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, 2001
Commission File No. 1-13453
TODHUNTER INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1284057
--------------------------------------------------------------------------------
(State or other jurisdiction of IRS Employer Identification No.
incorporation or organization)
222 Lakeview Avenue, Suite 1500, West Palm Beach, FL 33401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 655-8977
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of registrant's Common Stock, $.01 par value
per share, as of August 9, 2001 was 5,513,734.
TODHUNTER INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and September 30, 2000 1
Consolidated Statements of Income -
Nine and Three Months Ended June 30, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2001 and 2000 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 1 Legal Proceedings *
Item 2 Changes in Securities and Use of Proceeds *
Item 3 Defaults Upon Senior Securities *
Item 4 Submission of Matters to a Vote of Security Holders *
Item 5 Other Information *
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 19
* Item is omitted because answer is negative or item is inapplicable.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2001 2000
------------------- -----------------
(Unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,262,008 $ 3,245,866
Short-term investments 7,649,321 4,843,348
Trade receivables 15,870,598 15,296,445
Other receivables 3,210,112 2,932,531
Inventories 29,505,781 23,529,578
Notes receivable, current maturities 238,391 1,378,380
Deferred income taxes 1,456,500 1,131,000
Other current assets 1,884,918 3,082,184
------------------- -----------------
Total current assets 64,077,629 55,439,332
------------------- -----------------
LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments in subsidiaries 1,275,575 1,067,805
Note receivable from affiliate, less current maturities 3,422,582 3,447,928
Notes receivable, less current maturities 684,682 2,973,984
------------------- -----------------
5,382,839 7,489,717
------------------- -----------------
PROPERTY AND EQUIPMENT 83,566,696 78,957,060
Less accumulated depreciation 42,614,463 39,268,253
------------------- -----------------
40,952,233 39,688,807
------------------- -----------------
GOODWILL, less accumulated amortization 21,067,264 21,819,734
------------------- -----------------
OTHER ASSETS 2,242,178 2,110,858
------------------- -----------------
$ 133,722,143 $ 126,548,448
=================== =================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2001 2000
--------------------- -----------------
(Unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 8,000,000 $ 8,000,000
Accounts payable 6,731,016 5,076,380
Accrued interest expense 63,627 107,035
Other accrued expenses 2,416,536 1,884,392
--------------------- -----------------
17,211,179 15,067,807
LONG-TERM DEBT, less current maturities 51,674,934 51,334,224
DEFERRED INCOME TAXES 3,939,750 4,122,000
OTHER LIABILITIES 1,270,523 1,183,854
--------------------- -----------------
74,096,386 71,707,885
--------------------- -----------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized 2,500,000 shares;
no shares issued - -
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued 5,612,934 shares
as of June 30, 2001 and September 30, 2000 56,129 56,129
Additional paid-in capital 18,326,014 18,326,014
Accumulated other comprehensive loss (104,500) (240,500)
Retained earnings 42,085,894 37,436,700
--------------------- -----------------
60,363,537 55,578,343
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
--------------------- -----------------
59,625,757 54,840,563
--------------------- -----------------
$ 133,722,143 $ 126,548,448
===================== ==================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended June 30, Three Months Ended June 30,
------------------------------------ ---------------------------------------
2001 2000 2001 2000
----------------- ----------------- ----------------- ----------------
Sales $ 96,612,444 $ 92,171,391 $ 34,298,350 $ 31,351,818
Less excise taxes 22,782,127 24,530,156 8,205,507 7,630,045
----------------- ----------------- ----------------- ----------------
Net sales 73,830,317 67,641,235 26,092,843 23,721,773
Cost of goods sold 49,434,703 45,882,345 17,165,426 15,746,270
----------------- ----------------- ----------------- ----------------
Gross profit 24,395,614 21,758,890 8,927,417 7,975,503
Selling, general and administrative expenses 15,235,239 13,670,306 5,290,981 4,927,597
----------------- ----------------- ----------------- ----------------
Operating income 9,160,375 8,088,584 3,636,436 3,047,906
----------------- ----------------- ----------------- ----------------
Other income (expense):
Interest income 690,691 711,330 234,429 209,361
Interest expense (3,821,304) (3,632,789) (1,262,607) (1,409,449)
Equity in income (loss) of equity investee 57,770 (134,047) (2,126) (94,655)
Other, net 112,476 180,808 (5,256) 59,796
----------------- ----------------- ----------------- ----------------
(2,960,367) (2,874,698) (1,035,560) (1,234,947)
----------------- ----------------- ----------------- ----------------
Income before income taxes and
extraordinary item 6,200,008 5,213,886 2,600,876 1,812,959
----------------- ----------------- ----------------- ----------------
Income tax expense (benefit):
Current 2,058,564 1,713,098 841,030 642,258
Deferred (507,750) (438,750) (158,750) (148,750)
----------------- ----------------- ----------------- ----------------
1,550,814 1,274,348 682,280 493,508
----------------- ----------------- ----------------- ----------------
Income before extraordinary item 4,649,194 3,939,538 1,918,596 1,319,451
Extraordinary item - early extinguishment
of debt, net of income taxes of $382,075 - (1,168,790) - -
----------------- ----------------- ----------------- ----------------
Net income $ 4,649,194 $ 2,770,748 $ 1,918,596 $ 1,319,451
================= ================= ================= ================
Earnings per common share - basic:
Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24
Extraordinary item - (0.21) - -
----------------- ----------------- ----------------- ----------------
Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24
================= ================= ================= ================
Earnings per common share - diluted:
Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24
Extraordinary item - (0.21) - -
----------------- ----------------- ----------------- ----------------
Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24
================= ================= ================= ================
Common shares and equivalents outstanding:
Basic 5,513,734 5,513,734 5,513,734 5,513,734
================= ================= ================= ================
Diluted 5,526,049 5,559,602 5,537,476 5,547,280
================= ================= ================= ================
See Notes to Consolidated Financial Statements.
3
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
--------------------------------------------
2001 2000
-------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,649,194 $ 2,770,748
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,531,444 3,347,468
Amortization 1,143,206 866,605
(Gain) loss on sale of property and equipment 30,775 (42,254)
Equity in (income) loss of equity investee (57,770) 134,047
Deferred income taxes (507,750) (438,750)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables (851,734) (879,868)
Inventories (5,976,203) (2,328,697)
Other current assets 1,197,266 (1,015,157)
Increase (decrease) in:
Accounts payable 1,654,636 911,874
Accrued interest expense (43,408) (1,145,728)
Other accrued expenses 532,144 92,589
Other liabilities 86,669 109,786
-------------------- -------------------
Net cash provided by operating activities 5,388,469 2,382,663
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment (4,470) 47,780
Principal payments received on notes receivable 3,463,937 563,400
Purchase of property and equipment (4,821,175) (3,809,805)
Disbursements for notes receivable (9,300) (342,019)
Purchase of short-term investments (2,805,973) (6,444,380)
Redemption of short-term investments - 2,547,365
Purchase of Monarch Wine Company - (23,518,064)
Investments in subsidiaries (150,000) -
Increase in other assets (233,556) (646,344)
-------------------- -------------------
Net cash used in investing activities $ (4,560,537) $ (31,602,067)
-------------------- -------------------
(Continued)
4
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine Months Ended June 30,
------------------------------------------
2001 2000
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit $ 6,420,000 $ 8,000,000
Proceeds from long-term borrowings - 56,914,901
Disbursements for loan costs (152,500) -
Principal payments on long-term borrowings (6,079,290) (38,078,431)
------------------- -------------------
Net cash provided by financing activities 188,210 26,836,470
------------------- -------------------
Net increase (decrease) in cash and cash equivalents 1,016,142 (2,382,934)
Cash and cash equivalents:
Beginning 3,245,866 5,265,318
------------------- -------------------
Ending $ 4,262,008 $ 2,882,384
=================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 3,864,712 $ 4,778,517
=================== ===================
Income taxes $ 1,671,292 $ 678,387
=================== ===================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Acquisition of Monarch Wine Company:
Cash purchase price $ - $ 23,518,064
=================== ===================
Working capital acquired $ - $ 2,006,792
Goodwill - 22,284,509
Operating lease assumed and abandoned - (773,237)
------------------- -------------------
$ - $ 23,518,064
=================== ===================
Investment in Premier Wines & Spirits for note receivable $ - $ 1,000,000
=================== ===================
See Notes to Consolidated Financial Statements.
5
TODHUNTER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
standards generally accepted in the United States of America have been condensed
or omitted pursuant to such rules and regulations. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information for the periods indicated have
been included. For further information regarding the Company's accounting
policies, refer to the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000.
Note 2. Inventories
The major components of inventories are:
June 30, 2001 September 30, 2000
------------- ------------------
(Unaudited)
Finished goods $ 17,669,632 $ 14,382,361
Work in process 1,337,893 928,486
Raw materials and supplies 10,498,256 8,218,731
------------- ------------------
$ 29,505,781 $ 23,529,578
============= ==================
6
Note 3. Financing Arrangements
Long-term debt consists of the following as of June 30, 2001:
Term loans under a credit agreement (i), interest payable monthly based on
either the Eurodollar or prime rate at the Company's option, plus an
applicable margin as defined in the agreement. The interest rate at
June 30, 2001 was 6.59%. Quarterly principal installments of $2,000,000
through September 30, 2004 with any remaining balance due December 31,
2004. $ 44,000,000
Revolving loans under a credit agreement (i), interest payable quarterly
based on either the Eurodollar or prime rate at the Company's option,
plus an applicable margin as defined in the agreement. The interest
rate at June 30, 2001 was 7.5%. The revolving lines of credit terminate
in November 2002. 14,932,981
Other 741,953
---------------
59,674,934
Less current maturities 8,000,000
---------------
$ 51,674,934
===============
(i) In November 1999, the Company entered into a $71 million credit agreement
consisting of $56 million of term loans and a $15 million revolving loan
facility. The credit agreement is collateralized by 65% of the issued and
outstanding stock of the Company's majority-owned subsidiaries. The proceeds
from these loans were used to prepay all borrowings under previous finance
agreements and to finance a business acquisition. The Company is required to
maintain minimum fixed charge and interest coverage ratios in addition to
other financial covenants.
In the first quarter of fiscal year 2000, the Company recognized an
extraordinary loss of $1,168,790, net of an income tax benefit of $382,075, on
its early extinguishment of debt.
On January 14, 2000, the Company entered into an interest rate cap agreement.
The agreement caps the applicable Eurodollar rate under the credit agreement at
7.5%. At June 30, 2001, the underlying applicable Eurodollar rate was 4.09%. The
Company paid $250,000 for this cap, which has a term of two years. The notional
amount of this agreement at June 30, 2001 was $44,000,000.
7
Note 4. Earnings Per Common Share
Basic earnings per common share are calculated by dividing net income by the
average common shares outstanding. On a diluted basis, shares outstanding are
adjusted to assume the exercise of stock options.
Nine Months Ended June 30, Three Months Ended June 30,
-------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ----------------
Income before extraordinary item $ 4,649,194 $ 3,939,538 $ 1,918,596 $ 1,319,451
=============== ================ =============== ================
Net income $ 4,649,194 $ 2,770,748 $ 1,918,596 $ 1,319,451
=============== ================ =============== ================
Determination of shares:
Weighted average number of
common shares outstanding 5,513,734 5,513,734 5,513,734 5,513,734
Shares issuable on exercise
of stock options, net of shares assumed
to be purchased out of proceeds 1,753 45,868 23,742 33,546
--------------- ---------------- --------------- ----------------
Average common shares outstanding for
diluted computation 5,526,049 5,559,602 5,537,476 5,547,280
=============== ================ =============== ================
Earnings per common share - basic:
Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24
Extraordinary item - (0.21) - -
--------------- --------------- --------------- ----------------
Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24
=============== ================ =============== ================
Earnings per common share - diluted:
Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24
Extraordinary item - (0.21) - -
--------------- ---------------- --------------- ----------------
Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24
=============== ================ =============== ================
The Company's Virgin Islands subsidiary, through the Industrial Development
Commission of the Government of the Virgin Islands of the United States, has
received a 90% exemption from income taxes on operating income. This exemption
is effective through September 2020. The effect of this exemption was to
increase earnings per share by $0.15 and $0.06 for the nine and three months
ended June 30, 2001, respectively, and $0.14 and $0.04 for the nine and three
months ended June 30, 2000, respectively.
Note 5. Segment and Geographical Information
The Company operates primarily in the beverage alcohol industry in the United
States. The Company reports its operating results in five segments:
Bulk Alcohol Products (citrus brandy, citrus spirits, rum, cane
spirits, fortified citrus wine, purchased distilled products and
byproducts)
Premium Branded Spirits (primarily rum and flavored rum)
Bottling Operations (contract bottling services and proprietary and
private label products)
Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar
stock and proprietary and private label case goods)
Corporate Operations and Other (primarily corporate related items)
The accounting policies of the reportable segments are the same as those
referred to in Note 1 to the Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on income before
income taxes, equity in losses of equity investee, interest income and interest
expense. Material intersegment sales and transfers have been eliminated.
8
Summarized financial information concerning the Company's reportable segments is
shown in the following table. "Corporate Operations and Other" includes
corporate items and the results of certain nonmaterial operations.
Net sales, operating income (loss), depreciation and amortization and capital
expenditures for the Company's operating segments for the nine and three months
ended June 30, 2001 and 2000, and identifiable assets as of June 30, 2001 and
2000, were as follows:
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)
NET SALES
Bulk Alcohol Products $ 30,292 $ 27,114 $ 10,686 $ 9,670
Premium Branded Spirits 12,763 11,266 4,646 4,481
Bottling Operations 15,432 12,328 5,515 4,233
Vinegar and Cooking Wine 15,343 15,160 5,246 4,827
Corporate Operations and Other - 1,773 - 511
---------------------------------------------------------------
$ 73,830 $ 67,641 $ 26,093 $ 23,722
===============================================================
OPERATING INCOME (LOSS)
Bulk Alcohol Products $ 10,635 $ 10,492 $ 3,618 $ 3,292
Premium Branded Spirits (930) 6 (105) 134
Bottling Operations 436 (748) 376 (132)
Vinegar and Cooking Wine 3,101 2,652 1,270 787
Corporate Operations and Other (4,082) (4,313) (1,523) (1,033)
---------------------------------------------------------------
$ 9,160 $ 8,089 $ 3,636 $ 3,048
===============================================================
DEPRECIATION AND AMORTIZATION
Bulk Alcohol Products $ 2,409 $ 2,092 $ 823 $ 929
Premium Branded Spirits 135 75 46 23
Bottling Operations 1,096 1,111 366 376
Vinegar and Cooking Wine 851 658 286 477
Corporate Operations and Other 184 278 64 (303)
---------------------------------------------------------------
$ 4,675 $ 4,214 $ 1,585 $ 1,502
===============================================================
CAPITAL EXPENDITURES
Bulk Alcohol Products $ 2,215 $ 2,713 $ 650 $ 400
Premium Branded Spirits 203 23 - -
Bottling Operations 1,865 556 1,258 93
Vinegar and Cooking Wine 488 380 132 219
Corporate Operations and Other 50 138 6 25
---------------------------------------------------------------
$ 4,821 $ 3,810 $ 2,046 $ 737
===============================================================
IDENTIFIABLE ASSETS
Bulk Alcohol Products $ 68,741 $ 64,257
Premium Branded Spirits 9,262 7,319
Bottling Operations 24,631 22,862
Vinegar and Cooking Wine 21,096 20,306
Corporate Operations and Other 9,992 13,490
---------------------------------
$ 133,722 $ 128,234
=================================
9
Sales and operating income for the nine and three months ended June 30, 2001 and
2000 and identifiable assets as of June 30, 2001 and 2000, classified by
geographic area, were as follows:
U.S. VIRGIN
ISLANDS AND
NINE MONTHS ENDED UNITED STATES THE BAHAMAS CONSOLIDATED
----------------------------- ---------------------------------------------------
(in thousands)
June 30, 2001:
Net sales $ 64,904 $ 8,926 $ 73,830
Operating income 6,344 2,816 9,160
Identifiable assets 94,148 39,574 133,722
June 30, 2000:
Net sales 59,048 8,593 67,641
Operating income 4,906 3,183 8,089
Identifiable assets 92,549 35,685 128,234
THREE MONTHS ENDED
-----------------------------
June 30, 2001:
Net sales $ 22,788 $ 3,305 $ 26,093
Operating income 2,476 1,160 3,636
June 30, 2000:
Net sales 21,878 1,844 23,722
Operating income 1,390 1,658 3,048
Included in net sales for the United States are export sales, primarily to
Europe, Canada and the Caribbean, totaling approximately $4,791,000 and
$1,680,000 for the nine and three months ended June 30, 2001, respectively, and
$4,492,000 and $2,006,000 for the nine and three months ended June 30, 2000,
respectively.
Note 6. Comprehensive income
Comprehensive income is the total of net income and other changes in equity.
Total comprehensive income for the nine months ended June 30, 2001 and 2000 was
as follows:
NINE MONTHS ENDED
JUNE 30,
---------------------------
2001 2000
-------------------------------------------------------------------------------------------------------------
(in thousands)
Net income $ 4,649 $ 2,771
Other comprehensive income, interest
rate cap adjustment 136 -
---------------------------
$ 4,785 $ 2,771
===========================
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations may contain, among other things, statements regarding anticipated
revenue growth, expenditure levels and plans for development. These
forward-looking statements involve a number of risks and uncertainties. The
following is a list of the principal factors that could cause actual results to
differ materially from those contemplated by the forward-looking statements:
business conditions and growth in certain market segments and industries and the
general economy; competitive factors, including increased competition and price
pressures; availability of third party component products at reasonable prices;
excise taxes; foreign currency exposure; changes in product mix; lower than
expected customer orders and quarterly seasonal fluctuations of those orders;
and product shipment interruptions. See "Risk Factors" in previous filings with
the Securities and Exchange Commission.
INTRODUCTION
The following discussion and analysis summarizes the significant
factors affecting (i) consolidated results of operations of the Company for the
nine months ended June 30, 2001 compared to the nine months ended June 30, 2000,
(ii) consolidated results of operations of the Company for the three months
ended June 30, 2001 compared to the three months ended June 30, 2000, and (iii)
financial liquidity and capital resources. This discussion and analysis should
be read in conjunction with the Company's consolidated financial statements and
notes thereto included herein. Certain amounts presented in this Item 2 have
been rounded to the nearest thousand or hundred thousand, as applicable, but the
percentages calculated are based on actual amounts without rounding.
The Company operates primarily in the beverage alcohol industry in the
United States. The Company is a leading producer and supplier of brandy, rum,
wine and spirits to other beverage alcohol manufacturers; produces, imports and
markets premium branded spirits; bottles beverage alcohol and other beverages on
a contract basis and under its own labels; and produces vinegar and cooking
wine. The Company reports its operating results in five segments: Bulk Alcohol
Products (citrus brandy, citrus spirits, rum, cane spirits, fortified citrus
wine, purchased distilled products and byproducts); Premium Branded Spirits
(primarily rum and flavored rum); Bottling Operations (contract bottling
services and proprietary and private label products); Vinegar and Cooking Wine
(bulk vinegar, bulk cooking wine, vinegar stock and proprietary and private
label case goods); and Corporate Operations and Other (primarily corporate
related items).
Information regarding the net sales, operating income and total assets
of each of the Company's business segments and information regarding geographic
areas is set forth in Note 5 to the Consolidated Financial Statements.
The Company's net sales and gross margins (gross profit as a percentage
of net sales) vary depending on the mix of business among the Company's
products. Historically, gross margins have been highest in bulk alcohol products
and premium branded spirits and lower in bottling operations and vinegar and
cooking wine operations.
The Company has a limited number of customers, and these customers
often purchase bulk alcohol products in significant quantities or place
significant orders for contract bottling services, distilled spirits, vinegar
and cooking wine. Accordingly, the size and timing of purchase orders and
product shipments can cause operating results to fluctuate significantly from
quarter to quarter. Additionally, some Company products generate higher profit
margins than others, and changes in the Company's product mix can cause gross
margins to fluctuate. Certain aspects of the Company's business are seasonal,
with increased demand for the Company's contract bottling services from April to
October and increased production of the Company's bulk alcohol products from
November to June, corresponding to the Florida citrus harvest. As a result of
these factors, the Company's operating results may vary significantly from
quarter to quarter.
Net sales represent the Company's gross sales less excise taxes. Excise
taxes are generally payable on products bottled by the Company. In addition,
excise taxes are payable on sales of industrial alcohol to certain customers.
Accordingly, excise taxes vary from period to period depending upon the
Company's product and customer mix.
11
ACQUISITION OF MONARCH WINE COMPANY
In November 1999, the Company acquired substantially all of the assets
of Adams Wine Company d/b/a Monarch Wine Company of Georgia ("Monarch"),
Atlanta, Georgia (the acquisition of the assets of Monarch is hereafter referred
to as the "Monarch Acquisition"). The purchase price was $23.5 million in cash.
Monarch specializes in the manufacture of wines, including custom blended wines
and cooking wines for the food industry and base wines for producers of vinegar
and beverage alcohol. The Monarch Acquisition has strengthened the Company's
position in the beverage alcohol and food industry by expanding the Company's
customer base and product offerings, and has improved the Company's plant
capacity utilization.
RESULTS OF OPERATIONS
The following table sets forth statement of income items as a
percentage of net sales.
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2001 2000 2001 2000
----------- ----------- ---------- ------------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 67.0 67.8 65.8 66.4
----------- ----------- ---------- ------------
Gross margin 33.0 32.2 34.2 33.6
Selling, general and
administrative expenses 20.6 20.2 20.3 20.8
----------- ----------- ---------- ------------
Operating income 12.4 12.0 13.9 12.8
Interest expense (5.2) (5.4) (4.8) (5.9)
Other income, net 1.2 1.1 0.9 0.7
----------- ----------- ---------- ------------
Income before income taxes 8.4 7.7 10.0 7.6
Income tax expense (2.1) (1.9) (2.6) (2.0)
----------- ----------- ---------- ------------
Income before extraordinary item 6.3 5.8 7.4 5.6
Extraordinary item - (1.7) - -
----------- ----------- ---------- ------------
Net income 6.3 % 4.1 % 7.4 % 5.6 %
=========== =========== ========== ============
The following table provides information on net sales of certain
Company products.
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------- ----------------------------------------
2001 2000 % CHANGE 2001 2000 % CHANGE
------------ ------------ ------------- ------------ ----------- -------------
(in thousands) (in thousands)
Bulk Alcohol Products $ 30,292 $ 27,114 11.7 $ 10,686 $ 9,670 10.5
Premium Branded Spirits 12,763 11,266 13.3 4,646 4,481 3.7
Bottling Operations 15,432 12,328 25.2 5,515 4,233 30.3
Vinegar and Cooking Wine 15,343 15,160 1.2 5,246 4,827 8.7
Corporate Operations and
Other - 1,773 (100.0) - 511 (100.0)
------------ ------------ ------------ ------------
$ 73,830 $ 67,641 9.1 $ 26,093 $ 23,722 10.0
============ ============ ============ ============
12
RESULTS OF OPERATIONS (CONTINUED)
The following table provides unit sales volume data for certain Company
products.
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- -------------------------------------
2001 2000 % CHANGE 2001 2000 % CHANGE
---------- ---------- ------------- ---------- --------- ------------
(in thousands) (in thousands)
Bulk alcohol products:
Distilled products, in proof gallons
Citrus Brandy 1,227 1,093 12.3 257 241 6.5
Citrus Spirits 484 702 (31.0) 228 168 35.7
Rum 3,397 3,285 3.4 1,202 1,141 5.4
Cane Spirits 420 421 (0.4) 166 169 (1.8)
Fortified citrus wine, in gallons 8,978 7,498 19.7 3,190 2,754 15.8
Premium branded spirits, in cases 260 202 28.7 95 87 9.3
Bottling operations, in cases 4,470 3,192 40.0 1,891 1,497 26.3
Vinegar
Bulk, in 100 grain gallons 3,978 3,935 1.1 1,398 1,361 2.6
Cases 509 419 21.5 165 135 22.5
Drums, in 100 grain gallons 816 1,197 (31.8) 431 455 (5.0)
Cooking Wine
Bulk, in gallons 2,088 1,602 30.3 696 652 6.6
Cases 588 492 19.5 171 158 8.7
NINE MONTHS ENDED JUNE 30, 2001 COMPARED TO NINE MONTHS ENDED JUNE 30, 2000.
Unless otherwise noted, references to 2001 represent the nine-month period ended
June 30, 2001 and references to 2000 represent the nine-month period ended
June 30, 2000.
NET SALES. Net sales were $73.8 million in 2001, an increase of 9.1%
from net sales of $67.6 million in 2000.
Net sales of bulk alcohol products were $30.3 million in 2001, an increase
of 11.7% from net sales of $27.1 million in 2000. The increase resulted
primarily from increased sales of wine products due to the Monarch Acquisition.
Unit sales of citrus spirits decreased 31.0% and unit sales of wine products
increased 19.7% in 2001 compared to 2000. These changes resulted from the
Monarch Acquisition, as Monarch was a major purchaser of the Company's citrus
spirits for use in producing fortified citrus wine.
Net sales of premium branded spirits were $12.8 million in 2001, an
increase of 13.3% from net sales of $11.3 million in 2000. This sales increase
reflected the continued success of the Company's Cruzan Rums. Sales of the
Company's Cruzan Rums and Cruzan Flavored Rums increased 24.9% and 62.0%
respectively in 2001 compared to 2000. Sales of Porfidio tequila have decreased
due to an industry-wide shortage of agave, the principal raw material for
tequila. During June 2001, Mexican regulatory authorities alleged that the
Porfidio distillery violated certain regulations related to the sale of tequila
and have prohibited the export of Porfidio tequila. The allegations have been
denied by the Porfidio distillery. The Company has not received a shipment of
Porfidio tequila since March 2001, and cannot predict when shipments of Porfidio
will resume. The decrease in sales of Porfidio tequila has not had, and is not
expected to have, a material adverse effect on the Company's results of
operations.
Net sales of the Company's bottling operations were $15.4 million in 2001,
an increase of 25.2% from net sales of $12.3 million in 2000. The unit volume of
the Company's bottling operations increased 40.0% in 2001 as a result of a new
bottling contract. Management expects the unit volume in its bottling operations
to increase over forty percent for the fiscal year ending September 30, 2001, as
a result of this new business.
13
RESULTS OF OPERATIONS (CONTINUED)
Net sales of vinegar and cooking wine were $15.3 million in 2001, an
increase of 1.2% from net sales of $15.2 million in 2000.
GROSS PROFIT. Gross profit was $24.4 million in 2001, an increase of 12.1%
from gross profit of $21.8 million in 2000. Gross margin increased to 33.0% in
2001 from 32.2% in 2000. The increase in gross margin was primarily attributable
to a change in product mix as a result of the Monarch Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $15.2 million in 2001, an increase of 11.4% from
$13.7 million in 2000. The increase was primarily attributable to (1) increased
marketing expenses related to the Company's premium branded spirits business,
and (2) increased amortization expense.
OPERATING INCOME. The following table sets forth the operating income
(loss) by operating segment of the Company for 2001 and 2000 and the percent
change for the periods.
NINE MONTHS ENDED
JUNE 30,
------------------------------
2001 2000 % CHANGE
---- ---- --------
(in thousands)
Bulk Alcohol Products $ 10,635 $ 10,492 1.4
Premium Branded Spirits (930) 6 -
Bottling Operations 436 (748) -
Vinegar and Cooking Wine 3,101 2,652 16.9
Corporate Operations and Other (4,082) (4,313) 5.4
------------------------------
$ 9,160 $ 8,089 13.3
==============================
As a result of the above factors, operating income was $9.2 million in
2001, an increase of 13.3% over operating income of $8.1 million in 2000.
The Company's premium branded spirits segment experienced an operating loss
of $930,000 in 2001 compared to operating income of $6,000 in 2000. The
operating loss reflects the Company's continuing efforts to increase market
share by reinvesting segment gross profits in selling and marketing expenses.
The Company's bottling operations segment reported operating income of $436,000
in 2001 compared to an operating loss of $748,000 in 2000. The swing to
profitability reflects volume increases as a result of a new major bottling
contract.
INTEREST INCOME. The Company earns interest income on its cash, short-term
investments and notes receivable. The decrease in interest income in 2001 was
attributable to lower average amounts of cash, short-term investments and notes
receivable outstanding compared to 2000.
INTEREST EXPENSE. Interest expense was $3.8 million in 2001 and $3.6
million in 2000. The increase in interest expense was due to increased
borrowings on the Company's line of credit during 2001 compared to 2000.
INCOME TAX EXPENSE. The Company's effective income tax rate was 25.0% in
2001 and 24.4% in 2000. The low tax rate was attributable to the Virgin Islands
subsidiary, which has a 90% exemption from United States federal income taxes
through September 2020 (see Note 4 to the Consolidated Financial Statements).
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000.
Unless otherwise noted, references to 2001 represent the three-month period
ended June 30, 2001 and references to 2000 represent the three-month period
ended June 30, 2000.
NET SALES. Net sales were $26.1 million in 2001, an increase of 10.0% from
net sales of $23.7 million in 2000.
14
RESULTS OF OPERATIONS (CONTINUED)
Net sales of bulk alcohol products were $10.7 million in 2001, an increase
of 10.5% from net sales of $9.7 million in 2000. The increase resulted primarily
from increased sales of wine products due to the Monarch Acquisition. Unit sales
of wine products increased 15.8% in 2001 compared to 2000.
Net sales of premium branded spirits were $4.6 million in 2001, an increase
of 3.7% from net sales of $4.5 million in 2000. This sales increase reflected
the continued success of the Company's Cruzan Rums. Sales of the Company's
Cruzan Rums and Cruzan Flavored Rums increased 17.4% and 52.0% respectively in
2001 compared to 2000. Sales of Porfidio tequila have decreased due to an
industry-wide shortage of agave, the principal raw material for tequila. During
June 2001, Mexican regulatory authorities alleged that the Porfidio distillery
violated certain regulations related to the marketing and sale of tequila and
have prohibited the export of Porfidio tequila. The allegations have been denied
by the Porfidio distillery. The Company has not received a shipment of Porfidio
tequila since March 2001, and cannot predict when shipments of Porfidio will
resume. The decrease in sales of Porfidio tequila has not had, and is not
expected to have, a material adverse effect on the Company's results of
operations.
Net sales of the Company's bottling operations were $5.5 million in 2001,
an increase of 30.3% from net sales of $4.2 million in 2000. The unit volume of
the Company's bottling operations increased 26.3% in 2001 as a result of a new
bottling contract. Management expects the unit volume in its bottling operations
to increase over forty percent for the fiscal year ending September 30, 2001, as
a result of this new business.
Net sales of vinegar and cooking wine were $5.2 million in 2001, an
increase of 8.7% from net sales of $4.8 million in 2000. The increase in net
sales was primarily attributable to timing of customer orders.
GROSS PROFIT. Gross profit was $8.9 million in 2001, an increase of 11.9%
from gross profit of $8.0 million in 2000. Gross margin increased to 34.2% in
2001 from 33.6% in 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $5.3 million in 2001, an increase of 7.4% from $4.9
million in 2000. The increase was primarily attributable to increased marketing
expenses related to the Company's premium branded spirits business.
OPERATING INCOME. The following table sets forth the operating income
(loss) by operating segment of the Company for 2001 and 2000 and the percent
change for the periods.
THREE MONTHS ENDED
JUNE 30,
------------------------------
2001 2000 % CHANGE
---- ---- --------
(in thousands)
Bulk Alcohol Products $ 3,618 $ 3,292 9.9
Premium Branded Spirits (105) 134 -
Bottling Operations 376 (132) -
Vinegar and Cooking Wine 1,270 787 61.3
Corporate Operations and Other (1,523) (1,033) (47.2)
-------------------------------
$ 3,636 $ 3,048 19.3
===============================
As a result of the above factors, operating income was $3.6 million in
2001, an increase of 19.3% over operating income of $3.0 million in 2000.
The Company's premium branded spirits segment experienced an operating loss
of $105,000 in 2001 compared to operating income of $134,000 in 2000. The
operating loss reflects the Company's continuing efforts to increase market
share by reinvesting segment gross profits in selling and marketing expenses.
The Company's bottling operations segment reported operating income of $376,000
in 2001 compared to an operating loss of $132,000 in 2000. The swing to
profitability reflects volume increases as a result of a new major bottling
contract.
15
RESULTS OF OPERATIONS (CONTINUED)
INTEREST INCOME. The Company earns interest income on its cash, short-term
investments and notes receivable.
INTEREST EXPENSE. Interest expense was $1.3 million in 2001 and $1.4
million in 2000. Interest expense decreased slightly as increased borrowings on
the Company's line of credit in 2001 were offset by lower interest rates.
INCOME TAX EXPENSE. The Company's effective income tax rate was 26.2% in
2001 and 27.2% in 2000. The low tax rate was attributable to the Virgin Islands
subsidiary, which has a 90% exemption from United States federal income taxes
through September 2020 (see Note 4 to the Consolidated Financial Statements).
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal use of cash in its operating activities is to
purchase raw materials to be used in its manufacturing operations, purchase
imported products for its premium branded spirits business and carry inventories
and receivables. The Company's sources of liquidity have historically been cash
flow from operations and borrowings. Some of the Company's manufacturing
operations are seasonal and the Company's borrowings on its line of credit vary
during the year. For example, the Company uses citrus molasses as its primary
raw material in the production of citrus brandy and spirits at its two Florida
distilleries. The Company buys citrus molasses, a byproduct of citrus juice
production, from local manufacturers of citrus juice and concentrate during the
citrus harvest, which generally runs from November to June. The Company
generally begins purchasing citrus molasses in November and builds inventory of
citrus brandy and spirits. The Company must manufacture and build inventory
while raw materials are available due to the short life of the citrus molasses
it purchases. Another seasonal business of the Company is its contract bottling
services. Demand for contract bottling services is highest during the months
from April through October. Management believes that cash provided by its
operating and financing activities will provide adequate resources to satisfy
its working capital, liquidity and anticipated capital expenditure requirements
for both its short-term and long-term needs.
OPERATING ACTIVITIES
Net cash provided by operating activities in 2001 was $5.4 million,
which resulted primarily from $8.8 million in net income adjusted for noncash
items, and $3.4 million representing the net change in operating assets and
liabilities.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 2001 was $4.6 million, which
resulted primarily from $4.8 million of capital expenditures, a net increase of
$2.8 million in short-term investments and principal payments received on notes
receivable of $3.5 million. During the third quarter of 2001 the Company
received a prepayment of $2.4 million on a note receivable.
Net cash provided by financing activities in 2001 was $0.2 million,
which resulted primarily from an increase of $6.4 million in borrowings under
the revolving credit facility and payments of long-term debt totaling $6.1
million.
The Company's present revolving credit facility provides for maximum
borrowings of $15 million. Borrowings under this facility were $14.9 million at
June 30, 2001 (see Note 3 to the Consolidated Financial Statements).
The Company's bank debt was $58.9 million as of June 30, 2001, and its
ratio of total debt to equity was 1.2 to 1.
16
No provision has been made for income taxes that would result from the
remittance of undistributed earnings of the Company's Bahamian and Virgin
Islands subsidiaries, as the Company intends to reinvest these earnings
indefinitely. The Company's shares of the undistributed earnings of the Bahamian
and Virgin Islands subsidiaries were approximately $8.1 million and $21.1
million, respectively, as of September 30, 2000. See Note 9 to the Company's
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended September 30, 2000 for additional information on
income taxes related to these subsidiaries.
Based on current plans and business conditions, management expects that
its cash, cash equivalents, and short-term investments, together with any
amounts generated from operations and available borrowings, will be sufficient
to meet the Company's cash requirements for at least the next 12 months.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company uses natural gas and oil in its distilling operations and
during the first two quarters of the fiscal year ending September 30, 2001,
experienced significant increases in its energy costs. During the third quarter
energy costs moderated. Where competitively feasible, management has increased
selling prices to offset the effects of energy cost increases, but the Company
may not be able to recover all energy cost increases.
Except as noted above, the Company's results of operations and
financial condition have not been significantly affected by inflation and
changing prices. The Company has been able, subject to normal competitive
conditions, to pass along rising costs through increased selling prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this Item 3 is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
September 30, 2000. During the third quarter the Company received a $2.4
million prepayment on a 7% note receivable that was due in May 2006.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3.1 Amended and Restated Certificate of Incorporation of Todhunter International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (6)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (3)
10.8 Lease, dated March 24, 1988, as amended, between Todhunter International, Inc. and Especially
West Palm Beach, Inc. (1)
10.8(a) Amendment to Lease, dated January 1, 1997, between Todhunter International, Inc. and Florida
Acquisition Fund Esperante, Ltd. (4)
10.16 Asset Purchase Agreement dated as of September 27, 1999, among Todhunter International, Inc. and
Adams Wine Company d/b/a Monarch Wine Company of Georgia, and Howard J. Weinstein, David
Paszamant, Jay Paszamant and Matthew Paszamant (5)
10.17 Credit Agreement dated as of November 17, 1999, by and among Todhunter International, Inc. and
each of the Financial Institutions Initially a Signatory thereto, and SouthTrust Bank, National
Association (5)
10.17(a) Waiver and Modification of Credit Agreement dated as of September 29, 2000, by and among
Todhunter International, Inc. and each of the Financial Institutions Initially a Signatory
thereto, and SouthTrust Bank, National Association (8)
10.17(b) Second Waiver and Modification of Credit Agreement dated as of March 30, 2001, by and among
Todhunter International, Inc. and each of the Financial Institutions Initially a Signatory
thereto, and SouthTrust Bank, National Association. (9)
10.18 Executive Employment Agreement dated as of July 15, 1999, between Thomas A. Valdes and Todhunter
International, Inc. (6)
10.19 Executive Employment Agreement dated as of July 15, 1999, between Jay S. Maltby and
17
Todhunter International, Inc. (6)
10.20 Executive Employment Agreement dated as of July 15, 1999, between A. Kenneth Pincourt, Jr. and
Todhunter International, Inc. (6)
10.21 Executive Employment Agreement dated as of July 15, 1999, between D. Chris Mitchell and
Todhunter International, Inc. (6)
11.1 Statement of Computation of Per Share Earnings (10)
13.1 Quantitative and Qualitative Disclosures about Market Risk (7)
21.1 Subsidiaries of Todhunter International, Inc. (2)
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 33-50848).
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1998.
(5) Incorporated herein by reference to the Company's Report on Form 8-K
for November 17, 1999.
(6) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1999.
(7) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 2000.
(8) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2000.
(9) Filed herewith.
(10) Filed herewith and incorporated herein by reference to Note 4 of notes
to consolidated financial statements, included in Item 1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2001.
18
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.
Date: August 9, 2001 /s/ A. Kenneth Pincourt, Jr.
-------------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: August 9, 2001 /s/ Troy Edwards
-------------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
19