FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1999 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- COMMISSION FILE NUMBER 0-7570 DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709 AND ITS SUBSIDIARIES: NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994 NEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887 NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581 ENGLAND AND WALES CANANDAIGUA LIMITED 98-0198402 NEW YORK POLYPHENOLICS, INC. 16-1546354 NEW YORK ROBERTS TRADING CORP. 16-0865491 NETHERLANDS CANANDAIGUA B.V. 98-0205132 CALIFORNIA SIMI WINERY, INC. 94-2244918 DELAWARE FRANCISCAN VINEYARDS, INC. 94-2602962 NEW YORK SCV-EPI VINEYARDS, INC. 16-1568478 CALIFORNIA ALLBERRY, INC. 68-0324763 CALIFORNIA CLOUD PEAK CORPORATION 68-0324762 CALIFORNIA M.J. LEWIS CORP. 94-3065450 CALIFORNIA MT. VEEDER CORPORATION 94-2862667 DELAWARE BARTON INCORPORATED 36-3500366 DELAWARE BARTON BRANDS, LTD. 36-3185921 MARYLAND BARTON BEERS, LTD. 36-2855879 CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC. 06-1048198 GEORGIA BARTON BRANDS OF GEORGIA, INC. 58-1215938 ILLINOIS BARTON CANADA, LTD. 36-4283446 NEW YORK BARTON DISTILLERS IMPORT CORP. 13-1794441 DELAWARE BARTON FINANCIAL CORPORATION 51-0311795 WISCONSIN STEVENS POINT BEVERAGE CO. 39-0638900 ILLINOIS MONARCH IMPORT COMPANY 36-3539106 GEORGIA THE VIKING DISTILLERY, INC. 58-2183528 (State or other (Exact name of registrant as (I.R.S. Employer jurisdiction of specified in its charter) Identification No.) incorporation or organization) 300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (716) 218-2169 ---------------------------------------------------- (Registrants' telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding with respect to each of the classes of common stock of Canandaigua Brands, Inc., as of December 31, 1999, is set forth below (all of the Registrants, other than Canandaigua Brands, Inc., are direct or indirect wholly-owned subsidiaries of Canandaigua Brands, Inc.): CLASS NUMBER OF SHARES OUTSTANDING ----- ---------------------------- Class A Common Stock, Par Value $.01 Per Share 14,985,368 Class B Common Stock, Par Value $.01 Per Share 3,137,245 - 1 - PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ------- -------------------- CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
November 30, February 28, 1999 1999 ------------ ------------ (unaudited) ASSETS ------ CURRENT ASSETS: Cash and cash investments $ 24,667 $ 27,645 Accounts receivable, net 402,128 260,433 Inventories, net 677,363 508,571 Prepaid expenses and other current assets 67,084 59,090 ------------ ------------ Total current assets 1,171,242 855,739 PROPERTY, PLANT AND EQUIPMENT, net 561,397 428,803 OTHER ASSETS 800,356 509,234 ------------ ------------ Total assets $ 2,532,995 $ 1,793,776 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Notes payable $ 114,391 $ 87,728 Current maturities of long-term debt 40,249 6,005 Accounts payable 182,971 122,746 Accrued excise taxes 46,028 49,342 Other accrued expenses and liabilities 256,729 149,451 ------------ ------------ Total current liabilities 640,368 415,272 ------------ ------------ LONG-TERM DEBT, less current maturities 1,253,863 831,689 ------------ ------------ DEFERRED INCOME TAXES 113,609 88,179 ------------ ------------ OTHER LIABILITIES 27,860 23,364 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value- Authorized, 1,000,000 shares; Issued, none at November 30, 1999, and February 28, 1999 - - Class A Common Stock, $.01 par value- Authorized, 120,000,000 shares; Issued, 18,135,272 shares at November 30, 1999, and 17,915,359 shares at February 28, 1999 181 179 Class B Convertible Common Stock, $.01 par value- Authorized, 20,000,000 shares; Issued, 3,762,970 shares at November 30, 1999, and 3,849,173 shares at February 28, 1999 38 39 Additional paid-in capital 243,539 239,912 Retained earnings 342,928 281,081 Accumulated other comprehensive income- Cumulative translation adjustment (7,677) (4,173) ------------ ------------ 579,009 517,038 ------------ ------------ Less-Treasury stock- Class A Common Stock, 3,156,004 shares at November 30, 1999, and 3,168,306 shares at February 28, 1999, at cost (79,507) (79,559) Class B Convertible Common Stock, 625,725 shares at November 30, 1999, and February 28, 1999, at cost (2,207) (2,207) ------------ ------------ (81,714) (81,766) ------------ ------------ Total stockholders' equity 497,295 435,272 ------------ ------------ Total liabilities and stockholders' equity $ 2,532,995 $ 1,793,776 ============ ============ The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
- 2 - CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
For the Nine Months Ended November 30, For the Three Months Ended November 30, -------------------------------------- --------------------------------------- 1999 1998 1999 1998 --------------- --------------- --------------- --------------- (unaudited) (unaudited) (unaudited) (unaudited) GROSS SALES $ 2,383,909 $ 1,374,183 $ 864,075 $ 494,033 Less - Excise taxes (570,640) (336,283) (202,555) (118,447) --------------- --------------- --------------- --------------- Net sales 1,813,269 1,037,900 661,520 375,586 COST OF PRODUCT SOLD (1,258,332) (726,908) (451,833) (259,891) --------------- --------------- --------------- --------------- Gross profit 554,937 310,992 209,687 115,695 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (368,130) (202,561) (132,309) (73,775) NONRECURRING CHARGES (5,510) - - - --------------- --------------- --------------- --------------- Operating income 181,297 108,431 77,378 41,920 INTEREST EXPENSE, net (78,219) (23,700) (27,544) (7,748) --------------- --------------- --------------- --------------- Income before income taxes 103,078 84,731 49,834 34,172 PROVISION FOR INCOME TAXES (41,231) (34,740) (19,934) (14,011) --------------- --------------- --------------- --------------- NET INCOME $ 61,847 $ 49,991 $ 29,900 $ 20,161 =============== =============== =============== =============== SHARE DATA: Earnings per common share: Basic $ 3.43 $ 2.72 $ 1.65 $ 1.13 =============== =============== =============== =============== Diluted $ 3.34 $ 2.65 $ 1.60 $ 1.10 =============== =============== =============== =============== Weighted average common shares outstanding: Basic 18,023 18,412 18,083 17,892 Diluted 18,502 18,881 18,651 18,325 The accompanying notes to consolidated financial statements are an integral part of these statements.
- 3 - CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the Nine Months Ended November 30, -------------------------------------- 1999 1998 -------------- -------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 61,847 $ 49,991 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 33,938 18,166 Amortization of intangible assets 16,904 7,523 Stock-based compensation expense 776 76 Amortization of discount on long-term debt 316 287 Deferred tax benefit (3,860) (2,800) Gain on sale of assets (778) (16) Change in operating assets and liabilities, net of effects from purchases of businesses: Accounts receivable, net (123,109) (31,143) Inventories, net (55,602) (48,636) Prepaid expenses and other current assets (5,432) (15,690) Accounts payable 44,292 19,324 Accrued excise taxes (3,191) 7,134 Other accrued expenses and liabilities 88,960 59,032 Other assets and liabilities, net 1,201 (3,917) -------------- -------------- Total adjustments (5,585) 9,340 -------------- -------------- Net cash provided by operating activities 56,262 59,331 -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of businesses, net of cash acquired (452,526) - Purchases of property, plant and equipment (46,657) (21,660) Proceeds from sale of assets 1,276 45 Purchase of joint venture minority interest - (716) -------------- -------------- Net cash used in investing activities (497,907) (22,331) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 1,486,240 - Net proceeds from notes payable 25,995 22,600 Exercise of employee stock options 2,386 3,021 Proceeds from employee stock purchases 601 1,285 Principal payments of long-term debt (1,059,406) (18,119) Payment of issuance costs of long-term debt (14,494) - Purchases of treasury stock - (44,878) -------------- -------------- Net cash provided by (used in) financing activities 441,322 (36,091) -------------- -------------- Effect of exchange rate changes on cash and cash investments (2,655) - -------------- -------------- NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (2,978) 909 CASH AND CASH INVESTMENTS, beginning of period 27,645 1,232 -------------- -------------- CASH AND CASH INVESTMENTS, end of period $ 24,667 $ 2,141 ============== ============== SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Fair value of assets acquired, including cash acquired $ 559,541 $ - Liabilities assumed (104,526) - -------------- -------------- Cash paid 455,015 - Less - cash acquired (2,489) - -------------- -------------- Net cash paid for purchases of businesses $ 452,526 $ - ============== ============== The accompanying notes to consolidated financial statements are an integral part of these statements.
- 4 - CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1999 1) MANAGEMENT'S REPRESENTATIONS: The condensed consolidated financial statements included herein have been prepared by Canandaigua Brands, Inc. and its subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of the Company, all adjustments necessary to present fairly the financial information for the Company. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999. 2) ACQUISITIONS: On April 9, 1999, in an asset acquisition, the Company acquired several well-known Canadian whisky brands, including Black Velvet, production facilities located in Alberta and Quebec, Canada, case goods and bulk whisky inventories and other related assets from affiliates of Diageo plc (the "Black Velvet Acquisition"). In connection with the transaction, the Company also entered into multi-year agreements with Diageo to provide packaging and distilling services for various brands retained by Diageo. The purchase price was approximately $185.5 million and was financed by the proceeds from the sale of the "Senior Subordinated Notes" (as defined in Note 6). The Black Velvet Acquisition was accounted for using the purchase method; accordingly, the acquired assets were recorded at fair market value at the date of acquisition. The excess of the purchase price over the estimated fair market value of the net assets acquired (goodwill), $30.7 million, is being amortized on a straight-line basis over 40 years. The results of operations of the Black Velvet Acquisition have been included in the Consolidated Statements of Income since the date of acquisition. On June 4, 1999, the Company purchased all of the outstanding capital stock of Franciscan Vineyards, Inc. and in related transactions purchased vineyards, a winery, equipment and other vineyard related assets located in Northern California (collectively, the "Franciscan Acquisition"). The purchase price was approximately $212.0 million in cash plus assumed debt, net of cash acquired, of approximately $30.8 million. The purchase price was financed by additional term loan borrowings under the bank credit agreement. Also, on June 4, 1999, the Company acquired all of the outstanding capital stock of Simi Winery, Inc. (the "Simi Acquisition"). The cash purchase price was approximately $57.5 million and was financed by revolving loan borrowings under the bank credit agreement. The purchases were accounted for using the purchase method; accordingly, the acquired assets were recorded at fair market value at the date of acquisition. The excess of the purchase price over the estimated fair market value of the net assets acquired (goodwill) for the Franciscan Acquisition and the Simi Acquisition, $72.3 million and $7.0 million, respectively, is being amortized on a straight-line basis over 40 years. The Franciscan and Simi operations are managed together as a separate business segment of the Company ("Franciscan"). The results of operations of Franciscan have been included in the Consolidated Statements of Income since the date of acquisition. The unaudited pro forma results of operations for the nine months ended November 30, 1999 (shown in the table below), reflect total nonrecurring charges of $12.4 million ($0.40 per share on a diluted basis) related to transaction costs, primarily for exercise of stock options, which were incurred by Franciscan Vineyards, Inc. prior to the acquisition. - 5 - The following table sets forth the unaudited pro forma results of operations of the Company for the nine months ended November 30, 1999 and 1998, which gives effect to the acquisition of Matthew Clark plc ("Matthew Clark"), the Black Velvet Acquisition and Franciscan as if they occurred on March 1, 1998. The unaudited pro forma results of operations are presented after giving effect to certain adjustments for depreciation, amortization of goodwill, interest expense on the acquisition financing and related income tax effects. The unaudited pro forma results of operations are based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma results of operations do not purport to present what the Company's results of operations would actually have been if the aforementioned transactions had in fact occurred on such date or at the beginning of the period indicated, nor do they project the Company's financial position or results of operations at any future date or for any future period. For the Nine Months Ended November 30, --------------------------- 1999 1998 ------------ ------------ (in thousands, except per share data) Net sales $ 1,840,633 $ 1,659,975 Income before income taxes $ 87,547 $ 65,130 Net income $ 52,528 $ 38,426 Earnings per common share: Basic $ 2.91 $ 2.09 ============ ============ Diluted $ 2.84 $ 2.04 ============ ============ Weighted average common shares outstanding: Basic 18,023 18,412 Diluted 18,502 18,881 3) INVENTORIES: Inventories are stated at the lower of cost (computed in accordance with the first-in, first-out method) or market. Elements of cost include materials, labor and overhead and consist of the following: November 30, February 28, 1999 1999 ------------- ------------- (in thousands) Raw materials and supplies $ 40,342 $ 32,388 Wine and distilled spirits in process 455,144 344,175 Finished case goods 181,877 132,008 ------------- ------------- $ 677,363 $ 508,571 ============= ============= - 6 - 4) OTHER ASSETS: The major components of other assets are as follows: November 30, February 28, 1999 1999 ------------- ------------- (in thousands) Goodwill $ 421,468 $ 311,908 Trademarks 270,924 102,183 Distribution rights and agency license agreements 87,052 76,894 Other 72,576 53,779 ------------- ------------- 852,020 544,764 Less - Accumulated amortization (51,664) (35,530) ------------- ------------- $ 800,356 $ 509,234 ============= ============= 5) OTHER ACCRUED EXPENSES AND LIABILITIES: The major components of other accrued expenses and liabilities are as follows: November 30, February 28, 1999 1999 ------------- ------------- (in thousands) Accrued advertising and promotions $ 61,032 $ 38,604 Accrued income taxes payable 31,647 9,347 Accrued interest 29,025 11,384 Accrued salaries and commissions 16,323 15,584 Other 118,702 74,532 ------------- ------------- $ 256,729 $ 149,451 ============= ============= 6) BORROWINGS: Senior Subordinated Notes - On March 4, 1999, the Company issued $200.0 million aggregate principal amount of 8 1/2% Senior Subordinated Notes due March 2009 ("Senior Subordinated Notes"). The net proceeds of the offering (approximately $195.0 million) were used to fund the Black Velvet Acquisition and to pay the fees and expenses related thereto with the remainder of the net proceeds used for general corporate purposes. Interest on the Senior Subordinated Notes is payable semiannually on March 1 and September 1 of each year, beginning September 1, 1999. The Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 2004. The Company may also redeem up to $70.0 million of the Senior Subordinated Notes using the proceeds of certain equity offerings completed before March 1, 2002. The Senior Subordinated Notes are unsecured and subordinated to the prior payment in full of all senior indebtedness of the Company, which includes the bank credit agreement. The Senior Subordinated Notes are guaranteed, on a senior subordinated basis, by certain of the Company's significant operating subsidiaries. - 7 - Senior Notes - On August 4, 1999, the Company issued $200.0 million aggregate principal amount of 8 5/8% Senior Notes due August 2006 ("Senior Notes"). The net proceeds of the offering (approximately $196.0 million) were used to repay a portion of the Company's borrowings under its bank credit agreement. Interest on the Senior Notes is payable semiannually on February 1 and August 1 of each year, beginning February 1, 2000. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time. The Senior Notes are unsecured senior obligations and rank equally in right of payment to all existing and future unsecured senior indebtedness of the Company. The Senior Notes are guaranteed, on a senior basis, by certain of the Company's significant operating subsidiaries. On November 17, 1999, the Company issued (pound)75.0 million (approximately $121.7 million) aggregate principal amount of 8 1/2% Senior Notes due November 2009 ("Sterling Senior Notes"). The net proceeds of the offering ((pound)73.0 million, or approximately $118.3 million) were used to repay a portion of the Company's borrowings under its bank credit agreement (see "2000 Credit Agreement"). Interest on the Sterling Senior Notes is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2000. The Sterling Senior Notes are redeemable at the option of the Company, in whole or in part, at any time. The Sterling Senior Notes are unsecured senior obligations and rank equally in right of payment to all existing and future unsecured senior indebtedness of the Company. The Sterling Senior Notes are guaranteed, on a senior basis, by certain of the Company's significant operating subsidiaries. 2000 Credit Agreement - On October 6, 1999, the Company, certain of its principal operating subsidiaries and a syndicate of banks (the "Syndicate Banks"), for which The Chase Manhattan Bank acts as administrative agent, entered into a new senior credit agreement (the "2000 Credit Agreement"). The 2000 Credit Agreement includes both U.S. dollar and British pound sterling commitments of the Syndicate Banks of up to, in the aggregate, the equivalent of $1.0 billion (subject to increase as therein provided to $1.2 billion). Proceeds of the 2000 Credit Agreement were used to repay all outstanding principal and accrued interest on all loans under the Company's prior bank credit agreement, and are available to fund permitted acquisitions and ongoing working capital needs of the Company and its subsidiaries. The 2000 Credit Agreement provides for a $380.0 million Tranche I Term Loan facility due in December 2004, a $320.0 million Tranche II Term Loan facility available for borrowing in British pound sterling due in December 2004, and a $300.0 million Revolving Credit facility (including letters of credit up to a maximum of $20.0 million) which expires in December 2004. The Tranche I Term Loan facility ($380.0 million) and the Tranche II Term Loan facility ((pound)193.4 million, or approximately $320.0 million) were fully drawn at closing. The Tranche I Term Loan facility requires quarterly repayments, starting at $12.0 million in March 2000 and increasing thereafter annually with final payments of $23.0 million in each quarter in 2004. On November 17, 1999, proceeds from the Sterling Senior Notes were used to repay a portion of the $320.0 million Tranche II Term Loan facility ((pound)73.0 million, or approximately $118.3 million). After this repayment, the required quarterly repayments of the Tranche II Term Loan facility were revised to (pound)0.6 million ($1.0 million) for each quarter in 2000, (pound)1.2 million ($1.9 million) for each quarter in 2001 and 2002, (pound)1.5 million ($2.4 million) for each quarter in 2003 and (pound)25.6 million ($40.9 million) for each quarter in 2004 (the foregoing U.S. dollar equivalents are as of November 30, 1999). There are certain mandatory term loan prepayments, including those based on sale of assets and issuance of debt and equity, in each case subject to baskets, exceptions and thresholds which are generally more favorable to the Company than those contained in its prior bank credit agreement. - 8 - The rate of interest payable, at the Company's option, is a function of the London interbank offering rate (LIBOR) plus a margin, federal funds rate plus a margin, or the prime rate plus a margin. The margin is adjustable based upon the Company's Debt Ratio (as defined in the 2000 Credit Agreement) and, with respect to LIBOR borrowings, ranges between 0.75% and 1.25% for Revolving Credit loans and 1.00% and 1.75% for Term Loans. The initial margin for all loans was set at the highest level at closing and is subject to reduction after November 30, 1999, depending on the Company's Debt Ratio. In addition to interest, the Company pays a facility fee on the Revolving Credit commitments, initially at 0.50% per annum and subject to reduction after November 30, 1999, to 0.25%, depending on the Company's Debt Ratio. Certain of the Company's principal operating subsidiaries have guaranteed the Company's obligations under the 2000 Credit Agreement. The 2000 Credit Agreement is secured by (i) first priority pledges of 100% of the capital stock of Canandaigua Limited and all of the Company's domestic operating subsidiaries and (ii) first priority pledges of 65% of the capital stock of Matthew Clark and certain other foreign subsidiaries. The Company and its subsidiaries are subject to customary secured lending covenants including those restricting additional liens, incurring additional indebtedness, the sale of assets, the payment of dividends, transactions with affiliates and the making of certain investments, in each case subject to baskets, exceptions and thresholds which are generally more favorable to the Company than those contained in its prior bank credit agreement. The primary financial covenants require the maintenance of a debt coverage ratio, a senior debt coverage ratio, a fixed charges ratio and an interest coverage ratio. Among the most restrictive covenants contained in the 2000 Credit Agreement is the requirement to maintain a fixed charges ratio of not less than 1.0 at the last day of each fiscal quarter for the most recent four quarters. 7) EARNINGS PER COMMON SHARE: Basic earnings per common share exclude the effect of common stock equivalents and are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings per common share reflect the potential dilution that could result if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per common share assume the exercise of stock options using the treasury stock method and assume the conversion of convertible securities, if any, using the "if converted" method. The computation of basic and diluted earnings per common share is as follows: For the Nine For the Three Months Months Ended November 30, Ended November 30, ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (in thousands, except per share data) Income applicable to common shares $ 61,847 $ 49,991 $ 29,900 $ 20,161 ======== ======== ======== ======== Weighted average common shares outstanding - basic 18,023 18,412 18,083 17,892 Stock options 479 469 568 433 -------- -------- -------- -------- Weighted average common shares outstanding - diluted 18,502 18,881 18,651 18,325 ======== ======== ======== ======== EARNINGS PER COMMON SHARE - BASIC $ 3.43 $ 2.72 $ 1.65 $ 1.13 ======== ======== ======== ======== EARNINGS PER COMMON SHARE - DILUTED $ 3.34 $ 2.65 $ 1.60 $ 1.10 ======== ======== ======== ======== - 9 - 8) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS: The following table presents summarized financial information for the Company, the parent company, the combined subsidiaries of the Company which guarantee the Company's senior subordinated notes and senior notes ("Subsidiary Guarantors") and the combined subsidiaries of the Company which are not Subsidiary Guarantors, primarily Matthew Clark ("Subsidiary Nonguarantors"). The Subsidiary Guarantors are wholly owned and the guarantees are full, unconditional, joint and several obligations of each of the Subsidiary Guarantors. Separate financial statements for the Subsidiary Guarantors of the Company are not presented because the Company has determined that such financial statements would not be material to investors. The Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company, other than Matthew Clark, the Company's Canadian subsidiary, and certain other subsidiaries which individually, and in the aggregate, are inconsequential. There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to the Company in the form of cash dividends, loans or advances.
Parent Subsidiary Subsidiary Company Guarantors Nonguarantors Eliminations Consolidated ----------- ------------ ------------- ------------ ------------ (in thousands) Balance Sheet Data: November 30, 1999 - ----------------- Current assets $ 134,516 $ 677,250 $ 359,476 $ - $ 1,171,242 Noncurrent assets $ 925,739 $ 1,237,679 $ 479,165 $ (1,280,830) $ 1,361,753 Current liabilities $ 271,984 $ 107,038 $ 261,346 $ - $ 640,368 Noncurrent liabilities $ 1,246,277 $ 95,757 $ 53,298 $ - $ 1,395,332 February 28, 1999 - ----------------- Current assets $ 114,243 $ 532,028 $ 209,468 $ - $ 855,739 Noncurrent assets $ 646,133 $ 396,125 $ 421,867 $ (526,088) $ 938,037 Current liabilities $ 157,648 $ 126,803 $ 130,821 $ - $ 415,272 Noncurrent liabilities $ 815,421 $ 73,178 $ 54,633 $ - $ 943,232 Income Statement Data: For the Nine Months - ------------------- Ended November 30, 1999 - ----------------------- Net sales $ 476,108 $ 1,035,493 $ 574,351 $ (272,683) $ 1,813,269 Gross profit $ 130,394 $ 261,156 $ 163,387 $ - $ 554,937 (Loss) income before income taxes $ (289) $ 66,034 $ 37,333 $ - $ 103,078 Net (loss) income $ (173) $ 39,620 $ 22,400 $ - $ 61,847 - 10 - Parent Subsidiary Subsidiary Company Guarantors Nonguarantors Eliminations Consolidated ----------- ------------ ------------- ------------ ------------ (in thousands) For the Nine Months - ------------------- Ended November 30, 1998 - ----------------------- Net sales $ 442,036 $ 847,103 $ 1,093 $ (252,332) $ 1,037,900 Gross profit $ 123,625 $ 186,973 $ 394 $ - $ 310,992 Income (loss) before income taxes $ 7,056 $ 77,964 $ (289) $ - $ 84,731 Net income (loss) $ 4,163 $ 45,998 $ (170) $ - $ 49,991 For the Three Months - -------------------- Ended November 30, 1999 - ----------------------- Net sales $ 200,055 $ 340,635 $ 217,883 $ (97,053) $ 661,520 Gross profit $ 41,066 $ 107,777 $ 60,844 $ - $ 209,687 (Loss) income before income taxes $ (6,881) $ 39,410 $ 17,305 $ - $ 49,834 Net (loss) income $ (4,128) $ 23,646 $ 10,382 $ - $ 29,900 For the Three Months - -------------------- Ended November 30, 1998 - ----------------------- Net sales $ 193,446 $ 294,751 $ - $ (112,611) $ 375,586 Gross profit $ 52,357 $ 63,338 $ - $ - $ 115,695 Income before income taxes $ 7,567 $ 26,605 $ - $ - $ 34,172 Net income $ 4,465 $ 15,696 $ - $ - $ 20,161
9) BUSINESS SEGMENT INFORMATION: The Company reports its operating results in five segments: Canandaigua Wine (branded popularly-priced wine and brandy, and other, primarily grape juice concentrate); Barton (primarily beer and spirits); Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider, spirits, beer and soft drinks); Franciscan (primarily branded super-premium and ultra-premium wine) and Corporate Operations and Other (primarily corporate related items). Segment selection was based upon internal organizational structure, the way in which these operations are managed and their performance evaluated by management and the Company's Board of Directors, the availability of separate financial results, and materiality considerations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating profits of the respective business units. - 11 - Segment information is as follows:
For the Nine Months For the Three Months Ended November 30, Ended November 30, --------------------------- --------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (in thousands) Canandaigua Wine: - ----------------- Net sales: Branded: External customers $ 472,087 $ 449,036 $ 179,905 $ 181,693 Intersegment 5,274 - 2,285 - ----------- ----------- ----------- ----------- Total Branded 477,361 449,036 182,190 181,693 ----------- ----------- ----------- ----------- Other: External customers 63,081 54,081 24,502 14,731 Intersegment 460 - 423 - ----------- ----------- ----------- ----------- Total Other 63,541 54,081 24,925 14,731 ----------- ----------- ----------- ----------- Net sales $ 540,902 $ 503,117 $ 207,115 $ 196,424 Operating profit $ 34,869 $ 36,094 $ 18,850 $ 18,433 Long-lived assets $ 194,199 $ 188,558 $ 194,199 $ 188,558 Total assets $ 698,209 $ 690,358 $ 698,209 $ 690,358 Capital expenditures $ 17,909 $ 17,472 $ 5,201 $ 6,054 Depreciation and amortization $ 16,681 $ 16,208 $ 5,032 $ 5,492 Barton: - ------- Net sales: Beer $ 457,961 $ 388,739 $ 134,155 $ 128,810 Spirits 207,697 143,426 80,548 48,827 ----------- ----------- ----------- ----------- Net sales $ 665,658 $ 532,165 $ 214,703 $ 177,637 Operating profit $ 114,839 $ 82,287 $ 41,380 $ 27,667 Long-lived assets $ 77,022 $ 50,620 $ 77,022 $ 50,620 Total assets $ 699,954 $ 474,322 $ 699,954 $ 474,322 Capital expenditures $ 4,532 $ 2,502 $ 1,864 $ 814 Depreciation and amortization $ 10,573 $ 8,161 $ 4,175 $ 2,769 - 12 - For the Nine Months For the Three Months Ended November 30, Ended November 30, --------------------------- --------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (in thousands) Matthew Clark: - -------------- Net sales: Branded: External customers $ 256,909 $ - $ 101,655 $ - Intersegment 53 - 53 - ----------- ----------- ----------- ----------- Total Branded 256,962 - 101,708 - Wholesale 306,802 - 112,049 - ----------- ----------- ----------- ----------- Net sales $ 563,764 $ - $ 213,757 $ - Operating profit $ 34,503 $ - $ 15,193 $ - Long-lived assets $ 171,537 $ - $ 171,537 $ - Total assets $ 728,167 $ - $ 728,167 $ - Capital expenditures $ 16,459 $ - $ 5,344 $ - Depreciation and amortization $ 17,133 $ - $ 4,317 $ - Franciscan: - ----------- Net sales $ 44,610 $ - $ 27,473 $ - Operating profit $ 7,562 $ - $ 5,991 $ - Long-lived assets $ 101,143 $ - $ 101,143 $ - Total assets $ 361,378 $ - $ 361,378 $ - Capital expenditures $ 6,448 $ - $ 2,728 $ - Depreciation and amortization $ 3,990 $ - $ 2,181 $ - Corporate Operations and Other: - ------------------------------- Net sales $ 4,122 $ 2,618 $ 1,233 $ 1,525 Operating loss $ (10,476) $ (9,950) $ (4,036) $ (4,180) Long-lived assets $ 17,496 $ 8,321 $ 17,496 $ 8,321 Total assets $ 45,287 $ 21,566 $ 45,287 $ 21,566 Capital expenditures $ 1,309 $ 1,686 $ 761 $ 694 Depreciation and amortization $ 2,465 $ 1,320 $ 994 $ 461 Intersegment eliminations: - -------------------------- Net sales $ (5,787) $ - $ (2,761) $ - Consolidated: - ------------- Net sales $ 1,813,269 $ 1,037,900 $ 661,520 $ 375,586 Operating profit $ 181,297 $ 108,431 $ 77,378 $ 41,920 Long-lived assets $ 561,397 $ 247,499 $ 561,397 $ 247,499 Total assets $ 2,532,995 $ 1,186,246 $ 2,532,995 $ 1,186,246 Capital expenditures $ 46,657 $ 21,660 $ 15,898 $ 7,562 Depreciation and amortization $ 50,842 $ 25,689 $ 16,699 $ 8,722
- 13 - 10) COMPREHENSIVE INCOME: Comprehensive income consists of net income and foreign currency translation adjustments for the nine month and three month periods ended November 30, 1999. For the nine month and three month periods ended November 30, 1998, comprehensive income consisted of net income, exclusively. The reconciliation of net income to comprehensive net income is as follows: For the Nine Months For the Three Months Ended November 30, Ended November 30, --------------------- ---------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (in thousands) Net income $ 61,847 $ 49,991 $ 29,900 $ 20,161 Other comprehensive income: Cumulative translation adjustment (3,504) - (2,770) - --------- --------- --------- --------- Total comprehensive income $ 58,343 $ 49,991 $ 27,130 $ 20,161 ========= ========= ========= ========= 11) ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS No. 133 requires that every derivative be recorded as either an asset or liability in the balance sheet and measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 for one year. With the issuance of SFAS No. 137, the Company is required to adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years beginning March 1, 2001. The Company believes the effect of the adoption on its financial statements will not be material based on the Company's current risk management strategies. - 14 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS ------------- INTRODUCTION - ------------ The following discussion and analysis summarizes the significant factors affecting (i) consolidated results of operations of the Company for the three months ended November 30, 1999 ("Third Quarter 2000"), compared to the three months ended November 30, 1998 ("Third Quarter 1999"), and for the nine months ended November 30, 1999 ("Nine Months 2000"), compared to the nine months ended November 30, 1998 ("Nine Months 1999"), and (ii) financial liquidity and capital resources for Nine Months 2000. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto included herein and in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999. The Company operates primarily in the beverage alcohol industry in North America and the United Kingdom. The Company reports its operating results in five segments: Canandaigua Wine (branded popularly-priced wine and brandy, and other, primarily grape juice concentrate); Barton (primarily beer and spirits); Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider, spirits, beer and soft drinks); Franciscan (primarily branded super-premium and ultra-premium wine); and Corporate Operations and Other (primarily corporate related items). RECENT ACQUISITIONS On December 1, 1998, the Company acquired control of Matthew Clark plc ("Matthew Clark") and has since acquired all of Matthew Clark's outstanding shares (the "Matthew Clark Acquisition"). Prior to the Matthew Clark Acquisition, the Company was principally a producer and supplier of wine and an importer and producer of beer and distilled spirits in the United States. The Matthew Clark Acquisition established the Company as a leading British producer of cider, wine and bottled water and as a leading beverage alcohol wholesaler in the United Kingdom. The results of operations of Matthew Clark have been included in the consolidated results of operations of the Company since the date of acquisition, December 1, 1998. On April 9, 1999, in an asset acquisition, the Company acquired several well-known Canadian whisky brands, including Black Velvet, production facilities located in Alberta and Quebec, Canada, case goods and bulk whisky inventories and other related assets from affiliates of Diageo plc (collectively, the "Black Velvet Acquisition"). In connection with the transaction, the Company also entered into multi-year agreements with Diageo to provide packaging and distilling services for various brands retained by Diageo. The results of operations from the Black Velvet Acquisition are reported in the Barton segment and have been included in the consolidated results of operations of the Company since the date of acquisition. On June 4, 1999, the Company purchased all of the outstanding capital stock of Franciscan Vineyards, Inc. and in related transactions purchased vineyards, a winery, equipment and other vineyard related assets located in Northern California (collectively, the "Franciscan Acquisition"). Also on June 4, 1999, the Company purchased all of the outstanding capital stock of Simi Winery, Inc. ("Simi"). (The acquisition of the capital stock of Simi is hereafter referred to as the "Simi Acquisition".) The Simi Acquisition includes the Simi winery, equipment, vineyards and inventory. The results of operations from the Franciscan and Simi Acquisitions (collectively, "Franciscan") are reported together in the Franciscan segment and have been included in the consolidated results of operations of the Company since the date of acquisition. - 15 - The Matthew Clark, Black Velvet and Franciscan Acquisitions are significant and the Company expects them to have a material impact on the Company's future results of operations. RESULTS OF OPERATIONS - --------------------- THIRD QUARTER 2000 COMPARED TO THIRD QUARTER 1999 NET SALES The following table sets forth the net sales (in thousands of dollars) by operating segment of the Company for Third Quarter 2000 and Third Quarter 1999. Third Quarter 2000 Compared to Third Quarter 1999 ------------------------------------------------- Net Sales ------------------------------------------------- %Increase/ 2000 1999 (Decrease) ---------- ---------- ---------- Canandaigua Wine: Branded: External customers $ 179,905 $ 181,693 (1.0)% Intersegment 2,285 - N/A ---------- ---------- Total Branded 182,190 181,693 0.3 % ---------- ---------- Other: External customers 24,502 14,731 66.3 % Intersegment 423 - N/A ---------- ---------- Total Other 24,925 14,731 69.2 % ---------- ---------- Canandaigua Wine net sales $ 207,115 $ 196,424 5.4 % ---------- ---------- Barton: Beer $ 134,155 $ 128,810 4.1 % Spirits 80,548 48,827 65.0 % ---------- ---------- Barton net sales $ 214,703 $ 177,637 20.9 % ---------- ---------- Matthew Clark: Branded: External customers $ 101,655 $ - N/A Intersegment 53 - N/A --------- ---------- Total Branded 101,708 - N/A Wholesale 112,049 - N/A --------- ---------- Matthew Clark net sales $ 213,757 $ - N/A --------- ---------- Franciscan $ 27,473 $ - N/A ---------- ---------- Corporate Operations and Other $ 1,233 $ 1,525 (19.1)% ---------- ---------- Intersegment eliminations $ (2,761) $ - N/A ---------- ---------- Consolidated Net Sales $ 661,520 $ 375,586 76.1 % ========== ========== Net sales for Third Quarter 2000 increased to $661.5 million from $375.6 million for Third Quarter 1999, an increase of $285.9 million, or 76.1%. - 16 - Canandaigua Wine ---------------- Net sales for Canandaigua Wine for Third Quarter 2000 increased to $207.1 million from $196.4 million for Third Quarter 1999, an increase of $10.7 million, or 5.4%. This increase resulted primarily from (i) an increase in the Company's bulk wine sales and (ii) an increase in sparkling wine as a result of millennium sales. These increases were partially offset by declines in certain other brands. Barton ------ Net sales for Barton for Third Quarter 2000 increased to $214.7 million from $177.6 million for Third Quarter 1999, an increase of $37.1 million, or 20.9%. This increase resulted primarily from $29.9 million of sales of products and services acquired in the Black Velvet Acquisition, which was completed in April 1999, as well as from an increase in sales of imported beer brands led by Barton's Mexican portfolio. The Company believes that growth in the unit volume of its Mexican portfolio was adversely impacted during the quarter by wholesalers' and retailers' inventory build-up in prior quarters in advance of recent price increases. While the longer-term impact of the price increases is difficult to determine at this time, recent wholesaler depletion and retail sales data reflect more robust growth than initially occurred following the price increases. Matthew Clark ------------- Net sales for Matthew Clark for Third Quarter 2000 were $213.8 million. Franciscan ---------- Net sales for Franciscan for Third Quarter 2000 were $27.5 million. GROSS PROFIT The Company's gross profit increased to $209.7 million for Third Quarter 2000 from $115.7 million for Third Quarter 1999, an increase of $94.0 million, or 81.2%. The dollar increase in gross profit was primarily related to sales from the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all completed after Third Quarter 1999. As a percent of net sales, gross profit increased to 31.7% for Third Quarter 2000 from 30.8% in Third Quarter 1999, resulting primarily from sales of higher-margin spirits and super-premium and ultra-premium wine acquired in the Black Velvet and Franciscan and Simi Acquisitions, respectively, and from price increases taken in the Company's imported beer business. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $132.3 million for Third Quarter 2000 from $73.8 million for Third Quarter 1999, an increase of $58.5 million, or 79.3%. The dollar increase in selling, general and administrative expenses resulted primarily from the addition of the Matthew Clark and Franciscan businesses and expenses related to the brands acquired in the Black Velvet Acquisition. Selling, general and administrative expenses as a percent of net sales increased to 20.0% for Third Quarter 2000 as compared to 19.6% for Third Quarter 1999. The increase in percent of net sales resulted primarily from the Matthew Clark, Franciscan and Simi Acquisitions, as Matthew Clark's and Franciscan's selling, general and administrative expenses as a percent of net sales are typically at the high end of the range of the Company's operating segments' percentages. - 17 - OPERATING INCOME The following table sets forth the operating profit/(loss) (in thousands of dollars) by operating segment of the Company for Third Quarter 2000 and Third Quarter 1999. Third Quarter 2000 Compared to Third Quarter 1999 ------------------------------------------------- Operating Profit/(Loss) ------------------------------------------------- %Increase/ 2000 1999 (Decrease) -------- -------- ---------- Canandaigua Wine $ 18,850 $ 18,433 2.3 % Barton 41,380 27,667 49.6 % Matthew Clark 15,193 - N/A Franciscan 5,991 - N/A Corporate Operations and Other (4,036) (4,180) (3.4)% -------- -------- Consolidated Operating Profit $ 77,378 $ 41,920 84.6 % ======== ======== As a result of the above factors, consolidated operating income increased to $77.4 million for Third Quarter 2000 from $41.9 million for Third Quarter 1999, an increase of $35.5 million, or 84.6%. INTEREST EXPENSE, NET Net interest expense increased to $27.5 million for Third Quarter 2000 from $7.7 million for Third Quarter 1999, an increase of $19.8 million or 255.5%. The increase resulted primarily from additional interest expense associated with the borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions. NET INCOME As a result of the above factors, net income increased to $29.9 million for Third Quarter 2000 from $20.2 million for Third Quarter 1999, an increase of $9.7 million, or 48.3%. For financial analysis purposes only, the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") for Third Quarter 2000 were $94.1 million, an increase of $43.4 million over EBITDA of $50.6 million for Third Quarter 1999. EBITDA should not be construed as an alternative to operating income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity. - 18 - NINE MONTHS 2000 COMPARED TO NINE MONTHS 1999 NET SALES The following table sets forth the net sales (in thousands of dollars) by operating segment of the Company for Nine Months 2000 and Nine Months 1999. Nine Months 2000 Compared to Nine Months 1999 --------------------------------------------- Net Sales --------------------------------------------- %Increase/ 2000 1999 (Decrease) ----------- ----------- ---------- Canandaigua Wine: Branded: External customers $ 472,087 $ 449,036 5.1% Intersegment 5,274 - N/A ----------- ----------- Total Branded 477,361 449,036 6.3% ----------- ----------- Other: External customers 63,081 54,081 16.6% Intersegment 460 - N/A ----------- ----------- Total Other 63,541 54,081 17.5% ----------- ----------- Canandaigua Wine net sales $ 540,902 $ 503,117 7.5% ----------- ----------- Barton: Beer $ 457,961 $ 388,739 17.8% Spirits 207,697 143,426 44.8% ----------- ----------- Barton net sales $ 665,658 $ 532,165 25.1% ----------- ----------- Matthew Clark: Branded: External customers $ 256,909 $ - N/A Intersegment 53 - N/A ----------- ----------- Total Branded 256,962 - N/A Wholesale 306,802 - N/A ----------- ----------- Matthew Clark net sales $ 563,764 $ - N/A ----------- ----------- Franciscan $ 44,610 $ - N/A ----------- ----------- Corporate Operations and Other $ 4,122 $ 2,618 57.4% ----------- ----------- Intersegment eliminations $ (5,787) $ - N/A ----------- ----------- Consolidated Net Sales $ 1,813,269 $ 1,037,900 74.7% =========== =========== Net sales for Nine Months 2000 increased to $1,813.3 million from $1,037.9 million for Nine Months 1999, an increase of $775.4 million, or 74.7%. Canandaigua Wine ---------------- Net sales for Canandaigua Wine for Nine Months 2000 increased to $540.9 million from $503.1 million for Nine Months 1999, an increase of $37.8 million, or 7.5%. This increase resulted primarily from (i) an increase in sales of Arbor Mist, which was introduced in the second quarter of fiscal 1999, (ii) an increase in the Company's bulk wine sales, (iii) an increase in Almaden box wine sales, and (iv) growth in the Company's international business. These increases were partially offset by declines in certain other brands and in the Company's grape juice concentrate business. - 19 - Barton ------ Net sales for Barton for Nine Months 2000 increased to $665.7 million from $532.2 million for Nine Months 1999, an increase of $133.5 million, or 25.1%. This increase resulted primarily from an increase in sales of imported beer brands led by Barton's Mexican portfolio as well as from $61.8 million of sales of products and services acquired in the Black Velvet Acquisition, which was completed in April 1999. Matthew Clark ------------- Net sales for Matthew Clark for Nine Months 2000 were $563.8 million. Franciscan ---------- Net sales for Franciscan for Nine Months 2000 since the date of acquisition, June 4, 1999, were $44.6 million. GROSS PROFIT The Company's gross profit increased to $554.9 million for Nine Months 2000 from $311.0 million for Nine Months 1999, an increase of $243.9 million, or 78.4%. The dollar increase in gross profit was primarily related to sales from the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions, all completed after Nine Months 1999, as well as increased Barton beer and Canandaigua Wine branded wine sales. As a percent of net sales, gross profit increased to 30.6% for Nine Months 2000 from 30.0% for Nine Months 1999, resulting primarily from sales of higher-margin spirits and super-premium and ultra-premium wine acquired in the Black Velvet and Franciscan and Simi Acquisitions, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $368.1 million for Nine Months 2000 from $202.6 million for Nine Months 1999, an increase of $165.6 million, or 81.7%. The dollar increase in selling, general and administrative expenses resulted primarily from the addition of the Matthew Clark and Franciscan businesses and expenses related to the brands acquired in the Black Velvet Acquisition. The Company also increased its marketing and promotional costs to generate additional sales volume, particularly of certain Canandaigua Wine brands and Barton beer brands. Selling, general and administrative expenses as a percent of net sales increased to 20.3% for Nine Months 2000 as compared to 19.5% for Nine Months 1999. The increase in percent of net sales resulted primarily from (i) Canandaigua Wine's investment in brand building and efforts to increase market share and (ii) the Matthew Clark, Franciscan and Simi Acquisitions, as Matthew Clark's and Franciscan's selling, general and administrative expenses as a percent of net sales are typically at the high end of the range of the Company's operating segments' percentages. NONRECURRING CHARGES The Company incurred nonrecurring charges of $5.5 million in Nine Months 2000 related to the closure of a production facility within the Matthew Clark operating segment in the United Kingdom and to a management reorganization within the Canandaigua Wine operating segment. No such charges were incurred in Nine Months 1999. - 20 - OPERATING INCOME The following table sets forth the operating profit/(loss) (in thousands of dollars) by operating segment of the Company for Nine Months 2000 and Nine Months 1999. Nine Months 2000 Compared to Nine Months 1999 --------------------------------------------- Operating Profit/(Loss) --------------------------------------------- %Increase/ 2000 1999 (Decrease) --------- --------- ---------- Canandaigua Wine $ 34,869 $ 36,094 (3.4)% Barton 114,839 82,287 39.6 % Matthew Clark 34,503 - N/A Franciscan 7,562 - N/A Corporate Operations and Other (10,476) (9,950) 5.3 % --------- --------- Consolidated Operating Profit $ 181,297 $ 108,431 67.2 % ========= ========= As a result of the above factors, consolidated operating income increased to $181.3 million for Nine Months 2000 from $108.4 million for Nine Months 1999, an increase of $72.9 million, or 67.2%. Operating income for the Canandaigua Wine operating segment was down $1.2 million, or 3.4%, due to the nonrecurring charge of $2.6 million related to the segment's management reorganization, as well as additional marketing expenses associated with new product introductions. Exclusive of the nonrecurring charge, operating income increased by 3.7% to $37.4 million in Nine Months 2000. Operating income for the Matthew Clark operating segment, excluding nonrecurring charges of $2.9 million, was $37.4 million. INTEREST EXPENSE, NET Net interest expense increased to $78.2 million for Nine Months 2000 from $23.7 million for Nine Months 1999, an increase of $54.5 million or 230.0%. The increase resulted primarily from additional interest expense associated with the borrowings related to the Matthew Clark, Black Velvet, Franciscan and Simi Acquisitions. NET INCOME As a result of the above factors, net income increased to $61.8 million for Nine Months 2000 from $50.0 million for Nine Months 1999, an increase of $11.9 million, or 23.7%. For financial analysis purposes only, the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 2000 were $232.1 million, an increase of $98.0 million over EBITDA of $134.1 million for Nine Months 1999. EBITDA should not be construed as an alternative to operating income or net cash flow from operating activities and should not be construed as an indication of operating performance or as a measure of liquidity. FINANCIAL LIQUIDITY AND CAPITAL RESOURCES - ----------------------------------------- GENERAL The Company's principal use of cash in its operating activities is for purchasing and carrying inventories. The Company's primary source of liquidity has historically been cash flow from operations, - 21 - except during the annual fall grape harvests when the Company has relied on short-term borrowings. The annual grape crush normally begins in August and runs through October. The Company generally begins purchasing grapes in August with payments for such grapes beginning to come due in September. The Company's short-term borrowings to support such purchases generally reach their highest levels in November or December. Historically, the Company has used cash flow from operating activities to repay its short-term borrowings. The Company will continue to use its short-term borrowings to support its working capital requirements. The Company believes that cash provided by operating activities and its financing activities, primarily short-term borrowings, will provide adequate resources to satisfy its working capital, liquidity and anticipated capital expenditure requirements for both its short-term and long-term capital needs. NINE MONTHS 2000 CASH FLOWS OPERATING ACTIVITIES Net cash provided by operating activities for Nine Months 2000 was $56.3 million, which resulted from $109.1 million in net income adjusted for noncash items, less $52.9 million representing the net change in the Company's operating assets and liabilities. The net change in operating assets and liabilities resulted primarily from a seasonal increase in accounts receivable and inventories, partially offset by increases in accounts payable, accrued advertising and promotion expenses, accrued income taxes, accrued interest expense and accrued grape purchases. INVESTING ACTIVITIES AND FINANCING ACTIVITIES Net cash used in investing activities for Nine Months 2000 was $497.9 million, which resulted primarily from net cash paid of $452.5 million for the Black Velvet, Franciscan and Simi Acquisitions and $46.7 million of capital expenditures, including $6.2 million for vineyards. Net cash provided by financing activities for Nine Months 2000 was $441.3 million, which resulted primarily from proceeds of $1,486.2 million from issuance of long-term debt, including $400.0 million incurred in connection with the Black Velvet and Franciscan Acquisitions and $900.0 million incurred to repay amounts outstanding under the bank credit agreement. This amount was partially offset by principal payments of $1,059.4 million of long-term debt. DEBT Total debt outstanding as of November 30, 1999, amounted to $1,408.5 million, an increase of $483.1 million from February 28, 1999. The ratio of total debt to total capitalization increased to 73.9% as of November 30, 1999, from 68.0% as of February 28, 1999. THE COMPANY'S CREDIT AGREEMENT During June 1999, the Company financed the purchase price for the Franciscan Acquisition through additional term loan borrowings under the bank credit agreement. The Company financed the purchase price for the Simi Acquisition with revolving loan borrowings under the bank credit agreement. During August 1999, as discussed below, a portion of the Company's borrowings under its bank credit agreement were repaid with the net proceeds of its Senior Notes (as defined below) offering. - 22 - On October 6, 1999, the Company, certain of its principal operating subsidiaries, and a syndicate of banks (the "Syndicate Banks"), for which The Chase Manhattan Bank acts as administrative agent, entered into a new senior credit agreement (the "2000 Credit Agreement"). The 2000 Credit Agreement includes both U.S. dollar and British pound sterling commitments of the Syndicate Banks of up to, in the aggregate, the equivalent of $1.0 billion (subject to increase as therein provided to $1.2 billion). Proceeds of the 2000 Credit Agreement were used to repay all outstanding principal and accrued interest on all loans under the Company's prior bank credit agreement, and are available to fund permitted acquisitions and ongoing working capital needs of the Company and its subsidiaries. The 2000 Credit Agreement provides for a $380.0 million Tranche I Term Loan facility due in December 2004, a $320.0 million Tranche II Term Loan facility available for borrowing in British pound sterling due in December 2004, and a $300.0 million Revolving Credit facility (including letters of credit up to a maximum of $20.0 million) which expires in December 2004. The Tranche I Term Loan facility ($380.0 million) and the Tranche II Term Loan facility ((pound)193.4 million, or approximately $320.0 million) were fully drawn at closing. The Tranche I Term Loan facility requires quarterly repayments, starting at $12.0 million in March 2000 and increasing thereafter annually with final payments of $23.0 million in each quarter in 2004. On November 17, 1999, proceeds from the Sterling Senior Notes (as defined below) were used to repay a portion of the $320.0 million Tranche II Term Loan facility ((pound)73.0 million, or approximately $118.3 million). After this repayment, the required quarterly repayments of the Tranche II Term Loan facility were revised to (pound)0.6 million ($1.0 million) for each quarter in 2000, (pound)1.2 million ($1.9 million) for each quarter in 2001 and 2002, (pound)1.5 million ($2.4 million) for each quarter in 2003 and (pound)25.6 million ($40.9 million) for each quarter in 2004 (the foregoing U.S. dollar equivalents are as of November 30, 1999). There are certain mandatory term loan prepayments, including those based on sale of assets and issuance of debt and equity, in each case subject to baskets, exceptions and thresholds which are generally more favorable to the Company than those contained in its prior bank credit agreement. The rate of interest payable, at the Company's option, is a function of the London interbank offering rate (LIBOR) plus a margin, federal funds rate plus a margin, or the prime rate plus a margin. The margin is adjustable based upon the Company's Debt Ratio (as defined in the 2000 Credit Agreement) and, with respect to LIBOR borrowings, ranges between 0.75% and 1.25% for Revolving Credit loans and 1.00% and 1.75% for Term Loans. The initial margin for all loans was set at the highest level at closing and is subject to reduction after November 30, 1999, depending on the Company's Debt Ratio. In addition to interest, the Company pays a facility fee on the Revolving Credit commitments, initially at 0.50% per annum and subject to reduction after November 30, 1999, to 0.25%, depending on the Company's Debt Ratio. Certain of the Company's principal operating subsidiaries have guaranteed the Company's obligations under the 2000 Credit Agreement. The 2000 Credit Agreement is secured by (i) first priority pledges of 100% of the capital stock of Canandaigua Limited and all of the Company's domestic operating subsidiaries and (ii) first priority pledges of 65% of the capital stock of Matthew Clark and certain other foreign subsidiaries. The Company and its subsidiaries are subject to customary secured lending covenants including those restricting additional liens, incurring additional indebtedness, the sale of assets, the payment of dividends, transactions with affiliates and the making of certain investments, in each case subject to baskets, exceptions and thresholds which are generally more favorable to the Company than those contained in its prior bank credit agreement. The primary financial covenants require the maintenance of a debt coverage ratio, a senior debt coverage ratio, a fixed charges ratio and an interest coverage ratio. Among the most restrictive covenants contained in the 2000 Credit Agreement is the requirement to - 23 - maintain a fixed charges ratio of not less than 1.0 at the last day of each fiscal quarter for the most recent four quarters. As of November 30, 1999, under the 2000 Credit Agreement, the Company had outstanding term loans of $572.3 million bearing interest at 7.9%, $106.4 million of revolving loans bearing interest at 7.6%, undrawn revolving letters of credit of $10.2 million, and $183.4 million in revolving loans available to be drawn. SENIOR NOTES On August 4, 1999, the Company issued $200.0 million aggregate principal amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes"). The net proceeds of the offering (approximately $196.0 million) were used to repay a portion of the Company's borrowings under its bank credit agreement. Interest on the Senior Notes is payable semiannually on February 1 and August 1 of each year, beginning February 1, 2000. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time. The Senior Notes are unsecured senior obligations and rank equally in right of payment to all existing and future unsecured senior indebtedness of the Company. The Senior Notes are guaranteed, on a senior basis, by certain of the Company's significant operating subsidiaries. On November 17, 1999, the Company issued (pound)75.0 million (approximately $121.7 million) aggregate principal amount of 8 1/2% Senior Notes due November 2009 (the "Sterling Senior Notes"). The net proceeds of the offering ((pound)73.0 million, or approximately $118.3 million) were used to repay a portion of the Company's borrowings under the 2000 Credit Agreement. Interest on the Sterling Senior Notes is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2000. The Sterling Senior Notes are redeemable at the option of the Company, in whole or in part, at any time. The Sterling Senior Notes are unsecured senior obligations and rank equally in right of payment to all existing and future unsecured senior indebtedness of the Company. The Sterling Senior Notes are guaranteed, on a senior basis, by certain of the Company's significant operating subsidiaries. SENIOR SUBORDINATED NOTES As of November 30, 1999, the Company had outstanding $195.0 million aggregate principal amount of 8 3/4% Senior Subordinated Notes due December 2003 (the "Notes"). The Notes are currently redeemable, in whole or in part, at the option of the Company. On March 4, 1999, the Company issued $200.0 million aggregate principal amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "Senior Subordinated Notes"). The net proceeds of the offering (approximately $195.0 million) were used to fund the Black Velvet Acquisition and to pay the fees and expenses related thereto with the remainder of the net proceeds used for general corporate purposes. Interest on the Senior Subordinated Notes is payable semiannually on March 1 and September 1 of each year, beginning September 1, 1999. The Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 2004. The Company may also redeem up to $70.0 million of the Senior Subordinated Notes using the proceeds of certain equity offerings completed before March 1, 2002. The Senior Subordinated Notes are unsecured and subordinated to the prior payment in full of all senior indebtedness of the Company, which includes the bank credit agreement. The Senior Subordinated Notes are guaranteed, on a senior subordinated basis, by certain of the Company's significant operating subsidiaries. - 24 - ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS No. 133 requires that every derivative be recorded as either an asset or liability in the balance sheet and measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 for one year. With the issuance of SFAS No. 137, the Company is required to adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years beginning March 1, 2001. The Company believes the effect of adoption on its financial statements will not be material based on the Company's current risk management strategies. YEAR 2000 ISSUE Prior to January 1, 2000, the Company put into place detailed programs to address Year 2000 readiness in its internal systems and with its key customers and suppliers. The Year 2000 issue is the result of computer logic that was written using two digits rather than four to define the applicable year. Any computer logic that processes date-sensitive information may recognize the date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. Since January 1, 2000, the Company has not experienced any interruptions in its business or operations. However, because all Year 2000 issues may not reveal themselves until later in 2000, no assurances can be given that the Company will not experience any interruptions in its business or operations due to Year 2000 issues. Pursuant to the Company's readiness programs, all major categories of information technology systems and non-information technology systems (i.e., equipment with embedded microprocessors) in use by the Company, including manufacturing, sales, financial and human resources, were inventoried and assessed. In addition, plans were developed for the required systems modifications or replacements. Well before December 31, 1999, the Company completed both the assessment and remediation phases for its information technology and non-information technology systems. Final testing in selected areas, both internal and external, confirmed the integrity of the Company's remediation programs. The Company's internal mission-critical information technology and non-information technology systems are Year 2000 compliant. The Company communicated with its major customers, suppliers and financial institutions to assess the potential impact on the Company's operations if those third parties failed to become Year 2000 compliant in a timely manner. Based upon responses received by the Company, many of those customers and suppliers only indicated that they would have in place Year 2000 readiness programs, without specifically confirming that they would be Year 2000 compliant in a timely manner. Risk assessment, readiness evaluation, action plans and contingency plans related to the Company's - 25 - significant customers and suppliers were completed prior to January 1, 2000. The Company's key financial institutions were surveyed and it is the Company's understanding that they are Year 2000 compliant. The costs incurred related to its Year 2000 activities and its readiness programs have not been material to the Company, and, based upon current conditions and estimates, the Company does not believe that the future costs associated with Year 2000 issues will have a material adverse impact on the Company's financial condition, results of operations or cash flows. However, no assurances can be given that the Company will not incur material remediation or other costs due to Year 2000 issues. The Company's readiness programs also include contingency plans to protect its business and operations from Year 2000-related interruptions. These plans were completed by October 31, 1999, and, by way of examples, include back-up procedures and identification of alternate suppliers, where possible. Based upon the Company's assessment of its non-information technology systems, it was not necessary to develop an extensive contingency plan for those systems. There can be no assurances, however, that any of the Company's contingency plans will be sufficient to handle all problems or issues which may arise. The Company believes that it has taken reasonable steps to identify and address those matters that could cause serious interruptions in its business and operations due to Year 2000 issues. However, a failure to fully identify all Year 2000 dependencies in the Company's systems and in the systems of its suppliers, customers and financial institutions, a failure of such third parties to adequately address their respective Year 2000 issues, or a failure of a contingency plan could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. For example, the Company would experience a material adverse impact on its business if significant suppliers of beer, glass or other raw materials, or utility systems fail to timely provide the Company with necessary inventories or services due to Year 2000 systems failures. The statements set forth herein concerning Year 2000 issues which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. EURO CONVERSION ISSUES Effective January 1, 1999, eleven of the fifteen member countries of the European Union (the "Participating Countries") established fixed conversion rates between their existing sovereign currencies and the euro. For three years after the introduction of the euro, the Participating Countries can perform financial transactions in either the euro or their original local currencies. This will result in a fixed exchange rate among the Participating Countries, whereas the euro (and the Participating Countries' currency in tandem) will continue to float freely against the U.S. dollar and other currencies of the non-participating countries. The Company does not believe that the effects of the conversion will have a material adverse effect on the Company's business and operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- Information about market risks for the nine months ended November 30, 1999, does not differ materially from that discussed under Item 7A in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1999. - 26 - PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) See Index to Exhibits located on Page 34 of this Report. (b) The following Reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended November 30, 1999: (i) Form 8-K/A, Amendment No. 2, dated April 9, 1999. This Form 8-K/A reported information under Item 7 (Financial Statements and Exhibits). The following financial statements were filed with this Form 8-K/A: The Diageo Inc. Statement of Assets and Liabilities Related to the Product Lines Sold to Canandaigua Brands, Inc. as of April 9, 1999, and the Statement of Identified Income and Expenses Related to the Product Lines Sold to Canandaigua Brands, Inc. for the year ended December 31, 1998, and the report of KPMG LLP, independent auditors, thereon, together with the notes thereto. The Diageo Inc. Statements of Identified Income and Expenses Related to the Product Lines Sold to Canandaigua Brands, Inc. (unaudited) for the three months ended March 31, 1999 and 1998, together with the notes thereto. The pro forma condensed combined balance sheet (unaudited) as of February 28, 1999, the pro forma condensed combined statement of income (unaudited) for the year ended February 28, 1999, and the pro forma combined statement of income (unaudited) for the six months ended August 31, 1999, and the notes thereto. (ii) Form 8-K dated September 27, 1999. This Form 8-K reported information under Item 5 (Other Events) and included (i) the Company's Condensed Consolidated Balance Sheets as of August 31, 1999 (unaudited) and February 28, 1999 (audited); (ii) the Company's Condensed Consolidated Statements of Income for the three months ended August 31, 1999 (unaudited) and August 31, 1998 (unaudited); and (iii) the Company's Condensed Consolidated Statements of Income for the six months ended August 31, 1999 (unaudited) and August 31, 1998 (unaudited). (iii) Form 8-K dated October 12, 1999. This Form 8-K reported information under Item 5 (Other Events). - 27 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANANDAIGUA BRANDS, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President, Corporate Reporting and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) SUBSIDIARIES BATAVIA WINE CELLARS, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Treasurer (Principal Financial Officer and Principal Accounting Officer) CANANDAIGUA WINE COMPANY, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Treasurer (Principal Financial Officer and Principal Accounting Officer) - 28 - CANANDAIGUA EUROPE LIMITED Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Treasurer (Principal Financial Officer and Principal Accounting Officer) CANANDAIGUA LIMITED Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Authorized Officer Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Finance Director (Principal Financial Officer and Principal Accounting Officer) POLYPHENOLICS, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) ROBERTS TRADING CORP. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, President and Treasurer (Principal Financial Officer and Principal Accounting Officer) - 29 - CANANDAIGUA B.V. Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Authorized Representative (Principal Financial Officer and Principal Accounting Officer) SIMI WINERY, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, President and Treasurer (Principal Financial Officer and Principal Accounting Officer) FRANCISCAN VINEYARDS, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) SCV-EPI VINEYARDS, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) - 30 - ALLBERRY, INC. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) CLOUD PEAK CORPORATION Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) M.J. LEWIS CORP. Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) MT. VEEDER CORPORATION Dated: January 14, 2000 By:/s/ Thomas F. Howe ---------------------------------- Thomas F. Howe, Vice President and Controller Dated: January 14, 2000 By:/s/ Thomas S. Summer ---------------------------------- Thomas S. Summer, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) - 31 - BARTON INCORPORATED Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President and Chief Executive Officer Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) BARTON BRANDS, LTD. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, Executive Vice President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) BARTON BEERS, LTD. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, Executive Vice President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) BARTON BRANDS OF CALIFORNIA, INC. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) - 32 - BARTON BRANDS OF GEORGIA, INC. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) BARTON CANADA, LTD. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) BARTON DISTILLERS IMPORT CORP. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) BARTON FINANCIAL CORPORATION Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, President and Secretary Dated: January 14, 2000 By:/s/ Charles T. Schlau ---------------------------------- Charles T. Schlau, Treasurer (Principal Financial Officer and Principal Accounting Officer) - 33 - STEVENS POINT BEVERAGE CO. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, Executive Vice President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) MONARCH IMPORT COMPANY Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) THE VIKING DISTILLERY, INC. Dated: January 14, 2000 By:/s/ Alexander L. Berk ---------------------------------- Alexander L. Berk, President Dated: January 14, 2000 By:/s/ Raymond E. Powers ---------------------------------- Raymond E. Powers, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) - 34 - INDEX TO EXHIBITS (2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION. 2.1 Recommended Cash Offer, by Schroders on behalf of Canandaigua Limited, a wholly-owned subsidiary of the Company, to acquire Matthew Clark plc (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 1, 1998 and incorporated herein by reference). 2.2 Asset Purchase Agreement dated as of February 21, 1999 by and among Diageo Inc., UDV Canada Inc., United Distillers Canada Inc. and the Company (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated April 9, 1999 and incorporated herein by reference). 2.3 Stock Purchase Agreement, dated April 21, 1999, between Franciscan Vineyards, Inc., Agustin Huneeus, Agustin Francisco Huneeus, Jean-Michel Valette, Heidrun Eckes-Chantre Und Kinder Beteiligungsverwaltung II, GbR, Peter Eugen Eckes Und Kinder Beteiligungsverwaltung II, GbR, Harald Eckes-Chantre, Christina Eckes-Chantre, Petra Eckes-Chantre and Canandaigua Brands, Inc. (filed as Exhibit 2.1 on the Company's Current Report on Form 8-K dated June 4, 1999 and incorporated herein by reference). 2.4 Stock Purchase Agreement by and between Canandaigua Wine Company, Inc. (a wholly-owned subsidiary of the Company) and Moet Hennessy, Inc. dated April 1, 1999 (including a list briefly identifying the contents of all omitted schedules thereto) (filed as Exhibit 2.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1999 and incorporated herein by reference). (3) ARTICLES OF INCORPORATION AND BY-LAWS. 3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1998 and incorporated herein by reference). 3.2 Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1998 and incorporated herein by reference). (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES. 4.1 Credit Agreement, dated as of October 6, 1999, between the Company, certain principal subsidiaries, and certain banks for which The Chase Manhattan Bank acts as Administrative Agent, The Bank of Nova Scotia acts as Syndication Agent, and Credit Suisse First Boston and Citicorp USA, Inc. acts as Co-Documentation Agents (including a list briefly identifying the contents of all omitted schedules and exhibits thereto) (filed herewith). The Company will furnish supplementally to the Commission, upon request, a copy of any omitted schedule or exhibit. 4.2 Indenture with respect to 8 1/2% Senior Notes due 2009, dated as of November 17, 1999, among the Company, as Issuer, certain principal subsidiaries, as Guarantors, and Harris Trust and Savings Bank, as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-9436902) and incorporated herein by reference). - 35 - 4.3 Registration Rights Agreeement, dated as of November 17, 1999, among the Company, the guarantors named therein, and J.P. Morgan Securities Ltd. (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4 (Registration No. 333-9436902) and incorporated herein by reference). (10) MATERIAL CONTRACTS. Credit Agreement, dated as of October 6, 1999, between the Company, certain principal subsidiaries, and certain banks for which The Chase Manhattan Bank acts as Administrative Agent, The Bank of Nova Scotia acts as Syndication Agent, and Credit Suisse First Boston and Citicorp USA, Inc. acts as Co-Documentation Agents (filed herewith as Exhibit 4.17). (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS. Computation of per share earnings (filed herewith). (15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION. Not applicable. (18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES. Not applicable. (19) REPORT FURNISHED TO SECURITY HOLDERS. Not applicable. (22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS. Not applicable. (23) CONSENTS OF EXPERTS AND COUNSEL. Not applicable. (24) POWER OF ATTORNEY. Not applicable. (27) FINANCIAL DATA SCHEDULE. Financial Data Schedule (filed herewith). (99) ADDITIONAL EXHIBITS. Not applicable.