DIT AMCON Distributing Co

AMCON Distributing Company (AMEX:DIT), an Omaha, Nebraska based consumer products company, announced today that its Board of Directors has appointed a Special Committee composed of independent disinterested directors of the Board of Directors to consider strategic alternatives, with particular emphasis on its beverage and retail health food business segments. On June 6, 2005 the Company announced that it was studying the feasibility of a spin-off of The Healthy Edge, Inc., a wholly-owned subsidiary, to the Company's stockholders. This possible spin-off is being considered in the context of transferring all of the common stock of Hawaiian Natural Water Company, Inc., currently a direct wholly-owned subsidiary of the Company, and all of the common stock of Trinity Springs, Inc., currently 85% owned directly by the Company, to The Healthy Edge, Inc. Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc. (d/b/a Akin's Natural Foods Market) would continue as wholly-owned subsidiaries of The Healthy Edge, Inc. Following these share transfers, the businesses constituting the retail health food and beverage segments would be operated through these current or proposed subsidiaries of The Healthy Edge, Inc. The Special Committee was formed on August 8, 2005 and was authorized by the Board of Directors to consider a broader array of strategic alternatives but which continues to include the spin-off as one of those alternatives. The Special Committee is in the process of selecting a financial adviser to assist it in evaluating and pursuing these strategic alternatives and related matters. One of these related matters delegated by the Board of Directors to the Special Committee is to explore the feasibility of obtaining additional equity or mezzanine capital for investment in The Healthy Edge, Inc. in order to provide needed capital expenditures and to fund operating requirements and thus improve the viability of the spin-off alternative. Another principal strategic alternative under consideration which the Board expects the Special Committee to explore is the potential sale of some or all of the businesses constituting the retail health food and beverage segments. In this regard, William F. Wright, the Company's Chairman of the Board, Chief Executive Officer and largest stockholder, has expressed an interest in forming a group to acquire those businesses on an arms-length basis with the Special Committee acting on behalf of the Board of Directors. With regard to the timing of this process, the Company has recently entered into an amendment to the loan agreement for the Company's revolving credit facility requiring the beverage business to be sold or liquidated by December 10, 2005, thus requiring the consent of the bank lenders if the spin-off alternative is pursued. This timing generally coincides with the repayment date of December 8, 2005 for two unsecured, subordinate loans, bearing interest at seven percent per annum, made to Trinity Springs, Inc. on August 8, 2005, one of which is in the amount of $250,000 from Aristide Investments, L.P., a California limited partnership, of which Mr. Wright is a partner and the other of which is also in the amount of $250,000 from Draupnir, LLC, a Delaware limited liability company, of which Allen Petersen, one of the Company's directors, is a member. The Company also announced earnings results for its third quarter ended June 30, 2005. Quarter Results Sales for the third quarter ended June 30, 2005 were $216.9 million compared to $218.1 million for the same quarter in the prior year. For the quarter, the Company generated income from continuing operations of $0.2 million or $0.43 per diluted share, compared with income from continuing operations of $0.7 million or $1.25 per diluted share for the third quarter of the prior year, and a loss from discontinued operations of $0.3 million or $0.58 per diluted share compared with a loss of $0.9 million or $1.74 for the third quarter of the prior year. The combined net loss available to common shareholders for the quarter was $0.2 million or $0.15 per diluted share, compared with a net loss available to common shareholders of $0.3 million or $0.49 per diluted share for the third quarter of the prior year. For the nine months ended June 30, 2005, sales were $625.3 million compared to $603.6 million for the same period in the prior year. The Company incurred a loss from continuing operations of $0.2 million or $0.84 per diluted share, compared with income from continuing operations of $1.8 million or $3.42 per diluted share for the first nine months of the prior year. The loss from discontinued operations was $1.7 million or $3.20 per diluted share, compared with a loss of $2.7 million or $5.01 for the prior year comparable period. The combined net loss available to common shareholders for the nine months ended June 30, 2005 was $2.1 million or $4.04 per share, compared with a net loss available to common shareholders of $0.9 million or $1.59 per share during the prior year. Wright stated that, "Sales for the third quarter decreased by $1.2 million over the prior year primarily due to a decrease in our wholesale segment by $4.3 million from the loss of several large customers during the quarter. Certain competitors were very aggressive with pricing proposals during the quarter that lead to several customers switching suppliers due to short-term economic considerations. Our retail health food operation generated an additional $0.5 million in sales for the quarter with the sales from the new Oklahoma store which opened in April 2004 outpacing the loss of sales from a Florida store which was closed in September 2004. Sales from our beverage segment increased by $2.5 million with Trinity Springs, Inc., which was acquired in June 2004, representing $1.7 million of the beverage segment's increase. The remainder of the beverage segment sales increase was attributable to our Hawaiian operation which increased sales through additional volume of it Hawaiian Springs product sold in Hawaii and from sales generated from its purified water bottling operation which was acquired in July 2004." Wright noted that, "Our beverage segment continued to incur significant losses in the third quarter as we have not been as successful in expanding our distribution network as quickly as we had hoped. In addition, Trinity Springs, which is one of the top two selling non-carbonated water brands in the retail health food industry, introduced a new line of vitamin enhanced beverage products under the Trinity Enhanced label at the end of the second quarter which has shown promising acceptance in the health foods channel. Production of these products, however, is not cost efficient at the present time and a more efficient permanent production solution is needed in order to sell these products profitably. Based on the initial success of the Trinity Enhance product, Trinity is also developing other beverage products. The combination of the product development and marketing expenses at Trinity Springs and lower sales than projected for the whole segment, lead to this segment incurring a $1.4 million pre-tax loss for the quarter. We are continuing our efforts to develop a direct store delivery ("DSD") network to carry our beverage products on the mainland and hope to begin establishing DSD distributors throughout the remainder of the fiscal year and early part of next year. In the short term, however, we expect our beverage segment to incur losses as we continue to market and position our brands." Wright added "Our wholesale distribution business remained on plan through the first nine months of the year, despite the loss of sales. We are reviewing our cost structure in the markets where business has declined in order to better align our costs with revenue. We continue to actively pursue new customers who value our full service capabilities. Performance from our wholesales business has been very strong in the past and we expect it will continue in the future. Our retail business, although still generating small losses, continued to show improvement over the prior year, both during the past quarter and for the nine months ended June 30, 2005. We are especially pleased with the performance of our Florida stores, as they have improved significantly since last year, and our new Oklahoma store, which continues to perform better than expected." Discontinued Operations Effective March 31, 2005, the Company's subsidiary, The Beverage Group, Inc. ("TBG") ceased on-going operations due to recurring losses since its inception in December 2002. The Company has outsourced various responsibilities of that company in order to maximize the value received on the remaining assets. The results from TBG have been excluded from income from continuing operations available to common shareholders and are reported, net of tax, as losses from discontinued operations. The loss from discontinued operation for the quarter ended June 30, 2005, net of tax benefit, was $0.3 million compared to a loss of $0.9 million for the same period of the prior year. Included in the loss from discontinued operations for the third quarter of fiscal 2005 was a pre-tax charge of $0.2 million which further adjusted the allowance for bad debts and inventory reserves to what we believe to be their net realizable values. It is expected that the majority of the remaining assets will be liquidated by the end of the fiscal year. AMCON is a leading wholesale distributor of consumer products including beverages, candy, tobacco, groceries, food service, frozen and chilled foods, and health and beauty care products with distribution centers in Illinois, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc., both wholly-owned subsidiaries of The Healthy Edge, Inc., operate health and natural product retail stores in central Florida (6), Kansas, Missouri, Nebraska and Oklahoma (4). The retail stores operate under the names Chamberlin's Market & Cafe and Akin's Natural Foods Market. Hawaiian Natural Water Company, Inc. produces and sells natural spring water under the Hawaiian Springs label in Hawaii and other foreign markets and purified bottled water on the island of Oahu in Hawaii. The natural spring water is bottled at the source on the Big Island of Hawaii. Trinity Springs, Inc., which was acquired in June 2004, produces and sells geothermal bottled water and a natural mineral supplement under the Trinity label and recently introduced a vitamin enhanced beverage product under the Trinity Enhanced label. The water and mineral supplement are both bottled at the base of the Trinity Mountains in Paradise, Idaho, one of the world's deepest known sources. Trinity Springs also distributes Hawaiian Springs on the U.S. mainland. This news release 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. A number of factors could affect the future results of the Company and could cause those results to differ materially from those expressed in the Company's forward looking statements including, without limitation, availability of sufficient cash resources to conduct its business and meet its capital expenditure needs. Moreover, past financial performance should not be considered a reliable indicator of future performance. Accordingly, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. Visit AMCON Distributing Company's web site at: www.amcon.com -0- *T AMCON Distributing Company and Subsidiaries Condensed Consolidated Unaudited Balance Sheets June 2005 and September 2004 ---------------------------------------------------------------------- June 2005 September 2004 --------------- --------------- ASSETS Current assets: Cash $368,439 $416,073 Accounts receivable, less allowance for doubtful accounts of $0.5 million and $0.6 million, respectively 32,774,595 29,109,826 Inventories 28,939,608 35,088,568 Income tax receivable 972,180 1,162,625 Deferred income taxes 3,780,391 2,548,391 Current assets of discontinued operations 196,986 1,941,950 Other 1,173,787 635,841 --------------- --------------- Total current assets 68,205,986 70,903,274 Fixed assets, net 20,643,218 19,951,664 Goodwill 6,915,657 6,449,741 Other intangible assets 12,584,945 13,271,211 Noncurrent assets from discontinued operations - 143,670 Other assets 1,570,434 1,010,303 --------------- --------------- $109,920,240 $111,729,863 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $15,049,284 $17,180,649 Accrued expenses 4,567,095 3,800,506 Accrued wages, salaries and bonuses 1,787,371 1,365,837 Current liabilities of discontinued operations 781,779 2,166,414 Current portion of credit facility 6,532,000 44,809,814 Current portion of long-term debt 1,082,237 5,574,397 Current portion of long-term debt due related party 1,500,000 - Current portion of subordinated debt 80,000 7,876,219 --------------- --------------- Total current liabilities 31,379,766 82,773,836 --------------- --------------- Credit facility, less current portion 49,255,696 - Deferred income taxes 619,410 593,018 Noncurrent liabilities of discontinued operations - 3,603 Other long-term liabilities 2,807,000 2,807,000 Long-term debt, less current portion 10,881,659 10,250,154 Minority interest - 97,100 Series A cumulative, convertible preferred stock, $.01 par value 1,000,000 authorized and 100,000 issued, liquidation preference $25.00 per share 2,438,355 2,438,355 Series B cumulative, convertible preferred stock, $.01 par value 1,000,000 authorized and 80,000 issued, liquidation preference $25.00 per share 1,857,645 - Commitments and contingencies Shareholders' equity: Common stock, $.01 par value, 3,000,000 shares authorized, 527,062 shares issued 5,271 5,271 Additional paid-in capital 6,218,476 6,218,476 Accumulated other comprehensive income, net of tax of $0.1 million, respectively 102,962 59,900 Retained earnings 4,354,000 6,483,150 --------------- --------------- Total shareholders' equity 10,680,709 12,766,797 --------------- --------------- $109,920,240 $111,729,863 =============== =============== AMCON Distributing Company and Subsidiaries Condensed Consolidated Unaudited Statements of Operations for the three and nine month periods ended June 2005 and 2004 ---------------------------------------------------------------------- For the three months For the nine months ended June ended June --------------------------- --------------------------- 2005 2004 2005 2004 ------------- ------------- ------------- ------------- Sales (including excise taxes of $50.1 million and $50.3 million, and $145.2 million and $141.3 million, respectively) $216,866,087 $218,101,848 $625,300,569 $603,645,241 Cost of sales 201,251,586 202,879,446 579,946,842 559,691,237 ------------- ------------- ------------- ------------- Gross profit 15,614,501 15,222,402 45,353,727 43,954,004 ------------- ------------- ------------- ------------- Selling, general and administrative expenses 13,693,711 12,974,551 41,245,710 37,760,408 Depreciation and amortization 636,599 541,544 1,932,304 1,648,141 ------------- ------------- ------------- ------------- 14,330,310 13,516,095 43,178,014 39,408,549 ------------- ------------- ------------- ------------- Income from continuing operations 1,284,191 1,706,307 2,175,713 4,545,455 ------------- ------------- ------------- ------------- Other expense (income): Interest expense 942,585 734,222 2,746,328 2,193,859 Other (32,827) (108,797) (48,679) (555,524) ------------- ------------- ------------- ------------- 909,758 625,425 2,697,649 1,638,335 ------------- ------------- ------------- ------------- Income (loss) from continuing operations before income taxes 374,433 1,080,882 (521,936) 2,907,120 Income tax expense (benefit) 138,000 410,000 (203,000) 1,072,000 Minority interest in loss, net of tax - - (97,100) - ------------- ------------- ------------- ------------- Income (loss) from continuing operations 236,433 670,882 (221,836) 1,835,120 Loss from discontinued operations, net of income tax benefit of $0.2 million, $0.6 million, $1.0 million and $1.6 million, respectively (318,257) (935,642) (1,687,541) (2,687,385) Preferred stock dividend requirements (74,053) - (219,773) - ------------- ------------- ------------- ------------- Net loss available to common shareholders $(155,877) $(264,760) $(2,129,150) $(852,265) ============= ============= ============= ============= Basic earnings (loss) per share available to common shareholders: Continuing operations $0.30 $1.27 $(0.84) $3.47 Discontinued operations (0.60) (1.77) (3.20) (5.08) ------------- ------------- ------------- ------------- Basic loss per share available to common shareholders $(0.30) $(0.50) $(4.04) $(1.61) ============= ============= ============= ============= Diluted earnings (loss) per share available to common shareholders: Continuing operations $0.43 $1.25 $(0.84) $3.42 Discontinued operations (0.58) (1.74) (3.20) (5.01) ------------- ------------- ------------- ------------- Diluted loss per share available to common shareholders $(0.15) $(0.49) $(4.04) $(1.59) ============= ============= ============= ============= Weighted average shares outstanding: Basic 527,062 527,671 527,062 528,010 Diluted 549,264 537,150 527,062 536,133 AMCON Distributing Company and Subsidiaries Condensed Consolidated Unaudited Statements of Cash Flows for the nine month periods ended June 2005 and 2004 ---------------------------------------------------------------------- 2005 2004 ------------ ------------ Cash flows from operating activities: Net income (loss) from continuing operations available to common shareholders $(441,609) $1,835,120 Preferred stock dividend requirements 219,773 - ------------ ------------ Net income (loss) before preferred stock dividend requirements (221,836) 1,835,120 Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation 1,884,414 1,613,259 Amortization 211,280 134,399 (Gain) loss on sale of fixed assets (20,361) 17,006 (Gain) loss on sale of securities - (507,418) Deferred income taxes (1,205,608) (75,938) Provision for losses on doubtful accounts 259,080 63,645 Provision for losses on inventory obsolescence 237,167 289,196 Minority interest (97,100) - Impairment of assets held for sale 77,680 - Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable (3,923,849) 5,546 Inventories 5,911,793 2,727,469 Other current assets (494,884) (191,921) Other assets (191,170) 320,426 Accounts payable (2,131,365) 777,346 Accrued expenses and accrued wages, salaries and bonuses 1,188,123 384,538 Income tax receivable 190,445 29,957 ------------ ------------ Net cash flows from operating activities - continuing operations 1,673,809 7,422,630 Net cash flows from operating activities - discontinued operations (327,211) (5,122,420) ------------ ------------ Net cash flows from operating activities 1,346,598 2,300,210 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (2,540,459) (1,566,158) Acquisitions, net of cash acquired - (2,126,338) Proceeds from sales of fixed assets 85,265 60,550 Proceeds from sale of available-for- sale securities - 561,910 ------------ ------------ Net cash flows from investing activities - continuing operations (2,455,194) (3,070,036) Net cash flows from investing activities - discontinued operations (21,568) (58,492) ------------ ------------ Net cash flows from investing activities (2,476,762) (3,128,528) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) on bank credit agreements 10,977,882 (2,687) Net proceeds from preferred stock issuance 1,857,645 2,455,571 Proceeds from borrowings of long-term debt 2,399,636 - Payments on long-term debt and subordinated debt (13,147,853) (1,267,984) Dividends paid on common stock - (284,959) Dividends paid on preferred stock (219,773) - Proceeds from short-term debt 500,000 - Proceeds from exercise of stock options - 523 Debt issuance costs (446,643) - Retirement of common stock - (26,328) ------------ ------------ Net cash flows from financing activities - continuing operations 1,920,894 874,136 Net cash flows from financing activities - discontinued operations (838,364) (2,634) ------------ ------------ Net cash flows from financing activities 1,082,530 871,502 ------------ ------------ Net change in cash (47,634) 43,184 Cash, beginning of period 416,073 668,073 ------------ ------------ Cash, end of period $368,439 $711,257 ============ ============ AMCON Distributing Company and Subsidiaries Condensed Consolidated Unaudited Statements of Cash Flows for the nine month periods ended June 2005 and 2004 (Continued) ---------------------------------------------------------------------- 2005 2004 ------------ ------------ Supplemental disclosure of cash flow information: Cash paid during the period for interest $2,661,734 $2,330,263 Cash paid (refunded) during the period for income taxes (185,630) 1,131,242 Supplemental disclosure of non-cash information: Acquisition of equipment through capital lease $91,343 $125,840 Business combinations Fair value of assets acquired - 11,265,013 Notes payable issued - 3,328,440 Issuance of options - 407,984 Present value of future water royalty payments and water rights guarantee - 5,245,975 Other liabilities assumed - 156,276 *T