fair basis for calculating the SOFR Breakage Fee and other funding losses incurred by the Lenders. Borrower further agrees to pay the SOFR Breakage Fee and other funding losses, if any, whether or not any Lender elects to purchase, sell and/or match funds.
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A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
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then the Administrative Agent shall have the rights specified in Section 3.04(c).
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and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, the Issuing Lender or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, the Issuing Lender or other Recipient hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Issuing Lender or other Recipient, the Borrower will pay to such Lender, the Issuing Lender or other
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Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered.
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Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Official Body in accordance with applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 3.07) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
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If any Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrower of the amount determined in good faith by such Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Lender shall deem reasonable) to be necessary to indemnify such Lender for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to such Lender ten (10) Business Days after such notice is given.
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As an inducement to the Lenders to enter into this Agreement, make each of the Loans and issue each Letter of Credit, the Loan Parties jointly and severally represent and warrant to the Administrative Agent and each Lender as follows:
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No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock.
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place of business of each Loan Party, including the location of such Loan Party's Inventory and equipment, together with the name and address of each Person (other than the Loan Parties) having possessory rights (as owner, landlord, warehouseman or otherwise) to such locations.
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Cigarette Inventory in a Revolver Borrowing Base or Cigarette Buy-In Borrowing Base calculation or a Borrowing Base Certificate, such Cigarette Inventory satisfies all of the criteria necessary to qualify such Cigarette Inventory as Eligible Cigarette Inventory and shall not be counted in duplicate in the Revolver Borrowing Base and the Cigarette Buy-In Borrowing Base at any time.
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Until Payment in Full, the Loan Parties jointly and severally covenant and agree to perform each of the covenants set forth below in this Article VI:
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collateral monitoring fee to the Administrative Agent in the amount of Five Hundred Dollars ($500.00) which fee shall be due and payable monthly in arrears on the first Business Day of the following calendar month.
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structures and contents becoming Collateral, and thereafter maintaining such flood insurance in full force and effect for so long as required by the Flood Laws.
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standing, and maintain in effect all licenses, permits, franchises and privileges necessary for the normal conduct of the business of such Loan Party.
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In the event the Administrative Agent or any Lender shall pay any Reimbursable Costs and Expenses, upon payment thereof, all such Reimbursable Costs and Expenses may, at the Administrative Agent's or such Lender's option, be charged to the Borrower's Account and shall constitute a Revolving Credit Loan disbursed to the Borrower.
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any event, no later than thirty (30) days after the Closing Date, the Borrower shall cause all Collections and Remittances to be received through a lockbox arrangement or deposited into a blocked account or cash collateral account established and maintained with the Administrative Agent or such other financial institution designated by the Administrative Agent, such lockbox arrangement to be established and maintained pursuant to the terms and conditions of the Security Agreement to permit the collection of all Collections and Remittances by the Administrative Agent and the payment of all amounts due hereunder. The Administrative Agent shall maintain, in accordance with its customary procedures, a loan account ("Borrower's Account") in the name of the Borrower in which shall be recorded the date and amount of each advance made under this Agreement by the Administrative Agent and the date and amount of each payment in respect thereof; provided, however, the failure by the Administrative Agent to record the date and amount of any such advance shall not adversely affect the Administrative Agent or any Lender. Each month, the Administrative Agent shall send to the Borrower a statement showing the accounting for the advances made hereunder, payments made or credited in respect thereof, and other transactions between the Administrative Agent and the Borrower during such month. The monthly statements shall be deemed correct and binding upon the Borrower in the absence of manifest error and shall constitute an account stated between the Lenders and the Borrower unless the Administrative Agent receives a written statement of the Borrower's specific exceptions thereto within thirty (30) days after such statement is received by the Borrower. The records of the Administrative Agent with respect to the Borrower's Account shall be conclusive evidence absent manifest error of the amounts of advances hereunder and other charges thereto and of payments applicable thereto. At all times, the Borrower shall maintain the Float Reserve in the Borrower's Account, and the Borrower directs the Administrative Agent to prohibit the withdrawal of the Float Reserve from the Borrower's Account.
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do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances that existed at the time such statement was made. From time to time as may be requested by the Administrative Agent (which request will not be made more frequently than once each year absent the occurrence and continuance of a Potential Default or an Event of Default), the Loan Parties shall supplement each disclosure Schedule provided by the Loan Parties to the Administrative Agent in connection with the representations of the Loan Parties contained in Article V, or each representation herein or in any other Loan Document, with respect to any matter hereafter arising which, if existing or occurring at the Closing Date, would have been required to be set forth or described in such disclosure Schedule or as an exception to such representation or which is necessary to correct any information in such disclosure Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements to any disclosure Schedule, such disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (i) no such supplement to any such disclosure Schedule or representation shall be deemed a waiver of any Potential Default or Event of Default resulting from the matters disclosed therein, except as consented to by the Administrative Agent in writing; and (ii) no supplement shall be required as to representations and warranties that relate solely to the Closing Date.
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any other Loan Document, voidable under applicable law, including applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of each Qualified ECP Loan Party under this Section 6.18 shall remain in full force and effect until Payment in Full of the Obligations and termination of this Agreement and the other Loan Documents. Each Qualified ECP Loan Party intends that this Section 6.18 constitute, and this Section 6.18 shall be deemed to constitute, a guarantee of the obligations of, and a "keepwell, support, or other agreement" for the benefit of each other Loan Party for all purposes of Section 1a(18)(A)(v)(II) of the CEA.
The Loan Parties shall effectuate the AMCON Transactions on April 1, 2020 and contemporaneously with the same, the Loan Parties shall deliver or cause to be delivered to the Administrative Agent each of the following items each of which shall be in form and substance satisfactory to the Administrative Agent:
(a)A certificate of each of the Loan Parties signed by a Responsible Officer, dated as of April 1, 2020 stating that (i) all representations and warranties of the Loan Parties set forth in this Agreement are true and correct in all material respects, (ii) the Loan Parties are in compliance with each of the covenants and conditions hereunder, and (iii) no Event of Default or Potential Default exists;
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(b)All material consents necessary to enter into the transactions contemplated by the JV Documents have been acquired and such transactions are consummated in accordance with the JV Documents;
(c)Certified copies of the JV Documents, including, but not limited to, certified resolutions of AMCON and Chas M. Sledd Company with respect to entering into the JV Documents;
(d)Revised opening balance sheet of Borrower after giving effect to the transactions contemplated by the JV Documents;
(e) Executed copies of the AMCON Loan Documents, the AMCON Subordination Agreement and all related documents;
(f)Updated schedules to the Credit Agreement as necessary and as appropriate; and
(g)Such other documents in connection with such transactions as the Administrative Agent or its counsel may reasonably request.
Until Payment in Full, the Loan Parties jointly and severally covenant and agree to comply with each of the covenants set forth below in this Article VII.
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provided that any Loan Party other than the Borrower may consolidate or merge into another Loan Party which is wholly-owned by one or more of the other Loan Parties.
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Joinder; (ii) documents in the forms described on Schedule Two modified as appropriate; and (iii) documents necessary to grant and perfect prior security interests to the Administrative Agent for the benefit of the Lenders in the equity interests of, and Collateral held by, such Subsidiary. Each of the Loan Parties shall not become or agree to become a party to a joint venture except for the joint venture contemplated by the JV Documents.
The occurrence or existence of any one or more of the following events or conditions (whatever the reason for such occurrence or existence and whether voluntary, involuntary or effected by operation of Law) shall constitute an "Event of Default" under this Agreement:
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So long as the applicable Cure Amount does not exceed the amount permitted under Section 8.16(c) and the Loan Parties are otherwise entitled to exercise a Cure pursuant to the foregoing terms and provisions of this Section 8.16, from the effective date of delivery of a Cure Notice until the earlier to occur of the Required Cure Date and the date on which Administrative Agent is notified that the required contribution will not be made, neither Administrative Agent nor any Lender shall impose default interest, accelerate the Obligations, terminate the Commitments or exercise any enforcement remedy against any Loan Party or any of its Subsidiaries or any of their respective properties solely on the basis of the applicable Excess Availability Default in respect of which the Cure Notice was delivered; provided until timely receipt of the Cure Amount, an Event of Default shall be deemed to exist for all other purposes of this Agreement, including, without limitation, Articles VI and VII hereof and any term or provision of any Loan Document which prohibits any action to be taken by a Loan Party or any of its Subsidiaries during the existence of an Event of Default; provided, further, that notwithstanding the foregoing, upon a deemed cure pursuant to Section 8.16(d), the requirements of the financial covenant contained in Section 7.01(a) shall be deemed to have been satisfied as of the applicable Test Date with the same effect as though there had been no Excess Availability Default at such date or thereafter.
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Notwithstanding anything to the contrary in this Section 9.04, no Swap Obligations of any Non-Qualifying Party shall be paid with amounts received from such Non-Qualifying Party under its Guaranty Agreement (including sums received as a result of the exercise of remedies with respect to such Guaranty Agreement) or from the proceeds of such Non-Qualifying Party's Collateral if such Swap Obligations would constitute Excluded Hedge Liabilities; provided, however, that to the extent possible appropriate adjustments shall be made with respect to payments and/or the proceeds of Collateral from other Loan Parties that are Eligible Contract Participants with respect to such Swap Obligations to preserve the allocation to Obligations otherwise set forth above in this Section 9.04.
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The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.23 and Article IX) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Potential Default or Event of Default unless and until notice describing such Potential Default or Event of Default is given to the Administrative Agent by the Borrower, a Lender or the Issuing Lender.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Potential Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
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may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
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respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
If First National Bank resigns as Administrative Agent under this Section 10.06, First National Bank shall also resign as an Issuing Lender. Upon the appointment of a successor Administrative Agent hereunder, such successor shall (a) succeed to all of the rights, powers, privileges and duties of First National Bank as the retiring Issuing Lender and the Administrative Agent and First National Bank shall be discharged from all of its respective duties and obligations as Issuing Lender and the Administrative Agent under the Loan Documents, and (b) issue letters of credit in substitution for the Letters of Credit issued by First National Bank, if any, outstanding at the time of such succession or make other arrangement satisfactory to First National Bank to effectively assume the obligations of First National Bank with respect to such Letters of Credit.
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types or items of property, or to release any Guarantor from its obligations under the Guaranty Agreement pursuant to this Section 10.08. The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
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For the avoidance of doubt, the failure to deliver a notice to the Administrative Agent pursuant to this Section 10.11(b) shall not have any effect on a Payment Recipient’s obligations pursuant to Section 10.11(a) or on whether or not an Erroneous Payment has been made.
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Each party’s obligations, agreements and waivers under this Section 10.11 shall survive the resignation or replacement of the Administrative Agent, any transfer of rights or obligations by, or the replacement of, a Lender the termination of the Commitments and/or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.
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provided that no agreement, waiver or consent which would modify the interests, rights or obligations of the Administrative Agent or the Issuing Lender may be made without the written consent of the Administrative Agent or the Issuing Lender, as applicable, and provided, further that, if in connection with any proposed waiver, amendment or modification referred to in clauses (a) through (d) above, the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained (each a "Non-Consenting Lender"), then the Borrower shall have the right to replace any such Non-Consenting Lender with one or more replacement Lenders pursuant to Section 3.03(c). Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender, and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender.
Notwithstanding the foregoing, (a) with the consent of the Borrower, the Administrative Agent may amend, modify or supplement any Loan Document without the consent of any Lender or the Required Lenders in order to correct or cure any ambiguity, inconsistency or defect or correct any typographical or ministerial error in any Loan Document (provided that any such amendment, modification or supplement shall not be materially adverse to the interests of the Lenders taken as a whole), and (b) without the consent of any Lender or the Borrower, within a reasonable time after (i) the effective date of any increase or addition to, extension of or decrease from, the Revolving Credit Commitment, or (ii) any assignment by any Lender of some or all of its Revolving Credit Commitment, the Administrative Agent shall, and is hereby authorized to, revise Schedule Three to reflect such change, whereupon such revised Schedule Three shall replace the old Schedule Three and become part of this Agreement.
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connection with such capacity. No indemnitee referred to in this Section shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
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Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 11.26, from and after the effective date specified in each Assignment and Assumption Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Section 3.04, Section 3.06, Section 6.12, Section 11.27 and Section 11.29 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 11.25 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 11.15.
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Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action.
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(ii)In addition, unless subclause (i)(a) in the immediately preceding Section 11.32(i) is true with respect to a Lender, such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and its Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender's entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or thereto).
[SIGNATURE PAGES AND CERTAIN SCHEDULES/EXHIBITS OMITTED]
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Exhibit 31.1
CERTIFICATION
I, Christopher H. Atayan, certify that:
1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: January 21, 2025 | /s/ Christopher H. Atayan |
| Christopher H. Atayan, |
| Chief Executive Officer and Chairman |
Exhibit 31.2
CERTIFICATION
I, Charles J. Schmaderer, certify that:
1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: January 21, 2025 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary |
| |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended December 31, 2024, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, hereby certify that, to the best of my knowledge and belief:
1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: January 21, 2025 | /s/ Christopher H. Atayan |
| Christopher H. Atayan |
| Title: Chief Executive Officer and Chairman |
A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended December 31, 2024, I, Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary of the Company, hereby certify that, to the best of my knowledge and belief:
1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: January 21, 2025 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer |
| Title: Vice President, Chief Financial Officer and Secretary |
| |
A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.