UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 1999
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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 NO. 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.
jurisdiction of specified in its charter) Employer
incorporation or Identifiection
organization) No.)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
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(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (716) 218-2169
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock (Par Value $.01 Per Share) of Canandaigua Brands, Inc.
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(Title of Class)
Class B Common Stock (Par Value $.01 Per Share) of Canandaigua Brands, Inc.
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of
Canandaigua Brands, Inc., as of May 14, 1999, was $841,819,702.
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Brands, Inc., as of May 14, 1999, is set forth below (all
of the Registrants, other than Canandaigua Brands, Inc., are direct or indirect
wholly-owned subsidiaries of Canandaigua Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
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Class A Common Stock, Par Value $.01 Per Share 17,640,877
Class B Common Stock, Par Value $.01 Per Share 3,189,599
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement of Canandaigua Brands, Inc. to be issued for the annual
meeting of stockholders to be held July 20, 1999, is incorporated by reference
in Part III.
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PART I
ITEM 1. BUSINESS
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Unless the context otherwise requires, the term "Company" refers to
Canandaigua Brands, Inc. and its subsidiaries, and all references to "net sales"
refer to gross revenue less excise taxes and returns and allowances to conform
with the Company's method of classification. All references to "Fiscal 1999",
"Fiscal 1998" and "Fiscal 1997" shall refer to the Company's fiscal year ended
the last day of February of the indicated year.
Industry data disclosed in this Annual Report on Form 10-K has been
obtained from Adam's Media Handbook Advance, NACM, AC Nielsen, The U.S. Wine
Market: Impact Databank Review and Forecast and the Zenith Guide. The Company
has not independently verified this data. References to positions within
industries are based on unit volume.
The Company is a leading producer and marketer of branded beverage alcohol
products in the United States and the United Kingdom. According to available
industry data, the Company ranks as the second largest supplier of wine, the
second largest importer of beer and the fourth largest supplier of distilled
spirits in the United States. The Matthew Clark Acquisition (as defined below)
established the Company as a leading British producer of cider, wine and bottled
water and as a leading beverage alcohol wholesaler in the United Kingdom.
The Company is a Delaware corporation organized in 1972 as the successor to
a business founded in 1945 by Marvin Sands, Chairman of the Board of the
Company. The Company has aggressively pursued growth in recent years through
acquisitions, brand development, new product offerings and new distribution
agreements. The Matthew Clark Acquisition and the Black Velvet Acquisition (as
defined below) continued a series of strategic acquisitions made by the Company
since 1991 by which it has diversified its offerings and as a result, increased
its market share, net sales and cash flow. The Company has also achieved
internal growth by developing new products and repositioning existing brands to
focus on the fastest growing sectors of the beverage alcohol industry.
The Company markets and sells over 170 national and regional branded
products to more than 1,000 wholesale distributors in the United States. The
Company also distributes its own branded products and those of other companies
to more than 16,000 customers in the United Kingdom. The Company operates 20
production facilities in the United States, Canada and the United Kingdom and
purchases products for resale from other producers.
RECENT ACQUISITIONS
MATTHEW CLARK ACQUISITION
On December 1, 1998, the Company acquired control of Matthew Clark plc
("Matthew Clark") and has since acquired all of Matthew Clark's outstanding
shares (the "Matthew Clark Acquisition"). Matthew Clark grew substantially in
the 1990s through a series of strategic acquisitions, including Grants of St.
James's in 1993, the Gaymer Group in 1994 and Taunton Cider Co. in 1995. These
acquisitions served to solidify Matthew Clark's position within its key markets
and contributed to an increase in net sales to approximately $671 million for
Matthew Clark's fiscal year ended April 30, 1998. Matthew Clark has developed a
number of leading market positions, including positions as a leading independent
beverage supplier to the on-premise trade, the number one producer of branded
boxed wine,
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the number one branded producer of fortified British wine, the number one
branded bottler of sparkling water and the number two producer of cider.
The Matthew Clark Acquisition strengthens the Company's position in the
beverage alcohol industry by providing the Company with a presence in the United
Kingdom and a platform for growth in the European market. The acquisition of
Matthew Clark also offers potential benefits including distribution
opportunities to market California-produced wine and U.S.-produced spirits in
the United Kingdom, as well as the potential to market Matthew Clark products in
the U.S.
ACQUISITION OF BLACK VELVET CANADIAN WHISKY BRAND AND RELATED ASSETS
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, the third best
selling Canadian whisky and the 16th best selling spirits brand in the United
States, production facilities located in Alberta and Quebec, Canada, case goods
and bulk whisky inventories and other related assets from affiliates of Diageo
plc (collectively, the "Black Velvet Acquisition"). Other principal brands
acquired in the transaction were Golden Wedding, OFC, MacNaughton, McMaster's
and Triple Crown. In connection with the transaction, the Company also entered
into multi-year agreements with Diageo to provide packaging and distilling
services for various brands retained by Diageo.
The addition of the Canadian whisky brands from this transaction
strengthens the Company's position in the North American distilled spirits
category, and enhances the Company's portfolio of brands and category
participation. The acquired operations are being integrated with the Company's
existing spirits business.
RECENT DEVELOPMENTS-PENDING ACQUISITIONS OF SIMI WINERY AND FRANCISCAN ESTATES
SIMI WINERY
On April 1, 1999, the Company entered into a definitive agreement with Moet
Hennessy, Inc. to purchase all of the outstanding capital stock of Simi Winery,
Inc. ("Simi"). (The acquisition of the capital stock of Simi is hereafter
referred to as the "Simi Acquisition.") The Simi Acquisition includes the Simi
winery (located in Healdsburg, California), equipment, vineyards, inventory and
worldwide ownership of the Simi brand name. Founded in 1876, Simi is one of the
oldest and best known wineries in California, combining a strong super-premium
and ultra-premium brand with a flexible and well-equipped facility and high
quality vineyards in the key Sonoma appellation.
FRANCISCAN ESTATES
On April 21, 1999, the Company entered into (i) a definitive purchase
agreement with Franciscan Vineyards, Inc. ("Franciscan") and its shareholders
to, among other matters, purchase all of the outstanding capital stock of
Franciscan and (ii) definitive purchase agreements with certain parties related
to Franciscan to acquire certain vineyards and related vineyard assets
(collectively, the "Franciscan Acquisition"). Pursuant to the Franciscan
Acquisition, the Company will: (i) acquire the Franciscan Oakville Estate,
Estancia and Mt. Veeder brands; (ii) acquire wineries located in Rutherford,
Monterey and Mt. Veeder, California; (iii) acquire vineyards in the Napa Valley,
Alexander Valley, Monterey and Paso Robles appellations and additionally, will
enter into long-term grape contracts with certain parties related to Franciscan
to purchase additional grapes grown in the Napa and Alexander Valley
appellations; (iv) acquire distribution rights to the Quintessa and Veramonte
brands; and (v)
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acquire equity interests in entities that own the Veramonte brand, the Veramonte
winery (which is located in the Casablanca Valley, Chile) and vineyards also
located in the Casablanca Valley. Franciscan's net sales for its fiscal year
ended December 31, 1998, were approximately $50 million on volume of
approximately 600,000 cases.
Franciscan is one of the foremost super-premium and ultra-premium wine
companies in California. While the super-premium and ultra-premium wine
categories represented only 9% of the total wine market by volume in 1997, they
accounted for more than 25% of sales dollars. More importantly, super-premium
and ultra-premium wine sales grew at an annual rate of 10% between 1995 and
1997, and by more than 18% in 1998. Given its fiscal 1998 volume of
approximately 600,000 cases sold, Franciscan has recorded a three-year compound
annual growth rate of more than 17%.
When completed, the Simi and Franciscan Acquisitions will establish the
Company as a leading producer and marketer of super-premium and ultra-premium
wine. The Simi and Franciscan operations complement each other and offer
synergies in the areas of sales and distribution, grape usage and capacity
utilization. Together, Simi and Franciscan represent the sixth largest presence
in the super-premium and ultra-premium wine categories. The Company intends to
operate Simi and Franciscan, and their properties, together as a separate
business segment. The Company's strategy is to further penetrate the
super-premium and ultra-premium wine categories, which have higher gross profit
margins than popularly-priced wine.
The agreements for the Simi and Franciscan Acquisitions are subject to
certain customary conditions prior to closing, which the Company expects will be
satisfied. The Company cannot guarantee, however, that those transactions will
be completed upon the agreed upon terms, or at all.
PRIOR ACQUISITIONS
The Company made a series of significant acquisitions between 1991 and
1995, commencing with the acquisition of the Cook's, Cribari, Dunnewood and
other wine brands and related wine production facilities in 1991. In 1993, the
Company diversified into the imported beer and distilled spirits categories by
acquiring Barton Incorporated, through which the Company acquired distribution
rights with respect to Corona Extra and other Modelo brands, St. Pauli Girl and
other imported beer brands, and the Barton, Ten High, Montezuma and other
distilled spirits brands. Also in 1993, the Company acquired the Paul Masson,
Taylor California Cellars and other wine brands and related production
facilities. In 1994, the Company acquired the Almaden, Inglenook and other wine
brands, a grape juice concentrate business and related facilities. In 1995, the
Company acquired the Mr. Boston, Canadian LTD, Skol, Old Thompson, Kentucky
Tavern, Glenmore and di Amore distilled spirits brands; the rights to the
Fleischmann's and Chi-Chi's distilled spirits brands under long-term license
agreements; the U.S. rights to the Inver House, Schenley and El Toro distilled
spirits brands; and related production facilities and assets.
Through these acquisitions, the Company has become more competitive by
diversifying its portfolio; developing strong market positions in the growing
beverage alcohol product categories of varietal table wine and imported beer;
strengthening its relationships with wholesalers; expanding its distribution and
enhancing its production capabilities; and acquiring additional management,
operational, marketing, and research and development expertise.
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BUSINESS SEGMENTS
The Company operates primarily in the beverage alcohol industry in the
United States and the United Kingdom. The Company reports its operating results
in four segments: Canandaigua Wine (branded wine and brandy, and other,
primarily grape juice concentrate); Barton (primarily beer and spirits); Matthew
Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); and Corporate Operations and Other (primarily
corporate related items).
Information regarding net sales, operating income and total assets of each
of the Company's business segments and information regarding geographic areas is
set forth in Note 15 to the Company's consolidated financial statements located
in Item 8 of this Annual Report on Form 10-K.
CANANDAIGUA WINE
Canandaigua Wine produces, bottles, imports and markets wine and brandy in
the United States. It is the second largest supplier of wine in the United
States and exports wine to approximately 65 countries from the United States.
Canandaigua Wine sells table wine, dessert wine, sparkling wine and brandy. Its
leading brands include Inglenook, Almaden, Paul Masson, Arbor Mist,
Manischewitz, Taylor, Marcus James, Estate Cellars, Vina Santa Carolina,
Dunnewood, Mystic Cliffs, Cook's, J. Roget, Richards Wild Irish Rose and Paul
Masson Grande Amber Brandy. Most of its wine is marketed in the popularly-priced
category of the wine market.
As a related part of its U.S. wine business, Canandaigua Wine is a leading
grape juice concentrate producer in the United States. Grape juice concentrate
competes with other domestically produced and imported fruit-based concentrates.
Canandaigua Wine's other wine-related products and services include bulk wine,
cooking wine, grape juice and Inglenook-St. Regis, a leading de-alcoholized line
of wine in the United States.
BARTON
Barton produces, bottles, imports and markets a diversified line of beer
and distilled spirits. It is the second largest marketer of imported beer in the
United States and distributes five of the top 25 imported beer brands in the
United States: Corona Extra, Modelo Especial, Corona Light, Pacifico and St.
Pauli Girl. Corona Extra is the number one imported beer nationwide. Barton's
other imported beer brands include Negra Modelo from Mexico, Tsingtao from
China, Peroni from Italy and Double Diamond and Tetley's English Ale from the
United Kingdom. Barton also operates the Stevens Point Brewery, a regional
brewer located in Wisconsin, which produces Point Special, among other brands.
Barton is the fourth largest supplier of distilled spirits in the United
States and exports distilled spirits to approximately fifteen countries from the
United States. Barton's principal distilled spirits brands include
Fleischmann's, Mr. Boston, Canadian LTD, Chi-Chi's prepared cocktails, Ten High,
Montezuma, Barton, Monte Alban, Inver House and the recently acquired Black
Velvet brand. Substantially all of Barton's spirits unit volume consists of
products marketed in the price value category. Barton also sells distilled
spirits in bulk and provides contract production and bottling services for third
parties.
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MATTHEW CLARK
The Company acquired Matthew Clark in the fourth quarter of Fiscal 1999.
Matthew Clark is a leading producer and distributor of cider, wine and bottled
water and a leading drinks wholesaler throughout the United Kingdom. Matthew
Clark also exports its branded products to approximately 50 countries from the
United Kingdom.
Matthew Clark is the second largest producer and marketer of cider in the
United Kingdom. Matthew Clark distributes its cider brands in both the
on-premise and off-premise markets and these brands compete in both the
mainstream and premium brand categories. Matthew Clark's leading mainstream
cider brands include Blackthorn and Gaymer's Olde English. Blackthorn is the
number two mainstream cider brand and Gaymer's Olde English is the UK's second
largest cider brand in the take-home market. Matthew Clark's leading premium
cider brands are Diamond White and K.
Matthew Clark is the largest supplier of wine to the on-premise trade in
the United Kingdom. Its Stowells of Chelsea brand maintains a leading share in
the branded boxed wine segment. Matthew Clark also maintains a leading market
share position in fortified British wine through its QC and Stone's brand names.
It also produces and markets Strathmore bottled water in the United Kingdom, the
leading bottled sparkling water brand in the country.
Matthew Clark is a leading independent beverage supplier to the on-premise
trade in the United Kingdom and has one of the largest customer bases in the
United Kingdom, with more than 16,000 on-premise accounts. Matthew Clark's
wholesaling business involves the distribution of branded wine, spirits, cider,
beer and soft drinks. While these products are primarily produced by third
parties, they also include Matthew Clark's cider and wine branded products.
CORPORATE OPERATIONS AND OTHER
Corporate Operations and Other includes traditional corporate related items
and the results of an immaterial operation.
MARKETING AND DISTRIBUTION
UNITED STATES
The Company's products are distributed and sold throughout the United
States through over 1,000 wholesalers, as well as through state alcoholic
beverage control agencies. Both Canandaigua Wine and Barton employ full-time,
in-house marketing, sales and customer service organizations to develop and
service their sales to wholesalers and state agencies. The Company believes that
the organization of its sales force into separate segments positions it to
maintain a high degree of focus on each of its principal product categories.
The Company's marketing strategy places primary emphasis upon promotional
programs directed at its broad national distribution network, and at the
retailers served by that network. The Company has extensive marketing programs
for its brands including promotional programs on both a national basis and
regional basis in accordance with the strength of the brands, point-of-sale
materials, consumer media advertising, event sponsorship, market research, trade
advertising and public relations.
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During Fiscal 1999, the Company increased its advertising expenditures to
put more emphasis on consumer advertising for certain wine brands, including
newly introduced brands, and for its imported beer brands, primarily with
respect to the Mexican brands. In addition, promotional spending for the
Company's wine brands increased to address competitive factors.
UNITED KINGDOM
The Company's UK-produced branded products are distributed throughout the
United Kingdom by Matthew Clark. The products are packaged at one of three
production facilities. Shipments of cider and wine are then made to Matthew
Clark's national distribution center for branded products. All branded products
are then distributed to either the on-premise or off-premise markets with some
of the sales to on-premise customers made through Matthew Clark's wholesale
business. Matthew Clark's wholesale products are distributed through thirteen
depots located throughout the United Kingdom. On-premise distribution channels
include hotels, restaurants, pubs, wine bars and clubs. The off-premise
distribution channels include grocers, convenience retail, cash and carry, and
wholesalers.
Matthew Clark employs a full-time, in-house marketing and sales
organization that targets off-premise customers for Matthew Clark's branded
products. Matthew Clark also employs a full-time, in-house branded products
marketing and sales organization that services specifically the on-premise
market in the United Kingdom. Additionally, Matthew Clark employs a full-time,
in-house marketing and sales organization to service the customers of its
wholesale business.
TRADEMARKS AND DISTRIBUTION AGREEMENTS
The Company's products are sold under a number of trademarks, most of which
are owned by the Company.
The Company also produces and sells wine and distilled spirits products
under exclusive license or distribution agreements. Important agreements include
(1) a long-term license agreement with Hiram Walker & Sons, Inc. (which expires
in 2116) for the Ten High, Crystal Palace, Northern Light and Imperial Spirits
brands; and (2) a long-term license agreement with the B. Manischewitz Company
(which expires in 2042) for the Manischewitz brand of kosher wine. On September
30, 1998, under the provisions of an existing long-term license agreement,
Nabisco Brands Company agreed to transfer to Barton all of its right, title and
interest to the corporate name "Fleischmann Distilling Company" and worldwide
trademark rights to the "Fleischmann" mark for alcoholic beverages. Pending the
completion of the assignment of such interests, the license will remain in
effect. The Company also has other less significant license and distribution
agreements related to the sale of wine and distilled spirits with terms of
various durations.
All of the Company's imported beer products are marketed and sold pursuant
to exclusive distribution agreements with the suppliers of these products. These
agreements have terms that vary and prohibit the Company from importing other
beer from the same country. The Company's agreement to distribute Corona and its
other Mexican beer brands exclusively throughout 25 primarily U.S. western
states expires in December 2006 and, subject to compliance with certain
performance criteria, continued retention of certain Company personnel and other
terms under the agreement, will be automatically renewed for additional terms of
five years. Changes in control of the Company or of its subsidiearies involved
in importing the Mexican beer brands, changes in the position of the Chief
Executive Officer of Barton Beers, Ltd. (including by death or disability) or
the termination of the President of Barton Incorporated, may be a basis for the
supplier, unless it consents to such changes, to terminate the
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agreement. The supplier's consent to such changes may not be unreasonably
withheld. The Company's agreement for the importation of St. Pauli Girl expires
in June 2003. The Company's agreement for the importation of Tetley's English
Ale expires in December 2007. The Company's agreement for the exclusive
importation of Tsingtao throughout the entire United States expires in December
1999 and, subject to compliance with certain performance criteria and other
terms under the agreement, will be automatically renewed until December 2002.
Prior to their expiration, these agreements may be terminated if the Company
fails to meet certain performance criteria. The Company believes it is currently
in compliance with its material imported beer distribution agreements. From time
to time, the Company has failed, and may in the future fail, to satisfy certain
performance criteria in its distribution agreements. Although there can be no
assurance that its beer distribution agreements will be renewed, given the
Company's long-term relationships with its suppliers the Company expects that
such agreements will be renewed prior to their expiration and does not believe
that these agreements will be terminated.
The Company owns the trademarks for most of the brands that it acquired in
the Matthew Clark Acquisition. The Company has a series of distribution
agreements and supply agreements in the United Kingdom related to the sale of
its products with varying terms and durations.
COMPETITION
The beverage alcohol industry is highly competitive. The Company competes
on the basis of quality, price, brand recognition and distribution. The
Company's beverage alcohol products compete with other alcoholic and
nonalcoholic beverages for consumer purchases, as well as shelf space in retail
stores and marketing focus by the Company's wholesalers. The Company competes
with numerous multinational producers and distributors of beverage alcohol
products, some of which have significantly greater resources than the Company.
In the United States, Canandaigua Wine's principal competitors include E & J
Gallo Winery and The Wine Group. Barton's principal competitors include Heineken
USA, Molson Breweries USA, Labatt's USA, Guinness Import Company, Brown-Forman
Beverages, Jim Beam Brands and Heaven Hill Distilleries, Inc. In the United
Kingdom, Matthew Clark's principal competitors include Halewood Vintners, H.P.
Bulmer, Tavern, Waverley Vintners and Perrier. In connection with its wholesale
business, Matthew Clark distributes the branded wine of third parties that
compete directly against its own wine brands.
PRODUCTION
In the United States, the Company's wine is produced from several varieties
of wine grapes grown principally in California and New York. The grapes are
crushed at the Company's wineries and stored as wine, grape juice or
concentrate. Such grape products may be made into wine for sale under the
Company's brand names, sold to other companies for resale under their own
labels, or shipped to customers in the form of juice, juice concentrate,
unfinished wine, high-proof grape spirits or brandy. Most of the Company's wine
is bottled and sold within eighteen months after the grape crush. The Company's
inventories of wine, grape juice and concentrate are usually at their highest
levels in November and December immediately after the crush of each year's grape
harvest, and are substantially reduced prior to the subsequent year's crush.
The bourbon whiskeys, domestic blended whiskeys and light whiskeys marketed
by the Company are primarily produced and aged by the Company at its distillery
in Bardstown, Kentucky, though it may from time to time supplement its
inventories through purchases from other distillers. Following the Black Velvet
Acquisition, the majority of the Company's Canadian whisky requirements
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are produced and aged at its Canadian distilleries in Lethbridge, Alberta, and
Valleyfield, Quebec. At its Albany, Georgia, facility, the Company produces all
of the neutral grain spirits and whiskeys it uses in the production of vodka,
gin and blended whiskey it sells to customers in the state of Georgia. The
Company's requirements of Scotch whisky, tequila, mezcal and the neutral grain
spirits it uses in the production of gin and vodka for sale outside of Georgia,
and other spirits products, are purchased from various suppliers.
The Company operates three facilities in the United Kingdom that produce,
bottle and package cider, wine and water. To produce Stowells of Chelsea, wine
is imported in bulk from various countries such as Chile, Germany, France,
Spain, South Africa and Australia, which are then packaged at the Company's
facility at Bristol and distributed under the Stowells of Chelsea brand name.
The Strathmore brand of bottled water (which is available in still, sparkling,
and flavored varieties) is sourced and bottled in Forfar, Scotland. Cider
production was consolidated at the Company's facility at Shepton Mallet, where
apples of many different varieties are purchased from U.K. growers and crushed.
This juice, along with European-sourced concentrate, is then fermented into
cider.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal components in the production of the Company's branded
beverage alcohol products are packaging materials (primarily glass) and
agricultural products, such as grapes and grain.
The Company utilizes glass and PET bottles and other materials such as
caps, corks, capsules, labels and cardboard cartons in the bottling and
packaging of its products. Glass bottle costs are one of the largest components
of the Company's cost of product sold. The glass bottle industry is highly
concentrated with only a small number of producers. The Company has
traditionally obtained, and continues to obtain, its glass requirements from a
limited number of producers. The Company has not experienced difficulty in
satisfying its requirements with respect to any of the foregoing and considers
its sources of supply to be adequate. However, the inability of any of the
Company's glass bottle suppliers to satisfy the Company's requirements could
adversely affect the Company's operations.
Most of the Company's annual grape requirements are satisfied by purchases
from each year's harvest which normally begins in August and runs through
October. The Company believes that it has adequate sources of grape supplies to
meet its sales expectations. However, in the event demand for certain wine
products exceeds expectations, the Company could experience shortages.
The Company purchases grapes from over 800 independent growers, principally
in the San Joaquin Valley and Monterey regions of California and in New York
State. The Company enters into written purchase agreements with a majority of
these growers on a year-to-year basis. The Company currently owns or leases
approximately 4,200 acres of vineyards, either fully bearing or under
development, in California and New York. This acreage supplies only a small
percentage of the Company's total needs. The Company continues to consider the
purchase or lease of additional vineyards, and additional land for vineyard
plantings, to supplement its grape supply.
The distilled spirits manufactured by the Company require various
agricultural products, neutral grain spirits and bulk spirits. The Company
fulfills its requirements through purchases from various sources through
contractual arrangements and through purchases on the open market. The Company
believes that adequate supplies of the aforementioned products are available at
the present time.
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The Company manufactures cider, perry, light and fortified British wine
from materials that are purchased either on a contracted basis or on the open
market. In particular, supplies of cider apples are sourced through long term
supply arrangements with owners of apple orchards. There are adequate supplies
of the various raw materials at this particular time.
GOVERNMENT REGULATION
The Company's operations in the United States are subject to extensive
Federal and state regulation. These regulations cover, among other matters,
sales promotion, advertising and public relations, labeling and packaging,
changes in officers or directors, ownership or control, distribution methods and
relationships, and requirements regarding brand registration and the posting of
prices and price changes. All of the Company's operations and facilities are
also subject to Federal, state, foreign and local environmental laws and
regulations and the Company is required to obtain permits and licenses to
operate its facilities.
In the United Kingdom, the Company has secured a Customs and Excise License
to carry on its excise trade. Licenses are required for all premises where wine
is produced. The Company holds a license to act as an excise warehouse operator.
Registrations have been secured for the production of cider and bottled water.
Formal approval of product labeling is not required.
In Canada, the Company's operations are also subject to extensive federal
and provincial regulation. These regulations cover, among other matters,
advertising and public relations, labeling and packaging, environmental matters
and customs and duty requirements. The Company is also required to obtain
licenses and permits in order to operate its facilities.
The Company believes that it is in compliance in all material respects with
all applicable governmental laws and regulations and that the cost of
administration and compliance with, and liability under, such laws and
regulations does not have, and is not expected to have, a material adverse
impact on the Company's financial condition, results of operations or cash
flows.
EMPLOYEES
The Company had approximately 2,300 full-time employees in the United
States at the end of April 1999, of which approximately 870 were covered by
collective bargaining agreements. Additional workers may be employed by the
Company during the grape crushing season.
The Company had approximately 1,700 full-time employees in the United
Kingdom at the end of April 1999, of which approximately 420 were covered by
collective bargaining agreements. Additional workers may be employed during the
peak season.
The Company had approximately 230 full-time employees in Canada at the end
of April 1999, of which approximately 185 were covered by collective bargaining
agreements.
The Company considers its employee relations generally to be good.
- 10 -
ITEM 2. PROPERTIES
- ------- ----------
Through the Company's four business segments, the Company currently
operates wineries, distilling plants, bottling plants, a brewery, cider and
water producing facilities, most of which include warehousing and distribution
facilities on the premises. The Company also operates separate distribution
centers under the Matthew Clark segment's wholesaling business. The Company
believes that all of its facilities are in good condition and working order and
have adequate capacity to meet its needs for the foreseeable future.
CANANDAIGUA WINE
Canandaigua Wine maintains its headquarters in owned and leased offices in
Canandaigua, New York. It operates three wineries in New York, located in
Canandaigua, Naples and Batavia and six wineries in California, located in
Madera, Gonzales, Escalon, Fresno, and Ukiah. All of the facilities in which
these wineries operate are owned, except for the winery in Batavia, New York,
which is leased. Canandaigua Wine considers its principal wineries to be the
Mission Bell winery in Madera, California; the Canandaigua winery in
Canandaigua, New York; and the Monterey Cellars winery in Gonzales, California.
The Mission Bell winery crushes grapes, produces, bottles and distributes wine
and produces grape juice concentrate. The Canandaigua winery crushes grapes and
produces, bottles and distributes wine. The Monterey Cellars winery crushes
grapes and produces, bottles and distributes wine for Canandaigua Wine's account
and, on a contractual basis, for third parties.
Canandaigua Wine currently owns or leases approximately 4,200 acres of
vineyards, either fully bearing or under development, in California and New
York.
BARTON
Barton maintains its headquarters in leased offices in Chicago, Illinois.
It owns and operates four distilling plants, two in the United States and two in
Canada. The two distilling plants in the United States are located in Bardstown,
Kentucky; and Albany, Georgia; and the two distilling plants in Canada, which
were acquired in connection with the Black Velvet Acquisition, are located in
Valleyfield, Quebec; and Lethbridge, Alberta. Barton considers its principal
distilling plants to be the facilities located in Bardstown, Kentucky;
Valleyfield, Quebec; and Lethbridge, Alberta. The Bardstown facility distills,
bottles and warehouses distilled spirits products for Barton's account and, on a
contractual basis, for other participants in the industry. The two Canadian
facilities distill, bottle and store Canadian whisky for Barton's own account,
and distill and/or bottle and store Canadian whisky, vodka, rum, gin and
liqueurs for third parties.
In the United States, Barton also operates a brewery and three bottling
plants. The brewery is located in Stevens Point, Wisconsin; and the bottling
plants are located in Atlanta, Georgia; Owensboro, Kentucky; and Carson,
California. All of these facilities are owned by Barton except for the bottling
plant in Carson, California, which is operated and leased through an arrangement
involving an ongoing management contract. Barton considers the bottling plant
located in Owensboro, Kentucky to be one of its principal facilities. The
Owensboro facility bottles and warehouses distilled spirits products for
Barton's account and also performs contract bottling.
- 11 -
MATTHEW CLARK
Matthew Clark maintains its headquarters in owned offices in Bristol,
England. It currently owns and operates two facilities in England that are
located in Bristol and Shepton Mallet and one facility in Scotland, located in
Forfar. Matthew Clark considers all three facilities to be its principal
facilities. The Bristol facility produces, bottles and packages wine; the
Shepton Mallet facility produces, bottles and packages cider; and the Forfar
facility produces, bottles and packages water products. Matthew Clark also owns
another facility in England, located in Taunton, the operations of which have
now been consolidated into its Shepton Mallet facility. Matthew Clark plans to
sell the Taunton property.
To distribute its products that are produced at the Bristol and Shepton
Mallet facilities, Matthew Clark operates, in England, the National Distribution
Centre, located at Severnside. This distribution facility is leased by Matthew
Clark. To support its wholesaling business, Matthew Clark operates thirteen
distribution centers located throughout the United Kingdom, all of which are
leased. These thirteen distribution centers are used to distribute products
produced by third parties, as well as by Matthew Clark. Matthew Clark has been
and continues to consolidate the operations of its wholesaling distribution
centers.
CORPORATE OPERATIONS AND OTHER
The Company maintains its corporate headquarters in offices leased in
Fairport, New York.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company and its subsidiaries are subject to litigation from time to
time in the ordinary course of business. Although the amount of any liability
with respect to such litigation cannot be determined, in the opinion of
management such liability will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Not Applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the current executive officers of the Company
is as follows:
NAME AGE OFFICE HELD
- ---- --- -----------
Marvin Sands 75 Chairman of the Board
Richard Sands 48 President and Chief Executive Officer
Robert Sands 40 Chief Executive Officer, International, Executive
Vice President and General Counsel; and President
and Chief Executive Officer of Canandaigua Wine
Company, Inc.
Peter Aikens 60 President and Chief Executive Officer of Matthew
Clark plc
Alexander L. Berk 49 President and Chief Executive Officer of Barton
Incorporated
George H. Murray 52 Senior Vice President and Chief Human Resources
Officer
Thomas S. Summer 45 Senior Vice President and Chief Financial Officer
- 12 -
Marvin Sands is the founder of the Company, which is the successor to a
business he started in 1945. He has been a director of the Company and its
predecessor since 1946 and was Chief Executive Officer until October 1993.
Marvin Sands is the father of Richard Sands and Robert Sands.
Richard Sands, Ph.D., has been employed by the Company in various
capacities since 1979. He was elected Executive Vice President and a director in
1982, became President and Chief Operating Officer in May 1986 and was elected
Chief Executive Officer in October 1993. He is a son of Marvin Sands and the
brother of Robert Sands.
Robert Sands was appointed Chief Executive Officer, International in
December 1998 and was appointed Executive Vice President and General Counsel in
October 1993. He was elected a director of the Company in January 1990 and
served as Vice President and General Counsel from June 1990 through October
1993. From June 1986 until his appointment as Vice President and General
Counsel, Mr. Sands was employed by the Company as General Counsel. In addition,
since the departure in April 1999 of the former President of Canandaigua Wine
Company, Inc., a wholly-owned subsidiary of the Company, Mr. Sands has assumed,
on an interim basis, the position of President and Chief Executive Officer of
that company. In this capacity, Mr. Sands is in charge of the Canandaigua Wine
segment, until a permanent successor is appointed. He is a son of Marvin Sands
and the brother of Richard Sands.
Peter Aikens serves as President and Chief Executive Officer of Matthew
Clark plc, a wholly-owned subsidiary of the Company. In this capacity, Mr.
Aikens is in charge of the Company's Matthew Clark segment, and has been since
the Company acquired control of Matthew Clark in December 1998. He has been the
Chief Executive Officer of Matthew Clark plc since May 1990 and has been in the
brewing and drinks industry for most of his career.
Alexander L. Berk serves as President and Chief Executive Officer of Barton
Incorporated, a wholly-owned subsidiary of the Company. In this capacity, Mr.
Berk is in charge of the Company's Barton segment. From 1990 until February
1998, Mr. Berk was President and Chief Operating Officer of Barton and from 1988
to 1990, he was the President and Chief Executive Officer of Schenley
Industries. Mr. Berk has been in the alcoholic beverage industry for most of his
career, serving in various positions.
George H. Murray joined the Company in April 1997 as Senior Vice President
and Chief Human Resources Officer. From August 1994 to April 1997, Mr. Murray
served as Vice President - Human Resources and Corporate Communications of ACC
Corp., an international long distance reseller. For eight and a half years prior
to that, he served in various senior management positions with First Federal
Savings and Loan of Rochester, New York, including the position of Senior Vice
President of Human Resources and Marketing from 1991 to 1994.
Thomas S. Summer joined the Company in April l997 as Senior Vice President
and Chief Financial Officer. From November 1991 to April 1997, Mr. Summer served
as Vice President, Treasurer of Cardinal Health, Inc., a large national health
care services company, where he was responsible for directing financing
strategies and treasury matters. Prior to that, from November 1987 to November
1991, Mr. Summer held several positions in corporate finance and international
treasury with PepsiCo, Inc.
Executive officers of the Company hold office until the next Annual Meeting
of the Board of Directors and until their successors are chosen and qualify.
- 13 -
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- ----------------------------------------------------------------------
MATTERS
-------
The Company's Class A Common Stock (the "Class A Stock") and Class B Common
Stock (the "Class B Stock") trade on the Nasdaq Stock Market (registered
trademark) under the symbols "CBRNA" and "CBRNB," respectively. The following
tables set forth for the periods indicated the high and low sales prices of the
Class A Stock and the Class B Stock as reported on the Nasdaq Stock Market
(registered trademark).
CLASS A STOCK
---------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Fiscal 1998
High $ 32 1/4 $ 42 3/4 $ 53 1/2 $ 58 1/2
Low $ 21 7/8 $ 29 3/8 $ 39 1/2 $ 43 3/4
Fiscal 1999
High $ 59 3/4 $ 52 3/8 $ 52 1/8 $ 61 1/2
Low $ 45 9/16 $ 40 1/4 $ 35 1/4 $ 45 5/8
CLASS B STOCK
---------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Fiscal 1998
High $ 37 $ 43 $ 54 5/8 $ 57 3/4
Low $ 27 $ 35 1/2 $ 40 3/4 $ 45
Fiscal 1999
High $ 59 3/4 $ 51 1/2 $ 52 $ 62 1/4
Low $ 45 1/2 $ 40 3/4 $ 37 1/4 $ 46 7/8
At May 14, 1999, the number of holders of record of Class A Stock and Class
B Stock of the Company were 977 and 290, respectively.
The Company's policy is to retain all of its earnings to finance the
development and expansion of its business, and the Company has not paid any cash
dividends since its initial public offering in 1973. In addition, the Company's
current bank credit agreement, the Company's indenture for its $130 million 8
3/4% Senior Subordinated Notes due December 2003, its indenture for its $65
million 8 3/4% Series C Senior Subordinated Notes due December 2003 and its
indenture for its $200 million 8 1/2% Senior Subordinated Notes due March 2009
restrict the payment of cash dividends.
- 14 -
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
FOR THE YEARS ENDED FEBRUARY 28, FEBRUARY 29, AUGUST 31,
----------------------------------------- ------------ ------------------------
1999 1998 1997 1996 1995 1994
(in thousands, except per share data) ----------- ---------- ---------- ---------- ---------- ---------
Gross sales $ 1,984,801 $1,632,357 $1,534,452 $ 738,415 $1,185,074 $ 861,059
Less-excise taxes (487,458) (419,569) (399,439) (203,391) (278,530) (231,475)
----------- ---------- ---------- ---------- ---------- ---------
Net sales 1,497,343 1,212,788 1,135,013 535,024 906,544 629,584
Cost of product sold (1,049,309) (869,038) (812,812) (389,281) (657,883) (458,311)
----------- ---------- ---------- ---------- ---------- ---------
Gross profit 448,034 343,750 322,201 145,743 248,661 171,273
Selling, general and administrative
expenses (299,526) (231,680) (208,991) (112,411) (159,196) (121,388)
Nonrecurring charges (2,616) -- -- (2,404) (2,238) (24,005)
----------- ---------- ---------- ---------- ---------- ---------
Operating income 145,892 112,070 113,210 30,928 87,227 25,880
Interest expense, net (41,462) (32,189) (34,050) (17,298) (24,601) (18,056)
----------- ---------- ---------- ---------- ---------- ---------
Income before taxes and
extraordinary item 104,430 79,881 79,160 13,630 62,626 7,824
Provision for income taxes (42,521) (32,751) (32,977) (6,221) (24,008) (2,640)
----------- ---------- ---------- ---------- ---------- ---------
Income before extraordinary item 61,909 47,130 46,183 7,409 38,618 5,184
Extraordinary item, net of income taxes (11,437) -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ---------
Net income $ 50,472 $ 47,130 $ 46,183 $ 7,409 $ 38,618 $ 5,184
=========== ========== ========== ========== ========== =========
Earnings per common share:
Basic:
Income before extraordinary item $ 3.38 $ 2.52 $ 2.39 $ 0.38 $ 2.06 $ 0.34
Extraordinary item (0.62) -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ---------
Earnings per common share - basic $ 2.76 $ 2.52 $ 2.39 $ 0.38 $ 2.06 $ 0.34
=========== ========== ========== ========== ========== =========
Diluted:
Income before extraordinary item $ 3.30 $ 2.47 $ 2.37 $ 0.37 $ 2.03 $ 0.33
Extraordinary item (0.61) -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ---------
Earnings per common share - diluted $ 2.69 $ 2.47 $ 2.37 $ 0.37 $ 2.03 $ 0.33
=========== ========== ========== ========== ========== =========
Total assets $ 1,793,776 $1,090,555 $1,043,281 $1,045,590 $ 770,004 $ 814,718
=========== ========== ========== ========== ========== =========
Long-term debt $ 831,689 $ 309,218 $ 338,884 $ 327,616 $ 198,859 $ 289,122
=========== ========== ========== ========== ========== =========
For the fiscal years ended February 28, 1999 and 1998, see Management's
Discussion and Analysis of Financial Condition and Results of Operations under
Item 7 of this Annual Report on Form 10-K and Notes to Consolidated Financial
Statements as of February 28, 1999, under Item 8 of this Annual Report on Form
10-K. During January 1996, the Board of Directors of the Company changed the
Company's fiscal year end from August 31 to the last day of February.
All periods presented have been restated to reflect the Company's change in
inventory valuation method from LIFO to FIFO (see Note 1 in the Notes to
Consolidated Financial Statements as of February 28, 1999, under Item 8 of this
Annual Report on Form 10-K).
- 15 -
ITEM 7. 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 year
ended February 28, 1999 ("Fiscal 1999"), compared to the year ended February 28,
1998 ("Fiscal 1998"), and Fiscal 1998 compared to the year ended February 28,
1997 ("Fiscal 1997"), and (ii) financial liquidity and capital resources for
Fiscal 1999. This discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto included herein.
The Company operates primarily in the beverage alcohol industry in the
United States and the United Kingdom. The Company reports its operating results
in four segments: Canandaigua Wine (branded wine and brandy, and other,
primarily grape juice concentrate); Barton (primarily beer and spirits); Matthew
Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); and Corporate Operations and Other (primarily
corporate related items).
During the fourth quarter of Fiscal 1999, the Company changed its method of
determining the cost of inventories from the last-in, first-out ("LIFO") method
to the first-in, first-out ("FIFO") method. All previously reported results have
been restated to reflect the retroactive application of this accounting change
as required by generally accepted accounting principles. For further discussion
of the impact of this accounting change, see Note 1 to the Company's
consolidated financial statements located in Item 8 of this Annual Report on
Form 10-K.
RECENT ACQUISITIONS
On December 1, 1998, the Company acquired control of Matthew Clark and has
since acquired all of Matthew Clark's outstanding shares. Prior to the Matthew
Clark Acquisition, the Company was principally a producer and supplier of wine
and an importer and producer of beer and distilled spirits in the United States.
The Matthew Clark Acquisition established the Company as a leading British
producer of cider, wine and bottled water and as a leading beverage alcohol
wholesaler in the United Kingdom. (See also the discussions regarding Matthew
Clark under Item 1 "Business" of this Annual Report on Form 10-K.) The results
of operations of Matthew Clark have been included in the consolidated results of
operations of the Company since the date of acquisition, December 1, 1998.
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc. In connection with the
transaction, the Company also entered into multi-year agreements with Diageo to
provide packaging and distilling services for various brands retained by Diageo.
The addition of the Canadian whisky brands from this transaction strengthens the
Company's position in the North American distilled spirits category, and
enhances the Company's portfolio of brands and category participation.
The Matthew Clark and Black Velvet Acquisitions are significant and the
Company expects them to have a material impact on the Company's future results
of operations.
- 16 -
RECENT DEVELOPMENTS - PENDING ACQUISITIONS OF SIMI AND FRANCISCAN
On April 1, 1999, the Company entered into a definitive agreement with Moet
Hennessy, Inc. to purchase all of the outstanding capital stock of Simi. The
Simi Acquisition includes the Simi winery, equipment, vineyards, inventory and
worldwide ownership of the Simi brand name.
On April 21, 1999, the Company entered into definitive purchase agreements
with Franciscan and its shareholders, and certain parties related to Franciscan
to, among other matters, purchase all of the outstanding capital stock of
Franciscan and acquire certain vineyards and related vineyard assets. Pursuant
to the Franciscan Acquisition, the Company will: (i) acquire the Franciscan
Oakville Estate, Estancia and Mt. Veeder brands; (ii) acquire wineries located
in Rutherford, Monterey and Mt. Veeder, California; (iii) acquire vineyards in
the Napa Valley, Alexander Valley, Monterey and Paso Robles appellations and
additionally, will enter into long-term grape contracts with certain parties
related to Franciscan to purchase additional grapes grown in the Napa and
Alexander Valley appellations; (iv) acquire distribution rights to the Quintessa
and Veramonte brands; and (v) acquire equity interests in entities that own the
Veramonte brand and the Veramonte winery and certain vineyards located in the
Casablanca Valley, Chile.
The agreements for the Simi and Franciscan Acquisitions are subject to
certain customary conditions prior to closing, which the Company expects will be
satisfied. The Company cannot guarantee, however, that those transactions will
be completed upon the agreed upon terms, or at all.
RESULTS OF OPERATIONS
- ---------------------
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Fiscal 1999 and Fiscal 1998.
Fiscal 1999 Compared to Fiscal 1998
-----------------------------------------
Net Sales
-----------------------------------------
%Increase/
1999 1998 Decrease
---------- ---------- ----------
Canandaigua Wine:
Branded $ 598,782 $ 570,807 4.9 %
Other 70,711 71,988 (1.8)%
---------- ----------
Net sales $ 669,493 $ 642,795 4.2 %
---------- ----------
Barton:
Beer $ 478,611 $ 376,607 27.1 %
Spirits 185,938 191,190 (2.7)%
---------- ----------
Net sales $ 664,549 $ 567,797 17.0 %
---------- ----------
Matthew Clark:
Branded $ 64,879 $ -- --
Wholesale 93,881 -- --
---------- ----------
Net sales $ 158,760 $ -- --
---------- ----------
Corporate Operations
and Other $ 4,541 $ 2,196 106.8 %
---------- ----------
Consolidated Net Sales $1,497,343 $1,212,788 23.5 %
========== ==========
- 17 -
Net sales for Fiscal 1999 increased to $1,497.3 million from $1,212.8
million for Fiscal 1998, an increase of $284.6 million, or 23.5%.
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Fiscal 1999 increased to $669.5 million
from $642.8 million for Fiscal 1998, an increase of $26.7 million, or 4.2%. This
increase resulted primarily from (i) the introduction of two new products, Arbor
Mist and Mystic Cliffs, in Fiscal 1999, (ii) Paul Masson Grande Amber Brandy
growth, and (iii) Almaden boxed wine growth. These increases were partially
offset by declines in other wine brands and in the Company's grape juice
concentrate business.
Barton
------
Net sales for Barton for Fiscal 1999 increased to $664.5 million from
$567.8 million for Fiscal 1998, an increase of $96.8 million, or 17.0%. This
increase resulted primarily from an increase in sales of beer brands led by
Barton's Mexican portfolio. This increase was partially offset by a decrease in
revenues from Barton's spirits contract bottling business.
Matthew Clark
-------------
Net sales for Matthew Clark for Fiscal 1999 since the date of acquisition,
December 1, 1998, were $158.8 million.
GROSS PROFIT
The Company's gross profit increased to $448.0 million for Fiscal 1999 from
$343.8 million for Fiscal 1998, an increase of $104.3 million, or 30.3%. The
dollar increase in gross profit resulted primarily from the sales generated by
the Matthew Clark Acquisition completed in the fourth quarter of Fiscal 1999,
increased beer sales and the combination of higher average selling prices and
lower average costs for branded wine sales. As a percent of net sales, gross
profit increased to 29.9% for Fiscal 1999 from 28.3% for Fiscal 1998. The
increase in the gross profit margin resulted primarily from higher selling
prices and lower costs for Canandaigua Wine's branded wine sales, partially
offset by a sales mix shift towards lower margin products, particulary due to
the growth in Barton's beer sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $299.5 million
for Fiscal 1999 from $231.7 million for Fiscal 1998, an increase of $67.8
million, or 29.3%. The dollar increase in selling, general and administrative
expenses resulted primarily from expenses related to the Matthew Clark
Acquisition, as well as marketing and promotional costs associated with the
Company's increased branded sales volume. The year-over-year comparison also
benefited from a one time charge for separation costs incurred in Fiscal 1998
related to an organizational change within Barton. Selling, general and
administrative expenses as a percent of net sales increased to 20.0% for Fiscal
1999 as compared to 19.1% for Fiscal 1998. The increase in percent of net sales
resulted primarily from (i) Canandaigua Wine's investment in brand building and
efforts to increase market share and (ii) the Matthew Clark Acquisition, as
Matthew Clark's selling, general and administrative expenses as a percent of net
sales is typically higher than for the Company's other operating segments.
- 18 -
NONRECURRING CHARGES
The Company incurred nonrecurring charges of $2.6 million in Fiscal 1999
related to the closure of a production facility in the United Kingdom. No such
charges were incurred in Fiscal 1998.
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Fiscal 1999 and Fiscal 1998.
Fiscal 1999 Compared to Fiscal 1998
-----------------------------------
Operating Profit/(Loss)
-----------------------------------
%Increase/
1999 1998 (Decrease)
-------- -------- ----------
Canandaigua Wine $ 46,283 $ 45,440 1.9 %
Barton 102,624 77,010 33.3 %
Matthew Clark 8,998 -- --
Corporate Operations and Other (12,013) (10,380) (15.7)%
-------- --------
Consolidated Operating Profit $145,892 $112,070 30.2 %
======== ========
As a result of the above factors, operating income increased to $145.9
million for Fiscal 1999 from $112.1 million for Fiscal 1998, an increase of
$33.8 million, or 30.2%.
INTEREST EXPENSE, NET
Net interest expense increased to $41.5 million for Fiscal 1999 from $32.2
million for Fiscal 1998, an increase of $9.3 million or 28.8%. The increase
resulted primarily from additional interest expense associated with the
borrowings related to the Matthew Clark Acquisition.
EXTRAORDINARY ITEM, NET OF INCOME TAXES
The Company incurred an extraordinary charge of $11.4 million after taxes
in Fiscal 1999. This charge resulted from fees related to the replacement of the
Company's bank credit facility, including extinguishment of the Term Loan. No
extraordinary charges were incurred in Fiscal 1998.
NET INCOME
As a result of the above factors, net income increased to $50.5 million for
Fiscal 1999 from $47.1 million for Fiscal 1998, an increase of $3.3 million, or
7.1%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Fiscal 1999 were
$184.5 million, an increase of $39.3 million over EBITDA of $145.2 million for
Fiscal 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.
- 19 -
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Fiscal 1998 and Fiscal 1997.
Fiscal 1998 Compared to Fiscal 1997
---------------------------------------
Net Sales
---------------------------------------
%Increase/
1998 1997 (Decrease)
---------- ---------- ----------
Canandaigua Wine:
Branded $ 570,807 $ 537,745 6.1 %
Other 71,988 112,546 (36.0)%
---------- ----------
Net sales $ 642,795 $ 650,291 (1.2)%
---------- ----------
Barton:
Beer $ 376,607 $ 298,925 26.0 %
Spirits 191,190 185,289 3.2 %
---------- ----------
Net sales $ 567,797 $ 484,214 17.3 %
---------- ----------
Corporate Operations and Other $ 2,196 $ 508 332.3 %
---------- ----------
Consolidated Net Sales $1,212,788 $1,135,013 6.9%
========== ==========
Net sales for Fiscal 1998 increased to $1,212.8 million from $1,135.0
million for Fiscal 1997, an increase of $77.8 million, or 6.9%.
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Fiscal 1998 decreased to $642.8 million
from $650.3 million for Fiscal 1997, a decrease of $7.5 million, or 1.2%. This
decrease resulted primarily from lower sales of grape juice concentrate, bulk
wine and other branded wine products, partially offset by an increase in table
wine sales and brandy sales.
Barton
------
Net sales for Barton for Fiscal 1998 increased to $567.8 million from
$484.2 million for Fiscal 1997, an increase of $83.6 million, or 17.3%. This
increase resulted primarily from additional beer sales, largely Mexican beer,
and additional spirits sales.
GROSS PROFIT
The Company's gross profit increased to $343.8 million for Fiscal 1998 from
$322.2 million for Fiscal 1997, an increase of $21.5 million, or 6.7%. The
dollar increase in gross profit resulted primarily from increased beer sales,
higher average selling prices and cost structure improvements related to
- 20 -
branded wine sales, higher average selling prices in excess of cost increases
related to grape juice concentrate sales and higher average selling prices and
increased volume related to branded spirits sales. These increases were
partially offset by lower sales volume of grape juice concentrate and bulk wine.
As a percent of net sales, gross profit decreased slightly to 28.3% for Fiscal
1998 from 28.4% for Fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $231.7 million
for Fiscal 1998 from $209.0 million for Fiscal 1997, an increase of $22.7
million, or 10.9%. The dollar increase in selling, general and administrative
expenses resulted principally from marketing and selling costs associated with
the Company's branded sales volume, and a one-time charge for separation costs
related to an organizational change within the Barton segment. Selling, general
and administrative expenses as a percent of net sales increased to 19.1% for
Fiscal 1998 as compared to 18.4% for Fiscal 1997. The increase in percent of net
sales resulted from the one-time charge for separation costs and from a change
in the sales mix in the Canandaigua Wine segment towards branded products, which
have a higher percent of marketing and selling costs relative to sales.
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for Fiscal 1998 and Fiscal 1997.
Fiscal 1998 Compared to Fiscal 1997
-------------------------------------
Operating Profit/(Loss)
-------------------------------------
%Increase/
1998 1997 (Decrease)
-------- -------- -----------
Canandaigua Wine $ 45,440 $ 51,525 (11.8)%
Barton 77,010 73,073 5.4 %
Corporate Operations and Other (10,380) (11,388) 8.9 %
-------- --------
Consolidated Operating Profit $112,070 $113,210 (1.0)%
======== ========
As a result of the above factors, operating income decreased to $112.1
million for Fiscal 1998 from $113.2 million for Fiscal 1997, a decrease of $1.1
million, or 1.0%.
INTEREST EXPENSE, NET
Net interest expense decreased to $32.2 million for Fiscal 1998 from $34.1
million for Fiscal 1997, a decrease of $1.9 million or 5.5%. The decrease was
primarily due to a decrease in the Company's average borrowings which was
partially offset by an increase in the average interest rate.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for Fiscal 1998 decreased to 41.0% from
41.7% for Fiscal 1997 as Fiscal 1997 reflected a higher effective tax rate in
California caused by statutory limitations on the Company's ability to utilize
certain deductions.
- 21 -
NET INCOME
As a result of the above factors, net income increased to $47.1 million for
Fiscal 1998 from $46.2 million for Fiscal 1997, an increase of $0.9 million, or
2.1%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Fiscal 1998 were
$145.2 million, an increase of $0.2 million over EBITDA of $145.0 million for
Fiscal 1997. 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.
FISCAL 1999 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Fiscal 1999 was $107.3
million, which resulted from $112.3 million in net income adjusted for noncash
items, less $5.0 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from post acquisition activity attributable to the Matthew
Clark Acquisition resulting in a decrease in other accrued expenses and
liabilities and accounts payable, partially offset by a decrease in accounts
receivable.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Fiscal 1999 was $382.4 million,
which resulted primarily from net cash paid of $332.2 million for the Matthew
Clark Acquisition and $49.9 million of capital expenditures, including $7.0
million for vineyards.
Net cash provided by financing activities for Fiscal 1999 was $301.0
million, which resulted primarily from proceeds of $635.1 million from issuance
of long-term debt, including $358.1 million of long-term debt incurred to
acquire Matthew Clark. This amount was partially offset by principal
- 22 -
payments of $264.1 million of long-term debt, repurchases of $44.9 million of
the Company's Class A Common Stock, payment of $17.1 million of long-term debt
issuance costs and repayment of $13.9 million of net revolving loan borrowings.
As of February 28, 1999, under the 1998 Credit Agreement, the Company had
outstanding term loans of $625.6 million bearing interest at 7.6%, $83.1 million
of revolving loans bearing interest at 7.3%, undrawn revolving letters of credit
of $4.0 million, and $212.9 million in revolving loans available to be drawn.
Total debt outstanding as of February 28, 1999, amounted to $925.4 million,
an increase of $500.2 million from February 28, 1998. The ratio of total debt to
total capitalization increased to 68.0% as of February 28, 1999, from 50.0% as
of February 28, 1998.
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, in management's discretion and depending upon market
conditions, through open market or privately negotiated transactions. The
Company may finance such repurchases through cash generated from operations or
through the bank credit agreement. The repurchased shares will become treasury
shares. As of May 28, 1999, 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.
THE COMPANY'S CREDIT AGREEMENT
On December 14, 1998, the Company, its principal operating subsidiaries
(other than Matthew Clark and its subsidiaries), and a syndicate of banks, for
which The Chase Manhattan Bank acts as administrative agent, entered into a
First Amended and Restated Credit Agreement (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
British pound sterling commitments of the syndicate banks of up to, in the
aggregate, the equivalent of $1.0 billion (subject to increase as therein
provided to $1.2 billion) 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 British pound sterling. A brief description of
the 1998 Credit Agreement is contained in Note 6 to the Company's consolidated
financial statements located in Item 8 of this Annual Report on Form 10-K.
The Company expects to finance the purchase price for the Simi and
Franciscan Acquisitions with borrowings under an amendment to the 1998 Credit
Agreement.
- 23 -
SENIOR SUBORDINATED NOTES
As of February 28, 1999, the Company had outstanding $195.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due December
2003, being the $130.0 million aggregate principal amount of 8 3/4% Senior
Subordinated Notes due December 2003 issued in December 1993 (the "Original
Notes") and the $65.0 million aggregate principal amount of 8 3/4% Series C
Senior Subordinated Notes due December 2003 issued in February 1997 (the "Series
C Notes"). The Original Notes and the Series C Notes are currently redeemable,
in whole or in part, at the option of the Company. A brief description of the
Original Notes and the Series C Notes is contained in Note 6 to the Company's
consolidated financial statements located in Item 8 of this Annual Report on
Form 10-K.
On March 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "$200 Million
Notes"). The Company used the proceeds from the sale of the $200 Million Notes
to fund the Black Velvet Acquisition ($185.5 million) and to pay the fees and
expenses related thereto with the remainder of the net proceeds to be used for
general corporate purposes or to fund future acquisitions. The $200 Million
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after March 1, 2004. The Company may also redeem up to $70.0 million
of the $200 Million Notes using the proceeds of certain equity offerings
completed before March 1, 2002. A brief description of the $200 Million Notes is
contained in Note 17 to the Company's consolidated financial statements located
in Item 8 of this Annual Report on Form 10-K.
CAPITAL EXPENDITURES
During Fiscal 1999, the Company incurred $49.9 million for capital
expenditures, including $7.0 million related to vineyards. The Company plans to
spend approximately $49.6 million for capital expenditures, exclusive of
vineyards, in fiscal 2000. In addition, the Company continues to consider the
purchase, lease and development of vineyards. See "Business - Sources and
Availability of Raw Materials" under Item 1 of this Annual Report on Form 10-K.
The Company may incur additional expenditures for vineyards if opportunities
become available. Management reviews the capital expenditure program
periodically and modifies it as required to meet current business needs.
COMMITMENTS
The Company has agreements with suppliers to purchase various spirits and
blends of which certain agreements are denominated in British pound sterling.
The future obligations under these agreements, based upon exchange rates at
February 28, 1999, aggregate approximately $17.2 million for contracts expiring
through December 2002.
At February 28, 1999, the Company had open currency forward contracts to
purchase various foreign currencies of $12.4 million which mature within twelve
months. The Company's use of such contracts is limited to the management of
currency rate risks related to purchases denominated in a foreign currency. The
Company's strategy is to enter only into currency exchange contracts that are
matched to specific purchases and not to enter into any speculative contracts.
- 24 -
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and financial condition have not been
significantly affected by inflation and changing prices. The Company has been
able, subject to normal competitive conditions, to pass along rising costs
through increased selling prices.
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 and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. 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 Black Velvet Acquisition. 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.
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, have been inventoried and
assessed. In addition, plans have been 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
75% of the remediation phase. With respect to its non-information technology
systems, the Company has completed the entire assessment phase and approximately
64% of the remediation phase. Selected areas, both internal and external, are
being 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
- 25 -
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 financial condition, results of
operations or cash flows.
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, results
of operations or cash flows. For example, the Company would experience a
material adverse impact on its business if significant suppliers of beer, glass
or other raw materials, or utility systems fail to timely provide the Company
with necessary inventories or services due to Year 2000 systems failures.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. 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 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.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union (the "Participating Countries") established fixed conversion
rates between their existing sovereign currencies and the euro. For three years
after the introduction of the euro, the Participating Countries can perform
financial transactions in either the euro or their original local currencies.
This will result in a fixed exchange rate among the Participating Countries,
whereas the euro (and the Participating Countries' currency in tandem) will
continue to float freely against the U.S. dollar and other currencies of the
non-participating countries. The Company does not believe that the effects of
the conversion will have a material adverse effect on the Company's business and
operations.
- 26 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The Company is exposed to market risk associated with changes in interest
rates and foreign currency exchange rates. To manage the volatility relating to
these risks, the Company periodically enters into derivative transactions
including foreign currency exchange contracts and interest rate swap agreements.
The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. The Company uses derivative instruments
solely to reduce the financial impact of these risks.
The fair value of long-term debt is subject to interest rate risk.
Generally, the fair value of long-term debt will increase as interest rates fall
and decrease as interest rates rise. The estimated fair value of the Company's
total long-term debt, including current maturities, was approximately $844.6
million at February 28, 1999. A hypothetical 1% increase from prevailing
interest rates at February 28, 1999, would result in a decrease in fair value of
long-term debt by approximately $7.7 million. Also, a hypothetical 1% increase
from prevailing interest rates at February 28, 1999, would result in an
approximate increase in cash required for interest on variable interest rate
debt during the next five fiscal years as follows:
2000 $ 6.2 million
2001 $ 5.1 million
2002 $ 3.8 million
2003 $ 3.4 million
2004 $ 2.9 million
The Company periodically enters into interest rate swap agreements to
reduce its exposure to interest rate changes relative to its long-term debt. At
February 28, 1999, the Company had no interest rate swap agreements outstanding.
The Company has exposure to foreign currency risk as a result of having
international subsidiaries in the United Kingdom. The Company uses local
currency borrowings to hedge its earnings and cash flow exposure to adverse
changes in foreign currency exchange rates. At February 28, 1999, management
believes that a hypothetical 10% adverse change in foreign currency exchange
rates would not result in a material adverse impact on either earnings or cash
flow. The Company also has exposure to foreign currency risk as a result of
contracts to purchase inventory items that are denominated in various foreign
currencies. In order to reduce the risk of foreign currency exchange rate
fluctuations resulting from these contracts, the Company periodically enters
into foreign exchange hedging agreements. At February 28, 1999, the potential
loss on outstanding foreign exchange hedging agreements from a hypothetical 10%
adverse change in foreign currency exchange rates would not be material.
- 27 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
-----------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AND
---
SUPPLEMENTARY SCHEDULES
-----------------------
FEBRUARY 28, 1999
-----------------
Page
----
The following information is presented in this Annual Report on Form 10-K:
Report of Independent Public Accountants............................. 28
Consolidated Balance Sheets - February 28, 1999 and 1998............. 29
Consolidated Statements of Income for the years ended
February 28, 1999, 1998 and 1997................................ 30
Consolidated Statements of Changes in Stockholders' Equity
for the years ended February 28, 1999, 1998 and 1997............ 31
Consolidated Statements of Cash Flows for the years ended
February 28, 1999, 1998 and 1997................................ 32
Notes to Consolidated Financial Statements........................... 33
Selected Financial Data.............................................. 14
Selected Quarterly Financial Information (unaudited)................. 52
Schedules I through V are not submitted because they are not applicable or not
required under the rules of Regulation S-X.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority equity interest and/or noncurrent
indebtedness, not guaranteed by the Registrant, in excess of 5% of total
consolidated assets.
- 28 -
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Canandaigua Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Canandaigua
Brands, Inc. (a Delaware corporation) and subsidiaries as of February 28, 1999
and 1998, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended February 28, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Canandaigua Brands, Inc. and
subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999 in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, the Company has given
retroactive effect to the change in accounting for inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method.
/s/ Arthur Andersen LLP
Rochester, New York
April 22, 1999
- 29 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
February 28,
---------------------------
1999 1998
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 27,645 $ 1,232
Accounts receivable, net 260,433 142,615
Inventories, net 508,571 411,424
Prepaid expenses and other current assets 59,090 26,463
----------- -----------
Total current assets 855,739 581,734
PROPERTY, PLANT AND EQUIPMENT, net 428,803 244,035
OTHER ASSETS 509,234 264,786
----------- -----------
Total assets $ 1,793,776 $ 1,090,555
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 87,728 $ 91,900
Current maturities of long-term debt 6,005 24,118
Accounts payable 122,746 52,055
Accrued Federal and state excise taxes 49,342 17,498
Other accrued expenses and liabilities 149,451 104,896
----------- -----------
Total current liabilities 415,272 290,467
----------- -----------
LONG-TERM DEBT, less current maturities 831,689 309,218
----------- -----------
DEFERRED INCOME TAXES 88,179 59,237
----------- -----------
OTHER LIABILITIES 23,364 6,206
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none in 1999 and 1998 -- --
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 17,915,359 shares in 1999
and 17,604,784 shares in 1998 179 176
Class B Convertible Common Stock,
$.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,849,173 shares in 1999 and
3,956,183 shares in 1998 39 40
Additional paid-in capital 239,912 231,687
Retained earnings 281,081 230,609
Accumulated other comprehensive income-
Cumulative translation adjustment (4,173) --
----------- -----------
517,038 462,512
----------- -----------
Less-Treasury stock-
Class A Common Stock, 3,168,306 shares in
1999 and 2,199,320 shares in 1998,
at cost (79,559) (34,878)
Class B Convertible Common Stock, 625,725
shares in 1999 and 1998, at cost (2,207) (2,207)
----------- -----------
(81,766) (37,085)
----------- -----------
Total stockholders' equity 435,272 425,427
----------- -----------
Total liabilities and stockholders' equity $ 1,793,776 $ 1,090,555
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
- 30 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Years Ended February 28,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
GROSS SALES $ 1,984,801 $ 1,632,357 $ 1,534,452
Less - Excise taxes (487,458) (419,569) (399,439)
----------- ----------- -----------
Net sales 1,497,343 1,212,788 1,135,013
COST OF PRODUCT SOLD (1,049,309) (869,038) (812,812)
----------- ----------- -----------
Gross profit 448,034 343,750 322,201
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (299,526) (231,680) (208,991)
NONRECURRING CHARGES (2,616) -- --
----------- ----------- -----------
Operating income 145,892 112,070 113,210
INTEREST EXPENSE, net (41,462) (32,189) (34,050)
----------- ----------- -----------
Income before taxes and
extraordinary item 104,430 79,881 79,160
PROVISION FOR INCOME TAXES (42,521) (32,751) (32,977)
----------- ----------- -----------
Income before extraordinary item 61,909 47,130 46,183
EXTRAORDINARY ITEM, NET OF INCOME TAXES (11,437) -- --
----------- ----------- -----------
NET INCOME $ 50,472 $ 47,130 $ 46,183
=========== =========== ===========
SHARE DATA:
Earnings per common share:
Basic:
Income before extraordinary item $ 3.38 $ 2.52 $ 2.39
Extraordinary item (0.62) -- --
----------- ----------- -----------
Earnings per common share - basic $ 2.76 $ 2.52 $ 2.39
=========== =========== ===========
Diluted:
Income before extraordinary item $ 3.30 $ 2.47 $ 2.37
Extraordinary item (0.61) -- --
----------- ----------- -----------
Earnings per common share - diluted $ 2.69 $ 2.47 $ 2.37
=========== =========== ===========
Weighted average common shares
outstanding:
Basic 18,293 18,672 19,333
Diluted 18,754 19,105 19,521
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 31 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Accumulated
Common Stock Additional Other
---------------- Paid-In Retained Comprehensive Treasury Restricted
Class A Class B Capital Earnings Income Stock Stock Total
------- ------- ---------- -------- ------------- --------- ---------- --------
BALANCE, February 29, 1996 $174 $40 $221,133 $137,296 $ - $ (7,441) $ - $351,202
Net income and comprehensive income
for fiscal 1997 - - - 46,183 - - - 46,183
Conversion of 35,500 Class B Convertible
Common shares to Class A Common shares - - - - - - - -
Exercise of 3,750 Class A stock options - - 17 - - - - 17
Employee stock purchases of 37,768
treasury shares - - 884 - - 114 - 998
Repurchase of 787,450 Class A Common
shares - - - - - (20,765) - (20,765)
Acceleration of 18,500 Class A stock
options - - 248 - - - - 248
Tax benefit on Class A stock options
exercised - - 27 - - - - 27
Tax benefit on disposition of employee
stock purchases - - 27 - - - - 27
---- --- -------- -------- ------- -------- ------ --------
BALANCE, February 28, 1997 174 40 222,336 183,479 - (28,092) - 377,937
Net income and comprehensive income for
fiscal 1998 - - - 47,130 - - - 47,130
Exercise of 117,452 Class A stock options 2 - 1,799 - - - - 1,801
Employee stock purchases of 78,248
treasury shares - - 1,016 - - 240 - 1,256
Repurchase of 362,100 Class A Common
shares - - - - - (9,233) - (9,233)
Acceleration of 142,437 Class A stock
options - - 3,625 - - - - 3,625
Issuance of 25,000 restricted Class A
Common shares - - 1,144 - - - (1,144) -
Amortization of unearned restricted
stock compensation - - - - - - 267 267
Accelerated amortization of unearned
restricted stock compensation - - 200 - - - 877 1,077
Tax benefit on Class A stock options
exercised - - 1,382 - - - - 1,382
Tax benefit on disposition of employee
stock purchases - - 185 - - - - 185
---- --- -------- -------- ------- -------- ------ --------
BALANCE, February 28, 1998 176 40 231,687 230,609 - (37,085) - 425,427
Comprehensive income:
Net income for fiscal 1999 - - - 50,472 - - - 50,472
Cumulative translation adjustment - - - - (4,173) - - (4,173)
--------
Comprehensive income 46,299
--------
Conversion of 107,010 Class B Convertible
Common shares to Class A Common shares 1 (1) - - - - - -
Exercise of 203,565 Class A stock options 2 - 4,085 - - - - 4,087
Employee stock purchases of 49,850
treasury shares - - 1,643 - - 197 - 1,840
Repurchase of 1,018,836 Class A Common
shares - - - - - (44,878) - (44,878)
Acceleration of 1,250 Class A stock
options - - 43 - - - - 43
Tax benefit on Class A stock options
exercised - - 2,320 - - - - 2,320
Tax benefit on disposition of employee
stock purchases - - 134 - - - - 134
---- --- -------- -------- ------- -------- ------- --------
BALANCE, February 28, 1999 $179 $39 $239,912 $281,081 $(4,173) $(81,766) $ - $435,272
==== === ======== ======== ======= ======== ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements.
- 32 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended February 28,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,472 $ 47,130 $ 46,183
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of property, plant and equipment 27,282 23,847 22,359
Extraordinary item, net of income taxes 11,437 - -
Amortization of intangible assets 11,308 9,314 9,480
Deferred tax provision 10,053 4,275 18,630
Loss (gain) on sale of assets 1,193 (3,001) (3,371)
Amortization of discount on long-term debt 388 352 112
Stock-based compensation expense 144 1,747 275
Change in operating assets and liabilities,
net of effects from purchase of business:
Accounts receivable, net 44,081 749 3,523
Inventories, net 1,190 (60,659) (15,137)
Prepaid expenses and other current assets (14,115) (4,354) 3,271
Accounts payable (17,560) (3,288) (431)
Accrued Federal and state excise taxes 17,124 440 (2,641)
Other accrued expenses and liabilities (31,807) 14,655 24,617
Other assets and liabilities, net (3,945) (2,452) 898
---------- ---------- ----------
Total adjustments 56,773 (18,375) 61,585
---------- ---------- ----------
Net cash provided by operating activities 107,245 28,755 107,768
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired (332,216) - -
Purchases of property, plant and equipment (49,857) (31,203) (31,649)
Purchase of joint venture minority interest (716) - -
Proceeds from sale of assets 431 12,552 9,174
Payment of accrued earn-out amounts - - (13,848)
---------- ---------- ----------
Net cash used in investing activities (382,358) (18,651) (36,323)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net
of discount 635,090 140,000 61,668
Exercise of employee stock options 4,083 1,776 17
Proceeds from employee stock purchases 1,840 1,256 998
Principal payments of long-term debt (264,101) (186,367) (50,842)
Purchases of treasury stock (44,878) (9,233) (20,765)
Payment of issuance costs of long-term debt (17,109) (1,214) (1,550)
Net (repayment of) proceeds from notes payable (13,907) 34,900 (54,300)
---------- ---------- ----------
Net cash provided by (used in) financing
activities 301,018 (18,882) (64,774)
---------- ---------- ----------
Effect of exchange rate changes on cash and
cash investments 508 - -
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 26,413 (8,778) 6,671
CASH AND CASH INVESTMENTS, beginning of year 1,232 10,010 3,339
---------- ---------- ----------
CASH AND CASH INVESTMENTS, end of year $ 27,645 $ 1,232 $ 10,010
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 36,257 $ 33,394 $ 32,615
========== ========== ==========
Income taxes $ 40,714 $ 32,164 $ 4,411
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including
cash acquired $ 740,880 $ - $ -
Liabilities assumed (382,759) - -
---------- ---------- ----------
Cash paid 358,121 - -
Less - cash acquired (25,905) - -
---------- ---------- ----------
Net cash paid for purchase of business $ 332,216 $ - $ -
========== ========== ==========
Goodwill reduction on settlement of disputed
final closing net current asset statement
for Vintners Acquisition $ - $ - $ 5,894
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements.
- 33 -
CANANDAIGUA BRANDS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS -
Canandaigua Brands, Inc., and its subsidiaries (the Company) operate primarily
in the beverage alcohol industry. The Company is principally a producer and
supplier of wine and an importer and producer of beer and distilled spirits in
the United States. It maintains a portfolio of over 170 national and regional
brands of beverage alcohol which are distributed by over 1,000 wholesalers
throughout the United States and selected international markets. The Company is
also a leading United Kingdom-based producer of its own brands of cider, wine
and bottled water and a leading independent beverage supplier to the on-premise
trade, distributing its own branded products and those of other companies to
more than 16,000 on-premise establishments in the U.K.
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements of the Company include the accounts of
Canandaigua Brands, Inc., and all of its subsidiaries. All intercompany accounts
and transactions have been eliminated.
MANAGEMENT'S USE OF ESTIMATES AND JUDGMENT -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION -
The "functional currency" for translating the accounts of the Company's
operations outside the U.S. is the local currency. The translation from the
applicable foreign currencies to U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average exchange rate during
the period. The resulting translation adjustments are recorded as a component of
accumulated other comprehensive income. Gains or losses resulting from foreign
currency transactions are included in selling, general and administrative
expenses.
CASH INVESTMENTS -
Cash investments consist of highly liquid investments with an original maturity
when purchased of three months or less and are stated at cost, which
approximates market value. The amounts at February 28, 1999 and 1998, are not
significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the
Company calculates the fair value of financial instruments using quoted market
prices whenever available. When quoted market prices are not available, the
Company uses standard pricing models for various types of financial instruments
(such as forwards, options, swaps, etc.) which take into account the present
value of estimated future cash flows. The methods and assumptions used to
estimate the fair value of financial instruments are summarized as follows:
ACCOUNTS RECEIVABLE: The carrying amount approximates fair value due to the
short maturity of these instruments, the creditworthiness of the customers and
the large number of customers constituting the accounts receivable balance.
NOTES PAYABLE: These instruments are variable interest rate bearing notes
for which the carrying value approximates the fair value.
LONG-TERM DEBT: The carrying value of the debt facilities with short-term
variable interest rates approximates the fair value. The fair value of the fixed
rate debt was estimated by discounting cash flows using interest rates currently
available for debt with similar terms and maturities.
- 34 -
FOREIGN EXCHANGE HEDGING AGREEMENTS: The fair value of currency forward
contracts is estimated based on quoted market prices.
LETTERS OF CREDIT: At February 28, 1999 and 1998, the Company had letters
of credit outstanding totaling approximately $4.0 million and $3.9 million,
respectively, which guarantee payment for certain obligations. The Company
recognizes expense on these obligations as incurred and no material losses are
anticipated.
The carrying amount and estimated fair value of the Company's financial
instruments are summarized as follows as of February 28:
1999 1998
--------------------------------- --------------------------------
Notional Carrying Fair Notional Carrying Fair
Amount Amount Value Amount Amount Value
(in thousands) -------- -------- --------- -------- -------- --------
Liabilities:
- ------------
Notes payable $ -- $ 87,728 $ 87,728 $ -- $ 91,900 $ 91,900
Long-term debt, including
current portion $ -- $837,694 $844,568 $ -- $333,336 $340,934
Derivative Instruments:
- -----------------------
Foreign exchange hedging
agreements:
Currency forward contracts $12,444 $ -- $ (1,732) $ -- $ -- $ --
INTEREST RATE FUTURES AND CURRENCY FORWARD CONTRACTS -
From time to time, the Company enters into interest rate futures and a variety
of currency forward contracts in the management of interest rate risk and
foreign currency transaction exposure. The Company has limited involvement with
derivative instruments and does not use them for trading purposes. The Company
uses derivatives solely to reduce the financial impact of the related risks.
Unrealized gains and losses on interest rate futures are deferred and recognized
as a component of interest expense over the borrowing period. Unrealized gains
and losses on currency forward contracts are deferred and recognized as a
component of the related transactions in the accompanying financial statements.
Discounts or premiums on currency forward contracts are recognized over the life
of the contract. Cash flows from derivative instruments are classified in the
same category as the item being hedged. The Company's open currency forward
contracts at February 28, 1999, hedge purchase commitments denominated in
foreign currencies and mature within twelve months.
INVENTORIES -
During the fourth quarter of fiscal 1999, the Company changed its method of
determining the cost of inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method. The primary reasons for the change in
accounting method are: management's belief that the FIFO method of accounting
better matches revenues and expenses of the Company, and therefore, will result
in a better measurement of operating results; and the FIFO method of accounting
will provide improved financial comparability to other publicly-traded companies
in the industry. All previously reported results have been restated to reflect
the retroactive application of this accounting change as required by generally
accepted accounting principles. The effect of this change was to increase
current assets, current liabilities and retained earnings by $17.4 million, $7.1
million, and $10.3 million, respectively, as of February 28, 1998. The effect of
the change increased net income for the year ended February 28, 1998, by $2.9
million, or $0.15 per share on a diluted basis, and increased net income for the
year ended February 28, 1997, by $18.5 million, or $0.95 per share on a diluted
basis. The effect of the change on the first quarter of fiscal 1999 was to
decrease net income $0.5 million, or $0.02 per share on a diluted basis. The
effect of the change on the second and third quarters of fiscal 1999 was to
increase net income $1.0 million, or $0.05 per share on a diluted basis, and
$0.5 million, or $0.03 per share on a diluted basis, respectively.
- 35 -
Elements of cost include materials, labor and overhead and consist of the
following as of February 28:
1999 1998
-------- --------
(in thousands)
Raw materials and supplies $ 32,388 $ 14,439
Wine and distilled spirits in process 344,175 304,037
Finished case goods 132,008 92,948
-------- --------
$508,571 $411,424
======== ========
A substantial portion of barreled whiskey and brandy will not be sold within one
year because of the duration of the aging process. All barreled whiskey and
brandy are classified as in-process inventories and are included in current
assets, in accordance with industry practice. Bulk wine inventories are also
included as work in process within current assets, in accordance with the
general practices of the wine industry, although a portion of such inventories
may be aged for periods greater than one year. Warehousing, insurance, ad
valorem taxes and other carrying charges applicable to barreled whiskey and
brandy held for aging are included in inventory costs.
PROPERTY, PLANT AND EQUIPMENT -
Property, plant and equipment is stated at cost. Major additions and betterments
are charged to property accounts, while maintenance and repairs are charged to
operations as incurred. The cost of properties sold or otherwise disposed of and
the related accumulated depreciation are eliminated from the accounts at the
time of disposal and resulting gains and losses are included as a component of
operating income.
DEPRECIATION -
Depreciation is computed primarily using the straight-line method over the
following estimated useful lives:
Depreciable Life in Years
-------------------------
Buildings and improvements 10 to 33 1/3
Machinery and equipment 3 to 15
Motor vehicles 3 to 7
Amortization of assets capitalized under capital leases is included with
depreciation expense. Amortization is calculated using the straight-line method
over the shorter of the estimated useful life of the asset or the lease term.
OTHER ASSETS -
Other assets, which consist of goodwill, distribution rights, trademarks, agency
license agreements, deferred financing costs, prepaid pension benefits, cash
surrender value of officers' life insurance and other amounts, are stated at
cost, net of accumulated amortization. Amortization is calculated on a
straight-line or effective interest basis over the following estimated useful
lives:
Useful Life in Years
--------------------
Goodwill 40
Distribution rights 40
Trademarks 40
Agency license agreements 16 to 40
Deferred financing costs 5 to 10
At February 28, 1999, the weighted average remaining useful life of these assets
is approximately 38 years. The face value of the officers' life insurance
policies totaled $2.9 million at both February 28, 1999 and 1998.
- 36 -
LONG-LIVED ASSETS AND INTANGIBLES -
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company reviews its long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable on an undiscounted cash flow basis. The statement also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
Company did not record any asset impairment in fiscal 1999.
ADVERTISING AND PROMOTION COSTS -
The Company generally expenses advertising and promotion costs as incurred,
shown or distributed. Prepaid advertising costs at February 28, 1999 and 1998,
are not material. Advertising and promotion expense for the years ended February
28, 1999, 1998, and 1997, were approximately $173.1 million, $111.7 million and
$101.3 million, respectively.
INCOME TAXES -
The Company uses the liability method of accounting for income taxes. The
liability method accounts for deferred income taxes by applying statutory rates
in effect at the balance sheet date to the difference between the financial
reporting and tax basis of assets and liabilities.
ENVIRONMENTAL -
Environmental expenditures that relate to current operations are expensed as
appropriate. Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue generation,
are expensed. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably estimated.
Generally, the timing of these accruals coincides with the completion of a
feasibility study or the Company's commitment to a formal plan of action.
Liabilities for environmental costs were not material at February 28, 1999 and
1998.
COMPREHENSIVE INCOME-
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income and foreign currency
translation adjustments and is presented in the Consolidated Statements of
Changes in Stockholders' Equity. The adoption of SFAS No. 130 had no impact on
total stockholders' equity. Prior year financial statements have been
reclassified to conform with the SFAS No. 130 requirements.
EARNINGS PER COMMON SHARE -
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 securities,
if any, using the "if converted" method.
2. ACQUISITIONS:
MATTHEW CLARK ACQUISITION -
On December 1, 1998, the Company acquired control of Matthew Clark plc (Matthew
Clark) and has since acquired all of Matthew Clark's outstanding shares (the
Matthew Clark Acquisition). The total purchase price, including assumption of
indebtedness, for the acquisition of Matthew Clark shares was approximately
$475.0 million, net of cash acquired. Matthew Clark, founded in 1810, is a
leading U.K.-based producer and distributor of its own brands of cider, wine and
bottled water and a leading independent drinks wholesaler in the U.K.
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
- 37 -
Company and The Chase Manhattan Bank, as administrative agent, and a syndicate
of banks who are parties to the 1998 Credit Agreement.
The Matthew Clark Acquisition was accounted for using the purchase method;
accordingly, the Matthew Clark assets were recorded at fair market value at the
date of acquisition, December 1, 1998. The excess of the purchase price over the
estimated fair market value of the net assets acquired (goodwill), 99.3 million
British pound sterling ($164.3 million as of December 1, 1998), is being
amortized on a straight-line basis over 40 years. The results of operations of
the Matthew Clark Acquisition have been included in the Consolidated Statements
of Income since the date of the acquisition.
During fiscal 1999, the Company incurred and paid approximately $2.6 million in
nonrecurring charges related to the closing of a Matthew Clark cider production
facility. The charges were part of a production facility consolidation program
that was begun prior to the acquisition. The unaudited pro forma results of
operations for fiscal 1999 (shown in the table below) reflect total nonrecurring
charges of $21.5 million ($0.69 per share on a diluted basis) related to this
facility consolidation program, of which $18.9 million was incurred prior to the
acquisition.
The following table sets forth unaudited pro forma results of operations of the
Company for the years ended February 28, 1999 and 1998. The unaudited pro forma
fiscal 1999 results of operations give effect to the Matthew Clark Acquisition
as if it occurred on March 1, 1998. The unaudited pro forma fiscal 1998 results
of operations give effect to the Matthew Clark Acquisition as if it occurred on
March 1, 1997. The unaudited pro forma fiscal 1999 and fiscal 1998 results of
operations are presented after giving effect to certain adjustments for
depreciation, amortization of goodwill, interest expense on the acquisition
financing and related income tax effects. The unaudited pro forma results of
operations are based upon currently available information and upon certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma results of operations do not purport to present what the
Company's results of operations would actually have been if the aforementioned
transactions had in fact occurred on such date or at the beginning of the period
indicated, nor do they project the Company's financial position or results of
operations at any future date or for any future period.
1999 1998
----------- -----------
(in thousands, except per share data)
Net sales $ 2,017,497 $ 1,883,813
Income before extraordinary item $ 49,126 $ 55,879
Extraordinary item, net of income taxes $ (11,437) $ --
Net income $ 37,689 $ 55,879
Earnings per common share:
Basic:
Income before extraordinary item $ 2.68 $ 2.99
Extraordinary item (0.62) --
----------- -----------
Earnings per common share - basic $ 2.06 $ 2.99
=========== ===========
Diluted:
Income before extraordinary item $ 2.62 $ 2.92
Extraordinary item (0.61) --
----------- -----------
Earnings per common share - diluted $ 2.01 $ 2.92
=========== ===========
Weighted average common shares outstanding:
Basic 18,293 18,672
Diluted 18,754 19,105
- 38 -
3. PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows as of
February 28:
1999 1998
--------- ---------
(in thousands)
Land $ 25,700 $ 15,103
Buildings and improvements 104,152 74,706
Machinery and equipment 380,069 244,204
Motor vehicles 20,191 5,316
Construction in progress 35,468 17,485
--------- ---------
565,580 356,814
Less - Accumulated depreciation (136,777) (112,779)
--------- ---------
$ 428,803 $ 244,035
========= =========
4. OTHER ASSETS:
The major components of other assets are as follows as of February 28:
1999 1998
--------- ---------
(in thousands)
Goodwill $ 311,908 $ 150,595
Distribution rights, agency license
agreements and trademarks 179,077 119,346
Other 53,779 23,686
--------- ---------
544,764 293,627
Less - Accumulated amortization (35,530) (28,841)
--------- ---------
$ 509,234 $ 264,786
========= =========
5. OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as follows as
of February 28:
1999 1998
-------- --------
(in thousands)
Accrued advertising and promotions $ 38,604 $ 16,048
Accrued salaries and commissions 15,584 23,704
Other 95,263 65,144
-------- --------
$149,451 $104,896
======== ========
- 39 -
6. BORROWINGS:
Borrowings consist of the following as of February 28:
1999 1998
---------------------------------------- ---------
(in thousands) Current Long-term Total Total
-------- --------- --------- ---------
Notes Payable:
- --------------
Senior Credit Facility:
Revolving Credit Loans $ 83,075 $ -- $ 83,075 $ 91,900
Other 4,653 -- 4,653 --
-------- --------- --------- ---------
$ 87,728 $ -- $ 87,728 $ 91,900
======== ========= ========= =========
Long-term Debt:
- ---------------
Senior Credit Facility:
Term Loan, variable rate, aggregate proceeds of
$140,000, due in installments through June 2003 $ -- $ -- $ -- $ 140,000
Tranche I Term Loan, variable rate, aggregate
proceeds of $275,630 (denominated in British
pound sterling), due in installments beginning
December 1999 through December 2004 4,934 270,696 275,630 --
Tranche II Term Loan, variable rate, aggregate
proceeds of $200,000, due in June 2000 -- 200,000 200,000 --
Tranche III Term Loan, variable rate, aggregate
proceeds of $150,000, due in installments
beginning December 1999 through December 2005 375 149,625 150,000 --
Senior Subordinated Notes:
8.75% currently redeemable due December 2003 -- 130,000 130,000 130,000
8.75% Series C currently redeemable, due December
2003 (less unamortized discount of $2,480 -
effective rate 9.76%) -- 62,520 62,520 62,132
Other Long-term Debt 696 18,848 19,544 1,204
-------- --------- --------- ---------
$ 6,005 $ 831,689 $ 837,694 $ 333,336
======== ========= ========= =========
SENIOR CREDIT FACILITY - On December 14, 1998, the Company, its principal
operating subsidiaries (other than Matthew Clark and its 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 U.S. dollar and
British pound sterling commitments of the Syndicate Banks of up to, in the
aggregate, the equivalent of $1.0 billion (subject to increase as therein
provided to $1.2 billion) 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 Company incurred an extraordinary loss
of $19.3 million ($11.4 million after taxes) in the fourth quarter of 1999
resulting from fees related to the replacement of the bank credit agreement,
including extinguishment of the Term Loan.
- 40 -
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 British pound sterling.
The Tranche I Term Loan facility requires quarterly repayments, starting at $6.3
million in December 1999, increasing annually thereafter with a balloon payment
at maturity of approximately $110.0 million. The Tranche II Term Loan facility
requires no principal payments prior to the stated maturity. The Tranche III
Term Loan facility requires quarterly repayments, starting at $0.4 million in
December 1999 and increasing to approximately $18.0 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 fluctuation in the
U.S. dollar/British pound sterling exchange rate, in each case subject to
baskets and thresholds which (other than with respect to those pertaining to
fluctuations in the U.S. dollar/British pound sterling 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 offering rate (LIBOR) plus a margin, federal funds rate plus a
margin, or the prime rate plus a margin. The margin is adjustable based upon the
Company's Debt Ratio (as defined in the 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 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.
Each of the Company's principal operating subsidiaries (other than Matthew Clark
and its subsidiaries) has guaranteed the Company's obligation 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, incurring 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.
As of February 28, 1999, under the 1998 Credit Agreement, the Company had
outstanding term loans of $625.6 million bearing interest at 7.62% and $83.1
million of revolving loans bearing interest at 7.25%. The Company had average
outstanding Revolving Credit Loans of approximately $75.5 million, $59.9 million
and $88.8 million for the years ended February 28, 1999, 1998 and 1997,
respectively. Amounts available to be drawn down under the Revolving Credit
Loans were $212.9 million and $89.2 million at February 28, 1999 and 1998,
respectively. The average interest rate on the Revolving Credit Loans was 6.23%,
6.57% and 6.58% for fiscal 1999, fiscal 1998, and fiscal 1997, respectively.
SENIOR SUBORDINATED NOTES -
On December 27, 1993, the Company issued $130.0 million aggregate principal
amount of 8.75% Senior Subordinated Notes due in December 2003 (the Original
Notes). Interest on the Original Notes is payable semiannually on June 15 and
December 15 of each year. The Original Notes are unsecured and subordinated to
the prior payment in full of all senior indebtedness of the Company, which
includes the 1998 Credit Agreement. The Original Notes are guaranteed, on a
senior subordinated basis, by all of the Company's significant operating
subsidiaries (other than Matthew Clark and its subsidiaries).
- 41 -
The Trust Indenture relating to the Original Notes contains certain covenants,
including, but not limited to, (i) limitation on indebtedness; (ii) limitation
on restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on senior subordinated indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii) limitation on issuance of guarantees of and
pledges for indebtedness; (viii) restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x) limitation on the creation of any
restriction on the ability of the Company's subsidiaries to make distributions
and other payments; and (xi) restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets of the Company to another
person. The limitation on indebtedness covenant is governed by a rolling four
quarter fixed charge ratio requiring a specified minimum.
On October 29, 1996, the Company issued $65.0 million aggregate principal amount
of 8.75% Series B Senior Subordinated Notes due in December 2003 (the Series B
Notes). In February 1997, the Company exchanged $65.0 million aggregate
principal amount of 8.75% Series C Senior Subordinated Notes due in December
2003 (the Series C Notes) for the Series B Notes. The terms of the Series C
Notes are substantially identical in all material respects to the Original
Notes.
DEBT PAYMENTS -
Principal payments required under long-term debt obligations during the next
five fiscal years and thereafter are as follows:
(in thousands)
2000 $ 6,005
2001 224,972
2002 35,963
2003 42,876
2004 244,826
Thereafter 285,532
---------
$ 840,174
=========
7. INCOME TAXES:
The provision for income taxes consists of the following for the years ended
February 28:
1999 1998 1997
------------------------------------------- -------- --------
State
and
Federal Local Foreign Total Total Total
-------- -------- ------- -------- -------- --------
(in thousands)
Current income tax provision $ 23,827 $ 8,539 $ 102 $ 32,468 $ 28,476 $ 14,347
Deferred income tax provision 5,732 2,195 2,126 10,053 4,275 18,630
-------- -------- ------- -------- -------- --------
$ 29,559 $ 10,734 $ 2,228 $ 42,521 $ 32,751 $ 32,977 $
======== ======== ======= ======== ======== ========
- 42 -
A reconciliation of the total tax provision to the amount computed by applying
the expected U.S. Federal income tax rate to income before provision for income
taxes is as follows for the years ended February 28:
1999 1998 1997
------------------ ------------------ ------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
-------- ------ -------- ------ -------- ------
(in thousands)
Computed "expected" tax provision $ 36,551 35.0 $ 27,958 35.0 $ 27,706 35.0
State and local income taxes, net
of Federal income tax benefit 6,977 6.7 4,793 6.0 5,462 6.9
Miscellaneous items, net (1,007) (1.0) - - (191) (0.2)
-------- ------ -------- ------ -------- ------
$ 42,521 40.7 $ 32,751 41.0 $ 32,977 41.7
======== ====== ======== ====== ======== ======
Deferred tax liabilities (assets) are comprised of the following as of February
28:
1999 1998
-------- --------
(in thousands)
Depreciation and amortization $ 89,447 $ 70,303
LIFO reserve 16,546 6,469
Inventory reserves 6,975 6,974
Other accruals (15,009) (18,193)
-------- --------
$ 97,959 $ 65,553
======== ========
At February 28, 1999, the Company has state and U.S. Federal net operating loss
(NOL) carryforwards of $5.4 million and $2.7 million, respectively, to offset
future taxable income that, if not otherwise utilized, will expire as follows:
state NOLs of $0.6 million and $4.8 million during fiscal 2002 and fiscal 2003,
respectively, and Federal NOL of $2.7 million during fiscal 2011.
8. PROFIT SHARING RETIREMENT PLANS AND RETIREMENT SAVINGS 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 and Matthew Clark employees. 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. Company contributions were $6.8 million, $5.9 million and $5.7 million for
the years ended February 28, 1999, 1998 and 1997, respectively.
- 43 -
The Company's subsidiary, Matthew Clark, currently provides for two pension
plans: the Matthew Clark Group Pension Plan; and the Matthew Clark Executive
Pension Plan (the Plans). The Plans are defined benefit plans with assets held
by a Trustee who administers funds separately from the Company's finances. The
following table summarizes the funded status of the Company's pension plans and
the related amounts that are primarily included in "other assets" in the
Consolidated Balance Sheets.
(in thousands)
Change in benefit obligation:
Benefit obligation at December 1, 1998 $ 165,997
Service cost 1,335
Interest cost 2,671
Plan participants' contributions 481
Benefits paid (1,517)
Foreign currency exchange rate changes (5,287)
---------
Benefit obligation at February 28, 1999 $ 163,680
=========
Change in plan assets:
Fair value of plan assets at December 1, 1998 $ 194,001
Actual return on plan assets 7,935
Plan participants' contributions 481
Benefits paid (1,517)
Foreign currency exchange rate changes (6,294)
---------
Fair value of plan assets at February 28, 1999 $ 194,606
=========
Funded status of the plan as of February 28, 1999:
Funded status $ 30,927
Unrecognized actuarial loss (3,950)
---------
Prepaid benefit cost $ 26,977
=========
Assumptions as of February 28, 1999:
Rate of return on plan assets 8.0%
Discount rate 6.5%
Increase in compensation levels 4.5%
Components of net periodic benefit cost for the
three month period ended February 28, 1999:
Service cost $ 1,335
Interest cost 2,671
Expected return on plan assets (3,848)
---------
Net periodic benefit cost $ 158
=========
- 44 -
9. STOCKHOLDERS' EQUITY:
COMMON STOCK -
The Company has two classes of common stock: Class A Common Stock and Class B
Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to only one vote per share but are entitled to a cash dividend premium.
If the Company pays a cash dividend on Class B Convertible Common Stock, each
share of Class A Common Stock will receive an amount at least ten percent
greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Convertible Common Stock.
At February 28, 1999, there were 14,747,053 shares of Class A Common Stock and
3,223,448 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
STOCK REPURCHASE AUTHORIZATION -
In January 1996, the Company's Board of Directors authorized the repurchase of
up to $30.0 million of its Class A Common Stock and Class B Convertible Common
stock. The Company was permitted to finance such purchases, which became
treasury shares, through cash generated from operations or through the bank
credit agreement. Throughout the year ended February 28, 1997, the Company
repurchased 787,450 shares of Class A Common Stock totaling $20.8 million. The
Company completed its repurchase program during fiscal 1998, repurchasing
362,100 shares of Class A Common Stock for $9.2 million.
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. During fiscal 1999, the Company repurchased 1,018,836 shares of Class
A Common Stock for $44.9 million.
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.
LONG-TERM STOCK INCENTIVE PLAN -
Under the Company's Long-Term Stock Incentive Plan, nonqualified stock options,
stock appreciation rights, restricted stock and other stock-based awards may be
granted to employees, officers and directors of the Company. Grants, in the
aggregate, may not exceed 4,000,000 shares of the Company's Class A Common
Stock. The exercise price, vesting period and term of nonqualified stock options
granted are established by the committee administering the plan (the Committee).
Grants of stock appreciation rights, restricted stock and other stock-based
awards may contain such vesting, terms, conditions and other requirements as the
Committee may establish. During fiscal 1999 and fiscal 1998, no stock
appreciation rights were granted. During fiscal 1999, no restricted stock was
granted and during fiscal 1998, 25,000 shares of restricted Class A Common Stock
were granted. At February 28, 1999, there were 1,228,753 shares available for
future grant.
- 45 -
A summary of nonqualified stock option activity is as follows:
Weighted Weighted
Shares Avg. Avg.
Under Exercise Options Exercise
Option Price Exercisable Price
--------- -------- ----------- --------
Balance, February 29, 1996 1,093,725 $ 28.70 28,675 $ 4.44
Options granted 1,647,700 $ 22.77
Options exercised (3,750) $ 4.44
Options forfeited/canceled (1,304,700) $ 32.09
---------
Balance, February 28, 1997 1,432,975 $ 18.85 51,425 $ 10.67
Options granted 569,400 $ 38.72
Options exercised (117,452) $ 15.33
Options forfeited/canceled (38,108) $ 17.66
---------
Balance, February 28, 1998 1,846,815 $ 25.23 360,630 $ 25.46
Options granted 728,200 $ 50.57
Options exercised (203,565) $ 20.08
Options forfeited/canceled (116,695) $ 37.13
---------
Balance, February 28, 1999 2,254,755 $ 33.26 492,285 $ 24.55
=========
The following table summarizes information about stock options outstanding at
February 28, 1999:
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted Avg. Weighted Weighted
Remaining Avg. Avg.
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ------------- -------- ----------- --------
$ 4.44 - $11.50 21,525 2.7 years $ 9.64 21,525 $ 9.64
$17.00 - $25.63 817,015 6.5 years $ 17.25 256,775 $ 17.57
$26.75 - $31.25 340,440 7.5 years $ 28.47 106,400 $ 27.37
$35.38 - $57.13 1,075,775 9.2 years $ 47.41 107,585 $ 41.39
--------- -------
2,254,755 7.9 years $ 33.26 492,285 $ 24.55
========= =======
The weighted average fair value of options granted during fiscal 1999, fiscal
1998 and fiscal 1997 was $26.21, $20.81 and $10.27, respectively. The fair value
of options is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rate of 5.3% for fiscal 1999, 6.4% for fiscal 1998 and 6.6% for fiscal
1997; volatility of 40.6% for fiscal 1999, 41.3% for fiscal 1998 and 42.7% for
fiscal 1997; expected option life of 7.0 years for fiscal 1999, 6.9 years for
fiscal 1998 and 4.7 years for fiscal 1997. The dividend yield was 0% for fiscal
1999, 1998 and 1997. Forfeitures are recognized as they occur.
INCENTIVE STOCK OPTION PLAN -
Under the Company's Incentive Stock Option Plan, incentive stock options may be
granted to employees, including officers, of the Company. Grants, in the
aggregate, may not exceed 1,000,000 shares of the Company's Class A Common
Stock. The exercise price of any incentive stock option may not be less than the
fair market value of the Company's Class A Common Stock on the date of grant.
The vesting period and term of incentive stock options granted are established
by the Committee. The maximum term of incentive stock options is ten years.
During fiscal 1999 and fiscal 1998, no incentive stock options were granted.
- 46 -
EMPLOYEE STOCK PURCHASE PLAN -
The Company has a stock purchase plan under which 1,125,000 shares of Class A
Common Stock can be issued. Under the terms of the plan, eligible employees may
purchase shares of the Company's Class A Common Stock through payroll
deductions. The purchase price is the lower of 85% of the fair market value of
the stock on the first or last day of the purchase period. During fiscal 1999,
fiscal 1998 and fiscal 1997, employees purchased 49,850, 78,248 and 37,768
shares, respectively.
The weighted average fair value of purchase rights granted during fiscal 1999,
fiscal 1998 and fiscal 1997 was $12.35, $11.90 and $8.41, respectively. The fair
value of purchase rights is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: risk-free interest rate of 4.7% for fiscal 1999, 5.3% for fiscal
1998 and 5.6% for fiscal 1997; volatility of 33.5% for fiscal 1999, 35.1% for
fiscal 1998 and 65.4% for fiscal 1997; expected purchase right life of 0.5 years
for fiscal 1999, 0.5 years for fiscal 1998 and 0.8 years for fiscal 1997. The
dividend yield was 0% for fiscal 1999, 1998 and 1997.
PRO FORMA DISCLOSURE -
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS No. 123). Accordingly, no incremental compensation expense
has been recognized for its stock-based compensation plans. Had the Company
recognized the compensation cost based upon the fair value at the date of grant
for awards under its plans consistent with the methodology prescribed by SFAS
No. 123, net income and earnings per common share would have been reduced to the
pro forma amounts as follows for the years ended February 28:
1999 1998 1997
-------------------- --------------------- --------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
-------- --------- -------- --------- -------- ---------
(in thousands, except per share data)
Net income $ 50,472 $ 46,942 $ 47,130 $ 43,230 $ 46,183 $ 43,546
======== ======== ======== ======== ======== ========
Earnings per common share:
Basic $ 2.76 $ 2.57 $ 2.52 $ 2.32 $ 2.39 $ 2.25
Diluted $ 2.69 $ 2.50 $ 2.47 $ 2.26 $ 2.37 $ 2.23
The pro forma effect on net income may not be representative of that to be
expected in future years.
- 47 -
10. EARNINGS PER COMMON SHARE:
The following table presents earnings per common share for the years ended
February 28:
1999 1998 1997
-------- -------- --------
(in thousands, except per share data)
Income before extraordinary item $ 61,909 $ 47,130 $ 46,183
Extraordinary item, net of income taxes (11,437) -- --
-------- -------- --------
Income applicable to common shares $ 50,472 $ 47,130 $ 46,183
======== ======== ========
Weighted average common shares
outstanding - basic 18,293 18,672 19,333
Stock options 461 433 188
-------- -------- --------
Weighted average common shares
outstanding - diluted 18,754 19,105 19,521
======== ======== ========
Earnings per common share:
Basic:
Income before extraordinary item $ 3.38 $ 2.52 $ 2.39
Extraordinary item (0.62) -- --
-------- -------- --------
Earnings per common share - basic $ 2.76 $ 2.52 $ 2.39
======== ======== ========
Diluted:
Income before extraordinary item $ 3.30 $ 2.47 $ 2.37
Extraordinary item (0.61) -- --
-------- -------- --------
Earnings per common share - diluted $ 2.69 $ 2.47 $ 2.37
======== ======== ========
11. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES -
Future payments under noncancelable operating leases having initial or remaining
terms of one year or more are as follows during the next five fiscal years and
thereafter:
(in thousands)
2000 $ 13,292
2001 11,478
2002 10,576
2003 10,109
2004 9,624
Thereafter 102,122
--------
$157,201
========
Rental expense was approximately $8.2 million, $5.6 million and $4.7 million for
fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
PURCHASE COMMITMENTS AND CONTINGENCIES -
The Company has agreements with three suppliers to purchase blended Scotch
whisky through December 2002. The purchase prices under the agreements are
denominated in British pound sterling. Based upon exchange rates at February 28,
1999, the Company's aggregate future obligation is approximately $17.2 million
for the contracts expiring through December 2002.
- 48 -
At February 28, 1999, the Company had two agreements with Diageo plc (Diageo) to
purchase Canadian blended whisky through September 1, 2000, with a maximum
obligation of approximately $4.9 million. The Company also had an agreement with
Diageo to purchase Canadian new distillation whisky through December 1999 at
purchase prices of approximately $1.4 million to $1.7 million. These agreements
have been superseded as a result of the Company's definitive agreement with
Diageo. See Note 17 - Subsequent Events. At February 28, 1999, the Company also
had an agreement with a different supplier to purchase Canadian new distillation
whisky through December 2005, with a maximum obligation of approximately $6.4
million.
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements from the suppliers of these products. The
Company's agreement to distribute Corona Extra and its other Mexican beer brands
exclusively throughout 25 primarily western states was renewed effective
November 22, 1996, and expires December 2006, with automatic five year renewals
thereafter, subject to compliance with certain performance criteria and other
terms under the agreement. The remaining agreements expire through December
2007. Prior to their expiration, these agreements may be terminated if the
Company fails to meet certain performance criteria. At February 28, 1999, the
Company believes it is in compliance with all of its material distribution
agreements and, given the Company's long-term relationships with its suppliers,
the Company does not believe that these agreements will be terminated.
In connection with previous acquisitions, the Company assumed purchase contracts
with certain growers and suppliers. In addition, the Company has entered into
other purchase contracts with various growers and suppliers in the normal course
of business. Under the grape purchase contracts, the Company is committed to
purchase all grape production yielded from a specified number of acres for a
period of time ranging up to nineteen years. The actual tonnage and price of
grapes that must be purchased by the Company will vary each year depending on
certain factors, including weather, time of harvest, overall market conditions
and the agricultural practices and location of the growers and suppliers under
contract. The Company purchased $126.6 million of grapes under these contracts
during fiscal 1999. Based on current production yields and published grape
prices, the Company estimates that the aggregate purchases under these contracts
over the remaining term of the contracts will be approximately $846.4 million.
The Company's aggregate obligations under bulk wine purchase contracts will be
approximately $40.6 million over the remaining term of the contracts which
expire through fiscal 2001.
EMPLOYMENT CONTRACTS -
The Company has employment contracts with certain of its executive officers and
certain other management personnel with remaining terms ranging up to two years.
These agreements provide for minimum salaries, as adjusted for annual increases,
and may include incentive bonuses based upon attainment of specified management
goals. In addition, these agreements provide for severance payments in the event
of specified termination of employment. The aggregate commitment for future
compensation and severance, excluding incentive bonuses, was approximately $6.4
million as of February 28, 1999, of which approximately $1.8 million is accrued
in other liabilities as of February 28, 1999.
EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS -
Approximately 32% of the Company's full-time employees are covered by collective
bargaining agreements at February 28, 1999. Agreements expiring within one year
cover approximately 5% of the Company's full-time employees.
LEGAL MATTERS -
The Company is subject to litigation from time to time in the ordinary course of
business. Although the amount of any liability with respect to such litigation
cannot be determined, in the opinion of management such liability will not have
a material adverse effect on the Company's financial condition, results of
operations or cash flows.
- 49 -
12. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Gross sales to the five largest customers of the Company represented 25.2%,
26.4% and 22.9% of the Company's gross sales for the fiscal years ended February
28, 1999, 1998 and 1997, respectively. Gross sales to the Company's largest
customer, Southern Wine and Spirits, represented 10.9%, 12.1% and 10.5% of the
Company's gross sales for the fiscal years ended February 28, 1999, 1998 and
1997, respectively. Accounts receivable from the Company's largest customer
represented 8.5%, 14.1% and 11.3% of the Company's total accounts receivable as
of February 28, 1999, 1998 and 1997, respectively. Gross sales to the Company's
five largest customers are expected to continue to represent a significant
portion of the Company's revenues. The Company's arrangements with certain of
its customers may, generally, be terminated by either party with prior notice.
The Company performs ongoing credit evaluations of its customers' financial
position, and management of the Company is of the opinion that any risk of
significant loss is reduced due to the diversity of customers and geographic
sales area.
13. SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The following table presents summarized financial information for the Company,
the parent company, the combined subsidiaries of the Company which guarantee the
Company's senior subordinated notes (Subsidiary Guarantors) and the combined
subsidiaries of the Company which are not Subsidiary Guarantors, primarily
Matthew Clark (Subsidiary Nonguarantors). The Subsidiary Guarantors are wholly
owned and the guarantees are full, unconditional, joint and several obligations
of each of the Subsidiary Guarantors. Separate financial statements for the
Subsidiary Guarantors of the Company are not presented because the Company has
determined that such financial statements would not be material to investors.
The Subsidiary Guarantors comprise all of the direct and indirect subsidiaries
of the Company, other than Matthew Clark and certain other subsidiaries which
individually, and in the aggregate, are inconsequential. There are no
restrictions on the ability of the Subsidiary Guarantors to transfer funds to
the Company in the form of cash dividends, loans or advances.
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
(in thousands) ------- ---------- ------------- ------------ ------------
BALANCE SHEET DATA:
February 28, 1999
- -----------------
Current assets $114,243 $ 532,028 $209,468 $ -- $ 855,739
Noncurrent assets $646,133 $ 396,125 $421,867 $(526,088) $ 938,037
Current liabilities $157,648 $ 126,803 $130,821 $ -- $ 415,272
Noncurrent liabilities $815,421 $ 73,178 $ 54,633 $ -- $ 943,232
February 28, 1998
- -----------------
Current assets $102,869 $ 478,013 $ 852 $ -- $ 581,734
Noncurrent assets $481,574 $ 395,225 $ 93 $(368,071) $ 508,821
Current liabilities $180,420 $ 109,339 $ 708 $ -- $ 290,467
Noncurrent liabilities $312,877 $ 61,784 $ -- $ -- $ 374,661
INCOME STATEMENT DATA:
For the year ended February 28, 1999
- ------------------------------------
Net sales $615,270 $1,080,466 $158,761 $(357,154) $1,497,343
Gross profit $168,575 $ 237,437 $ 42,022 $ -- $ 448,034
Income before taxes and
extraordinary item $ 4,849 $ 96,935 $ 2,646 $ -- $ 104,430
Net income $ 2,861 $ 45,781 $ 1,830 $ -- $ 50,472
- 50 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
------- ---------- ------------- ------------ ------------
For the year ended February 28, 1998
- ------------------------------------
Net sales $562,760 $ 985,757 $ 2,197 $(337,926) $1,212,788
Gross profit $151,092 $ 191,658 $ 1,000 $ -- $ 343,750
Income (loss) before taxes $ 21,024 $ 59,285 $ (428) $ -- $ 79,881
Net income (loss) $ 12,404 $ 35,154 $ (428) $ -- $ 47,130
For the year ended February 28, 1997
- ------------------------------------
Net sales $552,424 $ 907,387 $ 508 $(325,306) $1,135,013
Gross profit $127,289 $ 195,841 $ (929) $ -- $ 322,201
Income (loss) before taxes $ 2,581 $ 78,672 $ (2,093) $ -- $ 79,160
Net income (loss) $ 1,506 $ 45,898 $ (1,221) $ -- $ 46,183
14. 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 and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. 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.
15. BUSINESS SEGMENT INFORMATION:
Effective March 1, 1998, the Company has adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of this statement had no impact on the Company's consolidated financial
position, results of operations or cash flows. Comparative information for
earlier years has been restated. The restatement of comparative information for
interim periods in the initial year of adoption is to be reported for interim
periods in the second year of application. The Company reports its operating
results in four segments: Canandaigua Wine (branded wine and brandy, and other,
primarily grape juice concentrate); Barton (primarily beer and spirits); Matthew
Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); and Corporate Operations and Other (primarily
corporate related items). Segment selection was based upon internal
organizational structure, the way in which these operations are managed and
their performance evaluated by management and the Company's Board of Directors,
the availability of separate financial results, and materiality considerations.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating profits of the respective business units.
- 51 -
Segment information for the years ended February 28, 1999, 1998 and 1997, is as
follows:
(in thousands) 1999 1998 1997
---------- ---------- ----------
CANANDAIGUA WINE:
Net sales:
Branded $ 598,782 $ 570,807 $ 537,745
Other 70,711 71,988 112,546
---------- ---------- ----------
Net sales $ 669,493 $ 642,795 $ 650,291
Operating profit $ 46,283 $ 45,440 $ 51,525
Long-lived assets $ 191,762 $ 185,317 $ 185,298
Total assets $ 650,578 $ 632,636 $ 608,759
Capital expenditures $ 25,275 $ 25,666 $ 24,452
Depreciation and amortization $ 20,838 $ 21,189 $ 19,955
BARTON:
Net sales:
Beer $ 478,611 $ 376,607 $ 298,925
Spirits 185,938 191,190 185,289
---------- ---------- ----------
Net sales $ 664,549 $ 567,797 $ 484,214
Operating profit $ 102,624 $ 77,010 $ 73,073
Long-lived assets $ 50,221 $ 51,574 $ 51,504
Total assets $ 478,580 $ 439,317 $ 410,351
Capital expenditures $ 3,269 $ 5,021 $ 4,988
Depreciation and amortization $ 10,765 $ 10,455 $ 9,453
MATTHEW CLARK:
Net sales:
Branded $ 64,879 $ -- $ --
Wholesale 93,881 -- --
---------- ---------- ----------
Net sales $ 158,760 $ -- $ --
Operating profit $ 8,998 $ -- $ --
Long-lived assets $ 169,693 $ -- $ --
Total assets $ 631,313 $ -- $ --
Capital expenditures $ 10,444 $ -- $ --
Depreciation and amortization $ 4,836 $ -- $ --
- 52 -
(in thousands) 1999 1998 1997
---------- ---------- ----------
CORPORATE OPERATIONS AND OTHER:
Net sales $ 4,541 $ 2,196 $ 508
Operating loss $ (12,013) $ (10,380) $ (11,388)
Long-lived assets $ 17,127 $ 7,144 $ 12,750
Total assets $ 33,305 $ 18,602 $ 24,171
Capital expenditures $ 10,869 $ 516 $ 2,209
Depreciation and amortization $ 2,151 $ 1,517 $ 2,431
CONSOLIDATED:
Net sales $1,497,343 $1,212,788 $1,135,013
Operating profit $ 145,892 $ 112,070 $ 113,210
Long-lived assets $ 428,803 $ 244,035 $ 249,552
Total assets $1,793,776 $1,090,555 $1,043,281
Capital expenditures $ 49,857 $ 31,203 $ 31,649
Depreciation and amortization $ 38,590 $ 33,161 $ 31,839
The Company's areas of operations are principally in the United States.
Operations outside the United States consist of Matthew Clark's operations,
which are primarily in the United Kingdom. No other single foreign country or
geographic area is significant to the consolidated operations.
16. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
A summary of selected quarterly financial information is as follows:
QUARTER ENDED
----------------------------------------------------
May 31, August 31, November 30, February 28,
Fiscal 1999 (1) 1998 1998 1998 1999 Full Year
- ------------------------------------- -------- ---------- ------------ ------------ -----------
(in thousands, except per share data)
Net sales $312,928 $349,386 $375,586 $459,443 $1,497,343
Gross profit $ 92,061 $103,236 $115,695 $137,042 $ 448,034
Income before extraordinary item $ 13,099 $ 16,731 $ 20,161 $ 11,918 $ 61,909
Extraordinary item, net of income taxes (2) $ -- $ -- $ -- $(11,437) $ (11,437)
Net income $ 13,099 $ 16,731 $ 20,161 $ 481 $ 50,472
Earnings per common share: (3)
Basic:
Income before extraordinary item $ 0.70 $ 0.90 $ 1.13 $ 0.67 $ 3.38
Extraordinary item -- -- -- (0.64) (0.62)
-------- -------- -------- -------- ----------
Earnings per common share - basic $ 0.70 $ 0.90 $ 1.13 $ 0.03 $ 2.76
======== ======== ======== ======== ==========
Diluted:
Income before extraordinary item $ 0.68 $ 0.88 $ 1.10 $ 0.65 $ 3.30
Extraordinary item -- -- -- (0.62) (0.61)
-------- -------- -------- -------- ----------
Earnings per common share - diluted $ 0.68 $ 0.88 $ 1.10 $ 0.03 $ 2.69
======== ======== ======== ======== ==========
- 53 -
QUARTER ENDED
----------------------------------------------------
May 31, August 31, November 30, February 28,
Fiscal 1998 (1) 1997 1997 1997 1998 Full Year
- ------------------------------------- -------- ---------- ------------ ------------ -----------
(in thousands, except per share data)
Net sales $306,011 $301,524 $322,703 $282,550 $1,212,788
Gross profit $ 83,108 $ 85,324 $ 96,184 $ 79,134 $ 343,750
Net income $ 11,448 $ 12,698 $ 16,540 $ 6,444 $ 47,130
Earnings per common share: (3)
Basic $ 0.61 $ 0.68 $ 0.89 $ 0.34 $ 2.52
Diluted $ 0.60 $ 0.67 $ 0.86 $ 0.33 $ 2.47
(1) Restated for the change in accounting for inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method.
(2) Represents fees related to the replacement of the bank credit facility,
including extinguishment of the term loan.
(3) The sum of the quarterly earnings per common share in fiscal 1999 and
fiscal 1998 may not equal the total computed for the respective years as
the earnings per common share are computed independently for each of the
quarters presented and for the full year.
17. SUBSEQUENT EVENTS:
DEBT OFFERING -
On March 4, 1999, the Company issued $200.0 million aggregate principal amount
of 8 1/2% Senior Subordinated Notes due March 2009 (the $200 Million Notes). The
net proceeds of the offering (approximately $195.0 million) were used to fund
the acquisition of the Black Velvet Canadian Whisky brand and other assets from
affiliates of Diageo plc (see Acquisitions below) and to pay the fees and
expenses related thereto with the remainder of the net proceeds to be used for
general corporate purposes or to fund future acquisitions. Interest on the $200
Million Notes is payable semiannually on March 1 and September 1 of each year,
beginning September 1, 1999. The $200 Million Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after March 1, 2004. The
Company may also redeem up to $70.0 million of the $200 Million Notes using the
proceeds of certain equity offerings completed before March 1, 2002. The $200
Million Notes are unsecured and subordinated to the prior payment in full of all
senior indebtedness of the Company, which includes the 1998 Credit Agreement.
The $200 Million Notes are guaranteed, on a senior subordinated basis, by
certain of the Company's significant operating subsidiaries.
The Indenture and Supplemental Indenture governing the $200 Million Notes
contains certain covenants, including, but not limited to, (i) limitation on
indebtedness; (ii) limitation on restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation on senior subordinated
indebtedness; (v) limitation on liens; (vi) limitation on sale of assets; (vii)
limitation on guarantees by certain subsidiaries for indebtedness; (viii)
limitation on certain subsidiary capital stock; (ix) limitation on the creation
of any restriction on the ability of the Company's subsidiaries to make
distributions and other payments; and (x) restrictions on mergers,
consolidations and the transfer of all or substantially all of the assets of the
Company to another person. The limitation on indebtedness covenant is governed
by a rolling four quarter fixed charge ratio requiring a specified minimum.
ACQUISITIONS-
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc. Other principal brands
acquired in the transaction were Golden Wedding, OFC, MacNaughton, McMaster's
and Triple Crown. In connection with the transaction, the Company also entered
into multi-year agreements with Diageo to provide packaging and distilling
services for various brands retained by Diageo. The purchase price was
approximately $185.5 million and was financed by the proceeds from the sale of
the $200 Million Notes.
On April 1, 1999, the Company entered into a definitive agreement with Moet
Hennessy, Inc. to purchase all of the outstanding capital stock of Simi Winery,
Inc. (the Simi Acquisition). The Simi Acquisition includes the Simi winery,
equipment, vineyards, inventory and worldwide ownership of the Simi brand name.
The Simi Acquisition
- 54 -
is expected to close in the second quarter of fiscal 2000 and the purchase price
is expected to be financed through the Company's bank credit facility.
On April 21, 1999, the Company entered into definitive purchase agreements with
Franciscan Vineyards, Inc. (Franciscan) and its shareholders, and certain
parties related to Franciscan to, among other matters, purchase all of the
outstanding capital stock of Franciscan and acquire certain vineyards and
related vineyard assets (collectively, the Franciscan Acquisition). Pursuant to
the Franciscan Acquisition, the Company will: (i) acquire the Franciscan
Oakville Estate, Estancia and Mt. Veeder brands; (ii) acquire wineries located
in Rutherford, Monterey and Mt. Veeder, California; (iii) acquire vineyards in
the Napa Valley, Alexander Valley, Monterey and Paso Robles appellations and
additionally, will enter into long-term grape contracts with certain parties
related to Franciscan to purchase additional grapes grown in the Napa and
Alexander Valley appellations; (iv) acquire distribution rights to the Quintessa
and Veramonte brands; and (v) acquire equity interests in entities that own the
Veramonte brand and the Veramonte winery and certain vineyards located in the
Casablanca Valley, Chile. The Franciscan Acquisition is expected to close in the
second quarter of fiscal 2000 and the purchase price is expected to be financed
through the Company's bank credit facility.
- 55 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information required by this Item (except for the information regarding
executive officers required by Item 401 of Regulation S-K which is included in
Part I hereof in accordance with General Instruction G(3)) is incorporated
herein by reference to the Company's proxy statement to be issued in connection
with the Annual Meeting of Stockholders of the Company to be held on July 20,
1999, under those sections of the proxy statement titled "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 20, 1999, under that
section of the proxy statement titled "Executive Compensation" and that caption
titled "Director Compensation" under "Election of Directors", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 20, 1999, under those
sections of the proxy statement titled "Beneficial Ownership" and "Stock
Ownership of Management", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 20, 1999, under that
section of the proxy statement titled "Executive Compensation", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
- 56 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a) 1. Financial Statements
The following consolidated financial statements of the Company are
submitted herewith:
Report of Independent Public Accountants
Consolidated Balance Sheets - February 28, 1999 and 1998
Consolidated Statements of Income for the years ended February
28, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for
the years ended February 28, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
February 28, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial information is submitted
herewith:
Selected Financial Data
Selected Quarterly Financial Information (unaudited)
All other schedules are not submitted because they are not applicable or not
required under Regulation S-X or because the required information is included in
the financial statements or notes thereto.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority equity interests and/or
noncurrent indebtedness, not guaranteed by the Registrant, in excess of 5% of
total consolidated assets.
3. Exhibits required to be filed by Item 601 of Regulation S-K
The following exhibits are filed herewith or incorporated herein by
reference, as indicated:
2.1 Asset Purchase Agreement dated August 3, 1994 between the
Company and Heublein, Inc. (filed as Exhibit 2(a) to the
Company's Current Report on Form 8-K dated August 5, 1994 and
incorporated herein by reference).
- 57 -
2.2 Amendment dated November 8, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.2 to
the Company's Registration Statement on Form S-3 (Amendment No.
2) (Registration No. 33-55997) filed with the Securities and
Exchange Commission on November 8, 1994 and incorporated herein
by reference).
2.3 Amendment dated November 18, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.8 to
the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1994 and incorporated herein by reference).
2.4 Amendment dated November 30, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.9 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1994 and incorporated herein by
reference).
2.5 Asset Purchase Agreement among Barton Incorporated (a
wholly-owned subsidiary of the Company), United Distillers
Glenmore, Inc., Schenley Industries, Inc., Medley Distilling
Company, United Distillers Manufacturing, Inc., and The Viking
Distillery, Inc., dated August 29, 1995 (filed as Exhibit 2(a)
to the Company's Current Report on Form 8-K, dated August 29,
1995 and incorporated herein by reference).
2.6 Recommended Cash Offer, by Schroders on behalf of Canandaigua
Limited, a wholly-owned subsidiary of the Company, to acquire
Matthew Clark plc (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 1, 1998 and incorporated
herein by reference).
2.7 Asset Purchase Agreement dated as of February 21, 1999 by and
among Diageo Inc., UDV Canada Inc., United Distillers Canada
Inc. and the Company (filed as Exhibit 2 to the Company's
Current Report on Form 8-K dated April 9, 1999 and incorporated
herein by reference).
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).
4.1 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
- 58 -
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 as Exhibit 4.5 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended November 30, 1998 and
incorporated herein by reference).
4.6 Fifth Supplemental Indenture, dated as of December 11, 1998,
among the Company, Canandaigua B.V., Canandaigua Limited and The
Chase Manhattan Bank (filed herewith).
4.7 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).
4.8 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).
4.9 Second Supplemental Indenture, dated as of October 2, 1998,
among the Company, Polyphenolics, Inc. and Harris Trust and
Savings Bank (filed as Exhibit 4.8 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30,
1998 and incorporated herein by reference).
4.10 Third Supplemental Indenture, dated as of December 11, 1998,
among the Company, Canandaigua B.V., Canandaigua Limited and
Harris Trust and Savings Bank (filed herewith).
4.11 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
- 59 -
4.1 to the Company's Current Report on Form 8-K dated December
1, 1998 and incorporated herein by reference).
4.12 Indenture with respect to 8 1/2% Senior Subordinated Notes due
2009, dated as of February 25, 1999, among the Company, as
issuer, its principal operating subsidiaries, as Guarantors, and
Harris Trust and Savings Bank, as Trustee (filed as Exhibit 99.1
to the Company's Current Report on Form 8-K dated February 25,
1999 and incorporated herein by reference).
4.13 Supplemental Indenture No. 1, dated as of February 25, 1999, by
and among the Company, as Issuer, its principal operating
subsidiaries, as Guarantors, and Harris Trust and Savings Bank,
as Trustee (filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K dated February 25, 1999 and incorporated
herein by reference).
10.1 Barton Incorporated Management Incentive Plan (filed as Exhibit
10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by
reference).
10.2 Marvin Sands Split Dollar Insurance Agreement (filed as Exhibit
10.9 to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by
reference).
10.3 Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Company and Daniel Barnett
(filed as Exhibit 10.23 to the Company's Transition Report on
Form 10-K for the Transition Period from September 1, 1995 to
February 29, 1996 and incorporated herein by reference).
10.4 Employment Agreement between Barton Incorporated and Alexander
L. Berk dated as of September 1, 1990 as amended by Amendment
No. 1 to Employment Agreement between Barton Incorporated and
Alexander L. Berk dated November 11, 1996 (filed as Exhibit 10.7
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1998 and incorporated herein by reference).
10.5 Amendment No. 2 to Employment Agreement between Barton
Incorporated and Alexander L. Berk dated October 20, 1998 (filed
herewith).
10.6 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).
10.7 Long-Term Stock Incentive Plan, which amends and restates the
Canandaigua Wine Company, Inc. Stock Option and Stock
Appreciation Right Plan (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May
31, 1997 and incorporated herein by reference).
- 60 -
10.8 Amendment Number One to the Long-Term Stock Incentive Plan of
the Company (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 1997
and incorporated herein by reference).
10.9 Incentive Stock Option Plan of the Company (filed as Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 1997 and incorporated herein by
reference).
10.10 Amendment Number One to the Incentive Stock Option Plan of the
Company (filed as Exhibit 10.3 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 1997 and
incorporated herein by reference).
10.11 Annual Management Incentive Plan of the Company (filed as
Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 1997 and incorporated herein
by reference).
10.12 Amendment Number One to the Annual Management Incentive Plan of
the Company (filed as Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1998
and incorporated herein by reference).
10.13 Lease, effective December 25, 1997, by and among Matthew Clark
Brands Limited and Pontsarn Investments Limited (filed
herewith).
10.14 Supplemental Executive Retirement Plan of the Company (filed
herewith).
11.1 Statement re Computation of Per Share Earnings (filed herewith).
18.1 Letter re Change in Accounting Principles (filed herewith).
21.1 Subsidiaries of Company (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule for fiscal year ended February 28, 1999
(filed herewith).
27.2 Restated Financial Data Schedule for the fiscal quarter ended
November 30, 1998 (filed herewith).
27.3 Restated Financial Data Schedule for the fiscal quarter ended
August 31, 1998 (filed herewith).
27.4 Restated Financial Data Schedule for the fiscal quarter ended
May 31, 1998 (filed herewith).
27.5 Restated Financial Data Schedule for the fiscal year ended
February 28, 1998 (filed herewith).
27.6 Restated Financial Data Schedule for the fiscal quarter ended
November 30, 1997 (filed herewith).
- 61 -
27.7 Restated Financial Data Schedule for the fiscal quarter ended
August 31, 1997 (filed herewith).
27.8 Restated Financial Data Schedule for the fiscal quarter ended
May 31, 1997 (filed herewith).
27.9 Restated Financial Data Schedule for the fiscal year ended
February 28, 1997 (filed herewith).
99.1 1989 Employee Stock Purchase Plan of the Company, as amended by
Amendment Number 1 through Amendment Number 5 (filed as Exhibit
99.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1998 and incorporated herein by
reference).
99.2 Amendment Number 6 to the 1989 Employee Stock Purchase Plan of
the Company (filed herewith).
(b) Reports on Form 8-K
The following Reports on Form 8-K were filed by the Company with the
Securities and Exchange Commission during the fourth quarter of the fiscal
year ended February 28, 1999:
(i) Form 8-K dated December 1, 1998. This Form 8-K reported
information under Item 2 (Acquisition or Disposition of Assets)
and Item 7 (Financial Statements and Exhibits). The following
financial statements were filed with this Form 8-K:
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.
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.
(ii) Form 8-K/A dated December 1, 1998. This Form 8-K/A reported
information under Item 7 (Financial Statements and Exhibits).
The following financial statements were filed with this Form
8-K/A:
The 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 auditor, thereon,
together with the notes thereto.
- 62 -
The Matthew Clark plc Balance Sheets (unaudited), as of
October 31, 1998 and 1997 and the related Consolidated
Profit and Loss Accounts (unaudited) and Consolidated Cash
Flow Statements (unaudited) for the six month periods ended
October 31, 1998 and 1997, together with the notes thereto.
The pro forma condensed combined balance sheet (unaudited)
as of November 30, 1998, the pro forma combined statement of
income (unaudited) for the year ended February 28, 1998, the
pro forma combined statement of income (unaudited) for the
nine months ended November 30, 1998, and the notes thereto,
and the pro forma combined statement of income (unaudited)
for the twelve months ended November 30, 1998, and the notes
thereto.
(iii) Form 8-K dated December 2, 1998. This Form 8-K reported
information under Item 5 (Other Events).
(iv) Form 8-K dated February 22, 1999. This Form 8-K reported
information under Item 5 (Other Events).
- 63 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 CANANDAIGUA BRANDS, INC.
By:/s/ Richard Sands
----------------------------------
Richard Sands, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Richard Sands /s/ Thomas S. Summer
- ---------------------------------- ----------------------------------
Richard Sands, President, Chief Thomas S. Summer, Senior Vice
Executive Officer and Director President and Chief Financial
(Principal Executive Officer ) Officer (Principal Financial
Dated: June 1, 1999 Officer and Principal Accounting
Officer)
Dated: June 1, 1999
/s/ Marvin Sands /s/ Robert Sands
- ---------------------------------- ----------------------------------
Marvin Sands, Chairman of the Board Robert Sands, Director
Dated: June 1, 1999 Dated: June 1, 1999
/s/ George Bresler /s/ James A. Locke
- ---------------------------------- ----------------------------------
George Bresler, Director James A. Locke, III, Director
Dated: June 1, 1999 Dated: June 1, 1999
/s/ Thomas C. McDermott /s/ Paul L. Smith
- ---------------------------------- ----------------------------------
Thomas C. McDermott, Director Paul L. Smith, Director
Dated: June 1, 1999 Dated: June 1, 1999
- 64 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BATAVIA WINE CELLARS, INC.
By: /s/ Ned Cooper
----------------------------------
Ned Cooper, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Ned Cooper
----------------------------------
Ned Cooper, President
(Principal Executive Officer)
Dated: June 1, 1999 /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Director
Dated: June 1, 1999 /s/ Robert Sands
----------------------------------
Robert Sands, Director
- 65 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 CANANDAIGUA WINE COMPANY, INC.
By: /s/ Robert Sands
----------------------------------
Robert Sands, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Robert Sands
----------------------------------
Robert Sands, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Dated: June 1, 1999 /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Director
- 66 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 CANANDAIGUA EUROPE LIMITED
By: /s/ Douglas Kahle
----------------------------------
Douglas Kahle, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Douglas Kahle
----------------------------------
Douglas Kahle, President
(Principal Executive Officer)
Dated: June 1, 1999 /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Director
- 67 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 CANANDAIGUA LIMITED
By: /s/ Robert Sands
----------------------------------
Robert Sands, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Robert Sands
----------------------------------
Robert Sands, Chief Executive
Officer and Director
(Principal Executive Officer)
Dated: June 1, 1999 /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Finance Director
(Principal Financial Officer and
Principal Accounting Officer)
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Director
- 68 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 POLYPHENOLICS, INC.
By: /s/ Richard Keeley
----------------------------------
Richard Keeley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Richard Keeley
----------------------------------
Richard Keeley, President and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
- 69 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 ROBERTS TRADING CORP.
By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, President and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, President and
Treasurer (Principal Executive
Officer, Principal Financial
Officer and Principal Accounting
Officer)
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Director
Dated: June 1, 1999 /s/ Robert Sands
----------------------------------
Robert Sands, Director
- 70 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON INCORPORATED
By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President,
Chief Executive Officer and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Edward L. Golden
----------------------------------
Edward L. Golden, Director
Dated: June 1, 1999 /s/ William F. Hackett
----------------------------------
William F. Hackett, Director
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Director
Dated: June 1, 1999 /s/ Robert Sands
----------------------------------
Robert Sands, Director
- 71 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON BRANDS, LTD.
By: /s/ Edward L. Golden
----------------------------------
Edward L. Golden, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Edward L. Golden
----------------------------------
Edward L. Golden, President and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Director
- 72 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON BEERS, LTD.
By: /s/ Richard Sands
----------------------------------
Richard Sands, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Richard Sands
----------------------------------
Richard Sands, Chief Executive
Officer and Director (Principal
Executive Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Director
Dated: June 1, 1999 /s/ William F. Hackett
----------------------------------
William F. Hackett, Director
- 73 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON BRANDS OF CALIFORNIA, INC.
By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Edward L. Golden
----------------------------------
Edward L. Golden, Director
- 74 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON BRANDS OF GEORGIA, INC.
By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Edward L. Golden
----------------------------------
Edward L. Golden, Director
- 75 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON DISTILLERS IMPORT CORP.
By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Alexander L. Berk
-----------------------------------
Alexander L. Berk, President and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Edward L. Golden
----------------------------------
Edward L. Golden, Director
- 76 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 BARTON FINANCIAL CORPORATION
By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, President,
Secretary and Director (Principal
Executive Officer)
Dated: June 1, 1999 /s/ Charles T. Schlau
----------------------------------
Charles T. Schlau, Treasurer and
Director (Principal Financial
Officer and Principal Accounting
Officer)
- 77 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 STEVENS POINT BEVERAGE CO.
By: /s/ James P. Ryan
----------------------------------
James P. Ryan, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ James P. Ryan
----------------------------------
James P. Ryan, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Director
Dated: June 1, 1999 /s/ William F. Hackett
----------------------------------
William F. Hackett, Director
- 78 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 MONARCH IMPORT COMPANY
By: /s/ James P. Ryan
James P. Ryan, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ James P. Ryan
----------------------------------
James P. Ryan, Chief Executive
Officer (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Director
Dated: June 1, 1999 /s/ William F. Hackett
----------------------------------
William F. Hackett, Director
- 79 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 1999 THE VIKING DISTILLERY, INC.
By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: June 1, 1999 /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Director (Principal Executive
Officer)
Dated: June 1, 1999 /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant
Secretary and Director (Principal
Financial Officer and Principal
Accounting Officer)
Dated: June 1, 1999 /s/ Edward L. Golden
----------------------------------
Edward L. Golden, Director
- 80 -
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
2.1 Asset Purchase Agreement dated August 3, 1994 between the Company
and Heublein, Inc. (filed as Exhibit 2(a) to the Company's Current
Report on Form 8-K dated August 5, 1994 and incorporated herein by
reference).
2.2 Amendment dated November 8, 1994 to Asset Purchase Agreement between
Heublein, Inc. and the Company (filed as Exhibit 2.2 to the
Company's Registration Statement on Form S-3 (Amendment No. 2)
(Registration No. 33-55997) filed with the Securities and Exchange
Commission on November 8, 1994 and incorporated herein by
reference).
2.3 Amendment dated November 18, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994 and incorporated herein by reference).
2.4 Amendment dated November 30, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.9 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1994 and incorporated herein by reference).
2.5 Asset Purchase Agreement among Barton Incorporated (a wholly-owned
subsidiary of the Company), United Distillers Glenmore, Inc.,
Schenley Industries, Inc., Medley Distilling Company, United
Distillers Manufacturing, Inc., and The Viking Distillery, Inc.,
dated August 29, 1995 (filed as Exhibit 2(a) to the Company's
Current Report on Form 8-K, dated August 29, 1995 and incorporated
herein by reference).
2.6 Recommended Cash Offer, by Schroders on behalf of Canandaigua
Limited, a wholly-owned subsidiary of the Company, to acquire
Matthew Clark plc (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 1, 1998 and incorporated herein by
reference).
2.7 Asset Purchase Agreement dated as of February 21, 1999 by and among
Diageo Inc., UDV Canada Inc., United Distillers Canada Inc. and the
Company (filed as Exhibit 2 to the Company's Current Report on Form
8-K dated April 9, 1999 and incorporated herein by reference).
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).
4.1 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).
- 81 -
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
as Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 1998 and incorporated herein
by reference).
4.6 Fifth Supplemental Indenture, dated as of December 11, 1998, among
the Company, Canandaigua B.V., Canandaigua Limited and The Chase
Manhattan Bank (filed herewith).
4.7 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).
4.8 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).
4.9 Second Supplemental Indenture, dated as of October 2, 1998, among
the Company, Polyphenolics, Inc. and Harris Trust and Savings Bank
(filed as Exhibit 4.8 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 1998 and incorporated
herein by reference).
4.10 Third Supplemental Indenture, dated as of December 11, 1998, among
the Company, Canandaigua B.V., Canandaigua Limited and Harris Trust
and Savings Bank (filed herewith).
4.11 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).
- 82 -
4.12 Indenture with respect to 8 1/2% Senior Subordinated Notes due 2009,
dated as of February 25, 1999, among the Company, as issuer, its
principal operating subsidiaries, as Guarantors, and Harris Trust
and Savings Bank, as Trustee (filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated February 25, 1999 and incorporated
herein by reference).
4.13 Supplemental Indenture No. 1, dated as of February 25, 1999, by and
among the Company, as Issuer, its principal operating subsidiaries,
as Guarantors, and Harris Trust and Savings Bank, as Trustee (filed
as Exhibit 99.2 to the Company's Current Report on Form 8-K dated
February 25, 1999 and incorporated herein by reference).
10.1 Barton Incorporated Management Incentive Plan (filed as Exhibit 10.6
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
10.2 Marvin Sands Split Dollar Insurance Agreement (filed as Exhibit 10.9
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
10.3 Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Company and Daniel Barnett
(filed as Exhibit 10.23 to the Company's Transition Report on Form
10-K for the Transition Period from September 1, 1995 to February
29, 1996 and incorporated herein by reference).
10.4 Employment Agreement between Barton Incorporated and Alexander L.
Berk dated as of September 1, 1990 as amended by Amendment No. 1 to
Employment Agreement between Barton Incorporated and Alexander L.
Berk dated November 11, 1996 (filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1998 and incorporated herein by reference).
10.5 Amendment No. 2 to Employment Agreement between Barton Incorporated
and Alexander L. Berk dated October 20, 1998 (filed herewith).
10.6 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).
10.7 Long-Term Stock Incentive Plan, which amends and restates the
Canandaigua Wine Company, Inc. Stock Option and Stock Appreciation
Right Plan (filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended May 31, 1997 and
incorporated herein by reference).
10.8 Amendment Number One to the Long-Term Stock Incentive Plan of the
Company (filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1997 and
incorporated herein by reference).
10.9 Incentive Stock Option Plan of the Company (filed as Exhibit 10.2 of
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1997 and incorporated herein by reference).
- 83 -
10.10 Amendment Number One to the Incentive Stock Option Plan of the
Company (filed as Exhibit 10.3 of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1997 and
incorporated herein by reference).
10.11 Annual Management Incentive Plan of the Company (filed as Exhibit
10.4 of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1997 and incorporated herein by reference).
10.12 Amendment Number One to the Annual Management Incentive Plan of the
Company (filed as Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998 and
incorporated herein by reference).
10.13 Lease, effective December 25, 1997, by and among Matthew Clark
Brands Limited and Pontsarn Investments Limited (filed herewith).
10.14 Supplemental Executive Retirement Plan of the Company (filed
herewith).
11.1 Statement re Computation of Per Share Earnings (filed herewith).
18.1 Letter re Change in Accounting Principles (filed herewith).
21.1 Subsidiaries of Company (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule for fiscal year ended February 28, 1999
(filed herewith).
27.2 Restated Financial Data Schedule for the fiscal quarter ended
November 30, 1998 (filed herewith).
27.3 Restated Financial Data Schedule for the fiscal quarter ended August
31, 1998 (filed herewith).
27.4 Restated Financial Data Schedule for the fiscal quarter ended May
31, 1998 (filed herewith).
27.5 Restated Financial Data Schedule for the fiscal year ended February
28, 1998 (filed herewith).
27.6 Restated Financial Data Schedule for the fiscal quarter ended
November 30, 1997 (filed herewith).
27.7 Restated Financial Data Schedule for the fiscal quarter ended August
31, 1997 (filed herewith).
27.8 Restated Financial Data Schedule for the fiscal quarter ended May
31, 1997 (filed herewith).
27.9 Restated Financial Data Schedule for the fiscal year ended February
28, 1997 (filed herewith).
99.1 1989 Employee Stock Purchase Plan of the Company, as amended by
Amendment Number 1 through Amendment Number 5 (filed as Exhibit 99.1
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1998 and incorporated herein by reference).
99.2 Amendment Number 6 to the 1989 Employee Stock Purchase Plan of the
Company (filed herewith).