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 MARCH 31, 2002
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 May 10, 2002 was 5,513,734.
TODHUNTER INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
March 31, 2002 and September 30, 2001 1
Consolidated Statements of Income -
Six and Three Months Ended March 31, 2002 and 2001 3
Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2002 and 2001 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 18
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 18
Item 5 Other Information *
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 20
* 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
March 31, September 30,
2002 2001
--------------------- -----------------
(Unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,537,933 $ 5,624,029
Short-term investments 11,765,230 8,533,851
Trade receivables 13,084,406 14,719,578
Other receivables 1,705,161 3,058,471
Inventories 26,338,686 27,483,329
Notes receivable, current maturities 74,444 72,973
Deferred income taxes 1,634,500 1,544,000
Other current assets 1,526,942 2,348,135
--------------------- -----------------
Total current assets 60,667,302 63,384,366
--------------------- -----------------
LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments in and advances to equity investees 1,886,516 1,729,103
Notes receivable from affiliate 3,833,850 3,560,923
Notes receivable, less current maturities 626,562 663,785
--------------------- -----------------
6,346,928 5,953,811
--------------------- -----------------
PROPERTY AND EQUIPMENT 88,257,712 85,198,203
Less accumulated depreciation 46,114,618 43,729,941
--------------------- -----------------
42,143,094 41,468,262
--------------------- -----------------
GOODWILL, less accumulated amortization 20,524,404 20,524,404
OTHER ASSETS 3,121,556 2,257,321
--------------------- -----------------
$ 132,803,284 $ 133,588,164
===================== =================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2002 2001
----------------- ------------------
(Unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 4,000,000 $ 4,000,000
Accounts payable 5,993,742 5,169,242
Accrued expenses 1,524,610 2,325,704
----------------- ------------------
Total current liabilities 11,518,352 11,494,946
LONG-TERM DEBT, less current maturities 51,383,158 55,684,549
DEFERRED INCOME TAXES 3,991,000 3,874,000
OTHER LIABILITIES 1,411,552 1,314,036
----------------- ------------------
68,304,062 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 March 31, 2002 and September 30, 2001 56,129 56,129
Additional paid-in capital 18,326,014 18,326,014
Accumulated other comprehensive loss - (63,000)
Retained earnings 46,854,859 43,639,270
----------------- ------------------
65,237,002 61,958,413
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
----------------- ------------------
64,499,222 61,220,633
----------------- ------------------
$ 132,803,284 $ 133,588,164
================= ==================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended March 31, Three Months Ended March 31,
------------------------------ -------------------------------
2002 2001 2002 2001
------------- ------------- --------------- -------------
Sales $ 63,316,172 $ 62,314,094 $ 31,354,237 $ 32,466,744
Less excise taxes 15,352,257 14,576,620 7,858,578 6,992,749
------------- ------------- --------------- -------------
Net sales 47,963,915 47,737,474 23,495,659 25,473,995
Cost of goods sold 33,265,925 32,269,277 16,353,758 17,696,994
------------- ------------- --------------- -------------
Gross profit 14,697,990 15,468,197 7,141,901 7,777,001
Selling, general and administrative expenses 9,814,277 9,944,258 4,744,124 5,023,796
------------- ------------- --------------- -------------
Operating income 4,883,713 5,523,939 2,397,777 2,753,205
------------- ------------- --------------- -------------
Other income (expense):
Interest income 372,633 456,262 148,470 231,093
Interest expense (1,420,726) (2,558,697) (627,999) (1,167,351)
Equity in income of equity investee 157,413 59,896 83,182 48,156
Other, net 245,806 117,732 207,357 74,418
------------- ------------- --------------- -------------
(644,874) (1,924,807) (188,990) (813,684)
------------- ------------- --------------- -------------
Income before income taxes 4,238,839 3,599,132 2,208,787 1,939,521
------------- ------------- --------------- -------------
Income tax expense (benefit):
Current 996,750 1,217,534 459,319 671,207
Deferred 26,500 (349,000) 24,000 (218,500)
------------- ------------- --------------- -------------
1,023,250 868,534 483,319 452,707
------------- ------------- --------------- -------------
Net Income $ 3,215,589 $ 2,730,598 $ 1,725,468 $ 1,486,814
============= ============= =============== =============
Earnings per common share:
Basic $ 0.58 $ 0.50 $ 0.31 $ 0.27
============= ============= =============== =============
Diluted $ 0.58 $ 0.49 $ 0.31 $ 0.27
============= ============= =============== =============
Common shares and equivalents outstanding:
Basic 5,513,734 5,513,734 5,513,734 5,513,734
============= ============= =============== =============
Diluted 5,565,483 5,524,296 5,574,959 5,558,661
============= ============= =============== =============
See Notes to Consolidated Financial Statements.
3
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended March 31,
------------------------------------
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,215,589 $ 2,730,598
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,596,508 2,332,635
Amortization 195,100 757,482
Gain on sale of property and equipment (30,924) (37,981)
Equity in (income) of equity investee (157,413) (59,896)
Deferred income taxes 26,500 (349,000)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables 2,988,482 (146,157)
Inventories 1,144,643 (1,809,909)
Other current assets 821,193 (2,264,736)
Increase (decrease) in:
Accounts payable 804,500 1,158,533
Accrued expenses (801,094) (86,882)
Other liabilities 97,516 86,669
--------------- ---------------
Net cash provided by operating activities 10,920,600 2,311,356
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 46,599 64,283
Principal payments received on notes receivable 49,622 749,125
Purchase of property and equipment (3,287,015) (2,774,552)
Disbursements for notes receivable (286,797) (9,300)
Purchase of short-term investments (3,231,379) (2,224,916)
Investments in subsidiaries - (150,000)
Increase in other assets (106,502) (300,374)
--------------- ---------------
Net cash used in investing activities $ (6,815,472) $ (4,645,734)
--------------- ---------------
(Continued)
4
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six Months Ended March 31,
------------------------------------
2002 2001
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit $ (2,200,000) $ 5,370,000
Disbursements for loan costs (889,833) -
Principal payments on long-term borrowings (2,101,391) (4,024,693)
--------------- ---------------
Net cash provided by (used in) financing activities (5,191,224) 1,345,307
--------------- ---------------
Net decrease in cash and cash equivalents (1,086,096) (989,071)
Cash and cash equivalents:
Beginning 5,624,029 3,245,866
--------------- ---------------
Ending $ 4,537,933 $ 2,256,795
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,392,540 $ 2,560,738
=============== ===============
Income taxes $ 826,615 $ 1,078,759
=============== ===============
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:
March 31, 2002 September 30, 2001
------------------ -------------------
(Unaudited)
Finished goods $ 13,597,061 $ 16,879,276
Work in process 2,453,766 598,648
Raw materials and supplies 10,287,859 10,005,405
------------------ -------------------
$ 26,338,686 $ 27,483,329
================== ===================
6
Note 3. Financing Arrangements
Long-term debt consists of the following as of March 31, 2002:
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
March 31, 2002 was 4.65%. Quarterly principal installments of
$1,000,000 through September 30, 2006 with any remaining balance due
September 30, 2006. $ 38,000,000
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 March 31, 2002 was 3.63%. The revolving lines of credit
terminate in October 2004. 16,800,000
Other 583,158
-----------------
55,383,158
Less current maturities 4,000,000
-----------------
$ 51,383,158
=================
(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
Note 4. Earnings Per Common Share
Basic earnings per common share were calculated by dividing net income by the
average common shares outstanding. On a diluted basis, shares outstanding were
adjusted to assume the exercise of stock options.
Six Months Ended Three Months Ended
March 31, March 31,
--------------------------------- ---------------------------
2002 2001 2002 2001
--------------- ------------- ------------ ------------
Net income $ 3,215,589 $ 2,730,598 $ 1,725,468 $ 1,486,814
=============== ============= ============ ============
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 51,749 10,562 61,225 44,927
--------------- ------------- ------------ ------------
Average common shares outstanding for
diluted earnings per share computation 5,565,483 5,524,296 5,574,959 5,558,661
=============== ============= ============ ============
Earnings per common share:
Basic $ 0.58 $ 0.50 $ 0.31 $ 0.27
=============== ============= ============ ============
Diluted $ 0.58 $ 0.49 $ 0.31 $ 0.27
=============== ============= ============ ============
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 $0.08 and $0.05 for the six and three
months ended March 31, 2002, respectively, and $0.09 and $0.05 for the six
and three months ended March 31, 2001, 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
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 six and three months
ended March 31, 2002 and 2001, and identifiable assets as of March 31, 2002 and
2001, were as follows:
Six Months Ended Three Months Ended
March 31, March 31,
----------------------------------- -----------------------------
2002 2001 2002 2001
----------------------------------- -----------------------------
(in thousands) (in thousands)
Net Sales
Bulk Alcohol Products $ 17,692 $ 19,606 $ 8,856 $ 10,222
Premium Branded Spirits 9,584 8,117 4,197 4,134
Bottling Operations 10,205 9,917 5,423 5,933
Vinegar and Cooking Wine 10,483 10,097 5,020 5,185
-------------- ------------- ------------- ------------
$ 47,964 $ 47,737 $ 23,496 25,474
============== ============= ============= ============
Operating Income (Loss)
Bulk Alcohol Products $ 5,400 $ 7,017 $ 2,511 3,628
Premium Branded Spirits (542) (825) (371) (313)
Bottling Operations 1,008 60 826 (151)
Vinegar and Cooking Wine 2,103 1,831 956 952
Corporate Operations and Other (3,085) (2,559) (1,524) (1,363)
-------------- ------------- ------------- -----------
$ 4,884 $ 5,524 $ 2,398 $ 2,753
============== ============= ============= ===========
Depreciation and Amortization
Bulk Alcohol Products $ 1,461 $ 1,586 $ 755 808
Premium Branded Spirits 71 89 35 55
Bottling Operations 812 730 414 363
Vinegar and Cooking Wine 234 565 117 284
Corporate Operations and Other 214 120 107 60
-------------- ------------- ------------- -----------
$ 2,792 $ 3,090 $ 1,428 1,570
============== ============= ============= ===========
Capital Expenditures
Bulk Alcohol Products $ 2,691 $ 1,565 $ 759 914
Premium Branded Spirits 59 203 50 19
Bottling Operations 343 607 203 341
Vinegar and Cooking Wine 78 356 61 170
Corporate Operations and Other 116 44 40 2
-------------- ------------- ------------- -----------
$ 3,287 $ 2,775 $ 1,113 1,446
============== ============= ============= ===========
Identifiable Assets
Bulk Alcohol Products $ 70,523 $ 67,423
Premium Branded Spirits 5,117 9,048
Bottling Operations 24,509 23,791
Vinegar and Cooking Wine 20,518 20,758
Corporate Operations and Other 12,136 10,715
-------------- -------------
$ 132,803 $ 131,735
============== =============
9
Sales and operating income for the six and three months ended March 31, 2002 and
2001 and identifiable assets as of March 31, 2002 and 2001, classified by
geographic area, were as follows:
U. S. Virgin
Islands and the
United States Bahamas Consolidated
-------------- ---------------- -------------
(in thousands)
SIX MONTHS ENDED
March 31, 2002:
Net sales $ 43,196 $ 6,768 $ 47,964
Operating income 3,710 1,174 4,884
Identifiable assets 90,853 41,950 132,803
March 31, 2001:
Net sales 42,116 5,621 47,737
Operating income 3,868 1,656 5,524
Identifiable assets 94,170 37,565 131,735
THREE MONTHS ENDED
March 31, 2002:
Net sales $ 20,658 $ 2,838 $ 23,496
Operating income 1,574 824 2,398
March 31, 2001:
Net sales 22,865 2,609 25,474
Operating income 1,944 809 2,753
Included in net sales for the United States are export sales, primarily to
Europe, Canada and the Caribbean, totaling approximately $5,111,000 and
$1,995,000 for the six and three months ended March 31, 2002, respectively, and
$3,111,000 and $1,660,000 for the six and three months ended March 31, 2001,
respectively.
Note 6. Comprehensive Income
Comprehensive income is the total of net income and other changes in equity.
Total comprehensive income for the six and three months ended March 31, 2002
and 2001 was as follows:
Six Months Ended Three Months Ended
March 31, March 31,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ---------- ---------- -------------
(in thousands) (in thousands)
Net income $ 3,215 $ 2,731 $ 1,725 $ 1,487
Other comprehensive income, interest rate cap
adjustment 63 85 12 51
----------- ---------- ---------- -------------
$ 3,278 $ 2,816 $ 1,737 $ 1,538
=========== ========== ========== =============
10
Note 7. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets." SFAS 142 supercedes APB Option No. 17, "Intangible Assets,"
and requires goodwill and other intangible assets that have an indefinite useful
life to no longer be amortized; however, these assets must be reviewed at least
annually for impairment. The Company adopted SFAS 142 effective October 1, 2001.
As required by SFAS 142, the Company has completed the transitional goodwill
impairment test and has concluded that there was no impairment to goodwill as of
October 1, 2001.
Six Months Ended Three Months Ended
March 31, March 31,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ---------- ---------- -------------
(in thousands) (in thousands)
Reported Net Income $ 3,216 $ 2,731 $ 1,725 $ 1,487
Add back: Goodwill amortization - 416 - 214
----------- ---------- ---------- -------------
Adjusted net income $ 3,216 $ 3,147 $ 1,725 $ 1,701
=========== ========== ========== =============
Basic Earnings Per Share:
Reported net income $ 0.58 $ 0.50 $ 0.31 $ 0.27
Goodwill amortization - 0.07 - 0.04
----------- ---------- ---------- -------------
Adjusted net income $ 0.58 $ 0.57 $ 0.31 $ 0.31
=========== ========== ========== =============
Diluted earnings per share:
Reported net income $ 0.58 $ 0.49 $ 0.31 $ 0.27
Goodwill amortization - 0.08 - 0.04
----------- ---------- ---------- -------------
Adjusted net income $ 0.58 $ 0.57 $ 0.31 $ 0.31
=========== ========== ========== =============
11
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 six
months ended March 31, 2002 compared to the six months ended March 31, 2001,
(ii) consolidated results of operations of the Company for the three months
ended March 31, 2002 compared to the three months ended March 31, 2001, 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 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,
corresponding to the Florida citrus harvest. As a result of these factors, the
Company's operating results may vary significantly from quarter to quarter.
12
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.
Six Months Ended Three Months Ended
March 31, March 31,
------------------- ------------------
2002 2001 2002 2001
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 69.4 67.6 69.6 69.5
------- ------- ------- -------
Gross margin 30.6 32.4 30.4 30.5
Selling, general and administrative expenses 20.4 20.8 20.2 19.7
------- ------- ------- -------
Operating income 10.2 11.6 10.2 10.8
Interest expense (3.0) (5.4) (2.7) (4.6)
Other income, net 1.6 1.3 1.9 1.4
------- ------- ------- -------
Income before income taxes 8.8 7.5 9.4 7.6
Income tax expense (2.1) (1.8) (2.1) (1.8)
------- ------- ------- -------
Net income 6.7% 5.7% 7.3% 5.8%
======= ======= ======= =======
The following table provides information on net sales of certain Company
products.
Six Months Ended Three Months Ended
March 31, March 31,
------------------------------------- -------------------------------------
2002 2001 % Change 2002 2001 % Change
----------- ----------- -------- ----------- ----------- --------
(in thousands) (in thousands)
Bulk Alcohol Products $ 17,692 $ 19,606 (9.8) $ 8,856 $ 10,222 (13.4)
Premium Branded Spirits 9,584 8,117 18.1 4,197 4,134 1.5
Bottling Operations 10,205 9,917 2.9 5,423 5,933 (8.6)
Vinegar and Cooking Wine 10,483 10,097 3.8 5,020 5,185 (3.2)
----------- ----------- ----------- -----------
$ 47,964 $ 47,737 0.5 $ 23,496 $ 25,474 (7.8)
=========== =========== =========== ===========
13
The following table provides unit sales volume data for certain Company
products.
Six Months Ended Three Months Ended
March 31, March 31,
--------------------------------------- -------------------------------------
2002 2001 % Change 2002 2001 % Change
---------- ---------- ---------- ------------ ---------- ---------
(in thousands) (in thousands)
Bulk alcohol products:
Distilled products, in proof gallons
Citrus Brandy 660 970 (32.0) 297 504 (41.2)
Citrus Spirits 274 256 7.2 118 113 4.9
Rum 1,973 2,195 (10.1) 1,126 1,053 7.0
Cane Spirits 339 254 33.8 139 95 47.4
Fortified citrus wine, in gallons 5,107 5,788 (11.8) 2,403 3,108 (22.7)
Premium branded spirits, in cases 181 165 9.8 92 80 14.7
Bottling operations, in cases 3,180 2,579 23.3 1,748 1,738 0.6
Vinegar
Bulk, in 100 grain gallons 2,818 2,580 9.2 1,466 1,439 1.7
Cases 358 344 4.2 189 187 1.5
Drums, in 100 grain gallons 775 385 101.4 397 239 65.8
Cooking Wine
Bulk, in gallons 2,077 1,392 49.2 1,010 696 45.0
Cases 378 417 (9.4) 170 201 (15.2)
SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001.
Unless otherwise noted, references to 2002 represent the six-month period ended
March 31, 2002 and references to 2001 represent the six-month period ended March
31, 2001.
NET SALES. Net sales were $48.0 million in 2002, an increase of 0.5% from
net sales of $47.7 million in 2001.
Net sales of bulk alcohol products were $17.7 million in 2002, a decrease
of 9.8% from net sales of $19.6 million in 2001. The decrease resulted from
decreased shipments of brandy, rum and fortified wine. The Company's brandy
business has declined due to increased competition, which management believes
may be temporary. The Company's fortified wine business has declined as a result
of a loss of its Canadian customers. The Company's Canadian customers have
replaced the Company's fortified wine products with cheaper, grain-based alcohol
products. The Company' s Canadian business amounted to approximately $3.0
million in the year ended September 30, 2001.
Net sales of premium branded spirits were $9.6 million in 2002, an increase
of 18.1% from net sales of $8.1 million in 2001. In 2002, net sales of premium
branded spirits included $1.9 million of bulk tequila sales. Excluding bulk
tequila sales, net sales of premium branded spirits were $7.6 million in 2002, a
decrease of 5.8% from net sales of $8.1 million in 2001. 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
22.4% and 42.9%, respectively, in 2002 compared to 2001. The strong sales
increases in Cruzan Rums and Cruzan Flavored Rums were offset by large decreases
in sales of Porfidio tequila and Antiqueno Aguardiente. Sales of Porfidio
tequila were $1.2 million in 2001. 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 Antiqueno Aguardiente were $1.1 million in 2001. As of November 2001, the
Company was out of stock of Antiqueno Aguardiente. In April 2002, the Company
entered into a settlement agreement with the producer of Antiqueno Aguardiente
and expects sales of Antiqueno Aguardiente to resume in May 2002. 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.
14
Net sales of the Company's bottling operations were $10.2 million in 2002,
an increase of 2.9% from net sales of $9.9 million in 2001. The unit volume of
the Company's bottling operations increased 23.3% in 2002 as a result of
increased business with an existing customer. However, management expects sales
to this customer to decline during 2002. The Company expects that the decline in
sales to this customer will be offset by business with a new customer and the
introduction of the Company's new ready-to-drink Cruzan premium malt beverages.
Net sales of vinegar and cooking wine were $10.5 million in 2002, an
increase of 3.8% from net sales of $10.1 million in 2001.
GROSS PROFIT. Gross profit was $14.7 million in 2002, a decrease of 5.0%
from gross profit of $15.5 million in 2001. Gross margin decreased to 30.6% in
2002 from 32.4% in 2001. The decrease in gross margin was primarily attributable
to a decrease in shipments of brandy, bulk rum and fortified wine.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $9.8 million in 2002, a decrease of 1.3% from $9.9
million in 2001. Selling, general and administrative expenses decreased
primarily as a result of decreased amortization expense.
OPERATING INCOME. The following table sets forth the operating income
(loss) by reportable segment of the Company for 2002 and 2001.
SIX MONTHS ENDED
MARCH 31,
----------------------------
2002 2001 % CHANGE
----------- ----------- ---------
(in thousands)
Bulk Alcohol Products $ 5,400 $ 7,017 (23.1)
Premium Branded Spirits (542) (825) -
Bottling Operations 1,008 60 1,569.1
Vinegar and Cooking Wine 2,103 1,831 14.9
Corporate Operations and Other (3,085) (2,559) -
----------- -----------
$ 4,884 $ 5,524 (11.6)
=========== ===========
As a result of the above factors, operating income was $4.9 million in
2002, a decrease of 11.6% from operating income of $5.5 million in 2001.
Included in operating loss of premium branded spirits for 2002 was profit of
$0.5 million related to bulk tequila sales. Excluding bulk tequila sales,
operating loss of premium branded spirits would have been $1.1 million in 2002
compared to $0.8 million in 2001.
INTEREST INCOME. The Company earns interest income on its cash, short-term
investments and notes receivable.
INTEREST EXPENSE. Interest expense was $1.4 million in 2002 and $2.6
million in 2001. The decrease in interest expense was due to a lower average
debt level and lower interest rates during 2002 as compared to 2001.
INCOME TAX EXPENSE. The Company's effective income tax rate was 24.1% in
both 2002 and 2001. The low tax rate was attributable to the Virgin Islands
subsidiary, which has a 90% exemption from U.S. Virgin Islands income taxes
through September 2020.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001.
Unless otherwise noted, references to 2002 represent the three-month period
ended March 31, 2002 and references to 2001 represent the three-month period
ended March 31, 2001.
NET SALES. Net sales were $23.5 million in 2002, a decrease of 7.8% from
net sales of $25.5 million in 2001.
Net sales of bulk alcohol products were $8.9 million in 2002, a decrease of
13.4% from net sales of $10.2 million in 2001. The decrease resulted primarily
from decreased shipments of brandy and fortified wine. The Company's brandy
business has declined due to increased competition, which management believes
may be
15
temporary. The Company's fortified wine business has declined as a result of
a loss of its Canadian customers. The Company's Canadian customers have
replaced the Company's fortified wine products with cheaper, grain-based
alcohol products. The Company's Canadian business amounted to approximately
$3.0 million in the year ended September 30, 2001.
Net sales of premium branded spirits were $4.2 million in 2002, an increase
of 1.5% from net sales of $4.1 million in 2001. Sales of the Company's Cruzan
Rums and Cruzan Flavored Rums increased 35.3% and 39.4%, respectively, in 2002
compared to 2001. The strong sales increases in Cruzan Rums and Cruzan Flavored
Rums were offset by large decreases in sales of Porfidio tequila and Antiqueno
Aguardiente. Sales of Porfidio tequila were $.7 million in 2001. 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 Antiqueno Aguardiente were $.5 million in
2001. As of November 2001, the Company was out of stock of Antiqueno
Aguardiente. In April 2002, the Company entered into a settlement agreement with
the producer of Antiqueno Aguardiente and expects sales of Antiqueno Aguardiente
to resume in May 2002. 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.
Net sales of the Company's bottling operations were $5.4 million in 2002, a
decrease of 8.6% from net sales of $5.9 million in 2001. Sales declined as a
result of reduced prices. The unit volume of the Company's bottling operations
increased .6% in 2002.
Net sales of vinegar and cooking wine were $5.0 million in 2002, a decrease
of 3.2% from net sales of $5.2 million in 2001. Management believes that the
decrease in net sales is due to the timing of customer orders.
GROSS PROFIT. Gross profit was $7.1 million in 2002, a decrease of 8.2%
from gross profit of $7.8 million in 2001. Gross margin decreased to 30.4% in
2002 from 30.5% in 2001. The decrease in gross margin was primarily attributable
to a decrease in shipments of brandy and fortified wine.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.7 million in 2002, a decrease of 5.6% from $5.0
million in 2001. Selling, general and administrative expenses decreased
primarily as a result of decreased amortization expense.
OPERATING INCOME. The following table sets forth the operating income
(loss) by reportable segment of the Company for 2002 and 2001.
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2002 2001 % CHANGE
----------- ----------- -----------
(in thousands)
Bulk Alcohol Products $ 2,511 $ 3,628 (30.8)
Premium Branded Spirits (371) (313) -
Bottling Operations 826 (151) -
Vinegar and Cooking Wine 956 952 0.5
Corporate Operations and Other (1,524) (1,363) -
----------- -----------
$ 2,398 $ 2,753 (12.9)
=========== ===========
As a result of the above factors, operating income was $2.4 million in
2002, a decrease of 12.9% from operating income of $2.8 million in 2001.
INTEREST INCOME. The Company earns interest income on its cash, short-term
investments and notes receivable.
INTEREST EXPENSE. Interest expense was $0.6 million in 2002 and $1.2
million in 2001. The decrease in interest expense was due to a lower average
debt level and lower interest rates during 2002 as compared to 2001.
16
INCOME TAX EXPENSE. The Company's effective income tax rate was 21.9% in
2002 and 23.3% in 2001. The low tax rate was attributable to the Virgin Islands
subsidiary, which has a 90% exemption from U.S. Virgin Islands income taxes
through September 2020.
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 2002 was $10.9 million, which
resulted from $5.8 million in net income adjusted for noncash items, and $5.1
million representing the net change in operating assets and liabilities.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 2002 was $6.8 million, which
resulted primarily from $3.3 million of capital expenditures and a net increase
of $3.2 million in short-term investments.
Net cash used in financing activities in 2002 was $5.2 million, which
resulted from payments of $2.2 million under the revolving credit facility, $2.1
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 $16.8 million at March 31, 2002
(see Note 3 to the Consolidated Financial Statements).
The Company's bank debt was $54.8 million as of March 31, 2002, 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.
17
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on March 21,
2002, in West Palm Beach, Florida, for the purpose of electing three Class I
directors to hold office for a term of three years.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and there was no solicitation in
opposition to management's solicitations.
ELECTION OF DIRECTORS
All of management's nominees for election as directors as listed in the
proxy statement were elected. The results of the election were as follows:
Abstentions And
Name For Withheld Broker Non-Votes
---- --- -------- ----------------
Godfrey D. Bain 4,762,116 26,850 0
Donald L. Kasun 4,765,316 23,650 0
Thomas A. Valdes 4,765,316 23,650 0
Following the annual meeting, A. Kenneth Pincourt, Jr., Leonard G. Rogers and
K. Ian McLachlan will continue to serve as Class II directors until the 2003
annual meeting and Jay S. Maltby, Edward F. McDonnell and D. Chris Mitchell will
continue to serve as Class III directors until the 2004 annual meeting.
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
18
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 SouthTrust Bank (7)
11.1 Statement of Computation of Per Share Earnings (8)
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, 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 March 31, 2002.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the first quarter ended March 31,
2002.
19
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: May 13, 2002 /s/ A. Kenneth Pincourt, Jr.
----------------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: May 13, 2002 /s/ Troy Edwards
----------------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
20