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, 1998
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 No.)
incorporation or
organization)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
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(Address of principal executive offices) (Zip Code)
(716)393-4130
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(Registrants' telephone number, including area code)
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(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 18, 1998, 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 14,678,619
Class B Common Stock, Par Value $.01 Per Share 3,225,023
- 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,
1998 1998
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 2,141 $ 1,232
Accounts receivable, net 173,760 142,615
Inventories, net 441,048 394,028
Prepaid expenses and other current assets 42,373 26,463
----------- -----------
Total current assets 659,322 564,338
PROPERTY, PLANT AND EQUIPMENT, net 247,499 244,035
OTHER ASSETS 260,412 264,786
----------- -----------
Total assets $ 1,167,233 $ 1,073,159
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 114,500 $ 91,900
Current maturities of long-term debt 24,118 24,118
Accounts payable 71,379 52,055
Accrued Federal and state excise taxes 24,632 17,498
Other accrued expenses and liabilities 153,233 97,763
----------- -----------
Total current liabilities 387,862 283,334
----------- -----------
LONG-TERM DEBT, less current maturities 291,386 309,218
----------- -----------
DEFERRED INCOME TAXES 59,337 59,237
----------- -----------
OTHER LIABILITIES 5,018 6,206
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at November 30, 1998,
and February 28, 1998 -- --
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 17,859,769 shares at
November 30, 1998, and 17,604,784
shares at February 28, 1998 178 176
Class B Convertible Common Stock,
$.01 par value- Authorized, 20,000,000
shares; Issued, 3,850,748 shares at
November 30, 1998, and 3,956,183 shares
at February 28, 1998 39 40
Additional paid-in capital 235,860 231,687
Retained earnings 269,383 220,346
----------- -----------
505,460 452,249
----------- -----------
Less-Treasury stock-
Class A Common Stock, 3,183,605 shares
at November 30, 1998, and 2,199,320
shares at February 28, 1998, at cost (79,623) (34,878)
Class B Convertible Common Stock,
625,725 shares at November 30, 1998,
and February 28, 1998, at cost (2,207) (2,207)
----------- -----------
(81,830) (37,085)
----------- -----------
Total stockholders' equity 423,630 415,164
----------- -----------
Total liabilities and stockholders' equity $ 1,167,233 $ 1,073,159
=========== ===========
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 For the Three Months
Ended November 30, Ended November 30,
----------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 1,374,183 $ 1,252,372 $ 494,033 $ 432,046
Less - Excise taxes (336,283) (322,134) (118,447) (109,343)
----------- ----------- --------- ---------
Net sales 1,037,900 930,238 375,586 322,703
COST OF PRODUCT SOLD (728,526) (666,747) (260,759) (224,703)
----------- ----------- --------- ---------
Gross profit 309,374 263,491 114,827 98,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (202,561) (171,772) (73,775) (60,289)
----------- ----------- --------- ---------
Operating income 106,813 91,719 41,052 37,711
INTEREST EXPENSE, net (23,700) (23,885) (7,748) (7,861)
----------- ----------- --------- ---------
Income before provision for Federal
and state income taxes 83,113 67,834 33,304 29,850
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (34,076) (27,812) (13,654) (12,239)
----------- ----------- --------- ---------
NET INCOME $ 49,037 $ 40,022 $ 19,650 $ 17,611
=========== =========== ========= =========
SHARE DATA:
Earnings per common share:
Basic $ 2.66 $ 2.14 $ 1.10 $ 0.94
=========== =========== ========= =========
Diluted $ 2.60 $ 2.10 $ 1.07 $ 0.92
=========== =========== ========= =========
Weighted average common shares outstanding:
Basic 18,412 18,663 17,892 18,659
Diluted 18,881 19,054 18,325 19,181
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,
------------------------
1998 1997
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,037 $ 40,022
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property, plant and equipment 18,166 18,806
Amortization of intangible assets 7,523 6,987
Amortization of discount on long-term debt 287 261
Stock-based compensation expense 76 529
Deferred tax (benefit) provision (2,800) 6,900
Gain on sale of property, plant and equipment (16) (3,036)
Change in operating assets and liabilities:
Accounts receivable, net (31,143) (42,192)
Inventories, net (47,019) (91,008)
Prepaid expenses and other current assets (15,690) 2,552
Accounts payable 19,324 6,896
Accrued Federal and state excise taxes 7,134 3,161
Other accrued expenses and liabilities 58,369 21,649
Other assets and liabilities, net (3,917) (1,043)
-------- ---------
Total adjustments 10,294 (69,538)
-------- ---------
Net cash provided by (used in) operating
activities 59,331 (29,516)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,660) (23,206)
Purchase of joint venture minority interest (716) --
Proceeds from sale of property, plant and
equipment 45 12,547
-------- ---------
Net cash used in investing activities (22,331) (10,659)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (44,878) (9,233)
Principal payments of long-term debt (18,119) (64,193)
Net proceeds from notes payable 22,600 104,000
Exercise of employee stock options 3,021 1,194
Proceeds from employee stock purchases 1,285 1,256
Payment of issuance costs of long-term debt -- (561)
-------- ---------
Net cash (used in) provided by financing
activities (36,091) 32,463
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 909 (7,712)
CASH AND CASH INVESTMENTS, beginning of period 1,232 10,010
-------- ---------
CASH AND CASH INVESTMENTS, end of period $ 2,141 $ 2,298
======== =========
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, 1998
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 fairly the financial information for Canandaigua Brands, 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 Annual Report on Form 10-K for the fiscal year ended
February 28, 1998.
2) 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. Substantially all of the inventories are valued using the LIFO method.
Elements of cost include materials, labor and overhead and consist of the
following:
November 30, February 28,
1998 1998
------------ ------------
(in thousands)
Raw materials and supplies $ 16,739 $ 14,439
Wine and distilled spirits in process 340,764 304,037
Finished case goods 102,558 92,948
--------- ---------
460,061 411,424
Less - LIFO reserve (19,013) (17,396)
--------- ---------
$ 441,048 $ 394,028
========= =========
Information related to the FIFO method of inventory valuation may be useful
in comparing operating results to those companies not using the LIFO method of
inventory valuation. If the FIFO method had been used, reported net income would
have been $1.0 million, or $0.05 per share on a diluted basis, higher for the
nine months ended November 30, 1998, and reported net income would have been
$0.7 million, or $0.03 per share on a diluted basis, higher for the nine months
ended November 30, 1997.
- 5 -
3) BORROWINGS:
BANK CREDIT AGREEMENT -
In June 1998, the bank credit agreement was amended to, among other things,
eliminate the requirement that the Company reduce the outstanding balance of the
revolving loan facility to less than $60.0 million for thirty consecutive days
during the six months ending each August 31. In July 1998, the revolving loan
facility under the bank credit agreement was increased by $100.0 million to
$285.0 million.
4) RETIREMENT SAVINGS AND PROFIT SHARING RETIREMENT PLAN:
Effective March 1, 1998, the Company's existing retirement savings and
profit sharing retirement plans and the Barton profit sharing and 401(k) plan
were merged into the Canandaigua Brands, Inc. 401(k) and Profit Sharing Plan
(the "Plan"). The Plan covers substantially all employees, excluding those
employees covered by collective bargaining agreements. The 401(k) portion of the
Plan permits eligible employees to defer a portion of their compensation (as
defined in the Plan) on a pretax basis. Participants may defer up to 10% of
their compensation for the year, subject to limitations of the Plan. The Company
makes a matching contribution of 50% of the first 6% of compensation a
participant defers. The amount of the Company's contribution under the profit
sharing portion of the Plan is in such discretionary amount as the Board of
Directors may annually determine, subject to limitations of the Plan.
5) STOCKHOLDERS' EQUITY:
STOCK REPURCHASE AUTHORIZATION -
In June 1998, the Company's Board of Directors authorized the repurchase of
up to $100.0 million of its Class A Common Stock and Class B Convertible Common
Stock. The Company may finance such purchases, which will become treasury
shares, through cash generated from operations or through the bank credit
agreement.
INCREASE IN NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK -
In July 1998, the stockholders of the Company approved an increase in the
number of authorized shares of Class A Common Stock from 60,000,000 shares to
120,000,000 shares, thereby increasing the aggregate number of authorized shares
of the Company to 141,000,000 shares.
6) EARNINGS PER COMMON SHARE:
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," ("SFAS No. 128") effective February 28,
1998. Basic earnings per common share excludes the effect of common stock
equivalents and is 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 reflects 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 assumes the exercise of stock options
using the treasury stock method and assumes the conversion of convertible
- 6 -
securities, if any, using the "if converted" method. Historical earnings per
common share have been restated to conform with the provisions of SFAS No. 128.
The computation of basic and diluted earnings per common share is as
follows:
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands, except per share data)
Income applicable to common shares $49,037 $40,022 $19,650 $17,611
======= ======= ======= =======
Weighted average common shares
outstanding - basic 18,412 18,663 17,892 18,659
Stock options 469 391 433 522
------- ------- ------- -------
Weighted average common shares
outstanding - diluted 18,881 19,054 18,325 19,181
======= ======= ======= =======
EARNINGS PER COMMON SHARE - BASIC $ 2.66 $ 2.14 $ 1.10 $ 0.94
======= ======= ======= =======
EARNINGS PER COMMON SHARE - DILUTED $ 2.60 $ 2.10 $ 1.07 $ 0.92
======= ======= ======= =======
7) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The subsidiary guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarized financial information for the subsidiary guarantors is
set forth below. 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 the nonguarantor 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 or loan repayments; however, except for limited amounts, the
subsidiary guarantors may not loan funds to the Company.
The following table presents summarized financial information for
subsidiary guarantors in connection with all of the Company's 8.75% Senior
Subordinated Notes:
November 30, February 28,
1998 1998
------------ ------------
(in thousands)
Balance Sheet Data:
Current assets $ 539,422 $ 460,618
Noncurrent assets $ 396,441 $ 395,225
Current liabilities $ 110,068 $ 102,207
Noncurrent liabilities $ 62,224 $ 61,784
- 7 -
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands)
Income Statement Data:
Net sales $848,196 $764,457 $294,751 $250,119
Gross profit $185,749 $153,590 $ 62,469 $ 47,165
Income before provision for
Federal and state income taxes $ 75,693 $ 58,658 $ 25,532 $ 17,210
Net income $ 44,659 $ 34,886 $ 15,064 $ 10,118
8) ACCOUNTING PRONOUNCEMENT:
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
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. The Company is required to adopt SFAS No. 133 on a prospective basis
for interim periods and fiscal years beginning March 1, 2000. The Company
believes the effect of adoption on its financial statements will not be material
based on the Company's current risk management strategies.
9) SUBSEQUENT EVENTS:
ACQUISITION OF MATTHEW CLARK PLC -
On November 3, 1998, Canandaigua Limited, a wholly-owned subsidiary of the
Company, 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)215.1 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. 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. On December 14, 1998, valid acceptances had been received 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.
- 8 -
The purchase price for the Matthew Clark shares was funded with proceeds
from loans under a First Amended and Restated Credit Agreement (the "1998 Credit
Agreement"), effective as of November 2, 1998, between the Company and The Chase
Manhattan Bank, as administrative agent, and a syndicate of banks who are
parties to the 1998 Credit Agreement.
1998 CREDIT AGREEMENT -
On December 14, 1998, the Company, its principal operating subsidiaries
(other than Matthew Clark and it subsidiaries), and a syndicate of banks (the
"Syndicate Banks"), for which The Chase Manhattan Bank acts as administrative
agent, entered into the 1998 Credit Agreement, effective as of November 2, 1998,
which amends and restates in its entirety the credit agreement entered into
between the Company and The Chase Manhattan Bank on November 2, 1998. The 1998
Credit Agreement includes both US Dollar and 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) with the proceeds
available for repayment of all outstanding principal and accrued interest on all
loans under the Company's bank credit agreement dated as of December 19, 1997,
payment of the purchase price for the Matthew Clark shares, repayment of Matthew
Clark's credit facilities, funding of permitted acquisitions, payment of
transaction expenses and ongoing working capital needs of the Company.
The 1998 Credit Agreement provides for a $350.0 million Tranche I Term Loan
facility due in December 2004, a $200.0 million Tranche II Term Loan facility
due in June 2000, a $150.0 million Tranche III Term Loan facility due in
December 2005, 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.
Portions of the Tranche I Term Loan facility and the Revolving Credit facility
are available for borrowing in Pounds Sterling.
The Tranche I Term Loan facility requires quarterly repayments, starting at
$6.265 million in December 1999, increasing annually thereafter and with a
balloon payment at maturity of approximately $110.0 million. The Tranche II Term
Loan facility requires no principal payments prior to stated maturity. The
Tranche III Term Loan facility requires quarterly repayments, starting at $0.375
million in December 1999 and increasing to approximately $17.95 million in March
2004. There are certain mandatory term loan prepayments, including those based
on excess cash flow, sale of assets, issuance of debt or equity, and
fluctuations in the US Dollar/Pound Sterling exchange rate, in each case subject
to baskets and thresholds which (other than with respect to those pertaining to
fluctuations in the Dollar/Pound exchange rate, which were inapplicable under
the previous bank credit agreement) are generally more favorable to the Company
than those contained in its previous bank credit agreement.
The rate of interest payable, at the Company's option, is a function of the
London interbank offered 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 1998 Credit Agreement). The initial
margin on LIBOR borrowings ranges between 1.75% and 2.50% and (other than for
the Tranche II Term Loan facility) may be reduced after November 30, 1999 to
between 1.125% and 1.50%, depending on the Company's Debt Ratio. Conversely, if
the Debt Ratio of the Company should increase, the margin would be adjusted
upwards to up to between 2.0% and 2.75% for LIBOR based borrowings. 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 0.375%, depending on the Company's Debt Ratio.
- 9 -
Each of the Company's principal operating subsidiaries (other than Matthew
Clark and its subsidiaries) has guaranteed the Company's obligations under the
1998 Credit Agreement, and the Company and those subsidiaries have given
security interests to the Syndicate Banks in substantially all of their assets.
The Company and its subsidiaries are subject to customary secured lending
covenants including those restricting additional liens, the incurrence of
additional indebtedness, the sale of assets, the payment of dividends,
transactions with affiliates and the making of certain investments. 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 1998 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.
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, 1998 ("Third Quarter 1999"), compared to the three
months ended November 30, 1997 ("Third Quarter 1998"), and for the nine months
ended November 30, 1998 ("Nine Months 1999"), compared to the nine months ended
November 30, 1997 ("Nine Months 1998"), and (ii) financial liquidity and capital
resources for Nine Months 1999. 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, 1998.
The Company is a leading producer and marketer of beverage alcohol brands.
Prior to the acquisition of Matthew Clark, the Company was principally a
producer and supplier of wine and an importer and producer of beer and distilled
spirits in the United States. With the acquisition of Matthew Clark, the Company
added the United Kingdom as a major market for its products. The Company's
beverage alcohol products include wine, beer, and distilled spirits brands, as
well as several cider brands and a sparkling water brand acquired as part of the
acquisition of Matthew Clark. Through Matthew Clark, the Company is also a major
wholesaler of beverage alcohol products in the United Kingdom. The acquisition
of Matthew Clark is significant and the Company expects it to have a material
impact on the Company's future results of operations.
On November 3, 1998, Canandaigua Limited, a wholly-owned subsidiary of the
Company, 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)215.1 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. 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. On December 14, 1998, valid acceptances had been received 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.
- 10 -
The purchase price for the Matthew Clark shares was funded with proceeds
from loans under the 1998 Credit Agreement, effective as of November 2, 1998,
between the Company and The Chase Manhattan Bank, as administrative agent, and a
syndicate of banks who are parties to the 1998 Credit Agreement. In conjunction
with financing the acquisition with the 1998 Credit Agreement, the Company
expects to take an extraordinary charge in the fourth quarter of 1999 of
approximately $1.8 million after taxes to write off unamortized fees associated
with its previous bank credit agreement. In addition, the Company expects to
record nonrecurring restructuring expenses of approximately $4.2 million after
taxes in the fourth quarter of 1999 for the completion of a facility
consolidation which was already in process at Matthew Clark prior to the
Company's acquisition of Matthew Clark.
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 Wholesale provides a full
range of wines, spirits, ciders, beers and soft drinks to over 17,000 on-premise
outlets (outlets where beverage alcohol products are consumed on the premises).
RESULTS OF OPERATIONS
- ---------------------
THIRD QUARTER 1999 COMPARED TO THIRD QUARTER 1998
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volume (in thousands of cases), if applicable, for branded beverage alcohol
products and other products and services sold by the Company for Third Quarter
1999 and Third Quarter 1998.
Third Quarter 1999 Compared to Third Quarter 1998
------------------------------------------------------------------
Net Sales Unit Volume
--------------------------------- -----------------------------
%Increase/ %Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
-------- -------- ---------- ------ ------ ----------
Wine $169,874 $153,353 10.8% 8,546 7,799 9.6%
Beer 128,810 92,605 39.1% 10,262 7,357 39.5%
Spirits 55,472 51,359 8.0% 2,584 2,520 2.5%
Other (a) 21,430 25,386 (15.6%) N/A N/A N/A
-------- -------- ----- ------ ------ -----
$375,586 $322,703 16.4% 21,392 17,676 21.0%
======== ======== ===== ====== ====== =====
(a) Other consists primarily of nonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
- 11 -
Net sales for Third Quarter 1999 increased to $375.6 million from $322.7
million for Third Quarter 1998, an increase of $52.9 million, or 16.4%. This
increase resulted primarily from (i) $36.2 million of additional beer sales,
largely Mexican beers and (ii) $16.5 million of additional wine sales, resulting
primarily from the introduction of new wine brands. Unit volume for branded
beverage alcohol products for Third Quarter 1999 increased 21.0% as compared to
Third Quarter 1998. The unit volume increase was the result of the increased
sales of the Company's beer brands, primarily Mexican beer, the introduction of
new wine brands and increased brandy sales.
GROSS PROFIT
The Company's gross profit increased to $114.8 million for Third Quarter
1999 from $98.0 million for Third Quarter 1998, an increase of $16.8 million, or
17.2%. As a percent of net sales, gross profit increased to 30.6% for Third
Quarter 1999 from 30.4% for Third Quarter 1998. The dollar increase in gross
profit resulted primarily from additional beer unit volume, introduction of new
wine brands, additional spirits unit volume and unit cost improvements in wine
brands.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, gross profit reflected a reduction of $0.9 million and
an addition of $1.8 million in Third Quarter 1999 and Third Quarter 1998,
respectively, due to the Company's LIFO accounting method.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $73.8 million for
Third Quarter 1999 from $60.3 million for Third Quarter 1998, an increase of
$13.5 million, or 22.4%. The dollar increase in selling, general and
administrative expenses resulted principally from higher advertising costs
associated with the introduction of new wine brands and increased beer sales,
and higher promotion costs related to the growth in beer sales as well as
programs implemented to improve the Company's wine sales. Selling, general and
administrative expenses as a percent of net sales increased to 19.6% for Third
Quarter 1999 as compared to 18.7% for Third Quarter 1998. The increase in
percent of net sales resulted primarily from advertising costs associated with
the introduction of new wine brands and promotion costs related to programs
implemented to improve the Company's wine sales.
NET INCOME
As a result of the above factors, net income increased to $19.6 million for
Third Quarter 1999 from $17.6 million for Third Quarter 1998, an increase of
$2.0 million, or 11.6%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Third Quarter 1999
were $49.8 million, an increase of $3.6 million over EBITDA of $46.2 million for
Third Quarter 1998. 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.
- 12 -
NINE MONTHS 1999 COMPARED TO NINE MONTHS 1998
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volume (in thousands of cases), if applicable, for branded beverage alcohol
products and other products and services sold by the Company for Nine Months
1999 and Nine Months 1998.
Nine Months 1999 Compared to Nine Months 1998
--------------------------------------------------------------------
Net Sales Unit Volume
----------------------------------- -----------------------------
%Increase/ %Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
---------- -------- ---------- ------ ------ ----------
Wine $ 420,726 $400,891 4.9% 21,340 20,961 1.8%
Beer 388,739 298,601 30.2% 30,906 23,796 29.9%
Spirits 157,485 153,093 2.9% 7,677 7,644 0.4%
Other (a) 70,950 77,653 (8.6%) N/A N/A N/A
---------- -------- ----- ------ ------ -----
$1,037,900 $930,238 11.6% 59,923 52,401 14.4%
========== ======== ===== ====== ====== =====
(a) Other consists primarily of nonbranded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
Net sales for Nine Months 1999 increased to $1,037.9 million from $930.2
million for Nine Months 1998, an increase of $107.7 million, or 11.6%. This
increase resulted primarily from (i) $90.1 million of additional beer sales,
largely Mexican beers, and (ii) $19.8 million of additional wine sales,
resulting primarily from the introduction of new wine brands. Unit volume for
branded beverage alcohol products for Nine Months 1999 increased 14.4% as
compared to Nine Months 1998. The unit volume increase was primarily the result
of the increased sales of the Company's beer brands, mostly Mexican beer.
GROSS PROFIT
The Company's gross profit increased to $309.4 million for Nine Months 1999
from $263.5 million for Nine Months 1998, an increase of $45.9 million, or
17.4%. As a percent of net sales, gross profit increased to 29.8% for Nine
Months 1999 from 28.3% for Nine Months 1998. The dollar increase in gross profit
resulted primarily from additional beer unit volume, introduction of new wine
brands, higher average selling prices related to wine sales and unit cost
improvements in wine and spirits brands.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, gross profit reflected a reduction of $1.6 million and
$1.1 million in Nine Months 1999 and Nine Months 1998, respectively, due to the
Company's LIFO accounting method.
- 13 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $202.6 million
for Nine Months 1999 from $171.8 million for Nine Months 1998, an increase of
$30.8 million, or 17.9%. The dollar increase in selling, general and
administrative expenses resulted principally from higher advertising costs
associated with the Company's wine sales, primarily the introduction of new wine
brands, and increased beer sales, and higher promotion costs related to both
programs implemented to improve the Company's wine sales and the growth in beer
sales. Selling, general and administrative expenses as a percent of net sales
increased to 19.5% for Nine Months 1999 as compared to 18.5% for Nine Months
1998. The increase in percent of net sales resulted primarily from advertising
costs associated with the introduction of new wine brands and promotion costs
related to programs implemented to improve the Company's wine sales.
NET INCOME
As a result of the above factors, net income increased to $49.0 million for
Nine Months 1999 from $40.0 million for Nine Months 1998, an increase of $9.0
million, or 22.5%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 1999
were $132.5 million, an increase of $15.0 million over EBITDA of $117.5 million
for Nine Months 1998. 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, 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.
- 14 -
NINE MONTHS 1999 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Nine Months 1999 was $59.3
million, which resulted from $72.3 million in net income adjusted for noncash
items, less $12.9 million representing the net change in operating assets and
liabilities. The net change in operating assets and liabilities resulted
primarily from seasonal increases in inventories and accounts receivable,
partially offset by an increase in liabilities for grapes purchased.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Nine Months 1999 was $22.3
million, which resulted primarily from $21.7 million of capital expenditures,
including $6.1 million for vineyards.
Net cash used in financing activities for Nine Months 1999 was $36.1
million, which resulted primarily from repurchases of $44.9 million of the
Company's Class A Common Stock, principal payments of $18.1 million of long-term
debt, partially offset by additional borrowings of $22.6 million of notes
payable.
During June 1998, the Company's Board of Directors authorized the
repurchase of up to $100.0 million of its Class A Common Stock and Class B
Common Stock. The repurchase of shares of common stock will be accomplished,
from time to time, depending upon market conditions, through open market or
privately negotiated transactions. The Company may finance such repurchases
through cash generated from operations or through the bank credit agreement. In
July 1998, the revolving loan facility under the bank credit agreement was
increased by $100.0 million to $285.0 million in order to increase its
flexibility to make such purchases. The repurchased shares will become treasury
shares and may be used for general corporate purposes. As of December 21, 1998,
the Company had purchased 1,018,836 shares of Class A Common Stock at an
aggregate cost of $44.9 million, or at an average cost of $44.05 per share.
DEBT
Total debt outstanding as of November 30, 1998, amounted to $430.0 million,
an increase of $4.8 million from February 28, 1998, resulting primarily from the
net proceeds from revolving loan borrowings, partially offset by principal
payments of long-term debt. The ratio of total debt to total capitalization
decreased to 50.4% as of November 30, 1998, from 50.6% as of February 28, 1998.
As of November 30, 1998, under its bank credit agreement, the Company had
outstanding term loans of $122.0 million bearing interest at 6.0%, $114.5
million of revolving loans bearing interest at 5.7%, undrawn revolving letters
of credit of $7.8 million, and $162.7 million in revolving loans available to be
drawn. During June 1998, the bank credit agreement was amended to, among other
things, eliminate the requirement that the Company reduce the outstanding
balance of the revolving loan facility to less than $60.0 million for thirty
consecutive days during the six months ending each August 31.
As of November 30, 1998, the Company had outstanding $195.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due December
2003. The notes are unsecured and subordinated to the prior payment in full of
all senior indebtedness of the Company, which includes the
- 15 -
bank credit agreement. The notes are guaranteed, on a senior subordinated basis,
by substantially all of the Company's operating subsidiaries.
On December 14, 1998, the Company, its principal operating subsidiaries
(other than Matthew Clark and it subsidiaries), and the Syndicate Banks, for
which The Chase Manhattan Bank acts as administrative agent, entered into the
1998 Credit Agreement, effective as of November 2, 1998, which amends and
restates in its entirety the credit agreement entered into between the Company
and The Chase Manhattan Bank on November 2, 1998. The 1998 Credit Agreement
includes both US Dollar and 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) with the proceeds available for repayment of
all outstanding principal and accrued interest on all loans under the Company's
bank credit agreement dated as of December 19, 1997, payment of the purchase
price for the Matthew Clark shares, repayment of Matthew Clark's credit
facilities, funding of permitted acquisitions, payment of transaction expenses
and ongoing working capital needs of the Company.
The 1998 Credit Agreement provides for a $350.0 million Tranche I Term Loan
facility due in December 2004, a $200.0 million Tranche II Term Loan facility
due in June 2000, a $150.0 million Tranche III Term Loan facility due in
December 2005, 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.
Portions of the Tranche I Term Loan facility and the Revolving Credit facility
are available for borrowing in Pounds Sterling. A brief description of the 1998
Credit Agreement is contained in Note 9 to the Company's financial statements
located in Item 1 of this Report on Form 10-Q.
ACCOUNTING PRONOUNCEMENT
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
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. The Company is required to adopt SFAS No. 133 on a prospective basis
for interim periods and fiscal years beginning March 1, 2000. 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
For purposes of the following Year 2000 discussion, the information
presented includes the effect of the Company's December 1, 1998, acquisition of
Matthew Clark. The Company has in 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.
- 16 -
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, are being inventoried and
assessed. In addition, plans are being developed for the required systems
modifications or replacements. With respect to its information technology
systems, the Company has completed the entire assessment phase and approximately
60% of the remediation phase. With respect to its non-information technology
systems, the Company has completed approximately 90% of the assessment phase and
approximately 55% of the remediation phase. Selected areas, both internal and
external, will be tested to assure the integrity of the Company's remediation
programs. The testing is expected to be completed by September 1999. The Company
plans to have all internal mission-critical information technology and
non-information technology systems Year 2000 compliant by September 1999.
The Company is also communicating with its major customers, suppliers and
financial institutions to assess the potential impact on the Company's
operations if those third parties fail to become Year 2000 compliant in a timely
manner. While this process is not yet complete, based upon responses to date, it
appears that many of those customers and suppliers have only indicated that they
have in place Year 2000 readiness programs, without specifically confirming that
they will be Year 2000 compliant in a timely manner. Risk assessment, readiness
evaluation, action plans and contingency plans related to the Company's
significant customers and suppliers are expected to be completed by September
1999. The Company's key financial institutions have been surveyed and it is the
Company's understanding that they are or will be Year 2000 compliant on or
before December 31, 1999.
The costs incurred to date related to its Year 2000 activities have not
been material to the Company, and, based upon current estimates, the Company
does not believe that the total cost of its Year 2000 readiness programs will
have a material adverse impact on the Company's results of operations or
financial condition.
The Company's readiness programs also include the development of
contingency plans to protect its business and operations from Year 2000-related
interruptions. These plans should be complete by September 1999 and, by way of
examples, will include back-up procedures, identification of alternate
suppliers, where possible, and increases in inventory levels. Based upon the
Company's current assessment of its non-information technology systems, the
Company does not believe it 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 is taking reasonable steps to identify and
address those matters that could cause serious interruptions in its business and
operations due to Year 2000 issues. However, delays in the implementation of new
systems, 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 and
results of operations. For example, the Company would experience a material
adverse impact on its business if significant suppliers of beer, glass or
telecommunications 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. In particular, the costs associated with the
Company's Year 2000 programs and the time-frame in which the Company plans to
complete Year 2000
- 17 -
modifications are based upon management's best estimates. These estimates were
derived from internal assessments and assumptions of future events. These
estimates may be adversely affected by the continued availability of personnel
and system resources, and by the failure of significant third parties to
properly address Year 2000 issues. Therefore, there can be no guarantee that any
estimates, or other forward-looking statements will be achieved, and actual
results could differ significantly from those contemplated.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits located on Page 23 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, 1998:
(i) Form 8-K dated November 3, 1998. This Form 8-K reported
information under Item 5 (Other Events); and
(ii) Form 8-K dated November 25, 1998. This Form 8-K reported
information under Item 5 (Other Events).
- 18 -
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 22, 1998 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Controller
Dated: December 22, 1998 By: /s/ Thomas S. Summer
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: December 22, 1998 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Controller
Dated: December 22, 1998 By: /s/ Thomas S. Summer
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 19 -
CANANDAIGUA EUROPE LIMITED
Dated: December 22, 1998 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Controller
Dated: December 22, 1998 By: /s/ Thomas S. Summer
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA LIMITED
Dated: December 22, 1998 By: /s/ Thomas S. Summer
--------------------
Thomas S. Summer, Director
(On behalf of the Registrant and as
Principal Financial Officer and
Principal Accounting Officer)
POLYPHENOLICS, INC.
Dated: December 22, 1998 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Vice President and
Controller
Dated: December 22, 1998 By: /s/ Thomas S. Summer
--------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
ROBERTS TRADING CORP.
Dated: December 22, 1998 By: /s/ Thomas F. Howe
------------------
Thomas F. Howe, Controller
Dated: December 22, 1998 By: /s/ Thomas S. Summer
--------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 20 -
BARTON INCORPORATED
Dated: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President and
Chief Executive Officer
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President
Dated: December 22, 1998 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 21 -
BARTON BRANDS OF GEORGIA, INC.
Dated: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, President and
Secretary
Dated: December 22, 1998 By: /s/ Charles T. Schlau
---------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1998 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 22 -
MONARCH IMPORT COMPANY
Dated: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President
Dated: December 22, 1998 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: December 22, 1998 By: /s/ Alexander L. Berk
---------------------
Alexander L. Berk, President
Dated: December 22, 1998 By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
- 23 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
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).
(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 Indenture, dated as of December 27, 1993, among the Company, its
Subsidiaries and The Chase Manhattan Bank (as successor to Chemical Bank)
(filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 1993 and incorporated herein by
reference).
4.2 First Supplemental Indenture, dated as of August 3, 1994, among the
Company, Canandaigua West, Inc. (a subsidiary of the Company now known as
Canandaigua Wine Company, Inc.) and The Chase Manhattan Bank (as successor
to Chemical Bank) (filed as Exhibit 4.5 to the Company's Registration
Statement on Form S-8 (Registration No. 33-56557) and incorporated herein
by reference).
4.3 Second Supplemental Indenture, dated August 25, 1995, among the Company, V
Acquisition Corp. (a subsidiary of the Company now known as The Viking
Distillery, Inc.) and The Chase Manhattan Bank (as successor to Chemical
Bank) (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1995 and incorporated herein by
reference).
4.4 Third Supplemental Indenture, dated as of December 19, 1997, among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and The Chase
Manhattan Bank (filed as Exhibit 4.4 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1998 and incorporated herein by
reference).
4.5 Fourth Supplemental Indenture, dated as of October 2, 1998, among the
Company, Polyphenolics, Inc. and The Chase Manhattan Bank (filed herewith).
4.6 Indenture with respect to the 8 3/4% Series C Senior Subordinated Notes Due
2003, dated as of October 29, 1996, among the Company, its Subsidiaries and
Harris Trust and Savings Bank (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-17673) and
incorporated herein by reference).
- 24 -
4.7 First Supplemental Indenture, dated as of December 19, 1997, among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and Harris Trust
and Savings Bank (filed as Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998 and incorporated
herein by reference).
4.8 Second Supplemental Indenture, dated as of October 2, 1998, among the
Company, Polyphenolics, Inc. and Harris Trust and Savings Bank (filed
herewith).
4.9 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
(filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 1, 1998 and incorporated herein by reference).
(10) MATERIAL CONTRACTS.
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
(filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 1, 1998 and incorporated herein by reference).
(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.
- 25 -
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.