FORM 10-Q/A
AMENDMENT NO. 1
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, 1996
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
CANANDAIGUA WINE COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 16-0716709
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(State or other jurisdiction of (I.R.S. Employer
incorporataion or organization) Identification No.)
116 BUFFALO STREET, CANANDAIGUA, NEW YORK 14424
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(Address of principal executive offices) (Zip Code)
(716) 394-7900
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(Registrant's telephone number including area code)
None
----
(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 of each of the Registrant's classes of common
stock, as of January 10, 1997, is set forth below:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 15,547,625
Class B Common Stock, Par Value $.01 Per Share 3,330,458
Page 1
Part 1 - Financial Information
Item 1. Financial Statements
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
November 30, 1996 February 29, 1996
----------------- -----------------
(unaudited) (audited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 4,997 $ 3,339
Accounts receivable, net 198,106 142,471
Inventories, net 373,631 341,838
Prepaid expenses and other current assets 14,598 30,372
------------ ------------
Total current assets 591,332 518,020
PROPERTY, PLANT AND EQUIPMENT, NET 251,218 250,638
OTHER ASSETS 276,963 285,922
------------ ------------
Total assets $ 1,119,513 $ 1,054,580
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 130,000 $ 111,300
Current maturities of long-term debt 40,597 40,797
Accounts payable 79,567 59,730
Accrued Federal and state excise taxes 22,849 19,699
Other accrued expenses and liabilities 63,906 68,440
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Total current liabilities 336,919 299,966
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LONG-TERM DEBT, less current maturities 349,901 327,616
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DEFERRED INCOME TAXES 64,194 58,194
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OTHER LIABILITIES 9,934 12,298
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares;
Issued, 17,460,832 shares at November 30, 1996, and
17,423,082 shares at February 29, 1996 174 174
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued 3,956,183 shares at November 30, 1996, and
3,991,683 shares at February 29, 1996 40 40
Additional paid-in capital 222,026 221,133
Retained earnings 164,353 142,600
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386,593 363,947
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Less-Treasury stock-
Class A Common Stock, 1,913,207 shares at
November 30, 1996, and 1,165,786 shares at
February 29, 1996, at cost (25,821) (5,234)
Class B Convertible Common Stock, 625,725 shares
at November 30, 1996, and February 29, 1996, at cost (2,207) (2,207)
------------ ------------
(28,028) (7,441)
------------ ------------
Total stockholders' equity 358,565 356,506
------------ ------------
Total liabilities and stockholders' equity $ 1,119,513 $ 1,054,580
============ ============
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
Page 2
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
For the Nine Months Ended November 30, For the Three Months Ended November 30,
-------------------------------------- ---------------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 1,180,849 $ 983,955 $ 425,983 $ 391,186
Less - Excise taxes (307,405) (246,311) (108,250) (105,601)
----------- ----------- ----------- -----------
Net sales 873,444 737,644 317,733 285,585
COST OF PRODUCT SOLD (649,019) (534,449) (236,050) (208,332)
----------- ----------- ----------- -----------
Gross profit 224,425 203,195 81,683 77,253
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (161,139) (129,375) (58,269) (50,104)
NONRECURRING RESTRUCTURING EXPENSES -- (3,301) -- (1,748)
----------- ----------- ----------- -----------
Operating income 63,286 70,519 23,414 25,401
INTEREST EXPENSE, net (25,468) (19,507) (8,665) (8,047)
----------- ----------- ----------- -----------
Income before provision for Federal
and state income taxes 37,818 51,012 14,749 17,354
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (16,065) (19,900) (6,438) (6,942)
----------- ----------- ----------- -----------
NET INCOME $ 21,753 $ 31,112 $ 8,311 $ 10,412
=========== =========== =========== ===========
SHARE DATA:
Net income per common and common
equivalent share:
Primary $ 1.10 $ 1.55 $ .42 $ .52
=========== =========== =========== ===========
Fully diluted $ 1.10 $ 1.55 $ .42 $ .52
=========== =========== =========== ===========
Weighted average common shares
outstanding:
Primary 19,864,901 20,038,649 19,617,854 20,103,679
Fully diluted 19,864,901 20,038,649 19,778,993 20,103,679
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 3
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine Months Ended November 30,
--------------------------------------
1996 1995
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,753 $ 31,112
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 18,662 11,011
Amortization of intangible assets 7,175 4,383
Loss (gain) on sale of property, plant and equipment 201 (39)
Amortization of discount on long-term debt 29 -
Deferred tax provision 10,000 19,175
Restructuring charges - fixed asset write-down - (2,050)
Change in operating assets and liabilities, net of effects
from purchase of business:
Accounts receivable, net (55,635) (70,417)
Inventories, net (31,793) (35,460)
Prepaid expenses 9,176 (3,106)
Accounts payable 18,510 28,966
Accrued Federal and state excise taxes 3,150 (7,458)
Other accrued expenses and liabilities 17,951 (7,812)
Other (3,815) (11,695)
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Total adjustments (6,389) (74,502)
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Net cash provided by (used in) operating activities 15,364 (43,390)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of minor disposals (25,318) (32,753)
Payment of accrued earn-out amounts (13,848) (10,000)
Proceeds from sale of property, plant and equipment 5,171 1,394
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Net cash used in investing activities (33,995) (41,359)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of discount 61,668 13,219
Net proceeds from notes payable, short-term borrowings 18,700 118,500
Principal payments of long-term debt (39,612) (51,072)
Purchases of treasury stock (19,997) -
Payment of issuance costs of long-term debt (1,478) -
Proceeds from employee stock purchases 998 1,292
Exercise of employee stock options 10 1,014
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Net cash provided by financing activities 20,289 82,953
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NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 1,658 (1,796)
CASH AND CASH INVESTMENTS, beginning of period 3,339 3,090
---------- ----------
CASH AND CASH INVESTMENTS, end of period $ 4,997 $ 1,294
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired $ - $ 144,936
Liabilities assumed - (3,155)
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Cash paid - 141,781
Less - Amounts borrowed - (141,781)
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Net cash paid for acquisition $ - $ -
========== ==========
Goodwill reduction on settlement of disputed final closing net
asset statement for Vintners Acquisition $ 5,894 $ -
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Page 4
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by 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 the financial information for Canandaigua Wine Company, Inc. and its
subsidiaries. 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 Transition Report on Form 10-K, for the transition
period from September 1, 1995, to February 29, 1996.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Certain November 1995 balances have been reclassified to conform with
current year presentation.
3) INVENTORIES:
Inventories are valued at the lower of cost (computed in accordance with
the last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or market.
The percentage of inventories valued using the LIFO method is 94% at November
30, 1996, and February 29, 1996. Replacement cost of the inventories determined
on a FIFO basis is approximately $386,421,000, and $332,849,000, at November 30,
1996, and February 29, 1996, respectively. The net realizable value of the
Company's inventories is in excess of $373,631,000, and $341,838,000, at
November 30, 1996, and February 29, 1996, respectively.
Elements of cost include materials, labor and overhead and consist of the
following:
November 30, February 29,
1996 1996
-------- --------
(IN THOUSANDS)
Raw materials and supplies $ 25,930 $ 24,197
Wines and distilled spirits in process 269,959 254,956
Finished case goods 77,742 62,685
-------- --------
$373,631 $341,838
======== ========
If the FIFO method of inventory valuation had been used, reported net
income would have been approximately $12,500,000, or $.63 per share, higher for
Page 5
the nine months ended November 30, 1996; and reported net income would have been
approximately $100,000, or $.01 per share, lower for the nine months ended
November 30, 1995.
4) ACQUISITIONS:
VINTNERS HOLDBACK -
On September 26, 1996, the Company reached a final settlement with the
company formerly known as Vintners International Company, Inc. and its lenders
on the disputed final closing net asset statement. As a result, the Company
recorded a purchase price reduction for the Vintners Acquisition, which reduced
recorded goodwill by approximately $5,894,000.
UNITED DISTILLERS -
The following table sets forth the unaudited pro forma consolidated results
of operations of the Company for the nine months ended November 30, 1996 and
1995. The nine month unaudited pro forma consolidated results of operations for
the period ended November 30, 1995, gives effect to the UDG Acquisition as if it
occurred on March 1, 1995. The unaudited pro forma consolidated 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 consolidated
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 consolidated results of operations do not
purport to represent what the Company's consolidated results of operations would
actually have been if the UDG Acquisition in fact had occurred on such date or
to project the Company's consolidated results of operations at any future date
or for any future period.
For the Nine Months Ended
November 30,
---------------------------
1996 1995
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(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales $ 873,444 $ 779,157
Income before provision for Federal and
state income taxes $ 37,818 $ 54,495
Net income $ 21,753 $ 33,254
Share data:
Net income per common and
common equivalent share:
Primary $ 1.10 $ 1.66
Fully diluted $ 1.10 $ 1.66
Weighted average common shares outstanding:
Primary 19,864,901 20,038,649
Fully diluted 19,864,901 20,038,649
Page 6
5) BORROWINGS:
Borrowings consist of the following at November 30, 1996:
Current Long-term Total
--------- --------- ---------
(IN THOUSANDS)
Notes Payable:
Senior Credit Facility:
Revolving Credit Loans $ 130,000 $ - $ 130,000
========= ========= =========
Long-term Debt:
Senior Credit Facility:
Term loan, variable rate, aggregate
proceeds of $246,000, due in
installments through August 2001 $ 40,000 $ 157,000 $ 197,000
Senior Subordinated Notes:
8.75% redeemable after December 15, 1998,
due 2003 - 130,000 130,000
8.75% Series B redeemable after December 15, 1998,
due 2003 (less unamortized discount of $3,303 -
effective rate 9.76%) - 61,697 61,697
Capitalized Lease Agreements:
Capitalized facility and equipment leases at
interest rates ranging from 8.9% to 11.5%, due
in monthly installments through fiscal 1998 479 - 479
Industrial Development Agencies:
7.5% 1980 issue, original proceeds $2,370, due
in annual installments of $118 through fiscal 2000 118 237 355
Other Long-term Debt:
Loans payable - 5.0% secured by cash surrender value
of officers' life insurance policies - 967 967
--------- --------- ---------
$ 40,597 $ 349,901 $ 390,498
========= ========= =========
On October 29, 1996, the Company issued $65,000,000 aggregate principal
amount of unsecured Series B Senior Subordinated Notes (the "Series B Notes")
due 2003 at a stated rate of 8.75% per annum. The net proceeds from the sale of
the Series B Notes were used to repay amounts outstanding under its bank credit
facility, including revolving loans. Interest on the Series B Notes will be
payable semiannually on June 15 and December 15 of each year. The Series B Notes
are redeemable at the option of the Company, in whole or in part, on or after
December 15, 1998. The Series B Notes are unsecured and subordinated to the
prior payment in full of all senior indebtedness of the Company, which includes
Page 7
the credit facility, and the Series B Notes are guaranteed, on a senior
subordinated basis, by substantially all of the Company's operating
subsidiaries.
The indenture relating to the Series B Notes contains certain covenants,
including, but not limited to, (i) limitation on indebtedness; (ii) limitation
on restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on senior subordinated indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii) limitation on issuances of guarantees of and
pledges for indebtedness; (viii) restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x) limitation on the creation of any
restriction on the ability of the Company's subsidiaries to make distributions
and other payments; and (xi) restrictions on mergers, consolidation and the
transfer of all or substantially all of the assets of the Company to another
person. The limitation on indebtedness covenant is governed by a rolling four
quarter fixed charge coverage ratio.
Page 8
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.
CANANDAIGUA WINE COMPANY, INC.
Dated: January 31, 1997 By: /s/ Thomas F. Howe
--------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller