10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

oTRANSITION 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

(Exact name of registrant as specified in its charter)

Delaware	47-0702918
(State or other jurisdiction	(I.R.S. Employer
of 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)   Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

The Registrant had 615,822 shares of its $.01 par value common stock outstanding as of April 13, 2015.

Form 10-Q

2nd Quarter

INDEX

	PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets at March 31, 2015 (unaudited) and September 30, 2014	3
Condensed consolidated unaudited statements of operations for the three and six months ended March 31, 2015 and 2014	4
Condensed consolidated unaudited statements of cash flows for the six months ended March 31, 2015 and 2014	5
Notes to condensed consolidated unaudited financial statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	24
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25

2

PART I — FINANCIAL INFORMATION

Item 1.        Financial Statements

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, 2015 and September 30, 2014

	March 2015			September 2014
	(Unaudited)
ASSETS
Current assets:
Cash	$	189,559		$	99,922
Accounts receivable, less allowance for doubtful accounts of $0.9 million and $0.8 million at March 2015 and September 2014, respectively	30,847,526			33,286,932
Inventories, net	65,521,673			43,635,266
Deferred income taxes	1,353,082			1,606,168
Prepaid and other current assets	3,325,626			5,034,570
Total current assets	101,237,466			83,662,858
Property and equipment, net	13,388,517			13,763,140
Goodwill	6,349,827			6,349,827
Other intangible assets, net	4,273,478			4,455,978
Other assets	336,357			448,149
	$	125,585,645		$	108,679,952
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,627,660		$	16,412,895
Accrued expenses	5,978,844			6,891,308
Accrued wages, salaries and bonuses	1,977,298			2,647,969
Income taxes payable	26,476			1,603,614
Current maturities of long-term debt	346,057			341,190
Total current liabilities	24,956,335			27,896,976
Credit facility	31,963,666			15,081,783
Deferred income taxes	3,469,673			3,484,204
Long-term debt, less current maturities	3,561,053			3,735,702
Other long-term liabilities	134,980			139,003
Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized, issued, and outstanding, and a total liquidation preference of $2.5 million at both March 2015 and September 2014	2,500,000			2,500,000
Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized, 16,000 shares issued and outstanding at both March 2015 and September 2014, and a total liquidation preference of $0.4 million at both March 2015 and September 2014	400,000			400,000
Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 116,000 shares outstanding and issued in Series A and B referred to above	—			—
Common stock, $.01 par value, 3,000,000 shares authorized, 615,822 shares outstanding at March 2015 and 602,411 shares outstanding at September 2014	6,811			6,677
Additional paid-in capital	14,743,839			13,571,909
Retained earnings	49,814,791			47,829,201
Treasury stock at cost	(5,965,503		)	(5,965,503		)
Total shareholders’ equity	58,599,938			55,442,284
	$	125,585,645		$	108,679,952

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

3

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three and six months ended March 31, 2015 and 2014

	For the three months ended March						For the six months ended March
	2015			2014			2015			2014
Sales (including excise taxes of $87.4 million and $85.7 million, and $184.4 million and $183.1 million, respectively)	$	287,443,864		$	272,421,788		$	602,877,340		$	578,047,345
Cost of sales	269,710,529			254,801,826			565,617,473			540,786,320
Gross profit	17,733,335			17,619,962			37,259,867			37,261,025
Selling, general and administrative expenses	15,485,757			15,812,174			31,666,879			32,304,437
Depreciation and amortization	590,857			628,834			1,167,162			1,252,874
	16,076,614			16,441,008			32,834,041			33,557,311
Operating income	1,656,721			1,178,954			4,425,826			3,703,714
Other expense (income):
Interest expense	194,375			222,624			431,517			524,619
Other (income), net	(35,987		)	(38,955		)	(43,054		)	(69,186		)
	158,388			183,669			388,463			455,433
Income from operations before income tax expense	1,498,333			995,285			4,037,363			3,248,281
Income tax expense	729,000			464,000			1,722,000			1,429,000
Net income	769,333			531,285			2,315,363			1,819,281
Preferred stock dividend requirements	(48,108		)	(48,108		)	(97,285		)	(97,285		)
Net income available to common shareholders	$	721,225		$	483,177		$	2,218,078		$	1,721,996
Basic earnings per share available to common shareholders	$	1.17		$	0.79		$	3.61		$	2.79
Diluted earnings per share available to common shareholders	$	1.04		$	0.72		$	3.15		$	2.46
Basic weighted average shares outstanding	615,822			611,432			614,173			616,888
Diluted weighted average shares outstanding	737,180			737,461			735,599			739,223

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

4

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the six months ended March 31, 2015 and 2014

	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,315,363		$	1,819,281
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation	984,662			1,070,374
Amortization	182,500			182,500
(Gain) loss on sale of property and equipment	7,036			(24,746		)
Equity-based compensation	607,661			717,821
Deferred income taxes	238,555			462,447
Provision for losses on doubtful accounts	159,999			132,000
Provision for losses (recoveries) on inventory obsolescence	(34,189		)	(1,121		)
Other	(4,023		)	(4,023		)
Changes in assets and liabilities:
Accounts receivable	2,279,407			1,356,409
Inventories	(21,852,218		)	(2,474,084		)
Prepaid and other current assets	1,708,944			5,700
Other assets	111,792			13,054
Accounts payable	200,996			(34,071		)
Accrued expenses and accrued wages, salaries and bonuses	(862,235		)	(1,565,640		)
Income tax payable	(1,577,138		)	(1,618,592		)
Net cash flows from operating activities	(15,532,888		)	37,309
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(611,106		)	(1,362,832		)
Proceeds from sales of property and equipment	7,800			29,969
Acquisition	—			(513,938		)
Net cash flows from investing activities	(603,306		)	(1,846,801		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on bank credit agreements	16,881,883			4,926,619
Principal payments on long-term debt	(169,782		)	(607,923		)
Repurchase of Series B Convertible Preferred Stock and common stock	—			(1,941,918		)
Dividends paid on convertible preferred stock	(97,285		)	(97,285		)
Dividends on common stock	(232,488		)	(239,362		)
Withholdings on the exercise of equity-based awards	(156,497		)	(109,115		)
Net cash flows from financing activities	16,225,831			1,931,016
Net change in cash	89,637			121,524
Cash, beginning of period	99,922			275,036
Cash, end of period	$	189,559		$	396,560

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

5

	2015		2014
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	403,758	$	523,081
Cash paid during the period for income taxes	3,060,584		2,585,145
Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable	48,754		152,311
Issuance of common stock in connection with the vesting and exercise of equity-based awards	1,240,842		1,154,869

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

6

AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two business segments:

·Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products in the Central, Rocky Mountain, and Southern regions of the United States. Additionally, our Wholesale Segment provides a full range of programs and services to assist our customers in managing their business and profitability.

·Our retail health food segment (“Retail Segment”) operates sixteen health food retail stores located throughout the Midwest and Florida.

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,500 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category.  In September 2014, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

Our wholesale business offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory, merchandising expertise, information systems, and accessing trade credit.

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, Commonwealth Brands, Lorillard, Hershey, Kellogg’s, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products.  We do not maintain long-term purchase contracts with our suppliers.

RETAIL SEGMENT

Our Retail Segment is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

We operate within the natural products retail industry, which is a subset of the large and stable U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. According to The Natural Foods Merchandiser, a leading industry trade publication, retail sales in the natural foods industry exceeded $89 billion during the 2013 calendar year.

Our Retail Segment operates sixteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ten locations in Arkansas, Kansas, Missouri, Nebraska, and Oklahoma.

7

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended March 31, 2015 and March 31, 2014 have been referred to throughout this quarterly report as Q2 2015 and Q2 2014, respectively. The fiscal balance sheet dates as of March 31, 2015, March 31, 2014, and September 30, 2014 have been referred to as March 2015, March 2014, and September 2014, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014 09, “Revenue from Contracts with Customers.” This ASU supersedes the revenue recognition requirements in “Accounting Standard Codification 605—Revenue Recognition” and most industry specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of ASU 2014 09 on its financial position, results of operations, and cash flow.

2. CONVERTIBLE PREFERRED STOCK

The Company has two series of convertible preferred stock outstanding at March 2015 as identified in the following table:

	Series A			Series B
Date of issuance:	June 17, 2004			October 8, 2004
Optionally redeemable beginning	June 18, 2006			October 9, 2006
Par value (gross proceeds):	$	2,500,000		$	400,000
Number of shares outstanding at March 2015:	100,000			16,000
Liquidation preference per share:	$	25.00		$	25.00
Conversion price per share:	$	30.31		$	24.65
Number of common shares in which to be converted:	82,481			16,227
Dividend rate:	6.785		%	6.37		%

The Series A Convertible Preferred Stock (“Series A”) and Series B Convertible Preferred Stock (“Series B”), (collectively, the “Preferred Stock”), are convertible at any time by the holders into a number of shares of AMCON common stock equal to the number of preferred shares being converted multiplied by a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.

In the event of a liquidation of the Company, the holders of the Preferred Stock would be entitled to receive the liquidation preference plus any accrued and unpaid dividends prior to the distribution of any amount to the holders of the Common Stock. The shares of Preferred Stock are optionally redeemable by the Company beginning on various dates, as listed in the above table, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference. The Preferred Stock is redeemable at the liquidation value and at the option of the holder.  The Series A Preferred Stock and 8,000 shares of the Series B Preferred Stock are owned by Mr. Christopher Atayan, AMCON’s Chief Executive Officer and Chairman of the Board.  The Series B Preferred Stockholders have the right to elect one member of our Board of Directors, pursuant to the voting rights in the Certificate of Designation creating the Series B.  Christopher H. Atayan was first nominated and elected to this seat in 2004.

8

3. INVENTORIES

At March 2015, inventories consisted of finished goods and are stated at the lower of cost determined on a First-in, First-out (“FIFO”) basis, or market. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $0.8 million at March 2015 and $0.9 million at September 2014. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reporting segment of the Company consisted of the following:

	March2015		September2014
Wholesale Segment	$	4,436,950	$	4,436,950
Retail Segment	1,912,877		1,912,877
	$	6,349,827	$	6,349,827

Other intangible assets of the Company consisted of the following:

	March2015		September2014
Trademarks and tradenames	$	3,373,269	$	3,373,269
Non-competition agreement (less accumulated amortization of $0.4 million and $0.3 million at March 2015 and September 2014, respectively)	116,667		166,667
Customer relationships (less accumulated amortization of $1.3 million and $1.2 million at March 2015 and September 2014, respectively)	783,542		916,042
	$	4,273,478	$	4,455,978

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At March 2015, identifiable intangible assets considered to have finite lives were represented by customer relationships and the value of a non-competition agreement acquired as part of acquisitions. The customer relationships are being amortized over eight years and the value of the non-competition agreement is being amortized over five years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted.  Amortization expense related to these assets was $0.1 million and $0.2 million for the three and six month periods ended March 2015, respectively, and $0.1 million and $0.2 million for the three and six month periods ended March 2014, respectively.

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at March 2015:

	March2015
Fiscal 2015 (1)	$	182,500
Fiscal 2016	331,667
Fiscal 2017	265,000
Fiscal 2018	79,375
Fiscal 2019	41,667
	$	900,209

(1) Represents amortization for the remaining six months of Fiscal 2015.

5. DIVIDENDS

The Company paid cash dividends on its common stock and convertible preferred stock totaling $0.2 million and $0.3 million for the three and six month periods ended March 2015, respectively, and $0.2 million and $0.3 million for the three and six month periods ended March 2014, respectively.

9

6. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirements by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations less preferred stock dividend requirements (when anti-dilutive) by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method.

	For the three months ended March
	2015					2014
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	615,822			615,822		611,432			611,432
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			121,358		—			126,029
Weighted average number of shares outstanding	615,822			737,180		611,432			737,461
Net income	$	769,333		$	769,333	$	531,285		$	531,285
Deduct: convertible preferred stock dividends (2)	(48,108		)	—		(48,108		)	—
Net income available to common shareholders	$	721,225		$	769,333	$	483,177		$	531,285
Net earnings per share available to common shareholders	$	1.17		$	1.04	$	0.79		$	0.72

(1)Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units 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 six months ended March
	2015					2014
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	614,173			614,173		616,888			616,888
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			121,426		—			122,335
Weighted average number of shares outstanding	614,173			735,599		616,888			739,223
Net income	$	2,315,363		$	2,315,363	$	1,819,281		$	1,819,281
Deduct: convertible preferred stock dividends (2)	(97,285		)	—		(97,285		)	—
Net income available to common shareholders	$	2,218,078		$	2,315,363	$	1,721,996		$	1,819,281
Net earnings per share available to common shareholders	$	3.61		$	3.15	$	2.79		$	2.46

(1)Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units 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.

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7. DEBT

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank participating in a loan syndication.  The Facility included the following significant terms at March 2015:

·A July 2018 maturity date without a penalty for prepayment.

·$70.0 million revolving credit limit.

·Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

·A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

·Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

·The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 175 basis points depending on certain credit facility utilization measures, at the election of the Company.

·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.

·A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement.  The Company’s availability has not fallen below 10% of the maximum loan limit and the Company’s fixed charge coverage ratio is over 1.0.

·Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis.  There is, however, no limit on common stock dividends if certain excess availability measurements have been maintained for the thirty day period immediately prior to the payment of any such dividends or distributions and if immediately after giving effect to any such dividend or distribution payments the Company has a Fixed Charge Coverage Ratio of at least 1.10 to 1.0 as defined in the credit facility agreement.

Cross Default and Co-Terminus Provisions

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, is financed through a term loan with BMO Harris, NA (“BMO”) which is also a participant lender on the Company’s revolving line of credit. The BMO loan contains cross default provisions which cause the loan with BMO to be considered in default if the loans where BMO is the lender, including the revolving credit facility, is in default. There were no such cross defaults at March 2015. In addition, the BMO loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

AMCON has issued a letter of credit in the amount of approximately $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

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8. EQUITY-BASED INCENTIVE AWARDS

Omnibus Plan

The Company has two Omnibus Incentive Plans, the 2007 Omnibus Plan and 2014 Omnibus Plan (collectively “the Omnibus Plans”), which provide for equity incentives to employees. Each Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plans together permit the issuance of up to 225,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock.  At March 2015, awards with respect to a total of 163,328 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 61,672 shares may be awarded under the Omnibus Plans.

Stock Options

During Q2 2015, the Company issued 6,000 incentive stock options to various employees, pursuant to the provisions of the Company’s 2014 Omnibus Plan.  These awards vest in equal installments over a five year service period.  The awards had an estimated fair value at the grant date of approximately $0.1 million using the Black-Scholes option pricing model. The following assumptions were used in connection with the Black- Scholes option pricing calculation:

	Stock Option Pricing Assumptions
	Q2 2015
Risk-free interest rate	1.93%
Dividend yield	0.90%
Expected volatility	22.70%
Expected life in years	6

The stock options issued by the Company expire ten years from the grant date and include graded vesting schedules ranging between three and five years. Stock options issued and outstanding at March 2015 are summarized as follows:

			Remaining			Exercisable
	Exercise Price	Number Outstanding	Weighted-Average Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
Fiscal 2007	$18.00	25,000	1.70 years	$	18.00	25,000	$	18.00
Fiscal 2010	$51.50	4,000	5.08 years	$	51.50	3,100	$	51.50
Fiscal 2012	$53.80 - $65.97	5,400	6.58 years	$	54.94	3,200	$	54.93
Fiscal 2013	$62.33	7,200	7.57 years	$	62.33	3,400	$	62.33
Fiscal 2015	$81.03	6,000	9.84 years	$	81.03	—	—
		47,600		$	39.65	34,700	$	28.74

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Restricted Stock Units

At March 2015, nonvested restricted stock units awarded pursuant to the Company’s Omnibus Plans were as follows:

	Restricted Stock Units(1)	Restricted Stock Units(2)	Restricted Stock Units(3)
Date of award:	October 2012	October 2013	October – December 2014
Original number of awards issued:	15,000	17,600	13,000
Service period:	36 months	36-60 months	36 months
Estimated fair value of award at grant date	$935,000	$1,486,000	$1,083,000
Awards outstanding at March 2015	5,000	11,977	13,000
Fair value of non-vested awards at March 2015:	$402,000	$963,000	$1,045,000

(1)10,000 of the restricted stock units were vested as of March 2015. The remaining 5,000 restricted stock units will vest in October 2015.

(2)5,623 of the restricted stock units were vested as of March 2015. 9,337 restricted stock units will vest in equal amounts in October 2015, and October 2016.  The remaining 2,640 restricted stock units will vest in equal amounts in October 2015, October 2016, October 2017, and October 2018.

(3)13,000 restricted stock units will vest in equal amounts in October 2015, October 2016, and October 2017.

There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. The recipients of the restricted stock units are entitled to the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met.

The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Condensed Statement of Operations reflects the straight-line amortized fair value based on the period end closing price.

	Number of Shares		Weighted Average Fair Value
Nonvested restricted stock units at September 2014	32,900		$	84.75
Granted	13,000		83.30
Vested	(15,923	)	82.93
Expired	—		—
Nonvested restricted stock units at March 2015	29,977		$	80.40

All Equity-Based Awards (stock options and restricted stock units)

Net income before income taxes included compensation expense related to the amortization of all equity-based compensation awards of $0.3 million and $0.6 million for the three and six months ended March 2015, respectively, and $0.4 million and $0.7 million for the three and six months ended March 2014, respectively.  Total unamortized compensation expense related to these awards at March 2015 and March 2014 was approximately $2.0 million and $2.3 million, respectively.

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9. BUSINESS SEGMENTS

AMCON has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. Included in the “Other” column are intercompany eliminations, and assets held and charges incurred by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes.

	WholesaleSegment		RetailSegment		Other			Consolidated
THREE MONTHS ENDED MARCH 2015:
External revenue:
Cigarettes	$	204,852,169	$	—	$	—		$	204,852,169
Confectionery	18,507,301		—		—			18,507,301
Health food	—		8,234,613		—			8,234,613
Tobacco, foodservice & other	55,849,781		—		—			55,849,781
Total external revenue	279,209,251		8,234,613		—			287,443,864
Depreciation	380,065		118,605		937			499,607
Amortization	91,250		—		—			91,250
Operating income (loss)	2,555,166		457,458		(1,355,903		)	1,656,721
Interest expense	32,574		48,690		113,111			194,375
Income (loss) from operations before taxes	2,554,005		413,342		(1,469,014		)	1,498,333
Total assets	111,867,087		13,476,227		242,331			125,585,645
Capital expenditures	207,666		62,644		—			270,310
THREE MONTHS ENDED MARCH 2014:
External revenue:
Cigarettes	$	194,804,666	$	—	$	—		$	194,804,666
Confectionery	16,504,352		—		—			16,504,352
Health food	—		9,188,668		—			9,188,668
Tobacco, foodservice & other	51,924,102		—		—			51,924,102
Total external revenue	263,233,120		9,188,668		—			272,421,788
Depreciation	411,201		125,446		937			537,584
Amortization	91,250		—		—			91,250
Operating income (loss)	2,095,162		490,831		(1,407,039		)	1,178,954
Interest expense	38,856		56,002		127,766			222,624
Income (loss) from operations before taxes	2,076,291		438,798		(1,519,804		)	995,285
Total assets	94,011,377		13,534,327		318,709			107,864,413
Capital expenditures	374,459		2,695		—			377,154

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	Wholesale Segment		Retail Segment		Other			Consolidated
SIX MONTHS ENDED MARCH 2015:
External revenue:
Cigarettes	$	431,089,283	$	—	$	—		$	431,089,283
Confectionery	38,068,539		—		—			38,068,539
Health food	—		16,005,580		—			16,005,580
Tobacco, foodservice & other	117,713,938		—		—			117,713,938
Total external revenue	586,871,760		16,005,580		—			602,877,340
Depreciation	746,595		236,193		1,874			984,662
Amortization	182,500		—		—			182,500
Operating income (loss)	6,576,083		581,923		(2,732,180		)	4,425,826
Interest expense	66,131		96,385		269,001			431,517
Income (loss) from operations before taxes	6,543,711		494,833		(3,001,181		)	4,037,363
Total assets	111,867,087		13,476,227		242,331			125,585,645
Capital expenditures	504,789		106,371		—			611,106
SIX MONTHS ENDED MARCH 2014:
External revenue:
Cigarettes	$	415,956,477	$	—	$	—		$	415,956,477
Confectionery	34,707,543		—		—			34,707,543
Health food	—		17,711,946		—			17,711,946
Tobacco, foodservice & other	109,671,379		—		—			109,671,379
Total external revenue	560,335,399		17,711,946		—			578,047,345
Depreciation	814,543		253,956		1,875			1,070,374
Amortization	182,500		—		—			182,500
Operating income (loss)	5,891,124		543,021		(2,730,431		)	3,703,714
Interest expense	82,653		116,778		325,188			524,619
Income (loss) from operations before taxes	5,835,814		435,170		(3,022,703		)	3,248,281
Total assets	94,011,377		13,534,327		318,709			107,864,413
Capital expenditures	1,293,001		69,831		—			1,362,832

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect,” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.

You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

·increasing competition in our wholesale segment,

·increases in state and federal excise taxes on cigarette and tobacco products,

·the increasing demand and sales of electronic cigarettes and vapors through specialty shops and over the internet,

·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 or restrictions imposed by the FDA on the manufacture, distribution, and sale of certain cigarette and tobacco products,

·increases in fuel prices,

·increases in manufacturer prices,

·increases in inventory carrying costs and customer credit risk,

·changes in promotional and incentive programs offered by manufacturers,

·demand for the Company’s products, particularly cigarette and tobacco products,

·risks associated with opening new retail stores,

·increasing competition in our retail health food segment,

·the expansion of large and well capitalized national and regional health food retail store chains,

·      management periodically reviews market conditions and the demand for various assets that may lead to acquisitions, divestitures, new business ventures, or other efforts to expand, each which carry integration and execution risk,

·increasing health care costs and the potential impact on discretionary consumer spending,

·changes in laws and regulations and ongoing compliance with the Patient Protection and Affordable Care Act,

·decreased availability of capital resources,

·domestic regulatory and legislative risks,

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·poor weather conditions,

·consolidation trends within the convenience store, wholesale distribution, and retail health food industries,

·natural disasters and domestic unrest,

·other risks over which the Company has little or no control, and any other factors not identified herein.

Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.

CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company’s financial statements require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during our fiscal quarter ended March 2015.

SECOND FISCAL QUARTER 2015 (Q2 2015)

The following discussion and analysis includes the Company’s results of operations for the three and six months ended March 2015 and March 2014.

Wholesale Segment

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,500 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products.  Convenience stores represent our largest customer category. In September 2014, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

Our wholesale business offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory, merchandising expertise, information systems, and accessing trade credit.

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, Commonwealth Brands, Lorillard, Hershey, Kellogg’s, Kraft, and Mars. We also market private label lines of water, candy products, batteries, film, and other products.  We do not maintain long-term purchase contracts with our suppliers.

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Retail Segment

Our Retail Segment is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

We operate within the natural products retail industry, which is a subset of the large and stable U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. According to The Natural Foods Merchandiser, a leading industry trade publication, retail sales in the natural foods industry exceeded $89 billion during the 2013 calendar year.

Our Retail Segment operates sixteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ten locations in Arkansas, Kansas, Missouri, Nebraska, and Oklahoma.

Business Update — Wholesale Segment

Competition in the marketplace remains brisk as various other retail sales channels such as drug stores, dollar stores, and quick-service restaurants continue to pursue many of the same customers traditionally serviced by convenience stores. At the distributor level, industry-wide gross margins remain pressured as full service distributors and distributors who merely provide logistics services (i.e. doorstep deliveries) compete for market share. In response to “price-only” competition, we promote our wide range of customizable solutions and programs which can be tailored to specific customers depending on their region, size, and needs.

We are closely watching a number of ongoing trends within the industry: 1) the increasing reliance on technology at both the distributor and convenience store level and 2) the increasing demand for fresh/hot foodservice offerings. It is likely that the capital intensive nature of providing these services will largely fall on distributors and over time may force many smaller distributors from the market, presenting potential consolidation opportunities.  For our Company in particular, we continue to make targeted investments in a number of areas including technology applications and the expansion of our refrigerated and temperature controlled trucking fleet.

Forward looking, we believe the competitive landscape will remain intense. Over the medium to long term, we remain focused on a number of initiatives to help us further monetize different aspects of our business. Strategic and opportunistic acquisitions will also remain an important part of our long term value creation strategy.  As always, managing our business in a low risk fashion remains a top priority.

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Business Update — Retail Segment

The growing demand for natural products has attracted a wide range of well financed competitors. The operating environment for our retail health food segment is highly competitive as regional and national retailers such as Whole Foods Market, Trader Joe’s, Sprouts Farmers Market, Natural Grocers, Vitamin Shoppe, and General Nutrition Center (“GNC”) have all engaged in aggressive new store expansion strategies, often opening new retail sites in close proximity to our existing stores. Additionally, the purchase of consumer health products over the internet continues to grow and compete with brick and mortar retailers.

Our Midwestern stores in particular have experienced an increase in competition over the past several years which has impacted both sales and gross profit. We expect this highly competitive environment to persist and potentially increase into the foreseeable future.  As more competitors enter the market, two trends in particular may become more prevalent: 1) the consolidation of independent natural products retailers, and 2) an increase in the specialization of independent natural products retailers as a means to differentiate themselves from larger retailing chains.

Our management team remains focused on a number of initiatives. These efforts include merchandising and marketing strategies designed to promote customer retention and attract younger customers who increasingly are embracing natural products.  Additionally, we continue to reconfigure certain aspects of our business.

RESULTS OF OPERATIONS — THREE MONTHS ENDED MARCH 2015:

	For the three months ended March
	2015			2014			Incr(Decr)			% Change
CONSOLIDATED:
Sales (1)	$	287,443,864		$	272,421,788		$	15,022,076		5.5
Cost of sales	269,710,529			254,801,826			14,908,703			5.9
Gross profit	17,733,335			17,619,962			113,373			0.6
Gross profit percentage	6.2		%	6.5		%
Operating expense	16,076,614			16,441,008			(364,394		)	(2.2	)
Operating income	1,656,721			1,178,954			477,767			40.5
Interest expense	194,375			222,624			(28,249		)	(12.7	)
Income tax expense	729,000			464,000			265,000			57.1
Net income	769,333			531,285			238,048			44.8
BUSINESS SEGMENTS:
Wholesale
Sales	$	279,209,251		$	263,233,120		$	15,976,131		6.1
Gross profit	14,207,808			13,606,717			601,091			4.4
Gross profit percentage	5.1		%	5.2		%
Retail
Sales	$	8,234,613		$	9,188,668		$	(954,055	)	(10.4	)
Gross profit	3,525,527			4,013,245			(487,718		)	(12.2	)
Gross profit percentage	42.8		%	43.7		%

(1)Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $5.2 million in Q2 2015 and $4.8 million in Q2 2014.

SALES

Changes in sales are driven by two primary components:

(i)changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and

(ii)changes in the volume 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.

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SALES — Q2 2015 vs. Q2 2014

Sales in our Wholesale Segment increased $16.0 million during Q2 2015 as compared to Q2 2014. Significant items impacting sales during Q2 2015 included a $4.7 million increase in sales primarily related to the volume and mix of cigarette cartons sold, a $5.4 million increase in sales related to price increases implemented by cigarette manufacturers, and a $5.9 million increase in sales related to higher sales in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, foodservice, and store supplies categories (“Other Products”). Q2 2015 sales in our Retail Segment decreased $1.0 million as compared to Q2 2014.  This change in sales was primarily related to increased competition within the markets we operate.

GROSS PROFIT — Q2 2015 vs. Q2 2014

Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.

Gross profit in our Wholesale Segment increased $0.6 million in Q2 2015 as compared to Q2 2014, primarily due to higher sales in our Other Products category.  Q2 2015 gross profit in our Retail Segment decreased $0.5 million as compared to Q2 2014.  This change was primarily related to lower sales volume in our retail stores.

OPERATING EXPENSE — Q2 2015 vs. Q2 2014

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, insurance, and professional fees.  Our Q2 2015 operating expenses decreased $0.4 million as compared to Q2 2014.  This change was primarily related to a decrease in delivery costs within our Wholesale Segment as well as a reduction in operating costs in our Retail Segment.

RESULTS OF OPERATIONS — SIX MONTHS ENDED MARCH 2015:

	For the six months ended March
							Incr
	2015			2014			(Decr)			% Change
CONSOLIDATED:
Sales (1)	$	602,877,340		$	578,047,345		$	24,829,995		4.3
Cost of sales	565,617,473			540,786,320			24,831,153			4.6
Gross profit	37,259,867			37,261,025			(1,158		)	0.0
Gross profit percentage	6.2		%	6.4		%
Operating expenses	32,834,041			33,557,311			(723,270		)	(2.2	)
Operating income	4,425,826			3,703,714			722,112			19.5
Interest expense	431,517			524,619			(93,102		)	(17.7	)
Income tax expense	1,722,000			1,429,000			293,000			20.5
Net income	2,315,363			1,819,281			496,082			27.3
BUSINESS SEGMENTS:
Wholesale
Sales	$	586,871,760		$	560,335,399		$	26,536,361		4.7
Gross profit	30,460,351			29,612,287			848,064			2.9
Gross profit percentage	5.2		%	5.3		%
Retail
Sales	$	16,005,580		$	17,711,946		$	(1,706,366	)	(9.6	)
Gross profit	6,799,516			7,648,738			(849,222		)	(11.1	)
Gross profit percentage	42.5		%	43.2		%

(1)Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $10.4 million for the six month ended March 2015 and $9.7 million for the six months ended March 2014.

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SALES — Six months Ended March 2015

Sales in our Wholesale Segment increased $26.5 million for the six months ended March 2015 as compared to the same prior year period.  Significant items impacting sales during the period included a $3.2 million increase in sales primarily related to the volume and mix of cigarette cartons sold, a $11.9 million increase in sales related to price increases implemented by cigarette manufacturers, and a $11.4 million increase in sales related to higher sales in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, foodservice, and store supplies categories (“Other Products”).

Sales in our Retail Segment for the six months ended March 2015 decreased $1.7 million as compared to the same prior year period. This change in sales was primarily related to increased competition within the markets we operate.

GROSS PROFIT — Six months Ended March 2015

Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.

Gross profit in our Wholesale Segment increased $0.8 million for the six month period ended March 2015 as compared to the same prior year period. This change was primarily related to a $1.0 million increase in our Other Product category gross profit, partially offset by a $0.2 million decrease in gross profit related to the volume and mix of cigarette cartons sold.

Gross profit in our Retail Segment decreased $0.8 million for the six month period ended March 2015 as compared to the same prior year period.  This change was primarily related to lower sales volume in our retail stores.

OPERATING EXPENSE — Six months Ended March 2015

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, insurance, and professional fees. Operating expenses decreased $0.7 million during the six months ended March 2015 as compared to the same prior year period. Significant items impacting operating costs during the six month period ended March 2015 included a $0.9 million decrease in health insurance and delivery costs in our Wholesale Segment, and a $0.9 million reduction in operating costs in our Retail Segment. These decreases were partially offset by a $0.5 million increase in compensation expense and a $0.6 million increase in other operating costs.

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. For the six months ended March 2015, the Company used cash of approximately $15.5 million for operating activities. Significant uses of cash during the period included increases in inventory in addition to decreases in accrued expenses and income taxes payable. These uses of cash were partially offset by decreases in accounts receivable, prepaid and other current assets, and the impact of net earnings.

· Our variability of 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.

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· Investing Activities. The Company used approximately $0.6 million of cash during the six month period ended March 2015 for investing activities, primarily related to capital expenditures for property and equipment.

· Financing Activities. The Company generated cash of $16.2 million from financing activities during the six month period ended March 2015. Of this amount, approximately $16.9 million related to net borrowings on the Company’s credit facility. These borrowings were offset by $0.2 million in long-term debt repayments, $0.3 million related to dividends on the Company’s common and preferred stock, and $0.2 million related to equity-based awards.

· Cash on Hand/Working Capital.  At March 2015, the Company had cash on hand of $0.2 million and working capital (current assets less current liabilities) of $76.3 million. This compares to cash on hand of $0.1 million and working capital of $55.8 million at September 2014.  The increase in working capital as compared to September 2014 primarily relates to higher overall inventory levels resulting from the timing of inventory purchases combined with normal seasonal fluctuations. This increase in working capital was funded through borrowing on our credit facility agreement.

Credit Agreement

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank participating in a loan syndication.  The Facility included the following significant terms at March 2015:

·A July 2018 maturity date without a penalty for prepayment.

·$70.0 million revolving credit limit.

·Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

·A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

·Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

·The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 175 basis points depending on certain credit facility utilization measures, at the election of the Company.

·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.

·A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement.  The Company’s availability has not fallen below 10% of the maximum loan limit and the Company’s fixed charge ratio is over 1.0.

·Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis. There is, however, no limit on common stock dividends if certain excess availability measurements have been maintained for the thirty day period immediately prior to the payment of any such dividends or distributions and if immediately after giving effect to any such dividend or distribution payments the Company has a Fixed Charge Coverage Ratio of at least 1.10 to 1.0 as defined in the credit facility agreement.

The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at March 2015 was $69.6 million, of which $32.0 million was outstanding, leaving $37.6 million available.

At March 2015, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 2.48% at March 2015.

22

For the six months ended March 2015, our peak borrowings under the Facility were $40.2 million, and our average borrowings and average availability under the Facility were $26.9 million and $39.9 million, respectively.  Our availability to borrow under the Facility generally decreases as inventory and accounts receivable levels increase because of the borrowing limitations that are placed on collateralized assets.

Cross Default and Co-Terminus Provisions

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, is financed through a term loan with BMO Harris, NA (“BMO”) which is also a participant lender on the Company’s revolving line of credit. The BMO loan contains cross default provisions which cause the loan with BMO to be considered in default if the loans where BMO is the lender, including the revolving credit facility, is in default. There were no such cross defaults at March 2015. In addition, the BMO loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Dividends Payments

The Company paid cash dividends on its common stock and convertible preferred stock totaling $0.2 million and $0.3 million for the three and six month periods ended March 2015, respectively, and $0.2 million and $0.3 million for the three and six month periods ended March 2014, respectively.

Contractual Obligations

There have been no significant changes to the Company’s contractual obligations as set forth in the Company’s annual report on Form 10-K for the fiscal period ended September 30, 2014.

Other

The Company has issued a letter of credit in the amount of approximately $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Liquidity Risk

The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.

The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.

While the Company believes its liquidity position going forward will be adequate to sustain operations.  However, a precipitous change in operating environment could materially impact the Company’s future revenue stream as well as its ability to collect on customer accounts receivable or secure bank credit.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

23

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2015 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control that occurred during the fiscal quarter ended March 31, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2014.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

No shares of our common stock were purchased by or on behalf of our Company during the quarterly period ended March 31, 2015.

24

Item 3.Defaults Upon Senior Securities

Not Applicable

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Not applicable.

Item 6.Exhibits

(a) Exhibits

31.1Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 302 of the Sarbanes-Oxley Act

31.2Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 302 of the Sarbanes-Oxley Act

32.1Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act

32.2Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act

101Interactive Data File (filed herewithin electronically)

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMCON DISTRIBUTING COMPANY
	(registrant)
Date: April 17, 2015	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman
Date: April 17, 2015	/s/ Andrew C. Plummer
	Andrew C. Plummer,
	Vice President, Chief Financial Officer
	(Principal Financial and Accounting Officer)

26

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Christopher H. Atayan, certify that:

1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 17, 2015	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Andrew C. Plummer, certify that:

1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 17, 2015	/s/ Andrew C. Plummer
	Andrew C. Plummer, Vice President,
	Chief Financial Officer and Secretary

EX-32.1

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended March 31, 2015, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, have executed this certification for furnishing to the Securities and Exchange Commission. I hereby certify that, to the best of my knowledge and belief:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 17, 2015	/s/ Christopher H. Atayan
	Title: Chief Executive Officer and Chairman

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended March 31, 2015, I, Andrew C. Plummer, Vice President and Chief Financial Officer of the Company, have executed this certification for furnishing to the Securities and Exchange Commission. I hereby certify that, to the best of my knowledge and belief:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 17, 2015	/s/ Andrew C. Plummer
	Title: Vice President,
	Chief Financial Officer and Secretary

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

BUSINESS SEGMENTS (Details) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015 item	Mar. 31, 2014	Sep. 30, 2014
BUSINESS SEGMENTS
Number of reportable business segments			2
Information by business segments
Total external revenues	$ 287,443,864	$ 272,421,788	$ 602,877,340	$ 578,047,345
Depreciation	499,607	537,584	984,662	1,070,374
Amortization	91,250	91,250	182,500	182,500
Operating income (loss)	1,656,721	1,178,954	4,425,826	3,703,714
Interest expense	194,375	222,624	431,517	524,619
Income (loss) from operations before taxes	1,498,333	995,285	4,037,363	3,248,281
Total assets	125,585,645	107,864,413	125,585,645	107,864,413	108,679,952
Capital expenditures	270,310	377,154	611,106	1,362,832
Cigarettes
Information by business segments
Total external revenues	204,852,169	194,804,666	431,089,283	415,956,477
Confectionery
Information by business segments
Total external revenues	18,507,301	16,504,352	38,068,539	34,707,543
Health food
Information by business segments
Total external revenues	8,234,613	9,188,668	16,005,580	17,711,946
Tobacco, foodservice & other
Information by business segments
Total external revenues	55,849,781	51,924,102	117,713,938	109,671,379
Wholesale Segment
Information by business segments
Total external revenues	279,209,251	263,233,120	586,871,760	560,335,399
Wholesale Segment | Cigarettes
Information by business segments
Total external revenues	204,852,169	194,804,666	431,089,283	415,956,477
Wholesale Segment | Confectionery
Information by business segments
Total external revenues	18,507,301	16,504,352	38,068,539	34,707,543
Wholesale Segment | Tobacco, foodservice & other
Information by business segments
Total external revenues	55,849,781	51,924,102	117,713,938	109,671,379
Retail Segment
Information by business segments
Total external revenues	8,234,613	9,188,668	16,005,580	17,711,946
Retail Segment | Health food
Information by business segments
Total external revenues	8,234,613	9,188,668	16,005,580	17,711,946
Operating Segments | Wholesale Segment
Information by business segments
Depreciation	380,065	411,201	746,595	814,543
Amortization	91,250	91,250	182,500	182,500
Operating income (loss)	2,555,166	2,095,162	6,576,083	5,891,124
Interest expense	32,574	38,856	66,131	82,653
Income (loss) from operations before taxes	2,554,005	2,076,291	6,543,711	5,835,814
Total assets	111,867,087	94,011,377	111,867,087	94,011,377
Capital expenditures	207,666	374,459	504,789	1,293,001
Operating Segments | Retail Segment
Information by business segments
Depreciation	118,605	125,446	236,193	253,956
Operating income (loss)	457,458	490,831	581,923	543,021
Interest expense	48,690	56,002	96,385	116,778
Income (loss) from operations before taxes	413,342	438,798	494,833	435,170
Total assets	13,476,227	13,534,327	13,476,227	13,534,327
Capital expenditures	62,644	2,695	106,317	69,831
Other
Information by business segments
Depreciation	937	937	1,874	1,875
Operating income (loss)	(1,355,903)	(1,407,039)	(2,732,180)	(2,730,431)
Interest expense	113,111	127,766	269,001	325,188
Income (loss) from operations before taxes	(1,469,014)	(1,519,804)	(3,001,181)	(3,022,703)
Total assets	$ 242,331	$ 318,709	$ 242,331	$ 318,709

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $)	Mar. 31, 2015	Sep. 30, 2014
Goodwill by reporting segment
Goodwill	$ 6,349,827	$ 6,349,827
Wholesale Segment
Goodwill by reporting segment
Goodwill	4,436,950	4,436,950
Retail Segment
Goodwill by reporting segment
Goodwill	$ 1,912,877	$ 1,912,877

XML

INVENTORIES

6 Months Ended

Mar. 31, 2015

INVENTORIES

INVENTORIES

3. INVENTORIES

At March 2015, inventories consisted of finished goods and are stated at the lower of cost determined on a First-in, First-out (“FIFO”) basis, or market. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $0.8 million at March 2015 and $0.9 million at September 2014. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

XML

EARNINGS PER SHARE (Details) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
EARNINGS PER SHARE
Weighted average common shares outstanding, Basic	615,822	611,432	614,173	616,888
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock	121,358	126,029	121,426	122,335
Weighted average number of shares outstanding, Diluted	737,180	737,461	735,599	739,223
Net income	$ 769,333	$ 531,285	$ 2,315,363	$ 1,819,281
Deduct: convertible preferred stock dividends	(48,108)	(48,108)	(97,285)	(97,285)
Net income available to common shareholders	721,225	483,177	2,218,078	1,721,996
Net income available to common shareholders, diluted	$ 769,333	$ 531,285	$ 2,315,363	$ 1,819,281
Net earnings per share available to common shareholders, Basic (in dollars per share)	$ 1.17	$ 0.79	$ 3.61	$ 2.79
Net earnings per share available to common shareholders, Diluted (in dollars per share)	$ 1.04	$ 0.72	$ 3.15	$ 2.46

XML

DIVIDENDS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
DIVIDENDS
Cash dividends paid on common stock and convertible preferred stock issuances	$ 0.2	$ 0.2	$ 0.3	$ 0.3

XML

DEBT (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	6 Months Ended
	Mar. 31, 2015
Other
Letter of credit issued for worker's compensation insurance carrier as part of the entity's self-insured loss control program	$ 0.4
Facility
Revolving credit facility
Revolving credit limit	70.0
Increase in borrowing capacity available under loan accordion	25.0
Additional credit advances for certain inventory purchases	$ 10.0
Automatic renewal period of agreement unless terminated	1 year
Unused commitment fee (as a percent)	0.25%
Period considered for computing fixed charge coverage ratio	12 months
Threshold of excess availability of credit as a percentage of maximum loan limit, required for financial covenant compliance	10.00%
Facility | LIBOR
Revolving credit facility
Variable rate basis	LIBOR
Facility | Prime rate
Revolving credit facility
Variable rate basis	prime rate
Facility | Minimum
Revolving credit facility
Notice period prior to the end of any original or renewal term of the agreement required for terminating the agreement either by the borrower or lender	90 days
Fixed charge coverage ratio	1.0
Fixed charge coverage ratio required to be maintained immediately after giving effect to any such dividend or distribution payments	1.10
Facility | Minimum | LIBOR
Revolving credit facility
Basis points added to reference rate (as a percent)	1.25%
Facility | Maximum
Revolving credit facility
Restricted amount of dividends on common stock (in dollars per share)	$ 1.00
Facility | Maximum | LIBOR
Revolving credit facility
Basis points added to reference rate (as a percent)	1.75%

XML

EQUITY-BASED INCENTIVE AWARDS (Details) (USD $) In Millions, except Share data, unless otherwise specified	6 Months Ended
	Mar. 31, 2015 item
EQUITY-BASED INCENTIVE AWARDS
Number of incentive plans	2
Number of shares of the company's common stock permitted for issuance under the plan	225,000
Number of shares awarded pursuant to the plan	163,328
Number of shares that may be awarded under the plan	61,672
Stock Options
Omnibus plan and stock option activity
Expiration period	10 years
Vesting period	5 years
Stock options issued and outstanding
Number Outstanding (in shares)	47,600
Weighted-Average Exercise Price (in dollars per share)	39.65
Number Exercisable (in shares)	34,700
Exercisable, Weighted-Average Exercise Price (in dollars per share)	28.74
Estimated fair value of the stock option awards using the Black-Scholes option pricing model	0.1
Stock Option Pricing Assumptions
Risk-free interest rate (as a percent)	1.93%
Dividend yield (as a percent)	0.90%
Expected volatility (as a percent)	22.70%
Expected life	6 years
Number of Shares
Granted (in shares)	6,000
Stock Options | Minimum
Omnibus plan and stock option activity
Vesting period	3 years
Stock Options | Maximum
Omnibus plan and stock option activity
Vesting period	5 years
Stock Options | Fiscal 2007
Stock options issued and outstanding
Number Outstanding (in shares)	25,000
Remaining Weighted-Average Contractual Life	1 year 8 months 12 days
Weighted-Average Exercise Price (in dollars per share)	18.00
Number Exercisable (in shares)	25,000
Exercisable, Weighted-Average Exercise Price (in dollars per share)	18.00
Stock Options | Fiscal 2010
Stock options issued and outstanding
Number Outstanding (in shares)	4,000
Remaining Weighted-Average Contractual Life	5 years 29 days
Weighted-Average Exercise Price (in dollars per share)	51.50
Number Exercisable (in shares)	3,100
Exercisable, Weighted-Average Exercise Price (in dollars per share)	51.50
Stock Options | Fiscal 2012
Stock options issued and outstanding
Number Outstanding (in shares)	5,400
Remaining Weighted-Average Contractual Life	6 years 6 months 29 days
Weighted-Average Exercise Price (in dollars per share)	54.94
Number Exercisable (in shares)	3,200
Exercisable, Weighted-Average Exercise Price (in dollars per share)	54.93
Stock Options | Fiscal 2012 | Minimum
Stock options issued and outstanding
Weighted-Average Exercise Price (in dollars per share)	53.80
Stock Options | Fiscal 2012 | Maximum
Stock options issued and outstanding
Weighted-Average Exercise Price (in dollars per share)	65.97
Stock Options | Fiscal 2013
Stock options issued and outstanding
Number Outstanding (in shares)	7,200
Remaining Weighted-Average Contractual Life	7 years 6 months 26 days
Weighted-Average Exercise Price (in dollars per share)	62.33
Number Exercisable (in shares)	3,400
Exercisable, Weighted-Average Exercise Price (in dollars per share)	62.33
Stock Options | Fiscal 2015
Stock options issued and outstanding
Number Outstanding (in shares)	6,000
Remaining Weighted-Average Contractual Life	9 years 10 months 2 days
Weighted-Average Exercise Price (in dollars per share)	81.03

XML

CONVERTIBLE PREFERRED STOCK

6 Months Ended

Mar. 31, 2015

CONVERTIBLE PREFERRED STOCK

CONVERTIBLE PREFERRED STOCK

2. CONVERTIBLE PREFERRED STOCK

The Company has two series of convertible preferred stock outstanding at March 2015 as identified in the following table:

	Series A			Series B
Date of issuance:	June 17, 2004			October 8, 2004
Optionally redeemable beginning	June 18, 2006			October 9, 2006
Par value (gross proceeds):	$	2,500,000		$	400,000
Number of shares outstanding at March 2015:	100,000			16,000
Liquidation preference per share:	$	25.00		$	25.00
Conversion price per share:	$	30.31		$	24.65
Number of common shares in which to be converted:	82,481			16,227
Dividend rate:	6.785		%	6.37		%

The Series A Convertible Preferred Stock (“Series A”) and Series B Convertible Preferred Stock (“Series B”), (collectively, the “Preferred Stock”), are convertible at any time by the holders into a number of shares of AMCON common stock equal to the number of preferred shares being converted multiplied by a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.

In the event of a liquidation of the Company, the holders of the Preferred Stock would be entitled to receive the liquidation preference plus any accrued and unpaid dividends prior to the distribution of any amount to the holders of the Common Stock. The shares of Preferred Stock are optionally redeemable by the Company beginning on various dates, as listed in the above table, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference. The Preferred Stock is redeemable at the liquidation value and at the option of the holder.  The Series A Preferred Stock and 8,000 shares of the Series B Preferred Stock are owned by Mr. Christopher Atayan, AMCON’s Chief Executive Officer and Chairman of the Board.  The Series B Preferred Stockholders have the right to elect one member of our Board of Directors, pursuant to the voting rights in the Certificate of Designation creating the Series B.  Christopher H. Atayan was first nominated and elected to this seat in 2004.

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EQUITY-BASED INCENTIVE AWARDS (Details 2) (USD $)	3 Months Ended		6 Months Ended		1 Months Ended		3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014	Oct. 31, 2012	Oct. 31, 2013	Dec. 31, 2014
All Equity-Based Awards (stock options and restricted stock units)
Compensation expense related to the amortization of all equity - based compensation awards	$ 300,000	$ 400,000	$ 600,000	$ 700,000
Total unamortized compensation expense	2,000,000	2,300,000	2,000,000	2,300,000
Restricted Stock Units
Restricted stock units
Award outstanding at the end of the period (in shares)	29,977		29,977
Direct cost to the recipients of the restricted stock units			0
Number of Shares
Nonvested restricted stock units at the beginning of the period (in shares)			32,900				32,900
Granted (in shares)			13,000
Vested (in shares)			(15,923)
Nonvested restricted stock units at the end of the period (in shares)	29,977		29,977
Weighted Average Fair Value
Nonvested restricted stock units at the beginning of the period (in dollars per share)			$ 84.75				$ 84.75
Granted (in dollars per share)			$ 83.30
Vested (in dollars per share)			$ 82.93
Nonvested restricted stock units at the end of the period (in dollars per share)	$ 80.40		$ 80.40
Restricted Stock Units 1
Restricted stock units
Service period					36 months
Estimated fair value of award at grant date					935,000
Award outstanding at the end of the period (in shares)	5,000		5,000
Fair value of non-vested awards at the end of the period	402,000		402,000
Vested as of the balance sheet date (in shares)	10,000		10,000
Number of Shares
Granted (in shares)					15,000
Nonvested restricted stock units at the end of the period (in shares)	5,000		5,000
Restricted Stock Units 2
Restricted stock units
Estimated fair value of award at grant date						1,486,000
Award outstanding at the end of the period (in shares)	11,977		11,977
Fair value of non-vested awards at the end of the period	963,000		963,000
Vested as of the balance sheet date (in shares)	5,623		5,623
Number of Shares
Granted (in shares)						17,600
Nonvested restricted stock units at the end of the period (in shares)	11,977		11,977
Restricted Stock Units 2 | Vesting of awards equally in two anniversaries from the date of grant
Restricted stock units
Award outstanding at the end of the period (in shares)	9,337		9,337
Number of Shares
Nonvested restricted stock units at the end of the period (in shares)	9,337		9,337
Restricted Stock Units 2 | Vesting equally in four anniversaries from date of grant member
Restricted stock units
Award outstanding at the end of the period (in shares)	2,640		2,640
Number of Shares
Nonvested restricted stock units at the end of the period (in shares)	2,640		2,640
Restricted Stock Units 2 | Minimum
Restricted stock units
Service period						36 months
Restricted Stock Units 2 | Maximum
Restricted stock units
Service period						60 months
Restricted Stock Units 3
Restricted stock units
Service period							36 months
Estimated fair value of award at grant date							1,083,000
Award outstanding at the end of the period (in shares)	13,000		13,000
Fair value of non-vested awards at the end of the period	$ 1,045,000		$ 1,045,000
Number of Shares
Granted (in shares)							13,000
Nonvested restricted stock units at the end of the period (in shares)	13,000		13,000
Restricted Stock Units 3 | Vesting of awards equally in three anniversaries from the date of grant
Restricted stock units
Award outstanding at the end of the period (in shares)	13,000		13,000
Number of Shares
Nonvested restricted stock units at the end of the period (in shares)	13,000		13,000

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Condensed Consolidated Balance Sheets (USD $)	Mar. 31, 2015	Sep. 30, 2014
Current assets:
Cash	$ 189,559	$ 99,922
Accounts receivable, less allowance for doubtful accounts of $0.9 million and $0.8 million at March 2015 and September 2014, respectively	30,847,526	33,286,932
Inventories, net	65,521,673	43,635,266
Deferred income taxes	1,353,082	1,606,168
Prepaid and other current assets	3,325,626	5,034,570
Total current assets	101,237,466	83,662,858
Property and equipment, net	13,388,517	13,763,140
Goodwill	6,349,827	6,349,827
Other intangible assets, net	4,273,478	4,455,978
Other assets	336,357	448,149
TOTAL ASSETS	125,585,645	108,679,952
Current liabilities:
Accounts payable	16,627,660	16,412,895
Accrued expenses	5,978,844	6,891,308
Accrued wages, salaries and bonuses	1,977,298	2,647,969
Income taxes payable	26,476	1,603,614
Current maturities of long-term debt	346,057	341,190
Total current liabilities	24,956,335	27,896,976
Credit facility	31,963,666	15,081,783
Deferred income taxes	3,469,673	3,484,204
Long-term debt, less current maturities	3,561,053	3,735,702
Other long-term liabilities	134,980	139,003
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 116,000 shares outstanding and issued in Series A and B referred to above
Common stock, $.01 par value, 3,000,000 shares authorized, 615,822 shares outstanding at March 2015 and 602,411 shares outstanding at September 2014	6,811	6,677
Additional paid-in capital	14,743,839	13,571,909
Retained earnings	49,814,791	47,829,201
Treasury stock at cost	(5,965,503)	(5,965,503)
Total shareholders' equity	58,599,938	55,442,284
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	125,585,645	108,679,952
Series A preferred stock
Cumulative, convertible preferred stock
Cumulative, convertible preferred stock	2,500,000	2,500,000
Series B preferred stock
Cumulative, convertible preferred stock
Cumulative, convertible preferred stock	$ 400,000	$ 400,000

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Condensed Consolidated Statements of Cash Flows (USD $)	6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,315,363	$ 1,819,281
Adjustments to reconcile income from operations to net cash flows from operating activities:
Depreciation	984,662	1,070,374
Amortization	182,500	182,500
(Gain) loss on sale of property and equipment	7,036	(24,746)
Equity-based compensation	607,661	717,821
Deferred income taxes	238,555	462,447
Provision for losses on doubtful accounts	159,999	132,000
Provision for losses (recoveries) on inventory obsolescence	(34,189)	(1,121)
Other	(4,023)	(4,023)
Changes in assets and liabilities:
Accounts receivable	2,279,407	1,356,409
Inventories	(21,852,218)	(2,474,084)
Prepaid and other current assets	1,708,944	5,700
Other assets	111,792	13,054
Accounts payable	200,996	(34,071)
Accrued expenses and accrued wages, salaries and bonuses	(862,235)	(1,565,640)
Income taxes payable	(1,577,138)	(1,618,592)
Net cash flows from operating activities	(15,532,888)	37,309
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(611,106)	(1,362,832)
Proceeds from sales of property and equipment	7,800	29,969
Acquisition		(513,938)
Net cash flows from investing activities	(603,306)	(1,846,801)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on bank credit agreements	16,881,883	4,926,619
Principal payments on long-term debt	(169,782)	(607,923)
Repurchase of Series B Convertible Preferred Stock and common stock		(1,941,918)
Dividends paid on convertible preferred stock	(97,285)	(97,285)
Dividends on common stock	(232,488)	(239,362)
Withholdings on the exercise of equity-based awards	(156,497)	(109,115)
Net cash flow from financing activities	16,225,831	1,931,016
Net change in cash	89,637	121,524
Cash, beginning of period	99,922	275,036
Cash, end of period	189,559	396,560
Supplemental disclosure of cash flow information:
Cash paid during the year for interest	403,758	523,081
Cash paid during the year for income taxes	3,060,584	2,585,145
Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable	48,754	152,311
Issuance of common stock in connection with the vesting and exercise of equity-based awards	$ 1,240,842	$ 1,154,869

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details) (USD $) In Billions, unless otherwise specified	6 Months Ended	1 Months Ended	12 Months Ended
	Mar. 31, 2015 item	Sep. 30, 2014 item	Sep. 30, 2013
Business segment
Number of business segments	2
Wholesale Segment
Company operations
Number of retail outlets served	4,500
Number of products sold or distributed	16,000
Rank assigned by Convenience Store News		6
Number of distribution centers	6
Floor space occupied by distribution centers (in square feet)	641,000
Retail Segment
Company operations
Number of operating health food retail stores	16
Number of products sold or distributed	32,000
Sales increase in natural foods industry according to The Natural Foods Merchandiser			$ 89
Retail Segment | Florida
Company operations
Number of operating health food retail stores	6
Retail Segment | Midwest
Company operations
Number of operating health food retail stores	10

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INVENTORIES (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
INVENTORIES
Total reserves on finished goods	$ 0.8	$ 0.9

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

6 Months Ended

Mar. 31, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two business segments:

· Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products in the Central, Rocky Mountain, and Southern regions of the United States. Additionally, our Wholesale Segment provides a full range of programs and services to assist our customers in managing their business and profitability.

· Our retail health food segment (“Retail Segment”) operates sixteen health food retail stores located throughout the Midwest and Florida.

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,500 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category.  In September 2014, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

Our wholesale business offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory, merchandising expertise, information systems, and accessing trade credit.

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, Commonwealth Brands, Lorillard, Hershey, Kellogg’s, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products.  We do not maintain long-term purchase contracts with our suppliers.

RETAIL SEGMENT

Our Retail Segment is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

We operate within the natural products retail industry, which is a subset of the large and stable U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. According to The Natural Foods Merchandiser, a leading industry trade publication, retail sales in the natural foods industry exceeded $89 billion during the 2013 calendar year.

Our Retail Segment operates sixteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ten locations in Arkansas, Kansas, Missouri, Nebraska, and Oklahoma.

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended March 31, 2015 and March 31, 2014 have been referred to throughout this quarterly report as Q2 2015 and Q2 2014, respectively. The fiscal balance sheet dates as of March 31, 2015, March 31, 2014, and September 30, 2014 have been referred to as March 2015, March 2014, and September 2014, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014 09, “Revenue from Contracts with Customers.” This ASU supersedes the revenue recognition requirements in “Accounting Standard Codification 605—Revenue Recognition” and most industry specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of ASU 2014 09 on its financial position, results of operations, and cash flow.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 0.9	$ 0.8
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares outstanding	116,000	116,000
Preferred stock, shares issued	116,000	116,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	3,000,000	3,000,000
Common stock, shares outstanding	615,822	602,411
Series A preferred stock
Cumulative, convertible preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Cumulative, convertible preferred stock, shares authorized	100,000	100,000
Cumulative, convertible preferred stock, shares issued	100,000	100,000
Preferred stock, shares outstanding	100,000	100,000
Series B preferred stock
Cumulative, convertible preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Cumulative, convertible preferred stock, shares authorized	80,000	80,000
Cumulative, convertible preferred stock, shares issued	16,000	16,000
Cumulative, Convertible Preferred Stock, shares outstanding	16,000	16,000
Cumulative, convertible preferred stock, liquidation preference (in dollars)	$ 0.4	$ 0.4

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CONVERTIBLE PREFERRED STOCK (Tables)

6 Months Ended

Mar. 31, 2015

CONVERTIBLE PREFERRED STOCK

Schedule of two series of convertible preferred stock outstanding

The Company has two series of convertible preferred stock outstanding at March 2015 as identified in the following table:

	Series A			Series B
Date of issuance:	June 17, 2004			October 8, 2004
Optionally redeemable beginning	June 18, 2006			October 9, 2006
Par value (gross proceeds):	$	2,500,000		$	400,000
Number of shares outstanding at March 2015:	100,000			16,000
Liquidation preference per share:	$	25.00		$	25.00
Conversion price per share:	$	30.31		$	24.65
Number of common shares in which to be converted:	82,481			16,227
Dividend rate:	6.785		%	6.37		%

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Document and Entity Information	6 Months Ended
	Mar. 31, 2015	Apr. 13, 2015
Document and Entity Information
Entity Registrant Name	AMCON DISTRIBUTING CO
Entity Central Index Key	0000928465
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		615,822
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

6 Months Ended

Mar. 31, 2015

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of goodwill by reporting segment

	March 2015		September 2014
Wholesale Segment	$	4,436,950	$	4,436,950
Retail Segment	1,912,877		1,912,877
	$	6,349,827	$	6,349,827

Schedule of other intangible assets

	March 2015		September 2014
Trademarks and tradenames	$	3,373,269	$	3,373,269
Non-competition agreement (less accumulated amortization of $0.4 million and $0.3 million at March 2015 and September 2014, respectively)	116,667		166,667
Customer relationships (less accumulated amortization of $1.3 million and $1.2 million at March 2015 and September 2014, respectively)	783,542		916,042
	$	4,273,478	$	4,455,978

Schedule of estimated future amortization expense related to identifiable intangible assets with finite lives

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at March 2015:

	March 2015
Fiscal 2015 (1)	$	182,500
Fiscal 2016	331,667
Fiscal 2017	265,000
Fiscal 2018	79,375
Fiscal 2019	41,667
	$	900,209

(1) Represents amortization for the remaining six months of Fiscal 2015.

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Condensed Consolidated Statements of Operations (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Condensed Consolidated Statements of Operations
Sales (including excise taxes of $87.4 million and $85.7 million and $184.4 million and $183.1 million, respectively)	$ 287,443,864	$ 272,421,788	$ 602,877,340	$ 578,047,345
Cost of sales	269,710,529	254,801,826	565,617,473	540,786,320
Gross profit	17,733,335	17,619,962	37,259,867	37,261,025
Selling, general and administrative expenses	15,485,757	15,812,174	31,666,879	32,304,437
Depreciation and amortization	590,857	628,834	1,167,162	1,252,874
Total operating expenses	16,076,614	16,441,008	32,834,041	33,557,311
Operating income	1,656,721	1,178,954	4,425,826	3,703,714
Other expense (income):
Interest expense	194,375	222,624	431,517	524,619
Other (income), net	(35,987)	(38,955)	(43,054)	(69,186)
Total other expenses (income)	158,388	183,669	388,463	455,433
Income from operations before income tax expense	1,498,333	995,285	4,037,363	3,248,281
Income tax expense	729,000	464,000	1,722,000	1,429,000
Net income	769,333	531,285	2,315,363	1,819,281
Preferred stock dividend requirements	(48,108)	(48,108)	(97,285)	(97,285)
Net income available to common shareholders	$ 721,225	$ 483,177	$ 2,218,078	$ 1,721,996
Basic earnings per share available to common shareholders: (in dollars per share)	$ 1.17	$ 0.79	$ 3.61	$ 2.79
Diluted earnings per share available to common shareholders: (in dollars per share)	$ 1.04	$ 0.72	$ 3.15	$ 2.46
Basic weighted average shares outstanding (in shares)	615,822	611,432	614,173	616,888
Diluted weighted average shares outstanding (in shares)	737,180	737,461	735,599	739,223

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EARNINGS PER SHARE

6 Months Ended

Mar. 31, 2015

EARNINGS PER SHARE

EARNINGS PER SHARE

6. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirements by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations less preferred stock dividend requirements (when anti-dilutive) by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method.

	For the three months ended March
	2015					2014
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	615,822			615,822		611,432			611,432
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			121,358		—			126,029
Weighted average number of shares outstanding	615,822			737,180		611,432			737,461
Net income	$	769,333		$	769,333	$	531,285		$	531,285
Deduct: convertible preferred stock dividends (2)	(48,108		)	—		(48,108		)	—
Net income available to common shareholders	$	721,225		$	769,333	$	483,177		$	531,285
Net earnings per share available to common shareholders	$	1.17		$	1.04	$	0.79		$	0.72

(1) Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units 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 six months ended March
	2015					2014
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	614,173			614,173		616,888			616,888
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			121,426		—			122,335
Weighted average number of shares outstanding	614,173			735,599		616,888			739,223
Net income	$	2,315,363		$	2,315,363	$	1,819,281		$	1,819,281
Deduct: convertible preferred stock dividends (2)	(97,285		)	—		(97,285		)	—
Net income available to common shareholders	$	2,218,078		$	2,315,363	$	1,721,996		$	1,819,281
Net earnings per share available to common shareholders	$	3.61		$	3.15	$	2.79		$	2.46

(1) Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units 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.

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DIVIDENDS

6 Months Ended

Mar. 31, 2015

DIVIDENDS

DIVIDENDS

5. DIVIDENDS

The Company paid cash dividends on its common stock and convertible preferred stock totaling $0.2 million and $0.3 million for the three and six month periods ended March 2015, respectively, and $0.2 million and $0.3 million for the three and six month periods ended March 2014, respectively.

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CONVERTIBLE PREFERRED STOCK (Details) (USD $)	6 Months Ended
	Mar. 31, 2015	Sep. 30, 2014
CONVERTIBLE PREFERRED STOCK
Number of series of convertible preferred stock outstanding	2
Series A preferred stock
Convertible preferred stock
Par value (gross proceeds):	$ 2,500,000
Number of shares outstanding at March 2015:	100,000	100,000
Liquidation preference per share:	$ 25.00
Conversion price per share:	$ 30.31
Number of common shares in which to be converted:	82,481
Dividend rate: (as a percent)	6.785%
Numerator of the multiplier used to calculate number of common shares in which the preferred stock are convertible	25.00
Redemption price as a percentage of liquidation preference	112.00%
Annual percentage decrease in redemption price until the redemption price equals the liquidation preference	1.00%
Series B preferred stock
Convertible preferred stock
Par value (gross proceeds):	400,000
Number of shares outstanding at March 2015:	16,000	16,000
Liquidation preference per share:	$ 25.00
Conversion price per share:	$ 24.65
Number of common shares in which to be converted:	16,227
Dividend rate: (as a percent)	6.37%
Numerator of the multiplier used to calculate number of common shares in which the preferred stock are convertible	$ 25.00
Redemption price as a percentage of liquidation preference	112.00%
Annual percentage decrease in redemption price until the redemption price equals the liquidation preference	1.00%
Number of directors who can be elected by an institutional investor, pursuant to the voting rights in the certificate of designation	1
Series B preferred stock | Chief Executive Officer
Convertible preferred stock
Closely held shares of Series B Preferred Stock	8,000

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EARNINGS PER SHARE (Tables)

6 Months Ended

Mar. 31, 2015

EARNINGS PER SHARE

Schedule of net earnings per share available to common shareholders

	For the three months ended March
	2015					2014
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	615,822			615,822		611,432			611,432
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			121,358		—			126,029
Weighted average number of shares outstanding	615,822			737,180		611,432			737,461
Net income	$	769,333		$	769,333	$	531,285		$	531,285
Deduct: convertible preferred stock dividends (2)	(48,108		)	—		(48,108		)	—
Net income available to common shareholders	$	721,225		$	769,333	$	483,177		$	531,285
Net earnings per share available to common shareholders	$	1.17		$	1.04	$	0.79		$	0.72

(1) Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units 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 six months ended March
	2015					2014
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	614,173			614,173		616,888			616,888
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			121,426		—			122,335
Weighted average number of shares outstanding	614,173			735,599		616,888			739,223
Net income	$	2,315,363		$	2,315,363	$	1,819,281		$	1,819,281
Deduct: convertible preferred stock dividends (2)	(97,285		)	—		(97,285		)	—
Net income available to common shareholders	$	2,218,078		$	2,315,363	$	1,721,996		$	1,819,281
Net earnings per share available to common shareholders	$	3.61		$	3.15	$	2.79		$	2.46

(1) Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock units 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.

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BUSINESS SEGMENTS

6 Months Ended

Mar. 31, 2015

BUSINESS SEGMENTS

BUSINESS SEGMENTS

9. BUSINESS SEGMENTS

AMCON has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. Included in the “Other” column are intercompany eliminations, and assets held and charges incurred by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes.

	Wholesale Segment		Retail Segment		Other			Consolidated
THREE MONTHS ENDED MARCH 2015:
External revenue:
Cigarettes	$	204,852,169	$	—	$	—		$	204,852,169
Confectionery	18,507,301		—		—			18,507,301
Health food	—		8,234,613		—			8,234,613
Tobacco, foodservice & other	55,849,781		—		—			55,849,781
Total external revenue	279,209,251		8,234,613		—			287,443,864
Depreciation	380,065		118,605		937			499,607
Amortization	91,250		—		—			91,250
Operating income (loss)	2,555,166		457,458		(1,355,903		)	1,656,721
Interest expense	32,574		48,690		113,111			194,375
Income (loss) from operations before taxes	2,554,005		413,342		(1,469,014		)	1,498,333
Total assets	111,867,087		13,476,227		242,331			125,585,645
Capital expenditures	207,666		62,644		—			270,310
THREE MONTHS ENDED MARCH 2014:
External revenue:
Cigarettes	$	194,804,666	$	—	$	—		$	194,804,666
Confectionery	16,504,352		—		—			16,504,352
Health food	—		9,188,668		—			9,188,668
Tobacco, foodservice & other	51,924,102		—		—			51,924,102
Total external revenue	263,233,120		9,188,668		—			272,421,788
Depreciation	411,201		125,446		937			537,584
Amortization	91,250		—		—			91,250
Operating income (loss)	2,095,162		490,831		(1,407,039		)	1,178,954
Interest expense	38,856		56,002		127,766			222,624
Income (loss) from operations before taxes	2,076,291		438,798		(1,519,804		)	995,285
Total assets	94,011,377		13,534,327		318,709			107,864,413
Capital expenditures	374,459		2,695		—			377,154

	Wholesale  Segment		Retail  Segment		Other			Consolidated
SIX MONTHS ENDED MARCH 2015:
External revenue:
Cigarettes	$	431,089,283	$	—	$	—		$	431,089,283
Confectionery	38,068,539		—		—			38,068,539
Health food	—		16,005,580		—			16,005,580
Tobacco, foodservice & other	117,713,938		—		—			117,713,938
Total external revenue	586,871,760		16,005,580		—			602,877,340
Depreciation	746,595		236,193		1,874			984,662
Amortization	182,500		—		—			182,500
Operating income (loss)	6,576,083		581,923		(2,732,180		)	4,425,826
Interest expense	66,131		96,385		269,001			431,517
Income (loss) from operations before taxes	6,543,711		494,833		(3,001,181		)	4,037,363
Total assets	111,867,087		13,476,227		242,331			125,585,645
Capital expenditures	504,789		106,371		—			611,106
SIX MONTHS ENDED MARCH 2014:
External revenue:
Cigarettes	$	415,956,477	$	—	$	—		$	415,956,477
Confectionery	34,707,543		—		—			34,707,543
Health food	—		17,711,946		—			17,711,946
Tobacco, foodservice & other	109,671,379		—		—			109,671,379
Total external revenue	560,335,399		17,711,946		—			578,047,345
Depreciation	814,543		253,956		1,875			1,070,374
Amortization	182,500		—		—			182,500
Operating income (loss)	5,891,124		543,021		(2,730,431		)	3,703,714
Interest expense	82,653		116,778		325,188			524,619
Income (loss) from operations before taxes	5,835,814		435,170		(3,022,703		)	3,248,281
Total assets	94,011,377		13,534,327		318,709			107,864,413
Capital expenditures	1,293,001		69,831		—			1,362,832

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DEBT

6 Months Ended

Mar. 31, 2015

DEBT:

DEBT

7. DEBT

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank participating in a loan syndication.  The Facility included the following significant terms at March 2015:

· A July 2018 maturity date without a penalty for prepayment.

· $70.0 million revolving credit limit.

· Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

· A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

· Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

· The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 175 basis points depending on certain credit facility utilization measures, at the election of the Company.

· 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.

· A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement.  The Company’s availability has not fallen below 10% of the maximum loan limit and the Company’s fixed charge coverage ratio is over 1.0.

· Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis.  There is, however, no limit on common stock dividends if certain excess availability measurements have been maintained for the thirty day period immediately prior to the payment of any such dividends or distributions and if immediately after giving effect to any such dividend or distribution payments the Company has a Fixed Charge Coverage Ratio of at least 1.10 to 1.0 as defined in the credit facility agreement.

Cross Default and Co-Terminus Provisions

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, is financed through a term loan with BMO Harris, NA (“BMO”) which is also a participant lender on the Company’s revolving line of credit. The BMO loan contains cross default provisions which cause the loan with BMO to be considered in default if the loans where BMO is the lender, including the revolving credit facility, is in default. There were no such cross defaults at March 2015. In addition, the BMO loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

AMCON has issued a letter of credit in the amount of approximately $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

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EQUITY-BASED INCENTIVE AWARDS

6 Months Ended

Mar. 31, 2015

EQUITY-BASED INCENTIVE AWARDS

EQUITY-BASED INCENTIVE AWARDS

8. EQUITY-BASED INCENTIVE AWARDS

Omnibus Plan

The Company has two Omnibus Incentive Plans, the 2007 Omnibus Plan and 2014 Omnibus Plan (collectively “the Omnibus Plans”), which provide for equity incentives to employees. Each Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plans together permit the issuance of up to 225,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock.  At March 2015, awards with respect to a total of 163,328 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 61,672 shares may be awarded under the Omnibus Plans.

Stock Options

During Q2 2015, the Company issued 6,000 incentive stock options to various employees, pursuant to the provisions of the Company’s 2014 Omnibus Plan.  These awards vest in equal installments over a five year service period.  The awards had an estimated fair value at the grant date of approximately $0.1 million using the Black-Scholes option pricing model. The following assumptions were used in connection with the Black- Scholes option pricing calculation:

	Stock Option Pricing Assumptions
	Q2 2015
Risk-free interest rate	1.93%
Dividend yield	0.90%
Expected volatility	22.70%
Expected life in years	6

The stock options issued by the Company expire ten years from the grant date and include graded vesting schedules ranging between three and five years. Stock options issued and outstanding at March 2015 are summarized as follows:

			Remaining			Exercisable
	Exercise Price	Number Outstanding	Weighted-Average Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
Fiscal 2007	$18.00	25,000	1.70 years	$	18.00	25,000	$	18.00
Fiscal 2010	$51.50	4,000	5.08 years	$	51.50	3,100	$	51.50
Fiscal 2012	$53.80 - $65.97	5,400	6.58 years	$	54.94	3,200	$	54.93
Fiscal 2013	$62.33	7,200	7.57 years	$	62.33	3,400	$	62.33
Fiscal 2015	$81.03	6,000	9.84 years	$	81.03	—	—
		47,600		$	39.65	34,700	$	28.74

Restricted Stock Units

At March 2015, nonvested restricted stock units awarded pursuant to the Company’s Omnibus Plans were as follows:

	Restricted Stock Units(1)	Restricted Stock Units(2)	Restricted Stock Units(3)
Date of award:	October 2012	October 2013	October – December 2014
Original number of awards issued:	15,000	17,600	13,000
Service period:	36 months	36-60 months	36 months
Estimated fair value of award at grant date	$935,000	$1,486,000	$1,083,000
Awards outstanding at March 2015	5,000	11,977	13,000
Fair value of non-vested awards at March 2015:	$402,000	$963,000	$1,045,000

(1) 10,000 of the restricted stock units were vested as of March 2015. The remaining 5,000 restricted stock units will vest in October 2015.

(2) 5,623 of the restricted stock units were vested as of March 2015. 9,337 restricted stock units will vest in equal amounts in October 2015, and October 2016.  The remaining 2,640 restricted stock units will vest in equal amounts in October 2015, October 2016, October 2017, and October 2018.

(3) 13,000 restricted stock units will vest in equal amounts in October 2015, October 2016, and October 2017.

There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. The recipients of the restricted stock units are entitled to the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met.

The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Condensed Statement of Operations reflects the straight-line amortized fair value based on the period end closing price.

	Number of Shares		Weighted Average Fair Value
Nonvested restricted stock units at September 2014	32,900		$	84.75
Granted	13,000		83.30
Vested	(15,923	)	82.93
Expired	—		—
Nonvested restricted stock units at March 2015	29,977		$	80.40

All Equity-Based Awards (stock options and restricted stock units)

Net income before income taxes included compensation expense related to the amortization of all equity-based compensation awards of $0.3 million and $0.6 million for the three and six months ended March 2015, respectively, and $0.4 million and $0.7 million for the three and six months ended March 2014, respectively.  Total unamortized compensation expense related to these awards at March 2015 and March 2014 was approximately $2.0 million and $2.3 million, respectively.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies)

6 Months Ended

Mar. 31, 2015

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended March 31, 2015 and March 31, 2014 have been referred to throughout this quarterly report as Q2 2015 and Q2 2014, respectively. The fiscal balance sheet dates as of March 31, 2015, March 31, 2014, and September 30, 2014 have been referred to as March 2015, March 2014, and September 2014, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014 09, “Revenue from Contracts with Customers.” This ASU supersedes the revenue recognition requirements in “Accounting Standard Codification 605—Revenue Recognition” and most industry specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of ASU 2014 09 on its financial position, results of operations, and cash flow.

Wholesale Segment

WHOLESALE SEGMENT AND RETAIL SEGMENT

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,500 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category.  In September 2014, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

Our wholesale business offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, optimizing inventory, merchandising expertise, information systems, and accessing trade credit.

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, Commonwealth Brands, Lorillard, Hershey, Kellogg’s, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products.  We do not maintain long-term purchase contracts with our suppliers.

Retail Segment

WHOLESALE SEGMENT AND RETAIL SEGMENT

RETAIL SEGMENT

Our Retail Segment is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

We operate within the natural products retail industry, which is a subset of the large and stable U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. According to The Natural Foods Merchandiser, a leading industry trade publication, retail sales in the natural foods industry exceeded $89 billion during the 2013 calendar year.

Our Retail Segment operates sixteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ten locations in Arkansas, Kansas, Missouri, Nebraska, and Oklahoma.

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BUSINESS SEGMENTS (Tables)

6 Months Ended

Mar. 31, 2015

BUSINESS SEGMENTS

Schedule of segment information

	Wholesale Segment		Retail Segment		Other			Consolidated
THREE MONTHS ENDED MARCH 2015:
External revenue:
Cigarettes	$	204,852,169	$	—	$	—		$	204,852,169
Confectionery	18,507,301		—		—			18,507,301
Health food	—		8,234,613		—			8,234,613
Tobacco, foodservice & other	55,849,781		—		—			55,849,781
Total external revenue	279,209,251		8,234,613		—			287,443,864
Depreciation	380,065		118,605		937			499,607
Amortization	91,250		—		—			91,250
Operating income (loss)	2,555,166		457,458		(1,355,903		)	1,656,721
Interest expense	32,574		48,690		113,111			194,375
Income (loss) from operations before taxes	2,554,005		413,342		(1,469,014		)	1,498,333
Total assets	111,867,087		13,476,227		242,331			125,585,645
Capital expenditures	207,666		62,644		—			270,310
THREE MONTHS ENDED MARCH 2014:
External revenue:
Cigarettes	$	194,804,666	$	—	$	—		$	194,804,666
Confectionery	16,504,352		—		—			16,504,352
Health food	—		9,188,668		—			9,188,668
Tobacco, foodservice & other	51,924,102		—		—			51,924,102
Total external revenue	263,233,120		9,188,668		—			272,421,788
Depreciation	411,201		125,446		937			537,584
Amortization	91,250		—		—			91,250
Operating income (loss)	2,095,162		490,831		(1,407,039		)	1,178,954
Interest expense	38,856		56,002		127,766			222,624
Income (loss) from operations before taxes	2,076,291		438,798		(1,519,804		)	995,285
Total assets	94,011,377		13,534,327		318,709			107,864,413
Capital expenditures	374,459		2,695		—			377,154

	Wholesale  Segment		Retail  Segment		Other			Consolidated
SIX MONTHS ENDED MARCH 2015:
External revenue:
Cigarettes	$	431,089,283	$	—	$	—		$	431,089,283
Confectionery	38,068,539		—		—			38,068,539
Health food	—		16,005,580		—			16,005,580
Tobacco, foodservice & other	117,713,938		—		—			117,713,938
Total external revenue	586,871,760		16,005,580		—			602,877,340
Depreciation	746,595		236,193		1,874			984,662
Amortization	182,500		—		—			182,500
Operating income (loss)	6,576,083		581,923		(2,732,180		)	4,425,826
Interest expense	66,131		96,385		269,001			431,517
Income (loss) from operations before taxes	6,543,711		494,833		(3,001,181		)	4,037,363
Total assets	111,867,087		13,476,227		242,331			125,585,645
Capital expenditures	504,789		106,371		—			611,106
SIX MONTHS ENDED MARCH 2014:
External revenue:
Cigarettes	$	415,956,477	$	—	$	—		$	415,956,477
Confectionery	34,707,543		—		—			34,707,543
Health food	—		17,711,946		—			17,711,946
Tobacco, foodservice & other	109,671,379		—		—			109,671,379
Total external revenue	560,335,399		17,711,946		—			578,047,345
Depreciation	814,543		253,956		1,875			1,070,374
Amortization	182,500		—		—			182,500
Operating income (loss)	5,891,124		543,021		(2,730,431		)	3,703,714
Interest expense	82,653		116,778		325,188			524,619
Income (loss) from operations before taxes	5,835,814		435,170		(3,022,703		)	3,248,281
Total assets	94,011,377		13,534,327		318,709			107,864,413
Capital expenditures	1,293,001		69,831		—			1,362,832

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014	Sep. 30, 2014
Other intangible assets
Other intangible assets, net	$ 4,273,478		$ 4,273,478		$ 4,455,978
Amortization expense related to finite-lived intangible assets	100,000	100,000	200,000	200,000
Non-competition agreement
Other intangible assets
Other intangible assets, net	116,667		116,667		166,667
Accumulated amortization	400,000		400,000		300,000
Amortization period			5 years
Customer relationships
Other intangible assets
Other intangible assets, net	783,542		783,542		916,042
Accumulated amortization	1,300,000		1,300,000		1,200,000
Amortization period			8 years
Trademarks and tradenames
Other intangible assets
Other intangible assets, net	$ 3,373,269		$ 3,373,269		$ 3,373,269

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Condensed Consolidated Statements of Operations (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Condensed Consolidated Statements of Operations
Sales, excise taxes	$ 87.4	$ 85.7	$ 184.4	$ 183.1

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GOODWILL AND OTHER INTANGIBLE ASSETS

6 Months Ended

Mar. 31, 2015

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reporting segment of the Company consisted of the following:

	March 2015		September 2014
Wholesale Segment	$	4,436,950	$	4,436,950
Retail Segment	1,912,877		1,912,877
	$	6,349,827	$	6,349,827

Other intangible assets of the Company consisted of the following:

	March 2015		September 2014
Trademarks and tradenames	$	3,373,269	$	3,373,269
Non-competition agreement (less accumulated amortization of $0.4 million and $0.3 million at March 2015 and September 2014, respectively)	116,667		166,667
Customer relationships (less accumulated amortization of $1.3 million and $1.2 million at March 2015 and September 2014, respectively)	783,542		916,042
	$	4,273,478	$	4,455,978

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At March 2015, identifiable intangible assets considered to have finite lives were represented by customer relationships and the value of a non-competition agreement acquired as part of acquisitions. The customer relationships are being amortized over eight years and the value of the non-competition agreement is being amortized over five years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted.  Amortization expense related to these assets was $0.1 million and $0.2 million for the three and six month periods ended March 2015, respectively, and $0.1 million and $0.2 million for the three and six month periods ended March 2014, respectively.

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at March 2015:

	March 2015
Fiscal 2015 (1)	$	182,500
Fiscal 2016	331,667
Fiscal 2017	265,000
Fiscal 2018	79,375
Fiscal 2019	41,667
	$	900,209

(1) Represents amortization for the remaining six months of Fiscal 2015.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details 3) (USD $)	Mar. 31, 2015
Estimated future amortization expense related to identifiable intangible assets with finite lives
Fiscal 2015	$ 182,500
Fiscal 2016	331,667
Fiscal 2017	265,000
Fiscal 2018	79,375
Fiscal 2019	41,667
Total	$ 900,209

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EQUITY-BASED INCENTIVE AWARDS (Tables)

6 Months Ended

Mar. 31, 2015

EQUITY-BASED INCENTIVE AWARDS

Schedule of assumptions used in connection with the Black-Scholes option pricing calculation

	Stock Option Pricing Assumptions
	Q2 2015
Risk-free interest rate	1.93%
Dividend yield	0.90%
Expected volatility	22.70%
Expected life in years	6

Schedule of stock options issued and outstanding by grant year

Stock options issued and outstanding at March 2015 are summarized as follows:

			Remaining			Exercisable
	Exercise Price	Number Outstanding	Weighted-Average Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
Fiscal 2007	$18.00	25,000	1.70 years	$	18.00	25,000	$	18.00
Fiscal 2010	$51.50	4,000	5.08 years	$	51.50	3,100	$	51.50
Fiscal 2012	$53.80 - $65.97	5,400	6.58 years	$	54.94	3,200	$	54.93
Fiscal 2013	$62.33	7,200	7.57 years	$	62.33	3,400	$	62.33
Fiscal 2015	$81.03	6,000	9.84 years	$	81.03	—	—
		47,600		$	39.65	34,700	$	28.74

Summary of restricted stock unit activity

	Number of Shares		Weighted Average Fair Value
Nonvested restricted stock units at September 2014	32,900		$	84.75
Granted	13,000		83.30
Vested	(15,923	)	82.93
Expired	—		—
Nonvested restricted stock units at March 2015	29,977		$	80.40

Schedule of nonvested restricted stock units awarded

At March 2015, nonvested restricted stock units awarded pursuant to the Company’s Omnibus Plans were as follows:

	Restricted Stock Units(1)	Restricted Stock Units(2)	Restricted Stock Units(3)
Date of award:	October 2012	October 2013	October – December 2014
Original number of awards issued:	15,000	17,600	13,000
Service period:	36 months	36-60 months	36 months
Estimated fair value of award at grant date	$935,000	$1,486,000	$1,083,000
Awards outstanding at March 2015	5,000	11,977	13,000
Fair value of non-vested awards at March 2015:	$402,000	$963,000	$1,045,000

(1) 10,000 of the restricted stock units were vested as of March 2015. The remaining 5,000 restricted stock units will vest in October 2015.

(2) 5,623 of the restricted stock units were vested as of March 2015. 9,337 restricted stock units will vest in equal amounts in October 2015, and October 2016.  The remaining 2,640 restricted stock units will vest in equal amounts in October 2015, October 2016, October 2017, and October 2018.

(3) 13,000 restricted stock units will vest in equal amounts in October 2015, October 2016, and October 2017.