##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-15589
 
 
  Delaware
    
    47-0702918(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)7405 Irvington Road, Omaha NE
    
    68122(Address of principal executive offices)
    
    (Zip code)
 Registrants telephone number, including area code: (402) 331-3727
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



Form 10-Q
3rd Quarter
 INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed consolidated balance sheets at June 30, 2010 (unaudited) and September 30, 2009
    
    
    3Condensed consolidated unaudited statements of operations for the three and nine months ended June 30, 2010 and 2009
    
    
    4Condensed consolidated unaudited statements of cash flows for the three and nine months ended June 30, 2010 and 2009
    
    
    5Notes to condensed consolidated unaudited financial statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. (Removed and Reserved)
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AMCON Distributing Company and Subsidiaries
 
 Condensed Consolidated Balance Sheets
 June 30, 2010 and September 30, 2009
 June
    
    
    September2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash
    
    $
    365,362
    
    
    $
    309,914Accounts receivable, less allowance
for doubtful accounts of $1.7
million and
$0.9 million at June 2010 and
September 2009
    
    
    29,967,877
    
    
    
    28,393,198Inventories, net
    
    
    41,308,413
    
    
    
    34,486,027Deferred income taxes
    
    
    1,967,233
    
    
    
    1,701,568Prepaid and other current assets
    
    
    4,554,137
    
    
    
    1,728,576Total current assets
    
    
    78,163,022
    
    
    
    66,619,283Property and equipment, net
    
    
    11,780,603
    
    
    
    11,256,627Goodwill
    
    
    6,149,168
    
    
    
    5,848,808Other intangible assets
    
    
    4,858,269
    
    
    
    3,373,269Other assets
    
    
    1,062,245
    
    
    
    1,026,395$
    102,013,307
    
    
    $
    88,124,382LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,647,475
    
    
    $
    15,222,689Accrued expenses
    
    
    6,605,525
    
    
    
    6,768,924Accrued wages, salaries and bonuses
    
    
    3,045,321
    
    
    
    3,257,832Income taxes payable
    
    
    2,527,497
    
    
    
    3,984,258Current maturities of credit facility
    
    
    
    
    
    
    177,867Current maturities of long-term debt
    
    
    933,256
    
    
    
    1,470,445Total current liabilities
    
    
    31,759,074
    
    
    
    30,882,015Credit facility, less current maturities
    
    
    28,480,212
    
    
    
    22,655,861Deferred income taxes
    
    
    1,141,803
    
    
    
    1,256,713Long-term debt, less current maturities
    
    
    5,435,769
    
    
    
    5,066,185Other long-term liabilities
    
    
    562,575
    
    
    
    Series A cumulative, convertible
preferred stock, $.01 par value 100,000
shares authorized and issued,
liquidation preference $25.00 per share
    
    
    2,500,000
    
    
    
    2,500,000Series B cumulative, convertible
preferred stock, $.01 par value 80,000
shares authorized and issued,
liquidation preference $25.00 per share
    
    
    2,000,000
    
    
    
    2,000,000Shareholders equity:Preferred stock, $0.01 par,
1,000,000 shares authorized, 180,000
shares outstanding and issued in
Series A and B referred to above
    
    
    
    
    
    
    Common stock, $.01 par value,
3,000,000 shares authorized, 577,266
shares outstanding at
June
2010 and 573,232 shares outstanding
at September 2009
    
    
    5,773
    
    
    
    5,732Additional paid-in capital
    
    
    8,250,974
    
    
    
    7,617,494Retained earnings
    
    
    21,877,127
    
    
    
    16,140,382Total shareholders equity
    
    
    30,133,874
    
    
    
    23,763,608$
    102,013,307
    
    
    $
    88,124,382
   3




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AMCON Distributing Company and Subsidiaries
 
 Condensed Consolidated Unaudited Statements of Operations
 for the three and nine months ended June 30, 2010 and 2009
 For the three months
    
    
    For the nine monthsended June
    
    
    ended June2010
    
    
    2009
    
    
    2010
    
    
    2009Sales (including excise taxes of $87.9 million and
$77.4 million, and $246.3 million and $171.0
million, respectively)
    
    $
    267,062,440
    
    
    $
    242,817,927
    
    
    $
    741,502,607
    
    
    $
    655,637,536Cost of sales
    
    
    247,932,676
    
    
    
    225,753,469
    
    
    
    688,204,656
    
    
    
    605,481,395Gross profit
    
    
    19,129,764
    
    
    
    17,064,458
    
    
    
    53,297,951
    
    
    
    50,156,141Selling, general and administrative expenses
    
    
    14,070,483
    
    
    
    12,800,612
    
    
    
    41,215,024
    
    
    
    38,625,335Depreciation and amortization
    
    
    440,466
    
    
    
    273,650
    
    
    
    1,243,307
    
    
    
    884,97214,510,949
    
    
    
    13,074,262
    
    
    
    42,458,331
    
    
    
    39,510,307Operating income
    
    
    4,618,815
    
    
    
    3,990,196
    
    
    
    10,839,620
    
    
    
    10,645,834Other expense (income):Interest expense
    
    
    370,873
    
    
    
    368,048
    
    
    
    1,144,543
    
    
    
    1,265,834Other (income), net
    
    
    (32,758
    )
    
    
    (43,600
    )
    
    
    (69,184
    )
    
    
    (84,143
    )338,115
    
    
    
    324,448
    
    
    
    1,075,359
    
    
    
    1,181,691Income from continuing operations before income tax
    
    
    4,280,700
    
    
    
    3,665,748
    
    
    
    9,764,261
    
    
    
    9,464,143Income tax expense
    
    
    1,532,000
    
    
    
    1,411,000
    
    
    
    3,495,000
    
    
    
    3,614,000Income from continuing operations
    
    
    2,748,700
    
    
    
    2,254,748
    
    
    
    6,269,261
    
    
    
    5,850,143Discontinued operations (Note 2)Gain on asset disposal and debt settlement, net
of income tax expense of $2.7 million
    
    
    
    
    
    
    4,666,264
    
    
    
    
    
    
    
    4,666,264Income (loss) from discontinued operations, net
of
income tax expense (benefit) of $0.01
million and ($0.1) million,
respectively
    
    
    
    
    
    
    13,105
    
    
    
    
    
    
    
    (186,370
    )Income on discontinued operations
    
    
    
    
    
    
    4,679,369
    
    
    
    
    
    
    
    4,479,894Net income
    
    
    2,748,700
    
    
    
    6,934,117
    
    
    
    6,269,261
    
    
    
    10,330,037Preferred stock dividend requirements
    
    
    (74,052
    )
    
    
    (74,052
    )
    
    
    (222,158
    )
    
    
    (493,786
    )Net income available to common shareholders
    
    $
    2,674,648
    
    
    $
    6,860,065
    
    
    $
    6,047,103
    
    
    $
    9,836,251Basic earnings per share available to common
shareholders:Continuing operations
    
    $
    4.72
    
    
    $
    3.97
    
    
    $
    10.73
    
    
    $
    9.78Discontinued operations
    
    
    
    
    
    
    8.52
    
    
    
    
    
    
    
    8.17Net basic earnings per share available to
common shareholders
    
    $
    4.72
    
    
    $
    12.49
    
    
    $
    10.73
    
    
    $
    17.95Diluted earnings per share available to common
shareholders:Continuing operations
    
    $
    3.67
    
    
    $
    3.11
    
    
    $
    8.39
    
    
    $
    7.37Discontinued operations
    
    
    
    
    
    
    6.46
    
    
    
    
    
    
    
    5.65Net diluted earnings per share available to
common shareholders
    
    $
    3.67
    
    
    $
    9.57
    
    
    $
    8.39
    
    
    $
    13.02Weighted average shares outstanding:Basic
    
    
    566,224
    
    
    
    549,397
    
    
    
    563,505
    
    
    
    547,859Diluted
    
    
    749,350
    
    
    
    724,833
    
    
    
    747,035
    
    
    
    793,610
   4




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AMCON Distributing Company and Subsidiaries
 
 Condensed Consolidated Unaudited Statements of Cash Flows
 for the nine months ended June 30, 2010 and 2009
 2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,269,261
    
    
    $
    10,330,037Deduct: Income from discontinued operations, net of tax
    
    
    
    
    
    
    4,479,894Income from continuing operations
    
    
    6,269,261
    
    
    
    5,850,143Adjustments to reconcile net income from continuing
operations
to net cash flows from operating activities:Depreciation
    
    
    1,043,186
    
    
    
    884,972Amortization
    
    
    200,121
    
    
    
    (Gain) loss on sale of property and equipment
    
    
    (31,843
    )
    
    
    26,468Stock based compensation
    
    
    376,422
    
    
    
    398,700Net excess tax (benefit) deficiency on equity-based awards
    
    
    (130,126
    )
    
    
    16,592Deferred income taxes
    
    
    (380,575
    )
    
    
    893,851Provision for losses on doubtful accounts
    
    
    750,489
    
    
    
    489,038Provision for losses on inventory obsolescence
    
    
    82,778
    
    
    
    331,319Other
    
    
    77,094
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (2,325,168
    )
    
    
    (1,797,340
    )Inventories
    
    
    (4,923,666
    )
    
    
    1,714,017Prepaid and other current assets
    
    
    (2,830,201
    )
    
    
    312,759Other assets
    
    
    (35,850
    )
    
    
    59,277Accounts payable
    
    
    3,388,920
    
    
    
    (365,711
    )Accrued expenses and accrued wages, salaries and bonuses
    
    
    (375,910
    )
    
    
    2,625,568Income tax payable
    
    
    (1,326,635
    )
    
    
    4,713,677Net cash flows from operating activities  continuing operations
    
    
    (171,703
    )
    
    
    16,153,330Net cash flows from operating activities  discontinued operations
    
    
    
    
    
    
    (2,673,712
    )Net cash flows from operating activities
    
    
    (171,703
    )
    
    
    13,479,618CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (1,423,912
    )
    
    
    (784,221
    )Proceeds from sales of property and equipment
    
    
    62,406
    
    
    
    102,406Acquisition
    
    
    (3,099,836
    )
    
    
    Net cash flows from investing activities
    
    
    (4,461,342
    )
    
    
    (681,815
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings (payments) on bank credit agreements
    
    
    5,646,484
    
    
    
    (8,955,236
    )Principal payments on long-term debt
    
    
    (682,574
    )
    
    
    (604,975
    )Proceeds from exercise of stock options
    
    
    126,973
    
    
    
    Net excess tax (benefit) deficiency on equity-based awards
    
    
    130,126
    
    
    
    (16,592
    )Redemption of Series C convertible preferred stock
    
    
    
    
    
    
    (2,000,000
    )Dividends paid on convertible preferred stock
    
    
    (222,158
    )
    
    
    (272,158
    )Dividends on common stock
    
    
    (310,358
    )
    
    
    (171,119
    )Net cash flows from financing activities  continuing operations
    
    
    4,688,493
    
    
    
    (12,020,080
    )Net cash flows from financing activities  discontinued operations
    
    
    
    
    
    
    (825,000
    )Net cash flows from financing activities
    
    
    4,688,493
    
    
    
    (12,845,080
    )Net change in cash
    
    
    55,448
    
    
    
    (47,277
    )Cash, beginning of period
    
    
    309,914
    
    
    
    457,681Cash, end of period
    
    $
    365,362
    
    
    $
    410,404
   5




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2010
    
    
    2009Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    1,141,934
    
    
    $
    1,347,690Cash paid during the period for income taxes
    
    
    5,202,208
    
    
    
    612,473Supplemental disclosure of non-cash information:Equipment acquisitions classified as accounts payable
    
    
    35,866
    
    
    
    108,546Constructive dividends on Series A, B, and C Convertible Preferred Stock
    
    
    
    
    
    
    221,628Acquisition of equipment through capital leases
    
    
    14,969
    
    
    
    12,333Business acquisition (see Note 2):Inventory
    
    
    1,981,498
    
    
    
    Property and equipment
    
    
    122,978
    
    
    
    Customer relationships intangible asset
    
    
    1,620,000
    
    
    
    Goodwill
    
    
    300,360
    
    
    
    Note payable
    
    
    500,000
    
    
    
    Contingent consideration
    
    
    425,000
    
    
    
    TSI disposition  discontinued operationsProperty and equipment, net
    
    
    
    
    
    
    (2,032,047
    )Accrued expenses
    
    
    
    
    
    
    (925,452
    )Long-term debt
    
    
    
    
    
    
    (6,945,548
    )Deferred gain on CPH Settlement
    
    
    
    
    
    
    (1,542,312
    )
   6




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AMCON Distributing Company and Subsidiaries
 
 Notes to Condensed Consolidated Unaudited Financial Statements
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
  
    
    Our wholesale distribution segment (Wholesale Segment) distributes consumer
products in the Central and Rocky Mountain regions of the United States.
 
    
    Our retail health food segment (Retail Segment) operates fourteen health food
retail stores located throughout the Midwest and Florida.
 WHOLESALE SEGMENT
   RETAIL SEGMENT
  FINANCIAL STATEMENTS
   7




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Recently Issued Accounting Pronouncements
  (Accounting for Transfers of Financial Assets)
 (Amendments to FASB Interpretation: Consolidation of Variable Interest Entities)
 2. ACQUISITION AND DISPOSITIONS
 ACQUISITION
   Total Consideration
    
    Amount(in millions)Cash
    
    $
    3.1Note payable
    
    
    0.5Fair value of contingent consideration
    
    
    0.4Fair value of consideration transferred
    
    $
    4.0
 Recognized amounts of identifiable assets acquired
 WeightedAverageAmortizationAmount
    
    
    Period(in millions)Inventory
    
    $
    2.0
    
    
    
    Property and equipment
    
    
    0.1
    
    
    5 yearsIdentifiable intangible assets:Customer relationships
    
    
    1.6
    
    
    8 yearsTotal identifiable net assets
    
    
    3.7Goodwill
    
    
    0.3Total identifiable assets and goodwill
    
    $
    4.0
   8




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Three months ended
    
    
    Nine months endedJune
    
    
    June(In millions)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue  Actual Results
    
    $
    16.1
    
    
    $
    
    
    
    $
    38.3
    
    
    $
    Revenue  Supplemental pro forma results
    
    $
    16.1
    
    
    $
    14.9
    
    
    $
    43.3
    
    
    $
    39.4Net Income  Actual Results
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.3
    
    
    $
    Net Income  Supplemental pro forma results
    
    $
    0.1
    
    
    $
    (0.1
    )
    
    $
    0.3
    
    
    $
    0.2
 DISPOSITION  DISCONTINUED OPERATIONS
  Three months ended
    
    
    Nine months endedJune
    
    
    June2010
    
    
    2009
    
    
    2010
    
    
    2009Operating income (loss)
    
    $
    
    
    
    $
    20,105
    
    
    $
    
    
    
    
    (65,458
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230,012
    )Gain on asset disposal and debt settlement
    
    
    
    
    
    
    7,381,264
    
    
    
    
    
    
    
    7,381,264Income tax expense
    
    
    
    
    
    
    2,722,000
    
    
    
    
    
    
    
    2,606,000Income from discontinued operations
    
    
    
    
    
    
    4,679,369
    
    
    
    
    
    
    
    4,479,894
 3. CONVERTIBLE PREFERRED STOCK:
  Series A
    
    
    Series BDate of issuance:
    
    June 17, 2004
    
    
    October 8, 2004Optionally redeemable beginning
    
    June 18, 2006
    
    
    October 9, 2006Par value (gross proceeds):
    
    $
    2,500,000
    
    
    $
    2,000,000Number of shares:
    
    
    100,000
    
    
    
    80,000Liquidation preference per share:
    
    $
    25.00
    
    
    $
    25.00Conversion price per share:
    
    $
    30.31
    
    
    $
    24.65Number of common shares in which to be converted:
    
    
    82,481
    
    
    
    81,136Dividend rate:
    
    
    6.785
    %
    
    
    6.37
    %
    9




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4. INVENTORIES
  5. GOODWILL AND OTHER INTANGIBLE ASSETS
  June
    
    
    September2010
    
    
    2009Wholesale Segment
    
    $
    4,236,291
    
    
    $
    3,935,931Retail Segment
    
    
    1,912,877
    
    
    
    1,912,877$
    6,149,168
    
    
    $
    5,848,808
  June
    
    
    September2010
    
    
    2009Trademarks and tradenames
    
    $
    3,373,269
    
    
    $
    3,373,269Customer relationships (less accumulated amortization of $135,000)
    
    
    1,485,000
    
    
    
    $
    4,858,269
    
    
    $
    3,373,269
   Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal2010/1/
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    ThereafterCustomer relationships
    
    
    50,625
    
    
    
    202,500
    
    
    
    202,500
    
    
    
    202,500
    
    
    
    826,875
 /1/
    
    Represents amortization for the remaining three months of Fiscal 2010. 6. DIVIDENDS:
   10




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##### Table of Contents



7. EARNINGS PER SHARE
   For the three months ended June2010
    
    
    2009Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedWeighted average common shares outstanding
    
    
    566,224
    
    
    
    566,224
    
    
    
    549,397
    
    
    
    549,397Weighted average of net additional shares outstanding
assuming dilutive options exercised and proceeds used to
purchase treasury stock and conversion of preferred stock /1/
    
    
    
    
    
    
    183,126
    
    
    
    
    
    
    
    175,436Weighted average number of shares outstanding
    
    
    566,224
    
    
    
    749,350
    
    
    
    549,397
    
    
    
    724,833Income from continuing operations
    
    $
    2,748,700
    
    
    $
    2,748,700
    
    
    $
    2,254,748
    
    
    $
    2,254,748Deduct: convertible preferred stock dividends /2/
    
    
    (74,052
    )
    
    
    
    
    
    
    (74,052
    )
    
    
    2,674,648
    
    
    
    2,748,700
    
    
    
    2,180,696
    
    
    
    2,254,748Income from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    4,679,369
    
    
    $
    4,679,369Net income available to common shareholders
    
    $
    2,674,648
    
    
    $
    2,748,700
    
    
    $
    6,860,065
    
    
    $
    6,934,117Income per share from continuing operations
    
    $
    4.72
    
    
    $
    3.67
    
    
    $
    3.97
    
    
    $
    3.11Income per share from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    8.52
    
    
    $
    6.46Net earnings per share available to common shareholders
    
    $
    4.72
    
    
    $
    3.67
    
    
    $
    12.49
    
    
    $
    9.57
 /1/
    
    Diluted earnings per share calculation includes all stock options, convertible preferred stock, and
restricted stock deemed to be dilutive./2/
    
    Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to
be dilutive, as those amounts are assumed to have been converted to common stock of the Company. For the nine months ended June2010
    
    
    2009Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedWeighted average common shares outstanding
    
    
    563,505
    
    
    
    563,505
    
    
    
    547,859
    
    
    
    547,859Weighted average of net additional shares outstanding
assuming dilutive options exercised and proceeds used
to purchase treasury stock and conversion of preferred
stock /1/
    
    
    
    
    
    
    183,530
    
    
    
    
    
    
    
    245,751Weighted average number of shares outstanding
    
    
    563,505
    
    
    
    747,035
    
    
    
    547,859
    
    
    
    793,610Income from continuing operations
    
    $
    6,269,261
    
    
    $
    6,269,261
    
    
    $
    5,850,143
    
    
    $
    5,850,143Deduct: convertible preferred stock dividends /2/
    
    
    (222,158
    )
    
    
    
    
    
    
    (493,786
    )
    
    
    6,047,103
    
    
    
    6,269,261
    
    
    
    5,356,357
    
    
    
    5,850,143Income from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    4,479,894
    
    
    $
    4,479,894Net income available to common shareholders
    
    $
    6,047,103
    
    
    $
    6,269,261
    
    
    $
    9,836,251
    
    
    $
    10,330,037Income per share from continuing operations
    
    $
    10.73
    
    
    $
    8.39
    
    
    $
    9.78
    
    
    $
    7.37Income per share from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    8.17
    
    
    $
    5.65Net earnings per share available to common shareholders
    
    $
    10.73
    
    
    $
    8.39
    
    
    $
    17.95
    
    
    $
    13.02
 /1/
    
    Diluted earnings per share calculation includes all stock options,
convertible preferred stock, and restricted stock deemed to be
dilutive./2/
    
    Diluted earnings per share calculation excludes dividends for
convertible preferred stock deemed to be dilutive, as those amounts
are assumed to have been converted to common stock of the Company.  11




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##### Table of Contents



8. DEBT
  
    
    A January 1, 2012 maturity date and a $55.0 million revolving credit limit.
 
    
    The Facility bears interest at either the banks prime rate or at LIBOR plus 250 basis
points, at the election of the Company.
 
    
    The Facility provides for an additional $5.0 million of credit advances available for certain
inventory purchases. These advances bear interest at the banks prime rate plus one-quarter of
one-percent (1/4%) per annum and are payable within 45 days of each advance.
    
    Lending limits subject to accounts receivable and inventory limitations.
 
    
    An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the
difference between the maximum loan limit and average monthly borrowings.
 
    
    Secured by collateral including all of the Companys equipment, intangibles, inventories, and
accounts receivable.
 
    
    Provides that the Company may not pay dividends on its common stock in excess of $0.72 per
share on an annual basis.
 
    
    The Facility includes a prepayment penalty equal to one-half of one percent (1/2%) of the
original maximum loan limit ($60.4 million) if the Company prepays the entire Facility or
terminates the credit agreement on or before January 1, 2011.
    Cross Default and Co-Terminus Provisions
  Other
  Off-Balance Sheet Arrangements
   12




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##### Table of Contents



9. EQUITY-BASED INCENTIVE AWARDS
 Omnibus Plan
  Stock Options
   Stock Option Pricing AssumptionsRisk-free interest rate
    
    
    3.04
    %Dividend yield
    
    
    1.30
    %Expected volatility
    
    
    49.3
    %Expected life in years
    
    
    7
  Number ofOptions
    
    
    NumberDate
    
    Exercise Price
    
    
    Outstanding
    
    
    ExercisableFiscal 2003
    
    $
    28.80
    
    
    
    251
    
    
    
    251Fiscal 2007
    
    $
    18.00
    
    
    
    25,000
    
    
    
    25,000Fiscal 2010
    
    $
    51.50
    
    
    
    6,000
    
    
    
    31,251
    
    
    
    25,251
  Number ofOptions
    
    
    NumberDate
    
    Exercise Price
    
    
    Outstanding
    
    
    ExercisableFiscal 2002
    
    $
    26.94
    
    
    
    834
    
    
    
    834
  Remaining
    
    
    
    
    
    
    ExercisableExercise
    
    
    Number
    
    
    Weighted-Average
    
    
    Weighted-Average
    
    
    Number
    
    
    Weighted-AveragePrice
    
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price2002 Options
    
    $
    26.94
    
    
    
    834
    
    
    2.12 years
    
    $
    26.94
    
    
    
    834
    
    
    $
    26.942003 Options
    
    $
    28.80
    
    
    
    251
    
    
    2.30 years
    
    $
    28.80
    
    
    
    251
    
    
    $
    28.802007 Options
    
    $
    18.00
    
    
    
    25,000
    
    
    6.45 years
    
    $
    18.00
    
    
    
    25,000
    
    
    $
    18.002010 Options
    
    $
    51.50
    
    
    
    6,000
    
    
    9.83 years
    
    $
    51.50
    
    
    
    
    
    
    
    32,085
    
    
    
    
    
    
    $
    24.58
    
    
    
    26,085
    
    
    $
    18.39
  13




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##### Table of Contents



WeightedNumber
    
    
    Averageof
    
    
    ExerciseShares
    
    
    PriceOutstanding at September 2009
    
    
    30,117
    
    
    $
    20.16Granted
    
    
    6,000
    
    
    $
    51.50Exercised
    
    
    (4,032
    )
    
    $
    31.56Forfeited/Expired
    
    
    
    
    
    
    Outstanding at June 2010
    
    
    32,085
    
    
    $
    24.58
  Restricted Stock
  Restricted Stock /1/
    
    
    Restricted Stock /2/Date of award:
    
    December 6, 2007
    
    
    January 29, 2008Number of shares:
    
    
    24,000
    
    
    
    7,500Service period:
    
    34 months
    
    
    36 monthsEstimated fair value of award at grant date /3/:
    
    $
    963,000
    
    
    $
    229,000Intrinsic value of awards outstanding at June 2010:
    
    $
    454,000
    
    
    $
    142,000
 /1/
    
    The remaining 8,000 shares will vest on October 16, 2010./2/
    
    The remaining 2,500 shares will vest January 29, 2011./3/
    
    Amount is net of estimated forfeitures.    Number
    
    
    Weighted Averageof
    
    
    Grant DateShares
    
    
    Fair ValueNonvested restricted stock at September 2009
    
    
    21,000
    
    
    $
    40.16Granted
    
    
    
    
    
    
    Vested
    
    
    (10,500
    )
    
    $
    40.16Expired
    
    
    
    
    
    
    Nonvested restricted stock at June 2010
    
    
    10,500
    
    
    $
    40.16
  14




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##### Table of Contents



10. BUSINESS SEGMENTS
  Wholesale
    
    
    RetailSegment
    
    
    Segment
    
    
    Other /1/
    
    
    ConsolidatedTHREE MONTHS ENDED JUNE 2010:External revenue:Cigarettes
    
    $
    192,819,138
    
    
    $
    
    
    
    $
    
    
    
    $
    192,819,138Confectionery
    
    
    18,276,797
    
    
    
    
    
    
    
    
    
    
    
    18,276,797Health food
    
    
    
    
    
    
    9,220,081
    
    
    
    
    
    
    
    9,220,081Tobacco, food service & other
    
    
    46,746,424
    
    
    
    
    
    
    
    
    
    
    
    46,746,424Total external revenue
    
    
    257,842,359
    
    
    
    9,220,081
    
    
    
    
    
    
    
    267,062,440Depreciation
    
    
    270,627
    
    
    
    92,763
    
    
    
    936
    
    
    
    364,326Amortization
    
    
    76,140
    
    
    
    
    
    
    
    
    
    
    
    76,140Operating income (loss)
    
    
    4,820,946
    
    
    
    911,760
    
    
    
    (1,113,891
    )
    
    
    4,618,815Interest expense
    
    
    119,356
    
    
    
    111,322
    
    
    
    140,195
    
    
    
    370,873Income (loss) from continuing operations before taxes
    
    
    4,708,303
    
    
    
    811,190
    
    
    
    (1,238,793
    )
    
    
    4,280,700Total assets
    
    
    88,755,030
    
    
    
    12,238,486
    
    
    
    1,019,791
    
    
    
    102,013,307Capital expenditures
    
    
    136,591
    
    
    
    184,392
    
    
    
    
    
    
    
    320,983THREE MONTHS ENDED JUNE 2009:External revenue:Cigarettes
    
    $
    175,859,941
    
    
    $
    
    
    
    $
    
    
    
    $
    175,859,941Confectionery
    
    
    17,248,948
    
    
    
    
    
    
    
    
    
    
    
    17,248,948Health food
    
    
    
    
    
    
    9,059,300
    
    
    
    
    
    
    
    9,059,300Tobacco, food service & other
    
    
    40,649,738
    
    
    
    
    
    
    
    
    
    
    
    40,649,738Total external revenue
    
    
    233,758,627
    
    
    
    9,059,300
    
    
    
    
    
    
    
    242,817,927Depreciation
    
    
    223,275
    
    
    
    49,228
    
    
    
    1,147
    
    
    
    273,650Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    4,661,114
    
    
    
    888,437
    
    
    
    (1,559,355
    )
    
    
    3,990,196Interest expense
    
    
    132,192
    
    
    
    133,692
    
    
    
    102,164
    
    
    
    368,048Income (loss) from continuing operations before taxes
    
    
    4,536,746
    
    
    
    765,176
    
    
    
    (1,636,174
    )
    
    
    3,665,748Total assets
    
    
    77,693,924
    
    
    
    11,517,275
    
    
    
    989,112
    
    
    
    90,200,311Capital expenditures
    
    
    223,251
    
    
    
    63,569
    
    
    
    
    
    
    
    286,820
 /1/
    
    Includes intercompany eliminations, charges incurred by the holding company, and the assets of discontinued operations.  15




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##### Table of Contents



10. BUSINESS SEGMENTS (continued)
 Wholesale
    
    
    RetailSegment
    
    
    Segment
    
    
    Other /1/
    
    
    ConsolidatedNINE MONTHS ENDED JUNE 2010:External revenue:Cigarettes
    
    $
    537,317,934
    
    
    $
    
    
    
    $
    
    
    
    $
    537,317,934Confectionery
    
    
    48,472,133
    
    
    
    
    
    
    
    
    
    
    
    48,472,133Health food
    
    
    
    
    
    
    27,639,474
    
    
    
    
    
    
    
    27,639,474Tobacco, food service & other
    
    
    128,073,066
    
    
    
    
    
    
    
    
    
    
    
    128,073,066Total external revenue
    
    
    713,863,133
    
    
    
    27,639,474
    
    
    
    
    
    
    
    741,502,607Depreciation
    
    
    808,338
    
    
    
    231,618
    
    
    
    3,230
    
    
    
    1,043,186Amortization
    
    
    200,121
    
    
    
    
    
    
    
    
    
    
    
    200,121Operating income (loss)
    
    
    12,354,842
    
    
    
    2,922,249
    
    
    
    (4,437,471
    )
    
    
    10,839,620Interest expense
    
    
    366,547
    
    
    
    351,612
    
    
    
    426,384
    
    
    
    1,144,543Income (loss) from continuing operations before taxes
    
    
    12,010,720
    
    
    
    2,601,688
    
    
    
    (4,848,147
    )
    
    
    9,764,261Total assets
    
    
    88,755,030
    
    
    
    12,238,486
    
    
    
    1,019,791
    
    
    
    102,013,307Capital expenditures
    
    
    740,175
    
    
    
    683,737
    
    
    
    
    
    
    
    1,423,912NINE MONTHS ENDED JUNE 2009:External revenue:Cigarettes
    
    $
    464,141,853
    
    
    $
    
    
    
    $
    
    
    
    $
    464,141,853Confectionery
    
    
    47,377,945
    
    
    
    
    
    
    
    
    
    
    
    47,377,945Health food
    
    
    
    
    
    
    27,604,903
    
    
    
    
    
    
    
    27,604,903Tobacco, food service & other
    
    
    116,512,835
    
    
    
    
    
    
    
    
    
    
    
    116,512,835Total external revenue
    
    
    628,032,633
    
    
    
    27,604,903
    
    
    
    
    
    
    
    655,637,536Depreciation
    
    
    716,427
    
    
    
    165,105
    
    
    
    3,440
    
    
    
    884,972Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    12,130,097
    
    
    
    2,552,606
    
    
    
    (4,036,869
    )
    
    
    10,645,834Interest expense
    
    
    391,236
    
    
    
    443,550
    
    
    
    431,048
    
    
    
    1,265,834Income (loss) from continuing operations before taxes
    
    
    11,766,639
    
    
    
    2,140,075
    
    
    
    (4,442,571
    )
    
    
    9,464,143Total assets
    
    
    77,693,924
    
    
    
    11,517,275
    
    
    
    989,112
    
    
    
    90,200,311Capital expenditures
    
    
    526,281
    
    
    
    257,940
    
    
    
    
    
    
    
    784,221
 /1/
    
    Includes intercompany eliminations, charges incurred by the holding company, and the assets of discontinued operations.  16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
  
    
    increases in state and federal excise taxes on cigarette and tobacco products
 
    
    regulation of cigarette and tobacco products by the U.S. Food and Drug Administration
(FDA), in addition to existing state and federal regulations by other agencies,
 
    
    increases in manufacturer prices,
 
    
    increases in inventory carrying costs and customer credit risk,
    
    changes in promotional and incentive programs offered by manufacturers,
    
    decreased availability of capital resources,
    
    demand for the Companys products, particularly cigarette and tobacco products,
    
    new business ventures or acquisitions,
    
    domestic regulatory and legislative risks,
    
    competition,
    
    poor weather conditions,
    
    increases in fuel prices,
    
    consolidation trends within the convenience store industry,
    
    other risks over which the Company has little or no control, and
    
    any other factors not identified herein.
   17




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##### Table of Contents



CRITICAL ACCOUNTING ESTIMATES
  THIRD FISCAL QUARTER 2010 (Q3 2010)
  Wholesale Segment
   Retail Segment
  Business Update  Wholesale Segment
     18




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##### Table of Contents



Business Update  Retail Segment
    Business Update  General
   RESULTS OF OPERATIONS
 For the three months ended JuneIncr2010
    
    
    2009
    
    
    (Decr)
    
    
    % ChangeCONSOLIDATED:Sales /1/
    
    $
    267,062,440
    
    
    $
    242,817,927
    
    
    $
    24,244,513
    
    
    
    10.0Cost of sales
    
    
    247,932,676
    
    
    
    225,753,469
    
    
    
    22,179,207
    
    
    
    9.8Gross profit
    
    
    19,129,764
    
    
    
    17,064,458
    
    
    
    2,065,306
    
    
    
    12.1Gross profit percentage
    
    
    7.2
    %
    
    
    7.0
    %Operating expense
    
    
    14,510,949
    
    
    
    13,074,262
    
    
    
    1,436,687
    
    
    
    11.0Operating income
    
    
    4,618,815
    
    
    
    3,990,196
    
    
    
    628,619
    
    
    
    15.8Interest expense
    
    
    370,873
    
    
    
    368,048
    
    
    
    2,825
    
    
    
    0.8Income tax expense
    
    
    1,532,000
    
    
    
    1,411,000
    
    
    
    121,000
    
    
    
    8.6Income from continuing operations before income taxes
    
    
    2,748,700
    
    
    
    2,254,748
    
    
    
    493,952
    
    
    
    21.9BUSINESS SEGMENTS:WholesaleSales
    
    $
    257,842,359
    
    
    $
    233,758,627
    
    
    $
    24,083,732
    
    
    
    10.3Gross profit
    
    
    15,054,498
    
    
    
    13,311,241
    
    
    
    1,743,257
    
    
    
    13.1Gross profit percentage
    
    
    5.8
    %
    
    
    5.7
    %RetailSales
    
    $
    9,220,081
    
    
    $
    9,059,300
    
    
    $
    160,781
    
    
    
    1.8Gross profit
    
    
    4,075,266
    
    
    
    3,753,217
    
    
    
    322,049
    
    
    
    8.6Gross profit percentage
    
    
    44.2
    %
    
    
    41.4
    %
 /1/
    
    Sales are reported net of costs associated with incentives provided to retailers. These
incentives totaled $3.9 million and $3.7 in Q3 2010 and Q3 2009 respectively.  19




---



##### Table of Contents



SALES:
  (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 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.
 SALES  Q3 2010 vs. Q3 2009
  
    
    $16.1 million increase related to our expansion into Northwest Arkansas with the Discount
Distributors acquisition.
    
    $4.9 million increase due to cigarette price increases implemented by manufacturers.
    
    $0.7 million decrease, primarily related to a reduction in cigarette cartons sold.
 
    
    $3.8 million increase in our tobacco, beverage, snacks, candy, grocery, health & beauty
products, automotive, food service, and store supplies categories (Other Products)
  GROSS PROFIT  Q3 2010 vs. Q3 2009
    OPERATING EXPENSE  Q3 2010 vs. Q3 2009
    20




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##### Table of Contents



RESULTS OF OPERATIONS  NINE MONTHS ENDED JUNE 2010:
 For the nine monthsended JuneIncr2010
    
    
    2009
    
    
    (Decr)
    
    
    % ChangeCONSOLIDATED:Sales
    
    $
    741,502,607
    
    
    $
    655,637,536
    
    
    $
    85,865,071
    
    
    
    13.1Cost of sales
    
    
    688,204,656
    
    
    
    605,481,395
    
    
    
    82,723,261
    
    
    
    13.7Gross profit
    
    
    53,297,951
    
    
    
    50,156,141
    
    
    
    3,141,810
    
    
    
    6.3Gross profit percentage
    
    
    7.2
    %
    
    
    7.6
    %Operating expenses
    
    
    42,458,331
    
    
    
    39,510,307
    
    
    
    2,948,024
    
    
    
    7.5Operating income
    
    
    10,839,620
    
    
    
    10,645,834
    
    
    
    193,786
    
    
    
    1.8Interest expense
    
    
    1,144,543
    
    
    
    1,265,834
    
    
    
    (121,291
    )
    
    
    (9.6
    )Income tax expense
    
    
    3,495,000
    
    
    
    3,614,000
    
    
    
    (119,000
    )
    
    
    (3.3
    )Income from continuing operations before income taxes
    
    
    6,269,261
    
    
    
    5,850,143
    
    
    
    419,118
    
    
    
    7.2BUSINESS SEGMENTS:WholesaleSales
    
    $
    713,863,133
    
    
    $
    628,032,633
    
    
    $
    85,830,500
    
    
    
    13.7Gross profit
    
    
    41,250,675
    
    
    
    38,749,866
    
    
    
    2,500,809
    
    
    
    6.5Gross profit percentage
    
    
    5.8
    %
    
    
    6.2
    %RetailSales
    
    $
    27,639,474
    
    
    $
    27,604,903
    
    
    $
    34,571
    
    
    
    0.1Gross profit
    
    
    12,047,276
    
    
    
    11,406,275
    
    
    
    641,001
    
    
    
    5.6Gross profit percentage
    
    
    43.6
    %
    
    
    41.3
    %
 /1/
    
    Sales are reported net of costs associated with incentives provided to
retailers. These incentives totaled $11.5 million for the nine months
ended June 2010 and $11.6 million for the nine months ended June 2009. SALES  Nine Months Ended June 2010
  
    
    $38.3 million increase related to our expansion into Northwest Arkansas with the acquisition
of Discount Distributors.
    
    $58.1 million increase due to cigarette price increases implemented by manufacturers.
    
    $15.6 million decrease, primarily related to a reduction in cigarette cartons sold.
    
    $5.0 million increase in Other Product sales.
   21




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##### Table of Contents



GROSS PROFIT  Nine Months Ended June 2010
   OPERATING EXPENSE  Nine Months Ended June 2010
  INTEREST EXPENSE  Nine Months Ended June 2010
  DISCONTINUED OPERATIONS
   Three months ended
    
    
    Nine months endedJune
    
    
    June2010
    
    
    2009
    
    
    2010
    
    
    2009Operating income (loss)
    
    $
    
    
    
    $
    20,105
    
    
    $
    
    
    
    
    (65,458
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230,012
    )Gain on asset disposal and debt settlement
    
    
    
    
    
    
    7,381,264
    
    
    
    
    
    
    
    7,381,264Income tax expense
    
    
    
    
    
    
    2,722,000
    
    
    
    
    
    
    
    2,606,000Income from discontinued operations
    
    
    
    
    
    
    4,679,369
    
    
    
    
    
    
    
    4,479,894
 LIQUIDITY AND CAPITAL RESOURCES
 Overview
 
    
    Operating Activities.The Company requires cash to pay operating expenses, purchase
inventory, and make capital investments. In general, the Company finances its cash flow
requirements with cash generated from operating activities and credit facility borrowings. For
the nine months ended June 2010, the Company used cash of approximately $0.2 million from
operating
activities. Significant items impacting cash used were higher accounts receivable, inventory, and
prepaid and other current assets balances. These items were partially offset by an increase in
accounts payable.
  22




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##### Table of Contents




    
    Investing Activities.The Company used approximately $4.5 million of cash during the
nine months ended June 2010 for investing activities, primarily related to capital
expenditures for property and equipment and the acquisition of Discount Distributors.
 
    
    Financing Activities. The Company generated cash of $4.7 million for financing
activities for the nine months ended June 2010. Of this amount, $5.6 million related to net
borrowings on the Companys credit facility which was used to purchase inventory and fund the
Companys acquisition of Discount Distributors, and $0.3 million related to the exercise of
stock options. Offsetting these items was $0.7 million of payments on long-term debt, and $0.5
million related to dividends on the Companys common and preferred stock.
 
    
    Cash on Hand/Working Capital. At June 2010, the Company had cash on hand of $0.4
million and working capital (current assets less current liabilities) of $46.4 million. This
compares to cash on hand of $0.3 million and working capital of $35.7 million at September
2009.
 CREDIT AGREEMENT
  
    
    A January 1, 2012 maturity date and a $55.0 million revolving credit limit.
 
    
    The Facility bears interest at either the banks prime rate or at LIBOR plus 250 basis
points, at the election of the Company.
 
    
    The Facility provides for an additional $5.0 million of credit available for certain
inventory purchases. These advances bear interest at the banks prime rate plus one-quarter of
one-percent (1/4%) per annum and are payable within 45 days of each advance.
 
    
    Lending limits that are subject to accounts receivable and inventory limitations, and an
unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference
between the maximum loan limit and average monthly borrowings.
 
    
    An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the
difference between the maximum loan limit and average monthly borrowings.
 
    
    Secured by collateral including all of the Companys equipment, intangibles, inventories, and
accounts receivable.
 
    
    Provides that the Company may not pay dividends on its common stock in excess of $0.72 per
share on an annual basis.
 
    
    The Facility includes a prepayment penalty equal to one-half of one percent (1/2%) of the
original maximum loan limit ($60.4 million) if the Company prepays the entire Facility or
terminates the credit agreement on or before January 1, 2011.
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##### Table of Contents



Cross Default and Co-Terminus Provisions
  Dividends Payments
   Contractual Obligations
  OTHER
  Off-Balance Sheet Arrangements
  Liquidity Risk
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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Limitations on Effectiveness of Controls
   Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   25




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other Information
  
 Item 6. Exhibits
  10.1
    
    
    Fourteenth Amendment to the Amended and Restated Loan and Security Agreement, dated
July 19, 2010.31.1
    
    
    Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished
pursuant to section 302 of the Sarbanes-Oxley Act31.2
    
    
    Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and
Principal Financial Officer furnished pursuant to section 302 of the Sarbanes-Oxley Act32.1
    
    
    Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished
pursuant to section 906 of the Sarbanes-Oxley Act32.2
    
    
    Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and
Principal Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act
  26




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##### Table of Contents



SIGNATURES
  AMCON DISTRIBUTING COMPANY
(registrant)Date: July 16, 2010
    /s/ Christopher H. AtayanChristopher H. Atayan,Chief Executive Officer and ChairmanDate: July 16, 2010
    /s/ Andrew C. PlummerAndrew C. Plummer,Vice President, Chief Financial Officer, and
Principal Financial Officer  27