##### 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 December 31, 2009
 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
 
 (AMCON LOGO)
  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
1st Quarter
  
 INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed consolidated balance sheets at
December 31, 2009 (unaudited) and September 30, 2009
    
    
    3Condensed consolidated unaudited statements of operations
for the three months ended December 31, 2009 and 2008
    
    
    4Condensed consolidated unaudited statements of cash flows
for the three months ended December 31, 2009 and 2008
    
    
    5Notes to condensed consolidated unaudited
financial statements
    
    
    7Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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##### Table of Contents



PART I   FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 AMCON Distributing Company and Subsidiaries
 
 Condensed Consolidated Balance Sheets
December 31, 2009 and September 30, 2009
 December
    
    
    September2009
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash
    
    $
    517,964
    
    
    $
    309,914Accounts receivable, less
allowance for doubtful accounts
of $0.9 million at December
2009 and September 2009
    
    
    23,681,183
    
    
    
    28,393,198Inventories, net
    
    
    32,948,314
    
    
    
    34,486,027Deferred income taxes
    
    
    1,703,413
    
    
    
    1,701,568Prepaid and other current assets
    
    
    4,407,930
    
    
    
    1,728,576Total current assets
    
    
    63,258,804
    
    
    
    66,619,283Property and equipment, net
    
    
    11,642,259
    
    
    
    11,256,627Goodwill
    
    
    6,149,168
    
    
    
    5,848,808Other intangible assets
    
    
    4,959,519
    
    
    
    3,373,269Other assets
    
    
    1,025,876
    
    
    
    1,026,395$
    87,035,626
    
    
    $
    88,124,382LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,914,745
    
    
    $
    15,222,689Accrued expenses
    
    
    5,895,614
    
    
    
    6,768,924Accrued wages, salaries and bonuses
    
    
    2,003,255
    
    
    
    3,257,832Income taxes payable
    
    
    904,099
    
    
    
    3,984,258Current maturities of credit facility
    
    
    127,067
    
    
    
    177,867Current maturities of long-term debt
    
    
    995,327
    
    
    
    1,470,445Total current liabilities
    
    
    23,840,107
    
    
    
    30,882,015Credit facility, less current maturities
    
    
    25,476,512
    
    
    
    22,655,861Deferred income taxes
    
    
    1,268,662
    
    
    
    1,256,713Long-term debt, less current maturities
    
    
    5,858,402
    
    
    
    5,066,185Other long-term liabilities
    
    
    440,420
    
    
    
    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,
575,439 shares outstanding at December 2009 and 573,232
shares outstanding at September 2009
    
    
    5,754
    
    
    
    5,732Additional paid-in capital
    
    
    7,954,295
    
    
    
    7,617,494Retained earnings
    
    
    17,691,474
    
    
    
    16,140,382Total shareholders equity
    
    
    25,651,523
    
    
    
    23,763,608$
    87,035,626
    
    
    $
    88,124,382
   3




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##### Table of Contents



AMCON Distributing Company and Subsidiaries
 
 Condensed Consolidated Unaudited Statements of Operations
for the three months ended December 31, 2009 and 2008
 2009
    
    
    2008Sales (including excise taxes of $81.6 million
and $50.3 million, respectively
    
    $
    243,941,038
    
    
    $
    217,377,363Cost of sales
    
    
    226,713,025
    
    
    
    201,532,714Gross profit
    
    
    17,228,013
    
    
    
    15,844,649Selling, general and administrative expenses
    
    
    13,778,739
    
    
    
    12,797,583Depreciation and amortization
    
    
    387,269
    
    
    
    310,33414,166,008
    
    
    
    13,107,917Operating income
    
    
    3,062,005
    
    
    
    2,736,732Other expense (income):Interest expense
    
    
    405,245
    
    
    
    489,199Other (income), net
    
    
    (13,380
    )
    
    
    (14,067
    )391,865
    
    
    
    475,132Income from continuing operations
before income taxes
    
    
    2,670,140
    
    
    
    2,261,600Income tax expense
    
    
    941,000
    
    
    
    860,000Income from continuing operations
    
    
    1,729,140
    
    
    
    1,401,600Loss from discontinued operations, net of income
tax benefit of $0.1 million
    
    
    
    
    
    
    (102,038
    )Net income
    
    
    1,729,140
    
    
    
    1,299,562Preferred stock dividend requirements
    
    
    (74,867
    )
    
    
    (105,533
    )Net income available to common shareholders
    
    $
    1,654,273
    
    
    $
    1,194,029Basic earnings (loss) per share
available to common shareholders:Continuing operations
    
    $
    2.95
    
    
    $
    2.38Discontinued operations
    
    
    
    
    
    
    (0.19
    )Net basic earnings per share
available to common shareholders
    
    $
    2.95
    
    
    $
    2.19Diluted earnings (loss) per share
available to common shareholders:Continuing operations
    
    $
    2.32
    
    
    $
    1.64Discontinued operations
    
    
    
    
    
    
    (0.12
    )Net diluted earnings per share
available to common shareholders
    
    $
    2.32
    
    
    $
    1.52Weighted average shares outstanding:Basic
    
    
    560,119
    
    
    
    545,593Diluted
    
    
    745,223
    
    
    
    856,052
   4




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##### Table of Contents



AMCON Distributing Company and Subsidiaries
 
 Condensed Consolidated Unaudited Statements of Cash Flows
for the three months ended December 31, 2009 and 2008
 2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,729,140
    
    
    $
    1,299,562Deduct: Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (102,038
    )Income from continuing operations
    
    
    1,729,140
    
    
    
    1,401,600Adjustments to reconcile net income from
continuing operations to net cash flows
from operating activities:Depreciation
    
    
    338,099
    
    
    
    310,334Amortization
    
    
    49,170
    
    
    
    Gain on sale of property and equipment
    
    
    (16,935
    )
    
    
    (43,697
    )Stock based compensation
    
    
    163,364
    
    
    
    132,900Net excess tax (benefit) deficiency
on equity-based awards
    
    
    (107,048
    )
    
    
    16,592Deferred income taxes
    
    
    10,104
    
    
    
    47,411Provision for losses on doubtful accounts
    
    
    16,426
    
    
    
    77,006Provision for losses on inventory obsolescence
    
    
    76,703
    
    
    
    92,790Changes in
assets and liabilities, net of effect of acquisition:Accounts receivable
    
    
    4,695,589
    
    
    
    3,791,365Inventories
    
    
    3,442,508
    
    
    
    1,733,268Prepaid and other current assets
    
    
    (2,679,354
    )
    
    
    833,568Other assets
    
    
    519
    
    
    
    (351,942
    )Accounts payable
    
    
    (1,329,456
    )
    
    
    1,023,735Accrued expenses and accrued wages, salaries and bonuses
    
    
    (2,127,887
    )
    
    
    (1,321,463
    )Income tax payable
    
    
    (2,973,111
    )
    
    
    572,219Net cash flows from operating activities  continuing operations
    
    
    1,287,831
    
    
    
    8,315,686Net cash flows from operating activities  discontinued operations
    
    
    
    
    
    
    19,727Net cash flows from operating activities
    
    
    1,287,831
    
    
    
    8,335,413CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (596,612
    )
    
    
    (265,971
    )Proceeds from sales of property and equipment
    
    
    34,306
    
    
    
    71,900Acquisition
    
    
    (3,099,836
    )
    
    
    Net cash flows from investing activities
    
    
    (3,662,142
    )
    
    
    (194,071
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings (payments) on bank credit agreement
    
    
    2,769,851
    
    
    
    (7,866,594
    )Principal payments on long-term debt
    
    
    (182,901
    )
    
    
    (197,731
    )Proceeds from exercise of stock options
    
    
    66,411
    
    
    
    Net excess tax benefit (deficiency)
on equity-based awards
    
    
    107,048
    
    
    
    (16,592
    )Dividends paid on preferred stock
    
    
    (74,867
    )
    
    
    (105,533
    )Dividends on common stock
    
    
    (103,181
    )
    
    
    (57,039
    )Net cash flows from financing activities
    
    
    2,582,361
    
    
    
    (8,243,489
    )Net change in cash
    
    
    208,050
    
    
    
    (102,147
    )Cash, beginning of period
    
    
    309,914
    
    
    
    457,681Cash, end of period
    
    $
    517,964
    
    
    $
    355,534
  5




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##### Table of Contents



2009
    
    
    2008Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    381,746
    
    
    $
    544,238Cash paid during the period for income taxes
    
    
    3,903,998
    
    
    
    182,371Supplemental disclosure of non-cash information:Equipment acquisitions classified as accounts payable
    
    
    21,512
    
    
    
    Business 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
    
    
    
    
   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 (ADC) distributes consumer products
in the Central and Rocky Mountain regions of the United States.
 
    
    Our retail health food segment operates thirteen health food retail
stores located throughout the Midwest and Florida.
  WHOLESALE DISTRIBUTION SEGMENT
   RETAIL HEALTH FOOD SEGMENT
  FINANCIAL STATEMENTS
   7




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Adoption of New Accounting Standards
   (Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities)
 (Determination of the Useful Life of Intangible Assets)
  8




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##### Table of Contents



(Fair Value Measurements)
 (Noncontrolling Interest in Consolidated Financial
Statements)
 (Business Combinations  revised)
 (Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise From Contingencies)
 Recently Issued Accounting Pronouncements
  (Accounting for Transfers of Financial Assets)
 (Amendments to FASB Interpretation: Consolidation of Variable Interest Entities)
  9




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##### Table of Contents



2. ACQUISITION
   Total Consideration (in millions):
    
    AmountCash
    
    $
    3.1Note payable
    
    
    0.5Fair value of contingent consideration
    
    
    0.4Fair value of consideration transferred
    
    $
    4.0
 Recognized amounts of identifiable assets acquired (in millions):
 WeightedAverageAmortizationAmount
    
    
    PeriodInventory
    
    $
    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
  10




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##### Table of Contents



(In millions)
    
    Period
    
    Revenue
    
    
    Net IncomeActual Results from
    
    10/30/09-12/31/09
    
    $
    9.2
    
    
    $
    0.1Supplemental pro forma results
    
    10/01/09-12/31/09
    
    $
    14.2
    
    
    $
    0.1Supplemental pro forma results
    
    10/01/08-12/31/08
    
    $
    11.7
    
    
    $
    0.0
 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
    %
    11




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##### Table of Contents



4. INVENTORIES
  5. GOODWILL AND OTHER INTANGIBLE ASSETS
  December
    
    
    September2009
    
    
    2009Wholesale Distribution Segment
    
    $
    4,236,291
    
    
    $
    3,935,931Retail Health Food Segment
    
    
    1,912,877
    
    
    
    1,912,877$
    6,149,168
    
    
    $
    5,848,808
  December
    
    
    September2009
    
    
    2009Trademarks and tradenames
    
    $
    3,373,269
    
    
    $
    3,373,269Customer relationships (less accumulated
amortization of $33,750)
    
    
    1,586,250
    
    
    
    $
    4,959,519
    
    
    $
    3,373,269
   12




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##### Table of Contents



Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal2010/1/
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    ThereafterCustomer relationships
    
    
    151,875
    
    
    
    202,500
    
    
    
    202,500
    
    
    
    202,500
    
    
    
    826,875
 /1/
    
    Represents amortization for the remaining nine months of Fiscal 2010. 6. DIVIDENDS:
  7. EARNINGS (LOSS) PER SHARE
    13




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For the three months ended December2009
    
    
    2008Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedWeighted average common
shares outstanding
    
    
    560,119
    
    
    
    560,119
    
    
    
    545,593
    
    
    
    545,593Weighted average of net
additional shares outstanding
assuming dilutive options
exercised and proceeds
used to purchase treasury
stock and conversion of
preferred stock /1/
    
    
    
    
    
    
    185,104
    
    
    
    
    
    
    
    310,459Weighted average number of
shares outstanding
    
    
    560,119
    
    
    
    745,223
    
    
    
    545,593
    
    
    
    856,052Income from continuing operations
    
    $
    1,729,140
    
    
    $
    1,729,140
    
    
    $
    1,401,600
    
    
    $
    1,401,600Deduct: preferred stock
dividend requirements /2/
    
    
    (74,867
    )
    
    
    
    
    
    
    (105,533
    )
    
    
    1,654,273
    
    
    
    1,729,140
    
    
    
    1,296,067
    
    
    
    1,401,600Loss from discontinued
operations
    
    $
    
    
    
    $
    
    
    
    $
    (102,038
    )
    
    $
    (102,038
    )Net income available
to common shareholders
    
    $
    1,654,273
    
    
    $
    1,729,140
    
    
    $
    1,194,029
    
    
    $
    1,299,562Income per share from
continuing operations
    
    $
    2.95
    
    
    $
    2.32
    
    
    $
    2.38
    
    
    $
    1.64Loss per share from
discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (0.19
    )
    
    $
    (0.12
    )Net earnings per share
available to common shareholders
    
    $
    2.95
    
    
    $
    2.32
    
    
    $
    2.19
    
    
    $
    1.52
 /1/
    
    Diluted earnings per share calculation includes all stock options,
Convertible Preferred Stock, and restricted stock, in each case, that
are deemed to be dilutive./2/
    
    Diluted earnings per share calculation excludes dividend payments for
Convertible Preferred Stock deemed to be dilutive, as those amounts
are assumed to have been converted to common stock of the Company. 8. DEBT
  
    
    A June 2011 maturity date.
 
    
    A $55.0 million revolving credit limit, plus the outstanding balance on Term Note A. Term
Note A had an outstanding balance of $0.1 million at December 2009.
 
    
    The Facility bears interest at either the banks prime rate or at LIBOR plus 250 basis
points, at the election of the Company.
  14




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##### Table of Contents




    
    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 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.
 
    
    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 June 30, 2010.
     Cross Default and Co-Terminus Provisions
   15




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OTHER
  Off-Balance Sheet Arrangements
  9. EQUITY-BASED INCENTIVE AWARDS
 Stock Options
  Number ofOptions
    
    
    NumberDate
    
    Exercise Price
    
    
    Outstanding
    
    
    ExercisableFiscal 2000
    
    $
    34.50
    
    
    
    1,456
    
    
    
    1,456Fiscal 2003
    
    $
    28.80
    
    
    
    629
    
    
    
    629Fiscal 2007
    
    $
    18.00
    
    
    
    25,000
    
    
    
    25,00027,085
    
    
    
    27,085
  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 Price2000 Options
    
    $
    34.50
    
    
    
    1,456
    
    
    0.45 years
    
    $
    34.50
    
    
    
    1,456
    
    
    $
    34.502002 Options
    
    $
    26.94
    
    
    
    834
    
    
    2.62 years
    
    $
    26.94
    
    
    
    834
    
    
    $
    26.942003 Options
    
    $
    28.80
    
    
    
    629
    
    
    2.79 years
    
    $
    28.80
    
    
    
    629
    
    
    $
    28.802007 Options
    
    $
    18.00
    
    
    
    25,000
    
    
    6.95 years
    
    $
    18.00
    
    
    
    25,000
    
    
    $
    18.0027,919
    
    
    
    
    
    
    $
    19.37
    
    
    
    27,919
    
    
    $
    19.37
  16




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WeightedNumber
    
    
    Averageof
    
    
    ExerciseShares
    
    
    PriceOutstanding at September 2009
    
    
    30,126
    
    
    $
    20.16Granted
    
    
    
    
    
    
    Exercised
    
    
    (2,207
    )
    
    $
    30.09Forfeited/Expired
    
    
    
    
    
    
    Outstanding at December 2009
    
    
    27,919
    
    
    $
    19.37
  Omnibus Plan
   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 December 2009:
    
    $
    528,000
    
    
    $
    330,000
 /1/
    
    16,000 shares were vested at December 2009. The remaining 8,000 shares will vest on October 16, 2010./2/
    
    2,500 shares were vested at December 2009. The remaining 5,000 shares will vest in equal amounts (2,500 per year) on
January 29, 2010 and January 29, 2011./3/
    
    Amount is net of estimated forfeitures.  17




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##### Table of Contents



Number
    
    
    Weighted Averageof
    
    
    Grant DateShares
    
    
    Fair ValueNonvested restricted stock at September 2009
    
    
    21,000
    
    
    $
    40.16Granted
    
    
    
    
    
    
    Vested
    
    
    (8,000
    )
    
    $
    42.50Expired
    
    
    
    
    
    
    Nonvested restricted stock at December 2009
    
    
    13,000
    
    
    $
    38.72
 10. BUSINESS SEGMENTS
   18




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##### Table of Contents



WholesaleDistribution
    
    
    Retail
    
    
    Other /1/
    
    
    ConsolidatedTHREE MONTHS ENDED DECEMBER 2009:External revenue:Cigarettes
    
    $
    177,584,045
    
    
    $
    
    
    
    $
    
    
    
    $
    177,584,045Confectionery
    
    
    15,307,821
    
    
    
    
    
    
    
    
    
    
    
    15,307,821Health food
    
    
    
    
    
    
    8,926,489
    
    
    
    
    
    
    
    8,926,489Tobacco, food service & other
    
    
    42,122,683
    
    
    
    
    
    
    
    
    
    
    
    42,122,683Total external revenue
    
    
    235,014,549
    
    
    
    8,926,489
    
    
    
    
    
    
    
    243,941,038Depreciation
    
    
    266,580
    
    
    
    70,372
    
    
    
    1,147
    
    
    
    338,099Amortization
    
    
    49,170
    
    
    
    
    
    
    
    
    
    
    
    49,170Operating income (loss)
    
    
    3,998,612
    
    
    
    917,307
    
    
    
    (1,853,914
    )
    
    
    3,062,005Interest expense
    
    
    122,197
    
    
    
    124,624
    
    
    
    158,424
    
    
    
    405,245Income (loss) from continuing
operations before taxes
    
    
    3,879,649
    
    
    
    802,830
    
    
    
    (2,012,339
    )
    
    
    2,670,140Total assets
    
    
    74,327,598
    
    
    
    11,729,960
    
    
    
    978,068
    
    
    
    87,035,626Capital expenditures
    
    
    437,314
    
    
    
    159,297
    
    
    
    
    
    
    
    596,611
 WholesaleDistribution
    
    
    Retail
    
    
    Other /1/
    
    
    ConsolidatedTHREE MONTHS ENDED DECEMBER 2008:External revenue:Cigarettes
    
    $
    152,262,945
    
    
    $
    
    
    
    $
    
    
    
    $
    152,262,945Confectionery
    
    
    15,461,696
    
    
    
    
    
    
    
    
    
    
    
    15,461,696Health food
    
    
    
    
    
    
    8,980,794
    
    
    
    
    
    
    
    8,980,794Tobacco, food service & other
    
    
    40,671,928
    
    
    
    
    
    
    
    
    
    
    
    40,671,928Total external revenue
    
    
    208,396,569
    
    
    
    8,980,794
    
    
    
    
    
    
    
    217,377,363Depreciation
    
    
    248,164
    
    
    
    61,023
    
    
    
    1,147
    
    
    
    310,334Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    3,288,077
    
    
    
    587,839
    
    
    
    (1,139,184
    )
    
    
    2,736,732Interest expense
    
    
    132,679
    
    
    
    169,545
    
    
    
    186,975
    
    
    
    489,199Income (loss) from continuing
operations before taxes
    
    
    3,159,150
    
    
    
    428,609
    
    
    
    (1,326,159
    )
    
    
    2,261,600Total assets
    
    
    71,535,006
    
    
    
    11,341,987
    
    
    
    4,025,032
    
    
    
    86,902,025Capital expenditures
    
    
    128,490
    
    
    
    137,481
    
    
    
    
    
    
    
    265,971
 /1/
    
    Includes intercompany eliminations, charges incurred by the holding company, and assets of
discontinued operations.  19




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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, including
recent increases in federal excise taxes imposed in connection with the State Childrens
Health Insurance Program (SCHIP) law,
 
    
    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,
 
    
    potential bans imposed by the FDA on the manufacture, distribution, and sale of certain
cigarette and tobacco products,
 
    
    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.
  20




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##### Table of Contents



CRITICAL ACCOUNTING ESTIMATES
  FIRST FISCAL QUARTER 2010 (Q1 2010)
   
    
    acquired the distribution assets of Discount Distributors, a wholesale distributor to
convenience stores with annual sales of approximately $59.8 million.
 
    
    recorded net income available to common shareholders of $1.7 million, a $0.5 million increase
over Q1 2009.
 
    
    paid a $0.18 dividend per common share, an 80% increase over Q1 2009.
  21




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##### Table of Contents



WHOLESALE DISTRIBUTION SEGMENT (ADC)
   RETAIL HEALTH FOOD SEGMENT
  Business Update  General
   Business Update  Wholesale Distribution Segment
   22




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##### Table of Contents



Business Update  Retail Health Food Segment
     23




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##### Table of Contents



RESULTS OF OPERATIONS
 For the three months ended DecemberIncr2009
    
    
    2008
    
    
    (Decr)
    
    
    % ChangeCONSOLIDATED:Sales /1/
    
    $
    243,941,038
    
    
    $
    217,377,363
    
    
    $
    26,563,675
    
    
    
    12.2Cost of sales
    
    
    226,713,025
    
    
    
    201,532,714
    
    
    
    25,180,311
    
    
    
    12.5Gross profit
    
    
    17,228,013
    
    
    
    15,844,649
    
    
    
    1,383,364
    
    
    
    8.7Gross profit percentage
    
    
    7.1
    %
    
    
    7.3
    %Operating expense
    
    
    14,166,008
    
    
    
    13,107,917
    
    
    
    1,058,091
    
    
    
    8.1Operating income
    
    
    3,062,005
    
    
    
    2,736,732
    
    
    
    325,273
    
    
    
    11.9Interest expense
    
    
    405,245
    
    
    
    489,199
    
    
    
    (83,954
    )
    
    
    (17.2
    )Income tax expense
    
    
    941,000
    
    
    
    860,000
    
    
    
    81,000
    
    
    
    9.4Income from continuing operations
    
    
    1,729,140
    
    
    
    1,401,600
    
    
    
    327,540
    
    
    
    23.4BUSINESS SEGMENTS:WholesaleSales
    
    $
    235,014,549
    
    
    $
    208,396,569
    
    
    $
    26,617,980
    
    
    
    12.8Gross profit
    
    
    13,386,777
    
    
    
    12,197,029
    
    
    
    1,189,748
    
    
    
    9.8Gross profit percentage
    
    
    5.7
    %
    
    
    5.9
    %RetailSales
    
    $
    8,926,489
    
    
    $
    8,980,794
    
    
    $
    (54,305
    )
    
    
    (0.6
    )Gross profit
    
    
    3,841,236
    
    
    
    3,647,620
    
    
    
    193,616
    
    
    
    5.3Gross profit percentage
    
    
    43.0
    %
    
    
    40.6
    %
 /1/
    
    Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $3.8 million in both Q1 2010 and Q1 2009. 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  Q1 2010 vs. Q1 2009
   
    
    $9.2 million increase in sales related the acquisition of Discount Distributors during the
period.
 
    
    $32.0 million increase in cigarette sales due to price increases implemented by manufacturers
as compared to Q1 2009.
 
    
    $15.9 million decrease in sales, primarily related to a reduction in cigarette cartons sold
as compared to Q1 2009.
  24




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##### Table of Contents



GROSS PROFIT  Q1 2010 vs. Q1 2009
    OPERATING EXPENSE  Q1 2010 vs. Q1 2009
    25




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##### Table of Contents



INTEREST EXPENSE  Q1 2010 vs. Q1 2009
  DISCONTINUED OPERATIONS  Q1 2010 vs. Q1 2009
  Q1 2010
    
    
    Q1 2009Operating loss
    
    
    
    
    
    
    (44,129
    )Interest expense
    
    
    
    
    
    
    (116,009
    )Income tax benefit
    
    
    
    
    
    
    (58,000
    )Loss from discontinued operations
    
    
    
    
    
    
    (102,038
    )
 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.
During Q1 2010, the Company generated cash of approximately $1.3 million from operating
activities. The cash generated resulted from higher overall earnings and reductions in
accounts receivable and inventory. These items were partially offset by an increase in prepaid
and other assets and reductions in accounts payable, accrued expenses, and income taxes
payable.Our variability in cash flows from operating activities is dependent on the timing of inventory
purchases and seasonal fluctuations. For example, periodically we have inventory buy-in
opportunities which offer more favorable pricing terms. As a result, we may have to hold
inventory for a period longer than the payment terms. This generates a cash outflow from
operating activities which we expect to reverse in later periods. Additionally, during the warm
weather months, which is our peak time of operations, we generally carry higher amounts of
inventory to ensure high fill rates and customer satisfaction.
  26




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##### Table of Contents




    
    Investing Activities.The Company used approximately $3.7 million of cash during Q1 2010
for investing activities, primarily related to the acquisition of the distribution assets of
Discount Distributors.
 
    
    Financing Activities.The Company generated cash of $2.6 million for financing activities
during Q1 2010. Of this amount, $2.8 million related to net advances on the Companys credit
facility which was used to fund the Companys acquisition of Discount Distributors, and $0.2
million related to the exercise of stock options. Offsetting these items was $0.2 million of
payments on long-term debt, and $0.2 million related to dividends on the Companys common and
preferred stock.
 
    
    Cash on Hand/Working Capital. At December 2009, the Company had cash on hand of $0.5 million
and working capital (current assets less current liabilities) of $39.4 million. This compares
to cash on hand of $0.3 million and working capital of $35.7 million at September 2009.
 CREDIT AGREEMENT
  
    
    A June 2011 maturity date.
 
    
    A $55.0 million revolving credit limit, plus the outstanding balance on Term Note A. Term
Note A had an outstanding balance of $0.1 million at December 2009.
 
    
    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 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.
 
    
    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 June 30, 2010.
  27




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CROSS DEFAULT AND CO-TERMINUS PROVISIONS
  DIVIDEND PAYMENTS
   28




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##### Table of Contents



OTHER
  OFF-BALANCE SHEET ARRANGEMENTS
  Liquidity Risk
     
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   29




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##### Table of Contents



Limitations on Effectiveness of Controls
   Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
   30




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
  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
  31




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##### Table of Contents



SIGNATURES
  AMCON DISTRIBUTING COMPANY
(registrant)Date: January 18, 2010
    /s/ Christopher H. AtayanChristopher H. Atayan,Chief Executive Officer and ChairmanDate: January 18, 2010
    /s/ Andrew C. PlummerAndrew C. Plummer,Vice President, Chief Financial Officer, and
Principal Financial Officer  32