SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 2000
Commission File No. 1-13453
TODHUNTER INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1284057
--------------------------------------------------------------------------------
(State or other jurisdiction of IRS Employer Identification No.
incorporation or organization)
222 LAKEVIEW AVENUE, SUITE 1500, WEST PALM BEACH, FL 33401
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 655-8977
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
-----
The number of shares outstanding of registrant's Common Stock, $.01 par value
per share, as of February 9, 2001 was 5,513,734.
TODHUNTER INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
December 31, 2000 and September 30, 2000 1
Consolidated Statements of Income -
Three Months Ended December 31, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings *
Item 2 Changes in Securities and Use of Proceeds *
Item 3 Defaults Upon Senior Securities *
Item 4 Submission of Matters to a Vote of Security Holders *
Item 5 Other Information *
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 18
* Item is omitted because answer is negative or item is inapplicable.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2000 2000
-------------------- ------------------
(Unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,014,338 $ 3,245,866
Short-term investments 6,374,311 4,843,348
Trade receivables 12,512,325 15,296,445
Other receivables 1,922,362 2,932,531
Inventories 24,421,276 23,529,578
Notes receivable, current maturities 1,134,716 1,378,380
Deferred income taxes 1,190,000 1,131,000
Other current assets 2,464,378 3,082,184
-------------------- ------------------
Total current assets 52,033,706 55,439,332
-------------------- ------------------
Investments in and advances to equity investees 1,079,545 1,067,805
-------------------- ------------------
Note receivable from affiliate, less current maturities 3,439,605 3,447,928
-------------------- ------------------
Notes receivable, less current maturities 2,853,918 2,973,984
-------------------- ------------------
PROPERTY AND EQUIPMENT 80,204,157 78,957,060
Less accumulated depreciation 40,356,575 39,268,253
-------------------- ------------------
39,847,582 39,688,807
-------------------- ------------------
GOODWILL, less accumulated amortization 21,745,902 21,819,734
-------------------- ------------------
OTHER ASSETS 2,065,187 2,110,858
-------------------- ------------------
$ 123,065,445 $ 126,548,448
==================== ==================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2000 2000
-------------------- --------------------
(Unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 8,000,000 $ 8,000,000
Accounts payable 4,012,875 5,076,380
Accrued interest expense 109,987 107,035
Other accrued expenses 1,382,107 1,884,392
-------------------- --------------------
Total current liabilities 13,504,969 15,067,807
LONG-TERM DEBT, less current maturities 48,272,296 51,334,224
DEFERRED INCOME TAXES 4,050,500 4,122,000
OTHER LIABILITIES 1,119,333 1,183,854
-------------------- --------------------
66,947,098 71,707,885
-------------------- --------------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized 2,500,000 shares;
no shares issued - -
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued 5,612,934 shares
as of December 31, 2000 and September 30, 2000 56,129 56,129
Additional paid-in capital 18,326,014 18,326,014
Accumulated other comprehensive loss (206,500) (240,500)
Retained earnings 38,680,484 37,436,700
-------------------- --------------------
56,856,127 55,578,343
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
-------------------- --------------------
56,118,347 54,840,563
-------------------- --------------------
$ 123,065,445 $ 126,548,448
==================== ====================
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended December 31,
---------------------------------------
2000 1999
----------------- ----------------
Sales $ 29,847,350 $ 29,587,358
Less excise taxes 7,583,871 9,125,535
----------------- ----------------
Net sales 22,263,479 20,461,823
Cost of goods sold 14,572,283 13,954,744
----------------- ----------------
Gross profit 7,691,196 6,507,079
Selling, general and administrative expenses 4,920,462 4,166,028
----------------- ----------------
Operating income 2,770,734 2,341,051
----------------- ----------------
Other income (expense):
Interest income 225,169 270,773
Interest expense (1,391,346) (1,037,205)
Equity in income of equity investee 11,740 29,487
Other, net 43,314 110,835
----------------- ----------------
(1,111,123) (626,110)
----------------- ----------------
Income before income taxes and extraordinary item 1,659,611 1,714,941
----------------- ----------------
Income tax expense (benefit):
Current 546,327 572,054
Deferred (130,500) (148,000)
----------------- ----------------
415,827 424,054
----------------- ----------------
Income before extraordinary item 1,243,784 1,290,887
----------------- ----------------
Extraordinary item - early extinguishment
of debt, net of income taxes of $382,075 - (1,168,790)
----------------- ----------------
Net income $ 1,243,784 $ 122,097
================= ================
Earnings per common share - basic:
Income before extraordinary item $ 0.23 $ 0.23
Extraordinary item - (0.21)
----------------- ----------------
Net income $ 0.23 $ 0.02
================= ================
Earnings per common share - diluted:
Income before extraordinary item $ 0.23 $ 0.23
Extraordinary item - (0.21)
----------------- ----------------
Net income $ 0.23 $ 0.02
================= ================
Common shares and equivalents outstanding:
Basic 5,513,734 5,513,734
================= ================
Diluted 5,516,008 5,576,703
================= ================
See Notes to Consolidated Financial Statements.
3
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
--------------------------------------------
2000 1999
-------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,243,784 $ 122,097
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,150,714 1,093,726
Amortization 369,503 152,211
(Gain) on sale of property and equipment (2,185) (38,506)
Equity in income of equity investee (11,740) (29,487)
Deferred income taxes (130,500) (148,000)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables 3,794,289 1,273,488
Inventories (891,698) 870,181
Other current assets 617,806 318,453
Increase (decrease) in:
Accounts payable (1,063,505) (475,789)
Accrued interest expense 2,952 (902,376)
Other accrued expenses (502,285) 266,744
Other liabilities (64,521) 122,714
-------------------- -------------------
Net cash provided by operating activities 4,512,614 2,625,456
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 21,799 47,737
Principal payments received on notes receivable 372,055 327,531
Purchase of property and equipment (1,329,105) (1,631,783)
Disbursements for notes receivable - (250,000)
Purchase of short-term investments (1,530,963) -
Purchase of Monarch Wine Company - (23,518,064)
(Increase) in other assets (216,000) (1,124,822)
-------------------- -------------------
Net cash used in investing activities $ (2,682,214) $ (26,149,401)
-------------------- -------------------
(continued)
4
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended December 31,
------------------------------------------
2000 1999
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit $ (1,029,999) $ 2,698,009
Proceeds from long-term borrowings - 56,309,288
Principal payments on long-term borrowings (2,031,929) (34,000,000)
------------------- -------------------
Net cash provided by (used in) financing activities (3,061,928) 25,007,297
------------------- -------------------
Net increase (decrease) in cash and cash equivalents (1,231,528) 1,483,352
Cash and cash equivalents:
Beginning 3,245,866 5,265,318
------------------- -------------------
Ending $ 2,014,338 $ 6,748,670
=================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,388,394 $ 1,939,581
=================== ===================
Income taxes $ 125,216 $ 12,211
=================== ===================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquisition of Monarch Wine Company:
Cash purchase price $ - $ 23,518,064
------------------- -------------------
Working capital acquired $ - $ 2,006,792
Goodwill - 22,284,509
Operating lease assumed, to be abandoned - (737,237)
------------------- -------------------
$ - $ 23,518,064
=================== ===================
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 generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated have been included. For further
information regarding the Company's accounting policies, refer to the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended September 30, 2000.
Note 2. Inventories
The major components of inventories are:
December 31, 2000 September 30, 2000
----------------------- -----------------------
(Unaudited)
Finished goods $ 12,875,750 $ 14,382,361
Work in process 874,472 928,486
Raw materials and supplies 10,670,784 8,218,731
----------------------- -----------------------
$ 24,421,276 $ 23,529,578
======================= =======================
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 3. Financing Arrangements
Long-term debt consists of the following as of December 31, 2000:
Term loans under a credit agreement (i), interest payable monthly based on
either the Eurodollar or prime rate at the Company's option, plus an
applicable margin as defined in the agreement. The interest rate at
December 31, 2000 was 9.12%. Quarterly principal installments of
$2,000,000 through September 30, 2004 with any remaining balance due
December 31, 2004.
$ 48,000,000
Revolving loans under a credit agreement (i), interest payable quarterly
based on either the Eurodollar or prime rate at the Company's option,
plus an applicable margin as defined in the agreement. The interest
rate at December 31, 2000 was 10%. The revolving lines of credit
terminate in November 2002. 7,482,982
Other 789,314
----------------
56,272,296
Less current maturities 8,000,000
----------------
$ 48,272,296
================
(i) In November 1999, the Company entered into a $71 million credit agreement
consisting of $56 million of term loans and a $15 million revolving loan
facility. The credit agreement is collateralized by 65% of the issued and
outstanding stock of the Company's majority-owned subsidiaries. The proceeds
from these loans were used to prepay all borrowings under previous finance
agreements and to finance a business acquisition. The Company is required to
maintain minimum fixed charge and interest coverage ratios in addition to
other financial covenants.
In the first quarter of fiscal year 2000, the Company recognized an
extraordinary loss of $1,168,790, net of an income tax benefit of $382,075, on
its early extinguishment of debt.
On January 14, 2000, the Company entered into an interest rate cap agreement.
The agreement caps the applicable Eurodollar rate under the credit agreement at
7.5%. At December 31, 2000 the underlying applicable Eurodollar rate was 6.62%.
The Company paid $250,000 for this cap, which has a term of two years. The
notional amount of this agreement at December 31, 2000 was $48,000,000.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 4. Earnings Per Common Share
Basic earnings per common share are calculated by dividing net income by the
average common shares outstanding. On a diluted basis, shares outstanding are
adjusted to assume the exercise of stock options.
Three Months Ended
December 31,
------------------------------------
2000 1999
--------------- -------------------
Income before extraordinary item $ 1,243,784 $ 1,290,887
=============== ===================
Net income $ 1,243,784 $ 122,097
=============== ===================
Determination of shares:
Weighted average number of
common shares outstanding 5,513,734 5,513,734
Shares issuable on exercise
of stock options, net of shares assumed
to be purchased out of proceeds 2,274 62,969
--------------- -------------------
Average common shares outstanding for
diluted earnings per share computation 5,516,008 5,576,703
=============== ===================
Earnings per common share - basic:
Income before extraordinary item $ 0.23 $ 0.23
Extraordinary item - (0.21)
--------------- -------------------
Net income $ 0.23 $ 0.02
=============== ===================
Earnings per common share - diluted:
Income before extraordinary item $ 0.23 $ 0.23
Extraordinary item - (0.21)
--------------- -------------------
Net income $ 0.23 $ 0.02
=============== ===================
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 January 31, 2002. The effect of this exemption was to
increase earnings per share by $0.04 and $0.05 for the three months ended
December 31, 2000 and 1999, respectively.
Note 5. Segment and Geographical Information
The Company operates primarily in the beverage alcohol industry in the United
States. The Company reports its operating results in five segments:
Bulk Alcohol Products (citrus brandy, citrus spirits, rum, cane
spirits, fortified citrus wine, purchased distilled products and
byproducts)
Premium Branded Spirits (primarily rum, flavored rum and tequila)
Bottling Operations (contract bottling services and proprietary
and private label products)
Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar
stock and proprietary and private label case goods)
Corporate Operations and Other (primarily corporate related items).
The accounting policies of the reportable segments are the same as those
referred to in Note 1 to the Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on income before
income taxes, equity in losses of equity investee, interest income and
interest expense. Material intersegment sales and transfers have been
eliminated.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Summarized financial information concerning the Company's reportable segments is
shown in the following table. "Corporate Operations and Other" includes
corporate items and the results of certain nonmaterial operations.
Net sales, operating income (loss), depreciation and amortization and capital
expenditures for the Company's operating segments for the three months ended
December 31, 2000 and 1999, and identifiable assets as of December 31, 2000 and
1999, were as follows:
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
2000 1999
---------------------------
(in thousands)
NET SALES
Bulk Alcohol Products $ 9,384 $ 8,238
Premium Branded Spirits 3,983 3,634
Bottling Operations 3,984 3,459
Vinegar and Cooking Wine 4,912 4,387
Corporate Operations and Other - 744
---------------------------
$ 22,263 $ 20,462
===========================
OPERATING INCOME (LOSS)
Bulk Alcohol Products $ 3,389 $ 3,153
Premium Branded Spirits (512) 27
Bottling Operations 211 (390)
Vinegar and Cooking Wine 879 989
Corporate Operations and Other (1,196) (1,438)
------------------------------
$ 2,771 $ 2,341
==============================
DEPRECIATION AND AMORTIZATION
Bulk Alcohol Products $ 778 $ 578
Premium Branded Spirits 34 27
Bottling Operations 367 360
Vinegar and Cooking Wine 281 87
Corporate Operations and Other 60 194
------------------------------
$ 1,520 $ 1,246
==============================
CAPITAL EXPENDITURES
Bulk Alcohol Products $ 651 $ 1,247
Premium Branded Spirits 184 23
Bottling Operations 266 196
Vinegar and Cooking Wine 186 83
Corporate Operations and Other 42 83
------------------------------
$ 1,329 $ 1,632
==============================
IDENTIFIABLE ASSETS
Bulk Alcohol Products $ 61,410 $ 46,025
Premium Branded Spirits 8,270 4,001
Bottling Operations 22,427 24,105
Vinegar and Cooking Wine 20,388 8,619
Corporate Operations and Other 10,570 40,185
------------------------------
$ 123,065 $ 122,935
==============================
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Sales and operating income for the three months ended December 31, 2000 and 1999
and identifiable assets as of December 31, 2000 and 1999, classified by
geographic area, were as follows:
U. S. VIRGIN
ISLANDS AND
THREE MONTHS ENDED UNITED STATES THE BAHAMAS CONSOLIDATED
----------------------------- ------------------------------------------------------
(in thousands)
December 31, 2000:
Net sales $ 19,251 $ 3,012 $ 22,263
Operating income 1,924 847 2,771
Identifiable assets 86,709 36,356 123,065
December 31, 1999:
Net sales 17,000 3,462 20,462
Operating income 1,513 828 2,341
Identifiable assets 88,904 34,031 122,935
Included in net sales for the United States are export sales, primarily to
Europe, Canada and the Caribbean, totaling approximately $1,451,000 and
$1,218,000 for the three months ended December 31, 2000 and 1999, respectively.
Note 6. Comprehensive income
Comprehensive income is the total of net income and other changes in equity.
Total comprehensive income for the three months ended December 31, 2000 and 1999
was as follows:
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
2000 1999
---------------------------
(in thousands)
Net income $ 1,244 $ 122
Other comprehensive income, interest rate cap adjustment 34 -
------------------------------
$ 1,278 $ 122
==============================
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations may contain, among other things, statements regarding anticipated
revenue growth, expenditure levels and plans for development. These
forward-looking statements involve a number of risks and uncertainties. The
following is a list of the principal factors that could cause actual results to
differ materially from those contemplated by the forward-looking statements:
business conditions and growth in certain market segments and industries and the
general economy; competitive factors, including increased competition and price
pressures; availability of third party component products at reasonable prices;
excise taxes; foreign currency exposure; changes in product mix; lower than
expected customer orders and quarterly seasonal fluctuations of those orders;
and product shipment interruptions. See "Risk Factors" in previous filings with
the Securities and Exchange Commission.
INTRODUCTION
The following discussion and analysis summarizes the significant
factors affecting (i) consolidated results of operations of the Company for the
three months ended December 31, 2000 compared to the three months ended December
31, 1999 and (ii) financial liquidity and capital resources. This discussion and
analysis should be read in conjunction with the Company's consolidated financial
statements and notes thereto included herein. Certain amounts presented in this
Item 2 have been rounded to the nearest thousand or hundred thousand, as
applicable, but the percentages calculated are based on actual amounts without
rounding.
The Company operates primarily in the beverage alcohol industry in the
United States. The Company is a leading producer and supplier of brandy, rum,
wine and spirits to other beverage alcohol manufacturers; produces, imports and
markets premium branded spirits; bottles beverage alcohol and other beverages on
a contract basis and under its own labels; and produces vinegar and cooking
wine. The Company reports its operating results in five segments: Bulk Alcohol
Products (citrus brandy, citrus spirits, rum, cane spirits, fortified citrus
wine, purchased distilled products and byproducts); Premium Branded Spirits
(primarily rum, flavored rum and tequila); Bottling Operations (contract
bottling services and proprietary and private label products); Vinegar and
Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock and proprietary and
private label case goods); and Corporate Operations and Other (primarily
corporate related items).
Information regarding the net sales, operating income and total assets
of each of the Company's business segments and information regarding geographic
areas is set forth in Note 5 to the Consolidated Financial Statements.
The Company's net sales and gross margins (gross profit as a percentage
of net sales) vary depending on the mix of business among the Company's
products. Historically, gross margins have been highest in bulk alcohol products
and premium branded spirits and lower in bottling operations and vinegar and
cooking wine operations. Within its bottling operations, sales and gross margins
have varied substantially based upon the mix of business from the Company's
"Type A" and "Type B" bottling customers. Type A bottling customers pay the
Company to purchase their raw materials and these costs are passed through to
the customer. Type B bottling customers supply their own raw materials and are
only charged for bottling charges. Although gross profit per case for the
Company's Type A and Type B bottling customers is approximately equal, given the
same case volume, net sales and cost of goods sold with respect to products
bottled for Type A bottling customers are higher, and gross margins are lower,
than for Type B bottling customers. As a result, significant fluctuations in
volume of Type A bottling customers can distort the Company's gross margin.
The Company has a limited number of customers, and these customers
often purchase bulk alcohol products in significant quantities or place
significant orders for contract bottling services, distilled spirits, vinegar
and cooking wine. Accordingly, the size and timing of purchase orders and
product shipments can cause operating results to fluctuate significantly from
quarter to quarter. Additionally, some Company products generate higher profit
margins than others, and changes in the Company's product mix can cause gross
margins to fluctuate. Certain aspects of the Company's business are seasonal,
with increased demand for the Company's contract bottling services from April to
October and increased production of the Company's bulk alcohol products from
November to June,
11
corresponding to the Florida citrus harvest. As a result of these factors,
the Company's operating results may vary significantly from quarter to
quarter.
Net sales represent the Company's gross sales less excise taxes. Excise
taxes are generally payable on products bottled by the Company. In addition,
excise taxes are payable on sales of industrial alcohol to certain customers.
Accordingly, excise taxes vary from period to period depending upon the
Company's product and customer mix.
ACQUISITION OF MONARCH WINE COMPANY
In November 1999, the Company acquired substantially all of the assets
of Adams Wine Company d/b/a Monarch Wine Company of Georgia ("Monarch"),
Atlanta, Georgia (the acquisition of the assets of Monarch is hereafter referred
to as the "Monarch Acquisition"). The purchase price was $23.8 million in cash.
Monarch specializes in the manufacture of wines, including custom blended wines
and cooking wines for the food industry and base wines for producers of vinegar
and beverage alcohol. The Monarch Acquisition has strengthened the Company's
position in the beverage alcohol and food industry by expanding the Company's
customer base and product offerings, and has improved the Company's plant
capacity utilization.
RESULTS OF OPERATIONS
The following table sets forth statement of income items as a
percentage of net sales.
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
2000 1999
---------- ----------
Net sales 100.0 % 100.0 %
Cost of goods sold 65.5 68.2
---------- ------------
Gross margin 34.5 31.8
Selling, general and
administrative expenses 22.1 20.4
---------- ------------
Operating income 12.4 11.4
Interest expense (6.2) (5.1)
Other income, net 1.3 2.1
---------- ------------
Income before income taxes 7.5 8.4
Income tax expense (1.9) (2.1)
---------- ------------
Income before extraordinary item 5.6 6.3
Extraordinary item - (5.7)
---------- ------------
Net income 5.6 % 0.6 %
========== ============
The following table provides information on net sales of certain Company
products.
THREE MONTHS ENDED
DECEMBER 31,
----------------------------------------
2000 1999 % CHANGE
--------- --------- ------------
(in thousands)
Bulk Alcohol Products $ 9,384 $ 8,238 13.9
Premium Branded Spirits 3,983 3,634 9.6
Bottling Operations 3,984 3,459 15.2
Vinegar and Cooking Wine 4,912 4,387 12.0
Corporate Operations and Other - 744 (100.0)
------------ ------------
$ 22,263 $ 20,462 8.8
============ ============
12
RESULTS OF OPERATIONS (CONTINUED)
The following table provides unit sales volume data for certain Company
products.
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------------
2000 1999 % CHANGE
--------- ---------- -------------
(in thousands)
Bulk alcohol products:
Distilled products, in proof gallons
Citrus Brandy 466 432 7.9
Citrus Spirits 143 397 (64.1)
Rum 1,142 1,075 6.2
Cane Spirits 159 147 8.1
Fortified citrus wine, in gallons 2,680 2,055 30.4
Premium branded spirits, in cases 85 68 23.8
Bottling operations, in cases 841 619 35.8
Vinegar
Bulk, in 100 grain gallons 1,141 1,146 (0.5)
Cases 157 158 (0.9)
Drums, in 100 grain gallons 146 355 (58.9)
Cooking Wine
Bulk, in gallons 696 30 2,200.9
Cases 216 64 238.4
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999. Unless otherwise noted, references to 2000 represent the three-month
period ended December 31, 2000 and references to 1999 represent the three-month
period ended December 31, 1999.
NET SALES. Net sales were $22.3 million in 2000, an increase of 8.8% from
net sales of $20.5 million in 1999.
Net sales of bulk alcohol products were $9.4 million in 2000, an increase
of 13.9% from net sales of $8.2 million in 1999. The increase resulted primarily
from increased sales of wine products due to the Monarch Acquisition. Unit sales
of citrus spirits decreased 64.1% and unit sales of wine products increased
30.4% in 2000 compared to 1999. These changes resulted from the Monarch
Acquisition, as Monarch was a major purchaser of the Company's citrus spirits
for use in producing fortified citrus wine.
Net sales of premium branded spirits were $4.0 million in 2000, an
increase of 9.6% from net sales of $3.6 million in 1999. This sales increase
reflected the continued success of the Company's Cruzan Rums. Sales of the
Company's Cruzan Rums and Cruzan Flavored Rums increased 43.2% and 54.7%
respectively in 2000 compared to 1999. Sales of Porfidio tequila decreased
59.2% due to an industry-wide shortage of agave, the principal raw material
for the Company's premium tequila brand.
Net sales of the Company's bottling operations were $4.0 million in 2000,
an increase of 15.2% from net sales of $3.5 million in 1999. The unit volume of
the Company's bottling operations increased 35.8% in 2000 as a result of a new
bottling contract. Management expects the unit volume in its bottling operations
to increase over fifty percent for the fiscal year ending September 30, 2001, as
a result of this new business.
13
RESULTS OF OPERATIONS (CONTINUED)
Net sales of vinegar and cooking wine were $4.9 million in 2000, an
increase of 12.0% from net sales of $4.4 million in 1999. The increase in net
sales was primarily attributable to increased sales of cooking wine resulting
from the Monarch Acquisition.
GROSS PROFIT. Gross profit was $7.7 million in 2000, an increase of 18.2%
from gross profit of $6.5 million in 1999. Gross margin increased to 34.5% in
2000 from 31.8% in 1999. The increase in gross margin was primarily attributable
to a change in product mix as a result of the Monarch Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.9 million in 2000, an increase of 18.1% from
$4.2 million in 1999. The increase was primarily attributable to (1) increased
marketing expenses and new employees related to the Company's premium branded
spirits business, and (2) increased amortization expense.
OPERATING INCOME. The following table sets forth the operating income
(loss) by operating segment of the Company for 2000 and 1999.
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
2000 1999 % CHANGE
---- ---- --------
(IN THOUSANDS)
Bulk Alcohol Products $ 3,389 $ 3,153 7.5
Premium Branded Spirits (512) 27 (2,017.2)
Bottling Operations 211 (390) 154.1
Vinegar and Cooking Wine 879 989 (11.1)
Corporate Operations and Other (1,196) (1,438) (16.7)
-----------------------
$ 2,771 $ 2,341 18.4
=======================
As a result of the above factors, operating income was $2.8 million in
2000, an increase of 18.4% over operating income of $2.3 million in 1999.
INTEREST INCOME. The Company earns interest income on its cash, short-term
investments and notes receivable. The decrease in interest income in 2000 was
attributable to lower average amounts of cash, short-term investments and notes
receivable outstanding compared to 1999.
INTEREST EXPENSE. Interest expense was $1.4 million in 2000 and $1.0
million in 1999. The increase in interest expense was due to higher interest
rates during 2000 as compared to 1999.
INCOME TAX EXPENSE. The Company's effective income tax rate was 25.0% in
2000 and 24.7% in 1999. The low tax rate was attributable to the Virgin Islands
subsidiary, which has a 90% exemption from United States federal income taxes
through January 2002 (see Note 4 to the Consolidated Financial Statements).
14
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal use of cash in its operating activities is to
purchase raw materials to be used in its manufacturing operations, purchase
imported products for its premium branded spirits business and carry inventories
and receivables. The Company's sources of liquidity have historically been cash
flow from operations and borrowings. Some of the Company's manufacturing
operations are seasonal and the Company's borrowings on its line of credit vary
during the year. For example, the Company uses citrus molasses as its primary
raw material in the production of citrus brandy and spirits at its two Florida
distilleries. The Company buys citrus molasses, a byproduct of citrus juice
production, from local manufacturers of citrus juice and concentrate during the
citrus harvest, which generally runs from November to June. The Company
generally begins purchasing citrus molasses in November and builds inventory of
citrus brandy and spirits. The Company must manufacture and build inventory
while raw materials are available due to the short life of the citrus molasses
it purchases. Another seasonal business of the Company is its contract bottling
services. Demand for contract bottling services is highest during the months
from April through October. Management believes that cash provided by its
operating and financing activities will provide adequate resources to satisfy
its working capital, liquidity and anticipated capital expenditure requirements
for both its short-term and long-term needs.
OPERATING ACTIVITIES
Net cash provided by operating activities in 2000 was $4.5 million,
which resulted from $2.6 million in net income adjusted for noncash items, and
$1.9 million representing the net change in operating assets and liabilities.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 2000 was $2.7 million, which
resulted primarily from $1.3 million of capital expenditures and a net increase
of $1.5 million in short-term investments.
Net cash used in financing activities in 2000 was $3.1 million, which
resulted from a decrease of $1.0 million in borrowings under the revolving
credit facility and payments of long-term debt totaling $2.0 million.
The Company's present revolving credit facility provides for maximum
borrowings of $15 million. Borrowings under this facility were $7.5 million at
December 31, 2000 (see Note 3 to the Consolidated Financial Statements).
The Company's total debt was $56.3 million as of December 31, 2000, and
its ratio of debt to equity was 1.0 to 1.
No provision has been made for income taxes that would result from the
remittance of undistributed earnings of the Company's Bahamian and Virgin
Islands subsidiaries, as the Company intends to reinvest these earnings
indefinitely. The Company's shares of the undistributed earnings of the Bahamian
and Virgin Islands subsidiaries were approximately $8.1 million and $21.1
million, respectively, as of September 30, 2000. See Note 9 to the Company's
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended September 30, 2000 for additional information on
income taxes related to these subsidiaries.
Based on current plans and business conditions, management expects that
its cash, cash equivalents, and short-term investments, together with any
amounts generated from operations and available borrowings, will be sufficient
to meet the Company's cash requirements for at least the next 12 months.
15
EFFECTS OF INFLATION AND CHANGING PRICES
The Company uses natural gas in its distilling operations and has
recently experienced significant increases in its energy costs as a result of
natural gas price increases. At the present time, management believes that the
Company's energy costs relating to natural gas will continue to increase. Where
competitively feasible, management plans to increase selling prices to offset
the effects of natural gas price increases, but the Company may not be able to
recover these energy cost increases.
Except as noted above, the Company's results of operations and
financial condition have not been significantly affected by inflation and
changing prices. The Company has been able, subject to normal competitive
conditions, to pass along rising costs through increased selling prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this Item 3 is incorporated herein by reference
to the Company's Annual Report on Form 10-K for the year ended September 30,
2000.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (6)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (3)
10.8 Lease, dated March 24, 1988, as amended, between Todhunter
International, Inc. and Especially West Palm Beach, Inc. (1)
10.8(a) Amendment to Lease, dated January 1, 1997, between Todhunter
International, Inc. and Florida Acquisition Fund Esperante, Ltd. (4)
10.16 Asset Purchase Agreement dated as of September 27, 1999, among
Todhunter International, Inc. and Adams Wine Company d/b/a Monarch
Wine Company of Georgia, and Howard J. Weinstein, David Paszamant, Jay
Paszamant and Matthew Paszamant (5)
10.17 Credit Agreement dated as of November 17, 1999, by and among Todhunter
International, Inc. and each of the Financial Institutions Initially a
Signatory thereto, and SouthTrust Bank, National Association (5)
10.17(a) Waiver and Modification of Credit Agreement dated as of September 29,
2000, by and among Todhunter International, Inc. and each of the
Financial Institutions Initially a Signatory thereto, and SouthTrust
Bank, National Association (9)
10.18 Executive Employment Agreement dated as of July 15, 1999, between
Thomas A. Valdes and Todhunter International, Inc. (6)
10.19 Executive Employment Agreement dated as of July 15, 1999, between Jay
S. Maltby and Todhunter International, Inc. (6)
10.20 Executive Employment Agreement dated as of July 15, 1999, between A.
Kenneth Pincourt, Jr. and Todhunter International, Inc. (6)
10.21 Executive Employment Agreement dated as of July 15, 1999, between D.
Chris Mitchell and Todhunter International, Inc. (6)
11.1 Statement of Computation of Per Share Earnings (8)
13.1 Quantitative and Qualitative Disclosures about Market Risk (7)
21.1 Subsidiaries of Todhunter International, Inc. (2)
23.1 Consent of McGladrey & Pullen, LLP (7)
16
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 33-50848).
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1998.
(5) Incorporated herein by reference to the Company's Report on Form 8-K
for November 17, 1999.
(6) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1999.
(7) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 2000.
(8) Filed herewith and incorporated herein by reference to Note 4 of notes
to consolidated financial statements, included in Item 1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 2000.
(9) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the first quarter ended December
31, 2000.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 2001 /s/ A. Kenneth Pincourt, Jr.
----------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: February 9, 2001 /s/ Troy Edwards
----------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
18