AMCON Distributing pany(DIT) - 2020 Q4 - Annual Report

PART I Business AMCON operates wholesale distribution across 26 states and 21 retail health food stores, with wholesale, particularly cigarettes, driving 69% of FY2020 consolidated revenue - The company operates two business segments: Wholesale Distribution and Retail Health Food[8][9] - The Wholesale Segment serves approximately 4,100 retail outlets, including convenience stores, and is ranked the 8th largest convenience store distributor in the U.S. by Convenience Store News[10] - The Retail Segment operates 21 health food stores under the brand names Chamberlin's Natural Foods, Akin's Natural Foods, and Earth Origins Market[16] Product Category Contribution to Consolidated Revenue | Product Category | % of Consolidated Revenue (FY2020 & FY2019) | | :--- | :--- | | Cigarettes | ~69% | | Other Products | ~31% | Employee Count by Category (as of September 2020) | Employee Category | Number of Employees (as of Sep 2020) | | :--- | :--- | | Managerial | 45 | | Administrative | 93 | | Delivery | 144 | | Sales & Marketing | 353 | | Warehouse | 294 | | Total Employees | 929 | Risk Factors The company faces risks including heavy reliance on declining cigarette sales, intense competition in retail, pandemic impacts, IT infrastructure vulnerabilities, restrictive debt covenants, and common stock delisting potential Risk Factors Related to the Wholesale Business Wholesale operations face significant risks from heavy reliance on declining cigarette sales (69% of FY2020 revenue), increased FDA regulation, excise taxes, and intense competition - The distribution of cigarettes represents a significant portion of the business, accounting for approximately 69% of consolidated revenues in fiscal 2020, despite being a declining sales category[50] - The FDA's authority to regulate tobacco products, including potential product bans or restrictions, could materially decrease future revenue[43][46] - Competition is a major risk, with national wholesalers like McLane Co. and Core-Mark, regional wholesalers, and Amazon™ posing threats that could reduce margins and market share[61] Risk Factors Related to the Retail Business The retail health food segment faces intense competition from national chains and online retailers, supply disruptions, perishable inventory losses, and reduced customer traffic from anchor store closures - The retail business faces intense competition from a wide range of regional and national competitors, including Whole Foods, Trader Joe's, Sprouts, and online retailers like Amazon™[72] - Sales are partly derived from traffic generated by other anchor stores in shopping areas; a decline in this traffic could materially impact business[76][77] - The business depends on its ability to anticipate and react to changing consumer preferences in the natural and organic grocery market[78][79] Risk Factors Related to All Businesses Broad operational and financial risks include public health crises, acquisition integration issues, trade tariffs, IT system vulnerabilities, restrictive credit covenants, supplier dependence, and asset impairment - A major epidemic or pandemic, such as COVID-19, could adversely affect operations by causing disruptions, labor shortages, and decreased demand[85] - The company's revolving credit facility contains restrictive covenants that limit its ability to incur debt, make distributions, and sell assets, potentially restricting flexibility[108][109] - The company depends on relatively few suppliers for a large portion of its products and does not have significant long-term contracts, posing a supply chain risk[115][116] Risk Factors Related to Common Stock Common stock risks include potential delisting from NYSE American due to fewer than 300 shareholders, which could impact liquidity, and anti-takeover provisions deterring change-of-control transactions - As of September 30, 2020, the number of record owners of common stock was below 300, which could allow the company to suspend its SEC reporting obligations and lead to delisting from NYSE American[125][126] - The company has various anti-takeover mechanisms in place, such as a classified board and supermajority voting requirements, which may discourage takeover attempts[127][128] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[129] Properties As of September 2020, the company operates six distribution centers (685,000 sq ft) and twenty-one retail stores (203,600 sq ft), deemed adequate for current operations Company Facilities Overview | Facility Type | Location | Total Square Feet | | :--- | :--- | :--- | | Distribution | IL, MO, ND, NE, SD, & TN | 685,000 | | Retail | AR, FL, MO, & OK | 203,600 | | Total | | 888,600 | Legal Proceedings The company reports no legal proceedings - None[132] Mine Safety Disclosures This item is not applicable - Not applicable[133] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American (DIT), with consistent $1.00 per share dividends and ongoing share repurchases, including a new 75,000-share authorization in October 2020 - The Company's common stock trades on NYSE American under the symbol 'DIT'[140] - As of November 4, 2020, there were 551,437 shares outstanding[140] - The company paid cash dividends of $0.6 million, or $1.00 per common share, during both fiscal 2020 and fiscal 2019[143] Share Repurchase Activity | Fiscal Year | Shares Repurchased | Total Cost (approx.) | | :--- | :--- | :--- | | 2020 | 28,727 | $2.0 million | | 2019 | 75,113 | $7.5 million | - In October 2020, the Board of Directors renewed the authorization to repurchase up to 75,000 shares of the Company's common stock[146] Selected Financial Data This item is not applicable - Not applicable[149] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2020 consolidated sales grew 9.3% to $1.52 billion, with net income rising to $5.5 million, supported by a $110 million credit facility and key accounting estimates for asset impairment and lease accounting Results of Operations FY2020 consolidated sales increased by $128.9 million, primarily from wholesale growth, leading to a $2.8 million rise in operating income and $5.5 million net income Consolidated Financial Performance (in millions) | Financial Metric (In millions) | Fiscal 2020 | Fiscal 2019 | Change | | :--- | :--- | :--- | :--- | | Sales | $1,521.3 | $1,392.4 | +$128.9 | | Gross Profit | $87.7 | $84.0 | +$3.7 | | Operating Income | $9.1 | $6.3 | +$2.8 | | Net Income | $5.5 | $3.2 | +$2.3 | - Wholesale segment sales increased by $127.1 million in FY2020, attributed to cigarette manufacturer price increases ($45.5 million), higher sales volume in other product categories ($37.1 million), and increased cigarette carton volume/mix ($32.7 million)[156] - Retail segment sales increased by $1.8 million in FY2020 due to higher sales volumes in existing stores, partially offset by the closure of one non-performing store[157] Liquidity and Capital Resources The company's liquidity is primarily from a $110.0 million revolving credit facility, with $62.0 million outstanding and $47.6 million available as of September 2020, secured by assets and subject to covenants - The company finances its operations through a credit facility with a $110.0 million revolving credit limit and a March 2025 maturity date[166][167] - At September 2020, $62.0 million was outstanding on the credit facility, with $47.6 million available, and the average interest rate was 2.41%[174][175] - The company paid cash dividends of $0.6 million ($1.00 per share) in both fiscal 2020 and 2019[178] Critical Accounting Estimates Significant accounting estimates include allowances for doubtful accounts, inventory, and impairment testing of long-lived assets and goodwill, with the retail unit recording $0.5 million and $2.9 million in impairment charges in FY2020 and FY2019, respectively - Critical accounting estimates include allowance for doubtful accounts, inventory valuation, impairment of long-lived assets (including goodwill), insurance reserves, income taxes, and revenue recognition[184][185] - The retail reporting unit recorded impairment charges of approximately $0.5 million in fiscal 2020 and $2.9 million in fiscal 2019 due to heightened competition and earnings shortfalls[201] - Goodwill on the balance sheet, totaling $4.4 million, is allocated entirely to the wholesale reporting unit and was not impaired in fiscal 2020 or 2019[202] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable - Not applicable[227] Financial Statements and Supplementary Data Audited consolidated financial statements show total assets grew to $188.0 million in FY2020, with net income of $5.5 million and positive operating cash flow of $15.2 million, detailing key accounting policies and segment performance Consolidated Balance Sheets As of September 30, 2020, total assets increased to $188.0 million, driven by new lease assets and investments, while total liabilities rose to $123.2 million, and shareholders' equity reached $64.8 million Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Highlights (in millions) | Sep 30, 2020 | Sep 30, 2019 | | :--- | :--- | :--- | | Total Assets | $188.0 | $157.7 | | Total Liabilities | $123.2 | $97.0 | | Total Shareholders' Equity | $64.8 | $60.8 | Consolidated Statements of Operations FY2020 sales reached $1.52 billion, with operating income increasing to $9.1 million and net income rising to $5.5 million ($9.76 per diluted share) Consolidated Income Statement Highlights (in millions, except EPS) | Income Statement Highlights (in millions, except EPS) | Fiscal Year 2020 | Fiscal Year 2019 | | :--- | :--- | :--- | | Sales | $1,521.3 | $1,392.4 | | Gross Profit | $87.7 | $84.0 | | Operating Income | $9.1 | $6.3 | | Net Income | $5.5 | $3.2 | | Diluted EPS | $9.76 | $5.25 | Consolidated Statements of Cash Flows FY2020 operating cash flow was $15.2 million, a significant improvement from a $11.5 million use in 2019, with investing activities using $13.3 million and financing activities using $1.6 million Consolidated Cash Flow Summary (in millions) | Cash Flow Summary (in millions) | Fiscal Year 2020 | Fiscal Year 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $15.2 | $(11.5) | | Net cash used in investing activities | $(13.3) | $(4.4) | | Net cash (used in) from financing activities | $(1.6) | $15.7 | Notes to Consolidated Financial Statements Notes detail accounting policies, including 69% revenue from cigarette sales, ASC 842 adoption, a $10.0 million investment in Team Sledd LLC, debt, and segment performance showing wholesale profitability versus retail loss - Cigarette sales accounted for approximately 69% of the Company's consolidated revenue during both fiscal 2020 and fiscal 2019[255] - In April 2020, the Company invested $10.0 million in Team Sledd LLC, a wholesale distributor, structured as $6.5 million in equity and a $3.5 million secured loan[308] Segment Performance (FY 2020, in millions) | Segment Performance (FY 2020, in millions) | Wholesale | Retail | | :--- | :--- | :--- | | Total External Revenue | $1,475.3 | $46.0 | | Operating Income (Loss) | $17.3 | $(1.8) | Controls and Procedures Senior management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2020, based on the COSO 2013 framework - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[369] - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2020, based on the COSO 2013 framework[376] Other Information This item is not applicable - Not applicable[381] PART III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance, including the code of ethics and audit committee, is incorporated by reference from the December 2020 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the December 2020 Annual Meeting of Shareholders[384] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[386] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[387] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[388] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[389] PART IV Exhibits, Financial Statement Schedules This section lists financial statements included under Item 8 and all exhibits filed with the Form 10-K, noting that financial statement schedules are not applicable - The financial statements are listed on the index to Consolidated Financial Statements under Item 8[392] - Financial Statement Schedules are not applicable[393] Form 10-K Summary This item is not applicable - None[398]