<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1998 Commission File No. 1-13453
----------------- -------
TODHUNTER INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1284057
- -------------------------------------------------------------------------------
(State or other jurisdiction of IRS employer
incorporation or organization) identification No.
222 Lakeview Avenue, Suite 1500, West Palm Beach, FL 33401
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (561) 655-8977
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 30 days.
Yes X No
---- ----
The number of shares outstanding of registrant's Common Stock, $.01 par value
per share, as of February 5, 1999 was 4,893,714.
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
December 31, 1998 and September 30, 1998 1
Consolidated Statements of Income -
Three Months Ended December 31, 1998 and 1997 3
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings *
Item 2 Changes in Securities *
Item 3 Defaults Upon Senior Securities *
Item 4 Submission of Matters to a Vote of Security Holders *
Item 5 Other Information *
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 19
</TABLE>
* Item is omitted because answer is negative or item is inapplicable.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,615,338 $ 5,629,016
Trade receivables 9,894,595 11,623,197
Other receivables 2,421,083 2,237,397
Inventories 23,675,473 23,423,573
Notes receivable, current maturities 4,910,558 1,503,675
Deferred income taxes 1,036,750 1,011,000
Other current assets 1,032,396 1,000,192
------------- ------------
Total current assets 48,586,193 46,428,050
------------- ------------
LONG-TERM NOTES RECEIVABLE,
less current maturities 2,588,287 5,738,287
------------- ------------
PROPERTY AND EQUIPMENT 73,828,527 73,544,945
Less accumulated depreciation 33,012,085 32,017,543
------------- ------------
40,816,442 41,527,402
------------- ------------
PROPERTY HELD FOR LEASE 2,546,793 2,527,453
Less accumulated depreciation 1,176,981 1,139,746
------------- ------------
1,369,812 1,387,707
------------- ------------
GOODWILL, less accumulated amortization 381,237 389,423
------------- ------------
OTHER ASSETS 1,509,819 1,526,161
------------- ------------
$ 95,251,790 $ 96,997,030
------------- ------------
------------- ------------
</TABLE>
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -----------
(Unaudited) *
<S> <S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 8,445,915 $ 1,888,133
Accounts payable 3,329,318 3,417,615
Accrued interest expense 504,617 1,261,542
Other accrued expenses 661,723 2,054,188
------------ ------------
Total current liabilities 12,941,573 8,621,478
LONG-TERM DEBT, less current maturities 36,027,959 42,580,944
DEFERRED INCOME TAXES 4,627,000 4,685,000
OTHER LIABILITIES 105,639 105,539
------------ ------------
53,702,171 55,992,961
------------ ------------
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
4,949,714 December 31, 1998 and
September 30, 1998; 49,497 49,497
Additional paid-in capital 11,945,777 11,945,777
Retained earnings 29,960,420 29,008,795
------------ ------------
41,955,694 41,004,069
Less cost of 56,000 shares of treasury
stock (406,075) --
------------ ------------
41,549,619 41,004,069
------------ ------------
$ 95,251,790 $ 96,997,030
------------ ------------
------------ ------------
</TABLE>
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 26,263,817 $ 26,360,592
Less excise taxes 9,722,895 8,619,370
------------ ------------
Net Sales 16,540,922 17,741,222
Cost of goods sold 11,184,277 12,618,571
------------ ------------
Gross profit 5,356,645 5,122,651
Selling, general and administrative expenses 3,591,590 3,658,902
------------ ------------
Operating income 1,765,055 1,463,749
------------ ------------
Other income (expense):
Interest income 156,686 184,630
Interest expense (923,832) (1,007,445)
Equity in losses of equity investee (15,348) --
Other, net 162,742 521,424
------------ ------------
(619,752) (301,391)
------------ ------------
Income before income taxes 1,145,303 1,162,358
------------ ------------
Income tax expense (benefit):
Current 277,428 6,923
Deferred (83,750) 34,000
------------ ------------
193,678 40,923
------------ ------------
Net income $ 951,625 $ 1,121,435
------------ ------------
------------ ------------
Earnings per common share:
Basic $ 0.19 $ 0.23
------------ ------------
------------ ------------
Diluted $ 0.19 $ 0.22
------------ ------------
------------ ------------
Common shares and equivalents outstanding:
Basic 4,917,051 4,949,714
------------ ------------
------------ ------------
Diluted 4,930,201 4,995,387
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 951,625 $ 1,121,435
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,078,228 1,031,947
Amortization 23,527 23,527
(Gain) on sale of property and equipment (28,285) --
Equity in losses of equity investee 15,348 --
Deferred income taxes (83,750) 34,000
Changes in assets and liabilities:
(Increase) decrease in:
Receivables 1,544,916 1,142,636
Inventories (251,900) (2,091,794)
Other current assets (32,204) (11,746)
Increase (decrease) in:
Accounts payable (88,297) (1,167,004)
Accrued interest expense (756,925) (954,461)
Other accrued expenses (1,392,465) 648,554
Other liabilities 100 39,247
----------- ---------
Net cash provided by (used in) operating activities 979,918 (183,659)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 37,030 --
Principal payments received on notes receivable 375,783 443,376
Purchase of property and equipment (358,118) (586,853)
Disbursements for notes receivable (632,666) (16,000)
Purchase of minority interest - (354,470)
(Increase) decrease in other assets (14,347) 11,509
----------- ---------
Net cash (used in) investing activities $(592,318) $(502,438)
----------- ---------
</TABLE>
4
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
----------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit $ 497,015 $ 1,666,652
Purchase of treasury stock (406,075) --
Principal payments on long-term borrowings (492,218) (1,461,090)
----------- -------------
Net cash provided by (used in) financing activities (401,278) 205,562
----------- -------------
Net (decrease) in cash and cash equivalents (13,678) (480,535)
Cash and cash equivalents:
Beginning 5,629,016 4,904,804
----------- -------------
Ending $5,615,338 $ 4,424,269
----------- -------------
----------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $1,680,757 $ 1,961,906
----------- -------------
----------- -------------
Income taxes $ 51,063 $ 12,107
----------- -------------
----------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
TODHUNTER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial information of the periods indicated have
been included. For further information regarding the Company's accounting
policies, refer to the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1998.
Note 2. Inventories
The major components of inventories are:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Finished goods $15,536,145 $15,794,672
Work in process 896,864 355,659
Raw materials and supplies 7,242,464 7,273,242
----------- -----------
$23,675,473 $23,423,573
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 3. Financing Arrangements
Long-term debt consists of the following as of December 31, 1998.
<TABLE>
<S> <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
Revolving credit note of $15,000,000, interest payable monthly at
the prime rate for domestic loans and at 1.5% above the one-month
London Interbank Offered Rate ("LIBOR") for Eurodollar loans,
principal is due in full November 1, 2001. The maximum amount
which can be drawn on the revolving note is based on the borrowing
base as specified in the agreement, unsecured 6,827,959
Bank note payable, interest is calculated based upon a floating rate of
2.5% above the one-month LIBOR rate, quarterly principal payments
of $250,000, collateralized by real property, equipment, machinery
and trade receivables in the Virgin Islands (2) 3,000,000
Note payable, interest at 7.5%, principal and interest payments
required through 1999 645,915
----------
44,473,874
Less current maturities 8,445,915
----------
$36,027,959
----------
----------
</TABLE>
The Company uses interest swap agreements to change the fixed/variable
interest rate mix of the debt portfolio to reduce the Company's aggregate
risk to movements in interest rates. Amounts paid or received under interest
rate swap agreements are accrued as interest rates change and are recognized
over the life of the swap agreements as an adjustment to interest expense.
The related amounts payable to, or receivable from, the counterparties are
included in accrued interest expense. The fair value of the swap agreement
noted in (2) below was not recognized in the consolidated financial
statements since it is accounted for as hedge. The criteria required to be
met for hedge accounting is that a) the item to be hedged exposes the Company
to interest rate risk and b) the interest rate swap reduces that exposure and
is designated a hedge. The fair value and the related change in fair value of
the agreement noted in (1) below is not significant to the financial
statements. A summary of the interest rate swaps is as follows:
(1) The Company has entered into an interest rate swap agreement with a bank
calling for the Company to exchange, as of May 1 and November 1 through 2004,
interest payment streams calculated on a principal balance starting at
$4,000,000 and reducing starting in November 1999. The Company's interest is
calculated based upon a floating rate of 1.06% above the six-month LIBOR
rate. The bank's rate is 8.905%.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
(2) The Company has entered into an interest rate swap agreement accounted
for as a hedge with a bank. The agreement calls for the Company to exchange,
as of January 1, April 1, July 1, and October 1, through 2002, interest
payment streams calculated on a notional balance equal to the principal
balance of the bank note payable. The Company's rate is fixed at 8.46%.
The long-term debt contains various restrictive covenants related to
fixed-charge coverage, interest expense coverage, net worth and debt
limitation. All covenants have been met as of December 31, 1998.
Note 4. Earnings Per Common Share
Basic earnings per common share are calculated by dividing net income by the
average common shares outstanding. On a diluted basis, shares outstanding
are adjusted to assume the exercise of stock options.
<TABLE>
<CAPTION>
Three Months Ended December 31
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net income $ 951,625 $1,121,435
---------- ----------
---------- ----------
Determination of shares:
Weighted average number of
common shares outstanding 4,917,051 4,949,714
Shares issuable on exercise
of stock options, net of shares
assumed to be purchased out of proceeds 13,150 45,673
---------- ----------
Average common shares outstanding for
diluted computation 4,930,201 4,995,387
---------- ----------
---------- ----------
Earnings per common share
Basic $0.19 $0.23
---------- ----------
---------- ----------
Diluted $0.19 $0.22
---------- ----------
---------- ----------
</TABLE>
The Company's Virgin Islands subsidiary has a five year tax exemption, expiring
January 31, 2002, on 90% of the subsidiary's income as determined under United
States Federal income tax laws. The impact of this benefit on the Company's
earnings per share was $0.05 and $0.08 for the three months ended December 31,
1998 and December 31, 1997, respectively.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
internationally. 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 with citrus spirits 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. 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. 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
9
<PAGE>
are higher, and gross margins are lower, than for Type B bottling customers.
As a result, significant fluctuations in volume of Type A bottling customers
can distort the Company's gross margin.
The Company has a limited number of customers, and these customers often
purchase bulk alcohol products in significant quantities or place significant
orders for contract bottling services, distilled spirits, vinegar and cooking
wine. Accordingly, the size and timing of purchase orders and product
shipments can cause operating results to fluctuate significantly from quarter
to quarter. Additionally, some Company products generate higher profit
margins than others, and changes in the Company's product mix 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 may vary significantly from quarter to quarter.
Net sales represent the Company's gross sales less excise taxes. Excise
taxes are generally payable on products bottled by the Company. In addition,
excise taxes are payable on sales of industrial alcohol to certain customers.
Accordingly, excise taxes vary from period to period depending upon the
Company's product and customer mix.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 ended September 30, 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 ended September 30, 1999.
YEAR 2000 ISSUEs
Until recently, computer programs generally were written using two
digits rather than four to define the applicable year. Accordingly, programs
may recognize a date using "00" as the year 1900 instead of as the year 2000.
This problem may affect the Company's information technology systems (IT
systems), such as financial, order entry, inventory control and forecasting
systems, and non-IT systems that contain computer chips, such as production
equipment and security systems. It may also affect the technology systems of
third party vendors and customers, and of governmental entities upon which
the Company's business ordinarily relies.
The Company is addressing the Year 2000 issues in three phases:
assessment, design of appropriate remediation, and implementation. For its IT
systems, the Company has substantially completed the assessment and
remediation design phases and is in the implementation phase, which consists
of replacing or repairing non- compliant systems, testing the new systems and
training employees to use them. The Company expects to complete the
implementation phase by September 1999. Also, the Company has begun assessing
the Year 2000 compliance of its non-IT systems and expects to complete this
assessment by June 1999. The Company plans to complete the design and
implementation of any remediation necessary with respect to these non-IT
systems by September 1999. In addition, the Company is assessing the Year
2000 preparedness of important customers and suppliers and is monitoring
their remediation efforts.
10
<PAGE>
The total cost of Year 2000 issues is currently estimated at
approximately $900,000, including internal costs of approximately $260,000.
Of the total estimated cost, approximately $750,000 will be attributable to
new systems and thus capitalized. The remaining $150,000 will be expensed as
incurred. All costs are expected to be funded through operating cash flows.
Through December 31, 1998, the Company has incurred approximately $300,000,
of which $280,000 has been capitalized and $20,000 has been expensed.
The Company expects to manage the Year 2000 issues in a timely manner
and, based on its efforts to date, believes that substantial disruptions in
business operations due to Year 2000 non-compliance of systems are unlikely.
However, it is not possible to anticipate all possible future outcomes,
especially since third parties are involved. Thus, there could be
circumstances in which the Company would be unable to process customer
orders, produce or ship products, invoice customers, collect payments,
receive customary governmental approvals or authorizations as they relate to
our business, or perform other normal business activities. To address these
risks, the Company has begun and intends to continue developing contingency
plans designed to mitigate potential disruptions in operations, including
stockpiling raw materials and finished goods, identifying alternative sources
of supplies, creating back-up order processing and invoicing procedures, and
other appropriate measures. The Company expects to complete development and
testing of these contingency plans by September 1999.
The costs, expected completion dates and risks described above represent
management's best estimates. However, there can be no guarantee that these
estimates will prove to be accurate. Actual results could differ
significantly. If the Company does not successfully complete anticipated
replacements and other remediation to IT systems, if unanticipated
disruptions in non-IT systems occur, or if significant vendors or customers
do not successfully achieve Year 2000 compliance on a timely basis,
operations or financial results could be adversely affected in the future.
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 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.
Certain amounts presented in this Item 2 have generally been rounded to
the nearest thousand and hundred thousand, as applicable, but the percentages
calculated are based on actual amounts without rounding.
11
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth statement of operations items as a
percentage of net sales and information on net sales of certain Company
products.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 67.6 71.1
----- -----
Gross margin 32.4 28.9
Selling, general and
administrative expenses 21.7 20.6
----- -----
Operating income 10.7 8.3
Interest expense (5.6) (5.7)
Other income (expense), net 1.8 4.0
----- -----
Income before income taxes 6.9 6.6
Income tax expense (1.1) (0.3)
----- -----
Net income 5.8% 6.3%
----- -----
----- -----
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------ % CHANGE
1998 1997 98/97
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Bulk alcohol products $ 6,253 $ 7,210 (13.3)
Premium branded spirits 2,361 2,128 10.9
Value-priced spirits 2,988 2,789 7.1
Contract bottling 1,100 1,358 (19.0)
Vinegar and cooking wine 2,514 2,585 (2.7)
Other 1,325 1,671 (20.7)
---------- ----------- ------
$ 16,541 $ 17,741 (6.8)
---------- ----------- ------
---------- ----------- ------
</TABLE>
12
<PAGE>
The following table provides unit sales volume data for certain Company
products.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------- % Change
1998 1997 98/97
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bulk alcohol products:
Distilled products, in proof gallons
Citrus brandy 306 403 (24.0)
Citrus spirits 227 172 32.4
Rum 1,049 1,045 0.3
Cane spirits 138 117 17.6
Grain alcohol 219 1,077 (79.6)
Fortified citrus wine, in gallons 1,735 1,522 14.0
Premium branded spirits, in cases 51 47 8.3
Value-priced spirits, in cases 236 221 6.5
Contract bottling, in cases 469 628 (25.4)
Vinegar
Bulk, in 100 grain gallons 1,094 1,131 (3.3)
Cases 113 128 (12.0)
Drums, in 100 grain gallons 161 166 (2.6)
Cooking Wine
Bulk, in gallons 28 20 36.7
Cases 64 73 (12.3)
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1997. Unless otherwise noted, references to 1998 represent the
three month period ending December 31, 1998 and references to 1997 represent
the three month period ending December 31, 1997.
NET SALES. Net sales were $16.5 million in 1998, a decrease of 6.8% from
net sales of $17.7 million in 1997.
Net sales of bulk alcohol products were $6.3 million in 1998, a decrease
of 13.3% from net sales of $7.2 million in 1997. Unit sales of citrus brandy
decreased 24.0% 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 increased 32.4% in 1998, due to increased business with new
and existing customers. Unit sales of rum increased 0.3% in 1998. Unit
sales of cane spirits increased 17.6% in 1998, due to the timing of customer
orders. Unit sales of grain alcohol decreased 79.6% in 1998. Export sales
of grain alcohol to Eastern Europe and Russia have decreased due to the
economic crisis in that region. Management cannot predict whether or when
sales of grain alcohol will return to historical levels. Unit sales of
fortified citrus wine increased 14.0% in 1998, due to the timing of customer
orders.
Net sales of premium branded spirits were $2.4 million in 1998, an
increase of 10.9% from net sales of $2.1 million in 1997. Sales increases
reflect the continued expansion by the Company of its distribution network
and the success of its Cruzan flavored rums.
13
<PAGE>
Net sales of value-priced spirits were $3.0 million in 1998, an increase
of 7.1% from net sales of $2.8 million in 1997. Value-priced spirits volume
increased 6.5% due to increased business with private label customers.
Management expects the Company's private label business to increase as its
private label customers expand by adding new locations and through
acquisitions.
Net sales of contract bottling services were $1.1 million in 1998, a
decrease of 19.0% from net sales of $1.4 million in 1997. The Company's
contract bottling volume decreased 25.4% in 1998. The decrease in volume is
due to both the timing of customer orders and the loss of bottling customers
due to price competition. For the Company's fiscal year ended September 30,
1998, the amount of bottling business with these customers amounted to 9.5%
of total contract bottling volume.
Net sales of vinegar and cooking wine were $2.5 million in 1998, a
decrease of 2.7% from net sales of $2.6 million in 1997. The Company's two
vinegar plants are operating at maximum capacity. The Company intends to
expand its vinegar production capacity by building or acquiring additional
facilities.
GROSS PROFIT. Gross profit was $5.4 million in 1998, an increase of 4.6%
from gross profit of $5.1 million in 1997. Gross margin increased to 32.4%
in 1998 from 28.9% in 1997. The improvement in gross margin is primarily
attributable to reduced raw material cost in the Company's domestic
distilling operations, reduced manufacturing overhead and a favorable change
in product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3.6 million in 1998, a decrease of 1.8% from
$3.7 million in 1997. Selling, general and administrative expenses were
21.7% of net sales in 1998 and 20.6% in 1997. The net decrease in selling,
general and administrative expenses in 1998, is primarily attributable to (1)
increased marketing expenses and new employees related to the Company's
efforts in increasing its distribution network for its premium branded
spirits, offset by (2) reduced litigation costs.
INTEREST INCOME. The Company earns interest on its cash investments and
notes receivable. The decrease in interest income in 1998 is due to
decreased amounts of notes receivable.
INTEREST EXPENSE. Interest expense was $.9 million in 1998 and $1.0
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. The Company had a non-recurring gain of $.4 million in 1997.
INCOME TAX EXPENSE. The Company's effective income tax rate was 16.9% in
1998 and 3.5% 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, in 1997 the Company amended its 1993, 1994 and 1995 federal income tax
returns which resulted in loss carryforwards available in 1997 and a request
for a refund of income tax previously paid.
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
14
<PAGE>
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 its operating and financing activities will provide adequate
resources to satisfy its working capital, liquidity and anticipated capital
expenditure requirements for both its short-term and long-term capital needs.
OPERATING ACTIVITIES
Net cash provided by operating activities in 1998 was $1.0 million,
which resulted from $2.0 million in net income adjusted for noncash items,
less $1.0 million representing the net change in operating assets and
operating liabilities during 1998. The net change in operating assets and
operating liabilities resulted from normal payments of accrued expenses that
existed as of September 30, 1998. Receivables decreased during 1998 due to a
decrease in sales compared to the fourth quarter of fiscal 1998.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 1998 was $.6 million, which
resulted primarily from $.4 million of capital expenditures. Payments
received on notes receivable of $.4 million were offset by new notes issued
of $.6 million.
Net cash used in financing activities in 1998 was $.4 million, which
resulted from the repurchase of the Company's common stock. Principal
payments on long-term debt of $.5 million, were offset by a $.5 million
increase in the Company's line of credit. 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.
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 $6.8 million at December 31, 1998. Borrowings in excess
of $10 million are subject to a borrowing base related to 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 December 31, 1998.
The Company's total debt was $44.5 million as of December 31, 1998, and
its ratio of debt to equity was 1.1 to 1.
With respect to the Bahamian and Virgin Islands subsidiaries, no
provision has been made for income 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 included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1998,
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.
15
<PAGE>
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and financial condition have not
been significantly affected by inflation and changing prices. The Company
has been able, subject to normal competitive conditions, to pass along rising
costs through increased selling prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk
exposure from that reported in the Company's Annual Report on Form 10-K for
the year ended September 30, 1998.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (9)
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. (11)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (10)
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. (12)
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 (5)
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 (6)
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 (6)
10.14(b) Modification of Loan Agreement dated as of August 19, 1996, amending
Loan Agreement dated as of November 22, 1994, as amended (7)
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 (8)
10.14(d) Fourth modification of Loan Agreement dated as of September 17, 1998,
amending Loan Agreement dated as of November 22, 1994 (12)
10.15 Renewal Revolving Credit Note dated as of September 17, 1998 (12)
10.17 Letter Agreement dated as of January 1, 1998, between Todhunter
International, Inc. and Jay S. Maltby (11)
11.1 Statement of Computation of Per Share Earnings (13)
21.1 Subsidiaries of Todhunter International, Inc. (4)
23.1 Consent of McGladrey & Pullen, LLP (12)
27.1 Financial Data Schedule (14)
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (File No. 33-50848).
17
<PAGE>
(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.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.
(5) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
(8) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996.
(9) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
(11) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31 1998.
(12) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1998.
(13) Filed herewith and incorporated herein by reference to Note 4 of notes to
consolidated financial statements, included in Item 1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1998.
(14) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 11, 1999 /s/ A. Kenneth Pincourt, Jr.
--------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: February 11, 1999 /s/ Troy Edwards
--------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TODHUNTER
INTERNATIONAL, INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR ITS THREE MONTHS
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,615,338
<SECURITIES> 0
<RECEIVABLES> 12,315,678
<ALLOWANCES> 0
<INVENTORY> 23,675,473
<CURRENT-ASSETS> 48,586,193
<PP&E> 76,375,320
<DEPRECIATION> 34,189,066
<TOTAL-ASSETS> 95,251,790
<CURRENT-LIABILITIES> 12,941,573
<BONDS> 36,027,959
0
0
<COMMON> 49,497
<OTHER-SE> 41,500,122
<TOTAL-LIABILITY-AND-EQUITY> 95,251,790
<SALES> 16,540,922
<TOTAL-REVENUES> 16,540,922
<CGS> 11,184,277
<TOTAL-COSTS> 11,184,277
<OTHER-EXPENSES> 3,287,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 923,832
<INCOME-PRETAX> 1,145,303
<INCOME-TAX> 193,678
<INCOME-CONTINUING> 951,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 951,625
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
