SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 1, 1998 ---------------- 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 --- NEW YORK POLYPHENOLICS, INC. 16-1546354 NEW YORK ROBERTS TRADING CORP. 16-0865491 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 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 incorporation or No.) organization) 300 WillowBrook Office Park, Fairport, New York 14450 ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (716) 393-4130 -------------- ------------------------------------------------------------- (Former name or former address, if changed since last report) - 1 - ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On November 3, 1998, Canandaigua Limited, a wholly-owned subsidiary of Canandaigua Brands, Inc., announced a cash tender offer for the entire issued and to be issued ordinary share capital of Matthew Clark plc ("Matthew Clark"). The offer valued each Matthew Clark share at 243 pence, valuing the whole of the issued ordinary share capital of Matthew Clark at approximately (pound)215 million. The amount offered for the shares of Matthew Clark was determined on an arms-length basis following negotiations between the Board of Directors of each of Matthew Clark and Canandaigua Brands, Inc. (the "Company") and their respective advisors. On December 1, 1998, Canandaigua Limited declared the cash tender offer to be wholly unconditional--all conditions to the offer having either been satisfied or waived. Canandaigua Limited thereby acquired control of Matthew Clark. On December 15, 1998, Canandaigua Limited paid for all shares tendered at the time the offer was declared wholly unconditional. The cash tender offer remains open for acceptance by Matthew Clark's shareholders until further notice. By 3:00 p.m. (London Time) on Monday, December 14, 1998, valid acceptances had been received in respect of 84,590,156 Matthew Clark shares, representing approximately 95.6 percent of the existing issued ordinary share capital of Matthew Clark. Therefore, Canandaigua Limited has utilized certain provisions of the UK Companies Act to enable it to compulsorily acquire Matthew Clark shares that have not been tendered pursuant to the offer by the end of a prescribed statutory period. The purchase price for the Matthew Clark shares was funded with proceeds from loans under a First Amended and Restated Credit Agreement (the "Credit Agreement"), dated as of November 2, 1998, between the Company and The Chase Manhattan Bank, as administrative agent, and a syndicate of 27 other lenders who are parties to the Credit Agreement. The Credit Agreement provides for revolving credit and term loans in an original aggregate principal amount not to exceed $1,000,000,000 (subject to increase as therein provided to $1,200,000,000). Matthew Clark is a major UK drinks group which produces, distributes and wholesales a variety of alcoholic and bottled water beverages in the United Kingdom. Matthew Clark operates through two divisions: Matthew Clark Brands and Matthew Clark Wholesale. Matthew Clark Brands is the branded drinks division which comprises cider products, wine and bottled water products. Cider products include cider sold predominantly under the Blackthorn brand and premium packaged cider sold under the Diamond White and K brands. Wine and bottled water products include Stowell's of Chelsea wine box, QC fortified British wine, light British wine/perry and Strathmore bottled water. New products include Stone's Cream Liqueur, Jinzu and Espri. Matthew Clark Wholesale is the United Kingdom's leading independent drinks wholesaler. Matthew Clark provides a full range of wines, spirits, ciders, beers and soft drinks to over 17,000 on-licensed outlets. Matthew Clark also distributes the Grants of St James's wine list. The Company intends to continue to operate the business of Matthew Clark. Prior to the transactions described above, there was no material relationship between the officers, directors or shareholders of Matthew Clark and the Company or any of its affiliates, any director or officer of the Company or any associate of any such director or officer, except that certain directors of Matthew Clark and members of their immediate families and certain shareholders made certain irrevocable undertakings to accept the cash offer. - 2 - ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The Matthew Clark plc Balance Sheets, as of 30 April 1998 and 1997, and the related Consolidated Profit and Loss Accounts and Consolidated Cash Flow Statements for each of the three years in the period ended 30 April 1998, and the report of KPMG Audit Plc, independent auditors, thereon, together with the notes thereto, are located at pages 3 through 27 of this Report. (b) PRO FORMA FINANCIAL INFORMATION. The pro forma condensed combined balance sheet (unaudited) as of August 31, 1998, and the pro forma condensed combined statement of income (unaudited) for the year ended February 28, 1998, and the pro forma condensed combined statement of income (unaudited) for the six months ended August 31, 1998, and the notes thereto, are located at pages 28 through 35 of this Report. (c) EXHIBITS. See Index to Exhibits. - 3 - MATTHEW CLARK plc FINANCIAL STATEMENTS FOR THE YEARS ENDED 30 APRIL 1998, 1997 AND 1996 WITH INDEPENDENT AUDITORS' REPORT - 4 - INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Matthew Clark plc We have audited the accompanying consolidated balance sheets of Matthew Clark plc and its subsidiaries at 30 April 1998 and 1997, and the related consolidated profit and loss accounts and cash flow statements for each of the years in the three-year period ended 30 April 1998. These consolidated financial statements are the responsibility of the management of Matthew Clark plc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United Kingdom which are substantially equivalent to generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Matthew Clark plc and its subsidiaries at 30 April 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended 30 April 1998, in conformity with generally accepted accounting principles in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States would have affected net profit for the two years ended 30 April 1998 and shareholders' equity at 30 April 1998 and 1997, to the extent summarised in Note 26 to the consolidated financial statements. /s/ KPMG Audit Plc Chartered Accountants Registered Auditor London, England 30 November 1998 - 5 - MATTHEW CLARK plc BALANCE SHEETS (in (pound) millions) 30 APRIL ------------------ NOTE 1998 1997(1) ---- ----- ------- Fixed assets Intangible assets....................... 12 9.7 9.7 Tangible assets......................... 13 97.1 98.6 ----- ----- 106.8 108.3 ----- ----- Current assets Stocks.................................. 14 44.6 49.3 Debtors................................. 15 115.7 123.7 Cash at bank and in hand................ 17.3 5.8 ----- ----- 177.6 178.8 ----- ----- Creditors: amounts falling due within one year Trade and other creditors............... 16 (105.2) (116.3) Proposed dividend....................... 10 (7.1) (13.3) Bank loans and overdrafts............... - (56.4) ----- ----- (112.3) (186.0) ----- ----- Net current assets/(liabilities) Amounts due within one year............. 44.4 (29.6) Debtors due after more than one year.... 15 20.9 22.4 ----- ----- 65.3 (7.2) ----- ----- Total assets less current liabilities....... 172.1 101.1 Creditors: amounts falling due after more than one year........................ 17 (61.2) (1.9) Provisions for liabilities and charges...... 18 (15.5) (17.6) ----- ----- Net assets.............................. 2 95.4 81.6 ===== ===== Capital and reserves Called up share capital................. 19 22.1 22.1 Share premium account................... 21 105.5 105.5 Capital redemption reserve.............. 21 0.1 0.1 Profit and loss account................. 21 (32.3) (46.1) ----- ----- Equity shareholders' funds.................. 22 95.4 81.6 ===== ===== (1) As restated Note 1 (Goodwill) - 6 - MATTHEW CLARK plc CONSOLIDATED PROFIT AND LOSS ACCOUNTS (in (pound) millions, except per share amounts) FOR THE YEARS NOTE ENDED 30 APRIL ---- ----------------------------- 1998 1997 1996(1) ------ ------ ------- Turnover.................................. 2 553.1 570.7 450.9 Operating costs........................... 3 (516.0) (525.6) (429.4) ------ ------ ------ Operating profit.......................... 4 37.1 45.1 21.5 Profit/(loss) on fixed asset sales........ 7 3.7 0.4 (2.0) ------ ------ ------ Profit before interest and tax............ 2 40.8 45.5 19.5 Interest receivable....................... 0.1 0.2 0.4 Interest payable and similar charges...... 8 (5.1) (5.1) (2.7) ------ ------ ------ Profit on ordinary activities before tax.. 2 35.8 40.6 17.2 Tax on profit on ordinary activities...... 9 (10.5) (12.4) (5.0) ------ ------ ------ Profit on ordinary activities after tax... 25.3 28.2 12.2 Equity minority interests................. - - (0.1) Dividends................................. 10 (11.5) (21.2) (21.2) ------ ------ ------ Retained profit/(loss) for the year....... 21 13.8 7.0 (9.1) ====== ====== ====== Earnings per share........................ 11 28.6p 31.9p 18.4p ====== ====== ====== (1) Includes exceptional items for reorganisation as a result of integration of acquisitions (Note 4). Pre-exceptional items, profit attributable to ordinary shareholders was (pound)29.3m and earnings per share was 44.4p. There are no recognised gains or losses in any year other than the profit/(loss) for the year. The results above derive from continuing activities. - 7 - MATTHEW CLARK plc CONSOLIDATED CASH FLOW STATEMENTS (in (pound) millions) FOR THE YEARS NOTE ENDED 30 APRIL ---- ------------------------- 1998 1997 1996 ----- ----- ----- Cash inflow from operating activities....... 25 49.8 52.3 29.1 ----- ----- ----- Returns on investments and servicing of finance Interest received....................... 0.1 0.2 0.5 Interest paid........................... (6.1) (5.0) (2.7) Interest element of finance lease rental payments....................... (0.1) (0.1) - ----- ----- ----- (6.1) (4.9) (2.2) ----- ----- ----- Taxation paid........................... (7.5) (7.0) (3.5) ----- ----- ----- Capital expenditure Purchase of tangible fixed assets....... (31.6) (21.3) (18.4) Receipts from sale of fixed assets...... 22.2 2.6 2.4 ----- ----- ----- (9.4) (18.7) (16.0) ----- ----- ----- Acquisitions............................ (0.8) 0.3 (32.5) ----- ----- ----- Dividends paid.......................... (17.7) (21.2) (13.9) ----- ----- ----- Cash inflow/(outflow) before financing...... 8.3 0.8 (39.0) ----- ----- ----- Financing Drawdown of committed loan.............. 25.0 10.0 10.0 Repayment of other loan................. - - (1.0) Issue of ordinary share capital......... - 0.6 0.2 Capital element of finance lease payments.............................. (0.4) (0.2) (0.8) ----- ----- ----- 24.6 10.4 8.4 ----- ----- ----- Increase/(decrease) in cash in the period... 32.9 11.2 (30.6) ===== ===== ===== Reconciliation of net cashflow to movement in net debt Increase/(decrease) in cash in period... 32.9 11.2 (30.6) Cash inflow from increase in debt and lease financing....................... (25.6) (9.8) (8.2) ----- ----- ----- Change in net debt resulting from cashflows............................. 7.3 1.4 (38.8) Loans and finance leases acquired with subsidiary............................ - - (0.1) ----- ----- ----- Movement in net debt in the period...... 7.3 1.4 (38.9) Net debt at the start of the period..... (51.2) (52.6) (13.7) ----- ----- ----- Net debt at the end of the period....... (43.9) (51.2) (52.6) ===== ===== ===== Analysis of net debt Cash at bank and in hand................ 17.3 5.8 4.6 Bank loans and overdrafts............... (60.0) (56.4) (56.4) Finance lease obligations............... (1.2) (0.6) (0.8) ----- ----- ----- (43.9) (51.2) (52.6) ===== ===== ===== - 8 - MATTHEW CLARK plc NOTES TO THE ACCOUNTS NOTE 1. ACCOUNTING POLICIES The accounts have been prepared under the historical cost convention, using the following accounting policies, which have been applied consistently except as noted below under 'Goodwill', and in compliance with applicable accounting standards including Financial Reporting Standard 10. BASIS OF CONSOLIDATION-- The Group accounts consist of a consolidation of the accounts of the Company which those of its subsidiary undertakings. All accounts are drawn up to 30 April. The acquisition method of accounting has been adopted. Under this method, the results of acquired subsidiaries and other businesses are included in the consolidated profit and loss account from the date when control passes. GOODWILL-- During the year Financial Reporting Standard 10 'Goodwill and intangible assets' was issued and is mandatory for periods ending on or after 23 December 1998. The Group has chosen to adopt the requirements of this standard early. The Group's policy for acquisitions which occurred prior to the issue of the standard is that purchased goodwill, being the excess of the fair value of consideration paid or payable over the fair value of the identifiable net assets acquired, has been taken directly to reserves. On subsequent disposal, goodwill previously taken direct to reserves is included in determining the profit or loss on disposal. Previously, such goodwill was presented separately within reserves as a 'goodwill write off reserve'. This is not permitted by the Standard and, accordingly, goodwill has been taken to merger reserve to the extent available ((pound)309.5m) and the balance ((pound)52.8m) taken to the profit and loss account reserve. The comparatives have been restated accordingly. TURNOVER-- Turnover consists of the value of goods and services supplied to customers outside the Group, including duty and excluding VAT. DEPRECIATION-- Depreciation of fixed assets is provided on the original cost of the Group or its acquired businesses at rates calculated to write down the assets to their estimated residual values on a straight line basis over the total expected economic lives of the assets. The principal periods used are: Freehold buildings....................... 50 years Leasehold buildings...................... Length of lease Plant and machinery...................... 8 to 25 years Computer equipment....................... 3 to 5 years Motor vehicles........................... 4 to 7 years Assets in the course of construction are not depreciated. They are transferred to the relevant fixed asset category when they become operational. Freehold land is not depreciated. - 9 - STOCKS-- Stocks have been valued at the lower of cost (including Customs and Excise Duty where incurred), determined on a first in first out basis, and net realisable value. In the case of beverages produced by the Group, cost includes direct materials and labour together with appropriate overheads incurred in bringing the product to its present location and condition. DEFERRED TAX-- Deferred tax is provided using the liability method in respect of the tax effect of all timing differences to the extent that it is probable that liabilities or assets will crystallise in the future. FOREIGN CURRENCY-- Receipts and payments of foreign currency are recorded at actual rates obtained. Foreign currency balances at the year end are translated at the rate ruling at that date. All exchange differences are dealt with through the profit and loss account. BRAND VALUATION-- The cost of acquired brands is capitalised as an intangible asset at the time of acquisition. No annual amortisation is provided on these assets but the directors assess the value of the brands each year and any permanent diminution in value is written off to the profit and loss account. LEASES-- Where the Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a 'finance lease'. The asset is recorded in the balance sheet as a tangible fixed asset and is depreciated over its estimated useful economic life or the term of the lease, whichever is shorter. Future instalments under such leases, net of finance charges, are included within creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account, and the capital element which reduces the outstanding obligation for future instalments. All other rentals relating to assets held under operating leases are charged to the profit and loss account on a straight line basis over the period of the lease. PENSION COSTS-- Pension costs for the Group's defined benefit pension schemes are charged against profits so as to spread the cost of pensions over the employees' expected working lives within the Group. - 10 - NOTE 2. SEGMENTAL INFORMATION All turnover and profit originates in the UK. There are no material sales to customers outside the UK.
BRANDED DRINKS WHOLESALE GROUP ------------------------ ----------------------- ------------------------ 1998 1997 1996 1998 1997 1996 1998 1997 1996 ------ ------ ------ ----- ----- ----- ------ ------ ------ (in (pound) millions) Turnover: Total........................................ 343.5 367.0 297.0 225.2 215.1 162.5 568.7 582.1 459.5 Less intersegmental sales.................... (15.6) (11.4) (8.6) - - - (15.6) (11.4) (8.6) ----- ----- ----- ----- ----- ----- ----- ----- ----- Sales to third parties....................... 327.9 355.6 288.4 225.2 215.1 162.5 553.1 570.7 450.9 ===== ===== ===== ===== ===== ===== ===== ===== ===== Operating profit............................... 28.7 38.1 41.2 8.4 7.0 2.7 37.1 45.1 21.5 Profit on fixed asset disposals................ 3.7 - 0.7 - 0.4 - 3.7 0.4 (2.0) ----- ----- ----- ----- ----- ----- ----- ----- ----- Profit before interest and tax................. 32.4 38.1 41.9 8.4 7.4 2.7 40.8 45.5 19.5 Net interest payable........................... (5.0) (4.9) (2.3) ----- ----- ----- Profit before tax.............................. 35.8 40.6 17.2 ===== ===== ===== Net assets: Segment net assets........................... 120.3 116.7 20.6 27.0 140.9 143.7 Unallocated net liabilities.................. (45.5) (62.1) ----- ----- Total net assets............................. 95.4 81.6 ===== ===== Unallocated assets and liabilities consist of: Cash at bank and in hand..................... 17.3 5.8 Pension prepayment........................... 19.0 19.1 Dividends payable............................ (7.1) (13.3) Finance lease liabilities and deferred (2.8) (2.9) consideration.............................. Loans and overdrafts......................... (60.0) (56.4) Provisions................................... (11.9) (14.4) ----- ----- (45.5) (62.1) ===== =====
- 11 - NOTE 3. OPERATING COSTS NOTE 1998 1997 1996 ---- ----- ----- ----- (in (pound) millions) Change in stocks of finished goods and work in progress.......................... 7.5 11.7 (1.6) Raw materials, consummables and other external charges (incl. duty)............. 466.2 474.6 387.6 Staff costs................................. 6 32.8 30.9 37.3 Depreciation and amounts written off fixed asset investments................... 13 9.8 8.7 6.4 Royalties from overseas..................... (0.3) (0.3) (0.3) ----- ----- ----- 516.0 525.6 429.4 ===== ===== ===== NOTE 4. OPERATING PROFIT 1998 1997 1996 ---- ---- ---- (in (pound) millions) Operating profit is stated after charging/(crediting): Operating lease charges: Plant and machinery.................................. 0.4 0.4 0.5 Other................................................ 1.7 1.4 1.6 Auditors' remuneration for audit services................ 0.2 0.3 0.3 Loss on disposal of fixed assets......................... 3.6 2.9 0.7 Release of amounts charged as exceptional costs in prior years no longer required......................... (1.2) - - Exceptional write down of wine dispense equipment with customers.............................................. 1.0 - - Amounts payable to the auditors and their associates for non audit services were (pound)0.1m (1997--(pound)0.1m, 1996--(pound)0.4m). Exceptional items in the year ended 30 April 1996 were as follows: BRANDED DRINKS WHOLESALE TOTAL DIVISION DIVISION 1996 -------- --------- ----- (in (pound) millions) Reorganisation: Employee severance and relocation costs........ 3.7 3.6 7.3 Stock write downs.............................. 1.5 0.7 2.2 Property, plant relocation and other costs..... 7.5 5.4 12.9 ---- --- ---- 12.7 9.7 22.4 Provision for loss on disposal of fixed assets... 2.5 0.2 2.7 ---- --- ---- 15.2 9.9 25.1 ==== === ==== - 12 - The reorganisation costs arose as a result of integration programmes within the divisions following acquisition of businesses. The costs charged in 1996 were net of a release of provisions of (pound)2,249,000 established in 1995 and which were no longer required. NOTE 5. DIRECTORS' INTERESTS DIRECTORS' EMOLUMENTS
TOTAL EMOLUMENTS CASH VALUE OF (EXCLUDING PENSION BASIC SALARY BENEFITS IN KIND CONTRIBUTIONS) ------------------ ------------------ ------------------ 1997/98 1996/97 1997/98 1996/97 1997/98 1996/97 ------- ------- ------- ------- ------- ------- (in (pound) thousands) Peter Aikens.................... 230 230 14 14 244 244 Hugh Etheridge.................. 130 130 13 13 143 143 Peter Huntley................... 119 130 10 11 129 141 Robert MacNevin................. 128 - 18 - 146 - Kevin Philp..................... 100 - 6 - 106 - Martin Boase.................... 21 21 - - 21 21 Michael Garner.................. 21 40 - - 21 40 Graham Wilson................... 60 - - - 60 - Andrew Nash..................... - 130 - 12 - 142 Former directors................ - 67 - 6 - 73 --- --- --- --- --- --- 809 748 61 56 870 804 === === === === === ===
TOTAL EMOLUMENTS CASH VALUE (EXCLUDING BONUS PAID BONUS INVESTED OF BENEFITS RELOCATION PENSION BASIC SALARY AS CASH IN SHARES IN KIND ASSISTANCE CONTRIBUTIONS) ------------ ---------- -------------- ----------- ---------- ---------------- 1995/96 1995/96 1995/96 1995/96 1995/96 1995/96 ------- ------- ------- ------- ------- ------- (in (pound) thousands) Peter Aikens............ 151 62 120 8 431 772 Hugh Etheridge.......... 87 35 70 13 - 205 Peter Huntley........... 87 35 70 11 - 203 Martin Boase............ 10 - - - - 10 Michael Garner.......... 10 - - - - 10 Michael Cottrell........ 70 26 - 6 - 102 Andrew Nash............. 50 20 79 3 - 152 Alan Dean............... 20 - - - - 20 David Fisher............ 47 - - 3 - 50 Robin Manners........... 20 - - - - 20 --- --- --- --- --- ----- 552 178 339 44 431 1,544 === === === === === =====
- 13 - On 19 March 1998 the sum of (pound)110,000 was paid to Peter Huntley by way of compensation for the termination of his employment with the Company. On 12 May 1997 the sum of (pound)177,630 was paid to Andrew Nash (a former director) by way of compensation for the termination of his employment with the Company. DIRECTORS' PENSION CONTRIBUTIONS Directors who were members of the Matthew Clark Executive Pension Plan had benefits as follows: HUGH MICHAEL ROBERT KEVIN ETHERIDGE COTTRELL MACNEVIN PHILP --------- -------- -------- ------ (in (pound)) Increase in accrued pension during 1996/97 ((pound)p.a.)...... 2,767 1,812 - - Transfer value of the increase...... 26,242 25,363 - - Contributions by individual director.......................... 4,200 3,875 - - Increase attributable to Company.... 22,042 21,488 - - Accumulated accrued pension at 30 April 1997.................. 17,026 13,671 - - Increase in accrued pension during 1997/98 ((pound)p.a.)............. 3,036 - 2,920 1,585 Transfer value of the increase...... 35,000 - 24,056 13,618 Contributions by individual director.......................... 4,200 - 4,200 4,908 Increase attributable to Company.... 30,800 - 19,856 8,710 Accumulated accrued pension at 30 April 1998.................. 20,672 - 2,920 32,463 Contributions to Personal Pension schemes in 1997/98 and 1996/97 and Pension schemes in 1995/96 were as follows: 1997/98 1996/97 1995/96 ------- ------- ------- (in (pound) thousands) Peter Aikens ................. 83 83 42 Peter Huntley ................ 35 37 18 Andrew Nash .................. - 39 14 Hugh Etheridge ............... 13 14 18 Robert MacNevin .............. 10 - - Michael Cottrell ............. - - 12 Contributions in respect of Peter Aikens, Andrew Nash and Peter Huntley were to their respective personal pension plans up to the maximum permitted under Inland Revenue rules. The element of contributions in excess of Inland Revenue rules is paid into a Funded Unapproved Retirement Benefit Scheme for the benefit of each individual. - 14 - DIRECTORS' BENEFICIAL INTEREST IN SHARES 30 APRIL 1998 1 MAY 1997 ------------- ---------- Peter Aikens ................... 79,467* 71,267 Hugh Etheridge ................. 31,591* 28,891 Peter Huntley .................. - 29,391 Robert MacNevin ................ - - Kevin Philp .................... 5,000 5,000 Martin Boase ................... 10,000 10,000 Michael Garner ................. 10,000 10,000 Graham Wilson .................. 10,000 10,000 * Note: A number of these shares were purchased from bonus paid under the Capital Incentive Scheme which imposes a minimum period before such shares may be sold. Details are provided below: SHARES TO BE HELD SHARES TO BE HELD UNTIL 1998 UNTIL 1999 ----------------- ----------------- Peter Aikens........... 8,227 9,715 Hugh Etheridge......... 4,775 5,675 There were no changes between 30 April 1998 and 6 July 1998. DIRECTORS' SHARE OPTIONS DATE FROM EXERCISE WHICH EXPIRY 1 MAY 1997 30 APRIL 1998 PRICE EXERCISABLE DATE ---------- ------------- -------- ----------- ------ Peter Aikens...... 52,652 52,652 331p 1996 2003 24,723 24,723 566p 1997 2004 56,811 56,811 561p 1997 2004 59,000 59,000 662p 1998 2005 ------- ------- 193,186 193,186 ======= ======= Hugh Etheridge.... 24,723 24,723 566p 1997 2004 18,937 18,937 561p 1997 2004 33,000 33,000 662p 1998 2005 ------- ------- 76,660 76,660 ======= ======= Robert MacNevin... - 40,000 247.5p 2000 2007 ======= ======= Kevin Philip...... 21,041 21,041 566p 1997 2004 10,521 10,521 523p 1997 2004 10,000 10,000 555p 1998 2005 2,000 2,000 662p 1998 2005 2,000 2,000 680p 1999 2005 - 60,000 247.5p 2000 2007 ------- ------- 45,562 105,562 ======= ======= - 15 - At 30 April 1998, the Company's share price was 201.5p. The highest and lowest share prices during the year were 277.5p and 162.5p, respectively. Exercise of the above options was not conditional upon any performance criteria. All options were granted for nil consideration. NOTE 6. STAFF NUMBERS AND COSTS The average number of people employed by the Group, including directors, within each category of activity was: 1998 1997 1996 ----- ----- ----- (number of people) Production staff................................ 471 516 513 Sales, marketing and distribution staff......... 883 792 663 Administration staff............................ 268 270 276 ----- ----- ----- 1,622 1,578 1,452 ===== ===== ===== The aggregate payroll costs of these persons were as follows: 1998 1997 1996 ---- ---- ---- (in (pound) millions) Wages and salaries ............................. 30.2 28.6 27.3 Social security costs .......................... 2.4 2.4 2.4 Other pension costs ............................ 0.2 (0.1) 0.3 ---- ---- ---- 32.8 30.9 30.0 ==== ==== ==== NOTE 7. PROFIT/(LOSS) ON FIXED ASSET SALES The profit/(loss) on fixed asset sales comprises: 1998 1997 1996 ---- ---- ---- (in (pound) millions) Profit on property sales............................... 4.2 0.4 - Provision for loss on plant and machinery sales........ (0.5) - (2.0) ---- ---- ---- 3.7 0.4 (2.0) ==== ==== ==== The tax charge for 1998 includes (pound)1.2m in respect of property sales. - 16 - NOTE 8. INTEREST PAYABLE AND SIMILAR CHARGES 1998 1997 1996 ---- ---- ---- (in (pound) millions) Bank interest and interest on loans repayable within 5 years.................................... 5.0 4.9 2.5 Finance charges on finance leases................... 0.1 0.1 0.1 Other............................................... - 0.1 0.1 ---- ---- ---- 5.1 5.1 2.7 ==== ==== ==== In addition interest capitalised into tangible fixed assets during the year was (pound)0.6m (1997--(pound)nil, 1996--(pound)nil). NOTE 9. TAX ON PROFIT ON ORDINARY ACTIVITIES 1998 1997 1996 ---- ---- ---- (in (pound) millions) The charge in the profit and loss account consists of: Corporation tax at 31% (1997--33%, 1996--33%) ...... 14.9 7.6 1.8 Deferred tax--effect of change in rate from 33% to 30% ....................................... (0.9) - - Deferred tax--other ................................ (3.5) 4.8 3.2 ---- ---- ---- 10.5 12.4 5.0 ==== ==== ==== 1998 1997 ---- ---- The deferred tax provision/(asset) represents: Excess of capital allowances over depreciation ..... (1.4) 6.6 Unutilised losses .................................. - (1.3) Pensions timing differences ........................ 5.7 6.3 Other timing differences ........................... (0.7) (3.6) Offset of ACT recoverable .......................... - (4.8) ---- ---- 3.6 3.2 ==== ==== The tax effect of exceptional items for the year ended 30 April 1996 was a credit of (pound)7.9m, which included a credit of (pound)0.8m attributable to the provision for loss on fixed asset disposals. - 17 - Full provision has been made for deferred tax except for a deferred tax asset of (pound)0.1m (1997--(pound)0.2m) on the excess of capital allowances over depreciation. 1998 1997 ---- ---- (in (pound) millions) Deferred tax At the beginning of the year................................ 3.2 (0.4) ACT and losses transferred to/(from) corporation tax........ 4.8 (2.9) Adjustment to fair value.................................... - 1.7 Deferred tax (credit)/charge to profit and loss account..... (4.4) 4.8 ---- ---- At the end of the year...................................... 3.6 3.2 ==== ==== NOTE 10. DIVIDENDS 1998 1997 1996 PENCE PENCE PENCE 1998 1997 1996 PER PER PER (pound) (pound) (pound) SHARE SHARE SHARE m m m ----- ----- ----- ----- ----- ----- Dividends paid or proposed: Ordinary shares Interim dividend paid of...... 5.0 9.0 9.0 4.4 7.9 7.9 Proposed final dividend of.... 8.0 15.0 15.0 7.1 13.3 13.3 ----- ---- ---- ---- ---- ---- Total........................... 13.0 24.0 24.0 11.5 21.2 21.2 ===== ==== ==== ==== ==== ==== Gross equivalent per share...... 16.25 30.0 30.0 ===== ==== ==== NOTE 11. EARNINGS PER SHARE The calculation of earnings per share is based on a profit of (pound)25.3m (1997--(pound)28.2m, 1996--(pound)12.1m) and 88,520,498 shares (1997--88,469,740 shares, 1996--66,023,926 shares), being the weighted average number in issue. A fully diluted earnings per share figure based on share options outstanding is not provided as the effect on earnings per share is not material. NOTE 12. INTANGIBLE ASSETS GROUP ----- (in (pound) millions) Cost and net book value of Strathmore brand At 30 April 1998, 30 April 1997 and 30 April 1996 ....... 9.7 === - 18 - NOTE 13. TANGIBLE ASSETS
LAND AND BUILDING -------------------------------- PLANT FIXTURES, ASSETS MACHINERY FITTINGS, LONG SHORT UNDER AND TOOLS AND GROUP FREEHOLD LEASEHOLD LEASEHOLD CONSTRUCTION VEHICLES EQUIPMENT TOTAL - ------------------------ -------- --------- --------- ------------ -------- --------- ----- (in (pound) millions) Cost At 30 April 1996 ..... 28.5 2.0 0.9 5.2 101.0 11.9 149.5 Additions ............ 0.5 - 0.1 9.7 13.3 1.6 25.2 Reclassifications .... 1.4 - - (10.2) 8.5 0.3 - Disposals ............ (1.3) - (0.1) - (12.5) (2.1) (16.0) ---- ---- ---- ---- ----- ---- ----- At 30 April 1997 ..... 29.1 2.0 0.9 4.7 110.3 11.7 158.7 Additions ............ 1.2 0.7 0.3 14.2 12.2 2.5 31.1 Reclassifications .... 16.1 (0.1) - (18.3) 1.7 0.6 - Disposals ............ (22.2) (1.3) - - (8.9) (2.8) (35.2) ---- ---- ---- ---- ----- ---- ----- At 30 April 1998 ..... 24.2 1.3 1.2 0.6 115.3 12.0 154.6 ==== ==== ==== ==== ===== ==== ===== Depreciation At 30 April 1996 ..... 7.2 0.7 0.1 - 45.6 8.7 62.3 Charged in the year... 0.4 - 0.1 - 7.0 1.2 8.7 Disposals ............ - - - - (8.8) (2.1) (10.9) ---- ---- ---- ---- ----- ---- ----- At 30 April 1997 ..... 7.6 0.7 0.2 - 43.8 7.8 60.1 Charged in the year... 0.4 - - - 8.2 1.2 9.8 Disposals ............ (5.2) (0.4) - - (4.2) (2.6) (12.4) ---- ---- ---- ---- ----- ---- ----- At 30 April 1998 ..... 2.8 0.3 0.2 - 47.8 6.4 57.5 ==== ==== ==== ==== ===== ==== ===== Net book amounts: At 30 April 1996 ..... 21.3 1.3 0.8 5.2 55.4 3.2 87.2 ==== ==== ==== ==== ===== ==== ===== At 30 April 1997 ..... 21.5 1.3 0.7 4.7 66.5 3.9 98.6 ==== ==== ==== ==== ===== ==== ===== At 30 April 1998 ..... 21.4 1.0 1.0 0.6 67.5 5.6 97.1 ==== ==== ==== ==== ===== ==== =====
Included within the depreciation charge for 1998 for plant machinery and vehicles of (pound)8.2m is an exceptional write down of (pound)1.0m of wine dispensing equipment with customers. The net book value of assets held under finance leases within plant machinery and vehicles as at 30 April 1998 was (pound)1.1m (1997--(pound)0.9m, 1996--(pound)1.4m). Depreciation on assets held under finance leases during the year ended 30 April 1998 was (pound)0.2m (1997--(pound)0.4m, 1996--(pound)0.4m). Freehold land and buildings includes (pound)4.6m (1997--(pound)4.6m, 1996--(pound)5.9m) in respect of land. - 19 - NOTE 14. STOCKS 1998 1997 ---- ---- (in (pound) millions) Raw materials and consummables ......... 8.7 5.9 Work in progress ....................... 7.3 9.7 Finished goods for resale .............. 28.6 33.7 ---- ---- 44.6 49.3 ==== ==== NOTE 15. DEBTORS 1998 1997 ----- ----- (in (pound) millions) Amounts falling due within one year: Trade debtors....................................... 83.3 91.2 ACT recoverable..................................... - 1.7 Other debtors....................................... 6.4 4.9 Prepayments and accrued income...................... 5.1 3.5 ----- ----- 94.8 101.3 ===== ===== Amounts falling due after more than one year: ACT recoverable..................................... 1.9 3.3 Pension prepayment.................................. 19.0 19.1 ----- ----- 20.9 22.4 ----- ----- 115.7 123.7 ===== ===== NOTE 16. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 1998 1997 ---- ---- (in (pound) millions) Trade and other creditors Trade creditors............................................. 52.0 52.8 Corporation tax............................................. 4.7 2.9 Other tax, including social security and ACT payable........ 10.4 12.3 Finance lease obligations less than one year (note 17)...... 0.4 0.4 Other creditors, including deferred duty.................... 11.0 12.5 Accruals and deferred income................................ 26.7 35.4 ----- ----- 105.2 116.3 ===== ===== - 20 - NOTE 17. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1998 1997 ---- ---- (in (pound) millions) Bank loans and overdrafts (unsecured) ....... 60.0 - Obligations under finance leases ............ 0.8 0.2 Deferred purchase consideration ............. 0.4 1.7 ---- ---- 61.2 1.9 ==== ==== The deferred purchase consideration of (pound)0.4m in the current year is in addition to (pound)1.2m (1997--(pound)0.6m, 1996--(pound)nil) included within other creditors due in less than one year and relates to the acquisitions of Dunn & Moore and Liddingtons and is related to future profits. The amount provided represents both the current best estimate of the amount payable in due course, and the maximum amount payable. The maturity of net obligations under finance leases and hire purchase contracts is as follows: 1998 1997 ---- ---- (in (pound) millions) Within one year ..................... 0.4 0.4 In the second to fifth years ........ 0.4 0.2 Over five years ..................... 0.4 - --- --- 1.2 0.6 === === NOTE 18. PROVISIONS FOR LIABILITIES AND CHARGES 1998 1997 ---- ---- (in (pound) millions) Deferred tax (see note 9) ................ 3.6 3.2 Provisions ............................... 11.9 14.4 ---- ---- 15.5 17.6 ==== ==== Provisions: At the beginning of the year ........... 14.4 17.5 Transfer to creditors .................. - (0.4) Release to profit and loss account within exceptional item .............. (1.0) - Used during the year ................... (1.5) (2.3) Released to goodwill ................... - (0.4) ---- ---- At the end of the year ................. 11.9 14.4 ==== ==== Provisions primarily relate to surplus property costs. - 21 - The Group has a number of freehold and leasehold properties which are surplus to operational requirements. Provision has been made for future fixed costs associated with these properties for the period up to their expected disposal. To the extent that these properties are disposed of earlier than anticipated a benefit will arise; conversely if the properties are not disposed of within the anticipated period a contingent liability exists for the ongoing fixed costs. NOTE 19. SHARE CAPITAL
4.9 PER CENT CUMULATIVE REDEEMABLE PREFERENCE SHARES ORDINARY SHARES OF (pound)1 EACH OF 25p EACH TOTAL ----------------- ----------------------- -------- NUMBER (pound)m NUMBER (pound)m (pound)m ------- -------- ----------- -------- -------- Authorised: Beginning and end of the year....................... 260,000 0.3 117,920,000 29.5 29.8 Allocated, called up and fully paid In issue at the beginning and end of the year....... - - 88,520,498 22.1 22.1
During the year no ordinary shares were issued under the share option schemes (1997--217,240 shares were issued for a total consideration of (pound)0.6m, 1996--64,270 shares for (pound)0.2m). In 1996 42.4m shares were issued for a non cash consideration of (pound)267.6m. NOTE 20. SHARE OPTIONS SAVINGS RELATED SHARE OPTION SCHEME: Employees and directors in the UK with a minimum of two years' service were entitled to apply for options to acquire ordinary shares at 100% (1997--100%) of the average of the middle market price on the three dealing days immediately preceding the date of the invitation. At 30 April 1998 options granted and outstanding under employee share schemes amounted to 458,102 ordinary shares. These options are exercisable at varying dates up to 2002 at prices ranging from (pound)2.92 to (pound)5.26 per share. During the year the Company issued no ordinary shares under the employee share schemes. EXECUTIVE SHARE OPTION SCHEME: Under the Company's executive scheme the board may offer options to executives, whose performance contributes significantly to the Company's results, at the middle market price on the dealing day immediately preceding the date of the grant of the option. - 22 - At 30 April 1998 options exercisable were as follows: PRICE PER NUMBER OF OPTIONS EXERCISABLE BETWEEN: SHARE SHARES ---------------------------- --------- --------- 15 March 1992 and 14 March 1999 .................. 338p 1,300 22 June 1996 and 21 June 2003 .................... 331p 65,652 20 January 1997 and 19 January 2004 .............. 566p 123,089 11 July 1997 and 10 July 2004 .................... 523p 50,497 17 October 1997 and 16 October 2004 .............. 561p 93,633 16 January 1998 and 15 January 2005 .............. 555p 61,000 20 July 1998 and 19 July 2005 .................... 628p 13,000 10 November 1998 and 9 November 2005 ............. 662p 106,000 16 January 1999 and 15 January 2006 .............. 680p 43,000 28 January 2000 and 27 January 2007 .............. 296.5p 203,000 25 July 2000 and 24 July 2007 .................... 247.5p 580,000 8 January 2001 and 7 January 2008 ................ 163p 225,000 During the year the Company issued no ordinary shares under the executive share option schemes. NOTE 21. RESERVES
CAPITAL GOODWILL PROFIT AND SHARE REDEMPTION MERGER WRITE-OFF LOSS PREMIUM RESERVE RESERVE RESERVE ACCOUNT ------- ---------- ------- ------- ------- (in (pound) millions) At 30 April 1996 as previously stated ........ 104.9 0.1 309.5 (364.4) (0.3) Prior year adjustments (note 1 (Goodwill)).... - - (309.5) 364.4 (54.9) ----- ---- ----- ----- ---- At 30 April 1996 as restated ................. 104.9 0.1 - - (55.2) Shares issued ................................ 0.6 - - - - Goodwill arising on acquisitions ............. - - - - 2.1 Retained profit for the year ................. - - - - 7.0 ----- ---- ----- ----- ---- At 30 April 1997 as restated ................. 105.5 0.1 - - (46.1) Retained profit for the year ................. - - - - 13.8 ----- ---- ----- ----- ---- At 30 April 1998 ............................. 105.5 0.1 - - (32.3) ===== ==== ===== ===== ====
The Cumulative amount of goodwill written off to reserves is (pound)362.3m (1997--(pound)362.3m, 1996--(pound)364.4m). - 23 - NOTE 22. RECONCILIATIONS OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1998 1997 1996 ------ ------ ------ (in (pound) millions) Opening shareholders' funds.......................... 81.6 71.9 79.6 ------ ------ ------ Profit for the year.................................. 25.3 28.2 12.1 Dividends paid and proposed.......................... (11.5) (21.2) (21.2) ------ ------ ------ Retained profit/(loss) for the year.................. 13.8 7.0 (9.1) New share capital subscribed......................... - 0.6 267.9 Goodwill adjustment.................................. - 2.1 (266.5) ------ ------ ------ Net addition/(reduction) to the shareholders' funds.. 13.8 9.7 (7.7) ------ ------ ------ Closing shareholders' funds.......................... 95.4 81.6 71.9 ====== ====== ====== NOTE 23. FINANCIAL AND CAPITAL COMMITMENTS 1998 1997 ---- ---- (in (pound) millions) Contracted commitments for capital expenditure....... 2.2 11.8 ==== ==== 1998 1997 ----------------- ----------------- LAND & LAND & BUILDINGS OTHER BUILDINGS OTHER --------- ----- --------- ----- (in (pound) millions) Annual commitments under operating leases which expire: Within one year................... - - 0.1 0.1 In the second to fifth years inclusive....................... 0.1 0.6 - 0.1 Over five years................... 2.9 - 2.3 0.3 --- --- --- --- 3.0 0.6 2.4 0.5 === === === === The Group had (pound)9.8m (1997--(pound)5.0m) of commitments under forward currency contracts at 30 April 1998. NOTE 24. PENSIONS The Company and its subsidiaries currently operate two Pension Plans, the Matthew Clark Group Pension Plan and the Matthew Clark Executive Pension Plan. These Plans are of the defined benefit type with assets held in Trustee administered funds separate from the Company's finances. In addition, a further Plan was acquired with the acquisition of Taunton Cider. This scheme was merged with the Matthew Clark Group Pension Plan on 1 April 1997. - 24 - Actuarial valuations of the Matthew Clark Group Pension Plan have been carried out by independent actuaries as at 1 January 1996. The funding level of the combined Plans on the assumptions stated below as at 1 January 1996 was 141%. The combined market value of the assets at 1 January 1996 was approximately (pound)92m. The pension cost is assessed in accordance with a qualified actuary's advice. The Actuary has considered the long-term effects of the removal of ACT relief for pension funds on the level of funding of the Plans. The increase in the pension expense is not significant. The assumptions adopted for the purposes of SSAP 24 were as follows: Long-term investment return ........ 9.00% Salary escalation .................. 6.00% Pension increases were allowed for in accordance with the Rules of the Plan and the past practice of granting discretionary increases. Assets were taken into account at 94.6% of their market value. On a discontinuance of either of the Plans, the market value of the assets exceeded the cost of securing the liabilities at the appropriate valuation date, assuming that cash equivalent transfer values were paid in respect of active or deferred members. NOTE 25. RECONCILIATION OF OPERATING PROFIT TO OPERATING CASHFLOWS 1998 1997 1996 ------ ------ ------ (in (pound) millions) Operating profit................................... 37.1 45.1 21.5 Exceptional charges................................ - - 22.4 Depreciation charges............................... 9.8 8.7 6.4 Loss of disposal and write-off of tangible fixed assets..................................... 3.6 2.9 0.7 Cashflow relating to previous year's restructuring provisions......................... (4.5) (11.2) (15.8) Decrease/(increase) in stocks...................... 4.7 11.7 (0.1) Decrease/(increase) in debtors..................... 5.4 13.6 (7.3) (Decrease)/increase in creditors and provisions.... (6.3) (18.5) 1.3 ------ ------ ------ Net cash inflow from operating activities.......... 49.8 52.3 29.1 ====== ====== ====== NOTE 26. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM (UK) AND UNITED STATES OF AMERICA (US) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) The Group's consolidated financial statements are prepared in conformity with generally accepted accounting principles applicable in the United Kingdom (UK GAAP), which differ in certain significant respects from those applicable in the United States of America (US GAAP). These differences together with the approximate effects of the adjustments on net profit and equity shareholders' funds, relate principally to the items set out below: (a) GOODWILL: During 1998 the Group adopted Financial Reporting Standard 10 'Goodwill and intangible assets'. The Group's policy for acquisitions which occurred prior to the issue of the standard is that purchased goodwill, - 25 - being the excess of the fair value of consideration paid or payable over the fair value of the identifiable net assets acquired, has been taken directly to reserves. On subsequent disposal, goodwill previously taken direct to reserves is included in determining the profit and loss on disposal. Previously such goodwill was presented separately within reserves as a 'goodwill write off reserve'. This is not permitted by the Standard and, accordingly, goodwill has been taken to merger reserve to the extent available and the balance taken to the profit and loss account. Under US GAAP, these intangible assets would be capitalised in the balance sheet and amortised through the statement of income over a period not exceeding 40 years. For the purposes of calculating the effect of capitalising the goodwill on the balance sheet and amortising the goodwill and brands through the statement of income, a life of 40 years has generally been assumed. However, under UK GAAP, the value of the brands, goodwill and other intangibles is reviewed annually by reference to historic and forecast contributions to operating income and an additional charge to the statement of income is made where a permanent diminution in net book value is identified. (b) BRANDS: Significant owned brands by the Group are capitalised as intangible assets at the time of acquisition. The Group does not provide amortisation on these assets. Under US GAAP, these would be amortised through the statement of income over a period not exceeding 40 years. (c) ACQUISITION ACCOUNTING: Prior to the adoption of Financial Reporting Standard 7, 'Fair values in acquisition accounting', the Group provided for certain costs as part of the purchase accounting adjustments on acquisition which under US GAAP would be included in the statement of income when those costs were incurred. Examples of such items include certain costs in respect of salaries of individuals made redundant, the closure of certain of the Group's existing operations and the rectification of inadequate operating systems. With effect from 30 April 1995, the Group adopted Financial Reporting Standard 7. This new standard sets out rules for accounting for acquisitions in consolidated financial statements resulting in a change in the difference between UK and US GAAP. US GAAP remained unchanged. The fair value balance sheet of an acquired company cannot include provisions for integration and reorganisation costs set up by the acquiring company. In compliance with the standard, comparative figures were not restated. Under US GAAP, certain integration and reorganisation costs may be considered liabilities assumed and included in the allocation of the acquisition cost. (d) RESTRUCTURING AND INTEGRATION COSTS: Under UK GAAP, when a decision has been taken to restructure part of the Group's business, provisions are made for the impairment of asset values together with severance and other costs. US GAAP requires a number of specific criteria to be met before such costs can be recognised as an expense. Among these is the requirement that all the significant actions arising from a restructuring and integration plan and their expected completion dates must be identified by the balance sheet date. US GAAP also requires recognition of the estimated net present value of future net lease obligations of vacant properties. (e) PENSIONS: The Group accounts for the costs of pensions under the rules set out in UK accounting standards. US GAAP is more prescriptive in respect of actuarial assumptions and the allocation of costs to accounting periods. - 26 - (f) LEASES: Under UK GAAP, provided certain conditions are met, it may be permissible to recognise any profit arising on the sale and leaseback, as an operating lease, of an asset. Under US GAAP, the gain or loss is deferred and amortised in proportion to the rental payments due over the term of the lease. (g) DEFERRED TAXATION: UK GAAP requires that no provision for deferred taxation should be made if there is reasonable evidence that such taxation will not be payable within the foreseeable future and that deferred tax assets should only be recognised if the realisation of such assets can be assessed with reasonable certainty. US GAAP requires full provision for deferred taxation liabilities, and permits deferred tax assets to be recognised if their realisation is considered to be more likely than not. (h) STATEMENT OF CASH FLOWS: Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation paid, capital expenditure, acquisitions, dividends paid, and financing activities. Under US GAAP, cash flows are reported as operating activities, investing activities, and financing activities. Cash flows from taxation and returns on investments and servicing of finance would, with the exception of ordinary dividends paid, be included as operating activities. The payment of dividends would be included under financing activities. Under UK GAAP, cash includes bank overdrafts repayable on demand. Under US GAAP, cash flows in respect of overdrafts are included under financing activities. (i) EARNINGS PER ORDINARY SHARE: Under UK and US GAAP, basic earnings per share is computed using the weighted average number of ordinary shares in issue during the year. US GAAP also requires the computation of diluted earnings per share which includes the effect of potential common stock under the treasury stock method. (j) ORDINARY DIVIDENDS: Under UK GAAP, the proposed dividends on ordinary shares, as recommended by the directors, are deducted from shareholders' equity and shown as a liability in the balance sheet at the end of the period to which they relate. Under US GAAP, such dividends are only deducted from shareholders' equity at the date of declaration of the dividend. Set out below is a summary combined statement of cash flows under US GAAP. 30 April 1998 30 April 1997 ------------- ------------- (in (pound) millions) Net cash provided by operating activities 36.2 40.4 Net cash used in investing activities (10.2) (18.4) Net cash used in financing activities (14.5) (20.8) ----- ----- Net increase in cash under US GAAP 11.5 1.2 ===== ===== - 27 - The following is a summary of the material adjustments to net income and shareholders' equity which would have been required if US GAAP had been applied instead of UK GAAP: 1998 1997 ----- ----- (in (pound) millions) NET INCOME - UK GAAP AFTER EXCEPTIONAL ITEMS 25.3 28.2 ----- ----- ADJUSTMENTS TO CONFORM WITH US GAAP - - Amortisation of goodwill and intangibles (9.1) (9.1) - - Restructuring costs (1.4) (1.7) - - Pension expense 0.1 0.7 - - Sale and leaseback (3.7) - - - Deferred tax on US GAAP adjustments 1.5 0.3 ----- ----- Total US GAAP adjustments (12.6) (9.8) ----- ----- NET INCOME - US GAAP 12.7 18.4 ===== ===== Pence Pence ----- ----- Basic earnings per Ordinary Share in accordance with US GAAP 14.3 20.8 Diluted earnings per Ordinary Share in accordance with US GAAP 14.3 20.8 1998 1997 ----- ----- (in (pound) millions) SHAREHOLDERS' EQUITY, AS SHOWN IN THE GROUP BALANCE SHEETS - UK GAAP 95.4 81.6 ----- ----- ADJUSTMENTS TO CONFORM WITH US GAAP - - Goodwill and intangibles 322.8 331.9 - - Restructuring provisions 5.0 6.4 - - Pension expense 2.5 2.4 - - Sale and leaseback (3.7) - - - Deferred taxation on US GAAP adjustments 0.4 (1.2) - - Dividends 7.1 13.3 ----- ----- Total US GAAP adjustments 334.1 352.8 ----- ----- TOTAL SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP 429.5 434.4 ===== ===== - 28 - PRO FORMA COMBINED FINANCIAL DATA (UNAUDITED) On November 3, 1998, Canandaigua Limited, a wholly-owned subsidiary of Canandaigua Brands, Inc., announced a cash tender offer for the entire issued and to be issued ordinary share capital of Matthew Clark. The offer valued each Matthew Clark share at 243 pence, valuing the whole of the issued ordinary share capital of Matthew Clark at approximately (pound)215 million. On December 1, 1998, Canandaigua Limited declared the cash tender offer to be wholly unconditional - all conditions to the offer having either been satisfied or waived. Canandaigua Limited thereby acquired control of Matthew Clark (the "Matthew Clark Acquisition"). The following pro forma financial data of the Company consists of (i) a pro forma condensed combined balance sheet (unaudited) as of August 31, 1998 (the "Pro Forma Balance Sheet"), (ii) a 1998 fiscal year pro forma condensed combined statement of income (unaudited) (the "1998 Pro Forma Statement of Income") and (iii) a 1999 six month pro forma condensed combined statement of income (unaudited) (the "1999 Six Month Pro Forma Statement of Income") (collectively, the "Pro Forma Statements"). The Pro Forma Balance Sheet reflects the combination of the balance sheet of the Company as of August 31, 1998, and the balance sheet of Matthew Clark as of October 31, 1998, as adjusted for the Matthew Clark Acquisition. The Pro Forma Balance Sheet is presented as if the Matthew Clark Acquisition was consummated on August 31, 1998. The 1998 Pro Forma Statement of Income reflects the combination of the income statement of the Company for the year ended February 28, 1998, and the income statement of Matthew Clark for the year ended April 30, 1998, as adjusted for the Matthew Clark Acquisition. The 1998 Pro Forma Statement of Income is presented as if the Matthew Clark Acquisition was consummated on March 1, 1997. The 1999 Six Month Pro Forma Statement of Income reflects the combination of the income statement of the Company for the six months ended August 31, 1998, and the income statement of Matthew Clark for the six months ended October 31, 1998, as adjusted for the Matthew Clark Acquisition. The 1999 Six Month Pro Forma Statement of Income is presented as if the Matthew Clark Acquisition was consummated on March 1, 1997. The Pro Forma Statements should be read in conjunction with the separate historical financial statements of the Company and Matthew Clark and the notes thereto and with the accompanying notes to the Pro Forma Statements. The Pro Forma Statements are based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The Pro Forma Statements do not purport to represent what the Company's financial position or results of operations would actually have been if the aforementioned transaction in fact had occurred on such date or at the beginning of the period indicated or to project the Company's financial position or the results of operations at any future date or for any future period. - 29 - CANANDAIGUA BRANDS, INC. AND MATTHEW CLARK plc PRO FORMA CONDENSED COMBINED BALANCE SHEET AUGUST 31, 1998 (UNAUDITED) (in thousands)
Pro Forma Historical Adjustments ----------------------------- ----------- Company Matthew Clark as of as of August 31, October 31, For the Pro Forma 1998 1998 Acquisition Combined ------------ ------------- ----------- --------- ASSETS: Cash and cash equivalents $ 1,473 $ 12,130 $ 13,603 Accounts receivable, net 154,550 137,196 291,746 Inventories, net 345,972 94,533 440,505 Prepaid expenses and other current assets 37,550 22,113 59,663 Property, plant and equipment, net 246,157 151,589 $ 13,609 (a) 411,355 Other assets 262,004 585,476 (320,910)(a) 540,446 17,260 (b) (3,384)(f) ----------- ----------- --------- ---------- Total assets $ 1,047,706 $ 1,003,037 $(293,425) $1,757,318 =========== =========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable $ 63,000 $ 63,000 Current maturities of long-term debt 24,118 $ 1,038 25,156 Accounts payable 65,624 92,685 $ 8,919 (b) 167,228 Accrued Federal and state excise taxes 21,561 14,273 35,834 Other accrued expenses and liabilities 101,569 74,671 5,058 (b) 179,911 (1,387)(f) Long-term debt, less current maturities 297,407 102,008 379,599 (c) 779,014 Deferred income taxes 59,237 (8) 18,946 (e) 78,175 Other liabilities 5,445 15,807 21,252 ----------- ----------- --------- ---------- Total liabilities 637,961 300,474 411,135 1,349,570 ----------- ----------- --------- ---------- Common stock 217 37,061 (37,061)(d) 217 Additional paid-in capital 234,992 695,193 (695,193)(d) 234,992 Retained earnings (Accumulated deficit) 249,733 (29,691) 29,691 (d) 247,736 (1,997)(f) Less: Treasury stock (75,197) (75,197) ----------- ----------- --------- ---------- Total stockholders' equity 409,745 702,563 (704,560) 407,748 ----------- ----------- --------- ---------- Total liabilities and stockholders' equity $ 1,047,706 $ 1,003,037 $(293,425) $1,757,318 =========== =========== ========= ==========
- 30 - CANANDAIGUA BRANDS, INC. AND MATTHEW CLARK plc NOTES TO THE PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF AUGUST 31, 1998 (UNAUDITED) (IN THOUSANDS) (a) Reflects the estimated purchase accounting adjustments for the Matthew Clark Acquisition based upon a preliminary appraisal of the assets and liabilities assumed. For purchase accounting, Matthew Clark assets have been recorded at estimated fair market value subject to adjustment based upon the results of an independent appraisal. The estimated amounts recorded for assets and liabilities acquired from Matthew Clark are not expected to differ materially from the final assigned values. Purchase accounting adjustments were recorded to increase property, plant and equipment by $13,609, to increase the recorded value of tradenames and other intangible assets by $54,604 and to reduce the recorded excess of purchase cost over fair market value of assets acquired by $375,514. These adjustments are required to record these assets at their estimated fair market values. The calculation of excess purchase cost over fair value of net assets acquired is as follows: Cash paid $ 362,339 Financing costs 17,260 Direct acquisition costs 8,919 --------- 388,518 Liabilities assumed 5,058 --------- Total purchase cost 393,576 Net book value of Matthew Clark (702,563) Write-down of acquired goodwill 532,946 Increase in appraised net assets (68,213) Finance costs capitalized (17,260) Deferred taxes provided 18,946 --------- Excess of purchase cost over fair value of assets acquired and liabilities assumed $ 157,432 ========= (b) Reflects the liability for direct acquisition costs of $8,919 and assumed liabilities of $5,058. Capitalized financing costs of $17,260 were funded through the Credit Agreement. (c) Reflects the borrowings in connection with the Matthew Clark Acquisition. The sources and application of funds in connection with the Matthew Clark Acquisition is as follows: Sources of funds: Borrowings under the Credit Agreement $ 379,599 Accrued liabilities 8,919 --------- Total sources of funds $ 388,518 ========= - 31 - Application of funds: Cash purchase price $ 362,339 Payment of financing costs 17,260 Payment of direct acquisition costs 8,919 --------- Total application of funds $ 388,518 ========= (d) Reflects the elimination of Matthew Clark's shareholders' equity. (e) Represents deferred taxes of $18,946 provided on a step-up in basis on appraised net assets. (f) Represents the write-off of the net book value of bank fees associated with the Company's previously existing credit agreement, tax effected at the Company's historical rate of 41%. - 32 - CANANDAIGUA BRANDS, INC. AND MATTHEW CLARK plc 1998 FISCAL YEAR PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share data)
Pro Forma Historical Adjustments -------------------------------- ----------- US GAAP Company Matthew Clark Year Ended Year Ended February 28, April 30, For The Pro Forma 1998 1998 Acquisition Combined ------------ ------------- ----------- ----------- Net sales $ 1,212,788 $ 685,939 $ 1,898,727 Cost of product sold (864,053) (460,093) $ 1,474 (a) (1,322,672) ----------- --------- --------- ----------- Gross profit 348,735 225,846 1,474 576,055 Selling, general and administrative expenses (231,680) (181,572) 1,723 (a) (404,286) 8,801 (b) (1,558)(c) ----------- --------- --------- ----------- Operating income 117,055 44,274 10,440 171,769 Interest expense, net (32,189) (8,575) (35,366)(d) (76,130) ----------- --------- --------- ----------- Income (loss) before income taxes 84,866 35,699 (24,926) 95,639 (Provision for) benefit from income taxes (34,795) (14,792) 11,331 (e) (38,256) ----------- --------- --------- ----------- Net income (loss) $ 50,071 $ 20,907 $ (13,595)(f) $ 57,383 =========== ========= ========= =========== Share Data: Earnings per common share: Basic $ 2.68 $ 3.07 =========== =========== Diluted $ 2.62 $ 3.00 =========== =========== Weighted average common shares outstanding: Basic 18,672 18,672 Diluted 19,105 19,105
- 33 - CANANDAIGUA BRANDS, INC. AND MATTHEW CLARK plc NOTES TO THE PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED FEBRUARY 28, 1998 (UNAUDITED) (IN THOUSANDS) (a) Reflects the adjusted depreciation expense related to the acquired property, plant and equipment of Matthew Clark on the assumption that the Matthew Clark Acquisition had taken place on March 1, 1997. These assets have been restated at their estimated fair market values and depreciated using the Company's depreciation methods over the remaining useful lives of the assets. The decrease in depreciation expense of $3,197, as compared to that recorded by Matthew Clark, was allocated to cost of product sold and selling, general and administrative expenses as indicated. (b) Reflects a decrease in amortization expense of intangible assets of $8,801 based upon their appraised values, using the straight-line method and estimated useful lives, predominately 40 years. (c) Reflects the amortization expense of deferred financing costs of $2,877 over the term of the Credit Agreement used to finance the Matthew Clark Acquisition (72 months) using the effective interest method, net of $1,319 of amortization expense recorded under the Company's previously existing credit agreement. (d) Reflects the additional interest expense incurred on the debt to finance the Matthew Clark Acquisition and the incremental interest expense on the Company's and Matthew Clark's existing borrowings, resulting from the higher interest rate in the Credit Agreement. The overall effective interest rate was 8.8% per annum. (e) Reflects the tax effect of the pro forma adjustments and the repatriation of profits, excluding the impact of nondeductible items, primarily goodwill, using an effective tax rate of 40%. (f) Does not reflect the extraordinary treatment for the after tax write-off of $2.7 million ($0.14 per diluted share), representing the net book value of bank fees resulting from the extinguishment of debt remaining under the Company's previously existing credit agreement, tax effected at the Company's historical rate of 41%. - 34 - CANANDAIGUA BRANDS, INC. AND MATTHEW CLARK plc 1999 SIX MONTH PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share data)
Pro Forma Historical Adjustments ------------------------------------- ----------- US GAAP Company Matthew Clark Six Months Ended Six Months Ended August 31, October 31, For The Pro Forma 1998 1998 Acquisition Combined ---------------- ---------------- ----------- ----------- Net sales $ 662,314 $ 339,312 $ 1,001,626 Cost of product sold (467,767) (232,494) $ 659 (a) (699,602) --------- --------- -------- ----------- Gross profit 194,547 106,818 659 302,024 Selling, general and administrative expenses (128,786) (87,782) 686 (a) (212,160) 4,445 (b) (723)(c) Nonrecurring restructuring expenses (18,263) (18,263) --------- --------- -------- ----------- Operating income 65,761 773 5,067 71,601 Interest expense, net (15,952) (4,284) (18,089)(d) (38,325) --------- --------- -------- ----------- Income (loss) before income taxes 49,809 (3,511) (13,022) 33,276 (Provision for) benefit from income taxes (20,422) (1,265) 8,377 (e) (13,310) --------- --------- -------- ----------- Net income (loss) $ 29,387 $ (4,776) $ (4,645) $ 19,966 ========= ========= ======== =========== Share Data: Earnings per common share: Basic $ 1.57 $ 1.07 ========= =========== Diluted $ 1.53 $ 1.04 ========= =========== Weighted average common shares outstanding: Basic 18,669 18,669 Diluted 19,168 19,168
- 35 - CANANDAIGUA BRANDS, INC. AND MATTHEW CLARK plc NOTES TO THE PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED AUGUST 31, 1998 (UNAUDITED) (IN THOUSANDS) (a) Reflects the adjusted depreciation expense related to the acquired property, plant and equipment of Matthew Clark on the assumption that the Matthew Clark Acquisition had taken place on March 1, 1997. These assets have been restated at their estimated fair market values and depreciated using the Company's depreciation methods over the remaining useful lives of the assets. The decrease in depreciation expense of $1,345, as compared to that recorded by Matthew Clark, was allocated to cost of product sold and selling, general and administrative expenses as indicated. (b) Reflects a decrease in amortization expense of intangible assets of $4,445 based upon their appraised values, using the straight-line method and estimated useful lives, predominately 40 years. (c) Reflects the amortization expense of deferred financing costs of $1,438 over the term of the Credit Agreement used to finance the Matthew Clark Acquisition (72 months) using the effective interest method, net of $715 of amortization expense recorded under the Company's previously existing credit agreement. (d) Reflects the additional interest expense incurred on the debt to finance the Matthew Clark Acquisition and the incremental interest expense on the Company's and Matthew Clark's existing borrowings, resulting from the higher interest rate in the Credit Agreement. The overall effective interest rate was 8.5% per annum. (e) Reflects the tax effect of the pro forma adjustments and the repatriation of profits, excluding the impact of nondeductible items, primarily goodwill, using an effective tax rate of 40%. - 36 - 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: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Senior Vice President and Chief Financial Officer SUBSIDIARIES BATAVIA WINE CELLARS, INC. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Treasurer CANANDAIGUA WINE COMPANY, INC. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Treasurer CANANDAIGUA EUROPE LIMITED Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Treasurer CANANDAIGUA LIMITED Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Director (Principal Financial Officer and Principal Accounting Officer) POLYPHENOLICS, INC. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President and Treasurer - 37 - ROBERTS TRADING CORP. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Treasurer BARTON INCORPORATED Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President BARTON BRANDS, LTD. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President BARTON BEERS, LTD. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President BARTON BRANDS OF CALIFORNIA, INC. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President BARTON BRANDS OF GEORGIA, INC. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President BARTON DISTILLERS IMPORT CORP. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President BARTON FINANCIAL CORPORATION Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President - 38 - STEVENS POINT BEVERAGE CO. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President MONARCH IMPORT COMPANY Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President THE VIKING DISTILLERY, INC. Dated: December 16, 1998 By: /s/ Thomas S. Summer -------------------------------- Thomas S. Summer, Vice President - 39 - INDEX TO EXHIBITS (1) UNDERWRITING AGREEMENT Not Applicable. (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 herewith). (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 First Amended and Restated Credit Agreement, dated as of November 2, 1998, between the Company, its principal operating subsidiaries, and certain banks for which The Chase Manhattan Bank acts as Administrative Agent (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. (16) LETTER RE CHANGE IN CERTIFYING ACCOUNTANT Not Applicable. (17) LETTER RE DIRECTOR RESIGNATION Not Applicable. (20) OTHER DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS Not Applicable. (23) CONSENTS OF EXPERTS AND COUNSEL 23.1 Consent of KPMG Audit Plc (filed herewith). (24) POWER OF ATTORNEY Not Applicable. (27) FINANCIAL DATA SCHEDULE Not Applicable. (99) ADDITIONAL EXHIBITS None