FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 2002
---------------
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 001-08495
CONSTELLATION BRANDS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 16-0716709
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(585) 218-3600
-----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has 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 Registrant was
required to file such reports), and (2) has 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 Constellation Brands, Inc., as of September 30, 2002, is set forth
below:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 78,191,993
Class B Common Stock, Par Value $.01 Per Share 12,084,290
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
August 31, February 28,
2002 2002
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 25,015 $ 8,961
Accounts receivable, net 435,550 383,922
Inventories, net 768,292 777,586
Prepaid expenses and other current assets 85,130 60,779
------------ ------------
Total current assets 1,313,987 1,231,248
PROPERTY, PLANT AND EQUIPMENT, net 594,331 578,764
GOODWILL 719,826 668,083
INTANGIBLE ASSETS, net 382,957 425,987
OTHER ASSETS 171,591 165,303
------------ ------------
Total assets $ 3,182,692 $ 3,069,385
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 992 $ 54,775
Current maturities of long-term debt 80,976 81,609
Accounts payable 160,291 153,433
Accrued excise taxes 45,627 60,238
Other accrued expenses and liabilities 317,893 245,155
------------ ------------
Total current liabilities 605,779 595,210
------------ ------------
LONG-TERM DEBT, less current maturities 1,285,575 1,293,183
------------ ------------
DEFERRED INCOME TAXES 149,683 163,146
------------ ------------
OTHER LIABILITIES 63,381 62,110
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at August 31, 2002,
and February 28, 2002 - -
Class A Common Stock, $.01 par value-
Authorized, 275,000,000 shares;
Issued, 80,934,113 shares at
August 31, 2002, and 79,309,174
shares at February 28, 2002 809 793
Class B Convertible Common Stock,
$.01 par value-
Authorized, 30,000,000 shares;
Issued, 14,590,690 shares at
August 31, 2002, and 14,608,390 shares
at February 28, 2002 146 146
Additional paid-in capital 453,329 431,216
Retained earnings 679,160 592,219
Accumulated other comprehensive loss (22,486) (35,222)
------------ ------------
1,110,958 989,152
------------ ------------
Less - Treasury stock-
Class A Common Stock, 2,830,709 shares
at August 31, 2002, and 2,895,526 shares
at February 28, 2002, at cost (30,477) (31,159)
Class B Convertible Common Stock,
2,502,900 shares at August 31, 2002,
and February 28, 2002, at cost (2,207) (2,207)
------------ ------------
(32,684) (33,366)
------------ ------------
Less - Unearned compensation - restricted
stock awards - (50)
------------ ------------
Total stockholders' equity 1,078,274 955,736
------------ ------------
Total liabilities and stockholders' equity $ 3,182,692 $ 3,069,385
============ ============
<FN>
The accompanying notes are an integral part of these statements.
1
CONSTELLATION 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,
----------------------------------- -------------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 1,759,460 $ 1,690,921 $ 898,997 $ 898,825
Less - Excise taxes (419,261) (403,362) (209,191) (209,698)
-------------- -------------- -------------- --------------
Net sales 1,340,199 1,287,559 689,806 689,127
COST OF PRODUCT SOLD (970,211) (948,384) (496,544) (505,842)
-------------- -------------- -------------- --------------
Gross profit 369,988 339,175 193,262 183,285
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (178,377) (180,251) (87,616) (94,284)
-------------- -------------- -------------- --------------
Operating income 191,611 158,924 105,646 89,001
EQUITY IN EARNINGS (LOSS) OF JOINT VENTURE 5,911 (137) 3,172 (137)
INTEREST EXPENSE, net (54,292) (59,159) (27,151) (28,974)
-------------- -------------- -------------- --------------
Income before income taxes 143,230 99,628 81,667 59,890
PROVISION FOR INCOME TAXES (56,289) (39,851) (32,095) (23,956)
-------------- -------------- -------------- --------------
NET INCOME $ 86,941 $ 59,777 $ 49,572 $ 35,934
============== ============== ============== ==============
SHARE DATA:
Earnings per common share:
Basic $ 0.97 $ 0.71 $ 0.55 $ 0.42
============== ============== ============== ==============
Diluted $ 0.94 $ 0.69 $ 0.53 $ 0.41
============== ============== ============== ==============
Weighted average common shares outstanding:
Basic 89,268 83,668 89,691 84,829
Diluted 92,562 86,252 93,029 87,864
SUPPLEMENTAL DATA RESTATED FOR
EFFECT OF SFAS NO. 142:
Adjusted operating income $ 191,611 $ 171,847 $ 105,646 $ 95,570
============== ============== ============== ==============
Adjusted net income $ 86,941 $ 68,656 $ 49,572 $ 40,540
============== ============== ============== ==============
Adjusted earnings per common share - basic $ 0.97 $ 0.82 $ 0.55 $ 0.48
============== ============== ============== ==============
Adjusted earnings per common share - diluted $ 0.94 $ 0.80 $ 0.53 $ 0.46
============== ============== ============== ==============
<FN>
The accompanying notes are an integral part of these statements.
2
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Six Months Ended August 31,
-----------------------------------
2002 2001
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 86,941 $ 59,777
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 28,061 27,290
Amortization of intangible assets and other assets 2,940 15,971
Deferred tax provision 2,708 -
Loss on sale of assets 1,736 1,680
Stock-based compensation expense 50 51
Amortization of discount on long-term debt 32 275
Equity in (earnings) loss of joint venture (5,911) 137
Change in operating assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (38,261) (64,236)
Inventories, net 8,526 27,533
Prepaid expenses and other current assets (23,070) (8,711)
Accounts payable 135 13,467
Accrued excise taxes (15,829) (10,561)
Other accrued expenses and liabilities 65,860 47,942
Other assets and liabilities, net (352) (4,633)
------------ ------------
Total adjustments 26,625 46,205
------------ ------------
Net cash provided by operating activities 113,566 105,982
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (34,219) (28,795)
Payment of acquisition earn-out (804) -
Proceeds from sale of assets 708 35,391
Purchases of businesses, net of cash acquired - (471,971)
Investment in joint venture - (5,500)
------------ ------------
Net cash used in investing activities (34,315) (470,875)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from notes payable (53,757) 85,727
Principal payments of long-term debt (43,793) (25,221)
Payment of issuance costs of long-term debt (5) (1,186)
Exercise of employee stock options 22,008 26,392
Proceeds from issuance of long-term debt 10,000 -
Proceeds from employee stock purchases 1,309 842
Proceeds from equity offering, net of fees - 139,522
------------ ------------
Net cash (used in) provided by financing activities (64,238) 226,076
------------ ------------
Effect of exchange rate changes on cash and cash investments 1,041 (87)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 16,054 (138,904)
CASH AND CASH INVESTMENTS, beginning of period 8,961 145,672
------------ ------------
CASH AND CASH INVESTMENTS, end of period $ 25,015 $ 6,768
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ - $ 537,821
Liabilities assumed - (60,108)
------------ ------------
Cash paid - 477,713
Less - cash acquired - (5,742)
------------ ------------
Net cash paid for purchases of businesses $ - $ 471,971
============ ============
Property, plant and equipment contributed to joint venture $ - $ 30,020
============ ============
<FN>
The accompanying notes are an integral part of these statements.
3
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2002
1) MANAGEMENT'S REPRESENTATIONS:
The consolidated financial statements included herein have been prepared by
Constellation 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 significant 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, 2002. Results of operations for interim periods
are not necessarily indicative of annual results.
Certain August 31, 2001, and February 28, 2002, balances have been
reclassified to conform to current year presentation.
2) ACCOUNTING CHANGES:
Effective March 1, 2002, the Company completed its adoption of Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations," resulting in a reclassification of $46.8 million of previously
identified separable intangible assets to goodwill and an elimination of $16.6
million of deferred tax liabilities previously associated with those intangible
assets with a corresponding deduction from goodwill. The adoption of SFAS No.
141 did not have any other material impact on the Company's financial
statements.
Effective March 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes Accounting Principles Board
Opinion No. 17, "Intangible Assets." Under SFAS No. 142, goodwill and indefinite
lived intangible assets are no longer amortized but are reviewed at least
annually for impairment. Intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives and are
subject to review for impairment. Upon adoption of SFAS No. 142, the Company
determined that certain of its intangible assets met the criteria to be
considered indefinite lived and, accordingly, ceased their amortization
effective March 1, 2002. These intangible assets consisted principally of
trademarks. Intangible assets determined to have a finite life, primarily
distribution agreements, continue to be amortized over their estimated useful
lives which were not modified as a result of adopting SFAS No. 142.
Nonamortizable intangible assets are tested for impairment in accordance with
the provisions of SFAS No. 142 and amortizable intangible assets are tested for
impairment in accordance with the provisions of SFAS No. 144 (as defined below).
Note 5 provides a summary of intangible assets segregated between amortizable
and nonamortizable amounts.
The Company has completed its impairment testing for nonamortizable
intangible assets and goodwill pursuant to the requirements of SFAS No. 142. No
instances of impairment were noted during these processes.
4
The following table presents earnings and earnings per share information
for the comparative periods as if the nonamortization provisions of SFAS No. 142
had been applied as of March 1, 2001:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands, except per share data)
Reported net income $ 86,941 $ 59,777 $ 49,572 $ 35,934
Add back: amortization of goodwill - 8,261 - 4,183
Add back: amortization of intangibles
reclassified to goodwill - 1,071 - 535
Add back: amortization of indefinite
lived intangible assets - 3,591 - 1,851
Less: income tax effect - (4,044) - (1,963)
------------ ------------ ------------ -------------
Adjusted net income $ 86,941 $ 68,656 $ 49,572 $ 40,540
============ ============ ============ =============
Basic earnings per common share:
- --------------------------------
Reported net income $ 0.97 $ 0.71 $ 0.55 $ 0.42
Add back: amortization of goodwill - 0.10 - 0.05
Add back: amortization of intangibles
reclassified to goodwill - 0.01 - 0.01
Add back: amortization of indefinite
lived intangible assets - 0.05 - 0.02
Less: income tax effect - (0.05) - (0.02)
------------ ------------ ------------ -------------
Adjusted net income $ 0.97 $ 0.82 $ 0.55 $ 0.48
============ ============ ============ =============
Diluted earnings per common share:
- ----------------------------------
Reported net income $ 0.94 $ 0.69 $ 0.53 $ 0.41
Add back: amortization of goodwill - 0.10 - 0.05
Add back: amortization of intangibles
reclassified to goodwill - 0.01 - -
Add back: amortization of indefinite
lived intangible assets - 0.04 - 0.02
Less: income tax effect - (0.04) - (0.02)
------------ ------------ ------------ -------------
Adjusted net income $ 0.94 $ 0.80 $ 0.53 $ 0.46
============ ============ ============ =============
The changes in the carrying amount of goodwill for the six months ended
August 31, 2002, are as follows:
Popular
and Imported U.K.
Premium Beer and Brands and Fine
Wine Spirits Wholesale Wine Consolidated
---------- ---------- ---------- ---------- ------------
(in thousands)
Balance, February 28, 2002 $ 226,798 $ 105,680 $ 143,321 $ 192,284 $ 668,083
Intangible assets reclassified to
goodwill at March 1, 2002 - 40,030 6,765 - 46,795
Elimination of deferred tax
liabilities - (14,611) (2,030) - (16,641)
Purchase accounting allocations 4,985 - - 808 5,793
Foreign currency translation
adjustments - 302 13,851 - 14,153
Other 1,643 - - - 1,643
---------- ---------- ---------- ---------- ------------
Balance, August 31, 2002 $ 233,426 $ 131,401 $ 161,907 $ 193,092 $ 719,826
========== ========== ========== ========== ============
Effective March 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS
5
No. 144 supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of a business (as previously defined in that Opinion). The adoption of
SFAS No. 144 did not have a material impact on the Company's financial
statements.
Effective March 1, 2002, the Company adopted EITF Issue No. 01-09 ("EITF
No. 01-09"), "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)," which codified various issues
related to the income statement classification of certain promotional payments
under EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," EITF
Issue No. 00-22, "Accounting for 'Points' and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to
Be Delivered in the Future," and EITF Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products."
EITF No. 01-09 addresses the recognition, measurement and income statement
classification of consideration given by a vendor to a customer (including both
a reseller of the vendor's products and an entity that purchases the vendor's
products from a reseller). EITF No. 01-09, among other things, requires that
certain consideration given by a vendor to a customer be characterized as a
reduction of revenue when recognized in the vendor's income statement. The
Company previously reported such costs as selling, general and administrative
expenses. As a result of adopting EITF No. 01-09 on March 1, 2002, the Company
has restated net sales, cost of product sold, and selling, general and
administrative expenses for the six months and three months ended August 31,
2001. Net sales were reduced by $95.3 million and $51.6 million, respectively;
cost of product sold was increased by $5.1 million and $2.7 million,
respectively; and selling, general and administrative expenses were reduced by
$100.5 million and $54.4 million, respectively. This reclassification did not
affect operating income or net income.
3) ACQUISITIONS:
On March 5, 2001, in an asset acquisition, the Company acquired several
well-known premium wine brands, including Vendange, Nathanson Creek, Heritage,
and Talus, working capital (primarily inventories), two wineries in California,
and other related assets from Sebastiani Vineyards, Inc. and Tuolomne River
Vintners Group (the "Turner Road Vintners Assets"). The purchase price of the
Turner Road Vintners Assets, including assumption of indebtedness of $9.4
million, was $289.2 million. The acquisition was financed by the proceeds from
the sale of the February 2001 Senior Notes and revolving loan borrowings under
the senior credit facility. The Turner Road Vintners Assets acquisition was
accounted for using the purchase method; accordingly, the acquired net assets
were recorded at fair market value at the date of acquisition. Based upon the
final appraisal, the excess of the purchase price over the fair market value of
the net assets acquired (goodwill), $146.7 million, is no longer being
amortized, but is tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. The results of operations of the Turner Road
Vintners Assets are reported in the Popular and Premium Wine segment and have
been included in the Consolidated Statements of Income since the date of
acquisition.
On March 26, 2001, in an asset acquisition, the Company acquired certain
wine brands, wineries, working capital (primarily inventories), and other
related assets from Corus Brands, Inc. (the "Corus Assets"). In this
acquisition, the Company acquired several well-known premium wine brands
primarily sold in the northwestern United States, including Covey Run, Columbia,
Ste. Chapelle and Alice White. The purchase price of the Corus Assets, including
assumption of indebtedness (net of cash acquired) of $3.0 million, was $52.3
million plus an earn-out over six years based on the performance of the brands.
As of August 31, 2002, the Company has paid an earn-out in the amount of $0.8
million. In connection with the transaction, the Company also entered into
long-term grape supply agreements with affiliates of
6
Corus Brands, Inc. covering more than 1,000 acres of Washington and Idaho
vineyards . The acquisition was financed with revolving loan borrowings under
the senior credit facility. The Corus Assets acquisition was accounted for using
the purchase method; accordingly, the acquired net assets were recorded at fair
market value at the date of acquisition. Based upon the final appraisal, the
excess of the purchase price over the fair market value of the net assets
acquired (goodwill), $48.9 million, is no longer being amortized, but is tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. The results of operations of the Corus Assets are reported in the Popular
and Premium Wine segment and have been included in the Consolidated Statements
of Income since the date of acquisition.
On July 2, 2001, the Company acquired all of the outstanding capital stock
of Ravenswood Winery, Inc. (the "Ravenswood Acquisition"). The Ravenswood
business produces, markets and sells super-premium and ultra-premium California
wine, primarily under the Ravenswood brand name. The purchase price of the
Ravenswood Acquisition, including assumption of indebtedness of $2.8 million,
was $152.5 million. The purchase price was financed with revolving loan
borrowings under the senior credit facility. The Ravenswood Acquisition was
accounted for using the purchase method; accordingly, the acquired net assets
were recorded at fair market value at the date of acquisition. Based upon the
final appraisal, the excess of the purchase price over the fair market value of
the net assets acquired (goodwill), $99.8 million, is not amortizable and is
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. The Ravenswood Acquisition was consistent with the Company's
strategy of further penetrating the higher gross profit margin super-premium and
ultra-premium wine categories. The results of operations of the Ravenswood
business are reported in the Fine Wine segment and have been included in the
Consolidated Statements of Income since the date of acquisition.
The following table summarizes the fair values of the assets acquired and
liabilities assumed in the Ravenswood Acquisition at July 2, 2001, as adjusted
for the final appraisal:
Current assets $ 34,396
Property, plant and equipment 14,994
Other assets 26
Trademarks 45,600
Goodwill 99,756
---------
Total assets acquired 194,772
Current liabilities 12,523
Long-term liabilities 32,593
---------
Total liabilities assumed 45,116
---------
Net assets acquired $ 149,656
=========
The trademarks are not subject to amortization. None of the goodwill is
expected to be deductible for tax purposes.
The following table sets forth the unaudited historical and unaudited pro
forma results of operations of the Company for the six months and three months
ended August 31, 2002, and August 31, 2001, respectively. The unaudited pro
forma results of operations for the six months ended August 31, 2001, give
effect to the acquisitions of the Turner Road Vintners Assets and the Corus
Assets and the Ravenswood Acquisition as if they occurred on March 1, 2001. The
unaudited pro forma results of operations for the three months ended August 31,
2001, give effect to the Ravenswood Acquisition as if it occurred on March 1,
2001. 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 and three months ended August 31, 2001, do not
reflect total nonrecurring charges of $12.6 million ($0.09 per
7
share on a diluted basis) related to transaction costs, primarily for the
acceleration of vesting of stock options, which were incurred by Ravenswood
Winery, Inc. 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 For the Three Months
Ended August 31, Ended August 31,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands, except per share data)
Net sales $ 1,340,199 $ 1,302,918 $ 689,806 $ 693,612
Income before income taxes $ 143,230 $ 97,379 $ 81,667 $ 59,844
Net income $ 86,941 $ 55,889 $ 49,572 $ 35,961
Earnings per common share:
Basic $ 0.97 $ 0.67 $ 0.55 $ 0.42
=========== =========== =========== ==========
Diluted $ 0.94 $ 0.65 $ 0.53 $ 0.41
=========== =========== =========== ==========
Weighted average common shares outstanding:
Basic 89,268 83,668 89,691 84,829
Diluted 92,562 86,252 93,029 87,864
4) 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,
2002 2002
---------- ------------
(in thousands)
Raw materials and supplies $ 33,149 $ 34,126
In-process inventories 467,347 524,373
Finished case goods 267,796 219,087
---------- ------------
$ 768,292 $ 777,586
========== ============
5) INTANGIBLE ASSETS:
The major components of intangible assets are:
August 31, 2002 February 28, 2002
----------------------- -----------------------
Gross Net Gross Net
Carrying Carrying Carrying Carrying
Amount Amount Amount Amount
---------- ---------- ---------- ----------
(in thousands)
Amortizable intangible assets:
Distribution agreements $ 10,158 $ 5,197 $ 10,158 $ 5,960
Other 4,049 706 4,049 1,067
---------- ---------- ---------- ----------
Total $ 14,207 5,903 $ 14,207 7,027
========== ==========
Nonamortizable intangible assets:
Trademarks 356,565 351,707
Distributor and agency
relationships 20,458 60,488
Other 31 6,765
---------- ----------
Total 377,054 418,960
---------- ----------
Total intangible assets $ 382,957 $ 425,987
========== ==========
8
The difference between the gross carrying amount and net carrying amount
for each item presented is attributable to accumulated amortization.
Amortization expense for intangible assets was $1.1 million and $0.6 million for
the six months and three months ended August 31, 2002, respectively. Estimated
amortization expense for each of the five succeeding fiscal years is as follows:
(in thousands)
2003 $ 2,249
2004 $ 1,625
2005 $ 1,427
2006 $ 1,361
2007 $ 365
6) INVESTMENT IN JOINT VENTURE:
On July 31, 2001, the Company and BRL Hardy Limited ("Hardy") completed the
formation of Pacific Wine Partners LLC ("PWP"), a joint venture owned equally by
the Company and Hardy. The Company and PWP are parties to the following
agreements: crushing, wine production, bottling, storage, and related services
agreement; inventory supply agreement; sublease and assumption agreements
pertaining to certain vineyards, which agreements include a market value
adjustment provision; and a market value adjustment agreement relating to a
certain vineyard lease held by PWP. As of August 31, 2002, amounts related to
the above agreements were not material.
On October 16, 2001, the Company announced that PWP completed the purchase
of certain assets of Blackstone Winery, including the Blackstone brand and the
Codera wine business in Sonoma County (the "Blackstone Assets"). The purchase
price of the Blackstone Assets was $138.0 million and was financed equally by
the Company and Hardy. The Company used revolving loan borrowings under its
senior credit facility to fund the Company's portion of the transaction.
As of August 31, 2002, the Company's investment balance, which is accounted
for under the equity method, was $116.4 million and is included on the
Consolidated Balance Sheets in Other Assets. The carrying amount of the
investment is less than the Company's equity in the underlying net assets of PWP
by $4.0 million. This amount is included in earnings as the assets are used by
PWP.
7) STOCKHOLDERS' EQUITY:
In July 2002, the stockholders of the Company approved an increase in the
number of authorized shares of Class A Common Stock from 120,000,000 shares to
275,000,000 shares and Class B Convertible Common Stock from 20,000,000 shares
to 30,000,000 shares, thereby increasing the aggregate number of authorized
shares of the Company to 306,000,000 shares.
8) 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.
9
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,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands, except per share data)
Income applicable to common shares $ 86,941 $ 59,777 $ 49,572 $ 35,934
========== ========== ========== ==========
Weighted average common shares
outstanding - basic 89,268 83,668 89,691 84,829
Stock options 3,294 2,584 3,338 3,035
---------- ---------- ---------- ----------
Weighted average common shares
outstanding - diluted 92,562 86,252 93,029 87,864
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - BASIC $ 0.97 $ 0.71 $ 0.55 $ 0.42
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - DILUTED $ 0.94 $ 0.69 $ 0.53 $ 0.41
========== ========== ========== ==========
Stock options to purchase 0.3 million shares of Class A Common Stock at a
weighted average price per share of $21.34 were outstanding during the six
months and three months ended August 31, 2001, 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 period.
9) COMPREHENSIVE INCOME:
Comprehensive income consists of net income, foreign currency translation
adjustments, net unrealized gains or losses on derivative instruments and
minimum pension liability adjustments. The reconciliation of net income to
comprehensive income is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands)
Net income $ 86,941 $ 59,777 $ 49,572 $ 35,934
Other comprehensive income, net of tax:
Foreign currency translation adjustments 13,139 (2,882) 5,451 1,432
Cash flow hedges:
Net derivative gains, net of tax effect of
$0, $109, $0 and $30, respectively - 219 - 47
Reclassification adjustments, net of tax effect
of $13, $85, $3 and $18, respectively (21) (186) (5) 43
---------- ---------- ---------- ----------
Net cash flow hedges (21) 33 (5) 90
Minimum pension liability adjustment, net of tax
effect of $255, $0, $5 and $0, respectively (382) - (8) -
---------- ---------- ---------- ----------
Total comprehensive income $ 99,677 $ 56,928 $ 55,026 $ 37,456
========== ========== ========== ==========
Accumulated other comprehensive loss includes the following components:
For the Six Months Ended August 31, 2002
----------------------------------------------------------
Foreign Net Minimum Accumulated
Currency Unrealized Pension Other
Translation Gains on Liability Comprehensive
Adjustments Derivatives Adjustment Loss
------------- ----------- ------------ -------------
(in thousands)
Balance, February 28, 2002 $ (35,243) $ 21 $ - $ (35,222)
Current-period change 13,139 (21) (382) 12,736
------------- ----------- ------------ -------------
Balance, August 31, 2002 $ (22,104) $ - $ (382) $ (22,486)
============= =========== ============ =============
10
10) CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance
sheets of the Company as of August 31, 2002, and February 28, 2002, and the
condensed consolidating statements of income and cash flows for the six months
and three months ended August 31, 2002 and 2001, for the Company, the parent
company, the combined subsidiaries of the Company which guarantee the Company's
senior notes and senior subordinated notes ("Subsidiary Guarantors") and the
combined subsidiaries of the Company which are not Subsidiary Guarantors,
primarily Matthew Clark, which is included in the U.K. Brands and Wholesale
segment ("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. The accounting policies of the parent company, the Subsidiary
Guarantors and the Subsidiary Nonguarantors are the same as those described for
the Company in the Summary of Significant Accounting Policies in Note 1 to the
Company's consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2002, and include the
accounting changes described in Note 2 herein. 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)
Condensed Consolidating Balance Sheet
- -------------------------------------
at August 31, 2002
- ------------------
Current assets:
Cash and cash investments $ 13,075 $ 1,294 $ 10,646 $ - $ 25,015
Accounts receivable, net 73,825 184,022 177,703 - 435,550
Inventories, net 16,731 602,544 149,173 (156) 768,292
Prepaid expenses and other current assets 11,592 56,900 16,638 - 85,130
Intercompany (payable) receivable (72,976) 42,613 30,363 - -
----------- ------------ ------------- ------------ ------------
Total current assets 42,247 887,373 384,523 (156) 1,313,987
Property, plant and equipment, net 38,291 359,170 196,870 - 594,331
Investments in subsidiaries 2,479,117 559,028 - (3,038,145) -
Goodwill 51,171 495,531 173,124 - 719,826
Intangible assets, net 10,967 317,634 54,356 - 382,957
Other assets 20,899 119,657 31,035 - 171,591
----------- ----------- ------------- ------------ ------------
Total assets $ 2,642,692 $ 2,738,393 $ 839,908 $ (3,038,301) $ 3,182,692
=========== ============ ============= ============ ============
Current liabilities:
Notes payable $ - $ - $ 992 $ - $ 992
Current maturities of long-term debt 76,830 3,465 681 - 80,976
Accounts payable 29,649 44,235 86,407 - 160,291
Accrued excise taxes 8,064 20,169 17,394 - 45,627
Other accrued expenses and liabilities 123,384 67,674 126,835 - 317,893
----------- ------------ ------------- ------------ ------------
Total current liabilities 237,927 135,543 232,309 - 605,779
11
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Long-term debt, less current maturities 1,263,483 12,659 9,433 - 1,285,575
Deferred income taxes 41,955 74,784 32,944 - 149,683
Other liabilities 532 37,410 25,439 - 63,381
Stockholders' equity:
Class A and class B common stock 955 6,434 64,867 (71,301) 955
Additional paid-in capital 453,329 1,221,077 436,466 (1,657,543) 453,329
Retained earnings 679,316 1,251,606 57,695 (1,309,457) 679,160
Accumulated other comprehensive loss (2,121) (1,120) (19,245) - (22,486)
Treasury stock and other (32,684) - - - (32,684)
----------- ------------ ------------- ------------ ------------
Total stockholders' equity 1,098,795 2,477,997 539,783 (3,038,301) 1,078,274
----------- ------------ ------------- ------------ ------------
Total liabilities and stockholders' equity $ 2,642,692 $ 2,738,393 $ 839,908 $ (3,038,301) $ 3,182,692
=========== ============ ============= ============ ============
Condensed Consolidating Balance Sheet
- -------------------------------------
at February 28, 2002
- --------------------
Current assets:
Cash and cash investments $ 838 $ 2,084 $ 6,039 $ - $ 8,961
Accounts receivable, net 86,315 166,875 130,732 - 383,922
Inventories, net 17,662 631,050 128,934 (60) 777,586
Prepaid expenses and other current assets 7,148 40,364 13,267 - 60,779
Intercompany (payable) receivable (64,061) (288) 64,349 - -
----------- ------------ ------------- ------------ ------------
Total current assets 47,902 840,085 343,321 (60) 1,231,248
Property, plant and equipment, net 36,834 354,431 187,499 - 578,764
Investments in subsidiaries 2,404,282 558,263 - (2,962,545) -
Goodwill 51,172 462,676 154,235 - 668,083
Intangible assets, net 11,016 361,039 53,932 - 425,987
Other assets 22,598 111,892 30,813 - 165,303
----------- ------------ ------------- ------------ ------------
Total assets $ 2,573,804 $ 2,688,386 $ 769,800 $ (2,962,605) $ 3,069,385
=========== ============ ============= ============ ============
Current liabilities:
Notes payable $ 50,000 $ - $ 4,775 $ - $ 54,775
Current maturities of long-term debt 71,953 3,542 6,114 - 81,609
Accounts payable 34,590 50,425 68,418 - 153,433
Accrued excise taxes 12,244 37,033 10,961 - 60,238
Other accrued expenses and liabilities 94,067 51,250 99,838 - 245,155
----------- ------------ ------------- ------------ ------------
Total current liabilities 262,854 142,250 190,106 - 595,210
Long-term debt, less current maturities 1,278,834 14,237 112 - 1,293,183
Deferred income taxes 39,022 91,963 32,161 - 163,146
Other liabilities 476 38,174 23,460 - 62,110
Stockholders' equity:
Class A and class B common stock 939 6,434 64,867 (71,301) 939
Additional paid-in capital 431,216 1,220,917 436,466 (1,657,383) 431,216
Retained earnings 592,279 1,176,931 56,930 (1,233,921) 592,219
Accumulated other comprehensive
income (loss) 1,600 (2,520) (34,302) - (35,222)
Treasury stock and other (33,416) - - - (33,416)
----------- ------------ ------------- ------------ ------------
Total stockholders' equity 992,618 2,401,762 523,961 (2,962,605) 955,736
----------- ------------ ------------- ------------ ------------
Total liabilities and stockholders' equity $ 2,573,804 $ 2,688,386 $ 769,800 $ (2,962,605) $ 3,069,385
=========== ============ ============= ============ ============
12
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Six Months Ended August 31, 2002
- ----------------------------------------
Gross sales $ 376,683 $ 957,427 $ 547,303 $ (121,953) $ 1,759,460
Less - excise taxes (67,933) (208,805) (142,523) - (419,261)
----------- ------------ ------------- ------------ ------------
Net sales 308,750 748,622 404,780 (121,953) 1,340,199
Cost of product sold (239,112) (525,399) (327,557) 121,857 (970,211)
----------- ------------ ------------- ------------ ------------
Gross profit 69,638 223,223 77,223 (96) 369,988
Selling, general and administrative expenses (53,409) (74,441) (50,527) - (178,377)
----------- ------------ ------------- ------------ ------------
Operating income 16,229 148,782 26,696 (96) 191,611
Equity in earnings of
subsidiary/joint venture 74,675 6,676 - (75,440) 5,911
Interest expense, net 4,137 (35,085) (23,344) - (54,292)
----------- ------------ ------------- ------------ ------------
Income before income taxes 95,041 120,373 3,352 (75,536) 143,230
Provision for income taxes (8,004) (45,698) (2,587) - (56,289)
----------- ------------ ------------- ------------ ------------
Net income $ 87,037 $ 74,675 $ 765 $ (75,536) $ 86,941
=========== ============ ============= ============ ============
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Six Months Ended August 31, 2001
- ----------------------------------------
Gross sales $ 388,179 $ 998,061 $ 498,482 $ (193,801) $ 1,690,921
Less - excise taxes (67,947) (210,939) (124,476) - (403,362)
----------- ------------ ------------- ------------ ------------
Net sales 320,232 787,122 374,006 (193,801) 1,287,559
Cost of product sold (201,913) (638,000) (302,253) 193,782 (948,384)
----------- ------------ ------------- ------------ ------------
Gross profit 118,319 149,122 71,753 (19) 339,175
Selling, general and administrative expenses (45,211) (63,847) (71,193) - (180,251)
----------- ------------ ------------- ------------ ------------
Operating income 73,108 85,275 560 (19) 158,924
Equity in earnings (loss) of
subsidiary/joint venture 20,684 (8,852) - (11,969) (137)
Interest expense, net (7,922) (49,173) (2,064) - (59,159)
----------- ------------ ------------- ------------ ------------
Income (loss) before income taxes 85,870 27,250 (1,504) (11,988) 99,628
Provision for income taxes (26,074) (6,566) (7,211) - (39,851)
----------- ------------ ------------- ------------ ------------
Net income (loss) $ 59,796 $ 20,684 $ (8,715) $ (11,988) $ 59,777
=========== ============ ============= ============ ============
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Three Months Ended August 31, 2002
- ------------------------------------------
Gross sales $ 200,944 $ 484,167 $ 273,892 $ (60,006) $ 898,997
Less - excise taxes (35,201) (103,422) (70,568) - (209,191)
----------- ------------ ------------- ------------ ------------
Net sales 165,743 380,745 203,324 (60,006) 689,806
Cost of product sold (126,130) (267,766) (162,615) 59,967 (496,544)
----------- ------------ ------------- ------------ ------------
Gross profit 39,613 112,979 40,709 (39) 193,262
Selling, general and administrative expenses (30,033) (31,531) (26,052) - (87,616)
----------- ------------ ------------- ------------ ------------
Operating income 9,580 81,448 14,657 (39) 105,646
Equity in earnings (loss) of
subsidiary/joint venture 42,531 (3,675) - (35,684) 3,172
Interest expense, net (2,084) (6,511) (22,724) - (27,151)
----------- ------------ ------------- ------------ ------------
Income (loss) before income taxes 54,195 71,262 (8,067) (35,723) 81,667
(Provision for) benefit from income taxes (4,584) (28,731) 1,220 - (32,095)
----------- ------------ ------------- ------------ ------------
Net income (loss) $ 49,611 $ 42,531 $ (6,847) $ (35,723) $ 49,572
=========== ============ ============= ============ ============
13
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Three Months Ended August 31, 2001
- ------------------------------------------
Gross sales $ 213,060 $ 556,414 $ 255,834 $ (126,483) $ 898,825
Less - excise taxes (37,559) (108,724) (63,415) - (209,698)
----------- ------------ ------------- ------------ ------------
Net sales 175,501 447,690 192,419 (126,483) 689,127
Cost of product sold (89,426) (389,124) (153,748) 126,456 (505,842)
----------- ------------ ------------- ------------ ------------
Gross profit 86,075 58,566 38,671 (27) 183,285
Selling, general and administrative expenses (22,522) (22,512) (49,250) - (94,284)
----------- ------------ ------------- ------------ ------------
Operating income (loss) 63,553 36,054 (10,579) (27) 89,001
Equity in earnings (loss) of
subsidiary/joint venture 2,714 (15,181) - 12,330 (137)
Interest expense, net (2,557) (25,634) (783) - (28,974)
----------- ------------ ------------- ------------ ------------
Income (loss) before income taxes 63,710 (4,761) (11,362) 12,303 59,890
(Provision for) benefit from income taxes (27,749) 7,475 (3,682) - (23,956)
----------- ------------ ------------- ------------ ------------
Net income (loss) $ 35,961 $ 2,714 $ (15,044) $ 12,303 $ 35,934
=========== ============ ============= ============ ============
Condensed Consolidating Statement of Cash Flows
- -----------------------------------------------
for the Six Months Ended August 31, 2002
- ----------------------------------------
Net cash provided by operating activities $ 57,695 $ 45,878 $ 9,993 $ - $ 113,566
Cash flows from investing activities:
Purchases of property, plant and equipment (4,542) (22,975) (6,702) - (34,219)
Other - (337) 241 - (96)
----------- ------------ ------------- ------------ ------------
Net cash used in investing activities (4,542) (23,312) (6,461) - (34,315)
----------- ------------ ------------- ------------ ------------
Cash flows from financing activities:
Net repayments of notes payable (50,000) - (3,757) - (53,757)
Principal payments of long-term debt (35,996) (1,615) (6,182) - (43,793)
Payment of issuance costs of long-term debt (5) - - - (5)
Exercise of employee stock options 22,008 - - - 22,008
Proceeds from issuance of long-term debt - - 10,000 - 10,000
Proceeds from employee stock purchases 1,309 - - - 1,309
----------- ------------ ------------- ------------ ------------
Net cash (used in) provided by
financing activities (62,684) (1,615) 61 - (64,238)
----------- ------------ ------------- ------------ ------------
Effect of exchange rate changes on
cash and cash investments 21,768 (21,741) 1,014 - 1,041
----------- ------------ ------------- ------------ ------------
Net increase (decrease) in cash
and cash investments 12,237 (790) 4,607 - 16,054
Cash and cash investments, beginning of period 838 2,084 6,039 - 8,961
----------- ------------ ------------- ------------ ------------
Cash and cash investments, end of period $ 13,075 $ 1,294 $ 10,646 $ - $ 25,015
=========== ============ ============= ============ ============
14
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Cash Flows
- -----------------------------------------------
for the Six Months Ended August 31, 2001
- ----------------------------------------
Net cash provided by (used in)
operating activities $ 103,790 $ (2,450) $ 4,642 $ - $ 105,982
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (477,713) 5,742 - - (471,971)
Purchases of property, plant and equipment (2,099) (20,080) (6,616) - (28,795)
Investment in joint venture - (5,500) - - (5,500)
Proceeds from sale of assets - 35,143 248 - 35,391
----------- ------------ ------------- ------------ ------------
Net cash (used in) provided by
investing activities (479,812) 15,305 (6,368) - (470,875)
----------- ------------ ------------- ------------ ------------
Cash flows from financing activities:
Proceeds from equity offering, net of fees 139,522 - - - 139,522
Net proceeds from notes payable 83,000 - 2,727 - 85,727
Exercise of employee stock options 26,392 - - - 26,392
Proceeds from employee stock purchases 842 - - - 842
Principal payments of long-term debt (16,802) (7,677) (742) - (25,221)
Payment of issuance costs of long-term debt (1,186) - - - (1,186)
----------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
financing activities 231,768 (7,677) 1,985 - 226,076
----------- ------------ ------------- ------------ ------------
Effect of exchange rate changes on
cash and cash investments 2,259 (1,860) (486) - (87)
----------- ------------ ------------- ------------ ------------
Net (decrease) increase in cash
and cash investments (141,995) 3,318 (227) - (138,904)
Cash and cash investments, beginning of period 142,104 3,239 329 - 145,672
----------- ------------ ------------- ------------ ------------
Cash and cash investments, end of period $ 109 $ 6,557 $ 102 $ - $ 6,768
=========== ============ ============= ============ ============
11) BUSINESS SEGMENT INFORMATION:
The Company reports its operating results in five segments: Popular and
Premium Wine (branded popular and premium wine and brandy, and other, primarily
grape juice concentrate and bulk wine); Imported Beer and Spirits (primarily
imported beer and distilled spirits); U.K. Brands and Wholesale (branded wine,
cider and bottled water, and wholesale wine, cider, distilled spirits, beer and
soft drinks); Fine Wine (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 availability of separate financial results. The accounting policies of the
segments are the same as those described for the Company in the Summary of
Significant Accounting Policies in Note 1 to the Company's consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 2002, and include the accounting changes
described in Note 2 herein. The Company evaluates performance based on
operating income of the respective business units.
15
Segment information is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands)
Popular and Premium Wine:
- -------------------------
Net sales:
Branded:
External customers $ 315,080 $ 325,813 $ 168,327 $ 178,739
Intersegment 5,725 4,644 2,876 2,899
------------ ------------ ------------ ------------
Total Branded 320,805 330,457 171,203 181,638
------------ ------------ ------------ ------------
Other:
External customers 20,808 27,383 10,159 13,834
Intersegment 6,342 7,856 3,118 4,167
------------ ------------ ------------ ------------
Total Other 27,150 35,239 13,277 18,001
------------ ------------ ------------ ------------
Net sales $ 347,955 $ 365,696 $ 184,480 $ 199,639
Operating income $ 42,568 $ 39,329 $ 25,699 $ 23,934
Equity in earnings (loss) of joint venture $ 5,911 $ (137) $ 3,172 $ (137)
Long-lived assets $ 195,417 $ 186,694 $ 195,417 $ 186,694
Investment in joint venture $ 116,431 $ 31,638 $ 116,431 $ 31,638
Total assets $ 1,075,396 $ 940,926 $ 1,075,396 $ 940,926
Capital expenditures $ 10,538 $ 6,077 $ 7,343 $ 4,588
Depreciation and amortization $ 11,760 $ 16,159 $ 5,676 $ 8,043
Imported Beer and Spirits:
- --------------------------
Net sales:
Beer $ 419,513 $ 396,133 $ 219,807 $ 220,225
Spirits 138,886 137,792 66,687 68,751
------------ ------------ ------------ ------------
Net sales $ 558,399 $ 533,925 $ 286,494 $ 288,976
Operating income $ 115,976 $ 95,412 $ 61,555 $ 51,361
Long-lived assets $ 77,916 $ 79,612 $ 77,916 $ 79,612
Total assets $ 739,769 $ 736,343 $ 739,769 $ 736,343
Capital expenditures $ 4,030 $ 6,736 $ 2,122 $ 3,812
Depreciation and amortization $ 5,105 $ 9,150 $ 2,533 $ 4,388
U.K. Brands and Wholesale:
- --------------------------
Net sales:
Branded:
External customers $ 112,575 $ 112,125 $ 57,999 $ 59,021
Intersegment 151 481 65 379
------------ ------------ ------------ ------------
Total Branded 112,726 112,606 58,064 59,400
Wholesale 264,389 234,473 132,255 119,467
------------ ------------ ------------ ------------
Net sales $ 377,115 $ 347,079 $ 190,319 $ 178,867
Operating income $ 24,775 $ 22,285 $ 14,512 $ 13,432
Long-lived assets $ 148,002 $ 142,055 $ 148,002 $ 142,055
Total assets $ 680,224 $ 629,582 $ 680,224 $ 629,582
Capital expenditures $ 6,110 $ 4,039 $ 3,414 $ 2,009
Depreciation and amortization $ 7,101 $ 9,419 $ 3,600 $ 4,746
16
For the Six Months For the Three Months
Ended August 31, Ended August 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands)
Fine Wine:
- ----------
Net sales:
External customers $ 68,948 $ 53,840 $ 34,570 $ 29,090
Intersegment 688 254 310 152
------------ ------------ ------------ ------------
Net sales $ 69,636 $ 54,094 $ 34,880 $ 29,242
Operating income $ 23,736 $ 15,146 $ 12,030 $ 8,098
Long-lived assets $ 163,848 $ 147,535 $ 163,848 $ 147,535
Total assets $ 643,104 $ 575,280 $ 643,104 $ 575,280
Capital expenditures $ 12,419 $ 11,298 $ 8,050 $ 7,329
Depreciation and amortization $ 4,936 $ 6,236 $ 2,282 $ 3,013
Corporate Operations and Other:
- -------------------------------
Net sales $ - $ - $ - $ -
Operating loss $ (15,444) $ (13,248) $ (8,150) $ (7,824)
Long-lived assets $ 9,148 $ 4,556 $ 9,148 $ 4,556
Total assets $ 44,199 $ 24,580 $ 44,199 $ 24,580
Capital expenditures $ 1,122 $ 645 $ 948 $ 219
Depreciation and amortization $ 2,099 $ 2,297 $ 1,061 $ 1,146
Intersegment eliminations:
- --------------------------
Net sales $ (12,906) $ (13,235) $ (6,367) $ (7,597)
Consolidated:
- -------------
Net sales $ 1,340,199 $ 1,287,559 $ 689,806 $ 689,127
Operating income $ 191,611 $ 158,924 $ 105,646 $ 89,001
Equity in earnings (loss) of joint venture $ 5,911 $ (137) $ 3,172 $ (137)
Long-lived assets $ 594,331 $ 560,452 $ 594,331 $ 560,452
Investment in joint venture $ 116,431 $ 31,638 $ 116,431 $ 31,638
Total assets $ 3,182,692 $ 2,906,711 $ 3,182,692 $ 2,906,711
Capital expenditures $ 34,219 $ 28,795 $ 21,877 $ 17,957
Depreciation and amortization $ 31,001 $ 43,261 $ 15,152 $ 21,336
12) ACCOUNTING PRONOUNCEMENTS:
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. The Company is required to adopt
SFAS No. 143 for fiscal years beginning March 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 143 on its financial statements.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS No. 145"), "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement of Financial Accounting Standards
No. 4 ("SFAS No. 4"), "Reporting Gains and Losses from Extinguishment of Debt,"
Statement of Financial Accounting Standards No. 44, "Accounting for Intangible
Assets of Motor Carriers," and Statement of Financial Accounting Standards No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." In
addition, SFAS No. 145 amends Statement of Financial Accounting Standards No.
13, "Accounting for Leases," to eliminate an inconsistency between required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Lastly, SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical
17
corrections, clarify meanings, or describe their applicability under changed
conditions. The Company is required to adopt the provisions related to the
rescission of SFAS No. 4 for fiscal years beginning March 1, 2003. All other
provisions of SFAS No. 145 were adopted on March 1, 2002. The adoption of the
applicable provisions of SFAS No. 145 did not have a material impact on the
Company's financial statements. The adoption of the remaining provisions will
result in a reclassification of the extraordinary loss related to the
extinguishment of debt recorded in the fourth quarter of the fiscal year ended
February 28, 2002 ($1.6 million, net of income taxes), to increase selling,
general and administrative expenses ($2.6 million) and to decrease the provision
for income taxes ($1.0 million).
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS No. 146"), "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The Company is required to adopt SFAS No.
146 for exit or disposal activities initiated after December 31, 2002. The
Company is currently assessing the financial impact of SFAS No. 146 on its
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
- ------------
The Company is a leading producer and marketer of beverage alcohol brands,
with a broad portfolio of wine, distilled spirits and imported beer. The
Company is the largest single-source supplier of these products in the United
States, and both a major producer and independent drinks wholesaler in the
United Kingdom. The Company reports its operating results in five segments:
Popular and Premium Wine (branded popular and premium wine and brandy, and
other, primarily grape juice concentrate and bulk wine); Imported Beer and
Spirits (primarily imported beer and distilled spirits); U.K. Brands and
Wholesale (branded wine, cider and bottled water, and wholesale wine, cider,
distilled spirits, beer and soft drinks); Fine Wine (primarily branded
super-premium and ultra-premium wine) and Corporate Operations and Other
(primarily corporate related items).
During April 2002, the Board of Directors of the Company approved a
two-for-one stock split of both the Company's Class A Common Stock and Class B
Common Stock, which was distributed in the form of a stock dividend on May 13,
2002, to stockholders of record on April 30, 2002. Pursuant to the terms of the
stock dividend, each holder of Class A Common Stock received one additional
share of Class A stock for each share of Class A stock held, and each holder of
Class B Common Stock received one additional share of Class B stock for each
share of Class B stock held. All share and per share amounts in this Quarterly
Report on Form 10-Q are adjusted to give effect to the common stock split.
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, 2002 ("Second Quarter 2003"), compared to the three
months ended August 31, 2001 ("Second Quarter 2002"), and for the six months
ended August 31, 2002 ("Six Months 2003"), compared to the six months ended
August 31, 2001 ("Six Months 2002"), and (ii) financial liquidity and capital
resources for Six Months 2003. 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, 2002 ("Fiscal 2002").
As discussed in Note 2 to the financial statements, the Company adopted
SFAS No. 142 and EITF No. 01-09 on March 1, 2002.
18
ACQUISITIONS IN FISCAL 2002
On July 2, 2001, the Company acquired all of the outstanding capital stock
of Ravenswood Winery, Inc. (the "Ravenswood Acquisition"), a leading premium
wine producer based in Sonoma, California. On June 30, 2002, Ravenswood Winery,
Inc. was merged into Franciscan Vineyards, Inc. (a wholly-owned subsidiary of
the Company). The Ravenswood business produces, markets and sells super-premium
and ultra-premium California wine primarily under the Ravenswood brand name. The
vast majority of wine the Ravenswood business produces and sells is red wine,
including the number one super-premium Zinfandel in the United States. The
results of operations of the Ravenswood business are reported in the Fine Wine
segment and have been included in the consolidated results of operations of the
Company since the date of acquisition.
On March 26, 2001, in an asset acquisition, the Company acquired certain
wine brands, wineries, working capital (primarily inventories), and other
related assets from Corus Brands, Inc. (the "Corus Assets"). In this
acquisition, the Company acquired several well-known premium wine brands
primarily sold in the northwestern United States, including Covey Run, Columbia,
Ste. Chapelle and Alice White. In connection with the transaction, the Company
also entered into long-term grape supply agreements with affiliates of Corus
Brands, Inc. covering more than 1,000 acres of Washington and Idaho vineyards.
The results of operations of the Corus Assets are reported in the Popular and
Premium Wine segment and have been included in the consolidated results of
operations of the Company since the date of acquisition.
On March 5, 2001, in an asset acquisition, the Company acquired several
well-known premium wine brands, including Vendange, Nathanson Creek, Heritage,
and Talus, working capital (primarily inventories), two wineries in California,
and other related assets from Sebastiani Vineyards, Inc. and Tuolomne River
Vintners Group (the "Turner Road Vintners Assets"). The results of operations
of the Turner Road Vintners Assets are reported in the Popular and Premium Wine
segment and have been included in the consolidated results of operations of the
Company since the date of acquisition.
JOINT VENTURE
On July 31, 2001, the Company and BRL Hardy Limited completed the formation
of Pacific Wine Partners LLC ("PWP"), a joint venture owned equally by the
Company and BRL Hardy Limited. On October 16, 2001, the Company announced that
PWP completed the purchase of certain assets of Blackstone Winery, including the
Blackstone brand and the Codera wine business in Sonoma County.
The investment in PWP is accounted for using the equity method;
accordingly, the results of operations of PWP since July 31, 2001, have been
included in the equity in earnings of joint venture line in the Consolidated
Statements of Income of the Company.
19
RESULTS OF OPERATIONS
- ---------------------
SECOND QUARTER 2003 COMPARED TO SECOND QUARTER 2002
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Second Quarter 2003 and Second Quarter
2002.
Second Quarter 2003 Compared to Second Quarter 2002
---------------------------------------------------
Net Sales
---------------------------------------------------
%Increase/
2003 2002 (Decrease)
--------- --------- ----------
Popular and Premium Wine:
Branded:
External customers $ 168,327 $ 178,739 (5.8)%
Intersegment 2,876 2,899 (0.8)%
--------- ---------
Total Branded 171,203 181,638 (5.7)%
--------- ---------
Other:
External customers 10,159 13,834 (26.6)%
Intersegment 3,118 4,167 (25.2)%
--------- ---------
Total Other 13,277 18,001 (26.2)%
--------- ---------
Popular and Premium Wine net sales $ 184,480 $ 199,639 (7.6)%
--------- ---------
Imported Beer and Spirits:
Imported Beer $ 219,807 $ 220,225 (0.2)%
Spirits 66,687 68,751 (3.0)%
--------- ---------
Imported Beer and Spirits net sales $ 286,494 $ 288,976 (0.9)%
--------- ---------
U.K. Brands and Wholesale:
Branded:
External customers $ 57,999 $ 59,021 (1.7)%
Intersegment 65 379 (82.8)%
--------- ---------
Total Branded 58,064 59,400 (2.2)%
Wholesale 132,255 119,467 10.7 %
--------- ---------
U.K. Brands and Wholesale net sales $ 190,319 $ 178,867 6.4 %
--------- ---------
Fine Wine:
External customers $ 34,570 $ 29,090 18.8 %
Intersegment 310 152 103.9 %
--------- ---------
Fine Wine net sales $ 34,880 $ 29,242 19.3 %
--------- ---------
Corporate Operations and Other $ - $ - N/A
--------- ---------
Intersegment eliminations $ (6,367) $ (7,597) (16.2)%
--------- ---------
Consolidated Net Sales $ 689,806 $ 689,127 0.1 %
========= =========
Net sales for Second Quarter 2003 increased to $689.8 million from $689.1
million for Second Quarter 2002, an increase of $0.7 million, or 0.1%.
Popular and Premium Wine
------------------------
Net sales for the Popular and Premium Wine segment for Second Quarter 2003
decreased to $184.5 million from $199.6 million for Second Quarter 2002, a
decrease of $15.2 million, or (7.6)%. Branded sales declined $10.4 million, or
(5.8)%, on lower volume. Volumes were negatively impacted primarily due to the
timing of shipments versus depletions between first and second quarter of fiscal
2003 compared to first and second quarter of fiscal 2002, and increased
promotional spending in the industry, which the Company did not participate in
heavily. The Company's promotional strategy continues to
20
focus on higher growth and/or higher margin brands. In addition, other sales
declined $4.7 million due to lower grape juice concentrate and bulk wine sales.
Imported Beer and Spirits
-------------------------
Net sales for the Imported Beer and Spirits segment for Second Quarter 2003
decreased to $286.5 million from $289.0 million for Second Quarter 2002, a
decrease of $2.5 million, or (0.9)%. This decrease resulted primarily from a
decline in spirits sales of $2.1 million, or (3.0)%. This decline in spirits
sales followed a 5.5% increase in spirits sales in the first quarter of fiscal
2003 and was due primarily to the timing of wholesaler orders. Imported beer
sales for Second Quarter 2003 were virtually unchanged when compared to Second
Quarter 2002 as price increases implemented in the first quarter of fiscal 2003
were offset by volume declines. The decline in imported beer shipments was
anticipated due to inventory adjustments in the distribution channel related to
the price increase.
U.K. Brands and Wholesale
-------------------------
Net sales for the U.K. Brands and Wholesale segment for Second Quarter 2003
increased to $190.3 million from $178.9 million for Second Quarter 2002, an
increase of $11.5 million, or 6.4%. Excluding a favorable foreign currency
impact of $13.7 million, net sales declined $2.2 million, or (1.3)%. This
decline resulted from a 9.3% decrease in branded sales partially offset by a
2.7% increase in wholesale sales. The decline in branded sales was primarily
related to lower cider sales.
Fine Wine
---------
Net sales for the Fine Wine segment for Second Quarter 2003 increased to
$34.9 million from $29.2 million for Second Quarter 2002, an increase of $5.6
million, or 19.3%. This increase resulted from an additional one month of sales
of the brands acquired in the Ravenswood Acquisition, completed in July 2001, as
well as growth in the Estancia, Ravenswood, Simi and Franciscan brands.
Excluding the additional one month of sales of $2.2 million of the acquired
brands, Fine Wine net sales increased $3.4 million, or 11.8%, due to higher
sales volumes on the brands noted above.
GROSS PROFIT
The Company's gross profit increased to $193.3 million for Second Quarter
2003 from $183.3 million for Second Quarter 2002, an increase of $10.0 million,
or 5.4%. The dollar increase in gross profit resulted from higher average
imported beer prices, a favorable mix of sales towards higher margin products,
particularly fine wine and tequila, lower average spirits costs, and a favorable
foreign currency impact. These increases were partially offset by higher
average imported beer costs and lower Popular and Premium wine sales. As a
result of the foregoing, gross profit as a percent of net sales increased to
28.0% for Second Quarter 2003 from 26.6% for Second Quarter 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $87.6 million for
Second Quarter 2003 from $94.3 million for Second Quarter 2002, a decrease of
$6.7 million, or (7.1)%. The Company adopted SFAS No. 142 on March 1, 2002 and
accordingly, stopped amortizing goodwill and other indefinite lived intangible
assets. Excluding $6.6 million of amortization expense from Second Quarter
2002, the Company's selling, general and administrative expenses for Second
Quarter 2003 were flat. Selling, general and administrative expenses as a
percent of net sales decreased to 12.7% for Second Quarter 2003 as compared to
13.7% for Second Quarter 2002. Excluding amortization expense in Second
21
Quarter 2002, selling, general and administrative expenses as a percent of net
sales were 12.7%, equivalent to Second Quarter 2003.
OPERATING INCOME
The following table sets forth the operating income/(loss) (in thousands of
dollars) by operating segment of the Company for Second Quarter 2003 and Second
Quarter 2002.
Second Quarter 2003 Compared to Second Quarter 2002
---------------------------------------------------
Operating Income/(Loss)
---------------------------------------------------
2003 2002 %Increase
---------- ---------- ---------
Popular and Premium Wine $ 25,699 $ 23,934 7.4%
Imported Beer and Spirits 61,555 51,361 19.8%
U.K. Brands and Wholesale 14,512 13,432 8.0%
Fine Wine 12,030 8,098 48.6%
Corporate Operations and Other (8,150) (7,824) 4.2%
---------- ----------
Consolidated Operating Income $ 105,646 $ 89,001 18.7%
========== ==========
As a result of the above factors, consolidated operating income increased
to $105.6 million for Second Quarter 2003 from $89.0 million for Second Quarter
2002, an increase of $16.6 million, or 18.7%. Excluding amortization expense
for Second Quarter 2002, operating income for Popular and Premium Wine, Imported
Beer and Spirits, U.K. Brands and Wholesale and Fine Wine would have been $25.7
million, $53.5 million, $15.0 million and $9.2 million, respectively. Further,
consolidated operating income would have been $95.6 million.
INTEREST EXPENSE, NET
Net interest expense decreased to $27.2 million for Second Quarter 2003
from $29.0 million for Second Quarter 2002, a decrease of $1.8 million, or
(6.3)%. The decrease resulted from both a decrease in the average borrowings
for the period and a decrease in the average interest rate.
NET INCOME
As a result of the above factors, net income increased to $49.6 million for
Second Quarter 2003 from $35.9 million for Second Quarter 2002, an increase of
$13.6 million, or 38.0%. Excluding amortization expense and the associated
income tax benefit for Second Quarter 2002, net income increased $9.0 million,
or 22.3%.
For financial analysis purposes only, the Company's earnings (including
equity in earnings of joint venture) before interest, taxes, depreciation and
amortization ("EBITDA") for Second Quarter 2003 were $124.0 million, an increase
of $13.8 million over EBITDA of $110.2 million for Second Quarter 2002. EBITDA
should not be construed as an alternative to operating income or net cash flow
from operating activities determined in accordance with generally accepted
accounting principles and should not be construed as an indication of operating
performance or as a measure of liquidity.
22
SIX MONTHS 2003 COMPARED TO SIX MONTHS 2002
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Six Months 2003 and Six Months 2002.
Six Months 2003 Compared to Six Months 2002
-------------------------------------------
Net Sales
-------------------------------------------
%Increase/
2003 2002 (Decrease)
----------- ----------- ----------
Popular and Premium Wine:
Branded:
External customers $ 315,080 $ 325,813 (3.3)%
Intersegment 5,725 4,644 23.3 %
----------- -----------
Total Branded 320,805 330,457 (2.9)%
----------- -----------
Other:
External customers 20,808 27,383 (24.0)%
Intersegment 6,342 7,856 (19.3)%
----------- -----------
Total Other 27,150 35,239 (23.0)%
----------- -----------
Popular and Premium Wine net sales $ 347,955 $ 365,696 (4.9)%
----------- -----------
Imported Beer and Spirits:
Imported Beer $ 419,513 $ 396,133 5.9 %
Spirits 138,886 137,792 0.8 %
----------- -----------
Imported Beer and Spirits net sales $ 558,399 $ 533,925 4.6 %
----------- -----------
U.K. Brands and Wholesale:
Branded:
External customers $ 112,575 $ 112,125 0.4 %
Intersegment 151 481 (68.6)%
----------- -----------
Total Branded 112,726 112,606 0.1 %
Wholesale 264,389 234,473 12.8 %
----------- -----------
U.K. Brands and Wholesale net sales $ 377,115 $ 347,079 8.7 %
----------- -----------
Fine Wine:
External customers $ 68,948 $ 53,840 28.1 %
Intersegment 688 254 170.9 %
----------- -----------
Fine Wine net sales $ 69,636 $ 54,094 28.7 %
----------- -----------
Corporate Operations and Other $ - $ - N/A
----------- -----------
Intersegment eliminations $ (12,906) $ (13,235) (2.5)%
----------- -----------
Consolidated Net Sales $ 1,340,199 $ 1,287,559 4.1 %
=========== ===========
Net sales for Six Months 2003 increased to $1,340.2 million from $1,287.6
million for Six Months 2002, an increase of $52.6 million, or 4.1%.
Popular and Premium Wine
------------------------
Net sales for the Popular and Premium Wine segment for Six Months 2003
decreased to $348.0 million from $365.7 million for Six Months 2002, a decrease
of $17.7 million, or (4.9)%. Branded sales declined $9.7 million, or (2.9)%, on
lower volume. Volumes were negatively impacted as a result of increased
promotional spending in the industry, which the Company did not participate in
heavily. Other sales declined $8.1 million, or (23.0)%, on lower grape juice
concentrate and bulk wine sales.
23
Imported Beer and Spirits
-------------------------
Net sales for the Imported Beer and Spirits segment for Six Months 2003
increased to $558.4 million from $533.9 million for Six Months 2002, an increase
of $24.5 million, or 4.6%. This increase resulted primarily from a 5.9% increase
in imported beer sales. The growth in imported beer sales was due to a price
increase on the Company's Mexican beer portfolio, which took effect in the first
quarter of fiscal 2003. Additionally, spirits sales increased 0.8% resulting
primarily from a favorable mix towards higher priced products, particularly
tequila.
U.K. Brands and Wholesale
-------------------------
Net sales for the U.K. Brands and Wholesale segment for Six Months 2003
increased to $377.1 million from $347.1 million for Six Months 2002, an increase
of $30.0 million, or 8.7%. Excluding a favorable foreign currency impact of
$14.6 million, net sales increased $15.4 million, or 4.4%. This increase
resulted primarily from an 8.3% increase in wholesale sales due to the addition
of new accounts and increased average delivery sizes, partially offset by a 3.9%
decline in branded sales as a decrease in cider sales was partially offset by
increases in wine and ready-to-drink sales.
Fine Wine
---------
Net sales for the Fine Wine segment for Six Months 2003 increased to $69.6
million from $54.1 million for Six Months 2002, an increase of $15.5 million, or
28.7%. This increase resulted primarily from an additional four months of sales
of the brands acquired in the Ravenswood Acquisition, completed in July 2001, as
well as growth in the Ravenswood, Estancia, Simi and Franciscan brands.
Excluding the additional four months of sales of $14.1 million of the acquired
brands, Fine Wine net sales increased $1.5 million, or 2.7%, due to higher sales
volumes on the brands noted above.
GROSS PROFIT
The Company's gross profit increased to $370.0 million for Six Months 2003
from $339.2 million for Six Months 2002, an increase of $30.8 million, or 9.1%.
The dollar increase in gross profit resulted from higher average imported beer
selling prices, the additional four months of sales of the brands acquired in
the Ravenswood Acquisition (completed in July 2001), a favorable mix of sales
towards higher margin products, particularly tequila and fine wine, lower
average spirits costs, and a favorable foreign currency impact. These increases
were partially offset by higher average imported beer costs and lower Popular
and Premium wine sales. As a result of the foregoing, gross profit as a percent
of net sales increased to 27.6% for Six Months 2003 from 26.3% for Six Months
2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $178.4 million
for Six Months 2003 from $180.3 million for Six Months 2002, a decrease of $1.9
million, or (1.0)%. The Company adopted SFAS No. 142 on March 1, 2002 and
accordingly, stopped amortizing goodwill and other indefinite lived intangible
assets. Excluding $12.9 million of amortization expense from Six Months 2002,
the Company's selling, general and administrative expenses increased $11.0
million, or 6.6%. This increase resulted primarily from increased personnel
costs to support the Company's growth and higher selling costs to support the
growth in the U.K. wholesale business. Selling, general and administrative
expenses as a percent of net sales decreased to 13.3% for Six Months 2003 as
compared to 14.0% for Six Months 2002. Excluding amortization expense in Six
Months 2002, selling, general and administrative expenses as a percent of net
sales increased to 13.3% for Six Months 2003 as compared to 13.0% for Six Months
24
2002. This increase was primarily due to (i) the percent increase in general and
administrative expenses supporting the Company's growth in the Imported Beer and
Spirits segment, Corporate Operations and Other segment and U.K. Brands and
Wholesale segment growing at a faster rate than the increase in the respective
segment's net sales and (ii) the percent increase in the U.K. Brands and
Wholesale segment's selling costs being greater than the percent increase in the
U.K. Brands and Wholesale segment's net sales.
OPERATING INCOME
The following table sets forth the operating income/(loss) (in thousands of
dollars) by operating segment of the Company for Six Months 2003 and Six Months
2002.
Six Months 2003 Compared to Six Months 2002
-------------------------------------------
Operating Income/(Loss)
-------------------------------------------
2003 2002 %Increase
----------- ----------- ---------
Popular and Premium Wine $ 42,568 $ 39,329 8.2%
Imported Beer and Spirits 115,976 95,412 21.6%
U.K. Brands and Wholesale 24,775 22,285 11.2%
Fine Wine 23,736 15,146 56.7%
Corporate Operations and Other (15,444) (13,248) 16.6%
----------- -----------
Consolidated Operating Income $ 191,611 $ 158,924 20.6%
=========== ===========
As a result of the above factors, consolidated operating income increased
to $191.6 million for Six Months 2003 from $158.9 million for Six Months 2002,
an increase of $32.7 million, or 20.6%. Excluding amortization expense for Six
Months 2002, operating income for Popular and Premium Wine, Imported Beer and
Spirits, U.K. Brands and Wholesale and Fine Wine would have been $42.9 million,
$99.6 million, $25.3 million and $17.3 million, respectively. Further,
consolidated operating income would have been $171.8 million.
INTEREST EXPENSE, NET
Net interest expense decreased to $54.3 million for Six Months 2003 from
$59.2 million for Six Months 2002, a decrease of $4.9 million, or (8.2)%. The
decrease resulted from both a decrease in the average borrowings for the period
and a decrease in the average interest rate.
NET INCOME
As a result of the above factors, net income increased to $86.9 million for
Six Months 2003 from $59.8 million for Six Months 2002, an increase of $27.2
million, or 45.4%. Excluding amortization expense and the associated income tax
benefit for Six Months 2002, net income increased $18.3 million, or 26.6%.
For financial analysis purposes only, the Company's earnings (including
equity in earnings of joint venture) before interest, taxes, depreciation and
amortization ("EBITDA") for Six Months 2003 were $228.5 million, an increase of
$26.5 million over EBITDA of $202.0 million for Six Months 2002. EBITDA should
not be construed as an alternative to operating income or net cash flow from
operating activities determined in accordance with generally accepted accounting
principles and should not be construed as an indication of operating performance
or as a measure of liquidity.
25
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 2003 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Six Months 2003 was $113.6
million, which resulted from $116.6 million in net income adjusted for noncash
items, less $3.0 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 prepaid
expenses, and a decrease in accrued excise taxes, offset by increases in income
taxes payable, accrued advertising and accrued grape purchases.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Six Months 2003 was $34.3
million, which resulted primarily from $34.2 million of capital expenditures.
Net cash used in financing activities for Six Months 2003 was $64.2 million
resulting primarily from $53.8 million of net repayment of notes payable and
$43.8 million of principal payments of long-term debt. These amounts were
partially offset by $22.0 million of proceeds from employee stock option
exercises and $10.0 million of proceeds from long-term debt which was used for
the repayment of debt at one of the Company's Chilean subsidiaries.
During June 1998, the Company's Board of Directors authorized the
repurchase of up to $100.0 million of the Company's Class A Common Stock and
Class B Common Stock. The repurchase of shares of common stock will be
accomplished, from time to time, in management's discretion and depending upon
market conditions, through open market or privately negotiated transactions. The
Company may finance such repurchases through cash generated from operations or
through the senior credit facility. The repurchased shares will become treasury
shares. As of October 15, 2002, the Company had purchased 4,075,344 shares of
Class A Common Stock at an aggregate cost of $44.9 million, or at an average
cost of $11.01 per share. No shares were repurchased during Six Months 2003.
26
DEBT
Total debt outstanding as of August 31, 2002, amounted to $1,367.5 million,
a decrease of $62.0 million from February 28, 2002. The ratio of total debt to
total capitalization decreased to 55.9% as of August 31, 2002, from 59.9% as of
February 28, 2002.
SENIOR CREDIT FACILITY
As of August 31, 2002, under its senior credit facility, the Company had
outstanding term loans of $250.2 million bearing a weighted average interest
rate of 3.8%, undrawn revolving letters of credit of $13.2 million, and $286.8
million in revolving loans available to be drawn.
SENIOR NOTES
As of August 31, 2002, the Company had 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.
As of August 31, 2002, the Company had outstanding (pound) 1.0 million
($1.6 million) aggregate principal amount of 8 1/2% Series B Senior Notes due
November 2009 (the "Sterling Series B Senior Notes"). In addition, as of August
31, 2002, the Company had outstanding (pound) 154.0 million ($238.3 million, net
of $0.5 million unamortized discount) aggregate principal amount of 8 1/2%
Series C Senior Notes due November 2009 (the "Sterling Series C Senior Notes").
The Sterling Series B Senior Notes and Sterling Series C Senior Notes are
currently redeemable, in whole or in part, at the option of the Company.
Also, as of August 31, 2002, the Company had outstanding $200.0 million
aggregate principal amount of 8% Senior Notes due February 2008 (the "February
2001 Senior Notes"). The February 2001 Senior Notes are currently redeemable,
in whole or in part, at the option of the Company.
SENIOR SUBORDINATED NOTES
As of August 31, 2002, the Company had outstanding $200.0 million aggregate
principal amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "Senior
Subordinated Notes"). 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.
Also, as of August 31, 2002, the Company had outstanding $250.0 million
aggregate principal amount of 8 1/8% Senior Subordinated Notes due January 2012
(the "January 2002 Senior Subordinated Notes"). The January 2002 Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2007. The Company may also redeem up
to 35% of the January 2002 Senior Subordinated Notes using the proceeds of
certain equity offerings completed before January 15, 2005.
ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. The Company is required to adopt
SFAS No. 143 for fiscal years beginning March 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 143 on its financial statements.
27
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS No. 145"), "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement of Financial Accounting Standards
No. 4 ("SFAS No. 4"), "Reporting Gains and Losses from Extinguishment of Debt,"
Statement of Financial Accounting Standards No. 44, "Accounting for Intangible
Assets of Motor Carriers," and Statement of Financial Accounting Standards No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." In
addition, SFAS No. 145 amends Statement of Financial Accounting Standards No.
13, "Accounting for Leases," to eliminate an inconsistency between required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Lastly, SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The Company
is required to adopt the provisions related to the rescission of SFAS No. 4 for
fiscal years beginning March 1, 2003. All other provisions of SFAS No. 145 were
adopted on March 1, 2002. The adoption of the applicable provisions of SFAS No.
145 did not have a material impact on the Company's financial statements. The
adoption of the remaining provisions will result in a reclassification of the
extraordinary loss related to the extinguishment of debt recorded in the fourth
quarter of the fiscal year ended February 28, 2002 ($1.6 million, net of income
taxes), to increase selling, general and administrative expenses ($2.6 million)
and to decrease the provision for income taxes ($1.0 million).
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS No. 146"), "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The Company is required to adopt SFAS No.
146 for exit or disposal activities initiated after December 31, 2002. The
Company is currently assessing the financial impact of SFAS No. 146 on its
financial statements.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
subject to a number of risks and uncertainties, many of which are beyond the
Company's control, that could cause actual results to differ materially from
those set forth in, or implied by, such forward-looking statements. All
statements other than statements of historical facts included in this Quarterly
Report on Form 10-Q, including statements regarding the Company's future
financial position and prospects, are forward-looking statements. All
forward-looking statements speak only as of the date of this Quarterly Report on
Form 10-Q. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. For risk factors associated with the Company and its
business, which factors could cause actual results to differ materially from
those set forth in, or implied by, the Company's forward-looking statements,
reference should be made to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information about market risks for the six months ended August 31, 2002,
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, 2002.
28
ITEM 4. CONTROLS AND PROCEDURES
- ------- -----------------------
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to the filing date of
this report, that the Company's disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
foregoing evaluation.
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. held on
July 23, 2002 (the "Annual Meeting"), the holders of the Company's Class A
Common Stock (the "Class A Stock"), voting as a separate class, elected the
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 the 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) To amend and restate the Company's Restated Certificate of
Incorporation to:
(a) increase the number of authorized shares of the Company's
Class A Stock from 120,000,000 shares to 275,000,000
shares; and
(b) increase the number of authorized shares of the Company's
Class B Stock from 20,000,000 shares to 30,000,000 shares.
(ii) To re-approve the Company's Long-Term Stock Incentive Plan
pursuant to Section 162(m) of the Internal Revenue Code.
(iii) To re-approve the Company's Annual Management Incentive Plan
pursuant to Section 162(m) of the Internal Revenue Code.
(iv) To ratify the selection of KPMG LLP, Certified Public Accountants,
as the Company's independent public accountants for the fiscal
year ending February 28, 2003.
29
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 66,506,676 3,039,324
Paul L. Smith 66,505,296 3,040,704
Directors Elected by the Holders of Class B Stock:
--------------------------------------------------
Nominee For Withheld
------- --- --------
George Bresler 120,012,060 61,040
Jeananne K. Hauswald 120,018,060 55,040
James A. Locke III 120,018,060 55,040
Richard Sands 120,018,060 55,040
Robert Sands 120,018,060 55,040
II. The proposal to amend and restate the Company's Restated
Certificate of Incorporation to:
(a) increase the number of authorized shares of the Company's
Class A Stock from 120,000,000 shares to 275,000,000 shares
was approved with the following votes:
For: 176,002,199
Against: 13,495,217
Abstain: 121,684
Broker Nonvotes: N/A
(b) increase the number of authorized shares of the Company's
Class B Stock from 20,000,000 shares to 30,000,000 shares
was approved with the following votes:
For: 153,710,069
Against: 35,266,607
Abstain: 642,424
Broker Nonvotes: N/A
III. The proposal to re-approve the Company's Long-Term Stock Incentive
Plan was approved with the following votes:
For: 180,710,663
Against: 8,767,320
Abstain: 141,117
Broker Nonvotes: N/A
30
IV. The proposal to re-approve the Company's Annual Management
Incentive Plan was approved with the following votes:
For: 184,729,980
Against: 4,733,295
Abstain: 155,825
Broker Nonvotes: N/A
V. The selection of KPMG LLP was ratified with the following votes:
For: 187,660,931
Against: 1,870,432
Abstain: 87,737
Broker Nonvotes: N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 35 of this Report.
(b) The following Reports on Form 8-K were filed with the
Securities and Exchange Commission during the quarter ended
August 31, 2002:
(i) Form 8-K dated June 26, 2002. This Form 8-K reported
information under Item 5 and included (i) the
Company's Condensed Consolidated Balance Sheets as of
May 31, 2002 and February 28, 2002; and (ii) the
Company's Condensed Consolidated Statements of Income
for the three months ended May 31, 2002 and May 31,
2001.
(ii) Form 8-K dated August 21, 2002. This Form 8-K
reported information under Item 7 and Item 9.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSTELLATION BRANDS, INC.
Dated: October 15, 2002 By:/s/ Thomas F. Howe
--------------------------------------
Thomas F. Howe, Senior Vice President,
Controller
Dated: October 15, 2002 By:/s/ Thomas S. Summer
--------------------------------------
Thomas S. Summer, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
32
CERTIFICATIONS
I, Richard Sands, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Constellation Brands,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 15, 2002
/s/ Richard Sands
- -------------------------------------
Richard Sands
President and Chief Executive Officer
33
I, Thomas S. Summer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Constellation Brands,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 15, 2002
/s/ Thomas S. Summer
- ----------------------------------
Thomas S. Summer
Executive Vice President and Chief
Financial Officer
34
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. (now known as Constellation Brands, Inc.)
(filed as Exhibit 2.1 to 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 (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).
2.4 Purchase Agreement dated as of January 30, 2001, by and among
Sebastiani Vineyards, Inc., Tuolomne River Vintners Group and
Canandaigua Wine Company, Inc. (a wholly-owned subsidiary of the
Company) (filed as Exhibit 2.5 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 2001 and incorporated
herein by reference).
2.5 First Amendment to Purchase Agreement and Pro Forma Closing Balance
Sheet, dated as of March 5, 2001, by and among Sebastiani Vineyards,
Inc., Tuolomne River Vintners Group and Canandaigua Wine Company, Inc.
(filed as Exhibit 2.5 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 2001 and incorporated herein
by reference).
2.6 Second Amendment to Purchase Agreement, dated as of March 5, 2001, by
and among Sebastiani Vineyards, Inc., Tuolomne River Vintners Group and
Canandaigua Wine Company, Inc. (filed as Exhibit 2.6 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
2001 and incorporated herein by reference).
2.7 Agreement and Plan of Merger by and among Constellation Brands, Inc.,
VVV Acquisition Corp. and Ravenswood Winery, Inc. dated as of April 10,
2001 (filed as Exhibit 2.5 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended May 31, 2001 and incorporated
herein by reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed herewith).
3.2 By-Laws of the Company (filed herewith).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
Not applicable.
35
(10) MATERIAL CONTRACTS.
Not applicable.
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(99) ADDITIONAL EXHIBITS.
99.1 Certification of Chief Executive Officer pursuant to Section 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).
99.2 Certification of Chief Financial Officer pursuant to Section 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).
36