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, 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 August 9, 2002 was 5,549,234.
TODHUNTER INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
June 30, 2002 and September 30, 2001 1
Consolidated Statements of Income -
Nine and Three Months Ended June 30, 2002 and 2001 3
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 5
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 17
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 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
June 30, September 30,
2002 2001
---------------- ----------------
(Unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,788,876 $ 5,624,029
Short-term investments 11,452,515 8,533,851
Trade receivables 16,358,173 14,719,578
Other receivables 1,501,059 3,058,471
Inventories 28,192,940 27,483,329
Notes receivable, current maturities 75,195 72,973
Deferred income taxes 1,528,250 1,544,000
Other current assets 3,136,061 2,348,135
---------------- ----------------
Total current assets 65,033,069 63,384,366
---------------- ----------------
LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments in and advances to equity investees 1,865,138 1,729,103
Notes receivable from affiliate 3,833,851 3,560,923
Notes receivable, less current maturities 607,387 663,785
---------------- ----------------
6,306,376 5,953,811
---------------- ----------------
PROPERTY AND EQUIPMENT 88,612,783 85,198,203
Less accumulated depreciation 46,259,801 43,729,941
---------------- ----------------
42,352,982 41,468,262
---------------- ----------------
GOODWILL, less accumulated amortization 20,524,404 20,524,404
OTHER ASSETS 2,951,904 2,257,321
---------------- ----------------
$ 137,168,735 $ 133,588,164
================ ================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 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 4,821,125 5,169,242
Accrued expenses 2,010,940 2,325,704
---------------- ------------------
Total current liabilities 10,832,065 11,494,946
LONG-TERM DEBT, less current maturities 54,460,302 55,684,549
DEFERRED INCOME TAXES 4,069,750 3,874,000
OTHER LIABILITIES 1,339,450 1,314,036
---------------- ------------------
70,701,567 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 5,648,434 shares
as of June 30, 2002 and 5,612,934 shares as of
September 30, 2001 56,484 56,129
Additional paid-in capital 18,538,659 18,326,014
Accumulated other comprehensive loss - (63,000)
Retained earnings 48,609,805 43,639,270
---------------- ------------------
67,204,948 61,958,413
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
---------------- ------------------
66,467,168 61,220,633
---------------- ------------------
$ 137,168,735 $ 133,588,164
================ ==================
*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,
------------------------------ -------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Sales $ 97,693,371 $ 96,612,444 $ 34,377,199 $ 34,298,350
Less excise taxes 22,920,434 22,782,127 7,568,177 8,205,507
------------- ------------- ------------- -------------
Net sales 74,772,937 73,830,317 26,809,022 26,092,843
Cost of goods sold 51,430,780 49,434,703 18,164,855 17,165,426
------------- ------------- ------------- -------------
Gross profit 23,342,157 24,395,614 8,644,167 8,927,417
Selling, general and administrative expenses 15,592,695 15,235,239 5,778,418 5,290,981
------------- ------------- ------------- -------------
Operating income 7,749,462 9,160,375 2,865,749 3,636,436
------------- ------------- ------------- -------------
Other income (expense):
Interest income 480,619 690,691 107,986 234,429
Interest expense (2,070,276) (3,821,304) (649,550) (1,262,607)
Equity in income (losses) of equity
investees 136,035 57,770 (21,378) (2,126)
Other, net 327,212 112,476 81,406 (5,256)
------------- ------------- ------------- -------------
(1,126,410) (2,960,367) (481,536) (1,035,560)
------------- ------------- ------------- -------------
Income before income taxes 6,623,052 6,200,008 2,384,213 2,600,876
------------- ------------- ------------- -------------
Income tax expense (benefit):
Current 1,441,017 2,058,564 444,267 841,030
Deferred 211,500 (507,750) 185,000 (158,750)
------------- ------------- ------------- -------------
1,652,517 1,550,814 629,267 682,280
------------- ------------- ------------- -------------
Net Income $ 4,970,535 $ 4,649,194 $ 1,754,946 $ 1,918,596
============= ============= ============= =============
Earnings per common share:
Basic $ 0.90 $ 0.84 $ 0.32 $ 0.35
============= ============= ============= =============
Diluted $ 0.88 $ 0.84 $ 0.31 $ 0.35
============= ============= ============= =============
Common shares and equivalents outstanding:
Basic 5,518,675 5,513,734 5,528,558 5,513,734
============= ============= ============= =============
Diluted 5,631,189 5,526,049 5,661,247 5,537,476
============= ============= ============= =============
See Notes to Consolidated Financial Statements.
3
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
----------------------------------------
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,970,535 $ 4,649,194
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,902,721 3,531,444
Amortization 292,650 1,143,206
(Gain) loss on sale of property and equipment (30,373) 30,775
Equity in income of equity investees (136,035) (57,770)
Deferred income taxes 211,500 (507,750)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables (81,183) (851,734)
Inventories (709,611) (5,976,203)
Other current assets (787,925) 1,197,266
Increase (decrease) in:
Accounts payable (348,117) 1,654,636
Accrued expenses (314,764) 488,736
Other liabilities 25,414 86,669
--------------- ---------------
Net cash provided by operating activities 6,994,811 5,388,469
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 58,598 (4,470)
Principal payments received on notes receivable 68,045 3,463,937
Purchase of property and equipment (4,815,666) (4,821,175)
Disbursements for notes receivable (286,797) (9,300)
Net purchase of short-term investments (2,918,664) (2,805,973)
Investments in subsidiaries - (150,000)
Increase in other assets (34,400) (233,556)
--------------- ---------------
Net cash used in investing activities $ (7,928,884) $ (4,560,537)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit $ 1,900,000 $ 6,420,000
Issuance of common stock 213,000 -
Disbursements for loan costs (889,833) (152,500)
Principal payments on long-term borrowings (3,124,247) (6,079,290)
--------------- ---------------
Net cash provided by (used in) financing activities (1,901,080) 188,210
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (2,835,153) 1,016,142
Cash and cash equivalents:
Beginning 5,624,029 3,245,866
--------------- ---------------
Ending $ 2,788,876 $ 4,262,008
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 2,059,474 $ 3,864,712
=============== ===============
Income taxes $ 1,271,488 $ 1,671,292
=============== ===============
See Notes to Consolidated Financial Statements.
4
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:
June 30, 2002 September 30, 2001
------------------ -------------------
(Unaudited)
Finished goods $ 16,016,856 $ 16,879,276
Work in process 2,066,665 598,648
Raw materials and supplies 10,109,419 10,005,405
------------------ -------------------
$ 28,192,940 $ 27,483,329
================== ===================
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 3. Financing Arrangements
Long-term debt consists of the following as of June 30, 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 June 30, 2002 was 4.59%. Quarterly principal installments of
$1,000,000 through September 30, 2006 with any remaining balance due
September 30, 2006. $ 37,000,000
Revolving 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, 2002 was 3.59% to 5.25%. The revolving lines of credit
terminate in October 2004. 20,900,000
Other 560,302
----------------
58,460,302
Less current maturities 4,000,000
-----------------
$ 54,460,302
================
(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. Under the
agreement, the Company is restricted from paying dividends to stockholders
and is subject to a number of financial covenants, including requirements
to maintain unencumbered cash or marketable securities of $4 million at the
end of each fiscal quarter and to maintain minimum fixed charge and
interest coverage ratios.
(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.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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.
Nine Months Ended Three Months Ended
June 30, June 30,
------------------------------ ---------------------------
2002 2001 2002 2001
------------ ------------- ------------ ------------
Net income $ 4,970,535 $ 4,649,194 $ 1,754,946 $ 1,918,596
============ ============= ============ ============
Determination of shares:
Weighted average number of
common shares outstanding 5,513,734 5,513,734 5,528,558 5,513,734
Shares issuable on exercise
of stock options, net of shares assumed
to be purchased out of proceeds 117,455 12,315 132,689 23,742
------------ ------------- ------------ ------------
Average common shares outstanding for
diluted earnings per share computation 5,631,189 5,526,049 5,661,247 5,537,476
============ ============= ============ ============
Earnings per common share:
Basic $ 0.90 $ 0.84 $ 0.32 $ 0.35
============ ============= ============ ============
Diluted $ 0.88 $ 0.84 $ 0.31 $ 0.35
============ ============= ============ ============
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 $0.12 and $0.04 for the nine and three months
ended June 30, 2002, respectively, and $0.15 and $0.06 for the nine and three
months ended June 30, 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 these 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.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Net sales, operating income (loss), depreciation and amortization, and
capital expenditures for the Company's reportable segments for the nine and
three months ended June 30, 2002 and 2001, and identifiable assets as of June
30, 2002 and 2001, were as follows:
Nine Months Ended Three Months Ended
June 30, June 30,
------------------------------- ----------------------------
2002 2001 2002 2001
------------------------------- ----------------------------
(in thousands) (in thousands)
Net Sales
Bulk Alcohol Products $ 26,911 $ 30,292 $ 9,219 $ 10,686
Premium Branded Spirits 17,162 12,763 7,578 4,646
Bottling Operations 14,923 15,432 4,718 5,515
Vinegar and Cooking Wine 15,777 15,343 5,294 5,246
-------------- ------------- ------------- -----------
$ 74,773 $ 73,830 $ 26,809 26,093
============== ============= ============= ===========
Operating Income (Loss)
Bulk Alcohol Products $ 8,235 $ 10,635 $ 2,835 3,618
Premium Branded Spirits (230) (930) 312 (105)
Bottling Operations 973 436 (35) 376
Vinegar and Cooking Wine 3,306 3,101 1,203 1,270
Corporate Operations and Other (4,535) (4,082) (1,450) (1,523)
-------------- ------------- ------------- -----------
$ 7,749 $ 9,160 $ 2,865 $ 3,636
============== ============= ============= ===========
Depreciation and Amortization
Bulk Alcohol Products $ 2,226 $ 2,409 $ 765 $ 823
Premium Branded Spirits 104 135 33 46
Bottling Operations 1,193 1,096 381 366
Vinegar and Cooking Wine 352 851 118 286
Corporate Operations and Other 320 184 106 64
-------------- ------------- ------------- -----------
$ 4,195 $ 4,675 $ 1,403 $ 1,585
============== ============= ============= ===========
Capital Expenditures
Bulk Alcohol Products $ 3,757 $ 2,215 $ 1,066 $ 650
Premium Branded Spirits 63 203 4 -
Bottling Operations 687 1,865 344 1,258
Vinegar and Cooking Wine 193 488 115 132
Corporate Operations and Other 116 50 - 6
-------------- ------------- ------------- -----------
$ 4,816 $ 4,821 $ 1,529 $ 2,046
============== ============= ============= ===========
June 30,
--------------------------------
2002 2001
--------------------------------
(in thousands)
Identifiable Assets
Bulk Alcohol Products $ 71,355 $ 68,741
Premium Branded Spirits 8,153 9,262
Bottling Operations 25,447 24,631
Vinegar and Cooking Wine 20,167 21,096
Corporate Operations and Other 12,047 9,992
-------------- -------------
$ 137,169 $ 133,722
============== =============
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Sales and operating income for the nine and three months ended June 30,
2002 and 2001 and identifiable assets as of June 30, 2002 and 2001, classified
by geographic area, were as follows:
U.S. Virgin
Islands and the
United States Bahamas Consolidated
--------------- ----------------- --------------
(in thousands)
NINE MONTHS ENDED
June 30, 2002:
Net sales $ 67,019 $ 7,754 $ 74,773
Operating income 5,752 1,997 7,749
Identifiable assets 95,563 41,606 137,169
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
THREE MONTHS ENDED
June 30, 2002:
Net sales $ 23,823 $ 2,986 $ 26,809
Operating income 2,042 823 2,865
June 30, 2001:
Net sales 22,788 3,305 26,093
Operating income 2,476 1,160 3,636
Included in net sales for the United States are export sales, primarily to
Europe, Canada and the Caribbean, totaling approximately $7,948,000 and
$2,837,000 for the nine and three months ended June 30, 2002, respectively, and
$4,791,000 and $1,680,000 for the nine and three months ended June 30, 2001,
respectively.
Note 6. Comprehensive Income
Comprehensive income is the total of net income and other changes in
equity. Total comprehensive income for the nine and three months ended June 30,
2002 and 2001 was as follows:
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ---------- ---------- -------------
(in thousands) (in thousands)
Net income $ 4,970 $ 4,649 $ 1,755 $ 1,918
Other comprehensive income, interest rate cap
adjustment 63 136 - 51
----------- ---------- ---------- -------------
$ 5,033 $ 4,785 $ 1,755 $ 1,969
=========== ========== ========== =============
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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 Opinion No. 17, "Intangible Assets,"
and requires goodwill and other intangible assets that have an indefinite useful
life to no longer be amortized; instead, SFAS 142 requires that these assets be
reviewed for impairment at least annually. 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. The following table presents the
adjusted net income and earnings per share of the Company, adding back the
goodwill amortization net of income taxes, for the nine and three months ended
June 30, 2001, as if the Company had adopted SFAS 142 as of October 1, 2000.
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- ---------------------------
2002 2001 2002 2001
----------- ---------- ---------- -------------
(in thousands) (in thousands)
Reported Net Income $ 4,970 $ 4,649 $ 1,755 $ 1,918
Add back: Goodwill amortization, net - 642 - 226
----------- ---------- ---------- -------------
Adjusted net income $ 4,970 $ 5,291 $ 1,755 $ 2,144
=========== ========== ========== =============
Basic Earning Per Share:
Reported net income $ 0.90 $ 0.84 $ 0.32 $ 0.35
Goodwill amortization - 0.12 - 0.04
----------- ---------- ---------- -------------
Adjusted net income $ 0.90 $ 0.96 $ 0.32 $ 0.39
=========== ========== ========== =============
Diluted earnings per share:
Reported net income $ 0.88 $ 0.84 $ 0.31 $ 0.35
Goodwill amortization - 0.12 - 0.04
----------- ---------- ---------- -------------
Adjusted net income $ 0.88 $ 0.96 $ 0.31 $ 0.39
=========== ========== ========== =============
Note 8. Legal Proceedings
As previously reported (see Item 3, "Legal Proceedings," in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2001), the
Bureau of Alcohol, Tobacco and Firearms of the United States Department of the
Treasury (the "BATF") had advised the Company that it was conducting an
investigation of shipments made by various U.S. alcohol producers to certain
countries formerly included in the Soviet Union. The BATF had indicated that it
believed that certain of the Company's export shipments may not have conformed
to the specifications required by the BATF, and that this nonconformity may
have violated U.S. law.
In June 2002, the Company entered into agreements with the BATF providing
for the following: (a) the Company agreed to pay a total of $400,000 in taxes
and forfeitures, which was paid in June 2002; (b) the Company agreed to a
four-day suspension (which was served in July 2002) of the Company's federal
basic permit at its Florida facilities; and (c) the BATF has indicated that it
will not seek any further actions against or penalties from the Company with
respect to the shipments in question.
Management believes that the suspension and penalty have not had and will
not have a material adverse effect on the Company's financial condition or
results of operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This 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 or future events.
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, 2002 compared to the nine months ended June 30, 2001, (ii)
consolidated results of operations of the Company for the three months ended
June 30, 2002 compared to the three months ended June 30, 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 and in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2001. 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 in this
Report.
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. The size and timing of these 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
11
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.
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------------- ---------------------------
2002 2001 2002 2001
----------- ---------- -------- ---------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 68.8 67.0 67.8 65.8
----------- ---------- -------- ---------
Gross margin 31.2 33.0 32.2 34.2
Selling, general and
administrative expenses 20.9 20.6 21.6 20.3
----------- ---------- -------- ---------
Operating income 10.3 12.4 10.6 13.9
Interest expense (2.8) (5.2) (2.4) (4.8)
Other income, net 1.3 1.2 0.6 0.9
----------- ---------- -------- ---------
Income before income taxes 8.8 8.4 8.8 10.0
Income tax expense (2.2) (2.1) (2.3) (2.6)
----------- ---------- -------- ---------
Net income 6.6% 6.3% 6.5% 7.4%
=========== ========== ======== =========
The following table provides information on net sales of certain Company
products.
Nine Months Ended Three Months Ended
June 30, June 30,
------------------------------------- -------------------------------------
2002 2001 % Change 2002 2001 % Change
----------- ----------- ---------- ----------- ----------- --------
(in thousands) (in thousands)
Bulk Alcohol Products $ 26,911 $ 30,292 (11.2) $ 9,219 $ 10,686 (13.7)
Premium Branded Spirits 17,162 12,763 34.5 7,578 4,646 63.1
Bottling Operations 14,923 15,432 (3.3) 4,718 5,515 (14.4)
Vinegar and Cooking Wine 15,777 15,343 2.8 5,294 5,246 0.9
----------- ----------- ----------- -----------
$ 74,773 $ 73,830 1.3 $ 26,809 $ 26,093 2.7
=========== =========== =========== ===========
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,
--------------------------------------- -------------------------------------
2002 2001 % Change 2002 2001 % Change
---------- ---------- ---------- ------------ ---------- ---------
(in thousands) (in thousands)
Bulk alcohol products:
Distilled products, in proof gallons
Citrus Brandy 928 1,227 (24.4) 268 257 (4.2)
Citrus Spirits 430 484 (11.2) 156 228 (32.0)
Rum 3,238 3,397 (4.7) 1,265 1,202 5.2
Cane Spirits 485 420 15.6 146 166 (12.2)
Fortified citrus wine, in gallons 7,613 8,978 (15.2) 2,506 3,190 (21.4)
Premium branded spirits, in cases 414 260 59.0 233 95 144.3
Bottling operations, in cases 4,540 4,470 1.6 1,360 1,891 (28.0)
Vinegar
Bulk, in 100 grain gallons 4,112 3,978 3.4 1,294 1,398 (7.3)
Cases 518 509 1.9 160 165 (2.7)
Drums, in 100 grain gallons 1,302 816 59.5 527 431 22.1
Cooking Wine
Bulk, in gallons 3,350 2,088 60.4 1,273 696 82.9
Cases 519 588 (11.7) 141 171 (17.2)
NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO NINE MONTHS ENDED JUNE 30,
2001. Unless otherwise noted, references to 2002 represent the nine-month period
ended June 30, 2002 and references to 2001 represent the nine-month period ended
June 30, 2001.
NET SALES. Net sales were $74.8 million in 2002, an increase of 1.3% from
net sales of $73.8 million in 2001.
Net sales of bulk alcohol products were $26.9 million in 2002, a decrease
of 11.2% from net sales of $30.3 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 also declined as a
result of increased competition.
Net sales of premium branded spirits were $17.2 million in 2002, an
increase of 34.5% from net sales of $12.8 million in 2001. In 2002, net sales
of premium branded spirits included $1.9 million of bulk tequila sales and
$1.2 million of new Cruzan ready-to-drink products. Bulk tequila sales
represent the liquidation of inventory that was held to produce Porfidio
tequila. During the third quarter of 2002, the Company introduced a new line
of Cruzan products in the ready-to-drink category, sales of which are
included in the Company's premium branded spirits segment. The Company sold
approximately 100,000 cases of the new product, representing net sales of
$1.2 million through June 30, 2002. There can be no assurance that sales of
the new Cruzan ready-to-drink products will continue at this level in the
future. In addition, due to more competition within the ready-to-drink
product category, the gross margin on the new Cruzan ready-to-drink products
is lower than other premium branded spirits in this segment. Excluding bulk
tequila and Cruzan ready-to-drink product sales, net sales of premium branded
spirits were $14.1 million in 2002, an increase of 10.1% from net sales of
$12.8 million in 2001.
Sales of the Company's Cruzan Rums and Cruzan Flavored Rums increased 19.8%
and 51.8%, 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 $1.4
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
13
RESULTS OF OPERATIONS (CONTINUED)
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 $1.5 million in 2001. As of
November 2001, the Company was out of stock of Antiqueno Aguardiente. The
Company entered into a settlement agreement with the producer of Antiqueno
Aguardiente in April 2002. Pursuant to the settlement agreement, the Company has
been reappointed exclusive U.S. importer of Antiqueno Aguardiente for a
four-year period. The Company resumed sales of Antiqueno Aguardiente in June
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 $14.9 million in 2002,
a decrease of 3.3% from net sales of $15.4 million in 2001. The unit volume of
the Company's bottling operations increased 1.6% in 2002. Management expects
bottling operations to decline slightly during 2002.
Net sales of vinegar and cooking wine were $15.8 million in 2002, an
increase of 2.8% from net sales of $15.3 million in 2001.
GROSS PROFIT. Gross profit was $23.3 million in 2002, a decrease of 4.3%
from gross profit of $24.4 million in 2001. Gross margin decreased to 31.2% in
2002 from 33.0% 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 $15.6 million in 2002, an increase of 2.3% from
$15.2 million in 2001. Effective October 1, 2001, the Company adopted SFAS 142,
which requires that goodwill and certain other intangible assets no longer be
amortized. There was no goodwill amortization in 2002 compared to $1.0 million
in 2001. Excluding goodwill amortization in 2001, selling, general and
administrative expenses were $15.6 million in 2002, an increase of 9.6% from
$14.2 million in 2001. Selling, general and administrative expenses increased
primarily as a result of increased selling and marketing expenses related to the
Company's premium branded spirits business and increased corporate overhead.
OPERATING INCOME. The following table sets forth the operating income
(loss) by reportable segment of the Company for 2002 and 2001.
NINE MONTHS ENDED
JUNE 30,
----------------------------
2002 2001 % CHANGE
----------- ----------- ---------
(in thousands)
Bulk Alcohol Products $ 8,235 $ 10,635 (22.6)
Premium Branded Spirits (230) (930) -
Bottling Operations 973 436 123.0
Vinegar and Cooking Wine 3,306 3,101 6.6
Corporate Operations and Other (4,535) (4,082) -
----------- -----------
$ 7,749 $ 9,160 (15.4)
=========== ===========
As a result of the above factors, operating income was $7.7 million in
2002, a decrease of 15.4% from operating income of $9.2 million in 2001.
Included in the operating loss of premium branded spirits for 2002 was profit of
$0.5 million related to bulk tequila sales. Excluding bulk tequila sales, the
operating loss of premium branded spirits would have been $0.7 million in 2002
compared to $0.9 million in 2001.
INTEREST EXPENSE. Interest expense was $2.1 million in 2002 and $3.8
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 25.0% in
both 2002 and 2001. The low tax rate was attributable to a 90% exemption of the
Company's U.S. Virgin Islands subsidiary from U.S. Virgin Islands income taxes.
This exemption is effective through September 2020.
14
RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30,
2001. Unless otherwise noted, references to 2002 represent the three-month
period ended June 30, 2002 and references to 2001 represent the three-month
period ended June 30, 2001.
NET SALES. Net sales were $26.8 million in 2002, an increase of 2.7% from
net sales of $26.1 million in 2001.
Net sales of bulk alcohol products were $9.2 million in 2002, a decrease of
13.7% from net sales of $10.7 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 temporary; the Company's fortified wine business has also declined as a
result of increased competition.
Net sales of premium branded spirits were $7.6 million in 2002, an
increase of 63.1% from net sales of $4.6 million in 2001. During 2002, the
Company introduced a new line of Cruzan products in the ready-to-drink
category, sales of which are included in the Company's premium branded
spirits segment. The Company sold approximately 100,000 cases of the new
product, representing net sales of $1.2 million in 2002. There can be no
assurance that sales of the new Cruzan ready-to-drink products will continue
at this level in the future. In addition, due to more competition within the
ready-to-drink product category, the gross margin on the new Cruzan
ready-to-drink products is lower than other premium branded spirits in this
segment. Excluding Cruzan ready-to-drink product sales, net sales of premium
branded spirits were $6.4 million in 2002, an increase of 38.0% from net
sales of $4.6 million in 2001.
Sales of the Company's Cruzan Rums and Cruzan Flavored Rums increased 15.6%
and 63.1%, respectively, in 2002 compared to 2001. The Company entered into a
settlement agreement with the producer of Antiqueno Aguardiente in April 2002,
and shipments resumed in June 2002. Pursuant to the settlement agreement, the
Company has been reappointed exclusive U.S. importer of Antiqueno Aguardiente
for a four-year period. The sales increases in Antiqueno Aguardiente, Cruzan
Rums and Cruzan Flavored Rums were offset by a decrease in sales of Porfidio
tequila. Sales of Porfidio tequila were $0.2 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. Management believes that the decrease in
sales of Porfidio tequila has not had, and is 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 $4.7 million in 2002, a
decrease of 14.4% from net sales of $5.5 million in 2001. The unit volume of the
Company's bottling operations decreased 28.0% in 2002. Due to increased
competition in the ready-to-drink category, certain of the Company's customers
have reduced orders for contract bottling. At this time, management is not sure
whether this sales decline is temporary.
Net sales of vinegar and cooking wine were $5.3 million in 2002, an
increase of 0.9% from net sales of $5.2 million in 2001.
GROSS PROFIT. Gross profit was $8.6 million in 2002, a decrease of 3.2%
from gross profit of $8.9 million in 2001. Gross margin decreased to 32.2% in
2002 from 34.2% in 2001. The decrease in gross margin was primarily attributable
to a decrease in shipments of brandy and fortified wine and an increase in sales
of the Company's Cruzan ready-to-drink products, that have a lower gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $5.8 million in 2002, an increase of 9.2% from $5.3
million in 2001. Effective October 1, 2001, the Company adopted SFAS 142, which
requires that goodwill and certain other intangible assets no longer be
amortized. There was no goodwill amortization in 2002 compared to $0.3 million
of amortization in 2001. Excluding amortization in 2001, selling, general and
administrative expenses were $5.8 million in 2002, an increase of 16.6% from
$5.0 million in
15
RESULTS OF OPERATIONS (CONTINUED)
2001. Selling, general and administrative expenses increased primarily as a
result of increased selling and marketing expenses related to the Company's
premium branded spirits business and increased corporate overhead.
OPERATING INCOME. The following table sets forth the operating income
(loss) by reportable segment of the Company for 2002 and 2001.
THREE MONTHS ENDED
JUNE 30,
-----------------------------
2002 2001 % CHANGE
----------- ----------- ---------
(in thousands)
Bulk Alcohol Products $ 2,835 $ 3,618 (21.6)
Premium Branded Spirits 312 (105) -
Bottling Operations (35) 376 -
Vinegar and Cooking Wine 1,203 1,270 (5.3)
Corporate Operations and Other (1,450) (1,523) -
----------- -----------
$ 2,865 $ 3,636 (21.2)
=========== ===========
As a result of the above factors, operating income was $2.9 million in
2002, a decrease of 21.2% from operating income of $3.6 million in 2001.
INTEREST EXPENSE. Interest expense was $0.6 million in 2002 and $1.3
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 26.4% in
2002 and 26.2% in 2001. The low tax rate was attributable to a 90% exemption of
the Company's U.S. Virgin Islands subsidiary from U.S. Virgin Islands income
taxes. This exemption is effective 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 liquidity has historically been
generated by cash flow from operations and borrowings under its line of credit.
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. Some of the Company's manufacturing operations
are seasonal, and the Company's borrowings under its line of credit vary during
the year.
OPERATING ACTIVITIES
Net cash provided by operating activities in 2002 was $7.0 million, which
resulted from $9.2 million in net income adjusted for noncash items, and a $2.2
million use of cash representing the net change in operating assets and
liabilities.
16
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 2002 was $7.9 million, which
resulted primarily from $4.8 million of capital expenditures and a net increase
of $3.0 million in short-term investments.
Net cash used in financing activities in 2002 was $1.9 million, which
resulted from borrowings of $1.9 million under the revolving credit facility
offset by payments of $3.1 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 $20.9 million at June 30, 2002
(see Note 3 to the consolidated financial statements in this Report).
At June 30, 2002, the Company's bank debt was $57.9 million, and its ratio
of total debt to equity was 1.1 to 1.
The Company's shares 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.
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 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 1. LEGAL PROCEEDINGS
As previously reported (see Item 3, "Legal Proceedings," in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2001), the
Bureau of Alcohol, Tobacco and Firearms of the United States Department of the
Treasury (the "BATF") had advised the Company that it was conducting an
investigation of shipments made by various U.S. alcohol producers to certain
countries formerly included in the Soviet Union. The BATF had indicated that it
believed that certain of the Company's export shipments may not have conformed
to the specifications required by the BATF, and that this nonconformity may
have violated U.S. law.
In June 2002, the Company entered into agreements with the BATF providing
for the following: (1) the Company agreed to pay a total of $400,000 in taxes
and forfeitures, which was paid in June 2002; (2) the Company agreed to a
four-day suspension (which was served in July 2002) of the Company's federal
basic permit at its Florida facilities; and (3) the BATF has indicated that it
will not seek any further actions against or penalties from the Company with
respect to the shipments in question.
Management believes that the suspension and penalty have not had and will
not have a material adverse effect on the Company's financial condition or
results of operations.
17
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
SouthTrust Bank (7)
11.1 Statement of Computation of Per Share Earnings (8)
21.1 Subsidiaries of Todhunter International, Inc. (2)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9)
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9)
(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 June 30,
2002.
(9) Filed herewith.
18
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the third quarter ended June 30,
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: August 9, 2002 /s/ A. Kenneth Pincourt, Jr.
--------------------------------------------------
A. Kenneth Pincourt, Jr.
Chairman and Chief Executive Officer
Date: August 9, 2002 /s/ Troy Edwards
--------------------------------------------------
Troy Edwards
Chief Financial Officer, Treasurer and Controller
20