FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X][x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 1997
-----------------May 31, 1998
------------
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 0-7570
DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709
AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994
NEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581
NEW YORK ROBERTS TRADING CORP. 16-0865491
DELAWARE BARTON INCORPORATED 36-3500366
DELAWARE BARTON BRANDS, LTD. 36-3185921
MARYLAND BARTON BEERS, LTD. 36-2855879
CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC. 06-1048198
GEORGIA BARTON BRANDS OF GEORGIA, INC. 58-1215938
NEW YORK BARTON DISTILLERS IMPORT CORP. 13-1794441
DELAWARE BARTON FINANCIAL CORPORATION 51-0311795
WISCONSIN STEVENS POINT BEVERAGE CO. 39-0638900
ILLINOIS MONARCH IMPORT COMPANY 36-3539106
GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as specified (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
No.)
organization)
235 NORTH BLOOMFIELD ROAD, CANANDAIGUA,300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14424
------------------------------------------------------14450
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 393-4130
--------------
(Registrant's-------------------------------------------------------
(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 16, 1997,June 17, 1998, 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 15,377,36715,481,481
Class B Common Stock, Par Value $.01 Per Share 3,330,4583,296,976
Page- 1 -
PART I - FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTS.Financial Statements.
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
November 30, 1997May 31, 1998 February 28, 1997
-----------------1998
------------ -----------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 2,298765 $ 10,0101,232
Accounts receivable, net 184,992 142,592169,592 142,615
Inventories, net 419,392 326,626362,915 394,028
Prepaid expenses and other current assets 19,295 21,787
----------- -----------22,055 26,463
------------ ------------
Total current assets 625,977 501,015555,327 564,338
PROPERTY, PLANT AND EQUIPMENT, net 241,381 249,552243,663 244,035
OTHER ASSETS 264,155 270,334
----------- -----------264,457 264,786
------------ ------------
Total assets $ 1,131,5131,063,447 $ 1,020,901
=========== ===========1,073,159
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 161,00080,000 $ 57,00091,900
Current maturities of long-term debt 40,119 40,46724,118 24,118
Accounts payable 69,838 63,49244,020 52,055
Accrued Federal and state excise taxes 20,218 17,05821,342 17,498
Other accrued expenses and liabilities 93,803 68,556
----------- -----------95,795 97,763
------------ ------------
Total current liabilities 384,978 246,573
----------- -----------265,275 283,334
------------ ------------
LONG-TERM DEBT, less current maturities 275,300 338,884
----------- -----------303,311 309,218
------------ ------------
DEFERRED INCOME TAXES 64,695 61,395
----------- -----------59,237 59,237
------------ ------------
OTHER LIABILITIES 7,862 9,316
----------- -----------5,827 6,206
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at November 30, 1997,May 31, 1998, and
February 28, 1997 -- --1998 - -
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares;
Issued, 17,576,50717,653,316 shares at November 30, 1997,May 31, 1998,
and 17,462,33217,604,784 shares at February 28, 1997 175 1741998 177 176
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,922,701 shares at May 31, 1998,
and 3,956,183 shares at November 30, 1997, and
February 28, 1997 401998 39 40
Additional paid-in capital 226,242 222,336232,638 231,687
Retained earnings 210,297 170,275
----------- -----------
436,754 392,825
----------- -----------233,961 220,346
------------ ------------
466,815 452,249
------------ ------------
Less-Treasury stock-
Class A Common Stock, 2,199,3202,180,625 shares at
November 30, 1997,May 31, 1998, and 1,915,4682,199,320 shares at
February 28, 1997,1998, at cost (34,811) (34,878) (25,885)
Class B Convertible Common Stock, 625,725 shares
at November 30, 1997,May 31, 1998, and February 28, 1997,1998, at cost (2,207) (2,207)
----------- ----------------------- ------------
(37,018) (37,085)
(28,092)
----------- -----------
Less-Unearned compensation-restricted stock award (991) --
----------- ----------------------- ------------
Total stockholders' equity 398,678 364,733
----------- -----------429,797 415,164
------------ ------------
Total liabilities and stockholders' equity $ 1,131,5131,063,447 $ 1,020,901
=========== ===========1,073,159
============ ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
Page- 2 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Three Months Ended May 31,
---------------------------------------
1998 1997
--------------- ---------------
(unaudited) (unaudited)
GROSS SALES $ 422,869 $ 411,038
Less - Excise taxes (109,941) (105,027)
-------------- --------------
Net sales 312,928 306,011
COST OF PRODUCT SOLD (219,992) (225,279)
-------------- --------------
Gross profit 92,936 80,732
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (61,332) (55,225)
-------------- --------------
Operating income 31,604 25,507
INTEREST EXPENSE, net (8,527) (8,479)
-------------- --------------
Income before provision for Federal
and state income taxes 23,077 17,028
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (9,462) (6,982)
-------------- --------------
NET INCOME $ 13,615 $ 10,046
============== ==============
SHARE DATA:
Earnings per common share:
Basic $ 0.73 $ 0.54
============== ==============
Diluted $ 0.70 $ 0.53
============== ==============
Weighted average common shares
outstanding:
Basic 18,748 18,770
Diluted 19,328 19,045
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 3 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMECASH FLOWS
(in thousands, except share data)thousands)
For the Nine Months Ended November 30,
For the Three Months Ended November 30,
-------------------------------------- ---------------------------------------May 31,
----------------------------------
1998 1997
1996 1997 1996
------------ ------------ ------------ ------------
(unaudited) (unaudited)----------- -----------
(unaudited) (unaudited)
GROSS SALESCASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,252,37213,615 $ 1,180,849 $ 432,046 $ 425,983
Less10,046
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of property, plant and equipment 6,000 6,411
Amortization of intangible assets 2,508 2,357
Amortization of discount on long-term debt 93 85
Stock-based compensation expense 25 66
Gain on sale of property, plant and equipment - Excise taxes (322,134) (307,405) (109,343) (108,250)
------------ ------------ ------------ ------------
Net sales 930,238 873,444 322,703 317,733
COST OF PRODUCT SOLD (666,747) (649,019) (224,703) (236,050)
------------ ------------ ------------ ------------
Gross profit 263,491 224,425 98,000 81,683
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (171,772) (161,139) (60,289) (58,269)
------------ ------------ ------------ ------------
Operating income 91,719 63,286 37,711 23,414
INTEREST EXPENSE,(1,031)
Change in operating assets and liabilities:
Accounts receivable, net (23,885) (25,468) (7,861) (8,665)
------------ ------------ ------------ ------------
Income before provision for(26,957) (13,769)
Inventories, net 31,114 36,340
Prepaid expenses and other current assets 4,628 2,791
Accounts payable (8,035) (10,101)
Accrued Federal and state incomeexcise taxes 67,834 37,818 29,850 14,749
PROVISION FOR FEDERAL3,844 3,971
Other accrued expenses and liabilities (1,969) 10,494
Other assets and liabilities, net (2,097) (491)
---------- ----------
Total adjustments 9,154 37,123
---------- ----------
Net cash provided by operating activities 22,769 47,169
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,628) (6,626)
Purchase of joint venture minority interest (706) -
Proceeds from sale of property, plant and equipment - 5,818
---------- ----------
Net cash used in investing activities (6,334) (808)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable (11,900) (35,500)
Principal payments of long-term debt (6,000) (10,116)
Proceeds from employee stock purchases 650 204
Exercise of employee stock options 348 273
Purchase of treasury stock - (9,233)
Payment of issuance costs of long-term debt - (378)
---------- ----------
Net cash used in financing activities (16,902) (54,750)
---------- ----------
NET DECREASE IN CASH AND STATE INCOME TAXES (27,812) (16,065) (12,239) (6,438)
------------ ------------ ------------ ------------
NET INCOMECASH INVESTMENTS (467) (8,389)
CASH AND CASH INVESTMENTS, beginning of period 1,232 10,010
---------- ----------
CASH AND CASH INVESTMENTS, end of period $ 40,022765 $ 21,753 $ 17,611 $ 8,311
============ ============ ============ ============
SHARE DATA:
Net income per common and common
equivalent share:
Primary $ 2.07 $ 1.10 $ 0.90 $ 0.42
============ ============ ============ ============
Fully diluted $ 2.05 $ 1.10 $ 0.90 $ 0.42
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding:
Primary 19,324,073 19,864,901 19,544,459 19,617,854
Fully diluted 19,512,046 19,864,901 19,563,020 19,778,9931,621
========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements.
Page 3
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine Months Ended November 30,
--------------------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,022 $ 21,753
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation of property, plant and equipment 18,806 18,662
Amortization of intangible assets 6,987 7,155
Deferred tax provision 6,900 10,000
Stock-based compensation expense 529 20
Amortization of discount on long-term debt 261 29
(Gain) loss on sale of property, plant and equipment (3,036) 201
Change in operating assets and liabilities:
Accounts receivable, net (42,192) (55,635)
Inventories, net (91,008) (31,793)
Prepaid expenses and other current assets 2,552 9,176
Accounts payable 6,896 18,510
Accrued Federal and state excise taxes 3,161 3,150
Other accrued expenses and liabilities 21,649 17,951
Other assets and liabilities, net (1,043) (3,815)
--------- ---------
Total adjustments (69,538) (6,389)
--------- ---------
Net cash (used in) provided by operating activities (29,516) 15,364
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of minor disposals (23,206) (25,318)
Proceeds from sale of property, plant and equipment 12,547 5,171
Payment of accrued earn-out amounts -- (13,848)
--------- ---------
Net cash used in investing activities (10,659) (33,995)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 104,000 18,700
Proceeds from employee stock purchases 1,256 998
Exercise of employee stock options 1,194 10
Principal payments of long-term debt (64,193) (39,612)
Purchases of treasury stock (9,233) (19,997)
Payment of issuance costs of long-term debt (561) (1,478)
Proceeds from issuance of long-term debt, net of discount -- 61,668
--------- ---------
Net cash provided by financing activities 32,463 20,289
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (7,712) 1,658
CASH AND CASH INVESTMENTS, beginning of period 10,010 3,339
--------- ---------
CASH AND CASH INVESTMENTS, end of period $ 2,298 $ 4,997
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Goodwill reduction on settlement of disputed final closing net
current asset statement for Vintners Acquisition $ -- $ 5,894
========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements.
Page- 4 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997MAY 31, 1998
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission 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 Canandaigua Brands, Inc. and its
subsidiaries. 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, 1997.1998.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Certain November 1996May 1997 balances have been reclassified to conform with current
year presentation.
3) INVENTORIES:
Inventories are valued at the lower of cost (computed in accordance with
the last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or market.
Substantially all of the inventories are valued using the LIFO method. Elements
of cost include materials, labor and overhead and consist of the following:
November 30,May 31, February 28,
1997 1997
------------1998 1998
----------- ------------
(in thousands)
Raw materials and supplies $ 13,20314,225 $ 14,191
Wines14,439
Wine and distilled spirits in process 330,987 262,289269,108 304,037
Finished case goods 98,707 72,52696,102 92,948
--------- ---------
442,897 349,006379,435 411,424
Less - LIFO reserve (23,505) (22,380)(16,520) (17,396)
--------- ---------
$ 419,392362,915 $ 326,626394,028
========= =========
Information related to the FIFO method of inventory valuation may be useful
in comparing operating results to those companies not using the LIFO method of
inventory valuation. If the FIFO method had been used, reported net income would
have been $0.7$0.5 million, or $0.03 per share on a fully diluted basis, higherlower for the
ninethree months ended November 30, 1997,May 31, 1998, and reported net income would have been $12.5$1.4
million, or $0.63$0.07 per share on a fully diluted basis, higher for the ninethree months
ended November 30, 1996.May 31, 1997.
Page- 5 -
4) NET INCOMEEARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Net incomeThe Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," (SFAS No. 128) effective February 28,
1998. Basic earnings per common share excludes the effect of common stock
equivalents and is computed by dividing income available to common equivalent share is based onstockholders
by the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutivethe period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common equivalent shares consistshare reflects 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 assumes the exercise of stock options.options
using the treasury stock method and assumes the conversion of convertible
securities, if any, using the "if converted" method. Historical earnings per
common share have been restated to conform with the provisions of SFAS No. 128.
The computation of basic and diluted earnings per common share is as
follows:
For the Three Months
Ended May 31,
--------------------
1998 1997
-------- --------
(in thousands, except per share data)
Income applicable to common shares $ 13,615 $ 10,046
======== ========
Weighted average common shares outstanding - basic 18,748 18,770
Stock options 580 275
-------- --------
Weighted average common shares outstanding - diluted 19,328 19,045
======== ========
EARNINGS PER COMMON SHARE - BASIC $ 0.73 $ 0.54
======== ========
EARNINGS PER COMMON SHARE - DILUTED $ 0.70 $ 0.53
======== ========
5) STOCK INCENTIVE PLANS:
AtRETIREMENT SAVINGS AND PROFIT SHARING RETIREMENT PLAN:
Effective March 1, 1998, the Company's Annual Meetingexisting retirement savings and
profit sharing retirement plans and the Barton profit sharing and 401(k) plan
were merged into the Canandaigua Brands, Inc. 401(k) and Profit Sharing Plan
(the Plan). The Plan covers substantially all employees, excluding those
employees covered by collective bargaining agreements. The 401(k) portion of Stockholders heldthe
Plan permits eligible employees to defer a portion of their compensation (as
defined in the Plan) on July 22, 1997,
stockholders approveda pretax basis. Participants may defer up to 10% of
their compensation for the amendment and restatementyear, subject to limitations of the Plan. The Company
makes a matching contribution of 50% of the first 6% of compensation a
participant defers. The amount of the Company's Stock
Option and Stock Appreciation Rightcontribution under the profit
sharing portion of the Plan is in such discretionary amount as the Long-Term Stock Incentive Plan
and the adoptionBoard of
Directors may annually determine, subject to limitations of the Company's Incentive Stock Option Plan.
Under the Long-Term Stock Incentive Plan, non-qualified stock options,
stock appreciation rights, restricted stock and other stock-based awards may be
granted to employees, officers and directors of the Company. Grants, in the
aggregate, may not exceed 4,000,000 shares of the Company's Class A Common
Stock.
Under the Incentive Stock Option Plan, incentive stock options may be
granted to employees, including officers, of the Company. Grants, in the
aggregate, may not exceed 1,000,000 shares of the Company's Class A Common
Stock. The exercise price of any incentive stock option may not be less than the
fair market value of the shares on the date of grant.
6) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The subsidiary guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarized financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
- 6 -
the Company are not presented because the Company has determined that such
financial statements would not be material to investors. The subsidiary
guarantors comprise all of the direct and indirect subsidiaries of the Company,
other than the non-guarantornonguarantor subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the Company in the form of cash
dividends or loan repayments. Therepayments; however, except for limited amounts, the
subsidiary guarantors may not loan funds to the Company.
The following table presents summarized financial information for
subsidiary guarantors in connection with all of the Company's 8.75% Senior
Subordinated Notes:
November 30,May 31, February 28,
1997 19971998 1998
--------- ------------ -----------
(in thousands)
Balance Sheet Data:
Current assets $ 501,384453,925 $ 401,870460,618
Noncurrent assets $ 390,495395,382 $ 403,068395,225
Current liabilities $ 104,699104,497 $ 100,009102,207
Noncurrent liabilities $ 64,48061,899 $ 65,300
Page 6
For the Nine Months61,784
For the Three Months
Ended November 30, Ended November 30,
-------------------- --------------------May 31,
-----------------------
1998 1997
1996 1997 1996
-------- -------- -------- ----------------- ---------
(in thousands)
Income Statement Data:
Net sales $764,457 $718,676 $250,119 $264,883$ 262,578 $ 261,274
Gross profit $153,590 $127,306 $ 47,16558,212 $ 48,59953,332
Income before provision for Federal
and state income taxes $ 58,65823,045 $ 34,602 $ 17,210 $ 18,04321,215
Net income $ 34,88613,545 $ 19,903 $ 10,118 $ 10,46612,665
7) ACCOUNTING PRONOUNCEMENTS:SUBSEQUENT EVENTS:
INCREASE IN NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK -
In February 1997, StatementJune 1998, the Company's Board of Financial Accounting Standards No. 128,
"Earnings per Share," (SFAS No. 128)Directors approved, subject to the
approval of the stockholders of the Company, an increase in the number of
authorized shares of Class A Common Stock to 120,000,000 shares and Statementthe
aggregate number of Financial Accounting
Standards No. 129, "Disclosureauthorized shares of Information about Capital Structure," (SFAS
No. 129) were issued. SFAS No. 128 requires the Company to present basic141,000,000 shares.
STOCK REPURCHASE AUTHORIZATION -
In June 1998, the Company's Board of Directors authorized the repurchase of
up to $100,000,000 of its Class A Common Stock and diluted earnings per share in the financial statements.Class B Convertible Common
Stock. The Company is required
to adopt SFAS No. 128 formay finance such purchases, which will become treasury
shares, through cash generated from operations or through the year ending February 28, 1998, and restate
previously reported earnings per share. Early adoption is not permitted. The
Company believes the effect of adoption will not be material. SFAS No. 129
consolidates specific existing disclosure requirements and establishes standards
for disclosing information about an entity's capital structure. The Company is
required to adopt SFAS No. 129 for the year ending February 28, 1998. The
Company believes the effect of adoption will not be material.bank credit
agreement.
- 7 -
BANK CREDIT AGREEMENT AMENDMENT -
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," (SFAS No. 131) were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. The Company is required to adopt SFAS No.
130 for interim periods and fiscal years beginning March 1, 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company believes1998, the effect of adoption
will not be material. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
reporting of selected information in interim financial statements. The Company
is required to adopt SFAS No. 131 for fiscal years beginning March 1, 1998, and
for interim periods beginning March 1, 1999. Restatement of comparative
information for earlier years is required in the initial year of adoption and
comparative information for interim periods in the initial year of adoption is
to be reported for interim periods in the second year of application. The
Company has not yet determined the impact of SFAS No. 131 on its financial
statements.
8) SUBSEQUENT EVENT - NEW CREDIT AGREEMENT:
Senior credit facility:
On December 19, 1997, the Company and a syndicate of banks (the Syndicate
Banks) entered into a new $325.0 million senior Credit Agreement (the Credit
Agreement). The proceeds of the Credit Agreement were used to repay all
outstanding principal and accrued interest on all loans under the Company's
Third Amended and Restated Credit Agreement, as amended. As compared to the
previous bank credit agreement the Credit Agreement includes,was amended to, among other things,
lower interest rates, lower
Page 7
quarterly loan amortization and greater flexibility with respect to effecting
acquisitions, incurring indebtedness and repurchasingeliminate the Company's capital
stock.
The Credit Agreement provides for a $140.0 million term loan facility due
in June 2003 and a $185.0 million revolving loan facility, including letters of
credit up to a maximum of $20.0 million, which expires in June 2003. The rate of
interest payable, at the Company's option, is a function of the London interbank
offered rate (LIBOR) plus a margin, federal funds rate plus a margin or the
prime rate. The margin is adjustable based upon the Company's Debt Ratio (as
defined in the Credit Agreement). There are certain mandatory term loan
prepayments including, if the proceeds of which are not used to finance an
acquisition, aggregate net proceeds received in excess of $50.0 million from any
Debt Incurrence (as defined in the Credit Agreement) and 50% of any net proceeds
from the sale of equity, and net proceeds from the sale of assets not reinvested
in like assets.
The term loan facility requires quarterly repayments of $6.0 million
beginning March 1998 through December 2002, and payments of $10.0 million in
March 2003 and June 2003. Currently, the margin on the term loan facility
borrowings is 0.75% and may be decreased by up to 0.35% and increased by up to
0.5% depending on the Company's Debt Ratio.
The revolving loan facility is utilized to finance working capital
requirements. The Credit Agreement requiresrequirement that the Company reduce the outstanding balance of the
revolving loan facility to less than $60.0 million$60,000,000 for thirty consecutive days
during the six months ending each August 31.
Currently, the margin on the revolving loan facility is 0.5% and may be
decreased by up to 0.25% and increased by up to 0.4% depending on the Company's
Debt Ratio. In addition, the Company pays a facility fee on the revolving loan
commitments. Currently, the facility fee is 0.25% and may be reduced or
increased by 0.1% subject to the Company's Debt Ratio.
The Syndicate Banks have been given security interests in substantially all
of the assets of the Company including mortgage liens on certain real property.
The Company is subject to customary secured lending covenants including those
restricting additional liens, the incurrence of additional indebtedness, the
sale of assets, the payment of dividends, transactions with affiliates and the
making of certain investments. The primary financial covenants require the
maintenance of a Debt Ratio, a senior debt coverage ratio, a fixed charge ratio
and an interest coverage ratio. Among the most restrictive covenants contained
in the Credit Agreement is the requirement to maintain a fixed charge ratio of
not less than 1.0 at the last day of each fiscal quarter for the most recent
four quarters.
Page 8
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, 1997May 31, 1998 ("ThirdFirst Quarter 1998"1999"), compared to the three months
ended November 30, 1996 ("Third Quarter 1997"), and for the nine months
ended November 30,May 31, 1997 ("Nine MonthsFirst Quarter 1998"), compared to the nine months ended
November 30, 1996 ("Nine Months 1997"), and (ii) financial liquidity and
capital resources for the nine months ended November 30, 1997.First Quarter 1999. 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, 1997.1998.
The Company operates primarily in theis a leading producer and marketer of beverage alcohol industry.brands.
The Company is principally a producer and supplier of wineswine and an importer and
producer of beersbeer and distilled spirits.spirits in the United States. The Company's
branded products and its
other products and servicesbeverage alcohol brands are marketed byin three operating divisions:
Canandaigua Wine Company, Barton Beersgeneral categories: wine, beer and
Barton Brands.distilled spirits.
RESULTS OF OPERATIONS
- ---------------------
THIRDFIRST QUARTER 19981999 COMPARED TO THIRDFIRST QUARTER 19971998
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volumesvolume (in thousands of cases), if applicable, for branded beverage alcohol
products and other products and services sold by the Company for ThirdFirst Quarter
1999 and First Quarter 1998.
First Quarter 1999 Compared to First Quarter 1998
and Third Quarter 1997.
Third Quarter 1998 Compared to Third Quarter 1997
---------------------------------------------------------------------------------------------------------------------------
Net Sales Unit Volume
------------------------------- ---------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products:1999 1998 1997 (Decrease) 1999 1998 1997 (Decrease)
-------- -------- ---------- ------ ------ ----------
Wine $153,353 $152,224 0.7% 7,799 7,943 (1.8%$118,788 $125,439 (5.3%) 6,140 6,720 (8.6%)
Beer 92,605 74,314 24.6% 7,357 5,892 24.9%118,796 97,614 21.7% 9,467 7,748 22.2%
Spirits 51,359 51,045 0.6% 2,520 2,476 1.8%51,830 50,362 2.9% 2,606 2,549 2.2%
Other (a) 25,386 40,150 (36.8%23,514 32,596 (27.9%) N/A N/A N/A
-------- -------- ----------- ------ ------ -----
$322,703 $317,733 1.6% 17,676 16,311 8.4%$312,928 $306,011 2.3% 18,213 17,017 7.0%
======== ======== =========== ====== ====== =====
(a) Other consists primarily of non-brandednonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
- 8 -
Net sales for ThirdFirst Quarter 19981999 increased to $322.7$312.9 million from $317.7$306.0
million for ThirdFirst Quarter 1997,1998, an increase of $5.0$6.9 million, or 1.6%2.3%. This
increase resulted primarily from (i) $18.3$21.2 million of additional beer sales,
largely Mexican beers, and (ii) $2.6$1.5 million of additional table winespirits sales. These
increases were partially offset by (i) $9.1 million of lower nonbranded sales,
ofprimarily grape juice concentrate bulksales, and (ii) $6.7 million of lower wine
and other brandedsales, primarily the result of lower table wine products.volume. Unit volume for branded
beverage alcohol products for ThirdFirst Quarter 19981999 increased 8.4%7.0% as compared to
ThirdFirst Quarter 1997.1998. The unit volume increase was the result of the increased
sales of the Company's Mexican beer brands and its spirits brands. UnitThese
increases were partially offset by lower unit volume of the Company's wine
brands, decreased slightlyprimarily table wine. To address lower wine sales, the Company is
implementing various programs, such as compared to Third Quarter 1997.
Page 9addressing noncompetitive consumer prices
of its wine products on a market-by-market basis as well as increasing its
promotional activities where appropriate.
GROSS PROFIT
The Company's gross profit increased to $98.0$92.9 million for ThirdFirst Quarter
19981999 from $81.7$80.7 million for ThirdFirst Quarter 1997,1998, an increase of $16.3$12.2 million, or
20.0%15.1%. As a percent of net sales, gross profit increased to 30.4%29.7% for ThirdFirst
Quarter 19981999 from 25.7%26.4% for ThirdFirst Quarter 1997.1998. The dollar increase in gross
profit resulted primarily from cost structure improvements and higher average
selling prices related to branded wine sales, and additional beer sales volume.unit volume,
partially offset by lower table wine unit volume and lower nonbranded unit
volume, primarily grape juice concentrate.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, gross profit reflected an addition of $1.8$0.9 million and
a reduction of $8.0$2.4 million in ThirdFirst Quarter 19981999 and ThirdFirst Quarter 1997,
respectively, due to the Company's LIFO accounting method. The Company's gross
profit for Third Quarter 1998, reflects the cumulative effect of revised cost
estimates, including more favorable grape costs than had been estimated through
the first six months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $60.3 million for
Third Quarter 1998 from $58.3 million for Third Quarter 1997, an increase of
$2.0 million, or 3.5%. The dollar increase in selling, general and
administrative expenses resulted principally from selling and other expenses
related to the Company's increased beer sales volume and overall growth.
Selling, general and administrative expenses as a percent of net sales increased
to 18.7% for Third Quarter 1998 as compared to 18.3% for Third Quarter 1997. The
increase in percent of net sales resulted from a change in the sales mix driven
by an increase in net sales of branded products, which have a higher percent of
marketing and selling costs relative to sales, partially offset by a decrease in
net sales of nonbranded products which have relatively little associated
marketing and selling costs.
INTEREST EXPENSE, NET
Net interest expense decreased to $7.9 million for Third Quarter 1998 from
$8.7 million for Third Quarter 1997, a decrease of $0.8 million, or 9.3%. The
decrease was primarily due to a decrease in the Company's average borrowings.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Third Quarter 1998 decreased to 41.0%
from 43.7% for Third Quarter 1997 as Third Quarter 1997 reflected a higher
effective tax rate in California caused by statutory limitations on the
Company's ability to utilize certain deductions.
NET INCOME
As a result of the above factors, net income increased to $17.6 million for
Third Quarter 1998 from $8.3 million for Third Quarter 1997, an increase of $9.3
million, or 111.9%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Third Quarter 1998
were $46.2 million, an increase of $14.2 million over EBITDA of $32.0 million
for Third Quarter 1997. EBITDA should not be construed as an alternative to
Page 10
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.
NINE MONTHS 1998 COMPARED TO NINE MONTHS 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases), if applicable, for branded beverage
alcohol products and other products and services sold by the Company for Nine
Months 1998 and Nine Months 1997.
Nine Months 1998 Compared to Nine Months 1997
-------------------------------------------------------------
Net Sales Unit Volume
------------------------------- ---------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1998 1997 (Decrease) 1998 1997 (Decrease)
-------- -------- ---------- ------ ------ ----------
Wine $400,891 $392,629 2.1% 20,961 20,809 0.7%
Beer 298,601 237,628 25.7% 23,796 18,964 25.5%
Spirits 153,093 141,266 8.4% 7,644 7,235 5.7%
Other (a) 77,653 101,921 (23.8%) N/A N/A N/A
-------- -------- ----- ------ ------ -----
$930,238 $873,444 6.5% 52,401 47,008 11.5%
======== ======== ===== ====== ====== =====
(a) Other consists primarily of non-branded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
Net sales for Nine Months 1998 increased to $930.2 million from $873.4
million for Nine Months 1997, an increase of $56.8 million, or 6.5%. This
increase resulted primarily from (i) $61.0 million of additional beer sales,
largely Mexican beers, (ii) $13.3 million of additional table wine sales and
(iii) $11.8 million of additional spirits sales. These increases were partially
offset by lower sales of grape juice concentrate, bulk wine and other branded
wine products. Unit volume for branded beverage alcohol products for Nine Months
1998 increased 11.5% as compared to Nine Months 1997. The unit volume increase
was largely the result of increased sales of the Company's Mexican beer brands
and its spirits brands. The increase in table wine brands unit volume was
partially offset by a decrease in unit volume of dessert wine brands and
sparkling wine brands.
GROSS PROFIT
The Company's gross profit increased to $263.5 million for Nine Months 1998
from $224.4 million for Nine Months 1997, an increase of $39.1 million, or
17.4%. As a percent of net sales, gross profit increased to 28.3% for Nine
Months 1998 from 25.7% for Nine Months 1997. The dollar increase in gross profit
resulted primarily from increased beer sales, higher average selling prices and
cost structure improvements related to branded wine sales, higher average
selling prices in excess of cost increases related to grape juice concentrate
sales and higher average selling prices and increased volume related to branded
spirits sales. These increases were partially offset by lower sales volume of
grape juice concentrate and bulk wine.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
Page 11
valuation ("FIFO") only, gross profit reflected a reduction of $1.1 million and
$21.8 million in Nine Months 1998 and Nine Months 1997,
respectively, due to the Company's LIFO accounting method.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $171.8$61.3 million for
Nine Months 1998First Quarter 1999 from $161.1$55.2 million for Nine Months 1997,First Quarter 1998, an increase of
$10.6$6.1 million, or 6.6%11.1%. The dollar increase in selling, general and
administrative expenses resulted principally from sellinghigher advertising and
other expenses
relatedpromotion costs associated with the increased unit volume of beer and spirits
products and the programs implemented to improve the Company's increased sales volume and overall growth.wine sales.
Selling, general and administrative expenses as a percent of net sales increased
to 18.5%19.6% for Nine Months 1998First Quarter 1999 as compared to 18.4%18.0% for Nine Months 1997.First Quarter 1998. The
increase in percent of net sales resulted from the programs implemented to
improve the Company's wine sales and from a change in the sales mix driven by an
increase in net sales of branded products which(which have a higher percent of
marketing and selling costs relative to sales, partially offset bysales), and a decrease in net sales of
nonbranded products which(which have relatively little associated marketing and
selling costs.
INTEREST EXPENSE, NET
Net interest expense decreased to $23.9 million for Nine Months 1998 from
$25.5 million for Nine Months 1997, a decrease of $1.6 million, or 6.2%costs). The
decrease was primarily due to a decrease in the Company's average borrowings
which was partially offset by an increase in the average interest rate.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Nine Months 1998 decreased to 41.0%
from 42.5% for Nine Months 1997 as Nine Months 1997 reflected a higher effective
tax rate in California caused by statutory limitations on the Company's ability
to utilize certain deductions.
NET INCOME
As a result of the above factors, net income increased to $40.0$13.6 million for
Nine Months 1998First Quarter 1999 from $21.8$10.0 million for Nine Months 1997,First Quarter 1998, an increase of
$18.3$3.6 million, or 84.0%35.5%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 1998First Quarter 1999
were $117.5$40.1 million, an increase of $28.4$5.8 million
- 9 -
over EBITDA of $89.1$34.3 million for Nine Months 1997.First Quarter 1998. 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, 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
Page 12
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 1998FIRST QUARTER 1999 CASH FLOWS
OPERATING ACTIVITIES
Net cash used inprovided by operating activities for Nine Months 1998First Quarter 1999 was $29.5$22.8
million, which resulted from a net increase of $130.7 million in operating
assets, partially offset by a net increase of $70.5$22.3 million in net income adjusted for noncash
items, plus a$0.5 million representing the net increase of $30.7 millionchange in operating assets and
liabilities. The net increase of $130.7 millionchange in operating assets and liabilities resulted
principallyprimarily from a $91.0$31.1 million net increaseseasonal decrease in inventory levels, primarily the
result of the purchase of grapes from the 1997 grape harvest, andpartially
offset by a $42.2$27.0 million increase in accounts receivable, primarily due to higher seasonal salesprincipally the
result of products. The net increase of $30.7 million in operating liabilities was
primarily due to a $21.6 million increase in other accrued expenses and
liabilities, including advertising and promotion accruals associated with the
Company's unit volume increase, accrued income taxes and accrued interest.increased beer sales.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Nine Months 1998First Quarter 1999 was $10.7$6.3
million, which resulted primarily from $23.2$5.6 million of capital expenditures,
including $8.7$2.7 million for vineyards, partially offset by proceeds from the sale of
property, plant and equipment of $12.5 million.vineyards.
Net cash provided byused in financing activities for Nine Months 1998First Quarter 1999 was $32.5$16.9
million, which resulted primarily from net proceedsrepayments of $104.0$11.9 million of
revolving loan borrowings under the Company's bank credit agreement partially
offset byplus
principal payments of $64.2$6.0 million of long-term debt and repurchase
of $9.2 million of the Company's Class A Common Stock.debt.
During January 1996,June 1998, the Company's Board of Directors authorized the
repurchase of up to $30.0$100.0 million of its Class A Common Stock and Class B
Common Stock (the "Repurchase Program"). During May 1997, the Company completed the
Repurchase Program with theStock. The repurchase of 362,100 shares of common stock will be accomplished,
from time to time, depending upon market conditions, through open market or
privately negotiated transactions. The Company may finance such repurchases
through cash generated from operations or through the bank credit agreement. The
Company is currently in the process of seeking an increase in its Class A Common
Stock at a costcapacity under
the bank credit agreement in order to increase its flexibility to make such
repurchases. The repurchased shares will become treasury shares and may be used
for general corporate purposes. No shares have been repurchased as of $9.2 million. With respect to the Repurchase Program, the
Company repurchased a total of 1,149,550 shares of Class A Common Stock at an
aggregate cost of $30.0 million, or at an average cost of $26.10 per share.June 22,
1998.
- 10 -
DEBT
Total debt outstanding as of November 30, 1997,May 31, 1998, amounted to $476.4$407.4 million, an increasea
decrease of $40.1$17.8 million from February 28, 1997,1998, resulting primarily from the
net proceedsrepayments of revolving loan borrowings partially offset byand principal payments of long-term
debt. The ratio of total debt to total capitalization decreased to 54.4%48.7% as of
November 30, 1997,May 31, 1998, from 54.5%50.6% as of February 28, 1997.1998.
As of November 30, 1997,May 31, 1998, under its bank credit agreement, the Company had
outstanding term loans of $122.2$134.0 million bearing interest at 6.5%6.4%, $161.0$80.0 million
of revolving loans bearing interest at 6.5%6.3%, undrawn revolving letters of credit
of $7.9$3.4 million, and $16.1$101.6 million in revolving loans available to be drawn indrawn.
During June 1998, the bank credit agreement was amended to, among other things,
eliminate the requirement that the Company reduce the outstanding balance of the
revolving loans.
Page 13loan facility to less than $60,000,000 for thirty consecutive days
during the six months ending each August 31.
As of November 30, 1997,May 31, 1998, the Company had outstanding $195.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due December 2003. The
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 notes
are guaranteed, on a senior subordinated basis, by substantially all of the
Company's operating subsidiaries.
On December 19, 1997, the Company, 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 $325.0 million senior
Credit Agreement (the "Credit Agreement"). The proceeds of the Credit Agreement
were used to repay all outstanding principal and accrued interest on all loans
under the Company's Third Amended and Restated Credit Agreement, as amended. As
compared to the previous bank credit agreement, the Credit Agreement includes,
among other things, lower interest rates, lower quarterly loan amortization and
greater flexibility with respect to effecting acquisitions, incurring
indebtedness and repurchasing the Company's capital stock.
The Credit Agreement provides for a $140.0 million term loan facility due
in June 2003 and a $185.0 million revolving loan facility, including letters of
credit up to a maximum of $20.0 million, which expires in June 2003. The rate of
interest payable, at the Company's option, is a function of the London interbank
offered rate (LIBOR) plus a margin, federal funds rate plus a margin or the
prime rate. The margin is adjustable based upon the Company's Debt Ratio (as
defined in the Credit Agreement). There are certain mandatory term loan
prepayments including, if the proceeds of which are not used to finance an
acquisition, aggregate net proceeds received in excess of $50.0 million from any
Debt Incurrence (as defined in the Credit Agreement) and 50% of any net proceeds
from the sale of equity, and net proceeds from the sale of assets not reinvested
in like assets.
The term loan facility requires quarterly repayments of $6.0 million
beginning March 1998 through December 2002, and payments of $10.0 million in
March 2003 and June 2003. Currently, the margin on the term loan facility
borrowings is 0.75% and may be decreased by up to 0.35% and increased by up to
0.5% depending on the Company's Debt Ratio.
The revolving loan facility is utilized to finance working capital
requirements. The Credit Agreement requires that the Company reduce the
outstanding balance of the revolving loan facility to less than $60.0 million
for thirty consecutive days during the six months ending each August 31.
Currently, the margin on the revolving loan facility is 0.5% and may be
decreased by up to 0.25% and increased by up to 0.4% depending on the Company's
Debt Ratio. In addition, the Company pays a facility fee on the revolving loan
commitments. Currently, the facility fee is 0.25% and may be reduced or
increased by 0.1% subject to the Company's Debt Ratio.
Each of the Company's principal operating subsidiaries has guaranteed,
jointly and severally, the Company's obligations under the Credit Agreement. The
Syndicate Banks have been given security interests in substantially all of the
assets of the Company and its subsidiaries. The Company and its subsidiaries are
subject to customary secured lending covenants including those restricting
additional liens, the incurrence of additional indebtedness, the sale of assets,
the payment of dividends, transactions with affiliates and the making of certain
investments. The primary financial covenants require the maintenance of a Debt
Ratio, a senior debt coverage ratio, a fixed charge ratio and an interest
coverage ratio. Among the most restrictive covenants contained in the Credit
Agreement is the requirement to maintain a fixed charge ratio of not less than
1.0 at the last day of each fiscal quarter for the most recent four quarters.
Page 14
As of December 22, 1997, under the Credit Agreement, the Company had
outstanding term loans of $140.0 million bearing interest at 6.7%, $116.0
million of revolving loans bearing interest at 6.4%, undrawn revolving letters
of credit of $7.2 million and $61.8 million available to be drawn in revolving
loans.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported under Item 3 in the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1997, which is incorporated herein
by reference, the Company was involved in an investigation in the State of New
Jersey with respect to regulatory trade practices in the beverage alcohol
industry. Effective October 14, 1997, the Company entered into a Consent Order
with the State of New Jersey to conclude the investigation with respect to the
Company. The Company's Consent Order fully resolves the matter without any
material effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.8-K
(a) See Index to Exhibits located on Page 1915 of this Report.
(b) No Reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended November 30, 1997.May 31, 1998.
Page 15- 11 -
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: DecemberJune 22, 19971998 By: /s/ Thomas F. Howe
---------------------------------------------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: DecemberJune 22, 19971998 By: /s/ Thomas S. Summer
---------------------------------------------------------------------
Thomas S. Summer, Senior Vice
President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: DecemberJune 22, 19971998 By: /s/ Thomas F. Howe
---------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: DecemberJune 22, 19971998 By: /s/ Thomas S. Summer
---------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: DecemberJune 22, 19971998 By: /s/ Thomas F. Howe
---------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: DecemberJune 22, 19971998 By: /s/ Thomas S. Summer
---------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Page 16- 12 -
CANANDAIGUA EUROPE LIMITED
Dated: DecemberJune 22, 19971998 By: /s/ Thomas F. Howe
---------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: DecemberJune 22, 19971998 By: /s/ Thomas S. Summer
---------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
ROBERTS TRADING CORP.
Dated: DecemberJune 22, 19971998 By: /s/ Thomas F. Howe
---------------------------------------------------------------------
Thomas F. Howe, Controller
Dated: DecemberJune 22, 19971998 By: /s/ Thomas S. Summer
---------------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
BARTON INCORPORATED
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, President and
Chief Operating Officer
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
BARTON BRANDS, LTD.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive
Vice President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
Page 17- 13 -
BARTON BEERS, LTD.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
BARTON BRANDS OF CALIFORNIA, INC.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
BARTON BRANDS OF GEORGIA, INC.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
BARTON DISTILLERS IMPORT CORP.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
Page 18- 14 -
BARTON FINANCIAL CORPORATION
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, President and
Secretary
Dated: DecemberJune 22, 19971998 By: /s/ Charles T. Schlau
---------------------------------------------------------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
MONARCH IMPORT COMPANY
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
THE VIKING DISTILLERY, INC.
Dated: DecemberJune 22, 19971998 By: /s/ Alexander L. Berk
---------------------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: DecemberJune 22, 19971998 By: /s/ Raymond E. Powers
---------------------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
Page 19- 15 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
Not applicable.
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1(a) Certificate of Amendment of the Certificate of Incorporation of Canandaigua Winethe
Company Inc. (now known as Canandaigua Brands, Inc.,
hereinafter in this Index to Exhibits, the "Company") (filed as Exhibit 3.1(a) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1997 and incorporated
herein by reference).
3.1(b) Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Transition Report on Form 10-K for the Transition
Period from September 1, 1995 to February 29, 1996 and incorporated
herein by reference).
3.2 Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1997 and incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Specimen of Certificate of Class A Common Stock of the Company (filed as
Exhibit 1.1 to the Company's Registration Statement on Form 8-A dated
April 28, 1992 and incorporated herein by reference).
4.2 Specimen of Certificate of Class B Common Stock of the Company (filed as
Exhibit 1.2 to the Company's Registration Statement on Form 8-A dated
April 28, 1992 and incorporated herein by reference).
4.3 Indenture dated as of December 27, 1993 among the Company, its
Subsidiaries and The Chase Manhattan Bank (as successor to Chemical Bank)
(filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 1993 and incorporated herein by
reference).
4.44.2 First Supplemental Indenture dated as of August 3, 1994 among the
Company, Canandaigua West, Inc. and The Chase Manhattan Bank (as
successor to Chemical Bank) (filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (Registration No. 33-56557) and
incorporated herein by reference).
4.54.3 Second Supplemental Indenture dated August 25, 1995, among the Company, V
Acquisition Corp. (a subsidiary of the Company now known as The Viking
Distillery, Inc.) and The Chase Manhattan Bank (as successor to Chemical
Bank )Bank) (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1995 and incorporated herein by
reference).
Page 20
4.64.4 Third Supplemental Indenture dated as of December 19, 1997 among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and The Chase
Manhattan Bank (filed as Exhibit 4.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998 and incorporated
herein by reference).
4.5 Indenture with respect to the 8 3/4% Series C Senior Subordinated Notes
Due 2003 dated as of October 29, 1996 among the Company, its Subsidiaries
and Harris Trust and Savings Bank (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-17673) and
incorporated herein by reference).
- 16 -
4.6 First Supplemental Indenture dated as of December 19, 1997 among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and Harris
Trust and Savings Bank (filed as Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1998 and
incorporated herein by reference).
4.7 Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank acts
as Administrative Agent, dated as of December 19, 1997 (filed as Exhibit
4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1998 and incorporated herein by reference).
(10) MATERIAL CONTRACTS.
10.1 Amendment Number 5 to the 1989 Employee Stock Purchase Plan of the
Company (filed herewith).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.
(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.