FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 1999
-----------------May 31, 2000
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
COMMISSION FILE NUMBER------------- -------------
Commission File Number 0-7570
DELAWAREDelaware 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
NEW YORK CANANDAIGUA WINE COMPANY, INC.New York Canandaigua Wine Company, Inc. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITEDNew York Canandaigua Europe Limited 16-1195581
ENGLAND AND WALES CANANDAIGUA LIMITEDEngland and Wales Canandaigua Limited 98-0198402
NEW YORK POLYPHENOLICS, INC.New York Polyphenolics, Inc. 16-1546354
NEW YORK ROBERTS TRADING CORP.New York Roberts Trading Corp. 16-0865491
NETHERLANDS CANANDAIGUANetherlands Canandaigua B.V. 98-0205132
CALIFORNIA SIMI WINERY, INC. 94-2244918
DELAWARE FRANCISCAN VINEYARDS, INC.Delaware Franciscan Vineyards, Inc. 94-2602962
NEW YORK SCV-EPI VINEYARDS, INC. 16-1568478
CALIFORNIA ALLBERRY, INC.California Allberry, Inc. 68-0324763
CALIFORNIA CLOUD PEAK CORPORATIONCalifornia Cloud Peak Corporation 68-0324762
CALIFORNIACalifornia M.J. LEWIS CORP.Lewis Corp. 94-3065450
CALIFORNIA MT. VEEDER CORPORATIONCalifornia Mt. Veeder Corporation 94-2862667
DELAWARE BARTON INCORPORATEDDelaware 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
ILLINOIS BARTON CANADA, LTD.Illinois Barton Canada, Ltd. 36-4283446
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 COMPANYIllinois Monarch Import Company 36-3539106
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)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 218-2169
----------------------------------------------------------------------------------------------------------
(Registrants' telephone number, including area code)
----------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Brands, Inc., as of December 31, 1999,June 30, 2000, is set forth below (all
of the Registrants, other than Canandaigua Brands, Inc., are direct or indirect
wholly-owned subsidiaries of Canandaigua Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 14,985,36815,204,261
Class B Common Stock, Par Value $.01 Per Share 3,137,2453,089,272
- 1 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
November 30, February 28,
1999 1999
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 24,667 $ 27,645
Accounts receivable, net 402,128 260,433
Inventories, net 677,363 508,571
Prepaid expenses and other current assets 67,084 59,090
------------ ------------
Total current assets 1,171,242 855,739
PROPERTY, PLANT AND EQUIPMENT, net 561,397 428,803
OTHER ASSETS 800,356 509,234
------------ ------------
Total assets $ 2,532,995 $ 1,793,776CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
May 31, February 29,
2000 2000
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 14,024 $ 34,308
Accounts receivable, net 334,731 291,108
Inventories, net 601,733 615,700
Prepaid expenses and other current assets 52,106 54,881
------------ ------------
Total current assets 1,002,594 995,997
PROPERTY, PLANT AND EQUIPMENT, net 530,991 542,971
OTHER ASSETS 793,515 809,823
------------ ------------
Total assets $ 2,327,100 $ 2,348,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 10,000 $ 26,800
Current maturities of long-term debt 56,508 53,987
Accounts payable 129,376 122,213
Accrued excise taxes 41,212 30,446
Other accrued expenses and liabilities 207,052 204,771
------------ ------------
Total current liabilities 444,148 438,217
------------ ------------
LONG-TERM DEBT, less current maturities 1,205,705 1,237,135
------------ ------------
DEFERRED INCOME TAXES 115,337 116,447
------------ ------------
OTHER LIABILITIES 32,366 36,152
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at May 31, 2000,
and February 29, 2000 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 18,315,625 shares at May 31,
2000, and 18,206,662 shares at
February 29, 2000 183 182
Class B Convertible Common Stock,
$.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,717,997 shares at May 31,
2000, and 3,745,560 shares at
February 29, 2000 37 38
Additional paid-in capital 250,017 247,949
Retained earnings 376,358 358,456
Accumulated other comprehensive income-
Cumulative translation adjustment (15,415) (4,149)
------------ ------------
611,180 602,476
------------ ------------
Less-Treasury stock-
Class A Common Stock, 3,137,244 shares
at May 31, 2000, and February 29, 2000,
at cost (79,429) (79,429)
Class B Convertible Common Stock, 625,725
shares at May 31, 2000, and February 29,
2000, at cost (2,207) (2,207)
------------ ------------
(81,636) (81,636)
------------ ------------
Total stockholders' equity 529,544 520,840
------------ ------------
Total liabilities and stockholders' equity $ 2,327,100 $ 2,348,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 114,391 $ 87,728
Current maturities of long-term debt 40,249 6,005
Accounts payable 182,971 122,746
Accrued excise taxes 46,028 49,342
Other accrued expenses and liabilities 256,729 149,451
------------ ------------
Total current liabilities 640,368 415,272
------------ ------------
LONG-TERM DEBT, less current maturities 1,253,863 831,689
------------ ------------
DEFERRED INCOME TAXES 113,609 88,179
------------ ------------
OTHER LIABILITIES 27,860 23,364
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at November 30, 1999,
and February 28, 1999 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 18,135,272 shares at November 30, 1999,
and 17,915,359 shares at February 28, 1999 181 179
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,762,970 shares at November 30, 1999,
and 3,849,173 shares at February 28, 1999 38 39
Additional paid-in capital 243,539 239,912
Retained earnings 342,928 281,081
Accumulated other comprehensive income-
Cumulative translation adjustment (7,677) (4,173)
------------ ------------
579,009 517,038
------------ ------------
Less-Treasury stock-
Class A Common Stock, 3,156,004 shares at
November 30, 1999, and 3,168,306 shares at
February 28, 1999, at cost (79,507) (79,559)
Class B Convertible Common Stock, 625,725 shares at
November 30, 1999, and February 28, 1999, at cost (2,207) (2,207)
------------ ------------
(81,714) (81,766)
------------ ------------
Total stockholders' equity 497,295 435,272
------------ ------------
Total liabilities and stockholders' equity $ 2,532,995 $ 1,793,776
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
- 2 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Nine Months Ended November 30, For the Three Months Ended November 30,
-------------------------------------- ---------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 2,383,909 $ 1,374,183 $ 864,075 $ 494,033
Less - Excise taxes (570,640) (336,283) (202,555) (118,447)
--------------- --------------- --------------- ---------------
Net sales 1,813,269 1,037,900 661,520 375,586
COST OF PRODUCT SOLD (1,258,332) (726,908) (451,833) (259,891)
--------------- --------------- --------------- ---------------
Gross profit 554,937 310,992 209,687 115,695
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (368,130) (202,561) (132,309) (73,775)
NONRECURRING CHARGES (5,510) - - -
--------------- --------------- --------------- ---------------
Operating income 181,297 108,431 77,378 41,920
INTEREST EXPENSE, net (78,219) (23,700) (27,544) (7,748)
--------------- --------------- --------------- ---------------
Income before income taxes 103,078 84,731 49,834 34,172
PROVISION FOR INCOME TAXES (41,231) (34,740) (19,934) (14,011)
--------------- --------------- --------------- ---------------
NET INCOME $ 61,847 $ 49,991 $ 29,900 $ 20,161
=============== =============== =============== ===============
SHARE DATA:
Earnings per common share:
Basic $ 3.43 $ 2.72 $ 1.65 $ 1.13
=============== =============== =============== ===============
Diluted $ 3.34 $ 2.65 $ 1.60 $ 1.10
=============== =============== =============== ===============
Weighted average common shares outstanding:
Basic 18,023 18,412 18,083 17,892
Diluted 18,502 18,881 18,651 18,325
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Three Months Ended May 31,
----------------------------------
2000 1999
-------------- --------------
(unaudited) (unaudited)
GROSS SALES $ 774,522 $ 704,990
Less - Excise taxes (188,942) (174,821)
-------------- --------------
Net sales 585,580 530,169
COST OF PRODUCT SOLD (401,707) (374,046)
-------------- --------------
Gross profit 183,873 156,123
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (126,409) (110,502)
NONRECURRING CHARGES - (5,510)
-------------- --------------
Operating income 57,464 40,111
INTEREST EXPENSE, net (27,627) (22,034)
-------------- --------------
Income before income taxes 29,837 18,077
PROVISION FOR INCOME TAXES (11,935) (7,231)
-------------- --------------
NET INCOME $ 17,902 $ 10,846
============== ==============
SHARE DATA:
Earnings per common share:
Basic $ 0.98 $ 0.60
============== ===============
Diluted $ 0.96 $ 0.59
============== ===============
Weighted average common shares outstanding:
Basic 18,230 17,977
Diluted 18,598 18,447
The accompanying notes to consolidated financial statements are
an integral part of these statements.
- 3 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the NineThree Months Ended November 30,
--------------------------------------May 31,
----------------------------------
2000 1999 1998
-------------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61,84717,902 $ 49,99110,846
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property, plant and equipment 33,938 18,16611,797 9,399
Amortization of intangible assets 16,904 7,523
Stock-based compensation expense 776 766,549 4,364
Deferred tax provision 3,571 -
Loss on sale of assets 767 344
Amortization of discount on long-term debt 316 287
Deferred tax benefit (3,860) (2,800)
Gain on sale of assets (778) (16)116 103
Stock-based compensation expense - 763
Change in operating assets and liabilities,
net of effects from purchasespurchase of businesses:business:
Accounts receivable, net (123,109) (31,143)(50,394) (67,551)
Inventories, net (55,602) (48,636)8,747 12,819
Prepaid expenses and other current assets (5,432) (15,690)2,129 2,885
Accounts payable 44,292 19,32410,603 11,649
Accrued excise taxes (3,191) 7,13411,462 (8,084)
Other accrued expenses and liabilities 88,960 59,0321,200 17,969
Other assets and liabilities, net 1,201 (3,917)(4,478) (1,117)
-------------- --------------
Total adjustments (5,585) 9,3402,069 (16,457)
-------------- -----------------------------
Net cash provided by (used in) operating activities 56,262 59,33119,971 (5,611)
-------------- -----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (452,526) -
Purchases of property, plant and equipment (46,657) (21,660)(10,265) (11,321)
Proceeds from sale of assets 1,276 45317 715
Purchase of joint venture minority interestbusiness - (716)(185,500)
-------------- --------------
Net cash used in investing activities (497,907) (22,331)(9,948) (196,106)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,486,240 -
Net proceeds from notes payable 25,995 22,600
Exercise of employee stock options 2,386 3,021
Proceeds from employee stock purchases 601 1,285
Principal payments of long-term debt (1,059,406) (18,119)(133,329) (16,253)
Net repayments of notes payable (16,800) (70,396)
Payment of issuance costs of long-term debt (14,494) -
Purchases(1,301) (3,230)
Proceeds from issuance of treasurylong-term debt 119,400 264,080
Exercise of employee stock - (44,878)options 1,973 309
-------------- --------------
Net cash (used in) provided by (used in) financing activities 441,322 (36,091)(30,057) 174,510
-------------- --------------
Effect of exchange rate changes on cash and cash investments (2,655) -(250) 1,492
-------------- --------------
NET (DECREASE) INCREASEDECREASE IN CASH AND CASH INVESTMENTS (2,978) 909(20,284) (25,715)
CASH AND CASH INVESTMENTS, beginning of period 34,308 27,645 1,232
-------------- --------------
CASH AND CASH INVESTMENTS, end of period $ 24,66714,024 $ 2,1411,930
============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired including cash acquired $ 559,541 $ - $ 187,160
Liabilities assumed (104,526) - (1,660)
-------------- --------------
Cash paid 455,015for purchase of business $ - Less - cash acquired (2,489) -
-------------- --------------
Net cash paid for purchases of businesses $ 452,526 $ -185,500
============== ==============
The accompanying notes to consolidated financial statements are an integral part of these statements.
- 4 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999MAY 31, 2000
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by Canandaigua Brands, Inc. and its subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect,
in the opinion of the Company, all adjustments necessary to present fairly the
financial information for the Company. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted as permitted by such rules
and regulations. These consolidated financial statements and related notes
should be read in conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999.29, 2000.
Certain February 29, 2000 balances have been reclassified to conform to
current year presentation.
2) ACQUISITIONS:
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (the "Black Velvet
Acquisition"Assets"). In connection with the transaction, the Company also entered into
multi-year agreements with affiliates of Diageo plc to provide packaging and
distilling services for various brands retained by Diageo.the Diageo plc affiliates.
The purchase price was approximately
$185.5$183.6 million and was financed by the proceeds from the
sale of the "SeniorSenior Subordinated Notes" (as defined in Note 6).Notes.
The Black Velvet AcquisitionAssets acquisition was accounted for using the purchase
method; accordingly, the acquired 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), $30.7$36.0 million, is being
amortized on a straight-line basis over 40 years. The results of operations of
the Black Velvet AcquisitionAssets acquisition have been included in the Consolidated
Statements of Income since the date of acquisition.
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. ("Franciscan Estates") and, in related
transactions, purchased vineyards, a
winery, equipment and other vineyard related assets
located in Northern California (collectively, the "Franciscan Acquisition"). The
purchase price was approximately $212.0$212.4 million in cash plus assumed debt, net of cash
acquired, of approximately $30.8 million. The purchase price was financed primarily by
additional term loan borrowings under the banksenior credit agreement.facility. Also, on June
4, 1999, the Company acquired all of the outstanding capital stock of Simi
Winery, Inc. ("Simi") (the "Simi Acquisition"). The cash purchase price was approximately
$57.5 million and was financed by revolving loan borrowings under the banksenior
credit agreement.facility. The purchases were accounted for using the purchase method;
accordingly, the acquired 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) for the Franciscan Acquisition and
the Simi Acquisition, $72.3$118.3 million and $7.0$8.3 million, respectively, is being
amortized on a straight-line basis over 40 years. The Franciscan Estates and
Simi operations are managed together as a separate business segment of the
Company ("Franciscan").
- 5 -
The results of operations of Franciscan have been included in the Consolidated
Statements of Income since the date of acquisition.
The unaudited pro forma
results of operations for the nine months ended November 30, 1999 (shown in the
table below), reflect total nonrecurring charges of $12.4 million ($0.40 per
share on a diluted basis) related to transaction costs, primarily for exercise
of stock options, which were incurred by Franciscan Vineyards, Inc. prior to the
acquisition.
- 5 -
The following table sets forth the unaudited pro forma results of
operations of the Company for the ninethree months ended November 30,May 31, 2000 and 1999. The
unaudited pro forma results of operations for the three months ended May 31,
1999, and 1998,
which gives effect to the acquisitionacquisitions of Matthew Clark plc ("Matthew Clark"), the Black Velvet AcquisitionAssets and Franciscan
as if they occurred on March 1, 1998.1999. The unaudited pro forma results of
operations are presented after giving effect to certain adjustments for
depreciation, amortization of goodwill, interest expense on the acquisition
financing and related income tax effects. The unaudited pro forma results of
operations are based upon currently available information and upon certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma results of operations for the three months ended May 31,
1999, reflect total pretax nonrecurring charges of $12.4 million ($0.40 per
share on a diluted basis) related to transaction costs, primarily for exercise
of stock options, which were incurred by Franciscan Estates prior to the
acquisition. The unaudited pro forma results of operations do not purport to
present what the Company's results of operations would actually have been if the
aforementioned transactions had in fact occurred on such date or at the
beginning of the period indicated, nor do they project the Company's financial
position or results of operations at any future date or for any future period.
For the NineThree Months Ended November 30,
---------------------------May 31,
----------------------------------
2000 1999
1998
------------ --------------------------- ---------------
(in thousands, except per share data)
Net sales $ 1,840,633585,580 $ 1,659,975557,533
Income before income taxes $ 87,54729,837 $ 65,1302,911
Net income $ 52,52817,902 $ 38,4261,746
Earnings per common share:
Basic $ 2.910.98 $ 2.09
============ ============0.10
=============== ===============
Diluted $ 2.840.96 $ 2.04
============ ============0.09
=============== ===============
Weighted average common shares outstanding:
Basic 18,023 18,41218,230 17,977
Diluted 18,502 18,88118,598 18,447
3) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
November 30,May 31, February 28,
1999 1999
------------- -------------29,
2000 2000
-------------- --------------
(in thousands)
Raw materials and supplies $ 40,34230,230 $ 32,388
Wine and distilled spirits in process 455,144 344,17529,417
In-process inventories 379,691 419,558
Finished case goods 181,877 132,008
------------- -------------191,812 166,725
-------------- --------------
$ 677,363601,733 $ 508,571
============= =============
615,700
============== ==============
4) BORROWINGS:
SENIOR NOTES -
6 -
4) OTHER ASSETS:
The major components of other assets are as follows:
November 30, February 28,
1999 1999
------------- -------------
(in thousands)
Goodwill $ 421,468 $ 311,908
Trademarks 270,924 102,183
Distribution rights and agency
license agreements 87,052 76,894
Other 72,576 53,779
------------- -------------
852,020 544,764
Less - Accumulated amortization (51,664) (35,530)
------------- -------------
$ 800,356 $ 509,234
============= =============
5) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
November 30, February 28,
1999 1999
------------- -------------
(in thousands)
Accrued advertising and promotions $ 61,032 $ 38,604
Accrued income taxes payable 31,647 9,347
Accrued interest 29,025 11,384
Accrued salaries and commissions 16,323 15,584
Other 118,702 74,532
------------- -------------
$ 256,729 $ 149,451
============= =============
6) BORROWINGS:
Senior Subordinated Notes -
OnIn March 4, 1999,2000, the Company issued $200.0exchanged (pound)75.0 million aggregate
principal amount of 8 1/2% Series B Senior Subordinated Notes due Marchin November 2009 ("(the
"Sterling Series B Senior Subordinated
Notes"). for the Sterling Senior Notes. The net proceedsterms of
the offering (approximately $195.0 million) were
used to fund the Black Velvet Acquisition and to pay the fees and expenses
related thereto with the remainder of the net proceeds used for general
corporate purposes. Interest on theSterling Series B Senior Subordinated Notes is payable
semiannually on March 1 and September 1 of each year, beginning September 1,
1999. The Senior Subordinated Notes are redeemable at the option of the Company,identical in whole or in part, at any time on or after March 1, 2004. The Company may also
redeem up to $70.0 million of the Senior Subordinated Notes using the proceeds
of certain equity offerings completed before March 1, 2002. The Senior
Subordinated Notes are unsecured and subordinatedall material respects to the
prior payment in full
of all senior indebtedness of the Company, which includes the bank credit
agreement. TheSterling Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company's significant operating
subsidiaries.Notes.
- 76 -
Senior Notes -
On August 4, 1999,In May 2000, the Company issued $200.0(pound)80.0 million (approximately $120.0
million) aggregate principal amount of 8 5/8%1/2% Series C Senior Notes due August 2006 ("November
2009 at an issuance price of (pound)79.6 million (approximately $119.4 million,
net of $0.6 million unamortized discount, with an effective rate of 8.6%) (the
"Sterling Series C Senior Notes"). The net proceeds of the offering (approximately $196.0((pound)78.8
million, or approximately $118.2 million) were used to repay a portion of the
Company's British pound sterling borrowings under its banksenior credit agreement.facility.
After this repayment, the required quarterly repayments of the Tranche II Term
Loan facility were revised to (pound)0.2 million ($0.3 million) for the
remaining three quarters in 2000, (pound)0.4 million ($0.6 million) for each
quarter in 2001 and 2002, (pound)0.5 million ($0.7 million) for each quarter in
2003, and (pound)8.5 million ($12.7 million) for each quarter in 2004. (The
foregoing U.S. dollar equivalents are as of May 31, 2000.) Interest on the
Sterling Series C Senior Notes is payable semiannually on February 1May 15 and August 1November 15
of each year, beginning February 1,on November 15, 2000. The Sterling Series C Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time.
The Senior Notes are unsecured senior
obligations and rank equally in right of payment to all existing and future
unsecured senior indebtedness of the Company. The Senior Notes are guaranteed,
on a senior basis, by certain of the Company's significant operating
subsidiaries.
On November 17, 1999, the Company issued (pound)75.0 million (approximately
$121.7 million) aggregate principal amount of 8 1/2% Senior Notes due November
2009 ("Sterling Senior Notes"). The net proceeds of the offering ((pound)73.0
million, or approximately $118.3 million) were used to repay a portion of the
Company's borrowings under its bank credit agreement (see "2000 Credit
Agreement"). Interest on the Sterling Senior Notes is payable semiannually on
May 15 and November 15 of each year, beginning on May 15, 2000. The Sterling
Senior Notes are redeemable at the option of the Company, in whole or in part,
at any time. The SterlingSeries C Senior Notes are unsecured senior obligations and rank
equally in right of payment to all existing and future unsecured senior
indebtedness of the Company. The Sterling Series C Senior Notes are guaranteed,
on a senior basis, by certain of the Company's significant operating
subsidiaries.
2000 Credit Agreement -
On October 6, 1999, the Company, certain of its principal operating
subsidiaries and a syndicate of banks (the "Syndicate Banks"), for which The
Chase Manhattan Bank acts as administrative agent, entered into a new senior
credit agreement (the "2000 Credit Agreement"). The 2000 Credit Agreement
includes both U.S. dollar and British pound sterling commitments of the
Syndicate Banks of up to, in the aggregate, the equivalent of $1.0 billion
(subject to increase as therein provided to $1.2 billion). Proceeds of the 2000
Credit Agreement were used to repay all outstanding principal and accrued
interest on all loans under the Company's prior bank credit agreement, and are
available to fund permitted acquisitions and ongoing working capital needs of
the Company and its subsidiaries.
The 2000 Credit Agreement provides for a $380.0 million Tranche I Term Loan
facility due in December 2004, a $320.0 million Tranche II Term Loan facility
available for borrowing in British pound sterling due in December 2004, and a
$300.0 million Revolving Credit facility (including letters of credit up to a
maximum of $20.0 million) which expires in December 2004. The Tranche I Term
Loan facility ($380.0 million) and the Tranche II Term Loan facility
((pound)193.4 million, or approximately $320.0 million) were fully drawn at
closing. The Tranche I Term Loan facility requires quarterly repayments,
starting at $12.0 million in March 2000 and increasing thereafter annually with
final payments of $23.0 million in each quarter in 2004. On November 17, 1999,
proceeds from the Sterling Senior Notes were used to repay a portion of the
$320.0 million Tranche II Term Loan facility ((pound)73.0 million, or
approximately $118.3 million). After this repayment, the required quarterly
repayments of the Tranche II Term Loan facility were revised to (pound)0.6
million ($1.0 million) for each quarter in 2000, (pound)1.2 million ($1.9
million) for each quarter in 2001 and 2002, (pound)1.5 million ($2.4 million)
for each quarter in 2003 and (pound)25.6 million ($40.9 million) for each
quarter in 2004 (the foregoing U.S. dollar equivalents are as of November 30,
1999). There are certain mandatory term loan prepayments, including those based
on sale of assets and issuance of debt and equity, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement.
- 8 -
The rate of interest payable, at the Company's option, is a function of the
London interbank offering rate (LIBOR) plus a margin, federal funds rate plus a
margin, or the prime rate plus a margin. The margin is adjustable based upon the
Company's Debt Ratio (as defined in the 2000 Credit Agreement) and, with respect
to LIBOR borrowings, ranges between 0.75% and 1.25% for Revolving Credit loans
and 1.00% and 1.75% for Term Loans. The initial margin for all loans was set at
the highest level at closing and is subject to reduction after November 30,
1999, depending on the Company's Debt Ratio. In addition to interest, the
Company pays a facility fee on the Revolving Credit commitments, initially at
0.50% per annum and subject to reduction after November 30, 1999, to 0.25%,
depending on the Company's Debt Ratio.
Certain of the Company's principal operating subsidiaries have guaranteed
the Company's obligations under the 2000 Credit Agreement. The 2000 Credit
Agreement is secured by (i) first priority pledges of 100% of the capital stock
of Canandaigua Limited and all of the Company's domestic operating subsidiaries
and (ii) first priority pledges of 65% of the capital stock of Matthew Clark and
certain other foreign subsidiaries.
The Company and its subsidiaries are subject to customary secured lending
covenants including those restricting additional liens, incurring additional
indebtedness, the sale of assets, the payment of dividends, transactions with
affiliates and the making of certain investments, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement. The primary
financial covenants require the maintenance of a debt coverage ratio, a senior
debt coverage ratio, a fixed charges ratio and an interest coverage ratio. Among
the most restrictive covenants contained in the 2000 Credit Agreement is the
requirement to maintain a fixed charges ratio of not less than 1.0 at the last
day of each fiscal quarter for the most recent four quarters.
7)5) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method and assume the conversion of convertible
securities, if any, using the "if converted" method.
The computation of basic and diluted earnings per common share is as
follows:
For the Nine For the Three Months Months
Ended November 30, Ended November 30,
------------------- -------------------May 31,
------------------------------------
2000 1999
1998 1999 1998
-------- -------- -------- ------------------------ ----------------
(in thousands, except per share data)
Income applicable to common shares $ 61,84717,902 $ 49,991 $ 29,900 $ 20,161
======== ======== ======== ========10,846
================ ================
Weighted average common shares
outstanding - basic 18,023 18,412 18,083 17,89218,230 17,977
Stock options 479 469 568 433
-------- -------- -------- --------368 470
---------------- ----------------
Weighted average common shares
outstanding - diluted 18,502 18,881 18,651 18,325
======== ======== ======== ========18,598 18,447
================ ================
EARNINGS PER COMMON SHARE - BASIC $ 3.430.98 $ 2.72 $ 1.65 $ 1.13
======== ======== ======== ========0.60
================ ================
EARNINGS PER COMMON SHARE - DILUTED $ 3.340.96 $ 2.65 $ 1.60 $ 1.10
======== ======== ======== ========0.59
================ ================
Stock options to purchase 1.6 million and 0.8 million shares of Class A
Common Stock at a weighted average price of $52.06 and $51.86 were outstanding
during the three months ended May 31, 2000 and 1999, respectively, but were not
included in the computation of the diluted earnings per common share because the
stock options' exercise price was greater than the average market price of the
Class A Common Stock.
- 97 -
8)6) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The following table presents summarized financial information for the
Company, the parent company, the combined subsidiaries of the Company which
guarantee the Company's senior subordinated notes and senior subordinated notes ("Subsidiary(the
"Subsidiary Guarantors") and the combined subsidiaries of the Company which are
not Subsidiary Guarantors, primarily Matthew Clark ("Subsidiary(the "Subsidiary
Nonguarantors"). The Subsidiary Guarantors are wholly owned and the guarantees
are full, unconditional, joint and several obligations of each of the Subsidiary
Guarantors. 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
Matthew Clark, the Company's Canadian subsidiary and certain other 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.
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Balance Sheet Data:
November 30, 1999May 31, 2000
- ------------
Current assets $ 85,411 $ 622,505 $ 294,678 $ - $ 1,002,594
Noncurrent assets $ 912,239 $ 1,231,122 $ 462,795 $ (1,281,650) $ 1,324,506
Current liabilities $ 148,381 $ 123,750 $ 172,017 $ - $ 444,148
Noncurrent liabilities $ 1,198,888 $ 55,058 $ 99,462 $ - $ 1,353,408
February 29, 2000
- -----------------
Current assets $ 134,516105,864 $ 677,250611,646 $ 359,476278,487 $ - $ 1,171,242995,997
Noncurrent assets $ 925,739913,026 $ 1,237,6791,232,132 $ 479,165489,286 $ (1,280,830)(1,281,650) $ 1,361,7531,352,794
Current liabilities $ 271,984150,507 $ 107,03884,722 $ 261,346202,988 $ - $ 640,368438,217
Noncurrent liabilities $ 1,246,2771,230,139 $ 95,75797,410 $ 53,29862,185 $ - $ 1,395,332
February 28, 1999
- -----------------
Current assets $ 114,243 $ 532,028 $ 209,468 $ - $ 855,739
Noncurrent assets $ 646,133 $ 396,125 $ 421,867 $ (526,088) $ 938,037
Current liabilities $ 157,648 $ 126,803 $ 130,821 $ - $ 415,272
Noncurrent liabilities $ 815,421 $ 73,178 $ 54,633 $ - $ 943,2321,389,734
Income Statement Data:
For the Nine Months
- -------------------
Ended November 30, 1999
- -----------------------
Net sales $ 476,108 $ 1,035,493 $ 574,351 $ (272,683) $ 1,813,269
Gross profit $ 130,394 $ 261,156 $ 163,387 $ - $ 554,937
(Loss) income before
income taxes $ (289) $ 66,034 $ 37,333 $ - $ 103,078
Net (loss) income $ (173) $ 39,620 $ 22,400 $ - $ 61,847
- 10 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
For the Nine Months
- -------------------
Ended November 30, 1998
- -----------------------
Net sales $ 442,036 $ 847,103 $ 1,093 $ (252,332) $ 1,037,900
Gross profit $ 123,625 $ 186,973 $ 394 $ - $ 310,992
Income (loss) before
income taxes $ 7,056 $ 77,964 $ (289) $ - $ 84,731
Net income (loss) $ 4,163 $ 45,998 $ (170) $ - $ 49,991
For the Three Months
- --------------------
Ended November 30, 1999May 31, 2000
- -----------------------------------------
Net sales $ 200,055134,718 $ 340,635344,241 $ 217,883178,758 $ (97,053)(72,137) $ 661,520585,580
Gross profit $ 41,06640,420 $ 107,77793,301 $ 60,84450,152 $ - $ 209,687183,873
(Loss) income before
income taxes $ (6,881)(4,541) $ 39,41023,186 $ 17,30511,192 $ - $ 49,83429,837
Net (loss) income $ (4,128)(2,725) $ 23,64613,912 $ 10,3826,715 $ - $ 29,90017,902
For the Three Months
- --------------------
Ended November 30, 1998May 31, 1999
- -----------------------------------------
Net sales $ 193,446154,623 $ 294,751299,219 $ 168,210 $ (91,883) $ 530,169
Gross profit $ 39,431 $ 69,875 $ 46,817 $ - $ (112,611) $ 375,586
Gross profit $ 52,357 $ 63,338 $ - $ - $ 115,695
Income156,123
(Loss) income before
income taxes $ 7,567(5,023) $ 26,60515,537 $ 7,563 $ - $ - $ 34,17218,077
Net (loss) income $ 4,465(3,014) $ 15,6969,322 $ 4,538 $ - $ - $ 20,16110,846
9)7) BUSINESS SEGMENT INFORMATION:
The Company reports its operating results in five segments: Canandaigua
Wine (branded popularly-priced wine and brandy, and other, primarily grape juice
concentrate); Barton (primarily beer and spirits); Matthew Clark (branded wine,
cider and bottled water, and wholesale wine, cider, spirits, beer and soft
drinks); Franciscan (primarily branded super-premium and ultra-premium wine) and
- 8 -
Corporate Operations and Other (primarily corporate related items). Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
the Company's Board of Directors, the availability of separate financial
results, and materiality considerations. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based on operating profits of the
respective business units.
- 11 -
Segment information is as follows:
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Canandaigua Wine:
- -----------------
Net sales:
Branded:
External customers $ 472,087 $ 449,036 $ 179,905 $ 181,693
Intersegment 5,274 - 2,285 -
----------- ----------- ----------- -----------
Total Branded 477,361 449,036 182,190 181,693
----------- ----------- ----------- -----------
Other:
External customers 63,081 54,081 24,502 14,731
Intersegment 460 - 423 -
----------- ----------- ----------- -----------
Total Other 63,541 54,081 24,925 14,731
----------- ----------- ----------- -----------
Net sales $ 540,902 $ 503,117 $ 207,115 $ 196,424
Operating profit $ 34,869 $ 36,094 $ 18,850 $ 18,433
Long-lived assets $ 194,199 $ 188,558 $ 194,199 $ 188,558
Total assets $ 698,209 $ 690,358 $ 698,209 $ 690,358
Capital expenditures $ 17,909 $ 17,472 $ 5,201 $ 6,054
Depreciation and amortization $ 16,681 $ 16,208 $ 5,032 $ 5,492
Barton:
- -------
Net sales:
Beer $ 457,961 $ 388,739 $ 134,155 $ 128,810
Spirits 207,697 143,426 80,548 48,827
----------- ----------- ----------- -----------
Net sales $ 665,658 $ 532,165 $ 214,703 $ 177,637
Operating profit $ 114,839 $ 82,287 $ 41,380 $ 27,667
Long-lived assets $ 77,022 $ 50,620 $ 77,022 $ 50,620
Total assets $ 699,954 $ 474,322 $ 699,954 $ 474,322
Capital expenditures $ 4,532 $ 2,502 $ 1,864 $ 814
Depreciation and amortization $ 10,573 $ 8,161 $ 4,175 $ 2,769
- 12 -
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Matthew Clark:
- --------------
Net sales:
Branded:
External customers $ 256,909 $ - $ 101,655 $ -
Intersegment 53 - 53 -
----------- ----------- ----------- -----------
Total Branded 256,962 - 101,708 -
Wholesale 306,802 - 112,049 -
----------- ----------- ----------- -----------
Net sales $ 563,764 $ - $ 213,757 $ -
Operating profit $ 34,503 $ - $ 15,193 $ -
Long-lived assets $ 171,537 $ - $ 171,537 $ -
Total assets $ 728,167 $ - $ 728,167 $ -
Capital expenditures $ 16,459 $ - $ 5,344 $ -
Depreciation and amortization $ 17,133 $ - $ 4,317 $ -
Franciscan:
- -----------
Net sales $ 44,610 $ - $ 27,473 $ -
Operating profit $ 7,562 $ - $ 5,991 $ -
Long-lived assets $ 101,143 $ - $ 101,143 $ -
Total assets $ 361,378 $ - $ 361,378 $ -
Capital expenditures $ 6,448 $ - $ 2,728 $ -
Depreciation and amortization $ 3,990 $ - $ 2,181 $ -
Corporate Operations and Other:
- -------------------------------
Net sales $ 4,122 $ 2,618 $ 1,233 $ 1,525
Operating loss $ (10,476) $ (9,950) $ (4,036) $ (4,180)
Long-lived assets $ 17,496 $ 8,321 $ 17,496 $ 8,321
Total assets $ 45,287 $ 21,566 $ 45,287 $ 21,566
Capital expenditures $ 1,309 $ 1,686 $ 761 $ 694
Depreciation and amortization $ 2,465 $ 1,320 $ 994 $ 461
Intersegment eliminations:
- --------------------------
Net sales $ (5,787) $ - $ (2,761) $ -
Consolidated:
- -------------
Net sales $ 1,813,269 $ 1,037,900 $ 661,520 $ 375,586
Operating profit $ 181,297 $ 108,431 $ 77,378 $ 41,920
Long-lived assets $ 561,397 $ 247,499 $ 561,397 $ 247,499
Total assets $ 2,532,995 $ 1,186,246 $ 2,532,995 $ 1,186,246
Capital expenditures $ 46,657 $ 21,660 $ 15,898 $ 7,562
Depreciation and amortization $ 50,842 $ 25,689 $ 16,699 $ 8,722
For the Three Months Ended May 31,
----------------------------------
2000 1999
-------------- --------------
(in thousands)
Canandaigua Wine:
- -----------------
Net sales:
Branded:
External customers $ 143,330 $ 142,641
Intersegment 1,236 1,750
-------------- --------------
Total Branded 144,566 144,391
-------------- --------------
Other:
External customers 14,183 19,130
Intersegment 3,629 38
-------------- --------------
Total Other 17,812 19,168
-------------- --------------
Net sales $ 162,378 $ 163,559
Operating profit $ 7,981 $ 5,607
Long-lived assets $ 190,104 $ 192,128
Total assets $ 590,367 $ 623,786
Capital expenditures $ 2,645 $ 5,638
Depreciation and amortization $ 5,868 $ 5,536
Barton:
- -------
Net sales:
Beer $ 163,134 $ 146,611
Spirits 72,546 54,139
-------------- --------------
Net sales $ 235,680 $ 200,750
Operating profit $ 38,835 $ 31,497
Long-lived assets $ 77,956 $ 79,784
Total assets $ 716,633 $ 709,962
Capital expenditures $ 1,336 $ 916
Depreciation and amortization $ 3,955 $ 3,161
Matthew Clark:
- --------------
Net sales:
Branded $ 69,615 $ 74,375
Wholesale 99,923 92,422
-------------- --------------
Net sales $ 169,538 $ 166,797
Operating profit $ 10,374 $ 7,330
Long-lived assets $ 148,103 $ 169,393
Total assets $ 629,030 $ 648,222
Capital expenditures $ 2,409 $ 4,656
Depreciation and amortization $ 5,213 $ 4,426
- 139 -
10)For the Three Months Ended May 31,
----------------------------------
2000 1999
-------------- --------------
(in thousands)
Franciscan:
- -----------
Net sales:
External customers $ 21,785 $ -
Intersegment 104 -
-------------- --------------
Net sales $ 21,889 $ -
Operating profit $ 5,416 $ -
Long-lived assets $ 108,694 $ -
Total assets $ 361,036 $ -
Capital expenditures $ 3,780 $ -
Depreciation and amortization $ 2,392 $ -
Corporate Operations and Other:
- -------------------------------
Net sales $ 1,085 $ 885
Operating loss $ (5,142) $ (4,323)
Long-lived assets $ 6,134 $ 16,924
Total assets $ 30,034 $ 24,640
Capital expenditures $ 95 $ 111
Depreciation and amortization $ 918 $ 640
Intersegment eliminations:
- --------------------------
Net sales $ (4,990) $ (1,822)
Consolidated:
- -------------
Net sales $ 585,580 $ 530,169
Operating profit $ 57,464 $ 40,111
Long-lived assets $ 530,991 $ 458,229
Total assets $ 2,327,100 $ 2,006,610
Capital expenditures $ 10,265 $ 11,321
Depreciation and amortization $ 18,346 $ 13,763
8) COMPREHENSIVE INCOME:
Comprehensive income consists of net income and foreign currency
translation adjustments for the nine monththree months ended May 31, 2000 and three month periods ended
November 30, 1999. For the nine month and three month periods ended November 30,
1998, comprehensive income consisted of net income, exclusively. The
reconciliation of net income to comprehensive net income is as follows:
For the Nine Months For the Three Months Ended November 30, Ended November 30,
--------------------- ----------------------May 31,
----------------------------------
2000 1999
1998 1999 1998
--------- --------- --------- ----------------------- --------------
(in thousands)
Net income $ 61,84717,902 $ 49,991 $ 29,900 $ 20,16110,846
Other comprehensive income:
Cumulative translation adjustment (3,504) - (2,770) -
--------- --------- --------- ---------(11,266) 850
-------------- --------------
Total comprehensive income $ 58,3436,636 $ 49,991 $ 27,130 $ 20,161
========= ========= ========= =========
11)11,696
============== ==============
9) ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset
- 10 -
related results on the hedged item in the income statement, and requires that a
company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133
for one year. With the issuance of SFAS No. 137, the Company is required to
adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years
beginning March 1, 2001.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 ("SFAS No. 138"), "Accounting for Certain
Derivative Instruments and Certain Hedging Activities--an amendment of FASB
Statement No. 133." SFAS No. 138 amends the accounting and reporting standards
of SFAS No. 133 for certain derivative instruments and certain hedging
activities. The Company is required to adopt SFAS No. 138 concurrently with SFAS
No. 133. The Company believes the effect of the adoption of these statements on
its financial statements will not be material based on the Company's current
risk management strategies.
- 1411 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------------------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
- ------------
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended November 30, 1999May 31, 2000 ("ThirdFirst Quarter 2000"2001"), compared to the three months
ended November 30, 1998 ("Third Quarter 1999"), and for the nine months
ended November 30,May 31, 1999 ("Nine MonthsFirst Quarter 2000"), compared to the nine months ended
November 30, 1998 ("Nine Months 1999"), and (ii) financial liquidity and
capital resources for Nine Months 2000.First Quarter 2001. This discussion and analysis should be
read in conjunction with the Company's consolidated financial statements and
notes thereto included herein and in the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 1999.29, 2000 ("Fiscal 2000").
The Company operates primarily in the beverage alcohol industry in North
America and the United Kingdom. The Company reports its operating results in
five segments: Canandaigua Wine (branded popularly-priced wine and brandy, and
other, primarily grape juice concentrate); Barton (primarily beer and spirits);
Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); Franciscan (primarily branded super-premium and
ultra-premium wine); and Corporate Operations and Other (primarily corporate
related items).
RECENT ACQUISITIONS On December 1, 1998, the Company acquired control of Matthew Clark plc
("Matthew Clark") and has since acquired all of Matthew Clark's outstanding
shares (the "Matthew Clark Acquisition"). Prior to the Matthew Clark
Acquisition, the Company was principally a producer and supplier of wine and an
importer and producer of beer and distilled spirits in the United States. The
Matthew Clark Acquisition established the Company as a leading British producer
of cider, wine and bottled water and as a leading beverage alcohol wholesaler in
the United Kingdom. The results of operations of Matthew Clark have been
included in the consolidated results of operations of the Company since the date
of acquisition, December 1, 1998.
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (collectively, the "Black
Velvet Acquisition"). In connection with the transaction, the Company also
entered into multi-year agreements with Diageo to provide packaging and
distilling services for various brands retained by Diageo. The results of
operations from the Black Velvet Acquisition are reported in the Barton segment
and have been included in the consolidated results of operations of the Company
since the date of acquisition.IN FISCAL 2000
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. ("Franciscan Estates") and, in related
transactions, purchased vineyards, a
winery, equipment and other vineyard related assets
located in Northern California (collectively, the "Franciscan Acquisition").
Also on June 4, 1999, the Company purchased all of the outstanding capital stock
of Simi Winery, Inc. ("Simi"). (The acquisition of the capital stock of Simi is
hereafter referred to as the "Simi Acquisition".) The Simi Acquisition includesincluded
the Simi winery, equipment, vineyards, inventory and inventory.worldwide ownership of the
Simi brand name. The results of operations from the Franciscan and Simi
Acquisitions (collectively, "Franciscan") are reported together in the
Franciscan segment and have been included in the consolidated results of
operations of the Company since the date of acquisition. On February 29, 2000,
Simi was merged into Franciscan Estates.
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (collectively, the "Black
Velvet Assets"). In connection with the transaction, the Company also entered
into multi-year agreements with affiliates of Diageo plc to provide packaging
and distilling services for various brands retained by the Diageo plc
affiliates. The results of operations from the Black Velvet Assets are reported
in the Barton segment and have been included in the consolidated results of
operations of the Company since the date of acquisition.
- 1512 -
The Matthew Clark, Black Velvet and Franciscan Acquisitions are significant
and the Company expects them to have a material impact on the Company's future
results of operations.
RESULTS OF OPERATIONS
- ---------------------
THIRDFIRST QUARTER 20002001 COMPARED TO THIRDFIRST QUARTER 19992000
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for ThirdFirst Quarter 20002001 and ThirdFirst Quarter 1999.
Third2000.
First Quarter 20002001 Compared to ThirdFirst Quarter 19992000
-------------------------------------------------
Net Sales
-------------------------------------------------
%Increase/
2001 2000 1999 (Decrease)
---------- ---------- ---------------------- ------------ -----------
Canandaigua Wine:
Branded:
External customers $ 179,905143,330 $ 181,693 (1.0)142,641 0.5 %
Intersegment 2,285 - N/A
---------- ----------1,236 1,750 (29.4)%
------------ ------------
Total Branded 182,190 181,693 0.3144,566 144,391 0.1 %
---------- ---------------------- ------------
Other:
External customers 24,502 14,731 66.3 14,183 19,130 (25.9)%
Intersegment 423 - N/A
---------- ----------3,629 38 9,450.0 %
------------ ------------
Total Other 24,925 14,731 69.2 17,812 19,168 (7.1)%
---------- ---------------------- ------------
Canandaigua Wine net sales $ 207,115162,378 $ 196,424 5.4 163,559 (0.7)%
---------- ---------------------- ------------
Barton:
Beer $ 134,155163,134 $ 128,810 4.1146,611 11.3 %
Spirits 80,548 48,827 65.072,546 54,139 34.0 %
---------- ---------------------- ------------
Barton net sales $ 214,703235,680 $ 177,637 20.9200,750 17.4 %
---------- ---------------------- ------------
Matthew Clark:
Branded:
External customers $ 101,65569,594 $ 74,375 (6.4)%
Intersegment 21 - N/A
------------ ------------
Total Branded 69,615 74,375 (6.4)%
Wholesale 99,923 92,422 8.1 %
------------ ------------
Matthew Clark net sales $ 169,538 $ 166,797 1.6 %
------------ ------------
Franciscan:
External customers $ 21,785 $ - N/A
Intersegment 53104 - N/A
--------- ----------
Total Branded 101,708 - N/A
Wholesale 112,049 - N/A
--------- ----------
Matthew Clark------------ ------------
Franciscan net sales $ 213,75721,889 $ - N/A
--------- ----------
Franciscan $ 27,473 $ - N/A
---------- ---------------------- ------------
Corporate Operations and Other $ 1,2331,085 $ 1,525 (19.1)885 22.6 %
---------- ---------------------- ------------
Intersegment eliminations $ (2,761)(4,990) $ - N/A
---------- ----------(1,822) 173.9 %
------------ ------------
Consolidated Net Sales $ 661,520585,580 $ 375,586 76.1530,169 10.5 %
========== ====================== ============
Net sales for ThirdFirst Quarter 20002001 increased to $661.5$585.6 million from $375.6$530.2
million for ThirdFirst Quarter 1999,2000, an increase of $285.9$55.4 million, or 76.1%10.5%.
- 1613 -
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for ThirdFirst Quarter 2001 decreased to $162.4
million from $163.6 million for First Quarter 2000, increased to $207.1
million from $196.4 million for Third Quarter 1999, an increasea decrease of $10.7$1.2 million,
or 5.4%(0.7)%. This increaseThe decline resulted primarily from (i) an increasea decrease in the
Company's bulkgrape juice
concentrate sales, while branded wine sales and (ii) an increase in sparkling wine as a result of
millennium sales. These increases were partially offset by declines in certain
other brands.unchanged against the
comparable quarter last year.
Barton
------
Net sales for Barton for ThirdFirst Quarter 20002001 increased to $214.7$235.7 million
from $177.6$200.8 million for ThirdFirst Quarter 1999,2000, an increase of $37.1$34.9 million, or
20.9%17.4%. This increase resulted primarily from $29.9 million of sales of productsvolume growth and services acquiredselling price
increases in the Black Velvet Acquisition, which was completed in
April 1999,Mexican beer portfolio as well as from an increase inof $11.3
million of sales of imported beerthe newly acquired Canadian whisky brands, led by
Barton's Mexican portfolio. The Company believes that growthwhich was
completed in the unit volume
of its Mexican portfolio was adversely impacted during the quarter by
wholesalers' and retailers' inventory build-up in prior quarters in advance of
recent price increases. While the longer-term impact of the price increases is
difficult to determine at this time, recent wholesaler depletion and retail
sales data reflect more robust growth than initially occurred following the
price increases.April 1999.
Matthew Clark
-------------
Net sales for Matthew Clark for ThirdFirst Quarter 2001 increased to $169.5
million from $166.8 million for First Quarter 2000, were $213.8 million.an increase of $2.7 million,
or 1.6%. This increase resulted primarily from increases in Matthew Clark's
wholesale business, partially offset by declines in Matthew Clark's branded
business.
Franciscan
----------
Net sales for Franciscan for ThirdFirst Quarter 20002001 were $27.5$21.9 million.
GROSS PROFIT
The Company's gross profit increased to $209.7$183.9 million for ThirdFirst Quarter
20002001 from $115.7$156.1 million for ThirdFirst Quarter 1999,2000, an increase of $94.0$27.8 million,
or 81.2%17.8%. The dollar increase in gross profit was primarily related to sales
from the Matthew Clark,acquisitions of the Black Velvet Assets (completed in April 1999) and
Franciscan and Simi Acquisitions, all
completed after Third Quarter 1999.(completed in June 1999), as well as increased beer sales. As a
percent of net sales, gross profit increased to 31.7%31.4% for ThirdFirst Quarter 20002001
from 30.8%29.4% in ThirdFirst Quarter 1999,2000, resulting primarily from sales of
higher-margin spirits and super-premium and ultra-premium wine acquired in the
acquisitions of the Black Velvet Assets and Franciscan, and Simi
Acquisitions, respectively, and from
improved margins resulting from price increases taken in the Company's imported beer
business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $132.3$126.4 million
for ThirdFirst Quarter 20002001 from $73.8$110.5 million for ThirdFirst Quarter 1999,2000, an increase
of $58.5$15.9 million, or 79.3%14.4%. The dollar increase in selling, general and
administrative expenses resulted primarily from the addition of the Matthew
Clark and Franciscan
businessesbusiness and expenses related to the brands acquired in the Black Velvet Acquisition.Assets
acquisition. Selling, general and administrative expenses as a percent of net
sales increased to 20.0%21.6% for ThirdFirst Quarter 20002001 as compared to 19.6%20.8% for ThirdFirst
Quarter 1999.2000. The increase in percent of net sales resulted primarily from the
Matthew Clark,acquisition of Franciscan, and Simi Acquisitions, as Matthew
Clark's and Franciscan's selling, general and administrative
expenses as a percent of net sales are typically at the high end of the range of
the Company's operating segments' percentages.
- 1714 -
NONRECURRING CHARGES
The Company incurred nonrecurring charges of $5.5 million in First Quarter
2000 related to the closure of a cider production facility within the Matthew
Clark operating segment in the United Kingdom ($2.9 million) and to a management
reorganization within the Canandaigua Wine operating segment ($2.6 million). No
such charges were incurred in First Quarter 2001.
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for ThirdFirst Quarter 20002001 and ThirdFirst
Quarter 1999.
Third2000.
First Quarter 20002001 Compared to ThirdFirst Quarter 19992000
-------------------------------------------------
Operating Profit/(Loss)
-------------------------------------------------
%Increase/2001 2000 1999 (Decrease)
-------- -------- ----------%Increase
------------- ------------- -------------
Canandaigua Wine $ 18,8507,981 $ 18,433 2.3 %5,607 42.3%
Barton 41,380 27,667 49.6 %38,835 31,497 23.3%
Matthew Clark 15,193 - N/A10,374 7,330 41.5%
Franciscan 5,9915,416 - N/A
Corporate Operations and Other (4,036) (4,180) (3.4)%
-------- --------(5,142) (4,323) 19.0%
------------- -------------
Consolidated Operating Profit $ 77,37857,464 $ 41,920 84.6 %
======== ========40,111 43.3%
============= =============
As a result of the above factors, consolidated operating income increased
to $77.4$57.5 million for ThirdFirst Quarter 20002001 from $41.9$40.1 million for ThirdFirst Quarter
1999,2000, an increase of $35.5$17.4 million, or 84.6%43.3%. Exclusive of the aforementioned
$2.6 million in nonrecurring charges, operating income for the Canandaigua Wine
operating segment decreased 2.3% in First Quarter 2001 from $8.2 million in
First Quarter 2000. Operating income for the Matthew Clark operating segment,
excluding the aforementioned nonrecurring charges of $2.9 million, increased
1.0% in the First Quarter 2001 from $10.3 million in the First Quarter 2000.
INTEREST EXPENSE, NET
Net interest expense increased to $27.5$27.6 million for ThirdFirst Quarter 20002001 from
$7.7$22.0 million for ThirdFirst Quarter 1999,2000, an increase of $19.8$5.6 million, or 255.5%25.4%. The
increase resulted primarily from additional interest expense associated with
the
borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi
Acquisitions.acquisition of Franciscan.
NET INCOME
As a result of the above factors, net income increased to $29.9$17.9 million for
ThirdFirst Quarter 20002001 from $20.2$10.8 million for ThirdFirst Quarter 1999,2000, an increase of
$9.7$7.1 million, or 48.3%65.1%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for ThirdFirst Quarter 20002001
were $94.1$75.8 million, an increase of $43.4$21.9 million over EBITDA of $50.6$53.9 million
for ThirdFirst Quarter 1999.2000. 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.
- 1815 -
NINE MONTHS 2000 COMPARED TO NINE MONTHS 1999
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Nine Months 2000 and Nine Months 1999.
Nine Months 2000 Compared to Nine Months 1999
---------------------------------------------
Net Sales
---------------------------------------------
%Increase/
2000 1999 (Decrease)
----------- ----------- ----------
Canandaigua Wine:
Branded:
External customers $ 472,087 $ 449,036 5.1%
Intersegment 5,274 - N/A
----------- -----------
Total Branded 477,361 449,036 6.3%
----------- -----------
Other:
External customers 63,081 54,081 16.6%
Intersegment 460 - N/A
----------- -----------
Total Other 63,541 54,081 17.5%
----------- -----------
Canandaigua Wine net sales $ 540,902 $ 503,117 7.5%
----------- -----------
Barton:
Beer $ 457,961 $ 388,739 17.8%
Spirits 207,697 143,426 44.8%
----------- -----------
Barton net sales $ 665,658 $ 532,165 25.1%
----------- -----------
Matthew Clark:
Branded:
External customers $ 256,909 $ - N/A
Intersegment 53 - N/A
----------- -----------
Total Branded 256,962 - N/A
Wholesale 306,802 - N/A
----------- -----------
Matthew Clark net sales $ 563,764 $ - N/A
----------- -----------
Franciscan $ 44,610 $ - N/A
----------- -----------
Corporate Operations and Other $ 4,122 $ 2,618 57.4%
----------- -----------
Intersegment eliminations $ (5,787) $ - N/A
----------- -----------
Consolidated Net Sales $ 1,813,269 $ 1,037,900 74.7%
=========== ===========
Net sales for Nine Months 2000 increased to $1,813.3 million from $1,037.9
million for Nine Months 1999, an increase of $775.4 million, or 74.7%.
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Nine Months 2000 increased to $540.9
million from $503.1 million for Nine Months 1999, an increase of $37.8 million,
or 7.5%. This increase resulted primarily from (i) an increase in sales of Arbor
Mist, which was introduced in the second quarter of fiscal 1999, (ii) an
increase in the Company's bulk wine sales, (iii) an increase in Almaden box wine
sales, and (iv) growth in the Company's international business. These increases
were partially offset by declines in certain other brands and in the Company's
grape juice concentrate business.
- 19 -
Barton
------
Net sales for Barton for Nine Months 2000 increased to $665.7 million from
$532.2 million for Nine Months 1999, an increase of $133.5 million, or 25.1%.
This increase resulted primarily from an increase in sales of imported beer
brands led by Barton's Mexican portfolio as well as from $61.8 million of sales
of products and services acquired in the Black Velvet Acquisition, which was
completed in April 1999.
Matthew Clark
-------------
Net sales for Matthew Clark for Nine Months 2000 were $563.8 million.
Franciscan
----------
Net sales for Franciscan for Nine Months 2000 since the date of
acquisition, June 4, 1999, were $44.6 million.
GROSS PROFIT
The Company's gross profit increased to $554.9 million for Nine Months 2000
from $311.0 million for Nine Months 1999, an increase of $243.9 million, or
78.4%. The dollar increase in gross profit was primarily related to sales from
the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all completed
after Nine Months 1999, as well as increased Barton beer and Canandaigua Wine
branded wine sales. As a percent of net sales, gross profit increased to 30.6%
for Nine Months 2000 from 30.0% for Nine Months 1999, resulting primarily from
sales of higher-margin spirits and super-premium and ultra-premium wine acquired
in the Black Velvet and Franciscan and Simi Acquisitions, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $368.1 million
for Nine Months 2000 from $202.6 million for Nine Months 1999, an increase of
$165.6 million, or 81.7%. The dollar increase in selling, general and
administrative expenses resulted primarily from the addition of the Matthew
Clark and Franciscan businesses and expenses related to the brands acquired in
the Black Velvet Acquisition. The Company also increased its marketing and
promotional costs to generate additional sales volume, particularly of certain
Canandaigua Wine brands and Barton beer brands. Selling, general and
administrative expenses as a percent of net sales increased to 20.3% for Nine
Months 2000 as compared to 19.5% for Nine Months 1999. The increase in percent
of net sales resulted primarily from (i) Canandaigua Wine's investment in brand
building and efforts to increase market share and (ii) the Matthew Clark,
Franciscan and Simi Acquisitions, as Matthew Clark's and Franciscan's selling,
general and administrative expenses as a percent of net sales are typically at
the high end of the range of the Company's operating segments' percentages.
NONRECURRING CHARGES
The Company incurred nonrecurring charges of $5.5 million in Nine Months
2000 related to the closure of a production facility within the Matthew Clark
operating segment in the United Kingdom and to a management reorganization
within the Canandaigua Wine operating segment. No such charges were incurred in
Nine Months 1999.
- 20 -
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Nine Months 2000 and Nine
Months 1999.
Nine Months 2000 Compared to Nine Months 1999
---------------------------------------------
Operating Profit/(Loss)
---------------------------------------------
%Increase/
2000 1999 (Decrease)
--------- --------- ----------
Canandaigua Wine $ 34,869 $ 36,094 (3.4)%
Barton 114,839 82,287 39.6 %
Matthew Clark 34,503 - N/A
Franciscan 7,562 - N/A
Corporate Operations and Other (10,476) (9,950) 5.3 %
--------- ---------
Consolidated Operating Profit $ 181,297 $ 108,431 67.2 %
========= =========
As a result of the above factors, consolidated operating income increased
to $181.3 million for Nine Months 2000 from $108.4 million for Nine Months 1999,
an increase of $72.9 million, or 67.2%. Operating income for the Canandaigua
Wine operating segment was down $1.2 million, or 3.4%, due to the nonrecurring
charge of $2.6 million related to the segment's management reorganization, as
well as additional marketing expenses associated with new product introductions.
Exclusive of the nonrecurring charge, operating income increased by 3.7% to
$37.4 million in Nine Months 2000. Operating income for the Matthew Clark
operating segment, excluding nonrecurring charges of $2.9 million, was $37.4
million.
INTEREST EXPENSE, NET
Net interest expense increased to $78.2 million for Nine Months 2000 from
$23.7 million for Nine Months 1999, an increase of $54.5 million or 230.0%. The
increase resulted primarily from additional interest expense associated with the
borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi
Acquisitions.
NET INCOME
As a result of the above factors, net income increased to $61.8 million for
Nine Months 2000 from $50.0 million for Nine Months 1999, an increase of $11.9
million, or 23.7%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 2000
were $232.1 million, an increase of $98.0 million over EBITDA of $134.1 million
for Nine Months 1999. 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.
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,
- 21 - 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.
NINE MONTHS 2000FIRST QUARTER 2001 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Nine Months 2000First Quarter 2001 was $56.3$20.0
million, which resulted from $109.1$40.7 million in net income adjusted for noncash
items, less $52.9$20.7 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from an increase in accounts receivable as a result of a
seasonal increase in accounts receivable and
inventories,sales, partially offset by increasesan increase in accounts payable
and an increase in accrued advertising and promotion expenses, accrued incomeexcise taxes accrued interest
expense and accrued grape purchases.resulting from the increase in sales.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Nine Months 2000First Quarter 2001 was $497.9$9.9
million, which resulted primarily from net cash paid of $452.5 million for the
Black Velvet, Franciscan and Simi Acquisitions and $46.7 million of capital expenditures including $6.2 million for vineyards.of $10.3 million.
Net cash provided byused in financing activities for Nine Months 2000First Quarter 2001 was $441.3$30.1
million which resultedresulting primarily from proceedsprincipal payments of $1,486.2$133.3 million from
issuanceand
repayment of long-term debt, including $400.0$16.8 million incurred in connection with
the Black Velvet and Franciscan Acquisitions and $900.0 million incurred to
repayof net revolving loan borrowings. These amounts outstanding under the bank credit agreement. This amount waswere
partially offset by principal paymentsnet proceeds of $1,059.4$118.2 million from the issuance of
(pound)80.0 million of long-term debt.8 1/2% Sterling Series C Senior Notes used to repay a
portion of the Company's British pound sterling borrowings under its senior
credit facility.
DEBT
Total debt outstanding as of November 30, 1999,May 31, 2000, amounted to $1,408.5$1,272.2 million, an increasea
decrease of $483.1$45.7 million from February 28, 1999.29, 2000. The ratio of total debt to
total capitalization increaseddecreased to 73.9%70.6% as of November 30, 1999,May 31, 2000, from 68.0%71.7% as of
February 28, 1999.
THE COMPANY'S29, 2000.
- 16 -
SENIOR CREDIT AGREEMENT
During June 1999, the Company financed the purchase price for the
Franciscan Acquisition through additional term loan borrowings under the bank
credit agreement. The Company financed the purchase price for the Simi
Acquisition with revolving loan borrowings under the bank credit agreement.
During August 1999, as discussed below, a portionFACILITY
As of the Company's
borrowingsMay 31, 2000, under its bank credit agreement were repaid with the net proceeds of
its Senior Notes (as defined below) offering.
- 22 -
On October 6, 1999, the Company, certain of its principal operating
subsidiaries, and a syndicate of banks (the "Syndicate Banks"), for which The
Chase Manhattan Bank acts as administrative agent, entered into a new senior credit agreement (the "2000 Credit Agreement"). The 2000 Credit Agreement
includes both U.S. dollar and British pound sterling commitments of the
Syndicate Banks of up to, in the aggregate, the equivalent of $1.0 billion
(subject to increase as therein provided to $1.2 billion). Proceeds of the 2000
Credit Agreement were used to repay all outstanding principal and accrued
interest on all loans under the Company's prior bank credit agreement, and are
available to fund permitted acquisitions and ongoing working capital needs of
the Company and its subsidiaries.
The 2000 Credit Agreement provides for a $380.0 million Tranche I Term Loan
facility, due in December 2004, a $320.0 million Tranche II Term Loan facility
available for borrowing in British pound sterling due in December 2004, and a
$300.0 million Revolving Credit facility (including letters of credit up to a
maximum of $20.0 million) which expires in December 2004. The Tranche I Term
Loan facility ($380.0 million) and the Tranche II Term Loan facility
((pound)193.4 million, or approximately $320.0 million) were fully drawn at
closing. The Tranche I Term Loan facility requires quarterly repayments,
starting at $12.0 million in March 2000 and increasing thereafter annually with
final payments of $23.0 million in each quarter in 2004. On November 17, 1999,
proceeds from the Sterling Senior Notes (as defined below) were used to repay a
portion of the $320.0 million Tranche II Term Loan facility ((pound)73.0
million, or approximately $118.3 million). After this repayment, the required
quarterly repayments of the Tranche II Term Loan facility were revised to
(pound)0.6 million ($1.0 million) for each quarter in 2000, (pound)1.2 million
($1.9 million) for each quarter in 2001 and 2002, (pound)1.5 million ($2.4
million) for each quarter in 2003 and (pound)25.6 million ($40.9 million) for
each quarter in 2004 (the foregoing U.S. dollar equivalents are as of November
30, 1999). There are certain mandatory term loan prepayments, including those
based on sale of assets and issuance of debt and equity, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement.
The rate of interest payable, at the Company's option, is a function of the
London interbank offering rate (LIBOR) plus a margin, federal funds rate plus a
margin, or the prime rate plus a margin. The margin is adjustable based upon the
Company's Debt Ratio (as defined in the 2000 Credit Agreement) and, with respect
to LIBOR borrowings, ranges between 0.75% and 1.25% for Revolving Credit loans
and 1.00% and 1.75% for Term Loans. The initial margin for all loans was set at
the highest level at closing and is subject to reduction after November 30,
1999, depending on the Company's Debt Ratio. In addition to interest, the
Company pays a facility fee on the Revolving Credit commitments, initially at
0.50% per annum and subject to reduction after November 30, 1999, to 0.25%,
depending on the Company's Debt Ratio.
Certain of the Company's principal operating subsidiaries have guaranteed
the Company's obligations under the 2000 Credit Agreement. The 2000 Credit
Agreement is secured by (i) first priority pledges of 100% of the capital stock
of Canandaigua Limited and all of the Company's domestic operating subsidiaries
and (ii) first priority pledges of 65% of the capital stock of Matthew Clark and
certain other foreign subsidiaries.
The Company and its subsidiaries are subject to customary secured lending
covenants including those restricting additional liens, incurring additional
indebtedness, the sale of assets, the payment of dividends, transactions with
affiliates and the making of certain investments, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement. The primary
financial covenants require the maintenance of a debt coverage ratio, a senior
debt coverage ratio, a fixed charges ratio and an interest coverage ratio. Among
the most restrictive covenants contained in the 2000 Credit Agreement is the
requirement to
- 23 -
maintain a fixed charges ratio of not less than 1.0 at the last day of each
fiscal quarter for the most recent four quarters.
As of November 30, 1999, under the 2000 Credit Agreement, the Company had
outstanding term loans of $572.3$427.7 million bearing a weighted average interest
at 7.9%rate of 8.3%, $106.4$10.0 million of revolving loans bearing interest at 7.6%8.6%, undrawn
revolving letters of credit of $10.2$10.5 million, and $183.4$279.5 million in revolving
loans available to be drawn.
SENIOR NOTES
On August 4, 1999,As of May 31, 2000, the Company issuedhad outstanding $200.0 million aggregate
principal amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes").
The Senior Notes are currently redeemable, in whole or in part, at the option of
the Company.
In March 2000, the Company exchanged (pound)75.0 million aggregate
principal amount of 8 1/2% Series B Senior Notes due in November 2009 (the
"Sterling Series B Senior Notes") for the Sterling Senior Notes. The terms of
the Sterling Series B Senior Notes are identical in all material respects to the
Sterling Senior Notes.
In May 2000, the Company issued (pound)80.0 million (approximately $120.0
million) aggregate principal amount of 8 1/2% Series C Senior Notes due November
2009 at an issuance price of (pound)79.6 million (approximately $119.4 million,
net of $0.6 million unamortized discount, with an effective rate of 8.6%) (the
"Sterling Series C Senior Notes"). The net proceeds of the offering (approximately $196.0((pound)78.8
million, or approximately $118.2 million) were used to repay a portion of the
Company's British pound sterling borrowings under its banksenior credit agreement. Interest onfacility.
After this repayment, the Senior Notes is payable semiannually on February 1 and August 1 of each
year, beginning February 1, 2000. The Senior Notes are redeemable at the optionrequired quarterly repayments of the Company,Tranche II Term
Loan facility were revised to (pound)0.2 million ($0.3 million) for the
remaining three quarters in whole or2000, (pound)0.4 million ($0.6 million) for each
quarter in part, at any time. The Senior Notes2001 and 2002, (pound)0.5 million ($0.7 million) for each quarter in
2003, and (pound)8.5 million ($12.7 million) for each quarter in 2004. (The
foregoing U.S. dollar equivalents are unsecured
senior obligations and rank equally in rightas of payment to all existing and
future unsecured senior indebtedness of the Company. The Senior Notes are
guaranteed, on a senior basis, by certain of the Company's significant operating
subsidiaries.
On November 17, 1999, the Company issued (pound)75.0 million (approximately
$121.7 million) aggregate principal amount of 8 1/2% Senior Notes due November
2009 (the "Sterling Senior Notes"May 31, 2000.). The net proceeds of the offering
((pound)73.0 million, or approximately $118.3 million) were used to repay a
portion of the Company's borrowings under the 2000 Credit Agreement. Interest on the
Sterling Series C Senior Notes is payable semiannually on May 15 and November 15
of each year, beginning on MayNovember 15, 2000. The Sterling Series C Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time.
The Sterling Series C Senior Notes are unsecured senior obligations and rank
equally in right of payment to all existing and future unsecured senior
indebtedness of the Company. The Sterling Series C Senior Notes are guaranteed,
on a senior basis, by certain of the Company's significant operating
subsidiaries.
SENIOR SUBORDINATED NOTES
As of November 30, 1999,May 31, 2000, the Company had outstanding $195.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due December 2003 (the
"Notes""Original Notes"). The Original Notes are currently redeemable, in whole or in
part, at the option of the Company.
On March 4, 1999,Also, as of May 31, 2000, the Company issuedhad outstanding $200.0 million
aggregate principal amount of 8 1/2% Senior Subordinated Notes due March 2009
(the "Senior Subordinated Notes"). The net proceeds of the offering (approximately $195.0
million) were used to fund the Black Velvet Acquisition and to pay the fees and
expenses related thereto with the remainder of the net proceeds used for general
corporate purposes. Interest on the Senior Subordinated Notes is payable
semiannually on March 1 and September 1 of each year, beginning September 1,
1999. The Senior Subordinated Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after March
1, 2004. The Company may also redeem up to $70.0 million of the Senior
Subordinated Notes using the proceeds of certain equity offerings completed
before March 1, 2002.
The Senior
Subordinated Notes are unsecured and subordinated to the prior payment in full
of all senior indebtedness of the Company, which includes the bank credit
agreement. The Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company's significant operating
subsidiaries.
- 2417 -
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133
for one year. With the issuance of SFAS No. 137, the Company is required to
adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years
beginning March 1, 2001.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 ("SFAS No. 138"), "Accounting for Certain
Derivative Instruments and Certain Hedging Activities--an amendment of FASB
Statement No. 133." SFAS No. 138 amends the accounting and reporting standards
of SFAS No. 133 for certain derivative instruments and certain hedging
activities. The Company is required to adopt SFAS No. 138 concurrently with SFAS
No. 133. The Company believes the effect of the adoption of these statements on
its financial statements will not be material based on the Company's current
risk management strategies.
YEAR 2000 ISSUE
Prior to January 1, 2000, the Company put into place detailed programs to
address Year 2000 readiness in its internal systems and with its key customers
and suppliers. The Year 2000 issue is the result of computer logic that was
written using two digits rather than four to define the applicable year. Any
computer logic that processes date-sensitive information may recognize the date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
Since January 1, 2000, the Company has not experienced any interruptions in
its business or operations. However, because all Year 2000 issues may not reveal
themselves until later in 2000, no assurances can be given that the Company will
not experience any interruptions in its business or operations due to Year 2000
issues.
Pursuant to the Company's readiness programs, all major categories of
information technology systems and non-information technology systems (i.e.,
equipment with embedded microprocessors) in use by the Company, including
manufacturing, sales, financial and human resources, were inventoried and
assessed. In addition, plans were developed for the required systems
modifications or replacements. Well before December 31, 1999, the Company
completed both the assessment and remediation phases for its information
technology and non-information technology systems. Final testing in selected
areas, both internal and external, confirmed the integrity of the Company's
remediation programs. The Company's internal mission-critical information
technology and non-information technology systems are Year 2000 compliant.
The Company communicated with its major customers, suppliers and financial
institutions to assess the potential impact on the Company's operations if those
third parties failed to become Year 2000 compliant in a timely manner. Based
upon responses received by the Company, many of those customers and suppliers
only indicated that they would have in place Year 2000 readiness programs,
without specifically confirming that they would be Year 2000 compliant in a
timely manner. Risk assessment, readiness evaluation, action plans and
contingency plans related to the Company's
- 25 -
significant customers and suppliers were completed prior to January 1, 2000. The
Company's key financial institutions were surveyed and it is the Company's
understanding that they are Year 2000 compliant.
The costs incurred related to its Year 2000 activities and its readiness
programs have not been material to the Company, and, based upon current
conditions and estimates, the Company does not believe that the future costs
associated with Year 2000 issues will have a material adverse impact on the
Company's financial condition, results of operations or cash flows. However, no
assurances can be given that the Company will not incur material remediation or
other costs due to Year 2000 issues.
The Company's readiness programs also include contingency plans to protect
its business and operations from Year 2000-related interruptions. These plans
were completed by October 31, 1999, and, by way of examples, include back-up
procedures and identification of alternate suppliers, where possible. Based upon
the Company's assessment of its non-information technology systems, it was not
necessary to develop an extensive contingency plan for those systems. There can
be no assurances, however, that any of the Company's contingency plans will be
sufficient to handle all problems or issues which may arise.
The Company believes that it has taken reasonable steps to identify and
address those matters that could cause serious interruptions in its business and
operations due to Year 2000 issues. However, a failure to fully identify all
Year 2000 dependencies in the Company's systems and in the systems of its
suppliers, customers and financial institutions, a failure of such third parties
to adequately address their respective Year 2000 issues, or a failure of a
contingency plan could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. For example, the
Company would experience a material adverse impact on its business if
significant suppliers of beer, glass or other raw materials, or utility systems
fail to timely provide the Company with necessary inventories or services due to
Year 2000 systems failures.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union (the "Participating Countries") established fixed conversion
rates between their existing sovereign currencies and the euro. For three years
after the introduction of the euro, the Participating Countries can perform
financial transactions in either the euro or their original local currencies.
This will result in a fixed exchange rate among the Participating Countries,
whereas the euro (and the Participating Countries' currency in tandem) will
continue to float freely against the U.S. dollar and other currencies of the
non-participating countries. The Company does not believe that the effects of
the conversion will have a material adverse effect on the Company's business and
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information about market risks for the ninethree months ended November 30, 1999,May 31, 2000,
does not differ materially from that discussed under Item 7A in the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1999.29, 2000.
- 2618 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 3425 of this Report.
(b) The following ReportsReport on Form 8-K werewas filed with the Securities and
Exchange Commission during the quarter ended November 30, 1999:
(i) Form 8-K/A, Amendment No. 2, dated April 9, 1999. This Form 8-K/A
reported information under Item 7 (Financial Statements and
Exhibits). The following financial statements were filed with this
Form 8-K/A:
The Diageo Inc. Statement of Assets and Liabilities Related to the
Product Lines Sold to Canandaigua Brands, Inc. as of April 9, 1999,
and the Statement of Identified Income and Expenses Related to the
Product Lines Sold to Canandaigua Brands, Inc. for the year ended
DecemberMay 31, 1998, and the report of KPMG LLP, independent auditors,
thereon, together with the notes thereto.
The Diageo Inc. Statements of Identified Income and Expenses Related
to the Product Lines Sold to Canandaigua Brands, Inc. (unaudited)
for the three months ended March 31, 1999 and 1998, together with
the notes thereto.
The pro forma condensed combined balance sheet (unaudited) as of
February 28, 1999, the pro forma condensed combined statement of
income (unaudited) for the year ended February 28, 1999, and the pro
forma combined statement of income (unaudited) for the six months
ended August 31, 1999, and the notes thereto.
(ii)2000:
Form 8-K dated September 27, 1999.April 11, 2000. This Form 8-K reported information
under Item 5 (Other Events) and included (i) the Company's Condensed
Consolidated Balance Sheets as of August 31,
1999 (unaudited)for the fiscal years ended February 29,
2000 and February 28, 1999 (audited);1999; (ii) the Company's Condensed Consolidated
Statements of Income for the three months ended August 31, 1999 (unaudited)February 29, 2000 and
August 31, 1998 (unaudited);February 28, 1999; and (iii) the Company's Condensed Consolidated
Statements of Income for the sixtwelve months ended August 31, 1999 (unaudited)February 29, 2000 and
August 31,
1998 (unaudited).
(iii) Form 8-K dated October 12,February 28, 1999. This Form 8-K reported information
under Item 5 (Other Events).
- 2719 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANANDAIGUA BRANDS, INC.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, SeniorExecutive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 2820 -
CANANDAIGUA EUROPE LIMITED
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA LIMITED
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Authorized Officer
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Finance Director
(Principal Financial Officer and
Principal Accounting Officer)
POLYPHENOLICS, INC.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
ROBERTS TRADING CORP.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 2921 -
CANANDAIGUA B.V.
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Authorized
Representative (PrincipalChief Financial
Officer (On behalf of the Registrant
and Principal
Accounting Officer)
SIMI WINERY, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, President and
Treasurer (Principal Financial Officer
and Principal Accounting Officer)
FRANCISCAN VINEYARDS, INC.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
SCV-EPI VINEYARDS,ALLBERRY, INC.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
- 30 -
ALLBERRY, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
CLOUD PEAK CORPORATION
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 22 -
M.J. LEWIS CORP.
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
MT. VEEDER CORPORATION
Dated: January 14,July 13, 2000 By:/s/ Thomas F. Howe
-----------------------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: January 14,July 13, 2000 By:/s/ Thomas S. Summer
-----------------------------------------------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 31 -
BARTON INCORPORATED
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, President and
Chief Executive Officer
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS, LTD.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
- 23 -
BARTON BEERS, LTD.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS OF CALIFORNIA, INC.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
- 32 -
BARTON BRANDS OF GEORGIA, INC.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON CANADA, LTD.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
- 24 -
BARTON DISTILLERS IMPORT CORP.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON FINANCIAL CORPORATION
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers,Troy J. Christensen
-------------------------------------
Troy J. Christensen, President and
Secretary
Dated: January 14,July 13, 2000 By:/s/ Charles T. Schlau
----------------------------------
Charles T. Schlau, TreasurerThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President
(Principal Financial Officer and
Principal Accounting Officer)
- 33 -
STEVENS POINT BEVERAGE CO.
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
MONARCH IMPORT COMPANY
Dated: January 14,July 13, 2000 By:/s/ Alexander L. Berk
-----------------------------------------------------------------------
Alexander L. Berk, President
Dated: January 14,July 13, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, ExecutiveThomas S. Summer
-------------------------------------
Thomas S. Summer, Vice President Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
THE VIKING DISTILLERY, INC.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary
(Principal Financial Officer and
Principal Accounting Officer)
- 3425 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION.
2.1 Recommended Cash Offer, by Schroders on behalf of Canandaigua Limited, a
wholly-owned subsidiary of the Company, to acquire Matthew Clark plc
(filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated
December 1, 1998 and incorporated herein by reference).
2.2 Asset Purchase Agreement dated as of February 21, 1999 by and among Diageo
Inc., UDV Canada Inc., United Distillers Canada Inc. and the Company (filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated April 9,
1999 and incorporated herein by reference).
2.32.2 Stock Purchase Agreement, dated April 21, 1999, between Franciscan
Vineyards, Inc., Agustin Huneeus, Agustin Francisco Huneeus, Jean-Michel
Valette, Heidrun Eckes-Chantre Und Kinder Beteiligungsverwaltung II, GbR,
Peter Eugen Eckes Und Kinder Beteiligungsverwaltung II, GbR, Harald
Eckes-Chantre, Christina Eckes-Chantre, Petra Eckes-Chantre and Canandaigua
Brands, Inc. (filed as Exhibit 2.1 on the Company's Current Report on Form
8-K dated June 4, 1999 and incorporated herein by reference).
2.42.3 Stock Purchase Agreement by and between Canandaigua Wine Company, Inc. (a
wholly-owned subsidiary of the Company) and Moet Hennessy, Inc. dated April
1, 1999 (including a list briefly identifying the contents of all omitted
schedules thereto) (filed as Exhibit 2.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 31, 1999 and incorporated
herein by reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1998 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 August
31, 1998 and incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1 Credit Agreement,Supplemental Indenture No. 4, dated as of October 6, 1999, between the Company,
certain principal subsidiaries,May 15, 2000 by and certain banks for which The Chase
Manhattan Bank acts as Administrative Agent, The Bank of Nova Scotia acts
as Syndication Agent, and Credit Suisse First Boston and Citicorp USA,
Inc. acts as Co-Documentation Agents (including a list briefly identifying
the contents of all omitted schedules and exhibits thereto) (filed
herewith). The Company will furnish supplementally to the Commission, upon
request, a copy of any omitted schedule or exhibit.
4.2 Indenture with respect to 8 1/2% Senior Notes due 2009, dated as of
November 17, 1999, among the
Company, as Issuer, certainits principal operating subsidiaries, as Guarantors,
and Harris Trust and Savings Bank, as Trustee (filed as Exhibit 4.14.17 to the
Company's Registration StatementAnnual Report on Form S-4
(Registration No. 333-9436902) and incorporated herein by reference).
- 35 -
4.3 Registration Rights Agreeement, dated as of November 17, 1999, among10-K for the Company, the guarantors named therein, and J.P. Morgan Securities Ltd.
(filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-9436902)fiscal year ended February 29,
2000 and incorporated herein by reference).
(10) MATERIAL CONTRACTS.
Credit Agreement, dated as of October 6, 1999, between the Company,
certain principal subsidiaries, and certain banks for which The Chase
Manhattan Bank acts as Administrative Agent, The Bank of Nova Scotia acts
as Syndication Agent, and Credit Suisse First Boston and Citicorp USA,
Inc. acts as Co-Documentation Agents (filed herewith as Exhibit 4.17).Not applicable.
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
- 26 -
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.