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 August 31, 19981999
---------------
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
ENGLAND AND WALES CANANDAIGUA LIMITED -----
NEW YORK POLYPHENOLICS, INC. 16-1546354
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 (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) 393-4130
-----------------------------------------------------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 September 23, 1998,30, 1999, 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 14,626,51014,896,803
Class B Common Stock, Par Value $.01 Per Share 3,248,1873,158,345
- 1 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
August 31, 1998 February 28, 1998
--------------- -----------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 1,473 $ 1,232
Accounts receivable, net 154,550 142,615
Inventories, net 345,972 394,028
Prepaid expenses and other current assets 37,550 26,463
----------- -----------
Total current assets 539,545 564,338
PROPERTY, PLANT AND EQUIPMENT, net 246,157 244,035
OTHER ASSETS 262,004 264,786
----------- -----------
Total assets $ 1,047,706 $ 1,073,159Statements
- ------- --------------------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
August 31, February 28,
1999 1999
----------- ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 4,340 $ 27,645
Accounts receivable, net 344,652 260,433
Inventories, net 602,257 508,571
Prepaid expenses and other current assets 74,206 59,090
----------- -----------
Total current assets 1,025,455 855,739
PROPERTY, PLANT AND EQUIPMENT, net 553,442 428,803
OTHER ASSETS 801,391 509,234
----------- -----------
Total assets $ 2,380,288 $ 1,793,776
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 75,077 $ 87,728
Current maturities of long-term debt 17,844 6,005
Accounts payable 150,354 122,746
Accrued excise taxes 41,469 49,342
Other accrued expenses and liabilities 214,287 149,451
----------- -----------
Total current liabilities 499,031 415,272
----------- -----------
LONG-TERM DEBT, less current maturities 1,274,295 831,689
----------- -----------
DEFERRED INCOME TAXES 110,261 88,179
----------- -----------
OTHER LIABILITIES 27,752 23,364
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at August 31, 1999, and
February 28, 1999 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 18,036,328 shares at August 31, 1999,
and 17,915,359 shares at February 28, 1999 180 179
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,796,524 shares at August 31, 1999,
and 3,849,173 shares at February 28, 1999 38 39
Additional paid-in capital 242,324 239,912
Retained earnings 313,028 281,081
Accumulated other comprehensive income-
Cumulative translation adjustment (4,907) (4,173)
----------- -----------
550,663 517,038
----------- -----------
Less-Treasury stock-
Class A Common Stock, 3,156,004 shares at
August 31, 1999, and 3,168,306 shares at (79,507) (79,559)
February 28, 1999, at cost
Class B Convertible Common Stock, 625,725 shares at
August 31, 1999, and February 28, 1999, at cost (2,207) (2,207)
----------- -----------
(81,714) (81,766)
----------- -----------
Total stockholders' equity 468,949 435,272
----------- -----------
Total liabilities and stockholders' equity $ 2,380,288 $ 1,793,776
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 63,000 $ 91,900
Current maturities of long-term debt 24,118 24,118
Accounts payable 65,624 52,055
Accrued Federal and state excise taxes 21,561 17,498
Other accrued expenses and liabilities 101,569 97,763
----------- -----------
Total current liabilities 275,872 283,334
----------- -----------
LONG-TERM DEBT, less current maturities 297,407 309,218
----------- -----------
DEFERRED INCOME TAXES 59,237 59,237
----------- -----------
OTHER LIABILITIES 5,445 6,206
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at August 31, 1998, and
February 28, 1998 -- --
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 17,802,475 shares at August 31, 1998,
and 17,604,784 shares at February 28, 1998 178 176
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,873,912 shares at August 31, 1998,
and 3,956,183 shares at February 28, 1998 39 40
Additional paid-in capital 234,992 231,687
Retained earnings 249,733 220,346
----------- -----------
484,942 452,249
----------- -----------
Less-Treasury stock-
Class A Common Stock, 3,029,505 shares at
August 31, 1998, and 2,199,320 shares at
February 28, 1998, at cost (72,990) (34,878)
Class B Convertible Common Stock, 625,725 shares
at August 31, 1998, and February 28, 1998, at cost (2,207) (2,207)
----------- -----------
(75,197) (37,085)
----------- -----------
Total stockholders' equity 409,745 415,164
----------- -----------
Total liabilities and stockholders' equity $ 1,047,706 $ 1,073,159
=========== ===========
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 Six Months Ended August 31, For the Three Months Ended August 31,
----------------------------------- -------------------------------------
1999 1998 19971999 1998
1997
----------- ----------- ----------- ----------------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 1,519,834 $ 880,150 $ 820,326814,845 $ 457,281 $ 409,288
Less - Excise taxes (368,085) (217,836) (212,791)(193,265) (107,895)
(107,764)
--------- --------- --------- --------------------- ------------ ------------ ------------
Net sales 1,151,749 662,314 607,535621,580 349,386 301,524
COST OF PRODUCT SOLD (467,767) (442,044) (247,775) (216,765)
--------- --------- --------- ---------(806,499) (467,017) (432,452) (246,150)
------------ ------------ ------------ ------------
Gross profit 194,547 165,491 101,611 84,759345,250 195,297 189,128 103,236
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (235,821) (128,786) (111,483)(125,320) (67,454)
(56,258)
--------- --------- --------- ---------NONRECURRING CHARGES (5,510) - - -
------------ ------------ ------------ ------------
Operating income 65,761 54,008 34,157 28,501103,919 66,511 63,808 35,782
INTEREST EXPENSE, net (50,675) (15,952) (16,024)(28,640) (7,425)
(7,545)
--------- --------- --------- --------------------- ------------ ------------ ------------
Income before provision for
Federal and state income taxes 49,809 37,984 26,732 20,95653,244 50,559 35,168 28,357
PROVISION FOR FEDERAL AND STATE
INCOME TAXES (20,422) (15,573) (10,960) (8,591)
--------- --------- --------- ---------(21,297) (20,729) (14,067) (11,626)
------------ ------------ ------------ ------------
NET INCOME $ 29,38731,947 $ 22,41129,830 $ 15,77221,101 $ 12,365
========= ========= ========= =========16,731
============ ============ ============ ============
SHARE DATA:
Earnings per common share:
Basic $ 1.571.78 $ 1.201.60 $ 0.851.17 $ 0.67
========= ========= ========= =========0.90
============ ============ ============ =============
Diluted $ 1.531.73 $ 1.181.56 $ 0.831.14 $ 0.65
========= ========= ========= =========0.88
============ ============ ============ =============
Weighted average common shares outstanding:
Basic 17,994 18,669 18,66518,010 18,589
18,559
Diluted 18,459 19,168 19,00218,499 19,051 18,962
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 Six Months Ended August 31,
-----------------------------------
1999 1998
1997
----------- ----------------------- ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,38731,947 $ 22,41129,830
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant and equipment 23,733 11,952 12,625
Amortization of intangible assets 10,410 5,015
4,699
Deferred tax provision 900 4,900Stock-based compensation expense 769 51
Amortization of discount on long-term debt 208 189
172
Stock-based compensation expense 51 350Deferred tax (benefit) provision (1,697) 900
Gain on sale of property, plant and equipmentassets (1,486) (3) (883)
Change in operating assets and liabilities:liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (64,766) (11,935) (17,518)
Inventories, net 48,056 (8,131)20,585 47,306
Prepaid expenses and other current assets (12,559) (10,867) 1,285
Accounts payable 9,383 11,339
57,408
Accrued Federal and state excise taxes (8,076) 4,063 2,669
Other accrued expenses and liabilities 2,906 1,58448,417 3,213
Other assets and liabilities, net 2,230 (2,549)
(717)
-------- ------------------- -----------
Total adjustments 59,117 58,443
-------- --------27,151 58,674
----------- -----------
Net cash provided by operating activities 59,098 88,504
80,854
-------- ------------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (452,491) -
Purchases of property, plant and equipment (30,759) (14,098)
(18,213)Proceeds from sale of assets 1,071 27
Purchase of joint venture minority interest - (716)
--
Proceeds from sale of property, plant and equipment 27 8,512
-------- ------------------- -----------
Net cash used in investing activities (482,179) (14,787)
(9,701)
-------- ------------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PurchasesProceeds from issuance of treasurylong-term debt 664,080 -
Exercise of employee stock (36,014) (9,233)options 1,194 2,154
Proceeds from employee stock purchases 601 1,284
Principal payments of long-term debt (242,529) (12,000)
Net repayments of notes payable (12,676) (28,900) (27,800)
Principal payments of long-term debt (12,000) (40,409)
Exercise of employee stock options 2,154 741
Proceeds from employee stock purchases 1,284 204
Payment of issuance costs of long-term debt -- (388)
-------- --------(10,751) -
Purchases of treasury stock - (36,014)
----------- -----------
Net cash used inprovided by (used in) financing
activities 399,919 (73,476)
(76,885)
-------- ------------------- -----------
Effect of exchange rate changes on cash and
cash investments (143) -
----------- -----------
NET (DECREASE) INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS (23,305) 241 (5,732)
CASH AND CASH INVESTMENTS, beginning of period 27,645 1,232
10,010
-------- ------------------- -----------
CASH AND CASH INVESTMENTS, end of period $ 4,340 $ 1,473
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including
cash acquired $ 4,278
======== ========554,235 $ -
Liabilities assumed (99,255) -
----------- -----------
Cash paid 454,980 -
Less - cash acquired (2,489) -
----------- -----------
Net cash paid for purchases of businesses $ 452,491 $ -
=========== ===========
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
AUGUST 31, 19981999
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by the Company,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 Canandaigua Brands, Inc. and its
subsidiaries.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.
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"). 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 purchase price was approximately
$185.5 million and was financed by the proceeds from the sale of the "Senior
Subordinated Notes" (as defined in Note 6).
The Black Velvet 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), $30.1 million, is being amortized
on a straight-line basis over 40 years. The results of operations of the Black
Velvet 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. and 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 million cash plus assumed debt, net of cash acquired, of
approximately $30.8 million. The purchase price was financed by additional term
loan borrowings under the bank credit agreement. Also, on June 4, 1999, the
Company acquired all of the outstanding capital stock of Simi Winery, Inc. (the
"Simi Acquisition"). The cash purchase price was approximately $57.5 million and
was financed by revolving loan borrowings under the bank credit agreement. 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, $72.0 million and $6.9 million, respectively, is being amortized on
a straight-line basis over 40 years. The Franciscan and Simi operations are
managed together as a separate business segment of the Company ("Franciscan").
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 six months ended August 31, 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 six months ended August 31, 1999 and 1998,
which gives effect to the acquisition of Matthew Clark plc ("Matthew Clark"),
the Black Velvet Acquisition and Franciscan as if they occurred on March 1,
1998. 2)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 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 Six Months Ended August 31,
-----------------------------------
1999 1998
--------------- ---------------
(in thousands, except per share data)
Net sales $ 1,179,113 $ 1,062,563
Income before income taxes $ 37,711 $ 55,300
Net income $ 22,627 $ 32,626
Earnings per common share:
Basic $ 1.26 $ 1.75
=============== ===============
Diluted $ 1.23 $ 1.70
=============== ===============
Weighted average common shares outstanding:
Basic 17,994 18,669
Diluted 18,459 19,168
3) INVENTORIES:
Inventories are valuedstated at the lower of cost (computed in accordance with
the last-in, first-out (LIFO) or first-in, first-out (FIFO) methods)method) 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:
August 31, February 28,
1998 1998
---------- ------------1999 1999
--------------- ---------------
(in thousands)
Raw materials and supplies $ 14,39537,523 $ 14,43932,388
Wine and distilled spirits in process 231,442 304,037362,514 344,175
Finished case goods 118,280 92,948
---------- ----------
364,117 411,424202,220 132,008
--------------- ---------------
$ 602,257 $ 508,571
=============== ===============
- 6 -
4) OTHER ASSETS:
The major components of other assets are as follows:
August 31, February 28,
1999 1999
--------------- ---------------
(in thousands)
Goodwill $ 421,079 $ 311,908
Trademarks 270,243 102,183
Distribution rights and
agency license agreements 87,052 76,894
Other 68,274 53,779
--------------- ---------------
846,648 544,764
Less - LIFO reserve (18,145) (17,396)
---------- ----------Accumulated amortization (45,257) (35,530)
--------------- ---------------
$ 345,972801,391 $ 394,028
========== ==========
Information related to the FIFO method509,234
=============== ===============
5) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components 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 $0.4 million, or $0.02 per share on a diluted basis, higher for the
six months endedother accrued expenses and liabilities are as
follows:
August 31, 1998,February 28,
1999 1999
--------------- ---------------
(in thousands)
Accrued advertising and reported netpromotions $ 53,830 $ 38,604
Accrued income would have been $1.7
million, or $0.09 per share on a diluted basis, higher for the six months ended
August 31, 1997.
- 5 -
3)taxes payable 28,765 9,347
Accrued interest 12,814 11,384
Accrued salaries and commissions 10,980 15,584
Other 107,898 74,532
--------------- --------------
$ 214,287 $ 149,451
=============== ==============
6) BORROWINGS:
BANK CREDIT AGREEMENT -
In June 1998, the bank credit agreement was amended to, among other things,
eliminate the requirement thatOn March 4, 1999, the Company reduce the outstanding balanceissued $200.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due March 2009 ("Senior Subordinated
Notes"). The net proceeds of the revolving loan facilityoffering (approximately $195.0 million) were
used to less than $60,000,000fund the Black Velvet Acquisition and to pay the fees and expenses
related thereto with the remainder of the net proceeds used for thirty consecutive days
duringgeneral
corporate purposes. Interest on the six months ending each August 31. In July 1998, the revolving loan
facility under the bank credit agreement was increased by $100.0 million to
$285.0 million.
4) RETIREMENT SAVINGS AND PROFIT SHARING RETIREMENT PLAN:
EffectiveSenior Subordinated Notes is payable
semiannually on March 1 1998,and September 1 of each year, beginning September 1,
1999. The Senior Subordinated Notes are redeemable at the Company's existing 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) portionoption of the Plan permits eligible employees to defer a portion of their compensation (as
definedCompany,
in the Plan)whole or in part, at any time on a pretax basis. Participants may defer up to 10% of
their compensation for the year, 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 contribution under the profit
sharing portion of the Plan is in such discretionary amount as the Board of
Directors may annually determine, subject to limitations of the Plan.
5) STOCKHOLDERS' EQUITY:
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 Class B Convertible Common
Stock.or after March 1, 2004. The Company may finance such purchases,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 will become treasury
shares, through cash generated from operations or throughincludes the bank credit
agreement. INCREASE IN NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCKThe Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company's significant operating
subsidiaries.
On August 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 5/8% Senior Notes due August 2006 ("Senior Notes"). The net proceeds
of the offering (approximately $196.0 million) was used to repay a portion of
the Company's borrowings under its bank credit agreement. Interest on the Senior
Notes is payable semiannually on February 1 and August 1 of each year, beginning
- In July 1998,7 -
February 1, 2000. The Senior Notes are redeemable at the stockholdersoption of the Company,
approved an increase in the
numberwhole or in part, at any time. The Senior Notes are unsecured senior
obligations and rank equally in right of authorized shares of Class A Common Stock from 60,000,000 sharespayment to 120,000,000 shares, thereby increasing the aggregate number of authorized sharesall existing and future
unsecured senior indebtedness of the Company to 141,000,000 shares.
6)Company. The Senior Notes are guaranteed,
on a senior basis, by certain of the Company's significant operating
subsidiaries.
7) EARNINGS PER COMMON SHARE:
The 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 excludesexclude the effect of common stock
equivalents and isare 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 reflectsreflect 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 assumesassume the exercise of stock options
using the treasury stock method and assumesassume the conversion of convertible
- 6 -
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 Six Months For the Three Months
Ended August 31, Ended August 31,
------------------------ -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(in thousands, except per share data)
Income applicable to common shares $ 31,947 $ 29,830 $ 21,101 $ 16,731
========== ========== ========== ==========
Weighted average common shares
outstanding - basic 17,994 18,669 18,010 18,589
Stock options 465 499 489 462
----------- ---------- ---------- ----------
Weighted average common shares
outstanding - diluted 18,459 19,168 18,499 19,051
=========== ========== ========== ==========
EARNINGS PER COMMON SHARE - BASIC $ 1.78 $ 1.60 $ 1.17 $ 0.90
=========== ========== ========== ==========
EARNINGS PER COMMON SHARE - DILUTED $ 1.73 $ 1.56 $ 1.14 $ 0.88
=========== ========== ========== ==========
8) STOCK INCENTIVE PLANS:
At the Six Months ForCompany's Annual Meeting of Stockholders held on July 20, 1999,
stockholders approved the Three Months
Ended August 31, Ended August 31,
------------------ --------------------
1998 1997 1998 1997
------- ------- ------- -------
(in thousands, except per share data)
Income applicableamendment to commonthe Company's Long-Term Stock Incentive
Plan to increase the aggregate number of shares $29,387 $22,411 $15,772 $12,365
======= ======= ======= =======
Weighted average commonof the Class A Stock available
for awards under the plan from 4,000,000 shares outstanding - basic 18,669 18,665 18,589 18,559
Stock options 499 337 462 403
------- ------- ------- -------
Weighted average common shares
outstanding - diluted 19,168 19,002 19,051 18,962
======= ======= ======= =======
EARNINGS PER COMMON SHARE - BASIC $ 1.57 $ 1.20 $ 0.85 $ 0.67
======= ======= ======= =======
EARNINGS PER COMMON SHARE - DILUTED $ 1.53 $ 1.18 $ 0.83 $ 0.65
======= ======= ======= =======
7)to 7,000,000 shares.
9) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The subsidiary guarantorsfollowing 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 notes ("Subsidiary
Guarantors") and the combined subsidiaries of the Company which are not
Subsidiary Guarantors, primarily Matthew Clark ("Subsidiary Nonguarantors"). 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.Subsidiary
Guarantors. Separate financial statements for the subsidiary guarantorsSubsidiary Guarantors of the
Company are not presented because the Company has determined that such financial
statements would not be material to investors. The subsidiary
guarantorsSubsidiary Guarantors
comprise all of the direct and indirect subsidiaries of the Company, other than
Matthew Clark, the nonguarantorCompany'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 guarantorsSubsidiary Guarantors to transfer funds to
the Company in the form of cash dividends, loans or loan repayments; however, except for limited amounts,advances.
- 8 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
(in thousands)
Balance Sheet Data:
August 31, 1999
- ---------------
Current assets $ 109,222 $ 610,468 $ 305,765 $ - $ 1,025,455
Noncurrent assets $ 922,563 $ 1,254,587 $ 458,473 $ (1,280,790) $ 1,354,833
Current liabilities $ 181,854 $ 29,961 $ 287,216 $ - $ 499,031
Noncurrent liabilities $ 1,267,132 $ 95,768 $ 49,408 $ - $ 1,412,308
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 $ - $ 943,232
Income Statement Data:
For the Six Months
- ------------------
Ended August 31, 1999
- ---------------------
Net sales $ 276,053 $ 694,858 $ 356,468 $ (175,630) $ 1,151,749
Gross profit $ 89,328 $ 153,379 $ 102,543 $ - $ 345,250
Income before
income taxes $ 6,592 $ 26,624 $ 20,028 $ - $ 53,244
Net income $ 3,955 $ 15,974 $ 12,018 $ - $ 31,947
For the Six Months
- ------------------
Ended August 31, 1998
- ---------------------
Net sales $ 248,590 $ 552,352 $ 1,093 $ (139,721) $ 662,314
Gross profit $ 71,268 $ 123,635 $ 394 $ - $ 195,297
(Loss) income before
income taxes $ (511) $ 51,359 $ (289) $ - $ 50,559
Net (loss) income $ (302) $ 30,302 $ (170) $ - $ 29,830
For the Three Months
- --------------------
Ended August 31, 1999
- ---------------------
Net sales $ 121,430 $ 395,639 $ 188,258 $ (83,747) $ 621,580
Gross profit $ 49,898 $ 83,504 $ 55,726 $ - $ 189,128
Income before
income taxes $ 11,616 $ 11,086 $ 12,466 $ - $ 35,168
Net income $ 6,969 $ 6,652 $ 7,480 $ - $ 21,101
- 9 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
(in thousands)
For the Three Months
- --------------------
Ended August 31, 1998
- ---------------------
Net sales $ 137,438 $ 289,774 $ 271 $ (78,097) $ 349,386
Gross profit $ 36,878 $ 66,298 $ 60 $ - $ 103,236
(Loss) income before
income taxes $ (404) $ 29,177 $ (416) $ - $ 28,357
Net (loss) income $ (238) $ 17,266 $ (297) $ - $ 16,731
10) 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
Corporate Operations and Other (primarily corporate related items). Segment
selection was based upon internal organizational structure, the subsidiary guarantors may not loan funds toway in which
these operations are managed and their performance evaluated by management and
the Company.Company's Board of Directors, the availability of separate financial
results, and materiality considerations. The following table presents summarized financial information for
subsidiary guarantors in connection with allaccounting policies of the Company's 8.75% Senior
Subordinated Notes: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.
Segment information is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Canandaigua Wine:
- -----------------
Net sales:
Branded:
External customers $ 292,182 $ 267,343 $ 149,540 $ 140,545
Intersegment 2,989 - 1,239 -
----------- ----------- ----------- -----------
Total Branded 295,171 267,343 150,779 140,545
----------- ----------- ----------- -----------
Other:
External customers 38,579 39,350 19,449 20,211
Intersegment 37 - - -
----------- ----------- ----------- -----------
Total Other 38,616 39,350 19,449 20,211
----------- ----------- ----------- -----------
Net sales $ 333,787 $ 306,693 $ 170,228 $ 160,756
Operating profit $ 16,019 $ 17,661 $ 10,412 $ 10,221
Long-lived assets $ 194,114 $ 187,329 $ 194,114 $ 187,329
Total assets $ 597,832 $ 562,397 $ 597,832 $ 562,397
Capital expenditures $ 12,708 $ 11,418 $ 7,070 $ 6,582
Depreciation and amortization $ 11,649 $ 10,716 $ 6,113 $ 5,125
- 10 -
For the Six Months For the Three Months
Ended August 31, Ended August 31,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Barton:
- -------
Net sales:
Beer $ 323,806 $ 259,929 $ 177,195 $ 141,133
Spirits 127,149 94,599 73,010 47,227
----------- ----------- ----------- -----------
Net sales $ 450,955 $ 354,528 $ 250,205 $ 188,360
Operating profit $ 73,459 $ 54,620 $ 41,962 $ 28,832
Long-lived assets $ 76,849 $ 51,008 $ 76,849 $ 51,008
Total assets $ 714,677 $ 484,607 $ 714,677 $ 484,607
Capital expenditures $ 2,668 $ 1,688 $ 1,752 $ 928
Depreciation and amortization $ 6,398 $ 5,392 $ 3,237 $ 2,700
Matthew Clark:
- --------------
Net sales:
Branded $ 155,254 $ - $ 80,879 $ -
Wholesale 194,753 - 102,331 -
----------- ----------- ----------- -----------
Net sales $ 350,007 $ - $ 183,210 $ -
Operating profit $ 19,310 $ - $ 11,980 $ -
Long-lived assets $ 170,703 $ - $ 170,703 $ -
Total assets $ 678,498 $ - $ 678,498 $ -
Capital expenditures $ 11,115 $ - $ 6,459 $ -
Depreciation and amortization $ 12,816 $ - $ 8,390 $ -
Franciscan:
- -----------
Net sales $ 17,137 $ - $ 17,137 $ -
Operating profit $ 1,571 $ - $ 1,571 $ -
Long-lived assets $ 94,716 $ - $ 94,716 $ -
Total assets $ 352,790 $ - $ 352,790 $ -
Capital expenditures $ 3,720 $ - $ 3,720 $ -
Depreciation and amortization $ 1,809 $ - $ 1,809 $ -
Corporate Operations and Other:
- -------------------------------
Net sales $ 2,889 $ 1,093 $ 2,004 $ 270
Operating loss $ (6,440) $ (5,770) $ (2,117) $ (3,271)
Long-lived assets $ 17,060 $ 7,820 $ 17,060 $ 7,820
Total assets $ 36,491 $ 18,847 $ 36,491 $ 18,847
Capital expenditures $ 548 $ 992 $ 437 $ 960
Depreciation and amortization $ 1,471 $ 859 $ 831 $ 634
- 11 -
For the Six Months For the Three Months
Ended August 31, Ended August 31,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Intersegment eliminations:
- --------------------------
Net sales $ (3,026) $ - $ (1,204) $ -
Consolidated:
- -------------
Net sales $ 1,151,749 $ 662,314 $ 621,580 $ 349,386
Operating profit $ 103,919 $ 66,511 $ 63,808 $ 35,782
Long-lived assets $ 553,442 $ 246,157 $ 553,442 $ 246,157
Total assets $ 2,380,288 $ 1,065,851 $ 2,380,288 $ 1,065,851
Capital expenditures $ 30,759 $ 14,098 $ 19,438 $ 8,470
Depreciation and amortization $ 34,143 $ 16,967 $ 20,380 $ 8,459
11) COMPREHENSIVE INCOME:
Comprehensive income consists of net income and foreign currency
translation adjustments for the six month and three month periods ended August
31, February 28,
1998 1998
---------- ------------
(in thousands)
Balance Sheet Data:
Current assets $440,223 $460,618
Noncurrent assets $394,917 $395,225
Current liabilities $121,729 $102,207
Noncurrent liabilities $ 62,010 $ 61,784
- 7 -1999. For the Six Months For the Three Months
Endedsix month and three month periods ended August 31, Ended August 31,
-------------------- --------------------
1998,
1997 1998 1997
-------- -------- -------- --------
(in thousands)
Income Statement Data:
Net sales $552,352 $514,338 $289,774 $253,064
Gross profit $122,885 $106,425 $ 64,673 $ 53,093
Income before provision for
Federal and statecomprehensive income taxes $ 50,451 $ 41,448 $ 27,406 $ 20,233
Netconsisted of net income, $ 29,766 $ 24,768 $ 16,221 $ 12,103
8)exclusively. The reconciliation of
net income to comprehensive net income is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(in thousands)
Net income $ 31,947 $ 29,830 $ 21,101 $ 16,731
Other comprehensive income:
Cumulative translation adjustment ( 734) - ( 1,584) -
------------ ------------ ------------ ------------
Total comprehensive income $ 31,213 $ 29,830 $ 19,517 $ 16,731
============ ============ ============ ============
12) ACCOUNTING PRONOUNCEMENT:PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS("SFAS No. 133)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.
TheIn 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
- 12 -
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, 2000.2001. The Company believes the
effect of the adoption on its financial statements will not be material.material based on
the Company's current risk management strategies.
13) SUBSEQUENT EVENT:
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 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. The Tranche II Term Loan facility requires quarterly
repayments of $1.6 million for each quarter in 2000, $3.2 million for each
quarter in 2001 and 2002, $4.0 million for each quarter in 2003 and $68.0
million in each quarter in 2004 (all such repayments shall be in British pound
sterling and the foregoing amounts reflect the U.S. dollar equivalents at
closing on October 6, 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. In addition, subject
to certain limitations applicable to inactive subsidiaries and to some of the
Company's foreign subsidiaries, all of the capital stock of each operating
wholly-owned subsidiary (other than the subsidiaries of Matthew Clark) has been
pledged to the Syndicate Banks as security for the obligations under the 2000
Credit Agreement.
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
- 13 -
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.
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS.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 August 31, 19981999 ("Second Quarter 1999"2000"), compared to the three
months ended August 31, 19971998 ("Second Quarter 1998"1999"), and for the six months
ended August 31, 1999 ("Six Months 2000"), compared to the six months ended
August 31, 1998 ("Six Months 1999"), compared to the six months ended
August 31, 1997 ("Six Months 1998"), and (ii) financial liquidity and capital
resources for Six Months 1999.2000. 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, 1998.1999.
The Company is a leading producer and marketer ofoperates primarily in the beverage alcohol brands.industry in the
United States and the United Kingdom. The Company isreports 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
Company'sMatthew 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 marketedreported in three general categories: wine, beerthe Barton segment
and distilled spirits.have been included in the consolidated results of operations of the Company
since the date of acquisition.
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. 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 includes the Simi winery,
equipment, vineyards and inventory. 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.
- 815 -
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
- ---------------------
SECOND QUARTER 19992000 COMPARED TO SECOND QUARTER 19981999
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volume (in thousandsby
operating segment of cases), if applicable, for branded beverage alcohol
products and other products and services sold by the Company for Second Quarter 19992000 and Second Quarter
1998.1999.
Second Quarter 19992000 Compared to Second Quarter 1998
-------------------------------------------------------------------1999
---------------------------------------------------
Net Sales
Unit Volume
--------------------------------- --------------------------------------------------------------------------------
%Increase/
%Increase/2000 1999 1998 (Decrease)
1999 1998 (Decrease)
-------- ----------------- --------- ----------
------ ------ ----------
Wine $132,064 $122,099 8.2% 6,654 6,442 3.3%
Beer 141,133 108,383 30.2% 11,177 8,691 28.6%
Spirits 50,183 51,372 (2.3%) 2,488 2,575 (3.4%)
Other (a) 26,006 19,670 32.2%Canandaigua Wine:
Branded:
External customers $ 149,540 $ 140,545 6.4 %
Intersegment 1,239 -- N/A
--------- ---------
Total Branded 150,779 140,545 7.3 %
--------- ---------
Other:
External customers 19,449 20,211 (3.8)%
Intersegment -- -- N/A
--------- ---------
Total Other 19,449 20,211 (3.8)%
--------- ---------
Canandaigua Wine net sales $ 170,228 $ 160,756 5.9 %
--------- ---------
Barton:
Beer $ 177,195 $ 141,133 25.6 %
Spirits 73,010 47,227 54.6 %
--------- ---------
Barton net sales $ 250,205 $ 188,360 32.8 %
--------- ---------
Matthew Clark:
Branded $ 80,879 $ -- N/A
-------- -------- ----- ------ ------ -----
$349,386 $301,524 15.9% 20,319 17,708 14.7%
======== ======== ===== ====== ====== =====
(a)Wholesale 102,331 -- N/A
--------- ---------
Matthew Clark net sales $ 183,210 $ -- N/A
--------- ---------
Franciscan $ 17,137 $ -- N/A
--------- ---------
Corporate Operations and Other consists primarily of nonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.$ 2,004 $ 270 642.2 %
--------- ---------
Intersegment eliminations $ (1,204) $ -- N/A
--------- ---------
Consolidated Net Sales $ 621,580 $ 349,386 77.9 %
========= =========
Net sales for Second Quarter 19992000 increased to $349.4$621.6 million from $301.5$349.4
million for Second Quarter 1998,1999, an increase of $47.9$272.2 million, or 15.9%77.9%.
CANANDAIGUA WINE
Net sales for Canandaigua Wine for Second Quarter 2000 increased to $170.2
million from $160.8 million for Second Quarter 1999, an increase of $9.5
million, or 5.9%. This increase resulted primarily from (i) $32.8 millionan increase in sales
of additional beer sales,
largely Mexican beers,Arbor Mist and Almaden box wine, (ii) $10.0 million of additionalan increase in the
- 16 -
Company's bulk wine sales resulting
primarily fromand (iii) growth in the introduction of new wineCompany's international
business. These increases were partially offset by declines in certain other
brands and (iii) $6.3 million of
additional nonbranded sales, primarilyin the Company's grape juice concentrate sales. Unit
volumebusiness.
BARTON
Net sales for branded beverage alcohol productsBarton for Second Quarter 2000 increased to $250.2 million
from $188.4 million for Second Quarter 1999, increased
14.7% as compared to Second Quarter 1998. The unit volumean increase was the
result of the increased$61.8 million, or
32.8%. This increase resulted primarily from an increase in sales of the Company'simported
beer brands primarilyled by Barton's Mexican beer, and the introduction of new wine brands. Notwithstanding an overall
increase in net sales and unit volume of its wine brands primarily due to the
introduction of new products, the Company has experienced a decline in many of
its other wine brands. The Company is addressing this through implementation of
various programs, such as addressing noncompetitive consumer prices of its wine
products on a market-by-market basisportfolio as well as increasing its promotional
activities where appropriate.from $24.7 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 Second Quarter 2000 were $183.2 million.
FRANCISCAN
Net sales for Franciscan for Second Quarter 2000 since the date of
acquisition, June 4, 1999, were $17.1 million.
GROSS PROFIT
The Company's gross profit increased to $101.6$189.1 million for Second Quarter
2000 from $103.2 million for Second Quarter 1999, from $84.8 million for Second Quarter 1998, an increase of $16.8$85.9 million,
or 19.9%83.2%. The dollar increase in gross profit was primarily related to sales
from the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all
completed after Second Quarter 1999, as well as increased Barton beer sales. As
a percent of net sales, gross profit increased to 29.1%30.4% for Second Quarter 19992000
from 28.1% for Second Quarter 1998. The dollar increase in gross
profit resulted primarily from additional beer unit volume, introduction of new
wine brands and unit cost improvements in wine and spirits brands.
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
- 9 -
valuation ("FIFO") only, gross profit reflected a reduction of $1.6 million and
$0.6 million29.5% in Second Quarter 1999, resulting primarily from sales of
higher-margin spirits and Second Quarter 1998, respectively, due
tosuper-premium and ultra-premium wine acquired in the
Company's LIFO accounting method.Black Velvet and Franciscan and Simi Acquisitions, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $125.3 million
for Second Quarter 2000 from $67.5 million for Second Quarter 1999, from $56.3 million for Second Quarter 1998, an increase
of $11.2$57.9 million, or 19.9%85.8%. The dollar increase in selling, general and
administrative expenses resulted principallyprimarily from higher advertising costs
associated with the introductionaddition of new wine brandsthe Matthew
Clark and increased beer sales,Franciscan businesses and higher promotion costsexpenses related to the growthbrands acquired in
the Black Velvet Acquisition. The Company also increased its marketing and
promotional costs to generate additional sales volume, particularly of Barton
beer sales as well as
programs implemented to improve the Company's wine sales.brands. Selling, general and administrative expenses as a percent of net
sales increased to 19.3%20.2% for SecondFirst Quarter 19992000 as compared to 18.7%19.3% for SecondFirst
Quarter 1998.1999. The increase in percent of net sales resulted primarily from advertising coststhe
Matthew Clark, Franciscan and Simi Acquisitions, as Matthew Clark and
Franciscan's selling, general and administrative expenses as a percent of net
sales is typically at the high end of the range of the Company's operating
segments' percentages.
- 17 -
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Second Quarter 2000 and Second
Quarter 1999.
Second Quarter 2000 Compared to Second Quarter 1999
---------------------------------------------------
Operating Profit/(Loss)
---------------------------------------------------
%Increase/
2000 1999 (Decrease)
-------- -------- ----------
Canandaigua Wine $ 10,412 $ 10,221 1.9 %
Barton 41,962 28,832 45.5 %
Matthew Clark 11,980 -- N/A
Franciscan 1,571 -- N/A
Corporate Operations and Other (2,117) (3,271) (35.3)%
-------- --------
Consolidated Operating Profit $ 63,808 $ 35,782 78.3 %
======== ========
As a result of the above factors, consolidated operating income increased
to $63.8 million for Second Quarter 2000 from $35.8 million for Second Quarter
1999, an increase of $28.0 million, or 78.3%.
INTEREST EXPENSE, NET
Net interest expense increased to $28.6 million for Second Quarter 2000
from $7.4 million for Second Quarter 1999, an increase of $21.2 million or
285.7%. The increase resulted primarily from additional interest expense
associated with the introduction of new wine brands and promotion costsborrowings related to programs
implemented to improve the Company's wine sales.Matthew Clark, Black Velvet,
Franciscan and Simi Acquisitions.
NET INCOME
As a result of the above factors, net income increased to $15.8$21.1 million for
Second Quarter 2000 from $16.7 million for Second Quarter 1999, from $12.4 million for Second Quarter 1998, an increase of
$3.4$4.4 million, or 27.6%26.1%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Second Quarter
19992000 were $42.6$84.2 million, an increase of $5.6$39.9 million over EBITDA of $37.0$44.2
million for Second 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.
SIX MONTHS 1999 COMPARED TO SIX MONTHS 1998
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volume (in thousands of cases), if applicable, for branded beverage alcohol
products and other products and services sold by the Company for Six Months 1999
and Six Months 1998.
Six Months 1999 Compared to Six Months 1998
-------------------------------------------------------------------
Net Sales Unit Volume
--------------------------------- -----------------------------
%Increase/ %Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
-------- -------- ---------- ------ ------ ----------
Wine $250,852 $247,538 1.3% 12,794 13,162 (2.8%)
Beer 259,929 205,996 26.2% 20,644 16,439 25.6%
Spirits 102,013 101,734 0.3% 5,094 5,124 (0.6%)
Other (a) 49,520 52,267 (5.3%) N/A N/A N/A
-------- -------- ----- ------ ------ -----
$662,314 $607,535 9.0% 38,532 34,725 11.0%
======== ======== ===== ====== ====== =====
(a) Other consists primarily of nonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
- 10 -
Net sales for Six Months 1999 increased to $662.3 million from $607.5
million for Six Months 1998, an increase of $54.8 million, or 9.0%. This
increase resulted primarily from (i) $53.9 million of additional beer sales,
largely Mexican beers, and (ii) $3.3 million of additional wine sales, resulting
primarily from the introduction of new wine brands. Unit volume for branded
beverage alcohol products for Six Months 1999 increased 11.0% as compared to Six
Months 1998. The unit volume increase was the result of the increased sales of
the Company's beer brands, primarily Mexican beer.
GROSS PROFIT
The Company's gross profit increased to $194.5 million for Six Months 1999
from $165.5 million for Six Months 1998, an increase of $29.1 million, or 17.6%.
As a percent of net sales, gross profit increased to 29.4% for Six Months 1999
from 27.2% for Six Months 1998. The dollar increase in gross profit resulted
primarily from additional beer unit volume, unit cost improvements in wine and
spirits brands, introduction of new wine brands and higher average selling
prices related to wine sales.
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 a reduction of $0.7 million and
$2.9 million in Six Months 1999 and Six Months 1998, respectively, due to the
Company's LIFO accounting method.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $128.8 million
for Six Months 1999 from $111.5 million for Six Months 1998, an increase of
$17.3 million, or 15.5%. The dollar increase in selling, general and
administrative expenses resulted principally from higher advertising costs
associated with the Company's wine sales, primarily the introduction of new wine
brands, and increased beer sales, and higher promotion costs related to both
programs implemented to improve the Company's wine sales and the growth in beer
sales. Selling, general and administrative expenses as a percent of net sales
increased to 19.4% for Six Months 1999 as compared to 18.4% for Six Months 1998.
The increase in percent of net sales resulted primarily from advertising costs
associated with the introduction of new wine brands and promotion costs related
to programs implemented to improve the Company's wine sales.
NET INCOME
As a result of the above factors, net income increased to $29.4 million for
Six Months 1999 from $22.4 million for Six Months 1998, an increase of $7.0
million, or 31.1%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Six Months 1999
were $82.7 million, an increase of $11.4 million over EBITDA of $71.3 million
for Six Months 1998.1999. 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.
- 1118 -
SIX MONTHS 2000 COMPARED TO SIX MONTHS 1999
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Six Months 2000 and Six Months 1999.
Six Months 2000 Compared to Six Months 1999
-------------------------------------------
Net Sales
-------------------------------------------
%Increase/
2000 1999 (Decrease)
----------- --------- ----------
Canandaigua Wine:
Branded:
External customers $ 292,182 $ 267,343 9.3 %
Intersegment 2,989 -- N/A
----------- ---------
Total Branded 295,171 267,343 10.4 %
----------- ---------
Other:
External customers 38,579 39,350 (2.0)%
Intersegment 37 -- N/A
----------- ---------
Total Other 38,616 39,350 (1.9)%
----------- ---------
Canandaigua Wine net sales $ 333,787 $ 306,693 8.8 %
----------- ---------
Barton:
Beer $ 323,806 $ 259,929 24.6 %
Spirits 127,149 94,599 34.4 %
----------- ---------
Barton net sales $ 450,955 $ 354,528 27.2 %
----------- ---------
Matthew Clark:
Branded $ 155,254 $ -- N/A
Wholesale 194,753 -- N/A
----------- ---------
Matthew Clark net sales $ 350,007 $ -- N/A
----------- ---------
Franciscan $ 17,137 $ -- N/A
----------- ---------
Corporate Operations and Other $ 2,889 $ 1,093 164.3 %
----------- ---------
Intersegment eliminations $ (3,026) $ -- N/A
----------- ---------
Consolidated Net Sales $ 1,151,749 $ 662,314 73.9 %
=========== =========
Net sales for Six Months 2000 increased to $1,151.7 million from $662.3
million for Six Months 1999, an increase of $489.4 million, or 73.9%.
CANANDAIGUA WINE
Net sales for Canandaigua Wine for Six Months 2000 increased to $333.8
million from $306.7 million for Six Months 1999, an increase of $27.1 million,
or 8.8%. This increase resulted primarily from (i) an increase in sales of Arbor
Mist, which was introduced in Second Quarter 1999, (ii) an increase in Almaden
box wine sales, (iii) an increase in the Company's bulk 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 Six Months 2000 increased to $451.0 million from
$354.5 million for Six Months 1999, an increase of $96.4 million, or 27.2%. This
increase resulted primarily from an increase in sales of imported beer brands
led by Barton's Mexican portfolio as well as from $31.9 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 Six Months 2000 were $350.0 million.
FRANCISCAN
Net sales for Franciscan for Six Months 2000 since the date of acquisition,
June 4, 1999, were $17.1 million.
GROSS PROFIT
The Company's gross profit increased to $345.3 million for Six Months 2000
from $195.3 million for Six Months 1999, an increase of $150.0 million, or
76.8%. The dollar increase in gross profit was primarily related to sales from
the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all completed
after Six Months 1999, as well as increased Barton beer and Canandaigua Wine
wine sales. As a percent of net sales, gross profit increased to 30.0% for Six
Months 2000 from 29.5% for Six 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 $235.8 million
for Six Months 2000 from $128.8 million for Six Months 1999, an increase of
$107.0 million, or 83.1%. 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 20.5% for Six
Months 2000 as compared to 19.4% for Six 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 and Franciscan's selling,
general and administrative expenses as a percent of net sales is 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 Six 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
Six 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 Six Months 2000 and Six Months
1999.
Six Months 2000 Compared to Six Months 1999
-------------------------------------------
Operating Profit/(Loss)
-------------------------------------------
%Increase/
2000 1999 (Decrease)
--------- -------- ----------
Canandaigua Wine $ 16,019 $ 17,661 (9.3)%
Barton 73,459 54,620 34.5 %
Matthew Clark 19,310 -- N/A
Franciscan 1,571 -- N/A
Corporate Operations and Other (6,440) (5,770) 11.6 %
--------- --------
Consolidated Operating Profit $ 103,919 $ 66,511 56.2 %
========= ========
As a result of the above factors, consolidated operating income increased
to $103.9 million for Six Months 2000 from $66.5 million for Six Months 1999, an
increase of $37.4 million, or 56.2%. Operating income for the Canandaigua Wine
operating segment was down $1.6 million, or 9.3%, 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 5.2% to
$18.6 million in Six Months 2000. Operating income for the Matthew Clark
operating segment, excluding nonrecurring charges of $2.9 million, was $22.3
million.
INTEREST EXPENSE, NET
Net interest expense increased to $50.7 million for Six Months 2000 from
$16.0 million for Six Months 1999, an increase of $34.7 million or 217.7%. 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 $31.9 million for
Six Months 2000 from $29.8 million for Six Months 1999, an increase of $2.1
million, or 7.1%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Six Months 2000
were $138.1 million, an increase of $54.6 million over EBITDA of $83.5 million
for Six 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.
- 21 -
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual fall
grape harvests when the Company has relied on short-term borrowings. The annual
grape crush normally begins in August and runs through October. The Company
generally begins purchasing grapes in August with payments for such grapes
beginning to come due in September. The Company's short-term borrowings to
support such purchases generally reach their highest levels in November or
December. Historically, the Company has used cash flow from operating activities
to repay its short-term borrowings. The Company will continue to use its
short-term borrowings to support its working capital requirements. The Company
believes that cash provided by operating activities and its financing
activities, primarily short-term borrowings, will provide adequate resources to
satisfy its working capital, liquidity and anticipated capital expenditure
requirements for both its short-term and long-term capital needs.
SIX MONTHS 19992000 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Six Months 19992000 was $88.5$59.1
million, which resulted from $47.5$63.9 million in net income adjusted for noncash
items, plus $41.0less $4.8 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from a $48.1 million decreaseseasonal increase in inventory levels.accounts receivable, partially
offset by increases in accrued income taxes, accrued advertising and promotion
expenses and accrued grape purchases.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Six Months 19992000 was $14.8$482.2
million, which resulted primarily from $14.1net cash paid of $452.5 million for the
Black Velvet, Franciscan and Simi Acquisitions and $30.8 million of capital
expenditures, including $4.4$4.1 million for vineyards.
Net cash used inprovided by financing activities for Six Months 19992000 was $73.5$399.9
million, which resulted primarily from repurchasesproceeds of $36.0$664.1 million of the
Company's Class A Common Stock, net repayments of $28.9 million of revolving
loan borrowings under the Company's bank credit agreement and principal payments
of $12.0 millionfrom issuance
of long-term debt.
During June 1998,debt, including $400.0 million incurred in connection with the
Company's Board of Directors authorized the
repurchase of upBlack Velvet and Franciscan Acquisitions and $200.0 million incurred to $100.0 million of its Class A Common Stock and Class B
Common Stock. The repurchase of 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 throughrepay
amounts outstanding under the bank credit agreement. In
July 1998, theThis amount was partially
offset by principal payments of $242.5 million of long-term debt, repayment of
$12.7 million of net revolving loan facility under the bank credit agreement was
increased by $100.0borrowings, and payment of $10.8 million to $285.0 million in order to increase its
flexibility to make such purchases . The repurchased shares will become treasury
shares and may be used for general corporate purposes. As of
September 28, 1998,
the Company had purchased 1,018,836 shares of Class A Common Stock at an
aggregate cost of $44.9 million, or at an average cost of $44.05 per share.
- 12 -long-term debt issuance costs.
DEBT
Total debt outstanding as of August 31, 1998,1999, amounted to $384.5$1,367.2 million,
a
decreasean increase of $40.7$441.8 million from February 28, 1998, resulting primarily from the
net repayments of revolving loan borrowings and principal payments of long-term
debt.1999. The ratio of total debt to
total capitalization decreasedincreased to 48.4%74.5% as of August 31, 1998,1999, from 50.6%68.0% as of
February 28, 1998.1999.
- 22 -
THE COMPANY'S 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 portion of the Company's
borrowings under its bank credit agreement were repaid with the net proceeds of
its senior notes offering.
As of August 31, 1998,1999, under its bank credit agreement, the Company had
outstanding term loans of $128.0$690.7 million bearing interest at 6.3%7.8%, $63.0$75.0 million
of revolving loans bearing interest at 6.3%7.9%, undrawn revolving letters of credit
of $8.4$10.4 million, and $213.6$214.6 million in revolving loans available to be drawn.
During June 1998,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 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. The Tranche II Term Loan facility requires quarterly
repayments of $1.6 million for each quarter in 2000, $3.2 million for each
quarter in 2001 and 2002, $4.0 million for each quarter in 2003 and $68.0
million in each quarter in 2004 (all such repayments shall be in British pound
sterling and the foregoing amounts reflect the U.S. dollar equivalents at
closing on October 6, 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 amendedset at
the highest level at closing and is subject to among other things,
eliminatereduction 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. In addition, subject
to certain limitations applicable to
- 23 -
inactive subsidiaries and to some of the Company's foreign subsidiaries, all of
the capital stock of each operating wholly-owned subsidiary (other than the
subsidiaries of Matthew Clark) has been pledged to the Syndicate Banks as
security for the obligations under the 2000 Credit Agreement.
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 thatto 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 October 14, 1999, under the 2000 Credit Agreement, the Company reducehad
outstanding term loans of $700.0 million bearing interest at 7.9%, $69.0 million
of revolving loans bearing interest at 7.4%, undrawn revolving letters of credit
of $10.4 million, and $220.6 million in revolving loans available to be drawn.
SENIOR NOTES
On August 4, 1999, the outstanding balanceCompany issued $200.0 million aggregate principal
amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes"). The net
proceeds of the revolving loan facilityoffering (approximately $196.0 million) was used to less than $60,000,000 for thirty consecutive days
duringrepay a
portion of the six months endingCompany's borrowings under its bank credit agreement. Interest on
the Senior Notes is payable semiannually on February 1 and August 1 of each
August 31.year, beginning February 1, 2000. The 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.
SENIOR SUBORDINATED NOTES
As of August 31, 1998,1999, the Company had outstanding $195.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due December 2003.2003 (the
"Notes"). The notesNotes are currently redeemable, in whole or in part, at the option
of the Company.
On March 4, 1999, the Company issued $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 notesSenior Subordinated Notes are guaranteed, on a senior
subordinated basis, by substantially allcertain of the Company's significant operating
subsidiaries.
- 24 -
ACCOUNTING PRONOUNCEMENTPRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS("SFAS No. 133)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.
TheIn 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, 2000.2001. The Company believes the effect of adoption on its
financial statements will not be material.material based on the Company's current risk
management strategies.
YEAR 2000 ISSUE
The Company has in 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.
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, are beinghave been inventoried and
assessed. In addition, plans are beinghave been developed for the required systems
modifications or replacements. With respect to its information technology
systems, the Company has completed both the
- 13 -
entire assessment phase and approximately 50% of the remediation phase.phases.
With respect to its non-information technology systems, the Company has
completed approximately 80% of the entire assessment phase and approximately 40%97% of the remediation
phase. SelectedFinal testing in selected areas, both internal and external, will be tested to
assurehas
confirmed the integrity of the Company's remediation programs. The testing is
expected to be completed by September 1999. The Company plans to have allCompany's
internal mission-critical information technology and non-information technology
systems are Year 2000 compliant by September 1999.compliant.
The Company is also communicatinghas communicated with its major customers, suppliers and
financial institutions to assess the potential impact on the Company's
operations if those third parties fail to become Year 2000 compliant in a timely
manner. While this process is not yet complete, basedBased upon responses to date, it appears that many of those customers
and suppliers have only indicated that they have in place Year 2000 readiness
programs, without specifically confirming that they will be Year 2000 compliant
in a timely manner. Risk assessment, readiness evaluation, action plans and
contingency plans related to the Company's significant customers and suppliers
are expected to be completed by September
1999.have been virtually completed. The Company's key financial institutions have
been surveyed and it is the Company's understanding that they are or will be Year 2000
compliant on or
before December 31, 1999.compliant.
- 25 -
The costs incurred to date related to its Year 2000 activities have not
been material to the Company, and, based upon current estimates, the Company
does not believe that the total cost of its Year 2000 readiness programs will
have a material adverse impact on the Company's financial condition, results of
operations or financial condition.cash flows.
The Company's readiness programs also include the development of
contingency plans to protect its business and operations from Year 2000-related
interruptions. These plans shouldare expected to be completecompleted by SeptemberOctober 31, 1999,
and, by way of examples, will include back-up procedures, identification of
alternate suppliers, where possible, and increases in safety inventory levels. Based
upon the Company's current assessment of its non-information technology systems,
the Company does not believe it 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 is taking reasonable steps to identify and
address those matters that could cause serious interruptions in its business and
operations due to Year 2000 issues. However, delays in the implementation of new
systems, 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, and
results
of operations.operations or cash flows. For example, the Company would experience a
material adverse impact on its business if significant suppliers of beer, glass
or telecommunicationsother 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. In particular, the costs associated with the
Company's Year 2000 programs and the time-frame in which the Company plans to
complete Year 2000 modifications are based upon management's best estimates.
These estimates were derived from internal assessments and assumptions of future
events. These estimates may be adversely affected by the continued availability
of personnel and system resources, and by the failure of significant third
parties to properly address Year 2000 issues. Therefore, there can be no
guarantee that any estimates, or other
- 14 -
forward-looking statements will be
achieved, and actual results could differ significantly from those contemplated.
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.
- 26 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information about market risks for the six months ended August 31, 1999,
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.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.HOLDERS
- ------- ---------------------------------------------------
At the Annual Meeting of Stockholders of Canandaigua Brands, Inc., held on
July 21, 199820, 1999 (the "Annual Meeting"), the holders of the Company's Class A
Common Stock (the "Class A Stock"), voting as a separate class, elected
management's slate of director nominees designated to be elected by the holders
of the Class A Stock, and the holders of the Company's Class B Common Stock (the
"Class B Stock"), voting as a separate class, elected management's slate of
director nominees designated to be elected by the holders of the Class B Stock.
In addition, at the Annual Meeting, the holders of Class A Stock and the
holders of Class B Stock, voting together as a single class, voted upon the
following proposals:
(i) Proposal to amend and restateapprove Amendment Number 6 to the Company's Restated Certificate1989
Employee Stock Purchase Plan. (This Amendment grants the committee
administering the plan the authority to designate the subsidiaries
of Incorporation, as presently amended,the Company whose employees are eligible to incorporate a prior
amendment andparticipate in the
plan.)
(ii) Proposal to increaseapprove Amendment Number Two to the Company's Long-Term
Stock Incentive Plan. (This Amendment increases the aggregate number
of authorized shares of the Class A Common Stock ofavailable for awards under the
Companyplan from 60,000,0004,000,000 shares to 120,000,000, thereby increasing the aggregate number of
authorized shares of the Company to 141,000,000.
(ii)7,000,000 shares.)
(iii) Proposal to ratify the selection of Arthur Andersen LLP, Certified
Public Accountants, as the Company's independent auditors for the
fiscal year ending February 28, 1999.29, 2000.
Set forth below is the number of votes cast for, against or withheld, as
well as the number of abstentions and broker nonvotes, as applicable, as to each
of the foregoing matters.
I. The results of the voting for the election of Directors of the
Company are as follows:
Directors Elected By the Holders of Class A Stock:
--------------------------------------------------
Nominee For Withheld
------- ---------------------- ---------- --------
Thomas C. McDermott 13,248,797 128,41012,616,998 91,925
Paul L. Smith 13,249,427 127,78012,617,056 91,867
- 1527 -
Directors Elected By the Holders of Class B Stock:
--------------------------------------------------
Nominee For Withheld
------- ---------------------- ---------- --------
George Bresler 31,515,390 10,54030,958,690 60,000
James A. Locke, III 31,516,410 9,52030,960,190 58,500
Marvin Sands 31,516,410 9,52030,960,190 58,500
Richard Sands 31,511,310 14,62030,955,090 63,600
Robert Sands 31,511,310 14,620
Bertram E. Silk 31,516,410 9,52030,955,090 63,600
II. The proposal to amend and restateapprove Amendment Number 6 to the Company's Restated Certificate
of Incorporation, as amended,1989
Employee Stock Purchase Plan was approved with the following votes:
For: 43,046,32542,506,828
Against: 1,804,1411,115,603
Abstain: 52,67149,272
Broker Nonvotes: 055,910
III. The proposal to approve Amendment Number Two to the Company's
Long-Term Stock Incentive Plan was approved with the following
votes:
For: 33,170,879
Against: 7,609,424
Abstain: 53,944
Broker Nonvotes: 2,893,366
IV. The selection of Arthur Andersen LLP was ratified with the following
votes:
For: 44,799,61543,662,767
Against: 11,2306,487
Abstain: 92,29258,359
Broker Nonvotes: 0
ITEM 5. OTHER INFORMATION.
Any notice of a proposal that is submitted outside the processes of Rule
14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the
"Act"), and which a stockholder intends to bring forth at the Company's 1999
Annual Meeting of Stockholders will be untimely for purposes of Rule 14a-4 of
the Act, if received by the Company after February 16, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 2034 of this Report.
(b) NoThe following Reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended August 31, 1998.1999:
(i) Form 8-K/A dated April 9, 1999. This Form 8-K reported
information under Item 7 (Financial Statements and Exhibits).
The following financial statements were filed with this Form
8-K/A:
- 1628 -
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 December 31, 1998, and the report of KPMG LLP,
independent auditors, thereon, together with the notes
thereto.
The pro forma condensed combined balance sheet
(unaudited) as of February 28, 1999, and the pro forma
condensed combined statement of income (unaudited) for
the year ended February 28, 1999, and the notes thereto.
(ii) Form 8-K dated June 4, 1999. This Form 8-K reported
information under Item 2 (Acquisition or Disposition of
Assets) and Item 7 (Financial Statements and Exhibits).
(iii) Form 8-K dated June 8, 1999. This Form 8-K reported
information under Item 5 (Other Events).
(iv) Form 8-K dated June 23, 1999. This Form 8-K reported
information under Item 5 (Other Events) and included (i) the
Company's Condensed Consolidated Balance Sheets as of May 31,
1999 and February 28, 1999; and (ii) the Company's Condensed
Consolidated Statements of Income for the three months ended
May 31, 1999 (unaudited) and May 31, 1998 (unaudited).
(v) Form 8-K dated July 28, 1999. This Form 8-K reported
information under Item 7 (Financial Statements and Exhibits).
- 29 -
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: September 28, 1998October 15, 1999 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: September 28, 1998October 15, 1999 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: September 28, 1998October 15, 1999 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
- 1730 -
CANANDAIGUA EUROPE LIMITED
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
CANANDAIGUA LIMITED
Dated: October 15, 1999 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Authorized Officer
Dated: October 15, 1999 By: /s/ Thomas S. Summer
--------------------------
Thomas S. Summer, Finance Director
(Principal Financial Officer and
Principal Accounting Officer)
POLYPHENOLICS, INC.
Dated: October 15, 1999 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Vice President
and Controller
Dated: October 15, 1999 By: /s/ Thomas S. Summer
--------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
ROBERTS TRADING CORP.
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: September 28, 1998October 15, 1999 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 31 -
BARTON INCORPORATED
Dated: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President and
Chief Executive Officer
Dated: September 28, 1998October 15, 1999 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: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 28, 1998October 15, 1999 By: /s/ Raymond E. Powers
---------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 18 -
BARTON BEERS, LTD.
Dated: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 28, 1998October 15, 1999 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: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President
Dated: September 28, 1998October 15, 1999 By: /s/ Raymond E. Powers
---------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 32 -
BARTON BRANDS OF GEORGIA, INC.
Dated: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President
Dated: September 28, 1998October 15, 1999 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: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President
Dated: September 28, 1998October 15, 1999 By: /s/ Raymond E. Powers
---------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
BARTON FINANCIAL CORPORATION
Dated: October 15, 1999 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, President and
Secretary
Dated: October 15, 1999 By: /s/ Charles T. Schlau
---------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: October 15, 1999 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, Executive Vice
President
Dated: October 15, 1999 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 1933 -
BARTON FINANCIAL CORPORATIONMONARCH IMPORT COMPANY
Dated: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President
Dated: October 15, 1999 By: /s/ Raymond E. Powers
------------------------------------
Raymond E. Powers, President and
Secretary
Dated: September 28, 1998 By: /s/ Charles T. Schlau
------------------------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: September 28, 1998 By: /s/ Alexander L. Berk
------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 28, 1998 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: September 28, 1998 By: /s/ Alexander L. Berk
------------------------------------
Alexander L. Berk, President
Dated: September 28, 1998 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: September 28, 1998October 15, 1999 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President
Dated: September 28, 1998October 15, 1999 By: /s/ Raymond E. Powers
---------------------------------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 2034 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
Not applicable.2.1 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).
2.2 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).
2.3 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 herewith)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 herewith)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 Indenture, dated as of December 27, 1993, among the Company, its
Subsidiaries and The Chase Manhattan Bank (as successor to Chemical Bank),
as Trustee (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).
4.2 First Supplemental Indenture, dated as of August 3, 1994, among the
Company, Canandaigua West, Inc. (a subsidiary of the Company now known as
Canandaigua Wine Company, Inc.) and The Chase Manhattan Bank (as successor
to Chemical Bank), as Trustee (filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (Registration No. 33-56557) and
incorporated herein by reference).
4.3 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), as Trustee (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).
- 35 -
4.4 Third Supplemental Indenture, dated as of December 19, 1997, among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and The Chase
Manhattan Bank, as Trustee (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 Fourth Supplemental Indenture, dated as of October 2, 1998, among the
Company, Polyphenolics, Inc. and The Chase Manhattan Bank, as Trustee
(filed as Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 1998 and incorporated herein by
reference).
4.6 Fifth Supplemental Indenture, dated as of December 11, 1998, among the
Company, Canandaigua B.V., Canandaigua Limited and The Chase Manhattan
Bank, as Trustee (filed as Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1999 and incorporated
herein by reference).
4.7 Sixth Supplemental Indenture, dated as of July 28, 1999, among the
Company, Barton Canada, Ltd., Simi Winery, Inc., Franciscan Vineyards,
Inc., Allberry, Inc., M.J. Lewis Corp., Cloud Peak Corporation, Mt. Veeder
Corporation, SCV-EPI Vineyards, Inc., and The Chase Manhattan Bank, as
Trustee (filed herewith).
4.8 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, as Trustee (filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-17673) and incorporated herein by reference).
4.64.9 First Supplemental Indenture, dated as of December 19, 1997, among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and Harris
Trust and Savings Bank, as Trustee (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).
4.74.10 Second Supplemental Indenture, dated as of October 2, 1998, among the
Company, Polyphenolics, Inc. and Harris Trust and Savings Bank, as Trustee
(filed as Exhibit 4.8 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 1998 and incorporated herein by
reference).
4.11 Third Supplemental Indenture, dated as of December 11, 1998, among the
Company, Canandaigua B.V., Canandaigua Limited and Harris Trust and
Savings Bank, as Trustee (filed as Exhibit 4.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1999 and
incorporated herein by reference).
4.12 Fourth Supplemental Indenture, dated as of July 28, 1999, among the
Company, Barton Canada, Ltd., Simi Winery, Inc., Franciscan Vineyards,
Inc., Allberry, Inc., M.J. Lewis Corp., Cloud Peak Corporation, Mt. Veeder
Corporation, SCV-EPI Vineyards, Inc., and Harris Trust and Savings Bank,
as Trustee (filed herewith).
4.13 First Amended and Restated Credit Agreement, dated as of November 2, 1998,
between the Company, itscertain 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 4.74.1 to the Company's AnnualCurrent Report on Form 10-K for the fiscal year ended February 28,8-K dated
December 1, 1998 and incorporated herein by reference).
- 2136 -
4.8 Amendment No. 1 to4.14 Second Amended and Restated Credit Agreement, dated as of June 19, 1998,May 12, 1999,
between the Company, itscertain principal operating subsidiaries, and certain
banks for which The Chase Manhattan Bank acts as Administrative Agent
(filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated
June 4, 1999 and incorporated herein by reference).
4.15 Incremental Facility Loan Agreement, dated as of May 27, 1999, between the
Company, certain principal operating subsidiaries, and certain banks for
which The Chase Manhattan Bank acts as Administrative Agent (filed as
Exhibit 4.3 to the Company's Current Report on Form 8-K dated June 4, 1999
and incorporated herein by reference).
4.16 Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated
as of August 4, 1999, between the Company, certain principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank acts as
Administrative Agent (filed herewith).
4.9 Tranche II Revolving Agreement (Series A),4.17 Indenture with respect to 8 1/2% Senior Subordinated Notes due 2009, dated
as of July 15, 1998,
betweenFebruary 25, 1999, among the Company, as issuer, certain principal
operating subsidiaries, as Guarantors, and Harris Trust and Savings Bank,
as Trustee (filed as Exhibit 99.1 to the Company's Current Report on Form
8-K dated February 25, 1999 and incorporated herein by reference).
4.18 Supplemental Indenture No. 1, dated as of February 25, 1999, by and among
the Company, as Issuer, its principal operating subsidiaries, as
Guarantors, and certain
banks for which The Chase ManhattanHarris Trust and Savings Bank, acts as Administrative Agent
(including identificationTrustee (filed as
Exhibit 99.2 to the Company's Current Report on Form 8-K dated February
25, 1999 and incorporated herein by reference).
4.19 Supplemental Indenture No. 2, dated as of August 4, 1999, by and among the
omitted annex thereto)Company, as Issuer, its principal operating subsidiaries, as Guarantors,
and Harris Trust and Savings Bank, as Trustee (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated July 28, 1999 and incorporated
herein by reference).
4.20 Supplemental Indenture No. 3, dated as of August 6, 1999, by and among the
Company, Canandaigua B.V., Barton Canada, Ltd., Simi Winery, Inc.,
Franciscan Vineyards, Inc., Allberry, Inc., M.J. Lewis Corp., Cloud Peak
Corporation, Mt. Veeder Corporation, SCV-EPI Vineyards, Inc., and Harris
Trust and Savings Bank, as Trustee (filed herewith).
(10) MATERIAL CONTRACTS.
10.1 Amendment No. 1Number Two to Credit Agreement, dated as of June 19, 1998, between the Company, its principal operating subsidiaries, and certain banks for which
The Chase Manhattan Bank acts as Administrative Agent (incorporated by
reference to Exhibit 4.8, filed herewith).
10.2 Tranche II Revolving Agreement (Series A), dated as of July 15, 1998,
between the Company, its principal operating subsidiaries, and certain
banks for which The Chase Manhattan Bank acts as Administrative Agent
(including identification of the omitted annex thereto) (incorporated by
reference to Exhibit 4.9, filedCompany's Long-Term Stock Incentive Plan
(filed herewith).
(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.
- 37 -
(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.
- 22 -
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.