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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 THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 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
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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. / /
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of December 11, 2000 (computed by reference to the last
reported sale price of registrant's common stock on AMEX on such date):
$13,727,901.
The number of shares outstanding of registrant's Common Stock, $.01 par
value per share, as of December 11, 2000, was 5,513,734.
There were no shares of Preferred Stock outstanding as of December 11,
2000.
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 2001 annual
stockholders' meeting.
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INTRODUCTORY NOTE
THIS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
2000 (THE "FORM 10-K") CONTAINS "FORWARD-LOOKING STATEMENTS," AS DEFINED UNDER
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL
INFORMATION OR STATEMENTS OF CURRENT CONDITION AND RELATE TO FUTURE EVENTS OR
THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. SOME FORWARD-LOOKING STATEMENTS
MAY BE IDENTIFIED BY USE OF SUCH TERMS AS "BELIEVES," "ANTICIPATES," "INTENDS"
OR "EXPECTS." SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. THE FOLLOWING IS A LIST OF FACTORS, AMONG OTHERS,
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM 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. ALSO, SEE "RISK FACTORS" IN PREVIOUS FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR
REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE.
PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW
Todhunter International, Inc. (the "Company") is a leading producer and
supplier of brandy, rum, wine and spirits to other beverage alcohol
manufacturers; produces, imports and markets premium branded spirits; bottles
beverage alcohol and other beverages on a contract basis and under its own
labels; and produces vinegar and cooking wine. The Company operates four
production facilities in the United States and one in St. Croix, United States
Virgin Islands and purchases certain products for resale. 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 "Fiscal 2000", "Fiscal
1999" and "Fiscal 1998" shall refer to the Company's fiscal year ended September
30 of such year.
OWNERSHIP BY ANGOSTURA LIMITED
Angostura Limited ("Angostura"), a Trinidad-based distiller, has
reported that, as a result of open market and private purchases beginning in
Fiscal 1999, it beneficially owned 2,814,113 shares, representing 51.0% of the
Company's common stock at November 30, 2000.
ACQUISITION OF MONARCH WINE COMPANY
On November 17, 1999, the Company acquired substantially all of the
assets of Adams Wine Company d/b/a Monarch Wine Company of Georgia ("Monarch"),
Atlanta, Georgia (the acquisition of the assets of Monarch is hereafter referred
to as the "Monarch Acquisition"). The purchase price was $23.8 million in cash.
Monarch specializes in the manufacture of wines, including custom blended wines
and cooking wines for the food industry and base wines for producers of vinegar
and beverage alcohol.
The Monarch Acquisition has strengthened the Company's position in the
beverage alcohol and food industry by expanding the Company's customer base and
product offerings, and has improved the Company's plant capacity utilization.
Synergies have also been realized and are expected to be realized in the future
in the areas of sales, distribution and administrative overhead. The Company
completed the integration of Monarch during the quarter ended March 31, 2000.
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SALE OF BAHAMIAN ASSETS
In September 2000, the Company sold all of its remaining operating
assets in the Bahamas to British Fidelity Holdings Limited, an affiliate through
common ownership, for a $3.5 million note due in August 2005 and bearing
interest at 6% (see Note 4 to the Company's consolidated financial statements).
The Company recorded a loss of $78,838 on the transaction.
BUSINESS SEGMENTS
The Company operates primarily in the beverage alcohol industry in the
United States. The Company reports its operating results in five segments:
- Bulk Alcohol Products (citrus brandy, citrus spirits, rum, cane
spirits, fortified citrus wine, purchased distilled products and
byproducts)
- Premium Branded Spirits (primarily rum, flavored rum and tequila)
- Bottling Operations (contract bottling services and proprietary and
private label products)
- Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar
stock and proprietary and private label case goods)
- Corporate Operations and Other (primarily corporate related items)
Information regarding net sales, operating income (loss) and total
assets of each of the Company's business segments and information regarding
geographic areas is set forth in Note 12 to the Company's consolidated
financial statements.
BULK ALCOHOL PRODUCTS. The Company produces and sells citrus brandy,
citrus spirits, rum, cane spirits and fortified citrus wine in the United
States. The Company also purchases other distilled products from several
suppliers for resale, including grain alcohol, which is denatured and packaged
and sold as industrial alcohol to hospitals, universities, fragrance producers
and other manufacturers. The Company is the largest supplier of citrus brandy,
bulk rum and fortified citrus wine in the United States. The Company sells its
bulk alcohol products to over 40 producers of beverage alcohol in the United
States and exports products to approximately 10 countries from the United
States. The Company's distilling operations produce a byproduct, which is sold
as animal feed.
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 bottling operations.
Management believes that the Company's proximity to raw materials and
use of citrus byproducts in the production of bulk alcohol provide it with cost
advantages over competitors' 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.
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PREMIUM BRANDED SPIRITS. The Company produces, bottles, imports,
develops and markets a line of premium branded spirits in the United States and
exports distilled spirits to about 5 countries in Europe. Since 1996, the
Company has established and strengthened relationships with wholesalers,
expanded its distribution network, developed new products, obtained agency
agreements and acquired management and marketing expertise. 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's principal
premium brands include:
- Cruzan Estate Rums
- Cruzan Flavored Rums
- Porfidio Tequila
BOTTLING OPERATIONS. The Company's bottling operations include
contract bottling services and the production, bottling and marketing of a
complete line of distilled spirits under its own proprietary labels and under
the private labels of major retailers. The Company's primary bottling
operations are located in Florida and serve customers in the Southeastern
United States. The Company also produces and sells proprietary label products
in the United States Virgin Islands.
Contract bottling products include distilled spirits, coolers, prepared
cocktails, fruit juices, carbonated and non-carbonated fruit flavored beverages
and flavored sparkling water. The Company's proprietary and private label
products include rum, gin, vodka, tequila, cordials and various whiskies. The
Company's proprietary label products are marketed in the popular-price category
of the distilled spirits market.
VINEGAR AND COOKING WINE. To complement its distilling, winery and
bottling operations, the Company produces vinegar, vinegar stock, and cooking
wine for sale to condiment manufacturers, food service distributors and major
retailers. The Company's sales to retailers are sold under its proprietary
labels and under the private labels of major retailers in the United States and
Canada.
CORPORATE OPERATIONS AND OTHER. Corporate Operations and Other includes
traditional corporate items and the results of certain nonmaterial operations.
DEPENDENCE ON MAJOR CUSTOMERS
The Company sells its bulk alcohol products to over 40 producers of
beverage alcohol in the United States and foreign countries. The Company's
contract bottling services and proprietary and private label products are sold
to a limited number of customers. The Company's vinegar and cooking wine are
sold to over 700 condiment manufacturers, food service distributors and
retailers. The Company has major customers in its bulk alcohol products and
bottling operations 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.
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.
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 can produce, on a combined basis, up to 23 million
gallons of distilled products per year.
3
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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 30 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 proprietary and private label
products 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 proprietary and private label products, 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. The Company distills and ages
its own rum, but generally produces its other proprietary and private label
products 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's
bottling capacity is approximately 10 million 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 9 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 Lake Alfred, Auburndale and 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 60% of the raw materials used in the Company's distilling
operations in Fiscal 2000. Cane molasses, which is used in the production of rum
and cane spirits, accounted for the remaining 40%. 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
distilled products, used in its bulk alcohol products and bottling operations
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.
During Fiscal 2000, one supplier accounted 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.
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
may vary significantly from quarter to quarter.
4
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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 proprietary and private label spirits to wholesalers
for distribution primarily in the Southeastern United States. 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. 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 produces, imports, markets and sells premium branded spirits to
wholesalers in the United States. The Company's marketing and promotional
programs for its premium brands are directed at wholesalers, retailers and
consumers. Sales of the Company's proprietary and private label 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 salesforce, 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
services 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 salesforce.
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 proprietary and private label products and premium branded spirits
compete on a regional and national basis against other distilled spirits
products, including premium labels, mid-price and popular-price products. The
proprietary label 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 Southeastern United
States. 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.
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.
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Beverage alcohol produced and bottled by the Company is subject to
substantial federal excise taxes. Excise taxes are currently imposed at flat
rates of $13.50 per proof gallon for distilled spirits and $1.57 per gallon
for fortified wine.
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, 2000, the Company had approximately 375 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 facilities in Florida and Kentucky for the production
of its bulk alcohol products, premium branded spirits, contract bottling
services, vinegar and cooking wine. The Company sells its products and services
primarily to customers in the United States but also exports certain products to
foreign countries, primarily in 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 foreign countries in the
Caribbean, South America and Europe. See Note 12 to the Company's consolidated
financial statements for additional information about the Company's foreign and
domestic operations and export sales.
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 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. Legal proceedings pending as of
September 30, 2000, 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 Fiscal 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades 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.
<TABLE>
<CAPTION>
Period High Low
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<S> <C> <C>
Fiscal 1999
First quarter 8 1/4 6 3/4
Second quarter 8 1/4 7 3/8
Third quarter 8 1/2 6 3/4
Fourth quarter 10 3/8 8 1/2
Fiscal 2000
First quarter 9 9/32 8 11/16
Second quarter 9 1/8 8
Third quarter 9 1/8 7 7/8
Fourth quarter 8 3/16 7 1/4
</TABLE>
The number of stockholders of record as of November 30, 2000 was 54. In
addition, based upon a list of non-objecting beneficial owners, there were at
least 529 beneficial owners at January 20, 2000.
No dividend was paid to stockholders during the fiscal years ended
September 30, 1999 and 2000. 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. 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,
---------------------------
2000 1999 1998 1997 1996
---- ----- ----- ----- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales $ 92,987 $ 76,733 $ 75,096 $ 77,938 $ 78,197
Cost of goods sold 64,117 53,000 53,006 56,493 58,428
--------- --------- --------- --------- ---------
Gross profit 28,870 23,733 22,090 21,445 19,769
Selling, general and administrative expenses 17,885 15,023 13,937 13,126 11,483
--------- --------- --------- --------- ---------
Operating income 10,985 8,710 8,153 8,319 8,286
Other income (expense):
Interest income 901 715 655 840 1,036
Interest expense (5,004) (3,608) (3,946) (4,146) (4,351)
Other, net (178) 181 660 931 766
--------- --------- --------- --------- ---------
Income before income taxes and extraordinary item 6,706 5,998 5,522 5,944 5,737
Income tax expense 1,649 1,458 808 1,259 1,192
--------- --------- --------- --------- ---------
Income before extraordinary item 5,057 4,540 4,714 4,685 4,545
Extraordinary item, net of income tax benefit (1,169) - - - -
--------- --------- --------- --------- ---------
Net income $ 3,888 $ 4,540 $ 4,714 $ 4,685 $ 4,545
========= ========= ========= ========= ==========
Net income per share
Basic
Income before extraordinary item $ 0.92 $ 0.91 $ 0.95 $ 0.95 $ 0.92
Extraordinary item (0.21) - - - -
--------- --------- --------- --------- ---------
Net income $ 0.71 $ 0.91 $ 0.95 $ 0.95 $ 0.92
========= ========= ========= ========= =========
Diluted
Income before extraordinary item $ 0.91 $ 0.91 $ 0.95 $ 0.94 $ 0.92
Extraordinary item (0.21) - - - -
--------- --------- --------- --------- ---------
Net income $ 0.70 $ 0.91 $ 0.95 $ 0.94 $ 0.92
========= ========= ========= ========= =========
Weighted average shares outstanding
Basic 5,514 4,964 4,950 4,943 4,919
Diluted 5,550 4,982 4,985 4,966 4,955
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 40,372 $ 36,246 $ 37,807 $ 31,640 $ 33,517
Total assets 126,548 97,167 96,997 95,618 98,859
Short-term debt 8,000 6,000 1,888 2,938 2,152
Long-term debt 51,334 28,000 42,581 43,135 51,293
Stockholders' equity 54,841 51,193 41,004 36,290 31,448
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Management's discussion and analysis of financial condition and results
of operations contains "foward-looking statements." See Introductory Note on
page one.
The following discussion and analysis summarizes the significant
factors affecting (i) consolidated results of operations of the Company for
Fiscal 2000 compared to Fiscal 1999, and Fiscal 1999 compared to Fiscal 1998,
and (ii) financial liquidity and capital resources for Fiscal 2000. This
discussion and analysis should be read in conjunction with the Company's
consolidated financial statements and notes thereto included herein. Certain
amounts presented in this Item 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.
The Company operates primarily in the beverage alcohol industry in the
United States. The Company reports its operating results in five segments: Bulk
Alcohol Products (citrus brandy, citrus spirits, rum, cane spirits, fortified
citrus wine, purchased distilled products and byproducts); Premium Branded
Spirits (primarily rum, flavored rum and tequila); Bottling Operations (contract
bottling services and proprietary and private label products); Vinegar and
Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock and proprietary and
private label case goods); and Corporate Operations and Other (primarily
corporate related items).
Information regarding net sales, operating income (loss) and total
assets of each of the Company's business segments and information regarding
geographic areas is set forth in Note 12 to the Company's consolidated
financial statements located in Item 8 of this Annual Report on Form 10-K.
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,
---------------------------
2000 1999 1998
---- ---- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 69.0 69.1 70.6
----- ----- -----
Gross margin 31.0 30.9 29.4
Selling, general and administrative expenses 19.2 19.5 18.6
----- ----- -----
Operating income 11.8 11.4 10.8
Other income (expense), net (4.6) (3.6) (3.4)
----- ----- -----
Income before income taxes and extraordinary item 7.2 7.8 7.4
Income tax expense (1.8) 1.9 1.1
----- ----- -----
Income before extraordinary item 5.4 5.9 6.3
Extraordinary item (1.2) - -
----- ----- -----
Net income 4.2% 5.9% 6.3%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, % CHANGE
------------------------ ---------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 00/99 99/98
----- ----- ----- ----- -----
NET SALES (IN THOUSANDS)
Bulk alcohol products $37,457 $33,522 $32,510 11.7 3.1
Premium branded spirits 16,119 12,126 10,485 32.9 15.6
Bottling operations 16,823 17,778 19,171 (5.4) (7.3)
Vinegar and cooking wine 20,477 11,029 10,544 85.7 4.6
Corporate operations and other 2,111 2,278 2,386 (7.3) (4.5)
------- ------- -------
$92,987 $76,733 $75,096 21.2 2.2
======= ======= =======
</TABLE>
9
<PAGE>
The following table provides unit sales volume data for certain Company
products.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, % CHANGE
------------------------- -----------------
2000 1999 1998 00/99 99/98
------ ------ ------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bulk alcohol products:
Distilled products, in proof gallons
Citrus brandy 1,446 1,459 1,479 (0.9) (1.4)
Citrus spirits 621 1,347 1,012 (53.9) 33.0
Rum 4,557 4,542 4,412 (0.3) 3.0
Cane spirits 531 551 617 (3.7) (10.6)
Fortified citrus wine, in gallons 10,999 6,912 6,846 59.1 1.0
Premium branded spirits, in cases 289 243 215 18.9 13.1
Bottling operations, in cases 4,342 4,423 4,639 (1.8) (4.6)
Vinegar
Bulk, in 100 grain gallons 5,175 4,757 5,251 8.8 (9.4)
Cases 612 514 503 19.2 2.2
Drums, in 100 grain gallons 1,510 964 746 56.6 29.2
Cooking Wine
Bulk, in gallons 2,385 85 71 2,703.5 20.1
Cases 692 221 243 212.8 (8.7)
</TABLE>
The Company is a leading producer and supplier of brandy, rum, wine and
spirits to other beverage alcohol manufacturers; produces, imports and markets
premium branded spirits; bottles beverage alcohol and other beverages on a
contract basis and under its own labels; and produces vinegar and cooking wine.
The Company's net sales and gross margins (gross profit as a percentage
of net sales) vary depending on the mix of business among the Company's
products. Historically, gross margins have been highest in bulk alcohol products
and premium branded spirits and lower in bottling operations and vinegar and
cooking wine operations. Within its bottling operations, sales and gross margins
have varied substantially based upon the mix of business from the Company's
"Type A" and "Type B" bottling customers. Type A bottling customers pay the
Company to purchase their raw materials and these costs are passed through to
the customer. Type B bottling customers supply their own raw materials and are
only charged for bottling charges. Although gross profit per case for the
Company's Type A and Type B bottling customers is approximately equal, given the
same case volume, net sales and cost of goods sold with respect to products
bottled for Type A bottling customers are higher, and gross margins are lower,
than for Type B bottling customers. As a result, significant fluctuations in
volume of Type A bottling customers can distort the Company's gross margin.
The Company has a limited number of customers, and these customers
often purchase bulk alcohol products in significant quantities or place
significant orders for contract bottling services, distilled spirits, vinegar
and cooking wine. Accordingly, the size and timing of purchase orders and
product shipments can cause operating results to fluctuate significantly from
quarter to quarter. Additionally, some Company products generate higher profit
margins than others, and changes in the Company's product mix 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.
10
<PAGE>
ACQUISITION OF MONARCH WINE COMPANY
On November 17, 1999, the Company completed the Monarch Acquisition.
The purchase price was $23.8 million in cash. Monarch specializes in the
manufacture of wines, including custom blended wines and cooking wines for the
food industry and base wines for producers of vinegar and beverage alcohol.
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
NET SALES. Net sales were $93.0 million in 2000, an increase of $21.2%
from net sales of $76.7 million in 1999.
Net sales of bulk alcohol products were $37.5 million in 2000, an
increase of 11.7% from net sales of $33.5 million in 1999. The increase resulted
from increased sales of bulk alcohol resulting from the Monarch Acquisition.
Unit sales of citrus spirits decreased 53.9% and unit sales of fortified citrus
wine increased 59.1% in 2000 compared to 1999. These changes resulted from the
Monarch Acquisition. Monarch was a major purchaser of the Company's citrus
spirits for use in producing fortified citrus wine.
Net sales of premium branded spirits were $16.1 million in 2000, an
increase of 32.9% from net sales of $12.1 million in 1999. Sales increases
reflect the continued expansion of the Company's distribution network and the
success of its Cruzan Flavored Rums and Porfidio Tequila brands.
Net sales of the Company's bottling operations were $16.8 million in
2000, a decrease of 5.4% from net sales of $17.8 million in 1999. The unit
volume of the Company's bottling operations decreased 1.8% in 2000. The decrease
in volume was 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 historic levels.
Net sales of vinegar and cooking wine were $20.5 million in 2000, an
increase of 85.7% from net sales of $11.0 million in 1999. The increase in net
sales was primarily attributable to increased sales of cooking wine resulting
from the Monarch Acquisition. The Company has recently expanded its vinegar
production capacity by building additional facilities.
GROSS PROFIT. Gross profit was $28.9 million in 2000, an increase of
21.6% from gross profit of $23.7 million in 1999. Gross margin increased to
31.0% in 2000 from 30.9% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $17.9 million in 2000, an increase of 19.0% from
$15.0 million in 1999. The increase was primarily attributable to (1) increased
marketing expenses and new employees related to the Company's premium branded
spirits business; (2) expenses incurred during the integration of the Monarch
Acquisition, and (3) increased amortization expense.
OPERATING INCOME. The following table sets forth the operating income
(loss) by operating segment.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
2000 1999 % CHANGE
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bulk alcohol products $ 13,696 $ 12,346 10.9
Premium branded spirits 120 (523) 123.0
Bottling operations (1,022) 125 (914.7)
Vinegar and cooking wine 3,673 1,922 91.1
Corporate operations and other (5,482) (5,160) (6.3)
----------- ------------
$ 10,985 $ 8,710 26.1
=========== ============
</TABLE>
11
<PAGE>
As a result of the above factors, operating income was $11.0 million in
2000, an increase of 26.1% over operating income of $8.7 million in 1999.
INTEREST INCOME. The Company earns interest on its cash, short-term
investments and notes receivable. The increase in interest income in 2000 was
attributable to higher average amounts of cash, short-term investments and notes
receivable outstanding compared to 1999.
INTEREST EXPENSE. Interest expense was $5.0 million in 2000 and $3.6
million in 1999. The increase in interest expense was due to higher levels of
debt outstanding due to the Monarch Acquisition and higher interest rates during
2000 compared to 1999.
INCOME TAX EXPENSE. The Company's effective income tax rate was 24.6%
in 2000 and 24.3% in 1999. The low tax rate is attributable to the Virgin
Islands subsidiary, which has a 90% exemption from United States federal income
taxes (see Note 9 to the Company's consolidated financial statements).
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales were $76.7 million in 1999, an increase of 2.2%
from net sales of $75.1 million in 1998.
Net sales of bulk alcohol products were $33.5 million in 1999, an
increase of 3.1% from net sales of $32.5 million in 1998. The increase resulted
primarily from (i) an increase in sales of citrus spirits and rum, and (ii) an
improved product mix of sales of purchased distilled products. These increases
were partially offset by decreases in citrus brandy, cane spirits and
byproducts.
Net sales of premium branded spirits were $12.1 million in 1999, an
increase of 15.6% from net sales of $10.5 million in 1998. Sales increases
reflect the continued expansion of the Company's distribution network into new
markets and the success of its Cruzan Flavored Rums and Porfidio Tequila.
Net sales in the Company's bottling operations were $17.8 million in
1999, a decrease of 7.3% from net sales of $19.2 million in 1998. The Company's
overall bottling volume decreased 4.6% in 1999. The decrease in volume was
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 historic levels. Sales of the Company's
proprietary and private label products decreased 1.5% in 1999.
Net sales of vinegar and cooking wine were $11.0 million in 1999, an
increase of 4.6% from net sales of $10.5 million in 1998. The Company's two
vinegar plants were operating at maximum capacity in 1999.
GROSS PROFIT. Gross profit was $23.7 million in 1999, an increase of
7.4% from gross profit of $22.1 million in 1998. Gross margin increased to 30.9%
in 1999 from 29.4% in 1998. The improvement in gross margin was primarily
attributable to a favorable change in product mix in the Company's bulk alcohol
products and a decrease in contract bottling volume with a Type A bottling
customer.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $15.0 million in 1999, an increase of 7.8% from
$13.9 million in 1998. Selling, general and administrative expenses were 19.5%
of net sales in 1999 and 18.6% in 1998. The increase in selling, general and
administrative expenses in 1999, was primarily attributable to increased
marketing and new employees related to the Company's efforts to increase its
distribution network. The increase was partially offset by a reduction in
administrative overhead.
12
<PAGE>
OPERATING INCOME. The following table sets forth the operating
income (loss) by operating segment.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998 % CHANGE
----- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bulk alcohol products $ 12,346 $ 11,020 12.0
Premium branded spirits (523) 250 (309.0)
Bottling operations 125 963 (86.9)
Vinegar and cooking wine 1,922 1,708 12.5
Corporate operations and other (5,160) (5,788) (10.9)
----------- ------------
$ 8,710 $ 8,153 6.8
=========== ============
</TABLE>
As a result of the above factors, operating income was $8.7 million
in 1999, an increase of 6.8% from operating income of $8.2 million in 1998.
INTEREST INCOME. The Company earns interest income on its cash,
short-term investments and notes receivable. The increase in interest income
in 1999 was attributable to higher average amounts of cash, short-term
investments and notes receivable outstanding compared to 1998.
INTEREST EXPENSE. Interest expense was $3.6 million in 1999 and $3.9
million in 1998. The decrease in interest expense was due to lower levels of
debt outstanding and lower rates during 1999 compared to 1998.
OTHER, NET. Included in other income is a nonrecurring gain of $.1
million in 1999 and $.4 million in 1998.
INCOME TAX EXPENSE. The Company's effective income tax rate was
24.3% in 1999 and 14.6% in 1998. The low tax rate is attributable to the
Virgin Islands subsidiary which has a 90% exemption from United States
federal income taxes. Also, in 1998 the Company amended its 1993, 1994 and
1995 income tax returns, which resulted in loss carryforwards available in
1998 and a refund of income taxes previously paid. No such loss carryforwards
or refunds were available in 1999.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal use of cash in its operating activities is
for purchasing raw materials to be used in its manufacturing operations,
purchasing imported products for its premium branded spirits business and
carrying inventories and 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 borrowings on its line of credit vary during the year. For example,
the Company uses citrus molasses as its primary raw material in the
production of citrus brandy and spirits at its two Florida distilleries. The
Company buys citrus molasses, a byproduct of citrus juice production, from
local manufacturers of citrus juice and concentrate during the citrus
harvest, which generally runs from November to June. The Company generally
begins purchasing citrus molasses in November and builds inventory of citrus
brandy and spirits. The Company must manufacture and build inventory while
raw materials are available due to the short life of the citrus molasses it
purchases. Another seasonal business of the Company is its contract bottling
services. Demand for contract bottling services is highest during the months
from April through October. Management believes that cash provided by its
operating and financing activities will provide adequate resources to satisfy
its working capital, liquidity and anticipated capital expenditure
requirements for both its short-term and long-term capital needs.
13
<PAGE>
OPERATING ACTIVITIES
Net cash provided by operating activities in 2000 was $4.4 million,
which resulted from $9.5 million in net income adjusted for noncash items,
less $5.1 million representing the net change in operating assets and
liabilities.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 2000 was $30.9 million,
which resulted primarily from $5.8 million of capital expenditures, $23.8
million used for the Monarch Acquisition and a net increase of $2.3 million
in short-term investments. Payments received on notes receivable of $1.8
million were offset by new notes issued of $.3 million. During the third
quarter of 2000, the Company converted a $1,000,000 loan to Premier Wines &
Spirits, Ltd. ("Premier"), a 45% owned subsidiary, into a capital
contribution in order to improve Premier's capital structure.
The Company's capital expenditures were $5.8 million in 2000 and
$2.6 million in 1999. The increase in capital expenditures was primarily
attributable to (1) improving the Company's wine production capacity, (2)
expanding vinegar production capacity and (3) improving the Company's rum
production capacity.
Net cash provided by financing activities in 2000 was $24.5 million,
which resulted from (1) proceeds from term loans and other notes of $56.9
million and (2) an increase of $8.5 million in borrowings under the revolving
credit facility, offset by (3) payments of long-term debt totaling $40.1
million.
In November 1999, the Company's previous long-term debt and line of
credit were replaced with a $71 million credit agreement between the Company
and a syndicate of lenders. The new credit agreement consists of a $15
million revolving credit facility which expires in November 2002 and a term
loan with an initial amount of $56 million which matures on December 31,
2004. In November 1999, the Company used $23.5 million of the term loan to
fund the Monarch Acquisition. Borrowings under the revolving credit facility
were $8.5 million at September 30, 2000. See Note 8 to the Company's
consolidated financial statements for additional information related to the
Company's long-term debt.
The Company's total debt was $59.3 million as of September 30, 2000,
and its ratio of debt to equity was 1.1 to 1.
The Company's share of the undistributed earnings of the Bahamian
and Virgin Islands subsidiaries was approximately $8.1 million and $21.1
million, respectively, as of September 30, 2000. 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. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
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. The Company adopted SFAS No. 133 during the second
quarter of Fiscal 2000.
14
<PAGE>
EFFECTS OF INFLATION AND CHANGING PRICES
The Company uses natural gas in its distilling operations and has
recently experienced significant increases in its energy costs as a result of
natural gas price increases. At the present time, management believes that
the Company's energy costs relating to natural gas will continue to increase.
Where competitively feasible, management plans to increase selling prices to
offset the effects of natural gas price increases, but the Company may not be
able to recover these energy cost increases.
Except as noted above, the Company's results of operations and
financial condition have not been significantly affected by inflation and
changing prices. The Company has been able, subject to normal competitive
conditions, to pass along rising costs through increased selling prices.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
<TABLE>
<CAPTION>
Market Risk Analysis
September 30, 2000
Expected Maturity Date
-------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
---------- ----------- ------------ ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Notes receivable:
Fixed rate $ 1,430,452 $ 530,546 $ 569,067 $ 610,746 $ 3,954,091 $ 757,462 $ 7,852,364 $ 7,793,310
Average interest rate 6.55% 6.48% 6.44% 6.38% 6.31% 7.09% 6.54% --
Liabilities
*Long-term debt:
Variable rate $ 8,000,000 $ 8,000,000 $ 16,512,981 $ 8,821,243 $ 8,000,000 $ 10,000,000 $ 59,334,224 $59,334,224
Average interest rate 9.19% 9.12% 9.57% 9.25% 9.12% 9.12% 9.22% --
</TABLE>
* The Company has entered into an agreement with a bank to cap the LIBOR rate
on the term loans at 7.5%. The effect of the cap is not known at this time.
See Note 8 to the Company's consolidated financial statements for additional
information related to Company's financing arrangements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement
schedules 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 ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference
from the Company's definitive proxy statement for its 2001 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 2001 annual
stockholders' meeting.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference
from the Company's definitive proxy statement for its 2001 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 2001 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) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of Fiscal
2000.
(c) Exhibits
See "Index to Exhibits".
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 18th day of December,
2000.
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>
<S> <C> <C>
/s/ A. Kenneth Pincourt, Jr. Chairman of the Board December 18, 2000
------------------------------- and Chief Executive Officer
A. Kenneth Pincourt, Jr. (Principal Executive Officer)
/s/ Troy Edwards Treasurer and Chief Financial Officer December 18, 2000
-------------------------------
Troy Edwards (Principal Financial
and Accounting Officer)
/s/ Thomas A. Valdes Director December 18, 2000
-------------------------------
Thomas A. Valdes
/s/ Jay S. Maltby Director December 18, 2000
-------------------------------
Jay S. Maltby
/s/ D. Chris Mitchell Director December 18, 2000
-------------------------------
D. Chris Mitchell
/s/ Leonard G. Rogers Director December 18, 2000
-------------------------------
Leonard G. Rogers
/s/ W. Gregory Robertson Director December 18, 2000
-------------------------------
W. Gregory Robertson
/s/ Edward F. McDonnell Director December 18, 2000
-------------------------------
Edward F. McDonnell
/s/ K. Ian McLachlan Director December 18, 2000
-------------------------------
K. Ian McLachlan
/s/ Godfrey D. Bain Director December 18, 2000
-------------------------------
Godfrey D. Bain
</TABLE>
17
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
a) Financial Statements
Independent Auditor's Report 19
Consolidated balance sheets as of September 30, 2000 and 1999 20
Consolidated statements of income for the years ended September 30, 2000, 1999 and 1998 22
Consolidated statements of stockholders' equity for the years ended September 30, 2000, 1999 and 1998 23
Consolidated statements of cash flows for the years ended September 30, 2000, 1999 and 1998 25
Notes to consolidated financial statements 28
b) Financial Statement Schedules
All 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.
</TABLE>
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, 2000 and 1999, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 2000.
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, 2000 and 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2000 in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
West Palm Beach, Florida
November 15, 2000
19
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
--------------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 3,245,866 $ 5,265,318
Short-term investments 4,843,348 2,547,365
Trade receivables 15,296,445 12,161,401
Other receivables 2,932,531 2,316,398
Inventories 23,529,578 23,011,883
Notes receivable, current maturities 1,378,380 1,439,796
Deferred income taxes 1,131,000 929,000
Other current assets 3,082,184 1,899,672
-------------- --------------
TOTAL CURRENT ASSETS 55,439,332 49,570,833
Investments In And Advances To Equity Investees 1,067,805 1,073,115
Notes receivable, less current maturities 2,973,984 4,452,665
Note receivable from affiliate, less current maturities 3,447,928 -
Property and Equipment, less accumulated depreciation
2000 $39,268,253; 1999 $36,098,763 39,688,807 39,774,028
Goodwill, less accumulated amortization
2000 $1,801,134; 1999 $735,841 21,819,734 356,678
Other Assets 2,110,858 1,939,927
-------------- --------------
$ 126,548,448 $97,167,246
============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
--------------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 8,000,000 $ 6,000,000
Accounts payable 5,076,380 4,417,313
Accrued interest expense 107,035 1,261,542
Other accrued expenses 1,884,392 1,646,462
-------------- --------------
TOTAL CURRENT LIABILITIES 15,067,807 13,325,317
Long-Term Debt, less current Maturities 51,334,224 28,000,000
Deferred Income Taxes 4,122,000 4,345,000
Other Liabilities 1,183,854 303,835
-------------- --------------
71,707,885 45,974,152
-------------- --------------
Commitments
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 2000 and 1999 5,612,934 shares 56,129 56,129
Additional paid-in capital 18,326,014 18,326,014
Retained earnings 37,436,700 33,548,731
Accumulated other comprehensive loss (240,500) -
-------------- --------------
55,578,343 51,930,874
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
-------------- --------------
54,840,563 51,193,094
-------------- --------------
$ 126,548,448 $ 97,167,246
============== ==============
</TABLE>
21
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
Sales $ 123,999,796 $ 114,196,882 $ 110,846,810
Less excise taxes 31,013,099 37,463,735 35,750,916
---------------- -------------- --------------
NET SALES 92,986,697 76,733,147 75,095,894
Cost of goods sold 64,116,593 53,000,012 53,005,786
---------------- -------------- --------------
GROSS PROFIT 28,870,104 23,733,135 22,090,108
Selling, general and administrative expenses 17,884,628 15,022,979 13,937,082
---------------- -------------- --------------
OPERATING INCOME 10,985,476 8,710,156 8,153,026
---------------- -------------- --------------
Other income (expense):
Interest income 901,285 715,055 655,230
Interest expense (5,003,628) (3,607,706) (3,946,528)
Equity in losses of equity investees (297,329) (357,145) (364,740)
Other, net 119,833 537,248 1,025,020
---------------- -------------- --------------
(4,279,839) (2,712,548) (2,631,018)
---------------- -------------- --------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 6,705,637 5,997,608 5,522,008
---------------- -------------- --------------
Income tax expense (benefit):
Current 2,073,878 1,715,672 824,312
Deferred (425,000) (258,000) (16,000)
---------------- -------------- --------------
1,648,878 1,457,672 808,312
---------------- -------------- --------------
INCOME BEFORE EXTRAORDINARY ITEM 5,056,759 4,539,936 4,713,696
Extraordinary item- early extinguishment of
debt, net of income tax benefit of $382,075 1,168,790 - -
---------------- -------------- --------------
Net income $ 3,887,969 $ 4,539,936 $ 4,713,696
============== ============== ==============
Net income per common share:
Basic:
Income before extraordinary item $ .92 $ .91 $ .95
Extraordinary item (.21) - -
---------------- -------------- --------------
$ .71 $ .91 $ .95
================ ============== ==============
Diluted:
Income before extraordinary item $ .91 $ .91 $ .95
Extraordinary item (.21) - -
---------------- -------------- --------------
$ .70 $ .91 $ .95
================ ============== ==============
Common shares and equivalents outstanding:
Basic 5,513,734 4,963,760 4,949,714
================ ============== ==============
Diluted 5,550,216 4,981,579 4,984,868
================ ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------------------ Additional Other
Shares Paid-in Retained Comprehensive
Issued Amount Capital Earnings Income (Loss)
------------------------------------- -------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1997 4,949,714 $ 49,498 $ 11,945,776 $ 24,295,099 $ -
Net income - - - 4,713,696 -
-------------- -------------- ---------------- -------------- ---------------
Balance, September 30, 1998 4,949,714 49,498 11,945,776 29,008,795 -
Issuance of common stock 663,220 6,631 6,380,238 - -
Shares acquired for
treasury stock - - - - -
Net income - - - 4,539,936 -
-------------- -------------- --------------- -------------- ---------------
Balance, September 30, 1999 5,612,934 56,129 18,326,014 33,548,731 -
Net income - - - 3,887,969 -
Unrealized loss on interest
rate cap - - - - (240,500)
-------------- -------------- --------------- -------------- ---------------
Balance, September 30, 2000 5,612,934 $ 56,129 $ 18,326,014 $ 37,436,700 $ (240,500)
============== ============== =============== ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
<TABLE>
<CAPTION>
Treasury Stock
--------------------------------- Total Total
Shares Stockholders' Comprehensive
Acquired Amount Equity Income
----------------- --------------- --------------- ---------------------
<S> <C> <C> <C>
- $ - $ 36,290,373
- - 4,713,696 $ 4,713,696
----------------- -------------- -------------- =====================
- - 41,004,069
- - 6,386,869
99,200 (737,780) (737,780)
- - 4,539,936 $ 4,539,936
----------------- -------------- -------------- ====================
99,200 (737,780) 51,193,094
- - 3,887,969 $ 3,887,969
- - (240,500) (240,500)
----------------- -------------- -------------- ---------------------
99,200 $ (737,780) $ 54,840,563 $ 3,647,469
================= ============== ============== =====================
</TABLE>
24
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 3,887,969 $ 4,539,936 $ 4,713,696
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 4,447,504 4,352,708 4,151,350
Amortization 1,237,777 99,146 94,108
Equity in losses of equity investees 297,329 357,145 364,740
Deferred income taxes (425,000) (258,000) (16,000)
Other 35,952 (168,259) (10,225)
Changes in assets and liabilities, net of
effects of purchases and sales
(Increase) decrease in:
Receivables (1,911,422) (617,205) (693,399)
Inventories (1,023,212) 411,690 (3,336,672)
Other assets (1,207,133) (899,480) 579,842
Increase (decrease) in:
Accounts payable (139,552) 999,698 (1,621,637)
Accrued interest expense (1,154,507) - (142,902)
Other accrued expenses 234,306 (407,726) 738,588
Other liabilities 111,892 198,296 (120,174)
-------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,391,903 8,607,949 4,701,315
-------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment 63,797 359,228 38,692
Principal payments received on
notes receivable 1,790,095 1,968,168 1,477,775
Purchase of property and equipment (5,827,694) (2,577,396) (2,721,995)
Disbursements for notes receivable (342,019) (1,113,666) (913,883)
Purchase of short-term investments (4,843,348) (2,547,365) -
Redemption of short-term investments 2,547,365 - -
Purchase of Monarch Wine Company (23,761,906) - -
Purchase of minority interest in subsidiary (100,000) - (418,249)
Other (409,419) (240,628) 164,304
-------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (30,883,129) (4,151,659) (2,373,356)
-------------------------------------------------
</TABLE>
(Continued)
25
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Financing Activities
Net borrowings (payments) under line of
credit arrangements $ 8,512,981 $ (6,330,944) $ 2,083,997
Proceeds from issuance of common stock - 6,386,869 -
Purchase of interest rate cap (250,000) - -
Disbursements for loan costs (612,450) - -
Proceeds from long-term borrowings 56,947,037 - -
Purchase of common stock for treasury - (737,780) -
Principal payments on long-term borrowings (40,125,794) (4,138,133) (3,687,744)
---------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 24,471,774 (4,819,988) (1,603,747)
---------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,019,452) (363,698) 724,212
Cash and cash equivalents:
Beginning 5,265,318 5,629,016 4,904,804
---------------------------------------------------
Ending $ 3,245,866 $ 5,265,318 $ 5,629,016
===================================================
Supplemental Disclosures Of Cash Flow
Information
Cash Payments For:
Interest $ 6,158,135 $ 3,607,706 $ 4,089,430
===================================================
Income taxes $ 1,407,187 $ 1,842,737 $ 406,937
===================================================
Supplemental Schedule of Noncash Investing
and Financing Activities
Notes receivable received in exchange for
sale of other assets $ - $ 850,000 $ -
===================================================
</TABLE>
(Continued)
26
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Schedule of Noncash Investing
and Financing Activities, continued
Acquisition of Monarch Wine Company:
Cash purchase price $ 23,761,906 $ - $ -
===================================================
Working capital acquired $ 2,006,792 $ - $ -
Goodwill 22,528,351 - -
Operating lease on plant facility assumed,
such facility was abandoned (773,237) - -
---------------------------------------------------
$ 23,761,906 $ - $ -
===================================================
Sale Of Bahamian Operations:
Notes Receivable Exchanged For Assets $ 3,500,000 $ - $ -
===================================================
Accounts receivable $ 215,033 $ - $ -
Inventory 1,393,768 - -
Property & Equipment 1,469,600 - -
Other current assets 121,775 - -
Other assets 511,958 - -
Other current liabilities assumed (133,296) - -
Loss realized (78,838) - -
---------------------------------------------------
$ 3,500,000 $ - $ -
===================================================
Investment in Premier Wines & Spirits, Ltd.
for note receivable $ 1,000,000 $ - $ -
===================================================
</TABLE>
See Notes to Consolidated Financial Statements.
27
<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. (the "Company") is a leading
producer and supplier of brandy, rum, wine and spirits to other beverage alcohol
manufacturers; produces, imports and markets premium branded spirits; bottles
beverage alcohol and other beverages on a contract basis and under its own
labels; and produces vinegar and cooking wine. The Company operates four
production facilities in the United States and one in St. Croix, United States
Virgin Islands and purchases products for resale from other producers.
OWNERSHIP: Angostura Limited ("Angostura"), a Trinidad-based distiller, has
reported that, as a result of open market and private purchases beginning in
fiscal 1999, it beneficially owned 2,814,113 shares, representing 51.0% of the
Company's common stock at November 30, 2000.
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 and other
short-term investments 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.
SHORT-TERM INVESTMENTS: The Company has investments in certificates of
deposits, corporate bonds, and U. S. Government securities which mature within
one year of purchase. All of the Company's short-term investments are
classified as held-to-maturity and are carried at amortized cost.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
28
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT: Property and equipment is 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>
FINANCIAL INSTRUMENTS: The Company has a derivative financial instrument to
reduce the Company's interest rate risk. The derivative instrument consists of
an interest rate cap agreement with a bank, which is being accounted for as a
cash flow hedge under Financial Accounting Standard No. 133 ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Company's policy is not to
hold or issue derivative financial instruments for trading purposes.
Effective for fiscal year 2000, the Company adopted Financial Accounting
Standard No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, as amended, which requires companies to report all derivative
instruments on the balance sheet at fair value and establishes criteria for
designation and effectiveness of hedging relationships. If a derivative is not
a hedge, it must be adjusted to fair value through income. If a derivative is
a hedge, and depending on the nature of the hedge, any change in the fair
value of the derivative is either (1) offset against the change in fair value
of the hedged asset, liability, or firm commitments through earnings, or (2)
recognized in other comprehensive income until the hedged item is recognized
in earnings or the term of the hedge expires. The ineffective portion of a
derivative's change in fair value is immediately recognized in earnings.
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 10
</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.
29
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
RECLASSIFICATIONS: Certain amounts in the 1999 consolidated financial
statements have been reclassified to conform with the 2000 presentation.
NOTE 2. INVENTORIES
THE MAJOR COMPONENTS OF INVENTORIES AS OF SEPTEMBER 30, 2000 AND 1999 ARE:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
Finished goods 14,382,361 15,076,552
Work in process 928,486 583,884
Raw materials and supplies 8,218,731 7,351,447
---------------------------------
$ 23,529,578 $ 23,011,883
=================================
</TABLE>
NOTE 3. NOTES RECEIVABLE
Notes receivable consist of the following as of September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
6% note, collateralized by general intangibles, mortgage and
security agreement, monthly payments of $83,333 plus interest
through September 2001 $ 916,667 $ 1,916,667
7% note, collateralized by property and equipment, monthly
principal and interest payments of $47,202 through May 2006 2,631,918 3,000,000
8% note, collateralized by real property, monthly principal and
interest payments of $10,313 through April 2009 766,659 826,457
Other 37,120 149,337
---------------------------------
4,352,364 5,892,461
Less current maturities 1,378,380 1,439,796
---------------------------------
$ 2,973,984 4,452,665
=================================
</TABLE>
30
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE
The Company has an unsecured $3.5 million note receivable from British
Fidelity Holdings Limited, an affiliate through common ownership. The note
bears interest at 6% with principal and interest payments of $20,000 due
monthly through July 2005, and the remaining balance of $3,305,560 due in
August 2005. The Company has recorded $52,072 of the principal balance as
current maturities for fiscal year 2001. The note is guaranteed by British
Fidelity Assurance, Ltd.
NOTE 5. PROPERTY AND EQUIPMENT
The major classifications of property and equipment as of September 30, 2000 and
1999 are:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
Land 4,640,086 4,757,587
Land improvements 1,290,395 1,187,292
Buildings and improvements 15,468,356 16,184,107
Machinery and equipment 57,558,223 53,743,805
---------------------------------
78,957,060 75,872,791
Less accumulated depreciation 39,268,253 36,098,763
---------------------------------
39,688,807 39,774,028
=================================
</TABLE>
NOTE 6. OTHER ASSETS
Other assets, net of accumulated amortization, consist of the following as of
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
Trademarks 1,065,448 1,125,649
Other 1,045,410 814,278
---------------------------------
2,110,858 1,939,927
=================================
</TABLE>
NOTE 7. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following as of September 30, 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
Accrued property taxes 452,735 466,888
Accrued payroll and related expenses 983,413 752,479
Other 448,244 427,095
---------------------------------
1,884,392 1,646,462
=================================
</TABLE>
31
<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, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
<S> <C> <C>
Term loans under a credit agreement (i), interest payable monthly based on
either the Eurodollar or prime rate at the Company's option, plus an applicable
margin as defined in the agreement. The interest rate at September 30, 2000 was
10%. Quarterly principal installments of $2,000,000 beginning March 31, 2000
through September 30, 2004 with any remaining balance due
December 31, 2004 $ 50,000,000 $ -
Revolving loans under a credit agreement (i), interest payable quarterly based
on either the Eurodollar or prime rate at the Company's option, plus an
applicable margin as defined in the agreement. The interest rate at September
30, 2000 was 9.12%. The revolving lines of credit terminate in November 2002 $ 8,512,981 $ -
Senior notes, interest at 8.905%, unsecured - 34,000,000
Other 821,243 -
-------------- -------------
59,334,224 34,000,000
Less current maturities 8,000,000 6,000,000
-------------- -------------
$ 51,334,224 $ 28,000,000
============== =============
</TABLE>
(i) In November 1999, the Company entered into a $71 million credit agreement,
which consists of $56 million term loans and a $15 million revolving loan
facility. The credit agreement is collateralized by 65% of the issued and
outstanding stock of the Company's majority-owned subsidiaries. The
proceeds of these notes were used to prepay all borrowings under the
previous finance agreements and to finance a business acquisition (see Note
18). The Company is required to maintain minimum fixed charge and interest
coverage ratios in addition to other financial covenants.
In fiscal year 2000, the Company recognized an extraordinary loss of $1,168,790,
net of an income tax benefit of $382,075 on its early extinguishment of debt.
32
<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, 2000 are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
----------------------------------------------------------------------------------- -----------------
<S> <C>
2001 $ 8,000,000
2002 8,000,000
2003 16,512,981
2004 8,821,243
2005 18,000,000
---------------
$ 59,334,224
===============
</TABLE>
On January 14, 2000, the Company entered into an interest rate cap agreement.
The agreement caps the applicable Eurodollar rate under the credit agreement at
7.5%. At September 30, 2000 the underlying applicable Eurodollar rate was 6.62%.
The Company paid $250,000 for this cap which has a term of two years. The
notional amount of this agreement at September 30, 2000 was $50,000,000. For the
year ended September 30, 2000, the Company has recorded an unrealized loss of
$240,500 related to this agreement which has been reflected as other
comprehensive loss.
The Company has used interest rate swap agreements to change the fixed/variable
interest rate mix of its debt portfolio and to reduce the Company's aggregate
risk to movements in interest rates. A summary of the interest rate swap
agreements is as follows:
(1) The Company 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 under this agreement was calculated based upon a floating rate of
1.06% above the six-month LIBOR rate. The bank's rate was 8.905%. During
1999 and 1998, the Company received net payments of $95,245 and $87,054,
respectively, related to this agreement, and reduced interest expense
accordingly. This agreement was terminated in November 1999 in conjunction
with the refinancing of the Company's debt.
(2) The Company entered into an interest rate swap agreement with a bank,
accounted for as a hedge. This agreement was terminated in fiscal year
1999. During 1999 and 1998, the Company made net payments of $16,459 and
$29,208, respectively, related to this agreement, and increased interest
expense accordingly.
33
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 9. INCOME TAXES
Income tax expense before extraordinary item consists of the following for the
years ended September 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal $ 1,887,250 $ 1,589,051 $ 860,191
State 186,628 126,621 (35,879)
------------- ------------- -----------
2,073,878 1,715,672 824,312
------------- ------------- -----------
Deferred income tax expense (benefit):
Federal (377,000) (218,000) 13,000
State (48,000) (40,000) (29,000)
------------- ------------- -----------
(425,000) (258,000) (16,000)
------------- ------------- -----------
Total income tax expense before extraordinary
Item $ 1,648,878 $ 1,457,672 $ 808,312
============= ============= ===========
</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,
2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation $ 3,719,000 $ 3,775,000
Installment sale 277,000 570,000
Goodwill, principally due to differences in amortization 126,000 -
------------- -------------
4,122,000 4,345,000
------------- -------------
Deferred tax assets:
Inventories, principally due to additional costs inventoried
for tax purposes pursuant to the Tax Reform Act of 1986 850,000 701,000
Differences related to anticipated future expenses and
allowances 136,000 133,000
Deferred compensation 145,000 84,000
Other - 11,000
------------- -------------
1,131,000 929,000
------------- -------------
Net deferred income tax liability $ 2,991,000 $ 3,416,000
============= =============
</TABLE>
No valuation allowance has been recorded as of September 30, 2000 or 1999.
34
<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
federal income tax rate to income before income taxes and extraordinary item as
a result of the following for the years ended September 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
-------------- ------------- ------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,279,916 $ 2,039,186 $ 1,877,483
Nondeductible operating losses from
Bahamian subsidiary 189,374 158,632 97,950
Effect of income tax subsidy on earnings of
Virgin Islands subsidiary (1,040,427) (1,070,253) (1,169,187)
Nondeductible losses of equity investee 101,092 121,429 124,012
Effect of state taxes 115,678 83,570 12,199
Other 3,245 125,108 (134,145)
-------------- ------------- ------------
Total income tax expense on income before
extraordinary item $ 1,648,878 $ 1,457,672 $ 808,312
============== ============= ============
</TABLE>
Generally, the operating income of the Company's Bahamian subsidiary is not
subject to United States income taxes as there are no income taxes in the
Commonwealth of the Bahamas. The Company sold all of its remaining operating
assets in the Bahamas in fiscal year 2000 for $3.5 million. Certain passive
income of the Bahamian subsidiary is subject to United States income taxes.
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 on operating income. 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, 2000, 1999 and 1998,
respectively, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Basic $ 0.19 $ 0.22 $ 0.24
Diluted 0.19 0.21 0.23
</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 $8,100,000 and $21,100,000, respectively, as of
September 30, 2000. The undistributed earnings of the Bahamian subsidiary have
been reduced by any previously taxed income.
35
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 10. LEASES
The Company occupies office space under a noncancelable operating lease which
expires in 2006. Initial base rent is $32,199 through 2000 and increases to
$33,036 monthly, thereafter. The lease contains two renewal options of five
years each.
Future minimum lease payments under this noncancelable operating lease as of
September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
----------------------------------------------------------------------------------------------- -----------
<S> <C>
2001 $ 386,393
2002 396,437
2003 396,437
2004 396,437
2005 396,437
Thereafter 396,437
-----------
$ 2,368,578
===========
</TABLE>
Rent expense for office space (including the Company's share of common area
expenses, real estate and sales taxes) amounted to $309,832, $303,770 and
$359,484 for the years ended September 30, 2000, 1999 and 1998, respectively.
NOTE 11. 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% of the fair
market value of the Company's common stock on the date of grant for nonqualified
options or 100% of such fair market value for qualified stock options. As of
September 30, 2000, 1,400,000 shares are reserved for issuance under the option
plan. Options granted have vesting periods ranging from 3 to 5 years. During the
year ended September 30, 1999, the Company received a total of $78,000 upon the
exercise of stock options for 13,000 shares. There were no stock options
exercised during the years ended September 30, 2000 and 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 after 1994. 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.
36
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 11. STOCK OPTIONS (CONTINUED)
If the Company had elected 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>
2000 1999 1998
------------- ------------ -----------
<S> <C> <C> <C>
Net income - as reported $ 3,884,969 $ 4,539,936 $ 4,713,696
Net income - pro forma 3,442,853 4,364,707 4,538,467
Earnings per common share - as reported (Basic) 0.71 0.91 0.95
Earnings per common share - as reported (Diluted) 0.70 0.91 0.95
Earnings per common share - pro forma (Basic) 0.62 0.88 0.91
Earnings per common share - pro forma (Diluted) 0.62 0.88 0.91
</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 1999 and 1998 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 4.75%; expected lives of 10 years; expected volatility of 29% and 30%;
and a zero percent dividend yield. The weighted-average fair value of options
granted during 1999 and 1998 was $3.98 and $4.67, respectively.
A reconciliation of the Company's stock option activity, and related
information, for the years ended September 30, 2000, 1999 and 1998 follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------- --------------------- --------------------
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 of year 599,000 $ 8.43 352,000 $ 9.45 292,000 $ 9.53
Granted - - 335,000 8.13 60,000 9.06
Exercised - - (13,000) 6.00 - -
Forfeited - - (75,000) 12.25 - -
---------- ---------- ---------- ---------- --------- ----------
Outstanding, end of year 599,000 $ 8.43 599,000 $ 8.43 352,000 $ 9.45
========== ========== ========== ========== ========= ==========
Exercisable, end of year 311,000 $ 8.65 206,500 $ 8.83 257,000 $ 9.72
========== ========== ========== ========== ========= ==========
</TABLE>
37
<PAGE>
TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 11. STOCK OPTIONS (CONTINUED)
The following table summarizes information about the stock options at September
30, 2000:
<TABLE>
<CAPTION>
Number Number
Outstanding at Exercisable at
September 30, September 30, Expiration
Exercise Price 2000 2000 Date
----------------------------------------------- ---------------- ---------------- --------------------
<S> <C> <C> <C>
$ 6.0000 56,500 56,500 November 2002
12.2500 60,000 60,000 April 2004
8.1250 87,500 87,500 February 2006
9.0625 60,000 40,000 May 2008
8.1250 335,000 67,000 December 2008
----------- -----------
599,000 311,000
=========== ===========
</TABLE>
The exercise price of options granted has been equal to or greater than their
grant date fair value.
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in the beverage alcohol industry in the United
States. The Company reports its operating results in five segments:
- Bulk Alcohol Products (citrus brandy, citrus spirits, rum, cane spirits,
fortified citrus wine, purchased distilled products and byproducts)
- Premium Branded Spirits (primarily rum, flavored rum and tequila)
- Bottling Operations (contract bottling services and proprietary and private
label products)
- Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock and
proprietary and private label case goods)
- Corporate Operations and Other (primarily corporate related items).
The accounting policies of the reportable segments are the same as those
described in Note 1 to the Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on income before
income taxes, equity in losses of equity investee, interest income and expense.
Material intersegment sales and transfers have been eliminated.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. "Corporate Operations and Other" includes
corporate related items and the results of certain nonmaterial operations.
38
<PAGE>
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Net sales, operating income (loss), identifiable assets, depreciation and
amortization and capital expenditures for the Company's operating segments
for the years ended September 30, 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Bulk Alcohol Products $ 37,457 $ 33,522 $ 32,510
Premium Branded Spirits 16,119 12,126 10,485
Bottling Operations 16,823 17,778 19,171
Vinegar and Cooking Wine 20,477 11,029 10,544
Corporate Operations and Other 2,111 2,278 2,386
-------------------------------------------
$ 92,987 $ 76,733 $ 75,096
===========================================
OPERATING INCOME (LOSS)
Bulk Alcohol Products $ 13,696 $ 12,346 $ 11,020
Premium Branded Spirits 120 (523) 250
Bottling Operations (1,022) 125 963
Vinegar and Cooking Wine 3,673 1,922 1,708
Corporate Operations and Other (5,482) (5,160) (5,788)
-------------------------------------------
$ 10,985 $ 8,710 $ 8,153
===========================================
IDENTIFIABLE ASSETS
Bulk Alcohol Products $ 62,969 $ 44,355 $ 44,583
Premium Branded Spirits 7,764 4,920 4,841
Bottling Operations 22,239 24,070 24,707
Vinegar and Cooking Wine 21,152 6,620 6,550
Corporate Operations and Other 12,421 17,202 16,316
-------------------------------------------
$ 126,545 $ 97,167 $ 96,997
===========================================
DEPRECIATION AND AMORTIZATION
Bulk Alcohol Products $ 2,845 $ 2,205 $ 2,068
Premium Branded Spirits 104 101 58
Bottling Operations 1,474 1,502 1,397
Vinegar and Cooking Wine 928 328 327
Corporate Operations and Other 334 316 395
-------------------------------------------
$ 5,685 $ 4,452 $ 4,245
===========================================
CAPITAL EXPENDITURES
Bulk Alcohol Products $ 3,964 $ 1,497 $ 1,299
Premium Branded Spirits 68 180 35
Bottling Operations 857 601 923
Vinegar and Cooking Wine 754 212 235
Corporate Operations and Other 185 87 230
-------------------------------------------
$ 5,828 $ 2,577 $ 2,722
===========================================
</TABLE>
39
<PAGE>
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Sales and operating income for the years ended September 30, 2000, 1999, and
1998 and identifiable assets 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, 2000:
Net sales $ 79,405,802 $ 13,580,895 $ 92,986,697
Operating Income 7,731,387 3,254,089 10,985,476
Identifiable Assets 90,345,827 36,199,621 126,545,448
September 30, 1999:
Net Sales $ 63,746,499 $ 12,986,648 $ 76,733,147
Operating income 5,638,014 3,072,142 8,710,156
Identifiable assets 65,276,033 31,891,213 97,167,246
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
</TABLE>
Included in net sales for the United States are export sales, primarily to
Europe, Canada and the Caribbean, totaling approximately $5,700,000
$4,400,000 and $7,200,000 for the years ended September 30, 2000, 1999 and
1998.
NOTE 13. PENSION PLAN
The Company has a defined contribution retirement plan which covers
substantially all United States employees. On January 31, 2000, the Plan
Trustees approved the modification of the then existing plan. Effective
January 1, 2000, the plan was restated as a discretionary 401(k) Profit
Sharing Plan and has been renamed the Todhunter International, Inc.
Compensation Deferral 401(k) Plan (the "restated plan"). Under the restated
plan, participants may make elective contributions to the restated plan in
amounts up to 15% of their eligible compensation. Participants are
immediately vested in any elective contributions and its related earnings, if
any. Generally, employer 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. The Company contributed $644,749, $644,022 and $669,866 to the plan
for the years ended September 30, 2000 1999 and 1998, respectively.
Under the old plan, the Company contributed 6.0% of an employee's total
compensation, plus 5.5% of compensation in excess of the social security tax
wage base. An employee's compensation in excess of $160,000 was disregarded
in determining the Company's contribution. Generally, employer contributions
to the plan began to vest to the benefit of the participant after three years
of service. Participants were entitled, upon retirement, to their vested
portion of the retirement fund assets.
40
<PAGE>
NOTE 14. INVESTMENT IN PREMIER WINES & SPIRITS, LTD.
In 1997, the Company acquired a 45% interest in Premier Wines & Spirits,
Ltd., ("Premier"), a 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 $2,069,000,
$1,808,000 and $1,490,000 for the years ended September 30, 2000, 1999 and
1998, respectively. Included in trade receivables is approximately $709,000
and $518,000 as of September 30, 2000 and 1999, respectively, related to
these sales. The Company has outstanding advances to Premier of $437,019 and
$1,073,115 as of September 30, 2000 and 1999, respectively, which are
included in investments in and advances to equity investees. These advances
are unsecured and bear interest at 8.5%. Interest payments are due monthly or
on demand in accordance with the terms of the agreement. Principal is payable
on demand. During fiscal year 2000, the Company's Board of Directors approved
a resolution to convert $1,000,000 of these advances into an additional
investment in Premier. The other stockholders of Premier also made pro-rata
additional investments, so the Company's percentage ownership was not changed.
NOTE 15. 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, 2000 and
1999 for cash and cash equivalents, short-term investments, 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
----------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Notes receivable, including
Note receivable from affiliate $ 7,852,364 $ 5,892,461 $ 7,793,310 $ 5,713,813
Interest rate cap $ 9,500 $ - $ 9,500 $ -
Financial liabilities:
Long-term debt, including
interest rate swaps $ 59,334,224 $ 34,000,000 $ 59,334,224 $ 33,910,850
</TABLE>
41
<PAGE>
NOTE 16. 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>
2000 1999 1998
----------------------------------------------
<S> <C> <C> <C>
Net income $ 3,884,969 $ 4,539,936 $ 4,713,696
==============================================
Determination of shares:
Weighted average number of common shares outstanding 5,513,734 4,963,760 4,949,714
Shares issuable on exercise of stock options, net of
shares assumed to be repurchased 36,482 17,819 35,154
----------------------------------------------
Average common shares outstanding for diluted
computation 5,550,216 4,981,579 4,984,868
==============================================
Net income per common share:
Basic:
Income before extraordinary item $ 0.92 $ 0.91 $ 0.95
Extraordinary item (0.21) - -
----------------------------------------------
Net income $ 0.71 $ 0.91 $ 0.95
==============================================
Diluted:
Income before extraordinary item $ 0.91 $ 0.91 $ 0.95
Extraordinary item (0.21) - -
----------------------------------------------
Net income $ 0.70 $ 0.91 $ 0.95
==============================================
</TABLE>
42
<PAGE>
NOTE 17. 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>
2000:
Net sales $ 20,462 $ 23,458 $ 23,722 $ 25,345
Gross profit 6,507 7,276 7,976 7,111
Gross margin 31.80% 31.0% 33.60% 28.1%
Income before
extraordinary item 1,290 1,329 1,319 1,119
Net income 121 1,329 1,319 1,119
Net income per share:
Basic:
Income before
extraordinary item 0.23 0.24 0.24 0.21
Extraordinary item (0.21) -- -- --
Net income 0.02 0.24 0.24 0.21
Diluted:
Income before
extraordinary item 0.23 0.24 0.24 0.20
Extraordinary item (0.21) -- -- --
Net income .02 0.24 0.24 0.20
1999
Net sales $ 16,541 $ 19,031 $ 21,856 $ 19,305
Gross profit 5,357 6,106 6,343 5,927
Gross margin 32.40% 32.10% 29.0% 30.70%
Net income 952 1,265 1,155 1,168
Net income per share:
Basic 0.19 0.26 0.24 0.22
Diluted 0.19 0.26 0.24 0.22
1998
Net sales $ 17,741 $ 17,679 $ 19,792 $ 19,884
Gross profit 5,123 5,220 6,263 5,484
Gross margin 28.90% 29.50% 31.60% 27.60%
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
</TABLE>
43
<PAGE>
NOTE 18. ACQUISITION OF MONARCH WINE COMPANY
In November 1999, the Company completed the purchase of the assets of Monarch
Wine Company of Atlanta, Georgia, a privately held company. The purchase
price was approximately $23.8 million in cash. Monarch specializes in the
manufacturing of wines, including custom blended wines and cooking wines for
the food industry and base wines for producers of vinegar and beverage
alcohol.
The assets acquired and liabilities assumed with this acquisition were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Current Assets Acquired $ 2,937,219
Goodwill 22,528,351
Current Liabilities Assumed (930,427)
Noncancelable Operating Lease On Plant Facility Assumed (773,237)
-----------------
$ 23,761,906
=================
</TABLE>
The Company assumed a noncancelable lease on Monarch's plant facility which
has since been abandoned by the Company. The net present value of this lease
at the date of purchase was recorded as a liability and increased goodwill,
accordingly.
The purchase price of $23.8 million includes $22.5 million of goodwill which
is being amortized over 20 years.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition had been made as of October 1, 1998.
These results do not purport to be indicative of what would have occurred had
the acquisition actually been made as of such date or of results which may
occur in the future.
<TABLE>
<CAPTION>
Years ended September 30 (in thousands, except per share data) 2000 1999
------------------------------------------------------------------------------------------------------------
(UNAUDITED) (Unaudited)
<S> <C> <C>
Net sales $ 94,756 $ 93,395
Net income 4,040 7,226
Net income per common share:
Basic 0.73 1.46
Diluted 0.73 1.45
</TABLE>
NOTE 19. SALE OF BAHAMIAN OPERATIONS
In September 2000, the Company sold all of its remaining operating assets in
the Bahamas to British Fidelity Holdings Limited, an affiliate through common
ownership, for $3.5 million. The Company received a note receivable (see Note
4) for $3.5 million and recorded a loss of $78,838 on the transaction.
44
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX TO EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (6)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (3)
10.8 Lease, dated March 24, 1988, as amended, between Todhunter
International, Inc. and Especially West Palm Beach, Inc. (1)
10.8(a) Amendment to Lease, dated January 1, 1997, between Todhunter
International, Inc. and Florida Acquisition Fund Esperante, Ltd. (4)
10.16 Asset Purchase Agreement dated as of September 27, 1999, among
Todhunter International, Inc. and Adams Wine Company d/b/a Monarch Wine
Company of Georgia, and Howard J. Weinstein, David Paszamant, Jay
Paszamant and Matthew Paszamant (5)
10.17 Credit Agreement dated as of November 17, 1999, by and among Todhunter
International, Inc., and each of the Financial Institutions Initially a
Signatory thereto, and SouthTrust Bank, National Association (5)
10.18 Executive Employment Agreement dated as of July 15, 1999, between
Thomas A. Valdes and Todhunter International, Inc. (6)
10.19 Executive Employment Agreement dated as of July 15, 1999, between Jay
S. Maltby and Todhunter International, Inc. (6)
10.20 Executive Employment Agreement dated as of July 15, 1999, between A.
Kenneth Pincourt, Jr. and Todhunter International, Inc. (6)
10.21 Executive Employment Agreement dated as of July 15, 1999, between D.
Chris Mitchell and Todhunter International, Inc. (6)
11.1 Statement of Computation of Per Share Earnings (7)
21.1 Subsidiaries of Todhunter International, Inc. (2)
23.1 Consent of McGladrey & Pullen, LLP (8)
27.1 Financial Data Schedule (8)
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 33-50848).
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1998.
(5) Incorporated herein by reference to the Company's Current Report on
Form 8-K for November 17, 1999.
(6) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1999.
(7) Filed herewith and incorporated herein by reference to Note 16 of notes
to consolidated financial statements, included in Item 8 of the
Company's Annual Report on Form 10-K for the year ended September 30,
2000.
(8) Filed herewith.
45
