10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2017

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________to _________

Commission File Number 1-15589

(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 ☒  No ☐

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 ☒  No ☐

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

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

Smaller reporting company ☒Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The Registrant had 678,938 shares of its $.01 par value common stock outstanding as of July 17, 2017.

Form 10-Q

3rd Quarter

INDEX

	PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at June 30, 2017 (unaudited) and September 30, 2016	3
Condensed consolidated unaudited statements of operations for the three and nine months ended June 30, 2017 and 2016	4
Condensed consolidated unaudited statements of cash flows for the nine months ended June 30, 2017 and 2016	5
Notes to condensed consolidated unaudited financial statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	23
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25

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PART I — FINANCIAL INFORMATION

Item 1.      Financial Statements  

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2017 and September 30, 2016

	June		September
	2017		2016
	(Unaudited)
ASSETS
Current assets:
Cash	$	121,790	$	605,380
Accounts receivable, less allowance for doubtful accounts of $0.7 million at June 2017 and $0.7 million at September 2016		31,035,527		30,033,104
Inventories, net		49,101,309		48,404,882
Deferred income taxes		1,352,383		1,441,919
Income taxes receivable		157,900		164,959
Prepaid and other current assets		7,836,179		8,608,049
Total current assets		89,605,088		89,258,293
Property and equipment, net		12,867,402		12,607,877
Goodwill		6,349,827		6,349,827
Other intangible assets, net		3,560,561		3,759,311
Other assets		326,440		288,082
Total assets	$	112,709,318	$	112,263,390
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,329,745	$	18,164,983
Accrued expenses		7,106,294		6,792,884
Accrued wages, salaries and bonuses		2,415,122		3,580,996
Current maturities of long-term debt		370,803		362,495
Total current liabilities		28,221,964		28,901,358
Credit facility		10,328,098		10,537,226
Deferred income taxes		4,052,400		4,021,569
Long-term debt, less current maturities		2,742,485		3,021,824
Other long-term liabilities		33,111		30,815
Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized		—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 678,938 shares outstanding and issued at June 2017 and 677,057 shares outstanding and issued at September 2016		8,314		8,184
Additional paid-in capital		20,803,998		19,525,554
Retained earnings		60,033,389		58,693,241
Treasury stock at cost		(13,514,441)		(12,476,381)
Total shareholders’ equity		67,331,260		65,750,598
Total liabilities and shareholders' equity	$	112,709,318	$	112,263,390

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three and nine months ended June 30, 2017 and 2016

	For the three months ended June				For the nine months ended June
	2017		2016		2017		2016
Sales (including excise taxes of $95.1 million and $98.9 million, and $271.8 million and $284.9 million, respectively)	$	332,842,200	$	333,398,723	$	936,994,299	$	951,856,098
Cost of sales		314,818,453		314,235,192		883,180,664		896,190,425
Gross profit		18,023,747		19,163,531		53,813,635		55,665,673
Selling, general and administrative expenses		16,587,055		15,335,808		48,105,878		45,951,300
Depreciation and amortization		474,890		512,543		1,531,292		1,655,173
		17,061,945		15,848,351		49,637,170		47,606,473
Operating income		961,802		3,315,180		4,176,465		8,059,200
Other expense (income):
Interest expense		180,266		188,798		545,719		562,654
Other (income), net		(16,513)		(35,552)		(37,250)		(98,634)
		163,753		153,246		508,469		464,020
Income from operations before income tax expense		798,049		3,161,934		3,667,996		7,595,180
Income tax expense		413,000		1,310,000		1,748,000		3,241,000
Net income		385,049		1,851,934		1,919,996		4,354,180
Preferred stock dividend requirements		—		(48,642)		—		(146,462)
Net income available to common shareholders	$	385,049	$	1,803,292	$	1,919,996	$	4,207,718
Basic earnings per share available to common shareholders	$	0.57	$	3.03	$	2.82	$	6.91
Diluted earnings per share available to common shareholders	$	0.56	$	2.62	$	2.78	$	6.07
Basic weighted average shares outstanding		678,938		596,112		679,858		609,240
Diluted weighted average shares outstanding		691,701		707,300		690,840		717,875
Dividends declared and paid per common share	$	0.18	$	0.18	$	0.82	$	0.82

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the nine months ended June 30, 2017 and 2016

		June		June
		2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,919,996	$	4,354,180
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation		1,332,542		1,389,756
Amortization		198,750		265,417
Gain on sale of property and equipment		(30,854)		(69,215)
Equity-based compensation		1,193,005		1,050,644
Deferred income taxes		120,367		238,728
Provision (recovery) for losses on doubtful accounts		42,000		(39,000)
Provision for losses on inventory obsolescence		4,852		2,014
Other		2,296		(5,034)
Changes in assets and liabilities:
Accounts receivable		(1,044,423)		(2,027,155)
Inventories		(701,279)		10,120,804
Prepaid and other current assets		771,870		(3,320,720)
Other assets		(38,358)		27,897
Accounts payable		322,325		924,567
Accrued expenses and accrued wages, salaries and bonuses		(659,813)		2,825
Income taxes receivable		7,059		476,352
Net cash flows from operating activities		3,440,335		13,392,060
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,761,431)		(1,013,988)
Proceeds from sales of property and equipment		42,655		112,157
Net cash flows from investing activities		(1,718,776)		(901,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on bank credit agreements		(209,128)		(7,193,768)
Principal payments on long-term debt		(271,031)		(262,677)
Repurchase of common stock		(1,038,060)		(4,044,437)
Dividends paid on convertible preferred stock		—		(146,462)
Dividends on common stock		(579,848)		(526,076)
Withholdings on the exercise of equity-based awards		(107,082)		(121,348)
Net cash flows from financing activities		(2,205,149)		(12,294,768)
Net change in cash		(483,590)		195,461
Cash, beginning of period		605,380		219,536
Cash, end of period	$	121,790	$	414,997
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	545,719	$	576,681
Cash paid during the period for income taxes		1,620,574		2,525,920
Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable		9,881		51,874
Issuance of common stock in connection with the vesting and exercise of equity-based awards		1,262,763		1,174,981

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

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AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

· Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers and is focused on helping them manage their business and increase their profitability. We primarily operate in the Central, Rocky Mountain, and Southern regions of the United States.

· Our retail health food segment (“Retail Segment”) operates fifteen 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 4,000 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 2016, Convenience Store News ranked us as the seventh (7th) 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, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

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 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 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.

Our Retail Segment operates fifteen 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-

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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 nine locations in Arkansas, 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, 2016, 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 June 30, 2017 and June 30, 2016 have been referred to throughout this quarterly report as Q3 2017 and Q3 2016, respectively. The fiscal balance sheet dates as of June 30, 2017 and September 30, 2016 have been referred to as June 2017 and September 2016, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company). The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In November 2015, FASB issued ASU No. 2015-17 "Income Taxes: Balance Sheet Classification of Deferred Taxes” ("ASU 2015-17"). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company), and for interim periods within those fiscal years. The amendments for ASU 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of how companies account for share-based compensation, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 (Fiscal 2018 for the Company) and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

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In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments 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, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance regarding the classification of certain items within the statements of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 (Fiscal 2019 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

2. CONVERTIBLE PREFERRED STOCK

In fiscal 2016, the Company had 100,000 shares of Series A Preferred Stock (“Series A”) and 16,000 shares of Series B Preferred Stock (“Series B”) outstanding. During the fourth quarter of fiscal 2016, all outstanding shares of Series A and Series B were converted to 98,707 common shares of the Company pursuant to terms provided in the preferred stock agreements. Mr. Christopher Atayan, AMCON’s Chief Executive Officer and Chairman of the Board, owned all of the outstanding shares of the Series A and 8,000 shares of the Series B. For the nine month period ending June 2016, the Company paid cash dividends of approximately $0.1 million to Mr. Atayan related to his ownership of the Series A and Series B.

3. INVENTORIES

At June 2017 and September 2016, inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) 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 $0.9 million at both June 2017 and September 2016. 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.

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4. GOODWILL AND OTHER INTANGIBLE ASSETS

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

	June		September
	2017		2016
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:

	June		September
	2017		2016
Trademarks and tradenames (Retail Segment)	$	3,373,269	$	3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $1.9 million and $1.7 million at June 2017 and September 2016, respectively)		187,292		386,042
	$	3,560,561	$	3,759,311

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At June 2017, identifiable intangible assets considered to have finite lives were represented by customer relationships which are being amortized over eight years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense related to these assets was approximately $0.1 million and $0.2 million for the three and nine month periods ended June 2017, respectively, and $0.1 million and $0.3 million for the three and nine month periods ended June 2016, respectively.

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at June 2017:

	June
	2017
Fiscal 2017  (1)	$	66,250
Fiscal 2018		79,375
Fiscal 2019		41,667
	$	187,292

(1) Represents amortization for the remaining three months of Fiscal 2017.

5. DIVIDENDS

The Company paid cash dividends on its common stock totaling $0.1 million and $0.6 million for the three and nine month periods ended June 2017, respectively, and cash dividends of $0.2 million and $0.7 million on its common stock and convertible preferred stock for the three and nine month periods ended June 2016, respectively.

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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 net 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.

	For the three months ended June
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		678,938		678,938		596,112		596,112
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		12,763		—		111,188
Weighted average number of shares outstanding		678,938		691,701		596,112		707,300
Net income	$	385,049	$	385,049	$	1,851,934	$	1,851,934
Deduct: convertible preferred stock dividends (2)		—		—		(48,642)		—
Net income available to common shareholders	$	385,049	$	385,049	$	1,803,292	$	1,851,934
Net earnings per share available to common shareholders	$	0.57	$	0.56	$	3.03	$	2.62

(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 nine months ended June
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		679,858		679,858		609,240		609,240
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		10,982		—		108,635
Weighted average number of shares outstanding		679,858		690,840		609,240		717,875
Net income	$	1,919,996	$	1,919,996	$	4,354,180	$	4,354,180
Deduct: convertible preferred stock dividends (2)		—		—		(146,462)		—
Net income available to common shareholders	$	1,919,996	$	1,919,996	$	4,207,718	$	4,354,180
Net earnings per share available to common shareholders	$	2.82	$	2.78	$	6.91	$	6.07

(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.

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.

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The Facility included the following significant terms at June 2017:

· 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.

Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at June 2017. In addition, the Real Estate 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.

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8. BUSINESS SEGMENTS

The Company 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, and income before taxes.

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED JUNE 2017
External revenues:
Cigarettes	$	236,433,449	$	—	$	—	$	236,433,449
Tobacco		41,478,941		—		—		41,478,941
Confectionery		22,024,887		—		—		22,024,887
Health food		—		6,376,725		—		6,376,725
Foodservice & other		26,528,198		—		—		26,528,198
Total external revenue		326,465,475		6,376,725		—		332,842,200
Depreciation		292,294		116,345		—		408,639
Amortization		66,251		—		—		66,251
Operating income (loss)		3,096,128		(615,276)		(1,519,050)		961,802
Interest expense		25,279		—		154,987		180,266
Income (loss) from operations before taxes		3,082,982		(610,896)		(1,674,037)		798,049
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		109,648		813,888		—		923,536
THREE MONTHS ENDED JUNE 2016
External revenue:
Cigarettes	$	239,244,630	$	—	$	—	$	239,244,630
Tobacco		39,495,721		—		—		39,495,721
Confectionery		21,946,660		—		—		21,946,660
Health food		—		6,541,789		—		6,541,789
Foodservice & other		26,169,923		—		—		26,169,923
Total external revenue		326,856,934		6,541,789		—		333,398,723
Depreciation		322,568		107,058		—		429,626
Amortization		82,917		—		—		82,917
Operating income (loss)		4,879,836		(109,304)		(1,455,352)		3,315,180
Interest expense		28,666		—		160,132		188,798
Income (loss) from operations before taxes		4,881,860		(104,442)		(1,615,484)		3,161,934
Total assets		102,432,357		12,097,050		167,945		114,697,352
Capital expenditures		123,260		198,326		—		321,586

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	Wholesale		Retail
	Segment		Segment		Other		Consolidated
NINE MONTHS ENDED  JUNE 2017
External revenue:
Cigarettes	$	667,849,390	$	—	$	—	$	667,849,390
Tobacco		117,535,875		—		—		117,535,875
Confectionery		58,606,239		—		—		58,606,239
Health food		—		19,334,087		—		19,334,087
Foodservice & other		73,668,708		—		—		73,668,708
Total external revenue		917,660,212		19,334,087		—		936,994,299
Depreciation		981,232		351,310		—		1,332,542
Amortization		198,750		—		—		198,750
Operating income (loss)		9,802,019		(1,122,951)		(4,502,603)		4,176,465
Interest expense		77,100		—		468,619		545,719
Income (loss) from operations before taxes		9,749,503		(1,110,284)		(4,971,223)		3,667,996
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		429,892		1,331,539		—		1,761,431
NINE MONTHS ENDED  JUNE 2016
External revenue:
Cigarettes	$	682,836,920	$	—	$	—	$	682,836,920
Tobacco		112,880,466		—		—		112,880,466
Confectionery		60,838,182		—		—		60,838,182
Health food		—		21,353,621		—		21,353,621
Foodservice & other		73,946,909		—		—		73,946,909
Total external revenue		930,502,477		21,353,621		—		951,856,098
Depreciation		1,048,665		341,091		—		1,389,756
Amortization		265,417		—		—		265,417
Operating income (loss)		11,802,629		429,366		(4,172,795)		8,059,200
Interest expense		88,066		—		474,588		562,654
Income (loss) from operations before taxes		11,799,231		443,333		(4,647,384)		7,595,180
Total assets		102,432,357		12,097,050		167,945		114,697,352
Capital expenditures		705,137		308,851		—		1,013,988

9. COMMON STOCK REPURCHASE

For the nine months ended June 2017, the Company repurchased 11,104 shares of its common stock for cash totaling approximately $1.0 million. All repurchased shares are recorded in treasury stock at cost. No shares of the Company’s common stock were repurchased during Q3 2017.  

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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 and retail health food businesses and any associated impact on the carrying value of intangible assets within those businesses,

· increases in fuel costs and expenses associated with operating a refrigerated trucking fleet,

· increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand,

· higher commodity prices which could impact food ingredient costs for many of the products we sell,

· regulation of cigarette, tobacco, and e-cigarette products by the FDA, in addition to existing state and federal regulations by other agencies,

· potential bans or restrictions imposed by the FDA, states, or local municipalities on the manufacture, distribution, and sale of certain cigarette and tobacco products,

· increases in manufacturer prices,

· increases in inventory carrying costs and customer credit risk,

· changes in promotional and incentive programs offered by manufacturers,

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

· risks associated with opening new retail stores,

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

· increasing competition in our retail health food segment (online, conventional grocery stores, mass merchants, etc.),

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

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

· changes in laws and regulations and ongoing compliance related to health care,

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· decreased availability of capital resources,

· domestic regulatory and legislative risks,

· poor weather conditions,

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

· natural disasters and domestic or political 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, 2016, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during our fiscal quarter ended June 2017.

THIRD FISCAL QUARTER 2017 (Q3 2017)

The following discussion and analysis includes the Company’s results of operations for the three and nine months ended June 2017 and June 2016:

Wholesale Segment

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 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 2016, Convenience Store News ranked us as the seventh (7th) 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.

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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, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

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 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 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.

Our Retail Segment operates fifteen  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 nine locations in Arkansas, Missouri, Nebraska, and Oklahoma.

Business Update - Wholesale Segment

The convenience store industry (“Industry”) continues to perform well relative to other retail formats. Similar to other  retail sectors, however, the Industry is transforming in response to changes in consumer shopping habits and technology.

A number of ongoing trends continue to impact the Industry. First, the long term demand trend for cigarettes continues to decline as fewer individuals smoke, in part because of the impact of higher excise taxes. Secondly, the lines between convenience stores and other retail formats continues to blur as quick serve restaurants (“QSRs”), drugstores, dollar stores, and smaller footprint grocery stores all add competing products and services.  

The long term growth strategy for our wholesale business reflects this operating environment. Independent convenience store owners are increasingly looking to our Company to assist them in areas such as category and profitability management, and for new technology solutions. Additionally, interest in building new non-tobacco revenue streams continues to accelerate among convenience store owners. Accordingly, these areas remain a core focus in terms of our organic sales efforts.

Expanding our geographic footprint either through strategic acquisitions or establishing distribution centers in new markets also remains an important element of our long term growth plan. We do, however, continue to maintain a highly disciplined approach towards acquisitions with a focus on long term value creation as a guiding tenant.

We remain optimistic about the future of the Industry. Many of the changes in technology and consumer behavior which are currently reshaping all of retail has only intensified the focus on convenience shopping. In an operating environment which rewards speed, the convenience store industry is well positioned to capitalize on the forces which are currently  transforming retail. 

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Business Update - Retail Segment

The food retailing sector is undergoing transformational change. Driving that change is a wave of new competition from both regional and national retailers, and most recently the arrival of foreign deep discounters such as Lidl. Also driving this industry-wide transformation is a shift in the types of products and services being demanded by consumers and the ongoing growth in digital (online) shopping which is remaking all of retail. These factors are driving consolidation not only at the retailer level, but also within consumer package goods (“CPG”) manufacturers and distributors.  

Specific to the health and natural products sector, conventional grocery stores and mass merchants such as Krogers, Albertsons, and Costco have all aggressively moved into certain product lines traditionally dominated by health food retailers. Products such as natural and organic foods and certain basic supplements are now found widely across all retail formats.

In the long term, we expect price competition to accelerate for non-perishable center-of-the-store products (cereals, canned goods, paper products) as mass merchants battle for market share and because these products more easily lend themselves to commoditized online retailing.

All of these factors have impacted sales across the retail sector, including our stores. Despite a difficult operating environment, we remain focused on repositioning our stores and leveraging our 80 plus years in the industry. Importantly, we do not consider our stores as direct competitors to full-line grocery stores or mass merchants. Rather, the customer segment we serve is much more focused on convenience and overall health management. Accordingly, our stores are designed with a smaller footprint which provides for easy, quick access as compared to our big box competitors. Our stores are principally positioned as community wellness centers which offer a deep mix of fresh organic foods, natural products, and supplements coupled with highly knowledgable in-store associates.

At the core of our strategic repositioning strategy is modernizing our store portfolio through various store remodeling projects and the build-out of new stores within the markets we currently operate. For many of the customers we serve, convenience and selection are the most determinative factors in terms of where they shop. Accordingly, our new store designs reflect this and incorporate a heightened focus on perimeter-of-the-store offerings such as locally sourced products, to-go meal kits, juice bars, and expanded produce sections, all offered at competitive prices. 

We believe these new store design attributes, coupled with a new marketing campaign will help enhance the frequency of customers visits and provide more opportunities to up-sell customers into our specialized, higher margin supplement and health and beauty categories. 

An important long term element of our turnaround plan will be the deployment of a flexible store operating model for each location. As consumer shopping habits and preferences change, we are exploring a range of programs and initiatives to enhance the level of engagement with customers including concepts such as delivery services and subscription plans.

In connection with our strategic plan, during Q3 2017 we completed three remodeling/enhancement projects at existing stores and closed one non-performing store in the Midwest. We also have one new store currently under construction in our Florida market.

At the end of fiscal 2016, we opened our newest Florida market store which incorporates our latest design themes. We have been pleased with the performance of this new store to date and believe it could serve as a model for our next generation of stores.      

Independent health food retailers have historically played an integral role within the natural products ecosystem, constantly evolving as operating environments change. Similarly, the markets in which we operate have changed and we are moving quickly to reposition our business accordingly.

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RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 2017:

	For the three months ended June
	2017			2016			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	332,842,200		$	333,398,723		$	(556,523)	(0.2)
Cost of sales		314,818,453			314,235,192			583,261	0.2
Gross profit		18,023,747			19,163,531			(1,139,784)	(5.9)
Gross profit percentage		5.4	%		5.7	%
Operating expense	$	17,061,945		$	15,848,351		$	1,213,594	7.7
Operating income		961,802			3,315,180			(2,353,378)	(71.0)
Interest expense		180,266			188,798			(8,532)	(4.5)
Income tax expense		413,000			1,310,000			(897,000)	(68.5)
Net income		385,049			1,851,934			(1,466,885)	(79.2)
BUSINESS SEGMENTS:
Wholesale
Sales	$	326,465,475		$	326,856,934		$	(391,459)	(0.1)
Gross profit		15,412,958			16,416,415			(1,003,457)	(6.1)
Gross profit percentage		4.7	%		5.0	%
Retail
Sales	$	6,376,725		$	6,541,789		$	(165,064)	(2.5)
Gross profit		2,610,789			2,747,116			(136,327)	(5.0)
Gross profit percentage		40.9	%		42.0	%

(1) Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $6.1 million in Q3 2017 and $5.8 million in Q3 2016.

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.

SALES – Q3 2017 vs. Q3 2016

Sales in our Wholesale Segment decreased $0.4 million during Q3 2017 as compared to Q3 2016. Significant items impacting sales during Q3 2017 included $10.9 million decrease in sales related to the volume and mix of cigarette cartons sold. This decrease was partially offset by a $8.1 million increase in sales related to price increases implemented by cigarette manufacturers and a $2.4 million increase in sales in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, foodservice, and store supplies categories (“Other Products”).  Sales in our Retail Segment decreased $0.2 million in Q3 2017 as compared to Q3 2016. This decrease was primarily related to lower sales in our existing stores which have experienced increased competition.

GROSS PROFIT – Q3 2017 vs. Q3 2016

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

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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 decreased $1.0 million during Q3 2017 as compared to Q3 2016. Significant items impacting gross margins during Q3 2017 included a $0.7 million decrease in gross profit related to the timing of cigarette price increases and a $0.7 million decrease in gross profit related to the volume and mix of cigarette cartons  sold. These decreases were partially offset by a $0.4 increase in gross profit related to higher sales in our Other Products category. During the prior fiscal year (fiscal 2016), cigarette manufacturers increased prices during the Company’s third fiscal quarter (Q3 2016). During fiscal 2017, cigarette manufacturers increased prices during the Company’s second fiscal quarter (Q2 2017) resulting in a timing difference between the associated gross profit benefits between the comparative fiscal quarters. Q3 2017 gross profit in our Retail Segment decreased $0.1 million as compared to Q3 2016.  This decrease was primarily related to the impact of lower sales in our existing stores.

OPERATING EXPENSE – Q3 2017 vs. Q3 2016

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, and insurance costs. Our Q3 2017 operating expenses increased $1.2 million as compared to Q3 2016. Significant items impacting operating expenses during the current period included a $0.4 million increase in health insurance costs resulting from higher claims experience, a $0.4 million increase in employee and other operating costs in our Wholesale Segment, and a $0.4 million increase in operating costs in our Retail Segment primarily related to higher marketing and employee costs.

INCOME TAX EXPENSE – Q3 2017 vs. Q3 2016

The change in the Q3 2017 income tax rate as compared to Q3 2016, is primarily related to nondeductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.

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RESULTS OF OPERATIONS – NINE MONTHS ENDED JUNE 2017:

	For the nine months ended June
	2017			2016			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	936,994,299		$	951,856,098		$	(14,861,799)	(1.6)
Cost of sales		883,180,664			896,190,425			(13,009,761)	(1.5)
Gross profit		53,813,635			55,665,673			(1,852,038)	(3.3)
Gross profit percentage		5.7	%		5.8	%
Operating expenses		49,637,170			47,606,473			2,030,697	4.3
Operating income		4,176,465			8,059,200			(3,882,735)	(48.2)
Interest expense		545,719			562,654			(16,935)	(3.0)
Income tax expense		1,748,000			3,241,000			(1,493,000)	(46.1)
Net income		1,919,996			4,354,180			(2,434,184)	(55.9)
BUSINESS SEGMENTS:
Wholesale
Sales	$	917,660,212		$	930,502,477		$	(12,842,265)	(1.4)
Gross profit		45,573,362			46,555,712			(982,350)	(2.1)
Gross profit percentage		5.0	%		5.0	%
Retail
Sales	$	19,334,087		$	21,353,621		$	(2,019,534)	(9.5)
Gross profit		8,240,273			9,109,961			(869,688)	(9.5)
Gross profit percentage		42.6	%		42.7	%

(1) Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $17.4 million for the nine month period ended June 2017 and $17.2 million for the nine month period ended June 2016.

SALES — Nine months Ended June 2017

Sales in our Wholesale Segment decreased $12.8 million for the nine months ended June 2017 as compared to the same prior year period. Significant items impacting sales during the period included a $35.8 million decrease in sales related to the volume and mix of cigarette cartons sold. This decrease was partially offset by a $20.8 million increase in sales related to price increases implemented by cigarette manufacturers and a $2.2 million increase in sales in our Other Products category.

Sales in our Retail Segment decreased $2.0 million for the nine months ended June 2017 as compared to the same prior year period. Of this change, approximately $0.7 million related to the closure of our flagship store in Florida during fiscal 2016 upon the expiration of its lease, partially offset by the opening of our newest Florida market store. The remaining $1.3 million change in sales was primarily related to lower sales in our existing stores which have experienced increased competition.

GROSS PROFIT — Nine months Ended June 2017

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.

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Gross profit in our Wholesale Segment decreased $1.0 million for the nine month period ending June 2017 as compared to the same prior year period. This decrease in gross profit was primarily related to a $1.2 million decrease in gross profit related to the volume and mix of cigarette cartons sold between the compative periods, partially offset by a $0.2 million increase in gross profit related to higher sales in our Other Products category. 

Gross profit in our Retail Segment decreased $0.9 million for the nine month period ended June 2017 as compared to the same prior year period.  This change was primarily related to the impact of lower sales in our existing stores.

OPERATING EXPENSE — Nine months Ended June 2017

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, and insurance costs. Operating expenses increased $2.0 million during the nine months ended June 2017 as compared to the same prior year period. Significant items impacting operating expense during the current period included a $0.8 million increase in health insurance costs resulting from higher claims experience, a $0.5 million increase in fuel and other operating costs in our Wholesale Segment, and a $0.7 million increase in operating costs in our Retail Segment primarily related to higher marketing and employee costs.

INCOME TAX EXPENSE – Nine months Ended June 2017

The change in the income tax rate for the nine month ended June 2017 as compared to the same prior year period, is primarily related to nondeductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy‑in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during the warm weather months which is our peak time of operations, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.

In general, the Company finances its operations through a credit agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank participating in the loan syndication. The Facility included the following significant terms at June 2017:

· 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.

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· 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 June 2017 was $69.6 million, of which $10.3 million was outstanding, leaving $59.3 million available.

At June 2017, 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 3.18% at June 2017. For the nine months ended June 2017, our peak borrowings under the Facility were $41.1 million, and our average borrowings and average availability under the Facility were $16.9 million and $48.4 million, respectively.

Cross Default and Co-Terminus Provisions

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at June 2017. In addition, the Real Estate 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 totaling $0.1 million and $0.6 million for the three and nine month periods ended June 2017, respectively, and cash dividends of $0.2 million and $0.7 million on its common stock and convertible preferred stock for the three and nine month periods ended June 2016, 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, 2016.

Other

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

22

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.

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.

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(e) and 15d-15(e) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2017 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.

23

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 June 30, 2017, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

24

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, 2016.

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

Not applicable.

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

31.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, filed pursuant to section 302 of the Sarbanes-Oxley Act
31.2	Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer filed pursuant to section 302 of the Sarbanes-Oxley Act
32.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act
32.2	Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act
101	Interactive 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: July 18, 2017	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman
Date: July 18, 2017	/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.

July
Date:  July 18, 2017	/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:  July 18, 2017	/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 June 30, 2017, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, 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.

Ju
Date:  July 18, 2017	/s/ Christopher H. Atayan
	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 June 30, 2017, I, Andrew C. Plummer, Vice President and Chief Financial Officer of the Company, 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:  July 18, 2017	/s/ Andrew C. Plummer
	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

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2017	Jul. 17, 2017
Document and Entity Information
Entity Registrant Name	AMCON DISTRIBUTING CO
Entity Central Index Key	0000928465
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
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		678,938
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2017	Sep. 30, 2016
Current assets:
Cash	$ 121,790	$ 605,380
Accounts receivable, less allowance for doubtful accounts of $0.7 million at June 2017 and $0.7 million at September 2016	31,035,527	30,033,104
Inventories, net	49,101,309	48,404,882
Deferred income taxes	1,352,383	1,441,919
Income taxes receivable	157,900	164,959
Prepaid and other current assets	7,836,179	8,608,049
Total current assets	89,605,088	89,258,293
Property and equipment, net	12,867,402	12,607,877
Goodwill	6,349,827	6,349,827
Other intangible assets, net	3,560,561	3,759,311
Other assets	326,440	288,082
Total assets	112,709,318	112,263,390
Current liabilities:
Accounts payable	18,329,745	18,164,983
Accrued expenses	7,106,294	6,792,884
Accrued wages, salaries and bonuses	2,415,122	3,580,996
Current maturities of long-term debt	370,803	362,495
Total current liabilities	28,221,964	28,901,358
Credit facility	10,328,098	10,537,226
Deferred income taxes	4,052,400	4,021,569
Long-term debt, less current maturities	2,742,485	3,021,824
Other long-term liabilities	33,111	30,815
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized
Common stock, $.01 par value, 3,000,000 shares authorized, 678,938 shares outstanding and issued at June 2017 and 677,057 shares outstanding and issued at September 2016	8,314	8,184
Additional paid-in capital	20,803,998	19,525,554
Retained earnings	60,033,389	58,693,241
Treasury stock at cost	(13,514,441)	(12,476,381)
Total shareholders' equity	67,331,260	65,750,598
Total liabilities and shareholders' equity	$ 112,709,318	$ 112,263,390

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2017	Sep. 30, 2016
Condensed Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 0.7	$ 0.7
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
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	678,938	677,057
Common stock, shares issued	678,938	677,057

XML

Condensed Consolidated Unaudited Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Condensed Consolidated Unaudited Statements of Operations
Sales (including excise taxes of $95.1 million and $98.9 million, and $271.8 million and $284.9 million, respectively)	$ 332,842,200	$ 333,398,723	$ 936,994,299	$ 951,856,098
Cost of sales	314,818,453	314,235,192	883,180,664	896,190,425
Gross profit	18,023,747	19,163,531	53,813,635	55,665,673
Selling, general and administrative expenses	16,587,055	15,335,808	48,105,878	45,951,300
Depreciation and amortization	474,890	512,543	1,531,292	1,655,173
Total operating expenses	17,061,945	15,848,351	49,637,170	47,606,473
Operating income	961,802	3,315,180	4,176,465	8,059,200
Other expense (income):
Interest expense	180,266	188,798	545,719	562,654
Other (income), net	(16,513)	(35,552)	(37,250)	(98,634)
Total other expenses (income)	163,753	153,246	508,469	464,020
Income from operations before income tax expense	798,049	3,161,934	3,667,996	7,595,180
Income tax expense	413,000	1,310,000	1,748,000	3,241,000
Net income	385,049	1,851,934	1,919,996	4,354,180
Preferred stock dividend requirements		(48,642)		(146,462)
Net income available to common shareholders	$ 385,049	$ 1,803,292	$ 1,919,996	$ 4,207,718
Basic earnings per share available to common shareholders (in dollars per share)	$ 0.57	$ 3.03	$ 2.82	$ 6.91
Diluted earnings per share available to common shareholders (in dollars per share)	$ 0.56	$ 2.62	$ 2.78	$ 6.07
Basic weighted average shares outstanding (in shares)	678,938	596,112	679,858	609,240
Diluted weighted average shares outstanding (in shares)	691,701	707,300	690,840	717,875
Dividends declared per common share	$ 0.18	$ 0.18	$ 0.82	$ 0.82
Dividends paid per common share	$ 0.18	$ 0.18	$ 0.82	$ 0.82

XML

Condensed Consolidated Unaudited Statements of Operations (Parenthetical) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Condensed Consolidated Unaudited Statements of Operations
Sales, excise taxes	$ 95.1	$ 98.9	$ 271.8	$ 284.9

XML

Condensed Consolidated Unaudited Statements of Cash Flows - USD ($)	9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 1,919,996	$ 4,354,180
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation	1,332,542	1,389,756
Amortization	198,750	265,417
Gain on sale of property and equipment	(30,854)	(69,215)
Equity-based compensation	1,193,005	1,050,644
Deferred income taxes	120,367	238,728
Provision (recovery) for losses on doubtful accounts	42,000	(39,000)
Provision for losses on inventory obsolescence	4,852	2,014
Other	2,296	(5,034)
Changes in assets and liabilities:
Accounts receivable	(1,044,423)	(2,027,155)
Inventories	(701,279)	10,120,804
Prepaid and other current assets	771,870	(3,320,720)
Other assets	(38,358)	27,897
Accounts payable	322,325	924,567
Accrued expenses and accrued wages, salaries and bonuses	(659,813)	2,825
Income taxes receivable	7,059	476,352
Net cash flows from operating activities	3,440,335	13,392,060
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(1,761,431)	(1,013,988)
Proceeds from sales of property and equipment	42,655	112,157
Net cash flows from investing activities	(1,718,776)	(901,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on bank credit agreements	(209,128)	(7,193,768)
Principal payments on long-term debt	(271,031)	(262,677)
Repurchase of common stock	(1,038,060)	(4,044,437)
Dividends paid on convertible preferred stock		(146,462)
Dividends on common stock	(579,848)	(526,076)
Withholdings on the exercise of equity-based awards	(107,082)	(121,348)
Net cash flows from financing activities	(2,205,149)	(12,294,768)
Net change in cash	(483,590)	195,461
Cash, beginning of period	605,380	219,536
Cash, end of period	121,790	414,997
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	545,719	576,681
Cash paid during the period for income taxes	1,620,574	2,525,920
Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable	9,881	51,874
Issuance of common stock in connection with the vesting and exercise of equity-based awards	$ 1,262,763	$ 1,174,981

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

9 Months Ended

Jun. 30, 2017

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 and provides a full range of programs and services to our customers and is focused on helping them manage their business and increase their profitability. We primarily operate in the Central, Rocky Mountain, and Southern regions of the United States.

· Our retail health food segment (“Retail Segment”) operates fifteen 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 4,000 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 2016, Convenience Store News ranked us as the seventh (7th) 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, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

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 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 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.

Our Retail Segment operates fifteen 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 nine locations in Arkansas, 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, 2016, 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 June 30, 2017 and June 30, 2016 have been referred to throughout this quarterly report as Q3 2017 and Q3 2016, respectively. The fiscal balance sheet dates as of June 30, 2017 and September 30, 2016 have been referred to as June 2017 and September 2016, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company). The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In November 2015, FASB issued ASU No. 2015-17 "Income Taxes: Balance Sheet Classification of Deferred Taxes” ("ASU 2015-17"). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company), and for interim periods within those fiscal years. The amendments for ASU 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of how companies account for share-based compensation, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 (Fiscal 2018 for the Company) and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments 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, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance regarding the classification of certain items within the statements of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 (Fiscal 2019 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

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CONVERTIBLE PREFERRED STOCK

9 Months Ended

Jun. 30, 2017

CONVERTIBLE PREFERRED STOCK

CONVERTIBLE PREFERRED STOCK

2. CONVERTIBLE PREFERRED STOCK

In fiscal 2016, the Company had 100,000 shares of Series A Preferred Stock (“Series A”) and 16,000 shares of Series B Preferred Stock (“Series B”) outstanding. During the fourth quarter of fiscal 2016, all outstanding shares of Series A and Series B were converted to 98,707 common shares of the Company pursuant to terms provided in the preferred stock agreements. Mr. Christopher Atayan, AMCON’s Chief Executive Officer and Chairman of the Board, owned all of the outstanding shares of the Series A and 8,000 shares of the Series B. For the nine month period ending June 2016, the Company paid cash dividends of approximately $0.1 million to Mr. Atayan related to his ownership of the Series A and Series B.

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INVENTORIES

9 Months Ended

Jun. 30, 2017

INVENTORIES

INVENTORIES

3. INVENTORIES

At June 2017 and September 2016, inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) 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 $0.9 million at both June 2017 and September 2016. 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.

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Jun. 30, 2017

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:

	June		September
	2017		2016
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:

	June		September
	2017		2016
Trademarks and tradenames (Retail Segment)	$	3,373,269	$	3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $1.9 million and $1.7 million at June 2017 and September 2016, respectively)		187,292		386,042
	$	3,560,561	$	3,759,311

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At June 2017, identifiable intangible assets considered to have finite lives were represented by customer relationships which are being amortized over eight years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense related to these assets was approximately $0.1 million and $0.2 million for the three and nine month periods ended June 2017, respectively, and $0.1 million and $0.3 million for the three and nine month periods ended June 2016, respectively.

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at June 2017:

	June
	2017
Fiscal 2017  (1)	$	66,250
Fiscal 2018		79,375
Fiscal 2019		41,667
	$	187,292

(1) Represents amortization for the remaining three months of Fiscal 2017.

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DIVIDENDS

9 Months Ended

Jun. 30, 2017

DIVIDENDS

DIVIDENDS

5. DIVIDENDS

The Company paid cash dividends on its common stock totaling $0.1 million and $0.6 million for the three and nine month periods ended June 2017, respectively, and cash dividends of $0.2 million and $0.7 million on its common stock and convertible preferred stock for the three and nine month periods ended June 2016, respectively.

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EARNINGS PER SHARE

9 Months Ended

Jun. 30, 2017

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 net 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.

	For the three months ended June
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		678,938		678,938		596,112		596,112
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		12,763		—		111,188
Weighted average number of shares outstanding		678,938		691,701		596,112		707,300
Net income	$	385,049	$	385,049	$	1,851,934	$	1,851,934
Deduct: convertible preferred stock dividends (2)		—		—		(48,642)		—
Net income available to common shareholders	$	385,049	$	385,049	$	1,803,292	$	1,851,934
Net earnings per share available to common shareholders	$	0.57	$	0.56	$	3.03	$	2.62

(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 nine months ended June
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		679,858		679,858		609,240		609,240
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		10,982		—		108,635
Weighted average number of shares outstanding		679,858		690,840		609,240		717,875
Net income	$	1,919,996	$	1,919,996	$	4,354,180	$	4,354,180
Deduct: convertible preferred stock dividends (2)		—		—		(146,462)		—
Net income available to common shareholders	$	1,919,996	$	1,919,996	$	4,207,718	$	4,354,180
Net earnings per share available to common shareholders	$	2.82	$	2.78	$	6.91	$	6.07

(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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DEBT

9 Months Ended

Jun. 30, 2017

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 June 2017:

· 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.

Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at June 2017. In addition, the Real Estate 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.

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BUSINESS SEGMENTS

9 Months Ended

Jun. 30, 2017

BUSINESS SEGMENTS

BUSINESS SEGMENTS

8. BUSINESS SEGMENTS

The Company 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, and income before taxes.

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED JUNE 2017
External revenues:
Cigarettes	$	236,433,449	$	—	$	—	$	236,433,449
Tobacco		41,478,941		—		—		41,478,941
Confectionery		22,024,887		—		—		22,024,887
Health food		—		6,376,725		—		6,376,725
Foodservice & other		26,528,198		—		—		26,528,198
Total external revenue		326,465,475		6,376,725		—		332,842,200
Depreciation		292,294		116,345		—		408,639
Amortization		66,251		—		—		66,251
Operating income (loss)		3,096,128		(615,276)		(1,519,050)		961,802
Interest expense		25,279		—		154,987		180,266
Income (loss) from operations before taxes		3,082,982		(610,896)		(1,674,037)		798,049
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		109,648		813,888		—		923,536
THREE MONTHS ENDED JUNE 2016
External revenue:
Cigarettes	$	239,244,630	$	—	$	—	$	239,244,630
Tobacco		39,495,721		—		—		39,495,721
Confectionery		21,946,660		—		—		21,946,660
Health food		—		6,541,789		—		6,541,789
Foodservice & other		26,169,923		—		—		26,169,923
Total external revenue		326,856,934		6,541,789		—		333,398,723
Depreciation		322,568		107,058		—		429,626
Amortization		82,917		—		—		82,917
Operating income (loss)		4,879,836		(109,304)		(1,455,352)		3,315,180
Interest expense		28,666		—		160,132		188,798
Income (loss) from operations before taxes		4,881,860		(104,442)		(1,615,484)		3,161,934
Total assets		102,432,357		12,097,050		167,945		114,697,352
Capital expenditures		123,260		198,326		—		321,586

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
NINE MONTHS ENDED  JUNE 2017
External revenue:
Cigarettes	$	667,849,390	$	—	$	—	$	667,849,390
Tobacco		117,535,875		—		—		117,535,875
Confectionery		58,606,239		—		—		58,606,239
Health food		—		19,334,087		—		19,334,087
Foodservice & other		73,668,708		—		—		73,668,708
Total external revenue		917,660,212		19,334,087		—		936,994,299
Depreciation		981,232		351,310		—		1,332,542
Amortization		198,750		—		—		198,750
Operating income (loss)		9,802,019		(1,122,951)		(4,502,603)		4,176,465
Interest expense		77,100		—		468,619		545,719
Income (loss) from operations before taxes		9,749,503		(1,110,284)		(4,971,223)		3,667,996
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		429,892		1,331,539		—		1,761,431
NINE MONTHS ENDED  JUNE 2016
External revenue:
Cigarettes	$	682,836,920	$	—	$	—	$	682,836,920
Tobacco		112,880,466		—		—		112,880,466
Confectionery		60,838,182		—		—		60,838,182
Health food		—		21,353,621		—		21,353,621
Foodservice & other		73,946,909		—		—		73,946,909
Total external revenue		930,502,477		21,353,621		—		951,856,098
Depreciation		1,048,665		341,091		—		1,389,756
Amortization		265,417		—		—		265,417
Operating income (loss)		11,802,629		429,366		(4,172,795)		8,059,200
Interest expense		88,066		—		474,588		562,654
Income (loss) from operations before taxes		11,799,231		443,333		(4,647,384)		7,595,180
Total assets		102,432,357		12,097,050		167,945		114,697,352
Capital expenditures		705,137		308,851		—		1,013,988

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COMMON STOCK REPURCHASE

9 Months Ended

Jun. 30, 2017

COMMON STOCK REPURCHASE

COMMON STOCK REPURCHASE

9. COMMON STOCK REPURCHASE

For the nine months ended June 2017, the Company repurchased 11,104 shares of its common stock for cash totaling approximately $1.0 million. All repurchased shares are recorded in treasury stock at cost. No shares of the Company’s common stock were repurchased during Q3 2017.     

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

9 Months Ended

Jun. 30, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

WHOLESALE SEGMENT AND RETAIL SEGMENT

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 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 2016, Convenience Store News ranked us as the seventh (7th) 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, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

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 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 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.

Our Retail Segment operates fifteen 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 nine locations in Arkansas, Missouri, Nebraska, and Oklahoma.

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, 2016, 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 June 30, 2017 and June 30, 2016 have been referred to throughout this quarterly report as Q3 2017 and Q3 2016, respectively. The fiscal balance sheet dates as of June 30, 2017 and September 30, 2016 have been referred to as June 2017 and September 2016, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company). The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In November 2015, FASB issued ASU No. 2015-17 "Income Taxes: Balance Sheet Classification of Deferred Taxes” ("ASU 2015-17"). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016 (Fiscal 2018 for the Company), and for interim periods within those fiscal years. The amendments for ASU 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In March 2016, FASB issued ASU No. 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of how companies account for share-based compensation, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 (Fiscal 2018 for the Company) and early adoption is permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.

In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments 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, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance regarding the classification of certain items within the statements of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 (Fiscal 2019 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Jun. 30, 2017

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of goodwill by reporting segment

	June		September
	2017		2016
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

	June		September
	2017		2016
Trademarks and tradenames (Retail Segment)	$	3,373,269	$	3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $1.9 million and $1.7 million at June 2017 and September 2016, respectively)		187,292		386,042
	$	3,560,561	$	3,759,311

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

	June
	2017
Fiscal 2017  (1)	$	66,250
Fiscal 2018		79,375
Fiscal 2019		41,667
	$	187,292

(1) Represents amortization for the remaining three months of Fiscal 2017.

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EARNINGS PER SHARE (Tables)

9 Months Ended

Jun. 30, 2017

EARNINGS PER SHARE

Schedule of net earnings per share available to common shareholders

	For the three months ended June
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		678,938		678,938		596,112		596,112
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		12,763		—		111,188
Weighted average number of shares outstanding		678,938		691,701		596,112		707,300
Net income	$	385,049	$	385,049	$	1,851,934	$	1,851,934
Deduct: convertible preferred stock dividends (2)		—		—		(48,642)		—
Net income available to common shareholders	$	385,049	$	385,049	$	1,803,292	$	1,851,934
Net earnings per share available to common shareholders	$	0.57	$	0.56	$	3.03	$	2.62

(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 nine months ended June
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		679,858		679,858		609,240		609,240
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		10,982		—		108,635
Weighted average number of shares outstanding		679,858		690,840		609,240		717,875
Net income	$	1,919,996	$	1,919,996	$	4,354,180	$	4,354,180
Deduct: convertible preferred stock dividends (2)		—		—		(146,462)		—
Net income available to common shareholders	$	1,919,996	$	1,919,996	$	4,207,718	$	4,354,180
Net earnings per share available to common shareholders	$	2.82	$	2.78	$	6.91	$	6.07

(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 (Tables)

9 Months Ended

Jun. 30, 2017

BUSINESS SEGMENTS

Schedule of segment information

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED JUNE 2017
External revenues:
Cigarettes	$	236,433,449	$	—	$	—	$	236,433,449
Tobacco		41,478,941		—		—		41,478,941
Confectionery		22,024,887		—		—		22,024,887
Health food		—		6,376,725		—		6,376,725
Foodservice & other		26,528,198		—		—		26,528,198
Total external revenue		326,465,475		6,376,725		—		332,842,200
Depreciation		292,294		116,345		—		408,639
Amortization		66,251		—		—		66,251
Operating income (loss)		3,096,128		(615,276)		(1,519,050)		961,802
Interest expense		25,279		—		154,987		180,266
Income (loss) from operations before taxes		3,082,982		(610,896)		(1,674,037)		798,049
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		109,648		813,888		—		923,536
THREE MONTHS ENDED JUNE 2016
External revenue:
Cigarettes	$	239,244,630	$	—	$	—	$	239,244,630
Tobacco		39,495,721		—		—		39,495,721
Confectionery		21,946,660		—		—		21,946,660
Health food		—		6,541,789		—		6,541,789
Foodservice & other		26,169,923		—		—		26,169,923
Total external revenue		326,856,934		6,541,789		—		333,398,723
Depreciation		322,568		107,058		—		429,626
Amortization		82,917		—		—		82,917
Operating income (loss)		4,879,836		(109,304)		(1,455,352)		3,315,180
Interest expense		28,666		—		160,132		188,798
Income (loss) from operations before taxes		4,881,860		(104,442)		(1,615,484)		3,161,934
Total assets		102,432,357		12,097,050		167,945		114,697,352
Capital expenditures		123,260		198,326		—		321,586

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
NINE MONTHS ENDED  JUNE 2017
External revenue:
Cigarettes	$	667,849,390	$	—	$	—	$	667,849,390
Tobacco		117,535,875		—		—		117,535,875
Confectionery		58,606,239		—		—		58,606,239
Health food		—		19,334,087		—		19,334,087
Foodservice & other		73,668,708		—		—		73,668,708
Total external revenue		917,660,212		19,334,087		—		936,994,299
Depreciation		981,232		351,310		—		1,332,542
Amortization		198,750		—		—		198,750
Operating income (loss)		9,802,019		(1,122,951)		(4,502,603)		4,176,465
Interest expense		77,100		—		468,619		545,719
Income (loss) from operations before taxes		9,749,503		(1,110,284)		(4,971,223)		3,667,996
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		429,892		1,331,539		—		1,761,431
NINE MONTHS ENDED  JUNE 2016
External revenue:
Cigarettes	$	682,836,920	$	—	$	—	$	682,836,920
Tobacco		112,880,466		—		—		112,880,466
Confectionery		60,838,182		—		—		60,838,182
Health food		—		21,353,621		—		21,353,621
Foodservice & other		73,946,909		—		—		73,946,909
Total external revenue		930,502,477		21,353,621		—		951,856,098
Depreciation		1,048,665		341,091		—		1,389,756
Amortization		265,417		—		—		265,417
Operating income (loss)		11,802,629		429,366		(4,172,795)		8,059,200
Interest expense		88,066		—		474,588		562,654
Income (loss) from operations before taxes		11,799,231		443,333		(4,647,384)		7,595,180
Total assets		102,432,357		12,097,050		167,945		114,697,352
Capital expenditures		705,137		308,851		—		1,013,988

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details)	1 Months Ended	9 Months Ended
	Sep. 30, 2016 item	Jun. 30, 2017 ft² item
Business segment
Number of business segments		2
Wholesale Segment
Business segment
Number of retail outlets served		4,000
Number of products sold or distributed		16,000
Rank assigned by Convenience Store News	7
Number of distribution centers		6
Floor space occupied by distribution centers (in square feet) | ft²		641,000
Retail Segment
Business segment
Number of operating health food retail stores		15
Number of products sold or distributed		32,000
Retail Segment | Florida
Business segment
Number of operating health food retail stores		6
Retail Segment | Midwest
Business segment
Number of operating health food retail stores		9

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CONVERTIBLE PREFERRED STOCK (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Jun. 30, 2016
Common Stock
Convertible preferred stock
Shares of common stock issued for all outstanding Series A and Series B shares	98,707
Chief Executive Officer
Convertible preferred stock
Cash dividends paid on convertible preferred stock issuances		$ 0.1
Series A preferred stock
Convertible preferred stock
Number of shares	100,000
Series B preferred stock
Convertible preferred stock
Number of shares	16,000
Series B preferred stock | Chief Executive Officer
Convertible preferred stock
Number of shares	8,000

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INVENTORIES (Details) - USD ($) $ in Millions	Jun. 30, 2017	Sep. 30, 2016
INVENTORIES
Total reserves on finished goods	$ 0.9	$ 0.9

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GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill (Details) - USD ($)	Jun. 30, 2017	Sep. 30, 2016
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

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GOODWILL AND OTHER INTANGIBLE ASSETS - Other Intangible Assets (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Sep. 30, 2016
Other intangible assets, net	$ 3,560,561		$ 3,560,561		$ 3,759,311
Amortization expense related to finite-lived intangible assets	100,000	$ 100,000	200,000	$ 300,000
Customer relationships
Other intangible assets, net	187,292		187,292		386,042
Accumulated amortization	1,900,000		$ 1,900,000		1,700,000
Amortization period			8 years
Trademarks and tradenames
Other intangible assets, net	$ 3,373,269		$ 3,373,269		$ 3,373,269

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GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization Expense (Details)	Jun. 30, 2017 USD ($)
Estimated future amortization expense related to identifiable intangible assets with finite lives
Fiscal 2017	$ 66,250
Fiscal 2018	79,375
Fiscal 2019	41,667
Total	$ 187,292

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DIVIDENDS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
DIVIDENDS
Cash dividends paid on common stock	$ 100,000		$ 579,848	$ 526,076
Cash dividends paid on common stock and convertible preferred stock issuances		$ 200,000		$ 700,000

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EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
EARNINGS PER SHARE
Weighted average common shares outstanding, Basic	678,938	596,112	679,858	609,240
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock	12,763	111,188	10,982	108,635
Weighted average number of shares outstanding, Diluted	691,701	707,300	690,840	717,875
Net income	$ 385,049	$ 1,851,934	$ 1,919,996	$ 4,354,180
Deduct: convertible preferred stock dividends		(48,642)		(146,462)
Net income available to common shareholders	385,049	1,803,292	1,919,996	4,207,718
Net income available to common shareholders, diluted	$ 385,049	$ 1,851,934	$ 1,919,996	$ 4,354,180
Net earnings per share available to common shareholders, Basic (in dollars per share)	$ 0.57	$ 3.03	$ 2.82	$ 6.91
Net earnings per share available to common shareholders, Diluted (in dollars per share)	$ 0.56	$ 2.62	$ 2.78	$ 6.07

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DEBT (Details) $ / shares in Units, $ in Millions	9 Months Ended
	Jun. 30, 2017 USD ($) item $ / shares
Other
Letter of credit issued for worker's compensation insurance carrier as part of the entity's self-insured loss control program	$ 0.4
6.75 % Real Estate Loan
Other
Debt Instrument, Cross Default Provision Number of Loans in Default in Participant, Lender to Cause All Loans with Participant Lender to be in Default | item	0
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%
Period of maintaining excess availability measurements required to remove limit on common stock dividends	30 days
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) | $ / shares	$ 1.00
Facility | Maximum | LIBOR
Revolving credit facility
Basis points added to reference rate (as a percent)	1.75%

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BUSINESS SEGMENTS (Details)	3 Months Ended		9 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($) item	Jun. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)
Information by business segments
Number of reportable business segments | item			2
Total external revenues	$ 332,842,200	$ 333,398,723	$ 936,994,299	$ 951,856,098
Depreciation	408,639	429,626	1,332,542	1,389,756
Amortization	66,251	82,917	198,750	265,417
Operating income (loss)	961,802	3,315,180	4,176,465	8,059,200
Interest expense	180,266	188,798	545,719	562,654
Income (loss) from operations before taxes	798,049	3,161,934	3,667,996	7,595,180
Total assets	112,709,318	114,697,352	112,709,318	114,697,352	$ 112,263,390
Capital expenditures	923,536	321,586	1,761,431	1,013,988
Cigarettes
Information by business segments
Total external revenues	236,433,449	239,244,630	667,849,390	682,836,920
Tobacco
Information by business segments
Total external revenues	41,478,941	39,495,721	117,535,875	112,880,466
Confectionery
Information by business segments
Total external revenues	22,024,887	21,946,660	58,606,239	60,838,182
Health food
Information by business segments
Total external revenues	6,376,725	6,541,789	19,334,087	21,353,621
Foodservice & other
Information by business segments
Total external revenues	26,528,198	26,169,923	73,668,708	73,946,909
Wholesale Segment
Information by business segments
Total external revenues	326,465,475	326,856,934	917,660,212	930,502,477
Depreciation	292,294	322,568	981,232	1,048,665
Amortization	66,251	82,917	198,750	265,417
Operating income (loss)	3,096,128	4,879,836	9,802,019	11,802,629
Interest expense	25,279	28,666	77,100	88,066
Income (loss) from operations before taxes	3,082,982	4,881,860	9,749,503	11,799,231
Total assets	98,406,083	102,432,357	98,406,083	102,432,357
Capital expenditures	109,648	123,260	429,892	705,137
Wholesale Segment | Cigarettes
Information by business segments
Total external revenues	236,433,449	239,244,630	667,849,390	682,836,920
Wholesale Segment | Tobacco
Information by business segments
Total external revenues	41,478,941	39,495,721	117,535,875	112,880,466
Wholesale Segment | Confectionery
Information by business segments
Total external revenues	22,024,887	21,946,660	58,606,239	60,838,182
Wholesale Segment | Foodservice & other
Information by business segments
Total external revenues	26,528,198	26,169,923	73,668,708	73,946,909
Retail Segment
Information by business segments
Total external revenues	6,376,725	6,541,789	19,334,087	21,353,621
Depreciation	116,345	107,058	351,310	341,091
Operating income (loss)	(615,276)	(109,304)	(1,122,951)	429,366
Income (loss) from operations before taxes	(610,896)	(104,442)	(1,110,284)	443,333
Total assets	14,135,564	12,097,050	14,135,564	12,097,050
Capital expenditures	813,888	198,326	1,331,539	308,851
Retail Segment | Health food
Information by business segments
Total external revenues	6,376,725	6,541,789	19,334,087	21,353,621
Other
Information by business segments
Operating income (loss)	(1,519,050)	(1,455,352)	(4,502,603)	(4,172,795)
Interest expense	154,987	160,132	468,619	474,588
Income (loss) from operations before taxes	(1,674,037)	(1,615,484)	(4,971,223)	(4,647,384)
Total assets	$ 167,671	$ 167,945	$ 167,671	$ 167,945

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COMMON STOCK REPURCHASE (Details) - Common Stock - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Jun. 30, 2017	Jun. 30, 2017
REPURCHASE OF COMMON STOCK
Number of shares of common stock repurchased	0	11,104
Value of shares of common stock repurchased		$ 1.0