<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1999
Commission File No. 1-13453
TODHUNTER INTERNATIONAL, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1284057
- - --------------------------------------------------------------------------------
(State or other jurisdiction of IRS employer identification No.
incorporation or organization)
222 LAKEVIEW AVENUE, SUITE 1500, WEST PALM BEACH, FL 33401
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (561) 655-8977
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 30 days.
Yes X No
----- -----
The number of shares outstanding of registrant's Common Stock, $.01 par value
per share, as of February 11, 2000 was 5,513,734.
<PAGE>
TODHUNTER INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets -
December 31, 1999 and September 30, 1999 1
Consolidated Statements of Income -
Three Months Ended December 31, 1999 and 1998 3
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 1 Legal Proceedings *
Item 2 Changes in Securities *
Item 3 Defaults Upon Senior Securities *
Item 4 Submission of Matters to a Vote of Security Holders *
Item 5 Other Information *
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 20
</TABLE>
* Item is omitted because answer is negative or item is inapplicable.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------- -----------------
(Unaudited) *
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,748,670 $ 5,265,318
Short-term investments 2,547,365 2,547,365
Trade receivables 13,906,926 12,161,401
Other receivables 1,300,101 2,316,398
Inventories 23,029,953 23,011,883
Notes receivable, current maturities 1,444,593 1,439,796
Deferred income taxes 1,000,750 929,000
Other current assets 1,627,471 1,899,672
------------ ------------
Total current assets 51,605,829 49,570,833
------------ ------------
LONG-TERM NOTES RECEIVABLE
Less current maturities 5,443,452 5,525,780
------------ ------------
PROPERTY AND EQUIPMENT 77,351,484 75,821,301
Less accumulated depreciation 37,042,372 36,047,273
------------ ------------
40,309,112 39,774,028
------------ ------------
GOODWILL, less accumulated amortization 22,909,013 356,678
------------ ------------
OTHER ASSETS 2,667,941 1,939,927
------------ ------------
$122,935,347 $ 97,167,246
------------ ------------
------------ ------------
</TABLE>
*From audited financial statements.
See Notes to Consolidated Financial Statements.
1
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
-------------------- -------------------
(Unaudited) *
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 8,000,000 $ 6,000,000
Accounts payable 4,852,716 4,417,313
Accrued interest expense 359,166 1,261,542
Other accrued expenses 1,932,441 1,646,462
------------ ------------
Total current liabilities 15,144,323 13,325,317
LONG-TERM DEBT, less current maturities 51,007,297 28,000,000
DEFERRED INCOME TAXES 4,268,750 4,345,000
OTHER LIABILITIES 1,199,786 303,835
------------ ------------
71,620,156 45,974,152
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized
2,500,000 shares, no shares issued - -
Common stock, par value $.01 per share; authorized
10,000,000 shares; issued 5,612,934 December 31, 1999
and September 30, 1999 56,129 56,129
Additional paid-in capital 18,326,014 18,326,014
Retained earnings 33,670,828 33,548,731
------------ ------------
52,052,971 51,930,874
Less cost of 99,200 shares of treasury stock (737,780) (737,780)
------------ ------------
51,315,191 51,193,094
------------ ------------
$122,935,347 $ 97,167,246
------------ ------------
------------ ------------
</TABLE>
*From audited financial statements.
See Notes to Consolidated Financial Statements.
2
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 29,587,358 $ 26,263,817
Less excise taxes 9,125,535 9,722,895
------------ ------------
Net Sales 20,461,823 16,540,922
Cost of goods sold 13,954,744 11,184,277
------------ ------------
Gross profit 6,507,079 5,356,645
Selling, general and administrative expenses 4,166,028 3,591,590
------------ ------------
Operating income 2,341,051 1,765,055
------------ ------------
Other income (expense):
Interest income 270,773 156,686
Interest expense (1,037,205) (923,832)
Equity in income (losses) of equity investee 29,487 (15,348)
Other, net 110,835 162,742
------------ ------------
(626,110) (619,752)
------------ ------------
Income before income taxes and extraordinary item 1,714,941 1,145,303
------------ ------------
Income tax expense (benefit):
Current 572,054 277,428
Deferred (148,000) (83,750)
------------ ------------
424,054 193,678
------------ ------------
Income before extraordinary item 1,290,887 951,625
Extraordinary item - early extinguishment of debt,
net of income taxes of $382,075 (1,168,790) -
------------ ------------
Net income $ 122,097 $ 951,625
------------ ------------
------------ ------------
Earnings per common share - basic:
Income before extraordinary item $ 0.23 $ 0.19
Extraordinary item (0.21) -
------------ ------------
Net Income $ 0.02 $ 0.19
------------ ------------
------------ ------------
Earnings per common share - diluted:
Income before extraordinary item $ 0.23 $ 0.19
Extraordinary item (0.21) -
------------ ------------
Net Income $ 0.02 $ 0.19
------------ ------------
------------ ------------
Common shares and equivalents outstanding:
Basic 5,513,734 4,917,051
------------ ------------
------------ ------------
Diluted 5,576,703 4,930,201
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
----------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 122,097 $ 951,625
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,093,726 1,078,228
Amortization 152,211 23,527
(Gain) on sale of property and equipment (38,506) (28,285)
Equity in (income) losses of equity investee (29,487) 15,348
Deferred income taxes (148,000) (83,750)
Extraordinary item - early extinguishment of debt 1,168,790 -
Changes in assets and liabilities:
(Increase) decrease in:
Receivables 1,273,488 1,544,916
Inventories 870,181 (251,900)
Other current assets 318,453 (32,204)
Increase (decrease) in:
Accounts payable (475,789) (88,297)
Accrued interest expense (902,376) (756,925)
Other accrued expenses 266,744 (1,392,465)
Other liabilities 122,714 100
------------ ------------
Net cash provided by operating activities 3,794,246 979,918
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 47,737 37,030
Principal payments received on notes receivable 327,531 375,783
Purchase of property and equipment (1,631,783) (358,118)
Disbursements for notes receivable (250,000) (632,666)
Purchase of Monarch Wine Company (23,518,064) -
(Increase) decrease in other assets (1,124,822) (14,347)
------------ ------------
Net cash used in investing activities $(26,149,401) $ (592,318)
------------ ------------
</TABLE>
4
<PAGE>
TODHUNTER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit $ 2,698,009 $ 497,015
Extraordinary item - early extinguishment of debt (1,168,790) -
Proceeds from long-term borrowings 56,309,288 -
Purchase of treasury stock - (406,075)
Principal payments on long-term borrowings (34,000,000) (492,218)
------------ ------------
Net cash provided by (used in) financing activities 23,838,507 (401,278)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,483,352 (13,678)
Cash and cash equivalents:
Beginning 5,265,318 5,629,016
------------ ------------
Ending $ 6,748,670 $ 5,615,338
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $ 1,939,581 $ 1,680,757
------------ ------------
------------ ------------
Income taxes $ 12,211 $ 51,063
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING
AND FINANCING ACTIVITIES
Acquisition of Monarch Wine Company:
Cash purchase price $ 23,518,064 $ -
------------ ------------
------------ ------------
Working capital acquired $ 2,006,792 $ -
Goodwill 22,284,509 -
Operating lease assumed, to be abandoned (773,237) -
------------ ------------
$ 23,518,064 $ -
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
TODHUNTER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the financial
information of the periods indicated have been included. For further information
regarding the Company's accounting policies, refer to the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended September 30, 1999.
Note 2. Inventories
The major components of inventories are:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ --------------
(Unaudited)
<S> <C> <C>
Finished goods $ 15,585,449 $ 15,076,552
Work in process 944,941 583,884
Raw materials and supplies 6,499,563 7,351,447
------------ ------------
$ 23,029,953 $ 23,011,883
------------ ------------
------------ ------------
</TABLE>
Note 3. Financing Arrangements
Long-term debt consists of the following as of December 31, 1999.
<TABLE>
<S> <C>
Term loans under a credit agreement (i), interest based on either the Eurodollar
or prime rate at the Company's option, plus an applicable margin as defined
in the agreement. Quarterly principal installments of $2,000,000 beginning
March 31, 2000 through September 30, 2004 with any remaining balance due
December 31, 2004. $ 56,000,000
Revolving loans of $15,000,000 under a credit agreement (i), interest payable
monthly based upon either the Eurodollar or prime rate at the Company's
option, plus an applicable margin as defined in the agreement. The
revolving lines of credit terminate in November 2002. 2,698,009
Other 309,288
---------------
59,007,297
Less current maturities 8,000,000
---------------
$ 51,007,297
---------------
---------------
</TABLE>
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 3. Financing Arrangements (Continued)
(i) In November 1999, the Company entered into a $71 million credit agreement
which consists of $56 million of term loans and $15 million of revolving loans.
The credit agreement is collateralized by 65% of the issued and outstanding
stock of the Company's majority-owned subsidiaries. The proceeds from these
loans were used to retire the previous finance agreements and to finance the
Monarch Acquisition (see Note 6). The Company is required to maintain minimum
fixed charge and interest coverage ratios in addition to other financial
covenants.
The Company uses interest swap agreements to change the fixed/variable interest
rate mix of the debt portfolio to reduce the Company's aggregate risk to
movements in interest rates. Amounts paid or received under interest rate swap
agreements are accrued as interest rates change and are recognized over the life
of the swap agreements as an adjustment to interest expense. The related amounts
payable to, or receivable from, the counterparties are included in accrued
interest expense.
On January 14, 2000, the Company entered into an interest rate swap agreement.
The agreement calls for the Company to exchange monthly, beginning January 31,
2000 through December 31, 2001, interest payment streams calculated on a
notional balance equal to the principal balance of the term loans payable. The
agreement caps the applicable Eurodollar rate at 7.5%.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 4. Earnings Per Common Share
Basic earnings per common share are calculated by dividing net income by the
average common shares outstanding. On a diluted basis, shares outstanding are
adjusted to assume the exercise of stock options.
<TABLE>
<CAPTION>
Three Months Ended December 31
---------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Income before extraordinary item $ 1,290,887 $ 951,625
------------ ------------
------------ ------------
Net income $ 122,097 $ 951,625
------------ ------------
------------ ------------
Determination of shares:
Weighted average number of
common shares outstanding 5,513,734 4,917,051
Shares issuable on exercise
of stock options, net of shares
assumed to be purchased out of proceeds 62,969 13,150
------------ ------------
Average common shares outstanding for
diluted computation 5,576,703 4,930,201
------------ ------------
------------ ------------
Earnings per common share - basic:
Income before extraordinary item $ 0.23 $ 0.19
Extraordinary item (0.21) -
------------ ------------
Net income $ 0.02 $ 0.19
------------ ------------
------------ ------------
Earnings per common share - diluted:
Income before extraordinary item $ 0.23 $ 0.19
Extraordinary item (0.21) -
------------ ------------
Net income $ 0.02 $ 0.19
------------ ------------
------------ ------------
</TABLE>
The Company's Virgin Islands subsidiary has a five year tax exemption, expiring
January 31, 2002, on 90% of the subsidiary's income as determined under United
States Federal income tax laws. The impact of this benefit on the Company's
earnings per share was $0.05 for the three months ended December 31, 1999 and
December 31, 1998.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 5. Segment and Geographical Information
The Company operates primarily in the beverage alcohol industry in the United
States. The Company reports its operating results in five segments:
- Bulk Alcohol Products (citrus brandy, citrus spirits, rum, cane
spirits, fortified citrus wine, purchased distilled products and
byproducts)
- Premium Branded Spirits (primarily rum, flavored rum and tequila)
- Bottling Operations (contract bottling services and proprietary and
private label products)
- Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar
stock and proprietary and private label case goods)
- Corporate Operations and Other (primarily corporate related items).
The accounting policies of the reportable segments are the same as those
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.
Intersegment sales and transfers are not significant.
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.
As of December 31, 1999, goodwill of $22.3 million related to the Monarch
Acquisition (see Note 6) has been included in Corporate Operations and Other
under identifiable assets. The Company intends to allocate goodwill between
bulk alcohol products and vinegar and cooking wine during its second quarter
ended March 31, 2000.
Net sales, operating income (loss), identifiable assets, depreciation and
amortization and capital expenditures for the Company's operating segments for
the three months ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES
Bulk Alcohol Products $ 8,238 $ 7,325
Premium Branded Spirits 3,634 2,371
Bottling Operations 3,459 3,679
Vinegar and Cooking Wine 4,387 2,514
Corporate Operations and Other 744 652
------------ ------------
$ 20,462 $ 16,541
------------ ------------
------------ ------------
OPERATING INCOME (LOSS)
Bulk Alcohol Products $ 3,153 $ 3,170
Premium Branded Spirits 27 (162)
Bottling Operations (390) (317)
Vinegar and Cooking Wine 989 288
Corporate Operations and Other (1,438) (1,214)
------------ ------------
$ 2,341 $ 1,765
------------ ------------
------------ ------------
IDENTIFIABLE ASSETS
Bulk Alcohol Products $ 46,025 $ 42,997
Premium Branded Spirits 4,001 4,762
Bottling Operations 24,105 24,259
Vinegar and Cooking Wine 8,619 6,673
Corporate Operations and Other 40,185 16,561
------------ ------------
$ 122,935 $ 95,252
------------ ------------
------------ ------------
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 5. Segment and Geographical Information (Continued)
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEPRECIATION AND AMORTIZATION
Bulk Alcohol Products $ 578 $ 532
Premium Branded Spirits 27 22
Bottling Operations 360 366
Vinegar and Cooking Wine 87 80
Corporate Operations and Other 194 102
------------ ------------
$ 1,246 $ 1,102
------------ ------------
------------ ------------
CAPITAL EXPENDITURES
Bulk Alcohol Products $ 1,247 $ 91
Premium Branded Spirits 23 84
Bottling Operations 196 163
Vinegar and Cooking Wine 83 1
Corporate Operations and Other 63 19
------------ ------------
$ 1,612 $ 358
------------ ------------
------------ ------------
</TABLE>
Sales and operating income for the three months ended December 31, 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>
December 31, 1999:
Net sales $ 16,999,644 $ 3,462,179 $ 20,461,823
Operating income 1,512,794 828,257 2,341,051
Identifiable assets 88,903,676 34,031,671 122,935,347
December 31, 1998:
Net sales 13,273,156 3,267,766 16,540,922
Operating income 1,067,143 697,912 1,765,055
Identifiable assets 62,487,511 32,764,279 95,251,790
</TABLE>
Included in net sales for the United States are export sales, primarily to
Eastern Europe, Canada and the Caribbean, totaling approximately $1,218,000 and
$1,760,000 for the three months ended December 31, 1999 and 1998, respectively.
Note 6. Acquisition of Monarch Wine Company
On November 17, 1999, the Company acquired substantially all of the assets of
Monarch Wine Company of Atlanta, Georgia ("Monarch"), a privately held
company (the "Monarch Acquisition"). 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 operations are included in the Company's bulk alcohol products and
vinegar and cooking wine segments. The purchase price was $23.5 million and
includes approximately $22.3 million of goodwill. Goodwill is being amortized
over 20 years.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 7. Extraordinary Item
The Company incurred $1,168,790, net of income taxes, in additional expenses
related to the prepayment of its previous debt. These expenses are reflected as
an extraordinary item in the Company's consolidated statement of income for the
three months ended December 31, 1999.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations may contain, among other things, information regarding revenue
growth, expenditure levels and plans for development. These statements could be
considered forward-looking statements that involve a number of risks and
uncertainties. The following is a list of factors, among others, that could
cause actual results to differ materially from the forward-looking statements:
business conditions and growth in certain market segments and industries and the
general economy; competitive factors including increased competition and price
pressures; availability of third party component products at reasonable prices;
excise taxes; foreign currency exposure; changes in product mix; lower than
expected customer orders and quarterly seasonal fluctuation of those orders; and
product shipment interruptions. See "Risk Factors" in previous filings with the
Securities and Exchange Commission.
INTRODUCTION
The following discussion and analysis summarizes the significant
factors affecting (i) consolidated results of operations of the Company for
the three months ended December 31, 1999 compared to the three months ended
December 31, 1998 and (ii) the financial liquidity and capital resources for
year ended September 30, 2000 ("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 2 have generally been rounded to the nearest thousand and hundred
thousand, as applicable, but the percentages calculated are based on actual
amounts without rounding.
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 and total assets of
each of the Company's business segments and information regarding geographic
areas is set forth in Note 5 to the Company's consolidated financial statements
located in Item 1 of this Report on Form 10-Q.
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
12
<PAGE>
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.
During the fourth quarter of Fiscal 1999, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information about products and services, major customers, and
the countries in which the Company has material operations. Accordingly, all
previously reported results have been restated to reflect the retroactive
application of this accounting change as required by generally accepted
accounting principles.
RECENT ACQUISITION
On November 17, 1999, the Company acquired substantially all of the
assets of Monarch. 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 purchase price was $23.5 million. The Monarch Acquisition
strengthens the Company's position in the beverage alcohol and food industry by
expanding the Company's customer base and product offerings, and improves the
Company's plant capacity utilization since the Company plans to discontinue wine
production at the Monarch facility in Atlanta, Georgia in Fiscal 2000 and will
integrate its wine production into the Company's existing facilities. There are
also synergies in the areas of sales, distribution and administrative
overhead. The Company expects to complete the integration of Monarch's wine
production during its second quarter ending March 31, 2000.
RESULTS OF OPERATIONS
The following tables set forth statement of income items as a
percentage of net sales and information on net sales of certain Company
products.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------------
1999 1998
--------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 68.2 67.6
--------- --------
Gross margin 31.8 32.4
Selling, general and
administrative expenses 20.4 21.7
--------- --------
Operating income 11.4 10.7
Interest expense (5.1) (5.6)
Other income (expense), net 2.1 1.8
--------- --------
Income before income taxes 8.4 6.9
Income tax expense (2.1) (1.1)
--------- --------
Income before extraordinary item 6.3 5.8
Extraordinary item (5.7) -
--------- --------
Net income 0.6% 5.8%
--------- --------
--------- --------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31, % Change
------------------------------------ ------------
1999 1998 99/98
---- ---- -----
(In thousands)
<S> <C> <C> <C>
Bulk alcohol products 8,238 7,325 12.5
Premium branded spirits 3,634 2,371 53.3
Bottling operations 3,459 3,679 (6.0)
Vinegar and cooking wine 4,387 2,514 74.5
Corporate operations and other 744 652 13.9
------------------ -------------- ------------
$ 20,462 $ 16,541 23.7
------------------ -------------- ------------
------------------ -------------- ------------
</TABLE>
The following table provides unit sales volume data for certain Company
products.
<TABLE>
<CAPTION>
Three Months Ended December 31, % Change
------------------------------------ ------------
1999 1998 99/98
---- ---- -----
(In thousands)
<S> <C> <C> <C>
Bulk alcohol products:
Distilled products, in proof gallons
Citrus brandy 432 306 41.0
Citrus spirits 397 227 74.8
Rum 1,075 1,049 2.5
Cane spirits 147 138 7.2
Fortified citrus wine, in gallons 2,055 1,735 18.5
Premium branded spirits, in cases 68 51 33.8
Bottling operations, in cases 619 684 (9.5)
Vinegar
Bulk, in 100 grain gallons 1,146 1,094 4.9
Cases 158 113 40.5
Drums, in 100 grain gallons 355 161 119.7
Cooking Wine
Bulk, in gallons 30 28 9.5
Cases 64 64 0.1
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998. Unless otherwise noted, references to 1999 represent the
three month period ending December 31, 1999 and references to 1998 represent the
three month period ending December 31, 1998.
NET SALES. Net sales were $20.5 million in 1999, an increase of 23.7% from
net sales of $16.5 million in 1998.
Net sales of bulk alcohol products were $8.2 million in 1999, an increase
of 12.5% from net sales of $7.3 million in 1998. The increase resulted primarily
from (i) an increase in sales due to the timing of customer orders, and (ii)
increased sales of bulk alcohol resulting from the Monarch Acquisition.
Net sales of premium branded spirits were $3.6 million in 1999, an increase
of 53.3% from net sales of $2.4 million in 1998. Sales increases reflect the
continued expansion by the Company of its distribution network and the success
of its Cruzan Flavored Rums and Porfidio Tequila.
14
<PAGE>
Net sales in the Company's bottling operations were $3.5 million in 1999, a
decrease of 6.0% from net sales of $3.7 million in 1998. The Company's overall
bottling volume decreased 9.5% in 1999 due to the timing of customer orders.
Net sales of vinegar and cooking wine were $4.4 million in 1999, an
increase of 74.5% from net sales of $2.5 million in 1998. The increase in net
sales is primarily attributable to increased sales of cooking wine resulting
from the Monarch Acquisition. The Company's two vinegar plants are operating at
maximum capacity. The Company intends to expand its vinegar production capacity
by building or acquiring additional facilities.
GROSS PROFIT. Gross profit was $6.5 million in 1999, an increase of 21.5%
from gross profit of $5.4 million in 1998. Gross margin decreased to 31.8% in
1999 from 32.4% in 1998. The decrease in gross margin is primarily attributable
to a change in product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4.2 million in 1999, an increase of 16.0% from
$3.6 million in 1998. Selling, general and administrative expenses were 20.4% of
net sales in 1999 and 21.7% in 1998. The increase in selling, general and
administrative expenses in 1999, is primarily attributable to (1) increased
marketing expenses and new employees related to the Company's efforts in
increasing its distribution network for its premium branded spirits, (2)
additional 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 of the Company for 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended December 31, % Change
----------------------------------- ------------
1999 1998 99/98
---- ---- -----
(In thousands)
<S> <C> <C> <C>
Bulk alcohol products $ 3,153 3,170 (0.6)
Premium branded spirits 27 (162) 116.4
Bottling operations (390) (317) (22.9)
Vinegar and cooking wine 989 288 243.3
Corporate operations and other (1,438) (1,214) (18.4)
-------------- ------------
$ 2,341 $ 1,765 32.6
-------------- ------------
-------------- ------------
</TABLE>
As a result of the above factors, operating income was $2.3 million in 1999, an
increase of 32.6% from operating income of $1.8 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 is attributable to higher average amounts of cash, short-term investments
and notes receivable outstanding compared to 1998.
INTEREST EXPENSE. Interest expense was $1.0 million in 1999 and $.9 million
in 1998. The increase in interest expense was due to higher levels of debt
outstanding due to the Monarch Acquisition and higher interest rates during 1999
as compared to 1998.
INCOME TAX EXPENSE. The Company's effective income tax rate was 24.7% in
1999 and 16.9% in 1998. The low tax rate is attributable to the Virgin Islands
subsidiary which has a 90% exemption from U.S. federal income taxes.
15
<PAGE>
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
operating activities and its financing activities will provide adequate
resources to satisfy its working capital, liquidity and anticipated capital
expenditure requirements for both its short-term and long-term capital needs.
OPERATING ACTIVITIES
Net cash provided by operating activities in 1999 was $3.8 million,
which resulted from $1.1 million in net income adjusted for noncash items, a
$1.2 million extraordinary item and $1.5 million representing the net change
in operating assets and liabilities.
INVESTING AND FINANCING ACTIVITIES
Net cash used in investing activities in 1999 was $26.1 million,
which resulted primarily from $1.6 million of capital expenditures and $23.5
million from the Monarch Acquisition.
Net cash provided by financing activities in 1999 was $23.8 million,
which resulted from (1) proceeds from term loans and other notes of $56.3
million, (2) an increase in the line of credit of $2.7 million; offset by (3)
payments of long-term debt totaling $34 million and (4) a $1.2 million
prepayment penalty, net of income taxes.
At December 31, 1999, the Company had revolving credit of $15
million, which expires November 1, 2002. The borrowings under this line were
$2.7 million at December 31, 1999. Beginning March 31, 2000, the credit
agreement requires the Company to maintain minimum fixed charge and interest
coverage ratios in addition to other financial covenants.
The Company's total debt was $59.0 million as of December 31, 1999,
and its ratio of debt to equity was 1.1 to 1.
With respect to the Bahamian and Virgin Islands subsidiaries, no
provision has been made for income taxes which would resultfrom 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
$8.2 million and $15.8 million, respectively, as of September 30, 1999. See
Note 8 to the Company's consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1999,
for additional information on income taxes related to these subsidiaries.
Based on current plans and business conditions, management expects
that its cash, cash equivalents, and short-term investments, together with
any amounts generated from operations and available borrowings, will be
sufficient to meet the Company's cash requirements for at least the next 12
months.
16
<PAGE>
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 will adopt SFAS No. 133 as required
during Fiscal 2001.
YEAR 2000 COMPLIANCE
Until recently, computer programs generally were written using two
digits rather than four to define the applicable year. Accordingly, programs
may recognize a date using "00" as the year 1900 instead of as the year 2000.
This problem may affect the Company's information technology systems, such as
financial, order entry, inventory control and forecasting systems, and
non-information technology systems that contain computer chips, such as
production equipment and security systems. It may also affect the technology
systems of third party vendors and customers, and of governmental entities
upon which the Company's business ordinarily relies.
The Company has completed a comprehensive program to identify,
evaluate and address issues associated with the ability of its information
technology and core non-information technology systems to properly recognize
the Year 2000 in order to avoid interruption of the operation of these
systems and a material adverse effect on the Company's operations as a result
of the century change. Each of the information technology software programs
that the Company currently uses has either been certified by its respective
vendor as Year 2000 compliant or has been replaced with software that is so
certified. The Company has conducted comprehensive tests of all of its
software programs for Year 2000 compliance as part of its Year 2000 readiness
program. The Company believes that its core non-information technology
systems, such as its bottling and production equipment, air
conditioning/refrigeration units, telephones and faxes will not be adversely
affected by the Year 2000, due to the completion of its tests and evaluation
of such equipment. As part of its Year 2000 compliance program, the Company
contacted its significant vendors, suppliers and customers to ascertain
whether the systems used by such third parties are Year 2000 compliant. The
Company has completed all Year 2000 compliance software testing.
The Company spent approximately $531,000 to reprogram, replace and
test its information technology software for Year 2000 compliance. These
costs and expenses have been capitalized.
Through the date of this report the Company has not experienced any
adverse effects on its operations as a result of the Year 2000 issue.
The Company has developed contingency plans to handle a Year 2000
system failure experienced by its information technology systems. These
backup procedures, including manual record keeping and processing, have been
tested and utilized by the Company in the past during times of unplanned
system failure.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and financial condition have not
been significantly affected by inflation and changing prices. The Company has
been able, subject to normal competitive conditions, to pass along rising
costs through increased selling prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Analysis
December 31, 1999
Expected Maturity Date
(Based on a September 30 Fiscal Year)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Notes receivable:
Fixed rate $ 1,082,779 $ 1,378,680 $ 496,196 $ 532,916 $ 572,365 $ 2,825,109 $ 6,888,045 $ 6,709,397
Average interest
rate 7.13% 7.33% 7.64% 7.71% 7.80% 7.95% 7.48% -
Liabilities
Long-term debt:
Variable rate $ 6,000,000 $ 8,000,000 $ 8,000,000 $8,000,000 $ 8,000,000 $ 18,000,000 $ 56,000,000 $ 56,000,000
Average interest
rate 8.635% 8.635% 8.635% 8.635% 8.635% 8.635% 8.635% -
</TABLE>
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (12)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
10.2 Bulk Malt Purchase Agreement, dated as of September 25, 1991, between
Todhunter International, Inc. and Joseph E. Seagram & Sons, Inc. (1)
10.3 Cooler Production Agreement dated as of October 15, 1987, between
Todhunter International, Inc. and Joseph E. Seagram & Sons, Inc., as
amended May 1, 1990 and August 27, 1991 (1)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (9)
10.7 Todhunter International, Inc. Defined Contribution Pension Plan (1)
10.8 Lease, dated March 24, 1988, as amended, between Todhunter
International, Inc. and Especially West Palm Beach, Inc. (1)
10.8(a) Amendment to Lease, dated January 1, 1997, between Todhunter
International, Inc. and Florida Acquisition Fund Esperante, Ltd. (10)
10.10 Loan Agreement dated as of January 31, 1994, between Virgin Islands Rum
Industries, Ltd. and First Union National Bank of Florida (3)
10.10(a) Modification of Loan Agreement dated as of January 5, 1996, amending
Loan Agreement dated January 31, 1994 (5)
10.12 Guaranteed Subordinated Note Agreement dated as of August 4, 1994,
among Todhunter International, Inc., Blair Importers, Ltd., Charmer
Industries, Inc. and certain shareholders thereof (2)
10.13 Note Purchase Agreement dated as of October 30, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and certain purchasers (3)
10.13(a) First Amendment Agreement and Waiver dated as of February 1, 1996,
amending Note Purchase Agreement dated as of October 30, 1994 (6)
10.14 Loan Agreement dated as of November 22, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and First Union National
Bank of Florida (3)
10.14(a) Modification of Loan Agreement dated as of February 26, 1996, amending
Loan Agreement dated as of November 22, 1994 (6)
10.14(b) Modification of Loan Agreement dated as of August 19, 1996, amending
Loan Agreement dated as of November 22, 1994, as amended (7)
10.14(c) Third Modification of Loan Agreement dated as of December 18, 1996,
amending Loan Agreement dated as of November 22, 1994, as amended (8)
10.14(d) Fourth modification of Loan Agreement dated as of September 17, 1998,
amending Loan Agreement dated as of November 22, 1994 (10)
10.15 Renewal Revolving Credit Note dated as of September 17, 1998 (10)
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 (11)
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 (11)
10.18 Executive Employment Agreement dated as of July 15, 1999, between
Thomas A. Valdes and Todhunter International, Inc. (12)
10.19 Executive Employment Agreement dated as of July 15, 1999, between Jay
S. Maltby and Todhunter International, Inc. (12)
10.20 Executive Employment Agreement dated as of July 15, 1999., between A.
Kenneth Pincourt, Jr. and Todhunter International, Inc. (12)
10.21 Executive Employment Agreement dated as of July 15, 1999., between D.
Chris Mitchell and Todhunter International, Inc. (12)
</TABLE>
18
<PAGE>
<TABLE>
<C> <S>
11.1 Statement of Computation of Per Share Earnings (13)
21.1 Subsidiaries of Todhunter International, Inc. (4)
23.1 Consent of McGladrey & Pullen, LLP (12)
27.1 Financial Data Schedule (14)
</TABLE>
(1) Incorporated herein by reference to the Company's Registration Statement
on Form S-1 (File No. 33-50848).
(2) Incorporated herein by reference to the Company's Current Report on Form
8-K for August 5, 1994, as amended.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1994.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
(5) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1996.
(8) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996.
(9) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1998.
(11) Incorporate herein by reference to the Company's Report on Form 8-K for
November 17, 1999.
(12) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1999.
(13) Filed herewith and incorporated herein by reference to Note 4 of notes
to consolidated financial statements, included in Item 1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1999.
(14) Filed herewith.
(b) REPORTS ON FORM 8-K
During the first quarter of Fiscal 2000, the Company filed the
following current reports on Form 8-K:
(1) Form 8-K dated November 17, 1999. This Form 8-K reported
information under Item 2 (Acquisition or Disposition of Assets)
and Item 7 (Financial Statements and Exhibits).
(2) Form 8-K/A dated November 17, 1999. This Form 8-K/A reported
information under Item 7 (Financial Statements and Exhibits).
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 11, 2000 /s/ A. Kenneth Pincourt, Jr.
---------------------------------
A. Kenneth Pincourt, Jr.
Chairman
and Chief Executive Officer
Date: February 11, 2000 /s/ Troy Edwards
---------------------------------
Troy Edwards
Chief Financial Officer,
Treasurer and Controller
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TODHUNTER
INTERNATIONAL, INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,748,670
<SECURITIES> 2,547,365
<RECEIVABLES> 15,207,027
<ALLOWANCES> 0
<INVENTORY> 23,029,953
<CURRENT-ASSETS> 51,605,829
<PP&E> 77,351,484
<DEPRECIATION> 37,042,372
<TOTAL-ASSETS> 122,935,347
<CURRENT-LIABILITIES> 15,144,323
<BONDS> 51,007,297
0
0
<COMMON> 56,129
<OTHER-SE> 51,259,062
<TOTAL-LIABILITY-AND-EQUITY> 122,935,347
<SALES> 20,461,823
<TOTAL-REVENUES> 20,461,823
<CGS> 13,954,744
<TOTAL-COSTS> 13,954,744
<OTHER-EXPENSES> 3,754,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,037,205
<INCOME-PRETAX> 1,714,941
<INCOME-TAX> 424,054
<INCOME-CONTINUING> 1,290,887
<DISCONTINUED> 0
<EXTRAORDINARY> 1,168,790
<CHANGES> 0
<NET-INCOME> 122,097
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
