-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MyrnZ6EJOIe21IcxgFSNdZrKSB4uguwzd4pmJokYw0iu0sILUqAX0sQc8pVwUJLX VIMaHXShq148iFvsvhDyyw== 0000912057-01-527994.txt : 20010814 0000912057-01-527994.hdr.sgml : 20010814 ACCESSION NUMBER: 0000912057-01-527994 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TODHUNTER INTERNATIONAL INC CENTRAL INDEX KEY: 0000098544 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 591284057 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13453 FILM NUMBER: 1705901 BUSINESS ADDRESS: STREET 1: 222 LAKEVIEW AVE STE 1500 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 5616558977 MAIL ADDRESS: STREET 1: 222 LAKEVIEW AVE STE 1500 STREET 2: 222 LAKEVIEW AVE STE 1500 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 10-Q 1 a2056371z10-q.txt 10-Q 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 June 30, 2001 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of registrant's Common Stock, $.01 par value per share, as of August 9, 2001 was 5,513,734. TODHUNTER INTERNATIONAL, INC. INDEX
Page No. -------- PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets - June 30, 2001 and September 30, 2000 1 Consolidated Statements of Income - Nine and Three Months Ended June 30, 2001 and 2000 3 Consolidated Statements of Cash Flows - Nine Months Ended June 30, 2001 and 2000 4 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3 Quantitative and Qualitative Disclosures About Market Risk 17 PART II OTHER INFORMATION Item 1 Legal Proceedings * Item 2 Changes in Securities and Use of Proceeds * Item 3 Defaults Upon Senior Securities * Item 4 Submission of Matters to a Vote of Security Holders * Item 5 Other Information * Item 6 Exhibits and Reports on Form 8-K 17 Signatures 19
* Item is omitted because answer is negative or item is inapplicable. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TODHUNTER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
June 30, September 30, 2001 2000 ------------------- ----------------- (Unaudited) * ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,262,008 $ 3,245,866 Short-term investments 7,649,321 4,843,348 Trade receivables 15,870,598 15,296,445 Other receivables 3,210,112 2,932,531 Inventories 29,505,781 23,529,578 Notes receivable, current maturities 238,391 1,378,380 Deferred income taxes 1,456,500 1,131,000 Other current assets 1,884,918 3,082,184 ------------------- ----------------- Total current assets 64,077,629 55,439,332 ------------------- ----------------- LONG-TERM INVESTMENTS AND NOTES RECEIVABLE Investments in subsidiaries 1,275,575 1,067,805 Note receivable from affiliate, less current maturities 3,422,582 3,447,928 Notes receivable, less current maturities 684,682 2,973,984 ------------------- ----------------- 5,382,839 7,489,717 ------------------- ----------------- PROPERTY AND EQUIPMENT 83,566,696 78,957,060 Less accumulated depreciation 42,614,463 39,268,253 ------------------- ----------------- 40,952,233 39,688,807 ------------------- ----------------- GOODWILL, less accumulated amortization 21,067,264 21,819,734 ------------------- ----------------- OTHER ASSETS 2,242,178 2,110,858 ------------------- ----------------- $ 133,722,143 $ 126,548,448 =================== =================
*From audited financial statements. See Notes to Consolidated Financial Statements. 1 TODHUNTER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
June 30, September 30, 2001 2000 --------------------- ----------------- (Unaudited) * LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 8,000,000 $ 8,000,000 Accounts payable 6,731,016 5,076,380 Accrued interest expense 63,627 107,035 Other accrued expenses 2,416,536 1,884,392 --------------------- ----------------- 17,211,179 15,067,807 LONG-TERM DEBT, less current maturities 51,674,934 51,334,224 DEFERRED INCOME TAXES 3,939,750 4,122,000 OTHER LIABILITIES 1,270,523 1,183,854 --------------------- ----------------- 74,096,386 71,707,885 --------------------- ----------------- 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 shares as of June 30, 2001 and September 30, 2000 56,129 56,129 Additional paid-in capital 18,326,014 18,326,014 Accumulated other comprehensive loss (104,500) (240,500) Retained earnings 42,085,894 37,436,700 --------------------- ----------------- 60,363,537 55,578,343 Less cost of 99,200 shares of treasury stock (737,780) (737,780) --------------------- ----------------- 59,625,757 54,840,563 --------------------- ----------------- $ 133,722,143 $ 126,548,448 ===================== ==================
*From audited financial statements. See Notes to Consolidated Financial Statements. 2 TODHUNTER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Nine Months Ended June 30, Three Months Ended June 30, ------------------------------------ --------------------------------------- 2001 2000 2001 2000 ----------------- ----------------- ----------------- ---------------- Sales $ 96,612,444 $ 92,171,391 $ 34,298,350 $ 31,351,818 Less excise taxes 22,782,127 24,530,156 8,205,507 7,630,045 ----------------- ----------------- ----------------- ---------------- Net sales 73,830,317 67,641,235 26,092,843 23,721,773 Cost of goods sold 49,434,703 45,882,345 17,165,426 15,746,270 ----------------- ----------------- ----------------- ---------------- Gross profit 24,395,614 21,758,890 8,927,417 7,975,503 Selling, general and administrative expenses 15,235,239 13,670,306 5,290,981 4,927,597 ----------------- ----------------- ----------------- ---------------- Operating income 9,160,375 8,088,584 3,636,436 3,047,906 ----------------- ----------------- ----------------- ---------------- Other income (expense): Interest income 690,691 711,330 234,429 209,361 Interest expense (3,821,304) (3,632,789) (1,262,607) (1,409,449) Equity in income (loss) of equity investee 57,770 (134,047) (2,126) (94,655) Other, net 112,476 180,808 (5,256) 59,796 ----------------- ----------------- ----------------- ---------------- (2,960,367) (2,874,698) (1,035,560) (1,234,947) ----------------- ----------------- ----------------- ---------------- Income before income taxes and extraordinary item 6,200,008 5,213,886 2,600,876 1,812,959 ----------------- ----------------- ----------------- ---------------- Income tax expense (benefit): Current 2,058,564 1,713,098 841,030 642,258 Deferred (507,750) (438,750) (158,750) (148,750) ----------------- ----------------- ----------------- ---------------- 1,550,814 1,274,348 682,280 493,508 ----------------- ----------------- ----------------- ---------------- Income before extraordinary item 4,649,194 3,939,538 1,918,596 1,319,451 Extraordinary item - early extinguishment of debt, net of income taxes of $382,075 - (1,168,790) - - ----------------- ----------------- ----------------- ---------------- Net income $ 4,649,194 $ 2,770,748 $ 1,918,596 $ 1,319,451 ================= ================= ================= ================ Earnings per common share - basic: Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24 Extraordinary item - (0.21) - - ----------------- ----------------- ----------------- ---------------- Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24 ================= ================= ================= ================ Earnings per common share - diluted: Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24 Extraordinary item - (0.21) - - ----------------- ----------------- ----------------- ---------------- Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24 ================= ================= ================= ================ Common shares and equivalents outstanding: Basic 5,513,734 5,513,734 5,513,734 5,513,734 ================= ================= ================= ================ Diluted 5,526,049 5,559,602 5,537,476 5,547,280 ================= ================= ================= ================
See Notes to Consolidated Financial Statements. 3 TODHUNTER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended June 30, -------------------------------------------- 2001 2000 -------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,649,194 $ 2,770,748 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,531,444 3,347,468 Amortization 1,143,206 866,605 (Gain) loss on sale of property and equipment 30,775 (42,254) Equity in (income) loss of equity investee (57,770) 134,047 Deferred income taxes (507,750) (438,750) Changes in assets and liabilities: (Increase) decrease in: Receivables (851,734) (879,868) Inventories (5,976,203) (2,328,697) Other current assets 1,197,266 (1,015,157) Increase (decrease) in: Accounts payable 1,654,636 911,874 Accrued interest expense (43,408) (1,145,728) Other accrued expenses 532,144 92,589 Other liabilities 86,669 109,786 -------------------- ------------------- Net cash provided by operating activities 5,388,469 2,382,663 -------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment (4,470) 47,780 Principal payments received on notes receivable 3,463,937 563,400 Purchase of property and equipment (4,821,175) (3,809,805) Disbursements for notes receivable (9,300) (342,019) Purchase of short-term investments (2,805,973) (6,444,380) Redemption of short-term investments - 2,547,365 Purchase of Monarch Wine Company - (23,518,064) Investments in subsidiaries (150,000) - Increase in other assets (233,556) (646,344) -------------------- ------------------- Net cash used in investing activities $ (4,560,537) $ (31,602,067) -------------------- -------------------
(Continued) 4 TODHUNTER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Nine Months Ended June 30, ------------------------------------------ 2001 2000 ------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings on line of credit $ 6,420,000 $ 8,000,000 Proceeds from long-term borrowings - 56,914,901 Disbursements for loan costs (152,500) - Principal payments on long-term borrowings (6,079,290) (38,078,431) ------------------- ------------------- Net cash provided by financing activities 188,210 26,836,470 ------------------- ------------------- Net increase (decrease) in cash and cash equivalents 1,016,142 (2,382,934) Cash and cash equivalents: Beginning 3,245,866 5,265,318 ------------------- ------------------- Ending $ 4,262,008 $ 2,882,384 =================== =================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest $ 3,864,712 $ 4,778,517 =================== =================== Income taxes $ 1,671,292 $ 678,387 =================== =================== 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 and abandoned - (773,237) ------------------- ------------------- $ - $ 23,518,064 =================== =================== Investment in Premier Wines & Spirits for note receivable $ - $ 1,000,000 =================== ===================
See Notes to Consolidated Financial Statements. 5 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 accounting standards generally accepted in the United States of America 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 for 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, 2000. Note 2. Inventories The major components of inventories are:
June 30, 2001 September 30, 2000 ------------- ------------------ (Unaudited) Finished goods $ 17,669,632 $ 14,382,361 Work in process 1,337,893 928,486 Raw materials and supplies 10,498,256 8,218,731 ------------- ------------------ $ 29,505,781 $ 23,529,578 ============= ==================
6 Note 3. Financing Arrangements Long-term debt consists of the following as of June 30, 2001:
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 June 30, 2001 was 6.59%. Quarterly principal installments of $2,000,000 through September 30, 2004 with any remaining balance due December 31, 2004. $ 44,000,000 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 June 30, 2001 was 7.5%. The revolving lines of credit terminate in November 2002. 14,932,981 Other 741,953 --------------- 59,674,934 Less current maturities 8,000,000 --------------- $ 51,674,934 ===============
(i) In November 1999, the Company entered into a $71 million credit agreement consisting of $56 million of 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 from these loans were used to prepay all borrowings under previous finance agreements and to finance a business acquisition. The Company is required to maintain minimum fixed charge and interest coverage ratios in addition to other financial covenants. In the first quarter of 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. 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 June 30, 2001, the underlying applicable Eurodollar rate was 4.09%. The Company paid $250,000 for this cap, which has a term of two years. The notional amount of this agreement at June 30, 2001 was $44,000,000. 7 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.
Nine Months Ended June 30, Three Months Ended June 30, -------------------------------- --------------------------------- 2001 2000 2001 2000 --------------- ---------------- --------------- ---------------- Income before extraordinary item $ 4,649,194 $ 3,939,538 $ 1,918,596 $ 1,319,451 =============== ================ =============== ================ Net income $ 4,649,194 $ 2,770,748 $ 1,918,596 $ 1,319,451 =============== ================ =============== ================ Determination of shares: Weighted average number of common shares outstanding 5,513,734 5,513,734 5,513,734 5,513,734 Shares issuable on exercise of stock options, net of shares assumed to be purchased out of proceeds 1,753 45,868 23,742 33,546 --------------- ---------------- --------------- ---------------- Average common shares outstanding for diluted computation 5,526,049 5,559,602 5,537,476 5,547,280 =============== ================ =============== ================ Earnings per common share - basic: Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24 Extraordinary item - (0.21) - - --------------- --------------- --------------- ---------------- Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24 =============== ================ =============== ================ Earnings per common share - diluted: Income before extraordinary item $ 0.84 $ 0.71 $ 0.35 $ 0.24 Extraordinary item - (0.21) - - --------------- ---------------- --------------- ---------------- Net income $ 0.84 $ 0.50 $ 0.35 $ 0.24 =============== ================ =============== ================
The Company's 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 September 2020. The effect of this exemption was to increase earnings per share by $0.15 and $0.06 for the nine and three months ended June 30, 2001, respectively, and $0.14 and $0.04 for the nine and three months ended June 30, 2000, respectively. 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 and flavored rum) 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 referred to 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 interest expense. Material intersegment sales and transfers have been eliminated. 8 Summarized financial information concerning the Company's reportable segments is shown in the following table. "Corporate Operations and Other" includes corporate items and the results of certain nonmaterial operations. Net sales, operating income (loss), depreciation and amortization and capital expenditures for the Company's operating segments for the nine and three months ended June 30, 2001 and 2000, and identifiable assets as of June 30, 2001 and 2000, were as follows:
NINE MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- --------------------------- 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------- (in thousands) (in thousands) NET SALES Bulk Alcohol Products $ 30,292 $ 27,114 $ 10,686 $ 9,670 Premium Branded Spirits 12,763 11,266 4,646 4,481 Bottling Operations 15,432 12,328 5,515 4,233 Vinegar and Cooking Wine 15,343 15,160 5,246 4,827 Corporate Operations and Other - 1,773 - 511 --------------------------------------------------------------- $ 73,830 $ 67,641 $ 26,093 $ 23,722 =============================================================== OPERATING INCOME (LOSS) Bulk Alcohol Products $ 10,635 $ 10,492 $ 3,618 $ 3,292 Premium Branded Spirits (930) 6 (105) 134 Bottling Operations 436 (748) 376 (132) Vinegar and Cooking Wine 3,101 2,652 1,270 787 Corporate Operations and Other (4,082) (4,313) (1,523) (1,033) --------------------------------------------------------------- $ 9,160 $ 8,089 $ 3,636 $ 3,048 =============================================================== DEPRECIATION AND AMORTIZATION Bulk Alcohol Products $ 2,409 $ 2,092 $ 823 $ 929 Premium Branded Spirits 135 75 46 23 Bottling Operations 1,096 1,111 366 376 Vinegar and Cooking Wine 851 658 286 477 Corporate Operations and Other 184 278 64 (303) --------------------------------------------------------------- $ 4,675 $ 4,214 $ 1,585 $ 1,502 =============================================================== CAPITAL EXPENDITURES Bulk Alcohol Products $ 2,215 $ 2,713 $ 650 $ 400 Premium Branded Spirits 203 23 - - Bottling Operations 1,865 556 1,258 93 Vinegar and Cooking Wine 488 380 132 219 Corporate Operations and Other 50 138 6 25 --------------------------------------------------------------- $ 4,821 $ 3,810 $ 2,046 $ 737 =============================================================== IDENTIFIABLE ASSETS Bulk Alcohol Products $ 68,741 $ 64,257 Premium Branded Spirits 9,262 7,319 Bottling Operations 24,631 22,862 Vinegar and Cooking Wine 21,096 20,306 Corporate Operations and Other 9,992 13,490 --------------------------------- $ 133,722 $ 128,234 =================================
9 Sales and operating income for the nine and three months ended June 30, 2001 and 2000 and identifiable assets as of June 30, 2001 and 2000, classified by geographic area, were as follows:
U.S. VIRGIN ISLANDS AND NINE MONTHS ENDED UNITED STATES THE BAHAMAS CONSOLIDATED - ----------------------------- --------------------------------------------------- (in thousands) June 30, 2001: Net sales $ 64,904 $ 8,926 $ 73,830 Operating income 6,344 2,816 9,160 Identifiable assets 94,148 39,574 133,722 June 30, 2000: Net sales 59,048 8,593 67,641 Operating income 4,906 3,183 8,089 Identifiable assets 92,549 35,685 128,234 THREE MONTHS ENDED - ----------------------------- June 30, 2001: Net sales $ 22,788 $ 3,305 $ 26,093 Operating income 2,476 1,160 3,636 June 30, 2000: Net sales 21,878 1,844 23,722 Operating income 1,390 1,658 3,048
Included in net sales for the United States are export sales, primarily to Europe, Canada and the Caribbean, totaling approximately $4,791,000 and $1,680,000 for the nine and three months ended June 30, 2001, respectively, and $4,492,000 and $2,006,000 for the nine and three months ended June 30, 2000, respectively. Note 6. Comprehensive income Comprehensive income is the total of net income and other changes in equity. Total comprehensive income for the nine months ended June 30, 2001 and 2000 was as follows:
NINE MONTHS ENDED JUNE 30, --------------------------- 2001 2000 - ------------------------------------------------------------------------------------------------------------- (in thousands) Net income $ 4,649 $ 2,771 Other comprehensive income, interest rate cap adjustment 136 - --------------------------- $ 4,785 $ 2,771 ===========================
10 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, statements regarding anticipated revenue growth, expenditure levels and plans for development. These forward-looking statements involve a number of risks and uncertainties. The following is a list of the principal factors that could cause actual results to differ materially from those contemplated by 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 fluctuations 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 nine months ended June 30, 2001 compared to the nine months ended June 30, 2000, (ii) consolidated results of operations of the Company for the three months ended June 30, 2001 compared to the three months ended June 30, 2000, and (iii) financial liquidity and capital resources. 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 been rounded to the nearest thousand or 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 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 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 and flavored rum); 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 the 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 Consolidated Financial Statements. 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. 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 can cause gross margins to fluctuate. Certain aspects of the Company's business are 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 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. 11 ACQUISITION OF MONARCH WINE COMPANY In November 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 $23.5 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. RESULTS OF OPERATIONS The following table sets forth statement of income items as a percentage of net sales.
NINE MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2001 2000 2001 2000 ----------- ----------- ---------- ------------ Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 67.0 67.8 65.8 66.4 ----------- ----------- ---------- ------------ Gross margin 33.0 32.2 34.2 33.6 Selling, general and administrative expenses 20.6 20.2 20.3 20.8 ----------- ----------- ---------- ------------ Operating income 12.4 12.0 13.9 12.8 Interest expense (5.2) (5.4) (4.8) (5.9) Other income, net 1.2 1.1 0.9 0.7 ----------- ----------- ---------- ------------ Income before income taxes 8.4 7.7 10.0 7.6 Income tax expense (2.1) (1.9) (2.6) (2.0) ----------- ----------- ---------- ------------ Income before extraordinary item 6.3 5.8 7.4 5.6 Extraordinary item - (1.7) - - ----------- ----------- ---------- ------------ Net income 6.3 % 4.1 % 7.4 % 5.6 % =========== =========== ========== ============
The following table provides information on net sales of certain Company products.
NINE MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------------- ---------------------------------------- 2001 2000 % CHANGE 2001 2000 % CHANGE ------------ ------------ ------------- ------------ ----------- ------------- (in thousands) (in thousands) Bulk Alcohol Products $ 30,292 $ 27,114 11.7 $ 10,686 $ 9,670 10.5 Premium Branded Spirits 12,763 11,266 13.3 4,646 4,481 3.7 Bottling Operations 15,432 12,328 25.2 5,515 4,233 30.3 Vinegar and Cooking Wine 15,343 15,160 1.2 5,246 4,827 8.7 Corporate Operations and Other - 1,773 (100.0) - 511 (100.0) ------------ ------------ ------------ ------------ $ 73,830 $ 67,641 9.1 $ 26,093 $ 23,722 10.0 ============ ============ ============ ============
12 RESULTS OF OPERATIONS (CONTINUED) The following table provides unit sales volume data for certain Company products.
NINE MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------- ------------------------------------- 2001 2000 % CHANGE 2001 2000 % CHANGE ---------- ---------- ------------- ---------- --------- ------------ (in thousands) (in thousands) Bulk alcohol products: Distilled products, in proof gallons Citrus Brandy 1,227 1,093 12.3 257 241 6.5 Citrus Spirits 484 702 (31.0) 228 168 35.7 Rum 3,397 3,285 3.4 1,202 1,141 5.4 Cane Spirits 420 421 (0.4) 166 169 (1.8) Fortified citrus wine, in gallons 8,978 7,498 19.7 3,190 2,754 15.8 Premium branded spirits, in cases 260 202 28.7 95 87 9.3 Bottling operations, in cases 4,470 3,192 40.0 1,891 1,497 26.3 Vinegar Bulk, in 100 grain gallons 3,978 3,935 1.1 1,398 1,361 2.6 Cases 509 419 21.5 165 135 22.5 Drums, in 100 grain gallons 816 1,197 (31.8) 431 455 (5.0) Cooking Wine Bulk, in gallons 2,088 1,602 30.3 696 652 6.6 Cases 588 492 19.5 171 158 8.7
NINE MONTHS ENDED JUNE 30, 2001 COMPARED TO NINE MONTHS ENDED JUNE 30, 2000. Unless otherwise noted, references to 2001 represent the nine-month period ended June 30, 2001 and references to 2000 represent the nine-month period ended June 30, 2000. NET SALES. Net sales were $73.8 million in 2001, an increase of 9.1% from net sales of $67.6 million in 2000. Net sales of bulk alcohol products were $30.3 million in 2001, an increase of 11.7% from net sales of $27.1 million in 2000. The increase resulted primarily from increased sales of wine products due to the Monarch Acquisition. Unit sales of citrus spirits decreased 31.0% and unit sales of wine products increased 19.7% in 2001 compared to 2000. These changes resulted from the Monarch Acquisition, as 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 $12.8 million in 2001, an increase of 13.3% from net sales of $11.3 million in 2000. This sales increase reflected the continued success of the Company's Cruzan Rums. Sales of the Company's Cruzan Rums and Cruzan Flavored Rums increased 24.9% and 62.0% respectively in 2001 compared to 2000. Sales of Porfidio tequila have decreased due to an industry-wide shortage of agave, the principal raw material for tequila. During June 2001, Mexican regulatory authorities alleged that the Porfidio distillery violated certain regulations related to the sale of tequila and have prohibited the export of Porfidio tequila. The allegations have been denied by the Porfidio distillery. The Company has not received a shipment of Porfidio tequila since March 2001, and cannot predict when shipments of Porfidio will resume. The decrease in sales of Porfidio tequila has not had, and is not expected to have, a material adverse effect on the Company's results of operations. Net sales of the Company's bottling operations were $15.4 million in 2001, an increase of 25.2% from net sales of $12.3 million in 2000. The unit volume of the Company's bottling operations increased 40.0% in 2001 as a result of a new bottling contract. Management expects the unit volume in its bottling operations to increase over forty percent for the fiscal year ending September 30, 2001, as a result of this new business. 13 RESULTS OF OPERATIONS (CONTINUED) Net sales of vinegar and cooking wine were $15.3 million in 2001, an increase of 1.2% from net sales of $15.2 million in 2000. GROSS PROFIT. Gross profit was $24.4 million in 2001, an increase of 12.1% from gross profit of $21.8 million in 2000. Gross margin increased to 33.0% in 2001 from 32.2% in 2000. The increase in gross margin was primarily attributable to a change in product mix as a result of the Monarch Acquisition. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $15.2 million in 2001, an increase of 11.4% from $13.7 million in 2000. The increase was primarily attributable to (1) increased marketing expenses related to the Company's premium branded spirits business, and (2) increased amortization expense. OPERATING INCOME. The following table sets forth the operating income (loss) by operating segment of the Company for 2001 and 2000 and the percent change for the periods.
NINE MONTHS ENDED JUNE 30, ------------------------------ 2001 2000 % CHANGE ---- ---- -------- (in thousands) Bulk Alcohol Products $ 10,635 $ 10,492 1.4 Premium Branded Spirits (930) 6 - Bottling Operations 436 (748) - Vinegar and Cooking Wine 3,101 2,652 16.9 Corporate Operations and Other (4,082) (4,313) 5.4 ------------------------------ $ 9,160 $ 8,089 13.3 ==============================
As a result of the above factors, operating income was $9.2 million in 2001, an increase of 13.3% over operating income of $8.1 million in 2000. The Company's premium branded spirits segment experienced an operating loss of $930,000 in 2001 compared to operating income of $6,000 in 2000. The operating loss reflects the Company's continuing efforts to increase market share by reinvesting segment gross profits in selling and marketing expenses. The Company's bottling operations segment reported operating income of $436,000 in 2001 compared to an operating loss of $748,000 in 2000. The swing to profitability reflects volume increases as a result of a new major bottling contract. INTEREST INCOME. The Company earns interest income on its cash, short-term investments and notes receivable. The decrease in interest income in 2001 was attributable to lower average amounts of cash, short-term investments and notes receivable outstanding compared to 2000. INTEREST EXPENSE. Interest expense was $3.8 million in 2001 and $3.6 million in 2000. The increase in interest expense was due to increased borrowings on the Company's line of credit during 2001 compared to 2000. INCOME TAX EXPENSE. The Company's effective income tax rate was 25.0% in 2001 and 24.4% in 2000. The low tax rate was attributable to the Virgin Islands subsidiary, which has a 90% exemption from United States federal income taxes through September 2020 (see Note 4 to the Consolidated Financial Statements). THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000. Unless otherwise noted, references to 2001 represent the three-month period ended June 30, 2001 and references to 2000 represent the three-month period ended June 30, 2000. NET SALES. Net sales were $26.1 million in 2001, an increase of 10.0% from net sales of $23.7 million in 2000. 14 RESULTS OF OPERATIONS (CONTINUED) Net sales of bulk alcohol products were $10.7 million in 2001, an increase of 10.5% from net sales of $9.7 million in 2000. The increase resulted primarily from increased sales of wine products due to the Monarch Acquisition. Unit sales of wine products increased 15.8% in 2001 compared to 2000. Net sales of premium branded spirits were $4.6 million in 2001, an increase of 3.7% from net sales of $4.5 million in 2000. This sales increase reflected the continued success of the Company's Cruzan Rums. Sales of the Company's Cruzan Rums and Cruzan Flavored Rums increased 17.4% and 52.0% respectively in 2001 compared to 2000. Sales of Porfidio tequila have decreased due to an industry-wide shortage of agave, the principal raw material for tequila. During June 2001, Mexican regulatory authorities alleged that the Porfidio distillery violated certain regulations related to the marketing and sale of tequila and have prohibited the export of Porfidio tequila. The allegations have been denied by the Porfidio distillery. The Company has not received a shipment of Porfidio tequila since March 2001, and cannot predict when shipments of Porfidio will resume. The decrease in sales of Porfidio tequila has not had, and is not expected to have, a material adverse effect on the Company's results of operations. Net sales of the Company's bottling operations were $5.5 million in 2001, an increase of 30.3% from net sales of $4.2 million in 2000. The unit volume of the Company's bottling operations increased 26.3% in 2001 as a result of a new bottling contract. Management expects the unit volume in its bottling operations to increase over forty percent for the fiscal year ending September 30, 2001, as a result of this new business. Net sales of vinegar and cooking wine were $5.2 million in 2001, an increase of 8.7% from net sales of $4.8 million in 2000. The increase in net sales was primarily attributable to timing of customer orders. GROSS PROFIT. Gross profit was $8.9 million in 2001, an increase of 11.9% from gross profit of $8.0 million in 2000. Gross margin increased to 34.2% in 2001 from 33.6% in 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $5.3 million in 2001, an increase of 7.4% from $4.9 million in 2000. The increase was primarily attributable to increased marketing expenses related to the Company's premium branded spirits business. OPERATING INCOME. The following table sets forth the operating income (loss) by operating segment of the Company for 2001 and 2000 and the percent change for the periods.
THREE MONTHS ENDED JUNE 30, ------------------------------ 2001 2000 % CHANGE ---- ---- -------- (in thousands) Bulk Alcohol Products $ 3,618 $ 3,292 9.9 Premium Branded Spirits (105) 134 - Bottling Operations 376 (132) - Vinegar and Cooking Wine 1,270 787 61.3 Corporate Operations and Other (1,523) (1,033) (47.2) ------------------------------- $ 3,636 $ 3,048 19.3 ===============================
As a result of the above factors, operating income was $3.6 million in 2001, an increase of 19.3% over operating income of $3.0 million in 2000. The Company's premium branded spirits segment experienced an operating loss of $105,000 in 2001 compared to operating income of $134,000 in 2000. The operating loss reflects the Company's continuing efforts to increase market share by reinvesting segment gross profits in selling and marketing expenses. The Company's bottling operations segment reported operating income of $376,000 in 2001 compared to an operating loss of $132,000 in 2000. The swing to profitability reflects volume increases as a result of a new major bottling contract. 15 RESULTS OF OPERATIONS (CONTINUED) INTEREST INCOME. The Company earns interest income on its cash, short-term investments and notes receivable. INTEREST EXPENSE. Interest expense was $1.3 million in 2001 and $1.4 million in 2000. Interest expense decreased slightly as increased borrowings on the Company's line of credit in 2001 were offset by lower interest rates. INCOME TAX EXPENSE. The Company's effective income tax rate was 26.2% in 2001 and 27.2% in 2000. The low tax rate was attributable to the Virgin Islands subsidiary, which has a 90% exemption from United States federal income taxes through September 2020 (see Note 4 to the Consolidated Financial Statements). FINANCIAL LIQUIDITY AND CAPITAL RESOURCES GENERAL The Company's principal use of cash in its operating activities is to purchase raw materials to be used in its manufacturing operations, purchase imported products for its premium branded spirits business and carry inventories and receivables. The Company's sources of liquidity have historically been cash flow from operations and borrowings. 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 needs. OPERATING ACTIVITIES Net cash provided by operating activities in 2001 was $5.4 million, which resulted primarily from $8.8 million in net income adjusted for noncash items, and $3.4 million representing the net change in operating assets and liabilities. INVESTING AND FINANCING ACTIVITIES Net cash used in investing activities in 2001 was $4.6 million, which resulted primarily from $4.8 million of capital expenditures, a net increase of $2.8 million in short-term investments and principal payments received on notes receivable of $3.5 million. During the third quarter of 2001 the Company received a prepayment of $2.4 million on a note receivable. Net cash provided by financing activities in 2001 was $0.2 million, which resulted primarily from an increase of $6.4 million in borrowings under the revolving credit facility and payments of long-term debt totaling $6.1 million. The Company's present revolving credit facility provides for maximum borrowings of $15 million. Borrowings under this facility were $14.9 million at June 30, 2001 (see Note 3 to the Consolidated Financial Statements). The Company's bank debt was $58.9 million as of June 30, 2001, and its ratio of total debt to equity was 1.2 to 1. 16 No provision has been made for income taxes that would result from the remittance of undistributed earnings of the Company's Bahamian and Virgin Islands subsidiaries, as the Company intends to reinvest these earnings indefinitely. The Company's shares of the undistributed earnings of the Bahamian and Virgin Islands subsidiaries were approximately $8.1 million and $21.1 million, respectively, as of September 30, 2000. See Note 9 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000 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. EFFECTS OF INFLATION AND CHANGING PRICES The Company uses natural gas and oil in its distilling operations and during the first two quarters of the fiscal year ending September 30, 2001, experienced significant increases in its energy costs. During the third quarter energy costs moderated. Where competitively feasible, management has increased selling prices to offset the effects of energy cost increases, but the Company may not be able to recover all 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required under this Item 3 is incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 2000. During the third quarter the Company received a $2.4 million prepayment on a 7% note receivable that was due in May 2006. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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) 10.17(a) Waiver and Modification of Credit Agreement dated as of September 29, 2000, by and among Todhunter International, Inc. and each of the Financial Institutions Initially a Signatory thereto, and SouthTrust Bank, National Association (8) 10.17(b) Second Waiver and Modification of Credit Agreement dated as of March 30, 2001, by and among Todhunter International, Inc. and each of the Financial Institutions Initially a Signatory thereto, and SouthTrust Bank, National Association. (9) 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 17 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 (10) 13.1 Quantitative and Qualitative Disclosures about Market Risk (7) 21.1 Subsidiaries of Todhunter International, Inc. (2)
(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 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) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 2000. (8) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000. (9) Filed herewith. (10) 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 June 30, 2001. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2001. 18 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: August 9, 2001 /s/ A. Kenneth Pincourt, Jr. ------------------------------------- A. Kenneth Pincourt, Jr. Chairman and Chief Executive Officer Date: August 9, 2001 /s/ Troy Edwards ------------------------------------- Troy Edwards Chief Financial Officer, Treasurer and Controller 19 EX-10.17(B) 3 a2056371zex-10_17b.txt EXHIBIT 10.17(B) SECOND WAIVER AND MODIFICATION OF CREDIT AGREEMENT THIS AGREEMENT is made as of the 30th day of March, 2001, by and between SOUTHTRUST BANK, an Alabama corporation formerly known as SouthTrust Bank, National Association acting as a Lender and as Administrative Agent and Funding Agent (collectively "Agent") pursuant to the Credit Agreement FIRST UNION NATIONAL BANK, a national banking association acting as a Lender, NATIONAL CITY BANK, NATIONAL ASSOCIATION, a national banking association acting as a Lender, SUNTRUST BANK, a Georgia corporation, formerly known as SUNTRUST BANK, SOUTH FLORIDA, N.A., a national banking association, acting as a Lender, and BARCLAYS BANK, P.L.C., acting as a Lender (collectively the "Lenders"), and TODHUNTER INTERNATIONAL, INC., a Delaware corporation (the "Borrower"). WITNESSETH: WHEREAS, Lenders, Agent and Borrower entered into a Credit Agreement dated as of November 17, 1999 (the "Credit Agreement") in connection with which Lenders made available to Borrower a revolving line of credit in the maximum principal amount of FIFTEEN MILLION and no/100s Dollars ($15,000,000.00) (the "Revolving Line of Credit") evidenced by certain Revolving Credit Notes (the "Revolving Notes") and Term Loans in the maximum principal amount of FIFTY SIX MILLION and no/100 Dollars ($56,000,000.00) evidenced by certain Term Notes (collectively with the Revolving Notes the "Notes"), secured and evidenced by the Loan Documents, as defined in the Credit Agreement; and WHEREAS, on or about September 29, 2000, Agent, Lenders and Borrower entered into a Waiver and Modification of Credit Agreement; and WHEREAS, Lenders, Agent and Borrower have agreed to revise certain additional provisions of the Credit Agreement and for Lenders to waive certain defaults by Borrower under the Credit Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants of this agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lenders, Agent and Borrower agree as follows: 1. RECITALS/TERMS. All of the recitals set forth above are true and correct and by this reference are made a material part of this Agreement. All capitalized terms used herein which are defined in the Credit Agreement shall have the meaning provided therein when used herein unless the context shall require otherwise. 2. REAFFIRMATION OF NOTE. Borrower hereby acknowledges that the Notes continue to evidence the Revolving Loans and the Term Loans. 3. INTEREST COVERAGE RATIO. Section 10.02 is hereby amended and restated in its entirety as follows: SECTION 10.02 INTEREST COVERAGE RATIO. Maintain the ratio of EBITDA to Consolidated Interest Expense determined at the end of each fiscal quarter of Borrower for the four consecutive fiscal quarters then ended at least as follows: For any fiscal quarter Ratio ending during the period: ----- ------------------------- 3.0 to 1.0 From and including the fiscal quarter ended March 31, 2000 to and including the fiscal quarter ending December 31, 2001 4.0 to 1.0 From and including the fiscal quarter ending March 31, 2002 to and including the fiscal quarter ending September 30, 2003 5.0 to 1.0 At any time after the fiscal quarter ending September 30, 2003 4. FIXED CHARGE COVERAGE. SECTION 10.03 FIXED CHARGE COVERAGE. Maintain at all times after December 31, 2000, a Fixed Charge Coverage Ratio of not less than 1.3 to 1.0 which shall be tested at each fiscal quarter end of Borrower for the four consecutive quarters then ended. 5. FUNDED DEBT. Section 10.04 is hereby amended and restated in its entirety as follows: SECTION 10.04. FUNDED DEBT RATIO. Maintain at all times Funded Debt as a percentage of the Funded Debt plus Tangible Net Worth as of the end of each of the four fiscal quarters of Borrower as follows: For any fiscal quarter Ratio ending during the period: ----- ------------------------- 0.65 to 1.0 From and including the fiscal quarter ended March 31, 2000 to and including the fiscal quarter ending June 30, 2001 0.60 to 1.0 From and including the fiscal quarter ending September 30, 2001 to and including the fiscal quarter ending December 31, 2001 0.55 to 1.0 From and including the fiscal quarter ending March 31, 2002 to and including the fiscal quarter ending December 31, 2002 0.50 to 1.0 At any time after the fiscal quarter ending December 31, 2002 6. FUNDED DEBT TO EBITDA. Section 10.05 is amended and restated in its entirety as follows: SECTION 10.05. FUNDED DEBT TO EBITDA. Maintain a ratio of Funded Debt to EBITDA as of the end of any fiscal quarter of Borrower of not more than the following. Such ratio shall be measured on the basis of the financial results of Borrower for the most recent four (4) fiscal quarters of Borrower ending on the dates of measurement. For any fiscal quarter Ratio ending during the period: ----- ------------------------- 3.75 to 1.0 From and including the fiscal quarter ended March 31, 2000 to and including the fiscal quarter ending September 30, 2000. 3.50 to 1.0 From and including the fiscal quarter ending December 31, 2000 to and including the fiscal quarter ending September 30, 2001 3.0 to 1.0 From and including the fiscal quarter ending December 31, 2001 to and including the fiscal quarter ending March 31, 2002 2.50 to 1.0 At any time after the fiscal quarter ending thereafter. 7. LIQUIDITY. Section 10.06 is hereby added to the Agreement to read as follows: Maintain a minimum Liquidity of Four Million and no/100s Dollars ($4,000,000.00) at all times during the term of this Agreement. "Liquidity" is defined as unencumbered cash or marketable securities owned by Borrower and held in an account with the Agent or with a depository acceptable to the Agent. Written proof of such balance shall be submitted to the Agent within ten (10) days after the end of each fiscal quarter of Borrower. 8. WAIVERS. Subject to the terms of this Modification, the Lenders hereby agree to waive any Default or Event of Default which may have occurred (i) as of December 31, 2000, as a result of the non-compliance by the Borrower as of December 31, 2000 with the provisions of Section 10.04 (Funded Debt Ratio) of the Credit Agreement; and (ii) as of December 31, 2000 as a result of the non-compliance by the Borrower with the provisions of Section 10.03 (Fixed Charge Coverage) of the Credit Agreement. 9. LIMITATION OF WAIVERS. The foregoing waivers are expressly limited to the matters stated herein and shall apply solely to the specific provisions of the Credit Agreement set forth above and, in the case of Sections 10.03 and 10.04 of the Credit Agreement, solely for the date set forth above. The foregoing waivers shall not be deemed or construed as a waiver of or consent to (i) the non-compliance by the Borrower with any other covenant, term or condition of the Credit Agreement or any of the Loan Documents, or (ii) any further non-compliance by the Borrower subsequent to December 31, 2000 with the provisions of Sections 10.03 and 10.04 of the Credit Agreement, as amended herein. 10. WARRANTS. Borrower hereby warrants and represents to Lenders that, since the date of the Credit Agreement other than violations of the financial covenant contained in Sections 10.03 and 10.04 of the Credit Agreement, Borrower has been and is in compliance with all provisions of the Credit Agreement and all other Loan Documents and that no Default or Event of Default has occurred thereunder nor has any event occurred or failed to occur which with the passage of time or the giving of notice or both would comprise such a Default or Event of Default. 11. RATIFICATION. Borrower hereby ratifies and confirms each of its obligations and indebtedness under the Credit Agreement and each of the other Loan Documents, as amended hereby, and hereby represents and warrants to the Lenders and the Agent that Borrower neither has nor claims any defenses, counterclaims or offsets to any such obligations or indebtedness. 12. FEES. The effectiveness of this Modification and the amendments contemplated herein are expressly conditioned upon the payment by the Borrower to the Agent for the prorata benefit of the Lenders an amendment fee equal to $152,500.00 and reimbursement by the Borrower of the Agent and each of the Lenders for all reasonable attorneys' fees and expenses incurred by each of them in connection with this Modification. 13. MISCELLANEOUS. a. This agreement shall be governed by and construed in accordance with the law of the State of Florida. Paragraph headings used herein are for convenience only and shall not be used to interpret any term hereof. The Credit Agreement shall continue in full force and effect as modified by this Modification. In the event the terms of this Modification conflict with the terms of the Credit Agreement, the terms of this Modification shall control. b. This Modification constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings, negotiations and discussions, both written and oral among the parties hereto with respect to the subject matter hereof, all of which prior agreements, understanding, negotiations and discussions, both written and oral, are merged into this Modification. All provisions of the Credit Agreement and each of the other Loan Documents shall remain in full force and effect as modified by this Agreement. Without limiting the generality of any of the provisions of this Modification, nothing herein or in any instrument or agreement shall be deemed or construed to constitute a novation, satisfaction or refinancing of all or any portion of the Loan or in any manner affect or impair the lien or priority of the Credit Agreement or any of the Loan Documents as amended hereby. c. This Modification may be executed in any number of counterparts with each executed counterpart constituting an original, but altogether constituting but one and the same instrument. d. This Modification shall be binding upon and inure to the benefit of the Borrower, the Agent and the Lenders and their respective heirs, legal representatives, executors, successors and assigns from March 30, 2001 forward. 14. RELEASE. IN CONSIDERATION OF THE ACCOMMODATIONS PROVIDED HEREIN, THE BORROWER HEREBY UNCONDITIONALLY, IRREVOCABLY AND FOREVER RELEASES, ACQUITS AND DISCHARGES THE LENDERS AND EACH OF THE LENDERS' RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND COUNSEL FROM ANY AND ALL CLAIMS, DEMANDS AND CAUSES OF ACTION THAT ANY OF THEM HAD, NOW HAS OR MAY IN THE FUTURE HAVE AGAINST ANY ONE OR MORE OF THE LENDERS OR ANY ONE OR MORE OF THE LENDERS' OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR COUNSEL FOR THE ACTS OR OMISSIONS OF ANY OF THE FOREGOING PARTIES FROM THE BEGINNING OF TIME THROUGH, TO AND INCLUDING THE DATE OF THE EFFECTIVENESS OF THIS MODIFICATION, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS ARISING OUT OF OR CONNECTED IN ANY MANNER WITH THE TRANSACTIONS CONTEMPLATED HEREIN OR IN THE CREDIT AGREEMENT, AS AMENDED HEREBY OR ANY OTHER LOAN DOCUMENTS, AS THE SAME MAY BE AMENDED HEREBY, AS THE CASE MAY BE. 15. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS MODIFICATION OR ANY AGREEMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR WRITTEN) OR ACTIONS BY ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE LENDERS ENTERING INTO THIS MODIFICATION AND MAKING ANY LOAN, ADVANCE OR OTHER EXTENSION OF CREDIT TO THE BORROWER. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE LENDERS, NOR THE AGENT OR ANY OF THE AGENT'S COUNSEL OR THE LENDERS' COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR ANY OF THE AGENT'S COUNSEL OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE LENDERS, NOR THE AGENT OR ANY OF THE AGENT'S COUNSEL OR THE LENDERS' COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION. IN WITNESS WHEREOF, the Borrower, the Agent and Lenders have caused this agreement to be effective as of the day and year set forth above. BORROWER: Witnesses: TODHUNTER INTERNATIONAL, INC., a Delaware corporation /s/ D. Guy Guenthner By: /s/ A. Kenneth Pincourt, Jr. - ------------------------------ ---------------------------------------- Print Name: D. Guy Guenthner A. Kenneth Pincourt, Jr. ------------------- Its: Chairman of the Board of Directors/CEO /s/ Edward A. Kay - ------------------------------ Print Name: Edward A. Kay ------------------- STATE OF COUNTY OF The foregoing instrument was acknowledged before me this 29th day of May, 2001 by A. Kenneth Pincourt, Jr., as Chairman of the Board of Directors/CEO of Todhunter International, Inc. a Delaware corporation, on behalf of the corporation. He/she is personally known to me or has produced ____________________ (type of identification) as identification. /s/ Edward A. Kay ------------------------------------------- NOTARY PUBLIC, STATE OF Edward A. Kay, Commission # CC 934433 ------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) THE AGENT: SOUTHTRUST BANK, FORMERLY KNOWN AS SOUTHTRUST BANK, NATIONAL ASSOCIATION Witnesses: /s/ Antonio Duboy By: /s/ D. Guy Guenthner - ------------------------------ ---------------------------------- Print Name: Antonio Duboy Print Name: D. Guy Guenthner ------------------- -------------------------- Title: Senior Vice President ------------------------------- /s/ Michael Simm Print Name: Michael Simm ------------------- STATE OF Florida COUNTY OF Broward The foregoing instrument was acknowledged before me this 29th day of May, 2001 by D. Guy Guenthner, as Sr. Vice Pres. of SouthTrust Bank, on behalf of the bank. He/she is personally known to me or has produced ____________________ (type of identification) as identification. /s/ Linda C. Verdi ------------------------------------------- NOTARY PUBLIC, STATE OF Linda C. Verdi, Commission # CC706113 ------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) THE LENDERS: SOUTHTRUST BANK, FORMERLY KNOWN AS SOUTHTRUST BANK, NATIONAL ASSOCIATION Witnesses: /s/ Antonio Duboy By: /s/ D. Guy Guenthner - ------------------------------ ---------------------------------- Print Name: Antonio Duboy Print Name: D. Guy Guenthner ------------------- -------------------------- Title: Senior Vice President ------------------------------- /s/ Michael Simm Print Name: Michael Simm ------------------- STATE OF Florida COUNTY OF Broward The foregoing instrument was acknowledged before me this 29th day of May, 2001 by D. Guy Guenthner, as Senior Vice Pres. of SouthTrust Bank, on behalf of the bank. He/she is personally known to me or has produced ____________________ (type of identification) as identification. /s/ Linda C. Verdi ------------------------------------------- NOTARY PUBLIC, STATE OF Linda C. Verdi, Commission # CC706113 ------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) FIRST UNION NATIONAL BANK Witnesses: /s/ Denise H. Murphy By: /s/ David F. Abee - ------------------------------ ------------------------------------- Print Name: Denise H. Murphy Print Name: David F. Abee ------------------- -------------------------- Title: Vice President ------------------------------- /s/ Cassandra Griffith - ------------------------------ Print Name: Cassandra Griffith STATE OF COUNTY OF The foregoing instrument was acknowledged before me this 22nd day of May, 2001 by David F. Abee, as ________________ of First Union National Bank, on behalf of the bank. He/she is personally known to me or has produced ____________________ (type of identification) as identification. /s/ Laura S. Forbes ------------------------------------------- NOTARY PUBLIC, STATE OF Laura S. Forbes, Commission # CC724926 ------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) SUNTRUST BANK, FORMERLY KNOWN AS SUNTRUST BANK, SOUTH FLORIDA, N.A. Witnesses: /s/ Michael Miller By: /s/ Jeffrey S. Wolfe - ------------------------------ -------------------------------------- Print Name: Michael Miller Print Name: Jeffrey S. Wolfe ------------------- ------------------------------ Title: Vice President ----------------------------------- /s/ Doreen Fischer - ------------------------------ Print Name: Doreen Fischer ------------------- STATE OF Florida COUNTY OF Palm Beach The foregoing instrument was acknowledged before me this 30th day of May, 2001 by Jeffrey S. Wolfe, as Vice President of SunTrust Bank, on behalf of the bank. He/she is personally known to me or has produced ____________________ (type of identification) as identification. /s/ Leticia R. Morgan ------------------------------------------- NOTARY PUBLIC, STATE OF Leticia R. Morgan, Commission # CC987894 ------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) NATIONAL CITY BANK , NATIONAL ASSOCIATION Witnesses: /s/ Ellen M. Brown By: /s/ Kelly L. Moyer - ------------------------------ ------------------------------------- Print Name: Ellen M. Brown Print Name: Kelly L. Moyer ------------------- ----------------------------- Title: Vice President ---------------------------------- /s/ Marilyn Martinez - ------------------------------ Print Name: Marilyn Martinez STATE OF OHIO COUNTY OF The foregoing instrument was acknowledged before me this 24th day of May, 2001 by Kelly L. Moyer, as Vice Pres. of National City Bank, National Association, on behalf of the bank. He/she is personally known to me or has produced N/A (type of identification) as identification. /s/ Janet R. Jack ----------------------------------------------- NOTARY PUBLIC, STATE OF OHIO Janet R. Jack, Commission Expires June 16, 2004 ----------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) BARCLAYS BANK, P.L.C. Witnesses: By: /s/ Sergio Cuervo - ------------------------------ ---------------------------------- Print Name: Print Name: Sergio Cuervo ------------------- -------------------------- Title: Director ------------------------------- /s/ Gisela Castellanos - ------------------------------ Print Name: Gisela Castellanos STATE OF COUNTY OF The foregoing instrument was acknowledged before me this 25th day of May, 2001 by Sergio Cuervo, as Director of Barclays Bank, P.L.C., on behalf of the bank. He/she is personally known to me or has produced personally known (type of identification) as identification. /s/ Gisela Castellanos ------------------------------------------- NOTARY PUBLIC, STATE OF Gisela Castellanos, Commission # CC 888343 ------------------------------------------- (Print, Type or Stamp Commissioned Name of Notary Public) -----END PRIVACY-ENHANCED MESSAGE-----