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What changed in AMCON DISTRIBUTING CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AMCON DISTRIBUTING CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+150 added−135 removedSource: 10-K (2023-11-08) vs 10-K (2022-11-23)

Top changes in AMCON DISTRIBUTING CO's 2023 10-K

150 paragraphs added · 135 removed · 124 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe current labor agreement with the union is effective through November 2023. CORPORATE AND AVAILABLE INFORMATION The Company’s principal executive offices are located at 7405 Irvington Road, Omaha, Nebraska 68122. The telephone number at that address is 402-331-3727 and our website address is www.amcon.com.
Biggest changeA new labor agreement has been ratified by the IAMAW through November 2026. We expect this agreement to be executed during the Company’s first quarter of fiscal 2024. CORPORATE AND AVAILABLE INFORMATION The Company’s principal executive offices are located at 7405 Irvington Road, Omaha, Nebraska 68122. The telephone number at that address is 402-331-3727 and our website address is www.amcon.com.
The Company operates in 29 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.
The Company operates in 31 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.
All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils.
All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free grocery and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils.
These stores carry over 35,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.
These stores carry over 36,000 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.
We currently distribute over 17,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category.
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. Convenience stores represent our largest customer category.
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 seven distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia.
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 nine distribution centers located in Illinois, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia.
We also face competition from Amazon™ which pursues a vertical, multi-channel sales strategy whereby both retail consumers and business level customers are targeted. ​ Competition within the wholesale distribution industry is primarily based on the range and quality of the services provided, pricing, variety of products offered, and the reliability of deliveries.
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.
In December 2021, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.
In December 2022, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.
We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment. We operate within the natural products retail industry, which is a subset of the U.S. grocery industry.
We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment. We operate within the natural products retail industry, which is a subset of the 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. Our Retail Segment operates nineteen retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”).
This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. Our Retail Segment operates 17 retail health food stores as Chamberlin’s Natural Foods, Akin’s Natural Foods, and Earth Origins Market.
We also face competition from Amazon TM and other online competitors which continue to pursue vertical, multi-channel sales strategies whereby both retail consumers and business level customers are targeted. We also compete with specialty supermarkets, other independent natural foods stores chains, small specialty stores, and restaurants.
We also face competition from Amazon TM 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.
According to The Natural Foods Merchandiser (“NFM”), there are approximately 10,400 natural food retail stores operating independently or as part of small retail chains and nearly 21,600 stores when national chains are included. These competitors include companies such as Whole Foods Market, Sprouts Farmers Market, Natural Grocers, General Nutrition Centers and Vitamin Shoppe.
According to The Natural Foods Merchandiser (“NFM”), there are approximately 9,800 natural food retail stores operating independently or as part of small retail chains and approximately 21,000 stores when national chains are included. These competitors include companies such as Whole Foods Market, Sprouts Farmers Market, Natural Grocers, General Nutrition Centers and Vitamin Shoppe.
We serve customers in 29 states and primarily operate in the Central, Rocky Mountain, Mid-South and Mid-Atlantic regions of the United States. ​ ● Our retail health food segment (“Retail Segment”) operates nineteen health food retail stores located throughout the Midwest and Florida. ​ WHOLESALE SEGMENT Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 5,400 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops.
We serve customers in 31 states and primarily operate in the Central, Rocky Mountain, Mid-South and Mid-Atlantic regions of the United States. ​ ● Our retail health food segment (“Retail Segment”) operates 17 health food retail stores located throughout the Midwest and Florida. ​ WHOLESALE SEGMENT Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 7,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops.
PRINCIPAL PRODUCTS The sales of cigarettes represented approximately 66% and 68% of our consolidated revenue in fiscal 2022 and fiscal 2021, respectively. Sales of candy, beverages, foodservice, groceries, health food products, paper products, health and beauty care products, and tobacco products represented approximately 34% and 32% of our consolidated revenue in fiscal 2022 and fiscal 2021, respectively.
PRINCIPAL PRODUCTS The sales of cigarettes represented approximately 62% and 66% of our consolidated revenue in fiscal 2023 and fiscal 2022, respectively. Sales of candy, beverages, foodservice, groceries, health food products, paper products, health and beauty care products, and tobacco products represented approximately 38% and 34% of our consolidated revenue in fiscal 2023 and fiscal 2022, respectively.
The costs and effect on the Company to comply with state and federal environmental regulations were not significant during either fiscal 2022 or fiscal 2021. 6 Table of Contents EMPLOYEES At September 2022, the Company had 1,003 full-time and 214 part-time employees, which together serve in the following areas: ​ ​ ​ Managerial 83 Administrative 99 Delivery 194 Sales & Marketing 427 Warehouse 414 Total Employees 1,217 Approximately thirty of our wholesale delivery employees in our Quincy, Illinois distribution center are represented by the International Association of Machinists and Aerospace Workers (“IAMAW”).
The costs and effect on the Company to comply with state and federal environmental regulations were not significant during either fiscal 2023 or fiscal 2022. 6 Table of Contents EMPLOYEES At September 2023, the Company had 1,276 full-time and 200 part-time employees, which together serve in the following areas: ​ ​ ​ Managerial 78 Administrative 146 Delivery 290 Sales & Marketing 426 Warehouse 536 Total Employees 1,476 Approximately thirty of our wholesale delivery employees in our Quincy, Illinois distribution center are represented by the International Association of Machinists and Aerospace Workers (“IAMAW”).
These distribution centers, combined with cross-dock facilities, include approximately 885,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft Heinz, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products.
These distribution centers, combined with cross-dock facilities, include approximately 1.3 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, 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.
We do not maintain any long-term purchase contracts with our suppliers. 3 Table of Contents RETAIL SEGMENT Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation.
RETAIL SEGMENT Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation.
Added
On February 3, 2023, we closed on our acquisition of Henry’s Foods, Inc. (“Henry’s”), purchasing substantially all of Henry’s operating assets for approximately $54.9 million in cash. Henry’s is a wholesale distributor to convenience stores and other retail formats operating in Minnesota, North Dakota, South Dakota, Iowa, and Wisconsin.
Added
The acquisition 3 Table of Contents complemented our Wholesale Segment by expanding our footprint, increasing our product offerings in the foodservice space and bringing our customer-centric service approach to a broader customer base.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf any of our information technology systems or those of third parties on which we rely are damaged or made unavailable due to a wide range of issues such as power outages, computer and telecommunications failures, computer viruses, security breaches, malware, or compromised by any other method, it could have a material negative impact on our operations and profits. ● Adverse Publicity About Us or Lack of Confidence in The Products We Carry Could Negatively Impact Our Reputation and Reduce Earnings.
Biggest changeIf 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. ● Adverse Publicity About the Company or Lack of Confidence in The Products We Carry May Have an Adverse Effect on Our Reputation and Reduce Earnings.
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 7 Table of Contents operations.
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 7 Table of Contents with, we could face remedial actions such as fines, suspension of product distribution rights, and/or termination of operations.
If we are not able to meaningfully pass on these costs to customers, it could adversely impact our results of operations, business, cash flow, and financial condition. 8 Table of Contents ● The Wholesale Distribution of Convenience Store Products Is Significantly Affected by Pricing Decisions and Promotional Programs Offered by Manufacturers and State Taxing Authorities.
If we are not able to meaningfully pass on these costs to customers, it could adversely impact our business, results of operations, cash flow, and financial condition. 8 Table of Contents ● The Wholesale Distribution of Convenience Store Products Is Significantly Affected by Pricing Decisions and Promotional Programs Offered by Manufacturers and State Taxing Authorities.
Since the MSA was signed, the category of deep-discount brands manufactured by smaller manufacturers or supplied by importers has grown substantially. If this growth continues, our results of operations, business cash flows, and overall financial condition would be negatively impacted.
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, Fresh Thyme Farmers Market, General Nutrition Centers, Vitamin Shoppe, and other online competitors such as Amazon™ all who have embarked on aggressive expansion strategies.
In our retail health food business, we compete with a wide range of well-financed regional and national competitors such as Whole Foods Markets, Trader Joe’s, Sprouts Farmers Market, Natural Grocers, Fresh Thyme Farmers Market, General Nutrition Centers, Vitamin Shoppe, and other online competitors such as Amazon™ who all have embarked on aggressive expansion strategies.
From time to time, one or both of the Company’s business segments may acquire assets from other businesses, may acquire all or a portion of another business, or may make an equity investment in another business through the purchase of equity or other means.
From time to time, one or both of the Company’s business segments may acquire assets from other businesses, all or a portion of another business, or make an equity investment in another business through the purchase of equity or other means.
Additionally, we compete with specialty supermarkets, other and independent natural foods stores chains, small specialty stores, and restaurants. Conventional supermarkets and mass market outlets such as Kroger, Albertsons, Walmart, and Costco have also significantly increased their offerings of organic and natural products providing another layer of competition.
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.
Various provisions of our bylaws and of corporate law may discourage, delay or prevent a change in control or takeover attempt of our Company by a third party that is opposed by our management and Board of Directors.
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.
The regulation of e-cigarettes and related vaping product categories by federal, state, and local governmental agencies, as well as potential litigation against product manufacturers and/or entities which distribute or sell such products, may negatively impact our sales, costs, results of operations, and cash flows should the current regulatory environment persist or expand, or if related litigation should arise. ● Our Sales Volume Is Largely Dependent upon the Distribution of Cigarette Products, Which is a Declining Sales Category.
The 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. ● Our Sales Volume Is Largely Dependent upon the Distribution of Cigarette Products, Which is a Declining Sales Category.
Any of these events would reduce our sales and leave us with excess inventory, which could have a material adverse impact on our business, financial condition, and results of operations.
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.
RISK FACTORS RELATED TO OUR COMMON STOCK ● The Company Has Few Shareholders of Record And, If this Number Remains below 300, as was true as of September 30, 2022, the Company Will No Longer Be Obligated to Report under the Securities Exchange Act of 1934 and in Such Case We May Be Delisted from NYSE American, Reducing the Ability of Investors to Trade in Our Common Stock.
RISK FACTORS RELATED TO OUR COMMON STOCK ● The Company Has Few Shareholders of Record And, If this Number Remains below 300, as was true as of September 30, 2023, the Company Will No Longer Be Obligated to Report under the Securities Exchange Act of 1934 and in Such Case We May Be Delisted from NYSE American, Reducing the Ability of Investors to Trade in Our Common Stock.
In the past, some large manufacturers have decided to engage in direct distribution of their products and eliminate distributors such as our Company.
In the past, some large manufacturers 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 would be adversely affected and there can be no assurance that we will be able to take action to compensate for such losses. ● We Depend on Our Senior Management and Key Personnel.
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 Depend on Our Senior Management and Key Personnel.
Specifically, these restrictions limit our ability, among other things, to incur additional indebtedness, make distributions, pay dividends, issue stock of subsidiaries, make investments, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate, or transfer and sell our assets. ● Failure to Meet Restrictive Covenants in Our Revolving Credit Facilities Could Result in Acceleration of the Facilities and We May not be Able to Find Alternative Financing.
Specifically, these restrictions limit our ability, among other things, to incur additional indebtedness, make 14 Table of Contents distributions, pay dividends, issue stock of subsidiaries, make investments, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate, or transfer and sell our assets. ● Failure to Meet Restrictive Covenants in Our Revolving Credit Facilities Could Result in Acceleration of the Facilities and We May not be Able to Find Alternative Financing.
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, 2022, our obligation to file reports under the Securities Exchange Act of 1934 could be suspended.
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, 2023, our obligation to file reports under the Securities Exchange Act of 1934 could be suspended.
Most of these competitors may have greater financial and marketing resources than our Company and may be able to devote greater resources to sourcing, promoting, and selling their products. In response to heightened competition, the Company is implementing a repositioning strategy for our retail business.
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 implementing a repositioning strategy for its retail business.
In the event that our product purchase costs from our vendors increase and we cannot pass on those price increases or if the retail level demand for the products we sell decreases, the Company’s results of operations, balance sheet, and cash flows could be negatively impacted. ● Employee Healthcare Benefits Represent a Significant Expense for Our Company and May Negatively Affect Our Profitability.
In the event that our product purchase costs from our vendors increase and we cannot pass on those price increases or if the retail level demand for the products we sell decreases, the Company’s results of operations, balance sheet, and cash flows could be negatively impacted. 12 Table of Contents ● Employee Healthcare Benefits Represent a Significant Expense for Our Company and May Negatively Affect Our Profitability.
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, including the Company.
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 may face exposure to product liability claims in the event that the use of products sold by us is alleged to cause injury or illness. However, product liability insurance may not continue to be available at a reasonable cost, or, if available, may not be adequate to cover all of our liabilities.
We may face exposure to product liability claims if the use of products sold by us is alleged to cause injury or illness. However, product liability insurance may not continue to be available at a reasonable cost, or, if available, may not be adequate to cover all of our liabilities.
While we have employment agreements with certain key personnel, the loss of service from any of our executive officers or key employees could harm our business. ● We Operate in a Competitive Labor Market and Some of Our Employees Are Covered by Collective Bargaining Agreements.
While we have employment agreements with certain key personnel, the loss of service from any of our executive officers or key employees could harm our business. 15 Table of Contents ● We Operate in a Competitive Labor Market and Some of Our Employees Are Covered by Collective Bargaining Agreements.
As a result, our profit levels may be negatively impacted during periods of product cost deflation, even though our gross profit percentage may remain relatively constant. ● We Rely Heavily on Information Technology Systems to Operate Our Business.
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. 13 Table of Contents ● We Rely Heavily on Information Technology Systems to Operate Our Business.
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 whereby both retail consumers and business level customers are targeted.
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.
In addition to the potential operational risks described above, disruptions caused by a widespread public health issue could present increased reputational risk to the Company or result in legal claims or costly response measures. ● Risk Associated with Equity Investments or the Acquisition of Assets or New Businesses.
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. ● We May Be Subject to Risks Associated with Equity Investments or the Acquisition of Assets or New Businesses.
If any of these items were to occur, our results from operations, cash flow, business, and overall financial condition could be negatively impacted. ● The Regulation of Electronic Cigarettes (e-cigarettes) and Vaping Products May Negatively Impact Our Results of Operations.
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 Products May Negatively Impact Our Results of Operations.
These provisions include: ● supermajority voting requirements to amend certain provisions in our certificate of incorporation; ● non-cumulative voting for directors; ● control by our Board of Directors of the size of our Board of Directors; ● limitations on the ability of stockholders to call special meetings of stockholders; and ● advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings. ​
These provisions include: 16 Table of Contents ● supermajority voting requirements to amend certain provisions in our certificate of incorporation; ● non-cumulative voting for directors; ● control by our Board of Directors of the size of our Board of Directors; ● limitations on the ability of stockholders to call special meetings of stockholders; and ● advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings. ​ ITEM 1B.
If we fail to adequately comply with government regulations or regulations become more stringent, we could experience increased inspections, regulatory authorities could 15 Table of Contents take remedial action including imposing fines or shutting down our operations or we could be subject to increased audit and compliance costs.
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.
Divestitures and consolidations within the convenience store industry reflect trends that may result in customer losses for us if the acquiring entity is served by another wholesale distributor and we are unable to retain the business.
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. ● Volatility in Fuel Prices Could Reduce Profit Margins and Adversely Affect Our Business. Increases or decreases in fuel prices can and do have an impact on our profit margins.
If we were to lose a substantial volume of business because of these trends, our results from operations, cash flow, business, and overall financial condition could be negatively impacted. ● Volatility in Fuel Prices Could Reduce Profit Margins and May Have an Adverse Effect on Our Business. Increases or decreases in fuel prices impact our profit margins.
In a period of economic downturn or if the economy deteriorates, it could result in lower sales and profitability as well as customer credit defaults. ● Periods of Significant or Prolonged Inflation or Deflation Affect Our Product Costs and Profitability. Volatile product costs have a direct impact on our business.
A period of economic downturn or economic deterioration could result in lower sales and profitability as well as customer credit defaults. ● Periods of Significant or Prolonged Inflation or Deflation Affect Our Product Costs and Profitability. Volatile product costs have a direct impact on our business.
In addition, such adverse publicity may result in product liability claims, a loss of reputation, and product recalls which would have a material adverse effect on our sales and operations. 13 Table of Contents ● Impairment Charges for Goodwill or Other Intangible Assets Could Adversely Affect Our Financial Condition and Results of Operations.
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. ● Impairment Charges for Goodwill or Other Intangible Assets May Have an Adverse Effect on Our Financial Condition and Results of Operations.
If we do not have adequate insurance or if contractual indemnification is not available or if the counterparty cannot fulfill its 12 Table of Contents indemnification obligation, product liability relating to allegedly defective products could have a material adverse impact our results of operations, cash flow, business, and overall financial condition. ● Risk Associated with Insurance Plans Claims.
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. ● We May Be Subject to Risks Associated with Insurance Plans Claims.
We may not be able to obtain financing on terms satisfactory to us, or at all. ● We Depend on Relatively Few Suppliers for a Large Portion of Our Products, and Any Interruptions in the Supply of the Products That We Sell Could Adversely Affect Our Results of Operations and Financial Condition.
We may not be able to obtain financing on terms satisfactory to us, or at all. ● We Depend on Relatively Few Suppliers for a Large Portion of Our Products, and Any Interruptions in the Supply of the Products We Sell May Have an Adverse Effect on Our Results of Operations and Financial Condition.
These and other sources of capital may not be available to us on terms satisfactory to us, or at all, in the future, particularly in light of current economic conditions, which could impair our ability to further expand our business. ● Covenants in Our Revolving Credit Facilities May Restrict Our Ability to React to Changes Within Our Business or Industry.
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. ● Covenants in Our Revolving Credit Facilities May Restrict Our Ability to React to Changes Within Our Business or Industry.
Continued increases in healthcare costs, as well as changes in laws, regulations, and assumptions used to calculate health and benefit expenses, may adversely affect our business, financial position and results of operations. ● We May Be Subject to Product Liability Claims Which Could Adversely Affect Our Business.
Continued increases in healthcare costs, as well as changes in laws, regulations, and assumptions used to calculate health and benefit expenses, may adversely affect our business, financial position and results of operations. ● We May Be Subject to Product Liability Claims That May Have an Adverse Effect on Our Business.
Some of our vendors may import certain products as part of their manufacturing processes and could be impacted by higher costs resulting from trade tariffs. Further, the impact of higher costs at the retail level may negatively impact consumer disposable income and demand.
The Company purchases products from a wide range of vendors in both of its businesses. Some of our vendors may import certain products as part of their manufacturing processes and could be impacted by higher costs resulting from trade tariffs. Further, the impact of higher costs at the retail level may negatively impact consumer disposable income and demand.
The distribution of cigarettes represents a significant portion of our business. During fiscal 2022, approximately 66% of our consolidated revenues came from the distribution of cigarettes, which generated approximately 18% of our consolidated gross profit.
The distribution of cigarettes represents a significant portion of our business. During fiscal 2023, approximately 62% of our consolidated revenues came from the distribution of cigarettes, which generated approximately 19% of our consolidated gross profit.
However, the current and future conditions in the credit markets may impact the availability of capital resources required to meet our future financial obligations, or to provide funds for our working capital, capital expenditures and other needs for the foreseeable future.
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.
While the Company strives to minimize the risks associated with its acquisition or equity investment activities, issues may arise which could have a material negative impact on the Company’s results of operations, balance sheet, and cash flows. ● Risks Associated with Trade Tariffs. The Company purchases products from a wide range of vendors in both of its businesses.
While the Company strives to minimize the risks associated with its acquisition or equity investment activities, issues may arise which could have a material negative impact on the Company’s results of operations, balance sheet, and cash flows. ● We May Be Subject to Risks Associated with Trade Tariffs.
These conditions include job actions or strikes by employees of suppliers, 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.
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 results of operations and financial condition are particularly sensitive to changes in the overall economy, including the level of consumer spending. Changes in discretionary spending patterns may decrease demand from our convenience store customers and/or impact the demand for natural food products in our retail health food stores as customers purchase less expensive product alternatives.
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.
Cigarette and tobacco products (including vaping and e-cigarette products) are subject to substantial excise taxes and legislation currently under consideration could significantly increase such taxes. Significant increases in cigarette and tobacco-related taxes and fees have been imposed by city, state, and federal governments in recent years.
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 imposed by city, state, and federal governments in recent years. Further, the evolving regulatory responsibilities of the FDA are being funded by fees imposed on tobacco companies.
Further, the evolving regulatory responsibilities of the FDA are being funded by fees imposed on tobacco companies. These fees have been passed on to wholesale distributors and end consumers in the form of higher prices for cigarette and tobacco products.
These fees have been passed on to wholesale distributors and end consumers in the form of higher prices for cigarette and tobacco products.
Additionally, many of our wholesale segment customers are thinly capitalized and their access to credit in the current business environment may be impacted by their ability to operate as a going concern, presenting additional credit risk for the Company.
Additionally, many of our Wholesale Segment customers are thinly capitalized and their access to credit in the current business environment 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.
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. 14 Table of Contents ● We May Not Be Able to Obtain Capital or Borrow Funds to Provide Us with Sufficient Liquidity and Capital Resources Necessary to Meet Our Future Financial Obligations.
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.
If any of these events were to occur, our results from operations, cash flow, liquidity position, and overall financial condition could be negatively impacted. 11 Table of Contents RISK FACTORS RELATED TO ALL OF OUR BUSINESSES ● A Major Epidemic or Pandemic or other Widespread Public Health Issue Could Adversely Affect Our Results of Operations and Financial Condition.
If any of these events were to occur, our results from operations, cash flow, liquidity position, and overall financial condition could be negatively impacted. 11 Table of Contents RISK FACTORS RELATED TO ALL OF OUR BUSINESSES ● Significant or Prolonged Periods of Higher Interest Rate Environments May Have an Adverse Effect on Our Profitability.
Any Disruptions to These Technology Systems Including Security Breaches, Cyber-Attacks, Malware, or Other Methods by Which Those Information Systems Could Be Compromised, May Have a Material Negative Impact on Our Business. We rely extensively on our information technology systems and those of third parties to run all aspects of 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. We rely extensively on our information technology systems and those of third parties to run all aspects of our business.
In addition, at September 2022, 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 2023. ● We Are Subject to Significant Governmental Regulation and If We Are Unable to Comply with Regulations That Affect Our Business or If There Are Substantial Changes in These Regulations, Our Business Could Be Adversely Affected.
We expect this agreement to be executed during the Company’s first quarter of fiscal 2024. ● We Are Subject to Significant Governmental Regulation and If We Are Unable to Comply with Regulations That Affect Our Business or If There Are Substantial Changes in These Regulations, Our Business Could Be Adversely Affected.
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Interest rates have a direct impact on our business based on the amount of variable debt the Company utilizes in its operations. Prolonged periods of high interest rates may have a negative impact on the Company’s results of operations, balance sheet, and cash flows. ● We May Be Impacted by Acts of Civil Unrest, or Violence.
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Our business operations could be negatively impacted by acts of civil unrest, or violence beyond our control.
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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. ● A Major Epidemic or Pandemic or other Widespread Public Health Issue Could Adversely Affect Our Results of Operations and Financial Condition.
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Our results of operations and financial condition are particularly sensitive to changes in the overall economy, including the level of consumer discretionary spending. Consumer discretionary spending may be negatively impacted by inflation, rising interest rates, recessions or other general economic uncertainties or downturns.
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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.
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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.
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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 May Not Be Able to Obtain Capital or Borrow Funds to Provide Us with Sufficient Liquidity and Capital Resources Necessary to Meet Our Future Financial Obligations.
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In addition, at September 2023, 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 2023. A new labor agreement has been ratified by the IAMAW through November 2026.
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UNRESOLVED STAFF COMMENTS Not applicable. ​ ITEM 1C. CYBERSECURITY Not applicable. ​

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs further described in Note 7, our distribution facilities in Quincy, Illinois, Bismarck, North Dakota, and Rapid City, South Dakota are owned by our Company and are included as collateral under AMCON’s credit facility (“the AMCON Facility”), and Team Sledd, LLC’s principal office and warehouse in West Virginia are collateral against two separate notes payable.
Biggest changeAs further described in Note 7 to the Consolidated Financial Statements, certain of our distribution facilities in Quincy, Illinois, Springfield, Missouri, Bismarck, North Dakota, and Rapid City, South Dakota are owned by the Company and are included as collateral under AMCON’s credit facility (“the AMCON Facility”).
Management believes that its existing facilities are adequate for the Company’s present level of operations, however, larger facilities and additional cross-dock facilities and retail stores may be required if the Company experiences growth in certain market areas. ITEM 3. LEGAL PROCEEDINGS None. ​
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. ITEM 3. LEGAL PROCEEDINGS None. ​
PROPERTIE S The location and approximate square footage of the Company’s seven distribution centers and nineteen retail stores at September 2022 are set forth below: ​ ​ ​ Location Square Feet Distribution—IL, MO, ND, NE, SD, TN & WV 885,000 Retail—AR, FL, MO, & OK 186,400 Total Square Footage 1,071,400 The Company leases certain distribution facilities, retail stores, offices, and certain equipment under operating leases.
PROPERTIE S The location and approximate square footage of the Company’s nine distribution centers and 17 retail stores at September 2023 are set forth below: ​ ​ ​ Location Square Feet Distribution—IL, MN, MO, ND, NE, SD, TN & WV 1,316,000 Retail—AR, FL, & OK 173,100 Total Square Footage 1,489,100 The Company leases certain distribution facilities, retail stores, offices, and certain equipment under operating leases.
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Our distribution center in Alexandria, Minnesota is owned by the Company and is included as collateral under Henry’s Foods, Inc.’s credit facility (“the Henry’s Facility”). Team Sledd, LLC’s principal office and warehouse in West Virginia are collateral against two separate notes payable and Team Sledd’s credit facility (the “Team Sledd Facility”).

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings 17 Item 4. Mine Safety Disclosures 17 PART II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18 Item 6. [Reserved] 18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19 Item 7A.
Biggest changeItem 3. Legal Proceedings 17 Item 4. Mine Safety Disclosures 17 PART II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18 Item 6. [Reserved] 19 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 29 Item 8. Financial Statements and Supplementary Data 30
Quantitative and Qualitative Disclosures About Market Risk 31 Item 8. Financial Statements and Supplementary Data 32

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of our Company are appointed by the Board of Directors and serve at the discretion of the Board. The following table sets forth certain information with respect to all executive officers of our Company. ​ ​ ​ ​ ​ Name Age Position Christopher H.
Biggest changeITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 17 Table of Contents EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of our Company are appointed by the Board of Directors and serve at the discretion of the Board.
Schmaderer held financial management roles with Hewlett Packard (HP) and before that practiced public accounting, 17 Table of Contents primarily with the accounting firm Grant Thornton, LLP. Mr. Schmaderer also holds a Master of Business Administration (MBA) from the University of Nebraska-Omaha. PART I I
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. PART I I
Atayan 62 Chairman of the Board, Chief Executive Officer, Director Andrew C. Plummer 48 President, Chief Operating Officer, Director Charles J. Schmaderer ​ 53 ​ Vice President, Chief Financial Officer, Secretary ​ CHRISTOPHER H.
The following table sets forth certain information with respect to all executive officers of our Company. ​ ​ ​ ​ ​ Name Age Position Christopher H. Atayan 63 Chairman of the Board, Chief Executive Officer, Director Andrew C. Plummer 49 President, Chief Operating Officer, Director Charles J. Schmaderer ​ 54 ​ Vice President, Chief Financial Officer, Secretary ​ CHRISTOPHER H.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeREPURCHASE OF COMPANY SHARES The Company did not repurchase any shares of its common stock during fiscal 2022. The Company repurchased a total of 68 shares of its common stock during fiscal 2021 for cash totaling less than $0.1 million. All repurchased shares were recorded in treasury stock at cost.
Biggest changeREPURCHASE OF COMPANY SHARES The Company repurchased a total of 2,363 shares of its common stock during fiscal 2023 for cash totaling approximately $0.4 million. The Company did not repurchase any shares of its common stock during fiscal 2022. All repurchased shares were recorded in treasury stock at cost.
There is no limit on dividend payments provided that certain excess availability measurements have been maintained for the thirty-day period immediately prior to the payment of any such dividends or distributions, and immediately after giving effect to any such dividend or distribution payments, the Company has a fixed charge coverage ratio of at least 1.0 to 1.0 as defined in the AMCON Facility agreement.
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.
As of that date, the Company had approximately 906 persons holding common shares beneficially of which approximately 130 are shareholders of record (including direct participants in the Depository Trust Company). DIVIDEND POLICY On a quarterly basis, the Company’s Board of Directors evaluates the potential declaration of dividend payments on the Company’s common stock.
As of that date, the Company had approximately 896 persons holding common shares beneficially of which approximately 130 are shareholders of record (including direct participants in the Depository Trust Company). DIVIDEND POLICY On a quarterly basis, the Company’s Board of Directors evaluates the potential declaration of dividend payments on the Company’s common stock.
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.
Such an action by the Board of Directors could result from, among other reasons, changes in the marketplace, changes in 18 Table of Contents 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 $3.4 million, or $5.72 per common share, during each of fiscal 2022 and fiscal 2021. During the fiscal years ended September 30, 2022 and September 30, 2021, the Company did not sell any unregistered securities.
The Company paid cash dividends of approximately $3.5 million and $3.4 million, or $5.72 per common share, during fiscal 2023 and fiscal 2022, respectively. During the fiscal years ended September 30, 2023 and September 30, 2022, the Company did not sell any unregistered securities.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR COMMON STOCK The Company’s common stock trades on NYSE American under the trading symbol “DIT”. As of November 17, 2022, the closing price of our common stock on NYSE American was $178.98 and there were 611,052 common shares outstanding.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR COMMON STOCK The Company’s common stock trades on NYSE American under the trading symbol “DIT”. As of November 6, 2023, the closing price of our common stock on NYSE American was $192.00 and there were 630,362 common shares outstanding.
At September 2022, 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. EQUITY COMPENSATION PLAN INFORMATION We refer you to Item 12 of this report for the information required by Item 201(d) of SEC Regulation S-K. ​
At September 2023, 72,637 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, the Board of Directors renewed the repurchase authorization for up to 75,000 shares of the Company’s common stock.
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During the fourth quarter of fiscal 2023, the Company repurchased shares of its common stock for cash totaling approximately $0.4 million.
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The following table summarizes these repurchases made by or on behalf of the Company or certain affiliated purchasers of shares of our common stock for the quarterly period ended September 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period ​ (a) Total Number of Shares (or Units) Purchased ​ (b) Average Price Paid per Share (or Unit) ​ (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs ​ (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs* July 1 - 31, 2023 2,363 $ 171.34 2,363 72,637 August 1 - 31, 2023 — ​ - — 72,637 September 1 - 30, 2023 — ​ ​ - — 72,637 Total 2,363 ​ $ - 2,363 72,637 * In October 2023 and subsequent to the end of fiscal 2023, the Board of Directors authorized purchases of up to 75,000 shares of our Company’s common stock in open market or negotiated transactions.
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Management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases. EQUITY COMPENSATION PLAN INFORMATION We refer you to Item 12 of this report for the information required by Item 201(d) of SEC Regulation S-K. ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIt should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements: ● risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest and commodity prices which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell, ​ ● regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products by the FDA, state or local governmental agencies, or other parties, including proposed forthcoming regulations around the manufacture and distribution of certain menthol and flavored tobacco products, ​ ● risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, ​ ● risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, ​ ● risks associated with the Company’s business model which since the onset of the COVID-19 pandemic has experienced both higher sales volumes and labor costs, and the related risk of sales returning to more historical levels without the Company being able to offset increases in its cost structure, ​ ● risks associated with the acquisition of assets or new businesses or investments in equity investees by either of our business segments including, but not limited to, risks associated with purchase price and business valuation and recording risks, vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations, ● increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, ​ ● that our repositioning strategy for our retail business will not be successful, ​ ● risks associated with opening new retail stores, ​ ● if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business, ​ ● the potential impact that ongoing, decreasing, or changing trade tariffs and trade policies may have on our product costs or on consumer disposable income and demand, ​ ● increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice, 28 Table of Contents ​ ● increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, ​ ● risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber-attacks, malware, or other methods by which such information systems could be compromised, ​ ● increases in inventory carrying costs and customer credit risks, ​ ● changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, ​ ● changing demand for the Company’s products, particularly cigarette, tobacco and e-cigarette/vaping products, ​ ● risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, ​ ● changes in laws and regulations and ongoing compliance related to health care and associated insurance, ​ ● increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending, ​ ● decreased availability of capital resources, ​ ● domestic regulatory and legislative risks, ​ ● poor weather conditions, and the adverse effects of climate change, ​ ● consolidation trends within the convenience store, wholesale distribution, and retail health food industries, ​ ● natural disasters and domestic or political unrest, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, and ​ ● other risks over which the Company has little or no control, and any other factors not identified herein. ​ Changes in these factors could result in significantly different results.
Biggest changeIt should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements: ● risks associated with higher interest rates or prolonged periods of higher interest rates and the related impact on demand, customer credit risk, profitability, and cash flows for both the Company and our customer base, particularly as it relates to variable interest rate borrowings, as well as the risk that such borrowings may not be renewed in the future on favorable terms or at all, ​ ● risks associated with any systemic pressures in the banking system, particularly as they relate to customer credit risk and any resulting impact on our cash flow and our ability to collect on our receivables, ​ ● risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest, commodity prices, and customer credit risk which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell, ​ ● regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and vaping products imposed by the FDA, state or local governmental agencies, or other parties, including proposed forthcoming regulations around the manufacture and distribution of certain menthol and flavored tobacco products, ​ ● risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, ​ 29 Table of Contents ● risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, ​ ● risks associated with the Company’s business model which experienced both higher sales volumes and labor costs, during the COVID-19 pandemic, and the risk of sales returning to pre-pandemic levels without the Company being able to offset increases in its cost structure, ​ ● risks associated with the acquisition of assets, new businesses or equity investments by either of our business segments including, but not limited to, risks associated with consummating such transactions on expected terms or timing, purchase price and business valuation and recording risks, and risks related to the assumption of certain liabilities or obligations, ● risks associated with the integration of new businesses or equity investments by either of our business segments including, but not limited to, risks associated with vendor and customer retention, technology integration, and the potential loss of any key management personnel or employees, ● increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, ​ ● risk that our repositioning strategy for our retail business will not be successful, ​ ● risks associated with opening new retail stores, ​ ● if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business, ​ ● the potential impact that ongoing, decreasing, or changing trade tariffs and trade policies may have on our product costs or on consumer disposable income and demand, ​ ● increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice, ​ ● increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, ​ ● risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber and ransomware attacks, malware, or other methods by which such information systems could or may have been compromised or impacted, ​ ● increases in inventory carrying costs and customer credit risks, ​ ● changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, ​ ● changing demand for the Company’s products, particularly cigarette, tobacco and vaping products, ​ ● risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, ​ ● changes in laws and regulations and ongoing compliance related to health care and associated insurance, ​ 30 Table of Contents ● increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending, ​ ● decreased availability of capital resources, ​ ● domestic regulatory and legislative risks, ​ ● poor weather conditions, and the adverse effects of climate change, ​ ● consolidation trends within the convenience store, wholesale distribution, and retail health food industries, ​ ● risks associated with labor disputes (strikes), natural disasters, domestic/political unrest and incidents of violence, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, and ​ ● other risks over which the Company has little or no control, and any other factors not identified herein. ​ Changes in these factors could result in significantly different results.
While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.
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.
For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods.
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.
Other The Company has issued a letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements. Liquidity Risk The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital.
Other The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self-insured loss control program. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements. Liquidity Risk The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital.
The Company determined that the estimated fair value of its wholesale reporting unit exceeded its carrying value at both September 2022 and September 2021. INSURANCE The Company’s insurance for workers’ compensation, general liability and employee-related health care benefits are provided through high-deductible or self-insured programs.
The Company determined that the estimated fair value of its wholesale reporting unit exceeded its carrying value at both September 2023 and September 2022. INSURANCE The Company’s insurance for workers’ compensation, general liability and employee-related health care benefits are provided through high-deductible or self-insured programs.
Fiscal 2021 Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales.
Fiscal 2022 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.
Fiscal 2021 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.
Fiscal 2022 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.
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 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 24 Table of Contents liabilities that are not readily apparent from other sources.
Forward-looking statements include information concerning the possible or assumed 27 Table of Contents 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.
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.
Significant items impacting sales during fiscal 2022 included a $1.5 million decrease in sales volume related to store closures across the comparative periods, partially offset by a $0.4 million increase in sales related to higher sales volumes in our existing stores. ​ GROSS PROFIT—Fiscal 2022 vs.
Significant items impacting sales during fiscal 2023 included a $4.1 million decrease in sales volume related to store closures across the comparative periods, partially offset by a $1.0 million increase in sales related to higher sales volumes in our existing stores. ​ GROSS PROFIT—Fiscal 2023 vs.
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.
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 28 Table of Contents services.
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 $5.3 million and $4.4 million at September 2022 and September 2021, respectively.
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 and $5.3 million at September 2023 and September 2022, respectively.
If impairment indicators arise, we then evaluate the potential 24 Table of Contents impairment of property and equipment, ROU assets and amortizable identifiable intangible assets using an undiscounted future cash flow approach.
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.
Because credit losses can vary significantly over time, estimating the required allowance requires a number of assumptions that are uncertain. 23 Table of Contents ASSUMPTIONS AND APPROACH USED.
Because credit losses can vary significantly over time, estimating the required allowance requires a number of assumptions that are uncertain. ASSUMPTIONS AND APPROACH USED.
Due to the uncertainty involved with the realization of claims incurred but unreported, management is required to make estimates of these claims. ASSUMPTIONS AND APPROACH USED.
Due to the uncertainty involved with the realization of claims incurred but unreported, management is required to make estimates of these claims. 26 Table of Contents ASSUMPTIONS AND APPROACH USED.
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 $28.2 million during fiscal 2022 as compared to fiscal 2021.
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 $44.5 million during fiscal 2023 as compared to fiscal 2022.
(2) Calculated based on rounded numbers as presented in the table. 20 Table of Contents SALES Changes in sales are driven by two primary components: (i) changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and (ii) changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period.
(2) Calculated based on rounded numbers as presented in the table. 21 Table of Contents SALES Changes in sales are primarily driven by: (i) changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; (ii) changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period; and (iii) acquisitions SALES—Fiscal 2023 vs.
If such regulations were to be implemented, they would have a negative impact on the Company’s financial results. ​ 19 Table of Contents Results of Operations The following table sets forth an analysis of various components of the Company’s Statement of Operations as a percentage of sales for fiscal years 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Years ​ 2022 2021 Sales 100.0 % 100.0 % Cost of sales 93.6 ​ 94.0 ​ Gross profit 6.4 ​ 6.0 ​ Selling, general and administrative expenses 5.1 ​ 4.7 ​ Depreciation and amortization 0.2 ​ 0.2 ​ Operating income 1.1 ​ 1.1 ​ Interest expense 0.1 ​ 0.1 ​ Change in fair value of mandatorily redeemable non-controlling interest ​ 0.1 ​ — ​ Other (income), net ​ (0.1) ​ — ​ Income from operations before income taxes 1.0 ​ 1.0 ​ Income tax expense 0.3 ​ 0.3 ​ Equity method investment earnings, net of tax 0.1 ​ 0.2 ​ Net income available to common shareholders 0.8 % 0.9 % ​ The following table presents selected statement of operations data for fiscal years 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Years ​ ​ ​ ($ in millions) 2022 2021 Incr (Decr) (2) CONSOLIDATED: ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales(1) ​ $ 2,010.8 ​ $ 1,672.4 ​ $ 338.4 Cost of sales ​ 1,883.1 ​ 1,571.8 ​ 311.3 Gross profit ​ 127.7 ​ 100.5 ​ 27.2 Gross profit percentage ​ 6.4 % 6.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expense ​ $ 105.1 ​ $ 82.7 ​ $ 22.4 Operating income ​ 22.6 ​ 17.8 ​ 4.8 Interest expense ​ 2.2 ​ 1.3 ​ 0.9 Income tax expense ​ 6.5 ​ 4.5 ​ 2.0 Equity method investment earnings, net of tax ​ ​ 1.7 ​ ​ 3.4 ​ ​ (1.7) Net income available to common shareholders ​ 16.7 ​ 15.5 ​ 1.2 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BUSINESS SEGMENTS: ​ ​ ​ ​ ​ ​ ​ ​ ​ Wholesale ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 1,964.6 ​ $ 1,625.1 ​ $ 339.5 Gross profit ​ 110.8 ​ 82.6 ​ 28.2 Gross profit percentage ​ 5.6 % 5.1 % ​ Retail ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 46.2 ​ $ 47.3 ​ $ (1.1) Gross profit ​ 16.9 ​ 17.9 ​ (1.0) Gross profit percentage ​ 36.6 % 37.8 % ​ (1) Sales are reported net of costs associated with incentives provided to retailers.
If such regulations were to be implemented, they would have a negative impact on the Company’s financial results. ​ 20 Table of Contents Results of Operations The following table sets forth an analysis of various components of the Company’s Statement of Operations as a percentage of sales for fiscal years 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Years ​ 2023 2022 Sales 100.0 % 100.0 % Cost of sales 93.3 ​ 93.6 ​ Gross profit 6.7 ​ 6.4 ​ Selling, general and administrative expenses 5.4 ​ 5.1 ​ Depreciation and amortization 0.3 ​ 0.2 ​ Operating income 1.0 ​ 1.1 ​ Interest expense 0.3 ​ 0.1 ​ Change in fair value of mandatorily redeemable non-controlling interest ​ 0.1 ​ 0.1 ​ Other (income), net ​ (0.1) ​ (0.1) ​ Income from operations before income taxes 0.7 ​ 1.0 ​ Income tax expense 0.2 ​ 0.3 ​ Equity method investment earnings, net of tax — ​ 0.1 ​ Net income available to common shareholders 0.5 % 0.8 % ​ The following table presents selected statement of operations data for fiscal years 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ($ in millions) 2023 2022 Incr (Decr) (2) CONSOLIDATED: ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales(1) ​ $ 2,540.0 ​ $ 2,010.8 ​ $ 529.2 Cost of sales ​ ​ 2,369.2 ​ ​ 1,883.1 ​ ​ 486.1 Gross profit ​ ​ 170.8 ​ ​ 127.7 ​ ​ 43.1 Gross profit percentage ​ ​ 6.7 % ​ 6.4 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expense ​ $ 144.9 ​ $ 105.1 ​ $ 39.8 Operating income ​ ​ 26.0 ​ ​ 22.6 ​ ​ 3.4 Interest expense ​ ​ 8.5 ​ ​ 2.2 ​ ​ 6.3 Change in fair value of mandatorily redeemable non-controlling interest ​ ​ 1.3 ​ ​ 1.5 ​ ​ (0.2) Income tax expense ​ ​ 5.7 ​ ​ 6.5 ​ ​ (0.8) Equity method investment earnings, net of tax ​ ​ — ​ ​ 1.7 ​ ​ (1.7) Net income available to common shareholders ​ ​ 11.6 ​ ​ 16.7 ​ ​ (5.1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BUSINESS SEGMENTS: ​ ​ ​ ​ ​ ​ ​ ​ ​ Wholesale ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 2,496.9 ​ $ 1,964.6 ​ $ 532.3 Gross profit ​ ​ 155.3 ​ ​ 110.8 ​ ​ 44.5 Gross profit percentage ​ ​ 6.2 % ​ 5.6 % ​ ​ Retail ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 43.1 ​ $ 46.2 ​ $ (3.1) Gross profit ​ 15.5 ​ 16.9 ​ (1.4) Gross profit percentage ​ 36.0 % 36.6 % ​ ​ ​ (1) Sales are reported net of costs associated with incentives provided to retailers.
Indefinite-lived intangible assets and goodwill are not amortized. Impairment of the Company’s long-lived assets is assessed during the Company’s fourth fiscal quarter using both qualitative and quantitative analysis, or whenever events or circumstances change that indicate the carrying value of such long-lived assets may not be recoverable. NATURE OF ESTIMATES REQUIRED.
Impairment of the Company’s long-lived assets is assessed during the Company’s fourth fiscal quarter using both qualitative and quantitative analysis, or whenever events or circumstances change that indicate the carrying value of such long-lived assets may not be recoverable. NATURE OF ESTIMATES REQUIRED. Management has to estimate the useful lives of the Company’s long-lived assets.
Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our fiscal 2022 consolidated operating expenses increased $22.4 million as compared to fiscal 2021.
Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. 22 Table of Contents Our fiscal 2023 consolidated operating expenses increased $39.8 million as compared to fiscal 2022.
The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements. ​ FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results.
The Company does not expect the adoption of ASU 2016-13 to have a material effect on its consolidated financial statements. ​ FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results.
Significant items impacting gross profit during fiscal 2022 included a $15.6 million increase in gross profit related to the acquisition of Team Sledd, a $11.7 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, a $0.8 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods, and a $0.1 million increase in gross profit related to the net impact of cigarette manufacturer promotions and gross margin enhancement, and the volume and mix of cigarette cartons sold.
Significant items impacting gross profit during fiscal 2023 included a $25.4 million increase in gross profit related to the acquisition of Henry’s in Q2 2023, a $20.8 million increase in comparative gross profit related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $1.0 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, partially offset by a $1.9 million decrease in the net impact of cigarette manufacturer promotions and the volume and mix of cigarette cartons sold and a $0.8 million decrease in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods.
These incentives totaled $34.4 million and $30.1 million in fiscal 2022 and fiscal 2021, respectively.
These incentives totaled $40.4 million and $34.4 million in fiscal 2023 and fiscal 2022, respectively.
There were no such cross defaults at September 2022. The Company was in compliance with all of its financial covenants under the Facilities at September 2022. Dividend Payments The Company paid cash dividends of $3.4 million, or $5.72 per common share during each of fiscal 2022 and fiscal 2021.
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 2023. Dividend Payments The Company paid cash dividends of $3.5 million and $3.4 million, or $5.72 per common share, during fiscal 2023 and fiscal 2022, respectively.
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.
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.
SALES—Fiscal 2022 vs. Fiscal 2021 Sales in our Wholesale Segment increased $339.5 million during fiscal 2022 as compared to fiscal 2021.
Fiscal 2022 Sales in our Wholesale Segment increased $532.3 million during fiscal 2023 as compared to fiscal 2022.
Fiscal 2021 The Company’s effective income tax rate increased during fiscal 2022 as compared to fiscal 2021, primarily due to higher non-deductible compensation during fiscal 2022, resulting in effective tax rates in excess of statutory rates. ​ Liquidity and Capital Resources The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations.
Fiscal 2022 The change in the fiscal 2023 income tax rate as compared to fiscal 2022 was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and higher effective state income tax rates between the comparative periods. ​ Liquidity and Capital Resources The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations.
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.
Borrowings under the Facilities bear interest at either the bank’s prime rate or the Secured Overnight Financing Rate (“SOFR”), plus any applicable spreads. 23 Table of Contents 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.
As a result, we estimate either the net realizable value or the LCM of this inventory as if it were to be liquidated. ● Estimated net realizable value—For our wholesale business, the net realizable value of the inventory is estimated using management’s evaluation of the congestion in the distribution channels and experience with brokers and inventory liquidators to determine the net realizable value of the inventory.
As a result, we estimate either the net realizable value or the LCM of this inventory as if it were to be liquidated. ● Estimated net realizable value—For our wholesale business, the net realizable value of the inventory is estimated using management’s evaluation of the congestion in the distribution channels and experience with brokers and inventory liquidators to determine the net realizable value of the inventory. 25 Table of Contents DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL AND LEASED RIGHT-OF-USE ASSETS Long-lived assets consist primarily of property and equipment, leased right-of-use (“ROU”) assets, intangible assets, and goodwill acquired in business combinations.
In Q3 2022, the Company amended the AMCON Facility, increasing its aggregate borrowing capacity from $110.0 million to $150.0 million, extending the maturity date from March 2025 to June 2027, and adding certain real estate properties as eligible borrowing collateral under the credit agreement.
In Q3 2023, the Company amended the Team Sledd Facility, increasing its aggregate borrowing capacity from $70.0 million to $80.0 million, extending the maturity date to March 2028, and adding certain real estate property as eligible borrowing collateral under the agreement.
Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at September 2022 was $184.8 million, of which $91.3 million was outstanding, leaving $93.5 million available. The average interest rate of the Facilities was 5.11% at September 2022.
Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at September 2023 was $239.1 million, of which $140.4 million was outstanding, leaving $98.7 million available. The average interest rate of the Facilities was 7.03% at September 2023.
Significant items impacting sales during fiscal 2022 included a $298.4 million increase in sales related to the acquisition of Team Sledd, LLC (“Team Sledd”), a $79.1 million increase in sales related to price increases implemented by cigarette manufacturers, and a $49.9 million increase in sales related to higher sales volumes in our tobacco, confectionary, foodservice, and other categories (“Other Products”), partially offset by a $87.9 million decrease in sales related to the volume and mix of cigarette cartons sold. ​ Sales in our Retail Segment decreased $1.1 million in fiscal 2022 as compared to fiscal 2021.
(“Henry’s") during Q2 2023, a $97.3 million increase in sales related to price increases implemented by cigarette manufacturers, and a $27.8 million increase in sales related to higher sales volumes in our tobacco, confectionary, foodservice, and other categories (“Other Products”), partially offset by a $175.8 million decrease in sales related to the volume and mix of cigarette cartons sold. ​ Sales in our Retail Segment decreased $3.1 million in fiscal 2023 as compared to fiscal 2022.
The following discussion and analysis includes the results of operations for the twelve month periods ended September 2022 and September 2021. For more information regarding our business segments, see Item 1 “Business” of this Annual Report.
The following discussion and analysis includes the results of operations for the twelve month periods ended September 2023 and September 2022. For more information regarding our business segments, see Item 1 “Business” of this Annual Report. Business Update During fiscal year 2023, the Company acquired Henry’s Foods, Inc. (“Henry’s”) an Alexandria, Minnesota-based convenience distributor.
Workers’ Compensation Insurance Claims ● Historical claims experience—We review prior years’ loss runs to estimate the average annual expected claims and review monthly loss runs to compare our estimates to actual claims. ● Lag period for reporting claims—We review claims trends and use standard insurance industry loss models to develop reserves on reported claims in order to estimate the amount of incurred but unreported claims. 25 Table of Contents INCOME TAXES The Company accounts for its income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns.
Workers’ Compensation Insurance Claims ● Historical claims experience—We review prior years’ loss runs to estimate the average annual expected claims and review monthly loss runs to compare our estimates to actual claims. ● Lag period for reporting claims—We review claims trends and use standard insurance industry loss models to develop reserves on reported claims in order to estimate the amount of incurred but unreported claims.
We estimate the sales reserves using the following criteria: ● Sales discounts—We use historical experience to estimate the amount of accounts receivable that will not be collected due to customers taking advantage of authorized term discounts. ● Volume sales incentives—We use historical experience in combination with quarterly reviews of customers’ sales progress in order to estimate the amount of volume incentives due to the customers on a periodic basis. 26 Table of Contents Our estimates and assumptions for each of the aforementioned critical accounting estimates have not changed materially during the periods presented, nor are we aware of any reasons that they would be reasonably likely to change in the future.
We estimate the sales reserves using the following criteria: ● Sales discounts—We use historical experience to estimate the amount of accounts receivable that will not be collected due to customers taking advantage of authorized term discounts. ● Volume sales incentives—We use historical experience in combination with quarterly reviews of customers’ sales progress in order to estimate the amount of volume incentives due to the customers on a periodic basis.
REVENUE RECOGNITION We recognize revenue in both our Wholesale Segment and our Retail Segment when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods and services.
In making that estimate we consider the following key factors: ● our current financial position; ● historical financial information; ● future reversals of existing taxable temporary differences; ● future taxable income exclusive of reversing temporary differences and carryforwards; ● taxable income in prior carryback years; and ● tax planning strategies. 27 Table of Contents REVENUE RECOGNITION We recognize revenue in both our Wholesale Segment and our Retail Segment when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods and services.
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 two credit facility agreements (the “AMCON Facility” and the “Team Sledd Facility”, and together “the Facilities”) and long-term debt agreements with banks.
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.
Management has to estimate the useful lives of the Company’s long-lived assets. In regard to the Company’s impairment analysis, the most significant assumptions include management’s estimate of the annual growth rate used to project future sales and expenses. ASSUMPTIONS AND APPROACH USED.
In regard to the Company’s impairment analysis, the most significant assumptions include management’s estimate of the annual growth rate used to project future sales and expenses. ASSUMPTIONS AND APPROACH USED. For property and equipment, depreciable lives are based on our accounting policy which is intended to mirror the expected useful life of the asset.
At September 2022, the Facilities have a total combined borrowing capacity of $250.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases. The Team Sledd Facility matures in March 2027 and the AMCON Facility matures in June 2027, each without a penalty for prepayment.
At September 2023, the Facilities have a total combined borrowing capacity of $300.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral.
Gross profit in our Retail Segment decreased $1.0 million in fiscal 2022 as compared to fiscal 2021. This change was primarily related to $0.5 million in inventory losses related to Hurricane Ian, and a $0.5 million decrease related to store closures across the comparative periods. ​ OPERATING EXPENSE—Fiscal 2022 vs.
This change was primarily related to a $1.2 million decrease related to store closures across the comparative periods and $0.2 million decrease related to lower gross margins in our existing stores resulting from variations in volume and product mix between the comparative periods. ​ OPERATING EXPENSE—Fiscal 2023 vs.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL AND LEASED RIGHT-OF-USE ASSETS Long-lived assets consist primarily of property and equipment, leased right-of-use (“ROU”) assets, intangible assets, and goodwill acquired in business combinations. Property and equipment, ROU assets and amortizable identified intangible assets are assigned useful lives ranging from 1 to 40 years.
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.
Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and in the case of the AMCON Facility, certain of the Company’s real estate. The Facilities each feature an unused commitment fee and financial covenants including fixed charge coverage ratios.
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.
Significant items impacting operating expenses in our Retail Segment during fiscal 2022 included a $0.3 million increase in other operating expenses and $0.2 million in operating costs related to Hurricane Ian, partially offset by a $0.3 million decrease in operating expenses related to store closures across the comparative periods. INCOME TAX EXPENSE — Fiscal 2022 vs.
Significant items impacting operating expenses during fiscal 2023 included a $20.3 million increase in operating expenses related to the acquisition of Henry’s during Q2 2023, a $16.0 million increase in operating expenses related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $2.4 million increase in other Wholesale Segment operating expenses including employee compensation and benefit costs, and a $2.0 million increase in insurance costs, partially offset by a $0.7 million decrease in fuel costs, a $0.1 million decrease in our customer bad debt expense and a $0.1 million decrease in our Retail Segment operating expenses.
Finally, we continue to closely monitor proposals from governmental and regulatory bodies including the United States Food and Drug Administration (“FDA”) which are evaluating the prohibition and/or limitations on the sale of certain cigarette (menthol flavored) tobacco and e-cigarette/vaping products.
Combined with a persistently high inflationary operating environment, these factors have resulted in cost pressures across both of our business segments as product, labor, fuel, interest and other costs have all increased markedly while at the same time pressuring consumer demand trends. ​ Finally, we continue to monitor proposals from governmental and regulatory bodies, including the United States Food and Drug Administration (“FDA”), which are evaluating the possible prohibition and/or limitations on the sale of certain cigarette, tobacco and vaping products, including menthol.
During fiscal 2022, the peak borrowings under the Facilities was $123.5 million, and the average borrowings and average availability under the Facilities was $60.7 million and $69.4 million, respectively.
During fiscal 2023, the peak borrowings under the Facilities was $159.7 million, and the average borrowings and average availability under the Facilities was $124.3 million and $86.4 million, respectively. Cross Default and Co-Terminus Provisions Team Sledd’s three 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.
Removed
Business Update While the Company experienced strong fiscal 2022 results, it remains cautious moving into fiscal 2023 and beyond based on a range of considerations including, but not limited to, those described below. Our businesses continue to be impacted by a number of macro-economic factors including ongoing disruptions to global supply chains and product availability.
Added
The acquisition of Henry’s expanded our geographic footprint and has provided access to an industry-leading foodservice distribution platform. Macroeconomic factors including ongoing disruptions to supply chains continue to impact product and equipment availability for our businesses.
Removed
These factors, combined with a highly inflationary operating environment have resulted in cost pressures across both of our business segments as product, labor, fuel, interest and other costs have all increased significantly. Since the onset of the COVID-19 pandemic, both of our businesses have experienced an increase in demand and sales across a broad range of product categories.
Added
Significant items impacting sales during fiscal 2023 included a $362.4 million increase in comparative sales related to the acquisition of a controlling interest in Team Sledd, LLC (“Team Sledd”) during Q3 2022, a $220.6 million increase in sales related to the acquisition of Henry’s Foods, Inc.
Removed
It remains unclear, however, if these demand trends will remain intact or if they will eventually revert back to more historical levels over time, particularly as rapid inflation continues to impact consumer discretionary spending.
Added
Gross profit in our Retail Segment decreased $1.4 million in fiscal 2023 as compared to fiscal 2022.
Removed
Significant items impacting operating expenses during fiscal 2022 included a $11.6 million increase in operating expenses related to the acquisition of Team Sledd, and a $7.3 million increase in employee compensation and benefit costs largely due to a highly competitive labor market which has increased wage levels across all functional areas of the Company.
Added
INTEREST EXPENSE — Fiscal 2023 vs. Fiscal 2022 Interest expense increased $6.3 million during fiscal 2023 as compared to fiscal 2022, primarily related to higher interest rates and higher outstanding debt balances in the current year period related to the acquisition of a controlling interest in Team Sledd in Q3 2022 and the acquisition of Henry’s in Q2 2023.
Removed
In addition, the 21 Table of Contents Company experienced a $2.0 million increase in fuel costs primarily related to higher diesel fuel prices, and a $1.5 million increase in operating expenses, including health and other insurance costs and other operating expenses in our Wholesale and Retail Segments.
Added
OTHER INCOME — Fiscal 2023 vs. Fiscal 2022 The change in other income between the comparative periods was primarily related to a non-cash accounting gain of approximately $2.4 million in fiscal 2022 related to the consolidation of Team Sledd, partially offset by an insurance recovery in fiscal 2023. INCOME TAX EXPENSE — Fiscal 2023 vs.
Removed
Borrowings under the Facilities bear interest at either the bank’s prime rate, the Secured Overnight Financing Rate (“SOFR”) or the London Interbank Offered Rate (“LIBOR”), plus any applicable spreads.
Added
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.
Removed
Cross Default and Co-Terminus Provisions The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which was financed through a single term loan (the “Real Estate Loan”) with BMO Harris Bank N.A. (“BMO”) which is also a participant lender on the AMCON Facility.
Added
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.
Removed
During Q4 2022, in connection with the amendment to the AMCON Facility during Q3 2022, the Company’s Real Estate Loan with BMO was terminated and the $4.2 million remaining principal was paid in full. The Company’s real properties that were subject to the terminated agreement are now collateral under the AMCON Facility.
Added
The Facilities each feature an unused commitment fee and springing financial covenants.
Removed
The Real Estate Loan contained cross default provisions which would have caused it to be considered in default if the loans where BMO is a lender, including the AMCON Facility, were in default. There were no such cross defaults at September 2021.
Added
There were no such cross defaults for either Team Sledd or Henry’s at September 2023. 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.
Removed
In addition, the Real Estate Loan contained co-terminus provisions which would have required all loans 22 Table of Contents with BMO to be paid in full if any of the loans were paid in full prior to the end of their specified terms. Team Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions.
Added
INCOME TAXES The Company accounts for its income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns.
Removed
In making that estimate we consider the following key factors: ● our current financial position; ● historical financial information; ● future reversals of existing taxable temporary differences; ● future taxable income exclusive of reversing temporary differences and carryforwards; ● taxable income in prior carryback years; and ● tax planning strategies.
Added
Our estimates and assumptions for each of the aforementioned critical accounting estimates have not changed materially during the periods presented, nor are we aware of any reasons that they would be reasonably likely to change in the future.

Other DIT 10-K year-over-year comparisons