FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
COMMISSION FILE NUMBER 0-7570
DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709
AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994
NEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581
ENGLAND AND WALES CANANDAIGUA LIMITED 98-0198402
NEW YORK POLYPHENOLICS, INC. 16-1546354
NEW YORK ROBERTS TRADING CORP. 16-0865491
NETHERLANDS CANANDAIGUA B.V. 98-0205132
CALIFORNIA SIMI WINERY, INC. 94-2244918
DELAWARE FRANCISCAN VINEYARDS, INC. 94-2602962
NEW YORK SCV-EPI VINEYARDS, INC. 16-1568478
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. 36-3185921
MARYLAND BARTON BEERS, LTD. 36-2855879
CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC. 06-1048198
GEORGIA BARTON BRANDS OF GEORGIA, INC. 58-1215938
ILLINOIS BARTON CANADA, LTD. 36-4283446
NEW YORK BARTON DISTILLERS IMPORT CORP. 13-1794441
DELAWARE BARTON FINANCIAL CORPORATION 51-0311795
WISCONSIN STEVENS POINT BEVERAGE CO. 39-0638900
ILLINOIS MONARCH IMPORT COMPANY 36-3539106
GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 218-2169
----------------------------------------------------
(Registrants' telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Brands, Inc., as of December 31, 1999, is set forth below
(all of the Registrants, other than Canandaigua Brands, Inc., are direct or
indirect wholly-owned subsidiaries of Canandaigua Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 14,985,368
Class B Common Stock, Par Value $.01 Per Share 3,137,245
- 1 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
November 30, February 28,
1999 1999
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 24,667 $ 27,645
Accounts receivable, net 402,128 260,433
Inventories, net 677,363 508,571
Prepaid expenses and other current assets 67,084 59,090
------------ ------------
Total current assets 1,171,242 855,739
PROPERTY, PLANT AND EQUIPMENT, net 561,397 428,803
OTHER ASSETS 800,356 509,234
------------ ------------
Total assets $ 2,532,995 $ 1,793,776
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 114,391 $ 87,728
Current maturities of long-term debt 40,249 6,005
Accounts payable 182,971 122,746
Accrued excise taxes 46,028 49,342
Other accrued expenses and liabilities 256,729 149,451
------------ ------------
Total current liabilities 640,368 415,272
------------ ------------
LONG-TERM DEBT, less current maturities 1,253,863 831,689
------------ ------------
DEFERRED INCOME TAXES 113,609 88,179
------------ ------------
OTHER LIABILITIES 27,860 23,364
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at November 30, 1999,
and February 28, 1999 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 18,135,272 shares at November 30, 1999,
and 17,915,359 shares at February 28, 1999 181 179
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,762,970 shares at November 30, 1999,
and 3,849,173 shares at February 28, 1999 38 39
Additional paid-in capital 243,539 239,912
Retained earnings 342,928 281,081
Accumulated other comprehensive income-
Cumulative translation adjustment (7,677) (4,173)
------------ ------------
579,009 517,038
------------ ------------
Less-Treasury stock-
Class A Common Stock, 3,156,004 shares at
November 30, 1999, and 3,168,306 shares at
February 28, 1999, at cost (79,507) (79,559)
Class B Convertible Common Stock, 625,725 shares at
November 30, 1999, and February 28, 1999, at cost (2,207) (2,207)
------------ ------------
(81,714) (81,766)
------------ ------------
Total stockholders' equity 497,295 435,272
------------ ------------
Total liabilities and stockholders' equity $ 2,532,995 $ 1,793,776
============ ============
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
- 2 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Nine Months Ended November 30, For the Three Months Ended November 30,
-------------------------------------- ---------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 2,383,909 $ 1,374,183 $ 864,075 $ 494,033
Less - Excise taxes (570,640) (336,283) (202,555) (118,447)
--------------- --------------- --------------- ---------------
Net sales 1,813,269 1,037,900 661,520 375,586
COST OF PRODUCT SOLD (1,258,332) (726,908) (451,833) (259,891)
--------------- --------------- --------------- ---------------
Gross profit 554,937 310,992 209,687 115,695
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (368,130) (202,561) (132,309) (73,775)
NONRECURRING CHARGES (5,510) - - -
--------------- --------------- --------------- ---------------
Operating income 181,297 108,431 77,378 41,920
INTEREST EXPENSE, net (78,219) (23,700) (27,544) (7,748)
--------------- --------------- --------------- ---------------
Income before income taxes 103,078 84,731 49,834 34,172
PROVISION FOR INCOME TAXES (41,231) (34,740) (19,934) (14,011)
--------------- --------------- --------------- ---------------
NET INCOME $ 61,847 $ 49,991 $ 29,900 $ 20,161
=============== =============== =============== ===============
SHARE DATA:
Earnings per common share:
Basic $ 3.43 $ 2.72 $ 1.65 $ 1.13
=============== =============== =============== ===============
Diluted $ 3.34 $ 2.65 $ 1.60 $ 1.10
=============== =============== =============== ===============
Weighted average common shares outstanding:
Basic 18,023 18,412 18,083 17,892
Diluted 18,502 18,881 18,651 18,325
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
- 3 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine Months Ended November 30,
--------------------------------------
1999 1998
-------------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61,847 $ 49,991
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 33,938 18,166
Amortization of intangible assets 16,904 7,523
Stock-based compensation expense 776 76
Amortization of discount on long-term debt 316 287
Deferred tax benefit (3,860) (2,800)
Gain on sale of assets (778) (16)
Change in operating assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (123,109) (31,143)
Inventories, net (55,602) (48,636)
Prepaid expenses and other current assets (5,432) (15,690)
Accounts payable 44,292 19,324
Accrued excise taxes (3,191) 7,134
Other accrued expenses and liabilities 88,960 59,032
Other assets and liabilities, net 1,201 (3,917)
-------------- --------------
Total adjustments (5,585) 9,340
-------------- --------------
Net cash provided by operating activities 56,262 59,331
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (452,526) -
Purchases of property, plant and equipment (46,657) (21,660)
Proceeds from sale of assets 1,276 45
Purchase of joint venture minority interest - (716)
-------------- --------------
Net cash used in investing activities (497,907) (22,331)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,486,240 -
Net proceeds from notes payable 25,995 22,600
Exercise of employee stock options 2,386 3,021
Proceeds from employee stock purchases 601 1,285
Principal payments of long-term debt (1,059,406) (18,119)
Payment of issuance costs of long-term debt (14,494) -
Purchases of treasury stock - (44,878)
-------------- --------------
Net cash provided by (used in) financing activities 441,322 (36,091)
-------------- --------------
Effect of exchange rate changes on cash and cash investments (2,655) -
-------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (2,978) 909
CASH AND CASH INVESTMENTS, beginning of period 27,645 1,232
-------------- --------------
CASH AND CASH INVESTMENTS, end of period $ 24,667 $ 2,141
============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ 559,541 $ -
Liabilities assumed (104,526) -
-------------- --------------
Cash paid 455,015 -
Less - cash acquired (2,489) -
-------------- --------------
Net cash paid for purchases of businesses $ 452,526 $ -
============== ==============
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
- 4 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by Canandaigua Brands, Inc. and its subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect,
in the opinion of the Company, all adjustments necessary to present fairly the
financial information for the Company. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted as permitted by such rules
and regulations. These consolidated financial statements and related notes
should be read in conjunction with the consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999.
2) ACQUISITIONS:
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (the "Black Velvet
Acquisition"). In connection with the transaction, the Company also entered into
multi-year agreements with Diageo to provide packaging and distilling services
for various brands retained by Diageo. The purchase price was approximately
$185.5 million and was financed by the proceeds from the sale of the "Senior
Subordinated Notes" (as defined in Note 6).
The Black Velvet Acquisition was accounted for using the purchase method;
accordingly, the acquired assets were recorded at fair market value at the date
of acquisition. The excess of the purchase price over the estimated fair market
value of the net assets acquired (goodwill), $30.7 million, is being amortized
on a straight-line basis over 40 years. The results of operations of the Black
Velvet Acquisition have been included in the Consolidated Statements of Income
since the date of acquisition.
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. and 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 million in cash plus assumed debt, net of cash acquired, of
approximately $30.8 million. The purchase price was financed by additional term
loan borrowings under the bank credit agreement. Also, on June 4, 1999, the
Company acquired all of the outstanding capital stock of Simi Winery, Inc. (the
"Simi Acquisition"). The cash purchase price was approximately $57.5 million and
was financed by revolving loan borrowings under the bank credit agreement. The
purchases were accounted for using the purchase method; accordingly, the
acquired assets were recorded at fair market value at the date of acquisition.
The excess of the purchase price over the estimated fair market value of the net
assets acquired (goodwill) for the Franciscan Acquisition and the Simi
Acquisition, $72.3 million and $7.0 million, respectively, is being amortized on
a straight-line basis over 40 years. The Franciscan and Simi operations are
managed together as a separate business segment of the Company ("Franciscan").
The results of operations of Franciscan have been included in the Consolidated
Statements of Income since the date of acquisition. The unaudited pro forma
results of operations for the nine months ended November 30, 1999 (shown in the
table below), reflect total nonrecurring charges of $12.4 million ($0.40 per
share on a diluted basis) related to transaction costs, primarily for exercise
of stock options, which were incurred by Franciscan Vineyards, Inc. prior to the
acquisition.
- 5 -
The following table sets forth the unaudited pro forma results of
operations of the Company for the nine months ended November 30, 1999 and 1998,
which gives effect to the acquisition of Matthew Clark plc ("Matthew Clark"),
the Black Velvet Acquisition and Franciscan as if they occurred on March 1,
1998. The unaudited pro forma results of operations are presented after giving
effect to certain adjustments for depreciation, amortization of goodwill,
interest expense on the acquisition financing and related income tax effects.
The unaudited pro forma results of operations are based upon currently available
information and upon certain assumptions that the Company believes are
reasonable under the circumstances. The unaudited pro forma results of
operations do not purport to present what the Company's results of operations
would actually have been if the aforementioned transactions had in fact occurred
on such date or at the beginning of the period indicated, nor do they project
the Company's financial position or results of operations at any future date or
for any future period.
For the Nine Months
Ended November 30,
---------------------------
1999 1998
------------ ------------
(in thousands, except per share data)
Net sales $ 1,840,633 $ 1,659,975
Income before income taxes $ 87,547 $ 65,130
Net income $ 52,528 $ 38,426
Earnings per common share:
Basic $ 2.91 $ 2.09
============ ============
Diluted $ 2.84 $ 2.04
============ ============
Weighted average common shares outstanding:
Basic 18,023 18,412
Diluted 18,502 18,881
3) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
November 30, February 28,
1999 1999
------------- -------------
(in thousands)
Raw materials and supplies $ 40,342 $ 32,388
Wine and distilled spirits in process 455,144 344,175
Finished case goods 181,877 132,008
------------- -------------
$ 677,363 $ 508,571
============= =============
- 6 -
4) OTHER ASSETS:
The major components of other assets are as follows:
November 30, February 28,
1999 1999
------------- -------------
(in thousands)
Goodwill $ 421,468 $ 311,908
Trademarks 270,924 102,183
Distribution rights and agency
license agreements 87,052 76,894
Other 72,576 53,779
------------- -------------
852,020 544,764
Less - Accumulated amortization (51,664) (35,530)
------------- -------------
$ 800,356 $ 509,234
============= =============
5) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
November 30, February 28,
1999 1999
------------- -------------
(in thousands)
Accrued advertising and promotions $ 61,032 $ 38,604
Accrued income taxes payable 31,647 9,347
Accrued interest 29,025 11,384
Accrued salaries and commissions 16,323 15,584
Other 118,702 74,532
------------- -------------
$ 256,729 $ 149,451
============= =============
6) BORROWINGS:
Senior Subordinated Notes -
On March 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due March 2009 ("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.
- 7 -
Senior Notes -
On August 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 5/8% Senior Notes due August 2006 ("Senior Notes"). The net proceeds
of the offering (approximately $196.0 million) were used to repay a portion of
the Company's borrowings under its bank credit agreement. Interest on the Senior
Notes is payable semiannually on February 1 and August 1 of each year, beginning
February 1, 2000. The Senior Notes are redeemable at the option of the Company,
in whole or in part, at any time. The Senior Notes are unsecured senior
obligations and rank equally in right of payment to all existing and future
unsecured senior indebtedness of the Company. The Senior Notes are guaranteed,
on a senior basis, by certain of the Company's significant operating
subsidiaries.
On November 17, 1999, the Company issued (pound)75.0 million (approximately
$121.7 million) aggregate principal amount of 8 1/2% Senior Notes due November
2009 ("Sterling Senior Notes"). The net proceeds of the offering ((pound)73.0
million, or approximately $118.3 million) were used to repay a portion of the
Company's borrowings under its bank credit agreement (see "2000 Credit
Agreement"). Interest on the Sterling Senior Notes is payable semiannually on
May 15 and November 15 of each year, beginning on May 15, 2000. The Sterling
Senior Notes are redeemable at the option of the Company, in whole or in part,
at any time. The Sterling 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 Senior Notes are guaranteed, on a
senior basis, by certain of the Company's significant operating subsidiaries.
2000 Credit Agreement -
On October 6, 1999, the Company, certain of its principal operating
subsidiaries and a syndicate of banks (the "Syndicate Banks"), for which The
Chase Manhattan Bank acts as administrative agent, entered into a new senior
credit agreement (the "2000 Credit Agreement"). The 2000 Credit Agreement
includes both U.S. dollar and British pound sterling commitments of the
Syndicate Banks of up to, in the aggregate, the equivalent of $1.0 billion
(subject to increase as therein provided to $1.2 billion). Proceeds of the 2000
Credit Agreement were used to repay all outstanding principal and accrued
interest on all loans under the Company's prior bank credit agreement, and are
available to fund permitted acquisitions and ongoing working capital needs of
the Company and its subsidiaries.
The 2000 Credit Agreement provides for a $380.0 million Tranche I Term Loan
facility due in December 2004, a $320.0 million Tranche II Term Loan facility
available for borrowing in British pound sterling due in December 2004, and a
$300.0 million Revolving Credit facility (including letters of credit up to a
maximum of $20.0 million) which expires in December 2004. The Tranche I Term
Loan facility ($380.0 million) and the Tranche II Term Loan facility
((pound)193.4 million, or approximately $320.0 million) were fully drawn at
closing. The Tranche I Term Loan facility requires quarterly repayments,
starting at $12.0 million in March 2000 and increasing thereafter annually with
final payments of $23.0 million in each quarter in 2004. On November 17, 1999,
proceeds from the Sterling Senior Notes were used to repay a portion of the
$320.0 million Tranche II Term Loan facility ((pound)73.0 million, or
approximately $118.3 million). After this repayment, the required quarterly
repayments of the Tranche II Term Loan facility were revised to (pound)0.6
million ($1.0 million) for each quarter in 2000, (pound)1.2 million ($1.9
million) for each quarter in 2001 and 2002, (pound)1.5 million ($2.4 million)
for each quarter in 2003 and (pound)25.6 million ($40.9 million) for each
quarter in 2004 (the foregoing U.S. dollar equivalents are as of November 30,
1999). There are certain mandatory term loan prepayments, including those based
on sale of assets and issuance of debt and equity, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement.
- 8 -
The rate of interest payable, at the Company's option, is a function of the
London interbank offering rate (LIBOR) plus a margin, federal funds rate plus a
margin, or the prime rate plus a margin. The margin is adjustable based upon the
Company's Debt Ratio (as defined in the 2000 Credit Agreement) and, with respect
to LIBOR borrowings, ranges between 0.75% and 1.25% for Revolving Credit loans
and 1.00% and 1.75% for Term Loans. The initial margin for all loans was set at
the highest level at closing and is subject to reduction after November 30,
1999, depending on the Company's Debt Ratio. In addition to interest, the
Company pays a facility fee on the Revolving Credit commitments, initially at
0.50% per annum and subject to reduction after November 30, 1999, to 0.25%,
depending on the Company's Debt Ratio.
Certain of the Company's principal operating subsidiaries have guaranteed
the Company's obligations under the 2000 Credit Agreement. The 2000 Credit
Agreement is secured by (i) first priority pledges of 100% of the capital stock
of Canandaigua Limited and all of the Company's domestic operating subsidiaries
and (ii) first priority pledges of 65% of the capital stock of Matthew Clark and
certain other foreign subsidiaries.
The Company and its subsidiaries are subject to customary secured lending
covenants including those restricting additional liens, incurring additional
indebtedness, the sale of assets, the payment of dividends, transactions with
affiliates and the making of certain investments, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement. The primary
financial covenants require the maintenance of a debt coverage ratio, a senior
debt coverage ratio, a fixed charges ratio and an interest coverage ratio. Among
the most restrictive covenants contained in the 2000 Credit Agreement is the
requirement to maintain a fixed charges ratio of not less than 1.0 at the last
day of each fiscal quarter for the most recent four quarters.
7) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method and assume the conversion of convertible
securities, if any, using the "if converted" method.
The computation of basic and diluted earnings per common share is as
follows:
For the Nine For the Three
Months Months
Ended November 30, Ended November 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands, except per share data)
Income applicable to common shares $ 61,847 $ 49,991 $ 29,900 $ 20,161
======== ======== ======== ========
Weighted average common shares
outstanding - basic 18,023 18,412 18,083 17,892
Stock options 479 469 568 433
-------- -------- -------- --------
Weighted average common shares
outstanding - diluted 18,502 18,881 18,651 18,325
======== ======== ======== ========
EARNINGS PER COMMON SHARE - BASIC $ 3.43 $ 2.72 $ 1.65 $ 1.13
======== ======== ======== ========
EARNINGS PER COMMON SHARE - DILUTED $ 3.34 $ 2.65 $ 1.60 $ 1.10
======== ======== ======== ========
- 9 -
8) 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 notes ("Subsidiary
Guarantors") and the combined subsidiaries of the Company which are not
Subsidiary Guarantors, primarily Matthew Clark ("Subsidiary Nonguarantors"). The
Subsidiary Guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the Subsidiary
Guarantors. Separate financial statements for the Subsidiary Guarantors of the
Company are not presented because the Company has determined that such financial
statements would not be material to investors. The Subsidiary Guarantors
comprise all of the direct and indirect subsidiaries of the Company, other than
Matthew Clark, the Company's Canadian subsidiary, and certain other subsidiaries
which individually, and in the aggregate, are inconsequential. There are no
restrictions on the ability of the Subsidiary Guarantors to transfer funds to
the Company in the form of cash dividends, loans or advances.
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Balance Sheet Data:
November 30, 1999
- -----------------
Current assets $ 134,516 $ 677,250 $ 359,476 $ - $ 1,171,242
Noncurrent assets $ 925,739 $ 1,237,679 $ 479,165 $ (1,280,830) $ 1,361,753
Current liabilities $ 271,984 $ 107,038 $ 261,346 $ - $ 640,368
Noncurrent liabilities $ 1,246,277 $ 95,757 $ 53,298 $ - $ 1,395,332
February 28, 1999
- -----------------
Current assets $ 114,243 $ 532,028 $ 209,468 $ - $ 855,739
Noncurrent assets $ 646,133 $ 396,125 $ 421,867 $ (526,088) $ 938,037
Current liabilities $ 157,648 $ 126,803 $ 130,821 $ - $ 415,272
Noncurrent liabilities $ 815,421 $ 73,178 $ 54,633 $ - $ 943,232
Income Statement Data:
For the Nine Months
- -------------------
Ended November 30, 1999
- -----------------------
Net sales $ 476,108 $ 1,035,493 $ 574,351 $ (272,683) $ 1,813,269
Gross profit $ 130,394 $ 261,156 $ 163,387 $ - $ 554,937
(Loss) income before
income taxes $ (289) $ 66,034 $ 37,333 $ - $ 103,078
Net (loss) income $ (173) $ 39,620 $ 22,400 $ - $ 61,847
- 10 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
For the Nine Months
- -------------------
Ended November 30, 1998
- -----------------------
Net sales $ 442,036 $ 847,103 $ 1,093 $ (252,332) $ 1,037,900
Gross profit $ 123,625 $ 186,973 $ 394 $ - $ 310,992
Income (loss) before
income taxes $ 7,056 $ 77,964 $ (289) $ - $ 84,731
Net income (loss) $ 4,163 $ 45,998 $ (170) $ - $ 49,991
For the Three Months
- --------------------
Ended November 30, 1999
- -----------------------
Net sales $ 200,055 $ 340,635 $ 217,883 $ (97,053) $ 661,520
Gross profit $ 41,066 $ 107,777 $ 60,844 $ - $ 209,687
(Loss) income before
income taxes $ (6,881) $ 39,410 $ 17,305 $ - $ 49,834
Net (loss) income $ (4,128) $ 23,646 $ 10,382 $ - $ 29,900
For the Three Months
- --------------------
Ended November 30, 1998
- -----------------------
Net sales $ 193,446 $ 294,751 $ - $ (112,611) $ 375,586
Gross profit $ 52,357 $ 63,338 $ - $ - $ 115,695
Income before
income taxes $ 7,567 $ 26,605 $ - $ - $ 34,172
Net income $ 4,465 $ 15,696 $ - $ - $ 20,161
9) 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.
- 11 -
Segment information is as follows:
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Canandaigua Wine:
- -----------------
Net sales:
Branded:
External customers $ 472,087 $ 449,036 $ 179,905 $ 181,693
Intersegment 5,274 - 2,285 -
----------- ----------- ----------- -----------
Total Branded 477,361 449,036 182,190 181,693
----------- ----------- ----------- -----------
Other:
External customers 63,081 54,081 24,502 14,731
Intersegment 460 - 423 -
----------- ----------- ----------- -----------
Total Other 63,541 54,081 24,925 14,731
----------- ----------- ----------- -----------
Net sales $ 540,902 $ 503,117 $ 207,115 $ 196,424
Operating profit $ 34,869 $ 36,094 $ 18,850 $ 18,433
Long-lived assets $ 194,199 $ 188,558 $ 194,199 $ 188,558
Total assets $ 698,209 $ 690,358 $ 698,209 $ 690,358
Capital expenditures $ 17,909 $ 17,472 $ 5,201 $ 6,054
Depreciation and amortization $ 16,681 $ 16,208 $ 5,032 $ 5,492
Barton:
- -------
Net sales:
Beer $ 457,961 $ 388,739 $ 134,155 $ 128,810
Spirits 207,697 143,426 80,548 48,827
----------- ----------- ----------- -----------
Net sales $ 665,658 $ 532,165 $ 214,703 $ 177,637
Operating profit $ 114,839 $ 82,287 $ 41,380 $ 27,667
Long-lived assets $ 77,022 $ 50,620 $ 77,022 $ 50,620
Total assets $ 699,954 $ 474,322 $ 699,954 $ 474,322
Capital expenditures $ 4,532 $ 2,502 $ 1,864 $ 814
Depreciation and amortization $ 10,573 $ 8,161 $ 4,175 $ 2,769
- 12 -
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands)
Matthew Clark:
- --------------
Net sales:
Branded:
External customers $ 256,909 $ - $ 101,655 $ -
Intersegment 53 - 53 -
----------- ----------- ----------- -----------
Total Branded 256,962 - 101,708 -
Wholesale 306,802 - 112,049 -
----------- ----------- ----------- -----------
Net sales $ 563,764 $ - $ 213,757 $ -
Operating profit $ 34,503 $ - $ 15,193 $ -
Long-lived assets $ 171,537 $ - $ 171,537 $ -
Total assets $ 728,167 $ - $ 728,167 $ -
Capital expenditures $ 16,459 $ - $ 5,344 $ -
Depreciation and amortization $ 17,133 $ - $ 4,317 $ -
Franciscan:
- -----------
Net sales $ 44,610 $ - $ 27,473 $ -
Operating profit $ 7,562 $ - $ 5,991 $ -
Long-lived assets $ 101,143 $ - $ 101,143 $ -
Total assets $ 361,378 $ - $ 361,378 $ -
Capital expenditures $ 6,448 $ - $ 2,728 $ -
Depreciation and amortization $ 3,990 $ - $ 2,181 $ -
Corporate Operations and Other:
- -------------------------------
Net sales $ 4,122 $ 2,618 $ 1,233 $ 1,525
Operating loss $ (10,476) $ (9,950) $ (4,036) $ (4,180)
Long-lived assets $ 17,496 $ 8,321 $ 17,496 $ 8,321
Total assets $ 45,287 $ 21,566 $ 45,287 $ 21,566
Capital expenditures $ 1,309 $ 1,686 $ 761 $ 694
Depreciation and amortization $ 2,465 $ 1,320 $ 994 $ 461
Intersegment eliminations:
- --------------------------
Net sales $ (5,787) $ - $ (2,761) $ -
Consolidated:
- -------------
Net sales $ 1,813,269 $ 1,037,900 $ 661,520 $ 375,586
Operating profit $ 181,297 $ 108,431 $ 77,378 $ 41,920
Long-lived assets $ 561,397 $ 247,499 $ 561,397 $ 247,499
Total assets $ 2,532,995 $ 1,186,246 $ 2,532,995 $ 1,186,246
Capital expenditures $ 46,657 $ 21,660 $ 15,898 $ 7,562
Depreciation and amortization $ 50,842 $ 25,689 $ 16,699 $ 8,722
- 13 -
10) COMPREHENSIVE INCOME:
Comprehensive income consists of net income and foreign currency
translation adjustments for the nine month and three month periods ended
November 30, 1999. For the nine month and three month periods ended November 30,
1998, comprehensive income consisted of net income, exclusively. The
reconciliation of net income to comprehensive net income is as follows:
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
--------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
Net income $ 61,847 $ 49,991 $ 29,900 $ 20,161
Other comprehensive income:
Cumulative translation
adjustment (3,504) - (2,770) -
--------- --------- --------- ---------
Total comprehensive
income $ 58,343 $ 49,991 $ 27,130 $ 20,161
========= ========= ========= =========
11) 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. The Company believes the effect of the adoption on its
financial statements will not be material based on the Company's current risk
management strategies.
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
- ------------
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended November 30, 1999 ("Third Quarter 2000"), compared to the three
months ended November 30, 1998 ("Third Quarter 1999"), and for the nine months
ended November 30, 1999 ("Nine Months 2000"), compared to the nine months ended
November 30, 1998 ("Nine Months 1999"), and (ii) financial liquidity and capital
resources for Nine Months 2000. This discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included herein and in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999.
The Company operates primarily in the beverage alcohol industry in North
America and the United Kingdom. The Company reports its operating results in
five segments: Canandaigua Wine (branded popularly-priced wine and brandy, and
other, primarily grape juice concentrate); Barton (primarily beer and spirits);
Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); Franciscan (primarily branded super-premium and
ultra-premium wine); and Corporate Operations and Other (primarily corporate
related items).
RECENT ACQUISITIONS
On December 1, 1998, the Company acquired control of Matthew Clark plc
("Matthew Clark") and has since acquired all of Matthew Clark's outstanding
shares (the "Matthew Clark Acquisition"). Prior to the Matthew Clark
Acquisition, the Company was principally a producer and supplier of wine and an
importer and producer of beer and distilled spirits in the United States. The
Matthew Clark Acquisition established the Company as a leading British producer
of cider, wine and bottled water and as a leading beverage alcohol wholesaler in
the United Kingdom. The results of operations of Matthew Clark have been
included in the consolidated results of operations of the Company since the date
of acquisition, December 1, 1998.
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (collectively, the "Black
Velvet Acquisition"). In connection with the transaction, the Company also
entered into multi-year agreements with Diageo to provide packaging and
distilling services for various brands retained by Diageo. The results of
operations from the Black Velvet Acquisition are reported in the Barton segment
and have been included in the consolidated results of operations of the Company
since the date of acquisition.
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. and in related transactions purchased vineyards, a
winery, equipment and other vineyard related assets located in Northern
California (collectively, the "Franciscan Acquisition"). Also on June 4, 1999,
the Company purchased all of the outstanding capital stock of Simi Winery, Inc.
("Simi"). (The acquisition of the capital stock of Simi is hereafter referred to
as the "Simi Acquisition".) The Simi Acquisition includes the Simi winery,
equipment, vineyards and inventory. The results of operations from the
Franciscan and Simi Acquisitions (collectively, "Franciscan") are reported
together in the Franciscan segment and have been included in the consolidated
results of operations of the Company since the date of acquisition.
- 15 -
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
- ---------------------
THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Third Quarter 2000 and Third Quarter 1999.
Third Quarter 2000 Compared to Third Quarter 1999
-------------------------------------------------
Net Sales
-------------------------------------------------
%Increase/
2000 1999 (Decrease)
---------- ---------- ----------
Canandaigua Wine:
Branded:
External customers $ 179,905 $ 181,693 (1.0)%
Intersegment 2,285 - N/A
---------- ----------
Total Branded 182,190 181,693 0.3 %
---------- ----------
Other:
External customers 24,502 14,731 66.3 %
Intersegment 423 - N/A
---------- ----------
Total Other 24,925 14,731 69.2 %
---------- ----------
Canandaigua Wine net sales $ 207,115 $ 196,424 5.4 %
---------- ----------
Barton:
Beer $ 134,155 $ 128,810 4.1 %
Spirits 80,548 48,827 65.0 %
---------- ----------
Barton net sales $ 214,703 $ 177,637 20.9 %
---------- ----------
Matthew Clark:
Branded:
External customers $ 101,655 $ - N/A
Intersegment 53 - N/A
--------- ----------
Total Branded 101,708 - N/A
Wholesale 112,049 - N/A
--------- ----------
Matthew Clark net sales $ 213,757 $ - N/A
--------- ----------
Franciscan $ 27,473 $ - N/A
---------- ----------
Corporate Operations and Other $ 1,233 $ 1,525 (19.1)%
---------- ----------
Intersegment eliminations $ (2,761) $ - N/A
---------- ----------
Consolidated Net Sales $ 661,520 $ 375,586 76.1 %
========== ==========
Net sales for Third Quarter 2000 increased to $661.5 million from $375.6
million for Third Quarter 1999, an increase of $285.9 million, or 76.1%.
- 16 -
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Third Quarter 2000 increased to $207.1
million from $196.4 million for Third Quarter 1999, an increase of $10.7
million, or 5.4%. This increase resulted primarily from (i) an increase in the
Company's bulk wine sales and (ii) an increase in sparkling wine as a result of
millennium sales. These increases were partially offset by declines in certain
other brands.
Barton
------
Net sales for Barton for Third Quarter 2000 increased to $214.7 million
from $177.6 million for Third Quarter 1999, an increase of $37.1 million, or
20.9%. This increase resulted primarily from $29.9 million of sales of products
and services acquired in the Black Velvet Acquisition, which was completed in
April 1999, as well as from an increase in sales of imported beer brands led by
Barton's Mexican portfolio. The Company believes that growth in the unit volume
of its Mexican portfolio was adversely impacted during the quarter by
wholesalers' and retailers' inventory build-up in prior quarters in advance of
recent price increases. While the longer-term impact of the price increases is
difficult to determine at this time, recent wholesaler depletion and retail
sales data reflect more robust growth than initially occurred following the
price increases.
Matthew Clark
-------------
Net sales for Matthew Clark for Third Quarter 2000 were $213.8 million.
Franciscan
----------
Net sales for Franciscan for Third Quarter 2000 were $27.5 million.
GROSS PROFIT
The Company's gross profit increased to $209.7 million for Third Quarter
2000 from $115.7 million for Third Quarter 1999, an increase of $94.0 million,
or 81.2%. The dollar increase in gross profit was primarily related to sales
from the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all
completed after Third Quarter 1999. As a percent of net sales, gross profit
increased to 31.7% for Third Quarter 2000 from 30.8% in Third Quarter 1999,
resulting primarily from sales of higher-margin spirits and super-premium and
ultra-premium wine acquired in the Black Velvet and Franciscan and Simi
Acquisitions, respectively, and from price increases taken in the Company's
imported beer business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $132.3 million
for Third Quarter 2000 from $73.8 million for Third Quarter 1999, an increase of
$58.5 million, or 79.3%. The dollar increase in selling, general and
administrative expenses resulted primarily from the addition of the Matthew
Clark and Franciscan businesses and expenses related to the brands acquired in
the Black Velvet Acquisition. Selling, general and administrative expenses as a
percent of net sales increased to 20.0% for Third Quarter 2000 as compared to
19.6% for Third Quarter 1999. The increase in percent of net sales resulted
primarily from the Matthew Clark, Franciscan and Simi Acquisitions, as Matthew
Clark's and Franciscan's selling, general and administrative expenses as a
percent of net sales are typically at the high end of the range of the Company's
operating segments' percentages.
- 17 -
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Third Quarter 2000 and Third
Quarter 1999.
Third Quarter 2000 Compared to Third Quarter 1999
-------------------------------------------------
Operating Profit/(Loss)
-------------------------------------------------
%Increase/
2000 1999 (Decrease)
-------- -------- ----------
Canandaigua Wine $ 18,850 $ 18,433 2.3 %
Barton 41,380 27,667 49.6 %
Matthew Clark 15,193 - N/A
Franciscan 5,991 - N/A
Corporate Operations and Other (4,036) (4,180) (3.4)%
-------- --------
Consolidated Operating Profit $ 77,378 $ 41,920 84.6 %
======== ========
As a result of the above factors, consolidated operating income increased
to $77.4 million for Third Quarter 2000 from $41.9 million for Third Quarter
1999, an increase of $35.5 million, or 84.6%.
INTEREST EXPENSE, NET
Net interest expense increased to $27.5 million for Third Quarter 2000 from
$7.7 million for Third Quarter 1999, an increase of $19.8 million or 255.5%. The
increase resulted primarily from additional interest expense associated with the
borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi
Acquisitions.
NET INCOME
As a result of the above factors, net income increased to $29.9 million for
Third Quarter 2000 from $20.2 million for Third Quarter 1999, an increase of
$9.7 million, or 48.3%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Third Quarter 2000
were $94.1 million, an increase of $43.4 million over EBITDA of $50.6 million
for Third Quarter 1999. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity.
- 18 -
NINE MONTHS 2000 COMPARED TO NINE MONTHS 1999
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Nine Months 2000 and Nine Months 1999.
Nine Months 2000 Compared to Nine Months 1999
---------------------------------------------
Net Sales
---------------------------------------------
%Increase/
2000 1999 (Decrease)
----------- ----------- ----------
Canandaigua Wine:
Branded:
External customers $ 472,087 $ 449,036 5.1%
Intersegment 5,274 - N/A
----------- -----------
Total Branded 477,361 449,036 6.3%
----------- -----------
Other:
External customers 63,081 54,081 16.6%
Intersegment 460 - N/A
----------- -----------
Total Other 63,541 54,081 17.5%
----------- -----------
Canandaigua Wine net sales $ 540,902 $ 503,117 7.5%
----------- -----------
Barton:
Beer $ 457,961 $ 388,739 17.8%
Spirits 207,697 143,426 44.8%
----------- -----------
Barton net sales $ 665,658 $ 532,165 25.1%
----------- -----------
Matthew Clark:
Branded:
External customers $ 256,909 $ - N/A
Intersegment 53 - N/A
----------- -----------
Total Branded 256,962 - N/A
Wholesale 306,802 - N/A
----------- -----------
Matthew Clark net sales $ 563,764 $ - N/A
----------- -----------
Franciscan $ 44,610 $ - N/A
----------- -----------
Corporate Operations and Other $ 4,122 $ 2,618 57.4%
----------- -----------
Intersegment eliminations $ (5,787) $ - N/A
----------- -----------
Consolidated Net Sales $ 1,813,269 $ 1,037,900 74.7%
=========== ===========
Net sales for Nine Months 2000 increased to $1,813.3 million from $1,037.9
million for Nine Months 1999, an increase of $775.4 million, or 74.7%.
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Nine Months 2000 increased to $540.9
million from $503.1 million for Nine Months 1999, an increase of $37.8 million,
or 7.5%. This increase resulted primarily from (i) an increase in sales of Arbor
Mist, which was introduced in the second quarter of fiscal 1999, (ii) an
increase in the Company's bulk wine sales, (iii) an increase in Almaden box wine
sales, and (iv) growth in the Company's international business. These increases
were partially offset by declines in certain other brands and in the Company's
grape juice concentrate business.
- 19 -
Barton
------
Net sales for Barton for Nine Months 2000 increased to $665.7 million from
$532.2 million for Nine Months 1999, an increase of $133.5 million, or 25.1%.
This increase resulted primarily from an increase in sales of imported beer
brands led by Barton's Mexican portfolio as well as from $61.8 million of sales
of products and services acquired in the Black Velvet Acquisition, which was
completed in April 1999.
Matthew Clark
-------------
Net sales for Matthew Clark for Nine Months 2000 were $563.8 million.
Franciscan
----------
Net sales for Franciscan for Nine Months 2000 since the date of
acquisition, June 4, 1999, were $44.6 million.
GROSS PROFIT
The Company's gross profit increased to $554.9 million for Nine Months 2000
from $311.0 million for Nine Months 1999, an increase of $243.9 million, or
78.4%. The dollar increase in gross profit was primarily related to sales from
the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all completed
after Nine Months 1999, as well as increased Barton beer and Canandaigua Wine
branded wine sales. As a percent of net sales, gross profit increased to 30.6%
for Nine Months 2000 from 30.0% for Nine Months 1999, resulting primarily from
sales of higher-margin spirits and super-premium and ultra-premium wine acquired
in the Black Velvet and Franciscan and Simi Acquisitions, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $368.1 million
for Nine Months 2000 from $202.6 million for Nine Months 1999, an increase of
$165.6 million, or 81.7%. The dollar increase in selling, general and
administrative expenses resulted primarily from the addition of the Matthew
Clark and Franciscan businesses and expenses related to the brands acquired in
the Black Velvet Acquisition. The Company also increased its marketing and
promotional costs to generate additional sales volume, particularly of certain
Canandaigua Wine brands and Barton beer brands. Selling, general and
administrative expenses as a percent of net sales increased to 20.3% for Nine
Months 2000 as compared to 19.5% for Nine Months 1999. The increase in percent
of net sales resulted primarily from (i) Canandaigua Wine's investment in brand
building and efforts to increase market share and (ii) the Matthew Clark,
Franciscan and Simi Acquisitions, as Matthew Clark's and Franciscan's selling,
general and administrative expenses as a percent of net sales are typically at
the high end of the range of the Company's operating segments' percentages.
NONRECURRING CHARGES
The Company incurred nonrecurring charges of $5.5 million in Nine Months
2000 related to the closure of a production facility within the Matthew Clark
operating segment in the United Kingdom and to a management reorganization
within the Canandaigua Wine operating segment. No such charges were incurred in
Nine Months 1999.
- 20 -
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Nine Months 2000 and Nine
Months 1999.
Nine Months 2000 Compared to Nine Months 1999
---------------------------------------------
Operating Profit/(Loss)
---------------------------------------------
%Increase/
2000 1999 (Decrease)
--------- --------- ----------
Canandaigua Wine $ 34,869 $ 36,094 (3.4)%
Barton 114,839 82,287 39.6 %
Matthew Clark 34,503 - N/A
Franciscan 7,562 - N/A
Corporate Operations and Other (10,476) (9,950) 5.3 %
--------- ---------
Consolidated Operating Profit $ 181,297 $ 108,431 67.2 %
========= =========
As a result of the above factors, consolidated operating income increased
to $181.3 million for Nine Months 2000 from $108.4 million for Nine Months 1999,
an increase of $72.9 million, or 67.2%. Operating income for the Canandaigua
Wine operating segment was down $1.2 million, or 3.4%, due to the nonrecurring
charge of $2.6 million related to the segment's management reorganization, as
well as additional marketing expenses associated with new product introductions.
Exclusive of the nonrecurring charge, operating income increased by 3.7% to
$37.4 million in Nine Months 2000. Operating income for the Matthew Clark
operating segment, excluding nonrecurring charges of $2.9 million, was $37.4
million.
INTEREST EXPENSE, NET
Net interest expense increased to $78.2 million for Nine Months 2000 from
$23.7 million for Nine Months 1999, an increase of $54.5 million or 230.0%. The
increase resulted primarily from additional interest expense associated with the
borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi
Acquisitions.
NET INCOME
As a result of the above factors, net income increased to $61.8 million for
Nine Months 2000 from $50.0 million for Nine Months 1999, an increase of $11.9
million, or 23.7%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 2000
were $232.1 million, an increase of $98.0 million over EBITDA of $134.1 million
for Nine Months 1999. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations,
- 21 -
except during the annual fall grape harvests when the Company has relied on
short-term borrowings. The annual grape crush normally begins in August and runs
through October. The Company generally begins purchasing grapes in August with
payments for such grapes beginning to come due in September. The Company's
short-term borrowings to support such purchases generally reach their highest
levels in November or December. Historically, the Company has used cash flow
from operating activities to repay its short-term borrowings. The Company will
continue to use its short-term borrowings to support its working capital
requirements. The Company believes that cash provided by operating activities
and its financing activities, primarily short-term borrowings, will provide
adequate resources to satisfy its working capital, liquidity and anticipated
capital expenditure requirements for both its short-term and long-term capital
needs.
NINE MONTHS 2000 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Nine Months 2000 was $56.3
million, which resulted from $109.1 million in net income adjusted for noncash
items, less $52.9 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from a seasonal increase in accounts receivable and
inventories, partially offset by increases in accounts payable, accrued
advertising and promotion expenses, accrued income taxes, accrued interest
expense and accrued grape purchases.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Nine Months 2000 was $497.9
million, which resulted primarily from net cash paid of $452.5 million for the
Black Velvet, Franciscan and Simi Acquisitions and $46.7 million of capital
expenditures, including $6.2 million for vineyards.
Net cash provided by financing activities for Nine Months 2000 was $441.3
million, which resulted primarily from proceeds of $1,486.2 million from
issuance of long-term debt, including $400.0 million incurred in connection with
the Black Velvet and Franciscan Acquisitions and $900.0 million incurred to
repay amounts outstanding under the bank credit agreement. This amount was
partially offset by principal payments of $1,059.4 million of long-term debt.
DEBT
Total debt outstanding as of November 30, 1999, amounted to $1,408.5
million, an increase of $483.1 million from February 28, 1999. The ratio of
total debt to total capitalization increased to 73.9% as of November 30, 1999,
from 68.0% as of February 28, 1999.
THE COMPANY'S CREDIT AGREEMENT
During June 1999, the Company financed the purchase price for the
Franciscan Acquisition through additional term loan borrowings under the bank
credit agreement. The Company financed the purchase price for the Simi
Acquisition with revolving loan borrowings under the bank credit agreement.
During August 1999, as discussed below, a portion of the Company's
borrowings under its bank credit agreement were repaid with the net proceeds of
its Senior Notes (as defined below) offering.
- 22 -
On October 6, 1999, the Company, certain of its principal operating
subsidiaries, and a syndicate of banks (the "Syndicate Banks"), for which The
Chase Manhattan Bank acts as administrative agent, entered into a new senior
credit agreement (the "2000 Credit Agreement"). The 2000 Credit Agreement
includes both U.S. dollar and British pound sterling commitments of the
Syndicate Banks of up to, in the aggregate, the equivalent of $1.0 billion
(subject to increase as therein provided to $1.2 billion). Proceeds of the 2000
Credit Agreement were used to repay all outstanding principal and accrued
interest on all loans under the Company's prior bank credit agreement, and are
available to fund permitted acquisitions and ongoing working capital needs of
the Company and its subsidiaries.
The 2000 Credit Agreement provides for a $380.0 million Tranche I Term Loan
facility due in December 2004, a $320.0 million Tranche II Term Loan facility
available for borrowing in British pound sterling due in December 2004, and a
$300.0 million Revolving Credit facility (including letters of credit up to a
maximum of $20.0 million) which expires in December 2004. The Tranche I Term
Loan facility ($380.0 million) and the Tranche II Term Loan facility
((pound)193.4 million, or approximately $320.0 million) were fully drawn at
closing. The Tranche I Term Loan facility requires quarterly repayments,
starting at $12.0 million in March 2000 and increasing thereafter annually with
final payments of $23.0 million in each quarter in 2004. On November 17, 1999,
proceeds from the Sterling Senior Notes (as defined below) were used to repay a
portion of the $320.0 million Tranche II Term Loan facility ((pound)73.0
million, or approximately $118.3 million). After this repayment, the required
quarterly repayments of the Tranche II Term Loan facility were revised to
(pound)0.6 million ($1.0 million) for each quarter in 2000, (pound)1.2 million
($1.9 million) for each quarter in 2001 and 2002, (pound)1.5 million ($2.4
million) for each quarter in 2003 and (pound)25.6 million ($40.9 million) for
each quarter in 2004 (the foregoing U.S. dollar equivalents are as of November
30, 1999). There are certain mandatory term loan prepayments, including those
based on sale of assets and issuance of debt and equity, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement.
The rate of interest payable, at the Company's option, is a function of the
London interbank offering rate (LIBOR) plus a margin, federal funds rate plus a
margin, or the prime rate plus a margin. The margin is adjustable based upon the
Company's Debt Ratio (as defined in the 2000 Credit Agreement) and, with respect
to LIBOR borrowings, ranges between 0.75% and 1.25% for Revolving Credit loans
and 1.00% and 1.75% for Term Loans. The initial margin for all loans was set at
the highest level at closing and is subject to reduction after November 30,
1999, depending on the Company's Debt Ratio. In addition to interest, the
Company pays a facility fee on the Revolving Credit commitments, initially at
0.50% per annum and subject to reduction after November 30, 1999, to 0.25%,
depending on the Company's Debt Ratio.
Certain of the Company's principal operating subsidiaries have guaranteed
the Company's obligations under the 2000 Credit Agreement. The 2000 Credit
Agreement is secured by (i) first priority pledges of 100% of the capital stock
of Canandaigua Limited and all of the Company's domestic operating subsidiaries
and (ii) first priority pledges of 65% of the capital stock of Matthew Clark and
certain other foreign subsidiaries.
The Company and its subsidiaries are subject to customary secured lending
covenants including those restricting additional liens, incurring additional
indebtedness, the sale of assets, the payment of dividends, transactions with
affiliates and the making of certain investments, in each case subject to
baskets, exceptions and thresholds which are generally more favorable to the
Company than those contained in its prior bank credit agreement. The primary
financial covenants require the maintenance of a debt coverage ratio, a senior
debt coverage ratio, a fixed charges ratio and an interest coverage ratio. Among
the most restrictive covenants contained in the 2000 Credit Agreement is the
requirement to
- 23 -
maintain a fixed charges ratio of not less than 1.0 at the last day of each
fiscal quarter for the most recent four quarters.
As of November 30, 1999, under the 2000 Credit Agreement, the Company had
outstanding term loans of $572.3 million bearing interest at 7.9%, $106.4
million of revolving loans bearing interest at 7.6%, undrawn revolving letters
of credit of $10.2 million, and $183.4 million in revolving loans available to
be drawn.
SENIOR NOTES
On August 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes"). The net
proceeds of the offering (approximately $196.0 million) were used to repay a
portion of the Company's borrowings under its bank credit agreement. Interest on
the Senior Notes is payable semiannually on February 1 and August 1 of each
year, beginning February 1, 2000. The Senior Notes are redeemable at the option
of the Company, in whole or in part, at any time. The Senior Notes are unsecured
senior obligations and rank equally in right of payment to all existing and
future unsecured senior indebtedness of the Company. The Senior Notes are
guaranteed, on a senior basis, by certain of the Company's significant operating
subsidiaries.
On November 17, 1999, the Company issued (pound)75.0 million (approximately
$121.7 million) aggregate principal amount of 8 1/2% Senior Notes due November
2009 (the "Sterling Senior Notes"). The net proceeds of the offering
((pound)73.0 million, or approximately $118.3 million) were used to repay a
portion of the Company's borrowings under the 2000 Credit Agreement. Interest on
the Sterling Senior Notes is payable semiannually on May 15 and November 15 of
each year, beginning on May 15, 2000. The Sterling Senior Notes are redeemable
at the option of the Company, in whole or in part, at any time. The Sterling
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 Senior Notes are guaranteed, on a senior basis, by certain of the
Company's significant operating subsidiaries.
SENIOR SUBORDINATED NOTES
As of November 30, 1999, the Company had outstanding $195.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due December 2003
(the "Notes"). The Notes are currently redeemable, in whole or in part, at the
option of the Company.
On March 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "Senior
Subordinated Notes"). The net proceeds of the offering (approximately $195.0
million) were used to fund the Black Velvet Acquisition and to pay the fees and
expenses related thereto with the remainder of the net proceeds used for general
corporate purposes. Interest on the Senior Subordinated Notes is payable
semiannually on March 1 and September 1 of each year, beginning September 1,
1999. The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after March 1, 2004. The Company may also
redeem up to $70.0 million of the Senior Subordinated Notes using the proceeds
of certain equity offerings completed before March 1, 2002. The Senior
Subordinated Notes are unsecured and subordinated to the prior payment in full
of all senior indebtedness of the Company, which includes the bank credit
agreement. The Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company's significant operating
subsidiaries.
- 24 -
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. The Company believes the effect of adoption on its
financial statements will not be material based on the Company's current risk
management strategies.
YEAR 2000 ISSUE
Prior to January 1, 2000, the Company put into place detailed programs to
address Year 2000 readiness in its internal systems and with its key customers
and suppliers. The Year 2000 issue is the result of computer logic that was
written using two digits rather than four to define the applicable year. Any
computer logic that processes date-sensitive information may recognize the date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
Since January 1, 2000, the Company has not experienced any interruptions in
its business or operations. However, because all Year 2000 issues may not reveal
themselves until later in 2000, no assurances can be given that the Company will
not experience any interruptions in its business or operations due to Year 2000
issues.
Pursuant to the Company's readiness programs, all major categories of
information technology systems and non-information technology systems (i.e.,
equipment with embedded microprocessors) in use by the Company, including
manufacturing, sales, financial and human resources, were inventoried and
assessed. In addition, plans were developed for the required systems
modifications or replacements. Well before December 31, 1999, the Company
completed both the assessment and remediation phases for its information
technology and non-information technology systems. Final testing in selected
areas, both internal and external, confirmed the integrity of the Company's
remediation programs. The Company's internal mission-critical information
technology and non-information technology systems are Year 2000 compliant.
The Company communicated with its major customers, suppliers and financial
institutions to assess the potential impact on the Company's operations if those
third parties failed to become Year 2000 compliant in a timely manner. Based
upon responses received by the Company, many of those customers and suppliers
only indicated that they would have in place Year 2000 readiness programs,
without specifically confirming that they would be Year 2000 compliant in a
timely manner. Risk assessment, readiness evaluation, action plans and
contingency plans related to the Company's
- 25 -
significant customers and suppliers were completed prior to January 1, 2000. The
Company's key financial institutions were surveyed and it is the Company's
understanding that they are Year 2000 compliant.
The costs incurred related to its Year 2000 activities and its readiness
programs have not been material to the Company, and, based upon current
conditions and estimates, the Company does not believe that the future costs
associated with Year 2000 issues will have a material adverse impact on the
Company's financial condition, results of operations or cash flows. However, no
assurances can be given that the Company will not incur material remediation or
other costs due to Year 2000 issues.
The Company's readiness programs also include contingency plans to protect
its business and operations from Year 2000-related interruptions. These plans
were completed by October 31, 1999, and, by way of examples, include back-up
procedures and identification of alternate suppliers, where possible. Based upon
the Company's assessment of its non-information technology systems, it was not
necessary to develop an extensive contingency plan for those systems. There can
be no assurances, however, that any of the Company's contingency plans will be
sufficient to handle all problems or issues which may arise.
The Company believes that it has taken reasonable steps to identify and
address those matters that could cause serious interruptions in its business and
operations due to Year 2000 issues. However, a failure to fully identify all
Year 2000 dependencies in the Company's systems and in the systems of its
suppliers, customers and financial institutions, a failure of such third parties
to adequately address their respective Year 2000 issues, or a failure of a
contingency plan could have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. For example, the
Company would experience a material adverse impact on its business if
significant suppliers of beer, glass or other raw materials, or utility systems
fail to timely provide the Company with necessary inventories or services due to
Year 2000 systems failures.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union (the "Participating Countries") established fixed conversion
rates between their existing sovereign currencies and the euro. For three years
after the introduction of the euro, the Participating Countries can perform
financial transactions in either the euro or their original local currencies.
This will result in a fixed exchange rate among the Participating Countries,
whereas the euro (and the Participating Countries' currency in tandem) will
continue to float freely against the U.S. dollar and other currencies of the
non-participating countries. The Company does not believe that the effects of
the conversion will have a material adverse effect on the Company's business and
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information about market risks for the nine months ended November 30, 1999,
does not differ materially from that discussed under Item 7A in the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1999.
- 26 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 34 of this Report.
(b) The following Reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended November 30, 1999:
(i) Form 8-K/A, Amendment No. 2, dated April 9, 1999. This Form 8-K/A
reported information under Item 7 (Financial Statements and
Exhibits). The following financial statements were filed with this
Form 8-K/A:
The Diageo Inc. Statement of Assets and Liabilities Related to the
Product Lines Sold to Canandaigua Brands, Inc. as of April 9, 1999,
and the Statement of Identified Income and Expenses Related to the
Product Lines Sold to Canandaigua Brands, Inc. for the year ended
December 31, 1998, and the report of KPMG LLP, independent auditors,
thereon, together with the notes thereto.
The Diageo Inc. Statements of Identified Income and Expenses Related
to the Product Lines Sold to Canandaigua Brands, Inc. (unaudited)
for the three months ended March 31, 1999 and 1998, together with
the notes thereto.
The pro forma condensed combined balance sheet (unaudited) as of
February 28, 1999, the pro forma condensed combined statement of
income (unaudited) for the year ended February 28, 1999, and the pro
forma combined statement of income (unaudited) for the six months
ended August 31, 1999, and the notes thereto.
(ii) Form 8-K dated September 27, 1999. This Form 8-K reported
information under Item 5 (Other Events) and included (i) the
Company's Condensed Consolidated Balance Sheets as of August 31,
1999 (unaudited) and February 28, 1999 (audited); (ii) the Company's
Condensed Consolidated Statements of Income for the three months
ended August 31, 1999 (unaudited) and August 31, 1998 (unaudited);
and (iii) the Company's Condensed Consolidated Statements of Income
for the six months ended August 31, 1999 (unaudited) and August 31,
1998 (unaudited).
(iii) Form 8-K dated October 12, 1999. This Form 8-K reported information
under Item 5 (Other Events).
- 27 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANANDAIGUA BRANDS, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Senior Vice
President and Chief Financial
Officer (Principal Financial
Officer and Principal Accounting
Officer)
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 28 -
CANANDAIGUA EUROPE LIMITED
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA LIMITED
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Authorized Officer
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Finance
Director (Principal Financial
Officer and Principal Accounting
Officer)
POLYPHENOLICS, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
ROBERTS TRADING CORP.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 29 -
CANANDAIGUA B.V.
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Authorized
Representative (Principal
Financial Officer and Principal
Accounting Officer)
SIMI WINERY, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
FRANCISCAN VINEYARDS, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
SCV-EPI VINEYARDS, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
- 30 -
ALLBERRY, INC.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
CLOUD PEAK CORPORATION
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
M.J. LEWIS CORP.
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
MT. VEEDER CORPORATION
Dated: January 14, 2000 By:/s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President
and Controller
Dated: January 14, 2000 By:/s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
- 31 -
BARTON INCORPORATED
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Chief Executive Officer
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive
Vice President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
BARTON BRANDS, LTD.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
BARTON BEERS, LTD.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
BARTON BRANDS OF CALIFORNIA, INC.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
- 32 -
BARTON BRANDS OF GEORGIA, INC.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
BARTON CANADA, LTD.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
BARTON DISTILLERS IMPORT CORP.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
BARTON FINANCIAL CORPORATION
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, President and
Secretary
Dated: January 14, 2000 By:/s/ Charles T. Schlau
----------------------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 33 -
STEVENS POINT BEVERAGE CO.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
MONARCH IMPORT COMPANY
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
THE VIKING DISTILLERY, INC.
Dated: January 14, 2000 By:/s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: January 14, 2000 By:/s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and
Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
- 34 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Recommended Cash Offer, by Schroders on behalf of Canandaigua Limited, a
wholly-owned subsidiary of the Company, to acquire Matthew Clark plc
(filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated
December 1, 1998 and incorporated herein by reference).
2.2 Asset Purchase Agreement dated as of February 21, 1999 by and among Diageo
Inc., UDV Canada Inc., United Distillers Canada Inc. and the Company
(filed as Exhibit 2 to the Company's Current Report on Form 8-K dated
April 9, 1999 and incorporated herein by reference).
2.3 Stock Purchase Agreement, dated April 21, 1999, between Franciscan
Vineyards, Inc., Agustin Huneeus, Agustin Francisco Huneeus, Jean-Michel
Valette, Heidrun Eckes-Chantre Und Kinder Beteiligungsverwaltung II, GbR,
Peter Eugen Eckes Und Kinder Beteiligungsverwaltung II, GbR, Harald
Eckes-Chantre, Christina Eckes-Chantre, Petra Eckes-Chantre and
Canandaigua Brands, Inc. (filed as Exhibit 2.1 on the Company's Current
Report on Form 8-K dated June 4, 1999 and incorporated herein by
reference).
2.4 Stock Purchase Agreement by and between Canandaigua Wine Company, Inc. (a
wholly-owned subsidiary of the Company) and Moet Hennessy, Inc. dated
April 1, 1999 (including a list briefly identifying the contents of all
omitted schedules thereto) (filed as Exhibit 2.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1999
and incorporated herein by reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1998 and incorporated herein by reference).
3.2 Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1998 and incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1 Credit Agreement, dated as of October 6, 1999, between the Company,
certain principal subsidiaries, and certain banks for which The Chase
Manhattan Bank acts as Administrative Agent, The Bank of Nova Scotia acts
as Syndication Agent, and Credit Suisse First Boston and Citicorp USA,
Inc. acts as Co-Documentation Agents (including a list briefly identifying
the contents of all omitted schedules and exhibits thereto) (filed
herewith). The Company will furnish supplementally to the Commission, upon
request, a copy of any omitted schedule or exhibit.
4.2 Indenture with respect to 8 1/2% Senior Notes due 2009, dated as of
November 17, 1999, among the Company, as Issuer, certain principal
subsidiaries, as Guarantors, and Harris Trust and Savings Bank, as Trustee
(filed as Exhibit 4.1 to the Company's Registration Statement on Form S-4
(Registration No. 333-9436902) and incorporated herein by reference).
- 35 -
4.3 Registration Rights Agreeement, dated as of November 17, 1999, among the
Company, the guarantors named therein, and J.P. Morgan Securities Ltd.
(filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-9436902) and incorporated herein by reference).
(10) MATERIAL CONTRACTS.
Credit Agreement, dated as of October 6, 1999, between the Company,
certain principal subsidiaries, and certain banks for which The Chase
Manhattan Bank acts as Administrative Agent, The Bank of Nova Scotia acts
as Syndication Agent, and Credit Suisse First Boston and Citicorp USA,
Inc. acts as Co-Documentation Agents (filed herewith as Exhibit 4.17).
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.