Amcon Distributing Co 10-Q for FY2022 Q1
Amcon Distributing Co (DIT)
About this 10-Q
Amcon Distributing Co filed this 10-Q on January 18, 2022, covering the quarter ended December 31, 2021 (FY2022 Q1).
Headline figures
Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $422.57M
- up 4.4% from $404.74M a year earlier
- Net income
- $3M
- down 2.5% from net income of $3.08M a year earlier
- Diluted EPS
- $5.18
- down 7.0% from $5.57 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from ___________to _________ |
Commission File Number
(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:
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 ◻ | | | | |
| | | | | | |
Smaller reporting 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, 2021 and September 30, 2021
| | December | | September | ||
|
| 2021 |
| 2021 | ||
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | | | $ | |
Accounts receivable, less allowance for doubtful accounts of $ | |
| | |
| |
Inventories, net | |
| | |
| |
Prepaid expenses and other current assets | |
| | |
| |
Total current assets | |
| | |
| |
| | | | | | |
Property and equipment, net | |
| | |
| |
Operating lease right-of-use assets, net | | | | | | |
Note receivable, net of current portion | | | | | | |
Goodwill | |
| | |
| |
Other intangible assets, net | |
| | |
| |
Equity method investment | | | | | | |
Other assets | |
| | |
| |
Total assets | | $ | | | $ | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | | | $ | |
Accrued expenses | |
| | |
| |
Accrued wages, salaries and bonuses | |
| | |
| |
Income taxes payable | |
| | |
| |
Current operating lease liabilities | | | | | | |
Current maturities of long-term debt | |
| | |
| |
Total current liabilities | |
| | |
| |
| | | | | | |
Credit facility | |
| | |
| |
Deferred income tax liability, net | |
| | |
| |
Long-term operating lease liabilities | | | | | | |
Long-term debt, less current maturities | |
| | |
| |
Other long-term liabilities | |
| | |
| |
| | | | | | |
Shareholders’ equity: | | | | | | |
Preferred stock, $ | |
| |
| ||
Common stock, $ | |
| | |
| |
Additional paid-in capital | |
| | |
| |
Retained earnings | |
| | |
| |
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, 2021 and 2020
| | For the three months ended December | ||||
|
| 2021 |
| 2020 | ||
Sales (including excise taxes of $ | | $ | | | $ | |
Cost of sales | |
| | |
| |
Gross profit | |
| | |
| |
Selling, general and administrative expenses | |
| | |
| |
Depreciation | |
| | |
| |
| |
| | |
| |
Operating income | |
| | |
| |
| | | | | | |
Other expense (income): | | | | | | |
Interest expense | |
| | |
| |
Other (income), net | |
| ( | |
| ( |
| |
| | |
| |
Income from operations before income taxes | |
| | |
| |
Income tax expense | |
| | |
| |
Equity method investment earnings, net of tax | |
| | |
| |
Net income available to common shareholders | | $ | | | $ | |
| | | | | | |
Basic earnings per share available to common shareholders | | $ | | | $ | |
Diluted earnings per share available to common shareholders | | $ | | | $ | |
| | | | | | |
Basic weighted average shares outstanding | |
| | |
| |
Diluted weighted average shares outstanding | |
| | |
| |
| |
| | | | |
Dividends 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, 2021 and 2020
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | | | ||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | |||||
THREE MONTHS ENDED DECEMBER 2020 | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2020 |
| | $ | |
| ( | | $ | ( | | $ | | | $ | | | $ | ||
Dividends on common stock, $ |
| — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and issuance of stock in connection with equity-based awards |
| | | | | | — | | | — | | | | | | — | | | |
Repurchase of common stock | | — | | | — | | ( | | | ( | | | — | | | — | | | ( |
Net income |
| — | |
| — | | — | | | — | | | — | | | | | | |
Balance, December 31, 2020 |
| | $ | |
| ( | | $ | ( | | $ | | | $ | | | $ | ||
| | | | | | | | | | | | | | | | | | | |
THREE MONTHS ENDED DECEMBER 2021 | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2021 |
| | $ | |
| ( | | $ | ( | | $ | | | $ | | | $ | ||
Dividends on common stock, $ |
| — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and issuance of stock in connection with equity-based awards |
| | | | | | — | | | — | | | | | | — | | | |
Repurchase of common stock | | — | | | — | | — | | | — | | | — | | | — | | | — |
Net income |
| — | |
| — | | — | | | — | | | — | | | | | | |
Balance, December 31, 2021 |
| | $ | |
| ( | | $ | ( | | $ | | | $ | | | $ | ||
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, 2021 and 2020
| | December | | December | ||
|
| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | | | $ | |
Adjustments to reconcile net income from operations to net cash flows from (used in) operating activities: | | | | | | |
Depreciation | | | | | | |
Equity method investment earnings, net of tax | | | ( | | | ( |
(Gain) loss on sales of property and equipment | | | ( | | | ( |
Equity-based compensation | | | | | | |
Deferred income taxes | | | | | | |
Provision for losses on doubtful accounts | | | ( | | | ( |
Inventory allowance | | | | | | |
Changes in assets and liabilities: | | | | | | |
Accounts receivable | | | | | | |
Inventories | | | ( | | | |
Prepaid and other current assets | | | ( | | | ( |
Other assets | | | | | | |
Accounts payable | | | ( | | | ( |
Accrued expenses and accrued wages, salaries and bonuses | | | ( | | | ( |
Other long-term liabilities | | | ( | | | ( |
Income taxes payable and receivable | | | | | | ( |
Net cash flows from (used in) operating activities | | | ( | | | |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchase of property and equipment | | | ( | | | ( |
Proceeds from sales of property and equipment | | | | | | |
Principal payment received on note receivable | | | | | | — |
Net cash flows from (used in) investing activities | | | ( | | | ( |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facility | | | | | | |
Repayments under revolving credit facility | | | ( | | | ( |
Proceeds from borrowings on long-term debt | | | — | | | |
Principal payments on long-term debt | | | ( | | | ( |
Repurchase of common stock | | | — | | | ( |
Dividends on common stock | | | ( | | | ( |
Settlement and withholdings of equity-based awards | | | ( | | | ( |
Net cash flows from (used in) financing activities | | | | | | ( |
Net change in cash | | | | | | ( |
Cash, beginning of period | | | | | | |
Cash, end of period | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest | | $ | | | $ | |
Cash paid during the period for income taxes | |
| — | |
| |
| | | | | | |
Supplemental disclosure of non-cash information: | | | | | | |
Equipment acquisitions classified in accounts payable | | $ | | | $ | |
Dividends declared, not paid | | | — | | | |
Issuance of common stock in connection with the vesting and exercise of equity-based awards | |
| | |
| |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate
| ● | Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers in |
| ● | Our retail health food segment (“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 distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates
RETAIL SEGMENT
Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.
7
Our Retail Segment operates
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2021, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended December 31, 2021 and December 31, 2020 have been referred to throughout this quarterly report as Q1 2022 and Q1 2021, respectively. The fiscal balance sheet dates as of December 31, 2021 and September 30, 2021 have been referred to as December 2021 and September 2021, respectively.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective upon issuance for all entities through December 31, 2022. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
2. INVENTORIES
Inventories in our wholesale segment consisted of finished goods and are stated at the lower of cost or net realizable value, determined on a FIFO basis. Inventories in our retail segment consisted of finished goods and are stated at the lower of cost or market using the retail method. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $
8
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at December 2021 and September 2021 was as follows:
| | | | | | |
|
| December |
| September | ||
| | 2021 | | 2021 | ||
Wholesale Segment | | $ | | | $ | |
Other intangible assets at December 2021 and September 2021 consisted of the following:
| | | | | | |
|
| December |
| September | ||
| | 2021 | | 2021 | ||
Trademarks and tradenames (Retail Segment) | | $ | | | $ | |
Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled $
4. EQUITY METHOD INVESTMENT
The Company and Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, jointly own and operate Team Sledd, LLC (“Team Sledd”), a limited liability company which owns and operates Sledd’s wholesale distribution business. Sledd contributed substantially all of its assets and stated liabilities to Team Sledd, while the Company contributed $
At December 2021, AMCON owned approximately
Team Sledd’s summarized unaudited financial data for the three months ended December 2021 and December 2020 was as follows:
| | | | | | |
| For the three months ended December 2021 |
| For the three months ended December 2020 | |||
Sales | | $ | | | $ | |
Gross profit | | | | | | |
Net income before income taxes | | | | | | |
Net income attributable to AMCON, net of tax | | | | | | |
5. DIVIDENDS
The Company paid a $
9
6. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing net income by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.
| | For the three months ended December | ||||||||||
| | 2021 | | 2020 | ||||||||
|
| 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 | | $ | | | $ | | | $ | | | $ | |
| (1) | Diluted earnings per share calculation includes all equity-based awards deemed to be dilutive. |
7. DEBT
The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in a loan syndication.
CREDIT FACILITY
The Facility included the following significant terms at December 2021:
| ● | A March 2025 maturity date without a penalty for prepayment. |
| ● | $ |
| ● | Loan accordion allowing the Company to increase the size of the credit facility agreement by $ |
| ● | A provision providing an additional $ |
| ● | Evergreen renewal clause automatically renewing the agreement for |
| ● | The Facility bears interest at either the bank’s |
| ● | Lending limits subject to accounts receivable and inventory limitations. |
| ● | An unused commitment fee equal to one-quarter of one percent per annum on the difference between the maximum loan limit and average monthly borrowings. |
| ● | Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable. |
10
| ● | A financial covenant requiring a fixed charge coverage ratio of at least |
| ● | Provides that the Company may use up to $ |
The amount available for use from the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at December 2021 was $
At December 2021, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was
Cross Default and Co-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which would cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, were in default. There were
Other
The Company has issued a letter of credit for $
8. EQUITY-BASED INCENTIVE AWARDS
Omnibus Plans
The Company has
11
Stock Options
The following is a summary of stock option activity during Q1 2022:
| | | | | |
|
| |
| Weighted | |
| | Number | | Average | |
| | of | | Exercise | |
| | Shares | | Price | |
Outstanding at September 2021 |
| | | $ | |
Granted |
| — | | | — |
Exercised |
| ( | |
| |
Forfeited/Expired |
| — | |
| — |
Outstanding at December 2021 |
| | | $ | |
Restricted Stock Units
At December 2021, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock unit awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:
|
| Restricted |
| Restricted | ||
Date of award: |
| | October 2019 | | | October 2020 |
Original number of awards issued: |
| | | | ||
Service period: |
| | | | ||
Estimated fair value of award at grant date: | | $ | | $ | ||
Non-vested awards outstanding at December 31, 2021: | | | | | ||
Fair value of non-vested awards at December 31, 2021 of approximately: | | $ | | $ | ||
(1) |
(2) |
There is
The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Statement of Operations reflects the straight-line amortized fair value based on the liability method.
The following summarizes restricted stock unit activity under the Omnibus Plans during Q1 2022:
| | Number | | Weighted | |
| | of | | Average | |
|
| Shares |
| Fair Value | |
Nonvested restricted stock units at September 2021 |
| | | $ | |
Granted |
| — | | | — |
Vested |
| ( | | | |
Expired |
| — | | | — |
Nonvested restricted stock units at December 2021 |
| | | $ | |
12
Restricted Stock Awards
At December 2021, 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 | |
Date of award: |
| | October 2021 |
Original number of awards issued: |
| | |
Service period: |
| | |
Estimated fair value of award at grant date: | | $ | |
Non-vested awards outstanding at December 31, 2021: | | | |
Fair value of non-vested awards at December 31, 2021 of approximately: | | $ | |
(1) | The |
There is
The following summarizes restricted stock award activity under the Omnibus Plans during Q1 2022:
| | Number | | Weighted | |
| | of | | Average | |
|
| Shares |
| Fair Value | |
Nonvested restricted stock awards at September 2021 |
| — | | $ | — |
Granted |
| | | | |
Vested |
| — | | | — |
Expired |
| — | | | — |
Nonvested restricted stock awards at December 2021 |
| | | $ | |
All Equity-Based Awards (stock options, restricted stock units, and restricted stock awards)
Net income before income taxes included compensation expense of approximately $
9. BUSINESS SEGMENTS
The Company has
13
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED DECEMBER 2021 | | | | | | | | | | | | |
External revenues: | | | | | | | | | | | | |
Cigarettes | | $ | | | $ | — | | $ | — | | $ | |
Tobacco | | | | | | — | | | — | | | |
Confectionery | | | | | | — | | | — | | | |
Health food | | | — | | | | | | — | | | |
Foodservice & other | | | | | | — | | | — | | | |
Total external revenue | | | | | | | | | — | | | |
Depreciation | | | | | | | | | — | | | |
Operating income (loss) | | | | | | | | | ( | | | |
Interest expense | | | | | | — | | | | | | |
Income (loss) from operations before taxes | | | | | | | | | ( | | | |
Equity method investment earnings, net of tax | | | — | | | — | | | | | | |
Total assets | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | — | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED DECEMBER 2020 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | | | $ | — | | $ | — | | $ | |
Tobacco | | | | | | — | | | — | | | |
Confectionery | | | | | | — | | | — | | | |
Health food | | | — | | | | | | — | | | |
Foodservice & other | | | | | | — | | | — | | | |
Total external revenue | | | | | | | | | — | | | |
Depreciation | | | | | | | | | — | | | |
Operating income (loss) | | | | | | ( | | | ( | | | |
Interest expense | | | | | | — | | | | | | |
Income (loss) from operations before taxes | | | | | | ( | | | ( | | | |
Equity method investment earnings, net of tax | | | — | | | — | | | | | | |
Total assets | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | — | | | |
10. COMMON STOCK REPURCHASES
The Company did not repurchase any shares of its common stock during the three months ended December 2021. The Company repurchased
11. IMPACT OF COVID-19
The Company continues to monitor a wide range of health, safety, and regulatory matters related to the continuing COVID-19 pandemic including its impact on our business operations. In particular, ongoing supply chain disruptions at consumer packaged goods (CPG) companies and the transportation companies that deliver their products have impacted product availability and costs across all markets including the convenience distribution industry in which our company operates. Additionally, the United States is experiencing an acute workforce shortage and increasing inflation which has created a hyper-competitive wage environment and has increased the Company’s operating costs and impacted its operations. Further, workplace mask, testing, and/or vaccine mandates similar to the recently proposed Emergency Temporary Standard from the Occupational Safety and Health Administration (OSHA) increase workforce complexities in addition to placing additional stress on the supply chain. We believe such measures, whether federal, state, or local, would have a material adverse impact on the Company’s ability to retain employees and staff both of its business segments and increase cost structures. Accordingly, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company’s operations and financial results in a substantially material manner.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS UPDATE AND IMPACT OF COVID-19
While the Company reported strong Q1 2022 operating results, we remain cautious based on a highly challenging operating environment and a range of other considerations including, but not limited to, those described below.
First, the rapid spread of the Omicron variant of COVID-19 has impacted both of our business segments. The variant’s surge has only amplified the already acute workforce shortage, which has particularly impacted the Company as it relates to staffing warehouse and transportation roles. Further, workplace mask, testing, and/or vaccine mandates similar to the recently proposed Emergency Temporary Standard from the Occupational Safety and Health Administration (OSHA) increase workforce complexities in addition to placing additional stress on the supply chain. We believe such measures, whether federal, state, or local, would have a material adverse impact on the Company’s ability to retain employees and staff both of its business segments, increase cost structures and could negatively impact the Company’s operations and financial results in a substantially material manner.
Secondly, since the onset of the COVID-19 pandemic, both of our business segments experienced an increase in demand and sales across a broad range of products. It remains unclear, however, if these demand trends will remain intact or if they will eventually revert back to more historical levels over time.
Lastly, worldwide supply chains continue to remain highly disrupted, which has impacted product availability and resulted in product pricing inflation and may impact long term demand trends.
All of these factors have contributed to an inflationary environment resulting in higher labor costs and an overall increase in the Company’s cost structure.
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 which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.
It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:
| ● | risks associated with the threat or occurrence of epidemics or pandemics (such as 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 (such as the recently proposed OSHA ETS vaccine and testing mandate) restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, |
| ● | risks associated with the Company’s business model which since the onset of the COVID-19 pandemic has experienced both higher sales volumes and labor costs, and the related risk of sales returning to more historical levels without the Company being able to offset increases in its cost structure, |
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| ● | risks associated with the acquisition of assets or new businesses or investments in equity investees by either of our business segments including, but not limited to, risks associated with purchase price and business valuation risks, vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations, |
| ● | increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, |
| ● | that our repositioning strategy for our retail business will not be successful, |
| ● | risks associated with opening new retail stores, |
| ● | if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business, |
| ● | the potential impact that ongoing, decreasing, or changing trade tariff and trade policies may have on our product costs or on consumer disposable income and demand, |
| ● | increasing product and operational costs resulting from ongoing COVID-19 related 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, |
| ● | higher commodity prices and general inflation which could impact food ingredient costs and demand for many of the products we sell, |
| ● | regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products by the United States Food and Drug Administration (“FDA”), state or local governmental agencies, or other parties, |
| ● | increases in inventory carrying costs and customer credit risks, |
| ● | changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, |
| ● | demand for the Company’s products, particularly cigarette, tobacco and e-cigarette/vaping products, |
| ● | risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, |
| ● | changes in laws and regulations and ongoing compliance related to health care and associated insurance, |
| ● | increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending, |
| ● | decreased availability of capital resources, |
| ● | domestic regulatory and legislative risks, |
| ● | poor weather conditions, and the adverse effects of climate change, |
| ● | consolidation trends within the convenience store, wholesale distribution, and retail health food industries, |
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| ● | natural disasters, and domestic or political unrest, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, |
| ● | 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, 2021, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the three months ended December 2021.
FIRST FISCAL QUARTER 2022 (Q1 2022)
The following discussion and analysis includes the Company’s results of operations for the three months ended December 2021 and December 2020:
Wholesale Segment
Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,100 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,700 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In December 2021, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately 685,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.
Retail Segment
Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as
17
products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.
Our Retail Segment operates twenty retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 35,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, has a total of seven locations in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of six locations in Arkansas, Missouri, and Oklahoma. EOM has a total of seven locations in Florida.
RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:
|
| 2021 |
| 2020 |
| Incr (Decr) |
| % Change | |||
CONSOLIDATED: | | | | | | | | | | | |
Sales(1) | | $ | 422,571,278 | | $ | 404,744,774 | | $ | 17,826,504 |
| 4.4 |
Cost of sales | |
| 395,638,615 | |
| 381,282,795 | |
| 14,355,820 |
| 3.8 |
Gross profit | |
| 26,932,663 | |
| 23,461,979 | |
| 3,470,684 |
| 14.8 |
Gross profit percentage | |
| 6.4 | % |
| 5.8 | % |
| | | |
| | | | | | | | | | | |
Operating expense | | $ | 23,174,985 | | $ | 19,374,101 | | $ | 3,800,884 |
| 19.6 |
Operating income | |
| 3,757,678 | |
| 4,087,878 | |
| (330,200) |
| (8.1) |
Interest expense | |
| 322,097 | |
| 376,430 | |
| (54,333) |
| (14.4) |
Income tax expense | |
| 1,245,000 | |
| 1,011,000 | |
| 234,000 |
| 23.1 |
Equity method investment earnings, | | | 770,365 | | | 335,339 | | | 435,026 | | 129.7 |
Net income available to common shareholders | |
| 3,001,055 | |
| 3,077,610 | |
| (76,555) |
| (2.5) |
| | | | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | | | |
Wholesale | | | | | | | | | | | |
Sales | | $ | 410,646,073 | | $ | 393,597,676 | | $ | 17,048,397 |
| 4.3 |
Gross profit | |
| 22,378,803 | |
| 19,367,341 | |
| 3,011,462 |
| 15.5 |
Gross profit percentage | |
| 5.4 | % |
| 4.9 | % |
| | | |
Retail | | | | | | | | | | | |
Sales | | $ | 11,925,205 | | $ | 11,147,098 | | $ | 778,107 |
| 7.0 |
Gross profit | |
| 4,553,860 | |
| 4,094,638 | |
| 459,222 |
| 11.2 |
Gross profit percentage | |
| 38.2 | % |
| 36.7 | % |
| | | |
| (1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $7.0 million in Q1 2022 and $6.8 million in Q1 2021. |
SALES
Changes in sales are driven by two primary components:
| (i) | changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and |
| (ii) | changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period. |
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SALES – Q1 2022 vs. Q1 2021
Sales in our Wholesale Segment increased $17.0 million during Q1 2022 as compared to Q1 2021. Significant items impacting sales during Q1 2022 included a $18.9 million increase in sales related to price increases implemented by cigarette manufacturers, a $14.2 million increase in sales related to higher sales volumes in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $16.1 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment increased $0.8 million during Q1 2022 as compared to Q1 2021. Of this increase, approximately $1.1 million related to higher sales volumes in our existing stores, partially offset by a $0.3 million decrease in sales volume related to the closure of a non-performing store in our Florida market in the comparative period. Sales in both of our business segments continue to benefit from higher consumer demand across a range of product categories.
GROSS PROFIT – Q1 2022 vs. Q1 2021
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 $3.0 million during Q1 2022 as compared to Q1 2021. Significant items impacting gross profit during Q1 2022 included a $3.1 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, offset by a $0.1 million decrease in gross profit related to cigarette manufacturer price increases and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment increased $0.5 million during Q1 2022 as compared to Q1 2021. This change was primarily related to a $0.6 million increase in gross margin in our existing stores which have benefited from higher sales volume and improved product mix, partially offset by a $0.1 million decrease in gross margin related to the closure of a non-performing store in our Florida market in the comparative period.
OPERATING EXPENSE – Q1 2022 vs. Q1 2021
Operating expense includes selling, general and administrative expenses and depreciation. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q1 2022 operating expenses increased $3.8 million as compared to Q1 2021. Significant items impacting operating expenses during Q1 2022 included a $2.9 million increase in employee compensation and benefit costs largely due to a highly competitive labor market which has increased wage levels across all functional areas of the Company, particularly for warehouse associates and transportation roles. In addition, the Company experienced a $0.7 million increase in health and other insurance costs, and a $0.4 million increase in fuel costs primarily related to higher diesel fuel prices. These increases were partially offset by a $0.1 million decrease in other Wholesale Segment operating expenses and a $0.1 million decrease in our Retail Segment expenses primarily related to closure of a non-performing store in our Florida market in the comparative period.
INCOME TAX EXPENSE – Q1 2022 vs. Q1 2021
The change in the Q1 2022 income tax rate as compared to Q1 2021 was primarily related to increased nondeductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods and may result in a higher income tax rate during fiscal 2022 as compared to fiscal 2021.
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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 which we expect to reverse in later periods. Additionally, during our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
In general, the Company finances its operations through a credit facility agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in the loan syndication. The Facility included the following significant terms at December 2021:
| ● | A March 2025 maturity date without a penalty for prepayment. |
| ● | $110.0 million revolving credit limit. |
| ● | Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million. |
| ● | A provision providing an additional $10.0 million of credit advances for certain inventory purchases. |
| ● | Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement. |
| ● | The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than zero basis points. |
| ● | Lending limits subject to accounts receivable and inventory limitations. |
| ● | An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings. |
| ● | Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable. |
| ● | A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement. The Company’s fixed charge ratio was over 1.0 for the trailing twelve months. |
| ● | Provides that the Company may use up to $5.0 million annually, on a collective basis, for the payment of dividends on its common stock, or other distributions or investments, provided the Company is not in default before or after such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $5.0 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions or investments. |
The amount available for use from the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at December 2021 was $109.5 million, of which $48.4 million was outstanding, leaving $61.1 million available.
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At December 2021, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 1.40% at December 2021. For the three months ended December 2021, our peak borrowings under the Facility were $64.3 million, and our average borrowings and average availability under the Facility were $43.9 million and $55.4 million, respectively.
Cross Default and Co-Terminus Provisions
The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term Real Estate Loan with BMO which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which would cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, were in default. There were no such cross defaults at December 2021. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.
Dividend Payments
The Company paid a $0.18 per share cash dividend on its common stock totaling $0.1 million in each of the three month periods ended December 2021 and December 2020, respectively. During Q1 2022, the Company declared and paid a $5.00 per share special dividend totalling approximately $3.0 million. During Q1 2021, the Company declared a $5.00 per share special dividend totalling approximately $2.9 million that was paid in Q2 2021.
Other
The Company has issued a letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.
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 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.
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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, 2021 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.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Other
As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.
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 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) Exhibits
| | |
| 10.1 | |
| | |
| 10.2 | Form of Restricted Stock Award Agreement under the 2014 Omnibus Incentive Plan |
| | |
| 10.3 | Form of Restricted Stock Award Agreement under the 2018 Omnibus Incentive Plan |
| | |
| 31.1 | |
| | |
| 31.2 | |
| | |
| 32.1 | |
| | |
| 32.2 | |
| | |
| 101 | Interactive Data File (filed herewith electronically) |
| | |
| 104 | Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101 |
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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 18, 2022 | /s/ Christopher H. Atayan |
| Christopher H. Atayan, |
| Chief Executive Officer and Chairman |
| |
Date: January 18, 2022 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer, |
| Vice President, Chief Financial Officer and Secretary |
| (Principal Financial and Accounting Officer) |
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Exhibit 10.1
SIXTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Amendment”) is dated as of December __, 2021 among each of AMCON Distributing Company, a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON”), Chamberlin Natural Foods, Inc., a Florida corporation, having its principal place of business at 3711 Oleander Way, Suite 1309, Casselberry, Florida 32707 (“Chamberlin Natural”), Health Food Associates, Inc., an Oklahoma corporation, having its principal place of business at 7807 East 51st Street, Tulsa, Oklahoma 74145 (“Health Food”), AMCON ACQUISITION CORP., a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON Acquisition”); and EOM ACQUISITION CORP., a Delaware corporation, having its principal place of business at 7807 East 51st Street, Tulsa, Oklahoma 74145 (“EOM Acquisition”; AMCON, Chamberlin Natural, Health Food, AMCON Acquisition and EOM Acquisition are each referred to as a “Borrower” and are collectively referred to as “Borrowers”), and BANK OF AMERICA, N.A., a national banking association (in its individual capacity, “BofA”), as agent (in such capacity as agent, “Agent”) for itself and all other lenders from time to time a party to the Credit Agreement (as defined below) (“Lenders”), 110 North Wacker Drive, IL4-110-08-03, Chicago, Illinois 60606.
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and Agent have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of April 18, 2011, as amended by that certain Consent and First Amendment to Second Amended and Restated Loan and Security Agreement dated as of May 27, 2011, that certain Second Amendment to Second Amended and Restated Loan and Security Agreement dated as of July 16, 2013, that certain Third Amendment to Second Amended and Restated Loan and Security Agreement dated as of November 6, 2017, that certain Fourth Amendment to Second Amended and Restated Loan and Security Agreement dated as of March 20, 2020 and that certain Fifth Amendment to Second Amended and Restated Loan and Security Agreement dated as of December 22, 2020 (as may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) pursuant to which the Lenders agreed to provide certain credit facilities to the Borrowers;
WHEREAS, the Borrowers have requested that the Agent and the Lenders amend the Credit Agreement in order to, among other items, (i) decrease the LIBOR floor, (ii) modify certain covenants affected by the payment of dividends, (iii) amend certain provisions relating to the pending elimination of the LIBOR Rate and transition to the SOFR Rate, and (iv) effectuate such other amendments as provided herein; and
WHEREAS, the Agent and the Lenders are willing to accommodate the Borrowers’ requests on the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the premises and mutual agreements herein contained and for the purposes of setting forth the terms and conditions of this Amendment, the parties, intending to be bound, hereby agree as follows:
| | |
“December 2021 Special Dividend” shall mean a dividend payable to the equity holders of AMCON in an amount not to exceed $3,050,000 distributed on or before January 31, 2022.
Notwithstanding the foregoing, the LIBOR Rate shall not be less than zero (0.00%).
“Fixed Charge Coverage Ratio” means for any period of determination for the Borrowers, the ratio of EBITDA to Fixed Charges determined in accordance with GAAP. Notwithstanding the foregoing, the (i) 2021 Special Dividend and (ii) December 2021 Special Dividend shall each be excluded from the calculation of Fixed Charge Coverage Ratio.
(ii)Up to eighty-five percent (85%) of the lower of cost or market value of Eligible Cigarette Inventory or Eighty-Five Million and No/100 Dollars ($85,000,000.00), whichever is less; plus
(e)Replacement of LIBOR. Notwithstanding anything to the contrary herein or in any other Loan Document,
(i)on March 5, 2021 the Financial Conduct Authority ("FCA"), the regulatory supervisor of LIBOR’s administrator ("IBA"), announced in
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a public statement the future cessation or loss of representativeness of overnight/Spot Next, 1-week, 1-month, 2-month, 3-month, 6-month and 12- month U.S. Dollar LIBOR tenor settings. On the earliest of (i) the date that all Available Tenors of U.S. Dollar LIBOR have permanently or indefinitely ceased to be provided by IBA or have been announced by the FCA pursuant to public statement or publication of information to be no longer representative, (ii) June 30, 2023, and (iii) the Early Opt-in Effective Date in respect of a SOFR Early Opt-in, if the then-current Benchmark is LIBOR, the Benchmark Replacement will replace such Benchmark for all purposes under this Agreement and under any Loan Document in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document. If the Benchmark Replacement is Daily Simple SOFR, all interest will be payable on a monthly basis;
(ii)(x) upon (A) the occurrence of a Benchmark Transition Event or (B) a determination by Agent that neither of the alternatives under clause (a) of the definition of Benchmark Replacement are available, the Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. on the fifth Business Day after the date notice of such Benchmark Replacement is provided to Lenders, without any amendment to, or further action or consent of any other party to, any Loan Document as long as Agent has not received, by such time, written notice of objection to such Benchmark Replacement from any Lender in the event there are less than 3 Lenders and the Requisite Lenders in all other instances (and any such objection shall be conclusive and binding absent manifest error); provided, that solely in the event that the then-current Benchmark at the time of such Benchmark Transition Event is not a SOFR-based rate, the Benchmark Replacement therefor shall be determined in accordance with clause (a) of the definition of Benchmark Replacement unless Agent determines that neither of such alternative rates is available; and (y) on the Early Opt-in Effective Date in respect of an Other Rate Early Opt-in, the Benchmark Replacement will replace the LIBOR Rate for all purposes under the Loan Documents in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to, any Loan Document;
(iii)at any time that the administrator of the then-current Benchmark has permanently or indefinitely ceased to provide such Benchmark or such Benchmark has been announced by the regulatory supervisor for the administrator of such Benchmark pursuant to public statement or publication of information to be no longer representative of the underlying market and economic reality that such Benchmark is intended to measure and that representativeness will not be restored, Borrowers may
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revoke any request for a borrowing of, conversion to or continuation of Loans to be made, converted or continued that would bear interest by reference to such Benchmark until Borrowers' receipt of notice from Agent that a Benchmark Replacement has replaced such Benchmark, and, failing that, Borrowers will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans. During the period referenced in the foregoing sentence, the component of Base Rate based on the Benchmark will not be used in any determination of Base Rate; and
(iv)For purposes herein, the following defined terms shall the meanings set forth below:
Available Tenor: as of any date of determination and with respect to the then-current Benchmark, as applicable, (a) if such Benchmark is a term rate, any tenor for the Benchmark that is or may be used for determining the length of an Interest Period; or (b) otherwise, any payment period for interest calculated with reference to such Benchmark, as applicable, pursuant to this Agreement as of such date.
Benchmark: initially, LIBOR; provided, that if a replacement of the Benchmark has occurred pursuant to Section 4(e), then "Benchmark" means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate. Any reference to "Benchmark" shall include, as applicable, the published component used in the calculation thereof.
Benchmark Replacement: (a) for purposes of Section 4(e)(i), the first alternative set forth below that can be determined by Agent:
(i) the sum of (A) Term SOFR plus (B) 0.11448% (11.448 basis points) for an Available Tenor of one month, 0.26161% (26.161 basis points) for an Available Tenor of three months, and 0.42826% (42.826 basis points) for an Available Tenor of six months; or
(ii)the sum of (A) Daily Simple SOFR plus (B) 0.11448% (11.448 basis points);
provided, that if initially LIBOR is replaced with the rate contained in clause (ii) above (Daily Simple SOFR plus the applicable spread adjustment) and subsequent to such replacement, Agent determines that Term SOFR has become available and is administratively feasible for Agent in its discretion, and Agent notifies Borrowers and Lenders of such availability, then from and after the beginning of the Interest Period, relevant interest payment date or payment period for interest calculated, in each case, commencing no less than 30 days after the date of such notice, the Benchmark Replacement shall be as set forth in clause (i) above; and (b) for purposes of Section 4(e)(ii), the sum of (i) the alternate benchmark
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rate and (ii) an adjustment (which may be a positive or negative value or zero), in each case that has been selected by Agent and Borrower Agent as the replacement Benchmark giving due consideration to any evolving or then-prevailing market convention, including any applicable recommendations made by a Relevant Governmental Body, for U.S. Dollar-denominated syndicated credit facilities at such time. If the Benchmark Replacement as determined above would be less than zero percent (0.0%) at any time, it shall be deemed to be zero percent (0.0%) for purposes of this Agreement and the other Loan Documents. Any Benchmark Replacement shall be applied in a manner consistent with market practice; provided, that to the extent such market practice is not administratively feasible for Agent, it shall be applied in a manner as otherwise reasonably determined by Agent.
Benchmark Replacement Conforming Changes: with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of Prime Rate, Business Day or Interest Period, timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, applicability and length of lookback periods, applicability of breakage provisions, and other technical, administrative or operational matters) that Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by Agent in a manner substantially consistent with market practice (or, if Agent decides that adoption of any portion of such market practice is not administratively feasible or if Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as Agent decides is reasonably necessary in connection with administration of this Agreement and the other Loan Documents).
Benchmark Transition Event: with respect to any then-current Benchmark (other than LIBOR), the occurrence of a public statement or publication of information by or on behalf of the administrator of such Benchmark or a Governmental Authority with jurisdiction over such administrator announcing or stating that all Available Tenors are or will no longer be representative, or made available, or used for determining the interest rate of loans, or shall or will otherwise cease, provided, that, at the time of such statement or publication, there is no successor administrator satisfactory to Agent that will continue to provide any representative tenors of such Benchmark after such specific date.
Daily Simple SOFR: with respect to any applicable determination date, the secured overnight financing rate published on such date by FRBNY, as administrator of the benchmark (or a successor administrator), on FRBNY's website (or any successor source).
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Early Opt-in Effective Date: with respect to any Early Opt-in Election, the sixth Business Day after the date notice of such Early Opt-in Election is provided to Lenders, as long as Agent has not received, by 5:00 p.m. (New York City time) on the fifth Business Day after such notice is provided to Lenders, written notice of objection to such Early Opt-in Election from any Lender in the event there are less than 3 Lenders and the Requisite Lenders in all other instances.
Early Opt-in Election: the occurrence of (a) a determination by Agent, or a notification by Borrowers’ Agent to Agent that Borrowers have made a determination, that U.S. Dollar-denominated syndicated credit facilities currently being executed, or that include language similar to that contained in Section 4(e), are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR; and (b) the joint election by Agent and Borrower Agent to replace LIBOR with a Benchmark Replacement and the provision by Agent of written notice of such election to Lenders.
FRBNY: the Federal Reserve Bank of New York.
Loan Documents: this Agreement and all Other Agreements, as amended, modified or restated from time to time.
Other Rate Early Opt-in: Agent and Borrower Agent have elected to replace LIBOR with a Benchmark Replacement other than a SOFR-based rate pursuant to (a) an Early Opt-in Election and (b) Section 4(e)(ii) and clause (b) of the definition of Benchmark Replacement.
Relevant Governmental Body: the Board of Governors of the Federal Reserve System or FRBNY, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or FRBNY, or any successor thereto.
SOFR: the secured overnight financing rate published on such date by FRBNY.
SOFR Early Opt-in: Agent and Borrower Agent have elected to replace LIBOR pursuant to (a) an Early Opt-in Election and (b) Section 4(e)(i) and clause (a) of the definition of Benchmark Replacement.
Term SOFR: for the applicable corresponding tenor (or if any Available Tenor of a Benchmark does not correspond to an Available Tenor for the applicable Benchmark Replacement, the closest corresponding Available Tenor and if such Available Tenor corresponds equally to two Available Tenors of such Benchmark Replacement, the corresponding tenor of the shorter duration shall be applied), the forward-looking term rate based
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on SOFR that has been selected or recommended by the Relevant Governmental Body.
(f)Conforming Changes. In connection with the implementation and administration of a Benchmark Replacement, Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement.
(g)Notice. Agent will promptly notify Borrowers and Lenders of the implementation of any Benchmark Replacement and the effectiveness of any Benchmark Replacement Conforming Changes. Any determination, decision or election that may be made by Agent pursuant to this Section, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date, and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its discretion and without consent from any other party hereto, except, in each case, as expressly required pursuant to this Section.
(h)Term Tenors. At any time (including in connection with the implementation of a Benchmark Replacement), (a) if the then-current Benchmark is a term rate (including Term SOFR or LIBOR), Agent may remove any tenor of such Benchmark that is unavailable or non-representative for Benchmark (including Benchmark Replacement) settings; and (b) Agent may reinstate any such previously removed tenor for Benchmark (including Benchmark Replacement) settings.
(e)Dividends and Distributions. No Borrower shall declare or pay any dividend or other distribution (whether in cash or in kind) on any class of its stock (if such Borrower is a corporation) or on account of any equity interest in such Borrower (if such Borrower is a partnership, limited liability company or other type of entity). Notwithstanding the foregoing, provided that (i) each such dividend payment is permitted under all applicable laws, and (ii) no Event of Default shall have occurred prior to, or would occur as a result of, any such dividend payment, AMCON may pay the regularly scheduled dividends on its (w) Common Stock, (x) Series A Preferred Stock
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in accordance with the terms of such stock, (y) Series B Preferred Stock in accordance with the terms of such stock, and (z) Series C Convertible Preferred Stock in accordance with the terms of the Series C Certificate of Designations (as defined below) in an aggregate amount not to exceed $5,000,000 for all such dividends and distributions in any Fiscal Year less the amount of any additional Investments permitted under Section 13(f) herein made during such Fiscal Year (the “Dividend Limit”). Further, provided that (i) each such dividend payment is permitted under all applicable laws; (ii) no Event of Default shall have occurred prior to, or would occur as a result of, any such dividend payment; (iii) (x) Borrowers have Excess Availability greater than or equal to seventeen and one-half percent (17.5%) of the Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to the payment of any dividend or distribution and immediately after giving effect to the payment of such dividend or distribution or (y) Borrowers have Excess Availability greater than or equal to twelve and one-half percent (12.5%) of the Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to the payment of any dividend or distribution and a pro-forma Fixed Charge Coverage Ratio of 1.00:1.0, in each case and immediately after giving effect to the payment of such dividend or distribution, AMCON may pay additional dividends in excess of the Dividend Limit on its (w) Common Stock, (x) Series A Preferred Stock in accordance with the terms of such stock, (y) Series B Preferred Stock in accordance with the terms of such stock, and (z) Series C Convertible Preferred Stock in accordance with the terms of the Series C Certificate of Designations (as defined below).
Notwithstanding the foregoing, provided that (i) each such dividend payment is permitted under all applicable laws; (ii) no Event of Default shall have occurred prior to, or would occur as a result of, any such dividend payment, the 2021 Special Dividend and the December 2021 Special Dividend shall be excluded from the Dividend Limit for the Fiscal Year ended 2021 and Fiscal Year ended 2022 and not for any other periods.
(f) Investments; Loans; Transfers. No Borrower shall purchase or otherwise acquire, or contract to purchase or otherwise acquire, the obligations or stock of any Person, other than direct obligations of the United States; nor shall a Borrower lend or otherwise advance funds or transfer any assets to any Person (including, but not limited to, any Subsidiary which is not a Subsidiary Borrower hereunder) (collectively, “Investments”) except for advances made to employees, officers and directors for travel and other expenses arising in the ordinary course of business; provided however, (i) so long as no Event of Default exists or would be caused thereby and (ii) (x) Borrowers have Excess Availability greater than or equal to seventeen and one-half percent (17.5%) of the
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Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to and after making any such Investment, or (y) Borrowers have Excess Availability greater than or equal to twelve and one-half percent (12.5%) of the Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to and after making such Investment and a pro-forma Fixed Charge Coverage Ratio of 1.00:1.0 prior to and immediately after giving effect to making such Investment, Borrowers may make additional Investments in an amount not to exceed the Dividend Limit less the amount of all regularly scheduled dividends paid during such Fiscal Year, it being understood and agreed that (i) the $3,500,000 loan made by AMCON in Team Sledd, LLC, a Delaware limited liability company, pursuant to its January 3, 2020 Contribution Agreement, shall be excluded for purposes of determining the cap on Borrowers’ ability to make additional Investments (ii) the 2021 Special Dividend, and (iii) the December 2021 Special Dividend, shall be excluded from the Dividend Limit for purposes of determining the cap on Borrowers’ ability to make additional Investments.
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[SIGNATURE PAGE FOLLOWS]
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Signature Page to Sixth Amendment to
Second Amended and Restated Loan and Security Agreement
IN WITNESS WHEREOF, the parties hereto have duly executed this Sixth Amendment to Second Amended and Restated Loan and Security Agreement as of the date first above written.
BORROWERS: | AMCON DISTRIBUTING COMPANY By: /s/Charles J. Schmaderer |
| CHAMBERLIN NATURAL FOODS, INC. By: /s/Andrew C. Plummer |
| HEALTH FOOD ASSOCIATES, INC. By: /s/Andrew C. Plummer |
| AMCON ACQUISITION CORP. By: /s/Andrew C. Plummer |
| EOM ACQUISITION CORP. By: /s/Andrew C. Plummer |
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Signature Page to Sixth Amendment to
Second Amended and Restated Loan and Security Agreement
LENDERS: | BANK OF AMERICA, N.A., as Agent and a Lender By: /s/Daniel Rubio Revolving Loan Commitment: $73,333,333.33 | |
| BMO HARRIS BANK N.A., as a Lender By: /s/Steve Teufel Revolving Loan Commitment: $36,666,666.67 | |
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Exhibit 10.2
AMCON DISTRIBUTING COMPANY
2014 OMNIBUS INCENTIVE PLAN
Restricted Stock Award Agreement
Date of Grant:
Number of Restricted Shares Granted:
This Restricted Stock Award Agreement, dated October 26, 2021 (this "Award Agreement"), is made by and between AMCON Distributing Company, a Delaware corporation (the "Company"), and __________________ ("Participant").
RECITALS:
A.Effective December 19, 2014, the Company's stockholders approved the AMCON Distributing Company 2014 Omnibus Incentive Plan (the "Plan") pursuant to which the Company may, from time to time, grant Shares of Restricted Stock to eligible Service Providers of the Company.
B.Participant is a Service Provider of the Company or one of its Affiliates and the Company desires to encourage him to own Shares and to give him added incentive to advance the interests of the Company, and desires to grant Participant shares of Restricted Stock of the Company under the terms and conditions established by the Committee.
AGREEMENT:
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1.Incorporation of Plan. All provisions of this Award Agreement and the rights of Participant hereunder are subject in all respects to the provisions of the Plan and the powers of the Committee therein provided. Capitalized terms used in this Award Agreement but not defined shall have the meaning set forth in the Plan.
2.Grant of Restricted Stock. Subject to the conditions and restrictions set forth in this Award Agreement and in the Plan, the Company hereby grants to Participant that number of Shares of Restricted Stock identified above opposite the heading "Number of Restricted Shares Granted" (the "Restricted Shares").
3.Restrictions on Transfer; Vesting Date. Subject to any exceptions set forth in this Award Agreement or in the Plan, the Restricted Shares or the rights relating thereto may not be sold, transferred, gifted, bequeathed, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, prior to the vesting date for such Restricted Shares
identified below (the "Vesting Date"). On the Vesting Date, such restriction on transfer shall lapse and the Restricted Shares, if not previously forfeited pursuant to Section 4 below, will become freely transferable under this Award Agreement and the Plan, subject only to such further limitations on transfer, if any, as may exist under applicable law or any other agreement binding upon Participant. Subject to any exceptions listed in this Award Agreement or in the Plan, the Restricted Shares shall become vested in accordance with the schedule set forth below:
Vesting Date | Percentage of Shares Vested |
October 26, 2022 | 33⅓% |
October 26, 2023 | 33⅓% |
October 26, 2024 | 33⅓% |
Notwithstanding the foregoing, (i) the Committee may, in its sole discretion, accelerate the Vesting Date for any or all of the Restricted Shares, if in its judgment the performance of Participant has warranted such acceleration and/or such acceleration is in the best interests of the Company, and (ii) if Participant's position as a Service Provider with the Company or any of its Affiliates is terminated by the Company or such Affiliate without Cause or by reason of the Participant's death or Disability, the Vesting Date for all of the Restricted Shares automatically will be accelerated to the date of Participant's termination as a Service Provider. If the Participant voluntarily terminates their position as a Service Provider with the Company, the portion of Restricted Shares that are unvested shall be forfeited and full ownership of such Restricted Shares and rights will revert to the Company. For purposes of this Award Agreement, “Cause” means any act or failure to act by the Participant that constitutes willful misconduct or gross negligence.
4.Forfeiture Prior to Vesting. Unless otherwise provided below, if Participant's position as a Service Provider with the Company or any of its Affiliates is terminated by the Company or any such Affiliate for Cause prior to the Vesting Date for one or more of the Restricted Shares, Participant will thereupon immediately forfeit any and all unvested Restricted Shares, and the full ownership of such Restricted Shares and rights will revert to the Company. Upon such forfeiture, Participant shall have no further rights under this Award Agreement. For purposes of this Award Agreement, transfer of employment between the Company and any of its Affiliates (or between Affiliates) does not constitute a termination of Participant's position as a Service Provider. If the Participant voluntarily terminates their position as a Service Provider with the Company, the portion of Restricted Shares that are unvested shall be forfeited and full ownership of such Restricted Shares and rights will revert to the Company.
5.Certificates. The Restricted Shares are issued to Participant in reliance on the exemption from registration provided in Section 4(a)(2) of the 1933 Act (which may include, without limitation, Regulation D promulgated thereunder). The Restricted Shares shall be issued in the name of Participant or a nominee of Participant as of the Date of Grant. One or more certificates representing the Restricted Shares shall bear a legend substantially similar to the following, and stop transfer instructions may be given to the transfer agent for the Company's Stock that are consistent with such legend:
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES AND SUBJECT TO CERTAIN CONDITIONS UNDER THE AMCON DISTRIBUTING COMPANY 2014 OMNIBUS INCENTIVE PLAN AND THE APPLICABLE RESTRICTED STOCK AWARD AGREEMENT PURSUANT TO WHICH THE SHARES WERE ISSUED. THESE SHARES ARE SUBJECT TO A RISK OF FORFEITURE AND CANNOT BE SOLD, DONATED, TRANSFERRED OR IN ANY OTHER MANNER ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH PLAN AND AGREEMENT, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF AMCON DISTRIBUTING COMPANY. IN ADDITION, THESE SHARES HAVE BEEN ISSUED ON OCTOBER 26, 2021, PURSUANT TO THE AMCON DISTRIBUTING COMPANY 2014 OMNIBUS INCENTIVE PLAN AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
6.Dividends and Voting. Participant is entitled to (i) receive all dividends, payable in stock, in cash or in kind, or other distributions, declared on or with respect to any Restricted Shares as of a record date that occurs on or after the Date of Grant hereunder and before any transfer or forfeiture of the Restricted Shares by Participant, provided that any such dividends paid in cash are to be held in escrow by the Company and, such cash dividends and distributions are to be subject to the same rights, restrictions on transfer and conditions regarding vesting and forfeiture as the Restricted Shares with respect to which such dividends or distributions are paid at the time of payment, and (ii) exercise all voting rights with respect to the Restricted Shares, if the record date for the exercise of such voting rights occurs on or after the Date of Grant hereunder and prior to any transfer or forfeiture of such Restricted Shares. In the event of forfeiture by Participant of any or all of the Restricted Shares or any of the equity securities distributed to Participant with respect thereto, Participant shall forfeit all cash dividends held in escrow and relating to the underlying forfeited Restricted Shares and must return to the Company any distributions previously paid to Participant with respect to such Restricted Shares.
7.Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
8.Notice of I.R.C. Section 83(b) Election. If Participant makes an election under Section 83(b) of the Code, Participant shall promptly notify the Company of such election.
9.Amendment. This Award Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Award Agreement.
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10.Governing Law. The laws of the State of Delaware will govern the interpretation, validity and performance of this Award Agreement regardless of the law that might be applied under principles of conflicts of laws.
11.Binding Effect. A signature of a party to this Award Agreement sent by facsimile or other electronic transmission shall be deemed to constitute an original and fully effective signature of such party. Except as expressly stated herein to the contrary, this Award Agreement will be binding upon and inure to the benefit of the respective heirs, legal representatives, successors and assigns of the parties hereto.
This Award Agreement has been executed and delivered by the parties hereto.
The Company:Participant:
AMCON Distributing Company
By:
Name: John Loyack Participant Name
Title: Chairman of the Compensation
Committee of the Board of
Directors
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Exhibit 10.3
AMCON DISTRIBUTING COMPANY
2018 OMNIBUS INCENTIVE PLAN
Restricted Stock Award Agreement
Date of Grant:
Number of Restricted Shares Granted:
This Restricted Stock Award Agreement, dated October 26, 2021 (this "Award Agreement"), is made by and between AMCON Distributing Company, a Delaware corporation (the "Company"), and ______________________ ("Participant").
RECITALS:
A.Effective December 21, 2018, the Company's stockholders approved the AMCON Distributing Company 2018 Omnibus Incentive Plan (the "Plan") pursuant to which the Company may, from time to time, grant Shares of Restricted Stock to eligible Service Providers of the Company.
B.Participant is a Service Provider of the Company or one of its Affiliates and the Company desires to encourage him to own Shares and to give him added incentive to advance the interests of the Company, and desires to grant Participant shares of Restricted Stock of the Company under the terms and conditions established by the Committee.
AGREEMENT:
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1.Incorporation of Plan. All provisions of this Award Agreement and the rights of Participant hereunder are subject in all respects to the provisions of the Plan and the powers of the Committee therein provided. Capitalized terms used in this Award Agreement but not defined shall have the meaning set forth in the Plan.
2.Grant of Restricted Stock. Subject to the conditions and restrictions set forth in this Award Agreement and in the Plan, the Company hereby grants to Participant that number of Shares of Restricted Stock identified above opposite the heading "Number of Restricted Shares Granted" (the "Restricted Shares").
3.Restrictions on Transfer; Vesting Date. Subject to any exceptions set forth in this Award Agreement or in the Plan, the Restricted Shares or the rights relating thereto may not be sold, transferred, gifted, bequeathed, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, prior to the vesting date for such Restricted Shares
identified below (the "Vesting Date"). On the Vesting Date, such restriction on transfer shall lapse and the Restricted Shares, if not previously forfeited pursuant to Section 4 below, will become freely transferable under this Award Agreement and the Plan, subject only to such further limitations on transfer, if any, as may exist under applicable law or any other agreement binding upon Participant. Subject to any exceptions listed in this Award Agreement or in the Plan, the Restricted Shares shall become vested in accordance with the schedule set forth below:
Vesting Date | Percentage of Shares Vested |
October 26, 2022 | 33⅓% |
October 26, 2023 | 33⅓% |
October 26, 2024 | 33⅓% |
Notwithstanding the foregoing, (i) the Committee may, in its sole discretion, accelerate the Vesting Date for any or all of the Restricted Shares, if in its judgment the performance of Participant has warranted such acceleration and/or such acceleration is in the best interests of the Company, and (ii) if Participant's position as a Service Provider with the Company or any of its Affiliates is terminated by the Company or such Affiliate without Cause or by reason of the Participant's death or Disability, the Vesting Date for all of the Restricted Shares automatically will be accelerated to the date of Participant's termination as a Service Provider. If the Participant voluntarily terminates their position as a Service Provider with the Company, the portion of Restricted Shares that are unvested shall be forfeited and full ownership of such Restricted Shares and rights will revert to the Company. For purposes of this Award Agreement, “Cause” means any act or failure to act by the Participant that constitutes willful misconduct or gross negligence.
4.Forfeiture Prior to Vesting. Unless otherwise provided below, if Participant's position as a Service Provider with the Company or any of its Affiliates is terminated by the Company or any such Affiliate for Cause prior to the Vesting Date for one or more of the Restricted Shares, Participant will thereupon immediately forfeit any and all unvested Restricted Shares, and the full ownership of such Restricted Shares and rights will revert to the Company. Upon such forfeiture, Participant shall have no further rights under this Award Agreement. For purposes of this Award Agreement, transfer of employment between the Company and any of its Affiliates (or between Affiliates) does not constitute a termination of Participant's position as a Service Provider. If the Participant voluntarily terminates their position as a Service Provider with the Company, the portion of Restricted Shares that are unvested shall be forfeited and full ownership of such Restricted Shares and rights will revert to the Company.
5.Certificates. The Restricted Shares are issued to Participant in reliance on the exemption from registration provided in Section 4(a)(2) of the 1933 Act (which may include, without limitation, Regulation D promulgated thereunder). The Restricted Shares shall be issued in the name of Participant or a nominee of Participant as of the Date of Grant. One or more certificates representing the Restricted Shares shall bear a legend substantially similar to the following, and stop transfer instructions may be given to the transfer agent for the Company's Stock that are consistent with such legend:
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES AND SUBJECT TO CERTAIN CONDITIONS UNDER THE AMCON DISTRIBUTING COMPANY 2018 OMNIBUS INCENTIVE PLAN AND THE APPLICABLE RESTRICTED STOCK AWARD AGREEMENT PURSUANT TO WHICH THE SHARES WERE ISSUED. THESE SHARES ARE SUBJECT TO A RISK OF FORFEITURE AND CANNOT BE SOLD, DONATED, TRANSFERRED OR IN ANY OTHER MANNER ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH PLAN AND AGREEMENT, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF AMCON DISTRIBUTING COMPANY. IN ADDITION, THESE SHARES HAVE BEEN ISSUED ON OCTOBER 26, 2021, PURSUANT TO THE AMCON DISTRIBUTING COMPANY 2018 OMNIBUS INCENTIVE PLAN AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
6.Dividends and Voting. Participant is entitled to (i) receive all dividends, payable in stock, in cash or in kind, or other distributions, declared on or with respect to any Restricted Shares as of a record date that occurs on or after the Date of Grant hereunder and before any transfer or forfeiture of the Restricted Shares by Participant, provided that any such dividends paid in cash are to be held in escrow by the Company and, such cash dividends and distributions are to be subject to the same rights, restrictions on transfer and conditions regarding vesting and forfeiture as the Restricted Shares with respect to which such dividends or distributions are paid at the time of payment, and (ii) exercise all voting rights with respect to the Restricted Shares, if the record date for the exercise of such voting rights occurs on or after the Date of Grant hereunder and prior to any transfer or forfeiture of such Restricted Shares. In the event of forfeiture by Participant of any or all of the Restricted Shares or any of the equity securities distributed to Participant with respect thereto, Participant shall forfeit all cash dividends held in escrow and relating to the underlying forfeited Restricted Shares and must return to the Company any distributions previously paid to Participant with respect to such Restricted Shares.
7.Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
8.Notice of I.R.C. Section 83(b) Election. If Participant makes an election under Section 83(b) of the Code, Participant shall promptly notify the Company of such election.
9.Amendment. This Award Agreement may be amended only by a writing executed by the parties hereto which specifically states that it is amending this Award Agreement.
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10.Governing Law. The laws of the State of Delaware will govern the interpretation, validity and performance of this Award Agreement regardless of the law that might be applied under principles of conflicts of laws.
11.Binding Effect. A signature of a party to this Award Agreement sent by facsimile or other electronic transmission shall be deemed to constitute an original and fully effective signature of such party. Except as expressly stated herein to the contrary, this Award Agreement will be binding upon and inure to the benefit of the respective heirs, legal representatives, successors and assigns of the parties hereto.
This Award Agreement has been executed and delivered by the parties hereto.
The Company:Participant:
AMCON Distributing Company
By:
Name: John Loyack Participant Name
Title: Chairman of the Compensation
Committee of the Board of
Directors
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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 18, 2022 | /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 18, 2022 | /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, 2021, 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 18, 2022 | /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, 2021, 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 18, 2022 | /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.