##### 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, 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
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 Yes o No þ




---



##### 



Form 10-Q
1st Quarter
 INDEX
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed consolidated balance sheets at December 31, 2010 (unaudited) and September 30, 2010
    
    
    3Condensed consolidated unaudited statements of operations for the three months ended December 31, 2010 and 2009
    
    
    4Condensed consolidated unaudited statements of cash flows for the three months ended December 31, 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
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4.
(Removed and Reserved)
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24Exhibit 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
 December 31, 2010 and September 30, 2010
 December
    
    
    September2010
    
    
    2010(Unaudited)ASSETSCurrent assets:Cash
    
    $
    300,920
    
    
    $
    356,735Accounts receivable, less allowance for
doubtful accounts of $1.0 million and $1.6
million at December 2010 and September
2010, respectively
    
    
    22,245,824
    
    
    
    27,903,689Inventories, net
    
    
    36,060,248
    
    
    
    35,005,957Deferred income taxes
    
    
    1,542,599
    
    
    
    1,905,974Prepaid and other current assets
    
    
    4,772,035
    
    
    
    3,013,485Total current assets
    
    
    64,921,626
    
    
    
    68,185,840Property and equipment, net
    
    
    11,712,178
    
    
    
    11,855,669Goodwill
    
    
    6,149,168
    
    
    
    6,149,168Other intangible assets, net
    
    
    4,757,019
    
    
    
    4,807,644Other assets
    
    
    1,075,563
    
    
    
    1,069,050$
    88,615,554
    
    
    $
    92,067,371LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    14,698,370
    
    
    $
    16,656,257Accrued expenses
    
    
    6,506,609
    
    
    
    6,007,900Accrued wages, salaries and bonuses
    
    
    2,085,776
    
    
    
    3,161,817Income taxes payable
    
    
    1,100,779
    
    
    
    2,366,667Current maturities of long-term debt
    
    
    851,153
    
    
    
    893,291Total current liabilities
    
    
    25,242,687
    
    
    
    29,085,932Credit facility
    
    
    17,169,003
    
    
    
    18,816,709Deferred income taxes
    
    
    1,135,311
    
    
    
    1,075,861Long-term debt, less current maturities
    
    
    5,018,717
    
    
    
    5,226,586Other long-term liabilities
    
    
    73,072
    
    
    
    587,479Series 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, 590,232 shares
outstanding at December 2010 and 577,432
shares outstanding at September 2010
    
    
    5,902
    
    
    
    5,774Additional paid-in capital
    
    
    9,425,208
    
    
    
    8,376,640Retained earnings
    
    
    26,045,654
    
    
    
    24,392,390Total shareholders equity
    
    
    35,476,764
    
    
    
    32,774,804$
    88,615,554
    
    
    $
    92,067,371
   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, 2010 and 2009
 2010
    
    
    2009Sales (including excise taxes of $81.3 million and $81.6 million, respectively)
    
    $
    244,957,161
    
    
    $
    243,941,038Cost of sales
    
    
    227,349,439
    
    
    
    226,713,025Gross profit
    
    
    17,607,722
    
    
    
    17,228,013Selling, general and administrative expenses
    
    
    13,687,371
    
    
    
    13,778,739Depreciation and amortization
    
    
    497,583
    
    
    
    387,26914,184,954
    
    
    
    14,166,008Operating income
    
    
    3,422,768
    
    
    
    3,062,005Other expense (income):Interest expense
    
    
    384,583
    
    
    
    405,245Other (income), net
    
    
    (22,881
    )
    
    
    (13,380
    )361,702
    
    
    
    391,865Income from operations before income taxes
    
    
    3,061,066
    
    
    
    2,670,140Income tax expense
    
    
    1,229,000
    
    
    
    941,000Net income
    
    
    1,832,066
    
    
    
    1,729,140Preferred stock dividend requirements
    
    
    (74,867
    )
    
    
    (74,867
    )Net income available to common shareholders
    
    $
    1,757,199
    
    
    $
    1,654,273Basic earnings per share available to common shareholders
    
    $
    3.04
    
    
    $
    2.95Diluted earnings per share available to common shareholders
    
    $
    2.41
    
    
    $
    2.32Basic weighted average shares outstanding
    
    
    578,636
    
    
    
    560,119Diluted weighted average shares outstanding
    
    
    758,692
    
    
    
    745,223
   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, 2010 and 2009
 2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,832,066
    
    
    $
    1,729,140Adjustments to reconcile net income from operations to net cash flows from operating activities:Depreciation
    
    
    418,565
    
    
    
    338,099Amortization
    
    
    79,018
    
    
    
    49,170Gain on sale of property and equipment
    
    
    (2,315
    )
    
    
    (16,935
    )Stock based compensation
    
    
    1,166,833
    
    
    
    163,364Net excess tax benefit on equity-based awards
    
    
    (79,863
    )
    
    
    (107,048
    )Deferred income taxes
    
    
    422,825
    
    
    
    10,104Provision for (recoveries) losses on doubtful accounts
    
    
    (625,000
    )
    
    
    16,426Provision for losses on inventory obsolescence
    
    
    81,416
    
    
    
    76,703Other
    
    
    (2,011
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    6,282,865
    
    
    
    4,695,589Inventories
    
    
    (1,135,707
    )
    
    
    3,442,508Prepaid and other current assets
    
    
    (1,758,550
    )
    
    
    (2,679,354
    )Other assets
    
    
    (6,513
    )
    
    
    519Accounts payable
    
    
    (1,949,184
    )
    
    
    (1,329,456
    )Accrued expenses and accrued wages, salaries and bonuses
    
    
    (1,316,121
    )
    
    
    (2,127,887
    )Income tax payable
    
    
    (1,186,025
    )
    
    
    (2,973,111
    )Net cash flows from operating activities
    
    
    2,222,299
    
    
    
    1,287,831CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (293,037
    )
    
    
    (596,612
    )Proceeds from sales of property and equipment
    
    
    11,575
    
    
    
    34,306Acquisition
    
    
    
    
    
    
    (3,099,836
    )Net cash flows from investing activities
    
    
    (281,462
    )
    
    
    (3,662,142
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net (payments) borrowings on bank credit agreements
    
    
    (1,647,706
    )
    
    
    2,769,851Principal payments on long-term debt
    
    
    (250,007
    )
    
    
    (182,901
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    66,411Net excess tax benefit on equity-based awards
    
    
    79,863
    
    
    
    107,048Dividends paid on convertible preferred stock
    
    
    (74,867
    )
    
    
    (74,867
    )Dividends on common stock
    
    
    (103,935
    )
    
    
    (103,181
    )Net cash flows from financing activities
    
    
    (1,996,652
    )
    
    
    2,582,361Net change in cash
    
    
    (55,815
    )
    
    
    208,050Cash, beginning of period
    
    
    356,735
    
    
    
    309,914Cash, end of period
    
    $
    300,920
    
    
    $
    517,964
   5




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##### Table of Contents



2010
    
    
    2009Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    372,376
    
    
    $
    381,746Cash paid during the period for income taxes
    
    
    1,992,200
    
    
    
    3,903,998Supplemental disclosure of non-cash information:Equipment acquisitions classified as accounts payable
    
    
    29,503
    
    
    
    21,512Business acquisition (see Note 2):Inventory
    
    
    
    
    
    
    1,981,498Property and equipment
    
    
    
    
    
    
    122,978Customer relationships intangible asset
    
    
    
    
    
    
    1,620,000Goodwill
    
    
    
    
    
    
    300,360Note payable
    
    
    
    
    
    
    500,000Contingent consideration
    
    
    
    
    
    
    425,000
   6




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##### Table of Contents



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, Rocky Mountain, and Southern 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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##### Table of Contents



SIGNIFICANT ACCOUNTING POLICY
  ADOPTION OF NEW ACCOUNTING STANDARDS
     2. ACQUISITION AND DISPOSITIONS
 ACQUISITION
   AmountTotal Consideration
    
    (in millions)Cash
    
    $
    3.1Note payable
    
    
    0.5Fair value of contingent consideration
    
    
    0.4Fair value of total consideration
    
    $
    4.0
  8




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##### Table of Contents



Recognized amounts of identifiable assets acquired
 WeightedAverageAmount
    
    
    Amortization(in millions)
    
    
    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
   Three months endedDecember(In millions)
    
    2010
    
    
    2009Revenue  Actual Results
    
    $
    16.2
    
    
    $
    9.2Revenue  Supplemental pro forma results
    
    $
    16.2
    
    
    $
    14.2Net Income  Actual Results
    
    $
    0.1
    
    
    $
    0.1Net Income  Supplemental pro forma results
    
    $
    0.1
    
    
    $
    0.1
 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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##### Table of Contents



4. INVENTORIES
  5. GOODWILL AND OTHER INTANGIBLE ASSETS
  December
    
    
    September2010
    
    
    2010Wholesale Segment
    
    $
    4,236,291
    
    
    $
    4,236,291Retail Segment
    
    
    1,912,877
    
    
    
    1,912,877$
    6,149,168
    
    
    $
    6,149,168
  December
    
    
    September2010
    
    
    2010Trademarks and tradenames
    
    $
    3,373,269
    
    
    $
    3,373,269Customer relationships (less accumulated amortization of $236,250 and $185,625
at December 2010 and September 2010, respectively)
    
    
    1,383,750
    
    
    
    1,434,375$
    4,757,019
    
    
    $
    4,807,644
   10




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##### Table of Contents



DecemberCustomer relationships
    
    2010Fiscal 2011 /1/
    
    $
    151,875Fiscal 2012
    
    
    202,500Fiscal 2013
    
    
    202,500Fiscal 2014
    
    
    202,500Fiscal 2015
    
    
    202,500Thereafter
    
    
    421,875$
    1,383,750
 /1/
    
    Represents amortization for the remaining nine months of Fiscal 2011.
 6. DIVIDENDS:
  7. EARNINGS PER SHARE
  For the three months ended December2010
    
    
    2009Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedWeighted average common shares outstanding
    
    
    578,636
    
    
    
    578,636
    
    
    
    560,119
    
    
    
    560,119Weighted average of net additional shares outstanding
assuming dilutive options exercised and proceeds used
to purchase treasury stock and conversion of preferred
stock /1/
    
    
    
    
    
    
    180,056
    
    
    
    
    
    
    
    185,104Weighted average number of shares outstanding
    
    
    578,636
    
    
    
    758,692
    
    
    
    560,119
    
    
    
    745,223Income from continuing operations
    
    $
    1,832,066
    
    
    $
    1,832,066
    
    
    $
    1,729,140
    
    
    $
    1,729,140Deduct: convertible preferred stock dividends /2/
    
    
    (74,867
    )
    
    
    
    
    
    
    (74,867
    )
    
    
    Net income available to common shareholders
    
    $
    1,757,199
    
    
    $
    1,832,066
    
    
    $
    1,654,273
    
    
    $
    1,729,140Net earnings per share available to common shareholders
    
    $
    3.04
    
    
    $
    2.41
    
    
    $
    2.95
    
    
    $
    2.32
 /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.
    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 PricingAssumptionsRisk-free interest rate
    
    
    3.04
    %Dividend yield
    
    
    1.30
    %Expected volatility
    
    
    49.30
    %Expected life in years
    
    
    7
  Number ofOptions
    
    
    NumberDate
    
    Exercise Price
    
    
    Outstanding
    
    
    ExercisableFiscal 2003
    
    $
    28.80
    
    
    
    84
    
    
    
    84Fiscal 2007
    
    $
    18.00
    
    
    
    25,000
    
    
    
    25,000Fiscal 2010
    
    $
    51.50
    
    
    
    6,000
    
    
    
    31,084
    
    
    
    25,084
  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
    
    
    
    1.62 years
    
    
    $
    26.94
    
    
    
    834
    
    
    $
    26.942003 Options
    
    $
    28.80
    
    
    
    84
    
    
    
    1.82 years
    
    
    $
    28.80
    
    
    
    84
    
    
    $
    28.802007 Options
    
    $
    18.00
    
    
    
    25,000
    
    
    
    5.95 years
    
    
    $
    18.00
    
    
    
    25,000
    
    
    $
    18.002010 Options
    
    $
    51.50
    
    
    
    6,000
    
    
    
    9.33 years
    
    
    $
    51.50
    
    
    
    
    
    
    
    31,918
    
    
    
    
    
    
    $
    24.56
    
    
    
    25,918
    
    
    $
    18.32
  13




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WeightedNumber
    
    
    Averageof
    
    
    ExerciseShares
    
    
    PriceOutstanding at September 2010
    
    
    31,918
    
    
    $
    24.56Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited/Expired
    
    
    
    
    
    
    Outstanding at December 2010
    
    
    31,918
    
    
    $
    24.56
  Restricted Stock
  Restricted Stock /1/Date of award:
    
    
    January 29, 2008Number of shares:
    
    
    7,500Service period:
    
    
    36 monthsEstimated fair value of award at grant date /2/:
    
    $
    229,000Intrinsic value of awards outstanding at December 2010:
    
    $
    200,000
 /1/
    
    5,000 shares were vested at December 2010. The remaining 2,500 shares will vest January 29, 2011./2/
    
    Amount is net of estimated forfeitures.
   Number
    
    
    Weighted Averageof
    
    
    Grant DateShares
    
    
    Fair ValueNonvested restricted stock at September 2010
    
    
    10,500
    
    
    $
    40.16Granted
    
    
    
    
    
    
    Vested
    
    
    (8,000
    )
    
    $
    42.50Expired
    
    
    
    
    
    
    Nonvested restricted stock at December 2010
    
    
    2,500
    
    
    $
    32.67
  14




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Restricted Stock Units
  Restricted Stock Units /1/
    
    
    Restricted Stock Units /2/Date of award:
    
    
    November 22, 2010
    
    
    
    November 22, 2010Number of shares:
    
    
    38,400
    
    
    
    12,000Service period:
    
    
    24 months
    
    
    
    36 monthsEstimated fair value of award at grant date:
    
    $
    2,765,000
    
    
    $
    864,000Fair value of awards outstanding at December 2010:
    
    $
    2,048,000
    
    
    $
    960,000
 /1/
    
    12,800 of the restricted stock unit awards vested during Q1 2011. The
remaining 25,600 restricted stock units will vest in equal amounts
(12,800 per year) on October 26, 2011 and October 26, 2012./2/
    
    The 12,000 restricted stock units will vest in equal amounts (4,000
per year) on November 22, 2011, November 22 2012, and November 22,
2013.
    Numberof
    
    
    Weighted AverageShares
    
    
    Fair ValueNonvested restricted stock units at September 2010
    
    
    
    
    
    $
    Granted
    
    
    50,400
    
    
    $
    72.01Vested
    
    
    (12,800
    )
    
    $
    72.50Expired
    
    
    
    
    
    $
    Nonvested restricted stock units at December 2010
    
    
    37,600
    
    
    $
    80.01
  15




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##### Table of Contents



10. BUSINESS SEGMENTS
  Wholesale
    
    
    RetailSegment
    
    
    Segment
    
    
    Other /1/
    
    
    ConsolidatedTHREE MONTHS ENDED DECEMBER 2010:External revenue:Cigarettes
    
    $
    175,772,237
    
    
    $
    
    
    
    $
    
    
    
    $
    175,772,237Confectionery
    
    
    15,869,052
    
    
    
    
    
    
    
    
    
    
    
    15,869,052Health food
    
    
    
    
    
    
    9,092,449
    
    
    
    
    
    
    
    9,092,449Tobacco, food service & other
    
    
    44,223,423
    
    
    
    
    
    
    
    
    
    
    
    44,223,423Total external revenue
    
    
    235,864,712
    
    
    
    9,092,449
    
    
    
    
    
    
    
    244,957,161Depreciation
    
    
    310,232
    
    
    
    107,396
    
    
    
    937
    
    
    
    418,565Amortization
    
    
    79,018
    
    
    
    
    
    
    
    
    
    
    
    79,018Operating income (loss)
    
    
    4,936,987
    
    
    
    792,089
    
    
    
    (2,306,308
    )
    
    
    3,422,768Interest expense
    
    
    111,069
    
    
    
    103,550
    
    
    
    169,964
    
    
    
    384,583Income (loss) from continuing operations before taxes
    
    
    4,828,640
    
    
    
    694,085
    
    
    
    (2,461,659
    )
    
    
    3,061,066Total assets
    
    
    74,723,959
    
    
    
    12,939,325
    
    
    
    952,270
    
    
    
    88,615,554Capital expenditures
    
    
    247,747
    
    
    
    45,290
    
    
    
    
    
    
    
    293,037THREE 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
    
    
    437,315
    
    
    
    159,297
    
    
    
    
    
    
    
    596,612
  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,
 
    
    higher commodity prices which could impact food ingredient costs for many of the products we
sell,
 
    
    regulation of cigarette and tobacco products by the 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.
   17




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##### Table of Contents



CRITICAL ACCOUNTING ESTIMATES
  FIRST FISCAL QUARTER 2011 (Q1 2011)
  Wholesale Segment
   Retail Segment
  Business Update  General
     18




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##### Table of Contents



Business Update  Wholesale Segment
    Business Update  Retail Segment
   RESULTS OF OPERATIONS
 For the three months ended DecemberIncr2010
    
    
    2009
    
    
    (Decr)
    
    
    % ChangeCONSOLIDATED:Sales /1/
    
    $
    244,957,161
    
    
    $
    243,941,038
    
    
    $
    1,016,123
    
    
    
    0.4Cost of sales
    
    
    227,349,439
    
    
    
    226,713,025
    
    
    
    636,414
    
    
    
    0.3Gross profit
    
    
    17,607,722
    
    
    
    17,228,013
    
    
    
    379,709
    
    
    
    2.2Gross profit percentage
    
    
    7.2
    %
    
    
    7.1
    %Operating expense
    
    
    14,184,954
    
    
    
    14,166,008
    
    
    
    18,946
    
    
    
    0.1Operating income
    
    
    3,422,768
    
    
    
    3,062,005
    
    
    
    360,763
    
    
    
    11.8Interest expense
    
    
    384,583
    
    
    
    405,245
    
    
    
    (20,662
    )
    
    
    (5.1
    )Income tax expense
    
    
    1,229,000
    
    
    
    941,000
    
    
    
    288,000
    
    
    
    30.6Income from continuing operations before income taxes
    
    
    1,832,066
    
    
    
    1,729,140
    
    
    
    102,926
    
    
    
    6.0BUSINESS SEGMENTS:WholesaleSales
    
    $
    235,864,712
    
    
    $
    235,014,549
    
    
    $
    850,163
    
    
    
    0.4Gross profit
    
    
    13,708,441
    
    
    
    13,386,777
    
    
    
    321,664
    
    
    
    2.4Gross profit percentage
    
    
    5.8
    %
    
    
    5.7
    %RetailSales
    
    $
    9,092,449
    
    
    $
    8,926,489
    
    
    $
    165,960
    
    
    
    1.9Gross profit
    
    
    3,899,281
    
    
    
    3,841,236
    
    
    
    58,045
    
    
    
    1.5Gross profit percentage
    
    
    42.9
    %
    
    
    43.0
    %
 /1/
    
    Sales are reported net of costs associated with incentives provided to retailers. These
incentives totaled $3.8 million in both Q1 2011 and Q1 2010.
  19




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##### 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  Q1 2011 vs. Q1 2010
  
    
    $5.4 million increase in sales due to cigarette price increases implemented by
manufacturers.
 
    
    $7.2 million decrease in sales primarily related to the volume and mix of cigarette cartons
sold.
 
    
    $2.7 million increase in sales in our tobacco, beverage, snacks, candy, grocery, health &
beauty products, automotive, food service, and store supplies categories (Other Products)
  GROSS PROFIT  Q1 2011 vs. Q1 2010
    OPERATING EXPENSE  Q1 2011 vs. Q1 2010
    20




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##### Table of Contents



INTEREST EXPENSE  Q1 2011 vs. Q1 2010
  LIQUIDITY AND CAPITAL RESOURCES
 Overview
 
    
    General. 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.
 
    
    Operating Activities. During Q1 2011, the Company generated cash of approximately $2.2
million from operating activities. The cash generated primarily resulted from higher overall
earnings and a decrease in accounts receivable, partially offset by higher inventory and
prepaid assets, as well as a decrease in accounts 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.
 
    
    Investing Activities. The Company used approximately $0.3 million of cash during Q1 2011 for
investing activities, primarily related to capital expenditures for property and equipment.
 
    
    Financing Activities. The Company used cash of $2.0 million for financing activities during
Q1 2011. Of this amount, $1.6 million related to net payments on the Companys credit
facility, and $0.3 million related to payments on long-term debt, and $0.2 million related to
dividends on the Companys common and preferred stock. Offsetting these items was $0.1 million
related to equity-based awards.
 
    
    Cash on Hand/Working Capital. At December 2010, the Company had cash on hand of $0.3
million and working capital (current assets less current liabilities) of $39.7 million. This
compares to cash on hand of $0.4 million and working capital of $39.1 million at September
2010.
 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,
 
    
    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.
  21




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##### Table of Contents



Cross Default and Co-Terminus Provisions
  Dividends Payments
  Contractual Obligations
  OTHER
  Off-Balance Sheet Arrangements
   22




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##### Table of Contents



Liquidity Risk
     
 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
    23




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 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
  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
  24




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##### Table of Contents



SIGNATURES
  AMCON DISTRIBUTING COMPANY
(registrant)Date: January 19, 2011
    /s/ Christopher H. AtayanChristopher H. Atayan,Chief Executive Officer and ChairmanDate: January 19, 2011
    /s/ Andrew C. PlummerAndrew C. Plummer,Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)  25