UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 19971998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NO. 0-7570
Delaware Canandaigua Wine Company, Inc.DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709
and its subsidiaries:
New York Batavia Wine Cellars, Inc.AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994
Delaware Bisceglia Brothers Wine Co. 94-2248544
California California Products Company 94-0360780
New York Guild Wineries & Distilleries, Inc. 16-1401046
New York Widmer's Wine Cellars, Inc. 16-1184188
Delaware Barton IncorporatedNEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581
NEW YORK ROBERTS TRADING CORP. 16-0865491
DELAWARE BARTON INCORPORATED 36-3500366
Delaware Barton Brands, Ltd.DELAWARE BARTON BRANDS, LTD. 36-3185921
Maryland Barton Beers, Ltd.MARYLAND BARTON BEERS, LTD. 36-2855879
Connecticut Barton Brands of California, Inc.CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC. 06-1048198
Georgia Barton Brands of Georgia, Inc.GEORGIA BARTON BRANDS OF GEORGIA, INC. 58-1215938
New York Barton Distillers Import Corp.NEW YORK BARTON DISTILLERS IMPORT CORP. 13-1794441
Delaware Barton Financial CorporationDELAWARE BARTON FINANCIAL CORPORATION 51-0311795
Wisconsin Stevens Point Beverage Co.WISCONSIN STEVENS POINT BEVERAGE CO. 39-0638900
Illinois Monarch Import Company
(f/k/a Barton Management, Inc.)ILLINOIS MONARCH IMPORT COMPANY 36-3539106
New York Vintners International Company, Inc. 16-1443663
New York Canandaigua West, Inc. 16-1462887
Georgia The Viking Distillery, Inc.GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
116 BUFFALO STREET, CANANDAIGUA,300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14424
-----------------------------------------------14450
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(Address of principal executive offices) (Zip Code)
REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODERegistrants' telephone number, including area code (716) 394-7900393-4130
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange Title of each class on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:
Class A Common Stock (Par Value $.01 Per Share)of Canandaigua Wine Company,Brands, Inc.
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(Title of Class)
Class B Common Stock (Par Value $.01 Per Share)of Canandaigua Wine Company,Brands, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the votingcommon stock held by non-affiliates of
Canandaigua Wine Company,Brands, Inc., as of May 16, 1997,18, 1998, was $421,831,323.$665,089,755.
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Wine Company,Brands, Inc., as of May 16, 1997,18, 1998, is set forth below (all
of the Registrants, other than Canandaigua Wine Company,Brands, Inc., are direct or indirect
wholly-owned subsidiaries of Canandaigua Wine Company,Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
CLASS AS OF MAY 16, 1997
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Class A Common Stock, Par Value $.01 Per Share 15,211,71315,470,066
Class B Common Stock, Par Value $.01 Per Share 3,330,4583,296,976
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement of Canandaigua Wine Company,Brands, Inc. to be issued for the annual
meeting of stockholders to be held July 22, 199721, 1998, is incorporated by reference
in Part III.
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PART I
ITEM 1. BUSINESS
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UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND ITS SUBSIDIARIES, ALL REFERENCES TO "NET SALES"
REFER TO GROSS REVENUES LESS EXCISE TAXES AND RETURNS AND ALLOWANCES TO CONFORM
WITH THE COMPANY'S METHOD OF CLASSIFICATION, ANDCLASSIFICATION. ALL REFERENCES TO THE
COMPANY'S FISCAL YEAR SHALL REFER TO THE YEAR ENDED AUGUST 31 OF THE INDICATED
YEAR, EXCEPT, HOWEVER, REFERENCES TO FISCAL 1997"FISCAL 1998" AND
"FISCAL 1997" SHALL REFER TO THE COMPANY'S FISCAL YEAR ENDED THE LAST DAY OF
FEBRUARY 28, 1997.OF THE INDICATED YEAR. DURING JANUARY 1996, THE BOARD OF DIRECTORS OF
THE COMPANY CHANGED THE COMPANY'S FISCAL YEAR END FROM AUGUST 31 TO THE LAST DAY
OF FEBRUARY. ACCORDINGLY, THIS FORM 10-K INCLUDES AND PRESENTS INFORMATION FOR
THE COMPANY'S TRANSITION PERIOD FROM SEPTEMBER 1, 1995, TO FEBRUARY 29, 1996
(THE "TRANSITION PERIOD"), AS WELL AS INFORMATION FOR THE PERIOD FROM MARCH 1,
1995, TO FEBRUARY 29, 1996 ("PRO FORMA FISCAL 1996"). REFERENCES TO "FISCAL
1995" SHALL REFER TO THE COMPANY'S FISCAL YEAR ENDED AUGUST 31, 1995.
DURING FISCAL 1998, THE COMPANY CHANGED ITS NAME FROM CANANDAIGUA WINE
COMPANY, INC. TO CANANDAIGUA BRANDS, INC. THE NEW NAME BETTER REFLECTS THE SCOPE
OF THE COMPANY'S OPERATIONS AS A PRODUCER, MARKETER AND IMPORTER OF BRANDS
WITHIN ALL THREE BEVERAGE ALCOHOL PRODUCT CATEGORIES IN WHICH THE COMPANY
OPERATES: WINE, BEER AND DISTILLED SPIRITS.
MARKET SHARE AND INDUSTRY DATA DISCLOSED IN THIS REPORT HAVE BEEN OBTAINED
FROM THE FOLLOWING INDUSTRY AND GOVERNMENT PUBLICATIONS: WINES & VINES; THE GOMBERG-FREDRIKSON
REPORT; JOBSON'S LIQUOR HANDBOOK; JOBSON'S WINE HANDBOOK;
NIELSEN WINE SCAN; JOBSON'S BEER
HANDBOOK; ADAMS MEDIA HANDBOOK ADVANCE; THE U.S. WINE MARKET: IMPACT DATABANK
REVIEW AND FORECAST; THE U.S. BEER MARKET: IMPACT DATABANK REVIEW AND FORECAST;
BEER MARKETER'S INSIGHTS; BEER INDUSTRY UPDATE; THE BEER INSTITUTE; U.S.
DEPARTMENT OF THE TREASURY STATISTICAL RELEASES; AND THE MAXWELL CONSUMER
REPORT. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED THIS DATA. REFERENCES TO
MARKET SHARE DATA ARE BASED ON UNIT VOLUME.
The Company is a Delaware corporation organized in 1972 as the successor to
a business founded in 1945 by Marvin Sands, Chairman of the Board of the
Company.
The Company is a leading producer and marketer of branded beverage alcohol
products, with over 125130 national and regional brands which are distributed by
over 1,400850 wholesalers throughout the United States and in selected international
markets. The Company's beverage alcohol brands are marketed in three general
categories: wine (primarily table wine), beer (primarily imported beer) and
distilled spirits. The Company is the second largest supplier of wines,wine, the
thirdsecond largest importer of beersbeer and the fourth largest supplier of distilled
spirits in the United States. The Company's beverage alcoholprincipal brands are marketed
in five general categories: table wines, sparkling wines, dessert wines,
imported beer and distilled spirits, and include the
following principal brands:
o TABLE WINES:following:
WINE: Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James,
Deer Valley andEstate Cellars, Vina Santa Carolina, Dunnewood,
o SPARKLING WINES: Cook's, J. Roget, Great
Western, and Taylor
o DESSERT WINES: Richards Wild Irish Rose Cisco and Taylor
o IMPORTEDCisco
BEER: Corona Extra, Corona Light, St. Pauli Girl, Modelo Especial,
Pacifico, Tsingtao, Negra Modelo, Peroni, Double Diamond and Tsingtao
oPoint
DISTILLED SPIRITS: Fleischmann's, Barton, Mr. Boston, Canadian LTD, Ten
High, Montezuma, Inver House, and Monte Alban
Based on available industry data, the Company believes that during calendar
year 1996 it had a 20% share of the wine market, a 13% share of the imported
beer market and an 8% share of the distilled spirits market in the United
States. Within the wine market, the Company believes it had a 25% share of the
non-varietal table wine market, an 11% share of the varietal table wine market,
a 42% share of the dessert wine market and a 29% share of the sparkling wine
market.Chi-Chi's Prepared Cocktails
Many of the Company's brands are leaders in their respective categories in
the United States, including Corona Extra, the second largest selling imported beer
brand; InglenookAlmaden and Almaden,Inglenook, the fifth and sixthseventh largest selling table wine
brands; Richards Wild Irish Rose, the largest selling dessert wine brand; Cook's
champagne, the second largest selling sparkling wine brand; Fleischmann's, the
fourth largest blended whiskey and fourth largest domestically bottled gin;
Montezuma, the second largest selling tequila brand; and Monte Alban, the
largest selling mezcal brand.
The Company has diversified its product portfolio through a series of
strategic acquisitions that have resulted in an increase in the Company's net
sales from $176.6 million in fiscal 1991 to $1,135.0$1,212.8 million for fiscal 1997.Fiscal 1998.
Through these acquisitions, the Company has developed strong market positions in
the growing beverage alcohol product categories of varietal table wine (wine
named for the grape that comprises the principal component of the wine) and
imported beer. The Company ranks second and third in the varietal table wine and imported
beer categories, respectively. During this period, the Company has strengthened its relationship
with wholesalers, expanded its distribution and enhanced its production
capabilities as well as acquired additional management, operational, marketing
and research and development expertise.
In October 1991, the Company acquired Cook's, Cribari, Dunnewood and other
brands and related facilities and assets from Guild Wineries & Distilleries. In
June 1993, the Company acquired Barton Incorporated ("Barton"), which enabled
the Company to diversify into the imported beer and distilled spirits categories
(the "Barton Acquisition"). With the Barton Acquisition, the Company acquired
distribution rights with respect to the Corona, St. Pauli Girl, and other
imported beer brands; the Barton, Ten High, Montezuma, and other distilled
spirits brands; and related facilities and assets. In October 1993, the Company
acquired the Paul Masson, Taylor California Cellars and other brands and related
facilities and assets of Vintners International Company, Inc. ("Vintners") (the
"Vintners Acquisition"). In August 1994, the Company acquired the Almaden,
Inglenook and other brands, a grape juice concentrate business and related
facilities and assets (the "Almaden/Inglenook Product Lines") from Heublein,
Inc. ("Heublein") (the "Almaden/Inglenook Acquisition"). On September 1, 1995, the Company
acquired the Mr. Boston, Canadian LTD, Skol, Old Thompson, Kentucky Tavern,
Glenmore and di Amore distilled spirits brands; the rights to the Fleischmann's
and Chi-Chi's distilled spirits brands under long-term license agreements; the
U.S. rights to the Inver House, Schenley and El Toro distilled spirits brands;
and related facilities and assets from United Distillers Glenmore, Inc. and
certain of its North American affiliates (collectively, "UDG"); in addition, the
transaction included multiyear agreements under which UDG will supplysupplies the Company
with bulk whiskywhiskey and the Company will supplysupplies UDG with services including continued
packaging of various UDG brands not acquired by the Company (collectively, the
"UDG Acquisition").
The Company's growth through acquisitions has substantially expanded its
portfolio of brands and has enabled it to become a major participant in
additional product categories of the beverage alcohol business. This expansion
has positioned the Company to benefit from faster growing categories with over
40% of the Company's net sales generated from the growth categories of imported
beer and varietal table wine.
The Company's business strategy is to manage its existing portfolio of
brands and businesses in order to maximize profit and return on investment, and
reposition its portfolio of brands to benefit from growth trends in the beverage
alcohol industry. To achieve the foregoing, the Company intends to: (i) adjust
the price/volume relationships of certain brands; (ii) develop new brands and
introduce line extensions; (iii) expand geographic distribution; and (iv)
acquire businesses that meet its strategic and financial objectives.
CURRENT OPERATING ENVIRONMENT
The Company's growth through acquisitions over the past five years has
substantially expanded its portfolio of brands and has enabled it to become a
major participant in additional product categories of the beverage alcohol
business. This expansion has positioned the Company to benefit from faster
growing categories with over 40% of the Company's sales generated from the
growth categories of imported beer and varietal wines. The Company's beer and
spirits division, Barton, has continued to increase its operating profits.
However, recent operating results in the Company's wine division have been
negatively impacted by two factors: increases in grape prices and certain costs
and operating inefficiencies relating to the consolidation of certain West Coast
winery operations in connection with the acquisitions.
While the consolidation of certain wine operations has produced significant
overall synergies, some of the planned efficiencies have not materialized and
unanticipated costs have occurred. The Company believes that the unanticipated
production costs resulted from its rapid growth over the last three years,
combined with the lack of integrated production control systems and the
complexity of production at its newly consolidated Mission Bell Winery.
Additionally, as the Company has increased its wine and grape juice
concentrate business, it has become the second largest purchaser of grapes for
wine and concentrate in California. The Company's profits are significantly
influenced by grape price changes. Costs for grapes have escalated dramatically
over the last two grape harvests (fall 1995 and fall 1996). Holding tonnage
constant, the Company's overall cost of grapes increased 17.5% in the 1996
harvest.
In order to address these matters, the Company is taking a number of
specific steps to improve sales and margins, minimize unexpected costs related
to inefficiencies and realize opportunities for efficiencies afforded by the
Company's consolidation of its West Coast wine operations and its economies of
scale as a major participant in the beverage alcohol industry. There can be no
assurance, however, that the specific steps the Company is taking will address
such inefficiencies and unexpected costs that the Company has incurred. Such
steps include the following:
o The Company has completed a comprehensive reengineering effort in its wine
division. The new structure resulting from the reengineering effort is
intended to increase the efficiency of all of the Company's operating
processes, create smaller, more manageable business units and create
greater management accountability for its wine business. Organizational
changes include the creation of Accountable Business Units organized by
product categories which are accountable for
production and marketing, and Customer Business Centers, organized by
region, which are responsible for sales, customer service and product
delivery. The Company intends, through the creation of remote distribution
centers, to store inventory closer to its customers, thereby reducing
delivery times. The Company believes these efforts will reduce the overall
amount of inventory it and its customers carry, thus reducing capital
employed and offering benefits to its customers that cannot currently be
obtained from competitors. The Company will be implementing the
distribution center concept on a measured basis to determine its efficacy.
o In connection with the reengineering effort, the Company is implementing a
new accounting and management information system to upgrade the type and
level of information the Company can generate, and to enable it to manage
its business more precisely.
o The Company has created a number of special task forces specifically to
address various issues related to inefficiencies at its West Coast wine
operations, and has relocated, in some cases temporarily and in others
permanently, personnel with particular expertise necessary to address these
matters. All aspects of the Company's wine and grape juice concentrate
production, material requirements planning functions, warehousing logistics
and bottling operations at the Company's Mission Bell Winery in California,
are being reviewed and changed as necessary to create greater efficiencies.
o The Company has instituted several broad price increases on its varietal
and non-varietal table wines in response to increased grape costs from the
1995 and 1996 grape harvests. In general, it is both industry and Company
practice to make selling price adjustments around the time the wine
produced with the higher cost grapes is actually sold, which generally
occurs in the calendar year following the grape harvest. Over the last
eighteen months the industry and the Company have increased their selling
prices. In the case of the Company, these selling price increases, on an
annualized basis, have not completely offset the increased costs associated
with the fall 1995 and fall 1996 harvests.
o The Company has recruited new management in several key positions in its
Corporate organization, including a new Chief Financial Officer and a Chief
Human Resources Officer. In the wine division, the Company has added a new
President of its wine division with extensive experience in the U.S.
beverage industry, and a number of senior managers in the wine division's
operating, manufacturing, selling, and finance areas. It is expected that
the filling of these positions has given, and will continue to give, the
Company significantly increased management depth and experience.
INDUSTRY
The beverage alcohol industry in the United States consists of the
production, importation, marketing and distribution of wine, beer wine and distilled
spirits products. Over the past five years there has been increasing
consolidation at the supplier, wholesaler and, in certain markets, retailer
tiers of the beverage alcohol industry. As a result, it has become advantageous
for certain suppliers to expand their portfolio of brands through acquisitions
and internal development in order to take advantage of economies of scale and to
increase their importance to a more limited number of wholesalers and, in
certain markets, retailers. During the 1990's, the overall per capita
consumption of beverage alcohol products in the United States has declined
slightly; however, consumption of table wine, and in particular varietal table wine,
and imported beer has increased during the period.
The following table sets forth the industry unit volumesvolume for shipments of
beverage alcohol products in the Company's fivethree principal beverage alcohol
product categories in the United States for the five calendar years ended
December 31, 1996:1997:
INDUSTRY DATA 19921997 1996 1995 1994 1993
1994 1995 1996
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Domestic Table WinesWine (a)(b) 308,169 300,953 307,481 318,546 339,450
Domestic Dessert Wines (a)(c) 32,449 29,698 27,634 25,439 24,727
Domestic Sparkling Wines (a) 23,794 23,600 22,855 22,298 21,827219,970 212,399 197,258 193,052 188,846
Imported Beer (d) 114,590 127,418 144,527 155,178 171,186(c) 197,355 173,077 157,023 146,096 128,815
Distilled Spirits (e) 148,017(b) 137,798 138,536 137,330 139,997 144,162
140,504 137,809 137,750
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(a) Units are in thousands of gallons. Data exclude sales ofIncludes domestic and imported table, sparkling and dessert wine, coolers.wine
coolers and vermouth
(b) Includes other special natural (flavored) wines under 14% alcohol.
(c) Includes dessert wines, other special natural flavored wines over 14%
alcohol and vermouth.
(d) Units are in thousands of cases (2.25 gallons per case).
(e) Units are in thousands of 9-liter casescase equivalents (2.378 gallons per
case).
TABLE WINES. Wines containing 14% or less alcohol by volume
(c) Units are generally
referredin thousands of 2.25 gallon cases
WINE: From 1993 to as table wines. Within this category, table wines are further
characterized as either "non-varietal" or "varietal." Non-varietal wines include
wines named after the European regions where similar types of wines were
originally produced (e.g., burgundy), niche products and proprietary brands.
Varietal wines are those named for the grape that comprises the principal
component of the wine. Table wines that retail at less than $5.75 per 750 ml.
bottle are generally considered to be popularly priced while those that retail
at $5.75 or more per 750 ml. bottle are considered premium wines.
From 1992 to 1996,1997, shipments of domestic table wineswine in the United States increased
at an average compound annual rate of 2%4%. In 1996, domestic table1997, wine shipments increased by
7%4% when compared to 1995,1996, led by increased shipments of varietal
table wines.wine (wine
containing 14% or less alcohol by volume). Table wine accounted for 88% of the
total United States wine market in 1997 while sparkling wine (includes
effervescent wine like champagne and spumante) and dessert wine (wine containing
more than 14% alcohol by volume) each accounted for 6%. Over the last five
years, sparkling and dessert wine, as a percentage of total wine, have been
declining in the United States. The Company believes thisthe improvement in the
table wine consumption may be due in part to published reports, over recent
years, from a number of sources, citing the health benefits of moderate wine
consumption. Based on shipments of California
table wines, which constituted approximately 95% of the total domestically
produced
table wine market in 1996, shipments of varietal wines have grown at an average
compound annual rate of 10% since 1992. In contrast, shipments of non-varietal
table wines have generally declined over the same period. The Company believes that the trendsdeclines in table wine consumption reflect a general change in consumer
preference from non-varietal to varietal table wines. Shipments of imported
table wines have increased from 58.6 million gallons in 1992 to 80.6 million
gallons in 1996. Imported table wines constituted 19% of the United States table
wine market in 1996.
DESSERT WINES. Wines containing more than 14% alcohol by volume are
generally referred to assparkling and dessert wines. Dessert wines generally fall into the
same price categories as table wines. In 1996, shipments of domestic dessert
wines decreased 3% as compared to 1995. During the period from 1992 to 1996,
shipments of domestic dessert wines declined at an average compound annual rate
of 7%. Dessert wine
consumption in the United States has been declining for many
years, reflectingreflect a general shift in consumer preferences.
SPARKLING WINES. Sparkling wines include effervescent wines like champagnepreferences
and, spumante. Sparkling wines generally fall into the same price categories as
table wines. Shipments ofwith respect to sparkling wines declined at an average compound annual
rate of 2% from 1992 to 1996, with shipments of domestic sparkling wines also
declining 2% in 1996 as compared to 1995. The Company believes that the decline
in sparkling wine, consumption reflects continuing concerns about drinking and driving, as a
large part of sparkling wine consumption occurs outside the home at social
gatherings and restaurants.
IMPORTED BEER.BEER: Shipments of imported beersbeer have increased at an average
compound annual rate of 11% from 19921993 to 1996.1997. Shipments of Mexican beersbeer in 19961997
increased 28%37% over 19951996 as compared to an increase of 10%14% for the entire
imported beer category. Shipments of imported beersbeer as a percentage of the United
States beer market, increased to 7%7.3% in 19961997 from 6%6.5% in 1995.1996. Imported beers,beer,
along with microbrews and super-premium priced domestic beers, arebeer, is generally
priced above the leading domestic premium brands.
DISTILLED SPIRITS.SPIRITS: Although shipments of distilled spirits in the United
States declined at an average compound annual rate of 2%1% from 19921993 to 1996,1997,
certain types of distilled spirits, such as rum, tequila brandy and liqueurs,brandy have
increased. In 1996,1997, shipments of distilled spirits remained flatdeclined by 0.5% as compared
to 1995.1996. The Company believes shipments of certain types of distilled spirits
may have been negatively affected by high excise taxes, concerns about drinking and driving, and a
shift in consumer preference toward lower alcohol or lighter tasting products
like imported beer and varietal winestable wine which have grown substantially during
the period from 19921993 to 1996.1997.
PRODUCT CATEGORIES
The Company produces, importsmarkets and marketsimports beverage alcohol products in
fivethree principal product categories: wine (primarily table wines, dessert wines, sparkling wines,wine), beer (primarily
imported beerbeer) and distilled spirits. The following tables include net sales and
unit volume of branded products sold by the Company and services from the Vintners, Almaden/Inglenookdistilled spirits
table includes the brands and products acquired in the UDG AcquisitionsAcquisition for all
periods shown as if they had been owned by the Company for the entire period.
WINE: The Company is the second largest supplier of wine in the United
States. The Company participates in the table, dessert and sparkling wine
categories. The table below sets forth the net sales (in thousands of dollars)
and unit volumesvolume (in thousands of gallons)9-liter case equivalents) for all of the
table, dessert and sparkling
wines, grape juice concentrate and other wine-related products and servicesbranded wine sold by the Company and under brands and products acquired infor the Vintners
Acquisition and the Almaden/Inglenook Acquisition for fiscal 1994, fiscal 1995,
Pro Forma Fiscal 1996 and fiscal 1997.periods shown:
PRO FORMA
FISCAL 19941998 FISCAL 19951997 FISCAL 1996 FISCAL 1997
-------------------- -------------------- -------------------- -------------------
NET NET NET1995
------------------ ------------------ ------------------ ------------------
WINE (a) NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
-------- ------- -------- ------- -------- ------- ----------------- ------ --------- ------ --------- ------ --------- ------
TOTAL WINES AND
RELATED PRODUCTS $608,859 103,343 $603,526 101,430 $595,665 102,431 $630,964 99,739$ 533,257 34,587 $ 512,510 33,787 $ 499,962 35,396 $ 487,101 34,910
(a) Includes domestic and imported table, dessert and sparkling wine
TABLE WINES.Net sales and unit volume of the Company's wine brands increased 4% and 2%,
respectively, in Fiscal 1998 compared to Fiscal 1997. These increases can be
attributed to increased sales of table wine.
The Company sells over 4070 different brands of non-varietal
table wines,wine, substantially all of
which are marketed in the popularly priced segment which constituted approximately 42% of the domestic table wine market
in the United States in the latest year for which data is available. The Company
also sells over 15 different brands of varietal table wines in both the
popularly priced and premium categories.(wine that retails at less
than $5.75 per 750 ml. bottle). The Company's principal table wine brands include
Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood.
The table below sets forth the unit volumes (in thousands of gallons) for
the domestic table wines sold by the Company and under domestic table wine
brands acquired in the Vintners Acquisition and the Almaden/Inglenook
Acquisition for the periods shown:
FISCAL FISCAL PRO FORMA FISCAL
1994 1995 FISCAL 1996 1997
TABLE WINES VOLUME VOLUME VOLUME VOLUME
- ------------ ------ ------ ----------- ------
Non-varietal 52,610 47,774 45,888 43,897
Varietal 12,794 16,344 18,318 16,999
TOTAL (A) 65,404 64,118 64,206 60,896
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(a) Excludes sales of wine coolers but includes sales of wine in bulk.
Unit volume sales of non-varietal table wines have declined, while varietal
table wines have generally increased. The Company believes that these trends in
the consumption of table wines reflect a general change in consumer preference
from non-varietal wines to varietal table wines.
The Company also markets a selection of popularly priced imported table
wines. The Company's unit volume sales of imported wine increased steadily from
1.9 million gallons in fiscal 1994 to 2.8 million gallons in fiscal 1997. This
improvement is attributable primarily to increased sales of the Marcus James
varietal wine brand.
DESSERT WINES. With the exception of the premium dessert wine brands
acquired in the Vintners Acquisition, the Company markets its dessert wines in
the lower end of the popularly priced category. The popularly priced category
represented approximately 93% of the dessert wine market in the latest year for
which data is available. The Company's principal dessert wine brands includeEstate
Cellars, Vina Santa Carolina, Dunnewood, Richards Wild Irish Rose, Cisco,
and Taylor.
The table below sets forth the unit volumes (in thousands of gallons) for
the domestic dessert wines sold by the Company and under domestic dessert wine
brands acquired in the Vintners Acquisition for the periods shown:
FISCAL FISCAL PRO FORMA FISCAL
1994 1995 FISCAL 1996 1997
DESSERT WINES VOLUME VOLUME VOLUME VOLUME
------ ------ ----------- ------
12,037 10,962 10,780 10,313
The Company's unit volumes of dessert wines have declined over the last
three years. The decline can be attributed to a general decline in dessert wine
consumption in the United States. The Company's unit volume sales of its dessert
wine brands (including the brands acquired from Vintners) have decreased 14%
from fiscal 1994 through fiscal 1997.
SPARKLING WINES. The Company markets substantially all of its sparkling
wines in the popularly priced segment, which constituted approximately 46% of
the domestic sparkling wine market in the latest year for which data is
available. The Company's principal sparkling wine brands include Cook's, J. Roget and Great Western and Taylor.
The table below sets forth the unit volumes (in thousands of gallons) for
the domestic sparkling wines sold by the Company and under domestic sparkling
wine brands acquired in the Vintners Acquisition and the Almaden/Inglenook
Acquisition for the periods shown:
FISCAL FISCAL PRO FORMA FISCAL
1994 1995 FISCAL 1996 1997
SPARKLING WINES VOLUME VOLUME VOLUME VOLUME
------ ------ ----------- ------
7,353 6,500 6,650 6,317
GRAPE JUICE CONCENTRATE. As a related part of its wine business, the
Company produces grape juice concentrate. Grape juice concentrate is sold to the
food and wine industries as a raw material for the production of juice-based
products, no-sugar-added foods and beverages. Grape juice concentrate competes
with other domestically produced and imported fruit-based concentrates. The
Company believes that it is the leading grape juice concentrate producer in the
United States. The table below sets forth the unit volumes (in thousands of
gallons) for the grape juice concentrate sold by the Company and the grape juice
concentrate business acquired in the Almaden/Inglenook Acquisition for the
periods shown:
FISCAL FISCAL PRO FORMA FISCAL
GRAPE JUICE 1994 1995 FISCAL 1996 1997
CONCENTRATE VOLUME VOLUME VOLUME VOLUME
------ ------ ----------- ------
11,826 11,017 11,004 12,204
OTHER WINE PRODUCTS AND RELATED SERVICES. The Company's other wine related
products and services include: grape juice; St. Regis, a leading nonalcoholic
line of wines in the United States; wine coolers sold primarily under the Sun
Country brand name; cooking wine; and wine for the production of vinegar. The
Company also provides various bottling and distillation production services for
third parties.
BEER.Western.
BEER: The Company is the thirdsecond largest marketer of imported beersbeer in the
United States. The Company distributes fourfive of the top 20 imported beersbeer brands
in the United States: Corona Extra, and Corona Light, St. Pauli Girl, Modelo
Especial and Modelo
Especial. The table below sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases) for the beer sold by the Company for the
periods shown:
FISCAL FISCAL PRO FORMA FISCAL
BEER 1994 1995 FISCAL 1996 1997
-------------- --------------- --------------- ---------------
NET NET NET NET
SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
------- ------ ------- ------ ------- ------ ------- ------
$173,883 14,100 $216,159 17,471 $239,785 19,344 $298,925 23,848Pacifico. The Company's other imported beer brands include Pacifico and Negra
Modelo from Mexico, Tsingtao from China, Peroni from Italy and Double Diamond
from the United Kingdom. The Company also operates the Stevens Point Brewery, a
regional brewer located in Wisconsin, which produces Point Special, among other
brands. The table below sets forth the net sales (in thousands of dollars) and
unit volume (in thousands of 2.25 gallon cases) for the beer sold by the Company
for the periods shown:
PRO FORMA
FISCAL 1998 FISCAL 1997 FISCAL 1996 FISCAL 1995
------------------ ------------------ ------------------ ------------------
BEER NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
--------- ------ --------- ------ --------- ------ --------- ------
$ 376,607 30,016 $ 298,925 23,848 $ 239,785 19,344 $ 216,159 17,471
Net sales and unit volumesvolume of the Company's beer brands have grown since
fiscal 1994,Fiscal 1995, primarily as a result of the increased sales of Corona and the
Company's other Mexican beer brands. Net sales and unit volume increased 24.7%
and 23.3%, respectively,26.0%
in fiscal 1997Fiscal 1998 compared to Pro Forma Fiscal 1996.1997. This sales growth helped Corona Extra
become the number one imported beer nationwide.
DISTILLED SPIRITS.SPIRITS: The Company is the fourth largest supplier of distilled
spirits in the United States. The Company produces, bottles, imports and markets
a diversified line of quality distilled spirits, and also exports distilled
spirits to more than 15approximately 20 foreign countries. The Company's principal distilled
spirits brands include Fleischmann's, Barton, Mr. Boston, Canadian LTD, Ten
High, Montezuma, Inver House and Monte Alban. Substantially all of the Company's
spirits unit volume consists of products marketed in the price value segment.
The table below sets forth the net sales (in thousands of dollars) and unit
volumesvolume (in thousands of 9-liter cases)case equivalents) for the distilled products
case goods sold by the Company and under brands acquired in the Vintners Acquisition, the
Almaden/Inglenook Acquisition, and for the brands and products acquired in the
UDG Acquisition for the periods shown:
PRO FORMA
FISCAL 1994 FISCAL 1995 FISCAL 1996 FISCAL 1997
---------------- ---------------- ---------------- ----------------
NET NET NET NET
SPIRITS SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
-------- ------ -------- ------ -------- ------ -------- ------
Company
(exclusive $ 88,549 5,678 $ 92,400 5,917 $ 94,671 6,031 $100,907 6,059
of UDG)
UDG 101,916 4,941 92,136 5,013 84,132 4,709 82,936 4,840
-------- ------ -------- ------ -------- ------ -------- ------
TOTAL $190,465 10,619 $184,536 10,930 $178,803 10,740 $183,843 10,899
======== ====== ======== ====== ======== ====== ======== ======
PRO FORMA
FISCAL 1998 FISCAL 1997 FISCAL 1996 (a) FISCAL 1995 (a)
DISTILLED ------------------ ------------------ ------------------ ------------------
SPIRITS NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
--------- ------ --------- ------ --------- ------ --------- ------
$ 200,276 11,456 $ 183,843 10,899 $ 178,803 10,740 $ 184,536 10,930
(a) Net sales and volume include the brands and products acquired in the
UDG Acquisition as if they had been owned by the Company for the
entire period.
For the year ended February 28, 1997,Fiscal 1998, net sales and unit volume of distilled spirits brands sold
by the Company increased 9% and under brands acquired in the
Vintners and Almaden/Inglenook Acquisitions increased 6.6% and 0.5%5%, respectively.respectively, compared to Fiscal 1997. Unit
volume of vodka, tequila, brandy, bourbon whiskey and brandyCanadian whisky have
increased while blended whiskey, Scotch whisky and bourbongin have experienced
decreases in unit volume.
During the period fromFrom the beginning of fiscal 1994Fiscal 1995 to the end of Pro Forma Fiscal 1996, the
unit volume of brands acquired in the UDG Acquisition declined in excess of
industry rates. The Company believes that these declines resulted from
noncompetitive retail pricing and promotional activities. The Company
implemented pricing and promotional activities during fiscalFiscal 1997 which
eliminated the rate of decline and resulted in a volume increase of 3%.
In addition in Fiscal
1997 and 4% in Fiscal 1998.
OTHER PRODUCTS AND RELATED SERVICES: As a related part of its wine
business, the Company produces grape juice concentrate. Grape juice concentrate
is sold to the brandedfood and wine industries as a raw material for the production of
juice-based products, described above,no-sugar-added foods and beverages. Grape juice
concentrate competes with other domestically produced and imported fruit-based
concentrates. The Company is one of the leading grape juice concentrate
producers in the United States. The Company's other wine related products and
services include: bulk wine; grape juice; St. Regis, a leading nonalcoholic line
of wine in the United States; cooking wine; and wine for the production of
vinegar. The Company also sells distilled spirits in bulk and provides contract
production and bottling services.services for third parties.
MARKETING AND DISTRIBUTION
The Company's products are distributed and sold throughout the United
States through over 1,400850 wholesalers, as well as through state alcoholic beverage
control agencies. The Company employs a full-time, in-house marketing, sales and
salescustomer service organization of approximately 300415 people to develop and service
its sales to wholesalers and state agencies. The Company's sales force is
organized in separate sales divisions: a beer division, a spirits division and a
wine division. The Company believes that the organization of its sales force
into separate divisions positions it to maintain a high degree of focus on each
of its principal product categories.
The Company's marketing strategy places primary emphasis upon promotional
programs directed at its broad national distribution network (and to the
retailers served by that network). The Company has extensive marketing programs
for its brands including promotional programs on both a national basis and
regional basis in accordance with the strength of the brands, point-of-sale
materials, consumer media advertising, event sponsorship, market research, trade
advertising and public relations.
In fiscal 1999, the Company expects to increase its advertising
expenditures to put more emphasis on consumer advertising for certain wine
brands, including newly introduced brands, and for its imported beer brands,
primarily Mexican brands. In addition, promotional spending in fiscal 1999 could
increase as it relates to the Company's wine brands to address competitive
factors.
TRADEMARKS AND DISTRIBUTION AGREEMENTS
The Company's wine and distilled spirits products are sold under a number
of trademarks. Most of these trademarks are owned by the Company.
The Company also produces and sells wineswine and distilled spirits products
under exclusive license or distribution agreements. Significant agreements
include: a long-term license agreement with Nabisco Brands Company for a term
which expires in 2008 and which automatically renews for successive additional
20 year terms unless cancelledcanceled by the Company for the Fleischmann's spirits
brands; a long-term license agreement with Hiram Walker & Sons, Inc. for a term
which expires in 2116 for the Ten High, Crystal Palace, Northern Light and
Imperial Spirits brands; and a long-term license agreement with the B.
Manischewitz Company for a term which expires in 2042 for the Manischewitz brand
of kosher wines.wine. The Company also has other less significant license and
distribution agreements related to the sale of wine and distilled spirits with
terms of various durations.
All of the Company's imported beer products are marketed and sold pursuant
to exclusive distribution agreements with the suppliers of these products. These
agreements have terms that vary and prohibit the Company from importing other
beersbeer from the same country. The Company's agreement to distribute Corona and its
other Mexican beer brands exclusively throughout 25 states expires in December
2006 and, subject to compliance with certain performance criteria, continued
retention of certain Company personnel and other terms under the agreement, will
be automatically renewed for additional terms of five years. The Company's
agreement for the importation of St. Pauli Girl expires in 1998 and,2003, subject to
compliance with certain performance criteria, may be extended by the
Company until 2003.criteria. The Company's agreement for the
exclusive importation of Tsingtao throughout the entire United States expires in
December 1999 and, subject to compliance with certain performance criteria and
other terms under the agreement, will be automatically renewed until December
2002. Prior to their expiration, these agreements may be terminated if the
Company fails to meet certain performance criteria. The Company believes it is
currently in compliance with its material imported beer distribution agreements.
From time to time, the Company has failed, and may in the future fail, to
satisfy certain performance criteria in its distribution agreements. Although
there can be no assurance that its beer distribution agreements will be renewed,
given the Company's long-term relationships with its suppliers, the Company
expects that such agreements will be renewed prior to their expiration and does
not believe that these agreements will be terminated.
COMPETITION
The beverage alcohol industry is highly competitive. The Company competes
on the basis of quality, price, brand recognition and distribution. The
Company's beverage alcohol products compete with other alcoholic and
nonalcoholic beverages for consumer purchases, as well as shelf space in retail
stores and marketing focus by the Company's wholesalers. The Company competes
with numerous multinational producers and distributors of beverage alcohol
products, many of which have significantly greater resources than the Company.
The Company's principal competitors include E & J Gallo Winery and The Wine
Group in the wine category,category; Heineken USA, Molson Breweries USA, Labatt's USA and
Guinness Import Company in the imported beer category,category; and Jim Beam Brands and
Heaven Hill Distilleries, Inc. in the distilled spirits category.
PRODUCTION
The Company's wines arewine is produced from several varieties of wine grapes grown
principally in California and New York. The grapes are crushed at the Company's
wineries and stored as wine, grape juice or concentrate. Such grape products may
be made into wine for sale under the Company's brand names, sold to other
companies for resale under their own labels, or shipped to customers in the form
of juice, juice concentrate, unfinished wines,wine, high-proof grape spirits or
brandy. Most of the Company's wines arewine is bottled and sold within 18 months after
the grape crush. The Company's inventories of wines,wine, grape juice and concentrate
are usually at their highest levels in November and December, immediately after
the crush of each year's grape harvest, and are substantially reduced prior to
the subsequent year's crush.
The bourbon whiskeys, domestic blended whiskeys and light whiskeys marketed
by the Company are primarily produced and aged by the Company at its distillery
in Bardstown, Kentucky, though it may from time to time supplement its
inventories through purchases from other distillers. At its Albany, Georgia,
facility, the Company produces all of the neutral grain spirits and whiskeys
used by it in the production of vodka, gin and blended whiskey sold by it to
customers in the state of Georgia. The Company's requirements of Canadian and
Scotch whiskies, and tequila, mezcal, and the neutral grain spirits used by it
in the production of gin and vodka for sale outside of Georgia, and other
spirits products, are purchased from various suppliers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal components in the production of the Company's branded
beverage alcohol products are: packaging materials, primarily glass; grapes; and
other agricultural products, such as grain.
The Company utilizes glass and PET bottles and other materials, such as
caps, corks, capsules, labels and cardboard cartons, in the bottling and
packaging of its products. Glass bottle costs are one of the largest components
of the Company's cost of product sold. The glass bottle industry is highly
concentrated with only a small number of producers. The Company has
traditionally obtained, and continues to obtain, its glass requirements from a
limited number of producers. The Company has not experienced difficulty in
satisfying its requirements with respect to any of the foregoing and considers
its sources of supply to be adequate. However, the inability of any of the
Company's glass bottle suppliers to satisfy the Company's requirements could
adversely affect the Company's operations.
Most of the Company's annual grape requirements are satisfied by purchases
from each year's harvest, which normally begins in August and runs through
October. Costs per ton for grapes have escalated dramatically overin the last two grape
harvests (fallfall 1995 and fall 1996).1996 grape harvests
escalated dramatically. Costs per ton for grapes in the fall 1997 grape harvest
decreased slightly as compared to the fall 1996 grape harvest. The Company
believes that it has adequate sources of grape supplies to meet its sales
expectations. However, in the event demand for certain wine products exceeds
expectations, the Company could experience shortages.
The Company purchases grapes from over 700 independent growers principally
in the San Joaquin Valley and Monterey regions of California and in New York
State. The Company enters into written purchase agreements with a majority of
these growers on a year-to-year basis. However, in connection with the Vintners
Acquisition and the Almaden/Inglenook Acquisition, the Company acquired certain
long-term grape purchase contracts. In addition, the Company's negligible
purchases of grapes from the Napa Valley and related regions minimize its
exposure to phylloxera and other agricultural risks. However, phylloxera in
these regions has caused certain wineries to increase their purchases of grapes
from the San Joaquin and Monterey regions. The Company currently owns or leases
under various arrangements approximately 4,5004,200 acres of vineyards, either fully
bearing or under development, in California and New York. This acreage supplies
only a small percentage of the Company's total needs. The Company continues to
consider the purchase or lease of additional vineyards, and additional land for
vineyard plantings, to supplement its grape supply.
The distilled spirits manufactured by the Company require various
agricultural products, neutral grain spirits and bulk spirits. The Company
fulfills its requirements through purchases from various sources, through
contractual arrangements and through purchases on the open market. The Company
believes that adequate supplies of the aforementioned products are available at
the present time.
GOVERNMENT REGULATION
The Company's operations are subject to extensive federal and state
regulation. These regulations cover, among other matters, sales promotion,
advertising and public relations, labeling and packaging, changes in officers or
directors, ownership or control, distribution methods and relationships, and
requirements regarding brand registration and the posting of prices and price
changes. All of the Company's facilities are also subject to federal, state and
local environmental laws and regulations and the Company is required to obtain
permits and licenses to operate its facilities. The Company believes that it is
in compliance in all material respects with all presently applicable
governmental laws and regulations and that the cost of administration of
compliance with such laws and regulations does not have, and is not expected to
have, a material adverse impact on the Company's financial condition or results
of operations.
EMPLOYEES
The Company had approximately 2,500 full-time employees at the end of
fiscal 1997Fiscal 1998 and Pro Forma Fiscal 1996.1997. As of February 28, 1997,1998, approximately 1,1001,030
employees were covered by collective bargaining agreements. Additional workers
may be employed by the Company during the grape crushing season. The Company
considers its employee relations generally to be good.
ITEM 2. PROPERTIES
- ------- ----------
The Company currently operates 1210 wineries, two distilling andplants, one of
which includes bottling plants,operations, three bottling plants and a brewery, most of
which include warehousing and distribution facilities on the premises. All of
these facilities are owned by the Company other than a winery in Escalon,
California, a winery in Batavia, New York and a bottling plant in Carson,
California, each of which is leased. The Company considers its principal
facilities to be the Mission Bell winery in Madera, California; the Canandaigua,
New York winery; the Monterey Cellars winery in Gonzales, California; the
distilling and bottling facility located in Bardstown, Kentucky; and the
bottling facility located in Owensboro, Kentucky.
All of these facilities are
owned by the Company other than a winery in Escalon, California, a winery in
Batavia, New York and a bottling plant in Carson, California, each of which is
leased.
In New York, the Company operates three wineries located in Canandaigua,
Naples and Batavia. The Company currently operates nineseven winery facilities in
California. The Mission Bell winery is a crushing, wine production, bottling and
distribution facility and a grape juice concentrate production facility. The
Monterey Cellars winery is a crushing, wine production and bottling facility.
The other wineries operated in California are located in Escalon, Lodi,
McFarland, Madera,
Fresno, and Ukiah. The Company expectshas exercised its option to sell its winery in
Lodi, California. Thebuy the Escalon
facility and is operated under a long-term lease with
an optionin the process of transferring the facility's ownership to buy.the
Company. The Company currently owns or leases under various arrangements
approximately 4,5004,200 acres of vineyards, either fully bearing or under
development, in California and New York.
The Company operates five facilities that produce, bottle and store
distilled spirits. It owns a distilling, bottling and storage facilitiesfacility in
Bardstown, Kentucky, and a distilling and storage facility in Albany, Georgia,
and operates bottling plants in Atlanta, Georgia,Georgia; Owensboro, Kentucky,Kentucky; and
Carson, California. The Carson plant is operated under a management contract and
a sublease, each of which is scheduled to expire on December 31, 1998. The
parties are currently negotiating an extension of this arrangement. The Carson
plant receives distilled spirits in bulk from Bardstown and outside vendors,
which it bottles and distributes. The Company also performs contract bottling at
the Carson plant. The Bardstown facility distills, bottles and warehouses
distilled spirits products for the Company's account and on a contractual basis
for other participants in the industry. The Owensboro facility bottles and
warehouses distilled spirits products for the Company's account and performs
contract bottling. The Company's Atlanta, Georgia facility bottles, for itself
and on a contract basis, and its Albany, Georgia facility distills, and
bottles,for its own
account, vodka, gin and blended whiskeys.
The Company owns a brewery in Stevens Point, Wisconsin, where it produces
and bottles Point beer and brews and packages on a contract basis for a variety
of brewing and other food and beverage industry members.
In addition, theThe Company ownsmaintains its corporate headquarters in offices leased in
Fairport, New York, and maintains its corporatewine division headquarters in offices
owned in Canandaigua, New York, where it also leases additional office space, andspace.
The Company also leases office space in Chicago, Illinois, for its Barton
headquarters.
The Company believes that all of its facilities are in good condition and
working order and have adequate capacity to meet its needs for the foreseeable
future.
Most of the Company's real property has been pledged under the terms of
collateral security mortgages as security for the payment of outstanding loans
under the Company's bank Credit Agreement (as defined below in Item 7 of this Report
on Form 10-K under "Financial Liquidity and Capital Resources").
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company and its subsidiaries are subject to litigation from time to
time in the ordinary course of business. Although the amount of any liability
with respect to such litigation cannot be determined, in the opinion of
management, such liability will not have a material adverse effect on the
Company's financial condition or results of operations.
In connection with an investigation in the State of New Jersey into
regulatory trade practices in the beverage alcohol industry, one employee of the
Company was arrested in March 1994 and another employee subsequently came under
investigation in connection with providing "free goods" to retailers in
violation of New Jersey beverage alcohol laws. A proposed consent order has been
received from the appropriate regulatory agency by the Company which would, when
finalized, fully resolve the matter without any material effect on the Company.
With respect to the following described litigation, on November 8, 1996,
the District Court entered summary judgment in favor of the Company and the
other defendants. The Court's judgment resolves all claims against all of the
defendants in this litigation. The time period in which plaintiffs could have
filed a notice of appeal to the United States Court of Appeals for the Second
Circuit expired on December 12, 1996, without any such notice being filed.
On November 13, 1995, a purported stockholder of the Company filed a class
action in the United States District Court for the Southern District of New
York, Ventry, et al. v. Canandaigua Wine Company, Inc., et al. (the "Ventry
Class Action"). On November 16, 1995, another purported stockholder of the
Company filed a class action in the United States District Court for the
Southern District of New York, Brickell Partners, et al. v. Canandaigua Wine
Company, Inc., et al. (the "Brickell Class Action"). On December 6, 1995, a
third purported stockholder of the Company filed a class action in the United
States District Court for the Southern District of New York, Babich, et al. v.
Canandaigua Wine Company, Inc., et al. (and this class action together with the
Brickell Class Action and the Ventry Class Action, the "Class Actions"). The
defendants in the Class Actions were the Company, Richard Sands and Lynn K.
Fetterman. The Class Actions were consolidated and a consolidated complaint was
filed on January 16, 1996. The Class Actions asserted violations of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder and sought to recover damages in an unspecified amount which the
class members allegedly sustained by purchasing the Company's common stock at
artificially inflated prices. The complaints in the Class Actions alleged that
the Company's public documents and statements were materially incomplete and, as
a result, misleading.
On April 8, 1996, the Company filed a motion to dismiss the consolidated
complaint and oral argument was held on September 25, 1996. After oral argument,
the Court stated that it intended to construe the Company's motion to dismiss as
a motion for summary judgment. As noted above, on November 8, 1996, the District
Court entered summary judgment in favor of the Company and the other defendants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Not Applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information with respect to the current
executive officers of the Company:
NAME AGE OFFICE HELD
- ---- --- -----------
Marvin Sands 7374 Chairman of the Board
Richard Sands 4647 President and Chief Executive Officer
Robert Sands 3839 Executive Vice President, General Counsel and Secretary
Ellis M. Goodman 60Daniel C. Barnett 48 President of Canandaigua Wine Company, Inc.
Alexander L. Berk 48 President and Chief ExecutiveOperating Officer of Barton
Incorporated
Daniel C. Barnett 47 Senior Vice President and President of
Wine Division
Bertram E. Silk 65 Senior Vice President
Thomas S. Summer 4344 Senior Vice President and Chief Financial Officer
Marvin Sands is the founder of the Company, which is the successor to a
business he started in 1945. He has been a director of the Company and its
predecessor since 1946 and was Chief Executive Officer until October 1993.
Marvin Sands is the father of Richard Sands and Robert Sands.
Richard Sands, Ph.D., has been employed by the Company in various
capacities since 1979. He was elected Executive Vice President and a director in
1982, became President and Chief Operating Officer in May 1986 and was elected
Chief Executive Officer in October 1993. He is a son of Marvin Sands and the
brother of Robert Sands.
Robert Sands was appointed Executive Vice President, General Counsel in
October 1993. In January 1995, he was appointed Secretary of the Company. He was
elected a director of the Company in January 1990 and served as Vice President,
General Counsel since June 1990. From June 1986, until his appointment as Vice
President, General Counsel, Mr. Sands was employed by the Company as General
Counsel. He is a son of Marvin Sands and the brother of Richard Sands.
Ellis M. Goodman is the Chief Executive OfficerDaniel C. Barnett serves as President of Barton and serves in
that capacity under the terms of an employment agreement with Barton. By virtue
of his position and responsibilities with Barton, Mr. Goodman is deemed an
executive officerCanandaigua Wine Company, Inc., a
wholly-owned subsidiary of the Company. From July 1993 to January 1996,In this capacity, Mr. Goodman
served as a director of the Company. Also, from July 1993 to October 1993, he
served as a Vice President of the Company and from October 1993 to January 1996,
Mr. Goodman served as an Executive Vice President of the Company. Mr. Goodman
has been Chief Executive Officer of Barton since 1987 and Chief Executive
Officer of Barton Brands, Ltd. (predecessor to Barton) since 1982.
Daniel C. Barnett joined the Company during November 1995 as a Senior Vice
President and Presidentis in
charge of the Company's wine division.division, and has been since he joined the Company
in November 1995. From July 1994 to October 1995, Mr. Barnett served as
President and Chief Executive Officer of Koala Springs International, a juice
beverage company. Prior to that, from April 1991 to June 1994, Mr. Barnett was
Vice President and General Manager of Nestle USA's beverage businesses. From
October 1988 to April 1991, he was President of Weyerhauser's baby diaper
division.
Bertram E. Silk has beenAlexander L. Berk serves as President and Chief Operating Officer of Barton
Incorporated, a director and Vice Presidentwholly-owned subsidiary of the Company since
1973 and was elected Senior Vice President in October 1993. He has been employed
by the Company since 1965. Currently,Company. In this capacity, Mr.
SilkBerk is responsible for industry
relations with respect to labor unions in California, as well as for various
trade association and international alcohol beverage industry matters.
Immediately prior to his current position, he was in charge of the Company's grape grower relations in California. Before moving from Canandaigua, New Yorkbeer and spirits divisions. Mr. Berk became
an executive officer of the Company on February 28, 1998, when his position was
expanded to California in 1989, Mr. Silk was in charge of productioninclude overall responsibility for the Company.beer and spirits divisions.
This change occurred when Ellis M. Goodman, who formerly held this
responsibility, left Barton to pursue other interests. Mr. Berk has served as
President and Chief Operating Officer of Barton since 1990. From 19891988 to August 1994,1990,
Mr. SilkBerk was the President and Chief Executive Officer of Schenley Industries
and previously served in chargevarious other positions with Schenley since 1971. Mr.
Berk served during an interim period of 1974 to 1978 as the Company's grape juice
concentrate business in California.Vice President and
Director of Marketing for Schieffelin & Co., Inc., an importer of wine and
spirits.
Thomas S. Summer joined the Company during April l997 as Senior Vice
President and Chief Financial Officer. From November 1991 to April 1997, Mr.
Summer served as Vice President, Treasurer of Cardinal Health, Inc., a large
national heathhealth care services company, where he was responsible for directing
financing strategies and treasury matters. Prior to that, from November 1987 to
November 1991, Mr. Summer held several positions in corporate finance and
international treasury with PepsiCo, Inc.
Executive officers of the Company hold office until the next Annual Meeting
of the Board of Directors and until their successors are chosen and qualify.
PART II
ITEM 5.MARKET5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- -----------------------------------------------------------------
MATTERS
-------
The Company's Class A Common Stock (the "Class A Stock") and Class B Common
Stock (the "Class B Stock") trade on the NasdaqNASDAQ National Market tier of the
Nasdaq Stock Market under the
symbols "WINEA""CBRNA" and "WINEB,"CBRNB," respectively. The following tables set forth for
the periods indicated the high and low sales prices of the Class A Stock and the
Class B Stock as reported on the NasdaqNASDAQ National Stock Market.
CLASS A STOCK
-----------------------------------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Fiscal 1995
High $34 1/4 $40 1/2 $44 3/4 $48
Low $29 3/4 $33 1/4 $33 1/2 $40 1/2
Transition Period
High $53 $39
Low $30 3/4 $29 3/4
Fiscal 1997
High $39 1/2 $32 1/4 $27 1/2 $31 3/4
Low $27 $22 7/8 $15 3/4 $25 1/2
Fiscal 1998
High $32 1/4 $42 3/4 $53 1/2 $58 1/2
Low $21 7/8 $29 3/8 $39 1/2 $43 3/4
CLASS B STOCK
-----------------------------------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Fiscal 1995
High $34 1/2 $40 $45 1/2 $47 3/4
Low $30 1/2 $33 $35 1/4 $43
Transition Period
High $52 1/4 $38 3/4
Low $32 1/2 $32 1/4
Fiscal 1997
High $39 1/2 $32 1/2 $29 3/4 $34
Low $27 3/4 $25 3/8 $19 $28 3/4
Fiscal 1998
High $37 $43 $54 5/8 $57 3/4
Low $27 $35 1/2 $40 3/4 $45
At May 5, 1997,18, 1998, the number of holders of record of Class A Stock and Class
B Stock of the Company were 1,2921,076 and 351,317, respectively.
The Company's policy is to retain all of its earnings to finance the
development and expansion of its business, and the Company has not paid any cash
dividends since its initial public offering in 1973. In addition, the Company's
current bank credit agreement prohibits andCredit Agreement, the Company's indenture for its $130 million 8
3/4% Senior Subordinated Notes due 2003 and its indenture for its $65 million 8
3/4% Series C Senior Subordinated Notes due 2003 restrict the payment of cash
dividends.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
FOR THE SIX
MONTHS
FOR THE YEARS ENDED AUGUST 31,MONTHS ENDED FOR THE YEARS ENDED
------------------------------------------------------ ------------ ----------------------------
FebruaryFEBRUARY 28, FEBRUARY 29, February 29, February 28,
1992AUGUST 31,
--------------------------- -------------- -------------------------------------
1998 1997 1996 1995 1994 1993 1994 1995 1996 1996 (a) 1997
---------- ---------- ----------
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)-------------- ---------- ----------- ----------
(in thousands, except per
share data)
Sales:
Gross including excise
taxessales $ 305,1181,632,357 $ 389,4171,534,452 $ 738,415 $ 1,185,074 $ 861,059 $ 1,185,074 $ 738,415 $ 1,331,184 $ 1,534,452389,417
Less-excise taxes (59,875)(419,569) (399,439) (203,391) (278,530) (231,475) (83,109)
(231,475) (278,530) (203,391) (344,101) (399,439)
--------- --------- --------- ----------- ----------------------- ------------- ------------ ------------ ----------- -----------
Net sales 245,2431,212,788 1,135,013 535,024 906,544 629,584 306,308 629,584 906,544 535,024 987,083 1,135,013
Cost of product sold (174,686)(864,053) (844,181) (396,208) (653,811) (447,211) (214,931)
(447,211) (653,811) (396,208) (722,325) (844,181)
--------- --------- --------- ----------- ----------------------- ------------- ------------ ------------ ----------- -----------
Gross profit 70,557348,735 290,832 138,816 252,733 182,373 91,377 182,373 252,733 138,816 264,758 290,832
Selling, general and
administrative expenses (46,491)(231,680) (208,991) (112,411) (159,196) (121,388) (59,983) (121,388) (159,196) (112,411) (191,683) (208,991)
Nonrecurring restructuring
expenses -- --- - (2,404) (2,238) (24,005) (2,238) (2,404) (3,957) --
--------- --------- --------- ----------- ------------
------------ ------------- ------------ ------------ ----------- -----------
Operating income 24,066117,055 81,841 24,001 91,299 36,980 31,394 36,980 91,299 24,001 69,118 81,841
Interest expense, net (6,182)(32,189) (34,050) (17,298) (24,601) (18,056) (6,126)
(18,056) (24,601) (17,298) (28,758) (34,050)
--------- --------- --------- ----------- ----------------------- ------------- ------------ ------------ ----------- -----------
Income before provision
for Federal and state
income taxes 17,88484,866 47,791 6,703 66,698 18,924 25,268 18,924 66,698 6,703 40,360 47,791
Provision for Federal and
state income taxes (6,528)(34,795) (20,116) (3,381) (25,678) (7,191) (9,664)
(7,191) (25,678) (3,381) (16,339) (20,116)
--------- --------- --------- ----------- ----------------------- ------------- ------------ ------------ ----------- -----------
Net income $ 11,35650,071 $ 15,60427,675 $ 3,322 $ 41,020 $ 11,733 $ 41,020 $ 3,322 $ 24,021 $ 27,675
========= ========= =========15,604
============ ============= ============ ============ =========== ===========
Earnings per common share:
Basic $ 2.68 $ 1.43 $ 0.17 $ 2.18 $ 0.76 $ 1.32
============ ============= ============ ============ =========== ===========
Net income per common and
common equivalent share:
PrimaryDiluted $ 1.082.62 $ 1.301.42 $ .740.17 $ 2.142.16 $ .170.75 $ 1.20
$ 1.41
========= ========= ========= =========== =========== =========== ===========
Fully diluted $ 1.01 $ 1.20 $ .74 $ 2.13 $ .17 $ 1.20 $ 1.40
========= ========= ========= =========== ======================= ============= ============ ============ =========== ===========
Total assets $ 217,8351,073,159 $ 355,1821,020,901 $ 1,054,580 $ 785,921 $ 826,562 $ 785,921 $ 1,054,580 $ 1,054,580 $ 1,020,901
========= ========= ========= =========== ===========355,182
============ ============= ============ ============ =========== ===========
Long-term debt $ 61,909309,218 $ 108,303338,884 $ 327,616 $ 198,859 $ 289,122 $ 198,859 $ 327,616 $ 327,616 $ 338,884
========= ========= ========= =========== ===========108,303
============ ============= ============ ============ =========== ===========
For the fiscal yearyears ended February 28, 1998 and 1997, the twelve months ended February
29, 1996,and the six months ended
February 29, 1996, and the fiscal years ended
August 31, 1995 and 1994, see Management's Discussion and Analysis of Financial
Condition and Results of Operations under Item 7 of this reportReport and Notes to
Consolidated Financial Statements as of February 28, 1997,1998, under Item 8 of this
report.
(a) The twelve month period ended February 29, 1996, consisted of the last six
months ofReport.
Earnings per common share for all periods presented reflect the Company's
1995 fiscal year ended August 31, 1995,adoption of SFAS No. 128 (see Notes 1 and the six
month fiscal period ended February 29, 1996, as a result of a change10 in the Company's fiscal year end.
Notes to Consolidated
Financial Statements as of February 28, 1998, under Item 8 of this Report).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS.- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
INTRODUCTION
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the year
ended February 28, 1998 ("Fiscal 1998"), compared to the year ended February 28,
1997 ("Fiscal 1997"), Fiscal 1997 compared to the twelve months ended February
29, 1996 ("Pro Forma Fiscal 1996"), and the six month transition period ended
February 29, 1996 ("Transition Period"), compared to the six months ended
February 28, 1995 ("February 1995 Six Months"), and (ii) financial liquidity and
capital resources for Fiscal 1998. This discussion and analysis should be read
in conjunction with the Company's consolidated financial statements and notes
thereto included herein.
The Company operates primarily in the beverage alcohol industry. The
Company is principally a producer and supplier of wine and an importer and
producer of beer and distilled spirits in the United States. The Company's
beverage alcohol brands are marketed in three general categories: wine, beer and
distilled spirits.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volume (in thousands of cases), if applicable, for branded beverage alcohol
products and other products and services sold by the periods indicated, certain items in
the Company's consolidated statements of income expressed as a percentage of net
sales:Company for Fiscal 1998 and
Fiscal 1997.
PRO FORMA
FISCAL YEAR TWELVE MONTHS FISCAL YEAR
ENDED AUGUST SIX MONTHS ENDED ENDED ENDED
31, FEBRUARY 28, FEBRUARY 29, FEBRUARY 29, FEBRUARY 28,
1994 1995 1995* 1996 1996*Fiscal 1998 Compared to Fiscal 1997
---------------------------------------------------------------------
Net Sales Unit Volume
------------------------------------ ----------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1998 1997 (Decrease) 1998 1997 (Decrease)
---------- ---------- ---------- ------ ------ ------------ ------------ -------------- ----------------------
NetWine $ 533,257 $ 512,510 4.0% 27,793 27,393 1.5%
Beer 376,607 298,925 26.0% 30,016 23,848 25.9%
Spirits 200,276 183,843 8.9% 9,930 9,390 5.8%
Other (a) 102,648 139,735 (26.5%) N/A N/A N/A
---------- ---------- ---------- ------ ------ ----------
$1,212,788 $1,135,013 6.9% 67,739 60,631 11.7%
========== ========== ========== ====== ====== ==========
(a) Other consists primarily of nonbranded concentrate sales, 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costcontract
bottling and other production services and bulk product sales, none of
productwhich are sold 72.1 74.1 73.2 74.4 71.0 72.1
Gross profit 29.0 27.9 27.9 25.9 26.8 25.6
Selling, general and
administrative expenses 19.3 17.6 17.6 21.0 19.4 18.4
Nonrecurring restructuring
expenses 3.8 0.2 0.1 0.4 0.4 0.0
Operating income 5.9 10.1 10.2 4.5 7.0 7.2
Interest expense, net 2.9 2.7 2.9 3.2 2.9 3.0
Income before provision
for income taxes 3.0 7.4 7.3 1.3 4.1 4.2
Provision for Federal and
state income taxes 1.1 2.9 2.8 0.7 1.7 1.8
Net income 1.9% 4.5% 4.5% 0.6% 2.4% 2.4%
*Unauditedin case quantities.
TWELVE MONTHS ENDED FEBRUARY 28,
Net sales for Fiscal 1998 increased to $1,212.8 million from $1,135.0
million for Fiscal 1997, an increase of $77.8 million, or 6.9%. This increase
resulted primarily from (i) $77.7 million of additional beer sales, largely
Mexican beer, (ii) $22.5 million of additional table wine sales and (iii) $16.4
million of additional spirits sales. These increases were partially offset by
lower sales of grape juice concentrate, bulk wine and other branded wine
products. Although table wine sales have increased, the Company has experienced
a market share decline of its wine products during Fiscal 1998, a trend which
has continued into fiscal 1999. The Company is implementing various programs to
address the decline, such as addressing noncompetitive consumer prices of its
wine products on a market-by-market basis as well as increasing its promotional
activities where appropriate.
GROSS PROFIT
The Company's gross profit increased to $348.7 million for Fiscal 1998 from
$290.8 million for Fiscal 1997, an increase of $57.9 million, or 19.9%. As a
percent of net sales, gross profit increased to 28.8% for Fiscal 1998 from 25.6%
for Fiscal 1997. The dollar increase in gross profit resulted primarily from
increased beer sales, higher average selling prices and cost structure
improvements related to branded wine sales, higher average selling prices in
excess of cost increases related to grape juice concentrate sales and higher
average selling prices and increased volume related to branded spirits sales.
These increases were partially offset by lower sales volume of grape juice
concentrate and bulk wine.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, gross profit reflected an addition of $5.0 million in
Fiscal 1998 and a reduction of $31.4 million in Fiscal 1997 due to the Company's
LIFO accounting method.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $231.7 million
for Fiscal 1998 from $209.0 million for Fiscal 1997, an increase of $22.7
million, or 10.9%. The dollar increase in selling, general and administrative
expenses resulted principally from marketing and selling costs associated with
the Company's increased branded sales volume, and a one-time charge for
separation costs related to an organizational change within the Company.
Selling, general and administrative expenses as a percent of net sales increased
to 19.1% for Fiscal 1998 as compared to 18.4% for Fiscal 1997. The increase in
percent of net sales resulted from the one-time charge for separation costs
related to an organizational change within the Company and from a change in the
sales mix driven by an increase in net sales of branded products, which have a
higher percent of marketing and selling cost relative to sales, partially offset
by a decrease in net sales of nonbranded products, which have relatively little
associated marketing and selling costs.
INTEREST EXPENSE, NET
Net interest expense decreased to $32.2 million for Fiscal 1998 from $34.1
million for Fiscal 1997, a decrease of $1.9 million, or 5.5%. The decrease was
primarily due to a decrease in the Company's average borrowings which was
partially offset by an increase in the average interest rate.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Fiscal 1998 decreased to 41.0% from
42.1% for Fiscal 1997 as Fiscal 1997 reflected a higher effective tax rate in
California caused by statutory limitations on the Company's ability to utilize
certain deductions.
NET INCOME
As a result of the above factors, net income increased to $50.1 million for
Fiscal 1998 from $27.7 million for Fiscal 1997, an increase of $22.4 million, or
80.9%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Fiscal 1998 were
$150.2 million, an increase of $36.5 million over EBITDA of $113.7 million for
Fiscal 1997. EBITDA should not be construed as an alternative to operating
income or net cash flow from operating activities and should not be construed as
an indication of operating performance or as a measure of liquidity.
FISCAL 1997 COMPARED TO TWELVE MONTHS ENDED FEBRUARY
29,PRO FORMA FISCAL 1996
NET SALES
Net sales for fiscalFiscal 1997 increased to $1,135.0 million from $987.1 million
for Pro Forma Fiscal 1996, an increase of $147.9 million, or approximately
15.0%. This
increase resulted primarily from (i) $59.1 million of additional imported beer
sales, primarily Mexican beers;beer; (ii) the inclusion of $49.0 million of net sales
of products and services from the UDG Acquisition during the period from March
1, 1996, through August 31, 1996; (iii) $22.7 million of higher sales of grape
juice concentrate; (iv) $19.4 million of increased net sales of the Company's
varietal table wine products (wine named for the grape that comprises the
principal component of the wine) resulting from selling price increases
implemented between October 1995 and May 1996, as well as additional unit
volume; and (v) $5.8 million of additional sales of spirits brands; partially
offset by $5.2 million of decreased sales of the Company's non-varietalnonvarietal table
wine brands (wine named after the European regions where similar types of wine
were originally produced [e.g., burgundy], niche products and proprietary
brands) and a decrease of $2.9 million in sales of other products and services.
For purposes of computing the net sales and unit volume comparative data
for the table below and for the remainder of the discussion of net sales, sales
of spirits acquired in the UDG Acquisition have been included for the period
from March 1, 1995, through August 31, 1995, which was prior to the UDG
Acquisition.
The following table below sets forth the net sales (in thousands of dollars) and
unit volumesvolume (in thousands of cases), if applicable, for the branded beverage alcohol
products branded wineand other products each category of branded wine products, beer and spirits
brandsservices sold by the Company for fiscalFiscal 1997 and
Pro Forma Fiscal 1996:
FISCAL 1997 COMPARED TO PRO FORMA FISCAL 1996
NET SALES UNIT VOLUME
-------------------------- ----------------------
%INC/ %INC/
1997 1996 (DEC) 1997 1996 (DEC)
-------- -------- ----- ------ ------ -----
Branded Beverage
Alcohol Products (1) $994,500 $919,206 8.2% 60,631 56,823 6.7%
Branded Wine Products 512,510 499,962 2.5 27,393 28,232 (3.0)
Non-varietal table wines 216,284 221,522 (2.4) 13,518 14,203 (4.8)
Varietal table wines 162,174 142,812 13.6 6,858 6,666 2.9
Dessert wines 67,132 67,625 (0.7) 4,175 4,371 (4.5)
Sparkling wines 66,920 68,003 (1.6) 2,843 2,992 (5.0)
Beer 298,925 239,786 24.7 23,848 19,344 23.3
Spirits (2) 183,843 178,803 2.8 9,390 9,223 1.8
- -------------------------
(1) The sum of the net sales and unit volume amounts from the categories
may not equal total Branded Beverage Alcohol Products because
miscellaneous items affecting net sales and unit volume may be included
in total Branded Beverage Alcohol Products but not reflected in the
category information.
(2)1996.
Fiscal 1997 Compared to Pro Forma Fiscal 1996
---------------------------------------------------------------------
Net Sales Unit Volume
------------------------------------ ----------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1997 1996 (Decrease) 1997 1996 (Decrease)
---------- ---------- ---------- ------ ------ ----------
Wine $ 512,510 $ 499,962 2.5% 27,393 28,232 (3.0%)
Beer 298,925 239,786 24.7% 23,848 19,344 23.3%
Spirits (a) 183,843 178,803 2.8% 9,390 9,223 1.8%
Other (b) 139,735 110,047 27.0% N/A N/A N/A
---------- ---------- ---------- ------ ------ ----------
$1,135,013 $1,028,598 10.3% 60,631 56,799 6.7%
========== ========== ========== ====== ====== ==========
(a) For comparison purposes only, net sales of $41,514 and unit volume of
2,001 cases of distilled spirits brands acquired in the September 1,
1995, UDG Acquisition have been included in the table for the twelve
months ended February 29, 1996. These amounts represent net sales and
unit volume of those brands for the period March 1, 1995, through
August 31, 1995, which was prior to the UDG Acquisition.
(b) Other consists primarily of nonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
Net sales and unit volume of the Company's branded beverage alcohol
products for fiscalFiscal 1997 increased 8.2%10.3% and 6.7%,
respectively, as compared to Pro Forma Fiscal 1996. The net sales increase
resulted from higher imported beer sales, higher sales of grape juice
concentrate, price increases on most of the Company's branded wine products,
particularly varietal table wine brands, and increased sales of the Company's
spirits brands. Unit volume increases were led by substantial growth in the
Company's imported beer brands and increases in its varietal table wine and
spirits brands, partially offset by declines in unit volume of non-varietalnonvarietal table
wines,wine, dessert wineswine and sparkling wines.
Net sales and unit volume of the Company's non-varietal table wine products
declined by 2.4% and 4.8% respectively, for fiscal 1997 as compared to Pro Forma
Fiscal 1996. The
Company believes that the decline in unit volume reflects the impact of the
Company's selling price increases, reduced promotion, and other competitive
pressures.
Net sales and unit volume of the Company's varietal table wine brands
increased by 13.6% and 2.9%, respectively. Net sales increased at a greater rate
than unit volume due to selling price increases instituted between October 1995
and May 1996. Net sales of the Company's varietal table wine products such as
chardonnay, cabernet sauvignon and merlot, which represent more than half of the
Company's varietal table wine volume, increased substantially in fiscal 1997,
while net sales of white zinfandel products declined slightly in fiscal 1997.
The Company believes that unit volume growth of its varietal table wine brands
has slowed during fiscal 1997 due to price increases. During this period the
entire industry experienced a slowdown of its varietal wine volume growth due to
price increases related to higher costs from the last two grape harvests.
Net sales and unit volume of the Company's dessert wine brands declined by
0.7% and 4.5%, respectively, during fiscal 1997. The Company believes that,
although the impact of the decline in unit volume was mitigated by selling price
increases, these results reflect the continuing trend of consumer preferences
away from the dessert wine category.
Net sales and unit volume of the Company's sparkling wines decreased by
1.6% and 5.0%, respectively, during fiscal 1997 as compared to Pro Forma Fiscal
1996. The Company believes that the decline in unit volume is consistent with
industry trends.
Net sales and unit volume of the Company's beer brands increased 24.7% and
23.3%, respectively, during fiscal 1997. These increases were largely due to the
Company's Mexican beer brands, which represented over 70% of total beer sales.
The Company believes that the growth in its Mexican beers is related to the
growth of the Hispanic population in the Company's distribution areas, the
continued popularity of imported beers in general and the narrowing retail price
gap between imported beers and domestic beers.
Net sales and unit volume of the Company's distilled spirits brands
increased by 2.8% and 1.8%, respectively, in fiscal 1997 as compared to Pro
Forma Fiscal 1996.wine. Excluding the impact of the UDG
Acquisition, spirits net sales and unit volume increased by 6.4%10.7% and 1.3%7.1%,
respectively, reflecting
strong brandy sales, increased sales of tequila and liqueurs and the
introduction of a number of new products.respectively. Net sales of the brands acquired in the UDG Acquisition decreased
by 1.2% and unit volume increased by 2.5% in fiscalFiscal 1997. Net sales declines
reflectreflected the impact of downward selling price adjustments to bring these brands
more in line with the pricing strategy of the rest of the Company's spirits
portfolio.
GROSS PROFIT
The Company's gross profit increased to $290.8 million in fiscalFiscal 1997 from
$264.8 million in Pro Forma Fiscal 1996, an increase of $26.1 million, or 9.8%.
This change in gross profit resulted primarily from (i) approximately $20.5 million of gross
profit from sales generated during the period from March 1, 1996, through August
31, 1996, from the business acquired from UDG; (ii) approximately $19.0 million of additional
gross profit from increased beer sales; and (iii) approximately $13.4 million of lower gross
profit primarily due to increased cost of product sold, particularly higher
grape costs in the fall 1996 harvest and additional costs resulting from
inefficiencies in the production of wine and grape juice concentrate at the
Company's Mission Bell Winerywinery in California, partially offset by additional net
sales resulting primarily from selling price increases of the Company's branded
wine and grape juice concentrate products and a reduction of certain long-term
grape contracts to reflect current market prices and the renegotiation of
certain unfavorable contracts. The Company's increased production costs stemmed
from low bulk wine conversion rates and bottling inefficiencies. The Company
also experienced high imported concentrate and bulk freight costs. The Company
has instituted a series of steps to address these matters, including a
reengineering effort to redesign its work processes, organizational structure
and information systems.
Gross profit as a percentage of net sales was 25.6% for fiscalFiscal 1997 as
compared to 26.8% in Pro Forma Fiscal 1996. The decline in the gross profit
margin was largely due to higher costs, particularly grape costs, of wine and
grape juice concentrate products, partially offset by increased selling prices
on most of the Company's branded wineswine and grape juice concentrate products. The
Company has experienced significant increases in its cost of grapes in both the
1995 and 1996 harvests. The Company believes that these increases in grape costs
were due to an imbalance in supply and demand in the varieties which the Company
purchases.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, the Company's fiscal 1997 results reflectgross profit reflected a reduction in gross profit of approximately $31.4 million and
$3.9 million in Fiscal 1997 and Pro Forma Fiscal 1996, respectively, due to the
Company's LIFO accounting method. For comparison purposes, results for the Company's Pro Forma
Fiscal 1996 reflected a reduction in gross profit of approximately $3.9 million
due to LIFO.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscalFiscal 1997 were $209.0
million, an increase of $17.3 million as compared to Pro Forma Fiscal 1996. Of
this amount, $13.5 million was due primarily to increased personnel and related
expenses stemming from the Company's reengineering efforts, including the
continued strengthening of the Company's management, and other expenses
consistent with the Company's growth; and $11.3 million related to the UDG
Acquisition. These items were offset primarily by one-time costs incurred in
advertising and promotion expenses in Pro Forma Fiscal 1996 due to the change in
the Company's fiscal year-end.
NONRECURRING RESTRUCTURING EXPENSES
Pro Forma Fiscal 1996 included $4.0 million of nonrecurring restructuring
expenses.
INTEREST EXPENSE, NET
Net interest expense totaled $34.1 million in fiscalFiscal 1997, an increase of
$5.3 million as compared to Pro Forma Fiscal 1996, primarily due to additional
interest expense from the UDG Acquisition financing.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for fiscalFiscal 1997 was 42.1% as compared to
40.5% for Pro Forma Fiscal 1996 due to a higher effective tax rate in California
caused by statutory limitations on the Company's ability to utilize certain
deductions.
NET INCOME
As a result of the foregoing,above factors, net income for fiscalFiscal 1997 was $27.7
million, an increase of $3.7 million as compared to Pro Forma Fiscal 1996.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for fiscalFiscal 1997 waswere
$113.7 million, an increase of $22.6 million over EBITDA of $91.1 million in Pro
Forma Fiscal 1996. EBITDA should not be construed as an alternative to operating
income or net cash flow from operating activities and should not be construed as
an indication of operating performance or as a measure of liquidity.
For
comparison purposes to companies using the FIFO method of accounting only,
EBITDA on a FIFO basis was $145.1 million in fiscal 1997, an increase of $50.1
million over EBITDA on a FIFO basis of $95.0 million in Pro Forma Fiscal 1996.
SIX MONTH TRANSITION PERIOD ENDED FEBRUARY 29, 1996, COMPARED TO FEBRUARY 1995 SIX MONTHS
ENDED FEBRUARY 28, 1995
NET SALES
Net sales for the Transition Period increased to $535.0 million from $454.5
million for the six months ended February 28, 1995 (the "February 1995 Six Months"),Months, an increase of $80.5 million, or
17.7%. In addition to the net sales of $53.4 million of products and services
from the UDG Acquisition, the Company had additional net sales of $23.6 million
from its imported beer brands and $14.1 million from its varietal wine products,
partially offset by lower sales of bulk wine, non-varietalnonvarietal wine, contract
bottling services, grape juice concentrate and dessert wine.
For purposes of computing the net sales and unit volume comparative data
below and for the remainder of the discussion of net sales, sales of products
acquired in the UDG Acquisition have been included in the Company's results for
the entire Transition Period and the entire February 1995 Six Months, which was
prior to the UDG Acquisition.
The following table sets forth the net sales (in thousands of dollars) and
unit volumesvolume (in thousands of cases), if applicable, for the branded beverage alcohol
products branded wineand other products each
category of branded wine product, beer and spirits brandsservices sold by the Company for the Transition
Period and the February 1995 Six Months:Months.
TRANSITION PERIOD COMPARED TO FEBRUARY
Transition Period Compared to February 1995 SIX MONTHS
NET SALES UNIT VOLUME
--------------------------------------- ---------------------------------------
TRANSITION FEBRUARYSix Months
-----------------------------------------------------------------------------
Net Sales Unit Volume
------------------------------------ ------------------------------------
February February
Branded Beverage Transition 1995 %INCREASE TRANSITION FEBRUARY%Increase/ Transition 1995 %INCREASE
PERIOD SIX MONTHS (DECREASE) PERIOD SIX MONTHS (DECREASE)
---------- -------------%Increase/
Alcohol Products: Period Six Months (Decrease) Period Six Months (Decrease)
---------- ---------- ----------------------- ---------- ---------- ----------
Branded Beverage
Alcohol Products (1) $474,450 $443,204 7.1% 28,748 26,786 7.3%
Branded Wine Products$ 268,782 $ 255,881 5.05.0% 14,783 14,537 1.7
Non-varietal wines 116,128 117,805 (1.4) 7,325 7,699 (4.9)
Varietal wines 78,182 64,049 22.1 3,637 2,971 22.4
Dessert wines 32,640 33,435 (2.4) 2,033 2,137 (4.9)
Sparkling wines 41,831 40,592 3.1 1,788 1,731 3.31.7%
Beer 115,757 92,131 25.625.6% 9,316 7,444 25.125.1%
Spirits (2)(a) 91,219 96,547 (5.5)(5.5%) 4,648 4,793 (3.0)
- -----------------(3.0%)
Other (b) 59,266 60,548 (2.1%) N/A N/A N/A
---------- ---------- ---------- ---------- ---------- ----------
$ 535,024 $ 505,107 5.9% 28,747 26,774 7.4%
========== ========== ========== ========== ========== ==========
(1) The sum of the net sales and unit volume amounts from the individual
categories do not equal total Branded Beverage Alcohol Products because
miscellaneous items reducing net sales and adding to unit volume are
included in total Branded Beverage Alcohol Products but are not
reflected in the category information.
(2)(a) For comparison purposes only, net sales of $50,622 and unit volume of
2,340 of distilled spirits have been included in the table for the six
months ended February 28, 1995, which was prior to the UDG
Acquisition.
(b) Other consists primarily of nonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
Net sales and unit volume of the Company's branded beverage alcohol
products for the Transition Period increased 7.1%5.9% and
7.3%7.4%, respectively, as compared to the February 1995 Six Months. These increases
were principally due to increased net sales and unit volume of the Company's
imported beer brands and varietal table wine brands. Net sales of the Company's branded wine products increased by $12.9
million, or 5.0%, for the Transition Period as compared to the February 1995 Six
Months. Unit volume of the Company's branded wine products increased by
approximately 246,000 cases, or 1.7%. Of the $12.9 million increase in net
sales, (i) $8.6 million was due to higher average selling prices per case due to
a combination of price increases implemented by the Company between October 1995
and January 1996 and a change in the product mix in favor of higher-priced
categories; and (ii) $4.3 million was due to increased shipments of the
Company's varietal table wines and sparkling wines, partially offset by lower
shipments of non-varietal table wines and dessert wines. The Company believes
that the increase in unit volume was partially due to the fulfillment of a
backlog of orders at the end of fiscal 1995 caused by production and shipping
delays associated with the consolidation of certain of its California wineries
(the "Restructuring Plan"). The backlog of unfilled orders from August 1995 was
substantially eliminated in the first three months of the Transition Period.
Net sales and unit volume of the Company's non-varietal table wine brands
for the Transition Period decreased by 1.4% and 4.9%, respectively, as compared
to the February 1995 Six Months. The decline in net sales was less than the
decline in unit volume as a result of the selling price increases implemented by
the Company. The Company believes that the volume decline is consistent with a
general change in consumer preferences from non-varietal table wines to varietal
table wines and may also reflect the impact of the Company's price increases.
Net sales and unit volume of the Company's varietal table wine brands for
the Transition Period increased 22.1% and 22.4%, respectively, as compared to
the February 1995 Six Months. With the price increases implemented in the
Transition Period, the phasing out of introductory pricing on varietal wine line
extensions, and changes in mix, the average price per case of varietal wine has
virtually returned to the level the Company experienced in the February 1995 Six
Months.
Net sales and unit volume of the Company's sparkling wine brands increased
by 3.1% and 3.3%, respectively, in the Transition Period as compared to the
February 1995 Six Months. While these results were better than the industry
growth rate in the category during this period, they reflect comparisons to
lower sales for the Company in the February 1995 Six Months relative to the
industry.
Net sales and unit volume of the Company's dessert wine brands decreased by
2.4% and 4.9%, respectively, in the Transition Period as compared to the
February 1995 Six Months, reflecting the continuing decline in the consumption
of beverage dessert wines, partially offset by increases in the sale of
traditional dessert wines such as ports and sherries.
Net sales and unit volume of the Company's beer brands for the Transition
Period increased by 25.6% and 25.1%, respectively, as compared to the February
1995 Six Months. These increases were principally driven by growth in the
Company's Mexican beer brands, which represented over 70% of total beer sales.
Net sales and unit volume of the Company's distilled spirits brands
declined by 5.5% and 3.0%, respectively, in the Transition Period as compared to
the February 1995 Six Months. Excluding the impact of the
UDG Acquisition, net sales and unit volume of the Company's distilled spirits brands grew by 6.2%6.0% and 5.0%9.2%, respectively,
in the Transition Period, led by higher brandy, tequila,
liqueur and rum sales, partially offset by lower whiskey, gin and vodka sales.Period. Unit sales of the brands acquired in the UDG
Acquisition were 11.5% lower than in the February 1995 Six Months, accounting
for lower overall spirits sales. During the period from 1993 to 1995, the brands
acquired in the UDG Acquisition declined in excess of industry rates. The
Company believes that these declines resulted from noncompetitive retail pricing
and promotional activities.
GROSS PROFIT
Gross profit for the Transition Period was $138.8 million, an increase of
$12.0 million as compared to gross profit of $126.8 million for the February
1995 Six Months. This increase in gross profit resulted from $18.5 million of
additional gross profit from sales generated from the business acquired from UDG
and $1.0 million from ongoing operations, which was offset in part by $7.5
million of (i) overtime, freight and other expenses and restructuring charges
related to production and shipping delays associated with the relocation of West
Coast bottling operations to the Company's Mission Bell winery, employee bonuses
and certain nonrecurring expenses; and (ii) as a result of the change in the
Company's fiscal year end, increased cost of product sold due to the different
amount and composition of inventory levels at the end of February versus the end
of August, the Company's former fiscal year end. The $1.0 million increase in
gross profit from ongoing operations resulted from a $7.3 million increase in
gross profit, primarily due to increased sales and gross margins from the
Company's imported beer business, partially offset by $6.3 million of lower
gross profits in the Company's wine and grape juice concentrate businesses,
which was due primarily to higher grape costs which were only partially
recovered by selling price increases in the Transition Period.
Gross profit as a percentage of net sales declined from 27.9% to 25.9% in
the Transition Period. This decline was due primarily to the impact of higher
grape and other costs in the Transition Period, partially offset by the higher
gross profit sales of brands acquired from UDGandUDG and improved gross profit as a
percentage of net sales in the Company's imported beer business. The gross
profit percentage was positively impacted by the UDG Acquisition, as gross
profit as a percentage of net sales on the business acquired from UDG was 34.7%.
SELLING, GENERAL AND ADMINISTRTIVEADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totalledtotaled $112.4 million for the
Transition Period, an increase of $32.5 million as compared to the February 1995
Six Months. Exclusive of $11.1 million of nonrecurring costs including, as a
result of the change in the Company's fiscal year end, the recognition of higher
than normal advertising and promotion expenses in the Transition Period due to
the seasonality of these expenses and employee bonuses and other nonrecurring
costs and $8.3 million related to the UDG Acquisition, selling, general and
administrative expenses increased by $13.1 million, or 16.3%, as compared to the
February 1995 Six Months. Advertising and promotion increases of $6.7 million
were related primarily to the Almaden/Inglenook Product Lines which were
acquired in August 1994 and which the Company did not advertise or promote at a
full level in the first several months after their acquisition. The Company also
incurred increased advertising and promotion expenses related to the increased
sales of its imported beers.beer. Selling expenses increased by $5.4 million primarily
as a result of the Almaden/Inglenook Product Line acquisitions, with the
Transition Period including a full complement of sales and marketing personnel
to service the brands that were not in place for the entire period in the
February 1995 Six Months. The Transition Period also included additional sales
personnel in the Company's spirits and imported beer divisions. Other general
and administrative expenses increased by $1.0 million.
Excluding the nonrecurring costs referred to above and the UDG Acquisition,
selling, general and administrative expenses as a percent of net sales increased
to 19.3% from 17.6% in the February 1995 Six Months due to the inclusion of a
full complement of advertising, promotion and selling expense related to the
Almaden/Inglenook Product Lines.
NONRECURRING RESTRUCTURING EXPENSES
The Company incurred net restructuring charges of $2.4 million in the
Transition Period, as compared to restructuring charges of $0.7 million in the
February 1995 Six Months. The restructuring expenses in the Transition Period
represent $3.1 million of incremental, nonrecurring expenses such as overtime
and freight expense related to production and shipment delays associated with
the Restructuring Plan, offset by a net reduction of $0.7 million in accrued
liabilities associated with the Restructuring Plan to take into account lower
than expected expenses for severance and facility holding and closure costs. See
the Notes to the Company's Consolidated Financial Statements included herein.
INTEREST EXPENSE, NET
Net interest expense increased $4.2 million to $17.3 million in the
Transition Period as compared to the February 1995 Six Months. The increase
resulted from additional interest expense associated with the borrowings related
to the UDG Acquisition, amounting to $5.1 million, and increased working capital
requirements due primarily to higher grape costs and the UDG Acquisition,
partially offset by net reductions in the Company's Term Loansterm loans and Revolving
Loansrevolving
loans using proceeds of the Company's November 18, 1994, public equity offering.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for the Transition Period increased to
50.4% from 38.5% for the February 1995 Six Months due to a higher effective tax
rate in California caused by statutory limitations on the Company's ability to
utilize certain deductions.
NET INCOME
As a result of the foregoing,above factors, net income for the Transition Period was
$3.3 million, a decrease of $17.0 million as compared to the February 1995 Six
Months.
FISCAL YEAR ENDED AUGUST 31, 1995, COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
NET SALES
Net sales for fiscal 1995 increased to $906.5 million from $629.6 million
for fiscal 1994, an increase of $276.9 million, or approximately 44.0%. This
increase resulted from the inclusion of (i) $234.7 million of net sales of
products acquired in the Almaden/Inglenook Acquisition; (ii) an overall increase
of $25.8 million in net sales of Company products, excluding the impact of the
net sales of products that were acquired during fiscal 1994; and (iii) an
additional $16.4 million of net sales of Vintners' products resulting from
inclusion of these products in the Company's portfolio for the entire first
quarter of fiscal 1995 versus only six weeks in the first quarter of fiscal
1994. Excluding the impact of the additional six weeks of net sales of Vintners'
products during the first quarter of fiscal 1995 and all of the net sales
resulting from the Almaden/Inglenook Acquisition during fiscal 1995, the
Company's net sales increased 4.1% as
compared to fiscal 1994. This was principally due to increased net sales of
imported beer brands and varietal table wines.
For purposes of computing the net sales and unit volume comparative data
below, sales of products acquired in the Vintners and Almaden/Inglenook
Acquisitions have been included in the entire period for fiscal 1995, and the
entire fiscal year 1994, part of which was prior to the Vintners Acquisition and
the Almaden/Inglenook Acquisition.
The table below sets forth the net sales (in thousands of dollars) and unit
volumes (in thousands of cases) for the branded beverage alcohol products,
branded wine products, each category of branded wine products, beer and spirits
brands sold by the Company for the 1995 and 1994 fiscal years:
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES UNIT VOLUME
--------------------------------------- ---------------------------------------
%INCREASE %INCREASE
1995 1994 (DECREASE) 1995 1994 (DECREASE)
-------- -------- ---------- ------- ------ ----------
Branded Beverage Alcohol
Products (1) $795,290 $750,180 6.0% 50,547 47,688 6.0%
Branded Wine Products (2) 487,101 486,838 0.1 28,019 28,657 (2.2)
Non-varietal wines 223,391 234,541 (4.8) 14,577 15,594 (6.5)
Varietal wines 128,679 106,559 20.8 6,032 4,943 22.0
Dessert wines 68,094 71,320 (4.5) 4,474 4,794 (6.7)
Sparkling wines 66,937 74,418 (10.1) 2,936 3,326 (11.7)
Beer 216,159 173,883 24.3 17,471 14,100 23.9
Spirits (2) (3) 92,400 88,549 4.3 5,041 4,847 4.0
- -----------------------
(1) The sum of the net sales and unit volume amounts from the categories do
not equal total Branded Beverage Alcohol Products because miscellaneous
items affecting net sales and unit volume are included in total Branded
Beverage Alcohol Products but are not reflected in the category
information.
(2) For comparison purposes only, the following amounts of net sales and
unit volume of brands acquired in the Vintners Acquisition and the
Almaden/Inglenook Acquisition have been included in the table for
fiscal year 1994;
NET SALES UNIT VOLUME
Non-varietal wines $113,754 7,964
Varietal wines 53,622 2,818
Dessert wines 1,637 78
Sparkling wines 7,701 265
Spirits 3,566 134
These amounts represent net sales and unit volume of brands from the
Vintners Acquisition for the period September 1, 1993, through October 14, 1993,
which was prior to the Vintners
Acquisition, and net sales and unit volume of brands from the Almaden/Inglenook
Acquisition for the period September 1, 1993, through August 4, 1994, which was
prior to the Almaden/Inglenook Acquisition.
(3) The Spirits category includes for both years presented case goods sales of
a number of brandy products under brands acquired in the Vintners and
Almaden/Inglenook Acquisitions.
Net sales and unit volume of the Company's branded beverage alcohol
products for fiscal 1995 each increased 6% as compared to fiscal 1994. This
increase was principally due to increased net sales and unit volume of the
Company's imported beer brands and varietal table wine brands.
Net sales and unit volume of the Company's branded wine products for fiscal
1995 increased 0.1% and decreased 2.2%, respectively, as compared to fiscal
1994. These results were primarily due to lower non-varietal table wine,
sparkling wine and dessert wine sales offset by improved varietal wine sales.
The Company's results were also negatively affected by a backlog in fulfilling
orders at the end of fiscal 1995 due to production and shipment delays
associated with the relocation of West Coast bottling operations to the
Company's Mission Bell winery under the Restructuring Plan. The backlog was
substantially eliminated in the first three months of the Transition Period. The
Company also increased prices on selected branded wine products during the
Transition Period in response to increased grape costs associated with the 1995
harvest and to phase out introductory pricing on recently introduced line
extensions of varietal wine products.
Net sales and unit volume of the Company's non-varietal table wine brands
for fiscal 1995 declined 4.8% and 6.5%, respectively, as compared to fiscal
1994. The Company believes these declines are consistent with a general decline
in the consumption of non-varietal table wine products reflecting changing
consumer preferences toward varietal table wines.
Net sales and unit volume of the Company's varietal table wine brands for
fiscal 1995 increased 20.8% and 22.0%, respectively, as compared to fiscal 1994.
These increases reflect the continuation of the Company's strategy to expand
distribution into new markets and increase penetration of existing markets
primarily through line extensions and promotional activities. As part of this
strategy, the Company also offered certain new and existing products at highly
competitive prices.
Net sales and unit volume of the Company's dessert wine brands for fiscal
1995 decreased 4.5% and 6.7%, respectively, as compared to fiscal 1994. The
Company believes those declines are consistent with a general decline in
consumption of dessert wines. Declines in the Company's beverage dessert wines
were partially offset by growth in higher priced traditional dessert wines such
as port and sherry.
Net sales and unit volume of the Company's sparkling wine brands for fiscal
1995 declined 10.1% and 11.7%, respectively, as compared to fiscal 1994. These
declines were primarily the result of strong competition and weak consumer
demand for sparkling wine.
Net sales and unit volume of the Company's beer brands for fiscal 1995
increased 24.3% and 23.9%, respectively, as compared to fiscal 1994. These
increases resulted primarily from increased sales of the Company's Corona brand
and its other Mexican beer brands, which represented over 70% of total beer
sales.
Net sales and unit volume of the Company's spirits brands for fiscal 1995
increased 4.3% and 4.0%, respectively, as compared to fiscal 1994. The growth is
due to increased shipments of brandy, vodka, and tequila.
GROSS PROFIT
Gross profit for fiscal 1995 increased to $252.7 million from $182.4
million for fiscal 1994, an increase of $70.3 million, or approximately 38.6%.
This increase resulted from the inclusion of the Almaden/Inglenook Product Lines
with those of the Company, and to a lesser extent from increased sales of
imported beer brands and the inclusion of Vintners' product lines with those of
the Company. The Company's gross profit as a percentage of net sales decreased
to 27.9% for fiscal 1995 from 29.0% for fiscal 1994. The Company's gross profit
percentages decreased as a result of the inclusion of operations acquired in the
Almaden/Inglenook Acquisition, which had a lower gross profit percentage than
the remainder of the Company's operations, and reduced gross profit percentages
on sales of certain of the Company's table wine brands in fiscal 1995 as
compared to fiscal 1994. The cost of grapes, a major component of the Company's
raw materials for its winemaking, increased significantly for the 1995 harvest
compared with the 1994 harvest.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1995 increased to
$159.2 million from $121.4 million for fiscal 1994, an increase of $37.8
million, or approximately 31.1%. This increase primarily resulted from the
additional expenses associated with the sales and marketing of the products
acquired in the Almaden/Inglenook Acquisition, and to a lesser extent, higher
advertising and promotion expenses associated with certain wine brands. As a
percentage of net sales, selling, general and administrative expenses decreased
to 17.6% for fiscal 1995 as compared to 19.3% for fiscal 1994 as a result of
increased economies of scale.
NONRECURRING RESTRUCTURING EXPENSES
In fiscal 1995, the Company incurred a nonrecurring restructuring charge of
$2.2 million related to its Restructuring Plan which reduced net income per
share by $0.07 on a fully diluted basis as compared to a nonrecurring
restructuring charge of $24.0 million in fiscal 1994, also related to the
Restructuring Plan, which reduced net income per share by $0.91 on a fully
diluted basis. See the Notes to the Company's Consolidated Financial Statements
included herein.
INTEREST EXPENSE, NET
Net interest expense increased $6.5 million to $24.6 million in fiscal 1995
as compared to fiscal 1994. The increase is primarily due to borrowings related
to the Vintners and Almaden/Inglenook Acquisitions.
NET INCOME
Net income for fiscal 1995 increased to $41.0 million from $11.7 million
for fiscal 1994, an increase of $29.3 million, or approximately 249.6%. Fully
diluted earnings per share increased to $2.13 in fiscal 1995 from $0.74 in
fiscal 1994, a 187.8% improvement.
Excluding the impact of the nonrecurring restructuring expenses, net income
was $42.4 million in fiscal 1995 as compared to $26.6 million in fiscal 1994.
This represents an improvement in net income of $15.8 million or 59.4%.
Excluding the impact of the nonrecurring restructuring expenses, fully diluted
earnings per common share increased to $2.20 from $1.65, an increase of 33.3%.
These increases were due to the contribution of the Almaden/Inglenook Product
Lines and other products acquired in the Almaden/Inglenook Acquisition and
increased sales of imported beer brands.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual fall
grape harvests when the Company has relied on short-term borrowings. The annual
grape crush normally begins in August and runs through October. The Company
generally begins purchasing grapes in August with payments for such grapes
beginning to come due in September. The Company's short-term borrowings to
support such purchases generally reach their highest levels in November or
December. Historically, the Company has used cash flow from operating activities
to repay its short-term borrowings. The Company will continue to use its
short-term borrowings to support its working capital requirements. The Company
believes that cash provided by operating activities and its financing
activities, primarily short-term borrowings, will provide adequate resources to
satisfy its working capital, liquidity and anticipated capital expenditure
requirements for both its short-term and long-term capital needs.
FISCAL 19971998 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities in fiscal 1997for Fiscal 1998 was $107.8
million. The net cash provided by operating activities$28.8
million, which resulted from $88.7 million in fiscal 1997 resulted
principally from net income adjusted for noncash
items, a net decrease in operating assets andless $59.9 million representing a net increase in operating liabilities. The net decrease inthe Company's operating
assets resulted primarily
from a $16.2 million decrease in inventory levels.excess of operating liabilities. The net increase in operating assets
in excess of operating liabilities resulted primarily from a $24.6 millionan increase in other accrued
expenses and liabilities principally the
resultCompany's inventory levels of an increase$65.6 million related primarily to higher
purchases of $15.6 million
in accrued income taxes and an increase of $2.0 million in accrued interest.grapes from the 1997 grape harvest.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities in fiscal 1997for Fiscal 1998 was $36.3 million. The
net cash used in investing activities in fiscal 1997$18.6 million,
which resulted primarily from $31.6$31.2 million of capital expenditures, and the final $13.8including $11.5
million earn-out
payment to the former Barton stockholders,for vineyards, partially offset in part by proceeds from the sale of property,
plant and equipment of $9.2 million, resulting principally
from the May 1996 sale of the Company's Central Cellars winery located in Lodi,
California, and the December 1996 sale of the Company's Soledad winery located
in Soledad, California.$12.6 million.
Net cash used in financing activities in fiscal 1997for Fiscal 1998 was $64.8 million. The
net cash used in financing activities in fiscal 1997$18.9 million,
which resulted principallyprimarily from net repaymentthe repurchase of $54.3 million of revolving loan borrowings under the Company's
Credit Agreement (as defined below), principal payments of $50.8 million of
long-term debt and repurchases of $20.8$9.2 million of the Company's
Class A Common Stock and principal payments of $186.4 million of long-term debt,
which included $74.2 million of scheduled and required principal payments and
payment of $112.2 million of principal under the Company's Third Amended and
Restated Credit Agreement which was refinanced under the December 19, 1997,
Credit Agreement (see Note 6 to the Company's financial statements located in
Item 8 of this Report on Form 10-K). This amount was partially offset by
net proceeds of $61.7$140.0 million fromof long-term debt as a result of the issuancerefinancing and
proceeds of additional subordinated notes.$34.9 million of net revolving loan borrowings under the Company's
Credit Agreement.
As of February 28, 1997,1998, under itsthe Credit Agreement, the Company had
outstanding Term Loansterm loans of $185.9$140.0 million bearing interest at 6.5%6.4%, $57.0$91.9 million
of Revolving Loansrevolving loans bearing interest at 6.4%6.0%, undrawn Revolving Lettersrevolving letters of Creditcredit
of $8.6$3.9 million, and $119.4$89.2 million in revolving loans available to be drawn in Revolving Loans.drawn.
Total debt outstanding as of February 28, 1998, amounted to $425.2 million,
a decrease of $11.1 million from February 28, 1997. The ratio of total debt to
total capitalization decreased to 50.6% as of February 28, 1998, from 54.5% as
of February 28, 1997.
During January 1996, the Company's Board of Directors authorized the
repurchase of up to $30.0 million of its Class A Common Stock and Class B Common
Stock (the "Repurchase Program"). During May 1997, the Company completed the
Repurchase Program.Program with the repurchase of 362,100 shares of its Class A Common
Stock at a cost of $9.2 million. With respect to the Repurchase Program, the
Company repurchased a total of 1,149,550 shares of Class A Common Stock at an
aggregate cost of $30.0 million, or at an average cost of $26.10 per share.
THE COMPANY'S CREDIT AGREEMENT
TheOn December 19, 1997, the Company, its principal operating subsidiaries,
and a syndicate of 15 banks (the "Syndicate Banks"), for which The Chase Manhattan
Bank acts as Administrative Agent, are partiesentered into a new $325.0 million senior
Credit Agreement (the "Credit Agreement"). The proceeds of the Credit Agreement
were used to arepay all outstanding principal and accrued interest on all loans
under the Company's Third Amended and Restated Credit Agreement, as amended (the "Credit Agreement").amended. As
of February 28, 1997,1998, the Credit Agreement provided for (i) a $185.9$140.0 million
Term Loanterm loan facility due in August 2001 ("Term Loans")June 2003 and (ii) a $185.0 million Revolving Loanrevolving loan
facility, including all drawn or undrawn letters of credit up to a maximum of $20.0 million, ("Revolving Letters of Credit"), which
expires in June 2001 ("Revolving
Loans").2003. A brief description of the Credit Agreement is contained
in Note 6 to the Company's financial statements located in Item 8 of this Report
on Form 10-K.
SENIOR SUBORDINATED NOTES
As of May 7, 1997, under its Credit Agreement,February 28, 1998, the Company had outstanding Term Loans$195.0 million
aggregate principal amount of $175.9 million bearing interest at 6.8%, $20.0 million of
Revolving Loans bearing
interest at 6.3%, undrawn Revolving Letters of Credit of $5.6 million and $159.4
million available to be drawn in Revolving Loans.
SENIOR SUBORDINATED NOTES
In8 3/4% Senior Subordinated Notes due December
1993,2003, being the Company issued $130.0 million aggregate principal amount of 8 3/4% Senior
Subordinated Notes due December 2003 issued in December 1993 (the "Original
Notes") and the $65.0 million aggregate principal amount of 8 3/4% Series C
Senior Subordinated Notes due December 2003 issued in February 1997 (the "Series
C Notes"). The Original Notes and the Series C Notes are redeemable at the
option of the Company, in whole or in part, on or after December 15, 1998. The Original Notes are unsecured and subordinated
to the prior payment in full of all senior indebtedness of the Company, which
includes the Credit Agreement. The Original Notes are guaranteed, on a senior
subordinated basis, by substantially all of the Company's operating
subsidiaries. (Subsequent to fiscal 1997, Monarch Wine Company, Limited
Partnership, a subsidiary guarantor, was liquidated into another subsidiary
guarantor and Tenner Brothers, Inc., a subsidiary guarantor, was merged into
another subsidiary guarantor.)
On October 29, 1996, the Company issued $65.0 million aggregate principal
amount of 8 3/4% Series B Senior Subordinated Notes due 2003 (the "Series B
Notes"). The Company used the net proceeds from the sale of the Series B Notes
to repay amounts outstanding under its Credit Agreement, including $50.0 million
under Revolving Loans and approximately $9.6 million to repay and permanently
reduce Term Loans. The remaining proceeds were used to pay various fees and
expenses associated with the offering.
The terms of the Series B Notes are substantially identical to those of the
Original Notes. A
brief description of the Original Notes and the Series BC Notes is contained in
Note 56 to the Company's financial statements located in Item 8 of this Report on
Form 10-K.
On February 7, 1997, the Company commenced an
exchange offer for the exchange of up to $65 million aggregate principal amount
of its 8 3/4% Series C Senior Subordinated Notes due 2003 (the "Series C Notes")
for any and all of the issued and outstanding Series B Notes. All outstanding
Series B Notes were exchanged for Series C Notes. The Company did not receive
any proceeds from the exchange offer. The terms of the Series C Notes are
identical in all material respects to the Series B Notes.
As of February 28, 1997, the Company had outstanding $195.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2003, being
the Original Notes and the Series C Notes.
CAPITAL EXPENDITURES
During fiscal 1997,Fiscal 1998, the Company expended approximately $31.6$31.2 million for capital
expenditures, including approximately $8.7$11.5 million related to vineyards. The Company plans to
spend approximately $18.5$25.0 million for capital expenditures, exclusive of
vineyards, in fiscal 1998.1999. In addition, the Company continues to consider the
purchase, lease and development of vineyards. See "Business - Sources and
Availability of Raw Materials."Materials" under Item 1 of this Report. The Company may
incur additional expenditures for vineyards if opportunities become available.
Management reviews the capital expenditure program periodically and modifies it
as required to meet current business needs.
COMMITMENTS
The Company has agreements with suppliers to purchase various spirits and
blends of which certain agreements are denominated in British pounds sterling.
The future obligations under these agreements, based upon exchange rates at
February 28, 1997,1998, aggregate approximately $37.0$23.4 million to $65.1$40.9 million for
contracts expiring through December 2005.
At February 28, 1997,1998, the Company had anno open currency forward contract to
purchase British pounds sterling of $374,000 which matures within twelve months.contracts.
The Company's use of such contracts is limited to the management of currency
rate risks related to purchases denominated in a foreign currency. The Company's
strategy is to enter into currency exchange contracts that are matched to
specific purchases and not to enter into any speculative contracts.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and financial condition have not been
significantly affected by inflation and changing prices other than grape costs.
The Company has discussed the impact of increases in grape prices in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company has been able, subject to normal competitive
conditions, to pass along rising costs through increased selling prices.
ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," (SFAS No. 131) were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. The Company is required to adopt SFAS No.
130 for interim periods and fiscal years beginning March 1, 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company believes the effect of adoption
will not be significant. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
reporting of selected information in interim financial statements. The Company
is required to adopt SFAS No. 131 for fiscal years beginning March 1, 1998, and
for interim periods beginning March 1, 1999. Restatement of comparative
information for earlier years is required in the initial year of adoption and
comparative information for interim periods in the initial year of adoption is
to be reported for interim periods in the second year of application. The
Company has not yet determined the impact of SFAS No. 131 on its financial
statements.
YEAR 2000 ISSUE
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems (including both hardware and software
applications). The year 2000 issue is the result of computer logic being written
using two digits rather than four to define the applicable year. Any of the
Company's logic that processes date-sensitive information may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Based on preliminary information, costs of
addressing potential issues are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods. The Company and its customers and vendors have
been, and continue to be, active in identifying, assessing and resolving such
processing issues. However, if the Company and its customers or vendors are
unable to resolve such processing issues in a timely manner, it could result in
a material financial risk. Accordingly, the Company plans to devote the
necessary resources to resolve all significant year 2000 issues in a timely
manner.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND SUBSIDIARIES
-----------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AND
---
SUPPLEMENTARY SCHEDULES
-----------------------
FEBRUARY 28, 19971998
-----------------
Page
----
The following information is presented in this report:
Report of Independent Public Accountants ...................................37.............................. 30
Consolidated Balance Sheets - February 28, 1998 and 1997 and February 29, 1996.......38.............. 31
Consolidated Statements of Income for the yearyears ended February 28,
1998 and 1997, for the six months ended February 29, 1996
and February 28, 1995 (unaudited), and for the yearsyear ended
August 31, 1995 and 1994..............39.................................................. 32
Consolidated Statements of Changes in Stockholders' Equity for the
yearyears ended February 28, 1998 and 1997, for the six months ended
February 29, 1996, and for the yearsyear ended August 31,1995 and 1994...4031, 1995 ........ 33
Consolidated Statements of Cash Flows for the yearyears ended February 28,
1998 and 1997, for the six months ended February 29, 1996
and February 28, 1995 (unaudited), and for the yearsyear ended
August 31, 1995 and 1994.........41.................................................. 34
Notes to Consolidated Financial Statements..................................42Statements ............................ 35
Selected Financial Data ....................................................19............................................... 15
Selected Quarterly Financial Information (unaudited) .......................60.................. 51
Schedules I through V are not submitted because they are not applicable or not
required under the rules of Regulation S-X.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority equity interest and/or noncurrent
indebtedness, not guaranteed by the Registrant, in excess of 5% of total
consolidated assets.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Canandaigua Wine Company,Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Canandaigua
Wine
Company,Brands, Inc. (a Delaware corporation) and subsidiaries as of February 28, 19971998
and February 29, 1996,1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the yearyears ended February 28, 1998 and
1997, the six months ended February 29, 1996, and the yearsyear ended August 31,
1995
and 1994.1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Canandaigua Wine Company,Brands, Inc. and
subsidiaries as of February 28, 19971998 and February 29, 1996,1997, and the results of their
operations and their cash flows for the yearyears ended February 28, 1998 and 1997,
the six months ended February 29, 1996, and the yearsyear ended August 31, 1995, and
1994, in
conformity with generally accepted accounting principles.
Rochester, New York, /s/ Arthur Andersen LLP
April 25, 19978, 1998
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
February 28, February 29,28,
1998 1997 1996
------------ ------------
ASSETS
------
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 10,0101,232 $ 3,33910,010
Accounts receivable, net 142,615 142,592 142,471
Inventories, net 394,028 326,626 341,838
Prepaid expenses and other current assets 26,463 21,787
30,372
----------- ----------------------- ------------
Total current assets 564,338 501,015 518,020
PROPERTY, PLANT AND EQUIPMENT, NETnet 244,035 249,552 250,638
OTHER ASSETS 264,786 270,334
285,922
----------- ----------------------- ------------
Total assets $ 1,073,159 $ 1,020,901
$ 1,054,580
=========== ======================= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 57,00091,900 $ 111,30057,000
Current maturities of long-term debt 24,118 40,467 40,797
Accounts payable 63,492 59,73052,055 55,892
Accrued Federal and state excise taxes 17,498 17,058 19,699
Other accrued expenses and liabilities 68,556 68,440
----------- -----------97,763 76,156
------------ ------------
Total current liabilities 283,334 246,573
299,966
----------- ----------------------- ------------
LONG-TERM DEBT, less current maturities 309,218 338,884
327,616
----------- ----------------------- ------------
DEFERRED INCOME TAXES 59,237 61,395
58,194
----------- ----------------------- ------------
OTHER LIABILITIES 6,206 9,316
12,298
----------- ----------------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at February 28, 1998, and
February 28, 1997 - -
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares;
Issued, 17,604,784 shares at February 28, 1998,
and 17,462,332 shares at February 28, 1997 and 17,423,082 shares at February 29, 1996 174176 174
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,956,183 shares at February 28, 1997,1998, and
3,991,683 shares at February 29, 199628, 1997 40 40
Additional paid-in capital 231,687 222,336 221,133
Retained earnings 220,346 170,275
142,600
----------- ----------------------- ------------
452,249 392,825
363,947
----------- ----------------------- ------------
Less-Treasury stock-
Class A Common Stock, 2,199,320 shares at
February 28, 1998, and 1,915,468 shares at
February 28, 1997, and 1,165,786 shares at
February 29, 1996, at cost (34,878) (25,885) (5,234)
Class B Convertible Common Stock, 625,725 shares
at February 28, 1997,1998, and February 29, 1996,28, 1997, at cost (2,207) (2,207)
----------- ----------------------- ------------
(37,085) (28,092)
(7,441)
----------- ----------------------- ------------
Total stockholders' equity 415,164 364,733
356,506
----------- ----------------------- ------------
Total liabilities and stockholders' equity $ 1,073,159 $ 1,020,901
$ 1,054,580
=========== ======================= ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the YearYears Ended For the Six Months Ended For the YearsYear Ended
------------------------------------------------- ---------------------------- ----------------------------------------------
February 28, February 28, February 29, February 28, August 31,
August 31,1998 1997 1996 1995 1995
1994----------- ----------- ------------ ------------ ------------ ----------- -----------
(unaudited)
GROSS SALES $ 1,632,357 $ 1,534,452 $ 738,415 $ 592,305 $1,185,074 $ 861,0591,185,074
Less - Excise taxes (419,569) (399,439) (203,391) (137,820) (278,530)
(231,475)
----------- ----------- ----------------------- ------------ ---------- ---------- ----------
Net sales 1,212,788 1,135,013 535,024 454,485 906,544
629,584
COST OF PRODUCT SOLD (864,053) (844,181) (396,208) (327,694) (653,811)
(447,211)
----------- ----------- ----------------------- ------------ ---------- ---------- ----------
Gross profit 348,735 290,832 138,816 126,791 252,733 182,373
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (231,680) (208,991) (112,411) (79,925) (159,196)
(121,388)
NONRECURRING RESTRUCTURING EXPENSES --- - (2,404) (685) (2,238)
(24,005)
----------- ----------- ----------------------- ------------ ---------- ---------- ----------
Operating income 117,055 81,841 24,001 46,181 91,299
36,980
INTEREST EXPENSE, net (32,189) (34,050) (17,298) (13,141) (24,601)
(18,056)
----------- ----------- ----------------------- ------------ ---------- ---------- ----------
Income before provision for Federal
and state income taxes 84,866 47,791 6,703 33,040 66,698 18,924
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (34,795) (20,116) (3,381) (12,720) (25,678)
(7,191)
----------- ----------- ----------------------- ------------ ---------- ---------- ----------
NET INCOME $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020
$ 11,733
=========== =========== ======================= ============ ========== ========== ==========
SHARE DATA:
Net incomeEarnings per common and common
equivalent share:
PrimaryBasic $ 1.412.68 $ .171.43 $ 1.110.17 $ 2.141.13 $ .74
=========== ===========2.18
============ ============ ========== =========== ==========
Diluted $ 2.62 $ 1.42 $ 0.17 $ 1.12 $ 2.16
============ ============ ========== Fully diluted $ 1.40 $ .17 $ 1.11 $ 2.13 $ .74
=========== =========== =========== ========== ==========
Weighted average common shares outstanding:
Primary 19,657,297 20,006,267 18,343,870 19,147,935 15,783,583
Fully diluted 19,706,271 20,006,267 18,346,513 19,296,269 16,401,598Basic 18,672 19,333 19,611 17,989 18,776
Diluted 19,105 19,521 19,807 18,179 19,005
The accompanying notes to consolidated financial statements are an integral part of these statements.
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Additional
Common Stock Paid-inAdditional
---------------- Paid-In Retained Treasury Restricted
Class A Class B Capital Earnings Stock Stock Total
------- ------- ---------- ----------------- --------- ---------- --------
BALANCE, August 31, 19931994 $ 106138 $ 4140 $ 47,202113,348 $ 86,525 ($ 7,770)98,258 $ 126,104
Conversion of 52,800 Class B Convertible Common
shares to Class A Common shares 1 (1) -- -- -- --
Conversion of 7% Convertible debentures to
Class A Common shares 31 -- 58,925 -- -- 58,956
To write-off unamortized deferred financing costs
on debentures converted, net of amortization -- -- (1,569) -- -- (1,569)
To write-off interest accrued on debentures, net
of tax effect -- -- 850 -- -- 850
Employee stock purchase of 58,955 treasury shares -- -- 878 -- 179 1,057
To record exercise of 2,250 Class A stock options -- -- 10 -- -- 10
To record 500,000 Class A stock options related to
the Vintners Acquisition -- -- 4,210 -- -- 4,210
To record 600,000 Class A stock options related to
the Almaden/Inglenook Acquisition -- -- 2,842 -- -- 2,842
Net income for fiscal 1994 -- -- -- 11,733 -- 11,733
------- ------- --------- -------- ------- ---------
BALANCE, August 31, 1994 138 40 113,348 98,258 (7,591) $ - $ 204,193
Conversion of 19,093 Class B Convertible Common
shares to Class A Common shares -- -- -- -- -- --- - - - - - -
Issuance of 3,000,000 Class A Common shares 30 --- 90,353 -- --- - - 90,383
Exercise of 432,067 Class A stock options
related to the Vintners Acquisition 5 --- 13,013 -- --- - - 13,018
Employee stock purchasepurchases of 28,641 treasury shares -- --- - 546 --- 87 - 633
To record exerciseExercise of 114,075 Class A stock options 1 --- 1,324 -- --- - - 1,325
To record taxTax benefit on stock options exercised -- --- - 1,251 -- --- - - 1,251
To record taxTax benefit on disposition of employee stock
purchases -- --- - 59 -- --- - - 59
Net income for fiscal 1995 -- -- --- - - 41,020 --- - 41,020
------------- ------- --------- -------- --------------- ---------- ---------
BALANCE, August 31, 1995 174 40 219,894 139,278 (7,504) - 351,882
Conversion of 5,000 Class B Convertible Common
shares to Class A Common shares -- -- -- -- -- --
To record exercise- - - - - - -
Exercise of 18,000 Class A stock options -- --- - 238 -- --- - - 238
Employee stock purchasepurchases of 20,869 treasury shares -- --- - 593 --- 63 - 656
To record issuanceIssuance of 10,000 Class A stock options -- --- - 134 -- --- - - 134
To record taxTax benefit on stock options exercised -- --- - 198 -- --- - - 198
To record taxTax benefit on disposition of employee stock
purchases -- --- - 76 -- --- - - 76
Net income for Transition Period -- -- --- - - 3,322 --- - 3,322
------ ------- ------- ------------------- -------- --------------- ---------- ---------
BALANCE, February 29, 1996 174 40 221,133 142,600 (7,441) - 356,506
Conversion of 35,500 Class B Convertible Common
shares to Class A Common shares -- -- -- -- -- --
To record exercise- - - - - - -
Exercise of 3,750 Class A stock options -- --- - 17 -- --- - - 17
Employee stock purchasepurchases of 37,768 treasury shares -- --- - 884 --- 114 - 998
To record repurchaseRepurchase of 787,450 Class A Common shares -- -- -- --- - - - (20,765) - (20,765)
To record accelerationAcceleration of 18,500 Class A stock options -- --- - 248 -- --- - - 248
To record taxTax benefit on stock options exercised -- --- - 27 -- --- - - 27
To record taxTax benefit on disposition of employee stock
purchases -- --- - 27 -- --- - - 27
Net income for fiscal 1997 -- -- --- - - 27,675 --- - 27,675
------ ------- ------- --------- --------- ----------------- -------- -------- ---------- ---------
BALANCE, February 28, 1997 174 40 222,336 170,275 (28,092) - 364,733
Exercise of 117,452 Class A stock options 2 - 1,799 - - - 1,801
Employee stock purchases of 78,248 treasury shares - - 1,016 - 240 - 1,256
Repurchase of 362,100 Class A Common shares - - - - (9,233) - (9,233)
Acceleration of 142,437 Class A stock options - - 3,625 - - - 3,625
Issuance of 25,000 restricted Class A Common shares - - 1,144 - - (1,144) -
Amortization of unearned restricted stock
compensation - - - - - 267 267
Accelerated amortization of unearned restricted
stock compensation - - 200 - - 877 1,077
Tax benefit on stock options exercised - - 1,382 - - - 1,382
Tax benefit on disposition of employee stock
purchases - - 185 - - - 185
Net income for fiscal 1998 - - - 50,071 - - 50,071
------ ------- ---------- -------- -------- ---------- ---------
BALANCE, February 28, 1998 $ 174176 $ 40 $ 222,336231,687 $220,346 $(37,085) $ 170,275 ($28,092)- $ 364,733415,164
====== ======= ======= ========= ========= ================= ======== ======== ========== =========
The accompanying notes to consolidated financial statements are an integral part of these statements.
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the YearYears Ended For the Six Months Ended For the YearsYear Ended
August 31,------------------- ------------------------ ------------------
---------------------------- ------------------------------February 28, February 28, February 29, February 28, August 31,
1998 1997 1996 1995 1995
1994------------ ------------ ------------ ------------ ---------- ---------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020 $ 11,733
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 23,847 22,359 9,521 9,786 15,568
10,534
Amortization of intangible assets 9,5079,314 9,480 4,437 2,865 5,144
3,281
Deferred tax provision (benefit)6,319 5,769 1,991 57 19,232
(4,319)
Stock optionStock-based compensation expense 248 -- -- -- --1,747 275 - - -
Amortization of discount on long-term debt 352 112 -- -- -- --- - -
(Gain) loss on sale of property, plant and
equipment (3,001) (3,371) 81 --- (33) --
Restructuring charges - fixed asset write-down --- - 275 --- (2,050) 13,935
Accrued interest on converted debentures,
net of taxes -- -- -- -- 161
Change in operating assets and liabilities, net of
effects from purchases of businesses:liabilities:
Accounts receivable, net 749 3,523 (27,008) 1,586 7,392
(17,946)
Inventories, net (65,644) 16,232 (70,172) (18,783) 41,528 784
Prepaid expenses and other current assets (4,354) 3,271 (2,350) 3,079 (3,884)
1,703
Accounts payable (3,288) (431) (2,362) (30,068) (13,415) 2,680
Accrued Federal and state excise taxes 440 (2,641) 4,066 6,907 (1,025) 4,405
Other accrued expenses and liabilities 14,655 24,617 (8,564) (28,175) (20,784)
4,023
Other assets and liabilities, net (2,452) 898 1,930 (3,817) (15,375)
(3,795)
--------- --------- ------------------- --------- ---------
Total adjustments (21,316) 80,093 (88,155) (56,563) 32,298
15,446
--------- --------- ------------------- --------- ---------
Net cash provided by (used in) operating
activities 28,755 107,768 (84,833) (36,243) 73,318
27,179
--------- --------- ------------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment,
net of minor disposals (31,203) (31,649) (16,077) (11,342) (37,121) (7,853)
Payment of accrued earn-out amounts (13,848) (11,307) -- (28,300) (4,000)
Proceeds from sale of property, plant and equipment 12,552 9,174 555 --- 1,336
--
PurchasePayment of brands -- -- -- -- (5,100)
Purchases of businesses, net of cash acquired -- -- -- -- 3accrued earn-out amounts - (13,848) (11,307) - (28,300)
--------- --------- ------------------- --------- ---------
Net cash used in investing activities (18,651) (36,323) (26,829) (11,342) (64,085)
(16,950)
--------- --------- ------------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from notes payable,
short-term borrowings (54,300) 111,300 57,100 50,100 (2,035)
Principal payments of long-term debt (186,367) (50,842) (14,579) (7,474) (57,906) (6,856)(89,474) (139,906)
Purchases of treasury stock (9,233) (20,765) -- -- -- --- - -
Payment of issuance costs of long-term debt (1,214) (1,550) -- -- -- (4,624)- - -
Proceeds from issuance of long-term debt,
net of discount 140,000 61,668 -- -- -- --13,220 47,000 47,000
Net proceeds from (repayment of) notes payable 34,900 (54,300) 111,300 (12,000) (19,000)
Exercise of employee stock options 1,776 17 224 341 1,325
Proceeds from employee stock purchases 1,256 998 656 --- 633 1,056
Exercise of employee stock options 17 224 341 1,325 10
Proceeds from Term Loan, long-term debt -- 13,220 47,000 47,000 --
Proceeds from equity offering, net -- --- - - 103,313 103,400
--
Repayment of notes payable from equity
offering proceeds -- -- (22,100) (22,100) --
Repayment of notes payable from proceeds of
Term Loan -- -- (47,000) (47,000) --
Repayment of Term Loan from equity offering
proceeds, long-term debt -- -- (82,000) (82,000) --
Fractional shares paid for debenture conversions -- -- -- -- (3)
--------- --------- ------------------- --------- ---------
Net cash (used in) provided by financing
activities (18,882) (64,774) 110,821 49,180 (6,548)
(12,452)
--------- --------- ------------------- --------- ---------
NET (DECREASE) INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS (8,778) 6,671 (841) 1,595 2,685 (2,223)
CASH AND CASH INVESTMENTS, beginning of period 10,010 3,339 4,180 1,495 1,495
3,718
--------- --------- ------------------- --------- ---------
CASH AND CASH INVESTMENTS, end of period $ 1,232 $ 10,010 $ 3,339 $ 3,090 $ 4,180
$ 1,495
========= ========= =================== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 33,394 $ 32,615 $ 14,720 $ 14,068 $ 25,082
$ 14,727
========= ========= =================== ========= =========
Income taxes $ 32,164 $ 4,411 $ 3,612 $ 9,454 $ 11,709
$ 15,751
========= ========= =================== ========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including
cash acquired $ --- $ - $ 144,927 $ --- $ -- $ 428,442-
Liabilities assumed --- - (3,147) -- -- (153,827)- -
--------- --------- ------------------- --------- ---------
Cash paid --- - 141,780 -- -- 274,615- -
Less - Amounts borrowed --- - (141,780) -- -- (276,860)
Less - Issuance of Class A stock options -- -- -- -- (7,052)
Add - Receivable from Seller -- -- -- -- 9,297
--------- --------- ------------------- --------- ---------
Net cash paid for acquisition $ --- $ --- $ --- $ --- $ ---
========= ========= =================== ========= =========
Goodwill reduction on settlement of disputed
final closing net current asset statement
for Vintners Acquisition $ - $ 5,894 $ --- $ --- $ -- $ ---
========= ========= ========== ========= ========= ===================
Accrued earn-out amounts $ --- $ - $ 15,155 $ --- $ 10,000
$ 28,300
========= ========= ========== ========= ========= =========
Issuance of Class A Common Stock for conversion
of debentures $ -- $ -- $ -- $ -- $ 58,960
========= ========= ========= ========= =========
Write-off of unamortized deferred financing costs
on debentures $ -- $ -- $ -- $ -- $ 1,569
========= ========= ========= ========= =========
Write-off unpaid accrued interest on debentures
through conversion date $ -- $ -- $ -- $ -- $ 1,371
========= ========= ========= ========= ===================
The accompanying notes to consolidated financial statements are an integral part of these statements.
CANANDAIGUA WINE COMPANY,BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 19971998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS -
Canandaigua Brands, Inc. (formerly Canandaigua Wine Company, Inc.), and its
subsidiaries (the Company) operatesoperate primarily in the beverage alcohol industry.
The Company is principally a producer and supplier of wines,wine and an importer and
producer of beersbeer and distilled spirits and a producer and
supplier of grape juice concentrate in the United States. It maintains a
portfolio of over 125130 national and regional brands of beverage alcohol which are
distributed by over 1,400850 wholesalers throughout the United States and selected
international markets. Its beverage alcohol brands are marketed in fivethree general
categories: table wines, sparkling wines, dessert wines, importedwine, beer and distilled spirits.
YEAR-END CHANGE -
The Company changed its fiscal year end from August 31 to the last day of
February. The period from September 1, 1995, through February 29, 1996, is
hereinafter referred to as the "Transition Period."
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements of the Company include the accounts of
Canandaigua Wine Company,Brands, Inc., and all of its subsidiaries. All intercompany accounts
and transactions have been eliminated.
UNAUDITED FINANCIAL STATEMENTS -
The consolidated statements of income and cash flows for the six month period
ended February 28, 1995, have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
applicable to interim reporting and reflect, in the opinion of the Company, all
adjustments necessary to present fairly the financial information for
Canandaigua Wine Company,Brands, Inc., and its subsidiaries. All such adjustments are of a
normal recurring nature.
MANAGEMENT'S USE OF ESTIMATES AND JUDGMENT -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH INVESTMENTS -
Cash investments primarily consist of money market funds and certificates of
deposithighly liquid investments with an original maturity
when purchased of three months or less and are stated at cost, which
approximates market value. These investments amounted to
approximately $17,000The amounts at February 28, 1998 and 1997, and $1,732,000 at February 29, 1996.are not
significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the
Company calculates the fair value of financial instruments using quoted market
prices whenever available. When quoted market prices are not available, the
Company uses standard pricing models for various types of financial instruments
(such as forwards, options, swaps, etc.) which take into account the present
value of estimated future cash flows. The methods and assumptions used to
estimate the fair value of financial instruments are summarized as follows:
ACCOUNTS RECEIVABLE: The carrying amount approximates fair value due to the
short maturity of these instruments, the creditworthiness of the customers and
the large number of customers constituting the accounts receivable balance.balance
NOTES PAYABLE: These instruments are variable interest rate bearing notes
for which the carrying value approximates the fair value.
LONG-TERM DEBT: The carrying value of the debt facilities with short-term
variable interest rates approximates the fair value. The fair value of the fixed
rate debt was estimated by discounting cash flows using interest rates currently
available for debt with similar terms and maturities.
FOREIGN EXCHANGE HEDGING AGREEMENTS: The fair value of currency forward
contracts is estimated based on quoted market prices.
INTEREST RATE HEDGING AGREEMENTS: The fair value of interest rate hedging
instruments is the estimated amount that the Company would receive or be
required to pay to terminate the derivative agreements at February 28, 1997.year end. The fair
value includes consideration of current interest rates and the creditworthiness
of the counterparties to the agreements.
LETTERS OF CREDIT: At February 28, 19971998 and February 29, 1996,1997, the Company had letters
of credit outstanding totaling approximately $8,622,000$3,865,000 and $18,729,000,$8,622,000,
respectively, which guarantee payment for certain obligations. The Company
recognizes expense on these obligations as incurred and no material losses are
anticipated.
The carrying amount and estimated fair value of the Company's financial
instruments are summarized as follows:
February 28, 1997 February 29, 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(IN THOUSANDS)
February 28, 1998 February 28, 1997
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(in thousands)
Liabilities:
- ------------
Notes payable $ 91,900 $ 91,900 $ 57,000 $ 57,000
Long-term debt, including current
portion $ 333,336 $ 340,934 $ 379,351 $ 374,628
Derivative Instruments:
- -----------------------
Foreign exchange hedging agreements:
Currency forward contracts $ - $ - $ 374 $ 407
Interest rate hedging agreements:
Interest rate cap agreement $ - $ - $ - $ -
Interest rate collar agreement $ - $ - $ - $ -
------------
Notes payable $ 57,000 $ 57,000 $111,300 $111,300
Long-term debt, including current
portion $379,351 $374,628 $368,413 $365,089
Derivative Instruments:
- -----------------------
Foreign exchange hedging agreements:
Currency forward contracts $ 374 $ 407 $ 3,129 $ 3,164
Interest rate hedging agreements:
Interest rate cap agreement $ -- $ -- $ -- $ --
Interest rate collar agreement $ -- $ -- $ -- $ --
INTEREST RATE FUTURES AND CURRENCY FORWARD CONTRACTS -
From time to time, the Company enters into interest rate futures and a variety
of currency forward contracts in the management of interest rate risk and
foreign currency transaction exposure. Unrealized gains and losses on interest
rate futures are deferred and recognized as a component of interest expense over
the borrowing period. Unrealized gains and losses on currency forward contracts
are deferred and recognized as a component of the related transactions in the
accompanying financial statements. Discounts or premiums on currency forward
contracts are recognized over the life of the contract.
INVENTORIES -
Inventories are valued at the lower of cost (computed in accordance with the
last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or market. The
percentage of inventories valued using the LIFO method is 92% and 94% at
February 28, 1998 and 1997, and February 29, 1996.respectively. Replacement cost of the inventories
determined on a FIFO basis is approximately $411,424,000 at February 28, 1998,
and $349,006,000 at February 28, 1997, and $332,849,000
at February 29, 1996. The net realizable value of the Company's inventories is
in excess of $326,626,000 at February 28, 1997, and $341,838,000 at February 29,
1996.1997.
A substantial portion of barreled whiskey and brandy will not be sold within one
year because of the duration of the aging process. All barreled whiskey and
brandy are classified as in-process inventories and are included in current
assets, in accordance with industry practice. Bulk wine inventories are also
included as work in process within current assets, in accordance with the
general practices of the wine industry, although a portion of such inventories
may be aged for periods greater than one year. Warehousing, insurance, ad
valorem taxes and other carrying charges applicable to barreled whiskey and
brandy held for aging are included in inventory costs.
Elements of cost include materials, labor and overhead and consist of the
following:
February 28, February 29,28,
1998 1997 1996
------------ ------------
(IN THOUSANDS)(in thousands)
Raw materials and supplies $ 17,82214,439 $ 24,197
Wines14,191
Wine and distilled spirits in process 237,186 254,956304,037 262,289
Finished case goods 71,618 62,685
-------- --------
$326,626 $341,838
======== ========92,948 72,526
---------- ----------
411,424 349,006
Less - LIFO reserve (17,396) (22,380)
---------- ----------
$ 394,028 $ 326,626
========== ==========
If the FIFO method of inventory valuation had been used, reported net income
would have been approximately $18,163,000,$2,941,000, or $.92$0.15 per share on a fullydiluted basis,
lower for the year ended February 28, 1998, and reported net income would have
been approximately $18,163,000, or $0.93 per share on a diluted basis, higher
for the year ended February 28, 1997, and reported net income
would have been approximately $2,159,000, or $.11 per share on a fully diluted
basis, higher for the twelve months ended February 29, 1996 (unaudited).1997.
PROPERTY, PLANT AND EQUIPMENT -
Property, plant and equipment is stated at cost. Major additions and betterments
are charged to property accounts, while maintenance and repairs are charged to
operations as incurred. The cost of properties sold or otherwise disposed of and
the related accumulated depreciation are eliminated from the accounts at the
time of disposal and resulting gains and losses are included as a component of
operating income.
DEPRECIATION -
Depreciation is computed primarily using the straight-line method over the
following estimated useful lives:
Depreciable Life in Years
-------------------------
Buildings and improvements 10 to 33 1/3
Machinery and equipment 3 to 15
Motor vehicles 3 to 7
Amortization of assets capitalized under capital leases is included with
depreciation expense. Amortization is calculated using the straight-line method
over the shorter of the estimated useful life of the asset or the lease term.
OTHER ASSETS -
Other assets, which consist of goodwill, distribution rights, trademarks, agency
license agreements, deferred financing costs, cash surrender value of officers'
life insurance and other amounts, are stated at cost, net of accumulated
amortization. Amortization is calculated on a straight-line or effective
interest basis over the following estimated useful lives:
Useful Life in Years
--------------------
Goodwill 40
Distribution rights 40
Trademarks 40
Agency license agreements 16 to 40
Deferred financing costs 5 to 10
At February 28, 1997,1998, the weighted average remaining useful life of these assets
is approximately 36 years. The face value of the officers' life insurance
policies totaled $2,852,000 at both February 28, 19971998 and February 29, 1996.1997.
LONG-LIVED ASSETS AND INTANGIBLES -
In March 1996, the Company adoptedaccordance with Statement of Financial Accounting Standards No. 121, (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of.of," SFAS No. 121 requires thatthe Company reviews its long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable on an undiscounted cash flow basis. The statement also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
adoption of SFAS No. 121Company did not have a material effect on the
financial statements.record any asset impairment in fiscal 1998.
ADVERTISING AND PROMOTION COSTS -
The Company generally expenses advertising and promotion costs as incurred,
shown or distributed. Prepaid advertising costs at February 28, 19971998 and February 29, 1996,1997,
are not material. Advertising and promotion expense for the yearyears ended February
28, 1998 and 1997, the Transition Period, the six months ended February 28, 1995
(unaudited), and the yearsyear ended August 31, 1995, and 1994,
were approximately
$111,685,000, $101,319,000, $60,187,000, $41,658,000 (unaudited), and
$84,246,000, and $64,540,000, respectively.
INCOME TAXES -
The Company uses the liability method of accounting for income taxes. The
liability method accounts for deferred income taxes by applying statutory rates
in effect at the balance sheet date to the difference between the financial
reporting and tax basis of assets and liabilities.
ENVIRONMENTAL -
Environmental expenditures that relate to current operations are expensed or
capitalized as
appropriate. Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue generation,
are expensed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably estimated.
Generally, the timing of these accruals coincides with the completion of a
feasibility study or the Company's commitment to a formal plan of action.
Liabilities for environmental costs were not material at February 28, 19971998 and
February 29, 1996.
NET INCOME1997.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE -
Primary net incomeThe Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," (SFAS No. 128) effective February 28,
1998. Basic earnings per common share excludes the effect of common stock
equivalents and is computed by dividing income available to common equivalent share is based onstockholders
by the weighted average number of common and common equivalent shares (stock options
determined using the treasury stock method) outstanding during the yearperiod
for Class A Common Stock and Class B Convertible Common Stock. Fully diluted net
incomeDiluted earnings
per common andshare reflects the potential dilution that could result if securities
or other contracts to issue common equivalentstock were exercised or converted into common
stock. Diluted earnings per common share assumes the exercise of stock options
using the treasury stock method and assumes the conversion of convertible
securities, if any, using the "if converted" method and assumesmethod. Historical earnings per
common share have been restated to conform with the exerciseprovisions of stock options using the treasury stock method.SFAS No. 128.
OTHER -
Certain fiscal 1997, Transition Period and fiscal 1995 and 1994 balances have been
reclassified to conform with current year presentation.
2. ACQUISITIONS:
VINTNERS -
On October 15, 1993, the Company acquired substantially all of the tangible and
intangible assets of Vintners International Company, Inc. (Vintners) other than
cash and the Hammondsport winery (the Vintners Assets), and assumed certain
current liabilities associated with the ongoing business (the Vintners
Acquisition). Vintners was the United States' fifth largest supplier of wine
with two of the country's most highly recognized brands, Paul Masson and Taylor
California Cellars. The wineries acquired from Vintners included the Monterey
Cellars winery in Gonzales, California, and the Paul Masson wineries in Madera
and Soledad, California. In addition, the Company
leased from Vintners the Hammondsport winery in Hammondsport, New York. The
lease was for a period of eighteen months from the date of the Vintners
Acquisition and expired during fiscal 1995.
The aggregate purchase price of $148,900,000 (the Cash Consideration) was
subject to adjustment based upon the determination of the Final Net Current
Asset Amount as defined in the Asset Sale Agreement. In addition, the Company
incurred $8,961,000 of direct acquisition and financing costs. The Company also
delivered options to Vintners and Household Commercial of California, Inc., one
of Vintners' lenders, to purchase an aggregate of 500,000 shares of the
Company's Class A Common Stock (the Vintners Option Shares), at an exercise
price per share of $18.25, which were exercisable at any time until October 15,
1996. These options were recorded at $8.42 per share, based upon an independent
appraisal, and $4,210,000 was reflected as a component of additional paid-in
capital. On November 18, 1994, 432,067 of the Vintners Option Shares were
exercised (see Note 8). The remaining 67,933 options expired, unexercised, on
October 15, 1996.
The Cash Consideration was funded by the Company pursuant to (i) approximately
$12,600,000 of Revolving Credit Loans under the Credit Agreement of which
$11,200,000 funded the Cash Consideration and $1,400,000 funded the payment of
direct acquisition costs; (ii) an accrued liability of approximately $7,700,000
for the holdback described below and (iii) a $130,000,000 subordinated loan (see
Note 5).
At closing, the Company held back from the Cash Consideration approximately 10%
of the then estimated net current assets of Vintners purchased by the Company
and deposited an additional $2,800,000 of the Cash Consideration into an escrow
pending consent of both parties for its release. On September 26, 1996, the
Company reached a final settlement with the company formerly known as Vintners
International Company, Inc. and its lenders on the disputed final closing net
current asset statement. As a result, the Company recorded a purchase price
reduction for the Vintners Acquisition, which reduced recorded goodwill by
approximately $5,894,000.
The Vintners Acquisition was accounted for using the purchase method;
accordingly, the Vintners Assets were recorded at fair market value at the date
of acquisition. The excess of the purchase price over the estimated fair market
value of the net assets acquired (goodwill), $38,257,000, is being amortized on
a straight-line basis over 40 years. The results of operations of Vintners have
been included in the Consolidated Statements of Income since the date of
acquisition.
ALMADEN/INGLENOOK -
On August 5, 1994, the Company acquired the Inglenook and Almaden brands, the
fifth and sixth largest selling table wines in the United States, a grape juice
concentrate business and wineries in Madera and Escalon, California, from
Heublein, Inc. (Heublein) (the Almaden/Inglenook Acquisition). The Company also
acquired Belaire Creek Cellars, Chateau La Salle and Charles Le Franc table
wines, Le Domaine champagne and Almaden, Hartley and Jacques Bonet brandy. The
accounts receivable and the accounts payable related to the acquired assets were
not acquired by the Company.
The aggregate consideration for the acquired brands and other assets consisted
of $130,600,000 in cash, assumption of certain current liabilities and options
to purchase an aggregate of 600,000 shares of Class A Common Stock (the Almaden
Option Shares). Of the Almaden Option Shares, 200,000 were exercisable at a
price of $30 per share and the remaining 400,000 were exercisable at a price of
$35 per share. All of the options were exercisable at any time until August 5,
1996. The 200,000 and 400,000 options were recorded at $5.83 and $4.19 per
share, respectively, based upon an independent appraisal, and $2,842,000 was
reflected as a component of additional paid-in capital. All of the options
expired, unexercised, on August 5, 1996. The source of the cash payment made at
closing, together with payment of other costs and expenses required by the
Almaden/Inglenook Acquisition, was financing provided by the Company pursuant to
a term loan under the Credit Agreement (see Note 5).
The cash purchase price was subject to adjustment based upon the determination
of the Final Net Asset Amount as defined in the Asset Purchase Agreement; and,
based upon the final closing statement delivered to the Company by Heublein, was
reduced by $9,297,000 which was paid to the Company in November 1994.
Heublein also agreed not to compete with the Company in the United States and
Canada for a period of five years following the closing of the Almaden/Inglenook
Acquisition in the production and sale of grape juice concentrate or sale of
packaged wines bearing the designation "Chablis" or "Burgundy" except where,
among other exceptions, such designations are currently used with certain brands
retained by Heublein. Certain companies acquired by Heublein, however, may
compete directly with the Company.
The Almaden/Inglenook Acquisition was accounted for using the purchase method;
accordingly, the Almaden/Inglenook assets were recorded at fair market value at
the date of acquisition. During fiscal 1995, the Company terminated certain of
its long-term grape contracts acquired in connection with the Almaden/Inglenook
Acquisition. As a result, the estimated loss reserve at the date of acquisition
was reduced by approximately $23,751,000, with a corresponding reduction in
goodwill (see Note 9). The excess of purchase price over the estimated fair
market value of the net assets acquired (goodwill), $24,028,000, is being
amortized on a straight-line basis over 40 years. The results of operations of
Almaden/Inglenook have been included in the Consolidated Statements of Income
since the date of acquisition.
UDG ACQUISITION -
On September 1, 1995, the Company through its wholly-owned subsidiary, Barton
Incorporated (Barton), acquired certain of the assets of United Distillers
Glenmore, Inc., and certain of its North American affiliates (collectively, UDG)
(the UDG Acquisition). The acquisition was made pursuant to an Asset Purchase
Agreement dated August 29, 1995 (the Purchase Agreement), entered into between
Barton and UDG. The acquisition included all of UDG's rights to the
Fleischmann's, Skol, Mr. Boston, Canadian LTD, Old Thompson, Kentucky Tavern,
Chi-Chi's, Glenmore and di Amore distilled spirits brands; the U.S. rights to
Inver House, Schenley and El Toro distilled spirits brands; and related
inventories and other assets. The acquisition also included two of UDG's
production facilities; one located in Owensboro, Kentucky, and the other located
in Albany, Georgia. In addition, pursuant to the Purchase Agreement, the parties
entered into multiyear agreements under which Barton will (i) purchasepurchases various bulk
distilled spirits brands from UDG and (ii) provideprovides packaging services for
certain of UDG's distilled spirits brands as well as warehousing services.
The aggregate consideration for the acquired brands and other assets consisted
of $141,780,000 in cash and assumption of certain current liabilities. The
source of the cash payment made at closing, together with payment of other costs
and expenses required by the UDG Acquisition, was financing provided by the
Company pursuant to a term loan under the Credit Agreement (see Note 5).Company's then existing bank credit
agreement.
The UDG Acquisition was accounted for using the purchase method; accordingly,
the UDG assets were recorded at fair market value at the date of acquisition.
The excess of the purchase price over the estimated fair market value of the net
assets acquired (goodwill), $86,348,000, is being amortized on a straight-line
basis over 40 years. The results of operations of the UDG Acquisition have been
included in the Consolidated Statements of Income since the date of acquisition.
3. PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
February 28, February 29,28,
1998 1997 1996
------------ ------------
(IN THOUSANDS)(in thousands)
Land $ 16,96115,103 $ 16,86716,961
Buildings and improvements 74,706 76,379 76,694
Machinery and equipment 244,204 243,274 226,432
Motor vehicles 5,316 5,355 5,814
Construction in progress 17,485 13,999
12,404
---------- ---------------------- ------------
356,814 355,968 338,211
Less - Accumulated depreciation (112,779) (106,416)
(87,573)
---------- ---------------------- ------------
$ 244,035 $ 249,552
$ 250,638
========== ====================== ============
4. OTHER ASSETS:
The major components of other assets are as follows:
February 28, February 29,28,
1998 1997 1996
------------ ------------
(IN THOUSANDS)(in thousands)
Goodwill $ 150,595 $ 156,489150,595
Distribution rights, agency license
agreements and trademarks 119,316119,346 119,316
Other 23,686 22,936
23,123
---------- ---------------------- ------------
293,627 292,847 298,928
Less - Accumulated amortization (28,841) (22,513)
(13,006)
----------- ---------------------- ------------
$ 264,786 $ 270,334
============ ============
5. OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as follows:
February 28, February 28,
1998 1997
------------ ------------
(in thousands)
Accrued salaries and commissions $ 285,922
========== ==========
5.23,704 $ 12,109
Other 74,059 64,047
------------ ------------
$ 97,763 $ 76,156
============ ============
6. BORROWINGS:
Borrowings consist of the following:
February 29,28, 1998 February 28, 1997
1996
------------------------------------ ------------------------------------------------------ -------------------
Current Long-term Total Total
(IN THOUSANDS) -------- --------- -------- -------------------- ------------- ---------- -------------------
(in thousands)
Notes Payable:
- --------------
Notes Payable:
Senior Credit Facility:
Revolving Credit Loans $ 57,00091,900 $ --- $ 91,900 $ 57,000
$111,300
======== ======== ======== ================== =========== ========== ==========
Long-term Debt:
- ---------------
Senior Credit Facility:
Term Loan, variable rate, aggregate
proceeds of $246,000,$140,000, due in
installments through August 2001June 2003 $ 40,000 $145,900 $185,900 $236,00024,000 $ 116,000 $ 140,000 $ 185,900
Senior Subordinated Notes:
8.75% redeemable after December 15, 1998,
due 2003 --- 130,000 130,000 130,000
8.75% Series C redeemable after December 15,
1998, due 2003 (less unamortized discount of
$3,220$2,868 - effective rate 9.76%) --- 62,132 62,132 61,780 61,780 --
Capitalized Lease Agreements:
Capitalized facility lease bearing interest
at 9%, due in monthly installments through
fiscal 1998 - - - 348 -- 348 972
Industrial Development Agencies:
7.50% 1980 issue, original proceeds $2,370,
due in annual installments of $119 through
fiscal 2000 118 119 237 356 474
Other Long-term Debt:
Loans payable bearing interest at 5%, secured
by cash surrender value of officers' life
insurance policies --- 967 967 967
-------- -------- -------- ------------------ ----------- ---------- ----------
$ 40,467 $338,884 $379,351 $368,413
======== ======== ======== ========24,118 $ 309,218 $ 333,336 $ 379,351
========== =========== ========== ==========
SENIOR CREDIT FACILITY -
TheOn December 19, 1997, the Company and a syndicate of 15 banks (the Syndicate Banks), for which The
Chase Manhattan Bank, N.A. acts as agent, are parties to
entered into a third amended and
restated credit agreementnew $325,000,000 senior Credit Agreement (the Credit Agreement).
The proceeds of the Credit Agreement currentlywere used to repay all outstanding
principal and accrued interest on all loans under the Company's Third Amended
and Restated Credit Agreement, as amended. As compared to the previous bank
credit agreement, the Credit Agreement includes, among other things, lower
interest rates, lower quarterly loan amortization and greater flexibility with
respect to effecting acquisitions, incurring indebtedness and repurchasing the
Company's capital stock. The Credit Agreement provides for a Term Loan$140,000,000 term
loan facility due in June 2003 and a Revolving Credit Loan facility. The interest on
the Term Loan and on all drawn Revolving Credit Loans may be based on either the
London Interbank Offering Rate (LIBOR) plus a predetermined margin, competitive
bid rates from the Syndicate Banks or the prime rate. The interest rate margin
for LIBOR based loans may range from 0.5% to 1.25% depending on the Company's
debt coverage ratio as defined in the Credit Agreement. The margin on LIBOR
based loans was 1.00%, 0.75%, 1.00% and 1.25% at February 28, 1997, February 29,
1996 and August 31, 1995 and 1994, respectively.
The principal$185,000,000 revolving loan facility,
including letters of the Term Loan is to be repaid in quarterly installments of
$10,000,000 with a final payment of $5,900,000, due on August 15, 2001. There
are certain mandatory Term Loan prepayments as defined in the Credit Agreement
including aggregate proceeds received in excess of $50,000,000 from subordinated
debt offerings, 50% of any proceeds from the sale of equity and excess proceeds
from the sale of assets as defined in the Credit Agreement.
The Revolving Credit Loan facility has a capacity of $185,000,000 which may be
utilized by the Company in the form of Revolving Credit Loans andcredit up to a maximum of $20,000,000, which expires in
June 2003. The rate of Revolving Lettersinterest payable, at the Company's option, is a function
of Credit.the London interbank offered rate (LIBOR) plus a margin, federal funds rate
plus a margin, or the prime rate. The Company primarily
utilizesmargin is adjustable based upon the
RevolvingCompany's Debt Ratio (as defined in the Credit LoansAgreement). The Credit Agreement
also provides for certain mandatory term loan prepayments.
The term loan facility requires quarterly repayments of $6,000,000 beginning
March 1998 through December 2002, and payments of $10,000,000 in March 2003 and
June 2003. At February 28, 1998, the margin on the term loan facility borrowings
was 0.75% and may be decreased by up to 0.35% and increased by up to 0.5%
depending on the Company's Debt Ratio.
The revolving loan facility is utilized to finance working capital and operating
requirements and classifiesrequirements.
The Credit Agreement requires that the Revolving Credit Loans as a current liability,
as it intendsCompany reduce the outstanding balance of
the revolving loan facility to repay all amounts outstanding within one
year.less than $60,000,000 for thirty consecutive days
during the six months ending each August 31. The Company had average outstanding Revolving Credit Loans of
approximately $88,825,000 and $93,800,000 formargin on the year ended February 28, 1997
and the Transition Period, respectively. Amounts available to be drawn down
under the Revolving Credit Loans were $119,378,000 and $68,680,000revolving loan
facility was 0.5% at February 28, 19971998, and February 29, 1996, respectively. The average interest ratemay be decreased by up to 0.25% and
increased by up to 0.4% depending on the Revolving Credit Loans was 6.58%, 6.76%, 7.16% and 6.07%, for fiscal 1997,Company's Debt Ratio. In addition, the
Transition Period, fiscal 1995 and fiscal 1994, respectively. Commitment fees
are due based uponCompany pays a facility fee on the unused portion of the Revolving Credit Loantotal revolving loan facility. The
fee is based upon the Company's debt ratio as defined in the Credit Agreement
which can range from 0.2% to 0.375%. At February
28, 19971998, the facility fee was 0.25% and February 29, 1996,may be reduced or increased by 0.1%
subject to the commitment fee percentages were 0.325%Company's Debt Ratio.
Each of the Company's principal operating subsidiaries has guaranteed, jointly
and 0.25%, respectively.severally, the Company's obligations under the Credit Agreement. The
Syndicate Banks have been given security interests in substantially all of the
assets of the Company including mortgage liens on certain real property. The
Credit Agreement contains certainCompany is subject to customary secured lending covenants providing for restrictions on
mergers, consolidations,including those
restricting additional liens, the incurrence of additional indebtedness, the
sale of assets, the payment of dividends, transactions with affiliates and incurring of
other debt, liens, guarantees andthe
making of newcertain investments. The primary financial covenants in the Credit Agreement require the
maintenance of minimum
defined tangible net worth, a Debt Ratio, a senior debt coverage ratio, a fixed charge ratio
and an interest coverage ratio. Among the most restrictive covenants contained
in the Credit Agreement is the requirement to maintain a fixed charge ratio of
not less than 1.0 at the last day of each fiscal quarter for the most recent
four quarters.
The Company had average outstanding Revolving Credit Loans of approximately
$59,892,000 and $88,825,000 for the years ended February 28, 1998 and 1997,
respectively. Amounts available to be drawn down under the Revolving Credit
Loans were $89,235,000 and $119,378,000 at February 28, 1998 and 1997,
respectively. The average interest rate on the Revolving Credit Loans was 6.57%,
6.58%, 6.76% and 7.16%, for fiscal 1998 and 1997, the Transition Period and for
fiscal 1995, respectively. Facility fees on the new Credit Agreement are due
based upon the total revolving loan facility, whereas commitment fees under the
prior agreement were based upon the unused portion of the revolving loan
facility. These fees are based upon the Company's Debt Ratio and can range from
0.15% to 0.35%. At February 28, 1998, the facility fee percentage was 0.25%. The
commitment fee percentage at February 28, 1997, the Company maintains, in accordance with the Credit
Agreement, interest rate protection agreements, in an amount equal to
$55,000,000, which protect the Company against three month LIBOR exceeding 6.25%
per annum and require payments when three month LIBOR rates are below 4.75%was 0.325%.
These agreements expire through December 1997.
SENIOR SUBORDINATED NOTES -
On December 27, 1993, the Company issued $130,000,000 aggregate principal amount
of 8.75% Senior Subordinated Notes due in December 2003 (the Notes). The Company
used the net proceeds to repay the subordinated loan incurred in the Vintners
Acquisition. Interest on
the Notes is payable semiannually on June 15 and December 15 of each year. The
Notes are unsecured and subordinated to the prior payment in full of all senior
indebtedness of the Company, which includes the Credit Agreement. The Notes are
guaranteed, on a senior subordinated basis, by all of the Company's significant
operating subsidiaries.
The Trust Indenture relating to the Notes contains certain covenants, including,
but not limited to, (i) limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on senior subordinated indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii) limitation on issuance of guarantees of and
pledges for indebtedness; (viii) restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x) limitation on the creation of any
restriction on the ability of the Company's subsidiaries to make distributions
and other payments; and (xi) restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets of the Company to another
person. The limitation on indebtedness covenant is governed by a rolling four
quarter fixed charge ratio requiring a specified minimum.
On October 29, 1996, the Company issued $65,000,000 aggregate principal amount
of 8.75% Series B Senior Subordinated Notes due in December 2003 (the Series B
Notes). The Company used the net proceeds of approximately $61,700,000 to repay
$50,000,000 of Revolving Credit Loans and to prepay and permanently reduce
$9,600,000 of the Term Loan. The remaining proceeds were used to pay various
fees and expenses associated with the offering. The terms of the Series B Notes
were substantially identical to those of the Notes. In February 1997, the
Company exchanged $65,000,000 aggregate principal amount of 8.75% Series C
Senior Subordinated Notes due in December 2003 (the Series C Notes) for the
Series B Notes. The terms of the Series C Notes are identical in all material
respects to the Series B Notes.
LOANS PAYABLE -
Loans payable, secured by officers' life insurance policies, carry an interest
rate of 5%. The notes carry no due dates and it is management's intention not to
repay the notes during the next fiscal year.
CAPITALIZED LEASE AGREEMENTS - INDUSTRIAL DEVELOPMENT AGENCIES -
Certain capitalized lease agreements require the Company to make lease payments
equal to the principal and interest on certain bonds issued by Industrial
Development Agencies. The bonds are secured by the leases and the related
facilities. These transactions have been treated as capital leases with the
related assets included in property, plant and equipment and the lease
commitments included in long-term debt. Among the provisions under the debenture
and lease agreements are covenants that define minimum levels of working capital
and tangible net worth and the maintenance of certain financial ratios as
defined in the agreements.
DEBT PAYMENTS -
Principal payments required under long-term debt obligations during the next
five fiscal years are as follows:
February 28, 19971998
-----------------
(IN THOUSANDS)
1998(in thousands)
1999 $ 40,467
1999 40,11924,118
2000 40,11824,119
2001 40,00024,000
2002 25,90024,000
2003 24,000
Thereafter 195,967
--------
$382,571
========
6.215,967
---------
$336,204
=========
7. INCOME TAXES:
The provision for Federal and state income taxes consists of the following:
For the Six
For the MonthsFor the Six For the
Year Ended Year Ended YearsMonths Ended Year Ended
February 28, 19971998 February 28, February 29, August 31,
---------------------------------------------------------------- ------------ -------------------------------- ------------
State and
Federal Local Total 1997 1996 1995
1994
------- --------- ------------------ -------- ------------ -------- -------------------- ------------
(in thousands)
(IN THOUSANDS)
Current income tax provision $ 9,41221,032 $ 4,935 $14,3477,444 $ 28,476 $ 14,347 $ 1,390 $ 6,446
$ 11,510
Deferred income tax provision (benefit) 5,621 1485,935 384 6,319 5,769 1,991 19,232
(4,319)
------- ------- ------- ------- -------- --------
$15,033--------- ----------- --------- ----------- ----------- ------------
$ 5,083 $20,11626,967 $ 7,828 $ 34,795 $ 20,116 $ 3,381 $ 25,678
$ 7,191
======= ======= ======= ======= ======== ================= =========== ========= =========== =========== ============
The components of the deferred income tax provision (benefit) are as follows:
For the Six
For the Year Months For the Years Ended
Ended Ended August 31,
February 28, February 29, ---------------------
1997 1996 1995 1994
------------ ------------ -------- --------
Depreciation and amortization $ 5,130 $ 4,752 $ 10,089 $ 4,610
LIFO reserve (602) (2,007) 1,871 1,306
Prepaid advertising (1,379) (922) 792 258
Inventory reserves 5,616 1,868 5,163 (2,186)
Restructuring costs 386 2,155 3,144 (8,843)
Other accruals (3,382) (3,855) (1,827) 536
------- -------- -------- -------
$ 5,769 $ 1,991 $ 19,232 $(4,319)
======= ======== ======== =======
A reconciliation of the total tax provision to the amount computed by applying
the expected U.S. Federal income tax rate to income before provision for Federal
and state income taxes is as follows:
For the Year Ended For the Year Ended For the Six Months For the YearsYear Ended
August 31,February 28, February 28, Ended February 29, ----------------------------------August 31,
1998 1997 1996 1995
1994
------------------- ------------------- ---------------- --------------------------------- ------------------ ------------------ ------------------
% of % of % of % of
Pretax Pretax Pretax Pretax
Amount Income Amount Income Amount Income Amount Income
------- ------ ------------- ------ ------ ------ ------ ------ ------
(IN THOUSANDS)(in thousands)
Computed "expected"
tax provision $16,727$ 29,703 35.0 $ 16,727 35.0 $ 2,346 35.0 $23,344 35.0 $ 6,62323,344 35.0
State and local
income taxes,
net of Federal
income tax benefit 5,089 6.0 3,304 6.9 827 12.3 2,395 3.6
644 3.4
Nondeductible meals
and entertainment
expenses 294 0.3 310 .60.6 205 3.1 290 .4 87 .50.4
Miscellaneous items,
net (291) (0.3) (225) (.4)(0.4) 3 -- (351) (.5) (163) (.9)
-------(0.5)
-------- ---- -------- ---- ------- ---- --------------- ----
------- ----
$20,116$ 34,795 41.0 $ 20,116 42.1 $ 3,381 50.4 $25,678$ 25,678 38.5
$ 7,191 38.0
=============== ==== ======== ==== ======= ==== ======= ==== =============== ====
Deferred tax liabilities (assets) are comprised of the following:
February 28, February 29,28,
1998 1997 1996
------------ ------------
(IN THOUSANDS)(in thousands)
Depreciation and amortization $ 71,51170,303 $ 66,74668,155
LIFO reserve 13,601 2,019 2,638
Prepaid advertising 801 2,201
Restructuring costs (3,567) (3,963)
Inventory reserves 6,974 9,418 3,648
Other accruals (18,193) (13,191) (9,685)
-------- --------
$ 66,99172,685 $ 61,58566,991
======== ========
At February 28, 1997,1998, the Company has state and U.S. Federal net operating loss
(NOL) carryforwards of $17,043,000$16,213,000 and $4,567,000,$3,654,000, respectively, to offset
future taxable income that, if not otherwise utilized, will expire as follows:
state NOLs of $6,945,000, $6,828,000 and $10,098,000$2,440,000 at February 28, 2001, 2002
and 2002,2003, respectively, and Federal NOL of $4,567,000$3,654,000 at February 28, 2011.
At February 28, 1997, the Company has Federal alternative minimum tax credit
carryforwards of $2,852,000 to offset future tax with no expiration date.
7.8. PROFIT SHARING RETIREMENT PLANS AND RETIREMENT SAVINGS PLAN:
The Company's profit sharing retirement plans, which cover substantially all
employees, provide for contributions by the Company in such amounts as the Board
of Directors may annually determine and for voluntary contributions by
employees. The plans are qualified as tax-exempt under the Internal Revenue Code
and conform with the Employee Retirement Income Security Act of 1974. The
Company's provisions for the plans, including the Barton plan described below,
were $5,571,000 and $4,999,000 for the yearyears ended February 28, 1998 and 1997,
respectively, $2,579,000 in the Transition Period and $3,830,000 and $3,414,000 infor fiscal
1995
and 1994, respectively.1995.
The Company's retirement savings plan, established pursuant to Section 401(k) of
the Internal Revenue Code, permits substantially all full-time employees of the
Company (excluding Barton employees)employees, who are covered by a separate plan
described below) to defer a portion of their compensation on a pretax basis.
Participants may defer, subject to a maximum contribution limitation, up to 10%
of their compensation for the year. The Company makes a matching contribution of
25% of the first 4% of compensation an employee defers. Company contributions to
this plan were $367,000 and $700,000 for the yearyears ended February 28, 1998 and
1997, respectively, $325,000 in the Transition Period and $281,000 and $207,000 in fiscal
1995 and 1994, respectively.1995.
The Barton profit sharing and 401(k) plan covers all salaried employees of
Barton. The amount of Barton's contribution under the profit sharing portion of
the plan is at the discretion of its Board of Directors, subject to limitations
of the plan. Contribution expense was $2,799,000 and $2,504,000 for the yearyears
ended February 28, 1998 and 1997, respectively, $1,095,000 in the Transition
Period and $1,430,000 and $1,395,000 in fiscal 1995 and 1994, respectively.1995. Pursuant to the 401(k) portion of the
plan, participants may defer up to 8% of their compensation for the year,
subject to limitations of the plan, and receive no matching contribution from
Barton.
8.9. STOCKHOLDERS' EQUITY:
COMMON STOCK -
The Company has two classes of common stock: Class A Common Stock and Class B
Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to only one vote per share but are entitled to a cash dividend premium.
If the Company pays a cash dividend on Class B Convertible Common Stock, each
share of Class A Common Stock will receive an amount at least ten percent
greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Convertible Common Stock.
At February 28, 1997,1998, there were 15,546,86415,405,464 shares of Class A Common Stock and
3,330,458 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
STOCK REPURCHASE AUTHORIZATION -
On January 11, 1996, the Company's Board of Directors authorized the repurchase
of up to $30,000,000 of its Class A and Class B Common stock. The Company maywas
permitted to finance such purchases, which will becomebecame treasury shares, through cash
generated from operations or through the Credit Agreement. The Company completed
its repurchase program during fiscal 1998, repurchasing 362,100 shares of Class
A Common Stock for $9,233,000. Throughout the year endingended February 28, 1997, the
Company repurchased 787,450 shares of Class A Common Stock totaling $20,765,000.
PREFERREDLONG-TERM STOCK INCENTIVE PLAN -
The Company is authorized to issue up to 1,000,000 shares of preferred stock in
one or more series, at a par value of $.01 per share. The terms of any issuanceIn July 1997, the stockholders approved the amendment and restatement of the
preferred stock will be fixed by resolution of the Board of Directors. No
preferred stock has been issued as of February 28, 1997.
STOCK OPTION AND STOCK APPRECIATION RIGHT PLAN -
The Company has in place aCompany's Stock Option and Stock Appreciation Right Plan (the Original Stock
Plan) as the Long-Term Stock Incentive Plan (the Long-Term Stock Plan). Options
granted under the Original Stock Plan remain outstanding and in full force in
accordance with their terms.
Under the Long-Term Stock Plan, nonqualified stock options, stock appreciation
rights, restricted stock and incentive stock optionsother stock-based awards may be granted to
purchaseemployees, officers and stock appreciation rights may be granted with
respect to,directors of the Company. Grants, in the aggregate, may
not more than 3,000,000exceed 4,000,000 shares of the Company's Class A Common Stock. OptionsThe exercise
price, vesting period and term of nonqualified stock options granted are
established by the committee administering the plan (the Committee). Grants of
stock appreciation rights, restricted stock and other stock-based awards may
be issued to
employees, officers or directors ofcontain such vesting, terms, conditions and other requirements as the Company. Nonemployee directors are
eligible to receive only nonqualified stock options andCommittee
may establish. During fiscal 1998, no stock appreciation rights. The option pricerights and 25,000
shares of any incentive stock option may not be less than the
fair market valuerestricted Class A Common Stock were granted. At February 28, 1998,
there were 1,840,258 shares available for future grant.
A summary of the shares on the date of grant. The exercise price of any nonqualified stock option must equal or exceed 50% of the fair market value of
the shares on the date of grant. Options become fully vested and exercisable
over periods of one to five years as determined by the Compensation Committee of
the Board of Directors and have a maximum term of ten
years. Changes in the status of the Plan during the year ended February 28,
1997, the Transition Period, fiscal 1995 and fiscal 1994 are summarizedactivity is as follows:
Weighted Options
Shares Avg. Exercise Available
Under Option Price for Grant
------------ ------------- ---------
Balance, August 31, 1993 452,375 $ 12.65
Options granted 125,000 $ 25.62
Options exercised (2,250) $ 4.44
Options forfeited/canceled (11,625) $ 8.09
---------
Balance, August 31, 1994 563,500 $ 15.65 2,401,850
Options granted 289,000 $ 40.29
Options exercised (114,075) $ 7.02
Options forfeited/canceled (4,500) $ 19.22
---------
Balance, August 31, 1995 733,925 $ 26.68 2,117,350
Options granted 571,050 $ 36.01
Options exercised (18,000) $ 13.23
Options forfeited/canceled (193,250) $ 44.06
---------
Balance, February 29, 1996 1,093,725 $ 28.70 1,739,550
Options granted 1,647,700 $ 22.77
Options exercised (3,750) $ 4.44
Options forfeited/canceled (1,304,700) $ 32.09
---------
Balance, February 28, 1997 1,432,975 $ 18.85 1,396,550
Weighted Weighted
Avg. Avg.
Shares Under Exercise Options Exercise
Option Price Exercisable Price
------------ -------- ----------- --------
Balance, August 31, 1994 563,500 $ 15.65
Options granted 289,000 $ 40.29
Options exercised (114,075) $ 7.02
Options forfeited/canceled (4,500) $ 19.22
---------
Balance, August 31, 1995 733,925 $ 26.68 39,675 $ 4.44
Options granted 571,050 $ 36.01
Options exercised (18,000) $ 13.23
Options forfeited/canceled (193,250) $ 44.06
---------
Balance, February 29, 1996 1,093,725 $ 28.70 28,675 $ 4.44
Options granted 1,647,700 $ 22.77
Options exercised (3,750) $ 4.44
Options forfeited/canceled (1,304,700) $ 32.09
---------
Balance, February 28, 1997 1,432,975 $ 18.85 51,425 $ 10.67
Options granted 569,400 $ 38.72
Options exercised (117,452) $ 15.33
Options forfeited/canceled (38,108) $ 17.66
---------
Balance, February 28, 1998 1,846,815 $ 25.23 360,630 $ 25.46
=========
The following table summarizes information about stock options outstanding at
February 28, 1997:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
$ 4.44 - $11.50 94,675 4.7 years $ 9.64 28,425 $ 5.31
$17.00 - $22.25 1,079,800 8.3 years $ 17.29 23,000 $ 17.30
$22.25 - $30.00 258,500 9.3 years $ 28.76 -- $ -
--------- ------
1,432,975 51,425
========= ======
1998:
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Weighted
Avg. Weighted Weighted
Remaining Avg. Avg.
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
$ 4.44 - $11.50 38,675 3.5 years $ 9.15 38,675 $ 9.15
$17.00 - $25.63 998,540 7.3 years $ 17.37 134,280 $ 17.00
$26.75 - $31.25 351,800 8.5 years $ 28.46 80,200 $ 27.30
$35.38 - $56.75 457,800 9.6 years $ 41.25 107,475 $ 40.53
--------- -------
1,846,815 8.0 years $ 25.23 360,630 $ 25.46
========= =======
The weighted average fair value of options granted during fiscal 1998, fiscal
1997 and the Transition Period was $20.81, $10.27 and $15.90, respectively. The
fair value of options is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rate of 6.4% for fiscal 1998, 6.6% for fiscal 1997 and 5.5% for the
Transition Period; volatility of 41.3% for fiscal 1998, 42.7% for fiscal 1997
and 39.6% for the Transition Period; expected option life of 6.9 years for
fiscal 1998, 4.7 years for fiscal 1997 and 5.4 years for the Transition Period.
The dividend yield was 0% for bothfiscal 1998, fiscal 1997 and the Transition
Period. Forfeitures are recognized as they occur.
INCENTIVE STOCK OPTION PLAN -
The ability to grant incentive stock options under the Original Stock Plan was
eliminated when it was amended and restated as the Long-Term Stock Plan. In July
1997, stockholders approved the adoption of the Company's Incentive Stock Option
Plan. Under the Incentive Stock Option Plan, incentive stock options may be
granted to employees, including officers, of the Company. Grants, in the
aggregate, may not exceed 1,000,000 shares of the Company's Class A Common
Stock. The exercise price of any incentive stock option may not be less than the
fair market value of the Company's Class A Common Stock on the date of grant.
The vesting period and term of incentive stock options granted are established
by the Committee. The maximum term of incentive stock options is ten years.
During fiscal 1998, no incentive stock options were granted.
EMPLOYEE STOCK PURCHASE PLAN -
In fiscal 1989, the Company approved a stock purchase plan under which 1,125,000
shares of Class A Common Stock can be issued. Under the terms of the plan,
eligible employees may purchase shares of the Company's Class A Common Stock
through payroll deductions. The purchase price is the lower of 85% of the fair
market value of the stock on the first or last day of the purchase period.
During fiscal 1998 and fiscal 1997, the Transition Period and fiscal 1995,
and
fiscal 1994, employees purchased 78,248, 37,768, 20,869 28,641 and 58,95528,641 shares, respectively.
The weighted average fair value of purchase rights granted during fiscal 1998
and fiscal 1997 was $7.74.$11.90 and $8.41, respectively. The fair value of purchase
rights is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: risk-free interest rate
of 5.3% for fiscal 1998 and 5.6%; for fiscal 1997; volatility of 35.1% for fiscal
1998 and 65.4%; for fiscal 1997; expected purchase right life of 0.5 years for
fiscal 1998 and 0.8 years and afor fiscal 1997. The dividend yield ofwas 0%. for both
fiscal 1998 and fiscal 1997. No purchase rights were granted in the Transition
Period.
PRO FORMA DISCLOSURE -
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. In fiscal 1997, the Company elected to adopt the disclosure onlydisclosure-only
provisions of Statement of Financial Accounting Standards No. 123, (SFAS No.
123), "Accounting
for Stock-Based Compensation.Compensation," (SFAS No. 123). Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. Had the
Company recognized the compensation cost based upon the fair value at the date
of grant for awards under its plans consistent with the methodology prescribed
by SFAS No. 123, net income and net incomeearnings per common and common equivalent share would have been
reduced to the pro forma amounts as follows:
For the Year Ended For the Six Months Ended
February 28, 1997 February 29, 1996
----------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income $ 27,675 $ 25,163 $ 3,322 $ 3,178
Net income per common
and common equivalent share:
Primary $ 1.41 $ 1.28 $ .17 $ .16
Fully diluted $ 1.40 $ 1.28 $ .17 $ .16
For the Year Ended For the Year Ended For the Six Months
February 28, 1998 February 28, 1997 Ended February 29, 1996
-------------------- -------------------- -----------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- -------- -------- -------- -------- -------
(in thousands, except per
share data)
Net income $ 50,071 $ 46,171 $ 27,675 $ 25,038 $ 3,322 $ 3,178
Earnings per common share:
Basic $ 2.68 $ 2.47 $ 1.43 $ 1.30 $ 0.17 $ 0.16
Diluted $ 2.62 $ 2.42 $ 1.42 $ 1.28 $ 0.17 $ 0.16
The provisions of SFAS No. 123 have not been applied to options or purchase
rights granted prior to September 1, 1995. Therefore, the resulting pro forma
effect on net income may not be representative of that to be expected in future
years.
STOCK OFFERING -
During November 1994, the Company completed a public offering and sold 3,000,000
shares of its Class A Common Stock, resulting in net proceeds to the Company of
approximately $95,515,000 after underwriters' discounts and commissions and
expenses. In connection with the offering, 432,067 of the Vintners Option Sharesoption shares
were exercised and the Company received proceeds of $7,885,000. Under the terms
of the amended Credit Agreement,then existing bank credit agreement, approximately $82,000,000 was used
to repay a portion of the Term Loan under the Company's Credit Agreement.bank credit agreement. The balance
of net proceeds was used to repay Revolving Credit Loans under the Credit
Agreement.
9.bank credit
agreement.
10. EARNINGS PER COMMON SHARE:
The following table presents historical earnings per common share restated to
conform with the provisions of SFAS No. 128.
For the
For the Years Ended For the Six Months Ended Year Ended
-------------------------- -------------------------- ----------
February 28, February 28, February 29, February 28, August 31,
1998 1997 1996 1995 1995
------------ ------------ ------------ ------------ ----------
(in thousands, except per share data) (unaudited)
BASIC EARNINGS PER COMMON SHARE:
- --------------------------------
Income applicable to common shares $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020
Weighted average common shares
outstanding 18,672 19,333 19,611 17,989 18,776
BASIC EARNINGS PER COMMON SHARE $ 2.68 $ 1.43 $ 0.17 $ 1.13 $ 2.18
======== ======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE:
- ----------------------------------
Income applicable to common shares $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020
-------- -------- -------- -------- --------
Weighted average common shares
outstanding 18,672 19,333 19,611 17,989 18,776
Incentive stock options 423 179 129 152 155
Options/employee stock purchases 10 9 67 38 74
-------- -------- -------- -------- --------
Adjusted weighted average common
shares outstanding 19,105 19,521 19,807 18,179 19,005
-------- -------- -------- -------- --------
DILUTED EARNINGS PER COMMON SHARE $ 2.62 $ 1.42 $ 0.17 $ 1.12 $ 2.16
======== ======== ======== ======== ========
11. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES -
Future payments under noncancelable operating leases having initial or remaining
terms of one year or more are as follows:
February 28, 19971998
-----------------
(IN THOUSANDS)
1998(in thousands)
1999 $ 1,068
1999 8293,506
2000 7762,627
2001 7401,947
2002 7141,513
2003 1,291
Thereafter 1,790
-------8,590
--------
$ 5,917
=======19,474
========
Rental expense was approximately $5,554,000 and $4,716,000 for the year ended February 28,fiscal 1998 and
fiscal 1997, respectively, $2,382,000 in the Transition Period and $4,193,000
infor fiscal 1995 and
$3,318,000 in fiscal 1994.1995.
PURCHASE COMMITMENTS AND CONTINGENCIES -
The Company has agreements with three suppliers to purchase blended Scotch
whisky through December 2003.2001. The purchase prices under the agreements are
denominated in British pounds sterling and basedsterling. Based upon exchange rates at February
28, 1997,1998, the Company's aggregate future obligation will beranges from approximately
$18,340,000$10,758,000 to $36,775,000$22,835,000 for the contracts expiring through December 2003.2001.
The Company has two agreementsan agreement to purchase Canadian blended whisky through
DecemberSeptember 1, 1999, atwith a purchase pricemaximum obligation of approximately $1,050,000 to $8,903,000.$4,453,000. The
Company also has two agreements to purchase Canadian new distillation whisky
(including dumping charges) through December 2005 at purchase prices of
approximately $17,360,000$12,521,000 to $19,133,000.$13,536,000. In addition, the Company has an
agreement to purchase corn whiskey through April 1999 at a purchase price of
approximately $294,000.$90,000.
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements from the suppliers of these products. The
Company's agreement to distribute Corona and its other Mexican beer brands
exclusively throughout 25 states was renewed effective November 22, 1996, and
expires December 2006, with automatic five year renewals thereafter, subject to
compliance with certain performance criteria and other terms under the
agreement. The remaining agreements expire through December 1999 and may be
extended by the Company through June 2003, subject to compliance with certain
performance criteria.2003. Prior to their
expiration, these agreements may be terminated if the Company fails to meet
certain performance criteria. At February 28, 1997,1998, the Company believes it is
in compliance with all of its material distribution agreements and, given the
Company's long-term relationships with its suppliers, the Company does not
believe that these agreements will be terminated.
In connection with the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the Company assumed purchase contracts with certain growers and
suppliers. In addition, the Company has entered into other purchase contracts
with various growers and suppliers in the normal course of business. Under the
grape purchase contracts, the Company is committed to purchase all grape
production yielded from a specified number of acres for a period of time ranging
up to fifteen20 years. The actual tonnage and price of grapes that must be purchased by
the Company will vary each year depending on certain factors, including weather,
time of harvest, overall market conditions and the agricultural practices and
location of the growers and suppliers under contract.
The Company purchased $142,547,000$154,909,000 of grapes under these contracts during fiscal
1997.1998. Based on current production yields and published grape prices, the Company
estimates that the aggregate purchases under these contracts over the remaining
term of the contracts will be approximately $900,343,000.$915,651,000. During fiscal 1994, in
connection with the Vintners Acquisition and the Almaden/Inglenook Acquisition,
the Company established a reserve for the estimated loss on these firm purchase
commitments of approximately $62,664,000, which was subsequently reduced during
fiscal 1995 to reflect the effects of the termination payments to cancel
contracts with certain growers (see Note 2).growers. The remaining reserve for the estimated loss on
the remaining contracts is approximately $1,171,000$771,000 at February 28, 1997.1998.
The Company's aggregate obligations under bulk wine purchase contracts will be
approximately $61,486,000$32,502,000 over the remaining term of the contracts which expire
through fiscal 2000.2001.
EMPLOYMENT CONTRACTS -
The Company has employment contracts with certain of its executive officers and
certain other management personnel with remaining terms ranging up to fourthree
years. These agreements provide for minimum salaries, as adjusted for annual
increases, and may include incentive bonuses based upon attainment of specified
management goals. In addition, these agreements provide for severance payments
in the event of specified termination of employment. The aggregate commitment
for future compensation and severance, excluding incentive bonuses, was
approximately $10,534,000$7,903,000 as of February 28, 1997,1998, of which approximately
$2,223,000$1,436,000 is accrued in other liabilities as of February 28, 1997.1998.
EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS -
Approximately 43%42% of the Company's full-time employees are covered by collective
bargaining agreements at February 28, 1997.1998. Agreements expiring within one year
cover approximately 27%7% of the Company's full-time employees.
LEGAL MATTERS -
The Company is subject to litigation from time to time in the ordinary course of
business. Although the amount of any liability with respect to such litigation
cannot be determined, in the opinion of management, such liability will not have
a material adverse effect on the Company's financial condition or results of
operations.
10.12. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company sells its products principally to wholesalers for resale to retail
outlets including grocery stores, package liquor stores, club and discount
stores and restaurants. Gross sales to the five largest wholesalers of the
Company represented 26.4%, 22.9%, 16.9%, and 21.6% and 23.7% of the Company's gross sales
for the fiscal yearyears ending February 28, 1998 and 1997, the Transition Period
and for the fiscal yearsyear ended August 31, 1995, and 1994, respectively. Gross sales to the
Company's largest wholesaler, Southern Wine and Spirits, represented 10.5%12.1%,
10.6%10.5% and 12.3%10.6% of the Company's gross sales for the fiscal yearyears ended February
28, 1998 and 1997, and for the fiscal yearsyear ended August 31, 1995, respectively.
Accounts receivable from the Company's largest wholesaler represented 14.1% and
1994,11.3% of the Company's total accounts receivable as of February 28, 1998 and
1997, respectively. No single wholesaler was responsible for greater than 10% of
gross sales during the Transition Period. Gross sales to the Company's five
largest wholesalers are expected to continue to represent a significant portion
of the Company's revenues. The Company's arrangements with certain of its
wholesalers may, generally, be terminated by either party with prior notice. The
Company performs ongoing credit evaluations of its customers' financial
position, and management of the Company is of the opinion that any risk of
significant loss is reduced due to the diversity of customers and geographic
sales area.
11.13. RESTRUCTURING PLAN:
The Company provided for costs to restructure the operations of its California
wineries (the Restructuring Plan) in the fourth quarter of fiscal 1994. Under
the Restructuring Plan, all bottling operations at the Central Cellars winery in
Lodi, California, and the branded wine bottling operations at the Monterey
Cellars winery in Gonzales, California, were moved to the Mission Bell winery
located in Madera, California. The Monterey Cellars winery will continue to be
used as a crushing, winemaking and contract bottling facility. The Central
Cellars winery was closed in the fourth quarter of fiscal 1995 and was sold for
its approximate net book value during fiscal 1997. In fiscal 1994, the
Restructuring Plan reduced income before taxes and net income by approximately
$24,005,000 and $14,883,000, respectively, or $.91$0.92 per share on a fully diluted
basis. Of the total pretax charge in fiscal 1994, approximately $16,481,000 was
to recognize estimated losses associated with the revaluation of land, buildings
and equipment related to facilities described above to their estimated net
realizable value; and approximately $7,524,000 related to severance and other
benefits associated with the elimination of 260 jobs. In fiscal 1995, the
Restructuring Plan reduced income before income taxes and net income by
approximately $2,238,000 and $1,376,000, respectively, or $.07$0.07 per share on a
fully
diluted basis. Of the total pretax charge in fiscal 1995, $4,288,000 relates to
equipment relocation and employee hiring and relocation costs, offset by a
decrease of $2,050,000 in the valuation reserve as compared to fiscal 1994,
primarily related to the land, buildings and equipment at the Central Cellars
winery. The Company also expended approximately $19,071,000 in fiscal 1995 for
capital expenditures to expand storage capacity and install certain relocated
equipment. In the Transition Period, the expense incurred in connection with the
Restructuring Plan reduced income before taxes and net income by approximately
$2,404,000 and $1,192,000, respectively, or $.06$0.06 per share on a fully diluted basis.
These charges represented incremental, nonrecurring expenses of $3,982,000
primarily incurred for overtime and freight expenses resulting from
inefficiencies related to the Restructuring Plan, offset by a reduction in the
accrual for restructuring expenses of $1,578,000, primarily for severance and
facility holding and closure costs. The Company completed the Restructuring Plan
at February 29, 1996, with a total employment reduction of 177 jobs. The Company
expended approximately $2,125,000 in fiscal 1997 and $6,644,000 during the
Transition Period for capital expenditures to expand storage capacity. As of
February 28, 1997, and February 29, 1996, the Company had accrued liabilities of approximately $402,000
and $1,186,000, respectively, relating to the Restructuring Plan. 12.As of February 28, 1998, the Company had no
accrued liabilities relating to the Restructuring Plan.
14. SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The subsidiary guarantors are wholly-ownedwholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarized financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to investors. The subsidiary
guarantors comprise all of the direct and indirect subsidiaries of the Company,
other than the non-guarantornonguarantor subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the Company in the form of cash
dividends loans or advances.loan repayments; however, except for limited amounts, the
subsidiary guarantors may not loan funds to the Company.
The following table presents summarized financial information for subsidiary
guarantors in connection with all of the Company's 8.75% Senior Subordinated
Notes:
February 28, February 29,28,
1998 1997 1996
------------ ------------
(IN THOUSANDS)(in thousands)
Balance Sheet Data:
Current assets $ 401,870460,618 $ 404,655401,870
Noncurrent assets $ 403,068395,225 $ 306,647403,068
Current liabilities $ 100,009102,207 $ 122,923100,009
Noncurrent liabilities $ 65,30061,784 $ 67,132
65,300
For the Year
For the Years Ended For the Six Months Ended For the Years Ended
August 31,
Ended ---------------------------- -------------------------------------------------------- -------------------------- ------------
February 28, February 28, February 29, February 28, August 31,
1998 1997 1996 1995 1995
1994
----------- ------------ ------------ -------- -------------------- ------------ ----------
(IN THOUSANDS)(in thousands)
Income Statement Data:
Net sales $907,387 $416,839 $334,885 $716,969 $514,466$ 985,757 $ 907,387 $ 416,839 $ 334,885 $ 716,969
Gross profit $164,471$ 196,642 $ 164,471 $ 73,843 $ 62,883 $131,489 $ 81,454131,489
Income (loss) before provision for
Federal and and state income taxes $ 64,270 $ 47,303 $ 17,083 $ 22,690 $ 52,756
$ (7,048)
Net income (loss) $ 27,39238,094 $ 8,46627,392 $ 13,9548,466 $ 32,44513,954 $ (4,370)32,445
13.15. ACCOUNTING PRONOUNCEMENTS:
In FebruaryJune 1997, Statement of Financial Accounting Standards No. 128130, "Reporting
Comprehensive Income," (SFAS No. 128), "Earnings per Share,130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued, superseding Accounting Principles Board
Opinion(SFAS No. 15 (Opinion 15), "Earnings per Share." This statement specifies the
computation, presentation131) were issued. SFAS No. 130 establishes standards for
reporting and disclosure requirements for earnings per share
(EPS) for companies with publicly held common stock or potential common stock.
This statement replaces the reportingdisplay of primary EPS with basic EPScomprehensive income and changes
the computationits components in a full set
of fully diluted EPS to dilutive EPS which uses the average
share price for the period, rather than the more dilutive greater of the average
share price or end-of-period share price required by Opinion 15.financial statements. The Company will beis required to adopt SFAS No. 128 on a prospective basis in130 for
interim periods and fiscal years beginning March 1, 1998. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company believes the effect of adoption will not be material.
14. FEBRUARY FISCAL YEAR FINANCIAL DATA (UNAUDITED):significant.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information in interim financial statements. The financial data presented below summarizes recast unaudited activityCompany is required to adopt
SFAS No. 131 for the
1996, 1995 and 1994 fiscal years endedbeginning March 1, 1998, and for interim periods
beginning March 1, 1999. Restatement of comparative information for earlier
years is required in the last dayinitial year of February.
Full Year Full Year Full Year
Recast Recast Recast
February 29, February 28, February 28,
1996 1995 1994
------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
(IN THOUSANDS)
GROSS SALES $1,331,184 $1,046,792 $ 635,983
Less - Excise taxes (344,101) (257,239) (165,049)
---------- ---------- ---------
Net sales 987,083 789,553 470,934
COST OF PRODUCT SOLD (722,325) (566,713) (332,463)
---------- ---------- ---------
Gross profit 264,758 222,840 138,471
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (191,683) (141,653) (93,903)
NONRECURRING RESTRUCTURING EXPENSES (3,957) (24,690) -
---------- ---------- ---------
Operating income 69,118 56,497 44,568
INTEREST EXPENSE, NET (28,758) (22,911) (11,495)
---------- ---------- ---------
Income before provisionadoption and comparative information
for Federal and state income taxes 40,360 33,586 33,073
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (16,339) (12,928) (12,629)
---------- ---------- ---------
NET INCOME $ 24,021 $ 20,658 $ 20,444
========== ========== =========
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIESinterim periods in the initial year of adoption is to be reported for
interim periods in the second year of application. The Company has not yet
determined the impact of SFAS No. 131 on its financial statements.
16. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FOR THE YEAR ENDED FEBRUARY 28, 1997, SIX MONTHS ENDED FEBRUARY 29, 1996 AND
THE YEARS ENDED AUGUST 31, 1995 AND 1994
(in thousands, except per share data)
QUARTER ENDED 5/31/96 8/31/96 11/30/96 2/28/97 YEAR
----------------------------------------------------------
Net sales $276,493 $279,218 $317,733 $261,569 $1,135,013
Gross profit 72,907 69,835 81,683 66,407 290,832
Net income 8,501 4,941 8,311 5,922 27,675
Earnings per share:
Primary .43 .25 .42 .31 1.41
Fully diluted .43 .25 .42 .30 1.40
QUARTER ENDED 11/30/95 2/29/96 SIX MONTHS
----------------------------------------------------------
Net sales $285,585 $249,439 $535,024
Gross profit 77,253 61,563 138,816
Net income 10,412(a) (7,090)(b) 3,322
Earnings per share:
Primary .52 (.36) .17
Fully diluted .52 (.36) .17
QUARTER ENDED 11/30/94 2/28/95 5/31/95 8/31/95 YEAR
----------------------------------------------------------
Net sales $243,542 $210,943 $222,770 $229,289 $ 906,544
Gross profit 69,160 57,631 63,262 62,680 252,733
Net income 10,332 9,988 10,637 10,063 41,020
Earnings per share:
Primary .61 .50 .53 .50 2.14
Fully diluted .61 .50 .53 .50 2.13
QUARTER ENDED 11/30/93 2/28/94 5/31/94 8/31/94 YEAR
----------------------------------------------------------
Net sales $154,485 $140,031 $154,223 $180,845 $ 629,584
Gross profit 44,655 41,668 42,775 53,275 182,373
Net income 5,653 5,741 6,655 (6,316) 11,733
Earnings per share:
Primary .40 .35 .41 (.39) .74
Fully diluted .37 .35 .41 (.38) .74
(a) During the quarter ended November 30, 1995, the Company recorded
nonrecurring operating expenses, net:
A summary of tax, of approximately $1,980,000
related to inefficiencies resulting from the Company's Restructuring Plan
offset by a reduction in the accrual for restructuring expenses, net of
tax, of approximately $960,000, primarily for severance and facility
holding and closure costs. The Company recorded other nonrecurring
expenses, net of tax, of approximately $780,000.
(b) During the quarter ended February 29, 1996, the Company recorded
nonrecurring operating expenses, net of tax, of approximately $2,852,000
related to inefficiencies resulting from the integration of the West Coast
wineries, of which $2,412,000 has been recordedselected quarterly financial information is as a component of cost of
goods sold and $440,000 has been recorded as nonrecurring restructuring
expense. In addition, the Company recorded, net of tax, $1,470,000 for
employee bonuses and $1,270,000, net of tax, of other non-recurring
expenses.
The accompanying notes to consolidated
financial statements are an integral
part of this schedule.
follows:
QUARTER ENDED
-----------------------------------------------------
May 31, August 31, November 30, February 28,
Fiscal 1998 1997 1997 1997 1998 Full Year
- -------------------------- --------- ---------- ------------ ------------ -----------
(in thousands, except per
share data)
Net sales $ 306,011 $ 301,524 $ 322,703 $ 282,550 $ 1,212,788
Gross profit $ 80,732 $ 84,759 $ 98,000 $ 85,244 $ 348,735
Net income $ 10,046 $ 12,365 $ 17,611 $ 10,049 $ 50,071
Earnings per common share:
Basic $ 0.54 $ 0.67 $ 0.94 $ 0.54 $ 2.68
Diluted $ 0.53 $ 0.65 $ 0.92 $ 0.53 $ 2.62
QUARTER ENDED
-----------------------------------------------------
May 31, August 31, November 30, February 28,
Fiscal 1997 1996 1996 1996 1997 Full Year
- -------------------------- --------- ---------- ------------ ------------ -----------
(in thousands, except per
share data)
Net sales $ 276,493 $ 279,218 $ 317,733 $ 261,569 $ 1,135,013
Gross profit $ 72,907 $ 69,835 $ 81,683 $ 66,407 $ 290,832
Net income $ 8,501 $ 4,941 $ 8,311 $ 5,922 $ 27,675
Earnings per common share:
Basic $ 0.43 $ 0.25 $ 0.43 $ 0.31 $ 1.43
Diluted $ 0.43 $ 0.25 $ 0.43 $ 0.31 $ 1.42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information required by this Item (except for the information regarding
executive officers required by Item 401 of Regulation S-K which is included in
Part I hereof in accordance with General Instruction G(3)) is incorporated
herein by reference to the Company's proxy statement to be issued in connection
with the Annual Meeting of Stockholders of the Company to be held on July 22,
1997,21,
1998, under that sectionthose sections of the proxy statement titled "Nomination"Election of
Directors" and Election
of Directors," and under a caption titled "Section 16(a) Beneficial Ownership Reporting Compliance,"Compliance", which
proxy statement will be filed within 120 days after the end of the Company's
fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 22, 1997,21, 1998, under that
section of the proxy statement titled "Executive Compensation,"Compensation" and that caption
titled "Director Compensation" under "Election of Directors", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 22, 1997,21, 1998, under those
sections of the proxy statement titled "Beneficial Ownership" and "Nomination
and Election"Stock
Ownership of Directors,"Management", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 22, 1997,21, 1998, under that
section of the proxy statement titled "Executive Compensation,"Compensation", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a) 1. Financial Statements
The following consolidated financial statements of the Company are
submitted herewith:
Report of Independent Public Accountants
Consolidated Balance Sheets - February 28, 19971998 and February
29, 19961997
Consolidated Statements of Income for the yearyears ended February
28, 1998 and 1997, for the six months ended February 29, 1996 and
February 28, 1995 (unaudited), and for the yearsyear ended August 31,
1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for
the yearyears ended February 28, 1998 and 1997, for the six months
ended February 29, 1996, and for the yearsyear ended August 31, 1995 and 1994
Consolidated Statements of Cash Flows for the yearyears ended
February 28, 1998 and 1997, for the six months ended February 29,
1996 and February 28, 1995 (unaudited), and for the yearsyear ended
August 31, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial information is submitted
herewith:
Selected Financial Data
Selected Quarterly Financial Information (unaudited)
All other schedules are not submitted because they are not applicable or not
required under Regulation S-X or because the required information is included in
the financial statements or notes thereto.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority equity interests and/or
non-currentnoncurrent indebtedness, not guaranteed by the Registrant, in excess of 5% of
total consolidated assets.
3. Exhibits required to be filed by Item 601 of Regulation S-K
The following exhibits are filed herewith or incorporated herein by
reference, as indicated:
2.1 Stock Purchase Agreement dated April 27, 1993 among the
Company, Barton Incorporated and the stockholders of Barton
Incorporated, Amendment No. 1 to Stock Purchase Agreement
dated May 3, 1993, and Amendment No. 2 to Stock Purchase
Agreement dated June 29, 1993 (filed as Exhibit 2(a) to the
Company's Current Report on Form 8-K dated June 29, 1993 and
incorporated herein by reference).
2.2 Asset Sale Agreement dated September 14, 1993 between the
Company and Vintners International Company, Inc. (filed as
Exhibit 2(a) to the Company's Current Report on Form 8-K
dated October 15, 1993 and incorporated herein by
reference).
2.3 Amendment dated as of October 14, 1993 to Asset Sale
Agreement dated as of September 14, 1993 by and between
Vintners International Company, Inc. and the Company (filed
as Exhibit 2(b) to the Company's Current Report on Form 8-K
dated October 15, 1993 and incorporated herein by
reference).
2.4 Amendment No. 2 dated as of January 18, 1994 to Asset Sale
Agreement dated as of September 14, 1993 by and between
Vintners International Company, Inc. and the Company (filed
as Exhibit 2.1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended February 28, 1994 and
incorporated herein by reference).
2.5 Asset Purchase Agreement dated August 3, 1994 between the
Company and Heublein, Inc. (filed as Exhibit 2(a) to the
Company's Current Report on Form 8-K dated August 5, 1994
and incorporated herein by reference).
2.6 Amendment dated November 8, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.2
to the Company's Registration Statement on Form S-3
(Amendment No. 2) (Registration No. 33-55997) filed with the
Securities and Exchange Commission on November 8, 1994 and
incorporated herein by reference).
2.7 Amendment dated November 18, 1994 to Asset Purchase
Agreement between Heublein, Inc. and the Company (filed as
Exhibit 2.8 to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994 and incorporated
herein by reference).
2.8 Amendment dated November 30, 1994 to Asset Purchase
Agreement between Heublein, Inc. and the Company (filed as
Exhibit 2.9 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 1994 and
incorporated herein by reference).
2.9 Asset Purchase Agreement among Barton Incorporated (a
wholly-owned subsidiary of the Company), United Distillers
Glenmore, Inc., Schenley Industries, Inc., Medley Distilling
Company, United Distillers Manufacturing, Inc., and The
Viking Distillery, Inc., dated August 29, 1995 (filed as
Exhibit 2(a) to the Company's Current Report on Form 8-K,
dated August 29, 1995 and incorporated herein by reference).
3.13.1(a) Certificate of Amendment of the Certificate of Incorporation
of the Company (filed as Exhibit 3.1(a) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1997 and incorporated herein by reference).
3.1(b) Restated Certificate of Incorporation of the Company (filed
as Exhibit 3.1 to the Company's Transition Report on Form
10-K for the Transition Period from September 1, 1995 to
February 29, 1996 and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 1995August 31, 1997 and
incorporated herein by reference).
4.1 Specimen of Certificate of Class A Common Stock of the Company
(filed as Exhibit 1.1 to the Company's Registration Statement on
Form 8-A dated April 28, 1992 and incorporated herein by
reference).
4.2 Specimen of Certificate of Class B Common Stock of the Company
(filed as Exhibit 1.2 to the Company's Registration Statement on
Form 8-A dated April 28, 1992 and incorporated herein by
reference).
4.3 Indenture dated as of December 27, 1993 among the Company,
its Subsidiaries and The Chase Manhattan Bank (as successor
to Chemical BankBank) (filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1993 and incorporated herein by reference).
4.44.2 First Supplemental Indenture dated as of August 3, 1994
among the Company, Canandaigua West, Inc. and The Chase
Manhattan Bank (as successor to Chemical BankBank) (filed as
Exhibit 4.5 to the Company's Registration Statement on Form
S-8 (Registration No. 33-56557) and incorporated herein by
reference).
4.54.3 Second Supplemental Indenture dated August 25, 1995 among
the Company, V Acquisition Corp. (a subsidiary of the
Company now known as The Viking Distillery, Inc.) and The
Chase Manhattan Bank (as successor to Chemical BankBank) (filed
as Exhibit 4.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1995 and incorporated
herein by reference).
4.64.4 Third Supplemental Indenture dated as of December 19, 1997
among the Company, Canandaigua Europe Limited, Roberts
Trading Corp. and The Chase Manhattan Bank (filed herewith).
4.5 Indenture with respect to the 8 3/4% Series C Senior
Subordinated Notes due 2003 dated as of October 29, 1996
among the Company, its Subsidiaries and Harris Trust and
Savings Bank (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-17673333-17673) and incorporated herein by reference).
10.14.6 First Supplemental Indenture dated as of December 19, 1997
among the Company, Canandaigua Europe Limited, Roberts
Trading Corp. and Harris Trust and Savings Bank (filed
herewith).
4.7 Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The
Canandaigua Wine Company, Inc. Stock OptionChase Manhattan Bank acts as Administrative Agent, dated as
of December 19, 1997 (including a list briefly identifying
the contents of all omitted schedules and Stock
Appreciation Right Planexhibits thereto)
(filed as Appendix B of the Company's
Definitive Proxy Statement dated December 23, 1987 and
incorporated herein by reference)herewith). 10.2 Amendment No. 1The Registrant will furnish supplementally
to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as ExhibitCommission, upon request, a copy of any omitted
schedule or exhibit.
10.1
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1992 and incorporated herein by reference).
10.3 Amendment No. 2 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 28 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1992 and incorporated herein by
reference).
10.4 Amendment No. 3 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 10.4
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
10.5 Amendment No. 4 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1993 and incorporated herein by
reference).
10.6 Amendment No. 5 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended February 28, 1994 and incorporated herein by
reference).
10.7 Amendment No. 6 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 10.7
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1995 and incorporated herein by reference).
10.8 Amendment No. 7 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 10.8
to the Company's Transition Report on Form 10-K for the
Transition Period from September 1, 1995 to February 29, 1996 and
incorporated herein by reference).
10.9 Employment Agreement between Barton Incorporated and Ellis
M. Goodman dated as of October 1, 1991 as amended by
Amendment to Employment Agreement between Barton
Incorporated and Ellis M. Goodman dated as of June 29, 1993
(filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended August 31, 1993 and
incorporated herein by reference).
10.10Barton10.2 Barton Incorporated Management Incentive Plan (filed as
Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993 and incorporated
herein by reference).
10.11Ellis10.3 Ellis M. Goodman Split Dollar Insurance Agreement (filed as
Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993 and incorporated
herein by reference).
10.12Barton10.4 Barton Brands, Ltd. Deferred Compensation Plan (filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993 and incorporated
herein by reference).
10.13Marvin10.5 Marvin Sands Split Dollar Insurance Agreement (filed as
Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993 and incorporated
herein by reference).
10.14Third Amended and Restated Credit Agreement between the Company,
its principal operating subsidiaries, and certain banks for which
The Chase Manhattan Bank (successor by merger to The Chase
Manhattan Bank, N.A.) acts as Administrative Agent, dated as of
September 1, 1995 (filed as Exhibit 2(b) to the Company's Current
Report on Form 8-K, dated August 29, 1995 and incorporated herein
by reference).
10.15Amendment No. 1, dated as of December 20, 1995, to Third Amended
and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1995 and incorporated herein by reference).
10.16Amendment No. 2, dated as of January 10, 1996, to Third Amended
and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1995 and incorporated herein by reference).
10.17Letter10.6 Letter agreement, effective as of October 7, 1995, as
amended, addressing compensation, between the Company and
Daniel Barnett (filed as Exhibit 10.23 to the Company's
Transition Report on Form 10-K for the Transition Period
from September 1, 1995 to February 29, 1996 and incorporated
herein by reference).
10.18Amendment No. 3,10.7 Employment Agreement between Barton Incorporated and
Alexander L. Berk dated as of May 17,September 1, 1990 as amended
by Amendment No. 1 to Employment Agreement between Barton
Incorporated and Alexander L. Berk dated November 11, 1996
to Third Amended and
Restated(filed herewith).
10.8 Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The
Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent, (filed as Exhibit 10.24 to the
Company's Transition Report on Form 10-K for the Transition
Period from September 1, 1995 to February 29, 1996 and
incorporated herein by reference).
10.19Amendment No. 4, dated as
of May 17, 1996,December 19, 1997 (including a list briefly identifying
the contents of all omitted schedules and exhibits thereto)
(incorporated by reference to Third AmendedExhibit 4.7, filed herewith).
10.9 Long-Term Stock Incentive Plan, which amends and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1996 and incorporated herein by reference).
10.20Amendment No. 5, dated as of October 10, 1996, to Third Amended
and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-4 (Registration No.
333-17673) and incorporated herein by reference).
10.21Amendment No. 8 torestates
the Canandaigua Wine Company, Inc. Stock Option and Stock
Appreciation Right Plan (filed as Exhibit 10.2710.1 to the
Company's Registration StatementQuarterly Report on Form S-4 (Registration
No. 333-17673)10-Q for the fiscal
quarter ended May 31, 1997 and incorporated herein by
reference).
10.10 Amendment Number One to the Long-Term Stock Incentive Plan
of the Company (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1997 and incorporated herein by reference).
10.11 Incentive Stock Option Plan of the Company (filed as Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1997 and incorporated herein
by reference).
10.12 Amendment Number One to the Incentive Stock Option Plan of
the Company (filed as Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1997 and incorporated herein by reference).
10.13 Annual Management Incentive Plan of the Company (filed as
Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 1997 and
incorporated herein by reference).
10.14 Amendment Number One to the Annual Management Incentive Plan
of the Company (filed herewith).
11.1 Statement ofre Computation of Per Share Earnings (filed
herewith).
21.1 Subsidiaries of Company (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule for fiscal year ended February 28,
1998 (filed herewith).
27.2 Restated Financial Data Schedule for the fiscal quarter
ended November 30, 1997 (filed herewith).
27.3 Restated Financial Data Schedule for the fiscal quarter
ended August 31, 1997 (filed herewith).
27.4 Restated Financial Data Schedule for the fiscal quarter
ended May 31, 1997 (filed herewith).
27.5 Restated Financial Data Schedule for the fiscal year ended
February 28, 1997 (filed herewith).
27.6 Restated Financial Data Schedule for the fiscal quarter
ended November 30, 1996 (filed herewith).
27.7 Restated Financial Data Schedule for the fiscal quarter
ended August 31, 1996 (filed herewith).
27.8 Restated Financial Data Schedule for the fiscal quarter
ended May 31, 1996 (filed herewith).
27.9 Restated Financial Data Schedule for the Transition Period
from September 1, 1995 to February 29, 1996 (filed
herewith).
27.10 Restated Financial Data Schedule for the fiscal year ended
August 31, 1995 (filed herewith).
99.1 1989 Employee Stock Purchase Plan of the Company, as amended
by Amendment Number 1 through Amendment Number 5 (filed
herewith).
(b) Reports on Form 8-K
The following ReportNo Reports on Form 8-K waswere filed by the Company with the Securities and
Exchange Commission during the fourth quarter of the Company's fiscal year ended
February 28, 1997: Form 8-K dated December 19,
1996. This Form 8-K reported information under Item 5 (Other Events).
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANANDAIGUA WINE COMPANY, INC.
Dated: May 29, 19971998 CANANDAIGUA BRANDS, INC.
By: /s/ Richard Sands
-----------------
Richard Sands, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Richard Sands /s/ Thomas S. Summer
- ----------------- --------------------
Richard Sands, President, Chief Thomas S. Summer, Senior Vice President
Executive Officer and Director and Chief Financial Officer (Principal
(Principal Executive Officer )Officer) Financial Officer and Principal
Dated: May 29, 1998 Accounting Officer)
Dated: May 29, 1997 Dated: May 29, 19971998
/s/ Marvin Sands /s/ Robert Sands
- ---------------- ----------------
Marvin Sands, Chairman of the Board Robert Sands, Director
the Board Dated: May 29, 19971998
Dated: May 29, 19971998
/s/ George Bresler /s/ James A. Locke
III
- ------------------ -----------------------------------------
George Bresler, Director James A. Locke, III, Director
Dated: May 29, 19971998 Dated: May 29, 19971998
/s/ Thomas C. McDermott /s/ Bertram E. Silk
- ----------------------- -------------------
Thomas C. McDermott, Director Bertram E. Silk, Director
Dated: May 29, 1997
1998 Dated: May 29, 1998
/s/ Paul L. Smith
- -----------------
Paul L. Smith, Director
Dated: May 29, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 19971998 BATAVIA WINE CELLARS, INC.
By: /s/ Ned Cooper
--------------
Ned Cooper, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Ned Cooper
-
--------------
Ned Cooper, President
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
-
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 19971998 /s/ Richard Sands
-
-----------------
Richard Sands, Director
Dated: May 29, 19971998 /s/ Robert S. Sands
- -----------------------------------
Robert S. Sands, Director
Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 BISCEGLIA BROTHERS1998 CANANDAIGUA WINE CO.COMPANY, INC.
By: /s/ Richard Sands
-----------------
Richard Sands,Daniel C. Barnett
---------------------
Daniel C. Barnett, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Richard Sands
- -----------------
Richard Sands,Daniel C. Barnett
---------------------
Daniel C. Barnett, President and Director
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
-
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 19971998 /s/ RobertRichard Sands
- ----------------
Robert-----------------
Richard Sands, Director
Dated: May 29, 1997
1998 /s/ Robert Sands
----------------
Robert Sands, Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 CALIFORNIA PRODUCTS COMPANY1998 CANANDAIGUA EUROPE LIMITED
By: /s/ Richard SandsDouglas Kahle
-----------------
Richard Sands,Douglas Kahle, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Richard Sands
-Douglas Kahle
-----------------
Richard Sands,Douglas Kahle, President and Director
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
-
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 19971998 /s/ RobertRichard Sands
- ----------------
Robert-----------------
Richard Sands, Director
Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 CANANDAIGUA WEST, INC.1998 ROBERTS TRADING CORP.
By: /s/ Richard Sands
-----------------
Richard Sands,Daniel C. Barnett
---------------------
Daniel C. Barnett, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Richard Sands
- -----------------
Richard Sands,Daniel C. Barnett
---------------------
Daniel C. Barnett, President and Director
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
-
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 19971998 /s/ RobertRichard Sands
- ----------------
Robert-----------------
Richard Sands, Director
Dated: May 29, 1997
1998 /s/ Robert Sands
----------------
Robert Sands, Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 GUILD WINERIES & DISTILLERIES, INC.1998 BARTON INCORPORATED
By: /s/ Richard Sands
------------------
Richard Sands,Alexander L. Berk
---------------------
Alexander L. Berk, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Richard Sands
- -----------------
Richard Sands,Alexander L. Berk
---------------------
Alexander L. Berk, President, Chief
Operating Officer and Director
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
- --------------------
Thomas S. Summer,Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 19971998 /s/ RobertEdward L. Golden
--------------------
Edward L. Golden, Director
Dated: May 29, 1998 /s/ William F. Hackett
----------------------
William F. Hackett, Director
Dated: May 29, 1998 /s/ Richard Sands
- ----------------
Robert-----------------
Richard Sands, Director
Dated: May 29, 1997
1998 /s/ Robert Sands
----------------
Robert Sands, Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 VINTNERS INTERNATIONAL COMPANY, INC.1998 BARTON BRANDS, LTD.
By: /s/ Richard Sands
-----------------
Richard Sands,Edward L. Golden
--------------------
Edward L. Golden, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Richard Sands
- -----------------
Richard Sands,Edward L. Golden
--------------------
Edward L. Golden, President and Director
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
- --------------------
Thomas S. Summer,Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 19971998 /s/ Robert Sands
- ----------------
Robert Sands,Alexander L. Berk
---------------------
Alexander L. Berk, Director
Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 WIDMER'S WINE CELLARS, INC.1998 BARTON BEERS, LTD.
By: /s/ Richard Sands
-----------------
Richard Sands, PresidentChief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Richard Sands
- -----------------
Richard Sands, PresidentChief Executive Officer
and Director (Principal Executive
Officer)
Dated: May 29, 19971998 /s/ Thomas S. Summer
- --------------------
Thomas S. Summer,Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 19971998 /s/ Robert Sands
- ----------------
Robert Sands,Alexander L. Berk
---------------------
Alexander L. Berk, Director
Dated: May 29, 1997
1998 /s/ William F. Hackett
----------------------
William F. Hackett, Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 19971998 BARTON INCORPORATEDBRANDS OF CALIFORNIA, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of
the Board of Directors and Chief
Executive OfficerAlexander L. Berk
---------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Ellis M. GoodmanAlexander L. Berk
---------------------
Alexander L. Berk, President and
Director (Principal Executive Officer)
Dated: May 29, 1998 /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, Chairman of the
Raymond E. Powers, Executive Vice
Board of Directors and Chief Executive President, Treasurer, Assistant
Officer (Principal Executive Officer)
Secretary and Director (Principal
Dated: May 29, 1997
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ William F. Hackett
- --------------------- ----------------------
Alexander L. Berk, Director William F. Hackett, Director
Dated: May 29, 1997 Dated: May 29, 19971998 /s/ Edward L. Golden
- --------------------
Edward L. Golden, Director
Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 19971998 BARTON BRANDS LTD.OF GEORGIA, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of
the Board of DirectorsAlexander L. Berk
---------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Ellis M. GoodmanAlexander L. Berk
---------------------
Alexander L. Berk, President and
Director (Principal Executive Officer)
Dated: May 29, 1998 /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, Chairman of the
Raymond E. Powers, Executive Vice
the Board of Directors (Principal President, Treasurer, Assistant
Secretary and Assistant
Executive Officer) Secretary(PrincipalDirector (Principal
Financial Officer and
Dated: May 29, 1997 Principal
Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk1998 /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director
Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 19971998 BARTON BRANDS OF CALIFORNIA, INC.DISTILLERS IMPORT CORP.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman,Alexander L. Berk
---------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Ellis M. GoodmanAlexander L. Berk
---------------------
Alexander L. Berk, President and
Director (Principal Executive Officer)
Dated: May 29, 1998 /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, President and
Raymond E. Powers, Executive Vice
Director (Principal Executive Officer) President, Treasurer, Assistant
Secretary
Dated: May 29, 1997 and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk1998 /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director
Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 BARTON BRANDS OF GEORGIA, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, President and Raymond E. Powers, Executive Vice
Director (Principal Executive Officer) President, Treasurer and Assistant
Dated: May 29, 1997 Secretary (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 THE VIKING DISTILLERY, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, President and Raymond E. Powers, Executive Vice
Director (Principal Executive Officer) President, Treasurer and Assistant
Dated: May 29, 1997 Secretary (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 BARTON DISTILLERS IMPORT CORP.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Ellis M. Goodman
- --------------------
Ellis M. Goodman, President and Director (Principal
Executive Officer)
Dated: May 29, 1997
/s/ Raymond E. Powers
- ---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant Secretary
and Director (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk
- ---------------------
Alexander L. Berk, Director
Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 19971998 BARTON FINANCIAL CORPORATION
By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Raymond E. Powers
-
---------------------
Raymond E. Powers, President, Secretary
and Director (Principal Executive
Officer)
Dated: May 29, 19971998 /s/ Charles T. Schlau
-
---------------------
Charles T. Schlau, Treasurer and
Director (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 BARTON BEERS, LTD.1998 STEVENS POINT BEVERAGE CO.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of
the Board of DirectorsJames P. Ryan
-----------------
James P. Ryan, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Ellis M. GoodmanJames P. Ryan
-----------------
James P. Ryan, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Dated: May 29, 1998 /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, Chairman of the
Raymond E. Powers, Executive Vice
Board of Directors (Principal Executive President, Treasurer, Assistant
Secretary and Assistant
Officer) SecretaryDirector (Principal
Financial Officer
Dated: May 29, 1997 and Principal
Accounting Officer)
Dated: May 29, 19971998 /s/ Alexander L. Berk
---------------------
Alexander L. Berk, Director
Dated: May 29, 1998 /s/ William F. Hackett
- --------------------- ----------------------
Alexander L. Berk, Director
William F. Hackett, Director
Dated: May 29, 1997 Dated: May 29, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 19971998 MONARCH IMPORT COMPANY
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President and
Chairman of the Board of DirectorsJames P. Ryan
-----------------
James P. Ryan, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ Ellis M. Goodman
- --------------------
Ellis M. Goodman, President and Chairman
of the Board of DirectorsJames P. Ryan
-----------------
James P. Ryan, Chief Executive Officer
(Principal Executive Officer)
Dated: May 29, 19971998 /s/ Raymond E. Powers
-
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 19971998 /s/ Alexander L. Berk
-
---------------------
Alexander L. Berk, Director
Dated: May 29, 1997
1998 /s/ William F. Hackett
----------------------
William F. Hackett, Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1997 STEVENS POINT BEVERAGE CO.1998 THE VIKING DISTILLERY, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of the
Board of DirectorsAlexander L. Berk
---------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: May 29, 1998 /s/ James P. RyanAlexander L. Berk
---------------------
Alexander L. Berk, President and
Director (Principal Executive Officer)
Dated: May 29, 1998 /s/ Raymond E. Powers
- ----------------- ---------------------
James P. Ryan, Chief Executive Officer,
Raymond E. Powers, Executive Vice
President, and Director President, Treasurer, Assistant
(Principal Executive Officer)
Secretary and Director (Principal
Dated: May 29, 1997
Financial Officer and Principal
Accounting Officer)
Dated: May 29, 19971998 /s/ Ellis M. Goodman /s/ AlexanderEdward L. Berk
-Golden
--------------------
---------------------
Ellis M. Goodman, Chairman AlexanderEdward L. Berk,Golden, Director
of the Board of Directors Dated: May 29, 1997
Dated: May 29, 1997
INDEX TO EXHIBITS
EXHIBIT NO.
2.1 Stock Purchase Agreement dated April 27, 1993 among the Company,
Barton Incorporated and the stockholders of Barton Incorporated,
Amendment No. 1 to Stock Purchase Agreement dated May 3, 1993, and
Amendment No. 2 to Stock Purchase Agreement dated June 29, 1993
(filed as Exhibit 2(a) to the Company's Current Report on Form 8-K
dated June 29, 1993 and incorporated herein by reference).
2.2 Asset Sale Agreement dated September 14, 1993 between the Company
and Vintners International Company, Inc. (filed as Exhibit 2(a) to
the Company's Current Report on Form 8-K dated October 15, 1993
and incorporated herein by reference).
2.3 Amendment dated as of October 14, 1993 to Asset Sale Agreement
dated as of September 14, 1993 by and between Vintners
International Company, Inc. and the Company (filed as Exhibit 2(b)
to the Company's Current Report on Form 8-K dated October 15, 1993
and incorporated herein by reference).
2.4 Amendment No. 2 dated as of January 18, 1994 to Asset Sale
Agreement dated as of September 14, 1993 by and between Vintners
International Company, Inc. and the Company (filed as Exhibit 2.1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended February 28, 1994 and incorporated herein by
reference).
2.5 Asset Purchase Agreement dated August 3, 1994 between the Company
and Heublein, Inc. (filed as Exhibit 2(a) to the Company's Current
Report on Form 8-K dated August 5, 1994 and incorporated herein by
reference).
2.6 Amendment dated November 8, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.2 to
the Company's Registration Statement on Form S-3 (Amendment No. 2)
(Registration No. 33-55997) filed with the Securities and Exchange
Commission on November 8, 1994 and incorporated herein by
reference).
2.7 Amendment dated November 18, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.8 to
the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994 and incorporated herein by reference).
2.8 Amendment dated November 30, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.9 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1994 and incorporated herein by reference).
2.9 Asset Purchase Agreement among Barton Incorporated (a wholly-owned
subsidiary of the Company), United Distillers Glenmore, Inc.,
Schenley Industries, Inc., Medley Distilling Company, United
Distillers Manufacturing, Inc., and The Viking Distillery, Inc.,
dated August 29, 1995 (filed as Exhibit 2(a) to the Company's
Current Report on Form 8-K, dated August 29, 1995 and incorporated
herein by reference).
3.13.1(a) Certificate of Amendment of the Certificate of Incorporation of
the Company (filed as Exhibit 3.1(a) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 1997
and incorporated herein by reference).
3.1(b) Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Transition Report on Form 10-K for
the Transition Period from September 1, 1995 to February 29, 1996
and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1995August 31, 1997 and incorporated herein by
reference).
4.1 Specimen of Certificate of Class A Common Stock of the Company (filed as
Exhibit 1.1 to the Company's Registration Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
4.2 Specimen of Certificate of Class B Common Stock of the Company (filed as
Exhibit 1.2 to the Company's Registration Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
4.3 Indenture dated as of December 27, 1993 among the Company, its
Subsidiaries and The Chase Manhattan Bank (as successor to
Chemical BankBank) (filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1993
and incorporated herein by reference).
4.44.2 First Supplemental Indenture dated as of August 3, 1994 among the
Company, Canandaigua West, Inc. and The Chase Manhattan Bank (as
successor to Chemical BankBank) (filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (Registration No. 33-56557) and
incorporated herein by reference).
4.54.3 Second Supplemental Indenture dated August 25, 1995 among the
Company, V Acquisition Corp. (a subsidiary of the Company now
known as The Viking Distillery, Inc.) and The Chase Manhattan Bank
(as successor to Chemical BankBank) (filed as Exhibit 4.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995 and incorporated herein by reference).
4.64.4 Third Supplemental Indenture dated as of December 19, 1997 among
the Company, Canandaigua Europe Limited, Roberts Trading Corp. and
The Chase Manhattan Bank (filed herewith).
4.5 Indenture with respect to the 8 3/4% Series C Senior Subordinated
Notes due 2003 dated as of October 29, 1996 among the Company, its
Subsidiaries and Harris Trust and Savings Bank (filed as Exhibit
4.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-17673333-17673) and incorporated herein by
reference).
10.14.6 First Supplemental Indenture dated as of December 19, 1997 among
the Company, Canandaigua Europe Limited, Roberts Trading Corp. and
Harris Trust and Savings Bank (filed herewith).
4.7 Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Canandaigua Wine Company, Inc. Stock OptionChase Manhattan Bank
acts as Administrative Agent, dated as of December 19, 1997
(including a list briefly identifying the contents of all omitted
schedules and Stock Appreciation
Right Planexhibits thereto) (filed as Appendix B of the Company's Definitive Proxy Statement
dated December 23, 1987 and incorporated herein by reference)herewith). 10.2 Amendment No. 1The Registrant
will furnish supplementally to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as ExhibitCommission, upon request, a
copy of any omitted schedule or exhibit.
10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1992 and
incorporated herein by reference).
10.3 Amendment No. 2 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 28 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
1992 and incorporated herein by reference).
10.4 Amendment No. 3 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1993 and
incorporated herein by reference).
10.5 Amendment No. 4 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
1993 and incorporated herein by reference).
10.6 Amendment No. 5 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended February 28,
1994 and incorporated herein by reference).
10.7 Amendment No. 6 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995 and
incorporated herein by reference).
10.8 Amendment No. 7 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.8 to the Company's
Transition Report on Form 10-K for the Transition Period from September 1,
1995 to February 29, 1996 and incorporated herein by reference).
10.9 Employment Agreement between Barton Incorporated and Ellis M.
Goodman dated as of October 1, 1991 as amended by Amendment to
Employment Agreement between Barton Incorporated and Ellis M.
Goodman dated as of June 29, 1993 (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993 and incorporated herein by reference).
10.10Barton10.2 Barton Incorporated Management Incentive Plan (filed as Exhibit
10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by reference).
10.11Ellis10.3 Ellis M. Goodman Split Dollar Insurance Agreement (filed as
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993 and incorporated herein by
reference).
10.12Barton10.4 Barton Brands, Ltd. Deferred Compensation Plan (filed as Exhibit
10.8 to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by reference).
10.13Marvin10.5 Marvin Sands Split Dollar Insurance Agreement (filed as Exhibit
10.9 to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by reference).
10.14Third Amended and Restated Credit Agreement between the Company, its
principal operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) acts
as Administrative Agent, dated as of September 1, 1995 (filed as Exhibit
2(b) to the Company's Current Report on Form 8-K, dated August 29, 1995 and
incorporated herein by reference).
10.15Amendment No. 1, dated as of December 20, 1995, to Third Amended and
Restated Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) acts as
Administrative Agent (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1995 and
incorporated herein by reference).
10.16Amendment No. 2, dated as of January 10, 1996, to Third Amended and
Restated Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) acts as
Administrative Agent (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1995 and
incorporated herein by reference).
10.17Letter10.6 Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Company and Daniel Barnett
(filed as Exhibit 10.23 to the Company's Transition Report on Form
10-K for the Transition Period from September 1, 1995 to February
29, 1996 and incorporated herein by reference).
10.18Amendment No. 3,10.7 Employment Agreement between Barton Incorporated and Alexander L.
Berk dated as of May 17,September 1, 1990 as amended by Amendment No. 1
to Employment Agreement between Barton Incorporated and Alexander
L. Berk dated November 11, 1996 to Third Amended and Restated(filed herewith).
10.8 Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger
to The Chase Manhattan Bank, N.A.) acts as Administrative Agent, (filed as
Exhibit 10.24 to the Company's Transition Report on Form 10-K for the
Transition Period from September 1, 1995 to February 29, 1996 and
incorporated herein by reference).
10.19Amendment No. 4, dated as of May 17, 1996,December 19, 1997
(including a list briefly identifying the contents of all omitted
schedules and exhibits thereto) (incorporated by reference to
Third AmendedExhibit 4.7, filed herewith).
10.9 Long-Term Stock Incentive Plan, which amends and Restated
Credit Agreement between the Company, its principal operating subsidiaries,
and certain banks for which The Chase Manhattan Bank (successor by merger
to The Chase Manhattan Bank, N.A.) acts as Administrative Agent (filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended May 31, 1996 and incorporated herein by reference).
10.20Amendment No. 5, dated as of October 10, 1996, to Third Amended and
Restated Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) acts as
Administrative Agent (filed as Exhibit 10.26 to the Company's Registration
Statement on Form S-4 (Registration No. 333-17673) and incorporated herein
by reference).
10.21Amendment No. 8 torestates the
Canandaigua Wine Company, Inc. Stock Option and Stock Appreciation
Right Plan (filed as Exhibit 10.2710.1 to the Company's Registration StatementQuarterly
Report on Form S-4 (Registration No. 333-17673)10-Q for the fiscal quarter ended May 31, 1997 and
incorporated herein by reference).
10.10 Amendment Number One to the Long-Term Stock Incentive Plan of the
Company (filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 1997 and
incorporated herein by reference).
10.11 Incentive Stock Option Plan of the Company (filed as Exhibit 10.2
of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1997 and incorporated herein by
reference).
10.12 Amendment Number One to the Incentive Stock Option Plan of the
Company (filed as Exhibit 10.3 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 1997 and
incorporated herein by reference).
10.13 Annual Management Incentive Plan of the Company (filed as Exhibit
10.4 of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1997 and incorporated herein by
reference).
10.14 Amendment Number One to the Annual Management Incentive Plan of
the Company (filed herewith).
11.1 Statement ofre Computation of Per Share Earnings (filed herewith).
21.1 Subsidiaries of Company (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule for fiscal year ended February 28, 1998
(filed herewith).
27.2 Restated Financial Data Schedule for the fiscal quarter ended
November 30, 1997 (filed herewith).
27.3 Restated Financial Data Schedule for the fiscal quarter ended
August 31, 1997 (filed herewith).
27.4 Restated Financial Data Schedule for the fiscal quarter ended May
31, 1997 (filed herewith).
27.5 Restated Financial Data Schedule for the fiscal year ended
February 28, 1997 (filed herewith).
27.6 Restated Financial Data Schedule for the fiscal quarter ended
November 30, 1996 (filed herewith).
27.7 Restated Financial Data Schedule for the fiscal quarter ended
August 31, 1996 (filed herewith).
27.8 Restated Financial Data Schedule for the fiscal quarter ended May
31, 1996 (filed herewith).
27.9 Restated Financial Data Schedule for the Transition Period from
September 1, 1995 to February 29, 1996 (filed herewith).
27.10 Restated Financial Data Schedule for the fiscal year ended August
31, 1995 (filed herewith).
99.1 1989 Employee Stock Purchase Plan of the Company, as amended by
Amendment Number 1 through Amendment Number 5 (filed herewith).