**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended March 31, 2004**

 

**Commission File No. 1-13453**

 

**TODHUNTER INTERNATIONAL, INC.**

(Exactname of registrant as specified in its charter)

 

| **DELAWARE**                                                     |   | **59-1284057**                   |
|------------------------------------------------------------------|--------|----------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |   | IRS  Employer Identification No. |
|                                                             |   |                             |
| **222 Lakeview Avenue, Suite 1500, West Palm Beach, FL**         |   | **33401**                        |
| (Address  of principal executive offices)                        |   | (Zip  Code)                      |

 

Registrant’s telephonenumber, including area code:  **(561) 655-8977**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes   ý                 No   o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

Yes   o                 No   ý

 

The number of sharesoutstanding of registrant’s Common Stock, $.01 par value per share, as of May12, 2004 was 5,624,234.

 

 

----

 

TODHUNTER INTERNATIONAL, INC.

 

INDEX

 
| PART I  | FINANCIAL INFORMATION |                                                                                                                 |
|---------|-----------------------|----------------------------------------------------------------------------------------------------------------------|
|    |                  |                                                                                                                 |   |
|    | Item 1                | Financial Statements                                                                                                 |   |
|    |                  |                                                                                                                 |   |
|    |                  | Consolidated Balance Sheets -  March 31, 2004 (unaudited) and September 30, 2003                           |   |
|    |                  |                                                                                                                 |   |
|    |                  | Consolidated Statements of Income -  Three Months and Six Months Ended March 31, 2004 and 2003  (unaudited)     |   |
|    |                  |                                                                                                                 |   |
|    |                  | Consolidated Statements of Cash Flows -  Three Months and Six Months Ended March 31, 2004 and 2003  (unaudited) |   |
|    |                  |                                                                                                                 |   |
|    |                  | Notes to Consolidated Financial Statements                                                                           |   |
|    |                  |                                                                                                                 |   |
|    | Item 2                | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                          |   |
|    |                  |                                                                                                                 |   |
|    | Item 3                | Quantitative and Qualitative Disclosures  About Market Risk                                                          |   |
|    |                  |                                                                                                                 |   |
|    | Item 4                | Controls and Procedures                                                                                              |   |
|    |                  |                                                                                                                 |   |
| PART II | OTHER INFORMATION     |                                                                                                                 |
|    |                  |                                                                                                                 |   |
|    | Item 1                | Legal Proceedings                                                                                                    |   |
|    |                  |                                                                                                                 |   |
|    | Item 2                | Changes in Securities and Use of Proceeds                                                                            | * |
|    |                  |                                                                                                                 |   |
|    | Item 3                | Defaults Upon Senior Securities                                                                                      | * |
|    |                  |                                                                                                                 |   |
|    | Item 4                | Submission of Matters to a Vote of Security  Holders                                                                 |   |
|    |                  |                                                                                                                 |   |
|    | Item 5                | Other Information                                                                                                    | * |
|    |                  |                                                                                                                 |   |
|    | Item 6                | Exhibits and Reports on Form 8-K                                                                                     |   |
|    |                  |                                                                                                                 |   |
|    | Signatures            |                                                                                                                 |

 

----

* Item is omitted becauseanswer is negative or item is inapplicable.

 

----

 

**PART I - FINANCIAL INFORMATION**

 

**Item 1.****          ****Financial Statements**

 

TODHUNTER INTERNATIONAL, INC.CONSOLIDATED BALANCE SHEETS

 
|                                                       |   | **March 31,  2004** |        | **September 30,  2003** |   |
|------------------------------------------------------------|--------|--------------------------|-------------|------------------------------|--------|
|                                                       |   | **(Unaudited)**          |        | *****                        |   |
| ASSETS                                                     |   |                     |        |                         |   |
|                                                       |   |                     |        |                         |   |
| CURRENT ASSETS                                             |   |                     |        |                         |   |
| Cash and cash equivalents                                  |   | $                        | 1,116,872   |                         | $      | 14,918,605 |   |
| Short-term investments                                     |   | 820,173                  |        | 1,819,016                    |   |
| Trade receivables                                          |   | 14,847,822               |        | 15,867,079                   |   |
| Other receivables                                          |   | 3,618,873                |        | 2,879,334                    |   |
| Inventories                                                |   | 32,449,462               |        | 28,664,895                   |   |
| Notes receivable, current maturities                       |   | 652,936                  |        | 647,782                      |   |
| Deferred income taxes                                      |   | 1,657,000                |        | 2,224,000                    |   |
| Other current assets                                       |   | 3,561,022                |        | 3,895,977                    |   |
| Total current assets                                       |   | 58,724,160               |        | 70,916,688                   |   |
|                                                       |   |                     |        |                         |   |
| LONG-TERM INVESTMENTS AND NOTES RECEIVABLE                 |   |                     |        |                         |   |
| Investments in and advances to equity investees            |   | 2,229,246                |        | 1,879,623                    |   |
| Notes receivable from affiliates, less current  maturities |   | 3,694,277                |        | 3,714,346                    |   |
| Notes receivable, less current maturities                  |   | 459,501                  |        | 506,422                      |   |
|                                                       |   | 6,383,024                |        | 6,100,391                    |   |
|                                                       |   |                     |        |                         |   |
| PROPERTY AND EQUIPMENT                                     |   | 94,320,365               |        | 92,182,294                   |   |
| Less accumulated depreciation                              |   | 54,612,054               |        | 52,125,682                   |   |
|                                                       |   | 39,708,311               |        | 40,056,612                   |   |
|                                                       |   |                     |        |                         |   |
| GOODWILL                                                   |   | 20,524,404               |        | 20,524,404                   |   |
| AMORTIZED INTANGIBLE ASSETS                                |   | 814,747                  |        | 834,850                      |   |
| OTHER ASSETS                                               |   | 745,380                  |        | 866,128                      |   |
|                                                       |   | $                        | 126,900,026 |                         | $      | 139,299,073 |   |

 

----

*From audited financial statements.

 

See Notes to ConsolidatedFinancial Statements.

 

----

 

TODHUNTER INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

 
|                                                                                                                                                              |   | **March 31,  2004** |        | **September 30,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-------------|------------------------------|--------|
|                                                                                                                                                              |   | **(Unaudited)**          |        | *****                        |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                         |   |                     |        |                         |   |
|                                                                                                                                                              |   |                     |        |                         |   |
| CURRENT LIABILITIES                                                                                                                                               |   |                     |        |                         |   |
| Current maturities of long-term debt                                                                                                                              |   | $                        | 10,000,000  |                         | $      | 4,000,000 |   |
| Accounts payable                                                                                                                                                  |   | 9,687,222                |        | 6,288,431                    |   |
| Accrued expenses                                                                                                                                                  |   | 1,943,560                |        | 3,837,745                    |   |
| Total current liabilities                                                                                                                                         |   | 21,630,782               |        | 14,126,176                   |   |
|                                                                                                                                                              |   |                     |        |                         |   |
| LONG-TERM DEBT, less current maturities                                                                                                                           |   | 26,210,390               |        | 47,315,617                   |   |
|                                                                                                                                                              |   |                     |        |                         |   |
| DEFERRED INCOME TAXES                                                                                                                                             |   | 5,279,500                |        | 5,243,000                    |   |
|                                                                                                                                                              |   |                     |        |                         |   |
| OTHER LIABILITIES                                                                                                                                                 |   | 902,346                  |        | 2,002,761                    |   |
|                                                                                                                                                              |   | 54,023,018               |        | 68,687,554                   |   |
|                                                                                                                                                              |   |                     |        |                         |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                         |   |                     |        |                         |   |
| Preferred stock, par value $.01 per share;  authorized 2,500,000 shares; no shares issued                                                                         |   | —                   |        | —                       |   |
| Common stock, par value $.01 per share;  authorized 10,000,000 shares; issued 5,723,434 shares March 31, 2004,  and 5,686,434 shares September 30, 2003 |   | 57,234                   |        | 56,864                       |   |
| Additional paid-in capital                                                                                                                                        |   | 19,098,709               |        | 18,803,404                   |   |
| Retained earnings                                                                                                                                                 |   | 54,458,845               |        | 52,489,031                   |   |
|                                                                                                                                                              |   | 73,614,788               |        | 71,349,299                   |   |
| Less cost of 99,200 shares of treasury  stock                                                                                                                     |   | (737,780                 | )           | (737,780                     | )      |
|                                                                                                                                                              |   | 72,877,008               |        | 70,611,519                   |   |
|                                                                                                                                                              |   | $                        | 126,900,026 |                         | $      | 139,299,073 |   |

 

----

*From audited financialstatements.

 

See Notes to ConsolidatedFinancial Statements.

 

2

----

 

TODHUNTERINTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OFINCOME

(Unaudited)

 
|                                         |   | **Six Months  Ended March 31,** |       | **Three  Months Ended March 31,** |   |
|----------------------------------------------|--------|--------------------------------------|------------|----------------------------------------|--------|
|                                         |   | **2004**                             |       | **2003**                               |   | **2004** |   | **2003** |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Sales                                        |   | $                                    | 56,417,025 |                                   | $      | 57,721,813 |   | $ | 28,729,343 |   | $ | 29,384,629 |   |
| Less excise taxes                            |   | 11,935,530                           |       | 14,932,589                             |   | 6,689,500 |   | 7,559,884 |   |
| Net sales                                    |   | 44,481,495                           |       | 42,789,224                             |   | 22,039,843 |   | 21,824,745 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Cost of goods sold                           |   | 29,501,654                           |       | 29,400,847                             |   | 14,193,478 |   | 14,020,606 |   |
| Gross profit                                 |   | 14,979,841                           |       | 13,388,377                             |   | 7,846,365 |   | 7,804,139 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Selling, general and administrative expenses |   | 12,704,293                           |       | 11,087,222                             |   | 6,456,239 |   | 5,578,249 |   |
| Operating income                             |   | 2,275,548                            |       | 2,301,155                              |   | 1,390,126 |   | 2,225,890 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Other income (expense):                      |   |                                 |       |                                   |   |   |   |   |   |
| Interest income                              |   | 360,231                              |       | 342,720                                |   | 187,672 |   | 210,059 |   |
| Interest expense                             |   | (1,406,418                           | )          | (1,598,433                             | )      | (709,435 | ) | (873,530 | ) |
| Equity in income of equity investees         |   | 349,623                              |       | 249,405                                |   | 135,503 |   | 156,117 |   |
| Other, net                                   |   | 293,571                              |       | (1,458,621                             | )      | 65,000 |   | (61,591 | ) |
|                                         |   | (402,993)                            |       | (2,464,929                             | )      | (321,260 | ) | (568,945 | ) |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Income (loss) before income taxes            |   | 1,872,555                            |       | (163,774                               | )      | 1,068,866 |   | 1,656,945 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Income tax expense (benefit):                |   |                                 |       |                                   |   |   |   |   |   |
| Current                                      |   | (700,759                             | )          | (44,384                                | )      | (457,414 | ) | 222,879 |   |
| Deferred                                     |   | 603,500                              |       | (55,000                                | )      | 407,750 |   | 6,000 |   |
|                                         |   | (97,259)                             |       | (99,384                                | )      | (49,664 | ) | 228,879 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Net Income (loss)                            |   | $                                    | 1,969,814  |                                   | $      | (64,390 | ) | $ | 1,118,530 |   | $ | 1,428,066 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Earnings (loss) per common share:            |   |                                 |       |                                   |   |   |   |   |   |
| Basic                                        |   | $                                    | 0.35       |                                   | $      | (0.01 | ) | $ | 0.20 |   | $ | 0.26 |   |
| Diluted                                      |   | $                                    | 0.35       |                                   | $      | (0.01 | ) | $ | 0.20 |   | $ | 0.25 |   |
|                                         |   |                                 |       |                                   |   |   |   |   |   |
| Common shares and equivalents outstanding:   |   |                                 |       |                                   |   |   |   |   |   |
| Basic                                        |   | 5,598,122                            |       | 5,571,750                              |   | 5,617,591 |   | 5,572,367 |   |
| Diluted                                      |   | 5,696,128                            |       | 5,571,750                              |   | 5,722,369 |   | 5,607,374 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

3

----

 

TODHUNTERINTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OFCASH FLOWS

(Unaudited)

 
|                                                                                      |   | **Six Months  Ended March 31,** |        |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                      |   | **2004**                             |        | **2003** |   |
|                                                                                      |   |                                 |        |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                      |   |                                 |        |   |   |
| Net income (loss)                                                                         |   | $                                    | 1,969,814   |   | $ | (64,390 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |   |                                 |        |   |   |
| Depreciation                                                                              |   | 2,702,323                            |        | 2,637,420 |   |
| Amortization                                                                              |   | 20,100                               |        | 20,100 |   |
| (Gain) loss on sale of property and  equipment                                            |   | (197,271                             | )           | 54,234 |   |
| Equity in income of equity investees                                                      |   | (349,623                             | )           | (249,405 | ) |
| Deferred income taxes                                                                     |   | 603,500                              |        | (55,000 | ) |
|                                                                                      |   |                                 |        |   |   |
| Changes in assets and liabilities:                                                        |   |                                 |        |   |   |
| (Increase) decrease in:                                                                   |   |                                 |        |   |   |
| Receivables                                                                               |   | 279,718                              |        | (380,962 | ) |
| Inventories                                                                               |   | (3,784,567                           | )           | (2,237,677 | ) |
| Other current assets                                                                      |   | 334,955                              |        | 1,507,320 |   |
| Increase (decrease) in:                                                                   |   |                                 |        |   |   |
| Accounts payable                                                                          |   | 3,398,791                            |        | 1,025,174 |   |
| Accrued expenses                                                                          |   | (1,894,185                           | )           | (1,287,674 | ) |
| Other liabilities                                                                         |   | (1,100,415                           | )           | 379,923 |   |
| Net cash provided by operating activities                                                 |   | 1,983,140                            |        | 1,349,063 |   |
|                                                                                      |   |                                 |        |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                      |   |                                 |        |   |   |
| Proceeds from sale of property and  equipment                                             |   | 429,815                              |        | 42,026 |   |
| Principal payments received on notes  receivable                                          |   | 61,836                               |        | 53,480 |   |
| Purchase of property and equipment                                                        |   | (2,586,566                           | )           | (2,140,304 | ) |
| Purchase of short-term investments                                                        |   | —                               |        | (103,202 | ) |
| Redemption of short-term investments                                                      |   | 998,843                              |        | 98,000 |   |
| Investments in subsidiaries                                                               |   | —                               |        | (274,001 | ) |
| Decrease in other assets                                                                  |   | 120,751                              |        | 28,185 |   |
| Net cash used in investing activities                                                     |   | $                                    | (975,321    | ) | $ | (2,295,816 | ) |
|                                                                                      |   |                                 |        |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                      |   |                                 |        |   |   |
| Net borrowings (payments) on line of credit                                               |   | $                                    | (13,000,000 | ) | $ | 2,000,000 |   |
| Issuance of common stock                                                                  |   | 295,675                              |        | 17,063 |   |
| Principal payments on long-term borrowings                                                |   | (2,105,227                           | )           | (2,111,817 | ) |
| Net cash used in financing activities                                                     |   | (14,809,552                          | )           | (94,754 | ) |
|                                                                                      |   |                                 |        |   |   |
| Net decrease in cash and cash equivalents                                                 |   | (13,801,733                          | )           | (1,041,507 | ) |
|                                                                                      |   |                                 |        |   |   |
| Cash and cash equivalents:                                                                |   |                                 |        |   |   |
| Beginning                                                                                 |   | 14,918,605                           |        | 13,946,736 |   |
| Ending                                                                                    |   | $                                    | 1,116,872   |   | $ | 12,905,229 |   |
|                                                                                      |   |                                 |        |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION                                        |   |                                 |        |   |   |
| Cash payments (refunds) for:                                                              |   |                                 |        |   |   |
| Interest                                                                                  |   | $                                    | 1,415,835   |   | $ | 1,445,278 |   |
| Income taxes                                                                              |   | $                                    | (1,418,352  | ) | $ | 142,604 |   |

 

See Notes toConsolidated Financial Statements.

 

4

----

 

TODHUNTER INTERNATIONAL, INC.

 

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

(Unaudited)

 

Note 1.          Basis of Presentation

 

The consolidated financial statements included herein have beenprepared by the Company, without audit, pursuant to the rules and regulationsof the Securities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted pursuant to such rules and regulations.  In the opinion of management, all adjustments, consisting only ofnormal recurring adjustments, except for the retirement of the ExecutiveOfficer (see Note 6), necessary for a fair presentation of the financialinformation for the periods indicated have been included.  For further information regarding theCompany’s accounting policies, refer to the consolidated financial statementsand related notes included in the Company’s Annual Report on Form 10-K for theyear ended September 30, 2003.

 

Aggregate amortization expenses were $20,100 for the six months endedMarch 31, 2004 and 2003, and $10,050 for the three months endedMarch 31, 2004 and 2003.

 

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, whichrequires compensation expense for the Company’s options to be recognized onlyif the market price of the underlying stock exceeds the exercise price on thedate of grant.  Accordingly, the Companyhas not recognized compensation expense for its options granted after 1994.  Statement of Financial Accounting Standards(“SFAS”) No. 123, *Accounting for Stock-BasedCompensation*, issued in October 1995, requires pro formadisclosures for option grants made after December 31, 1994, whenaccounting for stock-based compensation plans in accordance with APB 25.

 

If the Company elected to recognize compensation cost based on the fairvalue of the options granted at grant date as prescribed by SFAS No. 123, netincome (loss) and earnings (loss) per common share would have been reduced tothe pro forma amounts show below:

 
|                                           |   | **Six Months  Ended  March 31,** |      | **Three  Months Ended  March 31,** |   |
|------------------------------------------------|--------|---------------------------------------|-----------|-----------------------------------------|--------|
|                                           |   | **2004**                              |      | **2003**                                |   | **2004** |   | **2003** |   |
|                                           |   |                                  |      |                                    |   |   |   |   |   |
| Net income (loss), as reported                 |   | $                                     | 1,969,814 |                                    | $      | (64,390 | ) | $ | 1,118,530 |   | $ | 1,428,066 |   |
| Compensation costs, net of income taxes        |   | 42,034                                |      | 84,068                                  |   | — |   | 42,034 |   |
| Net income (loss), pro forma                   |   | 1,927,780                             |      | (148,458                                | )      | 1,118,530 |   | 1,386,032 |   |
| Earnings (loss) per common share, as  reported |   |                                  |      |                                    |   |   |   |   |   |
| Basic                                          |   | 0.35                                  |      | (0.01                                   | )      | 0.20 |   | 0.26 |   |
| Diluted                                        |   | 0.35                                  |      | (0.01                                   | )      | 0.20 |   | 0.25 |   |
| Earnings (loss) per common share, pro forma    |   |                                  |      |                                    |   |   |   |   |   |
| Basic                                          |   | 0.34                                  |      | (0.02                                   | )      | 0.20 |   | 0.24 |   |
| Diluted                                        |   | 0.33                                  |      | (0.02                                   | )      | 0.20 |   | 0.24 |   |
|                                                |        |                                       |           |                                         |        |  |  |  |  |  |  |  |  |

 

5

----

 

Note 2.          Inventories

 

The major components ofinventories are:

 

|                       |   | **March 31,  2004** |       | **September 30,  2003** |   |
|----------------------------|--------|--------------------------|------------|------------------------------|--------|
|                       |   | **(Unaudited)**          |       |                         |   |
|                       |   |                     |       |                         |   |
| Finished goods             |   | $                        | 20,080,138 |                         | $      | 15,588,106 |   |
| Work in process            |   | 2,550,080                |       | 3,380,434                    |   |
| Raw materials and supplies |   | 9,819,244                |       | 9,696,355                    |   |
|                       |   |                     |       |                         |   |
|                       |   | $                        | 32,449,462 |                         | $      | 28,664,895 |   |

 

Note 3.          Financing Arrangements

 

Long-term debt consists ofthe following as of March 31, 2004:

 
| Term loans under a credit agreement (i)  (ii), interest payable monthly based on either the Eurodollar or prime rate  at the Company’s option, plus an applicable margin as defined in the  agreement.  The interest rate at  March 31, 2004 was 4.36%.  Future  minimum quarterly principal installments of $1,000,000 through  September 30, 2006 with any remaining balance due September 30,  2006. |   | $          | 30,000,000 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |       |       |
| Revolving loans under a credit agreement  (i), interest payable quarterly based on either the Eurodollar or prime rate  at the Company’s option, plus an applicable margin as defined in the  agreement.  The blended interest rate  at March 31, 2004 was 3.84%.  The  revolving lines of credit terminate in October 2004.                                                                                 |   | 6,000,000  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |       |       |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 210,390    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 36,210,390 |       |
| Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                               |   | 10,000,000 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $          | 26,210,390 |   |

 

----

(i)             In October 2001, the Company enteredinto a $70 million credit agreement, consisting of a $40 million term loan anda $30 million revolving loan facility. During March 2004, the credit agreement was amended to reduce therevolving loan facility to $15 million. The credit agreement is collateralized principally by all assets locatedin the United States of America.  Underthe credit agreement, the Company is restricted from paying dividends tostockholders.  Also, the Company isrequired to maintain certain financial covenants under the credit agreement.

 

(ii)          In addition to quarterly principal payments,the Company may be required to make additional principal payments based onresults of the Company’s domestic operating profits, as defined in theagreement.

 

6

----

 

Note 4.          Earnings Per Common Share

 

Basic earnings per commonshare are calculated by dividing net income (loss) by the average common sharesoutstanding.  On a diluted basis, sharesoutstanding are adjusted to assume the exercise of stock options.  

 
|                                                                                                 |   | **Six Months  Ended  March 31,** |      | **Three  Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|-----------------------------------------|--------|
|                                                                                                 |   | **2004**                              |      | **2003**                                |   | **2004** |   | **2003** |   |
|                                                                                                 |   |                                  |      |                                    |   |   |   |   |   |
| Net income (loss)                                                                                    |   | $                                     | 1,969,814 |                                    | $      | (64,390 | ) | $ | 1,118,530 |   | $ | 1,428,066 |   |
| Determination of shares:                                                                             |   |                                  |      |                                    |   |   |   |   |   |
| Weighted average number of common shares  outstanding                                                |   | 5,598,122                             |      | 5,571,750                               |   | 5,617,591 |   | 5,572,367 |   |
| Shares issuable on exercise of stock  options, net of shares assumed to be purchased out of proceeds |   | 98,006                                |      | —                                  | *      | 104,778 |   | 35,007 |   |
| Average common shares outstanding for  diluted earnings per share computation                        |   | 5,696,128                             |      | 5,571,750                               |   | 5,722,369 |   | 5,607,374 |   |
|                                                                                                 |   |                                  |      |                                    |   |   |   |   |   |
| Earnings (loss) per common share:                                                                    |   |                                  |      |                                    |   |   |   |   |   |
| Basic                                                                                                |   | $                                     | 0.35      |                                    | $      | (0.01 | ) | $ | 0.20 |   | $ | 0.26 |   |
| Diluted                                                                                              |   | $                                     | 0.35      |                                    | $      | (0.01 | ) | $ | 0.20 |   | $ | 0.25 |   |

 

----

*                 The effect of stock options have notbeen included for the six months ended March 31, 2003, as their effectwould have been anti-dilutive.

 

The Company’s Virgin Islands subsidiary, through the EconomicDevelopment Commission of the Government of the Virgin Islands of the UnitedStates, has received a 90% exemption from income taxes on operatingincome.  This exemption is effectivethrough September 2020.  The pershare effect of this exemption on earnings (on a diluted basis) was to increaseearnings per share by $0.13 and $0.06 for the six and three months endedMarch 31, 2004, respectively, and $0.09 and $0.06 for the six and threemonths ended March 31, 2003, respectively.

 

7

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Note 5.          Segment and Geographical Information

 

The Company operates primarily in the beverage alcoholindustry in the United States.  TheCompany reports its operating results in four segments:

 

Bulk Alcohol Products (rum, citrus brandy, citrus spirits, canespirits, fortified citrus wine, purchased distilled products and byproducts)

Premium Branded Spirits (primarilyCruzan Estate Rums and Cruzan Flavored Rums)

Bottling Operations (contractbottling services and proprietary and private label products)

Vinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegarstock and proprietary and private label case goods)

 

Corporate Operations includes expenses related to theCompany’s executive offices that are not allocated to its reportablesegments.  These expenses includepayroll and related expenses, professional fees, consulting fees, rent for theCompany’s executive offices, insurance expense, directors’ fees and utilities.

 

The accounting policies of the reportable segments are the same asthose referred to in Note 1 to the consolidated financial statements located inItem 8 of the Company’s Annual Report on Form 10-K for the year endedSeptember 30, 2003.  The Companyevaluates the performance of its operating segments based on income beforeincome taxes, equity in income or loss of equity investees, interest income andinterest expense. Material intersegment sales and transfers have beeneliminated.

 

8

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Net sales, operating income (loss), depreciation and amortization, andcapital expenditures for the Company’s reportable segments for the six andthree months ended March 31, 2004 and 2003, and identifiable assets as ofMarch 31, 2004 and 2003, were as follows:

 
|                               |   | **Six Months  Ended  March 31,** |    | **Three  Months Ended  March 31,** |   |
|------------------------------------|--------|---------------------------------------|---------|-----------------------------------------|--------|
|                               |   | **2004**                              |    | **2003**                                |   | **2004** |   | **2003** |   |
|                               |   | **(in thousands)**                    |    | **(in thousands)**                      |   |
| **Net Sales**                      |   |                                  |    |                                    |   |   |   |   |   |
| Bulk Alcohol Products              |   | $                                     | 17,126  |                                    | $      | 17,527 |   | $ | 8,538 |   | $ | 8,832 |   |
| Premium Branded Spirits            |   | 11,524                                |    | 8,725                                   |   | 5,682 |   | 4,521 |   |
| Bottling Operations                |   | 5,547                                 |    | 6,411                                   |   | 2,872 |   | 3,582 |   |
| Vinegar and Cooking Wine           |   | 10,284                                |    | 10,126                                  |   | 4,947 |   | 4,890 |   |
|                               |   | $                                     | 44,481  |                                    | $      | 42,789 |   | $ | 22,039 |   | $ | 21,825 |   |
|                               |   |                                  |    |                                    |   |   |   |   |   |
| **Operating Income  (Loss)**       |   |                                  |    |                                    |   |   |   |   |   |
| Bulk Alcohol Products              |   | $                                     | 6,191   |                                    | $      | 5,773 |   | $ | 3,454 |   | $ | 3,676 |   |
| Premium Branded Spirits            |   | (1,887                                | )       | (746                                    | )      | (1,191 | ) | (333 | ) |
| Bottling Operations                |   | (1,722                                | )       | (1,737                                  | )      | (742 | ) | (455 | ) |
| Vinegar and Cooking Wine           |   | 1,624                                 |    | 2,052                                   |   | 758 |   | 880 |   |
| Corporate Operations and Other     |   | (1,930                                | )       | (3,041                                  | )      | (888 | ) | (1,542 | ) |
|                               |   | $                                     | 2,276   |                                    | $      | 2,301 |   | $ | 1,391 |   | $ | 2,226 |   |
|                               |   |                                  |    |                                    |   |   |   |   |   |
| **Depreciation and  Amortization** |   |                                  |    |                                    |   |   |   |   |   |
| Bulk Alcohol Products              |   | $                                     | 1,574   |                                    | $      | 1,609 |   | $ | 768 |   | $ | 800 |   |
| Premium Branded Spirits            |   | 55                                    |    | 50                                      |   | 30 |   | 25 |   |
| Bottling Operations                |   | 806                                   |    | 698                                     |   | 404 |   | 400 |   |
| Vinegar and Cooking Wine           |   | 237                                   |    | 242                                     |   | 119 |   | 120 |   |
| Corporate Operations and Other     |   | 50                                    |    | 59                                      |   | 25 |   | 30 |   |
|                               |   | $                                     | 2,722   |                                    | $      | 2,658 |   | $ | 1,346 |   | $ | 1,375 |   |
|                               |   |                                  |    |                                    |   |   |   |   |   |
| **Capital  Expenditures**          |   |                                  |    |                                    |   |   |   |   |   |
| Bulk Alcohol Products              |   | $                                     | 1,480   |                                    | $      | 1,072 |   | $ | 868 |   | $ | 314 |   |
| Premium Branded Spirits            |   | 180                                   |    | 16                                      |   | 48 |   | — |   |
| Bottling Operations                |   | 903                                   |    | 1,007                                   |   | 590 |   | 376 |   |
| Vinegar and Cooking Wine           |   | 19                                    |    | 34                                      |   | 4 |   | 23 |   |
| Corporate Operations and Other     |   | 5                                     |    | 11                                      |   | 4 |   | — |   |
|                               |   | $                                     | 2,587   |                                    | $      | 2,140 |   | $ | 1,514 |   | $ | 713 |   |
|                               |   |                                  |    |                                    |   |   |   |   |   |
| **Identifiable Assets**            |   |                                  |    |                                    |   |   |   |   |   |
| Bulk Alcohol Products              |   | $                                     | 65,979  |                                    | $      | 73,442 |   |   |   |   |   |
| Premium Branded Spirits            |   | 9,084                                 |    | 6,838                                   |   |   |   |   |   |
| Bottling Operations                |   | 23,879                                |    | 25,639                                  |   |   |   |   |   |
| Vinegar and Cooking Wine           |   | 19,902                                |    | 19,600                                  |   |   |   |   |   |
| Corporate Operations and Other     |   | 8,056                                 |    | 12,380                                  |   |   |   |   |   |
|                               |   | $                                     | 126,900 |                                    | $      | 137,899 |   |   |   |   |   |

 

9

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Net sales and operating income for the six and three monthsended March 31, 2004 and 2003 and identifiable assets as of March 31,2004 and 2003, classified by geographic area, were as follows:

 
|                   |   | **United  States**  |       | **U. S.  Virgin  Islands and  the Bahamas** |   | **Consolidated** |   |
|------------------------|--------|---------------------|------------|---------------------------------------------|--------|------------------|--------|
|                   |   | **(in  thousands)** | ** ** |
| **Six Months Ended**   |   |                |       |                                        |   |             |   |
|                   |   |                |       |                                        |   |             |   |
| March 31, 2004:   |   |                |       |                                        |   |             |   |
| Net sales              |   | $                   | 38,748     |                                        | $      | 5,733            |   | $ | 44,481 |   |
| Operating income       |   | 555                 |       | 1,721                                       |   | 2,276            |   |
| Identifiable assets    |   | 97,701              |       | 29,199                                      |   | 126,900          |   |
|                   |   |                |       |                                        |   |             |   |
| March 31, 2003:   |   |                |       |                                        |   |             |   |
| Net sales              |   | 37,483              |       | 5,306                                       |   | 42,789           |   |
| Operating income       |   | 988                 |       | 1,313                                       |   | 2,301            |   |
| Identifiable assets    |   | 94,637              |       | 43,262                                      |   | 137,899          |   |
|                   |   |                |       |                                        |   |             |   |
| **Three Months Ended** |   |                |       |                                        |   |             |   |
|                   |   |                |       |                                        |   |             |   |
| March 31, 2004:   |   |                |       |                                        |   |             |   |
| Net sales              |   | 19,130              |       | 2,909                                       |   | 22,039           |   |
| Operating income       |   | 445                 |       | 946                                         |   | 1,391            |   |
|                   |   |                |       |                                        |   |             |   |
| March 31, 2003:   |   |                |       |                                        |   |             |   |
| Net sales              |   | 18,823              |       | 3,002                                       |   | 21,825           |   |
| Operating income       |   | 1,351               |       | 875                                         |   | 2,226            |   |
|                        |        |                     |            |                                             |        |                  |        |  |  |  |

 

Included in net sales for the United States are export sales, primarilyto Europe, Canada and the Caribbean, totaling approximately $4,026,000 and$1,554,000 for the six and three months ended March 31, 2004,respectively, and $3,697,000 and $1,779,000 for the six and three months endedMarch 31, 2003, respectively.

 

Note 6.  Supplemental Employee Retirement Plan

 

During the second quarter offiscal 2004, the Company’s Compensation and Stock Option Committee approved asupplemental employee retirement plan for certain key executives of theCompany.  The plan is an unfunded planwithin the meaning of Financial Accounting Standard 132.  Amortization of prior service cost andinterest cost during the quarter ended March 31, 2004, was $22,014 and$1,321, respectively.

 

10

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Note 7.  Retirement ofExecutive Officer

 

On November 26, 2002, the Company announced the retirement andresignation of A. Kenneth Pincourt, Jr., its founder, Chairman and ChiefExecutive Officer.  The Company enteredinto a retirement agreement with Mr. Pincourt, setting forth the terms of hisretirement and resignation.  Theretirement agreement replaced Mr. Pincourt’s previous employment agreement.Under the retirement agreement, the Company elected to accelerate retirementbenefits under its deferred compensation program and to continue to paycompensation and provide related benefits through July 15, 2004, theremaining term of Mr. Pincourt’s previous employment contract.

 

Accelerated benefits under the deferred program amounted to $1,040,987,of which $549,220 had been accrued as of September 30, 2002. Mr.Pincourt’s deferred compensation was paid to him on December 13,2002.  Also under the retirementagreement, Mr. Pincourt will continue to receive monthly payments of $41,004through July 15, 2004, one bonus payment of $150,491, which was paid inOctober 2003, and a second bonus payment of $119,138 payable on or beforeAugust 31, 2004.  Among otherbenefits, Mr. Pincourt is also able to participate in any health insuranceplan, employee benefit plan or other arrangement made available by the Companyor its subsidiaries to its executives and key management employees, throughJuly 15, 2004.  The Companyrecorded a charge for the retirement of Mr. Pincourt during the first quarterof fiscal 2003.  The effect of thischarge was included in other expense in the Company’s consolidated statement ofincome and amounted to $1,503,925 before income taxes.

 

The following table summarizes the charge made during the first quarterof fiscal 2003 for Mr. Pincourt’s retirement:

 
| Deferred compensation                                                   |   | $         | 1,040,987 |   |
|-------------------------------------------------------------------------|--------|-----------|-----------|--------|
| Compensation and related benefits                                       |   | 1,012,158 |      |
| Total                                                                   |   | 2,053,145 |      |
|                                                                    |   |      |      |
| Less deferred compensation accrued as  of  September 30, 2003 |   | (549,220  | )         |
|                                                                    |   |      |      |
| Charged to expense                                                      |   | $         | 1,503,925 |   |

 

Note 8.  Income Taxes

 

The Company incurred losses for income tax purposes from itsU.S. operations of $3.0 million and $1.6 million for the six months ended March 31,2004 and 2003, respectively.  TheCompany has recorded an income tax benefit in the Company’s consolidatedstatement of income and as a receivable included in other current assets on theCompany’s consolidated balance sheet.

 

11

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**Item 2.****          ****Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

**Forward-Looking Statements**

 

Management’s Discussion and Analysiscontains “Forward-Looking Statements,” as defined in section 27a of theSecurities Act of 1933, as amended, and Section 21e of the SecuritiesExchange Act of 1934, as amended. Forward-Looking Statements are statements other than historicalinformation or statements of current condition and relate to future events orthe future financial  performance of theCompany.  Some Forward-LookingStatements may be identified by use of such terms as “believes,” “anticipates,”“intends” or “expects.”  SuchForward-Looking Statements involve known and unknown risks, uncertainties andother factors that may cause the actual results, performance or achievements ofthe Company to be materially different from any future results, performance orachievements expressed or implied by such Forward-Looking Statements.  The following is a list of factors, amongothers, that could cause actual results to differ materially from thosecontemplated by the Forward-Looking Statements:  business conditions in certain market segments and industries andthe general economy; competitive factors, including increased competition andprice pressures; availability of third-party component products at reasonableprices; increased excise taxes; foreign currency exposure; changes in productmix between and among product lines; lower than expected customer orders andquarterly seasonal fluctuations of those orders; and product shipmentinterruptions.  The Company undertakesno obligation to update or revise any Forward-Looking Statements, whether as aresult of new information, future events or otherwise.

 

**Introduction**

 

The following discussion and analysissummarizes the significant factors affecting (i) consolidated results ofoperations of the Company for the six months ended March 31, 2004 comparedto the six months ended March 31, 2003, (ii) consolidated results ofoperations of the Company for the three months ended March 31, 2004compared to the three months ended March 31, 2003, and (iii) financialliquidity and capital resources.  Thisdiscussion and analysis should be read in conjunction with the Company’s consolidatedfinancial statements and notes thereto included herein.  Certain amounts presented in this Item 2have been rounded to the nearest thousand or hundred thousand, as applicable,but the percentages calculated are based on actual amounts without rounding.

 

The Company operates primarily in thebeverage alcohol industry in the United States.  The Company is a leading producer and supplier of rum, brandy,wine and spirits to other beverage alcohol manufacturers; produces, imports andmarkets premium branded spirits; bottles beverage alcohol and other beverageson a contract basis and under its own labels; and produces vinegar and cookingwine.  The Company reports its operatingresults in four segments:  Bulk AlcoholProducts (rum, citrus brandy, citrus spirits, cane spirits, fortified citruswine, purchased distilled products and byproducts); Premium Branded Spirits(primarily Cruzan Estate Rums and Cruzan Flavored Rums); Bottling Operations(contract bottling services and proprietary and private label products); andVinegar and Cooking Wine (bulk vinegar, bulk cooking wine, vinegar stock andproprietary and private label case goods).

 

Information regarding the net sales,operating income and total assets of each of the Company’s business segmentsand information regarding geographic areas is set forth in Note 5 to theconsolidated financial statements.

 

The Company’s net sales and grossmargins (gross profit as a percentage of net sales) vary depending on the mixof business among the Company’s products. Historically, gross margins have been highest in bulk alcohol productsand premium branded spirits and lower in bottling operations and vinegar andcooking wine operations.

 

The Company’s customers oftenpurchase bulk alcohol products in significant quantities or place significantorders for contract bottling services, distilled spirits, vinegar and cookingwine.  Accordingly, the size and timingof purchase orders and product shipments can cause operating results tofluctuate significantly from quarter to quarter.  Additionally, some Company products generate higher profitmargins than others, and changes in the Company’s product mix can cause grossmargins to fluctuate.  Certain aspectsof the Company’s business are seasonal, with increased demand for the Company’scontract bottling services from April to October and increasedproduction of the Company’s bulk alcohol products from November to June,corresponding to the Florida citrus harvest. As a result of these factors, the Company’s operating results may varysignificantly from quarter to quarter.

 

12

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Net sales represent the Company’sgross sales less excise taxes. Excise taxes are generally payable on sales ofcertain of the Company’s bulk alcohol products and on all alcohol productsbottled by the Company.  However, thereare no excise taxes paid on sales made to customers that have tax permits.  Accordingly, excise taxes may varysignificantly from period to period depending upon the Company’s product andcustomer mix.

 

**Results ofOperations**

 

The following table sets forthstatement of income items as a percentage of net sales.

 
|                                          |   | **Six Months  Ended  March 31,** |   | **Three  Months Ended  March 31,** |   |
|-----------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
|                                          |   | **2004**                              |   | **2003**                                |   | **2004** |   | **2003** |   |
| Net sales                                     |   | 100.0                                 | %      | 100.0                                   | %      | 100.0 | % | 100.0 | % |
| Cost of goods sold                            |   | 66.3                                  |   | 68.7                                    |   | 64.4 |   | 64.2 |   |
| Gross margin                                  |   | 33.7                                  |   | 31.3                                    |   | 35.6 |   | 35.8 |   |
| Selling, general and administrative  expenses |   | 28.6                                  |   | 25.9                                    |   | 29.3 |   | 25.6 |   |
| Operating income                              |   | 5.1                                   |   | 5.4                                     |   | 6.3 |   | 10.2 |   |
| Interest expense                              |   | (3.2                                  | )      | (3.7                                    | )      | (3.2 | ) | (4.0 | ) |
| Other income (expense), net                   |   | 2.3                                   |   | (2.1                                    | )      | 1.8 |   | 1.4 |   |
| Income (loss) before income taxes             |   | 4.2                                   |   | (0.4                                    | )      | 4.9 |   | 7.6 |   |
| Income tax (expense) benefit                  |   | 0.2                                   |   | 0.2                                     |   | 0.2 |   | (1.1 | ) |
| Net income (loss)                             |   | 4.4                                   | %      | (0.2                                    | )%     | 5.1 | % | 6.5 | % |

 

The following table providesinformation on net sales of certain Company products.

 
|                     |   | **Six Months  Ended  March 31,** |   | **Three  Months Ended  March 31,** |   |
|--------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
|                     |   | **2004**                              |   | **2003**                                |   | **% Change** |   | **2004** |   | **2003** |   | **% Change** |   |
|                     |   | **(in  thousands)**                   |   |                                    |   | **(in  thousands)** |   |   |   |
|                     |   |                                  |   |                                    |   |   |   |   |   |   |   |   |   |
| Bulk Alcohol Products    |   | $                                     | 17,126 |                                    | $      | 17,527 |   | (2.3 | ) | $ | 8,538 |   | $ | 8,832 |   | (3.3 | ) |
| Premium Branded Spirits  |   | 11,524                                |   | 8,725                                   |   | 32.1 |   | 5,682 |   | 4,521 |   | 25.7 |   |
| Bottling Operations      |   | 5,547                                 |   | 6,411                                   |   | (13.5 | ) | 2,872 |   | 3,582 |   | (19.8 | ) |
| Vinegar and Cooking Wine |   | 10,284                                |   | 10,126                                  |   | 1.6 |   | 4,947 |   | 4,890 |   | 1.2 |   |
|                     |   | $                                     | 44,481 |                                    | $      | 42,789 |   | 4.0 |   | $ | 22,039 |   | $ | 21,825 |   | 1.0 |   |

 

13

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The following table provides unitsales volume data for certain Company products.

 
|                                 |   | **Six Months  Ended  March 31,** |   |     |   | **Three  Months Ended  March 31,** |   |     |   |
|--------------------------------------|--------|---------------------------------------|--------|----------|--------|-----------------------------------------|--------|----------|--------|
|                                 |   | **2004**                              |   | **2003** |   | **% Change**                            |   | **2004** |   | **2003** |   | **% Change** |   |
|                                 |   | **(in  thousands)**                   |   |     |   | **(in  thousands)**                     |   |     |   |
|                                 |   |                                  |   |     |   |                                    |   |     |   |   |   |   |   |
| Bulk alcohol products:               |   |                                  |   |     |   |                                    |   |     |   |   |   |   |   |
| Distilled products, in proof gallons |   |                                  |   |     |   |                                    |   |     |   |   |   |   |   |
| Citrus Brandy                        |   | 638                                   |   | 871      |   | (26.8                                   | )      | 221      |   | 414 |   | (46.7 | ) |
| Citrus Spirits                       |   | 55                                    |   | 183      |   | (70.1                                   | )      | 55       |   | 67 |   | (18.6 | ) |
| Rum                                  |   | 2,224                                 |   | 2,147    |   | 3.6                                     |   | 1,108    |   | 1,199 |   | (7.6 | ) |
| Cane Spirits                         |   | 217                                   |   | 245      |   | (11.3                                   | )      | 127      |   | 120 |   | 6.6 |   |
| Fortified citrus wine, in gallons    |   | 5,323                                 |   | 5,028    |   | 5.9                                     |   | 2,569    |   | 2,485 |   | 3.4 |   |
| Premium branded spirits, in cases    |   | 342                                   |   | 227      |   | 50.8                                    |   | 141      |   | 118 |   | 19.5 |   |
| Bottling operations, in cases        |   | 1,412                                 |   | 1,441    |   | (2.0                                    | )      | 752      |   | 898 |   | (16.2 | ) |
| Vinegar                              |   |                                  |   |     |   |                                    |   |     |   |   |   |   |   |
| Bulk, in 100 grain gallons           |   | 2,619                                 |   | 2,702    |   | (3.1                                    | )      | 1,255    |   | 1,463 |   | (14.2 | ) |
| Cases                                |   | 217                                   |   | 271      |   | (20.1                                   | )      | 100      |   | 117 |   | (14.6 | ) |
| Drums, in 100 grain gallons          |   | 650                                   |   | 773      |   | (15.9                                   | )      | 404      |   | 388 |   | 4.3 |   |
| Cooking Wine                         |   |                                  |   |     |   |                                    |   |     |   |   |   |   |   |
| Bulk, in gallons                     |   | 1,427                                 |   | 2,178    |   | (34.5                                   | )      | 528      |   | 1,025 |   | (48.5 | ) |
| Cases                                |   | 366                                   |   | 350      |   | 4.4                                     |   | 151      |   | 166 |   | (9.6 | ) |

 

**Six months ended March 31, 2004 comparedto six months ended March 31, 2003**.  Unless otherwise noted, references to 2004represent the six-month period ended March 31, 2004 and references to 2003represent the six-month period ended March 31, 2003.

 

*Net Sales.*Net saleswere $44.5 million in 2004, an increase of 4.0% from net sales of $42.8 millionin 2003.

 

Net sales ofbulk alcohol products were $17.1 million in 2004, a decrease of 2.3% from netsales of $17.5 million in 2003.  Thedecrease resulted primarily from decreased shipments of citrus brandy, citrusspirits and cane spirits offset by increased shipments of rum and fortifiedwine.  The decrease in citrus brandy,citrus spirits and cane spirits was due in part to the timing of customerorders.  In addition, in 2003, theCompany had sales of citrus and cane spirits to new customers that haddifficulty sourcing bulk alcohol from their regular suppliers.  These sales did not reoccur in 2004.

 

Netsales of premium branded spirits were $11.5 million in 2004, an increase of32.1% from net sales of $8.7 million in 2003. During fiscal 2002, the Company had introduced a new line of Cruzanproducts in the ready-to-drink category. During fiscal 2003, due to increased competition and management’sexpectation of limited growth potential within the ready-to-drink productcategory, the Company made a strategic decision to exit this category andconcentrate on the growing segment of its premium branded spirits business,Cruzan Estate Rums and Cruzan Flavored Rums. In connection with management’s decision to exit the ready-to-drinkproduct category, during the fourth quarter of fiscal 2003, the Company enteredinto an agreement with a corporate trading company to receive trade creditsupon installment deliveries of the Company’s remaining inventory ofready-to-drink products.  In 2004, netsales of premium branded spirits included $0.7 million of Cruzan ready-to-drinkproducts sold to this trading company. These sales represented the final sales of inventories of suchproducts.  Excluding Cruzanready-to-drink product sales, net sales of premium branded spirits were $10.8million in 2004, an increase of 24.1% from net sales of $8.7 million in 2003,as the premium branded spirits segment continued its double-digit growth.

 

14

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Sales of the Company’s Cruzan Estate Rums and Cruzan Flavored Rumsincreased 12.6% in 2004 compared to 2003. The rate of growth for Cruzan Estate Rums and Cruzan Flavored Rums isless than previous periods due to a larger comparative base number and theincreased competition discussed below. Sales of Cruzan Estate Rums and Cruzan Flavored Rums increased from $2.2million in fiscal 1996 to $17.0 million in fiscal 2003.  During this time, the Cruzan brand has beenrecognized as one of the fastest growing brands in the spirits industry bycertain beverage industry publications and the Cruzan Rums have won numeroustasting awards from several prestigious beverage industry organizations.  Recently, several of the Company’scompetitors have introduced their own lines of flavored rum products into themarketplace, which has negatively impacted the level of sales growth of CruzanFlavored Rums.  Some of the Company’scompetitors in the rum and flavored rum categories have significantly greaterfinancial and other resources than the Company, which could adversely affectthe Company’s sales growth of Cruzan Estate Rums and Cruzan Flavored Rums. As aresponse to such increased competition, and in order to provide further impetusto the growth of Cruzan Flavored Rums, management has significantly increasedits marketing budget for fiscal 2004. Management believes that by increasing its marketing budget andmaintaining its focus on the Cruzan brand, sales of Cruzan Estate Rums andCruzan Flavored Rums will continue their double-digit growth for fiscal 2004.

 

Net sales of the Company’s bottling operations were $5.5 million in2004, a decrease of 13.5% from net sales of $6.4 million in 2003.  While the unit volume of the Company’sbottling operations has decreased by only 2.0% in 2004 as a result of businesswith new contract bottling customers, average unit prices declined as a resultof a change in customer mix.  During thefirst quarter of fiscal 2004, the Company lost a large private label bottlingcustomer.  Net sales to this customerwere approximately $1.6 million and 124,277 cases for the year endedSeptember 30, 2003, or approximately 11.0% of bottling operations netsales and 3.3% of bottling operations volume. Net sales to this customer during 2003 were approximately $1.5 millionand 120,615 cases.  Also during 2004,excise taxes decreased $3.0 million compared to 2003.  The decrease in sales to this private label bottling customerduring 2004 accounted for approximately $2.9 million of the $3.0 milliondecrease in excise taxes. Management believes that the loss of this low marginbusiness will not have a material effect on the Company’s consolidated resultsof operations or financial position. During the third quarter of fiscal 2003, management began to implement aplan to consolidate the Company’s bottling operations to increase efficienciesand reduce overhead.  Although theCompany continues to consolidate its bottling operations, bottling operations volumehas not met expectations, which caused a loss in bottling operations.  The Company is placing a renewed emphasis onthe sales effort in this segment of its business and believes it will seeimprovement in future quarters.

 

Net sales of vinegar and cooking wine were $10.3 million in 2004, anincrease of 1.6% from net sales of $10.1 million in 2003.

 

*Gross Profit.* Grossprofit was $15.0 million in 2004, an increase of 11.9% from gross profit of$13.4 million in 2003.  During 2004,bulk alcohol gross profit increased as a result of increased shipments of rumand fortified wine; premium branded spirits gross profit increased with sales;bottling operations gross profit increased due to new business with contractbottling customers; and vinegar and cooking wine gross profit decreased due tohigher material cost.  Gross marginincreased to 33.7% in 2004 from 31.3% in 2003 as a result of changes in productmix.

 

*Selling, General and AdministrativeExpenses. *Selling,general and administrative expenses were $12.7 million in 2004, an increase of14.6% from $11.1 million in 2003.  Theincrease was primarily attributable to increased administrative, marketing andadvertising expenses in the Company’s premium branded spirits business as theCompany continues to place emphasis on this growing business segment.  Also during 2004, the Company’s Compensationand Stock Option Committee approved a new Supplemental Employee Retirement Planfor certain key executives of the Company. This new plan replaces a deferred compensation plan, which resulted inthe cancellation of a $0.7 million liability which was credited to expense.

 

15

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*Operating Income.*  The following table sets forth the operatingincome (loss) by reportable segment of the Company for 2004 and 2003.  

 
|                     |   | **Six Months  Ended  March 31,** |       |     |       |
|--------------------------|--------|---------------------------------------|------------|----------|------------|
|                     |   | **2004**                              |       | **2003** |       | **% Change** |   |
|                     |   | **(In  thousands)**                   | ** ** |     | ** ** |
| Bulk Alcohol Products    |   | $                                     | 6,191      |     | $          | 5,773 |   | 7.2 |   |
| Premium Branded Spirits  |   | (1,887                                | )          | (746     | )          | — |   |
| Bottling Operations      |   | (1,722                                | )          | (1,737   | )          | — |   |
| Vinegar and Cooking Wine |   | 1,624                                 |       | 2,052    |       | (20.8 | ) |
| Corporate Operations     |   | (1,930                                | )          | (3,041   | )          | — |   |
|                     |   | $                                     | 2,276      |     | $          | 2,301 |   | (1.1 | ) |

 

As a result of the above factors, operating income was $2.28 million in2004, a decrease of 1.1% from operating income of $2.3 million in 2003.

 

The Company’s premium branded spiritssegment experienced operating losses of $1.9 million in 2004 and $0.8 millionin 2003.  The operating losses reflectedthe Company’s continuing efforts to increase market share by reinvesting segmentgross profits in selling and marketing expenses.

 

The Company’s bottling operationssegment reported an operating loss of $1.7 million in 2004 and 2003. During thethird quarter of fiscal 2003, management began to implement a plan toconsolidate the Company’s bottling operations to increase efficiencies andreduce overhead.  Although the Companycontinues to consolidate its bottling operations, bottling operations volumehas not met expectations, which caused a loss in bottling operations.  The Company is placing a renewed emphasis onthe sales effort in this segment of its business and believes it will seeimprovement in future quarters.

 

*Interest Expense.*Interest expense was $1.4 million in2004 and $1.6 million in 2003.  TheCompany’s borrowing rates and average borrowings were lower in 2004 compared to2003.

 

*Other Expense*. On November 26, 2002, the Company announced the retirement andresignation of A. Kenneth Pincourt, Jr., its Founder, Chairman and ChiefExecutive Officer.  The Company hasentered into a retirement agreement with Mr. Pincourt, setting forth the termsof his retirement and resignation.  Theretirement agreement replaces Mr. Pincourt’s previous employment agreement.Under the retirement agreement, the Company elected to accelerate retirementbenefits under its deferred compensation program and to continue to paycompensation and provide related benefits through July 15, 2004, theremaining term of Mr. Pincourt’s previous employment contract.

 

Acceleratedbenefits under the deferred program amounted to $1,040,987, of which $549,220had been accrued as of September 30, 2002. Mr. Pincourt’s deferredcompensation was paid to him on December 13, 2002.  Also under the retirement agreement, Mr.Pincourt will continue to receive monthly payments of $41,004 throughJuly 15, 2004, one bonus payment of $150,491, which was paid inOctober 2003, and a second bonus payment of $119,138 payable on or beforeAugust 31, 2004.  Among otherbenefits, Mr. Pincourt is also able to participate in any health insuranceplan, employee benefit plan or other arrangement made available by the Companyor its subsidiaries to its executives and key management employees, throughJuly 15, 2004.  The Companyrecorded a charge for the retirement of Mr. Pincourt during 2003.  The effect of this charge was included inother expense in the Company’s consolidated statement of income and amounted to$1,503,925 before income taxes.

 

16

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The following table summarizes the charge made during 2003 for Mr.Pincourt’s retirement:

 
| Deferred compensation                                             |   | $         | 1,040,987 |   |
|-------------------------------------------------------------------|--------|-----------|-----------|--------|
| Compensation and related benefits                                 |   | 1,012,158 |      |
| Total                                                             |   | 2,053,145 |      |
|                                                              |   |      |      |
| Less deferred compensation accrued as of  September 30, 2002 |   | (549,220  | )         |
|                                                              |   |      |      |
| Charged to expense                                                |   | $         | 1,503,925 |   |

 

*Income Tax Expense.*During2004 and 2003, the Company incurred operating losses from its U.S. operationsand recorded an income tax benefit of $0.1 million in each period.  The Company’s Virgin Islands subsidiary hasa 90% exemption from U.S. Virgin Islands income taxes.  The exemption is effective throughSeptember 2020.  In addition, theCompany benefited from the extraterritorial income exclusion in 2004 and 2003.

 

**Three months ended March 31, 2004compared to three months ended March 31, 2003**. Unless otherwise noted, references to 2004 represent the three-monthperiod ended March 31, 2004 and references to 2003 represent thethree-month period ended March 31, 2003.

 

*Net Sales.*Net sales were $22.0 million in2004, an increase of 1.0% from net sales of $21.8 million in 2003.

 

Net sales ofbulk alcohol products were $8.5 million in 2004, a decrease of 3.3% from netsales of $8.8 million in 2003.  Thedecrease resulted primarily from decreased shipments of citrus brandy, citrusspirits and rum spirits offset by increased shipments of cane spirits andfortified citrus wine.  The decrease incitrus brandy, citrus spirits and rum spirits was due in part to the timing ofcustomer orders.

 

Netsales of premium branded spirits were $5.7 million in 2004, an increase of25.7% from net sales of $4.5 million in 2003. Sales of the Company’s Cruzan Estate Rums and Cruzan Flavored Rumsincreased 23.4% in 2004 compared to 2003. Sales of Cruzan Estate Rums and Cruzan Flavored Rums increased from $2.2million in fiscal 1996 to $17.0 million in fiscal 2003.  During this time, the Cruzan brand has beenrecognized as one of the fastest growing brands in the spirits industry bycertain beverage industry publications and the Cruzan Rums have won numeroustasting awards from several prestigious beverage industry organizations.  Recently, several of the Company’scompetitors have introduced their own lines of flavored rum products into themarketplace, which has negatively impacted the level of sales growth of CruzanFlavored Rums. Some of the Company’s competitors in the rum and flavored rumcategories have significantly greater financial and other resources than theCompany, which could adversely affect the Company’s sales growth of Cruzan Rumsand Cruzan Flavored Rums. As a response to such increased competition, and inorder to provide further impetus to the growth of Cruzan Flavored Rums,management has significantly increased its marketing budget for fiscal2004.  Management believes that byincreasing its marketing budget and maintaining its focus on the Cruzan brand,sales of Cruzan Estate Rums and Cruzan Flavored Rums will continue theirdouble-digit growth for fiscal 2004.

 

Netsales of the Company’s bottling operations were $2.9 million in 2004, adecrease of 19.8% from net sales of $3.6 million in 2003.  During fiscal 2004, the Company lost a largeprivate label bottling customer.  Netsales to this customer were approximately $1.6 million and 124,277 cases forthe year ended September 30, 2003, or approximately 11.0% of bottlingoperations net sales and 3.3% of bottling operations volume.  Net sales to this customer during 2003 wereapproximately $0.7 million and 62,949 cases. Also during 2004, excise taxes decreased $0.9 million compared to2003.  The decrease in sales to thisprivate label bottling customer during 2004 accounted for approximately $1.3million of the $0.9 million net decrease in excise taxes. Management believesthat the loss of this low margin business will not have a material effect on theCompany’s consolidated results of operations or financial position.  During the third quarter of fiscal 2003,management began to implement a plan to consolidate the Company’s bottlingoperations to increase efficiencies and reduce overhead.  Although the Company continues toconsolidate its bottling operations, bottling operations volume has not metexpectations, which caused a loss in

 

17

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bottling operations.  TheCompany is placing a renewed emphasis on the sales effort in this segment ofits business and believes it will see improvement in future quarters.

 

Net sales of vinegar and cooking wine were$4.95 million in 2004, an increase of 1.2% from net sales of $4.89 million in2003.

 

*Gross Profit.* Grossprofit was $7.81 million in 2004, an increase of 0.5% from gross profit of $7.8million in 2003.  Gross margin was 35.6%in 2004 compared to 35.8% in 2003.

 

*Selling, General and AdministrativeExpenses. *Selling,general and administrative expenses were $6.5 million in 2004, an increase of15.7% from $5.6 million in 2003.  Theincrease was primarily attributable to increased administrative, marketing andadvertising expenses related to the Company’s premium branded spirits businessas the Company continues to place emphasis on this growing businesssegment.  Also during 2004, theCompany’s Compensation and Stock Option Committee approved a new Supplemental Employee Retirement Plan forcertain key executives of the Company. This new plan replaces a deferred compensation plan, which resulted inthe cancellation of a $0.7 million liability which was credited to expense.

 

*Operating Income.*  The following table sets forth the operatingincome (loss) by reportable segment of the Company for 2004 and 2003.  

 
|                           |   | **Three  months ended  March 31,** |   |     |   |
|--------------------------------|--------|-----------------------------------------|--------|----------|--------|
|                           |   | **2004**                                |   | **2003** |   | **% Change** |   |
|                           |   | **(In  thousands)**                     |   |     |   |
| Bulk Alcohol Products          |   | $                                       | 3,454  |     | $      | 3,676 |   | (6.1 | ) |
| Premium Branded Spirits        |   | (1,191                                  | )      | (333     | )      | — |   |
| Bottling Operations            |   | (742                                    | )      | (455     | )      | — |   |
| Vinegar and Cooking Wine       |   | 758                                     |   | 880      |   | (13.9 | ) |
| Corporate Operations and Other |   | (888                                    | )      | (1,542   | )      | — |   |
|                           |   | $                                       | 1,391  |     | $      | 2,226 |   | (37.5 | ) |

 

As a result of the above factors, operating income was $1.4 million in2004, a decrease of 37.5% from operating income of $2.2 million in 2003.

 

The Company’s premium branded spiritssegment experienced operating losses of $1.2 million in 2004 and $0.3 millionin 2003.  The operating loss reflectedthe Company’s continuing efforts to increase market share by reinvestingsegment gross profits in selling and marketing expenses.

 

The Company’s bottling operationssegment reported an operating loss of $0.7 million in 2004 compared tooperating loss of $0.5 million in 2003. During the third quarter of fiscal 2003, management began to implement aplan to consolidate the Company’s bottling operations to increase efficienciesand reduce overhead.  Although theCompany continues to consolidate its bottling operations, bottling operationsvolume has not met expectations, which caused a loss in bottlingoperations.  The Company is placing arenewed emphasis on the sales effort in this segment of its business andbelieves it will see improvement in future quarters.

 

*Interest Expense.*Interest expense was $0.7 million in2004 and $0.9 million in 2003.  TheCompany’s borrowing rates and average borrowings were lower in 2004 compared to2003.

 

*Income Tax Expense.*During 2004, the Company incurredoperating losses from its U.S. operations and recorded an income tax benefit of$0.5 million.  The Company’s VirginIslands subsidiary has a 90% exemption from U.S. Virgin Islands incometaxes.  The exemption is effectivethrough September 2020.  Inaddition, the Company benefited from the extraterritorial income exclusion in2004 and 2003.

 

18

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**Financial Liquidity and Capital Resources**

 

**General**

 

The Company’s principal use of cashin its operating activities is for purchasing raw materials to be used in itsmanufacturing operations and purchasing imported products for its premiumbranded spirits business.  The Company’ssource of liquidity has historically been cash flow from operations and fromborrowings on its line of credit.  Someof the Company’s manufacturing operations are seasonal and the Company’sborrowings on its line of credit vary during the year.  For example, the Company uses citrusmolasses as its primary raw material in the production of citrus brandy andspirits at its two Florida distilleries. The Company buys citrus molasses, a by-product of citrus juiceproduction, from local manufacturers of citrus juice and concentrate during thecitrus harvest, which generally runs from November to June.  The Company begins purchasing citrusmolasses in November and, due to the short life of the citrus molasses itpurchases, manufactures and builds inventory of citrus brandy and spiritsthrough June.  Another seasonal businessof the Company is its contract bottling services.  Demand for contract bottling services is highest during themonths from April through October. Management believes that cash provided by its operating and financingactivities will provide adequate resources to satisfy its working capital,liquidity and anticipated capital expenditure requirements for both itsshort-term and long-term capital needs.

 

**Operating Activities**

 

Net cash provided by operatingactivities in 2004 was $2.0 million, which resulted from $4.8 million in netincome adjusted for noncash items, and $2.8 million representing the netincrease in operating assets and liabilities.

 

**Investing andFinancing Activities**

 

Net cash used in investing activitiesin 2004 was $1.0 million, which resulted primarily from $2.6 million of capitalexpenditures, offset by proceeds from the sale of property and equipment,collections on notes receivable and redemptions of short-term investments.

 

Net cash used in financing activitiesin 2004 was $14.8 million, which resulted primarily from payments of $2.1million of long-term debt and $13.0 million in payments on the Company’s lineof credit.

 

The Company’s revolving credit facility,which expires in October 2004, provides for maximum borrowings of $15million.  Borrowings under this facilitywere $6.0 million at March 31, 2004. The Company is actively discussing alternatives with its current andother lenders to refinance this facility prior to its scheduled expiration (seeNote 3 to the consolidated financial statements).

 

The Company’s bank debt was $36.0million as of March 31, 2004, and its ratio of total debt to equity was0.74 to 1.

 

The Company has not paid dividends tostockholders since becoming a public company in 1992.  The Company intends to continue to retain earnings for use in itsbusiness and, therefore, does not anticipate declaring or paying cash dividendsin this fiscal year.  Also, the paymentof cash dividends is restricted by the Company’s credit agreement.  In addition to quarterly term loan principalpayments required by the credit agreement, the Company may be required to makeadditional principal payments based on the results of the Company’s domesticoperating profits, as defined in the credit agreement.

 

The Company’s share of theundistributed earnings of the Bahamian and Virgin Islands subsidiaries wasapproximately $7.3 million and $31.6 million, respectively, as ofSeptember 30, 2003.  See Note 10 tothe Company’s consolidated financial statements included in the Company’sAnnual Report on Form 10-K for the year ended September 30, 2003 foradditional information on income taxes related to these subsidiaries.

 

Based on current plans and business conditions,management expects that its cash, cash equivalents, and short-term investments,together with any amounts generated from operations and available borrowings,will be sufficient to meet the Company’s cash requirements for at least thenext 12 months.

 

19

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**Effects of Inflation and Changing Prices**

 

The Company’s results of operationsand financial condition have not been significantly affected by inflation andchanging prices.  The Company has beenable, subject to normal competitive conditions, to pass along rising coststhrough increased selling prices.

 

**Critical Accounting Policies**

 

The Company’s significant accountingpolicies are more fully described in Note 1 to the Company’s consolidatedfinancial statements located in Item 8 of its Annual Report on Form 10-K forthe year ended September 30, 2003. The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions thataffect the reported amounts of assets, liabilities, revenues, and expenses, andthe related disclosures of contingent assets and liabilities. Actual resultscould differ from those estimates under different assumptions or conditions.The Company believes that the following critical accounting policy is subjectto estimates and judgments used in the preparation of its consolidatedfinancial statements:

 

The Company has goodwill andintangible assets associated with business acquisitions. The Company reviewsthese assets for impairment annually and whenever an event occurs orcircumstances change that would more likely than not reduce the fair value ofthese assets below their carrying value. If the fair value of these assets is less than their carrying value,then an impairment loss would be recognized equal to the excess of the carryingvalue over the fair value of the asset.

 

**Off-Balance Sheet Arrangements**

 

The Company has no off-balance sheetarrangements that have or are reasonably likely to have a current or futureeffect on the Company’s financial condition, changes in financial condition,revenues or expenses, results of operations, liquidity, capital expenditures orcapital resources that are material to investors.  See Recent Accounting Pronouncements, below.

 

**Recent Accounting Pronouncements**

 

As of March 31, 2003, theCompany adopted Financial Accounting Standards Board Interpretation No. 45(“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others.  FIN 45 requires a guarantor to recognize atthe inception of a guarantee, a liability for the fair value or market value,of the obligation undertaken in issuing the guarantee and must disclose theinformation in its interim and annual financial statements.  The provisions related to recognizing aliability at inception for the fair value of the guarantor’s obligation does not apply to guarantees issuedbetween entities under common control and therefore is not applicable to theCompany.  Management believes that thisstandard does not have a material effect on the Company’s consolidatedfinancial position or results of operations.

 

In January 2003, the FinancialAccounting Standards Board issued FIN 46, Consolidation of Variable InterestEntities.  FIN 46 clarifies theapplication of Accounting Research Bulletin 51, Consolidated FinancialStatements, for certain entities that do not have sufficient equity at risk forthe entity to finance its activities without additional subordinated financialsupport from other parties or in which equity investors do not have thecharacteristics of a controlling financial interest (“variable interestentities”).  Variable interest entitieswithin the scope of FIN 46 will be required to be consolidated by their primarybeneficiary.  The primary beneficiary ofa variable interest entity is determined to be the party that absorbs amajority of the entity’s expected losses, receives a majority of its expectedreturns, or both.  FIN 46 appliedimmediately to variable interest entities created after January 31, 2003,and to variable interest entities in which the Company obtains an interestafter that date.  FIN 46 was effectiveJuly 1, 2003 to variable interest entities in which the Company holds avariable interest that it acquired before February 1, 2003.  Management believes this standard does nothave a material effect on the Company’s consolidated financial position orresults of operations.

 

20

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**Corporate Governance**

 

TheCompany has adopted the Todhunter International, Inc. Code of Business Conductand Ethics (the “code of conduct”), applicable to all officers, directors andemployees, and the Todhunter International, Inc. Code of Ethics (the “code ofethics”), applicable to our Chief Executive Officer, Chief Financial Officer,Controller and other senior financial officers.  Both the code of conduct and the code of ethics are publiclyavailable on our Web site at http://www.todhunter.com.

 

**Item 3.****          ****Quantitative and QualitativeDisclosures About Market Risk**

 

The information required under thisItem 3 is incorporated herein by reference to the Company’s Annual Report onForm 10-K for the year ended September 30, 2003.  As of March 31, 2004, there have been no material changesfor the information provided therein.

 

**Item 4.****          ****Controls and Procedures**

 

**Evaluation of Disclosure Controls andProcedures**

 

The Company maintains disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) that are designed toensure that information required to be disclosed in the Company’s reports underthe Exchange Act are recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that the informationis accumulated and communicated to the Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer, as appropriate,to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognized that any disclosure controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired objectives, and management wasrequired to apply its judgment in evaluating the cost-benefit relationship ofpossible disclosure controls and procedures. The Company’s management, with the participation of the Company’s Chief ExecutiveOfficer and Chief Financial Officer, has evaluated the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures as ofthe end of the period covered by this report. Based upon that evaluation and subject to the foregoing, the Company’sChief Executive Officer and Chief Financial Officer concluded that the designand operation of the Company’s disclosure controls and procedures providedreasonable assurance that the disclosure controls and procedures are effectiveto accomplish their objectives.

 

**Changes in Internal Control Over FinancialReporting**

 

In addition, management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, reviewed theCompany’s internal control over financial reporting (as defined in Rule13a-15(f) under the Exchange Act), and there have been no significant changesin the Company’s internal control or in other factors that could significantlyaffect the Company’s internal control over financial reporting during the periodcovered by this report.

 

21

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**PART II.  OTHERINFORMATION**

 

**Item 1.  Legal Proceedings**

 

Asdisclosed in the Company’s Annual Report on Form 10-K for the year endedSeptember 30, 2003, the United States Virgin Islands Department of PublicWorks, Virgin Islands Rum Industries, Ltd. (“VIRIL”), the Company’swholly-owned subsidiary, and Cruzan Divers, Inc. (VIRIL’s contractor) eachreceived a Request for Information (the “I-R”), dated June 30, 2003, from theEnvironmental Protection Agency (the “EPA”) concerning the construction, in thespring of 2002, of an effluent outfall line on the south shore of St.Croix.  The I-R, which was issuedpursuant to Section 308 of the Federal Water Pollution Control Act, 33U.S.C. 1251, et seq. (the “FWPCA”), stated that the EPA was investigatingwhether the construction and installation of the outfall line constituted aviolation of Section 404 of the FWPCA. On March 1, 2004, VIRIL received notice from the EPA that it haddecided not to undertake enforcement action against VIRIL underSection 404 for the subject work and referred VIRIL to the U.S. Army Corpsof Engineers regarding the final disposition of the regulatory status of theoutfall line construction under Section 10 of the Rivers and Harbors Actof 1899, as amended.  On March 9,2004, VIRIL contacted the U.S. Army Corps of Engineers regarding finaldisposition but has yet to receive a reply.

 

TheCompany and its subsidiaries are subject to litigation from time to time in theordinary course of business.  None ofthese routine legal proceedings are material.

 

**Item 4.  Submission ofMatters to a Vote of Security Holders**

 

The annual meeting of stockholders ofthe Company was held on March 16, 2004, in West Palm Beach, Florida, forthe purpose of electing three Class III directors to hold office for a term ofthree years electing one Class II director to hold office for a term of twoyears, and approving the Company’s 2004 Stock Option Plan.

 

Proxies for the meeting were solicitedpursuant to Section 14(a) of the Securities Exchange Act of 1934, asamended, and there was no solicitation in opposition to management’ssolicitations.

 

Election of Directors

 

All of management’s nominees forelection as directors as listed in the proxy statement were elected.  The results of the election were as follows:

 
| **Name**            |   | **Class** |   | **For**   |   | **Withheld** |   | **Abstentions  and Broker Non-Votes** |   |
|---------------------|--------|-----------|--------|-----------|--------|--------------|--------|---------------------------------------|--------|
| Jay S. Maltby       |   | III       |   | 4,398,822 |   | 546,361      |   | 0                                     |   |
| Edward F. McDonnell |   | III       |   | 4,383,022 |   | 562,161      |   | 0                                     |   |
| D. Chris Mitchell   |   | III       |   | 4,398,822 |   | 546,361      |   | 0                                     |   |
| Michael E. Carballo |   | III       |   | 4,398,822 |   | 546,361      |   | 0                                     |   |

 

Following the annual meeting, Donald L. Kasun and Thomas A.Valdes continue to serve as Class I directors with terms expiring at the 2005annual meeting and Joseph R. Cook and Leonard G. Rogers continue to serve asClass II directors with terms expiring at the 2006 annual meeting.

 

Approval of the Company’s 2004 Stock Option Plan

 
| **For**   |   | **Against** |   | **Not Voted** |   | **Abstain** |   |
|-----------|--------|-------------|--------|---------------|--------|-------------|--------|
| 3,842,166 |   | 578,789     |   | 523,728       |   | 500         |   |

 

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**Item 6.  Exhibits andReports on Form 8-K**

 
| 10.22(c) |   | Lenders’  Consent and Modification of Credit Agreement, dated March 31, 2004, by  and among Todhunter International, Inc., SouthTrust Bank, acting as lender  and Agent, Wachovia Bank, N.A., National City Bank and Suntrust Bank (3) |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.30    |   | Todhunter  International, Inc. 2004 Stock Option Plan (2)                                                                                                                                                                                        |
| 10.31    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between Jay  S. Maltby and Todhunter International, Inc. (3) +                                                                                                          |
| 10.32    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between  Thomas A. Valdes and Todhunter International, Inc. (3) +                                                                                                       |
| 10.33    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between Ezra  Shashoua and Todhunter International, Inc. (3) +                                                                                                          |
| 10.34    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between D.  Chris Mitchell and Todhunter International, Inc. (3) +                                                                                                      |
| 10.35    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between Chester  Brandes and Todhunter International, Inc. (3) +                                                                                                        |
| 10.36    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between  William McGough and Todhunter International, Inc. (3) +                                                                                                        |
| 10.37    |   | Salary  Continuation Plan Agreement, dated as of February 20, 2004, between  Ousik Yu and Todhunter International, Inc. (3) +                                                                                                               |
| 10.38    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between Jay S.  Maltby and Todhunter International, Inc. (3) +                                                                                                          |
| 10.39    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between Thomas A.  Valdes and Todhunter International, Inc. (3) +                                                                                                       |
| 10.40    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between Ezra  Shashoua and Todhunter International, Inc. (3) +                                                                                                          |
| 10.41    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between D. Chris  Mitchell and Todhunter International, Inc. (3) +                                                                                                      |
| 10.42    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between Chester  Brandes and Todhunter International, Inc. (3) +                                                                                                        |
| 10.43    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between William  McGough and Todhunter International, Inc. (3) +                                                                                                        |
| 10.44    |   | Endorsement  Split-Dollar Agreement, dated as of February 20, 2004, between Ousik Yu  and Todhunter International, Inc. (3) +                                                                                                               |
| 11.1     |   | Statement  of Computation of Per Share Earnings (1)                                                                                                                                                                                              |
| 20.1     |   | Earnings  press release for the three— and six-month periods ended March 31, 2004  (3)                                                                                                                                                 |
| 21.1     |   | Subsidiaries  of Todhunter International, Inc. (3)                                                                                                                                                                                               |
| 31.1     |   | Certification of Jay S. Maltby, Chairman, Chief Executive  Officer and President, pursuant to Rule 13a-14(a) of the Securities Exchange  Act of 1934 (3)                                                                                         |
| 31.2     |   | Certification of Ezra Shashoua, Executive Vice President  and Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934 (3)                                                                                    |

 

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| 32.1 |   | Certification of Jay S. Maltby, Chairman, Chief Executive  Officer and President, pursuant to 18 U.S.C. Section 1350 (3)      |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------|
| 32.2 |   | Certification of Ezra Shashoua, Executive Vice President  and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 (3) |

 

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+                                         Indicatesmanagement contracts or compensatory plans or arrangements required to be filedas an exhibit.

 

(1)                                  Filed herewith andincorporated herein by reference to Note 4 of notes to consolidated financialstatements, included in Item 1 of the Company’s Quarterly Report on Form 10-Qfor the quarter ended March 31, 2004.

 

(2)                                  Incorporated hereinby reference to the Company’s Supplemental Materials to be included with theCompany’s Proxy Statement on Form 14A/A, filed with the Securities and ExchangeCommission on February 24, 2004.

 

(3)                                  Filedherewith.

 

**(b)****         ****Reports on Form 8-K**

 

Duringthe second quarter of fiscal 2004, the Company filed the following currentreport on Form 8-K:

 

(1)          Form 8-K dated March 16, 2004.  This Form 8-K reported information underItem 5 (Other Events and required FD Disclosure).

 

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**Signatures**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| Date: May 12, 2004 | /s/ Jay S. Maltby                                    |
|--------------------|------------------------------------------------------|
|               | Jay S. Maltby                                        |
|               | Chairman, Chief Executive Officer and President      |
|               |                                                 |
|               |                                                 |
| Date: May 12, 2004 | /s/ Ezra Shashoua                                    |
|               | Ezra Shashoua                                        |
|               | Executive Vice President and Chief Financial Officer |

 

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