FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x][X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 19992000
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
COMMISSION FILE NUMBER------------------ ------------------
Commission File Number 0-7570
DELAWARE CANANDAIGUADelaware CONSTELLATION BRANDS, INC. 16-0716709
AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC.and its subsidiaries:
New York Batavia Wine Cellars, Inc. 16-1222994
NEW YORK CANANDAIGUA WINE COMPANY, INC.New York Canandaigua Wine Company, Inc. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITEDNew York Canandaigua Europe Limited 16-1195581
ENGLAND AND WALES CANANDAIGUA LIMITED -----
NEW YORK POLYPHENOLICS, INC.England and Wales Canandaigua Limited 98-0198402
New York Polyphenolics, Inc. 16-1546354
NEW YORK ROBERTS TRADING CORP.New York Roberts Trading Corp. 16-0865491
DELAWARE BARTON INCORPORATEDNetherlands Canandaigua B.V. 98-0205132
Delaware Franciscan Vineyards, Inc. 94-2602962
California Allberry, Inc. 68-0324763
California Cloud Peak Corporation 68-0324762
California M.J. Lewis Corp. 94-3065450
California Mt. Veeder Corporation 94-2862667
Delaware Barton Incorporated 36-3500366
DELAWARE BARTON BRANDS, LTD.Delaware Barton Brands, Ltd. 36-3185921
MARYLAND BARTON BEERS, LTD.Maryland Barton Beers, Ltd. 36-2855879
CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC.Connecticut Barton Brands of California, Inc. 06-1048198
GEORGIA BARTON BRANDS OF GEORGIA, INC.Georgia Barton Brands of Georgia, Inc. 58-1215938
NEW YORK BARTON DISTILLERS IMPORT CORP.Illinois Barton Canada, Ltd. 36-4283446
New York Barton Distillers Import Corp. 13-1794441
DELAWARE BARTON FINANCIAL CORPORATIONDelaware Barton Financial Corporation 51-0311795
WISCONSIN STEVENS POINT BEVERAGE CO.Wisconsin Stevens Point Beverage Co. 39-0638900
ILLINOIS MONARCH IMPORT COMPANYIllinois Monarch Import Company 36-3539106
GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
-------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 218-2169
-----------------------------------------------------------------------------------------------------------
(Registrants' telephone number, including area code)
-----------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of CanandaiguaConstellation Brands, Inc., as of September 30, 1999,2000, is set forth
below (all of the Registrants, other than CanandaiguaConstellation Brands, Inc., are direct
or indirect wholly-owned subsidiaries of CanandaiguaConstellation Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
----------- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 14,896,80315,276,809
Class B Common Stock, Par Value $.01 Per Share 3,158,3453,088,572
- 1 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
CANANDAIGUACONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
August 31, February 28,
1999 1999
-----------29,
2000 2000
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 4,3404,150 $ 27,64534,308
Accounts receivable, net 344,652 260,433358,297 291,108
Inventories, net 602,257 508,571604,346 615,700
Prepaid expenses and other current assets 74,206 59,090
----------- -----------64,723 54,881
------------ ------------
Total current assets 1,025,455 855,7391,031,516 995,997
PROPERTY, PLANT AND EQUIPMENT, net 553,442 428,803530,069 542,971
OTHER ASSETS 801,391 509,234
----------- -----------778,474 809,823
------------ ------------
Total assets $ 2,380,2882,340,059 $ 1,793,776
=========== ===========2,348,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 75,07743,300 $ 87,72826,800
Current maturities of long-term debt 17,844 6,00520,775 53,987
Accounts payable 150,354 122,746137,717 122,213
Accrued excise taxes 41,469 49,34243,530 30,446
Other accrued expenses and liabilities 214,287 149,451
----------- -----------250,964 204,771
------------ ------------
Total current liabilities 499,031 415,272
----------- -----------496,286 438,217
------------ ------------
LONG-TERM DEBT, less current maturities 1,274,295 831,689
----------- -----------1,144,984 1,237,135
------------ ------------
DEFERRED INCOME TAXES 110,261 88,179
----------- -----------116,918 116,447
------------ ------------
OTHER LIABILITIES 27,752 23,364
----------- -----------31,836 36,152
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at August 31, 1999,2000,
and February 28, 199929, 2000 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 18,036,32818,378,475 shares at
August 31, 1999,2000, and 17,915,35918,206,662
shares at February 28, 1999 180 17929, 2000 184 182
Class B Convertible Common Stock,
$.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,796,5243,714,297 shares at
August 31, 1999,2000, and 3,849,1733,745,560 shares
at February 28, 199929, 2000 37 38 39
Additional paid-in capital 242,324 239,912252,168 247,949
Retained earnings 313,028 281,081402,468 358,456
Accumulated other comprehensive income-
Cumulative translation adjustment (4,907) (4,173)
----------- -----------
550,663 517,038
----------- -----------(23,262) (4,149)
------------ ------------
631,595 602,476
------------ ------------
Less-Treasury stock-
Class A Common Stock, 3,156,0043,119,112 shares
at August 31, 1999,2000, and 3,168,3063,137,244 shares
at (79,507) (79,559)
February 28, 1999,29, 2000, at cost (79,353) (79,429)
Class B Convertible Common Stock, 625,725
shares at August 31, 1999,2000, and
February 28, 1999,29, 2000, at cost (2,207) (2,207)
----------- -----------
(81,714) (81,766)
----------- ----------------------- ------------
(81,560) (81,636)
------------ ------------
Total stockholders' equity 468,949 435,272
----------- -----------550,035 520,840
------------ ------------
Total liabilities and stockholders' equity $ 2,380,2882,340,059 $ 1,793,776
=========== ===========2,348,791
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
- 2 -
CANANDAIGUACONSTELLATION 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,
----------------------------------- -------------------------------------
2000 1999 19982000 1999
1998
------------ ------------ ------------ -------------------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 1,603,190 $ 1,519,834 $ 880,150828,668 $ 814,845 $ 457,281
Less - Excise taxes (380,120) (368,085) (217,836)(191,178) (193,265)
(107,895)
------------ ------------ ------------ -------------------------- -------------- -------------- --------------
Net sales 1,223,070 1,151,749 662,314637,490 621,580 349,386
COST OF PRODUCT SOLD (838,558) (806,499) (467,017)(436,851) (432,452)
(246,150)
------------ ------------ ------------ -------------------------- -------------- -------------- --------------
Gross profit 384,512 345,250 195,297200,639 189,128 103,236
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (256,344) (235,821) (128,786)(129,935) (125,320) (67,454)
NONRECURRING CHARGES - (5,510) - -
-
------------ ------------ ------------ -------------------------- -------------- -------------- --------------
Operating income 128,168 103,919 66,51170,704 63,808 35,782
INTEREST EXPENSE, net (54,814) (50,675) (15,952)(27,187) (28,640)
(7,425)
------------ ------------ ------------ -------------------------- -------------- -------------- --------------
Income before income taxes 73,354 53,244 50,55943,517 35,168 28,357
PROVISION FOR INCOME TAXES (29,342) (21,297) (20,729)(17,407) (14,067)
(11,626)
------------ ------------ ------------ -------------------------- -------------- -------------- --------------
NET INCOME $ 44,012 $ 31,947 $ 29,83026,110 $ 21,101
$ 16,731
============ ============ ============ ========================== ============== ============== ==============
SHARE DATA:
Earnings per common share:
Basic $ 2.41 $ 1.78 $ 1.601.43 $ 1.17
============== ============== ============== ==============
Diluted $ 0.90
============ ============ ============ =============
Diluted2.36 $ 1.73 $ 1.561.40 $ 1.14
$ 0.88
============ ============ ============ =========================== ============== ============== ==============
Weighted average common shares outstanding:
Basic 18,265 17,994 18,66918,300 18,010
18,589
Diluted 18,621 18,459 19,16818,664 18,499 19,051
The accompanying notes to consolidated financial statements are an integral part of these statements.
- 3 -
CANANDAIGUACONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Six Months Ended August 31,
-----------------------------------
2000 1999 1998
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,94744,012 $ 29,83031,947
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 23,240 23,733 11,952
Amortization of intangible assets 12,825 10,410
5,015
Stock-based compensation expense 769 51Loss (gain) on sale of assets 1,513 (1,486)
Amortization of discount on long-term debt 241 208 189
Deferred tax (benefit) provisionbenefit - (1,697)
900
Gain on sale of assets (1,486) (3)Stock-based compensation expense - 769
Change in operating assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (77,926) (64,766) (11,935)
Inventories, net 4,575 20,585 47,306
Prepaid expenses and other current assets (10,177) (12,559) (10,867)
Accounts payable 20,655 9,383 11,339
Accrued excise taxes 14,286 (8,076) 4,063
Other accrued expenses and liabilities 48,542 48,417 3,213
Other assets and liabilities, net (3,813) 2,230
(2,549)
----------- ----------------------- ------------
Total adjustments 33,961 27,151
58,674
----------- ----------------------- ------------
Net cash provided by operating activities 77,973 59,098
88,504
----------- ----------------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (25,249) (30,759)
Proceeds from sale of assets 912 1,071
Purchases of businesses, net of cash acquired - (452,491)
-
Purchases of property, plant and equipment (30,759) (14,098)
Proceeds from sale of assets 1,071 27
Purchase of joint venture minority interest - (716)
----------- ----------------------- ------------
Net cash used in investing activities (24,337) (482,179)
(14,787)
----------- ----------------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 664,080 -
Exercise of employee stock options 1,194 2,154
Proceeds from employee stock purchases 601 1,284
Principal payments of long-term debt (220,509) (242,529) (12,000)
Net repayments of notes payable (12,676) (28,900)
Payment of issuance costs of long-term debt (1,547) (10,751)
-
PurchasesProceeds from issuance of treasurylong-term debt, net of discount 119,400 664,080
Net proceeds from (repayments of) notes payable 18,212 (12,676)
Exercise of employee stock - (36,014)
----------- -----------options 3,178 1,194
Proceeds from employee stock purchases 761 601
------------ ------------
Net cash (used in) provided by (used in) financing activities (80,505) 399,919
(73,476)
----------- ----------------------- ------------
Effect of exchange rate changes on cash and cash investments (3,289) (143)
-
----------- ----------------------- ------------
NET (DECREASE) INCREASEDECREASE IN CASH AND CASH INVESTMENTS (30,158) (23,305) 241
CASH AND CASH INVESTMENTS, beginning of period 34,308 27,645
1,232
----------- ----------------------- ------------
CASH AND CASH INVESTMENTS, end of period $ 4,150 $ 4,340
$ 1,473
=========== ======================= ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ 554,235- $ -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 -
CANANDAIGUACONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 19992000
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by CanandaiguaConstellation Brands, Inc. and its subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect,
in the opinion of the Company, all adjustments necessary to present fairly the
financial information for the Company. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted as permitted by such rules
and regulations. These consolidated financial statements and related notes
should be read in conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999.29, 2000.
Certain February 29, 2000 balances have been reclassified to conform to
current year presentation.
2) ACQUISITIONS:
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (the "Black Velvet
Acquisition"Assets"). In connection with the transaction, the Company also entered into
multi-year agreements with affiliates of Diageo plc to provide packaging and
distilling services for various brands retained by Diageo.the Diageo plc affiliates.
The purchase price was approximately
$185.5$183.6 million and was financed by the proceeds from the
sale of the "SeniorSenior Subordinated Notes" (as defined in Note 6).Notes.
The Black Velvet AcquisitionAssets acquisition was accounted for using the purchase
method; accordingly, the acquired assets were recorded at fair market value at
the date of acquisition. The excess of the purchase price over the estimated
fair market value of the net assets acquired (goodwill), $30.1$36.0 million, is being
amortized on a straight-line basis over 40 years. The results of operations of
the Black Velvet AcquisitionAssets acquisition have been included in the Consolidated
Statements of Income since the date of acquisition.
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. ("Franciscan Estates") and, in related
transactions, purchased vineyards, a
winery, equipment and other vineyard related assets
located in Northern California (collectively, the "Franciscan Acquisition"). The
purchase price was approximately $212.0$212.4 million in cash plus assumed debt, net of cash
acquired, of approximately $30.8 million. The purchase price was financed primarily by
additional term loan borrowings under the banksenior credit agreement.facility. Also, on June
4, 1999, the Company acquired all of the outstanding capital stock of Simi
Winery, Inc. ("Simi") (the "Simi Acquisition"). The cash purchase price was approximately
$57.5 million and was financed by revolving loan borrowings under the banksenior
credit agreement.facility. The purchases were accounted for using the purchase method;
accordingly, the acquired assets were recorded at fair market value at the date
of acquisition. The excess of the purchase price over the estimated fair market
value of the net assets acquired (goodwill) for the Franciscan Acquisition and
the Simi Acquisition, $72.0$94.5 million and $6.9$5.8 million, respectively, is being
amortized on a straight-line basis over 40 years. The Franciscan Estates and
Simi operations are managed together as a separate business segment of the
Company ("Franciscan").
- 5 -
The results of operations of Franciscan have been included in the Consolidated
Statements of Income since the date of acquisition.
The unaudited pro forma
results of operations for the 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 historical and unaudited pro
forma results of operations of the Company for the six months ended August 31,
2000 and 1999, and 1998,
whichrespectively. The unaudited pro forma results of operations for
the six months ended August 31, 1999, gives effect to the acquisitionacquisitions of Matthew Clark plc ("Matthew Clark"), the
Black Velvet AcquisitionAssets and Franciscan as if they occurred on March 1, 1998.1999. The
unaudited pro forma results of operations are presented after giving effect to
certain adjustments for depreciation, amortization of goodwill, interest expense
on the acquisition financing and related income tax effects. The unaudited pro
forma results of operations are based upon currently available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma results of operations for the six months
ended August 31, 1999, reflect total pretax nonrecurring charges of $12.4
million ($0.40 per share on a diluted basis) related to transaction costs,
primarily for exercise of stock options, which were incurred by Franciscan
Estates prior to the acquisition. The unaudited pro forma results of operations
do not purport to present what the Company's results of operations would
actually have been if the aforementioned transactions had in fact occurred on
such date or at the beginning of the period indicated, nor do they project the
Company's financial position or results of operations at any future date or for
any future period.
For the Six Months Ended August 31,
-----------------------------------
2000 1999
1998
--------------- ----------------------------- --------------
(in thousands, except per share data)
Net sales $ 1,179,1131,223,070 $ 1,062,5631,179,113
Income before income taxes $ 37,71173,354 $ 55,30038,078
Net income $ 22,62744,012 $ 32,62622,847
Earnings per common share:
Basic $ 1.262.41 $ 1.75
=============== ===============1.27
============== ==============
Diluted $ 1.232.36 $ 1.70
=============== ===============1.24
============== ==============
Weighted average common shares outstanding:
Basic 18,265 17,994
18,669
Diluted 18,621 18,459 19,168
3) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
August 31, February 28,
1999 1999
--------------- ---------------29,
2000 2000
------------ ------------
(in thousands)
Raw materials and supplies $ 37,52331,713 $ 32,388
Wine and distilled spirits in process 362,514 344,17529,417
In-process inventories 363,615 419,558
Finished case goods 202,220 132,008
--------------- ---------------209,018 166,725
------------ ------------
$ 602,257604,346 $ 508,571
=============== ===============
615,700
============ ============
4) BORROWINGS:
SENIOR NOTES -
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 - Accumulated amortization (45,257) (35,530)
--------------- ---------------
$ 801,391 $ 509,234
=============== ===============
5) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
August 31, February 28,
1999 1999
--------------- ---------------
(in thousands)
Accrued advertising and promotions $ 53,830 $ 38,604
Accrued income 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:
OnIn March 4, 1999,2000, the Company issued $200.0exchanged (pound)75.0 million aggregate
principal amount of 8 1/2% Series B Senior Subordinated Notes due Marchin November 2009 ("(the
"Sterling Series B Senior Subordinated
Notes"). for the Sterling Senior Notes. The net proceedsterms of
the offering (approximately $195.0 million) were
used to fund the Black Velvet Acquisition and to pay the fees and expenses
related thereto with the remainder of the net proceeds used for general
corporate purposes. Interest on theSterling Series B Senior Subordinated Notes is payable
semiannually on March 1 and September 1 of each year, beginning September 1,
1999. The Senior Subordinated Notes are redeemable at the option of the Company,identical in whole or in part, at any time on or after March 1, 2004. The Company may also
redeem up to $70.0 million of the Senior Subordinated Notes using the proceeds
of certain equity offerings completed before March 1, 2002. The Senior
Subordinated Notes are unsecured and subordinatedall material respects to the
prior payment in full
of all senior indebtedness of the Company, which includes the bank credit
agreement. TheSterling Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company's significant operating
subsidiaries.
On August 4, 1999,Notes.
- 6 -
In May 2000, the Company issued $200.0(pound)80.0 million (approximately $115.8
million) aggregate principal amount of 8 5/8%1/2% Series C Senior Notes due August 2006 ("November
2009 at an issuance price of (pound)79.6 million (approximately $115.2 million,
net of $0.6 million unamortized discount, with an effective rate of 8.6%) (the
"Sterling Series C Senior Notes"). The net proceeds of the offering (approximately $196.0((pound)78.8
million, or approximately $114.0 million) waswere used to repay a portion of the
Company's British pound sterling borrowings under its banksenior credit agreement.facility.
Interest on the Sterling Series C Senior Notes is payable semiannually on February 1May 15
and August 1November 15 of each year, beginning
- 7 -
February 1,on November 15, 2000. The Sterling
Series C Senior Notes are redeemable at the option of the Company, in whole or
in part, at any time. The Sterling Series C Senior Notes are unsecured senior
obligations and rank equally in right of payment to all existing and future
unsecured senior indebtedness of the Company. The Sterling Series C Senior Notes
are guaranteed, on a senior basis, by certain of the Company's significant
operating subsidiaries.
7)5) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method and assume the conversion of convertible
securities, if any, using the "if converted" method.
The computation of basic and diluted earnings per common share is as
follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
------------------------ -------------------------------------------------
2000 1999 19982000 1999 1998
---------- ---------- ---------- ----------
(in thousands, except per share data)
Income applicable to common shares $ 44,012 $ 31,947 $ 29,83026,110 $ 21,101 $ 16,731
========== ========== ========== ==========
Weighted average common shares
outstanding - basic 18,265 17,994 18,66918,300 18,010 18,589
Stock options 356 465 499364 489
462
--------------------- ---------- ---------- ----------
Weighted average common shares
outstanding - diluted 18,621 18,459 19,16818,664 18,499
19,051
===================== ========== ========== ==========
EARNINGS PER COMMON SHARE - BASIC $ 2.41 $ 1.78 $ 1.601.43 $ 1.17
$ 0.90
===================== ========== ========== ==========
EARNINGS PER COMMON SHARE - DILUTED $ 2.36 $ 1.73 $ 1.561.40 $ 1.14
$ 0.88
===================== ========== ========== ==========
8) STOCK INCENTIVE PLANS:
AtStock options to purchase 1.7 million and 0.4 million shares of Class A
Common Stock at a weighted average price of $52.28 and $52.05 were outstanding
during the Company's Annual Meetingsix months ended August 31, 2000 and 1999, respectively, but were not
included in the computation of Stockholders held on July 20, 1999,
stockholders approved the amendment todiluted earnings per common share because the
Company's Long-Term Stock Incentive
Plan to increasestock options' exercise price was greater than the aggregate number of sharesaverage market price of the
Class A Common Stock available
for awards under the plan from 4,000,000respective periods. Stock options to purchase 1.7
million and 8 thousand shares to 7,000,000 shares.
9)of Class A Common Stock at a weighted average
price of $52.28 and $54.83 were outstanding during the three months ended August
31, 2000 and 1999, respectively, but were not included in the computation of the
diluted earnings per common share because the stock options' exercise price was
greater than the average market price of the Class A Common Stock for the
respective periods.
6) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The following table presents summarized financial information for the
Company, the parent company, the combined subsidiaries of the Company which
guarantee the Company's senior subordinated notes and senior subordinated notes ("Subsidiary(the
"Subsidiary Guarantors") and the combined subsidiaries of the Company which are
not Subsidiary Guarantors, primarily Matthew Clark ("Subsidiary(the "Subsidiary
Nonguarantors"). The Subsidiary Guarantors are wholly owned and the guarantees
are full, unconditional, joint and several
- 7 -
obligations of each of the Subsidiary Guarantors. Separate financial statements
for the Subsidiary Guarantors of the Company are not presented because the
Company has determined that such financial statements would not be material to
investors. The Subsidiary Guarantors comprise all of the direct and indirect
subsidiaries of the Company, other than Matthew Clark, the Company's Canadian
subsidiary and certain other subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
Subsidiary Guarantors to transfer funds to the Company in the form of cash
dividends, loans or advances.
- 8 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
(in thousands)
(in thousands)
Balance Sheet Data:
August 31, 19992000
- ---------------
Current assets $ 109,22296,069 $ 610,468652,962 $ 305,765282,485 $ - $ 1,025,4551,031,516
Noncurrent assets $ 922,563911,499 $ 1,254,5871,232,441 $ 458,473446,253 $ (1,280,790)(1,281,650) $ 1,354,8331,308,543
Current liabilities $ 181,854201,362 $ 29,961121,698 $ 287,216173,226 $ - $ 499,031496,286
Noncurrent liabilities $ 1,267,1321,138,369 $ 95,768107,524 $ 49,40847,845 $ - $ 1,412,3081,293,738
February 28, 199929, 2000
- -----------------
Current assets $ 114,243105,864 $ 532,028611,646 $ 209,468278,487 $ - $ 855,739995,997
Noncurrent assets $ 646,133913,026 $ 396,1251,232,132 $ 421,867489,286 $ (526,088)(1,281,650) $ 938,0371,352,794
Current liabilities $ 157,648150,507 $ 126,803134,677 $ 130,821153,033 $ - $ 415,272438,217
Noncurrent liabilities $ 815,4211,230,139 $ 73,17897,410 $ 54,63362,185 $ - $ 943,2321,389,734
Income Statement Data:
For the Six Months
- ------------------
Ended August 31, 2000
- ---------------------
Net sales $ 268,630 $ 726,599 $ 371,243 $ (143,402) $ 1,223,070
Gross profit $ 78,102 $ 197,291 $ 109,119 $ - $ 384,512
(Loss) income before
income taxes $ (10,274) $ 54,826 $ 28,802 $ - $ 73,354
Net (loss) income $ (6,164) $ 31,014 $ 19,162 $ - $ 44,012
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 SixThree Months
- ---------------------------------------
Ended August 31, 19982000
- ---------------------
Net sales $ 248,590133,912 $ 552,352382,358 $ 1,093192,485 $ (139,721)(71,265) $ 662,314637,490
Gross profit $ 71,26837,682 $ 123,635103,990 $ 39458,967 $ - $ 195,297200,639
(Loss) income before
income taxes $ (511)(5,733) $ 51,35931,640 $ (289)17,610 $ - $ 50,55943,517
Net (loss) income $ (302)(3,439) $ 30,30217,102 $ (170)12,447 $ - $ 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)26,110
For the Three Months
- --------------------
Ended August 31, 19981999
- ---------------------
Net sales $ 137,438121,430 $ 289,774395,639 $ 271188,258 $ (78,097)(83,747) $ 349,386621,580
Gross profit $ 36,87849,898 $ 66,29883,504 $ 6055,726 $ - $ 103,236
(Loss) income189,128
Income before
income taxes $ (404)11,616 $ 29,17711,086 $ (416)12,466 $ - $ 28,35735,168
Net (loss) income $ (238)6,969 $ 17,2666,652 $ (297)7,480 $ - $ 16,73121,101
10)
- 8 -
7) BUSINESS SEGMENT INFORMATION:
The Company reports its operating results in five segments: Canandaigua
Wine (branded popularly-priced wine and brandy, and other, primarily grape juice
concentrate); Barton (primarily beer and spirits); Matthew Clark (branded wine,
cider and bottled water, and wholesale wine, cider, spirits, beer and soft
drinks); Franciscan (primarily branded super-premium and ultra-premium wine) and
Corporate Operations and Other (primarily corporate related items). Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
the Company's Board of Directors, the availability of separate financial
results, and materiality considerations. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based on operating profits of the
respective business units.
Segment information is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
--------------------------- -------------------------------------------------------
2000 1999 19982000 1999
1998
----------- ----------- ----------- ----------------------- ------------ ------------ ------------
(in thousands)
(in thousands)
Canandaigua Wine:
- -----------------
Net sales:
Branded:
External customers $ 290,706 $ 292,182 $ 267,343147,376 $ 149,540
$ 140,545
Intersegment 3,132 2,989 -1,896 1,239
-
----------- ----------------------- ------------ ----------- -----------
Total Branded 293,838 295,171 267,343149,272 150,779
140,545
----------- ----------------------- ------------ ----------- -----------
Other:
External customers 28,243 38,579 39,35014,060 19,449
20,211
Intersegment 8,355 37 4,726 -
- -
----------- ----------------------- ------------ ----------- -----------
Total Other 36,598 38,616 39,35018,786 19,449
20,211
----------- ----------------------- ------------ ----------- -----------
Net sales $ 330,436 $ 333,787 $ 306,693168,058 $ 170,228 $ 160,756
Operating profit $ 18,396 $ 16,019 $ 17,66110,415 $ 10,412 $ 10,221
Long-lived assets $ 194,114 $ 187,329189,758 $ 194,114 $ 187,329189,758 $ 194,114
Total assets $ 597,832 $ 562,397593,560 $ 597,832 $ 562,397593,560 $ 597,832
Capital expenditures $ 7,665 $ 12,708 $ 11,4185,020 $ 7,070 $ 6,582
Depreciation and amortization $ 11,734 $ 11,649 $ 10,7165,866 $ 6,113
Barton:
- -------
Net sales:
Beer $ 5,125375,293 $ 323,806 $ 212,159 $ 177,195
Spirits 145,107 127,149 72,561 73,010
------------ ------------ ----------- -----------
Net sales $ 520,400 $ 450,955 $ 284,720 $ 250,205
Operating profit $ 89,448 $ 73,459 $ 50,613 $ 41,962
Long-lived assets $ 78,271 $ 76,849 $ 78,271 $ 76,849
Total assets $ 749,585 $ 714,677 $ 749,585 $ 714,677
Capital expenditures $ 2,986 $ 2,668 $ 1,650 $ 1,752
Depreciation and amortization $ 7,904 $ 6,398 $ 3,949 $ 3,237
Matthew Clark:
- --------------
Net sales:
Branded:
External customers $ 145,486 $ 155,254 $ 75,892 $ 80,879
Intersegment 497 - 476 -
------------ ------------ ----------- -----------
Total Branded 145,983 155,254 76,368 80,879
Wholesale 193,233 194,753 93,310 102,331
------------ ------------ ----------- -----------
Net sales $ 339,216 $ 350,007 $ 169,678 $ 183,210
Operating profit $ 22,596 $ 19,310 $ 12,222 $ 11,980
Long-lived assets $ 141,830 $ 170,703 $ 141,830 $ 170,703
Total assets $ 599,396 $ 678,498 $ 599,396 $ 678,498
Capital expenditures $ 6,101 $ 11,115 $ 3,692 $ 6,459
Depreciation and amortization $ 10,037 $ 12,816 $ 4,824 $ 8,390
- 109 -
For the Six Months For the Three Months
Ended August 31, Ended August 31,
--------------------------- -------------------------------------------------------
2000 1999 19982000 1999
1998
----------- ----------- ----------- ----------------------- ------------ ------------ ------------
(in thousands)
Barton:Franciscan:
- ------------------
Net sales:
BeerExternal customers $ 323,80643,144 $ 259,92917,137 $ 177,19521,359 $ 141,133
Spirits 127,149 94,599 73,010 47,227
----------- -----------17,137
Intersegment 138 - 34 -
------------ ------------ ----------- -----------
Net sales $ 450,95543,282 $ 354,52817,137 $ 250,20521,393 $ 188,36017,137
Operating profit $ 73,4599,658 $ 54,6201,571 $ 41,9624,242 $ 28,8321,571
Long-lived assets $ 76,849114,230 $ 51,00894,716 $ 76,849114,230 $ 51,00894,716
Total assets $ 714,677369,087 $ 484,607352,790 $ 714,677369,087 $ 484,607352,790
Capital expenditures $ 2,6688,333 $ 1,6883,720 $ 1,7524,553 $ 9283,720
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 amortization4,530 $ 1,809 $ -2,138 $ 1,809 $ -
Corporate Operations and Other:
- -------------------------------
Net sales $ 1,859 $ 2,889 $ 1,093774 $ 2,004 $ 270
Operating loss $ (11,930) $ (6,440) $ (5,770)(6,788) $ (2,117) $ (3,271)
Long-lived assets $ 17,060 $ 7,8205,980 $ 17,060 $ 7,8205,980 $ 17,060
Total assets $ 36,491 $ 18,84728,431 $ 36,491 $ 18,84728,431 $ 36,491
Capital expenditures $ 164 $ 548 $ 99269 $ 437 $ 960
Depreciation and amortization $ 1,860 $ 1,471 $ 859942 $ 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 $ (12,123) $ (3,026) $ -(7,133) $ (1,204) $ -
Consolidated:
- -------------
Net sales $ 1,223,070 $ 1,151,749 $ 662,314637,490 $ 621,580 $ 349,386
Operating profit $ 128,168 $ 103,919 $ 66,51170,704 $ 63,808 $ 35,782
Long-lived assets $ 553,442 $ 246,157530,069 $ 553,442 $ 246,157530,069 $ 553,442
Total assets $ 2,380,288 $ 1,065,8512,340,059 $ 2,380,288 $ 1,065,8512,340,059 $ 2,380,288
Capital expenditures $ 25,249 $ 30,759 $ 14,09814,984 $ 19,438 $ 8,470
Depreciation and amortization $ 36,065 $ 34,143 $ 16,967 $ 20,38017,719 $ 8,45920,380
11)8) COMPREHENSIVE INCOME:
Comprehensive income consists of net income and foreign currency
translation adjustments for the six monthmonths and three month periodsmonths ended August 31,
1999. For the six month2000 and three month periods ended August 31, 1998,
comprehensive income consisted of net income, exclusively.1999. 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,
--------------------------- ------------------------------------------------------- ------------------------------
2000 1999 19982000 1999 1998
------------ ------------ ------------ ------------
(in thousands)
(in thousands)
Net income $ 44,012 $ 31,947 $ 29,83026,110 $ 21,101 $ 16,731
Other comprehensive income:
Cumulative translation adjustment ( 734) - ( 1,584) -(19,113) (734) (7,847) (1,584)
------------ ------------ ------------ ------------
Total comprehensive income $ 24,899 $ 31,213 $ 29,83018,263 $ 19,517 $ 16,731
============ ============ ============ ============
12)9) ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset
- 10 -
related results on the hedged item in the income statement, and requires that a
company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 delays the
- 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, 2001.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 ("SFAS No. 138"), "Accounting for Certain
Derivative Instruments and Certain Hedging Activities--an amendment of FASB
Statement No. 133." SFAS No. 138 amends the accounting and reporting standards
of SFAS No. 133 for certain derivative instruments and certain hedging
activities. The Company is required to adopt SFAS No. 138 concurrently with SFAS
No. 133. The Company believes the effect of the adoption of these statements on
its financial statements will not be material based on the Company's current
risk management strategies.
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.
- 1411 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
- ------------
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended August 31, 19992000 ("Second Quarter 2000"2001"), compared to the three
months ended August 31, 19981999 ("Second Quarter 1999"2000"), and for the six months
ended August 31, 2000 ("Six Months 2001"), compared to the six months ended
August 31, 1999 ("Six Months 2000"), compared to the six months ended
August 31, 1998 ("Six Months 1999"), and (ii) financial liquidity and capital
resources for Six Months 2000.2001. This discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included herein and in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999.29, 2000 ("Fiscal 2000").
The Company operates primarily in the beverage alcohol industry in the
United StatesNorth
America and the United Kingdom. The Company reports its operating results in
five segments: Canandaigua Wine (branded popularly-priced wine and brandy, and
other, primarily grape juice concentrate); Barton (primarily beer and spirits);
Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); Franciscan (primarily branded super-premium and
ultra-premium wine); and Corporate Operations and Other (primarily corporate
related items).
RECENT ACQUISITIONS On December 1, 1998, the Company acquired control of Matthew Clark plc
("Matthew Clark") and has since acquired all of Matthew Clark's outstanding
shares (the "Matthew Clark Acquisition"). Prior to the Matthew Clark
Acquisition, the Company was principally a producer and supplier of wine and an
importer and producer of beer and distilled spirits in the United States. The
Matthew Clark Acquisition established the Company as a leading British producer
of cider, wine and bottled water and as a leading beverage alcohol wholesaler in
the United Kingdom. The results of operations of Matthew Clark have been
included in the consolidated results of operations of the Company since the date
of acquisition, December 1, 1998.IN FISCAL 2000
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"Assets"). In connection with the transaction, the Company also entered
into multi-year agreements with affiliates of Diageo plc to provide packaging
and distilling services for various brands retained by Diageo.the Diageo plc
affiliates. The results of operations from the Black Velvet AcquisitionAssets are reported
in the Barton segment and 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. ("Franciscan Estates") and, in related
transactions, purchased vineyards, a
winery, equipment and other vineyard related assets
located in Northern California (collectively, the "Franciscan Acquisition").
Also on June 4, 1999, the Company purchased all of the outstanding capital stock
of Simi Winery, Inc. ("Simi"). (The acquisition of the capital stock of Simi is
hereafter referred to as the "Simi Acquisition".) The Simi Acquisition includesincluded
the Simi winery, equipment, vineyards, inventory and inventory.worldwide ownership of the
Simi brand name. The results of operations from the Franciscan and Simi
Acquisitions (collectively, "Franciscan") are reported together in the
Franciscan segment and have been included in the consolidated results of
operations of the Company since the date of acquisition. On February 29, 2000,
Simi was merged into Franciscan Estates.
- 1512 -
The Matthew Clark, Black Velvet and Franciscan Acquisitions are significant
and the Company expects them to have a material impact on the Company's future
results of operations.
RESULTS OF OPERATIONS
- ---------------------
SECOND QUARTER 20002001 COMPARED TO SECOND QUARTER 19992000
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Second Quarter 20002001 and Second Quarter
1999.2000.
Second Quarter 20002001 Compared to Second Quarter 19992000
---------------------------------------------------
Net Sales
---------------------------------------------------
%Increase/
2001 2000 1999 (Decrease)
--------- ------------------- ---------- ----------
Canandaigua Wine:
Branded:
External customers $ 147,376 $ 149,540 $ 140,545 6.4 (1.4)%
Intersegment 1,896 1,239 -- N/A
--------- ---------53.0 %
---------- ----------
Total Branded 149,272 150,779 140,545 7.3 (1.0)%
--------- ------------------- ----------
Other:
External customers 14,060 19,449 20,211 (3.8)(27.7)%
Intersegment -- --4,726 - N/A
--------- ------------------- ----------
Total Other 18,786 19,449 20,211 (3.8)(3.4)%
--------- ------------------- ----------
Canandaigua Wine net sales $ 168,058 $ 170,228 $ 160,756 5.9 (1.3)%
--------- ------------------- ----------
Barton:
Beer $ 212,159 $ 177,195 $ 141,133 25.619.7 %
Spirits 72,561 73,010 47,227 54.6 (0.6)%
--------- ------------------- ----------
Barton net sales $ 284,720 $ 250,205 $ 188,360 32.813.8 %
--------- ------------------- ----------
Matthew Clark:
BrandedBranded:
External customers $ 75,892 $ 80,879 $ --(6.2)%
Intersegment 476 - N/A
---------- ----------
Total Branded 76,368 80,879 (5.6)%
Wholesale 93,310 102,331 -- N/A
--------- ---------(8.8)%
---------- ----------
Matthew Clark net sales $ 169,678 $ 183,210 (7.4)%
---------- ----------
Franciscan:
External customers $ --21,359 $ 17,137 24.6 %
Intersegment 34 - N/A
--------- ------------------- ----------
Franciscan net sales $ 21,393 $ 17,137 $ -- N/A
--------- ---------24.8 %
---------- ----------
Corporate Operations and Other $ 774 $ 2,004 $ 270 642.2 (61.4)%
--------- ------------------- ----------
Intersegment eliminations $ (7,133) $ (1,204) $ -- N/A
--------- ---------492.4 %
---------- ----------
Consolidated Net Sales $ 637,490 $ 621,580 $ 349,386 77.92.6 %
========= =================== ==========
Net sales for Second Quarter 20002001 increased to $621.6$637.5 million from $349.4$621.6
million for Second Quarter 1999,2000, an increase of $272.2$15.9 million, or 77.9%2.6%.
CANANDAIGUA WINE
- 13 -
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Second Quarter 2000 increased2001 decreased to $170.2$168.1
million from $160.8$170.2 million for Second Quarter 1999, an increase2000, a decrease of $9.5$2.2 million,
or 5.9%(1.3)%. This increaseThe decline resulted primarily from (i) an increasea decrease in sales
of Arbor Mist and Almaden box wine, (ii) an increase in the
- 16 -
Company's bulk wine sales and (iii) 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.
BARTONsales and a decrease in international sales.
Barton
------
Net sales for Barton for Second Quarter 20002001 increased to $250.2$284.7 million
from $188.4$250.2 million for Second Quarter 1999,2000, an increase of $61.8$34.5 million, or
32.8%13.8%. This increase resulted primarily from an increase in sales of imported
beer brands led by Barton's Mexican portfolio as well as from $24.7 million of
sales of productsvolume growth and services acquiredselling price
increases in the Black Velvet Acquisition, which
was completed in April 1999.
MATTHEW CLARKMexican beer portfolio. Spirits sales decreased slightly due to
the loss of contract production sales. Excluding contract production, spirits
sales increased 4.8%, primarily as a result of price increases on tequila
products.
Matthew Clark
-------------
Net sales for Matthew Clark for Second Quarter 2001 decreased to $169.7
million from $183.2 million for Second Quarter 2000, were $183.2 million.
FRANCISCANa decrease of $13.5
million, or (7.4)%. This decrease resulted primarily from an adverse foreign
currency impact of $10.3 million and a decrease in draft cider sales, partially
offset by growth in wine and packaged cider.
Franciscan
----------
Net sales for Franciscan for Second Quarter 2001 increased to $21.4 million
from $17.1 million for Second Quarter 2000, since the datean increase of acquisition, June 4, 1999, were $17.1 million.$4.3 million, or
24.8%. This increase resulted primarily from selling price increases and volume
growth.
GROSS PROFIT
The Company's gross profit increased to $200.6 million for Second Quarter
2001 from $189.1 million for Second Quarter 2000, from $103.2 million for Second Quarter 1999, an increase of $85.9$11.5 million,
or 83.2%6.1%. The dollar increase in gross profit was primarily related to sales
from the Matthew Clark, Black Velvet,volume
growth and selling price increases in the Company's imported beer business and
the Franciscan and Simi Acquisitions, all
completed after Second Quarter 1999, as well as increased Barton beer sales.fine wine portfolio. As a percent of net sales, gross profit
increased to 30.4%31.5% for Second Quarter 20002001 from 29.5%30.4% in Second Quarter 1999,2000,
resulting primarily from sales of
higher-margin spirits and super-premium and ultra-premium wine acquiredprice increases in the Black VelvetCompany's imported beer business
and the Franciscan and Simi Acquisitions, respectively.fine wine portfolio.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $129.9 million
for Second Quarter 2001 from $125.3 million for Second Quarter 2000, from $67.5 million for Second Quarter 1999, an increase
of $57.9$4.6 million, or 85.8%3.7%. The dollar increase in selling, general and
administrative expenses resulted primarily from the addition of the Matthew
Clark and Franciscan businesses andan increase in 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 Barton
beer brands.Corporate Operations. Selling, general and administrative expenses as a percent
of net sales increased to 20.2%20.4% for FirstSecond Quarter 20002001 as compared to 19.3%20.2% for
FirstSecond Quarter 1999.2000. The increase in percent of net sales resulted primarily
from the Matthew Clark, Franciscan and Simi Acquisitions, as Matthew Clark and
Franciscan's selling, general and administrativeincrease in expenses as a percent of net
sales is typically at the high end of the range of the Company's operating
segments' percentages.in Corporate Operations.
- 1714 -
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Second Quarter 20002001 and Second
Quarter 1999.2000.
Second Quarter 20002001 Compared to Second Quarter 19992000
---------------------------------------------------
Operating Profit/(Loss)
---------------------------------------------------
%Increase/2001 2000 1999 (Decrease)
-------- --------%Increase
---------- ---------- ---------
Canandaigua Wine $ 10,415 $ 10,412 $ 10,221 1.9 %0.0%
Barton 50,613 41,962 28,832 45.5 %20.6%
Matthew Clark 12,222 11,980 -- N/A2.0%
Franciscan 4,242 1,571 -- N/A170.0%
Corporate Operations and Other (6,788) (2,117) (3,271) (35.3)%
-------- --------220.6%
---------- ----------
Consolidated Operating Profit $ 70,704 $ 63,808 $ 35,782 78.3 %
======== ========10.8%
========== ==========
As a result of the above factors, consolidated operating income increased
to $70.7 million for Second Quarter 2001 from $63.8 million for Second Quarter
2000, from $35.8 million for Second Quarter
1999, an increase of $28.0$6.9 million, or 78.3%10.8%.
INTEREST EXPENSE, NET
Net interest expense increaseddecreased to $27.2 million for Second Quarter 2001
from $28.6 million for Second Quarter 2000, from $7.4 million for Second Quarter 1999, an increasea decrease of $21.2$1.5 million, or
285.7%(5.1)%. The increasedecrease resulted primarily from additionala decrease in average borrowings
which was partially offset by an increase in the average interest expense
associated with the borrowings related to the Matthew Clark, Black Velvet,
Franciscan and Simi Acquisitions.rate.
NET INCOME
As a result of the above factors, net income increased to $26.1 million for
Second Quarter 2001 from $21.1 million for Second Quarter 2000, from $16.7 million for Second Quarter 1999, an increase of
$4.4$5.0 million, or 26.1%23.7%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Second Quarter
20002001 were $84.2$88.4 million, an increase of $39.9$4.2 million over EBITDA of $44.2$84.2
million for Second Quarter 1999.2000. EBITDA should not be construed as an
alternative to operating income or net cash flow from operating activities and
should not be construed as an indication of operating performance or as a
measure of liquidity.
- 1815 -
SIX MONTHS 20002001 COMPARED TO SIX MONTHS 19992000
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Six Months 20002001 and Six Months 1999.2000.
Six Months 20002001 Compared to Six Months 19992000
-------------------------------------------
Net Sales
-------------------------------------------
%Increase/% Increase/
2001 2000 1999 (Decrease)
---------- ---------- ----------- --------- ----------
Canandaigua Wine:
Branded:
External customers $ 290,706 $ 292,182 $ 267,343 9.3 (0.5)%
Intersegment 3,132 2,989 -- N/A
----------- ---------4.8 %
---------- ----------
Total Branded 293,838 295,171 267,343 10.4 (0.5)%
----------- ------------------- ----------
Other:
External customers 28,243 38,579 39,350 (2.0)(26.8)%
Intersegment 8,355 37 -- N/A
----------- ---------22,481.1 %
---------- ----------
Total Other 36,598 38,616 39,350 (1.9)(5.2)%
----------- ------------------- ----------
Canandaigua Wine net sales $ 330,436 $ 333,787 $ 306,693 8.8 (1.0)%
----------- ------------------- ----------
Barton:
Beer $ 375,293 $ 323,806 $ 259,929 24.615.9 %
Spirits 145,107 127,149 94,599 34.414.1 %
----------- ------------------- ----------
Barton net sales $ 520,400 $ 450,955 $ 354,528 27.215.4 %
----------- ------------------- ----------
Matthew Clark:
BrandedBranded:
External customers $ 145,486 $ 155,254 $ --(6.3)%
Intersegment 497 - N/A
---------- ----------
Total Branded 145,983 155,254 (6.0)%
Wholesale 193,233 194,753 -- N/A
----------- ---------(0.8)%
---------- ----------
Matthew Clark net sales $ 339,216 $ 350,007 (3.1)%
---------- ----------
Franciscan:
External customers $ --43,144 $ 17,137 151.8 %
Intersegment 138 - N/A
----------- ------------------- ----------
Franciscan net sales $ 43,282 $ 17,137 $ -- N/A
----------- ---------152.6 %
---------- ----------
Corporate Operations and Other $ 1,859 $ 2,889 $ 1,093 164.3 (35.7)%
----------- ------------------- ----------
Intersegment eliminations $ (12,123) $ (3,026) $ -- N/A
----------- ---------300.6 %
---------- ----------
Consolidated Net Sales $ 1,151,749 $ 662,314 73.9$1,223,070 $1,151,749 6.2 %
=========== =================== ==========
Net sales for Six Months 20002001 increased to $1,151.7$1,223.1 million from $662.3$1,151.7
million for Six Months 1999,2000, an increase of $489.4$71.3 million, or 73.9%6.2%.
CANANDAIGUA WINECanandaigua Wine
----------------
Net sales for Canandaigua Wine for Six Months 2000 increased2001 decreased to $333.8$330.4
million from $306.7$333.8 million for Six Months 1999, an increase2000, a decrease of $27.1$3.4 million, or
8.8%(1.0)%. This increaseThe decline resulted primarily from (i) an increasea decrease 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.sales, while branded wine sales were virtually unchanged against the
comparable period last year.
- 1916 -
BARTONBarton
------
Net sales for Barton for Six Months 20002001 increased to $451.0$520.4 million from
$354.5$451.0 million for Six Months 1999,2000, an increase of $96.4$69.4 million, or 27.2%15.4%. This
increase resulted primarily from an increasevolume growth and selling price increases in
sales of importedthe Mexican beer brands
led by Barton's Mexican portfolio as well as from $31.9the inclusion of $11.3 million of
incremental net sales during the first quarter of products and servicesfiscal 2001 from the Canadian
whisky brands acquired inas part of the Black Velvet Acquisition,Assets acquisition, which was
completed in April 1999.
MATTHEW CLARKMatthew Clark
-------------
Net sales for Matthew Clark for Six Months 2001 decreased to $339.2 million
from $350.0 million for Six Months 2000, were $350.0 million.
FRANCISCANa decrease of $10.8 million, or (3.1)%.
This decrease resulted primarily from an adverse foreign currency impact of
$16.8 million and a decrease in draft cider sales, partially offset by growth in
wine, packaged cider and wholesale sales.
Franciscan
----------
Net sales for Franciscan for Six Months 2001 increased to $43.3 million
from $17.1 million for Six Months 2000, sincean increase of $26.1 million, or 152.6%.
As the dateacquisition of acquisition,Franciscan was completed in June 4, 1999, were $17.1 million.this increase
resulted primarily from the inclusion of $21.9 million of net sales from the
first quarter of fiscal 2001 and from selling price increases and volume growth
during Second Quarter 2001.
GROSS PROFIT
The Company's gross profit increased to $384.5 million for Six Months 2001
from $345.3 million for Six Months 2000, from $195.3 million for Six Months 1999, an increase of $150.0$39.3 million, or 76.8%11.4%.
The dollar increase in gross profit was primarily related to sales from the
Matthew Clark,acquisitions of the Black Velvet Assets (completed in April 1999) and Franciscan
and Simi Acquisitions, all completed
after Six Months 1999,(completed in June 1999), as well as increased Barton beer and Canandaigua Wine
wine sales. As a percent of net
sales, gross profit increased to 30.0%31.4% for Six Months 20002001 from 29.5% for30.0% in Six
Months 1999,2000, resulting primarily from sales of higher-margin spirits and
super-premium and ultra-premium wine acquired in the acquisitions of the Black
Velvet Assets and Franciscan, respectively, and Simi Acquisitions, respectively.from improved margins resulting
from price increases in the Company's imported beer business and the Franciscan
fine wine portfolio.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $256.3 million
for Six Months 2001 from $235.8 million for Six Months 2000, from $128.8 million for Six Months 1999, an increase of
$107.0$20.5 million, or 83.1%8.7%. The dollar increase in selling, general and
administrative expenses resulted primarily from the additioninclusion of the Matthew
Clark and Franciscan
businessesbusiness and expenses related to the brands acquired in the Black Velvet Acquisition. The Company also increased its marketingAssets
acquisition for a full six months in fiscal 2001, and promotional costs to generate additional sales volume, particularly of certain
Canandaigua Wine brands and Barton beer brands.an increase in expenses in
Corporate Operations. Selling, general and administrative expenses as a percent
of net sales increased to 21.0% for Six Months 2001 as compared to 20.5% for Six
Months 2000 as compared to 19.4% for Six Months 1999.2000. 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,acquisition of Franciscan, and Simi Acquisitions, as Matthew Clark and Franciscan's selling, general and administrative
expenses as a percent of net sales isare typically at the high end of the range of
the Company's operating segments' percentages.percentages, and from the increase in expenses
in Corporate Operations.
- 17 -
NONRECURRING CHARGES
The Company incurred nonrecurring charges of $5.5 million in Six Months
2000 related to the closure of a cider production facility within the Matthew
Clark operating segment in the United Kingdom ($2.9 million) and to a management
reorganization within the Canandaigua Wine operating segment.segment ($2.6 million). No
such charges were incurred in Six Months 1999.
- 20 -2001.
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Six Months 20002001 and Six Months
1999.2000.
Six Months 20002001 Compared to Six Months 19992000
-------------------------------------------
Operating Profit/(Loss)
-------------------------------------------
%Increase/2001 2000 1999 (Decrease)%Increase
----------- ---------- --------- -------- ----------
Canandaigua Wine $ 18,396 $ 16,019 $ 17,661 (9.3)%14.8%
Barton 89,448 73,459 54,620 34.5 %21.8%
Matthew Clark 22,596 19,310 -- N/A17.0%
Franciscan 9,658 1,571 -- N/A514.8%
Corporate Operations and Other (11,930) (6,440) (5,770) 11.6 %
--------- --------85.2%
----------- ----------
Consolidated Operating Profit $ 128,168 $ 103,919 $ 66,511 56.2 %
========= ========23.3%
=========== ==========
As a result of the above factors, consolidated operating income increased
to $128.2 million for Six Months 2001 from $103.9 million for Six Months 2000,
from $66.5 million for Six Months 1999, an increase of $37.4$24.2 million, or 56.2%23.3%. OperatingExclusive of the aforementioned $2.6
million in nonrecurring charges, 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% todecreased 1.0% in Six Months 2001 from $18.6 million in Six
Months 2000. Operating income for the Matthew Clark operating segment, excluding
the aforementioned nonrecurring charges of $2.9 million, wasincreased 1.5% in the
Six Months 2001 from $22.3 million.million in the Six Months 2000.
INTEREST EXPENSE, NET
Net interest expense increased to $54.8 million for Six Months 2001 from
$50.7 million for Six Months 2000, from
$16.0 million for Six Months 1999, an increase of $34.7$4.1 million, or 217.7%8.2%. The
increase resulted primarily from additional interest expense associated with
the
borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi
Acquisitions.acquisition of Franciscan.
NET INCOME
As a result of the above factors, net income increased to $44.0 million for
Six Months 2001 from $31.9 million for Six Months 2000, from $29.8 million for Six Months 1999, an increase of $2.1$12.1
million, or 7.1%37.8%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Six Months 20002001
were $138.1$164.2 million, an increase of $54.6$26.2 million over EBITDA of $83.5$138.1 million
for Six Months 1999.2000. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity.
- 2118 -
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 20002001 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Six Months 20002001 was $59.1$78.0
million, which resulted from $63.9$81.8 million in net income adjusted for noncash
items, less $4.8$3.9 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from an increase in accounts receivable as a result of a
seasonal increase in accounts receivable,sales, partially offset by increases in accrued income taxes,grape
purchases, accounts payable, accrued advertising and promotion expenses, accrued
income taxes and accrued grape purchases.excise taxes.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Six Months 20002001 was $482.2$24.3
million, which resulted primarily from net cash paid of $452.5 million for the
Black Velvet, Franciscan and Simi Acquisitions and $30.8 million of capital expenditures including $4.1 million for vineyards.of $25.2 million.
Net cash provided byused in financing activities for Six Months 20002001 was $399.9$80.5 million
which resultedresulting primarily from proceeds of $664.1 million from issuanceprincipal payments of long-term debt including $400.0of $220.5 million,
incurred in connection with the
Black Velvetwhich included $25.5 million of scheduled and Franciscan Acquisitionsrequired principal payments and
$200.0$75.0 million incurred to repay
amounts outstanding under the bank credit agreement.of principal prepayments. This amount was partially offset by principal paymentsnet
proceeds of $242.5$118.2 million from the issuance of (pound)80.0 million of long-term debt, repayment8 1/2%
Sterling Series C Senior Notes used to repay a portion of $12.7the Company's British
pound sterling borrowings under its senior credit facility and proceeds from
$16.5 million of net revolving loan borrowings, and payment of $10.8 million of
long-term debt issuance costs.borrowings.
DEBT
Total debt outstanding as of August 31, 1999,2000, amounted to $1,367.2$1,209.1 million,
an increasea decrease of $441.8$108.9 million from February 28, 1999.29, 2000. The ratio of total debt to
total capitalization increaseddecreased to 74.5%68.7% as of August 31, 1999,2000, from 68.0%71.7% as of
February 28, 1999.29, 2000.
- 2219 -
THE COMPANY'SSENIOR 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.FACILITY
As of August 31, 1999,2000, under its banksenior credit agreement,facility, the Company had
outstanding term loans of $690.7$338.2 million bearing a weighted average interest
at 7.8%rate of 8.4%, $75.0$43.3 million of revolving loans bearing a weighted average
interest atrate of 7.9%, undrawn revolving letters of credit of $10.4$11.9 million, and
$214.6 million in revolving loans available to be drawn.
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
- 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 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.
As of October 14, 1999, under the 2000 Credit Agreement, the Company had
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$244.8 million in revolving loans available to be drawn.
SENIOR NOTES
OnAs of August 4, 1999,31, 2000, the Company issuedhad outstanding $200.0 million aggregate
principal amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes").
The Senior Notes are currently redeemable, in whole or in part, at the option of
the Company.
In March 2000, the Company exchanged (pound)75.0 million aggregate
principal amount of 8 1/2% Series B Senior Notes due in November 2009 (the
"Sterling Series B Senior Notes") for the Sterling Senior Notes. The terms of
the Sterling Series B Senior Notes are identical in all material respects to the
Sterling Senior Notes.
In May 2000, the Company issued (pound)80.0 million (approximately $120.0
million) aggregate principal amount of 8 1/2% Series C Senior Notes due November
2009 at an issuance price of (pound)79.6 million (approximately $119.4 million,
net of $0.6 million unamortized discount, with an effective rate of 8.6%) (the
"Sterling Series C Senior Notes"). The net proceeds of the offering (approximately $196.0((pound)78.8
million, or approximately $118.2 million) waswere used to repay a portion of the
Company's British pound sterling borrowings under its banksenior credit agreement.facility.
Interest on the Sterling Series C Senior Notes is payable semiannually on February 1May 15
and August 1November 15 of each year, beginning February 1,on November 15, 2000. The Sterling
Series C Senior Notes are redeemable at the option of the Company, in whole or
in part, at any time. The Sterling Series C Senior Notes are unsecured senior
obligations and rank equally in right of payment to all existing and future
unsecured senior indebtedness of the Company. The Sterling Series C Senior Notes
are guaranteed, on a senior basis, by certain of the Company's significant
operating subsidiaries.
SENIOR SUBORDINATED NOTES
As of August 31, 1999,2000, the Company had outstanding $195.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due December 2003 (the
"Notes""Original Notes"). The Original Notes are currently redeemable, in whole or in
part, at the option of the Company.
On March 4, 1999,Also, as of August 31, 2000, the Company issuedhad outstanding $200.0 million
aggregate principal amount of 8 1/2% Senior Subordinated Notes due March 2009
(the "Senior Subordinated Notes"). The net proceeds of the offering (approximately $195.0
million) were used to fund the Black Velvet Acquisition and to pay the fees and
expenses related thereto with the remainder of the net proceeds used for general
corporate purposes. Interest on the Senior Subordinated Notes is payable
semiannually on March 1 and September 1 of each year, beginning September 1,
1999. The Senior Subordinated Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after March
1, 2004. The Company may also redeem up to $70.0 million of the Senior
Subordinated Notes using the proceeds of certain equity offerings completed
before March 1, 2002.
The Senior
Subordinated Notes are unsecured and subordinated to the prior payment in full
of all senior indebtedness of the Company, which includes the bank credit
agreement. The Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company's significant operating
subsidiaries.
- 2420 -
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133
for one year. With the issuance of SFAS No. 137, the Company is required to
adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years
beginning March 1, 2001.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 ("SFAS No. 138"), "Accounting for Certain
Derivative Instruments and Certain Hedging Activities--an amendment of FASB
Statement No. 133." SFAS No. 138 amends the accounting and reporting standards
of SFAS No. 133 for certain derivative instruments and certain hedging
activities. The Company is required to adopt SFAS No. 138 concurrently with SFAS
No. 133. The Company believes the effect of the adoption of these statements on
its financial statements will not be material based on the Company's current
risk management strategies.
YEAR 2000 ISSUE
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, have been inventoried and
assessed. In addition, plans have been developed for the required systems
modifications or replacements. With respect to its information technology
systems, the Company has completed both the assessment and remediation phases.
With respect to its non-information technology systems, the Company has
completed the entire assessment phase and approximately 97% of the remediation
phase. Final testing in selected areas, both internal and external, has
confirmed the integrity of the Company's remediation programs. The Company's
internal mission-critical information technology and non-information technology
systems are Year 2000 compliant.
The Company has 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. Based 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
have been virtually completed. The Company's key financial institutions have
been surveyed and it is the Company's understanding that they are Year 2000
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 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 are expected to be completed by October 31, 1999,
and, by way of examples, will include back-up procedures, identification of
alternate suppliers, where possible, and increases in 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, results
of operations or cash flows. For example, the Company would experience a
material adverse impact on its business if significant suppliers of beer, glass
or other raw materials, or utility systems fail to timely provide the Company
with necessary inventories or services due to Year 2000 systems failures.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. 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 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, 1999,2000,
does not differ materially from that discussed under Item 7A in the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1999.29, 2000.
- 21 -
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
At the Annual Meeting of Stockholders of Constellation Brands, Inc. (f/k/a
Canandaigua Brands, Inc.,) held on July 20, 199918, 2000 (the "Annual Meeting"), the
holders of the Company's Class A Common Stock (the "Class A Stock"), voting as a
separate class, elected management'sthe Company'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'sthe Company'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 approve Amendment Number 6 to the Company's 1989
Employee Stock Purchase Plan. (This Amendment grants the committee
administering the plan the authority to designate the subsidiaries
of the Company whose employees are eligible to participate in the
plan.)
(ii) Proposal to approve Amendment Number Two to the Company's Long-Term
Stock Incentive Plan. (This Amendment increases the aggregate number
of shares of the Class A Common Stock available for awards under the
plan from 4,000,000 shares to 7,000,000 shares.)
(iii) Proposalproposal to ratify the selection of Arthur Andersen LLP, Certified Public
Accountants, as the Company's independent auditors for the fiscal year ending
February 29, 2000.28, 2001.
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 12,616,998 91,92511,253,547 471,002
Paul L. Smith 12,617,056 91,867
- 27 -11,255,184 469,365
Directors Elected By the Holders of Class B Stock:
--------------------------------------------------
Nominee For Withheld
--------------------------------------- ---------- --------
George Bresler 30,958,690 60,00030,552,860 3,980
Jeananne K. Hauswald 30,552,590 4,250
James A. Locke, III 30,960,190 58,500
Marvin Sands 30,960,190 58,50030,554,590 2,250
Richard Sands 30,955,090 63,60030,554,590 2,250
Robert Sands 30,955,090 63,60030,552,920 3,920
II. The proposal to approve Amendment Number 6 to the Company's 1989
Employee Stock Purchase Plan was approved with the following votes:
For: 42,506,828
Against: 1,115,603
Abstain: 49,272
Broker Nonvotes: 55,910
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: 43,662,76742,133,632
Against: 6,48788,537
Abstain: 58,35959,220
Broker Nonvotes: 0
- 22 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 3429 of this Report.
(b) The following ReportsReport on Form 8-K werewas filed with the Securities and
Exchange Commission during the quarter ended August 31, 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:
- 28 -
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)2000:
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, 1999.22, 2000. 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, 19992000 (unaudited) and
February 28, 1999;29, 2000 (audited); and (ii) the Company's Condensed
Consolidated Statements of Income for the three months ended May 31,
19992000 (unaudited) and May 31, 19981999 (unaudited).
(v) Form 8-K dated July 28, 1999. This Form 8-K reported
information under Item 7 (Financial Statements and Exhibits).
- 2923 -
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.
CANANDAIGUACONSTELLATION BRANDS, INC.
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------
Thomas S. Summer, SeniorExecutive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 3024 -
CANANDAIGUA EUROPE LIMITED
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA LIMITED
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Authorized Officer
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Finance Director
(Principal Financial Officer and
Principal Accounting Officer)
POLYPHENOLICS, INC.
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, Vice President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
ROBERTS TRADING CORP.
Dated: October 15, 199913, 2000 By: /s/ Thomas F. Howe
------------------------------------------------------
Thomas F. Howe, Controller
Dated: October 15, 199913, 2000 By: /s/ Thomas S. Summer
--------------------------------------------------------------
Thomas S. Summer, President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 3125 -
CANANDAIGUA B.V.
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Chief Financial
Officer (On behalf of the Registrant
and as Principal Financial Officer
and Principal Accounting Officer)
FRANCISCAN VINEYARDS, INC.
Dated: October 13, 2000 By: /s/ Thomas F. Howe
------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
ALLBERRY, INC.
Dated: October 13, 2000 By: /s/ Thomas F. Howe
------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
CLOUD PEAK CORPORATION
Dated: October 13, 2000 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President and
Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
- 26 -
M.J. LEWIS CORP.
Dated: October 13, 2000 By: /s/ Thomas F. Howe
------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
MT. VEEDER CORPORATION
Dated: October 13, 2000 By: /s/ Thomas F. Howe
------------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
BARTON INCORPORATED
Dated: October 15, 199913, 2000 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President and
Chief Executive Officer
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, ExecutiveThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS, LTD.
Dated: October 15, 199913, 2000 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, ExecutiveThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
- 27 -
BARTON BEERS, LTD.
Dated: October 15, 199913, 2000 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, ExecutiveThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS OF CALIFORNIA, INC.
Dated: October 15, 199913, 2000 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, ExecutiveThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President
Treasurer(Principal Financial Officer and
Assistant
SecretaryPrincipal Accounting Officer)
BARTON BRANDS OF GEORGIA, INC.
Dated: October 13, 2000 By: /s/ Alexander L. Berk
------------------------------------
Alexander L. Berk, President
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President
(Principal Financial Officer and
Principal Accounting Officer)
BARTON CANADA, LTD.
Dated: October 13, 2000 By: /s/ Alexander L. Berk
------------------------------------
Alexander L. Berk, President
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President
(Principal Financial Officer and
Principal Accounting Officer)
- 3228 -
BARTON BRANDS OF GEORGIA, INC.DISTILLERS IMPORT CORP.
Dated: October 15, 199913, 2000 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, President
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, ExecutiveThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
BARTON DISTILLERS IMPORT CORP.
Dated: October 15, 1999 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, 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)
BARTON FINANCIAL CORPORATION
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers,Troy J. Christensen
------------------------------------
Troy J. Christensen, President and
Secretary
Dated: October 15, 199913, 2000 By: /s/ Charles T. Schlau
---------------------
Charles T. Schlau, TreasurerThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: October 15, 199913, 2000 By: /s/ Alexander L. Berk
---------------------------------------------------------
Alexander L. Berk, Executive Vice
President
Dated: October 15, 199913, 2000 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, ExecutiveThomas S. Summer
------------------------------------
Thomas S. Summer, Vice President
Treasurer(Principal Financial Officer and
Assistant
SecretaryPrincipal Accounting Officer)
MONARCH IMPORT COMPANY
Dated: October 13, 2000 By: /s/ Alexander L. Berk
------------------------------------
Alexander L. Berk, President
Dated: October 13, 2000 By: /s/ Thomas S. Summer
------------------------------------
Thomas S. Summer, Vice President
(Principal Financial Officer and
Principal Accounting Officer)
- 33 -
MONARCH IMPORT COMPANY
Dated: October 15, 1999 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, 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)
THE VIKING DISTILLERY, INC.
Dated: October 15, 1999 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, 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)
- 3429 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
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.the Company
(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 exhibitExhibit 2.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 31, 1999 and incorporated
herein by reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1998 and incorporated herein by reference)herewith).
3.2 Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 toherewith; filed for the purpose of reflecting
the Company's Quarterly Report on Form 10-Q fornew name, Constellation Brands, Inc., in the fiscal quarter ended
August 31, 1998 and incorporated herein by reference)title of the
By-Laws).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1 Supplemental Indenture No. 5, 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).
4.9 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).
4.10 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, certain principal operating subsidiaries, and certain
banks for which The Chase Manhattan Bank acts as Administrative Agent
(filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 1, 1998 and incorporated herein by reference).
- 36 -
4.14 Second Amended and Restated Credit Agreement, dated as of May 12, 1999,
between the Company, certain principal operating subsidiaries, and certain
banks for which The Chase Manhattan Bank acts as Administrative Agent
(filed as Exhibit 4.2 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).
4.17 Indenture with respect to 8 1/2% Senior Subordinated Notes due 2009, dated
as of February 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,September 14, 2000 by and among
the Company, as Issuer, its principal operating subsidiaries, as
Guarantors, and Harris Trust and SavingsThe Bank of New York, as Trustee (filed as
Exhibit 99.2herewith).
(10) MATERIAL CONTRACTS.
10.1 Amendment Number Three to the Company's Current Report on Form 8-K dated February
25, 1999 and incorporated herein by reference)Long-Term Stock Incentive Plan
(filed herewith).
4.1910.2 Amendment Number Two to the Company's Incentive Stock Option Plan (filed
herewith).
10.3 Supplemental Indenture No. 2,5, dated as of August 4, 1999,September 14, 2000 by and among
the Company, as Issuer, its principal operating subsidiaries, as
Guarantors, and Harris Trust and SavingsThe Bank of New York, 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.
Amendment Number Two to the Company's Long-Term Stock Incentive Plan
(filed herewith)hereto).
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
- 30 -
(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.
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.