<PAGE>
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 quarter ended December 31, 1997 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 (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 30 days.
Yes X No
----- -----
The number of shares outstanding of registrant's Common Stock, $.01 par value
per share, as of February 6, 1998 was 4,949,714.
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX
PART I FINANCIAL INFORMATION Page No.
--------
Item 1 Financial Statements
Consolidated Balance Sheets -
December 31, 1997 and September 30, 1997 1
Consolidated Statements of Income -
Three Months Ended December 31, 1997 and 1996 3
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About
Market Risk *
PART II OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in Securities *
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 19
* Item is omitted because answer is negative or item is inapplicable.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- -------------
(Unaudited) *
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,424,269 $ 4,904,804
Trade receivables 9,585,877 11,051,085
Other receivables 2,438,682 2,116,110
Inventories 22,178,695 20,086,901
Notes receivable, current maturities 1,377,137 1,435,868
Deferred income taxes 1,083,000 1,162,000
Other current assets 1,591,780 1,580,034
------------- -------------
Total current assets 42,679,440 42,336,802
------------- -------------
LONG-TERM NOTES RECEIVABLE,
less current maturities 6,001,341 6,369,986
------------- -------------
PROPERTY AND EQUIPMENT 71,817,284 71,180,129
Less accumulated depreciation 29,287,504 28,236,375
------------- -------------
42,529,780 42,943,754
------------- -------------
PROPERTY HELD FOR LEASE 2,430,522 2,428,059
Less accumulated depreciation 1,032,465 998,882
------------- -------------
1,398,057 1,429,177
------------- -------------
GOODWILL, less accumulated amortization 413,982 422,168
------------- -------------
OTHER ASSETS 2,089,718 2,116,568
------------- -------------
$ 95,112,318 $ 95,618,455
------------- -------------
------------- -------------
</TABLE>
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- -------------
(Unaudited) *
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,968,872 $ 2,937,744
Accounts payable 3,872,248 5,039,252
Accrued interest expense 449,983 1,404,444
Other accrued expenses 1,964,154 1,315,600
------------- -------------
Total current liabilities 8,255,257 10,697,040
LONG-TERM DEBT, less current maturities 44,309,514 43,135,080
DEFERRED INCOME TAXES 4,807,000 4,852,000
OTHER LIABILITIES 264,960 225,713
------------- -------------
57,636,731 58,909,833
------------- -------------
MINORITY INTEREST 63,779 418,249
------------- -------------
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 and outstanding
December 31, 1997 and September 30, 1997;
4,949,714 49,497 49,497
Additional paid-in capital 11,945,777 11,945,777
Retained earnings 25,416,534 24,295,099
------------- -------------
37,411,808 36,290,373
------------- -------------
$ 95,112,318 $ 95,618,455
------------- -------------
------------- -------------
</TABLE>
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 26,360,592 $ 29,573,894
Less excise taxes 8,619,370 10,659,633
------------ ------------
Net Sales 17,741,222 18,914,261
Cost of good sold 12,618,571 13,960,520
------------ ------------
Gross profit 5,122,651 4,953,741
Selling, general and administrative expenses 3,658,902 2,996,628
------------ ------------
Operating income 1,463,749 1,957,113
------------ ------------
Other income (expense):
Interest income 184,630 206,732
Interest expense (1,007,445) (1,065,594)
Other, net 521,424 506,928
------------ ------------
(301,391) (351,934)
------------ ------------
Income before income taxes 1,162,358 1,605,179
------------ ------------
Income tax expense:
Current 6,923 37,104
Deferred 34,000 307,000
------------ ------------
40,923 344,104
------------ ------------
Net income $ 1,121,435 $ 1,261,075
------------ ------------
------------ ------------
Earnings per common share:
Basic $ 0.23 $ 0.26
------------ ------------
------------ ------------
Diluted $ 0.22 $ 0.25
------------ ------------
------------ ------------
Common shares and equivalents outstanding:
Basic 4,949,714 4,923,749
------------ ------------
------------ ------------
Diluted 4,995,387 4,964,733
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,121,435 $ 1,261,075
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 1,031,947 986,937
Amortization 23,527 64,827
(Gain) on investment transactions -- (8,000)
(Gain) on sale of property and equipment -- (13,175)
Equity in earnings of affiliates -- 6,142
Deferred income taxes 34,000 307,000
Minority interest (354,470) 465
Changes in assets and liabilities:
(Increase) decrease in:
Receivables 1,142,636 462,548
Inventories (2,091,794) (669,097)
Other current assets (11,746) 34,720
Increase (decrease) in:
Accounts payable (1,167,004) (222,625)
Accrued interest expense (954,461) (708,079)
Accrued expenses 648,554 233,279
Other liabilities 39,247 (13,308)
Discontinued operations -- 126,346
------------ ------------
Net cash provided by (used in)
operating activities (538,129) 1,849,055
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 24,486
Proceeds from sale of marketable securities -- 8,000
Principal payments received on notes receivable 443,376 373,208
Purchase of property and equipment (586,853) (795,891)
Disbursements for notes receivable (16,000) (14,000)
Redemption of certificates of deposit -- 4,494,375
Decrease in other assets 11,509 16,120
------------ ------------
Net cash provided by (used in)
investing activities $ (147,968) $ 4,106,298
------------ ------------
</TABLE>
4
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit $ 1,666,652 $ (2,779,611)
Proceeds from issuance of common stock -- 157,500
Principal payments on long-term borrowings (1,461,090) (300,000)
------------ ------------
Net cash provided by (used in) financing activities 205,562 (2,922,111)
------------ ------------
Net increase (decrease) in cash and cash equivalents (480,535) 3,033,242
Cash and cash equivalents:
Beginning 4,904,804 2,594,246
------------ ------------
Ending $ 4,424,269 $ 5,627,488
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 1,961,906 $ 1,773,673
------------ ------------
------------ ------------
Income taxes $ 12,107 $ --
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
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 of 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, 1997.
Note 2. Inventories
The major components of inventories are:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997
----------------- ------------------
(Unaudited)
<S> <C> <C>
Finished goods $ 15,042,976 $ 12,318,664
Work in process 967,602 1,639,970
Raw materials and supplies 6,168,117 6,128,267
----------------- ------------------
$ 22,178,695 $ 20,086,901
----------------- ------------------
----------------- ------------------
</TABLE>
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Note 3. Financing Arrangements
Long-term debt consists of the following as of December 31, 1997.
Senior notes, interest payable semiannually at 8.905%, principal
payments of $6,800,000 on October 30, 1999, $7,933,333 on
October 30, 2000 and 2001, $4,533,334 on October 30, 2002 and
$3,400,000 on October 30, 2003 and 2004, unsecured (1) $ 34,000,000
Revolving credit note of $20,000,000, interest payable monthly at
the prime rate for domestic loans and at 1.5% above the one month
London Interbank Offered Rate ("LIBOR") for Eurodollar loans,
principal is due in full November 1, 1999. The maximum amount
which can be drawn on the revolving note is based on the borrowing
base as specified in the agreement, unsecured 5,913,599
Bank note payable, interest is calculated based upon a floating rate of
2.5% above the one month LIBOR rate, quarterly principal payments
of $250,000, collateralized by real property, equipment, machinery
and trade receivables in the Virgin Islands (2) 4,750,000
Note payable, interest at 6%, principal and interest payments
required through 1999 1,614,787
------------
46,278,386
Less current maturities 1,968,872
------------
$ 44,309,514
------------
------------
</TABLE>
The Company uses interest swap agreements to change the fixed/variable
interest rate mix of the debt portfolio to reduce the Company's aggregate
risk to movements in interest rates. Amounts paid or received under interest
rate swap agreements are accrued as interest rates change and are recognized
over the life of the swap agreements as an adjustment to interest expense.
The related amounts payable to, or receivable from, the counterparties are
included in accrued interest expense. The fair value of the swap agreement
noted in (2) below was not recognized in the consolidated financial
statements since it is accounted for as hedge. The criteria required to be
met for hedge accounting is that a) the item to be hedged exposes the Company
to interest rate risk and b) the interest rate swap reduces that exposure and
is designated a hedge. The fair value and the related change in fair value
of the agreement noted in (1) below is not significant to the financial
statements. A summary of the interest rate swaps is as follows:
(1) The Company has entered into an interest rate swap agreement with a bank
calling for the Company to exchange, as of May 1 and November 1 through 2004,
interest payment streams calculated on a principal balance starting at
$4,000,000 and reducing starting in November 1999. The Company's interest is
calculated based upon a floating rate of 1.06% above the six-month LIBOR
rate. The bank's rate is 8.905%.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(2) The Company has entered into an interest rate swap agreement accounted
for as a hedge with a bank. The agreement calls for the Company to exchange,
as of January 1, April 1, July 1, and October 1, through 2002, interest
payment streams calculated on a notional balance equal to the principal
balance of the bank note payable. The Company's rate is fixed at 8.46%.
The long-term debt contains various restrictive covenants related to
fixed-charge coverage, interest expense coverage, net worth and debt
limitation. All covenants have been met as of December 31, 1997.
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.
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1997 1996
-------------------------------
<S> <C> <C>
Net income $ 1,121,435 $ 1,261,075
------------ -----------
------------ -----------
Determination of shares:
Weighted average number of
common shares outstanding 4,949,714 4,923,749
Shares issuable on exercise
of stock options, net of shares
assumed to be purchased out of proceeds 45,673 40,984
------------ -----------
Average common shares outstanding for
diluted computation 4,995,387 4,964,733
------------ -----------
------------ -----------
Earnings per common share
Basic $ 0.23 $ 0.26
------------ -----------
------------ -----------
Diluted $ 0.22 $ 0.25
------------ -----------
------------ -----------
</TABLE>
The Company's Virgin Islands operation has a five year tax exemption,
expiring January 31, 2002 on 90% of the subsidiary's income as determined
under United States Federal income tax laws. The impact of this benefit on
the Company's earnings per share was $0.08 and $0.06 for the three months
ended December 31, 1997 and December 31, 1996, respectively.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company produces citrus-based brandy, distilled spirits, rum and
fortified wine used as ingredients by producers of beverage alcohol; bottles
coolers, prepared cocktails and other beverages on a contract basis; and
produces a complete line of spirits. The Company also imports and markets
beverage alcohol and produces vinegar, cooking wine and other alcohol-related
products.
Prior to March 31, 1997, the Company classified its sales of bulk
alcohol products and case goods spirits as beverage ingredients and popular
price spirits, respectively. The Company feels that the new terms for these
lines of business are more meaningful to an understanding of the nature of
its products.
BULK ALCOHOL PRODUCTS. The Company distills citrus brandy, citrus and
cane spirits and rum, produces fortified citrus wine, and sells these
products to over 30 producers of beverage alcohol in the United States and
other foreign countries. The Company also sells bulk grain alcohol, primarily
to export customers. Grain alcohol is purchased from several suppliers
located in the Midwest. Citrus brandy and spirits are distilled from citrus
juice by-products purchased from manufacturers of citrus juice concentrate.
The Company's citrus brandy is used primarily as an ingredient in flavored
brandies. Citrus spirits are used primarily as a fortifying ingredient to
increase the alcohol content of the Company's citrus wine and the wine of
other manufacturers. The Company's citrus wine is fermented from citrus juice
and fortified to increase its alcohol content to approximately 20% by volume.
Known as fortified citrus wine, this product is used primarily as an
ingredient in cordials, whiskies and other beverage alcohol. Rum and cane
spirits are distilled from sugar cane molasses and are sold to other bottlers
of rum, producers of beverage alcohol, food companies and flavor
manufacturers. Rum is also used in the Company's spirits line.
CASE GOODS SPIRITS. The Company produces, bottles and sells a complete
line of spirits under its own proprietary labels and under the private labels
of major retailers of liquor located in the Southeast. These products
currently include rum, gin, vodka, tequila, cordials and various whiskies,
and the Company continues to add additional products to this line. Since the
acquisition of the Virgin Islands operations in 1994, the Company also
produces and sells case goods spirits in the U.S. Virgin Islands under the
Cruzan Rum label. The Company's proprietary labels include Cruzan Estate
Rums, Cruzan Rums, Ron Carlos Rums, Conch Republic Rums and "James's Harbor"
(gin, rum and vodka). The Company distills its own rum, but generally
produces its other spirits from grain alcohol purchased from third parties.
Depending on the particular formula for a product, the Company adds flavoring
and/or sugar, reduces the product's proof and then filters and bottles the
finished product. In 1996, the Company began to import and market Cruzan Rum,
Porfidio Tequila and several brands from the former Blair product line which
was discontinued in 1995. Since 1996, management's strategy has been to focus
on marketing and building premium brands in its case goods spirits business
with an initial emphasis on the rum and tequila categories.
CONTRACT BOTTLING. The Company bottles coolers, prepared cocktails and
other beverage alcohol on a contract basis for other producers. The Company
also bottles non-alcohol beverage on a contract basis, including fruit
juices, carbonated and non-carbonated fruit-flavored beverages, flavored
sparkling water and ready-to-drink brewed iced teas.
VINEGAR AND COOKING WINE. To complement its distilling, winery and
bottling operations, the Company produces vinegar and cooking wine for sale
to condiment manufacturers, food service distributors and major retailers.
The Company's sales to retailers are sold under its own proprietary labels
and under the private labels of major retailers in the Southeast.
9
<PAGE>
During the quarter ended September 30, 1995, the Company discontinued
the operations of Blair, sold substantially all of its assets, terminated its
employees, closed its facilities and began liquidating its remaining assets.
The Company acquired Blair in August 1994. At that time management believed
that Blair would enhance the Company's national sales capabilities and
provide an entry to the imported wine and spirits segment of the beverage
alcohol market. However, beginning in January 1995, Blair incurred
substantial operating losses. In 1995, the losses from Blair amounted to
$10,740,124 (net of tax benefit of $935,883), including operating losses
during the phase out period of $1,871,173. These losses resulted from, among
other things, the failure to meet exaggerated sales and gross profit
projections furnished to the Company, unrecorded liabilities, surplus
inventories, and inadequate reserves for uncollectible receivables, all of
which were uncovered subsequent to the acquisition. The Company is reserving
all rights that it has to indemnification from the selling shareholders of
Blair under the merger agreement relating to the acquisition.
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 lower in case goods spirits, contract bottling, vinegar and
cooking wine operations. Within its contract 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. 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 will cause gross margins to fluctuate. Certain aspects
of the Company's business are also 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 during the months from
October to June, corresponding to the Florida citrus-harvest season. As a
result of these factors, the Company's operating results 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share" (EPS), which simplifies existing computational guidelines, revises
disclosure requirements, and increases the comparability of earnings per
share on an international basis. The Company adopted SFAS No. 128 in its
first quarter of fiscal year 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenue.
Management has not yet evaluated the effects of these changes on its
reporting of segment information. The Company will adopt SFAS No. 131 in its
fiscal year 1999.
10
<PAGE>
YEAR 2000 COMPLIANCE
Management has initiated a program to prepare the Company's information
systems for the year 2000, and to upgrade its information systems generally.
The Company is assessing the impact of the year 2000 issue on its operations,
including the extent of the cost of programming changes required to address
this issue. At the present time, it is not expected that the costs to prepare
the Company's information systems for the year 2000 will have any material
adverse impact on the Company's results of operations, liquidity or capital
resources.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains, among other things, information regarding revenue
growth, expenditure levels and plans for development. These statements could
be considered forward-looking statements that involve a number of risks and
uncertainties. The following is a list of factors, among others, that could
cause actual results to differ materially from 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 fluctuation of those orders; and product shipment interruptions.
Certain amounts presented in this Item 2 have generally been rounded to
the nearest thousand and hundred thousand, as applicable, but the percentages
calculated are based on actual amounts without rounding.
11
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth statement of operations items as a
percentage of net sales and information on net sales of certain Company
products.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 71.1 73.8
------ ------
Gross margin 28.9 26.2
Selling, general and
administrative expenses 20.6 15.9
------ ------
Operating income 8.3 10.3
Interest expense (5.7) (5.6)
Other income (expense), net 4.0 3.8
------ ------
Income before income taxes 6.6 8.5
Income tax expense (0.3) (1.8)
------ ------
Net income 6.3% 6.7%
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996 % CHANGE
-------- -------- --------
(in thousands) 97/96
<S> <C> <C> <C>
Bulk alcohol products $ 7,210 $ 7,913 (8.9)
Case goods spirits 4,917 5,064 (2.9)
Contract bottling 1,358 2,206 (38.4)
Vinegar and cooking wine 2,585 2,231 15.8
Other 1,671 1,500 11.4
-------- -------- --------
$ 17,741 $ 18,914 (6.2)
-------- -------- --------
-------- -------- --------
</TABLE>
The following table provides unit sales volume data for certain Company
products.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996 % CHANGE
-------- -------- --------
(in thousands) 97/96
<S> <C> <C> <C>
Bulk alcohol products:
Distilled products, in proof gallons
Citrus Brandy 403 529 (23.9)
Citrus Spirits 172 244 (29.8)
Rum 1,045 991 5.5
Cane Spirits 117 157 (25.5)
Grain alcohol 1,077 992 8.6
Fortified citrus wine, in gallons 1,522 1,646 (7.5)
Case goods spirits, in cases 268 288 (7.0)
Contract bottling, in cases 628 706 (11.1)
Vinegar
Bulk, in 100 grain gallons 1,131 1,017 11.2
Cases 128 109 17.0
Drums, in 100 grain gallons 166 93 78.1
Cooking Wine
Bulk, in gallons 20 12 72.3
Cases 73 70 3.8
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED DECEMBER 31, 1997 VS. THREE MONTHS ENDED DECEMBER 31,
1996. Unless otherwise noted, references to 1997 represent the three month
period ending December 31, 1997 and references to 1996 represent the three
month period ending December 31, 1996.
NET SALES. Net sales were $17.7 million in 1997, a decrease of 6.2% from
net sales of $18.9 million in 1996.
Net sales of bulk alcohol products were $7.2 million in 1997, a decrease
of 8.9% from net sales of $7.9 million in 1996. Bulk alcohol products
produced by the Company include citrus brandy, citrus and cane spirits, rum
and fortified citrus wine. The Company also buys grain alcohol which it
resells, primarily to export customers. Unit sales of citrus brandy decreased
23.9% in 1997, primarily due to the timing of customer orders. The Company's
citrus brandy is used primarily as an ingredient in flavored brandies. Unit
sales of citrus brandy have also declined as a result of a decline in demand
of brandy products which management believes is due to changing demographics.
Management expects this trend to continue in the future. Unit sales of citrus
spirits decreased 29.8% in 1997. Citrus spirits are used primarily as a
fortifying ingredient to increase the alcohol content of citrus wine. Unit
sales of cane spirits decreased 25.5% in 1997. Cane spirits are sold to
flavor manufacturers. The decrease in sales of citrus and cane spirits in
1997 was primarily due to the timing of customer orders. Unit sales of rum
increased 5.5% in 1997. Unit sales of grain alcohol increased 8.6% in 1997.
Grain alcohol is purchased from several suppliers located in the Midwest and
resold primarily to export customers, the largest of which are in Eastern
Europe and Russia. Unit sales of fortified citrus wine decreased 7.5% in
1997. Fortified citrus wine is used as an ingredient in cordials, whiskies
and other beverage alcohol. Shipments of fortified citrus wine decreased in
1997 due to weak demand for certain products of one of the Company's largest
wine customers as well as increased competition from other wine manufacturers.
Net sales of case goods spirits were $4.9 million in 1997, a decrease of
2.9% from net sales of $5.1 million in 1996. Beginning in fiscal 1996,
management's strategy has been to focus on marketing and building premium
brands in its case goods spirits business with an initial emphasis on the rum
and tequila categories. However, the Company experienced a volume decrease in
unit sales of case goods spirits of 7.0% in 1997. The volume decrease in
case goods spirits is attributable to the value-priced and private label
component of this category which declined due to increased competition from
other low cost bottlers. The decrease in volume of value-priced and private
label business was partially offset by an increase in the Company's premium
Cruzan Rum business.
Net sales of contract bottling services were $1.4 million in 1997, a
decrease of 38.4% from net sales of $2.2 million in 1996. The Company's
contract bottling volume decreased 11.1% in 1997. The decrease in volume is
primarily attributable to a decrease in business with one of the Company's
largest Type A bottling customers. The decrease in contract bottling volume
with this customer was partially offset by increased volume with existing
customers.
Net sales of vinegar and cooking wine were $2.6 million in 1997, an
increase of 15.8% from net sales of $2.2 million in 1996. The increase in net
sales of vinegar and cooking wine was due to increased manufacturing
efficiencies, which allowed the Company to increase sales to existing and new
customers, and an improved product mix.
GROSS PROFIT. Gross profit was $5.1 million in 1997, an increase of
3.4% from gross profit of $5.0 million in 1996. Gross margin increased to
28.9% in 1997 from 26.2% in 1996. The improvement in gross margin is
primarily attributable to increased gross margins of the Company's bulk rum
products in the Virgin Islands, reduced raw material costs in the Company's
domestic distilling operations and a decrease in contract bottling volume
with a large Type A bottling customer.
13
<PAGE>
RESULTS OF OPERATIONS - CONTINUED
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3.7 million in 1997, an increase of 22.1% from
$3.0 million in 1996. Selling, general and administrative expenses were
20.6% of net sales in 1997 and 15.9% in 1996. The increase in selling,
general and administrative expenses in 1997 is primarily attributable to the
Company's increased emphasis on marketing its premium brands and imported
products and legal fees relating to the lawsuit against the former Blair
stockholders.
INTEREST EXPENSE. Interest expense was $1.0 million in 1997 and $1.1
million in 1996. The decrease in interest expense was due to lower levels of
debt outstanding during 1997.
OTHER INCOME. Included in other income is rental income from the
Bahamian subsidiary and a gain of $.4 million in 1997 and $.3 million in 1996
relating to insured hurricane damage.
INCOME TAX EXPENSE. The Company's effective income tax rate was 4% in
1997 and 21% 1996. The low tax rate is attributable to the Virgin Islands
operations which has a 90% exemption from income taxes. Also, the Company
recently amended its 1994 and 1995 federal income tax returns which has
resulted in loss carryforwards available in the current year and a request
for refund of income tax previously paid.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1997, the Company increased
production and inventory of its citrus brandy and citrus spirits products due
to the availability of citrus molasses. Citrus molasses is the primary raw
material the Company uses in its citrus brandy and spirits products at its
two Florida distilleries. The Company buys citrus molasses, a by-product of
citrus juice production, from local manufacturers of citrus juice and
concentrate during the citrus harvest season, which generally runs from
October to June.
The Company's inventory of citrus wine increased slightly although sales
of citrus wine decreased. Inventory of the Company's cooking wine increased
along with sales.
The Company's inventory of case goods increased during the quarter for
two reasons: The Company imported an approximately three month supply of
premium and super-premium tequila; and the Company replenished inventory
levels depleted as of September 30, 1997 to normal operating levels.
The Company's inventory of vinegar increased due to increased capacity
and sales.
The Company's overall net sales decreased during the quarter ended
December 31, 1997, compared to the quarter ended September 30, 1997. The
overall sales decrease led to a decrease in trade receivables and also
contributed to inventory increases in some divisions.
The Company uses its line of credit (described below) to fund its U.S.
manufacturing, importing and marketing operations. The amount drawn on the
line of credit was $5,913,599 as of December 31, 1997, and $4,246,947 as of
September 30, 1997. The increase in the line of credit relates to the
Company's increased level of production during the citrus harvest season,
increased imports of tequila, payment of accrued interest and the payment of
current maturities of long-term debt. The line of credit was reduced during
the quarter with repatriated previously taxed funds from the Bahamian
subsidiary.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
At September 30, 1997, the Company had an unsecured bank line of credit
of $20,000,000, which expires November 1, 1999. The first $5 million of
borrowings bear interest at 1.5% above the one-month LIBOR rate, borrowings
in excess of $5 million bear interest at the prime rate. The amount which can
be borrowed on the line is based on the borrowing base, as defined in the
agreement. The agreement requires the Company to maintain a tangible net
worth, as defined, a maximum leverage ratio and a minimum fixed charge,
interest coverage and current ratio. In addition, the agreement prohibits the
payment of cash dividends. The Company was in compliance with these covenants
at December 31, 1997.
The Company's total debt was $46.3 million as of December 31, 1997, and
its ratio of debt to equity was 1.2 to 1.
During the quarter the Company purchased $586,853 of property and
equipment. The Company has no material commitments for capital expenditures.
The Company has operated in the Bahamas since 1964. Under Bahamian law,
the Company pays no taxes on the profits from these operations, and such
profits have generally been retained in the Bahamas. In addition, the Company
has generally not paid United States federal income taxes on such profits.
Repatriation of these profits could result in a significant United States
federal income tax liability to the Company.
Based on current plans and business conditions, management expects that
its cash and cash equivalents, 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
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various legal proceedings as reported in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997.
There have been no material developments during the quarter ended December
31, 1997, other than those previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
2.1 Subscription Agreement dated as of January 5, 1994 between
Todhunter International, Inc. and Virgin Islands Rum Industries,
Ltd. (2)
2.2 Stock Purchase Agreement dated as of January 5, 1994 between
Virgin Islands Rum Industries, Ltd. and VI Acquisition Partnership
(2)
2.3 Agreement and Plan of Merger dated as of April 22, 1994 by and
among Todhunter International, Inc., Todhunter Acquisition, Inc.,
Blair Importers, Ltd. and the Stockholders of Blair Importers,
Ltd. (3)
2.4 Agreement dated August 31, 1994 between Todhunter-Mitchell and
Company Limited and Todhunter-Mitchell Distilleries Limited. (4)
2.5 Agreement of Purchase and Sale of Assets dated September 21, 1995
between Todhunter International, Inc. and David Sherman
Corporation (11)
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (17)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
10.1 Amended and Restated Loan Agreement, dated as of November 22,
1991, among Todhunter International, Inc., First Union Commercial
Corporation, First Union National Bank of Florida and Sun
Bank/South Florida, National Association (1)
10.1(a) Second Amended and Restated Loan Agreement between Todhunter
International, Inc. and First Union National Bank of Florida dated
as of October 13, 1993 (5)
10.1(b) First Amendment to Second Amended and Restated Loan Agreement
dated as of January 31, 1994, among Todhunter International, Inc.,
A. Kenneth Pincourt, Jr. and First Union National Bank of Florida
(6)
10.1(c) Second Amendment to Second Amended and Restated Loan Agreement
dated as of August 4, 1994, among Todhunter International, Inc.,
A. Kenneth Pincourt, Jr. and First Union Bank of Florida (7)
10.1(d) Third Amendment to Second Amended and Restated Loan Agreement
dated as of September 26, 1994, among Todhunter International,
Inc., A. Kenneth Pincourt, Jr. and First Union Bank of Florida (8)
10.2 Bulk Malt Purchase Agreement, dated as of September 25, 1991,
between Todhunter International, Inc. and Joseph E. Seagram &
Sons, Inc. (1)
10.3 Cooler Production Agreement dated as of October 15, 1987, between
Todhunter International, Inc. and Joseph E. Seagram & Sons, Inc.,
as amended May 1, 1990 and August 27, 1991 (1)
10.4 Agreement, dated October 1, 1990, among Todhunter International,
Inc., Bacardi Imports, Inc. and Castleton Beverage Corporation, as
amended by an Amendment dated December 12, 1991 (1)
10.5 Letter Agreement, dated August 11, 1992, between Todhunter
International, Inc. and A. Kenneth Pincourt, Jr. (1)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (18)
10.7 Todhunter International, Inc. Defined Contribution Pension Plan (1)
10.8 Lease, dated March 24, 1988, as amended, between Todhunter
International, Inc. and Especially West Palm Beach, Inc. (1)
10.9 Sublease dated June 6, 1994, between SunBank/South Florida,
National Association and Todhunter International, Inc. (8)
10.10 Loan Agreement dated as of January 31, 1994, between Virgin
Islands Rum Industries, Ltd. and First Union National Bank of
Florida (8)
10.10(a) Modification of Loan Agreement dated as of January 5, 1996,
amending Loan Agreement dated January 31, 1994 (13)
16
<PAGE>
10.11 Loan Agreement dated as of August 4, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and certain banks (8)
10.12 Guaranteed Subordinated Note Agreement dated as of August 4, 1994,
among Todhunter International, Inc., Blair Importers, Ltd.,
Charmer Industries, Inc. and certain shareholders thereof (3)
10.13 Note Purchase Agreement dated as of October 30, 1994, among
Todhunter International, Inc., Blair Importers, Ltd. and certain
purchasers (8)
10.13(a) First Amendment Agreement and Waiver dated as of February 1, 1996,
amending Note Purchase Agreement dated as of October 30, 1994 (14)
10.14 Loan Agreement dated as of November 22, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and First Union
National Bank of Florida (8)
10.14(a) Modification of Loan Agreement dated as of February 26, 1996,
amending Loan Agreement dated as of November 22, 1994 (14)
10.14(b) Modification of Loan Agreement dated as of August 19, 1996,
amending Loan Agreement dated as of November 22, 1994, as amended
(15)
10.14(c) Third Modification of Loan Agreement dated as of December 18,
1996, amending Loan Agreement dated as of November 22, 1994, as
amended (16)
10.15 Note dated December 30, 1994, between Todhunter International,
Inc. and First Union National Bank of Florida (9)
10.16 Note dated April 28, 1995, between Todhunter International, Inc.
and First Union National Bank of Florida (10)
10.17 Amended and Restated Employment Agreement dated as of July 31,
1995, between Todhunter International, Inc. and Jay S. Maltby (12)
11.1 Statement of Computation of Per Share Earnings (19)
21.1 Subsidiaries of Todhunter International, Inc. (12)
23.1 Consent of McGladrey & Pullen, LLP (18)
24.1 Powers of Attorney (18)
27.1 Financial Data Schedule (20)
(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 Current Report on
Form 8-K for February 4, 1994, as amended.
(3) Incorporated herein by reference to the Company's Current Report on
Form 8-K for August 5, 1994, as amended.
(4) Incorporated herein by reference to the Company's Current Report on
Form 8-K for August 31, 1994, as amended.
(5) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for quarter ended December 31, 1993, as amended.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for quarter ended March 31, 1994, as amended.
(7) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for quarter ended June 30, 1994, as amended.
(8) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1994.
(9) Incorporated herein by reference to the Company Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(10) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.
17
<PAGE>
(11) Incorporated herein by reference to the Company's Current Report on
Form 8-K for September 21, 1995.
(12) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
(13) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(14) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
(15) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
(16) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996.
(17) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
(18) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
(19) 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, 1997.
(20) Filed herewith.
(b) Reports on Form 8-K
No reports on From 8-K have been filed during the quarter ended
December 31, 1997.
18
<PAGE>
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 12, 1998 /s/ A. Kenneth Pincourt, Jr.
--------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: February 12, 1998 /s/ Troy Edwards
--------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TODHUNTER
INTERNATIONAL, INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR ITS FIRST QUARTER
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 4,424,269
<SECURITIES> 0
<RECEIVABLES> 12,024,559
<ALLOWANCES> 0
<INVENTORY> 22,178,695
<CURRENT-ASSETS> 42,679,440
<PP&E> 74,247,806
<DEPRECIATION> 30,319,969
<TOTAL-ASSETS> 95,112,318
<CURRENT-LIABILITIES> 8,255,257
<BONDS> 44,309,514
0
0
<COMMON> 49,497
<OTHER-SE> 37,362,311
<TOTAL-LIABILITY-AND-EQUITY> 95,112,318
<SALES> 17,741,222
<TOTAL-REVENUES> 17,741,222
<CGS> 12,618,571
<TOTAL-COSTS> 12,618,571
<OTHER-EXPENSES> 2,952,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,007,445
<INCOME-PRETAX> 1,162,358
<INCOME-TAX> 40,923
<INCOME-CONTINUING> 1,121,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,121,435
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
