-----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, Q+Cb72fbD8Epa1DdznG405hazJblO8bwjW5eAucNGNuCqU9LuD9YO6N3zDeyy4WL d1Dz4NYCAeCAudvZaD/juA== 0001047469-98-044525.txt : 19981222 0001047469-98-044525.hdr.sgml : 19981222 ACCESSION NUMBER: 0001047469-98-044525 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981221 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-K405 SEC ACT: SEC FILE NUMBER: 000-20624 FILM NUMBER: 98772487 BUSINESS ADDRESS: STREET 1: 222 LAKEVIEW AVE STE 1500 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 4076558977 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-K405 1 10-K405 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-13453 ----------- TODHUNTER INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 59-1284057 (State of Incorporation) (IRS Employer Identification Number) 222 LAKEVIEW AVENUE, SUITE 1500, WEST PALM BEACH, FL 33401 (Address of principal executive office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 655-8977 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, $.01 PAR VALUE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of Title 17, Code of Federal Regulations) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 11, 1998 (computed by reference to the last reported sale price of registrant's common stock on AMEX on such date): $22,145,117. The number of shares outstanding of registrant's Common Stock, $.01 par value per share, as of December 11, 1998, was 4,893,714. There were no shares of Preferred Stock outstanding as of December 11, 1998. Documents Incorporated by Reference: Part III - Portions of the registrant's definitive proxy statement to be filed within 120 days of the end of the registrant's fiscal year in conjunction with the registrant's 1999 annual stockholders' meeting. - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL OVERVIEW Todhunter International, Inc. (the "Company") produces and supplies brandy, rum, wine and spirits to beverage alcohol manufacturers; bottles beverage alcohol and other beverages on a contract basis; produces a line of value-priced spirits; produces, imports and markets premium branded spirits and produces vinegar, cooking wine and other alcohol-related products. The Company is a Delaware corporation organized in 1970 as a successor to a business founded in the Bahamas in 1964. All references in this report to years are meant to refer to fiscal years of the Company unless the context otherwise requires. During 1998, the Company consolidated its Florida bottling operations from three bottling plants to two. Also during 1998, the Company began upgrading its computer hardware and software to improve its management information system and to prepare for the year 2000. During 1997, the Company increased the vinegar production capacity at its facility in Louisville, Kentucky by 38%, from 3.2 million grain gallons to 4.4 million grain gallons. The Company began producing red wine vinegar at this facility in September 1997. During 1996, the Company invested $1.3 million in polyethylene terephthalate ("P.E.T.") bottle manufacturing equipment which has the capacity to produce 15 million P.E.T. bottles per year. Where possible, the Company has utilized P.E.T. bottles to replace glass bottles in its value-priced spirits and contract bottling businesses to reduce material and freight costs. The Company began manufacturing P.E.T. bottles in June 1996, and is presently manufacturing at a rate of approximately 4.5 million bottles per year. PRODUCTS AND SERVICES BULK ALCOHOL PRODUCTS. The Company distills citrus brandy, citrus and cane spirits and rum, produces fortified citrus wine, and sells these products to over 40 producers of beverage alcohol in the United States and other foreign countries. The Company also purchases grain alcohol from several suppliers located in the Midwest and resells it, primarily to export customers. Citrus brandy and spirits are distilled from citrus juice byproducts purchased from manufacturers of citrus juice concentrate. The Company's citrus brandy is used primarily as an ingredient in flavored brandies. Citrus spirits are used primarily as a fortifying ingredient to increase the alcohol content of the Company's citrus wine and the wine of other manufacturers. The Company's citrus wine is fermented from citrus juice and fortified to increase its alcohol content to approximately 20% by volume. Known as fortified citrus wine, this product is used primarily as an ingredient in cordials, whiskies and other beverage alcohol. Rum and cane spirits are distilled from sugar cane molasses and are sold to other bottlers of rum, producers of beverage alcohol, food companies and flavor manufacturers. Rum is also used in the Company's premium branded spirits and value-priced spirits line. Management believes that its proximity to raw materials and its use of citrus byproducts in the production of bulk alcohol provide it with cost advantages over competing products. Because end products are taxed on a blended rate based upon the ingredients used rather than on the resulting alcohol content of the end product, beverage alcohol producers can lower excise taxes on their products by substituting fortified citrus wine for distilled spirits alternatives. This cost savings arises because fortified citrus wine is currently subject to federal excise taxes of $1.57 per gallon, whereas distilled spirits are taxed at $13.50 per proof gallon (one proof gallon is approximately equivalent in alcohol content to two and one-half gallons of fortified citrus wine). The ability of beverage alcohol producers to substitute fortified citrus wine for distilled spirits varies by end product according to government regulations. For example, fortified citrus wine may contribute up to 49% of the alcohol content of cordials and liqueurs, and up to approximately 10% of the alcohol content of Canadian whiskey. In addition, small quantities of fortified citrus wine may be used in blended whiskey, rum, brandy and other types of beverage alcohol. In 1998, the Company sold 10.6 million proof gallons of distilled products (citrus brandy, citrus and cane spirits, rum and purchased grain alcohol) and 6.8 million gallons of fortified citrus wine. The total annual capacity of distilled products and fortified citrus wine for the Company's production facilities is approximately 23 million proof gallons and 20 million gallons, respectively. 1 VALUE-PRICED SPIRITS. The Company produces, bottles and sells a complete line of distilled spirits under its own proprietary labels and under the private labels of major retailers of liquor located in the Southeast. These products currently include rum, gin, vodka, tequila, cordials and various whiskies, and the Company continues to add additional products to this line. Since the acquisition of the Virgin Islands operations in 1994, the Company also produces and sells distilled spirits in the U.S. Virgin Islands. The Company distills and ages its own rum, but generally produces its other value-priced spirits from alcohol purchased from third parties. Depending on the particular formula for a product, the Company adds flavoring and/or sugar, reduces the product's proof and then filters and bottles the finished product. The Company sold approximately 865,000 cases of value-priced spirits in 1998. PREMIUM BRANDED SPIRITS. In 1996, the Company began to develop, import and market premium branded spirits nationally. Since 1996, the Company has established and strengthened relationships with wholesalers, expanded its distribution network, developed new products, obtained new agency agreements and acquired additional management and marketing expertise. In 1996 and 1997, sales of premium branded spirits were combined with sales of value-priced spirits due to their relatively small amount. The Company's premium branded spirits include Cruzan Estate Rums, Cruzan Flavored Rums, Cruzan Rums, Porfidio Tequila and Plymouth Gin. Management's strategy has been to focus on marketing and building premium brands with an initial emphasis on the rum and tequila categories. The Company sold approximately 215,000 cases of premium branded spirits in 1998. CONTRACT BOTTLING. The Company bottles coolers, prepared cocktails and other beverage alcohol on a contract basis. The Company also bottles other beverages on a contract basis including fruit juices, carbonated and non-carbonated fruit flavored beverages, flavored sparkling water and ready-to-drink brewed iced teas. In 1998, the Company bottled approximately 3.8 million cases for third parties. The Company's bottling capacity is approximately 10 million cases per year. In 1998, the Company bottled approximately 5.3 million cases in its contract bottling, premium branded spirits, value-priced spirits, vinegar and cooking wine businesses. The Company is actively seeking to utilize its remaining capacity by bottling additional types of beverages with new and existing customers. VINEGAR AND COOKING WINE. To complement its distilling, winery and bottling operations, the Company produces vinegar and cooking wine for sale to condiment manufacturers, food service distributors and major retailers. The Company's sales to retailers are sold under its own proprietary labels and under the private labels of major retailers in the Southeast. OTHER BUSINESS ACTIVITIES. The Company's distilling operations produce residuum, a byproduct, which is sold as animal feed. The Company also purchases grain alcohol, denatures and packages it and sells it as industrial alcohol to hospitals, universities, fragrance producers and other manufacturers. The Company engages in operations in the Bahamas through its Bahamian subsidiary, Todhunter Bahamas Limited. The Bahamian operations include retail businesses and certain real estate holdings. See Notes 5, 9 and 13 to the Company's consolidated financial statements for additional information on the Bahamian operations. DEPENDENCE ON MAJOR CUSTOMERS The Company sells its bulk alcohol products to over 40 producers of beverage alcohol in the United States and other foreign countries. The Company's private label value-priced spirits and contract bottling services are sold to a limited number of customers. The Company's vinegar and cooking wine are sold to over 100 condiment manufacturers, food service distributors and retailers. The Company has major customers in its bulk alcohol products, private label value-priced spirits and contract bottling businesses. The loss of one or more of the Company's major customers could have a material adverse effect on the Company's liquidity and results of operations. See Note 13 to the Company's consolidated financial statements for additional information on major customers. PRODUCTION The Company's principal domestic production facilities are located in Lake Alfred and Auburndale, Florida, both near Orlando and central to Florida's citrus growing region. The two plants have similar distilling, bottling and winery operations, allowing the Company to shift production from one plant to the other. The Lake Alfred plant also has a vinegar production facility. Both plants are near major highways and are serviced by a railroad, providing good transportation access. The Company has a cold storage, warehousing and P.E.T. bottle manufacturing facility in Winter Haven, Florida. The Company also operates a winery and vinegar production facility in Louisville, Kentucky. The Company's offshore rum production facilities are located in St. Croix, United States Virgin Islands. 2 DISTILLING. The Company begins its distilling process with citrus or cane molasses, which is fermented for approximately two to seven days. Once fermented, the product has an average alcohol content of 4% by volume, which is increased to approximately 95% through distillation. The alcohol is then processed through rectifying columns and further refined. The finished product is stored in stainless steel tanks, except rum, which is generally stored in wooden barrels for aging purposes. The Lake Alfred, Auburndale and Virgin Islands facilities each have the capacity to distill 25,000 proof gallons per day. WINERY. Wine is produced by the fermentation of citrus or grape juice. After fermentation, the wine is fortified by the addition of distilled citrus spirits to raise its alcohol content to approximately 20% by volume. Fortified citrus wine is sold to producers of beverage alcohol. The wineries are physically segregated from the distilling operations and have their own set of fermenting and storage tanks. The Lake Alfred, Auburndale and Louisville facilities can produce, on a combined basis, up to 20 million gallons of wine per year. BOTTLING. The Lake Alfred and Auburndale plants both have automated, high-speed bottling lines capable of filling up to 600 12-ounce containers per minute. Lake Alfred has two lines that are used primarily to bottle vinegar and juices, two lines that are used to bottle the Company's value-priced spirits and one line to bottle premium branded spirits. Auburndale has two lines that are dedicated to bottling coolers and prepared cocktails and three lines that bottle value-priced spirits, premium branded spirits and cooking wine. The Company's warehouse storage areas can accommodate up to 800,000 cases. The Company's plant in the Virgin Islands has one line capable of bottling up to 250,000 cases per year. VINEGAR AND COOKING WINE. Vinegar is produced by converting alcohol into acetic acid. Several varieties of vinegar, including white distilled, red wine, white wine, corn, rice wine, balsamic, tarragon and apple cider, are produced at the Lake Alfred and Louisville facilities which have a combined capacity of 7.5 million grain gallons per year. Cooking wine is produced by the controlled fermentation of red or white grape juice into wine. Several varieties of cooking wine, including red, white, sherry, golden, marsala and chablis, are produced at the Auburndale and the Louisville facilities. QUALITY CONTROL. Each of the Company's facilities is equipped with a quality control laboratory. The Company employs several chemists who continually test to ensure the quality of its raw materials and end products. RAW MATERIALS. The principal raw materials used in the Company's distilling operations are citrus molasses, a byproduct of citrus juice production, and cane molasses, a byproduct of sugar production. Citrus molasses, which is used in the production of citrus brandy and citrus spirits, accounted for approximately 51% of the raw materials used in the Company's distilling operations in 1998. Cane molasses, which is used in the production of rum and cane spirits, accounts for the remaining 49%. Citrus juice concentrate is the primary raw material used in the Company's winery operations. The Company purchases such raw materials from a variety of suppliers. The Company purchases alcohol, used in its bulk alcohol products, value-priced spirits, contract bottling and industrial alcohol businesses from several suppliers. Glass bottles and other materials, such as caps, labels and cardboard cartons, are used in bottling and packaging and are available from numerous suppliers. Alcohol and grape juice concentrate are the primary raw materials used in the Company's vinegar and cooking wine operations. No supplier accounts for more than 10% of the Company's raw material purchases. The cost of raw materials fluctuates depending upon a number of factors, including crop conditions, weather, governmental programs and purchases by foreign governments. 3 FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY The Company has a limited number of customers, and these customers often purchase bulk alcohol products in significant quantities or place significant orders for contract bottling services, distilled spirits, vinegar and cooking wine. Accordingly, the size and timing of purchase orders and product shipments can cause operating results to fluctuate significantly from quarter to quarter. Additionally, some Company products generate higher profit margins than others, and changes in the Company's product mix will cause gross margins to fluctuate. Certain aspects of the Company's business are also seasonal, with increased demand for the Company's contract bottling services from April to October and increased production of the Company's bulk alcohol products during the months from November to June, corresponding to the Florida citrus-harvest. As a result of these factors, the Company's operating results vary significantly from quarter to quarter. MARKETING AND DISTRIBUTION Bulk alcohol products are sold primarily in large quantities through the Company's salespeople. The Company's marketing strategy emphasizes the cost advantages of these products over other ingredients available to end producers. Bulk alcohol products are sold primarily to other bottlers, distillers and end producers located throughout the United States and Canada. The Company sells value-priced spirits to wholesalers for distribution primarily in the Southeast. The Company's marketing strategy for these products places primary emphasis upon promotional programs emphasizing the Company's cost advantages, directed at wholesalers and retailers, rather than consumers. Wholesalers and retailers market these products to retailers and directly to consumers, respectively. The Company also produces value-priced spirits for private label retailers. Although competition for retail shelf space in the beverage alcohol industry is significant, wholesalers of such products, and not the Company, generally must address such competition, although the Company's promotional programs may have a beneficial effect upon the allocation of retail shelf space for its products. The Company also produces, imports, markets and sells premium branded spirits to wholesalers on a national basis. The Company's marketing and promotional programs for its premium brands are directed at wholesalers, retailers and consumers. Sales of the Company's value-priced and premium branded spirits are generally made FOB (free on board) at the Company's facilities and, accordingly, the purchasers of such products are responsible for the risk of loss and transportation costs. In addition to its salespeople, the Company works through various brokers to develop and service its sales to wholesalers and retailers. The Company's marketing strategy with respect to its contract bottling operations emphasizes the cost advantages and quality of the Company's services. Arrangements with bottling customers are typically negotiated by the Company's executive officers. Vinegar and cooking wine are sold primarily in large quantities to manufacturers, distributors and retailers through the Company's salespeople. These products are also sold through wholesalers and directly to retailers under the Company's proprietary labels and under the private labels of retailers. COMPETITION The areas of the beverage alcohol industry in which the Company does business are highly competitive with respect to price, service and product quality, and there are several companies with substantially greater financial and other resources than the Company. The Company's citrus-based bulk alcohol products compete primarily with producers of grape-based products. While the Company is aware of only two other domestic producers of citrus brandy and spirits, there exist several producers of grape-based distilled products. The Company's value-priced and premium branded spirits compete on a regional and national basis against other distilled spirits products, including premium labels, mid-price and value-price products. The value-priced and premium branded spirits produced by the Company compete with those of companies for whom the Company performs contract bottling services and to whom the Company sells its bulk alcohol products. The Company believes that its relationships with such customers are good and has not experienced any adverse effects, such as termination or non-renewal of ongoing contracts as a result of such competition. Based upon its historical experience and customer relationships, the Company does not expect to experience any adverse effects from such competition in the foreseeable future. Contract bottling operations compete against other bottlers located throughout the Southeast. The Company experiences similar competition in its vinegar and cooking wine operations. While Management believes that it has achieved a strong competitive position in the markets it serves, there can be no assurance that the Company will be able to maintain its competitive position in the future. 4 REGULATION AND TAXATION The production, importing and sale of wine and spirits is subject to extensive regulation by certain federal and state agencies, and the Company is required to obtain various permits, bonds and licenses to comply with regulations. Pursuant to federal and state environmental requirements, the Company is required to obtain permits and licenses to operate certain facilities, and to treat and remove effluents discharged from its distilling, winery and bottling operations. Management believes it is presently in material compliance with all applicable federal and state regulations. Beverage alcohol produced and bottled by the Company is subject to substantial federal excise taxes. Excise taxes are imposed at flat rates of $13.50 per proof gallon for distilled spirits and $1.57 per gallon for fortified citrus wine. Tax rates on spirits were increased from $12.50 to $13.50 per proof gallon effective January 1, 1991. Effective at the same time, tax rates on fortified wines were increased by $.90 per gallon. Where necessary and competitively feasible, the Company has increased its prices to offset tax increases. Management believes that such tax increases have adversely affected the total unit volume of beverage alcohol sold industry-wide. The Company's fortified wine products, as an ingredient of beverage alcohol, have a cost advantage under the component method of taxation, which taxes wine at a lower rate than distilled spirits. Changes in, or the elimination of, the component method of taxation, as it relates to wine, would have a material adverse effect on the Company's results of operations. EMPLOYEES As of September 30, 1998, the Company had approximately 335 full-time employees. Additional workers are generally employed at the Company's bottling facilities during the summer months when the bulk of contract bottling takes place. None of the Company's employees are members of any labor union nor are there any collective bargaining agreements between the Company and its employees, with the exception of the Company's Virgin Islands employees. The Virgin Islands operation, consisting of approximately 60 employees, is fully unionized. Management believes that its relations with its employees are good. INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Company has domestic facilities in Florida and Kentucky for the production of its bulk alcohol products, value-priced and premium branded spirits, contract bottling services, vinegar, cooking wine and other alcohol-related businesses. The Company sells its domestically produced products and services primarily to customers in the United States but also exports certain products to foreign countries, primarily Eastern Europe, Canada and the Caribbean. The Company's rum production facilities are located in St. Croix, United States Virgin Islands. Rum produced in the Virgin Islands is sold primarily to other bottlers of rum, producers of beverage alcohol, food companies and flavor manufacturers located in the United States but is also sold to other foreign countries in the Caribbean, South America and Europe. The Company's businesses in the Bahamas relate to retail businesses and real estate rentals. See Note 13 to the Company's consolidated financial statements for additional information about the Company's foreign and domestic operations and export sales. FORWARD-LOOKING STATEMENTS From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, new products and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements: business conditions and growth in certain market segments and industries and the general economy; competitive factors including increased competition and price pressures; availability of third party component products at reasonable prices; increased excise taxes; foreign currency exposure; changes in product mix between and among product lines; lower than expected customer orders and quarterly seasonal fluctuation of those orders; and product shipment interruptions. See "Risk Factors" in previous filings with the Securities and Exchange Commission. 5 ITEM 2. PROPERTIES The Company owns all of its principal production facilities, including all related land, buildings, and equipment. The Lake Alfred facility consists of four principal buildings with approximately 250,000 square feet on 32 acres. The Auburndale facility consists of three principal buildings with approximately 250,000 square feet on 16 acres. The Louisville facility consists of three principal buildings with approximately 60,000 square feet on 27.5 acres. The Winter Haven facility consists of three principal buildings with approximately 140,000 square feet on 30 acres. The Virgin Islands facility consists of seven principal buildings with approximately 200,000 square feet on 30 acres. The Company's facilities in the Bahamas consist of seven principal buildings with approximately 70,000 square feet on 10 acres. The Company leases approximately 10,000 square feet of office space in West Palm Beach, Florida for its executive offices. Management believes that all of its facilities, both owned and leased, are adequate and suitable for operations in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are subject to litigation from time to time in the ordinary course of business. There have been no material developments in the Company's legal proceedings, except as set forth below. BLAIR LITIGATION See the Company's current reports on Form 8-K, dated August 21 and September 14, 1998, for a summary of the Company's settlement of litigation with the former shareholders of Blair Importers, Ltd. LOEWENWARTER LITIGATION On November 17, 1998, the Company settled its claims against Ernest D. Loewenwarter & Co. Pursuant to the terms of the settlement agreement, all claims by the Company against Loewenwarter were discontinued in return for a settlement payment. UNITED STATES TAX COURT On November 10, 1998, the United States Tax Court approved a settlement between the Company and the Internal Revenue Service for the Company's years ended September 30, 1993 and 1994. The Company paid a deficiency, net of refunds, of approximately $200,000. The settlement also provided the Company with deductions which were used to reduce taxes in its year ended September 30, 1998. The settlement did not have a material adverse effect on the Company's financial condition or results of operations. There are no other legal proceedings pending as of September 30, 1998 which the Company believes to be material. Legal proceedings which are pending consist only of matters in the ordinary course of business and taken together are not material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to security holders during the fourth quarter of the fiscal year ended September 30, 1998. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock was traded in the over the counter market since the Company's initial public offering on October 13, 1992, through October 7, 1997. During that time the Company's common stock was listed in the Nasdaq National Market System under the symbol "TODH." On October 8, 1997, the Company's common stock began trading on the American Stock Exchange under the symbol "THT." The following table sets forth the high and low closing quotations of the Company's common stock for each quarter during the past two fiscal years as reported by Nasdaq for fiscal 1997 and AMEX for fiscal 1998.
PERIOD HIGH LOW - ------ ---- --- Fiscal 1997 First quarter 9 5/8 7 7/8 Second quarter 9 6 7/8 Third quarter 8 6 7/8 Fourth quarter 10 1/4 7 1/4 Fiscal 1998 First quarter 10 9/16 9 9/16 Second quarter 10 1/2 8 1/4 Third quarter 9 3/16 8 3/16 Fourth quarter 9 3/4 6 7/8
The number of stockholders of record as of December 3, 1998 was 56. In addition, the number of beneficial owners as of January 21, 1998, the last date upon which the Company received a list of beneficial owners, was approximately 1,132. No dividend was paid to stockholders during the fiscal years ended September 30, 1997 and 1998. The Company intends to continue to retain earnings for use in the business of the Company and therefore does not anticipate declaring or paying cash dividends in the immediate future. In addition, the payment of cash dividends requires the consent of the Company's lender. 7 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data are derived from the Company's audited consolidated financial statements. The following data are qualified by reference to, and should be read in conjunction with, the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
YEAR ENDED SEPTEMBER 30, ------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF INCOME DATA: Net sales $75,096 $77,938 $78,197 $ 70,191 $ 73,316 Cost of goods sold 53,006 56,493 58,428 54,564 55,972 ------- ------- ------- -------- -------- Gross profit 22,090 21,445 19,769 15,627 17,344 Selling, general and administrative expenses 13,937 13,126 11,483 11,599 9,619 ------- ------- ------- -------- -------- Operating income 8,153 8,319 8,286 4,028 7,725 Other income (expense): Interest income 655 840 1,036 740 403 Interest expense (3,946) (4,146) (4,351) (4,015) (2,543) Other, net 660 931 766 252 2,900 ------- ------- ------- -------- -------- Income from continuing operations before income taxes 5,522 5,944 5,737 1,005 8,485 Income tax expense 808 1,259 1,192 1,060 1,871 ------- ------- ------- -------- -------- Income (loss) from continuing operations 4,714 4,685 4,545 (55) 6,614 Discontinued operations, net of income tax benefit - - - (10,740) 11 ------- ------- ------- -------- -------- Income (loss) before extraordinary item 4,714 4,685 4,545 (10,795) 6,625 Extraordinary item, net of income tax benefit - - - (468) - ------- ------- ------- -------- -------- Net income (loss) $ 4,714 $ 4,685 $ 4,545 $(11,263) $ 6,625 ------- ------- ------- -------- -------- ------- ------- ------- -------- -------- Net income per share Basic Income (loss) from continuing operations $ 0.95 $ 0.95 $ 0.92 $ (0.01) $ 1.44 (Loss) from discontinued operations - - - (2.19) - Extraordinary item - - - (0.10) - ------- ------- ------- -------- -------- Net income (loss) $ 0.95 $ 0.95 $ 0.92 $ (2.30) $ 1.44 ------- ------- ------- -------- -------- ------- ------- ------- -------- -------- Diluted Income (loss) from continuing operations $ 0.95 $ 0.94 $ 0.92 $ (0.01) $ 1.40 (Loss) from discontinued operations - - - (2.19) - Extraordinary item - - - (0.10) - ------- ------- ------- -------- -------- Net income (loss) $ 0.95 $ 0.94 $ 0.92 $ (2.30) $ 1.40 ------- ------- ------- -------- -------- ------- ------- ------- -------- -------- Weighted average shares outstanding Basic 4,950 4,943 4,919 4,906 4,616 Diluted 4,985 4,966 4,955 4,906 4,746 BALANCE SHEET DATA (AT PERIOD END): Working capital $37,807 $31,640 $33,517 $ 35,435 $ 32,526 Total assets 96,997 95,618 98,859 103,787 104,134 Short-term debt 1,888 2,938 2,152 2,264 2,289 Long-term debt 42,581 43,135 51,293 57,759 49,740 Stockholders' equity 41,004 36,290 31,448 26,865 37,919
8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following tables set forth statement of income items as a percentage of net sales and information on net sales of certain Company products.
YEAR ENDED SEPTEMBER 30, ------------------------ 1998 1997 1996 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of goods sold 70.6 72.5 74.7 ----- ----- ----- Gross margin 29.4 27.5 25.3 Selling, general and administrative expenses 18.6 16.8 14.7 ----- ----- ----- Operating income 10.8 10.7 10.6 Other income (expense), net (3.4) (3.1) (3.3) ----- ----- ----- Income before income taxes 7.4 7.6 7.3 Income tax expense 1.1 1.6 1.5 ----- ----- ----- Net income 6.3% 6.0% 5.8% ----- ----- ----- ----- ----- -----
YEAR ENDED SEPTEMBER 30, % CHANGE ------------------------ ------------------- 1998 1997 1996 98/97 97/96 ---- ---- ---- ----- ----- (IN THOUSANDS) Bulk alcohol products $28,705 $29,729 $29,404 (3.4) 1.1 Premium branded spirits 10,386 8,435 5,568 23.1 51.5 Value-priced spirits 11,219 11,531 10,817 (2.7) 6.6 Contract bottling 9,320 13,089 19,267 (28.8) (32.1) Vinegar and cooking wine 10,544 9,403 7,625 12.1 23.3 Other 4,922 5,751 5,516 (14.4) 4.2 ------- ------- ------- ---- ---- $75,096 $77,938 $78,197 (3.6) (0.3) ------- ------- ------- ---- ---- ------- ------- ------- ---- ----
The following table provides unit sales volume data for certain Company products.
YEAR ENDED SEPTEMBER 30, % CHANGE ------------------------ -------------------- 1998 1997 1996 98/97 97/96 ---- ---- ---- ----- ----- (IN THOUSANDS) Bulk alcohol products: Distilled products, in proof gallons Citrus brandy 1,479 1,805 1,922 (18.1) (6.1) Citrus spirits 1,012 1,062 872 (4.7) 21.8 Rum 4,412 4,380 4,562 0.7 (4.0) Cane spirits 617 542 509 13.7 6.6 Grain alcohol 3,061 3,499 2,018 (12.5) 73.3 Fortified citrus wine, in gallons 6,846 6,439 7,128 6.3 (9.7) Premium branded spirits, in cases 215 194 177 11.0 9.4 Value-priced spirits, in cases 865 925 1,004 (6.5) (7.9) Contract bottling, in cases 3,838 4,547 5,099 (15.6) (10.8) Vinegar Bulk, in 100 grain gallons 5,251 4,510 4,205 16.4 7.3 Cases, in cases 503 562 403 (10.6) 39.7 Drums, in 100 grain gallons 746 476 542 56.6 (12.1) Cooking Wine Bulk, in gallons 71 44 35 59.3 28.3 Cases, in cases 243 207 157 16.9 32.2
9 The Company produces and supplies brandy, rum, wine and spirits to beverage alcohol manufacturers; bottles beverage alcohol and other beverages on a contract basis; produces a line of value-priced spirits; produces, imports and markets premium branded spirits and produces vinegar, cooking wine and other alcohol-related products. BULK ALCOHOL PRODUCTS. The Company distills citrus brandy, citrus and cane spirits and rum, produces fortified citrus wine, and sells these products to over 40 producers of beverage alcohol in the United States and other foreign countries. The Company also purchases grain alcohol from several suppliers located in the Midwest and resells it, primarily to export customers. Citrus brandy and spirits are distilled from citrus juice byproducts purchased from manufacturers of citrus juice concentrate. The Company's citrus brandy is used primarily as an ingredient in flavored brandies. Citrus spirits are used primarily as a fortifying ingredient to increase the alcohol content of the Company's citrus wine and the wine of other manufacturers. The Company's citrus wine is fermented from citrus juice and fortified to increase its alcohol content to approximately 20% by volume. Known as fortified citrus wine, this product is used primarily as an ingredient in cordials, whiskies and other beverage alcohol. Rum and cane spirits are distilled from sugar cane molasses and are sold to other bottlers of rum, producers of beverage alcohol, food companies and flavor manufacturers. Rum is also used in the Company's premium branded spirits and value-priced spirits line. VALUE-PRICED SPIRITS. The Company produces, bottles and sells a complete line of spirits under its own proprietary labels and under the private labels of major retailers of liquor located in the Southeast. These products currently include rum, gin, vodka, tequila, cordials and various whiskies, and the Company continues to add additional products to this line. Since the acquisition of the Virgin Islands operations in 1994, the Company also produces and sells distilled spirits in the U.S. Virgin Islands. The Company distills and ages its own rum, but generally produces its other spirits from alcohol purchased from third parties. Depending on the particular formula for a product, the Company adds flavoring and/or sugar, reduces the product's proof and then filters and bottles the finished product. PREMIUM BRANDED SPIRITS. In 1996, the Company began to develop, import and market premium branded spirits nationally. Since 1996, the Company has established and strengthened relationships with wholesalers, expanded its distribution network, developed new products, obtained new agency agreements and acquired additional management and marketing expertise. In 1996 and 1997, sales of premium branded spirits were combined with sales of value-priced spirits due to their relatively small amount. The Company's premium branded spirits include Cruzan Estate Rums, Cruzan Flavored Rums, Cruzan Rums, Porfidio Tequila and Plymouth Gin. Management's strategy has been to focus on marketing and building premium brands with an initial emphasis on the rum and tequila categories. CONTRACT BOTTLING. The Company bottles coolers, prepared cocktails and other beverage alcohol on a contract basis. The Company also bottles other beverages on a contract basis including fruit juices, carbonated and non-carbonated fruit flavored beverages, flavored sparkling water and ready-to-drink brewed iced teas. VINEGAR AND COOKING WINE. To complement its distilling, winery and bottling operations, the Company produces vinegar and cooking wine for sale to condiment manufacturers, food service distributors and major retailers. The Company's sales to retailers are sold under its own proprietary labels and under the private labels of major retailers in the Southeast. The Company's net sales and gross margins (gross profit as a percentage of net sales) vary depending on the mix of business among the Company's products. Historically, gross margins have been highest in bulk alcohol products and premium branded spirits and lower in value-priced spirits, contract bottling, vinegar and cooking wine operations. Within its contract bottling operations, sales and gross margins have varied substantially based upon the mix of business from the Company's "Type A" and "Type B" bottling customers. Type A bottling customers pay the Company to purchase their raw materials and these costs are passed through to the customer. Type B bottling customers supply their own raw materials and are only charged for bottling charges. Although gross profit per case for the Company's Type A and Type B bottling customers is approximately equal, given the same case volume, net sales and cost of goods sold with respect to products bottled for Type A bottling customers are higher, and gross margins are lower, than for Type B bottling customers. As a result, significant fluctuations in volume of Type A bottling customers can distort the Company's gross margin. 10 The Company has a limited number of customers, and these customers often purchase bulk alcohol products in significant quantities or place significant orders for contract bottling services, distilled spirits, vinegar and cooking wine. Accordingly, the size and timing of purchase orders and product shipments can cause operating results to fluctuate significantly from quarter to quarter. Additionally, some Company products generate higher profit margins than others, and changes in the Company's product mix will cause gross margins to fluctuate. Certain aspects of the Company's business are also seasonal, with increased demand for the Company's contract bottling services from April to October and increased production of the Company's bulk alcohol products during the months from November to June, corresponding to the Florida citrus-harvest. As a result of these factors, the Company's operating results vary significantly from quarter to quarter. Net sales represent the Company's gross sales less excise taxes. Excise taxes are generally payable on products bottled by the Company. In addition, excise taxes are payable on sales of industrial alcohol to certain customers. Accordingly, excise taxes vary from period to period depending upon the Company's product and customer mix. RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 in 1998. This statement requires the presentation of basic and diluted net income per share. Basic net income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options. The Company has restated all prior period per share data presented as required by SFAS No. 128. In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which changes the way public companies report information about operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenue. Management has not yet evaluated the effects of these changes on its reporting of segment information. The Company will adopt SFAS No. 131 in its fiscal year 1999. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management has not yet evaluated the effects of this change on its financial position. The Company will adopt SFAS No. 133 as required during its fiscal year 1999. YEAR 2000 COMPLIANCE The Company has initiated a program to prepare the Company's information systems for the year 2000, and to upgrade its information systems generally. The Company has assessed the impact of the year 2000 issue on its operations, including the cost of new software and hardware required addressing this issue. The Company has recently completed its software selection process and is currently implementing new software and hardware to address the year 2000 issue. Based on the Company's current implementation timetable it is expected that the Company will be year 2000 compliant by June 1, 1999. The Company estimates its costs to upgrade its information systems, including addressing the year 2000 issue, will not exceed $385,000. The Company is in the process of assessing the year 2000 compliance of its vendors, customers and other third parties with which it does business and expects to complete this process by June 1, 1999. FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis of Financial Condition and Results of Operations may contain, among other things, information regarding revenue growth, expenditure levels and plans for development. These statements could be considered forward-looking statements that involve a number of risks and uncertainties. The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements: business conditions and growth in certain market segments and industries and the general economy; competitive factors including increased competition and price pressures; availability of third party component products at reasonable prices; excise taxes; foreign currency exposure; changes in product mix; lower than 11 expected customer orders and quarterly seasonal fluctuation of those orders; and product shipment interruptions. See "Risk Factors" in previous filings with the Securities and Exchange Commission. Amounts presented in this Item 7 have generally been rounded to the nearest thousand and hundred thousand, as applicable, but the percentages calculated are based on actual amounts without rounding. FISCAL 1998 COMPARED TO FISCAL 1997 NET SALES. Net sales were $75.1 million in 1998, a decrease of 3.6% from net sales of $77.9 million in 1997. Net sales of bulk alcohol products were $28.7 million in 1998, a decrease of 3.4% from net sales of $29.7 million in 1997. Unit sales of citrus brandy decreased 18.1% in 1998, primarily due to increased competition. Unit sales of citrus brandy have also declined as a result of a decline in demand for brandy products which management believes is due to changing demographics. Management expects this trend to continue in the future. Unit sales of citrus spirits decreased 4.7% in 1998. Unit sales of rum increased 0.7% in 1998. Unit sales of cane spirits increased 13.7% in 1998. Unit sales of grain alcohol decreased 12.5% in 1998, primarily due to a slowdown in sales in Eastern Europe and Russia. Unit sales of fortified citrus wine increased 6.3% in 1998. Other than the Company's sales of citrus brandy and grain alcohol, the increases and decreases in sales of bulk alcohol products are attributable to the timing of customer orders. Net sales of premium branded spirits were $10.4 million in 1998, an increase of 23.1% from net sales of $8.4 million in 1997. Sales increases reflect the expansion by the Company of its distribution network into new markets and the introduction of new brands. Net sales of value-priced spirits were $11.2 million in 1998, a decrease of 2.7% from net sales of $11.5 million in 1997. Value-priced spirits volume decreased 6.5% due to increased competition from other low cost bottlers. Net sales of contract bottling services were $9.3 million in 1998, a decrease of 28.8% from net sales of $13.1 million in 1997. The Company's contract bottling volume decreased 15.6% in 1998. The decrease in volume is primarily attributable to a decrease in business with the Company's largest Type A bottling customer. The Company believes that the business with this Type A bottling customer will not return to historical levels. The decrease in contract bottling volume with this customer was partially offset by increased volume with other new and existing customers. Net sales of vinegar and cooking wine were $10.5 million in 1998, an increase of 12.1% from net sales of $9.4 million in 1997. The increase in net sales of vinegar and cooking wine was due to increased manufacturing capacity, which allowed the Company to increase sales to existing and new customers, and an improved product mix. The Company's two vinegar plants are now operating at maximum capacity. The Company intends to expand its vinegar production capacity. GROSS PROFIT. Gross profit was $22.1 million in 1998, an increase of 3.0% from gross profit of $21.4 million in 1997. Gross margin increased to 29.4% in 1998 from 27.5% in 1997. The improvement in gross margin is primarily attributable to reduced raw material costs in the Company's domestic distilling operations, a decrease in contract bottling volume with a large Type A bottling customer and a favorable change in product mix. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $13.9 million in 1998, an increase of 6.2% from $13.1 million in 1997. Selling, general and administrative expenses were 18.6% of net sales in 1998 and 16.8% in 1997. The increase in selling, general and administrative expenses in 1998, is primarily attributable to (1) increased marketing and new employees related to the Company's efforts in increasing its distribution network for its premium branded spirits, and (2) legal fees relating to the Company's efforts to prosecute and settle various lawsuits. The increase was partially offset by a reduction in administrative overhead. INTEREST INCOME. The Company earns interest income on its cash investments and notes receivable. The decrease in interest income in 1998 is due to decreased cash investments and amounts of notes receivable. 12 INTEREST EXPENSE. Interest expense was $3.9 million in 1998 and $4.1 million in 1997. The decrease in interest expense was due to lower levels of debt outstanding and lower interest rates during 1998 as compared to 1997. OTHER, NET. Included in other income is rental income from the Bahamian subsidiary and non-recurrring gains of $.4 million in 1998 and $.3 million in 1997 relating to insured hurricane damage. In 1998, the Company recorded a loss of approximately $.4 million from an unconsolidated equity investee which began operations in August 1997. See Note 15 to the Company's consolidated financial statements for additional information about this unconsolidated subsidiary. INCOME TAX EXPENSE. The Company's effective income tax rate was 14.6% in 1998 and 21.2% in 1997. The low tax rate is attributable to the Virgin Islands subsidiary which has a 90% exemption from U.S. federal income taxes. Also, the Company recently amended its 1993, 1994 and 1995 federal income tax returns which has resulted in loss carryforwards available in the current year and a request for refund of income tax previously paid. FISCAL 1997 COMPARED TO FISCAL 1996 NET SALES. Net sales were $77.9 million in 1997, a decrease of .3% from net sales of $78.2 million in 1996. Net sales of bulk alcohol products were $29.7 million in 1997, an increase of 1.1% from net sales of $29.4 million in 1996. Unit sales of citrus brandy decreased 6.1% in 1997. Unit sales of citrus brandy have declined as a result of a decline in demand for brandy products which management believes is due to changing demographics. Management expects this trend to continue in the future. Unit sales of citrus spirits increased 21.8% in 1997. The increase in sales of citrus spirits was primarily due to increases in sales to other manufacturers of fortified citrus wine. Unit sales of cane spirits increased 6.6% in 1997. Unit sales of rum decreased 4.0% in 1997. The fluctuations in rum shipments are attributable to the timing of customer orders. Unit sales of grain alcohol increased 73.3% in 1997. Grain alcohol is purchased from several suppliers located in the Midwest and resold primarily to export customers, the largest of which are in Eastern Europe and Russia. Unit sales of fortified citrus wine decreased 9.7% in 1997. Shipments of fortified citrus wine decreased due to weak demand for certain products of one of the Company's largest wine customers as well as increased competition from other wine manufacturers. Net sales of premium branded spirits were $8.4 million in 1997, an increase of 51.5% from net sales of $5.6 million in 1996. Beginning in 1996, management's strategy has been to focus on marketing and building premium brands with an initial emphasis on the rum and tequila categories. Net sales of value-priced spirits were $11.5 million in 1997, an increase of 6.6% from net sales of $10.8 million in 1996. However, the Company experienced a volume decrease in unit sales of value-priced spirits of 7.9% in 1997. The volume decrease in value-priced spirits is attributable to the private label component of this category which has a lower gross margin. The change in product mix in this category resulted in an increase in the average price per case of 15.7% in 1997. Net sales of contract bottling services were $13.1 million in 1997, a decrease of 32.1% from net sales of $19.3 million in 1996. The Company's contract bottling volume decreased 10.8% in 1997. The decrease in volume is primarily attributable to a decrease in business with one of the Company's largest bottling customers. The Company continues to provide a significant amount of contract bottling services to this customer even as this customer continues with its plan to transfer production to its own facility. The Company also experienced a decrease in contract bottling services to export customers, primarily in Eastern Europe and Russia, as these customers increased their purchases of bulk grain alcohol. The decreases in contract bottling volume discussed above were partially offset by increased volume with existing and new customers. Net sales of vinegar and cooking wine were $9.4 million in 1997, an increase of 23.3% from net sales of $7.6 million in 1996. The increase in net sales of vinegar and cooking wine was due to increased manufacturing capacity, new customers and an improved product mix. GROSS PROFIT. Gross profit was $21.4 million in 1997, an increase of 8.5 % from gross profit of $19.8 million in 1996. Gross margin increased to 27.5% in 1997 from 25.3% in 1996. The improvement in gross margin is primarily attributable to increased gross margins of the Company's bulk rum products in the Virgin Islands, 13 reduced raw material costs in the Company's domestic distilling operations and a decrease in contract bottling volume with a large Type A bottling customer. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $13.1 million in 1997, an increase of 14.3% from $11.5 million in 1996. Selling, general and administrative expenses were 16.8% of net sales in 1997 and 14.7% in 1996. The increase in selling, general and administrative expenses in 1997 is primarily attributable to the Company's increased emphasis on marketing its premium brands and imported products and legal fees. INTEREST EXPENSE. Interest expense was $4.1 million in 1997 and $4.4 million in 1996. The decrease in interest expense was due to lower levels of debt outstanding during 1997. INTEREST AND OTHER INCOME. Interest income decreased to $.8 million in 1997 from $1.0 million in 1996 due to lower levels of cash, cash equivalents and notes receivable. Also included in other income is rental income from the Bahamian subsidiary and a gain of $.3 million in 1997 and $.2 million in 1996 relating to insured hurricane damage. INCOME TAX EXPENSE. The Company's effective income tax rate was 21% in 1997 and 1996. The low tax rate is attributable to the Virgin Islands operations which has a 90% exemption from income taxes. LIQUIDITY AND CAPITAL RESOURCES GENERAL The Company's principal use of cash in its operating activities is for purchasing raw materials to be used in its manufacturing operations, purchasing imported products for its premium branded spirits business and carrying inventories and the subsequent receivables. The Company's source of liquidity has historically been cash flow from operations and its line of credit. Some of the Company's manufacturing operations are seasonal and the Company's balance on its line of credit varies during the year. For example, the Company uses citrus molasses as its primary raw material in the production of citrus brandy and spirits at its two Florida distilleries. The Company buys citrus molasses, a by-product of citrus juice production, from local manufacturers of citrus juice and concentrate during the citrus harvest, which generally runs from November to June. The Company generally begins purchasing citrus molasses in November and builds inventory of citrus brandy and spirits. The Company must manufacture and build inventory while raw materials are available due to the short life of the citrus molasses it purchases. Another seasonal business of the Company is its contract bottling operations. Demand for contract bottling services is highest during the months from April through October. Management believes that cash provided by operating activities and its financing activities will provide adequate resources to satisfy its working capital, liquidity and anticipated capital expenditure requirements for both its short-term and long-term capital needs. OPERATING ACTIVITIES Net cash provided by operating activities in 1998 was $4.7 million, which resulted from $9.3 million in net income adjusted for noncash items, less $4.6 million representing the net change in operating assets and liabilities. The net change in operating assets and liabilities resulted from an increase in the Company's inventory and receivables of $4.0 million related primarily to the expansion of its premium branded spirits business. INVESTING AND FINANCING ACTIVITIES Net cash used in investing activities in 1998 was $2.4 million, which resulted primarily from $2.7 million of capital expenditures. Payments received on notes receivable of $1.5 million were offset by new notes issued of $.9 million and the purchase of a minority interest in the Company's Bahamian subsidiary of $.4 million. Net cash used in financing activities in 1998 was $1.6 million, which resulted from principal payments on long-term debt of $3.7 million, which was offset by a $2.1 million increase in the Company's line of credit. The principal payments on long-term debt of $3.7 million include $.75 million in excess of the required payments on the Company's term loan in the Virgin Islands. The Company intends to continue to prepay principal on this term loan. 14 At September 30, 1998, the Company had an unsecured bank line of credit of $15 million, which expires November 1, 2001. The first $4 million of borrowings bear interest at 1.5% above the one-month LIBOR rate, borrowings in excess of $4 million bear interest at the prime rate. The borrowings under this line were $6.3 million at September 30, 1998. Borrowings in excess of $10 million are subject to a borrowing base of inventories and receivables. The agreement requires the Company to maintain a tangible net worth, as defined, a maximum leverage ratio and minimum fixed charge, interest coverage and current ratios. In addition, the agreement prohibits the payment of cash dividends. The Company was in compliance with these covenants at September 30, 1998. The Company's total debt was $44.5 million as of September 30, 1998, and its ratio of debt to equity was 1.1 to 1. On September 22, 1998, the Company's board of directors authorized the repurchase of up to 100,000 shares of the Company's common stock, either in open market or private transactions. The Company expects to complete its repurchase plan during the Company's fiscal year ending September 30, 1999. As of December 11, 1998, the Company has repurchased 56,000 shares for $406,075, or at an average cost of $7.25 per share. With respect to the Bahamian and Virgin Islands subsidiaries, no provision has been made for taxes which would result from the remittance of such undistributed earnings as the Company intends to reinvest these earnings indefinitely. The Company's share of the undistributed earnings of the Bahamian and Virgin Islands subsidiaries was approximately $7.5 million and $12 million, respectively, as of September 30, 1998. See Note 9 to the Company's consolidated financial statements for additional information on income taxes related to these subsidiaries. Based on current plans and business conditions, management expects that its cash and cash equivalents, together with any amounts generated from operations and available borrowings, will be sufficient to meet the Company's cash requirements for at least the next 12 months. EFFECTS OF INFLATION AND CHANGING PRICES The Company's results of operations and financial condition have not been significantly affected by inflation and changing prices. The Company has been able, subject to normal competitive conditions, to pass along rising costs through increased selling prices. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following market risk analysis table reflects maturities of interest rate sensitive assets and liabilities over the next five years and thereafter. Market Risk Analysis September 30, 1998
Expected Maturity Date ------------------------------------------------------------------------------ 1999 2000 2001 2002 2003 -------------- ------------- ------------- -------------- -------------- Assets Notes receivable: Fixed rate $ 1,503,675 $ 4,051,620 $ 916,667 $ 0 $ 0 Average interest rate 6.44% 6.77% 6.00% 0.00% 0.00% Liabilities Long-term debt: Fixed rate $ 888,133 $ 6,800,000 $ 7,933,333 $ 7,933,333 $ 4,533,334 Average interest rate 7.50% 8.91% 8.91% 8.91% 8.91% Variable rate $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 6,580,944 $ 0 Average interest rate 6.76% 6.76% 6.76% 7.71% 0.00% Interest Rate Derivatives Interest rate swaps: Variable to fixed $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 250,000 $ 0 Interest rate paid 8.46% 8.46% 8.46% 8.46% 0.00% Interest rate received 7.88% 7.88% 7.88% 7.88% 0.00% Fixed to variable $ 0.00% $ 800,000 $ 933,333 $ 933,333 $ 533,334 Interest rate paid 0.00% 6.19% 6.19% 6.19% 6.19% Interest rate received 0.00% 8.91% 8.91% 8.91% 8.91%
Expected Maturity Date ------------------------------------------ Thereafter Total Fair Value -------------- ------------ ------------ Assets Notes receivable: Fixed rate $ 770,000 $ 7,241,962 $ 7,805,854 Average interest rate 8.50% 6.79% - Liabilities Long-term debt Fixed rate $ 6,800,000 $ 34,888,133 $ 36,798,021 Average interest rate 8.91% 8.87% - Variable rate $ 0 $ 9,580,944 $ 9,580,944 Average interest rate 0.00% 7.42% - Interest Rate Derivatives Interest rate swaps: Variable to fixed $ 0 $ 3,250,000 $ (23,902) Interest rate paid 0.00% 8.46% - Interest rate received 0.00% 7.88% - Fixed to variable $ 800,000 $ 4,000,000 $ 384,194 Interest rate paid 6.19% 6.19% - Interest rate received 8.91% 8.91% -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and financial statement schedule of the Company and its subsidiaries, and the report of independent auditors are listed at Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTS AND FINANCIAL DISCLOSURE None. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors and executive officers required by Item 10 is incorporated by reference from the Company's definitive proxy statement for its 1999 annual stockholders' meeting. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement for its 1999 annual stockholders' meeting. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BENEFICIAL OWNERSHIP The information required by Item 12 is incorporated by reference from the Company's definitive proxy statement for its 1999 annual stockholders' meeting. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement for its 1999 annual stockholders' meeting. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules See "Index to Financial Statements and Financial Statement Schedules". (b) Exhibits See "Index to Exhibits". (c) Reports on Form 8-K During the fourth quarter of 1998, the Company filed the following current reports on Form 8-K:
Date of Report Description - -------------- ----------- August 21, 1998 Settlement of litigation with the former shareholders of Blair Importers, Ltd. September 14, 1998 Offer to purchase 261,214 shares of the Company's common stock pursuant to the settlement agreement with the former shareholders of Blair Importers, Ltd. September 22, 1998 Board of Directors authorizes the Company to repurchase up to 100,000 shares of the Company's common stock.
16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of West Palm Beach, State of Florida, on the 17th day of December, 1998. TODHUNTER INTERNATIONAL, INC. By: /s/ A. Kenneth Pincourt, Jr. ------------------------------------- A. Kenneth Pincourt, Jr., Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ A. Kenneth Pincourt, Jr. Chairman of the Board -------------------------------- and Chief Executive Officer December 17, 1998 A. Kenneth Pincourt, Jr. (Principal Executive Officer) /s/ Troy Edwards Treasurer and Chief Financial Officer December 17, 1998 -------------------------------- (Principal Financial Troy Edwards and Accounting Officer) /s/ Thomas A. Valdes Director December 17, 1998 -------------------------------- Thomas A. Valdes /s/ Jay S. Maltby Director December 17, 1998 -------------------------------- Jay S. Maltby /s/ D. Chris Mitchell Director December 17, 1998 -------------------------------- D. Chris Mitchell /s/ Leonard G. Rogers Director December 17, 1998 -------------------------------- Leonard G. Rogers /s/ W. Gregory Robertson Director December 17, 1998 -------------------------------- W. Gregory Robertson /s/ Edward F. McDonnell Director December 17, 1998 -------------------------------- Edward F. McDonnell
17 TODHUNTER INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ---- a) Financial Statements Independent Auditor's Report 19 Consolidated balance sheets as of September 30, 1998 and 1997 20 Consolidated statements of income for the years ended September 30, 1998, 1997 and 1996 22 Consolidated statements of stockholders' equity for the years ended September 30, 1998, 1997 and 1996 23 Consolidated statements of cash flows for the years ended September 30, 1998, 1997 and 1996 24 Notes to consolidated financial statements 26 b) Financial Statement Schedules Independent Auditors Report on Financial Statement Schedule 41 Schedule II Valuation and Qualifying Accounts 42
All of the other schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the notes to the registrant's consolidated financial statements. 18 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders Todhunter International, Inc. and Subsidiaries West Palm Beach, Florida We have audited the accompanying consolidated balance sheets of Todhunter International, Inc. and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Todhunter International, Inc. and subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP West Palm Beach, Florida November 25, 1998 19 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997
ASSETS 1998 1997 - ------------------------------------------------------------------------------------------------ Current Assets Cash and cash equivalents $ 5,629,016 $ 4,904,804 Trade receivables 11,623,197 11,051,085 Other receivables 2,237,397 2,116,110 Inventories 23,423,573 20,086,901 Notes receivable, current maturities 1,503,675 1,435,868 Deferred income taxes 1,011,000 1,162,000 Other current assets 1,000,192 1,580,034 ------------------------------- TOTAL CURRENT ASSETS 46,428,050 42,336,802 Long-Term Notes Receivable, less current maturities 5,738,287 6,369,986 Property and Equipment, less accumulated depreciation 1998 $32,017,543; 1997 $28,236,376 41,527,402 42,943,754 Property Held for Lease, less accumulated depreciation 1998 $1,139,747; 1997 $998,882 1,387,707 1,429,177 Goodwill, less accumulated amortization 1998 $703,096; 1997 $670,351 389,423 422,168 Other Assets 1,526,161 2,116,568 ------------------------------- $96,997,030 $95,618,455 ------------------------------- -------------------------------
See Notes to Consolidated Financial Statements. 20
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 - ------------------------------------------------------------------------------------------------ Current Liabilities Current maturities of long-term debt $ 1,888,133 $ 2,937,744 Accounts payable 3,417,615 5,039,252 Accrued interest expense 1,261,542 1,404,444 Other accrued expenses 2,054,188 1,315,600 ----------------------------- TOTAL CURRENT LIABILITIES 8,621,478 10,697,040 Long-Term Debt, less current maturities 42,580,944 43,135,080 Deferred Income Taxes 4,685,000 4,852,000 Other Liabilities 105,539 225,713 ----------------------------- 55,992,961 58,909,833 ----------------------------- Minority Interest - 418,249 ----------------------------- Commitments and Contingencies Stockholders' Equity Preferred stock, par value $.01 per share; authorized 2,500,000 shares, no shares issued - - Common stock, par value $.01 per share; authorized 10,000,000 shares; issued and outstanding 4,949,714 49,497 49,497 Additional paid-in capital 11,945,777 11,945,777 Retained earnings 29,008,795 24,295,099 ----------------------------- 41,004,069 36,290,373 ----------------------------- $96,997,030 $95,618,455 ----------------------------- -----------------------------
21 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Sales $ 110,846,810 $ 116,605,935 $ 121,066,640 Less excise taxes 35,750,916 38,667,686 42,870,108 ------------------------------------------------------------- NET SALES 75,095,894 77,938,249 78,196,532 Cost of goods sold 53,005,786 56,493,174 58,427,344 ------------------------------------------------------------- GROSS PROFIT 22,090,108 21,445,075 19,769,188 Selling, general and administrative expenses 13,937,082 13,126,309 11,482,737 ------------------------------------------------------------- OPERATING INCOME 8,153,026 8,318,766 8,286,451 ------------------------------------------------------------- Other income (expense): Interest income 655,230 840,016 1,035,811 Interest expense (3,946,528) (4,146,322) (4,350,791) Equity in losses of equity investee (364,740) - - Other, net 1,025,020 931,394 765,592 ------------------------------------------------------------- (2,631,018) (2,374,912) (2,549,388) ------------------------------------------------------------- INCOME BEFORE INCOME TAXES 5,522,008 5,943,854 5,737,063 ------------------------------------------------------------- Income tax expense (benefit): Current 824,312 197,292 136,265 Deferred (16,000) 1,062,000 1,056,000 ------------------------------------------------------------- 808,312 1,259,292 1,192,265 ------------------------------------------------------------- NET INCOME $ 4,713,696 $ 4,684,562 $ 4,544,798 ------------------------------------------------------------- ------------------------------------------------------------- Net income per common share: Basic $ 0.95 $ 0.95 $ 0.92 ------------------------------------------------------------- ------------------------------------------------------------- Diluted $ 0.95 $ 0.94 $ 0.92 ------------------------------------------------------------- ------------------------------------------------------------- Common shares and equivalents outstanding: Basic 4,949,714 4,943,169 4,919,060 ------------------------------------------------------------- ------------------------------------------------------------- Diluted 4,984,868 4,966,165 4,955,088 ------------------------------------------------------------- -------------------------------------------------------------
See Notes to Consolidated Financial Statements. 22 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Common Stock -------------------------- Additional Total Shares Paid-in Retained Stockholders' Issued Amount Capital Earnings Equity - ----------------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1995 4,916,964 $ 49,170 $11,749,604 $15,065,739 $26,864,513 Issuance of common stock in connection with employee stock options 6,500 65 38,935 - 39,000 Net income - - - 4,544,798 4,544,798 ----------------------------------------------------------------------------- Balance, September 30, 1996 4,923,464 49,235 11,788,53 19,610,537 31,448,311 Issuance of common stock in connection with employee stock options 26,250 262 157,238 - 157,500 Net income - - - 4,684,562 4,684,562 ----------------------------------------------------------------------------- Balance, September 30, 1997 4,949,714 49,497 11,945,777 24,295,099 36,290,373 Net income - - - 4,713,696 4,713,696 ----------------------------------------------------------------------------- Balance, September 30, 1998 4,949,714 $ 49,497 $11,945,777 $29,008,795 $41,004,069 ----------------------------------------------------------------------------- -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 23 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities Net income $ 4,713,696 $ 4,684,562 $ 4,544,798 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,151,350 3,930,933 3,837,646 Amortization 94,108 229,190 210,479 Equity in losses of equity investees 364,740 - - Deferred income taxes (16,000) 1,062,000 1,056,000 Other (10,225) (4,249) (31,465) Changes in assets and liabilities: (Increase) decrease in: Receivables (693,399) (360,722) (1,143,144) Inventories (3,336,672) (1,472,597) (1,249,730) Other assets 579,842 (221,600) 961,556 Increase (decrease) in: Accounts payable (1,621,637) (14,409) 398,848 Accrued interest expense (142,902) 142,902 (20,194) Other accrued expenses 738,588 (358,939) (526,050) Other liabilities (120,174) (128,617) (134,493) Discontinued operations - 124,786 2,728,277 --------------------------------------------------------- Net cash provided by operating activities $ 4,701,315 $ 7,613,240 $ 10,632,528 ---------------------------------------------------------
(Continued) 24 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities Proceeds from sale of property and equipment $ 38,692 $ 63,565 $ 76,762 Principal payments received on notes receivable 1,477,775 1,525,539 1,576,164 Purchase of property and equipment (2,721,995) (3,775,112) (4,901,705) Disbursements for notes receivable (913,883) (52,500) (62,070) Purchase of certificates of deposit - - (4,565,381) Redemption of certificates of deposit - 4,494,375 4,655,440 Purchase of minority interest in subsidiary (418,249) - - (Increase) decrease in other assets 164,304 (344,177) (279,190) ------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,373,356) 1,911,690 (3,499,980) ------------------------------------------------------- Cash Flows From Financing Activities Net borrowings (payments) under line of credit arrangements 2,083,997 (5,438,538) (4,064,324) Proceeds from issuance of common stock - 157,500 39,000 Principal payments on long-term borrowings (3,687,744) (1,933,334) (2,513,559) ------------------------------------------------------- NET CASH (USED IN) FINANCING ACTIVITIES (1,603,747) (7,214,372) (6,538,883) ------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 724,212 2,310,558 593,665 Cash and cash equivalents: Beginning 4,904,804 2,594,246 2,000,581 ------------------------------------------------------- Ending $ 5,629,016 $ 4,904,804 $ 2,594,246 ------------------------------------------------------- ------------------------------------------------------- Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 4,089,430 $ 4,003,420 $ 4,370,985 ------------------------------------------------------- ------------------------------------------------------- Income taxes $ 406,937 $ 344,347 $ 140,181 ------------------------------------------------------- -------------------------------------------------------
See Notes to Consolidated Financial Statements. 25 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: Todhunter International, Inc. and subsidiaries (the "Company") produces and supplies brandy, rum, wine and spirits to beverage alcohol manufacturers; bottles beverage alcohol and other beverages on a contract basis; produces a line of value-priced spirits; produces, imports and markets premium branded spirits and produces vinegar, cooking wine and other alcohol-related products. A summary of the Company's significant accounting policies follows: PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Todhunter International, Inc. and all of its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies (generally 20-50% ownership), are accounted for by the equity method. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: The Company recognizes revenue when its product is shipped, at which time title passes to the customer. Revenues from contract bottling services are recognized at the time the bottling process is completed. Excise taxes on products sold are billed directly to customers and are included in sales at the same time the product sold is recognized as revenue. CASH EQUIVALENTS: The Company considers certificates of deposit with an original maturity of three months or less to be cash equivalents. The Company maintains depository accounts in excess of FDIC insured limits. The Company has not experienced any credit losses in such accounts and does not anticipate any losses. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT AND PROPERTY HELD FOR LEASE: Property and equipment and property held for lease are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the various classes of depreciable assets. Estimated lives are as follows:
Years ------- Land improvements 3 to 20 Buildings and improvements 3 to 40 Machinery and equipment 3 to 33
26 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS: The Company utilizes derivative financial instruments to change the fixed/variable interest rate mix of the debt portfolio to reduce the Company's aggregate risk to movements in interest rates. The derivative instruments consist of interest rate swap agreements with banks. Gains and losses relating to qualified hedges are deferred and included in the measurement of the related transaction, when the hedged transaction occurs. Realized and unrealized changes in the fair value of the remaining derivative financial instruments are recognized in income in the period in which the change occurs. The Company's policy is not to hold or issue derivative financial instruments for trading purposes. AMORTIZATION: Amortization is computed on the straight-line basis over the estimated lives of the capitalized assets. Estimated lives are as follows:
Years ------- Goodwill 20 - 40 Trademarks 20 - 40 Other 3 - 12
IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. INCOME TAXES: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. COMPUTATION OF NET INCOME PER COMMON SHARE: The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 in 1998. This statement requires the presentation of basic and diluted net income per share. Basic net income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options. The Company has restated all prior period per share data presented as required by SFAS No. 128. PREFERRED STOCK: The Company has authorized 2,500,000 shares of $.01 par value preferred stock. No terms are stated as to dividend, liquidation or other rights applicable to these shares. 27 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 2. INVENTORIES The major components of inventories as of September 30, 1998 and 1997 are:
1998 1997 ------------------------------- Finished goods $15,794,672 $12,318,664 Work in process 355,659 1,639,970 Raw materials and supplies 7,273,242 6,128,267 ------------------------------- $23,423,573 $20,086,901 ------------------------------- -------------------------------
NOTE 3. NOTES RECEIVABLE Notes receivable consist of the following as of September 30, 1998 and 1997:
1998 1997 ------------------------------ 6% note, collateralized by general intangibles, mortgage and security agreement, monthly payments of $83,333 plus interest through September 2001 $2,916,667 $3,916,667 7% note, collateralized by property and equipment, monthly principal and interest payments of $47,202 through September 1999, unpaid principal balance of $3,000,000 due in October 1999 3,343,267 3,663,393 8.5% unsecured notes, principal payable on demand. Interest payments are due monthly or on demand in accordance with the terms of the agreement. (See Note 15) 770,000 - Other 212,028 225,794 ------------------------------ 7,241,962 7,805,854 Less current maturities 1,503,675 1,435,868 ------------------------------ $5,738,287 $6,369,986 ------------------------------ ------------------------------
NOTE 4. PROPERTY AND EQUIPMENT The major classifications of property and equipment as of September 30, 1998 and 1997 are:
1998 1997 ------------------------------- Land $ 4,757,587 $ 4,757,587 Land improvements 1,156,115 1,058,051 Buildings and improvements 15,804,392 15,287,175 Machinery and equipment 51,826,851 50,077,317 ------------------------------- 73,544,945 71,180,130 Less accumulated depreciation 32,017,543 28,236,376 ------------------------------- $41,527,402 $42,943,754 ------------------------------- -------------------------------
28 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 5. PROPERTY HELD FOR LEASE The major classifications of property held for lease as of September 30, 1998 and 1997 are:
1998 1997 ------------------------------- Land $ 191,318 $ 191,318 Buildings 2,243,000 2,143,605 Furniture and equipment 93,136 93,136 ------------------------------- 2,527,454 2,428,059 Less accumulated depreciation 1,139,747 998,882 ------------------------------- $1,387,707 $1,429,177 ------------------------------- -------------------------------
Property held for lease consists of two commercial shopping centers and five residential townhomes in the Bahamas. The properties are leased on a month-to-month basis. Total rental income was $237,510, $236,193, and $234,882 for the years ended September 30, 1998, 1997 and 1996, respectively. NOTE 6. OTHER ASSETS Other assets, net of accumulated amortization, consist of the following as of September 30, 1998 and 1997:
1998 1997 ------------------------------ Trademarks $1,035,848 $1,076,048 Other 490,313 1,040,520 ------------------------------ $1,526,161 $2,116,568 ------------------------------ ------------------------------
NOTE 7. OTHER ACCRUED EXPENSES Other accrued expenses consist of the following as of September 30, 1998 and 1997:
1998 1997 ------------------------------- Accrued property taxes $ 456,833 $ 505,284 Other 1,597,355 810,316 ------------------------------- $2,054,188 $1,315,600 ------------------------------- -------------------------------
29 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8. FINANCING ARRANGEMENTS Long-term debt consists of the following as of September 30, 1998 and 1997:
1998 1997 -------------------------------- Senior notes, interest payable semiannually at 8.905%, principal payments of $6,800,000 on October 30, 1999, $7,933,333 on October 30, 2000 and 2001, $4,533,334 on October 30, 2002 and $3,400,000 on October 30, 2003 and 2004, unsecured (1) $34,000,000 $34,000,000 Revolving credit note of $15,000,000, interest payable monthly at the prime rate for domestic loans and at 1.50% above the one month London Interbank Offered Rate ("LIBOR") for Eurodollar loans, principal is due in full November 1, 2001. The maximum amount which can be drawn on the revolving note is based on the borrowing base as specified in the agreement, unsecured 6,330,944 4,246,947 Bank note payable, interest is calculated based upon a floating rate of 2.50% above the one month LIBOR rate, quarterly principal payments of $250,000 collateralized by real property, equipment, machinery and trade receivables in the Virgin Islands (2) 3,250,000 5,000,000 Note payable, interest at 7.5%, principal and interest payments required through 1999 888,133 2,825,877 -------------------------------- 44,469,077 46,072,824 Less current maturities 1,888,133 2,937,744 -------------------------------- $42,580,944 $43,135,080 -------------------------------- --------------------------------
30 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8. FINANCING ARRANGEMENTS (CONTINUED) Maturities of long-term debt as of September 30, 1998 are as follows:
Year Ending September 30, Amount - -------------------------------------------------------------------------- 1999 $ 1,888,133 2000 7,800,000 2001 8,933,333 2002 14,514,278 2003 4,533,333 Thereafter 6,800,000 ----------- $44,469,077 ----------- -----------
The Company uses interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio to reduce the Company's aggregate risk to movements in interest rates. Amounts paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts payable to, or receivable from, the counterparties are included in accrued interest expense. The fair value of the swap agreement noted in (2) below was not recognized in the consolidated financial statements since it is accounted for as a hedge. The criteria required to be met for hedge accounting is that a) the item to be hedged exposes the Company to interest rate risk and b) the interest rate swap reduces that exposure and is designated a hedge. The fair value and the related change in fair value of the agreement noted in (1) below is not significant to the financial statements. A summary of the interest rate swaps is as follows: (1) The Company has entered into an interest rate swap agreement with a bank calling for the Company to exchange, as of May 1 and November 1 through 2004, interest payment streams calculated on a principal balance starting at $4,000,000 and reducing starting in November 1999. The Company's interest is calculated based upon a floating rate of 1.06% above the six-month LIBOR rate. The bank's rate is 8.905%. During 1998, 1997 and 1996, the Company received payments of $87,054, $88,898 and $100,444 respectively, related to this agreement, and reduced interest expense accordingly. (2) The Company has entered into an interest rate swap agreement accounted for as a hedge with a bank. The agreement calls for the Company to exchange, as of January 1, April 1, July 1, and October 1, through 2002, interest payment streams calculated on a notional balance equal to the principal balance of the bank note payable. The Company's rate is fixed at 8.46%. During 1998, 1997 and 1996, the Company made payments of $29,208, $27,327 and $27,332, respectively, related to this agreement, and increased interest expense accordingly. The long-term debt contains various restrictive covenants related to fixed-charge coverage, interest expense coverage, net worth and debt limitation. All covenants have been met as of and for the year ended September 30, 1998. 31 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 9. INCOME TAXES Income tax expense consists of the following for the years ended September 30, 1998, 1997 and 1996:
1998 1997 1996 ------------------------------------------------------- Current income tax expense (benefit): Federal $ 860,191 $ 224,764 $ 116,265 State (35,879) (27,472) 20,000 ------------------------------------------------------- 824,312 197,292 136,265 ------------------------------------------------------- Deferred income tax expense (benefit): Federal 13,000 926,000 978,000 State (29,000) 136,000 78,000 ------------------------------------------------------- (16,000) 1,062,000 1,056,000 ------------------------------------------------------- Total income tax expense $ 808,312 $ 1,259,292 $ 1,192,265 ------------------------------------------------------- -------------------------------------------------------
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the deferred tax assets and liabilities relate to the following as of September 30, 1998 and 1997:
1998 1997 ------------------------------ Deferred tax liabilities: Property and equipment, principally due to differences in depreciation $3,704,000 $3,627,000 Installment sale 862,000 1,190,000 Other 119,000 35,000 ------------------------------ 4,685,000 4,852,000 ------------------------------ Deferred tax assets: Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 771,000 620,000 Difference related to anticipated future expenses and allowances 227,000 231,000 Net operating loss carryforwards - 157,000 Other 13,000 154,000 ------------------------------ 1,011,000 1,162,000 ------------------------------ Net deferred income tax liability $3,674,000 $3,690,000 ------------------------------ ------------------------------
No valuation allowance has been recorded as of September 30, 1998 or 1997. 32 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 9. INCOME TAXES (CONTINUED) Income tax expense differed from the amounts computed by applying the statutory United States federal income tax rate to income from continuing operations before income taxes as a result of the following for the years ended September 30, 1998, 1997 and 1996:
1998 1997 1996 ------------------------------------------------------- Computed "expected" tax expense $ 1,877,483 $ 2,020,910 $ 1,950,602 (Nontaxable) taxable income and dividends from Bahamian subsidiary 97,950 80,881 (5,918) Effect of income tax subsidy on earnings of Virgin Islands subsidiary (1,169,187) (1,025,698) (767,571) Effect of state taxes 12,199 9,340 (6,800) Other (10,133) 173,859 21,952 ------------------------------------------------------- Total income tax expense on income from continuing operations $ 808,312 $ 1,259,292 $ 1,192,265 ------------------------------------------------------- -------------------------------------------------------
Generally, the Bahamian subsidiary is not subject to United States income taxes and there are no income taxes in the Commonwealth of the Bahamas. Certain passive income of the Bahamian subsidiary is subject to United States income taxes. The tax effect of income from the Bahamian subsidiary reflected above and the undistributed earnings of the Bahamian subsidiary have been reduced by the taxable amount. The Virgin Islands subsidiary, through the Industrial Development Commission of the Government of the Virgin Islands of the United States, has received a 90% exemption from income taxes. This exemption is effective through January 31, 2002. The per share effect of this exemption on earnings on a basic and diluted basis for the years ended September 30, 1998, 1997 and 1996, respectively, is as follows:
1998 1997 1996 ------------------------------------------------------- Basic $ 0.24 $ 0.21 $ 0.15 Diluted 0.23 0.21 0.15
With respect to the Bahamian and Virgin Islands subsidiaries, no provision has been made for taxes which would result from the remittance of such undistributed earnings as the Company intends to reinvest these earnings indefinitely. The Company's share of the undistributed earnings of the Bahamian and Virgin Islands subsidiaries was approximately $7,500,000 and $12,000,000, respectively, as of September 30, 1998. 33 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10. LEASES The Company occupies office space under noncancelable operating leases which expire in 2006. Initial base rent is $31,069 through 2000 and increases to $31,956, thereafter, payable monthly. The leases contain two renewal options of five years each. Future minimum lease payments under noncancelable operating leases as of September 30, 1998 are as follows:
Year Ending September 30, Amount - ------------------------------------------------------------------ 1999 $ 449,363 2000 379,002 2001 386,989 2002 389,651 2003 389,651 Thereafter 1,266,367 ---------- $3,261,023 ---------- ----------
Rent expense for office space (including the Company's share of common area expenses, real estate and sales taxes) amounted to $359,484, $324,005, and $470,080, for the years ended September 30, 1998, 1997 and 1996, respectively. NOTE 11. LEGAL PROCEEDINGS The Company and its subsidiaries are subject to litigation from time to time in the ordinary course of business. There have been no material developments in the Company's legal proceedings, except as set forth below: LOEWENWARTER LITIGATION: On November 17, 1998, the Company settled its claims against Ernest D. Loewenwarter & Co. Pursuant to the terms of the settlement agreement, all claims by the Company against Loewenwarter were discontinued in return for a settlement payment. UNITED STATES TAX COURT: On November 10, 1998, the United States Tax Court approved a settlement between the Company and the Internal Revenue Service for the Company's years ended September 30, 1993 and 1994. The Company paid a deficiency, net of refunds, of approximately $200,000. The settlement also provided the Company with deductions which were used to reduce taxes in its year ended September 30, 1998. The settlement did not have a material adverse effect on the Company's financial condition or results of operations. There are no other legal proceedings pending as of September 30, 1998 which the Company believes to be material. Legal proceedings which are pending consist only of matters in the ordinary course of business and taken together are not material. 34 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. STOCK OPTIONS On August 11, 1992, the Company adopted a stock option plan for the grant of options to key employees. Option prices may not be less than 85% for the nonqualified options or 100% for the qualified stock options of the fair market value at the date of the grant. As of September 30, 1998, 1,400,000 shares are authorized for issuance under the option plan. Options granted have vesting periods ranging from 3 to 5 years. During the years ended September 30, 1997 and 1996, the Company received a total of $157,500 and $39,000 upon the exercise of stock options for 26,250 and 6,500 shares, respectively. There were no stock options exercised during the year ended September 30, 1998. The Company applies Accounting Principles Board Opinion Number 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations in accounting for options granted which requires compensation expense for the Company's options to be recognized only if the market price of the underlying stock exceeds the exercise price on the date of grant. Accordingly, the Company has not recognized compensation expense for its options granted in 1996, 1997, and 1998. SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, issued in October 1995, requires pro forma disclosures for option grants made after December 31, 1994, when accounting for stock-based compensation plans in accordance with APB 25. If the Company had elected, beginning in fiscal 1996, to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and earnings per common share would have been reduced to the pro forma amounts shown below:
1998 1997 1996 ----------------------------------------------------------- Net income - as reported $ 4,713,696 $ 4,684,562 $ 4,544,798 Net income - pro forma 4,538,467 4,602,805 4,463,041 Earnings per common share - as reported (Basic) 0.95 0.95 0.92 Earnings per common share - as reported (Diluted) 0.95 0.94 0.92 Earnings per common share - pro forma (Basic) 0.91 0.93 0.90 Earnings per common share - pro forma (Diluted) 0.91 0.92 0.90
The pro forma effects are determined as if compensation costs were recognized using the fair value based accounting method. The fair values of options granted during 1998 and 1996 were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 4.75% and 6.3% respectively; expected lives of 10 years; expected volatility of 30% and 31%, respectively; and a zero percent dividend yield. 35 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. STOCK OPTIONS (CONTINUED) A reconciliation of the Company's stock option activity, and related information, for the years ended September 30 follows:
-------------------------------------------------------------------------------------- WEIGHTED Weighted Weighted NUMBER AVERAGE Number Average Number Average OF EXERCISE of Exercise of Exercise OPTIONS PRICE Options Price Options Price -------------------------------------------------------------------------------------- Outstanding, beginning 292,000 9.53 402,750 9.57 321,750 9.89 of year Granted 60,000 9.06 - - 87,500 8.13 Exercised - - (26,250) 6.00 (6,500) 6.00 Forfeited - - (84,500) 10.81 - - -------------------------------------------------------------------------------------- Outstanding, end of year 352,000 9.45 292,000 9.53 402,750 9.57 -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- Exercisable at end of year 257,000 9.72 239,500 9.83 216,084 10.03 -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
The following table summarizes information about the stock options at September 30, 1998:
NUMBER NUMBER OUTSTANDING AT EXERCISABLE AT SEPTEMBER 30, SEPTEMBER 30, EXPIRATION EXERCISE PRICE 1998 1998 DATE - --------------------------------------------------------------------------------------------- $ 6.0000 69,500 69,500 November 2002 12.2500 135,000 135,000 April 2004 8.1250 87,500 52,500 February 2006 9.0625 60,000 - May 2008 ------------------------------------- 352,000 257,000 ------------------------------------- -------------------------------------
The exercise price of options granted has been equal to their grant date fair value. NOTE 13. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION The Company has made net sales of approximately $3,170,622, $6,950,000 and $11,060,000 to a certain customer for the years ended September 30, 1998, 1997 and 1996, respectively. 36 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 13. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONTINUED) Sales and operating income from continuing operations for the years ended September 30, 1998, 1997, and 1996 and identifiable assets from continuing operations as of the end of each period classified by geographic area, were as follows:
U. S. VIRGIN ISLANDS AND UNITED STATES THE BAHAMAS CONSOLIDATED ----------------------------------------------------- September 30, 1998: Net sales $62,144,796 $12,951,098 $75,095,894 Operating income 5,160,075 2,992,950 8,153,025 Identifiable assets 64,659,348 32,337,682 96,997,030 September 30, 1997: Net sales 64,865,688 13,072,561 77,938,249 Operating income 5,350,994 2,967,772 8,318,766 Identifiable assets 63,300,335 32,318,120 95,618,455 September 30, 1996: Net sales 66,052,948 12,143,584 78,196,532 Operating income 5,673,351 2,613,100 8,286,451 Identifiable assets 64,030,346 34,283,731 98,314,077
Included in net sales for the United States are export sales, primarily to Eastern Europe, Canada and the Caribbean, totaling approximately $7,200,000, $8,900,000 and $7,200,000 for the years ended September 30, 1998, 1997 and 1996. NOTE 14. PENSION PLAN The Company has a defined contribution retirement plan which covers substantially all U. S. employees. Contributions to the plan were approximately $669,866, $632,484, and $803,112 for the years ended September 30, 1998, 1997 and 1996, respectively. The Company contributes 6.0% of an employee's total compensation, plus 5.5% of compensation in excess of the social security tax wage base. Employee's compensation in excess of $160,000 shall be disregarded in determining the Company's contribution. Generally, contributions to the plan begin to vest to the benefit of the participant after three years of service. Participants are entitled, upon retirement, to their vested portion of the retirement fund assets, which are held by a corporate trustee. NOTE 15. INVESTMENT IN PREMIER WINE & SPIRITS, LTD. In 1997, the Company acquired a 45% interest in Premier Wine & Spirits, Ltd., a newly formed wholesale liquor distributor in the United States Virgin Islands, for $450,000. This investment is being accounted for using the equity method. The Company had sales to Premier of approximately $1,490,000 for the year ended September 30, 1998. This amount is included in trade receivables as of September 30, 1998. The Company has advanced $770,000 to Premier in 1998. The advances are included in notes receivable (see Note 3). 37 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: The carrying amounts approximate fair values as of September 30, 1998 and 1997 for cash and cash equivalents, trade receivables, other receivables and accounts payable because of the short-term maturities of those instruments. NOTES RECEIVABLE: The fair value of the Company's notes receivable has been determined based on available market information and management's estimate of current market conditions of similar instruments. LONG-TERM DEBT: The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements.
Carrying Amount Fair Value 1998 1997 1998 1997 -------------------------------------------------------------------------- Financial assets: Notes receivable $ 7,241,962 $ 7,805,854 $ 7,165,016 $ 7,650,596 Financial liabilities: Long-term debt, including interest rate swaps 44,469,077 46,072,824 46,739,257 47,958,078
NOTE 17. NET INCOME PER COMMON SHARE Basic net income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period.
1998 1997 1996 -------------------------------------------------- Net income $4,713,696 $4,684,562 $4,544,798 -------------------------------------------------- -------------------------------------------------- Determination of shares: Weighted average number of common shares outstanding 4,949,714 4,943,169 4,919,060 Shares issuable on exercise of stock options, net of shares assumed to be repurchased 35,154 22,996 36,028 -------------------------------------------------- Average common shares outstanding for diluted computation 4,984,868 4,966,165 4,955,088 -------------------------------------------------- -------------------------------------------------- Net income per common share: Basic $ 0.95 $ 0.95 $ 0.92 Diluted 0.95 0.94 0.92
38 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter First Second Third Fourth - -------------------------------------------------------------------------------------------------------- (In thousands, except per share and gross margin data) 1998 Net sales $ 17,741 $ 17,679 $ 19,792 $ 19,884 Gross profit 5,123 5,220 6,263 5,484 Gross margin 28.9% 29.5% 31.6% 27.6% Net income 1,121 982 1,327 1,284 Net income per share: Basic 0.23 0.20 0.27 0.26 Diluted 0.22 0.20 0.27 0.26 1997 Net sales $ 18,915 $ 17,437 $ 22,123 $ 19,463 Gross profit 4,954 5,116 6,085 5,290 Gross margin 26.2% 29.3% 27.5% 27.2% Net income 1,261 923 1,487 1,014 Net income per share: Basic 0.26 0.19 0.30 0.20 Diluted 0.25 0.19 0.30 0.20 1996 Net sales $ 19,027 $ 19,638 $ 19,189 $ 20,343 Gross profit 5,089 5,587 4,962 4,131 Gross margin 26.7% 28.4% 25.9% 20.3% Net income 1,491 1,382 1,169 503 Net income per share: Basic 0.30 0.28 0.24 0.10 Diluted 0.30 0.28 0.24 0.10
39 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 19. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which changes the way public companies report information about operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenue. Management has not yet evaluated the effects of these changes on its reporting of segment information. The Company will adopt SFAS No. 131 in its fiscal year 1999. In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management does not expect that the adoption of SFAS No. 133 will have a material effect on the Company's financial condition or results of operations. The Company will adopt SFAS No. 133 as required during its fiscal year 1999. NOTE 20. STOCK REPURCHASE PLAN In September 1998, the Board of Directors authorized the Company to repurchase up to 100,000 shares of the Company's common stock, which represents approximately 2% of the Company's outstanding common stock. For the period from October 1, 1998 through November 25, 1998, the Company repurchased 46,000 shares at a per share cost ranging from $6.87 to $7.00. 40 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors Todhunter International, Inc. West Palm Beach, Florida Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated financial statement schedule II for the years ended September 30, 1998, 1997, and 1996 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ McGladrey & Pullen, LLP West Palm Beach, Florida November 25, 1998 41 TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DISCONTINUED OPERATIONS
Year Ended September 30, ---------------------------------------------------- 1998 1997 1996 ---------------------------------------------------- Balance, beginning of period $ - $ 680,744 $ 2,250,000 Deductions resulting from realization of losses and expenses for discontinued operations which were previously charged to expense - (680,744) (1,569,256) ---------------------------------------------------- Balance, end of period $ - $ - 680,744 ---------------------------------------------------- ----------------------------------------------------
42 TODHUNTER INTERNATIONAL, INC. INDEX TO EXHIBITS
2.3 Agreement and Plan of Merger dated as of April 22, 1994 by and among Todhunter International, Inc., Todhunter Acquisition, Inc., Blair Importers, Ltd. and the Stockholders of Blair Importers, Ltd. (2) 3.1 Amended and Restated Certificate of Incorporation of Todhunter International, Inc. (1) 3.2 Amended and Restated By-Laws of Todhunter International, Inc. (10) 4.1 Form of Todhunter International, Inc. Common Stock Certificate (1) 10.2 Bulk Malt Purchase Agreement, dated as of September 25, 1991, between Todhunter International, Inc. and Joseph E. Seagram & Sons, Inc. (1) 10.3 Cooler Production Agreement dated as of October 15, 1987, between Todhunter International, Inc. and Joseph E. Seagram & Sons, Inc., as amended May 1, 1990 and August 27, 1991 (1) 10.5 Letter Agreement, dated January 1, 1998, between Todhunter International, Inc. and A. Kenneth Pincourt, Jr. (12) 10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (11) 10.7 Todhunter International, Inc. Defined Contribution Pension Plan (1) 10.8 Lease, dated March 24, 1988, as amended, between Todhunter International, Inc. and Especially West Palm Beach, Inc. (1) 10.8(a) Amendment to Lease, dated January 1, 1997, between Todhunter International, Inc. and Florida Acquisition Fund Esperante, Ltd. (14) 10.10 Loan Agreement dated as of January 31, 1994, between Virgin Islands Rum Industries, Ltd. and First Union National Bank of Florida (3) 10.10(a) Modification of Loan Agreement dated as of January 5, 1996, amending Loan Agreement dated January 31, 1994 (6) 10.12 Guaranteed Subordinated Note Agreement dated as of August 4, 1994, among Todhunter International, Inc., Blair Importers, Ltd., Charmer Industries, Inc. and certain shareholders thereof (2) 10.13 Note Purchase Agreement dated as of October 30, 1994, among Todhunter International, Inc., Blair Importers, Ltd. and certain purchasers (3) 10.13(a) First Amendment Agreement and Waiver dated as of February 1, 1996, amending Note Purchase Agreement dated as of October 30, 1994 (7) 10.14 Loan Agreement dated as of November 22, 1994, among Todhunter International, Inc., Blair Importers, Ltd. and First Union National Bank of Florida (3) 10.14(a) Modification of Loan Agreement dated as of February 26, 1996, amending Loan Agreement dated as of November 22, 1994 (7) 10.14(b) Modification of Loan Agreement dated as of August 19, 1996, amending Loan Agreement dated as of November 22, 1994, as amended (8) 10.14(c) Third Modification of Loan Agreement dated as of December 18, 1996, amending Loan Agreement dated as of November 22, 1994, as amended (9) 10.14(d) Fourth modification of Loan Agreement dated as of September 17, 1998, amending Loan Agreement dated as of November 22, 1994 (14) 10.15 Renewal Revolving Credit Note dated as of September 17, 1998 (14) 10.17 Letter Agreement dated as of January 1, 1998, between Todhunter International, Inc. and Jay S. Maltby (12) 11.1 Statement of Computation of Per Share Earnings (13) 21.1 Subsidiaries of Todhunter International, Inc. (5) 23.1 Consent of McGladrey & Pullen, LLP (14) 27.1 Financial Data Schedule (14)
(1) Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-50848). (2) Incorporated herein by reference to the Company's Current Report on Form 8-K for August 5, 1994, as amended. (3) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1994. 43 (4) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (5) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1995. (6) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995. (7) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (8) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1996. (9) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996. (10) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (11) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1997. (12) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31 1998. (13) Filed herewith and incorporated herein by reference to Note 17 of notes to consolidated financial statements, included in Item 14 of the Company's Annual Report on Form 10-K for the year ended September 30, 1998. (14) Filed herewith. 44 EX-10.8(A) 2 EXHIBIT 10.8 (A) EXHIBIT 10.8(a) FIRST AMENDMENT TO LEASE THIS AGREEMENT is made and entered into as of the 1st day of January, 1997, by and between FLORIDA ACQUISITION FUND ESPERANTE, LTD., a Florida limited partnership (successor in interest to Esperante, Limited Partnership), 222 Lakeview Avenue, Suite 950, West Palm Beach, Florida 33401 (hereinafter referred to as "Landlord") and TODHUNTER INTERNATIONAL, INC., a Delaware corporation, 222 Lakeview Avenue, Suite 1500, West Palm Beach, Florida 33401 (hereinafter referred to as "Tenant"). W I T N E S S E T H : WHEREAS, the parties have entered into that certain Lease dated March 24, 1988 (the "Lease") pursuant to which Landlord has leased to Tenant and Tenant has leased from Landlord 10,046 square feet of rentable area on the fifteenth floor of the Esperante, Office Building located in West Palm Beach, Florida, said premises being described in more detail in the Lease (hereinafter referred to as "Demised Premises"); and WHEREAS, the parties desire to extend the Term of the Lease and to modify and amend some of the other terms and conditions of the Lease as hereafter provided; NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other valuable consideration, each to the other in hand paid, the receipt and sufficiency thereof being hereby acknowledged, the parties do hereby agree that the Lease shall be and the same hereby is amended and modified as follows: 1. DEFINITIONS. All terms used herein shall have the same meaning as set forth in the Lease unless otherwise expressly stated herein. 2. DEMISED PREMISES. EXHIBIT "A" attached to the original Lease and reflecting the Demised Premises as being located on the thirteenth (13th) floor is hereby deleted from the Lease and replaced with EXHIBIT "A-1" reflecting the Demised Premises as being located on the fifteenth (15th) floor. 3. TERM. The Term of the Lease, as identified in Paragraph 3.1 of the Lease, is hereby extended so that the Term of the Lease shall not terminate on June 30, 1999, but instead shall terminate on December 31, 2006 (unless terminated sooner pursuant to other provisions of the Lease). 4. ANNUAL BASE RENT. Paragraph 5.1 of the Lease hereby is deleted and replaced with the following: "5.1 Tenant agrees to pay to Landlord for use of the Demised Premises, in lawful money of the United States, a base annual rental (hereinafter "Annual Base Rent") in accordance with the following schedule:
DATES ANNUAL SQ. PAYMENTS FT. RATE ----------------------- ANNUAL MONTH - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1-1-97 to 12-31-97 $23.00/sq. ft. $231,058.00 $19,254.83 - -------------------------------------------------------------------------------- 1-1-98 to 12-31-98 $23.00/sq. ft. $231,058.00 $19,254.83 - -------------------------------------------------------------------------------- 1-1-99 to $23.00/sq. ft. $231,058.00 $19,254.83 12-31-99 - -------------------------------------------------------------------------------- 1-1-00 to $23.00/sq. ft. $231,058.00 $19,254.83 12-31-00 - -------------------------------------------------------------------------------- 1-1-01 to $24.00/sq. ft. $241,104.00 $20,092.00 12-31-01 - -------------------------------------------------------------------------------- 1-1-02 to $24.00/sq. ft. $241,104.00 $20,092.00 12-31-02 - -------------------------------------------------------------------------------- 1-1-03 to $24.00/sq. ft. $241,104.00 $20,092.00 12-31-03 - -------------------------------------------------------------------------------- 1-1-04 to $24.00/sq. ft. $241,104.00 $20,092.00 12-31-04 - -------------------------------------------------------------------------------- 1-1-05 to $24.00/sq. ft. $241,104.00 $20,092.00 12-31-05 - -------------------------------------------------------------------------------- 1-1-06 to $24.00/sq. ft. $241,104.00 $20,092.00 12-31-06 - --------------------------------------------------------------------------------
-2- The above noted Annual Base Rent shall be due and payable without further notice or demand and without set-off or counterclaim in equal monthly installments in advance on the first day of each calendar month commencing as of January 1, 1997. Notwithstanding anything herein to the contrary, the cost of living adjustment set forth in Paragraph 5.5 of the Lease shall not be applied to any Annual Base Rent payment to be made by Tenant to Landlord under Paragraph 5.1 of this Lease with respect to that portion of the Lease Term occurring after January 1, 1997." 5. ADDRESS FOR PAYMENT OF RENT. The last sentence in Paragraph 5.2 of the Lease is hereby deleted and replaced with the following: "All payments required hereunder shall be made at the office of Landlord at 222 Lakeview Avenue, Suite 950, West Palm Beach, Florida 33401, or at such other place as may be designated in writing by Landlord from time to time and shall be made without any set-off or counterclaim whatsoever." 6. PARKING SPACES. Paragraph 22.4 of the Lease is hereby deleted and replaced with the following: "22.4 Tenant and its employees shall use only assigned parking spaces designated by Landlord and no other parking spaces. Landlord reserves the right to change said designations from time to time, at its discretion. Tenant shall have twenty-eight (28) assigned parking spaces, fourteen (14) of which shall be covered and reserved and the remaining fourteen (14) of which shall be covered and unreserved. From January 1, 1997 through the remainder of the Lease Term, Tenant shall pay a monthly parking fee of Seventy-Five and No/100ths Dollars ($75.00) per space for each of the fourteen (14) covered reserved parking spaces and Sixty-Five and No/100ths Dollars ($65.00) per space for each of the fourteen (14) covered unreserved parking spaces assigned to it. This fee shall be due each month with Tenant's monthly installments of Annual Base Rent and shall be deemed to be Additional Rent and shall be subject to all terms, provisions, conditions and covenants of this Lease pertaining to defaults in the payments of rent. Landlord shall not be liable for any damage to, or theft of, vehicles or the contents thereof while in or about the Building or appurtenant parking areas. Landlord shall set aside unreserved spaces for use by the customers, clients and invitees of any and all tenants of the Building. Tenant shall have the equal joint and several right with all other tenants for the use of such spaces by its customers, clients and invitees." 7. NOTICE ADDRESS. The notice addresses for Landlord and Tenant specified in Paragraph 28.1 are hereby deleted and replaced with the following: " Landlord: Florida Acquisition Fund Esperante, Ltd. Suite 950 222 Lakeview Avenue -3- West Palm Beach, Florida 33401 Attention: Hal Friedman Copy to: Carlton, Fields, Ward, Emmanuel Smith & Cutler, P.A. Suite 1400 222 Lakeview Avenue West Palm Beach, Florida 33401 Attention: George J. Meyer, Esq. Tenant: Todhunter International, Inc. Suite 1500 222 Lakeview Avenue West Palm Beach, Florida 33401" 8. RADON. Landlord and Tenant acknowledge and agree that the following is added as Paragraph 35.6 of the Lease: "Radon is a naturally occurring radioactive gas, that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon or radon testing may be obtained from your county public health unit." 9. HAZARDOUS SUBSTANCES. Landlord and Tenant acknowledge and agree that the following is added as Article XXXVI of the Lease: "(a) During the Term, Landlord and Tenant shall each not knowingly permit to remain in, incorporate into, use, or otherwise place or dispose of at the Demised Premises or in the Building any toxic or hazardous materials unless (i) such materials are in small quantities, properly labeled and contained, (ii) such materials are handled and disposed of in accordance with the highest accepted industry standards for safety, storage, use, and disposal, (iii) such materials are for use in the ordinary course of business (i.e., as with office or cleaning supplies), and (iv) such materials are handled and disposed of in accordance with all applicable governmental laws, rules, and regulations. If Landlord or Tenant ever has knowledge of the presence in the Demised Premises or the Building of toxic or hazardous materials which affect the Demised Premises, such party shall notify the other thereof in writing promptly after obtaining such knowledge. For purposes of this paragraph, hazardous or toxic materials shall mean hazardous or toxic chemicals or any materials containing hazardous or toxic chemicals at levels or concentrations which cause such materials to be classified as hazardous or toxic as then prescribed by the prevalent industry practice and standards or as set from time to time by EPA or OSHA or as defined -4- under 29 CFR 1910 or 29 CFR 1925 or other applicable governmental laws, rules, or regulations. (b) If Landlord or Tenant or their respective employees, agents, or contractors shall ever violate the provisions of paragraph (a), above, or if Landlord's or Tenant's acts, negligence, breach of this provision, or business operations directly and materially expand the scope of any contamination from toxic or hazardous materials, then the party at fault shall clean-up, remove, and dispose of the material causing the violation, in compliance with all applicable governmental standards, laws, rules, and regulations and repair any damage to the Demised Premises or Building within such period of time as may be reasonable under the circumstances after written notice from the other, provided that such work shall commence not later than thirty (30) days from such notice and be diligently and continuously carried to completion by such party or its designated contractors. Such party shall notify the other of its method, time, and procedure for any clean-up or removal of toxic or hazardous materials under this provision; and the other party shall have the right to require reasonable changes in such method, time, or procedure; and the other party may reasonably require the same to be done after normal business hours or when the Building is otherwise closed (i.e., weekends or holidays)." 10. RIDER TO LEASE. The Rider to Lease dated March 24, 1988 is hereby deleted in its entirety. 11. RULES AND REGULATIONS. The Rules and Regulations referenced in Paragraph 13.1 and set forth in EXHIBIT "D" to the original Lease are hereby deleted in their entirety and replaced with the Rules and Regulations which are attached hereto and made a part hereof as EXHIBIT "D-1". Notwithstanding anything herein to the contrary, in the event of any conflict between the terms of this Lease and the Rules and Regulations, the terms of this Lease shall control. 12. RELEASE OF LIABILITY. Landlord and Tenant hereby represent that neither of them is in default under any of the terms and provisions of this Lease as of January 1, 1997. In addition, through January 1, 1997, Landlord and Tenant hereby release each other from any and all obligations and liabilities arising out of, with respect to, or in any way pertaining to the Demised Premises, with the exception of any obligations and liabilities which are not fully satisfied as of January 1, 1997 (including, without limitation, any liability, damages, expenses, costs, reasonable attorneys' fees at all levels, including appeals, and the like incurred by Landlord). 13. CONFLICT. In the event of any conflict between the terms and provisions of this First Amendment and the terms and provisions of the Lease, the terms and provisions of this First Amendment shall prevail. In all other respects, except as herein modified, the terms and provisions of the Lease shall remain in full force and effect. This First Amendment shall have the same force and effect as if incorporated into the original Lease, and shall take precedence thereover. -5- IN WITNESS WHEREOF, the parties have duly executed this First Amendment as of the day and year first above written. "LANDLORD" FLORIDA ACQUISITION FUND ESPERANTE, LTD., a Florida limited partnership By: FLORIDA ACQUISITION FUND L.C., WITNESSES AS TO LANDLORD: a general partner By: SUMMER HILL /s/ Judy K. Reynolds ESPERANTE INC., a member - ------------------------- Judy K. Reynolds - ------------------------- (Print or Type Name) By: /s/ Richard L. Roeding, Jr. --------------------------- /s/ Thomas P. Orr Name: Richard L. Roeding, Jr. - ------------------------- Its: President Thomas P. Orr - ------------------------- (Print or Type Name) "TENANT" WITNESSES AS TO TENANT: TODHUNTER INTERNATIONAL, INC., a Delaware corporation, /s/ Troy Edwards By: /s/ A. Kenneth Pincourt, Jr. - ------------------------- ----------------------------------------- Name: A. Kenneth Pincourt, Jr. -------------------------------------- Troy Edwards Its: Chairman and Chief Executive Officer - ------------------------- -------------------------------------- (Print or Type Name) /s/ Erika V. White - ------------------------- Erika V. White - ------------------------- (Print or Type Name) -6- EX-10.14(D) 3 EXHIBIT 10.14(D) EXHIBIT 10.14(d) FOURTH MODIFICATION OF LOAN AGREEMENT THIS AGREEMENT is made as of the 17th day of September, 1998, by and between FIRST UNION NATIONAL BANK, a national banking association acting as Lender and as Agent pursuant to the Loan Agreement (the "Lender"), TODHUNTER INTERNATIONAL, INC., a Delaware corporation (the "Borrower"). WITNESSETH: WHEREAS, Lender, Borrower and Todhunter Imports, Ltd., a New York corporation (formerly known as Blair Importers, Ltd.) (the "Guarantor") entered into a Loan Agreement dated as of November 22, 1994 as modified by Modification of Loan Agreement dated as of February 26, 1996, Modification of Loan Agreement dated as of August 19, 1996 and Third Modification of Loan Agreement dated as of December 18, 1996 (the "Loan Agreement") in connection with which Lender made available to Borrower a revolving line of credit in the maximum principal amount of TWENTY MILLION and no/100s Dollars ($20,000,000.00) (the "Revolving Line of Credit") evidenced by the Revolving Credit Note, secured and evidenced by the Blair Guaranty and the other Loan Documents, as defined in the Loan Agreement; and WHEREAS, Lender and Borrower have agreed to extend the date for advancing Revolving Loans and final payment of all amounts due under the Revolving Credit Note and the other Loan Documents to November 1, 2001, to reduce the maximum principal amount to Fifteen Million and no/100 Dollars ($15,000,000.00) and to revise certain covenants in the Loan Agreement by amending the Loan Agreement and by Borrower executing and delivering a Renewal Revolving Credit Note in the face amount of Fifteen Million and no/100s Dollars ($15,000,000) (the "Renewal Note"); and WHEREAS, the Borrower and Guarantor have represented to Lender that Guarantor has no assets and no operations and therefore no ability to satisfy the Blair Guaranty if called and on that basis, Lender has agreed to execute this Agreement without the joinder of the Guarantor to evidence its consent to the amendments to the Loan Agreement contained herein and to affirm the continuing validity of the Blair Guaranty, after the amendments contained herein. NOW, THEREFORE, in consideration of the mutual promises and covenants of this agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lender and Borrower agree as follows: 1. RECITALS/TERMS. All of the recitals set forth above are true and correct and by this reference are made a material part of this Agreement. All capitalized terms used herein which are defined in the Loan Agreement shall have the meaning provided therein when used herein unless the context shall require otherwise. -1- 2. DEFINITIONS. (a) The definition of the term Revolving Loan Termination Date is hereby amended to read as follows: "REVOLVING LOAN TERMINATION DATE shall mean the earliest of (i) November 1, 2001; (ii) the date of termination by the Required Lenders after the occurrence of an Event of Default; (iii) such date of termination as is mutually agreed upon by the Lenders and the Borrower, and (iv) the date after all Obligations have been paid in full and no Lender is any longer obligated to make any Revolving Loans hereunder." (a) The term "Notes" shall include the Renewal Note; and (c) The term "Revolving Credit Note" shall include the Renewal Note. Borrower hereby acknowledges that the Renewal Note continues to evidence the Revolving Loans and that the amendment to the definition of the Revolving Loan Termination Date applies to that term as used in the Renewal Note so that the unpaid principal balance of the Renewal Note shall be due on November 1, 2001 unless due sooner pursuant to the terms of the Loan Documents. 3. REVOLVING LOANS. (a) Section 2.1(a) is hereby amended to read as follows: "(a) The Lenders hereby establish, subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties made hereunder, a Revolving Line of Credit in favor of the Borrower in the aggregate principal amount of up to Fifteen Million and no/100 Dollars ($15,000,000.00) and agree to make and remake one or more Revolving Loans to the Borrower, upon the terms and conditions set forth in this Article II, from time to time on any Business Day during the period from the date hereof through the Revolving Loan Termination Date. The Borrower may borrow, repay and reborrow any amount of the Revolving Line of Credit; provided, however, (i) the aggregate principal amount outstanding under the Revolving Line of Credit may not at any time exceed the lesser of (i) $15,000,000.00, less the sum of the aggregate amount of Foreign Exchange Risk then existing and the aggregate principal amount of Letters of Credit outstanding and unreimbursed drawings under Letters of Credit or (ii) the Borrowing Base; and -2- (ii) the aggregate amounts advanced by any individual Lender, together with the aggregate amount of such Lender's Letter of Credit Participations and Foreign Exchange Risk Participations, shall not exceed such Lender's Revolving Credit Commitment at any time. Notwithstanding the foregoing, no Lender shall have any obligation to lend funds at any time when an Event of Default or Default exists or would arise in connection with the making of any such loan. Requests for an advance under the Revolving Line of Credit may be oral or written." (b) Section 4.2.2(e) is hereby amended to read as follows: "In the event the requested advance will cause the aggregate outstanding principal balances of the Loans to exceed Ten Million and no/100 Dollars ($10,000,000.00) the Borrower shall deliver to the Agent a current and correct borrowing base certificate in form and substance reasonably satisfactory to the Agent and the Lenders." (c) Section 7.23(d) is hereby amended to read as follows: "MAINTENANCE OF NET WORTH. Permit its Consolidated Tangible Net Worth to be less than $33,000,000.00 during the period from September 30, 1998 through September 29, 1999, to be less than $36,000,000.00 during the period from September 30, 1999 through September 29, 2000, and to be less than $39,000,000.00 during the period from September 30, 2000 through November 1, 2001. 4. BLAIR GUARANTY. Borrower hereby warrants and represents to Lender that Guarantor is a wholly owned subsidiary of Borrower and that Guarantor has no assets or operations whatsoever. Borrower agrees that Borrower has no offsets, claims or defenses to its obligations under the Loan Documents by reason of Lender's agreement, at Borrower's request, not to require Guarantor's execution of this Modification even though Guarantor may have some claim that Guarantor is released from the Guaranty by such agreement. Borrower agrees that, if Guarantor subsequently obtains assets, Borrower will cause Guarantor to ratify and confirm the continuing validity of the Guaranty. 5. NO DEFAULT. Borrower hereby warrants and represents to Lender that, since the date of the December 18, 1996 Third Modification of Loan Agreement, Borrower is in compliance with all provisions of the Loan Agreement and all other Loan Documents and that no default or Event of Default has occurred thereunder nor has any event occurred or failed to occur which with the passage of time or the giving of notice or both would comprise such a default or Event of Default. 1. MISCELLANEOUS. -3- (a) This agreement shall be governed by and construed in accordance with the law of the State of Florida. In the event of any dispute hereunder, the prevailing party shall be entitled to recover all costs and attorney's fees from the non-prevailing party. Paragraph headings used herein are for convenience only and shall not be used to interpret any term hereof. The Loan Agreement shall continue in full force and effect as modified by this Modification. In the event the terms of this Modification conflict with the terms of the Loan Agreement, the terms of this Modification shall control. (b) This Modification constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings, negotiations and discussions, both written and oral among the parties hereto with respect to the subject matter hereof, all of which prior agreements, understanding, negotiations and discussions, both written and oral, are merged into this Modification. All provisions of the Loan Agreement and each of the other Loan Documents shall remain in full force and effect as modified by this Agreement. Without limiting the generality of any of the provisions of this Modification, nothing herein or in any instrument or agreement shall be deemed or construed to constitute a novation, satisfaction or refinancing of all or any portion of the Loan or in any manner affect or impair the lien or priority of the Loan Agreement or any of the Loan Documents as amended hereby. (c) This Modification may be executed in any number of counterparts with each executed counterpart constituting an original, but altogether constituting but one and the same instrument. (d) This Modification shall be binding upon and inure to the benefit of the Borrower, the Guarantor and the Lender and their respective heirs, legal representatives, executors, successors and assigns. 7. RELEASE. IN CONSIDERATION OF THE ACCOMMODATIONS PROVIDED HEREIN, THE BORROWER HEREBY UNCONDITIONALLY, IRREVOCABLY AND FOREVER RELEASES, ACQUITS AND DISCHARGES THE LENDER AND EACH OF THE LENDER'S RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND COUNSEL FROM ANY AND ALL CLAIMS, DEMANDS AND CAUSES OF ACTION THAT ANY OF THEM HAD, NOW HAS OR MAY IN THE FUTURE HAVE AGAINST ANY ONE OR MORE OF THE LENDER OR ANY ONE OR MORE OF THE LENDER'S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR COUNSEL FOR THE ACTS OR OMISSIONS OF ANY OF THE FOREGOING PARTIES FROM THE BEGINNING OF TIME THROUGH, TO AND INCLUDING THE DATE OF THE EFFECTIVENESS OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS ARISING OUT OF OR CONNECTED IN ANY MANNER WITH THE TRANSACTIONS CONTEMPLATED HEREIN OR IN THE LOAN AGREEMENT, AS AMENDED HEREBY OR ANY OTHER LOAN DOCUMENTS, AS THE SAME MAY BE AMENDED HEREBY, AS THE CASE MAY BE. -4- 8. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR WRITTEN) OR ACTIONS BY ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY LOAN, ADVANCE OR OTHER EXTENSION OF CREDIT TO THE BORROWER. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR THE LENDER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR THE LENDER'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION. IN WITNESS WHEREOF, Borrower and Lender have caused this agreement to be executed as of the day and year set forth above. Witnesses: LENDER: FIRST UNION NATIONAL BANK, a national banking association /s/ Cynthia Miranda By:/s/ Bruce Roland - ---------------------------- ---------------------------------- Print Name: Cynthia Miranda Print Name: Bruce Roland ---------------- --------------------------- Its: Senior Vice President ---------------------------------- /s/ Grace V. Salame' - ---------------------------- Print Name: Grace V. Salame' ---------------- AGENT: FIRST UNION NATIONAL BANK, a national banking association By: - ----------------------------- ---------------------------------------- Print Name: Print Name: ------------------ -------------------------------- Its: - ----------------------------- --------------------------------------- Print Name: ------------------ BORROWER: TODHUNTER INTERNATIONAL, INC., a Delaware corporation /s/ Marvin L. Pickering By:/s/ A. Kenneth Pincourt, Jr. - -------------------------------- ---------------------------------------- Print Name:Marvin L. Pickering Print Name: A. Kenneth Pincourt, Jr. -------------------- Its: Chairman of the Board of Directors/CEO /s/ Donald C. Nelthropp, Jr. - ----------------------------- Print Name: Donald C. Nelthropp, Jr. - ------------------------------------ -5- STATE OF FLORIDA ) )ss. COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 17th day of September, 1998, by Bruce Roland as Senior Vice President of FIRST UNION NATIONAL BANK, a national banking association, on behalf of the bank. HE/She is personally KNOWN TO ME or has produced _____________________________________ as identification. /S/ Sharon D. Agri -------------------------------------------- Printed Name: Sharon D. Agri ------------------------------ Notary Public Commission No.: CC681707 ---------------------------- My Commission Expires: September 18, 2001 STATE OF FLORIDA ) )ss. COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this _____ day of ____________, 199__, by ____________________ as ______________of FIRST UNION NATIONAL BANK, a national banking association, on behalf of the bank, as Agent. He/She is personally known to me or has produced _________________________ as identification. -------------------------------------------- Printed Name: ------------------------------- Notary Public Commission No.: ----------------------------- My Commission Expires: -6- MUNICIPALITY OF ST. THOMAS & ST. JOHN ) )ss. VIRGIN ISLANDS OF THE UNITED STATES ) The foregoing instrument was acknowledged before me this 17TH day of SEPTEMBER, 1998, by A. KENNETH PINCOURT, JR. as Chairman of the Board of Directors/CEO of TODHUNTER INTERNATIONAL, INC., a Delaware corporation, on behalf of the corporation. He is personally KNOWN TO ME or has produced _________________________ as identification. /s/ Marvin L. Pickering ----------------------------------- Printed Name: Marvin L. Pickering ---------------------- Notary Public Commission No.: --------------------- My Commission Expires: September 29, 1999 -7- EX-10.15 4 EXHIBIT 10.15 EXHIBIT 10.15 RENEWAL REVOLVING CREDIT NOTE $15,000,000.00 As of September 17th, 1998 FOR VALUE RECEIVED, TODHUNTER INTERNATIONAL, INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of FIRST UNION NATIONAL BANK, a national banking association, at the offices of First Union National Bank of Florida (the "Agent"), located at 303 Banyan Boulevard, West Palm Beach, Florida 33401 (or at such other place or places as the Agent may designate), the principal sum of up to FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), or such lesser amount as may constitute the unpaid principal amount of the Revolving Credit Loans, on the Revolving Loan Termination Date (as such term is defined in the Loan Agreement hereinafter referred to), under the terms and conditions of this promissory note (the "Note") and in accordance with a certain Loan Agreement, dated as of November 22, 1994 as modified by Modification of Loan Agreement dated as of February 26, 1996, by Modification of Loan Agreement dated as of August 19, 1996 and by Third Modification of Loan Agreement dated December 18, 1996, and Fourth Modification of Loan Agreement dated as of the date hereof, by and between the Borrower, Todhunter Imports, Ltd., a New York corporation f/k/a Blair Importers, Ltd. (the "Guarantor"), the Agent and the Lenders set forth therein (as amended, modified or supplemented from time to time, the "Loan Agreement"). The Borrower also unconditionally promises to pay interest on the aggregate unpaid principal amount of this Note on each Interest Payment Date (as defined in the Loan Agreement) at the rate or rates provided in the Loan Agreement. This Note is issued to evidence the Revolving Line of Credit made by the Lenders pursuant to Article II of the Loan Agreement. The defined terms in the Loan Agreement are used herein with the same meanings given them in the Loan Agreement. All of the terms, conditions and covenants of the Loan Agreement are expressly made a part of this Note by reference in the same manner and with the same effect as if set forth herein at length and any holder of this Note is entitled to the benefits of and remedies provided in the Loan Agreement and any other agreements by and between the Borrower and the Guarantor, and either of them, and the Agent or any of the Lenders. Reference is made to the Loan Agreement for provisions for maturity, payment, prepayment and acceleration. This Note renews and evidences the indebtedness under that certain Revolving Credit Note dated as of November 22, 1994 and renewed by Renewal Revolving Credit Note dated December 18, 1996. If the principal of this Note or any portion hereof and, to the extent permitted by law, interest hereon shall not be paid when due, whether by acceleration or otherwise, the same shall bear interest for any period during which the same shall be overdue at a rate per annum equal to the Default Rate set forth in the Loan Agreement and payable on demand. -1- The Borrower hereby agrees to pay all costs incurred by any holder hereof, including reasonable attorneys' fees (including those for appellate proceedings), incurred in connection with any Event of Default (as defined in the Loan Agreement), or in connection with the collection or attempted collection or enforcement hereof, whether or not legal proceedings may have been instituted. All parties to this Note, including the Borrower and any sureties, endorsers or guarantors, hereby waive presentment for payment, demand, protest, notice of dishonor, notice of acceleration of maturity, and all defenses on the ground of extension of time for payment hereof, and agree to continue and remain bound for the payment of principal, interest and all other sums payable hereunder, notwithstanding any change or changes by way of release, surrender, exchange or substitution of any security for this Note or by way of any extension or extensions of time for payment of principal or interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice to or consent of any of them. The rights and remedies of the holder as provided herein shall be cumulative and concurrent and may be pursued singularly, successively or together at the sole discretion of the holder, and may be exercised as often as occasion therefor shall occur, and the failure to exercise any such right or remedy shall in no event by construed as a waiver or release of the same. Anything herein to the contrary notwithstanding, the obligations of the borrower under this Note shall be subject to the limitation that payments of interest to the Lender shall not be required to the extent that receipt of any such payment by the Lender would be contrary to provisions of law applicable to the Lender (if any) which limit the maximum rate of interest which may be charged or collected by the Lender, PROVIDED, HOWEVER, that nothing herein shall be construed to limit the Lender to presently existing maximum rates of interest, if an increased interest rate is hereafter permitted by reason of applicable federal or state legislation. In the event that the borrower makes any payment of interest, fees or other charges, however denominated, pursuant to this Note, which payment results in the interest paid to the Lender to exceed the maximum rate of interest permitted by applicable law, any excess over such maximum shall be applied in reduction of the principal balance owed to the Lender as of the date of such payment, or if such excess exceeds the amount of principal owed to the Lender as of the date of such payment, the difference shall be paid by the Lender to the Borrower. THE BORROWER HEREBY, AND THE LENDER BY ITS ACCEPTANCE OF THIS NOTE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS REVOLVING CREDIT NOTE OR SAID LOAN AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PART. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO SAID LOAN AGREEMENT AND MAKING THE LOANS EVIDENCED BY THIS NOTE. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR THE LENDER'S COUNSEL, HAS -2- REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE LENDER, NOR THE LENDER'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION. This Note shall be governed by and construed in accordance with the internal laws of the State of Florida, without regard to the principles of conflicts thereunder. The Borrower hereby submits to the jurisdiction and venue of the federal and state courts located in Palm Beach County, Florida. IN WITNESS WHEREOF, the Borrower has caused this Note to be dated for reference as of the date first above written but have in fact caused this Note to be executed under seal by its duly authorized corporate officer as of this 17th day of September, 1998. TODHUNTER INTERNATIONAL, INC., A DELAWARE CORPORATION By: /s/ A. Kenneth Pincourt, Jr. ----------------------------- A. Kenneth Pincourt, Jr., Chairman and CEO STATE OF U.S. Virgin Islands ) ) SS: COUNTY OF St. Croix ) I, MARVIN L. PICKERING, a Notary Public in and for the county and state aforesaid, do hereby certify that A. Kenneth Pincourt, Jr. personally appeared before me this day and, being duly sworn, says that he is the President of Todhunter International, Inc., a Delaware corporation, and that said writing was signed by him in behalf of said corporation by its authority duly given. And the said A. Kenneth Pincourt, Jr. acknowledged the said writing to be the act and deed of said corporation. WITNESS my hand and notarial seal, this 17th day of September, 1998. /s/ Marvin L. Pickering -------------------------------------------- Notary Public, State of U.S. Virgin Islands ------------------- Print Name: Marvin L. Pickering -------------------------------- My Commission Expires:September 29,1999 -3- EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the December 16, 1993 Registration Statement on Form S-8 (Registration No. 33-73018) and in the July 9, 1996 Registration Statement on Form S-8 (Registration No. 333-07827) of our report, dated November 25, 1998, which appears in the annual report on Form 10-K of Todhunter International, Inc. for the year ended September 30, 1998. /s/ McGladrey & Pullen, LLP West Palm Beach, Florida December 16, 1998 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TODHUNTER INTERNATIONAL INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR ITS YEAR ENDED SEPTEMBER 30, 1998. YEAR SEP-30-1998 OCT-01-1997 SEP-30-1998 5,629,016 0 13,860,594 0 23,423,573 46,428,050 76,072,398 33,157,289 96,997,030 8,621,478 42,580,944 0 0 49,497 40,954,572 96,997,030 75,095,894 75,095,894 53,005,786 53,005,786 12,621,572 0 3,946,528 5,522,008 808,312 4,713,696 0 0 0 4,713,696 .95 .95
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