SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 1, 1998
----------------
COMMISSION FILE NUMBER 0-7570
DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709
AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994
NEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581
ENGLAND AND WALES CANANDAIGUA LIMITED ---
NEW YORK POLYPHENOLICS, INC. 16-1546354
NEW YORK ROBERTS TRADING CORP. 16-0865491
DELAWARE BARTON INCORPORATED 36-3500366
DELAWARE BARTON BRANDS, LTD. 36-3185921
MARYLAND BARTON BEERS, LTD. 36-2855879
CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC. 06-1048198
GEORGIA BARTON BRANDS OF GEORGIA, INC. 58-1215938
NEW YORK BARTON DISTILLERS IMPORT CORP. 13-1794441
DELAWARE BARTON FINANCIAL CORPORATION 51-0311795
WISCONSIN STEVENS POINT BEVERAGE CO. 39-0638900
ILLINOIS MONARCH IMPORT COMPANY 36-3539106
GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification
incorporation or No.)
organization)
300 WillowBrook Office Park, Fairport, New York 14450
----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 393-4130
--------------
-------------------------------------------------------------
(Former name or former address, if changed since last report)
- 1 -
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(1) 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, are
located at pages 3 through 27 of this Report.
(2) 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, are located at pages 28 through 34 of this
Report.
(b) PRO FORMA FINANCIAL INFORMATION.
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 are located at pages 35 through 43 of
this Report.
(c) EXHIBITS.
See Index to Exhibits.
- 2 -
MATTHEW CLARK plc
FINANCIAL STATEMENTS
FOR THE YEARS ENDED 30 APRIL 1998, 1997 AND 1996
WITH INDEPENDENT AUDITOR'S REPORT
- 3 -
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Matthew Clark plc
We have audited the accompanying consolidated balance sheets of Matthew Clark
plc and its subsidiaries at 30 April 1998 and 1997, and the related consolidated
profit and loss accounts and cash flow statements for each of the years in the
three-year period ended 30 April 1998. These consolidated financial statements
are the responsibility of the management of Matthew Clark plc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which are substantially equivalent to generally accepted
auditing standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Matthew Clark plc
and its subsidiaries at 30 April 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended 30 April 1998, in conformity with generally accepted accounting principles
in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Application of accounting principles generally accepted in
the United States would have affected net profit for the two years ended 30
April 1998 and shareholders' equity at 30 April 1998 and 1997, to the extent
summarised in Note 26 to the consolidated financial statements.
/s/ KPMG Audit Plc
Chartered Accountants
Registered Auditor
London, England
30 November 1998
- 4 -
MATTHEW CLARK plc
BALANCE SHEETS
(in (pound) millions)
30 APRIL
------------------
NOTE 1998 1997(1)
---- ----- -------
Fixed assets
Intangible assets....................... 12 9.7 9.7
Tangible assets......................... 13 97.1 98.6
----- -----
106.8 108.3
----- -----
Current assets
Stocks.................................. 14 44.6 49.3
Debtors................................. 15 115.7 123.7
Cash at bank and in hand................ 17.3 5.8
----- -----
177.6 178.8
----- -----
Creditors: amounts falling due within
one year
Trade and other creditors............... 16 (105.2) (116.3)
Proposed dividend....................... 10 (7.1) (13.3)
Bank loans and overdrafts............... - (56.4)
----- -----
(112.3) (186.0)
----- -----
Net current assets/(liabilities)
Amounts due within one year............. 44.4 (29.6)
Debtors due after more than one year.... 15 20.9 22.4
----- -----
65.3 (7.2)
----- -----
Total assets less current liabilities....... 172.1 101.1
Creditors: amounts falling due after
more than one year........................ 17 (61.2) (1.9)
Provisions for liabilities and charges...... 18 (15.5) (17.6)
----- -----
Net assets.............................. 2 95.4 81.6
===== =====
Capital and reserves
Called up share capital................. 19 22.1 22.1
Share premium account................... 21 105.5 105.5
Capital redemption reserve.............. 21 0.1 0.1
Profit and loss account................. 21 (32.3) (46.1)
----- -----
Equity shareholders' funds.................. 22 95.4 81.6
===== =====
(1) As restated Note 1 (Goodwill)
- 5 -
MATTHEW CLARK plc
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(in (pound) millions, except per share amounts)
FOR THE YEARS
NOTE ENDED 30 APRIL
---- -----------------------------
1998 1997 1996(1)
------ ------ -------
Turnover.................................. 2 553.1 570.7 450.9
Operating costs........................... 3 (516.0) (525.6) (429.4)
------ ------ ------
Operating profit.......................... 4 37.1 45.1 21.5
Profit/(loss) on fixed asset sales........ 7 3.7 0.4 (2.0)
------ ------ ------
Profit before interest and tax............ 2 40.8 45.5 19.5
Interest receivable....................... 0.1 0.2 0.4
Interest payable and similar charges...... 8 (5.1) (5.1) (2.7)
------ ------ ------
Profit on ordinary activities before tax.. 2 35.8 40.6 17.2
Tax on profit on ordinary activities...... 9 (10.5) (12.4) (5.0)
------ ------ ------
Profit on ordinary activities after tax... 25.3 28.2 12.2
Equity minority interests................. - - (0.1)
Dividends................................. 10 (11.5) (21.2) (21.2)
------ ------ ------
Retained profit/(loss) for the year....... 21 13.8 7.0 (9.1)
====== ====== ======
Earnings per share........................ 11 28.6p 31.9p 18.4p
====== ====== ======
(1) Includes exceptional items for reorganisation as a result of integration of
acquisitions (Note 4). Pre-exceptional items, profit attributable to
ordinary shareholders was (pound)29.3m and earnings per share was 44.4p.
There are no recognised gains or losses in any year other than the profit/(loss)
for the year.
The results above derive from continuing activities.
- 6 -
MATTHEW CLARK plc
CONSOLIDATED CASH FLOW STATEMENTS
(in (pound) millions)
FOR THE YEARS
NOTE ENDED 30 APRIL
---- -------------------------
1998 1997 1996
----- ----- -----
Cash inflow from operating activities....... 25 49.8 52.3 29.1
----- ----- -----
Returns on investments and servicing of
finance
Interest received....................... 0.1 0.2 0.5
Interest paid........................... (6.1) (5.0) (2.7)
Interest element of finance lease
rental payments....................... (0.1) (0.1) -
----- ----- -----
(6.1) (4.9) (2.2)
----- ----- -----
Taxation paid........................... (7.5) (7.0) (3.5)
----- ----- -----
Capital expenditure
Purchase of tangible fixed assets....... (31.6) (21.3) (18.4)
Receipts from sale of fixed assets...... 22.2 2.6 2.4
----- ----- -----
(9.4) (18.7) (16.0)
----- ----- -----
Acquisitions............................ (0.8) 0.3 (32.5)
----- ----- -----
Dividends paid.......................... (17.7) (21.2) (13.9)
----- ----- -----
Cash inflow/(outflow) before financing...... 8.3 0.8 (39.0)
----- ----- -----
Financing
Drawdown of committed loan.............. 25.0 10.0 10.0
Repayment of other loan................. - - (1.0)
Issue of ordinary share capital......... - 0.6 0.2
Capital element of finance lease
payments.............................. (0.4) (0.2) (0.8)
----- ----- -----
24.6 10.4 8.4
----- ----- -----
Increase/(decrease) in cash in the period... 32.9 11.2 (30.6)
===== ===== =====
Reconciliation of net cashflow to movement
in net debt
Increase/(decrease) in cash in period... 32.9 11.2 (30.6)
Cash inflow from increase in debt and
lease financing....................... (25.6) (9.8) (8.2)
----- ----- -----
Change in net debt resulting from
cashflows............................. 7.3 1.4 (38.8)
Loans and finance leases acquired with
subsidiary............................ - - (0.1)
----- ----- -----
Movement in net debt in the period...... 7.3 1.4 (38.9)
Net debt at the start of the period..... (51.2) (52.6) (13.7)
----- ----- -----
Net debt at the end of the period....... (43.9) (51.2) (52.6)
===== ===== =====
Analysis of net debt
Cash at bank and in hand................ 17.3 5.8 4.6
Bank loans and overdrafts............... (60.0) (56.4) (56.4)
Finance lease obligations............... (1.2) (0.6) (0.8)
----- ----- -----
(43.9) (51.2) (52.6)
===== ===== =====
- 7 -
MATTHEW CLARK plc
NOTES TO THE ACCOUNTS
NOTE 1. ACCOUNTING POLICIES
The accounts have been prepared under the historical cost convention, using
the following accounting policies, which have been applied consistently except
as noted below under 'Goodwill', and in compliance with applicable accounting
standards including Financial Reporting Standard 10.
BASIS OF CONSOLIDATION--
The Group accounts consist of a consolidation of the accounts of the
Company with those of its subsidiary undertakings. All accounts are drawn up to
30 April. The acquisition method of accounting has been adopted. Under this
method, the results of acquired subsidiaries and other businesses are included
in the consolidated profit and loss account from the date when control passes.
GOODWILL--
During the year Financial Reporting Standard 10 'Goodwill and intangible
assets' was issued and is mandatory for periods ending on or after 23 December
1998. The Group has chosen to adopt the requirements of this standard early. The
Group's policy for acquisitions which occurred prior to the issue of the
standard is that purchased goodwill, being the excess of the fair value of
consideration paid or payable over the fair value of the identifiable net assets
acquired, has been taken directly to reserves. On subsequent disposal, goodwill
previously taken direct to reserves is included in determining the profit or
loss on disposal. Previously, such goodwill was presented separately within
reserves as a 'goodwill write off reserve'. This is not permitted by the
Standard and, accordingly, goodwill has been taken to merger reserve to the
extent available ((pound)309.5m) and the balance ((pound)52.8m) taken to the
profit and loss account reserve. The comparatives have been restated
accordingly.
TURNOVER--
Turnover consists of the value of goods and services supplied to customers
outside the Group, including duty and excluding VAT.
DEPRECIATION--
Depreciation of fixed assets is provided on the original cost of the Group
or its acquired businesses at rates calculated to write down the assets to their
estimated residual values on a straight line basis over the total expected
economic lives of the assets. The principal periods used are:
Freehold buildings....................... 50 years
Leasehold buildings...................... Length of lease
Plant and machinery...................... 8 to 25 years
Computer equipment....................... 3 to 5 years
Motor vehicles........................... 4 to 7 years
Assets in the course of construction are not depreciated. They are
transferred to the relevant fixed asset category when they become operational.
Freehold land is not depreciated.
- 8 -
STOCKS--
Stocks have been valued at the lower of cost (including Customs and Excise
Duty where incurred), determined on a first in first out basis, and net
realisable value. In the case of beverages produced by the Group, cost includes
direct materials and labour together with appropriate overheads incurred in
bringing the product to its present location and condition.
DEFERRED TAX--
Deferred tax is provided using the liability method in respect of the tax
effect of all timing differences to the extent that it is probable that
liabilities or assets will crystallise in the future.
FOREIGN CURRENCY--
Receipts and payments of foreign currency are recorded at actual rates
obtained. Foreign currency balances at the year end are translated at the rate
ruling at that date. All exchange differences are dealt with through the profit
and loss account.
BRAND VALUATION--
The cost of acquired brands is capitalised as an intangible asset at the
time of acquisition. No annual amortisation is provided on these assets but the
directors assess the value of the brands each year and any permanent diminution
in value is written off to the profit and loss account.
LEASES--
Where the Group enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
'finance lease'. The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its estimated useful economic life or the term of
the lease, whichever is shorter. Future instalments under such leases, net of
finance charges, are included within creditors. Rentals payable are apportioned
between the finance element, which is charged to the profit and loss account,
and the capital element which reduces the outstanding obligation for future
instalments. All other rentals relating to assets held under operating leases
are charged to the profit and loss account on a straight line basis over the
period of the lease.
PENSION COSTS--
Pension costs for the Group's defined benefit pension schemes are charged
against profits so as to spread the cost of pensions over the employees'
expected working lives within the Group.
- 9 -
NOTE 2. SEGMENTAL INFORMATION
All turnover and profit originates in the UK. There are no material sales
to customers outside the UK.
BRANDED DRINKS WHOLESALE GROUP
------------------------ ----------------------- ------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- ----- ------ ------ ------
(in (pound) millions)
Turnover:
Total........................................ 343.5 367.0 297.0 225.2 215.1 162.5 568.7 582.1 459.5
Less intersegmental sales.................... (15.6) (11.4) (8.6) - - - (15.6) (11.4) (8.6)
----- ----- ----- ----- ----- ----- ----- ----- -----
Sales to third parties....................... 327.9 355.6 288.4 225.2 215.1 162.5 553.1 570.7 450.9
===== ===== ===== ===== ===== ===== ===== ===== =====
Operating profit............................... 28.7 38.1 41.2 8.4 7.0 2.7 37.1 45.1 21.5
Profit on fixed asset disposals................ 3.7 - 0.7 - 0.4 - 3.7 0.4 (2.0)
----- ----- ----- ----- ----- ----- ----- ----- -----
Profit before interest and tax................. 32.4 38.1 41.9 8.4 7.4 2.7 40.8 45.5 19.5
Net interest payable........................... (5.0) (4.9) (2.3)
----- ----- -----
Profit before tax.............................. 35.8 40.6 17.2
===== ===== =====
Net assets:
Segment net assets........................... 120.3 116.7 20.6 27.0 140.9 143.7
Unallocated net liabilities.................. (45.5) (62.1)
----- -----
Total net assets............................. 95.4 81.6
===== =====
Unallocated assets and liabilities consist of:
Cash at bank and in hand..................... 17.3 5.8
Pension prepayment........................... 19.0 19.1
Dividends payable............................ (7.1) (13.3)
Finance lease liabilities and deferred (2.8) (2.9)
consideration..............................
Loans and overdrafts......................... (60.0) (56.4)
Provisions................................... (11.9) (14.4)
----- -----
(45.5) (62.1)
===== =====
- 10 -
NOTE 3. OPERATING COSTS
NOTE 1998 1997 1996
---- ----- ----- -----
(in (pound) millions)
Change in stocks of finished goods and
work in progress.......................... 7.5 11.7 (1.6)
Raw materials, consummables and other
external charges (incl. duty)............. 466.2 474.6 387.6
Staff costs................................. 6 32.8 30.9 37.3
Depreciation and amounts written off
fixed asset investments................... 13 9.8 8.7 6.4
Royalties from overseas..................... (0.3) (0.3) (0.3)
----- ----- -----
516.0 525.6 429.4
===== ===== =====
NOTE 4. OPERATING PROFIT
1998 1997 1996
---- ---- ----
(in (pound) millions)
Operating profit is stated after charging/(crediting):
Operating lease charges:
Plant and machinery.................................. 0.4 0.4 0.5
Other................................................ 1.7 1.4 1.6
Auditors' remuneration for audit services................ 0.2 0.3 0.3
Loss on disposal of fixed assets......................... 3.6 2.9 0.7
Release of amounts charged as exceptional costs in
prior years no longer required......................... (1.2) - -
Exceptional write down of wine dispense equipment with
customers.............................................. 1.0 - -
Amounts payable to the auditors and their associates for non audit services
were (pound)0.1m (1997--(pound)0.1m, 1996--(pound)0.4m).
Exceptional items in the year ended 30 April 1996 were as follows:
BRANDED
DRINKS WHOLESALE TOTAL
DIVISION DIVISION 1996
-------- --------- -----
(in (pound) millions)
Reorganisation:
Employee severance and relocation costs........ 3.7 3.6 7.3
Stock write downs.............................. 1.5 0.7 2.2
Property, plant relocation and other costs..... 7.5 5.4 12.9
---- --- ----
12.7 9.7 22.4
Provision for loss on disposal of fixed assets... 2.5 0.2 2.7
---- --- ----
15.2 9.9 25.1
==== === ====
- 11 -
The reorganisation costs arose as a result of integration programmes within
the divisions following acquisition of businesses. The costs charged in 1996
were net of a release of provisions of (pound)2,249,000 established in 1995 and
which were no longer required.
NOTE 5. DIRECTORS' INTERESTS
DIRECTORS' EMOLUMENTS
TOTAL EMOLUMENTS
CASH VALUE OF (EXCLUDING PENSION
BASIC SALARY BENEFITS IN KIND CONTRIBUTIONS)
------------------ ------------------ ------------------
1997/98 1996/97 1997/98 1996/97 1997/98 1996/97
------- ------- ------- ------- ------- -------
(in (pound) thousands)
Peter Aikens.................... 230 230 14 14 244 244
Hugh Etheridge.................. 130 130 13 13 143 143
Peter Huntley................... 119 130 10 11 129 141
Robert MacNevin................. 128 - 18 - 146 -
Kevin Philp..................... 100 - 6 - 106 -
Martin Boase.................... 21 21 - - 21 21
Michael Garner.................. 21 40 - - 21 40
Graham Wilson................... 60 - - - 60 -
Andrew Nash..................... - 130 - 12 - 142
Former directors................ - 67 - 6 - 73
--- --- --- --- --- ---
809 748 61 56 870 804
=== === === === === ===
TOTAL EMOLUMENTS
CASH VALUE (EXCLUDING
BONUS PAID BONUS INVESTED OF BENEFITS RELOCATION PENSION
BASIC SALARY AS CASH IN SHARES IN KIND ASSISTANCE CONTRIBUTIONS)
------------ ---------- -------------- ----------- ---------- ----------------
1995/96 1995/96 1995/96 1995/96 1995/96 1995/96
------- ------- ------- ------- ------- -------
(in (pound) thousands)
Peter Aikens............ 151 62 120 8 431 772
Hugh Etheridge.......... 87 35 70 13 - 205
Peter Huntley........... 87 35 70 11 - 203
Martin Boase............ 10 - - - - 10
Michael Garner.......... 10 - - - - 10
Michael Cottrell........ 70 26 - 6 - 102
Andrew Nash............. 50 20 79 3 - 152
Alan Dean............... 20 - - - - 20
David Fisher............ 47 - - 3 - 50
Robin Manners........... 20 - - - - 20
--- --- --- --- --- -----
552 178 339 44 431 1,544
=== === === === === =====
- 12 -
On 19 March 1998 the sum of (pound)110,000 was paid to Peter Huntley by way
of compensation for the termination of his employment with the Company. On 12
May 1997 the sum of (pound)177,630 was paid to Andrew Nash (a former director)
by way of compensation for the termination of his employment with the Company.
DIRECTORS' PENSION CONTRIBUTIONS
Directors who were members of the Matthew Clark Executive Pension Plan had
benefits as follows:
HUGH MICHAEL ROBERT KEVIN
ETHERIDGE COTTRELL MACNEVIN PHILP
--------- -------- -------- ------
(in (pound))
Increase in accrued pension
during 1996/97 ((pound)p.a.)...... 2,767 1,812 - -
Transfer value of the increase...... 26,242 25,363 - -
Contributions by individual
director.......................... 4,200 3,875 - -
Increase attributable to Company.... 22,042 21,488 - -
Accumulated accrued pension
at 30 April 1997.................. 17,026 13,671 - -
Increase in accrued pension during
1997/98 ((pound)p.a.)............. 3,036 - 2,920 1,585
Transfer value of the increase...... 35,000 - 24,056 13,618
Contributions by individual
director.......................... 4,200 - 4,200 4,908
Increase attributable to Company.... 30,800 - 19,856 8,710
Accumulated accrued pension
at 30 April 1998.................. 20,672 - 2,920 32,463
Contributions to Personal Pension schemes in 1997/98 and 1996/97 and
Pension schemes in 1995/96 were as follows:
1997/98 1996/97 1995/96
------- ------- -------
(in (pound) thousands)
Peter Aikens ................. 83 83 42
Peter Huntley ................ 35 37 18
Andrew Nash .................. - 39 14
Hugh Etheridge ............... 13 14 18
Robert MacNevin .............. 10 - -
Michael Cottrell ............. - - 12
Contributions in respect of Peter Aikens, Andrew Nash and Peter Huntley
were to their respective personal pension plans up to the maximum permitted
under Inland Revenue rules. The element of contributions in excess of Inland
Revenue rules is paid into a Funded Unapproved Retirement Benefit Scheme for the
benefit of each individual.
- 13 -
DIRECTORS' BENEFICIAL INTEREST IN SHARES
30 APRIL 1998 1 MAY 1997
------------- ----------
Peter Aikens ................... 79,467* 71,267
Hugh Etheridge ................. 31,591* 28,891
Peter Huntley .................. - 29,391
Robert MacNevin ................ - -
Kevin Philp .................... 5,000 5,000
Martin Boase ................... 10,000 10,000
Michael Garner ................. 10,000 10,000
Graham Wilson .................. 10,000 10,000
* Note: A number of these shares were purchased from bonus paid under
the Capital Incentive Scheme which imposes a minimum period before
such shares may be sold. Details are provided below:
SHARES TO BE HELD SHARES TO BE HELD
UNTIL 1998 UNTIL 1999
----------------- -----------------
Peter Aikens........... 8,227 9,715
Hugh Etheridge......... 4,775 5,675
There were no changes between 30 April 1998 and 6 July 1998.
DIRECTORS' SHARE OPTIONS
DATE FROM
EXERCISE WHICH EXPIRY
1 MAY 1997 30 APRIL 1998 PRICE EXERCISABLE DATE
---------- ------------- -------- ----------- ------
Peter Aikens...... 52,652 52,652 331p 1996 2003
24,723 24,723 566p 1997 2004
56,811 56,811 561p 1997 2004
59,000 59,000 662p 1998 2005
------- -------
193,186 193,186
======= =======
Hugh Etheridge.... 24,723 24,723 566p 1997 2004
18,937 18,937 561p 1997 2004
33,000 33,000 662p 1998 2005
------- -------
76,660 76,660
======= =======
Robert MacNevin... - 40,000 247.5p 2000 2007
======= =======
Kevin Philip...... 21,041 21,041 566p 1997 2004
10,521 10,521 523p 1997 2004
10,000 10,000 555p 1998 2005
2,000 2,000 662p 1998 2005
2,000 2,000 680p 1999 2005
- 60,000 247.5p 2000 2007
------- -------
45,562 105,562
======= =======
- 14 -
At 30 April 1998, the Company's share price was 201.5p. The highest and
lowest share prices during the year were 277.5p and 162.5p, respectively.
Exercise of the above options was not conditional upon any performance criteria.
All options were granted for nil consideration.
NOTE 6. STAFF NUMBERS AND COSTS
The average number of people employed by the Group, including directors,
within each category of activity was:
1998 1997 1996
----- ----- -----
(number of people)
Production staff................................ 471 516 513
Sales, marketing and distribution staff......... 883 792 663
Administration staff............................ 268 270 276
----- ----- -----
1,622 1,578 1,452
===== ===== =====
The aggregate payroll costs of these persons were as follows:
1998 1997 1996
---- ---- ----
(in (pound) millions)
Wages and salaries ............................. 30.2 28.6 27.3
Social security costs .......................... 2.4 2.4 2.4
Other pension costs ............................ 0.2 (0.1) 0.3
---- ---- ----
32.8 30.9 30.0
==== ==== ====
NOTE 7. PROFIT/(LOSS) ON FIXED ASSET SALES
The profit/(loss) on fixed asset sales comprises:
1998 1997 1996
---- ---- ----
(in (pound) millions)
Profit on property sales............................... 4.2 0.4 -
Provision for loss on plant and machinery sales........ (0.5) - (2.0)
---- ---- ----
3.7 0.4 (2.0)
==== ==== ====
The tax charge for 1998 includes (pound)1.2m in respect of property sales.
- 15 -
NOTE 8. INTEREST PAYABLE AND SIMILAR CHARGES
1998 1997 1996
---- ---- ----
(in (pound) millions)
Bank interest and interest on loans repayable
within 5 years.................................... 5.0 4.9 2.5
Finance charges on finance leases................... 0.1 0.1 0.1
Other............................................... - 0.1 0.1
---- ---- ----
5.1 5.1 2.7
==== ==== ====
In addition interest capitalised into tangible fixed assets during the year
was (pound)0.6m (1997--(pound)nil, 1996--(pound)nil).
NOTE 9. TAX ON PROFIT ON ORDINARY ACTIVITIES
1998 1997 1996
---- ---- ----
(in (pound) millions)
The charge in the profit and loss account consists of:
Corporation tax at 31% (1997--33%, 1996--33%) ...... 14.9 7.6 1.8
Deferred tax--effect of change in rate from
33% to 30% ....................................... (0.9) - -
Deferred tax--other ................................ (3.5) 4.8 3.2
---- ---- ----
10.5 12.4 5.0
==== ==== ====
1998 1997
---- ----
(in (pound) millions)
The deferred tax provision/(asset) represents:
Excess of capital allowances over depreciation ..... (1.4) 6.6
Unutilised losses .................................. - (1.3)
Pensions timing differences ........................ 5.7 6.3
Other timing differences ........................... (0.7) (3.6)
Offset of ACT recoverable .......................... - (4.8)
---- ----
3.6 3.2
==== ====
The tax effect of exceptional items for the year ended 30 April 1996 was a
credit of (pound)7.9m, which included a credit of (pound)0.8m attributable to
the provision for loss on fixed asset disposals.
- 16 -
Full provision has been made for deferred tax except for a deferred tax
asset of (pound)0.1m (1997--(pound)0.2m) on the excess of capital allowances
over depreciation.
1998 1997
---- ----
(in (pound) millions)
Deferred tax
At the beginning of the year................................ 3.2 (0.4)
ACT and losses transferred to/(from) corporation tax........ 4.8 (2.9)
Adjustment to fair value.................................... - 1.7
Deferred tax (credit)/charge to profit and loss account..... (4.4) 4.8
---- ----
At the end of the year...................................... 3.6 3.2
==== ====
NOTE 10. DIVIDENDS
1998 1997 1996
PENCE PENCE PENCE 1998 1997 1996
PER PER PER (pound) (pound) (pound)
SHARE SHARE SHARE m m m
----- ----- ----- ----- ----- -----
Dividends paid or proposed:
Ordinary shares
Interim dividend paid of...... 5.0 9.0 9.0 4.4 7.9 7.9
Proposed final dividend of.... 8.0 15.0 15.0 7.1 13.3 13.3
----- ---- ---- ---- ---- ----
Total........................... 13.0 24.0 24.0 11.5 21.2 21.2
===== ==== ==== ==== ==== ====
Gross equivalent per share...... 16.25 30.0 30.0
===== ==== ====
NOTE 11. EARNINGS PER SHARE
The calculation of earnings per share is based on a profit of (pound)25.3m
(1997--(pound)28.2m, 1996--(pound)12.1m) and 88,520,498 shares (1997--88,469,740
shares, 1996--66,023,926 shares), being the weighted average number in issue. A
fully diluted earnings per share figure based on share options outstanding is
not provided as the effect on earnings per share is not material.
NOTE 12. INTANGIBLE ASSETS
GROUP
-----
(in (pound) millions)
Cost and net book value of Strathmore brand
At 30 April 1998, 30 April 1997 and 30 April 1996 ....... 9.7
===
- 17 -
NOTE 13. TANGIBLE ASSETS
LAND AND BUILDING
--------------------------------
PLANT FIXTURES,
ASSETS MACHINERY FITTINGS,
LONG SHORT UNDER AND TOOLS AND
GROUP FREEHOLD LEASEHOLD LEASEHOLD CONSTRUCTION VEHICLES EQUIPMENT TOTAL
- ------------------------ -------- --------- --------- ------------ -------- --------- -----
(in (pound) millions)
Cost
At 30 April 1996 ..... 28.5 2.0 0.9 5.2 101.0 11.9 149.5
Additions ............ 0.5 - 0.1 9.7 13.3 1.6 25.2
Reclassifications .... 1.4 - - (10.2) 8.5 0.3 -
Disposals ............ (1.3) - (0.1) - (12.5) (2.1) (16.0)
---- ---- ---- ---- ----- ---- -----
At 30 April 1997 ..... 29.1 2.0 0.9 4.7 110.3 11.7 158.7
Additions ............ 1.2 0.7 0.3 14.2 12.2 2.5 31.1
Reclassifications .... 16.1 (0.1) - (18.3) 1.7 0.6 -
Disposals ............ (22.2) (1.3) - - (8.9) (2.8) (35.2)
---- ---- ---- ---- ----- ---- -----
At 30 April 1998 ..... 24.2 1.3 1.2 0.6 115.3 12.0 154.6
==== ==== ==== ==== ===== ==== =====
Depreciation
At 30 April 1996 ..... 7.2 0.7 0.1 - 45.6 8.7 62.3
Charged in the year... 0.4 - 0.1 - 7.0 1.2 8.7
Disposals ............ - - - - (8.8) (2.1) (10.9)
---- ---- ---- ---- ----- ---- -----
At 30 April 1997 ..... 7.6 0.7 0.2 - 43.8 7.8 60.1
Charged in the year... 0.4 - - - 8.2 1.2 9.8
Disposals ............ (5.2) (0.4) - - (4.2) (2.6) (12.4)
---- ---- ---- ---- ----- ---- -----
At 30 April 1998 ..... 2.8 0.3 0.2 - 47.8 6.4 57.5
==== ==== ==== ==== ===== ==== =====
Net book amounts:
At 30 April 1996 ..... 21.3 1.3 0.8 5.2 55.4 3.2 87.2
==== ==== ==== ==== ===== ==== =====
At 30 April 1997 ..... 21.5 1.3 0.7 4.7 66.5 3.9 98.6
==== ==== ==== ==== ===== ==== =====
At 30 April 1998 ..... 21.4 1.0 1.0 0.6 67.5 5.6 97.1
==== ==== ==== ==== ===== ==== =====
Included within the depreciation charge for 1998 for plant machinery and
vehicles of (pound)8.2m is an exceptional write down of (pound)1.0m of wine
dispensing equipment with customers.
The net book value of assets held under finance leases within plant
machinery and vehicles as at 30 April 1998 was (pound)1.1m (1997--(pound)0.9m,
1996--(pound)1.4m). Depreciation on assets held under finance leases during the
year ended 30 April 1998 was (pound)0.2m (1997--(pound)0.4m, 1996--(pound)0.4m).
Freehold land and buildings includes (pound)4.6m (1997--(pound)4.6m, 1996--
(pound)5.9m) in respect of land.
- 18 -
NOTE 14. STOCKS
1998 1997
---- ----
(in (pound) millions)
Raw materials and consummables ......... 8.7 5.9
Work in progress ....................... 7.3 9.7
Finished goods for resale .............. 28.6 33.7
---- ----
44.6 49.3
==== ====
NOTE 15. DEBTORS
1998 1997
----- -----
(in (pound) millions)
Amounts falling due within one year:
Trade debtors....................................... 83.3 91.2
ACT recoverable..................................... - 1.7
Other debtors....................................... 6.4 4.9
Prepayments and accrued income...................... 5.1 3.5
----- -----
94.8 101.3
===== =====
Amounts falling due after more than one year:
ACT recoverable..................................... 1.9 3.3
Pension prepayment.................................. 19.0 19.1
----- -----
20.9 22.4
----- -----
115.7 123.7
===== =====
NOTE 16. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1998 1997
---- ----
(in (pound) millions)
Trade and other creditors
Trade creditors............................................. 52.0 52.8
Corporation tax............................................. 4.7 2.9
Other tax, including social security and ACT payable........ 10.4 12.3
Finance lease obligations less than one year (note 17)...... 0.4 0.4
Other creditors, including deferred duty.................... 11.0 12.5
Accruals and deferred income................................ 26.7 35.4
----- -----
105.2 116.3
===== =====
- 19 -
NOTE 17. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1998 1997
---- ----
(in (pound) millions)
Bank loans and overdrafts (unsecured) ....... 60.0 -
Obligations under finance leases ............ 0.8 0.2
Deferred purchase consideration ............. 0.4 1.7
---- ----
61.2 1.9
==== ====
The deferred purchase consideration of (pound)0.4m in the current year is
in addition to (pound)1.2m (1997--(pound)0.6m, 1996--(pound)nil) included within
other creditors due in less than one year and relates to the acquisitions of
Dunn & Moore and Liddingtons and is related to future profits. The amount
provided represents both the current best estimate of the amount payable in due
course, and the maximum amount payable.
The maturity of net obligations under finance leases and hire purchase
contracts is as follows:
1998 1997
---- ----
(in (pound) millions)
Within one year ..................... 0.4 0.4
In the second to fifth years ........ 0.4 0.2
Over five years ..................... 0.4 -
--- ---
1.2 0.6
=== ===
NOTE 18. PROVISIONS FOR LIABILITIES AND CHARGES
1998 1997
---- ----
(in (pound) millions)
Deferred tax (see note 9) ................ 3.6 3.2
Provisions ............................... 11.9 14.4
---- ----
15.5 17.6
==== ====
Provisions:
At the beginning of the year ........... 14.4 17.5
Transfer to creditors .................. - (0.4)
Release to profit and loss account
within exceptional item .............. (1.0) -
Used during the year ................... (1.5) (2.3)
Released to goodwill ................... - (0.4)
---- ----
At the end of the year ................. 11.9 14.4
==== ====
Provisions primarily relate to surplus property costs.
- 20 -
The Group has a number of freehold and leasehold properties which are
surplus to operational requirements. Provision has been made for future fixed
costs associated with these properties for the period up to their expected
disposal. To the extent that these properties are disposed of earlier than
anticipated a benefit will arise; conversely if the properties are not disposed
of within the anticipated period a contingent liability exists for the ongoing
fixed costs.
NOTE 19. SHARE CAPITAL
4.9 PER CENT
CUMULATIVE
REDEEMABLE
PREFERENCE SHARES ORDINARY SHARES
OF (pound)1 EACH OF 25p EACH TOTAL
----------------- ----------------------- --------
NUMBER (pound)m NUMBER (pound)m (pound)m
------- -------- ----------- -------- --------
Authorised:
Beginning and end of the year....................... 260,000 0.3 117,920,000 29.5 29.8
Allocated, called up and fully paid
In issue at the beginning and end of the year....... - - 88,520,498 22.1 22.1
During the year no ordinary shares were issued under the share option
schemes (1997--217,240 shares were issued for a total consideration of
(pound)0.6m, 1996--64,270 shares for (pound)0.2m). In 1996 42.4m shares were
issued for a non cash consideration of (pound)267.6m.
NOTE 20. SHARE OPTIONS
SAVINGS RELATED SHARE OPTION SCHEME: Employees and directors in the UK with
a minimum of two years' service were entitled to apply for options to acquire
ordinary shares at 100% (1997--100%) of the average of the middle market price
on the three dealing days immediately preceding the date of the invitation.
At 30 April 1998 options granted and outstanding under employee share
schemes amounted to 458,102 ordinary shares. These options are exercisable at
varying dates up to 2002 at prices ranging from (pound)2.92 to (pound)5.26 per
share. During the year the Company issued no ordinary shares under the employee
share schemes.
EXECUTIVE SHARE OPTION SCHEME: Under the Company's executive scheme the
board may offer options to executives, whose performance contributes
significantly to the Company's results, at the middle market price on the
dealing day immediately preceding the date of the grant of the option.
- 21 -
At 30 April 1998 options exercisable were as follows:
PRICE PER NUMBER OF
OPTIONS EXERCISABLE BETWEEN: SHARE SHARES
---------------------------- --------- ---------
15 March 1992 and 14 March 1999 .................. 338p 1,300
22 June 1996 and 21 June 2003 .................... 331p 65,652
20 January 1997 and 19 January 2004 .............. 566p 123,089
11 July 1997 and 10 July 2004 .................... 523p 50,497
17 October 1997 and 16 October 2004 .............. 561p 93,633
16 January 1998 and 15 January 2005 .............. 555p 61,000
20 July 1998 and 19 July 2005 .................... 628p 13,000
10 November 1998 and 9 November 2005 ............. 662p 106,000
16 January 1999 and 15 January 2006 .............. 680p 43,000
28 January 2000 and 27 January 2007 .............. 296.5p 203,000
25 July 2000 and 24 July 2007 .................... 247.5p 580,000
8 January 2001 and 7 January 2008 ................ 163p 225,000
During the year the Company issued no ordinary shares under the executive
share option schemes.
NOTE 21. RESERVES
CAPITAL GOODWILL PROFIT AND
SHARE REDEMPTION MERGER WRITE-OFF LOSS
PREMIUM RESERVE RESERVE RESERVE ACCOUNT
------- ---------- ------- ------- -------
(in (pound) millions)
At 30 April 1996 as previously stated ........ 104.9 0.1 309.5 (364.4) (0.3)
Prior year adjustments (note 1 (Goodwill)).... - - (309.5) 364.4 (54.9)
----- ---- ----- ----- ----
At 30 April 1996 as restated ................. 104.9 0.1 - - (55.2)
Shares issued ................................ 0.6 - - - -
Goodwill arising on acquisitions ............. - - - - 2.1
Retained profit for the year ................. - - - - 7.0
----- ---- ----- ----- ----
At 30 April 1997 as restated ................. 105.5 0.1 - - (46.1)
Retained profit for the year ................. - - - - 13.8
----- ---- ----- ----- ----
At 30 April 1998 ............................. 105.5 0.1 - - (32.3)
===== ==== ===== ===== ====
The Cumulative amount of goodwill written off to reserves is (pound)362.3m
(1997--(pound)362.3m, 1996--(pound)364.4m).
- 22 -
NOTE 22. RECONCILIATIONS OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1998 1997 1996
------ ------ ------
(in (pound) millions)
Opening shareholders' funds.......................... 81.6 71.9 79.6
------ ------ ------
Profit for the year.................................. 25.3 28.2 12.1
Dividends paid and proposed.......................... (11.5) (21.2) (21.2)
------ ------ ------
Retained profit/(loss) for the year.................. 13.8 7.0 (9.1)
New share capital subscribed......................... - 0.6 267.9
Goodwill adjustment.................................. - 2.1 (266.5)
------ ------ ------
Net addition/(reduction) to the shareholders' funds.. 13.8 9.7 (7.7)
------ ------ ------
Closing shareholders' funds.......................... 95.4 81.6 71.9
====== ====== ======
NOTE 23. FINANCIAL AND CAPITAL COMMITMENTS
1998 1997
---- ----
(in (pound) millions)
Contracted commitments for capital expenditure....... 2.2 11.8
==== ====
1998 1997
----------------- -----------------
LAND & LAND &
BUILDINGS OTHER BUILDINGS OTHER
--------- ----- --------- -----
(in (pound) millions)
Annual commitments under operating
leases which expire:
Within one year................... - - 0.1 0.1
In the second to fifth years
inclusive....................... 0.1 0.6 - 0.1
Over five years................... 2.9 - 2.3 0.3
--- --- --- ---
3.0 0.6 2.4 0.5
=== === === ===
The Group had (pound)9.8m (1997--(pound)5.0m) of commitments under forward
currency contracts at 30 April 1998.
NOTE 24. PENSIONS
The Company and its subsidiaries currently operate two Pension Plans, the
Matthew Clark Group Pension Plan and the Matthew Clark Executive Pension Plan.
These Plans are of the defined benefit type with assets held in Trustee
administered funds separate from the Company's finances. In addition, a further
Plan was acquired with the acquisition of Taunton Cider. This scheme was merged
with the Matthew Clark Group Pension Plan on 1 April 1997.
- 23 -
Actuarial valuations of the Matthew Clark Group Pension Plan have been
carried out by independent actuaries as at 1 January 1996. The funding level of
the combined Plans on the assumptions stated below as at 1 January 1996 was
141%. The combined market value of the assets at 1 January 1996 was
approximately (pound)92m. The pension cost is assessed in accordance with a
qualified actuary's advice. The Actuary has considered the long-term effects of
the removal of ACT relief for pension funds on the level of funding of the
Plans. The increase in the pension expense is not significant.
The assumptions adopted for the purposes of SSAP 24 were as follows:
Long-term investment return ........ 9.00%
Salary escalation .................. 6.00%
Pension increases were allowed for in accordance with the Rules of the Plan
and the past practice of granting discretionary increases. Assets were taken
into account at 94.6% of their market value.
On a discontinuance of either of the Plans, the market value of the assets
exceeded the cost of securing the liabilities at the appropriate valuation date,
assuming that cash equivalent transfer values were paid in respect of active or
deferred members.
NOTE 25. RECONCILIATION OF OPERATING PROFIT TO OPERATING CASHFLOWS
1998 1997 1996
------ ------ ------
(in (pound) millions)
Operating profit................................... 37.1 45.1 21.5
Exceptional charges................................ - - 22.4
Depreciation charges............................... 9.8 8.7 6.4
Loss on disposal and write-off of tangible
fixed assets..................................... 3.6 2.9 0.7
Cashflow relating to previous year's
restructuring provisions......................... (4.5) (11.2) (15.8)
Decrease/(increase) in stocks...................... 4.7 11.7 (0.1)
Decrease/(increase) in debtors..................... 5.4 13.6 (7.3)
(Decrease)/increase in creditors and provisions.... (6.3) (18.5) 1.3
------ ------ ------
Net cash inflow from operating activities.......... 49.8 52.3 29.1
====== ====== ======
NOTE 26. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM (UK) AND
UNITED STATES OF AMERICA (US) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP)
The Group's consolidated financial statements are prepared in conformity with
generally accepted accounting principles applicable in the United Kingdom (UK
GAAP), which differ in certain significant respects from those applicable in the
United States of America (US GAAP). These differences together with the
approximate effects of the adjustments on net profit and equity shareholders'
funds, relate principally to the items set out below:
(a) GOODWILL: During 1998 the Group adopted Financial Reporting Standard 10
'Goodwill and intangible assets'. The Group's policy for acquisitions which
occurred prior to the issue of the standard is that purchased goodwill,
- 24 -
being the excess of the fair value of consideration paid or payable over
the fair value of the identifiable net assets acquired, has been taken
directly to reserves. On subsequent disposal, goodwill previously taken
direct to reserves is included in determining the profit and loss on
disposal. Previously such goodwill was presented separately within reserves
as a 'goodwill write off reserve'. This is not permitted by the Standard
and, accordingly, goodwill has been taken to merger reserve to the extent
available and the balance taken to the profit and loss account. Under US
GAAP, these intangible assets would be capitalised in the balance sheet and
amortised through the statement of income over a period not exceeding 40
years.
For the purposes of calculating the effect of capitalising the goodwill on
the balance sheet and amortising the goodwill and brands through the
statement of income, a life of 40 years has generally been assumed.
However, under UK GAAP, the value of the brands, goodwill and other
intangibles is reviewed annually by reference to historic and forecast
contributions to operating income and an additional charge to the statement
of income is made where a permanent diminution in net book value is
identified.
(b) BRANDS: Significant owned brands by the Group are capitalised as intangible
assets at the time of acquisition. The Group does not provide amortisation
on these assets. Under US GAAP, these would be amortised through the
statement of income over a period not exceeding 40 years.
(c) ACQUISITION ACCOUNTING: Prior to the adoption of Financial Reporting
Standard 7, 'Fair values in acquisition accounting', the Group provided for
certain costs as part of the purchase accounting adjustments on acquisition
which under US GAAP would be included in the statement of income when those
costs were incurred. Examples of such items include certain costs in
respect of salaries of individuals made redundant, the closure of certain
of the Group's existing operations and the rectification of inadequate
operating systems.
With effect from 30 April 1995, the Group adopted Financial Reporting
Standard 7. This new standard sets out rules for accounting for
acquisitions in consolidated financial statements resulting in a change in
the difference between UK and US GAAP. US GAAP remained unchanged. The fair
value balance sheet of an acquired company cannot include provisions for
integration and reorganisation costs set up by the acquiring company. In
compliance with the standard, comparative figures were not restated. Under
US GAAP, certain integration and reorganisation costs may be considered
liabilities assumed and included in the allocation of the acquisition cost.
(d) RESTRUCTURING AND INTEGRATION COSTS: Under UK GAAP, when a decision has
been taken to restructure part of the Group's business, provisions are made
for the impairment of asset values together with severance and other costs.
US GAAP requires a number of specific criteria to be met before such costs
can be recognised as an expense. Among these is the requirement that all
the significant actions arising from a restructuring and integration plan
and their expected completion dates must be identified by the balance sheet
date. US GAAP also requires recognition of the estimated net present value
of future net lease obligations of vacant properties.
(e) PENSIONS: The Group accounts for the costs of pensions under the rules set
out in UK accounting standards. US GAAP is more prescriptive in respect of
actuarial assumptions and the allocation of costs to accounting periods.
- 25 -
(f) LEASES: Under UK GAAP, provided certain conditions are met, it may be
permissible to recognise any profit arising on the sale and leaseback, as
an operating lease, of an asset. Under US GAAP, the gain or loss is
deferred and amortised in proportion to the rental payments due over the
term of the lease.
(g) DEFERRED TAXATION: UK GAAP requires that no provision for deferred taxation
should be made if there is reasonable evidence that such taxation will not
be payable within the foreseeable future and that deferred tax assets
should only be recognised if the realisation of such assets can be assessed
with reasonable certainty. US GAAP requires full provision for deferred
taxation liabilities, and permits deferred tax assets to be recognised if
their realisation is considered to be more likely than not.
(h) STATEMENT OF CASH FLOWS: Under UK GAAP, cash flows are presented separately
for operating activities, returns on investments and servicing of finance,
taxation paid, capital expenditure, acquisitions, dividends paid, and
financing activities. Under US GAAP, cash flows are reported as operating
activities, investing activities, and financing activities. Cash flows from
taxation and returns on investments and servicing of finance would, with
the exception of ordinary dividends paid, be included as operating
activities. The payment of dividends would be included under financing
activities.
Under UK GAAP, cash includes bank overdrafts repayable on demand. Under US
GAAP, cash flows in respect of overdrafts are included under financing
activities.
(i) EARNINGS PER ORDINARY SHARE: Under UK and US GAAP, basic earnings per share
is computed using the weighted average number of ordinary shares in issue
during the year. US GAAP also requires the computation of diluted earnings
per share which includes the effect of potential common stock under the
treasury stock method.
(j) ORDINARY DIVIDENDS: Under UK GAAP, the proposed dividends on ordinary
shares, as recommended by the directors, are deducted from shareholders'
equity and shown as a liability in the balance sheet at the end of the
period to which they relate. Under US GAAP, such dividends are only
deducted from shareholders' equity at the date of declaration of the
dividend.
Set out below is a summary combined statement of cash flows under US GAAP.
30 April 1998 30 April 1997
------------- -------------
(in (pound) millions)
Net cash provided by operating activities 36.2 40.4
Net cash used in investing activities (10.2) (18.4)
Net cash used in financing activities (14.5) (20.8)
----- -----
Net increase in cash under US GAAP 11.5 1.2
===== =====
- 26 -
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been applied
instead of UK GAAP:
1998 1997
----- -----
(in (pound) millions)
NET INCOME - UK GAAP AFTER EXCEPTIONAL ITEMS 25.3 28.2
----- -----
ADJUSTMENTS TO CONFORM WITH US GAAP
- - Amortisation of goodwill and intangibles (9.1) (9.1)
- - Restructuring costs (1.4) (1.7)
- - Pension expense 0.1 0.7
- - Sale and leaseback (3.7) -
- - Deferred tax on US GAAP adjustments 1.5 0.3
----- -----
Total US GAAP adjustments (12.6) (9.8)
----- -----
NET INCOME - US GAAP 12.7 18.4
===== =====
Pence Pence
----- -----
Basic earnings per Ordinary Share in accordance
with US GAAP 14.3 20.8
Diluted earnings per Ordinary Share in accordance
with US GAAP 14.3 20.8
1998 1997
----- -----
(in (pound) millions)
SHAREHOLDERS' EQUITY, AS SHOWN IN THE GROUP BALANCE
SHEETS - UK GAAP 95.4 81.6
----- -----
ADJUSTMENTS TO CONFORM WITH US GAAP
- - Goodwill and intangibles 322.8 331.9
- - Restructuring provisions 5.0 6.4
- - Pension expense 2.5 2.4
- - Sale and leaseback (3.7) -
- - Deferred taxation on US GAAP adjustments 0.4 (1.2)
- - Dividends 7.1 13.3
----- -----
Total US GAAP adjustments 334.1 352.8
----- -----
TOTAL SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP 429.5 434.4
===== =====
- 27 -
MATTHEW CLARK plc
BALANCE SHEETS
(in (pound) millions)
(unaudited)
31 October
--------------
1998 1997
------ ------
Fixed assets
Intangible assets............................................. 9.7 9.7
Tangible assets............................................... 90.5 107.6
------ ------
100.2 117.3
------ ------
Current assets
Stocks........................................................ 56.4 55.8
Debtors....................................................... 116.2 127.0
Cash at bank and in hand...................................... 7.2 16.3
------ ------
179.8 199.1
------ ------
Creditors: amounts falling due within one year
Trade and other creditors..................................... (110.9) (119.6)
Proposed dividend............................................. -- (4.4)
------ ------
(110.9) (124.0)
------ ------
Net current assets
Amounts due within one year................................... 49.7 56.1
Debtors due after more than one year.......................... 19.2 19.0
------ ------
68.9 75.1
------ ------
Total assets less current liabilities........................... 169.1 192.4
Creditors: amounts falling due after more than one year......... (60.9) (86.0)
Provisions for liabilities and charges.......................... (11.0) (16.6)
------ ------
Net assets.................................................... 97.2 89.8
====== ======
Capital and reserves
Called up share capital....................................... 22.1 22.1
Share premium account......................................... 105.5 105.5
Capital redemption reserve.................................... 0.1 0.1
Profit and loss account....................................... (30.5) (37.9)
------ ------
Equity shareholders' funds...................................... 97.2 89.8
====== ======
- --------
The interim results for the six month periods ended 31 October 1998 and 1997
are based on the unaudited historic cost results.
28
MATTHEW CLARK plc
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(in (Pounds) millions, except per share amounts)
(unaudited)
For the Six Months
Ended 31 October
---------------------
1998(1) 1997
---------- ---------
Turnover................................................. 271.6 272.9
Operating costs.......................................... (267.2) (252.9)
--------- ---------
Operating profit......................................... 4.4 20.0
Profit on fixed asset sales.............................. 0.6 --
--------- ---------
Profit before interest and tax........................... 5.0 20.0
Interest receivable...................................... 0.1 --
Interest payable and similar charges..................... (2.6) (2.3)
--------- ---------
Profit on ordinary activities before tax................. 2.5 17.7
Tax on profit on ordinary activities..................... (0.7) (5.1)
--------- ---------
Profit on ordinary activities after tax.................. 1.8 12.6
Dividends................................................ -- (4.4)
--------- ---------
Retained profit for the period........................... 1.8 8.2
========= =========
Earnings per share....................................... 2.0p 14.2p
========= =========
- --------
(1) Includes exceptional items for reorganisation as a result of the
rationalisation of production facilities. Pre-exceptional items, profit
attributable to ordinary shareholders was (Pounds)9.5m and earnings per
share was 10.7p.
There are no recognised gains or losses in any period other than the
profit/(loss) for the period.
The results above derive from continuing activities.
The interim figures are based on the unaudited historic cost results to 31
October.
The accompanying notes form an integral part of these unaudited consolidated
financial statements.
- 29 -
MATTHEW CLARK plc
CONSOLIDATED CASH FLOW STATEMENTS
(in (Pounds) millions)
(unaudited)
For the
Six Months
Ended 31
October
------------
1998 1997
----- -----
Cash inflow from operating activities......................... 11.0 16.3
----- -----
Returns on investments and servicing of finance
Interest received........................................... 0.1 --
Interest paid............................................... (2.9) (3.6)
----- -----
(2.8) (3.6)
----- -----
Taxation paid............................................... (1.3) (2.0)
----- -----
Capital expenditure
Purchase of tangible fixed assets........................... (9.3) (18.0)
Receipts from sale of fixed assets.......................... 1.1 1.0
----- -----
(8.2) (17.0)
----- -----
Acquisitions................................................ (1.2) (0.7)
Dividends paid.............................................. (7.1) (13.3)
----- -----
Cash outflow before financing............................... (9.6) (20.3)
----- -----
Financing
Drawdown of committed loan.................................. -- 50.0
Capital element of finance lease payments................... (0.5) (0.6)
----- -----
(0.5) 49.4
----- -----
(Decrease)/increase in cash in the period..................... (10.1) 29.1
===== =====
Reconciliation of net cashflow to movement in net debt
(Decrease)/increase in cash in period....................... (10.1) 29.1
Cash inflow from increase in debt and lease financing....... (0.3) (50.0)
----- -----
Change in net debt resulting from cashflows................. (10.4) (20.9)
Net debt at the start of the period......................... (43.9) (51.2)
----- -----
Net debt at the end of the period........................... (54.3) (72.1)
===== =====
Analysis of net debt
Cash at bank and in hand.................................... 7.2 16.3
Bank loans and overdrafts................................... (60.0) (87.8)
Finance lease obligations................................... (1.5) (0.6)
----- -----
(54.3) (72.1)
===== =====
- 30 -
MATTHEW CLARK plc
NOTES TO THE ACCOUNTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements present the
financial position and results of operations of the Group and have been prepared
in accordance with UK GAAP, which differ in certain significant respects from US
GAAP. See Note 4 included herein and Note 26 of the Notes to the Accounts
included in the Form 8-K/A for a discussion of the principal differences between
UK GAAP affecting the Group.
The interim financial information included in these Condensed Consolidated
Financial Statements is unaudited but reflects all adjustments (consisting only
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
interim Condensed Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Form 8-K/A.
The amount of income taxes in the Consolidated Income Statements is based upon
management's best estimate of the effective tax rate to be applicable for the
entire year and taking into account available tax loss carryforwards and other
relevant tax issues in the jurisdiction in which the Group operates.
NOTE 2. ADOPTION OF NEW ACCOUNTING STANDARD
The Group has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income" which established standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income/(loss) generally encompasses
all changes in shareholders' equity (except those arising from transactions with
owners). There is no difference between the Group's comprehensive income and its
net income for the six month periods ended 31 October 1997 and 1998.
NOTE 3. RECONCILIATION OF OPERATING PROFIT TO OPERATING CASHFLOWS
For the Six Months
Ended 31 October
--------------------
1998 1997
--------- ---------
(in (Pounds)
millions)
Operating profit.......................................... 4.4 20.0
Exceptional charges....................................... 11.0 --
Depreciation charges...................................... 4.7 4.6
Loss on disposal and write-off of tangible fixed assets... 1.3 1.2
Cashflow relating to previous year's restructuring
provisions............................................... (1.9) (2.0)
Increase in stocks........................................ (11.8) (6.5)
Increase in debtors....................................... (0.2) (1.3)
Increase in creditors and provisions...................... 3.5 0.3
--------- --------
Net cash inflow from operating activities................. 11.0 16.3
========= ========
NOTE 4. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM (UK) AND
UNITED STATES OF AMERICA (US) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP)
The Group's consolidated financial statements are prepared in conformity
with generally accepted accounting principles applicable in the United Kingdom
(UK GAAP), which differ in certain significant respects from those applicable
in the United States of America (US GAAP). These differences together with the
approximate effects of the adjustments on net profit and equity shareholders'
funds, relate principally to the items set out below:
(a) GOODWILL: During 1998 the Group adopted Financial Reporting Standard
10 "Goodwill and intangible assets'. The Group's policy for
acquisitions which occurred prior to the issue of the standard is
that purchased goodwill, being the excess of the fair value of
consideration paid or payable over the fair value of the identifiable
net assets acquired, has been taken directly to reserves. On
subsequent disposal, goodwill previously taken direct to reserves is
included in determining the profit and loss on disposal. Previously
such goodwill was presented separately within reserves as a "goodwill
write off reserve'. This is not permitted by the Standard and,
accordingly, goodwill has been taken to merger reserve to the extent
available and the balance taken to the profit and loss account. Under
US GAAP, these intangible assets would be capitalised in the balance
sheet and amortised through the statement of income over a period not
exceeding 40 years.
For the purposes of calculating the effect of capitalising the goodwill
on the balance sheet and amortising the goodwill and brands through the
statement of income, a life of 40 years has generally been assumed.
However, under UK GAAP, the value of the brands, goodwill and other
intangibles is reviewed annually by reference to historic and forecast
contributions to operating income and an additional charge to the
statement of income is made where a permanent diminution in net book
value is identified.
(b) BRANDS: Significant owned brands by the Group are captialised as
intangible assets at the time of acquisition. The Group does not
provide amortisation on these assets. Under US GAAP, these would be
amortised through the statement of income over a period not exceeding
40 years.
- 31 -
MATTHEW CLARK plc
NOTES TO THE ACCOUNTS--(Continued)
(c) ACQUISITION ACCOUNTING: Prior to the adoption of Financial Reporting
Standard 7, "Fair values in acquisition accounting', the Group
provided for certain costs as part of the purchase accounting
adjustments on acquisition which under US GAAP would be included in
the statement of income when those costs were incurred. Examples of
such items include certain costs in respect of salaries of
individuals made redundant, the closure of certain of the Group's
existing operations and the rectification of inadequate operating
systems.
With effect from 30 April 1995, the Group adopted Financial Reporting
Standard 7. This new standard sets out rules for accounting for
acquisitions in consolidated financial statements resulting in a change
in the difference between UK and US GAAP. US GAAP remained unchanged.
The fair value balance sheet of an acquired company cannot include
provisions for integration and reorganisation costs set up by the
acquiring company. In compliance with the standard, comparative figures
were not restated. Under US GAAP, certain integration and reorganisation
costs may be considered liabilities assumed and included in the
allocation of the acquisition costs.
(d) RESTRUCTURING AND INTEGRATION COSTS: Under UK GAAP, when a decision
has been taken to restructure part of the Group's business,
provisions are made for the impairment of asset values together with
severance and other costs. US GAAP requires a number of specific
criteria to be met before such costs can be recognised as an expense.
Among these is the requirement that all the significant actions
arising from a restructuring and integration plan and their expected
completion dates must be identified by the balance sheet date. US
GAAP also requires recognition of the estimated net present value of
future net lease obligations of vacant properties.
(e) PENSIONS: The Group accounts for the costs of pensions under the
rules set out in UK accounting standards. US GAAP is more
prescriptive in respect of actuarial assumptions and the allocation
of costs to accounting periods.
(f) LEASES: Under UK GAAP, provided certain conditions are met, it may be
permissible to recognise any profit arising on the sale and
leaseback, as an operating lease, of an asset. Under US GAAP, the
gain or loss is deferred and amortised in proportion to the rental
payments due over the term of the lease.
(g) DEFERRED TAXATION: UK GAAP requires that no provision for deferred
taxation should be made if there is reasonable evidence that such
taxation will not be payable within the foreseeable future and that
deferred tax assets should only be recognised if the realisation of
such assets can be assessed with reasonable certainty. US GAAP
requires full provision for deferred taxation liabilities, and
permits deferred tax assets to be recognised if their realisation is
considered to be more likely than not.
(h) STATEMENT OF CASH FLOWS: Under UK GAAP, cash flows are presented
separately for operating activities, returns on investments and
servicing of finance, taxation paid, capital expenditure,
acquisitions, dividends paid, and financing activities. Under US
GAAP, cash flows are reported as operating activities, investing
activities, and financing activities. Cash flows from taxation and
returns on investments and servicing of finance would, with the
exception of ordinary dividends paid, be included as operating
activities. The payment of dividends would be included under
financing activities.
Under UK GAAP, cash includes bank overdrafts repayable on demand.
Under US GAAP, cash flows in respect of overdrafts are included under
financing activities.
- 32 -
MATTHEW CLARK plc
NOTES TO THE ACCOUNTS--(Continued)
(i) EARNINGS PER ORDINARY SHARE: Under UK and US GAAP, basic earnings per
share is computed using the weighted average number of ordinary
shares in issue during the year. US GAAP also requires the
computation of diluted earnings per share which includes the effect
of potential common stock under the treasury stock method.
(j) ORDINARY DIVIDENDS: Under UK GAAP, the proposed dividends on ordinary
shares, as recommended by the directors, are deducted from
shareholders' equity and shown as a liability in the balance sheet at
the end of the period to which they relate. Under US GAAP, such
dividends are only deducted from shareholders' equity at the date of
declaration of the dividend.
Set out below is a summary combined statement of cash flows under US GAAP.
For the Six Months
Ended 31 October
--------------------
1998 1997
--------- ---------
(in (Pounds)
millions)
Net cash provided by operating activities................ 6.9 10.7
Net cash used in investing activities.................... (9.4) (17.7)
Net cash (used in)/provided by financing activities...... (7.6) 17.5
--------- ---------
Net (decrease)/increase in cash under US GAAP............ (10.1) 10.5
========= =========
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been
applied instead of UK GAAP:
For the Six Months
Ended 31 October
--------------------
1998 1997
--------- ---------
(in (Pounds)
millions)
NET INCOME--UK GAAP AFTER EXCEPTIONAL ITEMS.............. 1.8 12.6
--------- ---------
ADJUSTMENTS TO CONFORM WITH US GAAP
--Amortisation of goodwill and intangibles.............. (4.6) (4.6)
--Pension expense....................................... (0.1) 0.1
--Sale and leaseback.................................... 0.1 --
--------- ---------
Total US GAAP adjustments................................ (4.6) (4.5)
--------- ---------
NET (LOSS)/INCOME--US GAAP............................... (2.8) 8.1
========= =========
Pence Pence
--------- ---------
Basic (loss)/earnings per Ordinary Share in accordance
with US GAAP............................................ (3.2) 9.2
Diluted (loss)/earnings per Ordinary Share in accordance
with US GAAP............................................ (3.2) 9.2
- 33 -
MATTHEW CLARK plc
NOTES TO THE ACCOUNTS--(Continued)
For the Six Months
Ended 31 October
--------------------
1998 1997
--------- ---------
(in (Pounds) millions)
SHAREHOLDERS' EQUITY, AS SHOWN IN THE GROUP BALANCE
SHEETS--UK GAAP..................................... 97.2 89.8
--------- ---------
ADJUSTMENTS TO CONFORM WITH US GAAP
--Goodwill and intangibles.......................... 318.2 327.3
--Restructuring provisions.......................... 4.8 6.5
--Pension expense................................... 2.5 2.4
--Sale and leaseback................................ (3.6) --
--Deferred taxation on US GAAP adjustments.......... 0.3 (1.2)
--Dividends......................................... -- 4.4
--------- ---------
Total US GAAP adjustments............................ 322.2 339.4
--------- ---------
TOTAL SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US
GAAP................................................ 419.4 429.2
========= =========
- 34 -
PRO FORMA COMBINED FINANCIAL DATA (UNAUDITED)
On November 3, 1998, Canandaigua Limited, a wholly-owned subsidiary of
Canandaigua Brands, Inc., announced a cash tender offer for the entire issued
and to be issued ordinary share capital of Matthew Clark plc ("Matthew Clark").
The offer valued each Matthew Clark share at 243 pence, valuing the whole of the
issued ordinary share capital of Matthew Clark at approximately (pounds) 215
million. On December 1, 1998, Canandaigua Limited declared the cash tender offer
to be wholly unconditional - all conditions to the offer having either been
satisfied or waived. Canandaigua Limited thereby acquired control of Matthew
Clark and Canandaigua Limited has subsequently acquired all of the shares of
Matthew Clark (the "Matthew Clark Acquisition").
The following pro forma financial data of the Company consists of (i) a pro
forma condensed combined balance sheet (unaudited) as of November 30, 1998 (the
"Pro Forma Balance Sheet"), (ii) a 1998 fiscal year pro forma combined statement
of income (unaudited) (the "1998 Pro Forma Statement of Income"), (iii) a 1999
nine month pro forma combined statement of income (unaudited) (the "1999 Nine
Month Pro Forma Statement of Income") and (iv) a last twelve month pro forma
combined statement of income (unaudited) (the "Last Twelve Months Pro Forma
Statement of Income") (collectively, the "Pro Forma Statements").
The Pro Forma Balance Sheet reflects the combination of the balance sheet
of the Company as of November 30, 1998, and the balance sheet of Matthew Clark
as of October 31, 1998, as adjusted for the Matthew Clark Acquisition. The Pro
Forma Balance Sheet is presented as if the Matthew Clark Acquisition was
consummated on November 30, 1998.
The 1998 Pro Forma Statement of Income reflects the combination of the
income statement of the Company for the year ended February 28, 1998, and the
income statement of Matthew Clark for the year ended April 30, 1998, as adjusted
for the Matthew Clark Acquisition. The 1998 Pro Forma Statement of Income is
presented as if the Matthew Clark Acquisition was consummated on March 1, 1997.
The 1999 Nine Month Pro Forma Statement of Income reflects the combination
of the income statement of the Company for the nine months ended November 30,
1998, and the income statement of Matthew Clark for the nine months ended
October 31, 1998, as adjusted for the Matthew Clark Acquisition. The 1999 Six
Month Pro Forma Statement of Income is presented as if the Matthew Clark
Acquisition was consummated on March 1, 1997.
The Last Twelve Months Pro Forma Statement of Income reflects the
combination of the income statement of the Company for the twelve months ended
November 30, 1998 and the income statement of Matthew Clark for the twelve
months ended October 31, 1998, as adjusted for the Matthew Clark Acquisition.
The Last twelve months Pro Forma Statement of Income is presented as if the
Matthew Clark Acquisition was consummated on March 1, 1997.
The Pro Forma Statements should be read in conjunction with the separate
historical financial statements of the Company and Matthew Clark and the notes
thereto and with the accompanying notes to the Pro Forma Statements. The Pro
Forma Statements are based upon currently available information and upon certain
assumptions that the Company believes are reasonable under the circumstances.
The Pro Forma Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
aforementioned transaction in fact had occurred on such date or at the beginning
of the period indicated or to project the Company's financial position or the
results of operations at any future date or for any future period.
- 35 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of November 30, 1998
Pro Forma
Matthew Acquisition for the
Canandaigua Clark Adjustments Acquisition
----------- ---------- ----------- -----------
(Dollars in Thousands)
Assets
Current Assets:
Cash and cash
investments.......... $ 2,141 $ 12,130 $ -- $ 14,271
Accounts receivable,
net.................. 173,760 137,196 -- 310,956
Inventories, net...... 441,048 94,533 -- 535,581
Prepaid expenses and
other current assets. 42,373 22,113 -- 64,486
---------- ---------- --------- ----------
Total current
assets............. 659,322 265,972 -- 925,294
Property, Plant and
Equipment, net......... 247,499 151,589 13,609 (a) 412,697
Other Assets............ 260,412 585,476 (320,910)(a) 522,604
1,010 (b)
(3,384)(c)
---------- ---------- --------- ----------
Total assets........ $1,167,233 $1,003,037 $(309,675) $1,860,595
========== ========== ========= ==========
Liabilities and
Stockholders' Equity
Current Liabilities:
Notes payable......... $ 114,500 $ -- $ (96,393)(d) $ 18,107
Current maturities of
long-term debt....... 24,118 1,038 (24,000)(d) 1,156
Accounts payable...... 71,379 92,685 8,919 (b) 172,983
Accrued excise taxes.. 24,632 14,273 -- 38,905
Other accrued expenses
and liabilities...... 153,233 74,671 5,058 (b) 224,913
(8,049)(c)
---------- ---------- --------- ----------
Total current
liabilities........ 387,862 182,667 (114,465) 456,064
Long-term Debt, less
current maturities..... 291,386 102,008 499,992 (d) 893,386
Deferred income taxes... 59,337 (8) 18,946 (e) 78,275
Other Liabilities....... 5,018 15,807 -- 20,825
---------- ---------- --------- ----------
Total Liabilities... 743,603 300,474 404,473 1,448,550
Stockholders' Equity.... 423,630 702,563 (702,563)(f) 412,045
(11,585)(c)
---------- ---------- --------- ----------
Total Liabilities
and Stockholders'
Equity............. $1,167,233 $1,003,037 $(309,675) $1,860,595
========== ========== ========= ==========
See Notes to Unaudited Pro Forma Combined Financial Data
- 36 -
Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet as of
November 30, 1998
(a) Reflects the estimated purchase accounting adjustments for the
Acquisition based upon a preliminary appraisal of the assets and liabilities
assumed. For purchase accounting, Matthew Clark assets have been recorded at
estimated fair market value subject to adjustments based upon the results of
an independent appraisal. The estimated amounts recorded for assets and
liabilities acquired from Matthew Clark are not expected to differ materially
from the final assigned values. Purchase accounting adjustments were recorded
to increase property, plant and equipment by $13,609, to increase the recorded
value of tradenames and other intangible assets acquired by $54,604 and to
reduce the recorded excess of purchase cost over fair market value of assets
acquired by $375,514. These adjustments are required to record these assets at
their estimated fair market values.
The calculation of excess purchase cost over fair value of net assets
acquired is as follows:
Cash paid....................................................... $362,339
Financing costs................................................. 1,010
Direct acquisition costs........................................ 8,919
--------
372,268
Liabilities assumed............................................. 5,058
--------
Total purchase cost............................................. 377,326
Net book value of Matthew Clark................................. (702,563)
Write-down of acquired goodwill................................. 532,946
Increase in appraised net assets................................ (68,213)
Finance costs capitalized....................................... (1,010)
Deferred taxes provided......................................... 18,946
--------
Excess of purchase cost over fair value of assets acquired and
liabilities assumed............................................ $157,432
========
(b) Reflects the liability for direct acquisition costs of $8,919 and
assumed liabilities of $5,058. Capitalized financing costs of $1,010 were
funded through the bank credit facility.
(c) Represents the write-off of the direct financing costs of $16,250 for
the Offering and $3,384 of remaining net book value of the Company's
previously existing credit agreement, tax effected at the Company's historical
rate of 41%.
(d) To reflect the Acquisition financing, refinancing of the Company's
Revolving Credit Facility (notes payable) and Term Loans and refinancing of
Matthew Clark's long-term debt as set out below:
Repayment of notes payable................................... $(114,500)
Repayment of Term Loans--current portion..................... (24,000)
Repayment of Term Loans--long term........................... (98,000)
Purchase of Matthew Clark shares............................. (362,339)
Payment of financing costs................................... (17,260)
Repayment of Matthew Clark debt.............................. (102,008)
New Term Loan borrowings..................................... 700,000
New Revolver Loan borrowings................................. 18,107
---------
$ 0
=========
(e) Represents deferred taxes of $18,946 provided on a step-up in basis on
appraised net assets.
(f) Reflects the elimination of Matthew Clark's shareholders' equity.
- 37 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended February 28, 1998
Pro Forma
Matthew Acquisition for the
Canandaigua Clark Adjustments Acquisition
----------- --------- ----------- -----------
(in Thousands, except Per Share Data)
Gross sales............. $1,632,357 $ 910,070 $ -- $ 2,542,427
Less--Excise taxes.... (419,569) (224,131) -- (643,700)
---------- --------- --------- -----------
Net sales........... 1,212,788 685,939 -- 1,898,727
Cost of product sold.... (864,053) (460,093) 1,474 (a) (1,322,672)
---------- --------- --------- -----------
Gross profit........ 348,735 225,846 1,474 576,055
Selling, general and
administrative
expenses............... (231,680) (181,572) 1,723 (a) (401,577)
8,801 (b)
1,151 (c)
---------- --------- --------- -----------
Operating income.... 117,055 44,274 13,149 174,478
Interest expense, net... (32,189) (8,575) (35,366)(d) (76,130)
---------- --------- --------- -----------
Income before
provision for
income taxes....... 84,866 35,699 (22,217) 98,348
Provision for income
taxes.................. (34,795) (14,792) 10,248 (e) (39,339)
---------- --------- --------- -----------
Net income.............. $ 50,071 $ 20,907 $ (11,969)(f) $ 59,009
========== ========= ========= ===========
Share Data:
Earnings per common
share:
Basic................. $ 2.68 -- -- $ 3.16
========== ===========
Diluted............... $ 2.62 -- -- $ 3.09
========== ===========
Weighted average common
shares outstanding:
Basic................. 18,672 -- -- 18,672
Diluted............... 19,105 -- -- 19,105
See Notes to Unaudited Pro Forma Combined Financial Data
- 38 -
Notes to the Unaudited Pro Forma Combined Statements of Income for the Year
ended February 28, 1998
(a) Reflects the adjusted depreciation expense related to the acquired
property, plant and equipment of Mathew Clark on the assumption that the
Acquisition had taken place on March 1, 1997. These assets have been restated
at their estimated fair market values and depreciated using the Company's
depreciation methods over the remaining useful lives of the assets. The
decrease in depreciation expense of $3,197, as compared to that recorded by
Matthew Clark, was allocated to cost of product sold and selling, general and
administrative expenses as indicated.
(b) Reflects a decrease in amortization expense of intangible assets of
$8,801 based upon their appraised values, using the straight-line method and
estimated useful lives, predominately 40 years.
(c) Reflects the amortization expense of deferred financing costs of $168
over the term of the bank credit facility used to finance the Acquisition (72
months) using the effective interest method, net of $1,319 of amortization
expense recorded under the Company's previously existing credit agreement.
(d) Reflects the additional interest expense incurred on the debt to finance
the Acquisition and the incremental interest expense on the Company's and
Matthew Clark's existing borrowings, resulting from the higher interest rate
in the bank credit facility. The overall effective interest rate was 8.8% per
annum.
(e) Reflects the tax effect of the pro forma adjustments and the
repatriation of profits, excluding the impact of nondeductible items,
primarily goodwill, using an effective tax rate of 40%.
(f) Does not reflect the extraordinary treatment for the after tax write-off
of $11.6 million ($0.61 per diluted share), representing the net book value of
bank fees resulting from the extinguishment of debt remaining under the
Company's previously existing credit agreement, tax effected at the Company's
historical rate of 41%.
- 39 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Nine Month Period Ended November 30, 1998
Matthew Acquisition Pro Forma for
Canandaigua Clark(a) Adjustments the Acquisition
----------- -------- ----------- ---------------
(in Thousands, except Per Share Data)
Gross sales............. $1,374,183 $661,151 $ -- $2,035,334
Less--Excise taxes..... (336,283) (167,945) -- (504,228)
---------- -------- ------- ----------
Net sales............ 1,037,900 493,206 -- 1,531,106
Cost of product sold.... (728,526) (337,108) 1,404 (b) (1,064,230)
---------- -------- ------- ----------
Gross profit......... 309,374 156,098 1,404 466,876
Selling, general and
administrative
expenses............... (202,561) (128,384) 1,846 (b) (321,476)
6,672 (c)
951 (d)
Nonrecurring
restructuring expense.. -- (18,271) -- (18,271)
---------- -------- ------- ----------
Operating income..... 106,813 9,443 10,873 127,129
Interest expense, net... (23,700) (6,471) (26,627)(e) (56,798)
---------- -------- ------- ----------
Income before
provision for income
taxes............... 83,113 2,972 (15,754)(f) 70,331
Provision for income
taxes.................. (34,076) (4,205) 10,149 (d) (28,132)
---------- -------- ------- ----------
Net income.............. $ 49,037 $ (1,233) $(5,605)(g) $ 42,199
========== ======== ======= ==========
Share Data:
Earnings per common
share:
Basic................... $2.66 -- -- $ 2.29
========== ===========
Diluted................. $2.60 -- -- $ 2.24
========== ===========
Weighted average common shares
outstanding:
Basic ................. 18,412 -- -- 18,412
Diluted................ 18,881 -- -- 18,881
See Notes to Unaudited Pro Forma Combined Financial Data
- 40 -
Notes to the Unaudited Pro Forma Combined Statements of Income for the
Nine Months ended November 30, 1998
(a) The financial statements of Matthew Clark for the nine month period were
derived by adding the three month period ended April 30, 1998, to Matthew
Clark's six month period ended October 31, 1998. The three month period ended
April 30, 1998, was also included in the 1998 Pro Forma Statement of Income. Net
sales and net income for the duplicated quarter is $153,858 and $3,555,
respectively.
(b) Reflects the adjusted depreciation expense related to the acquired
property, plant and equipment of Matthew Clark on the assumption that the
Acquisition had taken place on March 1, 1998. These assets have been restated
at their estimated fair market values and depreciated using the Company's
depreciation methods over the remaining useful lives of the assets. The
decrease in depreciation expense of $3,250, as compared to that recorded by
Matthew Clark, was allocated to cost of product sold and selling, general and
administrative expenses as indicated.
(c) Reflects a decrease in amortization expense of intangible assets of
$6,672 based upon their appraised values, using the straight-line method and
estimated useful lives, predominately 40 years.
(d) Reflects the amortization expense of deferred financing costs of $126
over the term of the bank credit facility used to finance the Acquisition (72
months) using the effective interest method, net of $1,077 of amortization
expense recorded under the Company's previously existing credit agreement.
(e) Reflects the additional interest expense incurred on the debt to finance
the Acquisition and the incremental interest expense on the Company's and
Matthew Clark's existing borrowings, resulting from the higher interest rate
in the bank credit facility. The overall effective interest rate was 8.8% per
annum.
(f) Reflects the tax effect of the pro forma adjustments and the
repatriation of profits, excluding the impact of nondeductible items,
primarily goodwill, using an effective tax rate of 40%.
(g) Does not reflect the extraordinary treatment for the after tax write-off
of $11.6 million ($0.61 per diluted share), representing the net book value of
bank fees resulting from the extinguishment of debt remaining under the
Company's previously existing credit agreement, tax effected at the Company's
historical rate of 41%.
- 41 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Twelve Month Period Ended November 30, 1998
Pro Forma
Matthew Pro Forma for the
Canandaigua Clark(a) Adjustments Acquisition
----------- --------- ----------- -----------
(in Thousands, except Per Share Data)
Gross sales............. $1,754,168 $ 915,200 $ -- $ 2,669,368
Less--Excise taxes..... (433,718) (236,835) -- (670,553)
---------- --------- -------- -----------
Net sales............ 1,320,450 678,365 -- 1,998,815
Cost of product sold.... (925,832) (458,493) 1,569(b) (1,382,756)
---------- --------- -------- -----------
Gross profit......... 394,618 219,872 1,569 616,059
Selling, general and
administrative
expenses............... (262,469) (181,923) 1,880(b) (432,342)
8,903(c)
1,267(d)
Nonrecurring
restructuring expenses. -- (18,280) -- (18,280)
---------- --------- -------- -----------
Operating income..... 132,149 19,669 13,619 165,437
Interest expense, net... (32,004) (8,893) (35,246)(e) (76,143)
---------- --------- -------- -----------
Income before
provision for income
taxes............... 100,145 10,776 (21,627)(f) 89,294
Provision for income
taxes.................. (41,059) (7,645) 12,986 (d) (35,718)
---------- --------- -------- -----------
Net income.............. $ 59,086 $ 3,131 $ (8,641)(g) $ 53,576
========== ========= ======== ===========
Share Data:
Earnings per common
share:
Basic................... $ 3.21 -- -- $ 2.90
========== ============
Diluted................. $ 3.13 -- -- $ 2.82
========== ============
Weighted average common
shares outstanding:
Basic.................. 18,412 -- -- 18,484
Diluted................ 18,881 -- -- 18,967
See Notes to Unaudited Pro Forma Combined Financial Data
- 42 -
Notes to the Unaudited Pro Forma Combined Statements of Income for the
Twelve Months ended November 30, 1998
(a) The financial statements of Matthew Clark for the twelve month period were
derived by adding the six month period ended April 30, 1998 to Matthew Clark's
six month period ended October 31, 1998. The six month period ended April 30,
1998 was also included in the 1998 Pro Forma Statement of Income. Net sales and
Net Income (loss) for the duplicated six months is $339,017 and $7,919,
respectively.
(b) Reflects the adjusted depreciation expense related to the acquired
property, plant and equipment of Matthew Clark on the assumption that the
Acquisition had taken place on December 1, 1997. These assets have been
restated at their estimated fair market values and depreciated using the
Company's depreciation methods over the remaining useful lives of the assets.
The decrease in depreciation expense of $3,449, as compared to that recorded
by Matthew Clark, was allocated to cost of product sold and selling, general
and administrative expenses as indicated.
(c) Reflects a decrease in amortization expense of intangible assets of
$8,903 based upon their appraised values, using the straight-line method and
estimated useful lives, predominately 40 years.
(d) Reflects the amortization expense of deferred financing costs of $168
over the term of the bank credit facility used to finance the Acquisition (72
months) using the effective interest method, net of $1,435 of amortization
expense recorded under the Company's previously existing credit agreement.
(e) Reflects the additional interest expense incurred on the debt to finance
the Acquisition and the incremental interest expense on the Company's and
Matthew Clark's existing borrowings, resulting from the higher interest rate
in the bank credit facility. The overall effective interest rate was 8.8% per
annum.
(f) Reflects the tax effect of the pro forma adjustments and the
repatriation of profits, excluding the impact of nondeductible items,
primarily goodwill, using an effective tax rate of 40%.
(g) Does not reflect the extraordinary treatment for the after tax write-off
of $11.6 million ($0.61 per diluted share), representing the net book value of
bank fees resulting from the extinguishment of debt remaining under the
Company's previously existing credit agreement, tax effected at the Company's
historical rate of 41%.
- 43 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANANDAIGUA BRANDS, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Senior Vice
President and Chief Financial
Officer
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Treasurer
CANANDAIGUA WINE COMPANY, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Treasurer
CANANDAIGUA EUROPE LIMITED
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Treasurer
CANANDAIGUA LIMITED
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Director
(Principal Financial Officer and
Principal Accounting Officer)
POLYPHENOLICS, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
and Treasurer
- 44 -
ROBERTS TRADING CORP.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Treasurer
BARTON INCORPORATED
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
BARTON BRANDS, LTD.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
BARTON BEERS, LTD.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
BARTON BRANDS OF CALIFORNIA, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
BARTON BRANDS OF GEORGIA, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
BARTON DISTILLERS IMPORT CORP.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
BARTON FINANCIAL CORPORATION
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
- 45 -
STEVENS POINT BEVERAGE CO.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
MONARCH IMPORT COMPANY
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
THE VIKING DISTILLERY, INC.
Dated: February 12, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Vice President
- 46 -
INDEX TO EXHIBITS
(1) UNDERWRITING AGREEMENT
Not Applicable.
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
Not Applicable.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
Not Applicable.
(16) LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
Not Applicable.
(17) LETTER RE DIRECTOR RESIGNATION
Not Applicable.
(20) OTHER DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS
Not Applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of KPMG Audit Plc (filed herewith).
(24) POWER OF ATTORNEY
Not Applicable.
(27) FINANCIAL DATA SCHEDULE
Not Applicable.
(99) ADDITIONAL EXHIBITS
None