<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-13453
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TODHUNTER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-1284057
(State of Incorporation) (IRS Employer
Identification Number)
222 LAKEVIEW AVENUE, SUITE 1500, WEST PALM BEACH, FL 33401
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 655-8977
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, $.01
PAR VALUE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of Title 17, Code of Federal
Regulations) is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 11, 1998 (computed by reference to the last
reported sale price of registrant's common stock on AMEX on such date):
$22,145,117.
The number of shares outstanding of registrant's Common Stock, $.01 par
value per share, as of December 11, 1998, was 4,893,714.
There were no shares of Preferred Stock outstanding as of December 11,
1998.
Documents Incorporated by Reference: Part III - Portions of the
registrant's definitive proxy statement to be filed within 120 days of the end
of the registrant's fiscal year in conjunction with the registrant's 1999 annual
stockholders' meeting.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW
Todhunter International, Inc. (the "Company") produces and supplies brandy,
rum, wine and spirits to beverage alcohol manufacturers; bottles beverage
alcohol and other beverages on a contract basis; produces a line of value-priced
spirits; produces, imports and markets premium branded spirits and produces
vinegar, cooking wine and other alcohol-related products. The Company is a
Delaware corporation organized in 1970 as a successor to a business founded in
the Bahamas in 1964. All references in this report to years are meant to refer
to fiscal years of the Company unless the context otherwise requires.
During 1998, the Company consolidated its Florida bottling operations from
three bottling plants to two. Also during 1998, the Company began upgrading its
computer hardware and software to improve its management information system and
to prepare for the year 2000.
During 1997, the Company increased the vinegar production capacity at its
facility in Louisville, Kentucky by 38%, from 3.2 million grain gallons to 4.4
million grain gallons. The Company began producing red wine vinegar at this
facility in September 1997.
During 1996, the Company invested $1.3 million in polyethylene
terephthalate ("P.E.T.") bottle manufacturing equipment which has the capacity
to produce 15 million P.E.T. bottles per year. Where possible, the Company has
utilized P.E.T. bottles to replace glass bottles in its value-priced spirits and
contract bottling businesses to reduce material and freight costs. The Company
began manufacturing P.E.T. bottles in June 1996, and is presently manufacturing
at a rate of approximately 4.5 million bottles per year.
PRODUCTS AND SERVICES
BULK ALCOHOL PRODUCTS. The Company distills citrus brandy, citrus and cane
spirits and rum, produces fortified citrus wine, and sells these products to
over 40 producers of beverage alcohol in the United States and other foreign
countries. The Company also purchases grain alcohol from several suppliers
located in the Midwest and resells it, primarily to export customers. Citrus
brandy and spirits are distilled from citrus juice byproducts 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 premium
branded spirits and value-priced spirits line.
Management believes that its proximity to raw materials and its use of
citrus byproducts in the production of bulk alcohol provide it with cost
advantages over competing products. Because end products are taxed on a blended
rate based upon the ingredients used rather than on the resulting alcohol
content of the end product, beverage alcohol producers can lower excise taxes on
their products by substituting fortified citrus wine for distilled spirits
alternatives. This cost savings arises because fortified citrus wine is
currently subject to federal excise taxes of $1.57 per gallon, whereas distilled
spirits are taxed at $13.50 per proof gallon (one proof gallon is approximately
equivalent in alcohol content to two and one-half gallons of fortified citrus
wine). The ability of beverage alcohol producers to substitute fortified citrus
wine for distilled spirits varies by end product according to government
regulations. For example, fortified citrus wine may contribute up to 49% of the
alcohol content of cordials and liqueurs, and up to approximately 10% of the
alcohol content of Canadian whiskey. In addition, small quantities of fortified
citrus wine may be used in blended whiskey, rum, brandy and other types of
beverage alcohol.
In 1998, the Company sold 10.6 million proof gallons of distilled products
(citrus brandy, citrus and cane spirits, rum and purchased grain alcohol) and
6.8 million gallons of fortified citrus wine. The total annual capacity of
distilled products and fortified citrus wine for the Company's production
facilities is approximately 23 million proof gallons and 20 million gallons,
respectively.
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VALUE-PRICED SPIRITS. The Company produces, bottles and sells a complete
line of distilled 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 distilled spirits in the U.S. Virgin Islands. The Company distills
and ages its own rum, but generally produces its other value-priced spirits from
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. The Company sold
approximately 865,000 cases of value-priced spirits in 1998.
PREMIUM BRANDED SPIRITS. In 1996, the Company began to develop, import and
market premium branded spirits nationally. Since 1996, the Company has
established and strengthened relationships with wholesalers, expanded its
distribution network, developed new products, obtained new agency agreements and
acquired additional management and marketing expertise. In 1996 and 1997, sales
of premium branded spirits were combined with sales of value-priced spirits due
to their relatively small amount. The Company's premium branded spirits include
Cruzan Estate Rums, Cruzan Flavored Rums, Cruzan Rums, Porfidio Tequila and
Plymouth Gin. Management's strategy has been to focus on marketing and building
premium brands with an initial emphasis on the rum and tequila categories. The
Company sold approximately 215,000 cases of premium branded spirits in 1998.
CONTRACT BOTTLING. The Company bottles coolers, prepared cocktails and
other beverage alcohol on a contract basis. The Company also bottles other
beverages on a contract basis including fruit juices, carbonated and
non-carbonated fruit flavored beverages, flavored sparkling water and
ready-to-drink brewed iced teas. In 1998, the Company bottled approximately
3.8 million cases for third parties. The Company's bottling capacity is
approximately 10 million cases per year. In 1998, the Company bottled
approximately 5.3 million cases in its contract bottling, premium branded
spirits, value-priced spirits, vinegar and cooking wine businesses. The Company
is actively seeking to utilize its remaining capacity by bottling additional
types of beverages with new and existing customers.
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.
OTHER BUSINESS ACTIVITIES. The Company's distilling operations produce
residuum, a byproduct, which is sold as animal feed. The Company also purchases
grain alcohol, denatures and packages it and sells it as industrial alcohol to
hospitals, universities, fragrance producers and other manufacturers. The
Company engages in operations in the Bahamas through its Bahamian subsidiary,
Todhunter Bahamas Limited. The Bahamian operations include retail businesses and
certain real estate holdings. See Notes 5, 9 and 13 to the Company's
consolidated financial statements for additional information on the Bahamian
operations.
DEPENDENCE ON MAJOR CUSTOMERS
The Company sells its bulk alcohol products to over 40 producers of
beverage alcohol in the United States and other foreign countries. The
Company's private label value-priced spirits and contract bottling services are
sold to a limited number of customers. The Company's vinegar and cooking wine
are sold to over 100 condiment manufacturers, food service distributors and
retailers. The Company has major customers in its bulk alcohol products,
private label value-priced spirits and contract bottling businesses. The loss
of one or more of the Company's major customers could have a material adverse
effect on the Company's liquidity and results of operations. See Note 13 to the
Company's consolidated financial statements for additional information on major
customers.
PRODUCTION
The Company's principal domestic production facilities are located in Lake
Alfred and Auburndale, Florida, both near Orlando and central to Florida's
citrus growing region. The two plants have similar distilling, bottling and
winery operations, allowing the Company to shift production from one plant to
the other. The Lake Alfred plant also has a vinegar production facility. Both
plants are near major highways and are serviced by a railroad, providing good
transportation access. The Company has a cold storage, warehousing and P.E.T.
bottle manufacturing facility in Winter Haven, Florida. The Company also
operates a winery and vinegar production facility in Louisville, Kentucky. The
Company's offshore rum production facilities are located in St. Croix, United
States Virgin Islands.
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DISTILLING. The Company begins its distilling process with citrus or cane
molasses, which is fermented for approximately two to seven days. Once
fermented, the product has an average alcohol content of 4% by volume, which is
increased to approximately 95% through distillation. The alcohol is then
processed through rectifying columns and further refined. The finished product
is stored in stainless steel tanks, except rum, which is generally stored in
wooden barrels for aging purposes. The Lake Alfred, Auburndale and Virgin
Islands facilities each have the capacity to distill 25,000 proof gallons per
day.
WINERY. Wine is produced by the fermentation of citrus or grape juice.
After fermentation, the wine is fortified by the addition of distilled citrus
spirits to raise its alcohol content to approximately 20% by volume. Fortified
citrus wine is sold to producers of beverage alcohol. The wineries are
physically segregated from the distilling operations and have their own set of
fermenting and storage tanks. The Lake Alfred, Auburndale and Louisville
facilities can produce, on a combined basis, up to 20 million gallons of wine
per year.
BOTTLING. The Lake Alfred and Auburndale plants both have automated,
high-speed bottling lines capable of filling up to 600 12-ounce containers per
minute. Lake Alfred has two lines that are used primarily to bottle vinegar and
juices, two lines that are used to bottle the Company's value-priced spirits and
one line to bottle premium branded spirits. Auburndale has two lines that are
dedicated to bottling coolers and prepared cocktails and three lines that bottle
value-priced spirits, premium branded spirits and cooking wine. The Company's
warehouse storage areas can accommodate up to 800,000 cases. The Company's plant
in the Virgin Islands has one line capable of bottling up to 250,000 cases per
year.
VINEGAR AND COOKING WINE. Vinegar is produced by converting alcohol into
acetic acid. Several varieties of vinegar, including white distilled, red wine,
white wine, corn, rice wine, balsamic, tarragon and apple cider, are produced at
the Lake Alfred and Louisville facilities which have a combined capacity of
7.5 million grain gallons per year. Cooking wine is produced by the controlled
fermentation of red or white grape juice into wine. Several varieties of
cooking wine, including red, white, sherry, golden, marsala and chablis, are
produced at the Auburndale and the Louisville facilities.
QUALITY CONTROL. Each of the Company's facilities is equipped with a
quality control laboratory. The Company employs several chemists who continually
test to ensure the quality of its raw materials and end products.
RAW MATERIALS. The principal raw materials used in the Company's
distilling operations are citrus molasses, a byproduct of citrus juice
production, and cane molasses, a byproduct of sugar production. Citrus molasses,
which is used in the production of citrus brandy and citrus spirits, accounted
for approximately 51% of the raw materials used in the Company's distilling
operations in 1998. Cane molasses, which is used in the production of rum and
cane spirits, accounts for the remaining 49%. Citrus juice concentrate is the
primary raw material used in the Company's winery operations. The Company
purchases such raw materials from a variety of suppliers. The Company purchases
alcohol, used in its bulk alcohol products, value-priced spirits, contract
bottling and industrial alcohol businesses from several suppliers. Glass bottles
and other materials, such as caps, labels and cardboard cartons, are used in
bottling and packaging and are available from numerous suppliers. Alcohol and
grape juice concentrate are the primary raw materials used in the Company's
vinegar and cooking wine operations. No supplier accounts for more than 10% of
the Company's raw material purchases. The cost of raw materials fluctuates
depending upon a number of factors, including crop conditions, weather,
governmental programs and purchases by foreign governments.
3
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FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
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 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 November to June, corresponding to the Florida citrus-harvest. As a result
of these factors, the Company's operating results vary significantly from
quarter to quarter.
MARKETING AND DISTRIBUTION
Bulk alcohol products are sold primarily in large quantities through the
Company's salespeople. The Company's marketing strategy emphasizes the cost
advantages of these products over other ingredients available to end producers.
Bulk alcohol products are sold primarily to other bottlers, distillers and end
producers located throughout the United States and Canada.
The Company sells value-priced spirits to wholesalers for distribution
primarily in the Southeast. The Company's marketing strategy for these products
places primary emphasis upon promotional programs emphasizing the Company's cost
advantages, directed at wholesalers and retailers, rather than consumers.
Wholesalers and retailers market these products to retailers and directly to
consumers, respectively. The Company also produces value-priced spirits for
private label retailers. Although competition for retail shelf space in the
beverage alcohol industry is significant, wholesalers of such products, and not
the Company, generally must address such competition, although the Company's
promotional programs may have a beneficial effect upon the allocation of retail
shelf space for its products. The Company also produces, imports, markets and
sells premium branded spirits to wholesalers on a national basis. The Company's
marketing and promotional programs for its premium brands are directed at
wholesalers, retailers and consumers. Sales of the Company's value-priced and
premium branded spirits are generally made FOB (free on board) at the Company's
facilities and, accordingly, the purchasers of such products are responsible for
the risk of loss and transportation costs. In addition to its salespeople, the
Company works through various brokers to develop and service its sales to
wholesalers and retailers.
The Company's marketing strategy with respect to its contract bottling
operations emphasizes the cost advantages and quality of the Company's services.
Arrangements with bottling customers are typically negotiated by the Company's
executive officers.
Vinegar and cooking wine are sold primarily in large quantities to
manufacturers, distributors and retailers through the Company's salespeople.
These products are also sold through wholesalers and directly to retailers under
the Company's proprietary labels and under the private labels of retailers.
COMPETITION
The areas of the beverage alcohol industry in which the Company does
business are highly competitive with respect to price, service and product
quality, and there are several companies with substantially greater financial
and other resources than the Company. The Company's citrus-based bulk alcohol
products compete primarily with producers of grape-based products. While the
Company is aware of only two other domestic producers of citrus brandy and
spirits, there exist several producers of grape-based distilled products. The
Company's value-priced and premium branded spirits compete on a regional and
national basis against other distilled spirits products, including premium
labels, mid-price and value-price products. The value-priced and premium branded
spirits produced by the Company compete with those of companies for whom the
Company performs contract bottling services and to whom the Company sells its
bulk alcohol products. The Company believes that its relationships with such
customers are good and has not experienced any adverse effects, such as
termination or non-renewal of ongoing contracts as a result of such competition.
Based upon its historical experience and customer relationships, the Company
does not expect to experience any adverse effects from such competition in the
foreseeable future. Contract bottling operations compete against other bottlers
located throughout the Southeast. The Company experiences similar competition in
its vinegar and cooking wine operations. While Management believes that it has
achieved a strong competitive position in the markets it serves, there can be no
assurance that the Company will be able to maintain its competitive position in
the future.
4
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REGULATION AND TAXATION
The production, importing and sale of wine and spirits is subject to
extensive regulation by certain federal and state agencies, and the Company is
required to obtain various permits, bonds and licenses to comply with
regulations. Pursuant to federal and state environmental requirements, the
Company is required to obtain permits and licenses to operate certain
facilities, and to treat and remove effluents discharged from its distilling,
winery and bottling operations. Management believes it is presently in material
compliance with all applicable federal and state regulations.
Beverage alcohol produced and bottled by the Company is subject to
substantial federal excise taxes. Excise taxes are imposed at flat rates of
$13.50 per proof gallon for distilled spirits and $1.57 per gallon for fortified
citrus wine. Tax rates on spirits were increased from $12.50 to $13.50 per proof
gallon effective January 1, 1991. Effective at the same time, tax rates on
fortified wines were increased by $.90 per gallon. Where necessary and
competitively feasible, the Company has increased its prices to offset tax
increases. Management believes that such tax increases have adversely affected
the total unit volume of beverage alcohol sold industry-wide.
The Company's fortified wine products, as an ingredient of beverage
alcohol, have a cost advantage under the component method of taxation, which
taxes wine at a lower rate than distilled spirits. Changes in, or the
elimination of, the component method of taxation, as it relates to wine, would
have a material adverse effect on the Company's results of operations.
EMPLOYEES
As of September 30, 1998, the Company had approximately 335 full-time
employees. Additional workers are generally employed at the Company's bottling
facilities during the summer months when the bulk of contract bottling takes
place. None of the Company's employees are members of any labor union nor are
there any collective bargaining agreements between the Company and its
employees, with the exception of the Company's Virgin Islands employees. The
Virgin Islands operation, consisting of approximately 60 employees, is fully
unionized. Management believes that its relations with its employees are good.
INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company has domestic facilities in Florida and Kentucky for the
production of its bulk alcohol products, value-priced and premium branded
spirits, contract bottling services, vinegar, cooking wine and other
alcohol-related businesses. The Company sells its domestically produced
products and services primarily to customers in the United States but also
exports certain products to foreign countries, primarily Eastern Europe, Canada
and the Caribbean. The Company's rum production facilities are located in St.
Croix, United States Virgin Islands. Rum produced in the Virgin Islands is sold
primarily to other bottlers of rum, producers of beverage alcohol, food
companies and flavor manufacturers located in the United States but is also sold
to other foreign countries in the Caribbean, South America and Europe. The
Company's businesses in the Bahamas relate to retail businesses and real estate
rentals. See Note 13 to the Company's consolidated financial statements for
additional information about the Company's foreign and domestic operations and
export sales.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. 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; increased excise taxes; foreign currency
exposure; changes in product mix between and among product lines; lower than
expected customer orders and quarterly seasonal fluctuation of those orders; and
product shipment interruptions. See "Risk Factors" in previous filings with the
Securities and Exchange Commission.
5
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ITEM 2. PROPERTIES
The Company owns all of its principal production facilities, including all
related land, buildings, and equipment. The Lake Alfred facility consists of
four principal buildings with approximately 250,000 square feet on 32 acres. The
Auburndale facility consists of three principal buildings with approximately
250,000 square feet on 16 acres. The Louisville facility consists of three
principal buildings with approximately 60,000 square feet on 27.5 acres. The
Winter Haven facility consists of three principal buildings with approximately
140,000 square feet on 30 acres. The Virgin Islands facility consists of seven
principal buildings with approximately 200,000 square feet on 30 acres. The
Company's facilities in the Bahamas consist of seven principal buildings with
approximately 70,000 square feet on 10 acres. The Company leases approximately
10,000 square feet of office space in West Palm Beach, Florida for its executive
offices. Management believes that all of its facilities, both owned and leased,
are adequate and suitable for operations in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to litigation from time to
time in the ordinary course of business. There have been no material
developments in the Company's legal proceedings, except as set forth below.
BLAIR LITIGATION
See the Company's current reports on Form 8-K, dated August 21 and
September 14, 1998, for a summary of the Company's settlement of litigation with
the former shareholders of Blair Importers, Ltd.
LOEWENWARTER LITIGATION
On November 17, 1998, the Company settled its claims against Ernest D.
Loewenwarter & Co. Pursuant to the terms of the settlement agreement, all
claims by the Company against Loewenwarter were discontinued in return for a
settlement payment.
UNITED STATES TAX COURT
On November 10, 1998, the United States Tax Court approved a settlement
between the Company and the Internal Revenue Service for the Company's years
ended September 30, 1993 and 1994. The Company paid a deficiency, net of
refunds, of approximately $200,000. The settlement also provided the Company
with deductions which were used to reduce taxes in its year ended September 30,
1998. The settlement did not have a material adverse effect on the Company's
financial condition or results of operations.
There are no other legal proceedings pending as of September 30, 1998 which
the Company believes to be material. Legal proceedings which are pending
consist only of matters in the ordinary course of business and taken together
are not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to security holders during the fourth quarter of
the fiscal year ended September 30, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was traded in the over the counter market since
the Company's initial public offering on October 13, 1992, through October 7,
1997. During that time the Company's common stock was listed in the Nasdaq
National Market System under the symbol "TODH." On October 8, 1997, the
Company's common stock began trading on the American Stock Exchange under the
symbol "THT." The following table sets forth the high and low closing
quotations of the Company's common stock for each quarter during the past two
fiscal years as reported by Nasdaq for fiscal 1997 and AMEX for fiscal 1998.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
Fiscal 1997
First quarter 9 5/8 7 7/8
Second quarter 9 6 7/8
Third quarter 8 6 7/8
Fourth quarter 10 1/4 7 1/4
Fiscal 1998
First quarter 10 9/16 9 9/16
Second quarter 10 1/2 8 1/4
Third quarter 9 3/16 8 3/16
Fourth quarter 9 3/4 6 7/8
</TABLE>
The number of stockholders of record as of December 3, 1998 was 56. In
addition, the number of beneficial owners as of January 21, 1998, the last date
upon which the Company received a list of beneficial owners, was approximately
1,132.
No dividend was paid to stockholders during the fiscal years ended
September 30, 1997 and 1998. The Company intends to continue to retain earnings
for use in the business of the Company and therefore does not anticipate
declaring or paying cash dividends in the immediate future. In addition, the
payment of cash dividends requires the consent of the Company's lender.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the Company's
audited consolidated financial statements. The following data are qualified by
reference to, and should be read in conjunction with, the consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales $75,096 $77,938 $78,197 $ 70,191 $ 73,316
Cost of goods sold 53,006 56,493 58,428 54,564 55,972
------- ------- ------- -------- --------
Gross profit 22,090 21,445 19,769 15,627 17,344
Selling, general and administrative expenses 13,937 13,126 11,483 11,599 9,619
------- ------- ------- -------- --------
Operating income 8,153 8,319 8,286 4,028 7,725
Other income (expense):
Interest income 655 840 1,036 740 403
Interest expense (3,946) (4,146) (4,351) (4,015) (2,543)
Other, net 660 931 766 252 2,900
------- ------- ------- -------- --------
Income from continuing operations before income
taxes 5,522 5,944 5,737 1,005 8,485
Income tax expense 808 1,259 1,192 1,060 1,871
------- ------- ------- -------- --------
Income (loss) from continuing operations 4,714 4,685 4,545 (55) 6,614
Discontinued operations, net of income tax benefit - - - (10,740) 11
------- ------- ------- -------- --------
Income (loss) before extraordinary item 4,714 4,685 4,545 (10,795) 6,625
Extraordinary item, net of income tax benefit - - - (468) -
------- ------- ------- -------- --------
Net income (loss) $ 4,714 $ 4,685 $ 4,545 $(11,263) $ 6,625
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Net income per share
Basic
Income (loss) from continuing operations $ 0.95 $ 0.95 $ 0.92 $ (0.01) $ 1.44
(Loss) from discontinued operations - - - (2.19) -
Extraordinary item - - - (0.10) -
------- ------- ------- -------- --------
Net income (loss) $ 0.95 $ 0.95 $ 0.92 $ (2.30) $ 1.44
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Diluted
Income (loss) from continuing operations $ 0.95 $ 0.94 $ 0.92 $ (0.01) $ 1.40
(Loss) from discontinued operations - - - (2.19) -
Extraordinary item - - - (0.10) -
------- ------- ------- -------- --------
Net income (loss) $ 0.95 $ 0.94 $ 0.92 $ (2.30) $ 1.40
------- ------- ------- -------- --------
------- ------- ------- -------- --------
Weighted average shares outstanding
Basic 4,950 4,943 4,919 4,906 4,616
Diluted 4,985 4,966 4,955 4,906 4,746
BALANCE SHEET DATA (AT PERIOD END):
Working capital $37,807 $31,640 $33,517 $ 35,435 $ 32,526
Total assets 96,997 95,618 98,859 103,787 104,134
Short-term debt 1,888 2,938 2,152 2,264 2,289
Long-term debt 42,581 43,135 51,293 57,759 49,740
Stockholders' equity 41,004 36,290 31,448 26,865 37,919
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following tables set forth statement of income items as a percentage
of net sales and information on net sales of certain Company products.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 70.6 72.5 74.7
----- ----- -----
Gross margin 29.4 27.5 25.3
Selling, general and administrative expenses 18.6 16.8 14.7
----- ----- -----
Operating income 10.8 10.7 10.6
Other income (expense), net (3.4) (3.1) (3.3)
----- ----- -----
Income before income taxes 7.4 7.6 7.3
Income tax expense 1.1 1.6 1.5
----- ----- -----
Net income 6.3% 6.0% 5.8%
----- ----- -----
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, % CHANGE
------------------------ -------------------
1998 1997 1996 98/97 97/96
---- ---- ---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bulk alcohol products $28,705 $29,729 $29,404 (3.4) 1.1
Premium branded spirits 10,386 8,435 5,568 23.1 51.5
Value-priced spirits 11,219 11,531 10,817 (2.7) 6.6
Contract bottling 9,320 13,089 19,267 (28.8) (32.1)
Vinegar and cooking wine 10,544 9,403 7,625 12.1 23.3
Other 4,922 5,751 5,516 (14.4) 4.2
------- ------- ------- ---- ----
$75,096 $77,938 $78,197 (3.6) (0.3)
------- ------- ------- ---- ----
------- ------- ------- ---- ----
</TABLE>
The following table provides unit sales volume data for certain Company
products.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, % CHANGE
------------------------ --------------------
1998 1997 1996 98/97 97/96
---- ---- ---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bulk alcohol products:
Distilled products, in proof gallons
Citrus brandy 1,479 1,805 1,922 (18.1) (6.1)
Citrus spirits 1,012 1,062 872 (4.7) 21.8
Rum 4,412 4,380 4,562 0.7 (4.0)
Cane spirits 617 542 509 13.7 6.6
Grain alcohol 3,061 3,499 2,018 (12.5) 73.3
Fortified citrus wine, in gallons 6,846 6,439 7,128 6.3 (9.7)
Premium branded spirits, in cases 215 194 177 11.0 9.4
Value-priced spirits, in cases 865 925 1,004 (6.5) (7.9)
Contract bottling, in cases 3,838 4,547 5,099 (15.6) (10.8)
Vinegar
Bulk, in 100 grain gallons 5,251 4,510 4,205 16.4 7.3
Cases, in cases 503 562 403 (10.6) 39.7
Drums, in 100 grain gallons 746 476 542 56.6 (12.1)
Cooking Wine
Bulk, in gallons 71 44 35 59.3 28.3
Cases, in cases 243 207 157 16.9 32.2
</TABLE>
9
<PAGE>
The Company produces and supplies brandy, rum, wine and spirits to
beverage alcohol manufacturers; bottles beverage alcohol and other beverages
on a contract basis; produces a line of value-priced spirits; produces,
imports and markets premium branded spirits and produces vinegar, cooking
wine and other alcohol-related 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 40 producers of beverage alcohol in the United States and
other foreign countries. The Company also purchases grain alcohol from
several suppliers located in the Midwest and resells it, primarily to export
customers. Citrus brandy and spirits are distilled from citrus juice
byproducts 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 premium branded spirits and
value-priced spirits line.
VALUE-PRICED 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 distilled spirits in the U.S. Virgin Islands. The
Company distills and ages its own rum, but generally produces its other
spirits from 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.
PREMIUM BRANDED SPIRITS. In 1996, the Company began to develop, import
and market premium branded spirits nationally. Since 1996, the Company has
established and strengthened relationships with wholesalers, expanded its
distribution network, developed new products, obtained new agency agreements
and acquired additional management and marketing expertise. In 1996 and
1997, sales of premium branded spirits were combined with sales of
value-priced spirits due to their relatively small amount. The Company's
premium branded spirits include Cruzan Estate Rums, Cruzan Flavored Rums,
Cruzan Rums, Porfidio Tequila and Plymouth Gin. Management's strategy has
been to focus on marketing and building premium brands 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. The Company also bottles other
beverages 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.
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 value-priced 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.
10
<PAGE>
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 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 November to June, corresponding to
the Florida citrus-harvest. 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
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128 in 1998. This statement requires the presentation of basic and
diluted net income per share. Basic net income per common share is computed
using the weighted average number of common shares outstanding during the
period. Diluted net income per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during
the period. Dilutive common equivalent shares consist of stock options. The
Company has restated all prior period per share data presented as required by
SFAS No. 128.
In June 1997, the Financial Accounting Standards Board (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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Management has not yet evaluated the effects of
this change on its financial position. The Company will adopt SFAS No. 133
as required during its fiscal year 1999.
YEAR 2000 COMPLIANCE
The Company has initiated a program to prepare the Company's information
systems for the year 2000, and to upgrade its information systems generally.
The Company has assessed the impact of the year 2000 issue on its operations,
including the cost of new software and hardware required addressing this
issue. The Company has recently completed its software selection process and
is currently implementing new software and hardware to address the year 2000
issue. Based on the Company's current implementation timetable it is
expected that the Company will be year 2000 compliant by June 1, 1999. The
Company estimates its costs to upgrade its information systems, including
addressing the year 2000 issue, will not exceed $385,000. The Company is in
the process of assessing the year 2000 compliance of its vendors, customers
and other third parties with which it does business and expects to complete
this process by June 1, 1999.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations may contain, 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
11
<PAGE>
expected customer orders and quarterly seasonal fluctuation of those orders;
and product shipment interruptions. See "Risk Factors" in previous filings
with the Securities and Exchange Commission.
Amounts presented in this Item 7 have generally been rounded to the
nearest thousand and hundred thousand, as applicable, but the percentages
calculated are based on actual amounts without rounding.
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. Net sales were $75.1 million in 1998, a decrease of 3.6%
from net sales of $77.9 million in 1997.
Net sales of bulk alcohol products were $28.7 million in 1998, a
decrease of 3.4% from net sales of $29.7 million in 1997. Unit sales of
citrus brandy decreased 18.1% in 1998, primarily due to increased
competition. Unit sales of citrus brandy have also declined as a result of a
decline in demand for 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 4.7% in 1998. Unit sales of
rum increased 0.7% in 1998. Unit sales of cane spirits increased 13.7% in
1998. Unit sales of grain alcohol decreased 12.5% in 1998, primarily due to
a slowdown in sales in Eastern Europe and Russia. Unit sales of fortified
citrus wine increased 6.3% in 1998. Other than the Company's sales of citrus
brandy and grain alcohol, the increases and decreases in sales of bulk
alcohol products are attributable to the timing of customer orders.
Net sales of premium branded spirits were $10.4 million in 1998, an
increase of 23.1% from net sales of $8.4 million in 1997. Sales increases
reflect the expansion by the Company of its distribution network into new
markets and the introduction of new brands.
Net sales of value-priced spirits were $11.2 million in 1998, a decrease
of 2.7% from net sales of $11.5 million in 1997. Value-priced spirits volume
decreased 6.5% due to increased competition from other low cost bottlers.
Net sales of contract bottling services were $9.3 million in 1998, a
decrease of 28.8% from net sales of $13.1 million in 1997. The Company's
contract bottling volume decreased 15.6% in 1998. The decrease in volume is
primarily attributable to a decrease in business with the Company's largest
Type A bottling customer. The Company believes that the business with this
Type A bottling customer will not return to historical levels. The decrease
in contract bottling volume with this customer was partially offset by
increased volume with other new and existing customers.
Net sales of vinegar and cooking wine were $10.5 million in 1998, an
increase of 12.1% from net sales of $9.4 million in 1997. The increase in
net sales of vinegar and cooking wine was due to increased manufacturing
capacity, which allowed the Company to increase sales to existing and new
customers, and an improved product mix. The Company's two vinegar plants are
now operating at maximum capacity. The Company intends to expand its vinegar
production capacity.
GROSS PROFIT. Gross profit was $22.1 million in 1998, an increase of
3.0% from gross profit of $21.4 million in 1997. Gross margin increased to
29.4% in 1998 from 27.5% in 1997. The improvement in gross margin is
primarily attributable to reduced raw material costs in the Company's
domestic distilling operations, a decrease in contract bottling volume with a
large Type A bottling customer and a favorable change in product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $13.9 million in 1998, an increase of 6.2% from
$13.1 million in 1997. Selling, general and administrative expenses were
18.6% of net sales in 1998 and 16.8% in 1997. The increase in selling,
general and administrative expenses in 1998, is primarily attributable to (1)
increased marketing and new employees related to the Company's efforts in
increasing its distribution network for its premium branded spirits, and (2)
legal fees relating to the Company's efforts to prosecute and settle various
lawsuits. The increase was partially offset by a reduction in administrative
overhead.
INTEREST INCOME. The Company earns interest income on its cash
investments and notes receivable. The decrease in interest income in 1998 is
due to decreased cash investments and amounts of notes receivable.
12
<PAGE>
INTEREST EXPENSE. Interest expense was $3.9 million in 1998 and $4.1
million in 1997. The decrease in interest expense was due to lower levels of
debt outstanding and lower interest rates during 1998 as compared to 1997.
OTHER, NET. Included in other income is rental income from the Bahamian
subsidiary and non-recurrring gains of $.4 million in 1998 and $.3 million in
1997 relating to insured hurricane damage. In 1998, the Company recorded a
loss of approximately $.4 million from an unconsolidated equity investee
which began operations in August 1997. See Note 15 to the Company's
consolidated financial statements for additional information about this
unconsolidated subsidiary.
INCOME TAX EXPENSE. The Company's effective income tax rate was 14.6%
in 1998 and 21.2% in 1997. The low tax rate is attributable to the Virgin
Islands subsidiary which has a 90% exemption from U.S. federal income taxes.
Also, the Company recently amended its 1993, 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.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES. Net sales were $77.9 million in 1997, a decrease of .3% from
net sales of $78.2 million in 1996.
Net sales of bulk alcohol products were $29.7 million in 1997, an
increase of 1.1% from net sales of $29.4 million in 1996. Unit sales of
citrus brandy decreased 6.1% in 1997. Unit sales of citrus brandy have
declined as a result of a decline in demand for brandy products which
management believes is due to changing demographics. Management expects this
trend to continue in the future. Unit sales of citrus spirits increased 21.8%
in 1997. The increase in sales of citrus spirits was primarily due to
increases in sales to other manufacturers of fortified citrus wine. Unit
sales of cane spirits increased 6.6% in 1997. Unit sales of rum decreased
4.0% in 1997. The fluctuations in rum shipments are attributable to the
timing of customer orders. Unit sales of grain alcohol increased 73.3% 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
9.7% in 1997. Shipments of fortified citrus wine decreased 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 premium branded spirits were $8.4 million in 1997, an
increase of 51.5% from net sales of $5.6 million in 1996. Beginning in 1996,
management's strategy has been to focus on marketing and building premium
brands with an initial emphasis on the rum and tequila categories.
Net sales of value-priced spirits were $11.5 million in 1997, an
increase of 6.6% from net sales of $10.8 million in 1996. However, the
Company experienced a volume decrease in unit sales of value-priced spirits
of 7.9% in 1997. The volume decrease in value-priced spirits is attributable
to the private label component of this category which has a lower gross
margin. The change in product mix in this category resulted in an increase
in the average price per case of 15.7% in 1997.
Net sales of contract bottling services were $13.1 million in 1997, a
decrease of 32.1% from net sales of $19.3 million in 1996. The Company's
contract bottling volume decreased 10.8% in 1997. The decrease in volume is
primarily attributable to a decrease in business with one of the Company's
largest bottling customers. The Company continues to provide a significant
amount of contract bottling services to this customer even as this customer
continues with its plan to transfer production to its own facility. The
Company also experienced a decrease in contract bottling services to export
customers, primarily in Eastern Europe and Russia, as these customers
increased their purchases of bulk grain alcohol. The decreases in contract
bottling volume discussed above were partially offset by increased volume
with existing and new customers.
Net sales of vinegar and cooking wine were $9.4 million in 1997, an
increase of 23.3% from net sales of $7.6 million in 1996. The increase in
net sales of vinegar and cooking wine was due to increased manufacturing
capacity, new customers and an improved product mix.
GROSS PROFIT. Gross profit was $21.4 million in 1997, an increase of
8.5 % from gross profit of $19.8 million in 1996. Gross margin increased to
27.5% in 1997 from 25.3% 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,
13
<PAGE>
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $13.1 million in 1997, an increase of 14.3% from
$11.5 million in 1996. Selling, general and administrative expenses were
16.8% of net sales in 1997 and 14.7% 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.
INTEREST EXPENSE. Interest expense was $4.1 million in 1997 and $4.4
million in 1996. The decrease in interest expense was due to lower levels of
debt outstanding during 1997.
INTEREST AND OTHER INCOME. Interest income decreased to $.8 million in
1997 from $1.0 million in 1996 due to lower levels of cash, cash equivalents
and notes receivable. Also included in other income is rental income from
the Bahamian subsidiary and a gain of $.3 million in 1997 and $.2 million in
1996 relating to insured hurricane damage.
INCOME TAX EXPENSE. The Company's effective income tax rate was 21% in
1997 and 1996. The low tax rate is attributable to the Virgin Islands
operations which has a 90% exemption from income taxes.
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 the subsequent receivables. The Company's source of
liquidity has historically been cash flow from operations and its line of
credit. Some of the Company's manufacturing operations are seasonal and the
Company's balance on its line of credit varies 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 by-product 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
operations. Demand for contract bottling services is highest during the
months from April through October. Management believes that cash provided by
operating activities and its 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 capital needs.
OPERATING ACTIVITIES
Net cash provided by operating activities in 1998 was $4.7 million,
which resulted from $9.3 million in net income adjusted for noncash items,
less $4.6 million representing the net change in operating assets and
liabilities. The net change in operating assets and liabilities resulted
from an increase in the Company's inventory and receivables of $4.0 million
related primarily to the expansion of its premium branded spirits business.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 1998 was $2.4 million, which
resulted primarily from $2.7 million of capital expenditures. Payments
received on notes receivable of $1.5 million were offset by new notes issued
of $.9 million and the purchase of a minority interest in the Company's
Bahamian subsidiary of $.4 million.
Net cash used in financing activities in 1998 was $1.6 million, which
resulted from principal payments on long-term debt of $3.7 million, which was
offset by a $2.1 million increase in the Company's line of credit. The
principal payments on long-term debt of $3.7 million include $.75 million in
excess of the required payments on the Company's term loan in the Virgin
Islands. The Company intends to continue to prepay principal on this term
loan.
14
<PAGE>
At September 30, 1998, the Company had an unsecured bank line of credit
of $15 million, which expires November 1, 2001. The first $4 million of
borrowings bear interest at 1.5% above the one-month LIBOR rate, borrowings
in excess of $4 million bear interest at the prime rate. The borrowings
under this line were $6.3 million at September 30, 1998. Borrowings in
excess of $10 million are subject to a borrowing base of inventories and
receivables. The agreement requires the Company to maintain a tangible net
worth, as defined, a maximum leverage ratio and minimum fixed charge,
interest coverage and current ratios. In addition, the agreement prohibits
the payment of cash dividends. The Company was in compliance with these
covenants at September 30, 1998.
The Company's total debt was $44.5 million as of September 30, 1998, and
its ratio of debt to equity was 1.1 to 1.
On September 22, 1998, the Company's board of directors authorized the
repurchase of up to 100,000 shares of the Company's common stock, either in
open market or private transactions. The Company expects to complete its
repurchase plan during the Company's fiscal year ending September 30, 1999.
As of December 11, 1998, the Company has repurchased 56,000 shares for
$406,075, or at an average cost of $7.25 per share.
With respect to the Bahamian and Virgin Islands subsidiaries, no
provision has been made for taxes which would result from the remittance of
such undistributed earnings as the Company intends to reinvest these earnings
indefinitely. The Company's share of the undistributed earnings of the
Bahamian and Virgin Islands subsidiaries was approximately $7.5 million and
$12 million, respectively, as of September 30, 1998. See Note 9 to the
Company's consolidated financial statements for additional information on
income taxes related to these subsidiaries.
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.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following market risk analysis table reflects maturities of interest rate
sensitive assets and liabilities over the next five years and thereafter.
Market Risk Analysis
September 30, 1998
<TABLE>
<CAPTION>
Expected Maturity Date
------------------------------------------------------------------------------
1999 2000 2001 2002 2003
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Notes receivable:
Fixed rate $ 1,503,675 $ 4,051,620 $ 916,667 $ 0 $ 0
Average interest rate 6.44% 6.77% 6.00% 0.00% 0.00%
Liabilities
Long-term debt:
Fixed rate $ 888,133 $ 6,800,000 $ 7,933,333 $ 7,933,333 $ 4,533,334
Average interest rate 7.50% 8.91% 8.91% 8.91% 8.91%
Variable rate $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 6,580,944 $ 0
Average interest rate 6.76% 6.76% 6.76% 7.71% 0.00%
Interest Rate Derivatives
Interest rate swaps:
Variable to fixed $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 250,000 $ 0
Interest rate paid 8.46% 8.46% 8.46% 8.46% 0.00%
Interest rate received 7.88% 7.88% 7.88% 7.88% 0.00%
Fixed to variable $ 0.00% $ 800,000 $ 933,333 $ 933,333 $ 533,334
Interest rate paid 0.00% 6.19% 6.19% 6.19% 6.19%
Interest rate received 0.00% 8.91% 8.91% 8.91% 8.91%
</TABLE>
<TABLE>
<CAPTION>
Expected Maturity Date
------------------------------------------
Thereafter Total Fair Value
-------------- ------------ ------------
<S> <C> <C> <C>
Assets
Notes receivable:
Fixed rate $ 770,000 $ 7,241,962 $ 7,805,854
Average interest rate 8.50% 6.79% -
Liabilities
Long-term debt
Fixed rate $ 6,800,000 $ 34,888,133 $ 36,798,021
Average interest rate 8.91% 8.87% -
Variable rate $ 0 $ 9,580,944 $ 9,580,944
Average interest rate 0.00% 7.42% -
Interest Rate Derivatives
Interest rate swaps:
Variable to fixed $ 0 $ 3,250,000 $ (23,902)
Interest rate paid 0.00% 8.46% -
Interest rate received 0.00% 7.88% -
Fixed to variable $ 800,000 $ 4,000,000 $ 384,194
Interest rate paid 6.19% 6.19% -
Interest rate received 8.91% 8.91% -
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement schedule
of the Company and its subsidiaries, and the report of independent auditors
are listed at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTS AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and executive officers required by
Item 10 is incorporated by reference from the Company's definitive proxy
statement for its 1999 annual stockholders' meeting.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the Company's definitive proxy statement for its 1999 annual stockholders'
meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
The information required by Item 12 is incorporated by reference from
the Company's definitive proxy statement for its 1999 annual stockholders'
meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the Company's definitive proxy statement for its 1999 annual stockholders'
meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
See "Index to Financial Statements and Financial Statement Schedules".
(b) Exhibits
See "Index to Exhibits".
(c) Reports on Form 8-K
During the fourth quarter of 1998, the Company filed the following current
reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Report Description
- -------------- -----------
<S> <C>
August 21, 1998 Settlement of litigation with the former shareholders
of Blair Importers, Ltd.
September 14, 1998 Offer to purchase 261,214 shares of the Company's
common stock pursuant to the settlement agreement with
the former shareholders of Blair Importers, Ltd.
September 22, 1998 Board of Directors authorizes the Company to repurchase
up to 100,000 shares of the Company's common stock.
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
West Palm Beach, State of Florida, on the 17th day of December, 1998.
TODHUNTER INTERNATIONAL, INC.
By: /s/ A. Kenneth Pincourt, Jr.
-------------------------------------
A. Kenneth Pincourt, Jr., Chairman of
the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ A. Kenneth Pincourt, Jr. Chairman of the Board
-------------------------------- and Chief Executive Officer December 17, 1998
A. Kenneth Pincourt, Jr. (Principal Executive Officer)
/s/ Troy Edwards Treasurer and Chief Financial Officer December 17, 1998
-------------------------------- (Principal Financial
Troy Edwards and Accounting Officer)
/s/ Thomas A. Valdes Director December 17, 1998
--------------------------------
Thomas A. Valdes
/s/ Jay S. Maltby Director December 17, 1998
--------------------------------
Jay S. Maltby
/s/ D. Chris Mitchell Director December 17, 1998
--------------------------------
D. Chris Mitchell
/s/ Leonard G. Rogers Director December 17, 1998
--------------------------------
Leonard G. Rogers
/s/ W. Gregory Robertson Director December 17, 1998
--------------------------------
W. Gregory Robertson
/s/ Edward F. McDonnell Director December 17, 1998
--------------------------------
Edward F. McDonnell
</TABLE>
17
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
a) Financial Statements
Independent Auditor's Report 19
Consolidated balance sheets as of September 30, 1998 and 1997 20
Consolidated statements of income for the years ended September 30,
1998, 1997 and 1996 22
Consolidated statements of stockholders' equity for the years ended
September 30, 1998, 1997 and 1996 23
Consolidated statements of cash flows for the years ended
September 30, 1998, 1997 and 1996 24
Notes to consolidated financial statements 26
b) Financial Statement Schedules
Independent Auditors Report on Financial Statement Schedule 41
Schedule II Valuation and Qualifying Accounts 42
</TABLE>
All of the other schedules have been omitted as not required, not
applicable, not deemed material or because the information is included in the
notes to the registrant's consolidated financial statements.
18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Todhunter International, Inc. and Subsidiaries
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of Todhunter
International, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Todhunter
International, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998 in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
West Palm Beach, Florida
November 25, 1998
19
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,629,016 $ 4,904,804
Trade receivables 11,623,197 11,051,085
Other receivables 2,237,397 2,116,110
Inventories 23,423,573 20,086,901
Notes receivable, current maturities 1,503,675 1,435,868
Deferred income taxes 1,011,000 1,162,000
Other current assets 1,000,192 1,580,034
-------------------------------
TOTAL CURRENT ASSETS 46,428,050 42,336,802
Long-Term Notes Receivable, less current maturities 5,738,287 6,369,986
Property and Equipment, less accumulated depreciation
1998 $32,017,543; 1997 $28,236,376 41,527,402 42,943,754
Property Held for Lease, less accumulated depreciation
1998 $1,139,747; 1997 $998,882 1,387,707 1,429,177
Goodwill, less accumulated amortization
1998 $703,096; 1997 $670,351 389,423 422,168
Other Assets 1,526,161 2,116,568
-------------------------------
$96,997,030 $95,618,455
-------------------------------
-------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 1,888,133 $ 2,937,744
Accounts payable 3,417,615 5,039,252
Accrued interest expense 1,261,542 1,404,444
Other accrued expenses 2,054,188 1,315,600
-----------------------------
TOTAL CURRENT LIABILITIES 8,621,478 10,697,040
Long-Term Debt, less current maturities 42,580,944 43,135,080
Deferred Income Taxes 4,685,000 4,852,000
Other Liabilities 105,539 225,713
-----------------------------
55,992,961 58,909,833
-----------------------------
Minority Interest - 418,249
-----------------------------
Commitments and Contingencies
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 4,949,714 49,497 49,497
Additional paid-in capital 11,945,777 11,945,777
Retained earnings 29,008,795 24,295,099
-----------------------------
41,004,069 36,290,373
-----------------------------
$96,997,030 $95,618,455
-----------------------------
-----------------------------
</TABLE>
21
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 110,846,810 $ 116,605,935 $ 121,066,640
Less excise taxes 35,750,916 38,667,686 42,870,108
-------------------------------------------------------------
NET SALES 75,095,894 77,938,249 78,196,532
Cost of goods sold 53,005,786 56,493,174 58,427,344
-------------------------------------------------------------
GROSS PROFIT 22,090,108 21,445,075 19,769,188
Selling, general and administrative expenses 13,937,082 13,126,309 11,482,737
-------------------------------------------------------------
OPERATING INCOME 8,153,026 8,318,766 8,286,451
-------------------------------------------------------------
Other income (expense):
Interest income 655,230 840,016 1,035,811
Interest expense (3,946,528) (4,146,322) (4,350,791)
Equity in losses of equity investee (364,740) - -
Other, net 1,025,020 931,394 765,592
-------------------------------------------------------------
(2,631,018) (2,374,912) (2,549,388)
-------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,522,008 5,943,854 5,737,063
-------------------------------------------------------------
Income tax expense (benefit):
Current 824,312 197,292 136,265
Deferred (16,000) 1,062,000 1,056,000
-------------------------------------------------------------
808,312 1,259,292 1,192,265
-------------------------------------------------------------
NET INCOME $ 4,713,696 $ 4,684,562 $ 4,544,798
-------------------------------------------------------------
-------------------------------------------------------------
Net income per common share:
Basic $ 0.95 $ 0.95 $ 0.92
-------------------------------------------------------------
-------------------------------------------------------------
Diluted $ 0.95 $ 0.94 $ 0.92
-------------------------------------------------------------
-------------------------------------------------------------
Common shares and equivalents outstanding:
Basic 4,949,714 4,943,169 4,919,060
-------------------------------------------------------------
-------------------------------------------------------------
Diluted 4,984,868 4,966,165 4,955,088
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional Total
Shares Paid-in Retained Stockholders'
Issued Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 4,916,964 $ 49,170 $11,749,604 $15,065,739 $26,864,513
Issuance of common stock in connection
with employee stock options 6,500 65 38,935 - 39,000
Net income - - - 4,544,798 4,544,798
-----------------------------------------------------------------------------
Balance, September 30, 1996 4,923,464 49,235 11,788,53 19,610,537 31,448,311
Issuance of common stock in connection
with employee stock options 26,250 262 157,238 - 157,500
Net income - - - 4,684,562 4,684,562
-----------------------------------------------------------------------------
Balance, September 30, 1997 4,949,714 49,497 11,945,777 24,295,099 36,290,373
Net income - - - 4,713,696 4,713,696
-----------------------------------------------------------------------------
Balance, September 30, 1998 4,949,714 $ 49,497 $11,945,777 $29,008,795 $41,004,069
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 4,713,696 $ 4,684,562 $ 4,544,798
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 4,151,350 3,930,933 3,837,646
Amortization 94,108 229,190 210,479
Equity in losses of equity investees 364,740 - -
Deferred income taxes (16,000) 1,062,000 1,056,000
Other (10,225) (4,249) (31,465)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables (693,399) (360,722) (1,143,144)
Inventories (3,336,672) (1,472,597) (1,249,730)
Other assets 579,842 (221,600) 961,556
Increase (decrease) in:
Accounts payable (1,621,637) (14,409) 398,848
Accrued interest expense (142,902) 142,902 (20,194)
Other accrued expenses 738,588 (358,939) (526,050)
Other liabilities (120,174) (128,617) (134,493)
Discontinued operations - 124,786 2,728,277
---------------------------------------------------------
Net cash provided by
operating activities $ 4,701,315 $ 7,613,240 $ 10,632,528
---------------------------------------------------------
</TABLE>
(Continued)
24
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Investing Activities
Proceeds from sale of property and equipment $ 38,692 $ 63,565 $ 76,762
Principal payments received on
notes receivable 1,477,775 1,525,539 1,576,164
Purchase of property and equipment (2,721,995) (3,775,112) (4,901,705)
Disbursements for notes receivable (913,883) (52,500) (62,070)
Purchase of certificates of deposit - - (4,565,381)
Redemption of certificates of deposit - 4,494,375 4,655,440
Purchase of minority interest in subsidiary (418,249) - -
(Increase) decrease in other assets 164,304 (344,177) (279,190)
-------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (2,373,356) 1,911,690 (3,499,980)
-------------------------------------------------------
Cash Flows From Financing Activities
Net borrowings (payments) under line of
credit arrangements 2,083,997 (5,438,538) (4,064,324)
Proceeds from issuance of common stock - 157,500 39,000
Principal payments on long-term borrowings (3,687,744) (1,933,334) (2,513,559)
-------------------------------------------------------
NET CASH (USED IN)
FINANCING ACTIVITIES (1,603,747) (7,214,372) (6,538,883)
-------------------------------------------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 724,212 2,310,558 593,665
Cash and cash equivalents:
Beginning 4,904,804 2,594,246 2,000,581
-------------------------------------------------------
Ending $ 5,629,016 $ 4,904,804 $ 2,594,246
-------------------------------------------------------
-------------------------------------------------------
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest $ 4,089,430 $ 4,003,420 $ 4,370,985
-------------------------------------------------------
-------------------------------------------------------
Income taxes $ 406,937 $ 344,347 $ 140,181
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Todhunter International, Inc. and subsidiaries (the
"Company") produces and supplies brandy, rum, wine and spirits to beverage
alcohol manufacturers; bottles beverage alcohol and other beverages on a
contract basis; produces a line of value-priced spirits; produces, imports and
markets premium branded spirits and produces vinegar, cooking wine and other
alcohol-related products.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Todhunter International, Inc. and all of its majority-owned
subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. Investments in business entities in which
the Company does not have control, but has the ability to exercise
significant influence over operating and financial policies (generally
20-50% ownership), are accounted for by the equity method.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION: The Company recognizes revenue when its product is
shipped, at which time title passes to the customer. Revenues from contract
bottling services are recognized at the time the bottling process is
completed. Excise taxes on products sold are billed directly to customers
and are included in sales at the same time the product sold is recognized
as revenue.
CASH EQUIVALENTS: The Company considers certificates of deposit with an
original maturity of three months or less to be cash equivalents. The
Company maintains depository accounts in excess of FDIC insured limits. The
Company has not experienced any credit losses in such accounts and does not
anticipate any losses.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT AND PROPERTY HELD FOR LEASE: Property and equipment
and property held for lease are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the various
classes of depreciable assets. Estimated lives are as follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Land improvements 3 to 20
Buildings and improvements 3 to 40
Machinery and equipment 3 to 33
</TABLE>
26
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS: The Company utilizes derivative financial
instruments to change the fixed/variable interest rate mix of the debt
portfolio to reduce the Company's aggregate risk to movements in interest
rates. The derivative instruments consist of interest rate swap agreements
with banks. Gains and losses relating to qualified hedges are deferred and
included in the measurement of the related transaction, when the hedged
transaction occurs. Realized and unrealized changes in the fair value of
the remaining derivative financial instruments are recognized in income in
the period in which the change occurs. The Company's policy is not to hold
or issue derivative financial instruments for trading purposes.
AMORTIZATION: Amortization is computed on the straight-line basis over the
estimated lives of the capitalized assets. Estimated lives are as follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Goodwill 20 - 40
Trademarks 20 - 40
Other 3 - 12
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amounts of those
assets.
INCOME TAXES: Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
COMPUTATION OF NET INCOME PER COMMON SHARE: The Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128 in 1998. This statement
requires the presentation of basic and diluted net income per share. Basic
net income per common share is computed using the weighted average number
of common shares outstanding during the period. Diluted net income per
share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of stock options. The Company has restated all
prior period per share data presented as required by SFAS No. 128.
PREFERRED STOCK: The Company has authorized 2,500,000 shares of $.01 par
value preferred stock. No terms are stated as to dividend, liquidation or
other rights applicable to these shares.
27
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVENTORIES
The major components of inventories as of September 30, 1998 and 1997 are:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Finished goods $15,794,672 $12,318,664
Work in process 355,659 1,639,970
Raw materials and supplies 7,273,242 6,128,267
-------------------------------
$23,423,573 $20,086,901
-------------------------------
-------------------------------
</TABLE>
NOTE 3. NOTES RECEIVABLE
Notes receivable consist of the following as of September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
6% note, collateralized by general intangibles, mortgage and security
agreement, monthly payments of $83,333 plus interest
through September 2001 $2,916,667 $3,916,667
7% note, collateralized by property and equipment, monthly
principal and interest payments of $47,202 through September
1999, unpaid principal balance of $3,000,000 due in October 1999 3,343,267 3,663,393
8.5% unsecured notes, principal payable on demand. Interest
payments are due monthly or on demand in accordance with
the terms of the agreement. (See Note 15) 770,000 -
Other 212,028 225,794
------------------------------
7,241,962 7,805,854
Less current maturities 1,503,675 1,435,868
------------------------------
$5,738,287 $6,369,986
------------------------------
------------------------------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
The major classifications of property and equipment as of September 30, 1998
and 1997 are:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Land $ 4,757,587 $ 4,757,587
Land improvements 1,156,115 1,058,051
Buildings and improvements 15,804,392 15,287,175
Machinery and equipment 51,826,851 50,077,317
-------------------------------
73,544,945 71,180,130
Less accumulated depreciation 32,017,543 28,236,376
-------------------------------
$41,527,402 $42,943,754
-------------------------------
-------------------------------
</TABLE>
28
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PROPERTY HELD FOR LEASE
The major classifications of property held for lease as of September 30, 1998
and 1997 are:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Land $ 191,318 $ 191,318
Buildings 2,243,000 2,143,605
Furniture and equipment 93,136 93,136
-------------------------------
2,527,454 2,428,059
Less accumulated depreciation 1,139,747 998,882
-------------------------------
$1,387,707 $1,429,177
-------------------------------
-------------------------------
</TABLE>
Property held for lease consists of two commercial shopping centers and five
residential townhomes in the Bahamas. The properties are leased on a
month-to-month basis. Total rental income was $237,510, $236,193, and $234,882
for the years ended September 30, 1998, 1997 and 1996, respectively.
NOTE 6. OTHER ASSETS
Other assets, net of accumulated amortization, consist of the following as of
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Trademarks $1,035,848 $1,076,048
Other 490,313 1,040,520
------------------------------
$1,526,161 $2,116,568
------------------------------
------------------------------
</TABLE>
NOTE 7. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following as of September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Accrued property taxes $ 456,833 $ 505,284
Other 1,597,355 810,316
-------------------------------
$2,054,188 $1,315,600
-------------------------------
-------------------------------
</TABLE>
29
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. FINANCING ARRANGEMENTS
Long-term debt consists of the following as of September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
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 $34,000,000
Revolving credit note of $15,000,000, interest payable monthly at
the prime rate for domestic loans and at 1.50% above the one
month London Interbank Offered Rate ("LIBOR") for Eurodollar
loans, principal is due in full November 1, 2001. The maximum
amount which can be drawn on the revolving note is based
on the borrowing base as specified in the agreement, unsecured 6,330,944 4,246,947
Bank note payable, interest is calculated based upon a floating
rate of 2.50% 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) 3,250,000 5,000,000
Note payable, interest at 7.5%, principal and interest payments
required through 1999 888,133 2,825,877
--------------------------------
44,469,077 46,072,824
Less current maturities 1,888,133 2,937,744
--------------------------------
$42,580,944 $43,135,080
--------------------------------
--------------------------------
</TABLE>
30
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. FINANCING ARRANGEMENTS (CONTINUED)
Maturities of long-term debt as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
- --------------------------------------------------------------------------
<S> <C>
1999 $ 1,888,133
2000 7,800,000
2001 8,933,333
2002 14,514,278
2003 4,533,333
Thereafter 6,800,000
-----------
$44,469,077
-----------
-----------
</TABLE>
The Company uses interest rate 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 a 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%. During 1998, 1997 and
1996, the Company received payments of $87,054, $88,898 and $100,444
respectively, related to this agreement, and reduced interest expense
accordingly.
(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%.
During 1998, 1997 and 1996, the Company made payments of $29,208, $27,327
and $27,332, respectively, related to this agreement, and increased
interest expense accordingly.
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 and for the year ended September 30, 1998.
31
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES
Income tax expense consists of the following for the years ended September 30,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal $ 860,191 $ 224,764 $ 116,265
State (35,879) (27,472) 20,000
-------------------------------------------------------
824,312 197,292 136,265
-------------------------------------------------------
Deferred income tax expense (benefit):
Federal 13,000 926,000 978,000
State (29,000) 136,000 78,000
-------------------------------------------------------
(16,000) 1,062,000 1,056,000
-------------------------------------------------------
Total income tax expense $ 808,312 $ 1,259,292 $ 1,192,265
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to significant portions of the
deferred tax assets and liabilities relate to the following as of September 30,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation $3,704,000 $3,627,000
Installment sale 862,000 1,190,000
Other 119,000 35,000
------------------------------
4,685,000 4,852,000
------------------------------
Deferred tax assets:
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 771,000 620,000
Difference related to anticipated future expenses and
allowances 227,000 231,000
Net operating loss carryforwards - 157,000
Other 13,000 154,000
------------------------------
1,011,000 1,162,000
------------------------------
Net deferred income tax liability $3,674,000 $3,690,000
------------------------------
------------------------------
</TABLE>
No valuation allowance has been recorded as of September 30, 1998 or 1997.
32
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES (CONTINUED)
Income tax expense differed from the amounts computed by applying the statutory
United States federal income tax rate to income from continuing operations
before income taxes as a result of the following for the years ended September
30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,877,483 $ 2,020,910 $ 1,950,602
(Nontaxable) taxable income and dividends from
Bahamian subsidiary 97,950 80,881 (5,918)
Effect of income tax subsidy on earnings of
Virgin Islands subsidiary (1,169,187) (1,025,698) (767,571)
Effect of state taxes 12,199 9,340 (6,800)
Other (10,133) 173,859 21,952
-------------------------------------------------------
Total income tax expense on income
from continuing operations $ 808,312 $ 1,259,292 $ 1,192,265
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
Generally, the Bahamian subsidiary is not subject to United States income taxes
and there are no income taxes in the Commonwealth of the Bahamas. Certain
passive income of the Bahamian subsidiary is subject to United States income
taxes. The tax effect of income from the Bahamian subsidiary reflected above and
the undistributed earnings of the Bahamian subsidiary have been reduced by the
taxable amount.
The 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. This exemption is effective through January 31,
2002. The per share effect of this exemption on earnings on a basic and diluted
basis for the years ended September 30, 1998, 1997 and 1996, respectively, is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Basic $ 0.24 $ 0.21 $ 0.15
Diluted 0.23 0.21 0.15
</TABLE>
With respect to the Bahamian and Virgin Islands subsidiaries, no provision has
been made for taxes which would result from the remittance of such undistributed
earnings as the Company intends to reinvest these earnings indefinitely. The
Company's share of the undistributed earnings of the Bahamian and Virgin Islands
subsidiaries was approximately $7,500,000 and $12,000,000, respectively, as of
September 30, 1998.
33
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. LEASES
The Company occupies office space under noncancelable operating leases which
expire in 2006. Initial base rent is $31,069 through 2000 and increases to
$31,956, thereafter, payable monthly. The leases contain two renewal options of
five years each.
Future minimum lease payments under noncancelable operating leases as of
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
- ------------------------------------------------------------------
<S> <C>
1999 $ 449,363
2000 379,002
2001 386,989
2002 389,651
2003 389,651
Thereafter 1,266,367
----------
$3,261,023
----------
----------
</TABLE>
Rent expense for office space (including the Company's share of common area
expenses, real estate and sales taxes) amounted to $359,484, $324,005, and
$470,080, for the years ended September 30, 1998, 1997 and 1996, respectively.
NOTE 11. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to litigation from time to time in
the ordinary course of business.
There have been no material developments in the Company's legal proceedings,
except as set forth below:
LOEWENWARTER LITIGATION: On November 17, 1998, the Company settled its
claims against Ernest D. Loewenwarter & Co. Pursuant to the terms of the
settlement agreement, all claims by the Company against Loewenwarter were
discontinued in return for a settlement payment.
UNITED STATES TAX COURT: On November 10, 1998, the United States Tax Court
approved a settlement between the Company and the Internal Revenue Service
for the Company's years ended September 30, 1993 and 1994. The Company paid
a deficiency, net of refunds, of approximately $200,000. The settlement
also provided the Company with deductions which were used to reduce taxes
in its year ended September 30, 1998. The settlement did not have a
material adverse effect on the Company's financial condition or results of
operations.
There are no other legal proceedings pending as of September 30, 1998 which
the Company believes to be material. Legal proceedings which are pending
consist only of matters in the ordinary course of business and taken together
are not material.
34
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. STOCK OPTIONS
On August 11, 1992, the Company adopted a stock option plan for the grant of
options to key employees. Option prices may not be less than 85% for the
nonqualified options or 100% for the qualified stock options of the fair market
value at the date of the grant. As of September 30, 1998, 1,400,000 shares are
authorized for issuance under the option plan. Options granted have vesting
periods ranging from 3 to 5 years. During the years ended September 30, 1997 and
1996, the Company received a total of $157,500 and $39,000 upon the exercise of
stock options for 26,250 and 6,500 shares, respectively. There were no stock
options exercised during the year ended September 30, 1998.
The Company applies Accounting Principles Board Opinion Number 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations in
accounting for options granted which requires compensation expense for the
Company's options to be recognized only if the market price of the underlying
stock exceeds the exercise price on the date of grant. Accordingly, the Company
has not recognized compensation expense for its options granted in 1996, 1997,
and 1998. SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, issued in October
1995, requires pro forma disclosures for option grants made after December 31,
1994, when accounting for stock-based compensation plans in accordance with APB
25.
If the Company had elected, beginning in fiscal 1996, to recognize compensation
cost based on the fair value of the options granted at grant date as prescribed
by SFAS No. 123, net income and earnings per common share would have been
reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported $ 4,713,696 $ 4,684,562 $ 4,544,798
Net income - pro forma 4,538,467 4,602,805 4,463,041
Earnings per common share - as reported (Basic) 0.95 0.95 0.92
Earnings per common share - as reported (Diluted) 0.95 0.94 0.92
Earnings per common share - pro forma (Basic) 0.91 0.93 0.90
Earnings per common share - pro forma (Diluted) 0.91 0.92 0.90
</TABLE>
The pro forma effects are determined as if compensation costs were recognized
using the fair value based accounting method. The fair values of options granted
during 1998 and 1996 were estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk free interest rate of
4.75% and 6.3% respectively; expected lives of 10 years; expected volatility of
30% and 31%, respectively; and a zero percent dividend yield.
35
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. STOCK OPTIONS (CONTINUED)
A reconciliation of the Company's stock option activity, and related
information, for the years ended September 30 follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
NUMBER AVERAGE Number Average Number Average
OF EXERCISE of Exercise of Exercise
OPTIONS PRICE Options Price Options Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning 292,000 9.53 402,750 9.57 321,750 9.89
of year
Granted 60,000 9.06 - - 87,500 8.13
Exercised - - (26,250) 6.00 (6,500) 6.00
Forfeited - - (84,500) 10.81 - -
--------------------------------------------------------------------------------------
Outstanding, end of year 352,000 9.45 292,000 9.53 402,750 9.57
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Exercisable at end of year 257,000 9.72 239,500 9.83 216,084 10.03
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about the stock options at September
30, 1998:
<TABLE>
<CAPTION>
NUMBER NUMBER
OUTSTANDING AT EXERCISABLE AT
SEPTEMBER 30, SEPTEMBER 30, EXPIRATION
EXERCISE PRICE 1998 1998 DATE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 6.0000 69,500 69,500 November 2002
12.2500 135,000 135,000 April 2004
8.1250 87,500 52,500 February 2006
9.0625 60,000 - May 2008
-------------------------------------
352,000 257,000
-------------------------------------
-------------------------------------
</TABLE>
The exercise price of options granted has been equal to their grant date fair
value.
NOTE 13. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company has made net sales of approximately $3,170,622, $6,950,000 and
$11,060,000 to a certain customer for the years ended September 30, 1998, 1997
and 1996, respectively.
36
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONTINUED)
Sales and operating income from continuing operations for the years ended
September 30, 1998, 1997, and 1996 and identifiable assets from continuing
operations as of the end of each period classified by geographic area, were as
follows:
<TABLE>
<CAPTION>
U. S. VIRGIN
ISLANDS AND
UNITED STATES THE BAHAMAS CONSOLIDATED
-----------------------------------------------------
<S> <C> <C> <C>
September 30, 1998:
Net sales $62,144,796 $12,951,098 $75,095,894
Operating income 5,160,075 2,992,950 8,153,025
Identifiable assets 64,659,348 32,337,682 96,997,030
September 30, 1997:
Net sales 64,865,688 13,072,561 77,938,249
Operating income 5,350,994 2,967,772 8,318,766
Identifiable assets 63,300,335 32,318,120 95,618,455
September 30, 1996:
Net sales 66,052,948 12,143,584 78,196,532
Operating income 5,673,351 2,613,100 8,286,451
Identifiable assets 64,030,346 34,283,731 98,314,077
</TABLE>
Included in net sales for the United States are export sales, primarily to
Eastern Europe, Canada and the Caribbean, totaling approximately $7,200,000,
$8,900,000 and $7,200,000 for the years ended September 30, 1998, 1997 and
1996.
NOTE 14. PENSION PLAN
The Company has a defined contribution retirement plan which covers
substantially all U. S. employees. Contributions to the plan were approximately
$669,866, $632,484, and $803,112 for the years ended September 30, 1998, 1997
and 1996, respectively. The Company contributes 6.0% of an employee's total
compensation, plus 5.5% of compensation in excess of the social security tax
wage base. Employee's compensation in excess of $160,000 shall be disregarded in
determining the Company's contribution. Generally, contributions to the plan
begin to vest to the benefit of the participant after three years of service.
Participants are entitled, upon retirement, to their vested portion of the
retirement fund assets, which are held by a corporate trustee.
NOTE 15. INVESTMENT IN PREMIER WINE & SPIRITS, LTD.
In 1997, the Company acquired a 45% interest in Premier Wine & Spirits, Ltd., a
newly formed wholesale liquor distributor in the United States Virgin Islands,
for $450,000. This investment is being accounted for using the equity method.
The Company had sales to Premier of approximately $1,490,000 for the year ended
September 30, 1998. This amount is included in trade receivables as of September
30, 1998. The Company has advanced $770,000 to Premier in 1998. The advances are
included in notes receivable (see Note 3).
37
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
The carrying amounts approximate fair values as of September 30, 1998 and
1997 for cash and cash equivalents, trade receivables, other receivables
and accounts payable because of the short-term maturities of those
instruments.
NOTES RECEIVABLE: The fair value of the Company's notes receivable has been
determined based on available market information and management's estimate
of current market conditions of similar instruments.
LONG-TERM DEBT: The fair value of the Company's long-term debt is estimated
based on the current rates offered to the Company for debt of the same
remaining maturities with similar collateral requirements.
<TABLE>
<CAPTION>
Carrying Amount Fair Value
1998 1997 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Notes receivable $ 7,241,962 $ 7,805,854 $ 7,165,016 $ 7,650,596
Financial liabilities:
Long-term debt, including
interest rate swaps 44,469,077 46,072,824 46,739,257 47,958,078
</TABLE>
NOTE 17. NET INCOME PER COMMON SHARE
Basic net income per common share is computed using the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Net income $4,713,696 $4,684,562 $4,544,798
--------------------------------------------------
--------------------------------------------------
Determination of shares:
Weighted average number of common shares outstanding 4,949,714 4,943,169 4,919,060
Shares issuable on exercise of stock options, net of
shares assumed to be repurchased 35,154 22,996 36,028
--------------------------------------------------
Average common shares outstanding for diluted
computation 4,984,868 4,966,165 4,955,088
--------------------------------------------------
--------------------------------------------------
Net income per common share:
Basic $ 0.95 $ 0.95 $ 0.92
Diluted 0.95 0.94 0.92
</TABLE>
38
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
- --------------------------------------------------------------------------------------------------------
(In thousands, except per share and gross margin data)
<S> <C> <C> <C> <C>
1998
Net sales $ 17,741 $ 17,679 $ 19,792 $ 19,884
Gross profit 5,123 5,220 6,263 5,484
Gross margin 28.9% 29.5% 31.6% 27.6%
Net income 1,121 982 1,327 1,284
Net income per share:
Basic 0.23 0.20 0.27 0.26
Diluted 0.22 0.20 0.27 0.26
1997
Net sales $ 18,915 $ 17,437 $ 22,123 $ 19,463
Gross profit 4,954 5,116 6,085 5,290
Gross margin 26.2% 29.3% 27.5% 27.2%
Net income 1,261 923 1,487 1,014
Net income per share:
Basic 0.26 0.19 0.30 0.20
Diluted 0.25 0.19 0.30 0.20
1996
Net sales $ 19,027 $ 19,638 $ 19,189 $ 20,343
Gross profit 5,089 5,587 4,962 4,131
Gross margin 26.7% 28.4% 25.9% 20.3%
Net income 1,491 1,382 1,169 503
Net income per share:
Basic 0.30 0.28 0.24 0.10
Diluted 0.30 0.28 0.24 0.10
</TABLE>
39
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19. RECENT ACCOUNTING PRONOUNCEMENTS
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.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. Management does not expect that the adoption of
SFAS No. 133 will have a material effect on the Company's financial condition
or results of operations. The Company will adopt SFAS No. 133 as required
during its fiscal year 1999.
NOTE 20. STOCK REPURCHASE PLAN
In September 1998, the Board of Directors authorized the Company to repurchase
up to 100,000 shares of the Company's common stock, which represents
approximately 2% of the Company's outstanding common stock. For the period from
October 1, 1998 through November 25, 1998, the Company repurchased 46,000 shares
at a per share cost ranging from $6.87 to $7.00.
40
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Todhunter International, Inc.
West Palm Beach, Florida
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated financial
statement schedule II for the years ended September 30, 1998, 1997, and 1996 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
West Palm Beach, Florida
November 25, 1998
41
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $ - $ 680,744 $ 2,250,000
Deductions resulting from realization of
losses and expenses for discontinued
operations which were previously
charged to expense - (680,744) (1,569,256)
----------------------------------------------------
Balance, end of period $ - $ - 680,744
----------------------------------------------------
----------------------------------------------------
</TABLE>
42
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
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. (2)
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (10)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
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)
10.5 Letter Agreement, dated January 1, 1998, between Todhunter
International, Inc. and A. Kenneth Pincourt, Jr. (12)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as
amended (11)
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)
10.8(a) Amendment to Lease, dated January 1, 1997, between Todhunter
International, Inc. and Florida Acquisition Fund Esperante, Ltd.
(14)
10.10 Loan Agreement dated as of January 31, 1994, between Virgin Islands
Rum Industries, Ltd. and First Union National Bank of Florida (3)
10.10(a) Modification of Loan Agreement dated as of January 5, 1996, amending
Loan Agreement dated January 31, 1994 (6)
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 (2)
10.13 Note Purchase Agreement dated as of October 30, 1994, among
Todhunter International, Inc., Blair Importers, Ltd. and certain
purchasers (3)
10.13(a) First Amendment Agreement and Waiver dated as of February 1, 1996,
amending Note Purchase Agreement dated as of October 30, 1994 (7)
10.14 Loan Agreement dated as of November 22, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and First Union National
Bank of Florida (3)
10.14(a) Modification of Loan Agreement dated as of February 26, 1996,
amending Loan Agreement dated as of November 22, 1994 (7)
10.14(b) Modification of Loan Agreement dated as of August 19, 1996, amending
Loan Agreement dated as of November 22, 1994, as amended (8)
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
(9)
10.14(d) Fourth modification of Loan Agreement dated as of September 17,
1998, amending Loan Agreement dated as of November 22, 1994 (14)
10.15 Renewal Revolving Credit Note dated as of September 17, 1998 (14)
10.17 Letter Agreement dated as of January 1, 1998, between Todhunter
International, Inc. and Jay S. Maltby (12)
11.1 Statement of Computation of Per Share Earnings (13)
21.1 Subsidiaries of Todhunter International, Inc. (5)
23.1 Consent of McGladrey & Pullen, LLP (14)
27.1 Financial Data Schedule (14)
</TABLE>
(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 August 5, 1994, as amended.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994.
43
<PAGE>
(4) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.
(5) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(7) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
(8) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
(9) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996.
(10) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
(12) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31 1998.
(13) Filed herewith and incorporated herein by reference to Note 17 of notes to
consolidated financial statements, included in Item 14 of the Company's
Annual Report on Form 10-K for the year ended September 30, 1998.
(14) Filed herewith.
44
<PAGE>
EXHIBIT 10.8(a)
FIRST AMENDMENT TO LEASE
THIS AGREEMENT is made and entered into as of the 1st day of January, 1997,
by and between FLORIDA ACQUISITION FUND ESPERANTE, LTD., a Florida limited
partnership (successor in interest to Esperante, Limited Partnership), 222
Lakeview Avenue, Suite 950, West Palm Beach, Florida 33401 (hereinafter referred
to as "Landlord") and TODHUNTER INTERNATIONAL, INC., a Delaware corporation, 222
Lakeview Avenue, Suite 1500, West Palm Beach, Florida 33401 (hereinafter
referred to as "Tenant").
W I T N E S S E T H :
WHEREAS, the parties have entered into that certain Lease dated March 24,
1988 (the "Lease") pursuant to which Landlord has leased to Tenant and Tenant
has leased from Landlord 10,046 square feet of rentable area on the fifteenth
floor of the Esperante, Office Building located in West Palm Beach, Florida,
said premises being described in more detail in the Lease (hereinafter
referred to as "Demised Premises"); and
WHEREAS, the parties desire to extend the Term of the Lease and to modify
and amend some of the other terms and conditions of the Lease as hereafter
provided;
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other valuable
consideration, each to the other in hand paid, the receipt and sufficiency
thereof being hereby acknowledged, the parties do hereby agree that the Lease
shall be and the same hereby is amended and modified as follows:
1. DEFINITIONS. All terms used herein shall have the same meaning
as set forth in the Lease unless otherwise expressly stated herein.
2. DEMISED PREMISES. EXHIBIT "A" attached to the original Lease and
reflecting the Demised Premises as being located on the thirteenth (13th) floor
is hereby deleted from the Lease and replaced with EXHIBIT "A-1" reflecting the
Demised Premises as being located on the fifteenth (15th) floor.
3. TERM. The Term of the Lease, as identified in Paragraph 3.1 of
the Lease, is hereby extended so that the Term of the Lease shall not terminate
on June 30, 1999, but instead shall terminate on December 31, 2006 (unless
terminated sooner pursuant to other provisions of the Lease).
<PAGE>
4. ANNUAL BASE RENT. Paragraph 5.1 of the Lease hereby is deleted
and replaced with the following:
"5.1 Tenant agrees to pay to Landlord for use of the Demised Premises, in
lawful money of the United States, a base annual rental (hereinafter "Annual
Base Rent") in accordance with the following schedule:
<TABLE>
<CAPTION>
DATES ANNUAL SQ. PAYMENTS
FT. RATE -----------------------
ANNUAL MONTH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-1-97 to
12-31-97 $23.00/sq. ft. $231,058.00 $19,254.83
- --------------------------------------------------------------------------------
1-1-98 to
12-31-98 $23.00/sq. ft. $231,058.00 $19,254.83
- --------------------------------------------------------------------------------
1-1-99 to $23.00/sq. ft. $231,058.00 $19,254.83
12-31-99
- --------------------------------------------------------------------------------
1-1-00 to $23.00/sq. ft. $231,058.00 $19,254.83
12-31-00
- --------------------------------------------------------------------------------
1-1-01 to $24.00/sq. ft. $241,104.00 $20,092.00
12-31-01
- --------------------------------------------------------------------------------
1-1-02 to $24.00/sq. ft. $241,104.00 $20,092.00
12-31-02
- --------------------------------------------------------------------------------
1-1-03 to $24.00/sq. ft. $241,104.00 $20,092.00
12-31-03
- --------------------------------------------------------------------------------
1-1-04 to $24.00/sq. ft. $241,104.00 $20,092.00
12-31-04
- --------------------------------------------------------------------------------
1-1-05 to $24.00/sq. ft. $241,104.00 $20,092.00
12-31-05
- --------------------------------------------------------------------------------
1-1-06 to $24.00/sq. ft. $241,104.00 $20,092.00
12-31-06
- --------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
The above noted Annual Base Rent shall be due and payable without further notice
or demand and without set-off or counterclaim in equal monthly installments in
advance on the first day of each calendar month commencing as of January 1,
1997. Notwithstanding anything herein to the contrary, the cost of living
adjustment set forth in Paragraph 5.5 of the Lease shall not be applied to any
Annual Base Rent payment to be made by Tenant to Landlord under Paragraph 5.1 of
this Lease with respect to that portion of the Lease Term occurring after
January 1, 1997."
5. ADDRESS FOR PAYMENT OF RENT. The last sentence in Paragraph 5.2
of the Lease is hereby deleted and replaced with the following: "All payments
required hereunder shall be made at the office of Landlord at 222 Lakeview
Avenue, Suite 950, West Palm Beach, Florida 33401, or at such other place as may
be designated in writing by Landlord from time to time and shall be made without
any set-off or counterclaim whatsoever."
6. PARKING SPACES. Paragraph 22.4 of the Lease is hereby deleted
and replaced with the following:
"22.4 Tenant and its employees shall use only assigned parking spaces
designated by Landlord and no other parking spaces. Landlord reserves the right
to change said designations from time to time, at its discretion. Tenant shall
have twenty-eight (28) assigned parking spaces, fourteen (14) of which shall be
covered and reserved and the remaining fourteen (14) of which shall be covered
and unreserved. From January 1, 1997 through the remainder of the Lease Term,
Tenant shall pay a monthly parking fee of Seventy-Five and No/100ths Dollars
($75.00) per space for each of the fourteen (14) covered reserved parking spaces
and Sixty-Five and No/100ths Dollars ($65.00) per space for each of the fourteen
(14) covered unreserved parking spaces assigned to it. This fee shall be due
each month with Tenant's monthly installments of Annual Base Rent and shall be
deemed to be Additional Rent and shall be subject to all terms, provisions,
conditions and covenants of this Lease pertaining to defaults in the payments of
rent. Landlord shall not be liable for any damage to, or theft of, vehicles or
the contents thereof while in or about the Building or appurtenant parking
areas.
Landlord shall set aside unreserved spaces for use by the customers,
clients and invitees of any and all tenants of the Building. Tenant shall have
the equal joint and several right with all other tenants for the use of such
spaces by its customers, clients and invitees."
7. NOTICE ADDRESS. The notice addresses for Landlord and Tenant
specified in Paragraph 28.1 are hereby deleted and replaced with the following:
" Landlord: Florida Acquisition Fund Esperante, Ltd.
Suite 950
222 Lakeview Avenue
-3-
<PAGE>
West Palm Beach, Florida 33401
Attention: Hal Friedman
Copy to: Carlton, Fields, Ward, Emmanuel
Smith & Cutler, P.A.
Suite 1400
222 Lakeview Avenue
West Palm Beach, Florida 33401
Attention: George J. Meyer, Esq.
Tenant: Todhunter International, Inc.
Suite 1500
222 Lakeview Avenue
West Palm Beach, Florida 33401"
8. RADON. Landlord and Tenant acknowledge and agree that the
following is added as Paragraph 35.6 of the Lease:
"Radon is a naturally occurring radioactive gas, that, when it has
accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon
that exceed federal and state guidelines have been found in buildings
in Florida. Additional information regarding radon or radon testing
may be obtained from your county public health unit."
9. HAZARDOUS SUBSTANCES. Landlord and Tenant acknowledge and agree
that the following is added as Article XXXVI of the Lease:
"(a) During the Term, Landlord and Tenant shall each not knowingly
permit to remain in, incorporate into, use, or otherwise place or dispose of at
the Demised Premises or in the Building any toxic or hazardous materials unless
(i) such materials are in small quantities, properly labeled and contained, (ii)
such materials are handled and disposed of in accordance with the highest
accepted industry standards for safety, storage, use, and disposal, (iii) such
materials are for use in the ordinary course of business (i.e., as with office
or cleaning supplies), and (iv) such materials are handled and disposed of in
accordance with all applicable governmental laws, rules, and regulations. If
Landlord or Tenant ever has knowledge of the presence in the Demised Premises or
the Building of toxic or hazardous materials which affect the Demised Premises,
such party shall notify the other thereof in writing promptly after obtaining
such knowledge. For purposes of this paragraph, hazardous or toxic materials
shall mean hazardous or toxic chemicals or any materials containing hazardous or
toxic chemicals at levels or concentrations which cause such materials to be
classified as hazardous or toxic as then prescribed by the prevalent industry
practice and standards or as set from time to time by EPA or OSHA or as defined
-4-
<PAGE>
under 29 CFR 1910 or 29 CFR 1925 or other applicable governmental laws, rules,
or regulations.
(b) If Landlord or Tenant or their respective employees, agents, or
contractors shall ever violate the provisions of paragraph (a), above, or if
Landlord's or Tenant's acts, negligence, breach of this provision, or business
operations directly and materially expand the scope of any contamination from
toxic or hazardous materials, then the party at fault shall clean-up, remove,
and dispose of the material causing the violation, in compliance with all
applicable governmental standards, laws, rules, and regulations and repair any
damage to the Demised Premises or Building within such period of time as may be
reasonable under the circumstances after written notice from the other, provided
that such work shall commence not later than thirty (30) days from such notice
and be diligently and continuously carried to completion by such party or its
designated contractors. Such party shall notify the other of its method, time,
and procedure for any clean-up or removal of toxic or hazardous materials under
this provision; and the other party shall have the right to require reasonable
changes in such method, time, or procedure; and the other party may reasonably
require the same to be done after normal business hours or when the Building is
otherwise closed (i.e., weekends or holidays)."
10. RIDER TO LEASE. The Rider to Lease dated March 24, 1988 is
hereby deleted in its entirety.
11. RULES AND REGULATIONS. The Rules and Regulations referenced in
Paragraph 13.1 and set forth in EXHIBIT "D" to the original Lease are hereby
deleted in their entirety and replaced with the Rules and Regulations which are
attached hereto and made a part hereof as EXHIBIT "D-1". Notwithstanding
anything herein to the contrary, in the event of any conflict between the terms
of this Lease and the Rules and Regulations, the terms of this Lease shall
control.
12. RELEASE OF LIABILITY. Landlord and Tenant hereby represent that
neither of them is in default under any of the terms and provisions of this
Lease as of January 1, 1997. In addition, through January 1, 1997, Landlord and
Tenant hereby release each other from any and all obligations and liabilities
arising out of, with respect to, or in any way pertaining to the Demised
Premises, with the exception of any obligations and liabilities which are not
fully satisfied as of January 1, 1997 (including, without limitation, any
liability, damages, expenses, costs, reasonable attorneys' fees at all levels,
including appeals, and the like incurred by Landlord).
13. CONFLICT. In the event of any conflict between the terms and
provisions of this First Amendment and the terms and provisions of the Lease,
the terms and provisions of this First Amendment shall prevail. In all other
respects, except as herein modified, the terms and provisions of the Lease shall
remain in full force and effect. This First Amendment shall have the same force
and effect as if incorporated into the original Lease, and shall take precedence
thereover.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this First Amendment as
of the day and year first above written.
"LANDLORD"
FLORIDA ACQUISITION FUND ESPERANTE,
LTD., a Florida limited partnership
By: FLORIDA ACQUISITION FUND L.C.,
WITNESSES AS TO LANDLORD: a general partner
By: SUMMER HILL
/s/ Judy K. Reynolds ESPERANTE INC., a member
- -------------------------
Judy K. Reynolds
- -------------------------
(Print or Type Name)
By: /s/ Richard L. Roeding, Jr.
---------------------------
/s/ Thomas P. Orr Name: Richard L. Roeding, Jr.
- ------------------------- Its: President
Thomas P. Orr
- -------------------------
(Print or Type Name)
"TENANT"
WITNESSES AS TO TENANT: TODHUNTER INTERNATIONAL, INC.,
a Delaware corporation,
/s/ Troy Edwards By: /s/ A. Kenneth Pincourt, Jr.
- ------------------------- -----------------------------------------
Name: A. Kenneth Pincourt, Jr.
--------------------------------------
Troy Edwards Its: Chairman and Chief Executive Officer
- ------------------------- --------------------------------------
(Print or Type Name)
/s/ Erika V. White
- -------------------------
Erika V. White
- -------------------------
(Print or Type Name)
-6-
<PAGE>
EXHIBIT 10.14(d)
FOURTH MODIFICATION OF LOAN AGREEMENT
THIS AGREEMENT is made as of the 17th day of September, 1998, by and
between FIRST UNION NATIONAL BANK, a national banking association acting as
Lender and as Agent pursuant to the Loan Agreement (the "Lender"), TODHUNTER
INTERNATIONAL, INC., a Delaware corporation (the "Borrower").
WITNESSETH:
WHEREAS, Lender, Borrower and Todhunter Imports, Ltd., a New York
corporation (formerly known as Blair Importers, Ltd.) (the "Guarantor") entered
into a Loan Agreement dated as of November 22, 1994 as modified by Modification
of Loan Agreement dated as of February 26, 1996, Modification of Loan Agreement
dated as of August 19, 1996 and Third Modification of Loan Agreement dated as of
December 18, 1996 (the "Loan Agreement") in connection with which Lender made
available to Borrower a revolving line of credit in the maximum principal amount
of TWENTY MILLION and no/100s Dollars ($20,000,000.00) (the "Revolving Line of
Credit") evidenced by the Revolving Credit Note, secured and evidenced by the
Blair Guaranty and the other Loan Documents, as defined in the Loan Agreement;
and
WHEREAS, Lender and Borrower have agreed to extend the date for advancing
Revolving Loans and final payment of all amounts due under the Revolving Credit
Note and the other Loan Documents to November 1, 2001, to reduce the maximum
principal amount to Fifteen Million and no/100 Dollars ($15,000,000.00) and to
revise certain covenants in the Loan Agreement by amending the Loan Agreement
and by Borrower executing and delivering a Renewal Revolving Credit Note in the
face amount of Fifteen Million and no/100s Dollars ($15,000,000) (the "Renewal
Note"); and
WHEREAS, the Borrower and Guarantor have represented to Lender that
Guarantor has no assets and no operations and therefore no ability to satisfy
the Blair Guaranty if called and on that basis, Lender has agreed to execute
this Agreement without the joinder of the Guarantor to evidence its consent to
the amendments to the Loan Agreement contained herein and to affirm the
continuing validity of the Blair Guaranty, after the amendments contained
herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants of
this agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lender and Borrower agree as
follows:
1. RECITALS/TERMS. All of the recitals set forth above are true and
correct and by this reference are made a material part of this Agreement. All
capitalized terms used herein which are defined in the Loan Agreement shall have
the meaning provided therein when used herein unless the context shall require
otherwise.
-1-
<PAGE>
2. DEFINITIONS.
(a) The definition of the term Revolving Loan Termination Date is hereby
amended to read as follows:
"REVOLVING LOAN TERMINATION DATE shall mean the earliest of (i)
November 1, 2001; (ii) the date of termination by the Required
Lenders after the occurrence of an Event of Default; (iii) such date
of termination as is mutually agreed upon by the Lenders and the
Borrower, and (iv) the date after all Obligations have been paid in
full and no Lender is any longer obligated to make any Revolving
Loans hereunder."
(a) The term "Notes" shall include the Renewal Note; and
(c) The term "Revolving Credit Note" shall include the Renewal Note.
Borrower hereby acknowledges that the Renewal Note continues to evidence
the Revolving Loans and that the amendment to the definition of the Revolving
Loan Termination Date applies to that term as used in the Renewal Note so that
the unpaid principal balance of the Renewal Note shall be due on November 1,
2001 unless due sooner pursuant to the terms of the Loan Documents.
3. REVOLVING LOANS.
(a) Section 2.1(a) is hereby amended to read as follows:
"(a) The Lenders hereby establish, subject to the terms and
conditions of this Agreement and in reliance upon the
representations and warranties made hereunder, a Revolving Line of
Credit in favor of the Borrower in the aggregate principal amount of
up to Fifteen Million and no/100 Dollars ($15,000,000.00) and agree
to make and remake one or more Revolving Loans to the Borrower, upon
the terms and conditions set forth in this Article II, from time to
time on any Business Day during the period from the date hereof
through the Revolving Loan Termination Date. The Borrower may
borrow, repay and reborrow any amount of the Revolving Line of
Credit; provided, however,
(i) the aggregate principal amount outstanding under the
Revolving Line of Credit may not at any time exceed the
lesser of (i) $15,000,000.00, less the sum of the aggregate
amount of Foreign Exchange Risk then existing and the
aggregate principal amount of Letters of Credit outstanding
and unreimbursed drawings under Letters of Credit or (ii)
the Borrowing Base; and
-2-
<PAGE>
(ii) the aggregate amounts advanced by any individual Lender,
together with the aggregate amount of such Lender's Letter of Credit
Participations and Foreign Exchange Risk Participations, shall not
exceed such Lender's Revolving Credit Commitment at any time.
Notwithstanding the foregoing, no Lender shall have any obligation
to lend funds at any time when an Event of Default or Default exists
or would arise in connection with the making of any such loan.
Requests for an advance under the Revolving Line of Credit may be
oral or written."
(b) Section 4.2.2(e) is hereby amended to read as follows:
"In the event the requested advance will cause the aggregate
outstanding principal balances of the Loans to exceed Ten Million
and no/100 Dollars ($10,000,000.00) the Borrower shall deliver to
the Agent a current and correct borrowing base certificate in form
and substance reasonably satisfactory to the Agent and the Lenders."
(c) Section 7.23(d) is hereby amended to read as follows:
"MAINTENANCE OF NET WORTH. Permit its Consolidated Tangible Net
Worth to be less than $33,000,000.00 during the period from
September 30, 1998 through September 29, 1999, to be less than
$36,000,000.00 during the period from September 30, 1999 through
September 29, 2000, and to be less than $39,000,000.00 during the
period from September 30, 2000 through November 1, 2001.
4. BLAIR GUARANTY. Borrower hereby warrants and represents to Lender
that Guarantor is a wholly owned subsidiary of Borrower and that Guarantor has
no assets or operations whatsoever. Borrower agrees that Borrower has no
offsets, claims or defenses to its obligations under the Loan Documents by
reason of Lender's agreement, at Borrower's request, not to require Guarantor's
execution of this Modification even though Guarantor may have some claim that
Guarantor is released from the Guaranty by such agreement. Borrower agrees
that, if Guarantor subsequently obtains assets, Borrower will cause Guarantor to
ratify and confirm the continuing validity of the Guaranty.
5. NO DEFAULT. Borrower hereby warrants and represents to Lender that,
since the date of the December 18, 1996 Third Modification of Loan Agreement,
Borrower is in compliance with all provisions of the Loan Agreement and all
other Loan Documents and that no default or Event of Default has occurred
thereunder nor has any event occurred or failed to occur which with the passage
of time or the giving of notice or both would comprise such a default or Event
of Default.
1. MISCELLANEOUS.
-3-
<PAGE>
(a) This agreement shall be governed by and construed in accordance
with the law of the State of Florida. In the event of any dispute
hereunder, the prevailing party shall be entitled to recover all
costs and attorney's fees from the non-prevailing party. Paragraph
headings used herein are for convenience only and shall not be used
to interpret any term hereof. The Loan Agreement shall continue in
full force and effect as modified by this Modification. In the
event the terms of this Modification conflict with the terms of the
Loan Agreement, the terms of this Modification shall control.
(b) This Modification constitutes the entire agreement among the
parties hereto and supersedes all prior agreements, understandings,
negotiations and discussions, both written and oral among the
parties hereto with respect to the subject matter hereof, all of
which prior agreements, understanding, negotiations and discussions,
both written and oral, are merged into this Modification. All
provisions of the Loan Agreement and each of the other Loan
Documents shall remain in full force and effect as modified by this
Agreement. Without limiting the generality of any of the provisions
of this Modification, nothing herein or in any instrument or
agreement shall be deemed or construed to constitute a novation,
satisfaction or refinancing of all or any portion of the Loan or in
any manner affect or impair the lien or priority of the Loan
Agreement or any of the Loan Documents as amended hereby.
(c) This Modification may be executed in any number of counterparts
with each executed counterpart constituting an original, but
altogether constituting but one and the same instrument.
(d) This Modification shall be binding upon and inure to the benefit
of the Borrower, the Guarantor and the Lender and their respective
heirs, legal representatives, executors, successors and assigns.
7. RELEASE. IN CONSIDERATION OF THE ACCOMMODATIONS PROVIDED HEREIN,
THE BORROWER HEREBY UNCONDITIONALLY, IRREVOCABLY AND FOREVER RELEASES, ACQUITS
AND DISCHARGES THE LENDER AND EACH OF THE LENDER'S RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS AND COUNSEL FROM ANY AND ALL CLAIMS, DEMANDS AND
CAUSES OF ACTION THAT ANY OF THEM HAD, NOW HAS OR MAY IN THE FUTURE HAVE AGAINST
ANY ONE OR MORE OF THE LENDER OR ANY ONE OR MORE OF THE LENDER'S OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS OR COUNSEL FOR THE ACTS OR OMISSIONS OF ANY OF THE
FOREGOING PARTIES FROM THE BEGINNING OF TIME THROUGH, TO AND INCLUDING THE DATE
OF THE EFFECTIVENESS OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY
CLAIMS ARISING OUT OF OR CONNECTED IN ANY MANNER WITH THE TRANSACTIONS
CONTEMPLATED HEREIN OR IN THE LOAN AGREEMENT, AS AMENDED HEREBY OR ANY OTHER
LOAN DOCUMENTS, AS THE SAME MAY BE AMENDED HEREBY, AS THE CASE MAY BE.
-4-
<PAGE>
8. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER
VERBAL OR WRITTEN) OR ACTIONS BY ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY LOAN,
ADVANCE OR OTHER EXTENSION OF CREDIT TO THE BORROWER. FURTHER, THE BORROWER
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR THE LENDER'S
COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDERS WOULD NOT, IN
THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL
PROVISION. NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR THE LENDER'S COUNSEL
HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
IN WITNESS WHEREOF, Borrower and Lender have caused this agreement to be
executed as of the day and year set forth above.
Witnesses: LENDER:
FIRST UNION NATIONAL BANK, a national banking
association
/s/ Cynthia Miranda By:/s/ Bruce Roland
- ---------------------------- ----------------------------------
Print Name: Cynthia Miranda Print Name: Bruce Roland
---------------- ---------------------------
Its: Senior Vice President
----------------------------------
/s/ Grace V. Salame'
- ----------------------------
Print Name: Grace V. Salame'
---------------- AGENT:
FIRST UNION NATIONAL BANK, a national banking
association
By:
- ----------------------------- ----------------------------------------
Print Name: Print Name:
------------------ --------------------------------
Its:
- ----------------------------- ---------------------------------------
Print Name:
------------------ BORROWER:
TODHUNTER INTERNATIONAL, INC., a Delaware
corporation
/s/ Marvin L. Pickering By:/s/ A. Kenneth Pincourt, Jr.
- -------------------------------- ----------------------------------------
Print Name:Marvin L. Pickering Print Name: A. Kenneth Pincourt, Jr.
-------------------- Its: Chairman of the Board of Directors/CEO
/s/ Donald C. Nelthropp, Jr.
- -----------------------------
Print Name: Donald C. Nelthropp, Jr.
- ------------------------------------
-5-
<PAGE>
STATE OF FLORIDA )
)ss.
COUNTY OF MIAMI-DADE )
The foregoing instrument was acknowledged before me this 17th day of
September, 1998, by Bruce Roland as Senior Vice President of FIRST UNION
NATIONAL BANK, a national banking association, on behalf of the bank. HE/She is
personally KNOWN TO ME or has produced _____________________________________ as
identification.
/S/ Sharon D. Agri
--------------------------------------------
Printed Name: Sharon D. Agri
------------------------------
Notary Public
Commission No.: CC681707
----------------------------
My Commission Expires: September 18, 2001
STATE OF FLORIDA )
)ss.
COUNTY OF MIAMI-DADE )
The foregoing instrument was acknowledged before me this _____ day of
____________, 199__, by ____________________ as ______________of FIRST UNION
NATIONAL BANK, a national banking association, on behalf of the bank, as Agent.
He/She is personally known to me or has produced _________________________ as
identification.
--------------------------------------------
Printed Name:
-------------------------------
Notary Public
Commission No.:
-----------------------------
My Commission Expires:
-6-
<PAGE>
MUNICIPALITY OF ST. THOMAS & ST. JOHN )
)ss.
VIRGIN ISLANDS OF THE UNITED STATES )
The foregoing instrument was acknowledged before me this 17TH day of
SEPTEMBER, 1998, by A. KENNETH PINCOURT, JR. as Chairman of the Board of
Directors/CEO of TODHUNTER INTERNATIONAL, INC., a Delaware corporation, on
behalf of the corporation. He is personally KNOWN TO ME or has produced
_________________________ as identification.
/s/ Marvin L. Pickering
-----------------------------------
Printed Name: Marvin L. Pickering
----------------------
Notary Public
Commission No.:
---------------------
My Commission Expires: September 29, 1999
-7-
<PAGE>
EXHIBIT 10.15
RENEWAL REVOLVING CREDIT NOTE
$15,000,000.00 As of September 17th, 1998
FOR VALUE RECEIVED, TODHUNTER INTERNATIONAL, INC., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of
FIRST UNION NATIONAL BANK, a national banking association, at the offices
of First Union National Bank of Florida (the "Agent"), located at 303 Banyan
Boulevard, West Palm Beach, Florida 33401 (or at such other place or places as
the Agent may designate), the principal sum of up to
FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), or such lesser amount
as may constitute the unpaid principal amount of the Revolving Credit Loans, on
the Revolving Loan Termination Date (as such term is defined in the Loan
Agreement hereinafter referred to), under the terms and conditions of this
promissory note (the "Note") and in accordance with a certain Loan Agreement,
dated as of November 22, 1994 as modified by Modification of Loan Agreement
dated as of February 26, 1996, by Modification of Loan Agreement dated as of
August 19, 1996 and by Third Modification of Loan Agreement dated December 18,
1996, and Fourth Modification of Loan Agreement dated as of the date hereof, by
and between the Borrower, Todhunter Imports, Ltd., a New York corporation f/k/a
Blair Importers, Ltd. (the "Guarantor"), the Agent and the Lenders set forth
therein (as amended, modified or supplemented from time to time, the "Loan
Agreement"). The Borrower also unconditionally promises to pay interest on the
aggregate unpaid principal amount of this Note on each Interest Payment Date (as
defined in the Loan Agreement) at the rate or rates provided in the Loan
Agreement.
This Note is issued to evidence the Revolving Line of Credit made by the
Lenders pursuant to Article II of the Loan Agreement. The defined terms in the
Loan Agreement are used herein with the same meanings given them in the Loan
Agreement. All of the terms, conditions and covenants of the Loan Agreement are
expressly made a part of this Note by reference in the same manner and with the
same effect as if set forth herein at length and any holder of this Note is
entitled to the benefits of and remedies provided in the Loan Agreement and any
other agreements by and between the Borrower and the Guarantor, and either of
them, and the Agent or any of the Lenders. Reference is made to the Loan
Agreement for provisions for maturity, payment, prepayment and acceleration.
This Note renews and evidences the indebtedness under that certain Revolving
Credit Note dated as of November 22, 1994 and renewed by Renewal Revolving
Credit Note dated December 18, 1996.
If the principal of this Note or any portion hereof and, to the extent
permitted by law, interest hereon shall not be paid when due, whether by
acceleration or otherwise, the same shall bear interest for any period during
which the same shall be overdue at a rate per annum equal to the Default Rate
set forth in the Loan Agreement and payable on demand.
-1-
<PAGE>
The Borrower hereby agrees to pay all costs incurred by any holder hereof,
including reasonable attorneys' fees (including those for appellate
proceedings), incurred in connection with any Event of Default (as defined in
the Loan Agreement), or in connection with the collection or attempted
collection or enforcement hereof, whether or not legal proceedings may have been
instituted.
All parties to this Note, including the Borrower and any sureties,
endorsers or guarantors, hereby waive presentment for payment, demand, protest,
notice of dishonor, notice of acceleration of maturity, and all defenses on the
ground of extension of time for payment hereof, and agree to continue and remain
bound for the payment of principal, interest and all other sums payable
hereunder, notwithstanding any change or changes by way of release, surrender,
exchange or substitution of any security for this Note or by way of any
extension or extensions of time for payment of principal or interest; and all
such parties waive all and every kind of notice of such change or changes and
agree that the same may be made without notice to or consent of any of them.
The rights and remedies of the holder as provided herein shall be cumulative and
concurrent and may be pursued singularly, successively or together at the sole
discretion of the holder, and may be exercised as often as occasion therefor
shall occur, and the failure to exercise any such right or remedy shall in no
event by construed as a waiver or release of the same.
Anything herein to the contrary notwithstanding, the obligations of the
borrower under this Note shall be subject to the limitation that payments of
interest to the Lender shall not be required to the extent that receipt of any
such payment by the Lender would be contrary to provisions of law applicable to
the Lender (if any) which limit the maximum rate of interest which may be
charged or collected by the Lender, PROVIDED, HOWEVER, that nothing herein shall
be construed to limit the Lender to presently existing maximum rates of
interest, if an increased interest rate is hereafter permitted by reason of
applicable federal or state legislation. In the event that the borrower makes
any payment of interest, fees or other charges, however denominated, pursuant to
this Note, which payment results in the interest paid to the Lender to exceed
the maximum rate of interest permitted by applicable law, any excess over such
maximum shall be applied in reduction of the principal balance owed to the
Lender as of the date of such payment, or if such excess exceeds the amount of
principal owed to the Lender as of the date of such payment, the difference
shall be paid by the Lender to the Borrower.
THE BORROWER HEREBY, AND THE LENDER BY ITS ACCEPTANCE OF THIS NOTE,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS REVOLVING CREDIT NOTE OR SAID LOAN AGREEMENT
AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PART. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER
ENTERING INTO SAID LOAN AGREEMENT AND MAKING THE LOANS EVIDENCED BY THIS NOTE.
FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
LENDER, NOR THE LENDER'S COUNSEL, HAS
-2-
<PAGE>
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF
SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR THE LENDER'S COUNSEL HAS THE
AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Florida, without regard to the principles of
conflicts thereunder. The Borrower hereby submits to the jurisdiction and venue
of the federal and state courts located in Palm Beach County, Florida.
IN WITNESS WHEREOF, the Borrower has caused this Note to be dated for
reference as of the date first above written but have in fact caused this Note
to be executed under seal by its duly authorized corporate officer as of this
17th day of September, 1998.
TODHUNTER INTERNATIONAL,
INC., A DELAWARE CORPORATION
By: /s/ A. Kenneth Pincourt, Jr.
-----------------------------
A. Kenneth Pincourt, Jr.,
Chairman and CEO
STATE OF U.S. Virgin Islands )
) SS:
COUNTY OF St. Croix )
I, MARVIN L. PICKERING, a Notary Public in and for the county and state
aforesaid, do hereby certify that A. Kenneth Pincourt, Jr. personally appeared
before me this day and, being duly sworn, says that he is the President of
Todhunter International, Inc., a Delaware corporation, and that said writing was
signed by him in behalf of said corporation by its authority duly given. And
the said A. Kenneth Pincourt, Jr. acknowledged the said writing to be the act
and deed of said corporation.
WITNESS my hand and notarial seal, this 17th day of September, 1998.
/s/ Marvin L. Pickering
--------------------------------------------
Notary Public, State of U.S. Virgin Islands
-------------------
Print Name: Marvin L. Pickering
--------------------------------
My Commission Expires:September 29,1999
-3-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the December 16, 1993
Registration Statement on Form S-8 (Registration No. 33-73018) and in the July
9, 1996 Registration Statement on Form S-8 (Registration No. 333-07827) of our
report, dated November 25, 1998, which appears in the annual report on Form 10-K
of Todhunter International, Inc. for the year ended September 30, 1998.
/s/ McGladrey & Pullen, LLP
West Palm Beach, Florida
December 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TODHUNTER
INTERNATIONAL INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR ITS YEAR ENDED
SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 5,629,016
<SECURITIES> 0
<RECEIVABLES> 13,860,594
<ALLOWANCES> 0
<INVENTORY> 23,423,573
<CURRENT-ASSETS> 46,428,050
<PP&E> 76,072,398
<DEPRECIATION> 33,157,289
<TOTAL-ASSETS> 96,997,030
<CURRENT-LIABILITIES> 8,621,478
<BONDS> 42,580,944
0
0
<COMMON> 49,497
<OTHER-SE> 40,954,572
<TOTAL-LIABILITY-AND-EQUITY> 96,997,030
<SALES> 75,095,894
<TOTAL-REVENUES> 75,095,894
<CGS> 53,005,786
<TOTAL-COSTS> 53,005,786
<OTHER-EXPENSES> 12,621,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,946,528
<INCOME-PRETAX> 5,522,008
<INCOME-TAX> 808,312
<INCOME-CONTINUING> 4,713,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,713,696
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
