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 December 31, 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
---------------------------------------------------- ----------
(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 February 8, 2002 was 5,513,734.
TODHUNTER INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
December 31, 2001 and September 30, 2001 1
Consolidated Statements of Income -
Three Months Ended December 31, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 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 16
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 16
Signatures 18
* 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
December 31, September 30,
2001 2001
------------ ------------
(Unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,190,267 $ 5,624,029
Short-term investments 10,488,292 8,533,851
Trade receivables 12,902,846 14,719,578
Other receivables 1,498,656 3,058,471
Inventories 25,518,990 27,483,329
Notes receivable, current maturities 73,703 72,973
Deferred income taxes 1,589,500 1,544,000
Other current assets 793,194 2,348,135
------------ ------------
Total current assets 58,055,448 63,384,366
------------ ------------
LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments in subsidiaries 1,803,334 1,729,103
Notes receivable from affiliate 3,836,652 3,560,923
Notes receivable, less current maturities 645,359 663,785
------------ ------------
6,285,345 5,953,811
------------ ------------
PROPERTY AND EQUIPMENT 87,239,608 85,198,203
Less accumulated depreciation 44,869,332 43,729,941
------------ ------------
42,370,276 41,468,262
------------ ------------
GOODWILL, less accumulated amortization 20,524,404 20,524,404
OTHER ASSETS 3,152,420 2,257,321
------------ ------------
$130,387,893 $133,588,164
============ ============
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2001 2001
------------ ------------
(Unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 4,000,000 $ 4,000,000
Accounts payable 4,391,513 5,169,242
Accrued expenses 1,810,269 2,325,704
------------ ------------
Total current liabilities 10,201,782 11,494,946
LONG-TERM DEBT, less current maturities 52,139,489 55,684,549
DEFERRED INCOME TAXES 3,922,000 3,874,000
OTHER LIABILITIES 1,362,866 1,314,036
------------ ------------
67,626,137 72,367,531
------------ ------------
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 December 31, 2001 and September 30, 2001 56,129 56,129
Additional paid-in capital 18,326,014 18,326,014
Comprehensive income (12,000) (63,000)
Retained earnings 45,129,393 43,639,270
------------ ------------
63,499,536 61,958,413
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
------------ ------------
62,761,756 61,220,633
------------ ------------
$130,387,893 $133,588,164
============ ============
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended December 31,
-------------------------------
2001 2000
----------- -----------
Sales $31,961,935 $29,847,350
Less excise taxes 7,493,679 7,583,871
----------- -----------
Net sales 24,468,256 22,263,479
Cost of goods sold 16,912,167 14,572,283
----------- -----------
Gross profit 7,556,089 7,691,196
Selling, general and administrative expenses 5,070,151 4,920,462
----------- -----------
Operating income 2,485,938 2,770,734
----------- -----------
Other income (expense):
Interest income 224,163 225,169
Interest expense (792,727) (1,391,346)
Equity in income of equity investee 74,231 11,740
Other, net 38,449 43,314
----------- -----------
(455,884) (1,111,123)
----------- -----------
Income before income taxes 2,030,054 1,659,611
----------- -----------
Income tax expense (benefit):
Current 537,431 546,327
Deferred 2,500 (130,500)
----------- -----------
539,931 415,827
----------- -----------
Net Income $ 1,490,123 $ 1,243,784
=========== ===========
Earnings per common share:
Basic $ 0.27 $ 0.23
=========== ===========
Diluted $ 0.27 $ 0.23
=========== ===========
Common shares and equivalents outstanding:
Basic 5,513,734 5,513,734
=========== ============
Diluted 5,551,670 5,516,008
=========== ============
See Notes to Consolidated Financial Statements.
3
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
--------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,490,123 $ 1,243,784
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,266,812 1,150,714
Amortization 97,550 369,503
(Gain) on sale of property and equipment (22,531) (2,185)
Equity in (income) of equity investee (74,231) (11,740)
Deferred income taxes 2,500 (130,500)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables 3,376,547 3,794,289
Inventories 1,964,339 (891,698)
Other current assets 1,554,941 617,806
Increase (decrease) in:
Accounts payable (777,729) (1,063,505)
Accrued expenses (515,435) (499,333)
Other liabilities 48,830 (64,521)
----------- -----------
Net cash provided by operating activities 8,411,716 4,512,614
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 27,313 21,799
Principal payments received on notes receivable 28,764 372,055
Purchase of property and equipment (2,173,608) (1,329,105)
Disbursements for notes receivable (286,797) -
Purchase of short-term investments (1,954,441) (1,530,963)
Increase in other assets (69,815) (216,000)
----------- -----------
Net cash used in investing activities $(4,428,584) $(2,682,214)
=========== ===========
(Continued)
4
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended December 31,
-------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on line of credit $(2,500,000) $(1,029,999)
Disbursements for loan costs (871,834) -
Principal payments on long-term borrowings (1,045,060) (2,031,929)
----------- -----------
Net cash used in financing activities (4,416,894) (3,061,928)
----------- -----------
Net decrease in cash and cash equivalents (433,762) (1,231,528)
Cash and cash equivalents:
Beginning 5,624,029 3,245,866
----------- -----------
Ending $ 5,190,267 $ 2,014,338
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 756,081 $ 1,388,394
=========== ===========
Income taxes $ 20,321 $ 125,216
=========== ===========
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 principles 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, 2001.
Note 2. Inventories
The major components of inventories are:
December 31, 2001 September 30, 2001
----------------- ------------------
(Unaudited)
Finished goods $13,928,916 $16,879,276
Work in process 1,611,811 598,648
Raw materials and supplies 9,978,263 10,005,405
----------- -----------
$25,518,990 $27,483,329
=========== ===========
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 3. Financing Arrangements
Long-term debt consists of the following as of December 31, 2001:
Term loans under a credit agreement (i) (ii), 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
December 31, 2001 was 5.25%. Quarterly principal installments of $1,000,000 through
September 30, 2006 with any remaining balance due September 30, 2006. $39,000,000
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 December 31, 2001 was 4.42%. The revolving lines of credit terminate in
October 2004. 16,500,000
Other 639,489
-----------
56,139,489
Less current maturities 4,000,000
-----------
$52,139,489
===========
(i) In October 2001, the Company entered into a $70 million credit agreement,
which consists of a $40 million term loan and a $30 million revolving loan
facility. The credit agreement is collateralized principally by all assets
located in the United States of America. The new credit agreement replaced
all borrowings under the previous finance agreement and increased the
Company's borrowing capacity from $59 million to $70 million. The Company
is restricted from paying dividends to stockholders. Also, the Company is
required to maintain unencumbered cash or marketable securities of $4
million at the end of each fiscal quarter and to maintain a minimum fixed
charge and interest coverage ratios, among other financial covenants.
(ii) In addition to quarterly principal payments, the Company may be required to
make additional principal payments based on results of the Company's
domestic operating profits, as defined in the agreement.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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.
Three Months Ended
December 31,
------------------------
2001 2000
---------- ----------
Net income $1,490,123 $1,243,784
========== ==========
Determination of shares:
Weighted average number of
common shares outstanding 5,513,734 5,513,734
Shares issuable on exercise
of stock options, net of shares assumed
to be purchased out of proceeds 37,936 2,274
---------- ----------
Average common shares outstanding for
diluted earnings per share computation 5,551,670 5,516,008
========== ==========
Earnings per common share:
Basic $ 0.27 $ 0.23
========== ==========
Diluted $ 0.27 $ 0.23
========== ==========
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 $0.03 and $0.04 for the three months ended
December 31, 2001 and 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 four 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)
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 reportable segments based on income before
income taxes, equity in income or loss of equity investee, interest income
and interest expense. Material intersegment sales and transfers have been
eliminated.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Summarized financial information concerning the Company's reportable segments is
shown in the following table.
Net sales, operating income (loss), depreciation and amortization and capital
expenditures for the Company's reportable segments for the three months ended
December 31, 2001 and 2000, and identifiable assets as of December 31, 2001 and
2000, were as follows:
THREE MONTHS ENDED
DECEMBER 31,
--------------------
2001 2000
--------------------
(in thousands)
NET SALES
Bulk Alcohol Products $ 8,836 $ 9,384
Premium Branded Spirits 5,387 3,983
Bottling Operations 4,782 3,984
Vinegar and Cooking Wine 5,463 4,912
--------------------
$ 24,468 $ 22,263
====================
OPERATING INCOME (LOSS)
Bulk Alcohol Products $ 2,889 $ 3,389
Premium Branded Spirits (171) (512)
Bottling Operations 182 211
Vinegar and Cooking Wine 1,147 879
Corporate Operations and Other (1,561) (1,196)
--------------------
$ 2,486 $ 2,771
====================
DEPRECIATION AND AMORTIZATION
Bulk Alcohol Products $ 706 $ 778
Premium Branded Spirits 36 34
Bottling Operations 398 367
Vinegar and Cooking Wine 117 281
Corporate Operations and Other 107 60
--------------------
$ 1,364 $ 1,520
====================
CAPITAL EXPENDITURES
Bulk Alcohol Products $ 1,932 $ 651
Premium Branded Spirits 9 184
Bottling Operations 140 266
Vinegar and Cooking Wine 17 186
Corporate Operations and Other 76 42
--------------------
$ 2,174 $ 1,329
====================
IDENTIFIABLE ASSETS
Bulk Alcohol Products $ 68,937 $ 61,410
Premium Branded Spirits 7,594 8,270
Bottling Operations 23,206 22,427
Vinegar and Cooking Wine 20,569 20,388
Corporate Operations and Other 10,082 10,570
--------------------
$130,388 $123,065
====================
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Sales and operating income for the three months ended December 31, 2001 and 2000
and identifiable assets as of December 31, 2001 and 2000, classified by
geographic area, were as follows:
U. S. VIRGIN
ISLANDS AND
THREE MONTHS ENDED UNITED STATES THE BAHAMAS CONSOLIDATED
------------------ ---------------------------------------------
(in thousands)
December 31, 2001:
Net sales $22,538 $ 1,930 $ 24,468
Operating income 2,136 350 2,486
Identifiable assets 90,137 40,251 130,388
December 31, 2000:
Net sales 19,251 3,012 22,263
Operating income 1,924 847 2,771
Identifiable assets 86,709 36,356 123,065
Included in net sales for the United States are export sales, primarily to
Europe, Canada and the Caribbean, totaling approximately $3,116,000 and
$1,451,000 for the three months ended December 31, 2001 and 2000, respectively.
Note 6. Comprehensive income
Comprehensive income is the total of net income and other changes in equity.
Total comprehensive income for the three months ended December 31, 2001 and 2000
was as follows:
THREE MONTHS ENDED
DECEMBER 31,
---------------------
2001 2000
------ ------
(in thousands)
Net income $1,490 $1,244
Other comprehensive income, interest rate cap adjustment 51 34
------ ------
$1,541 1,278
====== ======
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis contains "Forward-Looking
Statements," as defined in section 27a of the Securities Act of 1933, as
amended, and Section 21e of the Securities Exchange Act of 1934, as amended.
Forward-Looking Statements are statements other than historical information or
statements of current condition and relate to future events or the future
financial performance of the company. Some Forward-Looking Statements may be
identified by use of such terms as "believes," "anticipates," "intends" or
"expects." Such Forward-Looking Statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
Forward-Looking Statements. The following is a list of factors, among others,
that could cause actual results to differ materially from those contemplated by
the Forward-Looking Statements: business conditions and fluctuations 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; increased excise taxes; foreign
currency exposure; changes in product mix between and among product lines; lower
than expected customer orders and quarterly seasonal fluctuations of those
orders; and product shipment interruptions. The Company undertakes no obligation
to update or revise any Forward-Looking Statements, whether as a result of new
information, future events or otherwise.
INTRODUCTION
The following discussion and analysis summarizes the significant
factors affecting (i) consolidated results of operations of the Company for the
three months ended December 31, 2001 compared to the three months ended December
31, 2000, and (ii) 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 four
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); and
Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock and
proprietary and private label case goods).
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,
11
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.
RESULTS OF OPERATIONS
The following table sets forth statement of income items as a percentage of net
sales.
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
2001 2000
----- -----
Net sales 100.0% 100.0%
Cost of goods sold 69.1 65.5
----- -----
Gross margin 30.9 34.5
Selling, general and
administrative expenses 20.7 22.1
----- -----
Operating income 10.2 12.4
Interest expense (3.2) (6.2)
Other income, net 1.3 1.3
----- -----
Income before income taxes 8.3 7.5
Income tax expense (2.2) (1.9)
----- -----
Net income 6.1% 5.6%
===== =====
The following table provides information on net sales of certain Company
products.
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
2001 2000 % CHANGE
------- ------- --------
(in thousands)
Bulk Alcohol Products $ 8,836 $ 9,384 (5.8)
Premium Branded Spirits 5,387 3,983 35.2
Bottling Operations 4,782 3,984 20.0
Vinegar and Cooking Wine 5,463 4,912 11.2
------- -------
$24,468 $22,263 9.9
======= =======
12
RESULTS OF OPERATIONS (CONTINUED)
The following table provides unit sales volume data for certain Company
products.
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
2001 2000 % CHANGE
----- ----- --------
(in thousands)
Bulk alcohol products:
Distilled products, in proof gallons
Citrus Brandy 363 466 (22.0)
Citrus Spirits 156 143 9.0
Rum 847 1,142 (25.8)
Cane Spirits 200 159 25.8
Fortified citrus wine, in gallons 2,704 2,680 0.9
Premium branded spirits, in cases 89 85 5.2
Bottling operations, in cases 1,432 841 70.3
Vinegar
Bulk, in 100 grain gallons 1,352 1,141 18.6
Cases 169 157 7.3
Drums, in 100 grain gallons 378 146 159.7
Cooking Wine
Bulk, in gallons 1,067 696 53.5
Cases 208 216 (4.0)
THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2000. Unless otherwise noted, references to 2001 represent the three-month
period ended December 31, 2001 and references to 2000 represent the three-month
period ended December 31, 2000.
NET SALES. Net sales were $24.5 million in 2001, an increase of 9.9% from
net sales of $22.3 million in 2000.
Net sales of bulk alcohol products were $8.8 million in 2001, a decrease of
5.8% from net sales of $9.4 million in 2000. The decrease resulted primarily
from decreased shipments of rum from the Company's Virgin Islands subsidiary.
Management believes that the decrease in rum shipments is due to the timing of
customer orders and that rum shipments will return to normal levels by the end
of fiscal 2002.
Net sales of premium branded spirits were $5.4 million in 2001, an increase
of 35.2% from net sales of $4.0 million in 2000. In 2001, net sales of premium
branded spirits includes $1.6 million of bulk tequila sales. Excluding bulk
tequila sales, net sales of premium branded spirits were $3.8 million in 2001, a
decrease of 4.4% from net sales of $4.0 million in 2000. Bulk tequila sales
represent the liquidation of inventory that was held to produce Porfidio
tequila. Sales of the Company's Cruzan Rums and Cruzan Flavored Rums increased
11.5% and 47.0%, respectively, in 2001 compared to 2000. The strong sales
increases in Cruzan Rums and Cruzan Flavored Rums were offset by large decreases
in sales of Porfidio tequila and Antiqueno Aguardiente. As of September 2001,
the Company was out of stock of Porfidio tequila. The Company has not received a
shipment of Porfidio tequila since March 2001, and cannot predict when or
whether shipments will resume. In addition, as a result of a trademark dispute
with the Company, the producer of Antiqueno Aguardiente, one of the Company's
premium branded spirits products, suspended shipments of this product to the
Company in June 2001. Sales of this product amounted to $1.6 million in the
fiscal year ended September 30, 2001. As of November 2001, the Company was out
of stock of Antiqueno Aguardiente. The Company cannot predict when or whether
shipments of this product will resume. Management believes that the decreases in
sales of Porfidio Tequila and Antiqueno Aguardiente have not had, and are not
expected to have, a material adverse effect on the Company's consolidated
results of operations.
13
RESULTS OF OPERATIONS (CONTINUED)
Net sales of the Company's bottling operations were $4.8 million in 2001,
an increase of 20.0% from net sales of $4.0 million in 2000. The unit volume of
the Company's bottling operations increased 70.3% in 2001 as a result of
increased business with an existing customer. Management expects the unit volume
in its bottling operations to increase over thirty percent for the fiscal year
ending September 30, 2002, as a result of increased business with new and
existing customers.
Net sales of vinegar and cooking wine were $5.5 million in 2001, an
increase of 11.2% from net sales of $4.9 million in 2000. Management believes
that the increase in net sales is due to the timing of customer orders.
GROSS PROFIT. Gross profit was $7.6 million in 2001, a decrease of 1.8%
from gross profit of $7.7 million in 2000. Gross margin decreased to 30.9% in
2001 from 34.5% in 2000. The decrease in gross margin was primarily attributable
to a decrease in shipments of bulk rum related to the timing of customer orders.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $5.1 million in 2001, an increase of 3.0% from $4.9
million in 2000.
OPERATING INCOME. The following table sets forth the operating income
(loss) by reportable segment of the Company for 2001 and 2000.
THREE MONTHS ENDED
DECEMBER 31,
--------------------
2001 2000 % CHANGE
------- ------- --------
(IN THOUSANDS)
Bulk Alcohol Products $ 2,889 $ 3,389 (14.7)
Premium Branded Spirits (171) (512) -
Bottling Operations 182 211 (13.9)
Vinegar and Cooking Wine 1,147 879 30.5
Corporate Operations and Other (1,561) (1,196) -
------- -------
$ 2,486 $ 2,771 (10.3)
======= =======
As a result of the above factors, operating income was $2.5 million in
2001, a decrease of 10.3% from operating income of $2.8 million in 2000.
Included in operating loss of premium branded spirits was profit of $0.5 million
related to bulk tequila sales. Excluding bulk tequila sales, operating loss of
premium branded spirits would have been $0.7 million in 2001 compared to $0.5
million in 2000.
INTEREST INCOME. The Company earns interest income on its cash, short-term
investments and notes receivable.
INTEREST EXPENSE. Interest expense was $0.8 million in 2001 and $1.4
million in 2000. The decrease in interest expense was due to lower interest
rates during 2001 as compared to 2000.
INCOME TAX EXPENSE. The Company's effective income tax rate was 26.6% in
2001 and 25.0% 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.
14
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing raw materials to be used in its manufacturing operations, purchasing
imported products for its premium branded spirits business and carrying
inventories and receivables. The Company's source of liquidity has historically
been cash flow from operations and its line of credit. 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. Due to the short life of the
citrus molasses it purchases, the Company must manufacture and build inventory
while raw materials are available. 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 $8.4 million,
which resulted from $2.8 million in net income adjusted for noncash items, and
$5.6 million representing the net change in operating assets and liabilities.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 2001 was $4.4 million, which
resulted primarily from $2.2 million of capital expenditures and a net increase
of $2.0 million in short-term investments.
Net cash used in financing activities in 2001 was $4.4 million, which
resulted from payments of $2.5 million under the revolving credit facility, $1.0
million of long-term debt and $0.9 million in loan costs.
The Company's revolving credit facility provides for maximum borrowings
of $30 million. Borrowings under this facility were $16.5 million at December
31, 2001 (see Note 3 to the Consolidated Financial Statements).
The Company's bank debt was $55.5 million as of December 31, 2001, and
its ratio of total debt to equity was 1.1 to 1.
The Company's share of the undistributed earnings of the Bahamian and
Virgin Islands subsidiaries were approximately $8.4 million and $25.1 million,
respectively, as of September 30, 2001. 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, 2001 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.
15
EFFECTS OF INFLATION AND CHANGING PRICES
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,
2001.
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)
10.18 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 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)
10.22 Amended and Restated Credit Agreement dated as of October 19, 2001, by and among Todhunter
International, Inc., and each of the Financial Institutions Initially a Signatory thereto,
and South Trust Bank (7)
11.1 Statement of Computation of Per Share Earnings (8)
21.1 Subsidiaries of Todhunter International, Inc. (2)
16
(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, 2001.
(8) 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 December
31, 2001.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the first quarter ended December
31, 2001.
17
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: February 11, 2002 /s/ A. Kenneth Pincourt, Jr.
-----------------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: February 11, 2002 /s/ Troy Edwards
-----------------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
18