REGISTRATION NO. 33-55997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CANANDAIGUA WINE COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 16-0716709
(I.R.S. EMPLOYERIDENTIFICATION NO.)
(STATE OR OTHER JURISDICTIONOF
INCORPORATION OR ORGANIZATION)
116 BUFFALO STREET CANANDAIGUA, NEW YORK 14424 (716) 394-7900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT SANDS EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL CANANDAIGUA WINE
COMPANY, INC. 116 BUFFALO STREET CANANDAIGUA, NEW YORK 14424 (716) 394-7900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
BERNARD S. KRAMERMCDERMOTT, WILL & VALERIE FORD JACOBFRIED, FRANK, HARRIS,
EMERY227 WEST MONROE STREETCHICAGO, SHRIVER & JACOBSONONE NEW YORK PLAZANEW
ILLINOIS 60606-5096 YORK, NY 10004
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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Class A Common Stock
(par value $.01 per share). 4,528,406 $34.00 $153,965,804 $53,092
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(1) The securities are not being registered for the purpose of sales outside of
the United States and Canada. Includes 590,662 shares subject to an over-
allotment option granted to the Underwriters and the Managers.
(2) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, based on the
average of the high and low sales prices of a share of Class A Common Stock
of the Registrant on the Nasdaq National Market on October 17, 1994.
(3) $44,494 was previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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AVAILABLE INFORMATION
Canandaigua Wine Company, Inc. (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed a Registration Statement on Form S-3 (together with all
amendments thereto, the "Registration Statement") with the Commission in
Washington, D.C., in accordance with the provisions of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Class A Common
Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto.
Statements contained herein concerning the provisions of documents filed with,
or incorporated by reference in, the Registration Statement are not necessarily
complete and each such statement is hereby qualified in its entirety by
reference to the copy of the applicable documents filed with the Commission.
The Registration Statement and the exhibits thereto may be inspected without
charge at the offices of the Commission or copies thereof may be obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993;
(2) the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended November 30, 1993, February 28, 1994 and May 31, 1994; and
(3) the Company's Current Reports on Form 8-K/A which amended the Form 8-K
dated June 29, 1993; Form 8-K dated September 15, 1993; Form 8-K dated
October 15, 1993, as amended by Form 8-K/A, Form 8-K/A-2 and Form 8-
K/A-3; Form 8-K dated June 23, 1994; and Form 8-K dated August 5, 1994,
as amended by Form 8-K/A.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to termination of the offering of Class A Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus or
in a document incorporated or deemed to be incorporated by reference in this
Prospectus will be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
A copy of any and all of the documents incorporated herein by reference
(other than exhibits unless such exhibits are specifically incorporated by
reference into any such document) will be provided without charge to any
person, including a beneficial owner, to whom a copy of this Prospectus is
delivered, upon written or oral request. Requests should be directed to
Canandaigua Wine Company, Inc., Attention: Lynn K. Fetterman, Secretary, 116
Buffalo Street, Canandaigua, New York 14424; telephone number (716) 394-7900.
IN CONNECTION WITH THE OFFERINGS, CS FIRST BOSTON CORPORATION ON BEHALF OF
THE U.S. UNDERWRITERS AND THE MANAGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERINGS, CERTAIN U.S. UNDERWRITERS AND MANAGERS (AND
SELLING GROUP MEMBERS, IF ANY) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK AND CLASS B
COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
[PHOTOS APPEAR HERE]
[PHOTOS APPEAR HERE]
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless the context otherwise requires, the
term "Company" refers to Canandaigua Wine Company, Inc. and its subsidiaries,
all references to "net sales" refer to gross revenues less excise taxes and
returns and allowances to conform with the Company's method of classification,
and all references to the Company's fiscal year shall refer to the year ended
August 31 of the indicated year. Market share and industry data disclosed in
this Prospectus have been obtained from the following industry publications:
Wines & Vines; The Gomberg-Fredrikson Report; Jobson's Liquor Handbook;
Jobson's Wine Handbook; The U.S. Wine Market: Impact Databank Review and
Forecast, 1994 Edition; The U.S. Beer Market: Impact Databank Review and
Forecast, 1994 Edition; Beer Marketer's Insights: 1994 Import Insights; and
1994 Beer Industry Update. The Company has not independently verified this
data. References to market share data are based on unit volume. Unless
otherwise indicated, the information contained in this Prospectus assumes that
the U.S. Underwriters' and the Managers' over-allotment option is not
exercised.
THE COMPANY
The Company is a leading producer and marketer of branded beverage alcohol
products, with over 125 national and regional brands which are distributed by
over 1,000 wholesalers throughout the United States and in selected
international markets. The Company is the second largest supplier of wines, the
fourth largest importer of beers and the eighth largest supplier of distilled
spirits in the United States. The Company's beverage alcohol brands are
marketed in five general categories: table wines, sparkling wines, dessert
wines, imported beer and distilled spirits, and include the following principal
brands:
. Table Wines: Almaden, Inglenook, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor New York, Marcus James, Deer Valley and
Dunnewood
. Sparkling Wines: Cook's, J. Roget, Great Western and Taylor New York
. Dessert Wines: Richards Wild Irish Rose, Cisco, Taylor New York and
Italian Swiss Colony
. Imported Beer: Corona, St. Pauli Girl, Modelo Especial, Tsingtao and
Pacifico
. Distilled Spirits: Barton's Gin and Vodka, Ten High Bourbon Whiskey,
Crystal Palace Gin and Vodka, Montezuma Tequila, Northern Light Canadian
Whisky, Lauder's Scotch Whisky and Monte Alban Mezcal
Based on available industry data, the Company believes it has a 21% share of
the wine market, a 10% share of the imported beer market and a 4% share of the
distilled spirits market in the United States. Within the wine market, the
Company believes it has a 31% share of the non-varietal table wine market, a
10% share of the varietal table wine market, a 50% share of the dessert wine
market and a 32% share of the sparkling wine market. Many of the Company's
brands are leaders in their respective categories in the United States,
including Corona, the second largest selling imported beer brand, Almaden and
Inglenook, the fifth and sixth largest selling wine brands, Richards Wild Irish
Rose, the largest selling dessert wine brand, Cook's champagne, the second
largest selling sparkling wine brand, Montezuma, the second largest selling
tequila brand, and Monte Alban, the largest selling mezcal brand.
3
During the past four years, the Company has diversified its product portfolio
through a series of strategic acquisitions that have resulted in an increase in
the Company's net sales from $176.6 million in fiscal 1991 to $897.6 million on
a pro forma basis in fiscal 1993. Through these acquisitions, the Company
acquired strong market positions in growing product categories in the beverage
alcohol industry, such as varietal table wine and imported beer. The Company
ranks second and fourth in the varietal table wine and imported beer
categories, respectively. Over the past four years, industry shipments of
varietal table wine and imported beer have grown 64% and 7%, respectively. The
Company has successfully integrated the acquired businesses into its existing
business and achieved significant cost reductions through reduced product and
organizational costs. The Company has also strengthened its relationship with
wholesalers, expanded its distribution and enhanced its production capabilities
as well as acquired additional management, operational, marketing and research
and development expertise.
In October 1991, the Company acquired the Cook's, Cribari, Dunnewood and
other brands and related facilities and assets (the "Guild Acquisition") from
Guild Wineries and Distillers ("Guild"), which enabled the Company to establish
a significant market position in the California sparkling wine category and to
enter the California table wine market. The Company acquired Barton
Incorporated ("Barton") in June 1993, further diversifying into the imported
beer and distilled spirits categories (the "Barton Acquisition"). On October
15, 1993, the Company acquired the Paul Masson, Taylor California Cellars and
other brands and related facilities and assets of Vintners International
Company, Inc. ("Vintners") (the "Vintners Acquisition"). On August 5, 1994, the
Company acquired the Almaden, Inglenook and other brands, a grape juice
concentrate business and related facilities and assets (the "Almaden/Inglenook
Product Lines") from Heublein Inc. (the "Almaden/Inglenook Acquisition," and
together with the Barton Acquisition and the Vintners Acquisition, the
"Acquisitions"). See "Recent Acquisitions."
The Company's business strategy is to continue to strengthen its market
position in each of its principal product lines. Key elements of its strategy
include: (i) making selective acquisitions in the beverage alcohol industry to
improve market position and capitalize on growth trends within the industry;
(ii) improving operating efficiencies through reduced product and
organizational costs of existing and acquired businesses; (iii) capitalizing on
strong wholesaler relationships resulting from its expanded portfolio of
brands; and (iv) expanding distribution into new markets and increasing
penetration of existing markets primarily through line extensions and
promotional activities. See "Business."
In furtherance of its business strategy of improving operating efficiencies
of acquired businesses, on September 7, 1994, the Company announced a plan to
restructure the operations of its California wineries, including a
consolidation of facilities, centralization of bottling operations and
reduction of overhead, including the elimination of approximately 260 jobs (the
"Restructuring Plan"). As a result of the Restructuring Plan, the Company will
take a charge in the fourth quarter of fiscal 1994 which it estimates will
reduce after-tax income for fiscal 1994 by approximately $14.8 million, or
$0.91 per share on a fully diluted basis. The Company anticipates that the
Restructuring Plan will result in net cost savings of approximately $1.7
million in fiscal 1995 and approximately $13.3 million of annual net cost
savings beginning in fiscal 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company is a Delaware corporation organized in 1972 as the successor to a
business founded in 1945 by Marvin Sands, Chairman of the Board of the Company.
The Company's executive offices are located at 116 Buffalo Street, Canandaigua,
New York 14424, and its telephone number is (716) 394-7900.
4
THE OFFERINGS
U.S. INTERNATIONAL
OFFERING OFFERING TOTAL
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Shares of Class A Common Stock Offered:
By the Company......................... 2,400,000 600,000 3,000,000
By the Selling Stockholders............ 750,195 187,549 937,744
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Total................................ 3,150,195 787,549 3,937,744
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Class A Common Stock Outstanding(a)(b):
Before the Offerings................... 12,617,301 shares
After the Offerings.................... 16,049,368 shares
Class B Common Stock Outstanding......... 3,390,051 shares
Use of Proceeds by the Company........... To retire indebtedness and for
working capital
Nasdaq National Market Symbol............ WINEA
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(a) The number of shares is set forth as of September 30, 1994. Does not
include shares of Class B Common Stock, quoted on the Nasdaq National
Market under the symbol "WINEB", each of which is convertible into one
share of Class A Common Stock at any time. Holders of Class A Common Stock
are entitled to one vote per share and are entitled, as a class, to elect
one-fourth of the members of the Board of Directors of the Company. Holders
of Class B Common Stock are entitled to 10 votes per share and are
entitled, as a class, to elect the remaining directors. See "Description of
Capital Stock."
(b) Does not include (i) 565,750 shares of Class A Common Stock reserved for
issuance pursuant to options which are outstanding under the Company's
Stock Option and Stock Appreciation Rights Plan and (ii) 1,100,000 shares
of Class A Common Stock issuable upon exercise of options issued by the
Company in the Vintners Acquisition and the Almaden/Inglenook Acquisition
except that, in connection with the Offerings, 432,067 shares will be
issued upon exercise of certain options issued in the Vintners Acquisition
and such shares are included in the number of shares of Class A Common
Stock outstanding after the Offerings.
5
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
CANANDAIGUA WINE COMPANY, INC.
NINE MONTHS
YEAR ENDED AUGUST 31, ENDED MAY 31,
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1989 1990 1991 1992(A) 1993(B) 1993 1994(C)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $164,261 $179,845 $176,559 $245,243 $306,308 $190,386 $448,739
Cost of product sold.... 123,574 136,220 131,064 174,685 214,931 132,745 319,640
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 40,687 43,625 45,495 70,558 91,377 57,641 129,099
Selling, general and ad-
ministrative expenses.. 33,156 33,355 30,183 46,491 59,983 37,540 87,109
-------- -------- -------- -------- -------- -------- --------
Operating income....... 7,531 10,270 15,312 24,067 31,394 20,101 41,990
Interest expense, net... 4,295 3,842 3,631 6,183 6,126 4,186 12,846
-------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes...... 3,236 6,428 11,681 17,884 25,268 15,915 29,144
Provision for federal
and state income taxes. 885 1,992 3,971 6,528 9,664 5,968 11,094
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 2,351 $ 4,436 $ 7,710 $ 11,356 $ 15,604 $ 9,947 $ 18,050
======== ======== ======== ======== ======== ======== ========
Net income per common
share:
Primary................ $ 0.23 $ 0.46 $ 0.84 $ 1.08 $ 1.30 $ 0.84 $ 1.16
Fully diluted.......... (d) (d) (d) $ 1.01 $ 1.20 $ 0.79 $ 1.13
Weighted average number
of shares:
Primary................ 10,172 9,631 9,202 10,527 11,964 11,775 15,590
Fully diluted.......... (d) (d) (d) 13,820 15,203 15,068 16,330
AS OF AUGUST 31,
-------------------------------------------- AS OF MAY 31,
1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- ------------- ---
BALANCE SHEET DATA:
Total assets............ $140,232 $142,868 $147,207 $217,835 $355,182 $579,768
Long-term debt (exclud-
ing current maturi-
ties).................. 63,962 63,106 62,278 61,909 108,303 178,432
Stockholders' equity.... 42,773 47,203 51,975 95,549 126,104 207,157
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(a) The Company acquired Guild on October 1, 1991, and accounted for this
acquisition utilizing the purchase method of accounting. Guild's results of
operations have been included in the Company's results of operations since
October 1, 1991.
(b) The Company acquired Barton on June 29, 1993, and accounted for the
acquisition utilizing the purchase method of accounting. Barton's results
of operations have been included in the Company's results of operations
since June 29, 1993.
(c) The Company acquired substantially all of the assets and businesses of
Vintners on October 15, 1993, and accounted for the acquisition utilizing
the purchase method of accounting. Vintners' results of operations have
been included in the Company's results of operations since October 15,
1993. The Company's results of operations for the nine months ended May 31,
1994 do not include the results of the Almaden/Inglenook Product Lines
which were acquired on August 5, 1994.
(d) Substantially all of the Company's 7% Convertible Subordinated Debentures
due 2011 (the "Convertible Debentures") were converted into Class A Common
Stock (the "Conversion") on or prior to November 19, 1993. The effect of
considering the Conversion is antidilutive for these periods and therefore
fully diluted earnings per share and weighted average number of shares are
not presented.
6
SUMMARY HISTORICAL FINANCIAL DATA
ALMADEN/INGLENOOK PRODUCT LINES
The following data reflect financial information for assets and the
identified income and expenses of the Almaden/Inglenook Product Lines of
Heublein Inc. ("Heublein") acquired by the Company on August 5, 1994. These
product lines have never been operated as a separate business entity. The
financial information includes net sales, cost of product sold, advertising,
merchandising, and promotion expense and research and development expense that
substantially relate directly to the acquired product lines. All other income
and expense items are allocated based on estimation and assumptions of Heublein
as if the acquired product lines had been operated on a stand-alone basis
during the periods presented. The Company has been informed by Heublein that it
believes that the allocations are reasonable under the circumstances; however,
there can be no assurances that such data will be indicative of future results
of operations or what the financial position and results of operations of the
acquired product lines would have been had they been operated as a separate,
stand-alone entity during the period covered. See Financial Statements of
Heublein Inc. for the Product Lines Acquired by Canandaigua Wine Company, Inc.
YEAR ENDED SEPTEMBER 30, TEN MONTHS ENDED
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JULY 31, AUGUST 5,
1991 1992 1993 1993 1994
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(IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales............... $222,425 $217,325 $233,408(a) $191,633(a) $204,460(a)
Cost of product sold(b). 147,109 146,342 176,234(a) 141,644(a) 158,761(a)
-------- -------- -------- -------- --------
Gross profit........... 75,316 70,983 57,174 49,989 45,699
Selling, general and ad-
ministrative
expenses(b)(c)......... 42,522 46,051 43,361 35,156 34,519
-------- -------- -------- -------- --------
Operating income....... 32,794 24,932 13,813 14,833 11,180
Interest expense, net... 6,643 5,725 4,742 3,955 4,597
-------- -------- -------- -------- --------
Income before provision
for income taxes and
cumulative effect of
change in accounting
principle............. 26,151 19,207 9,071 10,878 6,583
Provision for federal
and state income taxes. 10,861 8,059 3,951 4,662 2,931
-------- -------- -------- -------- --------
Income before
cumulative effect of
change in accounting
principle............. 15,290 11,148 5,120 6,216 3,652
Cumulative effect of
change in accounting
principle.............. -- -- 1,919 1,919 --
-------- -------- -------- -------- --------
Net income............. $ 15,290 $ 11,148 $ 7,039 $ 8,135 $ 3,652
======== ======== ======== ======== ========
AS OF AUGUST 5,
1994
---------------
BALANCE SHEET DATA:
Total assets................................................ $177,645
Long-term debt (excluding current maturities)............... 1,287
Heublein investment in product lines acquired............... 173,294
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(a) Historic net sales for the year ended September 30, 1993 and for the ten
months ended July 31, 1993 and August 5, 1994 of $232,755, $191,553 and
$199,619, respectively, were adjusted to reflect a reclassification of
freight for delivered pricing to conform to the Company's classification of
this item. Cost of product sold was adjusted by the same amount for the
same periods.
(b) Cost of product sold for the years ended September 30, 1991, 1992 and 1993
and the ten months ended July 31, 1993 and August 5, 1994 of $150,925,
$149,389, $178,229, $143,568 and $156,343, respectively, were adjusted to
reflect a reclassification of commissions to conform to the Company's
classification of this item. Selling, general and administrative expenses
were adjusted by the same amount for the same periods.
(c) Selling, general and administrative expenses for the years ended September
30, 1991, 1992 and 1993 and the ten months ended July 31, 1993 and August
5, 1994 of $37,933, $42,231, $39,940, $32,508 and $31,452, respectively,
were adjusted to reflect reclassification of amortization to conform to the
Company's classification of this item. Other expense was adjusted by the
same amount for the periods indicated and thereby eliminated.
7
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following table sets forth certain summary unaudited pro forma financial
data of the Company. The income statement data for fiscal 1993 give effect to
the Almaden/Inglenook Acquisition, the Vintners Acquisition and the sale of
$130 million 8 3/4% Senior Subordinated Notes due 2003 (the "Notes") by the
Company (the "Notes Offering"), the Barton Acquisition, the Conversion, the
Offerings (assuming an offering price of $34.25 per share) and the exercise by
certain Selling Stockholders of options to purchase 432,067 shares of Class A
Common Stock at $18.25 per share (the "Options") as if they had occurred on
September 1, 1992. The income statement data for the nine months of fiscal 1994
give effect to the Almaden/Inglenook Acquisition, the Vintners Acquisition, the
Notes Offering, the Conversion, the Offerings and the exercise of the Options
as if they occurred on September 1, 1993. The balance sheet data give effect to
the Almaden/Inglenook Acquisition, the Offerings and the exercise of the
Options as if they had occurred on May 31, 1994. The unaudited pro forma
financial data also reflects the final purchase accounting adjustment for the
Vintners Acquisition based upon an appraisal received by the Company in October
1994.
The unaudited pro forma consolidated financial data should be read in
conjunction with the "Pro Forma Consolidated Financial Data," the separate
historical financial statements of the Company, Barton, Vintners and the
Almaden/Inglenook Product Lines, the related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus for the Company and the Almaden/Inglenook Product
Lines and incorporated by reference herein for Barton and Vintners. The pro
forma information is not necessarily indicative of the operating results or
financial position that would have occurred had the foregoing transactions been
consummated as of the dates indicated, nor is it necessarily indicative of
future operating results.
PRO FORMA PRO FORMA
1993 FISCAL YEAR 1994 NINE MONTHS
----------------------- -----------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $897,610 $650,815
Cost of product sold.... 648,830 471,985
----------------------- -----------------------
Gross profit.......... 248,780 178,830
Selling, general and ad-
ministrative expenses.. 169,832 122,781
----------------------- -----------------------
Operating income...... 78,948 56,049
Interest expense, net... (19,185) (15,489)
Non-recurring transac-
tion costs............. (1,789) (953)
----------------------- -----------------------
Income before provi-
sion for income tax-
es................... 57,974 39,607
Provision for federal
and state income taxes. 21,824 15,495
----------------------- -----------------------
Income from continuing
operations........... 36,150 24,112
Cumulative effect of
change in accounting
principle, net of tax.. 1,919 --
----------------------- -----------------------
Net income............ $ 38,069 $ 24,112
======================= =======================
Income from continuing
operations per common
share:
Primary............... $ 1.94 $ 1.23
Fully diluted......... $ 1.94 $ 1.23
Cumulative effect of
change in accounting
principle per common
share:
Primary............... $ 0.10 $ --
Fully diluted......... $ 0.10 $ --
Net income per common
share:
Primary............... $ 2.04 $ 1.23
Fully diluted......... $ 2.04 $ 1.23
Weighted average number
of shares outstanding:
Primary............... 18,635,179 19,638,396
Fully diluted......... 18,647,394 19,647,647
BALANCE SHEET DATA: AS OF MAY 31, 1994
------------------
Working capital......... $249,414
Total assets............ 772,546
Long-term debt (exclud-
ing current maturi-
ties).................. 208,987
Stockholders' equity.... 315,338
8
INVESTMENT CONSIDERATIONS
In addition to the other matters described in this Prospectus, a prospective
purchaser of Class A Common Stock offered hereby should give careful
consideration to the following investment considerations.
GENERAL DECLINE IN CONSUMPTION OF BEVERAGE ALCOHOL PRODUCTS
The beverage alcohol industry in the United States consists of the
production, importation, marketing and distribution of beer, wine and distilled
spirits products. From 1979 through 1993, the overall per capita consumption of
beverage alcohol products by adults (ages 21 and over) has declined with annual
beer consumption declining 12.7%, from 37.0 to 32.3 gallons per capita, annual
wine consumption declining 17.3%, from 3.01 to 2.49 gallons per capita, and
annual distilled spirits consumption declining 38.2%, from 3.04 to 1.88 gallons
per capita. These declines have been caused by a variety of factors including:
increased concerns about the health consequences of consuming beverage alcohol
products and about drinking and driving; a trend toward a healthier diet
including lighter, lower calorie beverages such as diet soft drinks, juices and
sparkling water products; the increased activity of anti-alcohol consumer
groups; an increase in the minimum drinking age from 18 to 21 in all states and
increased federal and state excise taxes.
EXCISE TAXES AND GOVERNMENT REGULATIONS
The federal government and individual states impose excise taxes on beverage
alcohol products in varying amounts which have been subject to change.
Increases in excise taxes on beverage alcohol products, if enacted, could
materially and adversely affect the Company's financial condition or results of
operations. In addition, the beverage alcohol products industry is subject to
extensive regulation by state and federal agencies. The Federal Bureau of
Alcohol, Tobacco and Firearms and the various state liquor authorities regulate
such matters as licensing requirements, trade and pricing practices, permitted
and required labelling, advertising and relations with wholesalers and
retailers. In recent years, federal and state regulators have required warning
labels and signage. There can be no assurance that new or revised regulations
or increased licensing fees and requirements will not have a material adverse
effect on the Company's financial condition or results of operations. See
"Business--Government Regulation."
RISKS IN ACQUISITION STRATEGY
The ability of the Company to achieve its acquisition strategy depends upon a
number of factors. To implement its strategy, the Company must identify
acquisition opportunities in the beverage alcohol industry and successfully
negotiate, finance and consummate such acquisitions. There can be no assurance
that the Company will be able to identify suitable acquisition candidates at
favorable acquisition prices or that it will be able to finance and consummate
any such acquisitions. In past acquisitions, the Company has been successful in
reducing product and organization costs upon consummation and integration of
the acquisition. However, there can be no assurance that the Company will be
able to integrate any new acquisitions successfully into its operations and
achieve cost savings from such integration.
LEVERAGE
The Company has incurred substantial indebtedness to finance the
Acquisitions. As of May 31, 1994, on a pro forma basis, after giving effect to
the Almaden/Inglenook Acquisition and the application of the net proceeds of
the Offerings, the Company would have had $246.7 million of indebtedness
outstanding, which amount does not include $28.2 million in undrawn letters of
credit. The Company's ability to satisfy its financial obligations under its
indebtedness outstanding from time to time will depend upon its future
operating performance, which is subject to prevailing economic conditions,
levels of interest rates and financial, business and other factors, many of
which are beyond the Company's control. Although the Company believes that cash
flow from operations will be sufficient to meet all of its debt service
requirements and to fund its capital expenditure requirements, there is no
assurance that this will be the case.
The Company's current and future debt service obligations and covenants could
have important consequences to the purchasers of Class A Common Stock,
including the following: (i) the Company is prohibited from paying dividends on
the Class A Common Stock; (ii) the Company's ability to obtain financing for
future working capital needs or acquisitions or other purposes may be limited;
(iii) a significant
9
portion of the Company's cash flow from operations will be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing funds
available for operations; (iv) the Company is subject to restrictive covenants
that could limit its ability to conduct its business; and (v) the Company may
be more vulnerable to adverse economic conditions than less leveraged
competitors and, thus, may be limited in its ability to withstand competitive
pressures.
DEPENDENCE UPON MANAGEMENT
The Company's success depends in part on a few key management employees.
These key management employees are Marvin Sands, the Chairman of the Board,
Richard Sands, the President and Chief Executive Officer, Robert Sands,
Executive Vice President and General Counsel, and Ellis Goodman, Executive Vice
President of the Company and the Chief Executive Officer of Barton. If, for any
reason, such key personnel do not continue to be active in the Company's
management, operations could be adversely affected.
CONTROL BY SANDS FAMILY
The Company's capital stock consists of Class A Common Stock and Class B
Common Stock. Holders of Class A Common Stock are entitled to one vote per
share and are entitled, as a class, to elect one-fourth of the members of the
Board of Directors. Holders of Class B Common Stock are entitled to 10 votes
per share and are entitled, as a class, to elect the remaining directors. Upon
completion of the Offerings, the family of Marvin Sands, the founder and
Chairman of the Board of the Company, will beneficially own approximately 11%
of the outstanding shares of Class A Common Stock (exclusive of shares of Class
A Common Stock issuable pursuant to the conversion feature of the Class B
Common Stock owned by the Sands family) and approximately 84% of the
outstanding shares of Class B Common Stock. Upon completion of the Offerings,
on all matters other than the election of directors, the Sands family will have
the ability to vote approximately 60% of the votes entitled to be cast by
holders of the Company's capital stock, voting as a single class. Consequently,
the Sands family effectively has control of the Company and would generally
have sufficient voting power to determine the outcome of any corporate
transaction or other matter submitted to the stockholders for approval.
DEPENDENCE ON DISTRIBUTION CHANNELS
The Company sells its products principally to wholesalers for resale to
retail outlets including grocery stores, package liquor stores, club and
discount stores and restaurants. The replacement or poor performance of the
Company's major wholesalers or the Company's inability to collect accounts
receivable from its major wholesalers could materially and adversely affect the
Company's results of operations and financial condition. Distribution channels
for beverage alcohol products have been characterized in recent years by rapid
change, including consolidations of certain wholesalers. Wholesalers and
retailers of the Company's products offer products which compete directly with
the Company's products for retail shelf space and consumer purchases.
Accordingly, there is a risk that these wholesalers or retailers may give
higher priority to products of the Company's competitors. There can be no
assurance that the Company's wholesalers and retailers will continue to
purchase the Company's products or provide the Company's products with adequate
levels of promotional support. See "Business--Marketing and Distribution."
RENEWAL OF IMPORTED BEER DISTRIBUTION AGREEMENTS
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements with the suppliers of these products which
are subject to renewal from time to time. The Company's agreement to distribute
Corona and its other Mexican beer brands expires in December 1998, and the
Company's agreement for the importation of St. Pauli Girl may be extended by
the Company until 2003. The Company's Tsingtao agreement expires in December
1996. Prior to their expiration, these agreements may be terminated if the
Company fails to meet certain performance criteria or , in the case of the
Mexican beer brands, the supplier, acting reasonably, does not approve of
certain key management changes. The Company believes it is currently in
compliance with all of its material distribution agreements. Given the
Company's long-term relationships with its suppliers, the Company expects that
such agreements will be renewed prior to their expiration and does not believe
that these agreements will be terminated.
10
USE OF PROCEEDS
The net proceeds from the sale of the Class A Common Stock offered by the
Company (assuming an offering price of $34.25 per share) are estimated to be
approximately $97.5 million ($116.8 million if the Underwriters' and Managers'
over-allotment option is exercised in full). Of the shares to be sold by
Selling Stockholders in the Offerings, 432,067 will be issued to such Selling
Stockholders at the closing of the Offerings upon exercise of the Options. The
Company will therefore receive proceeds of $7.9 million from the exercise of
the Options. Of the net proceeds from the sale of the Offerings and from the
exercise of the Options, $82.7 million will be used to repay a portion of a
term loan under the Company's credit facility, as amended (the "Credit
Facility"). The balance of net proceeds will be used for working capital
purposes and will initially be used to repay certain revolving loans (the
"Revolving Loans") under the Credit Facility.
The interest rate for the term loans under the Credit Facility (the "Term
Loans") and the Revolving Loans currently is the sum of LIBOR plus 1.25% (6.3%
as of September 30, 1994) and/or the prime rate (7.75% as of September 30,
1994). Both the Term Loans and the Revolving Loans are due in June 2000. The
portion of the Term Loans and Revolving Loans to be repaid from the proceeds of
the Offerings were incurred to finance the Acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Liquidity and Capital Resources."
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDENDS
The Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "WINEA." The following table sets forth for the periods indicated the
high and low sales prices of the Class A Common Stock as reported on the Nasdaq
National Market.
FISCAL 1993 HIGH LOW
----------- ------ ------
1st Quarter................................................. $15.75 $10.75
2nd Quarter................................................. 18.75 14.25
3rd Quarter................................................. 19.50 13.50
4th Quarter................................................. 23.75 17.50
FISCAL 1994
-----------
1st Quarter................................................. $25.75 $21.00
2nd Quarter................................................. 32.00 25.50
3rd Quarter................................................. 30.50 20.25
4th Quarter................................................. 30.75 22.25
FISCAL 1995
-----------
1st Quarter (through October 18, 1994)...................... $34.25 $29.75
A recent closing sale price as reported on the Nasdaq National Market is set
forth on the cover page of this Prospectus.
The Company's policy is to retain all of its earnings to finance the
development and expansion of its business, and the Credit Facility prohibits
and the indenture for the Notes restricts the payment of cash dividends.
11
CAPITALIZATION
The following table sets forth the historical short-term debt and
capitalization of the Company as of May 31, 1994, the pro forma capitalization
which gives effect to the Almaden/Inglenook Acquisition as if it occurred on
May 31, 1994, and the pro forma capitalization as further adjusted to give
effect to the sale of the Class A Common Stock by the Company offered hereby
(assuming an offering price of $34.25 per share) and the application of the net
proceeds therefrom, as if it occurred on May 31, 1994. This table should be
read in conjunction with the historical consolidated financial statements, the
pro forma consolidated financial data and the related notes appearing elsewhere
in this Prospectus.
AS OF MAY 31, 1994
--------------------------------
PRO FORMA
FOR THE
ALMADEN/ PRO FORMA
INGLENOOK AS
HISTORICAL ACQUISITION ADJUSTED
---------- ----------- ---------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
Short-term debt:
Current maturities of Term Loans(a)....... $ 8,000 $ 21,000 $ 21,000
Revolving Loans(b)........................ 38,000 38,000 15,330(c)
Current maturities of other long-term debt
and other short-term debt................ 794 1,393 1,393
-------- -------- --------
Total short-term debt.................... $ 46,794 $ 60,393 $ 37,723
======== ======== ========
Long-term debt:
Capitalized lease agreements.............. $ 906 $ 906 $ 906
Term Loans................................ 38,000 149,938 67,268(c)
Other..................................... 9,526 10,813 10,813
8 3/4% Senior Subordinated Notes due 2003. 130,000 130,000 130,000
-------- -------- --------
Total long-term debt (excluding current
maturities)............................. 178,432 291,657 208,987
-------- -------- --------
Stockholders' equity:
Class A Common Stock, $.01 par value--
60,000,000 authorized shares; 13,832,597
shares issued and 17,264,664 shares
issued as adjusted ...................... 138 138 172
Class B Common Stock, $.01 par value--
20,000,000 authorized shares; 4,015,776
shares issued............................ 40 40 40
Additional paid-in capital................ 110,067 112,909 218,215
Retained earnings......................... 104,575 104,575 104,575
-------- -------- --------
214,820 217,662 323,002
-------- -------- --------
Less--Treasury stock
Class A Common Stock, 1,239,366 shares,
at cost................................. (5,457) (5,457) (5,457)
Class B Common Stock, 625,725 shares, at
cost.................................... (2,207) (2,207) (2,207)
-------- -------- --------
(7,664) (7,664) (7,664)
-------- -------- --------
Total stockholders' equity............... 207,156 209,998 315,338
-------- -------- --------
Total capitalization..................... $385,588 $501,655 $524,325
======== ======== ========
- ------------
(a) In addition, the Company had $28.2 million in undrawn letters of credit.
(b) Under the terms of the Company's Credit Facility, for 30 consecutive days
at any time during the last two quarters of each fiscal year, the aggregate
outstanding principal amount of the Revolving Loans combined with the
revolving letters of credit cannot exceed $50 million. The Credit Facility
expires in June 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Liquidity and
Capital Resources."
(c) The Company intends to borrow additional Term Loans in the aggregate
principal amount of $47.0 million by November 3, 1994, the proceeds of
which will be used to repay Revolving Loans to be incurred to finance the
1994 grape harvest. As of October 17, 1994, outstanding borrowings under
the Revolving Loans were $58.0 million.
12
PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following pro forma consolidated financial data of the Company consists
of a Pro Forma Condensed Consolidated Balance Sheet (unaudited) (the "Pro Forma
Balance Sheet"), a 1993 Fiscal Year Pro Forma Condensed Consolidated Statement
of Income (unaudited) (the "1993 Fiscal Year Pro Forma Statement of Income")
and a 1994 Nine Month Pro Forma Condensed Consolidated Statement of Income
(unaudited) (the "1994 Nine Month Pro Forma Statement of Income" and, together
with the Pro Forma Balance Sheet and the 1993 Fiscal Year Pro Forma Statement
of Income, the "Pro Forma Statements").
The Pro Forma Balance Sheet reflects the combination of the balance sheets of
the Company as of May 31, 1994 and the Almaden/Inglenook Product Lines as of
August 5, 1994, as adjusted for the Almaden/Inglenook Acquisition, the Offer-
ings and the exercise of the Options. The Pro Forma Balance Sheet is presented
as if the Almaden/Inglenook Acquisition and the Offerings had been consummated
on May 31, 1994.
The 1993 Fiscal Year Pro Forma Statement of Income reflects the combination
of the income statements of the Company for the year ended August 31, 1993,
Barton for the ten months ended June 28, 1993, Vintners for the year ended July
31, 1993 and the Almaden/Inglenook Product Lines for the year ended September
30, 1993, as adjusted for (i) the Barton Acquisition, (ii) the Vintners
Acquisition, the Notes Offering and the Conversion, (iii) the Almaden/Inglenook
Acquisition and (iv) the Offerings and the exercise of the Options. The 1993
Fiscal Year Pro Forma Statement of Income is presented as if such transactions
were consummated on September 1, 1992.
The 1994 Nine Month Pro Forma Statement of Income reflects the combination of
the income statements for the Company for the nine months ended May 31, 1994,
Vintners for the six weeks ended October 15, 1993 and the Almaden/Inglenook
Product Lines for the nine months ended June 30, 1994, as adjusted for (i) the
Vintners Acquisition, the Notes Offering and the Conversion, (ii) the
Almaden/Inglenook Acquisition and (iii) the Offerings and the exercise of the
Options. The 1994 Nine Month Pro Forma Statement of Income is presented as if
such transactions were consummated on September 1, 1993.
The Pro Forma Statements also reflects the final purchase accounting
adjustment for the Vintners Acquisition based upon an appraisal received by the
Company in October 1994.
The Pro Forma Statements should be read in conjunction with the separate
historical financial statements of the Company, Barton, Vintners and the
Almaden/Inglenook Product Lines, the related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing in
this Prospectus or incorporated herein by reference. 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
transactions in fact had occurred on such date or at the beginning of the
period indicated or to project the Company's financial position or results of
operations at any future date or for any future period.
13
CANANDAIGUA WINE COMPANY, INC.
AND ALMADEN/INGLENOOK PRODUCT LINES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS
--------------------------- ---------------------------------------
ALMADEN/
INGLENOOK FOR THE
COMPANY PRODUCT LINES FOR THE ALMADEN/
AS OF AS OF VINTNERS INGLENOOK FOR THE PRO FORMA
MAY 31, 1994 AUGUST 5, 1994 ACQUISITION ACQUISITION OFFERINGS CONSOLIDATED
------------ -------------- ----------- ----------- --------- ------------
(IN THOUSANDS)
ASSETS:
Cash and cash
equivalents............ $ 1,540 $ -- $ 1,540
Accounts receivable,
net.................... 98,248 -- 98,248
Inventories............. 215,516 106,938 $(11,258)(a) $ (24,752)(b) 286,444
Prepaid expenses and
other current assets... 19,461 901 20,362
Property, plant and
equipment, net......... 167,698 46,814 (10,365)(a) 709 (b) 204,856
Other assets............ 77,306 22,992 29,902 (a) 27,296 (b) 161,096
3,600 (c)
--------- --------- -------- --------- --------- ---------
Total assets.......... $ 579,769 $ 177,645 $ 8,279 $ 6,853 $ -- $ 772,546
========= ========= ======== ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current maturities long-
term debt and other
short-term debt........ $ 8,794 $ 599 $ 13,000 (d) $ 22,393
Notes payable........... 38,000 -- $ (22,670)(g) 15,330
Accounts payable and
accrued liabilities.... 96,656 2,465 4,203 (c) 103,324
Other current
liabilities............ 11,399 -- $ 4,734 (a) 16,133
Long-term debt
(excluding current
maturities)............ 178,432 1,287 111,938 (d) (82,670)(g) 208,987
Other long-term
liabilities............ 7,852 -- 3,545 (a) 48,164 (b) 59,561
Deferred income taxes... 31,480 -- 31,480
--------- --------- -------- --------- --------- ---------
Total liabilities..... 372,613 4,351 8,279 177,305 (105,340) 457,208
Common stock............ 178 -- 34 (g) 212
Additional paid-in
capital................ 110,067 -- 2,842 (e) 105,306 (g) 218,215
Retained earnings....... 104,575 -- 104,575
Heublein investment in
product lines acquired. -- 173,294 (173,294)(f) --
Less: treasury stock.... (7,664) -- (7,664)
--------- --------- -------- --------- --------- ---------
Total stockholders'
equity............... 207,156 173,294 (170,452) 105,340 315,338
--------- --------- -------- --------- --------- ---------
Total liabilities and
stockholders' equity. $ 579,769 $ 177,645 $ 8,279 $ 6,853 $ -- $ 772,546
========= ========= ======== ========= ========= =========
14
CANANDAIGUA WINE COMPANY, INC.
AND ALMADEN/INGLENOOK PRODUCT LINES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(a) Reflects the final purchase accounting adjustments for the Vintners
Acquisition based upon the appraised values of the assets acquired and
liabilities assumed.
(b) For purchase accounting, Almaden/Inglenook Product Lines assets have been
recorded at estimated fair market value subject to adjustment based on the
results of an independent appraisal. The purchase price and estimated fair
market value are based, in part, on the value of net assets, as defined in
the asset purchase agreement, on August 5, 1994. The estimated amounts
recorded for assets and liabilities acquired from Almaden/Inglenook Product
Lines are not expected to differ materially from the final assigned values.
Purchase accounting adjustments were recorded to reduce inventory by
$24,752, to increase property, plant and equipment by $709, to record the
excess of purchase cost over the fair market value of assets acquired of
$44,040, to record $5,724 reflecting the value of the tradenames and to
record the elimination of $22,468 of other assets of the Almaden/Inglenook
Product Lines. These adjustments are required to record these assets at
their estimated fair market values and to conform to the Company's
accounting policy for inventory crush costs. The $48,164 reflects an
assumed liability for losses on future non-cancelable grape purchase
contracts. Inventory of Almaden/Inglenook Product Lines is stated at its
acquisition cost as it is not practicable to restate this inventory on the
last-in, first-out (LIFO) basis used by the Company.
The estimated purchase price is $184,498 which consists of (i) $25,000 for
the assignment of the Almaden specified brands; (ii) $500 for a covenant not
to compete; (iii) estimated net assets at August 5, 1994 of $143,332; (iv)
less a discount of $47,575; (v) direct acquisition costs of $3,062; (vi)
financing costs of $3,600; (vii) loss reserve on future noncancelable grape
purchase contracts of $48,164; (viii) severance liability to employees not
retained of $1,222; (ix) liabilities assumed of $4,351; and (x) $2,842
reflecting the estimated value, subject to the results of an independent
valuation, assigned to 600,000 options to purchase the Company's Class A
Common Stock granted in connection with the Almaden/Inglenook Acquisition.
Purchase Cost:
Assignment of the Almaden specified brands...................... $ 25,000
Covenant not to compete......................................... 500
Estimated book value of assets.................................. 143,332
Less discount................................................... (47,575)
--------
Cash purchase price........................................... 121,257
Direct acquisition costs........................................ 3,062
Financing costs................................................. 3,600
Loss reserve on future non-cancelable grape purchase contracts.. 48,164
Severance liability to employees not retained................... 1,222
Liabilities assumed............................................. 4,351
Issuance of 600,000 options to purchase the Company's Class A
Common Stock................................................... 2,842
--------
Total purchase cost........................................... 184,498
Fair market value of Almaden/Inglenook Product Lines assets
including capitalized financing costs.......................... 140,458
--------
Excess of purchase cost over fair market value of asset ac-
quired......................................................... $ 44,040
========
(c) Reflects the liability of $4,203 for direct acquisition and severance costs
of $2,981 and $1,222, respectively. In addition, the Company funded $81 of
direct acquisition cost through Term Loan borrowings. Capitalized financing
costs of $3,600 were funded through Term Loan borrowings. See notes (b)
above and (d) below.
15
CANANDAIGUA WINE COMPANY, INC.
AND ALMADEN/INGLENOOK PRODUCT LINES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)--
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(d) Reflects the borrowings in connection with the Almaden/Inglenook
Acquisition net of an overpayment of $9.2 million at closing. The sources
and application of funds in connection with the Almaden/
Inglenook Acquisition are as follows:
Sources of funds:
Borrowings under the Term Loans.................................. $124,938
Accounts payable and accrued liabilities......................... 4,203
Options issued to purchase 600,000 shares of the Company's Class
A Common Stock.................................................. 2,842
--------
Total sources of funds......................................... $131,983
========
Application of funds:
Cash purchase price.............................................. $121,257
Payment of direct acquisition costs.............................. 3,062
Payment of financing costs....................................... 3,600
Payment of severance and other costs............................. 1,222
Options to purchase 600,000 shares of Company's Class A Common
Stock........................................................... 2,842
--------
Total uses of funds............................................ $131,983
========
(e) Reflects the issuance of an option to purchase 600,000 shares of the
Company's Class A Common Stock, exercisable at $30.00 per share for 200,000
shares and $35.00 per share for 400,000 shares. The option has been
recorded based upon an average assumed amount of $4.74 per share, which is
subject to final adjustment based upon the results of an independent
valuation.
(f) Reflects the elimination of the Heublein investment in the
Almaden/Inglenook Product Lines.
(g) Reflects the issuance of 3,000,000 shares of the Company's Class A Common
Stock in the Offerings at an assumed offering price of $34.25 per share,
the proceeds from the exercise of 432,067 Options at $18.25 per share and
the application of the proceeds as follows:
Proceeds from Offerings:
Class A Common Stock............................................. $102,750
Exercise of Vintners options..................................... 7,885
--------
Total proceeds................................................. $110,635
========
Application of proceeds:
Repayment of Term Loan borrowings................................ $ 82,670
Repayment of Revolving Loan borrowings........................... 22,670
Transaction expenses............................................. 5,295
--------
Total use of proceeds.......................................... $110,635
========
16
CANANDAIGUA WINE COMPANY, INC., BARTON INCORPORATED, VINTNERS INTERNATIONAL
COMPANY, INC. AND ALMADEN/INGLENOOK PRODUCT LINES
1993 FISCAL YEAR PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
HISTORICAL
----------------------------------------------------------
ALMADEN/
BARTON INGLENOOK
COMPANY TEN MONTHS VINTNERS PRODUCT LINES
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 31, JUNE 28, JULY 31, SEPTEMBER 30,
1993 1993 1993 1993
----------- ----------- ---------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net sales........ $ 306,308 $ 200,188 (a) $ 156,397 $ 232,755
Cost of product
sold............ 214,931 145,167 (a) 123,405 178,229
---------- ---------- ---------- ----------
Gross profit..... 91,377 55,021 32,992 54,526
Selling, general
and
administrative
expenses........ 59,983 36,783 30,779 39,940
---------- ---------- ---------- ----------
Operating income. 31,394 18,238 2,213 14,586
Interest expense,
net............. (6,126) (236) (22,571) (4,742)
Other expense.... -- -- -- (773)
Nonrecurring
transaction
costs........... -- -- (1,789) --
---------- ---------- ---------- ----------
Income (loss)
before
cumulative
effect of change
in accounting
principle....... 25,268 18,002 (22,147) 9,071
Provision for
(benefit from)
federal and
state income
taxes........... 9,664 6,069 -- 3,951
---------- ---------- ---------- ----------
Income from
continuing
operations...... 15,604 11,933 (22,147) 5,120
Cumulative effect
of change in
accounting
principle, net
of tax.......... -- -- -- 1,919
---------- ---------- ---------- ----------
Net income....... $ 15,604 $ 11,933 $ (22,147) $ 7,039
========== ========== ========== ==========
Income from
continuing
operations per
common share:
Primary........ $ 1.30
Fully diluted.. $ 1.20
Cumulative effect
of change in
accounting
principle per
common share:
Primary........ $ --
Fully diluted.. $ --
Net income per
common share:
Primary........ $ 1.30
Fully diluted.. $ 1.20
Weighted average
shares
outstanding:
Primary........ 11,963,652
Fully diluted.. 15,203,114
PRO FORMA ADJUSTMENTS
-------------------------------------------------------------------------
FOR THE
VINTNERS
ACQUISITION, FOR THE
FOR THE NOTES ALMADEN/
BARTON OFFERING AND INGLENOOK FOR THE PRO FORMA
ACQUISITION CONVERSION ACQUISITION OFFERINGS CONSOLIDATION
----------- ----------- ------------- ---------- --------------
Net sales........ $ 1,309 (h) $ 653 (r) $ 897,610
Cost of product
sold............ $ (776)(b) (5,926)(i) (1,995)(r) 648,830
1,000 (j) (3,844)(s)
(463)(t)
(433)(u)
(465)(v)
------ -------- ------- ------ ---------
Gross profit..... 776 6,235 7,853 248,780
Selling, general
and
administrative
expenses........ (287)(b) 1,404 (h) 3,421 (r) 169,832
(509)(c) (259)(i) (202)(s)
79 (d) (139)(k) (1,683)(t)
1,300 (e) 1,189 (l) 471 (w)
90 (m) 600 (x)
(3,735)(n)
68 (o)
539 (p)
------- -------- ------- ------ ---------
Operating income. 193 7,078 5,246 78,948
Interest expense,
net............. (2,385)(f) 95 (h) (2,328)(y) $4,746(aa) (19,185)
7,941 (k)
4,189 (o)
2,232 (p)
Other expense.... 773 (r) --
Nonrecurring
transaction
costs........... (1,789)
------- -------- ------- ------ ---------
Income (loss)
before
cumulative
effect of change
in accounting
principle....... (2,192) 21,535 3,691 4,746 57,974
Provision for
(benefit from)
federal and
state income
taxes........... (833)(g) (233)(q) 1,403 (z) 1,803(aa) 21,824
------- -------- ------- ------ ---------
Income from
continuing
operations...... (1,359) 21,768 2,288 2,943 36,150
Cumulative effect
of change in
accounting
principle, net
of tax.......... 1,919
------- -------- ------- ------ ---------
Net income....... $(1,359) $ 21,768 $ 2,288 $2,943 $ 38,069
======= ======== ======= ====== =========
Income from
continuing
operations per
common share:
Primary........ $ 1.94
Fully diluted.. $ 1.94
Cumulative effect
of change in
accounting
principle per
common share:
Primary........ $ 0.10
Fully diluted.. $ 0.10
Net income per
common share:
Primary........ $ 2.04
Fully diluted.. $ 2.04
Weighted average
shares
outstanding:
Primary........ 18,635,179(bb)
Fully diluted.. 18,647,394(bb)
17
CANANDAIGUA WINE COMPANY, INC., BARTON INCORPORATED, VINTNERS INTERNATIONAL
COMPANY, INC. AND ALMADEN/INGLENOOK PRODUCT LINES
NOTES TO 1993 FISCAL YEAR PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(a) Historic Barton sales and cost of product sold reflect a reclassification
of federal and state excise taxes and certain other items to conform to the
Company's classification.
(b) Reflects the adjusted depreciation expense related to the property, plant
and equipment of Barton on the assumption that the Barton Acquisition had
taken place on September 1, 1992. These assets have been restated at their
estimated fair market values and depreciated using the Company's
depreciation methods over the remaining useful lives of the assets. The
decrease in depreciation expense of $1,063, as compared to that recorded by
Barton was allocated, as indicated, to cost of product sold and to selling,
general and administrative expenses. Giving effect to a full year's
depreciation expense for the assets acquired in the Barton Acquisition
would reduce pretax income by an additional $441.
(c) Reflects the adjusted amortization expense for intangible assets. These
assets have been recorded at their estimated fair market value and
amortized using the Company's amortization methods over their estimated
useful lives. The decrease in amortization expense of $509 as compared to
that recorded by Barton was allocated to agency license agreements,
distribution relationships and trade names.
(d) Reflects amortization expense of deferred financing costs of $79 over the
term of the Credit Facility (72 months).
(e) Reflects the accounting for expenses associated with certain assumed
liabilities in connection with the Barton Acquisition.
(f) Reflects an increase in interest expense of $2,385 relating to the debt
incurred to finance the Barton Acquisition calculated at an assumed rate of
5% per annum.
(g) Reflects the additional tax benefit calculated using a combined federal and
state income tax rate of 38%.
(h) Historic Vintners net sales, selling, general and administrative expenses
and interest income reflect the reclassification of certain items to
conform to the Company's classification.
(i) Reflects the adjusted depreciation expense related to the acquired
property, plant and equipment of Vintners on the assumption that the
Vintners Acquisition had taken place on September 1, 1992. 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 Company utilizes a convention whereby one-half of the
annual depreciation is recorded in the year of acquisition and one-half in
the year of disposition. The decrease in depreciation expense of $6,185 as
compared to that recorded by Vintners was allocated, as indicated, to cost
of product sold and selling, general and administrative expenses. Giving
effect to a full year's depreciation expense for the assets acquired in the
Vintners Acquisition would reduce pretax income by an additional $2,379.
(j) Reflects increased lease expense related to the Hammondsport lease on the
assumption that the lease was entered into on September 1, 1992.
(k) Reflects the elimination of Vintners interest expense of $22,700 and
amortization of debt financing costs of $139 and reflects an increase in
interest expense of $14,759 relating to the debt incurred to finance the
Vintners Acquisition. Interest expense was calculated using an assumed
interest rate which started at 9.25% per annum and increased over the 12
month period to 11.75% per annum for the subordinated bank loan used to
finance the Vintners Acquisition (the "Subordinated Bank Loan") and an
assumed interest rate of 5% per annum for the Revolving Loans.
(l) Reflects amortization expense of intangible assets of $1,189 over 40 years
using the straight-line method.
(m) Reflects amortization expense of deferred financing costs of $90 over the
term of the Subordinated Bank Loan (120 months) using the effective
interest method.
(n) Reflects the elimination of compensation and benefits attributable to the
net reduction of certain management and sales personnel in connection with
the Vintners Acquisition.
(o) Reflects the elimination of interest expense of $4,189 and amortization
expense and transaction costs of $68 related to the Company's Convertible
Debentures based upon an assumed conversion on September 1, 1992.
(p) Reflects the issuance of $130,000 of Notes issued by the Company in the
Notes Offering and the application of the estimated net proceeds therefrom,
together with additional Revolving Loans under the Credit Facility, to
repay the Subordinated Bank Loan. Also, reflects the elimination of
interest expense of $13,813 on the Subordinated Bank Loan, the addition of
interest expense of $11,375 on the Notes utilizing an interest rate of
8.75% per annum, the addition of interest expense of $206 on the
additional Revolving Loans utilizing an assumed interest rate of 5% per
annum, amortization expense
of direct financing costs of $411 related to the Notes, the write-off of
$142 of unamortized deferred
18
CANANDAIGUA WINE COMPANY, INC., BARTON INCORPORATED, VINTNERS INTERNATIONAL
COMPANY, INC. AND ALMADEN/INGLENOOK PRODUCT LINES
NOTES TO 1993 FISCAL YEAR PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
INCOME--(UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
financing costs and the reversal of the current year amortization expense
of $14 related to the Subordinated Bank Loan.
(q) Reflects the additional tax benefit assuming that the pro forma income
before taxes is reduced by Vintners historical net loss using a combined
federal and state income tax rate of 38%.
(r) Historic Almaden/Inglenook Product Lines' net sales, costs of product sold,
selling, general and administrative expenses and other expense reflect the
reclassification of certain items to conform to the Company's
classification. See notes to "Selected Historical Financial Data."
(s) Reflects the adjusted depreciation expense related to the acquired
property, plant and equipment of Almaden/Inglenook Product Lines on the
assumption that the Almaden/Inglenook Acquisition had taken place on
September 1, 1992. 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 Company utilizes a convention
whereby one-half of the annual depreciation is recorded in the year of
acquisition and one-half in the year of disposition. The decrease in
depreciation expense of $4,046, as compared to that recorded by
Almaden/Inglenook Product Lines, was allocated, as indicated, to cost of
product sold and selling, general and administrative expenses. Giving
effect to a full year's depreciation expense for the assets acquired in the
Almaden/Inglenook Acquisition would reduce pretax income by an additional
$1,613.
(t) Reflects the elimination of compensation and benefits attributable to the
net reduction of certain management and sales personnel in connection with
the Almaden/Inglenook Acquisition.
(u) Reflects the elimination of postretirement expense benefits of $433 as the
liability to existing retirees was not assumed by the Company and no
postretirement benefits will be offered to the new Almaden/Inglenook
Product Lines employees hired by the Company at the date of the
Almaden/Inglenook Acquisition.
(v) Reflects the elimination of $465 of repair and maintenance expense to
conform to the Company's policy of capitalizing the cost of betterments
which extend the life of the asset.
(w) Reflects the adjusted amortization expense for intangible assets. These
assets have been recorded at their estimated fair market value and
amortized using the Company's amortization methods over their estimated
useful lives. The increase in amortization expense of $471 as compared to
that recorded by Almaden/Inglenook Product Lines was allocated to goodwill
and trade names.
(x) Reflects amortization expense of deferred financing costs of $600 over the
term of the bank loan (72 months) using the effective interest method.
(y) Reflects the elimination of Almaden/Inglenook Product Lines allocated
interest expense of $4,742 and reflects an increase in interest expense of
$7,070 relating to the debt incurred to finance the Almaden/Inglenook
Acquisition and to reflect the Company's interest cost to finance the
annual grape harvest. Interest expense was calculated using an assumed
interest rate of 4.5% per annum on the Term Loans and Revolving Loans.
(z) Reflects the additional tax expense calculated using a combined federal and
state income tax rate of 38%.
(aa) Reflects the reduction of interest expense by $4,746 after application of
the net proceeds from the Offerings to prepay $82,670 of the Term Loan
borrowings and $22,670 of the Revolving Loan borrowings. Interest expense
was calculated using an assumed interest rate of 4.5% per annum. Also
reflects the related tax effect calculated using a combined federal and
state income tax rate of 38%.
(bb) Reflects the historical weighted average shares outstanding adjusted for
the assumed conversion of the Company's Convertible Debentures and the
assumed exercise of options to purchase 67,933 shares (adjusted for the
assumed exercise of 432,067 shares discussed below) and 600,000 shares of
the Company's Class A Common Stock in connection with the Vintners
Acquisition and the Almaden/Inglenook Acquisition, respectively. For
purposes of calculating primary net income per share, the effects of the
exercise of the Vintners and the Almaden/Inglenook Product Lines options
determined under the treasury stock method was antidilutive. For purposes
of calculating fully diluted earnings per share, the effects of the
exercise of the Vintners options determined under the treasury stock
method increased the weighted average shares by 12,213 and the effects of
exercise of the Almaden/Inglenook Product Lines options determined under
the treasury stock method is antidilutive. Also reflects the issuance of
3,000,000 shares of the Company's Class A Common Stock and the exercise of
the Options for 432,067 shares in connection with the Offerings.
19
CANANDAIGUA WINE COMPANY, INC., VINTNERS INTERNATIONAL COMPANY, INC. AND
ALMADEN/INGLENOOK PRODUCT LINES
1994 NINE MONTH PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
HISTORICAL PRO FORMA ADJUSTMENTS
-------------------------------------------- ------------------------------------------
FOR THE
ALMADEN/ VINTNERS
INGLENOOK ACQUISITION,
COMPANY FOR VINTNERS FOR PRODUCT LINES NOTES FOR THE
THE NINE THE SIX FOR THE NINE OFFERING ALMADEN/
MONTHS ENDED WEEKS ENDED MONTHS ENDED AND INGLENOOK FOR THE PRO FORMA
MAY 31, 1994 OCTOBER 15, 1993 JUNE 30, 1994 CONVERSION ACQUISITION OFFERINGS CONSOLIDATED
------------ ---------------- ------------- ------------ ----------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net sales......... $ 448,739 $ 17,263 $ 180,514 $ 4,299 (k) $ 650,815
Cost of product
sold............. 319,640 13,999 140,140 $ (718)(a) 2,310 (k) 471,985
125 (b) (2,485)(l)
(344)(m)
(325)(n)
(357)(o)
----------- ----------- ----------- ---------- ---------- ---------- ----------
Gross profit...... 129,099 3,264 40,374 593 5,500 178,830
Selling, general
and
administrative
expenses......... 87,109 3,789 29,473 (24)(a) 2,569 (k) 122,781
(55)(c) (131)(l)
854 (d) 353 (p)
9 (e) 450 (q)
(467)(f) (1,251)(m)
(20)(g)
137 (h)
(14)(i)
----------- ----------- ----------- ---------- ---------- ---------- ----------
Operating income.. 41,990 (525) 10,901 173 3,510 56,049
Interest expense,
net.............. (12,846) (2,788) (4,131) (55)(c) (1,521)(r) $ 3,794(t) (15,489)
682 (g)
313 (h)
1,063 (i)
Other expense..... -- -- (580) -- 580 (k) --
Nonrecurring
transaction
costs............ -- (953) -- (953)
----------- ----------- ----------- ---------- ---------- ---------- ----------
Income (loss)
before provision
for (benefit
from) federal and
state income
taxes............ 29,144 (4,266) 6,190 2,176 2,569 3,794 39,607
Provision for
(benefit from)
federal and state
income taxes..... 11,094 -- 2,777 (794)(j) 976 (s) 1,442(t) 15,495
----------- ----------- ----------- ---------- ---------- ---------- ----------
Net income........ $ 18,050 $ (4,266) $ 3,413 $ 2,970 $ 1,593 $ 2,352 $ 24,112
=========== =========== =========== ========== ========== ========== ==========
Net income per
common share:
Primary.......... $ 1.16 $ 1.23
Fully diluted.... $ 1.13 $ 1.23
Weighted average
shares
outstanding:
Primary.......... 15,590,328 19,638,396 (u)
Fully diluted.... 16,329,966 19,647,647 (u)
20
CANANDAIGUA WINE COMPANY, INC.,
VINTNERS INTERNATIONAL COMPANY, INC. AND ALMADEN/INGLENOOK PRODUCT LINES
NOTES TO 1994 NINE MONTH PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(a) Reflects the adjusted depreciated expense related to the acquired property,
plant, and equipment of Vintners on the assumption that the Vintners
Acquisition had taken place on September 1, 1993. 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 Company utilizes a convention whereby one-half of the annual
depreciation is recorded in the year of acquisition and one-half in the
year of disposition. The decrease in depreciation expense of $742 as
compared to that recorded by Vintners was allocated, as indicated, to cost
of product sold and selling, general and administrative expenses. Giving
effect to a full nine months' depreciation expense for the assets acquired
in the Vintners Acquisition would reduce pretax income by an additional
$1,784.
(b) Reflects increased lease expense related to the Hammondsport lease on the
assumption that the lease was entered into on September 1, 1993.
(c) Historic Vintners selling, general and administrative expenses and interest
income reflect the reclassification of certain items to conform to the
Company's classification.
(d) Reflects amortization expense of intangible assets of $854 over 40 years
using the straight-line method.
(e) Reflects amortization expense of deferred financing costs of $9 over the
term of the Subordinated Bank Loan (120 months) using the effective
interest method.
(f) Reflects the elimination of compensation and benefits attributable to the
net reduction of certain management and sales personnel in connection with
the Vintners Acquisition.
(g) Reflects the elimination of interest expense of $682 and amortization
expense and transaction costs of $20 related to the Convertible Debentures
based upon an assumed conversion on September 1, 1993.
(h) Reflects the Notes Offering, together with additional Revolving Loans under
the Credit Facility, to repay the Subordinated Bank Loan. Also, reflects
the elimination of interest expense of $1,803 on the Subordinated Bank
Loan, the addition of interest expense of $1,422 on the Notes utilizing an
interest rate of 8.75% per annum, the addition of interest expense of $68
on the additional Revolving Loans utilizing an assumed interest rate of 5%
per annum, and amortization expense of direct financing costs of $137
related to the Notes.
(i) Reflects the elimination of Vintners interest expense of $2,846 and
amortization of debt financing costs of $14 and reflects an increase in
interest expense of $1,783 relating to the debt incurred to finance the
Vintners Acquisition. Interest expense was calculated using an assumed
interest rate which started at 9.25% per annum and increased over the 9
month period to 11.25% per annum for the Subordinated Bank Loan and an
assumed interest rate of 5% per annum for the Revolving Loans.
(j) Reflects the additional tax benefit assuming that the pro forma income
before taxes is reduced by Vintners historical net loss using a combined
federal and state income tax rate of 38%.
(k) Historic Almaden/Inglenook Product Lines' net sales, cost of product sold,
selling, general and administrative expenses and other expense reflect the
reclassification of certain items to conform to the Company's
classification.
(l) Reflects the adjusted depreciation expense related to the acquired
property, plant and equipment of Almaden/Inglenook Product Lines on the
assumption that the Almaden/Inglenook Acquisition had taken place on
September 1, 1993. 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 Company utilizes a convention whereby one-half of the annual
depreciation is recorded in the year
21
CANANDAIGUA WINE COMPANY, INC.,
VINTNERS INTERNATIONAL COMPANY, INC. AND ALMADEN/INGLENOOK PRODUCT LINES
NOTES TO 1994 NINE MONTH PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
of acquisition and one-half in the year of disposition. The decrease in
depreciation expense of $2,616, as compared to that recorded on a historical
basis was allocated, as indicated, to cost of product sold and selling,
general and administrative expenses. Giving effect to a full nine months'
depreciation expense for the assets acquired in the Almaden/Inglenook
Acquisition would reduce pretax income by an additional $1,210.
(m) Reflects the elimination of compensation and benefits attributable to the
net reduction of certain management and sales personnel in connection with
the Almaden/Inglenook Acquisition.
(n) Reflects the elimination of postretirement expense benefits of $325 as the
liability to existing retirees was not assumed by the Company and no
postretirement benefits will be offered to the new Almaden/Inglenook
Product Lines employees hired by the Company at the date of the
Almaden/Inglenook Acquisition.
(o) Reflects the elimination of $357 of repair and maintenance expense to
conform to the Company's capitalization policy.
(p) Reflects the adjusted amortization expense for intangible assets. These
assets have been recorded at their estimated fair market value and
amortized using the Company's amortization methods over their estimated
useful lives. The increase in amortization expense of $353 as compared to
that recorded on a historical basis was allocated to goodwill and trade
names.
(q) Reflects amortization expense of deferred financing costs of $450 over the
term of the bank loan (72 months) using the effective interest method.
(r) Reflects the elimination of Almaden/Inglenook Product Lines allocated
interest expense of $4,131 and reflects an increase in interest expense of
$5,652 relating to the debt incurred to finance the Almaden/Inglenook
Acquisition and to reflect the Company's interest cost to finance the
annual grape harvest. Interest expense was calculated using an assumed
interest rate of 4.8% per annum on the Term Loans and Revolving Loans.
(s) Reflects the additional tax expense calculated using a combined federal and
state income tax rate of 38%.
(t) Reflects the reduction of interest expense by $3,794 after application of
the net proceeds from the Offerings to prepay $82,670 of Term Loan
borrowings and $22,670 of the Revolving Loan borrowings. Interest expense
was calculated using an assumed interest rate of 4.8% per annum. Also
reflects the related tax effect calculated using a combined federal and
state income tax rate of 38%.
(u) Reflects the historical weighted average shares outstanding adjusted for
the assumed conversion of the Company's Convertible Debentures and the
assumed exercise of options to purchase 67,933 shares (adjusted for the
assumed exercise of 432,067 shares discussed below) and 600,000 shares of
the Company's Class A Common Stock in connection with the Vintners
Acquisition and the Almaden/Inglenook Acquisition, respectively. For
purposes of calculating primary net income per share, the effects of the
exercise of 67,933 Options determined under the treasury stock method
decreased the weighted average shares by 109,907 as compared to historical
weighted average shares outstanding which included all 500,000 shares, and
the effect of the exercise of the Almaden/Inglenook Product Lines options
determined under the treasury stock method is antidilutive. For purposes of
calculating fully diluted earnings per share, the effects of the exercise
of 67,933 Options determined under the treasury stock method decreased the
weighted average shares by 114,386, as compared to historical weighted
average shares outstanding which included all 500,000 shares, and the
effects of exercise of the Almaden/Inglenook Product Lines options
determined under the treasury stock method is antidilutive. Also reflects
the issuance of 3,000,000 shares of the Company's Class A Common Stock and
the exercise of 432,067 Options in connection with the Offerings.
22
SELECTED HISTORICAL FINANCIAL DATA
CANANDAIGUA WINE COMPANY, INC.
The following selected historical consolidated financial data should be read
in conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The summary financial information for
each of the five fiscal years ended August 31, 1993 is derived from the
Company's consolidated financial statements for such fiscal years, which
financial statements have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports thereon. The summary
financial information for the nine months ended May 31, 1993 and May 31, 1994
and as of May 31, 1994 has been derived from the unaudited financial
statements, which, in the opinion of management, include all adjustments
necessary for a fair presentation of the results of operations for such
periods. The financial information for the nine months ended May 31, 1993 and
May 31, 1994 is not necessarily indicative of the results of operation for a
full fiscal year.
NINE MONTHS
ENDED
YEAR ENDED AUGUST 31, MAY 31,
----------------------------------------------- -----------------
1989 1990 1991 1992(A) 1993(B) 1993 1994(C)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $164,261 $179,845 $176,559 $245,243 $306,308 $190,386 $448,739
Cost of product sold.... 123,574 136,220 131,064 174,685 214,931 132,745 319,640
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 40,687 43,625 45,495 70,558 91,377 57,641 129,099
Selling, general and ad-
ministrative expenses.. 33,156 33,355 30,183 46,491 59,983 37,540 87,109
-------- -------- -------- -------- -------- -------- --------
Operating income....... 7,531 10,270 15,312 24,067 31,394 20,101 41,990
Interest expense, net... 4,295 3,842 3,631 6,183 6,126 4,186 12,846
-------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes....... 3,236 6,428 11,681 17,884 25,268 15,915 29,144
Provision for federal
and state income taxes. 885 1,992 3,971 6,528 9,664 5,968 11,094
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 2,351 $ 4,436 $ 7,710 $ 11,356 $ 15,604 $ 9,947 $ 18,050
======== ======== ======== ======== ======== ======== ========
Net income per common
share:
Primary................ $ 0.23 $ 0.46 $ 0.84 $ 1.08 $ 1.30 $ 0.84 $ 1.16
Fully diluted.......... (d) (d) (d) $ 1.01 $ 1.20 $ 0.79 $ 1.13
Weighted average number
of shares:
Primary................ 10,172 9,631 9,202 10,527 11,964 11,775 15,590
Fully diluted.......... (d) (d) (d) 13,820 15,203 15,068 16,330
AS OF AUGUST 31,
----------------------------------------------- AS OF MAY 31,
1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -----------------
BALANCE SHEET DATA:
Total assets............ $140,232 $142,868 $147,207 $217,835 $355,182 $579,768
Long-term debt (exclud-
ing current maturi-
ties).................. 63,962 63,106 62,278 61,909 108,303 178,432
Stockholders' equity.... 42,773 47,203 51,975 95,549 126,104 207,157
- ------------
(a) The Company acquired Guild on October 1, 1991 and accounted for this
acquisition utilizing the purchase method of accounting. Guild's results of
operations have been included in the Company's results of operations since
October 1, 1991.
(b) The Company acquired Barton on June 29, 1993 and accounted for this
acquisition utilizing the purchase method of accounting. Barton's results
of operations have been included in the Company's results of operations
since June 29, 1993.
(c) The Company acquired substantially all of the assets and businesses of
Vintners on October 15, 1993 and accounted for the acquisition utilizing
the purchase method of accounting. Vintners' result of operations have been
included in the Company's results of operations since October 15, 1993. The
Company's results of operations for the nine months ended May 31, 1994 do
not include the results of the Almaden/Inglenook Product Lines which were
acquired on August 5, 1994.
(d) Substantially all of the Company's Convertible Debentures were converted on
or prior to November 19, 1993. The effect of considering the Conversion is
antidilutive for these periods and therefore fully diluted earnings per
share is not presented.
23
SELECTED HISTORICAL FINANCIAL DATA
ALMADEN/INGLENOOK PRODUCT LINES
The following selected financial data should be read in conjunction with the
financial statements and related notes of Almaden/Inglenook Product Lines and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations of Almaden/Inglenook Product Lines" included
elsewhere herein. The selected historical financial information for each of the
three years ended September 30, 1993 and as of August 5, 1994 is derived from
the financial statements of the Almaden/Inglenook Product Lines for such
periods, which financial statements have been audited by KPMG Peat Marwick LLP,
independent public accountants as indicated in their report thereon. The data
reflect financial information for assets and the identified income and expenses
of the Almaden/Inglenook Product Lines of Heublein acquired by the Company on
August 5, 1994. These product lines have never been operated as a separate
business entity. The financial information includes net sales, cost of product
sold, advertising, merchandising, promotion expense and research and
development expense that substantially relate directly to the acquired product
lines. All other income and expense items are allocated based on estimation and
assumptions of Heublein as if the acquired product lines had been operated on a
stand-alone basis during the periods presented. The Company has been informed
by Heublein that it believes that the allocations are reasonable under the
circumstances; however, there can be no assurances that such data will be
indicative of future results of operations or what the financial position and
results of operations of the acquired product lines would have been had they
been operated as a separate, stand-alone entity during the period covered. See
Financial Statements of Heublein Inc. for the Product Lines Acquired by
Canandaigua Wine Company, Inc.
YEAR ENDED SEPTEMBER 30, TEN MONTHS ENDED
-------------------------- ---------------------
JULY 31, AUGUST 5,
1991 1992 1993 1993 1994
-------- -------- -------- -------- ---------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales................ $222,425 $217,325 $233,408(a) $191,633(a) $204,460(a)
Cost of product sold(b).. 147,109 146,342 176,234(a) 141,644(a) 158,761(a)
-------- -------- -------- -------- --------
Gross profit............ 75,316 70,983 57,174 49,989 45,699
Selling, general and
administrative
expenses(b)(c).......... 42,522 46,051 43,361 35,156 34,519
-------- -------- -------- -------- --------
Operating income........ 32,794 24,932 13,813 14,833 11,180
Interest expense, net.... 6,643 5,725 4,742 3,955 4,597
-------- -------- -------- -------- --------
Income before provision
for income taxes and
cumulative effect of
change in accounting
principle.............. 26,151 19,207 9,071 10,878 6,583
Provision for federal and
state income taxes...... 10,861 8,059 3,951 4,662 2,931
-------- -------- -------- -------- --------
Income before cumulative
effect of change in
accounting principle... 15,290 11,148 5,120 6,216 3,652
Cumulative effect of
change in accounting
principle............... -- -- 1,919 1,919 --
-------- -------- -------- -------- --------
Net income.............. $ 15,290 $ 11,148 $ 7,039 $ 8,135 $ 3,652
======== ======== ======== ======== ========
AS OF AUGUST 5,
1994
---------------
BALANCE SHEET DATA:
Total assets.................................................... $177,645
Long-term debt (excluding current maturities)................... 1,287
Heublein investment in product lines acquired................... 173,294
- ------------
(a) Historic net sales for the year ended September 30, 1993 and for the ten
months ended July 31, 1993 and August 5, 1994 of $232,755, $191,553 and
$199,619, respectively, were adjusted to reflect a reclassification of
freight for delivered pricing to conform to the Company's classification of
this item. Cost of product sold was adjusted by the same amount for the
same periods.
(notes continued on next page)
24
(notes continued)
(b) Cost of product sold for the year ended September 30, 1991, 1992 and 1993
and the ten months ended July 31, 1993 and August 5, 1994 of $150,925,
$149,389, $178,229, $143,568 and $156,343, respectively, was adjusted to
reflect a reclassification of commissions to conform to the Company's
classification of this item. Selling, general and administrative expenses
were adjusted by the same amount for the same periods.
(c) Selling, general and administrative expense for the years ended September
30, 1991, 1992 and 1993 and the ten months ended July 31, 1993 and August
5, 1994 of $37,933, $42,231, $39,940, $32,508 and $31,452, respectively,
were adjusted to reflect reclassification of amortization to conform to the
Company's classification of this item. Other expense was adjusted by the
same amount for the same periods and thereby eliminated.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On September 7, 1994, the Company announced a plan to restructure the
operations of its California wineries. The Restructuring Plan will enable the
Company to realize significant cost savings from the consolidation of existing
facilities and the facilities acquired in the Almaden/Inglenook Acquisition.
Under the Restructuring Plan, all bottling operations at the Central Cellars
Winery in Lodi, California and the branded wine bottling operations at the
Monterey Cellars Winery in Gonzales, California will be moved to the Mission
Bell Winery located in Madera, California which was acquired by the Company in
the Almaden/Inglenook Acquisition. The Monterey Cellars Winery will continue to
be used as a crushing, winemaking and contract bottling facility. The Central
Cellars Winery and the winery in Soledad, California will be closed and offered
for sale to reduce surplus capacity. The Company anticipates that
implementation of the Restructuring Plan will result in approximately 260 jobs
being eliminated. As a result of the Restructuring Plan, the Company will take
a restructuring charge in the fourth quarter of fiscal 1994 which it estimates
will reduce after-tax income for fiscal 1994 by approximately $14.8 million, or
$0.91 per share on a fully diluted basis. During fiscal 1995, implementation of
the Restructuring Plan will require cash expenditures of approximately $27.1
million, including $20.0 million for capital expenditures to expand storage
capacity and install certain relocated equipment. The Company expects to have
the Restructuring Plan fully implemented by the end of fiscal 1995. The Company
anticipates that the Restructuring Plan will result in net cost savings of
approximately $1.7 million in fiscal 1995 and approximately $13.3 million of
annual net cost savings beginning in fiscal 1996. See "--Financial Liquidity
and Capital Resources."
RESULTS OF OPERATIONS OF THE COMPANY
The Company has realized significant growth in sales and profitability over
the last three years primarily as a result of acquisitions. The Company
acquired Guild on October 1, 1991, Barton on June 29, 1993, Vintners on October
15, 1993 and the Almaden/Inglenook Product Lines on August 5, 1994. Management
expects the Acquisitions to have a substantial impact on the future results of
the Company's operations. The Company's results of operations discussed below
should be read in conjunction with the Almaden/Inglenook Product Lines results
of operations discussed below and the pro forma information included herein.
The Company's results of operations for the 1992 fiscal year include only 11
months of operations of the assets acquired from Guild as compared to the 1993
fiscal year, which include such results for the complete period. The Company's
results of operations for the 1993 fiscal year include the results of
operations of Barton from June 29, 1993, the date of the Barton Acquisition,
until the end of the period. The Company's results of operations for the nine
months ended May 31, 1994 include the results of operations of Vintners from
October 15, 1993, the date of the Vintners Acquisition, until the end of the
period.
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of income expressed as a percentage of
net sales:
NINE MONTHS
YEAR ENDED AUGUST 31, ENDED MAY 31,
---------------------- --------------
1992 1993 1993 1994
---------- ---------- ------ ------
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
Cost of product sold................... 71.2 70.2 69.7 71.2
---------- ---------- ------ ------
Gross profit......................... 28.8 29.8 30.3 28.8
Selling, general and administrative ex-
penses................................ 19.0 19.6 19.7 19.4
---------- ---------- ------ ------
Operating income..................... 9.8 10.2 10.6 9.4
Interest expense, net.................. 2.5 1.9 2.2 2.9
---------- ---------- ------ ------
Income before provision for income
taxes............................... 7.3 8.3 8.4 6.5
Provision for federal and state income
taxes................................. 2.7 3.2 3.2 2.5
---------- ---------- ------ ------
Net income........................... 4.6% 5.1% 5.2% 4.0%
========== ========== ====== ======
26
NINE MONTHS ENDED MAY 31, 1994 COMPARED TO NINE MONTHS ENDED MAY 31, 1993
Net Sales
Net sales for the nine months ended May 31, 1994 increased to $448.7 million
from $190.4 million for the nine months ended May 31, 1993, an increase of
$258.3 million, or approximately 136%. The increase resulted from the inclusion
of Barton's net sales of $186.5 million during the nine months ended May 31,
1994 and $86.7 million of net sales of Vintners' products from October 15,
1993, the date of the Vintners Acquisition. Excluding the impact of the Barton
and Vintners Acquisitions, the Company's net sales decreased $14.8 million, or
7.8%, when compared to the same period a year ago. This was principally due to
a decrease in net sales of the Company's non-branded products, specifically
grape juice concentrate, and to lower sales of the Company's dessert wines.
For purposes of computing the comparative data for the Company's branded wine
products set forth below, sales of branded wine products acquired from Vintners
have been included in the nine months ended May 31, 1994 from October 15, 1993
(the date of the Vintners Acquisition) through May 31, 1994, and included for
the same period during the nine months ended May 31, 1993 prior to the Vintners
Acquisition.
Net sales and unit volume of the Company's branded wine products for the nine
months ended May 31, 1994 declined 6.4% and 7.4%, respectively, as compared to
the same period a year ago. These decreases were due to lower sales of branded
wine products acquired from Vintners and, to a lesser extent, to lower sales of
the Company's branded wine products, exclusive of branded wine products
acquired from Vintners.
Net sales and unit volume of the Company's varietal table wine brands for the
nine months ended May 31, 1994 increased 4.0% and 7.5%, respectively,
reflecting increases in substantially all of the Company's varietal table wine
brands exclusive of varietal table wine brands acquired from Vintners which
declined 12.1% and 2.6%, in net sales and unit volume, respectively. Net sales
and unit volume of the Company's non-varietal table wine brands for the same
period were down 9.1% and 8.0%, respectively, principally due to lower sales of
non-varietal table wine brands acquired from Vintners. Net sales and unit
volume of sparkling wine brands decreased 4.3% and 5.2%, respectively,
principally due to a general decline in all of the Company's sparkling wine
brands. Net sales and unit volume of the Company's dessert wine brands were
down 10.2% and 12.5%, respectively, in the nine months ended May 31, 1994
versus the same period a year ago. The Company's net sales and unit volume of
dessert wine brands have declined over the last three years. These declines can
be attributed to a general decline in dessert wine consumption in the United
States. During the nine months ended May 31, 1994, net sales of branded dessert
wines constituted less than 12% of the Company's overall net sales.
Notwithstanding this, net sales and unit volume of the premium dessert wine
brands acquired from Vintners increased in the nine months ended May 31, 1994
versus the same period a year ago.
Net sales and unit volume of the Company's beer brands for the nine months
ended May 31, 1994 increased by 11.9% and 12.7%, respectively, when compared to
Barton's net sales and unit volume for the same period a year ago, which was
prior to the Barton Acquisition. These increases resulted primarily from
increased sales of the Company's Corona brand and other Mexican beer brands,
and increased sales of its St. Pauli Girl and Point brands. The Company's new
agreement to continue to distribute Corona and its other Mexican beer brands
expires in December 1998.
Net sales and unit volume of the Company's spirits case goods for the nine
months ended May 31, 1994 were down 2.3% and up slightly, respectively, as
compared to Barton's net sales and unit volume for the same period a year ago.
This decrease in net sales was primarily due to lower net sales of the
Company's aged whisky (i.e., bourbon and Scotch brands), which was partially
offset by increased net sales of the Company's liqueur, blended whiskey and
Canadian whisky brands. The Company also had increased net sales of its tequila
brands.
27
Gross Profit
Gross profit increased to $129.1 million in the nine months ended May 31,
1994 from $57.6 million in the nine months ended May 31, 1993, an increase of
$71.5 million, or approximately 124.0%. This increase in gross profit resulted
from the inclusion of Barton's and Vintners' operations into the Company's.
Gross profit as a percentage of net sales decreased to 28.8% in the nine months
ended May 31, 1994 from 30.3% in the nine months ended May 31, 1993. The
Company's gross margin decreased primarily as a result of the inclusion of
Barton's and Vintners' operations into the Company.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $87.1 million in
the nine months ended May 31, 1994 from $37.5 million in the nine months ended
May 31, 1993, an increase of $49.6 million, or approximately 132%. This
increase resulted from the additional selling, general and administrative
expenses associated with the operations of Barton and Vintners and higher
advertising and promotional spending on brands of the Company owned prior to
the Barton and Vintners Acquisitions.
Interest Expense, Net
Interest expense, net increased to $12.8 million in the nine months ended May
31, 1994 from $4.2 million in the nine months ended May 31, 1993, an increase
of $8.6 million. The increase principally resulted from financing activities
related to the Vintners Acquisition and the Barton Acquisition.
Net Income
Net income increased to $18.0 million in the nine months ended May 31, 1994
from $9.9 million in the nine months ended May 31, 1993, an increase of $8.1
million, or approximately 81%. This increase resulted primarily from the
inclusion of the operations of Barton and Vintners into those of the Company.
FISCAL YEAR ENDED AUGUST 31, 1993 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1992
Net Sales
Net sales for the Company's 1993 fiscal year increased to $306.3 million from
$245.2 million in fiscal 1992, an increase of $61.1 million, or 24.9%. This
increase resulted from the inclusion of $52.0 million of Barton's net sales
since the date of the Barton Acquisition and increased net sales of grape juice
concentrate, brands acquired from Guild and private label and other specialty
products. These increases, however, were partially offset by a decrease in net
sales of the Company's branded wine products.
Net sales and unit volume of the Company's branded wine products, including
sales of products under brands acquired from Guild for comparable 11-month
periods, declined 5.1% and 10.1%, respectively, as compared to the same period
a year ago. These decreases were principally due to a decline in net sales and
unit volume of the Company's dessert wine brands. The change in net sales of
the Company's branded wine products declined less than unit volume due to
higher prices of certain brands and a favorable change in product mix.
For the 1993 fiscal year, including sales of products acquired from Guild for
comparable 11-month periods, unit volume of the Company's varietal table wine
brands increased by approximately 24%, reflecting significant increases in
sales of substantially all of the Company's varietal table wine brands,
including Marcus James varietals imported from Brazil. Unit volume of the
Company's non-varietal table wines was up slightly and unit volume of sparkling
wine brands decreased by approximately 2% as compared to the same period a year
ago. Unit volume of the Company's dessert wine brands, including the Richards
Wild Irish Rose brand, was down approximately 19% during this period.
28
The Company believes its lower dessert wine sales may be attributable to
several factors including the impact of previous price increases made in
response to a significant federal excise tax increase which took effect in
January 1991. In addition, the Company initiated product promotions during the
fourth quarter of the Company's 1992 fiscal year which resulted in higher
wholesale inventories at its 1992 fiscal year end, thereby reducing dessert
wine sales in the first quarter of fiscal 1993. Unit volume of the Company's
dessert wines have been declining since the Company's 1990 fiscal year.
Unit volume of the Company's beer products for the period from July 1, 1993
to August 31, 1993 increased by approximately 16% when compared to Barton's
unit volume for the same period a year ago. This increase resulted primarily
from increased sales of Corona and the Company's other Mexican beer brands and
from increased sales of St. Pauli Girl. Barton began to distribute St. Pauli
Girl on July 1, 1992 and net sales of St. Pauli Girl through August 31, 1992
were adversely affected by high levels of wholesaler inventories existing at
the time Barton acquired the rights to distribute this brand. For the same two
month period, unit volume of the Company's spirits case goods increased
slightly as compared to Barton's unit volume for the same period a year ago.
Gross Profit
Gross profit increased to $91.4 million in fiscal 1993 from $70.6 million in
fiscal 1992, an increase of $20.8 million, or 29.5%. The increase in gross
profit resulted from the inclusion of Barton's operations into the Company's
and increased sales of grape juice concentrate. Gross profit as a percentage of
net sales increased to 29.8% in fiscal 1993 from 28.8% in the prior year. Gross
margins improved primarily as a result of higher gross profit margins on net
sales of grape juice concentrate and Cook's sparkling wines.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $60.0 million in
fiscal 1993 from $46.5 million in fiscal 1992, an increase of $13.5 million, or
29.0%. This increase resulted from the inclusion of the expenses of Barton's
operations into the Company's and higher promotional and advertising spending
with respect to brands acquired from Guild.
Interest Expense, Net
Interest expense, net decreased to $6.1 million in fiscal 1993 from $6.2
million in fiscal 1992 due to lower average outstanding debt balances and lower
interest rates which were somewhat offset by increased interest expense from
borrowings incurred to acquire Barton.
Net Income
Net income increased to $15.6 million in fiscal 1993 from $11.4 million in
fiscal 1992, an increase of $4.2 million, or 37.4%. Net income as a percentage
of net sales increased to 5.1% in fiscal 1993 from 4.6% in fiscal 1992.
29
RESULTS OF OPERATIONS OF ALMADEN/INGLENOOK PRODUCT LINES
The Company acquired certain brands and other assets, including the Almaden
and Inglenook brands, on August 5, 1994 from Heublein. The Company did not
operate the Almaden/Inglenook Product Lines during the periods presented below.
The discussions below are based on the Company's understanding of
Almaden/Inglenook Product Lines results of operations. The following table sets
forth, for the periods indicated, certain items in the financial statements of
Heublein for the Almaden/Inglenook Product Lines expressed as percentage of net
sales. Net sales, cost of product sold and selling, general and administrative
expenses reflect a reclassification of freight for delivered pricing for the
year ended September 30, 1993 and the ten months ended July 31, 1993 and August
5, 1994 and selling general and administrative expenses reflect a
reclassification of amortization and commissions to conform to the Company's
classification of these items. See "Selected Historical Financial Data."
YEAR ENDED SEPTEMBER 30, TEN MONTHS ENDED
---------------------------- ------------------
JULY 31, AUGUST 5,
1991 1992 1993 1993 1994
-------- -------- -------- -------- ---------
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product sold.......... 66.1 67.3 75.5 73.9 77.6
-------- -------- -------- ----- -----
Gross profit................ 33.9 32.7 24.5 26.1 22.4
Selling, general and adminis-
trative expenses............. 19.2 21.2 18.5 18.4 16.9
-------- -------- -------- ----- -----
Operating income............ 14.7 11.5 6.0 7.7 5.5
Interest expense, net......... 3.0 2.6 2.0 2.1 2.2
Provision for income tax...... 4.9 3.8 1.8 2.4 1.5
Cumulative effect of change in
accounting principles net of
tax.......................... -- -- 0.8 1.0 --
-------- -------- -------- ----- -----
Net income.................. 6.8% 5.1% 3.0% 4.2% 1.8%
======== ======== ======== ===== =====
TEN MONTHS ENDED AUGUST 5, 1994 COMPARED TO THE TEN MONTHS ENDED JULY 31, 1993
Net Sales
Net sales for the Almaden/Inglenook Products Lines increased to $204.5
million for the ten months ended August 5, 1994 from $191.6 million for the ten
months ended July 31, 1993, an increase of $12.8 million, or 6.7%. During this
period, the Almaden/Inglenook Product Lines, particularly the Inglenook brand,
benefited from the continued strong growth in varietal table wine sales and the
favorable effect of newly introduced packaging. Net sales also benefited from
increased net sales of grape juice concentrate.
Gross Profit
Gross profit of the Almaden/Inglenook Product Lines decreased to $45.7
million for the ten months ended August 5, 1994 from $50.0 million for the ten
months ended July 31, 1993, a decrease of $4.2 million, or 8.6%. Gross profit
as a percentage of net sales decreased to 22.4% for the ten months ended August
5, 1994 from 26.1% for the ten months ended July 31, 1993. This decrease was
primarily the result of increased California grape costs and, to a lesser
extent, lower selling prices for branded wine products. These lower selling
prices were coupled with a reduction and elimination of certain promotional
allowances.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Almaden/Inglenook
Product Lines decreased to $34.5 million for the ten months ended August 5,
1994 from $35.2 million for the ten months ended July 31, 1993, a decrease of
$0.7 million or a decrease of 1.8%. This decrease resulted from a reduction and
elimination of certain promotional allowances which partially offset the
reduction in gross profit.
30
Interest Expense, Net
Interest expense, net, for the Almaden/Inglenook Product Lines increased to
$4.6 million for the ten months ended August 5, 1994 from $4.0 million for the
ten months ended July 31, 1993, an increase of 15.2%. Interest expense during
this period was significantly impacted by $14.7 million of capital expenditures
invested in the concentrate business between August 1992 and June 1994.
Net Income
Net income for the Almaden/Inglenook Product Lines decreased to $3.7 million
for the ten months ended August 5, 1994 from $8.1 million for the ten months
ended July 31, 1993, a decrease of $4.4 million, or 54.3%.
FISCAL YEAR ENDED SEPTEMBER 30, 1993 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1992
Net Sales
Net sales for the Almaden/Inglenook Product Lines increased to $233.4 million
for the fiscal year ended September 30, 1993, an increase of $16.1 million, or
7.4%, from $217.3 million for the fiscal year ended September 30, 1992. This
was primarily the result of improved unit volume sales and increased prices of
grape juice concentrate and, to a lesser extent, an increase in net sales and
unit volume of Inglenook products.
Gross Profit
Gross profit for the Almaden/Inglenook Product Lines declined to $57.2
million in fiscal year 1993 from $71.0 million in fiscal year 1992, a decrease
of $13.8 million, or 19.5%. Gross profit for the Almaden/Inglenook Product
Lines as a percentage of net sales decreased to 24.5% for the fiscal year ended
September 30, 1993 from 32.7% for the same period a year ago. The gross margin
decreased primarily as a result of higher grape costs, lower margins on grape
juice concentrate and lower selling prices on branded wine products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Almaden/Inglenook
Product Lines decreased to $43.4 million for the fiscal year ended September
30, 1993 from $46.1 million for the same period a year ago, a decrease of $2.7
million or approximately 5.8%. The decrease is primarily the result of
decreased advertising and promotional spending which partially offset the
reduction in gross profit.
Interest Expense, Net
Interest expense, net for the Almaden/Inglenook Product Lines decreased to
$4.7 million in fiscal year 1993 from $5.7 million in fiscal year 1992, a
decrease of $1.0 million, or 17.2%. The decline was attributable to lower debt
levels and lower interest rates, partially offset by an increase in the
percentage relationship of net assets associated with the Almaden/Inglenook
Product Lines to total net assets of Heublein.
Cumulative Effect of Change in Accounting Principle
A comprehensive review of the accounting principles employed to capitalize
manufacturing overheads associated with bulk wine inventory was performed
during fiscal year 1993. As a result, a one-time benefit of $1.9 million was
recorded net of taxes.
Net Income
Net income for the Almaden/Inglenook Product Lines declined to $7.0 million
for the fiscal year ended September 30, 1993 from $11.1 million for the fiscal
year ended September 30, 1992, a decrease of $4.1 million, or 36.9%.
31
FISCAL YEAR ENDED SEPTEMBER 30, 1992 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1991
Net Sales
Net sales for the Almaden/Inglenook Product Lines decreased to $217.3 million
for the fiscal year ended September 30, 1992 from $222.4 million for fiscal
year ended September 30, 1991, a decrease of $5.1 million, or 2.3%. The decline
was primarily the result of a reduction in net sales of branded wine products,
partially offset by increased net sales of grape juice concentrate.
Gross Profit
Gross profit for the Almaden/Inglenook Product Lines declined for the fiscal
year ended September 30, 1992 to $71.0 million from $75.3 million for the
fiscal year ended September 30, 1991, a decrease of $4.3 million, or 5.8%.
Gross profit as a percentage of net sales decreased to 32.7% for the fiscal
year ended September 30, 1992 from 33.9% for the same period a year prior. The
decline was primarily attributable to lower unit volume and net sales of
branded wine products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Almaden/Inglenook
Product Lines increased to $46.1 million for the fiscal year ended September
30, 1992 from $42.5 million for the same period a year prior, an increase of
$3.5 million or approximately 8.3%. The increase is primarily the result of
increased advertising and promotional spending.
Interest Expense, Net
Interest expense, net, for the Almaden/Inglenook Product Lines declined to
$5.7 million for the fiscal year ended September 30, 1992 from $6.6 million for
the fiscal year ended September 30, 1991, a decrease of $0.9 million, or 13.6%.
The decrease was the result of lower levels of debt and lower interest rates in
fiscal year 1992 versus fiscal year 1991, partially offset by an increase in
the percentage relationship of net assets associated with the Almaden/Inglenook
Product Lines to total net assets of Heublein.
Net Income
Net income for the Almaden/Inglenook Product Lines decreased to $11.1 million
for the fiscal year ended September 30, 1992 from $15.3 million for the fiscal
year ended September 30, 1991, a decline of $4.2 million, or 27.5%. The decline
is primarily the result of reduced net sales of branded wine products and
increased promotion expenses, partially offset by increased net sales of grape
juice concentrate and lower interest expense.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventory of raw materials and finished goods. The
Company's primary source of liquidity has historically been cash flow from
operations, except during the annual fall grape harvests when the Company has
relied on short-term borrowings. The annual grape crush normally begins in
August and runs through November. The Company generally begins purchasing
grapes in August with payments for such grapes beginning to come due in
September. The Company's short-term borrowings to support such purchases
generally reach their highest levels in November or December. Historically, the
Company has used cash flow from operations to repay its short-term borrowings.
As of May 31, 1994, the Company's current assets and liabilities increased
from August 31, 1993 due in large part to the Vintners Acquisition. Net of the
effect of the Vintners Acquisition, current assets decreased principally as a
result of normal seasonal sales trends resulting in lower inventory levels.
Current liabilities similarly decreased due primarily to a decrease in accounts
payable associated with the grape harvest offset by increased short-term
borrowings to partially fund those payments.
32
In connection with the Almaden/Inglenook Acquisition, the Company increased
its borrowing capacity under the Credit Facility. The Company borrowed $134.2
million under the term loan facility to fund the Almaden/Inglenook Acquisition.
As of October 17, 1994, the Company had outstanding Term Loans of $177.0
million, $58.0 million of Revolving Loans, and $2.0 million outstanding under
revolving letters of credit. As of October 17, 1994, the Company had $125
million available under Revolving Loans and $47.0 million available under Term
Loans. Any amounts not borrowed under the term loan facility by November 3,
1994 will be unavailable for future borrowings. The Company anticipates that it
will borrow the maximum amount under Term Loans by such date in order to
provide additional working capital and fund capital expenditures as a result of
the Almaden/Inglenook Acquisition and, initially, to repay Revolving Loans.
The Company's Credit Facility provides for (i) a $224 million term loan
facility due in June 2000, (ii) a $185 million revolving credit facility, which
expires in June 2000 and (iii) an existing $28.2 million letter of credit
related to the Barton Acquisition (the "Barton Letter of Credit"). The Term
Loans borrowed under the Credit Facility may be either base rate loans or
eurodollar base rate loans. Base rate loans have an interest rate equal to the
higher of either the Federal Funds rate plus 0.5% or the prime rate. Eurodollar
rate loans have an interest rate equal to LIBOR plus 1.25%. The current
interest rate for both base rate and eurodollar rate loans may be increased by
up to 0.25% and eurodollar rate loans may be decreased by up to 0.625%,
depending on the Company's debt ratio and long-term senior secured securities'
ratings. The principal of the Term Loans is to be repaid in 22 quarterly
installments of $7 million each beginning December 15, 1994, with a final
quarterly payment of $70 million due June 15, 2000. The Company may prepay the
principal of the Term Loans and the Revolving Loans at its discretion and must
prepay the principal with, among other sources of funds, 65% of its annual
excess cash flow, proceeds from the sale of certain assets and the first $60
million of the net proceeds from any issuance of equity plus 50% of any net
proceeds in excess of $60 million. As a result, approximately $82.7 million of
the net proceeds from the Offerings and the exercise of the Options will be
applied against the required principal payments of the Term Loans in reverse
order of maturity.
The $185 million revolving credit available under the Credit Facility may be
utilized by the Company either in the form of Revolving Loans or as revolving
letters of credit up to a maximum of $12 million. Additionally, availability of
Revolving Loans is subject to a formula based on the amount of certain eligible
receivables and certain eligible inventory and is reduced by the principal
amount of revolving letters of credit. As with Term Loans, Revolving Loans may
be either base rate loans or eurodollar rate loans. Revolving Loans will mature
and must be repaid June 15, 2000. For 30 conservative days at any time during
the last two quarters of each fiscal year, the aggregate outstanding principal
amount of Revolving Loans combined with the revolving letters of credit cannot
exceed $50 million.
The Barton Letter of Credit is an existing letter of credit issued in the
face amount of $28.2 million. This amount represents the full amount committed
under the Credit Facility. On January 1, 1995 the face amount of the Barton
Letter of Credit will be reduced to $25 million and on January 1, 1996 will be
reduced to $15 million. The Barton Letter of Credit will terminate on December
31, 1996. The Company must pay commitment and other fees based on the undrawn
face amount of the Barton Letter of Credit. In the event a beneficiary makes a
demand for payment under the Barton Letter of Credit, the Company must pay to
the issuing bank the amount of such demand at or prior to the date the payment
is to be made by the issuing bank to the beneficiary, and the Company must
inform the bank if the Company is borrowing to make that payment.
The banks under the Credit Facility have security interests in substantially
all of the assets of the Company. Repayment of the Credit Facility is
guaranteed by substantially all of the subsidiaries of the Company. The Credit
Facility requires compliance with various financial covenants and restrictive
covenants, including limitations on indebtedness, dividends and acquisitions.
In connection with the Vintners Acquisition the Company borrowed $130 million
under the Subordinated Bank Loan. The Company repaid the subordinated bank loan
in December 1993 from the proceeds from the Notes Offering together with
Revolving Loan borrowings. The Notes are due in 2003 with
33
a stated interest rate of 8.75% per annum. Interest is payable semi-annually on
June 15 and December 15 of each year. The Notes are redeemable at the option of
the Company, in whole or in part, on or after December 15, 1998. The Notes are
unsecured and subordinated to the prior payment in full of all senior
indebtedness of the Company, which includes the Credit Facility. The Notes are
guaranteed, on a senior subordinated basis, by substantially all of the
Company's operating subsidiaries.
Pursuant to the Barton Acquisition, the Company is obligated to make payments
of up to an aggregate amount of $57.3 million which payments shall be payable
over a three year period ending November 29, 1996 (the "Earn-Out"). The first
payment of $4 million was made on December 31, 1993. The second payment of
$28.3 million is required to be made to the Barton stockholders (the "Barton
Stockholders") on December 30, 1994, as a result of satisfaction of certain
performance goals and the achievement of targets for earnings before interest
and taxes. The Company will fund the payment due on December 30, 1994 through
its Credit Facility. The remaining payments are contingent upon Barton
achieving and exceeding certain targets for earnings before interest and taxes
and are to be made as follows: up to $10 million is to be made on November 30,
1995; and up to $15 million is to be made on November 29, 1996. Such payment
obligations are secured in part by the Company's standby irrevocable letter of
credit under the Credit Facility in an original maximum face amount of the
Barton Letter of Credit and are subject to acceleration in certain events. All
Earn-Out payments will be accounted for as additional purchase price for the
Barton Acquisition when the contingency has been satisfied and allocated based
upon the fair market value of the underlying assets. As a result, when the
contingency has been satisfied depreciation and amortization expense will
increase in the future over the remaining useful lives of these assets.
At the closing of the Vintners Acquisition, the Company held back from
Vintners $8.4 million of the Vintners cash consideration, which represents 10%
of the then estimated net current assets of Vintners purchased by the Company
(the "Held-back Amount") and deposited an additional $2.8 million of the
Vintners cash consideration into an escrow account to be held until October 15,
1995. Subsequent to the Vintners Acquisition, the corporation formerly known as
Vintners ("Old Vintners") delivered a final closing net asset statement which
indicated that the purchase price should be reduced by $700,000. The Company
believes that the net current assets as reflected on the initial closing net
asset statement were overstated by approximately $14 million. The Company and
Old Vintners have been unable to resolve their differences and the Company
expects that the final net asset amount will be determined by an independent
accounting firm (the "Unaffiliated Firm") under the terms of the acquisition
agreement. The decision of the Unaffiliated Firm will be final and binding upon
the parties. In the event it is determined that the purchase price should be
reduced by less than $8.4 million then the Company shall pay the difference
into the established escrow. If the purchase price is to be reduced by more
than $8.4 million, then the Company will retain the Held-back Amount and will
be paid the amount in excess of $8.4 million out of the escrow account up to
the amount held in the escrow account. Any amounts remaining in the escrow
account will be held to reimburse the Company for any indemnification claims
arising out of the Vintners Acquisition.
The capital expenditures for the Company for the fiscal year ended August 31,
1994 were approximately $9.0 million. The Credit Facility restricts capital
expenditures of the Company to $40 million and $17 million for fiscal 1995 and
1996, respectively, and $15.5 million for any fiscal year thereafter, plus in
each case the amount of certain proceeds received from the sale of tangible
assets. The Company believes that the $40.0 million of capital expenditures to
be made in fiscal 1995 will be adequate to complete the Restructuring Plan and
to maintain existing facilities.
As part of the Restructuring Plan, the Company will take an estimated after-
tax restructuring charge in the fourth quarter of fiscal 1994 of $14.8 million,
or $0.91 per share on a fully diluted basis. Approximately 60% of the
restructuring charge relates to the revaluation of affected assets which will
not involve cash expenditures. Implementation of the Restructuring Plan will
require cash expenditures of approximately $27.1 million, including $20.0
million for capital expenditures, during fiscal 1995. Upon relocation of the
bottling facilities and other equipment from the Central Cellars and Soledad
wineries, these wineries will be
34
closed and offered for sale. Net proceeds from the dispositions of discontinued
operations and other assets in excess of $10.0 million are required to pay down
Term Loans. The capital expenditures will be funded through borrowings under
the Credit Facility and cash flow from operations. The Company anticipates that
the Restructuring Plan will result in net cost savings of approximately $1.7
million in fiscal 1995 and approximately $13.3 million of annual net cost
savings beginning in fiscal 1996.
The Company engages in operations at its facilities for the purpose of
disposing of waste and by-products generated in its production process. These
operations include the treatment of waste water to comply with regulatory
requirements prior to disposal in public facilities or upon property owned by
the Company or others and do not constitute a material part of the Company's
overall cost of product sold. Expenditures for the purpose of maintaining or
improving the Company's waste water treatment facilities have not constituted a
material part of the Company's maintenance or capital expenditures over the
last three fiscal years and the Company does not expect to incur any such
material expenditures during its 1995 fiscal year. During the last three fiscal
years the Company has not incurred, nor does it expect to incur in its 1995
fiscal year, any material expenditures related to remediation of previously
contaminated sites or other non-recurring environmental matters.
The Company believes that cash flows from operations will provide sufficient
funds to meet all of its anticipated short- and long-term debt service and
capital expenditure requirements. The Company is not aware of any potential
impairment to its liquidity and believes that the Revolving Loans available
under the Credit Facility and cash flow from operations will provide adequate
resources to satisfy its working capital, liquidity and anticipated capital
expenditure requirements for at least the next four fiscal quarters.
35
INDUSTRY
The beverage alcohol industry in the United States consists of the
production, importation, marketing and distribution of beer, wine and distilled
spirits products. Over the past five years there has been increasing
consolidation at the supplier, wholesaler and in some markets, retailer tiers
of the beverage alcohol industry. As a result, it has become advantageous for
certain suppliers to expand their portfolio of brands through acquisitions and
internal development in order to take advantage of economies of scale and to
increase their importance to a more limited number of wholesalers and in some
markets, retailers. From 1978 through 1993 the overall per capita consumption
of beverage alcohol products in the United States has generally declined.
However, table wines, and in particular varietal table wines, and imported beer
consumption have increased during the period. Market share and industry data
set forth below have been obtained from the following industry publications:
Wines & Vines; The Gomberg-Fredrikson Report; Jobson's Liquor Handbook;
Jobson's Wine Handbook; The U.S. Wine Market: Impact Databank Review and
Forecast, 1994 Edition; The U.S. Beer Market: Impact Databank Review and
Forecast, 1994 Edition; Beer Marketer's Insights: 1994 Import Insights; and
1994 Beer Industry Update. The Company has not independently verified this
data. References to market share data are based on unit volume. See "Investment
Considerations--General Decline in Consumption of Beverage Alcohol Products"
and "--Dependence on Distribution Channels."
The following table sets forth the industry unit volumes for shipments of
beverage alcohol products in the Company's five principal beverage alcohol
product categories in the United States for the five calendar years ended
December 31, 1993:
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
Domestic Table Wines(a)(b).............. 283,992 284,808 285,282 308,169 300,953
Domestic Dessert Wines(a)(c)............ 48,959 45,197 35,181 29,403 26,506
Domestic Sparkling Wines(a)............. 26,577 25,410 24,386 23,794 23,600
Imported Beer(d)........................ 119,320 121,014 109,212 114,590 127,418
Distilled Spirits(e).................... 155,867 159,190 147,025 148,017 144,162
- ------------
(a) Units are in thousands of gallons. Data exclude sales of wine coolers.
(b) Includes other special natural (flavored) wines under 14% alcohol.
(c) Includes dessert wines, other special natural (flavored) wines over 14%
alcohol and vermouth.
(d) Units are in thousands of cases (2.25 gallons per case).
(e) Units are in thousands of 9-liter cases (2.378 gallons per case).
Table Wines. Wines containing 14% or less alcohol by volume are generally
referred to as table wines. Within this category table wines are further
characterized as either "non-varietal" or "varietal." Non-varietal wines
include wines named after the European regions where similar types of wines
were originally produced (e.g., burgundy), niche products and proprietary
brands. Varietal wines are those named for the grape that comprises the
principal component of the wine. Table wines that retail at less than $5.75 per
750 ml. bottle are generally considered to be popularly priced while those that
retail at $5.75 or more per 750 ml. bottle are considered premium wines.
From 1989 to 1993, shipments of domestic table wines have increased at an
average compound annual rate of approximately 1.5%. In 1992, domestic table
wine shipments increased 8% from the previous year; this rate of increase was
markedly larger than in previous years and was attributed in large part to the
November 1991 CBS television 60 Minutes, French Paradox broadcast about the
healthful benefits of moderate red wine consumption. In 1993, domestic table
wine shipments declined by 2.3% when compared to 1992. This decline has been
attributed to an overall wholesale and retail wine inventory surplus at the end
of 1992. Based on shipments of California table wines, which constituted
approximately 94% of the total domestically produced table wine market in 1993,
shipments of varietal wines have grown at an average compound annual rate of
13.3% since 1989, with shipments in the first half of 1994 increasing 16% over
the prior year. In contrast, shipments of non-varietal table wines have
generally declined over the same period
36
although they showed a slight increase in 1992 as compared to 1991. For the
first half of calendar 1994, shipments of California table wines increased
approximately 7% over the same period in 1993. Shipments of imported table
wines have generally decreased over the last six years, decreasing from 58.9
million gallons in 1989 to 52.4 million gallons in 1993. Imported table wines
constituted 15% of the United States table wine market in calendar 1993.
Dessert Wines. Wines containing more than 14% alcohol by volume are generally
referred to as dessert wines. Dessert wines generally fall into the same price
categories as table wines. Dessert wine consumption in the United States has
been declining for many years reflecting a general shift in consumer
preferences to table and sparkling wines. For calendar year 1993, shipments of
domestic dessert wines decreased 9.9% over calendar year 1992, a lesser rate
than from 1989 to 1993, during which period shipments of domestic dessert wines
declined at an average compound annual rate of 14.2%. Dessert wines, which are
generally popularly priced, have been adversely affected by the January 1, 1991
increase in federal excise taxes which had the effect of increasing the cost of
these products to the consumer disproportionately with certain other beverage
alcohol products. Shipments of dessert wines continued to decline during the
first half of calendar 1994 as compared to the first half of calendar 1993 as
is evidenced by a 7% decline during this period in shipments of California
dessert wines, which constituted approximately 73% of the domestically produced
dessert wine market in 1993.
Sparkling Wines. Sparkling wines include effervescent wines like champagne
and spumante. Sparkling wines generally fall into the same price categories as
table wines. Shipments of sparkling wines declined at an average compound
annual rate of 2.9% from 1989 to 1993; and with shipments of domestic sparkling
wines declining 0.8% in calendar 1993 as compared to calendar 1992. The decline
in sparkling wine consumption is believed to reflect mounting concerns about
drinking and driving, as a large part of sparkling wine consumption occurs
outside the home at social gatherings and restaurants. Shipments of sparkling
wines continued to decline during the first half of 1994 as compared to the
first half of 1993 as is evidenced by a decline of 12% during this period in
shipments of California sparkling wines which constituted approximately 92% of
the domestically produced sparkling wine market in 1993. The Company believes
that shipments in the first half of 1994 were also adversely affected by high
levels of retail inventory at the beginning of the period.
Imported Beer. Shipments of imported beers have increased at an average
compound annual rate of 1.7% from 1989 to 1993. Shipments of Mexican beers in
calendar 1993 increased 10.4% over 1992. During the first half of calendar 1994
as compared to the corresponding period in 1993, shipments of Mexican beers
increased 14.5% as compared to an increase of 19.3% for the entire imported
beer category. In 1993, imported beers constituted 4.9% of the United States
beer market. This reflects an increase from 1992 when imported beers
constituted 4.4% of the United States beer market. Imported beers are generally
priced above the leading domestic premium brands. This price category also
includes beers produced by microbreweries and super-premium priced domestic
beers.
Distilled Spirits. Shipments of distilled spirits in the United States
declined at an average compound annual rate of 1.9% from 1989 to 1993. Although
shipments increased slightly in calendar 1992 as compared to calendar 1991,
shipments again declined in calendar 1993 by 2.6% when compared to calendar
1992. Shipments of distilled spirits have been affected by many of the same
trends evident in the rest of the beverage alcohol industry. Over the past five
years, whiskey sales have declined significantly while sales of rum, tequila,
cordials and liqueurs have increased. The Company believes that distilled
spirits can be divided into two general price segments, with distilled spirits
selling for less than $7.00 a 750 ml. bottle being referred to as price value
products and those selling for over $7.00 a 750 ml. bottle being referred to as
premium products.
37
BUSINESS
The Company is a leading producer and marketer of branded beverage alcohol
products, with over 125 national and regional brands which are distributed by
over 1,000 wholesalers throughout the United States and in selected
international markets. The Company is the second largest supplier of wines, the
fourth largest importer of beers and the eighth largest supplier of distilled
spirits in the United States. Market share and industry data set forth below
have been obtained from the following industry publications: Wines & Vines; The
Gomberg-Fredrikson Report; Jobson's Liquor Handbook; Jobson's Wine Handbook;
The U.S. Wine Market: Impact Databank Review and Forecast, 1994 Edition; The
U.S. Beer Market: Impact Databank Review and Forecast, 1994 Edition; Beer
Marketer's Insights: 1994 Import Insights; and 1994 Beer Industry Update. The
Company has not independently verified this data. References to market share
data are based on unit volume.
The Company's beverage alcohol brands are marketed in five general
categories: table wines, sparkling wines, dessert wines, imported beer and
distilled spirits, and include the following principal brands:
. Table Wines: Almaden, Inglenook, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor New York, Marcus James, Deer Valley and
Dunnewood
. Sparkling Wines: Cook's, J. Roget, Great Western and Taylor New York
. Dessert Wines: Richards Wild Irish Rose, Cisco, Taylor New York and
Italian Swiss Colony
. Imported Beer: Corona, St. Pauli Girl, Modelo Especial, Tsingtao and
Pacifico
. Distilled Spirits: Barton's Gin and Vodka, Ten High Bourbon Whiskey,
Crystal Palace Gin and Vodka, Montezuma Tequila, Northern Light Canadian
Whisky, Lauder's Scotch Whisky and Monte Alban Mezcal
Based on available industry data, the Company believes it has a 21% share of
the wine market, a 10% share of the imported beer market and a 4% share of the
distilled spirits market in the United States. Within the wine market, the
Company believes it has a 31% share of the non-varietal table wine market, a
10% share of the varietal table wine market, a 50% share of the dessert wine
market and a 32% share of the sparkling wine market in the United States. Many
of the Company's brands are leaders in their respective categories in the
United States, including Corona, the second largest selling imported beer
brand, Almaden and Inglenook, the fifth and sixth largest selling wine brands,
Richards Wild Irish Rose, the largest selling dessert wine brand, Cook's
champagne, the second largest selling sparkling wine brand, Montezuma, the
second largest selling tequila brand, and Monte Alban, the largest selling
mezcal brand.
During the past four years, the Company has diversified its product portfolio
through strategic acquisitions. Through these acquisitions, the Company
acquired strong market positions in growing product categories in the beverage
alcohol industry, such as varietal table wine and imported beer. Over the past
four years, industry shipments of varietal table wines and imported beers have
grown 64% and 7%, respectively. Through this strategy, the Company has also
strengthened its relationship with wholesalers, expanded its distribution and
enhanced its production capabilities as well as acquired additional management,
operational, marketing and research and development expertise. The Company has
also successfully integrated the acquired businesses into its existing business
and achieved significant cost reductions through reduced product and
organizational costs.
BUSINESS STRATEGY
The Company's business strategy is to continue to strengthen its market
position in each of its principal product lines. Key elements of its strategy
include: (i) making selective acquisitions in the beverage alcohol industry to
improve market position and capitalize on growth trends within the industry;
(ii) improving operating efficiencies through reduced product and
organizational costs of existing and acquired businesses; (iii) capitalizing on
strong wholesaler relationships resulting from its expanded portfolio of
brands; and (iv) expanding distribution into new markets and increasing
penetration of existing markets primarily through line extensions and
promotional activities.
38
Pursuing Acquisitions. The Company intends to continue its strategy of making
selective acquisitions in the beverage alcohol industry to improve market
position and to capitalize on growth trends within the industry. The Company
believes that acquisitions provide attractive opportunities to strengthen its
presence in the beverage alcohol industry as well as to achieve cost savings
from economies of scale. The continuing consolidation of the beverage alcohol
industry creates an opportunity for the Company to strengthen its position in
the wine, beer and distilled spirits product categories. At the date of this
Prospectus, the Company had no understandings or commitments with respect to
any acquisitions.
Improving Operating Efficiencies. In past acquisitions, the Company has been
successful in reducing product and organization costs. For example, following
the Guild acquisition in October 1991, the Company achieved reduced packaging
and freight costs and reductions of overhead through organizational integration
and plant rationalization. In addition, the Company significantly reduced
selling, general and administrative expenses by combining the sales force,
finance department and other general and administrative positions. Finally,
reduced general and administrative expenses were achieved through a reduction
in professional fees and insurance and benefit costs.
The Company believes that it has achieved significant cost savings from the
integration of Vintners' business with its own. These cost savings resulted
from lower material, production and freight costs, the elimination of redundant
sales, general and administrative positions and costs, and the elimination of
non-recurring expenses. The organizational integration included all areas of
the business such as production, finance, general and administrative, marketing
and sales. For the fiscal year ended July 31, 1993, the Vintners operating
profit margin was 1.4%. During the period from October 15, 1993, the date of
the Vintners Acquisition, through the end of the Company's 1994 fiscal year,
the operating profit margin on the businesses acquired from Vintners increased
to 17.5%.
The Company anticipates that the Restructuring Plan will result in net cost
savings of approximately $1.7 million in fiscal 1995 and approximately $13.3
million of annual net cost savings beginning in fiscal 1996. These savings will
result principally from the centralizing of the Company's California bottling
operations at the Mission Bell winery and the elimination of approximately 260
jobs.
Capitalizing on Wholesaler Relationships. The Company is a major supplier of
beverage alcohol products to many of its wholesalers. As a result of the
Acquisitions, the Company is able to offer a diversified portfolio of branded
products to the wholesalers. In addition, many of the Company's distributors
will be purchasing a larger percentage of their beverage alcohol products from
the Company. The Company believes that this strengthened position with its
wholesalers, together with the Company's four major sales forces, will enable
the Company to obtain greater attention and resources from distributors for its
existing product lines, new products and newly acquired brands. In the
Almaden/Inglenook Acquisition, the Company expanded its sales network by
establishing a separate sales force within the wine division to focus sales
attention on the newly acquired Almaden and Inglenook brands. In addition, the
Company has a separate sales force for each of its distilled spirits and beer
product lines. The Company believes that the four separate sales forces will
increase distributor focus on the existing and newly acquired brands which
should further strengthen the Company's position in the industry.
Expanding Distribution. The Company has pursued a strategy of expanding
distribution into new markets and increasing penetration of existing markets
primarily through line extensions and promotional activities. The Company
intends to expand distribution of certain of its regional distilled spirits
brands to additional regions of the United States and to expand distribution of
regional wine brands, such as Deer Valley, to all areas of the country. The
Company is the second largest exporter of wine in the United States and intends
to focus on increasing its wine and spirits exports. The Company also intends
to develop export sales of its domestically produced Point beer brand. Recently
introduced new products include a 22-ounce Corona bottle, Point Amber Classic
beer, a premixed "Long Island Iced Tea," a premium priced Paul Masson brandy
and Montezuma Anejo Especial, a premium priced tequila.
39
PRODUCT CATEGORIES
The Company produces, imports and markets beverage alcohol products in five
principal product categories: table wines, dessert wines, sparkling wines,
imported beer and distilled spirits. The table below sets forth the unit
volumes (in thousands of gallons) and net sales (in thousands) for all of the
table, dessert and sparkling wines, grape juice concentrate and other wine
related products and services sold by the Company and under brands and products
acquired in the Vintners Acquisition and the Almaden/Inglenook Acquisition for
the 1992, 1993 and 1994 fiscal years.
1992 1993 1994
----------------- ----------------- -----------------
TOTAL WINES NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
----------- --------- ------- --------- ------- --------- -------
Company(a)............ $245,243 40,908 $254,379 41,373 $245,083 36,613
Vintners(b)........... 182,505 27,814 157,706 24,868 125,923 20,461
Almaden/Inglenook(c).. 217,325 40,985 233,408 45,029 237,853 46,269
-------- ------- -------- ------- -------- -------
Total............... $645,073 109,707 $645,493 111,270 $608,859 103,343
======== ======= ======== ======= ======== =======
- ------------
(a) Data for fiscal years ended August 31, 1992, 1993 and 1994. The data
for the Company's fiscal year ended August 31, 1994 excludes the net
sales for the brands and other products acquired in the Vintners
Acquisition and the Almaden/Inglenook Acquisition.
(b) Data for fiscal years ended July 31, 1992 and 1993 and for the twelve
months ended August 31, 1994.
(c) Data for fiscal years ended September 30, 1992 and 1993 and for the
twelve months ended August 31, 1994.
Table Wines. The Company sells over 45 different brands of non-varietal table
wines, substantially all of which are marketed in the popularly priced segment
which constituted approximately 43% of the domestic table wine market in the
United States for the 1993 calendar year. The Company also sells over 15
different brands of varietal table wines in both the popularly priced and
premium categories. The table below sets forth the unit volumes (in thousands
of gallons) for the domestic table wines sold by the Company and under domestic
table wine brands acquired in the Vintners Acquisition and the
Almaden/Inglenook Acquisition for the 1992, 1993 and 1994 fiscal years:
TABLE WINES 1992 1993 1994
----------- ------ ------ ------
Non-varietal
Company............................................... 9,328 11,035 10,146
Vintners.............................................. 20,492 17,003 14,642
Almaden/Inglenook..................................... 27,873 28,658 27,822
Varietal
Company............................................... 1,132 1,332 1,614
Vintners.............................................. 3,274 3,873 2,564
Almaden/Inglenook..................................... 5,241 7,294 8,616
------ ------ ------
Total(a).............................................. 67,340 69,195 65,404
====== ====== ======
------------
(a) Excludes sales of wine coolers but includes sales of wine in bulk.
The Company's table wine brands include:
Almaden: The fifth largest selling table wine brand and the ninth largest
varietal wine brand in the United States. Almaden is one of the oldest and
best known table wines in the United States.
Inglenook: The sixth largest selling table wine brand and the seventh
largest varietal wine in the United States with a significant restaurant
and bar presence.
Paul Masson: The 11th largest selling table wine brand in the United States
which is offered in all major varietal and non-varietal product categories
in a full range of sizes.
40
Taylor California Cellars: The 14th largest domestic selling table wine
brand in the United States which is also offered in all major varietal and
non-varietal product categories in a full range of sizes.
Cribari: A well known brand of both varietal and non-varietal table wines
marketed in the popularly priced segment.
Manischewitz: The largest selling brand of kosher wine in the United
States.
Taylor New York: One of the United States' oldest brands of non-varietal
wine marketed primarily in the eastern half of the United States.
Richards Wild Irish Rose: A brand of table wine possessing unique taste
characteristics which is a line extension of the nation's leading dessert
wine brand.
Deer Valley: This line of California varietal and non-varietal table wines
introduced in 1989 has had significant success in California. The Company
is in the process of introducing this brand in other regions of the
country.
Cook's: This varietal wine was created to take advantage of the brand
recognition associated with Cook's sparkling wines.
Dunnewood: From California's north coast, unit volumes of this varietal
wine have also increased significantly. This brand is marketed at the lower
end of the premium price category.
The Company has pursued a strategy of increasing its unit volume sales in the
table wine segment by acquiring new brands and by growing existing brands. The
Company's unit volume sales of non-varietal table wines increased from
approximately 9.3 million in fiscal 1992 to approximately 52.6 million on a pro
forma basis for fiscal 1994 as a result of the Vintners Acquisition and the
Almaden/Inglenook Acquisition. Likewise, the Company's unit volume sales of
varietal table wines increased from approximately 1.1 million in fiscal 1992 to
over 12.8 million on a pro forma basis for fiscal 1994 as a result of the
Vintners Acquisition and the Almaden/Inglenook Acquisition. The Company
believes that its recent acquisition of the Almaden/
Inglenook Product Lines, including the Almaden and Inglenook brands, creates
additional opportunities for growth in this product category.
The 1993 decrease in unit volume of Vintners' table wines resulted from a
number of factors including a significant decrease in Vintners' expenditures
for advertising, promotion and selling activities during the three year period
ended July 31, 1993. The Company believes that this decrease resulted in a
reduction in the level of wholesaler attention paid to Vintners' brands, and
the Company believes that certain of Vintners' products were not competitively
priced. During the Company's fiscal 1994, unit volume sales of Vintners table
wines continued to decline. During fiscal 1994, the Company implemented steps
to address this decline, including a reduction in prices for its Taylor
California brands, the implementation of new promotional programs and
repackaging of selected products. As a result of these efforts, the Company
believes that sales of Vintners' brands have begun to stabilize.
The Company also markets a selection of popularly priced imported table wines.
These brands include:
Marcus James: One of the largest selling imported varietal wines in the
United States. Marcus James is a line of varietal table wines which
includes white zinfandel, chardonnay, cabernet savignon and merlot. The
Company owns the Marcus James brand and contracts for its production in
Brazil.
Partager: A popularly priced French table wine with both varietal and non-
varietal products. The Company owns the Partager brand and contracts for
its production in France.
Mateus: The second largest selling Portuguese table wine and a highly
recognized brand name. This brand is imported by the Company under a
distribution agreement.
41
The Company's unit volume sales of imported wine has increased steadily from
1.3 million gallons in fiscal 1992 to 1.9 million gallons in fiscal 1994. This
increase is attributable primarily to increased sales of the Marcus James brand
and the inclusion of a full year of Mateus sales. Including sales of Partager
by Vintners prior to its acquisition by the Company, on a pro forma basis for
fiscal 1994, the Company sold approximately 2.0 million gallons of imported
table wines.
Dessert Wines. The Company markets substantially all of its dessert wines in
the lower end of the popularly priced segment. The popularly priced segment
represented approximately 88% of the dessert wine market in calendar 1993.
Sales of dessert wines comprised 10.2% of the Company's total revenues during
the fiscal year ended August 31, 1994, on a pro forma basis. The table below
sets forth the unit volumes (in thousands of gallons) for the domestic dessert
wines sold by the Company and under domestic dessert wine brands acquired in
the Vintners Acquisition for the 1992, 1993 and 1994 fiscal years:
DESSERT WINES 1992 1993 1994
------------- ------ ------ ------
Company............................................... 14,717 12,358 10,484
Vintners.............................................. 1,755 1,520 1,553
------ ------ ------
Total............................................. 16,472 13,878 12,037
====== ====== ======
The Company's dessert wines include:
Richards Wild Irish Rose: The largest selling dessert wine brand in the
United States and the Company's leading dessert wine brand in unit volume
sales.
Cisco: The fourth largest selling dessert wine brand in the United States.
Cisco is a flavored dessert wine positioned higher in price than Richards
Wild Irish Rose.
Taylor New York: Premium dessert wines, including port and sherry.
The Company's unit volume sales of dessert wines have declined over the last
three years. The decline can be attributed to a general decline in dessert wine
consumption in the United States. The Company's unit volume sales of its
dessert wine brands (including the brands acquired from Vintners) have
decreased 26.9% from fiscal 1992 to fiscal 1994.
Sparkling Wines. The Company markets substantially all of its sparkling wines
in the popularly priced segment, which constituted approximately 48% of the
domestic sparkling wine market in calendar 1993. The table below sets forth the
unit volumes (in thousands of gallons) for the domestic sparkling wines sold by
the Company and under domestic sparking wine brands acquired in the Vintners
Acquisition and the Almaden/Inglenook Acquisition for the 1992, 1993 and 1994
fiscal years:
SPARKLING WINES 1992 1993 1994
--------------- ----- ----- -----
Company.................................................. 6,359 6,464 6,483
Vintners................................................. 1,089 848 668
Almaden/Inglenook........................................ 306 243 202
----- ----- -----
Total................................................ 7,754 7,555 7,353
===== ===== =====
The Company's sparkling wine brands include:
Cook's: The second largest selling domestic sparkling wine in the United
States. This brand of champagne is marketed in a bell shaped bottle and is
cork-finished, packaging generally associated with higher priced products.
J. Roget: The sixth largest selling domestic sparkling wine in the United
States, priced slightly below Cook's.
Great Western: A premium priced champagne, fermented in the bottle.
42
Taylor New York: A well known premium priced champagne also fermented in
the bottle.
Codorniu: The second largest Spanish sparkling wine imported in the United
States; sold in the premium price category.
Jacques Bonet: Priced in the economy segment, this product appeals to
restaurants and caterers.
The Company has maintained sales levels of sparkling wine over the last three
years in contrast to a general industry decline in sales for this product
category.
Grape Juice Concentrate. As part of its wine business, the Company produces
grape juice concentrate. Grape juice concentrate is sold to the food and wine
industries as a raw material for the production of juice-based products, no-
sugar-added foods and beverages. Grape juice concentrate competes with other
domestically produced and imported fruit-based concentrates. As a result of the
Almaden/Inglenook Acquisition, the Company believes that it is the leading
grape juice concentrate producer in the United States. The table below sets
forth the unit volumes (in thousands of gallons) for the grape juice
concentrate sold by the Company and the grape juice concentrate business
acquired in the Almaden/Inglenook Product Lines for the 1992, 1993 and 1994
fiscal years:
GRAPE JUICE CONCENTRATE 1992 1993 1994
----------------------- ------ ------ ------
Company............................................... 3,917 4,516 2,203
Almaden/Inglenook..................................... 7,565 8,835 9,623
------ ------ ------
Total............................................. 11,482 13,351 11,826
====== ====== ======
Other Wine Product and Related Services. The Company's other wine related
products and services include: grape juice; St. Regis, the leading non-
alcoholic line of wines in the United States; Paul Masson and other brandies;
wine coolers sold primarily under the Sun Country brand name; cooking wine; and
wine for the production of vinegar. The Company also provides various bottling
and distillation production services for third parties.
Beer. The Company is the fourth largest marketer of imported beers in the
United States. The Company distributes Corona, St. Pauli Girl, Modelo Especial
and Tsingtao, four of the top imported beer brands in the United States. The
table below sets forth the unit volume (in thousands of cases) and net sales
(in thousands) for the beer sold by Barton for the years ended August 31:
1992 1993 1994
----------------------- ---------------------------- ----------------------------
NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
--------- ------ --------- ------ --------- ------
$131,868 10,152 $158,359 12,422 $173,883 14,100
The Company's principal imported beer brands include:
Corona: The number one selling beer in Mexico and the second largest
selling imported beer in the United States. In addition, the Company
believes that Corona is the largest selling import in the territory in
which it is distributed by the Company. The Company has represented the
supplier of Corona since 1978 and currently sells Corona and its related
Mexican beer brands in 25 primarily western states.
St. Pauli Girl: The 15th largest selling imported beer in the United
States, and the second largest selling German import.
Modelo Especial: One of the family of products imported from the supplier
of Corona, Modelo Especial is the number one selling canned beer in Mexico
with 1994 shipments into the United States increasing by 57% over 1993
shipments.
Tsingtao: The largest selling Chinese beer in the United States.
The Company's other imported beer brands include Pacifico and Negra Modelo from
Mexico, Peroni from Italy and Double Diamond from the United Kingdom. In
September 1992 the Company acquired the Stevens Point Brewery, a regional
brewer located in Wisconsin, together with its brands including Point Special.
43
Net sales and unit volumes of the Company's beer brands have grown during the
previous two fiscal years as a result of the acquisition of the St. Pauli Girl
and Double Diamond brands on July 1, 1992, the acquisition of the Point brands
in September 1992 and increased sales of Corona and the Company's other Mexican
beer brands. The Company's selling prices were not increased significantly over
this time period.
Distilled Spirits. The Company is the eighth largest producer, importer and
marketer of distilled spirits in the United States. The Company produces,
bottles, imports and markets a diversified line of quality distilled spirits,
and also exports distilled spirits to more than 15 foreign countries. The table
below sets forth the unit volumes (in thousands of 9-liter cases) and net sales
(in thousands) for the distilled products case goods sold by Barton for the
years ended August 31:
1992 1993 1994
----------------------- ---------------------------- ----------------------------
NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
--------- ------ --------- ------ --------- ------
$82,677 5,609 $82,270 5,529 $81,367 5,370
The Company's leading distilled spirits brands include:
Monte Alban: A premium priced product which the Company believes is the
number one selling mezcal in the United States.
Montezuma: This brand is the number two selling tequila in the United
States.
Ten High Bourbon: One of the leading bourbon brands in the United States.
Barton Gin and Vodka: Well-known leading national brands.
Other products include Crystal Palace Gin and Vodka, Lauder's, House of
Stuart and Highland Mist Scotch whiskies, Kentucky Gentleman, Very Old Barton
and Tom Moore bourbon whiskeys, Sabroso coffee liqueur, Northern Light,
Canadian Host and Canadian Supreme Canadian whiskies and Imperial, Barton
Reserve and Barton Premium blended whiskeys. Substantially all of the Company's
unit volume consists of products marketed in the price value segment, which the
Company believes constituted approximately 50% of the distilled spirits market
in calendar 1993.
Although net sales and unit volumes of the Company's distilled spirits brands
have been relatively flat over the periods shown, there have been changes in
sales of particular brands. Unit volumes of vodka and tequila have increased
while Scotch and bourbon have experienced decreases in unit volume. Net sales
have generally not been affected by price increases.
In addition to the branded products described above, the Company also sells
distilled spirits in bulk and provides contract production and bottling
services. These activities accounted for net sales during the 12 month periods
ended August 31, 1992, 1993 and 1994 of $11.8 million, $10.6 million and $7.0
million, respectively.
MARKETING AND DISTRIBUTION
The Company's products are distributed and sold throughout the United States
through over 1,000 wholesalers, as well as through state alcoholic beverage
control agencies. The Company employs a full-time in-house sales organization
of approximately 350 people to develop and service its sales to wholesalers and
state agencies. The Company's sales force is organized in four sales units: a
beer unit, a spirits unit and two wine units, one of which focuses on the newly
acquired brands purchased in the Almaden/Inglenook Acquisition. The Company
believes that the organization of its sales force into four divisions positions
it to maintain a high degree of focus on each of its principal product
categories.
The Company's wine marketing strategy places primary emphasis upon
promotional programs directed at its broad national distribution network (and
to the retailers served by that network). The Company closely manages its
advertising expenditures in relation to the performance of its brands. The
Company has extensive
44
marketing programs for its brands including television, radio, outdoor and
print advertising, promotional, programs on both a national basis and regional
basis in accordance with the strength of the brands, event sponsorship, market
research, point-of-sale materials, trade advertising and public relations.
TRADEMARKS AND DISTRIBUTION AGREEMENTS
The Company's wine products are sold under a number of trademarks. All of
these trademarks are either owned by the Company or used by the Company under
exclusive license or distribution agreements.
The Company also owns the following trademarks used in its distilled spirits
business: Montezuma, House of Stuart, Highland Mist, Kentucky Gentleman,
Barton, Canadian Supreme and Sabroso. The Monte Alban trademark for use outside
of Mexico is jointly owned by the Company and the supplier of Monte Alban
Mezcal. The Company owns the world-wide sales and marketing rights outside of
Mexico.
In September 1989, Barton purchased certain assets from Hiram Walker & Sons,
Inc ("Hiram Walker") and obtained licenses to use the trade names Ten High
Bourbon Whiskey, Crystal Palace Gin, Northern Light Blended Canadian Whisky,
Lauder's Scotch Whisky and Imperial blended whiskey for an initial seven year
period. Under an agreement dated January 28, 1994, the Company paid $5.1
million to Hiram Walker for the extension of licenses to use these brand names
and certain other spirits brands, for varying periods, the longest of which
terminates in 2116.
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements from the suppliers of these products. These
agreements have terms that vary and prohibit the Company from importing other
beers from the same country. The Company's agreement to distribute Corona and
its other Mexican beer brands exclusively throughout 25 states was renewed
effective January 1994 and expires in December 1998 with automatic renewal
thereafter for one year periods from year to year unless terminated. Under this
agreement, the Mexican supplier has the right to consent to Mr. Goodman's
successor as Chairman and Chief Executive Officer of Barton's beer subsidiary,
which consent may not be unreasonably withheld, and, if such consent is
properly withheld, to terminate the agreement. The Company's agreement for the
importation of St. Pauli Girl expires in 1998 with automatic renewal until 2003
unless the Company terminates. The Company's agreement for the exclusive
importation of Tsingtao throughout the entire United States was renewed
effective January 1994 and expires in December 1996 with an automatic renewal
to December 1999, subject to the fulfillment of certain performance criteria.
Prior to their expiration, these agreements may be terminated if the Company
fails to meet certain performance criteria. The Company believes it is
currently in compliance with all of its material distribution agreements. Given
the Company's long-term relationships with its suppliers, the Company does not
believe that these agreements will be terminated and expects that such
agreements will be renewed prior to their expiration.
COMPETITION
The beverage alcohol industry is highly competitive. The Company competes on
the basis of quality, price, brand recognition and distribution. The Company's
beverage alcohol products compete with other alcoholic and non-alcoholic
beverages for consumer purchases, as well as shelf space in retail stores and
for marketing focus by the Company's wholesalers. The Company competes with
numerous multinational producers and distributors of beverage alcohol products,
many of which have significantly greater resources than the Company. The
Company's principal competitors include E&J Gallo Winery in the wine category,
Van Munching & Co., Molson Breweries USA and Guinness in the imported beer
category and United Distillers Glenmore and Jim Beam Brands in the distilled
spirits category.
PRODUCTION
The Company's wines are produced from several varieties of wine grapes grown
principally in California and New York. The grapes are crushed at the Company's
wineries and stored as wine, grape juice or concentrate. Such grape products
may be made into wine for sale under the Company's brand names, sold to other
companies for resale under their own labels, or shipped to customers in the
form of juice, juice
45
concentrate, unfinished wines, high-proof grape spirits or brandy. Most of the
Company's wines are bottled and sold within 18 months after the grape crush.
The Company's inventories of wines, grape juice and concentrate are usually at
their highest levels in November and December, immediately after the crush of
each year's grape harvest, and are substantially reduced prior to the
subsequent year's crush.
The bourbon whiskeys, domestic blended whiskeys and light whiskeys marketed
by the Company are primarily produced and aged by the Company at its distillery
in Bardstown, Kentucky, though it may from time to time supplement its
inventories through purchases from other distillers. At its Atlanta, Georgia
facility, the Company produces all of the grain neutral spirits used by it in
the production of vodka, gin and blended whiskey sold by it to customers in the
state of Georgia. The Company's requirements of Canadian and Scotch whiskies,
and tequila, mezcal, and the grain neutral spirits used by it in the production
of gin and vodka for sale outside of Georgia, are purchased from various
suppliers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal components in the production of the Company's branded beverage
alcohol products are: packaging materials, primarily glass; grapes; and other
agricultural products, such as grain.
The Company utilizes glass bottles and other materials, such as caps, corks,
capsules, labels and cardboard cartons in the bottling and packaging of its
products. Glass bottle costs is one of the largest components of the Company's
cost of product sold. The glass bottle industry is highly concentrated with
only a small number of producers. The Company has traditionally obtained, and
continues to obtain, its glass requirements from a limited number of producers.
The Company has not experienced difficulty in satisfying its requirements with
respect to any of the foregoing and considers its sources of supply to be
adequate. However, the inability of any of the Company's glass bottle suppliers
to satisfy the Company's requirements could adversely affect the Company's
operations.
Most of the Company's annual grape requirements are satisfied by purchases
from each year's harvest, which occurs from July through October. The Company
owns no vineyards in California and purchases grapes from over 1,000
independent growers principally in California and New York. In connection with
the Vintners Acquisition and the Almaden/Inglenook Acquisition, the Company
acquired certain long term contracts. The Company enters into written purchase
agreements with a majority of these growers on a year-to-year basis. As a
result of this ample grape supply the Company believes that its exposure to
phylloxera and other agricultural risks is minimal.
The distilled spirits manufactured by the Company require various
agricultural products, neutral grain spirits and bulk spirits. The Company
fulfills its requirements through purchases from various sources, through
contractual arrangements and through purchases on the open market. The Company
believes that adequate supplies of the aforementioned products are available at
the present time.
GOVERNMENT REGULATION
The Company's operations are subject to extensive federal and state
regulation. These regulations cover, among other matters, sales promotion,
advertising and public relations, labeling and packaging, changes in officers
or directors, ownership or control, distribution methods and relationships, and
requirements regarding brand registration and the posting of prices and price
changes. All of the Company's facilities are also subject to federal, state and
local environmental laws and regulations and the Company is required to obtain
permits and licenses to operate its facilities. The Company believes that it is
in compliance in all material respects with all presently applicable
governmental laws and regulations and that the cost of administration of
compliance with such laws and regulations does not have, and is not expected to
have, a material adverse impact on the Company's financial condition or results
of operations.
46
EMPLOYEES
The Company has approximately 2,650 full-time employees, approximately 901 of
whom are covered by collective bargaining agreements. The Company's collective
bargaining agreement concerning 368 employees at the Mission Bell winery has
expired and negotiations have commenced. Additional workers may be employed by
the Company during the grape crushing season. The Company considers its
employee relations to be good.
PROPERTIES
The Company currently operates 15 wineries, two bottling and distilling
plants, one bottling and rectifying plant and a brewery, all of which include
warehousing and distribution facilities on the premises. The Company considers
its principal facilities to be the Mission Bell winery in Madera, California,
the Canandaigua, New York winery, and the Gonzales, California winery and the
distilling and bottling facility located in Bardstown, Kentucky. Under the
Restructuring Plan, the Central Cellars winery located in Lodi, California and
the Soledad, California winery will be closed and offered for sale to reduce
excess capacity.
In New York, the Company operates four wineries located in Canandaigua,
Naples, Batavia and Hammondsport. The Hammondsport winery lease, acquired in
the Vintners Acquisition, expires in April 1995. Production at this winery will
be consolidated at the Company's other New York wineries.
The Company currently operates 11 winery facilities in California, including
Central Cellars and Soledad Cellars which are to be closed. In the
Almaden/Inglenook Acquisition, the Company acquired two new facilities located
in Escalon and Madera, California. The Madera winery (known as the Mission Bell
winery) is a crushing, wine production, bottling and distribution facility and
a grape juice concentrate production facility. The Mission Bell winery will
absorb the production of Central Cellars. The Escalon facility is operated
under a long-term lease with an option to buy. As part of the Restructuring
Plan, the branded wine bottling operations at the Gonzales, California facility
where Paul Masson and Taylor Cellars are currently bottled will be moved to the
Mission Bell winery during fiscal 1995. The other wineries operated in
California are located in Lodi, McFarland, Madera, Fresno and Ukiah.
The Company operates three facilities that produce and/or bottle and store
distilled spirits. It owns production, bottling and storage facilities in
Bardstown, Kentucky and Atlanta, Georgia, and operates a bottling plant in
Carson, California, near Los Angeles, under a management contract. The
Bardstown facility distills, bottles and warehouses whiskey for the Company's
account and on a contractual basis for other participants in the industry. The
Company also owns a production plant in Atlanta, Georgia which produces vodka,
gin and blended whiskeys. The Carson plant receives distilled spirits in bulk
from Bardstown and outside vendors, which it bottles and distributes. The
Company also performs contract bottling at the Carson plant.
The Company owns a brewery in Stevens Point, Wisconsin where it produces and
bottles Point beer. In addition, the Company owns and maintains its corporate
headquarters in Canandaigua, New York, and leases office space in Chicago,
Illinois.
The Company believes that all of its facilities are in good condition and
working order and have adequate capacity to meet its needs for the foreseeable
future.
Most of the Company's real property has been pledged, under the terms of
collateral security mortgages, as security for the payment of outstanding loans
under the Credit Facility.
47
LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to litigation from time to time
in the ordinary course of business. Although the amount of any liability with
respect to such litigation cannot be determined, in the opinion of management,
such liability will not have a material adverse effect on the Company's
financial condition or results of operations.
In connection with an investigation in the State of New Jersey into
regulatory trade practices in the beverage alcohol industry, one employee of
the Company was arrested in March 1994 and another employee has subsequently
come under investigation in connection with providing "free goods" to retailers
in violation of New Jersey beverage alcohol laws. Employees of several
wholesalers and other alcoholic beverage manufacturers were also arrested or
are under active investigation. Although the New Jersey Attorney General's
office may expand its criminal investigation to include the Company and other
manufacturers, to date, no grand jury subpoenas have been issued and no charges
have been brought. The Company has cooperated with the Attorney General's
office and, as a result of extensive discussions, the Attorney General's office
has requested and the Company has submitted a detailed proposal to achieve a
resolution of all civil, criminal and regulatory issues. The Company does not
believe that the dollar amount of such a settlement or its effect on the
Company's operations, if any, will be material.
The Company expects to enter into a settlement agreement with the Georgia
Environmental Protection Division with respect to the burning of fusel oil at
the Company's Atlanta, Georgia facility from August 1991 through August 1993.
Under this settlement agreement, the Company expects to pay a stipulated civil
penalty of $99,000, and to incur $16,000 of other costs.
48
RECENT ACQUISITIONS
The Barton Acquisition. On June 29, 1993, the Company acquired all of the
outstanding shares of capital stock of Barton. Barton is the United States'
fourth largest importer of beers and eighth largest supplier of distilled
spirits. The Barton Acquisition has enabled the Company to diversify within the
beverage alcohol industry by participating in the imported beer and distilled
spirits markets, which have similar marketing approaches and distribution
channels to the Company's wine business, and to take advantage of the
experienced management team that developed Barton as a successful company. With
this acquisition, the Company acquired the right to distribute Corona and
Modelo Especial beer in 25 primarily western states, national distribution
rights for St. Pauli Girl and Tsingtao and a diversified line of distilled
spirits including Barton Gin and Vodka, Ten High Bourbon Whiskey and Montezuma
Tequila.
Barton is being operated independently by its current management as a
subsidiary of the Company. Until August 31, 1996, consistent with past
practices and subject to annual approval by the Company's Board of Directors of
an annual operating plan for the coming year, Ellis M. Goodman, the Chief
Executive Officer of Barton, has full and exclusive strategic and operational
responsibility for Barton and all of its subsidiaries.
The aggregate consideration for Barton consisted of $65.5 million in cash,
one million shares of the Company's Class A Common Stock, payments of up to
approximately $4 million to participants in Barton's phantom stock plan and
payments of up to an aggregate amount of $57.3 million (the "Earn-Out
Amounts"). The cash consideration delivered at the closing was funded through a
$50 million Term Loan and $18.8 million of Revolving Loans under the Company's
Credit Facility. The Earn-Out Amounts consist of four payments scheduled to be
made over a three year period. The first payment of $4 million was made on
December 31, 1993. The second payment of $28.3 million is required to be made
to the Barton Stockholders upon satisfaction of certain performance goals and
the achievement of targets for earnings before interest and taxes. These goals
have been satisfied and this payment will be made on December 30, 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Liquidity and Capital Resources."
The Vintners Acquisition. On October 15, 1993, the Company acquired
substantially all of the assets of Vintners, subject to the assumption of
certain liabilities. Vintners was the United States' fifth largest supplier of
wine with two of the country's most highly recognized brands, Paul Masson and
Taylor California Cellars. The Vintners Acquisition enabled the Company to
expand its wine portfolio to include several large and highly recognized table
wine brands that are distributed by a substantially common wholesaler network.
Vintners' operations were immediately integrated with those of the Company at
the closing of the acquisition. With this acquisition, the Company acquired the
Paul Masson, Taylor California Cellars, Taylor New York, Deer Valley, St. Regis
(non-alcoholic) and Great Western brands and related facilities.
The aggregate cash consideration for Vintners was $148.9 million of which
$18.9 million related to purchases of grapes in the 1993 harvest. The Company
also delivered options to Vintners to purchase an aggregate of 500,000 shares
(the "Option Shares") of the Company's Class A Common Stock, at an exercise
price per share of $18.25, which Options are exercisable at any time until
October 15, 1996. The Vintners cash consideration was funded by the Company
pursuant to: (i) $18.9 million of Revolving Loans under the Credit Facility and
(ii) a $130 million Subordinated Bank Loan. On December 27, 1993, the
Subordinated Bank Loan was repaid from the net proceeds of the Notes Offering
and $4.1 million of Revolving Loans.
The Almaden/Inglenook Acquisition. On August 5, 1994 the Company acquired the
Almaden and Inglenook brands, the fifth and sixth largest selling table wines
in the United States, a grape juice concentrate business, and wineries in
Madera and Escalon, California, from Heublein. The Company also acquired
Belaire Creek Cellars, Chateau La Salle and Charles Le Franc table wines, Le
Domaine champagne and Almaden, Hartley and Jacques Bonet brandy. The accounts
receivable and the accounts payable related to the acquired assets were not
acquired by the Company.
49
As a result of the Almaden/Inglenook Acquisition, the Company has
strengthened its position as the second largest supplier of wines in the United
States. The acquisition of the Inglenook brand significantly expands the
Company's restaurant and bar on-premises presence. The Company intends to
maintain the existing sales force and distribution network of the Almaden and
Inglenook brands. Further, the Almaden/Inglenook Acquisition has resulted in
the Company becoming the leading grape juice concentrate producer in the United
States. The Company believes that the Almaden/Inglenook Acquisition will enable
the Company to achieve significant cost savings through the consolidation of
its California winery operations. The Almaden/Inglenook Product Lines had net
sales for the 12-months ended September 30, 1993 of $233.4 million.
The aggregate consideration for the acquired brands and other assets
consisted of $130.6 million in cash, assumption of certain current liabilities
and options to purchase an aggregate of 600,000 shares of Class A Common Stock
(the "Almaden Option Shares"). Of the Almaden Option Shares, 200,000 are
exercisable at a price of $30 per share and the remaining 400,000 are
exercisable at a price of $35 per share. All of the options are exercisable at
any time until August 5, 1996. The source of the cash payment made at closing,
together with payment of other costs and expenses required by the
Almaden/Inglenook Acquisition, was financing provided by the Company pursuant
to a Term Loan under the Credit Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Liquidity
and Capital Resources."
The cash purchase price is subject to adjustment and, based upon a closing
statement delivered to the Company by Heublein, is expected to be reduced by
$9.3 million. Under the acquisition agreement Heublein is obligated to pay the
Company this amount plus interest from the closing date. The purchase price for
the Almaden/Inglenook Acquisition as set forth in the pro forma financial
statements included in this Prospectus reflects the original cash purchase
price as adjusted for the payment expected to be received from Heublein.
Heublein also agreed not to compete with the Company in the United States and
Canada for a period of five years following the closing of the
Almaden/Inglenook Acquisition in the production and sale of grape juice
concentrate or sale of packaged wines bearing the designation "Chablis" or
"Burgundy" except where, among other exceptions, such designations are
currently used with certain brands retained by Heublein. Certain companies
acquired by Heublein, however, may compete directly with the Company.
50
MANAGEMENT
The following table sets forth information with respect to the directors and
principal officers of the Company:
NAME AGE POSITION OR OFFICE HELD
---- --- -----------------------
Marvin Sands 70 Chairman of the Board
Richard Sands 43 President, Chief Executive Officer and a Director
Robert Sands 36 Executive Vice President, General Counsel and a
Director
Bertram E. Silk 62 Senior Vice President and a Director
James A. Locke, III 52 Director
George Bresler 69 Director
Ellis M. Goodman 57 Director and Executive Vice President of the Company
and Chief Executive Officer of Barton Incorporated
Sir Harry Solomon 57 Director
Lynn K. Fetterman 47 Senior Vice President, Chief Financial Officer and
Secretary
Chris Kalabokes 47 Senior Vice President, President of Wine Division
Alexander L. Berk 44 President and Chief Operating Officer of Barton
Incorporated
Fred R. Mardell 60 Executive Vice President and General Counsel of Barton
Incorporated
Marvin Sands is the founder of the Company, which is the successor to a
business he started in 1945. He has been a director of the Company and its
predecessor since 1946 and was Chief Executive Officer until October 1993.
Marvin Sands is the father of Richard Sands and Robert Sands.
Richard Sands, Ph.D. has been employed by the Company in various capacities
since 1979. He was elected Executive Vice President and a director in 1982,
became President and Chief Operating Officer in May 1986 and was elected Chief
Executive Officer in October 1993. He is a son of Marvin Sands and the brother
of Robert Sands.
Robert Sands was appointed Executive Vice President, General Counsel in
October 1993. He was elected a director of the Company in January 1990 and
served as Vice President, General Counsel since June 1990. From June 1986,
until his appointment as Vice President, General Counsel, Mr. Sands was
employed by the Company as General Counsel. He is a son of Marvin Sands and the
brother of Richard Sands.
Bertram E. Silk has been a director and Vice President of the Company since
1973 and was elected Senior Vice President in October 1993. He has been
employed by the Company since 1965. Currently, Mr. Silk is in charge of the
Company's grape grower relations in California. Before moving from Canandaigua,
New York to California in 1989, Mr. Silk was in charge of production for the
Company. From 1989 to August 1994 Mr. Silk was in charge of the Company's grape
juice concentrate business in California.
James A. Locke, III has been a director of the Company since 1983. He is a
partner in the law firm of Harter, Secrest & Emery, Rochester, New York, which
is the Company's principal outside counsel.
George Bresler has been a director of the Company since 1992. From August
1987 through July 1992, Mr. Bresler was a partner in the law firm of Bresler
and Bab, New York, New York. Currently, Mr. Bresler is a partner in the law
firm of Rosner, Bresler, Goodman & Golden in New York, New York.
Ellis M. Goodman has been a director and Vice President since July 1993 and
was elected Executive Vice President in October 1993. Mr. Goodman has been
Chief Executive Officer of Barton Incorporated since 1987 and Chief Executive
Officer of Barton Brands, Ltd. since 1982.
Sir Harry Solomon has been a director of the Company since July 1993. From
1976 to 1993 Sir Harry was Chairman of the Board of Hillsdown Holdings plc, a
British food company. Currently, Sir Harry is a
51
director of Hillsdown Holdings plc, Frogmore Estates plc, a real estate
development and investment company, and Princedale plc, an industrial design
and management consulting company, all of which are publicly quoted United
Kingdom companies.
Lynn K. Fetterman joined the Company during April 1990 as its Vice President,
Finance and Administration, Secretary and Treasurer and was elected Senior Vice
President, Chief Financial Officer and Secretary in October 1993. For more than
10 years prior to that, he was employed by Reckitt and Colman in various
executive capacities, including Vice President, Finance of its Airwick
Industries Division and Vice President, Finance of its Durkee-French Foods
Division. Mr. Fetterman's most recent position with Reckitt and Colman was as
its Vice President-Controller. Reckitt and Colman's principal business relates
to consumer food and household products.
Chris Kalabokes joined the Company during October 1991 as President and Chief
Executive Officer of the Company's Guild Wineries & Distilleries, Inc.
subsidiary. During September 1992, he was appointed to the position of Vice
President, President of the Wine Division of the Company and in October 1993
was appointed a Senior Vice President. For more than five years prior to
joining the Company, he was employed by Guild. Mr. Kalabokes joined Guild in
April 1985 as its Chief Financial Officer and continued in that position until
June 1987 when he was promoted to President and Chief Executive Officer.
Alexander L. Berk has served as President and Chief Operating Officer of
Barton since 1990. From 1988 to 1990 Mr. Berk was the President and Chief
Executive Officer of Schenley Industries and previously served in various other
positions with Schenley since 1972.
Fred R. Mardell has served as Executive Vice President of Barton since 1987
and General Counsel and an officer of Barton, or its predecessors, since
joining the company in 1965.
STOCK OWNERSHIP
As of September 30, 1994, the directors and principal officers of the Company
listed above as a group beneficially owned approximately 20% of the outstanding
shares of Class A Common Stock (exclusive of shares of Class A Common Stock
issuable pursuant to the conversion feature of the Class B Common Stock
beneficially owned by such officers and directors) and approximately 84% of the
outstanding shares of Class B Common Stock.
52
SELLING STOCKHOLDERS
The following table sets forth as to each Selling Stockholder, the number of
shares of Class A Common Stock owned prior to the Offerings, the number of
shares of Class A Common Stock being offered in the Offerings and the number of
shares of Class A Common Stock to be owned upon completion of the Offerings.
SHARES
SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERINGS NUMBER OF OFFERINGS
------------------ SHARES ---------------
NAME NUMBER PERCENT(1) BEING OFFERED NUMBER PERCENT
---- ------- ---------- ------------- ------- -------
Alexander L. Berk(2)(4)....... 6,817 * 2,351 4,466 *
Mandell L. and Madeleine H.
Berman(3).................... 9,898 * 9,898 -- --
Arthur Brody(3)............... 44,111 * 44,111 -- --
Centre Capital Investors,
L.P.(3)...................... 40,288 * 40,288 -- --
Michael P.H. Cliff(3)......... 14,811 * 14,811 -- --
Chrysler Capital Corpora-
tion(3)...................... 2,281 * 2,281 -- --
Michael J. Doyle(3)(5)........ 2,591 * 2,591 -- --
Byron and Dorothy Gerson(3)... 9,322 * 9,322 -- --
Roger Gimbel(3)............... 2,345 * 2,345 -- --
Edward L. Golden(2)(4)........ 21,063 * 21,063 -- --
Norman R. Goldstein(2)(4)..... 15,876 * 15,376 500 *
Ellis M. Goodman(2)(4)(6)..... 435,759 3.3% 176,079 259,680 1.6%
Margaret J. Gramble(3)........ 158 * 158 -- --
Bernard Grobman(3)............ 2,345 * 2,345 -- --
William F. Hackett(2)(4)...... 14,848 * 11,000 3,848 *
Donald S. and Darrell L.
Hirsch,
as Trustees of the Donald S.
and Darrell Lynn Hirsch Fam-
ily Living
Trust(2)(7).................. 5,561 * 3,073 2,488 *
Household Commercial of Cali-
fornia, Inc.(3).............. 145,825 1.1 145,825 -- --
Frank A. Jerant(3)............ 2,431 * 2,431 -- --
Hugh Kennedy(3)............... 1,864 * 1,864 -- --
John M. Kent(2)(4)............ 8,524 * 3,009 5,515 *
Edwin W. Macrae(3)............ 1,737 * 1,737 -- --
Fred R. Mardell(2)(4)......... 70,210 * 60,000 10,210 *
Thomas A. Medley(2)(4)........ 2,808 * 1,203 1,605 *
Harry Mekow(2)(8)............. 2,808 * 2,808 -- --
Merrill Lynch, Pierce Fenner &
Smith
Custodian FBO Michael P.H.
Cliff(3)..................... 891 * 891 -- --
Stephen M. Neumer,
as Trustee of the Goodman
Gift Trust
FBO Sara Goodman(2).......... 118,631 * 68,031 50,600 *
Stephen M. Neumer,
as Trustee of Goodman Gift
Trust
FBO Paul Goodman(2).......... 118,631 * 68,031 50,600 *
53
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERINGS NUMBER OF OFFERINGS
----------------- SHARES --------------
NAME NUMBER PERCENT(1) BEING OFFERED NUMBER PERCENT
---- ------ ---------- ------------- ------ -------
Raymond E. Powers(2)(4)......... 14,934 * 3,000 11,934 *
Norman P. Rappaport(3).......... 22,751 * 22,751 -- --
Helene Reinlieb(3).............. 3,160 * 3,160 -- --
Estate of Manny Reinlieb(3)..... 3,160 * 3,160 -- --
Rothschild Trust (Schweiz) AG
and
Rothschild Trust Cayman Limit-
ed,
as Trustees of the Harry and
Judith Solomon 1986 Own Settle-
ment(2)(9)..................... 80,667 * 34,572 46,095 *
Rothschild Trust (Schweiz) AG
and
Rothschild Trust Cayman Limit-
ed,
as Trustees of the Harry and
Judith Solomon 1986 No. III
Children's Settlement(2)(9).... 80,667 * 34,572 46,095 *
Irving Russo(3)................. 3,473 * 3,473 -- --
Herbert H. Schiff(3)............ 6,078 * 6,078 -- --
Gary J. Schlem(3)............... 158 * 158 -- --
Paul M. Schlem(3)............... 46,134 * 46,134 -- --
J.E. Seagram Corp.(3)(10)....... 836 * 836 -- --
Joseph E. Seagram & Sons,
Inc.(3)(10).................... 27,602 * 27,602 -- --
Smith Barney as IRA
Custodian for Michael J.
Doyle(3)(5).................... 379 * 379 -- --
Spectrum Associates(3).......... 9,898 * 9,898 -- --
The Tyssen Trust(3)............. 10,336 * 10,336 -- --
Vintners Associates, Inc.(3).... 13,383 * 13,383 -- --
Marvin Weisenfeld(2)(4)......... 7,501 * 1,509 5,992 *
William Zheutlin(3)............. 3,821 * 3,821 -- --
- --------
*Less than 1%.
(1) Percentage based on 12,617,301 shares of Class A Common Stock outstanding
as of September 30, 1994 plus 432,067 shares of Class A Common Stock to be
issued to certain Selling Stockholders upon exercise of certain options
issued in the Vintners Acquisition and which shares are included in the
Offerings.
(2) A former stockholder of Barton ("Barton Stockholder") and a party to the
stock purchase agreement (the "Barton Acquisition Agreement") pursuant to
which the Company acquired all of the stock of Barton and the Barton
Stockholders were issued the shares of Class A Common Stock being offered
in the Offerings. Under the terms of the Barton Acquisition Agreement, the
Company is required to pay the Earn-Out Amounts to the Barton Stockholders
upon the satisfaction of certain performance goals and the achievement of
targets for earnings before interest and taxes. In addition, certain of the
Barton Stockholders are entitled to receive payments under the Barton
phantom stock plan when the Earn-Out Amounts are paid. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Liquidity and Capital Resources."
(3) The shares being offered by this holder in the Offerings will be acquired
upon exercise of options exercisable at a price of $18.25 per share, which
options were initially issued to Old Vintners in the Vintners Acquisition
(the "Vintners Options"). Under the terms of a custodian agreement the
Company
54
will retain the aggregate exercise price for the shares to be offered prior
to disbursement of the balance of the proceeds to the Selling Stockholders.
Under the terms of the Vintners Acquisition, certain holders of Vintners
Options received a portion of the cash consideration paid by the Company in
the Vintners Acquisition and will be entitled to receive amounts in an
escrow account remaining after satisfaction of the Company's indemnification
claims arising out of the Vintners Acquisition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Financial
Liquidity and Capital Resources."
(4) Currently is and, during the past three years, has been an officer of
Barton or its subsidiaries.
(5) Mr. Doyle is the landlord of certain vineyards in New York which the
Company subleases under a sublease with Old Vintners.
(6) Mr. Goodman is a director and executive officer of the Company. Includes
9,680 shares owned of record by the Gillian and Ellis Goodman Foundation
(the "Foundation"). Mr. Goodman is president of the Foundation with full
voting power with respect to the shares and disclaims beneficial ownership
of such shares.
(7) Donald S. Hirsch is currently and during the past three years has been an
officer of Barton or its subsidiaries. One hundred eighty-four (184) shares
of Class A Common Stock owned by Mr. Hirsch is included in the information
provided above.
(8) Mr. Mekow was an officer of Barton or its subsidiaries until 1993 and is
now retired.
(9) Sir Harry Solomon is a director of the Company. Sir Harry and his spouse
are the grantors of, and have a lifetime pecuniary interest in the income
of, the Harry and Judith Solomon 1986 Own Settlement. Sir Harry and his
spouse are the grantors of the Harry and Judith Solomon 1986 No. III
Children's Settlement and Sir Harry disclaims beneficial ownership of the
shares held by such trust.
(10) The Company performs contract bottling services for Joseph E. Seagram &
Sons, Inc. ("Seagram") at its Carson, California distilled spirits
bottling plant. Seagram is a distributor of certain of the Company's
distilled spirits brands in Europe.
55
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 80,000,000 shares, of
which 60,000,000 shares are Class A Common Stock, par value $.01 per share, and
20,000,000 shares are Class B Common Stock, par value $.01 per share. At
September 30, 1994 there were 12,617,301 shares of Class A Common Stock
outstanding and held of record by 1,470 stockholders and 3,390,051 shares of
Class B Common Stock outstanding and held of record by 406 stockholders. In
addition, at September 30, 1994, options to purchase an aggregate of 1,665,750
shares of Class A Common Stock were outstanding. After completion of the
Offerings, 16,049,368 shares of Class A Common Stock will be issued and
outstanding, assuming no exercise of the Underwriters' and Managers' over-
allotment option. All shares of Class A Common Stock and Class B Common Stock
currently outstanding are, and the shares of Class A Common Stock offered
hereby will be, fully paid and non-assessable, not subject to redemption except
as hereinafter described and without preemptive or other rights to subscribe
for or purchase any proportionate part of any new or additional issues of stock
of any class or of securities convertible into stock of any class.
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Certificate of Incorporation and By-Laws
is a summary and is qualified in its entirety by the provisions of the Restated
Certificate of Incorporation and By-Laws.
COMMON STOCK
General. The rights of holders of Class A Common Stock and Class B Common
Stock are identical except for voting, dividends and conversion rights.
Voting. The holders of Class A Common Stock are entitled to one vote per
share and the holders of Class B Common Stock are entitled to 10 votes per
share. Holders of Class A Common Stock, voting as a class, are entitled to
elect at least one-fourth of the members of the Board of Directors to be
elected at a meeting of stockholders, and the holders of Class B Common Stock,
voting as a class, are entitled to elect the remaining directors. If the number
of outstanding shares of Class B Common Stock is less than 12 1/2% of the
aggregate number of outstanding shares of Class A Common Stock and Class B
Common Stock, the holders of Class A Common Stock shall become entitled to
elect at least one-fourth of the directors voting as a class and to elect the
remaining directors voting together as a single class with holders of Class B
Common Stock, provided that the holders of Class A Common Stock shall have one
vote per share and the holders of Class B Common Stock shall have 10 votes per
share. Holders of Class A Common Stock and Class B Common Stock may also vote
as separate classes on those matters set forth in Section 242(b) of the
Delaware General Corporation Law to the extent that an amendment to the
Company's certificate of incorporation would affect the rights and preferences
of that class of stock, although the number of authorized but not issued and
outstanding shares of either Class A Common Stock or Class B Common Stock may
be increased or decreased by the majority vote of all outstanding shares of
Class A Common Stock and Class B Common Stock voting as a single class. On all
other matters submitted to a vote of the stockholders, the holders of Class A
Common Stock and Class B Common Stock vote together as a single class.
Dividends. If the Company pays a cash dividend on Class B Common Stock, each
share of Class A Common Stock will receive an amount at least 10% greater than
the amount of the cash dividend per share paid on Class B Common Stock. In
addition, the Board of Directors may declare and pay a dividend on Class A
Common Stock without paying any dividend on Class B Common Stock.
Conversion. Each share of Class B Common Stock is convertible into one fully
paid and non-assessable share of Class A Common Stock at the option of the
holder at any time. The shares of Class A Common Stock are not convertible into
or exchangeable for shares of Class B Common Stock or any other securities of
the Company.
56
Other Provisions. The Holders of Class A Common Stock and Class B Common
Stock are entitled to share pro rata in the distribution of the Company's
assets available for such purpose in the event of liquidation. Holders of Class
A Common Stock and Class B Common Stock have no preemptive rights to subscribe
to any additional securities of any class which the Company may issue, and
there are no redemption provisions or sinking fund provisions applicable to any
such classes, nor is the Class A Common Stock and Class B Common Stock subject
to calls or assessments by the Company.
CERTAIN STATUTORY PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation Law
("Section 203"). Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock or (iii) on or after the
consummation date the business combination is approved by the board of
directors and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder. For purposes of
Section 203, a "business combination" includes a merger, assets sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is The First
National Bank of Boston, Boston, Massachusetts.
57
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain anticipated United States
federal income and estate tax consequences of the ownership and disposition of
shares of Class A Common Stock by non-U.S. holders. For purposes of this
discussion, a "non-U.S. holder" is any person other than (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or of any
State, or (iii) an estate or trust whose income is includable in gross income
for United States federal income tax purposes regardless of its source. This
discussion does not consider any specific facts or circumstances that may apply
to a particular non-U.S. holder. Furthermore, the following discussion is based
on current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and administrative and judicial interpretation of the Code as of the
date hereof, all of which are subject to change. Each prospective non-U.S.
holder is urged to consult its own tax adviser with respect to the United
States federal income and estate tax consequences and United States state and
local tax consequences of owning and disposing of shares of Class A Common
Stock, as well as any tax consequences arising under the laws of any other
taxing jurisdiction.
DIVIDENDS
In general, dividends paid to a non-U.S. holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively
connected with a trade or business carried on by the non-U.S. holder within the
United States, or (ii) if a tax treaty applies, attributable to a United States
permanent establishment maintained by the non-U.S. holder. Dividends
effectively connected with such trade or business or attributable to such
permanent establishment generally will not be subject to withholding (if the
non-U.S. holder files certain forms with the payor of the dividend) and
generally will be subject to United States federal income tax at regular rates.
In the case of a non-U.S. holder which is a corporation, such effectively
connected income may also be subject to an additional "branch profits tax"
(which is generally imposed on a foreign corporation on the repatriation from
the United States of effectively connected earnings and profits). To determine
the applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under current
Treasury regulations to be paid to a resident of that country. Treasury
regulations proposed in 1984 which have not been finally adopted, however,
would require non-U.S. holders to file certain forms to obtain the benefit of
any applicable tax treaty providing for a lower rate of withholding tax on
dividends.
GAIN ON DISPOSITION
A non-U.S. holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Class A Common
Stock unless (i) the Company is or has been a "U.S. real property holding
corporation" for United States federal income tax purposes (which the Company
does not believe that it is or is likely to become) and the non-U.S. holder
disposing of the share owned, directly or constructively, at any time during
the five-year period preceding the disposition, more than five percent of the
Class A Common Stock; (ii) the gain is effectively connected with a trade or
business carried on by the non-U.S. holder within the United States or, if a
tax treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. holder; (iii) in the case of a non-U.S. holder who
is an individual,
who holds the share as a capital asset and who is present in the United States
for 183 days or more in the taxable year of the disposition, either (a) such
non-U.S. holder has a "tax home" (as defined for U.S. federal income tax
purposes) in the United States and the gain from the disposition is not
attributable to an office or other fixed place of business maintained by such
non-U.S. holder outside of the United States or (b) the gain from the
disposition is attributable to an office or other fixed place of business
maintained by such non-U.S. holder in the United States; or (iv) the non-U.S.
Holder is subject to a tax pursuant to provisions of the Code applicable to
certain United States expatriates.
FEDERAL ESTATE TAX
Shares of Class A Common Stock owned or treated as owned by an individual who
is not a citizen or resident (as defined for United States federal estate tax
purposes) of the United States at the time of death
58
will be includable in the individual's gross estate for United States federal
estate tax purposes unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS
The Company must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these information returns may also be made available
under the provisions of a specific treaty or agreement to the tax authorities
in the country in which the non-U.S. holder resides. United States backup
withholding tax (which generally is a withholding tax imposed at the rate of
31% on certain payments to persons that fail to furnish the information
required under the United States information reporting requirements) will
generally not apply to dividends paid on Class A Common Stock to a non-U.S.
holder at an address outside the United States.
The payment of the proceeds from the disposition of Class A Common Stock to
or through the United States office of a broker will be subject to information
reporting and backup withholding at a rate of 31% unless the owner, under
penalties of perjury, certifies, among other things, its status as a non-U.S.
holder, or otherwise establishes an exemption. The payment of the proceeds from
the disposition of Class A Common Stock to or through a non-U.S. office of a
broker generally will, except as noted below, not be subject to backup
withholding and information reporting. In the case of proceeds from a
disposition of Class A Common Stock paid to or through a non-U.S. office of a
U.S. broker or paid to or through a non-U.S. office of a non-U.S. broker that
is (i) a "controlled foreign corporation" for United States federal income tax
purposes or (ii) a person 50% or more of whose gross income from all sources
for a certain three-year period was effectively connected with a United States
trade or business, (a) backup withholding will not apply unless the broker has
actual knowledge that the owner is not a non-U.S. holder, and (b) information
reporting will not apply if the broker has documentary evidence in its files
and the owner is a non-U.S. holder (unless the broker has actual knowledge to
the contrary).
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded (or credited against the non-U.S. holder's
United States federal income tax liability, if any), provided that the required
information is furnished to the Service.
The backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to the Class A Common
Stock is subject to change.
59
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Common Stock in Canada is being made only on
a private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Class A Common Stock are effected. Accordingly, any
resale of the Class A Common Stock in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Class A Common Stock.
REPRESENTATIONS TO PURCHASERS
Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Class A Common Stock without the benefit of a prospectus
qualified under such securities laws, (ii) where required by law, that such
purchaser is purchasing as principal and not as agent, and (iii) such purchaser
has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of the
issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Common Stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #88/5, a copy of which may be obtained from the
Company. Only one such report must be filed in respect of Class A Common Stock
acquired on the same date and under the same prospectus exemption.
60
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1994 (the "U.S. Underwriting Agreement"), the underwriters
named below (the "U.S. Underwriters"), for whom CS First Boston Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, William Blair & Company and
Chase Securities, Inc. are acting as representatives (the "Representatives"),
have severally but not jointly agreed to purchase from the Company and the
Selling Stockholders the following respective numbers of U.S. Shares:
NUMBER OF
UNDERWRITER U.S. SHARES
----------- -----------
CS First Boston Corporation.....................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..............
William Blair & Company.........................................
Chase Securities, Inc...........................................
---------
Total....................................................... 3,150,195
=========
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have entered into a Subscription
Agreement (the "Subscription Agreement") with the Managers of the International
Offering (the "Managers") providing for the concurrent offer and sale of the
International Shares outside the United States and Canada. The closing of the
U.S. Offering is a condition to the closing of the International Offering and
vice versa.
The Company has granted to the U.S. Underwriters and the Managers an option,
exercisable by CS First Boston Corporation, expiring at the close of business
on the 30th day after the date of this Prospectus, to purchase up to 590,662
additional shares at the public offering price, less the underwriting discounts
and commissions, all as set forth on the cover page of this Prospectus. The
U.S. Underwriters and the Managers may exercise such option only to cover over-
allotments in the sale of the shares of Class A Common Stock offered hereby. To
the extent that this option to purchase is exercised, each U.S. Underwriter and
each Manager will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares being sold to the U.S.
Underwriters and the Managers as the number of U.S. Shares set forth next to
such U.S. Underwriter's name in the preceding table bears to the total number
of U.S. Shares in such table and as the number set forth next to such Manager's
name in the corresponding table in the prospectus relating to the International
Offering bears to the total number of International Shares in such table.
The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares in the United States and Canada
to the public initially at the public offering price set forth on the cover
page of this Prospectus and, through the Representatives, to certain dealers at
such price less a concession of $ per share, and the U.S. Underwriters and
such dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
61
In connection with the Offerings, certain of the U.S. Underwriters, Managers
and selling group members (if any) and their respective affiliates may engage
in passive market making transactions in the Class A Common Stock and Class B
Common Stock on the Nasdaq Stock Market in accordance with Rule 10b-6A under
the Exchange Act during a period before commencement of offers or sales of the
U.S. Shares offered hereby. The passive market making transactions must comply
with applicable volume and price limits and be identified as such.
The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and Managers (the
"Intersyndicate Agreement") relating to the Offerings, changes in the public
offering price, concession and discount to dealers will be made only upon the
mutual agreement of CS First Boston Corporation, as the representative of the
U.S. Underwriters, and CS First Boston Limited ("CSFBL"), on behalf of the
Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute any
prospectus relating to the Class A Common Stock to any person outside the
United States or Canada or to any other dealer who does not so agree. Each of
the Managers has agreed or will agree that, as part of the distribution of the
International Shares and subject to certain exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Class A
Common Stock or distribute any prospectus relating to the Class A Common Stock
in the United States or Canada or to any other dealer who does not so agree.
The foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject
to its jurisdiction, and an offer or sale shall be in the United States or
Canada if it is made to (i) any individual resident in the United States or
Canada or (ii) any corporation, partnership, pension, profit-sharing or other
trust or other entity (including any such entity acting as an investment
adviser with discretionary authority) whose office most directly involved with
the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the U.S.
Underwriters and the Managers of such number of shares of Class A Common Stock
as may be mutually agreed upon. The price of any shares so sold will be the
initial public offering price, less such amount as may be mutually agreed upon
by CS First Boston Corporation, as representative of the U.S. Underwriters, and
CSFBL, on behalf of the Managers, but not exceeding the selling concession
applicable to such shares. To the extent there are sales between the U.S.
Underwriters and the Managers pursuant to the Intersyndicate Agreement, the
number of shares of Class A Common Stock initially available for sale by the
U.S. Underwriters or by the Managers may be more or less than the amount
appearing on the cover page of the Prospectus. Neither the U.S. Underwriters
nor the Managers are obligated to purchase from the other any unsold shares of
Class A Common Stock.
This Prospectus may be used by underwriters and dealers in connection with
the sales of International Shares to persons located in the United States, to
the extent such sales are permitted by the contractual limitations on sales
described above.
The Company and members of the Sands family have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, and the Company has agreed that it will not cause to be filed with
the Commission a registration statement under the Securities Act relating to
any shares of Class A Common Stock or any securities convertible into or
exchangeable or exercisable for any shares of Class A Common Stock or announce
the intention to make such offer, sale, pledge, disposal or filing except the
shares of Class A Common Stock offered in the Offerings, without the prior
written consent of CS First
62
Boston Corporation for a period of 90 days after the date of this Prospectus;
provided, however, that (i) the Company may grant options exercisable for up to
200,000 shares of Class A Common Stock pursuant to any employee stock option
plan, (ii) the Company may offer and sell Class A Common Stock pursuant to the
Company's employee stock purchase plan, and (iii) the Company may issue Class A
Common Stock upon the exercise of options outstanding on the date hereof and
pursuant to other obligations binding upon the Company and in effect on the
date hereof.
Each of the Company and the Selling Stockholders has agreed to indemnify the
U.S. Underwriters and the Managers against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
U.S. Underwriters and the Managers may be required to make in respect thereof.
Because more than 10% of the net proceeds of the Offerings will be paid to an
affiliate of Chase Securities, Inc., the Offerings are being conducted in
accordance with Section 44(c) of the NASD Rules of Fair Practice. Certain of
the Representatives perform investment banking services for the Company from
time to time. In addition, an affiliate of Chase Securities, Inc. performs
commercial banking services for the Company.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company and the Selling Stockholders by McDermott, Will &
Emery, Chicago, Illinois. Certain legal matters in connection with the
Offerings will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York.
EXPERTS
The consolidated financial statements of the Company included or incorporated
by reference in this Prospectus and elsewhere in the Registration Statement to
the extent and for the periods indicated in their report have been audited by
Arthur Andersen LLP, independent public accountants, and are included or
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of Barton, incorporated by reference in this
Prospectus and the Registration Statement, have been audited by Deloitte &
Touche LLP, independent public accountants to the extent and for the periods
indicated in their report with respect thereto and have been incorporated by
reference herein in reliance upon the report of said firm given their authority
as experts in accounting and auditing.
The financial statement of Vintners as of July 31, 1993 and 1992 and for each
of the three years in the period ended July 31, 1993 appearing in the Company's
Current Report on Form 8-K dated October 15, 1993, as amended by Form 8-K/A,
Form 8-K/A-2 and Form 8-K/A-3 have been audited by Ernst & Young LLP,
independent auditors, as indicated in their report thereon included therein and
incorporated herein by reference. The financial statements of Vintners are
incorporated herein by reference in reliance upon such report of Ernst & Young
LLP, given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the Almaden/Inglenook Product Lines as of August
5, 1994 and for each of the years in the three year period ended September 30,
1993 have been included in this Prospectus and elsewhere in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP independent
certified public accountants appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP refers to a change in the method of applying overhead to inventory.
63
INDEX TO FINANCIAL STATEMENTS
PAGE
----
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of May 31, 1994 (unaudited) and
August 31, 1993 and 1992............................................... F-3
Consolidated Statements of Income for the nine-month periods ended May
31, 1994 and
1993 (unaudited) and years ended August 31, 1993, 1992 and 1991........ F-5
Consolidated Statements of Changes in Stockholders' Equity for the
years ended August 31, 1993, 1992 and 1991 and the nine-month period
ended
May 31, 1994 (unaudited)............................................... F-6
Consolidated Statements of Cash Flows for the nine-month periods ended
May 31,
1994 and 1993 (unaudited) and years ended August 31, 1993, 1992 and
1991................................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
ALMADEN/INGLENOOK PRODUCT LINES
Independent Auditors' Report............................................ F-27
Statement of Assets and Liabilities Related to the Product Lines Ac-
quired by Canandaigua Wine Company, Inc. as of August 5, 1994.......... F-28
Statements of Identified Income and Expenses of the Product Lines Ac-
quired to Canandaigua
Wine Company, Inc. for the ten month periods ended August 5, 1994 and
July 31, 1993 (unaudited) and the years ended September 30, 1993, 1992
and 1991............................................................... F-29
Statements of Cash Flows of the Product Lines Acquired by Canandaigua
Wine Company, Inc.
for the ten month periods ended August 5, 1994 and July 31, 1993 (unau-
dited) and the years ended September 30, 1993, 1992 and 1991........... F-30
Notes to Financial Statements of the Product Lines Acquired by Canandai-
gua
Wine Company, Inc. .................................................... F-31
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Canandaigua Wine Company, Inc.:
We have audited the accompanying consolidated balance sheets of CANANDAIGUA
WINE COMPANY, INC. (a Delaware corporation) and subsidiaries as of August 31,
1993 and 1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Canandaigua Wine Company, Inc.
and subsidiaries as of August 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1993, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Rochester, New York
October 29, 1993
F-2
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
AUGUST 31,
MAY 31, --------------------------
1994 1993 1992
------------ ------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash investments.......... $ 1,539,933 $ 3,717,782 $ 2,193,543
Accounts receivable, net........... 98,248,168 75,908,946 33,768,893
Inventories, net................... 215,515,787 147,165,267 92,694,401
Prepaid expenses and other current
assets............................ 19,461,000 17,262,919 5,427,052
------------ ------------ ------------
Total current assets............. 334,764,888 244,054,914 134,083,889
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at
cost:
Land............................... 12,015,152 4,305,648 4,131,069
Buildings and improvements......... 62,516,055 30,135,151 26,296,460
Machinery and equipment............ 145,575,079 91,161,305 82,671,627
Motor vehicles..................... 2,551,367 2,553,585 1,811,128
Construction in progress........... 4,189,593 2,074,570 2,213,610
------------ ------------ ------------
226,847,246 130,230,259 117,123,894
Less--Accumulated depreciation....... (59,149,570) (51,629,978) (44,554,352)
------------ ------------ ------------
167,697,676 78,600,281 72,569,542
------------ ------------ ------------
OTHER ASSETS......................... 77,305,520 32,527,291 11,181,799
------------ ------------ ------------
Total assets..................... $579,768,084 $355,182,486 $217,835,230
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31,
MAY 31, --------------------------
1994 1993 1992
------------ ------------ ------------
(UNAUDITED)
CURRENT LIABILITIES:
Notes payable...................... $ 38,000,000 $ 9,000,000 $ --
Current maturities of long-term
debt.............................. 8,793,954 11,828,000 265,181
Accounts payable................... 34,266,350 41,288,481 40,702,691
Accrued federal and state excise
taxes ............................ 11,399,202 11,194,941 3,584,001
Accrued salaries and commissions... 5,574,569 4,276,960 2,006,714
Other accrued liabilities.......... 56,813,189 19,213,356 5,632,837
------------ ------------ ------------
Total current liabilities........ 154,847,264 96,801,738 52,191,424
------------ ------------ ------------
LONG-TERM DEBT, less current maturi-
ties................................ 178,432,437 108,303,233 61,909,155
------------ ------------ ------------
DEFERRED INCOME TAXES................ 31,479,601 20,629,329 7,849,814
------------ ------------ ------------
OTHER LIABILITIES.................... 7,852,108 3,344,414 335,783
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par val-
ue--
Authorized, 60,000,000 shares; Is-
sued, 13,832,597 in 1994,
10,543,645 shares in 1993 and
9,489,130 shares in 1992.......... 138,326 105,439 94,891
Class B Convertible Common Stock,
$.01 par value--Authorized,
20,000,000 shares; Issued,
4,015,776 in 1994, 4,068,576
shares in 1993 and 4,069,741
shares in 1992.................... 40,158 40,685 40,697
Additional paid-in capital......... 110,066,831 47,201,942 32,338,092
Retained earnings.................. 104,575,200 86,525,325 70,921,273
------------ ------------ ------------
214,820,515 133,873,391 103,394,953
------------ ------------ ------------
Less--Treasury stock
Class A Common Stock, 1,239,366
shares in 1994, 1,274,251 shares in
1993 and 1,299,426 in 1992, at cost. (5,457,318) (5,563,096) (5,639,376)
Class B Convertible Common Stock,
625,725 shares in 1994, 625,725
shares in 1993 and 625,725 in
1992, at cost..................... (2,206,523) (2,206,523) (2,206,523)
------------ ------------ ------------
(7,663,841) (7,769,619) (7,845,899)
------------ ------------ ------------
Total stockholders' equity........... 207,156,674 126,103,772 95,549,054
------------ ------------ ------------
Total liabilities and stockholders'
equity.............................. $579,768,084 $355,182,486 $217,835,230
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED MAY 31, YEARS ENDED AUGUST 31,
---------------------------- ----------------------------------------
1994 1993 1993 1992 1991
------------- ------------- ------------ ------------ ------------
(UNAUDITED)
GROSS SALES............. $ 618,615,707 $ 233,605,602 $389,417,243 $305,117,538 $212,636,675
Less--Excise taxes.... (169,876,974) (43,219,847) (83,108,908) (59,874,990) (36,077,686)
------------- ------------- ------------ ------------ ------------
Net sales........... 448,738,733 190,385,755 306,308,335 245,242,548 176,558,989
COST OF PRODUCT SOLD.... (319,639,702) (132,744,773) (214,930,669) (174,685,036) (131,064,112)
------------- ------------- ------------ ------------ ------------
Gross profit.......... 129,099,031 57,640,982 91,377,666 70,557,512 45,494,877
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... (87,109,400) (37,539,688) (59,983,385) (46,490,983) (30,183,407)
------------- ------------- ------------ ------------ ------------
Operating income...... 41,989,631 20,101,294 31,394,281 24,066,529 15,311,470
INTEREST INCOME......... 237,587 126,082 147,417 327,693 955,210
INTEREST EXPENSE........ (13,083,543) (4,312,012) (6,273,429) (6,510,250) (4,586,059)
------------- ------------- ------------ ------------ ------------
Income before
provision for income
taxes................ 29,143,675 15,915,364 25,268,269 17,883,972 11,680,621
PROVISION FOR FEDERAL
AND STATE INCOME TAXES. (11,093,800) (5,968,300) (9,664,217) (6,527,630) (3,970,500)
------------- ------------- ------------ ------------ ------------
NET INCOME............ $ 18,049,875 $ 9,947,064 $ 15,604,052 $ 11,356,342 $ 7,710,121
============= ============= ============ ============ ============
PER SHARE DATA:
Net income per common
and common equivalent
share:
Primary............. $1.16 $.84 $1.30 $1.08 $0.84
===== ==== ===== ===== =====
Fully diluted....... $1.13 $.79 $1.20 $1.01 $ --
===== ==== ===== ===== =====
Weighted average
shares outstanding:
Primary............. 15,590,328 11,775,180 11,963,652 10,527,270 9,202,048
Fully diluted....... 16,329,966 15,068,265 15,203,114 13,820,335 --
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ------- ------------ ------------ ----------- ------------
BALANCE, August 31,
1990................... $ 66,853 $42,844 $146,105 $51,854,810 $(4,908,041) $47,202,571
Conversion of 46,800
Class B Convertible
Common shares to Class
A Common shares....... 468 (468) -- -- -- --
Employee stock purchase
of 32,790 treasury
shares................ -- -- 60,938 -- 99,534 160,472
Purchase of treasury
shares 587,250 Class A
Common shares and
59,400 Class B
Convertible Common
shares................ -- -- -- -- (3,106,526) (3,106,526)
Issuance of 1,719
treasury shares to
stock appreciation
right plan............ -- -- 2,804 -- 5,218 8,022
Net income for fiscal
1991.................. -- -- -- 7,710,121 -- 7,710,121
-------- ------- ------------ ------------ ----------- ------------
BALANCE, August 31,
1991................... 67,321 42,376 209,847 59,564,931 (7,909,815) 51,974,660
Conversion of 167,689
Class B Convertible
Common shares to Class
A Common shares....... 1,679 (1,679) -- -- -- --
Issuance of 2,589,750
Class A Common shares. 25,898 -- 31,955,469 -- -- 31,981,367
Employee stock purchase
of 18,526 treasury
shares................ -- -- 159,217 -- 56,157 215,374
Fractional shares paid
in cash in a three-
for-two stock split... (7) -- (7,650) -- -- (7,657)
Issuance of 2,556
treasury shares to
stock incentive plan.. -- -- 21,209 -- 7,759 28,968
Net income for fiscal
1992.................. -- -- -- 11,356,342 -- 11,356,342
-------- ------- ------------ ------------ ----------- ------------
BALANCE, August 31,
1992................... 94,891 40,697 32,338,092 70,921,273 (7,845,899) 95,549,054
Conversion of 1,165
Class B Convertible
Common shares to Class
A Common shares ...... 12 (12) -- -- -- --
Issuance of 1,000,000
Class A Common shares. 10,000 -- 13,583,750 -- -- 13,593,750
Conversion of 7%
Convertible debentures
to Class A Common
shares 536 -- 976,409 -- -- 976,945
Employee stock purchase
of 21,071 treasury
shares................ -- -- 265,852 -- 63,845 329,697
Issuance of 4,104
treasury shares to
stock incentive plan.. -- -- 37,839 -- 12,435 50,274
Net income for fiscal
1993.................. -- -- -- 15,604,052 -- 15,604,052
-------- ------- ------------ ------------ ----------- ------------
BALANCE, August 31,
1993................... 105,439 40,685 47,201,942 86,525,325 (7,769,619) 126,103,772
Conversion of 51,400
Class B Convertible
Common shares to Class
A Common shares....... 527 (527) -- -- -- --
Conversion of 7%
Convertible debentures
to Class A Common
shares................ 32,360 -- 58,924,682 -- -- 58,957,042
To write off
accumulated
amortization on
debentures converted,
net of amortization... -- -- (1,568,719) -- -- (1,568,719)
To write off interest
accrued on debentures,
net of tax effect..... -- -- 849,843 -- -- 849,843
Employee stock purchase
of 34,885 treasury
shares................ -- -- 439,083 -- 105,778 544,861
To record exercise of
2,250 Class A stock
options............... -- -- 10,000 -- -- 10,000
To record 500,000 Class
A stock options
related to the
Vintners Acquisition.. -- -- 4,210,000 -- -- 4,210,000
Net income for the nine
months ended May 31,
1994.................. -- -- -- 18,049,875 -- 18,049,875
-------- ------- ------------ ------------ ----------- ------------
BALANCE, May 31, 1994
(unaudited)........... $138,326 $40,158 $110,066,831 $104,575,200 $(7,663,841) $207,156,674
======== ======= ============ ============ =========== ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
MAY 31, YEARS ENDED AUGUST 31,
-------------------------- ---------------------------------------
1994 1993 1993 1992 1991
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 18,049,875 $ 9,947,064 $ 15,604,052 $ 11,356,342 $ 7,710,121
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation of
property, plant and
equipment............. 7,519,592 5,455,929 7,388,938 6,079,684 5,033,609
Amortization of
intangible assets..... 2,822,800 773,901 1,286,136 995,361 392,835
Deferred income tax
expense............... 861,272 -- 1,028,464 387,000 524,186
Accrued interest on
converted debentures,
net of tax............ 161,241 -- -- -- --
(Gain) loss on sale of
property, plant and
equipment............. -- (184,968) (524,154) -- 288,722
Change in assets and
liabilities, net of
effects from purchases
of businesses:
Accounts receivable.... (2,161,452) 2,893,873 (5,760,764) (2,617,005) (1,405,788)
Inventories............ 16,060,328 1,584,176 8,966,006 (19,763,810) (2,911,584)
Prepaid expenses....... (1,884,985) (1,312,158) (8,570,762) 1,321,823 (976,090)
Income tax refunds
receivable............ -- -- -- -- 708,994
Accounts payable....... (40,287,485) (26,147,857) (18,948,495) 17,653,512 (233,326)
Accrued federal and
state excise taxes.... (853,217) (1,305,996) 844,811 699,290 780,616
Accrued salaries and
commissions........... 1,297,609 (56,658) 671,221 869,875 (18,255)
Other accrued
liabilities........... (3,461,138) 2,430,734 6,015,691 (1,026,576) (540,529)
Other.................. (8,802,563) (553,588) 910,766 243,886 (78,456)
------------ ------------ ------------ ------------ -----------
Net cash (used in)
provided by operating
activities............ (10,678,123) (6,475,548) 8,911,910 16,199,382 9,275,055
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Sale of short-term
investments, net...... -- -- -- 21,789,270 3,365,163
Proceeds from sale of
property, plant and
equipment............. -- 649,000 1,336,982 -- 191,153
Purchase of property,
plant and equipment,
net of minor
disposals............. (5,262,079) (4,261,637) (6,948,609) (4,713,091) (2,843,722)
Purchases of
businesses, net of
cash acquired......... 3,200 -- 8,710,305 (26,423,166) (530,080)
------------ ------------ ------------ ------------ -----------
Net cash (used in)
provided by investing
activities............ (5,258,879) (3,612,637) 3,098,678 (9,346,987) 182,514
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
(repayments of) notes
payable............... 17,681,358 8,000,000 (9,835,041) -- --
Borrowings of long-term
debt.................. -- -- -- -- 189,301
Principal payments of
long-term debt........ (4,474,105) (38,741) (981,005) (41,189,567) (1,017,404)
Payments to acquire
treasury stock........ -- -- -- -- (3,053,146)
Proceeds from employee
and stock appreciation
right plan treasury
stock purchases....... 544,860 203,512 329,697 244,342 115,115
Proceeds from stock
issuance.............. 10,000 -- -- 31,981,362 --
Bank fees on
acquisition of
business.............. -- -- -- (2,543,897) --
Fractional shares paid
on stock splits....... (2,960) -- -- (7,651) --
------------ ------------ ------------ ------------ -----------
Net cash provided by
(used in) financing
activities............ 13,759,153 8,164,771 (10,486,349) (11,515,411) (3,766,134)
------------ ------------ ------------ ------------ -----------
NET (DECREASE) INCREASE
IN CASH AND CASH
INVESTMENTS............ (2,177,849) (1,923,414) 1,524,239 (4,663,016) 5,691,435
CASH AND CASH
INVESTMENTS, beginning
of year................ 3,717,782 2,193,543 2,193,543 6,856,559 1,165,124
------------ ------------ ------------ ------------ -----------
CASH AND CASH
INVESTMENTS, end of
year................... $ 1,539,933 $ 270,129 $ 3,717,782 $ 2,193,543 $ 6,856,559
============ ============ ============ ============ ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
fiscal year for:
Interest............... $ 8,729,470 $ 3,246,916 $ 5,910,430 $ 6,503,762 $ 4,614,915
============ ============ ============ ============ ===========
Income taxes........... $ 11,323,972 $ 3,912,926 $ 5,669,878 $ 5,687,058 $ 3,370,387
============ ============ ============ ============ ===========
SUPPLEMENTAL DISCLOSURES
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Fair value of assets
acquired.............. $237,782,954 $ -- $135,280,000 $ 76,194,536 $ --
Liabilities assumed.... (90,950,669) -- (52,851,000) (9,771,370) --
------------ ------------ ------------ ------------ -----------
Cash paid.............. 146,832,285 -- 82,429,000 66,423,166 --
Less-Amounts borrowed.. (142,622,285) -- (68,835,000) (40,000,000) --
Less-Issuance of Class
A Common Stock........ (4,210,000) -- (13,594,000) -- --
------------ ------------ ------------ ------------ -----------
Net cash paid for
acquisition........... $ -- $ -- $ -- $ 26,423,166 $ --
============ ============ ============ ============ ===========
Issuance of Class A
Common Stock for
conversion of
debentures............. $ 58,960,000 $ -- $ 976,945 $ -- $ --
============ ============ ============ ============ ===========
Issuance of treasury
shares to stock
incentive plan......... $ -- $ -- $ 50,274 $ -- $ --
============ ============ ============ ============ ===========
Write-off of unamortized
deferred financing
costs on debentures.... $ (1,568,719) $ -- $ -- $ -- $ --
============ ============ ============ ============ ===========
Write-off of unpaid
accrued interest on
debentures............. $ 1,370,743 $ -- $ -- $ -- $ --
============ ============ ============ ============ ===========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business --
Canandaigua Wine Company, Inc. and subsidiaries operates in the beverage
alcohol industry and, as of August 31, 1993, is a producer and supplier of
wine, an importer of beers and a supplier of distilled spirits in the United
States. They maintain a portfolio of over 100 national and regional brands of
beverage alcohol which are distributed by over 1,000 wholesalers throughout the
United States. Their products are marketed in five general categories: table
wines, sparkling wines, dessert wines, imported beer and distilled spirits.
Principles of consolidation --
The consolidated financial statements include the accounts of the Canandaigua
Wine Company, Inc. and subsidiaries (the Company), all of which are wholly-
owned. All intercompany accounts and transactions have been eliminated.
Unaudited Financial Statements --
The consolidated financial statements as of May 31, 1994 and for the nine
month periods ended May 31, 1994 and 1993 have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to interim reporting and reflect, in the opinion
of the Company, all adjustments necessary to present fairly the financial
information for Canandaigua Wine Company, Inc. and its consolidated
subsidiaries. All such adjustments are of a normal recurring nature. Results
for interim periods are not necessarily indicative of results for the entire
year.
Cash investments --
Cash investments consist of money market funds that are stated at cost, which
approximates market value. These investments amounted to approximately $8,000
and $417,000 at August 31, 1993 and 1992, respectively.
Financial instruments --
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value
of Financial Instruments." SFAS No. 107 requires companies to disclose the fair
value of financial instruments, both assets and liabilities, recognized and not
recognized in the balance sheet. The Company has adopted SFAS No. 107; the
impact of such adoption is not material to the Company's financial statements.
Interest rate futures and currency forward contracts --
From time to time, the Company enters into interest rate futures and a
variety of currency forward contracts in management of interest rate risk and
foreign currency transaction exposure. Unrealized gains and losses on interest
rate futures are deferred and recognized as a component of interest expense
over the borrowing period. Unrealized gains and losses on foreign currency
forward contracts are deferred and recognized as a component of the related
transactions in the accompanying financial statements. The discount or premium
of the forward contract is recognized over the life of the contract.
At August 31, 1993, there were no interest rate swap agreements outstanding.
At August 31, 1992, the Company had a contract applicable to $22,000,000 of
short-term seasonal borrowings which effectively guaranteed a fixed interest
rate of 6.82% for seasonal borrowing during the four month period ended
September 15, 1992. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the counterparties.
F-8
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At August 31, 1993, the Company had open currency forward contracts to
purchase $6,031,000 of German deutschemarks and $928,000 of British pounds, all
of which mature within 12 months; their fair market values, based upon August
31, 1993 market exchange rates were $6,262,000 and $929,000, respectively. No
significant forward contracts were outstanding at August 31, 1992.
Inventories --
Inventories are valued at the lower of cost (computed using the last-in,
first-out (LIFO) or first-in, first-out (FIFO) methods) or market. The
percentage of inventories valued using the LIFO method is 88% and 97% at August
31, 1993 and 1992, respectively and 93% and 97% at May 31, 1994 and 1993,
respectively. Replacement cost of the inventories determined on a FIFO basis
approximated $146,421,000 and $92,488,000 at August 31, 1993 and 1992,
respectively and $215,199,000 and $91,096,000 at May 31, 1994 and 1993,
respectively. At August 31, 1993 and 1992 the net realizable value of the
Company's inventories was in excess of $147,165,267 and $92,694,401,
respectively and $215,515,787 and $91,110,225 at May 31, 1994 and 1993,
respectively. During fiscal 1993, the Company had a liquidation of certain LIFO
inventories, resulting in a reduction of cost of product sold of approximately
$1,112,000.
Elements of cost include materials, labor and overhead and consist of the
following at August 31, and May 31:
MAY 31, AUGUST 31,
------------------------ ------------------------
1994 1993 1993 1992
------------ ----------- ------------ -----------
(UNAUDITED)
Raw materials and supplies... $ 29,062,176 $30,730,409 $ 31,683,657 $43,804,056
Wines, whiskey, and spirits
in process.................. 137,090,956 44,441,520 73,400,765 31,385,773
Finished case goods.......... 49,362,655 15,938,296 42,080,845 17,504,572
------------ ----------- ------------ -----------
$215,515,787 $91,110,225 $147,165,267 $92,694,401
============ =========== ============ ===========
Inventory classifications for 1992 have been restated to conform to current
year presentation.
Property, plant and equipment --
Property, plant and equipment is stated at cost. Major additions and
betterments are charged to property accounts, while maintenance and repairs are
charged to operations as incurred. The cost of properties sold or otherwise
disposed of and the related allowance for depreciation are eliminated from the
accounts at the time of disposal and resulting gains or losses are included as
a component of operating income.
Other assets --
Other assets, which consist of trademarks, distribution rights, agency
license agreements, cash surrender value of officers' life insurance, deferred
financing costs, goodwill, covenants-not-to-compete, and other amounts, are
stated at cost, net of accumulated amortization. Amortization is calculated on
a straight-line or effective interest basis over periods ranging from five to
forty years. At August 31, 1993, the weighted average of the remaining useful
lives of these assets was approximately 31 years. Accumulated amortization on
these assets totalled approximately $3,280,000 and $1,994,000 at August 31,
1993 and 1992, respectively.
The face value of the officers' life insurance policies totalled $2,852,000
in both 1993 and 1992.
F-9
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation --
Depreciation is computed primarily on the straight-line method over the
following estimated useful lives:
DESCRIPTION DEPRECIABLE LIFE
----------- ----------------
Buildings and improvements............................ 10 to 33 1/3 years
Machinery and equipment............................... 7 to 15 years
Motor vehicles........................................ 3 to 7 years
Amortization of assets capitalized under capital leases is included with
depreciation expense. Amortization is calculated using the straight-line method
over the shorter of the estimated useful life of the asset or the lease term.
Income taxes --
The Company uses the liability method of accounting for income taxes. The
liability method accounts for deferred income taxes by applying statutory rates
in effect at the balance sheet date to the difference between the financial
reporting and tax basis of assets and liabilities. In fiscal 1992, the Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" which replaced Statement of Financial Accounting Standards No.
96, which was the standard the Company previously used. The cumulative effect
of this change in accounting principle was not material to the Company's
financial statements and was included in the fiscal 1992 tax provision.
Deferred income taxes are provided to reflect the effect of temporary
differences primarily related to: (1) using the FIFO basis to value certain
inventories for income tax purposes and the LIFO basis for financial reporting
purposes; (2) the use of accelerated depreciation methods for income tax
purposes and the straight-line method for financial reporting purposes; and (3)
differences in the treatment of advertising expense for financial reporting and
income tax purposes.
Common stock --
The Company has two classes of common stock, Class A Common Stock and Class B
Common Stock. Class B Common Stock shares are convertible into shares of Class
A Common Stock on a one-to-one basis at any time at the option of the holder.
Holders of Class B Common Stock are entitled to ten votes per share. Holders of
Class A Common Stock are entitled to only one vote per share, but are entitled
to a cash dividend premium. If the Company pays a cash dividend on Class B
Common Stock, each share of Class A Common Stock will receive an amount at
least ten percent greater than the amount of the cash dividend per share paid
on Class B Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Common Stock.
On September 26, 1991 and June 1, 1992, the Company approved three-for-two
stock splits of both Class A and Class B Common Stock to stockholders of record
on October 11, 1991 and June 22, 1992, respectively. All references in the
consolidated financial statements to weighted average number of shares and
issued shares have been retroactively restated to reflect the splits (see Note
6).
On June 28, 1993, the Company approved an increase in the number of
authorized shares of the Company's Class A Common Stock from 15,000,000 shares
to 60,000,000 shares and an increase in the number of authorized shares of the
Company's Class B Common Stock from 5,000,000 shares to 20,000,000 shares.
F-10
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net income per common and common equivalent shares --
Primary net income per common and common equivalent share in fiscal 1993 and
1992 is based on the weighted average number of common and common equivalent
shares (stock options and stock appreciation rights determined under the
treasury stock method) outstanding during the year for Class A Common Stock and
Class B Common Stock. Fully diluted earnings per common and common equivalent
shares in fiscal 1993 and 1992 assumes the conversion of the 7% convertible
subordinated debentures under the "if converted method" and assumes exercise of
stock options and stock appreciation rights using the treasury stock method.
Primary net income per common and common equivalent shares in fiscal 1991 is
based on the weighted average number of common shares outstanding during the
year for Class A Common Stock and Class B Common Stock. The effects of
considering common stock equivalents in 1991 (using the same methods as
described above) in computing primary and fully diluted income per share was
not significant.
All share and per share amounts have been adjusted for the three-for-two
stock splits (see Note 6).
2. ACQUISITIONS
Guild --
On October 1, 1991, the Company acquired substantially all of the assets and
assumed certain liabilities of Guild Wineries and Distilleries (Guild). The
assets acquired include accounts receivable, inventories, property, plant and
equipment and other assets. The Company also assumed certain liabilities
consisting primarily of accounts payable. The aggregate purchase price, after
adjustments based on a post-closing audit, was approximately $69,300,000. With
respect to the purchase price, the Company paid approximately $59,400,000 in
cash at closing, assumed liabilities of approximately $11,400,000 of which
approximately $1,600,000 was discharged immediately and, based upon the results
of a post-closing audit, received from Guild during October, 1992 approximately
$1,500,000, exclusive of accrued interest. The Company also paid approximately
$2,700,000 of direct acquisition costs and $2,600,000 in escrow to finance the
purchase of grapes related to Guild's 1991 grape harvest.
The acquisition was accounted for using the purchase method; accordingly, the
assets and liabilities of Guild have been recorded at their estimated fair
market value at the date of acquisition. The excess of purchase price over the
estimated fair market value of the net assets acquired (goodwill), $1,344,000,
is being amortized on a straight-line basis over 40 years. The results of
operations of Guild have been included in the Consolidated Statement of Income
since the date of acquisition.
The following table presents unaudited pro forma results of operations as if
the acquisition had occurred at the beginning of fiscal 1992 and 1991,
respectively, after giving effect to certain adjustments for depreciation,
amortization of goodwill, interest expense on the acquisition debt and related
income tax effects. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisition been made at the beginning of fiscal 1992 and 1991,
respectively, or of results which may occur in the future.
F-11
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
2. ACQUISITIONS (CONTINUED)
AUGUST 31, 1992 AUGUST 31, 1991
--------------- ---------------
Net sales..................................... $249,558,000 $239,771,000
Income from operations........................ 23,576,000 18,406,000
Net income.................................... 10,866,000 7,220,000
Net income per common and common equivalent
share:
Primary..................................... $ 1.03 $ .78
Fully diluted............................... $ .98 $ --
Weighted average shares outstanding:
Primary..................................... 10,527,270 9,202,048
Fully diluted............................... 13,820,335 --
Barton --
On June 29, 1993, pursuant to the terms of a Stock Purchase Agreement (the
Stock Purchase Agreement) among the Company, Barton Incorporated (Barton) and
the Selling Stockholders, the Company acquired from the Selling Stockholders
all of the outstanding shares of the capital stock of Barton, a marketer of
imported beers and imported distilled spirits and a producer and marketer of
distilled spirits and domestic beers.
The aggregate consideration for Barton consisted of approximately $65,510,000
in cash, one million shares of the Company's Class A Common Stock and payments
of up to an aggregate amount of $57,300,000 (the Earn-Out Amounts) which are
payable to the selling Stockholders in cash over a three year period upon the
satisfaction of certain performance goals. In addition, the Company paid
approximately $1,981,000 of direct acquisition costs, $2,269,000 of direct
financing costs, and assumed liabilities of approximately $47,926,000.
The purchase price was funded through a $50,000,000 term loan (see Note 3),
through $18,835,000 of revolving loans under the Company's Credit Agreement
(see Note 3), and through approximately $925,000 of accrued expenses. In
addition, one million shares of the Company's Class A Common Stock were issued
at $13.59 per share, which reflects the closing market price of the stock at
the closing date, discounted for certain restrictions on the issued shares. Of
these shares, 428,571 have been delivered to the Selling Stockholders and
571,429 have been delivered into escrow to secure the Selling Stockholders'
indemnification obligations to the Company.
The Earn-Out Amounts consist of four payments scheduled to be made over a
three year period. The first payment of $4,000,000 is required to be made to
the Selling Stockholders upon satisfaction of certain performance goals. These
goals have been satisfied and this payment has been accrued at August 31, 1993
and will be made on December 31, 1993. This additional payment has been
properly accounted for as additional purchase price for the Barton acquisition.
The remaining payments are contingent upon Barton achieving and exceeding
certain targets for earnings before interest and taxes and certain other
performance goals and are to be made as follows: up to $28,300,000 is to be
made on December 30, 1994; up to $10,000,000 is to be made on November 30,
1995; and up to $15,000,000 is to be made on November 29, 1996. Such payment
obligations are secured in part by the Company's standby irrevocable letter of
credit (see Note 3) under the Credit Agreement in an original maximum face
amount of $28,200,000 and are subject to acceleration in certain events as
defined in the Stock Purchase Agreement. All future payments will be accounted
for as additional purchase price for the Barton acquisition when the
contingency has been satisfied in accordance with the Stock Purchase Agreement.
F-12
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
2. ACQUISITIONS (CONTINUED)
During the quarter ended May 31, 1994, the Company accrued $18.3 million of
the Earn-out Amounts as additional purchase price as certain performance goals
under the Stock Purchase Agreement were satisfied. This amount will be paid out
on December 30, 1994.
Pursuant to Barton's Phantom Stock Plan (the Phantom Stock Plan) effective
April 1, 1990 and amended and restated for Units (as defined in the Phantom
Stock Plan) granted after March 31, 1992, certain participants received
payments at closing amounting in the aggregate to $1,958,888 in connection with
the Barton acquisition. Certain other participants will receive payments only
upon vesting in the Phantom Stock Plan during years subsequent to the
acquisition. All participants under the Phantom Stock Plan may receive
additional payments in the event of satisfaction of the performance goals set
forth in the Stock Purchase Agreement and upon release of the shares held in
escrow. In the event the maximum payments are received under the Stock Purchase
Agreement, the participants will receive an additional $2,131,740 in connection
therewith.
The acquisition was accounted for using the purchase method; accordingly,
Barton's assets were recorded at fair market value at the date of acquisition.
The fair market value of Barton totaled $236,178,000 which was adjusted for
negative goodwill of $100,898,000 and an additional deferred tax liability of
$8,568,000 based on the difference between the fair market value of Barton's
assets and liabilities as adjusted for allocation of negative goodwill and the
tax basis of those assets and liabilities which was allocated on a pro-rata
basis to noncurrent assets. The results of operations of Barton have been
included in the Consolidated Statement of Income since the date of acquisition.
The following table presents unaudited pro forma results of operations as if
the acquisition had occurred at the beginning of fiscal 1993 and 1992,
respectively, after giving effect to certain adjustments for depreciation,
amortization of intangibles, interest expense on the acquisition debt and
related income tax effects. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisition been made at the beginning of fiscal 1993 and
1992, respectively, or of results which may occur in the future.
AUGUST 31, 1993 AUGUST 31, 1992
--------------- ---------------
Net sales...................................... $506,496,000 $472,902,000
Income from operations......................... 49,825,000 47,504,000
Net income..................................... 26,178,000 21,951,000
Net income per common and equivalent share:
Primary...................................... $ 2.19 $ 1.90
Fully diluted................................ $ 1.90 $ 1.66
Weighted average shares outstanding:
Primary...................................... 11,963,652 11,527,270
Fully diluted................................ 15,203,114 14,820,335
On March 31, 1994, Barton entered into the new agreement under which it will
continue importing, marketing and distributing Corona Extra, Corona Light,
Coronita, Negra Modelo, Modelo Especial and Pacifico Beers in the twenty-five
primarily western states of the United States. The agreement is retroactive to
January 1, 1994 and continues through December 31, 1998. The new agreement
contains substantially similar provisions as the previous agreement, including
certain performance criteria.
F-13
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
2. ACQUISITIONS (CONTINUED)
Vintners --
On October 15, 1993, the Company acquired substantially all of the tangible
and intangible assets of Vintners International Company, Inc. ("Vintners")
other than cash and the Hammondsport Winery (the "Vintners Assets"), and
assumed certain current liabilities associated with the ongoing business (the
"Vintners Acquisition"), for an aggregate purchase price of $148.9 million (the
"Cash Consideration"), subject to adjustment based upon the determination of
the Final Net Current Asset Amount (as defined below), and paid $8,961,000 of
direct acquisition and financing costs. In addition, at closing the Company
delivered options (the "Options") to Vintners and Household Commercial of
California, Inc., one of Vintners' lenders, to purchase an aggregate of 500,000
shares (the "Option Shares") of the Company's Class A Common Stock, at an
exercise price per share of $18.25, which are exercisable at any time until
October 15, 1996. These options have been recorded at $8.42 per share, based
upon an independent appraisal and $4,210,000 has been reflected as a component
of additional paid-in-capital.
Vintners was the United States' fifth largest supplier of wine with two of
the country's most highly recognized brands, Paul Masson and Taylor California
Cellars. The wineries acquired from Vintners are the Gonzales winery in
Gonzales, California and the Paul Masson wineries in Madera and Soledad,
California. In addition, the Company is leasing from Vintners the Hammondsport
winery in Hammondsport, New York. The lease is for a period of 18 months from
the date of the Vintners Acquisition.
The Cash Consideration was funded by the Company pursuant to (i)
approximately $12.6 million of Revolving Loans under the Credit Facility of
which $11.2 million funded the Cash Consideration and $1.4 million funded the
payment of direct acquisition costs; (ii) an accrued liability of approximately
$7.7 million for the holdback described below and (iii) the $130.0 million
Subordinated Bank Loan (See Note 9).
At closing the Company held back from the Cash Consideration approximately
10% of the then estimated net current assets of Vintners purchased by the
Company, and deposited an additional $2.8 million of the Cash Consideration
into an escrow to be held until October 15, 1995. If the amount of the net
current assets as determined after the closing (the "Final Net Current Asset
Amount") is greater than 90% and less than 100% of the amount of net current
assets estimated at closing (the "Estimated Net Current Asset Amount"), then
the Company shall pay into the established escrow an amount equal to the Final
Net Current Asset Amount less 90% of the Estimated Net Current Asset Amount. If
the Final Net Current Asset Amount is greater than the Estimated Net Current
Asset Amount, then, in addition to the payment described above, the Company
shall pay an amount equal to such excess, plus interest from the closing, to
Vintners. If the Final Net Current Asset Amount is less than 90% of the
Estimated Net Current Asset Amount, then the Company shall be paid such
deficiency out of the escrow account. As of May 31, 1994, no adjustment to the
established escrow was required and the Final Net Current Asset Amount has not
been determined.
The Vintners Acquisition was accounted for using the purchase method;
accordingly, the Vintners Assets were recorded at fair market value at the date
of acquisition. The accompanying consolidated financial statements reflect the
results of operations of Vintners since October 15, 1993.
The following table presents unaudited pro forma results of operations as if
the Vintners Acquisition occurred at the beginning of the nine months ended May
31, 1994 and as if both the Vintners Acquisition and the Barton Acquisition
occurred at the beginning of the nine months ended May 31, 1994, after giving
F-14
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
2. ACQUISITIONS (CONTINUED)
effect to certain adjustments for depreciation, amortization of intangibles,
interest expense on the acquisition debt and related income tax effects. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made at the beginning of fiscal 1994 and 1993, respectively, or of results
which may occur in the future.
PRO FORMA
FOR THE NINE MONTHS ENDED
-------------------------
MAY 31, 1994 MAY 31, 1993
------------ ------------
Net Sales............................................. $466,001,000 $494,447,000
Net Income from Operations............................ 41,614,000 50,998,000
Net Income............................................ 16,883,000 21,934,000
Net Income per Common and Equivalent Shares:
Primary............................................. $1.08 $1.72
Fully Diluted....................................... $1.06 $1.48
Weighted Average Shares Outstanding:
Primary............................................. 15,590,328 12,775,180
Fully Diluted....................................... 16,329,966 16,158,153
3. BORROWINGS:
During fiscal 1993, the Company further amended its credit agreement (the
Credit Agreement) which provided for $50,000,000 of term loans, $55,000,000 of
revolving credit loans and $28,200,000 of irrevocable letter of credit. The
banks have been given security interests in substantially all of the assets of
the Company, including mortgage liens on certain real property.
At August 31, 1993, the Company has outstanding borrowings of $50,000,000
under the term loan and $9,000,000 under the revolving credit loans. Interest
on both categories of loans is payable, with respect to Eurodollar Loans (as
defined in the Credit Agreement), from time to time at a rate equal to 1 5/8%
above the rate offered to leading banks on the London Interbank market for
dollar deposits (the "Eurodollar Base Rate"), and with respect to Base Rate
Loans (as defined in the Credit Agreement), quarterly at a rate equal to 3/8 of
1% over the "Base Rate." Base Rate means, for any day, a rate per annum equal
to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% or (b)
the Prime Rate for such day. Such rates may be reduced to as low as the Base
Rate or 1% above the Eurodollar Base Rate in certain circumstances. Quarterly
installments of principal on the term loans will commence on December 15, 1993
and end on June 15, 1999. The first nineteen such payments will be $2,000,000
each, and the last four payments will be $3,000,000 each.
The revolving credit loans must be repaid in full on June 15, 1999. In
addition, for at least thirty consecutive days during the last two fiscal
quarters of each fiscal year, the aggregate amount of revolving credit loans
outstanding, together with amounts due with respect to the issuance of
commercial letters of credit, may not exceed $20,000,000.
At the end of each fiscal year, commencing with the fiscal year ending August
31, 1993, the Company must prepay the loans with 65% of its Excess Cash Flow,
as defined in the Credit Agreement. The Company is also required to apply to
the prepayment of loans (i) 100% of the net cash proceeds from certain asset
sales, in excess of $5,000,000 in the aggregate for all such asset sales and
(ii) 50% of the net proceeds received
F-15
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
3. BORROWINGS (CONTINUED)
by the Company from any public offerings of its equity securities. Prepayments
must be applied first against regular payments due with respect to the term
loans in their inverse order of maturity and then to reduce the outstanding
revolving credit loans.
The Credit Agreement requires the Company to meet certain covenants and
provides for restrictions on mergers, consolidations and sales of assets,
payments of dividends, incurring of other debt, liens or guarantees and the
making of investments. The primary financial covenants as defined in the Credit
Agreement require the maintenance of minimum defined tangible net worth, a
leverage ratio, a fixed charges ratio, maximum capital expenditures, an
interest coverage ratio and a current ratio. Among the most restrictive
covenants contained in the Credit Agreement, the Company is required to
maintain a fixed charges ratio not less than 1.0 to 1.0 at the last day of each
fiscal quarter of each fiscal year.
During fiscal 1992, the Company entered into the Credit Agreement which
provided for $40,000,000 of term loans and up to $35,000,000 in revolving
credit loans. To finance the Guild acquisition (see Note 2), the Company
borrowed $40,000,000 of term loans and $6,000,000 in revolving credit loans.
Subsequently, the Company amended the Credit Agreement and repaid the
$40,000,000 term loan utilizing cash provided by operating activities, proceeds
from the sale of stock and borrowings under the revolving credit lines.
At August 31, 1992, the Company had available revolving credit loans totaling
$57,000,000 under the amended Credit Agreement. There were no outstanding
borrowings at August 31, 1992. Interest, as described in the agreement, was
payable quarterly or on the last day of each interest period based upon either
the base rate (higher of the Federal Funds Rate plus 1/2 of 1% or the bank's
Prime Rate) or the Eurodollar rate as defined in the Credit Agreement at the
discretion of the Company.
Subsequent to August 31, 1993, the Company further amended the Credit
Agreement and entered into the Senior Subordinated Loan Agreement as described
in Note 9.
Interest expense totaled $1,458,833, $318,728 and $0 in fiscal 1993, 1992 and
1991, respectively. The revolving credit loans require commitment fees totaling
3/8 of 1% per annum on the daily average unused balance. Commitment fees
totaled $227,888 and $154,000 in fiscal 1993 and 1992, respectively; no
commitment fees were paid in fiscal 1991.
F-16
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
3. BORROWINGS (CONTINUED)
Long-term debt consists of the following at August 31 and May 31:
AUGUST 31,
-------------------------------------------------
MAY 31, 1994 1993 1992
------------------------------------ ------------------------------------- -----------
CURRENT LONG-TERM TOTAL CURRENT LONG-TERM TOTAL TOTAL
---------- ------------ ------------ ----------- ------------ ------------ -----------
(UNAUDITED)
Notes payable--
7%convertible
subordinated
debentures, original
proceeds $60,000,000,
due 2011.............. $ -- $ -- $ -- $ -- $ 59,023,000 $ 59,023,000 $60,000,000
Loans payable--5%
secured by cash
surrender value of
officers' life
insurance policies.... -- 966,973 966,973 -- 966,973 966,973 966,973
Capitalized lease
agreements--Industrial
Development Agencies:
7 1/4% 1975 issue,
original proceeds
$2,000,000, due in
annual installments
of $100,000 through
fiscal 1994......... 100,000 -- 100,000 100,000 -- 100,000 200,000
7 1/4% 1980 issue,
original proceeds
$2,370,000, due in
annual installments
of $118,500 through
fiscal 1999......... 118,500 592,500 711,000 118,500 592,500 711,000 829,500
Term loan, variable
rate, original
proceeds $50,000,000,
due in installments
through fiscal 1999... 8,000,000 38,000,000 46,000,000 6,000,000 44,000,000 50,000,000 --
Capitalized equipment
leases at interest
rates ranging from
8.9% to 18%, due in
monthly installments
through fiscal 1997... 255,454 313,606 569,060 50,500 80,760 131,260 177,863
Other long-term debt--
Notes payable at 1%
below prime rate to
prime rate, due in
yearly installments
through fiscal 1995. -- 8,239,358 8,239,358 5,239,000 3,000,000 8,239,000 --
Promissory note at
prime rate due in
equal yearly
installments through
September 30, 1995.. 320,000 320,000 640,000 320,000 640,000 960,000 --
Senior Subordinated
Notes
8.75% redeemable
after December 15,
1998, due 2003...... -- 130,000,000 130,000,000 -- -- -- --
---------- ------------ ------------ ----------- ------------ ------------ -----------
$8,793,954 $178,432,437 $187,226,391 $11,828,000 $108,303,233 $120,131,233 $62,174,336
========== ============ ============ =========== ============ ============ ===========
Principal payments required under long-term debt obligations during the next
five fiscal years are as follows:
YEAR ENDING AUGUST 31,
----------------------
1994......................................................... $ 11,828,000
1995......................................................... 11,487,577
1996......................................................... 8,458,434
1997......................................................... 8,130,249
1998......................................................... 8,118,500
Thereafter................................................... 72,108,473
------------
Total........................................................ $120,131,233
============
F-17
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
3. BORROWINGS (CONTINUED)
Convertible subordinated debentures --
On July 23, 1986, the Company issued $60,000,000 7% convertible subordinated
debentures used to expand the Company's operations through capital expenditures
and acquisitions. The debentures are convertible at any time prior to maturity,
unless previously redeemed, into Class A Common Stock of the Company at a
conversion price of $18.22 per share, subject to adjustment in the event of
future issuances of Common Stock. The debentures are redeemable at any time at
the option of the Company, in whole or in part, together with accrued interest.
Annual sinking fund payments of 5% of the original aggregate principal amount
of the debentures, commencing July 1, 1996, are calculated to retire 75% of the
debentures prior to maturity in 2011. The debentures are subordinated to all
existing and future senior indebtedness of the Company. At August 31, 1993 and
1992, the Company's outstanding senior indebtedness was $70,108,233 and
$2,174,336, respectively. There are no restrictions upon the future creation of
senior indebtedness.
In connection with the issuance, the Company capitalized approximately
$2,246,000 of debenture issuance costs and is presently amortizing these costs
utilizing the effective interest rate method over the term of the debentures.
Accumulated amortization of these costs was approximately $656,455 and $563,000
at August 31, 1993 and 1992, respectively. These costs, net of amortization,
are included in other assets. Interest expense on these debentures totaled
$4,188,602, $4,200,000 and $4,200,000 in fiscal 1993, 1992 and 1991,
respectively.
During fiscal 1993, an aggregate principal amount of $977,000 of these
debentures was converted to 53,620 shares of Class A Common Stock.
On October 18, 1993, the Company called its convertible debentures for
redemption on November 19, 1993 at a redemption price of 102.1% plus accrued
interest. Bondholders may, until November 19, 1993, convert their debentures to
common stock; any debentures remaining unconverted after that date will be
redeemed for cash in accordance with the terms of the original indenture.
During the period September 1, 1993 through November 19, 1993, Debentures in
an aggregate principal amount of $58,960,000 were converted to 3,235,882 shares
of the Company's Class A Common Stock at a price of $18.22 per share.
Debentures in an aggregate principal amount of approximately $63,000 were
redeemed. Interest was accrued on the Debentures until the date of conversion
but was forfeited by the debentureholders upon conversion. Accrued interest in
an amount of approximately $1,370,000 was recorded as an addition to additional
paid-in-capital.
At the redemption date, the capitalized debenture issuance costs of
approximately $2,246,000 net of accumulated amortization of approximately
$677,000 were recorded as a reduction of additional paid-in-capital.
Loans payable --
Loans payable, secured by officers' life insurance policies, carry an
interest rate of 5%. The notes carry no due dates and it is management's
intention not to repay the notes during the next fiscal year.
Capitalized lease agreements -- Industrial Development Agencies --
Certain capitalized lease agreements require the Company to make lease
payments equal to the principal and interest on certain bonds issued by
Industrial Development Agencies (IDA's). The bonds are secured by
F-18
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
3. BORROWINGS (CONTINUED)
the leases and the related facilities. Upon payment of the outstanding bonds,
title to the facilities will be conveyed to the Company.
These transactions have been treated as capital leases with the related
assets acquired to date ($10,730,711) included in property, plant and equipment
and the lease commitments included in long-term debt.
Accumulated amortization of the foregoing assets under capital leases at
August 31, 1993 and 1992 is approximately $7,803,000 and $7,150,000,
respectively.
Among the provisions under the debenture and lease agreements are covenants
that define minimum levels of working capital and tangible net worth and the
maintenance of certain financial ratios as defined in the debt agreements.
4. INCOME TAXES:
The provision for federal and state income taxes consists of the following
for the years ended August 31:
1993
--------------------------------
STATE
FEDERAL AND LOCAL TOTAL 1992 TOTAL 1991 TOTAL
---------- ---------- ---------- ---------- ----------
Current tax provision.... $7,305,753 $1,330,000 $8,635,753 $6,140,630 $3,446,314
Deferred tax provision... 886,826 141,638 1,028,464 387,000 524,186
---------- ---------- ---------- ---------- ----------
$8,192,579 $1,471,638 $9,664,217 $6,527,630 $3,970,500
========== ========== ========== ========== ==========
The components of the deferred income tax provision are as follows:
1993 1992 1991
---------- --------- --------
Accelerated tax depreciation.................. $ 757,943 $ 484,714 $(27,993)
LIFO reserve.................................. (202,332) 3,592 68,497
Prepaid advertising........................... 701,562 58,806 155,691
Bad debt reserve.............................. 57,086 (22,798) 18,710
Payroll and benefit accruals.................. (33,086) (115,475) 271
Inventory reserves............................ (248,847) 130,408 (18,088)
Miscellaneous items, net...................... (3,862) (152,247) 327,098
---------- --------- --------
$1,028,464 $ 387,000 $524,186
========== ========= ========
The deferred tax provision has been increased by approximately $235,000 in
fiscal 1993 for the impact of the change in the federal statutory rate.
F-19
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
4. INCOME TAXES (CONTINUED)
A reconciliation of total tax provision to the amount computed by applying
the expected U.S. Federal income tax rate to income before provision for income
taxes is as follows for the years ended August 31:
1993 1992 1991
------------------ ------------------- -------------------
% OF % OF % OF
PRE-TAX PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
---------- ------- ---------- ------- ---------- -------
Computed "expected" tax
provision.............. $8,757,982 34.7% $6,080,550 34.0% $3,971,411 34.0%
State and local income
taxes, net of federal
income tax benefit..... 869,820 3.4 745,382 4.2 341,967 2.9
Miscellaneous items,
net.................... 36,415 0.1 (298,302) (1.7) (342,878) (2.9)
---------- ---- ---------- ---- ---------- ----
$9,664,217 38.2% $6,527,630 36.5% $3,970,500 34.0%
========== ==== ========== ==== ========== ====
5. PROFIT SHARING RETIREMENT PLAN AND RETIREMENT SAVINGS PLAN:
The Company's profit-sharing retirement plan, which covers substantially all
employees, provides for contributions by the Company in such amounts as the
Board of Directors may annually determine and for voluntary contributions by
employees. The plan has qualified as tax-exempt under the Internal Revenue Code
and conforms with the Employee Retirement Income Security Act. Company
contributions to the plan were $1,290,428, $1,248,956 and $909,060 in fiscal
1993, 1992 and 1991, respectively.
The Company's retirement savings plan, established pursuant to Section 401(k)
of the Internal Revenue Code, permits substantially all full-time employees of
the Company to defer a portion of their compensation on a pre-tax basis.
Participants may defer up to 10% of their compensation for the year. The
Company makes a matching contribution of 25% of the first 4% of compensation an
employee defers. Company contributions to this plan were $131,248, $109,471 and
$89,763 in fiscal 1993, 1992 and 1991, respectively.
In connection with the Barton acquisition, the Company assumed Barton's
profit-sharing plan which covers all salaried employees. The amount of Barton's
contribution is at the discretion of its Board of Directors, subject to
limitations of the plan. Contribution expense was $230,000 from the date of
acquisition to August 31, 1993.
6. STOCKHOLDERS' EQUITY:
Stock Option and Stock Appreciation Right Plan --
In fiscal 1988, the Canandaigua Wine Company, Inc. Stock Option and Stock
Appreciation Right Plan (the "Plan") was adopted. The Plan was subsequently
amended on January 23, 1992, October 6, 1992 and May 4, 1993. Under the amended
Plan, options may be granted to purchase and stock appreciation rights may be
granted with respect to, in the aggregate, not more than 2,000,000 shares of
the Company's Class A Common Stock. Subsequent to year-end, the Company
authorized that an additional 1,000,000 shares may be granted under this plan.
During fiscal 1993, stock appreciation rights previously granted under the Plan
expired in accordance with the terms of the Plan.
Pursuant to the original Plan, on December 21, 1987, the Company granted to
key employees stock appreciation rights with respect to 38,250 shares of the
Company's Class A Common Stock at a base price of
F-20
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
$4.40 per share (the average closing price per share for November 1987 adjusted
for the effect of the stock splits). Such rights entitled the employees to
payment in stock and cash of market price increases in the Company's stock in
the excess of the base price in equal twenty-five percent increments on
September 30, 1989 through 1992. In September 1992 and 1991, employees
exercised their stock appreciation rights with respect to 4,104 and 2,556
shares of Class A Common Stock, respectively. In addition, an aggregate of
4,950 of the rights were cancelled through August 31, 1992.
In fiscal 1990, the Company granted to key employees options to purchase an
aggregate of 160,875 shares of Class A Common Stock. Such options are
exercisable beginning December 1, 1994 and ending November 30, 1999, for a
price of $4.44 per share.
In fiscal 1993, the Company granted to key employees options to purchase an
aggregate of 96,750 shares of Class A Common Stock. Such options are
exercisable beginning July 1, 1997 and ending June 30, 2002, for a price of
$11.50 per share. The Company also granted additional options to purchase an
aggregate of 220,000 shares of Class A Common Stock, exercisable beginning July
1, 1998 and ending June 30, 2003, for a price of $18.375 per share.
During fiscal 1993, the Company cancelled options previously granted to two
employees who left the Company in 1993. Amounts cancelled include 13,500
options exercisable at $4.44 per share, and 5,000 options exercisable at $11.50
per share.
Options for 454,625 shares of Class A Common Stock were outstanding at August
31, 1993; options for and stock appreciation rights with respect to an
aggregate of 164,025 shares of Class A Common Stock were outstanding at August
31, 1992.
Employee Stock Purchase Plan --
In fiscal 1989, the Company approved a stock purchase plan under which
1,125,000 shares of Class A Common Stock can be issued. Under the terms of the
plan, eligible employees may purchase shares of the Company's Class A Common
Stock through payroll deductions. The purchase price is the lower of 85% of the
fair market value of the stock on the first or last day of the purchase period.
During fiscal 1993, the plan was amended to allow the participation of Barton
employees. During fiscal 1993 and 1992, employees purchased 21,071 and 18,526
shares, respectively.
Common Stock Split --
On September 26, 1991 and June 1, 1992, the Company's Board of Directors
declared three-for-two splits of the Company's common shares. The new shares
were distributed on November 8, 1991 and July 20, 1992 to holders of record on
October 11, 1991 and June 22, 1992, respectively. At August 31, 1993, there
were 9,269,394 shares of Class A Common Stock and 3,442,851 shares of Class B
Common Stock outstanding, net of treasury stock, respectively. All per share
amounts have been retroactively restated to give effect to the splits.
Stock Offering --
During February 1992, the Company completed a public offering of 2,589,750
shares of its Class A Common Stock resulting in net proceeds after
underwriters' discounts and commissions and expenses to the
F-21
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Company, of approximately $31,981,000. Under the terms of the Credit Agreement,
approximately $16,000,000, constituting approximately 50% of the net proceeds,
was applied to reduction of the term loans, and $5,000,000 was applied by the
Company to reduce the balances outstanding under the revolving credit loans.
7. COMMITMENTS AND CONTINGENCIES
Operating leases --
Future payments under noncancellable operating leases having initial or
remaining terms of one year or more are as follows:
1994........................................................... $1,714,731
1995........................................................... 1,459,741
1996........................................................... 1,258,942
1997........................................................... 1,106,060
1998........................................................... 745,086
Thereafter..................................................... 137,968
----------
Total.......................................................... $6,422,528
==========
Rental expense aggregated $1,841,000 in fiscal 1993, $1,460,000 in fiscal
1992 and $1,335,000 in fiscal 1991.
Purchase commitment --
The Company has an agreement with a certain supplier to purchase blended
Scotch whisky through December 31, 1995. The purchase price per the agreement
is denominated in British pounds sterling, and based upon exchange rates at
August 31, 1993, the Company's future obligation will be approximately
$2,700,000 to $3,300,000 per year.
In connection with the Vintners Acquisition, the Company has assumed
Vintners' purchase and crush contracts with certain growers and suppliers.
Under the grape purchase contracts, the Company is committed to purchase all
grape production yielded from a specified number of acres for a period of time
ranging up to five years. The actual tonnage of grapes that must be purchased
by the Company will vary each year depending on certain factors, including
weather, time of harvest, and the agricultural practices and location of the
growers and suppliers under contract.
The grapes purchased under these contracts are generally priced at market
value as determined by either the prior year's (or an average of the three most
recent prior years) Grape Crop Report issued by the California Department of
Food and Agriculture or on prices as reported by the Federal State Market News
Service. Some contracts include a minimum base price per ton that the Company
must pay. The Company purchased $8,464,000 of grapes under these contracts
during the period October 15, 1993 through May 31, 1994. During 1994, in
connection with the purchase of Vintners, the Company established a reserve for
the estimated loss on firm purchase commitments of approximately $10 million
related to the above mentioned
F-22
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
contracts. Based on current and anticipated future yields and prices, the
Company estimates that purchases in the following amounts will be required
under these contracts during the subsequent four fiscal years:
Year 1995...................................................... $26,648,000
Year 1996...................................................... $18,179,000
Year 1997...................................................... $ 5,665,000
Year 1998...................................................... $ 1,895,000
For contracts extending beyond 1998, it is not feasible to estimate the
amounts to be paid. However, none of the contracts with terms extending beyond
1998 are at prices in excess of market value, as defined above, and all of the
contracts extending beyond 1998 are for quantities and varieties less than the
anticipated future requirements of the business.
The Company has assumed Vintners' grape crush contract obligations with
another winery under which the Company is obligated to pay $600,000 for
crushing and processing of a specified tonnage at a fixed price per ton during
fiscal 1995.
Employment contracts --
The Company has employment contracts with certain of its executive officers
and certain other management personnel with remaining terms ranging up to six
years. These agreements provide for minimum salaries, as adjusted for annual
increases, and may include incentive bonuses based upon attainment of specified
management goals. In addition, these agreements also provide for severance
payments in the event of specified terminations of employment. The aggregate
commitment for future salaries or severance, excluding incentive bonuses, was
approximately $5,200,000 as of August 31, 1993.
Legal matters --
The Company is subject to litigation from time to time in the ordinary course
of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
will not have a material adverse effect on the Company's financial condition or
results of operations.
8. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company sells its products principally to wholesalers for resale to
retail outlets including grocery stores, package liquor stores, club and
discount stores and restaurants. Net sales to the five largest wholesalers of
the Company represented 25.1% and 28.5% of the Company's net sales for the
fiscal years ended August 31, 1993 and 1992, respectively. Net sales to the
Company's largest wholesaler represented 10% of the Company's net sales for the
fiscal year ended August 31, 1993; no single wholesaler was responsible for
greater than 10% of net sales during the fiscal years ended August 31, 1992 and
1991. Sales to the Company's five largest wholesalers are expected to continue
to represent a significant portion of the Company's revenues. The Company's
arrangements with certain of its wholesalers may, generally, be terminated by
either party with prior notice. The Company performs ongoing credit evaluations
of its customers' financial position, and management of the Company is of the
opinion that any risk of significant loss is reduced due to the diversity of
customers and geographic sales area.
F-23
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
9. SUBSEQUENT EVENT
Debt --
On October 15, 1993 the Company amended the Senior Credit Facility (the
"Credit Facility") in connection with the acquisition of substantially all of
the assets of Vintners.
The Credit Facility consists of: (i) a $50.0 million Term Loan; (ii)
Revolving Loans in an aggregate principal amount, together with the aggregate
amount of all undrawn or drawn letters of credit ("Revolving Letters of
Credit"), not to exceed $95.0 million; and (iii) a standby irrevocable letter
of credit of $28.2 million. The Banks have been given security interests in
substantially all of the assets of the Company and its subsidiaries and each of
the Company's principal operating subsidiaries has guaranteed, jointly and
severally, the Company's obligations under the Credit Facility.
The Revolving Loans and the Term Loan, at the Company's option, can be either
a Base Rate Loan or a Eurodollar Loan. A Base Rate Loan bears interest at the
rate per annum equal to (i) the higher of (1) Federal Funds Rate for such day
plus 1/2 of 1%, or (2) the Chase Bank prime commercial lending rate, plus (ii)
0.375% (subject to adjustment). A Eurodollar Loan bears interest at London
Interbank Offered Rate plus 1.625% (subject to adjustment).
As of May 31, 1994, the Term Loan outstanding balance was $46 million, which
was a Eurodollar Loan that bears interest at 6.26% per annum. As of May 31,
1994, $38.0 million was outstanding under the Revolving Loans and approximately
$53.0 million was available to be drawn down by the Company. The Revolving
Loans are required to be prepaid in such amounts that the aggregate amount of
Revolving Loans outstanding, together with the drawn and undrawn Revolving
Letters of Credit, will not exceed the Borrowing Base. The Borrowing Base means
the sum of 70% of the amount of certain eligible receivables plus 40% of the
value of certain eligible inventory. In addition, the Revolving Loans are
required to be prepaid in such amounts that, for a period of 30 consecutive
days during the last two fiscal quarters of each fiscal year, the aggregate
amount of Revolving Loans outstanding, together with drawn and undrawn
Revolving Letters of Credit, will not exceed $35.0 million. The Revolving Loans
mature on June 15, 1999.
The Company is subject to certain restrictive covenants including those
relating to additional liens, additional indebtedness, the sale of assets, the
payment of dividends, transactions with affiliates, certain investments and
certain other fundamental changes and making capital expenditures that exceed
specified levels. The Company is also required to maintain the following
financial covenants above specified levels: indebtedness to tangible net worth;
tangible net worth; fixed charges ratio; operating cash flow to interest
expense; and current ratio.
The Company is required to maintain in effect until June 29, 1995 interest
rate swap, cap or collar agreements or other similar arrangements (each, an
"Interest Rate Protection Agreement") which protect the Company against three-
month London Interbank Offered Rates exceeding 7.5% per annum in an amount at
least equal to $25.0 million.
The Company entered into an agreement (the "Senior Subordinated Loan
Agreement") dated October 15, 1993 with a bank which provided for Senior
Subordinated Loans in an aggregate principal amount not exceeding $188,000,000,
of which up to $130,000,000 shall be used to partially finance the acquisition
of Vintners and to pay related fees, expenses and commissions (Series A loans)
and the remaining $58,000,000
F-24
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
9. SUBSEQUENT EVENT--VINTNERS ACQUISITION (CONTINUED)
shall be used to fund the redemption of the Company's 7% convertible
subordinated debentures (see Note 3) and to pay related fees, commissions and
expenses (Series B loans). With this agreement, the Company's existing Credit
Agreement as discussed above and in Note 3 becomes senior debt and therefore
these loans are subordinate to the Credit Agreement.
Interest on both Series A and Series B loans is payable quarterly at the
floating rate (on any day, the highest of the prime rate, the Eurodollar rate,
or the treasury rate) plus applicable margin as defined in the Senior
Subordinated Loan Agreement. The final maturity date of these loans is October
15, 2003. The Company may prepay the loans at any time; however, upon any debt
issuance, the Company must prepay the loans in an aggregate principal amount
equal to 100% of the net available proceeds.
The Company borrowed $130.0 million under a subordinated bank loan agreement
(the "Subordinated Bank Loan") provided in connection with the Vintners
Acquisition. On December 27, 1993, the Company repaid the Subordinated Bank
Loan from the proceeds of an issuance of $130.0 million of senior subordinated
notes ("the Notes") together with borrowings under the revolving loans. The
Notes are due 2003 with a stated interest rate of 8.75% per annum. Interest
will be payable semi-annually on June 15 and December 15 of each year. The
Notes are redeemable at the option of the Company, in whole or in part, on or
after December 15, 1998. The Notes are unsecured and subordinated to the prior
payment in full of all senior indebtedness of the Company, which includes the
Credit Facility and, the Notes are guaranteed, on a senior subordinated basis,
by substantially all of the Company's operating subsidiaries.
The indenture relating to the Notes contains certain covenants, including,
but not limited to, (i) limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on senior subordinated indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii) limitation on issuance of guarantees of and
pledges for indebtedness; (viii) restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x) limitation on the creation of any
restriction on the ability of the Company's subsidiaries to make distributions
and other payments; and (xi) restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets of the Company to another
person. The limitation on indebtedness covenant is governed by a rolling four
quarter fixed charge coverage ratio covenant requiring a specified minimum.
In addition, the Company entered into a lease for the assets of the facility
not acquired. The lease term is eighteen months and requires monthly payments
in the amount of $83,333.
Almaden and Inglenook Acquisition --
On August 5, 1994, the Company acquired the Almaden, Inglenook and other wine
brands and a grape juice concentrate business from Heublein Inc. ("Heublein"),
as well as wineries in Madera and Escalon, California. The accounts receivable
and the accounts payable related to the acquired assets were not acquired by
the Company.
The aggregate consideration for the acquired brands and other assets
consisted of $130.6 million in cash, assumption of certain current liabilities
and options to purchase an aggregate of 600,000 shares of Class A Common Stock
(the "Almaden Option Shares"). Of the Almaden Option Shares, 200,000 are
exercisable at a price of $30 per share and the remaining 400,000 are
exercisable at a price of $35 per share. All of the options
F-25
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1993 AND
MAY 31, 1994 (UNAUDITED)
are exercisable at any time until August 5, 1996. The source of the cash
payment made at closing, together with payment of other costs and expenses
required by the Almaden/Inglenook Acquisition, was financing provided by the
Company pursuant to a Term Loan under the Credit Facility.
The cash purchase price is subject to adjustment and, based upon a closing
statement delivered to the Company by Heublein, is expected to be reduced by
$9.3 million. Under the acquisition agreement Heublein is obligated to pay the
Company this amount plus interest from the closing date. The purchase price for
the Almaden/Inglenook Acquisition as set forth in the pro forma financial
statements included in this Prospectus reflects the original cash purchase
price as adjusted for the payment expected to be received from Heublein.
Heublein also agreed not to compete with the Company in the United States and
Canada for a period of five years following the closing of the
Almaden/Inglenook Acquisition in the production and sale of grape juice
concentrate or sale of packaged wines bearing the designation "Chablis" or
"Burgundy" except where, among other exceptions, such designations are
currently used with certain brands retained by Heublein. Certain companies
acquired by Heublein, however, may compete directly with the Company.
The Restructuring Plan --
In the fourth quarter, the Company provided for costs to restructure the
operations of its California wineries (the "Restructuring Plan"). Under the
Restructuring Plan, all bottling operations at the Central Cellars winery in
Lodi, California and the branded wine bottling operations at the Monterey
Cellers Winery in Gonzales, California will be moved to the Mission Bell Winery
located in Madera, California which was acquired by the Company in the
Almaden/Inglenook Acquisition. The Monterey Cellars winery will continue to be
used as a crushing, winemaking and contract bottling facility. The Central
Cellars Winery and the winery in Soledad, California will be closed and sold to
reduce surplus capacity. The Restructuring Plan is expected to reduce income
before income taxes and net income by $23.9 million and $14.8 million,
respectively. Of the total pretax charge, $17.0 million is to recognize
anticipated losses associated with the revaluation of land, buildings and
equipment related to the facilities described above to their estimated net
realizable value; and $6.8 million relates to severance and other benefits
associated with the termination of 260 employees. The Restructuring Plan will
require the Company to make capital expenditures of approximately $20.0 million
during the fiscal 1995 to expand storage capacity and install certain relocated
equipment. The Company expects to have the Restructuring Plan fully implemented
by the end of fiscal 1995.
10. ENVIRONMENTAL REMEDIATION AND COMPLIANCE:
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action. At August 1993, liabilities for environmental costs of $1,300,000
are recorded in other accrued liabilities.
F-26
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heublein Inc.:
We have audited the accompanying statement of assets and liabilities related
to the product lines acquired by Canandaigua Wine Company, Inc. as of August 5,
1994 and the related statements of identified income and expenses and cash
flows for each of the years in the three-year period ended September 30, 1993.
These statements are the responsibility of Heublein Inc.'s management. Our
responsibility is to express an opinion on these statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The product lines acquired by Canandaigua Wine Company, Inc. have been
operated as an integral part of Heublein Inc. and have no separate legal
existence. The basis of preparation of these statements is described in note 1
and transactions with Heublein Inc. and other affiliates are described in note
8 to the financial statements.
In our opinion, the aforementioned financial statements present fairly the
assets and liabilities of the product lines of Heublein Inc. and Affiliates at
August 5, 1994 that were acquired by Canandaigua Wine Company, Inc. and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1993 on the basis described in the
preceding paragraph and in conformity with generally accepted accounting
principles.
As discussed in note 2, effective October 1, 1992 the Company changed its
method of applying overhead to inventory.
KPMG Peat Marwick LLP
Hartford, Connecticut
August 31, 1994
F-27
HEUBLEIN INC. AND AFFILIATES
STATEMENT OF ASSETS AND LIABILITIES RELATED TO THE PRODUCT LINES ACQUIRED BY
CANANDAIGUA WINE COMPANY, INC.
AUGUST 5, 1994
(IN THOUSANDS OF U.S. DOLLARS)
ASSETS
AUGUST 5,
1994
---------
Current assets:
Inventories (note 3)................................................ $106,938
Prepaid advertising, merchandising and promotion.................... 901
--------
Current assets of the product lines acquired...................... 107,839
Property, plant and equipment, net (note 4)......................... 46,814
Other assets........................................................ 3,353
Trademarks, net of accumulated amortization of $4,586 (note 2c)..... 19,639
--------
$177,645
========
LIABILITIES
Current maturity of capital lease obligation (note 9)................. $ 599
Accrued advertising, merchandising and promotion...................... 57
Other accrued liabilities (note 5).................................... 2,408
--------
Current liabilities of the product lines acquired................. 3,064
Capital lease obligation (note 9)..................................... 1,287
Heublein investment in the product lines acquired..................... 173,294
--------
$177,645
========
See accompanying notes to financial statements.
F-28
HEUBLEIN INC. AND AFFILIATES
STATEMENTS OF IDENTIFIED INCOME AND EXPENSES OF THE PRODUCT LINES ACQUIRED BY
CANANDAIGUA WINE COMPANY, INC.
(IN THOUSANDS OF U.S. DOLLARS)
TEN MONTHS ENDED YEARS ENDED SEPTEMBER 30,
------------------ --------------------------
AUGUST 5, JULY 31,
1994 1993 1993 1992 1991
--------- -------- -------- -------- --------
(UNAUDITED)
Net sales........................ $199,619 $191,553 $232,755 $217,325 $222,425
Cost of goods sold............... 156,343 143,568 178,229 149,389 150,925
-------- -------- -------- -------- --------
Gross profit................. 43,276 47,985 54,526 67,936 71,500
Operating costs and expenses:
Advertising, merchandising and
promotions expense............ 19,344 21,290 26,404 29,361 25,332
Allocated selling expense...... 3,249 3,133 3,740 3,433 4,076
Allocated general and adminis-
trative expense............... 7,486 6,713 8,152 7,792 7,060
Research and development....... 1,373 1,372 1,644 1,645 1,465
-------- -------- -------- -------- --------
Earnings from operations..... 11,824 15,477 14,586 25,705 33,567
Other expense:
Allocated interest............. 4,597 3,955 4,742 5,725 6,643
Amortization of trademarks..... 519 519 623 623 623
Allocated amortization of
goodwill...................... 125 125 150 150 150
-------- -------- -------- -------- --------
Earnings before taxes and
cumulative effect of change
in accounting principle..... 6,583 10,878 9,071 19,207 26,151
Allocated taxes.................. 2,931 4,662 3,951 8,059 10,861
-------- -------- -------- -------- --------
Earnings before cumulative
effect of change in
accounting principle........ 3,652 6,216 5,120 11,148 15,290
Cumulative effect of change in
accounting principle, net of tax
(note 2)........................ -- 1,919 1,919 -- --
-------- -------- -------- -------- --------
Net earnings................. $ 3,652 $ 8,135 $ 7,039 $ 11,148 $ 15,290
======== ======== ======== ======== ========
See accompanying notes to financial statements.
F-29
HEUBLEIN INC. AND AFFILIATES
STATEMENTS OF CASH FLOWS OF THE PRODUCT LINES ACQUIRED BY CANANDAIGUA WINE
COMPANY, INC.
REPRESENTING INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS OF U.S. DOLLARS)
TEN MONTHS ENDED YEARS ENDED SEPTEMBER 30,
------------------- ---------------------------
AUGUST 5, JULY 31,
1994 1993 1993 1992 1991
--------- -------- -------- ------- --------
(UNAUDITED)
Cash flows from operating
activities:
Net earnings................ $ 3,652 $ 8,135 $ 7,039 $11,148 $ 15,290
Adjustments to reconcile net
earnings to net cash (used
in) provided by operating
activities:
Depreciation and
amortization............. 4,792 4,795 6,269 7,238 6,224
(Increase) decrease in
inventories.............. 26,383 26,046 (8,495) (47,478) 16,410
(Increase) decrease in
prepaid advertising,
merchandising and
promotion................ 428 188 (784) 64 (259)
(Increase) decrease in
other assets............. 1,461 (3,403) (3,505) (646) 783
Increase (decrease) in
accrued advertising,
merchandising and
promotion................ (1,659) (2,201) (532) 345 (1,273)
Increase (decrease) in
other accrued
liabilities.............. 404 (751) 297 (115) 54
-------- -------- -------- ------- --------
Net cash (used in)
provided by operating
activities.............. 35,461 32,809 289 (29,444) 37,229
-------- -------- -------- ------- --------
Cash flows from investing
activities:
Purchases of property and
equipment.................. (3,819) (10,369) (16,010) (2,676) (1,747)
-------- -------- -------- ------- --------
Net cash used in
investing activities.... (3,819) (10,369) (16,010) (2,676) (1,747)
-------- -------- -------- ------- --------
Cash flows from financing
activities:
Repayments of capital lease
obligations................ (465) (431) (520) (481) (445)
Net transactions with
Heublein Inc. ............. (31,177) (22,009) 16,241 32,601 (35,037)
-------- -------- -------- ------- --------
Net cash provided by
(used in) financing
activities.............. (31,642) (22,440) 15,721 32,120 (35,482)
-------- -------- -------- ------- --------
Change in cash and cash
equivalents............. $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======= ========
See accompanying notes to financial statements.
F-30
HEUBLEIN INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINES ACQUIRED BY CANANDAIGUA WINE
COMPANY, INC.
AS OF AUGUST 5, 1994 AND THE YEARS
ENDED SEPTEMBER 30, 1993, 1992 AND 1991
AND FOR THE TEN MONTH PERIODS ENDED AUGUST 5, 1994 AND JULY 31, 1993
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
(1) BASIS OF PRESENTATION
The accompanying financial statements present the assets sold and the
identified income and expenses of the product lines of Heublein Inc.
("Heublein" or the Company) and affiliates, acquired by Canandaigua Wine
Company, Inc. effective August 5, 1994 (the "Acquired Product Lines") pursuant
to an Asset Purchase Agreement (the "Agreement"). In accordance with the
agreement the cash purchase price is approximately $130 million.
The assets of the Acquired Product Lines as presented in the accompanying
statements of net assets acquired include as of August 5, 1994 (the closing
date of the Agreement) the Heublein historical book balances of raw materials
and bulk inventory, supplies, work in process and finished goods inventory of
the Inglenook and Almaden Wine Brands and Heublein's Grape Concentrate
Business, and certain other minor brands, certain fixed assets, trademarks and
other assets and liabilities associated with the aforementioned product lines.
These product lines have never been operated as a separate business entity but
rather have been an integral part of the spirits and wines business of Heublein
Inc.
The statements of identified income and expenses of the Acquired Product
Lines have been prepared for each of the years in the three-year period ended
September 30, 1993 (Heublein's fiscal year ended). These statements include the
net sales, cost of goods sold, advertising, merchandising and promotion
expense, and research and development expense, that substantially relate
directly to the Acquired Product Lines. All other income and expense items are
allocated based on estimations and assumptions as if the Acquired Product Lines
had been operated on a stand-alone basis during the periods presented. The
basis for presenting the allocated income and expense items is as follows: (a)
selling expenses are allocated by deducting amounts related to product lines
retained by Heublein from total wines division selling expenses; (b) general
and administrative expenses are allocated based upon (i) for direct wines
division expenses, the proportion of net sales volume of the Acquired Product
Lines to total wines net sales volume and (ii) for central division expenses,
the proportion of gross sales revenues of the Acquired Product Lines to total
gross sales revenues; (c) interest expense is allocated by first determining
the percentage relationship between the net assets of the Acquired Product
Lines versus the total net assets, which percentage is then applied to the
actual interest incurred to determine the allocation for the product lines
sold, (d) amortization of goodwill is allocated based upon the goodwill
recorded related to the Acquired Product Lines amortized over a 40-year period,
(e) income taxes are allocated assuming the activities of the Acquired Product
Lines were a separate tax paying entity.
Management believes the above allocations to be reasonable under the
circumstances; however, there can be no assurances that such allocations will
be indicative of future results of operations or what the financial position
and results of operations of the Acquired Product Lines would have been had it
been a separate, stand-alone entity during the periods covered.
The accompanying interim financial statements have been prepared by Heublein,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to interim reporting and reflect, in the opinion
of Heublein, all adjustments necessary to present fairly the financial
information for the Product Lines acquired by Canandaigua Wine Company, Inc.
All such adjustments are of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements,
F-31
HEUBLEIN INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINES ACQUIRED BY
CANANDAIGUA WINE COMPANY, INC--(CONTINUED)
AS OF AUGUST 5, 1994 AND THE YEARS
ENDED SEPTEMBER 30, 1993, 1992 AND 1991
AND FOR THE TEN MONTH PERIODS ENDED AUGUST 5, 1994 AND JULY 31, 1993
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
prepared in accordance with generally accepted accounting principles, have been
omitted as permitted by such rules and regulations. These financial statements
should be read in conjunction with the financial statements and related notes,
included in Heublein Inc. and Affiliates Financial Statements of the Product
Lines Acquired by Canandaigua Wine Company, Inc. as of August 5, 1994 and the
years ended September 30, 1993, 1992, and 1991, included herein.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
specific lots for the majority of bulk wines and aging brandy and the first-in,
first-out (FIFO) method for all other inventory. Marketability has been
determined based upon product testing performed in accordance with the
Agreement.
Bulk wines and brandy in storage for aging over a number of years are
included in current assets in accordance with industry practice.
Effective October 1, 1992, the Company changed its method of applying certain
overheads to inventory. A portion of the overheads which previously were
applied to the inventory bottling process are now applied to the bulk wine
crushing and fermenting process. The Company believes the change was necessary
to more accurately apply overheads to the process to which the costs relate.
The Company believes the change in application of this accounting principle is
preferable because it improves the matching of overhead costs with the related
revenue and it improves the comparability of operating results and financial
position with those of other companies. The cumulative effect of this change on
October 1, 1992 was $1,919 (net of $1,481 of income taxes). The effect of this
change on 1993 results was not significant.
(b) Property, Plant and Equipment
Property, plant and equipment, including significant improvements thereto,
are recorded at cost. Expenditures for repairs and maintenance are charged to
expense as incurred. Depreciation and amortization are computed generally by
the straight-line method over the estimated useful lives of the respective
assets within the following ranges:
Buildings and building improvements 10 to 40 years
Machinery, fixtures, fittings and tools 4 to 15 years
Leasehold improvements and capital leases Remaining lease life or life
of improvements
(c) Trademarks
Trademarks represent the cost, net of amortization, of acquired brand names
included in the product lines acquired. Included in trademarks is the Almaden
trademark, which was owned by an affiliate of Heublein Inc. until August 2,
1994 when it was acquired by the Company. The trademarks are being amortized on
a straight-line basis over periods ranging from 10 to 40 years.
F-32
HEUBLEIN INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINES ACQUIRED BY
CANANDAIGUA WINE COMPANY, INC--(CONTINUED)
AS OF AUGUST 5, 1994 AND THE YEARS
ENDED SEPTEMBER 30, 1993, 1992 AND 1991
AND FOR THE TEN MONTH PERIODS ENDED AUGUST 5, 1994 AND JULY 31, 1993
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
(d) Net Sales and Revenues and Cost of Goods Sold
Net sales and revenues and cost of goods sold are presented net of federal
and state excise taxes of $42,988 in 1993, $40,854 in 1992 and $35,559 in 1991.
(e) Taxes
The results of the Company's United States operations are included in the
consolidated federal income tax return of its ultimate United States parent
company, Grand Metropolitan Incorporated. The provision for income taxes has
been provided assuming the activities of the acquired product lines were a
separate tax paying entity with taxes settled on a current basis.
United States and Canadian excise taxes constitute a lien on in-bond
inventories. Since these taxes are not payable until inventories are withdrawn
from bond, excise taxes have not been accrued with respect to such inventories,
in accordance with industry practice.
(3) INVENTORIES
The components of inventories at August 5, 1994 are as follows:
Raw materials and bulk inventories.............................. $ 89,687
Supplies........................................................ 2,131
Finished goods.................................................. 15,120
--------
Total....................................................... $106,938
========
Inventories whose cost is determined by specific lots amount of $63,064.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at August 5, 1994 are summarized as follows:
Land and vineyards.............................................. $ 1,548
Buildings and building improvements............................. 25,428
Plant and machinery............................................. 82,500
Fixtures, fittings and tools.................................... 2,430
Capital leases.................................................. 5,000
Construction in progress........................................ 6,141
--------
123,047
Less accumulated depreciation and amortization.................. (76,233)
--------
$ 46,814
========
(5) OTHER ACCRUED LIABILITIES
Other accrued liabilities at August 5, 1994 consists of:
Accounts payable................................................... $1,040
Accrued key deposits............................................... 485
Accrued vacation................................................... 408
Other.............................................................. 475
------
$2,408
======
F-33
HEUBLEIN INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINES ACQUIRED BY
CANANDAIGUA WINE COMPANY, INC--(CONTINUED)
AS OF AUGUST 5, 1994 AND THE YEARS
ENDED SEPTEMBER 30, 1993, 1992 AND 1991
AND FOR THE TEN MONTH PERIODS ENDED AUGUST 5, 1994 AND JULY 31, 1993
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
(6) INTEREST EXPENSE
Interest expense has been calculated by applying Heublein's actual interest
expense incurred on actual net borrowings, to the percentage of the average net
assets of the Acquired Product Lines to Heublein's average total net assets.
Those percentages are 9.1% for 1993, 7.8% for 1992 and 6.5% for 1991.
(7) TAXES
The provision for taxes differs from the amount computed by applying the
statutory U.S. federal income tax rate of 34.75% for 1993 and 34% for 1992 and
1991 to income before income taxes as follows:
1993 1992 1991
------ ------ -------
Tax at statutory rate............................... $3,152 $6,530 $ 8,891
State income taxes, net of federal tax benefit...... 531 1,266 1,706
Other............................................... 268 263 264
------ ------ -------
$3,951 $8,059 $10,861
====== ====== =======
The results of operations of the Acquired Product Lines will be included in
the consolidated federal and state income tax returns of Grand Metropolitan
Incorporated through the date of sale.
(8) RELATED PARTY TRANSACTIONS
Transactions with Heublein and other affiliated companies for the years ended
December 31, 1993, 1992 and 1991 relate to the following:
1993 1992 1991
---- ------ ----
Sales to related parties................................. $674 $1,144 $636
==== ====== ====
(9) COMMITMENTS
The following schedule sets forth future minimum rental obligations from
August 5, 1994 under the long-term capital lease:
CAPITAL LEASE
OBLIGATIONS
-------------
Fiscal year ending September 30:
1994...................................................... $ 120
1995...................................................... 720
1996...................................................... 720
1997...................................................... 540
------
Total minimum payments.................................. 2,100
Less interest............................................... (214)
------
Present value of minimum payments....................... $1,886
======
The carrying value of the long-term capital lease approximates fair value
since the interest rate charged approximates the Company's current borrowing
rates for similar instruments.
F-34
[PHOTOS APPEAR HERE]
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY U.S. UN-
DERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDIC-
TION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDIC-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
PAGE
----
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Investment Considerations................................................. 9
Use of Proceeds........................................................... 11
Price Range of Class A Common Stock and Dividends......................... 11
Capitalization............................................................ 12
Pro Forma Consolidated Financial Data..................................... 13
Selected Historical Financial Data........................................ 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Industry.................................................................. 36
Business.................................................................. 38
Recent Acquisitions....................................................... 49
Management................................................................ 51
Selling Stockholders...................................................... 53
Description of Capital Stock.............................................. 56
Certain United States Federal Tax Considerations.......................... 58
Notice to Canadian Residents.............................................. 60
Underwriting.............................................................. 61
Legal Matters............................................................. 63
Experts................................................................... 63
Index to Financial Statements............................................. F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
Canandaigua Wine Company, Inc.
3,937,744 Shares
Class A Common Stock
($.01 par value)
PROSPECTUS
CS First Boston
Merrill Lynch & Co.
William Blair & Company
Chase Securities, Inc.
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the Registrant
in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All of the
amounts shown are estimated except for the Securities and Exchange Commission
registration fee and the NASD filing fee. All expenses will be paid by the
Company.
SEC registration fee.................................................... $53,092
NASD filing fee......................................................... 15,897
Printing expenses....................................................... *
Fees and expenses of counsel............................................ *
Fees and expenses of accountants........................................ *
Blue sky fees and expenses.............................................. *
Miscellaneous........................................................... *
-------
Total............................................................... $ *
=======
- ------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware (Section 102) allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his/her fiduciary duty as a director, except in the case where the director
breached his/her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. The Restated Certificate of
Incorporation of the Company contains a provision which eliminates directors'
personal liability as set forth above.
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the Company to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Company's Restated Certificate of Incorporation provides for
indemnification to the fullest extent authorized by Section 145 of the General
Corporation Law of Delaware for directors, officers and employees of the
Company and also to persons who are serving at the request of the Company as
directors, officers or employees of other corporations (including
subsidiaries); provided that, with respect to proceedings initiated by such
indemnitee, indemnification shall be provided only if such proceedings were
authorized by the Board of Directors. This right of indemnification is not
exclusive of any other right which any person may acquire under any statute,
bylaw, agreement, contract, vote of stockholders or otherwise.
The Company maintains a directors' and officers' liability insurance and
corporate reimbursement policy insuring directors and officers against loss
arising from claims made arising out of the performance of their duties.
Under the terms of the Underwriting Agreement filed as Exhibit 1 hereto, the
Underwriters have agreed to indemnify, under certain conditions, the Company,
its directors, certain of its officers and persons who control the Company
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act") against certain liabilities.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1* Form of Underwriting Agreement
2 Asset Purchase Agreement dated August 3, 1994, between Registrant and
Heublein Inc. together with a list briefly identifying all omitted
exhibits and schedules thereto is incorporated by reference to Exhibit
2(a) to the Registrant's Report on Form 8-K dated August 5, 1994
5* Opinion of McDermott, Will & Emery
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Deloitte & Touche LLP
23(c) Consent of Ernst & Young LLP
23(d) Consent of KPMG Peat Marwick LLP
23(e) Consent of McDermott, Will & Emery (included in Exhibit 5)
24 Powers of Attorney (included on the signature page of this
Registration Statement filed on October 12, 1994)
- ------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted either as inapplicable or because the
required information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective, and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Canandaigua, State of New York on October 18,
1994.
Canandaigua Wine Company, Inc.
/s/ Robert Sands
By: _________________________________
Robert Sands
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed on October 18, 1994 by the following
persons in the capacities indicated.
SIGNATURE TITLE
Chairman of the Board and a Director
*
- -------------------------------------
MARVIN SANDS
President, Chief Executive Officer
* and a Director
- -------------------------------------
RICHARD SANDS
Executive Vice President, General
* Counsel and a Director
-------------------------------------
ROBERT SANDS
Senior Vice President and a Director
*
- -------------------------------------
BERTRAM E. SILK
Executive Vice President and a
* Director
-------------------------------------
ELLIS M. GOODMAN
Director
*
- -------------------------------------
JAMES A. LOCKE, III
Director
*
- -------------------------------------
GEORGE BRESLER
Director
* -------------------------------------
SIR HARRY SOLOMON
Senior Vice President, Chief
* Financial Officer and Secretary
- ------------------------------------- (Principal Financial Officer and
LYNN K. FETTERMAN Principal Accounting Officer)
/s/ Robert Sands
*By: ___________________________
Robert Sands
Attorney-in-Fact
II-3
GRAPHICS APPENDIX
Graphics appear on pages 2A and 2B and the inside back cover page of the
printed Prospectus. In accordance with Rule 304 of Regulation S-T they are
described as follows:
1. Under the caption "WINES" on page 2A there are pictures of bottling
labels for the following wine brands of the Company:
Cook's Champagne, Richards Wild Irish Rose, Paul Masson, Taylor
California Cellars, Manischewitz, J. Roget, Marcus James, Cribari,
Great Western Champagne, Taylor Champagne, Cisco, Mateus, St. Regis
Non-Alcoholic, Deer Valley, Paul Masson Brandy, Dunnewood, Sun Country,
Cook's Varietals, Chase Limogere, Mother Vineyard, Paul Masson Rhine
Castle, Mondoro, Cool Breeze, Taylor Lake Country, Widmer, Virginia
Dare, Paul Masson Carafes, Vintners Choice, Chateau Martin, Partager,
Chateau Luzerne, Keller Geister, Cusano, Esprit de Vie, Taylor
Desserts, Gold Seal, Italian Swiss Colony, Inglenook Estate Cellars,
Richards, Jacques Bonet, Abarbanel, Henri Marchant, Inglenook Premium
Select, Almaden Vineyards, Almaden Varietals, Cresta Bianca, Inglenook
Napa Valley, Codorniu Napa and Le Domaine.
2. Two captions appear on page 2B:
(a) Under the caption "SPIRITS" there are pictures of bottling labels
for the following distilled spirits brands of the Company:
Ten High Bourbon, Barton, Montezuma Tequila, Lauder's Scotch,
Imperial American Whiskey, Monte Alban Mezcal, Northern Light
Canadian, Very Old Barton Bourbon, Mandarine Napoleon, House of
Stuart Scotch, Kentucky Gentleman Bourbon, Heather Cream Liqueur,
Colonel Lee Bourbon, Scotia Royale, Tom Moore Bourbon, Barton QT,
Canadian Supreme, Corby's, Highland Mist, Hankey Bannister Scotch,
Canadian Host, Sabroso, Crystal Palace, Calypso Rum, Barclay's,
Czarina Vodka and Pikeman Gin.
(b) Under the caption "BEERS" there are pictures of bottling labels
for the following beer brands distributed by the Company:
Corona Extra, St. Pauli Girl, Corona Light, St. Pauli Girl Non-
Alcoholic, Coronita, Modelo Especial, St. Pauli Girl Dark, Negra
Modelo, Tsingtao, Pacifico, Tsingtao Light, Peroni, Point and
Double Diamond.
3. On the inside back cover page of the printed Prospectus there is a
picture containing a random collection of bottles and labels of the
Company's brands of wines, distilled spirits and beers. Set forth below
is a list of the bottles and labels which are included in the picture:
Bottles: Ten High Bourbon, Paul Masson Burgundy, Corona Extra,
Cook's Grand Reserve Champagne, St. Pauli Girl and
Montezuma Tequila.
Labels: Marcus James, Cribari, Barton Vodka, Cook's Chardonnay,
Chase Limogere, Tom Moore Blended Whiskey, Hankey Bannister
Scotch and Kentucky Gentleman Bourbon.
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