FinanceLooker

Excrept from filing document 2024-09-30

For purposes of this report unless the context indicates otherwise all references to we us our Company and AMCON shall mean AMCON Distributing Company and its subsidiaries The Company s 2024 and 2023 fiscal years ended September 30 are herein referred to as fiscal 2024 and fiscal 2023 respectively The fiscal year end balance sheet dates of September 30 2024 and September 30 2023 are referred to herein as September 2024 and September 2023 respectively This report and the documents incorporated by reference herein if any contain forward looking statements which are inherently subject to risks and uncertainties See Forward Looking Statements under Item 7 of this report
Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 7 900 retail outlets including convenience stores grocery stores liquor stores drug stores and tobacco shops We currently distribute over 20 000 different consumer products including cigarettes and tobacco products candy and other confectionery products beverages groceries paper products health and beauty care products frozen and refrigerated products and institutional foodservice products We have licenses and operate in 33 states are the third 3rd largest convenience store distributor by geographic territory served and in December 2023 Convenience Store News ranked us as the sixth 6th largest convenience store distributor in the United States based on annual sales
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs merchandising and product category management services and the use of information systems and data services that are focused on minimizing retailers investment in inventory while seeking to maximize their sales and profits In addition our wholesale 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 13 distribution centers located in Colorado Illinois Indiana Minnesota Missouri Nebraska North Dakota South Dakota Tennessee and West Virginia These distribution centers combined with cross dock facilities include approximately 1 7 million square feet of permanent floor space Our principal suppliers include Altria RJ Reynolds ITG Brands Hershey Kellanova Kraft Heinz and Mars Wrigley We also market private label lines of water candy products batteries and other products We do not maintain any long term purchase contracts with our suppliers
Our Retail Segment through our Healthy Edge Retail Group subsidiary is a specialty retailer of natural organic groceries and operates 15 retail health food stores under the Chamberlin s Natural Foods Akin s Natural Foods and Earth Origins Market banners We operate within the natural products retail industry which is a subset of the United States grocery industry This industry includes conventional natural gourmet and specialty food markets mass and discount retailers warehouse clubs health food stores dietary supplement retailers drug stores farmers markets mail order and online retailers and multi level marketers These stores carry over 32 000 different 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
The management teams for both of our business segments possess substantial depth of experience in the areas of finance information technology business development retail store support logistics sales and marketing This experience is beneficial for the management of vendor and customer relationships as well as overall operational execution
Wholesale distributors typically provide convenience store retailers access to a broad product line the ability to place small quantity orders inventory management and access to trade credit As a large full service wholesale distributor we offer retailers a wide array of manufacturer and Company sponsored sales and marketing programs merchandising and product category management services and the use of information systems that are focused on minimizing retailers investment in inventory while seeking to maximize their sales and profit
The wholesale distribution industry is highly fragmented and historically has consisted of a small number of large full service wholesale distributors serving multiple geographic regions and a large number of small privately owned businesses Relative to smaller competitors large distributors such as our Company benefit from several competitive advantages including increased purchasing power the ability to service large chain accounts economies of scale in sales and operations and the resources to invest in information technology and other productivity enhancing technologies
Our retail health foods business prides itself in carrying a broad and superior quality selection of organic and natural food products and vitamin supplements The breadth of our product offerings combined with highly trained and knowledgeable in store associates has created a loyal customer following where our stores are sought out destinations providing a personalized shopping experience
To execute this strategy our Company has rigorous operational processes in place designed to control costs manage credit risk monitor inventory levels and maintain maximum liquidity The success of our strategy however is ultimately dependent on our ability to provide superior service develop leading edge technologies and maintain an exceptional array of product offerings
The sales of cigarettes represented approximately 62 of our consolidated revenue in both fiscal 2024 and fiscal 2023 Sales of candy beverages foodservice groceries health food products paper products health and beauty care products and tobacco products represented approximately 38 of our consolidated revenue in both fiscal 2024 and fiscal 2023
Our Wholesale Segment has a significant presence in the regions in which we operate There are however a number of both national and regional wholesale distributors operating in the same geographical regions as our Company resulting in a highly competitive marketplace Our principal competitors are national wholesalers such as McLane Co Inc Temple Texas and Performance Food Group Richmond Virginia as well as regional wholesalers such as H T Hackney Company Knoxville Tennessee and Imperial Super Regional Distributors Elmwood Louisiana along with a host of smaller grocery and tobacco wholesalers We also face competition from Amazon which pursues a vertical multi channel sales strategy targeting both retail consumers and business level customers
Competition within the wholesale distribution industry is primarily based on the range and quality of the services provided pricing variety of products offered and the reliability of deliveries Our larger competitors principally compete on pricing and breadth of product offerings while our smaller competitors focus on customer service and their delivery arrangements
We believe our business model positions us to compete with a wide range of competitors including national regional and local wholesalers As the third 3rd largest convenience store distributor in the United States based on geographic territory served and the sixth 6th largest in annual sales according to Convenience Store News our wholesale distribution business has sufficient economies of scale to offer competitive pricing as compared to national wholesalers Our ability to service multiple territories of larger customers combined with our flexible distribution and support model enables us to provide the highest level of service and customized merchandising solutions within our industry
Natural food and supplement retailing is an intensely competitive business We face competition from a variety of sales channels including local regional and national retailers specialty supermarkets membership clubs farmers markets other natural foods stores and internet and or digital direct to consumer retailers each of which competes with us on the basis of product selection quality customer service and price These competitors include companies such as Whole Foods Market Sprouts Farmers Market Natural Grocers General Nutrition Centers and Vitamin Shoppe We also face competition from AmazonTM and other online competitors which continue to pursue vertical multi channel sales strategies targeting both retail consumers and business level customers We also compete with specialty supermarkets other independent natural foods store chains small specialty stores and restaurants In recent years conventional supermarkets and mass market outlets such as Kroger Albertsons Walmart Publix Aldi Trader Joe s and Costco have significantly increased their offerings of organic and natural products adding another layer of competition
AMCON is subject to regulation by federal state and local governmental agencies including but not limited to the U S Department of Agriculture USDA the U S Food and Drug Administration FDA the Occupational Safety and Health Administration OSHA the Bureau of Alcohol Tobacco and Firearms ATF and the U S Department of Transportation DOT These regulatory agencies generally impose standards for product quality and sanitation workplace safety and security and distribution policies
The Company operates in 33 states and is subject to state regulations related to the distribution and sale of cigarettes and tobacco products generally in the form of licensing and bonding requirements Additionally both state and federal regulatory agencies have the ability to impose excise taxes on cigarette and tobacco products In recent years a number of states have increased the excise taxes levied on cigarettes and tobacco products We expect this trend to continue as legislators look for alternatives to fund budget shortfalls and as a mechanism to discourage tobacco product use
All of AMCON s facilities and operations are subject to state and federal environmental regulations The Company believes it is in compliance with all such regulations and is not aware of any violations that could have a material adverse effect on its financial condition or results of operations Further the Company has not been notified by any governmental authority of any potential liability or other claim in connection with any of its properties The costs and effect on the Company to comply with state and federal environmental regulations were not significant during either fiscal 2024 or fiscal 2023
The Company s principal executive offices are located at 7405 Irvington Road Omaha Nebraska 68122 The telephone number at that address is 402 331 3727 and our website address is www amcon com We provide free access to the various reports we file with the United States Securities and Exchange Commission SEC through our website These reports include but are not limited to our Annual Reports on Form 10 K and Quarterly Reports on Form 10 Q Please note that any internet addresses provided in this report are for information purposes only and are not intended to be hyperlinks Accordingly no information found and or provided at such internet addresses is intended or deemed to be incorporated by reference herein The SEC also maintains a website at www sec gov which contains reports proxies and other company information
If any of the following risks actually materialize our business financial condition or results of operations could be materially adversely affected In that case the trading price of our common stock could decline substantially This Annual Report also contains forward looking statements that involve risks and uncertainties Our actual results could differ materially from those anticipated in the forward looking statements as a result of a number of factors including the risks described below and elsewhere in this Annual Report See Forward Looking Statements under Item 7 of this report for a discussion of forward looking statements
In 2009 the Family Smoking Prevention and Tobacco Control Act was signed into law which granted the FDA the authority to regulate the production distribution and marketing of tobacco products in the United States Specifically the legislation established an FDA office to regulate changes to nicotine yields chemicals flavors ingredients and the labeling used to produce and market tobacco products The FDA office is financed through user fees paid by tobacco companies which is passed on to wholesale distributors and end consumers in the form of higher costs
To date most of the regulatory and compliance burden related to this legislation has fallen upon product manufacturers However if the FDA were to impose new regulations impacting wholesale distributors that we are not able to comply with we could face remedial actions such as fines suspension of product distribution rights and or termination of operations Further if the FDA were to issue product bans or product restrictions on cigarettes tobacco or other nicotine delivery devices our future revenue stream could materially decrease If any of these items were to occur our results from operations cash flow business and overall financial condition could be negatively impacted
The regulation of vaping product categories by federal state and local governmental agencies as well as potential litigation against product manufacturers and or entities which distribute or sell such products may negatively impact our sales costs results of operations and cash flows should the current regulatory environment persist or expand or if related litigation should arise
The distribution of cigarettes represents a significant portion of our business During fiscal 2024 approximately 62 of our consolidated revenues came from the distribution of cigarettes which generated approximately 18 of our consolidated gross profit Due to manufacturer price increases restrictions on advertising and promotions regulation higher excise and other taxes health concerns smoking bans and other factors the demand for cigarettes may continue to decline If this occurs our results from operations cash flow business and overall financial condition could be negatively impacted
Cigarette and tobacco products including vaping products are subject to substantial excise taxes and future legislation could significantly increase such taxes Significant increases in cigarette and tobacco related taxes and fees have been proposed and enacted by city state and federal governments in recent years Further the evolving regulatory
Increases in excise taxes and other tobacco related taxes and fees imposed by the FDA and other governmental authorities may reduce the long term demand for cigarette and tobacco products and or result in a sales shift from higher margin premium cigarette and tobacco products to lower margin deep discount brands while at the same time increasing the Company s accounts receivable risk and inventory carrying costs If any of these events were to occur our results from operations cash flow liquidity position and overall financial condition could be negatively impacted
Divestitures and consolidations within the convenience store industry reflect trends that may result in customer attrition if the acquiring entity is served by another wholesale distributor and we are unable to retain the business If we were to lose a substantial volume of business because of these trends our results from operations cash flow business and overall financial condition could be negatively impacted
We are subject to changes in pricing strategies utilized by manufacturers of the products we distribute We also receive payments from these manufacturers including allowances discounts volume rebates and other merchandising incentives in connection with various incentive programs In addition we receive discounts from states in connection with the purchase of excise stamps for cigarettes If the pricing strategies of the manufacturers change or the manufacturers or states change or discontinue these promotional programs or we are unable to maintain the volume of our sales our results of operations business cash flow and financial condition could be negatively affected There are no assurances that the manufacturers or states will maintain these promotional programs
The wholesale distribution industry is highly competitive There are many distribution companies operating in the same geographical regions as our Company Our Company s principal competitors are national and regional wholesalers along with a host of smaller grocery and tobacco wholesalers We also face competition from Whole Foods Market and or its parent company Amazon which pose a threat to the supply chains of food and grocery retailers as well as convenience stores served by wholesale distribution companies as they continue to pursue a vertical multi channel sales strategy targeting both retail consumers and business level customers Most of our wholesale distribution competitors generally offer a wide range of products at prices comparable to those we offer Some of our competitors have substantial financial resources and long standing customer relationships This competition may reduce our margins and or cause a loss in market share adversely impacting our results of operations cash flow and financial condition
In 1994 the Mississippi attorney general brought an action against various tobacco industry members on behalf of the state to recover state funds paid for health care costs related to tobacco use Subsequently most other states sued the major U S cigarette manufacturers based on similar theories The cigarette manufacturer defendants settled the first four of these cases with Mississippi Florida Texas and Minnesota by separate agreements These states are referred to as non MSA states In November 1998 the major U S tobacco product manufacturers entered into the MSA with the remaining 46 states the
District of Columbia and certain U S territories The MSA and the other state settlement agreements settled health care cost recovery actions and monetary claims relating to future conduct arising out of the use of or exposure to tobacco products imposed a stream of future payment obligations on major U S cigarette manufacturers and placed significant restrictions on the ability to market and sell cigarettes The payments required under the MSA resulted in the products sold by the participating manufacturers being priced at higher levels than the products sold by non MSA manufacturers
In order to limit our potential tobacco related liabilities we try to limit our purchases of cigarettes from non MSA manufacturers for sale in MSA states The benefits of liability limitations and indemnities we are entitled to under the MSA do not apply to sales of cigarettes manufactured by non MSA manufacturers From time to time however we find it necessary to purchase a limited amount of cigarettes from non MSA manufacturers For example during a transition period while integrating distribution operations from an acquisition we may need to purchase and distribute cigarettes manufactured by non MSA manufacturers to satisfy the demands of customers of the acquired business With respect to sales of such non MSA cigarettes we could be subject to litigation that could expose us to liabilities for which we would not be indemnified
In connection with the MSA we are indemnified by many of the tobacco product manufacturers from whom we purchase cigarettes and other tobacco products for liabilities arising from the sale of the tobacco products that they supply to us However if litigation challenging the validity of the MSA were to be successful and all or part of the MSA is invalidated we could be subject to substantial litigation due to the sales of cigarettes and other tobacco products and we may not be indemnified for such costs by the tobacco product manufacturers in the future In addition even if we continue to be indemnified by cigarette manufacturers that are parties to the MSA future litigation awards against such cigarette manufacturers could be so large as to eliminate the ability of the manufacturers to satisfy their indemnification obligations Our results of operations business cash flow and overall financial condition could be negatively impacted due to increased litigation costs and potential adverse rulings against us
Increased selling prices for cigarettes and higher cigarette taxes have resulted in the growth of deep discount cigarette brands which may be sold by our competitors or other retailers Deep discount cigarette brands are brands generally manufactured by companies that are not original participants to the MSA and accordingly do not have cost structures burdened by the MSA Since the MSA was signed the category of deep discount brands manufactured by smaller manufacturers or supplied by importers has grown substantially If this growth continues our business results of operations cash flows and overall financial condition would be negatively impacted
In our retail health food business we compete with a wide range of well financed regional and national competitors such as Whole Foods Markets Trader Joe s Sprouts Farmers Market Natural Grocers General Nutrition Centers Vitamin Shoppe and other online competitors such as Amazon who all have embarked on aggressive expansion strategies Additionally we compete with specialty supermarkets other independent natural foods store chains small specialty stores and restaurants Conventional supermarkets and mass market outlets such as Kroger Albertsons Walmart and Costco have also significantly increased their offerings of organic and natural products providing another layer of competition Finally if online shopping direct to consumer and home delivery models continue to grow in popularity thereby further disrupting traditional sales channels it may present a significant direct risk to brick and mortar retailers like the Company We also face competition from Whole Foods Market and or its parent company Amazon which pose a threat to the supply chains of the grocery and natural foods business as they continue to pursue a vertical multi channel sales strategy targeting both retail consumers and business level customers Most of these competitors may have greater financial and marketing resources than the Company and may be able to devote greater resources to sourcing promoting and selling their products In response to heightened competition the Company is continuing to implement a repositioning strategy
for its retail business This repositioning strategy calls for a wide range of initiatives including the possible addition of one or more of our new retail store prototypes per year into the foreseeable future The opening of new retail stores inherently brings additional risk to the business Further if our repositioning strategy in response to this increase in competition is not successful it may have a material adverse effect on our results of operations business cash flow and financial condition and could potentially result in the impairment of assets within this business segment
There is no assurance that quality natural and organic products including dietary supplements fresh and processed foods and vitamins will be available to meet our stores future needs If conventional supermarkets increase their natural and organic product offerings or if new laws require the reformulation of certain products to meet tougher standards the supply of these products may be constrained Any significant disruption in the supply of quality natural and organic products could have a material adverse impact on our overall sales and product costs
Many of our stores are located in close proximity to shopping areas that also accommodate other well known anchor stores Sales at our stores are derived in part from the volume of traffic generated by the other anchor stores in these shopping areas Customer traffic may be adversely affected by local and regional economic downturns in the areas where our stores are located long term nearby road construction projects the closing of nearby anchor stores or other nearby stores or the decline of the shopping environment in a particular shopping area Any of these events could reduce our sales and leave us with excess inventory which could have a material adverse impact on our business financial condition and results of operations In response to such events we may be required to increase markdowns or initiate marketing promotions to reduce excess inventory which would further decrease our gross profits and net income
If we are unable to anticipate and satisfy consumer merchandise preferences in the regions where we operate our sales may decrease and we may be forced to increase markdowns of slow moving merchandise either of which could negatively impact our business results of operations cash flow and financial condition
If we or our third party suppliers including suppliers of our private label products fail to comply with applicable regulatory requirements or to meet our specifications for quality we could be required to take costly corrective action and our reputation could be negatively impacted We do not own or operate any manufacturing facilities and therefore depend upon independent third party vendors to produce our private label branded products such as vitamins minerals dietary supplements body care products food products and bottled water Third party suppliers of our private label products may not maintain adequate controls with respect to product specifications and quality Such suppliers may be unable to produce products on a timely basis or in a manner consistent with regulatory requirements Additionally there are no assurances that we would be successful in finding new third party suppliers that meet our quality guidelines if needed If any of these events were to occur our results from operations cash flow liquidity position and overall financial condition could be negatively impacted
Our business operations could be negatively impacted by acts of civil unrest or violence which are beyond our control Such acts could threaten our supply chain may result in property damage and or insurance claims to the facilities of the Company or our customers impact the safety of our workforce or the workforces of our customers and may also have indirect impacts on customer demand for the products we sell or our ability to collect on accounts receivable or finance our operations
The emergence and spread of a major epidemic or pandemic such as COVID 19 or other widespread public health issue could affect our employees suppliers and or customers and cause disruption in our operations including but not limited to travel restrictions temporary closing of one or more of our distribution warehouses or retail stores labor shortages supply chain interruptions business shutdowns or regional quarantines These disruptions could negatively affect our ability to service our customers could contribute to adverse economic conditions including decreases in demand for the products we distribute resulting in lower sales and profitability or could present increased credit risk to the Company from customer credit defaults resulting from an economic downturn In addition to the potential operational risks described above disruptions caused by a widespread public health issue could present increased reputational risk to the Company or result in legal claims or costly response measures
From time to time one or both of the Company s business segments may acquire assets from other businesses all or a portion of the ownership of another business or make an equity investment in another business through the purchase of equity or other means The purchase of assets of all or a portion of a business or an equity investment in another business can bring significant risks to the Company in a number of areas including purchase price amount of equity investment business valuation and recording risks customer retention risks risks associated with the assumption of liabilities or obligations integration risks technology risks risks associated with the addition of new employees such as health care costs and a wide range of other risks and considerations While the Company strives to minimize the risks associated with
The Company purchases products from a wide range of vendors in both of its businesses Some of our vendors may import certain products as part of their manufacturing processes and could be impacted by higher costs resulting from trade tariffs Further the impact of higher costs at the retail level may negatively impact consumer discretionary spending and demand In the event that our product purchase costs from our vendors increase and we cannot pass on those price increases to our customers or if the retail level demand for the products we sell decreases the Company s results of operations balance sheet and cash flows could be negatively impacted
Healthcare represents a significant expense item for our Company and there is a general upward trend in healthcare costs nationwide While we strive to control these costs through modifications to insurance coverage including co pays and deductibles there can be no assurance that we will be able to successfully control such costs in the future Continued increases in healthcare costs as well as changes in laws regulations and assumptions used to calculate health and benefit expenses may adversely affect our business financial position and results of operations
We may face exposure to product liability claims if the use of any product we sell is alleged to cause injury or illness However product liability insurance may not continue to be available at a reasonable cost or if available may not be adequate to cover all of our liabilities We generally seek contractual indemnification and insurance coverage from parties supplying the products we sell but this indemnification or insurance coverage is limited as a practical matter to the creditworthiness of the indemnifying party and the insurance limits of any insurance provided by suppliers If we do not have adequate insurance or if contractual indemnification is not available or if the counterparty cannot fulfill its indemnification obligation product liability relating to allegedly defective products could have a material adverse impact on our results of operations cash flow business and overall financial condition
The Company uses a combination of insurance and self insurance plans to provide for the potential liabilities for workers compensation general liability property insurance director and officers liability insurance vehicle liability and employee health care benefits Liabilities associated with these risks are estimated by the Company in part by considering historical claims experience demographic factors severity factors and other assumptions Our results could be materially impacted by claims and other expenses related to such insurance plans if future occurrences and claims differ from these assumptions and historical trends
The Company uses a combination of insurance and self insurance plans to provide for the potential liabilities for workers compensation general liability property insurance director and officers liability insurance vehicle liability and employee health care benefits The Company may not be able to renew various forms of insurance with adequate levels of coverage at favorable rates or obtain insurance at all based upon market conditions within the insurance industry and or because of the industry in which the Company operates
rising interest rates recessions or other general economic uncertainties or downturns Changes in discretionary spending patterns may decrease demand from our convenience store customers and or impact the demand for natural food products in our retail health food stores as customers purchase less expensive product alternatives
Additionally many of our Wholesale Segment customers are thinly capitalized and their access to credit may be impacted by changes in economic conditions systemic pressures in the banking system including disruptions in the credit markets rising interest rates or other factors which may affect their ability to operate as a going concern presenting additional credit risk for the Company A period of economic downturn or economic deterioration could result in lower sales and profitability as well as customer credit defaults
Volatile product costs have a direct impact on our business Prolonged periods of product cost inflation may have a negative impact on our profit margins and earnings to the extent that we are unable to pass on all or a portion of such product cost increases to our customers which may have a negative impact on our business and our profitability In addition product cost inflation may negatively impact consumer discretionary spending which could adversely impact our sales Conversely our business may be adversely impacted by periods of prolonged product cost deflation because we make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage markup As a result our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit percentage may remain relatively constant
We rely extensively on our information technology systems and those of third parties to operate our business We have had and may have disruptions to our information technology systems due to a number of factors including but not limited to electricity outages equipment failure telecommunications failures security breaches cyber attacks computer viruses malware or other methods and causes Although we make efforts to maintain the security integrity and redundancy of our systems and have implemented various measures to manage the risk of system disruptions or failures there can be no assurance that our efforts and measures will be effective If any of our information technology systems or those of third parties on which we rely are damaged or made unavailable to us it could have a material negative impact on our operations and profits
Maintaining a good reputation and public confidence in the products we distribute is critical to our business Anything that damages that reputation or the public s confidence in the products we carry whether or not justified including adverse publicity about the quality safety or integrity of our products could quickly and adversely affect our revenues and profits In addition such adverse publicity may result in product liability claims a loss of reputation and product recalls which could have a material adverse effect on our sales and operations
We annually test goodwill and intangible assets with indefinite useful lives to determine if impairment has occurred Additionally we perform interim reviews whenever events or changes in circumstances indicate that impairment may have occurred If our testing indicates that impairment has occurred we are required to record a non cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made
The testing of goodwill and other intangible assets for impairment requires management to make significant estimates about our future performance and cash flows as well as other assumptions These estimates can be affected by numerous factors including potential changes in economic industry or market conditions changes in business operations changes
in competition or changes in our stock price and market capitalization Changes in these factors or changes in actual performance compared with estimates of our future performance may affect the fair value of goodwill or other intangible assets which may result in impairment charges Additionally we may not be able to accurately predict the amount and timing of any impairment of assets Should the value of goodwill or other intangible assets become impaired our financial condition and results of operations may be adversely affected
Acquiring other distributors or existing retail stores developing and opening new retail stores and distribution facilities and expanding existing distribution facilities requires significant amounts of capital Historically our growth has been funded primarily through proceeds from bank debt private placements of equity and debt and internally generated cash flow These and other sources of capital may not be available to us on satisfactory terms or at all in the future particularly in light of current economic conditions including systemic pressures in the banking system disruptions in the credit markets and rising interest rates which could impair our ability to further expand our business
Our revolving credit facilities and other debt agreements impose certain restrictions on us that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and industry Specifically these restrictions limit our ability among other things to incur additional indebtedness make distributions pay dividends issue stock of subsidiaries make investments repurchase stock create liens enter into transactions with affiliates merge or consolidate or transfer and sell our assets
Under our credit facilities we are required to maintain a minimum debt service ratio if our excess availability falls below 10 of the maximum loan limit as defined in our revolving credit agreements Our ability to comply with this covenant may be affected by factors beyond our control If we breach or if our lender contends that we have breached this covenant or any other restrictions it could result in an event of default under our revolving credit facilities which would permit our lenders to declare all amounts outstanding thereunder to be immediately due and payable and our lenders under our revolving credit facilities could terminate their commitments to make further extensions of credit under our revolving credit facilities and foreclose on collateral securing those loans In such an event there can be no assurances that we would be able to obtain waivers for any such breach or default refinance such indebtedness or obtain alternative financing on satisfactory terms or at all
We expect that our principal sources of funds will be cash generated from our operations and if necessary borrowings under our revolving credit facilities or other debt financing arrangements However the current and future conditions in the credit markets including systemic pressures in the banking system disruptions in the credit markets and rising interest rates may impact the availability of capital resources required to meet our future financial obligations or to provide funds for our working capital capital expenditures and other needs for the foreseeable future We may require additional equity or debt financing to meet our working capital requirements or to fund our capital expenditures We may not be able to obtain financing on terms satisfactory to us or at all
We do not have any significant long term contracts with suppliers in our wholesale business committing them to provide products to us Although our purchasing volume can provide leverage when dealing with suppliers suppliers may not provide the products we sell in the quantities we request or on favorable terms Because we do not control the actual
production of the products we sell we are also subject to delays caused by interruption in production based on conditions beyond our control These conditions include but are not limited to labor disputes strikes labor shortages supply chain and transportation disruptions inclement weather drought natural disasters epidemics pandemics or other widespread public health issues or other catastrophic events and the adverse effects of climate change Our inability to obtain adequate supplies of the products we sell as a result of any of the foregoing factors or otherwise could cause us to fail to meet our obligations to our customers
Historically some large manufacturers of the products we carry have decided to engage in direct distribution of their products and eliminate distributors such as the Company If other manufacturers make similar product distribution decisions in the future our revenues and profits could be adversely affected and there can be no assurance that we will be able to take action to compensate for such losses
We compete with other businesses in each of our markets with respect to attracting and retaining qualified employees particularly in the area of truck drivers and warehouse workers A shortage of qualified employees could require us to enhance our wage and benefits packages to compete effectively in the hiring and retention of qualified employees or to hire more expensive temporary employees
In addition at September 2024 approximately thirty of our delivery drivers in our Wholesale Segment are covered by a collective bargaining agreement with a labor organization which expires in November 2026 Strikes work stoppages or other business interruptions could occur if we are unable to renew these agreements on satisfactory terms or enter into new agreements on satisfactory terms which could impair distribution of our products or result in a loss of sales which could adversely affect our business financial position and results of operations The terms and conditions of existing renegotiated or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy
As a distributor and retailer of food products we are subject to regulation by the FDA Our operations are also subject to regulation by the USDA OSHA ATF DOT and other federal state and local agencies Each of these regulatory authorities has broad administrative powers with respect to our operations If we fail to adequately comply with government regulations or regulations become more stringent we could experience increased inspections regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject to increased audit and compliance costs If any of these events were to occur our results of operations business cash flow and financial condition would be adversely affected
The Company operates and plans based on the current structure of government and other regulatory agencies and their related framework of oversight and standards setting We cannot predict how any changes to any of these governmental or regulatory frameworks or changes in laws regulations administrative orders or the interpretation or application of such items may impact our business Any changes in the current regulatory environment may change restrict or discontinue which products the Company is allowed to sell Additionally certain products we sell may require reformulation to meet new standards or comply with new regulations or administrative orders As such any related product recalls or product reformulations could result in additional record keeping costs expanded documentation and tracking costs and expanded
If the number of owners of record including direct participants in the Depository Trust Company of our common stock remains below 300 as was true as of September 30 2024 our obligation to file reports under the Securities Exchange Act of 1934 could be suspended If we take advantage of this right we will likely reduce administrative costs of complying with public company rules but periodic and current information updates about the Company would not be available to investors In addition the common stock of the Company would be removed from listing on NYSE American This would likely impact investors ability to trade in our common stock
Various provisions of our bylaws and of corporate law may discourage delay or prevent a change in control or takeover attempt of the Company by a third party that is opposed by our management and Board of Directors These anti takeover provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and Board of Directors These provisions include
In the ordinary course of our business the Company is subject to cybersecurity threats and risks which it manages as an important component of its overall enterprise risk management strategy To identify assess and manage cybersecurity threats and risks to our business the Company has made significant investments in its processes control environment and technology solutions to help prevent and mitigate the impact of any such threats and risks These processes include the use of sophisticated third party software for continuous monitoring the use of expert outside consultants ongoing training and educational programs regular and periodic updates on new cybersecurity threats and risks incident response procedures and the implementation of other cybersecurity best practices wherever possible These processes also cover risks from cybersecurity threats associated with our use of information technology systems of third parties upon which we rely
The day to day management of the Company s cybersecurity framework is managed by the Company s information technology team while operational oversight of its design and function are managed by the Company s management team including but not limited to its Chief Operating Officer COO Chief Financial Officer CFO Director of Industrial Engineering and Director of Information Technology all of whom have substantial experience managing enterprise risk including cybersecurity risks Our management team is informed about and monitors the prevention detection mitigation and remediation of cybersecurity incidents in accordance with our incident response procedures
The Company s Board of Directors working in conjunction with its Audit and Corporate Governance Committees oversees the Company s overall enterprise risk management program including the evaluation of cybersecurity related risks Our Board receives periodic updates from the Company s management team regarding technology matters including its cybersecurity framework and the notification of any material cybersecurity events and or risks
While the Company believes it has adequate processes and technology in place to detect and respond to cybersecurity threats the Company is continually at risk given an ever changing cybersecurity landscape Accordingly the Company can provide no assurances that a future cyber attack would not impact the Company s business in a material manner At the effective date of this report filing however the Company is not aware of any current or past cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company including its business strategy results of operations or financial condition For more information on risks related to the Company s information technology systems including cybersecurity threats that may materially affect the Company s business see the risk factors included under Item 1A of this Annual Report on Form 10 K We Rely Heavily on Information Technology Systems to Operate Our Business Any Disruptions to These Technology Systems or if These Systems were Made Unavailable for Use May Have a Material Adverse Effect on Our Business
The Company leases certain distribution facilities retail stores offices and certain equipment under operating leases As further described in Note 7 to the Consolidated Financial Statements certain of our distribution facilities in Quincy Illinois Springfield Missouri Bismarck North Dakota Rapid City South Dakota Colorado City Colorado East Peoria Illinois and Fairview Heights Illinois are owned by the Company and are included as collateral under AMCON s credit facility the AMCON Facility Henry s distribution center in Alexandria Minnesota is owned by the Company and is included as collateral under Henry s credit facility the Henry s Facility Team Sledd s principal office and warehouse in
Wheeling West Virginia are collateral against two separate notes payable and Team Sledd s credit facility the Team Sledd Facility Management believes that its existing facilities are adequate for the Company s current level of operations however larger facilities and additional cross dock facilities and retail stores may be required if the Company experiences growth in certain market areas
CHRISTOPHER H ATAYAN has served in various senior executive positions with the Company since 2006 including his service as Chairman of the Board since 2008 and Chief Executive Officer since 2006 and has been a director of the Company since 2004 Mr Atayan served as Senior Managing Director of Slusser Associates Inc a private equity and investment banking firm from 1988 to 2020 and had been engaged in private equity and investment banking since 1982 He also serves on the Board of Eastek Holdings LLC a contract manufacturing company
ANDREW C PLUMMER has served as our President and Chief Operating Officer since October 2018 as our Chief Financial Officer from January 2007 to October 2020 and as our Secretary from January 2007 to October 2018 From 2004 to 2007 Mr Plummer served our company in various roles including Acting Chief Financial Officer Corporate Controller and Manager of SEC Compliance Prior to joining our company in 2004 Mr Plummer practiced public accounting primarily with the accounting firm Deloitte and Touche LLP now Deloitte
CHARLES J SCHMADERER has served as the Company s Chief Financial Officer since October 2020 as Vice President since April 2018 as Secretary since October 2018 and as Corporate Controller from April 2018 to October 2020 From 2006 to 2018 Mr Schmaderer served the Company in various roles including as the Vice President of Financial Reporting and Assistant Secretary and as the Director of Financial and SEC Reporting Prior to joining AMCON in 2006 Mr Schmaderer held financial management roles with Hewlett Packard HP and before that practiced public accounting primarily with the accounting firm Grant Thornton LLP Mr Schmaderer also holds a Master of Business Administration MBA from the University of Nebraska Omaha
The Company s common stock trades on NYSE American under the trading symbol DIT As of November 6 2024 the closing price of our common stock on NYSE American was 132 00 and there were 645 462 common shares outstanding As of that date the Company had approximately 795 persons holding common shares beneficially of which approximately 140 are shareholders of record including direct participants in the Depository Trust Company
On a quarterly basis the Company s Board of Directors evaluates the potential declaration of dividend payments on the Company s common stock Our dividend policy is intended to return capital to shareholders when it is most appropriate The AMCON Facility described in Note 7 of Part II Item 8 provides that the Company may not pay dividends on its common shares in excess of 5 0 million on an annual basis There is no limit on dividend payments provided that certain excess availability measurements have been maintained for the 30 day period immediately prior to the payment of any such dividends or distributions and immediately after giving effect to any such dividend or distribution payments the Company has a fixed charge coverage ratio of at least 1 0 to 1 0 as defined in the AMCON Facility agreement
Our Board of Directors could decide to alter our dividend policy or not pay quarterly dividends at any time in the future Such an action by the Board of Directors could result from among other reasons changes in the marketplace changes in our performance or capital needs changes in federal income tax laws disruptions in the capital markets or other events affecting our business liquidity or financial position The Company paid cash dividends of approximately 0 6 million or 1 00 per common share and 3 5 million or 5 72 per common share during fiscal 2024 and fiscal 2023 respectively
During the fiscal years ended September 30 2024 and September 30 2023 the Company did not sell any unregistered securities The Company issued unregistered securities to certain members of the Company s management team in relation to the vesting of restricted stock units as described in Note 12 of Part II Item 8 These issuances were exempt from registration under Section 4 a 2 of the Securities Act of 1933
The Company did not repurchase any shares of its common stock during fiscal 2024 During fiscal 2023 the Company repurchased a total of 2 363 shares of its common stock for cash totaling approximately 0 4 million All repurchased shares were recorded in treasury stock at cost At September 2024 75 000 shares of the Company s common shares remained authorized for repurchase in either the open market or privately negotiated transactions as previously approved by the Company s Board of Directors in October 2023 Management has discretion to determine the timing of any repurchases as well as the number and pricing of any shares to be repurchased
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements under Item 8 and other information in this report including Critical Accounting Estimates and Cautionary Information included at the end of this Item 7 The following discussion and analysis includes the results of operations for the twelve month periods ended September 2024 and September 2023 For more information regarding our business segments see Item 1 Business of this Annual Report
Our business continues to be impacted by macroeconomic factors and certain manufacturer supply chain limitations The cumulative effect of sustained inflation across various consumer product categories has impacted discretionary spending and the related retail level demand for the convenience store customers we serve These same inflationary pressures have also increased our operating costs particularly as it relates to labor equipment insurance interest and the cost of the products we sell
We continue to closely monitor regulatory actions and proposals from federal and state governmental and regulatory bodies including the United States Food and Drug Administration FDA which is evaluating the possible prohibition and or limitations on the sale of certain cigarette e cigarette tobacco and vaping products including menthol cigarettes If such further regulations or further product sale limitations were to be implemented they may limit the range of products we are able to sell in related product categories and decrease overall consumer demand Any such changes may negatively impact our revenues gross margins and financial results
The Company purchased and is currently building out a 250 000 square foot distribution facility in Colorado City Colorado which will play a central role in the Company s long term geographic expansion initiatives In addition the Company s new 175 000 square foot distribution facility located in Springfield Missouri became fully operational at the end of the fiscal period This new facility will enhance our foodservice capabilities in that region
The Company also acquired Burklund Distributors Inc Burklund a wholesale distributor based in East Peoria Illinois and Richmond Master Distributors Inc Richmond Master a wholesale distributor based in South Bend Indiana These acquisitions will expand the Company s regional footprint and provide customers with an enhanced range of products and services over time
Sales in our Wholesale Segment increased 171 6 million during fiscal 2024 as compared to fiscal 2023 Significant items impacting sales during fiscal 2024 included a 103 1 million increase in comparative sales related to the acquisition of Henry s Foods Inc Henry s during Q2 2023 a 98 6 million increase in sales related to the combined acquisitions of Burklund and Richmond Master during fiscal 2024 a 116 6 million increase in sales related to price increases implemented by cigarette manufacturers and a 2 9 million increase in sales related to higher sales volumes in our tobacco confectionary foodservice and other categories Other Products partially offset by a 149 6 million decrease in sales related to the volume and mix of cigarette cartons sold
Sales in our Retail Segment decreased 0 6 million in fiscal 2024 as compared to fiscal 2023 This change was primarily due to a 5 5 million decrease related to the closure of five stores between the comparative periods partially offset by a 2 4 million increase related to higher sales volumes in our existing stores a 2 0 million increase related to the re opening of our Port Charlotte store that was damaged during Hurricane Ian and a 0 5 million increase related to the opening of our new Lakewood Ranch store
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 11 5 million during fiscal 2024 as compared to fiscal 2023 Significant items impacting gross profit during fiscal 2024 included an 11 9 million increase in comparative gross profit related to the acquisition of Henry s in Q2 2023 a 5 1 million increase in gross profit related to the combined acquisitions of Burklund and Richmond Master during fiscal 2024 and a 0 1 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods partially offset by a 5 3 million decrease in gross profit related to the mix of volumes and promotions in our Other Products category and a 0 3 million decrease in gross profit related to the volume and mix of cigarette cartons sold between the comparative periods Gross profit in our Retail Segment increased 0 1 million in fiscal 2024 as compared to fiscal 2023 This change was primarily related to a 1 0 million increase in realized margins in our existing stores a 0 7 million increase related to the re opening of our Port Charlotte store that was damaged during Hurricane Ian and a 0 3 million increase related to the opening of our new Lakewood Ranch store partially offset by a 1 9 million decrease related to the closure of five stores between the comparative periods
Operating expense includes selling general and administrative expenses and depreciation and amortization Selling general and administrative expenses primarily consist of costs related to our sales warehouse delivery and administrative departments including purchasing and receiving costs warehousing costs and costs of picking and loading customer orders Our most significant expenses relate to costs associated with employees facility and equipment leases transportation fuel and insurance
Our fiscal 2024 consolidated operating expenses increased 19 5 million as compared to fiscal 2023 Significant items impacting operating expenses during fiscal 2024 included a 10 6 million increase in operating expenses related to the acquisition of Henry s during Q2 2023 a 4 5 million increase related to the combined acquisitions of Burklund and Richmond Master during fiscal 2024 a 3 2 million increase related to employee compensation and benefit costs a 1 3 million increase in insurance costs and a 0 6 million increase in other Wholesale Segment operating expenses partially offset by a 0 7 million decrease in our Retail Segment operating expenses The decrease in our Retail Segment was primarily due to a 2 8 million decrease related to the closure of five stores between the comparative periods partially offset by an increase of 1 1 million in our existing stores a 0 5 million increase related to the re opening of our Port Charlotte store that was damaged during Hurricane Ian and a 0 5 million increase related to the opening of our new Lakewood Ranch store
Interest expense increased 1 9 million during fiscal 2024 as compared to fiscal 2023 primarily related to higher interest rates increased capital expenditures and higher outstanding debt balances in the current year period related to the acquisitions of Burklund and Richmond Master in fiscal 2024 and the acquisition of Henry s in Q2 2023
The change in the Company s effective tax rate during fiscal 2024 as compared to fiscal 2023 was primarily related to non deductible compensation expense in relation to the amount of income from operations before income tax expense and variances in the average effective state income tax rates between the comparative periods
The Company s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations For example periodically we have inventory buy in opportunities which offer more favorable pricing terms As a result we may have to hold inventory for a period longer than the payment terms This generates a cash outflow from operating activities that we expect to reverse in later periods Additionally during our peak time of operations in the warm weather months we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction
The Company primarily finances its operations through three credit facility agreements a a facility that is an obligation of AMCON Distributing Company the AMCON Facility b a facility that is an obligation of Team Sledd the Team Sledd Facility and c a facility that is the obligation of Henry s the Henry s Facility and collectively together the Facilities and long term debt agreements with banks The Team Sledd Facility and The Henry s Facility are non recourse to AMCON Distributing Company are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company
inventory qualifications and the value of certain real estate collateral The Henry s Facility matures in February 2026 the AMCON Facility matures in June 2027 and the Team Sledd Facility matures in March 2028 each without a penalty for prepayment Obligations under the Facilities are collateralized by substantially all of the Company s respective equipment intangibles inventories accounts receivable and certain real estate The Facilities each feature an unused commitment fee and springing financial covenants Borrowings under the Facilities bear interest at either the bank s prime rate or the Secured Overnight Financing Rate SOFR plus any applicable spreads
The amount available for use from the Facilities at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day to day as well as the value of certain real estate collateral Based on the collateral and loan limits as defined in the Facility agreements the credit limit of the combined Facilities at September 2024 was 212 4 million of which 121 3 million was outstanding leaving 91 1 million available
Team Sledd s two notes payable and the Team Sledd Facility contain cross default provisions The Henry s note payable and the Henry s Facility contain cross default provisions There were no such cross defaults for either Team Sledd or Henry s at September 2024 Additionally the Team Sledd Facility and the Henry s Facility are non recourse to AMCON Distributing Company are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company The Company and its subsidiaries including Team Sledd and Henry s were in compliance with all of the financial covenants under the Facilities at September 2024
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 the 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
The Consolidated Financial Statements of the Company are prepared in accordance with U S generally accepted accounting principles which require the Company to make estimates judgments and assumptions that affect the reported amounts of assets liabilities net revenue and expenses and the disclosure of contingent assets and liabilities The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources The Company believes that the accounting estimates employed and the resulting balances are reasonable however actual results may differ from these estimates under different assumptions or conditions
NATURE OF ESTIMATES REQUIRED The allowance for expected credit losses represents our estimate of uncollectible accounts receivable at the balance sheet date We monitor our credit exposure on a daily basis and regularly assess the adequacy of our allowance for expected credit losses Because credit losses can vary significantly over time estimating the required allowance requires a number of assumptions that are uncertain
NATURE OF ESTIMATES REQUIRED In our businesses we carry large quantities and dollar amounts of inventory Inventories primarily consist of finished products purchased in bulk quantities to be sold to our customers Given the large quantities and broad range of products we carry there is a risk that inventory may become impaired because it has become unsaleable or unrefundable slow moving obsolete or because it has been discontinued The use of estimates is required in determining either the net realizable value for our wholesale business or the lower of cost or market LCM under the retail method for our retail business of this inventory
Long lived assets consist primarily of property and equipment leased right of use ROU assets intangible assets and goodwill acquired in business combinations Property and equipment ROU assets and amortizable identified intangible assets are assigned useful lives ranging from one to 40 years Indefinite lived intangible assets and goodwill are not amortized Impairment of the Company s long lived assets is assessed during the Company s fourth fiscal quarter using both qualitative and quantitative analysis or whenever events or circumstances change that indicate the carrying value of such long lived assets may not be recoverable
ASSUMPTIONS AND APPROACH USED For property and equipment depreciable lives are based on our accounting policy which is intended to mirror the expected useful life of the asset In determining the estimated useful life of ROU assets and amortizable intangible assets such as customer lists we rely on our historical experience in addition to estimates of how long certain assets will generate cash flows If impairment indicators arise we then evaluate the potential impairment of property and equipment ROU assets and amortizable identifiable intangible assets using an undiscounted future cash flow approach
When evaluating the potential impairment of non amortizable indefinite lived assets and goodwill the Company first assesses a range of qualitative factors including but not limited to macroeconomic conditions industry conditions the competitive environment changes in the market for the Company s products and services market prices regulatory and political developments entity specific factors such as strategy and changes in key personnel and the overall financial performance for each of the Company s reporting units If after completing this assessment the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value a quantitative evaluation is performed using the income approach discounted cash flow method
A discounted cash flow methodology requires the estimation of a wide range of factors including but not limited to i forecasting future earnings and cash flows ii determining the discount rate applicable to the earnings stream being discounted and iii computing a terminal value at some point in the future These estimations require significant judgment and include making assumptions such as sales growth rates including the addition of new retail stores future store profitability planned capital expenditures our ability to control costs the successful implementation of initiatives designed to enhance sales and improve inventory management gross profit estimates macroeconomic conditions industry conditions the competitive environment changes in the market for the Company s products and services regulatory and political developments entity specific factors such as strategy and changes in key personnel working capital requirements weighted average cost of capital and current and anticipated operating conditions The use of different assumptions or estimates for future cash flows could produce different results
Goodwill recorded on the Company s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled 5 8 million at both September 2024 and September 2023 The Company determined that the estimated fair value of its wholesale reporting unit exceeded its carrying value at both September 2024 and September 2023
The Company s insurance for employee related health care benefits workers compensation and general liability is provided through high deductible or self insured programs The Company accrues for employee related health care costs utilizing a claims reserve methodology and prepays insurance carriers for all workers compensation and general liability coverage as part of its insurance program All claims activity and any related reserves are evaluated at the end of each
The Company accounts for its income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns These expected future tax consequences are measured based on provisions of tax law as currently enacted the effects of future changes in tax laws are not anticipated Future tax law changes such as a change in the corporate tax rate could have a material impact on our financial condition or results of operations
On a periodic basis we assess the likelihood that our deferred tax assets will be recovered from future taxable income and establish a related valuation allowance as appropriate In performing our evaluation we consider all available evidence both positive and negative to determine whether based on the weight of the evidence a valuation allowance is needed Evidence used includes information about our current financial position and our results of operations for the current and preceding years as well as all currently available information about future years including our anticipated future performance the reversal of deferred tax liabilities and tax planning strategies When appropriate we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized
We recognize revenue in both our Wholesale Segment and our Retail Segment when the performance obligation is satisfied which is the point at which control of the promised goods or services are transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods and services For the majority of our customer arrangements control transfers to customers at a point in time when goods have been
Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition Determining fair value of identifiable assets acquired particularly intangibles and liabilities assumed also requires management to make estimates which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset
NATURE OF ESTIMATES REQUIRED We allocate the purchase price of acquired companies to the tangible assets acquired liabilities assumed and intangible assets acquired based on their estimated fair values The excess of the purchase price over these fair values is recorded as goodwill Such valuations require management to make significant estimates and assumptions especially with respect to intangible assets
ASSUMPTIONS AND APPROACH USED Critical estimates in valuing certain intangible assets include but are not limited to the projected growth factors future expected cash flows discount rates potential competitive and regulatory environment developments and changes in the market for the Company s products and services Management s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and as a result actual results may differ from estimates Additionally estimates associated with the accounting for acquisitions may change as new information becomes available regarding the assets acquired and liabilities assumed
ASSUMPTIONS AND APPROACH USED Critical estimates in valuing the mandatorily redeemable non controlling interest include but are not limited to the projected growth factors future expected cash flows discount rates potential competitive and regulatory environment developments and changes in the market for the Company s products and services Management s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and as a result actual results may differ from estimates
In June 2016 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU No 2016 13 Financial Instruments Credit Losses Topic 326 Measurement of Credit Losses on Financial Instruments which introduces a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments including trade receivables The estimate of expected credit losses requires entities to incorporate considerations of historical information current information and reasonable and supportable forecasts This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity s assumptions models and methods for estimating expected credit losses The Company adopted ASU 2016 13 on October 1 2023 The adoption of ASU 2016 13 did not have a material effect on the Company s consolidated financial statements
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity s measurement and assessment of segment performance and resource allocation This guidance is effective for fiscal years beginning after December 15 2023 fiscal 2025 for the Company and interim periods within fiscal years beginning after December 15 2024 fiscal 2026 for the Company with early adoption permitted The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures which enhances the transparency effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid This guidance is effective for annual periods beginning after December 15 2024 fiscal 2026 for the Company with early adoption permitted The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements
This Annual Report on Form 10 K including Management s Discussion and Analysis of Financial Condition and Results of Operations and other sections contains forward looking statements that are subject to risks and uncertainties and which reflect management s current beliefs and estimates of future economic circumstances industry conditions Company performance and financial results Forward looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by followed by or that include the words future position anticipate s expect s believe s see plan further improve outlook should or 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
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
We have audited the accompanying consolidated balance sheets of AMCON Distributing Company and its subsidiaries the Company as of September 30 2024 and 2023 the related consolidated statements of operations shareholders equity and cash flows for the years then ended and the related notes to the consolidated financial statements collectively the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of September 30 2024 and 2023 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud The Company is not required to have nor were we engaged to perform an audit of its internal control over financial reporting As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting Accordingly we express no such opinion
Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates
As reported on the consolidated statements of operations the Company reported sales of approximately 2 7 billion for the year ended September 30 2024 Also as disclosed in Note 1 to the consolidated financial statements the Company recognizes revenues when the performance obligation is satisfied which is the point where control of the promised goods or services is transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services
AMCON s wholesale distribution business which includes our Team Sledd LLC Team Sledd and Henry s Foods Inc Henry s subsidiaries Wholesale Segment operates 13 distribution centers that sell over 20 000 different consumer products including cigarettes and tobacco products candy and other confectionery beverages groceries paper products health and beauty care products frozen and refrigerated products and institutional foodservice products The Company distributes products primarily to retailers such as convenience stores discount and general merchandise stores grocery stores drug stores and gas stations In addition the Company services institutional customers including restaurants and bars schools sports complexes as well as other wholesalers
The Company s operations are subject to a number of factors which are beyond the control of management such as changes in manufacturers cigarette pricing state excise tax increases or the opening of competing retail stores in close proximity to the Company s retail stores While the Company sells a diversified product line it remains dependent upon the sale of cigarettes which accounted for approximately 62 of the Company s consolidated revenue during both fiscal 2024 and fiscal 2023 and 18 and 19 of the Company s consolidated gross profit during fiscal 2024 and fiscal 2023 respectively
AMCON utilizes a cash management system under which an overdraft is the normal book balance in the primary disbursing accounts Overdrafts included in accounts payable at September 2024 and September 2023 totaled approximately 3 9 million and 3 3 million respectively and reflect checks drawn on the disbursing accounts that have been issued but have not yet cleared through the banking system The Company s policy has been to fund these outstanding checks as they clear with borrowings under its revolving credit facilities see Note 7 These outstanding checks book overdrafts are classified as cash flows from operating activities in the Consolidated Statements of Cash Flows
Accounts receivable primarily consists of customer trade receivables arising in the ordinary course of business and other receivables primarily related to various rebate and promotional incentives with the Company s suppliers These receivables are recorded net of an allowance for expected credit losses The Company evaluates the expected uncollectibility of
accounts receivable based on a combination of factors including but not limited to past collection history customer credit terms industry regulatory and economic conditions and any customer specific risks including credit concentration risks The Company determines the past due status of trade receivables based on our payment terms with each customer If the Company becomes aware of a specific customer s inability to meet its financial obligations such as bankruptcy filings or deterioration in the customer s operating results or financial position the Company may record a specific reserve for expected credit losses to reduce the related receivable to the amount it reasonably believes is collectible Account balances are charged off against the allowance for credit losses when collection efforts have been exhausted and the account receivable is deemed worthless Any subsequent recoveries of charged off account balances are recorded as income in the period received As of September 2024 and September 2023 receivables from transactions with customers less allowance for expected credit losses were 68 1 million and 69 4 million respectively
At September 2024 and September 2023 inventories in our Wholesale Segment consisted of finished goods and are stated at the lower of cost or net realizable value utilizing FIFO and average cost methods Inventories in our Retail Segment consisted of finished goods and are stated at the lower of cost or market using the retail method The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company s customers or sold at retail Finished goods included total reserves of approximately 1 2 million at both September 2024 and September 2023 These reserves include the Company s obsolescence allowance which reflects estimated unsaleable or non refundable inventory based upon an evaluation of slow moving and discontinued products
Property and equipment are stated at cost less accumulated depreciation or amortization Major renewals and improvements are capitalized and charged to expense over their useful lives through depreciation or amortization charges Repairs and maintenance are charged to expense in the period incurred The straight line method of depreciation is used to depreciate assets over the estimated useful lives as follows
The Company reviews property and equipment for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable Cash flows expected to be generated by the asset group are estimated over the asset s useful life of the primary asset and based on updated projections on an undiscounted basis If the evaluation indicates that the carrying value of the asset group may not be recoverable the potential impairment is determined based on the amount by which the carrying value of the asset group exceeds the fair value of the asset group There was no impairment of any property and equipment during either fiscal 2024 or fiscal 2023
Lease liabilities are equal to the present value of the remaining fixed lease payments Right of use ROU assets are determined based on the amount of the lease liability plus initial direct costs incurred less lease incentives The Company determines its incremental borrowing rates based on information available at the lease commencement date in calculating the present value of its lease payments The Company does not recognize assets or liabilities for leases with an initial term of twelve months or less and these short term lease payments are recognized in the consolidated statements of operations on a straight line basis over the lease term The Company elected the practical expedient to account for non lease components as part of the lease for all asset classes The Company reviews its ROU lease assets for indicators of impairment in the same manner as its other property and equipment as described above in h Property and Equipment
Goodwill consists of the excess purchase price paid in certain business combinations over the fair value of assets acquired and generally represents synergies and economies of scale generated through reductions in selling general and administrative expenses Intangible assets consist of trademarks tradenames and customer relationships acquired as part of acquisitions in addition to certain non competition agreements Goodwill and the trademarks and tradenames for our Retail Segment are considered to have indefinite lives
Goodwill and intangible assets having indefinite useful lives are not amortized into the results of operations but instead are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired to assess whether their fair value exceeds their carrying value The Company performs its annual goodwill and intangible asset impairment assessment during the fourth fiscal quarter of each year
When evaluating the potential impairment of non amortizable indefinite lived assets and goodwill the Company first assesses a range of qualitative factors including but not limited to macroeconomic conditions industry conditions the competitive environment changes in the market for the Company s products and services market prices regulatory and political developments entity specific factors such as strategy and changes in key personnel and the overall financial performance for each of the Company s reporting units If after completing this assessment the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value a quantitative evaluation is performed using the income approach discounted cash flow method
A discounted cash flow methodology requires the estimation of a wide range of factors including but not limited to i forecasting future earnings and cash flows ii determining the discount rate applicable to the earnings stream being discounted and iii computing a terminal value at some point in the future These estimations require significant judgment and include making assumptions such as sales growth rates including the addition of new retail stores future store profitability planned capital expenditures our ability to control costs the successful implementation of initiatives designed to enhance sales and improve inventory management gross profit estimates macroeconomic conditions industry conditions the competitive environment changes in the market for the Company s products and services regulatory and political developments entity specific factors such as strategy and changes in key personnel working capital requirements weighted average cost of capital and current and anticipated operating conditions The use of different assumptions or estimates for future cash flows could produce different results
For goodwill impairment testing the Company utilizes the guidance in Accounting Standards Codification ASC 350 Intangibles Goodwill and Other whereby a reporting unit s carrying value is compared to its fair value and impairment charges are recognized for an amount by which a reporting unit s carrying amount exceeds its fair value
The Company s identifiable intangible assets with finite lives are amortized over their estimated useful lives and are assessed for impairment whenever events or circumstances change which may indicate that the carrying amount of the assets may not be recoverable Identifiable intangible assets which are subject to amortization are evaluated for impairment using a process similar to that used in evaluating the elements of property and equipment If impaired the related assets are written down to their estimated fair value
The Company uses the equity method to account for its investment in an investee if the investment provides the ability to exercise significant influence but not control over operating and financial policies of the investee The Company s proportionate share of the net income or loss net of income taxes of the investee is included in consolidated net earnings
Judgment regarding the level of influence over its equity method investment includes considering key factors such as the Company s ownership interest representation on the board of directors participation in policy making decisions and material intercompany transactions The Company evaluates its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable Factors considered by the Company when reviewing its equity method investment for impairment include the length of time duration and the extent severity to which the fair value of the equity method investment has been less than cost the investee s financial condition and future prospects and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery An impairment that is other than temporary is recognized in the period identified
The Company recognizes revenues when the performance obligation is satisfied which is the point where control of the promised goods or services is transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services For the majority of the Company s customer arrangements control transfers to customers at a point in time when goods have been delivered as that is generally when legal title physical possession and risks and rewards of goods services transfers to the customer The timing of satisfaction of the performance obligation is not subject to significant judgment due to the simultaneous nature of the Company s customer arrangements same day creation and fulfillment After the completion of its performance obligations the Company has an unconditional right of payment from customers with varying collection and payment terms based on region credit risk and other situational factors Customer receivables are included on the consolidated balance sheets less an allowance for doubtful accounts The Company has elected the practical expedient permitting it to disregard financing components which may be deemed to be part of its transaction price as its customary payments terms are less than one year See Note 13 Business Segments for the disaggregation of net sales for each of our business segments
The Company s insurance for employee related health care benefits workers compensation and general liability is provided through high deductible or self insured programs The Company accrues for employee related health care costs utilizing a claims reserve methodology and prepays insurance carriers for all workers compensation and general liability coverage as part of its insurance program The Company accrues for employee related health care claims based upon a reserve analysis for claims incurred but not reported utilizing the Company s historical claims experience rate plus specific reserves for large claims The reserves associated with the exposure to these liabilities are reviewed by management for adequacy at the end of each reporting period The Company has issued letters of credit to insurance carriers as part of its loss control program totaling 2 4 million and 0 5 million as of September 2024 and September 2023 respectively
The Company uses the asset and liability method to calculate deferred income taxes Deferred tax assets and liabilities are recognized on temporary differences between financial statement and tax bases of assets and liabilities using enacted tax rates The effect of tax rate changes on deferred tax assets and liabilities is recognized in income during the period that includes the enactment date Deferred tax assets are reduced by a valuation allowance when we do not consider it more likely than not that some portion or all of the deferred tax assets will be realized
pricing methods require the input of highly subjective assumptions including the expected stock price volatility The fair value of restricted stock units and restricted stock awards is based on the period ending closing price of the Company s common stock Measured compensation cost is recognized ratably over the vesting period of the related share based compensation award and is reflected in our Consolidated Statement of Operations under Selling general and administrative expenses
Basic earnings or loss per share data are based on the weighted average number of common shares outstanding during each period Diluted earnings or loss per share data are based on the weighted average number of common shares outstanding and the effect of all dilutive potential common shares including stock options restricted stock units and restricted stock awards
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates
The Company s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis The carrying amount of trade accounts receivable other receivables accounts payable and other accrued liabilities approximates fair value because of the short maturity of these financial instruments The carrying amount of the Company s variable and fixed rate debt also approximates fair value
Mandatorily redeemable non controlling interest MRNCI recorded on the Company s consolidated balance sheets represents the fair value of the non controlling interest in the Company s strategic investment in Team Sledd The Company has elected to present the MRNCI liability at fair value under ASC 825 Financial Instruments ASC 825 as it believes this best represents the potential future liability and cash flows The Company calculates the estimated fair value of the MRNCI based on a discounted cash flow valuation technique using the best information available at the reporting date and records changes in the fair value of the MRNCI as a component of other expense income in the Consolidated Statements of Operations The Company estimates the probability and timing of future redemptions and earnings of Team Sledd based on management s knowledge and assumptions of certain events as of each reporting date
Contingent consideration recorded on the Company s consolidated balance sheets represents the fair value of a portion of the consideration paid in the acquisition of Burklund Distributors Inc Burklund see Note 2 In accordance with Financial Accounting Standards Board FASB ASC 805 Business Combinations ASC 805 the Company recorded the contingent consideration at fair value as of the acquisition date and re measures the liability at each reporting period The Company calculates the estimated fair value of the contingent consideration based on a discounted cash flow valuation technique using the best information available at the reporting date and records changes in the fair value of the contingent consideration in selling general and administrative expenses in the consolidated statements of operations The short term and long term portions of the contingent consideration are recorded in accrued expenses and other long term liabilities respectively on the consolidated balance sheets At each reporting date the Company reviews certain inputs including sales thresholds and an appropriate discount rate based on management s knowledge and assumptions of certain events The contingent consideration liability is classified as Level 3 because of the Company s reliance on unobservable assumptions
The acquisition method of accounting for business combinations under ASC 805 requires management to use significant estimates and assumptions including fair value estimates as of the business combination date and to refine those estimates as necessary during the measurement period defined as the period not to exceed one year in which the Company is allowed to adjust the provisional amounts recognized for a business combination
In June 2016 the FASB issued Accounting Standards Update ASU No 2016 13 Financial Instruments Credit Losses Topic 326 Measurement of Credit Losses on Financial Instruments which introduces a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments including trade receivables The estimate of expected credit losses requires entities to incorporate considerations of historical information current information and reasonable and supportable forecasts This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity s assumptions models and methods for estimating expected credit losses The Company adopted ASU 2016 13 on October 1 2023 The adoption of ASU 2016 13 did not have a material effect on the Company s consolidated financial statements
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity s measurement and assessment of segment performance and resource allocation This guidance is effective for fiscal years beginning after December 15 2023 fiscal 2025 for the Company and interim periods within fiscal years beginning after December 15 2024 fiscal 2026 for the Company with early adoption permitted The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures which enhances the transparency effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid This guidance is effective for annual periods beginning after December 15
On April 5 2024 the Company acquired substantially all of the net operating assets of Burklund a wholesale distributor to convenience stores operating in Illinois Missouri Indiana and Iowa for approximately 20 9 million consisting of 15 4 million in cash a 3 9 million promissory note payable in quarterly installments over five years at an annual rate of 5 75 and additional contingent consideration with an acquisition date fair value of 1 6 million Pursuant to the transaction contingent consideration of up to 3 0 million in cash could be payable in two installments on the one year and two year anniversaries of the acquisition date based on certain sales thresholds The short term and long term portions of the contingent consideration are recorded in accrued expenses and other long term liabilities respectively on the condensed consolidated balance sheets and are re measured to fair value at each reporting period The periodic change in fair value is recorded in selling general and administrative expenses on the condensed consolidated statements of operations In addition the Company also assumed certain operating liabilities totaling approximately 0 3 million The cash portion of the transaction was funded with borrowings from the Company s existing bank group Costs to effectuate the acquisition were not significant and were expensed as incurred The acquisition of Burklund aligns with the Company s long term growth strategy by expanding its regional footprint and will provide customers with an enhanced range of products and services over time
On June 21 2024 the Company acquired substantially all of the net operating assets of Richmond Master a wholesale distributor to convenience stores operating in Illinois Indiana and Michigan for approximately 6 6 million in cash In connection with the transaction the Company assumed certain operating liabilities totaling approximately 0 6 million including approximately 0 5 million of operating leases The transaction was funded with borrowings from the Company s existing bank group Costs to effectuate the acquisition were not significant and were expensed as incurred The acquisition of Richmond Master provides access to new markets and improved service capability for accounts in our existing service area
For the two transactions described above the Company paid consideration in the forms of cash debt and contingent consideration for the net acquired assets and their related values as of the respective acquisition dates measured in accordance with ASC 805 In valuing any potential identifiable intangible assets the Company estimated the fair value using a discounted cash flows methodology with the assistance of an independent valuation advisor Inputs and projections used to measure the fair value as of the acquisition dates included but were not limited to sales growth gross profit estimates economic and industry conditions working capital requirements and various other operational considerations As a result of the valuation process no value was assigned to any identifiable intangible assets and no value was assigned to goodwill in either transaction Burklund and Richmond Master will both be reported as part of the Company s Wholesale Segment
Accounts receivable were recorded at their fair values representing the amounts we expect to collect which also approximated the gross contractual values of such receivables at the respective acquisition dates The transactions did not result in the acquisition of any identifiable intangible assets nor did they result in any goodwill
On February 3 2023 the Company through its wholly owned subsidiary LOL Foods Inc paid approximately 54 9 million in cash to acquire substantially all of the operating assets of Henry s a wholesale distributor to convenience stores and other retail formats operating in Minnesota North Dakota South Dakota Iowa and Wisconsin In connection with the transaction the Company also assumed certain operating liabilities totaling approximately 1 2 million including approximately 0 2 million of operating leases The transaction was funded with borrowings from the Company s existing bank group Costs to effectuate the acquisition were not significant and were expensed as incurred Strategically the acquisition expands the Company s footprint in the North Central portion of the United States and enhances the product and service offerings available to its customer base
The Company paid cash consideration for the net acquired assets and their related values as of the acquisition date measured in accordance with FASB ASC 805 In valuing identifiable intangible assets the Company has estimated the fair value using the discounted cash flows methodology with the assistance of an independent valuation advisor Inputs and projections used to measure the fair value as of the acquisition date included but were not limited to sales growth gross profit estimates royalty and customer retention rates economic and industry conditions working capital requirements and various other operational considerations Henry s is being reported as a component of the Company s Wholesale Segment
Accounts receivable were recorded at their fair value representing the amount we expect to collect which also approximated the gross contractual values of such receivables at the acquisition date Goodwill totaling approximately 0 5 million arose from the acquisition and primarily represents synergies and economies of scale generated through reductions in selling general and administrative expenses This goodwill has been assigned to the Company s Wholesale Segment and is expected to be deductible for tax purposes
The following table presents unaudited supplemental pro forma financial information assuming the Company acquired Burklund Richmond Master and Henry s on October 1 2022 in addition to holding a 76 interest in Team Sledd on October 1 2022 These pro forma amounts do not purport to be indicative of the actual results that would have been obtained had the acquisitions occurred at that time
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
The Company s Wholesale Segment leases certain warehouse facilities office space vehicles and office equipment The Company s Retail Segment leases store space in various shopping center complexes and certain office space Certain of the warehouse and retail store leases include one or more options to renew or terminate the applicable lease agreement with the exercise of such options at the Company s discretion The Company s leases do not contain any significant residual value guarantees nor do they impose any significant restrictions or covenants other than those customarily found in similar types of leases
The operating ROU lease assets and liabilities recorded on the Company s consolidated balance sheets consist of fixed lease payments Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets and are expensed on a straight line basis over the lease term Additionally certain leases contain variable payments such as vehicle leases with per mile charges or retail leases with an additional rent payment based on store performance These variable payments are expensed as incurred The Company combines lease components and non lease components for all asset classes for purposes of recognizing lease assets and liabilities The Company determines its incremental borrowing rates based on information available at the lease commencement date in calculating the present value of lease payments The Company reviews its ROU lease assets for indicators of impairment in the same manner as its other property and equipment as described in Note 1
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 sheets represents amounts allocated to its wholesale reporting unit which totaled approximately 5 8 million at both September 2024 and September 2023 The Company determined that the estimated fair value of its wholesale reporting unit exceeded its carrying value at both September 2024 and September 2023
At September 2024 identifiable intangible assets considered to have finite lives were represented by customer lists which are being amortized over 15 years a non competition agreement which is being amortized over three years a non competition agreement which is being amortized over five years and a tradename in our Wholesale Segment that is being amortized over seven years These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted Amortization expense related to these assets was 0 5 million and 0 4 million during fiscal 2024 and fiscal 2023 respectively
The Company primarily finances its operations through three credit facility agreements a a facility that is an obligation of AMCON Distributing Company the AMCON Facility b a facility that is an obligation of Team Sledd the Team Sledd Facility and c a facility that is an obligation of Henry s the Henry s Facility and collectively together the Facilities and long term debt agreements with banks The Team Sledd Facility and the Henry s Facility are non recourse to AMCON Distributing Company are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company
At September 2024 the Facilities had a total combined borrowing capacity of 300 0 million including provisions for up to 30 0 million in credit advances for certain inventory purchases which are limited by accounts receivable and inventory qualifications and the value of certain real estate collateral The Henry s Facility matures in February 2026 the AMCON Facility matures in June 2027 and the Team Sledd Facility matures in March 2028 each without a penalty for prepayment Obligations under the Facilities are collateralized by substantially all of the Company s respective equipment intangibles inventories accounts receivable and certain real estate The Facilities each feature an unused commitment fee and springing financial covenants Borrowings under the Facilities bear interest at either the bank s prime rate or the Secured Overnight Financing Rate SOFR plus any applicable spreads
The amount available for use from the Facilities at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day to day as well as the value of certain real estate collateral Based on the collateral and loan limits as defined in the Facility agreements the credit limit of the combined Facilities at September 2024 was 212 4 million of which 121 3 million was outstanding leaving 91 1 million available
Market rate risk for fixed rate debt is estimated as the potential increase in fair value of debt obligations resulting from decreases in interest rates Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities the fair value of the Company s long term debt approximated its carrying value at September 2024
Team Sledd s two notes payable and the Team Sledd Facility contain cross default provisions The Henry s note payable and the Henry s Facility contain cross default provisions There were no such cross defaults for either Team Sledd or Henry s at September 2024 Additionally the Team Sledd Facility and the Henry s Facility are non recourse to AMCON Distributing Company are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company The Company and its subsidiaries including Team Sledd and Henry s were in compliance with all of the financial covenants under the respective Facilities at September 2024
The Company had a valuation allowance of approximately 0 7 million at both September 2024 and September 2023 against certain state net operating losses which more likely than not will not be utilized The Company had no material unrecognized tax benefits interest or penalties during fiscal 2024 or fiscal 2023 and the Company does not anticipate any such items during the next twelve months The Company s policy is to record interest and penalties directly related to income taxes as income tax expense in the Consolidated Statements of Operations The Company files income tax returns in the U S and various states and the tax years 2021 and forward remain open under U S and state statutes
MRNCI recorded on the Company s consolidated balance sheets represents the fair value of the non controlling interest in the Company s strategic investment in Team Sledd During April 2024 Team Sledd redeemed certain membership interests from its non controlling interest which increased the Company s ownership interest to approximately 76 as of September 2024 The Company owned approximately 64 of Team Sledd as of September 2023 The Company has elected to present the MRNCI liability at fair value under ASC 825 as it believes this best represents the potential future liability and cash flows As such the MRNCI balance at both September 2024 and September 2023 represents the fair value of the remaining future membership interest redemptions and other amounts due to noncontrolling interest holders through April 2026 At both September 2024 and September 2023 the difference between the contractual amount due under the MRNCI and the fair value was approximately 0 7 million The following table presents changes in the fair value of the MRNCI during each of fiscal years 2024 and 2023
As described in Note 2 a portion of the consideration paid in the acquisition of Burklund was in the form of contingent consideration of up to 3 0 million in cash that could be payable in two installments on the one year and two year anniversaries of the acquisition date respectively based on certain sales thresholds In accordance with ASC 805 the Company recorded the contingent consideration at fair value as of the acquisition date and re measures the liability at each reporting period The Company calculates the estimated fair value of the contingent consideration based on a discounted cash flow valuation technique using the best information available at the reporting date and records changes in the fair value of the contingent consideration in selling general and administrative expenses in the consolidated statements of operations The short term and long term portions of the contingent consideration are recorded in accrued expenses and other long term liabilities respectively on the consolidated balance sheets At each reporting date the Company reviews certain inputs including sales thresholds and an appropriate discount rate based on management s knowledge and assumptions of certain events At September 2024 the difference between the estimated amount due under the contingent consideration arrangement and the fair value was approximately 0 2 million The contingent consideration liability is classified as Level 3 because of the Company s reliance on unobservable assumptions
The Company sponsors two profit sharing plans i e section 401 k plans covering substantially all employees One plan the AMCON Plan covers the employees not employed by Team Sledd The other plan the Team Sledd Plan and together with the AMCON Plan the Plans covers the employees of Team Sledd The Plans allow employees to make voluntary contributions up to 100 of their compensation subject to Internal Revenue Service limits Under the AMCON Plan the Company matches 100 of the first 2 contributed and 50 of the next 4 contributed for a maximum match of 4 of employee compensation Under the Team Sledd Plan the Company matches 100 of employee contributions up to 5 The Company made matching contributions net of employee forfeitures to the Plans of approximately 2 0 million in fiscal 2024 and 1 6 million in fiscal 2023
The Company s insurance programs for workers compensation general liability and employee related health care benefits are provided through high deductible or self insured programs Claims in excess of self insurance levels are fully insured subject to policy limits Accruals are based on historical claims experience actual claims filed and estimates of claims incurred but not reported
The Company s liabilities for unpaid and incurred but not reported claims for health insurance workers compensation and general liability was 1 5 million at September 2024 and 2 2 million at September 2023 These amounts are included in accrued expenses in the accompanying Consolidated Balance Sheets While the ultimate amount of claims incurred is dependent on future developments in the Company s opinion recorded reserves are adequate to cover the future payment of claims previously incurred However it is possible that recorded reserves may not be adequate to cover the future payment of claims
The Company has three equity based incentive plans the 2014 Omnibus Incentive Plan the 2018 Omnibus Incentive Plan and the 2022 Omnibus Incentive Plan collectively the Omnibus Plans which provide for equity incentives to employees Each Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company The Omnibus Plans together permit the issuance of up to 195 000 shares of the Company s common stock in the form of stock options restricted stock awards restricted stock units performance share awards as well as awards such as stock appreciation rights performance units performance shares bonus shares and dividend share awards payable in the form of common stock or cash The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits stock dividends and certain other distributions on the Company s common stock At September 2024 awards with respect to a total of 140 837 shares net of forfeitures had been awarded pursuant to the Omnibus Plans and awards with respect to another 54 163 shares may be awarded under the Omnibus Plans
There is no direct cost to the recipients of the restricted stock awards except for any applicable taxes The restricted stock awards provide that the recipients receive common stock in the Company subject to certain restrictions until such time as the awards vest The recipients of the restricted stock awards are entitled to the customary adjustments in the event of stock splits stock dividends and certain other distributions on the Company s common stock All cash dividends and or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met The compensation expense recorded in the Company s Statement of Operations reflects the straight line amortized fair value
Income from operations before income taxes included compensation expense related to the amortization of the Company s restricted stock awards of approximately 2 6 million during fiscal 2024 and 1 6 million during fiscal 2023 The tax benefit related to this compensation expense was approximately 0 7 million in fiscal 2024 and 0 4 million in fiscal 2023 At September 2024 total unamortized compensation expense related to restricted stock awards was approximately 2 8 million This unamortized compensation expense is expected to be amortized over approximately the next 16 months
The Company has two reportable business segments the wholesale distribution of consumer products the Wholesale Segment and the retail sale of health and natural food products the Retail Segment The aggregation of the Company s business operations into these business segments was based on a range of considerations including but not limited to the characteristics of each business similarities in the nature and type of products sold customer classes methods used to sell the products and economic profiles Included in the Other column are intercompany eliminations and assets held and charges incurred and income earned by our holding company The segments are evaluated on revenues gross margins operating income loss and income loss from operations before taxes
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 September 30 2024 was made under the supervision and with the participation of our senior management including our principal executive officer and principal financial officer Based upon that evaluation our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report
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
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Exchange Act Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles Our internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets 2 provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations and
Because of its inherent limitations a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements Therefore even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation Further because of changes in conditions effectiveness of internal control over financial reporting may vary over time
We have completed our evaluation and testing of our internal control over financial reporting as required by Section 404 of Sarbanes Oxley and Item 308 a of Regulation S K Under the supervision and with the participation of our management we assessed the effectiveness of our internal control over financial reporting as of September 30 2024 In making this assessment we used the criteria set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO 2013 Based on its assessment management has concluded that our internal control over financial reporting was effective as of September 30 2024
This annual report does not include an attestation report of the Company s registered public accounting firm regarding internal control over financial reporting Management s report was not subject to attestation by the Company s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management s report in this annual report
Other than changes implemented related to the consolidation of Burklund and Richmond Master there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30 2024 that materially affected or are reasonably likely to materially affect our internal control over financial reporting
On April 5 2024 and June 21 2024 the Company completed its acquisitions of Burklund and Richmond Master respectively The Company is in the process of evaluating the existing controls and procedures of Burklund and Richmond Master and integrating Burklund and Richmond Master into the internal control over financial reporting processes of the Company In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed the Company has excluded Burklund and Richmond Master from the assessment of the effectiveness of internal control over financial reporting as of September 30 2024 Burklund and Richmond Master accounted for 27 0 million and 10 0 million of our consolidated total assets and 73 4 million and 25 2 million of our consolidated sales as of and for the fiscal year ended September 30 2024 respectively The scope of management s assessment of the effectiveness of the design and operation of the Company s disclosure controls and procedures as of September 30 2024 includes all of the Company s consolidated operations except for those disclosure controls and procedures of Burklund and Richmond Master that are included in internal control over financial reporting
The Registrant s Proxy Statement to be used in connection with the December 2024 Annual Meeting of Shareholders the Proxy Statement will contain under the captions Item 1 Election of Directors What is the structure of our board and how often are directors elected Item 1 Election of Directors Who are this year s nominees Item 1 Election of Directors What is the business experience of the nominees and of our continuing board members and the basis for the conclusion that each such person should serve on our board Delinquent Section 16 a Reports Corporate Governance and Board Matters Code of Ethics and Corporate Governance and Board Matters Committees of the Board Audit Committee certain information required by Item 10 of Form 10 K and such information is incorporated herein by this reference
The information appearing under the caption Executive Officers of the Registrant in Part I of this report also is incorporated herein by reference Our Board of Directors has adopted a code of ethical conduct that applies to all of our directors officers and employees including our principal executive officer and our principal financial officer This code of ethical conduct is available without charge to any person who requests it by writing to our corporate secretary It also is available on our internet website www amcon com by clicking on Business then Investor Relations then Corporate Governance Documents Any substantive amendment to or waiver from a provision of this code that applies to our principal executive officer or principal financial officer will be disclosed on our internet website and if required by rules of the SEC or NYSE American in the reports we file with the SEC
The Registrant s Proxy Statement will contain under the captions Executive Compensation and Related Matters and Corporate Governance and Board Matters Director Compensation the information required by Item 11 of Form 10 K and such information is incorporated herein by this reference Rules of the Securities and Exchange Commission permit the Company to omit the disclosure contemplated by Item 407 e 4 and e 5 relating to Compensation Committee Interlocks and Insider Participation and Compensation Committee Report respectively and this annual report does not include such disclosure
The Registrant s Proxy Statement will contain under the captions Ownership of Our Common Stock by Our Directors and Executive Officers and Other Principal Stockholders and Executive Compensation and Related Matters Equity Compensation Plan Information the information required by Item 12 of Form 10 K and such information is incorporated herein by this reference
The Registrant s Proxy Statement will contain under the captions Certain Relationships and Related Party Transactions Item 1 Election of Directors What is the structure of our board and how often are directors elected and Corporate Governance and Board Matters Committees of the Board the information required by Item 13 of Form 10 K and such information is incorporated herein by this reference

Company Name	AMCON DISTRIBUTING CO Vist SEC web-site
Category	WHOLESALE-GROCERIES & GENERAL LINE
Trading Symbol	DIT